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SPEAKER_03: That's what it's all about, man. They said, money is the root of all evil.

SPEAKER_04: What? Funny how it feeds my people. Yeah, we ain't gonna live like equals until we get the money, spend the money, and defeat you. Yeah, money is the root of all evil. What? Funny how it feeds my people. Yeah, we ain't gonna live like equals until we get the money, spend the money, and defeat you.

SPEAKER_09: Two or three years, I assume some people have seen the show.

SPEAKER_10: A couple of people? Everybody's seen it. Great. Awesome. So we were thinking over the summer, why do we do the show, and why do we do the launch festival in March? And we came to the conclusion we do this really because we're very interested in founders and startups and entrepreneurship and technology. Obviously, we're passionate about that space. It's the team of about five people who work full-time on these projects with me. But we also do it because we want to try to see, as Naval—anybody see Naval on the program? The Naval interview? Right, a bunch of folks. One of the best guests we've ever had. He said something very interesting on the program, which was he was trying to do—trying to become the most helpful he could to startups. And I just thought, wow, well, that's a great mission. I'll just steal that. And so we're trying to do the best we can to be the most helpful. And one of the things we thought would be great was just to get together with the audience, and this is the first time we've done it. Phil from Evernote will be back on the program on January 8th. We'll give you guys first shot at the— 11th. Sorry, January 11th. And we'll give you guys first shot at the tickets. Hey, Karen, can we make sure that happens? So just email these folks first, and then we'll give you guys—since you guys are coming to the inaugural event. And tonight is going to be like any other episode of the show. Jeff and I will just have a conversation. It will last as long as it's interesting, and you guys will get to ask questions, too, which will be a first for the show. And so hopefully we don't have any technical issues. And we're doing—Jeff was nice enough to offer lunch to one of the people who come, so you all have raffle tickets. Somebody will get to have lunch with Jeff Clavier, which is what we would call a BFD, a big effing deal.

SPEAKER_11: Get to have lunch. And you're paying for that lunch, correct? Of course. And it's going to be at a good place? Of course. Yeah, it's going to be a really good place. I suggest you pick a really expensive sushi place. Alcohol's included. You're French, right? So, of course. Then it has to be dinner. Then it has to be dinner. So, okay. So it's been officially upgraded to dinner. It's an option. It's an option. Okay. And we're live streaming this, of course. But, you know, I'm going to have to do some thank yous and do some ads. Actually, some people like when I read the ads.

SPEAKER_10: Yeah. So, well, let me start by first thanking my friends at Rocket Space. They've been really nice to me. When I tweeted one day that I needed to tape some episodes here, they gave me the space right up there in the nice little loft up there. And, of course, they did it free of charge and just were incredibly graceful. And they did this all for us as well. And they took it upon themselves to buy, like, those $3 Italian sodas and put out, like, the little flags on the cheese and, like, 18 different types of ham. I think you can see the diligence that Rocket Space put into this event, which is the same diligence they put into hosting the startups here, which is why they're perennially sold out. But this is the best place you could ever hope to start your company. So let's give a big round of applause to our friends at Rocket Space. This is really a class act for hosting the event. And they made it so easy for us. And then also I just want to thank my friends at New Relic who provide server monitoring on e-mail, really simple to use. Skullcandy, Spotify, Nike, Zillow, Vonage, all these great people use it. I use it at my companies, newrelic.com slash thisweekend. You'll go get a free T-shirt there, one of the free This Week in Startups T-shirts. And my turnstone, which is very interesting. I actually found out about my turnstone when I came here, and I said, these are gorgeous desks. I need to get desk fixes from my office. And we bought a bunch of these for our office, and then they wound up sponsoring the program. And they do a great job. So big thanks to New Relic and my turnstone. Big round of applause for those guys. Thank you, everybody. Thank you. So my guest today is a prolific angel investor and really has been doing this for a while. Actually, when I met him, there really weren't any angel investors. It was so early in 2004, 2005 when you started investing, and that was a really down time in the Internet business.

SPEAKER_15: Yeah, no one wanted to invest.

SPEAKER_10: Nobody wanted to invest in 2004, 2005. This was coming off of the horrible crash of 2000, the terrible tragedy of 2001. People thought the Internet was a bit of a fraud at that time. You didn't. You leaned into it.

SPEAKER_19: And I guess you raised the fund at that point? Or you had your own money you were investing?

SPEAKER_18: No, no. That was my own money. So quick background. I was born in France.

SPEAKER_22: I'm actually now a U.S. citizen. And I'm a CTO by training. Did a startup in the financial services market, which was acquired by Reuters, and stayed for a while until 2000 when I made a move to VC. Very bad timing because it was at the end of 2000, not at the beginning. And I was a traditional VC for four years, and then in 2004, left the fund to start SoftTech. And like you said, at that time, no one wanted to invest in consumer Internet, but no one wanted to fund the consumer Internet fund. And so I just invested my own money, putting my money where my mouth is, for about three and a half years until 2007 when I raised one of the first micro VC funds.

SPEAKER_24: And some of the first investments were?

SPEAKER_22: So BuzzNet in Los Angeles was one of my first investments. Feetster, which was this RSS search engine.

SPEAKER_25: I mean, they were all gone, but there was a time when RSS search engines were actually popular.

SPEAKER_28: That was a really interesting time. How many people remember being at a conference and looking at laptops and seeing everybody had Technorati out and was searching Technorati? Anybody remember that? Nobody remembers that? A couple people nodding. I mean, that was... They weren't born yet. I mean, it is a world away, but I mean, at the time, this was no Twitter, no Facebook. Blogs. They were just blogs, and people would be on Technorati or Feedster typing in the keyword, we're at, lay blogs, or we're at this conference, the TED conference, or whatever, and looking for somebody who had written a blog post.

SPEAKER_18: Yep. And those were the days where we thought that, you know, everybody was going to be blogging, and therefore we needed a new search engine or set of search engines because Google wouldn't cut it.

SPEAKER_22: It turns out we were wrong. But just a few months later, I invested in Truvio, which was my very first sort of success, which was one of the first video search engines back in 2005, which, you know, before YouTube, essentially. So, yes, there was a video, you know, world before YouTube, and those guys were acquired by AOL after 11 months, and that was a massive return for me, and that sort of put me up on the board of people who were successful, and I was lucky to get into a bunch of good deals that ended up being acquired early. At that time, people were talking about, you know, built to flip, if you remember those terms. Right, absolutely. And, no, they were not built to flip. They were just acquired pretty early by a bunch of aggressive guys who wanted to move from Web 1.0 to Web 2.0. And after three and a half years, I had the opportunity to raise a fund, a $15.15 million fund that became one of the first micro VC funds.

SPEAKER_19: And how many angel investments have you made to date, starting in 2004 with your own money, and now I guess you're on to three funds?

SPEAKER_25: On to three funds, yeah. Yeah. We've closed 132 investments, and we have three more in the pipe for closing.

SPEAKER_10: And that's over, what, an eight-year period or so? Eight and a half years. So it's a dozen a year or something to that effect, a little more?

SPEAKER_22: Well, so when I was an angel and I was investing my own money, I was doing about eight deals a year. After raising a fund, I've been doing pretty consistently 20 investments a year.

SPEAKER_19: And what's your investment thesis?

SPEAKER_28: I mean, now that you've done 130 of these and you've got enough time under your belt that you've seen things get totally wiped out, like this premise of, oh, we need another search engine for blogs. Because at that time, Google wasn't indexing blogs. And it didn't – actually, Google didn't really index or update the index for weeks at a time. So the concept of real-time search engines didn't exist. What is your pattern recognition now? When you get into that meeting with the entrepreneur, what are the things that immediately make you say, I've got to invest in this? This is going somewhere. This has a good shot. I've got to write a check right now.

SPEAKER_22: So holistically, what we look at is what are the platform technology changes that a startup can actually leverage to create a major disruption, disruption of an existing market or creating a new market. And what we look for is someone who is tremendously passionate about something, given, you know, whether – an idea that they want to go and spend the next three, five, seven years of their life building and hopefully turning into a major success. And so for us, it's really – the three things we look at is tremendously, you know, smart, passionate, dedicated founders, a great idea, a concept that we think is definitely different. We don't like the, oh, it's kind of, you know, Instagram with a twist, which unfortunately we hear a lot about these days. And then something which we think can be significant if all the stars align. It's tremendously challenging to execute in this environment. It's not easy to build something at scale. But if you get there, then it has to be, you know, a company which could be worth billions of dollars.

