The Exchanges

Q How do you determine when to pay up versus when to sit it out? Like when it's just not a chemistry deal? So, um, I look at like my biggest mistakes this year have been Suno, And 11 labs, and both of them I didn't do because they were small checks, probably like one percent each, and that didn't fit the model, and that was my lack of mental plasticity.

A Yeah, so I think one of the lessons I learned from Index Ventures, and certainly two of my mentors, Mike Volpe, Ilya Fushman, was you want to be in the category winner, and when you need to pay up to be in a category winner, that's something that I think a lot about, um, You know, you don't want to be in the number two or the number three in a category. And there are times when I'm willing to take risk in that direction. Um, it's an ex, if, if your, your risk is the valuation, but you feel extreme conviction in the, in the, you know, the leader in, in a category, you know, that's, that's in time when I'm willing to kind of stretch the other time, Harry, just before you jump in and really the way I think about early stage investing is so much of a founder focus of, do I have insane conviction in this individual, in this founding team? And when those variables line up, I tend to, um, I tend to feel more confidence in my ability to kind of stretch on the deal price in terms.

AI assessment note: “when those variables line up, I tend to... stretch on the deal price”

Q Do you think, do you think richer investors make better investors? Because you're not afraid, richer, like, personally, wealthy. Yeah, because you're not afraid of downside. It's like, you see upside.

A Nobody has ever asked me that. That is such an interesting question. My gut reaction is to say the opposite, which is that, you know, The, the wealth level correlates with a lack of hustle and therefore, but it's, that's actually not in practice what I've seen. I think there is a correlation less about the money and more about the people who are so good at this job that it's not actually a, the money is the afterthought. They love the job and they love doing this. And I don't know if it's the, I don't give a shit anymore because, you know, I have so much money that I actually, I'm not sure it's that. I think there is to get to that level. There's such a love Of the craft and of, of doing this job that they're probably pretty good at it.

AI assessment note: “there is a correlation less about the money and more about the people”

Q Like, their seed fund is a 190. I think their growth is, like, A billion? Like, they're not crazy. They, they, they are always collated in this, like Sequoia raises eight billion, and you're like, wow, another SoftBank. But actually, when you look at it, they are quite constrained products.

A So what I would say is, I think the direction of the industry, and I'm sure everybody who observes the industry would say the same thing, has been one of industrialization in the last decade. And when I say industrialization, what I mean is the boutique experience of, hey, there's going to be A handful of partners. You're going to know everybody there and their reputations. That was kind of the past. And the future seems to be this sense of, you know, let's increase the AUM. Let's increase the team sizes. And I would challenge even you, Harry, to say, you know, at some of these big platforms, name more than three, four or five partners when there might be 30 check writers. So that's what industrialization means to me is when you, you know, the name, the brand of the, of the institution, but you might not know who the check writers are.

AI assessment note: “the direction of the industry... has been one of industrialization in the last decade.”

Q Did you raise money only from people you met in person? Were there any checks which were non-virtual, which were virtual checks?

A That is a very good question, and I think that we met everybody in person. Because we're in San Francisco, a lot of people were coming through for different LP events, so there was a lot of, kind of, the community moving through, but we hustled too. We spent a lot of time on planes, We were out there. It was a quick fundraise, but we were out there hustling very hard. Um, there were some, by the way, it's a great way to get to know your co-founders better. Um, you know, when we're, we're in equal partnership, all three of us were, were telling our story. It's kind of like a group interview and poor Christina and Ethan, who had to suffer through me telling the same jokes and anecdotes, you know, over and over and over, sometimes eight, 10 times a day. The fact that we didn't all, you know, my wife would have been mad hearing the same jokes all the time. And the fact that that brought us closer together was a really nice leading indicator for You know, pun intended, the chemistry of the three of us.

AI assessment note: “I think that we met everybody in person.”

Q What was the single best LP meeting that you had?

A We did have some funny stories from the fundraise itself. And at one point I remember, um, Christina was having what I thought was her best fundraising meeting. She's just, just, you know, really doing a nice job with her talking points. And I look over and she's, she's, and she's, you know, laughing and having fun. And I look over and it's, it's nine o'clock in the morning. And instead of a seltzer water, we had, we had, you know, we're borrowing somebody's office. She had grabbed a white claw instead. And so she's drinking, you know, her second white claw thinking that she's drinking seltzer water. And, uh, you know, we had a few things like that where, you know, you just kind of have to laugh in hindsight. And we had to, we had to tell her afterwards, you know, we didn't want to stop the train at that point, but we had to tell her she wasn't drinking, you know, something that was, uh, that was seltzer water.

