The Exchanges

Q Were you nervous about that? And I don't mean that badly, but it's a little bit like a GP at Excel or Sequoia or you name it, spinning and doing their own. It's like, gosh, I've crushed it with this, but I, I did have some help.

A Oh, I absolutely did. I think a few things are like, one, it's fun to make it a little harder. Absolutely, it's gonna be a little harder if Sam's not involved, but like, that's good. It's good to be pushed and have to, like, work for what you want. I also think I was really fortunate that I kind of grew up with a Sequoia Founders Fund level, like, training and background. Like, we all lived in a house in the mission, and all the best people, whether it's like a Peter Thiel or a Keith, are coming by the house talking about investing, You know, I think we had about 17 unicorns across the fund, because it's just a small world, and everyone's coming by, so I'm like, oh, these are the founders of Instacart, or Reddit, or Rippling, or Boom, and it's like, this is the bar. So I learned the bar, and I got my, like, really amazing education, so I felt pretty comfortable going in, and I think my sort of ace in the hole is, dude, Harry, I, I can't fail. You know how embarrassing it would be if this fund, like, shat the bed? I can't fail. And I think it's a great motivator.

AI assessment note: “Oh, I absolutely did. I think a few things are like, one, it's fun”

Q Did you notice that different LPs wanted different things? Endowments, foundations, pensions, corporates, family offices. Did you notice a A disparate communication requirement.

A Of course, they're all incentivized completely different. A fund of funds or someone that works at a family office is incentivized to get the best returns possible because they're paid out on the upside. An endowment or a foundation, for the most part, just wants to keep their brand intact, have a nice relationship with you, make sure you don't do anything dumb, but like, why do they care if you're a seven X fund or a two X fund, at least financially? So we absolutely saw that as like for the more traditional Institutional capital. Like, give them a story and a product that feels good for what they're invested in, for a family office or a fund of funds. Tell them how much money they're gonna make if they invest with you.

AI assessment note: “Of course, they're all incentivized completely different.”

Q Did you notice that different LPs wanted different things? Endowments, foundations, pensions, corporates, family offices. Did you notice a A disparate communication requirement.

A Of course, they're all incentivized completely different. A fund of funds or someone that works at a family office is incentivized to get the best returns possible because they're paid out on the upside. An endowment or a foundation, for the most part, just wants to keep their brand intact, have a nice relationship with you, make sure you don't do anything dumb, but like, why do they care if you're a seven X fund or a two X fund, at least financially? So we absolutely saw that as like for the more traditional Institutional capital. Like, give them a story and a product that feels good for what they're invested in, for a family office or a fund of funds. Tell them how much money they're gonna make if they invest with you.

AI assessment note: “Of course, they're all incentivized completely different.”

Q What did you hold when you should have sold?

A It might not have hurt to sell Gusto. I think Gusto's a great business, but I think, you know, they were valued at ten billion at one point, and I think they're still gonna be a strong business. I don't know if they're gonna have explosive growth from there. Great guys, but couldn't have hurt to take a little bit off the table. I think our job has definitely changed now. We need to spot when the market is inefficient, and there's too much hype, and some things just get overvalued, and especially as a seed investor, not a growth stage investor. If we can show that we're a hundred X, Or get money off the table at a hundred X. We don't need to wait for that two or 300 X. So we have to sort of make our own, again, it's almost like a gut instinct when we think it's overpriced. This all being said, some of the best advice I've got is that last double or that last triple comes really fast, where, you know, things grow quickly and then they're around, you know, five hundred million to a two billion dollar valuation, and they sputter in a little bit, and then at the very end, They just go, and people are like, hey, hold Andro, hold more Rippling, hold more SpaceX. It's gonna double, and it's the difference between your three X firm and your six X firms. It's really hard to let these things go, Harry.

AI assessment note: “It might not have hurt to sell Gusto.”

Q Were you nervous about that? And I don't mean that badly, but it's a little bit like a GP at Excel or Sequoia or you name it, spinning and doing their own. It's like, gosh, I've crushed it with this, but I, I did have some help.

