The Exchanges

Q And then I want to finish today, David, on your most recent publicly announced investment, and why did you say yes?

A My last lead position was a company called Adhawk. The founders are ex-Google AdWords. They ran a very successful, uh, small-medium business division for Google, and they left to start Adhawk, which was about simplifying online acquisition, specifically via, via Google, but now multi-platform. And I think that they were advantaged in terms of customer acquisition. There, there is a real, real problem, um, in terms of how smaller businesses advertise and obtain customers and just a huge amount of complexity. And what they're doing is they are eliminating that complexity, really going back to saying, look, how many leads do you want? How many real great leads? Um, what are you prepared to pay for that? And let us obscure all the complexity. So again, tremendous founder marketplace. Fit there, and we'll see how that works out.

AI assessment note: “So again, tremendous founder marketplace. Fit there, and we'll see how that works out.”

Q Do you mind LPs bowing out in those cases?

A We're so small that in some cases we welcome LPs bowing out. So in our last fund, in fund five, we had one Fantastic family offers. We love and adore them. Say, if it's less than ten million, we're out. And we went, it's less, your allocation's less than ten million. They're out. And, you know, we, we, our fund's small. We don't mind. Harry, we spend a very, very small amount of time on fundraising. We spend, if you ask me, I spend truly 95% of my time on finding good companies and supporting good companies. I think I spend three percent of my time on fundraising. But it doesn't mean I don't care about ILPs. I'll, I'll, Talk to our LPs any day of the week, and I love spending time with them, but I'm not out there fundraising.

AI assessment note: “in some cases we welcome LPs bowing out”

Q With that in mind, how do you think about navigating AI seed rounds today? Because all the AI seed rounds I see today are, I mean, just crazy competitive and crazy priced.

A You know, we're off piste. We're non-consensus. We're contrarian. So when I see those rounds, if I see a round at five on 20, that's in our pitting range. When I see those rounds at like 25 on a hundred, pretty much we're out. We're pretty much out. Again, team versus theme. So, you know, there are rare instances where we see someone who's just like, you cannot ignore, you wake up in the morning, you go, oh my god, like how can I not be involved? But, uh, for the most part, 99% of the time, we're, we're not involved. By the way, you, you, You just can't make money in a seed fund at those numbers. I don't see, I don't see how you can make money.

AI assessment note: “when I see those rounds at like 25 on a hundred, pretty much we're out”

Q Do you mind LPs bowing out in those cases?

A We're so small that in some cases we welcome LPs bowing out. So in our last fund, in fund five, we had one Fantastic family offers. We love and adore them. Say, if it's less than ten million, we're out. And we went, it's less, your allocation's less than ten million. They're out. And, you know, we, we, our fund's small. We don't mind. Harry, we spend a very, very small amount of time on fundraising. We spend, if you ask me, I spend truly 95% of my time on finding good companies and supporting good companies. I think I spend three percent of my time on fundraising. But it doesn't mean I don't care about ILPs. I'll, I'll, Talk to our LPs any day of the week, and I love spending time with them, but I'm not out there fundraising.

AI assessment note: “We're so small that in some cases we welcome LPs bowing out.”

Q When have you not broken the rules? And you've stayed disciplined and you regret it. We, we spoke before about one time with me. When have you nod and you regret it?

A You know, there, there have been times where we didn't break the rules for the best of reasons. The first thing that comes to mind is like Pinterest. The founders came to us and we had a conflict. We had a, a, a very strong associate in Zach Klein, who was the chairman of supply. We, we'd invested in supply. We couldn't make the investment. I look back at that and I go like, how, you know, if you look at that outcome, You go, like, how could we have, but we didn't break the rules, what we meant, and I think there's, like, financial rules, and then I think there are rules of, like, loyalty and partnership, where you go, that's my name on the door, right, and I cannot break, those are just unbreakable rules.

AI assessment note: “The first thing that comes to mind is like Pinterest.”

