The Wisdom Wall

“we've kind of just embedded in the culture, this idea that risk is like this pass fail thing. Like you either have risk or you don't have risk. And if you have risk, God forbid, like, you should ever go there, basically, and so that to me was like the most eye-opening thing, and I guess I wasn't, I shouldn't have been…”

“there's no concept I would say of a portfolio. Everything is a one-off project. And when a one-off project fails, then whichever party didn't sponsor it says, those guys are idiots.”

“the other problem we have with getting, you know, engineers here is many jobs in, in the engineering organizations are managing contractors. Right. And so if you're some like, you know, super smart person, you know, whatever coming out of, you know, MIT computer science or something, like you actually want to do…”

“In some respects, because number one, it's so easy to raise money on a safe, you often find people do what are called rolling closes, which is, you know, usually on a priced round, we're like, this is your date, right? Get your money in by June 30th or else you're out of this deal, right? And the safes, you know, have…”

“I want you to be very careful because no single decision will impact the valuation of your company more than the decision you're about to make on pricing.”

“What happens just in human psychology is actually like, we'll set the value on whatever they're getting based on how they acquired it. And so in early markets, nobody really knows how to value what you have. And so it's very important for you to establish the value in the market. Um, otherwise you end up devaluing…”

“it does illustrate, I think, a longer-term structural change, which is that the returns to many of these companies, you know, to the extent there are returns that can be much more likely concentrated among the private investor class versus the public investor class.”

“if you're going to stretch for valuation, you better take as much money as you can possibly get at that valuation to give yourself way more running room than you ever think to kind of insulate yourself from macro changes that might kind of impact the financing environment.”

“you've created this culture of oversight Which therefore then means, like, we should never take any risk because nobody wants to, like, see their department show up in a GAO report, basically. So we've just overdone this concept of risk as a way to actually, you know, kind of direct behavior.”

“if we say, like, you know, we've got this big agenda to get AI, then people are gonna build these five, 10, 15 year plans, and quite frankly, nothing will ever happen. Like, we need, like, micro-level projects at each agency with basic use cases to say, how do you just turn the dial this much on efficiency? And then I…”

“Where the conflicts potentially come up is, you know, they've got kind of two clients, right, which is you're their client for this transaction, but, you know, a firm like Fidelity or T. Rowe Price or BlackRock, who is a, The institutional investor who buys shares all the time in lots of IPOs and also trades shares…”

“And the challenge with these cases is you're kind of proving the negative, right? So in that case, you know, ah, you know, Anthony Lewandowski, who was the person, he had to prove that, you know, he didn't take anything, right? As opposed to them proving that he did take something in many respects. Now, you know, the…”

“You know, kind of people are trying to balance off valuation with some of these other rights, and that's really a lot of what I try to point out in the book is that it's very hard to look at these in isolation because they all have some kind of economic value, so if you're going to push on valuation, you might expect a…”

“The, the reason why those tend not to exist in the private markets is we're all completely aligned, which is none of us have liquidity, right? So we can't, you know, in general, and many times we are prevented from selling our shares legally, so there's no liquid market, and we have a time horizon that's consistent…”

“there's kind of two big cardinal sins in this business. One is you miss one of those companies. You don't invest in them. The other is that you invest in it, but you don't own enough of it so that when it gets to be Facebook, it still doesn't meaningfully change your economics.”

“The only way I've been able to establish pricing, um, in a pre-chasm market is, is you start pretty high and then you let the salespeople shake it out.”

“when it comes to setting pricing and to understanding what the market will bear, like there's nothing that can do it except for sales. Like this is just my experience. It's not market research. It's not marketing. It's not the entrepreneur. I don't believe if you're doing real category creation, you can just build an…”

“one thing I really learned to appreciate about, you know, setting pricing aggressively early on is you start to get real market feedback. You can't delude yourself anymore. People aren't buying it to learn about it. They aren't doing this because you're super charismatic. You get real signals. And the reality is early…”

“maybe an answer is to think about, gee, people should get more options, you know, even more options they do today, but with the understanding that they vest over a longer period such that it ties more closely to when you think the liquidity happens.”

