Sheel Tyle - The Future of Venture Capital - [Invest Like the Best, EP.70]

My guest this week is Sheel Tyle, who at just 26 years old has already had a successful career in venture capital. His most recent stint was as the co-head of the seed investing business at NEA, the largest venture capital firm in the world, where Sheel was also a partner. Now, Sheel has set off on his own, setting up his own firm called Amplo and having recently raised a $100M venture fund where he is the sole general partner. He aims to invest with young, mission driven entrepreneurs with a global focus. As you can tell from this resume, which also includes a degree from Stanford and a law degree from Harvard, this is one ambitious guy. There are several aspects of this conversation that will really stick with me, specifically his points on networking and the smartest decision that he’s seen entrepreneurs make. I also loved our discussion of some of the same trends we explored last week with Chris Dixon—topics like drones, automated cars, and blockchain, where Sheel often has a different take than the consensus. Please enjoy my conversation on Africa, entrepreneurship, venture capital trends, technology, and more with Sheel Tyle. For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag Books Referenced Originals: How Non-Conformists Move the World Links Referenced Andela OneConcern Andy Rachleff Podcast Episode Mark43 TechCrunch VentureBeat Bill Draper (author) Show Notes 2:20 - (First Question) Sheel’s upbringing and how it shaped his interest in Africa 4:43 – The outlook for Africa 6:10 – Primary differences in valuations and momentum in Africa vs opportunities in other places which Sheel conveys through the story of Andela 10:45 – The perspective returns of venture capital investments 15:16 – Does the hyperfroth in ICO’s serve as a threat to traditional venture capital 17:53 – Where Sheel falls on the importance of networking in terms of his venture capital interests 20:38 – The stronger impact of a smaller, more tight-knit network 22:46 – Sheel’s feelings on driverless cars and the timeline for this sector 27:17 – What are the positive side effects of driverless cars taking over 29:01 – What is the best way to invest in driverless cars from a venture capital standpoint 31:30 – Sheel’s overrated/underrated take on different technology spaces 31:30 – VR/AR 32:21 – Blockchain 32:54 – Machine learning/AI 33:41 – Drones 34:53 – Other categories that we should be thinking about 36:54 – OneConcern 38:21 – Should entrepreneurs be raising more money over future liquidity concerns of the venture capital markets 39:40 – What are the places that Sheel can help a founder in the early stage formation of the company 40:02 – Andy Rachleff Podcast Episode 42:53 – What does the breakdown of domestic vs international investments potentially look like in fund 1 for Sheel 44:53 – Sheel’s most memorable travel experience 47:34 – what is the best decision Sheel saw a founder make 48:10 – Mark43 50:31 – Resources for people interested in venture capital 51:06 – TechCrunch 51:07 – VentureBeat 51:17 – Bill Draper (author) 51:25 – Originals: How Non-Conformists Move the World Learn More For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:32Patrick O'Shaughnessy?

  This podcast is sponsored by CFA Institute, the global association of investment professionals whose mission is to lead the investment profession by promoting the highest standards of ethics, education and professional excellence for the ultimate benefit of society. CFA Institute serves a global community of investment professionals, working to build an investment industry where investors' interests come first, financial markets function at their best and economies grow. The Chartered Financial Analyst credential is the most respected and recognized investment management designation in the world. The views expressed in this podcast do not necessarily represent the views of CFA Institute. Hello and welcome everyone. I'm Patrick O'Neal and this is Invest Like the Best.

• 1:15Patrick O'Shaughnessy?

  This show is an open-ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

• 1:31Speaker 02

  Patrick O'Neal is a Principal and Portfolio Manager at O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 1:54Patrick O'Shaughnessy?

  My guest this week is Sheel Tile, who at just 26 years old, has already had a successful career in venture capital. His most recent stint was as the co-head of the seed investing business at NEA, the largest venture capital firm in the world, where Sheel was also a partner. Now, Sheel has set off on his own, setting up his own firm called Amplo, and having recently raised $100 million venture fund, where he is the sole general partner. He aims to invest with young, mission-driven entrepreneurs with a global focus. As you can tell from this resume, which also includes a degree from Stanford and a law degree from Harvard, this is one ambitious guy. There are several aspects of this conversation that will really stick with me, specifically his points on networking and the smartest decision he's seen entrepreneurs make. I also loved our discussion of some of the same trends we explored last week with Chris Dixon, topics like drones, automated cars,

• 2:39Patrick O'Shaughnessy?

  and blockchain, where Sheel often has different takes than the consensus. Please enjoy my conversation on Africa, entrepreneurship, venture capital trends, technology, and more with Sheel Tile.

• 2:52Patrick O'Shaughnessy?

  We're going to range all over the world of venture capital, but also literally all over the world. And I thought a fun place to begin would be Africa. So I'm going to kind of open it up to you to talk about your thoughts on the future of specifically investment or venture investment on the continent of Africa. It's somewhere I've spent some time and I think is the most interesting and kind of magical place that I've been throughout the continent, but gets very, very little attention from investors kind of from the rest of the world. So talk a little bit about your background and experience there and where you think things are going from an investment standpoint in Africa.

• 3:30Speaker 03

  Yeah. And first, thanks for having me. I think before we start with Africa, we should probably talk about my parents. And the reason I want to start with them is but for them, I wouldn't have gotten an interest in emerging markets broadly. You know, my parents are immigrants from India, and they came to America for education, to pursue their American dream. They were not wealthy. They applied to schools that did not have application fees, and education got them everything. And so when we were growing up, my parents would never take us to places like Europe or the Caribbean, traditional vacation spots, if you will. We went to emerging markets. We went to Nairobi in 98 and actually left

• 4:14Speaker 03

  the day before the embassy bombing. We went to Brazil in 01. They wanted to show us how the real world worked. And initially, my younger brother and I had no idea what they were doing. Why are they taking us to these places that are not very comfortable or as comfortable as where we are, or where we could be, or where our friends were going? But over time, I realized that that was special. It was a unique experience that we were getting, and I began to appreciate it more and more. And it gave me a comfort in those places. Fast forward many years later, as a venture capitalist, one of my companies, Andela, has the slogan, "Talent is universal, but opportunity is not."

