Venture Unlocked: The playbook for venture capital managers

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.Today, we have the great pleasure of chatting with Rudina Seseri, Founder of Glasswing Ventures, an early-stage venture capital firm investing in AI-powered software companies. With over 17 years of investing and related experience, Rudina has led investments in companies such as Celtra, Crowdtwist, ChaosSearch, Plannuh, Reprise, Inrupt, and Zylotech (recently acquired by Terminus).Prior to moving into venture capital, Rudina was a Senior Manager in the Corporate Development Group at Microsoft Corporation and started her career as an investment banker at Credit Suisse. Rudina was appointed by the Dean of the Harvard Business School (HBS) for four consecutive years to serve as Entrepreneur-In-Residence for the Business School and has most recently been named to the HBS inaugural group of Rock Venture Capital Partners.A word from our sponsor:Invest in innovation. 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In this episode we discuss:01:01 What inspired Rudina to become a full-time investor and what was her early investing philosophy03:06 The firm’s structure and methodology05:42 Learnings from the first fundraise08:35 Frontier tech investing12:13 What type of frontier tech companies the firm looks for14:11 How Glasswing specifically evaluates companies 21:01 How they thoughtfully built the team at Glasswing to drive unique support to their founders25:03 Preserving ownership in companies during the current market conditions without having to substantially increase fund size28:36 Deciding on when to make an exception on valuation or ownership30:44 How the firm deals with unconscious bias and group think when evaluating investments34:50 Using diversity of thought to drive better decision making38:55 The most counterintuitive lesson Rudina has learned as a VC40:52 The investing miss that taught her a lesson42:13 The investor she most admiresMentioned in this episode:Glasswing VenturesI’d love to know what you took away from this conversation with Rudina. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:Hi, I'm Samir Kaji, welcome to another episode of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. Today, we have the great pleasure of chatting with Rudina Seseri, founder of Glasswing Ventures, an early stage venture firm investing in AI power technology companies. With over 17 years of investing in transactional experience, Rudina has led investments in companies such as Celtra, CrowdTwist, Talla, and Zylotech. During our discussion, we talked about her view of what frontier tech means to them, the KPIs that Glasswing uses when measuring value add services to founders, and why diversity is so central to their investing ethos. Now, let's get into the episode to hear all of them and more. Rudina, it's great to see you and thanks for being on the show.Rudina Seseri:Hello, Samir, happy summer and thank you for having me.Samir Kaji:Now, let's get into your start into venture capital. You had a myriad of other roles before you became a full-time investor. What inspired you to be a full-time investor? What was the opportunity you saw and what type of investment philosophy did you have?Rudina Seseri:I had been in investment banking as a little low analyst. Remember those? 120-hour weeks. And I was in tech investment banking. So I joke that after three years of investment banking, I was done with the banking hours, but I had permanently caught the tech bug. So and this was the early 2000s, both the bubble and the burr. So both sides of that equation, but really became hooked and was excited by the innovation and the transformation and that passion. So, I knew I wanted to do tech of some sort and VC sounded very, very sexy. Have you met an MBA that doesn't love VC? So, I went to HBS to get my MBA and there I met Rick Grinnell, who was already a VC, and not coincidentally today my co-founder and partner at Glasswing Ventures.Rudina Seseri:We launched the firm together, but Rick was already a VC. And as a student, I actually did a few projects with him, particularly one around the mobile landscape. Mobile and smartphones were going to be a big thing. This is 2003 and 2004. And then I went on to join Microsoft, always with an idea that four or five years down the road, I would come back to venture and the notion of balancing sort of the passionate for tech and the background in M&A and financing, et cetera, with operational experience at Microsoft. It happened sooner than I expected under two years because Rick and our old firm were raising a new fund and they were building the team, so they poached me, but that was sort of the genesis of my coming onto venture. Put differently, on a good day, I thank Rick. On a bad day, I blame Rick for my venturing experience.Samir Kaji:I think it can be a little bit of a roller coaster for sure. And the two of you did launch Glasswing in 2016, you're effectively a lift out. Tell us a little bit about Glasswing itself and what really catalyzed the start of that firm.Rudina Seseri:So the idea was that while we were in our old firm, we kept seeing opportunities around sort of the evolution, if you will, of frontier tech, particularly having crossed the chasm from advanced analytics to something else, which became really AI and narrow AI and applied AI these days. But we kept evolving our thesis in that regard and we're seeing the impact because we're end market investors, so we look at enterprise security platforms but with an angle around frontier tech and this is going back really to the sort of 2012 through '14 timeframe.Rudina Seseri:We were particularly seeing that emerge out of academia with deep learning. And some of the emergence of that wave and making its way into academics and, fundamentally, all our thesis and the investments we had made were telling us that it was going to become all pervasive. It may sound strange today in 2021, but there were a lot of nonbelievers. I mean, when we did the spinout to have this focus around frontier tech with their AI and applied AI being a driver, I had many, many, many questions around, was AI really a thing? Was it really a wave? So you look back and you're like, "oh, my gosh. Now, it's an entirely forgotten conclusion." But from the perspective of the time, we really thought there was a big, big market opportunity for a focused strategy. And so far, so good, knock on wood, but it has panned out quite nicely.Samir Kaji:There's a number of ways that people start their own firms. It's usually with a few backgrounds. They were an angel investor and decided to be a full-time investor. Somebody that was an entrepreneur, an operator that decided to be a full-time investor. And then sometimes, it's coming out of another shop and starting really your own firm. And the latter is kind of where you and Rick were. The two of you had worked together for almost a decade investing, started Glasswing in 2016 as a newly formed firm. But a lot of people asked me the question when I have people that are effectively spinouts, do LPs give you a lot of attribution for what you did in your old firm? And how do you navigate through some of those questions in the early days where some people may wonder, "well, your track record before was maybe not as relevant as it is now and you were part of another firm," walk us through a little bit about that first fundraise.Rudina Seseri:It's the crux of what your product is. And I joke with software founders and technologists, even when they pitch VCs, they have a demo. They have something to show. You walk into a room and you're pitching an LP on a new firm and a new fund and your track record in your strategy, those are your products. So with that as the backdrop, I'm really sort of proud of the approach we took with our spinout and how we launched Glasswing at multiple levels. One, it was probably one of the friendliest spinouts that I could have ever envisioned. With our partners in the old firm, we did not abandon them or the LPs in the funds, or most importantly, perhaps our founders. We literally did a legal spinout to where we have been seeing that portfolio through and maintained our board seats, did not orphan our founders, and got track record attribution.Rudina Seseri:The track record attribution really speaks again to the fact that prospective LPs would not have to call five different folks to get to, "did Rudina or Rick really lead that deal?" We had the legal attribution. We were on the board. They could call the founder. We had access to our track record. So from that perspective, we lowered the barrier, if you will, to diligence. And also, there weren't five partners making claims to X, Y, Z deal. It was very clear who sourced it and who led it and who was seeing it through. Fundraising is never easy. Even when it's easy, it's not easy. And it's even harder when it's a first time fund and you're just establishing and a new firm, but I will say that doing a spin out on the up and up and that dynamic helped matters a lot.Samir Kaji:The continuity aspect does help a lot when you have a team that's been together and that's one of the main risks that LPs do underwrite too. The other one is looking at the investment thesis itself and understanding why is this manager uniquely positioned to execute on a certain thesis. You're right. Five years ago, frontier tech was something that a lot of people didn't understand, or at least at worst or at best rather, skeptical of. Today, you see firms like Lux and DCVC doing Founders Fund doing a lot of it. Take us back to 2016 for a second, how did the focus on frontier tech guide your investment thesis and strategy in terms of the type of companies, the stage of companies? And what type of risk you were underwriting to with those early stage frontier tech companies?Rudina Seseri:Absolutely. So the good news, going back to 2016 and onward, is that it's not as though we were in a different focus or different space and woke up and said, "Oh, my gosh. I got to do frontier tech." It has been very, very much continuation of strategy. So we came out of a generalist tech, early stage tech fund where Rick and I had this focus. And we and the LPs that backed us fundamentally shared the view that it was a bigger enough opportunity for us to stand on our own. So in many ways, going back also to your earlier question around how did the spinout happen and what helped it, it's been a continuation of strategy. It's been an evolution. So, our focus and our strategy is very much around end markets. And then from wave of disruption to wave of disruption, what the catalyst is evolves, changes, or transforms over time.Rudina Seseri:What do I mean by that? So end markets being really enterprise platform security, okay? But I've just said to you, this is... What? Trillion dollar market opportunity, so that's not really focused. Where the focus comes in for us is that I'm not just looking at an enterprise SaaS business in X, Y, Z, I'm actually looking beyond the execution, the founder, the usual criteria you'd see. I'm looking for that frontier tech that is so disruptive that it will transform the current market either to disrupt the incumbents or to market make in a new category. And for us and where we are in the evolution, AI has been the grand majority of that. Now, that's sort of one piece of the equation. The other piece is the stage that we invest in. I am very, very nervous to even throw sort of letters or nomenclature today because I assure you if this podcast stays on for a few months, the nomenclature will have shifted.Rudina Seseri:So five, six years ago, I would've said, "oh, we're the first institutional or maybe a little longer than that, but we're the first institutional investor in, hence the series A round. And oftentimes, the first capital in." Today, the series A has taken a very, very different dynamics. So, let me articulate it differently in a way that I think has persisted time. We are early stage investors. Right now, that nomenclature is seed, but I'm not married to it, you can call it whatever you want, where we are investing in companies that are two to four quarters away from product launch or the product has been in the market for a couple of quarters. So we're not really taking any raw, if you will, tech, algorithmic, and even data risk. What we are taking is product market fit and go-to-market risk. And that's what we have done for many, many years and that's what we will continue to do. So let's focus on nomenclature, more around what stage can we come in, and how do we help the business derisk from there.Samir Kaji:You're investing in these companies that are six to 12 months away from releasing a product. And one of the things that a lot of folks think about frontier tech is high technical risk. It could be two, three, four, five years sometimes before a product goes to market. And sometimes, these companies raise tens of millions of dollars before that happens. It sounds like what you're focusing on is a very different type of company that is a little bit more conservative when it so early cash or in getting a product to market.Rudina Seseri:Not necessarily. I think maybe we alter our definition a bit. You might be equating frontier tech and deep tech. And sometimes, they are the same. Oftentimes, they are not. Frontier tech, I'm talking about really at the cutting edge of innovation, not necessarily that it is deep tech, that's going to take three to four to five years before you can commercialize it. That, in fact, would be beyond our horizon for launching. And that's why I prefaced our discussion by saying I'm in marketing. We're end market investors. So, pick DeepMind. It has its AI as much AI as you'd want. And in fact, it's probably one of the more forward sort of oriented companies if you think about it around the area of general AI.Rudina Seseri:But we would've missed it every time by design because we do not invest in companies that have tech in search of an application or a use case. Instead, I'm starting with, "okay, within enterprise, I'm a thesis-driven investor." So, we haven't talked about that. I have this five or six or seven themes or thesis. And then underneath them, I go deeper and deeper. I'm looking for this type of opportunity to apply to this problem with this budget or with this budget in the making or with this pain point and it's a must have. So when you come at it, if you will, I'm already looking for a solution to a problem, but instead of your run of the milll SaaS, I'm looking for a degree of tech that is truly cutting edge that can give you an advantage in addition to the execution play.Samir Kaji:That's helpful to further define it. I'd be curious in understanding just... If you could break down the anatomy of what you consider a successful frontier tech company and when you are looking at these companies, how do you analyze and go through that discussion within your partnership as well as in your own head?Rudina Seseri:I mean, what I consider a successful frontier tech company is what you consider a successful tech company period in the sense that, ultimately, it's capital in and returns out. Along the way and a little bit tied back to... Now, contradicting myself for a second. While it's not deep tech, along the way you want to see the progress of unprecedented growth and sort of the tripling year over year, et cetera in ARR. But what I notice about and what we sort of have a view around frontier tech is, especially if you're leveraging AI, where just for the purposes of this discussion, knowing full well that they're not the same thing, I'm going to use ML and AI interchangeably, knowing full well that they're not quite exactly the same.Rudina Seseri:But especially in the beginning, when you're training the algorithms and to take advantage of ML with the data, typically frontier tech but especially applied AI companies leveraging data, their early days, they take a little bit more time because you're training the algorithms as opposed to just starting straight up with software alone, without being informed by data. When that happens, you see a little bit of a sort of longer window of time to get to market. But then, if all goes appropriately and according to what one plans, then you should see them outperforming. And so the adoption curve once in the market should be steeper, if you will, and the time shorter.Samir Kaji:It was something that I was thinking about and alluding to earlier. And you did make the distinction between deep tech and frontier tech, which I think is an important one, but what you're highlighting also, there are situations where it takes a little bit longer to get to product to market, to really get those pure revenue metrics. But in scenarios where you see a company that you think has this high potential, it is on the cutting edge, it has these elements that are driven around AI, but could take 12 to 24 months to show real, real traction in the traditional top line perspective, how does that instruct your own investment strategy in terms of the size of the rounds that you're leading? And how much runway you want to have these companies get to really achieve those milestones necessary for the next round of capital?Rudina Seseri:I mean, this is a question of how do we valuate an opportunity and an investment in a company, right? So from that perspective, we parse it around, can we derisk our understanding and can we go in knowing full well that the product works? I mean, I know it sounds table stakes, but especially when you have the AIP. So one of our partners Vlad Sejnoha was the former CTO of Nuance and former chief scientist for Kurzweil AI, Vlad is really, especially when go deep into the DD phase, he's really owning that piece. And then beyond their... I don't know if you and I have talked about offline in the past, but we have a group of about 40 advisors that work with Glasswing on a contractually exclusive basis. So what that means is they don't work with other funds and a good subset of that group is really academics and technologies out in industry focused on frontier tech in their day jobs and in AI within that umbrella.Rudina Seseri:So there is a lot that goes on from a diligence perspective around ensuring that the technology and product piece and access or special ownership to data, we can have a whole different discussion on that, is there. Then, the other side of the equation is around go-to-market and how can we help them go-to-market faster? And I will come to answering the question one side these two pieces around how we funded, therefore. From the go-to-market piece, that's where, again, our thesis comes in and our domain expertise comes in. Humor me if you had a company that was in the leveraging AI and all the techniques that would be familiar with and have expertise in for drug discovery, we would be the wrong fit because it's not a market I know well at all. Instead, if it is a company that is, I don't know, disrupting, for example, I'm thinking of Verusen and their portfolio. Transforming and disrupting the status quo when it comes to managing inventory in the supply chain broadly defined and particularly parts, direct and indirect materials.Rudina Seseri:In that one, okay, we can wrap our head around it. We have the right domain expertise. We can actually help them close customers during the due diligence process. So we know how to shrink the go-to-market and the sales cycle and get them, in particular, those first proof points around logos and customers that matter. In turn, once we sort of have those two sides... And I mean, I'm over generalizing and there's a lot more as you know to due diligence and how you help a company. But once we have comfort around that, then we always want to make sure that they have some plenty of runway to get to that next milestone. So what that means is that we typically look for 18 plus months of runway to give to the company and over 90% of the time join forces, so we lead and co-lead with other firms. And we've done them alone as well, but we have no problem or egos in terms of co-leading deals at all. The more value added investors, the better.Samir Kaji:Yeah. And you mentioned something a second ago and embedded in your answer around the number of advisors, some of the team members you had. And I remember you and I having this conversation. I was looking at your deck and not only did I see the advisors, but I saw a team that was significantly bigger than what you normally see for a firm that has sub 200 million or 250 million, rather in AUM. One of the questions I always ask is, is this a function of what we're seeing right now of founders want more?Samir Kaji:They need the level of support and to really have a comparative advantage as a venture firm. It's far more than capital. You have to have very clear thesis, understand the business, and really mobilize around it, both with the investing team, your extended network, and the other folks that play certain roles. Tell us a little bit about how you constructed the team in order to add the most value to these founders and what are some of the learnings in terms of the type of people that you need to bring on to really give the founders the type of experience that is necessary.Rudina Seseri:So, it's interesting because you speak of it in terms of a trend and you step back and you look at the mega firms and the mega funds, and they have the executive center. And those are actually, at this point business lines and P&L lines, not the approach we have taken at Glasswing. Honest to goodness, this was more of what Rick and my DNA was like and how could we institutionalize that. If you take a step back, how often does one in life, unless you're taking entrepreneur and you do it over and over, how often do you get to start VC firms from scratch? I assure you. I've done it once, I hope I don't have to do it again. It's the best thing I've ever done and the hardest thing I've done.Rudina Seseri:So from that perspective, when we started day one, we said, "what did we want to be when we grown up?" And from day one, it's not been about, "oh, let's have the two founding partners and maybe a junior associate and maybe an EA, and let's just go do it." That's a very viable approach, plenty of firms do it. Instead, what we wanted to do is sort of live to this mantra. This is a Monday, we're recording and I just came out of a partner meeting, and I reminded the team that the goal is before we go to a founder or CEO and ask them, "What have they done in regards to X, Y, Z related to the company? How have we earned our keep with them?" And earning our keep is not investing capital. What have we done for them to be able to expect? That's the DNA. That's the mindset. That's the culture.Rudina Seseri:So with that, we basically have a team of 13 at this point. We have two data scientists. We have an investment team of... Let's see. Two data scientists that we don't even count as part of the investment team. Three folks on the platform. A team, so that's five. To balance effectively is all the investment team. So we have two venture partners, one visiting partner, three general partners, two associates and analysts. So put differently, we have put whatever resources. We have put them into building the team and building the firm. Why? Because the companies we invest in day one, the biggest need they have is again, honing in the go-to-market, translated as they need executive talent and customers. So how are we going to set ourselves up? And the domain areas that we are in, they constantly evolve. Doing thesis require development and upgrading and continuously evolving requires thought leadership, requires real research in the market, and in the more academic sense of the world.Rudina Seseri:And fundamentally, how do we help our founders beyond what your typical run of the mill VC would do? So all of those pieces together require resources. And then, we build our own sort of analytics and ML capabilities, which are not developed enough of me to even go deep into, but they're all in the making, with the notion of, again, how will we evolve as the markets evolve, but fundamentally, do our disproportionate share of contributing, not just in lingo but in actual data. And we track it. How many people have we placed? How many customers have we closed? I mean, we tend to be meticulous about it.Samir Kaji:I'm glad you went into detail. As my next question was actually centered around KPIs and thinking through how you measure success of the value add services you offer founders, and which ones actually lead to positive business outcomes. Turning this to, internally for a second and looking at portfolio construction, given that you spend so much time with companies, I would presume that your model is fewer companies, higher ownership, which in today's world, it creates some challenges given the rising valuations. How do you combat this internally at Glasswing? And are there things that you do from an investment standpoint, be it investing in different regions or different type of founders that allow you to continue to get the ownership that you historically have done without significantly raising your fund size?Rudina Seseri:I think we sit outside the Valley. So we have a particularly heavy emphasis on the East Coast, but generally the US outside the Valley. View being that there is so much concentration of dollars in the Valley, why would you take money from a firm in Boston or New York, if you will, if you have 60% of the capital there? But it's also the case that we're operating in markets where the ecosystem of startups is developed, the exit and track record exists, and the talent exists, particularly when you look at enterprise security overlaid with AI talent. So from that perspective, we're going into markets where there is a fluffiness of investment opportunities, of startups but not as much competition. Although in general, we're all seeing the upward pressure in valuations, and it would be silly to argue otherwise, but we don't see the same level of pressure as you would in the Valley, as my colleagues are in the Valley.Rudina Seseri:We actually get a chance to do some diligence prior to issuing a term sheet. And we are thoughtful about the investments that we make an valuations that we go in. Now, we're thoughtful about the valuations that we go in shouldn't be code for we try to take advantage of our founders, the exact opposite we're in this right for a long, long time, a decade if not more. What it is, it's a balancing act between not diluting them too much, but also having enough ownership. And the way we win, honestly, it's not on, "am I the highest valuation term sheet?" The way we win is that with my term sheet, I'm already bringing two execs to the table and customers at the same time, all sort of non-dilutive capital in at least on the ladder. So, truly proving that we are value add.Rudina Seseri:In your question, you use the term that kind of caught my attention because it's something that we refer to very frequently. We view ourselves as extension to the team. So when you are an extension to the team, it's not the high on my team, VC or board member walking in, it's the additional laborer here, closing deals with you or working on pricing strategy or product roadmap, whatever the case might be. You only scale so much. So having concentrated ownership is important because we're not taking a sort of a portfolio... Well, we're taking a portfolio approach, but we're not taking an index approach. We're not doing a hundred deals and let it play out. By the same token, we better contribute in that value to justify our ownership.Samir Kaji:Early in this conversation, you brought up the concept about entry and exit prices, and both of those things have actually gone up in terms of what we've seen over the last five to 10 years, and certainly the last two or three years. But when you're looking at a company that might fall outside your parameters on entry price, be it the valuations much higher than what you're normally willing to pay. And then you look at the exit price and you've assessed a certain exit price that this company could get. The thing that sometimes strikes me is that the exit prices, largely unknown, sometimes markets evolve over time and you're underwriting to an exit that might be five to 10X less than what is really possible. When you're looking at companies like that, how do you decide to make certain exceptions and not be prescriptive around a certain valuation? Is there a certain methodology or mental model that you use?Rudina Seseri:So, I'm going to give you a bit of an unfair question because if I think about fund one, we have about 14 core investment in the portfolio. None of them fall outside of our ownership parameters, maybe because it's wide enough, but it's 10 to 20% when we first go in and we maintain our pro rata going forward. So honestly, the answer I will give you will be hypothetical one. That's where I think discipline comes in and unanimous decision making comes in if you're going to make an exception. And there's plenty of opportunity and the right opportunities where exceptions are warranted to your point. But if we are going to make an exception, there better be buying from the team.Rudina Seseri:And again, I think unanimous matters because it's very easy. Founders are exceptional. I mean, God, I just love working with them. And the risk of falling in love with your own deal, it is very, very high. It happens to me every time, but that's where discipline comes in. And that's where buying from all the partners come in so that when we do make the exception, if it works out, aren't we brilliant? If it doesn't, we're still aligned that we made this decision together and what are we learning from it, and what does it mean on a go-forward basis rather than creating dynamics around "I told you so". So, I think process matter and even process for making exceptions matters.Samir Kaji:And maybe walk us through those partnership discussions when there is an exception that's brought to the table. Sometimes, what we found with larger partnerships is you have somebody that is very passionate about the deal. As you mentioned, it's easy to fall in love with one that you're closest to. But sometimes, when you have everybody where you require consensus, you might have a lot of conscious or unconscious biases that are brought in based on past experience that may not relate to a certain deal. And it becomes tougher to get an exception done. Tell us how that works within Glasswing, where you have made exceptions.Rudina Seseri:So the way that our investment decision-making works is on every opportunity, on every deal, I hate referring startups into companies as deals. It feels very transactional, whereas we waited to them for a long time, but we'll stick with it. Just now, I have bias against the word deal, but when we're evaluating a company, the investment team, if you will, that gets quickly stood up, is... It doesn't matter who sourced it, by the way. I could be sourcing a security deal, but if my partner, Rick, who is the right guy for security, then he will take the lead. But there's always lead partner and a second partner, and then one or two associates or principals. What that means is the lead partner can fall in love with a company, but the second partner is the sanity check, is the check and balance in that deal.Rudina Seseri:So even as we're discussing them every week, and as we're making our way to the investment committee, should everything pan out from a diligence point of view, even within the investment team, we have the checks and balances. So, we're not falling in love with our own deals. And then, even when both partners are in sync, the lead and the second... And again, the second is really... Sometimes we joke and say, "It's a no person." That person's role is really to find the blind spots, even when those folks are in sync. When we go to the broader group, we all need to be in sync. And what I love... I don't know how this is going to scale. So I don't want you to think that we have all the answers, we don't. This is a firm that's growing.Rudina Seseri:I don't know, knock on wood, when we get to 10, 15 partners. This probably the unanimous bit, you have to revisit. It probably doesn't scale. Do you want to focus on what not? But today, the beauty of where we are is that it's a very flat organization. Literally, there is no high in my team Managing Partner or Managing Director. I can think of a particular deal. It got killed because an associate felt so strongly and had domain expertise in the area and it just got killed. We didn't have buy-in from everybody. So I hope I don't have the answer to long-term, but I hope we preserve that spirit because I think it's what makes us good.Rudina Seseri:The other piece is the composition of the firm. We haven't talked about it much, but the diverse composition of the firm really, really helps and diverse in backgrounds and genders in our experiences, that vantage point of the different perspective really, really matters. And honestly, from day one, I mean, this is a women-majority firm. Two out of three Managing Directors, Partners are women. And that sort of trickles not just on gender, but on other facets of diversity, but I had never appreciated that as much as do today compared to my prior experience and how different thinking really contributes. And while D&I and sort of ESG have now become hot topics in the broader ecosystem, I mean, I tell you in discussions like this, it's the beauty, that's where it manifests the most. That's we're doing both good and great business.Samir Kaji:And I'm glad you brought that up because you're right. I mean, things like DI and BIPOC, and looking at backing, diverse entrepreneurs has become... There's been a spotlight. Still lagging, and the numbers are still lagging both on the founder side as well as the VC side. But one thing that I'd just be curious to get your take on is you get diversity of that when you have people of different backgrounds, but there's still this stigma that is slowly, I think, eroding that there's a trade off between social good and returns. And simply, that isn't the case. I think investing diversity actually correlates with great returns over time. Tell us what you have seen and when you say diversity of that within the firm, how does that manifest on a day-to-day basis?Rudina Seseri:In many, many ways. And again, to the notion of we are data driven, we actually track from the firm to the underlying portfolios to their team. So from day one, like I said, this firm started with members of the team being of very different backgrounds, sexual orientations, et cetera, genders, and that was on purpose. And then as the firm evolved, we were looking at our portfolio. We were looking at our advisors. I mean, a lot of diversity in our advisor base and even more so going forward as we're continuing to sharpen the pencil. But if you look at the portfolio companies, I mean, now it's a standard diligence question for me. I go in, no offense, three white men, where is the woman? Where is the minority? What's going on?Rudina Seseri:This morning, I was joking because we have one of the portfolio companies that rents for free, so I suppose, sits with us in our space and it's a lot of background diversity and I'm staring at them, not a lot of women. So I kind of poked my head and said, "guys, where are your women?" And they're all like, "oh, we're looking we're to..." I'm like, "Come on." So it is part of the culture and I'm sharing it as very casually, but now let's get real. It's embedded in the term sheet that they will recruit sort of beyond the basic... We will put best effort. We actually expect them to recruit. And then it also manifests on some of the more binding documents around simultaneously with the closing of financing from Glasswing, there will be policies in place in discriminatory policies, nonsexual harassment. So, we put some structure that may be somewhat unusual for at least historically for early stage companies, but just to get that going. And then we track and we make it a board discussion.Rudina Seseri:I mean, I'll give you some data and make sure they'll going to pull the latest. This is the latest that we have. But 86% of our portfolio companies have a minority Director, whether it's a woman or other background. On our executives, 30% of our executives are women or BIPOC. 