The Exchanges

Q that with newer firms, but the more traditional definitely with what was 20, now more 15. Before you've said to me, and before you've said to other people, in terms of, like, concentration of capital and my ownership, VCs should care more about their cost of capital and less about their ownership percentage. Why do you think that is when so much of the industry is predicated on ownership percentage?

A I think a lot of this has to do with heuristics that were created, you know, a long time ago. They make sense, but only when you view them in the context for which they were made. You know, look back at the Facebook investment that Peter did, right? So a lot of firms looked at that, and a lot of people just decided that they were unwilling to do it if they couldn't get their 20%, right? And then the question is, where does this magical 20% number come from? And what it effectively comes from is People are thinking about potential exit values, fund sizes, and saying, I need to own a certain percentage of a company based on some assumption of exit values to return my fund. So that way, if I have a couple of winners, I can generate fund level returns that are attractive to my investor. And like, that all makes sense. And then when you ran that math, you sort of ended up with something approximating 20%. The reason why it's important to not just use heuristics, but to understand where they came from is, you know, what happened with Facebook is Peter ended up investing half a million dollars for like 10% of the company. Well, who cares if you only have 10% of the company when the company ends up being a hundred billion dollar IPO? Whether or not you own 10 or 20, if your options were, you know, 10 or zero, you pick 10. And so focusing strictly on ownership percentage really, I think…

AI assessment note: “focusing strictly on ownership percentage really, I think, blinds people to opportunities”

Q that with newer firms, but the more traditional definitely with what was 20, now more 15. Before you've said to me, and before you've said to other people, in terms of, like, concentration of capital and my ownership, VCs should care more about their cost of capital and less about their ownership percentage. Why do you think that is when so much of the industry is predicated on ownership percentage?

A I think a lot of this has to do with heuristics that were created, you know, a long time ago. They make sense, but only when you view them in the context for which they were made. You know, look back at the Facebook investment that Peter did, right? So a lot of firms looked at that, and a lot of people just decided that they were unwilling to do it if they couldn't get their 20%, right? And then the question is, where does this magical 20% number come from? And what it effectively comes from is People are thinking about potential exit values, fund sizes, and saying, I need to own a certain percentage of a company based on some assumption of exit values to return my fund. So that way, if I have a couple of winners, I can generate fund level returns that are attractive to my investor. And like, that all makes sense. And then when you ran that math, you sort of ended up with something approximating 20%. The reason why it's important to not just use heuristics, but to understand where they came from is, you know, what happened with Facebook is Peter ended up investing half a million dollars for like 10% of the company. Well, who cares if you only have 10% of the company when the company ends up being a hundred billion dollar IPO? Whether or not you own 10 or 20, if your options were, you know, 10 or zero, you pick 10. And so focusing strictly on ownership percentage really, I think…

AI assessment note: “focusing strictly on ownership percentage really, I think, blinds people to opportunities”

Q with newer firms, but the more traditional definitely with what was, 20, now more, 15. Before that, you've said to me, and before you've said to other people, in terms of, like, concentration of capital and, like, ownership, VCs should care more about their cost of capital and less about their ownership particularly. Why do you think that is when so much of the industry is predicated on ownership percentage?

A I think a lot of this has to do with heuristics that were created, you know, a long time ago. They make sense, but only when you view them in the context for which they were made. You know, look back at the Facebook investment that Peter did, right? So a lot of firms looked at that, and a lot of people just decided that they were unwilling to do it if they couldn't get their 20%, right? And then the question is, where does this magical 20% number come from? And what it effectively comes from is people are thinking about potential exit values, fund sizes, and saying, I need to own a certain percentage of a company based on some assumption of exit values to return my fund. So that way, if I have a couple of winners, I can generate fund level returns that are attractive to my investor. And like, that all makes sense. And then when you ran that math, you sort of ended up with something approximating 20%. The reason why it's important to not just use heuristics, but to understand where they came from is, you know, what happened with Facebook Is Peter ended up investing half a million dollars for like 10% of the company. Well, who cares if you only have 10% of the company when the company ends up being a hundred billion dollar IPO. Whether or not you own 10 or 20, if your options were, you know, 10 or zero, you pick 10. And so focusing strictly on ownership percentage really, I think…

AI assessment note: “focusing strictly on ownership percentage really, I think, blinds people to opportunities”

Q with newer firms, but the more traditional definitely with what was, 20, now more, 15. Before that, you've said to me, and before you've said to other people, in terms of, like, concentration of capital and, like, ownership, VCs should care more about their cost of capital and less about their ownership particularly. Why do you think that is when so much of the industry is predicated on ownership percentage?