Q In terms of those founders and that psychology, how do you see that differ in terms of, we spoke about it a little bit before, but like first-time founders versus second-time founders with huge exits or failures or small exits?

A I would say generally founders who've had enormous, enormous success and exits come to the next opportunity with some degree of hubris. I, I, I speak about this personally. I sold my first business And I thought I could conquer anything. And they look at any vertical, and they, you kind of go, I'm going to disrupt that. I'm going to be the one that's going to show them a lesson. And generally speaking, that hasn't worked out well for us. Versus entrepreneurs who tried their asses off, raised money, and for some reason or another, it didn't work out. They come back hungrier. They come back, they want that, they want that prize. They want to prove. Chip on the shoulder. And if they can bring back the team somehow, so second time entrepreneurs where it's, where they failed, and they come back for more, Tom Lee said Motorway is an unbelievable example. I was on the board with Sonali DeRaker of Top 10. They build an unbelievable product in the travel space, but they get crushed in that vertical. Try to outspend Kayak in the other place, spending a hundred million dollars a month, Google's single largest advertisers. You can have the best product you want. You know, tail between their legs, go off, they lost all of our money. Brings back the team and starts motorway. Billion dollar valuation. You know, it's like, they're great people to back. The, the trick is you got to get them to …

AI assessment note: “founders who've had enormous, enormous success and exits come to the next opportunity with some degree of hubris.”

Q With that in mind, how do you think about navigating AI seed rounds today? Because all the AI seed rounds I see today are, I mean, just crazy competitive and crazy priced.

A You know, we're off piste. We're non-consensus. We're contrarian. So when I see those rounds, if I see a round at five on 20, that's in our pitting range. When I see those rounds at like 25 on a hundred, pretty much we're out. We're pretty much out. Again, team versus theme. So, you know, there are rare instances where we see someone who's just like, you cannot ignore, you wake up in the morning, you go, oh my god, like how can I not be involved? But, uh, for the most part, 99% of the time, we're, we're not involved. By the way, you, you, You just can't make money in a seed fund at those numbers. I don't see, I don't see how you can make money.

AI assessment note: “When I see those rounds at like 25 on a hundred, pretty much we're out.”

Q For a founder to know what is economic alignment, what would that be, just broad range?

A Look, if you kick off and you own on a board, like, less than 15% of that company, I think it's problematic. Certainly in terms of our fund structure, the, the capital and the cash is infinite in a way, or has been in this era. Your time is not infinite. And at some point you're gonna think very seriously about your time. And to be patient, you need that economic alignment with the founder. So if the founder owns 95% and you own five percent, Problematic. Every time you sit down, you go, like, I'm working for this guy, de facto. If there is more alignment in terms of ownership, then I think it works better. Harry, if things are going, like, ballistically, then it doesn't matter. So that always breaks the rules. I'm talking about 99% of the time. You've got to sit down and go, it's our company. We're in this together.

AI assessment note: “if you kick off and you own on a board, like, less than 15%”

Q I love that. You absolutely are. You know, there was one great piece of advice that I was once given by a guest, but he said, Harry, if you're ever willing to take less in a deal, Don't do it. So if ever you have 1.25 allocation, and you're like, oh, I'm fine to take one. Don't do it. Do you agree with that?

A I think it's a great test. I'm very impressed. Um, I think that sometimes if you love the deal, and there's heat for the right reasons, to take a smaller amount is doable. But I think, so I think the problem with that comment is it doesn't, it ignores the context. And the context matters. So in an, in a vacuum, that's a fine comment, and I agree with it. But in the context of there are lots of other people interested, including some collaborators, you may go, I actually want them in this deal with me. And by the way, that is under pressure when people have got funds that are too big and the deals and, you know, there's less collaboration. But I think there really are people who you want alongside you because they're smarter and more experienced than you. If you're If you're having to throttle down a little bit for that, I have no problem with that.

AI assessment note: “I think the problem with that comment is it doesn't, it ignores the context.”

Q For a founder to know what is economic alignment, what would that be, just broad range?

