The Exchanges

Q So talk to me. How did you make your way into the world of VC? What was your starting point?

A Yeah, I mean, it's, it's, it's a bit different. I, I actually had no plans on becoming a venture capitalist. I moved, uh, I was in Silicon Valley for about 10 years and worked in, uh, a few big companies and startups. And, um, Some were, some were great. Some were less than great. By 2001, uh, I had gotten married and my wife is from the East coast. So we decided, actually she decided to move back and she asked me to join her. So I came and, uh, I, I ended up joining a venture capital firm in Boston as an entrepreneur residence. So I wasn't an investor. I was just helping that firm out during my time there. Uh, that firm was called Charles, Charles river ventures. It's a successful longstanding firm.

AI assessment note: “I ended up joining a venture capital firm in Boston as an entrepreneur residence”

Q consumer. So, so how do you respond to Fred Wilson's consumer downturn post? I'm sure you've read it, um, where he cites the difficulty for anyone to build a brand with the kind of behemoth consumer brands that we've had in the last few years. So, so how do you respond to that, and do you, do you know, do you, obviously you fundamentally disagree, but what's behind this thesis?

A Yeah. Look, Fred is a mentor of mine. I, I owe him a great deal. He's also a very good friend. Uh, you know, before he wrote that post, we, we, we were talking about this comment over a beer in, in, in, uh, these village one night, a month or two before. So he, he believes it. I think, uh, I, I share some of his concerns, but I, I, I philosophically don't agree with it. I, I think that, uh, you know, I think one of the reasons we've had a bit of a lull in the consumer mobile space, uh, Which is the one that Fred highlighted in his post, you know, really is that we just had a series of me tos. I mean, people were trying to copy the Twitter graph, the follower thing, and I think that's a bit normal. You have breakouts, then you have a lot of me tos, then you have breakouts, and you have a bunch of me tos. I think, you know, you saw this lull after Twitter, and then you had Instagram, and then you had a lull after Instagram, and now you have Snapchat, and now we have a bit of a lull. And, you know, if history is a guide, you know, this year, next year, we're going to see a breakout, um, in a brand new company. So I think just these things take time, and, and the next generation entrepreneur thinks about things radically different, and so I, I don't think this is, uh, you know, we're in the David versus Goliath business. You know, I don't, I don't think that the Goliaths can mainta…

AI assessment note: “I think one of the reasons we've had a bit of a lull”

Q And I have to ask them, we often hear founders state the difficulties of, of building a company themselves. What was the difficulties, uh, and challenges that you faced in building the fund? Building the brand afresh, you know, in an already established ecosystem.

A Yeah, I mean, you know, certainly, you know, our first fund, you know, we raised, it was two hundred and sixty million dollars, so, I mean, that took some time, but I think the, the thing that you're bringing up is really the, the most challenging part, which is, you know, why should entrepreneurs in a world where there's just amazing venture firms out there, iconic names and successful firms, why work with us? It's a question I ask myself all the time, especially when we're starting out, because, You know, we each individually had track records from, you know, being either, you know, Santo and Todd at successful venture track records. I, I was an entrepreneur and operator, but Spark, you know, it was, we were brand new. We had no history of working together or working with entrepreneurs. You know, I think in the earliest days we were making an impression on our entrepreneurs on how our dedication, you know, obsession with consumer and, um, ability to work with founders in an earlier stage than perhaps other firms were willing to do. And also in areas that were, were less obvious. I think, You know, the idea of, of backing entrepreneurs that were first-time entrepreneurs after the bubble burst in consumer, you know, right now it seems very obvious, but I can tell you at the time, it wasn't obvious. I mean, we were trying to get co-investors at some of these companies, and, and,…

AI assessment note: “why should entrepreneurs in a world where there's just amazing venture firms out there”

Q Uh, so, so let's start with that then, and say, hardware, you know, it's actually massively increasing as a space, as I'm sure you know, in terms of investing. So why have we seen this increase in hardware investing, and where are you seeing the hardware space, kind of, not taking the typical view that hardware is so difficult to invest in?

