The Exchanges

Q Can I ask, what's the driver towards this challenge more now than ever to raise a pre-seed, and why do you think it fundamentally is that there is this capital shortage at this stage?

A Yeah, I think there's a few things that we're seeing in the market. I'd say the first is that historically seed funds used to invest at this inception stage, but they have moved later, and they're demanding traction, they're comfortable investing at a much higher valuation. As long as there's traction in these companies. I think the other thing is that it's actually getting harder and harder to raise a micro VC fund. You know, existing LPs are getting tapped out. Their managers that they're already invested in are coming back faster or for more capital. And the new LPs that are looking for exposure to this part of the asset class are feeling overwhelmed by the sheer number of funds. And whenever there is a lot of noise in the system, There's a flight to quality. So new LPs are more comfortable investing in established managers instead of backing first-time managers. So, so you're going to see, we think of fewer new fund creations. And when we say fund, we're not talking about a few million dollar funds. We're talking about sizable funds that can lead, you know, institutional size rounds. And I think finally, there are more companies getting started than ever. The economy is great. It's becoming, you know, uber cheap, To start a company and test your hypothesis. I mean, you can literally do it even before you quit your job. So I think all these three factors put together, there'…

AI assessment note: “all these three factors put together, there's a vacuum at the pre-seed stage.”

Q So if the risk is lower, what do you think in terms of optimal numbers in your pre-seed portfolio construction theory?

A You know, our portfolio construction is not too dissimilar to a typical Series A fund, which is half primary, half reserves. Our average primary check is just over one percent of the fund, and we think that's a good number because it allows us to get meaningful ownership, it's meaningful to the fund, but it also allows us Take a lot of risk. And then, of course, we have plenty of reserves, which are both used to maintain our ownership in some of our best companies, but also in a world where series A bar is, is going higher, not higher. We can keep supporting our best companies and help them get to the next stage as long as they're continuing to make progress against the milestones that we identify. These companies, and it's part of the reason they choose to work with an institutional fund like ours that is of a reasonable size because they know we'll be there as long as they're executing.

AI assessment note: “half primary, half reserves. Our average primary check is just over one percent of the fund”

Q Yeah. Listen, I do agree with you in terms of the ability to kind of grow ownership over time. In those words, maybe not so obvious. We spoke about kind of the continuum that is early stage fundraising there. You said before that startups are like planes. Can I ask, what did you mean by this specifically with regards to early stage company financing?

A Yeah. I mean, if you think of an analogy, like how a plane takes off, we think of startups are being similar in the sense that, you know, you need momentum before you can lift off. And I think it's similar with startups and you can't start and stop, right? The plane is never going to have enough momentum to take off. So what does that mean for, for companies means you have to raise enough capital so you can invest in the team and the product and the distribution to build that momentum. So you can hit that inflection point. If you're cash starved, You're not going to take off. And this is where we recommend to, to founders, like, look, you should raise somewhere between half a million to million dollars, which we think is the right balance between having enough to really be heads down and execute for, let's say, 12 to 15 months. But at the same time, you're not over capitalizing the company. You're not selling too much of the company too early. You're also not raising it too high of a valuation that may be hard to grow into, which would make it harder to raise it the next round. So that's sort of, you know, our recommendation to founders.

AI assessment note: “means you have to raise enough capital so you can invest in the team”

Q So can I ask, is it 25? Is it 40? Is it 60? How many lines do you think about having in the portfolio from an initial check standpoint?

A I think we'll end up having probably around 30 to 40, which again, we feel is a number that, and look, our focus in terms of our time, our companies are going from zero to one. So the moment the companies graduate, they raise the next round, Our involvement tends to taper off. So between my co-founder and I, we're probably supporting, you know, 10 to 15 companies at any point of time, which is very doable. So as we kind of looked at the math, said, okay, 30 to 40 diversifies a portfolio enough, so we can continue to get a lot of risk and continue to back founders that are very, very early. But at the same time, spend a lot of time with them, roll up our sleeves and help them get to the next stage.

