20VC: Why We Are in a Bubble & Now is Frothier Than 2021 | Why $1M ARR is a BS Milestone for Series A | Why Seed Pricing is Rational & Large Seed Rounds Have Less Risk | Why Many AI Apps Have BS Revenue & Are Not Sustainable with Saam Motamedi @ Greylock

Saam Motamedi is a General Partner at Greylock, where he has led investments in Abnormal Security (incubated at Greylock), Apiiro Security and Opal Security, as well as AI companies like Adept, Braintrst, Cresta, Predibase, Snorkel, and more. Before Greylock, Saam founded Guru Labs, a machine learning-driven fintech startup, and worked in product management at RelateIQ, one of the first applied AI software companies. In Today's Conversation We Discuss: 1. Seed Today is Frothier than 2021: How does Saam evaluate the seed market today? With seed pricing being so high, how does he reflect on his own price sensitivity? When does he say too much and does not do it? Despite seed pricing being higher than ever before, why does Saam believe it is rational? How has the competition at seed changed in the last few years? 2. Series B and Growth are not a Viable Asset Class Today: Why does Saam believe that you cannot make money at Series B today? Why has pricing gone through the roof? Who is the new competition? When does it make sense to "play the game on the field" vs say this is BS and do something else? What would need to happen in the public markets for Series B to be a viable asset class again? 3. Markets vs Founders: The Billion Dollar Mistake and Lessons: How does Saam prioritise between founder vs market? What have been Saam's biggest lessons when it comes to market sizing and timing? What is Saam's biggest miss? How did it change his approach and company evaluation? Which other VC would Saam most like to swap portfolios with? Why them? 4. Saam Motamedi: AMA: What does Saam know now that he wishes he had known when he got into VC? Saam has had a meteoric rise in Greylock, what advice does Saam have for those younger investors look to really scale within a firm? Sourcing, selecting and servicing: Where is he best? Where is he worst? Why does Saam believe that most VCs do not add value? 20VC: Why We Are in a Bubble & Now is Frothier Than 2021 | Why $1M ARR is a BS Milestone for Series A | Why Seed Pricing is Rational & Large Seed Rounds Have Less Risk | Why Many AI Apps Have BS Revenue & Are Not Sustainable with Saam Motamedi @ Greylock

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

• 0:00Speaker 00

  What's happening, I could argue, is even crazier than what was happening in peak 2021, 2022. It's not unusual for us to see seed rounds for companies that are just getting started, being priced in the many tens of millions of dollars, even hundred million dollar plus post-money ranges. I think the Series B market may be even frothier than it was in 21. I think playing the game on the field would have cost you dearly at many different periods in time. And our view is most people in venture capital are not helpful.

• 0:27Harry Stebbings?

  You are listening to 20 VC with me, Harry Stebbings, and I'd heard so many great things about today's guests from the likes of Reid Hoffman, Sarah Guo, Pat Grady, and many prior guests. And so I've wanted to make this discussion happen for a while. And so I'm thrilled to welcome Sam Motamedi. Sam has had a meteoric rise at Greylock, one of the world's best venture firms, where he's a general partner and has led investments in abnormal security, Apiiro Security and Opal Security, as well as incredible AI companies like Adept, where we had David on the show recently, Brain Trust, Crestor, Snorkel and more. This is an amazing breakdown of the current venture landscape from seed to growth, from enterprise SaaS to AI. I love doing this one and you can watch the full video on YouTube by searching for 20 VC.

• 1:12Harry Stebbings?

  But before we dive in, when a promising startup files for an IPO or a venture capital firm loses its marquee partner, being the first to know gives you an advantage and time to plan your strategic response. Chances are, the information reported it first. The information is the trusted source for that important first look at actionable news across technology and finance, driving decisions with breaking stories, proprietary data tools and a spotlight on industry trends. With a subscription, you will join an elite community that includes leaders from the top VC firms, CEOs from Fortune 500 companies and esteemed banking and investment professionals. In addition to must-read journalism in your inbox every day, you'll engage with fellow leaders in their active discussions or in person at exclusive events.

• 1:57Harry Stebbings?

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• 2:41Harry Stebbings?

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• 3:24Harry Stebbings?

  We use them at 20 VC and have loved working with their teams in the US, London and Asia over the last few years. So to learn more about the number one most active law firm representing VC-backed companies going public, head over to Cooley.com and also CooleyGo.com. Cooley's award-winning free legal resource for entrepreneurs.

• 3:43Speaker 00

  You have now arrived at your destination.

• 3:46Harry Stebbings?

