The Exchanges

Q No, absolutely, and I love that analogy to skiing. I am intrigued, though, because me and my partner, Fred, often talk about risk, and the one that we're not so happy with is, one, obviously, founder risk when there's concerns around the founder, or B, when there's kind of marketplace Timing risk. Are there elements of risk that you're not comfortable taking?

A Well, ethical risk is not one that I'm willing to take, so I think when we look at founders, there are certain risks we try to avoid, and one of them is when the character is suspect. I mean, for me, you know, life is long, and you know, there are chances where you can make money, and chances where you can do sorts, all sorts of things, but the people you associate with, you're going to be the people you're going to be associated with throughout your whole life, and you can't take those things back, so we really try to make sure that Companies fail, and people give it a good go. That's part of the game, but we really try to stay away from folks who we think exhibit suspect behavior.

AI assessment note: “ethical risk is not one that I'm willing to take”

Q No, I agree with you there on that kind of mental plasticity. But kind of moving away from risk itself to another aspect, which is kind of Very central to the role of VC, which is often advice. But when we chatted before, you said to me that advice is often oversimplified. Ted, can you unpack this for me a little in really what you mean by this oversimplification?

A You know, the interesting thing, when I was a lawyer, you know, people used to come to me and say, oh, you know, so-and-so told me I should do X, or I heard that Facebook did Y, right? And they had all these theories about, you know, what they should do. And I found that advice often wrong. I mean, there's tons of content available where people can read about it, All these different approaches to a certain problem, but you have to understand and be able to apply the rationale behind any particular piece of advice. So what worked for one company, you know, we just talked about jet.com a moment ago, like what worked for jet.com is not going to work for most founders. And so you have to think about the advice that you get. Why is the person giving you the advice that they're giving you? Why did it work for them? And does it apply in your case? And I think that's something that gets oversimplified all the time.

AI assessment note: “you have to understand and be able to apply the rationale behind any particular piece of advice”

Q What do you believe that most around you disbelieve?

A I would say that I believe the government can work for us. Being here in Silicon Valley, there's a very strong libertarian ideology, and there's a very strong notion that, oh, government's just this terrible thing, and it can never work, and it's always screwed up, and I worked for the feds twice in my life. I worked for a congressman, and I worked for a judge for a while, and I really believe that, you know, government isn't, it can be an instrument of good. Now, obviously, you have to understand that when government gets involved in things, it's not I'm not going to be super swift or super nimble, but government has been a force for good in many, many different aspects of life, and I think people are really too quick to dismiss government and say that it can never work or can't solve problems. It's demonstrably not true if you look at history, and, uh, and it surprises me that so many of the smart people that I know have an attitude that's so anti-government.

AI assessment note: “I would say that I believe the government can work for us.”

Q I mean, I totally agree with you, and I think the more that I'm in VC, the more I see that no one actually really knows what they're doing with such nuance and different cases every single time. So with that and kind of the oversimplification in mind, how can VCs provide tangible advice to their portfolio companies today in your mind?

A Yeah, well, look, I mean, I think first thing is understanding the limits of what you know, and so I think there are really kind of two core value adds that venture capitalists can have for When, as they give advice, you know, one is sort of, Hey, here's a different point of view about that. You know, someone's looking at a problem and you say, have you thought about it from this perspective? And that perspective is going to open up the entrepreneur's eyes, maybe to a different route or a different way of thinking. And the second route is really benchmarking, right? Which is, okay, we have 12 companies and here are the 12 different ways that they're looking at the same problem. That should tell you something. But I think the core issue is kind of going back to the notion of that not all advice Is exactly replicable. It's sort of, well, why are different companies doing, you know, this, that, or the other thing? Why are they taking a particular path? And how does that apply in your particular case? I mean, I think that's the critical thing about giving advice. It's just not one size fits all.

AI assessment note: “one is sort of, Hey, here's a different point of view... second route is really benchmarking”

Q Speaking of risk and maybe how it can pay off for you, with risk being so unavoidable, one would logically lean to a massively diversified, almost spray and pray portfolio approach. How does your thinking around risk maybe correlate or not correlate to your thoughts around portfolio construction, Ted?

A Yeah, I just think this is an area where I've really learned the most Since I've started on the venture side, you know, I think when I was a lawyer watching other venture capitalists amass their portfolios, I really didn't understand, you know, why they were so focused on percentage ownership. And I, I sort of thought it was, it sounded pretty stupid to me, to be honest with you. And now I found that I was in fact dead wrong and percentage ownership is just so critical because at the end of the day, of course, particularly at seed stage, every investment is very risky, but you know, with risk, you have to have reward. And so if you own, you know, That's just not going to be able to move the needle and return a fund of any size. For angel investors, who have different motivations as well, and are largely investing out of much smaller pots of money, you know, if you have one investment that returns 25 acts, you know, even if it's a very small check, that's a significant return, and that can really set you up well. But for us, Cowboy, and I think for other similarly sized seed funds, you know, we have to make a handful of concentrated bets. So that when our winners pay off, that they're able to make material returns to the fund. So it's actually a great illustration of the risk point that I was making earlier, because on the one hand, you don't want to make these big, big, big bet…

AI assessment note: “we have to make a handful of concentrated bets”

Q Don't leave me hanging, Tab. What is the animal story?

A Sure. Sure. I have to give credit. This is a Drew Houston, uh, the CEO of Dropbox told me this, this story once and I found it brilliant. And so I want to give him credit for putting it in my ear, which is, you know, if you're sitting around the table and you're talking to, imagine like you're getting advice and you're talking to a bunch of animals, right? And they say like, what's the key to survival, right? You know, first there's a lion and the lion says, look, you know, you gotta be big. You gotta be strong. Only the strongest survive. Right. And then you have an elephant sitting there. The elephant says, well, you gotta be big.

AI assessment note: “Drew Houston, uh, the CEO of Dropbox told me this, this story”

Q No, absolutely, and I love that analogy to skiing. I am intrigued, though, because me and my partner, Fred, often talk about risk, and the one that we're not so happy with is, one, obviously, founder risk when there's concerns around the founder, or B, when there's kind of marketplace Timing risk. Are there elements of risk that you're not comfortable taking?

A Well, ethical risk is not one that I'm willing to take, so I think when we look at founders, there are certain risks we try to avoid, and one of them is when the character is suspect. I mean, for me, you know, life is long, and you know, there are chances where you can make money, and chances where you can do sorts, all sorts of things, but the people you associate with, you're going to be the people you're going to be associated with throughout your whole life, and you can't take those things back, so we really try to make sure that Companies fail, and people give it a good go. That's part of the game, but we really try to stay away from folks who we think exhibit suspect behavior.

AI assessment note: “ethical risk is not one that I'm willing to take”

Q No, I agree with you there on that kind of mental plasticity. But kind of moving away from risk itself to another aspect, which is kind of Very central to the role of VC, which is often advice. But when we chatted before, you said to me that advice is often oversimplified. Ted, can you unpack this for me a little in really what you mean by this oversimplification?

A You know, the interesting thing, when I was a lawyer, you know, people used to come to me and say, oh, you know, so-and-so told me I should do X, or I heard that Facebook did Y, right? And they had all these theories about, you know, what they should do. And I found that advice often wrong. I mean, there's tons of content available where people can read about it, All these different approaches to a certain problem, but you have to understand and be able to apply the rationale behind any particular piece of advice. So what worked for one company, you know, we just talked about jet.com a moment ago, like what worked for jet.com is not going to work for most founders. And so you have to think about the advice that you get. Why is the person giving you the advice that they're giving you? Why did it work for them? And does it apply in your case? And I think that's something that gets oversimplified all the time.

AI assessment note: “what worked for jet.com is not going to work for most founders”

Q I mean, I totally agree with you, and I think the more that I'm in VC, the more I see that no one actually really knows what they're doing with such nuance and different cases every single time. So with that and kind of the oversimplification in mind, how can VCs provide tangible advice to their portfolio companies today in your mind?

A Yeah, well, look, I mean, I think first thing is understanding the limits of what you know, and so I think there are really kind of two core value adds that venture capitalists can have for When, as they give advice, you know, one is sort of, Hey, here's a different point of view about that. You know, someone's looking at a problem and you say, have you thought about it from this perspective? And that perspective is going to open up the entrepreneur's eyes, maybe to a different route or a different way of thinking. And the second route is really benchmarking, right? Which is, okay, we have 12 companies and here are the 12 different ways that they're looking at the same problem. That should tell you something. But I think the core issue is kind of going back to the notion of that not all advice Is exactly replicable. It's sort of, well, why are different companies doing, you know, this, that, or the other thing? Why are they taking a particular path? And how does that apply in your particular case? I mean, I think that's the critical thing about giving advice. It's just not one size fits all.

