Pod Insights The Pomp Podcast #1207 Yuri Sagalov On How To Invest In Billion Dollar Startups About this episode Yuri Sagalov is the founder of Wayfinder Venture Capital Firm. In this conversation, we talk about his background, working at YC as a partner, various investments like Flexport & Boom Supersonic, how he thinks about early stage market conditions, what he looks for in a potential partner, and what the benefits are of being a solo investor. ======================= Pomp writes a daily letter to over 235,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/
Transcript 14,118 words · 4 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:02 Anthony Pompliano? What's up everyone. This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. We have no advertisers on this podcast, so it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Yuri Sagalov is the founder of Wayfinder Venture Capital Firm. In this conversation, we talk about his background, working at YC as a partner, various investments like Flexport
0:43 Anthony Pompliano? and Boom Supersonic, what it's like to work with Paul Graham and Jessica, how he thinks about early-stage market conditions, what he looks for in a potential partner for a venture capital investment firm, and what are the benefits of being a solo investor. I really enjoyed this conversation with Yuri, and I hope you guys enjoy it as well. Once you get done listening, jump on Twitter and let us know what you liked, what you didn't like, what you agree with, and what you disagree with. The feedback is always helpful. Here is my conversation with Yuri Sagalov.
1:12 Speaker 01 The action's on the court, and as the official beer sponsor of the NBA, Michelob Ultra is getting fans closer to the game with a chance to win courtside seats, merch, and more. Visit michelobultra.com/courtside to enter. Michelob Ultra Courtside, 26 to 27. No purchase necessary. Open to U.S. residents 21+. Begins on October 1st, 2026, and ends on June 30th, 2027. Multiple entry periods. See official rules at michelobultra.com/courtside for free entry, entry deadlines, prizes, and details.
1:40 Speaker 02 Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.
2:04 Anthony Pompliano? All right, guys. Bang, bang. I've got Yuri here with me. I thought a great place to start this conversation would be on your background, getting into investing. You actually are an engineer by training, and so a lot of engineers, I don't think, have kind of an aspiration to eventually become a full-time investor. But talk a little bit as to maybe the pros and cons of being an engineer-turned-investor.
2:24 Speaker 03 Sure. First of all, thanks for having me. I'm excited to share. You know, for me, the story starts like I always wanted to be an engineer. I wanted to be an engineer since I was probably like six years old. Not like a real engineer, I wanted to be a like to build software since I was six years old, got my first computer. And so when I was in undergrad, I'd actually started a company, it was like a web hosting company. That was my first foray into entrepreneurship. And when I graduated from undergrad, I was trying to figure out what I wanted to do next. And I knew I didn't want to go work at a big company. I had done an internship, long internship at a very big company and it just like wasn't for me. And so it felt like a good thing to do would be to go and do grad school.
3:09 Speaker 03 And so I started grad school with, I think, the intention of never really finishing it, but just having some time to think about what I wanted to do next. And so in grad school, I met another PhD student and he and I started a company together. And when it was just an idea, we decided to apply with it to Y Combinator. And that was back in 2010 and got accepted, moved down to the Bay Area. So we're all none of that, like at any point in time that I think that like, oh, I'm gonna go and become an investor. You know, to me, being an investor meant like public markets investing. I didn't really think of startup investing as a real thing. Like it just then occurred to me that it wasn't even a possibility. And so when we moved down here and we started building the business, we obviously raised money.
3:53 Speaker 03 We raised a seed round, an A round, a B round. And along that way, I also got asked to come and help at Y Combinator. And that was my first real introduction to being a investor on the venture side of things. So like I started working at Y C in 2014. I worked there for about five years. I was a part-time partner for four years because I was still running my company full-time. And then after that, I hear my, after my company got acquired, I actually joined the Y C full-time and worked there for another year. And that was, you know, that like there, it was just like a fire hose of startups. And you start realizing that, oh, you can actually like write an angel Check for the startup.
4:35 Speaker 03 And that was for me like the first case, you know, like I never really thought of myself as a even an investor when I was at Y C. But it was like the first angel check that I wrote to a company uh was my introduction to being an investor. And so then when I left Y C, um I actually spent another year trying to figure out what I wanted to do next. I didn't think I would start a fund. I thought I would start maybe another company or maybe join a V C fund. I spent probably half a year talking to a bunch of V C's and ended up thinking that like, you know, I like investing. I like seed. I didn't really like the politics of a lot of funds and ended up deciding that, okay, I'll do I'll do my own fund instead.
5:17 Anthony Pompliano? When you think back to your time at Y C, it's interesting. You went through the program and then you saw a bunch of companies go through it. I just think of like practice, right? You probably didn't think of it as practice, but you were practicing. You're developing that pattern recognition. Talk a little bit maybe about some of the things looking back that you noticed in founders that now you have the data points to know who was successful and who maybe wasn't as successful as you thought at the time. Like, are there certain things that you can point to and say, you know, now this is a pattern that I recognize? Just seeing so many startups go through the program over five years?
5:49 Speaker 03 Yeah, so I think that like it it's definitely about reps. You know, I think that like as an investor, especially at seed, it's all about reps and getting as many practice reps as you can. And the benefit of Y C is I think while I was there, we had funded about a thousand startups. And so you do get to see it at scale. I think that the characteristics about founders that really stand out is just kind of this like bias towards action. You know, that a lot of founders or a lot of people in general, just, you know, they they'll start a project and they'll just never finish it. And honestly, just like finishing a project is uh one of the, you know, something that will set you apart from a huge number of people.
6:30 Speaker 03 And on the Y C application, one of the questions that people that gets asked of each founder is like, what's something impressive other than the startup that you've actually built? Right? And to me, that question has always been around, like, have you actually started and finished something that you're proud of? And so I think that that one is like that characteristic is really important. And the way that it shows itself is in velocity, right? Like, how quickly are you moving? How quickly are you building stuff? How quickly are you iterating and learning and making mistakes? It's in scrappiness, right? It's like, what are you able to do without any funding, right? Like, when I went through Y C, we got like seventeen thousand dollars and it felt like a lot of money. Right now, the program obviously gives you substantially more than that.
7:13 Speaker 03 But the best founders will be able to succeed even if they didn't get that money. Right, and they're able to do that because they're usually technical, right? Like, the benefit of being a strong technical founder that can actually build things is that you don't need a lot of money. You just need a computer and you can end a Wi Fi connection. And so those characteristics to me, just like the scrappiness, the velocity, and just like getting things done at a very fast pace are probably the strongest indicators of success in founders.
7:42 Anthony Pompliano? This brings up a really interesting point, which is, I think, a lot of investors, especially when I'm talking to these managers and thinking about investing in their funds. I'll say, you know, hey, what is your kind of competitive advantage? How are you going to be able to win access to these deals? And most of them will revert back to like how helpful they'll be, right? And they'll kind of brag about all the things that they're going to do to help their portfolio companies, which like, I do think it's people with good intentions and they want to be able to do that. But in some ways, you're highlighting the fact that like, maybe the best companies are the ones who actually don't need any investor help. Like, they're going to be successful without funding. They're going to be successful without a bunch of help externally. And so is it something where you want to find the founders who would be successful otherwise? But then you want to be helpful in order to help kind of increase the probability of success?
