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For this special episode, I sit down with the legendary Howard Morgan, Chair and General Partner at B Capital, and also co-founder of Renaissance Technologies and First Round Capital.
We recorded live on stage at Barclays Rise in NYC for the 2024 Gilgamesh Ventures Summit, an annual meeting where we gather over 150 Limited Partners, Founders, and Investors for a series of events and discussions about the future of tech and financial services.
In this episode, we discuss:
How B Capital is using AI to improve their operations
“I just like to learn something new every day, and particularly if there's technology involved.”
B Capital is leveraging GenAI with the hopes of becoming better investors. Under the technical leadership of Eduardo Saverin (B Capital and Facebook Co-Founder), the fund has developed an AI team in Singapore that utilizes a private instance of Claude, Anthropic's large language model. Traditionally, investment committee meetings involved dissecting 100-page memos and awaiting follow-up answers to their questions from the deal team. Instead, now, the firm feeds these investment memos into their AI two days prior to meetings, creating bespoke chatbots enriched with deal and company data.
IC members and Partners engage with these chatbots before the meetings, posing detailed questions and obviously receiving instant responses. This pre-meeting interaction has ensured that quantitative and competitive questions are addressed ahead of time, so that the actual meetings are laser-focused on strategic discussions like market potential and management team assessments. This AI integration has not only streamlined the decision-making process but also significantly enhanced the efficiency of the firm's operations.
B Capital is also tackling the perennial venture capital challenge of maintaining an up-to-date CRM by deploying AI to read and automatically file all emails, thus mostly eliminating the need for partners to manually input data into systems like Salesforce—a task often neglected or done poorly due to time constraints. Their AI system compiles comprehensive records of all interactions, allowing partners to retrieve the history of communications with any CEO or company stakeholder. This automation has dramatically improved internal record-keeping and communication flow at the fund and helps investors focus on higher-value activities.
Launching Renaissance Technologies and their quantitative trading strategies
"Everybody at Renaissance shared their ideas with everyone else."
Howard is one of the original co-founders of Renaissance Technologies, which is arguably the most successful hedge fund of all time, with currently around $100B AUM. The firm was a unique pioneer in its approach to quantitative trading, modeling itself after a university research department—a vision driven by the late Jim Simons. Unlike many proprietary trading firms of the time, Renaissance encouraged an environment where openly sharing ideas by all investors was integral to its culture. Weekly seminars became a staple, with team members openly presenting and discussing their latest research and strategies. This openness was bolstered by strong non-competes, "enforced with a vengeance," which allowed the firm to maintain a collaborative atmosphere without fearing intellectual property leaks.
At its inception, Renaissance managed $70 million from investors, splitting the funds equally between venture capital and quant trading. By 1989, Morgan and Simons reevaluated their strategy based on performance and liquidity. Their VC arm had an enviable 25% IRR, but it took years to make it liquid. In contrast, their quant trading was delivering a 38% IRR with the advantage of immediate liquidity. This stark difference prompted a strategic move: "We took the venture out of Renaissance at that point." The ability to "cash out all the positions and go home" provided a level of flexibility and financial efficiency unattainable in venture capital at the time.
The evolution of venture capital from local to global investing
“Raising money in the venture world, whether you're raising it for a fund or you're raising it for a company, is a matter of great storytelling.”
In the early days of venture capital and up until just a decade ago, most investments were predominantly local. Recognizing the limitations of this approach, Howard began expanding his horizons from his early VC days. "I made, typically, 12 to 15 trips a year to California."
This global perspective is what attracted him in the first place to B Capital. Today, B Capital has offices in Singapore, Jakarta, Bangalore, Delhi, Beijing, Hong Kong, New York, Miami, Los Angeles, and San Francisco. However, geopolitical factors have influenced their strategies. "We're finding today that we pull back from China because the geopolitical winds are just making it very difficult," he notes. Instead, the firm is turning its attention to India. "We are finding India to be extremely business-friendly now, and Modi, over the last decade, has really changed the climate for doing business."
"All the people in the Bay Area in those days were like, if you're more than 30 minutes from my office, I'm not going to invest in you."
Just like Venture Capital has changed, Founders have also evolved and gotten younger. "When we were investing in the '80s and '90s, most of the entrepreneurs had graduated college, worked for a company for a couple of years before they started their company,". This changed with the advent of accelerators like Y Combinator and the explosion of the internet between 2005 and 2013. "You got a lot of people who were much younger starting their entrepreneurial careers." That said, he advises young entrepreneurs to consider completing their education. "We always tell the entrepreneurs who come to us... ' finish college, but then start,'"
Importantly, Howard correctly points out that not all industries are suited for inexperienced founders. "Particularly in finance, in FinTech... you can't always upset that with a college dropout, right? Who hasn't worked at a bank, who hasn't been subject to compliance,". Experience and understanding of industry regulations are crucial in a sector like financial services. At Gilgamesh Ventures, we agree with Howard.
Qualities of great founders and investors, Howard’s work in philanthropy… and a lot more!
Howard has been investing in early-stage tech startups for 50+ years and he recalls that the most successful founders have been those who target large markets. "The most successful founders were the ones that had the biggest markets." A large TAM provides room for error and pivoting without the need to completely change direction.
The Crucial Traits: Coachability, Grit, and Storytelling
While market size is important, Howard also talked the importance of founder qualities such as coachability, intelligence, integrity, and grit. "Put a great founder in a small market, and it's not interesting," he says. He pointed out that even exceptionally talented but uncoachable founders, like Elon Musk—whom he describes as someone who "won't listen to anyone on anything"—are exceptions rather than the rule.
To assess coachability, he usually poses strategic questions during pitches to gauge how founders respond to feedback. A positive sign is when a founder follows up thoughtfully: "When the founder comes back and you get an email the next day saying, 'I thought about what you said, and here's what I'm going to do,' you realize you have a coachable founder."
Finally, Howard has learned that a great founder who cannot tell his story won’t be able to recruit, sell, or fundraise, so over the years has developed several support systems to help founders become great storytellers.
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