The Exchanges

Q How much time did you spend on the ground?

A I was there for four years, actually, so we lived in Raleigh from oh five to oh nine, pre the sale of the company to Hewlett Packard and actually post the sale as well for two more years. And it was a great place. We at the time didn't have any people outside of here, basically. We had salespeople, of course, who were remote, but we didn't have any development organizations. So we kind of viewed this as a way to build up a lower cost and dedicated engineering organization outside of the Bay Area. At the time, it's hard to believe now because it's gotten so crazy even now hiring wise, but The big recruiter that we were having struggling with were the big companies like Yahoo was basically slurping up all the engineers. And so it was really hard as a startup company to basically convince engineers out here to work for you. So we had a big group here. We had about a 150 people, but you were getting to the upper limits of what you could do. And for us, this was the first opportunity to say, okay, can we replicate this model somewhere else where we think it will make sense? And we acquired the small company. It had about 10 engineers at the time. By the time we sold it to Hewlett Packard, we had almost a hundred engineers actually working. And it was a great experience and a great turnaround for the company.

AI assessment note: “I was there for four years, actually, so we lived in Raleigh from oh five”

Q What was the philosophy at the time, or even today, how you're approaching venture capital?

A It's been pretty consistent over the years. So the basic philosophy was really a couple things. One was we said, look, for most of the history of venture capital, capital was the constraining resource, right? And the VCs had it. The entrepreneurs didn't. They needed to get it from the VCs. And so that really dictated almost the balance of power between the parties. And this is, again, a bit of an overgeneralization, but from early Mid-two thousands, the VCs probably were higher up in the stack, and the entrepreneurs were lower just because of that balance of power. And then our theory was, look, we started to see that change happening in part because the capital requirements were falling, and so it became a lot cheaper to start a company for lots of reasons that we can talk about. And access to capital, therefore, became easier. It no longer became the limiting constraint and the one thing that VCs had that entrepreneurs didn't. And so our basic fundamental view was, okay, if you fast forward that environment and It's likely to be the case that entrepreneurs will now have more choices of which VCs to work with because there will be capital in lots of different places, and therefore something other than capital will have to be what differentiates one VC from another. So that was kind of thing number one. And then the other founding principle was we like the idea of backing produ…

AI assessment note: “So the basic philosophy was really a couple things. One was we said”

Q On that particular note, in theory, and I would imagine that the reason that ecosystem around seed stage funds has developed is because the returns have been there in aggregate. So it's attracted capital, and it's been a good place to be. How does that play out for, call it a traditional venture capitalist or the post-seed venture capitalist?

A Basically, the way to think about what's happened is we've essentially had great inflation in the VC business, and what I mean by that is what used to be an A round is now a seed round, and what used to be a B round is now an A, and so essentially the round sizes have gotten bigger. So an A round, and I'm using air quotes here, but in the old days, right, an A round was three to five million dollars. And it was probably maybe low double digit valuations, right? Maybe 15 to twenty million dollar valuations, if that. Today, that's probably a seed round, and the A round now is eight or ten million dollars, and it's probably 40 or fifty million dollar valuation. Now, at first you may look at that and say, okay, like the whole system has gone crazy, right, and nobody will ever make any money because essentially you have more capital at risk at higher valuations. The positive thing I would say is that the relative maturity of the companies at each stage also has gotten better. And so an A round today, probably these companies have some form of revenue. They certainly probably have a product out in market. Not all cases, but many cases. Whereas again, the three to five million dollar A round of seven, 10, 15 years ago was probably almost decidedly a pre-product, but certainly a pre-pre-market company. So you have gotten a little bit of de-risking in that sense, but essentially that's …

AI assessment note: “what used to be an A round is now a seed round”

Q Where do you come out on product versus entrepreneur?

A Yeah. At the early stage, it's really much more heavily geared towards entrepreneur. The reason for that, I think, is that we know that the product's gonna change, right? So oftentimes, we're investing at the stage where there's just a couple people. They might have a PowerPoint. In some cases, they have a product, but it's fairly ill-formed at that point in time. It's certainly not what you would consider product-market fit in the sense that, like, we know exactly what the needs are of the industry. And so we're more interested in their thinking. We use the term idea maze internally, which is how did you decide, how did you incorporate market feedback to determine that this was the right first product as a way to gauge as the market changes over time, how good will you be at reincorporating that feedback and iterating on the product? Team, on the other hand, obviously people can change, but I mean, I think our view is, look, people don't change that much, and so the going in assumptions around how they address problems, how they think about leadership, Storytelling is a big piece of this, right? How can you rally people behind an idea that in some ways may sound crazy and irrational for them to quit their jobs and come work for you? Like so many of those intangibles are a lot more of what we think about because we think and we hope that that team will be the constancy. What wi…

AI assessment note: “At the early stage, it's really much more heavily geared towards entrepreneur.”

