The Exchanges

Q So your favorite book and why? I'm terribly illiterate. Tell me, what should I read?

A My favorite book is On the Road by Jack Kerouac. It is the book that I have read the most times because it is the It's the book that represents the most about life, about having a sense of space in life, physical and mental. It's also a love story. It's about the love of ideas, the love of people. It's the meaning. It's about the meaning of country and the meaning of home, and it also captures that, you know, that fleeting moment when you're between adolescence and adulthood, how that feels when you're right on the edge, and I think that's an important feeling to capture, and so it's, that's why it's my favorite book. Also, it was written, 50, or 19, 55 many years ago, and it feels as relevant today as ever before because it's so human.

AI assessment note: “My favorite book is On the Road by Jack Kerouac.”

Q You said about price sensitivity there. That's one of my all-time favorite topics, as, as you said, as a student of VC and a complete VC nerd, to be quite honest. Um, on that topic, uh, Peter Fenton said on the show, never turn down a company based on valuation. It's a mental trap. Would you agree with this, especially given that mistake?

A I don't think there's one truth in anything, in particularly this. Clearly, I'm giving an example of, of the mistake being that I got stuck on price. So in that instance, that was a mistake. I do think part of the craft of VC is math, right? And that math is we have to take a fund and return it, let's say three or, you know, return three to four times the capital to our investors. And there's math that goes into doing that, right? You can come up, you can model that out or attempt to model that out. So I think it can be a mental trap, but there's also math involved as well. And that's the balance. The reason I always go back to process is like, you could go crazy looking at individual deals, trying to figure out whether are you falling for the valuation mental trap, or are you making the right decision? But if you have a process, right, and this is what Brad was saying to me, if you have a process, you'll get it right a couple times each fund, so that's okay. So you don't have to get stuck on it individually. That being said, there are investments that we have not made because we think the price didn't make the math work. At the same time, there are investments we haven't made Where we made a mistake, focus too much on that.

AI assessment note: “I think it can be a mental trap, but there's also math involved as well.”

Q How do those conversations look internally? Is that Monday morning meetings, and is that voting structure unanimous? How does that conversation play out?

A Well, as a firm, we do not vote. We have a conversation, and that conversation leads to a point where everyone is comfortable with the parameters of an investment, and those parameters, there are a bunch of things that goes into those parameters, right? One is, does it fit, or would we be a good investor for this company? And that primarily goes to, do we believe the same things they do? And that Drills down to, is this consistent with our investment thesis? And then there are things like, can we spend the time on this that is required that this entrepreneur deserves? And sometimes location comes into that. And then also it's like, can we own enough of it? And we have no ownership targets that we think the math will work over the course of a fund. And we don't vote. We have conversations around those things. And when you work with a group of people long enough, you get a sense for everyone is in some form of general consensus that this is the type of thing we should do or shouldn't do.

AI assessment note: “Well, as a firm, we do not vote. We have a conversation”

Q Mm-hmm. Has that requirement and need for process changed over your career?

A I think my acknowledgement of it as being an important or maybe the most important part of the business has changed. And, you know, processes can change over time. There's this great quote that I love by John Kenneth Galbraith, and it says, if you think about part of VC is thinking about the future, right? So his quote is, there are two kinds of forecasters, those who don't know, and those who don't know, they don't know. And I would say, as I've gotten more mature, Though I am not mature, I'm really comfortable not knowing what I don't know, and in this world of uncertainty or in this business of uncertainty, so therefore I've gotten more comfortable with process being something that maybe over time I can prove I'm good at versus predicting the future or even picking individual companies, though that's part of the job.

AI assessment note: “I think my acknowledgement of it as being an important or maybe the most important”

Q You said about price sensitivity there. That's one of my all-time favorite topics, as, as you said, as a student of VC and a complete VC nerd, to be quite honest. Um, on that topic, uh, Peter Fenton said on the show, never turn down a company based on valuation. It's a mental trap. Would you agree with this, especially given that mistake?