A I think a lot of this has to do with heuristics that were created, you know, a long time ago. They make sense, but only when you view them in the context for which they were made. You know, look back at the Facebook investment that Peter did, right? So a lot of firms looked at that, and a lot of people just decided that they were unwilling to do it if they couldn't get their 20%, right? And then the question is, where does this magical 20% number come from? And what it effectively comes from is people are thinking about potential exit values, fund sizes, and saying, I need to own a certain percentage of a company based on some assumption of exit values to return my fund. So that way, if I have a couple of winners, I can generate fund level returns that are attractive to my investor. And like, that all makes sense. And then when you ran that math, you sort of ended up with something approximating 20%. The reason why it's important to not just use heuristics, but to understand where they came from is, you know, what happened with Facebook Is Peter ended up investing half a million dollars for like 10% of the company. Well, who cares if you only have 10% of the company when the company ends up being a hundred billion dollar IPO. Whether or not you own 10 or 20, if your options were, you know, 10 or zero, you pick 10. And so focusing strictly on ownership percentage really, I think…

AI assessment note: “focusing strictly on ownership percentage really, I think, blinds people to opportunities”

Q Totally agree with you in terms of getting over the hump there. It does make me think of something that Brian Singerman said to me one day when he was like, the enemy of great venture returns is limits on the concentration of capital per company. Would you agree with him? And how, how do you think about kind of concentration of capital on a per company basis?

A So I actually, I mean, one, I, I think we generally speaking agree partially because we have a similar viewpoint on investing. We actually think that the concentration of capital is a risk for the manager, right? At the end of the day, the way to make the best returns is to invest in one company that does incredibly well. Everything else is basically pulling you down. That's clearly the correct answer if you're Only focused on returns. I think as a manager, you care about volatility, and so even if you have a fair amount of certainty about one company, you may not want to only own one thing. And so by diversifying, you're reducing your volatility, but absolutely at a cost of the best returns. And I think even Founders Fund, you know, I mean, back, back in Founders Fund too, I mean, SpaceX was a, basically a forty million dollar position out of a two hundred million dollar fund, and it was a rocket company. Everyone thought we were crazy. But, you know, we had, we made a big bet initially, and then we built that position over time as we got more and more confidence About the business and the market. And so I think, you know, it's not just about putting all your money in up front. It's about getting confidence with the management. Obviously that was Elon. So that was easier than say other things, you know, getting confidence about the market. You know, it was a market where no on…

AI assessment note: “I think we generally speaking agree partially because we have a similar viewpoint on investing.”

Q that with newer firms, but the more traditional definitely with what was, Now more, 15. Before that, you've said to me, and before you've said to other people, in terms of, like, concentration of capital and, like, ownership, VCs should care more about their cost of capital and less about their ownership percentage. Why do you think that is when so much of the industry is predicated on ownership percentage?

A I think a lot of this has to do with heuristics that were created, you know, a long time ago, and they were, you know, they make sense, but only when you view them In the context for which they were made. And so, like, just as a very simple example, which I think really informed my view on this, you know, look back at the Facebook investment that Peter did, right? So a lot of firms looked at that, and a lot of people just decided that they were unwilling to do it if they couldn't get their 20%, right? And then the question is, where does this magical 20% number come from? And what it effectively comes from is people are thinking about potential exit values, fund sizes, and saying, you know, I need to own a certain percentage of a company Based on some assumption of exit values to return my fund. So that way, if I have a couple of winners, I can generate fund level returns that are attractive to my investor. And like, that all makes sense. And then when you ran that math, you sort of ended up with something approximating. The reason why it's important to not just use heuristics, but to understand where they came from is, you know, what happened with Facebook is Peter ended up investing half a million dollars for like, 10% of the company. Well, who cares if you only have 10% of the company when the company ends up being a hundred billion dollar IPO, right? Like, whether or not yo…

AI assessment note: “focusing strictly on ownership percentage really, I think, blinds people to opportunities”

Q the multiples are so high that I'm, I'm just seeing an unprecedented level of secondaries on the founder's behalf, where it really concerns me at the size and stage, actually, bluntly. But I, I want to talk about this in kind of liquidity Why do you believe that liquidity aligns incentives, especially when you look at the different counterparts of founder, VC, board member? Why does it align incentives, Justin?