• 4:57Speaker 03

  There's no reason the next Mark Zuckerberg can't come from Africa. He or she doesn't have to come from Exeter, or Harvard, or Stanford, or places that many folks traditionally think as the hotspots for entrepreneurship. They can come from anywhere. And as I was looking around the world, I realized that perhaps the biggest opportunity of our lifetime, perhaps the only untapped place left, if you think about it, is Africa. Many of the fastest-growing countries in the world are in Africa. Nigeria has something like 190 million people right now. It's the eighth-biggest country in the world. It will soon be the fifth-biggest country in the world, some saying in the next five years. And potentially during our lifetime, it could be one of the three biggest countries in the world.

• 5:41Speaker 03

  It could go, one day, some people say it could go India, Nigeria, China, in terms of population, which just tells you something. And so I was, I remember going to, starting with Nigeria in, maybe three years ago, and realizing how dynamic it was. It reminded me of India when I first went to India, or China, maybe, what I would imagine China would have been 30 years ago. So the development... It was just transformational. And I realize there's opportunity in chaos. And if you can traverse the chaos and be okay with uncomfortable atmospheres,

• 6:25Speaker 03

  or weather that you might not be used to, or traffic that might be a little bit annoying, there's a lot of opportunity. And so now I've made a number of investments in Africa. I'm on the board of this company, Andela, which we can talk about, which is transforming education on the continent. But I just think it's the greatest opportunity of our lifetime.

• 6:43Patrick O'Shaughnessy?

  One of the recurrent themes in all these conversations, and it's also the foundation of a lot of quantitative strategies, is this paired notion of valuation and momentum. And that when you get those two things in combination, powerful things can happen. And in your description of Nigeria specifically, I sort of see those things. Where value, obviously, maybe you can get into the sorts of valuations of the companies that you would be funding from a venture stage versus the similar valuations of, say, a Silicon Valley-based startup. But also this notion of demographic momentum, sort of an underlying change in the continent itself. So maybe talk a little bit about those two things for investing in Africa. So what are the differences, the primary differences in, let's say, valuation paid?

• 7:27Patrick O'Shaughnessy?

  And how do you think about best capturing momentum as you're searching for individual businesses, industries that you want to focus on, maybe touch on a few of those? Talk about those concepts as it pertains to your Africa strategy.

• 7:40Speaker 03

  Yeah, and I think the best way to do that might be to tell you the story of Andela, because it actually touches on a number of themes related to the demographics and what I look for. So more than half of Nigeria's population is under the age of 30. And I would say, if I were to guess, I would say the majority of that is under the age of 20. It is fast-growing. But the other thing to note is, I think there's something like a 60% youth unemployment rate, which, if not handled appropriately, can spell chaos. Idle youth are the worst thing that can happen to a country, or one of the worst things. That being said, they're not unemployed in many cases because they are incapable.

• 8:29Speaker 03

  They're unemployed because of lack of opportunity. They are just as smart as we are, or as our friends, or as anybody in China, or Korea, or India. And so, Andela, what they do is they play on the theme that, as I mentioned, talent is universal, but opportunity is not. There are smart, young folks everywhere, including Nigeria, Kenya, Uganda. So what this company does is it finds the smartest and has created this four-year program, similar to an MIT, a four-year education institution essentially, that trains people in soft skills, as well as computer science and technical skills.

• 9:08Speaker 03

  But the innovation behind the model, other than the curriculum, is the economic model. Instead of students paying tuition, we pay students from day one. Now, what that means is suddenly, everybody can afford an education. Now, it's even higher than that. And that really changes who can afford an education, even with financial aid, which not every place has. So, I think the success of Andela is really measured by a couple of statistics. One is the admissions rate. It's less than a 1% admissions rate, which just tells you the demand. And I look at the quality of folks who aren't getting admitted, and they're extraordinary.

• 9:51Speaker 03

  The other thing is the retention. Fellows, we call them fellows, the students, fellows, there's a 99% retention, which means they are so in love with the offering of Andela that they choose to stay, even though the business model is one where they're working remotely for tech companies. I mean, people often ask, why would an Andela fellow stay if they're becoming the best engineers on the continent, and there's a dearth of engineers everywhere in the world? For every, in the US, for every one qualified developer, there are five open engineering jobs. Why wouldn't a developer at Andela leave and just go directly?

• 10:33Speaker 03

  It's because of this community, and the curriculum, and the soft skills, and everything else. The same reason anybody can choose to drop at a Stanford, but I would guess 98% don't. And they're paying for an education. They're not even getting paid. So I think that plays on a number of trends. I think it shows that there are smart people everywhere. I think it shows that youth are hungry to learn. I think it shows education is in demand. And if you can come up with a radically new way of delivering education, you can increase its accessibility. And I think it shows that engineering is only going to get more and more important. Those skills are becoming more in demand, not less in demand. Even though automation is occurring all around the world, the number of job openings is actually increasing, not decreasing. So it's a matter of training, and all that can happen in places like Africa.

• 11:17Patrick O'Shaughnessy?

  Do you think that the prospective returns to venture as a class, if it deserves to be called a separate asset class, are lower, the same, even higher, given your more global focus than they have been, say, in the last cycle? Some firms have delivered outstanding venture results.