“You know, you know, for better words, momentum does matter in the market. So, you know, all things being equal, you do want to leave some money on the table so that actually the initial trading out of the gate is positive as opposed to, you know, we had a recent deal, not that long ago, pure storage, right?”

“So in general, kind of, you know, our bias for our companies is, look, you want to get to a certain minimum size, and typically that's probably a billion dollars plus of market cap, where you're going to have enough heft that the institutional community is actually going to pay attention to you in the first place.”

“I'm Fidelity, or I'm Wellington, or I'm, you know, T. Rowe Price. I've got to be able to beat my S&P 500 benchmark. I can't do that by buying, you know, kind of large cap incumbents in the public market. And so an option for me to actually buy growth is go deeper into the private markets to actually look for that…”

“this idea that at 22 years old, you have to decide, like, am I going to go be a forty-year career, you know, civil servant, or am I going to go be a forty-year private sector person, I, I just think that's an outdated mode of thinking of employment.”

“So this is a term that I think most people don't spend a lot of attention on, uh, but can, can actually have very material economic, uh, consequences Particularly in cases where the company may not be performing as well as, as could be expected.”

“In some respects, these are kind of made up numbers by the venture capitalists, ah, but the kind of heuristic that venture capitalists often use to determine what size they want Is they're trying to say, look, when I invest in this company, I want this option pool to be able to last you for all the hiring that you're…”

“between prices of four and 12, as you can probably see from a mathematical perspective, they're always better off just staying with their liquidation preference because their percentage ownership in the company doesn't yield them any more dollars. So the investor has this weird kind of flat line, which is they're kind…”

“venture capitalists are people too, and so they respond to the incentive structure they have, and the more you understand that, the more I think you can finally cut through and actually have a rational dialogue.”

“So there's no sense in any of us putting more money in the company if it turns out all of your stock options are underwater and you've got no financial incentive, and then tomorrow everybody's going to walk away from the business, right? So this requires kind of give and take on both sides, which is, you know, the VCs…”

“and we like to talk about the price because, of course, it's a lot more fun and sexy to talk about money, but it's, I think, I think, you know, managers and CEOs make their reputations, quite frankly, in these types of situations where, you know, they are thinking first and foremost about kind of the prospects for…”

“Yeah, the board really starts to shift as you go public from being kind of, you know, more active and probably more, you know, in some cases more valuable in the business to more of, quite frankly, a governance and a legal board in that sense, right, which is making sure that the process is good, making sure that…”

“There's, you know, there's no normative, uh, you know, kind of reason why you shouldn't do that, but that's probably not the kind of alignment of interest that you would have if you took venture capital. Uh, the venture capitals would probably be disappointed with that outcome, and they would want you to kind of be…”

“to be successful in this business over the long term, you probably need to return two and a half to three times the money that the LPs give you over that 10 year period”

“if you're raising your Series A round today, you should be at that point in time thinking about what's the pitch I'm going to give the Series B investors and then essentially work backwards and say, okay, for the Series B investors to be compelled by what I'm doing, what milestones, what objectives will they need to be…”

“I think you can accomplish the same efficiency goals with, uh, there's a thing called series seed, which is a very, very lightweight way of doing an equity deal. So, you know, I just would encourage entrepreneurs to make sure if they go that route, they really do pay attention and understand, uh, how much of the…”

“everything you do today has the risk of creating precedent for the future. And so you may think, hey, look, you know, you and I are buddies. This is, you know, I'm giving you these special rights because we're friends. But when that next investor comes in and looks at the paperwork from the previous round and sees that…”

“in the perfectly employee-friendly case, you would extend it out as long as possible to give people the maximum time period.”