A So, I mean, I'll go back to, you know, something that we spoke about earlier, which is that it's the last double that matters, right? And when you think about what drives fund level returns, you want companies to, you know, keep going and keep growing before they exit, because that's ultimately what matters to the VC investors. And so you get this actually relatively big disconnect between the entrepreneurs and their investor base because their investors have a portfolio of things, and they're willing to take some risk of failure to try to get that last double. Whereas the entrepreneur has all of their, you know, net worth locked up in one thing, and if it goes to zero, they end up with zero, right? And if it works, you know, they might make, you know, two X a crazy amount of money, but it's still, you know, if your base case is a crazy amount of money, and then you can two X it, like, Do you necessarily really need that marginal dollar, right? These are life-changing sums for people. And so, you know, the reason why I think liquidity helps align incentives is that people can take out, you know, they can take out money that they can then use to pay off student loans or pay for their kid's college education or buy a house, you know, all of these sort of life events that matter a lot to people. And they will then, and I've watched entrepreneurs do this consistently, turn down acq…

AI assessment note: “the reason why I think liquidity helps align incentives is that people can take out”

Q Totally with you on the relativity of the money there. You mentioned kind of spread across a few people. I want to discuss another thing that you said that was really interesting was that companies need to rewrite their social contracts with their employees. Talk to me about this. How do you think about that with regards to kind of liquidity stock options and how you think about it?

A So I've said this, you know, for a number of years, very much in the context of, you know, employees, when they leave companies, oftentimes have a short window of time, sort of the industry standard is 90 days to exercise their options or lose them. The problem with this is I think we've, you know, historically had a social contract where it was, you know, employees would join companies, they would get equity, and then if the company did well, that equity would be valuable, and then everyone would make a lot of money, and that was just sort of what people understood. And what changed was that, you know, companies used to go public in like two or three years, right? I mean, that, that, like, if you go back to the nineties, right, I mean, companies did not stay private for anything close to what's happening today. And so companies kind of changed the rules and everyone by deciding to stay private for much longer periods of time. And that's totally okay, right? It just had this unintended consequence of that, you know, companies, I mean, take a look at Palantir, right? Palantir basically, you know, has been, or they're now public, but they were private for 1718 years. And, you know, people might have spent four or five, six years of their career at Palantir, but that didn't get them anywhere close to the IPO. And so you want to be able to allow people to retain the equity once the…

AI assessment note: “sort of the industry standard is 90 days to exercise their options or lose them”

Q into, kind of, liquidity and, kind of, the mechanics of, kind of, how you operate with One, Three, Seven, I do have to ask, you mentioned, kind of, the three years at Founders Fund Met, Such a formative moment in your thinking as well. What lessons did you specifically learn from Peter Thiel? I think that you try to apply it to yourself as an ambassador today, do you think?

A Yeah, I mean, I think Peter is probably one of the best private markets investors ever. I think that's actually a pretty safe statement, and, you know, having kind of spent my early years there, you know, very much influenced how I view the world and how I view investments. There are a few things that come from this, right? One is, you know, you really care about the people, right? It's true at early stage, it's true at the later stage, and And you really want to focus on investing, you know, with great people who really are attacking big opportunities. And I think the second piece is really to focus on businesses that have long-term sustainable advantages. You know, these are things like network effects, marketplace dynamics, things that have, you know, information asymmetries, companies that have economies of scale, right? All of these things make it much more likely that if you invest in that company over a long period of time, they're going to continue to be successful. And I think one of the other pieces that I really think is important is that it's the last double on the investment that matters, right? The first double, it's good, but really when you look at the absolute returns on investing, specifically in venture investing, the last double is what really drives all the returns. And so you need to think about what is the full, you know, TAM for these sorts of opportunit…

AI assessment note: “One is, you know, you really care about the people, right?”

Q Total terrible mess there, but like, what can actually be done? Is that not like restructuring the tax system in terms of how people are taxed on their equity? How do you think about the solution to this?

A That would certainly help as well, but there are a lot of easy things, right? So, and this is a very much U S specific answer, but you can have options that exist for 10 years, irrespective of whether or not someone is at the company or not at the company. We could just extend the option exercise period for people, you know, to that full tenure window may not be quite enough for all of the private companies, but at least gets people a lot farther along the way. And so like, there's been a trend in the, you know, in the industry to start extending that when people leave to a longer period of time. And I think that's good. I just think right now, you know, it's the exception rather than the rule, right? We're, we're still below Of, of companies that are doing that, and we need to get that number to, like, 99%.

