Speaker 1At this point in Menlo's history, right, we are going broke. We are going for the grand slam home run. We want to see everything. We want to win everything. Full stop. It is a very disorienting, confusing time. Each seed investment is an option bet. You're buying an option to see if it's an outlier. You never want to let your ego come in the way. My only ego is to make money for my investors. If there's an opportunity to make money on investment, we should do it. The rest of this is all noise. The game has changed. You have to focus on IRR. There is no way for venture to be successful in today's era without the max seven participating in everything you're doing. There's no limit to what a person can do as long as you don't care who gets the credit.
Speaker 2This is 20VC with me, Harry Stemmings. Now, I love shows like this. Firstly, because I actually know what I'm talking about when we re-enter the world of venture and move away from deep tech. But second, because it's a real discussion. You know, quite frankly, do you play the game on the field? Even when it's crazy. The music is playing. Louder than ever. Do you grab a chair or do you keep dancing? In this discussion with Venky, we discuss the craziness that's happening in venture. Pricing. When to pay up, when not to. How to think about market sizing. How to think about when to sell. How to think about being collaborative in rounds. This and so much more in a true nerd venture fest that is this episode. But before we dive into the show today, Blitzy, the autonomous software development platform that's built for enterprise scale, is proud to sponsor today's show. It's been around for a long time, and it's been around for a long time, and it's been around for a long time, and it's been around for a long time, and it's been around for a long time, and it's been around for a long time, and it's been around for a long time. Tens of millions of lines, decades of tech debt, complexity existing tools cannot fathom. Blitzy starts by understanding. Thousands of agents reverse engineer your code base into a proprietary knowledge graph that maps architecture dependencies and business logic. That graph surfaces every CVE and zero-day hiding in your code before anyone hands you a ticket. Grounded in that context, Blitzy then executes entire epics autonomously. Modernize off-legacy systems, ship new features 5x faster, or batch-remediate CVEs at scale surfaced by the platform. Blitzy not only generates code, it validates and end-to-end tests every single line. And that's why Fortune 500 Enterprises are shipping enterprise-grade code five times faster. Go to blitzy.com forward slash 20VC to learn more. While Blitzy helps you build faster, Flex helps you run your finances smarter. Business owners run their whole financial life on Flex. One platform from business revenue to their personal spend. Float every purchase for 60 days, tap capital that grows with your revenue, and pay vendors in 170 countries across 32 currencies. Plus the whole back office, bills, expenses, accounting, all in one place. So you spend less time reconciling and more time growing. That's why thousands of owners use Flex. Named one of Fast Company's most innovative companies of 2026. Visit flex.one, that's F-L-E-X dot O-N-E, and use the code 20VC. While Flex runs your finances, Vanta keeps your compliance covered. When you're building a company, you learn that trust is what closes deals. You may have the best product, but no buyers will sign these days without proof of your security. Here's what happens if you're not prepared. A prospect asks for proof of compliance. The deal's stalled. When you scramble, your engineer gets pulled off the roadmap to audit prep. Every enterprise conversation turns into this horrible fire drill. That's where Vanta comes in. Vanta is the leading agentic trust platform that not only gets you compliant fast with frameworks like SOC 2, ISO 27001, HIPAA, and GDPR, but keeps you compliant by continuously monitoring your controls. So your deals keep moving and your engineers really keep building. Now, access the Vanta agent everywhere you work, even if your team lives in Claude, or Cursor. And that's why Vanta's trusted by more than 16,000 companies like Ramp, Harvey, and Writer. So prove you're ready for business and get $1,000 off Vanta. When you go to Vanta.com forward slash 20VC, that's Vanta.com slash 20VC. You have now arrived at your destination. Thank you, dude. I am so excited to do this. I am such a fan of your tweets. Who would ever call them blowhard, right? That's a terrible commentary on it. And I was so looking forward to this. So thank you so much for doing it in person.
Speaker 3Oh, I love this. Thank you so much. And I cannot wait to see if I pass your test.
Speaker 2Oh, dude, you'll pass my test. Now, I want to use this as a real learning discussion for me, because I want to build a firm like Menlo, and I want to learn from the wisdom that you've had now seeing multiple different cycles. You just told me a story that I loved, and it was from two decades ago, holding a certain stock. Can you tell me that story and your takeaway?
Speaker 1Yeah, so a little bit of a past. Previously, I was at a firm called Globespan. Capital Partners. And we happened to be investors in a company called Avonex, which is, nobody knows about this company, AVNX. I remember the stock symbol even now. I was an associate, did not have carry the fund. Avonex was a big winner, goes public. They gave the associates a chance to own shares of the IPO. So I bought some shares of the IPO. I remember putting the princely sum of $5,000. And at one point, Avonex got up to $200,000. It was such a big portion of my portfolio. And my wife was much smarter than me. She was my fiance then. We were getting married. She said, hey, why don't you sell some so that we can have something for a down payment for the house? And I was like, no, no, no. Avonex is going to go up. Optical components is a critical part of the internet bubble. It's going to go, we're going to make a million dollars on it. And you know how the story ends, right? It drops 90%. And I think I sell it for around $8,000 to $9,000. So I call it the most important lesson I learned from a 90% loss, which is at some point,
Speaker 2you should take some chips off the table. I'm not sure what to take from that. Because I know I remember having Jake say, and when he broke down Emergence's returns, basically, you just saw this one meteoric outlier that returned 90 to 90. Well, Viva, yes, but it was actually Salesforce. Wow. And if they had have held it longer and longer, obviously, it would have been even more meteoric. And so I guess my question is, what should we take from that? Because we also see the dangers of selling too early.
Speaker 1Agreed. I think a lot of this advice depends on the context of who you are as a person and what your balance should be. Because we have had home runs before. We have a history of putting it on the table. As a 24-year-old with very little in your bank account, when you have that kind of, for me, Avernac's game-changing money, it just makes economic sense to take some off the table. And so I do think the advice is there's no one-size-fits-all for these things.
Speaker 2Did you say you're going for broke? All hands to the pump, we are going for this. Does anything change with that mindset internally? Like, is it more aggression? Is it more willingness to pay up? Is it more willingness to have less ownership? What changes with that?
Speaker 1I think what we mean is we are going to fight and try to be in the defining AI companies of our era.
Speaker 2Full stop. I want to start with a concern, which is I don't know what business we're in anymore. Venture's not venture anymore. I have my team come to me and say, hey, we can't. We can't find anything under $100 million. And I said, wow, that's a high price for a pre-seed or a seed round. And they said, no, no, no, Harry. That's the size of the round. Thank you. This is not venture. What am I to do in this world? And can you invest without a billion-dollar fund? Venture has changed.
Speaker 1But I also think that you can't take a snapshot in time and draw a dot. It's not a line. And right now, you're right. Every AI company wants to raise hundreds of millions of dollars. And I'm surprised they only said $100 million because there are some new labs that want to raise billions of dollars, right? They all have arguments for it. I will admit that. But I also think these things change quickly. So you don't want to necessarily draw your long-term strategy with a snapshot in time.
Speaker 2These things change quickly. Do you play the game on the field, as Bill Gurley says? Or do you call time out and say, you know what? I learned from 2021. You know what I wish I'd done in 2021?