A Oh, I absolutely did. I think a few things are like, one, it's fun to make it a little harder. Absolutely, it's gonna be a little harder if Sam's not involved, but like, that's good. It's good to be pushed and have to, like, work for what you want. I also think I was really fortunate that I kind of grew up with a Sequoia Founders Fund level, like, training and background. Like, we all lived in a house in the mission, and all the best people, whether it's like a Peter Thiel or a Keith, are coming by the house talking about investing, You know, I think we had about 17 unicorns across the fund, because it's just a small world, and everyone's coming by, so I'm like, oh, these are the founders of Instacart, or Reddit, or Rippling, or Boom, and it's like, this is the bar. So I learned the bar, and I got my, like, really amazing education, so I felt pretty comfortable going in, and I think my sort of ace in the hole is, dude, Harry, I, I can't fail. You know how embarrassing it would be if this fund, like, shat the bed? I can't fail. And I think it's a great motivator.

AI assessment note: “Oh, I absolutely did. I think a few things are like, one, it's fun”

Q the fuck would they take me when you've got Andreessen, or Founders Fund, or Benchmark, who do the large, large kind of first rounds, or any of the great firms with a super low cost of capital, so they're less price sensitive than me, with the brands that they have and the networks they have. Why are they going to take me? I think seed in SF is for suckers.

A I, I really don't agree with you. I also think the data points of, like, the funds I've done will also disagree with you. We've built a model. Saga's a hundred and twenty-five million dollar fund. If we have one winner, and we start with 10% of it, and we can't cover the whole market, we only cover a portion of it, the fund's great. If we start with 10%, end up at seven percent of IPO, it goes for ten billion, returns seven hundred million, we just need one. We don't need to be Andreessen, where we lead 10 or 20 seed deals, and I also disagree with you that they have them all locked up. I think there was a stat that came out recently of, like, post-transformer world in the last four to five years of all the AI companies that have started that are now worth over a billion. Of the first 40 of them, only one person had two lead checks, and that was Andreessen, and no one else had two, and if you look through the smattering, there are, you know, Green Oaks is in there, a lot of Gill's in there, but there's a lot of other random people. And there's really not something where Sequoia and Andreessen is taking up half of those lead checks at the seed.

AI assessment note: “I also disagree with you that they have them all locked up.”

Q I absolutely love that. What did you learn from the Xenefits experience? Because that was a pretty transformational time in your career as well. It's like the first time in tech as well.

A Yeah. What I learned first and foremost is you need, especially then, to build an absolutely amazing product and customers Don't know what they want. So I remember one of the first times, my first week on the job, we would do customer discovery calls, and we'd listen in, and the customer's like, I want you to build this thing for payroll, and this thing for HR tech, and we would leave the call. I'm like, ok, great. I'm gonna write some specs for, you know, we're gonna build that. And Parker's like, no, no, no. They say that. They don't actually want that. This is what they want to build. And we'd go build it, and the customers would love it. So I think I learned The founder needs to have intuition of what they want. The customers aren't going to know. And then two, sales and growth cure everything. And in Zenefit's case, maybe to its detriment a little bit, but we were killing it. The culture was amazing. Sales were off the chart. The salespeople were partying. We were just having a great time and everyone was happy and everyone was loving it. The flip side is if sales, you know, cure all ailments, sometimes you might not be paying attention to other things that are going on.

AI assessment note: “What I learned first and foremost is you need, especially then, to build an absolutely amazing product”

Q What did you hold when you should have sold?

A It might not have hurt to sell Gusto. I think Gusto's a great business, but I think, you know, they were valued at ten billion at one point, and I think they're still gonna be a strong business. I don't know if they're gonna have explosive growth from there. Great guys, but couldn't have hurt to take a little bit off the table. I think our job has definitely changed now. We need to spot when the market is inefficient, and there's too much hype, and some things just get overvalued, and especially as a seed investor, not a growth stage investor. If we can show that we're a hundred X, Or get money off the table at a hundred X. We don't need to wait for that two or 300 X. So we have to sort of make our own, again, it's almost like a gut instinct when we think it's overpriced. This all being said, some of the best advice I've got is that last double or that last triple comes really fast, where, you know, things grow quickly and then they're around, you know, five hundred million to a two billion dollar valuation, and they sputter in a little bit, and then at the very end, They just go, and people are like, hey, hold Andro, hold more Rippling, hold more SpaceX. It's gonna double, and it's the difference between your three X firm and your six X firms. It's really hard to let these things go, Harry.

AI assessment note: “It might not have hurt to sell Gusto.”

Q I absolutely love that. What did you learn from the Xenefits experience? Because that was a pretty transformational time in your career as well. It's like the first time in tech as well.

