The Exchanges

Q Something that guides the multiple on the next round is often actually just the hotness of market itself. If you're in developer tools or collaboration tools today, bluntly, the kind of traction requirements are down for the pricing that you can actually command. How do you think about market timing in particular? It's something that I'm always very concerned about taking risk on. How do you think about market timing?

A We don't. I think the cycle times on these companies are so long. We used to say seven years, but I think it's actually much closer to 10, if not longer. I mean, we, some of the best companies we've invested in back in the 2011, 2012 time frame are still illiquid, right? So we're coming up on nine years now. And these are great businesses. And maybe there's another two, three years for liquidity. So that's a 10 to 12 year cycle. You could have two business cycles in that whole time frame. So I think if you try and time it, you're just going to get it wrong. So we'll invest In a boom, we'll invest in a bust. We're not going to look at it. We're going to look a lot more about, does this business make sense? Are the technical trends there? Are the market trends there? Not based on, like, pricing and the hotness of the economy, but based on what we think customers will want. And that's it.

AI assessment note: “We don't. I think the cycle times on these companies are so long.”

Q I'm so pleased we finally got to do it, having been a big fan of your Twitter for a while now. But I do want to start. You're an investor in a hundred plus companies, obviously had the incredible operating experience. How did you make your way into the world of startups? And then how did you make your way into the world of investing?

A Yeah, I mean, I don't think it's that different of a story from a lot of other people, maybe with one little twist. So on the startup front, I met my co-founder in college. Which I think is pretty common. And we met in a writing class, which is kind of ironic, because we both went to business school as undergrads to, like, avoid doing any writing. But here we are, we met in a writing class. He had been into entrepreneurship and had built websites. Remember, this is, like, 2004. And then one of the things that happened was he had gotten in touch with Josh Koppelman, who you mentioned. And through that connection, Josh got us an internship at one of the early first round portfolio companies. And that just kind of opened our eyes to what the possibilities were in terms of Startups and in particular enterprise software, if you will. So that's, what's got us into startups. And then we started invite media, which was our first company in school in 2007. And once we were in it, you're hooked. And so I knew at that point, I was like, okay, we're going to do this type of thing for the rest of our lives. And then angel investing and investing broadly came fairly organically. It was basically after we sold the first business in 2010. We had some money that we had made from the deal and people start pinging you and asking for advice and investment. And so we started to do it fairly ad hoc,…

AI assessment note: “And then angel investing and investing broadly came fairly organically.”

Q I do have to ask on the valuation side. I mean, it's so expensive today, more than I've ever seen. How do you think about your own price sensitivity today? Having lived through it as an operator, having known kind of the fundraising mechanics and the challenges of raising, quite frankly, how do you think about like prices today and then your own price sensitivity, given how crazy it is?

A Yeah, it's really hard. I mean, I think the seed and A pricing is kind of a very different beast than series B and later. And for one fairly simple reason, which is on the B and later, You've got numbers and a history that you can kind of use to guide growth projections, right? So I can actually use data, albeit not perfect, but I can use data to say, okay, here's the top line growth. Here's what the gross margin structure looks like and how it's expanded or not. And I can run this out and kind of look at what this business might look like in three years with higher confidence. At seed and A, I mean, anyone's best guess in a lot of cases. And so the way we have tried to think about it as investors, and I'll talk mostly about seed for a second, is the How much time is this funding round going to give this company? Is it going to give them 18 months or 24 months or three years? And then what do we think is a reasonable amount of work for them to accomplish in those three years? And, or less, usually more like two years. And if they accomplish it, what do we expect the next round to get done at? And what's the multiple on that next round? Is it 1.5 X or two X, or is it five X? And we're looking for things where the multiple on the next round, not because I care about the markup at all, but because it shows Real growth and real value creation is more than like two X, let's call it …

AI assessment note: “If I'm going to fund a company at a 10 post, I want to”

Q No, I do understand and get you. Final one. What's the most recent publicly announced investment, and why did you say yes and get so excited?

