The Exchanges

Q Now, I'd love to start off today by hearing a little about you, and you're now a GP at Flybridge, but how did you make your way into the world of VC, and what was really your starting point?

A Sure. The trajectory for me was, first, I was a computer science undergrad and son of an entrepreneur, so I had a great passion for technology and entrepreneurship and thought that I would Embark on a career in that graduated from college. I took a couple years as a wayward management consultant at the Boston Consulting Group, and then went to Harvard Business School with the intent of learning how to be a manager and focus on being an entrepreneurial manager. And I bumped into a bunch of VCs while I was at HBS and had never heard of the industry, didn't know anything about it, was recruited by one of them to join and turned it down because I wanted to be an entrepreneur, but it gave me that interesting exposure to And they put me in touch with one of their portfolio companies, which I then joined as an executive in the early days. But anyway, it gave me, um, entry into the startup world and the VC backed startup world. I then, after five years of that, we went public and had a great run. After five years, I left to start another company also backed by the same VC, uh, Greylock. After, uh, three years of that, I co-founded Flybridge with a former Greylock partner. It was sort of a succultuous route through the path of entrepreneurship.

AI assessment note: “I co-founded Flybridge with a former Greylock partner.”

Q Now, I'd love to start off today by hearing a little about you, and you're now a GP at Flybridge, but how did you make your way into the world of VC, and what was really your starting point?

A Sure. The trajectory for me was, first, I was a computer science undergrad and son of an entrepreneur, so I had a great passion for technology and entrepreneurship and thought that I would Embark on a career in that graduated from college. I took a couple years as a wayward management consultant at the Boston Consulting Group, and then went to Harvard Business School with the intent of learning how to be a manager and focus on being an entrepreneurial manager. And I bumped into a bunch of VCs while I was at HBS and had never heard of the industry, didn't know anything about it, was recruited by one of them to join and turned it down because I wanted to be an entrepreneur, but it gave me that interesting exposure to And they put me in touch with one of their portfolio companies, which I then joined as an executive in the early days. But anyway, it gave me, um, entry into the startup world and the VC backed startup world. I then, after five years of that, we went public and had a great run. After five years, I left to start another company also backed by the same VC, uh, Greylock. After, uh, three years of that, I co-founded Flybridge with a former Greylock partner. It was sort of a succultuous route through the path of entrepreneurship.

AI assessment note: “co-founded Flybridge with a former Greylock partner.”

Q And then applying that then to the VC space, I often get told there's a ceiling, a glass ceiling for those without that operational exposure. Do you, do you believe that is still very much the case?

A I don't. I never believe there's one path to the final journey. Great examples of VCs who never have any operating experience, and I have one of them sitting next to me in my office, and Chip Hazard, who's an incredibly successful investor, was my co-founder here at Flybridge, previously at Greylock, and he came into the venture business right out of business school with no operating experience. So I still think people can do it. I do advise a lot of my students and young folks who are aspiring to get into VC that if you can, I think it is advantageous to get some operating experience, to be more empathetic, to Learn the lessons of going up and down and sideways and forth and of startup, but I think anybody really can do this business if they have a mindset that's the proper mindset for it.

AI assessment note: “I don't. I never believe there's one path to the final journey.”

Q You say about pitches there. Uh, I'm going to be very horrible here and ask you, what's the best pitch that you've, that you've witnessed now? You've been a VC for many years. You've seen many incredible pitches in companies. What's been one of the most impressive?

A I think one of the best pitches I've seen was Mike Baker from DataZoo, which is now a multi-hundred million dollar programmatic advertising company in our portfolio and a leader in that space, because Mike had a vision for how the future would unfold, and he was incredibly articulate about Describing that vision to us and laying out the steps that would lead to his company being a market leader if that vision played out and that vision, which is big data coming to advertising and programmatic buying becoming the standard for large advertisers has exactly played out. And I think it was the fact that Mike was so had such domain knowledge, such a vision, that ability to see around the corner, but yet to explain it to us as a late people very clearly was incredibly compelling.

AI assessment note: “I think one of the best pitches I've seen was Mike Baker from DataZoo”

Q Uh, that's very funny. Um, and I, you know, hyper growth obviously brings about it, uh, inherent risk and going all out for customers bring, does bring risk. So, so how trans transparent do you think founders are with you on risk as a VC? And what would you like them to address then with regards to risk in pitches?