A Look, if you kick off and you own on a board, like, less than 15% of that company, I think it's problematic. Certainly in terms of our fund structure, the, the capital and the cash is infinite in a way, or has been in this era. Your time is not infinite. And at some point you're gonna think very seriously about your time. And to be patient, you need that economic alignment with the founder. So if the founder owns 95% and you own five percent, Problematic. Every time you sit down, you go, like, I'm working for this guy, de facto. If there is more alignment in terms of ownership, then I think it works better. Harry, if things are going, like, ballistically, then it doesn't matter. So that always breaks the rules. I'm talking about 99% of the time. You've got to sit down and go, it's our company. We're in this together.

AI assessment note: “if you kick off and you own on a board, like, less than 15%”

Q why, David, I do not do reserves, and I don't because I was in Hopin, I was in Clubhouse, I was in Be Real, all lost money, and then I've got a load of companies which were much slower In enterprise and a phenomenal investments. But if I had reserves, I would put them all in the three companies with traction. How do you feel about reserves and that approach?

A We, we did no reserves in fund one, zero. And then what we found was there was this negative correlation bias. There were these companies that just were not getting there fast enough that needed our help. And we had to break the rules. You know, one of the best instances of breaking the rules, Eric, Who is the most disciplined investor in our team by far. He's created literally the infrastructure on which we all kind of, you know, rise. Eric looks at me on trade desk and goes, they're out of money if we don't invest here. They're out of money. Eric breaks his own rules, so painfully so for him ahead of me. I'm, I'm more opportunistic. I go like, if we've got to do it, we've got to do it.

AI assessment note: “We, we did no reserves in fund one, zero. And then what we found was”

Q Leach. When we spoke, you mentioned LEACH, and I thought it was a great, uh, you know, acronym. Uh, what is LEACH, David? Let's start there.

A Oh, Harry, this is a subject I can keep you here all day on, but LEACH is Lethargic Economic Extractor Causing Harm. And these are these legacy companies, a great example of them is the PBMs, the Pharmacy Benefit Managers. Companies that were very innovative 40 years ago, So a PBM connects the pharmacy to the insurer. You know, 40 years ago or 30 years ago, they were great companies, right? And, you know, the insurance codes and how much you should pay out for your meds, great. And then you have the whole internet and you've still got hundreds of billions of market cap, hundreds of billions, adding no value, right? And the problem is that these incumbents use every trick in the book. Capitalism's so beautifully set up for them, so they use Lobbying. They use lawyers. They use PR to say that the challenges are illegal. That's, that's, like, job number one. So I have had this, like, time and time again, and in one way I go, like, it's a badge of glory, right? Like, to, to actually, like, rouse a leech, like, unbelievable. You're doing, you know, because the incumbent is now pissed off or worried about you. It's a badge of glory. But I think, like, going through that, what it takes To take on these leeches is tremendously underestimated.

AI assessment note: “LEACH is Lethargic Economic Extractor Causing Harm. And these are these legacy companies”

Q I love that. You absolutely are. You know, there was one great piece of advice that I was once given by a guest, but he said, Harry, if you're ever willing to take less in a deal, Don't do it. So if ever you have 1.25 allocation, and you're like, oh, I'm fine to take one. Don't do it. Do you agree with that?

A I think it's a great test. I'm very impressed. Um, I think that sometimes if you love the deal, and there's heat for the right reasons, to take a smaller amount is doable. But I think, so I think the problem with that comment is it doesn't, it ignores the context. And the context matters. So in an, in a vacuum, that's a fine comment, and I agree with it. But in the context of there are lots of other people interested, including some collaborators, you may go, I actually want them in this deal with me. And by the way, that is under pressure when people have got funds that are too big and the deals and, you know, there's less collaboration. But I think there really are people who you want alongside you because they're smarter and more experienced than you. If you're If you're having to throttle down a little bit for that, I have no problem with that.

AI assessment note: “the problem with that comment is it doesn't, it ignores the context.”