AI assessment note: “Christina was having what I thought was her best fundraising meeting”

Q Did you raise money only from people you met in person? Were there any checks which were non-virtual, which were virtual checks?

A That is a very good question, and I think that we met everybody in person. Because we're in San Francisco, a lot of people were coming through for different LP events, so there was a lot of, kind of, the community moving through, but we hustled too. We spent a lot of time on planes, We were out there. It was a quick fundraise, but we were out there hustling very hard. Um, there were some, by the way, it's a great way to get to know your co-founders better. Um, you know, when we're, we're in equal partnership, all three of us were, were telling our story. It's kind of like a group interview and poor Christina and Ethan, who had to suffer through me telling the same jokes and anecdotes, you know, over and over and over, sometimes eight, 10 times a day. The fact that we didn't all, you know, my wife would have been mad hearing the same jokes all the time. And the fact that that brought us closer together was a really nice leading indicator for You know, pun intended, the chemistry of the three of us.

AI assessment note: “I think that we met everybody in person.”

Q But does that work in terms of portfolio construction? Because with, that's on, assuming no reserves, you just don't have enough.

A So we have a very light reserve model, um, and it actually, it, I, I think that that might be worth clicking on. I think that the way that, um, you know, as a new fund we think about reserves is, is, you know, We believe that, um, supporting companies from those early stages is extremely important, but that peanut buttering all of your reserves and every pro rata round that gets done is not a good thing for either the founder or the LPs in a fund. And so we have a very light reserve model. We will double down on, on, you know, on companies where there's, you know, exceptions, but we have a very light reserve model.

AI assessment note: “we have a very light reserve model”

Q If you could choose anyone to join as the fourth partner, who would you choose and why them?

A There are a lot of good people in the ecosystem. Some of the folks that I respect immensely are the Excel Venture team, Dan Levine, Vasanatha Rajan. Some of the folks that I would describe as similar age to the three of us there, you know, that are doing a tremendous job in the ecosystem. There are some funds that I would consider new guard funds that are, you know, a little bit in front of us. I think Sarah Guo has done a tremendous job with conviction. Jack Altman doing amazing things with Alt Capital. It's probably the most dynamic moment in 20 years in venture. Where you have these legacy institutions that are dealing with generational change, you know, huge portfolios.

AI assessment note: “Some of the folks that I respect immensely are the Excel Venture team”

Q I'm going to push you. What single LP check meant the most to get to you personally?

A So we had a few groups that told us, you know, this is going to be a six month process. You know, there's no way to accelerate it. And after the meeting, we're kind of done in two weeks. And we loved that kind of speed to conviction. And that meant a lot. Some of those early conviction checks where You know, we weren't sure exactly how long the fundraise would take and having a few people say, like, we believe so much in what you're doing. We're going to make exceptions to do this quickly and to get behind you. That was a very important moment in our fundraise and, um, and something I won't forget in terms of, you know, kind of the speed at which people moved.

AI assessment note: “Some of those early conviction checks where You know, we weren't sure exactly”

Q But does that work in terms of portfolio construction? Because with, that's on, assuming no reserves, you just don't have enough.

A So we have a very light reserve model, um, and it actually, it, I, I think that that might be worth clicking on. I think that the way that, um, you know, as a new fund we think about reserves is, is, you know, We believe that, um, supporting companies from those early stages is extremely important, but that peanut buttering all of your reserves and every pro rata round that gets done is not a good thing for either the founder or the LPs in a fund. And so we have a very light reserve model. We will double down on, on, you know, on companies where there's, you know, exceptions, but we have a very light reserve model.

AI assessment note: “So we have a very light reserve model”

Q My question to you is what other markets you like? Like for me, recruitment software. Oh, oh no. I'm like, honestly, I'm pretty sorry. Education. Add tech just fucking sucks.

A Okay. So it's funny. We just looked at a recruiting software company. So I'm just laughing about that. But what I would say is one of the dangers of experience and having done this for almost a decade now is, is Shutting your brain off for a category that didn't work in the past. So I have a little bit of an allergic reaction when you say that, not because I disagree with you in any of those specifics, but in the sense of, I think what's very a trap that people fall into. And this happened in fintech. You look at the evolution of fintech in fintech, the most knowledgeable people were a bunch of the east coast funds that knew that had come, had spent two decades inside of financial institutions and knew the market way better than the west coast funds. And they outsmarted themselves from every money making deal in the category, the, the really, really big ones. And the west coast funds that had the naivety to lean in, I think still did really, really well.