SPEAKER_19: And tell me what makes you immediately say – and I've started to have this experience now since I've started doing a little angel investing myself in the last three years. Because I cannot wait until this meeting ends. There is absolutely no way I would ever give this person $20 because I absolutely know they would burn it and it would never see any return.

SPEAKER_38: There's got to be some red flags that you just, like, see a big sign go on top of somebody's head, like, get me the F out of here. What are those signals?

SPEAKER_22: I think it's – so this is sort of a pretty exaggerated pushback that Jason is describing.

SPEAKER_57: Well, you have those moments where you're like, this has got to end. This is not going anywhere. Sure.

SPEAKER_22: Yeah. And the challenge, I think, for us is to avoid to apply our pattern recognition, you know, too quickly because, obviously, we're trying to detect those signs that will tell us early on that this is not going to be for us. But sometimes, you know, you know after 10 minutes that this is for you and then you spend, you know, a couple of weeks in due diligence to make sure that your initial hunch is correct. And sometimes you think that it's actually a disaster and it's not interesting, but there is something that happens during the meeting that just captures your attention. And at the end, you go like, I thought I was going to hate it, but, you know, it's actually more interesting than I thought. And so you try and avoid, you know, especially when you're tired or in bad mood or whatever, like today. Like, my 2 p.m., I have to sort of send them an email to apologize because I was really, like, a bit of a wreck. And so I don't think I applied my filters the right way.

SPEAKER_59: Emotion can impact entrepreneurs and VCs.

SPEAKER_22: We're human. We're human, yeah. At the end.

SPEAKER_61: And so the negative, you know, sort of patterns would be someone who isn't crisp about the vision, what they want to build, the product that they want to try and put on the market.

SPEAKER_22: How are they going to go and, you know, acquire users, retain users? What sort of questions are they asking themselves about, you know, the initial focus or target of the company? Talking to me about, that's a killer.

SPEAKER_63: Talking to me about, okay, and in three years we'll be bought by Google and you'll make at least 5x your investment.

SPEAKER_66: What does that even mean? Like, you're not in control of Google?

SPEAKER_63: No, that means that you're short-termist.

SPEAKER_67: That means that you think about, you barely started, you're already thinking about the exit. What the hell?

SPEAKER_19: Yeah, you need to be focused on the product, like you're saying, this crispness of, what does that mean, crispness? Unpack that a little bit.

SPEAKER_22: That means someone who basically pitches us a, like, I had that recently. I was in Boulder for Techstars, there's a great sort of accelerator over there, and I met a team from Ubly, and the CEO, Carly, just gave me the pitch, gave me the demo of that.

SPEAKER_70: It's basically a plush in which you stick your iPhone 4, 5, 3, whatever, running an app that becomes the face of a character,

SPEAKER_22: and obviously it's focusing on the 4 to 12-year-old demographic, and the story and the way she was just presenting and the toy itself, and I had the plush in my hand sort of playing with it, was a mix of cute and super powerful, and she's just a master at selling her concept. And Carly and her husband, and a lot of investors hate husband and wife teams.

SPEAKER_71: That is a red flag.

SPEAKER_22: For some. For some. I've been very, you know, privileged to work with Kevin and Julia Hartz at Eventbrite.

SPEAKER_72: Oh, Eventbrite is huge, yeah. Right?

SPEAKER_22: I've been working with Victoria Ransom and her fiancé at Wildfire, on which obviously I made a lot of money, and so I have no problem whatsoever with husband and wife teams, and that team is just awesome. And so at the end of that meeting, which was supposed to be a brainstorming session where I was going to mentor them, I basically had already made the mental steps of, you guys are in a plane next week to get in front of my partner so we can just grab you and be our leads before Demolet. And so that's when you just feel that there is something and it's yours.

SPEAKER_28: Let's talk about a topic that we've been reading about on a lot of the tech blogs. And let's face it, the tech blogs are written by journalists who, in a lot of cases, have never run a company or have ever invested in a company, so they're not going to have the perspective you're going to have or I'm going to have, having done it a couple of times. But there is this Series A crunch that keeps coming up, keeps coming up. And Sarah Lacey, actually, who really knows what she's talking about, wrote a really good piece on it. It was very thoughtful and extremely well-researched in sort of the old journalism kind of way,

SPEAKER_11: where she picked up the phone and talked to people, which is crazy. She talked to 10 people on the phone and asked them what they thought. She did, yeah. It was a random act of journalism. It's crazy. But it seems to be real, does it not?

SPEAKER_19: Oh, sure.

SPEAKER_61: And I think I had a long conversation with Sarah a couple of months ago where she said,

SPEAKER_22: everybody talks about it, but I can't see any evidence of the Series A crunch.

SPEAKER_63: And, I mean, at the end of the day, you don't need to be a genius to predict two years ago that there was going to be a Series A crunch.

SPEAKER_22: You have just a set number of funds that invest at Series A stage. And their capacity might be, you know, 100, 200, you know, Series A's a year. The number actually doesn't really matter. Let's say 500, to be optimistic. And on the other side, you have now thousands upon thousands of companies which are seed funded by, you know, micro VCs, by traditional VCs, angels coming out of accelerators and so on and so forth. And the capacity of the Series A world hasn't changed, hasn't increased, and if at all, it has decreased. And so you have thousands here, you have hundreds here, and therefore there's a crush. The problem is, at the same time that we try and have so many companies funded at seed, the bar that the guys at the A level are going to put on the startups is going to increase. And so what you need to prove as a Series seed startup within 18 months of your round is just much more in terms of traction, in terms of users, in terms of retention, in terms of whatever your KPI is, it's just harder. And so...

SPEAKER_84: KPI for the people who don't know.

SPEAKER_22: Sorry. Essentially, the metric that is going to determine... Key performance. Key performance indicator, yeah. That is going to determine whether, you know, you're successful or not. So you can't whine about it. You can just, you know, live with it, understand that the bar is higher.

SPEAKER_19: But we're not seeing tons of these angel companies wipe out yet.

SPEAKER_22: Oh, sure.

SPEAKER_19: But they're sort of silently wiping out?

SPEAKER_89: What exactly is happening? We see, obviously, AccuHires. So some that are just sort of just AccuHires.

SPEAKER_63: AccuHires happen. I mean, you always celebrate success. You don't go all out saying, I just bombed. And so people, by definition, will do it very quietly.

SPEAKER_22: So, yes, some of the lucky ones are AccuHired. Others just, you know, disappear. And I recently had a conversation with the VP of CopDev of Salesforce, who told me that they were just bombarded by people who were trying to get, you know, a soft landing for their companies.

SPEAKER_70: And, you know, at the end of the day, it's very Darwinian, right? Either you succeed and you go through a Series A, or you don't, and you crash and burn.

SPEAKER_19: Not that big of a deal.

SPEAKER_70: It's, well, it's...

SPEAKER_19: Is this better than, is it better to have a Series A crunch than to have a drought of angel investors? I mean, if you had to pick one.

SPEAKER_22: To me, well, angel investors, the flow of money that comes at the angel side is either personal wealth, and there's a lot of people who've made a lot of money at Facebook, Twitter, and the few sort of IPOs that have happened recently, even Google. The Googlers are pretty active. So, there's no end to this one, because even if someone loses, you know, a couple hundred Ks, and they're worth a few tens of millions, it doesn't really matter.

SPEAKER_63: What is actually not, you know, expensable is the money that is available at the A, because it's controlled by the limited partners, and those guys are not really sort of interested in putting more money in VC.

SPEAKER_22: So, there's actually not really a notion of one or the other. What's going to happen is the crunch at A is going to remain. At some point, people will either decide not to go and be angel investors anymore, because it's not fun, and they're losing money, and that's going to happen for some. That's starting to happen already. Absolutely.

SPEAKER_103: Yeah.

SPEAKER_22: Or, they will keep on pouring, you know, cash into startups, because it's cool. And that's the one difference between you and I starting to invest in 2004, 2005, 2006, where we did it because we really wanted to support entrepreneurs, and now where, you know, you invest in a startup because it's as cool as having an expensive car.

SPEAKER_28: That is part of the vibe. It's true. And entrepreneurs benefit from it. But because the standard's gone up, I think this means that the people who do get that A round, these are going to be pretty darn strong companies. Mm-hmm. Which means it's good for the ecosystem, in a way.

