The Exchanges

Q Not at all, but I want to dive in today with a little bit on you, so tell me, how did you make your way into what I call the wonderful world of venture and come to found Clio?

A Yeah, so I'm from Michigan. I went to Michigan State in college, and I ended up working for Apple as a campus rep, and that was sort of my first Glimpse into Silicon Valley and my first opportunity to start to meet people who would go on to work in the tech world at places like Facebook. And so after college, took a totally different direction, moved to New York, was working in marketing at Chanel. It was 2008. So much like now I was sitting at my desk one day and said, you know, who's Bernie Madoff? And then the entire world fell apart. And so within a year, a little after a little bit over a year there, I ended up in technology because no big company was hiring, but startups And so I worked for the Winklevoss twins actually at an early media startup that Cameron Winklevoss was a founder of. And so got to know a lot of people in the New York tech world, got to hear about crypto incredibly early, which I bought a little bit, not enough. I held it for a little while, not nearly long enough, but it was a super interesting kind of introduction into that world. And then I ended up working for a Y Combinator backed startup in Silicon Valley. And when that, we sunsetted. And when that happened, I was Talking to investors saying, what do we do? And a very nice investor told me, look, the company's definitely run out of money. It's definitely going to shut down, but you seem smart. Do …

AI assessment note: “a very nice investor told me... Do you want a job in venture? And I said, yes.”

Q perspective in terms of price discipline, but it is quite rare at the early stage. I often hear managers say on the show, Harry, if it's a five billion dollar company, eight or 15 pre, it really doesn't matter. And it doesn't matter. You will still make a lot of money, but you will make disproportionately different amounts of money. How price discipline would you say that you are investing?

A I invest in pre-seed, right? So I invest in like friends and family or When you're in an accelerator, I'm happy to be the first check in. If you have a bunch of other funds, I might still invest, but it's less likely that that would be a fit for me. So I go incredibly early and the pricing questions are a lot different really early because I have one goal for you. It's the same goal you have for you, which is for you to build a wildly successful business. But there's two different things that I have my eye on for founders, which is one, I don't want them to be priced so high that other investors aren't going to want to invest. And I don't want them to be priced so low that they sell so much of the company that they're not going to be excited to keep building it two years from now. And so what that tends to look like when you think about it, assume a company has, we'll call it two founders. So day one of the company, they have a fifty-fifty split of that equity. If they raise a half a million dollars at a two million valuation, they've given away 25% of the company before they've done any. And then six months, 10 months, a year later, they're going to have to raise another And great. Now another relatively large chunk of the company's gone. So by the time they're post series A, they're going to be pretty diluted, right? And that's if they only have two co-founders. So you keep d…

AI assessment note: “the pricing questions are a lot different really early because I have one goal”

Q Not at all, but I want to dive in today with a little bit on you, so tell me, how did you make your way into what I call the wonderful world of venture and come to found Clio?

A Yeah, so I'm from Michigan. I went to Michigan State in college, and I ended up working for Apple as a campus rep, and that was sort of my first Glimpse into Silicon Valley and my first opportunity to start to meet people who would go on to work in the tech world at places like Facebook. And so after college, took a totally different direction, moved to New York, was working in marketing at Chanel. It was 2008. So much like now I was sitting at my desk one day and said, you know, who's Bernie Madoff? And then the entire world fell apart. And so within a year, a little after a little bit over a year there, I ended up in technology because no big company was hiring, but startups And so I worked for the Winklevoss twins actually at an early media startup that Cameron Winklevoss was a founder of. And so got to know a lot of people in the New York tech world, got to hear about crypto incredibly early, which I bought a little bit, not enough. I held it for a little while, not nearly long enough, but it was a super interesting kind of introduction into that world. And then I ended up working for a Y Combinator backed startup in Silicon Valley. And when that, we sunsetted. And when that happened, I was Talking to investors saying, what do we do? And a very nice investor told me, look, the company's definitely run out of money. It's definitely going to shut down, but you seem smart. Do …

AI assessment note: “a very nice investor told me... Do you want a job in venture? And I said, yes.”

