The Exchanges

Q Do you think the crunch is then at A or B? Where do you think that core crunch is?

A Look, it's going to be harder to raise money across every phase of venture capital because the last five years have been unprecedentedly easy on a relative basis to the last 20. So I don't know if it's a reversion to the mean. I think it's going to be much harder for a period of time because when there's so much uncertainty, people just don't finance as much. But even when you get more certainty and more confidence back, I suspect it's going to be harder to raise funds for the next five years than it was for the last five. Where in the chain is it harder to fund? Look, the later stage you are, the more capital you've raised, the higher your valuation relative to To your financial performance, the more difficult it'll be because you may have to reassess your own expectations of valuation. You know, it used to be, okay, my revenues were up 250% this year. Therefore, my valuation should go up by two and a half X or should go up by four X or whatever. And it might be that you grew 250% year over year. Therefore, you were able to get a flat round done because if investors aren't there, one reason they might not be there is Their expectation of what the public markets or what the M&A markets are eventually going to pay for these deals might be adjusted, and so they're willing to pay lower prices.

AI assessment note: “the later stage you are, the more capital you've raised... the more difficult it'll be”

Q Do you think the crunch is then at A or B? Where do you think that core crunch is?

A Look, it's going to be harder to raise money across every phase of venture capital because the last five years have been unprecedentedly easy on a relative basis to the last 20. So I don't know if it's a reversion to the mean. I think it's going to be much harder for a period of time because when there's so much uncertainty, people just don't finance as much. But even when you get more certainty and more confidence back, I suspect it's going to be harder to raise funds for the next five years than it was for the last five. Where in the chain is it harder to fund? Look, the later stage you are, the more capital you've raised, the higher your valuation relative to To your financial performance, the more difficult it'll be because you may have to reassess your own expectations of valuation. You know, it used to be, okay, my revenues were up 250% this year. Therefore, my valuation should go up by two and a half X or should go up by four X or whatever. And it might be that you grew 250% year over year. Therefore, you were able to get a flat round done because if investors aren't there, one reason they might not be there is Their expectation of what the public markets or what the M&A markets are eventually going to pay for these deals might be adjusted, and so they're willing to pay lower prices.

AI assessment note: “Look, the later stage you are, the more capital you've raised”

Q And you, you mentioned SaaS there, and SaaS is also an incredibly hot, uh, topic. Have you seen, uh, very high valuations in the last few years in the SaaS sector?

A Yeah, it's funny. Markets come and markets go. Um, you know, there was a period of time where everyone wanted to fund e-commerce companies. There was a period of time where everyone wanted to fund Internet of Things. There was a time where nobody wanted to fund SaaS and no one wanted to touch it. They just wanted to do consumer apps or social networking. They wanted to find the next Facebook, the next Twitter, the next Instagram. So SaaS has been really in favor for the last few years because there's been high profile Acquisitions and IPOs. So everyone wants to be in SAS. It's kind of flavor of the month. Um, the unfortunate thing about markets is, you know, investors are like lemmings, and when an idea works, everyone chases the same idea. By definition, if you're chasing a hot idea, and you weren't early in that market, you're gonna lose. And so, for me, I'm trying to find under-hyped markets. Things that people are less interested in. About three years ago, we started a practice area in agriculture technology. We call it ag tech. It's for a variety of reasons that we think are relevant to the future of humanity, and we think they're so relevant to the future of humanity, more and more dollars are going to be associated with that industry, and for three years, we started meeting companies in the sector, and we didn't talk about it publicly, because we didn't want to encourage…

AI assessment note: “SaaS has been really in favor for the last few years because there's been”

Q Do you not think everyone, though, sees that? Like, given the cadence of spin-outs from SpaceX and the amount of funding that's gone in, it's not really a contrarian thesis, is it?

A First of all, let me say, I should say, of all the companies, um, that are spinning out of SpaceX, something like 30% of them are going into space. There's people going into energy, there's people going into cleantech, um, there's people who are doing other things like, you know, other types of infrastructure. But what it's doing is it's leading to a moment in Los Angeles. Where there's a lot of hard tech founders working on things that wouldn't have been funded five or 10 years ago. Um, of course, there are other VCs. There's great VCs focused on it. You have Founders Fund focused on it. You have Lux focused on it. You have Andreessen Horowitz focused on it. But the overwhelming majority of the industry is not focused on it.

