The Exchanges, every show

Q You mentioned Harvey there. We are seeing increasing competition within certain categories. If I think about, you know, law, it's Harvey and Lagora. If I think about customer support, Sierra and Decagon, and there are Dominant funded players. How do you think about the ability for firms to king make? Is king making complete bullshit? Is it not? I'm just intrigued to get your thoughts on that.

A King making is a thing. I think it is a thing you see, uh, earlier and earlier companies are getting these rounds that are valuing them, you know, at, at valuations, which really are eye opening. That said, I think it won't work unless the The company executes on the promise. I think, uh, other firms can take it as a signal and decide to pile on or not. And, you know, but, but ultimately the, the company has to execute on the vision. If it doesn't, then it's just a bad bet. So yes, it is there, but it by itself, just because you can make doesn't mean they are the king. They still have to execute and justify it. If not them, I think the reality is everything different games, right? You and I know being venture catalysts now that You know, somebody with a ten billion dollar fund is playing a fundamentally different game than somebody with a four hundred million dollar fund, um, and if you try to play the same game there, you're going to lose. You've got to play the game that you're best equipped to play. Benchmark plays a different game than, than, say, Andreessen Horowitz, but both of them play different games, and both of them do well at their game.

AI assessment note: “King making is a thing.”

Q me this. It is shit. Um, anyway, we mentioned WeWork earlier. I use WeWork as an example with Miles Clements about selling. I'd love to hear your thoughts on how do you think about when to sell? Obviously we have investors, you have LP stake. They care about DPI today more than ever. How do you think about liquidity and when's the right time to take chips off the table?

A As an angel, I used to hold till IPO. So Figma had many liquidity opportunities during the years, but I kept, kept holding it for 13 years till it went public. And, uh, I think at the IPO, it was actually priced very nicely. Unfortunately, after the IPO, it has been, uh, it has been more challenging price wise. Uh, but I think as a, as a fund investor, it becomes interesting. I think there are two situations. One of the things I think most early stage firms get wrong is they just focus on Moik. They don't focus on IRR. And MOIC is multiple or invested capital. I think IRR matters a lot, as you know. And so you can have an LP told us about a firm that gave them a seven X MOIC over 20 years. And that was a teens IRR. And that is like, okay, you know, there's something crazy here. I mean, that isn't a venture, venture company, venture firm. And so you've got to look at go forward IRR and your projection. If you go forward IRR at every liquidity opportunity is lower Then what you are basically promising your LPs or what you think your fund should have. I think you should sell. I think you have an obligation to LPs to at least sell. I like Fred Wilson's strategy around selling, which is sell a third, hold a third and trade a third. This is when the asset is completely liquid. Uh, but in this case, I think you want to sell at least part of it, especially if the asset is a, uh, is a, …

AI assessment note: “If you go forward IRR at every liquidity opportunity is lower... I think you should sell.”

Q high, revenue retention sky high. Honestly, if Anthropic or OpenAI did an enterprise product that's note-taking and it's connected to all of the different suite of products that they have, I think that heavily threatens the market size that Granola is able to expand into, into large enterprise. How do you think about the worthiness of those retention numbers if there are alternative factors like that that could impact it?

A Yeah. I think you want to keep, you want to basically weigh the retention in the light of what they have encountered. You're absolutely right. I think you want to see, just like you want to weigh the growth of a company, uh, in, in light of, have you gone through any seismic events? If they've not gone through any seismic events, you've got to then take it to the grain of salt. What comparative threats have you faced as a single competitor come out? Have you been able to ward off that? Has your retention stayed strong in light of that? I do think, I think some of these, these products like granola, et cetera, have, uh, We'll see if they are the case, but they are these unique products that really open up non-consumption markets, which means that I would never have actually bought a note-taker before, uh, a separate note-taker outside of Zoom or something. Cause Zoom comes with its own note-taker. GM, it comes with note-taker, but Granola is so powerful that it basically got me to consume a separate note-taking product. And it's probably true for many of us. And, and I think that just changed the, Market opportunity for them. I think Uber and so on are great examples where they just saw non-consumption markets.

AI assessment note: “you want to basically weigh the retention in the light of what they have encountered”

Q Do you buy the proprietary founder access? Again, this is where I get grumpy as fuck, but I've done 3000 shows, dude, you know, at some point you have to get cranky. Like every venture investor sells the proprietary.

A There's no proprietary founder access. What is proprietary is your ability to add value. And I think founders, you basically have to, I think, build, if you're just capital and assuming founders will come to you, You're not going to win, but what you have to offer them is something, what you offer them is something very different and unique. What I offer them is something very different and unique. We all have, I think you've got to hone as investors. What is it that we're offering? Is it counsel? Yes, that's free. Is it, is it distribution? You offer incredible distribution. Is it a network of customers that you can get them access to? Is it like talent hiring? What is it they can do?