SPEAKER_63: Which means it's good for the ecosystem.

SPEAKER_22: I mean, the only issue in all this is the fact that you have so many people who can be entrepreneurs, and that's great because everyone gets a shot, so that's really positive. That means that we're really short of talent, and it's hard to really hire top people in companies that are succeeding.

SPEAKER_109: And so the bench, the bench for even strong startups isn't as strong as they used to be.

SPEAKER_19: So translation, some of the people starting companies might not actually, that may not be their best role in the ecosystem. Their best role might be to be the second or third or fourth person at another startup, and that startup will collectively be stronger.

SPEAKER_22: So what would have happened five years ago is they would have been number three, number four, number five of a strong startup. They would have learned the entrepreneurial sort of job on the job in that startup, and then whatever they do next would have been actually interesting because they would have been trained. Instead, you know, they just go ahead and start by themselves, which, to be honest, I've been very, very successful. I remember, you know, Aaron Levy at Bucks. Do you remember when he arrived in the Valley? He was like 20 or 21, 20, because he couldn't drink, I remember. And it was sort of amazing, this vision he had for a 20-year-old with Bucks, and he's basically executed on that, and he's now, you know, very, very unstoppable and very funny. Like, if you follow him on Twitter, he's excellent.

SPEAKER_114: Oh, he's hysterical on Twitter.

SPEAKER_22: And he's built a very strong company. So, you know, nothing should have prevented him from getting a shot at being an entrepreneur, which is why it's always positive that everyone gets a shot.

SPEAKER_116: The problem is that the consequence for the ecosystem, you know, aren't always sort of super positive.

SPEAKER_19: Let's talk about the recent announcement at Y Combinator that they're pulling back the number of companies. They had over 80 at the previous class. 82.

SPEAKER_120: And you seem like a little bit, it was a little bit overwhelming as an angel investor to process? Yeah.

SPEAKER_122: I mean, I think everybody's felt that way.

SPEAKER_63: You were brain dead by 50. You were about to shoot yourself by 75, and the last seven were just, you know, whatever.

SPEAKER_10: Yeah, nobody can remember. And I guess Paul took that to heart, really seeing if he could, and he said in his post, you know, we tried to push the envelope, pulled back, and then also pulled back a little bit on the…

SPEAKER_126: On the funding, yeah.

SPEAKER_19: Yeah, what people were calling in the industry free money. Mm-hmm.

SPEAKER_11: Did you agree with the sort of Yuri Milner, and I know, obviously, I'm not casting aspersions on Yuri Milner, nor would I ever do that to anybody who is especially Russian. You never know. Why did you say that? I don't want to get whacked here or anything, but no, in all seriousness, it seemed like a very generous thing to do to invest in every single company coming out of Y Commer.

SPEAKER_19: It also seemed very savvy, but did it also – how did you perceive that as an angel investor who spends all this time with startups trying to make a decision that somebody with a bigger bankroll than you just said, I'll take everything? What was your emotional reaction when you woke up that day and said, I'm going to the event with a process to try to decide, and another person is just saying, I don't even have to go to the event.

SPEAKER_129: I just take everything.

SPEAKER_22: Well, it's – I was – and remember that Yuri wasn't the first to actually put this together. Right. It came originally from S.V. Angel and Ron Conway. Right. Obviously, we have tremendous sort of respect for. Sure. But it's true that we went, like, WTF. I think I can't say, like, what the –

SPEAKER_134: You can say what the – sure, you can say ****.

SPEAKER_22: Okay, so what the ****.

SPEAKER_135: I don't think so.

SPEAKER_22: And –

SPEAKER_135: It's the internet.

SPEAKER_22: Because – I don't know. I thought I was told avoid, you know –

SPEAKER_136: It cost you $10 in the swear jar. That's okay.

SPEAKER_61: I knew it was going to get cost.

SPEAKER_63: And so the whole notion of funding by default all those companies was sort of strange.

SPEAKER_22: At the same time, if you look at the performance of YC as an investment, it's actually been really, really good. And the guys who invest in YC are going to make, you know, bank.

SPEAKER_19: Sequoia was famously the secret money behind Y Combin in the early days.

SPEAKER_141: It wasn't secret.

SPEAKER_19: Well, it wasn't talked about, really.

SPEAKER_141: No. Did people know about it? Well, I knew about it.

SPEAKER_89: You knew about it. I don't – did people here know that Sequoia backed the early days?

SPEAKER_63: No, so there was no –

SPEAKER_89: I see a lot of no's. I see some yes's.

SPEAKER_63: There was no surprise, at least to us, in the ecosystem.

SPEAKER_22: But the point is, it's a different sort of investment strategy. We pay a great deal of attention to selecting, you know, one, maybe two companies per batch. Go through the process, do reference checks, negotiate, you know, the terms. And the expectations being YC is always there, and we always bring them there. And sometimes it works, sometimes it doesn't. But we just want to have what we think the best startup in the batch in the portfolio. And others say, look, on average, YC companies just kill it. And if we have a shot by being an investor to sort of start monitoring the next Dropbox or the next, you know, Airbnb, then we'll be able to just pile in as soon as we see the inflection point. It's just a different sort of investment strategy. I'm not saying that it's bad. I would certainly not do that. And if I did that, my own sort of investors would shoot me because that's not what I'm paid for. I'm paid for to select, you know, the potential next Dropbox or Airbnb in the batch. The issue, though, as more and more cash was made available to YC companies and ended up with $150,000, you know, free money, no questions asked, is that you started having startups that were just, you know, two people and lasting for a year or a year and a half, iterating on their ideas. And, therefore, a bunch of YC companies became, like, not really dormant, not really doing anything.

SPEAKER_146: And I don't think it's good for them. Zombie companies, people would call them. Yeah, zombie companies with $150,000 in the back, yeah.

SPEAKER_19: Yeah, going to Simon's. So when you look at the space today, where are we at?

SPEAKER_10: Because, I mean, we've had this big grand debate going on. Is there a bubbler? Is there not? The stock market is valuing companies, technology companies, extremely low, as Mark and Theresa correctly pointed out. You know, eight times, ten times revenue. It's Google and Apple. Everything's being, you know, valued so low on a multiple. It seems like the angel bubble is over. It seems like, well, you disagree? I'm not sure.

SPEAKER_150: I mean. The valuation bubble maybe is coming. I heard valuations, and I seem to see valuations.

SPEAKER_22: Valuations are coming down a little bit, but I still have people sort of asking for outrageous, you know, numbers right from the get-go. So I still see startups starting their fundraising and then a few weeks later wrapping up their fundraising. So I haven't seen, you know, a dampening of the enthusiasm at the angel stage.

SPEAKER_151: So maybe it's not increasing, but it's not going down tremendously, but it's not increasing.

SPEAKER_10: When you started angel investing, those first couple of companies, what were the valuations like?

SPEAKER_107: Typically, they were in the two to three pre range.

SPEAKER_28: Two to three million dollar pre. And the last, you know, handful of deals you've done are in the, what did it peak out at?

SPEAKER_154: So five, six, seven, you know, with a couple of outliers above ten.

SPEAKER_22: But for companies which had made, you know, a lot more progress, or with repeat founders, where, you know, you look at the track record of those guys, and you almost sort of give them a check and then ask, what did you do again? So.

SPEAKER_10: Yeah. So if a Mark Pinkett shows up or an Evan Williams shows up, you're not going to particularly care about the valuation. You're going to care about getting into the deal.

SPEAKER_109: Potentially, if you believe that they can actually do it again.

SPEAKER_22: And so for us, I would say the range right now that we expect when we price is between four and six. And if we get into four and six, it's pretty much the expected range. Sometimes we have to show flexibility.

SPEAKER_77: And so we've done seven, eight pre, you know, when we felt we needed to.

SPEAKER_41: Big controversy early on with convertible notes.

SPEAKER_10: They're all going to come due in two years. It's going to cause all this chaos. And Ron Conway was originally sort of, I think, against them. Other people sort of came out publicly. Fred Wilson, I think. People seem to change their mind about that. Do you care either way about if it's a price round or not? And did we ever see these sort of chickens come home to roost with the convertible notes, you know, having to be negotiated? Or does it not matter because if a company gets to that point and they can't raise money after whatever it is, two or three years, you're not going to just going to wind it down anyway?

