Jul 22, 2024 · 1h 9m · news
Kevin Hartz: "How I Lost Airbnb at Seed Because of an Exploding Term Sheet" | E1180 · 20VC with Harry Stebbings
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In this deep-dive interview, legendary investor and founder Kevin Hartz shares his battle-tested philosophies on spotting 'spiky' talent, navigating power-law dynamics, and resisting toxic term sheet tactics, while offering rare, vulnerable insights into personal struggles and the future of mental health therapeutics.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 30.5% of the talking time here. How this is scored →
Harry as informed peer 4.0 Guest teaching 3.4 Guest disagreement 1.5 Harry pushing back 2.4
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 50:40 Defending holding positions long-term
Kevin resists Harry's pressure to take early secondary liquidity by pointing to massive long-term compounders like Facebook, arguing that true venture upside comes from letting winners run.
Hardest push from Harry ▶ 49:55 Challenging liquidity discipline on OpenSeaHarry forcefully refuses Kevin's rationale for holding through OpenSea's peak, insisting that taking 25% off the table at a 300x-400x return is common sense portfolio management.
Biggest teaching moment ▶ 56:40 Roloff Botha's founder support modelKevin educates Harry on Roloff Botha's counter-intuitive management rule: provide calm nurture when a startup is in crisis, and save tough love for when the company is thriving.
Harry holds his own ▶ 9:27 Diagnostic breakdown of founder traitsHarry demonstrates impressive domain expertise by analyzing Kevin's personal childhood history against a rigorous set of early founder indicators including early hustle, school binary sentiment, and ADHD.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Welcome to London and Childhood Reflections | 3 | 2 | 1 | 1 | Harry opens with an intimate personal story about his mother's MS to invite personal reflections from Kevin. Kevin notes he had a rather idyllic childhood, subverting the typical narrative of hardship-driven founders. | |
| Stanford Minds: Lessons from Peter Thiel and Roloff Botha | 3 | 4 | 1 | 1 | Harry names key mentors provided by Kevin's wife Julia, including Peter Thiel and Roloff Botha. Kevin shares key character traits and lessons learned from both investors. | |
| Pierre Lamond's Culture of Uncompromising Excellence | 2 | 5 | 1 | 1 | Kevin shares an anecdote about Pierre Lamond asking him to force rank his direct reports on a whiteboard and immediately crossing off the bottom person to enforce a culture of excellence. | |
| Sourcing Early Talent and Entrepreneurial Origins | 6 | 3 | 1 | 2 | Harry actively analyzes Kevin's background using a structured mental framework for identifying founder traits, citing early side hustles, school sentiment, and ADHD as key signals. | |
| Over-Capitalization and the Value of VC Governance | 5 | 4 | 2 | 4 | Both agree that over-capitalization distorts startup discipline. Harry challenges whether VCs add genuine value through governance versus acting as overbearing parents, prompting Kevin to frame VC styles on a spectrum between Sequoia and Founders Fund. | |
| Team Spikiness and the Allure of First-Time Founders | 4 | 3 | 1 | 2 | Harry cites insights from Matt Clifford regarding founding team spikiness. Kevin elaborates on his soft spot for first-time, youthful founders despite statistical arguments favoring serial entrepreneurs. | |
| The Airbnb Seed Round: Distributed Hotel for the Planet | 3 | 3 | 1 | 1 | Kevin recalls the non-obvious nature of Airbnb during its seed stage, metaphorically describing it as distributed storage for human beings across the planet. | |
| Concentrating Capital and Sitting on Companies for Life | 4 | 3 | 2 | 2 | Harry asks about liquidity discipline after acknowledging his own historical selling mistakes with BeReal and Hopin. Kevin firmly reiterates his philosophy of holding power law winners for life. | |
| Transitioning from Angel to Venture Capital | 6 | 4 | 2 | 6 | Harry challenges the current seed landscape, asserting that high entry valuations and multi-stage funds make it a terrible market for seed investors. Kevin jokingly agrees before explaining A-Star's barbell strategy. | |
| Leading Rounds, Sharp Elbows, and Operator Empathy | 5 | 4 | 2 | 3 | Harry presses on whether accepting non-lead checks damages fund positioning. They also debate whether operator experience creates investor empathy or excessive toughness. | |
| Series B Sourcing and the Sins of Omission | 4 | 4 | 1 | 2 | Harry tests Kevin's math on fund allocation for Series B rounds. Kevin discusses sins of omission, recalling how burnout led him to dismiss YouTube in its early days. | |
| Single Meetings, Feedback, and Michael Moritz's Evasion | 3 | 3 | 2 | 2 | Harry emphasizes that a single meeting can alter generations, stressing the need to treat every founder respectfully. Kevin shares how Michael Moritz used fake phone calls to evade founders. | |
| Exploding Term Sheets and Founder Lockdown | 4 | 3 | 2 | 3 | Kevin confesses to issuing an exploding term sheet to Airbnb early on that drew criticism from Paul Graham. Harry probes the mechanics of securing deals without resorting to coercive pressure. | |
| Analyzing TokBox: Kevin's Biggest Investment Failure | 5 | 4 | 1 | 1 | Harry showcases deep industry knowledge by correctly naming the CEO and context of TokBox before Kevin finishes explaining, surprising Kevin with his encyclopedic memory. | |
