The Exchanges

Q You said that about doing three to four new investments a year, and I'm sorry, this is off schedule, but I'm too intrigued. Being kind of the solo GP that you are, with three to four on a traditional fundraising kind of life cycle, that'd be 12 investments per fund. How do you think about portfolio construction today with K-Nine and with the dollars raised that you have AUM?

A So you're hitting on one of the fundamental reasons why canine is different is because first my investment period is five years. So I only go out to market with a new fund every five years and not every two to three years. And so we're doing three to four investments over a five year period. I'm essentially shooting for between 15 to 20 portfolio companies per fund. And that's pretty much the number that I've ended up with. Fund one had about, uh, 19 portfolio companies. Fund two had 14 portfolio companies, and I'm about a third of the way in fund three, where we have about six investments so far, and I still have several years to go before we'll go out to market for the next fund.

AI assessment note: “I'm essentially shooting for between 15 to 20 portfolio companies per fund.”

Q You said that about doing three to four new investments a year, and I'm sorry, this is off schedule, but I'm too intrigued. Being kind of the solo GP that you are, with three to four on a traditional fundraising kind of life cycle, that'd be 12 investments per fund. How do you think about portfolio construction today with K-Nine and with the dollars raised that you have AUM?

A So you're hitting on one of the fundamental reasons why canine is different is because first my investment period is five years. So I only go out to market with a new fund every five years and not every two to three years. And so we're doing three to four investments over a five year period. I'm essentially shooting for between 15 to 20 portfolio companies per fund. And that's pretty much the number that I've ended up with. Fund one had about, uh, 19 portfolio companies. Fund two had 14 portfolio companies, and I'm about a third of the way in fund three, where we have about six investments so far, and I still have several years to go before we'll go out to market for the next fund.

AI assessment note: “I'm essentially shooting for between 15 to 20 portfolio companies per fund.”

Q Sorry, I absolutely love that. That was so set up, but I just have to hear it again. Um, but that was great. Uh, what a story. Uh, and then I want to hear how you made your way into VC then with K-Nine. What was the origin story for you?

A Um, so for me, it kind of started back in, uh, 2006, 2007. Um, at the time, I was still doing my PhD at Stanford, and I was helping, um, Ren Ng, who's the founder of Litro, to kind of get his company up and going. Um, And, um, we went up and down Sand Hill a couple of times, and that's kind of what opened my eyes towards, like, there was something missing in the world of venture capital. And what was missing at that time was that most of the funds were trying to do investments that were three to four million dollars. They were not taking technology risk. A lot of the new people on Sand Hill at that time were not coming from a startup or an operating background. So that's kind of what got me thinking about, like, oh, there's an opportunity here to actually do something different. Where I am doing kind of an investment, which is less than a million dollars. I have a technical background, so I would, I would be open to taking technology risk. And I've, at this point, I've started about five companies. And so I essentially can say that I've walked in the entrepreneur's shoes. So that's kind of what got me thinking about it and got me started. In 2009 is kind of how I started with the first fund, which I describe as a demonstration fund.

AI assessment note: “In 2009 is kind of how I started with the first fund”

Q or education ground for newer partners. That's a super interesting perspective. I'm also interested because you said about the time to value money there in terms of the fastest and the money that comes first for those founders. The thing that really troubles me, Manu, honestly, is the compressed fundraising timelines today with such excess capital. How do you think about the compression of fundraising timelines today for you investing?

A So at the stage at which I'm investing at the pre-seed stage, I still have the luxury of actually spending some time with the teams and getting to know them before making a decision to invest. That's also a core part of my model because I only do maybe three to four new investments in a year. So I have the luxury of being extremely selective and being able to spend time with the teams before determining to engage with them. But when I look at what is happening in later stages of the ecosystem, I fully agree and share your concern that fundraising rounds are actually moving very quickly. They tend to be highly competitive, and it's a tough time to be an investor is how I would put it.

AI assessment note: “at the pre-seed stage, I still have the luxury of actually spending some time”

Q five-year fun cycle there, and I loved your piece on time really being the enemy for startups. I guess my question for you was, is the five years temporal diversification based on fears around macro refinancings, and you then having to kind of refinance the portfolio yourself, and so ensuring that you have this kind of temporal diversification across the five years? How do you think about that temporal diversification?

