The Exchanges

Q And then the final one, and again, rather interesting for me to be asking this, but tell me the most recent publicly announced investment for you, and why did you say yes and get so excited?

A The most recent that I led and that I announced is a company called Collective Benefits, and it's actually very timely because I used to be on the board of Deliveroo, and Deliveroo, of course, unbeknownst to most people, I think is kind of making a lot of effort in terms of making its rider more productive and make more money and choose what time to work and all that stuff, and so I was very acutely aware, I guess, of the problem of what it means to be in the gig economy, and so Collective Benefits effectively is trying to Innovate in the world of insurance by providing key benefits to either self-employed workers, temporary workers, or so-called gig economy workers. So that could be sick pay, time off, bereavement time, etc. And it's a company that is effectively going live now, and it's interesting because we closed around in February, and suddenly we find ourselves engulfed in probably the single biggest shock to self-employed and gig economy that you could have imagined.

AI assessment note: “most recent that I led and that I announced is a company called Collective Benefits”

Q But I do want to ask, you know, you mentioned a little bit about kind of the amount of data that you have to ingest now to fully understand and comprehend the situation. If we expand that to the investor's view of risk, how do you think a venture investor's view of risk evolves in a crisis like this when the data is as kind of firehose-like as it is?

A Well, so I'm going to try and distill down in a way that Kind of founders can relate to. So the baseline thinking for most early stage investors, people like us, is every investment that you make should be able on its own to return a fund. You can then break that down into inputs. The most obvious one is value at exit. How much is this company worth when I sell it? It's really hard to model today, but if you believe in your investment thesis and you can see through the crisis, you can actually assume long-term That you'll be able to achieve attractive numbers in terms of the absolute exit value. So as seed investors, I don't think we're particularly impacted by that. What we are definitely impacted by is the time to exit, because of course, there is the absolute multiple. There's also the question of internal rate of return, and time to exit definitely got extended fairly dramatically. Then there is, I think, the one that most people are focused on, and most people can touch and feel today because it's Right in their faces, which is the path to exit. In other words, how many rounds is it going to take? How much funding am I going to need? And how dilutive is this going to be to my initial position? So if you hear VCs insisting on long runways, well, that's because they want you to have time to build value. And that's one of the ways in which the risk aversion clearly expresses …

AI assessment note: “time to exit definitely got extended fairly dramatically. Then there is... path to exit”

Q And would you say then that Deliveroo is one of your fastest growing portfolio companies you've ever had?

A Deliveroo is the fastest growing startup I've been involved with. Um, again, growing fast is not an objective in itself. I think growing fast in their case is More around seizing an opportunity than being obsessed about growth. Um, but yes, we're basically taking a model that works in one city and launching it across 50, um, which effectively means hundreds of delivery zones across the world with, you know, thousands of drivers, um, tens of operational teams in a company that's under three years old. Um, and, and again, the speed of growth is phenomenal. But you know why? It's because we've hit a consumer desire or consumer problem that really wasn't solved, or a consumer offering that, that really resonates with, with the clients that we have, and it's a market expansion play. So we're not going into an existing market trying to take people away from Just Eat. We have almost no overlap with Just Eat or Delivery Hero. What we're doing is bringing a new kind of service to people who've never used food delivery before, and it's a bit like Uber, Being a market expansion play, you know, most people had never used a taxi maybe before, or rarely used a taxi before they started using Uber. Um, in this case, most people that we have as clients have never done food delivery except maybe for the occasional pizza. So we are, we're sort of creating a new market.

AI assessment note: “Deliveroo is the fastest growing startup I've been involved with.”

Q area for a lot of founders, you know, you can read term sheet and you can do everything that you can to really get up to speed. In your mind, and sorry, this is off schedule, but in your mind, if you were to say a couple of core terms that are unacceptable terms, even in the most wildest of wild circumstances that we're in, what are the unacceptable terms?

A So the term sheets may look complicated. If you think about the really core business terms, there are not many of them. I find, for example, that people spend a ton of time negotiating reps and warranties, And very limited amounts of time thinking about consensus and control. So the key things you want to look out for are number one, anything that is designed to screw you out of your equity. So nasty bad labor clauses, excessive reverse vesting clauses, anything that is designed to potentially be able to fire you and take your equity away is one. Number two would be the full ratchet anti-dilusion. I haven't seen them in a while. But I definitely saw them in the last crisis. Full ratchet anti-dilution would mean that effectively a ton of anti-dilutive shares would be issued to the investors in case of a down round such that the price was rebased to the next round. So I'll give you a simple example. If you raise twenty-five million and that at the next round your pre-money is twenty-five million, the mechanics of full ratchet mean that the whole company price is being rebased to zero and you get diluted down to zero because it's mathematical. And so, these are particularly nasty. There are some that are, they're just financial engineering, but I find them quite objectionable. For example, participating preferred. So, in participating preferred, it's a so-called double dip. So, yo…

AI assessment note: “anything that is designed to screw you out of your equity”

Q I would love to kick off today, and I'll pretend like I've never heard this before, but for those who have maybe missed our prior episodes, how did you make your way into a world of venture? And funny one for me to ask, but how did you come to co-found Stride?

