Nick Chirls on Venture Incentives, Founder Trust and Overlooked Markets

In September 2024, investor Nick Chirls talks with Harry Stebbings about venture incentives, early-stage investing and his new firm Asylum Ventures. His criticisms are opinions about incentives, not findings that particular firms committed fraud; he has a commercial interest in positioning Asylum as an alternative.

Chirls says he started Asylum after roughly a decade building Notation Capital. The new $55 million fund planned initial checks of roughly $500,000 to $2 million, and he wanted it to express his own view of how to work with founders.

He recalls working at Lehman Brothers before its bankruptcy and discovering New York startups afterward. He experienced early startup culture as creative and personal, but felt parts of venture had become more transactional by 2021. He uses “big banks” as a metaphor for large venture firms.

Chirls provocatively compares venture’s fee structure to a Ponzi scheme: a fund can collect management fees even when its investments do not return capital. This is his analogy for what he sees as misaligned incentives, not an allegation that management fees are inherently fraudulent or that any named fund runs a Ponzi scheme.

He questions why venture funds do not more commonly have return hurdles and wonders whether managers should repay fees when returns disappoint. Stebbings counters that firms must pay staff and offices and asks whether that structure could deter talented people.

Chirls agrees a sustained record of returns can justify fees, while Stebbings cautions that a past record can reflect luck and may not predict future access. Both discuss how limited partners should distinguish performance from reputation.

Chirls says he does not pay himself at Asylum and is putting its budget into hiring and building the firm. He acknowledges that returns from earlier Notation funds give him the financial luxury to do this; that is not an option available to every manager.

Stebbings sees room for distinctive firms even as parts of venture become commoditized. Chirls agrees that differentiation is possible but argues that stage, geography and sector advantages can be copied; he wants firms to stand for something meaningful.

The host argues large multi-stage firms have raised seed prices and made life harder for independent funds. Chirls agrees that average funds may struggle, but believes a small firm can find founders working on markets that others do not yet care about.

He describes a cycle in which a category becomes popular, large funds seek similar companies and smaller investors rush to follow. His preference is to take an earlier risk on an overlooked problem, accepting that the market may never develop.

Stebbings distinguishes backing an overlooked idea from winning a recognized category through access and conviction. Chirls says he is more comfortable with the first approach at the earliest stages and might prefer more operating data before choosing among crowded later-stage competitors.

The pair worry that some venture portfolios may face permanent capital losses, not just delayed liquidity. Chirls cites a historical data interpretation and estimates many 2020–21 funds will fail to return capital; those numbers are his unverified reading and forecast, not established final outcomes.

He speculates about how limited partners are compensated and explicitly says his generalization may be wrong and should be checked. He argues that institutional and sovereign investors can have varied incentives beyond immediate financial returns.

Chirls expects large venture firms to remain because of their brands and global sources of capital. He also sees their scale as creating room for a smaller alternative, comparing Asylum’s intended relationship to founders with an independent film studio’s relationship to creators.

Stebbings challenges whether founders should have complete control and whether investors need protections. Chirls says he has considered buying common rather than preferred shares, but has not done so; he does not know whether better founder alignment would offset the lost protections.

His reasoning is that in the largest outcomes common and preferred may participate similarly, while complex terms can create friction. Stebbings counters that preferences can materially improve recovery in weaker outcomes and therefore affect overall fund returns.

Chirls argues that trust and candid communication matter when a company is sold, including negotiation over founder retention packages and proceeds to shareholders. The host points out that legal protections can matter precisely when interests diverge; the two do not resolve the trade-off.

Chirls recalls an unnamed acquihire where investors received nothing after an expected recovery changed and founders received retention packages. This is his account of a specific unverified transaction, not a finding of misconduct by identified parties.

He also says investors sometimes try to undermine agreements between founders and other investors. Chirls believes a short-term win can damage a long-term relationship and says trust matters over repeated interactions; he does not identify or substantiate particular allegations.

He argues large funds may be incentivized to deploy capital quickly and favor businesses that require substantial financing. He cites foundation models and defense technology as examples. These are his broad claims about incentives, not evidence that any particular investment was made improperly.

Stebbings asks whether poor returns will eventually constrain that model. Chirls believes large firms may continue to attract capital if returns are broadly competitive with public markets, though venture is illiquid and risky; this is his prediction, not a demonstrated result for every fund.

Both discuss whether founders can raise too much. Stebbings says some of his larger seed rounds were less effective; Chirls argues that early investors should seek founders building in areas the market does not yet value.

He cites Bison Trails, acquired by Coinbase, as a successful example and says it returned his fund multiple times. He recounts an initially small proof-of-stake market that grew rapidly, and discloses a prior relationship with the founding team. The transaction and return figures are his account.

He also mentions investing in Solana’s Series A when the opportunity attracted less attention. His approach assumes a portfolio can tolerate many failures if a small number of overlooked bets become important; outcomes remain uncertain.

Stebbings asks whether to back an exceptional founder in a field the investor does not understand. Chirls wants to understand the core belief and says a founder should be able to explain even technical work clearly to investors, employees and customers.

Chirls disputes the claim that venture-firm service teams are usually the difference between startup success and failure. Stebbings offers an example of an investor discouraging an early sale; Chirls distinguishes financial outcome for investors from whether the business itself could have succeeded.

He clarifies that trusted advice can be valuable, whether it comes from a VC, another founder or an independent director. His skepticism is specifically about treating recruiting or business-development services as a guaranteed decisive advantage.

He says the more common problem is not necessarily a destructive investor but one who does not care or lacks time for a company. Stebbings notes that investors must prioritize; Chirls responds that making fewer investments allows more attention to each.

Chirls believes some founders are encouraged to raise more than they need, diluting themselves and early investors. He advocates focusing on experiments, a functioning business model and the company’s actual needs rather than treating the next financing round as the objective.

Both question the assumption that every idea should immediately raise venture money. Chirls also rejects the idea that everyone should be a founder: building a company can bring serious stress and sacrifice as well as joy.

He looks for founders deeply committed to a problem and sees an investor’s job as providing trust, steadiness and support through difficult periods. This is his philosophy and a description of Asylum’s intended positioning.

On liquidity, Chirls says he has sometimes sold a portion of a holding when a founder also sells, usually in more meaningful later rounds. He prefers discussing the sale openly and does not describe selling the entire position.

Stebbings distinguishes a founder selling a small amount for family security from an investor taking liquidity. Chirls accepts that distinction and says he is mainly referring to larger transactions in later rounds.

His mistakes include becoming impatient after a long period without a new investment and over-focusing on small valuation differences. He still thinks a very large difference in entry price matters and that an investor must be willing to pass.

At the time he describes typical entry prices of around $8–10 million and initial checks around $1–2 million. These are his fund’s historical parameters, not market-wide benchmarks.

In quick-fire advice, he predicts less institutional-looking firms may appeal to founders, admires Andy Weissman and Bryce Roberts, and advises people not to start a company unless they feel compelled to do so. These are his preferences, not universal rules.

He regrets missing Hugging Face and Runway at pre-seed. Both changed direction, he says, but were exploring AI before the market became widely enthusiastic.

Asked why he feels strongly about banks, Chirls shares that his mother worked at an investment bank and died when he was a teenager. He says his own later experience at Lehman shaped his belief about how such workplaces treated people; his inference about her experience is personal, not independently established.