AI assessment note: “I think we'll end up having probably around 30 to 40”

Q been since the founding of four. I do want to ask you, you said about your time there with Founder Collective, my love for David, Eric, and Micah is very well known. I do want to ask, given your four and a half years there, what would you say are your biggest takeaways from your time with Founder Collective? And how do you think it impacted your investing mentality today?

A Venture is very much an apprenticeship business, and I was very lucky to learn from some of the best in the business. As you know, you've had the three of them on the show before, and I'd say probably three big takeaways from my time at Founder Collective. The first one is the maniacal focus on what's best for the founder. Everybody says they're founder friendly because it's easy, it's what founders want to hear. But in cases where what's best for the founder is not the same as what's best for the VC, that is what really tests your value system. And I saw Founder Collective time and time again doing what's right for the founder over what may be right for the, for the fund in the short term. And then the second takeaway was that less is more. We were all founders at Founder Collective. We'd all started companies in our previous careers. And ambition and growth is so rooted in founder DNA. But success and venture actually means you have to fight that inherent desire to expand and grow. Success and venture means you, you have to get really, really good at what you set out to do. You stay within your lane. And that's counterintuitive because it's staying small is actually what makes you successful. Unlike when you start a company where, of course you want to, you know, you want to expand as quickly as you can. I think the third and final one is, is just, just be a good human being.…

AI assessment note: “I'd say probably three big takeaways from my time at Founder Collective.”

Q Can I ask, what does that mean for the space? So when we take all of those three reasons together, we take that realization that a four is 40% of the pre-seed market, and in some cases, what does that mean for the coming years for the pre-seed space?

A Yeah, look, I think the pre-seed round itself will not evolve, right? Will stay the same. The label may change. I don't know exactly what that label looks like in the future, but if you look at the actual anatomy of the round, I mean, Amazon raised a million dollar round in 94. Google raised a million dollar round in 98. Uber raised a million dollar round in twenty-ten. I can go on and on and on. And the numbers get to stay fairly stable, right? And you ask, well, why is that stable over the last couple of decades? I mean, the cost of starting a company has come down. We'll For the company at this stage is people. So the cost saving that's come from the shift to, you know, AWS, Twilio, et cetera, it's offset by the increase in labor costs, which is why that number has stayed fairly stable, and we expect that to stay stable in the, in the future. So the round will always be there, exactly what it's called, may change exactly how that gets funded, may change. And we also expect, given the incredible amount of demand for institutional grade lead investors at the pre-seed stage, That we expect more specialists to enter the category. Whether they're coming in from a stage focus, like we are, or a sector focus, we expect more people to focus, focus here, because there, there really is a need in the market.

AI assessment note: “I think the pre-seed round itself will not evolve, right? Will stay the same.”

Q I do have one further question on the multi-stage fund element, and it's, you know, a lot of people talk about signaling. A lot of people say it's complete BS. If a company is good, they can raise. If it's not, they can't. And others, like me, believe in the real dangers and impact of signaling. How do you think about signaling when it comes to multi-stage funds going earlier?

A Okay, it puts a real risk on the company. Is that going to be the one reason that kills your company? Probably not. But it's adding risk to the business. Because look, if you come out of the gate and you absolutely crush it, and it's up and to the right, of course, you're going to have no trouble raising money. And frankly, that insider, that multi-stage fund that invested in your pre-seed seed round will be chasing you and trying to preempt the rounds. And of course, you wouldn't want to take that term sheet. You want to run a process. And if the business has completely gone sideways, then, you know, probably not a good use of anybody's time to continue with the business anyway. But most companies are somewhere in the middle. And that is where this adds risk to the business, where if that very large mega fund, where their bread and butter is to really deploy capital is series A, chooses for whatever reason, and it could be a whole bunch of different reasons, chooses to not invest in your Opening it adds the question mark for everybody else is to say, well, what am I missing? And look, as I mentioned earlier, series of rounds are getting done earlier and earlier, which means there is less and less data for the story. So, so series of funds are looking for other signals. And I think whether your insiders are doubling down or not is a big part of that signal.

