The Exchanges

Q You're gonna leave me with a cliffhanger gockle. You're like, there's some very durable characteristics. We can talk about them if we want. I would love it if we could talk about them. Can you please help me understand?

A It's basically a play on Hamilton Helmer's seven parts, but it's slightly different. I call it the eight motes. The first mote is data mote, which we all talk about, but it's truly has to be proprietary. It has to be data that nobody else has access to. I think Spotify is a good example. If you look at their Uh, the discover product, it uses a decade of listening behavior across hundreds of billions of people. You can't create that listening product, that, that discover product easily. Second is the workflow mode, which a lot of people argue it's a weak mode. I agree by itself. It's a weak mode, but the deeper you're embedded in the company, running their operations, moving their money, the, the deeper the workflow mode is just by itself. I don't think it's enough in perpetuity, but the deeper you embedding is, for example, NetSuite is an ERP that runs your business. They have a much, much deeper mode than say Zendesk. Which is a lighter workflow mode. So that is a mode. You can say it's one, maybe Zendex is a zero point, financially it is a one. Third one is regulatory mode. So licenses, uh, capital require multi-year procurement contracts. Coinbase, when I'm on the board, is a great example. They have MTLs, money transmission licenses, state by state. There is with the Fini, CN, all of those things. It makes it impossible for a company to use anybody else than Coinbase to cus…

AI assessment note: “I call it the eight motes. The first mote is data mote”

Q Now, I wanted to start with how some of your prior companies that you've worked at have shaped your investing mind specifically. And I wanted to start with Google. When you reflect on your time with Google, how did that shape your mindset for the types of companies that you like today?

A I think the best way to think about my, the Google experience is Google taught me that ultimately the best companies have a remarkable product at their core. Google was a remarkable product. Google was definitely a philosophy of build it remarkably and they will come. A GTM was not Google specialty, but what Google was really good at was building amazing products. Sometimes the go-to-market work, sometimes it didn't work. So, but at the core was remarkable product. So I think I ultimately, my core investing thesis is that if there is not remarkable product, all the go-to marketing distribution in the world will not save you. So that's, I look for what the remarkability is in the core product or value proposition of the company. Is it 10 X, hundred X better than the alternative? I'll tell you a story at Google. When I joined in 2003, there was a project going on called, uh, Caribou internally. I was like, what the hell is this? This was web email, which gave one gigabyte free storage. And back then Yahoo mail offered 10 megabytes of storage. So it was a hundred X. I thought it was truly I was like, there's no way it's possible, and turns out it was, and it was released on, if you remember, April first, 2003, and that people thought it was an April Fool's show, but that was Google literally taking something that was unbelievable and making it a reality, and so that's, that's the …

AI assessment note: “Google taught me that ultimately the best companies have a remarkable product at their core.”

Q for the ego, but Rory always says to me with AI, very simple, we need to see the transition of spend from software budgets to human labor budgets, and if we do, the TAM obviously opens up immensely. Do you think we will realistically see that, and maybe are seeing it already, or do you think we will actually remain in software budgets as we have been in some categories?

A No, we are seeing that. We are seeing that. I think the first one, most businesses don't want to lay off people. So the way we are seeing it, the first thing that's happening is businesses are outsourcing to third party BPOs, many of them in India, Philippines, et cetera. That spend is the easiest to cut because now you can offer the same service, higher quality, faster, and 20, 30% cheaper. The second thing they do is when somebody leaves, they don't replace that person. And the third thing they do is layoffs. So I think layoff is still maybe a little bit of while away, but you're seeing absolutely BPO spend all the Call center companies that you mentioned, all the next generation AI, um, AI customer service companies, they're going after BPO budgets. I was shocked when I was doing work in this space, how many different verticals, doctors, offices, et cetera, use call centers outside the U S they already have budget clearly allocated and there's a better service. So, so I think it's BPO spend first, don't replace the person second, and then potentially think about, uh, laying off, um,

AI assessment note: “No, we are seeing that. We are seeing that.”

Q I like it. It reminds me of actually Neil Mater, who talks about kind of jaw-dropping customer experience as one of his kind of core monikers for thinking about companies and investments. Next we have Facebook. How did Facebook impact the types of companies that you like?

