The Exchanges

Q Did you see much finger pointing in this process?

A Well, I saw a lot more of it in social media. It's kind of interesting, the contrast between social media and my own experience, like, Ann and I were just, like, talking to founders of, like, how do we get through this, right? Like, our, we weren't sitting here at all thinking, what's Janet Yellen gonna do? I mean, you're wondering what they're gonna do, but it's like, we don't have the luxury to think about that too much, because they're gonna do what they're gonna do. What we have to do is Understand, right, how we're going to respond depending on a certain set of outcomes that are TBD, and that was, that was my experience, was like, 85% of the founders that we worked with, and I feel really lucky, we made good choices of who we decided to go into business with, but 85% of the founders were just like on it, and we were just like taking care of business, right, and not wasting time on the stuff that we can't control.

AI assessment note: “I saw a lot more of it in social media.”

Q you think about market sizing, say, because I've had so many different variations on the show in terms of, I love a tiny market, which is the insertion point in the Expands and expands and expands. And then I have other people that say it's just got to be a massive town from day one. How do you think about market analysis and that as a insight development importance factor?

A Yeah. So I'm glad you asked about market because I think this is a great illustration of why a startup is not a company yet. So most people in a company, when they think about markets, the metaphor they use is almost like a map and they want to get beach heads and they want to map the market and figure out their segment and expand from there. It's almost like you're Lewis and Clark mapping the tributaries of every river and figuring out which real estate you want to own. But startups start out dead and have to prove they're alive, right? When Marc Andreessen invented the Mosaic browser, there was no market for browsers. The product defined the market. And so what we find is that a startup starts when someone living in the future comes back to the present with a new idea, a breakthrough insight, and the market becomes a movement. And the movement happens because they attract other people to join their movement who are in on the secret with them. And over time, as the conventional wisdom starts to shift to the wisdom that the entrepreneur had, the market and the movement accelerates. And so it's really the acceleration of the movement that defines the market in startup terms. And I mean, by way of a crude analogy, people in companies think like Bible salesmen. But like when you're starting a company, you think more like a prophet, and you're trying to get disciples in the early d…

AI assessment note: “acceleration of the movement that defines the market in startup terms”

Q app store and of the iPhone with the macro environment that was also simultaneously happening at the same time. And so I don't think it's fair to Correlate the success there to the macro, and I don't know if there's a correlation to today where we don't have those mega platform shifts of iPhone, App Store, and GPS. Would you agree with me, and how do you think about that?

A Yeah, well, the way I look at it is, it's a good idea to calibrate an inflection. So, for example, in the case of GPS in the smartphone, if you could say, I believe that accuracy will be 10 times better in 18 months, That's a calibration of an inflection. What I see in too many startups today is statements like, well, society's just changing, and they're ready for this, and they weren't before. And that may be true, but I generally believe that most great startups are born of these exponential improvement curves that are beneath them. They're like gathering waves in an ocean that you surf back to the beach. And I think it's really hard without a gathering wave to really be great. The gathering wave underneath the startup is It's like the rock and David slingshot against Goliath, right? It's the powerful forces underneath you that only you can harness because they're gathering for the first time ever. And so I think if I'm a founder, if I cannot answer clearly what technology inflections are happening that can be calibrated that I'm taking advantage of, I should either evaluate whether my insights powerful enough in the first place, or if I've just thought about it enough, maybe I'm just not thinking clearly about it yet.

AI assessment note: “most great startups are born of these exponential improvement curves that are beneath them”

Q literally, but you literally shape something I do every day, which is I always ask, what's your insight development? How do you see the world in a way that's different to other people seeing it? The challenge that I have, Mike, is that so few Can articulate it well in any way. And so even if they have it, I worry that I'm missing it because they can't articulate it.

A It's, it's really hard, right? There's, there's, I think there's a few, apart from just, do you think the founder's great, right? There's a few signals that are interesting, right? One, one is, does it harness inflection, right? And that's like, Lyft harnessed the iPhone for us had a GPS chip in it. So that happens outside of the startup. The second thing we look for is, um, what do you know about the future that's non-consensus and right? And then the third is founder future fit. One of the things that I've learned in looking at these hundred bagger studies is some of these things become clearer later. And, uh, and you have to figure out what's the real signal at the time you have to decide. And so you want to get a time capsule of that startup. You want to know what was the founder like at the time? What was the pitch deck like at the time? What was knowable about it at the time? And quite often I've found in doing these that founder future fit is the best signal. It's, it's the, it's the most Discernable, ah, way to figure out if the founder's likely to figure this out.

