The Exchanges

Q And, and obviously that you mentioned solving the fund with, uh, homebrewing with Hunter. So how was that origin day and, and starting from scratch, a new fund in a sea of other funds in San Francisco? How was that for you?

A It's interesting because we didn't start with the idea of starting a fund. Um, Hunter and I were both, uh, leaving our respective jobs, mine at Twitter and his at YouTube. And we had breakfast like we do on occasion, uh, having known each other for a long time since we worked together at Google. We decided that at that moment, if we didn't try to work together, which we had wanted to do, then it would probably never happen because we've consumed with the next thing that each of us was doing for 10 plus years. And so the first decision was actually that we wanted to work together. The second decision, after spending a lot of time thinking about our past experiences, what we care about, all those kinds of things, uh, was that we wanted to focus on this idea that we now refer to as the bottom-up economy. But this idea that technology is a great democratizer and that it's impacting individuals, groups, and industries now in a way that it hasn't historically because it's gotten more flexible, more accessible, less expensive. Um, so we knew, uh, as a second decision that that was the idea we wanted to focus on. And then the third decision was actually to start a fund. And we decided to do that because our belief was that at that time, uh, there were many, many sources of capital, even more sources of capital now, uh, But there were very few investors at the seed stage in particular w…

AI assessment note: “the first decision was actually that we wanted to work together.”

Q And, and obviously that you mentioned solving the fund with, uh, homebrewing with Hunter. So how was that origin day and, and starting from scratch, a new fund in a sea of other funds in San Francisco? How was that for you?

A It's interesting because we didn't start with the idea of starting a fund. Um, Hunter and I were both, uh, leaving our respective jobs, mine at Twitter and his at YouTube. And we had breakfast like we do on occasion, uh, having known each other for a long time since we worked together at Google. We decided that at that moment, if we didn't try to work together, which we had wanted to do, then it would probably never happen because we've consumed with the next thing that each of us was doing for 10 plus years. And so the first decision was actually that we wanted to work together. The second decision, after spending a lot of time thinking about our past experiences, what we care about, all those kinds of things, uh, was that we wanted to focus on this idea that we now refer to as the bottom-up economy. But this idea that technology is a great democratizer and that it's impacting individuals, groups, and industries now in a way that it hasn't historically because it's gotten more flexible, more accessible, less expensive. Um, so we knew, uh, as a second decision that that was the idea we wanted to focus on. And then the third decision was actually to start a fund. And we decided to do that because our belief was that at that time, uh, there were many, many sources of capital, even more sources of capital now, uh, But there were very few investors at the seed stage in particular w…

AI assessment note: “we didn't start with the idea of starting a fund.”

Q So firstly, do you follow on? I mean, we've had guests before, uh, who don't agree with the follow on method. What are your thoughts on this?

A Yeah, we absolutely follow on. Um, we think that, and you know, these are, I think some of the guests you've had on like the Micah and Eric from founder collective are friends of ours and they have a very different point of view around this, but our, our point of view around it is. Follow on decisions are not about kind of communicating upstream or about a weird relationship between the investor and the founder. Follow on decisions are only problematic if you have misalignment of expectation. And so we make sure that when we invest that upfront the founders know and we collectively agree on what that company needs to accomplish in order to get additional money from us. And that's an ongoing dialogue and there's always transparency around that. So there's never a surprise at the end. When we say, yes, we'd like to invest more money or no, we, we don't want to invest more money. Um, and so we, we think if you have that alignment of expectations and an ongoing dialogue and transparency, that it's good business sense as an investor to want to follow on. And it's actually, uh, beneficial to the founders to have investors who follow on as well.

AI assessment note: “Yeah, we absolutely follow on.”

Q Jason Lamkin said, for employees join companies, unicorn companies, in 2021 or 2022, they will make nothing from their equity. Do you agree?

