The Exchanges

Q What will crack open IPO windows? Do you think we mentioned in Scott earlier in Scott, um, it didn't, uh, Clavio sadly didn't with it.

A I think it's very simple. Mr. Jerome Powell signaling to the world that, uh, interest rates are under control now. And the air has been taken out of the balloon and the interest rates have to go down. I mean, there's a direct correlation. I think that, uh, I had some of my friends at JP Morgan gave me a chart at its peak, I think, Any company growing greater than 40%, um, and there's an inverse relationship to interest rates and forward valuations. 35 times forward. Do you know, uh, today, um, that number is at 6.8 times forward as interest rates kept hiking up. And the five-year historical number is 13.9 times. So do I think we're going to move back to one of 35 to 40 for companies greater, going greater than 40%? Never again. Do I think 6.8 might be the low point? Yeah. Is it the five-year kind of average of 14? Yeah, let's just say somewhere between 10 and 14. So you've got to build your business and your investment strategy and your ownership strategy around looking at a world where we get 10 to 14 for the best companies forward next year's numbers. And if you can do that, then I think you'll have an opportunity to make a lot of money.

AI assessment note: “Mr. Jerome Powell signaling to the world that, uh, interest rates are under control”

Q We're in deals together. You continuously concentrate capital and do kind of bridge rounds where rounds aren't in place. You're like, which is fascinating to see. I've really learned a lot from you in this way. How many, I'm just interested, how many of those work out positively versus negatively?

A I'd say probably two thirds work out more positively than negatively, but the ones that work out can be outliers. I mean, look, we lean into this. I've found that everything is not always up and to the right. And when you find things that are way ahead of the market, that are kind of new categories or just doing things completely different, it always requires something extra, you know, guy from sneak, um, we funded him three times before he got his A round done. No one wanted to fund that company. They're like, I don't think opens. Why is he focused only on JavaScript open source? Why is he only focused on developers? Developers don't care about security. I can, I have a list of a hundred firms. I'll pull up the spreadsheet one day and I'll show you all the firms that said no multiple times over. Okay. That's one, a big ID three rounds before they got their a round done. And then Zuckerberg was sitting in front of Congress testifying about privacy. And then all of a sudden they raised a bunch of money and they're doing very well. Security scorecard. Um, the market's not big enough. It's not, this is not that they did over a hundred million of error last year. Um, and they required a bridge around between C and A before Sequoia jumped in. And the final one I'd say is, um, uh, even customer, we required a bridge between the A and the B because people are like, gee, you just need …

AI assessment note: “I'd say probably two thirds work out more positively than negatively”

Q Okay. We said this would just be a chat. Is that not just pre-seed, dude? That's what pre-seed always was.

A I think pre-seed presupposes that you need a seed round. And if you look at kind of the data, frankly, uh, I just did an analysis on pitch book. The data is skewing upwards. Did you know that the The median age of a company that raises a pre-seed round is 1.2 years of age now. And the median age of a company that raises a seed round is 2.7. This just, I'm talking about data across kind of, you know, the last 10 years. Secondly, I would tell you is that a lot of times founders who are second and third time founders don't want to even be called to have a pre-seed round because it presupposes you need a seed round. And what does that mean to you, Harry? It means that if you have a pre-seed round and you have a seed round, that's another layer of dilution. So what you really would rather have for the best founders is they just want to get a seed round. I mean, I wish we could just go back to that, but the cat's already out of the bag.

AI assessment note: “I think pre-seed presupposes that you need a seed round.”

Q Also this idea of like, oh, but then it buys me the wrong way. It, it, that's if you put it in a bank and do not touch it. How often does one put it in a bank and does not touch it? Oh, that stretch higher, all that new geography you could open up or new product. Do you know what I mean?

A Um, it's a very rare founder that, that does that. You know, you know who actually is one founder that did that was Rahul from superhuman. So we gave him one of the first checks, uh, back and reported before he, uh, from fun one, fun two, he wrote his first check into superhuman, uh, and he raised quietly, you know, he made us put three or four different checks in, in seed rounds. In seed notes just to get our ownership because we'd always ask for more. He cut us back. That was his strategy. Then he raised pre, uh, raised a ten million dollar A round. He put it in a separate bank account and said, I'm not going to touch this thing. I'm literally just going to put it there. I don't want to see it. It's in a separate bank account. I'm only going to operate on the seed money that I had. And you know Rahul Harry, the guy is a, he's an operating machine, that guy. So having been through the experience where he's scarred for life or when he sold his company to LinkedIn, he basically had no money. He's like, I'm never going to be there again. And so in some ways that almost killed him because he would not move as fast as he could because he had the runway. But I'm just saying it's a very rare founder that can do that. And most people can't. And you're better off feeling that pressure. When your backs are against the wall, the best people perform. When you're actually too comfortable, …

AI assessment note: “it's a very rare founder that, that does that.”