A Yeah, I mean, look, we, we've been really interested in consumer hardware for a while. We were investors in Boxy, which we didn't accomplish the vision there, but, you know, we were investors in it for a long time. You know, I really love the founders and, but I, I think Oculus, we're the first investor in Oculus, and I think that really inspired us and gave us courage to continue our, our passion for investing in consumer products. You know, it's a company that, you know, financed the company differently than traditional hardware companies. You know, they raised their initial capital on Kickstarter. They built a brand on Kickstarter. They built a community on Kickstarter, brought, you know, great executives into the company. Uh, to help the founder, uh, build something special. Getting involved in that company early, we saw that, you know, there's non-traditional ways of financing these companies, non-traditional ways of marketing these companies, building communities, so it, it really felt more akin to the types of, of You know, internet companies that we had been backing then, maybe consumer hardware companies that were built 10 years prior or five years prior. You know, Lilly, in many ways, I don't want to suggest that, you know, Oculus' arc and Lilly's arc is going to be the same, but in many ways, they share a lot of those things. You know, it was, you know, young founder…

AI assessment note: “we saw that, you know, there's non-traditional ways of financing these companies”

Q So then how do you advise founders on, on vision and focus in particular, you know, should they lose it at all? Should they hire a COO to take off the strain of, uh, you know, paternity leave and then someone being ill and a new hire and, you know, should they have that operational experience kind of backing them so they can focus on the vision and the product?

A Yeah, look, I mean, I, I think a COO is, is a good idea depending on the circumstance and the company and what's happening, um, at that moment. But the, the, Uber point here about, you know, finding great people to surround yourself with is, is the key thing we try to help. And, and, you know, we saw that at all of these companies where they all have a different playbook on how they scale and how they bring in management help, but the very best companies and the best CEOs are the ones that hire the very best executives. And we should, we should, we really kind of do our best. I think not oftentimes we're successful. We do our best by helping them recruit the very best management teams to help accomplish their Their mission. And, and we see, you know, their ability to be a better CEO and lead just improves radically as, as you bring in executives. I mean, David Karp's CEO chops went from good to great when he brought in Derek Godfrey to run engineering. I mean, you know, you just, as, as he brought in, you know, highly qualified people underneath him, his contribution as CEO just, just became much more impactful.

AI assessment note: “I think a COO is, is a good idea depending on the circumstance”

Q Okay. Brilliant. Uh, which first time founder are you most inspired by and why?

A Oh, first time founder. Oh boy. I'm trying to not play favorites and, and I know he's a bit David Karp probably is, is, uh, is certainly up there. I mean, you know, Dennis Crowley, David Karp, Evan Williams. I mean, these are all special people. It feels strange to pick out one over the other, but you know, David, to me, you know, he dropped out of high school. You know, he built a company that was bootstrapped, uh, without any venture capital that was successful called Davidville Tumblr. He Created by himself and, and created an amazing team and built an extraordinary community. Um, he ran the company from the time he started to the time he sold it, still runs it today. Uh, it's just exceptional. And, you know, people always gave David credit for being this genius prodigy at 19 or 20, but, you know, David's going to be a genius when he's 30. He's going to be a genius when he's 40. Like, he's, he's just brilliant. It's not because he's young.

AI assessment note: “David Karp probably is, is, uh, is certainly up there.”

Q And I have to ask them, we often hear founders state the difficulties of, of building a company themselves. What was the difficulties, uh, and challenges that you faced in building the fund? Building the brand afresh, you know, in an already established ecosystem.

A Yeah, I mean, you know, certainly, you know, our first fund, you know, we raised, it was two hundred and sixty million dollars, so, I mean, that took some time, but I think the, the thing that you're bringing up is really the, the most challenging part, which is, you know, why should entrepreneurs in a world where there's just amazing venture firms out there, iconic names and successful firms, why work with us? It's a question I ask myself all the time, especially when we're starting out, because, You know, we each individually had track records from, you know, being either, you know, Santo and Todd at successful venture track records. I, I was an entrepreneur and operator, but Spark, you know, it was, we were brand new. We had no history of working together or working with entrepreneurs. You know, I think in the earliest days we were making an impression on our entrepreneurs on how our dedication, you know, obsession with consumer and, um, ability to work with founders in an earlier stage than perhaps other firms were willing to do. And also in areas that were, were less obvious. I think, You know, the idea of, of backing entrepreneurs that were first-time entrepreneurs after the bubble burst in consumer, you know, right now it seems very obvious, but I can tell you at the time, it wasn't obvious. I mean, we were trying to get co-investors at some of these companies, and, and,…

AI assessment note: “why should entrepreneurs in a world where there's just amazing venture firms... why work with us?”