A I think this is a great question and it's not well understood by founders and entrepreneurs because a lot of founders will try to hide risk. As opposed to make it super visible and transparent, and then articulate their risk mitigation plan. I think the most compelling pitches are when the founder articulates more risks than I can think of, and then lays out really thoughtful risk mitigation plans, and also articulates those plans in the context of the financing. So for example, they say, hey, we know that adoption is a huge risk, and over the next 12 months we're going to run a bunch of adoption experiments, and with the seed money, At the end of 12 months, we will have achieved the following learnings about adoption and milestones related to adoption, and then the next round of capital will be to drive adoption more aggressively based on the lessons. Like, that's a really thoughtful response, as opposed to my saying, hey guys, isn't adoption a real risk here? How are you thinking about that, and what's your plan for that, and suddenly they're on their heels.

AI assessment note: “a lot of founders will try to hide risk. As opposed to make it super visible”

Q And then applying that then to the VC space, I often get told there's a ceiling, a glass ceiling for those without that operational exposure. Do you, do you believe that is still very much the case?

A I don't. I never believe there's one path to the final journey. Great examples of VCs who never have any operating experience, and I have one of them sitting next to me in my office, and Chip Hazard, who's an incredibly successful investor, was my co-founder here at Flybridge, previously at Greylock, and he came into the venture business right out of business school with no operating experience. So I still think people can do it. I do advise a lot of my students and young folks who are aspiring to get into VC that if you can, I think it is advantageous to get some operating experience, to be more empathetic, to Learn the lessons of going up and down and sideways and forth and of startup, but I think anybody really can do this business if they have a mindset that's the proper mindset for it.

AI assessment note: “I don't. I never believe there's one path to the final journey.”

Q How do you think the return expectations differ when you've got, you know, Flybridge has now had several funds. So, so how have the return expectations differed as you've scaled up the fund sizes?

A I'm not sure they have. I think that because the formula is so simple, as I said, money in, money out, and it's a choice between one investment vehicle or another, it's a choice between one VC fund and another, or VC versus PE versus investing in ExxonMobil, the return metrics and the expectations are very consistent. I think one thing that arguably has changed is that the macro environment, the return environment with declining interest rates has been less appealing. And so there are fewer attractive places to earn high returns in the global capital system with low interest rates and poor performance in developing countries as of late. And so I think that makes venture returns, if they can be achieved, more interesting because the risk premium becomes worth it. In other words, the risk you take with a venture fund, which high risk, high reward, if the premium above a safe investment like U.S. Treasuries is low, then you would always invest in U.S. Treasuries. But Right now, US treasuries are basically returning zero. So, and many other low risk vehicles are returning zero. So the premium becomes more attractive if the venture fund can return 15, 20% year over year.

AI assessment note: “I'm not sure they have. I think that because the formula is so simple”

Q You say about pitches there. Uh, I'm going to be very horrible here and ask you, what's the best pitch that you've, that you've witnessed now? You've been a VC for many years. You've seen many incredible pitches in companies. What's been one of the most impressive?

A I think one of the best pitches I've seen was Mike Baker from DataZoo, which is now a multi-hundred million dollar programmatic advertising company in our portfolio and a leader in that space, because Mike had a vision for how the future would unfold, and he was incredibly articulate about Describing that vision to us and laying out the steps that would lead to his company being a market leader if that vision played out and that vision, which is big data coming to advertising and programmatic buying becoming the standard for large advertisers has exactly played out. And I think it was the fact that Mike was so had such domain knowledge, such a vision, that ability to see around the corner, but yet to explain it to us as a late people very clearly was incredibly compelling.

AI assessment note: “one of the best pitches I've seen was Mike Baker from DataZoo”

Q I guess my questions there are twofold there. In terms of what were your big learnings from watching such companies go into hypergrowth mode? And then also a second one on that. To what extent do you think there's a glass ceiling on individuals who don't go through that process reaching GP status at other funds? So let's start with the learnings and then the glass ceiling.

A Yeah, the learnings I had from hypergrowth, and we went from Zero to a hundred million revenue in a couple years, and 600 employees, and a couple billion dollar market cap over the course of my five-year tenure, and so we experienced quite a bit of growth, and my experience, my learnings were numerous, but one of the most important ones was that all the systems that you design when you're a certain size are completely wrong six months or 12 months later, and you have to keep designing systems, whether it's human capital systems, Whether it's decision-making systems, whether it's communication systems, you have to keep reinventing yourself every six or 12 months when you're in hypergrowth mode, as opposed to getting comfortable and settling in to a certain way of doing things.