Q Okay. We said this would just be a chat. Is that not just pre-seed, dude? That's what pre-seed always was.

A I think pre-seed presupposes that you need a seed round. And if you look at kind of the data, frankly, uh, I just did an analysis on pitch book. The data is skewing upwards. Did you know that the The median age of a company that raises a pre-seed round is 1.2 years of age now. And the median age of a company that raises a seed round is 2.7. This just, I'm talking about data across kind of, you know, the last 10 years. Secondly, I would tell you is that a lot of times founders who are second and third time founders don't want to even be called to have a pre-seed round because it presupposes you need a seed round. And what does that mean to you, Harry? It means that if you have a pre-seed round and you have a seed round, that's another layer of dilution. So what you really would rather have for the best founders is they just want to get a seed round. I mean, I wish we could just go back to that, but the cat's already out of the bag.

AI assessment note: “I think pre-seed presupposes that you need a seed round.”

Q Also this idea of like, oh, but then it buys me the wrong way. It, it, that's if you put it in a bank and do not touch it. How often does one put it in a bank and does not touch it? Oh, that stretch higher, all that new geography you could open up or new product. Do you know what I mean?

A Um, it's a very rare founder that, that does that. You know, you know who actually is one founder that did that was Rahul from superhuman. So we gave him one of the first checks, uh, back and reported before he, uh, from fun one, fun two, he wrote his first check into superhuman, uh, and he raised quietly, you know, he made us put three or four different checks in, in seed rounds. In seed notes just to get our ownership because we'd always ask for more. He cut us back. That was his strategy. Then he raised pre, uh, raised a ten million dollar A round. He put it in a separate bank account and said, I'm not going to touch this thing. I'm literally just going to put it there. I don't want to see it. It's in a separate bank account. I'm only going to operate on the seed money that I had. And you know Rahul Harry, the guy is a, he's an operating machine, that guy. So having been through the experience where he's scarred for life or when he sold his company to LinkedIn, he basically had no money. He's like, I'm never going to be there again. And so in some ways that almost killed him because he would not move as fast as he could because he had the runway. But I'm just saying it's a very rare founder that can do that. And most people can't. And you're better off feeling that pressure. When your backs are against the wall, the best people perform. When you're actually too comfortable, …

AI assessment note: “it's a very rare founder that, that does that.”

Q So I, I get you. I want, I do want to discuss the growth. Cause like, you know, we've spoken about the frothy nature of seed today. Growth seems to have died though. It's what everyone says. And it's definitely what I see more and more. Do you agree? Or do you actually think that there's resiliency in the growth market too? And that we're overly negative on that?

A Look, I, first of all, I've been doing this long enough. This is year. 27 for me, where things are never as good or as bad as it seems. Right. So, and, and the echo chamber is stronger than it's ever been with social media and everything else. But my point is that, yeah, the numbers, the overall numbers itself in terms of growth round valuations, yeah, they're fucking down big time. Number two is the valuations from growth rounds. I think, you know, if you look at Carter's data, I think the seed round was from down from four. I mean, the series C was down from four 75 to three 75 already or two 75, something crazy like that. So yeah, they're getting crushed. But however, there's still pockets Of opportunity where people are going from one to three to four million in the infrastructure space that I see to 10 to 12 kind of on the forecast and they're still raising at two 50 to 400 now.

AI assessment note: “things are never as good or as bad as it seems”

Q And you decided on an enterprise seed fund because it's what you'd specialized in before, or did you see a lot more room for consumerization in the enterprise space?

