SPEAKER_00: It was actually through finding out about launch from All In and then through looking you guys up on Crunchbase and seeing how active you were in this stage of investment and make my own spreadsheets, obviously, to kind of like qualify who are the VCs that were going to be interesting to us and who is the likeliest to be interested in us. And I cold introed myself through your website. So anybody that's looking for funding, cold intros can work for sure. It worked for us,

SPEAKER_02: at least. This Week in Startups is brought to you by iConnections is a platform to connect and meet with elite capital allocators through their online platform and bespoke events. The first 25 VC funds to sign up for iConnections Miami 2024 event in January of next year will receive a 20% discount. Head to iConnections.io slash twist to sign up today. Crowdbotics. Great ideas can change the world and Crowdbotics is the fastest way to turn those ideas into code. Get a free scoping session for your next big app idea at Crowdbotics.com slash twist. And Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a SOC 2 report fast. Twist listeners can get $1,000 off for a limited time at Vanta.com slash twist.

SPEAKER_04: All right, everybody. Welcome back to This Week in Startups. One of the things I'm trying to do here is tell you how I make my investment decisions. Now, why is that important? Well, there's a lot of angel

SPEAKER_06: investors and venture capitalists and seed funds and accelerators who listen to This Week in Startups. Why do they listen to This Week in Startups? Well, five days a week, six days a week, we talk about startup companies, and sometimes their startups are on the pod or a venture capitalist or a technologist that they appreciate is on the pod, so they tune in. Some people listen every day. Some people hunt and pack episodes. But what's really important, I think, when you're an investor is to

SPEAKER_09: share the companies that you're placing bets on. Why is that important? Well, if I'm placing a bet, it means I have super high conviction. Just to give you a little background on our fund, it's called

SPEAKER_06: Launch. I've had three, and I'm now on my fourth venture fund. The first fund was $10 million, second

SPEAKER_04: was $11 million, third was $44 million, and we're currently raising Launch fund four. If you want to read my strategy, I share my strategy publicly. Launch.co slash memo. Launch.co slash memo. You can literally read how I think about early stage investment. Why would I do this? Why would I share all of my secrets and my strategy? Pretty simple. In the early stage, none of us are in competition with each other. We're not in competition. I'm not in competition with Y Combinator. They're not in

SPEAKER_06: competition with us. Pair VC, Trust Fund, Sophia Amorosa's new fund. None of us are in competition.

SPEAKER_04: We're all collaborating. Most early stage startups are going to do three, four, five rounds, including and up to their Series A. If they do five rounds, up to and including their Series A, they're going to probably have somewhere between five and 25 investors in each round. There'll be some duplication there, but there's probably 40, 50 people on the cap table by the time you complete your Series A. If that's the case, if I can't be one of those 40 or 50 people, well, then my reputation is garbage, and I need to quit and not be an investor. That's just personally how I feel. So, therefore, I share everything we do. I share our thinking. I share how we come to decisions. One of the ways we come to decisions on investing in companies is that we look for builder founders, and we also love marketplaces. We have a big five category. It used to be called the big four. What's the big four in our world? Marketplaces, fintech, B2B, subscription, aka SaaS companies, and then consumer, either subscription or ad-based. We added AI as our fifth focus topic. So, we have a big five internally. Our big five, our fifth used to be climate. We did that for 14 months.

SPEAKER_06: No offense to the climate community. Couldn't find great deals there. Most of the deals were overpriced. The traction was low. They had low gross margins. So, I'm absolutely thrilled to be an LP and Chris Saka's fund and some of the other ones, but in talking to him and other folks in the space, they confirmed that it's really hard to be a climate investor.

SPEAKER_09: So, that's how we make our decisions. We look for builder founders. We look for early traction, and we never underestimate anyone. When I saw our founder's company, gone through maybe two meetings

SPEAKER_04: with our firm, maybe even three, I said, this is a brilliant idea. What's the brilliant idea? It's called Stone Algo, S-T-O-N-E-A-L-G-O. Stone Algo is a marketplace, essentially, of diamonds.

SPEAKER_06: You're looking for a diamond. You are scared that you're going to get ripped off. You need some source of truth. It's a major considered purchase, and you have a lot of different people selling them, so you want to aggregate them in one place. Well, that's exactly what Devin Jones and his co-founder did with Stone Algo. So, welcome to the program, and I am an investor, I'm very proud to say now, in Stone Algo. Welcome to the program, Devin. Thank you, Jason. Thanks for having me. So, a little long intro there because I'm trying to educate people on why we're talking about our

SPEAKER_04: portfolio companies because I really want to explain why we make our decisions. Tell me about how you came up with the idea for Stone Algo and how you built it and what the traction's been like in the early

SPEAKER_23: days. Yeah. So, you gave a good description of the company. We view ourselves as being like Zillow

SPEAKER_00: for diamonds. So, we're not only an aggregator, but we're also building tools that layer on top of that information that help people make a more informed purchase. So, in the same way that Zillow built a Zestimate, our core feature in the early days was our fair price estimate for diamonds. And so, while we aggregate 2 million diamonds a day and we get live daily price updates from the jewelers we work with, we're also turning that information into useful insights. So, we use it to predict the price of any diamond, even diamonds that we haven't seen before. The idea started as a solution to my own problem. So, when I was purchasing my wife's engagement ring, I was looking for a product like this. I was trying to find some semblance of confidence in what the fair price of my diamond purchase should be. And there wasn't anything out there. And so, I ended up patching it together myself in the early days by just going to various jewelers' websites, looking at their pricing, and getting a gut feel for what pricing should be, which obviously is in a scientific method. But I was fortunate enough to be working with my co-founder today, Jason Modica. And Jay is the tech whiz. He's the CTO. And together, we developed a pricing algorithm, originally in Microsoft Excel. This is back in 2016. And then we taught ourselves Python. And that was how we made the jump from a couple of finance guys who were used to working in Excel sheets, to a couple of internet guys who were able to publish something that could be updated in real time and accessible to tens of thousands of people every month.