AI assessment note: “one of the most important ones was that all the systems that you design”

Q Uh, that's very funny. Um, and I, you know, hyper growth obviously brings about it, uh, inherent risk and going all out for customers bring, does bring risk. So, so how trans transparent do you think founders are with you on risk as a VC? And what would you like them to address then with regards to risk in pitches?

A I think this is a great question and it's not well understood by founders and entrepreneurs because a lot of founders will try to hide risk. As opposed to make it super visible and transparent, and then articulate their risk mitigation plan. I think the most compelling pitches are when the founder articulates more risks than I can think of, and then lays out really thoughtful risk mitigation plans, and also articulates those plans in the context of the financing. So for example, they say, hey, we know that adoption is a huge risk, and over the next 12 months we're going to run a bunch of adoption experiments, and with the seed money, At the end of 12 months, we will have achieved the following learnings about adoption and milestones related to adoption, and then the next round of capital will be to drive adoption more aggressively based on the lessons. Like, that's a really thoughtful response, as opposed to my saying, hey guys, isn't adoption a real risk here? How are you thinking about that, and what's your plan for that, and suddenly they're on their heels.

AI assessment note: “a lot of founders will try to hide risk. As opposed to make it super visible”

Q What are their struggles? Is it not communicating the benefits well enough, not having enticing enough features?

A All of those things. It's having the bar in some ways be too high. The free product may be too good. And the quality and value proposition of the paid products may not be good enough. And if you lower the bar on the free product, then sometimes you lose conversion rates, and suddenly your adoption, you have a lot of attrition, and your adoption strategy goes away. I think Evernote, I'm not, I don't know Evernote's numbers, but I know that they've recently changed their product to lower the bar on the free product, and as a customer, I kind of find that annoying. And they're focused on profitability, and time will tell how it plays out for them, but you, you see that behavior at times, and that can be sometimes to the detriment of the, of the overall equity value creation.

AI assessment note: “All of those things. It's having the bar in some ways be too high.”

Q How do you think the return expectations differ when you've got, you know, Flybridge has now had several funds. So, so how have the return expectations differed as you've scaled up the fund sizes?

A I'm not sure they have. I think that because the formula is so simple, as I said, money in, money out, and it's a choice between one investment vehicle or another, it's a choice between one VC fund and another, or VC versus PE versus investing in ExxonMobil, the return metrics and the expectations are very consistent. I think one thing that arguably has changed is that the macro environment, the return environment with declining interest rates has been less appealing. And so there are fewer attractive places to earn high returns in the global capital system with low interest rates and poor performance in developing countries as of late. And so I think that makes venture returns, if they can be achieved, more interesting because the risk premium becomes worth it. In other words, the risk you take with a venture fund, which high risk, high reward, if the premium above a safe investment like U.S. Treasuries is low, then you would always invest in U.S. Treasuries. But Right now, US treasuries are basically returning zero. So, and many other low risk vehicles are returning zero. So the premium becomes more attractive if the venture fund can return 15, 20% year over year.

AI assessment note: “I'm not sure they have. I think that because the formula is so simple”

Q And then, and then reverting back to, sorry, the learnings, a quick question on kind of the impermanent nature and having to change structures every six to 12 months. How do you establish then, uh, cultures and, and, and solid kind of work processes when you're in an ever state of flux and change?

A That's a great question. It really settles in on values and culture, you use the word. If you have a consistent set of values and culture and hopefully a consistent mission and a consistent purpose that you're trying to achieve with your startup, hopefully centered around a big problem and a particular customer or customer persona that you're trying to solve that problem for, if you can maintain that focus, then all the other pieces are more disposable. And that's really the key is not to dispose of the culture and the focus and the strategy and the mission. You want to keep that constant as best as possible, but to dispose of organizational structures and communication structures as quickly as possible, as quickly in anticipating their breakdown ahead of time.

AI assessment note: “If you have a consistent set of values and culture”

Q What are their struggles? Is it not communicating the benefits well enough, not having enticing enough features?

A All of those things. It's having the bar in some ways be too high. The free product may be too good. And the quality and value proposition of the paid products may not be good enough. And if you lower the bar on the free product, then sometimes you lose conversion rates, and suddenly your adoption, you have a lot of attrition, and your adoption strategy goes away. I think Evernote, I'm not, I don't know Evernote's numbers, but I know that they've recently changed their product to lower the bar on the free product, and as a customer, I kind of find that annoying. And they're focused on profitability, and time will tell how it plays out for them, but you, you see that behavior at times, and that can be sometimes to the detriment of the, of the overall equity value creation.

AI assessment note: “All of those things. It's having the bar in some ways be too high.”

