The Exchanges

Q I would, though, love to start, Byron, and for those that maybe missed our round one, tell me, how did you make your way into what I know to be the wonderful world of venture and come to be one of the most successful cloud investors on the planet with Bessemer?

A Well, you're very kind, and, uh, Fortunately, I guess I have to say it was the hard way. I was a founder first and, uh, have a lot of empathy and scar tissue from founding an early cloud business back in wave one of this, uh, SAS or ASP waves that was known there. And I had the good fortune of working with Bessemer Venture Partners first as a CEO in their portfolio and getting to know them and a number of other great venture firms in the process. And so when we were fortunate enough to have a very good outcome from that business, and, uh, I came out of that with a lot of conviction around the cloud trend, it was natural to take advantage of that Five-year, two-way job interview to then turn over and join the group I respected most, which was the team at Bessemer, and I've been really thrilled and privileged to have been leading our cloud efforts for the last dozen years ever since.

AI assessment note: “I was a founder first... working with Bessemer Venture Partners first as a CEO”

Q I feel like an old man, if I'm honest. Like, looking for the next service titan or the next pro core when everyone else is shooting around with these incredibly cool companies. Is vertical SaaS as we know it Dead in the way that honestly kind of who gives a shit?

A I think it's a, it's a legitimate question. Our view is no, but it's a, it's an area of debate. And frankly, um, alpha comes from not only being right, but contrarian ideally, because you're going to get some, um, you know, some counter cycles in there. And our belief is that it's going through another cycle and AI is a foundational part of what vertical SAS is ahead of. Um, data models, uh, matter much more than they historically did. Um, connectivity and collaboration up and down the supply chain matter much more. Marketplace capabilities, um, are a defensible moat. There's a lot of attributes, um, that matter a lot. And as I think back on our vertical SaaS investments, you know, like a Shopify, um, or a Service Titan or a Toast, when they added payments, it became that big Next Horizon unlock for them and really doubled the TAM and the market caps for these businesses. I think AI is going to do the same thing, that what it can do, um, you know, with Service Titan, as they talk about automating the technician experience and the ability to go out there and have a co-pilot alongside of you. I was at the maintain X board meeting yesterday. They're doing the same thing, um, on the factory floor. When you look at luxury presence in real estate, what they can do for the real estate professional to interact with their clients. And so, uh, the competitive landscape is, is heating up …

AI assessment note: “Our view is no, but it's a, it's an area of debate.”

Q of my friends in Canva, and they did, not Canva, Anthropic, and they did it at like four, and when it was done at 60, they had like a 3.8 X. Because of the dilution. And that really struck me. And my question then is, well, amazing businesses and yes, generational defining, but the opportunity cost on that multiple is pretty high. Uh, how did you guys think about that?

A If you believe that's the end state, sure. But, um, you know, current, uh, reports suggest Anthropic may be raising at one 70 and, uh, people are buyers at that number believing that they could be one of the next hyperscalers in a trillion dollar business. So, um, You know, 3.8 X will keep you in business for a long time, but the reason to do it is because you believe it could be a 30 X. And that's the basis of our anthropic investment is we believe that it is a generational company. Now, there aren't going to be many of those. And so you have to be right. And that's the scary thing right now is that the stakes are way higher than they've ever been. And these businesses in some cases could still go to zero. Uh, and so you've got this, um, These hyper power law outcomes that are scary, and it is changing the nature of the game. I do think that scale matters from a, for venture firms to be able to play over this arc of private life. And on the flip side, the outcomes are going to be bigger than we've ever conceived of. I mean, I, I sold my company years ago for hundreds of millions of dollars, and that felt like all the money in the world and was the top outcome for our software cohort in that vintage back in 2005. You know, now that's a seed round for some of these businesses.

AI assessment note: “the reason to do it is because you believe it could be a 30 X”

Q A trillion. How much of that is legitimate versus synthetic hype?

A Uh, I think this is entirely legitimate, Harry. And that's the, that's the crazy thing. Now, of course, it's skewed towards the top. I think OpenAI, Um, X, uh, um, Anthropic, you know, Canva, Databricks, Stripe, go down the list. Uh, I think those are incredibly high quality companies that essentially are, are tradable public entities in a private wrapper today. So I think that those are entirely accurate marks and, and very real. And the quality level of this list has never been higher. And so I would, um, I, I think there's buyers and sellers at the marks all the way down the top 100. Now you can make a case that You know, one on one to 300 may have some walking wounded, some, you know, last round prices that are artificial and the like, but I think we've cleared most of that out of the system. And when you look at, ah, ah, Mr. Irrelevant, if you use the NFL draft analogy, number 100, it's an awesome company on the list. It, it's a great business that, you know, certainly people would be buyers at or above, um, the, the last round marks. And I think you're going to see that across the list. And so again, there's a trillion dollars of enterprise value sitting there. Um, that's not yet in the public markets and, and should be soon.