• 11:35Speaker 03

  I mean, look, venture as an asset class stinks. If you invest in the average venture firm, you're probably going to get your money back or lose your money. So it's not a great asset class. It is a winner-takes-all asset class, which makes sense. If you're investing in a great company, there are usually only a couple investors that are allowed to invest in those great companies. Those are the ones that deliver astronomical returns. Now, the best venture funds tend to deliver returns that are better than any other asset class, period. But there are probably 10 to 20 of those. And collectively, they don't actually manage that much money. If the average venture firm in the top 10 manages, or current fund size, let's say,

• 12:15Speaker 03

  is 500 million, it means there's $5 billion of interest, which is smaller. Yeah, I mean, there are sovereign wealth funds that would love to do all of that, but they can't. And everybody is competing for those dollars. So winner-takes-all model. That being said, I think that if you look at who is in those top 10 or top 20, that's constantly changing. There are a couple of folks who are always, or who have been there for the last, call it, five to seven years consistently. Sequoia, Benchmark, et cetera. And there are a couple that are making their way in there, and those are the new guys. And that's the social capitals, the thrives. The newer guys will continue to push some of the older guys out.

• 12:55Speaker 03

  I think today is not a great time, frankly, to be a venture capitalist. And I've told my LPs this, I'm pretty honest with them. I say, "Look, I have struggled to make great investments over the last two years. I think I made one investment, one new investment in 2017. 2016, I don't think I made any new investments, other than a couple of small seed investments. Large checks that I would classify as Series A or beyond, large, proper venture capital checks, I don't think I made any. 2015, I did Robinhood, which was a big check, and a couple others." So, the valuation environment at a private scale is frothy right now.

• 13:34Patrick O'Shaughnessy?

  Can you put some numbers around that? Like, what would be a more normal case for, let's say, seed or Series A valuations, just generically speaking, versus where we are today? Like, what's the gap?

• 13:43Speaker 03

  Yeah, let me give you an example of a company I spoke to yesterday. So typically, a seed company in most normal market environments, seed companies, pre-launch, let's say, pre-launch seed company with a normal founder. In other words, not the next Mark Zuckerberg. Not Mark Zuckerberg, Lee's Facebook, start a company, but normal founder. That valuation is single digits. Should be 3 million, 4 million, 5 million, 6 million. Who knows? But, single digits. In bull markets, in like, super-high bull markets, somehow, those valuations are getting done in the double digits, like 12, 14, 15. But you know a market is frothy.

• 14:23Speaker 03

  When, yesterday, I had a call with an entrepreneur who has had some success, so therefore, in theory, he could raise in probably the low double digits, call it the 10s to 15 pre-launch. He was getting offers from high-quality firms at valuations between 20 and 30, pre-launch, and with no customers, nothing, but 20 to 30. And, to top it all off, he was even getting millions of dollars' worth of interest at uncapped notes, which basically means you're giving free money, because you're saying, "Set the price later." Most notes, convertible notes, have caps.

• 15:06Speaker 03

  Caps are what the valuation would convert into. It's a way to do a seed investment without actually having to price the seed investment. Many founders usually opt for this, because it's cheaper on legal fees, and you can punt the valuation conversation. But the caps often signify the valuation. But when a note is uncapped, the investor is taking all the risk and not really getting rewarded. And it's like when uncapped notes start to pop up and become the norm, I know things are frothy. So what I've told my LPs is, look, I am raising the money now, but don't be surprised if I'm really slow to deploy it. I'm only gonna pick investments that I think are gonna be great investments. And there might be a window where that means there's zero investments for six months or 12 months.

• 15:49Patrick O'Shaughnessy?

  Do you think that, speaking of hyper froth, that this notion of ICOs is truly a threat to the traditional venture capital and early-stage investment norms?

• 16:01Speaker 03

  That's funny. So ICOs, initial coin offerings for...

• 16:05Patrick O'Shaughnessy?

  The uninitiated.

• 16:06Speaker 03

  For those who haven't lost all their money yet to some of this. I think, look, it's funny you bring that up. When I first left and was gonna start this venture fund, one of my buddies used to run a blockchain company and a Bitcoin company that then pivoted into a blockchain company. And he said, "Sheel, I'm gonna raise your fund on an ICO. We could raise $250 million. Forget 100. We could raise 250 in like six minutes." And I said, "Wow, this sounds awesome." And then I decided not to do it because of the regulatory lack of clarity on ICOs. I think it's completely crazy. I think it's, I think it is completely ridiculous.

• 16:47Speaker 03

  It is taking advantage, and by the way, I am somebody who was a huge bull on Bitcoin like four or five years ago. I bought Bitcoin at 100. I sold it 1,000. I thought I was a genius. I wrote all these articles on why the blockchain is the next internet. And then I saw nothing for four years, where it continued to be a technology in search of a solution. Everybody talks about remittances and all these different smart contracts, being able to conduct real estate transactions on using the digital ledger. And like, people talk about all these potential use cases, microtransactions. Nobody's actually built a killer app yet. And maybe, maybe I just don't know.

• 17:30Speaker 03

  But of all the companies I've seen, so I feel like the hype has been there for a period of time. And maybe it will still come about. But when...

• 17:42Speaker 03

  Then, new types of coin are starting to be created that are then being auctioned off with very little information about them. I start to get really worried. So I had the opportunity to participate in an ICO for a Filecoin, which Protocol Labs, and it was, I think, one of the biggest ICOs that has been done so far.

• 18:02Patrick O'Shaughnessy?

  And a clear whether or not it'll work remains to be seen, but something that seems tangible or somewhat real.

• 18:08Speaker 03

  But to raise that amount of money with no diligence by anybody means you're really going to get really lucky, or you're going to lose your shirt. Those are really the two outcomes here. And as an investor, I would much rather invest than take gambles, and all this stuff feels like a gamble right now.

• 18:26Patrick O'Shaughnessy?