A What is interesting is that even if you have a remarkable product, uh, you still need distribution. Facebook taught me the power of distribution. Mark, I think is Mark Zuckerberg is probably the best. Um, I would say, uh, distribution genius in the world. He would look at a product and say, this is how this product is not going to work. And it taught me the power of multiplayer products in particular. I think, uh, most software products are single player. And as soon as you make the multiplayer, there is a uniqueness in switching, distribution, et cetera, that comes about. Facebook, by nature, you can't use it if you only have one person on Facebook. And so, when I saw Figma, the power of Figma I felt was, it was not just that a person could use it, but it was much easier to share with other people in your company. And I think the best PLG software companies are those that you can use, multiple people can use, and it increases defensibility. So, the power of distribution and multiplayer products.

AI assessment note: “Facebook taught me the power of distribution... and multiplayer products in particular.”

Q for the ego, but Rory always says to me with AI, very simple, we need to see the transition of spend from software budgets to human labor budgets, and if we do, the TAM obviously opens up immensely. Do you think we will realistically see that, and maybe are seeing it already, or do you think we will actually remain in software budgets as we have been in some categories?

A No, we are seeing that. We are seeing that. I think the first one, most businesses don't want to lay off people. So the way we are seeing it, the first thing that's happening is businesses are outsourcing to third party BPOs, many of them in India, Philippines, et cetera. That spend is the easiest to cut because now you can offer the same service, higher quality, faster, and 20, 30% cheaper. The second thing they do is when somebody leaves, they don't replace that person. And the third thing they do is layoffs. So I think layoff is still maybe a little bit of while away, but you're seeing absolutely BPO spend all the Call center companies that you mentioned, all the next generation AI, um, AI customer service companies, they're going after BPO budgets. I was shocked when I was doing work in this space, how many different verticals, doctors, offices, et cetera, use call centers outside the U S they already have budget clearly allocated and there's a better service. So, so I think it's BPO spend first, don't replace the person second, and then potentially think about, uh, laying off, um,

AI assessment note: “No, we are seeing that. We are seeing that.”

Q I'll take that. That's a good one. What's the biggest miss? We've said banter. Is it banter?

A Quinns, Quinns, man. Uh, most recently Quinns, but to be honest, even bigger miss than that in some ways, it's not a miss in terms of investing. It's that I couldn't predict that Facebook could be a two trillion dollar company. When our company was going to be acquired by Facebook, I was arguing with the corporate team at Facebook. And we were arguing over the terminal value of Facebook, and we had to put China into the mixing. This would enter China will get us to forty billion in market cap. And we were arguing whether it was twenty billion or forty billion in several years. And then this was in like 20 10 and turns out in less than 10 years, 11 years, it was a trillion dollar company. So when these things work, they work in a, in a scale that is unimaginable. And even at Google, I remember very well after the IPO, I was there doing the IPO and we were sitting around with a bunch of PMs. They were saying, Man, the, the companies added at thirty billion is too expensive, too expensive. And so you just, these things compound, and, uh, it's just incredible to see these things become trillion dollar companies. So Facebook and Google in some ways the biggest misses in terms of not being able to predict that they were going to be multi-trillion dollar companies.

AI assessment note: “most recently Quinns, but to be honest, even bigger miss than that”

Q What about Square? Square was an amazing journey. What did you learn from Square that you've taken to your investing?

A The power of a multi-product portfolio. I think at Square, when I joined, we were a single product company, payments and payments only. Uh, when I left, we had, I think, 11 products each doing more than fifty million in revenue, and one of the interesting metrics was we went, our key North Star metric went to median number of products used by a seller, by a merchant. Turns out that The more products that a merchant uses, the more retentive they are, the more sticky they get. So this is the other thesis I have. I mean, this is obviously very clear now. You have to have, you cannot be a single product company. Uh, you've got to make sure, and, and most importantly, your product number two needs to emanate very naturally. It can't be like this completely separate product. It has to be very adjacent product number one. For Square, it was a product called Square Capital, which was basically a, Cash advanced product that really came from the fact that Square controlled the payment flows and knew exactly, uh, the merchant's credit history and could underwrite based on basically money going in and out. And, um, it was a beautiful product. And the, the, the interesting thing about having a multi-product portfolio is that not every product needs to generate profit. I think there is a, uh, people always like, oh, it's not making money. Square Capital didn't make much money, but It was ver…

AI assessment note: “The power of a multi-product portfolio.”

Q I'm going for spice in a world of 2026. Can we as venture investors do vertical SaaS given the fund sizes that we have?