AI assessment note: “founder future fit is the best signal. It's, it's the, it's the most Discernable”

Q Is the difference between winning and losing the deal?

A It's not so much that. It would be, maybe I can say to the founder, hey look, um, This is a way for us to have some type of a joint gain. I, I know you need to get the price you want to get, and there are reasons that you want to get that, but maybe we can get some type of a blended price if I buy preferred plus common, and then I, I own more, I'm taking more risk, but if I believe in the company, um, I've never made money or lost money based on common or preferred ever in the ones that worked, and so I, I, um, Will you do uncapped notes? Um, only in very rare cases.

AI assessment note: “It's not so much that. It would be, maybe I can say to the founder”

Q literally, but you literally shape something I do every day, which is I always ask, what's your insight development? How do you see the world in a way that's different to other people seeing it? The challenge that I have, Mike, is that so few Can articulate it well in any way. And so even if they have it, I worry that I'm missing it because they can't articulate it.

A It's, it's really hard, right? There's, there's, I think there's a few, apart from just, do you think the founder's great, right? There's a few signals that are interesting, right? One, one is, does it harness inflection, right? And that's like, Lyft harnessed the iPhone for us had a GPS chip in it. So that happens outside of the startup. The second thing we look for is, um, what do you know about the future that's non-consensus and right? And then the third is founder future fit. One of the things that I've learned in looking at these hundred bagger studies is some of these things become clearer later. And, uh, and you have to figure out what's the real signal at the time you have to decide. And so you want to get a time capsule of that startup. You want to know what was the founder like at the time? What was the pitch deck like at the time? What was knowable about it at the time? And quite often I've found in doing these that founder future fit is the best signal. It's, it's the, it's the most Discernable, ah, way to figure out if the founder's likely to figure this out.

AI assessment note: “founder future fit is the best signal. It's... the most Discernable”

Q Do you think prices are coming down, Jason and Mike? Am I, am I seeing something different?

A I, I tend to resist, after doing this a while, I tend to resist making too many macro statements, right? Like, I kind of look at it like every startup is its own snowflake. Is the average valuation higher than what I've seen before relative to where they should be? Probably. But I still think that there are lots of ways to make money in seed. And I, and I actually think they're surprisingly similar to how they've always been, which is you have to be non-consensus and right, investing in an entrepreneur who's non-consensus and right. And you know, a lot of people say, well, that's changed. Look how big these exits are. But then when I look at those big exits, they all had low prices. Pinterest, Airbnb, Dropbox, uh, Uber, Lyft, you know, and, and invested 750,000 dollars at 5.5 post in Lyft. And I think the same will be true. I think here's what people don't understand in my opinion. When a seed round is priced at 20 post, 30 post, it's not non-consensus. It's priced to perfection, and it's priced in a way that everybody believes it's gonna succeed, that it's a hot deal. And that's bad for two reasons. It's bad for the investor, Because even if the investor's right, they're probably not gonna make much money, and what Sam Lesson said on your show a few weeks ago is exactly right. He's had billion dollar exits where he didn't make much money. Uh, but it's a problem for the entrepr…

AI assessment note: “I tend to resist, after doing this a while, I tend to resist making too many macro statements”

Q What does radical human mean in these communications?

A Well, you know, business is a personal pursuit, right? No matter what anybody says, people have feelings, people are scared when stuff they care a lot about is threatened, you know, their jobs, their money, you know, is this startup going to survive, you know, You don't just take a casual clinical approach to that kind of stuff, right? And so, you know, the first thing you got to do is kind of meet people where they are as humans and help them understand, hey, I get this. This is crazy. None of us asked for this. None of us planned on this, but we have a job to do and, and, you know, we'll get through it. Uh, the other thing I've learned is that some people are going to behave pretty weirdly. You know, people that you might think are going to be very poised are just going to turn into mush. And so, you know, like, you can't be that person. You've got to be the person that people look to and say, okay, they're on it, they got this, and they understand me, and they empathize with what I'm worried about, and you know, they're taking those concerns into account as they work through this. Now I want to work through it with, with The leadership team. And so, yeah.