A I think that's definitely true for a lot of unicorn companies, but that's the difference between Companies that raise money on momentum and hype and companies that raise momentum, money on, uh, fundamentals, right? Like there are too many companies last year when the market turned, you said, oh, we just got to buy ourselves some time. And when the market comes back, we'll be able to raise money again. And what you're seeing is that time's run out, right? This is the year where they bought time by, last year they bought time by doing the layoffs and slowing down spend. And this year, They're realizing that the market's not coming back to what it was, and they actually have to demonstrate real business value, and those companies are not going to be able to attract capital, and they're gonna go away. Um, and that's, you know, earlier stage companies and later stage companies. Um, and then you've got that with compounded by the fact that there's this VC overhang that everyone's talking about, but the reality is, like, everyone's got shit in their portfolios, so they're gonna do their one or two investments a year, and every, every fund With this overhang, it's going to be focused on the same small set of companies. And so those companies, uh, are going to be able to, you know, attract capital, uh, at prices that may seem like the market's turned around, potentially. Um, but the vas…

AI assessment note: “I think that's definitely true for a lot of unicorn companies”

Q Jason Lamkin said, for employees join companies, unicorn companies, in 2021 or 2022, they will make nothing from their equity. Do you agree?

A I think that's definitely true for a lot of unicorn companies, but that's the difference between Companies that raise money on momentum and hype and companies that raise momentum, money on, uh, fundamentals, right? Like there are too many companies last year when the market turned, you said, oh, we just got to buy ourselves some time. And when the market comes back, we'll be able to raise money again. And what you're seeing is that time's run out, right? This is the year where they bought time by, last year they bought time by doing the layoffs and slowing down spend. And this year, They're realizing that the market's not coming back to what it was, and they actually have to demonstrate real business value, and those companies are not going to be able to attract capital, and they're gonna go away. Um, and that's, you know, earlier stage companies and later stage companies. Um, and then you've got that with compounded by the fact that there's this VC overhang that everyone's talking about, but the reality is, like, everyone's got shit in their portfolios, so they're gonna do their one or two investments a year, and every, every fund With this overhang, it's going to be focused on the same small set of companies. And so those companies, uh, are going to be able to, you know, attract capital, uh, at prices that may seem like the market's turned around, potentially. Um, but the vas…

AI assessment note: “I think that's definitely true for a lot of unicorn companies”

Q Well, there we go. Salesman at heart. Uh, Sacha, tell me, what are your most optimistic and hopeful for today?

A Uh, I guess one's professional and one's personal. I'm most optimistic about the, on the professional side, about the democratization of access to capital, including, uh, and, and expertise that allows startups to thrive, especially capital for, you know, we've got a lot of work to do, but for underrepresented founders from underrepresented managers, which we're trying to contribute to. And on the personal side, uh, I have a seventeen-year-old and a fourteen-year-old, effectively, on, I think that generation, uh, has an entirely different perspective on the world than the generation before it, and is willing to question everything from first principles, willing to do the work to see that the change that they want, and really care for other people on the planet, so I'm really optimistic about it. This next generation, ah, and the impact they're going to have on the world.

AI assessment note: “I'm most optimistic about the, on the professional side, about the democratization of access”

Q And how do you, you mentioned that product market fit, how do you assess the elements of product market fit at such an early stage? I mean, is it kind of AB testing and just trying not to have the leaky bucket? Um,

A Yeah. Every company and every product is different in terms of the definition of product market fit, but effectively it comes down to, uh, active usage of the product, right? And sustainable active usage of the product. Um, and to get there, we like to say that people have to be narrowly focused. They have to be hypothesis driven and they need to be experimental in validating or invalidating that hypothesis. Um, and so we spend a lot of time just helping people think about How are you going to, what question do you want to ask? Uh, what do you think the answer might be? And how do you figure out if that's the right answer or not as quickly as possible?

AI assessment note: “effectively it comes down to, uh, active usage of the product, right?”

Q Absolutely. And you've written before about, kind of, the emotional element of the VC decision-making process. So how can startups kind of emote this, uh, emotion from the VC, uh, and really depict their narrative and their vision for the startup effectively?

A Yeah, I, I use this term called emotional resonance, right? And I think the key to successful fundraising at the seed stage is really establishing that emotional resonance with an investor. And there's really only two means by which to do that. One is the personal story of the founders, right? Why it is they're focused on the problem that they're focused on? What makes them uniquely suited to attack it? What's the belief that they have about their solution to the problem that is unique to them and to, and maybe different than what the rest of the world sees? You know, uh, hopefully some common ground with the investor, uh, that helps investor relate to them or the problem that they're solving. So that's the first. And then secondly is the mission itself. And is it a problem area again that the investor can relate to, or is it, An opportunity of such massive scope and potential scale that, uh, the investor has to be involved in it. You know, is it something where we like to say the founders have a very narrow near-term focus, but a broad long-term vision around what the world should look like. And I think those two things kind of the founder and the mission are the only things that can help establish that emotional resonance early on.