Speaker 1Less. This is a really hard question. Conundrum for professional investors. You're referring to my tweets, right? The Chuck Prince quote is, when the music is playing, you've got to dance. And as a professional investor, the danger of not dancing is that you do not know when this ends. Like, I'll give you a story. There were a bunch of really smart venture firms during the dot-com boom that got in in 93, 94, made money, and decided to step out of the game in 96, 97. And when they stepped out of the game, they missed out on 97, 98, 99. And their LPs, were like, what happened? Like, we asked you. We invested in you because you're going to be at the cutting edge. You stepped out. And they stepped back in 2000. So timing markets is really, really hard. I think you have to play the game. But I think you can play the game differently. You can choose to be more selective. And you can hopefully think about portfolio composition and position sizing as a way of mitigating what happens in the cycle turns.
Speaker 2Portfolio composition and position sizing. What do we do with both of those in a market then like this? How do we change them?
Speaker 1I think you have to think about the venture portfolio as a bunch of options. And so you want to have enough of those so you can make sure you have an outlier. And then when there are true quantitative evidence based on revenue on quantifiable metrics that there's going to be an outlier, then you position size up. So to me, like you have to think about, okay, what is my fund size? How do I have enough? at bat, to use a baseball analogy, And make sure that you have enough at-bats and then you only position size up on the things that are already proven. Do you think seed still really exists today? If you want to go into the core AI world with the Neo Labs, I
Speaker 2think seed is hard. But even like AI application like companies, they're raising 10 to 20, like the old three to five days, which was still quite large seeds and that's gone.
Speaker 1Honestly, I think there are two things that impact seed investing today. One is the size of the round. And then you have this other sort of externality, which is these large funds, maybe including us, somewhat being indifferent to seed valuations because they're using that as an option check. Because you are, aren't you? I didn't mean that to put you on the spot, but. Yes. I mean, we are trying to buy ourselves a seat at the table and the cost of buying that seat at the table, we are somewhat indifferent to at the seed stage because our real goal is to size up and invest in them if they become our clients.
Speaker 2Thank you for making my life harder in that respect.
Speaker 1But I. You should just invest in our funds.
Speaker 3And then it'd be fine.
Speaker 2That's very funny. Nicely transitioned there. I give you credit for that one. You said like, so you place these bets, so to speak, and then when you see discernible traction, then you can double down. Completely agree with that logic. We're seeing strange numbers, you know, contracted annual revenue that's not actually annual revenue and it's kind of not live. You're seeing revenue run rate that's kind of extrapolated out from the best day in history. And then we. And we times that by 365 days. There's a murkiness to this revenue that we've never seen before that makes me feel quite icky in a lot of cases. Do you share that? And how would you advise me? And what do internal discussions look like around that?
Speaker 1If any metric is measured by an investor and they put a lot of weight on it, it's going to be gamed. And that's just a nature. Maybe they should coin a lot for it. And there are two elements that are going on. One, I'm blanking. I don't know if it's Keynes or another famous economist who's coined the term bezel. When they. When there's a boom, the bezel is high, which means like it's a notion that the embezzlement of things will be. So not just people are going to pick metrics, people are also going to have some interesting accounting techniques, which by the way, will happen every cycle. And it's probably happening at this cycle. So we're going to find out in the next few years exactly the accounting creativity of some of our founders and the metrics being gamed by some other people, right? One good example of it in doing the SaaS way. There was a lot of investors put a lot of weight on net revenue retention. And so one of the ways to gain net revenue retention is that you could get a $100 PO, but better get a $10 PO and get a $50 PO a week later, because your net revenue retention, if you just got a $100 PO was 100%. But if you got the $10 PO and $50 PO, it's now 500%. And the net revenue retention looks much better. Once a metric is measured, it can be gamed. And that happens. To me, a lot of this comes down to, are the founders really focused? On building a business? Are they focused on terminal value? Are they focused on markups? And I think you want to find founders and investors who
Speaker 2are focused on terminal value. Do you believe in kingmaking? I know that sounds like a strange question. Kingmaking, the theory that multiple successive and quick rounds led by strong investors can really help increase the chances of a company being successful.
Speaker 1See, to me, that is a great example of Soros' reflexivity. What I mean by that is you have a company that does well, and because it does well, and the revenue is growing really fast, it has a quick markup. And because of that quick markup, it gets more capital. It gets to come on Harry's show, and then it gets more notoriety. That allows it to get more human capital, along to the financial capital. It grows faster, and it's under the markup. Now, these are good things, as long as the revenue is happening and the core business is building. But someone, a copycat can look at that and say, "Oh, the secret is to have a markup." And a copycat investor might look at it and say, "It's not a markup. If it's marked up, it's going to be marked up again." And then reflexivity kicks in, and then everybody starts acting that way. And this explains how market cycles work until it stops. And one thing we know from Soros is that all reflexivity will eventually stop. We just don't know how and when. But until it stops, a lot of people
Speaker 2can look very smart. We don't know how and when, but we can play the game of predicting how and when. If you were to predict how, what is the first signs of this crash?
Speaker 1I think usually, the first sign comes with some major debt default. Generally, equity is never the reason why these things crack. Because equity, you write it down, you just take the loss. Debt, on the other hand, people have this expectation they're going to get paid back. And so, most of the cycles I know, it breaks because people lever themselves. And so, if you see what happened with Leopold, an incredible investor, right, but when you're 4x levered, the average, it doesn't matter if you're right, you have to also get the timing correct.
Speaker 2Missed his risk management class at high school, didn't he? Poor old Leopold, when the music's going. So, yes, I completely get you there. How do you feel about the multiple tranche rounds so quickly? I'm meeting founders very often where they're like, oh, we're doing around this week at 100, but then we'll be opening up the second turn of it later next week at 200 because we've got so much demand. This just gives me shivers and I feel like we buy any gold. Will we buy any car?
Speaker 1I feel like in every cycle, you get the innovators, then you get the imitators, and then you eventually get the idiots. And I think the innovation of the tranche financing was the notion that I can get, build with me money, and then use that build with me money at a lower valuation to get just money at higher valuation, and then eventually transition to just pure dumb money. And I think that's the logic of this, right? And so, I don't need like money, all money is not the same, I will bring in some investors who are going to actually build a company with me, and then I will bring in some capital along, and then eventually I'll bring in some very low cost of capital. That was the intention. But again, like everything else, now people, everyone's doing it, and it's not tied to the quality of the company anymore. It's become another technique for people to do. So I find like these things start initially with some, the core of the idea is actually a good one. Okay, I want to actually raise capital, but I want to distinguish between capital that adds value and capital that doesn't add value.
Speaker 2So you do it as a firm if you're coming in in the latter tranche?
Speaker 1Absolutely, it depends on the situation. We have been on both sides of this situation, and I think if the company is interesting, the founders are special, absolutely. - Really? - Yeah. At the end of the day, I never care about what other people invest, what they do. I'm looking at this round and say.
Speaker 2Are you not hurt by the fact that they are saying you're legitimately less valuable than Peter Fenton, who were letting in at half the price?