AI assessment note: “There's no proprietary founder access. What is proprietary is your ability to add value.”

Q the first few years either. I don't think Deliveroo did, who obviously DoorDash acquired. And so it's just funny that we kind of repeat the same mental cycles of, oh, the margins are shit. And it's like, Yeah, so were the best companies' margins. Spotify didn't have great margins for a very long time, and their margin increase has been amazing, actually. Dude, DoorDash, what is the lesson from DoorDash?

A It was the most operational of all four companies. I thought I was a good operator. When I got to DoorDash, I really realized what operations means, and so a lot of my philosophies around how to truly operate in a hard, hard, in hard mode have been shaped by it. It really was the Epithesis or the epitome of how, I think how product and operations can work together in the physical world. So how it shaped my, uh, my investing philosophy is the kinds of people that, that came out of DoorDash. I think they are, I just think they are excellent. And I try to get them. It's really around hiring. It's around talent. It's around taking really hard problems. And so I'll never forget when COVID hit, as you, as you know, most restaurants were shut down for the first For the first couple of weeks. And so DoorDash had to make a very hard call around how to base what to do, how to get these restaurants open. And ultimately we decided to not take any revenue share from these restaurants for a month. Uh, even though we were a private company, we had somewhat of cash on the balance sheet and that really hurt. It was the right thing to do in the long term, but it was extremely painful in the short term.

AI assessment note: “a lot of my philosophies around how to truly operate in a hard, hard, in hard mode”

Q So do you think Salesforce and systems of record like Salesforce are inherently attractive or less attractive given the data portability increasing?

A They are more attractive than most companies, most software companies, but if they don't build, um, agentic workflows and commodities as a compliment, By giving, by figuring out where the profit pool is. I think they have to figure out as a profit person, the data profit pool in the data or the workflows. If in the workflows, they need to make data storage free and basically change pricing to an outcome based model based on workflows. If they feel the profit pool is in the data, then they need to give away these workflows for free. And so they need to really commoditize all the agentic companies that you know, that are trying to build on top of them and charge for that. They need to build better products using their data. And make it free. And I think that's the way that a net suite or a sales for the system record needs to operate. They have to commoditize a compliment. They can't just wait around for other people to build on top of them.

AI assessment note: “They are more attractive than most companies, most software companies, but if they don't”

Q Speaking of being blown out by the next model iteration, how do you as an ambassador today educate me? How do you ascertain safety from model intrusion versus in the way of models, and you will be eaten with the next update.

A If you have some of the other ones, if you're physical and so on, it becomes easier. If you're a pure software companies, which of those apply to you? I think fintech is a good one. I think we used to, fintech goes through these cycles. I think fintech, especially at Marathon, we invest a lot in fintech. We actually think, oh my god, fintech is not the best. If you're moving money, you're generally in a good place. So anything touches money, We feel there's a very strong moat there, a much more defensible. And so data and workflow moats are the two things you're really hanging your hat on as a software investor, because if you're not doing FinTech, um, and then I think it early stage is too hard to know what a distribution moat is unless they have some hack and these hacks never really stand the test of time. Ecosystem too early to say network effects too early to say, so you really physical infrastructure. They don't have any software company scale. They don't have any. So it's really about, okay, go deep into, What is the data asset you're creating? Does it get better with time? Do I believe it get better with time? Are you building your own model over time? Are you fine tuning a model and improving it over time? And then how deeply are you truly embedded in the workflow? How deeply are you just a lightweight thing that the underlying system of record could create, or are you…

AI assessment note: “data and workflow moats are the two things you're really hanging your hat on”

Q it triples, three hundred million, and then it triples again, nine hundred million. If the price today is five billion that I'm paying, I'm, I'm paying for two years of treble treble ahead of time for that asset, for that's what it would be priced in public markets. For this business to work, we need the multiples in publics to be way more than they are now. Do we not?

A I think you need to assume that they will take over, uh, huge parts of the service budget in the businesses and that they will not just be a billion dollar company. I believe that there'll be a multi-billion dollar company because earlier, I think they were limited to one part of the stack and they were folk. They were on top of a bunch of systems. Now they're taking over the entire software stack. And that's the thing I like about you want founders who are ambitious enough. To go after the entire stack, not just the earlier piece of the stack they were in. And you want to be the only product, uh, that the company uses and you want to replace as much of the digital labor as you can possible. That's the ambition. So what you want to say is what's your market size here? How much in all your customers, how many people that are, do they have that are doing digital work? And do you have the ability to replace all of that payroll over time? And all of the other things they're doing, and take a part of the payments transaction revenue, and if you think that's a big enough opportunity, that's when you invest.

