20VC: How LPs Allocate to Venture in 2026: What They Want, What They Do Not Want | Why Fund Multiple Does Not Matter Without a Timeline | Why Velocity of Cashback is the Most Important Thing with David Morehead, CIO @ Baylor

1. Key Themes

Velocity of Capital Matters More Than Fund Multiple

Moorhead's central thesis is that returns without a timeline are meaningless, and that LPs should be optimizing for compounding speed, not headline multiples. He explicitly frustrates over long-dated fund structures because they destroy compounding potential.

"If you were in a like growth equity fund that was six years and weighted average life and you were up 3X. And then you redeployed into another growth equity fund that was up 3X in six years. And then you did it again. That over the course of 18 years, you'd be up 27X, which is better than 15X by like a factor of two." 00:16:01 "There's a rule in our office that you're not allowed to talk about returns without also talking about time... If you're up 5X over 30 years, that's horrible. And if you're up 5X in five months, that's amazing." 00:00:00

GP Incentives Are Misaligned with Endowment Math

Moorhead argues extended fund lifespans (now 15-18 years vs historical 10-12) primarily serve GP fundraising/marketing narratives, not LP capital efficiency.

"I'm a little perplexed by the length of some of these funds... It's not clear to me that the GP incentives are aligned with the math that runs endowments." 00:00:00 "It actually looks better on your marketing if you're up 6X instead of 3X... That suggests that the next fund will be raised, et cetera, et cetera. But I actually don't care about any of that... I'm not optimizing for the best business for the GP." 00:17:18

Privates Exist Purely to Generate Excess Returns — Nothing Else

Baylor made a deliberate strategic pivot ~5-6 years ago, driven by demographic headwinds in higher ed, to strip the private book down to only the highest-return categories.

"The single reason that privates exist is to make money, period. End of story." 00:00:00 "So a lot of the real asset stuff in our book is sort of like winding down, not being renewed. And so we're really focusing... on VC expansion, growth equity capital and buyout. That's kind of it." 00:13:33

Custom "Fund-of-One" Structures Beat Commingled Funds

Baylor bypasses the averaging problem of commingled vehicles by having certain GPs run bespoke, look-through mandates tailored to Baylor's specific risk/return gaps.

"The issue with commingled funds is... at any given point in time, you're receiving the average risk return profile that that manager is providing... We can look at our portfolio and be like, look, we've got plenty of NVIDIA. We actually say, no, we don't need more NVIDIA... it's actually worked like exceedingly well over the last two, three years." 00:08:14

Position Sizing Should Be Anchored to Dollar Materiality, Not Fund Percentage

Baylor sizes private commitments backward from how much dollar return would actually matter to the endowment, not from ownership percentage logic.

"We want $3 million to be in each underlying company. And so if they have 10 companies on their platform, that means we'll allocate $30 million." 00:48:39 "So and so company got sold. It was like a 7x return. And I'm like, OK, great. What does that mean to us? And they're like, well, we'll get back like $400,000. And I'm like, what? Who cares?" 00:47:46

Human Behavior, Not Technical Expertise, Is Moorhead's Edge

Rather than deferring entirely to managers, Moorhead personally intervenes in market dislocations using behavioral/psychological analysis, then directs managers to act.

"I would say like if we had an edge, I would say that we're pretty good on human behavior... I do know how people think and I do know how people make decisions." 00:21:19 "I'm going to give you more money, but I want you to go through your list with me and tell me all the things that are least likely to be interdicted by AI and then like own those." 00:24:11

Mechanistic, Pre-Committed Allocation Into Drawdowns

Baylor removes emotion from buying dislocated assets by pre-committing to scaled entries at fixed drawdown thresholds rather than making discretionary calls in real time.