A I don't think there's one truth in anything, in particularly this. Clearly, I'm giving an example of, of the mistake being that I got stuck on price. So in that instance, that was a mistake. I do think part of the craft of VC is math, right? And that math is we have to take a fund and return it, let's say three or, you know, return three to four times the capital to our investors. And there's math that goes into doing that, right? You can come up, you can model that out or attempt to model that out. So I think it can be a mental trap, but there's also math involved as well. And that's the balance. The reason I always go back to process is like, you could go crazy looking at individual deals, trying to figure out whether are you falling for the valuation mental trap, or are you making the right decision? But if you have a process, right, and this is what Brad was saying to me, if you have a process, you'll get it right a couple times each fund, so that's okay. So you don't have to get stuck on it individually. That being said, there are investments that we have not made because we think the price didn't make the math work. At the same time, there are investments we haven't made Where we made a mistake, focus too much on that.

AI assessment note: “I think it can be a mental trap, but there's also math involved as well.”

Q How do those conversations look internally? Is that Monday morning meetings, and is that voting structure unanimous? How does that conversation play out?

A Well, as a firm, we do not vote. We have a conversation, and that conversation leads to a point where everyone is comfortable with the parameters of an investment, and those parameters, there are a bunch of things that goes into those parameters, right? One is, does it fit, or would we be a good investor for this company? And that primarily goes to, do we believe the same things they do? And that Drills down to, is this consistent with our investment thesis? And then there are things like, can we spend the time on this that is required that this entrepreneur deserves? And sometimes location comes into that. And then also it's like, can we own enough of it? And we have no ownership targets that we think the math will work over the course of a fund. And we don't vote. We have conversations around those things. And when you work with a group of people long enough, you get a sense for everyone is in some form of general consensus that this is the type of thing we should do or shouldn't do.

AI assessment note: “Well, as a firm, we do not vote. We have a conversation”

Q And you said about the last three funds there. I spoke to Albert before this interview, and he told me, talk about the future, talk about the next three funds, Harry. So I'm intrigued to talk to you about the future of VC and how you view the world of VC changing with maybe the unbundling of VC value add with the likes of ICOs. How do you view that?

A So this is maybe the most exciting part, right? I imagine you've talked to, you've done thousands of these conversations. This is what you're getting to, right? So here's a couple of things that potentially really interesting and tell me if you agree or disagree, right? I believe on one point that early stage software technology based venture capital is a near perfect craft for what it does. And by that, I mean, it is a near perfect allocation of Of a certain type of capital, risk capital, into endeavors that are focused on returning way more than what you could get from the S&P, for example, in a liquid market. And it's worked really well at that, but it does that one thing. And so, does that model apply, for example, to investments in consumer products companies? Does that model apply, for example, into hard scientific problems? Does that model apply In the world of ICOs and blockchain technology. So the exciting thing is, I think the answer to those questions is, the model works really well for that one specific thing we just discussed, but maybe there can be better or different models for different categories. Categories of businesses, asset classes, ways to structure things. Part of what is exciting about ICOs, if one believes in what's happening, and there are lots of Reasons to be skeptical is that they are resulting in an external stimulus for change in financing struct…

AI assessment note: “resulting in an external stimulus for change in financing structures for a certain type”

Q Do you think that's an industry-wide applicable voting structure, or do you think it's very unique to the partnership you have?

A I think this is the way that we do it, and the way that we've consciously chosen to do it, and the way that we continually try and get better at doing it. It's a way that works for us. I think every firm should do it their own way, and they probably do it their own way. This way has constraints as well, right, for us. So for example, I believe this is a methodology that works best when everyone is in the same room, so therefore we only have one office. And so if we have one office, There's probably coverage in getting to know companies that we don't get as well as firms that have multiple offices. So everything comes with a trade-off. We're a group of people that have decided this is the way we like to do it, and we believe works for us. Does it work for everyone? I don't know.

AI assessment note: “I think every firm should do it their own way”

Q Having said that, I think there are certain people, your Jeff Jordans of the world, would be enormous strategic value add. Having done it, having mastered marketplaces at OpenTable, he would be immensely valuable to you. Do you know what? In a different perspective.