SPEAKER_26: And this is one of the key things we look for. Builder founders. Y Combinator is known for having

SPEAKER_28: developer founders. They like to have developer founders. We like builder founders where our aperture might be a little bit wider than Paul Graham's thesis. He likes to have two developers, three developers. I'm okay with like a growth hacker, product manager, UX designer, developer. I'll put all those into the builder category writ large. But you built the product yourself, which means you didn't outsource it. You got in there and you figured out how to make this

SPEAKER_04: happen. Now, tell me a bit about the business model here. We understand you're aggregating all this information. Then you're trying to normalize it and then create tools on top of it so people can

SPEAKER_28: make an informed decision. Okay, great. So you're trying to build that trust. But this takes work. This takes people. You got to figure out a way to make money from this. So if it's a marketplace, most people would think, okay, people either pay to list themselves on the marketplace or you take a

SPEAKER_06: percentage of the sale. Tell us how you think about monetization here and keeping that monetization

SPEAKER_00: in the best interest of everybody on the marketplace. Yeah. So the business models evolved over time. And I think we were smart in the way that we started in the early days. When you don't have traffic and you don't have much to offer to the partners that are listing on your site, you have to wear a risk. You have to do some sort of a performance-based system to give them confidence that it's worth their time to list their product on your site. So day one, we were doing basically affiliate marketing. We agreed to do performance-based affiliate marketing, which for your audience, it means that we would send traffic from our site to an online jeweler's website. If that person was properly tracked by cookies that were stored in their browser by a third-party system known as an affiliate marketing website, and that person converted into a sale for the jeweler that we sent that traffic to, we might be eligible for a commission on that sale. And that's how we got the ball rolling. But from a cashflow standpoint, that's a terrible business model. We were constantly collecting like T plus 75, which meant that scaling was difficult. We couldn't pay to play. We couldn't

SPEAKER_35: pay to drive at- Explain what that means, collecting T plus 75.

SPEAKER_00: Sure. So sorry. Like I said, finance guy. So 75 days in arrears, right? So we're sending traffic to an online jeweler and somebody buys a diamond on January 1st, then we're not going to collect until March 15th is when we get paid. Best case. So for example, if we paid on Google ads to drive that click, we are bearing the cost of that click for two and a half months. And it's brutal. And so it made scaling really, really difficult. Ultimately, we were able to drive a lot of growth. We were forced to drive a lot of growth organically. And the way that we did that was by building products that were useful, that were differentiated in the marketplace, and that ranked high in Google organically for keywords that people were already searching for. So we recognize that people were looking for things like diamond price calculators in the same way that Zillow and Trulia recognized that people were looking for mortgage rate calculators, right? And there just wasn't a product out there, tools. And I think that this is an important point for anybody who's super early stage that's trying to go from zero to one, especially with LLMs, large language models, right? With AI, we're already seeing if you're in Google's sort of like test flight of their product, Google Labs, you get this like AI description written at the top of Google search results. And this is specifically for answerable questions, right? Like, who's the queen of England? Who was the queen of England in X year, right? That's a known thing. That's factual information. It can be answered by an AI. That used to be something that bloggers were competing for to get to the first rank in Google. Now they're kind of stuffed underneath this LLM. And so it's going to be very difficult to drive content related traffic through undifferentiated or commoditized information, right? But if you develop a product that is unique in the market, that leverages the information that you have, that's unique to you. So if you have unique data sets, or if you can combine two data sets that are separate, they may even be publicly available. And combine them in some unique or novel way that nobody's thought about yet, and build a product around that that people actually search for, that a large language model is not just going to give a text answer to. That's a great way to drive organic traffic to your site. And people will scroll past the LLM's response to that or, you know, the LLM may not even try to give a response because Google is training its algorithms to identify situations where the LLM is not the preferred mode of communication with the user. And so that's how we kind of got the site rolling was by developing these products that people found useful, leveraging the information we were getting from the affiliate agreements that we had. And we were able to drive enough traffic that we had leverage in our conversations with our partners. And then we were able to convert them over to our own business model, which is a cost per click model. And it looks very much like Google ads. So super simple,

SPEAKER_46: they understand simple, you know, pay a couple of bucks every time you send somebody over, you know, this is quality traffic. Because the only way for them to get to your site is they would have had to

SPEAKER_28: done a search. And when they land on your site, you're going to have some information about them

SPEAKER_49: unless they're using like a VPN and the brave browser or something, you're going to get some and that's like, whatever, less than 5% of people. So you're gonna get some good data on that person

SPEAKER_45: and know their providence and you can just figure it out, right? You can figure out the value of it. If it works, it works. If it doesn't, it doesn't. The average diamond purchase is what in America?

SPEAKER_00: Yeah, in America today, it is probably around $6,500 is like the average engagement ring price. Um, and so the diamond is going to make up the majority of that, of that purchase value, probably about 5,500 to $6,000 of that purchase value. Feeling pretty good about my three carat Asher

SPEAKER_06: cut that I got my wife on blue Nile. That was like 20 K put me 10 K in debt. That was, that was a, that was a tough decision back in that time. I was literally had no money and I just went like,

SPEAKER_59: it was 15 K in debt at the time. Three cut Asher, pretty good, pretty good pull for, uh,

SPEAKER_00: somebody with no cash in the bank. That's pretty good. I think by any standard that would be considered a pretty large diamond and a pretty good pull. Pretty good pull. I think. Listen,

SPEAKER_28: when you're a fund manager like me trying to raise money for your fund, uh, it's, it's not an easy

SPEAKER_04: task. Let's face it. Well, there is a new way for you to find elite institutional LPs and it's iConnections and this platform, uh, which is an app online in person, it allows you to meet the most elite capital allocators. I won't tell you the names, but I was able to get in touch with and meet with beep beep and beep three of the major funds that I was looking to be with all on iConnections. These are the biggest LPs in the world, uh, endowments, foundation, sovereign wealth funds, fund of funds, et cetera. iConnections is specifically built to connect the global network of capital allocators, LPs with a diverse range of fund managers, GPs, general partners like me. And they do this two ways. They got the iConnections platform and then they do the bespoke

SPEAKER_28: events. The events are amazing. And you have an LP meeting schedule inside the app. You can share

SPEAKER_04: documents, you get a database of all of these contexts and you get access to these world-class events, which have exclusive content like me. I am over the moon with iConnections. I love it. And this is like the product I was always looking for. And if you're a fund manager of any kind, you can sign up for iConnections at iConnections.io slash twist. That's right. iConnections.io slash twist. First 25 funds that sign up for iConnections Miami in 2024 in January of next year will receive a 20% discount. This is the largest capital allocator intro event in the world with trillions in LP money represented. Sign up at iConnections.io slash twist. And thanks again to my friends at iConnections.