"We think about declines in the market in sort of 10% increments... Down 20. Maybe I'm 20% in. Down 30. I'm another 20% in. Down 40. I'm another 20% in." 00:35:51 "We never get all the way invested before it rebounds. And so you could say that... we leave money on the table. That's true. But the benefit is... we're never in the situation where we're like, oh my gosh, I love this so much." 00:36:25

Growth Equity Is Favored Because It Has "Fewer Zeros"

Baylor's largest private allocation is growth equity, chosen explicitly for the statistical loss profile, not just for speed of return.

"Why do you like growth equity?... There's also fewer zeros. And so that kind of goes to the value bit... I think that their book is like annualizing it like 30% on sort of like the growth equity side." 00:30:19

Data Center Bottleneck Has Shifted from Power to Permitting

A significant, non-obvious market signal: the scarcity value in AI infrastructure has moved from land/power to permits, driven by local political pushback — and this is happening faster than markets have priced.

"The most valuable thing for a data center used to be power... And now it's actually permitted powered land. And the reason is because people are like kind of fed up with it." 00:57:35 "Literally we have this situation in our book where our data center sites are up 50 percent from where they were like six months ago." 00:59:12

Endowment Scale Changes the Game — There's a "Dead Zone" Between $1B and $60B

Moorhead flags a structural problem where mega-endowments can no longer deploy venture-style check sizes meaningfully, forcing a shift toward platform bets.

"At some point... it kind of doesn't matter how good benchmarks returns are. When you have $40 billion or $60 billion and you can allocate $20 million to a fund, even if you're up like a real lot, doesn't move the needle as much as it used to." 00:55:42 "I think that that's a little bit of what like the a16z kind of thing is like tapping into... The platforms win. Like just don't do those checks. Just give me 300 million bucks." 00:56:31

2. Contrarian Perspectives

Public Markets Are More Rational Than Private Markets — Not Less

Against the popular narrative that public markets are "casino-like" amid AI hype, Moorhead argues privates are the actually irrational venue because pricing is set by a handful of people in a room.

"The public markets are the big leagues. There's millions of people making decisions on dollars every single day... You know how things get valued on the private side?... Three people get in the room and say, hey, I think the value is X. And they're like, I'll fund it at that." 00:26:32 "It just means that it incorporates all available information, which does not happen on the private side." 00:27:23

Venture Portfolios Are Not a Learning Tool — They're the Opposite

Many LPs claim venture exposure teaches them about tech adoption curves; Moorhead flatly rejects this and says he learns more from public managers, citing the failure of self-driving car timelines as evidence of venture hype cycles being unreliable signal.

"Not for me. I would say it goes the other way. I actually learn a lot from the public side managers... we're going to have autonomous cars in like three years in 2016... we're 10 years on. And what do we have, like 5000 cars on the road?" 00:25:50

Fund Vintage Commitment Rules ("commit for 3 funds") Are Somewhat Arbitrary

Moorhead pushes back gently on the venture industry's unwritten rule but ultimately agrees data scarcity justifies it — showing the rule survives scrutiny only because of a lack of alternative signal, not because it's inherently correct.

"The issue with one fund, even two funds is like you almost don't have enough data to make a decision... We tend to be very good when there is data to be analyzed and we tend to be less good at you guys have a vision. I got a dog. Like give us some money." 00:54:16

Software Being "Dead" Because of AI/Vibe-Coding Was Mispriced Panic

While the market sold off SaaS 50-60% on fears that AI would obsolete software, Moorhead used direct calls to real-world business owners (not tech experts) to conclude this was overblown — and bought aggressively.

"The best that AI was going to be is like 93 percent right... the issue of software is 100 percent right. So if you need your books to like match up and whatever, like, yeah, that's not going to happen." 00:22:12 "Software at that point is like on sale to the tune of like 50, 60 percent from like October of 25... You call businesses and they say that's not true. You're like, I'll own that." 00:23:38

LP Financial Incentives Don't Need to Mirror GP Carry to Work Well

Against the idea that misaligned comp (no carry-like upside for endowment staff) is a broken incentive system, Moorhead argues mission-driven motivation is a legitimate and sufficient substitute.