AI assessment note: “I think this is entirely legitimate, Harry. And that's the, that's the crazy thing.”

Q Market size misunderstanding, misestimation is the single greatest reason why great investments are not made. Do you bother doing outcome scenario plans, given for your best, you wildly misread them?

A Not only do we do it, we require it. Every one of our, uh, IRS investment recommendations is, uh, is our memo terminology has a scenario analysis at the end. And we also have actually published many of these on our website where we'll go back and publish the memos. And it's kind of embarrassing when we do, because you look at the just goes nuts upside scenario, and they're embarrassingly small. And it's not because as investors at the time, we don't believe that they could be much more, but we're trying to be rational and we're trying to, you know, bracket it in like a, in a medium term horizon that our partners will understand. And, and yet the tiebreaker of these deals is always the one that you in your gut believe can just go nuts and where the hundred X scenario is there. And so it's always this amusing back and forth where the vast majority of our deals that we put forward, you know, solve to a three X. And you're sitting there and like, you know, you look at these scenario analyses and it's like, why is it that every memo I'm reading solves to a three X? And it's because, you know, people are trying to balance and be rational and talk about capital loss and all these things. By the end of the day, the deals that get done, it's the ones where the, the, the partner sitting there saying, I'm pounding the table that the, the high end and more as possible. And, um, and that's,…

AI assessment note: “Not only do we do it, we require it.”

Q this and she's like, oh, what are you doing this afternoon? I'm like, I'm interviewing Byron and I told her about you. And I'm like, it's like, you've got it. 13 unicorns of like, I don't know, 30 companies. I mean, your hit rate is like ridiculous. Like, did you have a moment of self-doubt? Crisis of identity as an investor, like many are having post the 21 Zerp era.

A Oh, Harry, I've had so many. I mean, you, in our industry, you just wake up and you read TechCrunch or listen to some of your podcasts and you're reminded how bad we are at this job because there's so many cool things happening that we've missed. Um, my first roadmap at Bessemer was RFID, radio frequency identification, which, uh, was and is a zero trillion dollar market. Um, It was a total dud, and thankfully, I only made one investment there, and it also had a, a SaaS underpinning, so we ended up pivoting and making a few bucks, but, um, it was a stupid idea, and what I credit my partners with is, um, one, you know, uh, patience, but two, direct feedback, and so we iterated and pivoted, and because I wasn't hired as a radio frequency identification investor, I was given The opportunity to pivot. My secondary roadmap was cloud, by the way, which ended up being a pretty nice, you know, uh, uh, second act. But, um, it was a, it was a really bad idea. And so, you know, I had my first three investments were all very bad. My next two ended up being, you know, billion dollar IPOs.

AI assessment note: “Oh, Harry, I've had so many.”

Q I spoke to Doug Leone about this, where you have young people who make bad first investments. I certainly did the same. I thought WhatsApp for doctors and nurses would be a good business. What, what, what? Um, how did you get out of the trough or not get in it? Three bad is tough.

A Yes, um, again, I think that this is, uh, patience and support from the partnership to, to make enough shots on goal to, to get some statistical relevance out of the sample size. I, I remember, uh, uh, one of my great senior partners, Phil DeHardeman, who was a professor at HBS for years, Um, and I would go sit in one of his classes and, and have a long dinner or lunch with him. And, and he drew on the board my career, which is basically the straight line, you know, you know, with some bumps and then like a little bit of a tick up with a Cornerstone on demand and Eloqua and some of my early things. But he's like, he's like, just give it time, dude. Like you're, you know, you're wandering in the desert a bit. I know you're anxious, you're type A, you want success, but like this business is all about, um, you know, building a portfolio and putting yourself in a position to be successful. And don't, don't, you know, shoot out of the gun, you know, crazy big checks out of the gate, so if you go over three, you're done. Um, but, you know, ease into it. And, and that, Was hard to take at the time because, you know, we're all aggressive and enthusiastic in this industry, but it was the right feedback. And, you know, just, just resetting and learning and trying to get better, um, allowed me to be in a good headspace for subsequent investments and, and to keep going and to have some con…

AI assessment note: “patience and support from the partnership to, to make enough shots on goal”

Q I feel like an old man, if I'm honest. Like, looking for the next service titan or the next pro core when everyone else is shooting around with these incredibly cool companies. Is vertical SaaS as we know it Dead in the way that honestly kind of who gives a shit?

