Jason Calacanis: Hey everybody, we're back with another awesome episode of Angel. Today we have Mark Suster of Upfront Ventures, kind of a friend of Twist. He was the founder of two companies, Build Online and Coral, before becoming a VC 16 years ago. That's right, three cycles. Jason and Mark have a great conversation with an overall theme of alignment, aligning founders with board members, aligning board members with other board members, and finding founders who align with a mission. It's a jam-packed episode. It always is. Every time Jason and Mark talk, you will want to get your pen and paper and slow down to probably single speed for this one. It's going to be a great show. Stick with us. This Week in Startups is brought to you by LinkedIn Jobs. A business is only as strong as its people, and every hire matters. Go to linkedin.com slash angel and post your first job for free. Terms and conditions apply. Prenuvo. Catch health conditions before they become crises with Prenuvo's full body MRI scan. Get $300 off at prenuvo.com slash twist. And by Orgspace. If you're a startup and not building a performance culture, your competitors are going to eat your lunch. Get $2,000 worth of credits on pro plans with a 30-day free trial at orgspace.io slash twist.

SPEAKER_04: All right, everybody. Thanks for joining us. I'm here with, uh, Mark Suster, my friend from

SPEAKER_06: Upfront Ventures. Uh, thanks for coming on the pod. So much to discuss in this series. I've been

SPEAKER_08: trying to talk to folks, Mark, who have lived through three cycles. Now, uh, you've been doing venture since for this is my 16th year, 16th year. And we're sitting here in 2023. Yeah. Uh, and so you got started, uh, 2007. So right before the great financial crisis, but the market right before

SPEAKER_11: the great financial crisis, correct me if I'm wrong. It wasn't out of control. Like it got in 2020,

SPEAKER_09: 2021 in this cycle. Correct. Let me say it this way. Like, cause, um, I have my annual meeting in just

SPEAKER_14: over a week. Uh, so I've started gathering data and looking at the past. Um, I think there's a few distinct cycles, obviously 97 through 2001, we went through one big cycle.com.com cycle. And during that cycle, we started over funding, paying really high prices. Things were kind of bonkers. Um, and then it cooled between like 2001 to say 2005 from 05 to early 2008, it did start to go bonkers again, but it was in the super early innings of going bonkers before GFC, global financial crisis. And it went off a cliff and it went off incredibly hard. I mean, I think a lot of us were, oh my God, is society going to change? That's how bad it was. And I think people don't understand how bad it felt. And this is the first correction, real big one since then. Yeah. I mean,

SPEAKER_21: if you were to look at the NASDAQ during that period of time, I think we had peaked at maybe

Chamath Palihapitiya: something like 5,000 and it came back and when it went down, uh, boy, did it come down maybe 1800 or something. It lost two thirds of its value, the entire index. And there was a sense amongst people

SPEAKER_08: who are capital allocators or who, you know, had, uh, their net worth or their endowments net worth in

SPEAKER_25: NASDAQ that, Hey, this is a great reset. And paradoxically it kind of ended pretty fast.

SPEAKER_14: It ended incredibly fast. Um, and we started a new epoch and I'd say from 2012 to 2015, you had the birth of a lot of interesting companies and a new epoch. And then in 2015, for a brief moment, it seemed like we were going to correct again. And just when it seemed like we were going to correct, we had another acceleration and everybody was calling the top. And then all of a sudden we had COVID COVID hits and everyone's like, okay, it's time to reset. I mean, I think Sequoia did their compulsory, everything's going to be different now kind of post, which they do every

SPEAKER_31: cycle. And, and then we had this really weird RIP good times. And then we had this unexpected new boom

SPEAKER_09: and the boom in 2021 and 2022 or 2020, 2021 was the biggest we've had yet. I think in terms of a quick

SPEAKER_14: acceleration of a whole bunch of capital coming into the market with totally undisciplined prices. And that's

SPEAKER_35: come off a cliff.

SPEAKER_37: Yeah, it's fascinating to look at each of these cycles. And the truth is great founders start

SPEAKER_25: companies anywhere in the cycle. That the starting point is when a founder decides, this is a great idea. This is a great market. This is a great product. This is a great team. We're doing this. So

SPEAKER_08: this is, I think what you and I have both learned as capital allocators. And let's be honest, you were a founder before this, I was a founder. You get to choose as a founder when you start. Now, what do

SPEAKER_11: you think the market conditions are for a founder starting in 2023? Versus let's say you started in 2020, 2021? Which founder would you rather be? And what are they going to face out of the gate? They

SPEAKER_41: just got on the starting line, they built a team, they got an MVP, what's life like?

SPEAKER_43: So I think people are probably slightly tired of hearing this because it feels like a convenient

SPEAKER_14: thing to tell people, but it's actually true. And that's this Jason, raising capital and building a startup is always better in a more difficult, less capital available market. And here's the obvious reasons why. Number one, it's easier to hire and retain amazing talent. When you have a product that starts to resonate, you don't suddenly have six competitors that raise five times the amount of money at you. When you have six competitors that have all raised way too much money, and everyone is slugging it out for trying to get marketing dollars, trying to hire staff, trying to win customers. It's really hard to charge a fair price and earn a good margin for your product or service. And it's really hard to retain employees. So paradoxically, if you can raise capital when other people can't, you have the opportunity to build a much better business. And the same is true about venture capitalists, by the way, like the best vintages are the vintages where there's not like way too much capital competing with you for deals and valuations.

SPEAKER_21: Yes, this is something we've both learned firsthand. It used to take when you and I were kind of grinding

SPEAKER_24: it out right after the great financial crisis, that 2009 to 2014 window. How long did, on average, did it take for somebody to raise their seed or Series A, would you say, in weeks or months?

SPEAKER_14: Well, so seed has always been relatively straightforward. Seed investments usually come together in, let's say, three, four months. It was the A rounds that really accelerated. So an A round might have taken you four to six months before. And A rounds accelerated to two to three months. And then

SPEAKER_09: A rounds, suddenly it was you could get term sheets in two to three weeks. And those days are done.

