SPEAKER_05: So if you have cap table problems, like low founder equity, at the seed stage, and they've given away 60% of the company, you're like, well, when they do their series A, that's
going to be another 20% gone a series B another 20% gone, these founders are gonna have very little equity. And then what happens when you have very little equity? Well, then you
have to recap the company, or give huge grants to new people or the founders leave to start a new company because they screwed up this capital. So that one, you see a lot of that in Canada,
SPEAKER_04: and Boston, actually,
SPEAKER_04: just really broken cap tables that early, early rounds. In Do
SPEAKER_05:
you know why that is? I have some theories, but I'm curious if you figured it out, you have all these angel groups that are
SPEAKER_04: just kind of predatory and in case the founders Yeah, you
SPEAKER_00: nailed it for they really know any better. This week in
startups is brought to you by Squarespace. Turn your idea into a new website. Go to squarespace.com slash twist for a free trial. When you're ready to launch, use offer code twist to save 10% off your first purchase of a website or domain. Northwest registered agent will form your company fast, give you the documents you need to open a business bank account and more. Visit Northwest registered agent.com slash twist to get a 60% discount on your next LLC and LinkedIn ads to redeem a $100 LinkedIn ad credit and launch your first campaign. Go to linkedin.com slash angel pod.
SPEAKER_05: Alright, everybody, welcome back. This is the angel series on this week in startups. But a little bit of an announcement
here. We're not killing this podcast, but I'm rebranding angel to liquidity. Why am I branding it as liquidity? Well,
I'm not an angel investor anymore. I have funds and a lot of what we do as a fund is talk to LPS. And we are working with public market participants now because hey, a lot of our companies in the last 10 years have gone public, whether it's Robin Hood, or desktop metal, or of course, Uber. So this
podcast will be called liquidity after the season. And you know, it's going to be a weekly roundtable and interviews with general partners emerging, a legendary public market investors, still some angels and LPS. And this season, I want to focus on LPS. So if you don't know what a limited partner is, and you're a startup, and you're wondering, you've learned over time that a venture capital firm has general partners, that's in the industry referred to as a GP. We have another term of art in the industry and LP that's a limited partner. That includes a wide group of individuals, pension funds, right? So you retire, and your money goes into a pension fund, they earmark a certain amount of that to go into venture private equity, and of course, public markets, bonds, all kinds of different things. You have university endowments, you've heard about Harvard or Yale having these giant endowments, those are also LPS, family offices, sovereign wealth funds. And of course, the category of fund of funds, this is where people put a pool of capital together and they fund other funds. High net worth individuals are also or ultra high net worth individuals are also LPS in funds. So when a venture capitalist puts money in a startup, they're the GP at the venture fund, the general part of the venture fund, they go and they pass the hat, they pitch LPS who want to deploy capital in order to get market beating returns and have some diversification. And we'll talk about all that today. The LPS are generally a quiet class, they don't talk too much. They tend to be under the radar, and you might not have heard of them. But it's changed a bit over time as the dialogue between GPS founders, venture capital firms and these endowments, etc. People have started to cross over and there's overlap and like anything else in the modern day of podcasting and blogging, more and more information is getting shared so everybody can be
better at their games and empathize with the other people on the other side of the table. So today, our first guest on the season of angel, we have Josh Berkowitz. He is from Berko Corp. And it's a Canadian family office, one of those types of LPS. And that's the Vancouver Berkowitz family. Josh is the managing principal over there. Josh, welcome to the program.
Thanks for having me.
SPEAKER_05:
Alright, so you heard my sort of preamble there. You are an LP in venture funds. So we thought this would be a great place to start is to talk to you a little bit about you have this family office. My understanding is real estate is how the family made their money, but then you wanted to add the asset class of venture. So So why does a family office start to diversify and get into venture? Why do they pick that asset class? Why did you pick that asset class? Yeah, so I think it's first going back just one step and be
SPEAKER_04: like, how do most family offices get created? Yeah, usually, the most common way is you sold a company. Yeah, the common way is
especially in the real estate business is you've been in real estate for a while, and it's compounded, and you've got a big pool of capital to work with. You make a lot of money by being
SPEAKER_04: very concentrated, but you keep your money by being very diversified. And so most family offices, once they have that big liquidity event, or they get to a certain size where they say, Okay, I'm happy with what we've got, we want to dial down the
risk a little bit, then they want to diversify. And that's, that's, and at that point, you go, Okay, well, what I want to diversify into the common asset classes, you hear people diversify into our public equities, private equity, traditionally, that's bio, there's more flavors of that now, venture capital, we're going to talk about, there's other many other things, you know, bonds, you can do private credit, you can do commodities, there's many other esoteric asset classes out there. But for the biggest, most diversified family offices usually have they have some allocation to all of those. Why I think venture, I think venture is interesting.
So many reasons, I think it's the most fascinating of those asset classes by far. Start from the top. So if you sort of line
SPEAKER_04: up all of all of those asset classes I mentioned, historically, at least the last probably decade or so venture is the highest returning one on an app, like, on average, if you
look at Burgess data, our pitch book data, I think that columns with the data, but on on average, it is so first one, you have the opportunity to make a lot of money or make make higher returns. It also is the asset class that has the highest dispersion of returns. So if you let's, let's like compare and contrast it to public equities. If you invest in public equities, in other words, stocks and S&P 500, or global year, whatever
index you pick, the best managers over a long period of time, perform like a few percentage points better than the average manager. So let's suppose you're like, I'm gonna
go try to play that game and go find the best public equities investor in the world. On average, if you're good at it,
you're going to beat the market by a few percent, we can have an argument of whether or not that's actually a worthwhile thing to do and an index investing versus active investing. But even if you're good at it, and you take the active investment hat, you're only going to beat the market by a few percent. percent. venture capital is like the other
extreme. If you're in the top venture funds, they crush it, right, they hit, they hit returns 20 2030 40% funds that return 510 20 extra money. And your opportunity for for outsized returns and success is just much higher if you're good at it. Yeah. So if you sort of think as a family office, where
SPEAKER_04:
do I want to diversify into? Well, an asset class that is historically high returning, that rewards patient capital,
SPEAKER_04: because you're locking your money up for sometimes 10 plus years. And where if you put a lot of effort in to find the best GPS and get access to the best funds, you can make a lot of money. Well, it seems like a good place to allocate capital to. So that's, that's sort of like the financial reason to do it. And a lot of family offices are entrepreneurial, they made
SPEAKER_05: their money, because some matriarch patriarch, or sons, daughters, multi generation, I just got back from the Middle East, where, you know, we saw these incredible family offices that have now you know, three, four generations into wealth creation, it turns out they're entrepreneurial, they have some person who, you know, came to their country or America or in their country found some great opportunity, and slowly compounded over decades. And then, you know, the the kids participated, and it's entrepreneurial. And that's part of the exciting fun part about it, I think, as well, as opposed to just buying the index and, you know, just accepting whatever the average is. So there's, there's a little bit of that, which I get further to and say, it's both entrepreneurial,
SPEAKER_04: and it's a bet on the future to bet on making the world better, not just rolling vet clinics. Yeah. And again, to people who
SPEAKER_04:
who've made their money starting businesses that like sort of optimism that's baked into the industry is an end to the desire to change things for the better, I think is also baked into the reason to do it.