A I think it's a, it's a legitimate question. Our view is no, but it's a, it's an area of debate. And frankly, um, alpha comes from not only being right, but contrarian ideally, because you're going to get some, um, you know, some counter cycles in there. And our belief is that it's going through another cycle and AI is a foundational part of what vertical SAS is ahead of. Um, data models, uh, matter much more than they historically did. Um, connectivity and collaboration up and down the supply chain matter much more. Marketplace capabilities, um, are a defensible moat. There's a lot of attributes, um, that matter a lot. And as I think back on our vertical SaaS investments, you know, like a Shopify, um, or a Service Titan or a Toast, when they added payments, it became that big Next Horizon unlock for them and really doubled the TAM and the market caps for these businesses. I think AI is going to do the same thing, that what it can do, um, you know, with Service Titan, as they talk about automating the technician experience and the ability to go out there and have a co-pilot alongside of you. I was at the maintain X board meeting yesterday. They're doing the same thing, um, on the factory floor. When you look at luxury presence in real estate, what they can do for the real estate professional to interact with their clients. And so, uh, the competitive landscape is, is heating up …

AI assessment note: “Our view is no, but it's a, it's an area of debate.”

Q business, and as part of that, there's rules that are ingrained in you. Now, one of those rules is treble, treble, double, double. You know, the SaaS compounding growth, ah, journey. And I look at that, and I worry that what we've told founders with treble treble double double is no longer enough. Do you think that is correct, and we have now misled founders, and that isn't enough now?

A Don't get me wrong. It's still a pretty damn good business if you ride that arc and scale it. But, um, unfortunately, yes, uh, we just released a state of the AI report that broke this down and quantified it. And, um, we, uh, we're again geeks at heart, so forgive the, uh, um, uh, the analogy, but we, we referred to these AI ecosystems as galaxies. And talked about, um, some of these supernovas and shooting stars that are emerging where, uh, we're seeing businesses go from zero to a hundred million in 1.5 years. That's the supernova profile. Um, and, you know, Dario at Anthropics now been open with it. They're well past it. So I think he's more comfortable sharing the numbers, but, you know, zero, ten million, over a hundred million, over a billion the next year. And, you know, he's openly said there's a chance to cross ten billion, um, in the next year. And so, it is, it's a curve that goes like this. You know, we used to have this chart in our Stay the Cloud report that had a seven-year journey, and those were centaurs to a hundred million. Um, that, that, that has pulled in.

AI assessment note: “unfortunately, yes, uh, we just released a state of the AI report”

Q Is there one that comes to mind more?

A So, um, I would say on the positive, um, Twilio, we did exactly this. I would say with a company like Procore or Service Titan, we, um, we still were very large shareholders, but we had a lot of, um, a lot of people come in and follow, and I think this was one of the things, actually, you talked about vertical SaaS, so there is a good lesson in this. We underestimated TAM and weren't sure these could be fifty billion dollar businesses because we didn't yet unlock the payments expander, and so we miss assessed The, um, the total TAM and therefore got weak need investing, you know, into the billions and we should have, but we left a lot of money on the table. We own 28% of Shopify and Twilio at IPO and we owned, you know, well less than that of, uh, of Procore and Service Titan just because we, we, you know, included a lot of other investors downstream.

AI assessment note: “on the positive, um, Twilio, we did exactly this.”

Q Yeah, that's totally unfair. Uh, tell me, final one, what's your favorite story about working with the company? Many great stories ahead, but when you look back now, and this one you've told the most, you tell your kids, what's the one you love the most?

A Oh boy, I mean, there are countless long bike rides, and dinners, and ski outings, and whiteboarding sessions, uh, okay, two tangible ones, I'll cheat. One was, uh, Jeff standing outside the NYSE building on Market Street, waving the API flag. I literally am looking at the picture right now as I turn my head in my office. I've got it up in my office. Just such a fun, tangible moment of kind of developer empowerment, and then I'll tell you the one which was almost a complete disaster, which was in slow motion in my mind, was Jeff upside down on Woodside Road on a bike, and it was the day before his Forbes photo shoot, For what became his first magazine cover story. It was part of the Cloud 100. I love that we were able to help set it up. We were out there just to blow off steam, talk some strategy. He's gotten super fit, lost a bunch of weight, and so this was part of it. And we came up on this intersection, and a car kind of pinched him, and he went off the side of the road and dropped off. There was no shoulder. Hit a bunch of wood chips, and it was like my life flashing before my eyes, but it was, you know, Jeff's rear end in front of me going over his head upside down, and I'm like, oh my god, he's broken bones. He's gonna come up bloody. This is gonna be a mess. And he pops up smiling, not a bruise on his body. He had landed like in this, you know, total dumb luck, like woo…

AI assessment note: “okay, two tangible ones, I'll cheat. One was, uh, Jeff standing outside”

Q I'm really going for it with this interview. Are you worried about the market shitting the bed? I had a very, very well-known ambassador the other day tell me, Harry, you don't want to be the person that stops dancing before Mr. Brightside comes on. I'm like, okay. What do you think?