A It was, it was two-pronged. It's kind of stick with what you know, but more importantly, I just saw a massive, massive shift. Up until that time in 2006, 2007, people were talking about open source and the cloud and How you could scale companies very quickly, but most of that was focused on the consumer. And I started having, you know, the first couple entrepreneurs that came to me were the founders of GoToMeeting. And one of the, yeah, one of the founders, Klaus Schauser, started a new company called Appfolio, and he wanted to SaaSify vertical markets. And another, uh, GoToMeeting founder, uh, started a company called RightScale, which was kind of a management software cloud layer for AWS and other platforms. And both of them were only trying to raise about a million, million and a half dollars. So, so basically I saw, I saw a trend, and I saw more repeat entrepreneurs from the enterprise coming to me and saying, hey, you know what? Just like the consumers, I think I can get started and prove that there's a market here for a million to a million and a half dollars. And, uh, and basically from there I said, all right, let's, let's give this a shot.

AI assessment note: “It was, it was two-pronged. It's kind of stick with what you know”

Q And you decided on an enterprise seed fund because it's what you'd specialized in before, or did you see a lot more room for consumerization in the enterprise space?

A It was, it was two-pronged. It's kind of stick with what you know, but more importantly, I just saw a massive, massive shift. Up until that time in 2006, 2007, people were talking about open source and the cloud and How you could scale companies very quickly, but most of that was focused on the consumer. And I started having, you know, the first couple entrepreneurs that came to me were the founders of GoToMeeting. And one of the, yeah, one of the founders, Klaus Schauser, started a new company called Appfolio, and he wanted to SaaSify vertical markets. And another, uh, GoToMeeting founder, uh, started a company called RightScale, which was kind of a management software cloud layer for AWS and other platforms. And both of them were only trying to raise about a million, million and a half dollars. So, so basically I saw, I saw a trend, and I saw more repeat entrepreneurs from the enterprise coming to me and saying, hey, you know what? Just like the consumers, I think I can get started and prove that there's a market here for a million to a million and a half dollars. And, uh, and basically from there I said, all right, let's, let's give this a shot.

AI assessment note: “It was, it was two-pronged. It's kind of stick with what you know”

Q And you said that enterprise can be fucking hard, uh, as you delightfully put it. So why did you choose enterprise, uh, when you were starting out your career in VC? Why, why did you not go for the, probably not much easier, but the much more obvious kind of choices of, you know, consumer?

A Yeah, you know, I just, um, I started out back in the day before I became a VC. I was at JP Morgan helping build Quantitative trading models. And I was kind of like the liaison. I, I sat in between the developers and the portfolio managers. I was like the business QA. And when I was there, we were turning, um, our derivatives model into a real-time pricing model. So we take feeds in from Reuters and, uh, and you know, all this other, all these other sources like, uh, risk metrics and plop it in and then kind of crank out these models. And I just felt like I could understand the pain point better with enterprise. I mean, it may be freaking boring to some, But I find it super exciting. And I also think that enterprise is interesting. You can take an enterprise founder. Uh, let's say we just funded these, um, two founders that, uh, one was the former CTO of, of Assistly, and the other was the former chief architect of Assistly. Uh, they sold it to Salesforce. It became desk.com. But before that, they founded a company called eShares, which was once again in the customer support space. So I feel like you can actually have repeated success in the industry. It's just by You know, re-architecting things, rebuilding things, and, ah, doing things, you know, better, and faster, and cheaper. And in consumer, I think it's harder to be a repeat consumer entrepreneur, right? Because you typi…

AI assessment note: “I just felt like I could understand the pain point better with enterprise.”

Q much cash that it was like five years of runway, and it's like, ah, we'll punt down a decision down the line. And so I wanted to start with the question of, we all thought, okay, they've got so much runway, it's many years out. Is 2024 the year where a generation of companies suddenly hits the wall? And I'm just going to throw that one out there to start.

A I'll jump in and say, yeah, I mean, you nailed it. Everyone was like, Hey, let's stop the bleeding. Let's extend runway. Uh, two is let's buy time. And then last year was the year we got to see whether these enterprise software companies could execute and grow their businesses. But the years of companies at the later stages going 100% year over year are over. Two is everyone got fit financially in terms of cash, trying to get the cash flow break even. And I think now this is a year, Harry, that you're saying like, shit, If I'm only growing 20% year over year and it's still burning cash, I don't know if I have a business. Like what the hell am I going to do? I need to figure out kind of, do I, you know, buy another company? Do I exit? Can I get to cash flow break even? So, so this is the year that the shit's hitting the fan because, you know, you can only extend runway so much and it doesn't mean much if you're not growing. That's just my, my opinion, but.

