The Exchanges

Q I agree with you on that data point. If we maybe flip sides of the table, it's easy to talk about kind of investor to founder feedback. If we flip the Table. Have you ever been given feedback by a founder on you as an investor? And how did you change as a result of that feedback, Leo?

A I get feedback all the time. I actually got this idea from Finn at first round where he started sending a survey to founders he met with to basically ask them what they thought of the meeting. So I've been doing that for the last year or two, and it's a really short survey. Basically just ask people, you know, was it a good meeting? What could have been better? What did they like? And it's been really interesting to get Responses from that, because I think it tells me what I'm doing well and what I'm not doing well. And, you know, one example of me not doing something well is a couple of people early on mentioned that I wasn't making Seuss's investment thesis clear. So they weren't really sure what we looked for. And so I really took that to heart. And now at the beginning of every meeting, I spend 30 seconds or a minute talking about our fund and kind of what we look for and what the key things for us are. And I think that's been really helpful. And I'm just, I'm really grateful that people are willing to share that feedback with me.

AI assessment note: “now at the beginning of every meeting, I spend 30 seconds or a minute”

Q In terms of kind of overpaying for deals, how do you react, then, to founders who raise large, large sums of money on slowly increasing caps?

A Yeah, so I'm, I have two minds about it. I think on the one hand, if you're never able to raise large sum amount of money at a single cap, And, you know, you have to do it kind of in a, in a staggered way, then, then that's kind of what you do because, you know, that's better than just like giving up on the company. But I think, so that one class of founder kind of does it out of necessity. The other class of founder does it because they're dilution sensitive or, you know, they're, they're trying to just maximize their, their valuation over time. And I think that approach is usually a mistake. And so the example, you know, I often give people is, say you have two scenarios you were thinking about. And one is you could raise a million and a half at a five pre. And the other one is you could raise 500 K At a four pre, make some progress, you know, raise another 500 K at a seven pre, make some progress, raise the last 500 K at a 10 pre. And so, whether you raise all of it on five, or you raise a little bit on four, seven, and 10, most people think that the four, seven, 10 approach is way better, because the valuations go up so much. But it turns out, I think it's within about half a percent of dilution. One gets you to like, 77% ownership for the founders, and the other one's like, 77 and a half. So it's basically a wash, but doing it in different, doing the fundraising in differe…

AI assessment note: “I think that approach is usually a mistake.”

Q In terms of kind of overpaying for deals, how do you react, then, to founders who raise large, large sums of money on slowly increasing caps?

A Yeah, so I'm, I have two minds about it. I think on the one hand, if you're never able to raise large sum amount of money at a single cap, And, you know, you have to do it kind of in a, in a staggered way, then, then that's kind of what you do because, you know, that's better than just like giving up on the company. But I think, so that one class of founder kind of does it out of necessity. The other class of founder does it because they're dilution sensitive or, you know, they're, they're trying to just maximize their, their valuation over time. And I think that approach is usually a mistake. And so the example, you know, I often give people is, say you have two scenarios you were thinking about. And one is you could raise a million and a half at a five pre. And the other one is you could raise 500 K At a four pre, make some progress, you know, raise another 500 K at a seven pre, make some progress, raise the last 500 K at a 10 pre. And so, whether you raise all of it on five, or you raise a little bit on four, seven, and 10, most people think that the four, seven, 10 approach is way better, because the valuations go up so much. But it turns out, I think it's within about half a percent of dilution. One gets you to like, 77% ownership for the founders, and the other one's like, 77 and a half. So it's basically a wash, but doing it in different, doing the fundraising in differe…

AI assessment note: “I have two minds about it. I think on the one hand... The other class of founder”

Q Not at all. It was a must. I absolutely love reading your Twitter feeds, but I would love to kick the ball off today with a little bit about you, and for those that maybe didn't hear our first episode, tell me, how did you make your way into the wonderful world of Venture, Leo?

