The Exchanges

Q How do you think about your own relationship to price? Because I find that often we can lean on price as a crutch. How do you think about when you're willing to pay up versus when you're not?

A There's something deeply troubling about prices getting out of control that have nothing to do with the price itself. So usually what an inflated price means is that the deal is being It's being competed. And so the founder believes that they have leverage. The worst deals are the most competitive deals because they're the ones that, uh, are super consensus. Everyone agrees on the thesis. Everyone agrees on the founding team. There's no edge on the investment. Uh, everything is going to be expensive at every round. So, you know, your, your expected value is going to, is going to decrease. Um, and it usually indicates that there's some memetic contagion that's happening. In the marketplace. And this, for example, is why Founders Fund was, uh, why Peter put us in San Francisco when everyone else was on Sand Hill, because he wanted us to avoid getting caught up in this, like, are they going and meeting all the way down the street with all the other people? It's because mimetic contagion leads to bad investment decisions. And so when a founder says, I'm going to let this run like auction style, they're actually saying, Like secretly inside their head subconsciously or consciously. Um, I'm basically a, you know, an, I'm like an athlete model. All I care about is competition and I'm just going to let it run and I'm going to take the best price at the lowest, uh, dilution that I can a…

AI assessment note: “The worst deals are the most competitive deals because they're the ones that are super consensus.”

Q Can I ask you, we mentioned some of the crazy times last years before, What would you say are your biggest takeaways from the crazy times, and did you change your style in any way because of them?

A I think that the primary lesson for me is that I really don't have fun in that environment. It was, it was super stressful. And I think for some people, it was like the deal velocity was super energizing. For me, it was awful and draining. Like I was, I was on the verge of just leaving venture capital. Um, because this idea that, you know, a founder goes out and basically holds their capital source hostage, um, by creating this, like this hyper competitive, Overpriced environment was just gross. Like it just didn't feel right. And I say that as a founder as well, like we ran a process at Anderil during that time, and we didn't do that because we agreed, this is really gross. We're not just going to let the highest bidder come in and sweep us off our feet. There ha like, we have to think about the future of our business. And I think now in 20, 24, looking back on what happened, it's very easy in retrospect to say, Wow. We really let that get out of hand. And now we've got, we have to do a recap. We have to do a down round. We have to do all this crazy structure, but we're doing the same stupid stuff all over again. And I don't, it's like, people don't realize like, guys, you have to calm down. Think about the future of your business. Don't think about what makes you feel good when people are, you know, patting you on the back and giving you exploding term sheets and taking you o…

AI assessment note: “I think that the primary lesson for me is that I really don't have fun”

Q It's not worth your time. And so Instantly it excludes them. So I, I totally agree with you, and I'm with you. I have to ask a bit of a weird one. Doug Leoni said on the show that venture capital has moved from a high margin boutique business to a low margin commoditized industry. Do you agree with him, and will we see venture returns degrade as a result?

A I definitely think there's truth to that, that statement. I think, you know, the industry has certainly become significantly more competitive and commoditized. At the same time, like, You know, the returns end up being pretty highly concentrated towards the winners. Um, you don't see like really high IRRs across every new fund that pops up. Um, and so I think there's definitely still a great potential for the asset class, uh, as, as an asset class. Um, but Certainly like, as you know, Peter points out in his book, zero to one competition is for losers and it will always be for losers. And I don't care if it's venture capital or startups or any it's competition is for losers. And so we need to figure out ways to differentiate and stand out.

AI assessment note: “I definitely think there's truth to that, that statement.”

Q give me some credit. My question to you is, you mentioned there about, kind of, timing of, of deep tech startups in particular. I'm always just, like, very focused on market timing. I never, like, take market timing risk. You clearly do, which I love. I mean, that's some real kahunas. How do you think about market timing risk as an investor today and as a founder? I mean, both.

A You know, I, I think that It's not on me as a venture capitalist to evaluate markets and then pick companies to time some arbitrary thesis I have for any particular market. You know, that's asking too much. Like VCs are not generally like super talented specialists in any one space. Like the best VCs are kind of generalists. Um, and that means that they might have like a shallow understanding of a wide set of things, uh, but they probably don't have like some massive Kind of polymath death of understanding of every type of company they're going to look at. And so I think it's really on the founders to communicate why the market timing thing is, is relevant to their business. And the best founders are able to do that in a way that's super compelling. Um, and so again, I think this comes down to like, do you have conviction?

AI assessment note: “it's really on the founders to communicate why the market timing thing is, is relevant”

Q I would love to start with a bit of a weird one, but I want to start childhood, and parents and teachers see a lot. How would your parents and teachers have described the young Trey?