42% of employees across our portfolios are women or BIPOC. I mean, think about it. Tech, where not quite half, we're going to get there are women or BIPOC. And then, if you look at Glasswing itself, 67% women or BIPOC. People are women and BIPOC. And then employees, rank and file, 60% are women and BIPOC. So I shared that and we updated constantly because once you start to put number and actually track, you then know how to evolve and you know how you are doing. So a big piece to our focus is... We haven't raised our hand and said, "Where are ESG and D&I?" It's part of who we are but tracking, start tracking and measuring. Goodness follows as long as there are good efforts and genuine efforts being put there.Samir Kaji:If I could just summarize a lot of it, I mean, this has been a fun conversation and never frowns. And I do want to move to our heat check segment in a second here, but you have a very clear thesis. The DNA to me is also very clear around customer service acting as an extension of the team and embedding diversity as really core value driver for not only Glasswing but the type of founders. And so, I think that's all great. To me, all of this makes a ton of sense. I've seen how diverse teams have fared and the data is actually very, very good. And it's starting to seep out more. The secret's getting out, which is a very, very positive thing for our industry. So, I want to go to our final section where I will ask you three rapid fire questions. The first, now that you've been a full-time VC for 15 years, what is the most counterintuitive lesson you've ever learned?Rudina Seseri:It's something that I talk often about. So, this is probably just about a freebie. Ideas are great, execution is what really matters.Samir Kaji:Every time you're starting something, there's probably somebody that's already had the idea. Everyone will tell you why you shouldn't do it because it's already been thought of, but it tends to be how well can you execute on that idea consistently?Rudina Seseri:Yeah. I mean, whether the idea has been thought of or not, I mean, there is a notion of first mover, but only if substantiated. Look, if I had to pick I'd love an awesome idea with awesome execution. I want them both. I want it all. If I had to pick between the two though, in my experience, I have found teams that where they were in okay markets, big enough markets, but because of their exceptional execution, they were able to really grow and expand the market opportunity or grow with the market or ahead of the market. I've seen others where... And I shouldn't say I've been part of those. We've had our fair share of successes and failures, where the market opportunity was amazing and we missed it. And we missed it and it came down to execution. So, sort of this sharp focus on execution is something that honestly I live by every day in myself, but also look for in investing opportunities.Samir Kaji:Speaking of investment opportunities, it's invariable that every single GP in the market, if you've been around long enough, if you're going to have an anti-portfolio, for our show, I'm less focused about who the miss was and what was the reason at the time, but what was the learning from it? Is there a miss or two that you can remember through your investing career, where you look back and say, "we didn't do the deal for X, Y, and Z reasons," which seemed rational at the time and maybe they're still rational, but now I look at it and it's shaped how I think about things where I wouldn't make that same mistake on a go forward basis?Rudina Seseri:Yep. I can think, unfortunately, more than one. Some of it had to do with the partnership dynamics at the time, this predates Glasswing, and what could and could not happen and why. So very, very, very, very, very important to have alignment around vision and honestly, as much as possible avoid politics. I can think of another opportunity where we missed it in part because the team was incomplete and I knew it. And this is where you got to embed that in the process and the team was incomplete and there wasn't faith that the existing team could grow with the caliber that we expected. And the team, IPO’d, did incredibly well and they did grow. So boy, do I feel stupid?Samir Kaji:I think in hindsight, you can look at everything and deconstruct it, but it happens right for a number of different reasons. We're all going to have misses. So last question, I've always felt VC, not only is an apprenticeship game, but it's a continuous learning one. I'd be curious, is there somebody out there, an investor, whether it's a venture investor or not, whose methodologies and investment philosophy particularly inspires you, where you really resonate with their messages? If so, who is it? And what about them really gets you inspired?Rudina Seseri:One, I will say I'm as much learned, I mean 16 years into this, I'm learning as much as the next guy or gal and it never ends. And it's the beauty of this business. Having said that rather than idolize one individual, I pick on facets of what I value about different individuals. So I will not go into specific names because I mentioned some and I don't mention others, and I don't want to hurt feelings and et cetera. But let me tell you sort from a characteristic point of view, I love, love, love VCs who are incredibly successful but down to earth. The world is filled with egos. Our owns, including, and they're a constant reminder of what makes a good VC, which is connected to the founders, aligned with the founders, recognizing when we are not aligned, whether it's an economic structures and what not, but people who say what they mean and do what they say.Rudina Seseri:I mean, at the end of the day, and I have a couple people in mind specifically that I'm reflecting off of the... We love to be love. We're in the business of saying no to most opportunities that we see and yet we need to be loved. So it's very easy to fall in the trap of, "oh, you're the greatest founder," and say things that you don't necessarily mean. I think if I can have a relationship with a founder where they know where I genuinely stand, whether it's good news or bad news, and I do what I say. And then some, I love those people. I want to work with them as co-investors. I want to emulate their style and I want Glasswing to be that.Samir Kaji:Great points of feedback in retaining humility throughout whatever levels of success is an incredible trait. And it's not very often that we see that consistently because human nature is such that you evolve as you become more successful. So I think it's a great thing to note right now, the markets have been very, very good to people. So, we've seen a lot of success very quickly. Rudina, this has been a lot of fun, really appreciate you being on the show and congrats on all of the successes over the years.Rudina Seseri:Thank you so much and I really appreciate you having me over the show and for the thoughtful questions.Samir Kaji:Thanks so much for listening to another episode of Venture Unlocked. We really hope you enjoyed our conversation with Rudina. To learn more about her and Glasswing Ventures, be sure to go to ventureunlocked.substack.com for detailed notes on the show and my ongoing commentary about the world of venture capital. Venture Unlocked is also available on iTunes or Spotify for download. And while you're there, please leave us a rating and a review as it really helps us out. And hit the subscribe button in order to get each and every Venture Unlocked episode as soon as it's released.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.I’m thrilled to bring you my conversation with Hadley Harris, one of the founding partners of seed stage investor Eniac Ventures. Over their history, Eniac has invested many amazing companies including AirBnB, Cameo, Hinge, and Soundcloud. After starting with an initial $1.6M Fund I 11 years ago, they currently grown and expanded to now managing over $300MM in AUM. It was fun chatting with him on the origin story of the original partnership and how they’ve evolved over the years together, and with the introduction of new team members. Also in our conversation we spoke about portfolio construction, which I personally find fascinating given the different approaches that exist. For those that haven’t seen it, check out Hadley’s post on portfolio construction (“Seed Portfolio Construction for Dummies”) as it’s a great post. Prior to Eniac, Hadley held various operational roles including head of Business Market Strategy at Vlingo, which was acquired for $225M by Nuance Communications. He did his undergrad and MBA at the University of Pennsylvania.A word from our sponsor:Vouch Insurance is a new kind of insurance platform for startups. Built by founders for founders, Vouch’s fully digital coverage takes minutes to activate. Vouch is trusted by the biggest names in the startup economy — such as Y Combinator and Silicon Valley Bank — who partner with Vouch because everything from onboarding to claims is designed for startups by experienced founders. Because Vouch is an insurance platform, and not a broker, it works with its clients to manage, mitigate, and avoid risks. http://www.vouch.us/ventureunlockedIn this episode we discuss:01:48 What led Hadley and his partners to start Eniac Ventures03:43 Considerations they thought through when starting a firm together after being friends for so long. 04:47 How they think about conflict resolution 07:00 The KPI’s they needed to meet before raising larger funds 08:49 Experiences as operators and investors that helped Hadley and his co-founders shape Eniac10:24 Drivers that led to institutional LP backing12:16 How Hadley thinks about fund sizing and how they arrived at their last fund size15:26 How the current market has shaped Hadley’s thoughts on portfolio construction and deployment18:08 How they balance optimizing for speed while maintaining integrity of due diligence processes. 22:01 How to build a strong succession plan to ensure firm durability24:13 What Eniac looks for when hiring and onboarding25:32 Breaking down his “Seed Portfolio Construction for Dummies” blog post34:34 Why more portfolio companies is often a better bet for smaller funds37:41 His market predictions40:06 The most counter-intuitive lesson he’s learned as an investor40:42 The thing he got most wrong about investing41:53 Who is an investor he really respects and why?Mentioned in this episode:Eniac VenturesSeed Fund Portfolio Construction For DummiesI’d love to know what you took away from this conversation with Hadley. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:Hadley, it's so great to have you on the show.Hadley Harris:Thanks, Samir. I appreciate you having me on.Samir Kaji:Maybe where we could start is the beginning of Eniac back in 2010. And what I'm really curious to hear is the backstory of what brought you all together, the four of you, and what was that shared vision that you seized the opportunity that really led to starting the firm together.Hadley Harris:So, my three partners and I, Nihal, Vic, Tim and I all went to undergrad together. We're all engineering students at Penn. So, we actually graduated way back in '99. So, now have known each other for 25 years or so, which is crazy, makes you feel really old. The seed of Eniac started about 2007 timeframe. Vic and I, he was working at RRE Ventures, I spent a short period of time at Charles River Ventures before joining a seed stage company that they invested in and we were talking about, eventually, getting into venture. And honestly, the catalyst of why we wanted to start our own firm was, mainly, we just couldn't see ourselves, especially at that time, spending 10, 12 years kissing a bunch of guys asses to become a real GP. And it seemed like an easier path, which is probably not correct, to start our own firm.Hadley Harris:We recruited Tim who had a background in venture law as well as had been a founder and the three of us started planning together. And one of the most successful founders I knew was Nihal who was a close friend, also, from school. I reached out asking for some intros to folks who could fund us, some angels and he replied that he was in, meaning he wanted to join. So, we, after a couple of conversations, decided to do that. And that was the very beginning. Started working on 2008, started investing in 2010 and that was the origin story.Samir Kaji:One thing I'm always curious about is, in situations where partnerships come together and there's these pre-existing relationships, that I think are great because they do bring along an embedded level of trust that's hard to replicate. At the same time, we've seen situations where friends have come together and those personal synergies don't necessarily translate into a professional context. What were some of the conversations you had in the early days to ensure that, from a professional standpoint, you would have those synergies and alignment?Hadley Harris:It was a long evolution, honestly. We went from friends and it took time to really get a working relationship. We were pretty thoughtful, I think, about that. We started working a couple years in with a professional coach and have now been working with the coach pretty consistently over the last eight years or so. Because it's one thing to be friends, it's others to have that working relationship and, in some ways, being close friends, while it has its advantages around trust and shared values, it has its, I think you were alluding to it, its disadvantages and that things can get personal a lot quicker. I imagine you'd see that we're a family business as well. So, for us, it was really about being intentional and understanding that we still had a lot of work to do even though we knew each other really well.Samir Kaji:Take us into those conversations. You guys are talking, were there particular considerations or a particular set of values you've all agreed on and said, "hey, this is how we're going to operate together. These are the protocols and let's ensure that, as we go along, things like conflict resolution are done in the right ways."?Hadley Harris:Yeah. If I were starting again, I think we would make sure to have those conversations. To be honest, it was more of a natural progression. I think everything for us, and I'm sure we'll talk about other areas of the business, has been constant iteration over these 11 years or even before we started investing. And this is definitely one of them where, I think, we jumped in and started working together and then handled the different challenges as it came over time.Samir Kaji:So, you mentioned 2008 and then really starting the firm in 2010. And 2009, of course, was this barren wasteland of anybody allocating capital. How did you guys get comfortable doing this with four people with a really small fund?Hadley Harris:Yeah, the fund was tiny. It was $1.6 million, our own savings and some friends from Penn who were silly or naive enough to give us money when we didn't know what we're doing. And yeah, I'm very happy that they actually did quite well because that would really bothered me. We were still doing our own thing, so we're running our companies. So, in a lot of ways, we looked like more angel investors and almost like an angel group in terms of how we operated. So, our partner meetings were Wednesday night and Sunday night. We were meeting founders during the day, but pretty fluidly.Hadley Harris:And then, as our companies got acquired, I was the first one to go full time in our second fund. When my second company got acquired, then we started focusing on it full time. So, it was really our third fund where I'd say we were quote unquote, institutional and that happens also [inaudible 00:06:16] we had institutional investors. Those first two funds, I think, allowed us to pick up a lot of experience but in a relatively unstructured environment.Samir Kaji:I love the story of starting off with a million and six as, really, your proof of concept. And I remember, even back then, we used to actually refer to a lot of folks as super angels that were writing more significant checks and, often, managing other people's money but still in the early days. What did you guys see as the inflection point where you decided, "hey, we are now wanting to do this as a full-time gig, it's not going to be a franchise." It sounds like it was really the jump to fund three, which I think was about $55 million or so. What did you have to do to get to that point?Hadley Harris:Yeah, I think a big event for us was we had an early investment, a company called Tap Commerce, that had a pretty quick exit for about $100 million in about, I think, about two years. And that, even though it seems very small, returned a big portion of our first fund and we had a couple other smaller exits. So, interestingly, we had really solid DPI going into our third fund. Again, these were small funds, so you're not returning huge amounts of money and for us, that was really important. Because when we raised our third fund in 2014, that was the very beginning of, I think, where most of the LP community were starting to notice and see, they weren't really investing.Hadley Harris:We were fortunate, our lead investor, a major university endowment, had a program they had put together, invested in us and a couple of other seed funds like Homebrew and Freestyle that were around our vintage. So, we were in a good place, at the right time and had somewhat of a track record, even though, again, it was in this relatively unstructured manner. So, those things came together and we had, also, rolled off our own founding companies and those companies have been acquired so we could focus on full time. That became a nice inflection point for us.Samir Kaji:There's two type of emerging managers that are formed in terms of what their prior, most recent experiences. One is, there are former founders that decided full time investing is what I want to do. The other is somebody that worked at a big firm and then rolled out. You did both. Your partners, actually, somebody did work in RRE and they also worked at a company. How did those experience shape how you wanted to build a firm and the type of firm?Hadley Harris:So, Vic had spent two years at RRE, I had spent just a summer at CRV. So, my experience is pretty thin. We really came at it very much from the founder angle and a lot of what we were doing in the early days, I think was, what we saw, it's bringing more of a founder mentality to seed. I think that you can be successful in both. I think that people are coming from more investing backgrounds can be great pickers of companies. I find, and I'm obviously biased, that folks with operational and founding backgrounds tend to have a little bit more to add in terms of their background and experience, but also a certain empathy for the founder experience, which is extremely difficult, that is really hard to learn from afar.Samir Kaji:That certainly makes sense. And I agree with the empathy variable which, of course, there's so many parallels to what you guys have done both as operators and founders but, also, founding a firm together and that you have to build brand and you have to raise money and all those things are hard. Eventually, you did hit that inflection point of becoming more institutional. I think that was around fund three when you raised your fund size and you started to talk to some of the institutional investors be it the university endowments and foundations and things like that, you had some DPI at the time. But I'm curious, if you look back at some of those conversations, what type of factors were they really evaluating in deciding whether to invest in a fledgling firm? Was it the DPI or was it something else?Hadley Harris:Yeah, it's interesting. I think you see that a lot more now where the seed ecosystem is a lot more developed, where LPs are looking for more of those institutional signs. I'm sure that that was a factor. It was just so early and there were so few LPs that are even considering seed that, in some ways, I almost feel like, maybe, the bar was lower from an institutional point of view because I don't think we were very institutional. I think there was an interest in this space because it was clearly becoming a thing. To your point, when we started in 2010, people would call it super angels, people didn't even consider it venture. It was definitely looked down upon by the venture community as a whole in terms of its level of sophistication.Hadley Harris:By then, I think it was clear that this was a thing and LPs are trying to figure out how they're going to play with it. I don't know that they expected the level of institution that we have now and folks like us. I think, surprisingly, the DPI was a big factor because it's like, "The bar is low and these guys actually can return money and they seem to be in some good companies and they got in at these crazy low valuations compared to the rest of our portfolio." So, I think that was more of it, surprisingly.Samir Kaji:One of the things I often see with institutions that are investing at the early stages, be it a fund two or three or even a fund one, is once they deem a firm is investable, the thought is, not only invest in that fund but multiple funds and, over time, scaling their check amounts. And, in your case, you haven't materially increased your fund size relative to your peers and, certainly, not tripling or quadrupling even though the seed environment and the average seed grants have increased so much. Can you walk us through how you think about fund sizing and how did you arrive at the fund target of your last fund?Hadley Harris:You're asking about shared vision that we all had and things that we all felt strongly about when we were going into it. I think one of those things was that we'd rather be really good at one thing and doing that well. And we'd rather be the best seed fund or strive to be the best seed fund in the world rather than trying to be yet another multistage fund. So, for us, it's often come down to focus and this is certainly one of those areas. I think we're at a place right now, where our fifth fund that we started investing in six months ago is $125 million. I personally think, especially for a more concentrated approach, that that's as big as you can be and be a pure seed player. That number may change in the future where we can have a larger fund, I doubt that it was going to happen, but if you did see some contraction to the smaller fund, that makes sense. And I think you'll always of see us focus on that so that we can do what we do well.Hadley Harris:Every time we raise a new fund, we can take a step back and consider, "Hey, let's pretend we hadn't done anything and what would we do." And there's a lot of interesting strategies out there. I think there's an interesting strategy for a smaller A fund, call it a traditional series As, that there's a little bit of a, I think, a soft spot, especially in New York and the East Coast. So, we certainly can serve stuff like that but we always come back to seed. Because one, I think we've build up a strong confidence and we've been iterating now for 11 years.Hadley Harris:So, I think this is the evolution of all that iteration, especially around processes and, to a certain extent, brand. And the second thing is we just really enjoy it. It's a different type of investing. We really like to roll up our sleeves and spend time with founders. And at the end of the day, you're investing before product market fit and you're doing your best to get them through product market fit. And that, to me, is the most exciting part of venture and, certainly, that some people are very successful at later stages of investing, but I don't think it would be for us. More on a personal thought.Samir Kaji:We've had a few guests on the show and we've talked about there's different muscles that you have to exercise at different stages. And I don't mean Series C versus Series A, I mean, really, from where a company is from a development standpoint and the different inflection points. The thing that I do wonder sometimes is, the markets actually evolved dramatically since you guys started and, certainly, even more in the last three years. Where the seed rounds, now, it's not unusual to see a seed round done at $3 to $5 million pre product market fit. Valuations have shifted from, what used to be, single digits to, now, 15 to 30 million in certain cases.Samir Kaji:And then, there is an acceleration to when the Series A happens in terms of the Series A players now coming upstream. Has this, in any way, evolved your strategy with fund five in terms of your ownership, how you think about how much capital you put up front versus reserves? Talk to us a little bit about it. And just for full disclosure, I'm a portfolio construction nerd. I want to dig into your blog in a second, but let's first talk about fund five and the evolution of it.Hadley Harris:It really hasn't changed much of our portfolio construction from a strategy perspective, it just changes the inputs. The way that we constructed our model and strategy, the conversion rates and the size of the allocations and things like that are all inputs to the model and then, it flows from there. We are doing bigger rounds, they are at higher valuations, I don't think we've moved as much as the market. And then, the conversion rates and the allocations in the Series As have gone up quite a bit. So, we try and account for all that. But from a strategy perspective, we're still doing the same number of deals, we think about overall number of investments per fund in the exact same way. We're targeting 36 in this new fund which is what we did last time.Hadley Harris:Where we've seen the big change from a strategy perspective is in our diligence process and we've, basically, rebuilt our entire process and team in the last six months from when we launched our new fund around moving much faster. So, we've hired quite a few people, we went from 6 to 12 people in the last six months. Most of those folks are on the investment team, most of them have investment backgrounds. We're headquartered in New York, so there's amazing talent from hedge funds and private equity and folks that want to get into venture. And that's also good because it's a good yin and yang for our backgrounds, we're more founders operators, we don't have finance background. So, it's nice to have folks like that on the team and this allows us to move a lot quicker.Hadley Harris:And then, we've done our actual voting process to give more autonomy to the individual partners. Not necessarily because we think it makes better decisions, I'd be happy to talk more about how we vote and make decisions and that's changed a lot over time, but more so that we can move a lot quicker. Because in this environment, it's really important that you can make strong decisions fast to get into the best companies. So, we really optimized for that.Samir Kaji:I do agree with that completely. And especially in today's world where it seems financings are moving at warp speed and some firms have done exceptionally well in optimizing for speed. Somebody like Tiger, of course, is a great example. Now they've done it, at least from an outsider's perspective, in a way where they're not sacrificing diligence. They do a ton of work up front before actually meeting with these companies. How do you think about optimizing for speed without sacrificing the appropriate level of diligence or making sure that you have integrity of decision making that continues to ensure that you're making the right investments that fit within thesis and have the best probability of outlier performance?Hadley Harris:It's always a tough balance. Over our history, we've been more consensus driven, I'd say, than most. There are a lot of folks that are very individual conviction driven funds and then some that are more consensus. We've generally been more consensus, but we've always had a system that allowed for dissent because, I think, that's very important. You could have up to two partners actually not think that we should do a deal and we'd still do it. They do have a veto so, certainly, if they felt strongly enough, anyone in this [inaudible 00:18:36] can kill a deal. In that case, you need a lot of conviction from the two partners. And I'd say the most common scenario for us is that three partners think we should do it, at least one with pounding the table level and one who, mildly, doesn't think it's going to work out.Hadley Harris:And I think for outsized returns, that's a fine place to be. We have, in the last six months, just responded to the market giving the lead partner, that table pounder even more ability to move quickly. They still need to get everyone up to speed, every founder that we invest in does meet with all the partners, often individually, we don't generally do a partner meeting. And then, of course, we have these other five or six investment professionals who are in the loop and are helping drive diligence around the market, around backgrounds on the team, around competition and whatnot so that we can move quicker. So, that's how we've been thinking about it in terms of that balance that you mentioned, which is difficult to, I think, get right. And it's interesting, when you talk to even firms that are around 30-40 years, they have very different approaches to that question.Samir Kaji:And always think the culture is great when independent partners can be advocates and take the swing on behalf of the partnership. And maybe that's not for every deal but a variable. There is that deal and that deal could be the outlier. But in the past, we've seen firms that create a weird culture because there's attribution and, if some partners done a deal that went badly, now all the other partners were thinking about voting them off the island and we've seen that. And this was really during the '90s and 2000s. Not as much as now, although it's still early. How do you ensure that that culture where you really keep the oxygen for a single partner to be an advocate, feel comfortable with taking a swing when it's non-consensus but, at the same time, have some level of accountability?Hadley Harris:So, we don't have any attribution and we're pretty staunchly against it. Both internally or externally, certainly, one partner needs to run point with that company just for efficiency. So, we don't share externally who drove each investment. We've had LPs ask for it and we kindly refuse and you'll probably notice even publicly, we never assign deals to partners. So, that's one thing. I think the reason we're able to do that is because we're all founders in the firm and we have a shared history.Hadley Harris:I think that gets very difficult when you're Sequoia or any long-standing firm and you have folks coming in at different times and you need to be able to rate them. So, I think we're really fortunate there and I think that's a very important part of our ethos. And as we evolve over time, my hope is what I'd like to see is Eniac live on beyond me being a General Partner. I think that's something we definitely want to keep, but it will be much more challenging than it is when we all came in at the same time.Samir Kaji:I'm so glad you alluded to succession planning because it is something that so many firms struggle with. While I know it's really early in your firm's life and all of you have plenty of runway, what are the things that you do to ensure that you're starting to build the foundation for proper succession planning? And specifically, when you integrate new team members, how do you foster a culture of inclusion to let them understand that they, not only have a voice, but are part of a long-term plan?Hadley Harris:It was a big concern for us. So, it was the four of us and then we started hiring bill employees, probably, about four years ago. And then, we've always had one or two non-partners and, again, just added six. So, now, we have 12 with eight non-partners. It's gone better than I expected, to be honest, because I was really worried. We're very close knit and we have our own old jokes and all this s**t that can be hard for someone new. And we had an honest conversation before we started this recent hiring spree with our two, with Kristin and Anna, who have been with us a couple years and they, surprisingly, felt that we were pretty open.Hadley Harris:So, it's one of those few things where, actually, we were doing better than I thought. I think we all recognize the danger of being this tight knit group so, I think, we all independently, not in a way that was probably too thoughtful as a strategy point of view, put a lot of emphasis on being more welcoming and making sure that they didn't feel outside of the loop. And we'll see with these new folks, some of them are just going to come on in next couple of months.Hadley Harris:But it's something we're definitely going to keep an eye on it. I think it's definitely a danger to the business as we think about things going forward. And, to your question about succession, it's something we're already thinking about. I think we do have a long ways. We're all 44, so I'd like to think we have a good run left in us and we're still loving it. But these things, at least from seeing other firms, I think it's never too early to start thinking about what that looks like. And I think we all want the firm to live on beyond us. Certainly, beyond our day-to-day involvement and we know that that's not going to be easy and it's going to take time to figure it out.Samir Kaji:Are there things in particular that you'd look for when you're adding people to the team to ensure that there is true diversity of thought? Understanding that, in many cases, when you have partnerships that have been around for so long together, you build your own echo chamber. Can you, maybe, just walk us through the types of things that you really focus on when onboarding somebody?Hadley Harris:Yeah. With our recent hires, we've really tried to hire people that are pretty different from us in terms of experience. I think all of them have finance and investing experience coming in. I think majority of them did some time in investment banking and then worked at either a hedge fund or private equity firms. So, non-venture and that's certainly something that they're learning. But they all have investment frameworks that I think helps especially a lot of their job is spent around doing diligence, as I mentioned very quickly, to try and get up to speed on stuff.Hadley Harris:So, it's really good for that. And honestly, we learn a lot from them. None of us have finance backgrounds. Vic and I did MBAs but I don't know if we learned anything and we never practiced any of the finance. So, from a modeling perspective and market sizing, I think they're even better than us. So, it's been nice having junior investment professionals that actually bring a lot of new thought and skills to the table.Samir Kaji:And what you're describing to me sounds like a two-way apprenticeship. You learn from them, they learn from you particularly as it relates to investing, running a firm and all those type of things. Speaking of investing, we've touched on it through different points of this podcast. But you wrote this great post along with one of your colleagues, I think it was called Portfolio Construction for Dummies. Give us the cliff notes version of that.Hadley Harris:Yeah, it was really interesting because we've struggled and iterated in portfolio construction throughout our history. And a few years ago, we went out and went to all the OGs of seed folks that had been doing it longer than us that, I think, have tons of experience and talked to them about some of the issues we're having with portfolio construction, especially around allocating funds over time and recycling. And basically, they all said, "we're trying to figure this out."Hadley Harris:Folks that have been doing it 15 years were like, "well, we just raised an opportunity fund which is find the answer." So, it came to the realization it's like, no one knows this s**t and seed is different from Series A and beyond in a couple different ways. You need a broader portfolio for the same level of winners and, in the time horizon, you're adding one or two years average full time over A. And seed itself started 14 years ago, so no one had really dealt with this.Hadley Harris:So, we took it upon ourselves to really put an emphasis on building our own core abilities internally, both from a modeling perspective and a strategy perspective. And I guess, the three things that I tell folks that are starting off and I love spending time with new seed managers on stuff like this and these may all seem obvious to a lot of folks, for some reason. One is just aligning for the power law. Make sure you have enough shots on goal. I meet a lot of founders starting a pre-seed fund that maybe looks a little like our first one with 15, 20 portfolio companies. It may do incredibly well, but you're taking a crazy risk.Hadley Harris:The second is, when you lay out your strategy in terms of allocations, number of portfolio companies, that needs to be a starting point and you need to constantly iterate. And that's why, back to your question around how our portfolio construction has changed in this environment with rounds getting bigger and faster and conversion rates being higher, those are all just inputs to the model and the model adjusts. You know what I mean? Not just the model, but the thinking. And so, you could start off with I'm going to do X number of investments and I'm going to assume this type of conversion rate, but you need to feed in the real data and you should be able to then spit out the best strategy for that environment and for the results that you're seeing.Hadley Harris:And then the last one is, recycling is extremely difficult. And we're big believers in recycling, almost all institutional LPs want to see it. You can argue about whether that's the right thing for everyone or not but, I think, if you want to be an institutional investor, you really need to do that. And you need to build a model, and I think we've made this available online, that ties in both time as well as the construction itself. And that was the thing that was always missing when we talked to other players in the space. They always had two models. One is this is how I'm laying out my construction and this is my use of funds over time. But you need them to tie together or else you can't predict what is needed to properly recycle.Samir Kaji:This is really tough and I don't know that there's a single way that's perfect for every single fund size or strategy. I think it does range. But let's go into a couple of things that you noted. So, number one is having enough shots to goal. So, not having too concentrated a portfolio because, ultimately, you don't want to get to a point where your conversion rates are so low that, by the time your portfolio matures, you only have four or five companies that are at the Series B, Series C level. Today, the conversion rates seem to be much higher than they were a couple years ago and, a lot of times, those rounds are happening quicker and quicker. So, it's not uncommon to see a Series B happening, in some cases, maybe two years after that seed round, which we would have never seen before.Samir Kaji:And recycling, you mentioned, is something that is really tough. And if you look at some of the small funds, let's say, 20% of their total investable capital will be reserved for management fees. And then, you have 3 or 4% additional which is related to legal fees and fund admin and all of the other fund expenses that are generated. And because you don't know timing of those exits, of those original deals you do, which are probably in the first couple years, recycling is really tough and you often have to be creative.Samir Kaji:And there's a few ways that people have done it. One is looking at the future fees that you're going to collect and effectively deploy that banking on the fact that there are going to be some exits in year four and five that, ultimately, can be used for those management fees. What advice would you give to somebody that's running, let's say, a $20 to $50 million fund that's struggling in today's environment because the conversion rates are higher, the amount of reserves that need to be deployed in a very quick timeline is higher and the exits from those initial investments just aren't happening? How do you get up to 100% deployed?Hadley Harris:At least what we've ended up having to do and it's probably the best option we've done, is what you’ve alluded to and that is taking a calculated risk, which is understanding when you need to get what back to be able to cover your management fees and plotting that out. So, we tend to plot out high, medium, low scenarios on when we'll get cash back. We're fortunate to have some historicals that we can lean on. Industry, other historicals, generally things moving faster. So, that makes that portfolio a little conservative. But we almost always dip into future management fees. And at the end of the day, we always have the same conversation which is like, "If we don't have any exits in year 9 or 10, then we won't deserve to be taking these. We really should just move on to greener pastures. Get a new job or whatever."Hadley Harris:So, we almost always end up borrowing against that and, honestly, we've come really close. We've had some exits that saved our asses because we were about to just not be able to pay ourselves and we definitely cannot forego a quarter or so on certain costs. But yeah, that's the best thing to do. Understand what is needed and, really, to a granular level. But then, at the end of the day, it's got to be some [inaudible 00:32:02].Samir Kaji:You absolutely can't. And the other point that you just talked about, about borrowing against your future managed fees, which could create a situation where you have to defer in the future is that the conversion rates are higher today. I remember, the past, it's modeled at 50 to 60% and, now, maybe it's 60 to 80%, given the manager. How does that affect how people should think about reserve ratios because, now, a mortar company is going to graduate to that Series A meaning that you have to, potentially, deploy more and follow-on capital? What's the calculus that people should use in today's world and are there situations where people just don't follow on in the A because the price point's too high and, therefore, should just revert back to a normal 50% of the company's that I’m going to do a follow-on on.Hadley Harris:Yeah. In general, if we think that the conversion rates are going to be higher than what we initially thought, we will do less in new investments. With the idea being that we can put more of our effort into a smaller number of investments, we can make the bar higher and still get what we think is the needed distribution to have a really strong fund. Where you bring up a good point is, in that case, you would actually follow-on more into each investment.Hadley Harris:If you feel that those follow-on investments are irrational, then that should question that calculus. Generally, and maybe under some optimists, there certainly is some irrational behavior. But at least at the Series A level, we have felt that the companies on the margin maybe a little bit high but that they're actually growing really quickly and