AI assessment note: “this is the year that the shit's hitting the fan”

Q Amazing how sexy dev tools can be, isn't it? Yes. Uh, okay. Now, Jammin, you're recused from this one, uh, for compliance reasons. Uh, Ed, you're not, you're not getting away with this. What's your buy and short for twenty-twenty-four with the year ahead?

A I gotta tell you, I'm, I'm, you know, I'm looking at Microsoft, uh, you know, even though that's still priced pretty high. I just think that because of their lead on everything AI that they're taking market share on the cloud side. So I think that that's going to drive a lot of their business. And I'm hoping that by the back half of the year, you know, you start seeing some of the revenue numbers reflect in that, that would be my long, um, my short would probably be, I mean, just what everyone's looking at now is just Apple right now. I think, I think Apple, You know, you've got an iPhone growth issue, uh, over there at Apple, but the one thing that gets me excited about Apple is the idea of, uh, machine learning and AI on the edge device, whether it's in the laptops now, uh, or even in the phone. So these models get smaller and get pushed out onto these devices. I think there's gonna be some interesting stuff built, uh, that has privacy, compliancy built in, speed built into that, but I don't see where that results in revenue in this year from that perspective.

AI assessment note: “that would be my long, um, my short would probably be”

Q much cash that it was like five years of runway, and it's like, ah, we'll punt down a decision down the line. And so I wanted to start with the question of, we all thought, okay, they've got so much runway, it's many years out. Is 2024 the year where a generation of companies suddenly hits the wall? And I'm just going to throw that one out there to start.

A I'll jump in and say, yeah, I mean, you nailed it. Everyone was like, Hey, let's stop the bleeding. Let's extend runway. Uh, two is let's buy time. And then last year was the year we got to see whether these enterprise software companies could execute and grow their businesses. But the years of companies at the later stages going 100% year over year are over. Two is everyone got fit financially in terms of cash, trying to get the cash flow break even. And I think now this is a year, Harry, that you're saying like, shit, If I'm only growing 20% year over year and it's still burning cash, I don't know if I have a business. Like what the hell am I going to do? I need to figure out kind of, do I, you know, buy another company? Do I exit? Can I get to cash flow break even? So, so this is the year that the shit's hitting the fan because, you know, you can only extend runway so much and it doesn't mean much if you're not growing. That's just my, my opinion, but.

AI assessment note: “I'll jump in and say, yeah, I mean, you nailed it.”

Q Just so I understand, what are the questions that board members should be asking and how should founders be thinking about that just practically?

A First, I think you have to ask yourself is, I mean, I'll go very, very basic, um, is like, Hey founder, do you have the energy and conviction to keep going? Like, do you really believe in what you're doing? Because if they don't have the energy and conviction, then I think it doesn't matter what you do, right? It just doesn't matter. Maybe they've been at it five years. You know how many founders been at it five, six, seven years right now sitting on valuations that are probably one third kind of where they're at. Um, and maybe they're tired, right? So sometimes you may have that conversation with the founder and they may feel relieved. You may say like, Hey, One of the later stage investors in this round is okay getting their money back. Sometimes you hear this sigh of relief, like, oh my God, like, like, yeah. Oh, wow. Like, Hey, this would be a win for you. And by the way, early stage investors, you make, make three times your money back. And by the way, founders, given like how much cash you have in the balance sheet right now, maybe you only spent half it, maybe you still have four or fifty million bucks that can be distributed back if you have an exit. So if we work on finding the right exit opportunity for you, A, you can have a graceful opportunity to say you sold your business. B is you can, um, you can not have to worry about growing into some insane valuation and the…

AI assessment note: “Hey founder, do you have the energy and conviction to keep going?”

Q And me and Parker Conrad, not a good person to pick a fight with, by the way, note, uh, but me and Parker Conrad thoroughly disagree. I think that too much cash too early Has a net negative impact on 99.9% of companies unless you are an exceptional allocator of capital like he is, like Daniel Ek is, like very, very few generational founders are. Do you agree with me?