"I don't think it's the wrong incentive mechanism. I think that it requires people in the space to be very missional... me getting out of bed in the morning, going to work and wanting to crush it is entirely due to that [sending a kid to Baylor]." 00:43:05

3. Companies Identified

Anthropic — AI lab. Mentioned as a major position within Baylor's endowment via manager exposure, without Baylor holding OpenAI or SpaceX positions.

"We happen to have about two and a half percent of the endowment in Anthropic. We have no exposure to SpaceX. We've had no exposure to OpenAI." 00:00:29

SpaceX — Referenced as an example of extreme, fast compounding (5x in months) and as a company Baylor notably does not hold, unlike peer endowments.

"If you're up 5X in five months, that's amazing. I guess that's SpaceX." 00:18:50

Salesforce — Referenced via its CEO's public comment on AI accuracy limits, used by Moorhead as evidence for why software won't be fully displaced by AI.

"I think it was the CEO of Salesforce... said that like the best that AI was going to be is like 93 percent right." 00:22:12

Toma Bravo (Thoma Bravo) — PE firm referenced in context of the Medallia deal as a notable/well-known return outcome from a challenging 2021-22 vintage.

"You've got now Toma Bravo, obviously, who had Medallia, which is obviously quite a well-known return." 00:30:51

Wix and Monday.com — Named as examples of steep-drawdown public tech names Moorhead personally evaluated (and failed to act on in time), illustrating the "falling knife" problem.

"I've looked at your Wix or your monday.com, which were down impressively large amounts. I love the founders. And dude, I just determined that I couldn't determine baby from bathwater and did nothing." 00:36:07

Cerebras — Mentioned as one of the hot AI-adjacent names Baylor notably does not hold, used to demonstrate that its strong projected 18-19% return this year is achieved without speculative exposure.

"I think we'll be 18 and a half, 19% this year without any SpaceX or Cerebras or anything like that." 00:47:12

a16z (Andreessen Horowitz) — Referenced as the exemplar of the "platform" venture model that solves the check-size materiality problem for mega-endowments.

"I think that that's a little bit of what like the a16z kind of thing is like tapping into." 00:56:31

4. People Identified

Sean Barrett — Public equities manager for Baylor, described as deeply engaged with Moorhead during the 2026 software selloff, running a concentrated conviction process together with Moorhead daily.

"I was probably on the phone with Sean every day for four weeks and we're talking through individual names." 00:37:43 Harry noting: "He said that you think more like Charlie Munger than anyone he's ever met." 00:20:46

Jane (Brown University endowment CIO/team) — Singled out by Moorhead as the endowment leader he most respects, citing superior long-term returns and investment courage.

"Brown, without question. I just have like a ton of respect for Jane and the team that they have built there... They are what I would describe as real investors. They'll do things that take a lot of courage." 01:03:16

Renee — Longtime member of Moorhead's investment team at Baylor (16 years), cited as evidence for the returns benefit of team stability from Baylor's undergrad-hiring model.

"I have worked with Renee for almost 16 years." 00:41:43

Jen — Another long-tenured Baylor team member (11 years), cited alongside Renee as proof of the retention strategy's payoff.

"The next person that we hired, Jen, she's been here 11 years." 00:41:43

Linda (Baylor President) — Referenced in the endowment tax discussion as the person Moorhead would deliver "good news/bad news" to about endowment growth triggering the tax.

"If I go to Linda and say like, there's good news and there's bad news... our endowment is three times bigger than when I last talked to you. She'd be like, yeah, and?" 00:44:55

Narv (Notre Dame CIO reference) — Mentioned regarding the challenge of scaling investment strategy at very large AUM (~$20B), used as a data point in Moorhead's thinking about the future evolution of Baylor's own strategy.

"Hats off to Narv and like what his team is trying to do. And that's like really, really hard... I've talked to the Notre Dame folks and they're at 20 billion." 00:54:52

Bill Gurley — Referenced for his framing of venture investing as "playing the game on the field," used by Harry as a counterpoint in the discussion of manager style drift.

