The Exchanges

Q Well, I think it's the Harry Potter British accent, but I'm very grateful to you for saying it, um, but I'd love to get started today by discussing a bit about you. You spent the majority of your career as an operator and an entrepreneur Entrepreneur. So talk to me, why the move to VC?

A Well, I did have an amazing ride as an entrepreneur and, and being part of, uh, the AOL golden age. And when I left in 2003, I did a little bit of, after I detoxed and spent some time getting my head back together, um, I started to do a little bit of angel investing, found that to be difficult and frustrating. It wasn't what I was doing. And then I got a call from John Fisher. Who is the F in DFJ, and actually was on my board, invested in my company when they were a little teeny fund back in the early nineties, invested in the company that I sold to AOL. And he said, so you're not going to sit around and do pottery and make wine, are you?

AI assessment note: “I started to do a little bit of angel investing... And then I got a call from John Fisher”

Q I do want to reference it back to one element you said there. You said it's kind of the last act in terms of the growth stage and seeing those companies progress through. What's going to be the make or break then for this last act? What will make it the Oscar-winning movie or the two-star flop that's on every blockbuster shelf?

A What's going to happen is, do we see what we would consider to be more traditionally functional public markets When it comes to these stocks, at some point, you know, look, the deals that we're involved with at DFJ Gross are bigger than the classic IPOs of the late nineties or the early aughts. Oftentimes we're leading rounds that may be a hundred million dollar raises or more. You know, the classic IPO in the old days was 50, raising fifty million. So these companies are getting quite a bit of capital, but they can't stay private. For a variety of reasons. Investors need to get their exits and their return. There are advantages to being a public company when you're ready, so we need to see them get out. Some of them, of course, will be acquired, which is a fine outcome as well. Generally, that's by public companies, and it's another way, you know, that you exit publicly, but we need to see not just five or 10 companies getting public. We need to see, get back to a 102 hundred a year, and they need to be healthy IPOs. I think, The vision was, unlike the dot-com era, where you saw very high-risk companies being exposed to the public markets and the collapse that created, the whole philosophy of venture growth was keep them private, grow them well, have solid, stable businesses, and then get public, and they should perform better at public, in the public markets. So I think we de…

AI assessment note: “What it's going to take is some meeting of the minds on pricing.”

Q with the likes of YC companies coming straight out and having, say, a fifteen million pre, that we're in a bubble. And, and that reminds me of an article that you wrote a couple of years ago where you said, we're not in a bubble, we're in a bulge. So I'm, I'm really intrigued to have you now and ask, what does this mean? What do you mean by bulge?

A Yeah, so I, I, you know, it's nice to see that it has actually calmed down, but, you know, you saw this drumbeat in the press, bubble, bubble, bubble. Everyone wants to go to the lowest common denominator of intelligence, which is bad pattern recognition, and all these prices, all these unicorns, this must be just like the dot-com bubble was, when it's nothing like the dot-com bubble. Um, you were probably quite young, Um, for those of us who lived through it, I was, uh, exactly, exactly. Um, you have to read the history. We are the history. And you know, it's, it wasn't the issue of there's a whole bunch of retail buyers. You had professional investors creating these valuations. Now the bulge, what I affectionately call the bulge is, you know, you've got 202 hundred plus companies with billion dollar or more valuations and That are growing. They have capital, but they're not necessarily getting public, and so that bulge is growing, and my view was that bulge is not gonna explode, but that it's gonna be more like a steady stream, a release of pressure that is gonna release itself in a variety of ways. Some of those companies will go on and have successful IPOs without an adjustment in valuation. And that's because they are kicking ass. They're probably profitable already, and they fit well into market comps. Another group of those companies will successfully get public, but the…

AI assessment note: “what I affectionately call the bulge is, you know, you've got 202 hundred plus companies”

Q Can I ask, to what extent do you think VCs, and you now as a growth VC with, obviously, uh, DFJ, to what extent is that kind of M&A period with troubled companies your role and your responsibility compared to the role of the CEO or CFO?

A Well, ultimately, our job on boards is to support the CEO, not to run the company, and we can help them arrive at conclusion. The thing about M&A is it is really hard to sell companies. You know, there's an old adage, companies are bought, not sold. And what that means is the best M&As happen generally when a company already has a relationship with a big company. They're doing business together. They're That big company sees value in owning them, and they will pursue that company and pay a good price for it. When a company starts to be in decline, or they've kind of topped out on their growth, and a board sits around and says, well, I think we should sell this, you can say that all you want. It doesn't mean you're going to be able to find a good buyer. Generally, those exercises actually don't work out very well in terms of ending up getting a good price. You know, there are bankers who will come in, and they will do the book, and pitch the company, and get the whole thing going, but more time, more times than not, when you're aggressively trying to sell a company that may have had slower growth, or is a little bit distressed, you don't have a great outcome. It's very hard to force an M&A.

