SPEAKER_00: All right, everybody. Welcome to season seven of Angel. Last season, we talked to first-time fund managers, right? That was our opportunity to have a really diverse set of interesting founders who are just starting their careers as fund managers, right? What a great idea for a series, right? And that was season six. You can go see that at thisweekinstartups.com slash angel. This season, season seven, we went in the opposite direction. We're only going to interview fund managers who have witnessed and invested through three cycles. Let that sink in. That means they started their investing career during the dot-com bubble, and they saw that bust. Then they went into 2000. They saw the Great Recession. And of course, they invested through this latest cycle and this boom-bust period, which is, you know, 14 years. Now, a bit of a disclaimer here. There are not many folks who last through three decades in three venture cycles. They don't exist. They're unicorns themselves. And we have to go find them very hard. If you have ideas for people who've invested in all three cycles, please email producers at thisweekinstartups.com because we're having a hard time finding them. But today's was an easy choice. Brad Feld of the Foundry Group. I have been friends with him for three decades as well. I met him during the dot-com boom-bust cycle. And he gives, you know, his personal thesis for who he's willing to work with in the trenches during these up-and-down periods. This is one of those episodes that you're going to want to download. You want to save it, maybe listen to it every year, maybe listen to it twice. If it's on 3x speed or 2x speed, go ahead and slow it down. Get a notebook out. Get ChatGPT out. Take some notes on this one because you're going to learn a ton, whether you're a founder or a capital allocator. I bring you Brad Feld.

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SPEAKER_06: All right, everybody. This is an incredibly exciting moment for me. One of my mentors, one of the first people I ever met in the technology industry is with us today. His name is Brad Feld. Do you know who he is? Because he is a three cycle investor. He was there before the.com bust and he invested through the.com era when the internet was nascent and then, uh, through the web 2.0 era and then into this era. But he's not only invested in tons of companies, supported countless founders, he's written books and provided education, uh, to generation after generation of capital allocators, a life of service. Um, and just a great friend. If you look up mensch in the Silicon Valley manual, uh, you're going to find him right there, uh, along with his friend, uh, Jerry Colonna. And those were two of the mentions I met early in my career who relentlessly supported me. And so it is a delight, Brad, to have you back on the program. Thanks for taking the time. I know you're

SPEAKER_11: busy. Jason, I'm going to cut that segment and I'm going to send it to my mom and it'll make her super

SPEAKER_16: happy. Uh, you know, she should be very proud because you know, when you're coming up in the industry and you're a nobody and let's face it, when we all are in the industry, by definition, we're nobody. When I was a nobody before I had the platforms, I have the resources I have, you always took the time with this awkward little kid from Brooklyn and you and Jerry to explain to me how the world worked. And I, and I just look at you guys like big brothers and incredible mentors. And I'm just delighted you're here. What are you spending your time on these days? Uh, you know, you, you've been doing this now for three decades, correct? Yeah, it has been almost 30 years, which kind of

SPEAKER_19: makes not much sense to me. I, I made my first investment when I'm 28, when I was 28, I'm 57.

SPEAKER_23: Oh wow. So that is kind of nutty. Like 30 years is a, a, a hard chunk of time to really process,

SPEAKER_16: at least for me. It is. I think it is for all of us, you know, the, like they say, when you're raising kids or you have a career, you know, the days are long, the years are short and the decades are just really hard to fathom. Yeah. They go by really fast. They do. They do. Let's go back 30 years to that first investment. Take me to that moment when you decided I want to place this bet on this founder. Um, and what that was like for you to, to do, to be a capital allocator, to decide, I'm going to take this person who has a dream. They want to change the world and they need the resources to do it. And I'm going to write that check. Uh, you know, this is back when there was

SPEAKER_26: a check writing business, not just a wiring business. What was that moment like for you?

SPEAKER_19: My very first angel investment was in the fall of 1994, November of 94. It was in a company called net Genesis that had four founders, two of whom run companies that we're investors in today through our current funds, one of whom I've done eight companies with, uh, since that period of time. So interesting dynamics of the long arc. And the way that came about was I, I stole my first company in November, 1993, and I sold it to a public company. I knew nothing about buying or selling companies. I knew nothing about investing. I never invested. I never raised capital. My first company was, uh, self-funded. Uh, we had 10 shares of stock. We sold, uh, them for a dollar. My partner got three, I got six and my dad got one. And when we sold the company, we still had 10 shares of stock. And fortunately they were worth more than a dollar when we sold it. I worked for that public company for, uh, a year and a half. And for the first six months, I was very active sort of, they bought a bunch of companies. So my company was the sixth or seventh that they'd acquired in this very sort of rapid one or two a month kind of acquisition streak that they were on. And about six months in after I'd already started to do some other stuff with the co-founders, uh, of the company who are the co-chairman guy named, uh, Len Fassler and Jerry Park. Um, they bought a company that was four times bigger than my company. And my company had doubled in size in that nine months since they bought us. So, uh, you know, grew very, very quickly

SPEAKER_36: for a variety of reasons. We then bought a much bigger company. And the day after that deal closed, I handed the guy who was the CEO of that company, the keys. And I basically said, you know, he wanted to run the division that my company was part of. And I said, my company is now part of your company. You're the division. And I shifted to a staff job by then I was doing a lot of the M and a work with Len and Jerry. I was the technical guy on the deal team. So I was learning about doing acquisitions by just watching them do acquisitions and, you know, doing very specific stuff that they'd want me to do on the sort of evaluation on the tech side. And at the same time, I was starting to think about starting new companies again. I, you know, I've been nine months in, I'm kind of, I don't have anybody reporting to me anymore. I was enjoying what I was doing. But I was kind of thinking about what I wanted to do next. And as part of it, I decided to just start investing some of the money I made from selling that first company. And it was before the end of this before summer, so must have been in the in the springtime late spring, I met some guys that introduced me to the World Wide Web, the four founders in that Genesis, I went to, I went to MIT, they all went to MIT. So I ended up in this place called the Student Center, the second floor of the Student Center, which today is probably not anything like it was then. But then it was kind of like one of the hangout places, if you wanted to have a public use a public computer. And they showed me what was essentially a very early version of Mosaic with an application that had been created at MIT called Freshman Fish Wrap, which was kind of a newspaper thing very, I mean, it was, but it was like, you saw it, you're like, huh, this is a totally different thing than what my first company had been doing, which is, you know, PC based business applications. And over the summer, we worked together. And in the fall, we ended up making this first investment. And from that point forward, I made about an investment a month for the next three years. So I made I made about 40 investments between that period of time in the end of 1996, 25 $50,000 at a time. They kind of fell into one of three categories. One category was one where I was essentially leading a seed round, and then pulling together a quarter million half a million dollars from, you know, my dad and some friends and other people and Len and Jerry and, you know, some other entrepreneurs that I knew. Then second category was I was writing a check into a company that somebody else was pulling together a syndicate like that for at the very, we say seed, I guess now people would say pre seed, but it was the first check. And then the third category was just some random stuff.

SPEAKER_43: But that was how it started. Like, it wasn't planned. I knew nothing. And I just sort of learned

SPEAKER_16: by doing this is extraordinary when you think about it. Um, this is a time when the number of

SPEAKER_45: angel investors that existed in the world, whether it was Silicon Valley, and certainly I think you were probably in Boston, New York, you could count them on one hand. There were only a couple of people

SPEAKER_16: who would be crazy enough to write, I'm guessing you were writing 10 to 25 to 50k checks into these

SPEAKER_36: companies 20, 25,000, sometimes 50,000. And yeah, it was, it was a very sparse thing. There were not a lot of angel investors, it was hard to raise that money. I was investing not just in Boston. But I was in Boston in New York, I had a network there, I had a big network in Seattle, because my first company

SPEAKER_33: had done a lot with Microsoft. So I knew a lot of people in Seattle. So I go there regularly, the Bay Area, LA, I had a bunch of friends in LA that were entrepreneurs. So I ended up doing some investments there. I grew up in Dallas. So I did a couple of investments in Dallas. So it's kind of

SPEAKER_36: all over the country. And one of the sort of interesting things was angel investing, then people might write one or two checks a year. Right, right, they're very selective, like, you know, pick the company, make sure they get it right. And sort of the idea that, you know, this was the one that they were going to make the angel investment is always sort of, you know, hand wringing around doing the investment. And I was, you know, one a month, and I was doing deciding it after the first or second meeting. And I was really basing my decision to invest on a combination of the people, like, did I want to be partners with these people? And I thought about it as partners, because that's what my first business had been, right? I was partners with my partner, Dave. Right. And I just thought of it as okay, now, even though I'm going to be a small owner, I'm going to be working with them and helping them. And the other was what the product was, did I have any affinity for the product? I didn't have to use the product, but I had to give about it. Right. And that was really, I don't think I described it that way at the beginning. But that was what how I started to describe what was interesting to me. And when I look back on that, and some of the people and the relationships that I developed in that time period, and then you know, you mentioned Jerry, I met Jerry through NetGenesis. And you know, the way that unfolded was sort of classic is is NetGenesis was one of the very first internet companies. It actually had a couple of products grew pretty quickly. And when I say grew, like, you know, half a million or million dollars of revenue, but had real revenue. Yeah, but it had three separate products that were totally different. And they got to a point where

SPEAKER_33: they had to decide what they were going to do and focus on one product instead of all three products.

