The Exchanges

Q there, but I'd love to place you in the role of a founder now in 2017, and put you in the position of that founder and that tied position between, you know, honoring the pro-rosh of the seed and then also getting the A round that you want with the respected investor. What would you say is the best approach? What would you do if you were in that position?

A I think there's a couple things to do to mitigate it. One is, Think through the pro rata rights as you're giving them out early. So, you know, there's, there's a thing called major investor threshold, which is tunable. People who invest less than the threshold often don't get pro rata rights and people invest more than it do get pro rata rights. I think you could tune that up. So you have fewer investors who have a contractual right. And then I, I really think that founders can push back a little harder on the A round investors. You know, there's, there's a lot of folks who say, uh, we just won't do it. We'll walk away if it's less than I think a lot of times they won't actually walk away. I think a lot of times you, you can push on them a bit and say, you know what, I would rather have all these people who've been with me, who know the company, who've supported me, go into this next phase of our company's life not feeling pissed off, and I think it's worth having them get what they need, and you're gonna live with 18%.

AI assessment note: “I think there's a couple things to do to mitigate it. One is,”

Q I would love to discuss LA. Media only, or is there a real tech ecosystem being built?

A Oh, there's a real tech ecosystem being built. There's so much going on here right now, and of course people think about LA for the Hollywood and the fashion and the media businesses that have always been here, and there's a great reason that companies like Snapchat and Tinder and the like are being built here, but there's also both a legacy of really hard tech And, and a lot of really hard tech companies that are growing here all the time. So, you know, a legacy industry like aerospace, which has been here since probably the thirties, has new life with SpaceX and a bunch of drone companies, one we're invested in called AirMap. And VR was born here with Oculus being born in, in part in a USC lab and also in Irvine. And we have a whole legacy of visual effects studios that I think is contributing to the talent in that space. So there's really, as the tech ecosystem here grows, it becomes more rich and more diverse. And we're able to tap To the incredible talent we have in the universities in the LA basin, we have Caltech and USC and UCLA and Harvey Mudd, and I'm sure I'm going to leave somebody out and make them feel bad, but there are tons of great academic institutions that feed this ecosystem, and now more people than ever are looking at LA as a place to move to, which is, which is terrific.

AI assessment note: “Oh, there's a real tech ecosystem being built.”

Q In the founders' explanation of markets, I'm intrigued, what is it that really excites you? You said there about kind of how they think about it. What is that in terms of kind of Growth opportunities, new frontiers within the market, new technologies that are enabling this innovation. What is it that gets you excited when they're explaining that market?

A Well, I do like growing markets. I mean, obviously it's, maybe not obviously, it's much easier to be in a situation where boats are rising than boats are sinking, right? One thing that helps is that if the founder can articulate a real trend that is growing, and I believe that it's growing as well. We have a, we're invested in a company, it's a terrific company called Joy Mode, And basically the founder, Joe Fernandez, who was the founder of cloud experienced guy, really great team of investors around him. And he's basically enabling people to have experiences by not owning the things that they need, that they might need to have those experiences. So you want to go camping or you want to have a movie night at your house, or you want to have a snowplow. He's got all that stuff and you can have it come to your house and you can have those experiences. I guess snowplowing might not be the best example, but you can go camping without necessarily having all that stuff in your garage, like a, like an old guy that I'd Like me has. And, you know, when he talks about the business, he talks about a whole zeitgeist of people wanting to own less about, about his generation and the generation after him wanting to own less, wanting to have more mobility, wanting to having more job flexibility and wanting candidly to be less tied down to stuff. And that makes perfect sense to me. So I believe…

AI assessment note: “if the founder can articulate a real trend that is growing, and I believe that”

Q I would love to discuss LA. Media only, or is there a real tech ecosystem being built?

A Oh, there's a real tech ecosystem being built. There's so much going on here right now, and of course people think about LA for the Hollywood and the fashion and the media businesses that have always been here, and there's a great reason that companies like Snapchat and Tinder and the like are being built here, but there's also both a legacy of really hard tech And, and a lot of really hard tech companies that are growing here all the time. So, you know, a legacy industry like aerospace, which has been here since probably the thirties, has new life with SpaceX and a bunch of drone companies, one we're invested in called AirMap. And VR was born here with Oculus being born in, in part in a USC lab and also in Irvine. And we have a whole legacy of visual effects studios that I think is contributing to the talent in that space. So there's really, as the tech ecosystem here grows, it becomes more rich and more diverse. And we're able to tap To the incredible talent we have in the universities in the LA basin, we have Caltech and USC and UCLA and Harvey Mudd, and I'm sure I'm going to leave somebody out and make them feel bad, but there are tons of great academic institutions that feed this ecosystem, and now more people than ever are looking at LA as a place to move to, which is, which is terrific.