SPEAKER_05: Yeah, it is a really great point, you get to when you have a family officer, you've accumulated some amount of wealth, you get to build the world you want to live in, you get to optimize for things that you find personally enjoyable or rewarding. And people forget that it's why I've chosen to be a GP and an LP. I like hanging out with founders because they're world positive, and they want to change the world and do interesting things. Plus, it makes you feel young to hang out with young people who are, you know, trying to change the
SPEAKER_05: world. And since super smart people that are interested in the
SPEAKER_04: weirdest. Yeah, you know, our experts at at super strange
SPEAKER_04: industries you didn't know existed that have divergent points of view. And it's it's exactly what I want to spend my day my day working with.
SPEAKER_05: If your landing page looks terrible, customers are just going to leave, they're going to bounce. It's 2024. There are no excuses for having an ugly website. So stop settling for okay or good enough and have an excellent a beautiful and extraordinary website using Squarespace. It's out of the box, beautiful website designs that will engage your audience allow you to sell anything, whether it's content or an actual physical product. And you know, all these amazing Squarespace features, you've heard me talk about it before, but they have the most amazing, gorgeous templates to get you off to the races instantly. And those templates, they're all designed and optimized for mobile. This is one of the things that makes me crazy. People will design a website on their desktop, but the consumers 6070 80 90% of them are experiencing it on their phones, you want to start mobile first. And these templates at Squarespace, they are gorgeous on mobile, of course, they're gorgeous on desktop as well. And they have an amazing drag and drop web designer, and you get all kinds of analytics. Now you don't have to get third party tools to do analytics, nope, Squarespace baked that all into their core product, you're going to get marketing analysis, sales data and more directly inside of Squarespace where you can create an online store or start a blog or create a subscription business for members only content and so much more you do this all simultaneously on the same platform. It's the simplest, most effective and best looking way to start a business online. So here's your call to action. Check out squarespace.com slash twist for a free trial. And when you're ready to launch, go to squarespace.com slash twist for 10% off your first purchase of a website or a domain. So then of course, the question becomes are too many people interested in venture capital, where there are too many venture capital funds over the last couple years, it does feel like there was a little bit of saturation. And the industry is kind of boutique. It is unlike some other industries where yeah, a lot of people can own Apple stock. You do also have issues of too many people wanting to own Apple stock perhaps, and it becoming getting ahead of its skis, let's say, but let's talk about the selection process. I'm a LP and I think 24 funds, my four and 20 others. Curious, how do you evaluate funds? And do you have a preference for seed stage series a growth stage later stage? And so two part question there, the stages, and then what you look for in terms of managers, etc.
SPEAKER_04: Big question. Yeah, so when I start from the top of my family office, we write meaningful checks to the GPS feedback from
a few hundred k to a few million, but we're much smaller than the big endowments and institutions. And so that will color the kinds of funds I look at and will color how I think about what funds to invest in. I say that because like, let's
suppose you know, the other end of the spectrum is let's suppose your calipers and you manage a few hundred billion dollars, the Canadian pension funds, the smallest check you can write is maybe $100 million. That means you can only invest in massive venture funds. That's a totally different game than the one I play where we're investing much less than that. And as a result, I can look at much smaller funds and bigger funds. But it sort of opens the aperture on the kinds of funds I can invest in. And the reason I say that is because well, the way I'm going to diligence, you know, Jason of 10 years ago, you know, raising a small angel fund or a small proceed fund relative to the diligence in a Sequoia or Andreessen is just wildly different. And the things you're gonna look for the way you're going to evaluate them are different. So let's let's maybe start with the small guys. Sure. Small girls, small teams. Emerging managers, I think emerging kind of where people
SPEAKER_05:
are now putting this umbrella. And I would guess emerging managers means, you know, three or four funds or less, right? Something in that range. I think that's right. I think the
SPEAKER_04:
challenge with that definition is, is there sometimes there's
a first fund and it's a $400 million first fund. Yeah, you
SPEAKER_05: do have that. Yeah, right. Like it's it's sort of a size thing
SPEAKER_04:
to and then you have the person who's raised seven funds, and they're all sub $50 million because they've stayed, you know, in a certain size range. So putting that aside, so let's just say small funds. Almost always, there's a few people involved. There's a few few key partners, right? One to three people, let's say. So the diligence work is getting to
know them getting to know what's super special about that group of people. To your point earlier, venture capital is like
SPEAKER_04: a really cool thing to do right now. There's probably too many
SPEAKER_04: people doing it. The people that do it, though, tend to be a
super exceptional group of people. So pretty much every VC you make that's out there doing this is going to be a really, really impressive person. So what you're trying to do is like
separate out the really impressive people and try to say, like, are they so damn good? Are they so perfectly set up to execute their strategy that you think they're going to beat everybody else? When I look for talented, GPS, I try
SPEAKER_04: just trying to find people that have absolutely exceptional unique strategies, and that they're uniquely the perfect person in the world to go execute it. Ah, see, this is
SPEAKER_05: important. So is it a unique strategy? And is it that is that
person able to execute that strategy? People come up with all kinds of really interesting ideas, I get pitched on a ton of funds, because people have found out now that I LP funds, and I had one a year or so, and I'm not quite in the family office, you know, portion of my career. Maybe my daughters will be that I'm still in the GP sort of phase of my career. But yeah, you do have to not just have a great idea of the ability to execute. So maybe we could talk a little bit about strategies you've seen at the early stage, and maybe you talk about the background that people have some people think he got to be an
operator have run businesses, other people think you have to be a strategist, a bill girly type and analysts, somebody who's super analytical. So take me through interesting strategies
that you've seen in the market, and then interesting backgrounds for for emerging managers. Sure. So so I think, in the early
SPEAKER_04: stage, you could you know, the most easy to wrap your head around strategies are the geographic focused strategies, or the sector specific strategies. So you can have a backup group that's based up in Seattle. And they are, they have
an amazing ground game in Seattle, they know everyone there, their LPS, or Hughes who have been work up there.
They're, they're sort of in front of all of the right people. And there's a handful of institutions in in in the Pacific Northwest, like Allen Institute, and a handful of others that like, if you can build a great network within those nodes that shoot off a lot of startups, you have a built in advantage to see all of the best companies in the area and also to win the deals because you can you can use your network to win and reference you and all of that stuff. Then you have the sector specialists,
people who are can be super technical could be supply chain experts, space experts, hardware experts, pick pick your vertical if you can become known as a global expert in that unique niche. infrastructure, pick whatever it is, you can differentiate yourself. And if you're if you're back and there's the right person to do it, then I think you'd be really successful with that strategy. Then you have another class of
people, I think that have just worked for their entire careers in and around startups. It could be that maybe you are a former partner at YC and you've seen hundreds of businesses, maybe you've started a bunch of businesses yourself, and you've been you then you began angel investing for a long time. As a result, you know, hundreds of founders and you're in the exact right networks. And, you know, you live in you live in the heart of San Francisco, and you see it, you see everyone and you're known as a super sharp person. I think everyone in their own personal lives can sort of think about different people like that. You know, in the in the early stage world, there's there's all sorts of sort of nodes of people like that. And many of the best investors are sort of that that person that's on an island that everyone looks up to and it's like, that's, you know, that's the person you want is your early stage backer, because they're gonna help you. Interested, just had a lot of value. So I think all of those those things can work, right? The first two are sort of more specialist strategies. They have tons of super talented generalists that have been successful in this business as well. I just think that the most important thing is like, they really need to be incredible people, like absolutely incredible, one of a kind people. And I mean that like in
the in the in the sense of if you leave a conversation, and you sort of forget about it afterwards, that it's not good enough, like it needs to be a spiky individual that just really knocks your socks off and also has a network and career path that shows that
SPEAKER_05: in that probably correlates with the experience that a founder would have meeting them is this founder gonna fail feel that this person is sharp, accretive. They're gonna they're well networked. They've got good insights, maybe they've been
down a lot of paths and know where some of the potholes are and some of the sharp turns are to help you out. But they can also be really impressed to when it when a GP closes me the way
SPEAKER_04: they'll try to close a founder. Because like lots of the V fit fee business, the VC businesses, I got to win a deal, especially if it's a hot one was oversubscribed or there's capacity constrained. How are you gonna close that you're
SPEAKER_04: probably gonna get you can add a lot of value probably gonna you get your friends to maybe add some value and reference you in and do whatever you can to work and win the deal. I get very impressed when when GPS do that with me too. And you know, I find out that billionaire founders are willing to reference them to me in five seconds because they care so much about how they know that that GP and what they've done
for each other.
