Nov 6, 2020 · 36m · 20vc
20VC: Zach Weinberg on Whether A Company is a Democracy, The Importance of Ownership, The Rise of Pre-Emptive Rounds, Multi-Stage Funds Entering Seed and How he Approaches Both Risk and Personal Capital Allocation
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In this episode of The Twenty VC, host Harry Stebbings interviews Zach Weinberg, co-founder of Operator Partners and Flatiron Health, to explore operator-led venture investing, personal risk management, and startup governance. Weinberg shares candid insights on seed valuations, founder alignment, corporate culture, and navigating changing venture capital dynamics.
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 33.2% of the talking time here. How this is scored →
Harry as informed peer 3.7 Guest teaching 3.3 Guest disagreement 2.6 Harry pushing back 2.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 31:28 Calling Keith Raboy a 'giant doofus'
Zach aggressively attacks Keith Raboy for tweeting out healthcare opinions without expertise, calling him a 'giant doofus' whose statements are 'harmful and dangerous'.
Hardest push from Harry ▶ 10:02 Challenging non-binary workplace political stancesHarry pushes back directly against Zach's proposal for company guardrails on politics, arguing that human emotional volatility makes binary rules the only practical option.
Biggest teaching moment ▶ 17:12 Explaining why market timing is irrelevant in early VCZach educates Harry on why market timing is pointless at the seed stage, explaining that 10-12 year liquidity cycles span multiple macro business cycles.
Harry holds his own ▶ 32:11 Countering VC critique with 'Isn't that venture capital?'When Zach criticizes investors for speaking with unearned confidence outside their expertise, Harry delivers a witty, knowledgeable counter asking 'Isn't that venture capital?'
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Zach Weinberg's Journey from Founder to Operator-Investor | 2 | 2 | 1 | 1 | Harry asks standard foundational questions about Zach's entry into startups and personal asset allocation. Zach shares his journey from Invite Media and Flatiron to Operator Partners, explaining his framework of allocating 20% to 40% of personal wealth into early-stage investing. | |
| Understanding Risk, Family Backstops, and the True Value of Wealth | 3 | 3 | 2 | 1 | Harry introduces personal reflections on money and happiness, touching on taboo topics like family backstops. Zach candidly acknowledges that upper-middle-class family safety nets reduce risk aversion and reframes wealth as freedom of time rather than conspicuous consumption. | |
| Corporate Stances, Company Culture, and the Coinbase Debate | 4 | 3 | 4 | 5 | Zach criticizes Coinbase CEO Brian Armstrong's anti-political stance, arguing companies should stand for values publicly while maintaining workplace boundaries. Harry pushes back directly, asking whether subjective emotional responses force a binary approach. | |
| Corporate Governance and the Limits of Workplace Democracy | 3 | 3 | 3 | 4 | Harry brings up Jeff Lewis's perspective that companies are not democracies. Zach agrees with the CEO authority premise but argues that democratic erosion ultimately impacts corporate survival. | |
| Evaluating First-Time vs. Second-Time Founders | 4 | 4 | 2 | 2 | Harry quotes Joe Fernandez regarding serial entrepreneurs and asks about seed valuation mechanics. Zach details why second-time founders with modest initial exits are prime targets and breaks down round multiple math. | |
| Assessing Market Size & Existing Budgets | 4 | 4 | 2 | 3 | Harry asks about market timing and references a tweet on Peloton's pivot. Zach explicitly rejects market timing, noting early-stage startup cycles last 10 to 12 years across multiple economic fluctuations. | |
| Reserve Allocation and Pro-Rata Decision Frameworks | 4 | 3 | 1 | 2 | Harry queries reserve allocation and secondary sales for founders. Zach outlines his personal pro-rata rules and advises founders to take modest secondary money off the table (<5% of equity) to encourage ambitious long-term decision making. | |
| Multi-Stage Funds Entering Seed-Stage Investing | 5 | 4 | 3 | 3 | Harry offers a sharp critique of multi-stage funds entering early rounds with inflated valuations. Zach offers a contrarian perspective, noting that founders should take advantage of cheap capital while macro low-interest rates drive fund behaviors. | |
| Cultivating Trust and Alignment with Founders | 3 | 3 | 1 | 2 | Discussion centers on building trust with founders without LP pressure and managing ownership expectations. Zach highlights that investing personal capital creates pure alignment without board politics. | |
| Early-Stage Board Dynamics and Best Practices | 5 | 4 | 7 | 5 | During the quickfire round, Zach strongly attacks investor Keith Raboy over healthcare tweets, calling him a 'giant doofus' giving dangerous advice. Harry retorts with a sharp one-liner questioning if overconfidence is just the nature of venture capital. |
Statements from this episode (26)
Roche acquired Flatiron Health for $2 billion
“Flatiron Health, acquired by Roche for two billion dollars”
Google acquired Invite Media for $81 million
“Before Flatiron, Zatco founded Invite Media, acquired by Google for eighty-one million dollars.”