Chamath Palihapitiya: Yeah, what is what happens when VCs are forced to make decisions in a compressed timeframe? What happens

SPEAKER_25: when founders are trying to pick a VC in a compressed timeframe? Obviously, it's great that you can get the money in quickly. That's not bad, necessarily, or on the surface, it's not. But what does it

SPEAKER_08: qualitatively do in terms of relationships, selection process, et cetera? Again, I know this is going to

SPEAKER_14: sound counterintuitive. But paradoxically, it's better for entrepreneur if it takes longer. Okay. But here's why is let's take a typical venture capital fund. And let's say like our

SPEAKER_58: funds, we do about 40 investments per fund. If I get it wrong, because I rushed on two or three founders,

SPEAKER_14: I take 3 million $5 million write off. And in the scheme of three to $500 million, that's, it's painful. And you know, we don't try to lose money anywhere. But I have 39 other companies. And that's if I backed the wrong team, like, you know, we just realized, hey, we should have like done

SPEAKER_33: more diligence or waited to fund these people. But the flip side is, if you rush and you get a bad

SPEAKER_14: investor who either is not supportive, won't follow on doesn't attend board meetings, loses interest, or is just an there's no divorce clause, like you're stuck with them for the next five to seven years, unless you just want to quit your company and start fresh, right? So yeah, in a way, paradoxically,

SPEAKER_04: rushing for entrepreneurs is worse. Listen, if you're running a startup right now, this is the best possible time to find that amazing talent. There are hundreds of 1000s of incredibly talented tech

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Chamath Palihapitiya: for free terms and conditions apply. It's so clearly is it is something where you can't I can't as a former entrepreneur and you're a former entrepreneur. If somebody wants to pay you a high price for your startup. And they want to close the deal quickly. Those two things are fantastic,

SPEAKER_11: again, on the surface. So we can't blame a founder for wanting to get a great price and minimize dilution. In fact, it's good for all the previous shareholders, including investors. And you know, getting things done quickly and getting back to work. That's laudable too. But man, if you if you make the wrong pick, that's the problem. So you and I, as we invest in startups, we saw some weird behaviors in the 2020-21. People coming in, making very quick bets, but not wanting a board seat. And they wanted us. I'm a seed series a yours. You're actually you went back to seed. You were series a and I think sometimes you'll, you'll dab it and dabble in a B. Yeah, certainly go pro rata.

SPEAKER_14: So, uh, our strategy at upfront ventures is we have what we call a barbell strategy and a barbell

SPEAKER_58: strategy meeting. We do seed. When we write a seed check, we're usually the first institutional

SPEAKER_14: capital. Let's call it a three to $5 million check. But our median first check is usually around 3.4, 3.5 million dollars. And then we tend to skip the A and B rounds. And then we have a separate fund that does what we call, um, early growth and early growth is between a hundred to five hundred million dollar valuation. When you have truly found product market fit and we're writing 10, 15, 20 million dollar checks. And there's a reason we skip the A and B rounds or have, I mean, we could adjust our strategy as new information comes out, but let me give you the data, Jason. In 2010, the A and B markets combined were $9 billion. Okay. $9 billion went into that fast forward by 2022. That was $82 billion. It went up nine X. Okay. And then it's totally nuts. And, uh, then when you look at the CD rounds, that was nine X capital, the CD rounds also were increased, but it was only a six X increase. Now, if I give it to you in terms of, um, valuation. Okay. Okay. So seed investments went up between 2010 and 2022 by 68%. Okay. So what we did it upfront is we raised 50% larger fund size. We went from a $200 million fund to a $300 million fund so that we could write slightly larger checks because valuations were coming up, but check this out. A rounds went up by 260% during that period of time. And B rounds went up by 431%. And I want to explain to you why that phenomenon happened. It happened because venture capital funds that used to be 300 million raised a billion and a half dollars. And if you raise a billion and a half, writing a three to $5 million check doesn't move the needle. Yeah. There were disciplined people, Josh Koppelman at first round capital, Bill Gurley, who you mentioned at benchmark, like they didn't raise the billion and a half dollar fund. But if you raise a billion and a half dollar fund, you start writing $30 million checks and you can't

SPEAKER_98: write a $30 million check at a 15 pre. No, right. So instead, yeah. Right. So instead you pay 90. I'll take your next company as well. Yeah. Right. Makes no sense. So it's supply was out of whack. It was just too much supply, too much supply.

SPEAKER_32: And I'll, I'll give you, I'm sorry, Jason, just to, to give you one more data.

SPEAKER_14: And then I'll, I'll stop. Um, the late stage investments went from 2 billion total to 58 billion in that timeframe. And by late stage, I mean, pre IPO. So here's what happened. It used to take six to eight years for, for the best companies to IPO in the era of Google and Salesforce and companies like that eBay. And sometimes there were even three years, Amazon fast forward. It then shifted to 10 to 12 years at a minimum. So when you think Uber, when you think Airbnb, when you think Dropbox, right, it started to push out. So the public market investors had FOMO fear of missing out and they shifted their dollars into privates. So you had mutual funds, hedge funds, sovereign wealth funds, family offices, everybody saying, Hey, we need to get in, but they're not saying, let me go fund some enterprise company I've never heard of. They're saying we want to be in the top 10 deals. So the money piles into the perceived winners. And then when those companies IPO and they're all up into the right, everyone feels smart, but then the public market corrected. So that 58

SPEAKER_106: billion Jason. Yeah. In one year went to 24 billion. Yeah. And this is the problem. I think when people

SPEAKER_21: are following other people's betting, so said another way, you have to make your own decisions. When you place these bets as a capital allocator, I think you tell me if you believe this as well, or if this tracks with your experience. But I have been very concerned over my, I'm right behind you as your little brother here with like 12 years, I think making these bets. And it was really troubling to me at times in my career where people said, just tell me what you're investing in and I'll invest.

SPEAKER_11: Just tell me what you've invested in and I'll mark it up and I'll do the next round. And I'm like, well, I can introduce you to a founder. You should get to know them. You should meet multiple founders and you should pick the one that you think has got the greatest chance of getting you a return based on your profile. Please do not blind bet. I literally had some folks who said, just tell me all

SPEAKER_110: your bets. I'll send you a million dollars up. Every time you do a syndicate next 20 syndicates put 50k. And I said, No, I don't want to have you set it and forget it. I want you to make decisions.

SPEAKER_11: And I think that is one of the reasons we've gotten ourselves in trouble here. Because the founder is rightfully you and I would do the same thing. You want to give me money. You want to give me

SPEAKER_87: money out of 10x my last valuation. Great, I'll deploy it. They all say the same thing. rainy day fund. I'm going to save it. I'm going to deploy it slowly. Uh, you know,

SPEAKER_41: where it's not going to be a distraction. I can have 100 million or 50 million or 25 million sitting in a bank. It's not going to distract me. So I got to take it. And you're like, yeah, 10x pretty good.

SPEAKER_64: Let me let me give an example though, Jason. Again, these are the things that only come with age.

SPEAKER_14: When you've sat through the investment cycles, and I'm sure you've seen this yourself. Let me give you a real world example. But I have to mask the name of the company and make a composite as we say in the business of fiction and nonfiction. I had written a check along with a seed investor, let's say a dozen years ago, maybe 10 years ago. Um, we each wrote I think $3 million in the first round. Then along comes an investor, the company's trending up into the right, they wrote like a 12, $15 million round, we wrote another three or four. So we're in for 7 million. That investors in for like 15, then a super late stage, multi-billion dollar, very respected name came in and just says, I want to take the deal off the table. Here's $30 million. And we said to the founder, actually, we liked that investor, but like run a process, get to know multiple people. He didn't want to because the price was so high. So what he did was he went back to that investor and he put a FU price up there and said, this is the price I want. And that found that investor said, sure, I'll take it. Oh, right.