A Yeah. What I learned first and foremost is you need, especially then, to build an absolutely amazing product and customers Don't know what they want. So I remember one of the first times, my first week on the job, we would do customer discovery calls, and we'd listen in, and the customer's like, I want you to build this thing for payroll, and this thing for HR tech, and we would leave the call. I'm like, ok, great. I'm gonna write some specs for, you know, we're gonna build that. And Parker's like, no, no, no. They say that. They don't actually want that. This is what they want to build. And we'd go build it, and the customers would love it. So I think I learned The founder needs to have intuition of what they want. The customers aren't going to know. And then two, sales and growth cure everything. And in Zenefit's case, maybe to its detriment a little bit, but we were killing it. The culture was amazing. Sales were off the chart. The salespeople were partying. We were just having a great time and everyone was happy and everyone was loving it. The flip side is if sales, you know, cure all ailments, sometimes you might not be paying attention to other things that are going on.

AI assessment note: “What I learned first and foremost is you need, especially then, to build an absolutely amazing product”

Q You said about raising a clean Series A. Interesting description. How do you advise founders on raising a clean Series A? What does that mean?

A I think it looks a lot better and feels a lot better if someone's raising thirty million and someone has a lead check that comes in with 20, and then they fill in the rest after that. People do these wonky things where they're like, we raised five from this person, and we have this thing soft-circled, and then you get to your lead, and they're like, there's only room for us to do under half of this deal. We're out. And I'm like, don't do that. I promise you they're gonna sit out if you filled up two-thirds behind it. And I think a clean Series A also looks like a nice process. The metaphor I always give them is it's like a big horse race where all the VCs are chasing you, and what you wanna do is maybe have one horse Start first, so you maybe talk to a potential lead like a week or two before, then you send the deck out to everyone, but you want all eight horses chasing after you at the same time. You don't want to have this as like a random sloppy process.

AI assessment note: “someone has a lead check that comes in with 20, and then they fill in”

Q the fuck would they take me when you've got Andreessen, or Founders Fund, or Benchmark, who do the large, large kind of first rounds, or any of the great firms with a super low cost of capital, so they're less price sensitive than me, with the brands that they have and the networks they have. Why are they going to take me? I think seed in SF is for suckers.

A I, I really don't agree with you. I also think the data points of, like, the funds I've done will also disagree with you. We've built a model. Saga's a hundred and twenty-five million dollar fund. If we have one winner, and we start with 10% of it, and we can't cover the whole market, we only cover a portion of it, the fund's great. If we start with 10%, end up at seven percent of IPO, it goes for ten billion, returns seven hundred million, we just need one. We don't need to be Andreessen, where we lead 10 or 20 seed deals, and I also disagree with you that they have them all locked up. I think there was a stat that came out recently of, like, post-transformer world in the last four to five years of all the AI companies that have started that are now worth over a billion. Of the first 40 of them, only one person had two lead checks, and that was Andreessen, and no one else had two, and if you look through the smattering, there are, you know, Green Oaks is in there, a lot of Gill's in there, but there's a lot of other random people. And there's really not something where Sequoia and Andreessen is taking up half of those lead checks at the seed.

AI assessment note: “I also disagree with you that they have them all locked up.”

Q What would you advise managers on anchor hunting?

A This was the advice, and I will give him credit that Sam gave me that I did not listen to, which is, don't talk to other LPs until you have your really high quality anchors locked in. And then of course we went and talked to everyone, and everyone's like, how much capital have you raised? And like, we're about to raise, you know, 20 from this person. And they're like, okay, so you've raised zero. But we had a few people that I had worked with before in Hydrazine and Apollo. They took a little bit of time, but we got them across the finish line. They came in with some pretty nice checks, and then we went back to the other LPs, and they're like, oh, okay, we're automatically in. These endowments that have worked with you before are in. Clearly, you must be good. So I think wait until you have your anchors locked up.

AI assessment note: “don't talk to other LPs until you have your really high quality anchors locked in”

Q Do you find there's more and more low dilution rounds? This is another thing I'm finding, which is like, before it was like generally rounds were like, 20% dilution. You'd have 15 for a lead and five percent for angels and pro rata. Now more and more I'm seeing just the temp sense.

A Yeah, I mean, I think it's just economics, to be honest. There's now like hundreds of billions of capital chasing slightly more companies. I think the experiment we're going through right now and went through in 2020 is like, hey, if we put 10 times as much capital into the market, there better be 10 times as much good equity to be sold and 10 times as many amazing companies being built. And there's definitely more, but there's like Two or three more. So now we have this system where there's just so much capital chasing not that many great deals, so the founders have all of the sway and all of the decision making of how they want to run their process.