AI assessment note: “it puts a real risk on the company... adding risk to the business.”

Q about kind of understanding what the next round looks for. In terms of understanding what you really look for, there's prevailing wisdoms around Two elements, really, that are super dominant. One is market size, and many present market size as, like, the core reason leading to their excitement in the potential investment. How do you analyze and assess market size and investing state, and how important is it for you?

A In my opinion, best companies will either expand or shrink the market in ways even the founders cannot anticipate at the pre-seed stage. Uber, of course, you've seen the first deck, right, talks about the TAM being 4.2 billion dollars. And they now do almost sixty billion dollars in bookings. And with Google, you know, the adage in advertising used to be that 50 cents of every dollar spent is wasted. We just don't know which 50 cent. But Google's really popularized this idea of performance marketing. And now you have much less waste. So over time, the market is going to become more efficient, which means that it'll be smaller than what it would have been if it wasn't for performance marketing. So, so we think it Pre-seed. It's less about trying to really get a sense of what the eventual market is going to be, but more about, is there a strong market pull from a small set of early adopters? And is that market pull enough to get to the next stage? Usually when we invest, these companies have little to no traction. They don't have any paying customers. But at the same time, we can call up those potential customers. We can talk to potential consumers that would use or pay for the product. To build a pretty good sense of what, if this existed, would they use it? Would they pay for it? And I think that is really what helps us get a good grip of market opportunity before we invest. An…

AI assessment note: “It's less about trying to really get a sense of what the eventual market”

Q So if the risk is lower, what do you think in terms of optimal numbers in your pre-seed portfolio construction theory?

A You know, our portfolio construction is not too dissimilar to a typical Series A fund, which is half primary, half reserves. Our average primary check is just over one percent of the fund, and we think that's a good number because it allows us to get meaningful ownership, it's meaningful to the fund, but it also allows us Take a lot of risk. And then, of course, we have plenty of reserves, which are both used to maintain our ownership in some of our best companies, but also in a world where series A bar is, is going higher, not higher. We can keep supporting our best companies and help them get to the next stage as long as they're continuing to make progress against the milestones that we identify. These companies, and it's part of the reason they choose to work with an institutional fund like ours that is of a reasonable size because they know we'll be there as long as they're executing.

AI assessment note: “half primary, half reserves. Our average primary check is just over one percent”

Q Yeah. Listen, I do agree with you in terms of the ability to kind of grow ownership over time. In those words, maybe not so obvious. We spoke about kind of the continuum that is early stage fundraising there. You said before that startups are like planes. Can I ask, what did you mean by this specifically with regards to early stage company financing?

A Yeah. I mean, if you think of an analogy, like how a plane takes off, we think of startups are being similar in the sense that, you know, you need momentum before you can lift off. And I think it's similar with startups and you can't start and stop, right? The plane is never going to have enough momentum to take off. So what does that mean for, for companies means you have to raise enough capital so you can invest in the team and the product and the distribution to build that momentum. So you can hit that inflection point. If you're cash starved, You're not going to take off. And this is where we recommend to, to founders, like, look, you should raise somewhere between half a million to million dollars, which we think is the right balance between having enough to really be heads down and execute for, let's say, 12 to 15 months. But at the same time, you're not over capitalizing the company. You're not selling too much of the company too early. You're also not raising it too high of a valuation that may be hard to grow into, which would make it harder to raise it the next round. So that's sort of, you know, our recommendation to founders.

AI assessment note: “means you have to raise enough capital so you can invest in the team”

Q Can I ask, what's the driver towards this challenge more now than ever to raise a pre-seed, and why do you think it fundamentally is that there is this capital shortage at this stage?

