The Exchanges

Q And then let's finish on the most recent publicly announced investment for you, and why did you say yes, Dan?

A Okay, so my most recent one is a company called Cycognito, run by a guy who used to be in the Israeli, eight, 200 elite unit. There was a number of things that grabbed me. First, it was the single best angel presentation I had seen since Zoom, and I had spent a lot of time saying, market for security is overinvested, I'm not going to do another security deal, blah, blah, blah, blah, blah, blah, blah. What's the first thing I do in 2018? Another security deal. And Here was a guy who had found some oxygen in a space that was neither network nor endpoint. He had found a space that was kind of interesting, and that was very customer focused, and basically what he had done is used his knowledge from being an elite hacker to turn around and say, since I know where everything is vulnerable, why don't I start showing people a map of, if I was a hacker, how would I hack into their systems? And from that core idea, he's ended up Building a very unique and interesting set of technology that will allow companies to understand where they're most vulnerable today. And he's, in fact, been able to show attacks and progress to some of his POC customers at the current moment. So very exciting. Site Cognito. Pay attention. They're going to do really well. And I loved his presentation. In fact, so much so that I keep looking at it every few days because it was so well thought out. And he understoo…

AI assessment note: “my most recent one is a company called Cycognito”

Q I absolutely love the alignment there, but it does bring me to the other question on the liquidity aspect. You mentioned that tech and talent acquisitions are less and less friendly for early stage investors. Why, why is that Dan?

A Okay, here's a couple things that have gone on. So, let's say five or six years ago, you had healthy competition to buy tech and talent, particularly with Facebook, Google, even Yahoo at that time when Marissa came there. They were all trying to grow their engineering teams by buying early stage companies. Over time, they have become both more sophisticated and more jaded about the process, and they became more sophisticated in the sense that they said, hey, do we really need to pay the existing investors? What we really care about is the talent, Even if the headline price is 40,000,030 million of it may be going in retention bonuses, and therefore, we don't really care what happens to the early investors. And so, what I've seen has been that, in reality, some of those transactions look a lot more like return of capital or maybe one and a half X kind of returns, and it's no longer that lucrative on that side. And then the second thing has been that a lot of those companies are slowing down the tech and talent deals because what they found was they were Angering their existing employee base, and some of the existing employees felt, hey, why is this guy who hasn't done anything getting now this massive retention, and here I am working on the core product, and I'm getting just salary and stock options. This doesn't make sense, and so what I have seen has been that both they have g…

AI assessment note: “we don't really care what happens to the early investors”

Q What's been the biggest miss, and why did you say no?

A So, mercifully, I haven't had an uber-sized miss yet. I've had some medium-sized misses, and I will tell you the biggest ones I've had are where, in the middle of the deal, the price starts escalating seemingly without any regard for anything, and what I take that as, as a sign that the founder doesn't really care about the investors, really, because Okay, we started out at a five million valuation. Now we're at a fifteen million valuation heading towards 20, and not that much has changed other than he's sensing there's a lot of interest. So sometimes I've shied away in that fact pattern with the escalating price, and there have been a couple times where I was wrong because ultimately, you know, the company built a two hundred million dollar exit, and I was not able to participate.

AI assessment note: “I've shied away in that fact pattern with the escalating price”

Q I absolutely love the alignment there, but it does bring me to the other question on the liquidity aspect. You mentioned that tech and talent acquisitions are less and less friendly for early stage investors. Why, why is that Dan?

A Okay, here's a couple things that have gone on. So, let's say five or six years ago, you had healthy competition to buy tech and talent, particularly with Facebook, Google, even Yahoo at that time when Marissa came there. They were all trying to grow their engineering teams by buying early stage companies. Over time, they have become both more sophisticated and more jaded about the process, and they became more sophisticated in the sense that they said, hey, do we really need to pay the existing investors? What we really care about is the talent, Even if the headline price is 40,000,030 million of it may be going in retention bonuses, and therefore, we don't really care what happens to the early investors. And so, what I've seen has been that, in reality, some of those transactions look a lot more like return of capital or maybe one and a half X kind of returns, and it's no longer that lucrative on that side. And then the second thing has been that a lot of those companies are slowing down the tech and talent deals because what they found was they were Angering their existing employee base, and some of the existing employees felt, hey, why is this guy who hasn't done anything getting now this massive retention, and here I am working on the core product, and I'm getting just salary and stock options. This doesn't make sense, and so what I have seen has been that both they have g…

AI assessment note: “30 million of it may be going in retention bonuses, and therefore, we don't really care”

Q Yeah, no, absolutely. I completely agree with that sentiment. You spoke about Eric a number of times there in the Zoom deal. I remember you said before that the Zoom investment is what great seed investing should be. What did you mean by that?