A Oh man, uh, yeah, I, I mean, I grew up in the country, like, I, You know, lived in the woods in a log cabin that my dad literally built with his bare hands. Um, and I was kind of always this kind of misfit, I would say. Um, I, I love where I came from. I love Ohio. You know, it's, it's a wonderful place to be from. Um, and you know, there was always this like tension that was like pulling me to escape. Um, and my, my, I have an older brother. He's 18 months older than me. And my mom used to say that she had one son that's like, you know, 18 going on 12, uh, being my older brother. And I was like, uh, 16 going on 40. Like I had this kind of old soul from the very beginning. Um, and you know, I think that it's like, I was the British version of an American teenager. Like I, I like was like a 60 year old in a, in a 16 year old skin. Um, and I, I think Like, I just loved hanging out with adults. I loved sitting around and reading books. I loved like, you know, thinking about philosophy. Um, so I was, I would not say that I was like a super cool teenager.

AI assessment note: “my mom used to say that she had one son that's like 16 going on 40”

Q Can I ask you, we mentioned some of the crazy times last years before, What would you say are your biggest takeaways from the crazy times, and did you change your style in any way because of them?

A I think that the primary lesson for me is that I really don't have fun in that environment. It was, it was super stressful. And I think for some people, it was like the deal velocity was super energizing. For me, it was awful and draining. Like I was, I was on the verge of just leaving venture capital. Um, because this idea that, you know, a founder goes out and basically holds their capital source hostage, um, by creating this, like this hyper competitive, Overpriced environment was just gross. Like it just didn't feel right. And I say that as a founder as well, like we ran a process at Anderil during that time, and we didn't do that because we agreed, this is really gross. We're not just going to let the highest bidder come in and sweep us off our feet. There ha like, we have to think about the future of our business. And I think now in 20, 24, looking back on what happened, it's very easy in retrospect to say, Wow. We really let that get out of hand. And now we've got, we have to do a recap. We have to do a down round. We have to do all this crazy structure, but we're doing the same stupid stuff all over again. And I don't, it's like, people don't realize like, guys, you have to calm down. Think about the future of your business. Don't think about what makes you feel good when people are, you know, patting you on the back and giving you exploding term sheets and taking you o…

AI assessment note: “the primary lesson for me is that I really don't have fun in that environment.”

Q And I agree with you. You look at your Andrews of the world. You look at your open AIs of the world. So is your perspective as an investor and as a founder then, fuck it. Don't try and do defense tech. Just do Andrew. And instead of trying to do AI, fuck it, just do open AI. Is that generally the right strategic play, do you think, for investors?

A I mean, there will be other companies that might be worth taking a bet on, for sure. Like, you know, if you were a social media investor, you missed Facebook, but you got conviction and invested in Snap, you actually did pretty well. On the back of that investment. So there, there are exceptions. There are places where you should stay open to the idea that there's a brilliant founder and a team that has the ability to go and to make something in a market. But I think that this idea that investing broadly across an entire category where you're doing relative rather than absolute assessments is just bad strategy. It doesn't make any sense. Like there's not gonna be a hundred space X's. There's probably not going to be two space X's, but if there are, that's just, you should just be making that one investment in like a really high conviction thing that you would have done regardless of whether or not you were looking at that category. And so, yes, that might be a violation of the rule of look at me. I'm so smart. I don't think I'm so smart. I think like the founders are the ones that are really smart that are changing the world. And I'm just lucky to be on the ride with them as an investor.

AI assessment note: “investing broadly across an entire category where you're doing relative rather than absolute assessments is just bad strategy”

Q What's been your biggest loss and what did you learn?

A Well, I've only been in the industry for 10 years. And so the reality is, is that startups survive for longer than anyone thinks they will. And so there are certainly investments that I've made that are still, you know, puttering along, um, and haven't figured out a way to hit the, the inflection, but I wouldn't call them a loss. Um, I think, I think the, the biggest thing The biggest lesson that I've learned from these is that there are times where I've gone in and I've said, this has 10 X potential from where it is right now, and therefore it's probably worth making a bet. And I look back on some of those investments that I've made and I've said, Even if it 10 X from a, you know, a small series a, it's not going to return the fund. It's not going to really move the needle. And it really, I should be focusing on finding massive upside because the opportunity costs of deploying these checks, uh, is, is actually quite high.

AI assessment note: “haven't figured out a way to hit the, the inflection, but I wouldn't call”

Q How do you think about your own relationship to price? Because I find that often we can lean on price as a crutch. How do you think about when you're willing to pay up versus when you're not?