that we're getting into relatively unprecedented times in terms of the end result of these companies and just the part of the GDP that we're covering with venture.Hadley Harris:So, we've continued to invest in our companies in those earlier stages. Once you start to get into growth rounds, as a seed manager, I don't think it makes sense. Call your Series C and B on. As a seed manager, to be investing, it's certainly out of your core fund. But of those early funds, we've continued. So, long-winded response. I think, in general, you should cut down in terms of the number of investments you’d be looking in.Samir Kaji:And maybe that's an answer for a lot of the seed funds that are in that $50 to $150 million size. Maybe the answer is different for a lot of the nano funds that are 15 million, which might want to index heavily toward that initial check versus reserving a lot for follow-ons. Would you say that's true?Hadley Harris:Totally. I think in general, if you're a very small fund, most likely you should not do much following on at all. I think you're better off having more shots on goal. I should add, there's a lot of ways to be successful in this game. We tend to be more concentrated. There's also folks that do three times as many investments than us that are very successful. And I think that is a fine answer. If we do 36 and you want to do a hundred investments, that's fine.Hadley Harris:And you're not going to be very involved with each company, but your chances of getting a winner are higher. Best to outlead and that has all these other ramifications. Where I have trouble understanding is when you're just too low and I just think you're taking too big of a risk. And that's what I see, to your point, with a lot of first-time micro funds and would be much better off. Just do your 25, 30, at least, preferably even more, investments and have no follow-on. Don't try and constrain that because you want to save some follows.Samir Kaji:I agree and there's a number of people that actually have the same belief, including some of the LPs who have actually done the math and have seen some of the returns. Now, let's go global for a second and talk about where we are in the market. So, it's interesting, you started Eniac at a time where we were coming out of recession, now we've been in this long bull market. And in today's world, technology has become a bigger and bigger influence on our everyday lives and it's very clear that technology and innovation is this immutable force that is going to continue to exponentially increase. The market, though, in terms of capitalizing these companies, has evolved from funds looking fairly monolithic to really mass fragmentation.Samir Kaji:And I look at venture or investing in tech companies as a barbell. You have the seed in ecosystem, lot of firms, early, early stage. Not a lot of raised by seed funds, I think it's a small piece of the market. And then you have the behemoths, which I've referred to as aircraft carriers that do multi stage, multi geography and are going bigger and bigger. And they're now being joined by crossover investors being the hedge funds and the like. There was a great article that came out yesterday in The Information and it was by Sam Lessin. And his point was that seed managers, some are somewhat insulated because they're boutique, their early stage.Samir Kaji:But in terms of larger check writers, what we used to call tourists are really not tourists anymore. They're just capital that is going into software companies and that firms like Andreessen will get bigger and bigger and they'll approximate the next generation BlackRock or KKR. And where things get murky are the folks that are in the middle that quite aren't Andreessen or Sequoia but are series A and series B firms that are, let's say, $250M to a billion. And his view is that that's a really hard place. And I think Marc Andreessen has said that in the past, too, that barbell investing makes the most sense.Samir Kaji:What's your reaction to that? And then, more importantly, how do you see the market today and how it may evolve over the next coming few years?Hadley Harris:Yeah, I generally agree. Predicting the future is very difficult, so we'll see what happens. But my gut is that something like that will happen. That you're going to see consolidation at the later stages with much bigger firms. People talk s**t about Tiger but I have a lot of respect for what they're doing and we've worked pretty closely with them in a lot of our portfolio companies. They don't make sense for every situation, but there are certainly situations where having someone who will move very quickly and isn't very price sensitive and isn't going to get involved that does make sense.Hadley Harris:And I think a lot of the later stage VCs that hate on Tiger should really think about themselves and the value that they're adding. It's clearly not that valuable if people were taking Tiger over you. I'm obviously biased but I do think that it's hard for those aircraft carriers to address seed. There are people who market and, certainly, even when you're raising your last fund had conversations with folks that thought that even they would do seed.Hadley Harris:And I guess the thought exercise I always have with that is, if they were to do seed, how would they do it? And if you're a $10 billion, Andreessen of the future or whatever, how are you going to seed fund? Certainly, Marc Andreessen is not going to be leading them. You're going to have to hire a ton of junior investment professionals that are going to have to be guarding those firm because it's just not worth your time for a GP to do that. And then, are the best founders or, at least, the majority of founders that would want to work with the junior investment professionals, I don't think so. There certainly, maybe, are some who have done it before and really just want to be left alone, and that's fine and, maybe, it does make sense for them. But the vast majority of market are going to want to work with folks that can add a lot of value, that have seen this show before, hopefully, both as an investor and operator.Hadley Harris:So, I just don't see that happening. And I think that's why, despite a lot of downward pressure, especially in crossover rounds and in our Series A, we still feel very secure about where we are.Samir Kaji:Those are all great points and it does speak to this notion that seed in itself, at least seed managers, operate in their own sub asset category within venture capital. So, I want to end it with our heat check section. And starting off, the first question I have is, the most counterintuitive lesson you've learned as an investor in your 11 years at Eniac?Hadley Harris:Find that, sometimes, you can do too much work or too much diligence. Or, if you do a lot of diligence, which we tend to do, at the end of the day, you have to forget about some of it when you make your decision, because you can get into the weeds. And, at the end of the day, it's all about the quality of the founders and the size of what they're trying to do and the fit between the two of those and don't get too caught in the weeds.Samir Kaji:That's definitely good advice. It's something that you have to go through to actually experience. Second question I have is really related, too. Now that you've run a firm for 11 years, what is the thing that you look back and say you got the most wrong?Hadley Harris:In our early days, we thought we were hacking venture with a lot of stuff. And some of that stuff worked and, a lot of it, we realize why that's the case. I think in our very first fund, 2010 investments, we made a bunch of investments that were really inexpensive when we thought we could bargain hunt and I just don't think you can bargain hunt in venture. Part of the calculus of time was, "hey, this company can sell for $40 million and we're going to do really well." The problem is, no one's going to lead that next round. So, it sounds obvious in hindsight. But yeah, yeah, I think that's probably the most obvious one.Samir Kaji:Those type of outcomes could be great for the founders, but it's never really going to move the needle for a managed fund. So, the last question, I was actually tempted to and I'm not going to do this. I was going to ask you who your favorite partner at Eniac is. I won't do that and, instead, what I'll ask you is, you've run across so many great investors, both as co-investors, follow-ons and people you've spent time with. Is there a particular investor out there that most inspires you where what they say most resonates with you and you've modeled yourself to a certain degree around what they do?Hadley Harris:I tend to focus and spend the most time following investors that also started their firm. I feel like it's a little bit of a different skill set starting a firm and joining a VC. And for me, and I think my partner's in the same boat, that's what gives us the balance to scratch our own founder itch and VCs. I think if we had all joined a firm, we may have left by now to start something new. So, there's the classic guys like Don Valentine that we like to be the things that he said in the past and find that really helpful. And then, there's some guys who I consider the seed OGs that started a few years before us like Mike Maples and Jeff Clavier that have been very generous with their time with us over the years that I just think we've learned a ton from. So, it's folks like that, I think, that are most impactful for me.Samir Kaji:Yeah. And I would say that it has been amazing within the seed universe of how helpful GPs are to one another, especially as you go to first generation, second gen. You're part of the early days of the second generation. I know you guys have done a lot to help other GPs which is great. Hadley, this has been a lot of fun. Thank you so much for being on the show and congrats on everything you guys have done at Eniac and excited to see what you guys do in the future.Hadley Harris:Thanks, Samir. I really appreciate it and great questions, really enjoyed it.Samir Kaji:Thanks so much for listening to another episode of Venture Unlocked. We really hope you enjoyed our conversation with Hadley. To learn more about him and Eniac Ventures, be sure to go to ventureunlocked.substack.com for detailed notes on the show and my ongoing commentary about the world of venture capital. Venture Unlocked is also available on iTunes or Spotify for download. And while you're there, please leave us a rating and a review as it really helps us out and hit the subscribe button in order to get each and every Venture Unlocked episode as soon as it's released.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.As we move towards the end of 2021, we wanted to record an episode that focused on the LP perspective on current capital and ventures. To that end, this week we are joined by joined by Chris Douvos, founder of Ahoy Capital, Elizabeth “Beezer” Clarkson, Managing Director of Sapphire Partners, and Guy Perelmuter, founder of GRIDS Capital.The three of them have spent decades investing in venture funds and companies across multiple cycles. While we didn’t come into the discussion with any set agenda, we ended up covering everything from emerging manager views to global capital trends. This was a fun one to record, so hope you enjoy. A word from our sponsor:Vouch Insurance is a new kind of insurance platform for startups. Built by founders for founders, Vouch’s fully digital coverage takes minutes to activate. Vouch is trusted by the biggest names in the startup economy — such as Y Combinator and Silicon Valley Bank — who partner with Vouch because everything from onboarding to claims is designed for startups by experienced founders. Because Vouch is an insurance platform, and not a broker, it works with its clients to manage, mitigate, and avoid risks. http://www.vouch.us/ventureunlockedIn this episode we discuss:02:22 Complete this sentence: Venture today is "[Blank]04:51 How are they as LPs navigating the seed and early-stage market for manager selection15:39 View of the late stage boom and potential for returns24:40 Perspective of Opportunity Funds and whether they represent a good product for LPs34:29 Returns Beezer is writing to on a multiple cash on cash basis on different types of managers40:05 Things they look for beyond track record in emerging managers44:41 Common mistakes and red flags for emerging managers that can scare off LPs47:15 Tangible characteristics that they look for in emerging managers53:15 How non-traditional and non-mainstream managers can attract institutional LPs56:08 What emerging managers should lead with when they don’t have a track record beyond the last few years60:22 The investment category each are most excited aboutMentioned in this episode:Episode 013 Chris DouvosEpisode 021 Beezer Clarkson(Guy’s episode will drop in early 2022)I’d love to know what you took away from this conversation with Chris, Beezer, and Guy. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:All right. So I'm super excited about bringing the first LP roundtable to Venture Unlocked, where we dive into a number of different topics that relate to venture. And we'll look to dive deep. This will be an unscripted conversation, so we'll let it go where it goes. I want to first introduce three of the best LPs in the business, Chris Douvos from Ahoy Capital, Beezer Clarkson from Sapphire Ventures and Guy Perelmuter from GRIDS Capital. One of the things we were talking about before this podcast started was how fascinating a time we live in right now. And within venture, it certainly seems A Tale of Two Cities where it's the best of times, and it's the worst of times. And we'll get into that during the scope of this discussion over the next hour or so. But let me first start with an icebreaker for the group here. If you were to complete this sentence, how would you complete it? Venture today is X. Chris, why don't you start? What is X today?Chris Douvos:To get hype for this is discussion I watched some TikTok so I'm feeling like I've been around a long enough time that I got to stay current and stay youthful to be relevant in venture. So if I had one word based on what I've been hearing from the kiddos it's "lit," this market is lit. And that's both a good thing and a bad thing. I mean, we can go into that, but hey, for the moment, we're lit.Samir Kaji:All right, Gee, are you going to top that? What's your description of the market today?Guy Perelmuter:Top Douvos? Never, sir. That's impossible. I will say that, for me, the current venture market is extraordinary. And I mean it literally, right. I mean, it's beyond ordinary. We're now a few standard deviations from everything we've seen before. And again, as Chris said, this could be good and could be bad. So for me, in one word, it's extraordinary.Samir Kaji:That's a great word. Beezer?Beezer Clarkson:I think I'm going to go with "spicy," "spicy."Chris Douvos:Oh, caliente.Samir Kaji:I like it.Beezer Clarkson:Caliente.Samir Kaji:I like this.Beezer Clarkson:I was going to say fuego, but I'll say "spicy."Samir Kaji:So between spicy, lit and extraordinary, it's very clear that all of you think this is a very heated marker with a ton of momentum. And I would agree with that. And I was looking at the Q1, Q2 numbers and roughly $300 billion went into venture-backed startups, two-thirds of that, as you can imagine, was late-stage. And it seems like the venture market has, or at least the capital market for tech companies, has moved into a barbell where on the right side, you have large aircraft carrier type of firms that are investing across stages, have the ability to pump a lot of dollars in at those late stages, let's say series B and later and series C and later. And then on the left side of the market, you have a ton of seed funds, which by number, are quite high, by dollar amount, are still pretty low.Samir Kaji:I feel like from an LPs perspective, it's harder to navigate than ever before to figure out where can you place capital to get the best risk-return? And we've all talked about this, it, feels like managers are coming back really quickly. There's not always that much differentiation that matters, and it makes it really tough. And so, I'd like to start with, maybe, Chris on this question, how are you navigating in today's world?Chris Douvos:I'm old enough to remember, as we all are, but I started at Princeton's endowment back in '01. And I remember I became a venture guy because our then venture guy left. And at a Monday meeting, somebody was like, "So who wants to do venture?" And it was like that nose game where everybody touches their nose and last person not touching their nose gets stuck with whatever task. And that was me, and I became a venture guy. And I remember like 2002, 2003, 2004, the wreckage. And those were years were like $5 billion, I think, in 2003, went into startups and like 20 billion... I remember Bill Helman at Greylock was like, "What is the rational size of the benchmark? Is it $20 billion a year?" It's like those numbers seem quain. But in fairness, the scale of exits has made those numbers seem reasonably quain. It's not like this is an outrage and people are just spending like drunken sailors.Chris Douvos:But what I'll say is, there are a lot of risks that have been taken off the table, and like a main risk is financing risk, right. And it's because there's so much like plentiful capital out there. I come from like a classically trained institutional investor standpoint, you're always thinking about risk-adjusted return. Well, how do you adjust return when there's like actually no risk and it's been like such a one-way market for so long? And I think people have forgotten that actually the trees don't all grow to the sky.Chris Douvos:And that's something that for the last, maybe, year and a half, has really influenced my own thinking, which is why, maybe to my great detriment, I've doubled down on what I call the "grownups" in my portfolio. So we're doubling down on firms where the investors are really kind of seasoned. Maybe seasoned is a fancy word for geriatric. Whether they're established groups that we've backed for a long time like First Round, or True, or newer groups like Neil and Trae over at Defy that have a long kind of history of investing. But I want people who have kind of seen what actually happens when risk exists again, because I think too many people have grown up in a world where the only answer is buy, and if you can't if you can't buy yesterday, buy today.Beezer Clarkson:I think I went through a bit of like... What is that called? ... the trough of despair, and then there's like the arc of euphoria, whatever those like sine curve is. I think right now I'm finding it actually really fun, which I know it's a little bit of the... If you don't need to sleep, it's actually a really fun time to be doing venture, because it's unbundling in a way that I love. I think the options now for where an entrepreneur can get money is awesome, for an entrepreneur.Beezer Clarkson:It's interesting questions for an LP and where to put your dollars. But there's so many more alternatives now, you can do the classic funds, you can do what Chris is talking about. We've been trying to keep some dollars available for newer managers and trying some newer methodologies, not just... We've done some sort of new but classic kind of structured funds. We're trying to look at, are there other alternatives? The rise of the solo GPs, there are syndicate structures, there are some service for equity structures out there. We haven't done a rolling fund, but I find them fascinating.Beezer Clarkson:So I think right now, I actually feel really greedy because I'm like, there's so many different things I'd like to invest in. And it's just a question of, no LP has unlimited capital, there has to be the constraint, because nobody has all the money in the world, and you wouldn't want to index venture anyway. But I just find that hard time picking because there's so many awesome things I'd like to do. So I find it right now, a fun but challenging market from that perspective.Guy Perelmuter:Yeah, one thing that comes to mind when I look at this market right now, it reminds me a little bit of what happened in 2000, 2001, in the hedge fund industry, because that was a time where a lot of prop desk folks were leaving their jobs at investment banks to start their own hedge funds. And you could see like on a weekly basis, there was a new long-short equity fund sprouting from nowhere. And it was not really long-short per se, if the manager had like 40 longs and two shorts, he would call himself or herself a long and short fund, right.Guy Perelmuter:And something that really catches my eye in this environment is the sheer amount of new funds coming to market by people, by "portfolio managers." And again, that's fair for people to try their hand at running other people's money. But to get your stripes and to be called a portfolio manager, that's a process, right. I feel like this title is misused a lot. We had to have some sort of standard process to make sure that someone can put that in their resume.Guy Perelmuter:So right now, the venture environment, and I agree with what both Chris and Beezer said before, the options are incredible and we are living in a world where the opportunity costs, to Chris' point, is zero, right. Interest rates have been almost zero for longer than any one of us have ever experienced, paradoxically, the pandemic has accelerated so many trends in the minds of so many different people from different walks of life. And it seems like, at this point, all roads point to venture, right. Everybody has their own reason to think of, "Okay, I should expand my venture portfolio. I should add more chips to this particular asset class." And it doesn't feel like this is going to necessarily end badly. And I'm sure we're going to go into that over the course of this conversation.Guy Perelmuter:But one thing that I think it's inevitable is that some of the GPs out there who have already earned their stripes, I think they're going to be at the premium in this market because, inevitably, we're going to see failures over time, it just takes a little longer in venture, but they'll be there. And these GPs I expect them to continue to do well. And I think there's a list of probably 20 to 30 names out there that are going to be in great shape in another three to five years. And for those newcomers, I think the environment is going to be increasingly challenging for raising money and for being able to be in the cap table of really interesting deals.Chris Douvos:And by the way, that's a great point because, in venture, all of our train wrecks happen in slow motion, right. And what's actually has always been kind of acute to me is, in the public markets, if an idea goes sour, the capital is destroyed and the managers who were pursuing that strategy get kind of lit up and exit the business. In venture, we're surrounded by melting ice cubes, right. And all it takes is one great deal to get that melted ice cube back in like kind of solid ice condition.Chris Douvos:I was having lunch with a good friend of mine the other at the Creamery here in Palo Alto and a GP walked by, and this is somebody who like literally had been an incinerator of capital. And this person leaned into me and said, "Oh my God, can you believe that guy's in company X and they put in like a million dollars and it's now worth like a billion and a half dollars and it's going to like rescue this fund, which has been on life support for years?"Chris Douvos:So in addition to like these funds that like kind of never die, you got what Beezer talked about is like all these, not only all these new managers, but new modalities of investing. And for somebody like myself who tries to do like one new investment a year, it's crazy. It's like we always used to when I was at Princeton's endowments, "It's harder to get into our portfolio than it is to get in our college." And that dilemmas only been kind of magnified by an order of magnitude.Samir Kaji:I sort of look at where the market is today, and I remember starting my career back in '99 actually, and it was like the height of the tech bubble. And remember, I forget if it was '99 or 2000, like a hundred billion was raised by venture funds. And it was at a time where the public market cap was like $13 trillion. Venture was still very much a vertical industry on the fringe. And technology, in particular, right, we were still internet 1.0, less than 350 million people were online. And you sort of look at the maturation of technology in '06. What happened was AWS came out and it made software development cheaper than ever before. In '07 was the iPhone. And that made, not only you had the development cheaper, but now you had the distribution channels. And today, of course, over 5 billion people have smartphones. So part of me thinks this is just a continued evolution of the technology market and now capital is starting to catch up.Samir Kaji:The 14-year bull run has certainly helped. But the size and scale of these companies now are at points we've never seen before, right. If you look at the top five public companies, they're all technology companies, total market cap of 9 trillion. But look at what their revenues are, look at what their profits are. And then you see some companies, even like a Canva, for example, if you look at their revenues, we would've never seen companies hit those type of revenues, but now you have the distribution and tech being truly horizontal.Samir Kaji:Now, I do have a question though, which is related to one side of the barbell, which is late stage, which most of the capital goes into. And again, that's two-thirds of the capital. It seems like investing at that stage, the risk levels are more aligned with what we have seen with traditional middle market, with maybe a slight higher alpha potential given the size and scale of technology companies. But in many ways it does seem that companies as they achieve scale, even at 10 or $20 billion are still private in nature. And we've seen that on many different occasions with some of the best companies. From my perspective, there's some parallels to investing at that stage as we might have seen maybe 20 years ago in the markets right after public offering, let's say, the 12th to 24 months after in terms of risk-return. Do you agree with that? And how should we be thinking about the late stage markets?Chris Douvos:It's really interesting because about 10 or 12 years ago, Josh Kopelman from First Round did a blog post where he looked at the market caps at IPO of a bunch of different kind of tech stalwarts from kind of Microsoft through like the early 2000s, like getting Salesforces and their Netflix. And he figured out that of the eventual appreciation in the public markets, 97% was available to the public investors. Whereas, since then, we've seen radical shift into the late stage private market. So I think, the late stage venture market certainly looks like the IPO market of old. And there are a lot of reasons for that, but partially, what it's... I mean, I look at my own portfolio in my funds and it looks like the S&P MidCap 400. And I think that's really unhealthy for market structure, and I think it's really important for investors to be able to access emerging growth.Chris Douvos:But the thing that worries me about all that is that I always think about Buffet's equation, which is opportunity equals value minus perception. And what happens is the private markets like really feed on themselves and create these like fire storms almost where the temperature gets hotter because the fire's burning, which makes the fire burn more, which makes the temperature hotter, and it's this big recursive circle. And there's not as much discipline with respect to price and the sale prices and all this stuff. And so, you get these like crazy valuations. And I think, Samir, you alluded to this earlier, we've seen some companies really struggle in the public markets, and I think it's because there's so much exuberance in the late stage private market that's disconnected from Buffet's equation.Chris Douvos:And so, that's something that worries me. But running an early stage portfolio, I'm actually kind of delighted because it kind of really minimizes financing risk and gives the portfolio companies that we're backing much more optionality and much more survivability and anti-fragility. So as long as that capital is there, it's great. The problem that I worry about is, what happens when that rug gets pulled out?Samir Kaji:One comment on that. I just want to read out off a few things. So percentage of first 20 billion in market cap captured pre-IPO, so Airbnb, first 20 billion, 100%, Snowflake, 100%, Slack, 100%, Twitter, 82.5%, Facebook, 100%, Salesforce, 8%, Amazon, 3.2%, Cisco, 2.4%, and Dell, 1%. So it does go to show how much scale of valuation happens in the private markets. But yeah, I mean, I think your point in terms of what happens if the public markets retract, what does that mean for all those late stage rounds that are done, where you're buying basically at almost a peak? And oftentimes, even right after the IPO, it drops below what the last private market valuation is. Again, I think that's a real risk, but Beezer, I know you were going to maybe take a different position, perhaps.Beezer Clarkson:So one of my colleagues wrote a paper literally like last week on this topic, which is why it's just top of mind, basically, Long Live The Tech IPO and Steve Abbott did it if people want to Google for it. And it looked at this question of how much money gets captured privately versus publicly. And the answer is, in a bull market, there is still a lot of room to run in the public market. So, just going to shout out, people can read that because it's all very data driven.Beezer Clarkson:But it is predicated to the point Chris was making, is that, yes, it's worked out well historically. If you look over the last 10 years, because even if there was a high valuation privately, there was still so much more publicly in the strong companies. But you have to have this bull market to make it happen, and if not, we all know it happens, companies go out, they flounder, either they get recapped or sometimes they get taken private by a private equity tech company and repackaged. So if they're there, things can continue.Beezer Clarkson:I also just think there's been a much healthier IPO market in the last 18 months than there's been before if you look at the number of companies that are going out. And I do think from a venture perspective, that is very healthy. The venture market wasn't predicated on people staying private forever. The circle of life of capital flow is critical. No one wants to work at a startup if they're never going to have their options worth anything, that's the whole premise of why you join a startup, right. And the same thing for an LP, the premise is that you invest money into a fund that goes into a company that comes back around so the dollars can be redistributed again back into venture. So, we're positive on the signals that are happening right now. But yes, everyone worries about retraction, and my crystal ball does not have a date for when that's going to happen. I'm very sorry. Maybe Chris' out of the shop, and he knows when the market will dropChris Douvos:My crystal ball is still in the shop. I mean, I want to get by your repair person because mine's still busted.Guy Perelmuter:So, here's something that I believe we can kind of expect... right. Because if history has shown us anything is that markets will correct, markets will fluctuate, we'll see those prices going up and down. But here's what is unusual about or unique about the environment that we're living in right now... And I think your point about the barbell approach has a lot to do with it. If you think about each round or each series that a privately owned company raises and you stack them on top of each other, and you think about the IPO or the listed company at the very top of that stack... I'm not talking about capital structure, I'm just illustrating the path of a specific company right.Guy Perelmuter:Whenever things happen in public markets and they're there for everybody to see, right, and the results and the actions and the volatility is abrupt, it's intense, it does capture headlines, that's what people are going to read about in the evening news or hear about in the evening news. So what happens is that the shock waves they get from the public markets, they will start going down the structure of the stack, right. So they'll hit head on the late stage, the mega rounds of still privately owned companies. And it'll go all the way down. But now, there's this gap between the late stage and the very early stage, so there's no dampening of this effect.Guy Perelmuter:So my concern here is that this eventual correction in the public markets, that may or may not have anything to do with the private markets, will create a ripple effect that could make capital scarce, which basically is what fuels this industry, right? Capital people are interested in financing new companies and new ideas and new technologies. And I think that this is probably one of the most important aspects of this market that we should keep a close eye on because when the dampening effect of those intermediary rounds, if you will, are not there, then that's something quite unique to this specific moment in time and we should be on the lookout for the first signs of trouble.Samir Kaji:Yeah. And it's hard to really understand if there is truly a canary right now in that coal mine that can be actually identified. I can't seem to find anything that would suggest there's going to be a near-term retraction in the economic cycle. But historically, you're right. When you see drops in the public markets, it affects capital flow, which then... Usually, it starts with the late stage and then goes to the mid stage and then goes to the early stage in terms of capital and of course, valuation.Samir Kaji:But even if you plan the early stage today where, yes, valuations have gone up, but if you redefine what the outcomes could be, it really doesn't matter too much. At least it's not as sensitive and fragile relative to late stage markets. A lot of the early stage funds are playing both, because they raise a core fund and then they raise an opportunity fund. And I think over the last two years in particular, I've seen more opportunity funds than maybe the 10 years prior to that.Samir Kaji:The historic LP view on opportunity funds was actually very negative. And I think I've talked to everybody about at this. And now, it seems to be thawing either as a function of being forced to do it or viewing it as the late stage market where a manager has an asymmetric view into a company could be a really interesting place to put capital and still get a nice risk-return. How has your thinking either stayed the same or modified as it relates to opportunity funds today?Chris Douvos:This calls to mind my favorite quote from Keyser Söze, which is, "The greatest trick that devil ever pulled was convincing the world he didn't exist." And what I mean by that is that there was a time, not too long ago, and people believed that kind of modest fun-size actually was a creative to positive returns. Then if you raise too much capital, it was tough to compound that capital. And so, I think a lot of funds started raising... A lot of people were consciously small. And I think that then they saw that they had all these kind of pro rata rights. And so, you'd see this kind of people go through this process of where they had a modestly sized fund and then they were in hot companies. And companies are kind of more hot than they normally would be because there's no risk in the economy right now or risk isn't getting priced, I should say.Chris Douvos:And so, people start offering SPVs and they're like, "Oh, too many SPVs, that's a pain in the butt. Let's raise an opportunity fund." And before you know it, your friendly neighborhood $200 million fund is now raising $600 million between the two vehicles. And it's like, "Wait a second, you guys used to say fun-size matters and now it doesn't matter." So I've done my fair share of these because I think the risk-adjusted return is actually okay, but it just makes me think that people aren't being kind of terrifically, intellectually honest with themselves about keeping their fun sizes small.Chris Douvos:And I think we're kind of whistling past the graveyard in some of this stuff, because what happens when you got different securities in the two funds, and if there's a downturn and the securities find themselves in conflict with each other? Somebody's going to get crammed down and somebody isn't, or both people are, and someone doesn't have capital to do a pay-to-play. It's symptomatic of the world of live in. I think, if you're in the full send economy, if you're going to send it, send it. But this is something that I think has worked really well to date, but makes me really nervous about the future and hope that we don't step in any holes in the bottom of the airplane.Samir Kaji:Chris, can you maybe explain just for a second, when you say "conflict of a certain security," what does that actually mean for people that don't know what that actually relates to?Chris Douvos:I remember in like ‘99 and '00, a lot of funds were raising, actually, like, "Our VCs have raised two funds in a single year." Like a lot of people had 2 ‘99 funds, and sometimes, they do crossover investments in those funds, so similar to what you'd see in an opportunity fund and a core fund. And then, when the downturn hit, you might see like fund nine is in the A of a security and fund 10 was in the B. And you might have like a pay-to-play where if you don't come into the round, you're going to get kicked to common. And fund B might have reserves and fund A might not. Or fund B has some kind of preferences and fund A doesn't and fund A gets buried behind the preference stack. And the fund B investors make out and make out well, and the fund A investors don't.Chris Douvos:And that kind of stuff created a lot of drama, I call it the Great LP Wars of 2002, where you'd see like some GPs, who are today, kind of top five GPs, spent like half the year dealing with the crankiness of the different constituencies of their LPs.Beezer Clarkson:The opportunity fund discussion has so many different implications, right, because there is the one that Chris was talking about, like what swim lane is a fund in anymore? And there was this beautiful time in venture when everyone had a swim lane and we don't have swim lanes anymore. And I think, it'd be lovely if it was that way, and it's just not. And LPs are going to have to deal with it. You can't crush people back into the old ways of working, it's just not going to happen. You can assess each opportunity fund for it's still return potential, to Chris' point about the risk-return. And we treat them all very individually, that way, we have return targets for our dollars. And the question is, will this opportunity fund deliver it? Some can, some can't. Right. It's each one's its own specific little, beautiful snowflake.Beezer Clarkson:But the complications of the business exist no matter what. Right. Like, is it the same team? Is it a different team? The security questions Chris is raising... We have a fund who has successfully invested in multiple times in the same company in different vehicles. Actually, the company's doing well, but the question about when you sell is still different for each different fund, because if you're investing at series D, they might want to hold that for longer. But you're at the series A and your fund is smaller and you want to start creating some DPI for your LPs, who do you sell to because they're not the same LPs in these funds anymore? And the business