The Exchanges

Q What were the big challenges in scaling that learning curve in the early days getting to grips with a venture for the first time?

A Well, it's embarrassing to think about the first few deals we did because they had none of the usual protections a venture deal did. It normally has. There was no preference. They were just playing out, hey, we'll buy 20% of your equity. It's embarrassing to look at that. Those deals ended up working out fine. In fact, one of them, Razorfish, it was the deal we probably made the most money on. It was not a smart way of doing it. There was a lot of learning, a lot of Going and talking to other VCs who, you know, were not especially impressed with corporate VC. So they took the meetings, and I'm glad they did, because I learned a lot. I don't think they learned anything.

AI assessment note: “first few deals we did because they had none of the usual protections”

Q Do you agree with Jason Lemkin, who always tells me that Harry VCs about packaging a product to sell on to the next guy for more money? Would that be a fair assessment in a very mechanical, non-human way?

A I don't look at it that way. If you say it that way, it makes it sound like you're trying to gild the lily, right? You're trying to sell them something that's not actually true. I do think that you need to know what the company needs to look like to raise more money, and in some sense, that's equivalent, and that you need to guide the company to that A lot of conversations I have in the first year with founders are along the lines of your company needs to look like this. You need to get there or else we can't raise more money. So is that packaging? I think it's not packaging so much as actually making progress towards what the company needs to be. Packaging makes it sound like a surface thing as opposed to, you know, real change or real progress.

AI assessment note: “I don't look at it that way. If you say it that way”

Q Fred always talks to me about board intimacy, kind of creating that interaction that's kind of more than just that transaction between board member and founder. How do you think about that in those very, very early days and having that kind of truly trusted relationship?

A I think it's both honesty and a realization of what the job is. So a board member has a lot of hats. One of them is, you know, as a board member, I am responsible for the investor's interest in the company. I mean, that's part of that's the fiduciary responsibility, but also as an early stage board member, I'm there to help the company succeed by helping the founder succeed. And for me, you know, the way I do it is I say, look, I'm going to take off this hat and put on that. I will be explicit about whose interests I am representing in any given conversation. There are conversations where I like my founders there, you know, I'm friends with many of my founders. I will say, Hey, I'm, I'm not speaking as a board member right now. I'm just speaking as a friend of yours and looking out for your interests. And at the times that, you know, I, I am the board member. I think being explicit about which role you're playing, depending on what you're saying, is important. Yeah, and I think, I think founders appreciate knowing that. I mean, they do know that as a board member, yes, you have a duty to look out for your shareholders' responsibility, your shareholders' investments, and by saying that, you know, and saying, look, here, this is, you need to treat the shareholders fairly, and here's what you need to do, they at least know where you're coming from when you're saying something.

AI assessment note: “I will be explicit about whose interests I am representing in any given conversation.”

Q That was a question from Fred. Fred said on the service element, do you think VCs actions can increase the chances of startup success? And if so, is there a real example that you'd use from your own experience to kind of tangibly show this kind of driven de-risking of yours?

A Yeah, I absolutely believe that VCs can increase the company's success. And I have examples, although I'm not going to name companies, I'm not going to take any credit from the founders who built those companies. They deserve all the credit. So there was a company where I Was the first investor, and the board was me and the founder. Now, this was very early stage, and every month we'd sit down and we'd say, alright, well, I would ask him, what have you done this month? Long board presentation. Show me your product plan, and then tick off the items that you have done. Okay, great. What do you plan to do next month? And this was our monthly board meeting for six months, and I think what it helped him do was continue driving the company forward, and I've been a founder. I know that it's easy to get lost in the weeds, you know, fixing some small element of the code for a month, because that's the kind of people founders are, the focus on details, right? But Having somebody who could come in and say, great, I'm glad you're focusing on details, but we need to continue having major improvements made every month so you're moving towards market, that you're sticking to your plan, that you're doing what you told me you were going to do. You know, I'm not the person in the That, I think, is important for founders to do.