AI assessment note: “the overwhelming majority of the industry is not focused on it.”

Q Okay. So the question for you is, Are they bad for our ecosystem? As you said, they will help a load of seed managers raise new funds. They will give confidence to LPs, rightly or wrongly. Are they good or bad?

A I don't, I don't ever ascribe good or bad, like markets, um, will be markets and there's not good actors in bad markets, there's markets. And so if you look at the over capitalization, for example, of the telecommunication industry in the 19 nineties in the U S a lot of people lost money. There were a few winners, but a lot of people lost money. But out of that, out of the ashes, um, rose the broadband industry because all that money Fueled laying down broadband fiber to the home. There's going to be some good. There's going to be some bad, but here's the thing you should know. 1998. Okay. If you look at venture capital, it took two years for the top quartile to go from one X to 3.3 X. Okay. Two years. Think about what that means. I have to deploy my whole fund and my whole fund has to be marked up 3.3 X in two years. The only thing that could deliver that kind of returns for an early stage fund is momentum. It's like not based on fundamentals. You can barely even finish your code in two years. And it fell from 3.3 down to 1.4. Okay. But, but it took five years to be marked down from 3.3 to 1.4. And this is top quartile. This is not the whole industry. And by the time TVPI turned to DPI at the end, it was 1.7. It never, there was no dead cat balance. It was flat. So five years. 1998, 99, 2000 are nothing compared to the over valuations of 20 21. So we're two years into a correc…

AI assessment note: “I don't ever ascribe good or bad, like markets will be markets”

Q Yeah, I get you totally. Are LPs sheep around brown names? Do you notice that big brown names, your Harvards, your MITs of the world, do convert people who could be on the sidelines?

A All investors are sheep. End of story. Like, I don't want to pick on LPs, like LPs are no different than VCs. They're no different than retail investors. I took my first investment course in 1997. And one of the things I learned from my professor at University of Chicago is that people invest the most amount of money when the market is just about to hit the peak. Why? Because if you've been seeing three solid years of every time you write a check next quarter and the quarter after and the quarter after it's worth more, then at some point the whole market Comes in and wants to write checks when markets fall. That's when everyone sells and they sell because you start looking at, I'm taking losses. I can't absorb these losses. So you sell. And of course, psychologically, that's the opposite of what you should be doing. Like when markets see a run-up, you should be selling when markets are falling. Uh, you should be buying. Now I'll give you a real world example, 2008, uh, fourth quarter of 2008, I had sold my company. I had a bit of cash. I said to my wife, I think the stock market's a little bit beat up post Lehman Brothers. I'm going to put money into the market. And I said to her, please don't log into Charles Schwab. Because by definition, the checks that I write are going to be worth less two weeks later, two weeks later, two weeks later. It's really hard to do. And so I put …

AI assessment note: “All investors are sheep. End of story.”

Q Speaking of investors accepting that new reality, the other scenario is the investors clubbed together, put in reserve allocations maybe heavier than they expected, and maintain price almost artificially. I guess my question to you is, how do you think about your Specifically reserve allocation changing in the context of such unprecedented times?

A Well, I guess we're lucky because we've been around for 24 years, and we've been through multiple economic cycles, and we've been in a position where reserves were harder to come by, so we're incredibly methodical about how we do reserve planning. I think one thing that's gonna hurt in this market is just how many funds are on fund one, two, or three. That haven't had to deal with this issue before, and particularly seed funds that are smaller that haven't had to think as much about reserves. For example, if you didn't have to think about reserve policy, and you wrote a bunch of checks, and your strategy was to raise SPVs, special purpose vehicles for your winners, and you were just going to finance your winners through SPVs. SPVs are much harder to raise now, and so your ability to protect not just your winners, But also your companies that are struggling and need to get from point A to point B to maybe someday be a winner, it's going to be much harder. And don't forget that in that eighty million dollar round that gets cut back to a forty million dollar, if you don't participate, sometimes you get flushed down to zero. And so if you don't have reserves and you're playing in a game where big checks are being written, you have the highest markup, but you might find your position at zero.