complication has just gone up so astronomically and I don't think until you've lived it, to Chris's point, it's as clear to a GP, but to LPs who are looking at the paper, you're like, "Oh, this is going to be an awesomely difficult question to answer." And there's not as many of those conversations.Guy Perelmuter:I absolutely agree. And actually, this is an interesting segue into something that I have learned over 20-plus years of allocating capital and investing, which is, there's only one thing that LPs hate more than losing money, in my opinion, it's surprises. An LP will understand the rules of a game if you explain them in advance and say, "This is how this game works. This is how this project works. This is how this fund is going to work."Guy Perelmuter:But to Beezer's point, after four and a half years or five and a half years, you got to start going deep into the weeds to start talking about specifics because of cross-investments in different vehicles and different timings and downturns. Those are the bombshells, those are the hits that LPs take and that will ripple throughout the industry, because that's when you start getting the domino effect, because then there's a credibility issue, then that GP is going to have to spend 95% of his or her time explaining himself or herself to his LPs or to her LPs.Guy Perelmuter:So I think that the whole opportunity fund versus individual SPVs versus what is your core competency, those are questions and issues that have to be thoroughly understood prior to writing a check. Because again, Beezer is right, this is not like a hundred meters race, right, that's it. "I only run a hundred meters." "No, no, I only run a hundred meters, but on occasion, I'll do a long jump, and eventually, I can do a 400 meter race as well." And you can mix it up and do everything as long as you are in agreement with your client base. Surprises are very, very unwelcome to LP, that has been my experience time and time again.Samir Kaji:As you were all talking about opportunity funds, we actually had looked at 25 very successful seed funds that have been around anywhere between five and seven years, on fund 3, 4, 5. Out of those 25 that we looked at 22 raised an opportunity fund along with their last fund. And I remember in the past, and this again, dates me a little bit, but we used to talk about swim lanes and we used to always say there's different muscles that you have to exercise to be successful at early stage versus late stage. And some of that has been just eschewed by the fact that there is capital chasing these and the pro ratas are there. And candidly, a lot of the institutional investors, be it the endowments or foundations, are actually not set up for doing SPVs. And so, the opportunity fund has offered them, no pun intended, an opportunity to place more money behind a seed stage manager than they otherwise would. And so, it also fits into a little bit of the demand of the LP market and what they're looking to do per manager.Guy Perelmuter:I agree. There's a market. And if you are a successful seed stage venture capital fund and you're seeing your companies go off the charts time and time again, and you have a limited pro rata and you see a clear opportunity where you can do more and you can bring more of that, to your LPs, why wouldn't you do it? Right? That's just markets being efficient and trying to... The old adage that says, "Nature abhors the vacuum, right. There's no room for vacuum in this industry. So people are going to feel that in as fast as they possibly can.Guy Perelmuter:I'm not against the opportunity funds because I think the reason behind them is very, very in line with the LPs best interests. And it's been my experience that out of a lineup of LPs, maybe 15% will be interested in doing directs, in doing SPVs. Most of them are, "Okay, I'm paying you to take care of my money. I'm not here to start cherry picking on company A, B, C, or D, that's your job. So don't bring five SPVs per year to my attention because I don't have the bandwidth, the interest, the knowledge to analyze them." So I think it's the market being the market in adjusting itself.Samir Kaji:Beezer, you mentioned something earlier about risk-adjusted returns on opportunity funds and core funds. As you underwrite to the different stages, what are those returns that you're actually underwriting to on a multiple cash-on-cash basis?Beezer Clarkson:Sure. Well, historically, and I say it this way because I we're in the process of reconsidering this given the performance recently, we said if you're series A investing, right, the bulk of your dollars are going at series A and whatever, however the vehicle is being structured, we need to see a 3X net potential performance, that's our bar. And so, seed therefore should be greater because there's higher risk, so that's 5X. And this is why the seed fund's doing a series A opportunity fund, it can still work. It gets harder if you're... And sometimes, this is like a shout out to GPs, if your opportunity fund's going to out on your early fund, your math isn't working or your opportunity fund is a lot smaller, which is also fine. And sometimes that is true. But if an LP is doing the math and saying it doesn't stack up, get ahead of that and make sure you understand your return profile, because we can talk about things that turn off LPs, but if we have to do your return profile math for you, that's not a positive sign.Beezer Clarkson:But what we're seeing in the market right now is because there's been so much strong performance, we see growth funds. We don't tend to do these, but they pitch us and they have 3X net performance, legit, or more, in which case, the series A funds, we have high single digits, we have double digits, we have seed funds doing double digits. And again, in this bull market, it's hard to then say, should this be the new norm for forever? But it's certainly the standard today. So when looking at adding new managers to the program, you have to believe someone's going to outperform pretty incredible existing performance right.Chris Douvos:This is so top of mind for me right now because... I call this syndrome Syndrome. So if anybody remembers the Pixar movie, the Incredibles, right, the bad guy is named Syndrome. And he always said his aim was to bring superpowers to everybody because when everybody's incredible, nobody will be. And I feel like, literally, every single fund that comes across, my transom is like sporting numbers that would, in different times, make me drool. But performance is a lagging indicator, not a leading indicator. And then, we don't even need to get into like, "Okay, who's going to put moolah in the coolah." Because I always remember when I was at Princeton at the endowment, we had a big conference table filled with tombstones from Wall Street deals, whether they were acquisitions or IPOs. And all of the tombstones on that "Graveyard of Broken Dreams" were companies from which the only distribution we got was that tombstone right. They literally went public and we got zero because they went to zero. So, I've always been kind of super sensitized to that so this is why this is top of mind.Chris Douvos:I was just talking to one of my biggest investors and when this guy invested in my fund, in my first independent fund in 2012, I told him like, "Look, our return target, the baseline is at 2.5X net, and hopefully we can get up into threes net at the fund level." And today, that fund sits with a lot of public companies, and some about to go public, in the mid threes. That's not even a humble brag because I don't even think that's good anymore. I don't know it's good anymore because I look at other things and I hear about people putting up five, 7X funds and I'm like, "Holy smokes, how can I get me some of that?"Chris Douvos:To extend the metaphor of like the Olympics and events, I feel like we're all doing kind of pole vault on the moon, right, where there's no gravity. And at some point, gravity's going to kick back in, and I think there's going to be a fine line between who was lucky and was able to get out of stuff. It's inevitable that the markets will come back to earth, it's just a question of when and how, and will people have been able to generate enough liquidity in the interim to kind of sustain these kinds of returns?Samir Kaji:I think there's probably something in the middle that's directionally true in the sense that, yes, there's going to be some gravity at some point. Some of these companies are never going to live up to the valuations that they've been given in the private markets. At the same time, a lot of these funds are investing at a stage of these companies where the exits that do happen, that are successful are going to be a step function far bigger than they ever have. And so, do we redefine what a successful seed fund is? I mean, I remember a few years ago, we said 3X, if you can get to a 3X that's great. Most people would say today it's at least a 5X. And I've seen multiple 10X type of funds. And then, we'll see if the DPI gets to 10X, but this kind of reminds me of like the '80s and your early '90s, when you saw a lot of that when there was very little capital, very few firms.Samir Kaji:But moving to sort of the emerging bucket for a second, if we are looking at 5, 7, 10X, I find with track records, track records can be very, very lacking in indicators. And sometimes, there are indicators that are just far too old to matter. Oftentimes, you're looking at a track record that's like eight years old when they had this great return and it's too long ago, too many variables have changed, the teams changed. And the track records that are more recent, there just hasn't been enough maturation or any sort of resiliency that portfolios had to show.Samir Kaji:So, if you're not looking at just track record, which again, has a lot of false positives and negatives, what are the things that you evaluate when you're looking at a manager and saying, is there a potential for this early stage manager to be a five to 7X? What are some of those things that are non-obvious?Guy Perelmuter:Charlie and the Chocolate Factory, which is, basically, everybody's looking for that golden ticket in their chocolate bar. And I'm talking, Gene Wilder Willie Wonka, not Johnny Depp Willy Wonka, because all of us, we know that's the legit Willie Wonka. And I think that emerging manager, at this point in time, the equation is a little bit flipped and I think that's going to be something that we'll see for a long time, which means there are far more managers out there, then talented and really awesome entrepreneurs, meaning that entrepreneurs, ultimately, I think, have their pick on who they want to work with, specifically at the fringes and specific niches and sectors. But I think we can paint with broad strokes this picture. And that means that when you look at the manager, you have to figure out why would this particular manager be able to attract, have enough gravitas to attract extraordinary founders and entrepreneurs and have the audacity to back ideas that are going to be 5, 8, 10, 12... Pick a number, any number, I don't care.Guy Perelmuter:The fact of the matter is that right now, I think that's the key question that one has to ask oneself. What's his or her background? What's the edge they're bringing to the table? We don't need to look at their track record because more often than not, there isn't one or there's one that they use at their old firm and now they're starting something new. So, I mean, there's so many variables in there. So I think the core question one has to ask himself or herself is why would this person be able to attract great talent and build a fantastic portfolio? And that's why I use the golden ticket metaphor, because I think it's a little bit like, you can buy all the chocolate bars in the world and you eventually get to your golden ticket, but you'll run out of money before you do that. So you have to make that golden ticket get to you in the first place.Chris Douvos:See, I always say we use lottery slogans of Ivy League veneer, it's things like, optionality is the same as saying, "Hey, you never know." You got to be in it to win it is the same as asymmetric payoff, right. We've co-opted some of this stuff, it's like, "Some days I think I'm not an investor, I'm just heading down to the bodega to buy a couple of Lotto tickets along with my diet coke."Chris Douvos:It's really interesting because one thing I think a lot about is, I don't know how you underwrite to kind of 10X returns, because the portfolio math on that is such that you have to underwrite to one outcome that's just so extraordinary that you can't underwrite to it. I remember when First Round invested with Uber, I was spending a lot of time hanging out with Rob Hayes. And nobody knew that that was going to become Uber. In that same fund, they had Roblox, which ended up actually distributing more to First Round than Uber did. And Roblox was like the 10-year overnight success story you just didn't know. Who knew that that was going to be the company that it is today distributing literally billions of dollars to that fund.Chris Douvos:And so, what I kind of underwrite to is I want managers that can demonstrate sustainable competitive advantage, which drives repeatability. And I've got some kind of short hands for what I think about that in terms of people who are leveraging specific ecosystems, and that manifests in a couple of different ways. And I feel like that kind of thinking can get me to like a 3X, but the gap between 3X and 10X is filled with just being really f-ing lucky.Samir Kaji:Another thing I've been really curious about is just the common mistakes that managers make that, over time, atrophy returns. One of the obvious things for me is when managers move out of the swim lane too quickly, to suddenly, and whatever comparative advantage they had dissipates because they're playing a completely different game. And an example would be somebody that's raised a $10 million fund writing small frictionless checks, non-lead. And then, all of a sudden, jump into 75 and being forced to really lead every single round. And those things can come at the expense of returns. Are there any common mistakes that you see or red flags that you think come at the expense of returns?Beezer Clarkson:When you're in a meeting and sort of like the magic happens, there's all sorts of like structural things, to Chris's point, like they have a team and they have a vision for market and there's all this stuff that everybody has. But there's something about an investor who's playing in a space. And it's just so true to how they think. The stupid phrase is they can see around corners. But the reality is that's the experience you have sometimes with an LP when someone's talking about something, you're like, "I have now understood D to C crypto enterprise software." You pick it in a different way because this investor is thinking about it in a different way, or is able to sort of capture something about their investing scheme that other people just are sort of more like paycheck venture capitalist.Beezer Clarkson:This sounds derogatory and I don't mean it that way, but people kind of go to work to be a VC versus someone who's like, "No, I'm compelled to do this because this is like what's going to be true in the world and I have to be there." And they can be emerging managers, they can be established. There's just something about their presence. And they don't have to be an extroverted charismatic, they can be super quiet about it. But when you're in the presence of one of those folks, be it brand new or established, it's just as different. And it doesn't mean to say they're not going to make some mistakes in investing because venture is a risk business, and that's fine, we sign up for that. But that's just really different.Beezer Clarkson:And I think when people don't have that and you have too many people that just want to write a check, you can kind of feel that too and it just feels very middling. Or if someone's super special because they work really well to your point, Samir, at seed, and all of a sudden, they're doing growth at seed. And somehow they're magic intuition. Some people can stretch both ways. It's hard, not everybody can and that can just sort of diffuse it. And then, you're also competing with a different set of folks. It's a really different game and people have different tactics and understand different things about companies.Samir Kaji:Is there anything from a behavioral characteristics standpoint that you can point to that's actually tangible? Because what we're talking about here is you feel something, right, you're across something, which by the way, I think the risks that all LPs have, including all of us, is we form biases about what somebody should feel like because we've seen certain type of people be successful and we've sat across people. What are some of the tangible things from a behavior or the way somebody thinks that is actually a good sort of heuristic or at least a heuristic that you all use? Is it hustle? Is it hungry? Is there self-awareness? What is it that you're looking for?Chris Douvos:This is a flummoxing topic for me because a lot of the stuff that I've, in my career, been kind of trained as like really important actually hasn't been in the last few years, and one is portfolio construction. If you look at the great funds of a lot of different eras, when they've been successful, they've owned a lot of their big winners, they've been thoughtful, they've been disciplined, all these things that we think of as asset management.Chris Douvos:And Beezer and I are in a fund together where we literally like kind of were yelling at this GP across the table because he was kind of just spraying and praying, and he his response was, "Look, you got to understand this isn't 1999, it's 1996. And the more investments you make the better because the rising tide's going to lift all boats." And I said, "Well, you don't know what the tide is going to be like at some undetermined time in the future." And of course, and so I'd sit here and I'd be like, "Oh, those guys really suck at portfolio construction and here they've got a big public company that's going to return somewhere between four and 6X their fund on its own." Right. That's one that historically has been really important to me, people are thoughtful about the craft of investing as opposed to just throwing money around.Chris Douvos:And a second one, which actually, I struggle with a lot and this is like the Swanson training in me is like alignment of interest is really important, right. And it can be financial, but more important, it's psychic. And you can tell when somebody's really all in. And I think what we've seen in the last like 4, 5 years is like the delantatification of venture capital. And we're seeing a lot of people who are just like, "Hey, I'll start a rolling fund and I'll do this for like six months and then I'll be onto the next thing."Chris Douvos:And I remember Swanson used to talk about like, "You want to manager like lash to the mast where like it's not that they own a free option, but rather that they need this to do well for them to be fulfilled both financially and psychically." And we just see a lot of people just kind of spraying and praying. And we as the LPs are short their optionality. And that's actually a super uncomfortable situation. But at the same time, a lot of those people have actually been successful. And some of the people who run what I'd call lifestyle funds have crushed it. And so, I sit here and go like, "Maybe everything I know is wrong."Beezer Clarkson:Yes, we always worry that everything we've been trained on is wrong because you do get these, to Chris' point, you get one kind that does so well and you're like, "Oh, well, guess, none of that other stuff mattered." And that's the glory a venture. [inaudible 00:48:34] to me like, what is it? Because I do agree with you, I think one of the challenges that has kept LPs from taking... There's a lot of reasons why LPs don't invest in net new managers to their funds, but one of them is there are a lot of classic training on what a venture capitalist looks like down to demographics. And that's really stifled the industry. It's just wrong. There's no one person who's genetically better at being an investor. If that was true, would know it, right. And it'd be seen throughout history. It's just more about who's been given opportunities.Beezer Clarkson:So I think when we listen to people when they talk, I'm not sure if it's quantifiable, but we ask a lot of questions because we want to understand their strategy like, how are they going after what they're going after? What is the opportunity set that they're seeing? How are they understanding the businesses they're going after? And for some people, it's very quantifiable. And some people, it's about margins. For some people, it's about consumer behavior. So the metric that's being used isn't as relevant as the fact that they're using something to help drive their decisions and they can explain it. And if they can't explain it, there has to be some other way of presenting it. Somebody literally asked me this question today, they're like how important is communication to being a great investor? And I was like, "I think it's probably really critical because if you can't explain what you're doing to somebody else, it's going to be really hard to fundraise.Beezer Clarkson:In the beginning, you're going to have capital from somewhere. And if you don't have your own capital, you can do it yourself until your track record grows, and people will invest in you even if you never say a word. Otherwise, you have to be able to articulate, in some form, maybe it's a TikTok video, maybe it's an Excel spreadsheet... I guess my point is we ask a lot of questions and try to take in a lot of different data to understand who these people are and where they're going to invest.Beezer Clarkson:So you can see what they see and where the puck's going and where we fall off with a lot of people is, to Chris' point, a lot of people haven't thought through it that much. It looks fun. You can start with nothing these days, which is awesome. And it does help create more entry rounds for folks to come in. But it doesn't mean they have thought through the whole entire business of where they're going and what they're doing. And if you want to raise institutional capital, the bar does get set somewhere around there, right. It's not just, "Hey, I want to invest." Well, everybody does, so it has to be more than that.Samir Kaji:As you were all talking, it reminded me of a question from Twitter that I saw, and it really spoke to thinking about how do you differentiate? So all of us have seen hundreds, if not thousands of decks, and they all follow a similar pattern around team, and what's your asymmetric differentiation, your value add? And over time, people become a little bit immune to decks themselves and the stories because everything looks the same. And the question was really centered around, if you don't come from a place that has unique points that LPs look like, or at least the points that LPs tend to weight heavily, i.e., coming from a big firm like NEA, living within certain Silicon Valley circles for a long time, having built a network. How do you actually stand out from the crowd when you may not have any of those things? How do you all think about that? And are there things that managers that aren't part of the mainstream Silicon Valley circles and haven't been for a long time do to really stand out with LPs that are institutional.Guy Perelmuter:Well, I think one of the key aspects of investing... You asked before for concrete, palpable pointers, to be able to answer those kinds of questions and effect of the matter is that investment is a blend of art and science, right. There is a technical aspect to it where you run the numbers, you look at the correlations, you try to do your back testing, you try to do forward thinking... I mean, all of that stuff, it's fine. But there's a lot, to Beezer's point of communication skills of being able to kind of get into the other person's head to make sure they can articulate an idea or a thesis that makes sense to you, that fits with your view of the world.Guy Perelmuter:So for me, one of the things that we consistently do is we look for whatever is inevitable, right. What trends are being now accelerated and that are inevitable? And when there's a manager, to your question, Samir, that is able to articulate the inevitability, why it's inevitable, how they are able to explore that particular trend, and why they are in a unique, or in a privileged position to be able to do that. That's something for you to start paying attention, and picking that particular deck and say, "Okay, that's a conversation I want to have." It doesn't mean you're going to follow through, but that's, I think, a great start. It's when someone is competent enough, they have clarity of thought, they have a reasoning that has a beginning, a middle and the end. And it's not just trying to take some buzz words from whatever and trying to pitch phenomenal numbers, because...Guy Perelmuter:Guess what? Now, phenomenal numbers are the norm right. That became almost jaded at this point, with the numbers. You want to see something that is sustainable, because this is not something you can get rid of in another month or two, you're stuck with that position for a decade or so. So you have to be very, very confident on your evaluation process, on your analysis, and on that specific thesis that is being presented to you.Samir Kaji:You made a point there that I think is really important about track record, because everyone has track record. And I actually sent a tweet that, if your fund isn't at least three years old, no one gives a s**t about your track record over the last three years. It really doesn't matter. It's immaterial, there's too much gamification that can happen. But if somebody is approaching you, what should they lead with if it's not track record because a lot of people that are coming out to market don't have a track record that's more than three or four years.Chris Douvos:One thing I think a lot about is... I've been doing emerging manager since 2004. And not withstanding what we've seen in the last year, the vast, vast majority of these have been completely unfulfilling in terms of returns. And everybody's got their different heuristics for what might work. For me, it really comes back to, what is your unfair advantage and how can you articulate your own repeatability? This is actually Andy Weissman at USV who really kind of hammered into me the, "We're not investor's advice." The time I spend with him, he's always talking about repeatability and process driving repeatability.Chris Douvos:And for me, one of the things, and I tell this to all the managers that approach me, I'm looking for people who are leveraging ecosystems. So like, what are you part of? I've been doing a lot of university investing of late and so I love people who are really leveraging innovation on campus, particularly in hard tech. Are you leveraging some sort of community like Ross Fubini, a manager of ours kind has a couple of communities that he's very kind of embedded in and see some stuff through there? Or kind nontraditional managers. Do you have some sort of kind of position of authenticity in some sort kind of new and emerging area that has a lot of upside? And how do you maintain that authenticity?Chris Douvos:One fund that we didn't do, which I regret, although I haven't seen the numbers, but I'm sure they're crushing it, is somebody like Cross Culture. I thought they had an extremely nice kind of footprint and a lot of upside potential there. So, that's kind of my watch word because looking at each thing and saying like, "Huh, what are there? 4,000 managers out there, Samir? I don't even have time to meet with 400 of them," which is why I almost use this like, "What is your leverageable ecosystem?" That's my first screen.Beezer Clarkson:Don't know if we have something as specific as that, maybe we should. Chris Douvos:Well, you're smarter than I am so...Beezer Clarkson:We don't meet with 4,000, but we do... One of the processes that we have used is when we start getting interested in the space, we do try to meet with as many as possible. And it's certainly easier if this space is like... Seed generalist is not the great way to do that. But for example, when we started looking at a certain category in enterprise or in big data, or in consumer, we might meet with a range of investors or funds to try to get a sense for what's existing and then you also then hear different voices. And again, it can be the established manager, this isn't just the emerging managers, but it's easier, at least for me as an investor to understand what's going on.Beezer Clarkson:COVID makes it really difficult to do that geographically, but to Chris' point LA. If you can go walk the streets and see what's going on while people are talking about they're investing, we love to do that too. We've done that very extensively in Europe and Israel to understand ecosystems. And then, when you bump into somebody who just brings something different to the game, even if it isn't obvious from the outside, when they talk about something, it can land, because you're like, "Oh, I see your world that you're playing in and I see who you're playing with, and this lands for us." But it's really time intensive. We consider ourselves venture specialists, but it's a lot, it's a lot of work. You can't just meet with one fund a year and do that.Samir Kaji:I feel like we can... I mean, we've only covered a small subsection of the topics that we could probably cover, especially within the emerging manager ecosystem. We haven't gotten into nano funds or solo GPs, and really the shift in that. I do feel like we need a part two for that because there's so much meat on that bone. But I do want to end, in the interest of time, with maybe a question on where there might be opportunities. We've talked about established managers, we've talked about growth funds, we've talked about series A, seed, I just alluded to nano funds and seed funds. Going around the table here, what is one area that you feel currently has the best risk-adjusted rated return of all of those things that I just mentioned?Chris Douvos:I've had a several years long kind of deep tech hypothesis going. Part of that is I'm really nervous about weaponized balance sheets and there's actually still financing risk in deep tech. Maybe there's capital intensity, but I think that keeps the company's honest. Then again, back to Buffet's equation, opportunity equals value minus perception, right, the perception of so many things is so high that I think it kind of constrains the opportunity and I think there's a lot of good value to be had in deep tech. But the reality is a lot of your deep tech has gotten mainstream a lot faster than I imagined it would so maybe that's going to constrain my hypothesis. But that's probably the area where I'm most focused in. And one articulation of that is a lot of the college related funds, I'm doing like House Fund at Berkeley, E14 at MIT, Freeflow down at Caltech, Rhapsody that does a bunch of material science stuff across a bunch of campuses and other research institutions. That's a lot of fun.Samir Kaji:So I never thought I'd hear the day where the guy that told me LP should invest courageously would say he's scared. But I think that it is a unique time and certainly deep tech is highly interesting for a lot of us. And Guy, I know this is core to your investment thesis. Let's move over to you and tell us a little bit about what you're most excited about.Guy Perelmuter:There's this quote that comes to my mind on a regular basis, and I think Chris is going to love it because it's a maritime quote, so I think it's right up his alley, it says, "There's no favorable wind for those who don't know where they're going to." And I think that's on us as investors, right. You have to have a plan, you have to chart your course and say, "This is where I'm going," because otherwise, how do you even know that something is of interest? Right?Guy Perelmuter:And to your point, Samir, we basically started GRIDS as a niche shop, deep tech only, that's the only thing we do. And hence, within that world of deep tech, and I fully agree with Chris, I think it has become relatively mainstream very quickly. And again, I think COVID plays a big part on that trend. But I think that within deep tech there are a few, and again, inevitabilities that we are clearly seeing now with climate tech, right, after the disaster of the 2000s, where climate tech was basically solar and that ended in a blood bath. But right now there's so much stuff going on in climate tech, the supply chain optimizations, the whole food tech revolution, because we're going to be 10 billion people in 2050, there's no more real estate for us to do more crops, we'll have to come up with inventive, innovative solutions. There's synthetic bio, which again, I think now everybody's pretty familiarized with. So these are areas where I think there are hu... aerospace in general, space, and so on, so forth.Guy Perelmuter:So in deep tech, there are those clusters of opportunity that are almost like brand new markets that, thanks to the history of technology, are now available for private investors to kind of dip their toes on the water. And I continuously, I've been excited about this particular market ever since I did my first angel check back in late 2000 and I still feel that there's a lot of room for that trend to unravel. So yeah, I absolutely am with Chris on that one, I think deep tech is going to be a phenomenal run for the next two decades if you know where to look and who to choose.Samir Kaji:So we got too deep tech and I'm not surprised. And it's something that I've spoken to a lot of both GPs and LPs about. And I do think, to your points both, it has become mainstream, but it's still very early stage in many different applications. So I'm excited about that. So last but definitely not least, Beezer, where are you excited? Let's go to the smartest person in the room here.Beezer Clarkson:Oh, I hope this answer doesn't disappoint you. I was thinking more generally. We're looking for the best early stage investors. We launched our business around... I don't have a specific area because one of the things that I've just discovered is I can't say, "I only want to do X" in advance, it doesn't work for me. I have to go meet the people. And we have a portfolio where we're just looking for great seed and a series A investors, and it can come in any shape and form.Beezer Clarkson:And there certainly are times when we find a trend that we're really interested in. We've been spending a bunch of time in FinTech recently. But that doesn't mean we're only going to do FinTech in the future, it just means we're trying to understand it right now. We have been spending a bunch of time with nano funds and some of these other structures to understand that we may or may not do anything. We just solve for the best early estate investors in whatever form they come in. I still think it's an incredibly exciting space, and all of the innovations that are happening are awesome. And yeah, I just think there's a ton going on and think it's a great place to play. I love where we invest.Samir Kaji:Yeah. Well, I'm glad you brought up nano funds because I was going to say that's an area that I'm extremely excited about. And the nano funds where somebody has something really programmatic on how they go about their business, having an incredible amount of self-awareness of what swim line they should be in, and when they factor in things like network effects, I mean, the returns have been through the roof. And I know many that are just starting that I have a lot of excitement about. And so, I hope more people do nano funds. I think right now it's still family offices and individuals. I know there's a couple funds that are now starting to do it, but that's my answer. I mean, this has been such a fun jam session. I know it's Friday, late, and we don't have a glass of wine, next time, we'll do part two with a glass of wine. But thanks everybody for being on the show here.Beezer Clarkson:Thank you for having us.Chris Douvos:Thanks guys. This is awesome.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Heather Hartnett, founder of Human Ventures, discusses their unique startup model combining fund investing with a business creation platform. Topics include creating a platform in venture capital, unique structure of Human Ventures, shift to human-centered businesses, current trends in valuations, lessons learned from missed opportunities, and the value of continuous learning and mentorship.