Speaker 1Peter is amazing. I think the biggest thing I've learned over time is, you never want to let your ego come in the way. If I can make money for my investors, who the hell cares?
Speaker 2Have you let your ego ever get in the way? - I have done. - Hundred percent. What happened? I
Speaker 1think you get caught in ways of around negotiating for valuation or being in a syndicate. Or sometimes you're offered the opportunity where you think you're offered a small piece and you're like, well, I'm too big for that piece. I think in this business, you have to have a high degree of humility because every week I get hit, I get punched. I get punched in the face by things I don't know. The biggest mistakes are when we get too caught in our ego. Look, the reality is simple. We raise money for institutional investors with one and one new goal, which is to return more of them back. And I think too often, because venture capital tends to be dominated by personalities, people get caught in this. You probably don't know a lot of people at Goldman. Everybody can say David Solomon, who's the CEO. But the idea is Goldman makes a ton of money. People just go do their job. Too often, venture capital, we end up, because there's so many personalities and people, it becomes more about who and our ego as opposed to just do the job.
Speaker 2I think that's forced by the fact that we are fighting for constrained supply, though. If you're looking at, say, Goldman's public team, you can buy Nvidia, I can buy Nvidia, they can buy Nvidia. It is a free market. Here, we are both competing for max at Legora and our check. If he takes yours, he won't take mine because there's one lead check. And so we have to have personality. We have to sell ourselves because there is a constrained supply.
Speaker 1No? Yes. What you say is absolutely true, which is that you have to have these two dualities and manage them. One is you have to have a personality. You have to be able to project a sense of differentiation, right? Because why does someone choose Harry and not me is because they like Harry. By good looks and charm. I see that in person even more so. But I think if you get caught in that and you get so immersed in it, then you lose a sense of what the core purpose is, right? The core purpose of having that personality and charm is to make money for your investors. That's why it is, right? And if there's a time for you to make money for your investors where you have to let your ego take a backseat, you should do it. And that's the right thing to do. Now, I'm not saying it's easy to do. I'm not saying I've done it, but it's the right thing to do. It's kind of like I know I got to eat right and exercise. I know that. I don't do it often, but I know it's the right thing to do.
Speaker 2Yeah, but Jim Kahn is so good. Yeah. Some things in life are worth it, like butter chicken. I'm a Dishoom. Oh, you are? Oh, well done. Well, don't worry, I like a Dishoom too. We said about price kind of, hey, we're a little bit less focused on it when it's early. There comes a time when it does matter. With the greatest of respects.
Speaker 3I see it, see it, man. Men, they kind of pay up. And for all you entrepreneurs out there, we definitely pay up. So definitely call us. Yeah, you do. And every time I'm like, I ended up paying up.
Speaker 2And you proved me wrong. you're right. And I'm proved wrong when I'm like, God, they're not disciplined on price. And so I guess I'm questioning, do we just need to completely reshape how we think about TAMs and market sizing? Let's think about when people pay up.
Speaker 1People just sometimes pay up to be able to win the deal. I think sometimes people pay up because they're able to see a bigger TAM than the other investor. And in those cases, you're not actually paying a higher market price. You're able to see that the opportunity is bigger and therefore you're willing to see that possibility. Now, sometimes you're going to be right. Sometimes you're going to be wrong. So to me, I don't necessarily think it's just price. Sometimes you don't see the TAM. You're just trying to win the deal and that's what the price it takes. And you're just a clear price taker. And that happens too. The problem is venture is an asymmetric game. You can lose the dollars you invest, but you can make 10X if you're right. And that asymmetry means that the sense of emissions are way higher than the sense of commissions. What do I mean? You only see the deals we do, right? You don't see the deals we pass. But the most expensive mistakes venture capitalists make are the deals they passed, not the deals they did.
Speaker 2When you say that, what's the most memorable past that haunts you? What is it?
Speaker 1My most memorable past was that I was a young board member on a company called Plaxo, which had an incredible board. Mike Moritz, Ram Sriram, Tim Kugel from Yahoo, and little unknown me. And Sean. Parker and Todd Massanis and was a founder and Cameron Wren. Sean had some challenges on that board and was asked to leave that board because I was the only person within 10 years of his age in that group. He was telling me he was going to Boston and he's going to work with this college dropout. And he's like, you should get involved. And I'm like, Sean, you just got booted out of this board. And I have no idea what I'm doing. And I didn't even take that meeting. And I probably had the opportunity to write a $50,000 check. And those seed rounds were different. They were million dollar seed rounds. That's a tough one. What was Sean like back then? The way he described Plaxo, his vision worked out. He understood virality, network effects, his thought process around what happened at Napster. So my rule of thumb is I'm always looking for people who are incredibly good at communicating very complex concepts in a simple manner and just have insight. And Sean, I'm always looking for people who are incredibly good at communicating very complex concepts in a simple manner and just have insight. And Sean, just had insight around human behavior and complex concepts and could boil it down in a simple way. He was a very good communicator. What a character. He gets to have Justin Timberlake play him.
Speaker 2I mean, it's a pretty cool one. Drop the the. Love it. We actually did that. We were the 20-minute VC. Okay, there you go. Yeah, yeah. Thanks, dude. I was talking to Amy beforehand, speaking of kind of the founders you back there. Amazing partner of mine. Amazing partner of yours. And she said that you care a lot about understanding what brought founders together. And I was like, yeah, yeah, yeah. And she said, yeah, yeah, yeah. And hearing about you talking about Sean there made me think of this. Why do you care about what brings founders together? And are there any patterns or signals that excite you?
Speaker 1I think the company you build is a team you build. And so, so much of the DNA of a company is set by its founding team. And so what brought them together, why they thought in a world of 6 billion people, they should be the people to do this, how they think about each of the strengths and weaknesses. I think these things all sort of like minority. Report. They are like a precog that tells you around how they're going to make decisions, how they're going to build the rest of their team. So I think it gives you a clue about who are these people. And ultimately, I think the company's culture and DNA is going to be shaped by the founders.
Speaker 2You can ask one question that you find most revealing of a founder quality. Doug Leone is to me, was the one I remember most. And he always says, what's your worst reference?
Speaker 1So, you know, that's a great question. I generally ask your five best friends, right? And imagine they're in a room. And if I had to ask them three words to describe you, what would that be? That's a question I normally ask people. I'll tell you, I listened to Mike Moritz on the interview, and he asked a question. And his favorite question is, if you could go back in your life and change one thing, what would that be? I think that's a pretty interesting question. If I were to ask you, what do you think about yourself? It's harder. But when you think about your friends, you can sort of externalize it. And then that gives you a clue about how the people around you think about you. And it also tells you your self-awareness, because usually after I do that, I also do references. And I'm trying to see if the reference matches someone's self-awareness, right? It's actually okay. If you know your weaknesses, then you have a much better chance of managing them. It's the people who are blind to their weaknesses that usually have challenges.
Speaker 2Don't worry, my weaknesses are revealed in the comments section of every interview. So I see them glaringly. One thing that's been uniform across the industry is we've seen ownerships go down. Even the hailed benchmark now take less than 10%.
Speaker 1I thought they said 20% are bust.