A So I'd say first, Harry, that's a very astute observation, because it's not one that I made. And I think when I think about it, yes, the, the five-year investment period is probably adding some level of temporal diversification to the canine portfolio, but that was not the reason why I chose a five-year investment period. The reason why I chose a five-year investment period is because the thing I enjoy doing most is actually building companies. And I truly think of myself as a company builder rather than a company picker. And so I'm trying to optimize spending my time on helping founders to build their companies. And I just figured, like, fundraising takes time. Even when it goes quickly, it can, it'll take at least three months or more or more in order to kind of just herd all the cats together for pulling together a fund. And I just figured I would rather take that on less frequently rather than more frequently.

AI assessment note: “that was not the reason why I chose a five-year investment period”

Q And how did that play out for you in your early, more formative years? Was there a particular example that I'm alluding to very, very subtly?

A Well, it actually starts out with, uh, when I decided I wanted to start a company and, and also realize that I don't know anything about starting a company. I wanted to go over and take a class, uh, Jack Thorne at Carnegie Mellon. And Jack basically told me that, look, Manu, I'd love to have you in the class, but the class is already full, and it's oversubscribed, and so I'm afraid I don't have room for you to take the class. And I just decided to show up in his class anyway on the first day, and the first slide that Jack put up in the class was this definition of entrepreneurship, which is insane perseverance in the face of complete resistance. And so I just walked up to Jack at the end of the class, and I'm like, Jack, like, you already told me what I need to do in order to take this class, which is insane perseverance in the face of complete resistance.

AI assessment note: “I just decided to show up in his class anyway on the first day”

Q I'm intrigued. What check size do you tend to put in then?

A So my sweet spot is usually around 400 to 500,000 as an initial investment. Uh, but then I will go as high as about four million dollars into each company. So I do, I'll do 400 to 500,000 into the pre-seed. Uh, I might do 750 or a million into the seed, and then another million into the A, and then maybe another million into the, into the B. So does, does follow on funding play a crucial role in your, um, kind of portfolio construction? Yes, absolutely. Um, and in fact, when I'm looking at a company, um, in addition to kind of thinking of like, do I believe in the future they're describing, I'm already thinking about who are the people that I would take this company to for their follow on rounds of financing.

AI assessment note: “my sweet spot is usually around 400 to 500,000 as an initial investment”

Q And this one's not from Mark. So we're, we're breaking a trend here, but this one's from another, another fantastic chap in the industry, Josh Koppelman. And he says, what has to be remembered is the defining role of price Always a bit of an interesting one for me personally, but how much of a role does valuation play in your investment decision making process?

A It's actually an extremely important factor in my investment making, decision-making process. It's because, think of it this way, let's say there's a, there's a company that you could invest in at a, at a four million valuation versus an eight million valuation. No matter what the outcome is on that company, you've, you've halved your return. If it was going to be a hundred X, it's now going to be a 50 X. If it was going to be a 20 X, it's now going to be a 10 X. So the, the price that you get in at in a company absolutely matters, and I walk away from deals all day long, uh, based on price, based on price and structure, so I also don't do convertible notes. The big reason why I think to me the price matters so much is it's really that I'm not investing in a company as a lottery ticket, right? I'm investing in the company to actually help build the company, and I see myself less as a company picker and more as a company builder, and so if I'm going to be actually spending time with the company and I do very few investments in order to be able to do that, then I want to make sure that I have enough skin in the game that building the company actually Has the potential to return the fund, if not more.

AI assessment note: “It's actually an extremely important factor in my investment making, decision-making process.”

Q How does your thesis construction, uh, look like when you're kind of thinking about new and alternative, um, platforms and boundaries that can be pushed? Is that, do they all come to you and you, you know, you see the, the possibilities of light show, or do you look at a market and think there's huge potential in the, you know, photography light space?