Q good to great, a VC friend of mine said to me the other day that you can tell the ability of a potential first-time founder Through their rate of learning and development. He said, like, Zuckerberg done, you know, obviously developed insanely quickly and incredibly well. Therefore, is personal growth a strong determinant to you, or do they need to be market ready from the get go, Do you think?

A I don't think anyone's market ready from the get go. I think it's a, it's a flawed assumption with VCs where they try to imagine that, that these first time founders or any founders are going to just figure it all out. I mean, from the beginning, it's just, and then, and then I think that flawed thinking, you know, you, you see manifest into quick decisions about maybe replacing a founder and all this other things. I, I think our job as early stage investors is to help founders be the most successful founders they can be. And that's by helping them You know, hire the very best people. So I, I think this, uh, personal growth, you know, you have to have a willingness and, and a curiosity and, but then I think it's, it's, uh, collectively our job as a board to, to help the CEO be successful. And that, that's actually what we should be thinking about it.

AI assessment note: “I don't think anyone's market ready from the get go.”

Q discuss a problem that I often see with first time founders, and it's their, their ability to nail the product and the timing, uh, which is always a wonderful ability, but their ability to nail that, and then they have to quickly build the company to support the product. Is that something that you see a lot, and how do you lend to this situation with your advice and guidance?

A Well, I, I do think you're hitting on a, on a key thing, which is, um, And when you're building the product as a first-time founder, and you have a very small team, so you take a look at a good example would be David Karp, you know, 19, he starts Tumblr, and him and, and another fellow named Marco Arment, you know, for two years, just two of them were working on it, and they had the ability just to focus on the product. Um, it's a different challenge when you have two employees versus 10 employees versus 20 employees versus 50 employees, and, uh, which is kind of how Tumblr scaled from a headcount standpoint. And that presents enormous challenges, because suddenly you go from Obsessing about product to having to, you know, think about, you know, staffing, recruiting, delegating, managing. And I think that transition is, is difficult for anybody, but it's, it's particularly true for, for first time founders, you know, who are the types of people you need to hire? How do you know if they're working out? Are they doing, you know, are they meeting your expectations? What are your expectations? How do you, how do you manage them? How do you set objectives for the team? I think these are, are, are really difficult challenges for first time founders.

AI assessment note: “Well, I, I do think you're hitting on a, on a key thing”

Q discuss a problem that I often see with first time founders, and it's their, their ability to nail the product and the timing, uh, which is always a wonderful ability, but their ability to nail that, and then they have to quickly build the company to support the product. Is that something that you see a lot, and how do you lend to this situation with your advice and guidance?

A Well, I, I do think you're hitting on a, on a key thing, which is, um, And when you're building the product as a first-time founder, and you have a very small team, so you take a look at a good example would be David Karp, you know, 19, he starts Tumblr, and him and, and another fellow named Marco Arment, you know, for two years, just two of them were working on it, and they had the ability just to focus on the product. Um, it's a different challenge when you have two employees versus 10 employees versus 20 employees versus 50 employees, and, uh, which is kind of how Tumblr scaled from a headcount standpoint. And that presents enormous challenges, because suddenly you go from Obsessing about product to having to, you know, think about, you know, staffing, recruiting, delegating, managing. And I think that transition is, is difficult for anybody, but it's, it's particularly true for, for first time founders, you know, who are the types of people you need to hire? How do you know if they're working out? Are they doing, you know, are they meeting your expectations? What are your expectations? How do you, how do you manage them? How do you set objectives for the team? I think these are, are, are really difficult challenges for first time founders.

AI assessment note: “I do think you're hitting on a, on a key thing”

Q Absolutely. Yeah. Brilliant acquisition strategy there. I hand it to them. And, and then I want to discuss kind of still in the realms of consumer, how now in today's environment, your attitude is towards growth versus revenue as a consumer investor. Is that changing or is growth still paramount for you?