SPEAKER_25: He goes already a great deal. And he said, let's just see if I can goose it even more.

SPEAKER_14: Now, let me tell you what happened. Okay. Like I have to fast forward time. So then all of a sudden,

SPEAKER_35: our business started to struggle and it happens in the course of business, right? Come on. Okay. So what that late stage investor said is I paid such a high price. I don't think I'm going to get a return

SPEAKER_14: on my investment. So they started agitating at the board to sell the company. And here's why

SPEAKER_35: they had senior liquidation preference. So they're like, we don't want you to run out all the money on this company. We want to sell it today for whatever we can get it for it and get our bait back. And it became a, it became, um, a real distraction at the board. So you have early stage investors who are saying, I want to go long here. Like let's cut costs. Let's lengthen runway. Let's fix our problems. Let's get through this. And late stage investors saying sell. So we would get in board fights and you know, you had agitation and we couldn't get aligned. That board member started not coming to board meetings. We were doing like emergency weekend meetings like you do as an investor. Right. And I have all these early stage people showing up for these calls on weekends saying, what the hell are we going to do about this company? Cause it's a great

SPEAKER_46: technology, but the market moved. When you get misalignment of investors, it will affect you. Yeah. It will affect you. And so like, just be careful.

SPEAKER_76: Pre Nuvo. Oh my Lord. Pre Nuvo. I just went, you know why I care about my health. This is my time to get as healthy as possible. And my bestie Chamath was talking about Pre Nuvo. Spelled P-R-E-N-U-V-O. What is it? It's a full body MRI scan. And so many people have been telling me, Oh my God, you know, I, I heard Chamath G-Cow's mentioning it. And they said to basically save their life. That's what people have been telling us. So I had to try for myself. I took out my credit card and I paid for it. And this is one of the most elegant experiences I've ever had. It's like going to an Amman hotel, like literally a six star hotel. You walk in, they greet you, you put on a nice little outfit. There's cookies, coffee. It's just, it's kind of like a spa, if I could say that. And then they screen you for over 500 conditions, cancers, aneurysms. It all takes less than 60 minutes and it's no contrast and radiation free. This is proactive healthcare rather than reactive. Then I get all the information. I sat there with my wife. We went through it all. Listen, I'm in great shape, obviously things are going fantastic, but there's a couple of things going on on my shoulder, my knee. And they said, Hey, this is something you should monitor. Renuvo. Thank you so much for making this easy to use service. They're in a ton of cities right now. And they keep adding more cities. They love this weekend startups. They love the all in pod. They said, Hey, we want to give a great offer to your listeners. Get $300 off at prenuvo.com slash twist,

SPEAKER_21: P-R-E-N-U-V-O.com slash twist and start taking care of yourself today. You know, it's really, you start thinking about the beauty of Silicon Valley and this, uh, the beauty of what we do. And I know it's criticized and I know capitalism is imperfect, but there are a couple of things

SPEAKER_130: I've learned as I've gotten older and we're old now. We're 54. I'm 52. I'm so young.

SPEAKER_25: I, I feel I, I, I, I, you and I lost, like I lost 30 pounds. You lost 50. Yeah, we lost 80 pounds. We're the best shape we've ever been. We're ready to work. People don't put us out to pasture. We're talking about this earlier. I hope we keep that part of the show, but like Bill Gurley is like, and not a benchmark. And then, uh, you know, Jeff Yang is still at red, red point, but maybe not as much what's going on. These are people at the top of their game. They

SPEAKER_11: should be fully engaged. Stop with this early retirement for VCs, man. One of the beautiful things that happen is you start to become, uh, Obi-Wan Jedi level Jedi, and you can start to see the

SPEAKER_08: patterns in the second decade, the third decade. And one of the beautiful patterns I've seen,

SPEAKER_24: and tell me if this tracks with you is when things are aligned with the cap table properly, everybody is incented on a milestone based funding environment that keeps employees, founders,

SPEAKER_25: and investors, and hopefully the full course of investors, align and rowing in the right direction. And when everybody's rowing in the right direction and the founder says, Hey, I need help with something. And an angel investor and a series B and a series A and employees and past employees who've left, but were given their stock options with a reasonable window and they, or people were laid off, but they were still, and a beautiful thing happens. Everybody's rooting for the company. And then in the situation, you bring, you bring forth. Now, all of a sudden, somebody on the plane is

SPEAKER_87: like, this is not working for me. And they opened the goddamn exit, you know, emergency exit. And everyone, the plane's like, we're going to Kauai. It's going to be great. We're going to Fiji. It's first like, no, I'm out. And he starts fucking with the yolk, you know, no alignment. Maybe you could speak to the, the beautiful alignment in Silicon Valley when it does work. Because what you've just described is when it doesn't work. Oh, I got the 30 million overhang. Sell this for 31 million. I don't give a crap what happens. I just need my 30 back so I don't look stupid to my

SPEAKER_11: family office or partners. But talk about alignment and the beauty of this system that emerged over the last 50 years in Silicon Valley. What's interesting when you talk about alignment,

SPEAKER_14: because, um, some of the advice that I give founders, Jason, and you'll know this through our own personal relationship and, and, uh, the times that we interact. I always say it's incredibly important as a CEO to help your board build personal relationships with each other. Yeah. So I often recommend people do dinners. You do a board meeting, let's say from one 30 to four 30, have a little break and then have a dinner from six to nine. So great. The reason is, I mean, obviously you can have conversations that came out of the board meeting.

SPEAKER_46: You can get to know the broader executive team, but, but having VC to VC relationships and, or VC to

SPEAKER_14: independent director relationships, it's so critical because for the most part, like, you know, they say about flying, like they say, if you're a pilot, it's a really boring thing because you have hours and hours and hours of like boredom of nothing happening and short moments of complete panic.

SPEAKER_35: And that's like when you hit wind cheers or bad turbulence or flying in the clouds, right? Yep. Engine goes out. Um, and that's what like boards are like, you know, we might spend four years being cheerleaders. And then all of a sudden it's like, holy , you know, we rip cord, like the doors flying open, whatever. And when people have personal relationships, they work through those difficulties

SPEAKER_142: together on the same team aligned. Yes.

SPEAKER_35: And when they don't, sometimes they work against each other.

SPEAKER_21: Yeah. People, it's really interesting to me. What happens when, um, and people have this thing, hey, the tie goes out, you see who's not wearing shorts, whatever. Yeah.