Q named the podcast. I was saved by Eric Bailey. I do want to ask, you know, angel investing is very different to institutional and fund investing. You know, when I had Josh on from First Round, he said that he actually became a lot more conservative when he raised institutional funds with First Round. How did that transition from angel to institutional manager? Did that impact your, your investing mindset?

A It's a great question. The first thing I'd say is when you hoist a flag and say, look, we're open to give capital at the earlier stage, if you're any good at it, the amount of opportunities that you see seem to go up a hundredfold. So the first thing was kind of drinking from this fire hydrant and frankly thinking that everything was great. So I hadn't calibrated myself. So you go through this calibration exercise where a year later you look at what you, some of the hopefully smaller investments you made and you go, I'm not sure that I would have done that now. The other thing is, Where I echo Josh on being more conservative is, you know, one investor to two investors is institutional, and having someone double check you and finding your mojo again, and hopefully having a partner where trust and competence, belief in that person's competence is so high that you really are playing the ball, not the person. I would say the toughest part of that transition for me was actually having a partner and having someone say, I think you're wrong, and really listening. It's very difficult when you've been A solo angel investor, and frankly, when you've run a company before that, when you've been a chief executive. So in operating a company, you have these extraordinary people alongside you, but I would say my co-founder, my partner, loan uptaker in internet solutions, we would make the fina…

AI assessment note: “Where I echo Josh on being more conservative is, you know, one investor to two”

Q So do you not believe in the naive founder? Sometimes we're told that it's best for a founder to not have much knowledge of their sector because it leads to, you know, awareness of the difficulties, whether it be regulation or competition, that lie ahead, and therefore the naivety allows them to kind of dream big. Do you agree with that?

A I would say it's nuanced. I was personally an outrageously naive founder. If I had done the, um, if I had really looked into the regulations in the, you know, in the country and the continent that I started, if I'd looked into government control issues, if I'd looked into the fact that, you know, government, um, you know, owned the telco, as was true in, you know, in the UK and Australia, and just the unfair advantages I was up against, if I'd really analyzed it, I would never have started the ISP. Um, So it's not that I dispel the naive founder at all. Um, I would say that, that it's pretty much a case of, um, you can have much higher volatility with those. Those tend to be more like projects to start off with. They're less commercial. So if you look at an engineering student, they can have an insanely good idea. The probability of, you know, one in a thousand of those ideas will be Facebook. Um, but the volatility will be extraordinary.

AI assessment note: “So it's not that I dispel the naive founder at all.”

Q mentioned Coupang, we mentioned Uber, we mentioned the Trade Desk. I love our mutual friend Avi for his framework around actually selling. And he broke it down on the show, uh, in three distinct parts. I'm intrigued when you look at the IPOs there and the great outcomes they've gone on to be, do you sell when they IPO and what's your process for liquidating and how to distribute effectively?

A Yeah, I kind of, I have to channel one of our LPs, Tim Blyamptus, who's the CIO of WeatherGage. And I remember around Uber Coupang, some of the situations where we had shares to distribute, uh, dry, dry. Speaking to Tim and saying, Eric and I speaking to Tim and saying what we should, what we should do. And Tim said, whatever you do, you're going to be wrong. And of course, like the answer to that is you sell prematurely and you didn't capture the upside. You don't sell in think tanks and you didn't preserve value. And frankly, it gets more complicated than that. Some investors want to give the shares to their, you know, foundations and they, they get pissed off with you for cashing out and giving them cash instead of shares. Some investors say to you, LPs say, like, I don't know what to do with that share. Like, I've never heard of the trade desk. Like, why didn't you make the decision for me? The answer there typically has been with big distributions, with large positions, so fund movers, or it's half the fund, we distribute, and we say it's up to you. With smaller positions, when at IPOs, so desktop metal, for instance, it got to the point where it was like, I don't know, worth ten million dollars, we sold. And we take the cash and we distribute the cash. So I would say quantum or size versus the fund size is pretty much how we decide around that. Now, what our LPs did with …

AI assessment note: “with big distributions... we distribute... With smaller positions... we sold”

Q I absolutely love that. What's been the most controversial deal that you've done internally?