A Well, I have one of the worst backgrounds of anybody you know in venture capital. Capital, given that I started doing derivatives, but one day I was actually working at Goldman Sachs on, uh, hiding the Greek deficit, uh, through long dated swaps, and I decided I had enough of it, and I jumped into the world of entrepreneurship, and since I knew about risk, decided to go right into seed investing, and the good news is I've never looked back since, and Monday has never felt like a Monday, so I found my passion and my craft, which I'm very grateful for, and one day this young man was Hustling his way into my office. I think I slammed the door in his face, and he came back in through the window, and his name was Harry Stebbins. And we sat down, I was at Accel at the time, and we had the most electrifying interview, which was followed by a couple of hours of discussion. And I thought, wow, what an incredibly deep thinker and charming person. And that, my friend, was you.

AI assessment note: “jumped into the world of entrepreneurship, and since I knew about risk, decided”

Q Okay, so if you're a planner, you're in trouble, yet I've spoken to maybe 1700 VCs, and they often define company performance by ability to hit a plan. Is that a fair assessment? Is there an alternative better assessment? How do you think about this kind of maniacal focus on did you hit the plan?

A Okay, so if you want to see me transform into the Hulk, you put me in a board meeting where somebody's bashing an entrepreneur for missing numbers. Couple of reasons. So, if you think as a VC that the entrepreneur didn't obsess about meeting the numbers before you came into the room, You're an idiot. He or she probably lost sleep over it for weeks. Number one. Number two, what are you trying to do? Are you trying to destroy the social contract with somebody who's working their ass off day and night by making them feel worse than they already feel? Like, what's your objective? So, I think people get confused between, I want a culture of delivery inside the organization. Delivery with doing things fast. Getting shit done, as people say in startup land. But what I have no interest in is whether you're actually hitting the plan. The plan is a fiction. The plan is a framework for which to think about the future. You know, the moment you finish writing it, the conditions change, etc. In fact, even worse, if you force a company to hit plan, and they're not hitting plan naturally, you're probably making the wrong decisions for the business long term. Maybe you had a plan that was predicated on selling into financial services and government, and maybe your financial services initiative is failing. So what you should really do is assess whether you got product market fit in financial ser…

AI assessment note: “The plan is a fiction. The plan is a framework for which to think”

Q done one live, so we shall see how this one goes. But I do want to start today, and there's going to be lots of energy for the final session, so have no fear there. But I want to start today, Fred. You're at Excel, one of the leading funds in the world, and you left to start Stride. Tell me, what was the thinking and the thesis behind that?

A I think there are two primary reasons. One is, my sense of mission is around seed, and, you know, I love nothing more than the company with Five to 10 people, whether the options are open and the future is there to be written. I was also somewhat terrified at the idea of having to return three, four X, a five hundred million fund, to be honest. And I'd much rather be on smaller funds that we keep constrained by design so that we can really hopefully deliver to our investors a return that are more attractive than I think what the larger funds are trying to do. So if you're Excel or your index, you're fine because these are the top brands in Europe. But if you're a tier two VC running a five to eight hundred million dollar fund, you know, it's extremely hard to actually provide the kind of returns that really venture demands. So small is beautiful.

AI assessment note: “I think there are two primary reasons. One is, my sense of mission is around seed”

Q about knowing when to scale there. That's slightly off schedule, but I have to do it. You said about knowing when to scale. I've interviewed a lot of founders, and there's the common notion that once you have unit economics that are sustainable and look healthy, that's the time you pour fuel on the fire, so to speak. How do you think about this, and is that a fair assumption?

A So this is an interesting point, because a lot of, I would say, more traditional investors are very obsessed with unit economics that work, and you're sort of saying that is the test of validity of a business model, is having unit economics that work. There's only one problem with that theory. We would never have funded Deliveroo. We would never have funded PillPack. You know, in fact, Kareem probably would never have taken in any capital because you have to project yourself into sometimes a three or four year cycle before these unit economics really come to bear. I honestly don't think that there is any form of, you can't apply a recipe to startups. You have to be like mentally plastic, look at each case individually, and I think this notion of once unit economics work, wind can then scale would lead you to probably miss You know, three quarters of the world's best opportunities, frankly.

