The Exchanges

Q Sorry, are eBay not advantaged because of their touch points to end consumers and the sheer distribution, the remaining brand that they have? I would just argue that they just have shit internal policies, slow decision making, and poor teams compared to startups.

A No, I, I don't think that's the issue. I think the issue is actually simpler. It's their horizontal and multi-category. And even though they have all the information, all the cat, like their tech stack is not built such that you're best in class in every single vertical, right? Like, so the, the collectibles that the treat, the Pokemon marketplace is going to do better at likes, uh, than eBay. The, and that's true of every single category you can think of. And so we're in a handbag marketplace called Rebag and that they have this AI where You take a photo and Puma tells you the model, whether it's fake or not, the quality, the price, everything's done. And even though eBay has the data, their tech stack is not that flexible, but they could do best in class transactions in every vertical. So it may just be a vertical horizontal play where the verticals just do better. Um, but eBay will buy a lot of these. So it's more tech stack, I think. And, and the new team is amazing for what it's worth. They're going back to the basics. They're going back to, um, Collectibles used and not trying to be an Amazon clone.

AI assessment note: “No, I, I don't think that's the issue. I think the issue is actually simpler.”

Q How do you, how do you determine the waiting to sell? Is it 50%? Is it 70%?

A Yeah, 50%. You know, like these 50%, you have schmuck insurance in case it goes to the moon, uh, and you sold enough that you do okay. Now there are a few cases where we'll sell 25 or 75%, uh, and, and there needs to be a really good argument for it, like, it's way too much, I mean, some of our positions, you know, the venture follows a power law, um, some of our positions became just too, worth way too much, and the valuations were way too high, and so there we sold 75%, and the remaining position continued to be ginormous, um, so those would sell 75%, but most often, rule of thumb, easiest, you split it into 50% sell. And then you run the rest.

AI assessment note: “Yeah, 50%. You know, like these 50%, you have schmuck insurance”

Q I have so many questions. Um, first off, when you look back at how you invested in 1998 when you started, what would you say is the biggest change to how you invest today?

A So funnily enough, um, not that much has changed, right? Like it, it's always been the same, same four criteria. Do I like the team, which for me are the extraordinary storytellers who know how to execute? Do I like the business? You know, economics and total addressable market size. Do I like the deal terms? Uh, nothing's cheap, but is it fair? Uh, and does it mean my thesis where the world is heading now that what's funnily different Is it used to just be me, and over the years, uh, kind of, like, randomly, randomly, I don't know if it lucked into, but, like, ended up creating a structure that became a venture fund, and so today, there's 31 of us. There's an entire back-office team. I mean, for, for 15, actually, probably for 15 years, every document that was ever sent to me, legal document that was sent to me, SPA, Anything like companies selling, et cetera. I auto signed, or my, actually, my virtual assistant in the Philippines, who had my signature, would auto sign for me all the docs that I never even read. So, I would take the call of the founder, would agree on the valuation, the terms, how much I would invest, and that is the last thing I would ever do. I would never read any docs ever sent to me, ever. And as far as I can tell, I never got screwed, because people are well-intentioned. And so, Today, we actually have, uh, a team, and people are actually doing legal rev…

AI assessment note: “what's funnily different Is it used to just be me”

Q Listen, uh, that's fascinating to hear, and I think you're probably right. I do, I do want to talk about the case for, uh, stagnation, though. So if we think about the case for stagnation, you mentioned it's probably the most likely. What would cause the case for stagnation here, Fabrice?

A To have the case, the optimistic case, right, like you need the inflation expectations to, to not get entrenched. And so right now, you know, last year we saw a 5.1 increase in the, in wages and a 7.9% increase in inflation. And as long as people If they perceive it to be transient, um, they don't negotiate automatic seven percent wage increases every year, then we're okay, but if all of a sudden the expectation is, oh, we have this inflation, therefore we need to get seven, eight, nine percent wage increases every year, you start entrenching inflation expectations, and then it becomes really, really, really hard to deal with, and because we don't have the political courage to do a Volcker II and go to 20% interest rate, not that we necessarily should, but Um, I suspect that what, what, what happens is we have an unprecedentedly large level of public debt, right? Like, so we have a global debt is now an all time high of 250% of GDP. And it's actually rather sensitive to rates, to nominal rates. And so there's a really strong temptation not to increase rates as much as they should, as they should be increased and to accept higher long-term inflation. And so I could see a world where We end up with five, six, seven, eight, and nine percent inflation, kind of forever, which has a lot of downsides, but one of the upsides, if you keep interest rates low enough, is that you're erodin…

AI assessment note: “you start entrenching inflation expectations, and then it becomes really, really, really hard”

Q Well, let's touch on that before we leave. Let's touch on the unpleasant, um, which is very non-British of me, but what are the one or two scenarios that could lead to catastrophic outcomes? What is that? Oh, shit, Fabrice.