8:27 Speaker 03 I think so. I think that those characteristics are true in the sense of like, you definitely are looking for founders where you feel like they will succeed, whether you're there for them or not. But as an investor, I think it's always a good feeling where you feel that like, you know, they will succeed, but maybe you can help them avoid some mistakes. And when I invest in a company, you know, it is a cliche. Every investor says that they try to help. I try to help in a very specific way. I was an engineer that became a founder that had to learn how to sell. And in the early days of being a founder, you usually have to do all the founder sales yourselves, or the sales yourself in general. And so when I invest in companies, part of what I offer is to do office hours and help when they're going from like zero to a million in ARR, when they're doing the founder selling,
9:09 Speaker 03 when they're coming up with their first pilots, success criteria for those pilots, sales agreements. And all those founders would figure it out anyway. But you know, if they could figure it out in 18 months and make a bunch of mistakes, and maybe I can help them figure it out in 12 months instead and make a few fewer mistakes, that actually allows them to hit that exponential a little bit sooner. You know, so I would never take the credit for a founder's success. I think that they do that all on their own. But if I can help them just move a little bit in the right direction, or avoid a little bit of like a mistake that they would have otherwise made, I think that for me as an investor is a very good feeling.
9:45 Anthony Pompliano? Talk about the environment at YC while you were there. So one of the aspects that's most fascinating to me is if you take a bunch of ambitious people who are, you know, aspiring to this great level of success, frankly, in some cases, trying to do insane things based on almost any other measurement from somebody outside of the building, and you put them all in that same place. Is there something special about that? Like, how much of the success of these companies is literally just being around like other insane, highly driven people? And then that forces you to kind of want to level up your game and really kind of be successful to compete?
10:18 Speaker 03 I think it's a huge portion of the success. I think it is the disproportionate portion of the success. It's like putting a bunch of smart people together in the same room. And I think that it manifests itself best because like you could say that, oh, you know, in the beginning, all the YC, like it was a lot about the advice. And the advice is still very, very important, but YC has actually open sourced a ton of that advice. You can go to ycomer.com, you can go to Startup School, you can go to the YouTube videos, it's all out there. You can consume as much of it as you want. And so in principle, at least, you should be able to go and use all of that advice and build a company. And but you still see these like disproportionately successful companies coming out of YC. And the reason in my mind is that you do put smart people together and you do these
11:03 Speaker 03 office hours together. And every single week you show up and you say, what did you get done this week? And nobody wants to show up and say that they didn't do something, right? And so it creates this like high velocity, high pressure environment that's like everyone loves. And it lets you perform at a level that you otherwise probably wouldn't have performed on your own. The other thing that it does is it allows you to use Y C as a shield and an excuse from the external world. To say that like, hey, for the next three to four months, I am busy doing this thing. Please don't disturb me unless it's an emergency, right? And so it allows you to really focus in a way where like, if you're just working on your own and you're working from home. And external type like people are coming in or grabbing your attention, it's very difficult to actually turn them down.
11:49 Speaker 03 Because Y C kind of gives you this shield, this community shield that says, hey, for the next three to four months. Turn all the distractions off and go and do this thing. And I think it's those things together. It's like the smart people in one room. Plus the ability to actually turn down the noise for a period of time.
12:05 Anthony Pompliano? It's interesting that you bring up the fact that Y C is open source so much of the advice, right? I think that's a net positive for the startup world because obviously now all these people get access to that advice. And it can help them move the needle on their companies. One of the downsides, though, that I've noticed is like, there used to be this pattern recognition of certain ways that people thought. Or certain things that they would say as you were kind of talking to them to invest in their business. And I've noticed over the years that I call it like a blog post founder. It's like they went and they read all the blog posts and now they're just repeating back the things.
12:32 Speaker 03 It's like the chat G P T of startup advice. Yeah, or not startup advice, chat G P T of like startup answers rather.
12:38 Anthony Pompliano? Yes. And so in some weird way, you almost have to like, kind of have a measurement on like, do they actually believe what they're saying? Or they just regurgitating back what they read in a blog post? And you know, it doesn't take long to kind of get at the authenticity of it. But I do think that there is not 100% upside. It has made some investors' job a little bit more difficult. Because now some people have the right answers, but actually they may not even know what that means in terms of implementing them.
13:02 Speaker 03 Well, I think that I think that there's truth to it. I think that like people have been trained to talk to investors in a certain way now. And partially it's because of all the videos that people have watched online. But I think the reality is to your point that you can go and parse that out pretty quickly. One of my favorite, you know, like I think that you can give all the answers in the world, but like the moment you dig in on a customer question or something else. It all, you know, the truth comes out. And so for me, one of my favorite questions to ask founders is often just like, what's something surprising that you learned from a user? Right? And I think that question is really interesting because it probes like, did you actually talk to any users? It also probes like, did those users actually try your product?
13:45 Speaker 03 And the reality is that like same as with a business plan, like the moment that a user tries your product, they're going to use it in some unexpected way. They're going to do something that you didn't build it for. And your ability to internalize that and see how people are interacting with it will come through in your answer. Right? And so you can write, read all the blog posts in the world about how to talk to an investor. But unless you go and spend time with your customers, you're not going to be able to answer that question very well.
14:10 Anthony Pompliano? When you see Y C companies like, let's take Stripe. They obviously benefited from the fact that they were in a program with a bunch of other potential customers. And so there was like the cross selling to other Y C companies. How much of that do you think Y C has been able to figure out? And we'll use Y C as an example, but I think there's a ton of accelerators, a ton of these programs now. Where people who are building developer tools or building, you know, some sort of infrastructure for other companies. Being put into these programs is not just the advice, it's not just the high tempo. It's also you're basically getting put side by side with a bunch of potential customers. And if your product's good and you're good at sales, you should come out of there with a lot of revenue as well.
14:48 Speaker 03 I think it's much more true for companies now than it was when Stripe was going through Y C. Stripe went through Y C in 2009 and at the time, like immediately after the Stripe batch was my batch and my batch was 30 companies. So it's not like you were able to really like build through a ton of customers, right? Now, if you're going through Y C, you have the historical like 4,000, sorry, 4,000 startups that have gone through the program. Plus the like two to 300 startups that are going. For the program right now, plus the 200 to 300 that are going to go next six months. So there's a lot more of that base. And in fact, when I was there towards 2017, 2018, we had created an event that was almost like a demo day, but instead of investors, we would invite technology buyers. And the cool thing about that environment was that YC at this point has such,
15:32 Speaker 03 has such a massive alumni community. There's something like, yeah, I think it's probably 10,000 alumni. And many of them are not even working at their startups. They're working at other companies as technology executives. And so they would come to the room to check out the things that new startups are building. And so that became a really, really powerful tool for startups to go and get early customers. I think that that's helpful and it's certainly helpful for bootstrapping from zero to one. But at the end of the day, you still have to get comfortable doing sales. You still have to get comfortable doing outreach on LinkedIn. Or if you're doing product growth, doing something on Hacker News or on Twitter or another environment. And so it's definitely helpful in getting some early users. But it's not, I don't think it's like a truly sustainable way to build your business,
16:15 Speaker 03 whether it's at YC or any other accelerator, really.