AI assessment note: “Yeah, I mean, I think it's just economics, to be honest.”

Q What would you advise managers on anchor hunting?

A This was the advice, and I will give him credit that Sam gave me that I did not listen to, which is, don't talk to other LPs until you have your really high quality anchors locked in. And then of course we went and talked to everyone, and everyone's like, how much capital have you raised? And like, we're about to raise, you know, 20 from this person. And they're like, okay, so you've raised zero. But we had a few people that I had worked with before in Hydrazine and Apollo. They took a little bit of time, but we got them across the finish line. They came in with some pretty nice checks, and then we went back to the other LPs, and they're like, oh, okay, we're automatically in. These endowments that have worked with you before are in. Clearly, you must be good. So I think wait until you have your anchors locked up.

AI assessment note: “don't talk to other LPs until you have your really high quality anchors locked in”

Q Do you find there's more and more low dilution rounds? This is another thing I'm finding, which is like, before it was like generally rounds were like, 20% dilution. You'd have 15 for a lead and five percent for angels and pro rata. Now more and more I'm seeing just the temp sense.

A Yeah, I mean, I think it's just economics, to be honest. There's now like hundreds of billions of capital chasing slightly more companies. I think the experiment we're going through right now and went through in 2020 is like, hey, if we put 10 times as much capital into the market, there better be 10 times as much good equity to be sold and 10 times as many amazing companies being built. And there's definitely more, but there's like Two or three more. So now we have this system where there's just so much capital chasing not that many great deals, so the founders have all of the sway and all of the decision making of how they want to run their process.

AI assessment note: “Yeah, I mean, I think it's just economics, to be honest.”

Q How do you reflect on that time doing hydrazine? Like, what are the biggest lessons that you've taken with you?

A Yeah, I mean, I think first and foremost is really fortunate to work with family because you automatically trust that everyone is doing what is best for the firm and not what's best for them. You can also be radically candid with each other and just like, this was a dumb deal. We cannot do this. You screwed up in a way that you might not be able to do with a new partnership. So I think when we were building the firm, we have an equal GP firm. There's no associates right now. Everyone is completely incentivized to do what's best for the firm, not for themselves, and I think we built the firm that way because of what I learned earlier.

AI assessment note: “I think we built the firm that way because of what I learned earlier.”

Q You said about raising a clean Series A. Interesting description. How do you advise founders on raising a clean Series A? What does that mean?

A I think it looks a lot better and feels a lot better if someone's raising thirty million and someone has a lead check that comes in with 20, and then they fill in the rest after that. People do these wonky things where they're like, we raised five from this person, and we have this thing soft-circled, and then you get to your lead, and they're like, there's only room for us to do under half of this deal. We're out. And I'm like, don't do that. I promise you they're gonna sit out if you filled up two-thirds behind it. And I think a clean Series A also looks like a nice process. The metaphor I always give them is it's like a big horse race where all the VCs are chasing you, and what you wanna do is maybe have one horse Start first, so you maybe talk to a potential lead like a week or two before, then you send the deck out to everyone, but you want all eight horses chasing after you at the same time. You don't want to have this as like a random sloppy process.

AI assessment note: “I think it looks a lot better... someone's raising thirty million and someone has a lead check”

Q I sit in the pool and I think, will they do this or not? Yeah,

A but I think the two real things that I think about, one, what are these world-class engineers that are sitting in downtown San Francisco going to build, and what do they not want to touch? So when we're looking at companies, we did a company called Fleetworks that we're pretty excited about, and they are doing, while it's in the AI voice space, it is for supply chain trucking logistics, and they're helping them match things better for shipping, and I don't think the people there are gonna want to be calling and dealing with a shipment of oranges from, you know, Miami to New York that are late. I think they wanna stay sort of in their ivory castle a little bit.

AI assessment note: “what are these world-class engineers that are sitting in downtown San Francisco going to build”

Q Okay, so let's go to the first fund, where we're like, okay, we're gonna do Saga. I love Bam, by the way. He's such a good dude. And so, we decided this is the team. How did we come to the number one, 25 for the first fund?