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.On this week’s Venture Unlocked episode, we had the pleasure of hosting Donald Stalter, Partner at Global Founders Capital, a global multi-stage venture firm that has raised $1.6B across two funds and has backed companies such as Kalshi (led by Don), Deel, Headway, Slack, Away, Hellofresh, and Brex. The firm has a very unique model that employs capital across geographies, stages, and industry sectors, and Don provided insight on how the firm executes on this strategy so effectively. Previously Donald co-founded CityDeal, which he later sold to Groupon where he built Groupon's international offices in Europe and Asia. He subsequently led BD at Airbnb global. A word from our sponsor:Vouch Insurance is a new kind of insurance platform for startups. Built by founders for founders, Vouch’s fully digital coverage takes minutes to activate. Vouch is trusted by the biggest names in the startup economy — such as Y Combinator and Silicon Valley Bank — who partner with Vouch because everything from onboarding to claims is designed for startups by experienced founders. Because Vouch is an insurance platform, and not a broker, it works with its clients to manage, mitigate, and avoid risks. http://www.vouch.us/ventureunlockedIn this episode we discuss:01:36 Don’s journey into Venture Capital03:18 How being an operator influenced Don’s path as an investor06:30 What is Global Founders Capital mission and focus?09:08 The fund construction model for Global Founders Capital10:27 How they balance growth vs. early stage and how location factors into their investments12:50 How Don and his team add value at scale across his portfolio14:45 How their operations team and investments team work together17:20 The risk/return Global Founders Capital underwrites to and their return targets20:32 How the frothiness of the market in growth-stage investments affects how they approach growth investing. 22:52 The non-obvious opportunities for global investments25:03 How the firm manages global investing out of a single fund26:20 The benefit of bringing a strong operations background to global investing28:30 Global Founders Capital’s pitch to LP30:13 Differences between US LPs and international LPs31:28 Recapping the recent market conditions and what the future looks like33:38 What is the most counterintuitive lesson he’s learned as an investor34:37 The investor he admires35:32 The firm he feels is the best in the worldMentioned in this episode:Global Founders CapitalFelicis VenturesI’d love to know what you took away from this conversation with Donald. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.Today we’re thrilled to bring you my conversation with Delian Asparouhov of Founders Fund, a Silicon Valley and now Miami based firm that has long been known for backing some of the most category defining companies in the world including SpaceX, Palantir, Facebook, AirBnB, and Stripe. While at Founders Fund, Delian also co-founded Varda Space Industries, and previously worked at Khosla Ventures.A message from our sponsor:Pacific Western Bank is a full service commercial bank with over $34 billion in assets. The venture banking team specializes in financial products and services for startups, venture-backed businesses, and their venture capital and private equity investors.The experienced team is committed to the space and dedicated to delivering high-touch, tailored solutions, helping innovators take their business to the next level.In the first half of the year, the venture banking team has booked over $800 million in new loan commitments to help support the community.  No matter the size or stage of your business, you can expect guidance, resources and flexibility, making them the perfect team to support your evolving needs.Turn your vision into reality with PWB. For more information, visit www.pacwest.com/lending-solutions, or follow us on LinkedIn and Twitter.*Equal Housing Lender & FDIC insured*Total assets & loans booked are as of June 30, 2021.In this episode we discuss:01:43 Delian’s journey to becoming an investor05:24 Why he felt VC was a better path for him than operating roles 11:52 Why he chose to go from Khosla Ventures (& now Founders Fund) instead of starting his own firm14:24 The decision to co-found Varda while being a full time investor17:38 How Delian attracted co-founders for Varda.21:31 Why there are a relative lack of investment dollars into areas like space. 25:22 How Founders Fund looks at the risk in investing in areas such as space.28:07 The catalyzing events in tech that will help drive exponential innovation. 31:27 Ingredients Miami has that will help it build a significant presence in tech, and why is talent going there?38:47 The most counterintuitive lesson Delian has learned as an investor40:56 Delian’s prediction for the venture market for the next few years43:47 The legendary investor that has most inspired himMentioned in this episode:Founders FundVarda Space IndustriesKhosla VenturesI’d love to know what you took away from this conversation with Delian. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:Hi, I'm Samir Kaji, host of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. Today, I'm thrilled to bring you my conversation with Delian Asparouhov who's a Principal at Founders Fund. Based in Miami and Silicon Valley, the firm has long been known for backing some of the most category-defining companies in the world, including SpaceX, Palantir, Facebook, Airbnb, and Stripe. While at Founders Fund, Delian also co-founded Varda Space Industries and then previously worked at Khosla Ventures. I had a lot of fun in this week's show as we talked about a number of things, including incubations within larger firms, the arc of where he sees technology, and what's going to drive innovation in the coming years, and why regional hubs like Miami will be major forces and drivers of innovation. Now let's get into the episode to hear all of that and more.Samir Kaji:Today's episode is sponsored by Pacific Western Bank, a full service commercial bank with over 34 billion in assets. The venture banking team of PacWest specializes in financial products and services for both startups and the venture and private equity funds that back them. I've worked with many of their team members over the last few decades, and I can attest with their commitment to bringing a high touch and personalized experience for every startup and fund manager client they have. So whether you're a founder or a fund manager at any stage of development, and you want to find out more, check them out at www.pacwest.com.Samir Kaji:Delian, great to see you, and thanks for joining us.Delian Asparouhov:Thanks so much for having me. Excited to be on today.Samir Kaji:Well, this is going to be a really fun conversation given how multifaceted your background is. And actually going from a waffle boy to becoming an entrepreneur and getting into tech, to now being a full-time investor at Founders Fund. Tell us how you got interested in tech in the first place and what led you to investing.Delian Asparouhov:Yeah, I had always been a computer scientist. My dad studied computer science and statistics and was a software engineer for basically his entire career. And so I think my first website I put up, I think summer between eighth and ninth grade, I had my first paid software gig summer between ninth and 10th grade, and so, the waffle boy experience was actually like, "I can tell where this life is headed and it's unlikely to have a service job in its life unless I intentionally do it now, and I think it's an important skillset to have, because I can't wait of just get paid for just working with your hands."Delian Asparouhov:And so, I actually had a much higher paying job the prior summer, where again, I was a software engineer and then I was like, "I'm gonna be a waffle boy this summer. I'm not going to do any software engineering." I did a some of that and I was like, "This it for me. I'm not a very good waffle boy." I basically quit at the end of the summer to go back to high school, but I think I got fired too. I think they were at their wit's end with me of, I really just like overselling the waffles more so than I like making them.Delian Asparouhov:And so yeah, I basically had this software engineering background, thought that I was headed into the world of academia. I really liked software robotic space, and so the plan was, both of my parents are PhD academic types, my mom's a professor, my dad's basically a professor, and so I was like, "Okay, my path in life is going to be academic robotic space." That points me towards undergrad at MIT, grad school at Caltech and then basically working at JPL/NASA on robotic space missions.Delian Asparouhov:And basically in freshman year at MIT, I had a couple of chance encounters with the most maybe influential, being with this guy, Bilal Zuberi, who's actually now a partner at Lux Capital, basically met me on I think fourth or fifth day of undergrad, and just introduced me to the world of venture capital startups, just like a potentially alternative path that had a much near term and faster path, should we say, impact on the world.Delian Asparouhov:And so I got hooked on that. I started going to these weekly dinners at MIT. They were these entrepreneurship dinners hosted and funded by the entrepreneurship center. And then just very quickly got obsessed, started reading about all these things, reading Hacker News, and had this idea stuck in my head where I was like, "Man, Jack Dorsey, he seems like he's the best entrepreneur right now. I got to figure out how to go work for him." And so that basically spring of my freshman year, I hustled my way into getting a summer internship with Square.Delian Asparouhov:And so moved out to Silicon valley in whatever, late May of 2012, fell in love over the course of that summer, had a really awesome experience in the summer of 2012 working for Square. I think I interviewed when the company was a 100, 120 people. By the time I joined, it was 150 and then by the time I left, it was 300. So, I remember when I left the Android engineering team at the end of the summer, one of the other engineers was like, "Oh, f**k, you're an intern? You're not a full-time really? You've been here longer than the rest of us." And I was like, "Yeah, but I'm actually just an intern and I guess I'm going to head back to school/head back to school with the intention of figuring how to drop out and get back here as soon as possible." Because I was like Square is awesome, but I'm young enough that, the risk reward curve, I should probably go start my own thing rather than working at a bigger company.Delian Asparouhov:And so I was lucky enough to be roommates with a guy who was friends with a Thiel Fellow and I learned about that program, applied, and then managed to make it out full-time to Silicon Valley in May of 2013. So yeah, thank you Bilal for teaching me about startups and eventually leading me out to Silicon Valley.Samir Kaji:It's a really interesting story. You think about 2013. You drop out of MIT to pursue being a startup entrepreneur, which comes with a lot of risks. And then ultimately you did that for four years and then took on a jump eventually with Keith Rabois at Khosla Ventures. And I always think about, as you go through your career, you're always making decisions that have opportunity costs. Why did you decide to go into venture versus staying within the operating role, either running a startup or actually working for a startup in some of the spaces that you really enjoyed?Delian Asparouhov:Yeah, so the original role at Khosla Ventures was actually due to me wanting to actually start another startup. I had this idea around cybersecurity insurance that I've been towing around with Keith for a while, and didn't feel like I had the right founding team yet to pull the trigger, but I really did want to figure start working on it. I had actually been having dinner with Keith talking about this, but then also happened to be talking about a friend that had dropped out of Harvard, but had gone back and finished school, and was graduating that was looking for what his first gig was going to be.Delian Asparouhov:And Keith was like, "Hey, I really like your friend, maybe I should hire him as my chief of staff." And so we talked about what the chief of staff role would entail, how it would work, et cetera. And I remember calling my friend literally right after that dinner and being like, "Hey, Keith wants to me to pitch you on this role." I literally got halfway through the pitch and had this set of an aha moment where I was like, "Oh f**k, I think I want to do this. And then I'm going to work on the cybersecurity insurance idea on the side while doing it."Delian Asparouhov:And so literally I was doing this call outside Keith's house after this dinner, and I knocked on his door after I was done with the call. And he's like, "What the f**k are you still doing here? We finished dinner like an hour ago." And I was like, "I've been outside on this call, but by the way, I think I just want the job. What do you think about me being your chief of staff? And then I'm going to work on this cybersecurity insurance idea and just use Khosla Ventures and this role as the platform to find these potential ideal co-founders, and in parallel, just learn a lot from you."Delian Asparouhov:And he was like, "That sounds great." We came to an agreement that I would do it for at least minimum of a year. So even if I did find the exact team, I would still keep doing the chief of staff role for at least a year since he was going to have to train me up on it. And I was like, "Great, I'm happy to do it for a year, and then I'll go back and operate this company."Delian Asparouhov:About, let's say six or seven months in, I had a couple of different realizations that hit me all at once that convinced me that I should potentially take the idea of staying in venture capital for the longer term actually made sense. Because nowadays I think people think like venture is cool, blah, blah, blah, but how? When I was growing up in Silicon Valley, 2014, '15 and '16, venture capital is where you went to retire. Nobody cool was doing venture capital. All the cool people were starting companies. And I think that's still honestly mostly the case.Delian Asparouhov:But I had a sudden realization that hit me about six months in where two things, the first was that my personality and skillsets were much more likely to make me a highly effective venture capitalist than they were to make me a highly effective founding CEO. I am super ADD. I'm super intellectually curious. I like to speak my mind even when it's relatively controversial and out there takes, and I don't particularly love managing other people's emotion ends or acting as a therapist. All those things are huge cons to be a founder, right? The ideal founders are monomaniacal, very perfect in their storytelling and are careful not to step over any bounds, are very good at being a therapist and managing people underneath them, and if anything, dislike contact switching.Delian Asparouhov:I realized, I was like, "Huh, these things are all huge cons to the founder, and yet they're all huge pros as an investor, right?" The best investors are intellectually curious and context switching and don't necessarily need to manage people. And so I'd always given other friends the advice of, when considering various career paths, you should generally likely lean into your strengths rather than try to mitigate your weaknesses, because by leaning into your strengths, you're much more likely to be top 1% and top 0.1 top 0.01% of the people in that particular category.Delian Asparouhov:And so I was like, "I think if I really, really worked hard, I could make be a top 10 or top 5% CEO," but it would take like a lot of work. Or I could do the thing that clearly comes much more naturally to my skillset and personality and just do that. And I can probably work less "hard," and I'll actually be top 0.1 or 0.01%. And then I had this sudden aha moment where I can't describe to you, up until then I'd had this obsessive, since that day with Bilal and then reading about Silicon Valley, I was like, "Oh, okay. To be one of the greats, you have to be a founding CEO." And so like, "I'm going to be a CEO. I'm going to be a CEO." And it was literally obsessive in my mind. And every day I was like, "In some ways, I don't care about the idea, I don't care what I'm working on, but I have to be the CEO."Delian Asparouhov:And then it was just this first crack where I was like, "Hmm, seems like I can be one of the greats and have a really great impact on the world without necessarily being a CEO. And then who knows maybe one day I'll figure how to do the job half, half and co-found something again one day," which eventually does happen four years later. And so yeah, maybe a month, six or seven or so, realized that.Delian Asparouhov:And then the second thing was, I actually happened to basically stumble across and source an aerospace company that Khosla Ventures ended up investing into at roughly month six or seven. And so the second aha moment that I had was, I'd always really wanted to work in aerospace, but the only models that I had for how to do that were either you went and worked at SpaceX as an engineer, which I had friends that did that, and I didn't really love the day to day life of just being an engineer. And then I had the second type of model, which was the Chamath, Elon, et cetera, which is basically, "You got to get rich in normal tech and then you get to go do space tech."Delian Asparouhov:And so I was like, "Okay, I'm going to do path two. I'm going to try and get rich in normal tech, and then I'm going to go do space tech." And then instead, all of a sudden option three opened itself up to me where it was like, "Whoa, I get to do aerospace today as a broke 22-year-old, by basically 23-year-old, I think, by finding these companies that are really great space companies and then convincing investment firms to invest in them, and then I really actually get exposure to the world of the commercial space industry and operating within that."Delian Asparouhov:And so I had those two aha and I was like, "Oh s**t, I got to lean into this hard. And I'm going to show that I'm a very good normal investor, but I'm going to make sure that on the side I'm constantly building up this space expertise." And so very intentionally I started going to space conferences and meeting every space CEO, and thinking about what ideas would I want to fund? What opportunities were there out there? I started very proactively with my friends that were SpaceX engineers grabbing dinner with them and being like, "let me know anytime that you're interested in leaving and wanting to start a company. I want to work on something with you." And so those early bets were obviously what eventually led to what I'm working on today.Samir Kaji:Going back in a second, you were at Khosla making the determination that being a VC is probably better aligned with your skillset. You still have to do the normal tech, you have this affinity for space, and I think that goes back a long time, well before even being part of the tech world. But there's a couple options that people have when they're thinking about being an investor and starting off in the early days. In today's world, that means either joining a firm, like you ultimately went from Khosla to Founders with Keith, or actually start your own firm where you get a taste of actually running a company, but in the context of an investment firm. Why did you decide to go to Founders versus just start your own tech or space tech type of firm?Delian Asparouhov:I do think that fundamentally venture investing is an apprenticeship-based industry where I think it's far easier to learn from other really great people than try to re-engineer from scratch. And then honestly, most things in life are easiest learned being in apprenticeship. And that was incredibly clear to me if I looked at, let's say peers that started around the same timeframe that I did in venture four and a quarter years ago, those that had very type mentorships and apprenticeship opportunities, have definitely far outperformed the ones that were out on an island and expected to learn and operate entirely on their own.Delian Asparouhov:Founding a firm can make a lot more sense once you've had that apprenticeship experience. I think early on in a career, it's not like it's impossible to succeed that way, but you're really in it for the grind. And in some ways I would much prefer to spend ideally the majority or 99% of my time doing the things that I really love and things that I'm good at. I think I'm pretty good at, for having been a former founder, I'm pretty good at advising other founders, finding very interesting ideas to invest in, figuring out how to convince those founders to take our capital, those things I'm quite good at and enjoy doing.Delian Asparouhov:Do I love pitching to limited partners to invest into a fund? Not particularly, and so this was a have to. Yeah, maybe it constrains the upside or maybe you don't get as much ownership, et cetera, but I find that I didn't really want to apply my "entrepreneurial independent energies" towards actually making an investment firm. I was much more interested in, and this is definitely an explicit part of the conversation when I joined Founders Fund, I was interested in, at some point, incubating something and applying the entrepreneurial spirit towards that.Delian Asparouhov:And so yeah, I think there are plenty of investment firms in the world. Are you really going to create the next greatest hot new thing? Maybe. But I think that isn't bringing that much innovation and interesting things to the world versus applying that same entrepreneurial energy to company building. To me, it's much more exciting. But obviously, I've had friends and peers that have done phenomenally well taking this purely independent approach, but this wasn't something that I was super interested in.Samir Kaji:So given all that, let's talk about your work at Founders Fund. And one of the things that struck me as unique was, you starting a company or at least co-founding a company in Varda while you are a full-time investor. And we're starting to see those type of models emerge, and certainly in the past we've seen things like EIR models, incubations with firms like Sutter Hill and then now studio models. But maybe you can walk us through a little bit about how does that work for you? And within Founders Fund, what does it actually mean to co-found a company while you're a full-time investor?Delian Asparouhov:Yeah, there's definitely a couple different models, most of which I'm typically not very interested in. Let's call the first most common just being the EIR model. Typically, for sure there's some success with EIR models, but I don't typically love them because they tend to create a relatively artificial constraint on, you come in basically without an idea and the firm tells you, "you've got to start something within a year, either we'll fund it at the end of the year or you're out of here at the end of the year." And so it creates this artificial time constraint that I don't think is the healthiest way to start a company. I think you should start a company when you have an idea that's really itching at you and you just can't get out of your head, and need to build as opposed to try to force yourself into a company. And so I don't necessarily love the EIR model.Delian Asparouhov:The second model, which I'd call venture studio model, people that only focus on incubations. And so maybe the best example of this being Sutter Hill Ventures. They basically only do incubations. Snowflake obviously being their best example, but they have many more coming down the pipe that are quite, quite good. And that model not necessarily mean anything to me because it's only incubations typically. And those do tend to have more success, but you do need to do a lot of them. And so you can't spend as much time on any individual one. And so it feels like in some ways, you have all the downs of investing, your time is very split amongst all your companies. And yes, you're more involved at each individual one and you help kick it off the round, but there's no one that you can feel true, true ownership over. But without all the upsides investing, I can invest in any company and whatever any founding team builds. So, I wasn't super interested in the venture studio model.Delian Asparouhov:And then third model being the relatively unique model that so far, at least I think only, let's say Founders Fund and a very small handful of others have truly succeeded at and scale at, which is, you still keep investing in a variety of different external companies at an aggressive pace, but then you choose one, and exactly basically one company, to really focus as your external incubation. And so you get that real sense of ownership, control something that you're truly proud of, but while not being constrained to only investing in the ideas that you come up with, but being able to invest in, I do really like the process of, a founder comes and pitches me on something that maybe a lot of other investors think is crazy, wouldn't succeed unless we funded it, and then getting to fund those companies, those are in some ways the most emotionally rewarding investments, because you're getting to enable somebody else's dream.Delian Asparouhov:And that doesn't always happen right. For sure a lot of the companies that we fund, a million other people would have also may be funded, but there's this occasional exceptions where we're truly out on an island in comparison to all the other venture investors. That's kind of the model that Founders Fund takes, and so it's like, I'm definitely not starting any other incubations anytime soon, but I really like that model, both getting to aggressively invest at a top-tier level while also running one and exactly one incubation, which we've done with, first Trae Stephens doing Anduril and Peter back in 2004 doing Palantir.Samir Kaji:So you started Varda at I think it was mid last year, so 2020, and I think this was a few months before you ultimately recruited Will over to become CEO, and I know Will came over from SpaceX, but are there any challenges in terms of when you do start a company and incubate it to actually bring in talent when the person that you're bringing in wasn't part of the co-founding team?Delian Asparouhov:Yeah, I do think this is the trickiest part of incubations. And what I'd say is, the idea and the potential for Varda wasn't real until after I decided on Will and the founding team. It definitely felt like Will was there basically since day one, because there was just no way it was going to happen without Will. And then by the way, he has a lot of, this is not, unlike the venture studio model where they really do take a lot of the company up front, they get it up to a significant level and then they sometimes will recruit CEO, this was very different.Delian Asparouhov:And I'd say Anduril and Palantir were similar to this where it's just like their incubations didn't exist until after we had found the founding team. And so that was most of the focus was, I've been thinking about the idea that Varda's working on micro gravity factories or micro gravity manufacturing for almost a decade. I've been pondering it for quite some time, studying all the companies that were working on it. Earlier in 2020, I actually considered a variety of companies that were working on it as investments from Founders Fund, and for a variety of reasons, decided they weren't a fit. And so in late July or early August of last year, I was like, "Okay, well, I've got some time right now where we're not investing a ton, let me think about what would the ideal archetype for founding team be, and let's go and try and find those and convince them."Delian Asparouhov:And so I basically articulated and listed a set of things that basically Will Bruey perfectly has, which is I wanted somebody from the Dragon Project with entrepreneurial experience and ideally had done annual investing on the side. So I'm not teaching them about fundraising and safes all from scratch. And then ideally a chief scientist that has done micro gravity manufacturing before.Delian Asparouhov:And so, the early days of the idea, weren't like, for sure there's some amount of, I was starting to do really early exploration of business model and customers and things like that, but it was super light. 95% of my focus was, I need to find this co-founding team that makes it feel real such that, this is sort of day one. And yeah, I think it was like third week of August, I'd need to double check the Varda Twitter, but somewhere around third week of August or maybe first week of September, the three co-founders myself, Will and Daniel had dinner down in, I think Manhattan Beach or something like that in LA. And that was day one. And then I was like, "Okay, I think we're doing this. Let's start to go through the motions of, let's talk about equity splits and let's start to work on the pitch deck and things like that. And it took a couple more months until we were really ready to go out and fundraise.Delian Asparouhov:But yeah, it's definitely not like, I was working on it for months and months and months, and had all these things, and I recruited in Will, and it was artificially he was coming in to run something that wasn't really his idea. It was more like, "Yo Will, here's an idea that I've been towing for awhile, I think you would be a really great CEO for it. And then I think it's in your best interest to have it be in incubation with me rather than doing it on your own. Because this is a capital intense idea and I can just help speed this up, where on your own," I'm sure he would have been able to like raise a seed, and then an A blah, blah, "But I can help you skip a couple of steps. And then by the way, the net dilution impact is going to be roughly equivalent," where rather than selling a bunch of the equity to a bunch of external investors over the course of several rounds, just give me some equity and then we'll just skip basically to a nine million dollar seed." Basically a series A.Samir Kaji:Right. Okay, so that makes a ton of sense. And you look at the space and pun intended, I guess, that you ultimately started this company, and what we've seen at least, at least in my view, we've seen a lot of investors focus on traditional technologies, many of which are just incremental in nature. And you talked about Bilal being at Lux Capital, and Lux does a lot of stuff that I'd consider true moonshots that are looking at hard technical problems that are in things like, whether it's bio, space or other, why are we not seeing more funding going into companies that are within spaces like the space sector? Is it because there's not enough entrepreneurs that are looking to solve those problems, or is it something unique about the capital requirements for the companies that get VCs not comfortable with it?Delian Asparouhov:Yeah, a couple different subpoints within here. The first I'd say is, I actually do think if you study it across biotech, aerospace, et cetera, the number of venture dollars going to these ecosystems is actually increasing quite a bit. Could it be increasing even faster? Potentially. So I do think it's actually headed in a positive direction. On, let's say second point, what is the limiting factor here? I think one of the things that is actually counterintuitive, and I spun this out into a pithy tweet. And this is somebody else's idea so I apologize that I'm not crediting them here. But the idea that I heard at a dinner party that I really enjoyed that stuck with me is that, the best social media app founders are actually PhDs in mathematics and the best deep tech founders are actually party promoters.Delian Asparouhov:And it sounds like a little bit pithy, but the reason being that, social apps, they don't need any marketing. What they need is deep mathematics around how do you architect these viral loops and behaviors such that people will actually use it and cross to create a viral growth. You don't actually need a marketer. And then for deep tech things, the limiting reagent almost always actually being, can you convince investors that this could potentially return their capital over the course of much longer timeframes than what's simply necessary? And so what you actually need is the best storytellers.Delian Asparouhov:And so the other way that, Peter at least has drilled this into our heads at Founders Fund is that, the bar for ability to fundraise, actually for deep tech counterintuitively needs to be even higher than for traditional tech, because you're not going to be able to raise on metrics or customers or things like that, you're going to raise off of technical progress in a story. And so, you need to be able to tell that quite, quite well.Delian Asparouhov:In terms of big shot or big swing companies like Varda getting founded, the limiting reagent there, I would say is people like me, technical enough that you know where to take a big swing. I had been thinking about micro gravity manufacturing for a decade, but then once I started really digging into it, I realized like, "I've been thinking about it lightly for a decade." It is very different to be thinking it to now a year and having worked on the company on it, lordy lordy, did I not know what I was getting myself into. It is a very different beast than what I expected. But that's part of it. It's like, I'm technical enough to now figure out how to navigate all of the challenges that have come through this, and technical enough to figure out that, Will's a very good CEO for this. Am I a very good space engineer? No, but I'm technical enough to assess who is a good space engineer and who isn't, and Will is definitely a very good space engineer.Delian Asparouhov:And so the combination of that plus concise, succinct, and let's say compelling storytelling, that's probably the limiting reagent to starting companies this, because the limiting factor for starting a company like this is convincing investors to fund it, right? There are a variety of people that have thought, "I'm not the first person to think about space manufacturing. I can list a 100 or a 1,000 researchers that have thought about this. Hell, even people that have tried to go out and raise from the venture capital ecosystem before that have thought about this idea." But none of them were able to articulate it in a simple and compelling way that got investors on board, and this is a particular idea that it's like, it's tough to bootstrap this one. It requires capital markets to fund for the first couple years so you get over the hump of the R&D and unit economics curve.Samir Kaji:What type of DNA then do you need from an investing standpoint? Because we talk about Founders Fund trying even from the very beginning investing in companies that, and I think Fund One had a lot of capital in one single company that obviously now has done extremely well, but it was a big risk. And taking big swings or things that you think investors would do, but the counterintuitive lessons is, or people are actually doing risk mitigation, and so when they look at these actors, that involves because it could be three, four, or five years before there's something, and it could take hundreds of millions of dollars in certain cases. What type of DNA as an investor, do you need to get comfortable with those type of investments? How do you guys talk about it within Founders Fund?Delian Asparouhov:Yeah, I do think similar to what you're actually looking for in the founders in the companies, you do need the same thing as an investor. Take, Josh Wolfe, probably one of the best deep tech investors right now, he is an incredible storyteller. He's both technical enough to actually understand what is the background across both the biotech, space, hardware, et cetera, companies he's investing, but then most importantly, he can also help translate that story to the future investors. Because a lot of what you need to do in deep tech is convince future investors to also invest in it while the unit economics, et cetera, don't pencil out. And people need to be able to trust your judgment so that in the future, let's say, hedge funds are like, "Oh yes, Josh Wolfe of Lux is very good at choosing great deep tech companies. Therefore, if we fund this, it is likely to turn out well."Delian Asparouhov:And so there is that recursive positive signaling that takes some time to build up. But I think the necessary components of that are in deep tech investor signaling in some ways matters even more so than normal tech. If you're a killer growth SaaS company, nobody cares what your cap table is, anybody will invest. In deep tech, people definitely want Lux, Founders Fund, et cetera on the cap table, feeling comfortable that, "okay, these people have clearly assessed this, know that this is a viable technology, legitimate team," et cetera, and feel much more comfortable then investing more capital later on.Delian Asparouhov:And so yeah, I think similarly it's definitely a very limited set of people in the venture capital ecosystem that are technical enough to actually understand the underlying technologies. Because you also can't look like a buffoon and accidentally keep funding Theranoses where it's like, the technology clearly it doesn't work, or ultrasound wireless power. We can argue, is it a great company? Is it a great investment? Was it the right approach? At the end of the day, that is a fundamental law of physics that is quite difficult to overcome. Energy loss from ultrasound, speakers shooting towards one area in air, R3 is difficult to deal with. And you need to be able to assess that and not just fall for just great storytelling as well.Samir Kaji:It's exciting for me personally, to see some of these companies that are attacking really big issues, whether it be healthcare, or things like space, or climate. But as you look at history within tech and life sciences, there's usually been catalyzing events that have either been platforms or things that have really driven waves of innovation. That could be the internet, it could be things like AWS that made building a software company much cheaper. Within the type of companies that you're looking at, which often are a little bit different than your traditional enterprise software company, are there any catalyzing events or platforms that you believe will drive the next generation of innovation within that space?Delian Asparouhov:Yeah, I think just as AWS created the infrastructure that allowed for digital innovation to happen very quickly, I think you're seeing the same thing happening in physical innovation. The pithy one liner that I like to give is, in the 2010s returns were largely defined by the world of bits, and then in 2020s, the returns will largely defined by the world of atoms. And the reason being that just as AWS allowed us to control bits very cheaply and precisely and much more easily with outsourced companies, the same thing is happening with the world of atoms, whether it's in biotech, you can remotely run an experiment now without actually having to open your own wet lab to outsource metal 3D printing, where if you want a very complex metal park, you no longer need to build a manufacturing facility in house.Delian Asparouhov:Outsource analysis, design, et cetera, everything that you need to, let's take Varda as an example. A decade ago, Varda would have had to be 1,000 to 3,000 person company that raised on the order of two or three billion dollars, maybe at minimum, to actually get over the line and come to fruition. Instead, today, I can buy a rocket off the shelf from SpaceX, Rocket Lab, Relativity, on down. I can buy a satellite off the shelf from Blue Canyon, Tyvak, Rocket Lab, tons of companies that now offer that off the shelf and let alone all the other components, the radios, the batteries, the solar panels.Delian Asparouhov:And so, I think what has changed a lot in the world of atoms is, in order to have significant influence in the world of atoms, you no longer need to have nearly as many of the core competencies entirely in house, just as it happened in the world of bits, right? Uber no longer needed to have expertise in building data centers. The same thing is happening in the world of atoms across a multitude of industries. And so, I think it's a really exciting time. Is it going to be as clear like a single platform like AWS? I don't think so as much. There might be one for biotech and one for aerospace and one for materials manufacturing and things like that. But I think it would be much more interesting area where there's a lot more alpha over the next decade is definitely from this world atoms.Samir Kaji:This continues that trend of reducing the amount of friction and cost of starting companies within whatever sector. And we've seen that even in things like semiconductor. I remember, in the 2000s, how much time and cost it took to get a chip to tape out, and now you look at it's a completely different world. It's really interesting to think about where that goes.Samir Kaji:The other thing that I always think about is, the world has also changed from a regional standpoint. I remember 10, 15 years ago, Silicon Valley was the only place where you would start a company. And over the years, it changed to Silicon Valley to global places like Israel, within the US places like New York and LA, and now we're seeing more regional hubs be created. You're sitting in one right now in Miami, which I think you're going to be the mayor of Miami pretty soon.Samir Kaji:But tell us a little bit about why places like Miami? For example, when Keith moved from San Francisco to Miami, he could have gone to a place that was already built out a little bit more like Austin or somewhere else that had similar tax benefits. He decided Miami, you decided Miami, you spent a lot of time there. Tell us what's unique about Miami, what ingredients do you need to have in a regional hub for it to be durable?Delian Asparouhov:Yeah, the reason that I got excited about moving to San Francisco originally was, that was where I thought the really exciting ambitious misfits were, and that was why I wanted to go work for Jack Dorsey. That guy was f*****g weird. He's still f*****g weird, but he clearly was going to do some really great things and I wanted to make sure that I was along for that ride. And unfortunately, just as at the time when I was deciding when to move, South Bay felt like this fossil embedded inside of amber and frozen in time, it felt like the same thing happened to San Francisco over the course of the roughly decade that I was there. The city's local politics and liberalism was completely unwilling to grow, expand, build new buildings. And that simple fundamental constraint caused it to freeze into an amber like state, because unfortunately startups grow exponentially.Delian Asparouhov:And so as they expanded and as they competed they took up more and more of the commercial office space, more and more of the residential space for their employees to live in. And so at some point, it started to break at the seams where in 2012 as a college dropout, I could definitely afford to live in San Francisco. In 2019, '20, '21 in San Francisco, no way. The rent prices got totally insane. And so the reason that we decided Miami over anywhere else was, Austin feels like its starting to have those exact same problems. And it's extremely politically a homogeneous city. They're already starting to see signs of breakage and unwillingness to build. I fear that it's where San Francisco was in 2015 and '16, and it's also just not an international metropolis.Delian Asparouhov:The thing that I think has been really missing in the United States is, if you look at other countries, let's say like Japan, Hong Kong, Singapore, they all have capitals that are these just equatorial, international, true metropolises that have also been very pro-growth and very pro-tech and that's what allows them to thrive. And we haven't had that in the United States. New York, yes, very international and a metropolis, not very pro-tech, not super pro-growth. San Francisco, yes, extreme tech, but again, not an international metropolis.Delian Asparouhov:If you talk to people that have lived in Dubai or London or Hong Kong, they're interest in moving to San Francisco, quite limited. Versus it felt like Miami have this opportunity to one, be a very high quality of life, low cost of living, low taxes, but then two, also evolve over time into this, ideally, my goal is, I think we can make Miami the largest tech ecosystem, not only in the United States, but the entire world within a decade. Because it turns out exponential curves grow quite quickly and when the city doesn't try to artificially dampen those exponential curves, that can be quite attractive. And so I love that Miami has more cranes per block, per a three block radius here than all of San Francisco combined.Delian Asparouhov:And in terms of the ingredients that you need in some ways, Miami is just getting such a crazy kick-start. If you look at ecosystems like New York and Austin, it started off with like a onesie, twosie, one founder, maybe one investor, et cetera. And so you had to grow entirely organically and very slowly, versus here, you're just getting this sudden rush of incredible investors like Dan Sundheim, and Keith Rabois, Antonio Gracias from Valor, these are all three completely different architects.Delian Asparouhov:Antonio on the board of Tesla and SpaceX, one of the best deep tech investors over time. Keith, one of the best FinTech investors and broadly generalist investors of all time. Dan Sundheim, one of the best crossover hedge funds of all time. All completely different genres of investing, but all focused on technology. And what it allows is that Miami gets this jumpstart where maybe in New York it took a decade to go from scratch to having five, six, seven IPOs of multi-billion dollar companies. I think Miami can do it much more quickly because you're getting this jumpstart on day one. And the Keith's and the Antonio's and the Dan Sundheim's of the world are much more able to both import entire companies, but the top executive talent, the engineers, et cetera, that you need. And then it's a much heavier draw.Delian Asparouhov:And so if you look at that both where the exponential curve is starting, but then also the exponential rate of that curve, Miami's in a very great spot. Is it going to happen overnight? No, but I wouldn't be surprised that a decade from now, if you're looking at tech IPOs, the amount that Miami's producing is on the order of, or equivalent to San Francisco. Maybe it's not quite the majority because things will be so distributed, and then within 15 years Miami actually being the largest ecosystem, not only in the world, but in the United States as well.Samir Kaji:Yeah, and it's a pretty ambitious vision. And you think about some of the regions that have done well, and it's really a combination in my mind of culture and particularly a government that supports a pro-tech type of environment. The second is, there's local capital that is funding startups. And the third, there is talent. You spoke about the first two a little bit, but tell us a little bit about talent. Why is talent going to places like Miami? And where are we in the curve within the Miami ecosystem for founders?Delian Asparouhov:I don't have a perfect statistical data set, let's say on this, but we recently funded a Miami-based born and raised company series A. It's actually going to be announced tomorrow morning at 11:00 AM. So by the time it gets published this will probably be live, so I'll just say it, the company's called Lula, it's an insured tech company. 