  Sam, I'm so excited for this, dude. Listen, we have so many mutual friends in common. I have been waiting for this one, so thank you so much for joining me today.

• 3:54Speaker 00

  Thanks, Harry, for having me, and likewise. I've been a longtime listener and fan and have heard the best things about you from a bunch of friends who have been on, so I'm excited for this conversation.

• 4:03Harry Stebbings?

  You know, it's pretty expensive to buy Grady these days, and so it's a large part of our marketing budget, but I'm pleased that it's working well. My question to you is, when we look at your childhood, you grew up in Texas, you moved to California for college. I think people are shaped often a lot more by their childhood than they think. What element of your childhood do you think shaped you most?

• 4:22Speaker 00

  Yeah, it's a great question. So I grew up in Houston, Texas, was born and raised there all through high school and then moved out to California for school. There's a lot in my childhood that shaped me. I think maybe two things are probably most formative. I wasn't built for sports, but I was really good at debate and really competitive in policy debate in school. I think what that taught me is just a love for competition. And whether it's on the venture business when we're competing to work with the best founders or the companies we partner with, I think you have to be mega competitive to be good in our industry. And then the second is, I also did a lot of biomedical research and work around designing early cancer detection techniques that we published on when I was in school. And that taught me just the power of small teams. And with the small research team, we were able to produce some pretty cool work. And I think

• 5:07Speaker 00

  that's been quite formative to now what I do, which is invest in teams that are really, really small, and then help them go on to build really formative companies.

• 5:15Harry Stebbings?

  I remember Peter Fanton saying the best, a combination of hyper competitive and hyper curious. The question that I'd have for you is, with that hyper competition being so front and center, do you agree that venture is a young person's game?

• 5:27Speaker 00

  I mostly agree, but I'll tell you, there are exceptions, right? Like my partner, Rashim, the data would suggest is a truly generationally great investor, has been doing this for more than 20 years, has had many IPOs under his belt, and still works seven days a week. And, you know, if he learns of a founder fundraising that, you know, he thinks is high quality, he'll drop everything he's doing and go meet that person tonight. So I think some people are just wired that way. And if you're wired that way, I think it doesn't matter if you're 20 years old, 30 years old, 40 years old, 50 years old. But I think if you're not wired that way, you're dead. And it takes a while to notice, given the lagging nature of our business. But this is a super, super competitive game.

• 6:06Harry Stebbings?

  It absolutely is. A lot of people say that we're in an AI bubble. I just wanted to start here, Sam. Are we in an AI bubble? And how do you think about the state of AI investing today?

• 6:15Speaker 00

  The short answer is yes, we are in an exuberant bubble. I think we may not even fully appreciate in how big of a bubble we're in. And What's happening, I could argue, is even crazier than what was happening in peak 2021, 2022, zero interest rate period. It's not unusual for us now, again, in kind of pure AI, to see seed rounds for companies that are just getting started, being priced in the many tens of millions of dollars, even hundred million dollar plus post-money ranges. And then companies that have a little bit of revenue growth, you know, raising at a hundred times, even 200 times their revenue. That's with a backdrop where when you look at the top public names, I think the most valuable public company today on a multiples basis is CrowdStrike, and CrowdStrike is trading at, I think, 20 times forward revenue, right?

• 7:00Speaker 00

  And by the way, there's like maybe only five companies trading at north of 15. So you have this odd thing that's happened where in 21, we were investing at 100 times revenue, but you had public names trading in the 50 to 80x range. Now you're investing at 100 to 200 times revenue when public names are trading at the, the best public names are trading at 15 to 20 times. That dislocation does not make sense to me unless you believe that these companies fundamentally have much more persistent growth than prior generation of software companies. And like, look, it was just reported, I think the Information ran a piece last Friday, that OpenAI is at 3.4 billion of ARR and it's doubled in the last several months. That's impressive, but I would question how many companies other than that are going to be able to persist that rate of growth at those scales.

• 7:45Speaker 00

  If you don't have the growth persistence, it's very hard to see any of this investing make sense.

• 7:50Harry Stebbings?

  But I think the cool thing is actually valuation should only be held as a market in a world where financial incentive is the sole driver. And I think this is what people are forgetting, which is with the rise of corporate investing, with Amazon investing, with Google investing, with your largest cloud providers investing, they are no longer purely incentivized by the price of the deal. They are incentivized by the partnership, by the cloud credits.

• 8:13Speaker 00

  That's right.

• 8:13Harry Stebbings?

  And so when you have the entrance of an irrational buyer, it fundamentally reduces the importance of price for them and distorts the market. And I think people forget that.