A So what's interesting is you came up with two archetypes, and both are really good archetypes, that the characteristic of those archetypes are very human. Your personal ability to connect and bring capital, his personal ability to run businesses. What's interesting to me is In thinking about those archetypes is, will we also move to purely quantitative investing in early stage technology venture? I don't know the answer to that question. We have made investments in other sectors where we believe the answer to that question may be yes. We've done that in consumer products with CircleUp. We've done it in quantitative hedge type financing with Numeri. And so, I don't know if I have an opinion yet. On the venture side, what I like about the archetype, you expressed value-added characteristics that I believe only human beings can deliver on.

AI assessment note: “you expressed value-added characteristics that I believe only human beings can deliver on”

Q Do you think that's an industry-wide applicable voting structure, or do you think it's very unique to the partnership you have?

A I think this is the way that we do it, and the way that we've consciously chosen to do it, and the way that we continually try and get better at doing it. It's a way that works for us. I think every firm should do it their own way, and they probably do it their own way. This way has constraints as well, right, for us. So for example, I believe this is a methodology that works best when everyone is in the same room, so therefore we only have one office. And so if we have one office, There's probably coverage in getting to know companies that we don't get as well as firms that have multiple offices. So everything comes with a trade-off. We're a group of people that have decided this is the way we like to do it, and we believe works for us. Does it work for everyone? I don't know.

AI assessment note: “I think every firm should do it their own way, and they probably do”

Q So your favorite book and why? I'm terribly illiterate. Tell me, what should I read?

A My favorite book is On the Road by Jack Kerouac. It is the book that I have read the most times because it is the It's the book that represents the most about life, about having a sense of space in life, physical and mental. It's also a love story. It's about the love of ideas, the love of people. It's the meaning. It's about the meaning of country and the meaning of home, and it also captures that, you know, that fleeting moment when you're between adolescence and adulthood, how that feels when you're right on the edge, and I think that's an important feeling to capture, and so it's, that's why it's my favorite book. Also, it was written, 50, or 19, 55 many years ago, and it feels as relevant today as ever before because it's so human.

AI assessment note: “My favorite book is On the Road by Jack Kerouac.”

Q Can I ask, how do you separate individual process from firm process?

A Ah, this is such a good question. I think that Different firms have different styles, right? So I would say the USV process is a collaborative consensus process, and so a person that would rely more on individual process probably wouldn't enjoy themselves here, and so we make decisions collaboratively as a group, and therefore we all share in the upside of those decisions or the heartache or downside that comes from those decisions. So again, it's different. Maybe there are firms that are like, Everyone has their own individual process, and then that's the way the firm works. We're a very collaborative process. I think that collaborative process, actually, it comes from the thesis that we invest in as well. Here's my question for you, having done thousands of these. Have you found that more firms rely on individual processes versus firm processes where you've seen that?

AI assessment note: “the USV process is a collaborative consensus process”

Q And you said about the last three funds there. I spoke to Albert before this interview, and he told me, talk about the future, talk about the next three funds, Harry. So I'm intrigued to talk to you about the future of VC and how you view the world of VC changing with maybe the unbundling of VC value add with the likes of ICOs. How do you view that?

A So this is maybe the most exciting part, right? I imagine you've talked to, you've done thousands of these conversations. This is what you're getting to, right? So here's a couple of things that potentially really interesting and tell me if you agree or disagree, right? I believe on one point that early stage software technology based venture capital is a near perfect craft for what it does. And by that, I mean, it is a near perfect allocation of Of a certain type of capital, risk capital, into endeavors that are focused on returning way more than what you could get from the S&P, for example, in a liquid market. And it's worked really well at that, but it does that one thing. And so, does that model apply, for example, to investments in consumer products companies? Does that model apply, for example, into hard scientific problems? Does that model apply In the world of ICOs and blockchain technology. So the exciting thing is, I think the answer to those questions is, the model works really well for that one specific thing we just discussed, but maybe there can be better or different models for different categories. Categories of businesses, asset classes, ways to structure things. Part of what is exciting about ICOs, if one believes in what's happening, and there are lots of Reasons to be skeptical is that they are resulting in an external stimulus for change in financing struct…

AI assessment note: “they are resulting in an external stimulus for change in financing structures”

Q Mm-hmm. Has that requirement and need for process changed over your career?

