The Exchanges

Q Why is it a big deal and what should founders know?

A So unfortunately I've been part of a lot of boards now with orphan deals where the original investor who made the investment leaves the firm and then the firm, that company doesn't have support within that firm. So when it comes time for a new round, You know, sometimes the prorata, the odds that you're going to get it are lower. And all of a sudden that founder has to start to scramble and figure out what do I do? Or a new person comes onto the board who maybe is less constructive than the person that was chosen by the founder. And that could have negative implications. There's so many ways in which the founders, you know, can feel kind of, um, Tricked isn't the right word, but it's like they, they signed up for something. It's not what they bought or they're getting something. It's not what they bought. They bought like when you buy an investor, like when you buy a board seat, you're really hoping to buy that firm, but also that person. Right? These journeys last a decade. You're hoping to sit across the table from that person for a decade plus, and you kind of know that's why the vetting process is so important. That's why I flew to get sunburned in Denver and, you know, with Alex, et cetera. If there's a merry-go-round where people are leaving, it sort of strands these founders without, um, the person that they originally wanted.

AI assessment note: “orphan deals where the original investor who made the investment leaves the firm”

Q What's been your worst deal and what did you learn?

A Thus far, I haven't had any zeros. I'm sure I will. Um, the exit I've had that was the worst exit was a company called Comfy, um, which was building energy efficiency software. So basically it provided employees within an office, the ability to change the lighting and temperature from their phone, wherever they were, and would actually follow them around and remember their preferences and change the building accordingly. It's actually quite cool. The business grew really quickly from a bookings perspective. Um, they would have these big seven figure contracts from Salesforce and others. Um, but the people in charge of deploying the product didn't care. And so there was a huge incentive issue between the buyer and the implementer in that business. And so we have huge bookings and we didn't have great deployed ARR and that gap bit us in the ass. We ended up selling the business to Siemens. We actually made a little bit of money on the deal and Andrew, the CEO and I stayed close. He actually bought me A gift certificate, um, to, uh, to the French Laundry, which I still haven't been able to use because the reservations are so hard to get, to thank him for helping navigate through the, the outcome he ended up making a good amount of money.

AI assessment note: “there was a huge incentive issue between the buyer and the implementer”

Q What's the craziest thing you've done to win a deal?

A Assembled, which I mentioned before is, is AI for support teams. We led the series A there. It was a very, um, it was also a very consensus deal in the sense that The three founders came from Stripe. They had built the tool at Stripe to serve Stripe. And they were like, oh, this thing is bigger than just one company. We could spend it out and start the company. So Stripe did this seed. It was the, I think was the very first deal that Stripe did as a seed investment. And so as you can understand, like the series A was very frothy because everyone and their sister wanted to invest in these hot Stripe founders. I'd gotten to know the founders for a while, um, and, uh, had tried to push Brian, the then CEO to, to make, to let us invest. And he wanted to run a process. And I get, I get a text message from him. I think I'm, as I'm coming back from my honeymoon and I'm all blissed out and he's like, Hey man, uh, process is live. Um, like, do you have time? And I'm like blissed out and like not in a place where I'm running after deals. Uh, and I was pissed cause I had been in front of that one for a while. Uh, and I was really excited about the company. Um, but I flew back, you know, worked really hard. My partner Yaz, who was then an associate did an insane amount of work to get us up to speed. And, uh, we got into the top three Of the bidding process with them. And then they went sil…

AI assessment note: “I'm coming back from my honeymoon and I'm all blissed out... flew back”

Q Do you agree with that in your experience?

A You know, um, so there's a business that, um, was actually bought by a British company called Sage called Intact. Um, so Intact was the, um, kind of number two cloud ERP player. And, uh, we were the early investors there. And that company, um, ERP is a tough thing because it's the most mission critical system of all. So it's really hard to rip out someone's ERP, but one by definition, once you get in, it's really sticky. And so you can stay that business, um, grew slowly and then, um, had some cash problems and we decided to bridge the company that saved it. We figured out that business also figured out a channel partnership motion. They, they figured out through accounting firms actually, and that business took off and was bought by Sage. I think it was for a billion dollars or something. And we made a ton of money on that whole thing, but also on that bridge, because that bridge was obviously in favorable terms given the condition the company was in. And so that's obviously a cherry picked example, but there are examples where it's not a bridge to nowhere.

AI assessment note: “there are examples where it's not a bridge to nowhere.”

Q Do you buy that? You know, Sarah Tavel's written before about, you know, paying for the work, not just for the software. Do you buy that? And I'm not disagreeing or agreeing with her, but I'm saying, do you buy that transition? I think a lot of buyers will find it difficult in their minds to justify paying for labor when it is software.