AI assessment note: “this notion of once unit economics work, wind can then scale would lead you to probably miss”

Q we, it was discussed in the sovereign wealth fund entrance discussion earlier today, and it was kind of innovation in the venture ecosystem. As we heard, there hasn't necessarily been a huge amount over the period, but we've seen more and more over the last few years. How do you assess maybe innovation in the mechanics and the model of venture that we have seen over the last five years?

A Right. So there are different styles and types of VC, and so the way in which you will engage with the entrepreneur has to be authentic to your own style. So I'm a company builder. Typically, I like to recruit. I like to look at strategy. I like to be in the weeds of company building. The two major innovations we've seen is one is the sort of networked model of venture capital. So the idea would be, why don't I deconstruct access to cash and separate it from access to advice and talent? Because at the end, VCs are assholes. Nobody likes them. You know, they're arrogant. They don't deliver anything. So why don't we separate the cash from the network, and we create YC or AngelList. You know, so AngelList, the original vision of AngelList, because Naval hates VCs, was why don't I separate the skill set here between people who are good at investing and people who would be good advisors, and I'll break it open through a network. YC goes almost a step further, which is, YC can operate without investing partners, because they plug you into a network of alumni, and the network is the value. Right? So now we almost have a ghost in the machine type of venture capital firm where, you know, we're fully distributing both the decision making of investments and the support towards the company. So that's number one. And then number two, of course, is Andreessen Horowitz. You're the badass oper…

AI assessment note: “The two major innovations we've seen is one is the sort of networked model”

Q And, and I'd love to talk about some of your investments now, and to start off with a question from James Cameron, a colleague of yours who will be on the show on Wednesday. Um, so his question was, what's it like to back rocket ships like Deliveroo and PillPack, and helping them scale operations when you're in hyper growth mode?

A Well, if you look at companies like Deliveroo, I think the, you know, first of all, you have to be strapped in. In other words, when companies truly grow at exceptional speeds, it's very important to be, to let go of your fear, especially as an investor, and to be able to make decisions with very imperfect information on the fly, and the difference is that when you're, when you're growing really fast and you make the wrong decisions, it has, Consequences that are on a much larger scale than when you're trying to iterate product market fit. So, a company like Deliveroo, the benefit of companies like Deliveroo and PillPack, and most of the ones I've backed have done well, like Zoopla in the past, is that if you look at the microeconomics of the business, that the little engine that runs inside of it, um, I tend to like things that work well before we start scaling them. So in other words, I don't like to lean into models that I don't understand. In the case of Deliveroo, I started working in Kensington and Chelsea, um, so it's a very hyper-local business, so if you saw Deliveroo work in K&C, and then in, um, Islington, and then in Hampstead, and you could see that these customers were acquiring, were all behaving in the same way, you know, their repeat rates were the same, the cohorts were kind of consistent, and the restaurants were super happy with the service, then you could s…

AI assessment note: “make decisions with very imperfect information on the fly”

Q Is it hard to strike a balance ever in terms of board member and, and friend and drinking buddy maybe?

A Yeah, so I, I have a blog post in me that I haven't written yet called, uh, VCs or Schizos, um, and I think, so people, you know, there's nothing fundamentally difficult intellectually about being a venture capitalist. Like, it's not like you need to be a rocket scientist to do it. In fact, people sometimes who are too smart, um, can be terrible investors. However, uh, there is a real difficulty in managing your own schizophrenia. So, on the one hand, I need to be a founder sounding bold and trusted Confident, if you like. On the other hand, I also need to make sure they perform, and you know, I need to make sure that we are hitting some kind of plan, and that we are hitting some kinds of milestones. So, that's one. Um, I need to be a board member, so I'm looking primarily after the interests of the company, its employees, its customers, but at the same time, I'm also an investor, acting on behalf of a fund which has a fiduciary responsibility. So, you know, I will, I will love the company to bits, I will champion it, et cetera, but I may need to make a decision at some point not to reinvest, even if it's a company that I like, because I have to be rational with my investment decisions. So, sometimes you find yourself talking to, and I had this early in my career with Realize. I loved Benoit, I loved all the employees at the company, but honestly, I couldn't see the strategy wo…

AI assessment note: “there is a real difficulty in managing your own schizophrenia.”

Q And then which investor do you most, uh, respect or admire?