A So yes and yes. We published the BVP NASDAQ Emerging Cloud Index. WisdomTree has now licensed it for a DETF. It is the definitive Basket of cloud stocks to track the industry, the 58 pure play cloud stocks. That was up a hundred percent last year. It was literally the top performing ETF on all of NASDAQ, and number two tech ETF, I believe, worldwide. That's a reflection of the power of this industry, but it's also a statement that the average multiple is trading north of twenty-x revenue, and you look at a snowflake that's trading at 80 times revenue. That's not sustainable. Now, I can make that statement and also say, I think there's a real good chance these stock prices in absolute sense continue to go up. Meaning, these companies are growing at north of 40% on the public side, and on the private side, usually growing 80 to a hundred percent plus for the best companies, and so you can absorb some multiple compression and still compound value and be a win for everyone involved, and that's what I think is going to happen. I do think that hopefully we'll have a good year here, that inflation won't go too crazy, and the market won't pull back dramatically, but these good times go through cycles, and there will be a pullback at some point. I do think we're going to look back wistfully at these Cloud multiples, and enterprise multiples, and even consumer multiples, and say, those w…

AI assessment note: “So yes and yes. We published the BVP NASDAQ Emerging Cloud Index.”

Q you can invoice me later for that advice there, Byron, but I do want to finish on one final question for the quick fire, and it's, I spoke to Samir before the show, and he told me about your Cal rugby coach. So tell me, what made him so extraordinary, and are there any lessons that you've maybe applied to your life and role today from that experience with him?

A Day in and day out, I constantly look back on Jack Clark and the Cal rugby program. Absolutely. He's the winningest coach in collegiate sports history. I was fortunate to win four national championships as a player for him all four years. And I learned more about team building and leadership and feedback there than I did in the classrooms. And I still call on that today. I'm on the advisory board. I'm close with Jack and staff. I literally have a Cal motto printed out in my house, which is this notion of entitled to nothing, grateful for everything. And it's the reminder that we're fortunate by place of birth and by a lot of things that preceded us, but we're entitled to nothing. And every day we need to go out there and make a case for why we should be here. And we should be grateful for everything we have from family to professional success. And that for me is first and foremost. And when Jack comes and speaks to our CEOs or at events, that resonates deeply as do the leadership principles of personal and team success that I think every organization in a high performing way Need to embody, and if you want to be a champion in whatever you aspire to do, those team lessons are foundational and essential.

AI assessment note: “which is this notion of entitled to nothing, grateful for everything”

Q is another one of the laws mentioned in this, uh, legendary deck that is linked to in the, in the description and on the website so you can see it there. But, but, um, one of them is growing and growing efficiently. So how do you define efficient growth? You go on to say cash is king in the deck. Is that referring to burn? What's your take on this?

A Yes, so, um, both, uh, elements, they're interrelated in that, uh, to our prior conversation around customer acquisition costs and payback period, but also, you know, total cash consumption. There is very much this idea that, um, growth is still fundamentally rewarded, and it's the single most correlated variable in the short term, um, To enterprise value. Really, if you deconstruct, um, where the outliers are both good and bad, you'll find that it's efficient growth that's rewarded most. And you can think of it, um, in the, the public stock world, there's this notion of a peg ratio, kind of PE to growth, um, and the profitability relative to the growth ratio. Um, these businesses are losing cash in most cases, they're investing for growth. And so the peg ratio doesn't apply, but the same concept does. And we think of it in terms of What's the rate of investment to get a proportional amount of growth back? And a crude rule of thumb we use for call it series B companies, roughly that ten million dollar stage of ARR is one to one, which is we like to see for every dollar of net burn, we'd like to see a dollar of ARR growth added. So, uh, within a full year period to use, um, round numbers, let's assume that a business goes from twelve million ARR to twenty-four million ARR. Um, we'd like to see them burning an equivalent amount of a million dollars a month or twelve million dolla…

AI assessment note: “for every dollar of net burn, we'd like to see a dollar of ARR growth”

Q surprised as everyone else, to be honest. Um, I do want to start there. We were chatting before and you said, you know, a couple of years, um, but now it feels different and it feels great. And I actually, this was not in this beautiful agenda here. I wanted to start there. Why does it feel different and great now? And why are you optimistic bouncing into work today?

A Uh, I mean, this AI stuff is just awesome. I'm a tech geek at heart and, uh, we all look a little taller and sound a little smarter when, um, there's an uptrend in the market, but, uh, this one's different. Like this is, this is going to be the type of thing that we tell our grandkids about and that generations talk about this transitional moment. And, uh, It's absolutely awesome to be part of it. I, I think great businesses will be built, and money will be made, but just from the technology side, what we're going through is so damn cool to see, and I'm just loving it. It, it's neat to see mind-blowing demos again, and to be part of discussions of what can be, um, and things that you couldn't have conceived of a few years ago, and so it was, it was tough. It felt like a steady gut punch coming out of the, you know, the 2000, and, um, with the market pullback, and people questioning tech, and So many board meetings doing layoffs and just having to survive, um, and it's just awesome to be back on offense again.