A Actually, sometimes it even goes in the other direction. Uh, and I'll give you an example of that. So eShares is one of my portfolio companies. Um, and in fact, it's a company that I co-founded. And in the case of that company, uh, I was talking with Henry Ward, who's, who's my co-founder in that company about his previous company that he was working on. And I just really liked Henry and I wanted to work with him. And, but the, the initial idea he had, uh, wasn't getting traction. And so I pitched him on a concept of eShares. He came around and loved that concept, and now he's running with it. And it's been brilliant. I mean, he's done such a phenomenal job with that company, and they're fundamentally changing, um, how private companies manage their equity, their investors, their employees, um, their valuations, and that infrastructure simply didn't exist before. So that's an example of where, where I had an idea in my head, and it was a, it was just a kernel of an idea at that point, and Henry and I came together around that kernel of an idea to essentially co-found a company. Other cases in which founders come to me and kind of pitch their vision of the future, sometimes it takes a little bit of back and forth to kind of like extract like, oh, that may not be interesting, but if you just do a slight directional change, That could be super interesting, right? So just kind of f…

AI assessment note: “Actually, sometimes it even goes in the other direction. Uh, and I'll give you an example”

Q And how did that play out for you in your early, more formative years? Was there a particular example that I'm alluding to very, very subtly?

A Well, it actually starts out with, uh, when I decided I wanted to start a company and, and also realize that I don't know anything about starting a company. I wanted to go over and take a class, uh, Jack Thorne at Carnegie Mellon. And Jack basically told me that, look, Manu, I'd love to have you in the class, but the class is already full, and it's oversubscribed, and so I'm afraid I don't have room for you to take the class. And I just decided to show up in his class anyway on the first day, and the first slide that Jack put up in the class was this definition of entrepreneurship, which is insane perseverance in the face of complete resistance. And so I just walked up to Jack at the end of the class, and I'm like, Jack, like, you already told me what I need to do in order to take this class, which is insane perseverance in the face of complete resistance.

AI assessment note: “I wanted to go over and take a class, uh, Jack Thorne at Carnegie Mellon.”

Q How does your thesis construction, uh, look like when you're kind of thinking about new and alternative, um, platforms and boundaries that can be pushed? Is that, do they all come to you and you, you know, you see the, the possibilities of light show, or do you look at a market and think there's huge potential in the, you know, photography light space?

A Actually, sometimes it even goes in the other direction. Uh, and I'll give you an example of that. So eShares is one of my portfolio companies. Um, and in fact, it's a company that I co-founded. And in the case of that company, uh, I was talking with Henry Ward, who's, who's my co-founder in that company about his previous company that he was working on. And I just really liked Henry and I wanted to work with him. And, but the, the initial idea he had, uh, wasn't getting traction. And so I pitched him on a concept of eShares. He came around and loved that concept, and now he's running with it. And it's been brilliant. I mean, he's done such a phenomenal job with that company, and they're fundamentally changing, um, how private companies manage their equity, their investors, their employees, um, their valuations, and that infrastructure simply didn't exist before. So that's an example of where, where I had an idea in my head, and it was a, it was just a kernel of an idea at that point, and Henry and I came together around that kernel of an idea to essentially co-found a company. Other cases in which founders come to me and kind of pitch their vision of the future, sometimes it takes a little bit of back and forth to kind of like extract like, oh, that may not be interesting, but if you just do a slight directional change, That could be super interesting, right? So just kind of f…

AI assessment note: “Actually, sometimes it even goes in the other direction. Uh, and I'll give you an example”

Q Sorry, I absolutely love that. That was so set up, but I just have to hear it again. Um, but that was great. Uh, what a story. Uh, and then I want to hear how you made your way into VC then with K-Nine. What was the origin story for you?

A Um, so for me, it kind of started back in, uh, 2006, 2007. Um, at the time, I was still doing my PhD at Stanford, and I was helping, um, Ren Ng, who's the founder of Litro, to kind of get his company up and going. Um, And, um, we went up and down Sand Hill a couple of times, and that's kind of what opened my eyes towards, like, there was something missing in the world of venture capital. And what was missing at that time was that most of the funds were trying to do investments that were three to four million dollars. They were not taking technology risk. A lot of the new people on Sand Hill at that time were not coming from a startup or an operating background. So that's kind of what got me thinking about, like, oh, there's an opportunity here to actually do something different. Where I am doing kind of an investment, which is less than a million dollars. I have a technical background, so I would, I would be open to taking technology risk. And I've, at this point, I've started about five companies. And so I essentially can say that I've walked in the entrepreneur's shoes. So that's kind of what got me thinking about it and got me started. In 2009 is kind of how I started with the first fund, which I describe as a demonstration fund.