A Okay, so one other concept I want to throw out here, which is, there's a lot of debate in the VC world of, is this art or is this science? And I ultimately believe it's a lot of art and a little bit of science. And the art is, you have to be able to look at that entrepreneur and say, do they have grit? Do they have drive? Do they have what it takes to build a great company? Can they hire? Will people work for them? And of course, the science. Does the product work? Well, is it in the right market? Blah, blah, blah, blah, blah. Literally, Eric was and is one of the greatest human beings I've known, and when I met with him, which was, he and I left Cisco effectively the same day, and we met in a coffee shop in Palo Alto, and I asked him about the next thing, and Eric said to me, he said he had about, I think it was about 3000 people who worked for him, And within a week of leaving, he had 2000 resumes in his inbox of people who wanted to work for him. And so at that moment, to be honest, I didn't even care what he was doing. I said, I'm going to write you a check. I'm in because you're the kind of leader that it almost doesn't matter what you're building. I believe in you. And I did write him a check and I said, here it is. I'm in. And then I said, he said, you want to see the presentation? And then I was so taken by my, my rhetoric. I'm like, Eric, no, I don't even need to see t…

AI assessment note: “I'm in because you're the kind of leader that it almost doesn't matter”

Q No, absolutely. And you mentioned there about the A round and kind of A investors being maybe more price sensitive. I'm intrigued. How do you think finally about reserves and kind of how you play a role in reserves and your kind of commitment to reserve financing?

A Right. So this is an area where I am all over the map, and I'm going to tell you right away, this is the toughest thing we deal with. I do believe that the angel investors, you want to have a coalition of folks who can carry you in the event there's a stumble. Because, you know, not everybody is Zoom, where they just Boom, boom, boom, boom, boom. It all works. Fabulous, right? A lot of times there are stumbles, and you do want your angel team to be financially strong enough that that will get you through that first wobble if there is one, okay? But beyond that, I have to go back and look and say, okay, would I rather invest in the A round or try and find another disruptive seed round? And I generally have tried to say, okay, I'm going to focus back on seed deals because I think those offer higher potential returns than investing in the A round of some of these companies. And the other thing that happens in good deals is the founder frequently doesn't want you to do your pro rata because they want to give the new investors as much room as possible. So I found that there's an alignment generally in the good deals that, hey, stick with me until the A. After that, I'm on my own. Let me go in terms of not including the pro rata.

AI assessment note: “I generally have tried to say, okay, I'm going to focus back on seed deals”

Q You mentioned time and energy there from the funds. I'm intrigued. From your portfolio and from your experience, where do you find your time and energy is most pulled or drawn?

A Yes. So Harry, I am not technical. So if a company calls me and says, we need to really look at the architecture, I realize we're both in trouble, right? So I spend most of my time on the business side and on strategy. And what that generally means is working through issues with customers, working through issues with people and hiring, working through issues around funding strategy. So that's really where I'm strong and I'm going to spend a lot of time. Occasionally we'll get involved in, should we let a partner invest, not invest, How do we deal with big co-relationship we have now? But really, the core of it is helping the founder navigate through the myriad of choices, and I also, I sometimes like to describe myself as the chief focus officer, because I try and keep early-stage companies really focused on one or two core things and not wander, because wandering wastes resources, waste time, waste energy, and if we can stay focused, we can be clear about what we're trying to do and clear about what it's going to take to get an A-Rent.

AI assessment note: “I spend most of my time on the business side and on strategy.”

Q No, absolutely. I do want to get onto that contrarian element. Before we dive into that, though, what advice would you have for founders in taking maybe that multi-stage VC money, given the stories and experiences that you've had?