SPEAKER_56: And so we essentially classic entrepreneurs dilemma, drowning in opportunity.

SPEAKER_36: That's right. And you know, there was competitors for all three. And so we were fighting on three fronts with limited resources. And yeah, we decided to sell two of the three products, one of the products was what was then we called a threaded discussion group manager. So it was basically a discussion board, a BBS on the web, right? And it was all written in Perl. And it was a CGI script. And it was really, you know, yuck. But it was something right. And this stuff just didn't exist. And we sold it to a company that Jerry was thinking about funding with Fred Wilson, called eShare. A guy named Jim Tito ran eShare, you might remember, Jim from a million years ago, he was from Stony Brook, I think,

SPEAKER_19: I lived in Long Island somewhere. And NetGenesis sold that thread to eShare, Jerry and Fred funded it.

SPEAKER_36: And I joined the board with Jerry, and often went. So that's how we first met each other.

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SPEAKER_16: And are these people who I, when things get rough, would want to be partners with I would want to be in the trenches with? Do you still carry that with you today? That initial concept?

SPEAKER_36: Very much. And it's, I think hard fought for me personally, over a long arc, because in the different incarnations of different investing activity I've had from angel investing, and then getting connected up with the SoftBank gang, when nobody knew who SoftBank was, and then ultimately starting a fund with with SoftBank and some of the people, and then that fund evolving into Mobius,

SPEAKER_33: and then that sort of blowing up in the internet bubble, like going through those iterations,

SPEAKER_36: the selection process and the decision process of whether to invest got very complicated, right? When it's just you, and you're the angel, and it's your money, and you don't have a investment committee, you don't have other people you have to talk to, and you don't have a process, and you do whatever you want to do, when all of a sudden, it's a fund, as the fund gets bigger, the number of people get bigger, the process gets heavier, the bureaucracy gets embedded in it, your ability to figure out how to game things so that you get what you want within the larger firm is a natural thing that happens in any organization, right? So especially, Yeah, or bureaucracy, or, you know, some people know how to get what they want, some people don't, or, you know, if things are working, then everybody wants to support you, and if things aren't working, then the pressure is different. All of those things start to play out, and, you know, larger and larger teams try to create systems, so that those things make good decisions, not bad decisions. My own conclusion was the vast majority of that was random, like it didn't actually improve the quality of the decision making. It's not clear that it made the decision making any better or any any worse. And where I got to over time, was the same starting point was really this fundamental notion, and I added one more thing to it over time, but this fundamental notion of, do I want to be partners with these entrepreneurs? And by the way, do they want to be partners with me? So for me, it became bi directional. There's definitely been plenty of people I wanted to work with because, you know, I like, I like them, I like the company, but they wanted to work with somebody else for whatever reason, the person gave them a higher valuation, talked a better game, whatever. That was fine. If they didn't want to be partners with me as much as I wanted to be partners with them, totally cool. I wasn't interested in the dynamic where we weren't entering the relationship at the beginning that way, for exactly the reason you made. Like, when everything's good, it's no problem. When everything's all up, that's when it's, you know, that's when it matters. And if you don't want to be in there working together from the start, it's really hard to navigate your way through those situations. The second was this affinity, like I really got to that place, I've invested in so many companies that I ultimately really didn't care about the thing they were doing. And when everything was going fine, it was fine. But when things got difficult, and every single company that's been successful that I've been an investor in has had at least one near death experience. Yeah. And, you know, multiple in many cases, nobody gets out unscarred. Oh, I mean, and when I say near death, I'm not, you know, I'm not being

SPEAKER_76: histrionic about it. Like, you know, you wake up in the morning, you're like, holy, like this whole thing might fall apart. And it's probably not going to, lawsuits, probably not going to fall out

SPEAKER_43: tomorrow. But you know, like this is a this is existential. Right. And it could be something the company did to itself, it could be the financing environment, it could be exogenous, it could be a

SPEAKER_81: competitor, it could be a fundamental shift in something that was happening in terms of technology.

SPEAKER_15: It could be a sequence of bad decisions. Oh, yeah. Right. Just like an airplane, right? Like,

SPEAKER_86: you make some small decision. And all of a sudden, you know, the wings are just tilted a little bit off. Then you make another bad decision. Now they're a little bit off. And then the speed and the pitch, like a series of bad decisions can all of a sudden become cataclysmic. It's really is before you even

SPEAKER_81: know it like you didn't see it. And then then it happened. So that affinity for the thing the company

SPEAKER_36: was doing became important to me. And then the last was a phrase I've used for probably the last 15 years, which is obsession, and the healthy version of it. And there's unhealthy obsession. And I think,

SPEAKER_33: you know, it's sort of in our culture, not just the disease of obsessive compulsive disorder, but also just how when people become obsessed with something, but in a non constructive way, or even a destructive

SPEAKER_36: way, oftentimes to themselves. But there's a healthy aspect of it. And the way I describe it to people is to answer the question, were you put on planet Earth to work on this problem? If you weren't, then it's impossible to be obsessed about the thing. Interestingly, in entrepreneurship,

SPEAKER_81: and for many, many years, not used as much anymore, which I kind of like that it's died away a little bit. But the word passionate was the one that was used, you have to be passionate about what you're

SPEAKER_42: doing. And the problem is an extrovert can be passionate about a rock. Right? This is the most

SPEAKER_43: amazing. These are these things I stick in my ear, because you told me to to make the podcast sound

SPEAKER_76: better. This is the most it's just earphones, like they're fine. Okay, whatever. Right. But you know,

SPEAKER_43: the extrovert can just get you so believing that these are transformational ear pods. Yes. And that's

SPEAKER_96: different than obsessed. Right. And so that entrepreneur could then just like a butterfly fly over to the next thing they're obsessed with. Now they're obsessed with the microphone. Now they're

SPEAKER_45: obsessed with something else. No, I'm sorry, they're passionate about something else. Right? And I think obsessed means I'm not going to leave this. I'm not leaving this problem.

SPEAKER_36: I gotta get this right. And you know, I might fail. Because that is part of entrepreneurship. I accept the reality that I could fail. But I'm going to work on this as hard as I know how to work on this

David Sacks: work. If you have people on your team, you don't delegate, you just don't always tell them what to do. You empower them to do their jobs. There's a certain level of autonomy that each person in your organization should have. That's when you really do well. If you have to constantly wait for the leader's approval for everything you do, that's horrible. All right, that was the voice of Mike

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SPEAKER_06: When you started failing, when the investments, those 40 investments, you know, you're in your late 20s, you've had great success, but 40 at, you didn't hit 40 out of 40, even in the dot-com era, I'm sure. And they start dying and you're watching them go away or beg you for more money or they need a bridge. How did that psychologically affect you? Because there's a generation now of investors who

SPEAKER_109: started their funds in the last five years who are now going to go through this. And they're watching

SPEAKER_06: all the markdowns from this incredibly silly boom that we went through in 2020, 2021. And we're going to go back from all three of these cycles in this episode, but you start to fast forward. Okay. Now, these people are going to start going through those losses. How did you deal with that psychological

SPEAKER_112: terror or sadness? I don't, you know, I don't know how it impacted you. For me, it becomes incredible frustration and self-loathing. Like, why couldn't we do this? What did we do wrong? We should have worked harder. I should have called the founder more often. How did, how was that first experience in your

SPEAKER_19: twenties? Yeah. So I had three flavors of it because, uh, of when the internet bubble, you know, sort of, uh, uh, peaked and then when it, when it burst and the timing for me was those angel investments happened between 94 and 96. So the timing there was excellent because by the time, um, the internet bubble burst, those companies were either successful and exited, or they had already failed

SPEAKER_36: because they never got off the ground. Remember I was making angel investments and there were a few exceptions, probably the most notable exception. If we want to talk about at some point was a company called harmonics that, uh, kind of navigated its way through all that stuff. It was a fifth angel

SPEAKER_19: investment that I made. So very early in the cycle, but of those 40, um, let's say three of the 40,

SPEAKER_36: and I invested roughly the same amount of money in all of them, right? Again, $25,000 was the typical

SPEAKER_19: check. Sometimes it was 50, three of the 40 individually returned more than a hundred times my money.