AI assessment note: “you can have options that exist for 10 years, irrespective of whether or not”

Q terms of the comfort level there. Final question before the quick find. It's like, you know, when you look back with the benefit of hindsight over the multiple funds now that you've raised with one, three, seven, and you see the plethora of first time fund managers out raising today, like fundamentally, like what advice do you often find yourself giving them from the experience and hindsight that you have?

A A lot of it's pretty specific, but I guess I tell them two things. One, all you got to do is raise some money and now you're an investor. Whether or not you're a good investor, time will tell, but if, if you don't have any money, then you're just some person who really likes to take a lot of meeting, right? You need to have money to invest. So, so as long as you have some money, like you're, you're now in the investor group. And then two, I just try to remind people that like venture as a venture business is an incredibly long-term business and that your LPs, you're, you're effectively married to them, right? These funds are often 10, 12, 15 year funds. You know, you end up raising multiple funds, and so it's just very important to do business with people that you are willing to live with for potentially the next 10 to 20 years, because if you raise a couple funds in a row, that, that's what's going to happen very quickly. And so I just, I just try to remind people to try to take as long a term view as practical as you're building the business, so that way, you know, you can be successful over, you know, a multi-decade period. And it's just, you know, it's always very hard when you're starting things, right? You just, you want, you just got, you want to get to the next And sometimes you have to make trade-offs, but, you know, to the extent that you can, you know, optimize for d…

AI assessment note: “I guess I tell them two things.”

Q the multiples are so high that I'm, I'm just seeing an unprecedented level of secondaries on the founder's behalf, where it really concerns me at the size and stage, actually, bluntly. But I, I want to talk about this in kind of liquidity Why do you believe that liquidity aligns incentives, especially when you look at the different counterparts of founder, VC, board member? Why does it align incentives, Justin?

A So, I mean, I'll go back to, you know, something that we spoke about earlier, which is that it's the last double that matters, right? And when you think about what drives fund level returns, you want companies to, you know, keep going and keep growing before they exit, because that's ultimately what matters to the VC investors. And so you get this actually relatively big disconnect between the entrepreneurs and their investor base because their investors have a portfolio of things, and they're willing to take some risk of failure to try to get that last double. Whereas the entrepreneur has all of their, you know, net worth locked up in one thing, and if it goes to zero, they end up with zero, right? And if it works, you know, they might make, you know, two X a crazy amount of money, but it's still, you know, if your base case is a crazy amount of money, and then you can two X it, like, Do you necessarily really need that marginal dollar, right? These are life-changing sums for people. And so, you know, the reason why I think liquidity helps align incentives is that people can take out, you know, they can take out money that they can then use to pay off student loans or pay for their kid's college education or buy a house, you know, all of these sort of life events that matter a lot to people. And they will then, and I've watched entrepreneurs do this consistently, turn down acq…

AI assessment note: “liquidity helps align incentives is that people can take out, you know, they can take”

Q run the numbers with a Monte Carlo attached to it. And you're like, actually, you know, like 23 gets 84% of the benefits of diversification. I think it is. And, you know, you only get an incremental seven or whatever it is for 40 companies. So my question to you is like, how do you think about the benefits of diversification and maybe where they tail off in your mind?

A Yeah. So my version of that is I always tell people that there's a ton of value in going from one company to two companies and not a lot of value from going 99 to a hundred, which I think is very intuitive for people to understand. You're a hundred percent right. I mean, we run our portfolio to be sort of a dozen core positions for this exact reason, right? You don't want to dilute all of your good returns with a bunch of other noise. And so if you could concentrate amongst a small number of companies and, you know, we've sort of done some math and, you know, the heuristic for us is, you know, approximately a dozen, right? It could be 11. I don't think that's going to kill anything in 13 is also totally fine, right? It's not a hard cutoff, but like something along those lines allows you to generate much better fund level returns while not taking crazy amounts of additional risk.

AI assessment note: “we run our portfolio to be sort of a dozen core positions for this exact reason”

Q You mentioned Palantir there in the seventeen-year journey, and, you know, obviously we've seen the extended windows of privatization with kind of the proliferation of later-stage capital. My question to you is also, like, with the rise of SPACs, how do you think that changes the landscape and the liquidity game?