A What can become controversial is the what or the where. So certainly Kupong was like, got back, I said to Eric, Korea, and he said, you know, do you even know if it's north or south? But the magic there is, I am based in Harvard Square. So people go, how do you get to Korea? Right? Like, how do you get to all sorts of places? And the answer is Harvard Square. So Bomb, you know, Bomb drops out of HBS after his first year and comes to see me. And another controversial company was probably Shield in terms of the what it does. So I would say the whole partnership didn't necessarily love, you know, defense drones. And early on, it was like, is this only defense? So I love it because it's certainly taken us to some Very controversial geos and controversial watts.

AI assessment note: “certainly Kupong was... another controversial company was probably Shield in terms of the what”

Q And so then you see the pricing adjust for those deals, correct?

A You do. I mean, you've still got to, like, market's market, right? So, you know, I think if you're going to be like, I want a four million pre, you're, like, totally anachronistic. I think there is a market, and there's a market-clearing price, And you pay that price, but you get on with it. But these are not AI prices, right? Like, this is not AI deal where I go five on 20, that guy's unbelievable. Next thing, you know, I'm on a Zoom, and he's in San Francisco in a hotel room, and I just come off that Zoom, and I say to my associate, I say, we're dead, right? There's gonna be a hundred million pre. This is real, by the way.

AI assessment note: “You do. I mean, you've still got to, like, market's market, right?”

Q In terms of those founders and that psychology, how do you see that differ in terms of, we spoke about it a little bit before, but like first-time founders versus second-time founders with huge exits or failures or small exits?

A I would say generally founders who've had enormous, enormous success and exits come to the next opportunity with some degree of hubris. I, I, I speak about this personally. I sold my first business And I thought I could conquer anything. And they look at any vertical, and they, you kind of go, I'm going to disrupt that. I'm going to be the one that's going to show them a lesson. And generally speaking, that hasn't worked out well for us. Versus entrepreneurs who tried their asses off, raised money, and for some reason or another, it didn't work out. They come back hungrier. They come back, they want that, they want that prize. They want to prove. Chip on the shoulder. And if they can bring back the team somehow, so second time entrepreneurs where it's, where they failed, and they come back for more, Tom Lee said Motorway is an unbelievable example. I was on the board with Sonali DeRaker of Top 10. They build an unbelievable product in the travel space, but they get crushed in that vertical. Try to outspend Kayak in the other place, spending a hundred million dollars a month, Google's single largest advertisers. You can have the best product you want. You know, tail between their legs, go off, they lost all of our money. Brings back the team and starts motorway. Billion dollar valuation. You know, it's like, they're great people to back. The, the trick is you got to get them to …

AI assessment note: “founders who've had enormous, enormous success and exits come to the next opportunity with some degree of hubris”

Q do you like? I'm like, that's the most lazy LP question. Do you know, one thing that I think can be quite lazy in our landscape is pro rata. So many funds that I see and operate today, yeah, we'll just do pro rata. It's like an easy option, an easy get out. I think you should be like all in or all out. How do you think about that?

A I still think of like pro rata as like the original sin against entrepreneurs. You asked me earlier, is there stuff that entrepreneurs don't, don't understand about VCs? Like, if I said to you, Harry, you know, I've got an option to, I don't know, you know, anything, right? Like, why would you give me a free option? Why would you give me a free option? If I said to you, like, like, you know, for ten million dollars, like, give me an option to buy 10% of 20 VC, and it's, I, I can decide if I want to do it or not. Like, would, would you, you wouldn't in a million years, right? But you've had to learn that. The amazing thing about entrepreneurs is they give prorata. It's like, And it's, it's like the superpower thing for VCs, and I think it is terrible, terrible for entrepreneurs. You're selling options against you. So, standard operating procedure is, you know, later stage VCs look at it, and they go, you know, go to the market. See what, test the market. See what the market will bear. That's code for, like, I don't want to price you. You know, go out. The market's going, I'm a stalking horse. Like, why would I be a stalking horse for X, Y, Z? And it, you know, The, if you're doing great, if your revenues, if your rule of 20 is like, your rule of 40 is off the charts and you're doing great, amazing. ProRata doesn't matter. If you're struggling, ProRata's terrible.