SPEAKER_25: Okay. Great. We know that one. I, the thing I find is when it's a storm, you know, like we're talking about and you're on the plane, you find out who can handle, uh, this kind of adversity and who's not built for it. So everybody's high five. And when it's up and to the right, when all of a sudden you lose the top two lighthouse customers, you lost the CTO, you got six months of runway, you know, people start losing, um, their minds and they lose their

SPEAKER_11: composure and then there's finger pointing. And then you and I are on boards. We've worked together, you know, countless companies and it's great. Like when people have been through it a number of times, I find now at this point, uh, you tell me if this tracks with your experience. I have a certain sense of calm when really intense things happen. It's almost like time stands for me. Okay. The engine's on fire. We're losing altitude. Uh, three people are screaming. Okay. That's natural. Okay. What's the procedure here. Okay. We got to put the fire out. We got to get some altitude and let's find a landing strip. And we all just start getting to work navigator find us a landing strip. Okay. What's the procedure? And that is, I think what time does

SPEAKER_21: for you, you know, when you've been through a couple of these and you're like, you know what, and if this plane crashes, unlike an actual plane crash, we can shut it down in a classy way and

SPEAKER_129: start over. And what's your next best idea? Now, of course, the founder, that's harder than for

SPEAKER_148: capital allocators who get many bets, but I find that over time, my blood pressure goes down and

Chamath Palihapitiya: in some ways, I almost look forward to the chaotic moments because it's an opportunity to be of true

SPEAKER_14: service, right? Yeah, I will say. So as a starting point, I think the best CEOs and founders are calm in a crisis and they tend not to get too exuberant when things are going well, and they tend not to get too panicked when things are going and they always hit that point where they're going. I just did an interview, Jason, with a journalist who wanted to ask me about ADHD. You know, I've talked publicly about having ADHD and he was asking me about crises and how I deal with crises. And I said, look, my brain is chaos. You know, I, I'm, my brain is always chaos and I'm always trying to bring order to this chaos. And I think somehow with how my brain is wired, um, for whatever reason in any sort of crisis, even a real world emergency crisis, I tend not to get too worked up and I just go into problem solving mode. Like what is the most important critical path issue we need to get done? Boom, boom, boom, boom. And so what I tell founders, Jason is, um, when you're deciding which VC to work with or which seed investors or angels to work with reference your VCs for companies that

SPEAKER_153: that didn't work, the ones that didn't work. Cause if you ask anyone who invested in, I don't know,

SPEAKER_14: Stripe or Airbnb, where it was kind of up into the right, everybody loves their investor when it's up into the right. Sure. But in a crisis, how, how did they turn up? I mean, you and I, like, I can think of at least one board that we've been involved with before where like early on in the company was like, oh, we're in a crisis. And I'm kind of stepping in saying, well, here's the steps and sequences to solve the crisis. We got through it. Then everything was up into the right again. Then we hit another bump in the road. And what are we going to do about it? And being predictable in a crisis is a huge asset.

SPEAKER_37: I had a, uh, somebody, I'm trying to remember who it was. They said, uh, the best VCs, the best board

SPEAKER_129: members act as shock absorbers, uh, and the best founders act as shop, shock, shock absorbers for the

SPEAKER_21: company. Hey, you got hit. It's really hard. You got to take the punch. You got to take this, uh, you know, bad beat. You got to get back up and you got to set reality for the team. So let's talk about setting reality last year or two. What has life been like setting reality and being a good board

SPEAKER_41: member, being a good investor. We described, Hey, in an up market, got to be thoughtful. Sometimes people are, sometimes people aren't both sides of the table. The name of your amazing blog. Now let's talk about in a down market. What have you been trying to do? What has life been like for Mark Zuster, upfront ventures and the portfolio over the past 12 months? So thank you. Um, I look, um,

SPEAKER_14: if you think about people like Sequoia writing our RIP good times, if you think about David Sachs and the information that he put out when COVID first happened, like wartime CEO of, um, you know, Ben, um, Horowitz, um, I think the service that VCs can provide to founders when the crisis period starts is this not just age and experience, but when you're dealing with 20, 50, a hundred companies, you see the patterns before an individual entrepreneur. So an individual entrepreneur, let's say you raise money and you've got two and a half years capital. You may not quite realize just how permanent the capital markets have changed and how it's going to impact you in a valuation perspective. We realize it because we have three companies raising capital today. And so we're like,

SPEAKER_35: Hey, we see the trend. We know what life looks like for you in 15 months. And so we want to bring

SPEAKER_14: that forward. And so I'll just give you this, Jason, which is if I take SAS companies,

SPEAKER_35: SAS companies were trading at in November of 2021. Okay. Not that long ago, 26 times next 12 month

SPEAKER_14: revenue, 26 times. And again, when you're a founder and let's say, you know, you're a first or second time founder, you don't even know what that means. Like, what do you mean? 26 times next 12 month revenue? Like, why is that relevant to me? I'm a startup. And you say, okay, look, eventually you're

SPEAKER_58: going to either IPO or be purchased. And the person who's going to purchase you is going to have a public equity price. Most likely, if not, you're going to IPO and you're going to have to face public

SPEAKER_14: investors and they're going to care about metrics. So one of the metrics they judge you by is either EBITDA earnings before, uh, interest in taxation and depreciation, or, um, or they're going to judge you by revenue. Okay. So let me give you some context. We hit 26, November, 2021. Today it's at 6.2.

SPEAKER_35: That's how far public markets have come down. That's why late stage capital markets are going down so much. So you're like, Holy 6.2. That's terrible. The market's surely going to double or triple, right? Cause we were at 26. Well, let me give you the data over the last 20 years. The average is 6.3, 20 year average. The 10 year average was 17 and a half. So it had gotten out of whack. Um, and it's probably not going to stay at 6.2.

SPEAKER_14: So somewhere we think somewhere between six and nine times NTM is where it's going to settle out. And then late stage investors. If I think I'm going to exit at, let's say seven times NTM, I'm only going to pay 15 times NTM. If you're growing so astronomically quick that I pay 15 to get in, I sell at six and I still make money. Right? So David, uh, Sachs, uh, said, uh, publicly, I can't remember where I read it. He said, well,

SPEAKER_35: if your last round, you raised it a hundred times NTM, next 12 month revenue, you've got to grow by 7x. You've got to be seven times bigger than you are today to raise it 15 times NTM. Hmm. So what he's saying is cut your costs, lengthen your runway and make sure you have the time to grow to seven times bigger than you are today, or you're going to raise a down round. Okay. And I'm telling you 15 is still amazing relative to what the markets are valued at,

SPEAKER_172: but, but that's also bigger than what the markets pay.

SPEAKER_174: Yeah, it is. Um, I guess there's this concept, uh, in behavioral psychology and cognitive, uh,

SPEAKER_08: how we cognitively interpret the world of anchoring. What was something worth previously? And maybe you could talk a little bit about how you've thought about thinking, because when you get into this game and you're making decisions, much like poker players, gamblers, or anybody taking big risks, um, and listen, the risk we take compared to the risk founders take is much different, but we have to take many risks over long periods of time on many different

SPEAKER_11: companies. So in fact, you, you really start to have to think and analyze your firm and individuals

Chamath Palihapitiya: risk taking and how they make decisions. Maybe talk a little bit about how you think about,

SPEAKER_33: and you've gotten better as a decision maker. Um, so let me first talk about the conversation that I have with founders about alignment of interest between investor and founder. And then I can talk

SPEAKER_14: about my own decision framework. Um, so the conversation I normally have with people goes like this, you have nine months runway today, as things stand, you're burning $1.2 million a month. I'm making all the data up. Um, you raised last round at make it up, uh, 120 posts. I can tell you that with market comps where they are today, your next round, if you were to raise today would probably be at 30 to 40 posts. Okay. So what's going to happen. Either you're going to run out of cash trying to raise and people are going to say, I don't really feel like doing a down round because I don't want to piss off all your investors. So I'll just wait for the next deal to come along.