Speaker 2Maybe let's stick to that message. I love the benchmark guys. So absolutely. But does ownership matter as much anymore? Of course it does.
Speaker 1Ownership always matters. But I think you have to think of that relative to the opportunity, right? What I mean by that is, yeah, would I love to have 20% of a company? Sure. But I'd rather take 2% of a trillion dollar company than 20% of a hundred
Speaker 2million dollar company, right? So you'll do deals now for 2%, 3%?
Speaker 1We did. Anthropic, we own less than 2%. My point is, that I think when you think about ownership, you can't think of that in isolation.
Speaker 2But I think you're either in the ownership game or you're in the money movement game.
Speaker 1I disagree a little bit. I think when you're getting your option bet, you want to have ownership because then it's not clear. So let's say you know it's an outlier. If it's an outlier company, then you are in the capital invested game. Prior to it being an outlier company, you have to be in the ownership game. Your best situation is you're in the ownership game, in an outlier company, and then because then you go into the money,
Speaker 2moment game. No, I thought you, the ownership doesn't matter pre it being an outlier because you're there for the information. When it does become known, it becomes a money concentration
Speaker 1game. You want to have enough ownership though. I mean, you look at Hicksfield, my partner, Amy, she killed it. She got 15% of the company for a $5 million check. You had Alex on your podcast, incredible entrepreneur, incredible business. So in that case, we got the ownership. And then we also have the opportunity to then size up.
Speaker 2Did you? Yeah, we've invested. Do you get my rationale though? For actually, it doesn't matter if you have ownership in the first place. What you're buying is the information to size up.
Speaker 1I get that. If you're asking me, is it better to be in the company regardless of ownership or not be in the company? Yeah, it's better to be in the company, but it's even better to be in the company with ownership because now you actually have gotten your ownership. It's going to drive real returns because the problem is once it's an outlier, everybody knows about it. It's no longer a selection game. It's just okay. Can you get access? And it's a position sizing game. There's no alpha there. And then that's the truth. In the AI greatest hits, everybody knows these companies. How much of your fund will you put in a single company? I don't think we would put more than 20% of it.
Speaker 3Have you gone up to 20% before?
Speaker 1We have hit 20% on one company. Whoa. What company?
Speaker 3Anthropic. It's got to be an exception, right?
Speaker 2Yeah, but that was a hard conversation. We 10x'd this year. We 10x'd last year. Okay, thank you. Let's do it.
Speaker 1But I do feel that you have to think about the question of ownership and concentration as when. What I mean is where was the company? What information do you have? How much conviction can you have as an outlier company? Because the thing about position sizing is you want to position sizes when the data is there. And if you position size it ahead of the data, then you're taking a lot more risk. So the question is not, did you put 20% of the fund of a company in one check at the beginning of the fund? Or did you ladder up to 20% on the basis of new data? Obviously, it's much better to ladder up on the basis of new data. And I think in an era where venture capitalists are going to have ownership come down, right? I mean, I wish we could get 10%. Even 10% is hard, right? Now your way you're going to win is you're going to establish a position and then size up as a company does well, so that you have sized it commensurate to the outlier opportunity.
Speaker 2Totally get you and get that. And everyone says, but ownership doesn't matter so much because outcome is so much larger than they've ever been. And they are. That is a valid answer. My question is, are they on the whole? Do we just have a breadth of companies that will be much larger? Or is it really just a handful of Anthropix and SpaceX and Cursor on the small land at $60 billion, which is still enormous and amazing? But is that a good enough justification for ownerships going
Speaker 1down? I think the problem comes down to your portfolio composition, right? If you are in one and survive with low ownership. But what happens if you are not in these big outliers? Because what essentially you're playing a game to use baseball analogies, you're playing a game where there's only grand slam home runs or strikeouts. There's no singles, doubles or triples, right? And cricket terms is like it was only scoring sixes and not having ones and twos. And the problem with that is that if you don't score the six, and you don't have the ones and twos, that's going to be a tough fund. And so part of getting ownership is giving some insurance for you that if you missed outlier, the sort of midsize outcomes can still move the needle for you. But will you do singles and doubles? No, the goal is always to score home runs, right? But sometimes you strike out. And so if you strike out all the time, that's going to be a tough fund. So the idea is that you want to at least say, okay, I went for the home run, and I got a triple.
Speaker 2But I just don't think founders are aware. And I say this, and people always get at me, and I think they can miss the point. Because I say lovingly for awareness of founders, that the game has changed. And that going from one to four, million and then four to eight million and then eight to 16, and then banking in five years' time, we're going to hit 30. That's an amazing achievement, but it is just not enough to get venture excited today. Do you agree with that?
Speaker 3Yes, I agree with that.
Speaker 1Again, snapshot in time, because you're seeing companies. But do you think venture will ever go back to being excited about that? Well, they're not excited about it today because they're seeing companies go from 1 to 10 to 50 to 100. So they're getting to 100 in three years, or in some cases, they're going from zero to 1 billion in 18 months, right? So when you see those kind of companies, of course, you want to do those. But that's because we are in a moment in time where there are certain trends allowing you to do it. I don't think this continues forever. So I think this is where I think you have to take the long horizon look at this, right? There were companies who grew. They grew fast, but there's a combination of things that make these companies grow fast today that may or may not continue.
Speaker 2When they grow as fast as they are, the rounds come thick and fast, and the prices are high.
Speaker 1Yeah. I mean, you look at instinct. God bless. I wish we were. They've gone from, I don't know, 250. 250 million to 10 billion in 10 weeks. Would you have done that round at 10 billion? Smart people have done it. We are in town, which we love, and we think very highly of, and we're excited about that. I think that there's something going on there. There's a true phenomenon. What I don't know is to understand their data and what it costs for them to keep growing their user base, and how does the Muse launch affect their growth?
Speaker 2Can I ask you, everyone kind of goes into a lot of investing now with the idea that there's downside. No, it's incredible. It's in a very strategic space with the incumbents. Worst case, one and a half billion, Nick Preff. It's a no-brainer for Microsoft to do it as an addendum to Copilot or Apple to do it. Jesus, Apple, please do it. Do us all a favor and save us from Siri. Do you think that downside protection, ah, don't worry, the incumbents will buy it, is okay to have or quite a dangerous mindset to have?
Speaker 1I think you can easily rationalize a lot of things if you take that mindset. And the problem, again, is that, again, you threw out this billion and a half number, cashfully, because we are in this environment where, you know, AMD is buying a company for eight and a half billion, Nvidia bought Hugging Face for 14 billion, you know, Stripe bought OpenRouter, allegedly for an eight billion, you know.
Speaker 2Allegedly. Allegedly. Allegedly.