SPEAKER_06: So you haven't raised a ton of money for, for this company. You kind of bootstrapped it mostly? Sweat equity?

SPEAKER_00: Yeah, definitely. Early days for the first couple of years, it was Jay and I just working our butts

SPEAKER_23: off on side gigs during the day to keep the lights on at home and then hacking away at night as late as it would take. Teaching ourselves to code, building the products. It's come a long way since then. But yeah, we bootstrapped it for years and raised a very small amount of money from a couple trusted advisors over the past five years. And now we're fortunate enough to have you coming on board,

SPEAKER_28: which is just, that's a huge pull for us. Oh yeah. Well, you know, we like to find diamond in the roughs, so to speak. Um, we find founders who built a business, a real business, cash generating business that, you know, some other investors might think, huh, not sexy, or maybe it's obvious. A lot of times, you know, obvious things, um, don't exist in the world and they just need to be executed at an absurdly, um, high level. And so when I, when I looked and I'll just be candid with you, I looked at it and said, that's gotta exist. And then I did my research, had my team do the research and was like, Nope, this doesn't exist. It really, and it doesn't exist at the level of fidelity, clarity, if you will, you know, that you built it. And so when we see product excellence, and I think this is important for every investor out there, especially angels and seed stage investors, don't underestimate anyone and don't underestimate a carrot category. Google was the 15 search engine.

SPEAKER_06: You know, Tesla was the 10th electric vehicle. There's a lot of times it's the 10th or 20th person who tries to solve a problem who actually unlocks the door. Facebook being perhaps the best example we've ever seen. Uh, you know, he just basically copied Friendster, LinkedIn, and my space and said, how could I make this simpler and keep the servers up and running? Cause at the time, Friendster and my space couldn't keep their servers up and Facebook

SPEAKER_69: ran away with it just by being Steve jobs in the iPod, even Steve jobs in the iPod. That was,

SPEAKER_00: you know, far from the first MP3 player, but he just had a level of execution that was so much higher than everybody else. And he was, he was in the details and they were doing the hardware and the software. And yeah, I, I agree with you completely. I think that's what we're trying to do as

SPEAKER_26: well. Just go as deep as we can on this, on this topic. Yeah. I had so many of those early, uh, mp3 players. Like there were, I guess it was creative labs had a really good one. Yeah. It was, uh, yeah. The Rio had the Rio. That was a really amazing one. You could put like 30 songs. Well,

SPEAKER_28: the Zune, yeah, that had their own. Um, and even before mp3s, Sony had the mini disc, which was

SPEAKER_06: essentially because it had DRM on it, it was kind of different. Um, but yeah, compact came up with, uh, compact had a mini computer, like a handheld computer. It was called the iPad. I think, um, that was part mp3 player part, like control your home. It was really, really, uh, interesting. Let's talk about diamonds for a second, the diamond market. How you say diamonds, people got a lot of, uh, things that come to mind, blood diamonds, fair trade diamonds, fake diamonds, and, and synthetic diamonds. So many different, you know, kind of things get triggered in people, but let's start with something very basic. What is the diamond supply chain 2023? I understand, you know, we find these in certain geographies more than others, and there's some concerns about geopolitics around those and, and human rights. And then I think they all go to, if I'm correct, India or Pakistan, and they just have the best centers in the world for polishing them or cleaning them up. I don't know if that's true. And then somehow I know growing up in New York, they wind up on 47th street

SPEAKER_86: in the diamond district. I believe it's 47th. You correct me if I'm wrong. That's correct.

SPEAKER_88: So that's my understanding of the trip of diamonds. Where am I correct? Where am I wrong?

SPEAKER_00: No, you're, I mean, you, you are mostly correct. So the, the supply chain for let's distinguish between the two types of diamonds, really there's natural, and then there's now lab grown. And then you also have synthetics, which would be non diamond. So that would be like a CZ cubic zirconia, which is not a diamond. It's a different material diamond is, uh, it's, it's a, it's compressed carbon, right? Um, it's a, it's a, it's a type of mineral. So natural diamonds go through a supply chain of first being mined from the earth. Like you said, in specific countries around the world that have rich diamond deposits, they are then cut and

SPEAKER_93: polished, uh, typically in India. Um, and they are then. How did that happen? How did India become

SPEAKER_28: the place where diamonds get polished as opposed to like at the source or on 47th street?

SPEAKER_00: That's a great question. I'm not a hundred percent sure for the diamond trade exactly at what point it made that jump, but there's been a rich history of, of gemstones in that area for a very long time, whether it's, uh, rubies or other types of gemstones. And so the cutting and polishing techniques over there probably were ready for the diamond market when it came to pass.

SPEAKER_28: Um, but, uh, you brought up proximity too. Cause am I wrong? It's like Africa and Russia, major diamond sources in India. I think it's kind of like in between those two places,

SPEAKER_98: like triangulating between those two. Yeah. I'm just taking a guess here. Like,

SPEAKER_99: is there some geographical reason that that, I mean, obviously, um, having affordable labor, um, and you know, uh, a labor force that is hardworking and detail oriented, um, and that's

SPEAKER_28: affordable and that can work long hours doing something that's very precision based. I think

SPEAKER_06: that's kind of, but Russia, Botswana, Congo, not sure where else diamonds come from, but yeah,

SPEAKER_00: those seem to be, there's, there's some even in Canada. Um, oh yeah, I didn't know that. I didn't know. Yeah. It's, you know, but, but, um, but you, you nailed the big ones and in the U S after they'd been cut and polished, uh, about 90% of the diamonds that entered this country come in through 47th street and 47. Yeah. And, and as you know, as in New York, I'm also based in New York, as you know, so we're, we're not far from 47th street right now. Um, 47th street, isn't like, it's not 47th street running the width of Manhattan that we're talking about. It's two blocks. It's between 6th and Madison, or is it just go 6th to 5th? It's really 5th to 6th. Yeah. It's really one block and it is like another world. Like it is like no other part of New York, truly. Um,