17 million dollar round co-led by Founders Fund and Khosla Ventures.Delian Asparouhov:A year and a half ago, no way could this company get the attention of Silicon Valley VCs and say that they're going to be building the company in Miami, and no way could it attract top tier talent to move there. Since COVID, and since this whole Francis Suarez thing, a 100% flipped. They're pulling directors of engineering from Twitch and from Google and et cetera, really great companies from ecosystems like San Francisco, Seattle, New York, that previously these candidates would have never considered Miami, but now are going through the exact same trade off that the rest of us are going through, which is like, "I paid a lot of money for my rent and a lot of money in my taxes, and I don't know if I get much benefit, and this Miami thing seem pretty damn interesting." And so, their ability to import raw local talent, raw talent from abroad has significantly improved due to all of these, let's say high-level changes and then investors now being here.Delian Asparouhov:And again, is this going to happen overnight? No, but I'm really excited for the metric that I've been watching is, I'd probably say that, today there's probably three Founders Fund portfolio companies that have more than 10 employees in Miami. I'd say by the end of the year, I think that number will be closer to 10 companies. A year from today, I think that number will be close to 20, 25. And that's where I get really excited because a lot of the top-tier founders, if you look at in San Francisco, they come from employees of other venture backed companies.Delian Asparouhov:And so right now, is there a thriving ecosystem of lots of lots of founders that are like "born and raised Miami?" Not yet, but as these companies start to scale and as these local talents are to work at these companies, see how these venture back companies operate, they will be the pool of the future talent that I'm really looking forward to funding in Miami. And so I think we'll have a much richer and deeper pool, let's say, two years from today as the OpenStore's, the Lulu's, et cetera of the world really starting to scale up.Samir Kaji:Yeah, and without a doubt, the growth rate has been tremendous. And I know Twitter is not a necessarily a very great proxy always for reality, but even the folks that I know that have gone there even for a week or so have seen the energy Miami has. And it is going to be exciting to see how it grows. So I want to end a little bit with our heat check segment where I ask you three questions. I'm going to switch one up actually. But the first question I have for you is, now you've been investing for a few years, what's the most counterintuitive lesson you've learned about being an investor?Delian Asparouhov:Maybe it sounds like somewhat I tried, one of the things that I feel like Keith taught me that's really nailed into my head is, when considering any investment, the first question that should be on your mind or one of the primary ones is, why am I the right investor for this company? From afar, I would've thought like, "Oh, there's clearly like hot assets and your job as an investor is to just invest in the hottest assets or the things that are most likely to generate the most returns. And that's what you should focus on."Delian Asparouhov:And I feel like it actually flipped it on its head and has been a very useful favorite for me where, it might a somewhat similar outcome of, yes, you're still generating the greatest returns, but the way to just generate the greatest returns isn't to start with, how do I generate the greatest returns? The question asked is what is my differentiated advantage approach and why am I the right investor for this particular company? And that is much more likely to lead you to the best possible returns. Otherwise you'll revert towards the mean of what everyone else is doing. And then it turns out the mean in venture capital is not quite good, not very good.Delian Asparouhov:And so, I guess that's one of those counterintuitive things is that, rather than analyzing why is this company a great company to invest in? It's actually more like analyze yourself and why are you a great investor that this company should want to have on the cap table? And then if you don't have a good answer for that question, it's not clear that you necessarily should be investing.Samir Kaji:Yeah, and I think the other side of the coin there, if you are aligning yourself to the type of companies and entrepreneurs that best fit you, you're also going to provide a better experience for those founders in helping them build their companies. And over the long term, all that really matters from a branded reputation standpoint is, what are you actually doing with founders and what did they say about you? And so, totally get that.Samir Kaji:You're always pretty open out there ether in terms of your opinions and what your vision of the future is, thinking about bold predictions. And if we love look at past 2021, we are in, I would say, an insane environment right now with so much capital flowing around, valuations have obviously gone way up there, exit values of companies are also way up there, what's your bold prediction for 2022?Delian Asparouhov:I think the train is only going to continue on. If you have this ecosystem where companies are figuring out how to allocate capital productively and actually generate incredible innovations, maybe an artificial government version of this being the Warp Speed Program, basically enabling like mRNA technologies to exist, the macro capital environment is effectively doing the same thing where we're just willing to throw far more capital at problems that previously felt impossible. And it's fine if a series of them fail. If you take the Tiger approach of, "Let's throw a hundred million at every single Silicon Valley company," it's like, two or three years ago people would've critiqued that approach and be like, "Actually that doesn't work."You know SoftBank’s returns actually don't look that bad now that you've got DoorDash and a couple of other companies going public. And I think that's endemic of the ecosystem as a whole, which is like, I think it will only continue where the number of net new venture capital firms, the number of unicorns being produced, the number of really core innovations that are progressing is only going to continue to accelerate.Delian Asparouhov:I think humans are just really bad at predicting and understanding exponential curves. I've been watching the space industry now for a decade and I think because of that, I can understand the exponential curve that space has been on, and is perfectly tracking towards, when I started paying attention to it in 2012, this exponential pace that leads me to say statements that other people say is particularly crazy, but it's like, "I believe that 2030, we will not only 100, but 100s of people living in low earth orbit and operating there for not just research reasons, but there for actual commercial reasons being up there." And I'm sure people that are more sophisticated in the world of either Bio materials, et cetera, can also make just as wild predictions about these other areas.Delian Asparouhov:And so that's maybe obviously a further out prediction, but it is the best time to be starting deep tech companies, especially if you have a clear swing and story to tell. And I think it's only going to get better and better and better, and that the pace of innovation is only going to continue to increase. And so when people complain about is progress slowing down or speeding up? I'm definitely on the side of, I love your progress, studies institute, but progress is definitely speeding up.Samir Kaji:And it ties to everything you've been talking about how we've reduced the cost of infrastructure to allow these things to happen. And so it sounds like your prediction in 2022, the train continues to go. We continue to see funding at a high level, we continue to see these outcomes, but we also see these companies that will build multi, multi-billion dollar outcomes that are focused on things that are really hard, things like space.Samir Kaji:And I don't want to be presumptive in this last question, but you've worked with a lot of different investors, both at Founders and Khosla and probably even before that as an entrepreneur. But is there an investor out there that particularly inspires you, that you study and you believe has the type of framework that best resonates with you? Who is that and what is it about them that really resonates with you?Delian Asparouhov:Yeah, I obviously work with a variety of investors and there's a ton of things that inspire me about all of them. But if there were one investor that could point to of, this is the archetype that I would like to aim for and what I really aspire to in my career, it probably is actually Vinod Khosla. I think he does an incredible job of being extremely deep across so many different types of technologies, everything from semiconductors, to biotechnology, to space, all these different types of things, and is willing to invest in the very early stages and back up the truck into companies. Hell, take a look at QuantumScape. Khosla just funded that company, I think originally like 2011 or something like that, and they've continually backed the truck over the course of a decade now leading to this spec.Delian Asparouhov:I think there are very few investors that have that level of conviction in these types of deep technology companies that can also marry it with both a philanthropic side and a sort of story telling side, that I think Vinod is actually quite good at. And so yeah, I definitely admire his breath and I think I've done a great job of learning a lot about material science, about fiber optics, about space, about home construction. And I've got some core areas of expertise that I feel like I'm at the tip of the field of, and I hope to be able to expand that over time. And I think that definitely takes decades of reading various research papers, but it's impressive. Vinod literally wakes up every day and he's got like, whatever five nature articles on his desk every day that he chows through and make sure to stay up to speed. And I aspire to be able to do that as well.Samir Kaji:Do you agree with his statement that 90% of VCs actually destroy value?Delian Asparouhov:I don't know if it's quite that extreme, but definitely, most are not super helpful. The one code of his that I really believe in the most and think about all the time is, "The team you build is the company you build." And so, definitely, take that to heart across both with the investments that I consider, a lot of the time, it's mostly just analyzing the broader team more so than studying the strategy or the metrics. And then similarly with Varda, we probably spend in our exec team meetings, 80 or 90% of the time just talking about recruiting, team building, who are we bringing on? That's almost where we put all of our efforts.Samir Kaji:Well, this has been a lot of fun, man. I really appreciate you being on, look forward to seeing you in person, and again, congrats on getting Varda off the ground and doing all the great stuff you're doing at Founders.Delian Asparouhov:Sweet. Well, thanks so much for having me on.Samir Kaji:Thanks so much for listening to another episode of Venture Unlocked. We really hope you enjoyed our conversation with Delian. To learn more about him and Founders Fund, be sure to get at ventureunlocked.substack.com for detailed notes on the show and my ongoing commentary about the world of venture capital. Venture Unlocked is also available on iTunes or Spotify for download. And while you're there, please leave us a rating and a review as it really helps us out, and hit the subscribe button in order to get each and every Venture Unlocked episode as soon as it's released.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.We’re thrilled to bring you my conversation with Turner Novak, founder of Banana Capital. While fairly new to venture, Turner continually brings some of the most interesting perspectives about technology, and is one of best venture follows on social media.  Turner has an incredible backstory on how he broke into VC, and ultimately within a few years was able to found Banana Capital in January 2021, with $9.99M in commitments, including several institutional investors. Prior to having his own fund, he was General Partner at Gelt VC and also interned at a pre-seed firm Afore Capital. We talked with Turner about the value of social media in VC, how he thinks that successful investing can be stage agnostic, and his views on where the public and private markets are today, and where they may go in the future. A message from our sponsor:Pacific Western Bank is a full service commercial bank with over $34 billion in assets. The venture banking team specializes in financial products and services for startups, venture-backed businesses, and their venture capital and private equity investors.The experienced team is committed to the space and dedicated to delivering high-touch, tailored solutions, helping innovators take their business to the next level.In the first half of the year, the venture banking team has booked over $800 million in new loan commitments to help support the community. No matter the size or stage of your business, you can expect guidance, resources and flexibility, making them the perfect team to support your evolving needs.Turn your vision into reality with PWB. For more information, visit www.pacwest.com/lending-solutions, or follow us on LinkedIn and Twitter.*Equal Housing Lender & FDIC insured*Total assets & loans booked are as of June 30, 2021.In this episode we discuss:02:00 Turner’s journey into Venture Capital03:21 Getting his first internship in VC at Afore Capital07:43 The early days as an investor and his first investments11:25 How he built a strong deal flow channel despite being so new. 13:37 Choosing to raise his fund without a 506c provision and going the traditional way despite a huge social following. 15:42 The impetus behind raising $9.99M18:55 Turner’s scaling plan22:04 The role of speed in the capital environments today25:26 Using social media to amplify his strategy and brand30:51 How he strikes the right balance on social media to ensure he’s productively adding to the brand, but while staying authentic. 34:28 Turner’s investment criteria and how he evaluates deals and companies38:06 What he believes the markets will look like in the next 2-3 years43:18 The most counterintuitive thing he’s learned as an investor45:10 The lesson he’s learned from an investing miss46:51 The investor that most inspires himMentioned in this episodeBanana CapitalGelt VCAfore CapitalI’d love to know what you took away from this conversation with Turner. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:Hi, I'm Samir Kaji, host of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. Today, we're thrilled to bring you my conversation with Turner Novak, Founder of Banana Capital. While fairly new at venture, Turner continually brings some of the most interesting perspectives about technology and venture and also happens to be one of the best follows in social media.Samir Kaji:He's also got a great backstory on how he broke into this sea and ultimately within a few years was able to found Banana Capital in January 2021 with 9.99 million amendments, including several institutions participating. Before starting his own fund, he was a general partner at Gelt VC and also had interned at pre-seed from Afore Capital.Samir Kaji:We covered a lot of ground at this podcast, including the value of social media in VC, how he thinks being stage agnostic can be a successful strategy and his views on the public and private markets and where we're headed. Now, let's get into the episode to hear all of that and more.Samir Kaji:Today's episode is sponsored by Pacific Western Bank, a full-service commercial bank with over 34 billion in assets. The venture banking team at PacWest specializes in financial products and services for both startups and the venture and private equity funds that back them. I've worked with many of their team members over the last few decades. And I can attest to their commitment to bringing a high touch and personalized experience for every startup and fund manager client they have.Samir Kaji:So, whether you're a founder or a fund manager at any stage of development, and you want to find out more, check them out at www.pacwest.com.Samir Kaji:Hey, Turner, it's great to see you, man. Thanks for being on the show.Turner Novak:Hey. Awesome, thanks for having me.Samir Kaji:This will be a lot of fun given your backstory, which is really unique, and then all the great content that you put on Twitter and TikTok regarding venture and tech in general. But let's get back to how you got into this, why you became interested in being an investor. And then ultimately, how did you actually break in when you didn't have the traditional Silicon Valley networks that a lot of people that get into venture do.Turner Novak:The first time I really got interested in venture and knew it was possible to do it from Michigan, was I read a post from Blake Robbins at Ludlow saying, I forget the title, it was how I became a VC from Michigan. And it was always something I thought was fascinating because there's intersection of all these different things I wanted to do when I grew up and what I was interested in.Turner Novak:But yeah, I live in Michigan. I kind of thought I might have moved to a big city at some point, but ended up getting married right after school, met my girlfriend, now my partner during school. So, we never moved away.Turner Novak:And yeah, so I remember reading Blake's post was like, "Oh, cool. So, it's possible." And that was really the first thing that kind of got me. I mean, I had joined the investment club in college and was the president of the club for a couple of years.Turner Novak:And I just loved investing. And I was mostly investing in venture style things in the public markets anyways, kind of knew that's what I was going to do. But I never actually thought it was possible until that moment when I first read that.Samir Kaji:Yes. So, you read the post that inspires you. You're like, I think I can do venture from a place like Michigan. But it still requires you to find a landing spot, have somebody believe in you in the early days. And I know you interned at Afore, how did you go about actually getting in front of folks like that to even intern or even ultimately get a job?Turner Novak:Here's a long process. Initially, it started, I had just started tweeting, essentially. I'd use Twitter for, I don't know, a decade for fantasy football. I think that was initially what I use it for a lot. And I just noticed that it seems like a lot of people are on Twitter talking about this stuff. It's a way to kind of share your thoughts, build a brand, a kind of funny word to say but showing how you're thinking about things. And I kind of just slowly started to meet people that way.Turner Novak:And initially, I just kind of picked a niche or certain things to talk about with the end goal of eventually making the jump into VC. So, I kind of started, I think the first couple months I was on Twitter, all I talked about was Snapchat and just how I thought it was coming back. I mean, the consensus at the time was this is the next Myspace. And I was very firmly just thought that was just wrong. And if I just put my thoughts out there eventually over time. It might take a while, but I'd kind of show how I was thinking about things.Turner Novak:And then started tweeting a lot about TikTok when it first launched, just same thing. It was kind of crazy at the time, but I was just like, I mean, it's the best product I've ever used. I think this is going to be the most valuable company in the world one day. And again, crazy things to say, but that's what you have to do to be a good investor.Turner Novak:And then probably one of my big, I guess, the smarter things that I did that kind of accelerated things was I made this fantasy VC portfolio. So, it's fantasy football combined with investing. I had a fake million dollars, picked some startups, fake invested. Honestly, I had no idea how these companies were doing in most cases. It was going on Google, Reddit, Product Hunt, listening to a couple of the founders who go on a podcast.Turner Novak:And there's a 30, a 15-minute conversation, it was kind of like you talk to them, they talk about the business. Maybe they'd share some metrics and how they were doing. But it was basically just, essentially, what's the business model? Does it make sense? Does this seem like a good venture bet, to kind of hack together this fake portfolio.Turner Novak:And one of the founders actually found it and threw it up on his Twitter. And he had 100,000 followers at the time, and was just like, this is the best analysis my company I've ever seen. And I was like, "Whoa, did not expect that. That's pretty cool."Samir Kaji:What year was that? That was around what, 2018?Turner Novak:Yeah. It was the summer of 2018. I kind of just used that type of stuff over. It was like a two-year period, maybe a little under two years. But just DMing people pretty strategically, trying to line up meetings, San Francisco. And if enough people said, yes, I'd actually book a flight, take time off work to go.Turner Novak:And it was a very long process, probably had about five interviews all at once. We're kind of associate principal type roles moving to San Francisco and Afore was looking for someone to help out part time as an intern. But they're open to someone working remotely. And that was kind of insane a couple years ago. That was off the table at every firm. They weren't even open to discussing that because there's all these great candidates in San Francisco.Turner Novak:And so, I ended up taking that job. And it was interesting, because I remember having conversation with Anamitra, my old boss, and I told him, I'm just going to quit my job and I'll work for you full time. But you can treat me like I'm an intern. And it actually took me a couple days to convince him. I was just like, "Don't worry, I will drive for Uber. I'll do whatever I need to do to just make money."Turner Novak:And what I ended up doing was I couldn't afford my mortgage. So, we just sold the house we were living in. And then I had a rental property, too, that I bought. It was like a couple of years prior, my mom had got some money from her divorce. And I used that and my tax return or tax refund as a down payment on a rental, and then she lived with me. So, she prepaid me 12 months of rent and lived with me in this house. So, I had a ton of equity in the house. And I sold it also and then we used that to live off of for a while. So, that was the initial kind of how it happened.Samir Kaji:That's a great story and certainly epitomizes some of the sacrifices you made to get into venture. And I'm curious in terms of when you started actually putting money in the ground between the constructing that fantasy portfolio and then pre-Banana Capital, which we'll of course talk about later. What was that process like and what were the early days of your investment career?Turner Novak:It was a lot of fun. It was interesting story. So, I had met Keith Wasserman, my partner at Gelt, a couple of years prior on Twitter. He'd been following me. We'd met up a couple times when I had flown out to LA to interview, meet with people.Turner Novak:And he was dead set convinced on I was going to be a good VC. We were going to raise this venture fund from his real estate investors. And then I was going to invest the fund split everything three ways. And he kind of convinced me that ... He was more for this than I was, that I was going to team up with them, and we were going to do this fund.Turner Novak:So, kind of how it went, I joined, no, October 1st of 2019, we started investing their personal balance sheet and kind of built a deck around the portfolio companies that I had invested in. And our first close was set for March 31st of 2020, which, if you remember what it was like then, it was pretty crazy. It made it a little bit difficult to get everybody across the finish line.Turner Novak:It also the dynamics of running a $1.5 billion AUM real estate fund and then a $5 million was what we're shooting for venture fund, they were really focused on the real estate business. And I was trying to raise this fund that I honestly had no idea what I was doing to be completely honest with everybody listening, never raised a fund before. I thought I might do this in 10 years.Turner Novak:So, I was basically just forced to go try to fundraise and a lot of people I was talking to, they were saying like, "I would love to invest in your fund, but this doesn't really make sense. If you ever do your own thing, maybe we can talk about it." And so, when you talk about what it was like investing it, I remember looking March, I think I have a couple founders on a waitlist. Three things I've committed to, doing the first close at the end of the month, and I can send you the money.Turner Novak:And then, we don't exactly have a first close. There's a little bit of money that came in, but there's a global pandemic. The economy is essentially like the stock market is collapsing. These founders need money and even over the course of the summer, it was basically like, I'm in to give you the money. I just need eight weeks to raise it. And I've got a couple people that actually need it more than you. And I was basically raising 100K, I've wired to a founder, raised 50K, wired to a founder. It really affected the kind of companies that I was investing in.Turner Novak:And I basically just had a really, really good relationship with the founder. I mean, it's basically founders that didn't need my money at the end of the day. I was coming in at the tail end of an $8 million round or something or couple million dollar round and I wasn't making the difference.Samir Kaji:As you're doing that, you're right, trying to close during the beginning of the pandemic, you'd spent a lot of time looking at the public markets and March 18th, I think was a low point where we saw the markets really dipped to I think the Dow was something like 18,000. And everyone was really nervous. I mean, if you talk to VCs, everyone's thinking about triage, think about their existing portfolios. LPs, it completely stopped. But here you are, getting a new close, you started investing.Samir Kaji:But you were still pretty early. You did an internship at Afore, now you're investing out of a fairly small fund. Why were founders allowing you in into these, it seems like these rounds were oversubscribed? How much of it was related to the fact that you had been putting your thoughts out there? And I do want to get into this creator economy and what we're seeing right now is so many funds that are 10 million or under raising in different ways than the past. But tell us a little bit about what really helped you get into those deals in the early days?Turner Novak:It was usually people that I had an existing relationship with who, I remember one founder specifically said, "I could raise money from anyone, but I wanted to have you just because I know what you've done over the last couple years. And I just I want to work with Turner, not logo of some big fund." So, that was genuinely what it was. A couple of them are my fantasy companies, fantasy portfolios that I was following on to, quote unquote, like for real.Turner Novak:And typically those I had a good relationship. They were just pumped that, holy cow, some dude from the internet is excited about our company and they wanted to have me in. That's typically kind of how and why they're having me. And I mean, maybe I had interesting things to say or share. And then even as a writing publicly about certain things for a while, I mean, people start to see how you think and maybe you kind of have a track record where maybe people want to be a part of your track record, per se, is taking an early bet on them. So, that's mostly what it was.Turner Novak:And then other times, it wasn't like hot competitive rounds. It was just, I was just someone on the list of a couple other people they're raising money from and maybe they didn't even fill around, that kind of the thing. That's typically more with my style is I really don't try to do these hot rounds, I just think the lower the valuation, the better. You got to go earlier rather than later.Samir Kaji:So, you're doing this and then ultimately do decide to launch your own firm, which you raised. And I think it was 9.99 million for the first fund. What we've seen, of course, with things like rolling funds and AngelList is this new generation of investor that is raising in one or two ways. They raise typical, which is raise a small fund, you do it as a private placement.Samir Kaji:And then there's this new method that is actually been around for a while, the 506(c), which is you can go on and solicit. You decided not to go that route, which for me, it was a little surprising because you do have this major Twitter presence. And a lot of the folks that have large Twitter followings really weaponize it by getting in front of a lot of people through a public fundraise. Why did you decide to go the route you did and what are the pros and cons?Turner Novak:Yeah. I think for me, I am trying to get an institutional capital base as fast as possible. And so, a lot of conversations I had with institutional investors, there's a lot of questions around it. And me, I was an LP. I worked in endowment for three and a half years. I was also looking at maybe what the incentives look like for someone investing that fund. And it was a little bit different than I'm going to build an institutional investment firm.Turner Novak:They really feel like an evolution of scope programs. To me, that's how I think about them. I mean, I know so many people that instead of being a scout for a big fund, you launch a rolling fund. And you're essentially a scout for 10 or 20 firms then instead of just one. I probably could have done it and it may have made my life easier. But over the long term, I mean, I think it's important to have a more permanent institutional capital base. That's honestly what I'm going for.Turner Novak:So, I've just been trying to build those relationships and had a couple of those people in my fund. And I think just showing that I'm trying to do it a little bit more institutional from day one and just sets the messaging right. And so, that was really the main reason.Turner Novak:I also honestly didn't want to take oxygen away from other people who probably needed it. I didn't have to do it. So, I didn't want to take away from anybody else who actually maybe doing five or six, even actually really benefited down. I was lucky enough that just kind of all the people I've met over the last couple years, I didn't have to do it publicly.Samir Kaji:You look at that first funded, I was thinking about fund sizing, and there's a lot of discussion that, hey, $10 million and other funds are really interesting for a number of reasons, because your low friction checks to those founders. And generally speaking, it's easier to get in at 50,000 or 100,000 than it is at 1, 2 or 3 million. Was there anything intentional about why you raised 9.99? Because based on what you just said, it sounds like you had plenty of interest that you probably could have gone above that. Why effectively cap it at 9.99?Turner Novak:I knew that I was going to have more than 99 LPs just based on ... It was a lot of friends, people that were interested with smaller checks. I think the smallest check I took was $1,000, just from a founder that I back to a year prior. So, I had a bunch of founder, like seven founders that I've invested in the past, who gave me like, very immaterial amounts of money, but it's good signal. Also, friends who work at tech companies, maybe they're like a PM at Snapchat. They know all the people leaving Snap starting companies. Those people are writing me million-dollar checks.Turner Novak:And I knew that I would get way past that 99 LP threshold just based on how I was constructing it. I ended up having some institutional investors that came in at the end, who wrote really weird small checks to make it work, some of the smallest checks they'd ever written. And I wasn't planning on that. But it was nice to just get them on board. I got a couple commitments to the next fund kind of a thing, which it was awesome to just kind of already start building towards that.Turner Novak:Again, also, I didn't want to go out and raise a massive fund, because I think the different dynamics investing a $10 million fund and a 50 or $100 million fund, and those two numbers were both thrown out, and I just started thinking, no way, that's insane to think that I should go and do that right away.Turner Novak:So, they'll happen eventually. And I've been working on kind of synthetically through SPVs. You write a 200K check from the fund, but you put in a million dollars total, or you put in 500K total to just start showing that the economics on this fund, it still totally makes sense. But your kind of almost training and getting everything ready for when you do the next one.Turner Novak:I mean, it's just like, a VC will tell the founder, just start doing the things before you need to like, yeah, I think about the same way. What's my product? What's my distribution? I'm investing, my distributions, like founders taking my money, essentially, or how they know about me. So, I kind of think about it in the same way. So, as a founder of a company, I'm just a founder of an investment firm.Samir Kaji:Right. No, and I agree. A lot of times I do say that if you're raising a first time fund and you're starting a firm, you're basically an entrepreneur. You're writing checks versus writing code. But ultimately, you have to build. You have to build your brand and you have to execute, and you have a product that you deliver to founders and your LPs. So, what I heard is 10 million allowed you to take more than 100 because I think you're going to go up to 250 LPs if you wanted to under $10 million.Samir Kaji:The other thing though is a lot of people don't stay at that 10 million and under. And they level up to something bigger, 20, 30, 40 million in a fund two or maybe even a fund three. And oftentimes what happens is the investment model is dramatically different because you're writing bigger checks. Oftentimes, that means the value you had to provide these founders is more than just, hey, I want to get in, here's 50 or 100K.Samir Kaji:How do you think about scaling yourself up in terms of the product you're providing these founders as you invariably will grow your base given that you have institutional LPs, who I know want to see bigger funds in the future?Turner Novak:I think the most value