A I think SPACs are interesting. In some sense, you know, all that is old becomes new again, and, you know, these cycles sort of repeat. SPACs, in some sense, aren't new, right? There's just a lot more of them right now. I think that there's There's a real overhang that's being created by the sheer volume of SPACs that people are, are launching. There are many, many good private companies. I'm not sure that there's a thousand and we're very much on track for them to be like a thousand SPACs in the not too distant future. So I think that's going to create an incredible amount of competition amongst the SPACs to get deals done. And then the quality of those deals will inevitably trend downward, which will then make SPACs, you know, look bad and they will then go away for a period of time and then the cycle will repeat itself. So I think SPACs are interesting. You know, they don't solve all problems. I think they will cause, you know, more companies to go public. It will possibly allow, you know, a subset of companies to go public at much lower costs than if it was a traditional IPO or even potentially a direct listing. You know, it just becomes another tool in the toolbox of ways to get to be a public company.

AI assessment note: “it just becomes another tool in the toolbox of ways to get to be a public company”

Q Totally with you on the relativity of the money there. You mentioned kind of spread across a few people. I want to discuss another thing that you said that was really interesting was that companies need to rewrite their social contracts with their employees. Talk to me about this. How do you think about that with regards to kind of liquidity stock options and how you think about it?

A So I've said this, you know, for a number of years, very much in the context of, you know, employees, when they leave companies, oftentimes have a short window of time, sort of the industry standard is 90 days to exercise their options or lose them. The problem with this is I think we've, you know, historically had a social contract where it was, you know, employees would join companies, they would get equity, and then if the company did well, that equity would be valuable, and then everyone would make a lot of money, and that was just sort of what people understood. And what changed was that, you know, companies used to go public in like two or three years, right? I mean, that, that, like, if you go back to the nineties, right, I mean, companies did not stay private for anything close to what's happening today. And so companies kind of changed the rules and everyone by deciding to stay private for much longer periods of time. And that's totally okay, right? It just had this unintended consequence of that, you know, companies, I mean, take a look at Palantir, right? Palantir basically, you know, has been, or they're now public, but they were private for 1718 years. And, you know, people might have spent four or five, six years of their career at Palantir, but that didn't get them anywhere close to the IPO. And so you want to be able to allow people to retain the equity once the…

AI assessment note: “employees, when they leave companies, oftentimes have a short window of time”

Q of SPACs with the proliferation of them. I had Chamath on the show, and he said that we'd see venture returns Really correlate much more over time to P return, much more compressed with the proliferation of capital. Would you agree with him? And are you as concerned as I am by the proliferation of capital and what it does in terms of multiple compression for this vintage adventure fund?

A I think that's fundamentally sort of has to be true, right? The more dollars that are pushing into the ecosystem, you know, it's, it's going to have to compress returns at the industry level, but the industry, broadly speaking, if you think about venture has never been a good industry to invest in. Right. If you could only get the average returns, it was kind of mediocre. And if you couldn't get average, it was really quite terrible. And so all of the returns are really focused in kind of the top quartile of the industry. And so while all of those statements may be true, I think the top quartile of the industry is highly likely to continue to perform very well. Now everything is relative. So maybe, you know, public markets returns go down and private equity returns go down and venture returns also go down, but you know, There's still sort of a, an order in which they get, they get stacked right. So, you know, you could still see compression across everything, but I think on a relative basis, you know, the top quartile of venture will continue to perform or outperform, you know, the other asset classes.

AI assessment note: “I think that's fundamentally sort of has to be true, right?”

Q Okay, so with the emphasis on decision-making processes, that's music to my ears. I'm fascinated by kind of consensus versus non-consensus and how different partnerships approach decision-making. Given the emphasis that you take from that in terms of kind of process over outcome from poker, how did you design one through sevens decision-making process?

A So we've got a partnership, we've got four investment partners, And it's, you know, it's, it's a conversation. And I think what we've tried to do is make it, especially for large investments, you know, relatively consensus driven, right. And making sure, but more importantly, making sure that there's always at least one person who has sort of their reputation on the line for doing the deal. Because the last thing you want to have happen is, you know, everyone says, oh, sure. That sounds fine. Let's, you know, why not? Right. But what you really want is at least one person, you know, willing to put their name on the line saying, I think this is a great idea. Right. This is something that we absolutely should be investing in. So I think that's part of it. I think, you know, there are lots of important details, you know, as you think about companies. Like, I think the first question you always want to ask is, is this a great company for us to be investing in? Full stop. Right. Like, is it above the bar in terms of like the companies that we want to be involved with? Right. And then there's a lot of other important questions, right? Like valuation matters. Right. And you don't want to let things like valuation sort of influence your decision on whether or not you want to be in the company, because that will lead you to investing That may not meet your, meet your bar because it's a …

AI assessment note: “make it, especially for large investments, you know, relatively consensus driven”

Q run the numbers with a Monte Carlo attached to it. And you're like, actually, you know, like 23 gets 84% of the benefits of diversification. I think it is. And, you know, you only get an incremental seven or whatever it is for 40 companies. So my question to you is like, how do you think about the benefits of diversification and maybe where they tail off in your mind?