A We were a new partnership. We built a model where we said, hey, we are going to do 20 to 25 lead seed checks, and then we'll probably spend 10% of the fund doing what we're calling these, like, opportunistic Jack and I had invested in Owner.com before this. Adam, I think, is an absolute killer. So when he was raising a little bit more, I texted him, I'm like, yo, can you like, you know, help us out a little bit? Obviously, we went on to do a pretty nice size check in there, and like, we'd be stupid not to. But the construction was around 20 to 25 lead seed checks, around, you know, two or two and a half million dollar entry price. The math mass then was 30% reserves to about A hundred, hundred and twenty five million, and I think it was actually great to prove out that the three of us could work together. Obviously we're going to size up from here, but I don't think it would have been great to start with three hundred million.

AI assessment note: “The math mass then was 30% reserves to about A hundred, hundred and twenty”

Q Has his fame made your life harder or easier?

A Both. I mean, like, hey, let's be honest, like, clearly it allows me To have more success in investing. Where it's just like, I have, because of him, some brand halo effect. And people are like, oh, Max, do you invest in AI? And I'm like, I, I can. You know what I mean? Like, there, there's something around that. It definitely helps. It helps a little bit with deal flow. I think it makes it worse of like, dude, when I'm in San Francisco and you're out at like a party on a Saturday night, you know, someone will ask about it. You know, I, my friend wants to go work at OpenAI. Can you help him get a job? And I'm a little bit just like.

AI assessment note: “Both. I mean, like, hey, let's be honest, like, clearly it allows me”

Q Has his fame made your life harder or easier?

A Both. I mean, like, hey, let's be honest, like, clearly it allows me To have more success in investing. Where it's just like, I have, because of him, some brand halo effect. And people are like, oh, Max, do you invest in AI? And I'm like, I, I can. You know what I mean? Like, there, there's something around that. It definitely helps. It helps a little bit with deal flow. I think it makes it worse of like, dude, when I'm in San Francisco and you're out at like a party on a Saturday night, you know, someone will ask about it. You know, I, my friend wants to go work at OpenAI. Can you help him get a job? And I'm a little bit just like.

AI assessment note: “Both. I mean, like, hey, let's be honest, like, clearly it allows me”

Q I sit in the pool and I think, will they do this or not? Yeah,

A but I think the two real things that I think about, one, what are these world-class engineers that are sitting in downtown San Francisco going to build, and what do they not want to touch? So when we're looking at companies, we did a company called Fleetworks that we're pretty excited about, and they are doing, while it's in the AI voice space, it is for supply chain trucking logistics, and they're helping them match things better for shipping, and I don't think the people there are gonna want to be calling and dealing with a shipment of oranges from, you know, Miami to New York that are late. I think they wanna stay sort of in their ivory castle a little bit.

AI assessment note: “what are these world-class engineers that are sitting in downtown San Francisco going to build”

Q How do you reflect on that time doing hydrazine? Like, what are the biggest lessons that you've taken with you?

A Yeah, I mean, I think first and foremost is really fortunate to work with family because you automatically trust that everyone is doing what is best for the firm and not what's best for them. You can also be radically candid with each other and just like, this was a dumb deal. We cannot do this. You screwed up in a way that you might not be able to do with a new partnership. So I think when we were building the firm, we have an equal GP firm. There's no associates right now. Everyone is completely incentivized to do what's best for the firm, not for themselves, and I think we built the firm that way because of what I learned earlier.

AI assessment note: “built the firm that way because of what I learned earlier.”

Q Okay, so let's go to the first fund, where we're like, okay, we're gonna do Saga. I love Bam, by the way. He's such a good dude. And so, we decided this is the team. How did we come to the number one, 25 for the first fund?

A We were a new partnership. We built a model where we said, hey, we are going to do 20 to 25 lead seed checks, and then we'll probably spend 10% of the fund doing what we're calling these, like, opportunistic Jack and I had invested in Owner.com before this. Adam, I think, is an absolute killer. So when he was raising a little bit more, I texted him, I'm like, yo, can you like, you know, help us out a little bit? Obviously, we went on to do a pretty nice size check in there, and like, we'd be stupid not to. But the construction was around 20 to 25 lead seed checks, around, you know, two or two and a half million dollar entry price. The math mass then was 30% reserves to about A hundred, hundred and twenty five million, and I think it was actually great to prove out that the three of us could work together. Obviously we're going to size up from here, but I don't think it would have been great to start with three hundred million.

AI assessment note: “30% reserves to about A hundred, hundred and twenty five million”