AI assessment note: “one is sort of, Hey, here's a different point of view... second route is really benchmarking”

Q you know, I'm very much included in that bracket, say that kind of the biggest challenge is the length of time it takes to really determine whether you're good or not. I'm intrigued. Do you foresee that being something that you will struggle with? And are there any other kind of dominant challenges that have been tough to get your head around with the kind of reality of the role?

A Yeah, there are two different thoughts on that. You know, one is that the learning curve, it's really hard because the feedback loop is so long and There's a great book I read called Super Forecasting, and it asks the question of, are some people better at predicting the future than others, and can people learn about that? And so it's a fascinating book, and what that book says is if you want to, the first answer is yes, some people are better at predicting the future, and the people who are tend to take these complex problems and break them down into subparts, and then the best way to improve your ability to predict things is to try to have a shortened learning loop. So in other words, If you're waiting five years, you know, from a decision to the feedback point, it's just very hard to learn. So whereas if someone electroshocks you right away, you're going to, you're going to learn pretty quickly. And so what I've tried to do for myself to accelerate my learning curve is I break down each investment decision into a bunch of subcategories, and then I'm able to see more quickly whether or not I was right about the subcategories, right? In other words, I won't know whether or not the investments are good investments for a long time, but what I will know is Did I think that this founding team was a good match for the challenge? And so I can kind of look back after a year and asses…

AI assessment note: “what I've tried to do for myself to accelerate my learning curve is”

Q I love that on the reference calls. I actually had Elad Gill on the show recently, and he said that a good reference call means a lot, but a bad reference call doesn't always reflect negatively. I'm interested. How do you think about that, and would you agree with Elad?

A Yeah, absolutely. It all depends on what bad means. Many founders are not particularly good employees. So sometimes we'll get a reference call to say like, oh, she's really, really smart, but man, she's stubborn. And yeah, she really wants to get her own way. Or, and it's okay. Well, it's not the worst. I mean, you have to kind of understand. And I think one of the core issues with reference calls is what are you trying to solve for? What are you referencing? And if the person said, well, uh, she's really lazy, she doesn't show up for work and that would be problematic. But if it's like, you know, it's a little different than she, you know, she's really hardheaded and sometimes she doesn't get along well with others and she's not that much of a team player.

AI assessment note: “Yeah, absolutely. It all depends on what bad means.”

Q Speaking of risk and maybe how it can pay off for you, with risk being so unavoidable, one would logically lean to a massively diversified, almost spray and pray portfolio approach. How does your thinking around risk maybe correlate or not correlate to your thoughts around portfolio construction, Ted?

A Yeah, I just think this is an area where I've really learned the most Since I've started on the venture side, you know, I think when I was a lawyer watching other venture capitalists amass their portfolios, I really didn't understand, you know, why they were so focused on percentage ownership. And I, I sort of thought it was, it sounded pretty stupid to me, to be honest with you. And now I found that I was in fact dead wrong and percentage ownership is just so critical because at the end of the day, of course, particularly at seed stage, every investment is very risky, but you know, with risk, you have to have reward. And so if you own, you know, That's just not going to be able to move the needle and return a fund of any size. For angel investors, who have different motivations as well, and are largely investing out of much smaller pots of money, you know, if you have one investment that returns 25 acts, you know, even if it's a very small check, that's a significant return, and that can really set you up well. But for us, Cowboy, and I think for other similarly sized seed funds, you know, we have to make a handful of concentrated bets. So that when our winners pay off, that they're able to make material returns to the fund. So it's actually a great illustration of the risk point that I was making earlier, because on the one hand, you don't want to make these big, big, big bet…

AI assessment note: “we have to make a handful of concentrated bets”

Q Don't leave me hanging, Tab. What is the animal story?