SPEAKER_42: So if the other 37 had been zeros, I still had a very good return, right? Against the amount that I did

SPEAKER_36: of the remaining ones, about half of them failed completely, which is zeros. Um, and then the other half were somewhere between probably split between I got up to my money back to, I got a couple of times

SPEAKER_76: my money. Not noticeable. Yeah. I mean, again, against the ones that were the big, right? The big

SPEAKER_121: outcomes. So you learned the power law for the first time. I did. Uh, although interestingly with

SPEAKER_36: the power law too, like there was this whole thing about one of your companies is going to be the one. And I, uh, I sort of didn't buy into that from the beginning. I bought into the, or I got the idea that you want a big enough portfolio, but you should have more than one that has that kind of outsized outcome. Yes. Right. You know, having one is, is kind of his price of admission if you have a portfolio, but you know, two, three, four, that's when you start to really see the return of it. Yes. And then interestingly, there's a lot of people that dismiss all this stuff, sort of that's, you know, get your money back to a couple of times your money. I always viewed that as worth doing the work for a variety of reasons. One of them being it fills in your basis. And so you basically get your initial investment back. And so then your return is magnified on top of that. That was piece

SPEAKER_33: of it. The other piece is just something I learned from working with, with mostly Len Fassler, who was that guy that bought my first company, which is you just, you just fight to the end. Like, you know,

SPEAKER_36: even if you're not going to get money back, you just fight to the end, you try your best, you try to figure out a thing that's good for the customers, that's good for the people involved, the employees, that's good for the founders, that's good for anybody around the thing. Yeah. If the thing ends up being worth nothing from an economic perspective, you still could have impacted and accomplished things.

SPEAKER_19: And I'll just give one example. I had a friend that ran a company for 17 years. I was an investor for about a decade. And in the end, the company was worth zero. I think at the peak, I don't remember

SPEAKER_128: what his valuation was at the peak, but it was not hundreds of millions of dollars, but it was, you

SPEAKER_36: know, $50 million, $100 million, something like that. And when the company ended up shutting down, he wound it down at some point. He, you know, whenever confronted with the idea was a failure, his response would be, no, this was a financial failure. We employed over 1000 people. We wrote

SPEAKER_33: software at a time when nobody was writing this type of software for call centers, it really had an impact on how call centers worked. We were involved in the innovation of a couple of things, again, not financially successful. But it really a lot of people learned a lot from it, they developed great relationships, we had I think they had 100, 100 babies born of, you know, people that worked for the company over the period of time. So he reframed his own view of what failure was to segment financial failure from like the life experience. And that was powerful for me that that was sort of later in in my own arc, but it was powerful because it was a reflection of a lot of the sort of fight to the end,

SPEAKER_36: like you just want to try your hardest. And even if they carry you off the field and whatever cliche you want to use, you still feel like you tried your best. Yeah. And that, you know, that doing the

SPEAKER_112: best job you can is a reward into itself. And you don't have regrets. But even still, sometimes I'm

SPEAKER_139: just like, Oh, some of them had so much promise. Oh, no, no. Failure still sucks. I'm not suggesting

SPEAKER_36: that it's that it's okay. So back to the context. So by 19, I started working with SoftBank in 1996.

SPEAKER_33: In 1997, a group of us raised a fund that SoftBank was the sponsor of. And it took us about a year to

SPEAKER_36: raise that fund. We then invested that fund in 97, 98. That fund ended up doing really well. It was about a 3x net fund pretty quickly. We then raised a larger fund 600 million in 99. And we deployed that fund in in less than 12 months. Wow. And then we raised an even larger fund a billion and a half dollar fund in 2000. And then the bubble crashed, you know, internet. So how much of the 2000 fund

SPEAKER_33: with that billion and a half, we probably not deployed post burst, we probably blew up

SPEAKER_36: two to 300 million of it and just stupid at the beginning. So fortunately, I mean, we had a big hole to dig out of but fortunately, we still had plenty of, you know, capital to invest. But the timing matters because even investing in 2000. And maybe it was more than that is 400 million. By the time you

SPEAKER_81: get to 2002, there's stuff to invest in. Yeah, it's a it's a challenging environment. And it's an environment even though even with the challenges where there's a lot of people who are very uncomfortable making new investments, like you're having a hard time deciding what to do.

SPEAKER_33: Because all the stuff that you put all this money into, are you throwing good money after bad and existing portfolios, you've seen all these things just completely implode. So you're a little

SPEAKER_36: bit nervous about making the next investment. So there's all kinds of dynamics, psychology. Yeah.

SPEAKER_43: Let's say on the psychology, right? If you go back to psychology, that piece of it,

SPEAKER_81: the things that were happening for me, then remember, I said I had three threads, one thread was I still had a bunch of these angel investments that I was helping people with and navigate their way through. And in this period of time, there were some that were massive successes.

SPEAKER_33: An example of one was Critical Path, which I was an angel investor, and I think their peak market cap was $5 billion. And ultimately, it was zero. But I exited that way before, you know, it exploded. But

SPEAKER_15: at that time, by the way, $5 billion was not like $5 billion today. This is

SPEAKER_31: $5 billion was enormous, like top, you know, top five or 10 companies in terms of valuation in that

SPEAKER_45: in that cohort. Because valuations when you invested were typically 123 million.

SPEAKER_36: That's right. That's right. And you know, a big exit, you know, a quarter of a billion to billion dollar exit was a really large exit. Once you got above $1 billion, it was an extraordinary

SPEAKER_59: exit. And if you got above 10 billion, it was really extraordinary. Unprecedented. And even

SPEAKER_81: though I had exited and sold my stock, I was still friends with the founders. And I was still friends with some people on the team. So I'd still have interactions with them. And you know, you'd have

SPEAKER_36: this sort of feeling of what was going on. So that was the angel piece. The Softbank Mobius piece was

SPEAKER_33: a complete cluster. And just dealing with that was incredible. And on top of it, I had co founded several companies in this timeframe. One of them, which was a company called Interliant. That went public, we started in 96 with Len, the guy that bought my first company, it went public in 99. And it was a $3 billion market cap in 2000. And it was bankrupt in 2002. And I was co chairman of that company with Len. If you go back to the Genesis story, Raj Bhargava, who was the founder of

SPEAKER_59: NetGenesis CEO, and the guy I said, I've done eight companies with somebody, it's with Raj. He was another co founder of Interliant. So in the midst of trying to deal with this complete mess, that was what we were doing at Softbank and Mobius and Softbank, not Softbank, the big organization, but the fund we had, we just changed the name from Softbank venture capital to Mobius at some point.

SPEAKER_127: But it was the same fund, the same people dealing with just a mess that was that and then also the pressure of being a co founder and co chair of a company that was imploding. I think we did,

SPEAKER_33: you know, three or four layoffs, we at the peak had about 2000 people, you know, and at the end, probably had a couple 100, we bought a bunch of companies, and we had to then sell off companies,

SPEAKER_59: we were trying to just survive. And if you go to the emotional part of that, yeah, in 2000,

SPEAKER_31: the work was incredibly intense through this whole period, right on the 97 98 99 is just nuts. And,

SPEAKER_109: you know, I was investing out of opportunities, the amount of meetings, the evaluations going up the IPOs, it was incredibly intense, you're working 80 90 hours a week, and and the work is in person.

SPEAKER_36: So there's this enormous amount of flying back and forth across the country, right, people forget on

SPEAKER_33: the road all the time, staying out late all the time getting up early. I mean, it was a it was it was a

SPEAKER_34: lot. Then you get into this phase in 2000, where from about the springtime when NASDAQ peaked, which I

SPEAKER_33: would say is pretty similar to the moment in time, if you put an overlay with where we are in this cycle, to November of 21. Yes. So middle of November, I remember it was around Thanksgiving break was when it felt like things had peaked, and we're starting to come off the peak, I would say it took till the end of 2000, before people were accepting that it wasn't just going to be a temporal shift. So you had a six or

SPEAKER_36: nine month period where the public markets came down a lot. But everybody's like, hey, venture capital has tons of money. And all these companies are well funded. And, you know, it's gonna be fine. And I'll phase of the crash, right. And so there was like a good solid nine months of that. And then

SPEAKER_81: the next 12 months for me, so 2001, for me was just brutal. And it was brutal, because I was involved in too many companies and on too many boards. So I was probably on 25 boards at that point.

SPEAKER_19: And so which was an absurd number to be on. But the result was, in addition to having this daily oppression of everything was up somewhere. And it eventually generated a frame of reference for me,

SPEAKER_33: which is that as a VC, even in good times, in a company, a CEO has these waves, things are going

SPEAKER_81: well, then things are messed up, and things are going well, things are messed up, you always have lots of issues, but you, you have sort of longer arc of good versus bad. As a VC, every day, there's something

SPEAKER_19: new. That's up somewhere. And the severity of it varies a lot. And I think that pressure on the CEO

SPEAKER_81: is much more intense than the VC. But it's this continual thing. And so in some ways, you get at some level used to it, you get used to constantly somewhere in your world, there's a problem that you

SPEAKER_33: got to deal with. Yes. When everything goes from lots of green lights to a couple of yellows, and then every now and then a blinking red, or every day, a new blinking red that you can kind

SPEAKER_81: of go put energy against to the whole board is now blinking red. And that was 2001. And it lasted 12 months for me, because I had so much, I don't think people really started dealing with reality

SPEAKER_59: of how bad things were until about the middle of 2001. And the tracks with my exact experience

SPEAKER_170: at that time. And then the unwinding started, and it really didn't finish until 2004.