A Right, so I have lots of love for these big multi-stage VCs. The question at the end of the day is going to be, how do Really committed. Are they to you at the early stage, right? And what you want is you want a team around you. That's going to help you realize your dream to go into a larger company. And are those people going to take your calls? Are they going to deal with the stuff that you have to deal with an early stage, you know, and are they willing to commit the time and energy to that? And then the second problem, which you have to figure out is when they commit to seed, what is their commitment around a, and what does it mean if they don't do a, does that put you in a box? And does it mean you have to do A with them, right? And so I would make sure that founders really explore what does all this mean? The brand of these funds is fantastic. Their networks are fantastic. And the question will be is, do you really get to access those networks? And are they going to be there for the A? What does it mean? And I think that's, those are the questions I would ask.

AI assessment note: “when they commit to seed, what is their commitment around a”

Q absolute sense. You mentioned the deal with Eric there, though, and I do want to slightly move into the mechanics of kind of deal-making today before we go into the quick show. We've seen this unprecedented rise of safes With wifey promoting them, Michael Deering on the show was not so complimentary about safes. I'm intrigued. What are your thoughts on this as an early stage prominent angel and why?

A Okay, so first of all, we were in the convertible note mania for a long time, and I am not a huge fan of the convertible note because I've been in situations where what happens when the note doesn't convert and something starts to happen and things get beyond where the note was designed. My preference is a price round if possible, and so I tend to like the safe because it mimics a price round, and it's generally simple and clear, and the investor rights and obligations are generally simple and clear. So my ideal preference is to do a price round. My second preference is to do effectively a safe. My dislike is of the convertible debt. I think it's ultimately, it's a lose-lose for both sides when things don't go so well.

AI assessment note: “I tend to like the safe because it mimics a price round”

Q And then to make your life even easier with that lack of liquidity and reduction in M&A, we've seen also recently a real return from the likes of Sequoia Founders Fund into the seed market again. So I'm really intrigued. How does their re-entrance into very, very early stage, how does that affect you as an angel?

A So this is a great question. And let me just say right at the outset, I believe Sequoia are the best investors in the world, right? What they have done over a long period of time, With multiple generations of management is incredible. So when you see them saying, okay, we're going to attack angel, that should scare you or it should scare me. And it does. Right. Because I think this is interesting, but the reality is that to me further, you have to be really clear in my case. Okay. What am I looking at? What am I not looking at? And what are, what types of things are they going to look at? And what are they not going to look at? And is there enough oxygen in spaces maybe that may not fall into their seed radar that you can still find really interesting things. Right. And so for me, it, It increases the focus on trying to find the seams where, for whatever reason, their network won't touch, right, or won't get through their vetting system. So you have to be increasingly a contrarian in order to try and be successful in a world where Sequoia and others are going to be aggressive. Now, let me tell you one other quick story. Five years ago, I was in a VC fund, and I saw a kid in a room with stacks of paper, and I asked the VC, what's he doing? And he said, funny story. He is calling all of our seed investments, and he's asking them, one, do you still exist? Two, do you still exist? …

AI assessment note: “It increases the focus on trying to find the seams where, for whatever reason”

Q I'm so sorry for pummeling you with questions here, but I'm just too intrigued. What's the, what's the right amount of runway to raise for, do you think? It's always the big question for me when you're gearing up for that Series A. Is it 18 months as hailed? Is it 36 months as Jeff Clavier states?

A I believe that the reality is that you want as much runway as possible in order to have as much leverage when you get into that A round. So let's just say what, what's the worst situation for an entrepreneur? The worst situation is, one time I was at Cisco and I got a call. The guy said, look, We're going to disrupt Cisco, and we're going to put you guys out of business. And I said, awesome. Maybe I should go take a look at whatever this is. And then he said, by the way, can you call me back by Thursday? Because I'm running out of money. So you don't want to be in that situation of, yes, I've found the cure for cancer, but I'm out of cash, and I needed an investment at a high valuation by Thursday. So I think you need enough money so that you can achieve your milestones and achieve the mythical product market fit, and still have enough money in the bank that the VC goes, Ooh, I better invest now, rather than let them say, ooh, I'll wait this out, and I'll get a better price if I wait a little bit. So I don't know whether it's 18 months or 36 months. I don't think there's a magic number. What I believe is you still want to have gunpowder when you're going out to do the race.