A Sure. So the brief background is I was a software engineer for about 10 years, and I got really lucky, and I worked at two great startups when they were both about 15 to 50 people. And so one of those was LinkedIn, which everybody's heard of. The other one's called Factual, which is a location data platform in Los Angeles that many people haven't heard of yet, but I think over time more and more will. And I also worked at Google in the middle, and I really enjoyed being a software engineer, and especially really enjoyed my time both at startups and at the smaller startup-y teams at Google. And about six years ago, I left actual after four years and I was trying to figure out what to do next. And I was thinking about starting a company, but I felt like I didn't really know anything about what it took to really start a company from day one. And I wanted to learn more about that. And I got really lucky again, where one of my friends was starting a seed fund with a couple of people she knew. And she invited me to be basically a technical partner that helped them do due diligence on companies, especially on like the products and the engineering side. And I thought that would be a great opportunity to learn and that I could do that for maybe a year and then go start my own startup. And after I started it, I immediately fell in love with the job, fell in love with starting this fund, …

AI assessment note: “one of my friends was starting a seed fund... invited me to be basically a technical partner”

Q Can I ask, in terms of the importance of thinking of that at day one, when you're assessing an opportunity, what are the ways, really, which you can determine whether motion defensibility is central to a founder's thinking? What questions, what indicators, what signs suggest that it's something that really is a central aspect of their thinking?

A I think a really basic question that we often ask is, we'll actually just ask directly, like, what do you think your mode is, or what's the thing that makes it hard for other companies to copy you? And I think one thing we look for is sort of the level of thought, And the answer, because you can often tell if a person's really thought about this before or not. And so if they haven't really thought about it and they're not focused on it, but they might say something like, well, our moat is we work really hard or, you know, we have like a real estate expert on our team and we're doing a real estate startup. And the truth is like, those are nice things to have and they'll help you get a headstart for a couple of months or maybe a year or two, but those are not sustainable competitive advantages. Like you can't outwork every company in the world forever. And so what we're really looking for is kind of a more nuanced answer where, You know, somebody walks us through, like, here's how we have network effects, here's how we're going to build them, and here's why, like, once we have them, other companies won't be able to compete with us effectively.

AI assessment note: “we'll actually just ask directly, like, what do you think your mode is”

Q Not at all. It was a must. I absolutely love reading your Twitter feeds, but I would love to kick the ball off today with a little bit about you, and for those that maybe didn't hear our first episode, tell me, how did you make your way into the wonderful world of Venture, Leo?

A Sure. So the brief background is I was a software engineer for about 10 years, and I got really lucky, and I worked at two great startups when they were both about 15 to 50 people. And so one of those was LinkedIn, which everybody's heard of. The other one's called Factual, which is a location data platform in Los Angeles that many people haven't heard of yet, but I think over time more and more will. And I also worked at Google in the middle, and I really enjoyed being a software engineer, and especially really enjoyed my time both at startups and at the smaller startup-y teams at Google. And about six years ago, I left actual after four years and I was trying to figure out what to do next. And I was thinking about starting a company, but I felt like I didn't really know anything about what it took to really start a company from day one. And I wanted to learn more about that. And I got really lucky again, where one of my friends was starting a seed fund with a couple of people she knew. And she invited me to be basically a technical partner that helped them do due diligence on companies, especially on like the products and the engineering side. And I thought that would be a great opportunity to learn and that I could do that for maybe a year and then go start my own startup. And after I started it, I immediately fell in love with the job, fell in love with starting this fund, …

AI assessment note: “one of my friends was starting a seed fund... invited me to be basically a technical partner”

Q So I completely agree on constraining the opportunity set there. So now we have that in mind then, Leo, what should be the mindset of investors with this in mind and the kind of hailed warm intro not being so hailed after all?

A Well, I think, you know, one easy thing to do is to do more Outbound work. So if you're an investor and you see a product that looks interesting, you don't need to wait for an intro. You can just reach out to the founders directly and know maybe they'll talk to you. And I think the other thing is investors should try to be a little bit more approachable. So Carrie, for example, if you came up to me at a conference and you started trying to talk to me, I wouldn't say, Hey, Harry, I'll only talk to you if you can find somebody to introduce us first. That would just be really silly. So, you know, I think you and I would just have a chat. And I think online communication can be kind of like that, where if somebody writes a A thoughtful email or Twitter DM or Facebook message. I think it's good to be open to that being a good opportunity, even if nobody in your network filtered it before.

AI assessment note: “one easy thing to do is to do more Outbound work”

Q Indeed. Often when it's such a competition, there's real pressure on pricing. And many investors gain access through overpaying on the rounds. I'm intrigued. What's your take on valuation sensitivity?

A Yeah, so I think there's, there's kind of this myth that if you see the next Uber or Facebook or whatever, you should pay any price to get in. And I think there's definitely some truth in that, but I think the problem is that for a lot of VCs, almost every company you see, if you're investing, you have some kind of belief that it could be the next Uber or Facebook. And the problem is, you know, if you overpay by 50 or a hundred percent for one deal or two deals in a 30 deal fund, that's not a big deal. But if you do it for all of your deals, or most of your deals, now your cost basis may be doubled. And now that means that, you know, even if you would have had, like, a great forex fund, now it's a twox fund, because you paid twice the price to get into everything. So, you know, I think very seldomly, you know, you kind of pay any price to get in, but usually you should try to have more discipline.

AI assessment note: “usually you should try to have more discipline”

Q Indeed. Often when it's such a competition, there's real pressure on pricing. And many investors gain access through overpaying on the rounds. I'm intrigued. What's your take on valuation sensitivity?

A Yeah, so I think there's, there's kind of this myth that if you see the next Uber or Facebook or whatever, you should pay any price to get in. And I think there's definitely some truth in that, but I think the problem is that for a lot of VCs, almost every company you see, if you're investing, you have some kind of belief that it could be the next Uber or Facebook. And the problem is, you know, if you overpay by 50 or a hundred percent for one deal or two deals in a 30 deal fund, that's not a big deal. But if you do it for all of your deals, or most of your deals, now your cost basis may be doubled. And now that means that, you know, even if you would have had, like, a great forex fund, now it's a twox fund, because you paid twice the price to get into everything. So, you know, I think very seldomly, you know, you kind of pay any price to get in, but usually you should try to have more discipline.

AI assessment note: “very seldomly... pay any price to get in, but usually you should try to have more discipline.”

Q of financial sense and DD behind deals. Obviously, as you said at the beginning, kind of, you were at first onboarded due to your technical skills and capabilities to do the DD. So I want to talk about the technical due diligence and your thesis on this at the seed stage when applied to those very early companies. What's your thesis, and how should it be approached at this stage?

A It's another interesting question. It's funny, actually, one of my most popular blog posts of the last year or two was I wrote this long post on why I don't really do technical diligence at this point. And I think it caught people by surprise because they figured, you know, I'm an engineer at heart. So like, shouldn't I be looking at the technology when I look at a startup? And this is how I started out when I started BC about four years ago, where, you know, I spent most of my time trying to figure out how good is the technology, how good is the CTO. And it took me a few months to realize that that was probably just a waste of time for everybody. And there are a few reasons for that. First of all, in the early days, a lot of times the code is, you know, throw away or prototypes are just like changing very rapidly. So it's hard to, it's hard to judge it. In a sensible way. It's kind of like trying to judge somebody's, like, napkin outline for a book. Like, you kind of get an idea, but it might change so much. It's, it's very different from, you know, judging the final draft. So that's one piece. The other piece is, now that I've been doing this for about four years, I've probably worked for about 50, 60 companies, and tracked a lot more that we ended up not investing in. And it's very rare for me to see companies fail because of the technology. It's almost always the product ma…

AI assessment note: “I wrote this long post on why I don't really do technical diligence”

Q operations there, not on the schedule, but too intrigued to ask, and I constantly have people on the show that say either the benefits of not having an operational background, of having an operational background, how do you think about that dilemma, and really being in the center of the VC world in the bay, how do you kind of approach that thought process today, and the benefits of both?

A I think you can be a really good or really bad investor with either background. And in my case, I think coming from the operational side, but especially not being a founder in the past, I have a lot of empathy for founders because I saw it just as somebody on the line, the front lines, you know, an individual contributor and it's building a company seemed really hard for me, even from that perspective. And I can only imagine what it must be like as a founder and how much harder it must be. So I think I have a lot of empathy for people that are building and I try really hard to not Tell them, here's how you have to do this, or here's what I would do if I were you, because the truth is, I don't know, and it's a hard job, and so, like, I think that part keeps me humble, but I think, you know, that kind of attitude you could develop, whether you've been a VC all your life, or whether you were a founder, or an individual contributor, or journalist, or podcaster, or any other, you know, background.

AI assessment note: “I think you can be a really good or really bad investor with either background.”

Q Is that pre-product? Is that pre-launch? Is that pre-scale? And how does one think about moats which are built over time, for example, a data moat, which is obviously built with the accumulation of data sets, Or brand, which is built with the kind of accumulation of customer love. How do you think about how soon moat and defensibility should really be thought of and how to approach that perspective?

A I really think it's important to think about moats from day one, and you might not actually develop a good moat until year two or year five or even year 10, but I think it's at least important to think about, you know, whether you could build a moat over time and what it would be, because if you spend five years building something and it doesn't have a moat, And then as soon as you become successful, someone else just copies you and drives you out of business, then that's a real shame. And you kind of wasted five years. And I also think that most, like you mentioned, proprietary data and like data network effects, those things are not binary. So it's not like you don't have them on day 1000 and then you suddenly have them on day a 1001. And so they grow over time and the more they grow, the stronger they get, but you can do things that accelerate that growth and you can do that from day one or day 100 and you don't have to wait until you're a few years in.

AI assessment note: “I really think it's important to think about moats from day one”

Q For sure. I can agree more with your consideration on price. Absolutely. Finally, there's no point spending time with the poorly Performing companies in the portfolio. At best, they'll return minute cents on the dollar. Just work with the rocket ships and concentrate time. Agree or disagree?

A I strongly disagree with this. The first reason is, and this is actually kind of a personal reason, but, you know, my fund, Sousa Ventures, we talk about the investors and founders in our fund being a little bit like a family, and I know it's kind of corny, but we really mean it. So, just like you wouldn't disown your kid if they're not doing well in school, like, we're not going to stop talking to you or trying to help you just because you're struggling. I think that's actually... A more important time to help. And I think financial ROI aside, I think continue to spend time with people as they're going to do because, you know, we made a commitment to be helpful and dependable when you invested and we want to honor that whether things go well or not. And actually like, it's kind of funny, but it's hard to tell if things are going well because we've had companies that felt like they were struggling for two or three years and then suddenly they really took off. And we've had other companies that took off really quickly, but then a year later they ended up struggling. And so You might think somebody is doing great and you should spend all your time with them, but maybe that turned out to be wrong and might be the opposite. And I guess maybe the last thing I'd say is there's a really great Fred Wilson quote where he talks about VCs making their money on their big winners, but the r…

AI assessment note: “I strongly disagree with this. The first reason is”

Q So I completely agree on constraining the opportunity set there. So now we have that in mind then, Leo, what should be the mindset of investors with this in mind and the kind of hailed warm intro not being so hailed after all?