SPEAKER_22: Yeah, I think from our standpoint, we've always been clear that we would never, ever, ever, ever invest in a convertible note that wasn't capped. So by definition, I will never invest not knowing the valuation at which I would put in my money. And so for us, you know, a convert note with a cap or an equity round is sort of the same. We always prefer to put money in an equity round because that creates a board, that creates a structure. There's a set of documents that define investor rights. And we make sure that the company, I mean, when we do a round, we always go through more due diligence on the legal side. We make sure that the 83B elections have been done. And the company is just better off. And to be honest, with three receipt documents, you know, it's five grand to do a note. It's 10, 12 grand to do a round. So might as well do a round.

SPEAKER_27: And is there a diffusion of responsibility that happens when there's a convertible note?

SPEAKER_63: Yeah, because no one, no one, I mean, not when we invest, because we're always the largest, second largest investor because of the average investment for us is like in the 500K.

SPEAKER_22: But there is a risk when you put just a simple note together that no one is really the lead. The company decides the valuation and everyone goes like, yeah, it's all right. And no one feels responsible for, you know, the support of the company. And so when the s*** hits the fan, which happens all the time, there's no one to really sort of pick up the pieces and then say, okay, this is how we're going to solve this situation. And for some reason, you know, when you put a round together, this doesn't happen as much. What you want, though, as entrepreneurs, is make sure that you don't have, you know, let's say you raise a million, two. You don't have 12 people at, you know, 100K or 24 at 50K. You want one or two players, investors at, you know, 300, 400, 500 each so that those guys are really motivated to help you. Because, you know, money, yeah, it's sort of necessary.

SPEAKER_63: But it's really not the value that we investors will deliver to you or hopefully will do much more for you.

SPEAKER_19: And what do you see your value proposition, not just your firm, but you yourself, Jeff, what do you think that you do particularly well as an investor?

SPEAKER_22: I think over the years, you learn about patterns, both of success and failure. And sometimes it's kind of an interesting discussion with a founder to say, I've been down this road before and this is what's going to happen. So, avoid making that mistakes. Unfortunately, it feels like sometimes founders have to make that mistake themselves to realize that, you know, we're right. It's a bit like when children get told by their parents, don't do this and they do it anyway. I've done that.

SPEAKER_70: What we do particularly well, I think it's supporting the companies on the product, marketing, biz dev, sort of scale side, early scale.

SPEAKER_22: I think that we're pretty good at helping the companies over the first 18 to 24 months, navigating the launch, navigating the early scale, getting the thresholds, the hurdles sort of figured out and then raising their Series A. After that, once we have gotten a great investor involved, we'll step back, we'll still be involved, we'll still help, we'll still support. But, you know, the keys will be in the hands of the Series A, VC. And being able to replicate that and still be super helpful to companies when we have 75 active portfolio companies requires a bit of a discipline.

SPEAKER_66: You invested in Mint. Was that before or after they won the first TechCrunch 40?

SPEAKER_22: That was before. That was a year before. So, I committed to Iron in July of 2006. We closed the round in September, I think. And then we were on stage at TechCrunch 40 at that time. 40, yes. 40. And you were there because I was on the VC panel announcing my fund and I was wearing a Mint t-shirt, which was sort of, hey, you know, make Mint win and Mint actually won.

SPEAKER_174: Yeah, that was actually, I mean, Mint.

SPEAKER_70: And I remember him saying, what the f*** is this shirt?

SPEAKER_10: Well, actually, in those days, Mike and I would write down on a piece of paper when we were partners on the conference who our number one was and who our number two was. And then we would flip them over at the same time. And that year, we both had Mint number one. That's how we decided the winner because we didn't even remember that we had to pick a winner. What was it about, Aaron, though, that you fell in love with and that you made you want to invest? And I'm going to guess that's your best investment ever or amongst the top two or three?

SPEAKER_109: It's definitely one of the best.

SPEAKER_22: It's not the best. So, Aaron was a solo founder. And solo founder is always tricky because it's a very lonely journey to, you know, build a startup on your own and not have someone to chat about, to share, you know, ideas and emotions and everything. But Aaron was exceptionally disciplined and had, you know, essentially spent a year working, you know, 18 hours a day and building the first version of Mint.

SPEAKER_70: And he just had this very crisp vision about, you know, the fact that no one, Microsoft at that time still had money, Microsoft money, or Intuit with Quicken were not delivering the kind of experience that a modern personal finance website should deliver. And that's what Mint was promised to deliver. And I thought it was extremely compelling.

SPEAKER_22: And I had to just write a check. It was sort of almost so obvious to me by the end that I was going to do it that I didn't commit on the spot, but very shortly thereafter.

SPEAKER_177: And what was the return like on that one? I mean, that sold for $300 or $400 million.

SPEAKER_22: No, it was $170. Oh, only $170?

SPEAKER_10: All right.

SPEAKER_22: So it was, I mean...

SPEAKER_10: I'm sorry, only $170.

SPEAKER_22: Well, because we were angels and invested very, very early at a low valuation.

SPEAKER_10: So you were in at a $3 or $4 million valuation.

SPEAKER_22: You said that I didn't, but yeah.

SPEAKER_41: Okay, so I'm going to guess. You said before $2 or $3 or $4 million was the valuation at that time.

SPEAKER_180: So it was a 17, 18x.

SPEAKER_19: I mean, that's got to be incredible as an angel investor when you have one of those big wins. It just makes you, what, when you have a win like that, does it just make you want to go out and invest in 10 more companies?

SPEAKER_63: No, I think that just validates that every now and then it works. And so that's going to continue.

SPEAKER_22: It makes the wife happy. Yeah. Because, you know, for the first three and a half years, I mean, we put in almost a million bucks of our money in a bunch of startups. And so at some point you have to, you know, get the money to come back. Otherwise, you have a bit of explaining to do. Luckily, A, my wife is exceptional. B, the Truvio deal was so good that it returned a lot of the money that we had committed but not even spent before we actually had to spend. So it was actually a very comfortable situation.

SPEAKER_89: And what is your expectation in terms of the number of outcomes you're going to have per 10 investments? Do you have a thesis about that?

SPEAKER_63: So if I look historically, so the traditional VC expectation is that you're going to lose 30% of your investments.

SPEAKER_22: I think we're closer to 20. But not everything that can screw up has screwed up yet in the sense that we still have a young portfolio skewed, actually, to the early stage.

SPEAKER_63: We have a number of companies which have gone through their Series A. That's the good news. But there's also a Series B crunch. No one talks about that one, but it's actually there.

SPEAKER_22: And so we want to see those companies, you know, sort of go through their early funding sort of trajectory and then figure out how big the outcome can be. And so that's where I'm super stoked about, you know, Eventbrite, Fitbit is just absolutely freaking crushing it. A company like Gnip is also sort of making enormous progress.

SPEAKER_190: Gnip was also, was that Techstars too? Is that a bit of Boulder?

SPEAKER_191: Gnip is actually in Boulder, but it wasn't the Techstars. Not Techstars. SendGrid is that. SendGrid.

SPEAKER_192: Which is the most successful of all Techstars. Of all Techstars, yes. From what I understand, yeah.

SPEAKER_22: So all those guys are in the portfolio. And so we'll see, you know, which one is the first to go public and which one, you know, which ones actually will be a great outcome.

SPEAKER_70: But it's still, you know, years away. So you have to be very patient.

SPEAKER_10: Let me ask you a question that I've just started to face, you know, early in my angel investing career, which is a company is really not doing well. And they want to be introduced to Mark Cuban or to roll off both at Sequoia or whoever it is, somebody at Excel or Benchmark and some very important contact.

SPEAKER_28: But you no longer think that they're going to make it. This must have happened to you. Sure. How do you handle that?

SPEAKER_196: I don't know the answer.

SPEAKER_197: Well, the answer is no.

SPEAKER_150: Just no? Well, you explain. No, you do. So please, explain it to me. Hey, I'm Jason. You say no, you stop. My company's failing.

SPEAKER_60: Yeah, explain it to me.