AI assessment note: “I don't know whether it's 18 months or 36 months. I don't think”

Q absolute sense. You mentioned the deal with Eric there, though, and I do want to slightly move into the mechanics of kind of deal-making today before we go into the quick show. We've seen this unprecedented rise of safes With wifey promoting them, Michael Deering on the show was not so complimentary about safes. I'm intrigued. What are your thoughts on this as an early stage prominent angel and why?

A Okay, so first of all, we were in the convertible note mania for a long time, and I am not a huge fan of the convertible note because I've been in situations where what happens when the note doesn't convert and something starts to happen and things get beyond where the note was designed. My preference is a price round if possible, and so I tend to like the safe because it mimics a price round, and it's generally simple and clear, and the investor rights and obligations are generally simple and clear. So my ideal preference is to do a price round. My second preference is to do effectively a safe. My dislike is of the convertible debt. I think it's ultimately, it's a lose-lose for both sides when things don't go so well.

AI assessment note: “I tend to like the safe because it mimics a price round, and it's generally simple”

Q No, absolutely. And you mentioned there about the A round and kind of A investors being maybe more price sensitive. I'm intrigued. How do you think finally about reserves and kind of how you play a role in reserves and your kind of commitment to reserve financing?

A Right. So this is an area where I am all over the map, and I'm going to tell you right away, this is the toughest thing we deal with. I do believe that the angel investors, you want to have a coalition of folks who can carry you in the event there's a stumble. Because, you know, not everybody is Zoom, where they just Boom, boom, boom, boom, boom. It all works. Fabulous, right? A lot of times there are stumbles, and you do want your angel team to be financially strong enough that that will get you through that first wobble if there is one, okay? But beyond that, I have to go back and look and say, okay, would I rather invest in the A round or try and find another disruptive seed round? And I generally have tried to say, okay, I'm going to focus back on seed deals because I think those offer higher potential returns than investing in the A round of some of these companies. And the other thing that happens in good deals is the founder frequently doesn't want you to do your pro rata because they want to give the new investors as much room as possible. So I found that there's an alignment generally in the good deals that, hey, stick with me until the A. After that, I'm on my own. Let me go in terms of not including the pro rata.

AI assessment note: “I generally have tried to say, okay, I'm going to focus back on seed deals”

Q want to start today with one of, I think, our joint favorite topics, which is portfolio construction. Long time the belief in the valley that highly diversified Spray and pray portfolios at seed are required due to high loss ratios, but you've stated an alternative thought to me, so let's start with that, and why do you think the days of spray and pray are maybe over as an angel?

A So Harry, this is something that is core to my belief, and I can't tell you whether I'm right or I'm wrong, it's just this is how I feel, and what I've come to believe is that a couple phenomena are going on. First, There have been more companies created in the last 10 years than probably the entire technology business before that, so you're seeing enormous amount of creation, and the reality is that for a long time, the exits have been declining, and they've been declining at late stage because for whatever reason, IPOs are down, large M&A is down, and it's also the truth that the reality is a lot of the large companies are no longer really thrilled with tech and talent acquisitions, and those Acquisitions are turning into less and less friendly for early investors, and we can go into why for a variety of reasons. So when I look at doing this, I'm doing this really as a business, and I'm trying to figure out how I can do this as a way that's sustainable. And in the end, the math is very simple. You have to have big exits in order to provide the kind of returns in order to be able to keep doing this. And since I love doing this, I want to keep doing it. I'm focused on finding those few companies that can provide really disruptive returns in order to be able to keep funding the business.

AI assessment note: “You have to have big exits in order to provide the kind of returns”

Q You mentioned time and energy there from the funds. I'm intrigued. From your portfolio and from your experience, where do you find your time and energy is most pulled or drawn?

A Yes. So Harry, I am not technical. So if a company calls me and says, we need to really look at the architecture, I realize we're both in trouble, right? So I spend most of my time on the business side and on strategy. And what that generally means is working through issues with customers, working through issues with people and hiring, working through issues around funding strategy. So that's really where I'm strong and I'm going to spend a lot of time. Occasionally we'll get involved in, should we let a partner invest, not invest, How do we deal with big co-relationship we have now? But really, the core of it is helping the founder navigate through the myriad of choices, and I also, I sometimes like to describe myself as the chief focus officer, because I try and keep early-stage companies really focused on one or two core things and not wander, because wandering wastes resources, waste time, waste energy, and if we can stay focused, we can be clear about what we're trying to do and clear about what it's going to take to get an A-Rent.