AI assessment note: “we're incredibly methodical about how we do reserve planning”

Q So what course should they learn? What should, what language should they learn? Is there one that shows the system?

A I don't even think it matters. I mean, you can take Python. You can take PHP. You can take Ruby. You can take JavaScript. I might even choose four or five different courses. You're not trying to become the best developer in the world because if you didn't take comp science and you're not like super committed coder, you're never going to be the best in the world at that anyways. It's really about having a strong appreciation for how systems work. And I just quickly, the second piece of advice that I always give people is Is to get some sales experience, and usually the best way to do that is telesales, and even if you want to be in marketing, even if you are in customer support, even if you want to do biz dev, ask the CEO if you can, you know, just do an hour a week of sales calls just to get experience with it, and that skill of how to deal with customers, how to close business, how to understand their concerns, how to understand Whether or not product actually meets the needs of customers is something that you're going to have with you for the rest of your career. So anyway, so I did that for too long. I finally cut the cord at 31 and decided to start a company. I ran two software companies. The first was based out of England. The second was based out of Silicon Valley. And having done it twice, having sold both companies, having seen what that was like, Uh, one of my backers …

AI assessment note: “I don't even think it matters. I mean, you can take Python.”

Q Can I ask you, what was your worst days?

A The things that people don't tell you about Venture, losing money is hard for anybody, and nobody wants to lose money, and taking write-offs is, is really painful, but there's worse than that. There's worse than that because, like, we sort of, as an industry, we lionize founders, and we say they're amazing, and VCs aren't, Of course, terrible and evil, but there's the same proportion of good and bad people who are entrepreneurs, who are investors, who are big company people, operators, whatever, like the human population is a human population. So if you're going to fund a 120 or a 150 people, you're going to find some entrepreneurs that are not good. And so, you know, I found myself in a situation of people that I had backed for years, um, that suddenly Turn bad. And they threaten you, they threaten lawsuits, you've got to deal with the legal side of it. I know many GPs dealing with this now, and they call me and they can't talk about it publicly.

AI assessment note: “I found myself in a situation of people that I had backed for years, um, that suddenly Turn bad”

Q But would you prefer Biden in this state?

A Look, I'm like everybody else. I'd prefer third. I'd prefer somebody else, but these are the choices that we have, and it's, it's a, not a great choice. You know what worries me? Um, of course the extreme right worries me. It always has, but the extreme left worries me too, and they've become so radicalized, and they've really become radicalized against my people. They become radicalized against Jews. If I could say it to you this way, there's, I don't know, about two billion, um, Christian people in the world. There's about 1.3 billion Muslims in the world. There's a little over a billion Chinese people in the world. There's a little over a 1000000001.4 Indian people in the world, right? Like this is the world's populations. There are fifteen million Jewish people in the world, fifteen million. So let's take world population. That's not one percent. That's .1 Five percent of world population. We have historically, for thousands of years, been amongst the most persecuted people there are. We were forced out of North Africa. We were forced out of Iran and Iraq. We were forced out of these places. We returned to our ancestral homeland. The land that we acquired, we acquired by purchasing it. We purchased it in the late 1800, um, up until 1947. It was all purchased. Zionism was a movement to aggregate money and convince people to return to their ancestral homeland. It was not a st…

AI assessment note: “I'd prefer somebody else, but these are the choices that we have”

Q Yeah, I get you totally. Are LPs sheep around brown names? Do you notice that big brown names, your Harvards, your MITs of the world, do convert people who could be on the sidelines?