AI assessment note: “one of the dangers of experience... is Shutting your brain off for a category”

Q What are the reasons why execution breaks most post product market fit? You've worked with some incredible companies post.

A I think hiring is, is probably the biggest limitation I've seen. When you were an early stage company, this is where, you know, going back to our conversation on what is the value out of a VC, you know, again, do no harm should be beating 80% of the industry, but I wouldn't agree with your zero. So I think that at every stage and when you go, when you, when you, you feel the pull of product market fit, You need to really consider who are the leaders of your functions, especially your go-to-market functions, and are they the right people? And when you move from founder-led sales into a professional organization, really asking yourself, do I have the right people in those seats? And back to the point of, you know, what can a VC do to be helpful? Showing people what great looks like one, two, three stages in front of where they are, and giving them a way to evaluate where their team is relative to that, I think is a very helpful thing. And the folks that I've seen take longer to get from that one to 10, 10 to a hundred, Are the folks that tend to make the wrong decisions around hiring in their leadership teams. And by the way, I'm very bullish on their leaders, you know, and I can give you examples that have scaled from the early days all the way to, you know, an exit. Uh, it's unusual, but it's possible. But I think having a way to give founders, uh, a sense of this is what great…

AI assessment note: “I think hiring is, is probably the biggest limitation I've seen.”

Q If you could choose anyone to join as the fourth partner, who would you choose and why them?

A There are a lot of good people in the ecosystem. Some of the folks that I respect immensely are the Excel Venture team, Dan Levine, Vasanatha Rajan. Some of the folks that I would describe as similar age to the three of us there, you know, that are doing a tremendous job in the ecosystem. There are some funds that I would consider new guard funds that are, you know, a little bit in front of us. I think Sarah Guo has done a tremendous job with conviction. Jack Altman doing amazing things with Alt Capital. It's probably the most dynamic moment in 20 years in venture. Where you have these legacy institutions that are dealing with generational change, you know, huge portfolios.

AI assessment note: “There are a lot of good people in the ecosystem.”

Q Did you find one group more sophisticated, intelligent than others? Foundations, endowments, family offices?

A But one of the best piece of advice we got was build a diverse set of LPs and not in terms of the institutions you just described Fund to fund family office, uh, you know, uh, endowments and foundations, but people that, you know, think differently and think independently. And that's why I think we ended up with such an interesting mix of people that, you know, almost, we, we almost didn't want people to, to correlate with one another. And I think it would have been very easy to do. And for people that, that, um, that, that go this route, um, where there's a lot of correlation between, Hey, these are all alumni of the same Institution. And so they're going to group things together. We wanted to avoid that. And I think we're very fortunate we were able to.

AI assessment note: “not in terms of the institutions you just described”

Q Did you find one group more sophisticated, intelligent than others? Foundations, endowments, family offices?

A But one of the best piece of advice we got was build a diverse set of LPs and not in terms of the institutions you just described Fund to fund family office, uh, you know, uh, endowments and foundations, but people that, you know, think differently and think independently. And that's why I think we ended up with such an interesting mix of people that, you know, almost, we, we almost didn't want people to, to correlate with one another. And I think it would have been very easy to do. And for people that, that, um, that, that go this route, um, where there's a lot of correlation between, Hey, these are all alumni of the same Institution. And so they're going to group things together. We wanted to avoid that. And I think we're very fortunate we were able to.

AI assessment note: “and not in terms of the institutions you just described”

Q I'm going to push you. What single LP check meant the most to get to you personally?

A So we had a few groups that told us, you know, this is going to be a six month process. You know, there's no way to accelerate it. And after the meeting, we're kind of done in two weeks. And we loved that kind of speed to conviction. And that meant a lot. Some of those early conviction checks where You know, we weren't sure exactly how long the fundraise would take and having a few people say, like, we believe so much in what you're doing. We're going to make exceptions to do this quickly and to get behind you. That was a very important moment in our fundraise and, um, and something I won't forget in terms of, you know, kind of the speed at which people moved.

AI assessment note: “having a few people say, like, we believe so much in what you're doing.”