AI assessment note: “meet people where they are as humans and help them understand, hey, I get this”

Q I don't understand that, if I'm totally honest, because the point of the follow-on, obviously we don't do follow-ons at all, uh, if you look at the data, bluntly, we grossly overestimate our ability to pick our winners, um, um, but the point is you have asymmetric information and you should be able to pick better because you know the company better. So why would you lose that asymmetric information?

A Pro rata rights are a right. And so the, the high order bit to me in all investing, there's two, right? One is you got to get paid for the risk you take. And the other is always play offense with your money. And if you're a seed fund, in theory, your first checks, you're playing offense with your money. If you're not, you've got no business. You do, you're just not in business. Right. But there's the occasional situation where, you know, you own shares in a great company. Applied intuition, Figma, Twitter, um, Okta, one of these. And, and sometimes you just kind of know, right? And yes, the prices get bid up, but they're great firms are coming in. You have a choice to decide whether you want to exercise that right. And keep in mind, it's a right that you have that nobody else has. And so, to me, that would be an example playing offense with your money.

AI assessment note: “sometimes you just kind of know, right? And yes, the prices get bid up”

Q Did you see much finger pointing in this process?

A Well, I saw a lot more of it in social media. It's kind of interesting, the contrast between social media and my own experience, like, Ann and I were just, like, talking to founders of, like, how do we get through this, right? Like, our, we weren't sitting here at all thinking, what's Janet Yellen gonna do? I mean, you're wondering what they're gonna do, but it's like, we don't have the luxury to think about that too much, because they're gonna do what they're gonna do. What we have to do is Understand, right, how we're going to respond depending on a certain set of outcomes that are TBD, and that was, that was my experience, was like, 85% of the founders that we worked with, and I feel really lucky, we made good choices of who we decided to go into business with, but 85% of the founders were just like on it, and we were just like taking care of business, right, and not wasting time on the stuff that we can't control.

AI assessment note: “I saw a lot more of it in social media”

Q Why is your fund one 50 when it was 7080?

A It's a long story, but, but basically to me, Your fund size is your strategy, and I guess I'm kind of famous for saying that for a long time. I don't know if I've ever really expressed why that is, so here's why. The power law is real, and so people don't realize that Pareto is not just eighty-twenty, it's a curve, it's a continuous curve, so 80% comes from 20%, but it's also true that four percent yields 64%. Because, uh, 80% squared is 64%, and 20% squared is four percent. And so, when you have a fund, let's, let's just use ballpark figures. Let's say you have 25 investments in a fund. Your best investment is gonna have to return 64% of all returns. That one deal. So if you want a five X fund, you know, that one investment by itself needs to return, you know, 64% of five times the fund in profit. And so that's why your fund size is your strategy. Your fund size is basically, it's kind of like if you're a pole vaulter, it's the height of the bar that you set that you promised to jump over. And if you don't jump over that fund, that, that, that height, You have a bad fund.

AI assessment note: “It's a long story, but, but basically to me, Your fund size is your strategy”

Q Do you think prices are coming down, Jason and Mike? Am I, am I seeing something different?

A I, I tend to resist, after doing this a while, I tend to resist making too many macro statements, right? Like, I kind of look at it like every startup is its own snowflake. Is the average valuation higher than what I've seen before relative to where they should be? Probably. But I still think that there are lots of ways to make money in seed. And I, and I actually think they're surprisingly similar to how they've always been, which is you have to be non-consensus and right, investing in an entrepreneur who's non-consensus and right. And you know, a lot of people say, well, that's changed. Look how big these exits are. But then when I look at those big exits, they all had low prices. Pinterest, Airbnb, Dropbox, uh, Uber, Lyft, you know, and, and invested 750,000 dollars at 5.5 post in Lyft. And I think the same will be true. I think here's what people don't understand in my opinion. When a seed round is priced at 20 post, 30 post, it's not non-consensus. It's priced to perfection, and it's priced in a way that everybody believes it's gonna succeed, that it's a hot deal. And that's bad for two reasons. It's bad for the investor, Because even if the investor's right, they're probably not gonna make much money, and what Sam Lesson said on your show a few weeks ago is exactly right. He's had billion dollar exits where he didn't make much money. Uh, but it's a problem for the entrepr…

AI assessment note: “I tend to resist making too many macro statements”

Q Um, ok, predictions for twenty-twenty-five. What will we see?