A I agree with you 1000%. Uh, I said necessity is a mother of all invention. And, um, yeah, look, every person that writes that twenty million dollar check or the fifty million, a hundred million dollar check thinks that the founder they're backing Uh, actually is the Parker Conrads of the world and the Daniel X. The reality of it is there's only a few Parker Conrads and few Daniel X. So you're more likely to create major issues than you are to actually have an amazing company. And here's why. First of all, your talent has gotten way smarter, way smarter. So when they come in, it's like, what's the valuation? Oh, you raised a hundred million at a billion. Um, how many are you going to make money out of this? Cause you know what? I've been sitting in a unicorn for a long time and I'm actually not making any money here for the last three years and I took a pay cut. So one is you've got these people are the best talent in the world wants to join a company, not on the highest price, but the best price with the right amount of capital for the right risk. Second thing is, is that this is what we've been doing with founders. They'll come out to us and say, test the waters, you know, both sorts of bigger fun. Let me raise three to six. So we're like, okay, how much do you really need? You know what? I'll lead you around now if you want three, but not at six. So they come back to us, you …

AI assessment note: “I agree with you 1000%.”

Q What do you advise LPs today, looking at the landscape, trying to get a grip on it, trying to understand what's going on?

A Well, look, I mean, the, the LPs will advise me too, but the answer is, is that I think being first on the cap table really makes sense in terms of, Making money in any environment, uh, with multiples compressed. I think two, I think ownership is going to matter. Uh, and I think three is, I think there's gonna be a new generation of firms kind of coming around that, uh, are building, you know, different businesses and different VC funds and trying things differently. I think that there's some legendary brands out there and I am so impressed with how long they've been around and the teams that they have. But I think there's also given that the industry expanded a lot, you know, the question for them is going to be, who's going to be the next generation of Of funds out there that, that are going to win for a long time.

AI assessment note: “I think being first on the cap table really makes sense”

Q I do think people Don't anticipate levels of dilution enough. I've been in this game, sadly, long enough to know that dilution really hurts and your 15% entry turns into nine percent on exit, often a little bit more sometimes. My, my point being, do you have any lessons, observations from the impacts of dilution and just what it actually ultimately means when it comes to cash back?

A Yeah, well, capital efficiency matters, um, you know, period, right? So that's number one. Um, and, and to that point, Um, you will never find both start, for example, finding companies where, you know, they're raising 20 or thirty million dollars, and two thirds of that money goes to NVIDIA. Because, you know, if my LPs went to actually invest in NVIDIA, they can invest in NVIDIA. They don't have to take haircuts from fees for me to do that, right? So that's number one. So those aren't capital efficient businesses in my mind, and they're, they're lower margin businesses. Number two is, is this is also why, Harry, we created the opportunity funds. So our opportunity fund right now is almost the same size as our core fund. So our strategy is to inception invest. Um, it's to continue supporting the best founders as they, as they keep growing to maintain that ownership. And then, you know, once it, after it hits the series B, we're still able to maintain that ownership and our board seats, um, as the best ones go.

AI assessment note: “this is also why, Harry, we created the opportunity funds... to maintain that ownership”

Q And a lot of people in the seed stage of the funding cycle are getting concerned by the rise of crowdfunding and angel list. Uh, so do you see deal flow going to these crowdfunding sites, and is it something that you're potentially concerned about in the future?

A Uh, I'm not worried about it at all in the least bit. I mean, if you look at a lot of the seasoned entrepreneurs, yeah, I think there's, people keep talking about the automation of the world. Um, I do think that VC is still a relationship-driven business. You know, will there be portions of a two million dollar round? You know, for many times, we'll, we'll, we'll lead a seed round, and then we'll say, okay, let's say if two 50 open for angels, we can put it on AngelList after we've gotten everything else together to see if we can drum up some other Interesting relationships. Um, but, you know, I'm not really overly concerned about that. I think the great entrepreneurs are still going to go back to the folks they've done business with over the years, um, if they've done it successfully and, and still raise that way.

AI assessment note: “I'm not worried about it at all in the least bit.”

Q And do you have a preference then for first or second generation entrepreneurs or single or co-founded companies? What, what are your thoughts on that?

A Well, I, we never liked single co-founder, co-founded companies or single founders, number one. Number two is, it runs the gamut for us. We are typically the first check into a business, or at least the first institutional round, and sometimes it varies, right? We funded, I think the last five or six companies we funded, five of them were repeat entrepreneurs who have built, you know, and scaled companies before, and those rounds tended to be a little bigger at the seed round, but we're The first institutional check and those opportunities, and then for first-time founders, the, the rounds are typically, you know, a little smaller, and the key thing for us is making sure that these founders have deep domain expertise. They understand the pain. A lot of the companies that we see, the founders really kind of had a huge problem, um, and, and they, they saw market opportunities to go automate that problem or fix that problem with technology, and so that's very important for us, and secondly, they have to be engineers. Um, engineers, Building product. That's really important.