AI assessment note: “it's just awesome to be back on offense again.”

Q And did you, did you have to learn to get comfortable doing that bar? And you're my friend. Like if I was right, like the transition from a twenty million dollar check, which is an awful lot of money. And we're both very grateful to have the luxury to write them, but that to a two hundred million,

A It is a very different muscle, and I'll tell you also, um, as you're alluding to, it, uh, it goes against your instincts when, when you have a business that's cranking, and you own a lot, and it's marked up, you know, 10 X, and another round comes up that's also at a, at a big forward multiple. This, um, you know, mental disconnect of, you know, hey, let's let someone else now come and mark it up and price it, let them run. I'm already sitting at a 10 X, that's great. Versus this, I want to be a buyer again and reset everything and, you know, put in two hundred million that now I need to go back to work and, and prove that I can dig out and get a return on again, et cetera. It's intimidating. And we've actually added people and processes to make sure that we don't get subject to this kind of mental inertia, um, where we, we invite in, you know, another partner to look at it and our best deals were constantly saying, You know, okay, we have the century team, which we call it, which we believe will be the iconic companies in the next century, and it's also a bit of a riff on our cloud 100. Um, but it's, it's a, it's a team that'll come and help and basically partner with you on a deal and say, okay, let's take a fresh look at this, let's re-underwrite it, and let's make sure that we believe there's a 10 X here ahead that can be there, and in which case, you know, let, let's doubl…

AI assessment note: “It is a very different muscle... It's intimidating. And we've actually added people and processes”

Q with in this next wave is will AI fundamentally transition the technology that we sell and create into the labor budget, not just the technology budget, or will it remain in the technology budget? If it does move, amazing. We open up a multi-trillion dollar market. If it doesn't, much less exciting. How do you think about that fundamental question of the ability to move to the human labor budget?

A Oh, that question's already being answered. It's not even a debate anymore, Harry. It's over. Um, these, these tech solutions are absolutely addressing, you know, software, hardware, and services budgets comprehensively, and they're doing it, um, in a very successful way. And if you look at, um, early adoption, In categories that skew this way. And so you asked, are we still doing, you know, early stage vertical SAS? We're going down accounting and legal and medical. We're going through these sectors where there's a lot of, you know, front edge humans doing busy work and paperwork, and we're supercharging them. We're taking away a lot of the, the manual, you know, transcription and summarization and error prone laborious processes, and we're freeing them up. You know, a bridge is freeing doctors up in their patient interactions to actually Interact and talk with a patient than having to turn around and type things into the, into the computer for most of the meeting.

AI assessment note: “these tech solutions are absolutely addressing, you know, software, hardware, and services budgets comprehensively”

Q A trillion. How much of that is legitimate versus synthetic hype?

A Uh, I think this is entirely legitimate, Harry. And that's the, that's the crazy thing. Now, of course, it's skewed towards the top. I think OpenAI, Um, X, uh, um, Anthropic, you know, Canva, Databricks, Stripe, go down the list. Uh, I think those are incredibly high quality companies that essentially are, are tradable public entities in a private wrapper today. So I think that those are entirely accurate marks and, and very real. And the quality level of this list has never been higher. And so I would, um, I, I think there's buyers and sellers at the marks all the way down the top 100. Now you can make a case that You know, one on one to 300 may have some walking wounded, some, you know, last round prices that are artificial and the like, but I think we've cleared most of that out of the system. And when you look at, ah, ah, Mr. Irrelevant, if you use the NFL draft analogy, number 100, it's an awesome company on the list. It, it's a great business that, you know, certainly people would be buyers at or above, um, the, the last round marks. And I think you're going to see that across the list. And so again, there's a trillion dollars of enterprise value sitting there. Um, that's not yet in the public markets and, and should be soon.

AI assessment note: “I think this is entirely legitimate, Harry. And that's the, that's the crazy thing.”

Q Market size misunderstanding, misestimation is the single greatest reason why great investments are not made. Do you bother doing outcome scenario plans, given for your best, you wildly misread them?

A Not only do we do it, we require it. Every one of our, uh, IRS investment recommendations is, uh, is our memo terminology has a scenario analysis at the end. And we also have actually published many of these on our website where we'll go back and publish the memos. And it's kind of embarrassing when we do, because you look at the just goes nuts upside scenario, and they're embarrassingly small. And it's not because as investors at the time, we don't believe that they could be much more, but we're trying to be rational and we're trying to, you know, bracket it in like a, in a medium term horizon that our partners will understand. And, and yet the tiebreaker of these deals is always the one that you in your gut believe can just go nuts and where the hundred X scenario is there. And so it's always this amusing back and forth where the vast majority of our deals that we put forward, you know, solve to a three X. And you're sitting there and like, you know, you look at these scenario analyses and it's like, why is it that every memo I'm reading solves to a three X? And it's because, you know, people are trying to balance and be rational and talk about capital loss and all these things. By the end of the day, the deals that get done, it's the ones where the, the, the partner sitting there saying, I'm pounding the table that the, the high end and more as possible. And, um, and that's,…

AI assessment note: “Not only do we do it, we require it.”