A Well, I think, you know, one easy thing to do is to do more Outbound work. So if you're an investor and you see a product that looks interesting, you don't need to wait for an intro. You can just reach out to the founders directly and know maybe they'll talk to you. And I think the other thing is investors should try to be a little bit more approachable. So Carrie, for example, if you came up to me at a conference and you started trying to talk to me, I wouldn't say, Hey, Harry, I'll only talk to you if you can find somebody to introduce us first. That would just be really silly. So, you know, I think you and I would just have a chat. And I think online communication can be kind of like that, where if somebody writes a A thoughtful email or Twitter DM or Facebook message. I think it's good to be open to that being a good opportunity, even if nobody in your network filtered it before.

AI assessment note: “investors should try to be a little bit more approachable”

Q detailed feedback response on why maybe it's not a fit for us, and then I get a page back telling me all the reasons that I'm wrong, and it's rather an extenuous email. How do you think about that pushback and argument back from the founder, and then not getting into a chain of email threads back and forth? How do you think about that and look to mitigate that?

A Yeah, I I mean, you know, Harry, I, I was worried about this too, when I started and, you know, I thought maybe I'd spend all my time just getting into intellectual debates online. And I've actually learned that this pushback happens pretty rarely. So I'd say maybe, you know, a couple of percent of the founders where I send them some feedback, you know, most of the time people just say, thank you. And then sometimes they ignore it. Sometimes they take it. Sometimes they reach out down the line when things have changed. And very rarely do people actually argue and disagree or, you know, want to do a back and forth. And so it doesn't take up that much of my time in those cases, but I also think it's a valuable insight because if somebody takes their feedback and then they say, oh, like, this is an interesting point. Can we discuss it a little bit? I'm happy to chat about it. And if instead their response is more like, well, I think you're dumb and you're just not seeing it, then it's a good signal that maybe this person would be a little bit hard to work with or that they don't take it back well. So that's, you know, that's a great data point for me as well.

AI assessment note: “I've actually learned that this pushback happens pretty rarely.”

Q operations there, not on the schedule, but too intrigued to ask, and I constantly have people on the show that say either the benefits of not having an operational background, of having an operational background, how do you think about that dilemma, and really being in the center of the VC world in the bay, how do you kind of approach that thought process today, and the benefits of both?

A I think you can be a really good or really bad investor with either background. And in my case, I think coming from the operational side, but especially not being a founder in the past, I have a lot of empathy for founders because I saw it just as somebody on the line, the front lines, you know, an individual contributor and it's building a company seemed really hard for me, even from that perspective. And I can only imagine what it must be like as a founder and how much harder it must be. So I think I have a lot of empathy for people that are building and I try really hard to not Tell them, here's how you have to do this, or here's what I would do if I were you, because the truth is, I don't know, and it's a hard job, and so, like, I think that part keeps me humble, but I think, you know, that kind of attitude you could develop, whether you've been a VC all your life, or whether you were a founder, or an individual contributor, or journalist, or podcaster, or any other, you know, background.

AI assessment note: “I think you can be a really good or really bad investor with either background.”

Q Is that pre-product? Is that pre-launch? Is that pre-scale? And how does one think about moats which are built over time, for example, a data moat, which is obviously built with the accumulation of data sets, Or brand, which is built with the kind of accumulation of customer love. How do you think about how soon moat and defensibility should really be thought of and how to approach that perspective?

A I really think it's important to think about moats from day one, and you might not actually develop a good moat until year two or year five or even year 10, but I think it's at least important to think about, you know, whether you could build a moat over time and what it would be, because if you spend five years building something and it doesn't have a moat, And then as soon as you become successful, someone else just copies you and drives you out of business, then that's a real shame. And you kind of wasted five years. And I also think that most, like you mentioned, proprietary data and like data network effects, those things are not binary. So it's not like you don't have them on day 1000 and then you suddenly have them on day a 1001. And so they grow over time and the more they grow, the stronger they get, but you can do things that accelerate that growth and you can do that from day one or day 100 and you don't have to wait until you're a few years in.