SPEAKER_42: And so you had this thing where this the phase that we're still that we're in today, from my frame of

SPEAKER_33: reference is still there's a lot of, you know, anytime somebody says, Hey, there's tons of venture on the sidelines, dry powder, dry powder, like, Yeah, except for now, instead of investing all that money in 12 months, VCs are going to invest it in three years or four years. Yes, LPs who were getting tons of money back, so they had to deploy the money back to VCs are all of a sudden going to not have any money coming back to them. So they're going to deploy a lot less. So there's going to be a lot

SPEAKER_36: less new money coming in. And so like, all of those things play out in in very lumpy ways,

SPEAKER_33: right? They don't all it doesn't all happen sort of in this predictable pattern. Yeah. And the power of human denial is extraordinary. Yes. You know, and and in the case of entrepreneurs, optimism has to reign supreme, like you have to believe that it's going to work.

SPEAKER_127: But if you aren't approaching the problem with a clear head emotionally, approaching the context with a clear head emotionally, and really, frankly, just dealing with reality, whatever it is,

SPEAKER_36: that that your company is facing, or as an investor you're facing, then, you know, it just makes things worse. And I think we're in a liminal state where there's a lot of deferring reality. You know, there's and there's lots of there's lots of behaviors that are easy behaviors that come from

SPEAKER_33: quick prognostications of either investors or entrepreneurs or people that have been through it in the past. And my own deep view, and this is what I learned from just having so many things

SPEAKER_36: crumble at the same time. There isn't an answer. There's not like a single you need to do this,

SPEAKER_81: or you need to do that. Or here's the trick. It's very specific to the company, the market segment,

SPEAKER_36: the team, the investors around the table and what their pressures are and what their resources are.

SPEAKER_33: And, you know, is it a company that's being run by the founding CEO? Is it a company being run by somebody who was a hired CEO? Is it somebody situational? Yeah, so varied from company to company. And when you're in the midst of the beginning of the cycle falling apart, I think everything sort of inners back to normal, like the easy, shallow first reaction kind of things, versus going deeper and saying, What do I really need to do to set myself up as a as a company? Or what does, you know, as the leaders of this company to set ourselves up,

SPEAKER_188: so that we have in front of us, whatever the world is, the ability to navigate through for the indefinite

SPEAKER_190: future. All right, everybody, I wanted to take a moment to thank our friends at Microsoft. Today, we have Lahini Aranachalam with us. She's a Senior Director of Platform and Growth at Microsoft. She actually created the Microsoft for Startups Founders Hub. Welcome to the show. Thanks,

SPEAKER_195: Jason. Thanks for having me. So tell us a little bit about the Founders Hub. Why did you create it?

SPEAKER_196: Yeah, so we built Founders Hub based on the feedback from hundreds of founders. We spoke to founders at all stages of their journey. So ones that were just starting out with an idea, to those that had actually built successful companies, just to better understand what their challenges and pain points were as they were building their businesses. And we found three challenges that kind of rang true regardless of where they were in their journey. The first one was that founders need access to coaching and advice to get to that next milestone. The next is that they need to accelerate the time it takes to actually build an MVP or their second product or their next set of features. And of course, founders need capital to actually keep them afloat as they continue to build their companies. And so Microsoft for Startups Founders Hub is a digital platform built to help founders with these challenges. Thanks so much, Lahini. If you would

SPEAKER_190: like to check it out, go to the Microsoft for Startups Founders Hub and they have no fundraising requirements open to anybody. If you're a founder, they want to support you. It takes five minutes to apply and startups can get up to six figures of benefits instantly. Sign up for the Microsoft

SPEAKER_112: for Startups Founders Hub today at aka.ms slash this week in startups. It's exactly I think you've stated it. My question for you is, you're at that switchboard. Right? You know, you got the 25 boards, you're the maca, you got the money, you place the bets. How does that? How does your brain process? What is triage like a mass unit? You know, you're on Omaha beach now and you got founders and it's not

SPEAKER_16: just one a week or two a week. Now you got 20 a week calling and everything's falling apart. How do you maintain your composure and clear thinking? Because I'm not asking for a friend. I'm literally going through it right now. Yeah, every week, Brad, I am dealing with founders who have accepted some

SPEAKER_109: portion of reality and I'm trying to counsel them. Hey, you know, you had 200 people in this company, your last three rounds were raised because people offered you money. Now, you're not going to get

SPEAKER_16: that fourth offers not coming. And if it does come, it's going to be a miracle and it's going to be at a down round that is going to break your brain of how much equity you're going to actually have in your own company. How did you deal with all of that, all those inputs? Because I listen, I like to play six or seven chess games at once. Sure. But when it's 60 and you're behind, you lost your queen and all of a sudden it's like, well, this is not fun.

SPEAKER_63: Yeah. I don't, I don't think I learned how to deal with it in the internet bubble,

SPEAKER_36: but I can, I can answer the question of how I deal with it today.

SPEAKER_63: Yes. But again, through it at that time situationally, like I survived and you know,

SPEAKER_34: when I reflect on it, you know, 20 something, 20, 20, 22 years later, um, I survived. I'm really

SPEAKER_19: fortunate that my marriage survived to Amy at the end of 2000. It almost didn't. Yeah. And I've written

SPEAKER_33: about it in the book she and I wrote called startup life, but I'm, I'm, I'm really happy that

SPEAKER_36: we navigated through that. That was a huge sort of input to me to get my together on some dimension,

SPEAKER_33: which was to realize that the work that had consumed me was not all of life.

SPEAKER_36: It was an aspect of life, but it was not all of life. Right. And so if anything, that was the thing that helped me navigate one, a key thing that helped me navigate through that time period, some perspective. Yeah. But even like in it, right. The perspective came from a person who I wanted to spend my whole life with basically saying, you know, you're like, you know, I,

SPEAKER_33: I think you're amazing, but I don't want to, you're, you're a crappy roommate. Like, you know, I didn't, I didn't marry you to be ignored all the time because somebody else was more important. No matter, I get it. There's a lot to do, but like maybe pay attention to you and me and other stuff.

SPEAKER_19: So I would put that one as a thing, which is just always remember that life is more than the success

SPEAKER_33: or failure of a business or businesses. Yeah. Any one business for sure. As I wind the clock way forward. And I think some of these lessons came from again, 2007 to 2010.

SPEAKER_45: And that cycle, the great recession happens. It's not our fault this time. This is a real estate

SPEAKER_16: people playing crazy games with mortgages. We're building really hard, building cool companies. Facebook is growing. Google's growing. Twitter is growing. I did weblogs Inc. Flickr. There's a lot of interesting companies being built. Everybody's acting normal in our industry.

SPEAKER_19: And it was, it was a particularly weird time because, you know, 2007 coincided with another

SPEAKER_33: big unlock, I think, in innovation and in the arc that we just experienced, which was essentially the iPhone and, you know, the total shift of the way people thought about software. There's a bunch of, you know, you can, you can spend a lot of time talking about the impact of the iPhone, but that was in that same moment in time, a pretty key shift for me. Um, and we, and we raised our first foundry group fund in 2007, which was a particularly hard time to raise a fund because we were raising a fund when venture still was not popular. It was, it was a thing that, you know, there was a, an article that was still floating around. That was a Kauffman foundation article that said, you shouldn't bother investing in any, but the top 10 venture funds, all the other venture funds don't return any money. And, um, it turned out to be completely wrong. Like if you missed the emerging manager segment from 2004 to 2010, you left, you, you missed a huge amount of upside and then getting into that next generation of funds. Um, many of which today are funds that everybody talks about as name brand funds, going back to sort of, how did I, how do

SPEAKER_19: I, how do I navigate it today? I view the dynamic as one that the most important thing I can do as an investor for, and I'm going to say CEO rather than founder, CEO is often a proxy for founder because

SPEAKER_33: they're often the same, but in the companies that are later, you know, mid or later stage, I'm typically dealing with the CEO versus the founder, but use, use those words interchangeably or concepts interchangeably, depending on the stage. I have a very, very simple perspective

SPEAKER_19: now, which is as long as I support the CEO, I work for her. And if I don't support the CEO,

SPEAKER_36: if I get to the place where I don't support her, I have to do something about it, which doesn't mean fire her. It means try to get back to the place where I support her, but otherwise I work for her.