Q this and she's like, oh, what are you doing this afternoon? I'm like, I'm interviewing Byron and I told her about you. And I'm like, it's like, you've got it. 13 unicorns of like, I don't know, 30 companies. I mean, your hit rate is like ridiculous. Like, did you have a moment of self-doubt? Crisis of identity as an investor, like many are having post the 21 Zerp era.

A Oh, Harry, I've had so many. I mean, you, in our industry, you just wake up and you read TechCrunch or listen to some of your podcasts and you're reminded how bad we are at this job because there's so many cool things happening that we've missed. Um, my first roadmap at Bessemer was RFID, radio frequency identification, which, uh, was and is a zero trillion dollar market. Um, It was a total dud, and thankfully, I only made one investment there, and it also had a, a SaaS underpinning, so we ended up pivoting and making a few bucks, but, um, it was a stupid idea, and what I credit my partners with is, um, one, you know, uh, patience, but two, direct feedback, and so we iterated and pivoted, and because I wasn't hired as a radio frequency identification investor, I was given The opportunity to pivot. My secondary roadmap was cloud, by the way, which ended up being a pretty nice, you know, uh, uh, second act. But, um, it was a, it was a really bad idea. And so, you know, I had my first three investments were all very bad. My next two ended up being, you know, billion dollar IPOs.

AI assessment note: “Oh, Harry, I've had so many.”

Q I completely agree with you. Do you agree with Sequoia's evergreen fund structure in terms of a strategy?

A I agree that there's a lot of positives to it. This idea that, um, you, you have incentives to manage all the way through. Bessemer actually has a heritage where many decades ago we had some evergreen components to it. Um, but I do think it's hard. I think that public management's a different beast. I do think that the economics should be different. Um, and the end of the day, especially, um, in a DPI world, our, our LPs get paid to manage capital. Do the allocation, and, and a lot of them want the capital back. And so, um, you know, what the merits of consistency and, and fund flows and those things, um, have some trade-offs with hold periods and, and public duration. And I love innovation capital markets. Uh, we're seeing, you know, other firms adding asset management businesses and debt products and roll-ups and doing all sorts of things. Um, you know, there's, there's some kernels in there that we agree with. There's a lot in there we, we probably aren't going to pursue. But, uh, as a fan of capital markets and innovation, just, I applaud creativity and pushing bounds.

AI assessment note: “There's a lot in there we, we probably aren't going to pursue.”

Q because I think it's just so deep sectoral knowledge and networks that are so required. But if you actually look at the majority of great venture firms in terms of the winners that they've had, they've been in generalist funds. Um, I don't buy the defense firm, climate firm, fintech focused firm. Actually, do you know what? Stripe's been won by your general catalysts of the world. Not by others.

A So, I actually agree with you for the most part. I would say that you will get alpha from some of those funds, but the important thing is not to get ossified in an approach, and this is very much why we don't hire sector-specific investors, and we don't give you air cover if your sector goes out of favor, meaning our job's to make RLPs money, and if you're in a sector that's cooling off, you better get the hell out and go somewhere else that's going to make money, or like, you should stop investing, and The risk of having a semiconductor fund or a semiconductor team is that, you know, you carve out, pick a number, five hundred million to invest there. Like, you bet your ass they're going to invest five hundred million in semi, whether the right answer was two billion or zero. And, and that's the risk. And so we have a very different approach, which is we are constantly optimizing the incremental dollar across sector, but also, um, stage and geography. And we compete for dollars. And that is a mindset that we love, and it requires constant reinvention. The term we use internally is roadmaps. At every one of our off-sites, partners are presenting new roadmaps, and they're talking about themes, sectors, sub-sectors, um, you know, investment hypotheses that they have that they're going after, they're getting feedback, they're sharing, they're iterating, and if you don't constantly …

AI assessment note: “this is very much why we don't hire sector-specific investors”

Q And did you, did you have to learn to get comfortable doing that bar? And you're my friend. Like if I was right, like the transition from a twenty million dollar check, which is an awful lot of money. And we're both very grateful to have the luxury to write them, but that to a two hundred million,

A It is a very different muscle, and I'll tell you also, um, as you're alluding to, it, uh, it goes against your instincts when, when you have a business that's cranking, and you own a lot, and it's marked up, you know, 10 X, and another round comes up that's also at a, at a big forward multiple. This, um, you know, mental disconnect of, you know, hey, let's let someone else now come and mark it up and price it, let them run. I'm already sitting at a 10 X, that's great. Versus this, I want to be a buyer again and reset everything and, you know, put in two hundred million that now I need to go back to work and, and prove that I can dig out and get a return on again, et cetera. It's intimidating. And we've actually added people and processes to make sure that we don't get subject to this kind of mental inertia, um, where we, we invite in, you know, another partner to look at it and our best deals were constantly saying, You know, okay, we have the century team, which we call it, which we believe will be the iconic companies in the next century, and it's also a bit of a riff on our cloud 100. Um, but it's, it's a, it's a team that'll come and help and basically partner with you on a deal and say, okay, let's take a fresh look at this, let's re-underwrite it, and let's make sure that we believe there's a 10 X here ahead that can be there, and in which case, you know, let, let's doubl…

AI assessment note: “It is a very different muscle, and I'll tell you also... It's intimidating.”