SPEAKER_35: Um, or you're going to raise money and people are going to cram you down when they cram you down. They're going to look at me and say, Mark, are you writing a check? So I will write a check. So let's say that I own 20% of the company today. I can always write a check to fix my ownership. But if you're the founder, you can't write that check. So, well, you could theoretically,

SPEAKER_43: but most don't have the capital to do it. So I always say to people, I'm not telling you

SPEAKER_187: to cut your burn from 1.2 million a month to $250,000 a month to benefit me.

SPEAKER_35: No, it benefits you because if your runway can go from nine months to 23 months or 27 months, that gives you the time for two things, either to grow into your valuation or three things grow into your valuation. Number one, or wait until there's a better capital market environment. Number two,

SPEAKER_43: or number three, when people go to fund you, when they make the investment decision, instead of burning 1.2 million by then, maybe you're burning 80,000 a month, right? Because you've kept your costs low, your revenue grows, your burn rate goes down. So instead of writing a $20 million check, they only have to write a $5 million check. And that's much easier to raise.

SPEAKER_187: So it's in your interest. Now you asked me about our decision framework. Let me tell you about our

SPEAKER_14: decision framework. We've been around for 26 years. Okay. So I'm not the founder. I've been running up front since 2011. It was founded by my dear friend and still colleague, Yves Cisteron, um, in 1996.

SPEAKER_43: Um, and we did a rounds. You already said that our average check was probably four to $5 million in the past. Somewhere around 2015, 2016, when A and B rounds started getting so large, we had a choice to estimate. And the choice was, do we do one of three things, either write bigger checks, 10, 15, $20 million checks into a rounds. Do we be right? The same size checks at the same stage, but own 10

SPEAKER_187: or 11% instead of our target, which is 18 to 21%. Or do we still try to get 18 to 21%?

SPEAKER_43: Our strategy is defined by doing 40 deals where we own 18 to 21%. Our median ownership is 20% on our first check. And so how, how do you square the circle? What we decided was we would get religiously focused on just one investment thesis per partner. Okay. So we're eight people writing checks today. And each one has a swim lane. My swim lane for the last 11 years has been computer vision. That's why we work together on density. That's why we work together on fade. Like it's how do, how does the

SPEAKER_185: world get interpreted through cameras or lasers or sensor sensors or infrared? It's why I funded ring.

SPEAKER_184: It's why I funded nanit, a baby camera. Um, but I have another partner and that partner is doing video

SPEAKER_187: game infrastructure. I have a partner doing healthcare. I have a partner doing fintech. I

SPEAKER_43: have a partner who's doing cybersecurity. I have a partner who does AI and logistics, sorry, not AI, robotics and logistics. I have another. Which partner does robotics? I'm curious.

SPEAKER_202: Um, so I actually have two partners who are doing it. My partner, Stuart Lander does it at growth and my partner, Kevin Zhang does it at seed and a or seed mostly. Um, now by getting in our swim lane,

SPEAKER_43: what we started doing is saying, we still want to own what we want to own. We still want to write smaller checks, three and a half million dollar checks, maybe four, maybe five, but on average, three and a half. It meant that we had to move earlier in the cycle instead of waiting until you have product market fit or, you know, customer references or, you know, whatever. I have to back you usually when you finish the product, but haven't yet hit revenue. Because if I wait until you have some element of product market fit, someone else was lined up with a $20 million check and I wouldn't win that deal. So we moved to fund companies earlier and faster to maintain our

SPEAKER_202: ownership and to get in to the deals that we wanted to get in.

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SPEAKER_174: It's really interesting with these cognitive biases we start to have in the signaling.

SPEAKER_21: What signaling do you have right now around AI, generative AI, the meme of the moment, the focus of the moment? And what signaling did you have around web 3.0 and crypto? Did you get it right? How do you look at it going backwards? Do you regret things or do you felt like you had a good

David Friedberg: decision making process? And then here's where age helps Jason. Of course, sorry to jump in. This is

SPEAKER_14: where age helps. Okay. So the advantage of youth is their peer group are the people creating companies

SPEAKER_58: for the most part, right? Like some people create companies at 48 or 52, but for the most

SPEAKER_14: part, it's younger people. And when you went to Stanford or Yale or Princeton together or Michigan State or Washington University, wherever you went, but when you went together and that was your peer group, and then you all got jobs together at Google or Facebook or Stripe or Dropbox, right?

SPEAKER_35: You have meaningful relationships and they're more likely to want to raise money from you. So we have gone out and hired younger partners. I have Aditi Maliwal. She's much younger than I am.

SPEAKER_187: Kevin Zhang is much younger than I am. Kobe Fuller is much younger than I am.

SPEAKER_35: So they run in different circles and have different networks and crowds and that's a huge benefit to me. But I'll tell you what happened in the crypto craze. I said to people,

SPEAKER_43: that's not our swim lane. If anybody wants to drop what you are working on and go super deep in crypto, then we can have a discussion. But until such time, we're just going to skip that. It's okay if Chris Dixon and Fred Wilson make a ton of money on that because they were early. So to be right about venture, to be good at venture, I think you need to have three things, right? You have to believe in a trend that's going to happen in three to five years that most people don't see yet. Okay. You need to be correct about the timing of that. If it's eight to 10 years, as you know, Jason being too early

SPEAKER_35: is the same as being wrong. Yep. If you're reading about it today, you missed it. Yep. It's okay. The next trend is coming. But if you, if you pushed your whole pile in, if I take your

SPEAKER_43: poker analogy, if I push my whole pile in on crypto in 2020, and I wasn't doing it in 2013, 14 and 15, like, chances are, you know, like, it was, you know, your old pal, Tony Shea, who said, like, um, that his, his thesis in Las Vegas was, um, not to be the best poker player at the table,

SPEAKER_74: but to sit at tables with the worst poker player. Yeah, for sure. Or if you don't know who the sucker

SPEAKER_35: at the table is, it's you. It's if you push your pile in in 2020, you're probably hurting right now. So in 2020, 19, 20, 21, I was under a lot of pressure from some of my colleagues saying, we need to pay more. It needs to be 40 pre. We need to do NFTs. We need to do crypto. Yeah. And I said, well, I think you missed that trend. And there's some great people who caught it and understand it

SPEAKER_223: better than you do. If you want to drop everything and go deep, I'm here. Nobody wanted to do that,

SPEAKER_04: right? So we didn't do crypto. We skipped that. Why be tourists? I mean, why come in last? You're the sucker at the game. You know, I looked at it and I made the assessment with

SPEAKER_129: crypto that I like to, um, talk to customers and or talk about the product and how it was constructed.