SPEAKER_127: And if I work for her, every CEO needs something different from me. If I'm a generic board member, generic VC, generic investor, generic whatever, I'm not really serving a useful purpose for that person,

SPEAKER_36: because there's some specific things that are going to be her strengths, her weaknesses, things she needs, the way I need to engage with her. And so I focus my energy on that with a very clear

SPEAKER_19: lens for me of being direct about what I think is going on, but recognizing that I'm providing data, not the answer. In other words, I'm wrong a lot. And I think one of the things that is a weakness in the venture industry broadly writ is I think a lot of VCs just don't have the ability or humility or self

SPEAKER_59: awareness that when they're making a statement about something that's a hypothesis or that's data

SPEAKER_36: from their experience, it might or might not be right. And if it's right, great. But if it's not right, and it's done in a way where the person that's receiving the information feels compelled to have to execute on it, you're making the problem worse, not better. So you're literally telling them how

SPEAKER_109: to run their business without having any responsibility of being in the cockpit. This

SPEAKER_16: is what you should do. Here's the right answer. You know, you're much better. There's a way to frame it. That's much more helpful, which is, in my experience, in three decades, and three boom and bust cycles, these tend to last 18 to 24 months. Do we have 18 to 24 months of runway? How do we get to

SPEAKER_109: that? These are maybe things we should model out and have a discussion about? Well, and I try to phrase

SPEAKER_33: it that is not fire everybody, or you should do this or you have to have this. I also try to put myself in at best appear position with the CEO, but actually in a one down position instead of one up position. I don't want the CEO to feel like they work for me. I want them to feel like I work for them. And this is hard, and it's hard for the person in the CEO seat to understand that too, because that's not the behavior of your investors. You're getting investors that have all different kinds of pressures, and you have board members that have different frames of reference, and you have this canonical sort of language and the tension, frankly, between CEOs and founder CEOs and investors, much of which, you know, contemporary media has made a big deal about in a way that polarizes everybody between who's in the seat running the company versus the power struggles behind the scenes, and the person making good decisions and bad decisions, and people sort of lobbying in grenades, and whether you, you know, use a extreme example, like WeWork and then watch the, you know, however many TV shows that were made about WeWork, like that's an extreme example. But like that phenomena plays out over and over and over again in the investor board member, founder CEO interaction, which is very, very different than, hey, let's deal with reality. I don't know the answer. I want this to happen. You want this to happen. Okay, let's try to figure out the best way that we have the highest probability

SPEAKER_36: of that happening. Oh, you want something different to happen? Let's talk about it. And oh, by the way, I think the thing you want to have happen is completely unrealistic, and it's going to set ourselves up for failure. So let's talk about that. And by the way, I could be wrong, and you could be right. So let's make sure that that's an okay part of the conversation, too. It's a very different interaction. When, when everything is going fine, it's very easy for either side to be dismissive of the other.

SPEAKER_81: When things are not going fine, both sides need each other. Yeah. And hands on deck,

SPEAKER_109: right? Everybody's job function, everybody's contribution is, could be the result in this

SPEAKER_36: company succeeding or failing. That's right. And the leaders, you know, the leaders who,

SPEAKER_33: you know, use a couple of pejorative words, the leaders who gaslight everybody else or grin everyone or view themselves as the only one that's in the position to make the decision or think they're smarter than everybody else or have no ability to acknowledge that they're wrong. I think those are the leaders who in this environment get hurt the most and who whose companies suffer the most and who everybody around them suffers the most doesn't necessarily mean by the way that

SPEAKER_127: they won't ultimately be successful. Right. And that the other company or that the other type of company will ultimately be successful.

SPEAKER_36: I use the word suffer pretty deliberately. It's one of Jerry's Jerry Colonna's favorite words and sort of this notion of creating suffering for yourself and for everybody else that's unnecessary

SPEAKER_133: increases the degree of difficulty of having a positive outcome. Why in the world would you try to increase the degree of difficulty in something that's already

SPEAKER_109: incredibly hard? And that can come from just ignoring people's input or diminishing people or not being

SPEAKER_225: focused or not having a plan. I mean, it can manifest itself in so many ways like electric term grin.

SPEAKER_36: Oh, all the stuff we talked about, right? Like, I mean, it's very easy for me at a moment of being frustrated with somebody to tell somebody how stupid they are and how wrong they are and how dumb this is. And oh, by the way, well, why did I say that? Hey, Jason, I'm, you know, if I called you the next day and said, Jason, I'm sorry, I called you an idiot. It wasn't actually anything about you. I was really mad at Mary. Yeah. And I was just taking out my frustration with Mary and the situation I was in on you. And I'm sorry. If I see if I called you and said that after I was a jerk to you,

SPEAKER_81: you'd probably accept my apology. And we'd move on. Think of the number of people who don't have

SPEAKER_33: the self awareness in that moment to do that. Yeah, or who feel like, well, I can't show weakness. I can't say I'm sorry to that employee or that partner or that investor that I just, you know, and I'm moving on, I gotta just get this stuff done. Not healthy.

SPEAKER_252: I mean, in some ways, really accepting reality, and then bringing your team into that reality

SPEAKER_16: seems to be a piece that people miss. If the reality is, you know, our sales are going to be down 50% this year, and we doubled our staff thinking we were going to triple revenues. Once you have that discussion, all of a sudden, the pressure has been released. Okay, we know the reality. The company is way too big. The revenue is going down. Okay, is there a way? Um, let's, let's come up with ideas. The obvious idea is to cut expense. But another idea might be to increase revenue somehow. What are people's creative ideas? Maybe if everybody here is 20% more efficient every month for three months, maybe we don't have to lay off as many people. Maybe if we automate some stuff, maybe we do partnership. And when you when I see

SPEAKER_109: founders who can move to that sort of state of being where they're in the board meeting saying,

SPEAKER_45: like, here's reality, we hired based on 2023 projection that there's no way we're hitting.

SPEAKER_28: It keeps rolling out. Let me let me let me give a fun example. One that I say it's fun. It's a hard

SPEAKER_33: example to understand at some level, unless you're in this type of business. And I'm sure there's plenty of plenty of people that listen to all the stuff you do that have hardware related business hardware related businesses because I know plenty of your angel investments are hardware related business. And it's very challenging. But but here's the dynamic. Hey, sales are slowing down because of the macro economy. The supply chain has been a total mess for the last long time. So everything got more expensive. It's more money to ship stuff to us. The parts cost more. It's, you know, shipping, blah,

SPEAKER_19: blah, all that stuff. And ad revenue or sorry, ad investment is getting less efficient. Because,

SPEAKER_36: you know, Facebook's not working as well because the changes Apple made and you know, whatever you have like this acquisition cost is a headwind. Yeah, your CAC isn't right anymore. And

SPEAKER_33: data data. And you look at it and you say, Okay, and the re the current reality is my gross margin is 30%. And my contribution margin, so my gross margin minus my cost of sales and marketing is zero. And so basically, I'm losing money, you know, the GNA and R&D of my business and all sort of the rest of

SPEAKER_127: the cost is what loses money. What do you do? And there's a whole bunch of conversation. But fundamentally, the starting point, there's there's two big levers. One is increased gross margin.

SPEAKER_33: And the other is essentially increased contribution margin. How you do that in this environment is very straightforward, but very hard for people to get their minds around. For gross margin,

SPEAKER_36: your only solution is raise prices, right? You have to raise prices. And everybody goes, Oh my god, if we raise prices, nobody will buy our anymore. Right? Okay. Well, you have to raise prices. Well, if we raise prices to sell the same amount of we have to spend more money on demand gen, to get more customers in the mix. What is missing from that whole analysis is that the cash flow dynamics of a hardware business, which is that you have to make the thing that you then sell to the customer, and then the customer pays you for it, with the exception of certain types of models that are negative working capital models, where the customer pays you in advance, and then you make the thing,

SPEAKER_63: and then you deliver the thing. Kickstarter style. Yep. Okay, well, Kickstarter style, or Tesla bot ordering advance paying for you. Dell, Dell's business, and the brilliance of Michael

SPEAKER_33: Dell early on absolute brilliance is he created the first negative working capital computer model, they assembled the products, basically, as they were selling them. So somebody would buy it, and they'd assemble it and ship it. And that allowed them to grow with very little investment, because they were essentially using the customer order dollars, as a starting point. Now, if you use the customer order dollars, but you never deliver the product to the customer, you got a different category of problem. Yeah, right. So you know, which, of course, happened on Kickstarter for lots of hardware products, where they took the money, but never deliver. So lots of pieces, you got to get

SPEAKER_19: together. That's why I say it's a complicated story. But the leadership team that sits around,

SPEAKER_36: talks about it and says, I mean, you have two things you have to do, you have to raise prices, and you have to lower the amount of money you're spending to get a customer. That's it. If you can do those two things, you can meaningfully improve your business. You can, all the other stuff is going to have so much less impact on you. Right. In a hardware business. Yeah. And yet, if you look at all the hardware businesses that have been venture backed, that have been chasing growth,

SPEAKER_81: and not paying attention to gross margin and not really paying attention to contribution margin. They don't know how to do that. They don't have the muscle for that. And if you never had to,

SPEAKER_96: you wrote a blog post, you know, the day we taped this or the day before, we were just talking about,

SPEAKER_109: hey, if you're under 40, you probably haven't been in a leadership position, almost by definition, there's a few in a down market. Unless you started your company at 20. That's right. You have not experienced this before. And it takes a level of humility that, gosh, you know,

SPEAKER_06: I could always raise that incremental $10 million bridge $5 million bridge, you know, some strategic

SPEAKER_132: would want to put a little money. Everyone's telling me I have to grow as fast as possible.