A I don't know. I think there's a composite. If I listen, whenever I listen to Rulof Bota at Sequoia, you know, he's a very thoughtful guy. Uh, when, I mean, I love Freddie and the boys at USV, you know, just that whole crew actually, uh, you know, Andy, Fred, and so forth, that just, just got the model right in terms of being good investors, but being incredibly Founder centric and also just always anticipating the future. So I like the fact that they spend so much time thinking about themes that are really going to carry their fund. Um, so I, I don't know. I draw inspiration from a ton of people around, around the marketplace. I think Bijan Sabat at Spark is a great example of somebody who's got a lot of soft skills, very respectful founders. Um, but he's clearly also a great investor. So guys like Bijan kind of show you that you don't need to be an asshole to be a successful investor, and I, I really like that. I aspire to that. I don't know how well I'm doing.

AI assessment note: “whenever I listen to Rulof Bota at Sequoia, you know, he's a very thoughtful guy.”

Q there in terms of the LP communications to emerging managers, especially. With the hindsight that you have and with the many years of experience that you have, especially for emerging managers, I guess, that maybe haven't endured a macro crisis before, what other advice would you give them as to what to expect, what to be wary of, and how they should think about kind of the core, core concern?

A My key observation is this crisis in particular, I think, will be harder and deeper than you imagine. And this is a time when we're really going to separate, I think, the people who have Real passion for what they do, and the others. I don't know if that's advice, but I think my advice to emerging managers is, this is a time to dig deep into the fundamentals of what you do, and for me at least, that's company building. So, go with your founders, and don't just give them stupid advice like, cut your burn. Please, you know, don't get, don't get off your Peloton bike at 10 to 15 after you had a smoothie and have a quick conference call to say, cut your burn by 40%. That is not what I'm talking about. What I'm talking about is here's how we can adjust your product strategy so that we are incredibly well positioned coming out of the crisis. Here's how your messaging could resonate with a set of corporate clients who are suddenly extremely selective about how they sell software. Get into the branding discussions, get into the product discussions, get into the pricing discussions. This is where you're going to make your name. Whether you fail or not, It could be that you get the bad luck of having too few assets in your portfolio and you get wiped out and statistically you're locked out. It doesn't mean you're bad at your job. It means you got wiped out by coronavirus. It may happen. …

AI assessment note: “my advice to emerging managers is, this is a time to dig deep”

Q Okay, so you said about deal volumes dropping there, but I think the scales, it's just so hard to gauge, especially in this situation. So how bad could this really get in your mind, do you think?

A Well, one of the problems here is that, to be honest, we don't know. There is no macroeconomic model That is able to predict what type of a storm we're heading into, and we have too many unknowns about anything from testing to potential short-term solutions to the realistic time it's going to take to produce a vaccine, etc. But primarily, all our models and all our frameworks are broken a little bit as what happened to derivatives in the 2008, 2009 crisis. And so in a world of uncertainty, it's very hard to make decisions. What we do know, which is Unparalleled for any of us is that we had a economic shock that hit effectively trade, globalization, and travel, which is what our entire economy is built on in one go. So you're hitting demand, you're hitting supply. Soon after that, you're hitting working capital. JP Morgan, I think, reported that SMBs in the US have a median working capital of 26 days, and then soon after that, you're hitting credit. So we have a combined set of issues that are all Coming together at the eleven-year bull market. So that's unprecedented, which explains why the unemployment numbers are unprecedented. And oh, by the way, we made our social fabric more fragile in the last 20 years, and putting a lot of people in very precarious positions over time, and now that's all coming home to roost. There is a silver lining in this. Some people mentioned the Gr…

AI assessment note: “to be honest, we don't know. There is no macroeconomic model”

Q Isn't a huge, uh, David Fran boy here as well. Uh, Twice he's been on the show now, so I absolutely agree to do that. Tell me, this is a tough time for everyone. What have you found made the biggest difference for you in this troubling time, maybe personally more?

A I think that the moment I decided that the most valuable thing I could do is to do something good within my sphere of influence. And what I mean by that is, if everybody's stressed out, everybody's anxious, what can I do to alleviate that tension? And the moment I did that, I think everything started falling into place, which is, okay, if I listen to the news all the time, I'm going to be anxious. If I'm anxious, I can't help anybody, so turn off the news. Take care of yourself, and then whenever you have an interaction with someone around you, it's like, focus on the positives. It doesn't mean you're always delivering good messages, but you're focused on the future. You're focused on what can be done. You're focused on understanding where they're at in their head, and I find this great Solace, I guess, a great comfort to be found personally, so egotistically, in helping people around you, because that whatever joy you brought to them, or whatever strength you brought to them, whatever courage you brought to them kind of comes back to you. But it started, to be honest, with turning off the news. If I have one piece of advice for everybody, it's like, do not follow coronavirus news. There is no point. You can't do anything about it anyway.