A I continue to be intrigued by What could happen with Bitcoin? Uh, so, so, um, I, I look at it slightly different. So when I think about the way venture capital has thought about crypto, most of the really smartest people I know have been focused on Ethereum and Solana. And I look at Bitcoin, and it just feels to me like it's the thing hidden in plain sight. And it feels to me like, uh, there's a world where, uh, Bitcoin becomes, uh, more valuable than gold and then some, and where, uh, there's an entire financial ecosystem and rails around it. And if that happens, ah, I think Bitcoin's got a lot of room to run, but I think that there would be a lot of startups, ah, that could create, um, an ecosystem around it that would be interesting.

AI assessment note: “Bitcoin becomes, uh, more valuable than gold and then some”

Q What does radical human mean in these communications?

A Well, you know, business is a personal pursuit, right? No matter what anybody says, people have feelings, people are scared when stuff they care a lot about is threatened, you know, their jobs, their money, you know, is this startup going to survive, you know, You don't just take a casual clinical approach to that kind of stuff, right? And so, you know, the first thing you got to do is kind of meet people where they are as humans and help them understand, hey, I get this. This is crazy. None of us asked for this. None of us planned on this, but we have a job to do and, and, you know, we'll get through it. Uh, the other thing I've learned is that some people are going to behave pretty weirdly. You know, people that you might think are going to be very poised are just going to turn into mush. And so, you know, like, you can't be that person. You've got to be the person that people look to and say, okay, they're on it, they got this, and they understand me, and they empathize with what I'm worried about, and you know, they're taking those concerns into account as they work through this. Now I want to work through it with, with The leadership team. And so, yeah.

AI assessment note: “meet people where they are as humans and help them understand, hey, I get this.”

Q been coming to me saying, hey, do I put it in a money markets account? I don't know what that is. Do I put it in a sweep account? I don't know what that is either. How do I figure out these different instruments, Harry? How do you advise founders on money markets accounts, sweep accounts? All these other accounts that I didn't even fucking know what they mean, Mike.

A Yeah, you know, and it, and it's interesting, I'm less concerned about that, and, and some people listening to your show may disagree with me. I think that perfect is the enemy of the good here. I think that, like, agility is the important thing, right? Like, we're not trying to optimize a couple of basis points on our money market account or bonds or whatever. What we're trying to do is put ourselves in a position where almost no matter what happens, we can land on our feet. And like, so what I, what I want founders that I work with to be able to do is to say, we are, we are now set up where we're resilient almost no matter what happens. And now I can go back to the thing that matters most, which is getting product market fit, eliminate distractions. And so like, I think that in this case, having an agile setup Where you can react quickly to whatever happens, and where you're taking risk out of losing your money is, is the more important thing. Um, because, you know, what, where you should put your money in sweep accounts, this, or bonds, or that, that's gonna change through time, and, you know, there's gonna be good best practices that change through time, but, but, but the, the idea of agility and resiliency, I think, is a, a durable strategy, no matter what happens.

AI assessment note: “I'm less concerned about that... we're not trying to optimize a couple of basis points”

Q And before we dive on the team there, which I do want to touch on, how do you approach, uh, the follow on funding aspect in carving out the, the follow on fund from, from the initial funds?

A Yeah. So, so the way we do it is we, we have this saying, always play offense with your money. We try to have our reserves be as focused as we can on the, on the winning companies, but we also have to have some reserves for the companies that are Encountering difficulties, and it's taking a little bit longer than planned to achieve certain milestones. So, you know, but what you want to do is you want to have discipline and integrity about when you follow on and when you don't. And what happens in a lot of venture funds is that they just, they just keep bridging and bridging these companies to nowhere. And that, that ultimately isn't even good for the founder, right? I mean, ultimately, we have to, we have to have discipline and integrity about which ideas are working and which ones aren't. You know, ultimately, you The years that a founder is working on a startup are the best years of their lives, and so they should be working on projects that they think can be truly exceptional.