SPEAKER_22: Essentially, you, at least we, don't wait for companies to start, you know, crashing and burning before we have a conversation. So we're in regular, you know, sort of contact with our companies. We help them figure out what the hurdles are, what the issues are in execution, and so on and so forth. And we sort of know. And unfortunately, whenever we feel that we have the early signs of failure, we rarely are wrong. And so at some point, we're going to have a discussion around, look, this isn't working. Based on all the data points we have, you're just not going to be able to raise a Series A. So as opposed to trying to raise a Series A, let's just go and find you guys a landing spot, you know, aqua hire, acquisition, you know, whatever. But, oh, in some cases, just shut down the company and you guys are home free to do whatever you want. But the promise, the commitment I've made to my peers in the VC world, which is pretty simple. I will never put in front of you a company that I don't believe has a shot at succeeding. Sometimes they might not like the investments. They might not, you know, figure out that this is a big opportunity. But never will I lose your time with something that isn't worth it. And so because, you know, 132 investments, 30-ish, you know, sort of disappearing, some being acquired early means that we need to find, you know, 80 investors for 80 companies as Series A's.

SPEAKER_70: And unfortunately, they don't take a difference.

SPEAKER_19: How much of your time does that take? How much of that is your job, that following on funding and getting those companies over to the A, to the B?

SPEAKER_22: Depending on, you know, it ebbs and flows, but I would say between 10% and 20% of my time is spent on working on financing companies.

SPEAKER_70: We've just gone through seven sort of Series A's and B's over the past quarter.

SPEAKER_19: One of the things I'm seeing in the market is AccuHires, where the founders get really nice chunks of change from Mark Zuckerberg or somebody.

SPEAKER_207: Some do, not all.

SPEAKER_10: Nice chunks of stock options, let's say. But the investors get hosed. And as one investor said to me, Zuckerberg said explicitly, who cares about your founders? I'll just get you a bunch of shares in Facebook. Don't worry about your investors, not founders. Told the founders this. And they wound up not doing that, but the story was told to me by one of your peers. What do you think? And you must have faced this sort of AccuHire where you get hosed, but the founders do really well.

David Friedberg: How do you reconcile that? Because you also have your LPs now that you have to service.

SPEAKER_22: And so founders also have a conscience. And so what we have done more often than not is let's say that there is actually value in the company. And yes, the founders and the employees will get stock options and so on and so forth. I've actually seen a lot of our founders fighting for us to get our fair share, which is either respect the capital and the waterfall, which basically defines how the money gets split, or make sure that we can at least get money back. The challenge, though, is that the AccuHire considerations have dropped like a stone since, you know, three, four years ago you could sell a company to Twitter or Facebook or Groupon and actually make a lot of money for sort of what was a failed company. Right now it's just, you know, a few tens of thousands per developer in options and investors pretty much get nothing. At the end of the day, it's our responsibility to try and self-land our companies. If an acquirer has a pattern of always screwing us, then we'll try and go to them, you know, the last.

SPEAKER_10: Ah, so they earn a reputation of, hey, maybe I'll go to the person who in the corporate development office is going to be reasonable first.

SPEAKER_151: So there's a little bit of a self-correcting mechanism going on.

SPEAKER_70: Sure, I mean, we sort of exchange tips all the time.

SPEAKER_22: I mean, we're, well, a lot of the micro VCs started as angels, and all my peers, you know, when there was like 10, 12, 15 of us investing, and that's how all these people sort of became the super angels, so-called. Even though we all have funds, we never compete because we have our own sort of national strategies, we try and sort of work together. And so whenever we got pretty badly screwed, either by a VC in the next round or by an acquirer, you know, a lot of people know about it.

SPEAKER_214: Reputation matters. Sure. What's the craziest thing you've seen a VC do, bad behavior-wise?

SPEAKER_10: You don't have to mention the VC's name, but you've seen a lot of bad behavior. People hear about it, and we'll go to entrepreneurs next. But what's the worst trait of VCs that you've seen that really entrepreneurs should be wary of?

SPEAKER_22: VC is trying to win a deal at all costs, throwing, you know, crazy valuations and really doing everything and anything they can to win a deal, getting the deal, and then backing off of it.

SPEAKER_222: Like just not being engaged, not helpful.

SPEAKER_22: Not fulfilling, I mean essentially signing the term sheet and then saying, oh, we won't actually invest. Wow. So do everything to get the deal, be super aggressive.

SPEAKER_19: It actually happened. Oh, yeah. That's extremely rare, though, that somebody would send a term sheet that did not close.

SPEAKER_22: That should be very rare, and whoever did that to me should actually, you know, not, I mean, have a horrible reputation.

SPEAKER_63: The problem is that to actually do that, I heard afterwards that the guys who did it to me in the portfolio actually had a pattern of doing that, doing everything to win the deal, and then, you know, backtracking out of their commitment.

SPEAKER_22: But because they own that many firms doing Series A's, and otherwise, they're a good investor, their reputation hasn't taken a hit yet.

SPEAKER_10: It can take a little while.

SPEAKER_70: And no one goes public with it, obviously.

SPEAKER_10: People, but a lot more, there is a lot more transparency now than there was when you started.

SPEAKER_19: Oh, sure. And that's helpful.

SPEAKER_22: That's helpful. I mean, I think that's.

SPEAKER_19: VCs behave better, right? Because of it?

SPEAKER_22: I do think so, yes. Because, you know, there are now watchdogs of sorts that will call them out, and, you know, at some point, that story is going to come out, and that is going to be sort of interesting. And, you know, as we say in French, revenge is a dish that gets eaten cold.

SPEAKER_228: Very nice.

SPEAKER_22: So, we'll see. But when I started, there were, you know, there was Fred, Brad, David Hornick sort of blogging. Yeah. And, you know, the tens of VC bloggers that followed in their footsteps, me included, I think helped really removing this aura of mysticism around, you know, VC terms and VC behavior. So, I think that VCs now have to behave much more, you know, what you would expect them essentially to do. But I've still witnessed, you know, pretty damaging behavior from them.

SPEAKER_70: Because then you have to go back to the other investors you said no to and say, sorry, guys, we said no. But actually, we'll take the term sheet back.

SPEAKER_229: And if it's a bit lower the price and the terms are harsher, we don't have a choice. So, go for it.

SPEAKER_09: I'm going to take your questions in a minute. So, if you have a question, do we have a microphone or not? We do have a microphone. So, you just raise your hand and then I guess Karen will run over there.

SPEAKER_10: And please don't feel the need to plug your company or sell your legal services and put a special ad in there.

SPEAKER_28: I always give that disclaimer because there's always that guy who does it. You know, the guy who's like, hey, Jeff, staffing is so important. And my company, Acme Recruiting, does an amazing job with Flatterate. What do you think of Flatterate fees for recruiters? I mean, it happens every time, right? So, I have this little preemptive thing. Don't plug your company.

SPEAKER_10: But you can say your company's name and say I have a great question ready to go. Let's do some word association with your peers, Dave McClure. What do you think? What do I think? You tell me first.

SPEAKER_19: I'm going to say the super range or you tell me what you think of them. Dave McClure.

SPEAKER_22: Well, I loved, I mean, first and foremost, Dave has been, you know, a very good friend of mine for a long, long time. And I respect that he's basically different going out there with a completely different strategy doing, you know, 200 investments a year when I do 20. And investing all over the world when I only invest in Silicon Valley, New York, Boulder, and Southern California. And, you know, at the end of the day, performance and returns will define who is right and who is wrong. But certainly he's helped tremendously develop entrepreneurship worldwide. And I respect him for that.

SPEAKER_73: Chris Saka.

SPEAKER_22: Saka is awesome. And he's very, very successful. If you look at, I mean, he's, I don't know how he does that, to be honest, but he's always done a few sort of off the wall kind of strange investments. And they end up sort of paying off. Obviously, he's killed it on Twitter. And he has this approach, which is pretty unique. So I respect him as well.

SPEAKER_237: Naval.

SPEAKER_22: Angelist, you know, hey, Naval, I mean, I'm not going to say that much bad on my friends, but just FYI. Naval, really gifted investor who's done, you know, really well also on Twitter and others. And Angelist is a service to the industry, which is really important.

SPEAKER_240: Mike Arrington.

SPEAKER_70: I haven't seen much of Mike. I mean, the crunch fund is a bit like.

SPEAKER_241: Or MG Siegler. I mean, you know. Yeah.

SPEAKER_22: I've seen MG last week. They're out there doing, building a very large portfolio of investments at different stages.

SPEAKER_70: Once again, you know, we'll see how they do. We're sort of focused on being the first money in. Investing in a Series C or Series D at hundreds of millions of valuations doesn't mean much for us. They're doing it. You know, we'll see.