A So first of all, everyone today in the world is preparing for a world of, like, three percent interest rates. No one's really thinking of, like, Eight percent interest rates, but they're actually very possible, but if you start thinking, like, what are the asset prices that you can justify, and the investments you can justify in the eight percent interest rate world, they're very fundamentally different from a lot of things that people are underwriting today, and, and you could, you could justify another 50% fall in current asset prices, but to me, that's one of many scenarios that could lead to something way worse. One of the, I could see a massive flight of safety driven by the fact that Because of COVID, states have become more indebted than ever before. And, you know, look at, look at debted GDP of Italy, right? It went for a hundred percent, a 150%. So in Greece, in oh eight, oh nine, the crisis of confidence in the debt of Greece almost brought down the entire financial system crashing down and like almost brought down the EU. Imagine that Italy, which is 10 x the size of Greece, there's a crisis of confidence on, on, on, on, um, On Italian debt. I actually think that you could, you, you would see, you could see the entire EU, the Euro blow up, and the Eurozone blow up, and the, and the financial, and the financial crisis the likes we've never seen. And all it takes is pe…

AI assessment note: “you could see the entire EU, the Euro blow up”

Q What's your biggest miss, and how did it impact your mindset?

A I'll give you four misses, because they impacted all my mindset differently, uh, and by the way, if you've been in venture as long as I have, as an investor, an entrepreneur, the number of misses is Countless, right? Like, I have more misses than I have wins, right? Like, every year, we're seeing 200 deals a week, right? Like, we're seeing, we're seeing a thousand deals a month. So, the, we're seeing, yeah, we're seeing, like, 10,000 plus deals a year. Um, so misses, uh, I think I told, um, Mark Pincus no to invest in Zynga at, like, 50 K out of one million pre. Um, Uh, because, you know, I, even though I'm a gamer, I, I'm a gamer, I love gaming, I saw that it was good, that Facebook was gonna be a big platform for gaming, it was gonna be big, it made a lot of sense, but I'm like, you know, I like marketplaces, I think at the end of the day, it's head-driven, uh, other people are gonna copy you, probably it's gonna decline, uh, the, uh, People were going to churn, and, and all this is true, but in the meantime, you could build a ten million dollar company. It was kind of the same reason, I, I think I passed on Twitch a two million pre. Uh, again, I'm a gamer, but it's a media company, I don't want to do, I, I don't do media, even though kind of, it's a kind of marketplace, but I didn't see it that way, and, and, and, You know, like, like being too close-minded of like, oh, I on…

AI assessment note: “like being too close-minded of like, oh, I only do marketplaces.”

Q Listen, we're going to have a round two where we're going to dive into portfolio construction in detail and hopefully also round up a billion and a half for that. But I do want to finish on what was the most recent publicly announced investment or one that Is most recent. You do a lot. But what's the one that comes to mind, and why did you get so excited?

A So TopSort just announced their series A. They just raised, like, a hundred ten million valuation. TopSort is a product for marketplaces to sell advertising, basically, and, like, monetize their placements. And, obviously, our portfolio has, like, 600 marketplaces, so all of them are a customer of this. But, basically, if you look at Amazon P&L, when they start Selling advertising. It's 95% gross margin product, and so for many marketplaces, beyond the rate they can take, beyond listing fees, et cetera, putting, like, selling placement and bump up, et cetera, which is a pure margin product, can increase your effective take rate and improve your economics dramatically. So that company, I think, is genius because they're basically a tool for helping marketplaces monetize better, and it's, like, such a no-brainer, and the team is so smart and articulate about, like, how do you get Perfect pricing strategy. How do you do the right BD deals? And so, yeah, amazing company, amazing team, amazing product, and they just raised it. We invested earlier than that, and we just reinvested in the last round.

AI assessment note: “So TopSort just announced their series A. They just raised, like, a hundred ten million valuation.”

Q And valuations is obviously a much talked about and controversial point. So how do you price startups?

A Well, startups, obviously, are not the, or not profitable, so it's definitely not discounted net price value of discounted future for cash flows. There is an element of supply and demand in the sense that we don't, we typically don't lead the rands, and so we don't typically price them. That said, we have a sense of whether or not a price is right based on What is the experience of the team? How big, how big a market are they playing in? Are they the leaders in the category? Are they not the leaders in the category? How much traction do they have? And what do the unit economics of the business look like? What is their fully loaded customer acquisition costs versus the net contribution margin per customer? And what on an 18 month basis, ah, a mini LTV, if you want, of that customer, what is the net contribution margin look like? And how does that compare to the fully loaded customer acquisition costs? Obviously, the more traction you have, the more experienced the team, the, the more stronger your leadership position, the higher your valuation, and when we find fundamental disconnects between valuation and traction, team experience, et cetera, we, we have a tendency to pass, and we've remained reasonably disciplined, uh, from a, and price sensitive, as we've realized that, uh, Most startups do fail, and you need to make sure that the startups that you do succeed with actually he…

AI assessment note: “we have a sense of whether or not a price is right based on”

Q And you mentioned there about Jose, uh, and you work very closely alongside, obviously, Jose. He's your investing partner. So how important do you feel it is for investors to have, kind of, co-investors that are partners?

A The... I mean, the reality is our, it's not important or essential. It just so happens that it makes our lives easier. We, we get better deal flow. We have another set of eyes, uh, uh, to, to local companies. We can take calls when one is busy, the other can take calls, and at the same time, we have slightly different expertise and interests, and, and Jose is really good at dealing with all the, um, I mean, he's really good in general, but beyond that, he's also really good at dealing with all the, the, the legal aspects of things and reviewing the LOIs and the stock purchase agreements, et cetera, where frankly, if I read one, you know, three words, I'm already asleep and, and couldn't cure loss. And so having someone, um, Who has the expertise, diligence, and interest in making sure that, that, uh, all the I's are dotted and all the T's are crossed makes a lot of sense.

AI assessment note: “it's not important or essential. It just so happens that it makes our lives easier.”

Q And talking of co-investors, your angel-less syndicate now has 1.3 million behind it. Do you feel this syndicated model of investment could replace the VC industry in the future?

A It's a very long way away from being able to replace the VC industry. And the VC, every year on average, you have about fifty billion dollars of VC investments. Last year, I think the syndicated model total between all different sites like Founders Club and Angelus were like two hundred million. And maybe this year it'll be a couple hundred million more. So it's definitely Playing a role in the seed stage, but it's very far from playing a role in the A, the B, the C's, the D's, et cetera. I think it will complement the, the model the same way, frankly, that other alternative sources of capital like, uh, like, like Kickstarter or crowdfunding sites, uh, where, where people were doing pre-sales, et cetera, were also complementing the traditional equity based, uh, uh, funding model, but it, it will not replace it. It'll, it'll just add liquidity. It'll add depth, uh, And it'll add, and it'll make it more efficient. But it's not going to replace that venture model anytime soon. That said, we've been very happy and successful with this model. I mean, we've raised over ten million dollars through Funders Club and Angel List across different companies. Might even be close to twenty million at this point between the various multi-company funds and the, and the specific investments that we've made through these platforms.

AI assessment note: “It's a very long way away from being able to replace the VC industry.”

Q And you said they're about being invited by VCs and lead investors. Are there any investing houses or VCs in particular that you'd like to co-invest alongside?

A Um, yeah, I mean, the reality is, By virtue of the volume of deals we, we, or investments, ah, we've made, we have a tendency to work with a lot of VCs to be very friendly with them. Um, and, and, and, and so, but, but the main VCs that we work with are, um, investor venture partners, uh, General Catalyst, uh, Andreessen Horowitz, um, we, we, we, we work with Redpoint, um, and We work with the end capital in Europe, and those would be the ones we spend, that we share the most deals with, but the reality is, you know, everyone from Accel, to Benchmark, to Matrix, to Venrock, et cetera, to Spark, or VCs that we work with, um, over the years, and given the number of deals we do, and so we're very friendly with a lot of VCs, and I guess the ones I mentioned are the ones we spend the most time working with.