AI assessment note: “Yeah, I absolutely believe that VCs can increase the company's success. And I have examples”

Q You mentioned that kind of board position there, where you were one of the earliest or first investors. When do you think founders should think about and then start establishing their board?

A I think they should have a board from day one, and I know that's not a popular opinion, especially with founders, but the typical conversation I have with founders is, look, you need a board. Like, oh, well, you know, it's a lot of work. So, you know, it shouldn't be a lot of work. What you should show the board in the first year is the same kinds of things that you're looking at. You know, you have a product plan, you have a wireframe, you have something that you're building, and you should be keeping track of what you've built, right? I mean, there should be some structure to what you're trying to do, and you should be keeping track of what's getting done, right? I mean, obviously. So show the board exactly what you're looking at and talk about it. That's all. It's not like you have to show complete P&Ls and five-year projections and, you know, have motions and that kind of thing. It's all you need to do is sit down and talk to somebody once a month because it adds an element of accountability that helps you get things done. And it's not, it's also not a control thing. You know, the board can be me and you and your dog, and hopefully your dog likes you better than me. That's fine. But you need somebody, right? And it doesn't have to be me. It could be anybody who's not part of the company, who's an outsider, who knows what they're doing. I don't care. I just want you to talk …

AI assessment note: “I think they should have a board from day one”

Q Can I ask, Jay, is it right to be company first or founder first?

A Well, You have to be company first, but my experience is when you remove the founder from a company, the company almost always does worse. Okay. If you're at the series C and you decide to bring in a professional CEO because the founder doesn't want to manage people or whatever, fine. Maybe I don't know because I'm an early stage investor, but if you remove the founder in the first few years of the company, you almost never bring in somebody who's going to do better than that founder would have done. Who are you going to hire in a company, which is clearly not doing well, because that's why you're removing the founder. That is going to be more motivated to make that company work than the founder was. And even from a purely selfish point of view, you're going to bring in somebody who is more of a mercenary than a visionary. And what do they owe to you as somebody who really helped them get off the ground? So it hurts both the company and I think it hurts the investor as well. That's my viewpoint. I mean, there've been a couple of times in the last 20 years where the founder has left the company because we brought in a new CEO and they didn't want to be second fiddle. When that happens, it's usually because something has gone very wrong, um, and it was never without warning.

AI assessment note: “Well, You have to be company first”

Q You mentioned that kind of board position there, where you were one of the earliest or first investors. When do you think founders should think about and then start establishing their board?

A I think they should have a board from day one, and I know that's not a popular opinion, especially with founders, but the typical conversation I have with founders is, look, you need a board. Like, oh, well, you know, it's a lot of work. So, you know, it shouldn't be a lot of work. What you should show the board in the first year is the same kinds of things that you're looking at. You know, you have a product plan, you have a wireframe, you have something that you're building, and you should be keeping track of what you've built, right? I mean, there should be some structure to what you're trying to do, and you should be keeping track of what's getting done, right? I mean, obviously. So show the board exactly what you're looking at and talk about it. That's all. It's not like you have to show complete P&Ls and five-year projections and, you know, have motions and that kind of thing. It's all you need to do is sit down and talk to somebody once a month because it adds an element of accountability that helps you get things done. And it's not, it's also not a control thing. You know, the board can be me and you and your dog, and hopefully your dog likes you better than me. That's fine. But you need somebody, right? And it doesn't have to be me. It could be anybody who's not part of the company, who's an outsider, who knows what they're doing. I don't care. I just want you to talk …

AI assessment note: “I think they should have a board from day one”

Q That was a question from Fred. Fred said on the service element, do you think VCs actions can increase the chances of startup success? And if so, is there a real example that you'd use from your own experience to kind of tangibly show this kind of driven de-risking of yours?