AI assessment note: “Oh, there's a real tech ecosystem being built.”

Q Did you ever struggle in terms of just letting go of those emotions and not jumping in so operationally?

A As an investor, no, I mean, I try. You, you have to realize that Once again, to this analogy of the grandparent, you have influence, but you don't have control. It's right. It's not your baby. The founders are in it every day from morning till night, and sometimes morning till morning, and you're not there every day, so it's really theirs, and it's important to have the perspective, and I think it's helpful to have the perspective and be able to point out when something's really going into a direction that's, that's obviously bad or one that I've seen before be bad, but I try and keep that in mind. I can't operate every single company in the portfolio, and I only know so much, so Whenever I have that urge to sort of dive in, I step back and really try and think about whether I'm doing the right thing.

AI assessment note: “As an investor, no, I mean, I try.”

Q In the founders' explanation of markets, I'm intrigued, what is it that really excites you? You said there about kind of how they think about it. What is that in terms of kind of Growth opportunities, new frontiers within the market, new technologies that are enabling this innovation. What is it that gets you excited when they're explaining that market?

A Well, I do like growing markets. I mean, obviously it's, maybe not obviously, it's much easier to be in a situation where boats are rising than boats are sinking, right? One thing that helps is that if the founder can articulate a real trend that is growing, and I believe that it's growing as well. We have a, we're invested in a company, it's a terrific company called Joy Mode, And basically the founder, Joe Fernandez, who was the founder of cloud experienced guy, really great team of investors around him. And he's basically enabling people to have experiences by not owning the things that they need, that they might need to have those experiences. So you want to go camping or you want to have a movie night at your house, or you want to have a snowplow. He's got all that stuff and you can have it come to your house and you can have those experiences. I guess snowplowing might not be the best example, but you can go camping without necessarily having all that stuff in your garage, like a, like an old guy that I'd Like me has. And, you know, when he talks about the business, he talks about a whole zeitgeist of people wanting to own less about, about his generation and the generation after him wanting to own less, wanting to have more mobility, wanting to having more job flexibility and wanting candidly to be less tied down to stuff. And that makes perfect sense to me. So I believe…

AI assessment note: “if the founder can articulate a real trend that is growing”

Q there, but I'd love to place you in the role of a founder now in 2017, and put you in the position of that founder and that tied position between, you know, honoring the pro-rosh of the seed and then also getting the A round that you want with the respected investor. What would you say is the best approach? What would you do if you were in that position?

A I think there's a couple things to do to mitigate it. One is, Think through the pro rata rights as you're giving them out early. So, you know, there's, there's a thing called major investor threshold, which is tunable. People who invest less than the threshold often don't get pro rata rights and people invest more than it do get pro rata rights. I think you could tune that up. So you have fewer investors who have a contractual right. And then I, I really think that founders can push back a little harder on the A round investors. You know, there's, there's a lot of folks who say, uh, we just won't do it. We'll walk away if it's less than I think a lot of times they won't actually walk away. I think a lot of times you, you can push on them a bit and say, you know what, I would rather have all these people who've been with me, who know the company, who've supported me, go into this next phase of our company's life not feeling pissed off, and I think it's worth having them get what they need, and you're gonna live with 18%.

AI assessment note: “I really think that founders can push back a little harder on the A round investors.”

Q And how did that then translate into you now investing more professionally and with a more structured framework?

A Well, that's been a bigger step, candidly, than I probably understood when I got into it. Started pretty informally with my partner, Gil Albaas, and I, investing as, as sort of an investment club, just us, called 10 One 10 Ventures, and decided that we should raise a fund, and we raised our first fund in You know, I've learned a whole lot about how much of a craft it really is. I never appreciated when I was a founder, all of the things that happened on the other side of the check on the other side of the VC. And I'd heard about LPs, but hadn't really spent much time with them other than at a few investor meetings and had to think really hard about things like portfolio construction and return as a portfolio and our brand as a company. And it feels a lot like building a startup again.

AI assessment note: “decided that we should raise a fund, and we raised our first fund”

Q Let's dig in on that. If you were then the founder, as you have been, what was the DD process that you went through, and what would you like to see your founders go through pre-signing with you?