Q And then, and then reverting back to, sorry, the learnings, a quick question on kind of the impermanent nature and having to change structures every six to 12 months. How do you establish then, uh, cultures and, and, and solid kind of work processes when you're in an ever state of flux and change?

A That's a great question. It really settles in on values and culture, you use the word. If you have a consistent set of values and culture and hopefully a consistent mission and a consistent purpose that you're trying to achieve with your startup, hopefully centered around a big problem and a particular customer or customer persona that you're trying to solve that problem for, if you can maintain that focus, then all the other pieces are more disposable. And that's really the key is not to dispose of the culture and the focus and the strategy and the mission. You want to keep that constant as best as possible, but to dispose of organizational structures and communication structures as quickly as possible, as quickly in anticipating their breakdown ahead of time.

AI assessment note: “You want to keep that constant as best as possible, but to dispose of organizational structures”

Q I guess my questions there are twofold there. In terms of what were your big learnings from watching such companies go into hypergrowth mode? And then also a second one on that. To what extent do you think there's a glass ceiling on individuals who don't go through that process reaching GP status at other funds? So let's start with the learnings and then the glass ceiling.

A Yeah, the learnings I had from hypergrowth, and we went from Zero to a hundred million revenue in a couple years, and 600 employees, and a couple billion dollar market cap over the course of my five-year tenure, and so we experienced quite a bit of growth, and my experience, my learnings were numerous, but one of the most important ones was that all the systems that you design when you're a certain size are completely wrong six months or 12 months later, and you have to keep designing systems, whether it's human capital systems, Whether it's decision-making systems, whether it's communication systems, you have to keep reinventing yourself every six or 12 months when you're in hypergrowth mode, as opposed to getting comfortable and settling in to a certain way of doing things.

AI assessment note: “one of the most important ones was that all the systems that you design”

Q Absolutely. And that optionality is absolutely obviously key for VCs. In terms of the growth versus profitability mindset, we've seen a big shift in terms of unit economics and founders much more concerned about their unit economics causing the slowing of growth. Does that concern you or does it reassure you in the founders realistic approach to the macroeconomy?

A I am pleased when founders are realistic. I think that there is this weird dichotomy you have to have of having your head in the clouds, but your feet on the ground. As a founder, you've got to be optimistic. You're trying to create something amazing from nothing. So how can you not be optimistic? Real business and creating real value. And when the pendulum swings too far one way or the other, I think it's a bad thing. And in our industry, typically the pendulum does not swing too far in the realism, uh, category. It typically does swing too far into irrational exuberance to quote Alan Greenspan and founders getting very, uh, you know, markets getting frothy and founders and VCs, uh, feeding that froth. And so I think it's great that people are now being more realistic about profitability and And a good business is not just, uh, exciting and sexy businesses.

AI assessment note: “I am pleased when founders are realistic.”

Q Is there a danger of being too concerned about profitability and actually hampering growth to the extent that it endangers venture style returns and makes the business potentially not even venture backable?

A You know, across all the boards that I sit on and, and, you know, flybridge, we have 80, uh, investments that we've made over our 13 year history. We've got about four year, 50 active portfolio companies. I can't think of a single one where we're not being aggressive, uh, Enough and not thinking enough about growth balanced with profitability. And the reason I say that is because we're all focused on equity value creation. Both the entrepreneur and the VC were incredibly aligned in that regard. When the pendulum swings, it's usually swings for a reason. It's not because of joke about irrational exuberance, but it's usually not irrational. It's usually because the capital markets are behaving in such a way that you think you can create a lot of equity value through behavior that is detached from real business models. And then the capital market's Models again. And when those windows are open, if you're able to hit those windows with an exit M&A or IPO, and you can sustain that IPO price, you're going to generate great returns. And when those windows are closed, you have to build real businesses. And if you build real businesses, you can generate great returns. So I don't think it's a risk of the return profile being degraded. I think It's just a risk of,, it's just a,

AI assessment note: “I don't think it's a risk of the return profile being degraded.”

Q Is there a danger of being too concerned about profitability and actually hampering growth to the extent that it endangers venture style returns and makes the business potentially not even venture backable?