SPEAKER_33: And so all of my behavior has to be oriented around growing as fast as possible. Everything I read, other companies that are sort of like me are growing really fast. My business is better than them. But they're raising money at these crazy prices. Therefore, okay, that's going to be available to me when I raise my hand and look for money at crazy prices. Yeah. Right. Like, again,

SPEAKER_36: understanding how to navigate your way through. Now the positive thing in this environment comes back to the emotional question you asked, right? There's a lot of people that actually can be quite helpful with this, including many of the investors sitting around the tables of many of these companies.

SPEAKER_33: The key though, I think from a CEO's perspective is to force the people sitting around the table to think hard about your business with you, rather than you as the leader, just sort of deal with whatever platitudes are coming your way. Yeah. And use this as a moment to forge tighter relationships with the people sitting around the table, both your leadership team and your investors, because you're trying to figure out how to navigate out of a challenging environment. And then the last is for companies, and there are many companies, plenty in our portfolio that are on very solid footing, right? They have plenty of capital,

SPEAKER_36: their businesses are working reasonably well, they were proactive in terms of their cost structures earlier in 2022. Or maybe they didn't have to be because they didn't get as far ahead of themselves

SPEAKER_33: for whatever reason, like, in some cases, the companies actually this environment works better for them because of the demand characteristics of other things that are going on. Whatever the reason is, those companies all of a sudden, can pick up lots of market share in this environment, because of the distress of their competitors. So it's understanding each company. And as a leader, figuring out what your company needs to do over the next couple of years, assuming that it's going to take a while before things get easier. And I think the generic,

SPEAKER_36: this is the emotional problem, everything's terrible, it's all screwed up, the world is miserable, blinking red lights everywhere. You carry that around for enough times, and that becomes the truth. Yeah. And yet, hey, you know, we are, we do happen to be at least

SPEAKER_19: me and you were alive, we've got plenty of resources, you know, lots of good things,

SPEAKER_132: energy, wisdom strategies, play healthy, healthy, you put your energy into it, even in really challenging

SPEAKER_133: environments. If you can get closer to the people you're working with in that, when the environment

SPEAKER_252: gets less challenging, it's really satisfying. The state we've been in for the last 10 years is

SPEAKER_16: the aberration. Startups have always been hard. It's always been about sacrifice and suffering and trying to solve hard problems. We just happened to have lived through what is a seven, eight years of just a complete delusion that startups were easy. And it must have been frustrating for you to watch people say, there's no time for diligence. We're not going to have a board. You need to give me an

SPEAKER_109: answer today. Maybe you could just reflect on how you interpreted the last five years of peak weird

SPEAKER_16: behavior, people giving millions of dollars to people who don't know how to build products, and then giving them 10s of millions of dollars before they have product market fit. It feels

SPEAKER_109: like the entire ethos, the entire playbook of startup and venture capital was thrown out the window,

SPEAKER_16: having a good board meeting regularly, building a plan, giving milestone based financing. Hey, we give you some friends and family a seed series A series B. Hey, let's just skip that and go right to the series B. Let's give some crypto project $100 million valuation, give them $25 million. And then, you know, I read the white paper and I had FOMO. So YOLO. But what was that like when you were watching it for you? Was that like watching people just flying the plane, like without even looking at the

SPEAKER_300: dials? And did you see it coming? Yeah, a couple of different layers of it. Um, there was, uh, in,

SPEAKER_129: in, in our world, I think, for whatever reason, and I say our world, I mean foundries world for whatever

SPEAKER_33: reason, I think it's this of the bi directional affinity with the founders, we want them to want us as much as we want them. The founder that calls me up and says you have 24 hours to make a decision because I've got seven other term sheets. My answer is awesome. Take one of those. It's, you know,

SPEAKER_19: yeah, good, great, good for you. Like it's, it's, and it's not with any negative feeling. It's just like not, not the game I'm playing. Right. Um, I don't know how to do that. Um, some of that, by the way, came from, again, I'm going to tie back to, to, to Len Fassler. You know, he was in his,

SPEAKER_33: he, he passed away at 88. So it must've been late sixties. Um, uh, when this was going on 65 to 68, let's say during the bubble, somewhere in that age. And, um, there were lots of moments where he basically said, I don't understand what's going on. It's not, I don't understand the internet or I don't understand these products. It's I don't understand what's going on. And, um, he had the ability, he was willing to say that, you know, we were, we, we bought a bunch of companies at that company. We'd be looking to buy a company and, uh, you know, become competitive and the price that somebody was willing to pay, you know, was five times or 10 times more than what we were willing to pay, not, you know, 5% or 10%, five times. And, you know, be like, we don't understand. Oh, by the way, you know, one of those companies was a company called Exodus, which, you know, gloriously went bankrupt actually before we did. Um, right. And part of it was just kind of some of

SPEAKER_36: that stupidity. So for me, a lot of, I would say probably 18, 19, 20. I, there was a lot,

SPEAKER_19: I just didn't understand. I did understand the linkage between, um, 0% interest rates and people

SPEAKER_36: going after risk and the dynamic of that. Like I understood that, but I didn't understand how I'll just use a simple example that became normative. The number of times I heard somebody

SPEAKER_19: say, yeah, we're willing to pay, um, in 2020 or even early in 2020 sometime. Yeah. In 2021,

SPEAKER_33: we're willing to pay a multiple of 2024 or 2025 revenue. That was weird. Right. That's stupid.

SPEAKER_36: Or somebody would say, Hey, you know what? The new valuations, you know, the public markets are telling us that B2B SaaS companies are worth 50 times, you know, for 12 months. So we'll give you 50 times next year's revenue. Actually, we'll give you 50 times ARR exiting December of next year, which is December times 12. Like, I don't know any planet where that actually works long term. Yeah. And well, we just want the best companies and the ones that are the best companies are the ones that are growing the fastest. And you get this, you get this rationalization. And my reaction

SPEAKER_40: to the rationalization was kind of, I don't understand. So that was one category.

SPEAKER_16: Just entry price matters. There has to be some thoughtfulness to the price that you're if you're a capital allocator, the price you're paying at that moment in time. And this was complete

SPEAKER_15: thoughtlessness. Well, thoughtlessness or just, just an assumption that there was no downside risk.

SPEAKER_36: I mean, if you're investing in a project that is a complete raw startup, you have to assume that the

SPEAKER_127: vast majority of those projects are going to fail. Right. So if you invest a small amount of money in those at the earliest stages, hence preceder seed investing, okay, that makes sense. But if you invest $100 million, just because that doesn't make sense. Yeah, there was another layer of it,

SPEAKER_33: which, you know, I, I've been negative on for a while, I'm going to separate crypto from web three, because I think they really are different things. And there was, you know, for a while, an effort to separate out the idea of blockchain from it, I just sort of separate the construct of things that are, I become a Matt Levine disciple, I don't know if you read him from Bloomberg, just spectacular. And, you know, his, the whole deconstruction of what's happened in crypto, and his lead up to it over the last 18 months, I think encapsulates how I feel and how I've talked about it to people. And there were a number of people in my world who started, would start saying things

SPEAKER_127: like, you know, Brad, Brad me hates crypto. I didn't hate crypto, I just thought the vast majority

SPEAKER_34: of it was nonsense. Yeah. And in the nonsense, what do you mean by nonsense nonsense is like,

SPEAKER_132: I understand, I think I understand what's going on here. And it doesn't make any economic sense to me.

SPEAKER_36: Well, let me tell you why I'm like, No, no, all you're doing is you're speculating on an asset, it doesn't matter whether it's a thing or another thing or another thing or a CDO or a derivative or derivative of a derivative, like you're just speculating. No, no, no, these have long term durable value in terms of like, well, what's the value? What are they doing? Hand waving. And whenever the hand wave would come and be like, Look, I don't need to argue with you, I'm just going to go play in a different sandbox somewhere else. Like, you know, I get it. And maybe I'm totally wrong. That's okay. So I had a lot of that in the last couple of years where

SPEAKER_34: me too. Yeah, I didn't really, you know, I was, I didn't understand. And so in a couple of places,

SPEAKER_36: I wandered in to try to understand better and understand by doing. And I learned a lot in the

SPEAKER_34: cases where I wandered in and understood by doing. And in the cases where I just either had no interest

SPEAKER_16: or didn't want to learn, I just ignored. The interesting thing in that whole crypto was why are we allowing early shareholders to create enormous wealth before there's any consumer value being created? It's almost like giving somebody coming out of tech stars, which you co-founded, uh, with Amy, uh, and the Davids, uh, you brought in, if I'm correct in the history of that, um, just think about if a tech stars company was IPO. Uh, a demo day. Yeah. And you'd be like, here's your IPO. And it's like, I was just like, wait a second. It's how are these founders going to come to work if they've already sold 25 or $50 million worth of a token to on some exchange to somebody. It just didn't make any sense to me. And why is all this liquidity happening without a product providing value in the world? So again, I was like, I don't understand how to

SPEAKER_06: evaluate this opportunity. Uh, maybe I'm too stupid. Then I realized, wait a second, I'm recognizing a lot of these people. And this is where, like being a judge of character, I was like, I remember some of these people from the.com era. I remember some of these people from Web 2.0. These people are charlatans. Why would you, if this is such a great project, why are you clearing your bag? Why are you selling your equity in month six of the project? It doesn't make any sense.