AI assessment note: “the main VCs that we work with are, um, investor venture partners, uh, General Catalyst”

Q we have more LPs listen than I quite realize, because I get pinged by all of them, and I wanted to start with, like, what the fuck are we seeing in Venture right now, and what your one takeaway is from the last week. Fabrice, you're our new joiner. When you think about, like, what you've seen in the last week in Venture that has struck you, What is it?

A I'd say what struck me in venture and the new trends is, um, We're, we're still in the middle of an AI bubble. Uh, if you look at like the amount of money that's going into AI versus every other category in terms of valuations raised, the, the amount, the, the number of companies getting funded. Um, and I thought we were at the peak a year ago and then ventured, you know, they won a hundred billion investments in the category. And so doubled, uh, uh, from Q one to Q four and the other categories are not seeing much love. And I think Venture as a, as an asset class has been somewhat in the doldrums because LPs have felt overexposed. They haven't had distributions in 22, 23, 24, and frankly, 25. We were hoping the markets were going to reopen, but so far the IPO window has not reopened, and the spigot of M&A has not reopened, and so I'd say it's become an unloved asset class. I think it's the best time to invest, but the, in a way, investing in venture right now is contrarian, and I think you should be investing in funds That are not going after the lovingy, you know, AI, all AI, all the time, uh, category.

AI assessment note: “what struck me in venture and the new trends is, We're still in the middle of an AI bubble”

Q You know, I, I have new AI companies like McCaw and Lovable in my portfolio who are scaling, uh, In just the most insane race. And then I am in ERP systems for concrete businesses, which are going from one to four million. And I'm going, fuck me. Lovable does that in about a day. Um, do you not worry that you're going to miss out on the gold rush?

A So look, nine percent of our investors remain in AI. Uh, it's just that I try to be disciplined and I try to invest in the companies where I feel that they have differentiated data sets that They, that they have valid business models and we're seeing less competition. What worries me of the gold rush is there's too many companies doing the exact same thing, going after the exact category. And it feels, it's unclear who's going to win. And, and historically I've waited until there was an emerging winner before investing. And so I was happier to pay up. And frankly, you don't necessarily even pay up because the prices kind of adjust with traction over time. Like, uh, The, the traction evaluation metrics start aligning as you get a series B, C, D, etc. Um, and, and what worries me About the lovable type examples is, yeah, they can go from zero to eighteen million in, in AR in like three months, but I think they can go back in the other direction. I mean, people, I don't know if people remember that, uh, that, that AI company where everyone for a month basically changed their profile photo using an, uh, using AI. The name might come back to me and their AR or their MRR went from two 50 K a month to thirty million and 99% churn a month later and we're back to five and okay. And they raised like at that moment in time. And, and, and so these things, you know, are, are, are, are riski…

AI assessment note: “I don't mind missing The, the bubbly elements of the bubble.”

Q Sorry, are eBay not advantaged because of their touch points to end consumers and the sheer distribution, the remaining brand that they have? I would just argue that they just have shit internal policies, slow decision making, and poor teams compared to startups.

A No, I, I don't think that's the issue. I think the issue is actually simpler. It's their horizontal and multi-category. And even though they have all the information, all the cat, like their tech stack is not built such that you're best in class in every single vertical, right? Like, so the, the collectibles that the treat, the Pokemon marketplace is going to do better at likes, uh, than eBay. The, and that's true of every single category you can think of. And so we're in a handbag marketplace called Rebag and that they have this AI where You take a photo and Puma tells you the model, whether it's fake or not, the quality, the price, everything's done. And even though eBay has the data, their tech stack is not that flexible, but they could do best in class transactions in every vertical. So it may just be a vertical horizontal play where the verticals just do better. Um, but eBay will buy a lot of these. So it's more tech stack, I think. And, and the new team is amazing for what it's worth. They're going back to the basics. They're going back to, um, Collectibles used and not trying to be an Amazon clone.

AI assessment note: “No, I, I don't think that's the issue. I think the issue is actually simpler.”

Q You know, I, I have new AI companies like McCaw and Lovable in my portfolio who are scaling, uh, In just the most insane race. And then I am in ERP systems for concrete businesses, which are going from one to four million. And I'm going, fuck me. Lovable does that in about a day. Um, do you not worry that you're going to miss out on the gold rush?

A So look, nine percent of our investors remain in AI. Uh, it's just that I try to be disciplined and I try to invest in the companies where I feel that they have differentiated data sets that They, that they have valid business models and we're seeing less competition. What worries me of the gold rush is there's too many companies doing the exact same thing, going after the exact category. And it feels, it's unclear who's going to win. And, and historically I've waited until there was an emerging winner before investing. And so I was happier to pay up. And frankly, you don't necessarily even pay up because the prices kind of adjust with traction over time. Like, uh, The, the traction evaluation metrics start aligning as you get a series B, C, D, etc. Um, and, and what worries me About the lovable type examples is, yeah, they can go from zero to eighteen million in, in AR in like three months, but I think they can go back in the other direction. I mean, people, I don't know if people remember that, uh, that, that AI company where everyone for a month basically changed their profile photo using an, uh, using AI. The name might come back to me and their AR or their MRR went from two 50 K a month to thirty million and 99% churn a month later and we're back to five and okay. And they raised like at that moment in time. And, and, and so these things, you know, are, are, are, are riski…

AI assessment note: “So I don't mind missing The, the bubbly elements of the bubble.”

Q going to have a round two where we're going to dive into portfolio construction in detail, and hopefully also round up a billion and a half for that. Um, but, uh, I do want to finish on, what was the most recent publicly announced investment, or one that is most recent, you do a lot, but what's the one that comes to mind, and why did you get so excited?

A Um, so, TopSort just announced their, their Series A, they just raised, like, a hundred ten million valuation. TopSort is a, um, it's a, it's a, it's a product for marketplaces to sell advertising, basically, and, like, monetize their placements. And, um, Obviously, our portfolio is like, 600 marketplaces, so all of them are a customer of us, but basically, if you look at Amazon's, um, P&L, when they start, started selling advertising, it's 95% gross margin product, and so for many marketplaces, Beyond the rate they can take beyond listing fees, et cetera, putting like selling placement and bump up, et cetera, which is a pure margin product can increase your effective take rate and improve your economics dramatically. So that company, uh, I think is genius because they're, they're basically a tool for helping marketplaces monetize better. And it's like such a no brainer. So the team was, and the team is so smart and articulate about like, how do you get perfect pricing strategy? How do you do the right BD deals? And so yeah, amazing company. Amazing team, amazing product, and they just raised it. We invested earlier than that, and we just reinvested in the last round as well.

AI assessment note: “TopSort just announced their, their Series A, they just raised, like, a hundred ten million”

Q I have so many questions. Um, first off, when you look back at how you invested in 1998 when you started, what would you say is the biggest change to how you invest today?

A So funnily enough, um, not that much has changed, right? Like it, it's always been the same, same four criteria. Do I like the team, which for me are the extraordinary storytellers who know how to execute? Do I like the business? You know, economics and total addressable market size. Do I like the deal terms? Uh, nothing's cheap, but is it fair? Uh, and does it mean my thesis where the world is heading now that what's funnily different Is it used to just be me, and over the years, uh, kind of, like, randomly, randomly, I don't know if it lucked into, but, like, ended up creating a structure that became a venture fund, and so today, there's 31 of us. There's an entire back-office team. I mean, for, for 15, actually, probably for 15 years, every document that was ever sent to me, legal document that was sent to me, SPA, Anything like companies selling, et cetera. I auto signed, or my, actually, my virtual assistant in the Philippines, who had my signature, would auto sign for me all the docs that I never even read. So, I would take the call of the founder, would agree on the valuation, the terms, how much I would invest, and that is the last thing I would ever do. I would never read any docs ever sent to me, ever. And as far as I can tell, I never got screwed, because people are well-intentioned. And so, Today, we actually have, uh, a team, and people are actually doing legal rev…

AI assessment note: “what's funnily different Is it used to just be me, and over the years”

Q for you. I have no problem with you as a successful CEO investing your own money. What I do have a problem with is hyper growth founders raising 10, twenty million dollar funds from external LPs and investing that. When you take money from someone, it is a very big responsibility, and you owe them your time and dedication. How do you feel about these external LP funded founder funds?

A The, so it's a question of how people are allocating their time, right? Like to the extent the founders, to, to the extent it's like their name and someone else is doing the day to day and, and maybe, and it's just like people investing, they're sending their deal flow. I think it's okay. Like, I think Orrin often did one recently, and I know that Orrin's day life, you know, is a hundred percent dedicated to a startup. And even though his name is on the fund, there's a full team, there's an investment committee, So, so I think if you look at this time allocation to this external LP funded funds, it's like a couple hours a week. Uh, but that's also the deal that he set with the LPs. He goes to the LPs and he says, look, I'm getting this deal flow. I think a couple hours a week, I can help decide. I can be in the investment committee. I can help make decisions. I'm not the one running it. If you're comfortable with that, that's fine. Um, and I think it's, it's, it's the, the sales pitch both to the LPs and, and, and it's internally consistent. It is also the sales pitch to the VCs. His VCs, because he's raised tens of millions of capital. Uh, now that said, if you're completely distracted and, and, and you're not, you're, you're not delivering on your underlying mandate and you're splitting your time between the two, I don't think that's appropriate. And so I think on a keys by k…

AI assessment note: “I think on a keys by keys basis, I would evaluate whether you should do it”

Q Totally get it. How do you think we'll see LP markets react? LPs do react quite fast, actually. I've been surprised by the speed of reaction from LP markets.

A Yeah, I mean, we said, look, we saw it in April, 20, 20. In April, 20, 20, I think all of our LPs said, don't do, Whatever, even though we've committed to you, don't do a capital call. Please don't do a capital call. We can't fulfill. So, because what happened is it's happening now, by the way, what's happening is they have these models where they can only have X percent of the capital that let's say venture. Uh, the thing is the, the public markets reprice very quickly. So if your public market portfolio is at But your, your, your public, your VC portfolio is not repriced yet, which it hasn't, uh, then your allocation adventure just doubled, you know, and so that's a problem, uh, if we went from five to 10%, and so they don't want to allocate more capital, and they'll tell you, don't go raise any fund, don't make capital calls, so you need to be thoughtful and careful with the LPs want.

AI assessment note: “they don't want to allocate more capital, and they'll tell you, don't go raise”

Q How do you, how do you determine the waiting to sell? Is it 50%? Is it 70%?

A Yeah, 50%. You know, like these 50%, you have schmuck insurance in case it goes to the moon, uh, and you sold enough that you do okay. Now there are a few cases where we'll sell 25 or 75%, uh, and, and there needs to be a really good argument for it, like, it's way too much, I mean, some of our positions, you know, the venture follows a power law, um, some of our positions became just too, worth way too much, and the valuations were way too high, and so there we sold 75%, and the remaining position continued to be ginormous, um, so those would sell 75%, but most often, rule of thumb, easiest, you split it into 50% sell. And then you run the rest.

AI assessment note: “Yeah, 50%. You know, like these 50%, you have schmuck insurance”

Q for you. I have no problem with you as a successful CEO investing your own money. What I do have a problem with is hyper growth founders raising 10, twenty million dollar funds from external LPs and investing that. When you take money from someone, it is a very big responsibility, and you owe them your time and dedication. How do you feel about these external LP funded founder funds?

A The, so it's a question of how people are allocating their time, right? Like to the extent the founders, to, to the extent it's like their name and someone else is doing the day to day and, and maybe, and it's just like people investing, they're sending their deal flow. I think it's okay. Like, I think Orrin often did one recently, and I know that Orrin's day life, you know, is a hundred percent dedicated to a startup. And even though his name is on the fund, there's a full team, there's an investment committee, So, so I think if you look at this time allocation to this external LP funded funds, it's like a couple hours a week. Uh, but that's also the deal that he set with the LPs. He goes to the LPs and he says, look, I'm getting this deal flow. I think a couple hours a week, I can help decide. I can be in the investment committee. I can help make decisions. I'm not the one running it. If you're comfortable with that, that's fine. Um, and I think it's, it's, it's the, the sales pitch both to the LPs and, and, and it's internally consistent. It is also the sales pitch to the VCs. His VCs, because he's raised tens of millions of capital. Uh, now that said, if you're completely distracted and, and, and you're not, you're, you're not delivering on your underlying mandate and you're splitting your time between the two, I don't think that's appropriate. And so I think on a keys by k…

AI assessment note: “I think on a keys by keys basis, I would evaluate whether you should do it”

Q Totally get it. How do you think we'll see LP markets react? LPs do react quite fast, actually. I've been surprised by the speed of reaction from LP markets.

A Yeah, I mean, we said, look, we saw it in April, 20, 20. In April, 20, 20, I think all of our LPs said, don't do, Whatever, even though we've committed to you, don't do a capital call. Please don't do a capital call. We can't fulfill. So, because what happened is it's happening now, by the way, what's happening is they have these models where they can only have X percent of the capital that let's say venture. Uh, the thing is the, the public markets reprice very quickly. So if your public market portfolio is at But your, your, your public, your VC portfolio is not repriced yet, which it hasn't, uh, then your allocation adventure just doubled, you know, and so that's a problem, uh, if we went from five to 10%, and so they don't want to allocate more capital, and they'll tell you, don't go raise any fund, don't make capital calls, so you need to be thoughtful and careful with the LPs want.

AI assessment note: “they don't want to allocate more capital, and they'll tell you, don't go raise”

Q What have you recently changed your mind on?

A Needing, kind of something we talked about earlier, like, I hate bureaucracy. You cannot imagine to the extent I abhorred, which is why I auto-docu-signed, you know, documents for 15 years without ever reading them, uh, which is okay when you're deploying your own capital, but if you want to be a manager of other party people's capital, you actually need, um, You, you, you need, uh, to, to dot the I's and, and, and, and cross the T's. So FJ Labs today is 31 people. We have a massive back-office team. We have, like, processes that are well-ironed, and now that we do a lot of crypto, um, the, the rules and regulations around it, you, you know, they're tight, and you have to, to, to my great chagrin, right? Like, my, my, my, in, in life, my, my intuition is, like, ask for forgiveness, not permission, But there are some cases, and I think financial regulations is one of them, where you actually want to do the right thing, and so actually having the structure to be able to execute the way we want to execute, um, I, I see the value in that.

AI assessment note: “having the structure to be able to execute the way we want to execute, um, I, I see the value in that.”

Q Oh my God, that's hilarious. Tell me, what was the other one? You said there were four.

A Uh, different lesson. I sold 10 cents at the IPO because I'm like, you know, it's fully baked in, fully priced. It's worth, it's like worth four hundred million at the time. I think it was like, I, at that time it was only QQ, it was ICQ of, uh, of China or AIM of China. And I'm like, AIM didn't really get big. And, you know, I, and Basically, the, my logic was, I'm a private market investor. I don't follow public markets. Once it's public, I sell no matter what. No matter the price, whatever luck up ends, I sell. Um, and I should have looked at it somewhat differently, which is like, you know, internet penetration in China is six percent. There's, there's way ways to go, and public, going public is not the end of the journey. It's just another stepping side along the way, and by the way, Having been an investor in the company for years, knowing the management team is an extraordinary privileged access to the company, I should know better than most whether or not this is a good investment or not. So it used to be the second the lockups expired, we would sell a hundred percent, and now it's more discretionary. Now, of course, in last year, I, I kind of regret that discretion of keeping the companies that I, that I love. I mean, we, we, we kept all our shares in Coupang and And whatever, Palantir and Opendoor and many others that now I wish I'd sold, but, uh, the, we're way more …

AI assessment note: “different lesson. I sold 10 cents at the IPO because”

Q How do you determine the waiting to sell? Is it 50%? Is it 70%?

A Is it 50%? Like, because 50%, you have schmuck insurance in case it goes to the moon, and you sold enough that you do okay. Now, there are a few cases where we'll sell 25 or 75%, and there needs to be a really good argument for it. Like, it's way too much. I mean, some of our Positions, venture power law. Some of our positions became just too worth way too much, and the valuations were way too high. And so there we sold 75%, and the remaining position continued to be ginormous. So those would sell 75%, but most often, rule of thumb, easiest, you split it into 50% sell, and then you run the rest. You ride the rest.

AI assessment note: “most often, rule of thumb, easiest, you split it into 50% sell”

Q And that's very interesting, because, you know, not all investors have that entrepreneurial experience, so how important do you think it is for angel investors and for VCs to have that operational experience to fully understand the startup experience? Do you think it's crucial?

A I think there are different ways to attack this, and many investors who've only been professional investors are fantastic at it, and the reason it helps to have had operational experience is it helps to relate to the entrepreneur and to be helpful when they're facing issues, to be helpful, like, when they're, when they're, when they're iterating on a product, or they need, they have technology decisions to make, or they're faced with a dilemma in terms of, like, Whether or not they should sell their company, which is their baby, having been in their shoes, I, I, I can relate better, and it gives me more empathy for the position they, they find themselves in. By that said, there are amazing, many amazing, um, investors who've never been entrepreneurs before. So it's just a question of approach. Uh, obviously, I, I don't know otherwise, uh, and, but it allows you to relate, I suspect, better to most entrepreneurs.

AI assessment note: “there are amazing, many amazing, um, investors who've never been entrepreneurs before”

Q And how do you then respond to that competitive threat rising? Does that concern you?

A Well, not, not, not really. I mean, the reality is that genius isn't the execution. It's not in, in the idea. If you have an idea and you don't do anything with it, um, someone else is going, is going to, is going to, is going to execute and defeat you. And so the, the barrier to entry, in fact, if we look at how we select companies to invest in, and there's a bunch of criteria, um, barriers to entry is not one of them because the barriers to entry or something you build, By virtue of executing, you build a brand, you build a customer base, you build operational excellence and expertise, and that's the way that you build those barriers to entry. Um, the idea itself is not, is not key. I mean, uh, Edison, who is a genius in his own right, one of the people who came up with the most ideas, the most pedant, once said that genius is one percent inspiration and 99% perspiration. So it's all the hard work That is actually, that makes a difference between, between success and failure.

AI assessment note: “Well, not, not, not really. I mean, the reality is that genius isn't”

Q The best piece of advice to entrepreneurs starting out in the industry?

A Today is the best time ever to create a startup. It's cheaper than ever before. You have a larger market than ever before. The, the, the technologies are easier to use and available, more available than ever before, and, and, and so just go for it. Now, in terms of what it's going to take, it's not intelligence. It's, it's often not the idea. It's actually grit, tenacity, and resilience of It's going to make the difference between success and failure. Now, in terms of the idea, even if your idea is not fantastic, by repeated iteration of everything, or iteration on the product, iteration of the business model, iteration of the product market fit, you'll ultimately find something that sticks. If you throw enough things on the wall, something ultimately sticks. And so multivariate testing, uh, rapidly and rapidly iterating, uh, will lead you to find something that works. And so just have the grit, tenacity, and passion to see it through.

AI assessment note: “It's actually grit, tenacity, and resilience”

Q And how do you then respond to that competitive threat rising? Does that concern you?

A Well, not, not, not really. I mean, the reality is that genius isn't the execution. It's not in, in the idea. If you have an idea and you don't do anything with it, um, someone else is going, is going to, is going to, is going to execute and defeat you. And so the, the barrier to entry, in fact, if we look at how we select companies to invest in, and there's a bunch of criteria, um, barriers to entry is not one of them because the barriers to entry or something you build, By virtue of executing, you build a brand, you build a customer base, you build operational excellence and expertise, and that's the way that you build those barriers to entry. Um, the idea itself is not, is not key. I mean, uh, Edison, who is a genius in his own right, one of the people who came up with the most ideas, the most pedant, once said that genius is one percent inspiration and 99% perspiration. So it's all the hard work That is actually, that makes a difference between, between success and failure.

AI assessment note: “Well, not, not, not really. I mean, the reality is that genius isn't the execution.”

Q So we're going to talk about, uh, stagnation. Um, before we do that, probability-wise, remind me, what would you peg on the optimistic?

A So perhaps herein lies the issue, is if you'd asked me last October, pre Putin invading Ukraine, and oil prices going above a hundred, um, The, actually, frankly, even last December, actually, I thought Omicron was going to be good, because it was so light, and it infected, it's so viral, like, it infected everyone, but no one really got sick, that was like, hey, we're going to have herd immunity, it's going to be the end of this, so, if you'd asked me in December, I told you, 50%. Now I'm at 20%, and declining. Um, Which is, ah, but it's not zero percent, right? Like, if you talk to, if you look at the sentiment in VC today, I, I was looking at, like, tweets, right, Keith Rabois, and a few others, it's like, it's like the end of the world. Like, people think we're in, like, you know, Pre, but either rip good times in Sequoia presentation, or like, you know, dot-com bubble crash type territory, um, because the public market correction has been real. I mean, the, you don't see it in the NASDAQ so much because it's dominated by the high, by the, by the big tech stocks, uh, which haven't fallen too much. But if you look at like all the smaller, the smaller market cap companies, they're all down like 50 to 80%. Uh, across the board. I mean, it's been a bloodbath if you're a, if you're a, a, a tech investor.

AI assessment note: “if you'd asked me in December, I told you, 50%. Now I'm at 20%”