AI assessment note: “I still think of like pro rata as like the original sin against entrepreneurs.”

Q Leach. When we spoke, you mentioned LEACH, and I thought it was a great, uh, you know, acronym. Uh, what is LEACH, David? Let's start there.

A Oh, Harry, this is a subject I can keep you here all day on, but LEACH is Lethargic Economic Extractor Causing Harm. And these are these legacy companies, a great example of them is the PBMs, the Pharmacy Benefit Managers. Companies that were very innovative 40 years ago, So a PBM connects the pharmacy to the insurer. You know, 40 years ago or 30 years ago, they were great companies, right? And, you know, the insurance codes and how much you should pay out for your meds, great. And then you have the whole internet and you've still got hundreds of billions of market cap, hundreds of billions, adding no value, right? And the problem is that these incumbents use every trick in the book. Capitalism's so beautifully set up for them, so they use Lobbying. They use lawyers. They use PR to say that the challenges are illegal. That's, that's, like, job number one. So I have had this, like, time and time again, and in one way I go, like, it's a badge of glory, right? Like, to, to actually, like, rouse a leech, like, unbelievable. You're doing, you know, because the incumbent is now pissed off or worried about you. It's a badge of glory. But I think, like, going through that, what it takes To take on these leeches is tremendously underestimated.

AI assessment note: “LEACH is Lethargic Economic Extractor Causing Harm. And these are these legacy companies”

Q And so then you see the pricing adjust for those deals, correct?

A You do. I mean, you've still got to, like, market's market, right? So, you know, I think if you're going to be like, I want a four million pre, you're, like, totally anachronistic. I think there is a market, and there's a market-clearing price, And you pay that price, but you get on with it. But these are not AI prices, right? Like, this is not AI deal where I go five on 20, that guy's unbelievable. Next thing, you know, I'm on a Zoom, and he's in San Francisco in a hotel room, and I just come off that Zoom, and I say to my associate, I say, we're dead, right? There's gonna be a hundred million pre. This is real, by the way.

AI assessment note: “You do. I mean, you've still got to, like, market's market”

Q Do you think founders understand the venture business enough today?

A I think some founders still see, you know, a name in lights, and they go, I want that name beyond anything. I, if it's Sequoia, A-sixting Z, Accel, you name it, I want that name, and I think there will always be a steady supply of founders who think that way. I don't think they understand that, you know, the, you're gonna, the one in 10, if you're lucky, and there's, those stats are probably not even right, one in 10 get funded, get the net, otherwise you're orphaned, or You know, you're in, you're in a world of hurt because someone that the world thought was, like, very, very serious and very smart about you just said no to you. Go try sell against that. I think it's very, very difficult. By the way, to our earlier point, those founders come back to us, and they say, like, I was orphaned, right? They didn't do, but I was, they don't understand that 90% don't get follow on funding.

AI assessment note: “they don't understand that 90% don't get follow on funding.”

Q do you like? I'm like, that's the most lazy LP question. Do you know, one thing that I think can be quite lazy in our landscape is pro rata. So many funds that I see and operate today, yeah, we'll just do pro rata. It's like an easy option, an easy get out. I think you should be like all in or all out. How do you think about that?

