AWM Insights Financial and Investment News

In this episode of AWM Insights, Chief Investment Officer Justin Dyer is joined by Portfolio Manager Mena Hanna to unpack the realities of investing in venture capital. Together, they break down common mistakes, reveal surprising data on early-stage company success rates, and outline what it takes to build a winning, institution-grade VC strategy. Learn why diversification, disciplined portfolio construction, and understanding the power law are essential when stepping into the private markets. If you want to approach venture investing like a pro and avoid the pitfalls that trip up most investors, this conversation is a must-listen.

Chapters
(00:00) Why Venture Capital Demands a Strategic Approach
(02:00) Common Pitfalls in Early Stage Investing
(04:00) Power Law Dynamics and Portfolio Construction
(07:00) Importance of Diversification and Manager Selection
(09:00) Vintage Year and Sector Diversification Strategies

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Creators and Guests

Host
Justin Dyer
Chief Investment Officer and Chief Operating Officer at AWM Capital
Host
Mena Hanna
Senior Investment Analyst at AWM Capital

What is AWM Insights Financial and Investment News?

A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.

Justin Dyer: Hey everyone.

Welcome back to another
episode of a WM Insights.

It's Justin Dyer, your host Chief
Investment officer of a WM Capital.

Joined as always by Mina Hana,
portfolio manager here at a WM Capital.

We're continuing down the
private markets path today.

Uh, talked a little bit, um, last
episode around how to think about.

Investing in private markets
like an institutional pro.

Gonna take that concept further and
dive into venture capital, uh, quite a

bit today and really excited about it.

Venture is a f.

Phenomenal asset class, uh,
and it's a lot of fun as well.

And so we get quite a bit of questions,
quite a bit of interest, quite a bit of

deals sent our way, um, both from our,
our, our network, but also certainly

from from client networks as well.

And so just gonna unpack, um.

How to think about the
asset class overall.

Definitely some things
to, to watch out for.

And then again, kind of like
I said, thinking about this

as an institutional pro.

How do we bring all this together,
bring the statistics, bring the

data together, and start to allocate
capital to this specific asset

class, uh, in a, in a really, uh,
best in class professional manner.

So, uh, without, without further
ado, you know, let's jump into it.

Give, give us.

An overview.

Give us, give me, you're
my color commentator today.

What do we see from
clients from our ecosystem?

What does the data say?

I mean, there is, it is, um, both an
inefficient market where data is hard

to come by and you can use information
to your advantage, but at the same

point, there's more and more good data.

At a macro level to describe what's
going on as well, and we can kind

of compare those two things together
and really make good decisions.

Mena Hanna: Yeah, and what I see from the
macro data and what people just naturally

want to do with investments in deals
that they get pitched or they see there's

a, there's a massive diversions there.

What we typically see, and we see
roughly 1500 to 2000 deals a year,

is something comes by someone's desk.

It's coming by from a salesman,
someone who you know, knows how

to sell the concept, the idea
of the company and it's hot.

They want to invest in, they want to
typically put way too much money into

one specific deal, and they're really
not thinking about the big picture.

The reality of the situation is
most early stage companies fail.

Vast majority of them, we were just
talking about this statistic, but

9% of seed and pre-seed companies
actually graduate to a series B, and for

everyone that's listening here, series
B is not that mature of a company.

There's still,

Justin Dyer: still can go to zero.

Mena Hanna: it still can go, go to zero.

There's still immense risk there.

That 9% number should indicate
that you are still getting in at

an extremely early period of time.

And this is not a one and done
thing if you are going to be

investing in the private markets.

If you're gonna be investing in
private companies especially,

you need to be thoughtful about.

Obviously the companies that you invest
in, but your strategy overall, it's

like, like you are in a way your own gm.

If you think that, you know, trading
away every single draft pick forever.

Justin Dyer: and

Mena Hanna: Only selecting one
player that you're just gonna

rely on is a good strategy.

It obviously is not.

You need to pick, you know, 15 guys
in the draft every single year.

Different positions, different
stages of their career.

Maybe some guys outta high school, some
guys who are outta college, like different

ages, obviously, and have some balance.

You can't just trade all of your
picks away and select one guy.

Justin Dyer: Yeah.

Um, it's, it's great to have these
analogies, especially nowadays.

There's, there's so many good, good, um,
examples that we can take from investing

to, to sports specifically, but also
many other parts of life in the world.

Right.

A lot of people are getting a, a much
better understanding of simply statistic.

I mean.

Mena Hanna: I mean,

Justin Dyer: Th these are
the two statistical terms

I'll, I'll mention today.

One is the power law.

So you have to acknowledge that venture
specifically, not private markets as a

whole, follow what's called a power law
distribution, meaning you highlighted

an, uh, a portion of this, the vast
majority of venture backed companies.

Go bankrupt or barely
make their money back.

So there's this big number that
don't do anything much of anything,

and then there's a very small
number that actually contribute

the vast majority of your upside.

You have to acknowledge that
or you have to understand.

The other term I'm gonna use
is what the base rate is.

So.

Whatever asset class you're investing
in, there is some sort of base rate.