Speaker 1Yeah. And I think we have to go and say these are a point in time where companies are doing it. It may not be that way. And so, today, it feels like a billion and a half is, oh, no big deal. If I'm right, it's going to be worth a hundred, five, six, seven billion. If I'm wrong, someone's going to pick it up for three, four billion. By the way, that's what you're referring to my tweets. I wrote this thing about, if you go back and look at doing the dot-com era, Nortel bought Kairos for three and a half billion, Lucent bought Chromatis for four and a half billion. These were companies with no product, no revenue, just teams, and they bought it with their stock. And so, it felt very similar. In fact, I believe Jeff Yang from Redpoint, legendary investor, had this quote in the Internet Standard, which is a magazine. Jeff Yang: And he said, "There's no risk in venture capital. If the company is successful, it'll be sold for billions. If not, it'll be bought for the proof stack." And it didn't quite work out that way on the other end of the cycle after March, 2000. So, I go with trepidation, but I just wouldn't take the mindset, oh, some large strategic is going to buy my company for the professional stack, because they don't care about the investors. They care about the founders. Why would they do that? Why wouldn't they just hire the founders for the same package?
Speaker 2Amit Bhandari: Right. Jeff Yang: And they don't care about the investors as they kind of are in these structured deals, let's be honest, and screwing the investors.
Speaker 1Amit Bhandari: So, you've seen that, and you can't take that. There's no reason for them to take care of the captive.
Speaker 2Jeff Yang: Do you think about the dilutive nature of businesses today? And what I mean by that is just like, we are suffering more and more dilution as an investor class than ever before, and it's a better time than ever to be an employee, given the levels of stock based compensation, SBC for people. Do you worry about that? Think about that? Should I worry about that and think about that? Amit Bhandari: For sure. I mean, we look at whatever.
Speaker 1Jeff Yang: Yeah. Amit Bhandari:. we invest in at the seed round, and we assume by the time we sell exit the company, if we own 10%, we would have 3.5% to 4%. We expect 60% dilution from the point of our first check. And that's a combination of dilution from financing, there's a dilution from option pool expansions. And so, you have to really think of yourself, whatever ownership you bought in your first check, it'll only be 50%, but then at the end.
Speaker 2Jeff Yang: The interesting thing is that. Amit Bhandari: Yeah. Jeff Yang:. that is very common in a lot of companies we're seeing today. And then the other interesting thing is, companies are sometimes scaling so fast, a la OpenRooter, Alex, a friend of both of us, where they actually don't take that much dilution because they scale so fast, so quickly, and so efficiently, where actually you suffer almost much less dilution. So, it's almost a tale of two dilution worlds. Do you know what I mean? Amit Bhandari: Yeah.
Speaker 1It's a function of time. So, the way to think about it is that, and I don't think we spend enough time in venture capital thinking about it, but we should say, what is the time horizon you're going to hold the company? Because the time horizon will determine your dilution. So, part of the reason when you are in a situation where your dilution is less, is they have quick exits. They grew their value fastly, they have quick exits. And that's a double win. When your time horizon is long, there are two hits. Your IRR gets hit, and you're going to have meaningful dilution.
Speaker 2Jeff Yang: Did you think of that when investing? Which is just like, what really is the ramp? There's businesses in the ERP space, where they're like, "Ah, but the revenue is such high quality, Harry. I get you. It's not as fast as your Higgs field or your Ligora, but it's so high quality." And I'm like, "Yeah, fuck it's slow." Am I wrong to think that?
Speaker 1Amit Bhandari: No. I think the velocity of the business is very important for venture capitalists, right? And the velocity will determine a bunch of things, right? Because the other reason why your dilution goes down is if you have a fast uptick in valuation, the amount of ownership you got to give for your next set of human capital is a lot lower, right? So, you are a $200 million company, and you're giving 2% of the company to hire a senior exec. That's pretty meaningful. You quickly become a $2 billion company, you don't need to give. You're going to give RSUs, and you give the same person $20 million, right? Which is 0.1%. Jeff Yang: DPI or IRR? Amit Bhandari: Both. I mean, you can. I do think, actually, that you can't have IRR without DPI. I think the question you're trying to ask is, "Hey, will you settle for a larger DPI or a longer horizon? Or do you want currency?" I think you want quicker DPI with a faster IRR. I think the reality of venture, when I joined, this is now dating myself 28 years ago, people didn't focus on IRR. People were focused on cash on cash return because IRR took care of itself. I think in today's venture, the game has changed. You know why? Because there's no way for venture to be successful in today's era without the max seven participating in everything you're doing. Every venture company is writing a tax to Nvidia in some way, shape, or form, writing a tax to a hyperscaler in some way, shape, or form, and possibly writing a tax to the foundational model in some way, tax, or form. If you're going to be successful, you're going to be writing a tax to all of them. All of them are available in the public markets, or they will be soon in the public markets, for someone to invest in a no-fee, no-carry index fund. You have to think about your IRR as, "I've got to beat that with 1,000 basis points to justify anyone giving you capital in the private markets."
Speaker 2Jeff Yang: You mentioned town. I had JD on the show. I really like town. I really like town. Amit Bhandari: Yeah. You mentioned town. I really like town. I really like town. I really like town. I really like town. I really like town. I really like town. Jeff Yang: Yeah. Amit Bhandari: I've known him since the Platt days. I'm pissed off about that one, because he started the company when he left. I remember talking to him about it when he started. He was doing something in some terrible space. No offense. He'll agree with me. Then he obviously pivoted. Jeff Yang: They were doing something in tax and pivoted.
Speaker 3Amit Bhandari: Thank you. I'm too old for this shit. Jeff Yang: You are too old. What am I? I hate you. Amit Bhandari: You're a spring chicken. For anyone watching, they'll see that you look much younger than me. My question to you is, we obviously know what happened with the town round in terms of competitive nature and dynamics.
Speaker 2I don't want to go into that. What I want to go into is actually, does competition matter for VCs to invest against now? It seems like Andreessen has three companies all doing the same thing, and many big platforms do. Does it matter being in many players in the same
Speaker 1space anymore? Amit Bhandari: This is a personal preference. I think culturally, for Matt, Sean and I, we like to be committed to the entrepreneur. The situation is going to be specific. Look, if we take a board seat and we write a big check, then we want to be. If you're investing the seed round and you have a small check, you're a passive investor, that's a different issue. When we make a commitment to the entrepreneur, we want that to feel like a two-way commitment. We expect them to put the interest of their shareholders and commit to it. We, as shareholders, need to commit to them that we're going to have a two-way commitment. Amit Bhandari: That's why we didn't invest in OpenAI. We only stayed with Anthropic. There's no shade. Again, venture is changing in a way that multiple people are doing different things. I think you just have to figure out what is authentic to us and our values and live by those. I think for us, when we make a big commitment to the founder, we think of it as a two-way street. They commit to us, we commit to them.
Speaker 2Matt Ridley: One thing that we see a lot today is the compression and deployment timelines. In other words, people investing much faster. All the LPs that I speak to are just saying, everyone is coming back to market so much quicker, they're bigger. Is that okay or is that a sign of peak bubble?
Speaker 1Amit Bhandari: Yeah. It's very interesting. LPs want smaller funds and then they want you to not come back quicker. The problem is one of those can't be true. If the opportunity we have is real and there's AI, the biggest economic platform in our lifetime, and you want smaller funds, they're going to come back quicker. Now, there are also large funds that are coming back quicker. That's a different issue. The situation we are in is one in which you're seeing companies grow so fast and they need capital to grow. This is not a situation where you can grow without capital. This is not Google. Google, if you go back, probably raised less than 50 million in the private markets. You can't do that today in AI. You need compute, you need to scale. So to me, because you're seeing them grow so fast, their capital needs are growing. And if a venture firm doesn't provide it, they're going to get it from their competitor.
