The Exchanges

Q speak, I always could pull back and say, no, this is ridiculous. I'm not paying 300 X revenues for this or whatever that may be. And then many mentors of mine say, Harry, you can never time markets. You'll lose money. How do you think now, having had those learnings about cadence actually of deploying capital through these cycles, is it the continuous stream? How does one change their cadence?

A I endeavor not to change my cadence. You know, there's a concept that limited partners talk about of time diversification, and I think it's important. It is impossible to know, except in long retrospect, whether 2019 was a great year to be investing or a horrific year to be investing. And so to make subjective judgments regarding either a pullback or, frankly, as we're seeing from some of our peers, acceleration in pace, both the pullback and acceleration seem to me arbitrary. So our goal has been to invest three or four hundred million dollars a year. Again, we do both venture and growth equity, so that seems like a lot of money, but many of those are large checks and later stage companies. Fully half of it is your classic five to twelve million dollars Series A, and our pacing has been as steady as we can manage it, which is, I think, a kind of a declaration of ignorance, if you will, that we don't know how this is going to end or when it's going to end, and so therefore we want to be in the market on a steady basis.

AI assessment note: “I endeavor not to change my cadence.”

Q to that is, that's fine, and I understand, kind of, the transfer of value to the founder, but actually, it just makes Series B that much harder, because then they've got to meet this inflated valuation that they'll probably only grow into in 12 to 1416 months time, and so it just makes that next round so much harder, given the inflated round and valuation. Is that a fair assumption?

A Yes, and so I would say the incidence of us participating in some of these Series A's, I mean, look, let's be honest, there are Series A's that happen that are 90 to a 120 post, and we have not done those. Our view is that the expectation For be at two hundred and fifty million, It may well happen, but it is surely an unfair expectation on any founding team that they'll be able to continue sufficient momentum without a blip to be able to have that kind of successful follow on financing. So there is an absolute level at which and above which we think it's just unhealthy that it isn't about value transfer to the founder. It's just about being opportunistic, frankly, in a way that's not only not great for the investor, but not great for the company. But in what we would now have come to believe is a reasonable post-money range for Series A, so kind of 30 to 60, which is important in light of the fact that if you go back five years, that range would have been kind of 15 to 30. So it has moved meaningfully, but again, in our experience, not so much that it constrains the company's ability to raise future capital if it's merited.

AI assessment note: “Yes, and so I would say the incidence of us participating in some of these”

Q Well, that's very kind of you, but I would love to start today with a little bit on you. So tell me, how did you make your way into what I always call the wonderful world of venture and come to be a partner at Bain Capital Ventures today?

A Well, I started 25 years ago in consulting at Bain & Company and then pretty quickly joined Bain Capital, so in 1995. To be honest, that had nothing to do with venture back then. Bain Capital is a private equity firm, and so that was my first foray in investing. But I quickly realized I was more of a venture guy. And so in 2000, Bain Capital actually gave me some money, kind of seeded me, as it were, to start my own firm called Village Ventures with my then partner, Bo Peabody. And so really, that was my entree into venture, was a twenty-six-year-old starting my own firm, raising a fund, and trying to figure it out. The first thing I did, really, we were at that point in the wreckage of the dot-com bust, and so what had seemed like a pretty easy business all of a sudden started to seem incredibly hard, and I realized that in order for me to be successful, I needed a distinctive strategy, somewhere where I could be more of a leader than just sort of a generalist, and so I decided to focus on financial technology. This is in 2000 when we founded Village Ventures, and back then there was really no term fintech and very little activity, frankly. In financial technology, but it seemed like a big opportunity for entrepreneurs to innovate and change some of the dynamics in the financial services industry that the incumbents were not addressing. And so that's what I did. You know, I, I…

AI assessment note: “so really, that was my entree into venture, was a twenty-six-year-old starting my own firm”

Q your own fund, but, uh, totally with you there. I do want to ask the other element about the time when you started in venture. You said there about being 2000 and what a time it was indeed, but what did it mean to you? How do you think it changed your investment mindset today? Having been through the bust and boom of the macro cycles, both with 2002 1008.