You, you should expect this if you're
kind of getting exposure to the

average, then what is, how do actually.

Capture that is what is most important,
how we think about it, how the

institutional pro takes these, these
dynamics and characteristics and

say, okay, let's actually make sure
we're doing this in a disciplined,

systematic, data-driven sort of way.

So we're increasing.

Not only are we, we expected to
capture the returns of venture

capital as an asset class, but we
can tilt the strategy in certain

ways to increase our, our likelihood.

Some cases it's a little bit, you
know, fraction, fractional amount,

other cases, like they're meaningful
improvements, uh, in, in, in your odds,

or at least we, we really believe so.

But one important thing here to
kind of, to your point is getting

away from just picking ones and
twos or putting all your eggs in one

proverbial basket and really saying,
Hey, we have to take a broad swath of.

Early stage venture backable companies.

So we are, are pretty dang
confident that we're gonna

capture those handful of outliers.

Like, 'cause really at the end of
the day, it's a very small number.

Mena Hanna: Yeah.

And the, the number talking about
numbers, if you invest in a thousand.

Companies, early stage companies,
you're expected to hit a

unicorn on six to 12 of them.

Yeah.

Which is.

Odds are totally against
you and not in your favor.

Now, if you work with kind of the,
the philosophy that we have, the right

managers who have the track record,
who have achieved a clip higher than

the six to 12, the odds are slightly
more in your favor, but you're

not dramatically improving those.

You might be going from 12 to
24 or 36, but there's still.

900 plus companies that you're
completely striking out at.

Um, so you have to make sure that you're
taking enough shots, enough thoughtful

shots where the winners do make up for
the losers in, in that thoughtful way.

And then the data is
also there to support it.

You mentioned it on one of our
previous podcast where AngelList took.

And AngelList is a, a data
provider in some senses.

They aggregate a lot of data
from funds that they manage, um,

information for, and they release
their findings on who's actually

successful and who's not successful.

The quote that you, uh, or
the statistic that you quoted.

I think it was something like if you
have investments, 10 plus investments,

you have a 10% higher rate of return
than someone who only has one investment

in their portfolio on average.

That is exactly the power law
dynamic that you're talking about.

The more shots on goal you have.

The more probability and odds you do
have of success at some point, and

the more you're shifting your odds
from potentially being a zero to being

at least something, hopefully it's
something good, but at least something

that, you know, makes up for the

Justin Dyer: zeros.

Yeah, 100%.

I think it's a great point you make.

One thing I I'll, I'll start to
wrap with hopefully, you know,

we're just kind of scratching the
surface on a lot of this, honestly.

We could talk for, for hours around
venture specifically and how do

you access it in the, the most
professional institutional way possible.

But um, not what we're talking a lot about
right now is company diversification.

There's also really important.

Mena Hanna: vintage

Justin Dyer: year diversification,

uh, approaches as well.

Vintage year is, is simply the, the, the
simple way to think about is there are

new companies started every single year.

Well, you can't just get, you know,
the 2025 batch of companies started

and get exposure and invest in that.

You.

Just like anything, we
can't predict the future.

We can't predict when the good years
of startups are going to actually

happen, and there's not any really
strong correlation to the macro

environment necessarily either.

And so you want to be very thoughtful
and, and systematic in deploying what

is allocated to venture capital, but to
deploy that consistently over many years

and, and ideally in a repeatable fashion.

So you're.

Exposed to innovation startup, the
startup world on an annual basis.

So you can, again, make sure you,
you get enough shots on goal for

these massive companies that come
out of, you know, seemingly, um,

just random, random time period.

So

Mena Hanna: it's like a draft class.

You, some draft classes exactly.

Are better than others.

Some.

Are not great, but you have to
draft players in each one, and if

you don't, you kind of put your
organization or your team in jeopardy,

Justin Dyer: right?

Yeah.

Have, end up having four or five,
uh, four or five really, really

hard years for your fan base.

Yeah.

So, uh, there's, there's other
pieces of diversification that are

definitely worth thinking about.

You know, where, where are you
allocating from a stage perspective?

Are the, are you getting more dollars
put to work at the inception of

companies or are you waiting for
them to be a little bit more proven?

Maybe they have revenue.

Um, et cetera, et cetera.

We can talk maybe a little
bit more about that.

Obviously there's sectors as well.

Do you put all your
money into AI right now?

Crazy technology.

Uh, really, really cool opportunities.

But guess what?

You're paying a premium.

Um, some people are even saying
that that whole part of the

market's in, in a pretty big bubble.

Broad statement there, but definitely
other items, at least we take into account

as we're, as we're deploying capital into,
uh, into the world of venture capital.

Um, and, uh, yeah, with that hopefully
kind of give you a quick overview of.

of,

Of how to think about investing in
venture capital as an institutional pro.

Some high level concepts that
we most certainly pay attention

to as as we are building, uh,
allocations within venture capital.

If you have any questions around
this or any other topic, shoot us

Mena Hanna: text,

6 2 6 8 6 2 0 3

Justin Dyer: 5,

and until next time, own your wealth,
make an impact, and always be a pro.

Thanks for listening.

Okay.