AI assessment note: “the moment I decided that the most valuable thing I could do is to do something good”

Q about knowing when to scale there. That's slightly off schedule, but I have to do it. You said about knowing when to scale. I've interviewed a lot of founders, and there's the common notion that once you have unit economics that are sustainable and look healthy, that's the time you pour fuel on the fire, so to speak. How do you think about this, and is that a fair assumption?

A So this is an interesting point, because a lot of, I would say, more traditional investors are very obsessed with unit economics that work, and you're sort of saying that is the test of validity of a business model, is having unit economics that work. There's only one problem with that theory. We would never have funded Deliveroo. We would never have funded PillPack. You know, in fact, Kareem probably would never have taken in any capital because you have to project yourself into sometimes a three or four year cycle before these unit economics really come to bear. I honestly don't think that there is any form of, you can't apply a recipe to startups. You have to be like mentally plastic, look at each case individually, and I think this notion of once unit economics work, wind can then scale would lead you to probably miss You know, three quarters of the world's best opportunities, frankly.

AI assessment note: “There's only one problem with that theory. We would never have funded Deliveroo.”

Q Small is beautiful. But I want to start then. Obviously, you've tried investing in early stage startups. Startups traditionally viewed as this kind of inherently risky proposition. I want to start on that. How would you respond to the notion of startups as this risky proposition, so to speak?

A Well, startups are risky. Risky, but I, I think there is a misconception sometimes that we hear from LPs about how risky venture capital is in terms of risks that you're really going to lose all your money. Maybe it's informed by, you know, the nineties and the bubble, but the reality is if you invest with a certain level of discipline across 25 companies, you own enough of them, you know, 10, 12, 15, 18%, you're actually really looking at a relatively spread risk and with odds of certainly returning a multiple of capital that are pretty good. And so I'd much rather be investing at seed where we can really control capital outlays over time than maybe putting all my money into public equities in the US today. So I do think that at a portfolio level, people tend to overemphasize how risky a venture capital is. I think we do have a risk is on duration. You know, when are the returns going to be realized? Because it's, uh, as we know, it's easy to invest. It's extremely hard to exit.

AI assessment note: “at a portfolio level, people tend to overemphasize how risky a venture capital is.”

Q said there about the founders and being able to sit in a room with Jeff Bezos and negotiate for two hundred million more. Is there a way to stress test that pre-investment? You know, it's a limited time one spends with a founder pre-investment. Is there a way to really determine the fabric of them as a person pre-investment? And the same could be applied when assessing managers, I guess.

A I mean, it's an acquired skill for me. I wouldn't say that I was particularly good at it early in my career because I tended to think everybody was great because I'm naturally a positive person, so I wanted to Give money to everybody. I'm like, this is what you're doing. It's fantastic. Let me fund you. What I do now, which is, it's not a trick, but I start the work of building the company, like in the second meeting. So instead of sitting back and listening to a pitch and formatted information, it's like, let's map out the organization. Let's think about your go-to-market challenges. Let's think about how you conceptualize pricing. And so instead of being in this give and receive mode of info and me trying to make a decision, I'm like actually doing the work with the founder. And I'd Don't have a problem actually engaging fairly hard, you know, sort of challenging assumptions, or, you know, pushing a little bit the boundaries of what's comfortable, because I'll also find out what we're going to be like in a case of conflict. You know, this is like dating, and, you know, everything's wonderful, and then your first time you do the dishes together, you're throwing them around the room. Well, find a disagreement with the founder before you invest, because your conflict resolution mode is important, and actually the person's reaction to conflict or to pushback is also important. So…

AI assessment note: “find a disagreement with the founder before you invest”

Q You said it's not always about price there, and you know, we've seen an influx of capital almost like never before, and there's a lot of concern around pricing in many cases. Peter Fenton at Benchmark said on the show, never turn down a deal based on valuation, it's a mental trap. How do you assess maybe your own price sensitivity when evaluating new opportunities?

A Well, if you're across the life of a fund, if you're not disciplined on price, it will make your life a lot harder. It is important in general to act with some form of price discipline. Now, if you say no to a world-class deal because the pre-money is three million off what you thought it should be, you're an idiot. Because world-class deals don't come through your door every day. And, you know, fundamentally, I agree with Peter. I think we have to take what he says with a pinch of salt. In fact, I bet you benchmark gets discounted pricing on most of what it does because they're benchmarked. And, you know, I've definitely gone into negotiations saying we are, in fact, deliver is a good example. We are not going to match the other prices. I'm sorry. I'm not going to go up to the level of people who are desperate to get in and are competing based on price. I don't compete based on price. I think the price is to be fair. The price is to be slightly uncomfortable for me, which is probably the sign of a good compromise. But, you know, if it becomes a game of, you're trying to optimize every clause and, you know, that takes precedence over choosing your partner. You're an investor partner. That tends to be a super negative signal for me, which is like, wow, you're the kind of person who tries to game the system for the last point of ownership. That makes me somewhat uncomfortable. So…

AI assessment note: “I don't compete based on price. I think the price is to be fair.”