A It was a formative experience, 2000. And as I mentioned, we, we started the firm in partnership with these two, even then very tenured venture Capitalists, Mark Nunnally and Paul Mader, and I'll never forget spring of 2000 when the NASDAQ kind of plummeted. Beau and I, you know, as brash young folks in our mid-twenties were thinking, hey, this is just a blip. You know, this, this happens. It goes down. It comes back up. We're still in the middle of a revolution, and they sat us down very clearly and said, no, you don't, you don't get it. This is nuclear winter. This is not a blip. This is not necessarily something that you can just And it was amazing for us at that point to get that input. And yet, I will say, I think that my deep and abiding fear and recognition of the cyclicality of finance and the cyclicality of technology has actually cost me a lot of money. Because, you know, we're 10 years in, maybe 11 by some counting, into this incredible bull run where it sure feels more secular than cyclical. And every time there's a blip downward in multiples or in the market, it actually has come right back up. And so all of that pattern recognition I have around what, you know, long-term multiples should be, and the fact that what goes up must come down has not preserved me particularly well, I will say, and this incredible duration of this bull run.

AI assessment note: “my deep and abiding fear and recognition of the cyclicality of finance... has actually cost me”

Q And then I want to finish today on your most recent publicly announced investment, Matt. And why did you say yes and get so excited?

A So just this week, we announced the investment in a company called Finix, which is a San Francisco based payments company. And here we have some elements of improbability. So what Finix does is basically enable software companies to become payments companies. The single most important thing we see happening in payments right now, the functions that used to be played by merchant acquirers and merchant processors and even issuers and issuer processors are now all being taken over by software companies who acquire customers, whether they be retailers or folks on the cardholder side, acquire those customers through great software and then enable those customers to take payments or make payments. Using embedded payment functionality. And so that is what's happening. Now, it's a small market today. To our earlier conversation, it's about eight percent of all payment spend goes through software companies. But our view is that that eight is going to 80. And Phoenix is the leading company that's in the enablement tier of that. So if you're a software company and you want to start taking payments, Phoenix is the, our view, the best way to do it. Capture most of the economics and have the most integrated solution. And let me tell you, you know, we talked about improbability and we talked about Somebody in the partnership raising their hand and saying, I think this is a terrible idea. So i…

AI assessment note: “we announced the investment in a company called Finix”

Q want to discuss with you, is kind of the element of market sizing for these potentially improbable ideas. We always hear, you say, they look for big TAMs. Can't imagine how many times I've heard that on the show. So to help me, How do you think about an assessed market sizing when thinking about investing in a company? How prominent is it, and how do you approach that subject?

A Well, one of my partners, Ajay, is fond of saying that, you know, he never wants to hear market size in a Series A investor debt. And I think, again, similar to this concept of valuation not mattering, it's important to put out kind of a hyper-aggressive positioning to make a point. We do talk about market size, but we surely don't think it's the most important thing at a Series A. And in fact, Most of our companies, really breakout companies, were actually solving a pretty small problem in the first instance. That then led to a much bigger opportunity. And so, strict market sizing, I think, can be an unbelievable mistake. And it can be, frankly, very distracting for companies to be wallowing around in this huge TAM. Versus this sense that actually, I'm nailing something for a relatively small group of customers. So we have a company called Alice, just to pick up a recent Series A. They're doing pre-tax spending benefits, which is a huge camp. HSAs, FSAs, these are all these sort of U.S. specific three-letter acronyms for a segment of the benefits industry that is large and growing very quickly. But they're focused in the first instance on hourly workers. And the actual market size of pre-tax spending for hourly workers, like rounds to zero. Because the fact is, all of these programs require you historically to set aside money Set aside money and put it into accounts that if yo…

AI assessment note: “we surely don't think it's the most important thing at a Series A”

Q to speak about the pricing element there, because when we chatted before, you said to me, Series A valuations don't matter. Now, I may be paraphrasing and cutting and cleaning that one to make it sound worse than it is, and which makes me for it, but, and actually, I had some strong questions following. So, what did you mean by Series A valuations don't matter anymore? What's the thinking?

