Key Takeaways

  • Jack Selby buys 10% to 20% equity in non-coastal Series A rounds for an average check of $3 million through Copper Sky.
  • Selby prices non-coastal deals at roughly ten cents on the dollar compared to valuations in Palo Alto.
  • Chasing a 24-year-old founder to build a trillion-dollar company takes two decades of gestation with near-zero probability.
  • Copper Sky targets $500 million exit outcomes on compressed timelines instead of relying on power-law outliers to return cash to limited partners.
  • AI tools reduce company formation costs, letting founders build revenue faster without massive capital raises.

The Flaw in the Trillion-Dollar Pitch

Silicon Valley venture capital currently runs on an extreme power-law myth. Fund managers market themselves to LPs by promising to find the next generational founder before anyone else spots them. Selby, who has worked alongside Peter Thiel for 27 years since their early days at PayPal, dismisses this pitch as a statistical trap.

“So much of Silicon Valley, the pitch today is like, I'm going to go find you the next Elon Musk at age 24. That is a terrible pitch because the probability of that is basically zero,” (play from 20:15) Selby said.

Even when that bet works, the timeline works against the fund. Backing a raw founder building an empire like SpaceX takes twenty years. For an institutional fund with a standard ten-year lifecycle, waiting two decades for liquidity strains distributions to limited partners. Paper marks look impressive on quarterly reports, but the DPI remains zero while capital stays locked in multi-billion-dollar paper valuations that cannot exit.

The Math Behind Ten Cents on the Dollar

Selby built his fund, Copper Sky, around an alternate equation. Instead of competing in overheated Sand Hill Road syndicates, he looks outside coastal hubs. The goal is to purchase substantial equity at an entry price that does not require an impossible public market debut to generate top-tier returns.

“So, my math is very, very, very different because my entry point is so much less expensive, I can usually buy between 10 and 20% equity in a non-coastal Series A deal for an average ticket of $3 million,” (play from 19:49) Selby said.

Paying reasonable prices at entry alters the required exit size. When a firm owns 15% of a business for $3 million, a $500 million acquisition produces $75 million in gross returns before dilution. That single outcome returns a substantial slice of an early-stage fund. By contrast, a manager who paid a $100 million post-money valuation at Series A needs a multi-billion-dollar exit just to achieve acceptable multiples.

"Entry price matters," Selby said. “And if you can invest at 10 cents on the dollar versus what's going on in Palo Alto today, that makes a huge difference.” (play from 19:24)

Why AI Lowers the Bar for Venture Exits

The AI investment frenzy has funneled tens of billions of dollars into foundation models and compute clusters, inflating valuations across California. Selby sees that frenzy as a bubble running on borrowed time. The actual value of AI for software operators lies in cost deflation.

Software startups no longer need to hire fifty engineers to write basic application code or support early customers. With smaller headcounts and faster product deployment, companies reach meaningful revenue while burning a fraction of the capital previous generations consumed.

“AI enables companies to be built much more cheaply, achieve revenue much more quickly, get to good outcomes much more quickly, and generate good, if not great, venture capital returns without the fixation of, 'Oh, I have to go build a next trillion dollar company,'” (play from 44:40) Selby said. An acquisition at $500 million is an achievable liquidity event for strategic buyers, private equity buyouts, and corporate acquirers. Targeting that tier produces repeatable distributions without banking on once-in-a-generation anomalies.

Why It Matters

Venture portfolios stuffed with unliquidated paper marks face increasing LP pressure for realized cash returns. Selby's model shows that capital discipline and regional geographic arbitrage provide a mathematically viable path to high DPI without relying on trillion-dollar mega-caps. As private equity sponsors seek targets with clean balance sheets and lean cost structures, non-coastal founders running AI-assisted operating models offer attractive acquisition targets well below coastal prices.