Speaker 2So actually, if managers are deploying a fund in 18 months, LPs should forgive them?
Speaker 1I think the LPs should ask questions and say, have you thought about it? How are you managing it? What's going to happen if things go? Vintage diversification does matter. People have to be conscious about that. When I look at Menlo's history, the one fund that wasn't successful at Menlo's history, I mean, 50-year history, we only had one fund that's not returned capital, which is Menlo 8, which was invested in a 10-month period between 2000 and 2001. Yeah, that was not quite the outcome we wanted. Menlo 8. Menlo 8. But I bring that up because I do think time diversification matters. Now, by the way, Menlo 7 was one of the best funds in Menlo history.
Speaker 2Yeah, but do you remember Excel 2005, just pre the Facebook fund? And they had massive LP churn because they went and did a load of clean tech and bio, and it was not good. And then Facebook fund. So to me, I just bring
Speaker 1that up as like, look, as GPs, you've got to take the fiduciary duty you have to your LPs very seriously, and you've got to balance that decision. What I do know is that you can't just have dogmatic rules. You have to play the game on the field. And then you have to communicate what you're doing in a transparent way to your LPs and tell them what's happening. And some LPs are going to be like, okay, I agree with you. I want to play it. Some people are not. And you've got to respect that. But the point is that you might have no choice to play the game.
Speaker 2Did you ever scale out of an LP class? And what I mean by that is, you know, the funds now are reasonably sized. They're not egregiously sized. You know, you're not David George asking for the US Treasury, but you have $3 billion. It's a lot of money. For some LPs, they're like, a lot. Was there a time when you scaled out of endowments, say, and suddenly you had to be pension fund
Speaker 1invested? We've historically, our anchor tenant has historically been the Washington State Investment Board. The Public Sector Pension Fund of the state of Washington. From an SLP, by the way. I highly recommend them to anybody. They've been our anchor tenant since 1981. So we have never had a reason to scale out because public sector pension funds have been a part. It's a little bit of a cultural dynamic. I think the founders of Menlo came from very humble beginnings. They both grew up in a house with no running water or toilets. I think John was orphaned very early. He was a scholarship student at MIT. And so they love the idea of working for public sector employers. Because that felt like working for their parents and less, these people look more like their parents than their children.
Speaker 2Love that. So there wasn't a fund where LPs went, oh, thank you. You're getting pretty big now. I think you're just scaling out of our sweet spot.
Speaker 1No, that wasn't the case. But we had, we raised that first billion dollar fund in venture capital. Menlo raised, Menlo 9, which was raised in 2001, was a $1.5 billion fund. And Menlo 10, which was raised in 2004, was a $1.2 billion fund. Those funds did not perform as well as we would have liked. And many LPs did leave us. You manage a lot of the LP
Speaker 2conversations today, correct?
Speaker 1Matt and I do a lot of them, yes.
Speaker 2What do you hear from them? As I said, I hear deployment time is down in terms of people investing much faster. And the funds are just getting bigger. And then I also just see mimicry, which is like, I'm calling this out because it's a compliment to her. I never shit down on people other than LPs. But every LP just wants Sarah Guo's fund. And I completely agree Sarah Guo is incredible and you should want her fund, great, but just this complete herd mentality.
Speaker 1And Sarah and Mike are amazing, no question about that. You know, I spent a lot of time with them, with LPs. And I think first of all, a lot of them have two complaints. One, they're like enough TV over PI, I need to get some DPI. So I think if you deliver DPI, I think you're already in the right side of the table. And I think so. I think it's easier to come back to them to ask for more capital when you deliver DPI, right? So that's one. Second, I don't think people can afford not to be in the AI economy, and I'll tell you why. Most of them have much bigger private equity portfolios than they have venture portfolios. Like in many cases, three to four X exposure to private equity. A lot of private equity over the last few years have been software, and those positions are directly impacted by AI. If you want to hedge against your. Private equity portfolio, you got to be in the AI economy. And so that's the piece that forces them to come back. So if you are someone who has given people DPI, and you can credibly make the case that you are going to be a play in the AI economy, I think you can raise money from LPs.
Speaker 2You got to have given DPI. We see companies scale faster than ever, as we've said, we see prices that are very high. How do you think about the internal conversation of, whoa, X company is now valued at 10 billion. Can we take some chips off the table? What does that discussion look like, and any lessons on how to sell successfully?
Speaker 1I think you have to step back and look at any situation in which you have a 30, 40, 50 X return on your dollar, and ask yourself, should I take some off the table? And I think the right time to do that is when the entrepreneur is thinking about taking some right off the table. And I think if you were to work in conjunction with them.
Speaker 2What if it's not material? I'm using this. This is a consulting lesson. You can invoice me later. I have a company where we are like 40 X up, and you're like, "Wow, fantastic, you got 100K in there." Return 4 million back to $100 million fund that it's in.
Speaker 1I don't think it's a size issue. It's just to me like, look, lock in the gains. If you go back to the SaaS portfolio in 2021, there were valuations done at, let's say, pretty high prices. If people had taken 10, 15% off the table, even if it's small, it locks in, allows you to go long. I tell entrepreneurs that, just like when you take some chips off the table, you're more likely to go long, so are we, right? Because we can now afford to go long with you, and so it aligns. And so to me. Will you ever sell all of your position? Generally, no. Not unless the company is being sold. Not interested. I think that's a different situation. I mean, the only time I think it's like if you do not have a relationship with the founder, that's different. But as long as you are and you're in, you're going to ride and die with our founders.
Speaker 2Jason Lemkin. Jason Lemkin says on the show, you know, "Whenever a founder leaves, I ride it to zero, when a founder's gone, it's zero, zero, zero." Do you find it to be the same when the founder leaves, you're like, "We're supportive, of course, and we're still here," but mentally, you're like, "That's a zero."
Speaker 1I mean, my friend and your friend, Nikesh Arora, would disagree with you and say he goes on founder mode. I mean, look, there are people like Nikesh, G2 Patel at Cisco, they go on founder mode as an exec. It's sort of an insult to people like that when you say, "Oh, the founder leaves." They're like, "Look at the situation, who replaced them?" Founder mode is a mode of working, it's not tied to anyone personally. I think anyone can be a founder in terms of working in a founder mode, and I think some people do. And I mean, Frank Slootman, Frank joined Data Domain, NoFlake, ServiceNow, in each of those places, he acted like a founder, he didn't act like an exec.
Speaker 2By the way, Nikesh, please don't kill me, I love you more than ever, and I've always loved you, and it was Vanki that said it, it wasn't me that said it. Vanki's address later. I'm going to get a break through my window. You're definitely here. I'm terrified of Nikesh, are you kidding me? So, yes, that's very funny. Can I ask you then, we see so many sales now. It's like, you know, Faith AD sells for 8.2 billion, it's amazing, a phenomenal exit, well done to everyone involved. Yesterday's news, I mean, open routers, so yesterday's news, we've all forgotten about it. And I don't mean this glibly or anything. I know that sounds so child of this ecosystem, which I'm not, sadly. Are we just going to see a load more exits now?