16:19 Anthony Pompliano? Talk about the team at YC while you were there. So there's obviously Paul and Jessica, but there's a bunch of other partners, some of them full time, some of them part time. We're doing this podcast because I tweeted out and said, you know, who are the best young investors? And PG so kindly tagged you and said, no pressure, but here we go.
16:39 Speaker 03 Yeah.
16:39 Anthony Pompliano? How much is it the people really driving the organization versus, could you swap out people now and it's kind of systematized and it would still be as great as it is?
16:47 Speaker 03 I don't think it's, I don't think the people are plug and play. I think the people are really important. I think that, you know, when I was away, when I started at YC as a part-time partner in 2014, there were like 10 people there. Obviously, the organization now is much, much bigger. But the heart of that organization is actually remarkably similar. You know, like Gary is back and running YC now. And he was there in 2014 when I started. Mike Seibel, who's been at YC, I think for as long as I was there, is still there. Har just at YC. And so like a lot of these people who are core at YC. Are still at Y C and still providing feedback to startups. The great thing about it now is that they've actually built out a lot of other groups around this.
17:31 Speaker 03 So it used to be just partners and part-time partners, really, and a few people on legal and finance. But now there's an entire software team that builds tools, not just for Y C, but actually for the founders, like tools like work at a startup, tools like bookface that are internal uh forum plus uh deals page plus, you know, a ton of uh knowledge-based materials and so on that they've built out. And so I think that the organization now and the people there now are, it's even stronger than it was back then.
18:02 Anthony Pompliano? Yeah, um and then talk about Paul and Jessica specifically in terms of what you've learned from them or kind of what makes them so different in terms of being able to build something like this.
18:11 Speaker 03 I think that they are probably the most optimistic people I have ever met. Um, you talk to Paul and Jessica and you talk to them and they're kind of, you know, Jessica is like a social radar. She's all about the people and Paul is very greatly about like the startup. And they're both just like incredible optimists, both about the people and the startup. Like he'll talk to Paul about an idea that you think of as like tiny idea and he will walk you through how this idea will take over the world. And at the end of that conversation, you're gonna believe it as much as he believes it. He's not just like blowing smoke. He really does see the vision of how this company that feels to every other person in the world that might feel like a toy could actually become this massive success.
18:54 Speaker 03 And that is something that I try to internalize uh to as much as I can. You know, I I have sometimes like a bit of more of a pessimistic uh nature to myself, like I I can see a million ways of something will break. But in venture in particular, that actually doesn't matter, right? It's all about how the thing could work, like the power law of it means that it could break ninety-nine times out of a hundred. But the one time that it works, it could be Airbnb. Right? And so being able to see that, I think is a huge superpower. And I think he probably has that better than any other investor in the world. And that's why he's been so successful.
19:35 Speaker 03 Jessica sees that in people, like you just can't bullshit her. You know, she you to your point, like if somebody comes in and like says the answer that they read on a blog post, or they, you know, composed thinking this is how somebody wants to hear it, she will just be able to read right through it. And that that is her superpower. And I think between the two of them, they're able to just like choose founders who are super ambitious and are genuine in that ambition, tackling problems that could be absolutely massive problems to solve.
20:05 Anthony Pompliano? There's a bunch of companies that people now know that you invested in Flexport, Boom, etc. Talk a little bit as to your own evaluation process then. Now you have a fund, right? Now you're kind of doing this as a full-time job. But when you were writing checks for yourself, and it was kind of more angel investing, did you just look at a batch and like, who are the craziest people here with the biggest idea? Like, let me go give them money? Or was there some other process?
20:27 Speaker 03 No, it's, you know, it's funny that you bring those two companies up in particular, because I've been fortunate enough to invest in, I think, almost, almost a dozen unicorns at this point. But those were some of the earliest ones that I did. And they're both very, very memorable for me. Flexport, I had met Ryan, I think he was literally the first person I had ever done office hours with. It was my first, you know, it was winter 2014, he was coming into the YC batch, I was just starting at YC. And I remember doing office hours with him. And at the end of the call, you're just blown away. You know, here's a guy that has built an incredibly successful business before this, somebody called the Import Genius, that was doing tens of millions of dollars
21:08 Speaker 03 in revenue. And he has a chip on his shoulder that it's not bigger. And he thinks that he can actually build something even more impressive from what he learned while doing Import Genius. And I just remember, like, after that call, I actually texted another YC partner, being like, is this, you know, like, am I reading this wrong? And he's just like, continued to, to this day, he continues to impress, you know, I think he's just a relentless founder. Blake at Boom had the same thing, but with that, you know, he's one of the few founders that I've invested in that didn't have domain expertise. And I actually got introduced to him before Y C by Sam Altman and Sam said, hey, you need to talk to this guy. He's building a supersonic jet.
21:52 Speaker 03 And I remember getting on the first call with him and being like, well, you know, like, how are you going to do that? And he says to me, well, I'm a pilot and I'm hugely passionate about airplanes and like, I've already been talking to all these people. And I thought he was crazy. I thought it was just like the craziest thing I'd heard. I was a pilot. I am a pilot and like I couldn't, and I have an engineering background and I've taken some aerospace engineering courses and I still couldn't build a supersonic jet. And so initially I actually passed. And then he came to Y C and I followed along with him through Y C. And the thing that impressed me about him is he has this tenacity about him where he was able to convince experts to join him on this crazy journey.
22:36 Speaker 03 You know, and like he was able to convince engineers from SpaceX to quit and he was able to convince engineers from Lockheed to quit. And he was able to convince Richard Branson to donate resources from Virgin America, which was an aerospace company to actually help him. And so in my mind, it went from a question of, okay, well, you probably don't have the expertise personally to build this jet. But you have this ability to recruit people around you who believe in this vision as much as you do, that there is a non-zero probability that you actually could build this jet. And if that's true, then that opportunity is massive.
23:16 Speaker 03 Right? And so I had invested a little bit after Y C demo. They still kind of have a seed round. They could have invested even earlier. But at that point I was convinced that like, he will be able to recruit the people and you know, now he's recruited somebody that was a chief engineer at Gulfstream for 30 years. Right? And so like there's a real team in place that has a non-zero, like a pretty good chance at actually building a jet here. So it ultimately is like, sorry, just to finish the thought, it's just like, it ultimately is all about the people in both cases.
23:44 Anthony Pompliano? Unpack this a little bit more, like, was he able to convince people because him? Because the idea was so big, like, what do you think was so convincing to get all of these really impressive people to leave their companies to come and work on? What, you know, you at initial thought was like, this is insane. There's no way they can do this.
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24:31 Speaker 03 Well, I think that it wasn't like, I mean, people have built a supersonic jet before, and so that in itself wasn't insane. But it's, you know, he approached it from first principles. And he said, well, you know, there isn't like one 10x thing that we need to do, we can do better today than we weren't able to do with a Concorde. But there's a lot of these like 30% improvements. We have better wing composites. We have better fuel efficiencies. We have better engines. We have better fuel sources or cheaper fuel sources. And together, we can put all of these things together and build a supersonic jet that's maybe like three times as affordable or four times as affordable as a Concorde. And I think that when he went to people, a lot of these people who are working at Lockheed
25:15 Speaker 03 or at Boeing, you know, they're working on tiny projects that take decades to build. And honestly, like a lot of these companies have lost some of their ambition. Like if you look at what Lockheed used to do, if you read Concorde, you know, and you see the SR71, or you see the U2, or you see the stealth fighters, and then you see like the stuff that they're doing today, it's not as exciting. And I think if you're an ambitious engineer, you want to go and work on something that even if it doesn't work, you're going to feel like you've moved the needle. And so I think that, you know, when you run into someone who's that ambitious and is so genuine in that ambition, you just want to join them on the journey and say, screw it, let's go and try and see, and maybe we succeed and maybe we fail, but at least we will have tried, right?