AI assessment note: “we never liked single co-founder... Number two is, it runs the gamut”

Q And for you investing at the kind of seed stage of the enterprise market, we always hear that VCs are looking for a billion dollar market, a billion dollar market. How big does the market have to be for you when you invest so early?

A I like to think it's going to be a billion dollar market, but look, you never really know. Um, I do know that Seed is just like, you know, any other, you know, investing series A, B, or C, but the point is that we want to build a portfolio and have 25 swings to the plate, and every swing that we take, we want it to be an opportunity to return the whole fund over. So if you look at that way of thinking, then, you know, we need to believe that it's going to be a huge market opportunity. The funny thing is, I'm not going to sit there with the founder and just try to, you know, pull out these analyst reports and Many times, you know, if you have an analyst report to kind of show us, then it's probably not worth investing in, you know, at the seed stage. We want to sometimes look for greenfield opportunities or reinvent the way that other industries are doing things today, um, and go from there. So a lot of it might be intuitive kind of market, um, opportunity versus having any real numbers behind it.

AI assessment note: “I like to think it's going to be a billion dollar market”

Q If you're on, if you're on the Databricks board, would you say to go public?

A Um, no, from what I know, a, I'm not on the board, but two is I heard that their expense line is still, you know, relative to the growth is still kind of not, but if you're gonna go public, I think you've gotta be cashflow breakeven. Um, I think you have to have, you know, 30% plus growth, which is probably what high growth is right now. Um, and you know, you've gotta be moving towards a rule of 40 or 50, in my opinion, with slanted more towards growth than you are, you know, cashflow breakeven, right? I think those are the things that you're gonna need, but as I said, Jamin could probably comment better than me on that.

AI assessment note: “Um, no, from what I know, a, I'm not on the board”

Q If you're on, if you're on the Databricks board, would you say to go public?

A Um, no, from what I know, a, I'm not on the board, but two is I heard that their expense line is still, you know, relative to the growth is still kind of not, but if you're gonna go public, I think you've gotta be cashflow breakeven. Um, I think you have to have, you know, 30% plus growth, which is probably what high growth is right now. Um, and you know, you've gotta be moving towards a rule of 40 or 50, in my opinion, with slanted more towards growth than you are, you know, cashflow breakeven, right? I think those are the things that you're gonna need, but as I said, Jamin could probably comment better than me on that.

AI assessment note: “no, from what I know, a, I'm not on the board, but two”

Q biggest worry that I have, you know, 1516, whatever years it is into SaaS investing is that the growth has slowed. Have we reached saturation point in software spend? No CFOs have like AI as a line item on their budgets. Yes, they will want it, but it's not a line item. Have we reached saturation of software spend and does growth or the deceleration of company growth show that?

A Um, I would, I would answer it a couple of different ways. Um, I shouldn't be in the business if I didn't think of creative destruction and that the world gets reinvented every, you know, 10, 15, 20 years, right? So I fundamentally believe that with the new platform shift happening with kind of AI, and by the way, I'm not an AI investor, nor do I chase AI things. I just believe AI is just part of what we do every day. It's going to be infused in those software where it makes sense, where people will pay for it, where it's economically important. But I do think we're going to enter a new cycle where things have been around in 15 years, and they're going to get reinvented. As an early stage events investor, I need to believe that, and that's always going to be the case. Secondly, um, yeah, Jason's right, and things have slowed down. They're not growing a hundred percent year over year. Um, yeah, enterprises aren't spending willy-nilly. In fact, enterprises bought, um, way ahead of the curve, uh, thinking that they're continuing to grow up and to the right. And the other part would be probably 25% of all this revenue from all these tech companies was selling to other startups. That shit vaporized, dude. So if you look at the growth from that, that automatically kind of dragged everything down. But I do think that the customers that are signing on board last year are buying at the …

AI assessment note: “enterprises bought, um, way ahead of the curve”

Q Would that have gone through today, do you think?