AI assessment note: “We try to have our reserves be as focused as we can on the, on the winning companies”

Q I don't understand that, if I'm totally honest, because the point of the follow-on, obviously we don't do follow-ons at all, uh, if you look at the data, bluntly, we grossly overestimate our ability to pick our winners, um, um, but the point is you have asymmetric information and you should be able to pick better because you know the company better. So why would you lose that asymmetric information?

A Pro rata rights are a right. And so the, the high order bit to me in all investing, there's two, right? One is you got to get paid for the risk you take. And the other is always play offense with your money. And if you're a seed fund, in theory, your first checks, you're playing offense with your money. If you're not, you've got no business. You do, you're just not in business. Right. But there's the occasional situation where, you know, you own shares in a great company. Applied intuition, Figma, Twitter, um, Okta, one of these. And, and sometimes you just kind of know, right? And yes, the prices get bid up, but they're great firms are coming in. You have a choice to decide whether you want to exercise that right. And keep in mind, it's a right that you have that nobody else has. And so, to me, that would be an example playing offense with your money.

AI assessment note: “to me, that would be an example playing offense with your money.”

Q an LP of mine the other day, and he was like, ah, Harry, you need to be on the board at Seed for governance reasons. And I'm like, they, they're pre-product. They're trying to find customers. This is ridiculous to suggest foundational governance requirements. I agree, but they don't need a board for that at this stage. Do you agree, or do you think boards at Seed are really helpful?

A I, I think it varies. You know, I like to say every company is its own snowflake, and every, every company has its own situation. The one thing I would say, though, is, um, I had a conversation with Michael Seibel a few months ago, and, uh, so I funded Justin TV when he was on the founding team back in oh seven, and he asked me a question that I really liked, which was, have you ever worked with a startup that got real product market fit and failed, or wasn't even Wildly successful. And I was like, that's a really good question. And I thought about it some, and I said, I can't think of a single example. And then I, I asked him, okay, at YC, um, how about you? You've seen 3000 companies. Have you ever seen a company get true product market fit and not be wildly successful? And I'm not going to cast dispersions on a specific company, but he said he could only name one example out of 3000 companies. And so, what, what's the takeaway there? The takeaway is, it's like when Vince Lombardi used to say, winning isn't everything, it's the only thing. In a zero to one startup, product market fit isn't everything, it's the only thing. It is the only thing. And it's like, we need to answer a specific question. What can we do, unique, that people are desperate for? Eliminate distractions. And so, like, if, if it means I've joined the board to help the founder do that, great, I joined the bo…

AI assessment note: “if it means I've joined the board to help the founder do that, great”

Q What trend are you seeing that you don't think others are seeing?

A This would be a, a longer discussion, but I think that, uh, AI is going to potentially change how companies can be built. And so, before I started Floodgate, the way funding worked was You've funded technical milestones. So, you know, I've got a router. It's going to go 10 times faster than the other guy's router. If I can prove that I can build that thing, I get more money. Now, if you can, if you could solve that, there was no market risk. Like, so in the old days of tech, um, you funded technical risk, right? If I can cure cancer, if I solve that problem, there's no market risk. And so you would fund projects where if you could build the thing, People would want it. Then came the era of the lamp stack and lean startups, and this is really what enabled firms like Floodgate and this early seed funds. What we realized was that at the other end of the spectrum, you have market risk, and so Kevin Rose had started Digg for 1500 dollars over a weekend, and so there's no technical risk there. The only question is, given that just about anybody could have built Digg, who's going to be the first Who's going to be the first company to get product market fit? So it became who's going to get adoption first? Who's going to get distribution first? And so lean startups and seed funds had the insight to understand that you could fund market risk takeout rather than technical risk takeout. An…

AI assessment note: “I think that, uh, AI is going to potentially change how companies can be built.”

Q an LP of mine the other day, and he was like, ah, Harry, you need to be on the board at Seed for governance reasons. And I'm like, they, they're pre-product. They're trying to find customers. This is ridiculous to suggest foundational governance requirements. I agree, but they don't need a board for that at this stage. Do you agree, or do you think boards at Seed are really helpful?