SPEAKER_05: Yeah, that is significant if you can list somebody on your references or even activate them. And yeah, I've been lucky enough to have some high high caliber people in my network be
able to act as references for me. And just the even the ability to say like, Oh, if you want to call Travis from Uber, or you wanted to call Jonathan from thumbtack or Vlad from
that before I'm like emailing Paul Graham and getting an
SPEAKER_04: answer and being a few hours later being like this person is awesome. You can absolutely do it. Yeah, I talked to say this. I talked to Jamie Simonoff the other day who in two hours called me back then a founder of ring to to reference someone it's like that that matters. It shows how much they value that the person's investment and mentorship.
SPEAKER_05:
Yeah, the fact that they would actually take the time to respond to the email when they don't have to. And when people don't respond to an email, that kind of tells you a lot. You know, if you've ever had a difficult relationship, it's not that you're going to give a bad reference. So you don't respond. I always, I always tell people to be very cognizant of that, you know, you're not going to get a bad reputation, a bad reference, you're just going to get no reference. And no
SPEAKER_05: references. That's tough. So when you when you look at what a
GP has to do in their job, I've been giving this a lot of thought, both introspectively, running my own firms. And also
when I pick firms, what do you think a GP does? And a fund does at its core at its essence, Joshua, what does a VC fund have to do to be successful?
SPEAKER_04: So like the simplest mental model is you got a source, you got to pick, you got to win, you got to support, maybe you can say exit afterwards. Of those, certainly the most important thing is is picking, which I think it is. That said, if you if you're not in front of good startups, picking doesn't matter. But you got to do all of them well. And you got to have
a good answer for what your system is for doing all of those well. So sourcing, are you are you a podcast host that knows
everyone? Are you super well networked? Are you a big Twitter personality? Are you really well known for your technical chops in a certain certain area? Are you really well known in a certain industry vertical that that is important to you? Are you really well on a geography? Are you that that's all really, really important. Because if you're not in the right rooms, with the best founders and best startups, doesn't matter how about the rest, how well you you do the rest of your job, you're not going to be successful. So that's step one, then you got to
SPEAKER_04: then you got to pick. Well, I tend to think picking is a is a game of first, you got to be talented enough to do it. But you also got to do it a lot. You got to see a lot, you got to get reps in. I think it's really tough to just come out of the womb and be good at picking which startups are going to be successful. So when I pick GPS, I tend to bias towards people who have seen a lot of startups from the earliest stages be successful. If I met Travis when he was raising, I would have no idea if he was good. Because I don't, I don't have the reps, I
SPEAKER_04: have no idea, the vast majority of people have no idea what good looks like. When a future $10 billion business founder is, you know, working out of a garage, you got to have a lot of reps, you got to know what good looks like. Sometimes all you can do that is by getting the experience, working a venture
SPEAKER_04: fund, working at an accelerator, being around the valley for much
of your life to see what that looks like.
SPEAKER_05: People really, who come out of accelerators, I find, have really had a great experience, because you have to sort through so many companies. And the average GP, I find they do like a meeting a day, you know, they're doing five meetings a week. On our team, you know, I watch my researchers and analysts, which are the sort of entry level, or like the starting part of point of people's careers when we hire them out of school, essentially, as a researcher, and then they become analysts, and we train them up. They're doing six
meetings a day. It's writing coverage, you know, and you
SPEAKER_05: start to think about, now, these are introductory meetings. So
they take they should take 2030 minutes over zoom, which is also a new thing, you know, as opposed to coming to an office, and it taking two hours because you got to have coffee with the person and do all this performative stuff. You know,
things have gotten pretty efficient in introductory meetings, at least founders just want to get on and off the phone. And men, when you get to 500 meetings, something magical happens, like in terms of signaling, and just being able to understand very quickly. You know, where this founder is
coming from, let alone when you get to 1000s of meetings, and I track this now is a key metric for me internally is how many meetings people are doing. And I've actually now coordinated raises, and, you know, advancement in terms of job title with the number of meetings, because there's just
no substitute for it. And if somebody wants to go faster, I'm just like, yeah, take more meetings. So I think that's an
SPEAKER_04: important step one, I think I think the other thing is it meeting if you do that, you probably get really good at separating out the bottom, probably 90% of startups. Yes.
SPEAKER_04:
But in a game where most of your money is made from the top point
01% of startups, yes, it's experience that's actually so
damn hard to get right. Because, you know, if you're one of your your research analysts, and they've met, say, 500 people in a year, more, they still don't know, what are the one or two
SPEAKER_04: that would return the fun. Haven't seen what Vlad did with, you know, Robin Hood, they
SPEAKER_05: haven't seen what Alex and Michael did with calm. They actually haven't seen the full arc of a company. Right? Yeah. So I think that's actually a really good and they haven't seen the difference between a top 1% founder and a top point
SPEAKER_04: 01% founder. Yeah.
SPEAKER_05: It literally had this on our investment team meeting this week. And I was like, you know, people were lamenting, you know,
sort of how difficult somebody was being. And I was like,
yeah, by the way, extreme competency, and agreeableness.
These are not guerillas. Inverse, like extreme competency can make you a very tankers person. Because when people say
SPEAKER_05: stupid things, or they do stupid things, or they don't perform at a high level, you know, like a Michael Jordan of the CEOs, like you watch that Michael Jordan documentary, and you just see how profoundly critical he was of himself and everybody around him in the details. And yeah, you're not gonna be able to place to VC GPS as well. Right? Like the number of characters I
SPEAKER_04: know in this industry is too many to count. And I think it's the same the same effect, right? Great people are, to your point agreeableness and competence and skill on the job competence are
SPEAKER_04: not correlated at all. Yeah, it's it's inverse, at least in
SPEAKER_05:
my mind. Now, you could have somebody who is supremely incompetent, and also disagreeable. But I just haven't
seen it all that often. I don't that quadrant in the box in the four blocks out of the industry, right? If you're an if you're an
SPEAKER_04: idiot, and no one likes you, you don't last very long. So the reason they're on decor related is if you can make it in the industry, and be crumpy and whatever, it's only because you're super competent.