A So what I've seen thus far, and it's still early days, is that most buyers of this stuff aren't firing people. What they're doing is not hiring new people. And so they're trying to be more efficient with whatever they currently have. Like I just invested in a voice AI company in healthcare. And, uh, we talked to a bunch of their customers and the customers, uh, were like, we love this thing. It's amazing. And we're like, okay, great. How many head count did you reduce? And they're like, none. I'm like, wait, why do you love this thing? And he's like, well, I love it because I've grown my business three times with the same head count. And so I think right now, and I think part of it's emotional, people don't want to fire their people, understandably, but I think businesses are able to grow more efficiently than they were in the past because of this stuff. And therefore these, these software vendors should be able to capture some of that leisure labor.

AI assessment note: “software vendors should be able to capture some of that leisure labor”

Q Do you agree with Roloff's thesis that actually us as venture managers with inside information are best placed to manage companies, even in public markets?

A Well, obviously to some degree I do, because we're still managing a lot of those positions. Um, I think that if you believe, um, that if you stay on the board and you're super active, then you do have more, uh, more insight. The downside, honestly, is just time because you're, you're taking away from new investments. Like there's better, there's, there's huge benefit to the firm, uh, to have that, that, you know, the connectivity to those, those incredible companies. And one other thing that we've started to do, I mentioned last night on our walk, which has been pretty cool is We've been funding really early stage AI companies, uh, particularly within specific verticals and trying to pair them up with these giants. And so if we pair you up with like a really big company that has great distribution and you can do some sort of deal, which may involve some equity where the big company gets to buy a little bit of the small company, but the small company gets the incredible distribution advantage of these massive companies we're already a part of. There's this beautiful symbiosis that has been playing out for both sides so far.

AI assessment note: “obviously to some degree I do, because we're still managing a lot of those positions”

Q That makes total sense. How quickly do you know your winners going back to this when you have them?

A So it's not always obvious. Um, and there's a lot of humility, I think, uh, that is important in this industry for lots of reasons, but that's one of them. So bill.com incredible software company been around for a while. We were one of the earliest investors in that company as well. And that was not a straight into the right company. So it grew nicely before the, um, financial crisis, financial crisis happens and business starts to stall a bit. Um, but then we help them figure out the channel partnership strategy for them. Partnering with banks, I think specifically Bank of America was the first one that unlocked, really accelerated that business to figure out like, oh, we can sell through these banks, whereas low ACB products, so doing traditional go to market can be expensive. If we find a channel partner, the whole thing can work. And that business absolutely took off and has been an amazing winner since then. So that's a great example of one that like, wasn't necessarily like this. It's kind of like this, and then this, and then this. That is very possible. And that company made fund one for us. And that it's part of the reason why that fund is so good. Another example that, um, that comes to mind, um, around this humility point is, um, a conversation I had in 2015 with a peer investor at another firm. I remember he came to my office and he said, I just made my career defin…

AI assessment note: “So it's not always obvious.”

Q Do you agree with that in your experience?

A You know, um, so there's a business that, um, was actually bought by a British company called Sage called Intact. Um, so Intact was the, um, kind of number two cloud ERP player. And, uh, we were the early investors there. And that company, um, ERP is a tough thing because it's the most mission critical system of all. So it's really hard to rip out someone's ERP, but one by definition, once you get in, it's really sticky. And so you can stay that business, um, grew slowly and then, um, had some cash problems and we decided to bridge the company that saved it. We figured out that business also figured out a channel partnership motion. They, they figured out through accounting firms actually, and that business took off and was bought by Sage. I think it was for a billion dollars or something. And we made a ton of money on that whole thing, but also on that bridge, because that bridge was obviously in favorable terms given the condition the company was in. And so that's obviously a cherry picked example, but there are examples where it's not a bridge to nowhere.

AI assessment note: “there are examples where it's not a bridge to nowhere”

Q Which is like your notions of the world?

A Notions, the ironclads, like the companies that are above a hundred million ARR, growing nicely, like, and still dynamic and young enough to make changes, but like they're not startups anymore. Um, I sort of segment the world into those three kind of buckets, just way oversimplifying. The biggest thing I've changed my mind around in the past 12 months relates to that, to this question, which is I was fearful when the power of LLMs came out that all of, most of the value would accrue to the incumbents because of their data and distribution advantages. What I, um, underappreciated, which is just the recurring lesson of startups, is the value of focus. The reality is like, it doesn't matter how much distribution Salesforce has, how much data they have, have. If you are a startup who's just focused narrowly on solving a very, very specific problem, if you're unified, you know, helping with the go to market stack in much more narrow way than Salesforce is, you're going to run just way, way faster. And customers are going to want your product more. And that's, we're seeing that play out. And so the thing I've changed my mind on is I'm less fearful that incumbents will be able to accrue most of the value. The reality is, like, it's still early days in this game, and things could change, but thus far, the startups are outpacing, the focus startups are outpacing the incumbents. The grow…

AI assessment note: “I sort of segment the world into those three kind of buckets”

Q Why is it a big deal and what should founders know?