A You know, I think it really depends on the type of product and type of company and whether it's, you know, hardware versus software, capital efficient versus full stack, you know, growth really matters. But let me give you another example. If I, if I were to talk about a company that had, you know, no growth generating some profits, but year after year was not growing, nobody would really be, when I say nobody, I mean, that is unlikely to be an interesting company to the public markets. It's unlikely to be interesting to other people that want to work at that startup and And it's unlikely to get, uh, investor attention. So it may be a good company, but you know, what I do for a living is I, I look for, you know, VC type companies that can, can build something, um, that could go public one day and be independent for the long haul. One thing I also do quite a bit is I tell people why they shouldn't raise venture capital. So there's some types of companies where I, I don't think you should raise venture capital. I think if your company needs probably, you know, less than a million or two million dollars of deficit financing to accomplish the mission, You know, you shouldn't raise venture capital for that. If, if your company's going to require, you know, five, 10, fifteen million dollars before you can achieve the mission or more, uh, then I think it starts to become a more intere…

AI assessment note: “growth does matter. But it's got to be healthy growth.”

Q good to great, a VC friend of mine said to me the other day that you can tell the ability of a potential first-time founder Through their rate of learning and development. He said, like, Zuckerberg done, you know, obviously developed insanely quickly and incredibly well. Therefore, is personal growth a strong determinant to you, or do they need to be market ready from the get go, Do you think?

A I don't think anyone's market ready from the get go. I think it's a, it's a flawed assumption with VCs where they try to imagine that, that these first time founders or any founders are going to just figure it all out. I mean, from the beginning, it's just, and then, and then I think that flawed thinking, you know, you, you see manifest into quick decisions about maybe replacing a founder and all this other things. I, I think our job as early stage investors is to help founders be the most successful founders they can be. And that's by helping them You know, hire the very best people. So I, I think this, uh, personal growth, you know, you have to have a willingness and, and a curiosity and, but then I think it's, it's, uh, collectively our job as a board to, to help the CEO be successful. And that, that's actually what we should be thinking about it.

AI assessment note: “I don't think anyone's market ready from the get go.”

Q So then how do you advise founders on, on vision and focus in particular, you know, should they lose it at all? Should they hire a COO to take off the strain of, uh, you know, paternity leave and then someone being ill and a new hire and, you know, should they have that operational experience kind of backing them so they can focus on the vision and the product?

A Yeah, look, I mean, I, I think a COO is, is a good idea depending on the circumstance and the company and what's happening, um, at that moment. But the, the, Uber point here about, you know, finding great people to surround yourself with is, is the key thing we try to help. And, and, you know, we saw that at all of these companies where they all have a different playbook on how they scale and how they bring in management help, but the very best companies and the best CEOs are the ones that hire the very best executives. And we should, we should, we really kind of do our best. I think not oftentimes we're successful. We do our best by helping them recruit the very best management teams to help accomplish their Their mission. And, and we see, you know, their ability to be a better CEO and lead just improves radically as, as you bring in executives. I mean, David Karp's CEO chops went from good to great when he brought in Derek Godfrey to run engineering. I mean, you know, you just, as, as he brought in, you know, highly qualified people underneath him, his contribution as CEO just, just became much more impactful.

AI assessment note: “a COO is, is a good idea depending on the circumstance and the company”

Q you know, when you invested, did you, everyone says, you know, it's easy now to look at it and go, ah, I knew it was going to be a global behemoth that would dominate our society. But, but honestly now, did, you know, did you ever expect it to get to quite this scale? And at what point did you realize that this could have a massively societal affecting change?

A Yeah. I mean, I always had a lot of belief in the founders and the product and community that, you know, we could build a really special company, but I mean, there was less than 250,000 daily active users. There was, the site was going down all the time, given the scale load that was, as it was ramping, you know, so I, it wasn't a, um, a no brainer. It was stressful at times. Certainly there were different, you know, substantial changes we made along the way, but I, I always had this feeling that it could Could be a really special independent company, whether it become worth, I don't know what, what the market cap is today, 10, 12, thirteen billion dollars, whatever it is. Like I, that wasn't part of my analysis in those days, but, but, uh, you know, I, I always really believed, I always believed it could be something special.

AI assessment note: “that wasn't part of my analysis in those days”

Q Uh, so, so let's start with that then, and say, hardware, you know, it's actually massively increasing as a space, as I'm sure you know, in terms of investing. So why have we seen this increase in hardware investing, and where are you seeing the hardware space, kind of, not taking the typical view that hardware is so difficult to invest in?