"Actually playing the game on the field, as Bill Gurley says, is the job of a venture investor." 00:49:46

5. Operating Insights

Force Managers to Defend Concentration Under Duress, in Real Time

Rather than passively accepting manager marks, Moorhead actively pressure-tests conviction during drawdowns by forcing comparative ranking between names, which naturally produces the concentration that outperforms in recoveries.

"I constantly ask him, OK, you have this name, but if it goes down like another 20%, what are you going to do?... And then I'd push him to be more concentrated. And that's actually what the portfolio ends up doing." 00:38:11

Treat Manager "Style Drift" Like a Roster Violation, Not a Performance Issue

Moorhead's baseball analogy is a hard operating rule: a manager who outperforms by changing strategy without a prior conversation gets terminated regardless of returns, because portfolio construction integrity outranks individual manager alpha.

"If I ever walk out on the field and I have two second baseman and no third baseman, the third baseman is getting fired like full stop, right? Like that. I don't like — I don't care what your returns are." 00:50:31

Use Cash Levels as a Real-Time Signal of Opportunity Density, Not a Static Allocation

Rather than a fixed cash target, Baylor treats cash as the residual of an active hunt — sizing it up when nothing clears an 8.5% hurdle (cost of capital plus opportunity cost) and down aggressively when opportunities resurface.

"If cash is earning 3.5% plus 5% opportunity cost... cash is worth 8.5%. So if we find things to do that are north of that, then we do them... our cash balance is sort of indicative of what we're seeing to do to make money." 00:32:51

Build Marking Discipline to Protect Against Your Own Psychology

Baylor pushes managers toward conservative marks specifically to prevent the anchoring bias where a paper markdown from an inflated NAV prevents a rational exit.

"If you say that this is worth $30 million, and it should be worth $10 million, and somebody offers you $20, then because you would ostensibly take a loss from $30 to $20, you're liable not to hit that, even though it's a premium to the actual value." 00:28:34

Hire for Retention Geography, Not Just Credentials

Baylor's undergrad-only hiring strategy is a deliberate trade of upfront management burden for long-term team stability, which Moorhead ties directly to performance ("longevity begets returns") — a replicable model for any firm in a non-hub location.

"It'd be really difficult to pull somebody from LA or New York to Waco and say like, I need you to be here for 10 years... longevity begets returns." 00:40:50

6. Overlooked Insights

Permitting, Not Power, Is Now the Binding Constraint on the AI Buildout — And It's a Political, Not Technical, Bottleneck

This point was made almost in passing during the quickfire-adjacent riff, but it is a major, underappreciated repricing signal: the scarcity in AI infrastructure has quietly shifted upstream from power generation to local political approval, and this shift happened within the last six months — meaning consensus models of data center economics may already be stale. Moorhead also reveals the UK is worse than the US on this axis, which cuts directly against the popular narrative of the US being uniquely bottlenecked.

"If we go back like five, six years, it used to just be land. And then it was powered land. And now it's actually permitted powered land... it's now. And that's something that didn't exist six months ago." 00:58:04 / 01:00:07 "It's like by far a much bigger issue in the UK than it is in the US on the permitting front... we have a permitted data center site in the UK and it's worth a lot of money simply because we have a permit." 01:00:42

The "Endowment Tax" Is Structurally a Non-Issue Signal Getting Outsized Airtime

Buried in a quickfire-style exchange, Moorhead reveals that the endowment tax — a topic dominating CIO conversation circles — is essentially irrelevant noise for any endowment below a certain scale, and even for those subject to it, it's a symptom of success rather than a real problem. This is a useful corrective for anyone modeling policy risk into endowment/LP capital availability for venture funds: the tax narrative may be overweighted relative to its actual behavioral impact on allocators.

"We are not [affected] because our endowment per student is too small to be subject to that. But I promise you... The bad news is that we're going to have to pay an endowment tax. The good news is that our endowment is three times bigger... She'd be like, yeah, and? So I would love to have to pay the endowment tax because the endowment was bigger." 00:44:55