AI assessment note: “I spend most of my time on the business side and on strategy.”

Q So if we move past then the kind of pure The framework of the deal itself. The other element is the pricing of the deal. I'd love to hear your take on price and price sensitivity as an early stage angel. How do you assess this?

A Okay, so when I was at Cisco, I took over CorpDev in 2000, and let me just say that after a bubble burst, you have a lot less to do, and I had a brilliant analyst working for me, and I said, can we go back over our portfolio of deals and figure out what makes us successful and what doesn't, and I sent him off, and the results Were just stunning. And there are two things that came out. One, in the best deals, price didn't matter because your returns were so incredible that negotiating over price just didn't matter. And secondarily, you know, what we talked about earlier, which was that really the people and the people, whether they stayed or left, whether we liked them or we didn't like them two years out, those determined whether or not you were successful. But the corollary was, if you're a serial investor or a serial acquirer, if you do lots of bad price deals in aggregate, it will hurt your return. But the biggest sin is missing that 10% deal that's the huge winner, right? Because no amount of mediocre kind of deals can make up for missing Uber or whatever, Zoom or Arista or whatever you want to say. No amount of things can make up for missing something that's great. So I have mixed feelings on it. There's a certain price which I think is too high because what I worry about is not that it doesn't work out numbers-wise, but I worry that it detracts or deters A-round people fr…

AI assessment note: “in the best deals, price didn't matter because your returns were so incredible”

Q No, that makes sense. What about the biggest advice to someone looking to move into Angel?

A My biggest advice is to really understand your thesis. I'm surrounded. I mean, we could throw a rock from my house, and we'd hit other angel investors, and what I'm struck by most is that beyond, I like finding good deals and making money, I see that there's a lack of focus in terms of what they're doing. Let me just say that you could, if you walked into the great VCs, Andreessen, Sequoia, Greylock, those guys have a clear thesis on what they're doing, and they know exactly what they're doing, and I think to be a successful angel investor, you have to understand that clear thesis, and that clear thesis has to tell me what kind of deals you won't do, As well as what kind of deals you will do. And you have to be prepared to defend that thesis. And I think if you don't have that, then you're really in spray and pray land, and then you're taking a lot of risk, and you basically, you've got to bungle into one that's good. Otherwise, you're going to end up getting burned and losing money.

AI assessment note: “My biggest advice is to really understand your thesis.”

Q I'm so sorry for pummeling you with questions here, but I'm just too intrigued. What's the, what's the right amount of runway to raise for, do you think? It's always the big question for me when you're gearing up for that Series A. Is it 18 months as hailed? Is it 36 months as Jeff Clavier states?

A I believe that the reality is that you want as much runway as possible in order to have as much leverage when you get into that A round. So let's just say what, what's the worst situation for an entrepreneur? The worst situation is, one time I was at Cisco and I got a call. The guy said, look, We're going to disrupt Cisco, and we're going to put you guys out of business. And I said, awesome. Maybe I should go take a look at whatever this is. And then he said, by the way, can you call me back by Thursday? Because I'm running out of money. So you don't want to be in that situation of, yes, I've found the cure for cancer, but I'm out of cash, and I needed an investment at a high valuation by Thursday. So I think you need enough money so that you can achieve your milestones and achieve the mythical product market fit, and still have enough money in the bank that the VC goes, Ooh, I better invest now, rather than let them say, ooh, I'll wait this out, and I'll get a better price if I wait a little bit. So I don't know whether it's 18 months or 36 months. I don't think there's a magic number. What I believe is you still want to have gunpowder when you're going out to do the race.

AI assessment note: “I don''t think there's a magic number.”

Q Yeah, no, absolutely. I completely agree with that sentiment. You spoke about Eric a number of times there in the Zoom deal. I remember you said before that the Zoom investment is what great seed investing should be. What did you mean by that?