investor can provide to a founder is just by default, just giving them money, having conviction and just not bugging them, getting out of the way, not ruining anything, 90% of it I really think. I think the best founders don't actually need help 99% of the time.Turner Novak:I think that's the biggest thing is just you basically find things that you have really high conviction in or you have a thesis in. And it's not about doing a ton of due diligence, dragging people along. It's just like I already know that this is what I want to invest in because I've just spent so much time thinking about it talk to or looked at so many companies, or going super fast.Turner Novak:I mean, this past weekend, I just made my biggest first initial check ever. I spent the entire weekend doing a bunch of research, wrote my model for it, actually sent it to the founder to read and show him my thoughts and everything. I just accelerated everything, just went super quickly. I mean, I think you have to be super fast.Turner Novak:Being through a bunch of portfolio companies raising a bunch of follow on rounds, the people that aren't moving fast and are just dragging their feet and don't have conviction, they're missing out. So, there's other dynamic of moving fast, it's easier to mess up. But I think you do have to just have a ton of conviction and you have to go fast.Turner Novak:And that's really the best thing you can give founders. And you can maybe have a couple things. I mean, I've helped founders, I'm sure you want to talk about this later. But with memes and marketing strategy, and just every VC, you can help with fundraising, you can help with recruiting. But for me, I really don't do anything unique that another VC can't do.Turner Novak:So, I never really pitched this value add because I just think it's kind of silly at the end of the day, if for me, it's just like, I really want to invest. Here's why. Here's the money. I can wire it to the next day. I'm ready to go. I don't care who else is investing.Turner Novak:And typically, for the founders I'm investing in, that's what they need the most. And yeah, I'm really not trying to sneak in any rounds and prove why I'm worth it. It's just I don't think that's the way I want to invest. So, it works for me so far.Samir Kaji:And what point does that actually matter? This conventional wisdom, and if you talk to LPs just say, all right, Turner you're going up from whatever your fund is, now you're writing bigger checks. I think that in order to win in a competitive market because there's so many seed funds out there, you have to have some kind of superpower. Something that you're providing these founders that's tangible that they're saying, hey, I want him on my cap table because of X, could be customer introductions, can be this.Samir Kaji:And everyone plays that up. In those VC, LP meetings, VCs always talk about that. It sounds like you say at the earliest stages, it's really over index on things like high conviction speed, kind of get out of the way and provide the capital that they need. But is that something that scales up if you're raising 100 or $200 million fund, and now writing 2 to $3 million checks, do you still think that would be your philosophy or do you think that at that point, yeah, you need to start to drive different type of value propositions?Turner Novak:In theory, yes. You probably should. But again, I really don't think the best founders really care. They just want people to give them money. I can't tell you how many times the founder, like yeah, the two-month fundraising process, and how many times we just take, wow, somebody just made me an offer after our first meeting, I'm just going to take it. That happens so much more than what is publicly discussed.Turner Novak:So, I'm really at the end of the day, I think it is just having conviction and speed. And we saw it with SoftBank, who maybe they had some good ideas. And now we're seeing it with all these crossover funds that are coming into private markets.Turner Novak:These are very solid investors. People put up 30 to 50% IRRs over long periods of time. I mean, I think even the big ones that we all know about, I mean, they're just sub 30% IRR. I mean, better than most VCs at the end of the day. These people are good investors, they come in prepared. I mean, they come in with prebuilt models and assumptions on these companies and ask them three questions. And then, they know if they're going to invest or not.Turner Novak:So, I think at the end of the day, yeah, it kind of is defensible in some senses. And I think there's also founders that do maybe want some help. But I've also seen too some founders actually get disenfranchised from that help. They're just like, I took this deal because there's all this value promised and it wasn't actually there. So, I'm never doing that again. And I think that's just becoming more and more prevalent. And part of that is a function of the capital markets and where we're at. And that could very easily change.Turner Novak:So, I don't have very hard set in stone rules on it right now. I think, for me, I am working on building out more sustainable distribution value add maybe in that sense and maybe it's more related to memes or helping get the word out about what you're doing. But I don't really think that's my, to my value.Turner Novak:I mean, I think my differentiation in an LP's eyes is that everything I'm doing is something they've never really seen or invested in before. So, that's typically why people are investing right now. And I have some ideas on longer term defensibility in the model, but still playing around a lot of stuff.Samir Kaji:You have a lot of latitude in terms of what you invest in when it comes to stage regions, valuations and all those things. And I think there is a unique model that I think it's really interesting, especially where you are right now. The other thing I was going to bring up is social media and the creator economy, which obviously, over the last 5 to 10 years has exploded.Samir Kaji:I remember you used to tweet about really serious things and you still do every now and then with some deep analysis, but at the same time, over the last couple of years, you've really created a brand around things like memes both on Twitter and TikTok.Samir Kaji:What a lot of people often ask me is that when people do that and they're building these big brands, how does it actually help the investing model? Is it a sourcing thing? Is it winning? Is it a combination of the both? How do you cut through the noise invariably that you get? I'm sure you have plenty of DMs on your Twitter of founders. Because I think it was very intentional, very strategic, in many ways, but tell us why did you start switching your style and what that's meant for you from an investor standpoint?Turner Novak:Like I mentioned earlier, I think about it as I'm a company, I'm a startup. Every VC will tell the startup founders, you're fighting against incumbents that have distribution. They have a bunch of existing things they do. You probably won't beat them head on. What kind of product can you build that's differentiated, and hopefully, over the long term differentiated where you also become an incumbent over time. I mean, that's ultimately what VCs are investing in.Turner Novak:So, that's really how I thought about it as an investor. It's like, "Okay, I'm competing against incumbent venture firms. There's thousands of them. A lot of them do the same thing." I basically just said, "How can I literally do the opposite and do things that are unique to what I'm kind of doing and building and just essentially build an investment firm or brand like VCs that are almost just completely the opposite of what everyone else is doing?"Turner Novak:And you don't quite inverse everything, but you do pick apart certain things that maybe you think, oh, I literally just do the opposite, this is actually better in this case. So, I'll just do that. And since you kind of find whitespace.Turner Novak:So, initially, it was more serious content. It was just trying to show how I was thinking about things, building a track record. And I think that worked over time. I kind of think of the content piece as there's all these different people that you're trying to hit. You want founders of companies of people who want to build $100 billion businesses, you want them coming to you and talking to you.Turner Novak:You all seen both the angel investors who might had some deal flow. You might think about the VCs who also might have some deal flow might want to follow on. You all think about the public market investors who are coming earlier, also, don't want them shorting your company when it goes public. You want them bringing the price up and supporting you in the public markets. And I mean, there's also LPs. You want to attract capital from LPs.Turner Novak:So, I kind of thought about what kind of stuff that I put out there. And it was really the more serious stuff. It was typically deep dives on companies that people weren't really talking about at the time, like Snap, ByteDance. Pinduoduo was a big one. That also really kind of overlap with my thesis as an investor. I'm doing mostly consumer stuff, which there's not as many people doing that. So, pitching into an LP and giving you a little bit of a different exposure.Turner Novak:And it was over time, I had started ghost tweeting for meme accounts on the tech Twitter and there's every tweet would do insanely well. And so, I got to a point where I was like, man, I should just start doing this for my own account because I'm leaving some stuff on the table.Turner Novak:It was risky, for sure, in the same sense, as a big established venture firm thinking we're going to start posting a bunch of crazy stuff online, instead of these serious blog posts about how to run a sales process. How to hire a board member or how to cold email us or make a pitch deck? You have something that no one else is doing. There's some VCs that kind of do it. I was just like screw it, entire thing.Turner Novak:And the more I was thinking about it, at the end of the day, the reason that venture firms do that stuff, it's just a top of funnel brand awareness, it's pretty insane how much top of funnel you get when you just constantly have things that you're doing, blowing up the founder group chats, making everybody laugh.Turner Novak:When you talk about inbound, so much stuff on some strain of hey, raising around, they don't really know very many VCs, don't like following them, but I really want to reach out to you because I think you get it and want to chat or around coming together, here's the people they're investing. I just wanted to talk to you before we close it out because I value your opinion want to have you on board.Turner Novak:It's so many times founders that are they're like Indonesia or something. And I asked him like, "How did you know to reach out to me?" He's like, "I saw your TikToks." Or, "My one friend, he loves your stuff. He thinks you're hilarious. So, I just wanted to talk to you." I'm not raising any money right now. But it's a lot of that kind of stuff.Turner Novak:And so, it was really dialing it back. I was just thinking about what products do I need to build to allow founders and LPs to give me money and take my money at the end of day. It was just building something different that I think will generate really good returns over the long term. And that was fun, too. That was another thing is I think too many people take themselves too seriously. I don't think you have to take yourself 100% serious. And you can dial it back just a little bit. So, that's another thing I kind of want to do.Samir Kaji:Yeah. I'll tell you, the content is great and it's memorable. And for a lot of founders, ultimately, they sort of feel like they know you before ever meeting you, and they kind of know your personality. And people do want to work with people they like. I do think that in today's world, especially in the early days, I've always seen this, the founder or the partner brand will far exceed the actual firm brand. And it's really about who am I working with.Samir Kaji:So, I think you've done a phenomenal job. But conventional wisdom, as you talk to these LPs, especially the institutional ones, they have their own boxes that they like to fill in. They talk about differentiation that if you're too differentiated, and everything's inverse, inverse, inverse, they get a little nervous, too. It is a high risk sort of maneuver in terms of some stuff you put out. How do you balance that and how did you get the institutional to be excited about such a different way of doing things?Turner Novak:I guess that it's working so far. That's probably, I guess, the short answer I mean, essentially, I'm trying to do a bottoms up crossover fund. So, I look at all these public market, hedge funds, creeping early and earlier. They're doing like Series B, Series A. I think it's really hard to be a good pre-seed and seed and even Series A investor.Turner Novak:So, my internship at Afore was a pre-seed. The Gelt Fund was mostly pre-seed and seed with a little bit of A. Banana is mostly pre-seed to seed with a little bit of B and C. And I've always been talking about public markets. I mean, I have a ton of theses out there of companies where if I would have invested, it would have looked really good. So, I'm kind of building the public markets component. And essentially, it's going to be a bottoms up crossover fund. I can be the first jack. I can write 200K in the company. I can do 2 million Series C, a 100 million in the public markets, different funds, obviously.Turner Novak:But essentially, you're just like these crossover funds, but you have the DNA to source and be the very first one in. And you're able to follow up over time. You can come in for the first time at the D, like you're super nimble. And it takes a little bit more consumer, but you can invest any sector stage, check size, geography. There's good founders building things everywhere. And my whole, I guess, the DNA of Banana has all been on the internet and not going on existing networks that already exist. And I'm building a bunch of those now.Turner Novak:But I just had to think about what were my advantages as an investor and just lean into those. And kind of walking LPs through it, showing them how it's working. I mean, I have a bunch of case studies of invested in the seed, was able to follow up all the way to it becoming a unicorn and potentially can keep investing over time when you just have a couple case studies of that. And it's even inbound, like the founder came to me and wanted to take my money.Turner Novak:So, just being able to kind of show those, it's been a fairly easy sell. I mean, I haven't got a whole lot 100% committed yet because obviously, it's a small fund. And it was more of a maybe like, let's just get to know each other. I also treated it as, no, I think a lot of emerging managers, they'll raise the fund and then they'll go invest it for a year or two. And then, they'll be like, oh, s**t have to fundraise again. And then they get back into it.Turner Novak:I probably have like one LP call a week, just staying up to date with people, I think know what I'm doing. I mean, it's just like, if you're a VC investing in companies, it's great to get to know these founders. And then, over the course of six months, you're like, "Wow, okay, let's just do this Series B right now. We don't have to really do a whole process, let's just do it, because we've gotten to know each other." So, it's kind of the same strategy, I guess, with LPs. And it's just I also love talking to people who like investing. It's just fun to hear what's going on. So, that's kind of been the strategy.Samir Kaji:Yeah. And speaking of inverse thinking, because one of the things that a lot of people say is, okay, venture or tech investing really has three categories. You have growth and crossover. You have lifecycle investors who put most of their capital the funds in A and B, and then you have the seed category. And they're pretty bifurcated because a lot of people say the muscles that you need to have or in skills really from a seed to a growth is completely different. But you're doing everything.Samir Kaji:What's your view on that? And are there things that are just really similar from an analysis standpoint that you sort of look at and say, "Well, it's really not that. You can actually invest across the stack and be successful within a sole GP or within one person looking at all those type of deals?"Turner Novak:Yeah. I think as an investor, it's ultimately especially like a tech investor it's is this a platform that has really high returns on invested capital probably the most granular way to put it. Will this have a competitive advantage, now at scale? So, I think that just thinking about it that way, it's basically every startup investment that I make, it's could this be a publicly traded company? A lot of different ways to answer that question, but then in terms of public market, it's really just if they triple quadruple revenue, how much of that is just incremental cash flow? And do you have a different view than other people?Turner Novak:I mean, I think that's really what you have to do to be a good investor is you have to have a different view on things, different opinion, maybe you have to be early, you have to be right over time. But you just have to see it before other people. And that's ultimately how you make money as an investor at the end of the day.Turner Novak:So, there's a lot of similarities or differences. I mean, to be a good public market investor, you listen to a lot of earnings calls, you're making fairly robust spreadsheets. And it's almost unnecessary, but it is important to sort of do that versus, I mean, some of the startups I invest in, I don't make a spreadsheet for invest. There's almost no need to. It's more about, can they build a product? What are they charging for it?Turner Novak:Okay, in theory, they could do a billion revenue, maybe. But that doesn't even matter at this point because nobody's a customer yet. The bigger question is just like, can they hire a team? Can they convince someone to sell it? How are they going to grow it? Can they grow really quickly? A lot of those kinds of questions. So, there's a lot of similarities. I think you also have some advantages, too. Like one of the companies I'm investing in, there's a bunch of publicly traded comps that are massive businesses, and these guys have a way better model, but I think they've unlocked.Turner Novak:And so, if you understand the publicly traded model, you're like, "Holy cow, if this actually works, this is going to be insane." And no other VC is thinking about it that way. They're just like, what's the TAM? What's the LTV, the CAC? All that comes up. Where do you go to school? So, it's a totally different way of kind of thinking about it, if you can kind of blend the two.Samir Kaji:Yeah. I agree with that. And since you have a lot of views that are not consensus, I want to maybe zoom out for a second and look at the market as a whole, particularly since you've spent so much time thinking about both private and public markets. It seems today that if anyone has invested in technology over the last 5 or 10 years, they've probably done pretty well as a function of this massive economic expansion coupled with the size and scale of these technology companies.Samir Kaji:And today, there's 750 unicorns, companies worth over a billion, which at one point in time, it was really rare for a company to hit a billion-dollar valuation in the private markets. I'm curious in how you look at the world today, because there are two views right now. One is everything's vastly overvalued as a function of the massive supply of capital out there chasing yields and it just can't continue.Samir Kaji:And then there's the other school of thought that, yeah, while valuations are perhaps ahead of themselves across the entire board, a lot of these companies eventually will grow to a point where some of these valuations will look like a bargain one day. And the scope of what a successful exit is, is going to be redefined forever. Where do you sit on the spectrum and what's your view of what the next two to three years might look like?Turner Novak:Yeah. I mean, I think we've probably had a lot of multiple expansion that people are painting on revenue, cash flow, users or height, however, you want to think about the thing you're paying on multiple on. I don't expect a lot of multiple expansion in the future, maybe even some contraction. I mean, I think it's just about finding businesses that are growing really fast that are actually economical. That's totally what I tried to do.Turner Novak:And if you company growing 100% month over month, if they can truly sustain that, I don't want to say the valuation doesn't matter, but it almost doesn't. It might seem high but then a year later, it might seem like, wow, we paid half of this month's revenue. It was the valuation that we paid.Turner Novak:So, it's really just about finding good businesses. And I do tend to skew away from things that are extremely insane. If it's a category, that's a thesis in the slide of another VCs LP deck, I'm probably not investing in it. That's kind of, I guess, how I think about it.Turner Novak:Basically, you just want to find those things before they become super hyped up. Invest in a company that's growing 20% month over month, but is going to be growing 100% in a year because of new products, new hires, changes in the market, timing, stuff like that, that's kind of more how I think about it. And then, I get a little more comfortable investing in those kind of hyper growth companies because you've been there and maybe you understand that a little bit better.Turner Novak:And I do think we're going to see the public and private markets just continuing to blend. I mean, essentially, it's the illiquidity premium that's in the private markets is kind of going away. And that's ultimately why all these funds are moving in. They're just like, why are we paying 40 times revenue and we could pay 20 in private or 30. And then that's where all the VCs get upset because they're throwing everything out whack in the public market investors like, wow, we're going to get 30% IRR, what a steal.Turner Novak:And so, I think that will keep happening. I think it's getting easier and easier to raise a small fund. I mean, as more capital if you just look at, if you're an LP doing analysis, you have a billion-dollar portfolio, you have to distribute some, you've got all your buckets, equities projecting 5% returns, real estate projecting whatever, fixed income projecting 5% returns, shoot, we got to earn 7% a year, where are we going to get the extra 20%. No, it's in venture capital, because historically, it's done it.Turner Novak:So, it just makes sense to put a bunch of money. And so, there's just going to be more money coming in from the top until LPs decide they don't want to do that anymore. And that flows down to the bottom where someone like me can pretty easily raise money from other downstream investors who essentially just want deal flow.Turner Novak:I mean a lot of these smaller farms are essentially scale funds for someone, whether it's a hedge fund and LP that wants to do direct another VC firm, GPs these funds, maybe friends or companies who want to invest in the SPVs when there's breakouts. That's ultimately what all these small funds are doing at the end of the day. So, I just think it's getting easier and easier to access that capital.Turner Novak:So, to your earlier kind of question of, yeah, just make sense. It's kind of fragmenting and I think networks are getting ripped apart, where it's more and more on the internet. We're seeing you can make a venture back business in Georgia, like in Russia, or in Tanzania and Africa. Instead of just San Francisco and maybe the San Francisco on that's a trillion dollar outcome. But maybe in Peru, it's like, yeah, it's like a $10 billion company. It's still an awesome outcome depending on the economics of who's doing it, who's investing.Turner Novak:So, yeah, I think is just going to keep opening up. But I do worry about a wipeout in terms of March 2020 happening again, markets not recovering, which is why I've been kind of really thinking a lot about institutional LP base. I just think it's really important to have those long-term partners. I want to be long-term partners to founders, to my investors. So, I think that's important to kind of get to and that's what LPs want to.Samir Kaji:Yeah. It's hard to make a case that there's never going to be some level of a recessionary environment, it's just cycles. Historically, it never lasted forever. This has been one of the longest economic expansion. So, you start to feel it. Although I will say, a lot of us are thinking back in 2015, we're like, okay, there's a bubble now. Now, 2016 is going to be a bad year. And then 2017, '18, '19. And of course, if you and I ran this conversation in March with like here it is, it's going to be a couple lean years, and that didn't happen.Samir Kaji:So, it's going to be an exciting time to see tech, obviously, and where innovations, it's a long-term effort that is not going to stop. And it's just a matter of how do you future proof yourself? We saw people that were really successful venture funds, not be able to raise in '08, '09, because they didn't have the right type of LPs.Samir Kaji:So, it certainly makes sense to get some of those institutions. I want to end with our heat check and I have three questions that I feel like the first one, we've kind of talked about a lot of this stuff, but what's the most counterintuitive thing you've learned as an investor in the time you've invested in startups?Turner Novak:I would say the most counterintuitive thing, if you look at some of the biggest outcomes, breakout companies, they weren't necessarily always backed by who you think of is the best VCs, which the narrative is that those are the best funds, and they are really good. But you can also build a great business if you don't raise capital from one of these brand name funds.Turner Novak:Eventually, the numbers will speak for themselves, and investors will back and support it. And if it's really good, I mean, you can build a 50 billion, $100 billion business and there's been so many cases of someone's struggled to raise a seed round a bunch of angels or it was maybe led by a fund that was not thought of as one of these tier one great firms. But eventually those other firms did fall one come in.Turner Novak:And so, I think we kind of get away from that a little bit too much. Everyone thinks you have to raise money from whatever the top funds. I don't think it's necessarily 100% true. They're good investors and they'll invest in really good companies. But don't let it dissuade you if you're a founder and you struggled to raise capital from certain names, certain brands.Samir Kaji:Yeah, especially in today's world where there's so many different options. I have seen some of the best companies in the world. If you look at their cap table particularly early on, they're not the traditional tier ones. And so, there's another guest in our shed that said the same thing. I know it's been early and you probably haven't missed on too many deals and probably don't have a big anti portfolio.Samir Kaji:But is there a deal that you missed on that you look back in the last couple of years and like, okay, well, I missed it, but not necessarily like that you just missed it. But did you learn something from that experience that you took away and will help you if this type of situation comes up again, what company was that and what did you learn from it?Turner Novak:I would say I'm not going to say the name of the company. But there's a company that was probably the biggest beneficiary of COVID, like startup, that I remember someone mentioned it to me in DM back in late 2019. I was like, oh, it looks cool. I just never really looked it up. And I remembered it when I was like, "Oh, wow, I probably should have at least tried to talk to the founder." I guess that's the big miss.Turner Novak:I mean, I think one of my other misses has been not sizing positions and doubling down into the winners fast enough or aggressively enough. And I mean, I think part of it's just a function of, it's been kind of, I've had weird capital situations.Turner Novak:And again, that's partially why I'm trying to get to a really permanent institutional LP base, where I look at hypothetically what it could have looked like because the cases where founders like, what do you want to invest in the next round? You can invest whatever you want. And I do like 100K check in to 2 million, but I probably would have liked to do.Turner Novak:So, that's been another really big lesson and almost a miss honestly. It's just not doubling down on the company with a lot of conviction. And almost thinking I needed to get more shots on goal to just kind of prove that I could do it. But I think now I'm at a point where I really just need to start all the best practices that all these seasoned VCs tell me about. I'm like, wow, I need to actually start doing that now.Samir Kaji:Well, speaking about seasoned VCs, is there an investor out there that you particularly aspire toward that inspires you? If so, who is it and what about them that resonates with you?Turner Novak:I would say Bill Gurley probably kind of a maybe that's a cop out answer. But I liked the way he publicly talks about what he's thinking about. And I just think he's very good investor. I mean, that's what I want to be. I want to be someone who people say, "Oh, Turner, yeah, he's a really good investor. He's like one of the best." And that's ultimately what I kind of aspire to.Turner Novak:So, probably the answer, that there's a lot of other people I like different things or what they do or different philosophies they have. Maybe I've never even met them before and maybe how I disagree with a lot of other things that they say or do. And I like, yeah, person is a pretty good investor, there's a lot of things you can learn from how they think.Turner Novak:So, yeah. And that's one of things I love about investing is, I mean, you can learn just as much. As a VC, you can learn just as much from other VCs as you can from public market investors, fixed income investors, real estate investors, all these different asset classes. You can really learn a lot from.Turner Novak:And whether it's just how to think about investing in your portfolio, but also thinking about, I mean, especially now, one of the big themes a lot of VCs are chasing is unlocking liquidity in different asset classes. It's like the stocks and people that specialize in similar asset classes and learn how they think about it. So, learning from other people is one of the things I like the most fun investing. So, there's a lot out there.Samir Kaji:When I do read a lot of stuff and I talked to a lot of guests on the show, I don't agree at first, with everything people say, and then you started thinking about and you apply your own beliefs on what makes sense and what doesn't, but it does make you think. And VC is this continuous learning game where you're always confronting your own biases and challenge your own assumptions. And I think people like Bill, Bill was a public analyst before he was a VC. And he's never been afraid of actually speaking against some of the craziness that happens where a lot of people buy into the hype factory.Samir Kaji:And so, I'm not surprised that you mentioned the name. There are people across many different asset categories I also look at that are just super interesting. This has been great, man. I have really enjoyed the conversation. Congrats on getting the first fund. Look forward to seeing both more memes, but also the growth of Banana Capital over the next few years.Turner Novak:Yeah. Well, thank you. Thanks for having me.Samir Kaji:Thanks so much for listening to another episode of Venture Unlocked. We really hope you enjoyed our conversation with Turner. To learn more about him and Banana Capital, be sure to go to ventureunlocked.substack.com for detailed notes in the show, as well as my ongoing commentary about the world of venture cap.Samir Kaji:Venture Unlocked is also available on iTunes or Spotify for download. And while you're there, please leave us a rating and a review as it really helps us out. And hit that subscribe button in order to get each and every Venture Unlocked episode as soon as it's released.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.Today, I’m excited to bring you my conversation with Jason Shuman, a partner at NY based Primary Venture Partners. The firm leads seed rounds for companies in NY and has previously invested in companies such as Jet, Mirror, and Latch. The firm recently raised two funds totaling $200MM. Prior to joining Primary, he spent time as Chief Of Staff for GLG founder Mark Gerson, was an associate at Corigin Venture, and founded and ran a company called Category Five from 2011-2015. We chatted with Jason about the importance of culture in building lasting teams, KPI’s for delivering founder success from their internal portfolio services team, and how he views both NY and the entire venture market today. A message from our sponsor:Pacific Western Bank is a full service commercial bank with over $34 billion in assets. The venture banking team specializes in financial products and services for startups, venture-backed businesses, and their venture capital and private equity investors.The experienced team is committed to the space and dedicated to delivering high-touch, tailored solutions, helping innovators take their business to the next level.In the first half of the year, the venture banking team has booked over $800 million in new loan commitments to help support the community.  No matter the size or stage of your business, you can expect guidance, resources and flexibility, making them the perfect team to support your evolving needs.Turn your vision into reality with PWB. For more information, visit www.pacwest.com/lending-solutions, or follow us on LinkedIn and Twitter.*Equal Housing Lender & FDIC insured*Total assets & loans booked are as of June 30, 2021.In this episode we discuss:01:44 Jason’s journey into the startup world04:37 What he learned in working with GLG founder Mark Gerson07:05 The decision to join Primary versus starting his own firm11:42 How Primary was able to seamlessly integrate him into the partnership14:37 Jason’s advice to someone who is joining a successful venture firm17:42 Why being selective and keeping a smaller portfolio is important to Primary21:23 Primary’s philosophy on building a team 24:31 The KPIs Primary uses to assess whether they are delivering value to founders27:21 Why Primary has decided to remain geo-focused on New York instead of expand 29:41 How Jason views speed versus diligence when investing in today’s marketplace33:41 Thoughts on the seed market in 202137:15 The most counterintuitive lesson he’s learned as an investor38:03 The investment miss that he’s learned from39:54 The investor that inspires himMentioned in this episodePrimary PartnersI’d love to know what you took away from this conversation with Jason. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:I am Samir Kaji, your host of Venture Unlocked, the podcast that takes a behind the scenes of the business of venture capital. On this week's episode, I'm thrilled to bring you my conversation with Jason Shuman, a Partner with New York based Primary Venture Partners. The firm leads seed rounds for companies in New York, and previously invested in companies such as Jet, Mirror and Latch. Earlier this year, the company raised two funds totaling $200 million. Before joining Primary in 2018, he spent time as Chief of Staff for GLG founder Mark Gerson, was an Associate at Corigin Ventures and founded and ran a company called Category Five from 2011 to 2015. I found Jason to be really thoughtful and we had a great conversation on things like finding alignment when you join a firm, the tangible KPIs they use to measure success and what type of value they're providing founders and his view of New York and the market as a whole. Now let's get into the episode to hear all of that and more.Samir Kaji:Jason, it's so great to have you on the show and thanks for joining us.Jason Shuman:Thanks for having me, man. Appreciate it.Samir Kaji:Let's go back a little bit. I know you're now investing out of fund three, but what led you into becoming a venture investor and getting interested in startups?Jason Shuman:Yeah, so I'm from Boston originally and I grew up in a family of entrepreneurs. My dad was running his own company, my aunts and uncles, my cousins, it felt like everybody was running their own thing. So I became obsessed with startups when I was pretty young, like literally in middle school, I was writing business plans for mobile payments on flip phones. And in high school I went to work at this identity theft protection company that was run by my aunt and uncle. And they had a former VC from SoftBank working over there at the time and I just learned a ton from them about A/B testing and customer acquisition and LTV. And I just became a total nerd around startups more broadly, which ended up taking me down to the University of Miami for college, where I studied entrepreneurship and marketing and launched my first company, which was direct-to-consumer footwear company back in 2011.Jason Shuman:It was good timing, but pretty bad execution if I could say so myself. So when you can't operate, go ahead and invest, is sometimes that I joke about, but literally about a year out of school we had gotten the thing around profitability, but co-founder breakups, cashflow issues with that company, I just decided to wind it down. I couldn't imagine myself really doing it for the next 10 years. And sitting there as a 23 year old in Boston at the time at home, I was like, "What do I want to do next?" And I didn't have the confidence to start a new company and I didn't know if I really wanted to go operate at a friend's company, but this thing called venture capital became super interesting. Really at the beginning, it was for four reasons. The first one was I could learn about different industries nonstop and I'm a huge nerd and so doing that was great.Jason Shuman:Number two, is I wanted to be able to fundraise easier and number three was really that I could meet a better team for the next time around. And you only know an A-player when you've seen it. And I felt like the VC would put me at the forefront of meeting some of the best operators really in the world. And lastly, venture really aligns with my why in life. And I'm sure we'll get more into this, but the idea of being able to go help others, give them the confidence, the skill set, the tools, the relationships to live a more successful fulfilling life, venture really aligns with that. So I drove for Uber at night and sourced deals during the day for free and eventually found myself getting a 90 day trial offer from the guys over at Corigin Ventures to be their first hire and the rest has been history.Samir Kaji:So you started at Corigin which at the time was the venture arm of the parent company. Ultimately did that for a while and worked then I think with Mark Gerson of GLG. You and I have talked about that offline. That was an interesting experience where you got exposure to a lot of different things. It wasn't just traditional venture. Tell us a little bit about the experience with Mark.Jason Shuman:Mark Gerson's an incredible guy. He did an incredible job building GLG to the behemoth that it is. I would say the quiet behemoth that it is actually in New York City being a billion dollar plus market place business. But he's also an incredible philanthropist and he has his hands in so many buckets. So when I came over there to really get the family office stood up, I was doing a slew of different activities. One, was venture capital investing, the second was we were working on incubating companies. The next was LP investing. We had some philanthropic efforts that I was involved in, in Israel and Africa. And then the last thing that I was supposed to be doing was spinning up a mentor network between ultrahigh net worths and pro athletes.Jason Shuman:So one of the first people that actually we onboarded was a guy by the name of Kevin Beacham who has gone above and beyond all expectations that I ever had in terms of his investing career now, and really become like a brother to me in many ways. But about six months into that gig, I actually got pulled into a portfolio company of Mark's to operate again. So at that point I was doing both operating, raising some capital for the company and also investing in startups. So it was a heck of a time and it really made me have a lot of empathy for founders, even more because of the fact that during my first startup, I didn't raise venture. But during that one, I was a big part of the process and going out and fundraising.Samir Kaji:It's such a unique experience to be able to run so many different things from investing directly in early stage startups to doing LP investments, to working with debt funds. And you probably learned a lot of how the investment world works and the fact that there are so many ways you can make money and there's so many ways to capitalize companies. At a certain point, you probably were deciding like, "What do I do with my life and on a go-forward basis?" And where you spend your time. You ultimately went to Primary Ventures. And my presumption is that there were a lot of things that you've learned during your time with Mark that really shaped your view on the type of firm you wanted to join. Walk us through exactly the decision model you had of "I'm going to join Primary, not another firm, not start my own." What was that like and take us inside your head at that point.Jason Shuman:Yeah. So I need to give credit to Ash Egan. He had actually just launched his own fund Acrylic, which is in the crypto space, but Ash and I were having a conversation when I kind of hit this point that I knew I wanted to move on. I knew I wanted to go back into venture full time. And I went through this exercise that was like, "what do I want out of my next gig and what do I want to optimize for?" And I went down to my notebook and I wrote down the different types of funds that fundamentally existed at seed. And on one side of the spectrum, you have these funds that are like, "Spray and pray, come over here, hustle your butt off, go and network nonstop, but write 250K checks and 30, 40 companies a year."Jason Shuman:And you're networking mainly with VCs because at the end of the day, that's where you're probably going to get a lot of your deal flow from. On the other side of the spectrum, I was like, "do I want to go to a multi-stage fund? These guys are starting to come down the stack and they're starting to get some seed practice going and do I want to start that for them?" Because I've always considered myself relatively entrepreneurial. But then in the middle of the spectrum was the absolute sweet spot and what I love. And honestly, life is too short for you to do something that isn't what you love. And that sweet spot for me was high conviction, hands-on investing at the seed stage and that meant leading deals, and it meant leading very few deals a year.Jason Shuman:And so when I drew each one of those buckets, I wrote the firms down below each one of those buckets that I knew, or that I had worked with. And in one day I had sent out about 35 emails to folks saying, "Hey, so-and-so, I've really enjoyed getting to know you. I'm thinking about my next move would love to have a conversation." Now that weekend, I got a phone call from Luke Schoenfelder at Latch. And he said to me, "Hey man, I think you really need to talk to Ben and Brad. They just announced their second fund, $100 million from an investment strategy perspective. You guys are super aligned and they're just great humans." And so I met up with Ben at Le Pain Quotidien on Broadway and 21st that morning and what was supposed to be like a 30 minute meeting turned into two hours.Jason Shuman:And what I realized was that from a strategy perspective, we were literally the most aligned that you could get. I mean, fundamentally we believe that at the earliest stages, there's many ways to make money, but startups are hard and founders deserve better. So if we're focused and we're pushing them to be focused, we need to be even more focused. So it's like we're New York only, we're seed only. We only lead and we're trying to bring a tank to a knife fight. Like we invest more in our portfolio impact team than anybody else. And when I was looking at funds in full transparency, there was a few that I was at the offer stage with.Jason Shuman:And some that were even giving me offers to make more money or have a better title from day one. But when you have two firms that have the exact same AUM and one firm has a team of 13 people, and out of that more than half are on portfolio impact. And the other firm is only a couple of GPs and a platform person. I said to myself, "which side of history do I want to be on?" And ultimately I am where I am today.Samir Kaji:Looking back then you sort of go through this decision model, which sounds very thoughtful, right? You've kind of forced rank what you cared about. You had this view that Primary in itself, and the partners were just incredibly aligned with the way you thought about it. But going into a new firm, especially a firm that's already established, you a couple partners with Ben and Brad that had worked together for a long time. And a lot of firms have struggled with integrating new senior investment professionals having a seat at the table and having a culture. How did you yourself think about those intangibles when joining? What has Primary done right to be able to integrate new people in a way that provides really long-term viability and the right culture?Jason Shuman:Ben and Brad get a ton of credit for this. I think it starts with trust. When they go out to find new people to bring on the team, the interview process is not just about getting to know you as a person, but it's getting to the place where they feel like they can really trust you. If I can give a piece of advice to young investors that are going into a firm with an established partnership, it's really that the skill of, "getting a deal done," is really about trying to help build consensus. And if you can't build consensus, it's about articulating your framework from an investment evaluation perspective and getting people to see your point of view and your perspective. At the end of the day, we have an investment framework internally where we write down a list of got to believe in any investment and it's like, if you believe in X, Y, and Z, then we should be doing this investment. And the thing is in a diligence process, maybe two out of the three gotta believes you can diligence and check that box and say, "that's obvious. Let's just say that's completely obvious." But the third one is the one that gets debated the most. And at the end you never know, one person could be right and the other person could be wrong, but this is the type of business where we're arguing about things that nobody really fundamentally knows the answer today.Jason Shuman:And so if you're working with people whose point of view you trust, and you think they're really smart and they worked their butt off and have learned through years of experience, then you're going to give them the leash. And to my credit, I think to Ben and Brad is that they've given me the leash to really go out and try to get deals done and to win the trust of entrepreneurs and to work super closely with them. I hope that I've proven them right in giving me that trust and I hope that continues.Samir Kaji:It's also a challenge on the other side of the coin. If you're entering into an established partnership to have, in some ways, the confidence to be able to have a voice at the table, imposter syndrome, I think, is a very real thing for a number of people. In fact, I would say the most, the majority of people in the industry have some level of imposter syndrome, regardless of how successful they've become. It's even tougher the longer a partnership has been around, the longer those people have worked together. What advice would you impart to somebody that's joining a successful firm with an established partnership in overcoming some of those things that relates to imposter syndrome and just integrating with a new set of family members?Jason Shuman:I think it requires two things. One, the education piece that I just brought up, I think is really important. Angus Davis at Foundation, I think did an incredible job at bringing his partnership up to speed on the challenger bank space. And he was able to essentially just show them the deep dive in the work that he put into really figuring out everything and anything he could about the space and showing them the framework that he had. And by being able to do that, he was able to build trust and I think their conviction in him. In terms of how to completely remove "imposter syndrome," I think imposter syndrome is one of those things that most seed stage investors can have it, but it probably is going to end up lasting your entire career.Jason Shuman:And the reason being is that when you look back on your best investments, good luck trying to connect all of the dots aside from the fact that the people were really, really good and the timing was really, really great and the market was really, really big. If I can get this one piece of advice across it's, you're being paid for your opinion. Ryan Freedman said that to me super early on when I was at Corigin and said, "I'm paying you for your opinion." And that was on day 15 of my job sitting in an office and I really didn't know anything. And ever since then, I've started to just continue to think and reframe imposter syndrome where it's like, "You know what, everybody's an impostor," because most people, especially at seed, yes, there is skill.Jason Shuman:And yes, you're putting yourself in the position to succeed and you're meeting the right founders and you're getting into the right circles. But if you look back at all of these investment theses or the investment memos on certain deals that worked out, maybe 50% of it's right. Maybe 80% of it's right. So you just don't know. And I think the more that you can get comfortable with the unknown, which I know we all like to control as much as possible because most of us are type A, but the unknown is real. So imposter syndrome will either continue to persist or you should believe it's fake.Samir Kaji:And it's probably something that all of us have to get comfortable with to a certain degree and understand why we're in a certain position to be able to provide those types of opinions, knowing that we're going to be wrong a lot and that's just the nature of the business. Speaking of the business itself, you mentioned something that I found really interesting, and I like it, which is bringing a tank to a knife fight. I would say the world has evolved so dramatically over the last 15 months or so that you could probably pack in multiple lifetimes. The game of venture has changed with so many different firms, company formations, valuations, and it feels like we're entering an environment where funds have to sort of adjust how they approach winning deals. You've taken at Primary, fewer companies per portfolio indexing heavily on a team that helps these entrepreneurs. Tell us why that matters so much today.Jason Shuman:Founders are getting married to venture firms for the next 10 years, right? If they're successful. And at the earliest stages, there are many things that a founder at the seed stage cannot afford. They're not going to be able to go out and hire a Chief People Officer who has scaled the company from 20 to 500 people. They're not going to be able to hire the Chief Revenue Officer from a company that's scaled to $200 million of ARR. They're not going to be able to hire the CFO from a company that got acquired for $400 million. These things just aren't resources that they can get on their own, but they are resources that we as Primary have and will continue to invest in and bring full-time onto our team so we can provide those resources to the companies that we're trying to work with.Jason Shuman:So when we meet with founders not only are we introducing them to Rebecca Price who came over from Capsule and Enigma, or Cassie Young, who came over from Sailthru and CM Group, but we're introducing them to the other three people on our market development team who are going out and helping you as sales and go to market and the two other recruiters and community people, and the person on the marketing side of things that can really help them think about things in a way that they probably wouldn't be able to, without the resources that we're providing them with.Jason Shuman:The other thing I will say is that as a young partner at a fund, who's trying to win deals, having these people by your side, who by the way, are 100 times better at the things that they do than I am. And I don't care which fund you go to who the partner is, unless they've done that job, specifically that job, not the CEO done that one job, they're not going to be better than their old CRO most likely in scaling up the function. So by applying these people from a value add perspective, it makes it easier for me to win deals. And then at the same time we fundamentally believe it's great to bring on board what's called board partners who are folks that can come into the boardroom alongside people like myself to provide that other support in the boardroom.Jason Shuman:And those are people like Scott Norton, who started Sir Kensington or Jason Harinstein, who is the CFO over at Flatiron Health. These are people that are going in alongside us and trying to provide even more pointed feedback because not only have they seen the earliest stages, but they've seen the latest stages and have been in the weeds and more recently. So if there's anything we can do to help a founder get 10X the value out of us and not just us as a one single person team that's exactly what we're going to optimize for.Samir Kaji:There's something embedded in there that speaks to being a service provider versus just a pure investment firm. And I've always said that as an investor you're selling a commodity, which is capital in markets that are like the ones today where founders have so many different options, you have to actually provide something above and beyond that consistently. And it has to actually be meaningful to founders. And I want to get into this a little bit more because there's a lot of skepticism because a lot of venture funds say, "We add value beyond the investment." You've built a team around certain capacities that drive value to these founders. The first question I have around that is, how did you think about which pain points you wanted to solve for in recruiting that team that you built? And you mentioned some of those, but tell us a little bit about what went into that team build.Jason Shuman:I can't take any credit for it because it happened long before me, but fundamentally from a framework perspective we asked ourselves the question of, "what are the resources that seed stage founders wish that they could have, but they can't afford today?" And that's how we came up with recruiting. So on the recruiting side, we save our companies nearly $3 million a year in recruiting fees. And time to placement is like 50% of time to placement for companies who are trying to hire on their own. I mean, you think about that and you think about a CEO's job and maybe 20, 25% of their time at the seed stage is going on LinkedIn and cold messaging people. And it's like, the unlock of time is incredible and speed with these companies is absolutely imperative. It's like a number one priority when we think about what makes a great founder.Jason Shuman:And if you can't get butts in seats in 45 days, and it takes 75, that's a huge gap. And so we can bring recruiters in to support you. And by the way, because we only focus on New York, we've built this massive database of 1,000s of people who we've also back channeled. So we're not sending you people that we don't know at all. We're sending you high quality candidates with higher conversion rates, with higher success rates. And by being able to do that, we feel better about the opportunity for you to succeed or the probability for you to succeed. And it's the same thing on the go-to-market side with relationships. So we can make all sorts of introductions there. We can coach a lot of your executive team on that side, we can coach the junior team on that side. And then on the finance side, I think a lot of seed stage investors don't love diving into the weeds on the financial modeling and projection side and the cohort analyses, and really cutting up all the data, so we've brought on folks that love doing that and have done it at a scale that a seed stage CFO just wouldn't.Jason Shuman:And most of these companies don't have CFOs. So we really try to package our companies from a financial perspective too, by the time that they go and get to an Andreessen or a Sequoia or a Bessemer or a GGV, they're like, "wow, this is the cleanest data room, the cleanest financial model I've ever seen." And the amount of times that I think I've heard that from my friends at those firms is I can count on by more than two hands and I haven't even been there that long.Samir Kaji:This is a question that was actually posed to me by another manager who's scaling and their AUM now allows them to start to hire a operations team that helps founders with a whole host of things, similar to what you guys are doing. The question though, that they posed was, "how should I think about KPIs?" And another firm that had chimed in and said, "well we actually look at founder NPS scores. So we do these founders surveys and we ultimately look to test, what is the overall benefit we're providing? How much value are we really driving and NPS is a great way to do it because it shows tactical." Are there certain KPIs that you guys use to really assess the quality of performance of this team that you've built?Jason Shuman:Giving you all of our secret sauce right now. Yeah, we have inputs and outputs on the portfolio impact side and really credit Cassie and Rebecca who have implemented an incredibly powerful system there. So on the people's side, there are KPIs around dollars saved, but there are some other KPIs that regard or surround smaller projects for instance. On the market development side, there are KPIs around the actual pipeline and the actual sales that they generate for the portfolio companies. And then what kind of sits on top of everything is in our CRM we track basically all the interactions between, or projects that we have with ourselves and our portfolio companies. And those are broken out into high, medium and low intensity. And there are KPIs around high intensity projects, medium intensity projects, low intensity projects.Jason Shuman:And then at the end of the year, really, I think it's actually twice a year, we do a founder CSAT or NPS score depending on how they are different. I mean, we do a CSAT, we didn't find that NPS was that helpful although we do ask the question, but the CSAT is an important, which is the customer satisfaction score. And that is basically getting input on every single person on the team and every single team. And then we now can overlay that data on the interaction side of things to figure out, "well, founders that have high intensity interactions are the happiest, but you know what actually low intensity ones are pretty happy too because of X, Y, and Z reasons and interactions with this team."Samir Kaji:That makes total sense. And it's very clear that what you guys actually built is working based on everything I've heard in the market. So congratulations on building such a great group. Going to the investment side for a second. You talked about this earlier, Primary's New York focus. So focusing on companies that are only New York, you're not looking at other geographies. And a lot of people have had the view that being single geo focused if it's not Silicon Valley is hard because how many massive companies are going to be built. And if you're going to provide those 3 to 5X returns fund after fund, you kind of have to be an every single great company that is in these smaller geos. Now New York part of me is like, it's not really a small geo, but at the same time, I think you understand just directionally the things that you probably have heard during your LP pitches. Tell us a little bit about why geo focus, what does it actually mean to win a single geography?Jason Shuman:New York is an incredible city that yes, 10 years ago, if we wanted to have this conversation, I would agree with you. But 2015, when Primary was started, Ben and Brad had a key insight. And I think they've been spot on. I mean, if you fundamentally believe that there will be 5, 10, 15 unicorns a year coming out of New York City, then you want to be an LP in Primary because we're going to go out and we're going to hunt down those companies and we're going to get into them. And even if we're only in half of them, our returns are still going to be extremely strong. And that's why I think from a focus perspective, it's incredibly powerful because it unlocks so much more on the portfolio impact side of things and kind of creates a network effect within our own city.Jason Shuman:And there's a reason why Andreessen just hired David Haber here in New York. And there's a reason why Lightspeed just announced that they have an office here in New York. And most of the seed funds are sending people out here. And most of the SF funds are sending people out here. So this city is going to get more and more and more competitive. Series A funds are coming in at faster paces than I've ever seen before. But if we can continue to own seed with focus, I feel like we're putting ourselves in a good position to succeed.Samir Kaji:So speaking about New York and you're right, New York is a massive market that's evolved so dramatically in the last decade. However, today it's more competitive, right? You see downstream investors coming and doing seed. You see more money flowing into the ecosystem. And in today's world, a lot of founders are indexing heavily toward investors that can work with speed. You you're writing big checks. You're not doing 250, you're doing $3 million checks, which means you have to have diligence, you have to have conviction, not only in the founder, but the business model. How do you manage speed versus diligence in today's world, such that you're not missing on the best opportunities because you can't move quickly enough?Jason Shuman:We're really doing it in two ways. And I want to give credit to Mark Gerson who taught me about sense of urgency and really having a sense of urgency with everything that you do, if you want it prioritize it. So when it comes to a diligence process, if I'm meeting with the founder and we like the deal, or we like the founder before the meeting's over, I'm literally going to open up my calendar and I'm going to schedule a meeting with that person for the next day. And we've now brought on an investment team of... Let's see, six people, five, six people since the beginning of last year to help us speed up the diligence process.Jason Shuman:And so folks like Lia Zhang who came over from Stripes Group or Tobias Citron who has been here last couple years as an intern and Paige from Insight and Sam from Nomad Health and Kai. They're here essentially not only to just source deals, but to create these deal pod structures that help us take a deal from day one, come up with the list of got to believes that we need to diligence, go out, track down the answers to those questions. "What does the market look like?" Have those customer calls, back channel the founder. And then once you've really gone through that process, which by having three people on a deal, instead of one, you're able to do it a lot quicker. And we're going to meet with that founder three times over the course of six days.Jason Shuman:And that helps us really start to get to know them. Now I do think this is a period of time that I'd say a lot of mistakes will be made by many other firms, and maybe there will be some made by us as well, because you sometimes just don't know what you're missing. Maybe not even in terms of the market, but the person. And it sucks because I don't want this to be transactional, I want this to be as genuine as possible. And I want to be able to go have dinner with you and get to know you a lot more. And so we're trying to make sure that we're checking all of the boxes that we were checking before, but in a little bit more of a condensed timeline and that's worked out pretty well for us.Jason Shuman:But that said I've talked to multi-stage firms that have led some of the seed deals that we've looked at and I'm like, "well, did you look into X and Y?" And they're like, "nope," because it's like, "why do they need to? This is a tiny check for us." So we really pushed founders to work with seed firms, whether they work with us or not, that are at least doing the work. The other thing though, that we've been doing is going earlier and earlier. Tobias and Brian here launched the New York City Founder Fellowship, which is our version of an equity free, fee free version of YC or kind of like an On Deck. And we've had some incredible talent coming in. And now we're getting to know them at the earliest stages. We're getting to see how the sausage is made, how the idea evolves, how they learn, the speed of learning, and then we can make bets on them even earlier. And it's the same thing on the pre-seed side of things, where we're getting to work with people that we really enjoy working with and we've gotten to know over the years.Samir Kaji:And that's a great framework in terms of how to manage all these different variables that are in play right now, which leads me into a more global question to you. So when you started investing, it was at a time where prices were low and actually it's coincided with a time where as those companies have matured, we're in a great capital market. Liquidity, the exit environments are great. So if you look at the performance of funds that were 2008 to 2015, amazing performance. It's not uncommon to see 5 to 10X seed funds, right? I mean, we've just seen so many of them. What do you think about the market today, right?Samir Kaji:The old adage is always, "buy low, sell high." Are we in a place where innovation just is in an area where it's just rapidly evolving and growing so quickly that even if you're buying higher relative to fundamentals that in spite six, seven years, you'll still be able to sell higher, or do you view this as, "yeah, valuations are high and the best companies will continue to do it, but there is going to be some deterioration and maybe some carnage that happens if there is a downturn in let's say a couple of years now that we are going on 12 or 13 years in a bull run?"Jason Shuman:I think we're at a period of time where the pace of innovation is shifting at such a rapid rate, that there really will be these massive companies that generate these really strong returns. Now that's not every company and that's not every market and not every company in every market has real moats and should be traded like a tech company. But there are many markets that are going to have a new champion crowned that can generate a significant amount of enterprise value and returns for LPs and ourselves. Looking broadly at the ecosystem today, and this is anecdotally from a Primary and a New York perspective, we have more high quality founders that have seen scaling from 10 to 100 or 1,000 now than we ever had before because the New York ecosystem is really starting to mature. Secondly, you're getting better ideas than you've ever had before, and why is that?Jason Shuman:I think one, there's been a shift and a why now in a lot of these industries, but also because there's a democratization of access to information on the internet today. And you think about the amount of healthcare companies that are getting started, that we see that are incredible. People are leaving Oscar and RO and Cedar and starting companies that have really strong moats and great tailwinds and massive markets and you back them. And then what's crazy is not only is this speed of innovation changing, but it's the speed at which these companies can scale. I mean, we have a company in our portfolio, that'll go from like zero last year when they just like pivoted to over 50 this year.Jason Shuman:And it's like, "whoa, that's recurring revenue." It's an incredibly powerful thing. And so, yeah, I mean, are people overpaying? Maybe, definitely in some deals they certainly are, but there are certainly a lot of other companies out there that will live into it but it is buyer beware and its founder beware because when you do end up taking on money at a ridiculously high evaluation and you don't actually have product market fit growing into that might give you a little bit of digestion.Samir Kaji:I think that is such an important point. And I've always talked to founders about that. "Don't take too much money at too high a valuation until you're ready." Now, yes there's money out there and you don't want to under capitalize yourself in this market, but it is founder and buyer beware for sure. I also agree with the point that the pace of innovation today is at breakneck speed and you can look no further than the vaccine roll out using RNA technology with Pfizer and Moderna, so the world has shifted. I'm personally very excited to see what the next couple of decades look like. I try to disassociate that with the financial aspect. It's too hard to know and I've been long around long enough to know that I'm not smart enough nor do I think many people are smart enough to actually project what the financial markets are going to look like for the next five years, let alone the next year.Samir Kaji:So let's go to our last segment, which is our heat check. I'm going to ask you three questions, rapid fire, the first being, what is the most counterintuitive lesson you've learned as a venture investor?Jason Shuman:People, I would say founder first, and I do agree, but you put a good founder in a bad market, the market will keep its reputation and the founder won't. So you need to make sure that you back a founder that will recognize when they're in a bad market and they'll move over to a different one.Samir Kaji:And we do see that quite often and having that awareness. Well, let's talk about founders and you've invested in companies like Latch at the early stages. You probably have spent enough time looking at companies where you're going to miss companies too. Looking back in your career, is there a company that you look back on that you missed that's turned out to be a great company, and you've learned a particular specific lesson from? If so, tell us who the company is or if you're comfortable with and what you actually learned from that miss?Jason Shuman:My entire portfolio has a good size to it, but I'll use LeafLink as the example here. Ryan Smith actually has become a great friend. And I was at Corigin Ventures at the time when we looked at Leaflink. And I remember asking a lot of questions about, "well, what's your engagement like? And your this and that on these features and are people really using it?" And he wasn't really tracking that much of the data in the early days. There wasn't the foundation laid and he had sold the company before. And I remember thinking, "how good is this guy?" And at the same time I knew his market timing was really good. And I knew he was really, really thoughtful, really thoughtful and learned super-fast and had done it before.Jason Shuman:But at the end of the day there is some extenuating circumstances that made it so we didn't win the deal. And then I ended up leaving Corigin but if there's a lesson that I learned there, it was definitely stay in touch with founders as much as possible that you really believe in. And then also there's a lot of things that founders just don't have the time for in the early days. And if they have a bias for action and they know how to sell, and they know how to build product tracking when you're like two people in a closet is not necessarily something that needs to happen.Samir Kaji:Playing the long game and keeping mind share is a really good lesson to learn for anybody. My final question, just because you have mentioned guys like Mark and Ryan and Brad and Ben, but is there an investor out there that particularly inspires you given the way they think about things? If so, who is that and what about them?Jason Shuman:My answer, I don't know if you're going to accept it is Bill Campbell. Bill Campbell was the executive coach to folks like Steve jobs and Eric Schmidt, the guys over at Google. And long-term, I really do see myself getting into the executive coaching world. My mom's a therapist, my dad's an entrepreneur and I feel like the best investors really are generous with their time and help not only the company at the company level and the metrics level and are thinking about strategy, but they are helping the psychology of the founder and they care deeply about all of the employees within the organization.Jason Shuman:And I'll tell you really quickly having back the guys at Latch and then Ben at the stock exchange when they were going public the other day, seeing the employees that were there since day one, it gave me the chills. It was awesome and I was so overcome with gratitude that I walked up to all of them that I remembered and I was giving them hugs and just saying, "thank you." And Bill Campbell is the type of person that more investors should really admire and try to be like.Samir Kaji:A lot of people who don't know Bill, just because he is a Silicon Valley legend and obviously coached some of the best founders, entrepreneurs and VCs. I don't think he started his career in tech until he's in his early 40s coming off as being a football coach, right? And there's a great book out there on bill that's called Trillion Dollar Coach, which is a great read. So I definitely will accept the answer because privately, a lot of people have told me the impact Bill has had on them. Jason, this has been a lot of fun. Congratulations on being promoted to Partner as part of fund three, excited for what you guys are doing in New York and look forward to... I'm going to continue to track the story.Jason Shuman:Thanks man. Appreciate you having me.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.Today we’re thrilled to bring you a very unique conversation with Michael Sidgmore, Co-Founder of Broadhaven Ventures and host of the Alt Goes mainstream podcast. Broadhaven Ventures is fintech focused and has invested in several platforms that make alternatives more accessible including, Republic, Party Round, iCapital, Alt, and of course our startup Allocate. Additionally, Michael was an early employee at iCapital (currently valued at $4B), which enabled private wealth managers to offer top alternatives to their clients. Michael is also a Venture Partner at Goodwater Capital, one of the top global consumer focused venture capital platforms in the world with over $2 Billion of assets under management. We covered the broad topics of retail influence within alternatives, the future democratization of venture capital, and why a larger supply of LPs is coming. A message from our sponsor:Pacific Western Bank is a full service commercial bank with over $34 billion in assets. The venture banking team specializes in financial products and services for startups, venture-backed businesses, and their venture capital and private equity investors.The experienced team is committed to the space and dedicated to delivering high-touch, tailored solutions, helping innovators take their business to the next level.In the first half of the year, the venture banking team has booked over $800 million in new loan commitments to help support the community.  No matter the size or stage of your business, you can expect guidance, resources and flexibility, making them the perfect team to support your evolving needs.Turn your vision into reality with PWB. For more information, visit www.pacwest.com/lending-solutions, or follow us on LinkedIn and Twitter.*Equal Housing Lender & FDIC insured*Total assets & loans booked are as of June 30, 2021.In this episode we discuss:01:06 Why Michael got into investing08:02 The world of alternatives12:55 How the demand for alternatives assets has changed over the years18:31 Navigating the challenges for people to access alternatives24:19 The long term progression of alternative investments29:29 Important thematic trends in the next generation of investors34:09 What adding value to investments means to Broadhaven37:52 Balancing the relationship between founders and VCs41:43 Successfully scaling for valueMentioned in this episodeBroadhaven VenturesI’d love to know what you took away from this conversation with Michael. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.Today’s episode is with Michael Silton and Alejandro Guerrero of Act One Ventures, a Los-Angeles based firm that invests in pre-seed and seed-stage .Before becoming Managing Director of Act One, Michael was Executive Director of the UCLA VC Fund for three and half years. He was also CEO & Founder of RainMaker Systems(to which he took public) and co-founder of UniDirect Corp. Prior to being General Partner at Act One, Alejandro was Volunteer Associate at UCLA Ventures from 2013-2016,  Co-Founder & CEO of Uniq Apps and Co-Founder & President of the Live Entertainment Network.We chatted with them about their unique partnership, how they tangibly drive real diversity into cap tables, and how they navigate in today’s white-hot market. A message from our sponsorAnduin is revolutionizing fund management with streamlined fund operations, digitized fund subscriptions, and real-time status updates. Traditional, paper-based subscriptions are costly, tedious and error-prone, with up to 80% of submitted documents being incorrect and considered not in good order.Fund managers lack real-time visibility, facing manual processes, endless back-and-forth and a mountain of emails, documents and spreadsheets.Anduin’s investor onboarding workflow improves the investor experience, bringing clarity, guidance, and efficiency to fund subscriptions which drastically reduces error rates.The Anduin platform allows GPs to perform fund operations simply and efficiently with improved data accuracy, freeing up time so they can focus on what they do best... investing.For more information, or to arrange a demo, visit fundsub.io/ventureunlockedIn this episode we discuss:02:15 How the team got into investing05:22 Why Michael started an independent firm, after so many years as an operator13:10 Key lessons learned from raising their first fund15:11 Staying positive when fundraising is going slow22:53 The Act One Ventures investment model26:34 Why learning from failures is a superpower29:18 How their unique differences as a partnership drive value to founders38:35 The Diversity Rider; What it means and why is it critical for the future of underrepresented GPs and founders. Mentioned in this episodeAct One VenturesI’d love to know what you took away from this conversation with Michael and Alejandro. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com