A Well, first, I'd like to say that I really look forward to the first time an entrepreneur plays that back to me in our negotiations, so thank you for Outing me on that sentiment. And it is indeed, of course, shorthand. But what I mean by that is our discipline here at the Series A is largely focused on ownership versus pure valuation. And our observation, again, across 20 years of venture capital here at Bank Capital Ventures is that if you own 20%, 25%, 18%, something meaningful of a company that ends up being important, then it doesn't really matter whether your entry price was 20 posts or 40 posts. And otherwise, whether you put in six million dollars or even twelve million dollars to buy that 20% ownership, you're going to be richly rewarded if you got the company right. If it ends up being one of these companies that end up being worth multiple billions of dollars, you're never going to regret the price you paid. And so that's what I mean by that, that if you get the right ownership and you get the company right, then whether you paid more in the sense of dollars for that Meaningful ownership or not is irrelevant. Now, obviously, it affects multiple. And the fact that turn a hundred X deal into a 50 X deal by overpaying by two X seems laughable because 50 X is obviously still a marvelous outcome. But surely on average and in aggregate for our industry, what it's doing is s…

AI assessment note: “our discipline here at the Series A is largely focused on ownership versus pure valuation”

Q want to discuss with you, is kind of the element of market sizing for these potentially improbable ideas. We always hear, you say, they look for big TAMs. Can't imagine how many times I've heard that on the show. So to help me, How do you think about an assessed market sizing when thinking about investing in a company? How prominent is it, and how do you approach that subject?

A Well, one of my partners, Ajay, is fond of saying that, you know, he never wants to hear market size in a Series A investor debt. And I think, again, similar to this concept of valuation not mattering, it's important to put out kind of a hyper-aggressive positioning to make a point. We do talk about market size, but we surely don't think it's the most important thing at a Series A. And in fact, Most of our companies, really breakout companies, were actually solving a pretty small problem in the first instance. That then led to a much bigger opportunity. And so, strict market sizing, I think, can be an unbelievable mistake. And it can be, frankly, very distracting for companies to be wallowing around in this huge TAM. Versus this sense that actually, I'm nailing something for a relatively small group of customers. So we have a company called Alice, just to pick up a recent Series A. They're doing pre-tax spending benefits, which is a huge camp. HSAs, FSAs, these are all these sort of U.S. specific three-letter acronyms for a segment of the benefits industry that is large and growing very quickly. But they're focused in the first instance on hourly workers. And the actual market size of pre-tax spending for hourly workers, like rounds to zero. Because the fact is, all of these programs require you historically to set aside money Set aside money and put it into accounts that if yo…

AI assessment note: “We do talk about market size, but we surely don't think it's the most important”

Q Well, that's very kind of you, but I would love to start today with a little bit on you. So tell me, how did you make your way into what I always call the wonderful world of venture and come to be a partner at Bain Capital Ventures today?

A Well, I started 25 years ago in consulting at Bain & Company and then pretty quickly joined Bain Capital, so in 1995. To be honest, that had nothing to do with venture back then. Bain Capital is a private equity firm, and so that was my first foray in investing. But I quickly realized I was more of a venture guy. And so in 2000, Bain Capital actually gave me some money, kind of seeded me, as it were, to start my own firm called Village Ventures with my then partner, Bo Peabody. And so really, that was my entree into venture, was a twenty-six-year-old starting my own firm, raising a fund, and trying to figure it out. The first thing I did, really, we were at that point in the wreckage of the dot-com bust, and so what had seemed like a pretty easy business all of a sudden started to seem incredibly hard, and I realized that in order for me to be successful, I needed a distinctive strategy, somewhere where I could be more of a leader than just sort of a generalist, and so I decided to focus on financial technology. This is in 2000 when we founded Village Ventures, and back then there was really no term fintech and very little activity, frankly. In financial technology, but it seemed like a big opportunity for entrepreneurs to innovate and change some of the dynamics in the financial services industry that the incumbents were not addressing. And so that's what I did. You know, I, I…

AI assessment note: “I started 25 years ago in consulting at Bain & Company and then pretty quickly joined”

Q your own fund, but, uh, totally with you there. I do want to ask the other element about the time when you started in venture. You said there about being 2000 and what a time it was indeed, but what did it mean to you? How do you think it changed your investment mindset today? Having been through the bust and boom of the macro cycles, both with 2002 1008.