A Okay, so one other concept I want to throw out here, which is, there's a lot of debate in the VC world of, is this art or is this science? And I ultimately believe it's a lot of art and a little bit of science. And the art is, you have to be able to look at that entrepreneur and say, do they have grit? Do they have drive? Do they have what it takes to build a great company? Can they hire? Will people work for them? And of course, the science. Does the product work? Well, is it in the right market? Blah, blah, blah, blah, blah. Literally, Eric was and is one of the greatest human beings I've known, and when I met with him, which was, he and I left Cisco effectively the same day, and we met in a coffee shop in Palo Alto, and I asked him about the next thing, and Eric said to me, he said he had about, I think it was about 3000 people who worked for him, And within a week of leaving, he had 2000 resumes in his inbox of people who wanted to work for him. And so at that moment, to be honest, I didn't even care what he was doing. I said, I'm going to write you a check. I'm in because you're the kind of leader that it almost doesn't matter what you're building. I believe in you. And I did write him a check and I said, here it is. I'm in. And then I said, he said, you want to see the presentation? And then I was so taken by my, my rhetoric. I'm like, Eric, no, I don't even need to see t…

AI assessment note: “I'm in because you're the kind of leader that it almost doesn't matter”

Q No, absolutely. You mentioned the element of kind of slightly more mature founders there. I'm intrigued. Can you unpack the thesis a little on that, and why the preference is there for this, and why the maybe market sentiment isn't?

A So, first of all, I think if you look at most VC funds, and you, and you gave truth serum to most A-stage VCs, and said, okay, tell me, what's the number one destroyer value in your portfolio? Founder drama would have to be way up there. When you look, where does founder drama occur? It occurs in young teams who really didn't work together at all. They knew each other in college, or they hung out together, or whatever they were doing, but the truth was that they didn't have prior work experience, and they didn't understand how to construct a team, and they spend a lot of time worrying about their roles. In mature teams, it still happens, right? I'm not going to tell you it doesn't. I had one company where the two founders basically said, we want to see each other dead. Nothing else matters. Okay. That's not fun.

AI assessment note: “Founder drama would have to be way up there. When you look, where does founder drama occur?”

Q When you look at the portfolio, how much of it is that gut instinct? I bank you whatever you build versus that's a fascinating product, really interesting market, huge potential expansion of market. What's the kind of difference when you analyze the portfolio between that founder love versus kind of almost product and market love?

A So my LP is my wife who went to business school. I tell her it's product loves detailed analytics, but the truth of what I tell myself is, nope, it's So, to my LP, no, it's all science, but truth is, it's 70% of it is really the EQ, because this is all about the people. At the end of the day, I can tell you, I've heard VCs say this, but then they go back, and what they really say is, I have no real consistent way to measure grit, to measure the people. I don't know, so I'm going to go back into and spend 90% of my time in the science of product market fit, blah, blah, blah, blah, blah, blah, blah, all the measurable stuff, but the reality is, is I've Personally believe, and I actually, quite frankly, I know from my days at Cisco running M&A that it's the EQ that drives success. It's way, way, way more the factor of what drives success is the people, but yet one of the problems in the industry is we spend a huge amount of time looking at the science, if that makes sense.

AI assessment note: “70% of it is really the EQ, because this is all about the people.”

Q a few questions from just that minute or two of talking. You said about the exits declining there. I had Samuel Shah on the show recently, and he said that great early stage investors over the next decade will be determined by how well they use secondaries. I'm intrigued. How do you think about secondary use, given the maybe lack of liquidity with public markets and with lack of exits?

A Yes. So this is where I'm a little more old school. So I do believe there's a time and a place for a secondary, but I also tell a story, and I don't know which Which VC this came from. Reputedly, I've heard the story told about three different VCs, but apparently there was a VC who flew to see one of his portfolio company, and he asked the portfolio company, how do you think I got here? And the guy said, you took a jet. And he said, yes. How did you pay for that jet? And he said, I paid for this jet because I never, ever sold a company too soon. So I tend to believe that a lot of returns are there late. If you can hold on for that last bit of return, it's where you see a tremendous amount of return. So I have, for a variety of reasons, not Participated in secondaries so far, and I believe that there will be exits, that great companies eventually will exit, that we will see a return to some larger M&A in markets where it becomes so critical for some of these companies that have holes that have to acquire. So I think on the high end, you're going to be fine, right? Now, there are times at the low end where, you know, companies up and down, up and down, up and down, where people may want to say, okay, it's time to reduce the risk. But therefore, me, I feel like I want to stand with the Support you up and down, and I'm going to hang in there and see if we can get this right. And I'…

AI assessment note: “I have, for a variety of reasons, not Participated in secondaries so far”

Q a few questions from just that minute or two of talking. You said about the exits declining there. I had Samuel Shah on the show recently, and he said that great early stage investors over the next decade will be determined by how well they use secondaries. I'm intrigued. How do you think about secondary use, given the maybe lack of liquidity with public markets and with lack of exits?