AI assessment note: “I really think it's important to think about moats from day one”

Q Got it. Absolutely. Okay, so why is that so foundational today?

A Well, I think the reason that moats are important is that they basically determine your profit margin over time. So if you build something that no one else can build, you can make 20 or 50 or maybe even 90% margins. But if what you're doing is easy to copy, then your margins go to zero over time. And so, because for example, like, let's say you have 20% margins and somebody might come in and say, oh, this is really easy to copy. I'd be happy with 15%. So let me just do that. And then, you know, the next person comes in and says, well, this is easy to copy and I could do fine with 10%. And so over time, like your margins just get squeezed down to zero. And having a moat that prevents that is really important.

AI assessment note: “moats are important is that they basically determine your profit margin over time”

Q reinvention there. But I do want to kind of talk about the element of feedback, because I need your help here. Say an opportunity doesn't have defensibility, doesn't have notes, And we're going to pass on this opportunity. It now comes the challenging elements of investor feedback. Starting on you, how do you think the right way to deliver this feedback to founders is when passing? Let's start with that.

A I think most investors think ghosting is better than giving direct feedback. And I think a lot of people have this impression that if you don't say no, then you leave the door open for later. And to be honest, I think that's rude and it doesn't have the intended effect. And I think it actually closes that door. And in my experience, it's best to send a thoughtful pass rather than disappear, and if you give constructive feedback about what you like about somebody's pitching company, and where are your hesitations, or where you see the risks, and you can give that feedback with kindness, then I think that shows founders that you respect their time, and you're willing to put effort into working with them, and want to help them succeed, and I think that's the kind of thing that makes people return in six months, or a year, in five years, and try to work with you again.

AI assessment note: “it's best to send a thoughtful pass rather than disappear”

Q Okay, so ownership's built on first check, Leo. The notion that you can have a diverse seed portfolio and double down on the outperformers, it's a fantasy because the best get picked up by tier one multi-stage firms, and you never see them again. What are your thoughts on this, and why?

A Yeah, you know, I do believe, actually, that you make most of your money on the right initial bets, And the key is just to make those bets meaningful and trying to double down later helps, but I really think it's secondary. And, you know, for example, if you had bought five percent of Airbnb during a seed round, you'd be really happy. And so if you could double down in the series a and get from five percent to six or seven percent, that'll be really good. But even five percent by itself was great. And what really matters is that you bought a meaningful stake of Airbnb in the first place. So I think that's the key thing that you want to make the right bets and you want to make them big enough. And the follow on, you know, it can improve your returns a little bit or can make them go down a little bit, but like those initial bets are what really matters. And I will also say, I think following on is not a fantasy in my experience. I think if you're helpful and you work hard and founders enjoy working with you, they'll usually give you a chance to follow on, you know, not always, but usually.

AI assessment note: “I think following on is not a fantasy in my experience.”

Q of financial sense and DD behind deals. Obviously, as you said at the beginning, kind of, you were at first onboarded due to your technical skills and capabilities to do the DD. So I want to talk about the technical due diligence and your thesis on this at the seed stage when applied to those very early companies. What's your thesis, and how should it be approached at this stage?

A It's another interesting question. It's funny, actually, one of my most popular blog posts of the last year or two was I wrote this long post on why I don't really do technical diligence at this point. And I think it caught people by surprise because they figured, you know, I'm an engineer at heart. So like, shouldn't I be looking at the technology when I look at a startup? And this is how I started out when I started BC about four years ago, where, you know, I spent most of my time trying to figure out how good is the technology, how good is the CTO. And it took me a few months to realize that that was probably just a waste of time for everybody. And there are a few reasons for that. First of all, in the early days, a lot of times the code is, you know, throw away or prototypes are just like changing very rapidly. So it's hard to, it's hard to judge it. In a sensible way. It's kind of like trying to judge somebody's, like, napkin outline for a book. Like, you kind of get an idea, but it might change so much. It's, it's very different from, you know, judging the final draft. So that's one piece. The other piece is, now that I've been doing this for about four years, I've probably worked for about 50, 60 companies, and tracked a lot more that we ended up not investing in. And it's very rare for me to see companies fail because of the technology. It's almost always the product ma…