A I think you can. Maybe the mega funds I might say, look, it might not be a hundred billion dollar outcome. Uh, but I think, uh, if you're a, if you're a 203 104 hundred million dollar fund, you can absolutely create a ten billion dollar company. Because remember, one of the big changes is that vertical SaaS does take over labor. Um, and so vertical software, right? It's no longer SaaS. It's basically, it is software as a service, but it is services. So you're going after the services spent. So one of the interesting things, as you know, is that Verticals mostly, especially if you're selling to small businesses, they spend some amount of tooling, but they spend a tremendous amount on both BPO as well as on human capital, human labor. So you need to basically target those two spends. And I think if you do that and you're committed to building the whole product, you can absolutely.

AI assessment note: “I think you can. Maybe the mega funds I might say, look”

Q we were doing this eight years ago when, you know, you went from one to 10 at Slack, and it was like, holy shit, that's amazing. Now it's like one to 10 is, it's still great, but there's quite a few who've done one to 10. How does your mindset change around growth expectations for the companies that you invest in? Is a world of triple, triple, double, double dead?

A It's not dead, but it, you, it's no longer elicits the jaw-dropping, uh, odd that it used to a few years, a few years ago. As you said, I mean, You know, the one to 10 is becoming more and more common. Uh, and, and, you know, those numbers will basically get you, I mean, lovable could probably go public with that kind of trajectory. Now, the bigger question for me is, uh, durability. Um, and it's not even quality is durability because like you and I discussed margins can improve over time and will improve over time. So it's not about margins support. Is this revenue durable? And so retention is Is basically very important for me to understand. Are people using it as, I think we saw in the first way of AI, we saw many, uh, chat GPT, like there was a company called Jasper, not to pick on them, but they went from one to 40, and then they came back from 40 to 10 or something like, or maybe one to a hundred and a hundred to 40 within very quick time frames. So there's a lot of tire kickers out there, especially in prosumer products who test the product and then move on to something else. So what you want to look under the hood beyond, behind all these numbers is Two things, which I think are the fundamental indicators of business quality, customer retention or gross retention, and then net revenue retention. Um, basically, if those two, I think are the biggest indicators of quality,…

AI assessment note: “It's not dead, but it, you, it's no longer elicits the jaw-dropping”

Q hopefully regardless. Um, but like, you know, your sneaks. Amazing security business that's got great customers who love it, But it was valued at seven billion dollars, and it's now three hundred million ARR growing 15%. What happens to that cohort, which is a great business and serving great customers, but 15% growth, three hundred million ARR, and you've got a very high price. What happens to that private cohort?

A There are two outcomes for these companies. All of us have those companies in our portfolio. A bunch of them are going to become zombie companies, And, uh, they're going to try to add AI features as a last resort, not succeed and, uh, and be sold to PE. Even the problem is even that might not be a good outcome because PE itself is struggling to digest the companies they bought a couple of years ago and the prices are resets. They do have good assets. Uh, you know, I think they might, I am seeing in some verticals there are companies merging, uh, with each other. Um, I think we'll see if that happens just to create more scale, but it'll be interesting. But The, hopefully the better outcome that many of them go to is with strong leadership. You basically can burn the bridges and create a completely new AI native product. I think you had the intercom person, uh, intercom CEO, right? Fin great example podium, another great example, both of them with the new products have gone to a hundred plus million in a couple of years. And basically just burn the bridges. This is legacy software. I think the more you fixate on how do we fix the business? The less you're going to focus on how do we create a new business. So you've got to create a new business from scratch. You have customers. You almost got to say, I'm going to be ruthless about migrating the current customers from the current b…

AI assessment note: “There are two outcomes for these companies. All of us have those companies in our portfolio.”

Q I've got to ask one more, but you said about Peter Thiel there, obviously he has the Thiel Fellowship and a preference for young, ambitious founders. We're seeing this massive movement towards very, very young founders. We mentioned McCaw earlier who are brilliant. Are you in line with the shift to the earliest, youngest founders? And how do you feel about that shift to super young founders?

A I think, uh, I actually am a huge fan of it. I feel even at companies, I feel some of the companies that are not hiring young people, They're making a huge mistake because young people are more AI maxed, as you could call it, like looks maxing, AI maxing than, uh, than anybody else. Uh, in fact, I think the younger people are adopting tools better and they just live and breathe differently than, than others. Um, so I, I'm a huge fan. I've actually invested in more dropouts as an angel now over the last few months than I have invested in, um, in, in, in, by the rest of the last 15 years I've been investing. So, I don't think it's the right thing, to be honest, for many of them to be dropping out and starting. I do think they could benefit socially, emotionally, et cetera, but some of them are just exceptional. I don't think all of them are, but I do think this crop is going to produce some incredible founders.