A Fuck no. No way. And by the way, it had nothing to do with anything other than they, they hated Zuckerberg, right? I mean, really, customer was a business to business software thing, and you had Ireland to go through, you had the EU to go through, you had the US to go through, right? So, so that was a, you know, reportedly, according to Bloomberg, over a billion dollar exit. But the point is, is that, let's say those go away, and in a world that you have 300 to four hundred million dollar exits, the world where Palo Alto repeatedly buys companies from one 50 to six hundred million dollars. How much money can a capital, can a company take in order for investors to make money? What does that mean for late stage investors? Jim, I'd love to know kind of how you thinking about it. How do you choose which are the ones that are going to be the three billion dollar companies? Cause please tell me so I know where I can be setting down the plank. You know, how, how does that happen?

AI assessment note: “Fuck no. No way. And by the way, it had nothing to do with”

Q And me and Parker Conrad, not a good person to pick a fight with, by the way, note, uh, but me and Parker Conrad thoroughly disagree. I think that too much cash too early Has a net negative impact on 99.9% of companies unless you are an exceptional allocator of capital like he is, like Daniel Ek is, like very, very few generational founders are. Do you agree with me?

A I agree with you 1000%. Uh, I said necessity is a mother of all invention. And, um, yeah, look, every person that writes that twenty million dollar check or the fifty million, a hundred million dollar check thinks that the founder they're backing Uh, actually is the Parker Conrads of the world and the Daniel X. The reality of it is there's only a few Parker Conrads and few Daniel X. So you're more likely to create major issues than you are to actually have an amazing company. And here's why. First of all, your talent has gotten way smarter, way smarter. So when they come in, it's like, what's the valuation? Oh, you raised a hundred million at a billion. Um, how many are you going to make money out of this? Cause you know what? I've been sitting in a unicorn for a long time and I'm actually not making any money here for the last three years and I took a pay cut. So one is you've got these people are the best talent in the world wants to join a company, not on the highest price, but the best price with the right amount of capital for the right risk. Second thing is, is that this is what we've been doing with founders. They'll come out to us and say, test the waters, you know, both sorts of bigger fun. Let me raise three to six. So we're like, okay, how much do you really need? You know what? I'll lead you around now if you want three, but not at six. So they come back to us, you …

AI assessment note: “I agree with you 1000%.”

Q Were you unwavering when doing that? When you have three, at some point you must go, Jesus, this is taking longer than we thought.

A Uh, we did. There was a company Jesus moment. I remember with Guy, um, after we did in the first seed round and like, we're getting traction, but downloads don't equal revenue, right? This was in 2016, 20 17. However, he's like, yeah, I got some enterprise customers here. I don't know if I want to do it. I might, I might create this new bridge between, uh, the enterprise and my cloud. And it's going to be this thing called an agent broker that I'm going to create and thinking I can charge 50 K. And he goes, I don't know how long it'll take. He did it. It took a few days. He built it out, signed a few customers like, boom, here you go. Right? So if you are actively involved and engaged on the board from the very beginning as well, and you have a very concentrated portfolio, you see signals. And the signals that we see may not be the signals an outsider sees. And once again, the important part is if Guy went out trying to raise capital from someone else and I didn't have enough capital to give to him, he would have gone out of business. Okay. So that's where you have to kind of come in. You've got to know the founder. And yeah, do we get all the bets right, Harry? Hell no. We don't get them all right. But if one or two of them work, you know, within the model. So all I'm saying is that the fund size Actually can be larger. And I don't think it should be a billion dollars. And I t…

AI assessment note: “Uh, we did. There was a company Jesus moment. I remember with Guy”

Q So I'm just pushing you here for fun. These are not my opinions, obviously, but I tweeted yesterday. Um, there's a special place in VC hell, um, saved. For pre-seed investors that take board seats. Am I wrong?

A Yeah. So look, I don't know what pre-seed is first and foremost, because if you're raising 500 K to a million, that's what I think of pre-seed, then yeah, you probably don't need a board. Yeah. Yeah. You don't need a fucking board. Here's what I do. I go the other way. Founder, what works for you from a cadence perspective? Number one. Number two is if you're doing a classic round of you're raising three to four million, I like to tell the founder that, hey, you should probably not do a series of safe notes here because you never really know what you own, especially in conversion. You, you want to actually do a proper route. What we'll do is we'll put a board together. But, you know, as I said, we are going to have our regular dialogue based on the cadence that works for you. Because usually the first six months, they're just heads down building. I'm not going to be helping them build their product, Harry. I'm investing in them to build the product of the future. That's their job. They will reach out. The best founders reach out to us and know exactly what to ask for, know exactly how to ask for it, know exactly when. And then what I say is, let's start doing a quarterly cadence for the board. I just want text. No fucking pretty images. But what I want to do is prepare you for the day. You know, a year from now, a year of six months in, so 18 months from funding, that when you …

AI assessment note: “if you're raising 500 K to a million... then yeah, you probably don't need a board.”