SPEAKER_24: Okay. Questions from the audience.

SPEAKER_19: Okay. Kieran. Let's run one over. Wow. Lots of questions. Good. Okay. Keep it nice and succinct. Sure.

SPEAKER_247: Hi. My name is Rommel Fox. My corporation is whomentors.com Incorporated. Jeff, you mentioned that the bench for entrepreneurial talent isn't that deep. Have you ever found the occasion to invite foreign nationals to come to the Silicon Valley to create a company?

SPEAKER_63: The issue is always sort of a visa issue.

SPEAKER_22: So to us, as long as you're local, it doesn't matter whether you speak, you know, English with a funny accent. And therefore, the definition of a local company is actually pretty broad. The problem is we never fund a company to move it. I mean, we've done that a couple of times, but it's always sort of a big issue.

SPEAKER_70: And unfortunately, the U.S. isn't as forthcoming with, you know, foreign entrepreneurs as it should be because we should essentially, you know, roll the visas and everything that anyone who's, you know, French or from the U.K.

SPEAKER_94: or from anywhere, you know, wants to build a startup here, you know, they should get a visa immediately.

SPEAKER_251: Why hasn't Obama, after coming to the Valley to raise tons and tons of money?

SPEAKER_28: I know, right? And just absolutely dropped the ball on this. I mean, Chris, I mean, Chris Saka and Shervin, those guys raised millions of dollars from rich VCs and founders here in the Valley. Everybody's got a picture of themselves with Obama who sold the company. It's ridiculous. Path is just like one big Obama stream before the election.

SPEAKER_196: And he can't figure out our best, our most pressing issue. He's done nothing.

SPEAKER_70: So here is the issue. We've been working on the entrepreneur visa for about three and a half years now. And I think that for once, it is an issue that everyone agrees, you know, needs fixing.

SPEAKER_22: Both, you know, Republican and the other side, you know, is fine. And they won't support it. They have supported it. The problem is that there is always someone who tries to sort of tweak the law or the proposal at the very last minute.

SPEAKER_70: And so the last time, we thought we had a shot.

SPEAKER_22: But what someone did is take the 55, you know, sort of minority visas and replace them with entrepreneur visas.

SPEAKER_63: And that is what Obama, you know, said, there's no way I'm going to remove those visas that need them, as opposed to just adding 55,000 visas.

SPEAKER_22: The other issue is we have the entrepreneurship visa part of the more comprehensive immigration reform, which deals with the 10 million people who don't have, you know, legal papers. And so no one wants to just take over a little issue and just, you know, pass it.

SPEAKER_70: It's not that, I mean, it's not so much of a big deal.

SPEAKER_63: And the Brits, to their credit, heard about the visa concept, looked at it, studied it, and within six months actually had it.

SPEAKER_22: Yeah, pretty much. But they put it in place and they have it.

SPEAKER_70: And so, you know, it's a little difficult.

SPEAKER_259: So now founders can go to London and just get going.

SPEAKER_70: And, you know, London has been extremely forthcoming, you know, with European entrepreneurs and, I guess, any entrepreneurs. And it's actually a really good place to start a company in Europe.

SPEAKER_94: It's kind of expensive, but at least they're really trying hard to fund, you know, all the infrastructure to make London a real sort of entrepreneur.

SPEAKER_41: Well, I mean, Obama did, along with both sides of the aisle, get the startup bill passed, which does crowdfunding. And so that's a good thing.

SPEAKER_10: You would never invest in a startup in France, would you?

SPEAKER_89: That's a no, by the way, when you have a pause for 30 seconds.

SPEAKER_19: I don't need to hear the answer. I mean, look, Luik left. And look at the tremendous success, which you invested in Seismic, and he just sold LeWeb. But Luik has had tremendous success, and he's only been here for five years. No, I think— You've had tremendous success.

SPEAKER_52: And we've been here for 12 years. Yeah.

SPEAKER_70: The thing is—

SPEAKER_267: You could never do that in France.

SPEAKER_63: If you look—well, look. Xavier Niel was free. Jacques-Antoine Grandjean with Van Privé.

SPEAKER_70: There have been, you know, a few successful internet stories. Van Privé has been amazing, yeah. But, yes, it's true that I haven't invested in France for a long, long time. And it's very challenging.

SPEAKER_22: I was chatting with them at LeWeb last week. We were sort of welcomed by the prime minister, who did a speech about what he was doing for the French startups or whatever.

SPEAKER_70: And then suddenly he turns to Luik and I and go, and those in Seismic, you should consider coming back. And then we have, like, 100 people watching us.

SPEAKER_271: The press, LeMond. Okay, let's do another question.

SPEAKER_274: So Correlation Ventures has taken away the human element of venture investing by being the data-driven, a.k.a. Moneyball of venture. What are your thoughts on that model, and is there going to be more shifting towards data?

SPEAKER_278: I haven't even heard of this. Correlation Ventures? I haven't heard of that.

SPEAKER_70: Yeah, once again, you know, we'll see in 10 years how well they do or don't. I don't believe in Moneyball in early stage investing. So, and we try.

SPEAKER_22: We try and sort of collect a lot of data and so on and so forth, but we can never weight something more than another. So having this big spreadsheet which tells you whether to invest on it, I don't know how to do that.

SPEAKER_63: Those guys are smart. They came to see me, and I said, look, if you're successful, you'll prove me wrong. Time will tell.

SPEAKER_70: It's really sort of a, this is an art. It's a craft. It's not something you can industrialize.

SPEAKER_281: One of the factors I've heard from many VCs, entrepreneurs with immigrant parents, you see a trend there.

David Friedberg: If the person comes from immigrant parents, they work harder, they want success more, they're more driven, more likely to invest in that kind of person, or more interested in them. You see a pattern?

SPEAKER_278: That's sort of old wisdom, right? Yeah, I think it's old wisdom.

SPEAKER_22: It's sort of understanding the value of work and dedication, but I don't think this is sort of a major trade that we're looking at. I think there is a potential correlation in the entrepreneurs we've backed, but we never sort of think about that.

SPEAKER_109: Going in.

SPEAKER_285: It's not like a thesis or anything. Next question. Here we go.

SPEAKER_287: Hi, Michael from Epilogger.

SPEAKER_288: So I wanted to kind of ask a little more about this so-called Series A crunch, and I think, so I'll give you my opinion and ask yours, is I've seen other VCs speak about it. I've read Fred's blog. I've read the thing recently from ReadWriteWeb, and, you know, I get the feeling that it's nothing new. I mean, I don't think VCs, good ones like yourself, will invest in crappy startups. I think that it's more of a, there's so many startups, and I went to a few parties around town, and there's just like tons and tons and tons, and a lot of them do very frivolous kind of stuff, to be honest, like something silly, it's cool for like two seconds, and then you kind of think forward, and it's not that cool after all. So do you think it's more of a self-fulfilling prophecy, that's just more like the media is saying, like people are just trying to pop the bubble desperately, or do you really think there's a crunch that's more pronounced now because of a lack of, because of fully engaged funds, or just because it's a matter of throughput, for example? So like I said, here, there's just so many startups that it makes sense, but if you come from like Canada, where I'm from, there's less startups, but they tend to be a little more careful about what they're selling.

SPEAKER_291: You said before the benchmark has gone up.

SPEAKER_63: Yeah, the benchmark has gone up because the number, I mean, there are so many companies which will be funded, and there are a lot of really good companies coming up for funding, and so only the best get funded.

SPEAKER_279: So I agree with you, it's nothing new, it's just that the funnel that comes out of the seed world is much, much, much, much, you know, bigger. It's like 2x, 3x, 4x.

SPEAKER_19: So the same number of people will get funded, but more people will not get funded.

SPEAKER_294: Yes.

SPEAKER_19: And people who would have previously made the cut five years ago will not make the cut today for the Series A.

SPEAKER_22: That is true. And so that means that you will see alternate sources of Series A's develop, whether, you know, corporates will start doing Series A's. You will start seeing...

SPEAKER_296: Like Google Ventures?

SPEAKER_22: Yeah, the Google Ventures is kind of a real VC. So, you know, some media companies or some really surprising companies will sort of do Series A's,

SPEAKER_70: whereas typically we're coming in, you know, to them, maybe Series B, Series C's for... So strategics. So strategics, yeah.