A The most recent one we did, I think, is a company called David Energy, which is here in New York, and what got me excited, it's a software company in the energy space, and really the trick here, and there's an amazing why now, but essentially all of the, um, high cost infrastructure of a commercial building, and it's true residential as well, but think lighting, HVAC, boiler, whatever the Systems that pull in a lot of energy. Historically, if you wanted to manage your energy utilization, you got a person in the building who would walk over to all these items, all these pieces of infrastructure, and turn them on, turn them off, very manual process, and couldn't be reactive to energy prices at that point in time. You have to remember, energy prices obviously vary not just day to day, but within a single day. It's a real-time market. And what David Energy is working on is how do we actually take control of those systems using computers, but also take control of them in a way where we use our understanding of energy prices in the market to actually change our utilization. And they have a very clever Way that they're going about doing this, which is actually becoming the energy retailer themselves. So kind of a vertical integration play. And it just touches on all the right, like why now is big idea, clever business model and highly technical founder. So we just wrote a fairly big c…

AI assessment note: “The most recent one we did, I think, is a company called David Energy”

Q along the way. How do you think about founder secondaries with the influx of capital? I have a lot of founders who are like, Hey, I've actually been approached and I've got secondary options on the table. Should I take them? And how should I think about it? When you kind of put on the operator and advisor hat, how do you advise founders with the opportunity to do secondaries?

A Yeah. So to be clear, we won't sell. It's just sometimes we may not buy. The prorata. But we're basically never selling in a secondary. Sometimes we're buying actually from other people who are doing it. For the founder, I encourage them to take enough money off the table that they're comfortable taking a big swing at a bigger outcome. And for some people, just to put some numbers against it, some people, that's a million dollars. Because remember, you're going to pay taxes on this stuff. For some people, as they get bigger, that's a few million dollars. And for others, maybe it's like inching closer to 10. And these are giant numbers for the vast majority of People in America. So we want them to be comfortable and then focused. And we just have a conversation about what is that number? What does it mean to you? And usually it's like less than five percent of their total stake would be a nice benchmark because you want them to feel like there's material upside left. And that's why they're going to put in the effort. I actually think this is fairly consistent. I haven't seen a lot of controversy in almost any of the companies we've invested in about this. I think the VC world and even the angel world kind of agrees on this mostly.

AI assessment note: “encourage them to take enough money off the table that they're comfortable”

Q Something that guides the multiple on the next round is often actually just the hotness of market itself. If you're in developer tools or collaboration tools today, bluntly, the kind of traction requirements are down for the pricing that you can actually command. How do you think about market timing in particular? It's something that I'm always very concerned about taking risk on. How do you think about market timing?

A We don't. I think the cycle times on these companies are so long. We used to say seven years, but I think it's actually much closer to 10, if not longer. I mean, we, some of the best companies we've invested in back in the 2011, 2012 time frame are still illiquid, right? So we're coming up on nine years now. And these are great businesses. And maybe there's another two, three years for liquidity. So that's a 10 to 12 year cycle. You could have two business cycles in that whole time frame. So I think if you try and time it, you're just going to get it wrong. So we'll invest In a boom, we'll invest in a bust. We're not going to look at it. We're going to look a lot more about, does this business make sense? Are the technical trends there? Are the market trends there? Not based on, like, pricing and the hotness of the economy, but based on what we think customers will want. And that's it.

AI assessment note: “We don't. I think the cycle times on these companies are so long.”

Q I'm so pleased we finally got to do it, having been a big fan of your Twitter for a while now. But I do want to start. You're an investor in a hundred plus companies, obviously had the incredible operating experience. How did you make your way into the world of startups? And then how did you make your way into the world of investing?

A Yeah, I mean, I don't think it's that different of a story from a lot of other people, maybe with one little twist. So on the startup front, I met my co-founder in college. Which I think is pretty common. And we met in a writing class, which is kind of ironic, because we both went to business school as undergrads to, like, avoid doing any writing. But here we are, we met in a writing class. He had been into entrepreneurship and had built websites. Remember, this is, like, 2004. And then one of the things that happened was he had gotten in touch with Josh Koppelman, who you mentioned. And through that connection, Josh got us an internship at one of the early first round portfolio companies. And that just kind of opened our eyes to what the possibilities were in terms of Startups and in particular enterprise software, if you will. So that's, what's got us into startups. And then we started invite media, which was our first company in school in 2007. And once we were in it, you're hooked. And so I knew at that point, I was like, okay, we're going to do this type of thing for the rest of our lives. And then angel investing and investing broadly came fairly organically. It was basically after we sold the first business in 2010. We had some money that we had made from the deal and people start pinging you and asking for advice and investment. And so we started to do it fairly ad hoc,…

AI assessment note: “So on the startup front... And then angel investing and investing broadly came fairly organically.”