A There's something deeply troubling about prices getting out of control that have nothing to do with the price itself. So usually what an inflated price means is that the deal is being It's being competed. And so the founder believes that they have leverage. The worst deals are the most competitive deals because they're the ones that, uh, are super consensus. Everyone agrees on the thesis. Everyone agrees on the founding team. There's no edge on the investment. Uh, everything is going to be expensive at every round. So, you know, your, your expected value is going to, is going to decrease. Um, and it usually indicates that there's some memetic contagion that's happening. In the marketplace. And this, for example, is why Founders Fund was, uh, why Peter put us in San Francisco when everyone else was on Sand Hill, because he wanted us to avoid getting caught up in this, like, are they going and meeting all the way down the street with all the other people? It's because mimetic contagion leads to bad investment decisions. And so when a founder says, I'm going to let this run like auction style, they're actually saying, Like secretly inside their head subconsciously or consciously. Um, I'm basically a, you know, an, I'm like an athlete model. All I care about is competition and I'm just going to let it run and I'm going to take the best price at the lowest, uh, dilution that I can a…

AI assessment note: “The worst deals are the most competitive deals because they're the ones that, uh, are super consensus.”

Q You mentioned the transformational life experience there. Does it not also just scare you in the way that, bluntly, if you hadn't got on the plane, hadn't sat in their office waiting, your life could have been very different?

A Certainly would have been. I, I think, like, the, the, again, this is like something we don't really talk about as a society, but, um, Like lower middle-class rural, like primarily Caucasian communities are, have just been obliterated by globalization. You know, JD Vance talks about this in his book, Hillbilly Elegy. Um, but like, you know, you see these stats from the elite universities about how many valedictorians they reject. It's like kind of a symbol of pride. It's, it's just this community that they're, that they're rejecting because they have no connections. They have no money. There's no legacy admissions. They get no demographic boost from accepting these people. Um, and it's, so it's just like, I was a stat. I was like one of these people that's like, look, we get nothing from admitting this kid with good grades and test scores. Doesn't benefit us in any way. Um, and so I was just that stat to all the places that I applied to college. Um, and you know, I think this is a lot of what has led to populism. Uh, the rise of populism in America is all of these people saying like, man, we are just like being completely ignored. You know, you see these communities of blue collar industrial workers that have historically been Democrats, um, that have shifted over to being populist Republicans. And it's because they're just ignored. Uh, and, and I, I feel like I kind of figured…

AI assessment note: “Certainly would have been. I, I think, like, the, the, again, this is like”

Q Just gonna lob this one in. Were you not quite impressed with him in Tucker Carlson's interview?

A I mean, I, I think like the, the level of historical depth was, was really special. You know, I, my concern was, was less about like, is Putin impressive? Is he unhinged? Uh, it was more so that like, man, we have really just allowed Our Western political system to just be destroyed by mediocrity. And, you know, we have our standards for our elected leaders are like bargain basement level. It's really pathetic. And I, I don't know what it's going to take to convince talented people to put themselves in a position where they're running for political office. But I think this is a great risk to human civilization at this point. And, uh, we need to do a better job.

AI assessment note: “my concern was, was less about like, is Putin impressive? Is he unhinged?”

Q for, I agree with you. What would you do to change that? This is where I love the show, because it's just too interesting. Like, that's a problem, ok, what you said, in terms of that, um, neglected population that we don't talk about either, because it's not, A minority of kind of popular terms. What would you do to change that then as an entrepreneur, as a problem solver?

A Yeah, no, I, I think that these things are cultural problems more than anything else. I'm not sure I have like a great entrepreneurial idea behind this. You know, my, uh, my partner here at Founders Fund, Peter Thiel, uh, who I also worked for when I was at Palantir, uh, he's been talking about this for decades, like probably longer than anyone else. Um, and he started a program called the Teal Fellowship to convince kids to drop out of college based on this idea that the elite universities are distorting, uh, our, our culture and our values. And I, I think that, you know, I probably don't have as strong a view on this as Peter does. Like, I'm not like in, in a war with elite universities, but I do think that there's some distortion that's happened that requires correction. And, um, that correction is, Uh, you know, we, we've seen this on display actively over the last six months with some of these presidents being fired for kind of feeding into this kind of hysteria in the, in the cultural moment. And I think we, we need to get back to a point where we have some way to, to generate meritocratic outcomes that are good for everyone, not just for like subsets of the population.

AI assessment note: “I'm not sure I have like a great entrepreneurial idea behind this.”