AI assessment note: “why I don't really do technical diligence at this point”

Q before we dive into the quick find is we often hear about at your stage kind of seed to series A and the progression between the two fundamental stages is the series A crunch, the mythical series A crunch. So to what extent have you seen this play out for you and how much of a prominent role do you think it plays out in the wider tech society today?

A I do think investors have gotten more picky at every stage, you know, just because there, there's so many more opportunities for them to choose from. So I would say we've seen it a little bit in our portfolio, but it hasn't dramatically, uh, you know, affected the overall portfolio. I would say we've had a few founders where they wanted to raise and it turned out that they needed a little bit, you know, more traction or validation. So they would kind of go back to work for, you know, three or five months and then they'd be able to raise after that. And I think in general, like the people, the founders where we weren't sure if they'd be able to raise, like they've struggled and the ones where, uh, We were pretty sure they'd be able to raise around. Maybe it wasn't quite the valuation they wanted, but I think all of them ended up raising around.

AI assessment note: “we've seen it a little bit in our portfolio, but it hasn't dramatically”

Q still haven't hit what we'd like to, and we're raising a bridge. I'm intrigued. I had Tim Chang at Mayfield on the show recently. He said, let's be honest, a bridge, a C-two, whatever you want to call it, it just means you haven't reached product market fit. To what extent is that correct, and to what extent do you actually not detest bridges and view them as a failure?

A A lot of times in the early days, or actually really at any stage of a company's life when it's private, I think there are risks That still have to be addressed. And in the early days, you know, those risks are pretty fundamental. Like, is this the right product to build? Or, you know, is this the right team to build it? And, you know, later stage, the risk might be different, which might be like, you know, can you find the right executive team? Or can you keep growth up at like, 50 or a hundred percent a year as you get a really big piece of the market? And so I think what happens is, seed stage, you raise some money, and implicitly or explicitly, you have three or four risks that you want to address. So you want to show you have the right product, you want to show you can make money off of it, And I think the good bridges are the ones where you had a checklist of four things, and you hit three of them, and you need a little bit more money to prove that the fourth one is not a big risk either. I think the bad bridges are where somebody spent a million or two million dollars of their seed round, and they focus on things that nobody ever considered a risk anyways. And then suddenly they checked zero or one of the four boxes, and now they want more money. But, you know, a lot of times that doesn't make financial sense to an investor.

AI assessment note: “the good bridges are the ones where you had a checklist of four things”

Q stage with companies progressing up the funnel. One of my good friends, Jason Lemkin at Sasta, Says the best investors are those that essentially know the benchmarks to get the next round, and then have the ability to go and help the startups raise it. To what extent do you agree with that thesis, and to how much of a role does a follow-on funding attaining play in your schedule?

A Yes, I think it's probably 80% of how I view my role, in the sense that, you know, the ultimate goal is to help a founder build a huge company, and a lot of times the next milestone to get there is to Figure out what you have to prove and prove it so you could raise more money. And unfortunately, like, you know, I think a lot of times people hope that there is a seed round and it's the last money they raise. And in reality, that's rarely the case. So for us, you know, even though sometimes rare occasions, like trying to move towards a series A might take you in a different direction than trying to move towards building a huge company, usually they're very well aligned. And so for us, like, you know, we really try to help people figure out what do they have to prove out to reach the next set of investors and How do they own their pitch? Who should they talk to? I would provide a lot of intro. So I think we see that as a big part of the value we provide with the fund.