A Yes. So this is where I'm a little more old school. So I do believe there's a time and a place for a secondary, but I also tell a story, and I don't know which Which VC this came from. Reputedly, I've heard the story told about three different VCs, but apparently there was a VC who flew to see one of his portfolio company, and he asked the portfolio company, how do you think I got here? And the guy said, you took a jet. And he said, yes. How did you pay for that jet? And he said, I paid for this jet because I never, ever sold a company too soon. So I tend to believe that a lot of returns are there late. If you can hold on for that last bit of return, it's where you see a tremendous amount of return. So I have, for a variety of reasons, not Participated in secondaries so far, and I believe that there will be exits, that great companies eventually will exit, that we will see a return to some larger M&A in markets where it becomes so critical for some of these companies that have holes that have to acquire. So I think on the high end, you're going to be fine, right? Now, there are times at the low end where, you know, companies up and down, up and down, up and down, where people may want to say, okay, it's time to reduce the risk. But therefore, me, I feel like I want to stand with the Support you up and down, and I'm going to hang in there and see if we can get this right. And I'…

AI assessment note: “I have, for a variety of reasons, not Participated in secondaries so far”

Q want to start today with one of, I think, our joint favorite topics, which is portfolio construction. Long time the belief in the valley that highly diversified Spray and pray portfolios at seed are required due to high loss ratios, but you've stated an alternative thought to me, so let's start with that, and why do you think the days of spray and pray are maybe over as an angel?

A So Harry, this is something that is core to my belief, and I can't tell you whether I'm right or I'm wrong, it's just this is how I feel, and what I've come to believe is that a couple phenomena are going on. First, There have been more companies created in the last 10 years than probably the entire technology business before that, so you're seeing enormous amount of creation, and the reality is that for a long time, the exits have been declining, and they've been declining at late stage because for whatever reason, IPOs are down, large M&A is down, and it's also the truth that the reality is a lot of the large companies are no longer really thrilled with tech and talent acquisitions, and those Acquisitions are turning into less and less friendly for early investors, and we can go into why for a variety of reasons. So when I look at doing this, I'm doing this really as a business, and I'm trying to figure out how I can do this as a way that's sustainable. And in the end, the math is very simple. You have to have big exits in order to provide the kind of returns in order to be able to keep doing this. And since I love doing this, I want to keep doing it. I'm focused on finding those few companies that can provide really disruptive returns in order to be able to keep funding the business.

AI assessment note: “focused on finding those few companies that can provide really disruptive returns”

Q And then to make your life even easier with that lack of liquidity and reduction in M&A, we've seen also recently a real return from the likes of Sequoia Founders Fund into the seed market again. So I'm really intrigued. How does their re-entrance into very, very early stage, how does that affect you as an angel?

A So this is a great question. And let me just say right at the outset, I believe Sequoia are the best investors in the world, right? What they have done over a long period of time, With multiple generations of management is incredible. So when you see them saying, okay, we're going to attack angel, that should scare you or it should scare me. And it does. Right. Because I think this is interesting, but the reality is that to me further, you have to be really clear in my case. Okay. What am I looking at? What am I not looking at? And what are, what types of things are they going to look at? And what are they not going to look at? And is there enough oxygen in spaces maybe that may not fall into their seed radar that you can still find really interesting things. Right. And so for me, it, It increases the focus on trying to find the seams where, for whatever reason, their network won't touch, right, or won't get through their vetting system. So you have to be increasingly a contrarian in order to try and be successful in a world where Sequoia and others are going to be aggressive. Now, let me tell you one other quick story. Five years ago, I was in a VC fund, and I saw a kid in a room with stacks of paper, and I asked the VC, what's he doing? And he said, funny story. He is calling all of our seed investments, and he's asking them, one, do you still exist? Two, do you still exist? …

AI assessment note: “it increases the focus on trying to find the seams where, for whatever reason”