A I still think of like pro rata as like the original sin against entrepreneurs. You asked me earlier, is there stuff that entrepreneurs don't, don't understand about VCs? Like, if I said to you, Harry, you know, I've got an option to, I don't know, you know, anything, right? Like, why would you give me a free option? Why would you give me a free option? If I said to you, like, like, you know, for ten million dollars, like, give me an option to buy 10% of 20 VC, and it's, I, I can decide if I want to do it or not. Like, would, would you, you wouldn't in a million years, right? But you've had to learn that. The amazing thing about entrepreneurs is they give prorata. It's like, And it's, it's like the superpower thing for VCs, and I think it is terrible, terrible for entrepreneurs. You're selling options against you. So, standard operating procedure is, you know, later stage VCs look at it, and they go, you know, go to the market. See what, test the market. See what the market will bear. That's code for, like, I don't want to price you. You know, go out. The market's going, I'm a stalking horse. Like, why would I be a stalking horse for X, Y, Z? And it, you know, The, if you're doing great, if your revenues, if your rule of 20 is like, your rule of 40 is off the charts and you're doing great, amazing. ProRata doesn't matter. If you're struggling, ProRata's terrible.

AI assessment note: “I still think of like pro rata as like the original sin against entrepreneurs.”

Q being the first to show an entrepreneur, I believe in you. We often hear that's what founders love. Actually, quite a lot of the time, they use you as a stalking horse. They kind of take you to market, and understandably, their job is to get the best round, but you can be used to get a better price, to get a better structure. How do you think about that?

A I think it's a good signal to investors early if that happens. Like, do you want to be in business with that entrepreneur? So, I'd rather it happens early to me. It happens to everyone. But I'd rather it happens early to me than later on, because it was pretty clear that that individual was totally transactional. Josh Koppenman, I remember him saying to me, I'll give you two million dollars uncapped note ahead of the next round. A lot of this was in his portfolio already, where he went, like, what's the quadrant that's really killing it? What first round used to do is, in the quadrant that they thought was, like, amazing, they would go to those founders and say, here are uncapped, literally uncapped checks. And what we're doing is, Your initial founders are showing such enthusiasm for your company that that can only be great as a selling point when you do the next round. So that's a different take on it. Totally. But I think you can do that, you can do it in the opposite direction, where you just show unbridled enthusiasm, and in a way that's testimonial marketing for the, for the founder.

AI assessment note: “I think it's a good signal to investors early if that happens.”

Q Do these companies inherently need to have more cash then?

A They do. By the way, you can't do, you can have all the cash you want, you can have all the strategies you want. The first thing you need is customers that absolutely love and adore you. If you don't have customers that love you, right, like, what are you doing this whole thing for? So if you don't have actual, and I would say this is SeatGeek, PillPack, Suno, like, every one of those companies had customers, their revenues were increasing because, and that's why they're a pen in the ass to the incumbents, is the incumbents go, oh my god, like, Customers are actually going there, right? What's this thing about? And usually they don't have their shit together, right? So the incumbent is like playing for time or just like going like, I want this to happen when I want this to happen. I don't want this to happen to me.

AI assessment note: “They do. By the way, you can't do, you can have all the cash”

Q Totally can. You mentioned sooner that obviously incredible business at the forefront of AI as well. AI is a new capital profile. Do you, you're a big, big ardent believer in capital efficiency and kind of smaller rounds and being pragmatic around that as am I. Do you change your stance around that in a world of AI today?

A So, you know, our view is kind of teams versus themes. And even in AI, Like, the teams have to get some kind of product market fit, some before, I think that can still be done reasonably capital efficiently. I think after that, if you look at the capital required to scale and to distribute and to get to, I mean, you look at, like, Josh Kushner's one billion and a hundred billion OpenAI, and I go, you know, would I take that bet or not, all things being equal, I probably would take that bet. If you said to me, you have to, like, are you for or against, I would say, Is Josh in the winner there going to make two X, and maybe much more than that, but bet against the two X? I wouldn't bet against the two X. I think his LPs will make two X on that. But at some point to play in that, that's a whole different world. If you want to play in the hyperscaler game, wow, you're going to need ridiculous amounts of capital. And by the way, we're seeing like, what's a TLM, like tiny language models, which run on the, which run on the mobile phone. And Basically make things like scanning or, you know, translation very realistic and on your phone, even when you're not connected to the internet. You need capital for that as well, because the programming overhead of that, the number of engineers you need to create something tiny is, is huge.

