The Wisdom Wall

“The term that most people in venture capital wouldn't want me to use Is that we're sort of merchant bankers. We run around, we invest some of our own capital. And then our job is to tell the rest of the market that they should invest at a higher price. And so that is the number one job.”

“The term valuation is broken, right? We basically take, let's take the price of the most senior security and ascribe that to the price of every other security, regardless of the structure and call the cumulative number, the value. Which is like totally bullshit.”

“It's sort of a contrarian business, but what it really is, it's a contrarian business that you're really working hard to turn into a consensus business. If you invest in a company and 12 months later is still contrarian, the company's gonna run out of money unless you can keep funding it.”

“I would actually argue that right now in the Amazon ecosystem, the worst place to be is between 10 and twenty million dollar EBITDA. Because at 10 and twenty million of EBITDA, it's too big for a family office or a high net worth individual or a group of angel investors to finance it. And it's not a big enough where…”

“We have certain companies in our portfolio that have done tremendously well for reasons that we didn't predict. Those are not high quality returns.”

“seed investors often have less management fees than series A investors, but they're trying to play a more expensive marketing game. And so you have a business model where the marketing part is just totally broken. And so you have all these growth hacky things like blogging and a website and a Twitter account. And like…”

“You know, there's negative selection bias in any of those deals that you can actually get into unless you can really explain it. So I think that as an LP, what you should really be doing is take that as a indicator of their network and who they know and who they can co-invest with. It's a useful data point, but don't…”

“Venture capital often becomes more of a sales and business development asset class than it does an investing asset class. It's very rare that in venture, you're crunching a bunch of data, whereas in credit, you're just relying on the data.”

“In the beginning, the company needs to make something and sell it, and there's like not a ton of strategic vision in those first 365 days.”

“YouTube content is good because YouTubers make money. They use that money to reinvest in production. And you have people like Mr. Beast producing incredible stuff. Instagram is so hard to make money on because Instagram doesn't roll out programmatic ads at scale and share those economics with creators.”

“In Amazon, as mentioned, it's the opposite. You can finance them at 90, 95, 85% advance rates. One, because you don't care about the alignment anymore. You're their whole facility. You're the only financier. So if they screw up that facility, they're toast. There's alignment. The second is because these acquisitions…”

“Because whereas a few years ago, the hardest part of building a technology company was actually building the technology. Now, for most of these companies, it's just getting to market. The technology, in many ways, is just a commodity. And so in underwriting who the founding team should be, I think that the founding…”

“And really loose venture math is often something like you need a 30 to 50 X return if you do a seed deal, you need a 10 to 20 X if you're going to do a series A deal, and about a 10 X if you're going to do a series B deal, deduced by how many of the companies you do at that stage that end up missing what you thought.”

“What we often talk about is that it takes 50 B's to recognize an A in a certain asset type.”

“I always think of them as factors of zero. So if any of them are off, we just don't do it.”

“it's very rare that you find someone who's going to be a great CTO. Who's also willing to like go build the first application and be the lead engineer and do everything from scratch”

“So often a lot of our diligence process is trying to help the company as if we were already invested and see if they can use our help well.”

“International buy now pay later is so powerful, maybe even more powerful than in domestic buy now pay later, because you're actually creating a credit profile for a consumer that's never had credit before. And what it does is it gives you a relationship with that borrower. That's an order of magnitude better. Than…”

“People don't borrow money from lenders anymore. They borrow money from their software providers, and these software providers have, one, they're in the flow of funds of what they do. They have intimate relationship with the customers. They can use that relationship to get data about the customers that nobody else has,…”

“An Amazon seller who's ranked highly in a category doesn't need to spend much money on marketing and ads because the traffic will come to them for free. It's almost like you're in a mall without paying for the rent for foot traffic. In Shopify, that's not true. In Shopify, you wake up every day, you spend money on ads,…”

“Your union square ventures. If you're Sequoia, the fact that you did the deal is the reason it's no longer contrarian.”

“hubris is the most dangerous thing in the world in credit. You need hubris to start a business. In fact, maybe you need an irrational amount of hubris, but you need to have the humility to know how confident, overly confident you're probably actually being.”

“managing a one billion dollar AUM firm is a really good business to be in unless you used to manage a six billion dollar AUM firm. And the challenge is it's really hard to go backwards in asset management. It's hard for morale. People want to make more and more money each year. In a startup, it's okay to overbuild and…”

“At the end of the day, we sort of felt like a lot of VC firms were built to teach engineers how to become CEOs, but there weren't a lot of VC firms that were built to teach CEOs how to manage their product.”

“every single basis point in your cost of capital comes with pages and pages of legal docs of other types of structures to protect the lender. Um, so it's not like just one person's offering you nine and the other person's offering you 14. There's a lot that comes with it.”

“It's also the type of lending company that has barriers to entry because it has a proprietary source of originations because it's going through that large employer that other people would have to integrate with. And so it has a lot of the great characteristics of a SAS company where you have recurring revenue and…”

“Series A investing is a B to B business. You're investing in a company that's already a company. Seed investing is a B to C business. You're investing in a person that's about to start a company. B to B businesses can rely on sales, but B to C businesses have to rely on marketing.”

“And if all I need is a two X on the portfolio, you should go to an established firm that's been around for a long time and has billions of dollars under management because they have the highest certainty of getting you there. If you're sitting there and thinking, wow, you know, this is like, I need a five X here. You…”

“And what happened was those people were either really good or really bad because that's how venture works, right? There's not a lot of mediocre venture funds.”

“so now I've taken the practice of when we hire people or when we're even investing in a company, I try to read their favorite book. And the reason is people's favorite protagonists from a book is often someone they either aspire to be like or empathize with. And so you can end up learning a lot about a person and…”

“If we have a vertical SaaS company in our portfolio that's growing 15 to 20% month over month, it's got reasonable margins, it's got a reasonable payback period that's under a year, it's in a big enough market and the founder doesn't trip all over herself or himself, it'll get funded by basically anyone.”