AI assessment note: “In 2009 is kind of how I started with the first fund”

Q And this one's not from Mark. So we're, we're breaking a trend here, but this one's from another, another fantastic chap in the industry, Josh Koppelman. And he says, what has to be remembered is the defining role of price Always a bit of an interesting one for me personally, but how much of a role does valuation play in your investment decision making process?

A It's actually an extremely important factor in my investment making, decision-making process. It's because, think of it this way, let's say there's a, there's a company that you could invest in at a, at a four million valuation versus an eight million valuation. No matter what the outcome is on that company, you've, you've halved your return. If it was going to be a hundred X, it's now going to be a 50 X. If it was going to be a 20 X, it's now going to be a 10 X. So the, the price that you get in at in a company absolutely matters, and I walk away from deals all day long, uh, based on price, based on price and structure, so I also don't do convertible notes. The big reason why I think to me the price matters so much is it's really that I'm not investing in a company as a lottery ticket, right? I'm investing in the company to actually help build the company, and I see myself less as a company picker and more as a company builder, and so if I'm going to be actually spending time with the company and I do very few investments in order to be able to do that, then I want to make sure that I have enough skin in the game that building the company actually Has the potential to return the fund, if not more.

AI assessment note: “It's actually an extremely important factor in my investment making, decision-making process.”

Q so old in the last few years. It has been a few episodes for sure, but I do want to start saying, Manu, as you know, Setting a little bit of context, and for anyone that maybe didn't listen to our first episode when it was pretty much just my mother listening, tell me, how did you make your way into the world of venture and come to found K-Nine?

A Sure. So for me, the journey has really been about starting companies more than even venture. I started my first company when I was 20. To date, I've probably started about six or seven companies that I've co-founded, and it was in 2007 when I was graduating from Stanford with my PhD and I was thinking about what I want to do next. And I realized the thing that I love most is actually working with companies in their earliest stages, right from zero, from stage zero, when there's the founders and an idea onwards. And I realized that's the stage I enjoy the most. And I also noticed that there was a gap in the venture ecosystem. And that's what got me to actually consider actually starting a new fund in order to both address that gap in the ecosystem and essentially create a job for myself that I would love doing.

AI assessment note: “And that's what got me to actually consider actually starting a new fund”

Q the joys of fundraising, so I completely sympathize with you there. I do have to ask, because, you know, it's such an interesting structure you have with K-Nine. I benefit so much from the decision-making with my partners to My question for you is how do you think about decision making as a solo GP and really look to kind of optimize that for you and for the fund itself?

A By the way, that topic we can have a whole long, long conversation on because it's something I've thought for a long time. First thing is I have the benefit of having been a solo founder before. And so when I started my first company back in 1996, I started that as a solo founder. And so I kind of learned how to deal with that. And I think that experience of having been a solo founder is critical for me today being a solo GP, because I have to be comfortable in making a judgment call, effectively trusting my gut in a lot of cases. In fact, just this morning, I tweeted about taking leaps of faith, like where you're operating in the absence of complete data, and how do you, and decision-making in the absence of complete data is not easy. It's difficult. The benefits of Of being a solo GP are that you are also a hundred percent accountable and a hundred percent responsible. Like if you make a mistake, it's your mistake. If you get something right, you got it right. And so it's just somewhat liberating and very refreshing in a way that I am fully responsible for how canine does, and it's all on my shoulders, and I'm comfortable with that.

AI assessment note: “comfortable in making a judgment call, effectively trusting my gut”

Q Well, at least you know now, after investing and founding companies, you have a career in politics with that question. Tell me, what's the single toughest and best thing about founding and investing simultaneously?