A I think my acknowledgement of it as being an important or maybe the most important part of the business has changed. And, you know, processes can change over time. There's this great quote that I love by John Kenneth Galbraith, and it says, if you think about part of VC is thinking about the future, right? So his quote is, there are two kinds of forecasters, those who don't know, and those who don't know, they don't know. And I would say, as I've gotten more mature, Though I am not mature, I'm really comfortable not knowing what I don't know, and in this world of uncertainty or in this business of uncertainty, so therefore I've gotten more comfortable with process being something that maybe over time I can prove I'm good at versus predicting the future or even picking individual companies, though that's part of the job.

AI assessment note: “I think my acknowledgement of it as being an important or maybe the most important”

Q Can I ask, how do you separate individual process from firm process?

A Ah, this is such a good question. I think that Different firms have different styles, right? So I would say the USV process is a collaborative consensus process, and so a person that would rely more on individual process probably wouldn't enjoy themselves here, and so we make decisions collaboratively as a group, and therefore we all share in the upside of those decisions or the heartache or downside that comes from those decisions. So again, it's different. Maybe there are firms that are like, Everyone has their own individual process, and then that's the way the firm works. We're a very collaborative process. I think that collaborative process, actually, it comes from the thesis that we invest in as well. Here's my question for you, having done thousands of these. Have you found that more firms rely on individual processes versus firm processes where you've seen that?

AI assessment note: “Here's my question for you, having done thousands of these.”

Q Having said that, I think there are certain people, your Jeff Jordans of the world, would be enormous strategic value add. Having done it, having mastered marketplaces at OpenTable, he would be immensely valuable to you. Do you know what? In a different perspective.

A So what's interesting is you came up with two archetypes, and both are really good archetypes, that the characteristic of those archetypes are very human. Your personal ability to connect and bring capital, his personal ability to run businesses. What's interesting to me is In thinking about those archetypes is, will we also move to purely quantitative investing in early stage technology venture? I don't know the answer to that question. We have made investments in other sectors where we believe the answer to that question may be yes. We've done that in consumer products with CircleUp. We've done it in quantitative hedge type financing with Numeri. And so, I don't know if I have an opinion yet. On the venture side, what I like about the archetype, you expressed value-added characteristics that I believe only human beings can deliver on.

AI assessment note: “you expressed value-added characteristics that I believe only human beings can deliver on”

Q And so you said, I'm a student of VCR, I'll be a student of you today. What process then do you adopt? And how has that changed since you kind of assess your venture career?

A The interesting thing about process, right, is that there's no one type of process. There just are certain types of process that works for certain types of people or certain types of group. You know, Betaworks, we had two parts of our business. One was an investment part, and our process had to do about a theory about social networking and social media, and that led us, on the investment side, to make investments into things like Tumblr and Kickstarter and the Twitter ecosystem, right? Has a different process, and that process, a part of it is an investment thesis, but part of it is a structural process, too, right? The size of the fund, the number of partners, and the number of offices we have, how we think about reserves, all those kind of things, and everything goes into that process. I imagine you have a different process, and everyone else has different processes, but I think what's important is at least acknowledging that process, and trying to understand that process, and trying to perfect that process, and have conviction around that process, if that makes sense.

AI assessment note: “our process had to do about a theory about social networking and social media”

Q And so you said, I'm a student of VCR, I'll be a student of you today. What process then do you adopt? And how has that changed since you kind of assess your venture career?

A The interesting thing about process, right, is that there's no one type of process. There just are certain types of process that works for certain types of people or certain types of group. You know, Betaworks, we had two parts of our business. One was an investment part, and our process had to do about a theory about social networking and social media, and that led us, on the investment side, to make investments into things like Tumblr and Kickstarter and the Twitter ecosystem, right? Has a different process, and that process, a part of it is an investment thesis, but part of it is a structural process, too, right? The size of the fund, the number of partners, and the number of offices we have, how we think about reserves, all those kind of things, and everything goes into that process. I imagine you have a different process, and everyone else has different processes, but I think what's important is at least acknowledging that process, and trying to understand that process, and trying to perfect that process, and have conviction around that process, if that makes sense.

AI assessment note: “there's no one type of process. There just are certain types of process”