AI assessment note: “I think you need to assume that they will take over, uh, huge parts”

Q Both of them are in a wave of incredibly hot, attractive companies, which have lower margins than we are used to in traditional SaaS minds. How has your mindset changed or stayed the same around margins? How should I think about margin assessment when looking at companies today?

A Yeah, I think, uh, inference costs are dropping, so you automatically assume that margins In theory should go up. Uh, but I think it's, it's not about margins in year one or two, the more defensibility or leverage you have, uh, in some ways over your customers and what choices they have, uh, the more pricing leverage you have. So I would rather see margins go up with price increases than cost decreases. A good example is PayPal roll off both of us on our board at square. And he told us that PayPal back in the day, raised prices five times. In three years, because there's such stickiness. They knew their customers really couldn't do anything. And you see, I mean, those are, I mean, Uber, I have to say, I don't know how, if they have raised price or not, but I know that they have basically changed the economics of how much they pay drivers over time so that their, their margins have just expanded continuously. And they've also raised prices in different ways. So I think you, two ways of increasing margins. So first of all, you and I both, we don't look at margins in year one and two. I mean, it doesn't make sense even, even years four and five, but you want to have On one side, the ability to increase prices. On the second side, you want the ability to cost to get lower. I think that second thing is happening by, by nature. What you want to see is, in addition, the ability to hav…

AI assessment note: “it's not about margins in year one or two, the more defensibility or leverage”

Q How do you prevent prior wins or losses impacting future decision making? My biggest mistake is I lose or make money in a market, and it inherently makes me attracted or not attracted to it in a way that could subvert decision making. How do you avoid?

A This is very hard. I think it's a mental thing where you've got to take Every, every opportunity at first principles, we all struggle with it. I think the, I think the best venture capital, I, someone asked me what's the best venture capital bets. I talk about a paradoxical one. I think it's Mike Moritz betting on Instacart. Why? Because he lost three hundred and seventy million on web van less than a decade ago. He burnt it through. Same space, Apuva comes to him. He bets on it. He bets on it after losing hundreds of millions of dollars. It is not all Sequoia money, but the whole thing burned to the ground and Think about the first principle of thinking. Needed and the courage needed to make that bet. I think it's brilliant.

AI assessment note: “you've got to take Every, every opportunity at first principles”

Q Can I push back on the model that you have and just pretend that we're a hypothetical partner, okay? You have 35% reserves. Why is that optimal over just having more lines in the portfolio? When you hear about the hundred X, 200 X multiple unfair, I'm like, focus on ownership, have more, increase diversification, and take away the reserves.

A I think there are two ways of operating. I'll give you an example. Uh, Uh, Trade Desk where I'm on the board had two seed investors, uh, IA Ventures, Roger Ellenberg, who's absolutely a goat, and then, uh, Founder Collective, again, goat firm, both of them. So they have two completely different philosophies. Uh, Founder Collective only does first checks. They never do any pro rata afterwards, period. Roger, on the other hand, doubles down again and again and again. So Trade Desk, Raised, I think, two or three rounds of financing. That's it. It went public very early. It was very hard for them to raise financing. So the multiple that, uh, Founder Collective generated was incredible because they only invested at the seed round and they got it at five billion or something like that, or even more. I think they held for longer. Well, Roger generated a huge dollar return, even though his multiple was different. So there are two philosophies. I do think if you look at, uh, my philosophy is more If you look at Founders Fund, which I think is one of the best performing funds, a huge part of their success is basically doubling down on the companies that matter. And I think, uh, the unsung hero of Founder Fund is a guy called Napoleon Tha, who leads a growth practice. And Napoleon basically is the one who decides which of the companies should we double down on. And I think if you double d…

AI assessment note: “you have much more insight into these companies... than a random company you meet.”

Q everyone's just terrified that bluntly Anthropik's gonna eat their lunch, as we keep seeing with Anthropik doing security and security stocks plunge. I want to talk about the SaaS-pocalypse, because my job with this show is to learn from people much smarter than me, and I'm lucky to do that here. Is the volatility that we're seeing justified or are we in a manic hype oversell environment with emotional volatility?