AI assessment note: “I actually am a huge fan of it.”

Q I like it. It reminds me of actually Neil Mater, who talks about kind of jaw-dropping customer experience as one of his kind of core monikers for thinking about companies and investments. Next we have Facebook. How did Facebook impact the types of companies that you like?

A What is interesting is that even if you have a remarkable product, uh, you still need distribution. Facebook taught me the power of distribution. Mark, I think is Mark Zuckerberg is probably the best. Um, I would say, uh, distribution genius in the world. He would look at a product and say, this is how this product is not going to work. And it taught me the power of multiplayer products in particular. I think, uh, most software products are single player. And as soon as you make the multiplayer, there is a uniqueness in switching, distribution, et cetera, that comes about. Facebook, by nature, you can't use it if you only have one person on Facebook. And so, when I saw Figma, the power of Figma I felt was, it was not just that a person could use it, but it was much easier to share with other people in your company. And I think the best PLG software companies are those that you can use, multiple people can use, and it increases defensibility. So, the power of distribution and multiplayer products.

AI assessment note: “So, the power of distribution and multiplayer products.”

Q Do we see the total death of seat pricing, my friend? I hear you completely in terms of that movement into services. Does seat pricing die, and we actually have consumption-based pricing as the primary pricing mechanism?

A Seat pricing doesn't die. You know why? If you look at Chad GPT Enterprise, Chad GPT Enterprise is priced based on, uh, based on seats, because seats provide predictability for enterprise buyers, uh, But they don't drive expansion revenue by themselves. So you basically have to bundle a lot more into each seat. So Chad, Jupiter, OpenAI sell seats based on different tiers, but they have different functionality. I think Figma sells three different types of seats. You're going to see different kinds of seats. Now, the big challenge is seed based pricing, which you alluded to, is it breaks when the product's core value is not about access, but it's about Uh, something doing the work on your behalf. So at that point, charging per user doesn't make sense because user isn't the constraint anymore. It's the work output. So at that point, you've got to go to outcome based pricing. So for example, if I'm something like Harvey, I don't know how Harvey prices, I bet that they price based purely on how many contracts, uh, they process versus how many people are using it. For example, even if a hundred people are using it and they process zero contracts in theory, they should get zero. So I think you have two kinds of products. You have access products, and you have work products. Access products, um, are, is basically seed-based, uh, like, I think Chad GVD Enterprise is a good example, and …

AI assessment note: “Seat pricing doesn't die. You know why?”

Q Do the best founders need you? Keith Roboy always says the best founders do not need a venture investor's help. You've worked with the best. How do you feel?

A They will not need it. I, I don't know. I think, uh, in, I generally agree with Keith that on the margins, investors don't add value and the value they add gets less and less as a company grows. But I do think there are a few points where a few things you can do on the margin, for example, helping them choose between this candidate or that when they're hiring, helping them think about go to market. That could make a difference between the company being a mediocre exit or an outcome or being a generation company. You don't need to do everything for them, but just those one or two things that you can help on in on the margins can hopefully be the difference.

AI assessment note: “They will not need it. I, I don't know. I think”

Q I'll take that. That's a good one. What's the biggest miss? We've said banter. Is it banter?

A Quinns, Quinns, man. Uh, most recently Quinns, but to be honest, even bigger miss than that in some ways, it's not a miss in terms of investing. It's that I couldn't predict that Facebook could be a two trillion dollar company. When our company was going to be acquired by Facebook, I was arguing with the corporate team at Facebook. And we were arguing over the terminal value of Facebook, and we had to put China into the mixing. This would enter China will get us to forty billion in market cap. And we were arguing whether it was twenty billion or forty billion in several years. And then this was in like 20 10 and turns out in less than 10 years, 11 years, it was a trillion dollar company. So when these things work, they work in a, in a scale that is unimaginable. And even at Google, I remember very well after the IPO, I was there doing the IPO and we were sitting around with a bunch of PMs. They were saying, Man, the, the companies added at thirty billion is too expensive, too expensive. And so you just, these things compound, and, uh, it's just incredible to see these things become trillion dollar companies. So Facebook and Google in some ways the biggest misses in terms of not being able to predict that they were going to be multi-trillion dollar companies.

AI assessment note: “Facebook and Google in some ways the biggest misses in terms of not being able to predict”

Q This is so unfair of me. How would you think about Klaviyo? Or Klaviyo in this way? Like when you look at bluntly the ability for public companies to build good agent products, it would seem very obvious that Shopify will bluntly build Klaviyo now in the need to re-accelerate. How would they rate?

A I don't think Shopify will build it. Shopify is an investor, and Shopify, I think, has decided, at least in my opinion, that this is, Shopify has these things called missions, and I think they've decided this is not part of their mission to build this product. So I don't think the risk is Shopify. It is that it has become easier to build, build Klaviyo now than it was, you know, a year ago. So it's easy to build Klaviyo. They do have, I haven't talked about brand. I think brand is no longer a strong word. I explicitly excluded brand. I don't know how strong Shopify's promotion of Klaviyo is. I think a lot of it depends on whether the proprietary distribution they get from Shopify Is how strong and tight it is. If Shopify is actually going to promote them as a, you know, when you, when you search for, uh, messaging or communications, if they are just like, you know, Google has a vote with Apple. When you use Apple, you basically Apple products, you get Google search engine. If Clavio is a preferred product and they have a relationship that makes it work, I think it's very hard to displace them. It's hard to at least displace that part of their business.

AI assessment note: “I don't think Shopify will build it. Shopify is an investor”

Q hopefully regardless. Um, but like, you know, your sneaks. Amazing security business that's got great customers who love it, But it was valued at seven billion dollars, and it's now three hundred million ARR growing 15%. What happens to that cohort, which is a great business and serving great customers, but 15% growth, three hundred million ARR, and you've got a very high price. What happens to that private cohort?

A There are two outcomes for these companies. All of us have those companies in our portfolio. A bunch of them are going to become zombie companies, And, uh, they're going to try to add AI features as a last resort, not succeed and, uh, and be sold to PE. Even the problem is even that might not be a good outcome because PE itself is struggling to digest the companies they bought a couple of years ago and the prices are resets. They do have good assets. Uh, you know, I think they might, I am seeing in some verticals there are companies merging, uh, with each other. Um, I think we'll see if that happens just to create more scale, but it'll be interesting. But The, hopefully the better outcome that many of them go to is with strong leadership. You basically can burn the bridges and create a completely new AI native product. I think you had the intercom person, uh, intercom CEO, right? Fin great example podium, another great example, both of them with the new products have gone to a hundred plus million in a couple of years. And basically just burn the bridges. This is legacy software. I think the more you fixate on how do we fix the business? The less you're going to focus on how do we create a new business. So you've got to create a new business from scratch. You have customers. You almost got to say, I'm going to be ruthless about migrating the current customers from the current b…

AI assessment note: “There are two outcomes for these companies. All of us have those companies in our”

Q You mentioned Harvey there. We are seeing increasing competition within certain categories. If I think about, you know, law, it's Harvey and Lagora. If I think about customer support, Sierra and Decagon, and there are Dominant funded players. How do you think about the ability for firms to king make? Is king making complete bullshit? Is it not? I'm just intrigued to get your thoughts on that.

A King making is a thing. I think it is a thing you see, uh, earlier and earlier companies are getting these rounds that are valuing them, you know, at, at valuations, which really are eye opening. That said, I think it won't work unless the The company executes on the promise. I think, uh, other firms can take it as a signal and decide to pile on or not. And, you know, but, but ultimately the, the company has to execute on the vision. If it doesn't, then it's just a bad bet. So yes, it is there, but it by itself, just because you can make doesn't mean they are the king. They still have to execute and justify it. If not them, I think the reality is everything different games, right? You and I know being venture catalysts now that You know, somebody with a ten billion dollar fund is playing a fundamentally different game than somebody with a four hundred million dollar fund, um, and if you try to play the same game there, you're going to lose. You've got to play the game that you're best equipped to play. Benchmark plays a different game than, than, say, Andreessen Horowitz, but both of them play different games, and both of them do well at their game.

AI assessment note: “King making is a thing. I think it is a thing”

Q What's your biggest misread on market size and how did it shape?

A I remember seeing Shopify at a billion and I was like, how many, how many, E-commerce merchants out there really. Um, and that, or maybe even before, but in one of the early rounds, Tam felt really concerned. I think what I missed was that Shopify was not just selling e-commerce. It was basically allowing anybody to sell. So it basically changed any entrepreneur on the planet. Anybody who wants to sell something went, so it, it wasn't just existing e-commerce merchants. And that's what you want platforms to do. They literally make it possible for every person Every person would think of the possibility of selling, or renting their home out, or taking a ride, which they never would have thought before, or installing a, buying a new presentation app, or a note-taking app. They're the biggest hits. They're also the biggest misses. If the bet doesn't play out, they're screwed. The bet plays out, they could be bigger than anything else. Google non-consumption. Many of them are non-consumption markets. They're new behaviors that didn't exist before. That's in some ways what venture is all about. It's not about existing. It's about new behaviors and betting on that. Facebook, non-consumption market. I mean, right? I mean, think of all of these iconic companies.

AI assessment note: “I remember seeing Shopify at a billion and I was like, how many”

Q Do the best founders need you? Keith Roboy always says the best founders do not need a venture investor's help. You've worked with the best. How do you feel?

A They will not need it. I, I don't know. I think, uh, in, I generally agree with Keith that on the margins, investors don't add value and the value they add gets less and less as a company grows. But I do think there are a few points where a few things you can do on the margin, for example, helping them choose between this candidate or that when they're hiring, helping them think about go to market. That could make a difference between the company being a mediocre exit or an outcome or being a generation company. You don't need to do everything for them, but just those one or two things that you can help on in on the margins can hopefully be the difference.

AI assessment note: “I generally agree with Keith that on the margins, investors don't add value”

Q me this. It is shit. Um, anyway, we mentioned WeWork earlier. I use WeWork as an example with Miles Clements about selling. I'd love to hear your thoughts on how do you think about when to sell? Obviously we have investors, you have LP stake. They care about DPI today more than ever. How do you think about liquidity and when's the right time to take chips off the table?

A As an angel, I used to hold till IPO. So Figma had many liquidity opportunities during the years, but I kept, kept holding it for 13 years till it went public. And, uh, I think at the IPO, it was actually priced very nicely. Unfortunately, after the IPO, it has been, uh, it has been more challenging price wise. Uh, but I think as a, as a fund investor, it becomes interesting. I think there are two situations. One of the things I think most early stage firms get wrong is they just focus on Moik. They don't focus on IRR. And MOIC is multiple or invested capital. I think IRR matters a lot, as you know. And so you can have an LP told us about a firm that gave them a seven X MOIC over 20 years. And that was a teens IRR. And that is like, okay, you know, there's something crazy here. I mean, that isn't a venture, venture company, venture firm. And so you've got to look at go forward IRR and your projection. If you go forward IRR at every liquidity opportunity is lower Then what you are basically promising your LPs or what you think your fund should have. I think you should sell. I think you have an obligation to LPs to at least sell. I like Fred Wilson's strategy around selling, which is sell a third, hold a third and trade a third. This is when the asset is completely liquid. Uh, but in this case, I think you want to sell at least part of it, especially if the asset is a, uh, is a, …

AI assessment note: “If you go forward IRR at every liquidity opportunity is lower... I think you should sell.”

Q How do you prevent prior wins or losses impacting future decision making? My biggest mistake is I lose or make money in a market, and it inherently makes me attracted or not attracted to it in a way that could subvert decision making. How do you avoid?

A This is very hard. I think it's a mental thing where you've got to take Every, every opportunity at first principles, we all struggle with it. I think the, I think the best venture capital, I, someone asked me what's the best venture capital bets. I talk about a paradoxical one. I think it's Mike Moritz betting on Instacart. Why? Because he lost three hundred and seventy million on web van less than a decade ago. He burnt it through. Same space, Apuva comes to him. He bets on it. He bets on it after losing hundreds of millions of dollars. It is not all Sequoia money, but the whole thing burned to the ground and Think about the first principle of thinking. Needed and the courage needed to make that bet. I think it's brilliant.

AI assessment note: “you've got to take Every, every opportunity at first principles”

Q This is so unfair of me. How would you think about Klaviyo? Or Klaviyo in this way? Like when you look at bluntly the ability for public companies to build good agent products, it would seem very obvious that Shopify will bluntly build Klaviyo now in the need to re-accelerate. How would they rate?

A I don't think Shopify will build it. Shopify is an investor, and Shopify, I think, has decided, at least in my opinion, that this is, Shopify has these things called missions, and I think they've decided this is not part of their mission to build this product. So I don't think the risk is Shopify. It is that it has become easier to build, build Klaviyo now than it was, you know, a year ago. So it's easy to build Klaviyo. They do have, I haven't talked about brand. I think brand is no longer a strong word. I explicitly excluded brand. I don't know how strong Shopify's promotion of Klaviyo is. I think a lot of it depends on whether the proprietary distribution they get from Shopify Is how strong and tight it is. If Shopify is actually going to promote them as a, you know, when you, when you search for, uh, messaging or communications, if they are just like, you know, Google has a vote with Apple. When you use Apple, you basically Apple products, you get Google search engine. If Clavio is a preferred product and they have a relationship that makes it work, I think it's very hard to displace them. It's hard to at least displace that part of their business.