A Yeah. So my version of that is I always tell people that there's a ton of value in going from one company to two companies and not a lot of value from going 99 to a hundred, which I think is very intuitive for people to understand. You're a hundred percent right. I mean, we run our portfolio to be sort of a dozen core positions for this exact reason, right? You don't want to dilute all of your good returns with a bunch of other noise. And so if you could concentrate amongst a small number of companies and, you know, we've sort of done some math and, you know, the heuristic for us is, you know, approximately a dozen, right? It could be 11. I don't think that's going to kill anything in 13 is also totally fine, right? It's not a hard cutoff, but like something along those lines allows you to generate much better fund level returns while not taking crazy amounts of additional risk.

AI assessment note: “we run our portfolio to be sort of a dozen core positions for this exact reason”

Q So listen, I totally agree with you there. I think where I get stuck, as I kind of mentioned, was like, but the size and also the stage that they're being taken at now. And so I guess my question to you subsequently is like, when's the right And how do you think about sizing when thinking about liquidity events?

A So we built a whole fund, and we've got institutional investors, like we built a whole fund around this concept of providing people liquidity at these, you know, growth stage, you know, venture-backed businesses. And that means that we're not showing up to provide people liquidity, you know, on day one or day two, right? We're looking for companies that have already built a product, that have demonstrated product market fit, and that are scaling quite rapid, right? And so I think at that In a company's life cycle, they've built something real, right? They've demonstrated that they were right about the product and right about the market. And there's still somewhat uncertainty about how big this can get and how quickly they can continue to grow, but they've truly built a real business. And I think that's a good moment in time for people to think about how they could, you know, de-risk their lives and perhaps run their life in a way that's less distracting. Because I think the last thing you want is your founders, and deals with people specifically in this circumstance, literally concerned about how they were going to make The payments on their student loan because they don't have super high salaries. They've got a ton of money in equity and they're having to pay their student loans every month. And I think that's not a good use of their mental bandwidth. And so not only does that…

AI assessment note: “I think that's sort of the answer your question to like, what's the stage”

Q Total terrible mess there, but like, what can actually be done? Is that not like restructuring the tax system in terms of how people are taxed on their equity? How do you think about the solution to this?

A That would certainly help as well, but there are a lot of easy things, right? So, and this is a very much U S specific answer, but you can have options that exist for 10 years, irrespective of whether or not someone is at the company or not at the company. We could just extend the option exercise period for people, you know, to that full tenure window may not be quite enough for all of the private companies, but at least gets people a lot farther along the way. And so like, there's been a trend in the, you know, in the industry to start extending that when people leave to a longer period of time. And I think that's good. I just think right now, you know, it's the exception rather than the rule, right? We're, we're still below Of, of companies that are doing that, and we need to get that number to, like, 99%.

AI assessment note: “We could just extend the option exercise period for people”

Q of SPACs with the proliferation of them. I had Chamath on the show, and he said that we'd see venture returns Really correlate much more over time to P return, much more compressed with the proliferation of capital. Would you agree with him? And are you as concerned as I am by the proliferation of capital and what it does in terms of multiple compression for this vintage adventure fund?

A I think that's fundamentally sort of has to be true, right? The more dollars that are pushing into the ecosystem, you know, it's, it's going to have to compress returns at the industry level, but the industry, broadly speaking, if you think about venture has never been a good industry to invest in. Right. If you could only get the average returns, it was kind of mediocre. And if you couldn't get average, it was really quite terrible. And so all of the returns are really focused in kind of the top quartile of the industry. And so while all of those statements may be true, I think the top quartile of the industry is highly likely to continue to perform very well. Now everything is relative. So maybe, you know, public markets returns go down and private equity returns go down and venture returns also go down, but you know, There's still sort of a, an order in which they get, they get stacked right. So, you know, you could still see compression across everything, but I think on a relative basis, you know, the top quartile of venture will continue to perform or outperform, you know, the other asset classes.

AI assessment note: “I think that's fundamentally sort of has to be true, right?”

