Happy Thursday and welcome. As always, let’s dive in.

After my story about passing on Alpine’s 2019 vintage, a few people wrote asking:

“Okay, which other great funds have you missed?”
The answer? A lot!

Today I want to talk about Veritas Capital Fund VI (2017) - a fund that has turned out to be one of the absolute standouts in its cohort. It’s tracking north of 30% net IRR and close to 3x net TVPI.

And yes, we passed.
And yes, we would pass again.

Let me explain why.

When Veritas came to market, it had all the elements that make LPs love them: clear focus and strategy, a hungry team, and a stellar track record.

But there were also some real issues:

We also had a clear mid-market mandate, and this fund was right at the edge of it (today I'd call $3.5bn mid-market - but not back then).

Then came the bigger challenge: the last fund with meaningful realizations was basically their 2010 vintage, built on much smaller deals. Now they were stepping up significantly in both fund size and check size.

So the question became: “Are we underwriting their track record - or our belief that they could scale it?”

And that’s where our process ran out of road.

We didn't dig too deep. Not because we didn't respect the team - we did. There was a lot to like. But because it was clear this fund didn't fit our diligence framework.

And that's the point worth dwelling on.

First off, I've never found a perfect fund investment. You always compromise somewhere.

But Veritas required more compromises than we were willing to make. Large fund size increases, short timeline, limited track record at the new scale, fund size at our upper boundary. It wasn’t one thing - it was the stack.

So at the time, it was actually a straightforward decision.

One of my biggest turn-offs in GPs is when they clearly have an investment model, and then in every fund there are 2-3 investments that don't follow it.

I haven't done formal research on this, but anecdotally? Those exceptions seem to be the worst performers in a fund.

You know the ones I'm talking about.

The consumer fund that suddenly does a business services deal.
The growth equity firm that backs an early venture investment.
The value firm, that paid a higher-than-normal multiple for a deal because of some special argument.

Or in other words: Investments where you’re playing away from home.

If I don't want my GPs making major exceptions to their frameworks, why should I make major exceptions to mine?

Frameworks exist for a reason. They protect you from shiny-object syndrome. They stop you from rationalizing yourself into trouble.

Yes, you’ll miss some winners. That’s the trade-off.
But you’ll also avoid a long list of mistakes that come from bending your own rules.

The hard part isn’t passing on investments. The hard part is being okay with passing on investments that turn out great.

Everyone in this industry has these stories. The question isn’t whether you have them - it’s whether you would make the same decision with the benefit of hindsight.

I’m not thinking, “I should have made an exception.”
I’m thinking, “My framework works, even when it hurts.”

The next time you're tempted to bend your rules for a 'special situation,' ask yourself: “Would I be comfortable if my GPs did this?”

If the answer is no, you already know what to do.

Time to toot our own horn: Beyond TVPI crossed 600 subscribers this week, including a single day where we added 100 new readers. Welcome to everyone who joined, and thank you for the support!

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