Q and really kind of start today on the investing landscape today, because many founders quite rightly are extremely fearful of kind of the complete VC retrenchment, so to speak. And, you know, a lot of VCs on Twitter are actively open for business. So I'd love to start with why do you believe this? There's still maybe plenty of money available from investors, and is open for business really true?

A The thing to keep in mind, right, there's a book that I love, although it's not exactly the most exciting reading, but it's incredibly, incredibly informative, called Venture Deals. And if you haven't read that book and you want to kind of understand what's going on in a venture capitalist mind, it's a great book to read because it really just talks about the economics. So the thing to keep in mind is that venture capital funds Are sort of a complete black box of capital to our investors. We have to work probably harder than any other asset class to raise our money, but once we raise it, our investors can't come to us like they could do a hedge fund or to the public markets and say, hey, I'm down 30% in my other stuff. I got to take money out, right? They give us the money and we have the money. We do capital calls. It's incredibly, incredibly rare, even during the 2008 financial crisis that investors refuse to allocate to their venture funds, unless they have actually gone bankrupt themselves, right? So your investors, your VCs, every VC, and it's very different for angel investors, they're investing off their own balance sheet, but for VCs, they're one of the only places right now that isn't going to see a huge reduction in their amount of money. They will struggle likely, we will all struggle likely in the coming year to raise more money, but the money they have now, and the…

AI assessment note: “once we raise it, our investors can't come to us... I got to take money out”

Q Yeah, I totally agree. All a matter of proportion, so totally aligned there. Can I ask, what do you know now that you wish you'd known at the start of your career in venture?

A Oh my God. Don't waste time on anyone. It's like angel investing, right? Like I love coffee checks. I teach sometimes a little seminar called. So you want to angel invest for primarily for women, but I'll do it sometimes. And it's to help people understand how to get into angel investing. And the thing I tell people is you want to be an easy check and easy doesn't mean you're stupid. It doesn't mean that you write checks for everybody, but it means that you're not trying to take 10 meetings to write a 25,000 dollar check. And I think there's something similar in the LP world, particularly for micro fund managers. There's very little track record to judge. However, the person got on your radar in the first place, you probably immediately did a little bit of digging on them, and you should diligence them. You should talk to them. You should make sure that they seem smart and that they seem like they're doing or understand how to do what they say they're going to do. So when it comes to fundraising, if you're raising a micro fund, right, and someone's giving you a relatively small check, And they are not your anchor, and they can't quite wrap their head around it, and they just want meeting after meeting after meeting. If the meetings are interesting, if they're inviting you on their yacht and you like yachts, if they are fun and cool and interesting and introducing you to other p…

AI assessment note: “Don't waste time on anyone.”

Q and really kind of start today on the investing landscape today, because many founders quite rightly are extremely fearful of kind of the complete VC retrenchment, so to speak. And, you know, a lot of VCs on Twitter are actively open for business. So I'd love to start with why do you believe this? There's still maybe plenty of money available from investors, and is open for business really true?

A The thing to keep in mind, right, there's a book that I love, although it's not exactly the most exciting reading, but it's incredibly, incredibly informative, called Venture Deals. And if you haven't read that book and you want to kind of understand what's going on in a venture capitalist mind, it's a great book to read because it really just talks about the economics. So the thing to keep in mind is that venture capital funds Are sort of a complete black box of capital to our investors. We have to work probably harder than any other asset class to raise our money, but once we raise it, our investors can't come to us like they could do a hedge fund or to the public markets and say, hey, I'm down 30% in my other stuff. I got to take money out, right? They give us the money and we have the money. We do capital calls. It's incredibly, incredibly rare, even during the 2008 financial crisis that investors refuse to allocate to their venture funds, unless they have actually gone bankrupt themselves, right? So your investors, your VCs, every VC, and it's very different for angel investors, they're investing off their own balance sheet, but for VCs, they're one of the only places right now that isn't going to see a huge reduction in their amount of money. They will struggle likely, we will all struggle likely in the coming year to raise more money, but the money they have now, and the…

AI assessment note: “for VCs, they're one of the only places right now that isn't going to see a huge reduction”

Q Melody from Starseat, who's one of my favorites. Amazing. I do want to ask him because it's just such an uncertain time right now. And I'm sure you've spoken to many of your portfolio founders since the pandemic really kind of came into I guess my question is, what's the number one piece of advice that you found yourself most commonly giving to your portfolio CEOs today in those conversations?