Q So I think M&A is going to go to shit. Um, I think anything sub a billion is not meaningful enough for M&A teams and corp dev teams to actually engage with. And I think anything over a billion is going to be incredibly arduous to get over the line from a regulatory perspective. Do you agree or am I overly negative?

A I think we're going to see a lot more M and A's, uh, kind of coming ahead right now. And, and I'll tell you the kinds we'll see, right? All right. Well, let's look at it. There's been a lot of companies and there's what thousand plus unicorns out there right now. Not all of them will go public. Many of them are overvalued right now. And guess what? They're probably some growth investors sitting around saying you may have five to seven years of runway, but. If I can get my money out right now, um, on the tech stack on the stack right now, get my money back and investors, by the way, You know, down the stack, we'll get their money back. And by the way, founders will probably make money. Let's just, let's just say if there's an opportunity to go do that, that would be a brilliant opportunity for people to, um, maybe exit out, take their one X and they can go reinvest it somewhere else. And I'm talking to lots of growth investors who are kind of looking at saying, yeah, I mean, you know what, if I can get one X out after a few years and actually reinvest that stuff into something else at a better price or, or do something. So I, I think that the realization of holding onto.

AI assessment note: “I think we're going to see a lot more M and A's”

Q My biggest lesson from the last few years was actually just to sell at some points, you know, we were always told, lean in, lean in the bullshit. You need to lean out strategically over increments over time. That was a big lesson for me. What was the lesson for you in hindsight you wish you'd done differently?

A I would say that the biggest lesson is not much different from you. I, two lessons that I think about one is no matter how disciplined you are, we talked about Too much cash can kill startups, right? At any stage, okay? No matter, no matter what, right? It just, as I said, there's, there's a death spiral that can happen if you miss, miss a quarter or a quarter or two, and just the pressure goes up. And the last batch of hires who are usually the largest percent of your business, if you're growing, if you were in hyper growth mode, are feeling like they're underwater, right? So that creates lots of issues from that perspective. So that's number one. Number two would be ownership matters always, but also you have to, Balance that out with, you know, uh, valuation, uh, valuation as well. So I'll give you an example. There are so many preemptive rounds happening over the last few years where, you know, every six months people raising rounds that usually there hasn't been enough data points to merit kind of coming in on the next round or the round after. And the company hasn't performed enough for you to de-risk yourself in between rounds because let's say you got three rounds down, uh, done in 12 months. And there should have been situations perhaps where we shouldn't have gotten into every single one of those rounds because maybe it wasn't de-risked enough between the time you clo…

AI assessment note: “two lessons that I think about one is no matter how disciplined you are”

Q And you said that enterprise can be fucking hard, uh, as you delightfully put it. So why did you choose enterprise, uh, when you were starting out your career in VC? Why, why did you not go for the, probably not much easier, but the much more obvious kind of choices of, you know, consumer?

A Yeah, you know, I just, um, I started out back in the day before I became a VC. I was at JP Morgan helping build Quantitative trading models. And I was kind of like the liaison. I, I sat in between the developers and the portfolio managers. I was like the business QA. And when I was there, we were turning, um, our derivatives model into a real-time pricing model. So we take feeds in from Reuters and, uh, and you know, all this other, all these other sources like, uh, risk metrics and plop it in and then kind of crank out these models. And I just felt like I could understand the pain point better with enterprise. I mean, it may be freaking boring to some, But I find it super exciting. And I also think that enterprise is interesting. You can take an enterprise founder. Uh, let's say we just funded these, um, two founders that, uh, one was the former CTO of, of Assistly, and the other was the former chief architect of Assistly. Uh, they sold it to Salesforce. It became desk.com. But before that, they founded a company called eShares, which was once again in the customer support space. So I feel like you can actually have repeated success in the industry. It's just by You know, re-architecting things, rebuilding things, and, ah, doing things, you know, better, and faster, and cheaper. And in consumer, I think it's harder to be a repeat consumer entrepreneur, right? Because you typi…

AI assessment note: “I just felt like I could understand the pain point better with enterprise.”