A Yeah, I mean, look, we, we've been really interested in consumer hardware for a while. We were investors in Boxy, which we didn't accomplish the vision there, but, you know, we were investors in it for a long time. You know, I really love the founders and, but I, I think Oculus, we're the first investor in Oculus, and I think that really inspired us and gave us courage to continue our, our passion for investing in consumer products. You know, it's a company that, you know, financed the company differently than traditional hardware companies. You know, they raised their initial capital on Kickstarter. They built a brand on Kickstarter. They built a community on Kickstarter, brought, you know, great executives into the company. Uh, to help the founder, uh, build something special. Getting involved in that company early, we saw that, you know, there's non-traditional ways of financing these companies, non-traditional ways of marketing these companies, building communities, so it, it really felt more akin to the types of, of You know, internet companies that we had been backing then, maybe consumer hardware companies that were built 10 years prior or five years prior. You know, Lilly, in many ways, I don't want to suggest that, you know, Oculus' arc and Lilly's arc is going to be the same, but in many ways, they share a lot of those things. You know, it was, you know, young founder…

AI assessment note: “there's non-traditional ways of financing these companies, non-traditional ways of marketing these companies”

Q you know, when you invested, did you, everyone says, you know, it's easy now to look at it and go, ah, I knew it was going to be a global behemoth that would dominate our society. But, but honestly now, did, you know, did you ever expect it to get to quite this scale? And at what point did you realize that this could have a massively societal affecting change?

A Yeah. I mean, I always had a lot of belief in the founders and the product and community that, you know, we could build a really special company, but I mean, there was less than 250,000 daily active users. There was, the site was going down all the time, given the scale load that was, as it was ramping, you know, so I, it wasn't a, um, a no brainer. It was stressful at times. Certainly there were different, you know, substantial changes we made along the way, but I, I always had this feeling that it could Could be a really special independent company, whether it become worth, I don't know what, what the market cap is today, 10, 12, thirteen billion dollars, whatever it is. Like I, that wasn't part of my analysis in those days, but, but, uh, you know, I, I always really believed, I always believed it could be something special.

AI assessment note: “that wasn't part of my analysis in those days, but, but, uh, you know”

Q Absolutely. Yeah. Brilliant acquisition strategy there. I hand it to them. And, and then I want to discuss kind of still in the realms of consumer, how now in today's environment, your attitude is towards growth versus revenue as a consumer investor. Is that changing or is growth still paramount for you?

A You know, I think it really depends on the type of product and type of company and whether it's, you know, hardware versus software, capital efficient versus full stack, you know, growth really matters. But let me give you another example. If I, if I were to talk about a company that had, you know, no growth generating some profits, but year after year was not growing, nobody would really be, when I say nobody, I mean, that is unlikely to be an interesting company to the public markets. It's unlikely to be interesting to other people that want to work at that startup and And it's unlikely to get, uh, investor attention. So it may be a good company, but you know, what I do for a living is I, I look for, you know, VC type companies that can, can build something, um, that could go public one day and be independent for the long haul. One thing I also do quite a bit is I tell people why they shouldn't raise venture capital. So there's some types of companies where I, I don't think you should raise venture capital. I think if your company needs probably, you know, less than a million or two million dollars of deficit financing to accomplish the mission, You know, you shouldn't raise venture capital for that. If, if your company's going to require, you know, five, 10, fifteen million dollars before you can achieve the mission or more, uh, then I think it starts to become a more intere…

AI assessment note: “growth does matter. But it's got to be healthy growth.”

Q Obviously tech. I mean, that was a no-brainer. I'm talking more specialized than that. Would it be drones? Would it be AR, VR? Would it be AI? What are you, what's your typical?

A Yeah, look, I, I, I, uh, this may not be what you're looking for, but I, I think, uh, people should be less interested in, like, what's the hot thing right now, and, and more about, uh, You know, what is really inspiring you? I mean, I, I try my best to talk to entrepreneurs about why they're starting a company, not how they're going to start it. I, the ones that are most compelling to me are the ones that say, Hey, this I'm building this cause this is going to be the next hot market. Instead. It's like, I'm building this cause I need to see this in the world. So if you're an entrepreneur contemplating what you're going to start next, don't be convinced about these trends. Cause by the time you build a company, you know, fads come and go trends come and go. Uh, but you know, build something from, from the heart.

AI assessment note: “this may not be what you're looking for, but I, I think, uh, people should”