A Well, as all of our software portfolios are deep red, right? All of us have some software stocks and the reality is the public market has decided that since code is becoming free, uh, at the low end and becoming much easier to generate and create at the high end, uh, the market decided that every software company is going to zero. I think this is 100% overreaction because not all software companies are created equal, and we can talk about what the differences are. I actually, um, have spent the last few days thinking about the different, not even last, last few months. This is the, I mean, both you and I think about this a lot. What are the characteristics, um, of a durable software company? And I think there is, there's a few that we can talk about, but yeah, I think it's absolutely, I think everything has been painted with the same brush at this point. It is absolutely a no-reaction.

AI assessment note: “I think this is 100% overreaction because not all software companies are created equal”

Q the, I think brand mode is Not so relevant anymore. I just actually had Elena Werner, who's the head of growth at Lovable on our 20 Growth show, and she said that actually brand is the most important thing as you commoditize technology, and it's easier and easier to create. How people resonate with a brand is the most important. Why do you think brand mode is not as important?

A Businesses are much more rational, uh, in thinking about it. Less, less irrational. I think, uh, And the alternatives are going to be much stronger. I think on the consumer side, consumers are much more like dollars and there is, there is dollars and cents, but there is a natural inclination to just trust brands. I think on the business side, it is going to get weaker. I think I actually disagree a little bit because switching costs are so much lower at one of Hamilton Helmer seven powers is switching costs. I think switching costs is less going to go to essentially zero because over the next one or two years, Ability to port data, your data as a business or consumer from any ecosystem to another ecosystem is going to be very easy. And then people are going to be able to replicate almost pixel by pixel. The experience you have with one product in a different products, you'll have clones popping up left, right, and center and data portability is going to be easy in that case. What is that brand? Really? It's like in, in professional sports, you know, you kind of cheer for, do you cheer for the player or the team when they, when they switch teams,

AI assessment note: “switching costs are so much lower at one of Hamilton Helmer seven powers”

Q the first few years either. I don't think Deliveroo did, who obviously DoorDash acquired. And so it's just funny that we kind of repeat the same mental cycles of, oh, the margins are shit. And it's like, Yeah, so were the best companies' margins. Spotify didn't have great margins for a very long time, and their margin increase has been amazing, actually. Dude, DoorDash, what is the lesson from DoorDash?

A It was the most operational of all four companies. I thought I was a good operator. When I got to DoorDash, I really realized what operations means, and so a lot of my philosophies around how to truly operate in a hard, hard, in hard mode have been shaped by it. It really was the Epithesis or the epitome of how, I think how product and operations can work together in the physical world. So how it shaped my, uh, my investing philosophy is the kinds of people that, that came out of DoorDash. I think they are, I just think they are excellent. And I try to get them. It's really around hiring. It's around talent. It's around taking really hard problems. And so I'll never forget when COVID hit, as you, as you know, most restaurants were shut down for the first For the first couple of weeks. And so DoorDash had to make a very hard call around how to base what to do, how to get these restaurants open. And ultimately we decided to not take any revenue share from these restaurants for a month. Uh, even though we were a private company, we had somewhat of cash on the balance sheet and that really hurt. It was the right thing to do in the long term, but it was extremely painful in the short term.

AI assessment note: “It was the most operational of all four companies.”

Q Do you buy the proprietary founder access? Again, this is where I get grumpy as fuck, but I've done 3000 shows, dude, you know, at some point you have to get cranky. Like every venture investor sells the proprietary.

A There's no proprietary founder access. What is proprietary is your ability to add value. And I think founders, you basically have to, I think, build, if you're just capital and assuming founders will come to you, You're not going to win, but what you have to offer them is something, what you offer them is something very different and unique. What I offer them is something very different and unique. We all have, I think you've got to hone as investors. What is it that we're offering? Is it counsel? Yes, that's free. Is it, is it distribution? You offer incredible distribution. Is it a network of customers that you can get them access to? Is it like talent hiring? What is it they can do?

AI assessment note: “There's no proprietary founder access. What is proprietary is your ability to add value.”

Q high, revenue retention sky high. Honestly, if Anthropic or OpenAI did an enterprise product that's note-taking and it's connected to all of the different suite of products that they have, I think that heavily threatens the market size that Granola is able to expand into, into large enterprise. How do you think about the worthiness of those retention numbers if there are alternative factors like that that could impact it?

A Yeah. I think you want to keep, you want to basically weigh the retention in the light of what they have encountered. You're absolutely right. I think you want to see, just like you want to weigh the growth of a company, uh, in, in light of, have you gone through any seismic events? If they've not gone through any seismic events, you've got to then take it to the grain of salt. What comparative threats have you faced as a single competitor come out? Have you been able to ward off that? Has your retention stayed strong in light of that? I do think, I think some of these, these products like granola, et cetera, have, uh, We'll see if they are the case, but they are these unique products that really open up non-consumption markets, which means that I would never have actually bought a note-taker before, uh, a separate note-taker outside of Zoom or something. Cause Zoom comes with its own note-taker. GM, it comes with note-taker, but Granola is so powerful that it basically got me to consume a separate note-taking product. And it's probably true for many of us. And, and I think that just changed the, Market opportunity for them. I think Uber and so on are great examples where they just saw non-consumption markets.