25:59 Anthony Pompliano? You went into YC in 2010, which is kind of right during that global financial crisis coming out of it. You then were in and around YC and early-stage investing all through kind of the decade-long bull market. You then lived through the craziness of COVID and the like one-month recession that we had then. Then again, here we go up again in another kind of crazy bull market with all the quantitative easing. And then obviously 2022, we get this big crash in public markets and asset prices. And so whether you count that as like one cycle, two cycles, however you want to think about it, you've seen ups and downs now in early-stage markets. How do you evaluate where we are now? Are you looking at this as we're still in some sort of compression-type phase? Maybe seed was
26:43 Anthony Pompliano? more insulated from compression versus like other parts of the market? Just talk to me about like the market conditions in early-stage investing.
26:50 Speaker 03 Yeah, I think that, I mean, the correct, the bull market that happened in 2020 is certainly an anomaly, right? And I think that it led to a, and maybe it was kind of the tail end of a long bull market where interest rates weren't zero, but they were low. And so the behavior was starting to get ingrained in people. The valuations were already creeping up. And then everything that happened in 2020 just completely blew it up. And so that in my mind, that correction always had to happen. The one thing that I feel fortunate about is I never really got caught up in the hype of everything is going to be a $15 billion company. And so entry valuations don't matter. And so I tried
27:33 Speaker 03 to continue to be a little bit diligent about how I'm approaching investments from first principles and like, do the valuations matter? How big are these opportunities? What does it mean? Like to be a $10 billion company, you have probably have to be at about $1 billion in revenue. What does that mean? Right? Like, what does that look like? I think that today we're starting to come back to that first principle thinking where people are saying, okay, you know, you want to build a billion-dollar business. That means you need to do $100 million in revenue. How much of the market do you have to capture to do $100 million in revenue? And what does that mean for your entry valuation today? And so I think that correct. Had to happen. I think that it happened fastest at the latest stages that the public markets, right?
28:14 Speaker 03 Investors immediately retreated the moment interest rates started rising and they could park their money somewhere else. And it slowly trickles down backwards. And so you saw, you know, I think that the late stage markets, private markets are frozen. The series B and C markets, which are kind of mid-stage are pretty frozen. And the series A markets are happening, but in fits and starts. At seed, I think that, you know, it took a longer time to correct. People took a longer time to absorb it. And part of me feels like the real correction may have still not happened. Because I think that there's a lot of these large unicorn companies that are unfortunately going to end up either getting watched out or re-tapped. And a lot of early-stage investors haven't, and certainly, you know, they might have these funds
28:59 Speaker 03 that have been marked up to five X and six X and they just haven't actually marked them down to see what what that performance looks like. And that then realize like, what does that mean for their investments going forward? But you do see, you know, like, I think in twenty twenty-two at the top of it, you would see seed investments happening at like fifty to a hundred million dollar valuation. So it's just wild with zero revenue. And in some cases, just a deck. I think that that pretty quickly reset back to twenty and then you see it resetting back to fifteen. And I'm now once again seeing things happening kind of in the eight to twelve range, which is, I think, a much as a valuation, post-money valuation range is a much healthier valuation range for companies.
29:41 Speaker 03 And so I think that where we are now from a valuation perspective is much better. From a general seed investment perspective, I personally am as bullish on the market now, on the seed market now, as I was in twenty twenty-two and twenty twenty-one. I think that technology is one of those secular trends. It just doesn't care about what, you know, the interest rate environment looks like. In the depths of this, you know, quasi-recession, we have some of the biggest boom in AI happening that we've ever seen. And every fourteen days, it feels like we're doubling our ability to generate things with AI. And we're continually impressed by what that means for companies and startups.
30:26 Speaker 03 And so in my mind, like, the pace of innovation is just accelerating. And if you were excited about investing in tech in twenty twenty-one, you should be doubly as excited about investing in tech today.
30:38 Anthony Pompliano? When you say that the valuations are healthier in that eight to 12 range, talk a little bit about maybe from the founder's perspective. Right? Many founders are here. It sounds amazing to raise money at a $50 million post-money off a deck. But maybe talk a little bit about the perils of doing so. And for those that haven't seen the downsides, why is having that healthy early-stage valuation so important to the success of a company?
31:01 Speaker 03 I think there's a couple of reasons why. So there's a couple of reasons why early-stage valuation actually matters. The first reason is that if you raise at a very high valuation, you now have very high expectations. So for the founders that raised at $50 million valuations for the seed rounds, the expectation for their next round, their investors want to see a double or a triple on the valuation. So they're expecting them to go raise at 100 to 150. That might be off the table. But even to raise at 50 now might be off the table. Because to raise at 50, the new investors are going to want to see maybe like 2.5, 3, maybe $5 million in revenue.
31:41 Speaker 03 Right? And it's very likely that if you raised 18 to 24 months ago, you're not at $3 to $5 million in revenue today. And if you're not at $3 to $5 million in revenue today, you now need to do a bridge or you might need to do something that looks like a down round. And so now you're killing morale for your investors, you're killing morale for your team, and you're killing morale for yourself. Right? You could have done the exact same round at a $20 million valuation and probably hit the exact same milestone. So there's this weird thing that happens when you raise money is it tends to get spent. And it's kind of irrelevant whether you raised a million, 2 million, 5 million, or 10 million. You usually end up spending it in around 18 to 24 months.
32:24 Speaker 03 And I think that when you're raising money, you raise like 10 million on 50, and all you have to show for it is $3 to $4 million in revenue. It just makes your life significantly harder. You could have done the exact same thing where you would have raised 2 million on 12 or 2 million on 15, probably been scrappier, probably hit very similar milestones still, and maybe even have been a little bit more focused. Because you had less money, right? And now your next round, maybe it won't be at one hundred fifty, but you have room to go to thirty or forty. Whereas if you had raised at fifty, going to thirty or forty feels like a like a loss, not like a win. Right? And so you're going to end up with these two situations where it's hard to get an up round. It's hard to get a flat round.
33:09 Speaker 03 It's hard to get a down round. Nobody wants to come in as an investor, as a later stage investor. You don't really want to come in and price it lower. Nobody will be mad at you if you pass on investing, but people will be mad at you if you actually lower the valuation. And for investors who all co-invest together over a long period of time, that actually becomes something that they think about, right? It's just like the relationship down the road, not just with that company, but with the other investors on the cap table. And so I think that those high valuations do cause problems in those cases. Some of the companies will grow into it, right? Like, there's a number of companies that raised hundred million dollars of like two billion dollar valuation in twenty twenty two, and they have five years of runway, and they will grow into those valuations. I think that's totally fine.