SPEAKER_110: And I consistently got told, have fun staying poor. You don't get it. Okay, Boomer. Uh, and I said, well, this white paper has spelling errors in it. Anybody could have written it. I I'm sorry, I'm not the right investor for you because I like to look at the product and talk to you about why you put the buttons in certain places, the workflow and, and how it's gonna sort of hit customers.

SPEAKER_226: And you can't explain that. So find another investor. There are some, uh, really smart,

SPEAKER_202: young investors who just were passionate about it. Mags being one, uh, Gabby Goldberg being another, um, there's money to be made in web three. We know that this distributed infrastructure will produce some interesting things, but I'm not the expert in it. And so we chose not to go long.

SPEAKER_187: On the other hand, we bet really big on computational biology and on healthcare. And we started doing that like eight, nine years ago. And we have some really interesting companies

SPEAKER_43: in the category now. And then everyone's like, what the are you doing? So, but let me say this. So first of all, you need to be right about the trend. Second, you need to be right about the timing. And third, you need to back back the right team. So I found, uh, this great trend. I had just moved

SPEAKER_187: from Europe and Japan back to the United States. I lived in, um, Europe and Japan, as you know,

SPEAKER_43: came back to the U S and I said, I don't understand why there aren't text messaging companies. There's going to be something big in test messaging, text messaging. So I went out and I met a bunch of teams and I met a fantastic team based in LA. They had built and sold their first company for 580 million dollars. And in mobile game 1.0. They were the winner in the category. They built a company called Jamdat. And Mitch Lasky, who went on to benchmark was the CEO of that company. He didn't found it, but he was the CEO and he's incredible. And actually the people who built it were incredible. And they built a company called text plus, and it was up into the right. And there were four or five up into the right. But the problem is there was one winner and that winner is called WhatsApp. Yeah. And I could go back and I could, I could, they took, I don't know, 99.9% of the value. And I could go back and say, why didn't we win? And we could second guess and all the things. It was a great team that we backed. We just didn't end up packing the winner. And that's the hard thing

SPEAKER_231: about being a venture. You have to be right about the trend. You have to be right about the timing and

SPEAKER_21: you have to back the right team. I mean, look at Uber, right? There was, there was Lyft and sidecar and I met both those companies before Uber. Um, I knew the founder of Uber longer,

SPEAKER_233: but I took a sidecar after I'd invested in Uber and I was in a sheer panic. I, I mean, I called Travis and I was like, I just got it in sidecar and it let me pick the price. I want to go

SPEAKER_21: Palo Alto. Um, and he's like, well, take a couple of rides. Let me know what you think. And, uh, then I took the Lyft ride sharing and I was in a total panic cause we were only doing Lincoln town cars. And I said, well, with sidecar, I offered somebody $25 to take me from San Francisco to Santo road. And Uber would have been 75 lift was like 60 or 50. And this guy did it for 25, but I felt like I was

SPEAKER_233: going to die. Cause he was leaning back so far in the chair that I was having like a face-to-face conversation with them. Car smelled like weed. It was like scary. I was like, so that one's definitely not going to win. People should not be auctioning off the lowest price for a car. It doesn't feel safe. But this lift thing with the Prius, I kind of liked the Prius better than being in the SUV. Cause I don't feel as douchey. And, uh, he's like, we've already got it built. I said, what do you

SPEAKER_234: mean? I'm telling anybody it's built where we're just going to press the button at some point. We're just going through some, you know, scenarios or whatever. I was like, okay, great. Back the right guy. You don't want to go to war with that guy. And then I subsequently met the door dash team.

SPEAKER_41: And, uh, they said there, they would wake up in cold sweats. Okay. Travis, Travis, you know, and it just is the nature of it. You're right. Like if you, the, the, the, some founders are so transcendent, they're just so good at winning that. Yeah, you can get everything else. Right. The great thing about being a capital alligator, you need only hit one per fund. Is that true with the power law? And explain the power law to people who maybe are new to venture capital and or new to startups,

SPEAKER_21: because that does affect, and you've written about this a lot of times. Again, the blog is both sides of the table. So you can understand both sides of the table. What do founders need to understand

SPEAKER_129: about the power law and how that impacts behavior of venture capitalists, uh, in terms of, you know,

SPEAKER_43: outcomes. So let's say you raise a $300 million fund. And let's say that you're investing in 40

SPEAKER_202: companies. And let's say that you own 20% of a company, you gave them $3 million. And then they turn around and get offered to be acquired like quickly. And you're like, dude, I just made you three times your money in three months. Okay. That $3 million, three times my money is $9 million.

SPEAKER_43: So I make a gain of $6 million. Um, in, even in three months is a total loss for me because 9 million, I got to return at least 900 million. So you've returned 1% of the minimum expectations that my investors have. So if you think of 40 shots on goal, I just wasted one of them. You're thinking, I got a huge victory for you. I got three X and I'm like, that's a waste. Now that doesn't mean that I'm not happy for you or, you know, whatever. I don't move on in life. Like we're not dicks. Like, if that's the thing you want to do, but I'm trying to back people who aren't looking for a quick exit, but really are driven by some bigger mission. Like, I don't know what drives Elon. You obviously know better than I do, but something more than money drives that guy. And you want to find somebody who they're driven by some other thing. That's why I always talk about wanting to back passionate entrepreneurs that are like really driven by a mission. Like we talk about missionaries versus mercenaries, excuse me, mercenaries and the missionaries are the ones who can get through crises. Yeah. And so like the math just doesn't work. So when you think about a $300 million fund and I write 40 checks, what we know across more than 11 funds is that, and you know, it's the power law, um, 20% of our investments, usually it's less than 20% return 80% of our total returns. So in a four, $300 million fund, it's usually five or six deals that return 80%. And it's usually one or two

SPEAKER_21: that disproportionately return the fund. Yeah. And this is very important. I think for founders to understand, and it's, it's great that the, the missionary approach, as opposed to the mercenary approach, uh, what's really interesting about that is we're trying to get an outlier. We need you to

SPEAKER_24: swing for the fences. Mercenaries, they don't swing for the fences. If they get that 40 million,

SPEAKER_21: 80 million exit, they own 60% of the company. Hey, it's life-changing money. They're going to pull the ripcord because they can imagine themselves not working on that mission because they did it for the money.

SPEAKER_41: And the, the challenge in the alignment, and this is one of the few times where there's like, um, a misalignment in venture is yeah, sometimes that early sale comes and I had it happen two or three times where I begged the founder, keep going. And the problem was in the early part of our careers, the concept of secondary shares did not exist. So the founder was going to get a zero or whatever early exit they could get. And when the early exit comes, well, you know what, getting $25 million, life-changing money. You say to yourself like, Hey, I'm happy for you, but it's, you're sad for you.