A Yeah, I absolutely believe that VCs can increase the company's success. And I have examples, although I'm not going to name companies, I'm not going to take any credit from the founders who built those companies. They deserve all the credit. So there was a company where I Was the first investor, and the board was me and the founder. Now, this was very early stage, and every month we'd sit down and we'd say, alright, well, I would ask him, what have you done this month? Long board presentation. Show me your product plan, and then tick off the items that you have done. Okay, great. What do you plan to do next month? And this was our monthly board meeting for six months, and I think what it helped him do was continue driving the company forward, and I've been a founder. I know that it's easy to get lost in the weeds, you know, fixing some small element of the code for a month, because that's the kind of people founders are, the focus on details, right? But Having somebody who could come in and say, great, I'm glad you're focusing on details, but we need to continue having major improvements made every month so you're moving towards market, that you're sticking to your plan, that you're doing what you told me you were going to do. You know, I'm not the person in the That, I think, is important for founders to do.

AI assessment note: “Yeah, I absolutely believe that VCs can increase the company's success.”

Q Fred always talks to me about board intimacy, kind of creating that interaction that's kind of more than just that transaction between board member and founder. How do you think about that in those very, very early days and having that kind of truly trusted relationship?

A I think it's both honesty and a realization of what the job is. So a board member has a lot of hats. One of them is, you know, as a board member, I am responsible for the investor's interest in the company. I mean, that's part of that's the fiduciary responsibility, but also as an early stage board member, I'm there to help the company succeed by helping the founder succeed. And for me, you know, the way I do it is I say, look, I'm going to take off this hat and put on that. I will be explicit about whose interests I am representing in any given conversation. There are conversations where I like my founders there, you know, I'm friends with many of my founders. I will say, Hey, I'm, I'm not speaking as a board member right now. I'm just speaking as a friend of yours and looking out for your interests. And at the times that, you know, I, I am the board member. I think being explicit about which role you're playing, depending on what you're saying, is important. Yeah, and I think, I think founders appreciate knowing that. I mean, they do know that as a board member, yes, you have a duty to look out for your shareholders' responsibility, your shareholders' investments, and by saying that, you know, and saying, look, here, this is, you need to treat the shareholders fairly, and here's what you need to do, they at least know where you're coming from when you're saying something.

AI assessment note: “I will be explicit about whose interests I am representing in any given conversation.”

Q Can I ask, Jay, is it right to be company first or founder first?

A Well, You have to be company first, but my experience is when you remove the founder from a company, the company almost always does worse. Okay. If you're at the series C and you decide to bring in a professional CEO because the founder doesn't want to manage people or whatever, fine. Maybe I don't know because I'm an early stage investor, but if you remove the founder in the first few years of the company, you almost never bring in somebody who's going to do better than that founder would have done. Who are you going to hire in a company, which is clearly not doing well, because that's why you're removing the founder. That is going to be more motivated to make that company work than the founder was. And even from a purely selfish point of view, you're going to bring in somebody who is more of a mercenary than a visionary. And what do they owe to you as somebody who really helped them get off the ground? So it hurts both the company and I think it hurts the investor as well. That's my viewpoint. I mean, there've been a couple of times in the last 20 years where the founder has left the company because we brought in a new CEO and they didn't want to be second fiddle. When that happens, it's usually because something has gone very wrong, um, and it was never without warning.

AI assessment note: “You have to be company first, but my experience is when you remove the founder”

Q Can I ask, as being a super early stage investor, I spoke to Mike Maples, and he said that, Harry, bridge rounds are often a bridge to nowhere. How do you view bridge rounds, especially kind of given your appetite for those earlier stages?