A So I think there's two different categories right now. There are categories where you're just sort of screwed, and that's terrible, and it doesn't mean you're going to go out of business, but you're just sort of screwed. And companies in that category, if you're selling high heels and party dresses right now, I don't know who wants to buy those, right? Because nobody's dressing up right now, right? If you're selling things that are inherently to be used outside of the home, right? If you sell travel neck pillows, no one's traveling, right? So those companies, I think the thing they have to do right now is just live to survive another day. They almost have to hibernate because for a lot of them, if there's not an obvious pivot, then they're just going to have to wait it out and have Faith that if they can wait it out, the economy will recover and people will want to buy what they're selling again, maybe even in an accelerated pace to make up for lost time. But there's a whole other category of companies that they have something people want right now, right? I'm sure you saw the articles about the toilet paper companies and the bidet companies like a month ago when there was a run on toilet paper that all these companies all of a sudden had crazy sales, right? One of the bidet companies was doing a 500,000 dollars A day in sales for a while during that, right? That's insane. And …

AI assessment note: “the thing they have to do right now is just live to survive another day.”

Q fund managers, it's quite rightly, as you've said to me before, it's kind of the best generation in terms of vintages. So I guess my question to you is, do you think that will be the case with the current downturn as is compared to the returns and macro of 2008 and 2009 in terms of the best Performing vintages being invested in the downturn potentially being the coming years?

A So look, if I had a crystal ball, I would buy lotto tickets, and I would, I would not be a VC. I would just be an angel investor, right? So the short answer is, who knows? The longer answer, right, if you want to extrapolate from history, is that it is incredibly hard to make a lot of money when things are expensive, right? So if you buy a A house. I live in California, and California is a living example of this, right? If you go and buy a house in a fancy neighborhood like Pacific Heights now in San Francisco, you're going to be paying multi-million dollars, right? If you bought that same house in the eighties, even adjusted for inflation, you probably paid 25% of the price, right? And so when you sell it, so two houses right next to each other could be on sale at the same time in five years, one person inherently is going to make a lot more money than the other one, even if the sale prices are similar. And it Similar when it comes to investing. So if you invested in a Y Combinator company post-demo day, three demo days ago, so it would have been about a year and a half ago, and you were paying fifteen million valuation on a company that just launched and only had a tiny bit of revenue, and now six months from now, you can invest in a similar company maybe at an eight million dollar cap or valuation. Fast forward five, 10 years and When they exit, who's going to make more mone…

AI assessment note: “if you want to extrapolate from history, is that it is incredibly hard”

Q Melody from Starseat, who's one of my favorites. Amazing. I do want to ask him because it's just such an uncertain time right now. And I'm sure you've spoken to many of your portfolio founders since the pandemic really kind of came into I guess my question is, what's the number one piece of advice that you found yourself most commonly giving to your portfolio CEOs today in those conversations?

A So I think there's two different categories right now. There are categories where you're just sort of screwed, and that's terrible, and it doesn't mean you're going to go out of business, but you're just sort of screwed. And companies in that category, if you're selling high heels and party dresses right now, I don't know who wants to buy those, right? Because nobody's dressing up right now, right? If you're selling things that are inherently to be used outside of the home, right? If you sell travel neck pillows, no one's traveling, right? So those companies, I think the thing they have to do right now is just live to survive another day. They almost have to hibernate because for a lot of them, if there's not an obvious pivot, then they're just going to have to wait it out and have Faith that if they can wait it out, the economy will recover and people will want to buy what they're selling again, maybe even in an accelerated pace to make up for lost time. But there's a whole other category of companies that they have something people want right now, right? I'm sure you saw the articles about the toilet paper companies and the bidet companies like a month ago when there was a run on toilet paper that all these companies all of a sudden had crazy sales, right? One of the bidet companies was doing a 500,000 dollars A day in sales for a while during that, right? That's insane. And …

AI assessment note: “the thing they have to do right now is just live to survive another day”

Q Yeah. No, listen, I totally agree with you in terms of the valuing of your own time. And I think actually few people do it religiously enough. So totally aligned. Tell me, final one. What's the most recent publicly announced investment for you, and why did you say yes and get so excited?