SPEAKER_05:
Starting a business used to be a pain you needed a lawyer, there were hidden fees, it was a mess. Now with Northwest registered agent, it only takes 10 clicks and 10 minutes. Northwest provides everything you need to start and maintain your business. Every LLC, corporation or nonprofit and Northwest forms comes equipped with registered agent service, a business address, a website and posting email, a phone number. And this is all covered by Northwest privacy by default. Again, your full business identity will be live in 10 minutes and in 10 clicks. So here's your call to action for $39 plus state fees. They'll form your LLC, corporation or nonprofit and launch your business in just minutes. Visit Northwest registered agent comm slash twist today. That's Northwest registered agent.com slash twist today. This leads me to a question when you're evaluating folks, there is this now when I came into the industry 20 years ago, you know, and went from a journalist into you know, founder and then
eventually started investing VCs were very quiet. Then blogging came along for Wilson started blogging, Brad Feld started blogging, Jerry Colonna started blogging, I started blogging, a lot of people blogging, then I started a podcast, some other people started podcasts, and then social media. And now you're on social media. And it's there's almost like a meme of
like, you know what, oh, there's a war in the world, or there's some conflict or there's some political thing going on. I
guess we have to get some venture capitalist opinions on this. And it's like, do you need a venture capitalist on
world affairs? And, you know, you'll have Bill Ackman out there as a fund manager, you know, talking about dei talking about Harvard, you got Paul Graham on another side of the, you know, spectrum talking about, you know, the Palestinian
conflict, and this is a new thing. So how do you think about that as an LP? And then you've got people really chiming in on the world's most intense, cantankerous, you know, charged
issues? Is that something where you're like, does it matter performance? Or, you know, that's just to be expected, you know, these people are going to be out there talking about all kinds of topics? Yeah, how do you process all that?
SPEAKER_04: I'd probably say it's to be expected when you're backing one
of a kind people. Like, I'm a family office, we don't have a,
SPEAKER_04: you know, if a GP we backed says something inflammatory or stupid in public. I'm not getting in trouble from my board from it.
SPEAKER_01: Yes, yeah, I bet it's a bit more problematic for the big
SPEAKER_04: institutions that have a big investment committee and then a
SPEAKER_04: board of governors who is not just financially motivated. You know, who may actually make allocation decisions based on that kind of thing. For me, it's just part and parcel and being
SPEAKER_04: in a world full of, you know, one of a kind, disagreeable
people who often have money at this point and have earned their right to be themselves in public. Do I like it all the
SPEAKER_04:
time? No. Does it? Yeah. Has it ever really impacted investment decision I've made? Not yet, at least. Yeah. Could it if they say something I strongly disagree with probably, but then they probably wouldn't want to work with me either if I disagreed so strongly or something they said,
SPEAKER_05:
and there's enough people in the industry that Yeah, I think you if those conflicts do occur, you could basically route around them. You're not everybody. In this industry, you're not
working with everybody by definition. It's just too fragmented of an industry. For that to happen. I did have it happen one time when Trump first became president, I was on CNBC. And for whatever reason, it happened to be the day after he
was either inauguration or the thing. They just asked me, What do you think? And I said, Well, you know, it's not my guy. I
hope he can. You know, I'm rooting for him. I hope he the gravity of the office makes him you know, rise to the occasion, but quite unprecedented to make fun of you know, john mccain for
his injuries that he suffered as a POW. And somebody who I just
pitched as an LP was on fire that I called him unprecedented. And I was like, but was he on presidential? It's making fun of john mccain felt a little unprecedented.
SPEAKER_03:
It doesn't sound like you you you said something to do on the ball to could have been a much, much more inflammatory way of saying what you just said. It's it almost seems benign by
SPEAKER_05:
today's standards of where we're at. But look, I think the nature
SPEAKER_04:
of raising money though from from family offices is they also are often dominated by one of a kind weird, eccentric, crazy
people. And so as a result, you're gonna piss them off
SPEAKER_03: because people are young.
SPEAKER_05: Yeah, people like to debate things. How do you think about
so deal flow is super important? How do you get deal flow? Yeah,
SPEAKER_05: got lucky because I have podcasts, I get too much deal flow. And the biggest, the biggest issue I've had is
managing and having to build a very large staff of team members to sort through deal flow. Most people are trying to fight to get deal flow and trying to build a brand. So I think we understand deal flow there. But when you start is pretty apparent, right? So decision making, I think becomes the next part of this. How do you figure out and what have you learned about decision making as you're placing bets on GPS, and how they what's their process for coming to a decision consensus versus non consensus and individuals that founder funds just, you know, they make their own decisions. And then you saw Keith or a boy went from founders fund back to coleslaw because he wanted to be in a meeting, he said, you know, an investment team meeting, I'm sure you saw it. He was like, I
want to be in an investment team meeting that's long and cantankerous. And people are arguing and you know, he wanted that kind of spirit as opposed to founders fund, which he said, you know, people are kind of off doing their own thing making their own decisions.
SPEAKER_04: So, so first on the deal flow side, I think for me, at least there's three sources of the flow, there's founders, there's GP is there's LPS. All of them know great GPS, right? founders know great GPS, because they're their best investors, GPS, no that no other great GPS, because they're their favorite co investors are their favorite follow on investors. LP is no
SPEAKER_04: other great GPS, because they're their best performing funds. So every time I meet with another with any of those groups, I tend to tend to keep my eyes peeled for any groups they mentioned, or I'll ask explicitly for ideas. I try very hard to do more outbound than inbound, right? Like there's a class of LP that's just like in a wait for a fundraising process to happen. And then when a when a GP is pitching, then I'll get in front of the GP. I try to be more proactive if I if there's a if there's a GP or investment fund I want to get into, I'd much rather meet them when they're not fundraising, so that when they are fundraising one, I actually have a chance to get in because sometimes those processes take a month if it's a small fund that's really oversubscribed. And also so I can do my work before, you know, beforehand, so so that I'm not rushed under the gun. So that's sort of the sourcing side. The picking side is like to your to your point about, like decision making internally, every venture fund does it
differently. And there's been every kind of success, right? Like if you look at benchmark and Sequoia benchmarks, like partners only, they're all equal. It's almost no staff.
Obviously an insane track record. And you look at Sequoia and you've got a massive platform, massive fund, tons of partners, tons of stages, also massive success. Every part of
SPEAKER_04: what they do is different. All of them can be successful. The most important thing to me is that like the strategy is internally consistent, that every way they've structured
their firm works together in concert to deliver returns. And so if if I have a black and white role, which is like I like consensus only firms are like, you know, individual decision maker only firms, both can be successful. The most important
thing is, if if it's a consensus driven firm, do you have the right people at the firm that can work well together? And and solve those decisions? Well, is it a
SPEAKER_04: collaborative environment? Do they still do they still flush things out? Can you still pursue the idiosyncratic deals? And then vice versa? If it's a effort, you know, everyone's sort of a free agent style founders fund structure? Do you have the right people there? Do you have the right incentive structure that fits that is the culture set up to make that
successful. So you really just need to make sure each of these is internally all lined up to create the firm that they they want to create, which makes the picking job harder because now you actually have to understand how the firm works inside. It's actually part of the reason why I tend to like smaller funds and like 123 partner firms rather than the big platforms, because the big platforms are so difficult to diligence, you often have no idea what's going on inside. It takes a long time
SPEAKER_04: to get straight answers from everybody. And you probably won't ever get straight answers because there's all this politics of diligence. Whereas if it's like a solo GP finder, you know, there's one or two people that are really the important decision makers, it's a lot easier to understand what's happening, understand how they think and understand how the process is along with that.
SPEAKER_05:
All right, listen, B2B marketing is hard. We all know that why is it hard? Because buying cycles can be long. And B2B decision makers are hard to find. And they're really hard to target. So here's the best solution for B2B marketers, you know, LinkedIn ads, everybody knows LinkedIn, because it has over a billion members. We're all there every day hanging out looking for new executives sharing our wins, and just generally staying informed. But did you know out of those billion users, 18% 180 million are senior level executives, and there are 10 million seed level executives, those are the CEOs, CTO, CFO, CEOs, chief strategy officers, you know, these folks, if you want to close big deals, you got to get in front of decision makers. And these are the decision makers you need to target. And according to LinkedIn's data, when B2B tech companies use LinkedIn ads, they generate two to five times higher return on ad spend than other social media platforms. LinkedIn ads is a no brainer for B2B companies, you'll build relationships with these decision makers, you'll drive results for your business. And you'll do all of this on a platform that respects the world you operate in. So here's a call to action. Make B2B marketing everything it can be and get $100 credit on your next campaign. Go to LinkedIn comm slash angel pod to claim your credit. That's linkedin.com slash angel pod for a $100 credit terms and conditions do apply.