Weinberg allocated 20% of his first exit's wealth to startup investing
“After we sold the first business, I would say we tried to come up with a number. I think it ended up being around 20% where it's like, okay, if I lose this, it's not going to be fun, but I'm not going to worry too much. Like I'll be okay. And we felt like 20% …”
Weinberg targets allocating 30% to 40% of his capital to startups
“This time around, we're looking closer to, like, 30 or 40% over time.”
Weinberg: Upper-middle-class family safety nets enable founders to take startup risks
“The reality is if you've got family wealth, and we're not talking about having to have tens of millions of dollars here, you can just be upper middle class wealth, let's call it. It makes it a lot easier to make a leap and to do a startup because in the back o…”
Weinberg: Wealth increases happiness by providing total flexibility over time
“I actually would say the money has made me happier. Maybe I'm not supposed to say it, but it's true, but it's not because, oh, I get to go around like spending it on cars and houses and stuff like that. It's just the flexibility to choose where you want to spe…”
Weinberg: It is naive for modern companies to claim complete societal neutrality
“To me, I think it's a little naive to think that a company can just say, we stand for absolutely nothing but our business. And maybe that was true 5060 years ago, but I just don't believe that that's true today.”
Weinberg: Companies can take public stances while prohibiting workplace political debates
“You can say, I believe these things are important, and also say to an employee base, however, don't bring it into the day-to-day office, don't bully people, and if you do bully people, and if you do push people based on their beliefs, we're going to fire you, …”
Weinberg: Tech companies are not democracies; control rests with CEOs and boards
“And Jeff is completely right. It is not a democracy and it's really up to the CEO. And then ultimately the board who controls who the CEO is.”
Weinberg: Financial independence enabled me to speak freely on Twitter
“I don't need to ask anybody for anything anymore, I guess, and there's a freedom to that. I don't have to rely on somebody else saying, oh, I like this person, let me help him, and I guess that's a little liberating. And you'll notice I didn't necessarily have…”
Weinberg: Companies should take socio-political stances before their business is affected
“There are things that eventually have an effect on the business, and you need to make a stand on them before they have that effect.”
Weinberg: Second-time founders with small first exits are the best investments
“I have found that second time founders who had a good but small first outcome are by far and away the best people to invest in.”
Weinberg: Most giant technology companies were started by first-time founders
“I mean, plenty of giant companies, most of giant companies were started by first time founders.”
Weinberg: Seed investments must project at least a 2x Series A step-up
“And we're looking for things where the multiple on the next round, not because I care about the markup at all, but because it shows Real growth and real value creation is more than like two X, let's call it as a baseline. So if I'm going to fund a company at a…”
Weinberg: For every seed win with a markup, three or four fail
“Because for every one of those checks that you write that gets there, there's like three or four that don't. And it's got to pay for the ones that don't get there. And that's the venture math, right? Your winners have to win big and they have to pay for all th…”
Weinberg: Startup liquidity cycle times are now 10 years or longer
“I think the cycle times on these companies are so long. We used to say seven years, but I think it's actually much closer to 10, if not longer.”
Weinberg: Shifting existing customer budgets is easier than creating new ones
“It's a lot easier to go after a market where people are already budgeting for that type of expense, whether it's a business is already budgeting for it, And you're just shifting it from where they spend it today to what you're going to do. And that's a lot eas…”
Weinberg: Operator Partners exercises Series A pro-rata rights 100% of the time
“For now, what we're generally saying is if the Series A Is getting done and it's getting done at a price that we feel like is reasonable for the business, which most of them are, by the way, that's 80, 90%. Then a hundred percent of the time we're going to par…”
Weinberg: Initial checks drive almost all value in venture returns
“I'm more and more convinced that it kind of doesn't matter. And actually by far the most important thing is did you get into the right great company in the first place? It's the initial check that drives almost all the value.”
Weinberg: Operator Partners almost never sells equity in secondary transactions
“So to be clear, we won't sell. It's just sometimes we may not buy. The prorata. But we're basically never selling in a secondary.”
Weinberg: Founders should sell under 5% of equity in secondary sales
“For the founder, I encourage them to take enough money off the table that they're comfortable taking a big swing at a bigger outcome. And for some people, just to put some numbers against it, some people, that's a million dollars. Because remember, you're goin…”
Weinberg: Multi-stage seed strategy will only work for top-tier funds
“And my guess, and I haven't modeled this, but my guess is, as with all of these things, there will be a subset of these funds where it works. Because they catch the five companies that they can continue to plow money into and end up putting five hundred millio…”
Weinberg: Venture fund returns are dropping to 1.5x to 2x
“You're seeing fund returns come down. You're not seeing five X, six X funds. You're seeing one and a half X, two X funds, and some that are probably even one X funds where you pile in and something goes really wrong.”
Weinberg: Founders considering preemptive rounds must do realistic bottoms-up milestone planning
“The conversation usually with them is a, what I would call like a private one-on-one of, take your sales hat off, For a second, take your hype person hat off. Cause as a founder, you know, you're selling every single day, whether it's to recruits or customers …”
Weinberg: Keith Rabois is a "giant doofus" regarding healthcare
“I think the guy is a giant doofus, and I would continue to hold my belief that he's a giant doofus, and I'll be very specific about why. I think Keith Raboy is probably a phenomenal technical investor, software company investor. It seems to me to be an amazing…”