A The toughest thing is simply time. It is very difficult to manage time. I often give this example to others, but I'm not sure how well I follow it myself. Like, if you assume that you have a hundred dollars and you'll never get another dollar again, you're probably going to be really careful about how you spend. But when we think about time, we don't think about it with the same perspective. We all have a limited amount of time, and I hope we all live to a hundred years, but just kind of thinking about how to manage time is the toughest part. The best part about being a founder and an investor at the same time is just the cross-functional learning that happens from one direction to the other, and the ability to apply lessons from one side to the other. Like, I mean, I can go to a portfolio company and see what they're doing and learn something over there that I can bring back and actually apply in my own company. And vice versa, I can actually take the learnings from recruiting, as an example, and use that to help shape the advice I give to a portfolio company as well.

AI assessment note: “The toughest thing is simply time. It is very difficult to manage time.”

Q concentrate in a lot of respects. The other element is also we've seen large multi-stage funds move into seed and pre-seed. Now, this is definitely one that gets my blood boiling in certain cases. Samuel Shah said on the show that founders are voting with their feet in taking multi-stage money at seed. As I said, you've got a front row seat for this. Would you agree with this statement?

A I think Yeah, founders may be voting with their feet, but what they're really voting for is the easiest capital they can get their hands on, and the primary imperative for a founder is to get their company funded, and so their imperative is to take the easiest of the first dollars that they're offered, and if they're offered multiple, then the imperative is to take the one that's offered to them at the highest valuation, and so, yes, I can see founders actually taking money from multi-stage But I've also seen that go bad many, many times. And in particular, because for a lot of these multi-stage firms, the capital that they put into a company in the early stages is just an option value. And if it's just an option value, then if things don't go well, that company is going to have an incredibly difficult time at raising capital. And this has played out on many, many occasions. Founders are optimists at heart. And so they always expect that things will always go well. But they do need to be practical and realize that things are not always going to go well, and even if things don't go well, you want your company to survive. You want another shot at goal. That's the advice and the caution that I give to founders who are raising larger rounds than they should at higher valuations, which is, like, you want to make sure that your company survives, and you don't just want to be an optio…

AI assessment note: “yes, I can see founders actually taking money from multi-stage”

Q there, and I spoke to Michael Kim, a mutual friend of both of ours, before the show, and he said about Founders now skipping pre-seed altogether, and his question was, how do you avoid adverse selection with founders who agree to do a pre-seed financing versus founders who don't do pre-seed and go straight to a larger round at a higher valuation? How do you think about that adverse selection?

A So first, that's a genuine issue that faces most pre-seed stage funds, and I think the two people that I can think of who've been doing this the longest are probably me and Tim Connors at Pivot North, and Michael and I have talked about this often as well. I think the things that kind of helped Canine from kind of avoiding adverse selection here is the first thing is just the number of investments, right? So if I'm only making three or four new investments in a year, it's an incredibly tight filter to begin with. And so I'm specifically looking for those companies that are a fit both for my investment thesis and my model and for companies who want to work with me and I want to work with them. So it's a, it's truly comes down to that matchmaking process is the first The second thing is that it comes down to making a call on people. I'm literally looking for founders who I can kind of to use my, my kids just watch Aladdin again. So the term that's in my mind is diamond in the rough. So I'm looking for people who are that diamond in the rough. And my job as a pre-seed stage investor is to actually help them show that they are a diamond by actually doing the cutting and the polishing that's required.

AI assessment note: “things that kind of helped Canine from kind of avoiding adverse selection here is”

Q your AGM deck in 2013. But the landscape, it's honestly, it's moved so much over the last seven years, as you know. So I guess with a front row seat to this, and having coined pre-seed, which I think you should definitely get royalties from, by the way, what have been the biggest and most significant changes in the early stage market over the last seven years, do you think?