Yeah, this is something I'm obsessed with right now is decision making and picking. Because we now are making a lot
more investments per fund, we have a lot more surface area because of the programs foundry universities like a pre accelerator we do and then we have the accelerator launch accelerate, which is, you know, kind of like YC. And so and we
have 20,000 people applying for funding with 21,000 startups now in our database, and we have a database approach to this now.
Like you said, you know, getting rid of the bottom, you mentioned 90%, getting rid of the bottom 50% super easy, okay, this
person is doing a DTC business. This person's in another language in another country, they're better off having a local investor who understands the culture, etc. So you can really start to, you know, narrow it down pretty quick. But
the top 20%, you got to be really thoughtful, and you kind of made that point. So we really started looking at the
qualifications of companies that we saw succeed in seed and what succeeds in seed. And what succeeds in the series A and
series B, it's actually kind of really different. Because when
you get to that series B, you might have 36 months of revenue data, you know, and cohort data. When you're a seed stage
SPEAKER_05: investor, you have no cohort data, you have six months of revenue, right. And so you start looking for things that may be more qualitative, because you don't have the quantitative and obviously, public market investors do that. And so we literally have made a playbook, here are 13 qualities of why we should invest. And then that's really interesting thing
happened, we started making, we started making a list of things that killed companies. And, you know, previously, and that list grew to 25 very quickly. Now, those reasons, you can't block
an investment, but you can also try to solve them. And they're also problems. The first examples of those that come to
SPEAKER_04: mind, which which group kill the kill companies, cap table
SPEAKER_05: concerns are a major one. So if you have cap table problems, like low founder equity, at the seed stage, and they've given away 60% of the company, you're like, well, when they do their
series A, that's going to be another 20% gone a series B another 20% gone, these founders are gonna have very little equity. And then what happens when you have very little equity? Well, then you have to recap the company, or give huge
grants to new people or the founders leave to start a new company because they screwed up this capital. So that one, you
SPEAKER_04: see a lot of that in Canada, and in Boston, actually, just really broken cap tables that are late at early rounds. In Do you know
SPEAKER_05: why that is? I have some theories, but I'm curious if you figured it out, you have all these angle groups that are just
SPEAKER_04: kind of predatory and in cash these numbers, you know, before they really know any better. They catch the founders before
SPEAKER_05:
they know any better, they put 250 k in for 40% of the company, or 30% of the company. Now the founder is not in Silicon Valley, they're like, wait a second, I can go to Jason's accelerator and get 100k for 6%. Why am I giving 20% away for, you know,
100k, or they've got like some massive liquidation preference, and they put protective provisions in the documents that out here in the valley, we're like, why are you bothering with all that downside protection? This is about the power law and
the outliers and in Boston in in Canada, maybe you haven't seen as many. So the angel groups, etc, maybe aren't as predatory. But it's really short term thinking so that that one's a broken cap table is is challenging. I we had one company we loved. I'll, I'll make this a bit of an
SPEAKER_05: amalgamation of multiple ones. But we see this often they they had some dev shop, build version 1.0 of their app, which they've
since like moved on from and rebelled or whatever, but they gave them you know, they they paid them 10k and then they gave them 250k in stock in their $2 million. Now that company owns
15% of the company or 14% of the company instead of and we go
SPEAKER_05: wait a second, this is dead money on the cap table. If this thing becomes Google that you know, or Uber, they don't deserve $14 billion worth of equity. So we just say to that
dev shop, hey, you can keep two points of equity, we want to pay you for the dev work you did. Yeah, and you know what we can't
SPEAKER_04:
be happy about that, right? Because they're probably like, actually, I wanted cash anyways. Well, and also if the
SPEAKER_05:
choice is high profile investor comes in, you get cash, and you
still have some idiot insurance on the equity or the company goes out of business. And we'll coach a company on how to present this, hey, we're going to shut the company down, we can't raise money, your equities worth nothing, or door number
two, you could get a little bit of equity, right? Counting nightmares that can be problematic where people don't understand their gross margin. Their accountings problematic. We've seen I think meandering is an interesting one. We sometimes
call it lost in the wilderness or meandering. We'll say when
was the startup incorporated? And you know, I say they're telling us like about two years of the company, this new product they've done, but then the company's nine years old. And we're like, what happened here? Oh, they, you know, four pivots the same cap table and the cap table problems, county problems are there. You know, there's a capital inefficient businesses, a slow sell cycle. You know, people are going after, you
know, education, health care defense. Yeah, super slow sell
SPEAKER_05: cycle. Now, if you've got an extraordinary product, great outsourced tech, I find that one solo founders is another one.
Most of the great founders, even if you see them today, they were not solo founders on their companies. They had many co founders at PayPal, many co founders, you know, at Facebook,
even, you know, you just only remember Zach, you don't remember Eduardo and everybody else who was involved. So, you
know, they're just it's just a framework for decision making. But I like your kind of concept there that it has to be, you
know, it has to match the overall architecture of the strategy of the fun. So maybe it's like, I could probably play
SPEAKER_04: the same game with venture funds. So if you think of like things that are quick disqualifications, people that
SPEAKER_04: have never invested before, people that have never worked together before. People have invested at totally different
stages than the way they're trying to invest now. People
SPEAKER_04: that are trying to lead rounds that have never led around before. People that are trying to invest in areas that probably
shouldn't have traditional venture capital in it. Media
SPEAKER_05: consumer packaged goods. Yeah, exactly. Investing in in areas
SPEAKER_04:
that are having a tracker that shows you invested in areas that like you know, like crypto investors investing in AI. These
SPEAKER_05: are not now. Yes. Yeah. Like, I can quickly say no. Also, the
SPEAKER_04:
reality is, like, if you sort of look at the GP ecosystem, there's there's now 1000s of venture capitalists, but most of those are small first time funds, in terms of the count.
SPEAKER_04: Yeah. Like a venture capital LP commitment is like a 12 to 14 year commitment. Yeah. It's pretty hard to justify making
that to someone who's doing a job they've never done before.