A It was a formative experience, 2000. And as I mentioned, we, we started the firm in partnership with these two, even then very tenured venture Capitalists, Mark Nunnally and Paul Mader, and I'll never forget spring of 2000 when the NASDAQ kind of plummeted. Beau and I, you know, as brash young folks in our mid-twenties were thinking, hey, this is just a blip. You know, this, this happens. It goes down. It comes back up. We're still in the middle of a revolution, and they sat us down very clearly and said, no, you don't, you don't get it. This is nuclear winter. This is not a blip. This is not necessarily something that you can just And it was amazing for us at that point to get that input. And yet, I will say, I think that my deep and abiding fear and recognition of the cyclicality of finance and the cyclicality of technology has actually cost me a lot of money. Because, you know, we're 10 years in, maybe 11 by some counting, into this incredible bull run where it sure feels more secular than cyclical. And every time there's a blip downward in multiples or in the market, it actually has come right back up. And so all of that pattern recognition I have around what, you know, long-term multiples should be, and the fact that what goes up must come down has not preserved me particularly well, I will say, and this incredible duration of this bull run.

AI assessment note: “fear and recognition of the cyclicality of finance and the cyclicality of technology has actually cost me”

Q speak, I always could pull back and say, no, this is ridiculous. I'm not paying 300 X revenues for this or whatever that may be. And then many mentors of mine say, Harry, you can never time markets. You'll lose money. How do you think now, having had those learnings about cadence actually of deploying capital through these cycles, is it the continuous stream? How does one change their cadence?

A I endeavor not to change my cadence. You know, there's a concept that limited partners talk about of time diversification, and I think it's important. It is impossible to know, except in long retrospect, whether 2019 was a great year to be investing or a horrific year to be investing. And so to make subjective judgments regarding either a pullback or, frankly, as we're seeing from some of our peers, acceleration in pace, both the pullback and acceleration seem to me arbitrary. So our goal has been to invest three or four hundred million dollars a year. Again, we do both venture and growth equity, so that seems like a lot of money, but many of those are large checks and later stage companies. Fully half of it is your classic five to twelve million dollars Series A, and our pacing has been as steady as we can manage it, which is, I think, a kind of a declaration of ignorance, if you will, that we don't know how this is going to end or when it's going to end, and so therefore we want to be in the market on a steady basis.

AI assessment note: “I endeavor not to change my cadence.”

Q I mean, I'm fascinated by the discussion on the bull run, because naturally I see it, and I get very hesitant, I pull back. Can I ask, do you think that we are seeing late cycle momentum investing? Is that your belief today?

A The only thing that keeps me from enthusiastically saying yes to that is that I've said that Very same enthusiastic yes four years in a row. So, I mean, we've redefined, I guess, what late cycle means and proven that you can stay late for longer than anyone thought. I don't see new behavior today that I wasn't seeing four years ago, and I wasn't as skeptical four years ago of as I am today. So, yes, the things we see today, and there are innumerable examples from this week, this month, you know, this quarter, seem preposterous in light of the, you know, Experience of the venture industry and of the technology industry, but yet they've proven to be durable. And so I think for many of us, we've had to reconsider the fact that some of these changes may be actually with us for a long time and may be forever. Perhaps what's happening in technology is actually so important that the future earning streams associated with some of these sectors and some of these companies are just so meaningful and transformative that yes, maybe they're being recognized and priced in early. But in fact, there's some correct observations to be made, and the market is logical and aggregate in saying that high-growth technology companies are capable of creating tens of billions of dollars, and so therefore, we will pay very high prices to get in them now. So my natural reaction is to be scared and skittish…

AI assessment note: “The only thing that keeps me from enthusiastically saying yes to that is”

Q to speak about the pricing element there, because when we chatted before, you said to me, Series A valuations don't matter. Now, I may be paraphrasing and cutting and cleaning that one to make it sound worse than it is, and which makes me for it, but, and actually, I had some strong questions following. So, what did you mean by Series A valuations don't matter anymore? What's the thinking?