A I think the market has changed Very radically in the last seven years. It's changed not only at the earliest stages and kind of the pre-seed emerging as a whole new category is one change, but it's also changed very dramatically at the later stages. If you look at the new venture landscape, the value creation has really shifted to private markets. Companies add more value while they are still private than sometimes, and they do even after they've gone public. And that has led to just more and more capital coming into the private market ecosystem. It has led to companies staying private longer. It has led to companies raising many more and much larger rounds of financing while they're private as well. So I think all of these have had an impact across the entire spectrum of venture financing. If you look back to maybe 2009 timeframe, so going back almost 11 years from now, At that time, a seed round was 500,000 dollars. Today, a seed round is two to three million dollars, if not more. And founders still need to be able to get to that very first amount of capital in order to figure out whether they even have something or to put together a team. And so that is what I refer to today as pre-seed, which is essentially the first institutional capital that a company is raising that is mostly used to build the team and the product. So that's on the early stage, and then we've all seen wh…

AI assessment note: “pre-seed emerging as a whole new category is one change”

Q so old in the last few years. It has been a few episodes for sure, but I do want to start saying, Manu, as you know, Setting a little bit of context, and for anyone that maybe didn't listen to our first episode when it was pretty much just my mother listening, tell me, how did you make your way into the world of venture and come to found K-Nine?

A Sure. So for me, the journey has really been about starting companies more than even venture. I started my first company when I was 20. To date, I've probably started about six or seven companies that I've co-founded, and it was in 2007 when I was graduating from Stanford with my PhD and I was thinking about what I want to do next. And I realized the thing that I love most is actually working with companies in their earliest stages, right from zero, from stage zero, when there's the founders and an idea onwards. And I realized that's the stage I enjoy the most. And I also noticed that there was a gap in the venture ecosystem. And that's what got me to actually consider actually starting a new fund in order to both address that gap in the ecosystem and essentially create a job for myself that I would love doing.

AI assessment note: “that's what got me to actually consider actually starting a new fund”

Q concentrate in a lot of respects. The other element is also we've seen large multi-stage funds move into seed and pre-seed. Now, this is definitely one that gets my blood boiling in certain cases. Samuel Shah said on the show that founders are voting with their feet in taking multi-stage money at seed. As I said, you've got a front row seat for this. Would you agree with this statement?

A I think Yeah, founders may be voting with their feet, but what they're really voting for is the easiest capital they can get their hands on, and the primary imperative for a founder is to get their company funded, and so their imperative is to take the easiest of the first dollars that they're offered, and if they're offered multiple, then the imperative is to take the one that's offered to them at the highest valuation, and so, yes, I can see founders actually taking money from multi-stage But I've also seen that go bad many, many times. And in particular, because for a lot of these multi-stage firms, the capital that they put into a company in the early stages is just an option value. And if it's just an option value, then if things don't go well, that company is going to have an incredibly difficult time at raising capital. And this has played out on many, many occasions. Founders are optimists at heart. And so they always expect that things will always go well. But they do need to be practical and realize that things are not always going to go well, and even if things don't go well, you want your company to survive. You want another shot at goal. That's the advice and the caution that I give to founders who are raising larger rounds than they should at higher valuations, which is, like, you want to make sure that your company survives, and you don't just want to be an optio…

AI assessment note: “founders may be voting with their feet, but what they're really voting for is”

Q Have you witnessed what every other investor I think is feeling the pain of, which is increased initial check sizes and decreased ownership? Has that been something that you've witnessed too, even at the pre-seed?

A At the pre-seed level, I would say that the check sizes have kind of inched up a little bit, but only marginally. My initial range used to be between 400 to 600 K as an initial investment. I would say I'm probably closer to the higher end of that range today than I was earlier, but I've still tried to keep it very stable and disciplined. I'll also emphasize, Harry, that I take the opposite effect. I have no formal. I have absolutely zero fear of missing out, and so if there's a company that is got multiple term sheets, um, or offers even at the pre-seed stage and stuff like, I'm not going to be Chasing that deal and trying to move up in valuation in order to win that deal. To me, there's a, there's a matchmaking process that needs to happen between I need to choose the founders that I want to work with, and they have to choose whether they want to work with me. So it has to be kind of a mutual decision. And if it's not a mutual decision, there's signal for me in that as well. So life's too short to basically chase after people who don't want to work with you and they were, and you're working with them. Just because you're giving them a higher valuation, that's just not my MO.

AI assessment note: “check sizes have kind of inched up a little bit, but only marginally.”

Q element, which I definitely want to speak about, But it's the element that you said about time being obviously the enemy for startups. When you look at the cohort of different venture firms that we have today, what do you think is the enemy for venture firms in terms of their process, in terms of their ops, their structure, their workflow? What's the enemy for venture firms as a parallel?