  You mentioned something earlier, which is this notion of the network producing deal flow opportunity, et cetera. The notion of networking is typically something people are interested in, and you get pretty polarizing opinions of it. One camp on the anti-extreme would be, it's a complete waste of time. You should just do great work and a network will coalesce around you. The other is that it's an extremely important resource because connectivity and relationships drive everything. So where do you fall? When you're thinking about where you spend your time, what relationships you try to build, foster, ignore, how thin you stretch yourself, talk about from the venture capitalist

• 19:09Patrick O'Shaughnessy?

  seat, where you fall on that spectrum of the importance of networking?

• 19:13Speaker 03

  I think networking is really important, perhaps the most important thing one can do. However, I think the definition of networking, the stigma that often is associated with it, is not what I mean. When I think of networking, the most powerful networking is when you have genuine, warm relationships with a small group of people. That is networking. Networking is building and developing existing relationships. And through existing warm relationships that are mutual with no, by the way, often business expectation at all, that's when the best business networks are developed.

• 19:52Speaker 03

  So for example, one of the people who is involved with my fund was somebody who I got to know in a personal capacity. He and I became very good friends. I got to know his family and I remember doing something for his kids. And we were just friends. We had no expectation of anything. And then when I go out to raise my fund, I tell him about it and he's like, oh, I know a guy. And he picks up the phone, calls a guy. That guy ends up putting one of my biggest checks. No expectation of anything, but that's how it happens.

• 20:31Speaker 03

  And I think even professionally, when I look at a company like Andela, I got to know Jeremy through a number of different ways. When I was at Bessemer, he had founded 2U, which was one of the companies. And then he and I were both on the Forbes 3030 list the same year. And then we got to know each other through that. We were really friends for probably three or four years. And then he said, hey, by the way, I'm about to start a company. We started chatting and I said, look, I don't really know what you're doing. This Africa thing sounds kind of crazy, but I'll invest because I believe in you. And it's those friendly relationships where I trust people and they trust me that have turned into my most important professional relationships.

• 21:11Patrick O'Shaughnessy?

  I think that that's probably the best definitions of proper networking that I've heard. Networking implies like a big number of vertices and nodes and hubs in a network when in fact more tightly knit, you know, 15, I'm thinking like Dunbar type numbers, like 15 people or something can produce probably more interesting outcomes. And the sooner you start to develop, we'll call strong vertices in the network, the better results you'll have, as long as you don't expect anything from it.

• 21:36Speaker 03

  I expect nothing. And I think the flip side is nobody expects anything, but. I think if people think networking occurs at conferences, cocktail parties or whatever, it's wrong. I don't go to any of that. I'll occasionally host maybe one or two dinners a year where I bring together my closest friends. And that ends up being more valuable than any party or any conference or anything that I could have gone to. And I think the other thing that I think is important to note, though, when it comes to networks, is the most powerful networks are the ones that are diverse. People think the strongest networks are when I, for example, know all entrepreneurs, or when a politician knows all other politicians, or when a CEO knows like all other CEOs.

• 22:19Speaker 03

  That's useful, but the most valuable networks are the ones that are cross-sector, cross-discipline. For example, one of the people who is going to be a board partner for my firm is the former Prime Minister of Australia, a woman named Julia Gillard. First and only female Prime Minister of Australia, an amazing woman. She gave a very famous speech on the House of Parliament on misogyny.

• 22:43Patrick O'Shaughnessy?

  I remember it.

• 22:44Speaker 03

  And she is my first board partner, and she is joining the board of Andela. Andela wanted her because of her wealth and diversity of networks. She knows folks in politics, but she knows CEOs, she knows entrepreneurs, she knows everybody. And that is so useful, because that's when you can, from a node perspective, that's when your node is like a circle, as opposed to a line only leading towards one area. And those are the types of folks I try and surround myself with.

• 23:19Patrick O'Shaughnessy?

  So I'd like to move now to some of the hot topics and hopefully less-covered topics that you're also interested in within various industries or aspects of the venture capital landscape.

• 23:33Patrick O'Shaughnessy?

  We'll start with some of the more popular ones to get your take, get your opinion. And then I'd also love to just hear from you which areas you're focused on that maybe you think venture capital broadly is mistakenly avoiding. We'll start with driverless cars. So that's one that when we were chatting ahead of this conversation, you had mentioned you have a particular interest in. So maybe you could give your impression of where we are in this very popular topic. And we'll get into some of the potential implications of the timeline that as you see it.

• 24:02Speaker 03

  So I think the driverless car could be potentially the most important technology transformation of our lifetime. If you think about it, 100 years ago, we moved from horses to cars. 100 years later, today, it's going to be cars to driverless. And let's start with where we are, and then we can talk about where, when I think it's going to be available. So where we are. We are in a place where many of the big tech companies, whether it's Apple or Google or Uber, some of these folks, as well as the traditional OEMs, they have built the technology. It mostly works. However, it is not at a price point yet that is affordable.

• 24:47Speaker 03

  And they have not yet solved for edge cases. And edge cases are what are going to make or break the driverless car. For example, how will the car perform in instances where there's two feet of water? Or there's a blizzard? Or a kid runs across the street? Or basically things that haven't been tested, unknown unknowns. And with a human, you would think, whether humans do it well or not, and the argument is probably they don't do it well. With humans, you know that in theory, some intelligence will dictate what occurs. Now, of course, automotive deaths are one of the leading causes of death in this country. So maybe humans are not good at this at all and shouldn't be doing it.

• 25:33Speaker 03

  But in theory, you know that a human can make that decision. Whereas we don't yet know what the driverless car will do. So that needs to be solved, and there are companies working on that problem by both modeling edge cases for the car and then programming how it should react to the Google car driving everywhere and hoping that in the millions and maybe tens and hundreds of millions of miles that it logs, it will come across some of these edge cases. But that's going to be the big barrier. So that's one. I think the second is insurance. You know, we haven't really solved the insurance problem. Who becomes liable in the case of catastrophe? Is it the software? Is it the hardware? Is it the government? Like, is it the owner of the car? I mean, who?