| Co-Founding an Incubator for Retro Hits | 4 | 2 | 1 | 1 | Harry and Kevin banter lightheartedly about co-founding an incubator designed to resurrect former consumer tech hit concepts like HQ Trivia and MadBid. | |
| Market Timing and Looking Ahead | 3 | 3 | 1 | 1 | Kevin emphasizes looking 3-7 years ahead rather than copying current trends. They discuss portfolio management and avoiding lifestyle founders. | |
| OpenSea and Taking Money Off the Table | 6 | 4 | 3 | 8 | Harry directly pushes back on Kevin's refusal to take secondary liquidity in OpenSea during its peak $13.5B valuation, arguing that a seed investor should secure a multi-hundred-x return. | |
| Regret of Not Joining Palantir and Risk-Taking | 4 | 4 | 2 | 3 | Kevin recounts turning down Peter Thiel's invite to join Palantir over privacy reservations. They debate partnership decision-making and Founders Fund's single-partner conviction model. | |
| Nurturing Support vs. Tough Love for Founders | 4 | 5 | 3 | 5 | Kevin presents Roloff Botha's principle of offering nurturing support when startups struggle and applying pressure when they succeed. Harry explicitly disagrees, advocating for individualized tough love. | |
| Personal Struggles: Dealing with Eating Disorders | 2 | 2 | 0 | 0 | Kevin candidly shares his teenage daughter's severe struggle with an eating disorder and the lack of effective treatments. Harry empathizes deeply, revealing his own past experience with bulimia. | |
| Mental Health Technologies and Neurological Therapeutics | 4 | 3 | 1 | 1 | They discuss the urgent societal need for neurological therapeutics. Kevin references Peter Thiel's early focus on brain health solutions before transitioning into a rapid-fire Q&A. |
Statements from this episode (35)
Hartz: Nvidia's valuation is a precursor to the bubble of all bubbles
“NVIDIA becoming the most valuable company on the planet is just the precursor towards the bubble of all bubbles.”
Hartz: Holding venture investments long-term allows power-law winners to dwarf all losses
“If you look historically over the decades, that if you just sit on all the companies, you know, and most will go to zero, your power law winners will be so massive, they'll just dwarf everything else.”
Hartz commits to holding his venture portfolio investments for life
“I'm not in the practice of selling, I'm in the practice of finding and building companies and sitting on these things for life.”
Hartz: Most successful founders felt an inevitability of success early on
“Most people I talk to that are founders that have gone on always knew from the very beginning.”
Pierre Lamond made Kevin Hartz force-rank direct reports and fire the lowest
“In the very first meeting, I'll always remember, he said, Kevin, I want you to go up to the whiteboard, and I want you to write your direct reports down, but I want you to force rank them, you know, one to seven, or how many it was, and so I go and I write the…”
Hartz would not have funded himself given his comfortable background
“I probably would have never given myself a check for, like, growing up in an easy, waspy, white, middle-class American town with, you know, no hard upbringing and a town full of lawyers and real estate people and doctors versus, you know, people like Max Levch…”
Stebbings: Extreme feelings about school and ADHD characterize the best founders
“Two, you either hate school or you love it. People that are okay tend to not be great. Really interesting, the binary is where you get great, and then also, like, ADHD is another, you know, as well as I do, clear sign of, like, the best founders have it.”
Hartz: Seed startups spend $10M to hit the same milestones as $1M
“I feel there's like Boyle's Law as applied to capital. So if you raise a million dollar round for your seed company, you'll spend it and build a company with that million. But if you raise five million or ten million, you'll spend it just the same and get to t…”
Hartz favors Sequoia's hands-on VC model over Founders Fund's hands-off approach
“Given those two extremes, I actually lean more towards, ah, the role of Sequoia's side, because I've just seen that kind of help and oversight and having that kind of star chamber of great talent cut so many corners of mistakes that would be made.”
Kevin Hartz prefers investing in first-time founders over serial entrepreneurs
“Well, I should be, you know, statistically focused on Serial, and we back a lot of Serial founders, you know, like Chad Hurley, and you know, we've, however, I just have a soft spot for first, first time founders.”
Hartz: Airbnb is distributed storage for people, mirroring enterprise cloud architecture
“I like to think about Airbnb as kind of distributed storage, but not for bits, or images, or sound, or video. It's distributed storage for people. You know, you can have a EMC big drive like on-prem in your enterprise, Or you can have things distributed, and i…”
Sequoia outbid Hartz on Airbnb's seed round, but founders included him anyway
“I was angel investing with Keith Rubois and Javid Karim, and Javid is the co-founder of YouTube. And, you know, we just fell in love with those guys and made them an offer. And Sequoia out, out did us and got the lead, but they cut us in nicely because, you kn…”
Stebbings regrets passing up secondary sales in BeReal, Hopin, and Clubhouse
“My biggest mistakes in the last few years, honestly, Kevin, were be real, hop in, a clubhouse. I could have sold in all of them, and I didn't.”
Hartz: Jason Calacanis screamed at him over ticketing TechCrunch events
“He used to call me up at Eventbrite and scream at me, like, for, you know, he had a big rivalry with TechCrunch, And when we would ticket things for TechCrunch, he would get really angry and like, just call me up and scream at me for doing that.”
Hartz: A* Uses 70/30 Barbell Strategy, Skipping Series A
“We are pre-seed and seed, and then some B, you know, kind of this 70, 30, mostly seed, but then when we see a great B, we love getting involved.”
Hartz: Brute TAM analysis is overdone; great teams expand small markets
“Brute TAM analysis is maybe overdone. I'd focus more on the teams. You know, great teams always find their way to kind of slingshot from a market, from the small market to the big market, or it takes the small market to become a big, to get into a big market.”
Hartz: Days of VC Funds Requiring 30% Ownership Are Long Gone
“Without a doubt we're out of that era where, you know, a Active investments for certain traditional funds, you know, they had to own at least 30%, or they couldn't be actively involved, you know, like, those days are kind of long gone.”
Hartz: Venture capital has entered an era of less cooperation between funds
“It does feel like a period of less cooperation and there needs to be a very specific reason why funds would work together.”
Hartz: Prior Operator Experience Is No Longer Required for Success in VC
“There used to be a vibe in the valley that said, oh, you've got to be an operator to be an investor, a venture investor. You've had to walk in the shoes, and that's changed”
Hartz: Investors Should Heavily Canvas Sectors Consensus Considers 'Dead'
“Whenever somebody tells you that an area is dead, make sure you, Like, heavily, like, canvas that area and go after it hard, because there's great stuff happening there.”
Hartz dismissed and missed an early investment opportunity in YouTube
“I think of when I was stepping down as CEO of Zoom, Keith and Roloff held a lunch for me in the city, in San Francisco. What was the name of that place? And Keith was talking about this YouTube thing. I was just kind of Burnout of like, you know, it was like a…”
Hartz: Michael Moritz faked a phone call to avoid founders
“I always remember seeing Michael Moritz speak, give a talk about Google in the early 2000, and there were all these founders there, and he puts his phone up to his face and pretends to talk, and then, like, walks out of the building, you know, and so nobody wo…”
Hartz: Paul Graham rejected his exploding term sheet for Airbnb's seed round
“Little known secret is Keith, Javed and I gave an exploding term sheet to Airbnb, and Paul Graham said no bueno, and teed off on us.”
Hartz: Exploding term sheet deadlines are artificial because VCs still want in
“Well, look, the issue is, is that you put a term sheet out in, in it, like, explodes on Friday at five PM, but does that mean? No, but does that mean that you, at five 15, you no longer want to invest? No, like the investor will always be there.”
Hartz names Airbnb, Pinterest, and Bitcoin as his top investment drivers
“Airbnb, Pinterest Bitcoin.”
Stebbings: BeReal ruined its momentum by failing to incorporate video features
“Be Real was a fantastic product innovation. That just fucked it with not doing enough video.”
Hartz argues OpenSea retains significant long-term value despite the NFT crash
“You know, I think the jury's still out. There's still a lot of value there in OpenSea.”
Hartz admits to investing in OpenSea at its $13.5B peak valuation
“Was this investor in OpenSea and during, you know, the boom of 21, 22, it was valued at 13 and a half billion.”
Hartz regrets turning down Peter Thiel's invitation to join Palantir at inception
“The day that acquisition of PayPal by eBay was announced Peter had resigned, and I met him up at the Sundeck restaurant in up on Sand Hill Road, and he said, you know, Kevin, I'm working on this business, and, you know, we're taking kind of the fraud algorithm…”
Founders Fund sold Spotify at $8B to double down on Airbnb
“It was Peter and Brian Zingerman and Napoleon that took what did they take? I think they sold Spotify at the eight billion dollar price, pissed off, what's his name? Daniel. Daniel Ek, and rolled it all into Airbnb at the two and a half billion.”
Hartz: VCs should offer calm support in crises, tough love during success
“Tough love is needed when it's doing extraordinarily well. Like, when things are going terribly wrong, And there are the, you know, butterflies, and stomach, you know, is, like, seized up, and teammates are quitting, and somebody's hacked the site, or whatever…”
Stebbings: Mental wellness apps like Calm and Headspace are not great businesses
“Calm or Headspace of the world, which makes mental wellness, health, they're not great businesses.”
Stebbings: Pre-seed angel investors should write uniform check sizes for every deal
“Write the same size check every deal. Like, everyone thinks, oh, I get different conviction levels. I'll write a hundred K check, and I'll write a 25. You're not that smart at pre-seed. Just write 50 K checks every time.”
Hartz: Y Combinator maintains an ideal venture model despite constant industry criticism
“Y Combinator continues to have this, like, ideal venture model. Like, as much as, you know, in every class that comes around, Like, the whole valley says, oh, now they've really jumped the shark, they're no good anymore, but like, year after year after year, t…”