A I think the biggest enemy for venture firms is actually groupthink, and that kind of almost goes back to the solo GP versus a partnership type of a model. There's a lot of benefits to having partners and people Questioning and serving as a, as checks and balances, but there's a limit to where it's healthy. In the extreme, you can almost end up in a situation where a fund is operating based on groupthink and consensus, and that, to me, is extremely dangerous for a venture fund. The most interesting companies are typically doing something that is unusual and different, and you just have to have a gut and conviction on, do you think this can work? So I describe it as that, like, when founders come in to pitch me and K-Nine, they're coming in and painting a vision of the future, and my job is basically to make a call on, do I believe in the vision of the future that they are painting? And if I believe that vision of the future, the next question I have to ask myself is, do I think that these are the people who can actually make that vision of the future come to life? And if the answer to both of those two questions is true, then I should do the investment. So I think the groupthink is probably the, um, the answer that I would give to, like, that's the biggest enemy for a venture firm, and just having diversity of opinions and not requiring consensus is super important in a venture …

AI assessment note: “I think the biggest enemy for venture firms is actually groupthink”

Q And then another one from Howard Marks, we're going to roll through these today. They're just too good. So the riskiest thing in the world is the widespread belief that there is no risk. So another fantastic quote, but how does risk assessment feature in your investment mentality and your approach to portfolio construction?

A Actually, it doesn't feature in my way of thinking. So the stage at which I'm investing is so early. Um, and as you, you mentioned, like the pre-seed versus the seed, so I actually kind of coined the pre-seed term at one point in, I think in 2013, 2014, um, because I saw the seed market kind of evolving where it was becoming a two million to three million dollar round, and I was like, wait, these things are changing, and so there has to be an earlier round. But when I'm investing at that earlier round, There is very little that you can assess in terms of risk. I mean, the biggest risk at that stage is, does this team have the ability to execute on what they, what they're saying they want to do? And the second is, is what they're saying what they want to do something that makes sense in the future? And there's very little additional data to go on. I actually try to avoid looking at it from a risk perspective and, and think about it more of like, is this a team that I want to work with? And do I believe in the future that they want to build?

AI assessment note: “Actually, it doesn't feature in my way of thinking.”

Q And then another one from Howard Marks, we're going to roll through these today. They're just too good. So the riskiest thing in the world is the widespread belief that there is no risk. So another fantastic quote, but how does risk assessment feature in your investment mentality and your approach to portfolio construction?

A Actually, it doesn't feature in my way of thinking. So the stage at which I'm investing is so early. Um, and as you, you mentioned, like the pre-seed versus the seed, so I actually kind of coined the pre-seed term at one point in, I think in 2013, 2014, um, because I saw the seed market kind of evolving where it was becoming a two million to three million dollar round, and I was like, wait, these things are changing, and so there has to be an earlier round. But when I'm investing at that earlier round, There is very little that you can assess in terms of risk. I mean, the biggest risk at that stage is, does this team have the ability to execute on what they, what they're saying they want to do? And the second is, is what they're saying what they want to do something that makes sense in the future? And there's very little additional data to go on. I actually try to avoid looking at it from a risk perspective and, and think about it more of like, is this a team that I want to work with? And do I believe in the future that they want to build?

AI assessment note: “Actually, it doesn't feature in my way of thinking.”

Q With such out the box thinking, Does that make it sometimes difficult to access the follow-on funding required maybe at the seed? Because I know you're a seed fund, but we, we kind of agree you're probably a pre-seed in today's nomenclature. Um, does that make it difficult then in the seed environment when you are funding some very alternative and out-the-box science?

A Um, you're totally hitting the nail on the head because it absolutely does, and that's probably the hardest part of my investment strategy, is that not only do I have to believe in a, in a world that looks different, but then I also need to find other people who are going to follow on and also believe in that same vision. And so the way that I describe this to, to my LPs, my limited partners, Is that I need to kind of be the e-harmony for follow-on financing, right? I need who are the people who are going to resonate with this idea and this person, and then, and then connect them together and make sure that the follow-on financing can happen. And that's, that's probably what I spend most of my time on with my, with my existing portfolio companies.