Q and they said, the dude is just one of the only people who's done insanely well, respectfully financially, and it seemingly just doesn't matter to him. Like, he's just as hungry as ever. Doesn't kind of give a shit. He just wants to win more and more. Does the money not matter after a point and it's just about winning? How do you reflect on that comment from your competitor?

A Um, one, I, I wish you'd name them because that's incredibly flattering. I, I, um, I appreciate that and I, I love hearing that. I, I do think I try to live by that. Um, I mean, I'll confess when I sold my business long ago, my wife and I sat back and said, okay, like, hey, it's not life-changing money, but actually we could retire on that money. Do we want to move somewhere, raise a family, unplug? And I couldn't conceive of doing that. You know, we are all so damn fortunate. Like, there's a lot of great economics in this industry, and, and, um, we get paid way more than we deserve. But, um, it's just so damn fun to be in the middle of what we're doing. And, like, I, I can't imagine not doing this. Um, I, it's an incredible privilege to sit down with awesome people who want to change the world and help them do it. Like, it is, it is the coolest job on the planet. And so, like, I have no intention of stopping anytime soon. And the, and the money is, you know, is a nice byproduct of it, but, uh, but it's a cool gig.

AI assessment note: “And the money is, you know, is a nice byproduct of it”

Q To what extent do you care about margin when investing today? A lot of people are denigrating a lot of the specific app layer companies for having shitty margins. How do you think about the importance of good margins early when investing?

A So it was interesting how you worded the question. How do you think about margins when investing today? And I would separate, um, I would add some words in there, which is, I care a lot about margins on investments we make today, but the margin profile of the future. And a lot of these businesses that are doing transformative things may have really crappy, certainly net margins, but more importantly, where I think the question was going gross margins because of an investment profile that involves massive capex, um, et cetera. And so you can look at a business like a snowflake that had negative gross margins very late in their, in their life cycle. Um, and that was a precursor to the LL, LLM world, Where these businesses have had, you know, very tough gross margins in the early days, and you're now starting to see the leverage kick in. And so we are investing for the future. None of the investments we make are cash flow based in the short term. And in fact, very few of them are gross margin based in the short term. Um, but a lot of them do require you to look over the horizon and see what can happen. And in a business like a Stripe or a Twilio or Shopify, um, they went through those journeys as well. Um, many businesses have this really intense capital intensive investment horizon, even outside of frontier tech.

AI assessment note: “I care a lot about margins on investments we make today, but the margin profile of the future.”

Q with in this next wave is will AI fundamentally transition the technology that we sell and create into the labor budget, not just the technology budget, or will it remain in the technology budget? If it does move, amazing. We open up a multi-trillion dollar market. If it doesn't, much less exciting. How do you think about that fundamental question of the ability to move to the human labor budget?

A Oh, that question's already being answered. It's not even a debate anymore, Harry. It's over. Um, these, these tech solutions are absolutely addressing, you know, software, hardware, and services budgets comprehensively, and they're doing it, um, in a very successful way. And if you look at, um, early adoption, In categories that skew this way. And so you asked, are we still doing, you know, early stage vertical SAS? We're going down accounting and legal and medical. We're going through these sectors where there's a lot of, you know, front edge humans doing busy work and paperwork, and we're supercharging them. We're taking away a lot of the, the manual, you know, transcription and summarization and error prone laborious processes, and we're freeing them up. You know, a bridge is freeing doctors up in their patient interactions to actually Interact and talk with a patient than having to turn around and type things into the, into the computer for most of the meeting.

AI assessment note: “these tech solutions are absolutely addressing, you know, software, hardware, and services budgets comprehensively”

Q human labor budget. We've seen, I mean, one of your companies, Shopify, uh, unbelievable, like, 91% revenue growth in the last few years. With a 30% reduction in workforce. You're seeing Alex Karp say the same thing at Palantir. Reduction in workforce, massive growth in revenues. Are we seeing the era completely where it's dramatic reduction in workforce and optimization of revenue? More with less ruthless leadership on this behalf.