Q into, kind of, liquidity and, kind of, the mechanics of, kind of, how you operate with One, Three, Seven, I do have to ask, you mentioned, kind of, the three years at Founders Fund Met, Such a formative moment in your thinking as well. What lessons did you specifically learn from Peter Thiel? I think that you try to apply it to yourself as an ambassador today, do you think?

A Yeah, I mean, I think Peter is probably one of the best private markets investors ever. I think that's actually a pretty safe statement, and, you know, having kind of spent my early years there, you know, very much influenced how I view the world and how I view investments. There are a few things that come from this, right? One is, you know, you really care about the people, right? It's true at early stage, it's true at the later stage, and And you really want to focus on investing, you know, with great people who really are attacking big opportunities. And I think the second piece is really to focus on businesses that have long-term sustainable advantages. You know, these are things like network effects, marketplace dynamics, things that have, you know, information asymmetries, companies that have economies of scale, right? All of these things make it much more likely that if you invest in that company over a long period of time, they're going to continue to be successful. And I think one of the other pieces that I really think is important is that it's the last double on the investment that matters, right? The first double, it's good, but really when you look at the absolute returns on investing, specifically in venture investing, the last double is what really drives all the returns. And so you need to think about what is the full, you know, TAM for these sorts of opportunit…

AI assessment note: “There are a few things that come from this, right? One is”

Q fuck it. But in terms of, like, pricing, you said pricing matters there, but then also, you know, you don't want to kind of do a good deal because of the price, and so I'm intrigued. How do you think about and assess your own price sensitivity? Especially given the proliferation of capital that we have today, meaning prices are just off the charts as we were chatting about before.

A Yeah, I think this is an interesting question because my answer is oftentimes price doesn't matter unless you're off by five X, in which case then price is the only thing that matters. You know, my sort of examples of this are, you know, there's a handful of, you know, well, think, think about it in two ways, right? One, if you're wrong about the company, it goes to zero. The price doesn't matter. So it only matters when things go well. And so then the question is, can you invest at prices that ultimately hit your cost of capital, right? Because as venture investors, if we don't put up returns, eventually all of our investors will fire us, right? So, so it doesn't make any sense to insanely overpay for things, you know, because we're in venture and because the companies that we're investing in are high growth companies, there's a lot of uncertainty. It's very hard to have exact precision as to what a valuation should be. So, you know, whatever you're off by You can sort of overcome that with a high growth company. On the other hand, if you, you know, if you look at companies that are just overpriced by a factor of 10, then it's very hard to make money over almost any period of time, right? Like, that's, that's just a very hard thing to overcome.

AI assessment note: “price doesn't matter unless you're off by five X”

Q Can I ask, when we look at the one, three, seven portfolio and kind of the mechanics of how you invest today, it is different from, you know, alternative venture funds in terms of strategy, as we discussed. When you think back to the fundraising for the early funds, was it tough How did you think about kind of LP education around it?

A You know, raising a first-time fund is, I think, always hard. I mean, that was sort of the experience, you know, at the beginning of Founders Fund, it was my experience. I talked to a lot of, you know, people who are starting or thinking about starting, you know, new funds. It's never easy to get kind of a new fund, let alone a new concept off the ground, especially if you're talking to institutional investors who, broadly speaking, have buckets, and they want to invest in things that sort of fit in the buckets. And they would prefer to invest in things that have been around for a long time because you have longer track records and there's more data. So that's always going to be, I think, a challenge to get these, get these sorts of businesses off the ground. You know, in terms of, you know, how do you think about LP education? I mean, a lot of it was the arguments that I used to have with LPs, you know, 10 years ago were companies were going to stay private longer. And that whole argument, I just don't have anymore, right? So a lot of the education at the beginning was just getting people to understand that Facebook was Not this weird anomaly, but was really the start of a trend of companies staying private for much longer periods of time, and that would make the opportunity to invest in, you know, really great high growth companies much bigger, and that you could access them …

AI assessment note: “a lot of the education at the beginning was just getting people to understand that Facebook”

Q fuck it. But in terms of, like, pricing, you said pricing matters there, but then also, you know, you don't want to kind of do a good deal because of the price, and so I'm intrigued. How do you think about and assess your own price sensitivity? Especially given the proliferation of capital that we have today, meaning prices are just off the charts as we were chatting about before.