• 26:18Speaker 03

  And we haven't solved that. And then the third is obviously the regulatory. This could happen really slowly. It could happen really fast. I'm not sure. My instinct is to say it's going to happen slowly. I think the reason it's going to happen slowly is not necessarily because of the fact that the technology doesn't work. I actually think it's going to happen slowly because of the political ramifications of allowing the driverless car. If you think about it, car driving, truck driving, bus driving, taxi driving is the number one job in America. I think more than 3 million people, more than 1% of our population, is a driver of some sort. In theory, all of that could be gone. That is a huge number of people. I don't think we've ever had an instance in our country, maybe in the world,

• 27:03Speaker 03

  where such a rapid transformation and dislocation of employment is going to happen. So in a country where we're trying to create more jobs, not remove jobs, this is going to be the polarizing issue. So I think that is going to be the main challenge. And historically, innovators have not done a great job interfacing with the government. There's been this political apathy that's occurred in Silicon Valley where it's sort of an us versus them mentality, which I think is the wrong approach. If you think about it, the government actually created a number of technologies that Silicon Valley is built upon. The internet was created by DARPA. GPS was created by DARPA, et cetera. And they're going to need to engage really closely and work out how this is going to be a win-win for everybody

• 27:47Speaker 03

  and not just for the tech companies that produce the technology.

• 27:50Patrick O'Shaughnessy?

  What do you think are the big benefits? So that's one potential drawback is a loss of a lot of jobs. In thinking about, maybe you can set the timeline, let's say it's 10 years out, 5 years out, 15 years out, something like that, where most movement of people and stuff is happening through automated vehicles. What are the maybe non-obvious side effects of that that are good for the country, for the world?

• 28:16Speaker 03

  I think there are a bunch. I mean, I think the driverless car, by the way, is going to happen. It's not a matter of if, but when. So here are the biggest side effects. I think the most important is preservation of life. You immediately remove a lot of, drunk driving in theory wouldn't exist anymore. So there are going to be a lot of lives saved, the driverless car, in theory, if it works. I think a second benefit is going to be productivity gain. Think about the amount of time Americans and people around the world spend commuting. I don't have the statistics in front of me, but if I were to guess, I believe I had read something that the average American spends more than 30 minutes a day commuting, and it's probably even more than that.

• 28:57Speaker 03

  That, in theory, could become productivity time instead of commuting time. That would be, that would have a massive economic impact on the world. I think the third thing is it's going to reshape how cities are created and planned for, and maybe even cause a migration back to the suburbs. Because today, people often live near each other, and there's been this urban migration, I think, because of jobs, I think, to remove commutes. I think it's more exciting. But the moment commutes go away, it opens up the world to everybody. So those are going to be some of the most transformational impacts.

• 29:34Patrick O'Shaughnessy?

  What do you think from an investing standpoint is the most interesting way to, if you were making investments in your fund, to benefit from this change? So I've seen things about software technology within the driverless cars, kind of the interface of this opened up time that you talked about. Are there less obvious or even contrarian ways of investing in this vision or technology that people are overlooking?

• 29:58Speaker 03

  So here's the problem with investing in the driverless car as a venture capitalist. Much of the innovation is hardware innovation, and that takes many millions, maybe billions of dollars, which most venture capitalists can't do, nor should they take that type of risk. So where it's really interesting is the software layer. And what I'm most excited by in the companies that I'm tracking are companies that are doing things that the hardware will require. For example, mapping. Right now, things like Google Maps are really good for calling an Uber. And you know, I'm roughly here. They're not good enough for things like the driverless car.

• 30:42Speaker 03

  You need to have millimeter level precision for the driverless car. Google Maps does not have millimeter level precision. So, mapping companies, for example, are going to be huge and critical for the driverless car. And that's something, in theory, you could do on a venture investment. Another are the edge cases that I mentioned. Using artificial intelligence to model edge cases and to figure out reactions to those edge cases. That, I think, is going to be really interesting. I think the third might be in-vehicle software. This might be a step, maybe not today, but if I'm sort of looking out a couple of years.

• 31:27Speaker 03

  What is the ecosystem that's going to be built now in the vehicle? The vehicle could be completely reshaped. It might not look the same way that a vehicle looks today. There's no reason for it to, if you don't need a driver. But how is that platform going to change? And people say that that platform could be almost as valuable as the iOS platform, or the Netflix platform, or a television platform where you have an audience for a captive amount of time every day. And how are you going to monetize that? So, my guess is there are going to be technologies all around there that are going to be venture-backed. And that's what I'm excited to continue looking for.

• 32:03Patrick O'Shaughnessy?

  There's a couple of the really hot areas in technology. And it'd be fun to just do sort of an overrated, underrated, quick round, go through some of these things, and then we'll get into some of the things that you're looking at that maybe aren't in these categories. So, the first is kind of augmented or virtual reality. What's your take, overrated or underrated, on those two things?

• 32:21Speaker 03

  I think overrated for the general term. Everybody's like, oh, augmented reality this, augmented reality that, VR this, VR that. I mean, great. It's a new technology. I think it'll have very particular use cases that are interesting. For example, gaming. It might be fascinating and transformational. You know, a bunch of football teams now use virtual reality, for example, to train. Those specific use cases are interesting, but as a, to focus a fund on that or to just invest in technologies like that, I think the technology might be greater than the actual solutions out there.

• 32:54Patrick O'Shaughnessy?

  You already did blockchain, which I'm assuming your answer remains highly overrated.