A Yeah, you know, I, a few years ago, I realized that if I was going to write a seed check, What was called the seed check back then, I guess it would be pre-seed now, but I was also going to have to write a second check to keep the company going because the gap between rounds had grown so large. So is it a bridge to nowhere? I don't, I don't consider that a bridge so much as a tranched investment. And I think there's a difference. The round size for the earliest rounds should be larger than it is, but because people tend to continue doing things the way they had been done, it just isn't. So if you raise a pre-seed round of 500 K, you're, you're almost certainly going to need At least another million to get to the series A. So there's a second round, maybe a third round. You know, what they're called, you know, changes, but it's really a trunched investment. I'm putting a little bit of money in at the beginning and reserving more so the company is actually doing what they say they're going to do, then I can put more money in. You know, I think part of the reason that my returns have been good is that for the companies that have failed, I haven't lost a lot of money.

AI assessment note: “I don't consider that a bridge so much as a tranched investment.”

Q The New York ecosystem overhyped or truly rich, deep, and incredible?

A It's easy to be cynical about New York when you're in New York, and I've been investing from New York for 20 years, although only 40% of my investments have been in New York. It goes through cycles. I think back in 1997, you could get every entrepreneur in New York City into one bar, and people did that. Now it's enormous, the ecosystem, and I think it's, you know, if you look at the number of big companies, New York is well ahead of any other place except for the San Francisco Bay Area, so which is, it's amazing. Indicators that New York is going to become a much better market for starting companies, um, over the next 10 years. I think that's, again, a little two steps forward, one step back. The last couple of years have been a little quiet. I'm looking forward to the next five years. I think it's going to be enormous here.

AI assessment note: “New York is well ahead of any other place except for the San Francisco Bay Area”

Q You speak about your analysis there, Jerry, and one area where I have so much respect for you in terms of kind of investment decision-making, being a solo investor, I'd love to hear how that investment decision-making looks for you with that kind of single mindset, and has it changed with time and with kind of the development of theses and data that you just mentioned?

A Yeah, the hardest thing about being solo is that there's nobody to tell you that you're making a stupid decision. Anybody in this business, either an entrepreneur or an investor, is by nature an optimist. I mean, you have to be. Do you have any other ways to check your own thinking to kind of reassess its kind of validity? I write myself an investment memo. I kind of feel stupid doing it because nobody else reads it, but I force myself to do it. All right. Who are the competitors? What's the market? What do I expect to happen here? I talk to investors who might fund the next round, so I'll call up a Series A investor and say, hey, what do you think of this company? They say, oh, well, it's way too early for us. Oh, yeah? Well, what would make it not be too early for you? What would it have to look like for it to not be too early? And if you do that, you can actually start to set goalposts for the company. It's like, okay, this company is going to need five million dollars in ARR, To raise Series A capital, at least according to the couple people I talked to, how do we get to five million dollars in ARR with the money that we're putting into this ramp? Is it possible? Can this company get to getting the Series A raised? That's not saying the company will end up being successful, but it at least eliminates some of the financing risk that you face. And as a small investor, financi…

AI assessment note: “I write myself an investment memo... I talk to investors who might fund the next round”

Q stumbling blocks to the deals themselves. And one of them is kind of competition. So I'd love to hear Your thoughts around competition. Jason Lemkin said to me before that if Fred Wilson and Bill Gurley had to hustle to get their best deals, how are you going to win? I guess, do you think that's a fair question to ask first, and then how would you respond to it?

A So let's turn it around. I was a founder, and I pitched ADVCs to raise my A very bad idea, but we didn't realize it. How did we do that? Right. So who did we talk to? I mean, I think there's two steps to winning a deal. One is being one of the first people they talk to, right? Being top of their list. And two is having an open and transparent and rapid process to coming to a decision. So how did we figure out which VCs we were going to talk to first? Well, we went down the list of VCs that we knew of and said, who, who would be interested in this company, right? Who, who do we think would actually take a meeting with us And know what we're talking about and not waste our time. And so we made that list. And then we went down that list and we said, all right, which of these VCs are just complete assholes? And we took that half out. And then we went down the road. Did I say half? Yeah. Right. And then the other half, we said, which of these people can we get a warm introduction to? Ended up getting warm introductions to all of them, but some of them we got warm introductions to immediately. And some we got warm introductions to later as we went through the process that took us longer. So That was our process, right? So if you want to be one of the first five VCs that a founder talks to, I think you need a couple things. One, you need to be interested in what they're doing, and the…

AI assessment note: “I think there's two steps to winning a deal.”