A Well, first, I'd like to say that I really look forward to the first time an entrepreneur plays that back to me in our negotiations, so thank you for Outing me on that sentiment. And it is indeed, of course, shorthand. But what I mean by that is our discipline here at the Series A is largely focused on ownership versus pure valuation. And our observation, again, across 20 years of venture capital here at Bank Capital Ventures is that if you own 20%, 25%, 18%, something meaningful of a company that ends up being important, then it doesn't really matter whether your entry price was 20 posts or 40 posts. And otherwise, whether you put in six million dollars or even twelve million dollars to buy that 20% ownership, you're going to be richly rewarded if you got the company right. If it ends up being one of these companies that end up being worth multiple billions of dollars, you're never going to regret the price you paid. And so that's what I mean by that, that if you get the right ownership and you get the company right, then whether you paid more in the sense of dollars for that Meaningful ownership or not is irrelevant. Now, obviously, it affects multiple. And the fact that turn a hundred X deal into a 50 X deal by overpaying by two X seems laughable because 50 X is obviously still a marvelous outcome. But surely on average and in aggregate for our industry, what it's doing is s…

AI assessment note: “our discipline here at the Series A is largely focused on ownership versus pure valuation”

Q subsequent questions, though, from that and from that kind of a starting experience with Village and then the time that it started with Village. The first is in terms of actually kind of getting that chance with Village. And I'm guessing, like, how did it differ in terms of running your own fund versus being part of a partnership? What were the main takeaways from those two very different experiences?

A Well, I think there is an entrepreneurial excitement to starting your own firm. Harry, you've, you've experienced this yourself. And so I won't ever say that it's similar to an operating executive or an entrepreneur of a technology company. It's not similar to that because the, the venture business itself is quite, quite simple and straightforward, but yet I think it's an important crucible to go through. And certainly it was important for me that sort of starting from scratch experience. And in fact, at Village, I also started an operating company within Village Ventures, a fund administration business that we grew to 70 people and sold for a great return, and really, for me, that was about trying my hand at operating. I think the clear conclusion is I'm not a world-class CEO, and so happy to have returned From the Village experience for me was that it's enormously beneficial for an investor to have gone through a founding moment to understand the kind of pain and pressure and joy of those early days. And frankly, if you're founding a fund, I would recommend you make it as much like a company, as much like one of the companies you're backing as possible experientially. Like we, when we founded Village Ventures, we actually put two VCs on our board of directors, Mark Donnelly from Bank Capital, Paul Mader from Highland, and we do quarterly board meetings for years and years. So…

AI assessment note: “a big part of the difference is, you know, and in a larger partnership”

Q I mean, I'm fascinated by the discussion on the bull run, because naturally I see it, and I get very hesitant, I pull back. Can I ask, do you think that we are seeing late cycle momentum investing? Is that your belief today?

A The only thing that keeps me from enthusiastically saying yes to that is that I've said that Very same enthusiastic yes four years in a row. So, I mean, we've redefined, I guess, what late cycle means and proven that you can stay late for longer than anyone thought. I don't see new behavior today that I wasn't seeing four years ago, and I wasn't as skeptical four years ago of as I am today. So, yes, the things we see today, and there are innumerable examples from this week, this month, you know, this quarter, seem preposterous in light of the, you know, Experience of the venture industry and of the technology industry, but yet they've proven to be durable. And so I think for many of us, we've had to reconsider the fact that some of these changes may be actually with us for a long time and may be forever. Perhaps what's happening in technology is actually so important that the future earning streams associated with some of these sectors and some of these companies are just so meaningful and transformative that yes, maybe they're being recognized and priced in early. But in fact, there's some correct observations to be made, and the market is logical and aggregate in saying that high-growth technology companies are capable of creating tens of billions of dollars, and so therefore, we will pay very high prices to get in them now. So my natural reaction is to be scared and skittish…

AI assessment note: “The only thing that keeps me from enthusiastically saying yes to that is”

Q cases, unless you want to sacrifice ownership. So totally with you there. I do want to discuss about the deals that are maybe worth paying up for. When we chatted before, you said something particularly striking for me, and it's investing in improbable ideas is a good strategy. So I guess first is, what's an improbable idea versus a probable idea? And then second, why is that a good strategy?