Q Okay, so if you're a planner, you're in trouble, yet I've spoken to maybe 1700 VCs, and they often define company performance by ability to hit a plan. Is that a fair assessment? Is there an alternative better assessment? How do you think about this kind of maniacal focus on did you hit the plan?

A Okay, so if you want to see me transform into the Hulk, you put me in a board meeting where somebody's bashing an entrepreneur for missing numbers. Couple of reasons. So, if you think as a VC that the entrepreneur didn't obsess about meeting the numbers before you came into the room, You're an idiot. He or she probably lost sleep over it for weeks. Number one. Number two, what are you trying to do? Are you trying to destroy the social contract with somebody who's working their ass off day and night by making them feel worse than they already feel? Like, what's your objective? So, I think people get confused between, I want a culture of delivery inside the organization. Delivery with doing things fast. Getting shit done, as people say in startup land. But what I have no interest in is whether you're actually hitting the plan. The plan is a fiction. The plan is a framework for which to think about the future. You know, the moment you finish writing it, the conditions change, etc. In fact, even worse, if you force a company to hit plan, and they're not hitting plan naturally, you're probably making the wrong decisions for the business long term. Maybe you had a plan that was predicated on selling into financial services and government, and maybe your financial services initiative is failing. So what you should really do is assess whether you got product market fit in financial ser…

AI assessment note: “what I have no interest in is whether you're actually hitting the plan”

Q Small is beautiful. But I want to start then. Obviously, you've tried investing in early stage startups. Startups traditionally viewed as this kind of inherently risky proposition. I want to start on that. How would you respond to the notion of startups as this risky proposition, so to speak?

A Well, startups are risky. Risky, but I, I think there is a misconception sometimes that we hear from LPs about how risky venture capital is in terms of risks that you're really going to lose all your money. Maybe it's informed by, you know, the nineties and the bubble, but the reality is if you invest with a certain level of discipline across 25 companies, you own enough of them, you know, 10, 12, 15, 18%, you're actually really looking at a relatively spread risk and with odds of certainly returning a multiple of capital that are pretty good. And so I'd much rather be investing at seed where we can really control capital outlays over time than maybe putting all my money into public equities in the US today. So I do think that at a portfolio level, people tend to overemphasize how risky a venture capital is. I think we do have a risk is on duration. You know, when are the returns going to be realized? Because it's, uh, as we know, it's easy to invest. It's extremely hard to exit.

AI assessment note: “at a portfolio level, people tend to overemphasize how risky a venture capital is.”

Q You also said about market timing. Immediately makes me think, I spoke to Peter Fenton the other day at Benchmark, and he said he always laughs when he hears investors say they look for big markets. I'm sure we've all heard that before. How do you think about that? Is that a fair assumption, and what's the response to his suggestion there?

A I mean, so I'm very much in the same school of thought. I think your ability to assess markets Either bottom up or top down at the beginning of a life of a new company or a new, new segment is extremely hard to do. And very often because the legacy industries are unattractive. So I tend to, to discount that and focus more on, you know, really understanding either the product experience you're delivering or the problem you're solving and whether it's really valuable to someone. And I tend to almost, I mean, I wouldn't say completely discount, but you know, I don't look that much at market size. What I do look at though is can you build a strategic asset? In other words, are you going to control the relationship with the customer? Are you going to be a really valuable company within your space? Why? Because if you're not strategic, nobody has to buy you. If nobody has to buy you as a VC, I'm going to sit on that position for 12 years and end up selling it secondary to a horrible secondary buyer who's going to take a 40% discount on my book value. So I do look for assets of a strategic nature in markets that matter, but I don't try and be too smart about understanding the future five years out and how big the markets are going to be.

AI assessment note: “I'm very much in the same school of thought. I think your ability to assess”

Q Okay. So in this situation, you agree on price and Sign the term sheet and you join the board. Moving to that element of the board then, what do you think are the maybe one, two, or three things where a VC and a board member can really drive strategic, positive, actionable help in the board setting that maybe kind of you've experienced and you've seen in market?