• 32:57Speaker 03

  I think I'm contrary on this. I'm, I think it's overrated. I mean, I used to think it was underrated, but now I think it's overrated. People say, well, nobody's heard about it yet. Actually, I'm pretty sure everybody's heard about it yet. You know, like everybody, when governments around the world are taking action on it and every news channel is covering it, I'm pretty sure everybody's heard about it. And so, and you have to assume people are intelligent and you have to assume that the price is all priced in. So, I don't know, I think it's overrated.

• 33:27Patrick O'Shaughnessy?

  Next one is machine learning slash artificial intelligence, which is a huge focus for a lot of those big tech companies you mentioned earlier.

• 33:33Speaker 03

  I think this is underrated. I think this is going to be massive. Artificial intelligence is going to impact everything. It already is. And why wouldn't it? At its core, artificial intelligence is essentially using data to make decisions. And as we are increasing the amount of data available and increasing the power of computing and increasing the power of the algorithms that we build, why wouldn't we apply that to every facet of our life? So I think this is underrated. I think there are going to be big companies continue that are built on this. There already are many, many companies that are massive that are essentially purely AI companies. So I think it's underrated.

• 34:14Patrick O'Shaughnessy?

  Last one, and then we'll get into some other stuff. Drones.

• 34:17Speaker 03

  I.

• 34:18Patrick O'Shaughnessy?

  Properly rated?

• 34:19Speaker 03

  You know, I think, yeah, I don't know. I mean, huh. I think, depends on for what use case. I think drones as a military application, underrated. I think drones as a commercial application, probably fairly rated. I think it's going to be a hobbyist sort of thing. It's going to be great for photography and videography and, you know, weddings will be done via drones. And so I think, I think it's going to be interesting. I think where it could be underrated is when you think about drones as a form of transportation. If you think about like Amazon and what they've talked about with, in the future, they're not going to FedEx you something, they're going to have a drone deliver it right to your doorstep. That's kind of cool. And I actually think that world is not that far away.

• 35:03Speaker 03

  The biggest issue with the companies that I've seen that are drone companies is not that ambition. The biggest issue right now is the cost and the payload. They have a amount of weight that they can support for the drone missions. And they need to expand that and they need to figure out a cost-effective way to do it. And then, obviously, the regulations need to adapt.

• 35:26Patrick O'Shaughnessy?

  So everyone's talking about those five things. So what are other categories that we should be thinking about or talking about? Maybe specifically industries or categories, pieces of technology that you'll focus on or try to focus on when searching for young entrepreneurs?

• 35:38Speaker 03

  Let me caveat this with, I tend to actually not be technology-driven, technology-specific. And the reason for this is, nobody had a taxi thesis when they were investing in Uber. I did not have a brokerage thesis when I invested in Robinhood. I generally think that we might have general ideas where the world is going. But specifically, in a company innovation, if we had that idea, we would have built, we should have built it ourselves, if we could have. So I just try and find the best entrepreneurs and then get up to speed quickest on what they're building. That being said, other than the things we just talked about, I think there are a number of traditional sectors that are ripe for innovation. We already talked about education. Education is ripe for innovation all over the world.

• 36:23Speaker 03

  And not just primary or secondary education, but retraining, vocational training, it's going to become more and more critical as some of the trends we've talked about related to unemployment occur. So I'm very focused on education. Another thing I'm focused on is public safety software. So there are a number of ways we can improve the safety of our country using software. And we already have in some capacities and others we're woefully behind. And one example I think is a really good one is as it relates to natural disasters. So I was just in Houston. We just had Hurricane Harvey and it was catastrophic. It was, you know, there were folks who I know who have lost their homes.

• 37:06Speaker 03

  And it was sad and it was unfortunate. But you also saw, by the way, the best of America and the best of humanity through that, where you saw complete strangers helping each other and opening their homes to each other.

• 37:22Speaker 03

  But technology can help. Now, it can't solve everything, obviously, but I'm an investor in a company called One Concern. Amplio, my fund, is an investor in One Concern. And the company is using artificial intelligence to help first responders and agencies like FEMA figure out exactly what damage occurred and where due to natural disasters. Part of the issue with a natural disaster, like a Hurricane Katrina or Hurricane Harvey, is a lack of accessibility to first responders. Nobody has any idea what damage happened, where it happened. Think about it. There's three feet of water. Well, how are they going

• 38:03Speaker 03

  to get in and assess? And the 911 system are all overloaded because everybody's calling for help. So what this company does is it takes thousands of data inputs from what material is your home made of, when was it built, what time did the hurricane occur, what is the likely occupancy of your particular home at that particular time, how high is the home? Basically, every single thing you can think of, some publicly available, others private, aggregates it all and uses that artificial intelligence, as well as has run back tests on different hurricanes, to help first responders figure out what damage likely occurred. And agencies, both federal, state, local, all around the world, are already

• 38:46Speaker 03

  using this software, or will use this software, hopefully, to help save lives, because sometimes minutes in these instances can be the difference between drowning and not.

• 38:54Patrick O'Shaughnessy?

  Do you think that, given the frothiness of the venture capital space, that it's the responsible thing to do for founders to maybe raise more money than they necessarily need today in anticipation of, say, a change in the liquidity of the fundraising market?

• 39:10Speaker 03

  You know, I found that

• 39:13Speaker 03

  Even in downturns, the best companies still get funded. So I tend to caution my founders against raising too much money. I think there are a lot of reasons why it can be seductive, but there are also reasons why it could be dangerous. Seduction's obvious. You have more money, you can do more stuff. The downsides are pretty real, though. One downside is often when you have more money, you tend to spend it quicker, which is dangerous. I think that's particularly dangerous because it increases your burn, which means that you have to grow quicker. And if you don't hit your milestones exactly correctly, you could be in more trouble than you were before. The second reason is it dilutes you.

• 39:58Speaker 03

  If you're raising more money today, you're not going to get the same valuation as if you continue to execute as you say you will and raise that money in the future. So you're diluting yourself potentially unnecessarily. I always think it's useful to have a buffer, but I don't think it's useful to be irresponsible.