Q You speak about your analysis there, Jerry, and one area where I have so much respect for you in terms of kind of investment decision-making, being a solo investor, I'd love to hear how that investment decision-making looks for you with that kind of single mindset, and has it changed with time and with kind of the development of theses and data that you just mentioned?

A Yeah, the hardest thing about being solo is that there's nobody to tell you that you're making a stupid decision. Anybody in this business, either an entrepreneur or an investor, is by nature an optimist. I mean, you have to be. Do you have any other ways to check your own thinking to kind of reassess its kind of validity? I write myself an investment memo. I kind of feel stupid doing it because nobody else reads it, but I force myself to do it. All right. Who are the competitors? What's the market? What do I expect to happen here? I talk to investors who might fund the next round, so I'll call up a Series A investor and say, hey, what do you think of this company? They say, oh, well, it's way too early for us. Oh, yeah? Well, what would make it not be too early for you? What would it have to look like for it to not be too early? And if you do that, you can actually start to set goalposts for the company. It's like, okay, this company is going to need five million dollars in ARR, To raise Series A capital, at least according to the couple people I talked to, how do we get to five million dollars in ARR with the money that we're putting into this ramp? Is it possible? Can this company get to getting the Series A raised? That's not saying the company will end up being successful, but it at least eliminates some of the financing risk that you face. And as a small investor, financi…

AI assessment note: “I write myself an investment memo... I talk to investors who might fund the next round”

Q What were the big challenges in scaling that learning curve in the early days getting to grips with a venture for the first time?

A Well, it's embarrassing to think about the first few deals we did because they had none of the usual protections a venture deal did. It normally has. There was no preference. They were just playing out, hey, we'll buy 20% of your equity. It's embarrassing to look at that. Those deals ended up working out fine. In fact, one of them, Razorfish, it was the deal we probably made the most money on. It was not a smart way of doing it. There was a lot of learning, a lot of Going and talking to other VCs who, you know, were not especially impressed with corporate VC. So they took the meetings, and I'm glad they did, because I learned a lot. I don't think they learned anything.

AI assessment note: “There was a lot of learning, a lot of Going and talking to other VCs”

Q stumbling blocks to the deals themselves. And one of them is kind of competition. So I'd love to hear Your thoughts around competition. Jason Lemkin said to me before that if Fred Wilson and Bill Gurley had to hustle to get their best deals, how are you going to win? I guess, do you think that's a fair question to ask first, and then how would you respond to it?

A So let's turn it around. I was a founder, and I pitched ADVCs to raise my A very bad idea, but we didn't realize it. How did we do that? Right. So who did we talk to? I mean, I think there's two steps to winning a deal. One is being one of the first people they talk to, right? Being top of their list. And two is having an open and transparent and rapid process to coming to a decision. So how did we figure out which VCs we were going to talk to first? Well, we went down the list of VCs that we knew of and said, who, who would be interested in this company, right? Who, who do we think would actually take a meeting with us And know what we're talking about and not waste our time. And so we made that list. And then we went down that list and we said, all right, which of these VCs are just complete assholes? And we took that half out. And then we went down the road. Did I say half? Yeah. Right. And then the other half, we said, which of these people can we get a warm introduction to? Ended up getting warm introductions to all of them, but some of them we got warm introductions to immediately. And some we got warm introductions to later as we went through the process that took us longer. So That was our process, right? So if you want to be one of the first five VCs that a founder talks to, I think you need a couple things. One, you need to be interested in what they're doing, and the…

AI assessment note: “So let's turn it around. I was a founder, and I pitched ADVCs”