AI assessment note: “you're totally hitting the nail on the head because it absolutely does”

Q I mean, I absolutely love it as a historian. Yeah, you know my feelings on Henry. I think he's exceptional. I do want to also, because it's such an interesting kind of dual mindset, how has, on the flip side, investing changed the way you think about starting and building companies, having seen so many do it from the investor seat?

A So that's actually a fascinating question, because I just talked about this at my LP meeting in a October of last year. And so the most recent company that I have co-founded, and I am actually running as CEO, is called HiHello Hello.. And this is, again, coming from a personal problem that has bothered me for over two decades in terms of, I want tools that help me to manage and grow my network, and I just don't have the right software tools for doing that. So I essentially decided I'm going to start a company to do exactly that. And the experience of actually having founded a company and now running that That company, as the CEO, has changed my mindset as an investor, right? There were fundamental learnings from HiHello that have now changed what I look for in companies that I would invest in. So I'll give you one concrete example, and in fact, even until today, if you go on the K-Nine website, you will see blog posts that I have written from many years ago that talk about no outsourcing, no distributed teams, no remote teams, and I want everybody in the same room working together. And it was only after starting Hi, Hello, where I spent a year trying to build the team, and recruiting in the Bay Area has just become such a nightmare that the only option was to go with a remote team. And it was through that process that I'm like, wow, my fundamental belief that I do not want to h…

AI assessment note: “changed my mindset as an investor, right? There were fundamental learnings from HiHello”

Q friend, Mark, I feel we should have him on the show too. But he says there's an absence of losses can give you a great start toward a good outcome. So as a seed fund, how do you approach inevitable losses where, you know, we live in the outlier industry of nine out of 10 fail? Do you agree with that thesis? And how do you approach the mortality rate?

A So I think my personal thesis on that is evolving. And it's evolving because I've definitely, I mean, I've seen the result that an outsized outcome can actually bring to your portfolio. But at the same time, I feel that it's unfair to the founders To invest on a basis of like, oh, I don't care if your company dies. For the founders, they're essentially putting, putting all their effort and all their energy into, into this one company And as an investor, if you're basically like, great, I'm going to have 20 companies and I don't care if 10 of them die, that, that just doesn't feel fair to me as something to do to a founder. Like, for a founder, they want their company to succeed. That's what they care about. And so I want my interest to be hundred percent aligned with the founders that if I'm going to invest in them, that I'm in it for them to succeed. As a result of that kind of reducing the mortality rate across the portfolio kind of comes inherently from the alignment of interest between the founder and the investors.

AI assessment note: “reducing the mortality rate across the portfolio kind of comes inherently from the alignment”

Q I said, such an interesting structure with obviously K-Nine also creating a new founding companies alongside investing. Honestly, Manu, I kind of look at it and when we email back and forth, I go, what on earth does Manu's day look like? So from a more practical perspective, how does it mean that you split your time between operating and investing? And what are the challenges of doing both simultaneously?

A The simple answer is it is not easy. It is incredibly difficult to be operating and investing at the same time, mostly because of a function of time, and I found companies because that's what I'm inherently passionate about, and I kind of jokingly say that in order for me to co-found a company today, I have to get pissed, and I have to get pissed about something being wrong in the world that I feel could be done better, and if I keep getting that Same feeling over and over and over again, and I don't find a company that is actually solving that problem. Then my answer to that is that I'm actually going to start a company and I'm going to damn well solve that problem. And so this is something that has been a core part of the canine model. And so we've talked about Carta before. And so I'll tell you the brief story behind Carta is that in 2009, when I did my first official investment out of Canine. I ended up receiving a massive stack of paper for the closing docs and a paper stock certificate. And I'm sitting over there wondering, like, what do I do with the stock certificate? And I called a bunch of GPs and I asked them, what do you do with your stock certificates? And they said, well, I hand it to my CFO and my CFO walks it down to the bank and puts it in a safe deposit box. I'm like, well, that's a problem for me because first I don't have a CFO and second, I don't have a saf…

AI assessment note: “I'll tell you the brief story behind Carta is that in 2009”