“One is if you start from the concept of, look, we need some constraints in the system, period, like, so we may have raised a hundred million dollars, but maybe the answer is, look, can we do what we said on seventy-five million dollars? Even if you end up letting go of the pressure valve over time, I think putting the…”

“The only way you can actually have a rational strategy for what you're going to do for the next eight to 24 months is what your assumption is on when or if you're going to get that series C financing or if you're going to actually be cash flow positive at that point in time.”

“As soon as you think about go-to-market, right, and you start to think, okay, now I'm going to spend marketing dollars. Do I understand what my lead generation costs? Now I'm going to hire sales. What's the throughput and conversion rate and quota and all that stuff? I think then you've got enough moving parts where…”

“The fallacy between a dollar reduction in cost spend and a dollar reduction in revenue growth, there may be some companies for which that is in fact true, but maybe you're just spending money where it just doesn't yield anything, or you've just gotten fat in other areas, but just because the capital was there, there…”

“going public is a really important thing for companies to do. And it's not just because, you know, it creates access to capital, but it's a good discipline around how do you think about really running your company in a way that's responsive to a very broad cross-section of public investors.”

“So much of the early customer engagement should be like figuring out the product market fit. And so you really want market feedback that you can use. And if you have somebody that like, you know, every meeting is a good meeting and they're using relations, this and that, I don't think you get real Feedback from the…”

“If you don't know you're going to do this beforehand, you may not have the flexibility to actually pull out independent bits of value. And so now you've got You know, on one hand, either you cannibalize yourself with like a, an over feature rich product for the lower price, or you don't get sufficient market expansion…”

“many large companies have outreach programs to start up. So like if you engage with a, you know, a finance company, like a large bank, they'll be like, listen, we work with startups all the time. They have whole groups that take these things and pock them. That in my experience never actually makes its way over to the…”

“the bad news about setting pricing in a market is it's really hard and it takes a long time to actually set the price in the market. The good news is it takes a long time. So, you know, if you enter at too low of a price point, like it takes a long time for these things to solidify. And so I do think that there are…”

“the cost of like an ISR is going to be much less than a direct sales force, but only certain types of products or markets are amenable to an inside sales model, right? Like if it's a very mature market and the customer's educated is probably more amenable than if it's something totally new. Um, also if it's, uh,…”

“Once you hit the inflection, it's really obvious. Once, you know, um, you hit product market fit, you start to, to get more engagements than the organization can handle and you can't scale enough.”

“if you want to be able to make acquisitions, it's still much easier to make acquisitions as a public company. And the reason for that is because you at least get a report card every day about what the price of your company is worth.”

“private markets are discontinuous, right, which is there are, you know, unlike a trade, a public trading market where there is a price, obviously, that's published on a, you know, entirely throughout the day and overnight, part of what people are doing when they invest in these private companies is they're saying,…”

“it's still very hard to do private to private acquisitions where, you know, you spend so much time fighting about my relative value versus your relative value.”

“from the perspective of the deals that we see, I think almost to a fault, everybody historically underestimates how much capital they will actually need to get to, uh, either, either the next milestone or to an exit.”

“you know, and we see this a lot in companies, which is, as purchasing decisions have moved away from kind of the CIO as the central, you know, kind of purchasing control of all these things, and now you've got department level purchases, and you see a bunch of SaaS companies, you know, Marketo would be a great example,…”

“The beauty, I think, at least of multi-tenancy and SaaS, and SaaS generally, which I think also goes to our broader point about why these companies ought to be more profitable over time, is, um, Every customer, or at least in most cases, most customers are running the same version of the software, right? And so I've…”

“none of this stuff is actually that new, this concept that we're talking about here, right? So if you think about, you know, a company like Comcast, right, or you think about AT&T, they'got this same problem, which is, you know, it costs a lot of money to acquire customers, right? It's one reason why the marketing…”

“if you want to change the way you sell your product, the best thing to do is change the quota structure for your sales reps.”

“So our best advice on this stuff is, look, if you've got a great idea, uh, number one, you know, don't ever use your work laptop for any of these things, right? So have some physical separation, and you know, when you really get to the point where you feel like, okay, now it's really, this is a real thing, you know,…”