AI assessment note: “If they've not gone through any seismic events, you've got to then take it to the grain of salt.”

Q turns out that it will most likely be the Linear Fund, I think. I think Linear is a great business, and we were very early there, but my point being with the transitions in name, it wasn't obvious, and so my question to you is, with preemptive rounds coming so fast, How accurate do you think you can be in predicting the winners? Because it definitely wasn't obvious to me.

A You've got to be thesis driven first and foremost. I think what we are is we think about what is the thesis? In other words, you've got to have a good sense of who the other companies are and players of in the space. And you've got to understand why this company is better than every other company. What, on what dimensions is it better? And is that the dimension Is that durable enough over a venture timeframe, which is seven to 10 years, or even, you know, maybe 10 to 12 years now. So you've got to do work. You've got to be thoughtful and patient. Remember what being concentrated does. It gives you more time. It gives you more time to meet companies. It gives more time to think. It gives you more time to be helpful to companies, but you don't feel the pressure to deploy on a monthly basis. If you look at a 30 portfolio company, portfolio fund, Over three years, which is the initial deployment period, you're basically almost investing one company a month. And so that's incredible. Like, I almost feel there's pressure on the folks who do 30 to 40 to do basically one company as a partnership per month. And if you're doing Green Oaks, I think is, you know, if you were to ask me who's one of my favorite, Neil, you mentioned Neil was on the show. Six, there's seven funds have basically what, 65 companies overall, or six funds are 65 companies, 11 companies per fund.

AI assessment note: “You've got to be thesis driven first and foremost.”

Q Speaking of being blown out by the next model iteration, how do you as an ambassador today educate me? How do you ascertain safety from model intrusion versus in the way of models, and you will be eaten with the next update.

A If you have some of the other ones, if you're physical and so on, it becomes easier. If you're a pure software companies, which of those apply to you? I think fintech is a good one. I think we used to, fintech goes through these cycles. I think fintech, especially at Marathon, we invest a lot in fintech. We actually think, oh my god, fintech is not the best. If you're moving money, you're generally in a good place. So anything touches money, We feel there's a very strong moat there, a much more defensible. And so data and workflow moats are the two things you're really hanging your hat on as a software investor, because if you're not doing FinTech, um, and then I think it early stage is too hard to know what a distribution moat is unless they have some hack and these hacks never really stand the test of time. Ecosystem too early to say network effects too early to say, so you really physical infrastructure. They don't have any software company scale. They don't have any. So it's really about, okay, go deep into, What is the data asset you're creating? Does it get better with time? Do I believe it get better with time? Are you building your own model over time? Are you fine tuning a model and improving it over time? And then how deeply are you truly embedded in the workflow? How deeply are you just a lightweight thing that the underlying system of record could create, or are you…

AI assessment note: “data and workflow moats are the two things you're really hanging your hat on”

Q turns out that it will most likely be the Linear Fund, I think. I think Linear is a great business, and we were very early there, but my point being with the transitions in name, it wasn't obvious, and so my question to you is, with preemptive rounds coming so fast, How accurate do you think you can be in predicting the winners? Because it definitely wasn't obvious to me.

A You've got to be thesis driven first and foremost. I think what we are is we think about what is the thesis? In other words, you've got to have a good sense of who the other companies are and players of in the space. And you've got to understand why this company is better than every other company. What, on what dimensions is it better? And is that the dimension Is that durable enough over a venture timeframe, which is seven to 10 years, or even, you know, maybe 10 to 12 years now. So you've got to do work. You've got to be thoughtful and patient. Remember what being concentrated does. It gives you more time. It gives you more time to meet companies. It gives more time to think. It gives you more time to be helpful to companies, but you don't feel the pressure to deploy on a monthly basis. If you look at a 30 portfolio company, portfolio fund, Over three years, which is the initial deployment period, you're basically almost investing one company a month. And so that's incredible. Like, I almost feel there's pressure on the folks who do 30 to 40 to do basically one company as a partnership per month. And if you're doing Green Oaks, I think is, you know, if you were to ask me who's one of my favorite, Neil, you mentioned Neil was on the show. Six, there's seven funds have basically what, 65 companies overall, or six funds are 65 companies, 11 companies per fund.

AI assessment note: “You've got to be thesis driven first and foremost.”