SPEAKER_21: The mercenary, uh, versus missionary is, is a great way to look at it, but maybe you could unpack why secondary kind of corrected this one of the few misalignments in venture, which is, Hey, the

SPEAKER_41: quick exit is really good for the founder and it's a disaster for the VCs.

SPEAKER_43: Well, I don't want to pat myself too much on the back, Jason, but I think I was the first VC to

SPEAKER_202: publicly speak out in advocacy for founders on this. Um, and this is already, I think I wrote my blog on this in like 2008. Um, it used to be the mantra of our industry that founders can't sell secondary

SPEAKER_14: until the whole company is sold because every dollar, all the capital should go towards the

SPEAKER_43: success of that company. And the reason I spoke out was I had like you, uh, you know, in your founder days, I had been that guy who had a startup and my VCs all lived in Atherton or the equivalent in London, Belgravia. And, um, you know, I have my wife saying, why are you working for this small amount of money? I was earning a lot of money before I did a startup. Yeah. And, and, you know, I had a little kid, I had a second on the way and, you know, we're living in a shitty house and it's a struggle. And I'm like, you know, if I could just make a little bit of money,

SPEAKER_187: that would change how my wife felt about her own sense of security and why I don't come home on weekends or, you know, why I'm flying on weekends to meetings and staying late every night. Yeah. Um, so I coined this term, feed the family money. And I started talking about feed the family money. And if I could just get founders enough where their family metaphorically, right? Like where

SPEAKER_43: you take that pressure off you. And the hard thing is when is it okay? It's obviously not okay before your company is a success. So when you have your company has some level of success that you can feed the family or put aside money for your retirement or for purchasing your first ever house or whatever it is, once you've hit that little bit of success, what it means is we have aligned interest now, because you're not playing small ball. And now you're saying, I really want to do something extraordinary. And I still believe that today, but I will tell you, secondaries are really hard to

SPEAKER_04: come by these days. Yeah, secondaries, I haven't seen many of those recently. Um, because people

SPEAKER_21: are trying to, I guess, fix their portfolio construction. But I, you know, I think when people figure out who the winners are, there'll be a, uh, hey, this company has a good cap table, companies growing, sure, would love to add to my position in it, because I got to put the money

SPEAKER_41: somewhere. And this feels like a safe haven for the money. And I've already vetted the company. But yeah,

SPEAKER_33: the hardest thing that people have with secondaries today, as we sit in 2023, early 23, is how to value them. Because if the public markets are paying 6x forward for a SaaS company,

SPEAKER_43: if your last round was at 18x or 24x, and you don't want to sell at a huge discount to that, you know, why, why would an investor go in and pay 12 times or 13 times for your supposed discount? In a stock that is not top of the preference stack and doesn't have downside protection. I'm not

SPEAKER_185: arguing against founders. I'm just telling you how investors think these days and why it's harder to

SPEAKER_174: come by. Yeah, uh, it is one of these systems where it did get abused. I remember seeing some deals

SPEAKER_21: where the VCs were being selected by the founders, uh, by which VC was offering the most secondary.

SPEAKER_281: This felt like a huge conflict of interest. I said, Hey, maybe we should separate these two

SPEAKER_08: things just for hygiene. We raise around. Then we do the secondary. But are we picking

SPEAKER_81: the partner for this next round based upon who's putting the pot sweetener?

SPEAKER_185: It happens in every cycle and every boom market. Again, I don't really blame market participants.

SPEAKER_43: Like the, the money and the temptations were too big, but it really drove some absurd behaviors. And what people often don't understand, Jason, is that sometimes it's a founder CEO at odds with their company and the company doesn't even realize it, right? Like, so if you take 15 million dollars off the table in a company, that's not profitable, not really guaranteed success. And the CEO takes 15 off rank and file do not. And you ended up picking the wrong investor just so you could pocket your 15 rank and file. Don't even understand what happened to them. They're not in the loop. Uh, should there

SPEAKER_21: be more transparency for the rank and file? Uh, should any of these secondaries be party

SPEAKER_148: pursue? If the founders participate, everybody else should participate. What's your position on it?

SPEAKER_286: Everybody looks at it differently, but really, I think the easiest way to make it work is if a CEO

SPEAKER_43: wants to sell, they probably should offer it to rank and file. Now you could, you can slice and dice your data differently. Jason, you could say, for example, anyone who's been at the company for four years or more can sell. You can say, I'm making up the date. That's like an individual decision. It could be, um, you can sell up to 15% of your position, but I, the CEO, I'm not going to sell more than 15% of my position either. So it could be relative. Um, like it's okay to have some slices and dices because like you don't necessarily have someone who's joined three months ago cashing out, right? They haven't really contributed to the success. That makes a lot of sense to me.

SPEAKER_110: But orderly there ought to be a structure. It should be an orderly process. I think this double dealing ice. We, we know this famous instances of this, but you know, like some

SPEAKER_04: founder, yeah, they know somebody who's a, you know, some crazy billionaire. They sell, you know,

SPEAKER_21: a third of their shares before the IPO. Everybody's locked up. IPO price was a little too high. The price before the IPO was a little too high and they get to clear a third of their position and then everybody

SPEAKER_08: hates them. So you got to really be thoughtful about this because again, alignment does matter. You need to have everybody aligned. And if everybody's not, and we have started having these bad feelings, it gets toxic. Maybe you could give us an example. I know we're getting close to the end here. Some examples of things that were company killers, uh, and some things that were, Hey, um, really profiles and courage, uh, things that really got the company aligned and you can composite it, obviously, uh, unless it makes everybody look great, but some thoughtfulness around things you've seen that have, that have crashed the plane that didn't need to, uh, and what you took

SPEAKER_292: from it. Um, well, mostly what I should tell you, Jason is my philosophy and, you know, going back to

SPEAKER_202: psychology where you were like earlier in the episode, which is there's no such thing as a good or bad VC. The pool of VCs and their behavior in is just maps what there is in the general population. There's amazing VCs who are really hardworking, thoughtful, earnest people, not in it for the cash, um, that are show up and be dependable. And there's . And the same is true of founders. Like there's not a

SPEAKER_185: larger proportion of altruistic founders than there are VCs. Then there are investment bankers. Then there are lawyers. Like we're all just human. And so I will tell you that there have been some bad behaviors for CEOs and these things never get public. Um, and in a bull market, what we saw a lot of CEOs doing is pushing really hard for personal top up in their shares. So let's say you did a round and they come back to the board and they say, I want to own 6% more of the company. And the board might say, but you already own 18% and the rank and file each own less than a half a percent. So we'll take dilution, but it really should go to rank and file. And by the way, you already sold 10 million dollars a secondary in the last round. And that's why you own 18 and not 24% or whatever.