A Yeah, I think there's a few things that we're seeing in the market. I'd say the first is that historically seed funds used to invest at this inception stage, but they have moved later, and they're demanding traction, they're comfortable investing at a much higher valuation. As long as there's traction in these companies. I think the other thing is that it's actually getting harder and harder to raise a micro VC fund. You know, existing LPs are getting tapped out. Their managers that they're already invested in are coming back faster or for more capital. And the new LPs that are looking for exposure to this part of the asset class are feeling overwhelmed by the sheer number of funds. And whenever there is a lot of noise in the system, There's a flight to quality. So new LPs are more comfortable investing in established managers instead of backing first-time managers. So, so you're going to see, we think of fewer new fund creations. And when we say fund, we're not talking about a few million dollar funds. We're talking about sizable funds that can lead, you know, institutional size rounds. And I think finally, there are more companies getting started than ever. The economy is great. It's becoming, you know, uber cheap, To start a company and test your hypothesis. I mean, you can literally do it even before you quit your job. So I think all these three factors put together, there'…

AI assessment note: “all these three factors put together, there's a vacuum at the pre-seed stage.”

Q final question with regards to the strategy before we go into really evaluation process, and it's the element of speed. We've seen a massive compression of fundraising timelines, and a lot of people say the faster the decision by the investor, the more likely one is to win. Would you agree with that, and how do you structure your decision-making process today in terms of kind of optimizing for speed?

A It's important to move fast, and mostly to be efficient with the founder's time. But I don't think it's an arbitrary race to the finish line. We're very transparent that the founders were diligencing, and where we are in the process, what are areas we're digging into, and where we can add value post-investment. And in fact, we encourage them to back-channel us. And we work very hard to win deals, but ultimately, the founders have to have conviction in us, just like we have conviction in them. And our decision-making process is very conviction-driven. My co-founder and I sit across from each other So we sync on deals in real time. If one of us sees something we like, within a few hours, the other person is meeting the founder. And the way we operate is we make a list of key questions we have to answer in the diligence process. And these are basically things that need to go right for this company to get to the next inflection point. Not necessarily for this to be a massive business. Again, we have a point of view on that. What we're really trying to understand is how does this company get in this inflection point? What kind of investor would invest in this company? And what would they be looking for? And this is where our institutional experience of having been at seed and series A funds comes in very handy. But when we see something we like, we drop everything and we focus on di…

AI assessment note: “If one of us sees something we like, within a few hours, the other person”

Q I do have one further question on the multi-stage fund element, and it's, you know, a lot of people talk about signaling. A lot of people say it's complete BS. If a company is good, they can raise. If it's not, they can't. And others, like me, believe in the real dangers and impact of signaling. How do you think about signaling when it comes to multi-stage funds going earlier?

A Okay, it puts a real risk on the company. Is that going to be the one reason that kills your company? Probably not. But it's adding risk to the business. Because look, if you come out of the gate and you absolutely crush it, and it's up and to the right, of course, you're going to have no trouble raising money. And frankly, that insider, that multi-stage fund that invested in your pre-seed seed round will be chasing you and trying to preempt the rounds. And of course, you wouldn't want to take that term sheet. You want to run a process. And if the business has completely gone sideways, then, you know, probably not a good use of anybody's time to continue with the business anyway. But most companies are somewhere in the middle. And that is where this adds risk to the business, where if that very large mega fund, where their bread and butter is to really deploy capital is series A, chooses for whatever reason, and it could be a whole bunch of different reasons, chooses to not invest in your Opening it adds the question mark for everybody else is to say, well, what am I missing? And look, as I mentioned earlier, series of rounds are getting done earlier and earlier, which means there is less and less data for the story. So, so series of funds are looking for other signals. And I think whether your insiders are doubling down or not is a big part of that signal.

AI assessment note: “Okay, it puts a real risk on the company.”

Q been since the founding of four. I do want to ask you, you said about your time there with Founder Collective, my love for David, Eric, and Micah is very well known. I do want to ask, given your four and a half years there, what would you say are your biggest takeaways from your time with Founder Collective? And how do you think it impacted your investing mentality today?

A Venture is very much an apprenticeship business, and I was very lucky to learn from some of the best in the business. As you know, you've had the three of them on the show before, and I'd say probably three big takeaways from my time at Founder Collective. The first one is the maniacal focus on what's best for the founder. Everybody says they're founder friendly because it's easy, it's what founders want to hear. But in cases where what's best for the founder is not the same as what's best for the VC, that is what really tests your value system. And I saw Founder Collective time and time again doing what's right for the founder over what may be right for the, for the fund in the short term. And then the second takeaway was that less is more. We were all founders at Founder Collective. We'd all started companies in our previous careers. And ambition and growth is so rooted in founder DNA. But success and venture actually means you have to fight that inherent desire to expand and grow. Success and venture means you, you have to get really, really good at what you set out to do. You stay within your lane. And that's counterintuitive because it's staying small is actually what makes you successful. Unlike when you start a company where, of course you want to, you know, you want to expand as quickly as you can. I think the third and final one is, is just, just be a good human being.…

AI assessment note: “probably three big takeaways from my time at Founder Collective. The first one is”

Q You mentioned the Series A funds that are getting a little bit more aggressive. We are seeing multi-stage funds really entering both the pre-seed and the seed market. I'm super interested to hear your thoughts on this. How do you assess their entry, and how has it changed the landscape, and how you kind of think about operating within the landscape today?

A Their entry into pre-seed seed is just a function of the economic cycle for living it. They're rich in capital and poor in proprietary Next step to leverage their cash and access deals that otherwise they may miss. But I think people forget that venture is a services business. This is not a software company. You know, two core parts of being a venture capitalist are exercising judgment and advising founders. And both of those things cannot be productized. Well, at least not yet. And so this business doesn't scale in the same way that a software company does. You can't just apply the same product to a different market. And then venture capital as an asset class itself doesn't scale, right? I mean, when Uber was getting started, if you put in a billion dollars into a day one, like you would warp the market, you would mess the company. And it's of course not true in public markets, right? You can deploy billions of dollars against an idea and not move the market march. And of course there's derivative products and stuff. So I think for all of these reasons, venture will always remain to be a small industry. And just because you can raise the capital, you know, doesn't mean you can deploy it efficiently. So we really think specialization is the future. It's not about one size fits all. And as the number of funds increase, competition, of course, increases. And the only way to win w…

AI assessment note: “Their entry into pre-seed seed is just a function of the economic cycle”

Q a way on specialization, but pushing back slightly, I see more and more kind of the cross-pollination of ideas, especially when you look at the consumerization of SaaS and even the gamification of a lot of more consumer and enterprise companies. How do you think about cross-pollination between sectors and products? And do you not think that goes against the specialization and actually is a benefit of being a generalist?

A Yeah, we think that no matter what sector you're in, the, the problems that the companies face are actually very similar. We think there's more variance on the problems that companies face across stages and phases of the business than there are across sectors. So the company that's in B to B SaaS or in consumer going from zero to one, they all kind of face the same problems, right? Which is around getting to product market fit, pricing, figuring out distribution, so on and so forth. And of course, when you're going from, let's say quote unquote one to 10, again, both of those companies will have sort of similar things, things to focus on, which is building the management team, How do you scale the business? So on and so forth. If you look at some of the best VCs in the business over the last few decades, they've been generalists from a sector perspective, but they've always been focused on a stage. So that's sort of, you know, and we believe we can really leverage our learnings from one company and apply that to a different company, a different sector. And of course, you know, conflict is a big part of the business where you don't want to be in multiple companies that are kind of doing the same thing. That being generalist from a sector perspective allows you to then invest in companies that are different, but then still have a similar set of problems.

AI assessment note: “we believe we can really leverage our learnings from one company and apply that to a different company”

Q economics and unit economics at the center of their thinking. I was like, what the fuck? You don't have unit economics. The CAC is going to explode, or you don't know where it's going to go. The LTV is going to shrink. We just don't know. How can you say unit econ is so primary at this stage? Would you agree, or was I being short-sighted and actually flippant there?

A I think it's, you cannot take it literally on what the unit economics are, but I think you start to see some leading indicators on, you know, the idea of market pull that I talked about. If the CAC is very, very high, I think you, you ask yourself the question, is there a genuinely market pull, or have these founders figured out a novel distribution channel or not? And I think if you start to see CAC come down. That's when you double click and say, well, what did you do? How is this different? What's changing? So I think it's less the actual outcome or the data. It's more the process. And then using judgment to extrapolate and where this could go.

AI assessment note: “it's less the actual outcome or the data. It's more the process.”

Q strategy itself. So you spoke a lot about the market there, but in terms of the strategy you have, Starting on my favorite topic of all, which is definitely why I'm still single, portfolio construction, is prevailing wisdom that the earlier you go, the more diversified your portfolio needs to be, just because of the lack of data, lack of certainty. Would you agree with this kind of prevailing wisdom?

A It's generally true that earlier you go, the more risk there is, and hence you want to diversify. But we actually find that most investors think that just because there is no traction, there is nothing to diligence. So it's like playing with a We look for a few things. And in fact, my co-founder, I'm a mature host on TechCrunch around, you know, five myths of pre-seed investing. And one of them is, is exactly this, that this is just investing in a resume and an idea. But when we invest, we look for unique product insights. We look for what's your novel distribution approach. We try to really listen and learn about the experiments the founders have run to date to validate their hypothesis. You know, we Keep probing until we hear, I don't know. And just because these pre-seeds don't have traction and data, they have plenty of traction and thought. And our graduation rate's been upwards of 86%, and it's, it's because we're able to do this diligence to really figure out, can the company get to the next stage? Like, we don't know at a stage we invest whether this company will be a multi-billion dollar business. And frankly, the founders, we have a point of view, the founders cannot, kind of, draw a line, straight line from here to there. But we can assess that this company can get to the next round. Can get to first base, and if we do that level of work, we think that risk is much l…

AI assessment note: “It's generally true that earlier you go, the more risk there is”

Q following on and the reserve allocation. You know, we're seeing it takes more and more, as you said earlier, to go from pre-C to A, and I was thinking that really, kind of, the early stages of funding, it's just a continuum, and all the labels are pretty bullshit. How do you assess and think about reserve allocation today, and how does that decision-making for reserves differ to initial checks?

A Yeah, look, part of the reason we raised a big fund is because we understand that not all companies will go up and do their right. It is where Having sizable reserves allows us to support companies to help them get to the next round, whether that's a Cedar, Cedar Series A. But at the same time, you don't want to throw good money after bad. I mean, we consider each check we write, even in existing portfolio companies, as a new investment. So we run a very similar process where we will put together a memo and really try to understand, is this, if we were to have a blank slate, would we invest in this company today? But of course, we have the luxury of seeing these founders execute for a few months So it allows us to make even a more educated decision. And then look on the flip side, multiple checks prior to the next round allows us an opportunity to buy more ownership in some of our best companies.

AI assessment note: “we consider each check we write, even in existing portfolio companies, as a new investment”

Q You mentioned the Series A funds that are getting a little bit more aggressive. We are seeing multi-stage funds really entering both the pre-seed and the seed market. I'm super interested to hear your thoughts on this. How do you assess their entry, and how has it changed the landscape, and how you kind of think about operating within the landscape today?

A Their entry into pre-seed seed is just a function of the economic cycle for living it. They're rich in capital and poor in proprietary Next step to leverage their cash and access deals that otherwise they may miss. But I think people forget that venture is a services business. This is not a software company. You know, two core parts of being a venture capitalist are exercising judgment and advising founders. And both of those things cannot be productized. Well, at least not yet. And so this business doesn't scale in the same way that a software company does. You can't just apply the same product to a different market. And then venture capital as an asset class itself doesn't scale, right? I mean, when Uber was getting started, if you put in a billion dollars into a day one, like you would warp the market, you would mess the company. And it's of course not true in public markets, right? You can deploy billions of dollars against an idea and not move the market march. And of course there's derivative products and stuff. So I think for all of these reasons, venture will always remain to be a small industry. And just because you can raise the capital, you know, doesn't mean you can deploy it efficiently. So we really think specialization is the future. It's not about one size fits all. And as the number of funds increase, competition, of course, increases. And the only way to win w…

AI assessment note: “Their entry into pre-seed seed is just a function of the economic cycle”

Q though, on the other common suggestion that really everything centers around a precedence, the suggestion that it's all about Betting on the founder. Now you said to me before that you don't think that's the right way to practice at this stage. Why do you not think this betting on the founders the right way? And what does that mean you look for and deep dive on and afford that?

A Yeah. One of the big myths in, in the industry is that pre-seed is, is betting on founders resume and an idea and not much more. We think this couldn't be further from the truth. I mean, what we look for are a few things, right? First of all, authentic founders, folks that are building this, not because it's a hot space, but because if you look at their Arc of their career. You can see how they ended up starting this company. And we also look for non-obvious product insight and interesting distribution approaches where they have some kind of unfair advantage or unfair kind of insight. And you can only figure this out if you're maniacally focused about this market and use case. I mean, their founders will spend time with that know more about the market than folks that have been practicing this for four or five times longer in that market. And I think that sort of tells you that they're very high clocks And the ability to gather information, ability to talk to the right people, and ability to learn. And we also try to understand the experiments that founders are running, you know, to date. And as we talked about some of the talking to potential customers. So there's a lot to diligence beyond just the founder at our stage.

AI assessment note: “what we look for are a few things, right? First of all, authentic founders”

Q Not at all. I've been excited for this one, but I do want to get started today with a little bit about you. So tell me, how did you make your way into what I call the wonderful world of venture? And then how did you come to Founder Four today?

A Yeah, you know, Harry, as a kid growing up in a small town in India, I was always infatuated by this concept Of the American dream. This idea that you can create something out of nothing, and upward mobility is available to everyone. It's really what brought my family to this part of the world when I was in high school. So I did software engineering at the University of Waterloo, and they have this unique co-op program where you do six internships before you graduate. So I had a chance to work at BlackBerry, Amazon, Morgan Stanley. It was kind of cool to ship code for products in the real world while I was still in college. But one of the biggest takeaways for me was that I actually didn't want any of these jobs when I graduated. I wanted to be a founder. So a few of us in the software engineering program got together and started a company. And this is at a time when iPhone had just launched in oh seven, the app store launched in 2008. So we decided to build this platform for media companies to create native apps. So we went to companies like Time Magazine, CNN Money, Sports Illustrated, and we built their first iPhone, Blackberry, Windows Mobile, Android apps. It was also my first exposure to Venture. As someone that grew up in India, I thought the concept of venture was kind of weird. The fact that somebody will trade a lot of cash, real cash, for a piece of paper that holds …

AI assessment note: “It was also my first exposure to Venture.”

Q Okay, I clearly need to read more. What's the favorite book and why?

A Favorite book, that's a tough question. There's a bunch of candidates for that, but I'll tell you a book I just read, which I thought was very relevant to what we do in venture. It's called The Trillion Dollar Coach, and it was actually written by Jonathan Rosenberg, who I used to work for. He's had a product at Google, and Eric Schmidt, and it was by Bill Campbell, who was a coach for Larry and Sergey, Steve Jobs, many of the iconic founders in Silicon Valley. I think what was interesting for me was that I'm a very logical, analytical guy, like a lot of folks in venture, but the book really talks about what it takes to be a great coach, which is a big part of our job, as you know, and really the big takeaways for me was that don't tell founders what to do, even though you have that urge all the time, because you've seen that before, but instead to focus on first principles to ask the right questions of the founder. So they can make, they can come to that conclusion themselves and they can make that decision on what's the right thing to Do and really giving them the courage to think big, to lift them up when they need the support.

AI assessment note: “I'll tell you a book I just read, which I thought was very relevant”

Q Can I ask, what does that mean for the space? So when we take all of those three reasons together, we take that realization that a four is 40% of the pre-seed market, and in some cases, what does that mean for the coming years for the pre-seed space?

A Yeah, look, I think the pre-seed round itself will not evolve, right? Will stay the same. The label may change. I don't know exactly what that label looks like in the future, but if you look at the actual anatomy of the round, I mean, Amazon raised a million dollar round in 94. Google raised a million dollar round in 98. Uber raised a million dollar round in twenty-ten. I can go on and on and on. And the numbers get to stay fairly stable, right? And you ask, well, why is that stable over the last couple of decades? I mean, the cost of starting a company has come down. We'll For the company at this stage is people. So the cost saving that's come from the shift to, you know, AWS, Twilio, et cetera, it's offset by the increase in labor costs, which is why that number has stayed fairly stable, and we expect that to stay stable in the, in the future. So the round will always be there, exactly what it's called, may change exactly how that gets funded, may change. And we also expect, given the incredible amount of demand for institutional grade lead investors at the pre-seed stage, That we expect more specialists to enter the category. Whether they're coming in from a stage focus, like we are, or a sector focus, we expect more people to focus, focus here, because there, there really is a need in the market.

AI assessment note: “the pre-seed round itself will not evolve, right? Will stay the same.”

Q Not at all. I've been excited for this one, but I do want to get started today with a little bit about you. So tell me, how did you make your way into what I call the wonderful world of venture? And then how did you come to Founder Four today?

A Yeah, you know, Harry, as a kid growing up in a small town in India, I was always infatuated by this concept Of the American dream. This idea that you can create something out of nothing, and upward mobility is available to everyone. It's really what brought my family to this part of the world when I was in high school. So I did software engineering at the University of Waterloo, and they have this unique co-op program where you do six internships before you graduate. So I had a chance to work at BlackBerry, Amazon, Morgan Stanley. It was kind of cool to ship code for products in the real world while I was still in college. But one of the biggest takeaways for me was that I actually didn't want any of these jobs when I graduated. I wanted to be a founder. So a few of us in the software engineering program got together and started a company. And this is at a time when iPhone had just launched in oh seven, the app store launched in 2008. So we decided to build this platform for media companies to create native apps. So we went to companies like Time Magazine, CNN Money, Sports Illustrated, and we built their first iPhone, Blackberry, Windows Mobile, Android apps. It was also my first exposure to Venture. As someone that grew up in India, I thought the concept of venture was kind of weird. The fact that somebody will trade a lot of cash, real cash, for a piece of paper that holds …

AI assessment note: “It was also my first exposure to Venture.”

Q strategy itself. So you spoke a lot about the market there, but in terms of the strategy you have, Starting on my favorite topic of all, which is definitely why I'm still single, portfolio construction, is prevailing wisdom that the earlier you go, the more diversified your portfolio needs to be, just because of the lack of data, lack of certainty. Would you agree with this kind of prevailing wisdom?

A It's generally true that earlier you go, the more risk there is, and hence you want to diversify. But we actually find that most investors think that just because there is no traction, there is nothing to diligence. So it's like playing with a We look for a few things. And in fact, my co-founder, I'm a mature host on TechCrunch around, you know, five myths of pre-seed investing. And one of them is, is exactly this, that this is just investing in a resume and an idea. But when we invest, we look for unique product insights. We look for what's your novel distribution approach. We try to really listen and learn about the experiments the founders have run to date to validate their hypothesis. You know, we Keep probing until we hear, I don't know. And just because these pre-seeds don't have traction and data, they have plenty of traction and thought. And our graduation rate's been upwards of 86%, and it's, it's because we're able to do this diligence to really figure out, can the company get to the next stage? Like, we don't know at a stage we invest whether this company will be a multi-billion dollar business. And frankly, the founders, we have a point of view, the founders cannot, kind of, draw a line, straight line from here to there. But we can assess that this company can get to the next round. Can get to first base, and if we do that level of work, we think that risk is much l…

AI assessment note: “It's generally true that earlier you go, the more risk there is”