The Exchanges

Q there, you made 39 investments in the last nine months, uh, according to a report. Fantastic report, which everyone must read, actually. I'll add the link in the show notes. But I do want to ask, because many might argue that's, uh, simply spraying and praying. Such a delightful term. Uh, but how do you respond to this, uh, suggestion that 39 investments in nine months is spray and pray?

A Absolutely. So, we went back and we looked at data before we started the fund. And if you go back and look at about the last, 30 to 35 years of venture returns. The only thing that correlates to outsized returns across different economic boom and bust cycles is being early in the best deals, right? So check size doesn't matter. Follow-on decision-making doesn't matter. All of that stuff that people think is really important, while it, it matters to make good investments, the greatest investments, it doesn't matter from a sense of middle of the road, above average return, right? And so we're not looking for Yeah we're,, we're basically looking to diversify, again, our portfolio of investees, right? We want to find a diversification of um, founders, and so what we've found here is we've got portfolio companies, you know, 13 different cities, right Um,, kind of all over the coast across the Midwest as well. Uh, 25.6% of our founders are currently females And,, and what we've seen on the early data, you know, signal is that we're onto something, right? So most venture capital funds are big believers that there's something called a J-curve, Basically, when they begin making investments, Business. And then on the back end, they will begin to realize returns. And so in the first six, 12, maybe 18 months, they will actually see a negative return on paper because the companies that they…

AI assessment note: “we're basically looking to diversify, again, our portfolio of investees”

Q And we're going to start today with probably one of the most contentious topics on the show. Uh, so a statement that you've said before to me, and that is you like to prioritize the founder over the company when evaluating investment opportunities. So talk to me about this, and is this really any different to the founder-friendly VC theme that's so prevalent amongst VCs today?

A Yeah, so I think that there's two aspects to evaluating companies, right? So there's the idea, and then there's the people who are going to go execute that idea. Most of the investors who talk about being founder-friendly, they're talking about the investment terms, the way they interact with founders, um, et cetera, but they're still making decisions based on closer to a fifty-fifty on the company idea and the founders. From our perspective, we really focus more on ninety-ten, so 90% on the founders, 10% on the idea and market. The idea and market are obviously important, and we want to understand kind of what's the vision for that. But if you think of an early stage startup, we're investing incredibly early. We're talking five million dollar valuation or lower usually. The only thing that is going to remain constant in the chaotic environment of building the company are the founders. So the idea may change, the team may change, the market conditions may change, all of these things can change, but the founders are probably going to be one of the only, if not the only, uh, thing that stays constant. And so we want to make sure we make a really intelligent and intentional decision about who we back. And so part of this is not only believing in the people that we invest in, but it's also having a strong propensity to ensure that we have a diversification of founders. And so if yo…

AI assessment note: “Most of the investors who talk about being founder-friendly, they're talking about the investment terms”

Q And we're going to start today with probably one of the most contentious topics on the show. Uh, so a statement that you've said before to me, and that is you like to prioritize the founder over the company when evaluating investment opportunities. So talk to me about this, and is this really any different to the founder-friendly VC theme that's so prevalent amongst VCs today?

A Yeah, so I think that there's two aspects to evaluating companies, right? So there's the idea, and then there's the people who are going to go execute that idea. Most of the investors who talk about being founder-friendly, they're talking about the investment terms, the way they interact with founders, um, et cetera, but they're still making decisions based on closer to a fifty-fifty on the company idea and the founders. From our perspective, we really focus more on ninety-ten, so 90% on the founders, 10% on the idea and market. The idea and market are obviously important, and we want to understand kind of what's the vision for that. But if you think of an early stage startup, we're investing incredibly early. We're talking five million dollar valuation or lower usually. The only thing that is going to remain constant in the chaotic environment of building the company are the founders. So the idea may change, the team may change, the market conditions may change, all of these things can change, but the founders are probably going to be one of the only, if not the only, uh, thing that stays constant. And so we want to make sure we make a really intelligent and intentional decision about who we back. And so part of this is not only believing in the people that we invest in, but it's also having a strong propensity to ensure that we have a diversification of founders. And so if yo…

AI assessment note: “Most of the investors who talk about being founder-friendly, they're talking about the investment terms”

Q A delightful LP said to me on the show the other day, there's no such thing as proprietary deal flow, Harry. What do you think about that? Given the fact that we just discussed dot deal flow founders, not speaking to any other VCs, do you agree with that statement? Or do you think that there is still most definitely proprietary deal flow?