A Planet Forward. So my entrepreneur in residence, who's also one of my scouts, Julia Collins, is an amazing entrepreneur, and she was a co-founder at Zoom, the pizza delivery company, and, well, the robotics company, but I was mainly excited about the pizza. And, you know, she left there about a year and a half ago because she really, really, really wanted to build something around climate. So Planet Forward is an amazing regenerative agriculture company. They haven't announced a lot of what they're doing, so I won't talk about it too much, but in getting to know her over the years and her vision and her understanding of what it'll take to build a profitable category-defining company that also can fundamentally just make it so much easier as an individual human in the world who's not perfect and who's not Mother Teresa to be responsible about our consumption and help The climate, particularly with regenerative agriculture, is just one of the most inspiring things I've ever seen, and the way that she's thinking about building a tech platform around it, consumer-facing products, just her grasp of the space was just so incredible that I knew I had to invest, and it was exciting because after I invested, I told her, I was like, look, I don't know what you're doing next, but I'm in. She's like, do you want to know what it is? I was like, nope, I'm in, and so, you know, I was the firs…

AI assessment note: “Planet Forward. So my entrepreneur in residence, who's also one of my scouts, Julia Collins”

Q perspective in terms of price discipline, but it is quite rare at the early stage. I often hear managers say on the show, Harry, if it's a five billion dollar company, eight or 15 pre, it really doesn't matter. And it doesn't matter. You will still make a lot of money, but you will make disproportionately different amounts of money. How price discipline would you say that you are investing?

A I invest in pre-seed, right? So I invest in like friends and family or When you're in an accelerator, I'm happy to be the first check in. If you have a bunch of other funds, I might still invest, but it's less likely that that would be a fit for me. So I go incredibly early and the pricing questions are a lot different really early because I have one goal for you. It's the same goal you have for you, which is for you to build a wildly successful business. But there's two different things that I have my eye on for founders, which is one, I don't want them to be priced so high that other investors aren't going to want to invest. And I don't want them to be priced so low that they sell so much of the company that they're not going to be excited to keep building it two years from now. And so what that tends to look like when you think about it, assume a company has, we'll call it two founders. So day one of the company, they have a fifty-fifty split of that equity. If they raise a half a million dollars at a two million valuation, they've given away 25% of the company before they've done any. And then six months, 10 months, a year later, they're going to have to raise another And great. Now another relatively large chunk of the company's gone. So by the time they're post series A, they're going to be pretty diluted, right? And that's if they only have two co-founders. So you keep d…

AI assessment note: “I don't want them to be priced so high that other investors aren't going to want to invest.”

Q fund managers, it's quite rightly, as you've said to me before, it's kind of the best generation in terms of vintages. So I guess my question to you is, do you think that will be the case with the current downturn as is compared to the returns and macro of 2008 and 2009 in terms of the best Performing vintages being invested in the downturn potentially being the coming years?

A So look, if I had a crystal ball, I would buy lotto tickets, and I would, I would not be a VC. I would just be an angel investor, right? So the short answer is, who knows? The longer answer, right, if you want to extrapolate from history, is that it is incredibly hard to make a lot of money when things are expensive, right? So if you buy a A house. I live in California, and California is a living example of this, right? If you go and buy a house in a fancy neighborhood like Pacific Heights now in San Francisco, you're going to be paying multi-million dollars, right? If you bought that same house in the eighties, even adjusted for inflation, you probably paid 25% of the price, right? And so when you sell it, so two houses right next to each other could be on sale at the same time in five years, one person inherently is going to make a lot more money than the other one, even if the sale prices are similar. And it Similar when it comes to investing. So if you invested in a Y Combinator company post-demo day, three demo days ago, so it would have been about a year and a half ago, and you were paying fifteen million valuation on a company that just launched and only had a tiny bit of revenue, and now six months from now, you can invest in a similar company maybe at an eight million dollar cap or valuation. Fast forward five, 10 years and When they exit, who's going to make more mone…

AI assessment note: “if you want to extrapolate from history, is that it is incredibly hard to make”

Q Yeah, and virtual, on Zoom, that's the two hundred billion right there. Can I ask, you mentioned that kind of, they're the ones that accelerate massively, and those that maybe need to go into hibernation. How does your thinking around reserve allocation change in these times, or does it stay the same?