33:55 Speaker 03 But the risky ones are the ones that raised like five million at forty or fifty and spent it all and now need their next round of funding.
34:04 Anthony Pompliano? Talk about those long-term relationships. Obviously, organizations like Y C who have been around for a long time, there's a partnership. There's something that is pulling people kind of together. There's a brand. When you go out on your own, now all of a sudden it's more like personal relationships, right? There's no kind of early-stage mafia, for example. It's kind of a bunch of people who are unilaterally working to invest and find deals, but you most likely are not going to take down an entire round, right? You're not going to go and kind of do it yourself. You need other investors, both as peers in the early stage, but also you need other investors who are going to come in for the Series A or Series B and kind of continue to fund the company. And so how do you think about those relationships? And maybe some things that you do to help cultivate the relationships,
34:46 Anthony Pompliano? but also some things that you look for where you say, hey, you know, this person may be a nice person, but I might not want to actually invest with them in the future?
34:53 Speaker 03 Well, I think that like those relationships matter, whether you're a solo GP or you're a part of a larger organization. So like, you know, a lot of Series A funds don't do Series Bs. And so they'll have relationships with funds that do do Series Bs. And those funds know that if they come in and, you know, blow up a cap table of a Series A investor's company, that Series A investor may not send another company their way because they're not going to want to do that. And so I think that those relationships, you know, they spend many, many years and they, it is at the end of the day, a human business. You work with people that you like to work with. And so if you do a deal and then you invite another investor, you don't just think of it as like, oh, I invited this big fund.
35:37 Speaker 03 It's actually I invited this person at this big fund and here's how they behave when I invited them. And I think that as a solo GP at seed, there are more of these types of relationships that you manage. So because like you said, you know, I usually don't take down and tie around myself. I will bring other co-investors to the table. That and like there's a long list of investors that I love to work with. Sometimes it's bigger funds. Sometimes it's a bunch of other angels. Sometimes it's other seed funds. That depends more on like what the company needs, right? Like I'll meet a company and I'll feel like, oh, you could really use people with the following expertise. Here's some angels that could really have that expertise and have the time to spend with you on this.
36:21 Speaker 03 Or, you know, oh, you really want to have a big seed fund to take down the rest of the round because you want someone who's really committed. Here are some good seed funds that are going to spend time with you that you should talk to. So that roster is pretty deep. But you do remember like if somebody and if somebody misbehaves as an investor and misbehaving is not really about like valuation that they said. Misbehaving is like you broke a term sheet or you, you know, you mistreated a company or you leaked information to a competitor or you did something else. That stuff gets remembered, right? And you will think twice if, if you're going to bring that investor again into a deal or even if you see that investor involved in a deal.
37:00 Anthony Pompliano? When you look at the companies who have done the best in your portfolio versus the companies who did not succeed, are there things that are either habitual or certain types of decisions early on where you can start to see probabilities changing? We talked about individuals being scrappy, having a bias for action and kind of the velocity at which they made decisions. But what about the companies themselves? Are there certain things that you can see and attribute to, oh, this increases probability of success or this decreases that probability?
37:29 Speaker 03 I think that the, it's an interesting question. And I think that it's hard to generalize in terms of like, is there something that really repeats itself? In my mind, the biggest risk to a company is not launching soon enough. You know, and I think that's more of an individual thing than a company thing. But like oftentimes you will convince yourself that the product has to be perfect before launching and you'll go and spend two years, three years building it in a vacuum and maybe with like one or two beta users, but sometimes not even that. And then you come out and you bring it to market and it turns out that the market didn't want it.
38:10 Speaker 03 And so the, you know, building in public, I think, helps alleviate some of that. At least you'll find out very quickly, do people actually want that or not? But I think most of the businesses where things haven't worked out, at the end of the day, they just weren't building something that people wanted. And with startups, it's about finding that, the answer to that question as quickly as you can. Like, do people actually want what you're building? And the ones that have failed, I don't know if it's universally true, but like many of them just didn't launch soon enough, didn't get in front of their customers soon enough, and didn't have the opportunity to pivot or learn from that as if they would if they had done it sooner, right?
38:53 Speaker 03 Because they would have had more runway to go and actually spend the time.
38:56 Anthony Pompliano? This idea of finding out whether people want your product or not kind of reinforces. Earlier, you're saying that PG could see something that was small and extrapolated out and say, this is how it could become very big. We know that many of the most successful tech startups in history have started out either with very small ideas or kind of look like a toy, right? As many people have pointed out. And so Airbnb had, you know, air mattresses in their kitchen. You look at Facebook and it was literally kind of like, is this person attractive or not? How much of the successful companies in your portfolio started out as like this little thing and then over time, they almost kind of got more ambitious, they got bolder, they got more courage to kind of go for a very big company versus there was master planning and somebody said, hey, you know what? I'm going to go and I'm going to accomplish A.
39:40 Anthony Pompliano? Then they went and started on step one and were able to execute and accomplish that.
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40:15 Speaker 03 I think it's very common. I'd need to go look through the portfolio to figure out like how frequent it really happens, but even like in the case of Flexport, right? The early version of Flexport was not a digital freight forwarder. It was much more like they were digitizing import, export documents, which is something that Ryan had seen when he was doing Import Genius is that like it was all happening on paper and tax machine and he felt that that alone was a big opportunity. And so he started from that and now, I mean, their ambitions have grown dramatically, right? And I think you could have looked at Flexport at the time and been like, well, you know, this is like very narrow and not that interesting. But it turned out that honestly, like even if they had just done that, I think that would have been a big opportunity, but they just realized that as they went down that path
40:58 Speaker 03 and they spent more time with their customers, so much more of this freight forwarding world is broken that they were able to continue growing from there. I'll give you another example. One of the company, this is a very cool company. It's a company called Solugen. This is also an investment before Wayfinder. This is a company that makes carbon negative chemicals. Right? And they started here, they had this like little reactor at their YC demo day, which was able to take algae and carbon dioxide and create hydrogen peroxide. So like just a cleaning chemical. And you could have just said, well, like, you know, that's not particularly interesting. There's already a lot of ways to build cleaning chemicals.
41:38 Speaker 03 They had a number of advantages already, but beyond that, they had the aspiration to do much more than just hydrogen peroxide. Right? And now they make, I think, almost like a dozen different chemicals, all in these like organic carbon negative ways, where they're actually taking CO2 out of the environment and creating these chemicals. And again, like, I don't think that they would have known in the early days that there was room to like, build or which other chemicals that actually be able to do. The only thing they knew for sure is that they were able to make hydrogen peroxide and they were actually selling that hydrogen peroxide already. And so I think that like with a lot of these companies, and now, by the way, like if you go look them up online, they have this massive bioreactor in Texas.
42:20 Speaker 03 Super, super cool. And it's just building, creating dozens and dozens of chemicals. And so I think that for a lot of businesses, it would start as an idea or like at least as a wedge, something that's narrow, but has a real problem that you're solving. And ideally you're solving this problem, et cetera, than is already being solved. And then you go and you expand from there. And you go where the customers take you, you know, as opposed to like try and make it up on your own. The customers will usually show you the way in terms of where the opportunity lies over time.