SPEAKER_111: if you've seen uncut gems, you can get a really interesting peek into it. Um, it's, it's a

SPEAKER_26: Hasidim or Hasidic Jews run most of it. I think, um, I knew this because I lived in Brooklyn and

SPEAKER_99: there were, I remember when I worked in, uh, Rockefeller center area, I'd see all these

SPEAKER_28: buses, uh, like school buses and 30 Hasidic guys would get a hundred off the buses every day. What's going on here? I was like, oh yeah, they're working the diamond district and they're

SPEAKER_99: going back to Brooklyn. I was like, can I get a ride? I'm going back to Brooklyn too. I gotta take

SPEAKER_00: this subway. It's a, it's an interesting place and it's come a long way. Like, uh, the diamond, the diamond companies, uh, the lab grown companies out of India are setting up shop there in the U.S. for distribution purposes and, and, uh, business purposes. The GIA, uh, is in a beautiful new building in the middle of the block that is like, reminds me of when I worked at bank of America at, uh, one Bryant park. It's, it's very impressive. Um, GIA does the grading. Is that the grading organization? Correct. There's a few grading organizations, the GIA being the largest and the most well-known. Um, they've done natural diamonds forever. They've started to do lab grown diamonds as well now. Um, and I think from like the con, from the consumer standpoint, that's really where like the confidence comes in. You have an organization that has credibility, that's verifying that these are, uh, authentic, that these are a real natural diamond or real lab diamond. They'll laser inscribe them with a unique certificate identification number along the girdle, which is like the, the part of the diamond that separates the top and the bottom. It's like a flat edge along the side of the diamond. And you can actually, you can look at it with a magnifying glass and verify that your diamond matches the certificate that you, you believe it to be.

SPEAKER_116: And then there's like a QR code in the diamond that you can like a license plate number. Yeah.

SPEAKER_48: Yeah. How many diamonds have that? Is that like, would you ever buy a diamond that didn't have it now?

SPEAKER_00: I personally wouldn't, uh, just cause there's not really a reason to, uh, to not buy a diamond that doesn't have that, uh, inscription. And it's a, uh, you know, on our website, we actually can, can accept that identification number, query the GIA via their API. And then even if so, like all the technology we built for the consumer, we've also built it so that people like you or, or, or me, people who own a diamond, aren't even shopping, we can actually verify. Like you could go on our site right now and check what's your diamond worth today. Uh, that'd be amazing to

SPEAKER_108: do. I wonder if, does it look bigger, smaller than it weighs. I wonder if diamonds 20 years ago had them

SPEAKER_28: would blue Niles diamonds. I bought it on blue Nile. What a great experience that was blue Niles would all

SPEAKER_00: have those from 15, 20 years ago. That's great. Yeah. My, my guess is that 15, 20 years ago, they were, they were probably exclusively selling GIA and maybe AGS, but we have, uh, connections to, to many grading agencies. And we use that addition. We, we pull a ton of information. We use that information to generate, uh, our cut score, which for round diamonds predicts how sparkly they'll be. Uh, we use it to pull in information about imperfections in the diamond that might concern people might be a reason not to buy. And then we also use it to pull in the information necessary to

SPEAKER_23: produce a, a very accurate price estimate for the diamond. We all know the one thing that separates

SPEAKER_124: great startups from the good ones is product velocity. What does it mean? Product velocity, fancy term, right? You got your product and you have velocity speed, the speed in which your product improves. So can you ship updates? Can you release new features? Can you do bug fixes? Can you iterate on the interface? Can you solve problems for your customers? And can you do it quickly? Because you're not alone. You have competitors and your customers have choices. They may fit, solve their problems by writing their own custom code, or they might use your solution. This is what startups are about. How fast can you get that product velocity going? And so, you know, how are you, how do you supercharge it? Everybody says, okay, yeah, we want to go faster, but you got to go faster intelligently. And Crowdbotics is going to help you do that. They're your CTO as a service. Basically they provide you with the most optimal architecture to get your product to market as fast as possible. You'll have access to an on-demand product manager and developer talent, and they will help get your app into production 10 times faster than conventional development. Crowdbotics can work with your in-house dev team, or you can just have them work independently and you own all the IP. You own all the source code. Let the folks at Crowdbotics supercharge your product velocity today. No more waiting. Get a free build plan at crowdbotics.com slash twist. That's a 499 value just for the twist listeners. You get that for free. That's C-R-O-W-D-B-O-T-I-C-S dot com slash twist for a free build plan.

SPEAKER_09: One of the things I love about talking to you, and this is one of the reasons we wanted to make

SPEAKER_06: the investment. You have such a deep knowledge of the space that you've gained over the years of doing this, and you have a unique take on where this is all going. And a lot of times people who are in the industry have accumulated a bunch of biases along with their knowledge, and so they don't see the opportunities. They think, oh, this will never work, or that can't work, or this is how the industry works. Therefore, you know, Uber and Lyft or DoorDash and Postmates, that'll never work. I've been in the delivery business for 20 years. I've been in the livery business for 20 years. I've been in the diamond business for 20 years. You're going to fail. You have a deep knowledge, but also you're coming with fresh eyes to a certain extent, and that was another thing that attracted us to investment in Stone Algo. So thanks so much for coming on the program, continued success, and let's catch up in a year or two, come back on the program after you've tripled revenue. So now I've set a goal for you. Whatever revenue is right now, triple revenue and come back. Got it. And I'm really excited to start this relationship, and I'm absolutely certain you'll take the investment and deploy it in a capital efficient manner. That's another thing we look for in founders.

SPEAKER_04: We love capital efficiency. So when we start your business, we're like, wow, you've really

SPEAKER_06: accomplished a lot with a small amount of money. And that is, that frugality is absolutely essential in startups. Now, at some point, you'll start cooking with oil and you'll be tripling, quadrupling revenue. Somebody's going to give you some bucket load of cash and some giant series A or series B, and you got to keep that with you. Don't lose that frugality, Devin, please. I've seen a lot of founders when they get that big check, then they start working about the duck work in their new offices, the front desk. They start arguing over which chairs they're going to buy with their co-founder, who gets the corner office, and, you know, spending some ungodly amount of money on a goddamn offsite meeting or a board meeting, and then they just do stupid stuff with the money. Every dollar's

SPEAKER_28: got to go into your team or the product. Yeah, I think that's the key. So yeah, all right. I completely agree. Yeah. Continued success. Very excited to make the investment. Thanks for including us. And, uh, triple that revenue. All right. That's, this is a brass tacks here. Startups are meant to grow. And, uh, when you take investment, that's, uh, the expectation. So communicate well with the investors and, you know, let's just keep growing the company in a reasonable fashion. We're not looking for, you know, growth should be sustainable. It's like what I'll say, uh, for the investors who are listening in and for the founders, sustainable growth, always best. No, uh, a natural ax to grow the top line and screw up the bottom line. But you know that because you

SPEAKER_138: were a finance guy. Yeah, exactly. Yep. Now we're on, we're on the same page. Yeah. A hundred percent.