SPEAKER_22: You will see sometimes a gang of micro VCs putting together a Series A, and we've done one of those, and we're actually pretty excited by the company, to be honest. A syndicate?

SPEAKER_302: Yeah. So, you know... Can you say which company that is? Or is it too soon to see?

SPEAKER_303: We haven't announced. It's actually in Southern California, but we haven't announced it yet.

SPEAKER_304: Wow. So...

SPEAKER_303: I actually wonder if you're an investor.

SPEAKER_304: Well, anyway. Anyway.

SPEAKER_28: It's... This kind of... If the situation were to exist, and you were syndicating a bunch of folks together, that would be, like, 10 VCs at $250 each, or 12 VCs at...

SPEAKER_63: There will be three, four micro VCs at $850 to a million. So it's a pretty substantial commitment for us. And the idea is, it's, you know, C plus A in one go. Ah. So from a commitment standpoint. So we end up with, you know, $850 in the company, as if we had done a $500,000 investment at the seed level, and then a $350,000 investment at the A. So... But that will be at the margin. So you won't see a way to increase, in a major way, the Series A capacity.

SPEAKER_22: That might sort of be 10% or whatever.

David Friedberg: Some people could actually try to make their companies profitable, too. And, you know, it's... I mean, it could change the philosophy of, you know, instead of trying to get scale, trying to get customers earlier in the process.

SPEAKER_63: Yeah, and it's always an issue of, if you can grow as fast... I mean, one of the questions we always ask is, what is capital allowing you to do,

SPEAKER_70: except, you know, paying for engineers and so on and so forth? And if the answer is, I'm growing as fast as I can, I'm acquiring customers as fast as I can,

SPEAKER_22: you don't need money. And so growing the old-fashioned way, which is going to profitability and then growing on cash flows,

SPEAKER_63: it's not really sort of the way Silicon Valley is typically building startups, but it's a great one.

SPEAKER_94: Look at GitHub, you know, they raised their first... Their first round was 100 mil at, like, a crazy $700 million or $800 million valuation.

SPEAKER_313: Well done. Next question.

SPEAKER_314: Hi, David Chang for VendorStack. Jeff, do you ever make investments in competitive spaces to your existing portfolio? And how do you feel about people who do?

SPEAKER_291: Great question, by the way.

SPEAKER_52: So, let me make sure I sort of understand. So, I have a company in a space, and then someone sort of pings me about investment in the same space.

SPEAKER_10: You have SendGrid, and somebody comes with SendGrid, the disruptive product that's going to disrupt the hell out of SendGrid. What do you do?

SPEAKER_52: I will immediately point to the fact that I'm an investor in SendGrid,

SPEAKER_70: and unfortunately, I won't be able to proceed with, you know, a meeting or even considering the investment.

SPEAKER_63: And we have a pretty wide definition of competition, meaning, you know, if it's clearly competition, it's not possible. But even if it's an overlap, we will sort of politely decline,

SPEAKER_22: because we know that SendGrid will go much beyond what they do today, because they have to scale and become a bigger company. So, we'll create some kind of a white space around all our companies and make sure that no one touches that white space.

David Friedberg: What happens if two companies, one company in the portfolio pivots, which happened to Marc Andreessen with Instagram and another photo app?

SPEAKER_38: Yep. What if another one pivots, and then all of a sudden you have a conflict? What do you do?

SPEAKER_22: It actually happened to us. Two companies doing two things completely different, and they both pivot into the same space. And you go like,

SPEAKER_63: and what we ended up doing is agreeing with the second CEO pivoting into the space of the existing company that we wouldn't work with him for the period of time of the period.

SPEAKER_22: I mean, it was a completely fucked up situation, because those two CEOs are really good friends of mine, and I had to say to the second one, because he was just pivoting into, you know, what the other was. He was second to the idea. He was second to the idea, and we sort of agreed that I couldn't work with him on that.

SPEAKER_303: So, for six, for nine months, basically, I didn't hear from him, because he was trying to compete with my other company.

SPEAKER_24: Wow, crazy. Let's take another question. These are good questions, by the way. I have a smart audience.

SPEAKER_321: So, the first question is, would you tell your seed startups the metrics for Series A? Or does that really govern your seed funding thesis?

SPEAKER_109: No, because at the end of the day, so when we invest, we have to ask ourselves now,

SPEAKER_70: what are the hurdles that are going to be in front of this company? What do they need to clear to be successful at a Series A 18 months from now? And we have to ask ourselves if we think they have a shot at it. The problem is that we don't know.

SPEAKER_22: We have a good, I mean, I think we are much in a better place than entrepreneurs to have an educated guess.

SPEAKER_63: But we don't know what the hurdle is going to be, because it's often once you're past the Series A that you see what the hurdle was. And the hurdle is sort of, you know, is a moving target, because unfortunately, all opportunities are not evaluated in isolation. It depends on what else you're looking at.

SPEAKER_70: And, you know, I had one of my companies, which I'm very excited about and I think has a real shot at building a big company, got turned down by a friend of mine who said, look, they're top three in the funnel.

SPEAKER_63: The bad news is that we'll be funding only the number one.

SPEAKER_109: And so, depending on the timing at which you reach a given firm, you might be, you know, number one or number two or number three in the funnel. And that, you know, you can't do much about it.

SPEAKER_321: Let's take another question. The other question that I have is this new talk going on on enterprise software. And some of us who are older kind of like enterprise. However, we cannot no longer go to Series A, because what they are looking for is a little bit higher. And for Seed, we are not like, you know, doing some little Web 2.0 conversion. But you need a little bit more money and a much more educated VC. And what do you think of the shift in the market to that more enterprise software?

SPEAKER_63: So, we've spent a lot, I mean, we've always done B2B investments.

SPEAKER_70: We're spending more time looking at a lot of consumerized IT. So, consumerized IT actually has some of the traits you pointed out, which is you're building a real product that is going to be solving an enterprise, you know, sort of problem. What you need to figure out is how you validate the, you know, the ability to create demand, how you're going to acquire customers, and whether there is any tricks that you learned on the consumer side that can be replicated on the enterprise side. And we've seen a few of those, and we've made, you know, quite a few investments this year in that.

SPEAKER_19: It's like ground-up IT. It's like from the bottom up, the people's IT. Dropbox, Box, Yammer. Starts with somebody in a department says, I need a solution. I used it, and then the IT department finds out about later that 17 different people in the company are using it.

SPEAKER_70: And it's all about, you know, cloud-based sort of delivery. It's all about bringing your own device so you have it on your phone and so on and so forth.

SPEAKER_22: So, we just have a set of infrastructure today available to us that enables consumerized IT in a way that was just not feasible, you know, five years ago. And I'm actually an enterprise software guy. I spent 12 years of my life building, you know, enterprise software. And, you know, it was just horrible to see those sales cycle and having to convince CIOs.

SPEAKER_70: And that's what we're trying to avoid in terms of what we fund in that space.

SPEAKER_339: Let's take another question.

SPEAKER_340: Hey, Jeff. It's Alex Marino from Tennis Round. Switching gears a little bit to consumer internet startups, what do you prefer to invest in? Traction or revenue?

SPEAKER_09: On the consumer side, the question is traction or revenue or something else?

SPEAKER_70: So, we'll want to understand essentially how the traction has been generated and where the revenue is coming from and whether this is something which is truly something you can retain. We've seen over the past six months a number of startups just shoot through them, through the roof in terms of numbers, because they had, you know, figured out a way to leverage Facebook or Twitter or whatever to get pretty viral with sometimes very aggressive techniques. And they raised their round and then, you know, a few weeks later, they dropped. And they dropped sometimes to 95% of the original traffic, which hurts. It's worse than Groupon. And so, we really want to understand whether there is organic retention,

SPEAKER_22: something that basically gets users back, you know, every day, several times a day, or every week, several times a week, just because they need the application, they want to use it.

SPEAKER_63: So, I would say traction is typically what we look at. If there is revenue, it means that someone has figured out both, you know, the traction and the revenue. But in the consumer world, I mean, it depends too much.

SPEAKER_201: I mean, e-commerce, it will be most likely revenue. If it's traditional social media kind of thing, it will likely be traction.

SPEAKER_10: A thousand people paying $10 for an app or a million people downloading it for free, which one do you want to take the meeting with?

SPEAKER_348: Typically, the million.