Q along the way. How do you think about founder secondaries with the influx of capital? I have a lot of founders who are like, Hey, I've actually been approached and I've got secondary options on the table. Should I take them? And how should I think about it? When you kind of put on the operator and advisor hat, how do you advise founders with the opportunity to do secondaries?

A Yeah. So to be clear, we won't sell. It's just sometimes we may not buy. The prorata. But we're basically never selling in a secondary. Sometimes we're buying actually from other people who are doing it. For the founder, I encourage them to take enough money off the table that they're comfortable taking a big swing at a bigger outcome. And for some people, just to put some numbers against it, some people, that's a million dollars. Because remember, you're going to pay taxes on this stuff. For some people, as they get bigger, that's a few million dollars. And for others, maybe it's like inching closer to 10. And these are giant numbers for the vast majority of People in America. So we want them to be comfortable and then focused. And we just have a conversation about what is that number? What does it mean to you? And usually it's like less than five percent of their total stake would be a nice benchmark because you want them to feel like there's material upside left. And that's why they're going to put in the effort. I actually think this is fairly consistent. I haven't seen a lot of controversy in almost any of the companies we've invested in about this. I think the VC world and even the angel world kind of agrees on this mostly.

AI assessment note: “I encourage them to take enough money off the table that they're comfortable”

Q controversial opinions around firms and the values instilled at firms and whether one should have the freedom to speak about certain topics and shouldn't have the freedom to speak about certain topics with Brian Armstrong's piece from Coinbase. I have to ask, what's your stance on this and how do you approach it from a firm building perspective of whether one should or shouldn't be able to have these views?

A Yeah. I mean, I came out and, I don't know, maybe had a little bit of boredom and motivation to kind of rewrite what I thought he should have written, which I guess is a little pretentious on my part, but okay, fine, so be it. But I'll try and describe it in words. To me, I think it's a little naive to think that a company can just say, we stand for absolutely nothing but our business. And maybe that was true 5060 years ago, but I just don't believe that that's true today. And my problem with the Coinbase piece was not Brian or anything like that. I think he's probably an amazing founder, but he's basically saying, look, whatever else is happening in the world, that's not our problem. And I understand the interest and the need to focus on, like, top-tier execution, and you don't want to be distracted with public events, and even more in particular, actually, to say I want to protect employees from bullying and whatnot, and that's critical. And I guess what I'm saying and where I disagreed was that I think you can do both. I think people are saying this is A or B, either you have beliefs or you don't, and that's the only option. And I think you can have core beliefs. I think the company can have a belief system, things that they believe are important, even beyond the business, and still have a culture that's High throughput and execution oriented, and that was what I was trying …

AI assessment note: “I think you can do both. I think people are saying this is A or B”

Q Can I ask, you know, we had Jeff Lewis as a result from Bedrock do a video, a temperature check as he calls it, where he basically said companies are not democracies. If you want to instill your own values, start your own company, but a company is not a democracy and you're signing up to follow the values of someone else. It's simple. How do you feel about that?

A Oh, he's a hundred percent right. I mean, that's the truth of the matter, right? Is at the end of the day, this is Brian Armstrong's company and it's his decision. And if he wants to say for us, the human issues in the outside world are not relevant for us to have a belief on, then he could do it. That's up to him. And Jeff is completely right. It is not a democracy and it's really up to the CEO. And then ultimately the board who controls who the CEO is. And obviously he's quite good at his job and he's gotten this far. So yeah, you joined the company that you believe you want to work for. And that's kind of the beauty of America, right? It's like, we can disagree on this. And ultimately, people and employees can vote with their own feet. They can choose to work in one place or another based on what that CEO has set out as the culture, and it doesn't all have to be one way. I would do it slightly differently, but he is in his absolutely right to be able to do it the way he wants to, and I wouldn't say otherwise.