SPEAKER_23: All right. Let's wrap. Any questions for me? No, I think, uh, this is, this was amazing. Thanks for having me on. Um, and thanks for investing as well. Oh yeah. Well, it's my

SPEAKER_28: pleasure. I mean, I think I was literally had a phone call today with a prospective employee. And I said, we are in a service-based business and we have to match the effort of our founders. And we pick founders based on their effort. So the great paradox of what we do is we look for the

SPEAKER_04: hardest working, most dogged investors, I'm sorry, founders, which then makes us have to be the most dogged and hardest working investors. And if we're not, uh, the founders are gonna call us out on it.

SPEAKER_28: Hey, we're working really hard over here and you know, you're skiing 40 days a year. And then I go,

SPEAKER_141: oh, I'm skiing for 90 minutes, 40 days a year. So just to be clear, I'm available to you anytime. And you can come skiing with me as well. Still 40 days to be clear. I mean, that was two years ago. My record last year was only 36, but I'm 52 and I made my money already. I'm just trying to get you scared now. Uh, yeah, I did. I, I, I, I did a lot more before

SPEAKER_145: I became a founder. Um, okay. All right. Well, listen, I'm looking forward to getting back to

SPEAKER_111: it in the future. Well, I'm doing a, it's interesting you say that I'm picking some of my CEOs and founders. We're gonna do a founder ski trip at my, my incredible house. And then you guys can come see my incredible ski house. I don't know if you're in, are you independently wealthy

SPEAKER_148: coming into the startup? No, not. No, no trust fund. No, no trust fund here.

SPEAKER_111: So that's what I'm doing. I'm bringing, I'm gonna bring like 10 of my founders to my, uh,

SPEAKER_56: incredible ski house and, uh, show you what you're working towards. Took me 50 years to get it. So

SPEAKER_00: yeah, sounds good. Come skiing with us, uh, this season.

SPEAKER_145: Look forward to having a fire lit under my butt by the, by, by the, uh, by the house that you invite us

SPEAKER_152: to. So exactly. It's pretty spectacular. I have to say, I'm pretty proud of it. Uh, listen,

SPEAKER_28: continued success. Uh, all kidding aside, it's, it's great to have just found you randomly. How did you find, uh, did you ping us or do we hunt you? Yeah, actually remember. So it's funny. I was

SPEAKER_00: getting, I don't have a strong, I didn't have a strong network in terms of, you know, VCs and, and investors, um, coming into this, but I did have a friend who's a CEO who was actually a direct competitor of ours and was super well funded, had, uh, what is one of the biggest VCs in, in the country, uh, as his lead investor. And we were going head to head and we sat down and broke bread and he was like, look, this isn't working for us. You guys are scrappy and small. You're not going to die. We can't keep on this path at like the burn rate we have. Uh, you know, would you consider coming over or, you know, running the diamond operation for us? And I was like, look, we're, we're doing this, this way. Like I, I put all my eggs in this basket. This is my thing. I'm, I'm doing it my way. And we ended up just becoming great friends. And, and he was advising me through this process and, and connecting me with some really big VCs and gave the warm intros. And those, those got us far, but it was actually through finding out about launch from all in, and then through, through looking you guys up on crunch base and seeing how active you were in this stage of investment and, uh, and make my own spreadsheets, obviously to kind of like qualify who, who were, who were the VCs that were going to be interesting to us and who, who is the likeliest to be interested in us. And, uh, I cold intro myself through your website. So anybody that's looking for funding, I, it, it. Cold intros can work for sure. It worked for us at least to my team clip this number one, shout out

SPEAKER_99: to my partners on all in for, uh, helping raise awareness for our early stage investments. Uh, great job. And then our crunch base profile, we ignored it for a couple of years. And then I told

SPEAKER_28: somebody, I, I, we gotta get this data, correct. We have so many investments and we're like ranked way down. Please make sure all the data is correct on a regular basis. And I hope we're doing that.

SPEAKER_06: But, um, you know, we love people reaching out to us launch.co slash apply launch.co slash apply. And you will get a response from us in under 48 hours. And in all likelihood, you'll probably half the people who apply there. It's not just an idea. And if it's an idea, we send you to founder university, but we'll probably get on the phone. If you've got a reasonable venture scale business to look at, and we try to do it. I told my team, I want to reply to founders within 48 hours. And I want them to get a link to a group Calendly. And I want them on the phone with somebody in our firm in under a week, hopefully in a couple of days, what was our response time? Like, do you

SPEAKER_112: remember? It was fast. It was fast. And your process was good. Um, you know, from the first call with Jigni all the way to the last call with you. Yeah. You know, it was, it was very quick.