AI assessment note: “our job on boards is to support the CEO, not to run the company”

Q Well, I think it's the Harry Potter British accent, but I'm very grateful to you for saying it, um, but I'd love to get started today by discussing a bit about you. You spent the majority of your career as an operator and an entrepreneur Entrepreneur. So talk to me, why the move to VC?

A Well, I did have an amazing ride as an entrepreneur and, and being part of, uh, the AOL golden age. And when I left in 2003, I did a little bit of, after I detoxed and spent some time getting my head back together, um, I started to do a little bit of angel investing, found that to be difficult and frustrating. It wasn't what I was doing. And then I got a call from John Fisher. Who is the F in DFJ, and actually was on my board, invested in my company when they were a little teeny fund back in the early nineties, invested in the company that I sold to AOL. And he said, so you're not going to sit around and do pottery and make wine, are you?

AI assessment note: “found that to be difficult and frustrating. And then I got a call from John”

Q Can I ask, to what extent do you think VCs, and you now as a growth VC with, obviously, uh, DFJ, to what extent is that kind of M&A period with troubled companies your role and your responsibility compared to the role of the CEO or CFO?

A Well, ultimately, our job on boards is to support the CEO, not to run the company, and we can help them arrive at conclusion. The thing about M&A is it is really hard to sell companies. You know, there's an old adage, companies are bought, not sold. And what that means is the best M&As happen generally when a company already has a relationship with a big company. They're doing business together. They're That big company sees value in owning them, and they will pursue that company and pay a good price for it. When a company starts to be in decline, or they've kind of topped out on their growth, and a board sits around and says, well, I think we should sell this, you can say that all you want. It doesn't mean you're going to be able to find a good buyer. Generally, those exercises actually don't work out very well in terms of ending up getting a good price. You know, there are bankers who will come in, and they will do the book, and pitch the company, and get the whole thing going, but more time, more times than not, when you're aggressively trying to sell a company that may have had slower growth, or is a little bit distressed, you don't have a great outcome. It's very hard to force an M&A.

AI assessment note: “our job on boards is to support the CEO, not to run the company”

Q with the likes of YC companies coming straight out and having, say, a fifteen million pre, that we're in a bubble. And, and that reminds me of an article that you wrote a couple of years ago where you said, we're not in a bubble, we're in a bulge. So I'm, I'm really intrigued to have you now and ask, what does this mean? What do you mean by bulge?

A Yeah, so I, I, you know, it's nice to see that it has actually calmed down, but, you know, you saw this drumbeat in the press, bubble, bubble, bubble. Everyone wants to go to the lowest common denominator of intelligence, which is bad pattern recognition, and all these prices, all these unicorns, this must be just like the dot-com bubble was, when it's nothing like the dot-com bubble. Um, you were probably quite young, Um, for those of us who lived through it, I was, uh, exactly, exactly. Um, you have to read the history. We are the history. And you know, it's, it wasn't the issue of there's a whole bunch of retail buyers. You had professional investors creating these valuations. Now the bulge, what I affectionately call the bulge is, you know, you've got 202 hundred plus companies with billion dollar or more valuations and That are growing. They have capital, but they're not necessarily getting public, and so that bulge is growing, and my view was that bulge is not gonna explode, but that it's gonna be more like a steady stream, a release of pressure that is gonna release itself in a variety of ways. Some of those companies will go on and have successful IPOs without an adjustment in valuation. And that's because they are kicking ass. They're probably profitable already, and they fit well into market comps. Another group of those companies will successfully get public, but the…

AI assessment note: “what I affectionately call the bulge is, you know, you've got 202 hundred plus companies”

Q Well, that was going to be my next big question. Do you think there's still a fundamental inefficiency in those growth capital stages in terms of pre-IPO? We've seen a huge amount of entrants coming in both corporate, both traditional institutions. Do you think there's still fundamental inefficiencies?