A You know, across all the boards that I sit on and, and, you know, flybridge, we have 80, uh, investments that we've made over our 13 year history. We've got about four year, 50 active portfolio companies. I can't think of a single one where we're not being aggressive, uh, Enough and not thinking enough about growth balanced with profitability. And the reason I say that is because we're all focused on equity value creation. Both the entrepreneur and the VC were incredibly aligned in that regard. When the pendulum swings, it's usually swings for a reason. It's not because of joke about irrational exuberance, but it's usually not irrational. It's usually because the capital markets are behaving in such a way that you think you can create a lot of equity value through behavior that is detached from real business models. And then the capital market's Models again. And when those windows are open, if you're able to hit those windows with an exit M&A or IPO, and you can sustain that IPO price, you're going to generate great returns. And when those windows are closed, you have to build real businesses. And if you build real businesses, you can generate great returns. So I don't think it's a risk of the return profile being degraded. I think It's just a risk of,, it's just a,

AI assessment note: “So I don't think it's a risk of the return profile being degraded.”

Q and cash on cash. Um, and Fred Wilson actually states, uh, in his brilliant post, uh, titled Losing Money, that losing money is a big part of being an investor. So I'm, I'm intrigued to hear how you approach the loss ratio with your funds. And, and what does it take for you to achieve the venture returns and previously stipulated with your check size and your kind of expectations?

A Yeah. Fred's post was excellent. Although I do wonder sometimes if all of this is totally irrelevant to entrepreneurs. I mean, when I was an entrepreneur, I'm not sure I really cared all that much. I only cared about me and my company and stepping back for people who do care about the macro system loss ratio is important. And there's a trend now this, and this trend does impact entrepreneurs, which There's a trend where VCs are not only thinking about the number of portfolio companies that are going to lose money, but also how to be more careful about exposing too much capital to those companies and staging their investments, because with the whole world of seed investments, uh, Seed investing exploding and just what I would call the disaggregation of seed investing, where now there's the seed one, the seed two, the pre-seed, the post-seed, the A, the A+, you know, all these rounds now are getting different names because they're all disaggregated from how they used to be. What it net results in is that venture capitalists can dole out the money and mitigate the risk over time, and so if I put in 500,000 dollars into a firm, live with it for a year, and then I have another investment decision to make, That's going to be a better investment decision than if I had put in three million dollars originally in the firm when I had less information.

AI assessment note: “venture capitalists can dole out the money and mitigate the risk over time”

Q Absolutely. And that optionality is absolutely obviously key for VCs. In terms of the growth versus profitability mindset, we've seen a big shift in terms of unit economics and founders much more concerned about their unit economics causing the slowing of growth. Does that concern you or does it reassure you in the founders realistic approach to the macroeconomy?

A I am pleased when founders are realistic. I think that there is this weird dichotomy you have to have of having your head in the clouds, but your feet on the ground. As a founder, you've got to be optimistic. You're trying to create something amazing from nothing. So how can you not be optimistic? Real business and creating real value. And when the pendulum swings too far one way or the other, I think it's a bad thing. And in our industry, typically the pendulum does not swing too far in the realism, uh, category. It typically does swing too far into irrational exuberance to quote Alan Greenspan and founders getting very, uh, you know, markets getting frothy and founders and VCs, uh, feeding that froth. And so I think it's great that people are now being more realistic about profitability and And a good business is not just, uh, exciting and sexy businesses.

AI assessment note: “I think it's great that people are now being more realistic about profitability”

Q and cash on cash. Um, and Fred Wilson actually states, uh, in his brilliant post, uh, titled Losing Money, that losing money is a big part of being an investor. So I'm, I'm intrigued to hear how you approach the loss ratio with your funds. And, and what does it take for you to achieve the venture returns and previously stipulated with your check size and your kind of expectations?

A Yeah. Fred's post was excellent. Although I do wonder sometimes if all of this is totally irrelevant to entrepreneurs. I mean, when I was an entrepreneur, I'm not sure I really cared all that much. I only cared about me and my company and stepping back for people who do care about the macro system loss ratio is important. And there's a trend now this, and this trend does impact entrepreneurs, which There's a trend where VCs are not only thinking about the number of portfolio companies that are going to lose money, but also how to be more careful about exposing too much capital to those companies and staging their investments, because with the whole world of seed investments, uh, Seed investing exploding and just what I would call the disaggregation of seed investing, where now there's the seed one, the seed two, the pre-seed, the post-seed, the A, the A+, you know, all these rounds now are getting different names because they're all disaggregated from how they used to be. What it net results in is that venture capitalists can dole out the money and mitigate the risk over time, and so if I put in 500,000 dollars into a firm, live with it for a year, and then I have another investment decision to make, That's going to be a better investment decision than if I had put in three million dollars originally in the firm when I had less information.

AI assessment note: “stepping back for people who do care about the macro system loss ratio is important”