SPEAKER_129: Well, you know, it, it, it also became very clear, very quickly. If you were looking at it

SPEAKER_33: with a critical eye and I think a number of people figured this out that were very smart. Um, and for a period of time, there was a set of people who worked hard to maximize, uh, their, their own economic outcomes from this. Um, once, once you sort of figure out, oh, I get it. I can create something from nothing. I can give myself a whole bunch of it. Uh, I can then get other people to inflate the price of it. And then I can create some liquidity and get some liquidity out of this early position that I have. And whether it was on the entrepreneur side or the investor side that

SPEAKER_19: accelerated, um, because of a very classic phenomena, that's the greed cycle, right? I mean,

SPEAKER_331: once people start getting greedy around that, all of a sudden more and more happens, it became a

David Friedberg: playbook. I, I was in some of these meetings with normal startups, Brad, and they were like, Hey, we're gonna do a token. I'm like, what does that have to do with this core business? And they're like, yeah, well, we can raise all this money. I'm like, well, we could also go to venture capitalists and we could have revenue from customers. And they're like, no, no, we ICO this public buys it. We're gonna raise this money. And then I'm in a meeting with a lawyer and they're like, we're setting up a foundation in Panama. And I'm like, we're Panama, but with between the US

SPEAKER_87: and South America, the one in Kansas, Panama, Kansas, Panama, we we're setting up a foundation in

David Friedberg: patent. Why? Oh, it's more, you know, uh, uh, it's more reasonable for this type of transaction. I'm like, I don't know. I've been on the planet for 50 years and 30 of their own business. We,

SPEAKER_16: we kind of were going with Delaware since I've been here.

SPEAKER_33: I think, I think that this is a, you know, what, what, what happened again is, is kind of a normal part of the entrepreneurial cycle, um, which is, you know, you could talk about the same thing that happened in 2000 where the suspension of disbelief emerged, um, writ large. And then there were a series of different things people did. And I'll just describe two of them that I remember companies that with the benefit of hindsight were either in some cases, clearly fraudulent, um, and in others had no economic benefit to anybody, uh, except for the speculative phenomena that was going on. Um, one of them, uh, which, uh, I think was most prevalent in telecom, but also was very prevalent in, uh, internet media was essentially the equivalent of round tripping. And oh, yes. AOL, right. AOL was the big example of round tripping. They, they got, um, quest, um, you know, Joe Nacho, who is the CEO of quest went to jail for a long time because of it. And what round tripping and, and for people that don't have any idea what this is, is company A takes balance sheet dollars, invests in company B and buys equity in company B. And by the way, that equity might be public. Um, so it's tradable. Yeah. And then company B signs a long-term revenue contract with company A for company A services. And the really stupid versions were when they were in the exact same dollar amount as the, uh,

SPEAKER_36: investment people, people were a little smarter than that. A lot of cases where, you know, it might be a hundred million dollar investment, but it was only a 97 million dollar five-year revenue

SPEAKER_33: deal. Right. And so on one side, one company's taking its balance sheet and getting a balance sheet asset that's liquid for it and stock in the other company, which everything is going up. So theoretically that stock inflates also the, they in exchange for that, getting that they get a long term customer deal. So they inflate their revenue on the other side, it's a net neutral to the other company. And nobody was caring about how much money you lost. They only cared about your revenue growth. So you watch that play out over and over again. It was crazy. There's, there's some of that that's,

SPEAKER_19: that's showing up in crypto. Yes. You know, some of the, I mean, there was clearly some going on between, uh, Binance and, and FTX. You see it with Gemini Genesis right now. There's clearly this sort of, I gave you money, you gave me money, you know, this money, everything went up into the right. Erase some venture capital, yada, yada. It's, it's the same kind of, it's, it's, it's a

SPEAKER_36: different flavor of the same kind of thing. Yes. And, you know, in some cases it was legitimate in, in the.com era, there was real business and real reasons for those deals. But once people realize that you can inflate your equity value by doing these transactions at basically no cost to you, then that inflation took over. The other example that I'd give just flavors that sort of echoes from the

SPEAKER_19: past is, um, the whole phenomena of eyeballs and, you know, using eyeballs as the measurement of value. Um, eyeballs probably are a little more tangible to us than, you know, the magic beans that are tokens. Um, but you know, they are still pretty ephemeral and there's no question that the reporting on eyeballs

SPEAKER_36: uh, was a highly suspicious thing. It was very easy to inflate whatever measurement you were using for

SPEAKER_33: traffic at the time, but there was a sort of a whole industry overlay where everybody started talking about that as a proxy for how your business was doing and whether it was remember Alexa, the old

SPEAKER_300: Alexa, not the new Alexa, but the thing that Amazon had for people that don't know the old Alexa, it was a ranking of sites and how much traffic they had website traffic. And you know what? It was all kind

SPEAKER_36: of bull because a lot of that website traffic was manufactured. A lot of it was round trip. A lot of it was miscounted and it was a proxy for something, but it was not a proxy for economic value.

SPEAKER_19: Yet not a business, not a proxy for a real business. As investors, private and public entrepreneurs,

SPEAKER_33: we all decided to suspend disbelief and decide that was a proxy for value versus what, you know, whether it's long term discounted cash flow or how much free cash flow you have or some measure that's tangible in terms of a business generating real economic value.

SPEAKER_358: As we wrap here, uh, this. Thanks for that rant. That felt that, that rant felt good. I don't know

SPEAKER_96: if that was a good rant for you. I think it's good to get it off your chest. No, it's good for both of us because for it was, I have to say the psychological, uh, psyops that they were going after anybody

David Friedberg: who criticized crypto. I would say something critical crypto on the pod or on Twitter, wherever at a conference. And the amount of people who would say, have fun being poor.

SPEAKER_16: Okay. Boomer not gonna make it. And I was like, wait a second. My normal tweets get 50 replies. These are getting 500 and all of them are saying you're a fat Greek, balding bastard, dah, dah, dah, dah, dah, dah. And I'm like, wait a second. These have a different

SPEAKER_87: qualitative nature to them. Why are the laser eyes? You're going deep Brooklyn nature,

SPEAKER_36: your deep Brooklyn nature cause you want to fight with them. My Colorado nature causes me to want to

SPEAKER_16: just say, eh, I'm going to go for a run. Well, yeah. And I'm, and here I am trying to explain to an account that's 72 hours old on Twitter has no followers. How like, well, no, my perspective is like, you know, here, like if a, this kind of database, like, aren't there is immutable, not that's like a, not a good quality. You want to be able to change a database. If there's something wrong in it. And I'm like having this logical discussion with somebody who's placed a

SPEAKER_109: bet and they're just trying to get every pump, everything up looking forward here in 2023 as a capital allocator, I'm raising my fourth fund. I'm doing it publicly. Um, I'm investing in more

SPEAKER_06: companies now than ever. And I am more excited about 2023 than I have been for the last four or five years, because as great as it was to watch the markups or maybe get some liquidity here and there, a company's going public, all kinds of great things happened for me. I felt like people were doing it wrong. I felt like there was a lack of discipline. I felt like the same thing you experienced. Hey, you got seven term sheets. I don't want to get to know you. I just want the highest

SPEAKER_109: price. I want to, I don't want you to do diligence. We're not going to have a board. I want a hundred

SPEAKER_06: X founder shares. I'm like, you haven't even made a product yet. It's your first startup. All this Meshuggah, this craziness going on. Now, all of a sudden I'm seeing companies with real

SPEAKER_09: products who are, you know, four or five people with 10k in revenue, and they got a seven, eight million dollar valuation and they want to get to know me. I want to get to know them. We'll talk to

SPEAKER_06: some customers, do some really thorough diligence. It feels to me like this could be the best, you know, next two or three years in terms of professionally for me as an investor. I hope, you know, maybe hitting the top of my game where I can assess things and the prices are right and people are being thoughtful. How do you look at 2023 for the right capital allocators, the thoughtful ones and for the founders who really want to build real businesses?