Q What does the process look like for, call it due diligence, but trying to figure out the answers to those important questions about a team that's come in the door?

A Yeah, so typically the way it works is, look, in the perfect world, we've been cultivating a relationship with people for hopefully six, 12, as much as 18 months before they actually are ready to raise capital, and so a lot of that team engagement comes from just repeated reps with the team, right? So spending time in their offices, going out to dinners, whatever the case may be, but like developing a relationship just like you would any other professional relationship. Sometimes, you know, in the Case where things happen on a faster time frame, it's much harder to do that, and so you do as much of that front leg work as you can. We do a ton of references, right? So we always, of course, ask people for front door references, which are fine, but we also will go through and try to figure out people who used to work with this person before, who may have left a company, and get a sense for how those things work. A lot of that reference activity becomes really important to identify that stuff. And then some of it is just, you know, hopefully our collective intuition of having met with the teams a number of times and seen what they've done, right? So the other thing, We talk about this all the time, but it sounds simple. The best predictor of future success is do you actually meet the milestones and deliver on the things that you said you were going to do, and obviously there are som…

AI assessment note: “We do a ton of references, right? So we always, of course, ask people”

Q So when you lose that on a deal, what are the typical reasons an entrepreneur might give you compared to another competitor?

A If we lose, I think it's often a couple things. So one is, look, there's no question there are some deals where the entrepreneur says, look, all that stuff sounds great, but you know what, like, I just want the least dilutive bid, so right, whoever has highest bid wins, and that sometimes happens at the very early stage, but sometimes as you get later in the cycle, People say, look, that's great. I have all those things already, and so I, I just value that less, and, and that's fair, and, you know, obviously we can have our position on it or not, but that's a fair distinction. The other reason if we lose is mostly going back what we talked about is it means we've often failed to build a relationship 1218 months in advance, and so we can always be in the mix on any deal that's happening. We're lucky to have, obviously, that exposure from a firm perspective, but there's no doubt that this is a relationship business, and so another firm has done a better job of cultivating that relationship and really getting to know that individual, You've automatically put yourself at a disadvantage. So, so much of our activities are proactively identifying companies that we think are interesting, and paying it forward, right? And saying, hey, look, let's, let's help them, and let's figure out how can we add value to them before they're even part of the portfolio, so that by the time they come t…

AI assessment note: “I just want the least dilutive bid, so right, whoever has highest bid wins”

Q you started out with this notion that you'd love to find the product-centric founder, who can also be the long-term CEO. That is quite different from my understanding that there's sort of an entrepreneurial founder, and then later down the road, you have an operator who tends to run the business. How do you figure out relatively early on if that product founder has the chops to make it through?

A Yeah, it's hard. And look, the honest answer is they don't always make it. And so, yes, there are still times where somebody comes in who's got more skillset on the operating side. We try to be active, as I said, as a board member to really kind of evaluate, are they growing into that CEO role? So, for example, a great sign of success for CEOs, look, are you hiring effectively? Do you anticipate the right time to bring in roles? And then can you convince people who in many cases are more senior to you and have way more domain expertise than you, can you convince them to actually work for you? And you see a big difference in the CEOs who can do that versus the ones who constantly either can't actually recruit in the first place or can't retain people in those seats because they just don't understand how to manage People who, quite frankly, are way more adept at their function than the CEO is in some cases. So a lot of it you can see in that area. A lot of it you see in the good or the bad of this business is we have subsequent fundraisers, right, that happen every 12 to 24 months. That's a great test of the CEO's mettle of, okay, can I tell the story in a way that's compelling to a new investor? Have I defined the right set of objectives that other people externally will say? Those are clear demonstrations of success in the business, and so you get a lot of these checkpoints alo…

AI assessment note: “a great sign of success for CEOs, look, are you hiring effectively?”

Q I always love asking venture capitalists using the Michael Lewis lingo, what's the new, new thing? And there's always some kind of new idea, new concept that most of the world hasn't thought about that venture capitalists are all excited about.

A I would say for us, the biggest thing, and it's not as new, new anymore, but I think it's still new in the sense that I think it's still underscoped is this convergence of computer science and life sciences. And so we are spending a lot of time on it. And not surprisingly, But if you talk to the team who is very focused on this in our group, what they'll tell you is biology is kind of where computer science was like late sixties, early seventies, which is we're about to see like this whole new set of technologies that will dramatically change the costs and the automation and the price curves for a lot of these things. And we're seeing it already, right? You, when you just look at things like the cost it takes to sequence a genome and stuff, we've already finally seen declining costs there, but that's probably, I'd say one of the most exciting areas where, as we look at over a 20, 3040 year period, it feels to us that the amount of change that can happen In a space that had predominantly been a fairly manual and pure science-oriented space is now going to be advanced, we think, with engineering techniques in a way that will dramatically change outcomes. The other answer to the new, new thing is I don't know, to be honest, and in some ways, as we've talked about, I'm not sure it's necessarily our job to know. It's our job to be in front of all the interesting people who think the…

AI assessment note: “is this convergence of computer science and life sciences.”

Q What was the decision to go from banking to kind of operating at a company?

A I'd like to say it was very well thought out. I think the reality was it was kind of a bit of, I got caught up in bubble hype. You know, here I was having a lot of fun doing banking, but I would go on the road with these companies and I would see what the companies were doing relative to what I was doing as a banker. And I was like, that seems pretty fun. And if I'm going to be traveling anyways, I may as well have the opportunity to see what it looks like from the operating side. So I wish I had a better story than that, but it was probably more Jealousy and envy to a certain extent of thinking that the grass was greener on the other side, and in many respects it was, and certainly in other places it wasn't.

AI assessment note: “I think the reality was it was kind of a bit of, I got caught up in bubble hype.”

Q So in that period of time when you, you know you wanted to go from finance guy and try to do operating, at some point in time in those four years, did you ever think, huh, is this grass as green as I thought it was?

A There were definitely lots of times I would agree with that, yeah. The first switch, of course, you see this a lot with people, is like, it's always, can you go from an individual contributor to being a manager, right? And that was the first. Luckily for that, I did that in my domain, which was I started on the finance side as an individual contributor, And then my first promotion opportunity in the company was to actually manage people. And that was hard. That was really hard, right? Because my whole life, you grow up and you go to school and everything you do is okay. Like, can you get an A on this test? Can you do these things? And the requirement to be successful is always a function of your own individual skillset, not of obviously rallying a team to do that. So I would say that was definitely a harder step function jump for me. And there were many times where, again, I would go to Ben and I would say like, this is not good. And he said, look, trust me, once you learn how to manage, you're going to enjoy it and you're going to figure out How you can get leveraged and still do the things you want to do. And he was absolutely right about that.

AI assessment note: “There were definitely lots of times I would agree with that, yeah.”

Q And those board roles, how do you involve yourselves on the board, and how is that similar or different from other venture capitalists?

A I would like to think at least that we view ourselves as, since again, most of us have been on the entrepreneur side of the business, as hopefully understanding the company building process in a way that we can be helpful to a CEO, and so we try to have a very healthy respect for what can we do as an investor and what does the company do, and I think a lot of the failure cases in this business tend to be where I think venture capitalists overstep their bounds on the board and think they know more about the business than they actually do, and that's not to say that they're not brilliant, smart people, but you know, if you've been in a company, right, there's no way that You, as the CEO, you know a thousand times more about what your organization's capable of and what this person's role in the organization is. There's no way that somebody who comes to a board meeting once a quarter or twice a quarter even can even help you think about resource allocation and those types of things. So we try to just very clearly define what's our role, and we think of our role as, look, hopefully it's to be a sounding board for the CEO, hopefully to help them think through critical things like organizational scaling and executive hiring, but if we're weighing in on things like product strategy, for example, We're definitely overstepping our bounds, and quite frankly, the CEO probably has a bigger …

AI assessment note: “we think of our role as, look, hopefully it's to be a sounding board”

Q A hundred eight billion dollars is a lot of money. Is this a secular trend, do you think, that continues away from public markets for longer?

A I think it is, and we've been active as a firm, and I've been active personally in D.C. talking about these kinds of things. I think it's a bad trend for our country. Selfishly, it's very good for people who are investors in or who have access to private capital because I think more and more of that appreciation will accrue there, but it's not a good thing for our country. It's a combination of all these things, right? It's a combination of the number of public companies shrinking by 50% over the last 20 years. It's a combination of the nature of IPOs changing where these companies are staying private for much longer and therefore having multi-billion dollar market caps. I think it's all activist activity. It's all the things that just the sum total of all them basically just make it collectively harder for most companies to feel like the public markets are as attractive of a place as they once were. It's something we need to fix as a country because I think the long-term economic stability of this country depends on us having very vital public markets, and I think we're moving away from that in a way that doesn't make sense.

AI assessment note: “I think it is, and we've been active as a firm”

Q So the book you wrote, Seward really enjoyed, there's a great description of how venture capital works, and then there's a deep dive on The deal dynamics, trying to level the playing field with entrepreneurs, and what happens in the boardroom? What were you hoping to accomplish by writing the book?

A The main thing was exactly that, which is I wanted to kind of demystify the business a little bit. So what I find now having been in this business for 10 years and then in tech for another 15 is there's this unspoken asymmetric information between VCs and entrepreneurs. It's probably not surprising, obviously, because look, we do this thing hundreds of times a year, and the most successful entrepreneurs might raise capital five, six, seven, 10 times in their whole life. And at least what I worry about is sometimes the nature of things being a black box and having asymmetric information is it creates just distrust, I think, between the organizations. And what I tried to articulate in the book, and I hope it comes across, is look, at the end of the day, we actually have the exact same objective, which is both of our objectives between the entrepreneur and the VC side is, look, can we build very important, sustaining, incredibly profitable businesses over time? And we're not going to agree on everything at all times, but to try to take a little bit of that asymmetric information away and at least kind of shine a light on the black box, I think is good for the industry. I think it's good for entrepreneurship, and my hope is that people who might have been skeptical or didn't feel like they understood the business view it now as it's an easier business to get into, whether it's an e…

AI assessment note: “I wanted to kind of demystify the business a little bit.”

Q three hundred million, and that seemed like a big fund. Today, you're managing ten billion dollars. Let's start walking through how you actually put the money to work, because it's one thing to have all the services, but that's a lot of money put to work. So why don't we start with how do you think about just the sourcing process of where these ideas are going to come from?

A Let me back up for 1:02 just to understand the thematic lens through which we view the world. So Mark Andreessen wrote this editorial many years ago called Software is Eating the World, and that's basically been our investment thesis for the last 10 years, and I think it will be our investment thesis at least for the next 10 unless the world changes, and the basic philosophy there is we all come from the software and computer science worlds, and we view software as a tool that will continue to automate and intersect with lots of different vertical industries, and so of course there's the obvious stuff like software in the consumer World like Amazon or Facebook or others, and then there's of course other stuff like financial services that has been obviously heavily dominated now by new innovation and software, and that's led us into lots of other industries over time. So that's the one consistent theme we've had over the years is I think part of our job to answer your question on sourcing is we need to be in front of all the most interesting entrepreneurs who are doing something cutting edge in software, and then we need to quite frankly be open-minded enough to let them drag us into a vertical That we might not have thought about, but for which we can then go do the diligence to say, okay, does the intersection of software with that vertical make sense? So, I'll give you an exa…

AI assessment note: “to answer your question on sourcing is we need to be in front of all”

Q And what'd you learn when you first got there and sitting in that seat all alone?

A It was tough. I mean, it was, I was kind of the The person from corporate who came out to try to build this new office, and so look, I had had all the institutional history of being part of the business, and so in that respect, it was easy because I could represent what was happening in California to this group in North Carolina. What was hard for me was just, admittedly, I had no domain expertise in the area, so trying to figure out how do you manage engineers and how do you make sure you know enough about what's happening on the technical side so hopefully you can have a realistic conversation about deliverables and what needs to happen, and it was tough. Definitely many times I called up Ben and I said, I'm not sure if this is going to work, and to his credit, he's like, look, You're gonna figure it out. Here's what you need to do to get yourself acclimated to it, and it turned out working out fine.

AI assessment note: “What was hard for me was just, admittedly, I had no domain expertise”

Q of dynamic that there's a strategic interest that might not be tied to just financial returns. So your sovereign wealth fund might be financial returns, and then you see, oh, Microsoft's gonna invest, and there's this notion that all of the companies that SoftBank banks will shift their cloud services to Microsoft. How do you think about those dynamics as looking at companies that may be exiting into that ecosystem?

A It's new and not new in one sense. So it's not new in the sense that corporate venture capital generally has actually been on the rise for the last 10 or 15 years, and we've seen a lot more corporations both setting up direct funds and in some cases just direct investing off their balance sheet. So this idea that corporates are interested both in terms of tracking technology companies potentially for acquisition alternatives, as well as what we read to your point about Microsoft, that they want to have their platform be the platform of choice versus an Amazon Web Services or something is definitely, that's not a new phenomenon, so that's been going on for a while. What is new is this idea that they would commit sums of capital that are very, very meaningful and actually effectively outsource that activity to somebody like SoftBank as opposed to doing it directly. My sense is probably the reason they're doing that, some of those bigger companies, is just that institutionally it's hard from an incentives perspective to make these corporate venture capital firms work because you always have this tension between are we a strategic investor, are we a financial investor, and can we attract the right kinds of people internally who are willing to live with a little bit of those both objectives as opposed to a pure profit maximization initiative. That may be part of what's happening. Th…

AI assessment note: “It's new and not new in one sense. So it's not new in the sense”