AI assessment note: “Oh, he's a hundred percent right. I mean, that's the truth of the matter”

Q I love that, because it leads so nicely into my question on risk itself. It's such an interesting relationship one has with risk. How do you think about your relationship with risk today, and how it changed maybe over time?

A I mean, at the end of the day, like, I always thought of this stuff as opportunity cost. So what's the opportunity cost of spending my time working on a startup every single day of my life, including weekends, versus the other path? I would say in the beginning, especially when you're in college and you're a little younger, it seems, you know, okay, fine. I'll just take this risk. And what's the worst that happens? I can go back to the old world. And I honestly never gave it much thought. It was probably incorrectly. So I just said, all right, this looks like an interesting path. Let's try it out. What do I have to lose now? Frankly, because we've sold the second company and we're in better shape, like financially from a personal perspective, I would say our risk tolerance has actually continued to rise, but everyone's different. Everyone's circumstances are different. Do they have family money or not? It's always one big interesting thing. I know people don't like to talk about it, but The reality is if you've got family wealth, and we're not talking about having to have tens of millions of dollars here, you can just be upper middle class wealth, let's call it. It makes it a lot easier to make a leap and to do a startup because in the back of your head, you're going, all right, well, I've got a little bit of a backstop here. And I think both Matt and I lucked out and came from…

AI assessment note: “our risk tolerance has actually continued to rise”

Q Okay, on the flip side, if we go kind of one step further down the funnel, the other thing that's come to prominence so strongly is preemptive rounds. How do you feel about preemptive rounds? And again, if you put on the founder advisory hat, how do you advise founders on taking a valuation that maybe is 18 months ahead and getting massive influx of capital?

A Yeah, the conversation usually with them is a, what I would call like a private one-on-one of, take your sales hat off, For a second, take your hype person hat off. Cause as a founder, you know, you're selling every single day, whether it's to recruits or customers or whatnot, and let's just do like a reasonable bottoms up. What is actually going to get done with this money? And do we really think that we have high confidence that if we take it, that we're going to hit the milestones we need to hit to get to the next milestone and to not have to enter the death spiral of down rounds. And we just do the work. And if there's like clear high confidence and the founder is willing to take that risk, then off they go. I would say it just comes down to that person's Bottoms up belief in the business and teach their own. You know, I don't think there's like a hard and fast rule.

AI assessment note: “comes down to that person's Bottoms up belief in the business”

Q Do you have ownership requirements? You mentioned that being kind of a smaller part of a cap table. Do you still have requirements in terms of Two and a half percent, five percent that you're like, we do like to hit this pretty much every time.

A We have target check sizes based on the valuation. Basically, we have a model that shows, all right, if you're going to invest in a company between five and a fifteen million dollar valuation, here's generally the type of check we'd like to write. Here's generally the type of check we'd like to write for a series A company, but we're flexible. I mean, I know my role here. My role isn't to, like, provide primary capital to this business, and so we don't have ownership requirements or anything like that, but I will be transparent and We'll tell the founders, like, here's the check size we'd like to write, and if it's lower than this, probably isn't going to move the needle, and I just want to be honest about, like, my time, so it's up to you. If you want us to write it, we'll go for it, but let me just tell you what that means, and it's just a transparency thing. That's what we've gone with, and maybe I'll change my opinion over time, but for now, I would say it's a target, not a rule.

AI assessment note: “we don't have ownership requirements or anything like that”

Q you know, post Flatiron. I'm really interested, because I spoke to Olivia on your team, and she mentioned kind of how you think about first versus second time founders. I had Joe Fernandez from Joy Mode on the show, and he said, serial entrepreneurship is overrated. How do you think about, when investing, the benefits of investing in first time versus second time founders, and what are your thoughts there?