A Fair question. Certainly counterintuitive on the face of it. I think what we found is that probable ideas, ideas that seem reasonable on the face of it, are unlikely to generate economic moats and profit pools and outstanding both performance and multiples that we need these days. And we have seen, I mean, the good news, you and I have talked a little bit about the challenges in our business, but the good news is if you look at the data on exits, or let's say opportunities to enjoy liquidity, sometimes not a full exit, it used to be that Most venture exits were between two hundred and fifty million and half a billion, and the fact is, empirically, the ceiling has been raised in terms of the potential value creation. Now, again, it could revert tomorrow, and this could all be illusory, and much of it, in fact, is secondary liquidity and not full exits, so please enjoy my list of caveats, but empirically, the value creation ceiling has gone up, and so the job is to figure out which companies look like those where the ceiling is Is higher. And which look like those more traditional venture exit where you build a company and you sell it for three hundred million dollars to an incumbent. And if you had bought in at 30 post, you're delighted. But if you bought in at 60 post and got some dilution along the way, you're probably not so delighted. So improbability is one of those criteri…

AI assessment note: “probable ideas, ideas that seem reasonable on the face of it, are unlikely to generate”

Q to touch on one final element, though, of any deal that we can't not touch on? It's kind of the founders themselves. We spoke about the ideas they're touching on. And you said before, and again, I'm cutting and slicing quotes here, which is a truly bad journalist approach, but you said the backing sociopaths can work. What did you really mean by this, Matt? And how can it work?

A Well, okay, now we're definitely cherry picking, uh, controversial quotes here, but I'll stand by all of it. Definitely at one point or another, I said all these things. You know, there's a famous quote, I think, by Balzac, who says, behind every great fortune lies a criminal. And he's a genius, and he wasn't thinking of venture capital when he said that. But it has been my experience, even if you look at companies like Facebook, of course, forgetting about their current travails. If you think about the founding story of Facebook, it's obviously been literally litigated that the idea was stolen, that there was a great crime at the beginning of that story. And I don't think that's, in my experience, that is not uncommon. That these founders who are setting out to change the world, to change at least their industries, and in many cases, actually the world, and change how people behave fundamentally, the level of bravado that that takes comes along with, in many cases, a willingness to break rules. Not just the rules of a given industry, not just this rule in the case of Alice that, you know, hourly workers don't utilize pre-tax spending, but other rules as well. Whether it be the rules of the taxi and limousine commission that Uber broke, or more problematically, the rules of the SEC that Lending Club broke. There's enough of a pattern of rule breaking and people missing the dist…

AI assessment note: “the level of bravado that that takes comes along with... a willingness to break rules”

Q You mentioned time management there. You have six kids, 12 portfolio companies. I thought my life was busy. Clearly, I'm underestimating the brilliance of you, but how do you make it work? What's the secret?

A I don't make it work. I mean, it's, it's a hot mess is the actual answer to the question, but I would say what has been helpful is relatively ruthless. Late to do a particular coffee catch-up, and I've tried to excise some of the things that can be delayed and deferred out of my schedule. Further, I think I've, I've gotten more sensible about what I'm actually critically required to do, whether that's the school play, helping a founder hire a CFO, where on Maslow's hierarchy of needs is my contribution most essential. And I've learned to both with my many kids and with my many, the founders that I'm privileged to work with, You know, have a nuanced conversation about, you know, this afternoon, you'd like somebody to come do a pricing workshop with you. And I could recommend one of my colleagues to do that, but like, that's not going to be something that I can do today. And I want you to be super successful. So how can we solve that problem? So I've learned how to have the courage to have harder conversations like that. I think everyone has appreciated it. And I've still been able somehow to fulfill my responsibilities.

AI assessment note: “I've tried to excise some of the things that can be delayed and deferred”

Q to that is, that's fine, and I understand, kind of, the transfer of value to the founder, but actually, it just makes Series B that much harder, because then they've got to meet this inflated valuation that they'll probably only grow into in 12 to 1416 months time, and so it just makes that next round so much harder, given the inflated round and valuation. Is that a fair assumption?