42:52 Anthony Pompliano? Talk about your relationship with founders and kind of the tempo in which you communicate or kind of help a company. I'm assuming that that is much more frequent and kind of much more hands-on in the earliest stages in the seed round or in the pre-seed round. But as a company gets larger, you know, to flex forward, et cetera, they obviously have many more investors, they have entire teams now, like that relationship kind of evolves over time. And so maybe talk about the ideal scenario as to like how you as an early-stage investor can interact with and communicate early on. And then how do you kind of see that in an ideal manner evolving over that period?
43:27 Speaker 03 Yeah, that's a great question. So I, I think that, you know, where I am most valuable to a founder is again, kind of when they're going from that zero to a million ARR point. And the way that I help there is anything from regular office hours or even just being available on iMessage or WhatsApp. So every company I invest in gets my phone number. They can text me, they can call me, we can talk about things as they come up. Some companies, every company also gets a private link to my calendar, so we can set up office hours as frequently as they need. Some companies I actually meet with on a regular cadence, maybe once a month or once a quarter, but it's completely up to the founders. It's not something that I dictate. I just say like, look, you can use me in any number of these ways. You tell me how you want to do it.
44:11 Speaker 03 Then the second part of that is just like, well, what do we spend time on? And, you know, I can help you, I can help you with anything that any investor can help you with, but I think where I can uniquely help you is when you're trying to do those first sales agreements and you're, you're a technical person, but you've never sold to somebody before and you're trying to navigate that environment and you're dealing with procurement and you're closing your first couple of deals. And then even when you're maybe hiring your first account executive or your first salesperson, I've gone on calls and interviewed those people. Eventually, you know, you'll get to a series A, you'll get a board, you'll get a VP of Sales or a Director of Sales. You won't need me as much. And that's totally fine. I'll still be there if you want to talk about it. And there are still founders
44:53 Speaker 03 who have raised, you know, even billion dollar valuation rounds and reach out to me to talk about a particular deal or talk about a particular case that's happening with one of their customers or even investors. And I will always pick up the phone and my goal is to be like one of the fastest responding investors on your cap table. But I usually end up taking more of a backseat after the, after the series A. The reality is that like when you help a founder in those early days, they tend to remember that. And, you know, you remember your first million dollars in sales much more than you remember your next five million or your next 10 million. And so I end up being pretty close with most of the portfolio founders that, you know, that I'm fortunate enough.
45:37 Speaker 03 To work with and it becomes at that point much more of a friendship than just like a pure investor and found a relationship. And so I still talk to them, I still check in, but I try to make sure it's one of the. An investor I know has this phrase where it's like, I want to be in your corner, not in your kitchen. And I really think about that, you know, like I don't want to feel like I'm like looking over you and just continually asking how are things going? I just want to help if I can. And if you don't want my help, that's totally cool.
46:07 Anthony Pompliano? Talk about being kind of a solo capitalist, right? Or an individual investor today. You've got a fund, but you have no partners. I think that you're open to eventually finding a partner if if the right person comes across. But what are the pros and cons of operating as an individual investor rather than have kind of the investment committee and a lot of, you know, staff and infrastructure and things like that that maybe larger funds have?
46:30 Speaker 03 Right. So even as a solo GP, you do end up having a lot of people helping you. So, you know, I have a fund admin, I have a legal team, I have accountants. There's a lot of people in the back office making sure that the fund is actually working day to day. Where the solo part comes in is on making investment decisions, sourcing companies and helping the companies down the road. But even that part, you know, I'm fortunate enough that my, a lot of my LP base are incredibly successful entrepreneurs and founders who are always interested in part of the reason they're investing with me is that they want to meet other founders and they want to help other founders. They just don't have the time to source the deals themselves. The advantages of being solo is like you said, like, you know, I don't have an investment committee. If I meet a founder, I can make a decision incredibly quickly.
47:13 Speaker 03 There's, you know, it can be after a phone call or it can be after a couple of phone calls, but I don't need to go and convince the rest of my partnerships. And I think that where this is powerful is most investment decisions are non-consensus. Like the most of the best investment decisions are non-consensus, they're non-obvious. And if you're spending time trying to convince a partnership, you will lose some of those deals. The downside is that you don't really have someone that's truly aligned with you to try and figure out like, should we do this deal and maybe challenge you in some of that thinking? And so it's up to you to either. Come up with the reasons, you know, where things may not work or find people that will help
47:51 Speaker 03 challenge you. And that is also where, you know, I lean on other LPs who are founders and entrepreneurs for feedback. I talked to a number of other GPs where we share deals and we think through deals together. And ultimately, the benefit there is that like, even if one of us doesn't want to do the deal and the other person wants to do the deal, we're able to do that. And so that that helps a fair bit. But I think even in today's environment where deal flow has slowed down, the ability to move quickly and make a decision quickly helps you win deals. And the competitive deals or the best deals still often at times end up being competitive. And so that that is a real superpower.
48:28 Anthony Pompliano? What I find fascinating that maybe many people don't know if they haven't been kind of an early stage investor and focused on it full time is how much of the deal flow comes from other investors versus you went, you know, you were scouring the internet and found some website that no one's ever heard of before and called up the founder or the founder listens to this podcast and is like, oh, let me go email them or track them down. Like a lot of the deal flow does come from other investors. And so how do you think about signals in terms of deals that other investors are sending to you or talking to you about and making sure that you actually get a good signal versus maybe this is just an investor who needs to fill out a round. And so they're kind of shopping it around to people.
49:04 Speaker 03 Yeah, I mean, people, you'll end up with a reputation if you do that, right? Like there is a question of like, why am I fortunate enough to see this deal, right? That is a question that you always ask yourself. Generally speaking, I'm fortunate enough that most of the investors that send deals my way, they are already committing themselves and they want me in the round because they think I can help a founder with sales or go to market, or, you know, they think that I'm, that I have a deep understanding of the domain or the space. And so it is true, you know, 99% of my deal flow comes in through a referral one way or another. It might be through the YC community, it might be through an LP, it might be through another investor that I co-invest with.
49:46 Speaker 03 I think that in my entire history as an investor, I've probably only done maybe two deals through cold outreach. And so it's not to say that it's not possible. But it's always a little bit easier to cut through the noise if it's coming in through a warm referral. And it's just a matter of like, why is this person referring something my way, right? Like, are they personally excited by this? If sometimes it's not a fit, so like I have done deals where a bigger fund is passing, but they think it might be interesting to me. And I know they're not passing because they're not passionate about this, but they're passing because it just doesn't structurally work for them. You know, the check size that's available or something else doesn't structurally work for them. And so in cases like that, like I'll still take a look at it.
50:32 Speaker 03 Yeah, I, I, I don't really get like, I think that for me, I, I am fortunate enough that I don't have a lot of those referrals where I'm worried that somebody is just like throwing something my way. And to see if I'll be like grateful funding it.
50:46 Anthony Pompliano? It's basically if you're high quality and you act in a high quality way, then naturally you're going to coalesce with other high quality investors who are acting in a high quality way. Right. It's kind of like over time, I think there's just like culling of people who don't fit into that mold. And then you eventually just build a high trust. I know another thing that you've talked about in terms of high trust and you mentioned to me earlier is if you ever were to bring on a partner and go from one investor to two or three investors, you actually want high trust with the person, but you want to disagree on almost everything. And so describe a little bit this balance of like high disagreeableness with each other, but also the need for trust.