SPEAKER_02: Right? Like even the best CEOs aren't that good at hiring
SPEAKER_04: executives. There's just tons of misfires. And so when you're
an LP and a GP that has never done the job before, and you're making a 12 1415 year commitment, it's just likely not going to work for for so many different reasons. They don't say they're not they don't like it. They're not good at it. So what they want to do that one is like a big one. They're trying
SPEAKER_05: on VC as a concept, you know, right? That I see a lot of adventure, a lot of GP tourism, and people getting out of it actually my bestie free for her. So was so cool for a while,
SPEAKER_04:
right was like the thing to do. Well, yeah, and freeburg, you
SPEAKER_05: know, ran the production board. He said it just now that he is at Ohana, he feels like he's so much more engaged and his natural position. He's was on a couple of podcasts. And he's been he's talked about it on our podcast, just how frustrated he was working with CEOs who, you know, didn't move quick enough or didn't make right decisions and how he felt powerless. It's like, you should be CEO. You're a CEO, bro. Yeah, if you can't
SPEAKER_05: handle, you know, somebody else flying the plane, you need to be the CEO yourself. I think it's a super critical. And if you're
SPEAKER_04: lucky, you know, like, like, you have a GP that gracefully exits
that finds a good person to take care of the portfolio and manage it out. If you're unlucky, and it's a smaller fund with someone who's less experienced, it's never platform, then like that portfolio is kind of orphaned. Yeah. Have you experienced that or talk to people who've had
SPEAKER_05: that happen? Because I've talked to people who've had that
SPEAKER_04: happen. Oh, yeah. What? What? Because, yeah, I got approached
SPEAKER_05: once where somebody was like, Hey, this. Yeah, I gotta be
careful here. Because if I tell you any more details, it would be obvious. Anyway, something blew up in this program space where I am. And they said, like, Hey, you do programs. Would you
take this dumpster fire and try to manage it for us? And I'm like, so all of my cycles is going to be every day turning over what disaster happened here in this crime scene of a insane, you know, implosion? No, thank you. And then how are you gonna get paid for that? You shouldn't give me management fees on it or the carry or whatever. And they're probably not going to be
SPEAKER_04: carry, right? Because otherwise, they'd probably still be involved somewhat. And in fund administration is not zero work, right? Like there's a lot of back office BS that it takes to run a venture fund. And I actually think a ton of GPS is but this is especially a problem for spin outs. Like, you know, if you spin out of a major platform, you're like, I'm a great investor. I want to, I want to have a shop that has my name on it. I want to do things my way. Great. You spin out. And
previously, nearly 100% of your time was investing in startups or supporting startups you invested in. And now half of your time is fundraising fund administration, hiring other investors and staff. And you're like, this is not what I signed up for. Yeah, it's plus plus, you also lack now the power of
the brand, right? Maybe maybe you are, you know, Andreessen or Sequoia or whatever. And when you sent someone an email, you had that at a 16 z in your email address. And so everyone responded to you. And now you have nothing and now you're
spending half your time fundraising and dealing with administration, and you don't have a brand that helps you get in front of founders like you used to. Suddenly, suddenly your
tracker, it's not so good. Suddenly, this isn't a job you want to do. And then you shut it down a few years later. That also happens.
SPEAKER_05:
That is a major challenge. And people who should start a fund,
like you're saying, hey, you've been at another platform, and
you have an idea that you feel uniquely qualified to do hey,
you were at founders fund or Sequoia, and you want to go into defense tech. And there's a clear lane and nobody's got it
as their mandate, you're going to be the defense tech firm of the future and fund those things. And you did a couple of select investments or you were the crypto person at injuries and horror, which had great success. Now you're going to have your own crypto fund, whatever it is. Yeah, that's a great reason to go do it. So for people who are wondering who gets to start a venture firm, might be helpful if you worked
on a venture firm before, you know, if you want to open a restaurant, you might have want to have been a chef at a
restaurant before in front of house or back house. I don't know why this seems so revolutionary to some people
SPEAKER_05: like the VC industry is, you know, really easy to break into.
I know everybody thinks it's so hard. All you have to do is make 10 angel investments or be an advisor to 10 companies or have worked at a venture firm, or have worked at startups and done a great job in some capacity. I mean, there are like five or six different lanes, even journalists are getting gigs, right? We had a whole series included. If you can't pass that
SPEAKER_04: bar and do one of those things, you certainly have no business starting a venture fund is starting the fund is like 1000 times harder than getting a job at a venture fund. So you better
be able to clear that first hurdle before you move on to be
SPEAKER_04: doing your own thing.
SPEAKER_05: Alright, so we did deal flow, we did decision making. My third is doubling down because I know you have to compete for deals, I'm going to take that off the table, not to be conceded in any way. But I haven't had to compete heavily to get on cap tables because people want them at the seed stage. And most deals 90% of deals are passing the hat, there's allocations available. So that's one thing at seed stage, you don't have to
compete as hard as like series A where or series B where it is very, very competitive. And usually one person wins, everybody loses.
SPEAKER_04: I think it's harder if you're writing lead checks, right? If you're sure if you're a seed firm that wants to write to $3 million into the seed round, very different game than writing
the $200,000 support check. Absolutely. I actually think one of the challenges right now is there's too many lead seed investors. I don't know if you're seeing that. But I think
SPEAKER_04: what happened was there's a whole bunch of new lead seed funds that were started over the last few years. And then you have the mega funds that because they're slowing down, suddenly have the time and resources to go down. And so you have a lot of capital competing for that, like lead spot early round, it
SPEAKER_05: is interesting to see venture firms say, you know what, I need to get some seed deals going here, because I'm overpaying from series B, and I'm overpaying for series A, and I'm losing series A. So let me get down there. And then what happens is they're like, Oh, can we put 5 million in? I'm like, you're talking about a series A now they this is a company that wants to raise 2 million and they only want to dilute 10% or 15%. How do you slam 5 million into a 14 or $12 million valuation company? You can't. And so there's like unnatural
acts like they Yeah, it kind of happens. I mean, the good news too, for founders, I find with that situation is they got multiple seed funds. And if they're coming out of our accelerator, and they do have that I say, Well, if you like two of them, just do what Larry and Sergey did with Kleiner and
SPEAKER_05: Sequoia just say, here's the deal. You're working together, we want to put both of you on the board, we want both of you to work hard. And then Oh, you shouldn't have that many board members at the beginning. No, put them both to work. They want to do 4 million, right? You got to each or you're each getting 1.5. And I'm saving 1 million for my angels. And if you're a hot company, you actually can dictate to the GPS. And I think sometimes founders forget that, you know, because somebody wants to hit some ownership target. If you tell them like, No, you don't get to hit that ownership target right now you could compete in the future for it, but you can own 5%. Now, people are going to
take the 5% trust, trust me, the one I am curious that you think about is doubling down, dry powder and those strategies. This is a thing, the two things I've been obsessed with internally with our funds, and when I invest in other ones, decision making process and doubling down and the process of doubling down. Why is that important? Pretty obvious. If
you hit a winner, you tend to know it's a winner. And you want
to get as much money and possible. So how do you think about doubling down and the strategies you hear from GPS about increasing their ownership percentage and their winners?
SPEAKER_04: So I think I probably have a different point of view on this than that maybe is is the most common. First, I don't think
everybody should be doubling down or even have any reserves. I think if you are a early stage firm that's running small checks into most of these companies, and then the only information you have afterwards is that you're reading the same quarterly update as every other investor. I don't actually know
SPEAKER_04: if you have any extra information to make you think you should double down at the A or B. You're not on the board.