A I, I think it varies. You know, I like to say every company is its own snowflake, and every, every company has its own situation. The one thing I would say, though, is, um, I had a conversation with Michael Seibel a few months ago, and, uh, so I funded Justin TV when he was on the founding team back in oh seven, and he asked me a question that I really liked, which was, have you ever worked with a startup that got real product market fit and failed, or wasn't even Wildly successful. And I was like, that's a really good question. And I thought about it some, and I said, I can't think of a single example. And then I, I asked him, okay, at YC, um, how about you? You've seen 3000 companies. Have you ever seen a company get true product market fit and not be wildly successful? And I'm not going to cast dispersions on a specific company, but he said he could only name one example out of 3000 companies. And so, what, what's the takeaway there? The takeaway is, it's like when Vince Lombardi used to say, winning isn't everything, it's the only thing. In a zero to one startup, product market fit isn't everything, it's the only thing. It is the only thing. And it's like, we need to answer a specific question. What can we do, unique, that people are desperate for? Eliminate distractions. And so, like, if, if it means I've joined the board to help the founder do that, great, I joined the bo…

AI assessment note: “I think it varies. You know, I like to say every company is its own snowflake”

Q Is the difference between winning and losing the deal?

A It's not so much that. It would be, maybe I can say to the founder, hey look, um, This is a way for us to have some type of a joint gain. I, I know you need to get the price you want to get, and there are reasons that you want to get that, but maybe we can get some type of a blended price if I buy preferred plus common, and then I, I own more, I'm taking more risk, but if I believe in the company, um, I've never made money or lost money based on common or preferred ever in the ones that worked, and so I, I, um, Will you do uncapped notes? Um, only in very rare cases.

AI assessment note: “It's not so much that.”

Q Why is your fund one 50 when it was 7080?

A It's a long story, but, but basically to me, Your fund size is your strategy, and I guess I'm kind of famous for saying that for a long time. I don't know if I've ever really expressed why that is, so here's why. The power law is real, and so people don't realize that Pareto is not just eighty-twenty, it's a curve, it's a continuous curve, so 80% comes from 20%, but it's also true that four percent yields 64%. Because, uh, 80% squared is 64%, and 20% squared is four percent. And so, when you have a fund, let's, let's just use ballpark figures. Let's say you have 25 investments in a fund. Your best investment is gonna have to return 64% of all returns. That one deal. So if you want a five X fund, you know, that one investment by itself needs to return, you know, 64% of five times the fund in profit. And so that's why your fund size is your strategy. Your fund size is basically, it's kind of like if you're a pole vaulter, it's the height of the bar that you set that you promised to jump over. And if you don't jump over that fund, that, that, that height, You have a bad fund.

AI assessment note: “It's a long story, but, but basically to me, Your fund size is your strategy”

Q and I was like, I wasn't expecting that in this talk. Um, but, I love that. Ok, so lesson number three, and this is a really tough one, where I think actually, well, like all of them, it's impossible to expect founders to have known this, but crisis communications. What are some of the biggest lessons for founders in terms of how to navigate communications from the last few weeks?

A Yeah, so it's interesting. There's a wide variety of opinions on this, and so I thought, I'm gonna go to the person who I think understands this better than anybody, and ask him. And so that would be, uh, Christopher Lockhead, who wrote a book called Play Bigger, and he was a CMO at Mercury Interactive, and one day they announced that the, the CEO is gonna be, uh, investigated for backdated options. And, you know, all of a sudden he has to, like, you know, company's gonna get delisted, and, like, all these kinds of horrible things happen to Mercury Interactive, and Christopher Lockhead had to be the guy explaining what was going on, and he hardly knew what was going on himself. And so, you know, and before that, you know, he was at, um, Scient during the dot-com days, and then the dot-com meltdown days, and so I just went to him, and I said, okay, what, what are the, Durable lessons we can learn about crisis communication. Like what, what should founders know? What's like the checklist manifesto for crisis communication? And so that, so the, the things that I'm offering here is really channeling Christopher Lockhead.

AI assessment note: “the things that I'm offering here is really channeling Christopher Lockhead.”