AI assessment note: “there's really only two means by which to do that. One is the personal story”

Q Yeah. What would you say is your key value add then? What do you most like to add to a startup?

A I think our point of view is, you know, we're investors who come from an operating background. We think like we can help companies in primarily three areas. And then we've got our advisors and our broader network who can help in many other areas, but we think we can help around, uh, establishing product market fit. We think we can help around, uh, organizational design, hiring and process and culture and values and all that kind of stuff. And then we think we can help around go to market pricing, distribution, partnerships, all those kinds of things. Um, but ultimately, um, We don't go to a company and say, Hey, here's how we want to help. We let the companies dictate and our founders tell us what they want us to assist with. Um, and so in that formal time that we have every week or every other week, we kind of treat those as our version of a standup where we talk about, you know, what is a company accomplished in the last week? What's coming up in the next week and where are they stuck? And out of those conversations, we want the companies to assign us homework. Um, so we leave every one of those conversations with our, here are the things that we have to deliver for the company. And we find that that is amazing from a relationship standpoint, right? Um, but more importantly, it gives us a real sense of what the company's focused on. And also importantly, what the company is n…

AI assessment note: “help companies in primarily three areas”

Q So firstly, do you follow on? I mean, we've had guests before, uh, who don't agree with the follow on method. What are your thoughts on this?

A Yeah, we absolutely follow on. Um, we think that, and you know, these are, I think some of the guests you've had on like the Micah and Eric from founder collective are friends of ours and they have a very different point of view around this, but our, our point of view around it is. Follow on decisions are not about kind of communicating upstream or about a weird relationship between the investor and the founder. Follow on decisions are only problematic if you have misalignment of expectation. And so we make sure that when we invest that upfront the founders know and we collectively agree on what that company needs to accomplish in order to get additional money from us. And that's an ongoing dialogue and there's always transparency around that. So there's never a surprise at the end. When we say, yes, we'd like to invest more money or no, we, we don't want to invest more money. Um, and so we, we think if you have that alignment of expectations and an ongoing dialogue and transparency, that it's good business sense as an investor to want to follow on. And it's actually, uh, beneficial to the founders to have investors who follow on as well.

AI assessment note: “Yeah, we absolutely follow on.”

Q And infinite A and B rounds, often it's a tough case of startups. Oh, we're going for growth and revenue will come later. What's your take on the growth versus revenue relationship?

A Yeah, I think we probably have a nuanced view of it, which is in some cases growth, uh, at all costs or at great cost is the right strategy. At others, having revenue out of the gate is the right strategy, but more often than not, um, there needs to be a balance. You know, we tend not to invest in businesses where the unit economics are not clear out of the gate, or the path to viable unit economics is not clear out of the gate. We also, because of our focus on kind of these bottom-up economy companies, tend to invest in companies that generate revenue from day one. Um, we don't invest in pure consumer social businesses. If we wanted to do that, we'd take a very different investment approach. We wouldn't have such a concentrated portfolio because those things are hard to predict, and they consume lots of capital over the course of time, so we'd have a probably different size fund. Um, but for us, uh, we really, uh, balance kind of growth and revenue, and we tend not to invest in companies that are extreme on either side.

AI assessment note: “more often than not, um, there needs to be a balance.”

Q Yeah. What would you say is your key value add then? What do you most like to add to a startup?

A I think our point of view is, you know, we're investors who come from an operating background. We think like we can help companies in primarily three areas. And then we've got our advisors and our broader network who can help in many other areas, but we think we can help around, uh, establishing product market fit. We think we can help around, uh, organizational design, hiring and process and culture and values and all that kind of stuff. And then we think we can help around go to market pricing, distribution, partnerships, all those kinds of things. Um, but ultimately, um, We don't go to a company and say, Hey, here's how we want to help. We let the companies dictate and our founders tell us what they want us to assist with. Um, and so in that formal time that we have every week or every other week, we kind of treat those as our version of a standup where we talk about, you know, what is a company accomplished in the last week? What's coming up in the next week and where are they stuck? And out of those conversations, we want the companies to assign us homework. Um, so we leave every one of those conversations with our, here are the things that we have to deliver for the company. And we find that that is amazing from a relationship standpoint, right? Um, but more importantly, it gives us a real sense of what the company's focused on. And also importantly, what the company is n…

AI assessment note: “We think like we can help companies in primarily three areas.”

Q And then busy, not productive. Explain what you mean by this and how can we be productive?

A Yeah. The idea behind busy but not productive is that it's, it's easy to fill your day with things that You feel like you need to do, like to go through your to-do list, uh, if you even have a to-do list. I think very people try to, very few companies and founders focus on the two or three things that really matter, have a hypothesis about those things, and then try to, you know, prove or disprove those hypotheses. So the idea behind busy but not productive is how do you stop kind of just filling your time? How do you focus on the things that are essential for figuring out whether Uh, you're eliminating or reducing risk for your business, um, and in, you know, in the effort to build a great company.

AI assessment note: “busy but not productive is that it's easy to fill your day with things”

Q Absolutely. And you've written before about, kind of, the emotional element of the VC decision-making process. So how can startups kind of emote this, uh, emotion from the VC, uh, and really depict their narrative and their vision for the startup effectively?

A Yeah, I, I use this term called emotional resonance, right? And I think the key to successful fundraising at the seed stage is really establishing that emotional resonance with an investor. And there's really only two means by which to do that. One is the personal story of the founders, right? Why it is they're focused on the problem that they're focused on? What makes them uniquely suited to attack it? What's the belief that they have about their solution to the problem that is unique to them and to, and maybe different than what the rest of the world sees? You know, uh, hopefully some common ground with the investor, uh, that helps investor relate to them or the problem that they're solving. So that's the first. And then secondly is the mission itself. And is it a problem area again that the investor can relate to, or is it, An opportunity of such massive scope and potential scale that, uh, the investor has to be involved in it. You know, is it something where we like to say the founders have a very narrow near-term focus, but a broad long-term vision around what the world should look like. And I think those two things kind of the founder and the mission are the only things that can help establish that emotional resonance early on.

AI assessment note: “there's really only two means by which to do that. One is the personal story”

Q And how do you, you mentioned that product market fit, how do you assess the elements of product market fit at such an early stage? I mean, is it kind of AB testing and just trying not to have the leaky bucket? Um,

A Yeah. Every company and every product is different in terms of the definition of product market fit, but effectively it comes down to, uh, active usage of the product, right? And sustainable active usage of the product. Um, and to get there, we like to say that people have to be narrowly focused. They have to be hypothesis driven and they need to be experimental in validating or invalidating that hypothesis. Um, and so we spend a lot of time just helping people think about How are you going to, what question do you want to ask? Uh, what do you think the answer might be? And how do you figure out if that's the right answer or not as quickly as possible?

AI assessment note: “effectively it comes down to, uh, active usage of the product, right? And sustainable”

Q And infinite A and B rounds, often it's a tough case of startups. Oh, we're going for growth and revenue will come later. What's your take on the growth versus revenue relationship?

A Yeah, I think we probably have a nuanced view of it, which is in some cases growth, uh, at all costs or at great cost is the right strategy. At others, having revenue out of the gate is the right strategy, but more often than not, um, there needs to be a balance. You know, we tend not to invest in businesses where the unit economics are not clear out of the gate, or the path to viable unit economics is not clear out of the gate. We also, because of our focus on kind of these bottom-up economy companies, tend to invest in companies that generate revenue from day one. Um, we don't invest in pure consumer social businesses. If we wanted to do that, we'd take a very different investment approach. We wouldn't have such a concentrated portfolio because those things are hard to predict, and they consume lots of capital over the course of time, so we'd have a probably different size fund. Um, but for us, uh, we really, uh, balance kind of growth and revenue, and we tend not to invest in companies that are extreme on either side.

AI assessment note: “more often than not, um, there needs to be a balance.”

Q And then let's talk about, um, the investor you most respect or admire. Who is it?

A We are fortunate to have kind of as informal advisors, a couple of investors that I already mentioned, uh, the group at Foundry and Fred Wilson, um, Mark Andreessen, uh, are all, uh, Kevin Compton, um, are all amazing investors who have given, uh, Uh, generously of their time to us, and we spend a lot of time thinking about their counsel, what they've done well, what, uh, what we can learn from them. Um, and then I've had the good fortune of working with a number of incredible investors, uh, Tom Crotty and Rick Frisby at Battery Ventures, uh, Steve Clearman and Larry Lepard at Geo Capital Ventures. So again, in our, in our, uh, quest to always learn, we kind of try to learn from anybody that we encounter and all the different investors out there.

AI assessment note: “we kind of try to learn from anybody that we encounter”