SPEAKER_10: You go for the million. Yeah. A hundred thousand downloads, a thousand people paying $10. Which one do you want to take the meeting with? You can only take the meeting with one.

SPEAKER_352: Well, I would take both. No, I think we'll do it. No, this is a test. Would you only take it from one?

SPEAKER_63: It depends on where.

SPEAKER_352: But now you're thinking about it.

SPEAKER_63: Yeah.

SPEAKER_22: It depends on where they, I mean, paying for downloads is easy. Getting organic downloads is hard. So, if someone can get the downloads, get the activation loops, and then two weeks later still has, you know, 60 or 70% retention on those users and the cohorts look good, we'll take the meeting.

SPEAKER_354: Right.

SPEAKER_10: And, in other words, he's got a well-thought-out process, and he's going to drill down and do due diligence. Let's take two more questions and then drink.

SPEAKER_357: Hey, Jeff. Go ahead. So, I'm curious. You mentioned before the conversation you sometimes have to have with entrepreneurs about things are just not working. We need to consider an acquihirer or do something else, shut it down, go do whatever else you want to go do. Tell me about those conversations and, you know, what, how are those like? And, you know, what have you learned over the years in having those conversations? How do you make those softer landings?

SPEAKER_358: So, and here, Sunil. It's a great question.

SPEAKER_70: It's a great question, and it never, I mean, I can't think of that conversation happening as a shock to the CEO, meaning that I know it's not working because he knows it's not working. And so, the question is more, okay, we've tried everything we know, you know, we've changed the product, we've looked at, you know, the data, we've, you know, evolved a few things, maybe we've changed a couple of developers and so on and so forth, but at the end of the day, it's just not taking off because it's not as good an idea as we thought.

SPEAKER_22: And, you know, once we've gone through all the things that we know, you know, might have worked, then we'll just say, look, clearly the bar was here for you at the very least, and we're here. There's just no way this is going to work, so let's figure out how to end this.

SPEAKER_70: And, you know, sometimes it will just be a simple, look, dude, we still have six months of cash left, so by definition, you can still iterate and try new things. But if you feel that this is sort of done, feel free to say so, because whenever you raise money from an investor, there is this sort of commitment to us that you will bust your ass and work super hard to try and turn this into a success. But if we see that it's just not working, we'll try and just...

SPEAKER_120: You want to free the person. You don't want to see somebody suffer through something you know is not going to work. Like, you'd rather get the 20 cents back on the dollar and put it towards the next deal.

SPEAKER_70: It's not even the 20 cents on the dollar that matters. More of the person moving on.

SPEAKER_22: Yes, I think it's more, hey, and I've had that conversation very recently with an entrepreneur I've been working with for two years,

SPEAKER_70: and I really love those two guys, the CEO and the co-founder, who is the CTO. They're awesome. And I will likely sort of look very positively at what they do next. But, you know, we tried something, didn't work. They pivoted into something which started to get traction, but we haven't proven yet that this is potentially going to yield a big company. I've already given them an extension, a bridge, and I never do that twice. And so I said, look, what do you want to do? We can try to couple something together and find someone to lead another bridge. But if you're not into it, if you're not convinced this is going to work and build a big company, I'd rather sort of let you go free. And, you know, we'll lose $600,000, $700,000, which sucks, but at the end of the day, that's our job. It's trying super hard for two years, and it's just not there. And I think that our ability to say, look, if it's not working, just let it go, and we'll help you, you know, do it as properly and cleanly as possible,

SPEAKER_22: because there's nothing worse than a hard lending where, you know, you have creditors and potential lawsuits or whatever. So that's pretty horrible.

SPEAKER_146: We'll definitely be on the front of that.

SPEAKER_19: And if you're not having companies completely wipe out, you're not really investing in the right companies, are you? I mean, you need companies. You said early on, you're looking for disruptive things. You're looking for things that are going to change the world. If something's going to try to change the world, it's got a good chance that that rocket could go off course and just, you know. Oh, sure.

SPEAKER_70: I mean, if you're not ready to fail, you will never sort of do big things. And that's true on both sides. And so every time we invest, we know we could potentially get wiped out. And our cost of failure, which is basically how much we lose when a company just blows up, is now half a million bucks. And, you know, recently we had to write off an 800K investment. I hate it. But, you know, I have two guys, two co-founders who've, you know, spent two years trying hard at building something and it didn't work and have no regret whatsoever. The worst is, you know, when you invest in an idea which, for a very short period of time, sometimes because you're sort of pushed to make a decision very fast, like YC.

SPEAKER_22: And, you know, you sort of go, okay, well, it might work and you go for it. And then the next day it's like, fuck, what have I done? Right. And those are the ones which are very frustrating.

SPEAKER_368: But otherwise, you know, failure is part of what we do day to day.

SPEAKER_111: Well, you're not going to do great things if you're not willing to risk failure. I think that's very well said.

SPEAKER_369: Everybody, big round of applause for Jeff Clavier.

SPEAKER_11: It's really well done. Well done. Great job, Jeff.

SPEAKER_10: And let me thank the folks here who have really helped out. Kiran Kalia is the managing editor or the editor-in-chief. I don't know. She runs launch.co. If you guys read launch.co and she manages the show and does an amazing job. Big round of applause for Kiran.

SPEAKER_28: Brandis and Jesse on the gear over there every week. You get that beautiful sound from these great microphones. It's not done without a lot of effort by Brandis and Jesse. Big round of applause for them.

SPEAKER_11: In the back, Jason DeMont paying the bills. He's our head of sales and gets all these great sponsors here. Big round of applause for DeMont.

SPEAKER_10: And then I'll just wrap up all this great applause with a big, big thank you to our friends here at Rocket Space and my turnstone who actually furnishes this place with gorgeous stuff and New Relic for being our sponsors tonight and making this possible. Great job. Thank you so much, Rocket Space, especially for hosting us. This is very well done. And I want to thank the audience particularly because you guys did me proud. Great questions. Really, honestly, like I could have stopped the interview half an hour earlier and just let you guys ask the questions. How many people here have watched more than five episodes of the program, may I ask? How many people have watched more than 25 episodes of the program? Holy cow, I've got super fans.

SPEAKER_11: I've got to tell you that – how many people have watched – don't lie. How many people have watched like over 50? Okay, you need – people need to get a life. Get a life.

SPEAKER_10: I got you. No, listen, I have to tell you. Some of the best moments I've had over the last three or four years is the privilege of being involved in these conversations

SPEAKER_28: with great venture capitals, angel investors, entrepreneurs. This show is like my favorite moment of the week. And getting to see you guys here live, the people who watch the show, it really like – it's very touching to me to have you guys come out for the show. And I hope we can do this every month with bigger and better guests. And I really appreciate all you guys who tweet and everything and ask and harass people to be on the show. I particularly like that move. So the people who are out there harassing Mark Cuban and Elon Musk and Mark Pincus, all my friends who haven't been on the program yet, keep harassing them. When you see them live in person, tell them, well, haven't you been on the show? That's always great. If you see somebody walking down the street like Chris Saka or Jeff, just yell at them like,

SPEAKER_57: I heard you on Twist. You were on Twist. Just like yell at them. It's really funny. Like they come to me and like –

SPEAKER_375: And it's much better than, hey, I saw you on Bravo.

SPEAKER_57: Yeah, exactly. Yeah, that's bad.

SPEAKER_11: All right. Thanks, everybody. Great job. Beautiful. Yes. Okay. And big round of applause for Rocket Space. I want to get them one big round. Okay.

David Friedberg: Now somebody is going to win either lunch or dinner, depending on the situation. I should pick here. You told me it's the one that's bent over in the ear. This one that you bent over on the side before.

SPEAKER_369: Okay.

SPEAKER_200: Here we go. Okay. Your ticket number is – the first number is zero.

SPEAKER_11: The next number is eight. I think everybody here has zero-eight as the first number. Five. Five. Five. Raise your hand if so far you're doing good. Oh, it's going to be good. Two. Raise your hand if you're good because there's only one left. Well, it might be between just three people here. And the last number is one. You won. Awesome. Well done. Well done.

SPEAKER_369: So dinner or – I'm sorry, lunch, potentially dinner if you play your cards right with Mr. Jeff Clavier. One more time for Jeff Clavier.

SPEAKER_381: Thank you. And just join me in thanking Jason for being such a grateful host. Thank you.