AI assessment note: “I don't think Shopify will build it. Shopify is an investor”

Q Both of them are in a wave of incredibly hot, attractive companies, which have lower margins than we are used to in traditional SaaS minds. How has your mindset changed or stayed the same around margins? How should I think about margin assessment when looking at companies today?

A Yeah, I think, uh, inference costs are dropping, so you automatically assume that margins In theory should go up. Uh, but I think it's, it's not about margins in year one or two, the more defensibility or leverage you have, uh, in some ways over your customers and what choices they have, uh, the more pricing leverage you have. So I would rather see margins go up with price increases than cost decreases. A good example is PayPal roll off both of us on our board at square. And he told us that PayPal back in the day, raised prices five times. In three years, because there's such stickiness. They knew their customers really couldn't do anything. And you see, I mean, those are, I mean, Uber, I have to say, I don't know how, if they have raised price or not, but I know that they have basically changed the economics of how much they pay drivers over time so that their, their margins have just expanded continuously. And they've also raised prices in different ways. So I think you, two ways of increasing margins. So first of all, you and I both, we don't look at margins in year one and two. I mean, it doesn't make sense even, even years four and five, but you want to have On one side, the ability to increase prices. On the second side, you want the ability to cost to get lower. I think that second thing is happening by, by nature. What you want to see is, in addition, the ability to hav…

AI assessment note: “we don't look at margins in year one and two”

Q You mentioned Harvey there. We are seeing increasing competition within certain categories. If I think about, you know, law, it's Harvey and Lagora. If I think about customer support, Sierra and Decagon, and there are Dominant funded players. How do you think about the ability for firms to king make? Is king making complete bullshit? Is it not? I'm just intrigued to get your thoughts on that.

A King making is a thing. I think it is a thing you see, uh, earlier and earlier companies are getting these rounds that are valuing them, you know, at, at valuations, which really are eye opening. That said, I think it won't work unless the The company executes on the promise. I think, uh, other firms can take it as a signal and decide to pile on or not. And, you know, but, but ultimately the, the company has to execute on the vision. If it doesn't, then it's just a bad bet. So yes, it is there, but it by itself, just because you can make doesn't mean they are the king. They still have to execute and justify it. If not them, I think the reality is everything different games, right? You and I know being venture catalysts now that You know, somebody with a ten billion dollar fund is playing a fundamentally different game than somebody with a four hundred million dollar fund, um, and if you try to play the same game there, you're going to lose. You've got to play the game that you're best equipped to play. Benchmark plays a different game than, than, say, Andreessen Horowitz, but both of them play different games, and both of them do well at their game.

AI assessment note: “King making is a thing.”

Q me this. It is shit. Um, anyway, we mentioned WeWork earlier. I use WeWork as an example with Miles Clements about selling. I'd love to hear your thoughts on how do you think about when to sell? Obviously we have investors, you have LP stake. They care about DPI today more than ever. How do you think about liquidity and when's the right time to take chips off the table?

A As an angel, I used to hold till IPO. So Figma had many liquidity opportunities during the years, but I kept, kept holding it for 13 years till it went public. And, uh, I think at the IPO, it was actually priced very nicely. Unfortunately, after the IPO, it has been, uh, it has been more challenging price wise. Uh, but I think as a, as a fund investor, it becomes interesting. I think there are two situations. One of the things I think most early stage firms get wrong is they just focus on Moik. They don't focus on IRR. And MOIC is multiple or invested capital. I think IRR matters a lot, as you know. And so you can have an LP told us about a firm that gave them a seven X MOIC over 20 years. And that was a teens IRR. And that is like, okay, you know, there's something crazy here. I mean, that isn't a venture, venture company, venture firm. And so you've got to look at go forward IRR and your projection. If you go forward IRR at every liquidity opportunity is lower Then what you are basically promising your LPs or what you think your fund should have. I think you should sell. I think you have an obligation to LPs to at least sell. I like Fred Wilson's strategy around selling, which is sell a third, hold a third and trade a third. This is when the asset is completely liquid. Uh, but in this case, I think you want to sell at least part of it, especially if the asset is a, uh, is a, …

AI assessment note: “If you go forward IRR at every liquidity opportunity is lower... I think you should sell.”