A So I don't think that proprietary deal flow is, I think it's a misleading term, right? I think that what ends up happening is their serendipity. So I can think of the two companies that we invested in that no one else has heard of were friends from years ago, right? These were not founders who were randomly looking for, you know, I need an investor. And so let me go pitch a bunch of VC firms. Um, so there was nothing proprietary about like a deal flow. They didn't come through the normal channels. What they did was they started a business that And I was literally the only person they knew that invested in early stage startups. So these are people completely outside of, you know, Silicon Valley, New York scenes. They have no connection into, um, a lot of the networks I think people think of when they see early stage startups. And so you can call it proprietary, you can call it, you know, friends, you can call it whatever you want, but I, I definitely think that those deals exist. There's not a lot of them, but to me, it's more serendipity than anything.

AI assessment note: “I definitely think that those deals exist. There's not a lot of them”

Q there, you made 39 investments in the last nine months, uh, according to a report. Fantastic report, which everyone must read, actually. I'll add the link in the show notes. But I do want to ask, because many might argue that's, uh, simply spraying and praying. Such a delightful term. Uh, but how do you respond to this, uh, suggestion that 39 investments in nine months is spray and pray?

A Absolutely. So, we went back and we looked at data before we started the fund. And if you go back and look at about the last, 30 to 35 years of venture returns. The only thing that correlates to outsized returns across different economic boom and bust cycles is being early in the best deals, right? So check size doesn't matter. Follow-on decision-making doesn't matter. All of that stuff that people think is really important, while it, it matters to make good investments, the greatest investments, it doesn't matter from a sense of middle of the road, above average return, right? And so we're not looking for Yeah we're,, we're basically looking to diversify, again, our portfolio of investees, right? We want to find a diversification of um, founders, and so what we've found here is we've got portfolio companies, you know, 13 different cities, right Um,, kind of all over the coast across the Midwest as well. Uh, 25.6% of our founders are currently females And,, and what we've seen on the early data, you know, signal is that we're onto something, right? So most venture capital funds are big believers that there's something called a J-curve, Basically, when they begin making investments, Business. And then on the back end, they will begin to realize returns. And so in the first six, 12, maybe 18 months, they will actually see a negative return on paper because the companies that they…

AI assessment note: “we looked at data before we started the fund... The only thing that correlates”

Q that take into account that, as Hunter Walt recently said on the show, the truly great deals come from dark deal flow, the likes of Scott Belsky, uh, previously at Benchmark, who founded his startup that was internally funded within Benchmark to series A pre-announcement. Does it, is, does this dark deal flow not go contra the model and the thesis then based on potential outsized returns and their availability?

A Yeah, so there's a number of deals that we've invested in, That I'm a hundred percent confident there's not another venture capitalist in the world that knows about it because we were there from day one and we know that the founders never talked to another venture capitalist about it. So there's the idea of just knowing about deals that nobody else knows about, right? That is really powerful. And then two is, you know, we're also working pretty aggressively to incubate things internally. Our team is full of experienced operators, right? That's our background. That's why we're doing what we're doing is because we think that we can help founders from an operational perspective and And so naturally we're inclined to continue to operate. Right. And so we're, so we're incubating a number of really interesting things that we think can prove to be valuable over a long period of time. But again, it just takes time.

AI assessment note: “there's a number of deals that we've invested in... not another venture capitalist in the world”

Q A delightful LP said to me on the show the other day, there's no such thing as proprietary deal flow, Harry. What do you think about that? Given the fact that we just discussed dot deal flow founders, not speaking to any other VCs, do you agree with that statement? Or do you think that there is still most definitely proprietary deal flow?

A So I don't think that proprietary deal flow is, I think it's a misleading term, right? I think that what ends up happening is their serendipity. So I can think of the two companies that we invested in that no one else has heard of were friends from years ago, right? These were not founders who were randomly looking for, you know, I need an investor. And so let me go pitch a bunch of VC firms. Um, so there was nothing proprietary about like a deal flow. They didn't come through the normal channels. What they did was they started a business that And I was literally the only person they knew that invested in early stage startups. So these are people completely outside of, you know, Silicon Valley, New York scenes. They have no connection into, um, a lot of the networks I think people think of when they see early stage startups. And so you can call it proprietary, you can call it, you know, friends, you can call it whatever you want, but I, I definitely think that those deals exist. There's not a lot of them, but to me, it's more serendipity than anything.

AI assessment note: “I think it's a misleading term... I definitely think that those deals exist.”

Q Can I ask if I was an investor in full tilt, I'd be concerned at the scaling portfolio and your ability to scale your time accordingly and add that incredible value you illustrated there with such a large portfolio as it scales. How would you respond to that?

A So anyone who, who doesn't believe that we can do it shouldn't be an investor, right? It's kind of the top of the funnel there. And then two is again, going back to the investment process and being very disciplined. You know, our, our promise to founders is we're looking for companies where we see a viable path to creating a Significant, measurable inflection point that changes the value of the company first, 90 days post investment. So we make an investment in the company. We want to run full tilt right at that investment for 90 days. And we think that we can create some pretty significant inflection points with the company in that time period. And then we kind of hand them off. There should be other investors or advisors that can help them kind of pass that 90 day, uh, investment period. And then we go back and we started all over again with another company. And so by kind of having this You know, very focused timeline and very specific area where we want to help with experience and expertise. It allows us to kind of do this at a much more rapid pace than say an investor who comes in and says, I'm going to help you with everything.