A Yeah, so I mean, the notion of venture value add is very elusive, and people talk about it more than they deliver it, and I would say the best entrepreneur, like Alex Chesterman at Zoopla, for example, the best entrepreneur is someone you don't really need to help. Like, I don't need my ego stroked. I don't need to be a crutch to someone. If I don't add value to my entrepreneur because he's doing amazingly well, that's great. At the very least, I can be somebody he's happy to celebrate with his own successes, right? That would be sort of the baseline. Now, I don't apply any recipes ever to anything that I do, so the value add is almost entirely dependent on what the company is facing. I would say, typically, what I try and do is help the entrepreneur find Focus and simplify what they're focused on. Because if the job of the CEO is to define the vision, that process of defining the vision and deciding where to focus actually pretty hard. So I would say I'll spend a lot of time when people are faced with a thousand choices and they're down in the weeds to help them take their head out of the water a little bit, look at the long-term implications of what they're doing and say, look, there are seven or eight things that companies engage with that we can probably kill. And how do we come to the right decision collectively about where to focus and what not to do? So I'd say I spend h…

AI assessment note: “help the entrepreneur find Focus and simplify what they're focused on”

Q And, and I'd love to talk about some of your investments now, and to start off with a question from James Cameron, a colleague of yours who will be on the show on Wednesday. Um, so his question was, what's it like to back rocket ships like Deliveroo and PillPack, and helping them scale operations when you're in hyper growth mode?

A Well, if you look at companies like Deliveroo, I think the, you know, first of all, you have to be strapped in. In other words, when companies truly grow at exceptional speeds, it's very important to be, to let go of your fear, especially as an investor, and to be able to make decisions with very imperfect information on the fly, and the difference is that when you're, when you're growing really fast and you make the wrong decisions, it has, Consequences that are on a much larger scale than when you're trying to iterate product market fit. So, a company like Deliveroo, the benefit of companies like Deliveroo and PillPack, and most of the ones I've backed have done well, like Zoopla in the past, is that if you look at the microeconomics of the business, that the little engine that runs inside of it, um, I tend to like things that work well before we start scaling them. So in other words, I don't like to lean into models that I don't understand. In the case of Deliveroo, I started working in Kensington and Chelsea, um, so it's a very hyper-local business, so if you saw Deliveroo work in K&C, and then in, um, Islington, and then in Hampstead, and you could see that these customers were acquiring, were all behaving in the same way, you know, their repeat rates were the same, the cohorts were kind of consistent, and the restaurants were super happy with the service, then you could s…

AI assessment note: “first of all, you have to be strapped in”

Q Is it hard to strike a balance ever in terms of board member and, and friend and drinking buddy maybe?

A Yeah, so I, I have a blog post in me that I haven't written yet called, uh, VCs or Schizos, um, and I think, so people, you know, there's nothing fundamentally difficult intellectually about being a venture capitalist. Like, it's not like you need to be a rocket scientist to do it. In fact, people sometimes who are too smart, um, can be terrible investors. However, uh, there is a real difficulty in managing your own schizophrenia. So, on the one hand, I need to be a founder sounding bold and trusted Confident, if you like. On the other hand, I also need to make sure they perform, and you know, I need to make sure that we are hitting some kind of plan, and that we are hitting some kinds of milestones. So, that's one. Um, I need to be a board member, so I'm looking primarily after the interests of the company, its employees, its customers, but at the same time, I'm also an investor, acting on behalf of a fund which has a fiduciary responsibility. So, you know, I will, I will love the company to bits, I will champion it, et cetera, but I may need to make a decision at some point not to reinvest, even if it's a company that I like, because I have to be rational with my investment decisions. So, sometimes you find yourself talking to, and I had this early in my career with Realize. I loved Benoit, I loved all the employees at the company, but honestly, I couldn't see the strategy wo…

AI assessment note: “there is a real difficulty in managing your own schizophrenia. So, on the one hand,”

Q So how do you then perfect the alignment? How do you know when you have that alignment? Do you get it in the first meeting, or do you like to know the founder for a year or so before you invest?

A Oh, so if you're talking about how long we need to get to know people before we invest, um, I'll first make the statement that the investments that I regret making Are systematically the ones where I didn't spend enough time getting to know the founders. So there's an almost perfect correlation with shit where I wish I hadn't invested, and the fact that I didn't have time to build a relationship. So in an ideal world, um, I would get to know people for months or quarters before investment, because, you know, you can really think about, you can have a few disagreements and see whether you work through disagreements in a collaborative way. You can get to know how people are working and see how much you like them. So if I can do that, I love to do it. The reality is sometimes, you know, we don't have time to do that. So we have to go through an accelerated getting to know your process. Um, and I think for me, it's like, I want a real strategy session that is not a scripted slide based presentation, but that is a whiteboard session around, let's take a strategic issue the company's facing. Let's whiteboard it, and let's think together how we would solve it. So one has to be some kind of discovery exercise. One has to be some kind of disagreement. So I will engineer disagreement, just so we see, like, what are we like in conflict, right? Because you never know about people until the…

AI assessment note: “I would get to know people for months or quarters before investment”

Q Okay. The anti-portfolio, who have you missed, or is there anything you rue?