A Well, I think you need to do what we do to them, which is to figure out, you know, to talk to references. I think that's really important. Talk to off-record references. Talk to a founder who's in their portfolio who has failed or done badly, and, you know, you have to discount for maybe some hard feelings. Those processes are never smooth, but, you know, It's easy to be a great investor, as I said before, that it's easy to be a great investor when things are going up and to the right. When you see someone's true metal is when things are going badly, when things are scary and difficult. And it's important for founders to know what they're dealing with when they get into that situation. And, you know, one way to do that is to find someone who's been in that situation, asking a lot of sort of detailed questions about their limited partnership agreement or anything like that. But it's, it's really just getting to know, first of all, what their intentions are with regard to following on, but also Other founders' experiences in good and bad situations. It's crazy because it's a marriage that is very, very hard to get out of, as you know. When you've taken an investor, particularly that first A-round investor, they are with you for the duration, whether you like them or not, and it's nearly impossible to, there's some highly public cases right now where people are not happy with thei…

AI assessment note: “talk to off-record references. Talk to a founder who's in their portfolio who has failed”

Q And in terms of the, the party round element, why do you dislike party rounds? Party Browns. Often I hear that they simply incentivize a larger portion of the investor base. What are your thoughts?

A Yeah, I don't like Party Browns either. I like for the whole team to be strong, right? And that's not to say that there aren't strong investors who are smaller investors or angel investors, but when the company encounters challenges, sometimes an investor group really needs a lead because they need leadership. It's very, very easy to be a good investor when everything's going up and to the right and, you know, the founder is doing all the right things and they're sort of on their own and building the company. But when things go wrong, when unexpected things happen and someone needs to step up and say, create a bridge, if there's no one who is in that leadership role to pull everything together, often it doesn't happen. And it's bad for the investors, and it's bad for the founders.

AI assessment note: “if there's no one who is in that leadership role to pull everything together”

Q Can I ask in terms of the craft out of the What makes you think there is that artisanal craft? Is it the portfolio construction? Is it the founder engagement? Is it the thesis around reserves? What is it that really makes you think that it is a truly mastered skill as a craft?

A It's a weird industry because it's super subjective and it's super objective, right? What you do every day is very subjective, especially at the early stage. You're meeting people, kind of trying to judge them and their motivations and what they plan and the sort of delta between what they're showing you and what's actually going to happen. And there's all this stuff There's a lot of feel involved. At the end of the day, you have to deliver a single number, and that's what gets measured. You know, maybe two numbers, the return on cash and the IRR. But thinking through how those things translate to one another, I've spoken to so many smart people. I know a lot of VCs and a lot of really great VCs, and everybody has their own slightly or sometimes extremely different take on how to do that, and that makes me think that it's a craft. It's seeing the difference between, say, how a highly concentrated VC goes about his or her work and how someone who's Got a much broader portfolio. It's a very, very different approach to getting those same returns.

AI assessment note: “everybody has their own slightly or sometimes extremely different take on how to do that”

Q Did you ever struggle in terms of just letting go of those emotions and not jumping in so operationally?

A As an investor, no, I mean, I try. You, you have to realize that Once again, to this analogy of the grandparent, you have influence, but you don't have control. It's right. It's not your baby. The founders are in it every day from morning till night, and sometimes morning till morning, and you're not there every day, so it's really theirs, and it's important to have the perspective, and I think it's helpful to have the perspective and be able to point out when something's really going into a direction that's, that's obviously bad or one that I've seen before be bad, but I try and keep that in mind. I can't operate every single company in the portfolio, and I only know so much, so Whenever I have that urge to sort of dive in, I step back and really try and think about whether I'm doing the right thing.

AI assessment note: “Whenever I have that urge to sort of dive in, I step back”

Q And how did that then translate into you now investing more professionally and with a more structured framework?

A Well, that's been a bigger step, candidly, than I probably understood when I got into it. Started pretty informally with my partner, Gil Albaas, and I, investing as, as sort of an investment club, just us, called 10 One 10 Ventures, and decided that we should raise a fund, and we raised our first fund in You know, I've learned a whole lot about how much of a craft it really is. I never appreciated when I was a founder, all of the things that happened on the other side of the check on the other side of the VC. And I'd heard about LPs, but hadn't really spent much time with them other than at a few investor meetings and had to think really hard about things like portfolio construction and return as a portfolio and our brand as a company. And it feels a lot like building a startup again.

AI assessment note: “Started pretty informally... and decided that we should raise a fund”

Q Can I ask in terms of the craft out of the What makes you think there is that artisanal craft? Is it the portfolio construction? Is it the founder engagement? Is it the thesis around reserves? What is it that really makes you think that it is a truly mastered skill as a craft?