A Yes, and so I would say the incidence of us participating in some of these Series A's, I mean, look, let's be honest, there are Series A's that happen that are 90 to a 120 post, and we have not done those. Our view is that the expectation For be at two hundred and fifty million, It may well happen, but it is surely an unfair expectation on any founding team that they'll be able to continue sufficient momentum without a blip to be able to have that kind of successful follow on financing. So there is an absolute level at which and above which we think it's just unhealthy that it isn't about value transfer to the founder. It's just about being opportunistic, frankly, in a way that's not only not great for the investor, but not great for the company. But in what we would now have come to believe is a reasonable post-money range for Series A, so kind of 30 to 60, which is important in light of the fact that if you go back five years, that range would have been kind of 15 to 30. So it has moved meaningfully, but again, in our experience, not so much that it constrains the company's ability to raise future capital if it's merited.

AI assessment note: “Yes, and so I would say the incidence of us participating in some of these”

Q to touch on one final element, though, of any deal that we can't not touch on? It's kind of the founders themselves. We spoke about the ideas they're touching on. And you said before, and again, I'm cutting and slicing quotes here, which is a truly bad journalist approach, but you said the backing sociopaths can work. What did you really mean by this, Matt? And how can it work?

A Well, okay, now we're definitely cherry picking, uh, controversial quotes here, but I'll stand by all of it. Definitely at one point or another, I said all these things. You know, there's a famous quote, I think, by Balzac, who says, behind every great fortune lies a criminal. And he's a genius, and he wasn't thinking of venture capital when he said that. But it has been my experience, even if you look at companies like Facebook, of course, forgetting about their current travails. If you think about the founding story of Facebook, it's obviously been literally litigated that the idea was stolen, that there was a great crime at the beginning of that story. And I don't think that's, in my experience, that is not uncommon. That these founders who are setting out to change the world, to change at least their industries, and in many cases, actually the world, and change how people behave fundamentally, the level of bravado that that takes comes along with, in many cases, a willingness to break rules. Not just the rules of a given industry, not just this rule in the case of Alice that, you know, hourly workers don't utilize pre-tax spending, but other rules as well. Whether it be the rules of the taxi and limousine commission that Uber broke, or more problematically, the rules of the SEC that Lending Club broke. There's enough of a pattern of rule breaking and people missing the dist…

AI assessment note: “the level of bravado that that takes comes along with, in many cases, a willingness to break rules.”

Q than grand vision. When you look at a number of kind of enterprise software companies today that are at that billion dollar mark, I think you could probably look at them and say, yeah, really nice, three hundred million exit by Salesforce, but they're not, and they're one or two billion dollar companies now. I guess, do you ever get nervous about that distinction and being able to make it?

A Well, challenging, and I can't say we figured it out entirely, but I'll point out in the case of Mathilde that the audacity to disrupt email is a grand vision. I mean, it's exactly what you want your entrepreneur and founder to say is that what they care about is organizational discipline, and she's not wrong, obviously, but from an investor's perspective, she was ranked extremely high in the first instance on the audacity scale. It was an improbable idea that she She, because of her organizational strengths, has actually made possible, but I don't actually think that contradicts the point. I mean, the great entrepreneurs focus on those organizational tasks that make up their real work, but her and many others started with something deeply improbable. So how do you know the difference? I think, you know, you need to have, we have a rule internally that if everybody votes for a deal, we need to pause and rethink it. It doesn't mean that perversely, if everyone votes yes, we're going to say no, but it is a red Or at least a yellow flag for us, because that level of consensus, if it's driven by how incredible the entrepreneur is, then fine, that's a good signal. But sometimes it's driven by something that just makes too much sense, that rhymes a little too much with stuff that we've seen in the past and lights up everything green on our pattern recognition. And frankly, if that's …

AI assessment note: “challenging, and I can't say we figured it out entirely”

Q subsequent questions, though, from that and from that kind of a starting experience with Village and then the time that it started with Village. The first is in terms of actually kind of getting that chance with Village. And I'm guessing, like, how did it differ in terms of running your own fund versus being part of a partnership? What were the main takeaways from those two very different experiences?