A Um, nah. Um, I think, I've missed deals like everybody else. I try and learn from the mistakes that I made in terms of saying no. I said, I've said no to a bunch of things that have been successful. I do not rule deals. I think it's, uh, life's too short. Um, you know, I used to think Wonga was a huge miss. Um, and you know, Wonga is an Excel portfolio company. It may yet live to see, you know, a great future, but, you know, some of the stuff that I missed Turns out not to have worked, and some of the stuff that I missed turns out to have been phenomenal. I never look back or feel bad, and I'm thankful that my portfolio is kind of strong enough that, you know, on balance, I seem to be right more than 51% of the time, and that's kind of all you can hope for.

AI assessment note: “I used to think Wonga was a huge miss. Um, and you know, Wonga”

Q Absolutely. And not all companies though are as successful as delivery. So what are the reasons then do you think that most startups fail at the seed stage? Have you seen from your perspective?

A Yeah, so, I mean, the first comment on that would be, venture is a hard business, and people get lost in the, the headlines of super fast-growing company, unicorns, etc., but it, it masks a level of hardship and, um, difficulty that's really high, and, you know, it's very easy to forget how tough the path is for founders, and the path is always the hardest in the first 24 months. And so what I find, I, I've done a lot of seed investing. When I was at Atlas, I did about 25 seeds and, you know, spent half of my life basically fundraising for these guys to help them get through the next stage. And very often at the seed stage, what happens is people, um, the, the feed starts at home, as I call it. So the number one reason why seed companies fail is because they hired the wrong, the wrong co-founders. Um, whether it's family members, your buddy from, uh, college, or, um, just you going out and trying to hire, you know, technologists or salespeople, depending on your own strength, and you don't understand what you're hiring. You know, if you're a techie guy trying to hire salespeople, you will hire the wrong people. If you're a sales guy who doesn't understand tech trying to hire technologists, you will generally hire the wrong people. But you find that usually it's just getting the wrong team Again, these first few highs are so critical that getting the first, the wrong first two o…

AI assessment note: “The number one reason why seed companies fail is because they hired the wrong”

Q How is you as a VC then? Do you kind of look to pull back that sugar coating and, uh, reveal the true Environment that the startup is in.

A I mean, I think my philosophy on this stuff is you try and create a relationship of trust and what you might call almost intimacy from the outset, and the relationship of intimacy is one where the founder feels like there is no issue with explaining, expressing his fears, his doubts, where he's stumbling, what's going wrong, almost on a week by week basis. Why? Because I posit my own ignorance. Like, I don't know any better than they do how well the company is going to do, how fast it's going to develop, and I'm not pretending like we have all the answers. So it's one thing to put pressure to perform on people, which I think is quite healthy. It's quite another thing to set arbitrary goals that if a company doesn't meet them, suddenly they're worthy of, unworthy of being funded. Because some of our best companies, if I look at BitNine, one of the Atlas companies in the That is a phenomenal success story. They almost ran out of money three times, and most companies go through these periods where you need to be patient, you need to be understanding the long-term view, you need to be, you need to have real empathy with founders who are struggling, and just look through temporary difficulties and see, do I have the right team? Are we addressing a big problem? You know, is it worth, is it worth being patient and just building it properly? Rather than being obsessed about hitting som…

AI assessment note: “you try and create a relationship of trust and what you might call almost intimacy”

Q And then talking of the founders there, on this very chirpy note, what are the reasons then founders, um, get fired?

A Yeah, so it's a vexing topic, right? So one of the great failings for me is when we have to let a founder go, and I hate doing it, and it's only happened twice in my career, and I hope it doesn't happen again. Um, you can on occasion have people just wrong for the job, but I think in general, founders are strong, talented people that should really have, um, A long-term role in the company. Whether they're CEO material or not is really hard to tell, and you have to give them time to scale. And part of the reason why founders get fired in the process of scaling is, is one of, um, is the, the reason, the primary reason is a breakdown in trust at the board level. So what will typically happen is a founder feels, they feel very lonely, they're building their business, there's a lot of problems mounting problems. You know, maybe they have fear in their guts, and the fear is moving to their chest because, you know, they wonder how they're going to make payroll. They don't want to disappoint anyone. And they can end up being, feeling very lonely, and also feeling like they're not in a position where they can trust their board or their investors to share those issues. And very often, you'll find that that is compounded by, you know, having some, some toxic investors on your board, or some people who are not tolerant of chaos and uncertainty. And so, The board very often does not create …

AI assessment note: “the primary reason is a breakdown in trust at the board level”