You might not, you're probably not getting direct information from the founder. You have no new information on like market size necessarily, or any of the other information that typical A or B investor would look at to make a series A or B investment decision. I don't know why you're wasting your time with
SPEAKER_04:
a doubling down decision because like, you're not a good, you're not a good late stage investor, and you have no special information. The time where I would disagree with that is if
SPEAKER_04: you are very close to the founders, you back if you're spending a lot of time with them, if you're also spending a lot of time with their series A and B potential follow on investors, and you have that information advantage and information asymmetry, then you can do it. And of course, if you're going to do that, you structure your fund differently. So going back to you know what I was talking about earlier, if you're writing $200,000 checks into 50 companies, and you have a 1250 million dollar fund, you don't need you shouldn't have a lot of reserves. If you're 100 million dollar fund that you're writing million 2 million $3 million early stage checks of these companies, and you're staying really close to them and supporting them and you have a decent sized portfolio. So you can also measure them against each other. So you know what good looks like, okay, fine, you should have have more reserves in that strategy. You should probably also have you should spend more time thinking about
SPEAKER_04: how to evaluate series A and B opportunities. Yeah. And then then you can do it. But I think you need to be really thoughtful about whether that's the thing you're good at and whether you should be doing it at all. Because I definitely don't think it's a it's in one of those no brainer decisions. I also have to have that you have to have that decision making process and
SPEAKER_05: that portfolio structure. I also think it's a bit of an LP GP
SPEAKER_04: agency problem. Like like why do GPS want to double down what's it's a way you can raise bigger funds. Right? If you're like I
have 50. So we talked about the reserve ratio. So say you raise 100 $100 million fund, you'll tell your LPS half of that. So $40 million will be investable cap. So say you have $100 million fund 20% will just be fees $40 million you can say
will be for initial checks and $40 million will be from for later checks. If you have a 50% reserve strategy. The reason to have reserves is because now you can raise a bigger fund. If you raise a bigger fund, you have more fees, you can build a bigger firm, right? If you didn't, if you didn't have reserves in that in that bucket, you'd have a you have a $50 million fund. So half the fees have to carry half of everything. As an LP, I don't really care about how big your fund is, I just want the highest possible multiple the highest possible IRR. I've looked at lots of funds where their their later
SPEAKER_04: stage checks have roughly the same multiple roughly the same IRR as early stage checks. So I don't really care if they do it. It doesn't add any IRR to me, it just makes their fund bigger. So I'm happy. The GP is more successful because your fund is bigger and you have more fees and carry. But as a return to the LP, I don't really care. Yeah, it's definitely has to be
SPEAKER_05:
well thought out. And I like your framing of it. For me, the
great frustration of my career is knowing you have a winner,
Robin Hood, Uber, whatever, and not doing that second investment, because you look at that second investment would be
the second best investment of your career. And so and then I was trying to run is are there how often were there times where you
SPEAKER_04: thought you had a winner like that? You would have invested and they would have gone to zero.
SPEAKER_05:
Yeah, that happens frequently as well. Yeah, I mean, so this is where you have to understand the difference between and I actually came up with language for this, you know, as a former writer, and when you're training people, you language really matters so that they can remember it right. So when I was talking to you about meandering lost in the wilderness or cap table concerns, I really like to solo founders versus teams, etc.
Serial teams is one of the things we look for. We love serial teams. And so I came up with likely winner, definitive
winner, and I made definitions of those two things for our internal team for when we're debating the investment team. Is this a likely winner, or a definitive winner? Now a likely winner, you might see product velocity, you might see it's grown three x year over year. And you might see some, you
know, investment interest in the company. Okay, great. But when
you have a definitive winner, okay, and nothing's guaranteed,
as we've seen, you know, big companies can blow up. But a definitive winner, they typically have tripled revenue,
double tripled revenue three years in a row, you know, and
they've had multiple term sheets and a competitive environment, not just investor interest in closing their rounds, but a competitive environment with top tier firms. So, you know, just being able to parse that to your point, which is like when I was making a lot of my early investments in funds one and two and then into three, I was kind of gut I was a gut based investor. And everybody told me, Oh, you're great at picking because you hit three unicorns in your first seven investors as a Sequoia scout. And then I started saying, Well, or I got
lucky. And my vintage was the best vintage ever 2010 2011.
It's more likely a bit of both, right?
SPEAKER_05: And I don't I don't know if you read these studies. But it turns
out if one of the most important traits of successful venture capitalists is getting lucky early. Because what happens when
you get lucky early is everybody tells you you're great. Just
like some kid on the basketball court hits a three pointer, and they're like, wow, you won the game with a three pointer, you're an incredible three point shooter. And the kid comes back and starts shooting more threes. And then somebody says, I got a coach for you. I looked up a coach online who specializes in three pointers, and I watched some videos. And you're you get
momentum. That happened to me with the Uber investment, because people are like, you're the guy who did Uber and Robin Hood and calm. Wow. And you were the first investor in thumbtack. And then more founders wanted to work with me more LPS wanted to work with me and the credibility went up. If I had hit those in my fifth year, I might not have gotten to my fifth year. Yeah, it's a very weird phenomenon of early
SPEAKER_05: success. I actually don't think that's that unique to venture
SPEAKER_04: capital. I think that's pretty common among most investing disciplines is if you make a mistake early, if your initial years of underperformance, and so if you've underperforming your show years, you won't make it for the for the next few years. And partly that's because no one will give you money
SPEAKER_04: partly because you'll just quit and you won't stick with it. Yeah. Yeah, compounds in all sorts of different ways. You may
SPEAKER_05: not put as much effort in, you know, you think about poker players. Somebody goes into a poker tournament, they outlast everybody and they make the final table and they win. Oh my god, I beat out 300 other people. I made $10,000 in this 50 by in poker game, whatever it is. They're like, wow, and
people like you really could you have good instincts. And they're like, yeah, I should read a couple books on this and get better. I should play more tournaments, I get more reps in
SPEAKER_05: and really is something to that. Listen, this has been amazing. What a great hour together. Any questions for me? I'm curious because you're How long have you been in doing this as an LP? About five years at this point, five years? Yeah. So questions for me, because I'm also a fellow LP. Yeah, we're doing the same thing. It's been a great conversation because you have contrarian ideas, which has made this a really good discussion.
SPEAKER_04:
I'm curious when you're a GP fundraising from LPS. How legible is the process to you? Like, do you understand why people are saying yes or no? Or is it just like a box and you just get like random money thrown at you? permission to
SPEAKER_05:
speak freely? Of course. Okay, so here's the challenge I have.
SPEAKER_05:
If you have some notoriety, which I have from this weekend startups, and then that went supernova with all in, obviously, people want to meet, because they think you're an
interesting person. And so I get a probably a disproportionate
number of meetings. And then when people say, Hey, it's not a
fit. They say, Hey, we're not in market right now. We're not adding anybody. We love you. I never get candid feedback. And
literally today, I had a meeting with somebody who is a dear friend of mine, who had run our numbers and found a couple of like, weaknesses in our model, and was like, Hey, do you know about this? Do you know about this? And he walked me through specific details. And he said, Listen, I gotta tell you, like,
you know, he's a he's a fellow GP and also an LP. So it's very similar to me. He's like, this is the business that I think you're selling. This is the business as you're pitching it.
And then this is actually the business you have. And this is where it's out of sync. And then he was like, and then one of the people were from said, also, like, I don't want to insult
you. But like, you know, you're asking for pretty high 25% carry and 30%. If you two acts, there are some folks who, you know, they just don't do that right now. And I said, Really? Because the last time I went out, nobody even questioned it. And this time, nobody's ever questions. Oh, they'll never tell you. Is
it they'll never tell you embarrassing admission, which is I got the launch fund deck.
SPEAKER_05: Yeah. And I saw a few of those things. And so I didn't bother
SPEAKER_04: engaging because, yeah, there's a few things in there. They're
SPEAKER_04: like, I'm not gonna do this. Yeah.
SPEAKER_05: For the carry. Yeah. And so I was like, wow, I didn't know that I the advice I had gotten was a standard for somebody who's got your quartile to ask for that. And I was like, huh,
SPEAKER_05: I'm going to maybe change that the next time I go out fundraising, or with some of the big ticket people who are coming in, I might just say, you know what, the game on the field
has changed. Maybe I should change that because you know, so this is one of the problems in it also happens with founders when they meet with GPS. What's what's the honest reason like you would never tell me like, Oh, I don't want to piss Jason off. I don't want to create an enemy with this founder. Asked because there's just too far too much to lose with
SPEAKER_04:
personalities, if you're honest, which I imagine is probably what you feel with some founders. I'm getting feedback, right?