A Well, I think there is an entrepreneurial excitement to starting your own firm. Harry, you've, you've experienced this yourself. And so I won't ever say that it's similar to an operating executive or an entrepreneur of a technology company. It's not similar to that because the, the venture business itself is quite, quite simple and straightforward, but yet I think it's an important crucible to go through. And certainly it was important for me that sort of starting from scratch experience. And in fact, at Village, I also started an operating company within Village Ventures, a fund administration business that we grew to 70 people and sold for a great return, and really, for me, that was about trying my hand at operating. I think the clear conclusion is I'm not a world-class CEO, and so happy to have returned From the Village experience for me was that it's enormously beneficial for an investor to have gone through a founding moment to understand the kind of pain and pressure and joy of those early days. And frankly, if you're founding a fund, I would recommend you make it as much like a company, as much like one of the companies you're backing as possible experientially. Like we, when we founded Village Ventures, we actually put two VCs on our board of directors, Mark Donnelly from Bank Capital, Paul Mader from Highland, and we do quarterly board meetings for years and years. So…

AI assessment note: “in a larger partnership where you're just one member... it's very different”

Q cases, unless you want to sacrifice ownership. So totally with you there. I do want to discuss about the deals that are maybe worth paying up for. When we chatted before, you said something particularly striking for me, and it's investing in improbable ideas is a good strategy. So I guess first is, what's an improbable idea versus a probable idea? And then second, why is that a good strategy?

A Fair question. Certainly counterintuitive on the face of it. I think what we found is that probable ideas, ideas that seem reasonable on the face of it, are unlikely to generate economic moats and profit pools and outstanding both performance and multiples that we need these days. And we have seen, I mean, the good news, you and I have talked a little bit about the challenges in our business, but the good news is if you look at the data on exits, or let's say opportunities to enjoy liquidity, sometimes not a full exit, it used to be that Most venture exits were between two hundred and fifty million and half a billion, and the fact is, empirically, the ceiling has been raised in terms of the potential value creation. Now, again, it could revert tomorrow, and this could all be illusory, and much of it, in fact, is secondary liquidity and not full exits, so please enjoy my list of caveats, but empirically, the value creation ceiling has gone up, and so the job is to figure out which companies look like those where the ceiling is Is higher. And which look like those more traditional venture exit where you build a company and you sell it for three hundred million dollars to an incumbent. And if you had bought in at 30 post, you're delighted. But if you bought in at 60 post and got some dilution along the way, you're probably not so delighted. So improbability is one of those criteri…

AI assessment note: “improbability is one of those criteria that for us have helped to define which companies have a chance”

Q than grand vision. When you look at a number of kind of enterprise software companies today that are at that billion dollar mark, I think you could probably look at them and say, yeah, really nice, three hundred million exit by Salesforce, but they're not, and they're one or two billion dollar companies now. I guess, do you ever get nervous about that distinction and being able to make it?

A Well, challenging, and I can't say we figured it out entirely, but I'll point out in the case of Mathilde that the audacity to disrupt email is a grand vision. I mean, it's exactly what you want your entrepreneur and founder to say is that what they care about is organizational discipline, and she's not wrong, obviously, but from an investor's perspective, she was ranked extremely high in the first instance on the audacity scale. It was an improbable idea that she She, because of her organizational strengths, has actually made possible, but I don't actually think that contradicts the point. I mean, the great entrepreneurs focus on those organizational tasks that make up their real work, but her and many others started with something deeply improbable. So how do you know the difference? I think, you know, you need to have, we have a rule internally that if everybody votes for a deal, we need to pause and rethink it. It doesn't mean that perversely, if everyone votes yes, we're going to say no, but it is a red Or at least a yellow flag for us, because that level of consensus, if it's driven by how incredible the entrepreneur is, then fine, that's a good signal. But sometimes it's driven by something that just makes too much sense, that rhymes a little too much with stuff that we've seen in the past and lights up everything green on our pattern recognition. And frankly, if that's …

AI assessment note: “if everybody votes for a deal, we need to pause and rethink it.”