SPEAKER_202: But in a booming market where they had a million options, what happened was founders who found someone who was willing to let them top up their personal shares. And they didn't always look after their staff. Now, again, I don't want to suggest that there's not VCs who do self-dealing. Uh, there,

SPEAKER_129: there are that like, there's not good and bad predatory terms, the three axes, the two axes,

SPEAKER_202: the cram downs. Is that happening now? Yeah. Oh yeah. I just read last night. Um, a data set that was put out that, um, maps across a whole bunch of terms, whether they're founder friendly or investor friendly and the nadir, the low point of investor friendly or the peak of founder friendly, no surprise was 2019 to 2021 for the last 20 years.

SPEAKER_43: And it's a sharp trend up towards investor friendly right now. So I wouldn't say three X participating

David Friedberg: preferred, but you are seeing participating preferred coming back. Okay. I get my money and then I get my percent ownership. You get a double dip, double dip. You're seeing, uh, dividends

SPEAKER_202: going up. You're seeing, um, it, you might see a 1.4. How does the dividend work? You're not actually

SPEAKER_308: getting the cash back. You're getting what? Well, you can have things like a pit. You can have things

SPEAKER_202: like a pick, which is a payment in kind. So it basically says you accumulate a dividend. Um,

SPEAKER_33: and then you get it in equity later. So it's just a way of getting more ownership. So you feel like

SPEAKER_185: you sold 18% of your company, but one day when you sell it, you really sold 23% of your company because a dividend builds up that gets paid in kind. Like there's a whole bunch of 20, the investor

SPEAKER_110: put in 10 million, they get 6% dividend every year. They get another $600,000 on that 10 million.

David Friedberg: Yeah. That gets put on top and they, and they can put it, they can either have it stack up onto

SPEAKER_202: their liquidation preference. So that's downside protection. So if my liquidation preference builds, which they typically do, they typically increase over time. Um, or I can actually have a payment in kind, which means that I get equity cumulatively and I get it paid later at that. Um, whenever the evaluation was at that time, you also see things like full ratchets that come to play, um, in a market like this. Um, and honestly, the, the pendulum hasn't swung fully,

SPEAKER_185: Jason, right? Like there's still an oversupply of capital. So the terms are relatively favorable to

SPEAKER_21: founders, but it is changing quickly. I think, yeah, if you're a founder, the best advice is to, um, build as much runway. So you have as many options as possible. A founder with 24 months of runway right

SPEAKER_08: now can turn down deals, a founder with five months of runway, six months of runway. They reasonably

SPEAKER_21: can't turn down a deal, which means we know how that dynamics going to go. It's going to go down to

SPEAKER_148: the wire and you're going to wind up taking a really bad deal. So be thoughtful. Mark, as always,

SPEAKER_234: our conversations, uh, so candid and so insightful. It's great to work with you. Uh, if you're a founder, read Mark's blog, both sides of the table. And if you're a seed founder, uh, you're not going to do

SPEAKER_321: much better than Mark in terms of somebody who's going to work hard for you. So go ahead and pitch

SPEAKER_43: him your company. The best way to do that is. Well, uh, I, I still believe the best way to get a

David Friedberg: hold of us is to get introduced by somebody we know, which is usually the founders that we've backed.

SPEAKER_42: Oh, that's the best way for sure. I do. I do read email. Yeah. But like,

SPEAKER_43: I get so many like you, so many inbound that how do you know which one of those things to really focus your time and energy? Um, so, you know, getting a friendly intro and, and like, I know people get outraged by this. Like, why should I have to get an intro, but actually the skillset

SPEAKER_290: that it takes to get an intro to a VC, it's pretty easy to get introduced to a VC. Like we are predisposed to want to meet people, but that's the same skillset you're going to need to sell your product to enterprise clients. They get journalists to write about you, to do business development

SPEAKER_43: deals, to persuade people to join your company. So it is a bit of a test. That's the first test

SPEAKER_328: is how do you get access and what do you do with it? Yeah, that is one of the, it's one of the first

SPEAKER_129: tests. I have one test right before that I always tell people is the first test. My first test is, can you get a co-founder? I get a lot of emails because I tend to invest a little bit before you. Um, we overlap obviously, but they, you know, I can't find a co-founder. I'm like,

SPEAKER_329: failed the first test. Can't get an intro. Failed the second test.

SPEAKER_43: The first two things I look for in any company is cadence of recruiting. Obviously quality matters, but cadence of recruiting and cadence of shipping product. Because people who can't hire and can't either because you don't have access or you don't dedicate time or you're just slow in decision making, they're going to be like that for the next 10 years. And people who can't ship product regularly, it's a bad pattern. Yeah.

SPEAKER_110: Uh, I agree. The second one is my first. I look at that product velocity. I just love product

SPEAKER_21: velocity and you, uh, describe this in probably your most famous blog post. Invest in lines, not dots. Explain to people as we end here, uh, this philosophy you came up with and, uh, do you still, uh, believe

SPEAKER_14: in it or have you edited in any way? Completely believe in it. And I think it's a two-way process.

SPEAKER_43: Okay. So the idea is think X axis, Y axis where X axis is time and Y axis is performance. However, you want to measure performance. Okay. When I meet you, you're a dot. We either had a great meeting or a bad meeting. You either were on a high because you just got a bunch of wins or you're on a low cause you add a bunch of losses or whatever, but you're a dot. And the next time I meet you, um, that might be up to the right, or it might be down a little bit, but over time that I connect those dots and I see a pattern like you got kicked in the nuts or, you know, kicked in the shins or

SPEAKER_49: whatever metaphor we want to use, I guess, gender neutral, you got kicked in the shins on your ass.

SPEAKER_43: You got knocked on your ass. And how did you get back up? And did you dust yourself off? Were you resilient? Did you have good follow-up? Um, are you good at recruiting? Can I see what's changed in your product? Can I see what's changed in your forecast? Did you get press? Did you, whatever. And over time, if I've met you four or five times, I start to detect the pattern of what it's like to work with you. And the same is true of a VC. They might show up their first day and be super charming, but then they never really follow up on things. And, you know, if they don't follow up when they are supposed to be in the courting phase of you, well, that might mean they're not interested. That's true. Um, but if they say they're going to do it and they don't do it, imagine what it's going to be like when they're on your board. So like it's a two-way street and like someone who is thoughtful in the first meeting with you and has all sorts of ideas,

SPEAKER_202: but the second meeting, they don't remember even really what they talked about the first time.

Chamath Palihapitiya: Yeah. Like that's probably what it's going to be like when they're on your board.

SPEAKER_08: I mean, you need people who can actually, um, on the founder side, produce a product. And I just love that product velocity and, you know, hiring velocity is one I haven't thought of, but boy, is

SPEAKER_345: that, that one's going to sit with me. All right, Mark. Great job. And, uh, we'll see you all next time on this week. Bye-bye. Yeah.