SPEAKER_00: Um, yeah, couldn't, couldn't speak more highly about it. This is something I've worked the last

SPEAKER_03: year on with Mike Savino from our company, the president on how can we be the fastest response

SPEAKER_28: time of any early stage venture firm? Cause I think speed matters. Cause I think if we have a sense of urgency, the founders will pick up on our sense of urgency and, um, you know, cause I know you're moving fast and if we're slow and meandering now, we want to make a thoughtful decision. That doesn't mean we're going to be like, oh, here's, here's the money. I mean, we'll, we'll do proper diligence and what we want to do three or four meetings. You probably met with at least three or probably did at least three or four meetings with us. And so at least, so we want to be as thoughtful as a

SPEAKER_06: series a investment, even though we're putting in a seed stage check of typically two 50 to a million dollars. So, you know, and a lot of times the constraint is how much the founder wants to raise. So anyway, listen, great to get to know you. I'm so excited that we're starting this relationship. I think this business is going to be a unicorn. I'll say it right now. I think you're going to get to a hundred million in revenue. And I think you're going to do it with two rounds of funding. I don't think you're going to need a lot of funding when I, I know scrappy when I see it now, you might choose to take a third or fourth round of funding, pull some secondary shares off and buy the apartment. No, you know, in Manhattan, no ski houses. Okay. One house, secondary, one house with secondary. If secondary gets too big and it's two houses, that's too, too many, one, one nice apartment in Manhattan. We got it. That's the goal for, uh, that's the goal for the secondary. Anyway, listen, I could talk to you for hours. Uh, congratulations on the great success. And I'm just thrilled that you let us join the cap table and we're going to work hard for you. Do not be bashful. You got my cell phone number. You got Mike's cell phone number. You got jiggies. You got everybody's personal phone number. You got a problem. We will help you find a solution. You call us anytime, 24 seven. We're here for you. Thanks Jason. All right. We'll talk soon. Cheers now.

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SPEAKER_09: give you $1,000 off. That's 10 hundies. Get $1,000 off at vanta.com slash twist. That's vanta.com slash twist for $1,000 off your SOC 2. Oh my Lord, what a great interview. I'm so excited

SPEAKER_28: about all these investments we're making. We're trying to do one or two investments a week. We want to be the most active early stage investor in Silicon Valley, right behind Y Combinator and ahead of everybody else. So, uh, next up on the program, one of the great early stage venture firms that we work with a lot. Pair VC. Mar Hershenson is just a great speaker. She's candid. She's no BS. She's hard working like us. That's why our two firms collaborate on a lot of startups. And she did a great presentation at my angel summit. This is a yearly event for a hundred capital allocators. It grew to 120 this time. Got a little too big. And she did this presentation on the art of picking.

SPEAKER_04: And she breaks down what goes into spotting talent, not only in startups, but the music industry. And she

SPEAKER_06: really talks about joining the scene and figuring out where the heat is. She's an amazing investor. And, uh, stick with us. You're going to want to pen and paper, take notes on this one. If you put this on two X speed, you're going to want to slow it down to one X speed and take notes with Mar. If you're a founder or a capital allocator, uh, probably watch this with your team and have a discussion about it. Cause she's that smart. All right. She's that smart and insightful. And we'll see you all next time on this week in startups. Mar's going to talk about the art of picking,

SPEAKER_182: which is, uh, certainly something we all have to do when we place these bets. So please welcome Mar.

SPEAKER_186: Well, thank you, Jason, for inviting me again. I'm going to talk to you about the art of picking. And before I get started, just a brief, uh, slide on pair. We're generalists. We invest cross sectors, consumer B2B healthcare. We're very fortunate to have partnered with founders and companies like DoorDash, Gusto, Viz, et cetera. Okay. So I think you're all here, angel investors. We know that there's these four magic steps in investing, sourcing, picking, winning, and ultimately supporting the founders. But I am going to argue that there's only one thing that really matters and that's the picking. And the question is, how do you become a great picker? So I'm actually going to start talking about an industry where 5% of the professionals in that industry make a living and only less than 0.1% actually the try make it at all. And that industry is actually the music industry. So meet this guy. His name is Clive Davis. He's one of the best music producers of all time. He was called the man with the golden ear and he produced some of the best artists in the 60s, 70s, 80s, and 90s. He funded artists in rock and roll, pop, country music, hip hop, anything. But he wasn't a musician. He didn't play any instruments. Um, he was actually a lawyer. And by accident, he joined Columbia records in 1960 as the assistant to the general council. And eventually he became the president of Columbia records. And at the time, Columbia records had this very aging portfolio of music. It was classical music, Broadway musicals, and he spent a lot of time negotiating contracts with the artists and with the writers. And he actually learned about something called rock and roll. And he thought that that was something that was worth investing in. Nobody at Columbia records backed him up in 1967. He had what he called his breakthrough moment. He went to the Monterey pop festival in the sixties full of 20 year olds. He was in the, he's late thirties. And, um, he heard Janis Joplin and her band, big brother and the holding company play. And he said that was riveting. So Janis Joplin was his first artist and he's, her record ended up becoming a gold record. Then he's next two artists were equally impressive. He signed up blood, sweat and tears in 1968. This is his second group. And again, these guys won an Grammy. They were in the top number one for eight weeks. And his third artist