Q and I was like, I wasn't expecting that in this talk. Um, but, I love that. Ok, so lesson number three, and this is a really tough one, where I think actually, well, like all of them, it's impossible to expect founders to have known this, but crisis communications. What are some of the biggest lessons for founders in terms of how to navigate communications from the last few weeks?

A Yeah, so it's interesting. There's a wide variety of opinions on this, and so I thought, I'm gonna go to the person who I think understands this better than anybody, and ask him. And so that would be, uh, Christopher Lockhead, who wrote a book called Play Bigger, and he was a CMO at Mercury Interactive, and one day they announced that the, the CEO is gonna be, uh, investigated for backdated options. And, you know, all of a sudden he has to, like, you know, company's gonna get delisted, and, like, all these kinds of horrible things happen to Mercury Interactive, and Christopher Lockhead had to be the guy explaining what was going on, and he hardly knew what was going on himself. And so, you know, and before that, you know, he was at, um, Scient during the dot-com days, and then the dot-com meltdown days, and so I just went to him, and I said, okay, what, what are the, Durable lessons we can learn about crisis communication. Like what, what should founders know? What's like the checklist manifesto for crisis communication? And so that, so the, the things that I'm offering here is really channeling Christopher Lockhead.

AI assessment note: “the things that I'm offering here is really channeling Christopher Lockhead.”

Q And with the scaling of the fund upstream, how did that change your investment decision-making process from being the kind of angel pool, which you had beforehand very successfully? How did that change when you went upstream with kind of fiduciary responsibilities in a team?

A Yeah, well, I think there are some things that have changed and some things that haven't. Ultimately, the, here is the problem with a firm, any firm, And then there's also an opportunity. So the problem with most firms is that they have less than or equal to one really good investor, and then they force the, what's called the limited partners or the LPs to buy the bundle of everybody else who's not a good investor. And so what you, what you want though is for the whole of the team to be better than the sum of the parts. And a lot of that comes from how you treat each other and how you make decisions. And so if you, For example, if you have politics, you'll make worse decisions because one person may not vote for another person's deal, or one, one person might, might, uh, talk somebody out of doing something. The other failure mode is group think. And so you can, you can become too consensus driven and lose the magic of what causes somebody to have the insight of a, of a great startup before the world believes. So what our challenge has been and remains is how can we make sure that As a group, we're, we're making better decisions than we would have, you know, as a random collection of individuals. And there's, there's some things that we do to ensure that, but you know, time will tell if the, if it's the right approach.

AI assessment note: “there's, there's some things that we do to ensure that”

Q Do you think there's exit pricing efficiency today, given the incredible excitement around AI?

A So that's the thing, right? Like, this is the other thing I found, is that when The times you should be selling into some of those rounds. Everybody wants a share of the company. So like the, the, what, what I learned was that it's actually a win-win for the founder, because you say to the founder, you can't just do it on the fly. You can't be transactional. But if you say to the founder, Hey, look, let's be realistic here. You're better off in the fullness of time if certain players are in your cap table and not a seed fund. You know, fidelity or, you know, folks like that. So what do you say we get strategic about it? How about we put ourselves in a position where we can get somebody like that in when you raise your next round if it clears a certain threshold? And what, what usually ends up happening is at first they're like, hmm, I don't know. But, but what ends up happening in reality is by the time the round comes together, the founders coming to you saying, dude, you got to do me a solid. You said you were going to sell. I need you to sell more because everybody becomes pigs. Everybody wants in. Nobody pays attention, uh, to, so ironically, the, the, the times that it's easiest to sell in these really up rounds is probably the time you should think seriously about it when you're a seed fund. And you don't want to, I call it, um, Iris came up with a term for it, actually. …

AI assessment note: “the times that it's easiest to sell in these really up rounds”

Q Do you worry about the power that one man has? He controls the digital town hall now with Trump. He controls the physical town hall.