Q high, revenue retention sky high. Honestly, if Anthropic or OpenAI did an enterprise product that's note-taking and it's connected to all of the different suite of products that they have, I think that heavily threatens the market size that Granola is able to expand into, into large enterprise. How do you think about the worthiness of those retention numbers if there are alternative factors like that that could impact it?

A Yeah. I think you want to keep, you want to basically weigh the retention in the light of what they have encountered. You're absolutely right. I think you want to see, just like you want to weigh the growth of a company, uh, in, in light of, have you gone through any seismic events? If they've not gone through any seismic events, you've got to then take it to the grain of salt. What comparative threats have you faced as a single competitor come out? Have you been able to ward off that? Has your retention stayed strong in light of that? I do think, I think some of these, these products like granola, et cetera, have, uh, We'll see if they are the case, but they are these unique products that really open up non-consumption markets, which means that I would never have actually bought a note-taker before, uh, a separate note-taker outside of Zoom or something. Cause Zoom comes with its own note-taker. GM, it comes with note-taker, but Granola is so powerful that it basically got me to consume a separate note-taking product. And it's probably true for many of us. And, and I think that just changed the, Market opportunity for them. I think Uber and so on are great examples where they just saw non-consumption markets.

AI assessment note: “you want to basically weigh the retention in the light of what they have encountered”

Q Do you buy the proprietary founder access? Again, this is where I get grumpy as fuck, but I've done 3000 shows, dude, you know, at some point you have to get cranky. Like every venture investor sells the proprietary.

A There's no proprietary founder access. What is proprietary is your ability to add value. And I think founders, you basically have to, I think, build, if you're just capital and assuming founders will come to you, You're not going to win, but what you have to offer them is something, what you offer them is something very different and unique. What I offer them is something very different and unique. We all have, I think you've got to hone as investors. What is it that we're offering? Is it counsel? Yes, that's free. Is it, is it distribution? You offer incredible distribution. Is it a network of customers that you can get them access to? Is it like talent hiring? What is it they can do?

AI assessment note: “There's no proprietary founder access. What is proprietary is your ability to add value.”

Q the first few years either. I don't think Deliveroo did, who obviously DoorDash acquired. And so it's just funny that we kind of repeat the same mental cycles of, oh, the margins are shit. And it's like, Yeah, so were the best companies' margins. Spotify didn't have great margins for a very long time, and their margin increase has been amazing, actually. Dude, DoorDash, what is the lesson from DoorDash?

A It was the most operational of all four companies. I thought I was a good operator. When I got to DoorDash, I really realized what operations means, and so a lot of my philosophies around how to truly operate in a hard, hard, in hard mode have been shaped by it. It really was the Epithesis or the epitome of how, I think how product and operations can work together in the physical world. So how it shaped my, uh, my investing philosophy is the kinds of people that, that came out of DoorDash. I think they are, I just think they are excellent. And I try to get them. It's really around hiring. It's around talent. It's around taking really hard problems. And so I'll never forget when COVID hit, as you, as you know, most restaurants were shut down for the first For the first couple of weeks. And so DoorDash had to make a very hard call around how to base what to do, how to get these restaurants open. And ultimately we decided to not take any revenue share from these restaurants for a month. Uh, even though we were a private company, we had somewhat of cash on the balance sheet and that really hurt. It was the right thing to do in the long term, but it was extremely painful in the short term.

AI assessment note: “a lot of my philosophies around how to truly operate in a hard, hard, in hard mode”

Q So do you think Salesforce and systems of record like Salesforce are inherently attractive or less attractive given the data portability increasing?

A They are more attractive than most companies, most software companies, but if they don't build, um, agentic workflows and commodities as a compliment, By giving, by figuring out where the profit pool is. I think they have to figure out as a profit person, the data profit pool in the data or the workflows. If in the workflows, they need to make data storage free and basically change pricing to an outcome based model based on workflows. If they feel the profit pool is in the data, then they need to give away these workflows for free. And so they need to really commoditize all the agentic companies that you know, that are trying to build on top of them and charge for that. They need to build better products using their data. And make it free. And I think that's the way that a net suite or a sales for the system record needs to operate. They have to commoditize a compliment. They can't just wait around for other people to build on top of them.

AI assessment note: “They are more attractive than most companies, most software companies, but if they don't”