was Carlos Santana, which again had a very successful record. So, you know, after he got this three artists, he actually had what, uh, I come to call the halo effect. And a lot of people sought him out. They wanted to work with him because he knew how to get people at the top of the billboard. Right? So he actually represented and produced Bruce Springsteen Whitney Houston, Aretha Franklin, Billy Joel. Anyways, a variety, you go look it up. It's anybody that's anybody. And the amazing thing is that he did this for four decades. So there are two things that he did in this four decades. One is he is a beast at working. He has an incredibly work ethic. So he tweeted that in 2013, work ethic is the idea. If you have 16 hour days, it doesn't intimidate you. I think, as you know, Jason, he probably agrees with that. And the second thing, which I find even more impressive is that every day he walks into his office and in the morning, he listens to the top 20 songs on the billboard. And he does that because he wants to keep up to date, right? That's the cool thing of somebody that wants to learn. And remember this guy was incredibly successful and he still does this to this day. He's 91. Awesome. So how did he have all these repeated success over the last four decades? Because I'm an engineer, I like to think in blocks. So this is my four steps for success for Clive Davis. The first thing is he had an insight and he was there, right? He has his insight about rock and roll and he was at the right place at the right time. Then he had some early wins. He did. He had the halo effect. And lastly, he had paranoia. So paranoia is the combination of angst that forces you to work hard and constantly doubting yourself. And ultimately, you know, that made him be in more of the right places, right? So that's Clive Davis, right? What does this have to do with venture capital? That's a big question. Let's start with some numbers on venture capital, very similar, but worse than music. Only 0.7% of all companies that starred actually raise a seed. And a lot of those have failed, right? In fact, less than 0.003% of companies will end up being unicorns. So it's actually really, really hard business. It's not only hard for founders, it's actually really hard for venture capitalists, believe it or not. I'm going to give you this is these are numbers that actually surprised me when I looked at them. What's the DPI of the upper quartile of venture capital? And I'm going to go with the decade that followed the biggest platform change ever, which was the web. So for the first seven years, you will see that the DPI of the upper quartile funds was below two. That means it's really hard to return venture money, even for the best people, right? The next seven years, we're actually a little better, but not much better. And maybe you can discount 2012 and 13. We're not quite done with those vintages, but still pretty hard, right? It's not only hard, it's actually, if you compare not just ROI, but IRR for early stage venture. This is data from Burgess from 1983 to 2017. But you know, I bet it's the same. If you consider the last five years that I think early stage venture is the only asset class where the mean and the median are really, really far apart, right? Why? Because there's only a few winners that really make it. And early stage is actually even harder. This data, sadly, I couldn't find it for just seed include seed to series B. If you're in the audience, you know, series B is really late. So it's probably more, you know, it's probably even worse than what it shows here. Okay. All right. So the question is, are there any Clive Davises in our industry? This is a really hard question. So I actually had to ask ChatGPT. And it did give me an answer. This is the answer that ChatGPT gave me, which is actually really interesting. It gave me six names. Five of them are humans, and one of them is a fund. So John Doerr, Mark Andreessen, Bill Gurley, Binat Khosla, Peter Thiel, and Sequoia Capital. The nice thing with ChatGPT is you can have a conversation. So I asked them, what do you mean by Sequoia Capital? And then it pointed out Doug Leone, Don Valentine, and Mike Moritz. Okay. And these folks invest in seed, but they also invest in growth, and it's much easier, as you saw in my previous slide, to do that. Okay. So, and in order to plug in my partner, Peshman, I said, who is the best seed investor? And this is my partner, Peshman. He's actually, he was a sports journalist, then a rug salesman, then an angel investor, and ultimately a VC. He's number one on the seed, on the Midas list, and he's on the top of the Midas list. Incredibly successful. And the question is, does this framework work for these people? All right. So let's try it out with Peshman first. This is Peshman. He looks very young, and he was a rug salesman in Palo Alto on University Avenue. It's very easy to discount somebody with that background. Was he there? He was there. He was in at University Avenue in Palo Alto, and he was selling rugs to people like Doug Leone and Andy Betchelstein, Lou Montulli, all these famous people. And he actually got started because he was at Doug's home, and he told Doug he was an angel investor, and Doug believed him. So that's how he got started. And he had some early wins. You know, he got Danger, got sold to Microsoft for a hundred million, Lending Club, Dropbox. And after he had those early wins, he managed to get some halo. So he got on to Forbes. They wrote an article. He wasn't a VC at the time. He was an angel investor, but he was a rug dealer. And then the question is, with that success, more stuff came. But the question is, is he paranoid? And I have his partner for the last decade. Every Sunday, he will call me and tell me what we're doing wrong, and what else we have to be working on, and I'm not working hard enough. So I would say he's paranoid. But I'll tell you, it's just thinking of a story to reflect on his paranoia. So I will tell you this one. We started in 2013. We run an accelerator. It's called Paraxe. And in 2016, I went to him and I was like, oh my gosh, this is great. Nobody's working here. It's too early. People don't care. He's like, you have to, we ought to do something else because everyone is going to have an accelerator. And I actually looked it up and the top firms, Sequoia, Excel, Andreessen, everybody has an accelerator. So even when you're successful, you still have to be