A So unfortunately I've been part of a lot of boards now with orphan deals where the original investor who made the investment leaves the firm and then the firm, that company doesn't have support within that firm. So when it comes time for a new round, You know, sometimes the prorata, the odds that you're going to get it are lower. And all of a sudden that founder has to start to scramble and figure out what do I do? Or a new person comes onto the board who maybe is less constructive than the person that was chosen by the founder. And that could have negative implications. There's so many ways in which the founders, you know, can feel kind of, um, Tricked isn't the right word, but it's like they, they signed up for something. It's not what they bought or they're getting something. It's not what they bought. They bought like when you buy an investor, like when you buy a board seat, you're really hoping to buy that firm, but also that person. Right? These journeys last a decade. You're hoping to sit across the table from that person for a decade plus, and you kind of know that's why the vetting process is so important. That's why I flew to get sunburned in Denver and, you know, with Alex, et cetera. If there's a merry-go-round where people are leaving, it sort of strands these founders without, um, the person that they originally wanted.

AI assessment note: “it sort of strands these founders without, um, the person that they originally wanted.”

Q I, I often think about Keith Reboys. The best founders don't need you. They're made better, but they don't need you. How do you feel about that?

A I think the reason why a founder chooses a VC is because they believe that you'll help them bend the odds of success on the journey. And that can be in all sorts of ways, right? It could be in helping them with something like go to market. It could be them, you know, helping bring them people to hire. It could be helping give with advice. It could be because you're a great therapist to the founder. There's lots of ways where you can help bend those odds, but I think ultimately that's why someone chooses you because you need a reason, right? You need a reason to be chosen. I agree that in general, if the founder doesn't need to rely on you a lot, then, you know, that's great. But the reality is the odds of success of these things are so low that if you can even bend the odds of success, Incrementally, it matters a lot.

AI assessment note: “I agree that in general, if the founder doesn't need to rely on you”

Q Can I be honest? You make much money from a course. Like you do the seed. It gets bought for half a billion, which is great. And I'm not, but is that in stock? Is that in cash? Like so many of these deals that actually behind the scenes, you kind of make three X and it's like not as good as it looks.

A We made, I forgot the specific multiple. It was definitely more than three X in that one. Um, I don't remember the specific number, but I think it was north of five X. The challenge with that is when you have a fund that's of a certain size, even if it's a 10 X, it's still not going to necessarily move the needle. That fund, I believe was fund three, which is the same fund that, uh, has Zoom. Uh, it's the same fund that has some other really large outcomes. And so that fund is already at a, I think it's a 16 times DPI. And so even with a 10 X on the chorus investment, it's not necessarily going to move the needle.

AI assessment note: “It was definitely more than three X in that one”

Q Do you agree with Roloff's thesis that actually us as venture managers with inside information are best placed to manage companies, even in public markets?

A Well, obviously to some degree I do, because we're still managing a lot of those positions. Um, I think that if you believe, um, that if you stay on the board and you're super active, then you do have more, uh, more insight. The downside, honestly, is just time because you're, you're taking away from new investments. Like there's better, there's, there's huge benefit to the firm, uh, to have that, that, you know, the connectivity to those, those incredible companies. And one other thing that we've started to do, I mentioned last night on our walk, which has been pretty cool is We've been funding really early stage AI companies, uh, particularly within specific verticals and trying to pair them up with these giants. And so if we pair you up with like a really big company that has great distribution and you can do some sort of deal, which may involve some equity where the big company gets to buy a little bit of the small company, but the small company gets the incredible distribution advantage of these massive companies we're already a part of. There's this beautiful symbiosis that has been playing out for both sides so far.

AI assessment note: “Well, obviously to some degree I do, because we're still managing a lot of those positions.”

Q Final one. When you look at the next 10 years, and you think about excitement, I'd like to end on a theme of positivity. When you think about the exciting things that come, yeah, uh, I'm very excited by, like, drug discovery, especially around MS, my mother's got MS, and what will be enabled. What are you most excited by when you look forward to the next 10 years?

A I had a conversation with Sam Altman three months ago, where he was talking about the cognitive dissonance that he lives with Every day, knowing that the gains that took place, the improvements took place between GPT two and GPT three and a half, which just took a few years and were incredibly exponential. And obviously three and a half was the moment that the world changed are very likely to be the same or probably dwarfed by the improvements that we'll see over the next two or three years. So how do you make decisions right now about what to invest in, about how to live your life, about how to raise your kids? Knowing that that's, that change is coming. That kind of distance is very hard to live with for all of us, and certainly for Sam who has a, you know, courtside seat. And so I asked Sam, how should we think about raising our kids knowing that this is changing so quickly? And his first reaction was don't teach him to code. And then he was like, what I mean by that is like teach them the logic of how to think like that, but you don't necessarily need to teach them the mechanics of coding. Cause that's obviously, um, likely going away. But what he said was very specific. He said, you need to teach them how to understand how people are thinking and feeling and how to influence that. And I excitedly came home and told my wife, Who is a career leader of big revenue teams and w…

AI assessment note: “I had a conversation with Sam Altman three months ago”