AI assessment note: “I think that can still be done reasonably capital efficiently. I think after that”

Q I'm thinking the same. I'm worrying the same. I want to finish, though, by probably the most important, we've mentioned, you know, some of the fans you've worked with in the past, looking forward to the future. When you look at the most recent publicly announced investment, and why you said yes and got so excited, What is it, David?

A Many come to mind. Two of them are stealth. One of them, Peartree comes to mind. Peartree is using dating style software in the adoption industry, literally adopting kids, and so, you know, if you look at that, there's a massive, archaic industry that's been done the same way forever. It reminds me of the beginnings of the travel industry or hotel online, you know, everything that we now take for granted. There's this almost Like inexhaustible willingness to pay, right? There's such a drive, and you've seen a lot of work in, in fertility, but sometimes that doesn't work, and so the adoption industry, same-sex couples, who has access, who doesn't have access, you've got this incredible changing realm. We talk about the weird and the wonderful and going far off piece to find extraordinary entrepreneurs doing things that are just very far away from fintech, edtech, you name it, tech. So this is one that I'm pretty upbeat about.

AI assessment note: “One of them, Peartree comes to mind. Peartree is using dating style software”

Q misses that I've had, and it's actually really changed the type of investor that I am, and actually how I approach money plenty of email management, where I just brazenly threw something out which shouldn't have been thrown out by a billion dollar company. But my point is to you, what's the miss that most comes to mind for you, and how did that change or impact your investing mindset?

A Harry, I think of the adventures with the individuals that I would have loved to have gone on, where I think they're such high caliber founders. Beam at Mobile, Matt Oppenheim comes to mind. I loved what he was doing, and then I got into diligence, and I spoke to Rulof Buerta, who was in Zoom, and he helped talk me out of it, just talking about how difficult, you know, foreign kind of compensation was, and particularly when that was not global, so when you were choosing a corridor, which happened to be the Philippines. The banking fees, the mobile phone interchange fees. It was a company that was competing with Western Union. So Matt flew to Boston. I remember when we said no, asking how much his flight cost, compensating him, personally writing a check for that, because I felt so bad that he'd flown across the country. And years later, he reminded me of that. He's built a multi-billion dollar business. You know, the Roman folk and Roe today, you know, they'd committed to To having us in. And but I'd say some of this comes out of the challenge of having a very visceral, positive reaction to the individual, and then looking at the what very carefully. And I've gone up and down the roller coaster on this. There are times where I go, that individual will walk through walls, and they'll figure out, they literally could pivot to the right thing, that individual or the team. And then…

AI assessment note: “Beam at Mobile, Matt Oppenheim comes to mind. I loved what he was doing”

Q mental plasticity to switch between a mindset of kind of frugality and then also knowing exactly the right time to kind of pour fuel on the fire and step on the gas, so to speak. How do you determine when's the right time to really double down and pour fuel on the fire versus that time of frugality? Is it a simple product market fit versus no product market fit?

A No, I think this sounds so simplistic, but when it's working and when it's not working, it's a roller coaster. As I say this to you, I deeply empathize and I have a deja vu in my own company of, of going through this, but there are moments when things are really working incredibly well, where you're signing customers, they're sticking with you. And then there are moments where You know, if I think about this in the context of an ISP, you have too much capacity, and you're not selling fast enough, or you have, you know, you have loyal customers, but you don't have enough products to sell them, and I recall us getting into hosting, web development, security solutions, um, to sell to our bandwidth clients, because we had loyal customers, but not, not, not enough product. The answer is, uh, when things are going well, double down, and there are many forms of traction. This is why I use the word traction Somewhat loosely. It's not just revenue growth. It's not just bringing down your churn. It's not just, you know, asymptoting towards some kind of break even. It's a combination of all of that, and you know when it's working, and your team knows when it's working. You have an intuition. Things are going well. When you're, when you're deploying product, and just the, the market is just not responding, often that is just a sign, you know, slow down. So I think one of the hardest challe…

AI assessment note: “The answer is, uh, when things are going well, double down”