A As with anything, it's all like shades of risk, right? I don't think there's any hard and fast rule. If this, then that is always true. That's never a I have found that second time founders who had a good but small first outcome are by far and away the best people to invest in. And the reason for that is they've showed that they can get something stood up and have some sort of success with their first business. So they clearly took something from zero through to position or an IPO or something along those lines that, you know, maybe it's a smaller number. And they've got this like chip on their shoulder to say, this was good, but I made all these mistakes. Let me go back and redo this, but take all of my lessons learned and apply them here. And I think that gives them An edge. It gives them an edge in making fewer mistakes. They're usually better at recruiting. They're usually better at attracting talent. They have a slightly bigger risk profile because they did make a little bit of money in the first one. So I think there's a type of second time founder that is just highly fundable and we would back them anytime, but it's definitely not the only way to do it. I mean, plenty of giant companies, most of giant companies were started by first time founders. So it can be both. It's just, I think the second time folks have a little bit of a shortcut. And usually what that means is t…

AI assessment note: “second time founders who had a good but small first outcome are by far”

Q I love that, because it leads so nicely into my question on risk itself. It's such an interesting relationship one has with risk. How do you think about your relationship with risk today, and how it changed maybe over time?

A I mean, at the end of the day, like, I always thought of this stuff as opportunity cost. So what's the opportunity cost of spending my time working on a startup every single day of my life, including weekends, versus the other path? I would say in the beginning, especially when you're in college and you're a little younger, it seems, you know, okay, fine. I'll just take this risk. And what's the worst that happens? I can go back to the old world. And I honestly never gave it much thought. It was probably incorrectly. So I just said, all right, this looks like an interesting path. Let's try it out. What do I have to lose now? Frankly, because we've sold the second company and we're in better shape, like financially from a personal perspective, I would say our risk tolerance has actually continued to rise, but everyone's different. Everyone's circumstances are different. Do they have family money or not? It's always one big interesting thing. I know people don't like to talk about it, but The reality is if you've got family wealth, and we're not talking about having to have tens of millions of dollars here, you can just be upper middle class wealth, let's call it. It makes it a lot easier to make a leap and to do a startup because in the back of your head, you're going, all right, well, I've got a little bit of a backstop here. And I think both Matt and I lucked out and came from…

AI assessment note: “I would say our risk tolerance has actually continued to rise”

Q Can I ask, you know, we had Jeff Lewis as a result from Bedrock do a video, a temperature check as he calls it, where he basically said companies are not democracies. If you want to instill your own values, start your own company, but a company is not a democracy and you're signing up to follow the values of someone else. It's simple. How do you feel about that?

A Oh, he's a hundred percent right. I mean, that's the truth of the matter, right? Is at the end of the day, this is Brian Armstrong's company and it's his decision. And if he wants to say for us, the human issues in the outside world are not relevant for us to have a belief on, then he could do it. That's up to him. And Jeff is completely right. It is not a democracy and it's really up to the CEO. And then ultimately the board who controls who the CEO is. And obviously he's quite good at his job and he's gotten this far. So yeah, you joined the company that you believe you want to work for. And that's kind of the beauty of America, right? It's like, we can disagree on this. And ultimately, people and employees can vote with their own feet. They can choose to work in one place or another based on what that CEO has set out as the culture, and it doesn't all have to be one way. I would do it slightly differently, but he is in his absolutely right to be able to do it the way he wants to, and I wouldn't say otherwise.

AI assessment note: “Oh, he's a hundred percent right. I mean, that's the truth of the matter”

Q requires, given the dilution that comes. Question for you, how do you think about reserve allocation? Given that it is your personal money, this is not fund money, how do you think about reserve allocation and the decision-making framework that you use on whether to proactively allocate capital to the Series A and, you know, your prorata and super prorata, or whether to pull back? What's that decision-making for you?

A We're still figuring this one out. I wish I had a better sense of the right way to do it. For now, what we're generally saying is if the Series A Is getting done and it's getting done at a price that we feel like is reasonable for the business, which most of them are, by the way, that's 80, 90%. Then a hundred percent of the time we're going to participate at least as a prorata. As it gets to a B or a C where the check size on the prorata gets really big, we'll usually dip out just because it becomes too much concentrated risk in any one company. I mean, you can have prorata checks if the company's doing well that are five, 10 times bigger than your initial investment and just too much concentrated risk. But if it's an A, we'll very likely do it. And then we're going to figure the rest out. I'm not a hundred percent sure the right way to do it is these companies get bigger. You know, do we take parts of it? Do we sell off a piece of it? I'm not sure. I'm more and more convinced that it kind of doesn't matter. And actually by far the most important thing is did you get into the right great company in the first place? It's the initial check that drives almost all the value. And we've done some very basic modeling that I think shows that that's probably true. But if you are trying to deploy a ton of money, if you're one of these billion dollar plus AUM Funds, then the math changes…