A It's a weird industry because it's super subjective and it's super objective, right? What you do every day is very subjective, especially at the early stage. You're meeting people, kind of trying to judge them and their motivations and what they plan and the sort of delta between what they're showing you and what's actually going to happen. And there's all this stuff There's a lot of feel involved. At the end of the day, you have to deliver a single number, and that's what gets measured. You know, maybe two numbers, the return on cash and the IRR. But thinking through how those things translate to one another, I've spoken to so many smart people. I know a lot of VCs and a lot of really great VCs, and everybody has their own slightly or sometimes extremely different take on how to do that, and that makes me think that it's a craft. It's seeing the difference between, say, how a highly concentrated VC goes about his or her work and how someone who's Got a much broader portfolio. It's a very, very different approach to getting those same returns.

AI assessment note: “everybody has their own slightly or sometimes extremely different take on how to do that”

Q And in terms of the, the party round element, why do you dislike party rounds? Party Browns. Often I hear that they simply incentivize a larger portion of the investor base. What are your thoughts?

A Yeah, I don't like Party Browns either. I like for the whole team to be strong, right? And that's not to say that there aren't strong investors who are smaller investors or angel investors, but when the company encounters challenges, sometimes an investor group really needs a lead because they need leadership. It's very, very easy to be a good investor when everything's going up and to the right and, you know, the founder is doing all the right things and they're sort of on their own and building the company. But when things go wrong, when unexpected things happen and someone needs to step up and say, create a bridge, if there's no one who is in that leadership role to pull everything together, often it doesn't happen. And it's bad for the investors, and it's bad for the founders.

AI assessment note: “when the company encounters challenges, sometimes an investor group really needs a lead”

Q Let's dig in on that. If you were then the founder, as you have been, what was the DD process that you went through, and what would you like to see your founders go through pre-signing with you?

A Well, I think you need to do what we do to them, which is to figure out, you know, to talk to references. I think that's really important. Talk to off-record references. Talk to a founder who's in their portfolio who has failed or done badly, and, you know, you have to discount for maybe some hard feelings. Those processes are never smooth, but, you know, It's easy to be a great investor, as I said before, that it's easy to be a great investor when things are going up and to the right. When you see someone's true metal is when things are going badly, when things are scary and difficult. And it's important for founders to know what they're dealing with when they get into that situation. And, you know, one way to do that is to find someone who's been in that situation, asking a lot of sort of detailed questions about their limited partnership agreement or anything like that. But it's, it's really just getting to know, first of all, what their intentions are with regard to following on, but also Other founders' experiences in good and bad situations. It's crazy because it's a marriage that is very, very hard to get out of, as you know. When you've taken an investor, particularly that first A-round investor, they are with you for the duration, whether you like them or not, and it's nearly impossible to, there's some highly public cases right now where people are not happy with thei…

AI assessment note: “Talk to off-record references. Talk to a founder who's in their portfolio who has failed”

Q I would love to move into a quick fire round with you now. So, uh, so I say a short statement, you give me your immediate thoughts. So let's start with your favorite book and why, what should I be reading, David?

A Well, I refuse to pick a favorite book. I read a lot, and I love a lot of books, so I'm just going to go right against it. I'm going to be a contrarian right now. But a book I recommend you read is The Last Lion, especially because you're English. It's a three-volume biography of Winston Churchill, and he's an amazing man. He had real flaws, but without him, we'd probably be having this interview in German, or more likely, as a Jewish person, I probably wouldn't be here at all. And it's just astonishing to think of how much one person can change human history. But all He had just an amazing lifespan, and this book, Churchill grew up in very Victorian England and died, I think, I believe Kennedy was president when he died, so he just spanned this incredible period of human history and was part of much of it, so the book really not only illustrates him, but it illustrates those times and how they changed throughout those decades.

AI assessment note: “a book I recommend you read is The Last Lion, especially because you're English.”

Q I would love to move into a quick fire round with you now. So, uh, so I say a short statement, you give me your immediate thoughts. So let's start with your favorite book and why, what should I be reading, David?

A Well, I refuse to pick a favorite book. I read a lot, and I love a lot of books, so I'm just going to go right against it. I'm going to be a contrarian right now. But a book I recommend you read is The Last Lion, especially because you're English. It's a three-volume biography of Winston Churchill, and he's an amazing man. He had real flaws, but without him, we'd probably be having this interview in German, or more likely, as a Jewish person, I probably wouldn't be here at all. And it's just astonishing to think of how much one person can change human history. But all He had just an amazing lifespan, and this book, Churchill grew up in very Victorian England and died, I think, I believe Kennedy was president when he died, so he just spanned this incredible period of human history and was part of much of it, so the book really not only illustrates him, but it illustrates those times and how they changed throughout those decades.

AI assessment note: “a book I recommend you read is The Last Lion”