51:23 Speaker 03 Right. Well, so I think that like, if you're bringing on a partner, there, there's maybe three reasons that you bring on a partner as a VC. One reason is that that partner can bring in additional capital and you're trying to scale your firm and they have contacts that you don't have. Another reason is that they have deal flow that you don't have. So maybe they're, they come from a different community or something else and they're seeing deal flow. And the third reason would be that they can help you make better decisions, right? And that reason is the one where I'm leaning on the fact that like you want someone that you trust, but you don't agree with. Because if you bring on somebody that you trust and you agree with, you're going to make the same decisions that you would have made anyway. So you're not really getting any benefit from having the second or third person on.
52:07 Speaker 03 Really want is someone that you believe in, you think incredibly highly of. But they will make decisions that you would not have made because those best deals are the ones that are contentious. And you probably, you know, like they're not consensus, contentious and not consensus. And so that means that you're going to give the keys to the money that LPs have entrusted you with. To somebody else and that person is going to write checks where in your bones, you might be afraid that like this deal is not going to work because of whatever reason. But you trust this person and you trust that they have a vision here that um that you're just missing. Right? And even like in those cases, you probably want to be aligned on the people.
52:49 Speaker 03 So you want to say that, oh, you know, we're going to invest in high quality people. Where they're high integrity and like all of these characteristics are met. But maybe we invest in the different sectors and like this person looks at biotech, which I don't understand. Or they look at fintech and they have a very specific angle on fintech. And so they might do something that I otherwise would not have done. And so that that's kind of like the ideal person that you want, right? Like they are aligned with you on values, but they will do things or look at uh spaces where like you don't know or you don't have personal conviction in. And that's very difficult, like you it ideally is going to be someone that you've done deals with before. Um, again, over a long period of time, because venture is a long, you know, it's a long game where you it takes a long time to figure out whether anybody is good or not.
53:34 Speaker 03 And then it it's it's hard to do that. I, you know, I think that VCs will talk to potential partners for years sometimes before bringing somebody on.
53:43 Anthony Pompliano? When you think about uh the partners, that is kind of a peer. How do you think about building a firm in terms of uh junior partners or associates or other types of roles within a firm?
53:57 Speaker 03 I think that it's it's tricky, you know, there are certainly firms that build um. That that build people, essentially they like bring up people from inside and they bring in associates and they're elevate them and they'll train them. And I don't know that I would have the expertise how to do that. And so for me to. Bringing on an associate feels tricky. Um, I also think that like, uh, uh, an associate's job is very, very difficult, you know, they're like the S. In some cases, they're like the SDR, like the sales development rep or a VC fund. They have to go and call a lot of founders and the founders don't want to answer the phone with them. They only want to talk to a partner. And, um, it, it's, you know, it, it, it's a difficult role to succeed in.
54:42 Speaker 03 So for me and for my fund, I probably wouldn't do associates. I think I would bring on a partner that ideally would be equal to me, that I can just offload some of the responsibility to. And then at scale, maybe have like a three person partnership, no associates, no, um. Outside of maybe some folks to like help with back office and other analysis. But like on the investment side, I think it would just be an equal partnership. And I think the example there that I think of is Benchmark, right?
55:12 Anthony Pompliano? What, why?
55:12 Speaker 03 Whereas like, I, I just don't think they have any associates there.
55:16 Anthony Pompliano? And so when you think about those small teams, is there something around consensus decision making versus, uh, the ability for anyone partner to, uh, invest? I know some, uh, these firms, even if they have 10 or less people, right? There's, hey, we, it's all consensus, uh, and other firms, they're like, no, if you have a consensus decision by nature, it can't be a contrarian bet. And so therefore each individual partner can do a certain amount. Like, how do you think about decision making, um, once you get past one person?
55:41 Speaker 03 I think you have to allow for non-consensus decision making. There are some firms that are so good that they do even unanimous, you know, it has to be a unanimous investment. Um, and they're very successful. I think like some of the top funds in the world do, do it that way, but many, many funds don't succeed in that way. And in my mind, I think you, again, kind of going back to the point of you want someone that you trust implicitly. And if you trust them implicitly, then you have to allow them to do a deal that you maybe would not have done yourself. And so I don't think you can do a consensus based deal.
56:15 Speaker 03 You can, you can give them all the reasons that you're like, sorry, I don't think you need, uh, you, you don't want to do deals where like you all have to vote and, uh, you know, you have to have a majority approval to do the deal, especially like in a two to three. And partnership. I think that what you want is you want a place where the partners feel free to voice their concerns and say like, this is where I'm worried that things might go wrong, or this is where I'm worried about the space or something else. But if you want to do the deal and you believe in it, then I believe in you, you know, and you're my partner and like, go for it. That would be my ideal environment.
56:48 Anthony Pompliano? Talk about fundraising. When you go from a partner at Y C and you've got, obviously the work at Y C, but you also have your personal portfolio of angel investing, but you say, hey, I'm going to go out on my own. I'm going to raise a fund. I'm assuming a big portion of what LPs are underwriting is your past investments, but how do those conversations go in terms of them trying to underwrite you as a fund manager? You as someone who, yes, you have accountants, yes, you have fund admins, but you still have to manage those people. You still have to make these decisions. You still have to do portfolio construction. Like, like there are some things here now when you're using other people's money versus just personal angel investing that they want to understand. And so what was your experience like when you went out to raise that first fund?
57:29 Speaker 03 Yeah, it's funny, you know, so first of all, my timing with fundraising has been horrible for both funds. I, I started fundraising Fund One in March of 2020. So right as we hit the one month recession, I started raising Fund Two in April of 2022. So right as the market turned down. So I'll tell you when I raised Fund Three, because you should probably just go sell everything.
57:53 Speaker 03 And so that certainly did not help, right? The other thing that I found surprising, honestly, people talk about being an entrepreneur when you're a VC and you're starting a fund. But I can tell you that like as a past company founder, 99% of what you do as a founder is much harder than your day to day as a VC. The only thing that I think is harder as a VC is fundraising and I did not expect that. And the reason is that like as a founder, you're generally looking for a market of one or maybe a market of like three to four people who give you the money. You know, if you're raising a series A, that entire series A is going to come from one investor. If you're raising a seed round, it's probably going to come from a handful of investors.
58:37 Speaker 03 But if you're raising a fund, it might come from ninety nine investors, right? That's your limit on how many investors you can have. And you may very well hit that limit. And so you need to go and convince dozens of people to come along for the ride with you. And most of the time, those people don't want to be more than like ten to twenty percent of your fund. And by definition, they're more risk averse, right? They are, these are not people, like in venture, we're very used to risk. I'm very used to underwriting that it's either going to be a massive outcome or a zero. But these people are looking for outcomes that are going to be like, you know, a great fund return is a five X. That's like honestly, top decile, right? Like top quartile fund performance, I think is a three X. Top decile is five X. But like as a, when you're investing in companies, you're looking for fifty X's.