• 40:13Patrick O'Shaughnessy?

  As you're advising, you mentioned earlier that one of the benefits of seed or early stage investing is that you can actually impact the direction of the business. As you're thinking about simple business levers, are there things that you encourage your founders to think about and focus on? So I've had some venture capital-specific conversations on the podcast, guys like Andy Rakleth, where we've talked about the value proposition, sort of product-market-fit, the growth hypothesis, how you scale. What we haven't really talked about are things like acquisition costs, unit economics, methods for scaling via marketing, et cetera. Are there kind of nitty-gritty aspects that you feel are especially important that founders

• 40:55Patrick O'Shaughnessy?

  focus on where maybe they don't do so naturally that you can bring to the kind of early-stage formation of the business philosophy?

• 41:02Speaker 03

  You know, I think there's some general things that are just useful to remind founders, and then there are unique things. So the general things are some of the stuff you mentioned. I, just because of what I do, I see many companies, and I see the comps, and I see what's worked for this company, what didn't work for that company. So relaying that knowledge and saying, here's what's worked.

• 41:26Speaker 03

  And here's what hasn't worked. And here are some of the important metrics to track based on what has worked. Customer acquisition costs, lifetime value. There's some standard ones and there are some non-standard ones based on the type of company. So an Andela, it might be retention rate. For a Robinhood, which is free brokerage, it might be things like trades per day or growth in AUM. So they're different metrics for different companies. So that's sort of the general stuff. But you know what? The great founders tend to know all that stuff. So reminding is helpful, but it's not game changing. I think the game changing stuff comes when, and this is my philosophy on the best venture capitalist.

• 42:05Speaker 03

  I think the best venture capitalists add 10x the value for 1/10th of the time. And they do things that the founder is either not thinking about or doesn't have the bandwidth to do and that the venture capitalist is uniquely in a position to do. So for example, that could be recruiting an independent board member that is extraordinarily useful for a company. The venture capitalist might have a network with somebody that the founder may not. That could be game changing. Another example is potentially PR related. So I remember Marc Andreessen, when he first invested, I think in Coinbase, or maybe it was Fred Wilson, anyway, one of these guys, they wrote a ton of articles on why Bitcoin is the future.

• 42:49Speaker 03

  And they talked to regulators about it and all sorts of stuff. The founders of this company couldn't do that. They didn't know them, they didn't know the regulators, they didn't have the clout, but the venture capitalist did. What did that do? It helped gain a broader acceptance, which directly drove growth to the company. It also helped the regulators not freak out. Because they're like, oh, there's somebody, a bunch of legitimate people talking about how this is awesome and how it could help everybody. So those sorts of 10x things for 1/10th of the time, I mean, what, it was an op-ed in the New York Times and it was, you know, a couple of phone calls? Could be transformational.

• 43:26Patrick O'Shaughnessy?

  It gets to the same notion of technology as a point of leverage that you can do more with less. And it seems that, given the clout that a lot of the most famous venture capitalists have gathered for themselves, that they can make that impact early on. That's a neat potential edge. As you think about the deployment period or the investment period for your fund, and obviously, this is going to be a total guess, and it could range around. But if you had to guess the balance of domestic versus international investments that you will make in Fund One, what do you think that'll look like?

• 43:57Speaker 03

  I have told my investors that the best entrepreneurs can come from anywhere, can be any religion, any race, any gender, anything. Today, I still believe most of the best entrepreneurs come to America, or are American, or live in America. So my guess is 80% to 90% of my companies in Fund One are American companies focused on American problems, but with

• 44:22Patrick O'Shaughnessy?

  A global.

• 44:23Speaker 03

  Global interests and ambition.

• 44:24Patrick O'Shaughnessy?

  And Dela as an example.

• 44:25Speaker 03

  Actually, Andela I would classify as an African, I mean, like, not an American company. It is a Delaware corp, and it is domiciled in the US, but, I mean, that's truly an African company.

• 44:34Patrick O'Shaughnessy?

  That's real focus this year, yeah.

• 44:35Speaker 03

  I mean, more a company like One Concern, which is global ambitions, disaster prevention and relief everywhere, but initial target market US, but Kashmiri founder, who was a Muslim, went to Stanford. He often says that, under today's laws, he wouldn't even be allowed in this country. And now, he has founded one of the most competitive, it was one of the most competitive deals in the Valley. So, anyway, 80% to 90% for now. And then I would say Fund Two, or in the future, I only think the rest of the world is going to get more and more competitive. And if we're continuing to trend down the path that we're right now trending down politically, where we are making America less of a welcoming

• 45:18Speaker 03

  place for immigrants, then I think it's going to open up opportunity for other countries to welcome innovators.

• 45:25Patrick O'Shaughnessy?

  We started with Africa, or the notion of your historical global travel having been kind of all over the world. What is your most memorable travel experience?

• 45:35Speaker 03

  The first thing that popped into mind was Cuba. So I got to go to Cuba with President Obama in 2016. And it was a transformational trip for- How did that happen? How did that come about? You know, I still wonder. I'm like, why did they invite me? I still wonder. I think it was because I had done a State Department often does trips around the world for promoting diplomacy and various things. And I went on one trip to Southeast Asia, to specifically Vietnam and the Philippines. And the point was to meet entrepreneurs and essentially help create ecosystems of innovation everywhere. And it was then that I got the invitation to go to Cuba. And it was a, I mean, a huge honor for me. Right?

• 46:18Speaker 03

  I mean, it was the first trip that a sitting US president had taken since 1929, Calvin Coolidge. And it was supposed to be the opening of the relations. And so, and the president took 15 business executives along and then, you know, 35 government folks, congressmen, senators, cabinet officials. And huge honor for me. But I think the biggest, what I remember of that trip and what I take away from it most is my interactions with the entrepreneurs. Cuba is a country that is socialist, truly socialist. It is, prior to the trip, it was illegal to be an entrepreneur. It's a felony.