SPEAKER_05:
Well, I have had to tell my team like, keep it positive. Because what if they figure it out? Is the general consensus what I will say with founders and you know, as the founder of the fund, I can kind of get away with a little bit more because of my experience, etc. And just how people say, Listen,
permission to speak freely, I literally use that language. How would you like a candidate on varnished? Or, you know, how would you like me to give you a favor if they do ask? And I'll
say, you know, listen, I, I'm concerned that you're a solo founder. And I'm concerned that, you know, you've outsourced the tech. And we just have a rule inside the company, when we see outsourced tech and a solo founder, we think, well, maybe they can't hire a great technical partner to come work at the company. And that's a red flag for us. And, you know, I
sort of abstracted away from them and just talk about the general trend. And for you, it's like, Oh, yeah, you know, we have a rule, we only do, you know, two and a half and 20, or we'll do two and a half and 20. And up to 25. Well, we don't do 25 to 30. Whatever it is.
SPEAKER_04: I'm curious, did you ever ask for the investment memos of any of your LPS?
Did they ever share? Yeah, I've gotten a couple of them. Don't
SPEAKER_05:
ask for them on a regular basis. But I should that's actually another really good way to find out because almost every memo
SPEAKER_04:
has a section that it's like, and here's what here's what we're concerned about. Yeah. And in some ways, I'll get more honesty there because the people have said yes to you. So they're less afraid of pissing you off.
SPEAKER_05: Ah, that's interesting. So you get the deal memo from the person who said yes. And yeah, these are the red. These are the red flags, but they're really pink flags. And that's what we tell people. Hey, this can be a rush. The deals I've done have very clear red flags, because often
SPEAKER_04: like the best people are also the worst people at other
things.
SPEAKER_05: What makes you great can also double sided sword is basically what you're saying exactly. It is that Yeah, so it's, it's been very interesting. Also, you know, it's, this is this is the hardest fundraising environment in venture. And from what I'm
SPEAKER_05: told from people who've been at it, you know, since the.com era, it wasn't even this hard during the great financial
crisis, because you still had so many great companies in the great financial crisis had nothing to do with venture capital had to do with real estate, you probably experienced that with given the family offices, primary business. And
SPEAKER_05: so this time around, this is really challenging. Many people are out of market. So I've had over the last, you know, six months or so of doing this. People say, Oh, you know, we're out of market. We're happy to meet and start the relationship. But there's no way we would actually hit your timing. And I say, Yeah, let's just meet. And I'm learning the discipline and building the discipline now of having an LP database and working with LPS, because I can raise the first 25 35 million from high net worth individuals in my existing network. It's only if I want to
SPEAKER_05: go past 50 to 100 if I need to go to institutions, right. And
SPEAKER_05: so I made that decision. 50 million was my first target 100 million, the second target, we hit the first one, or we're about to hit the first one. And you know, if we hit the second
one, we hit it great. If not, market is what it is, I'll just
deploy the 50 million, you know, very thoughtfully. And there is something about the size of a fund and performance. I do believe that like, I strongly agree with you there. Yeah,
SPEAKER_05: there's some upper bound to seed stage investing where you kind of drift, I think it's like 150 to 250 is where I see people, it's just too much money to run.
SPEAKER_05: breakpoints. It's like going from support to lead checks, and
SPEAKER_04: then going from lead checks to now I'm too big, and I have to fall on a lot. And I'm kind of actually, when you look at where
SPEAKER_04: the capital is deployed, I feel like if you have a four or $500 million seed fund, actually, most of the money is deployed at series A and B. Yeah. And usually, they're not that good
at that.
SPEAKER_05: Series A and Series B is really about concentrating on 30 names in your fund, right? Or 20 names in your fund and fighting with the best firms in the world. Yeah, you're gonna
SPEAKER_05: really go up against benchmark and Sequoia and recent. I mean, it's just it's a dogfight at the Series A and then being on the boards of companies that are doing their series B and C has been super enlightening for me and also starting to publicly
SPEAKER_05: public market invest just to sort of learn a bit more about that, because I have to learn how to do distributions. And then should I personally hold on to my Robin Hood Uber shares? Or
should I liquidate them and just put it into startups, I have to make those like really thoughtful decisions and tax decisions, etc, which LPS have to make. So I've been kind of
trying to learn the full lifecycle. I'm really lucky to have Bill Gurley, Brad Gerstner, Chamath, etc, in my life on
during a poker game to just get advice on it. Right. It's been super, super helpful. But on the later stage, it's kind of crazy.
What I've come to when people ask me for advice, I say best price, lowest rights. And they're like, What do you mean? I'm like, the series C person is not even joining the board, get
the highest price you can for shares, and lowest amount of
SPEAKER_05: rights for them. And so if you think of that's the advice I'm giving the founder, the founders are cutthroat now, and they just don't get five term sheets, they just, they're literally cutting the brand name off the top. They don't care what the brand name is. They're not buying a brand at that
SPEAKER_05: stage. They've already made it you got four term sheets for your series C. It's just a like picking a bank, who's gonna give
me the lowest checking fees? Like, yeah, what's my ATM fees? And it's gonna make LPS going. So really, what is your
SPEAKER_04: competitive advantage if you are one of those firms? And then there's not be go, do you want to do this stage of investing at all? Right? And often the only reason those firms exist are
SPEAKER_04: because, like CalPERS and the huge pensions want to be able to say that they're doing venture capital, right? And if they, you
SPEAKER_04: know, if they have to write $100 million checks, the only types of firms that can take that money, invest it sort of
responsibly are the super late stage firms. And so you have
SPEAKER_04: this sort of like, weird effect in venture capital, where a lot of like, you know, anytime you see the venture capital dollars
SPEAKER_04: reports, most of those dollars are not what we think of as venture capital. Most of those dollars are late stage private companies that are de risk have revenue. And it's just a question of how big can they get? It's like a, you know, it's a different asset class than than what I think of such a capital. I think they should take anything over $500 million
SPEAKER_05: valuations and put it in a different class like between classes. This is like pre IPO money. It would be really
SPEAKER_05: actually that would be an amazing thing for pitch book, card, crunch base, whoever's got this data. Oh, yeah, to just show $500 million rounds and above as venture classic venture, classic VC, and then do 500 to pre IPO, as other, you know, as late stage growth, because it does pervert everything. I remember this when Uber raised some big rounds, and you saw the card a data, pitch book data, whatever was like,
SPEAKER_05: spiking. It's also like the power law and such display,
SPEAKER_04: right? Where like, you know, the total amounts of money raised just spikes because of one round at one company. And you had we
SPEAKER_05: were at when masa came in, and then tiger after them, you had
SPEAKER_05:
this like, really weird, like trying to get the data. And then people were like, Oh, and by the way, people in this demographic,
SPEAKER_05: race, gender, etc, are only getting point oh 1% of the funding. It's like, okay, if you take out Uber, you take out we
were you take out some of these crazy fight, there were literally $5 billion venture rounds going on, you take out
the four or $5 billion venture rounds, the entire industry investment goes down 80% for that quarter. I was like, Okay,
now, five x every one of those numbers. And you know, you'll actually understand the change that's occurring in the industry. This has been amazing, dude. Can't wait to meet you in person. If you're ever in the valley. Let's go. Let's get some ramen or sushi, whatever your bag is. And I'll let you know if I'm in Toronto, we can go see my next play there. Alright, everybody. We'll see you next time. Thanks, Joshua for coming on. And we'll see you next time on the pod. Bye.