AI assessment note: “I think it's probably 80% of how I view my role”

Q No, I think you're absolutely right, and I think you would be very aware of the advice you give and the subsequent reaction to it, but I do want to finish, Leo, on finally, your most recent publicly announced investment, and tell me, why did you say yes and get so excited?

A I haven't done a great job of keeping track which of our investments have been public or not, so I'll talk about one that I made about a year ago. We invested in a company called interviewing.io, and it's a really interesting business where they give software engineers a chance to practice interviews, basically peer-to-peer with each other, And if you do well in the practice interviews, then you get a chance to go on site and interview at companies like Lyft and Twitch and many others. And there are a couple of things that stood out to me. And I think the two biggest ones were the team and the product. And on the team side, the founders are great. They'd known each other for a long time. They went to school together a long time ago. And the CEO had really great domain experience. So this is a recruiting company for engineers. And the CEO had been an engineer and she became an in-house recruiter at a startup she worked with. And then she actually spun out and started her own recruiting agency. And then after that started the startup, So I felt like she had really great domain grants and understanding of the field. And on the product side, I really love the elegance of the idea because when I was an engineer, I got really nervous about interviews. I would have loved a place for practice. And I think it's just so clever that you give people a chance to practice, but then if they d…

AI assessment note: “the two biggest ones were the team and the product.”

Q That's super interesting. You said about margins that I'm always kind of debating the time and the inflection point when margins and when unit econ becomes fundamentally important. How do you think about unit econ and margins in the early days and how forward and how much of a role does forward projection of margins play in your assessment of opportunities?

A Well, I definitely look at it more from the milk perspective. So it's kind of like, I'm not sure what the exact margins will be over time. But I do want to feel like whatever they are, they'll be able to stay steady or maybe even increase as the product grows instead of dwindling down to zero over time. You know, in the early days, I think unit economics, it's important that you're kind of in the right ballpark. So if it takes you a million dollars to acquire a customer that brings you 10,000 in revenue, like that's not good. But if it costs you 5000 dollars or 8000 dollars or 2000 dollars, all of those are good enough to be promising. So I think I just look for companies where They're going in the right direction, and it feels like in the next year or two or three, they can be profitable, have good margins, and be able to sustain those margins.

AI assessment note: “important that you're kind of in the right ballpark”

Q crucial. I do have to ask one final question that is something you just said there, which is obviously the difficulty in determining the true all-stars from the portfolio at such early stages. Do you think then subsequently it's fundamentally almost naive to think that you can concentrate capital into the winners early and really build up ownership? And does that mean reserves should be allocated equally according to everyone?

A I think there's two pieces to this. First of all, I think when a company is struggling, if you led the round, or if you still believe that they could be on the right track, even though things aren't going great right now, I think that's a good time for you to invest a little bit more, you know, both as a show of support, but also because you really do think the company can be successful. And I think when a company does break out, that's usually when you have a chance to double down a little bit, especially if it's taken a while, because either you can put in a little bit more money before all of the series a and follow on BC see that a company is breaking out. Or a great VC will do the investment, the Series A, and then you can try to follow on and be a part of that round. And so I think you do get a signal from the market from the Series A firms when something is going really well and it looks really promising.

AI assessment note: “when a company does break out, that's usually when you have a chance to double down”

Q I'm interested then, so many strengths, but what was the commonalities of the things that people enjoyed then on the flip side of that, how you had to change?

A Well, I think people actually, you know, going back to our conversation on feedback, people actually liked that I would send them concrete things that I thought were compelling or that, you know, where I had questions. You know, I think for a founder, even if I'm passing, if I give them some feedback, at least they could realize that their pitch could be better for the next investor they talk to. Or maybe their pitch is great, but actually maybe there's a part of their company that they could design better. So I think that was a clear feedback that people really like actually understanding why we pass and not just getting, like I said before, either ghosted or just some, something vague about me saying it's too early.

AI assessment note: “people really like actually understanding why we pass and not just getting”