The Exchanges

Q Final one is, like, overly large GP commits. Tell me, how do you feel about these overly large GP commits?

A So, so I mentioned in Fiverr FinTech, I had to fake like I had a fund because for the first 18 months, zero people would give me money. Zero. So I invested in my own capital, which, you know, is not a huge corporate, but I did the first almost 30 investments from my own pocket. And that was a, that was a pretty big chunk of my net worth. So then as I think about it now, if you, if a huge chunk of your net worth is in the fund over the RGB commit, then You do things differently, like, oh, I want to buy a house. Maybe I should take secondary in this company, even though that's not what's right for, for the fund. Like you could make those mistakes. And so when people encourage overly large GP commits, I just think about that. And, you know, you might make choices based on your life that you should not be doing that aren't in the best interest of the fund. And I think nobody's talking about that.

AI assessment note: “you might make choices based on your life that you should not be doing”

Q This is true, I'm actually Benjamin Button in disguise, um, but I want to start with a little bit of your context. How did you make your way into the world of venture, and then how did you come to found Better Tomorrow most recently?

A Yeah, so I made my way into venture, uh, I think probably a not unusual path. I was a founder. I, um, First joined on with a friend to start a company, uh, now in 2010. And then that company got acquired in 2012. Ended up starting a company, uh, shortly afterwards. That company got acquired in 2015. And at that .500 startups who had invested in the first company asked me, uh, to join them. And originally I was just joining them as a mentor. And then I found that I loved it. I think, you know, I loved helping founders at the earlier stages and thought, Hey, maybe I can make my career doing this. And that's sort of evolved into what it is today. So if I'm going to startups, I started to fund. 500 FinTech. And then, um, over the course of a couple of years, I started interviewing at other funds. Uh, and I was interviewing alongside this guy, Jake Gibson, who was a friend of mine. He'd started nerd wallet. I knew him well. He became an EIR of mind if I were in fintech, and we're both interviewing at other funds. Things are going well, but we're talking to each other on the phone all the time. Like, how did your interview go? What did they ask you? What was difficult? What's the next step? And so we kind of just became like really close during this time. And it's to some people could have been a rivalry. Like we were probably competing for the same jobs. Like there's only going to b…

AI assessment note: “500 startups who had invested in the first company asked me, uh, to join them.”

Q So we have a 40% initial check. On the new fund sizes, that's sixty million dollars. 30 companies, we're doing two million dollars initial check. In a four million round, say, three to four million round, we're gonna get, like, seven to 10% ownership. How do you think about the, how do you think about the importance of ownership on that first check, and where's the bar for you?

A Yeah. Yeah, yeah, yeah. So, um, so our minimum is actually 10. So we have invested, um, so in fund one, our rough numbers, our average first check was a million bucks, and for about 10% ownership. So we invested on average at a ten million post in fund one. Um, despite the mark, and that was 20, 20, 21. Despite the overall market, you know, theoretically being down, Seed valuations in fintech, for some reason, haven't really fallen much. And so our 20, 22 numbers are actually higher. We're investing at a higher valuation than we were then. So maybe, maybe in this fund, we averaged closer to fifteen million post, but, um, We are shooting for 10 to 15% ownership. Right now we're probably, in fund two, we're probably averaging 12, 13%.

AI assessment note: “our minimum is actually 10... We are shooting for 10 to 15% ownership.”

Q mentioned kind of really seeing the power law take effect early. I do want to get into, like, the hits. I think people are wrong when they say you don't learn from success. I think that's bullshit. Um, when you look at, like, your biggest hit, what, what's your biggest hit been from a cashback perspective and then from a multiple perspective? And what have been some learnings from it?

A Yeah, ok, so, Personally, my biggest tip from a cashback perspective is Flexport. I think rough numbers, when I invested, it was like, 15 cents a share, and I sold at 25 dollars and 40 cents a share. Um, and then from the fund, my biggest was, uh, a company, actually, I'm not allowed to name, but, um, it actually, this is interesting, it was not What you would think of as a screaming success, the company exited for two hundred and thirty million dollars. So not a success these days by any venture standard, but I had invested at a two and a half million dollar valuation and the company didn't take much dilution. So for me, it was an outstanding win, um, investing from two and a half to two hundred and thirty million quickly. And I was able to, um, show DPI immediately in my fund. So it was a huge win for me. Um, so that, that was, that was a good one. And then unrealized, I think my biggest is a company called chipper cash. Um, my first investment in the company was at a two and a half million dollar valuation about three years ago, and the last round was over two billion.

AI assessment note: “my biggest tip from a cashback perspective is Flexport.”

Q Yeah, no, I totally get you. What are the biggest reasons for you why great founders fail?

A I think failing to find, first of all, like, you can fail to find product market fit, even if you're a great founder, and you can get stuck behind your idea, not pivot early enough. I think you have to come to a point, and this is actually where we're, Feces. I think actually can be very value add is say, hey, I think we should think about a different business and like come to make a plan. So actually I have this going on with one of my portfolio companies. Now we have a plan and if we don't get to that plan in the next two months, we're going to think about a different company. We're going to pivot. We have years of runway, but the current thing It's working a little bit. There's signs that it's working, but we worry that even if it's working, it's not going to get to a huge business. So, like, we're, we're going to test this out for a few months, and we're staying close on it as investors, and if it doesn't work, we're going to pivot.

AI assessment note: “fail to find product market fit... get stuck behind your idea, not pivot early enough”

Q What's the hardest thing about doing an incubator?