A Sure. Sure. I have to give credit. This is a Drew Houston, uh, the CEO of Dropbox told me this, this story once and I found it brilliant. And so I want to give him credit for putting it in my ear, which is, you know, if you're sitting around the table and you're talking to, imagine like you're getting advice and you're talking to a bunch of animals, right? And they say like, what's the key to survival, right? You know, first there's a lion and the lion says, look, you know, you gotta be big. You gotta be strong. Only the strongest survive. Right. And then you have an elephant sitting there. The elephant says, well, you gotta be big.

AI assessment note: “This is a Drew Houston, uh, the CEO of Dropbox told me this”

Q much from him, and on the theme of learning, I do want to finish on that theme before we move into the quickfire. We had Adam Goldberg at Lightspeed on the show, and he said that he most looks for increased rate of learning when assessing founders. I'm super interested. How do you think about and assess the theme of learning and self-improvement when meeting the founders you do today?

A Yeah, well, look, I think if there's one factor that is most highly correlated with success of a Startup companies. It's the founder's ability to learn, and I just think it's the most critical thing, because ultimately, as they take on the company, as the company moves to different stages, the child, the ground shifts under their feet, the challenges that they're trying to take on change, they have to learn how to do different things, whether it's hiring or scaling or the market changes, they have to adapt, so you really want to look into, is the founder a learning animal, as I think about it. I don't think I'm sophisticated enough to try to track the rate of that change over time, and that seems a little highfalutin for me, but You know, I, I really do want to make sure that the founders are, are learners, and that they care about learning, and they're intellectually curious, and I think that's highly correlated with success.

AI assessment note: “I don't think I'm sophisticated enough to try to track the rate of that change”

Q much from him, and on the theme of learning, I do want to finish on that theme before we move into the quickfire. We had Adam Goldberg at Lightspeed on the show, and he said that he most looks for increased rate of learning when assessing founders. I'm super interested. How do you think about and assess the theme of learning and self-improvement when meeting the founders you do today?

A Yeah, well, look, I think if there's one factor that is most highly correlated with success of a Startup companies. It's the founder's ability to learn, and I just think it's the most critical thing, because ultimately, as they take on the company, as the company moves to different stages, the child, the ground shifts under their feet, the challenges that they're trying to take on change, they have to learn how to do different things, whether it's hiring or scaling or the market changes, they have to adapt, so you really want to look into, is the founder a learning animal, as I think about it. I don't think I'm sophisticated enough to try to track the rate of that change over time, and that seems a little highfalutin for me, but You know, I, I really do want to make sure that the founders are, are learners, and that they care about learning, and they're intellectually curious, and I think that's highly correlated with success.

AI assessment note: “so you really want to look into, is the founder a learning animal”

Q No, I agree with you on that kind of ethical risk there. You mentioned that kind of company is maybe not working out. Seed is an inherent part of what we do. I'm really interested. How do you think about the balance between the vision and the mission of the company, and then the realization when something maybe isn't working? How do you navigate that balance?

A Well, I think when you back Seed stage founders, you have to accept the fact that it's Very often not going to work out, and when people give it their best and it doesn't work out, it doesn't mean we wouldn't want us to back those founders again. There are lots of different things that can happen along a journey that can change an outcome, all sorts of external things, and as long as the founders are giving it a good go and being thoughtful about the different risks they're taking, when those risks emerge or something unexpected emerges, that's part of the seed stage journey. That's part of the life cycle. I've seen great founders fail and then dust themselves off and do something great again in their next So, you know, I think it's just part of the game.

AI assessment note: “you have to accept the fact that it's Very often not going to work out”

Q No, I agree with you on that kind of ethical risk there. You mentioned that kind of company is maybe not working out. Seed is an inherent part of what we do. I'm really interested. How do you think about the balance between the vision and the mission of the company, and then the realization when something maybe isn't working? How do you navigate that balance?

A Well, I think when you back Seed stage founders, you have to accept the fact that it's Very often not going to work out, and when people give it their best and it doesn't work out, it doesn't mean we wouldn't want us to back those founders again. There are lots of different things that can happen along a journey that can change an outcome, all sorts of external things, and as long as the founders are giving it a good go and being thoughtful about the different risks they're taking, when those risks emerge or something unexpected emerges, that's part of the seed stage journey. That's part of the life cycle. I've seen great founders fail and then dust themselves off and do something great again in their next So, you know, I think it's just part of the game.

AI assessment note: “you have to accept the fact that it's Very often not going to work out”