59:22 Speaker 03 Right? And so the, the people that are underwriting funds are underwriting your past performance, your history, your everything. They, they really are like looking at you through a microscope. And I was not prepared for that on Fund One. Um, it just, it was a, it, you know, it was a bit of a surprise. And so I do think that my past track record helped a lot. I think that, uh, you know, that my angel portfolio is deep enough and was representative enough of what I wanted to focus on as an investor, that people were able to look at it and say, okay, that makes sense. The other thing that I did is I didn't try to go from like, you know, writing fifty K to a hundred K checks
1:00:06 Speaker 03 to all of a sudden writing million dollar checks. I was going from fifty K checks to writing quarter million dollar checks or three hundred fifty K checks. So the leap wasn't as big, like investors could look at it and say, okay, you were writing similar enough sized checks. We believe that you can continue doing that without adverse selection. Um, but even then, it was, you know, I talked to hundreds of LPs and I got hundreds of rejections. And even now, you know, I, I still get, like for Fund Two, I got a ton of rejections as well. Um, and so it's a, it, it, it's, it's a challenge. It's like, it, it's not easy. This is the only part of the job that's genuinely not easy. The other part of the job is you don't know if you're investing well, but that will take a longer time.
1:00:48 Anthony Pompliano? Why do you think rejections, like can you bucket them into certain categories? Is it, oh, it's a first time fund, I don't back first time funds? Is it your track record as a fund manager isn't there? I don't look at, you know, angel portfolios. Like, what would you say went into some of those buckets? And less about like, you know, what are the things that people wanted to pass on you for? And more so for people who want to go raise a fund? What are some of the things that they should be prepared for that maybe don't have anything to do with them specifically? It could be structural things, could be kind of market condition things, anything like that?
1:01:19 Speaker 03 Yeah, so I think that like in general, you know, I take the approach of like here the no, but not the why. So you get a million rejections and it's very difficult to figure out what the real reason is. But there are a number of rejections that I think are common for first time managers. The solo GP thing is an issue for some funds. That's less of an issue today than it would have been like five years ago. But, you know, some funds like solo GPs, some funds will say, we will never back a solo GP, even though the reality is that like partnerships blow up all the time, right? More likely to blow up a partnership than you are to blow up if you're solo. The fact that like you're, they, a lot of people won't give you credit for your angel portfolio. They'll say, oh, you had like proprietary deal flow, or you had something else that maybe doesn't exist now. And so they are going to want to see it repeat.
1:02:04 Speaker 03 They want to make sure that you didn't just get lucky in that portfolio and you're able to do it again in your next portfolio and your next portfolio. A lot of people just won't do fund ones because they think that there's a big learning curve here and maybe you will never raise a fund two or fund three because you realize that this isn't for you. And so for a lot of institutional investors, they're looking at you not from a, oh, I'm going to invest in your fund one. They're looking at you as I'm going to invest in your fund one, fund two, fund three, fund four, fund five, we're going to work with you for 20 years. Right? And so it's worth it for them to wait two to three fund cycles. Again, because there isn't that much of that FOMO of like, oh, I'm going to miss this like 50x outcome and see how you're doing and come back and revisit this. So I try not to take those personally.
1:02:45 Speaker 03 And so I think that like it's, you know, it's, if you're trying to scale the check sizes, if as an angel, you're writing 10K checks and now you're saying, I'm going to write half a million dollar checks, people are going to say. Say, well, you know, it's very easy to get a 10 K check into a round. But once you're writing half a million dollar check, you might actually be out taking allocation from somebody else. And so prove to me that you're able to do that. Right. And I, I think that like all of those are valid reasons and you do in some ways need to earn the right to write those bigger checks. Like if I started in 2014, trying to write half a million dollar checks, I would have gone in the worst companies.
1:03:24 Speaker 03 Right. So it's very, so like th- those I think are all good reasons and those I think are the biggest real reasons that don't have to do with you personally. Oh, the other one, i- it's funny. I mean, people get very thematic. You know, in 2020, everyone was asking me if I like, how much of my fund is going to be crypto? In 2023 or 2022, everyone was asking me how much of my fund is going to be AI? Um, and so LPs do sometimes end up chasing those themes and they'll say, oh, I, I, I am allocated on a fintech and I really want an AI fund. I personally believe that at C, this is a mistake. You should focus on the people and let the people lead the way. Um, like I, I'm not a huge thematic investor. I think it makes sense at later stage, but probably less so at the early stage.
1:04:09 Speaker 03 But th- these are all like very valid reasons from an LP perspective.
1:04:13 Anthony Pompliano? Is there one major surprise since you started the fund that you kind of point to and said, I definitely did not expect this?
1:04:21 Speaker 03 I think the biggest one was the fundraising. Um, the
1:04:29 Speaker 03 I don't know if there's other, like most of the other things, I think, because I was angel investing for a while and I had a pretty long portfolio just on my angel side. Like I've done about 45, 50 angel investments before I started a fund. I was already familiar with a lot of the logistics there. I think that some of the um, i- i- is you just get surprised by like how much fun admin work there is. You know, you think of it as, oh, I'm just going to go and invest and I'm going to work with founders. But a lot of your day ends up being spent on quarterly reports or on the financial statements or on the audit that your fund is undergoing, right? Um, or like the banking systems collapsing and you need to find banking partners.
1:05:11 Speaker 03 And so a lot of those things are, you know, that it's not the stuff that you think about when you think that I'm going to go and work with founders and write checks to those founders.
1:05:20 Anthony Pompliano? That's great. My last question for you is, we talked earlier about reps and how the important that is to getting better as an investor and kind of developing that pattern recognition. Is there anything else that you do to improve as an investor? Talk to people, read podcasts, like what else can you do to become a better investor?
1:05:39 Speaker 03 You have to be incredibly curious, right? To be an investor, especially an early-stage investor, you're trying to invest in the future. And so you have to have this like deep curiosity about what the future could be like, without prejudice, right? Like let people show you the future, meet them, and try and understand it from their eyes. And so I think that, you know, you have to be willing to spend a lot of time with people. You have to read a lot. The reading can come in a variety of ways. You can read books, you can read podcasts, or sorry, you can listen to podcasts, you can read blog posts, or you could honestly curate a Twitter feed and learn a ton from that Twitter feed because there's so many people now sharing their knowledge and their insights online for
1:06:21 Speaker 03 free. But fundamentally, you just have to be curious, right? And you have to be an optimist. You can't make money as a venture investor. You can make money in the public markets by being a pessimist, by, you know, shorting stocks and buying books. But as an early-stage investor, or a venture investor in general, you have to be optimistic about the future. And so those things, like that curiosity and optimism, you can't really, like, you can't fake it, you know? It has to come naturally to you. And you cultivate it by surrounding yourself with smart people.
1:06:57 Anthony Pompliano? I love it. Yuri, this has been absolutely fantastic. I really enjoyed talking to you, and I've learned a bunch in this conversation. Where can we send people to find you on the internet?
1:07:04 Speaker 03 My Twitter is my first name Yuri and my last initial S Y U R I S. And then the fun website is wayfinder.com. But honestly, I'm a solo GP, so my Twitter is probably a better place.
1:07:18 Anthony Pompliano? Awesome. Well, listen, thank you so much for taking the time to do this, and we'll definitely do it again in the future.
1:07:22 Speaker 03 Awesome. Thank you. It was great.
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