A Yeah, I think this is an interesting question because my answer is oftentimes price doesn't matter unless you're off by five X, in which case then price is the only thing that matters. You know, my sort of examples of this are, you know, there's a handful of, you know, well, think, think about it in two ways, right? One, if you're wrong about the company, it goes to zero. The price doesn't matter. So it only matters when things go well. And so then the question is, can you invest at prices that ultimately hit your cost of capital, right? Because as venture investors, if we don't put up returns, eventually all of our investors will fire us, right? So, so it doesn't make any sense to insanely overpay for things, you know, because we're in venture and because the companies that we're investing in are high growth companies, there's a lot of uncertainty. It's very hard to have exact precision as to what a valuation should be. So, you know, whatever you're off by You can sort of overcome that with a high growth company. On the other hand, if you, you know, if you look at companies that are just overpriced by a factor of 10, then it's very hard to make money over almost any period of time, right? Like, that's, that's just a very hard thing to overcome.

AI assessment note: “price doesn't matter unless you're off by five X”

Q So listen, I totally agree with you there. I think where I get stuck, as I kind of mentioned, was like, but the size and also the stage that they're being taken at now. And so I guess my question to you subsequently is like, when's the right And how do you think about sizing when thinking about liquidity events?

A So we built a whole fund, and we've got institutional investors, like we built a whole fund around this concept of providing people liquidity at these, you know, growth stage, you know, venture-backed businesses. And that means that we're not showing up to provide people liquidity, you know, on day one or day two, right? We're looking for companies that have already built a product, that have demonstrated product market fit, and that are scaling quite rapid, right? And so I think at that In a company's life cycle, they've built something real, right? They've demonstrated that they were right about the product and right about the market. And there's still somewhat uncertainty about how big this can get and how quickly they can continue to grow, but they've truly built a real business. And I think that's a good moment in time for people to think about how they could, you know, de-risk their lives and perhaps run their life in a way that's less distracting. Because I think the last thing you want is your founders, and deals with people specifically in this circumstance, literally concerned about how they were going to make The payments on their student loan because they don't have super high salaries. They've got a ton of money in equity and they're having to pay their student loans every month. And I think that's not a good use of their mental bandwidth. And so not only does that…

AI assessment note: “providing people liquidity at these, you know, growth stage, you know, venture-backed businesses.”

Q Okay, so with the emphasis on decision-making processes, that's music to my ears. I'm fascinated by kind of consensus versus non-consensus and how different partnerships approach decision-making. Given the emphasis that you take from that in terms of kind of process over outcome from poker, how did you design one through sevens decision-making process?

A So we've got a partnership, we've got four investment partners, And it's, you know, it's, it's a conversation. And I think what we've tried to do is make it, especially for large investments, you know, relatively consensus driven, right. And making sure, but more importantly, making sure that there's always at least one person who has sort of their reputation on the line for doing the deal. Because the last thing you want to have happen is, you know, everyone says, oh, sure. That sounds fine. Let's, you know, why not? Right. But what you really want is at least one person, you know, willing to put their name on the line saying, I think this is a great idea. Right. This is something that we absolutely should be investing in. So I think that's part of it. I think, you know, there are lots of important details, you know, as you think about companies. Like, I think the first question you always want to ask is, is this a great company for us to be investing in? Full stop. Right. Like, is it above the bar in terms of like the companies that we want to be involved with? Right. And then there's a lot of other important questions, right? Like valuation matters. Right. And you don't want to let things like valuation sort of influence your decision on whether or not you want to be in the company, because that will lead you to investing That may not meet your, meet your bar because it's a …

AI assessment note: “make it, especially for large investments, you know, relatively consensus driven”

Q near close to that number. I would say that, and sorry, we're going deep on this, but I'm interested by it. Like, I'd say that number, 15 to twenty million is a life-changing sum where if you manage it efficiently, it can absolutely last you a lifetime and look after a family very easily. When you look at your fund sizes, how are you not getting close to that number?

A So you've got to remember, when we think about, you know, like, if, If I say, oh, you know, we're investors in SpaceX or Wish or whatever, Gusto, like it doesn't, we're oftentimes doing business with many different people, right? So even if I were to make a thirty million dollar investment in a company, that might be spread across, you know, half a dozen people over multiple periods of time or something like that. And so, you know, when you look at any individual person, you know, you're not seeing numbers. And you mentioned twenty million, and I think twenty million is a ton of money. But twenty million is very different if you live in, you know, Dallas, Texas, or San Francisco, Go or Miami or Chicago, right? I mean, like these things, and those are all major cities, let alone if you live somewhere else, right? So, you know, the amount of money is always somewhat relative.

AI assessment note: “that might be spread across, you know, half a dozen people”