SPEAKER_200: thinking about that. Okay, one more. We'll do Sequoia. It's an incredible firm, right? They have,

SPEAKER_186: out of the five $1 trillion companies, they seeded three of them. I mean, the metric speaks for itself, right? Apple, Vidya, and Google. Does the framework work for them? I don't know. Well, inside them being there, Sequoia was started by Don Valentine. He looks really young there. Don was a head of sales and marketing at Fairchild Semiconductor. Fairchild was really, truly the first startup in the Valley. And then he was the founding VP of sales at National. And he was intimately familiar with the semiconductor industry. There was no venture at the time. There was no angel. Those words didn't exist in the vocabulary, but he started kind of backing people. And with his first fund, he backed Atari and Apple. And after that, you know, he backed all these amazing companies that, you know, there may not be on their pages right now. Electronic Arts, LSI Logic. I like to put linear tech because this is where I got my first internship. I was a circuit designer for many years. And it was a really successful company. But his halo today, when you talk about Sequoia, it would be undeniable that they have an incredible halo effect. But perhaps something that you guys won't know, it was the same as Kleiner Perkins 25 years ago. Actually, they want Google because Larry and Sergey only wanted to raise money from two firms, Kleiner and Sequoia, right? So that halo really mattered. And it's documented. Actually, people at Harvard Business School have done a lot of research. And it turns out, and this metric will make no sense for us in the practical real world. But if you're a statistician, it makes sense. For every public offer, additional public offering in your first 10 investments, you have 8% chance of another IPO. And also people in Chicago crunch through the data and realize that 45% of VC firms are likely to repeat their first quartile performance. This is actually very different also from other asset classes. So it's an asset class where halo and experience, you know, or success, previous success matters, which goes against all of thinking that perhaps exists in this room. Okay, Sequoia, should they be paranoid? Right? I'm going to tell you a story. Peshman and I started our fund in 2013. And we went to see Doug at Sequoia. And he had just become the global managing partner, big title CEO of the firm. And he was upset. The first thing he told us when he met us, he's like, I'm so upset. Like, what's wrong? He's like, well, I had to take down all the posters, you know, because you go into a conference room, and we have posters of all the companies that we've invested in. And I don't want our people to think that we are successful, because we are not successful because our past investments, just our future investments. So it's an interesting thought. But this thing that people have on their, you know, on their walls to impress founders, actually, that's the opposite effect to the people that work for you. So something to keep in mind. So let's assume, I'm going to assume that some of you have great halo and great wins. Jason, but if you have no halo, and you have no wins, what do you do? So the first thing is, like I said, have insights and be there. But I'm actually going to flip it and say that it's actually be there and develop insights. All right, so I'm going to go to that picture with the chat GPT select. Let's start with Mike Moritz. Mike Moritz was the Times San Francisco chief bureau, whatever, something. And Steve Jobs called him the historian of Apple, he said he were going to be our historian, he was the best reporter out there covering SF. Bill Gurley was one of the premier technology analysts, and he had covered companies like Dell, Amazon compact, etc. He was the best at something. And, you know, I think Jason was really good at something. You know, when he started, he put out this magazine, it ended up, he knows the story, but 300 page magazine, super successful. And I think the interesting thing, think of Pashman also, he was a sales man in the rug store. He was the best salesman. He would do like $8 million in sales a year. These people were somewhere, it wasn't Stanford campus, and it wasn't Google, but they were really good at what they did, and they were learning in the process, right? So whatever you do, there's an opportunity for you to develop an insight. That's one. Second is, if you're there, how do you go and pick the winners, right? Okay, I was actually very lucky. I had breakfast with somebody today, who told me it was all about team. So you probably heard this team, market and traction. But if you asked Don Valentine, he would maybe tell you it's all about market. So market goes first. And then some people would say, Oh, I need to see traction to get into Jason's accelerator, he needs to see some traction. And some people don't care about anything but market. And some people don't care about anything but team, right? So which one is right? Well, the truth is that this combination doesn't happen randomly, right? It's very rare that it happens randomly. There's actually strong correlation of team to market and team to traction, you will not have a top 1% CEO working a bad market. And you will not have a top 1% CEO not execute, because then they wouldn't be a great team, right? So it's correlated. I use a framework to evaluate founders that I will share with you. I think there's multiple frameworks that work. But what I try to do is listen to the founder, and you have to listen with an optimistic attitude. What does that mean? Optimistic listening means to park your ego. That's what it means. And I'll explain to you optimistic means that you are not thinking why it won't work, ie you're not thinking, Oh, I'm smarter than you. And I know exactly why you're wrong. But you're thinking, Hey, what does this person know that I don't know, that could result in a big company? How does this work? Right? So it requires really letting go of your ego. And the second one, and it's perhaps even more important, is you should not invest in your company, you should invest in the founder's company. Sometimes we'll listen to a pitch. And we are already thinking in our head how this could be a big company this way and this way. But the founder is not saying that you have to listen. So both these things are really important. I asked fundamentally three questions to people, and I evaluate them on three axes. One is how much do they know about the market, the customer? What's their strategy? How do they think? I think Sequoia causes clarity of thought. I don't know what the name is. But how do they articulate the market? How do they know the customer? How is their thinking? Right? There's an axis on execution, which is, can they get done? That's, you know, obviously really important. And the last axis is really about their character. Nobody wants to work with assholes, as you probably know. And I asked three questions. One is, what insights do you have that cause you to start this company? It's very open ended. But I think the answer to that question will tell you what type of founder you're dealing with. How will you run this company? And again, many times I ask this question and people are taken aback. Like, what do you mean? I'm like, how will you run it? And the last one is hard to answer in a question, but you're trying to come to a conclusion from how they answer the first two questions. Okay, so let's assume somebody checks my three boxes, right? You know, they know how to think, they know how to get things done. I'm actually somebody that I want to work with, then you have to make a decision, which in a venture lingo, is gaining conviction. There's a book that I think if you haven't read, it's called thinking fast and slow. It's actually, I will summarize it in one slide. There are two ways that our brain makes decisions. One is based on intuition and instinct is 95% of what we do is based on that. It's fast, we rely on our past experiences, etc. And there's 5% that it's actually rational thinking, it takes effort, and slow. And, you know, people typically are in awe of the intuition and not the rational thinking. And at Pear, Peshman fits there, and I fit there. And I think you need both to be successful, not just one, it's not an or, like anything in our business is an and. And I'll tell you the story of Nvidia, since it's very fashionable right now. But Jensen Huang raised money from Don Valentine. And he was not a founder, he was reading a book, he had to go pitch Don before he had finished the book. So of course, he goes pitches and completely botches the presentation. And Don says, you know, I'm going to give you money, despite my best judgment, because Wilf, which was the CEO of LSI Logic, told me you're a good man. But if you lose my money, I'm gonna come and kill you. So that was, I guess, his best judgment, even the best people that have rational frameworks, they're getting off script at some point. Okay, one last secret about venture capital. This is the look at this portfolio. It's amazing. Actually has two of those $1 trillion companies, anybody would want to have this portfolio. It's too bad. It's really the anti portfolio of Bessemer. And I think if you go on their website, you can read about why they decided not to invest. And this is the biggest secret of venture, which is that I think you all know that in a portfolio of say 100 companies, we would maybe five of them are really successful. Most of them fail. But what you don't know, if you actually see a lot of companies that you passed on, and you had the opportunity to invest, and you don't. And you know, if you did, those DPI's that I showed you would be much, much, much higher. So this is a thought that's important for all the angels to know about. It's more important to track those red dots than the oranges, because the oranges are just zeros, doesn't matter. But these red empty dots are 1000s or 10,000s and have a great impact. All right, I'm going to end up with three slides one on Clive kind of summarizing. This is what he said that he did when he joined Columbia Records. What did I do when I first to cover I watched and I listened, you don't become an instant expert. So I think that's really important. And the second quote, you've got to be ready for the breaks that occur in life, it turns out to be lucky, if you're ready for it. So those insights are really important. And finally, I'll end up with a story about Paul Simon and Garfunkel, they had this very successful album. And their main single was bridge over troubled water. And they were going to go with another song Celia if you for those who like music, but Clive Davis insisted that this should be the main thing, the main song. And they asked them, How did you know when he says, I just don't know, I just know when I hit I hear that hit song. So I think that's the

SPEAKER_224: summary of venture capital. Thank you. Talk more about paranoia in relation to the accelerator. So we did get the sense that everybody would say, you know what, maybe I should have an accelerator.

David Friedberg: You and I were early to that. If you're paranoid about everybody has an accelerator. What are you

SPEAKER_186: going to do about that? Yeah, that's that's a great question. You know, I think, you know, having an accelerator when we started Jason felt really early, right? And we were asking not not early to the accelerator early to the companies because these companies don't even exist in many cases. And I think what we've done is gone earlier and earlier and try to be better and better. I think you know, we use a lot of data to measure everything we do right and everything we do wrong and iterate on

SPEAKER_227: it. And you know, that's what we've been doing. But going earlier and earlier. That's what we've been

SPEAKER_230: doing. It's great strategy. Okay, let's give it up for Mark. Thanks.