AI assessment note: “if the Series A Is getting done... a hundred percent of the time we're going to participate”

Q of the one-to-one with the founder. How do you build an environment of trust and safety with the founder where they feel they can come to you with anything? Is it that I have been in your shoes? I've built multiple businesses. I'm a very successful entrepreneur in the past. Is it just opening up and being vulnerable? What's worked for you in terms of building that closeness and vulnerability?

A Yeah. I mean, you hit on a few things. Usually what I'll say is, and I'd say this publicly too, I'm on your team. Like I see absolutely no benefit in From marking up some investment or using it to raise a future. We're not raising funds. We don't have any LPs. We're just investing our own money. So we're aligned. All we care about is the final outcome, which means I'm going to do and give you advice based on what I think is the right thing to do. And then it's your choice. So you don't have to worry about me having some like weird incentive structure out there. That's kind of the first thing. Second is, look, I've been in your shoes. Let me give you a few examples of when I had to have this conversation with my co-founder and our investors and make decisions about fundraising size. And here's how we thought about it. And then last, what I tell them always is like, my career isn't bet on this business. And so if we get it wrong, we get it wrong. I'm not going to be upset. And I'm just going to tell you the truth, or at least what I think is the truth, I should say. Mostly it's just saying you're going to get brutal honesty from me. I have no other incentives to tell you otherwise. And then it's up to you to make the final decision. And it's not that I would say like a classic VC is materially different, but they are on your board. They are publicly responsible for this investmen…

AI assessment note: “Usually what I'll say is, and I'd say this publicly too, I'm on your team.”

Q takes to be the best board member. When you think about having had the operational experience scaling both businesses, and then now being on the other side of the table, what would you advise me, who within the last two years has started adopting their first boards, What would you advise me in terms of being the best partner to the founders that I work with that I can be?

A Yeah, I mean, I would say being an early stage board member is a very different job than being a late stage slash public company board member. Later stage, there's like actual serious requirements, if you will, that are material. I think early on, really what you're trying to do is find ways to help the founder in any way without distracting them. So maybe little things, show up to the board meeting having read the deck, that would be nice. Don't be on your phone during the meeting if you can, and if you have to, like, Excuse yourself and explain why. I mean, just like little stuff that basically means I'm paying attention and I understand what's going on here.

AI assessment note: “find ways to help the founder in any way without distracting them”

Q What would you most like to change about the tech scene stay Zach?

A I think the tech scene is actually in pretty good shape. I'm somewhat of a big fan. So there's nothing I would say like this must change. I mean, I would hope over time more people kind of recognize that spending their time working on social media in particular to me is just such a disastrous waste of very smart people's time and attention. And I'm hoping that at least as the employees realize this, that they go on and work on more important things. That to me is maybe the biggest thing. We talk about tech mission oriented and all the great things and how tech is going to change the world. And then you've got like 4000 people who work at Facebook. That bothers me a little bit, but again, this is America. You can make that choice.

AI assessment note: “spending their time working on social media in particular to me is just such a disastrous waste”

Q controversial opinions around firms and the values instilled at firms and whether one should have the freedom to speak about certain topics and shouldn't have the freedom to speak about certain topics with Brian Armstrong's piece from Coinbase. I have to ask, what's your stance on this and how do you approach it from a firm building perspective of whether one should or shouldn't be able to have these views?