A It takes a lot of time, just there's a lot of, like, operational setup. And then the way to make it successful, and I think the reason why people liked it so much when we did it in 16 to 18, was it just takes a lot of your time. You need to be fully committed, like, 24 hours to this group of people. We have all these companies flying into San Francisco. JC's our guy who's running it, JC on our, on our team, uh, and, and Lauren. And, like, they're gonna be fully committed to making sure these guys have a great experience. And it, it's from everything from, like, Being a social guide to San Francisco to, um, you know, finding the best mentors for a particular company, and like, you have a need, I'm gonna go out and search for somebody who can help you with that need. And I think just by being fully committed is how you have success.

AI assessment note: “It takes a lot of time, just there's a lot of, like, operational setup.”

Q What's the hardest thing about doing an incubator?

A It takes a lot of time, just there's a lot of, like, operational setup. And then the way to make it successful, and I think the reason why people liked it so much when we did it in 16 to 18, was it just takes a lot of your time. You need to be fully committed, like, 24 hours to this group of people. We have all these companies flying into San Francisco. JC's our guy who's running it, JC on our, on our team, uh, and, and Lauren. And, like, they're gonna be fully committed to making sure these guys have a great experience. And it, it's from everything from, like, Being a social guide to San Francisco to, um, you know, finding the best mentors for a particular company, and like, you have a need, I'm gonna go out and search for somebody who can help you with that need. And I think just by being fully committed is how you have success.

AI assessment note: “It takes a lot of time, just there's a lot of, like, operational setup.”

Q It ain't a dollar a day, baby. I do want to ask, though, um, Jeremy Liu, actually, from Lightspeed, asked me this question once, and it was such a good one. It was like, we're all a function of our histories, and with that in mind, What parts of your history are you rebelling from first? And what parts of your history are you running towards?

A Ooh, good question. Okay. So rebelling from, I come from a very conservative Indian family. For those Indians, you, you'll, you'll appreciate it's a Mayawari Jane family. And, um, you know, my mom, oh, actually here, here's something I just said. So I'm 40 years old. My grandmother's, uh, in from, from India, and she, I was talking to her about her age, and I was, I realized, when she was 40 years old, I was already born. She had a grandkid at the age that I am. So, very conservative family. People get married very early. There's only a few professions that they want you to be in. You know, my mom, probably today, to this day, like, I'm a venture capitalist, she wishes I was a doctor. So much so that Actually, funny story, until five years ago, five years ago, I think my mom told me, hey, you know, you, you do so well on tests, you could probably still take the MCAT. The MCAT is the Medical College Admission Test. Like, why not, why not just find out how well you do? Like, she still would prefer today that I, like, go back to medical school and become a doctor, because that's the great profession to be in. Uh, so, very conservative family. Am I running from that? To a certain extent, maybe. Um, now on the other hand, like the, the other side of the question is like, what part of your family are you, uh, or, or what type of part of your history are you running towards? And there…

AI assessment note: “So rebelling from, I come from a very conservative Indian family.”

Q Final one is, like, overly large GP commits. Tell me, how do you feel about these overly large GP commits?

A So, so I mentioned in Fiverr FinTech, I had to fake like I had a fund because for the first 18 months, zero people would give me money. Zero. So I invested in my own capital, which, you know, is not a huge corporate, but I did the first almost 30 investments from my own pocket. And that was a, that was a pretty big chunk of my net worth. So then as I think about it now, if you, if a huge chunk of your net worth is in the fund over the RGB commit, then You do things differently, like, oh, I want to buy a house. Maybe I should take secondary in this company, even though that's not what's right for, for the fund. Like you could make those mistakes. And so when people encourage overly large GP commits, I just think about that. And, you know, you might make choices based on your life that you should not be doing that aren't in the best interest of the fund. And I think nobody's talking about that.

AI assessment note: “when people encourage overly large GP commits, I just think about that”

Q Can I ask, what specific, what specific moment did you realize the power of the power law? Which company in that moment?

A So it's been, it's actually more recent. I'd say like in the past year, I really realized it. Um, I have, there's, there are three or four, there are three companies that each represent multiple turns on the fund. Um, and I realized, oh, wow. If I just, I had the opportunity to sell secondary earlier this year, actually late last year. And I realized, wow, I could sell just a small portion of this and return multiples to my LPs. That's a good idea. Um, and I think it really informed how I think about investing, which is like, these smaller exits are not necessarily gonna get you anything. Even, even like a three, five X return, it doesn't, unfortunately, it just doesn't move the needle that much when, when you, when you have a hundred X return out there. Um, and, and now, by the way, all of this is like, 20, 21 crazy valuations, and there's a great chance that that doesn't hold anymore, and so I think you're constantly learning in this environment.

AI assessment note: “there are three companies that each represent multiple turns on the fund.”

Q Yeah, no, I totally get you. What are the biggest reasons for you why great founders fail?

A I think failing to find, first of all, like, you can fail to find product market fit, even if you're a great founder, and you can get stuck behind your idea, not pivot early enough. I think you have to come to a point, and this is actually where we're, Feces. I think actually can be very value add is say, hey, I think we should think about a different business and like come to make a plan. So actually I have this going on with one of my portfolio companies. Now we have a plan and if we don't get to that plan in the next two months, we're going to think about a different company. We're going to pivot. We have years of runway, but the current thing It's working a little bit. There's signs that it's working, but we worry that even if it's working, it's not going to get to a huge business. So, like, we're, we're going to test this out for a few months, and we're staying close on it as investors, and if it doesn't work, we're going to pivot.

AI assessment note: “get stuck behind your idea, not pivot early enough”