A Well, that's a different question, but, but like, if you're asking me the company of the year, it's SpaceX in my view, right? And so like, I'm like, you know, if, if, if people are saying, look, the problem with SpaceX is they're too powerful and you know, that they dominate the skies and all that stuff. Um, to me that, that kind of underscores the, the year they had, but, but also just like the impact that they have, right? Just their ability to just provide broadband arbitrarily anywhere, anywhere in the world. And, and by the way, it's not going to be just broadband. They're going to be able to launch payloads of all kinds of things. You know, by as you bots, new company, uh, he's trying to have these satellites that have these solar panels that beam lasers down to earth, you know, for energy. Anywhere at these base stations. And so who's going to put those things up into outer space? It's going to be SpaceX, you know, putting the payload out there. And so, you know, you get to a world where SpaceX becomes a platform dominant supplier for outer space. And I think that's pretty, pretty impressive.

AI assessment note: “Well, that's a different question, but, but like, if you're asking me”

Q Do you worry about the power that one man has? He controls the digital town hall now with Trump. He controls the physical town hall.

A Well, that's a different question, but, but like, if you're asking me the company of the year, it's SpaceX in my view, right? And so like, I'm like, you know, if, if, if people are saying, look, the problem with SpaceX is they're too powerful and you know, that they dominate the skies and all that stuff. Um, to me that, that kind of underscores the, the year they had, but, but also just like the impact that they have, right? Just their ability to just provide broadband arbitrarily anywhere, anywhere in the world. And, and by the way, it's not going to be just broadband. They're going to be able to launch payloads of all kinds of things. You know, by as you bots, new company, uh, he's trying to have these satellites that have these solar panels that beam lasers down to earth, you know, for energy. Anywhere at these base stations. And so who's going to put those things up into outer space? It's going to be SpaceX, you know, putting the payload out there. And so, you know, you get to a world where SpaceX becomes a platform dominant supplier for outer space. And I think that's pretty, pretty impressive.

AI assessment note: “Well, that's a different question, but, but like, if you're asking me”

Q And with the scaling of the fund upstream, how did that change your investment decision-making process from being the kind of angel pool, which you had beforehand very successfully? How did that change when you went upstream with kind of fiduciary responsibilities in a team?

A Yeah, well, I think there are some things that have changed and some things that haven't. Ultimately, the, here is the problem with a firm, any firm, And then there's also an opportunity. So the problem with most firms is that they have less than or equal to one really good investor, and then they force the, what's called the limited partners or the LPs to buy the bundle of everybody else who's not a good investor. And so what you, what you want though is for the whole of the team to be better than the sum of the parts. And a lot of that comes from how you treat each other and how you make decisions. And so if you, For example, if you have politics, you'll make worse decisions because one person may not vote for another person's deal, or one, one person might, might, uh, talk somebody out of doing something. The other failure mode is group think. And so you can, you can become too consensus driven and lose the magic of what causes somebody to have the insight of a, of a great startup before the world believes. So what our challenge has been and remains is how can we make sure that As a group, we're, we're making better decisions than we would have, you know, as a random collection of individuals. And there's, there's some things that we do to ensure that, but you know, time will tell if the, if it's the right approach.

AI assessment note: “there's some things that we do to ensure that, but you know, time will tell”

Q Do you think there's exit pricing efficiency today, given the incredible excitement around AI?

A So that's the thing, right? Like, this is the other thing I found, is that when The times you should be selling into some of those rounds. Everybody wants a share of the company. So like the, the, what, what I learned was that it's actually a win-win for the founder, because you say to the founder, you can't just do it on the fly. You can't be transactional. But if you say to the founder, Hey, look, let's be realistic here. You're better off in the fullness of time if certain players are in your cap table and not a seed fund. You know, fidelity or, you know, folks like that. So what do you say we get strategic about it? How about we put ourselves in a position where we can get somebody like that in when you raise your next round if it clears a certain threshold? And what, what usually ends up happening is at first they're like, hmm, I don't know. But, but what ends up happening in reality is by the time the round comes together, the founders coming to you saying, dude, you got to do me a solid. You said you were going to sell. I need you to sell more because everybody becomes pigs. Everybody wants in. Nobody pays attention, uh, to, so ironically, the, the, the times that it's easiest to sell in these really up rounds is probably the time you should think seriously about it when you're a seed fund. And you don't want to, I call it, um, Iris came up with a term for it, actually. …

AI assessment note: “easiest to sell in these really up rounds is probably the time you should think”