The Exchanges

Q Why don't you walk me through your experience in those decade and a half at NEA?

A It was an amazing time. I joined in the DC office. It was a smaller office back then, and it was very much an apprenticeship model. This is the old days of venture capital. Peter Barris hired me, ran the firm, ended up running the firm for 20 years, and so really sitting at the feet of giants like Peter, Scott Sandel, and some other tremendous investors. I joined as an associate, just worked my way up, principal partner, general partner. Started as a generalist, but really found enterprise software and also started our fintech efforts about 11, 12 years ago, well before it was called fintech. It was really company building and also the ethos of the firm from Dick Kramlick was one of the founders, very focused on the entrepreneur and really being a good partner and a long-term capital partner. And those are just lessons that I still hold pretty sacred.

AI assessment note: “I joined as an associate, just worked my way up, principal partner, general partner.”

Q What was some of the pushback that you'd hear either from new potential LPs that decided not to invest or someone that had a stake in the game all along the way?

A Two pushbacks from new LPs. One, this was such a foreign concept. They'd never seen such a big venture secondary that wasn't a closeout fund or something else. That was one. The second is they were trading in discounts that were far greater than the discount for this group of companies, and that was just because, well, when you're dealing with lesser companies, the discounts are higher, and some folks just couldn't grok, well, wait, This is a higher quality group of companies, so hence the discount needs to be much more mild. And then there's some existing LPs that thought, wait, this discount is too high. So it's one of those things where the best negotiations are on both sides are not a hundred percent satisfied. And I think one of the articles that came out, they interviewed a bunch of LPs, and that was some of the sentiment which led me to believe it worked out because there was not one group that was ecstatic and the other despondent.

AI assessment note: “Two pushbacks from new LPs. One, this was such a foreign concept.”

Q I'm curious if you break apart these two business lines, there's regular direct investing and then these portfolio acquisitions. How do you compete with other venture capitalists in the eyes of an entrepreneur in direct investing when not all of a hundred percent of your attention is focused to those particular deals?

A For us, the business lines are actually a lot more similar than different. The go-to-market and sourcing is a little bit different, but even the portfolio, these are highly curated baskets. So they're baskets of companies, and we look at each company as if it was a direct deal. And we're also highly thematic. I'd say 80, 90% of what we do is B to B software and fintech, which is where I grew up investing in. But I would say on the direct side, it really is this back to basics. We're much more viewed as a boutique where We do fewer deals, and we don't have massive fund sizes. It's much more artisanal. Because we do fewer deals, we can build a relationship with companies for six, 1218 months. And in that gestation period, we get to know them, and they get to know us, and if we really get excited about it, we'll actually try to find ways to add value. Recruiting. Our third partner on the portfolio management side is a go-to-market person, Chetan Chaudhary. So we actually can help these companies, and they realize, oh, these folks, they don't take up a ton of space in the cap table. But they're value additive, and they punch way above their weight. And this flexible capital has been really significant. They can do primary, they could lead the round, but they can also help with the cap table, help with tenders, get other folks that need liquidity out of the cap table, and really dri…

AI assessment note: “Because we do fewer deals, we can build a relationship with companies”

Q Why don't you take me back to the early days and led you on this path that you've been on ever since?

A Venture is actually my third career. I was a scientist many, many years ago in the Bay Area, a material scientist. Decided I didn't want to be a scientist, thought the commercialization of technology was more appealing to me than the research of technology. So did a hard pivot via business school, did consulting, and then really the path to venture started in January of 2000 when I joined Goldman Sachs. So I've been a VC for over 23 years, three firms, Goldman for four years, NEA, which is the bulk of my experience, 15 years, and then Launching NewView about four and a half years ago. Goldman really shaped who we are and who I am in terms of what we're doing here at NewView on a number of different levels. First, I joined in the beginning of 2000, if you remember, marking back to those days. Very, very interesting time. It's the first of three downturns I've lived through. Hopefully this is the last one. The second is the group I joined as a private equity group was actually a mission manager of fund investing, direct investing, co-investing, and secondaries, and I drove the venture piece of that. And so, actually, back then, because of the downturn, I did get exposed to venture secondaries, which shaped me a fair amount. If you fast forward 20 years, we spend a good chunk of our time focused in that market. It's changed in that it's probably two orders of magnitude larger in t…

AI assessment note: “Venture is actually my third career. I was a scientist many, many years ago”

Q So when you set out to do this as NewView, what was the process like for raising the capital to buy these assets, as you said, from existing LPs at NEA for the most part?

A I affectionately refer to it as I went on three different roadshows. One is we actually went to our LPAC at NEA just to, we wanted to make sure that they blessed it, and they all thought it was a really interesting idea. Actually, someone's actively managing the portfolio, so kudos to you. We need to make sure that it made sense in terms of pricing. And then I went on roadshow with new LPs. We did it such that we wanted to make it a clean break. Everyone was going to get a check, And then there'd be a bunch of new investors that would jump in and really form new view. And a lot of them could be the same investors, but different groups, a secondary group or different vintage funds. The third very important roadshow went on is the companies, because this was very new for the companies. And we need to make sure that they were comfortable. And we had a rule. We said, if they resisted, this is dead in the water, because that was a constituent that we couldn't have as unhappy or dissatisfied with. So that was really the process, and obviously I was conflicted, so it was really the new LPs that came in, and this is public knowledge, but Goldman Sachs and Hamilton Lane were the leads. Goldman was the lead, and Hamilton Lane was the co-lead. They priced it, and we need to make sure that all the parties knew that this wasn't a basket of dog companies. It's really quality companies, and t…

AI assessment note: “I affectionately refer to it as I went on three different roadshows.”

Q So on either activity, as you look through the portfolio acquisitions, what have you found beyond the industries constitute your sweet spot for what you're trying to find in companies?

A It's post-product market fit. Most of what we do is probably series B and beyond, but I hesitate to say that because the letter designations these days really are not as meaningful. The 10 to fifty million zip code in terms of ARR or scale is a sweet spot for us. I'd say half, if not more, of what we do is there. And then there's a good chunk that's even greater than fifty million, where, call it 10 to a hundred, where you really need to institutionalize. You're going from a hero sale to more systems and processes. You probably need a CRO or a COO. Need a lot more metrics focused, and you need that machinery and that instrumentation layer to get formed. We're actually very good at that, and we've done that with lots of companies, both in my time at NEA and at NewView. And this is where the early stage investors, they're still very powerful, but where they're exceptional is really that ideation, product market fit, initial scale, and then that real hyper scale is where we spend most of our time.

AI assessment note: “The 10 to fifty million zip code in terms of ARR or scale is a sweet spot”

Q You mentioned that the operating partners are fully integrated different from an operating partner model. What are the subtleties of those differences?

A Sometimes these firms that are full-time, but sometimes they're part-time, A lot of times they're probably, I wouldn't call it path to retirement, but the intensity is probably different than when they were operators. Probably the biggest difference is they're not full partners, and sometimes they're not in the full partner meetings, and they don't have the check writing capability in that if there's a follow-on or some financing, they have to go back to the partner group or their partner or GP sponsor. Not always, but many times we've seen that. Actually, the first two hires, Tim and David, they were called operating partners, and A year in, I promoted him to partner because it was actually a disservice internally and externally because they're doing so much more. And so that subtle nuance means they get a partner. They don't get an operating partner because there's been situations where CEOs get, quote unquote, an operating partner, and sometimes they worry, are they getting the full power of the venture firm behind them? This is a signal, a strong signal to the company that you're getting the full power, and let me prove it to you because these folks can write checks, they can do follow-ons,

AI assessment note: “Probably the biggest difference is they're not full partners, and sometimes they're not in the full partner meetings”

Q So before you got there, I'm curious about the decision process when you identify that there's this good group of companies that aren't getting quite the attention because of the size of the organization and the power law. How do you think about doing this as you did in the secondary compared to just dedicating the resources within NEA to go and maximize the value of those businesses?

A It's a great question. It's one that we actually did think about, but I think what it came down to, a lot of these companies were in older funds, but interesting enough, another big dynamic was companies where the lead partner or general partner was no longer there. Just by how venture firms work, which is based on the power law, where there's a lot of companies in a portfolio, and especially in this era, most general partners had a lot of companies who are generally overloaded. It doesn't get easily assimilated, so they were great candidates, as or as I'd mentioned, these companies were in older funds. We did the analysis for us to have a group of folks come in and really manage that It just didn't make sense in terms of the motion for the firm. The motion for the firm was really raise funds and really go after some of these opportunities that could be fund makers. And then to have the infrastructure in place to do it, I also think it's apart from the ethos of a venture capital firm. Since the dawn of venture capital, it's been IPO or bust. You're going to have these, we call them needle movers, these iconic companies that really define venture capital and define venture capital firms. The quest is about that versus we've got really good companies. How do we make sure that we get a return, a quality return out of that? And so I think part of it was ethos. Part of it was just, …

AI assessment note: “for us to have a group of folks come in... didn't make sense”

Q What is that fallacy of the discounts that you're seeing?

A In the private equity world, the buyout world, it's a very efficient market. Company A and company B, based on EBITDA, based on certain metrics, you know where they trade, and it's generally discount X and discount Y, they're fungible. Well, venture, it's completely different. It's when did you do your last round? The last round is whatever you could sell shares at. It could be 11 X revenue, could be a hundred X. There's what the last round was, when the last round was, And what the growth rates and the prospects of each individual company are. And we tell even our LPs and other LPs that I know that discount is important, but I can show you a five percent discount on a company that's far greater than a 50%. Since we don't know how to normalize that, we just go to intrinsic value. What's the value of this business? And knowing what you know about this business and the management team and this market, what's the prospects? And can we get our target return? And that's how we think about it. And obviously that always leads to A pricing that is a discount, but between venture and buyouts, it's just such a big difference there.

AI assessment note: “I can show you a five percent discount on a company that's far greater”

Q As you look at over the next couple of years, what are you hoping to achieve with the business?

A The investing side continued to perform, attracting really high quality portfolios and companies to our franchise, adding value to them and exiting them, really that full circle. We really do focus on returns. But also, I spend as much time, if not more, just on building the team, because I really wanted to build a firm, not a fund. If it was just for one fund, I wouldn't have done it, but really something that far outlasts me. And that's taken a page out of my old firm, very nondescript name on the door. And the founders did a really nice job transitioning, really building that bench and making sure that we're staffed appropriately to attack this market that really we think is going to persist for the next five to 10 years.

AI assessment note: “I really wanted to build a firm, not a fund.”

Q Why do you think the venture secondary ecosystem was such an order of magnitude smaller than private equity secondaries?

A It really gets down to ethos of venture firms. I was trained in venture. There's the power law phenomena. It's the IPO bust. And then of course there's strategic M&A. And then this financial sponsor M&A started happening probably 10 years ago. Never really thought, well, we could just sell to other firms. Just wasn't really how venture capital was built. On the flip side, if you go to the buyout world, it's this evolution of man, the lower middle market folks. Get companies, and they sell to the middle market folks, sell to the large cap folks, and you have that virtuous cycle. And actually, you have situations where in large cases, every set of constituents along the way make money if it's done well. So I think that's, and venture really hadn't thought of it that way. It is really nice to see that that is changing. We spend a lot of our time, I call it in software speak, evangelical sales, really educating the market. And it's not A negative connotation is actually a positive connotation. I think the LPs will, you'll serve them well by doing that. It really stems to just how venture has emerged and really persisted over the past decades.

AI assessment note: “It really gets down to ethos of venture firms. I was trained in venture.”

Q With these particular types of companies that you're investing in, how do you think about the risk reward profile? Certainly sounds different from a venture firm power law distributions because you're purposely not going after those companies.

A If you think about how growth used to be done, especially from 2018 to 2022, it just got exploded. Early stage folks are doing growth and vice versa. You have a more banded outcome set. You underwrite to a three to five X. You have a lower loss ratio to compensate. Maybe the upside isn't as a true power law early stage franchise. Having said that, we still invest in hyper growth. Most of our deals are well above 50%, many well of a hundred percent. Are unprofitable. So while it's three to five X, there's something where if things really align, there is still a 10 X potential, but it is more of abandoned outcome. Now, having said that we do leave, I'd say a small percent of our fund called 10 to 15%. We'll go early where it's a space we know really well, or a team we know really well, and we're willing to take that leap of faith and go earlier. We have that capability.

AI assessment note: “You underwrite to a three to five X. You have a lower loss ratio”

Q As you look back to the first transaction with NEA, the 1,000,000,003 that you purchased of assets, how has that been similar or different in how it's played out thus far relative to your expectations?

A I think broadly speaking, it's played out really well, but the company by company hit rate would probably be lower. The portfolio hit rate was very high. But I would say that portfolio may have been broader than the ones we're looking at now. The ones we're looking at now probably have less consumers, much more focused on enterprise software and fintech. And the reason the NEA portfolio was broader is that I had 15 years of know-how in these companies. Even if it were consumer companies that maybe I didn't know intimately, I just knew Day in and day out, how they're performing, high quality of the management teams. And so that's tough to replicate outside. So for these portfolios, I would call it much more thematic than our power alley. Now, for sure, in order to take some of these companies that we're excited about, we may need to take others that are not in our core areas, and we're happy to do that. But by and large, it's more focused.

AI assessment note: “it's played out really well, but the company by company hit rate would probably be lower.”

Q What were the ways that you figured out that you uniquely could add value to the portfolio companies?

A A lot of it was not rocket science. It's just learning from my elders, building a relationship, coffees, dinners, lunches, whatever, with the CEO, with the management team, because what you're doing is you're building trust and respect, and you're building this goodwill bank such that when tough times happen, you have the agency and license to ask the tough questions, and you've crossed the threshold in that the CEO and the management team really knows you as someone that just wants the best for the company. Dick Kramlick would say, when you have a problem or an issue with a company, just go back to one fundamental question. What's in the best interest of the company? And it's a very simple, almost throwaway phrase, but I've actually invoked that more times than I can even recollect, especially in some of these trying times.

AI assessment note: “building trust and respect, and you're building this goodwill bank”