A So we're a small fund, and so for me, reserve allocation isn't a huge part of the model. That being said, I've been spending a lot of time with family offices, particularly overseas, Via Zoom, of course. And there is dry powder that's very interested in Series B, Series C, SPVs, and even buying secondaries if they're a little bit later. And so if you are a fund manager, and you're thinking the people I normally go to for SPVs are executives, you know, at places like Uber and Lyft, and now they're in a world of herd of their own, and their stock price is down, and they don't know if they're going to have a job long term. It doesn't mean that there's no money anywhere. And if you have a solid company that's call it post series B probably, and they're growing and they have some interesting numbers, I think that deals still get done. They might be a little bit slower and they might be a little bit less expensive, but I think that deals still get done. And I think if you think of it as looking at your money in the bank and saying, how long do we have? And then assuming that in two years for startups that we will be Relatively close to back to normal, 24 months from now. If you have 12 months of runway in the bank, and that means that if you go out and raise another 12 months of runway, right, or even six months of runway and then stretch that 12 months to 18, you're going to be pret…

AI assessment note: “reserve allocation isn't a huge part of the model. That being said”

Q trough of sorry there, and kind of correlating that to the pandemic that we're in today. Fred Wilson said, you know, you build wealth with great companies, and you build reputation with failed companies. We've chatted before about kind of really determining the strength and character of someone in these challenging times, so I guess, how do you think about people assessment and character assessment in a crisis like this?

A Yeah, I mean, much has been made right of Sequoia's infamous Memos. And it's always fun to call the bottom because eventually you'll be right and you'll be re-remembered for that. Fun's not maybe the right word, but it's always nice to be known as the person who called the bottom. And I certainly think that's true that when you're sort of in high cotton, it's easy to say life is perfect. And then, then as Warren Buffett says, the tide goes out and you see who's swimming naked. But I do think that for a lot of founders showing their resilience, their integrity, their grit, that's been something that's Always happened. And so the narrative of like, oh, it's been so easy for everyone to raise for years now, and now it's going to get hard. No, I mean, it's been easy for certain segments to raise, right? But when women are still getting like, 10% of all invested capital or something, and I think it's a lower number than that, it's hard to have an argument that like, oh, women, it's been so easy. Now you're going to have to buckle down and see what it's like on the other side. So to me, and I don't just invest in women, I invest in everyone, but For me, I think a lot of the founders that I respect the most, that I'm the closest with, that I support the most, they've been showing that because they've been living through incredibly challenging times. And now when the going gets tough, …

AI assessment note: “founders showing their resilience, their integrity, their grit, that's been something that's Always happened”

Q trough of sorry there, and kind of correlating that to the pandemic that we're in today. Fred Wilson said, you know, you build wealth with great companies, and you build reputation with failed companies. We've chatted before about kind of really determining the strength and character of someone in these challenging times, so I guess, how do you think about people assessment and character assessment in a crisis like this?

A Yeah, I mean, much has been made right of Sequoia's infamous Memos. And it's always fun to call the bottom because eventually you'll be right and you'll be re-remembered for that. Fun's not maybe the right word, but it's always nice to be known as the person who called the bottom. And I certainly think that's true that when you're sort of in high cotton, it's easy to say life is perfect. And then, then as Warren Buffett says, the tide goes out and you see who's swimming naked. But I do think that for a lot of founders showing their resilience, their integrity, their grit, that's been something that's Always happened. And so the narrative of like, oh, it's been so easy for everyone to raise for years now, and now it's going to get hard. No, I mean, it's been easy for certain segments to raise, right? But when women are still getting like, 10% of all invested capital or something, and I think it's a lower number than that, it's hard to have an argument that like, oh, women, it's been so easy. Now you're going to have to buckle down and see what it's like on the other side. So to me, and I don't just invest in women, I invest in everyone, but For me, I think a lot of the founders that I respect the most, that I'm the closest with, that I support the most, they've been showing that because they've been living through incredibly challenging times. And now when the going gets tough, …

AI assessment note: “founders showing their resilience, their integrity, their grit, that's been something that's Always happened”