SPEAKER_33: Yeah, I think at the early stages, 2023 is a great time to start a company period. I happen to think that any time is a great time to start a company. Explain. So, I don't think that there's timing. I think that as a founder, wherever you are, whenever you are, and you find something that you're obsessed about, that's a great time to start something. The opportunity cost of not going after it is higher than, you know, going after it in that moment. Like waiting another year just to get the timing right makes no sense to me. No, of course not. So, sort of my view is at the early stages, it's a continual process that whether the macro is good, the macro is bad, there's a lot of capital, there's not capital, it's good. I think from an investor

SPEAKER_34: perspective where you're sitting, this is a much cleaner and more energizing time to be a seed investor

SPEAKER_33: because the kind of craziness part of the cycle is being occupied by something else right now. And I'll talk about that in a sec, in the 23. So, at the early stages, I think for both founders and for investors that are investing at the early stage, you know, it's, it's a great time. For investors that have big portfolios that are early stage investors, the part of it that's going to be hard is the next piece, which is that if you have any engagement with your existing companies, right? A lot of pre-seed and seed investors, once the company raises a series A or a series B, their influence on the company diminishes. And by the time the company gets to a series C or a series D, you have no influence on the company. You might know the founder, you might listen to your, take your emails and respond to you. But there's a different set of people that are impacting it in terms of the investor cycle. That universe 23 is going to be a very hard year for, you know, we, we are nowhere close from my perspective to the point at which companies have had to deal with the reality of what kind of capital they have or don't have. And that's just going to happen continually throughout the year. If you have capital where you don't have to think about capital till 24, 25 or later, you're fine. Yeah. Right. Like, like, it'll be a hard year, but you know, that's not going to be on your head. But if you have to raise money and 23 is a mid stage company. Yeah. Um, it, you know, it's, it's a really hard time. It's going to be a difficult time, depending on what's going on your business. If you have investors and you have the capital lined up and you, you have a line of site to where it's going to come from or your business is working well, really the financing is probably a matter of price more than anything else. Right. But there's a huge number of companies who do not have that going on. Their businesses are not working well. Yeah. It's, it's not a situation where they have a lot of support from their existing investors. Those companies are going to have a lot of hurt and it doesn't matter where on the capital stack you are as an investor, whether you're early stage or mid stage, that's just hard work. And then the really confusing place that probably doesn't unwind until 2024 is companies that raised a lot of money, you know,

SPEAKER_36: name, name your flavor of investor doesn't matter. And some of those private equity firms,

SPEAKER_112: hedge funds that got a little frisky and wanted to drop a hundred million into a pre IPO company,

SPEAKER_378: what they thought would be a pre pre IPO. Maybe, maybe did that with, you know, a hundred companies.

SPEAKER_127: Yes. Or several hundred companies. I think that those companies, if they don't have, if their businesses don't work on the money they have today and get to a place where they don't

SPEAKER_33: need to raise any more capital ever. Yeah. Those are going to be very challenging situations. There's, you know, there's already people who have raised, you know, structured equity rounds and structured equity and structured debt funds. You know, the knives are sharp, people are coming out, trying to figure out how they can extract the most value in terms of being the new player in the capital

SPEAKER_36: stack. If your company's working, you'll figure out how to navigate through it. But if your company's not, and this is, you know, the definition of working or not is important here.

SPEAKER_15: Yeah. Right. Because growing revenue fast does not mean that your company's working.

SPEAKER_109: No, back to those gross margins, back to the contribution, back to your pack.

SPEAKER_16: People are going to start looking thoughtfully at these companies. Yeah. And we're, and we're back to basics now. I mean, people might even start doing customer references. I, I tell a founder, we want to talk to customers. I mean, we, we, we're a seed fund and we want to talk to two or three customers and we don't want you to give us the two or three customers. We want you to give us a list of a hundred. We pick three. People look at me like I'm crazy. And they're like, nobody else has asked for this. You're putting in a million. These other people are putting in two, three, 4 million. They're not asking for it. And I'm like, okay, that's them, not us. Do you want us on the cap table or not? Uh, but yeah, you're people are going to get fricasaid. People are going to, uh, get wiped out. You're going to have people in the capital stack.

SPEAKER_109: There's going to be recaps. There's going to be liquidation preferences. There's going to be pain

SPEAKER_06: and suffering. If you can't use that capital you have to get to break even or, you know, show good

SPEAKER_19: margins on your business. Correct. Absolutely. And you know, I, I'm, I'm like, I think many people in our industry, I'm, I'm generally an optimistic person. I think that the last year was prelude to this year. I, I don't think that last year was the story. Oh, this is a story. Yeah. I think this year is the story and I don't know whether it's three months, six months or 15 months. Yeah. Right. But, but I think we're in the story now. We're not in the prelude anymore, but most of last year

SPEAKER_117: was the prelude. Yeah. It said another way, my wife going back to our partners, right? Cause there is

David Friedberg: more to life than just what we do every day at the, you know, uh, when we're on these screens in our slack rooms and emails or previously on our blackberries, I was like, she's like, how's it going? I was like, I kind of feel like we went into the eye of the storm and we're in the eye of

SPEAKER_16: the storm. And now we got to get the hell out of here. I don't know if it's going to be worse. Cause it feels like it suddenly got calm in the middle of it. I'm like, oh, wow. Calm. Oh, we didn't get out of the storm. We're in the center of the storm, a brief respite of, you know,

SPEAKER_86: in the house. That was, that was called Christmas break, right? Yeah, exactly. I'm like, I got 13

SPEAKER_233: ski days in and here we are in January, you know, first week of January, we're back at it.

SPEAKER_16: It's just as crazy. It's just as crazy, but relationships, building meaningful relationships, having thoughtful conversations, you can get through this. And if you fail and you did your best, you just, you brush yourself off, you get back up. It's one of the great things about our industry. We look as failure. If you worked hard and you failed, my Lord, you, you, you get the respect of everybody who watched you do it. And then your chance to come back again is guaranteed. You said

SPEAKER_117: you had somebody you did eight businesses with. Talking about investing in the arc of a career. Not all of them have been successful. You need only one to be successful to make that

SPEAKER_19: relationship. Some, some, some have gone great. Some have been terrible. And you know, it's, it's a friendship. Raj Raj and I have a friendship that is, you know, my, my parents have effectively

SPEAKER_396: adopted him. I think they like, they like him better than me and my brother. They like my brother better than me. My younger brother is the favorite son and then me, then me. But I think Raj gets on top

SPEAKER_225: of both of us. Brad, you're incredibly generous with your time. You come on the show. I know you, I know you don't do a lot of shows, but you always take the time to come on my show and

SPEAKER_34: and be honest and candid for, for, for you, since I never see you in person, I'm happy to,

Chamath Palihapitiya: I'm happy to have a virtual, a virtual hug from you anytime. It's basically like we do this for us.

SPEAKER_400: And then everybody else gets anybody wants to listen. Great. If not, I had fun hanging out

SPEAKER_06: with you for an hour. This was nice. Or my brother. Uh, and just for one story. One of the first means I remember Brad, his phone rings. We're in the middle of like an

SPEAKER_26: intense conversation. He says, got to take it. And I was like, well, that's weird. Cause I'm an important person. And he says, it's Amy. I'm like, I don't know who Amy is. Boom. It cuts back in three. Hey, I mean, okay. Yeah, I'm in a meeting. Hold on one second. Give me 90 seconds. He walks out. I don't know if like the gutter was backed up or kids in school.

SPEAKER_06: I don't know. The tennis court had a problem, whatever it was, you're back in 90 seconds. And you said to me, and this is 29 year old, Jason, you said this to us, you know, my big brother, 37 or 38. He said, she's my priority. And I just made a deal with her that when she calls me,

SPEAKER_26: I pick up no matter what the circumstance. And I just, it never left me this prioritization that this guy, Brad had different than any other person on the planet. And I always just looked up to you

SPEAKER_06: for that. And, and just for the way you do what you do, the thoughtfulness, the caring, you know, uh, you know, this is a business. Capital allocations got capital in it. We're supposed to make things triple X. There's a lot of numbers and moic and multiples and TV PI and all this stuff. At the end of the day, you know, people say it's, it's not personal, it's business.

SPEAKER_406: It's quite the opposite. Is it not? Yeah.

SPEAKER_34: All this is so personal and at the end, the lights go out, right? I mean, that's it. And so what's, what's the sum total of your experience? Well, the lights were on

SPEAKER_19: and that's, that's what I care about. And I'm fine with it. Anybody can care about whatever

SPEAKER_300: they want to care about. But what I care about is the sum total of the experience when lights are on. And, um, if people listening got one nugget out of all this, uh, stuff we talked about,

SPEAKER_406: then that's awesome. As we tell people with some episodes, we say, this is when you're not going to speed up. You're going to slow down on your podcast player and you're going to listen to it

SPEAKER_112: twice. All right. There you have it, folks. Brad Feld, buy his books, you know, just follow him,

SPEAKER_225: uh, read the blog. It's just nuggets. Uh, I love you, brother. Thank you for doing it again. And I'll talk to you soon.