A We are. I just would push back on the, on the ruthless leadership point in the sense of, I love the statements these executives are making, which is, um, we're going to, we're going to give you all the tools in the world to supercharge your daily job so that you're doing the cool stuff again. You're doing the strategic, the architecture, the direction. Tech is going to work for you. You're not going to be a slave to tech, um, and it's going to enable you to have much more leverage. We're going to grow the business, but we don't need to grow the workforce to do it. And we're going to supercharge what everyone's doing. And so I think we're going to see the era of the micro business. I think that we're going to have, you know, 10 person companies that are crossing billion dollar valuations and, you know, kids in schools are going to be able to launch businesses in real time in, in ways that, you know, haven't been possible before. And so I think that is great for the economy. I've got three kids that are at various stages of entering the workforce. And so there's going to be disruption and that's scary. And I absolutely admit that Um, that we're going to go through this cycle that we all need to understand in terms of what entry-level jobs mean, the training, the enablement, those sorts of things. Um, but society's been through this many, many times before, and I believe that we w…

AI assessment note: “We are. I just would push back on the, on the ruthless leadership point”

Q I think it's this completely naive utopian view of like, oh, we're just gonna give you tools, you're gonna do more with, with them, and how beautiful. It's a reduction in force, Byron. It's not like, hey, just do more. Toby's cut thousands of people. Which has been a good decision for the business, but these 23 to thirty-year-olds are about to get hit with a train. Do you disagree?

A There's this, ah, awesome history going back to, ah, Bessemer Venture Partners namesake, the Bessemer Steel Process, which many people don't know. You look at newspaper clippings from a hundred years ago, and there's these great headlines and articles about the coming workforce dislocation. And factory workers, you know, being displaced because the Bessemer steel process is so much more efficient and the, the struggles the economy is going to face and society is going to face. And yet literally fast forward, you know, a few years later and buildings are built into the sky because skyscrapers are impossible with stronger steel and railroads are built across the U S and transportation and connectivity and commerce unlocks. Um, you read the articles about, you know, the phone operators, and I think it was four percent of the female workforce was Um, doing manual switchboards, and this idea of this huge dislocation of the workforce when that was automated. Um, you know, there's, there's hundreds of these micro cycles that have gone through with different tech disruptions and things. Um, it's coming, definitely, and at the same time, more opportunity is going to be created as a result, and the potential for these new workers to leverage technology to do amazing creative things. The, the micro, Film producer that can now, you know, release a, a, a movie that they can create on a lapt…

AI assessment note: “it's coming, definitely, and at the same time, more opportunity is going to be created”

Q I completely agree with you. Do you agree with Sequoia's evergreen fund structure in terms of a strategy?

A I agree that there's a lot of positives to it. This idea that, um, you, you have incentives to manage all the way through. Bessemer actually has a heritage where many decades ago we had some evergreen components to it. Um, but I do think it's hard. I think that public management's a different beast. I do think that the economics should be different. Um, and the end of the day, especially, um, in a DPI world, our, our LPs get paid to manage capital. Do the allocation, and, and a lot of them want the capital back. And so, um, you know, what the merits of consistency and, and fund flows and those things, um, have some trade-offs with hold periods and, and public duration. And I love innovation capital markets. Uh, we're seeing, you know, other firms adding asset management businesses and debt products and roll-ups and doing all sorts of things. Um, you know, there's, there's some kernels in there that we agree with. There's a lot in there we, we probably aren't going to pursue. But, uh, as a fan of capital markets and innovation, just, I applaud creativity and pushing bounds.

AI assessment note: “I agree that there's a lot of positives to it.”

Q out of every guest, and every single founder of yours, consistently said what a joy it was to work with you. It's a great MPS for the VCs, actually, but it was wonderful to hear. But like, the subsequent question for me is, because obviously, for you, you're a former founder. So do you think you actually engage differently with your companies than other VCs because of that prior experience?

A I do, and maybe somewhat embarrassing, I'd say that I, in some cases, I'm less active because there's more empathy there for the role, and I saw both sides. We were fortunate to have tremendously good investors with my company, but there were times where I do felt like the investors were trying to run certain functions and get into product strategy or get into, you know, sales execution. That was a level that was just Taking up our team's time or getting them in uncomfortable situations. And my job as CEO then was in some ways acting as that buffer. And so I'm trying to remember that and be much more appreciative of the transitions that teams go through and companies go through so that I just, I'll pick my shots more. And it's, it's really two levels of engagement. One is the first I was talking about where it's sending over opportunities and leads. And I try to be very low friction, short text, short emails. We've got a whole BVP funded Solutions team that's constantly doing recruiting and marketing and those things for our companies, and so trying to expose a lot of at-bats, um, often directly to the sales rep or those things, and then on the board level or the strategic side, it's just trying to be very purposeful, and when I speak or where I share a point of view or where I ask for something, knowing that, um, you create some ripple effects from each of those requests and t…

AI assessment note: “I do, and maybe somewhat embarrassing, I'd say that I, in some cases, I'm less active”