Speaker 1Yeah, I think you're going to see, because I think there's competitive pressure. There is also this notion that we have a regulatory regime that will let you do M&As, right? There's been a backlog of M&As that was supposed to happen, didn't happen, because we had a different regulatory regime. There's this notion that this may not continue forever. So one, you have a window of time, you also have competitive pressure. Why is a real world model, does Nvidia need to do something? Do other people need to react? And so I think every acquisition forces a bunch of competitive dynamics we have to consider. And then people have equity prices, right, AMD is now a trillion dollar company, eight and a half billion dollars is still, I think, less than 0.1% of the company, right? So you can do stuff because of this combination of things. And then the notion that, you know, anything that lets you catch up in the AI wave is very high. Does Nvidia do a good job paying up for scale? I think they would say, yeah. If you look at the market cap out of Muse to Meta, maybe that 15 billion seems cheap
Speaker 2now. I'm also like so happy for Zuck. It feels like he's kind of almost got like a co-founder in Alex Wang, who he can delegate some of the shit to. I mean, Zuck is a great capital allocator.
Speaker 1Go back and look at the history of his capital allocation has been phenomenal. Best of CEOs. He bought Instagram for a billion dollars.
Speaker 2He has executed. He bought a Narvo for 400 million, which allows him to. Which allowed him to see everything that worked.
Speaker 1So smart. Like, I think they're incredible technologists, but I think there are very few people, I think, who are incredible technologists and good capital allocators. Zuck is right up there.
Speaker 2If you could choose one skill for a founder at scale between capital allocation or product visionary, what would you choose? I'd choose capital allocation.
Speaker 1Because by the way, capital allocation by itself also captures product visionary, because you're allocating the capital to the things that matter. So in some ways, you know, part of the dynamics of deciding on capital allocation. is which product direction you need to go. The other way is not true, there are some people are going to be great product visionaries, but who might not think about what is going to be the return on that.
Speaker 2Everett Snap. Love the dude. I mean, like free candy every year. SBC through the roof.
Speaker 3You a shareholder of Snap?
Speaker 1We are not a shareholder of Snap, but look, Everett's a product genius. There's no question about that. Genius. Right? And his vision for Snapchat and what he's executed, I think it'd be fair to say you have not been rewarded being a shareholder of Snap, at least for the last seven, eight years.
Speaker 3Not been rewarded? I was trying to be polite here. That's like giving Titanic
Speaker 2an eight out of 10 in the holiday review book.
Speaker 3That's incredible. I'm not being rewarded.
Speaker 2I've not been rewarded. I blow hard. Yeah, no, that's a good way to put it. Okay, that's really interesting. Are you worried by how much money is being made by people? I'm seeing sales reps at Open AI walk out with 30, 40 million bucks.
Speaker 1You know, here's the thing. I always believe this. Money doesn't change people. It reveals them. So what do I mean by that? It's money and power. People think change is people. No, it only reveals them. What it means, like, if you're an asshole before, when you have money and power, you reveal that. What I have found is that the people who are really motivated, they're going to be motivated, even if they have lots of money. And the people who are not motivated, who are acting it, when the money shows up, they will opt out. And so to me, it won't change for the A players because for the A players, money is just a way of keeping score, but what they love is the game.
Speaker 2So you're not worried about house prices in the Bay and the inflation that we're going to see with the A players? With IPOs from SpaceX, Anthropic, OpenAI, that worries you? Of course it does.
Speaker 1I mean, it changes the character of the place. But the real issue we have, and this is an issue in California, hopefully not in London, is a question of supply. It's not a question of demand. Like, at the end of the day, we have tremendously increased the cost and the process of building a house. There's no supply coming in. So any uptick in demand results in prices going up. The way to address that is not to worry about the demand, but to increase the supply of housing stock. And we just do not have the collective willpower. For a progressive state, there's more nimbyism in California than I expected. And the nimbyism prevents you from building more housing stock.
Speaker 2I saw a tweet where you said something. You responded to Brian Armstrong. I do my work. OK, all right. That's dangerous. Yeah, it is dangerous, but I'm joining you on this side if this is where you're going. And you said, I appreciate your leadership through the woke times.
Speaker 1I mean, I think what I particularly appreciated about Brian is that he laid out his principles of what he believed. And he told people, hey, if you really want to engage in political activism, then Coinbase is not the place for you because we do not want to have political dialogue here. And if that's important for you, you should go and find a place in which you can do it. I think that takes courage to say. And I think, but it's being true to what he wanted to do. And to me, I think that's most, that's the most important. Try to be authentic to who you are. And I think, I appreciated him being authentic when I think it came at a cost, right? There were definitely, he was castigated in the press and maybe on Twitter and he had people leave. But I think he ultimately said, we want people who are authentic to Coinbase values articulated by me, the founder.
Speaker 2Have you ever been inauthentic to who you are?
Speaker 1I think there are times when, you know, you say certain things to founders because you want them to like you or you want to win a deal that may not be truly authentic. What I'll tell you is that I have dealt with my own insecurities and feeling like an imposter. And I've gotten more comfortable in my skin now where I just feel like I just don't do it. And if it means I have to say something inauthentic to me to win the deal, I'd rather not win it. But that's easy to say because I'm sort of at the point in my life where like, you know, that win doesn't matter. Of course, I like to win, but it's not going to change my life. So I always say it's very different when you're a 25-year-old and you're trying to build your career. You do whatever it takes to win. And so in some way, morality is sort of a privilege to the people who already succeeded. It's easy to be moral now when you already have the things you have. The question is, will I be a moral person if I were to go back 20 years ago and start there? That's the real test. And I don't think I've lived to that test as much as I would like. Are you a better investor now you're richer? Yes. You're not afraid as much. You're not afraid of failure. You're willing to go all in and go to the hilt. And so I just think you can go for broke more easily. It's sort of like, think about it on a poker table. The guy with the big amount of chips has so much leverage to win, right? They see more cards. And so ironically, and this is why I think, you know, like the way our capitalism system is set up, the rich are going to get richer because they just have more opportunities to be the bully in the poker table.
Speaker 2Does that mean emerging managers are just in the odd stack to get in some game? I don't see, and forgive me for this, I don't like binaries, but fuck it, we're in media, so you kind of, we don't have to do binaries. It depends, doesn't sell. 30 to $100 million funds are just the worst place to be.
Speaker 1Yes, they are today. That's a tough place to be because you're playing in a poker table where people have such high chip stacks. I think they were five years ago, dude. I think what happens is if you are lucky enough, right? And I don't know if this is true, but I'm sure if you were to go and look at the cap table, there was some small investor who wrote a check. Oh, Anjaneet wrote a check into Anthropic. Now, maybe he didn't have a fund then, but like you wrote a check, you were a 30 to $50 million check. You wrote a check into the, the Anthropic round, not the $4 million round we did, but like much earlier.
Speaker 2You're doing fine. Yeah, but he was an angel not competing four rounds. And so what I'm saying is the 30 to $100 million funds where they need to move like a million, two million, three million. It's kind of a pain to fit them into rounds. No, I'm actually putting in 100K or 200K, sure. I mean, I would, yes.
Speaker 1I'm just, your principle is right, but I'm just trying to think about counting. I try to be intellectually honest, right? Think about conviction. How did Sarah and, how big was Sarah's fund? I want to say $200 million. And she found a way to be in some of the most interesting companies. Can be done.
Speaker 2And then you've got Dave Tisch. I think it'd be a really good example actually as well with Box Group. Yeah. Like it goes against the portfolio construction that all LPs love, which is high ownership, concentrated portfolio. I
Speaker 1think there's always people who figure out how to play agency odds, right? And so, but they are the best of the best. And so you don't want to extrapolate. But in general, those are tough places to be unless you're exceptional. And I think like I was reading a tweet between Sarah and Dave and Sarah and Patrick Grady and Patrick Grady, like she was like, Sarah was telling LPs like, my strategies are just going to work harder. That's probably the truth, right? The truth is everybody wants to have some magic strategy that you're going to do that nobody else is going to do. There's no magic strategy. Everybody in the venture industry is smart. You have to out hustle and have grit to make through and Sarah definitely has to.
Speaker 2Final one before we do a quick fire. We mentioned PE being challenged in a lot of ways by a lot of AI companies. We're seeing the keys being handed back at companies like Medallia. We're seeing partly a lot of struggling companies in a lot of these PE providers books. Is PE pretty structurally fucked?
Speaker 1Look, they're smart guys and they know how to figure out and operate these companies, right? They also have majority control. In some ways, the venture backed companies that SaaS companies where people paid high multiples, the ad tables and murals and they got spooned as I say. And I think those are the toughest situation doing it. I think PE is a challenge too. But the reason why I say the venture backed companies are even tougher situation at least at PE you have a majority owner who controls the company, who can do things. You have a lot of zombie SaaS companies where nobody owns enough to be able to do anything. Nobody cares. And so how do you actually land that ship? At least at PE, they can do some stuff to it. Now, landing that ship is going to be hard for everybody. But I think in that class of 2021 SaaS companies, the best outcome is getting spooned, which really means getting your capital back. And the worst
Speaker 2outcome is going to be zero. Good old bending spoons, European, just going to put it out there. So the quickfire is a combination of mine and Joff on your team. Joff. Yeah, he came back with some bangers.
Speaker 3My partner sir.
Speaker 1Why do you love pocket squares? When I was growing up, I didn't care about how I dressed and I did not take any effort into it. Until I had this one conversation with my dad when he said, listen, when you dress, you're not dressing for yourself, you're dressing for others. Showing them that this is an important meeting, that you're expressing the importance of what you're doing to them. And so to me, I know my partners make fun of this, I dress up for partner meetings because it's like, it's a self message to me about the people I'm meeting are very important and what I'm going to do is important. I need to take that very seriously.
Speaker 2Well, now I feel guilty. Oh, Christ, way to make me go. Joff teed me up for that one, didn't he? Gosh, I like that, it's really nice. Yeah, yeah, fuck, good. Well done, I should probably think about that more. You can invest in one seed fund and one growth fund. It's not Menlo. Which fund do you invest in?
Speaker 1I have tremendous respect for the Bessemer folks. I was a co-founder with Byron and I've known David Kahn and I think they are super disciplined. So if I could invest outside of Menlo, I would invest in Bessemer. That's for the growth fund. What about the seed fund? You know, so I'm looking for people who are gonna be interesting AI companies. There's this group of guys called, E14, out of MIT. And I find them to be interesting AI companies and they seem to really understand the MIT ecosystem, so. Who, when you hear you're competing against them, are you like, "Oh, fuck." I think of more people than firms, but I would say Benchmark, super hard to beat.
Speaker 2Are Benchmark harder to beat than Sequoia?
Speaker 1I think so. I mean, obviously they're both great firms, but like Benchmark, I think is super hard to beat. whatever they do, combination, of Eric, Chetan, and Everett, and Jack, they are just a beast.
Speaker 2What would be your single biggest piece of advice to an LP allocating into venture in this time?
Speaker 1Look at the windshield, not the rearview mirror. The results and financial performance are rearview mirror calculations. And they're good about telling you what they did in the past. They don't tell you how some firm's going to do. Performance is a lagging indicator. And it's actually a five to seven year lagging indicator. So my advice would be call a bunch of entrepreneurs or successful AI companies and ask them who are the partners they respect. And my aim is they didn't take the money. And if the firm you're talking to doesn't have a few of those partners in the mix, then that's your windshield.
Speaker 2How do you stop your team getting arrogant? You guys have got the winning hand.
Speaker 1You're only as good as your last investment. It doesn't matter if you're the lion or the antelope in the savannah. You wake up in the morning, if you're the lion, if you don't run, you don't eat. If you're the antelope, you don't run, you don't live. You just have to run. I feel like you have to think about the most important meeting is the next one. The most important investment is the next one. The most important board meeting is the next one. And if you don't spend time in the present thinking about it, I think you lose this game.
Speaker 2What's the secret to marriage when you scale wealth over time together?
Speaker 1Oh, wow. Well, you got to marry someone better than you, which I did. Thank you. Thank you. And you got to convince her to stay with you or him, whatever your preference might be. Finding a life partner who inspires you to be the best version of yourself and supports you to be that is, I think, critical. And if you can do that for each other, I think that'll be good. I think at the core of long-term marriage is, I think, real respect. It's love and real respect, but I think respect is super important. And that comes from inspiring each other to be the best
Speaker 2version of you can be. What's the best advice? You've ever been given? You mentioned Mr. Steve Sloan and his father-in-law. His father-in-law is one of my greatest friends. And he once said to me, you're never wrong to do the right thing, but the right thing is very often the hard thing.
Speaker 1Yeah. I think the best advice I've gotten, I've really centered around being around people. I think that Ronald Reagan has a quote that Tom Reilly, who was the CEO of Trigger, told me once. He said that there's no limit to what a person can do as long as they're successful. And I think that's the best advice I've gotten. And I think they don't care who gets the credit. I have felt when I was early in my career, I was very focused on getting credit. I really like, am I going to get credit? And then I have let go of that and focused on just doing what's right and not worrying about if I'm going to get credit. That's actually been pretty freeing. And I think that's made me a better teammate.
Speaker 2I love that. I didn't think there's a better way to end than on that. Your humility is astonishing. It's really just like, one, you're very calming. I almost feel like you should be on headspace or calm, one. And two, it's just a wonderful humility that I
Speaker 3rarely see in a venture investor. But thank you so much for doing this with me. You have too many successful people on your show. I'm trying to lower the bar for you.
Speaker 2I've so enjoyed this. Thank you for doing it. And you see shows like this, why it's so much better in person. You can't have this virtue. So thank you for doing it. Thank you, Harry.
Speaker 1And thank you for. Look, I have to say, my colleague Claire was coming with me and she said, I watch Harry all the time. He has become my favorite show, especially the one you do with Rory and Jason. And this is what she said. This is Trump, the all-in podcast as my number one show. So I have to say, you're getting fans all over the place.
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