AI assessment note: “having this very focused timeline... allows us to kind of do this at a much more rapid pace”

Q Do you like to add value pre-investment?

A I almost regularly tell founders, hey, we're passing, but I think that we can help, you know, add value in these two areas. I know we're not going to be investors, but I think it's important to furthering your growth. We're still going to do this. And, you know, what ends up happening is founders want to appreciate it. And two, you know, there's some, you know, there's definitely some, uh, some self-fulfillment there as well in terms of, you know, they send us deals in the future, et cetera. And so we just generally think if you're a good actor over a long period of time, not only does it help from an investing perspective, but two, it's just the right thing to do, right? If you can help somebody, you should. And so I think that whether you're an investor or not, if you've got the ability to further the growth, uh, or increase the probability of someone succeeding with their company, uh, You should do it.

AI assessment note: “whether you're an investor or not, if you've got the ability... You should do it.”

Q that take into account that, as Hunter Walt recently said on the show, the truly great deals come from dark deal flow, the likes of Scott Belsky, uh, previously at Benchmark, who founded his startup that was internally funded within Benchmark to series A pre-announcement. Does it, is, does this dark deal flow not go contra the model and the thesis then based on potential outsized returns and their availability?

A Yeah, so there's a number of deals that we've invested in, That I'm a hundred percent confident there's not another venture capitalist in the world that knows about it because we were there from day one and we know that the founders never talked to another venture capitalist about it. So there's the idea of just knowing about deals that nobody else knows about, right? That is really powerful. And then two is, you know, we're also working pretty aggressively to incubate things internally. Our team is full of experienced operators, right? That's our background. That's why we're doing what we're doing is because we think that we can help founders from an operational perspective and And so naturally we're inclined to continue to operate. Right. And so we're, so we're incubating a number of really interesting things that we think can prove to be valuable over a long period of time. But again, it just takes time.

AI assessment note: “there's a number of deals that we've invested in, That I'm a hundred percent confident”

Q You said there about founders that will not stop. Those were the words. Will not stop. It's always an intriguing one for me in terms of the balance between stubbornness and vision. Where do you lie on this kind of scale of vision and stubbornness and the balance between the two?

A Absolutely. So I think that it's one of these things of inevitability, right, in the sense that I know where I am, and I know where I'm going. The path in between where I am and where I'm going may not be clear, but I'm not going to stop until I get there, right? And so Where most people think it's a straight line. I think most of the founders that we invest in are very transparent, which we see as a sign of kind of a self-confidence, right? So not arrogance, but, but they're self-confident enough to say, look, again, give me the ball and I'm going to figure this out. And so I may start going down a path and hit a, hit a roadblock. I've got to back up and go down another path. And I'm going to keep doing that until I break through. And I'm not going to stop until I reach kind of that, you know, end end point. Right. And so understanding where you are is really important and kind of What you have in terms of resources and advantages and understanding where you're going and why you're going there. We think it's important. And, you know, if you invest in the right people, they'll figure it out. Right. And so there's this whole thought process we have of, we will never take credit for one of our founders successes because we were not going to take credit for their failure. We're essentially by investing in them, we're saying, look, we expect you to be successful with or without our…

AI assessment note: “I know where I'm going... I'm not going to stop until I get there”

Q You said there about founders that will not stop. Those were the words. Will not stop. It's always an intriguing one for me in terms of the balance between stubbornness and vision. Where do you lie on this kind of scale of vision and stubbornness and the balance between the two?

A Absolutely. So I think that it's one of these things of inevitability, right, in the sense that I know where I am, and I know where I'm going. The path in between where I am and where I'm going may not be clear, but I'm not going to stop until I get there, right? And so Where most people think it's a straight line. I think most of the founders that we invest in are very transparent, which we see as a sign of kind of a self-confidence, right? So not arrogance, but, but they're self-confident enough to say, look, again, give me the ball and I'm going to figure this out. And so I may start going down a path and hit a, hit a roadblock. I've got to back up and go down another path. And I'm going to keep doing that until I break through. And I'm not going to stop until I reach kind of that, you know, end end point. Right. And so understanding where you are is really important and kind of What you have in terms of resources and advantages and understanding where you're going and why you're going there. We think it's important. And, you know, if you invest in the right people, they'll figure it out. Right. And so there's this whole thought process we have of, we will never take credit for one of our founders successes because we were not going to take credit for their failure. We're essentially by investing in them, we're saying, look, we expect you to be successful with or without our…

AI assessment note: “I think most of the founders that we invest in are very transparent”