A Well, I think we're in the midst of an experiment that hasn't played out yet. We, we have not seen the final act. I do think that what growth Set out to do, which was to keep companies private, give them the opportunity to scale as a private company without the impact of the market and what it does to your focus and your reporting. Let CEOs focus on building their products and team, get out there, ramp their revenue to a hundred million and beyond, and then go public as a much more stable company. De-risked company. That experiment has not played out yet. We're just at the phase where I like to say the senior class is arriving. And really for the past couple of years, we've seen a cool reception from the public markets to the senior class. And, and largely because there's been a mismatch between the things that the private markets, the VCs have been doing and what the public markets are interested in.

AI assessment note: “we're in the midst of an experiment that hasn't played out yet”

Q And then kind of forward-looking, what are the dangers to VC, and what should we be concerned about in the future of VC?

A Well, you know, it's funny. I've gotten a little obsession with AI lately, and you hear a lot of people talking about all the jobs that'll be replaced by AI, and AI will be making investment decisions, and I don't view that as a threat. When machines start trading with each other, the markets will disappear because We need the uncertainty of humans to make those markets, markets work. I think, you know, most people who are in our world don't understand that in the big picture of financial services, VC is a very niche investment. It's tiny. It barely registers as an asset allocation, yet it is such a vital part of the world economy because it's, it's where the, the innovation cycle starts. I think, I think the, the existential threat to VC is Is one that's always been around too much money searching for too few good deals yielding low returns and making the category not so attractive. And that continues to be the biggest threat.

AI assessment note: “the existential threat to VC is Is one that's always been around too much money”

Q I do want to reference it back to one element you said there. You said it's kind of the last act in terms of the growth stage and seeing those companies progress through. What's going to be the make or break then for this last act? What will make it the Oscar-winning movie or the two-star flop that's on every blockbuster shelf?

A What's going to happen is, do we see what we would consider to be more traditionally functional public markets When it comes to these stocks, at some point, you know, look, the deals that we're involved with at DFJ Gross are bigger than the classic IPOs of the late nineties or the early aughts. Oftentimes we're leading rounds that may be a hundred million dollar raises or more. You know, the classic IPO in the old days was 50, raising fifty million. So these companies are getting quite a bit of capital, but they can't stay private. For a variety of reasons. Investors need to get their exits and their return. There are advantages to being a public company when you're ready, so we need to see them get out. Some of them, of course, will be acquired, which is a fine outcome as well. Generally, that's by public companies, and it's another way, you know, that you exit publicly, but we need to see not just five or 10 companies getting public. We need to see, get back to a 102 hundred a year, and they need to be healthy IPOs. I think, The vision was, unlike the dot-com era, where you saw very high-risk companies being exposed to the public markets and the collapse that created, the whole philosophy of venture growth was keep them private, grow them well, have solid, stable businesses, and then get public, and they should perform better at public, in the public markets. So I think we de…

AI assessment note: “what it's going to take is some meeting of the minds on pricing.”

Q Well, that was going to be my next big question. Do you think there's still a fundamental inefficiency in those growth capital stages in terms of pre-IPO? We've seen a huge amount of entrants coming in both corporate, both traditional institutions. Do you think there's still fundamental inefficiencies?

A Well, I think we're in the midst of an experiment that hasn't played out yet. We, we have not seen the final act. I do think that what growth Set out to do, which was to keep companies private, give them the opportunity to scale as a private company without the impact of the market and what it does to your focus and your reporting. Let CEOs focus on building their products and team, get out there, ramp their revenue to a hundred million and beyond, and then go public as a much more stable company. De-risked company. That experiment has not played out yet. We're just at the phase where I like to say the senior class is arriving. And really for the past couple of years, we've seen a cool reception from the public markets to the senior class. And, and largely because there's been a mismatch between the things that the private markets, the VCs have been doing and what the public markets are interested in.

AI assessment note: “I think we're in the midst of an experiment that hasn't played out yet.”

Q So what is that learning? How do we turn off left and right brain and go back to the heart?

A Well, I think, you know, we, we, we process so much signal all the time, and much of that signal is telling us in the Form of various voices. You should do this. If you want to be successful, you have to start a company or whatever. Whereas there is that voice deep within you. It's generally the one telling you, don't do that. That's bad. Um, but I, I think that it, it comes down to your passion. And what she was saying is follow your passion. You have to not suppress your passion. And because we are in a business that is built on passion and people find Following their passions. You really have to learn to let that come through and not let the people who tell you it can't be done become self preemptive. I can't do that. I can't succeed at that. And you have to suppress that and allow your passion to take the day.

AI assessment note: “it comes down to your passion. And what she was saying is follow your passion.”