• 46:58Speaker 03

  Yet, I met entrepreneurs who were committing crimes that in theory would have put them in the equivalent of jails for the rest of their life. But they wanted to do that to make a better livelihood for their family. They were sitting in the public squares where internet is $2 for an hour in a country where the average citizen makes $20 a month. And they were trying to hack into the wifi to be able to access it better. Or they were sitting in hotel lobbies or right around the hotel to access the internet and create a better life. And, and that was on the technology side, but- Even many of them were opening restaurants in their homes. Cuentopropistas, they're called, as a result of the trip, or maybe after the trip,

• 47:40Speaker 03

  or I don't know what it was, but Cuba actually loosened their strictness against entrepreneurship. In other words, they made it better and more allowable to be entrepreneurs. But it was meeting people who were risking their lives for something that I and we in America take for granted, which is entrepreneurship and innovation and its potential to change lives. Meeting them was an experience I'll never forget.

• 48:06Patrick O'Shaughnessy?

  Makes me think of entrepreneurial spirit and an interesting question, which is, what is the best decision that you've ever seen one of your founders make? Best individual decision?

• 48:18Speaker 03

  God, I have a lot. I found that the best decisions are, tend to be decisions where the founders truly integrate themselves into the communities that they are working with and helping. For example, I can give you stories about the companies I've already talked about, but I'll give you a new story. So there is a company called Mark43 that is an Amplio investment. And what they do is they replace the software essentially in the back of police cars. So police, the software that they use for record managing, but also coordination between the different agencies, was created, this is legacy old software, created 20 to 30 years ago.

• 49:03Speaker 03

  Today, officers tend to spend just as much, if not more, time in putting stuff into software as they do actually patrolling and doing things for the good of public safety. So this company was like, we want to change that. We want officers to do their jobs and this other administrative work they shouldn't be doing. That's step one of the company. Step two is using the data they've collected to allow officers to make better decisions, which I think could be huge for not just public safety, but for racial relations. If you think about what's going on in this country as it relates to body cameras and all the issues that have happened with particularly white police officers and black drivers and black stops, let's say.

• 49:48Speaker 03

  It's hugely ambitious. Now, this company has rolled out with cities like DC. So DCPD uses this software. The decision that the founder made, the reason I gave you that story, the decision the founder made was he wanted to go on ride-alongs with the police officers. This is potentially life-threatening. And as an investor, I'm like, you sure you want to go on a ride-along at 3:00 a.m. in DC, in the hood? And he was like, look, if I don't do this, then how am I going to understand what actually happens? And how am I going to understand what the officers need, what the community needs, what the relationship is like between the two, what each constituent is going to want in this product, and how they're going to react?

• 50:31Speaker 03

  And how do I make sure that the biases that are built into this product are the right ones and not the wrong ones? So, he risked his life. Every time you do one of those, I mean, we know this, officers are very often killed in the line of duty, and God bless them because they are doing hero's work, but it's dangerous. And he's not even a trained officer, he doesn't even hold a weapon, but he's going along with these guys. So, that's the type of stuff I respect. And my founders, the ones I want to back are the ones who experienced the problem that they're tackling for themselves.

• 51:03Patrick O'Shaughnessy?

  Last question, which is, for those that are newer to the idea of venture capital and interested in entrepreneurship and/or venture capital, are there resources or things that you recommend people do as a first step? Sometimes there's no substitute for actually doing it yourself, so finding a way to make a small investment in a company, or 10, or whatever. But are there any special recommendations that you might leave people with who want to learn more about all this?

• 51:28Speaker 03

  Yes, I would say there are a couple of things to do. I think the first is read. There are a bunch of things you can read from articles and news publications, The Standard or sort of like The Tech Crunches and The Venture Beats of the world. That should give you a sense of what's happening. But I also think there are a number of books that are useful, and the authors to look up are, Bill Draper is one of the most prolific venture capitalists, I think one of the founders, frankly, of the venture industry. He's written a great book. Even books like Adam Grant's Originals is useful as you think about how to evaluate companies and what makes originals originals.

• 52:06Speaker 03

  Entrepreneurs are originals. So they're books. And then there's investing. So it depends on your means. If you are of means, I would say go be an investor in one or two venture funds. You'll learn how they do it, and it'll give you opportunities to see what they're investing in and potentially co-invest on some of their opportunities. I usually recommend that over just being a venture capitalist yourself, not because I don't want other venture capitalists, but I think it's actually really hard. I mean, the best deals are ones that are competitive, and they have to be in the game. And so what sometimes I worry that if you haven't done this before and don't have that network, then the opportunities you see might be the stuff that is more publicly available.

• 52:49Speaker 03

  And if it's more publicly available, you should ask yourself why. And usually, that's because they didn't raise from the top venture firms. So I wouldn't want the first experience to be a negative one, where the returns that one is hoping for is not what they get. But if you do invest directly in companies, dabble, do a very small amount until you know this is something that you're uniquely suited for.

• 53:13Patrick O'Shaughnessy?

  Well, this has been really fun, Sheila. I think that it will be neat to check in with you maybe a year or two from now to see exactly what the portfolio's begun to look like, maybe keep our fingers on the pulse of different trends. This has been edifying. Thank you.

• 53:27Speaker 03

  Thanks for having me.

• 53:28Speaker 04

  Hey, everyone. Patrick here again. To find more episodes of Invest Like the Best, go to investorfieldguide.com/podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com/bookclub. After you sign up, you'll receive a full investor curriculum right away, and then three to four suggestions of new books every month. You can also follow me on Twitter, @Patrick_OShag, O-S-H-A-G. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening.