The Full Ratchet (TFR): Venture Capital and Startup Investing Demystified

Chris Douvos of Ahoy Capital joins Nick on a special Crisis Coverage installment to discuss the LP Lessons from '01 and '08, The Denominator Effect, Capital Calls & Fundraising in a Down Market. In this episode, we cover:

  • What is the denominator problem/effect?
  • Why does it matter?
  • How do LPs react when they face the denominator problem?
  • How quickly do LPs tend to rebalance their investment portfolio?
  • What's the implication to VCs?
  • How should VCs react when their investors face the denominator problem?
  • LPs lose access to future funds if sell position as secondary?
  • When VCs make capital calls at times like these, what's the ripple effect down the line for these LPs?
  • What were some of the typical LP reactions you've seen from the dot com bubble and the 2008 crisis, that you expect to see again?
  • Can you talk more about the thought process of LPs during a crisis like this? Are they rushing to liquidate? Are they putting that money somewhere else?
  • VC capital calls - guidance?
  • What's the impact on VCs that are fundraising?
  • What type of VCs have had success raising in a down market? 
  • What are some best practices/principles for managing LP relationships in a time like this?(Chris was in PE, as Co-head of PE Investing at the Investment Fund for Foundations in 2008 crisis)
  • What was the biggest lesson you've learned from previous crises in 2001 and 2008?
  • VC's metrics are dependent on the market, like PME. What's the impact of the current situation on the VCs performance metrics?
  • Is there some downward pressure for VCs to lower the Net Asset Value (i.e. the valuation of portfolio companies) to reflect the current market situation?
  • Can you explain the disconnect between VCs that want to actively invest (because of lower valuations) and the LPs who are rushing to liquidate?
  • What does this mean for later-stage startups that were thinking of IPO-ing in the near future?

To listen more, please visit for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.