A All investors are sheep. End of story. Like, I don't want to pick on LPs, like LPs are no different than VCs. They're no different than retail investors. I took my first investment course in 1997. And one of the things I learned from my professor at University of Chicago is that people invest the most amount of money when the market is just about to hit the peak. Why? Because if you've been seeing three solid years of every time you write a check next quarter and the quarter after and the quarter after it's worth more, then at some point the whole market Comes in and wants to write checks when markets fall. That's when everyone sells and they sell because you start looking at, I'm taking losses. I can't absorb these losses. So you sell. And of course, psychologically, that's the opposite of what you should be doing. Like when markets see a run-up, you should be selling when markets are falling. Uh, you should be buying. Now I'll give you a real world example, 2008, uh, fourth quarter of 2008, I had sold my company. I had a bit of cash. I said to my wife, I think the stock market's a little bit beat up post Lehman Brothers. I'm going to put money into the market. And I said to her, please don't log into Charles Schwab. Because by definition, the checks that I write are going to be worth less two weeks later, two weeks later, two weeks later. It's really hard to do. And so I put …

AI assessment note: “All investors are sheep. End of story. Like, I don't want to pick on LPs”

Q Do you think richer investors make better investors? They're not scared of downside. They don't kind of Worry so incessantly. It's like, ah, you know what, I believe, and they have that upside maximization mindset.

A I don't know. But I think, like, deeply analytical people who are self-confident enough to believe something that other people don't believe, when everybody tells you you're wrong, and you're still making the investment, that's what matters, you know. And believe me, I've done, for the last 12 or 13 years, I've been doing hardware investments. You know, we did an investment in Ring. We were the seed investor in Ring. Everybody on Shark Tank passed on it. We wrote a check. I wrote a check into Nan at a baby camera company. It produces hardware. To this day, people still tell me, like, why would you invest in a hardware company? But Apple's a hardware company. SpaceX is a hardware company. Tesla's a hardware company. Hardware plus software is incredibly valuable. So the hardware actually provides you with a differentiated Return if you also have a services business. So for me, it's hardware plus software, and believe me, a lot of people don't agree with that.

AI assessment note: “I don't know. But I think, like, deeply analytical people”

Q But would you prefer Biden in this state?

A Look, I'm like everybody else. I'd prefer third. I'd prefer somebody else, but these are the choices that we have, and it's, it's a, not a great choice. You know what worries me? Um, of course the extreme right worries me. It always has, but the extreme left worries me too, and they've become so radicalized, and they've really become radicalized against my people. They become radicalized against Jews. If I could say it to you this way, there's, I don't know, about two billion, um, Christian people in the world. There's about 1.3 billion Muslims in the world. There's a little over a billion Chinese people in the world. There's a little over a 1000000001.4 Indian people in the world, right? Like this is the world's populations. There are fifteen million Jewish people in the world, fifteen million. So let's take world population. That's not one percent. That's .1 Five percent of world population. We have historically, for thousands of years, been amongst the most persecuted people there are. We were forced out of North Africa. We were forced out of Iran and Iraq. We were forced out of these places. We returned to our ancestral homeland. The land that we acquired, we acquired by purchasing it. We purchased it in the late 1800, um, up until 1947. It was all purchased. Zionism was a movement to aggregate money and convince people to return to their ancestral homeland. It was not a st…

AI assessment note: “I'd prefer somebody else, but these are the choices that we have”

Q So what course should they learn? What should, what language should they learn? Is there one that shows the system?

A I don't even think it matters. I mean, you can take Python. You can take PHP. You can take Ruby. You can take JavaScript. I might even choose four or five different courses. You're not trying to become the best developer in the world because if you didn't take comp science and you're not like super committed coder, you're never going to be the best in the world at that anyways. It's really about having a strong appreciation for how systems work. And I just quickly, the second piece of advice that I always give people is Is to get some sales experience, and usually the best way to do that is telesales, and even if you want to be in marketing, even if you are in customer support, even if you want to do biz dev, ask the CEO if you can, you know, just do an hour a week of sales calls just to get experience with it, and that skill of how to deal with customers, how to close business, how to understand their concerns, how to understand Whether or not product actually meets the needs of customers is something that you're going to have with you for the rest of your career. So anyway, so I did that for too long. I finally cut the cord at 31 and decided to start a company. I ran two software companies. The first was based out of England. The second was based out of Silicon Valley. And having done it twice, having sold both companies, having seen what that was like, Uh, one of my backers …

AI assessment note: “the second piece of advice that I always give people is Is to get some sales experience”