A Yeah. I mean, I came out and, I don't know, maybe had a little bit of boredom and motivation to kind of rewrite what I thought he should have written, which I guess is a little pretentious on my part, but okay, fine, so be it. But I'll try and describe it in words. To me, I think it's a little naive to think that a company can just say, we stand for absolutely nothing but our business. And maybe that was true 5060 years ago, but I just don't believe that that's true today. And my problem with the Coinbase piece was not Brian or anything like that. I think he's probably an amazing founder, but he's basically saying, look, whatever else is happening in the world, that's not our problem. And I understand the interest and the need to focus on, like, top-tier execution, and you don't want to be distracted with public events, and even more in particular, actually, to say I want to protect employees from bullying and whatnot, and that's critical. And I guess what I'm saying and where I disagreed was that I think you can do both. I think people are saying this is A or B, either you have beliefs or you don't, and that's the only option. And I think you can have core beliefs. I think the company can have a belief system, things that they believe are important, even beyond the business, and still have a culture that's High throughput and execution oriented, and that was what I was trying …

AI assessment note: “I think you can have core beliefs... and still have a culture that's High throughput”

Q you know, post Flatiron. I'm really interested, because I spoke to Olivia on your team, and she mentioned kind of how you think about first versus second time founders. I had Joe Fernandez from Joy Mode on the show, and he said, serial entrepreneurship is overrated. How do you think about, when investing, the benefits of investing in first time versus second time founders, and what are your thoughts there?

A As with anything, it's all like shades of risk, right? I don't think there's any hard and fast rule. If this, then that is always true. That's never a I have found that second time founders who had a good but small first outcome are by far and away the best people to invest in. And the reason for that is they've showed that they can get something stood up and have some sort of success with their first business. So they clearly took something from zero through to position or an IPO or something along those lines that, you know, maybe it's a smaller number. And they've got this like chip on their shoulder to say, this was good, but I made all these mistakes. Let me go back and redo this, but take all of my lessons learned and apply them here. And I think that gives them An edge. It gives them an edge in making fewer mistakes. They're usually better at recruiting. They're usually better at attracting talent. They have a slightly bigger risk profile because they did make a little bit of money in the first one. So I think there's a type of second time founder that is just highly fundable and we would back them anytime, but it's definitely not the only way to do it. I mean, plenty of giant companies, most of giant companies were started by first time founders. So it can be both. It's just, I think the second time folks have a little bit of a shortcut. And usually what that means is t…

AI assessment note: “second time founders who had a good but small first outcome are by far”

Q Do you have ownership requirements? You mentioned that being kind of a smaller part of a cap table. Do you still have requirements in terms of Two and a half percent, five percent that you're like, we do like to hit this pretty much every time.

A We have target check sizes based on the valuation. Basically, we have a model that shows, all right, if you're going to invest in a company between five and a fifteen million dollar valuation, here's generally the type of check we'd like to write. Here's generally the type of check we'd like to write for a series A company, but we're flexible. I mean, I know my role here. My role isn't to, like, provide primary capital to this business, and so we don't have ownership requirements or anything like that, but I will be transparent and We'll tell the founders, like, here's the check size we'd like to write, and if it's lower than this, probably isn't going to move the needle, and I just want to be honest about, like, my time, so it's up to you. If you want us to write it, we'll go for it, but let me just tell you what that means, and it's just a transparency thing. That's what we've gone with, and maybe I'll change my opinion over time, but for now, I would say it's a target, not a rule.

AI assessment note: “we don't have ownership requirements or anything like that”

Q You and I have done four different ventures together. It's rare to have such continuous aid, brilliant rapport and relationship, but also success. What makes your partnership so special?

A I obviously get asked this question a lot. And Nat and I are very, very different people. And anyone who knows both of us will say that, but I would liken it to one specific thing, which is at the end of the day, I think each of us understands that the other person is just trying to do the right thing. And we may disagree on the tactics or even what the right thing is, but we know that that's the goal. And if he makes a mistake or I make a mistake, or we do something that doesn't turn out in the right way, I know that there were no like bad intentions, if you will. And it's just like a fundamental trust thing. I'm just, I think part of that is just having worked together since we were 19. We started having nothing, and now we've built a few good businesses, and so having that trust is probably the biggest thing.

AI assessment note: “each of us understands that the other person is just trying to do the right thing”

Q Okay, tough one here. Which angel has done the most to help one of your companies in the past, and how so?

A We had, this is going to be a little different answer, we had a hedge fund called Kasdan Capital, and Eli Kasdan, the guy that runs it and his group, who was one of the most useful and helpful investors we have ever had. They are a healthcare-focused fund that really mostly does biotech, although it's now doing more health IT, but tons of introductions which show up to our customer conferences, Would listen, would make useful ideas, and just followed through. So many people you talk to, they say, oh, I'll do this, this, and this, and then you have to hound them over email, and Eli and his group just never needed to do it, and actually a lot of times they came out and said, hey, do you want to meet this group? Do you want to meet this group? Always checked with us. So it wasn't an angel per se, but it was a smaller check on our cap table in healthcare called Katzen Capital, and I send anyone I can their way in healthcare just because of how useful they were.

AI assessment note: “It wasn't an angel per se, but it was a smaller check”

Q That's very little stuff. Do you think the current crop of VCs are that bad?

A My belief in general is that most VCs are actually very good. 90% of our investments are co-investments with venture leads. I mean, I'm actually a huge fan. I think the venture community is one of the best places to be if you're raising money, but there are always bad apples, right? So it's just protecting against those. I also think there's a time and a place for an early stage VC to step off. And to say, look, I've got you to your B or your A, and now I need to go back and focus on what I do, which is early stage stuff, and off you go. Let's get somebody who's better at this stage of the business on your board, because the skills that you need as a seed stage board member, let's say, are probably very different. I mean, they are very different than series B or later. We would just say, make sure you're doing the right thing for the stage of the company.

AI assessment note: “My belief in general is that most VCs are actually very good.”

Q been a two on 10, because they don't give a shit. It's just about getting the A next time if it pops, and they'll put 30 of these checks down, and then just concentrate capital into anything that works, knowing they only need two. How do you feel about multi-stage coming back to seed so aggressively, and how do you advise founders constructing their cap tables at pre-seed and seed?

A It's funny because as I put my founder hat on, if I were starting something today, I would say, well, this is great. Talk about an opportunity to take advantage of somebody overpaying early on and giving you additional capital to work with and taking some risk off. I would be ecstatic about that. As an investor, obviously, your concern is, well, you guys are basically taking from your future investments and borrowing from the future and paying it out now. And my guess, and I haven't modeled this, but my guess is, as with all of these things, there will be a subset of these funds where it works. Because they catch the five companies that they can continue to plow money into and end up putting five hundred million to work and see a giant outcome. And then for the rest of the tail, it doesn't really work. And you're seeing fund returns come down. You're not seeing five X, six X funds. You're seeing one and a half X, two X funds, and some that are probably even one X funds where you pile in and something goes really wrong. And then the market will shake it out again. They'll say, ah, you know what? The LP base will say, I can't do this. I mean, the big ones that work are, I can't be in this and it'll come back. So it's just cycles. Like, It's not surprising to me that this is happening when, what's the ten-year U.S. treasury now? Like, zero? One percent? Where else are you putting …

AI assessment note: “if I were starting something today, I would say, well, this is great.”

Q been a two on 10, because they don't give a shit. It's just about getting the A next time if it pops, and they'll put 30 of these checks down, and then just concentrate capital into anything that works, knowing they only need two. How do you feel about multi-stage coming back to seed so aggressively, and how do you advise founders constructing their cap tables at pre-seed and seed?

A It's funny because as I put my founder hat on, if I were starting something today, I would say, well, this is great. Talk about an opportunity to take advantage of somebody overpaying early on and giving you additional capital to work with and taking some risk off. I would be ecstatic about that. As an investor, obviously, your concern is, well, you guys are basically taking from your future investments and borrowing from the future and paying it out now. And my guess, and I haven't modeled this, but my guess is, as with all of these things, there will be a subset of these funds where it works. Because they catch the five companies that they can continue to plow money into and end up putting five hundred million to work and see a giant outcome. And then for the rest of the tail, it doesn't really work. And you're seeing fund returns come down. You're not seeing five X, six X funds. You're seeing one and a half X, two X funds, and some that are probably even one X funds where you pile in and something goes really wrong. And then the market will shake it out again. They'll say, ah, you know what? The LP base will say, I can't do this. I mean, the big ones that work are, I can't be in this and it'll come back. So it's just cycles. Like, It's not surprising to me that this is happening when, what's the ten-year U.S. treasury now? Like, zero? One percent? Where else are you putting …

AI assessment note: “as I put my founder hat on, if I were starting something today”