• 8:22Speaker 00

  Absolutely. I'd say that's a really big distortion that's happening, Harry, to your point. And the other big distortion that's happening, which again is, is a positive, but I think it also cuts negatively, is some of these companies are growing explosively. When you look Look at the revenue growth. It is amazing. Yet, at the same time, the long-term retention on these companies is very unclear. And I don't want to pick on a specific company, but take your favorite AI consumer application that's growing really fast and just go run the Google trend graph on it. For many of them, you'll see an amazing peak and then also it really quickly comes down. And so, you know, you're investing in revenue today and you're putting some multiple on that revenue, but I think you have to ask yourself, have these products really proven persistent user value?

• 9:03Speaker 00

  And are you really buying revenue that's kind of going to recur with high net dollar retention, all the things we love? I'm not sure. And so I think that's also creating a bit of a distortion.

• 9:11Harry Stebbings?

  Do you care? And what I mean by that is like, to what extent you have to play the game on the field when a company scales to 20 million in revenue, whether it's fucking experimental budgets or short-term with retentive loops. That is traction that is hard to ignore and the fear of missing a generational defining company is so large. Fuck it. Put the bet down.

• 9:32Speaker 00

  It's a good question. The way we reconcile this is we take two lenses. One is we look at the data and as my partner Reid always says, when you see the data that that's explosive, the question you have to ask yourself is not why invest, but why not invest? You need to come in with an orientation of something seems to be really working. We should be in this business and then convince yourself why you shouldn't be. So we are certainly reactive to that. But the other lens we take, which is an equally important lens that I think the venture industry has sort of forgotten in the last year, is a very fundamental lens, which is what are the market dynamics? Does the product really have product market fit? What does retention look like? What is the defensibility of this business? And if we don't like the answers to those questions, it doesn't matter if the company's gone zero to 20 million in six months.

• 10:16Speaker 00

  We're not going to invest. We feel completely comfortable with that decision. Again, it's early, but we're seeing some of the first generation AI apps that two years ago, everybody was talking about writing assistants and the rest that had unbelievable growth metrics, you know, now come down quite a bit and really sober.

• 10:31Harry Stebbings?

  One of your former colleagues, actually, Sarah Tavell, said on the show that the biggest challenge is actually the multitude of players in single spaces and the challenge in differentiating between them, whether that's sales rep AI tools, whether that is customer service AI tools, which is the most common that I've seen. The challenge is it's differentiating between them is so difficult. How do you think about that? Language learning as well. Fuck, I've seen so many AI language learning at 10 million ARR plus.

• 10:57Speaker 00

  Hasn't that always been the challenge about SaaS investing? At least in the eight years I've been doing it, there's always been multiple competitors doing very similar things. You could argue now there's more excitement, maybe there's seven competitors instead of two or three, but I feel like that's always been a question we've had to ask ourselves as investors. And I think for us, we come back to like the basics, which is which one has the best founder and the best management team, who has a point of view on what's going to drive real product depth and workflow and stickiness and defensibility? Where is the distribution really unique and self-compounding? But candidly, Harry, those are the same questions we asked ourselves on, you know, non-AI SaaS companies.

• 11:33Harry Stebbings?

  So is AI investing at the application layer? Is it any different to traditional software investing?

• 11:38Speaker 00

  I don't think it is. And I think this is like one of the biggest misnomers in the venture zeitgeist, where everybody's talking about like, hey, are these just wrapper companies? What makes these things defensible? Is value going to accrue to them? I don't think any SaaS software company is rocket science in terms of the underlying technology. I saw a tweet from Brian, the founder of HubSpot, maybe yesterday or today, where he said like, hey, people used to say HubSpot was a wrapper on a database, right? And just some workflow on top of a database. And I think we're going to look back on this discourse a few years from now, and it's going to feel very similar. I come back to like the SaaS companies that have really become market defining, build for a specific end user, very deep and valuable workflow that becomes very sticky and critical to that person's job

• 12:21Speaker 00

  and are able to have significant pricing power. And then they get to distribution before others who have the distribution, namely incumbents, are able to copy their innovation. And the ones that have done that really well, HubSpot being very high on the list, Figma in our portfolio being high on the list, have gone on to be iconic businesses. By the way, SaaS is littered with lots of point solutions that didn't do that, had more superficial value, maybe they got bought a lot during the COVID period, and now they've completely flatlined and there's no growth or there's decelerating growth, including names you and I both know well. And so, you know, we'll see that happen in AI as well.

• 12:53Harry Stebbings?

  Do you think that OpenAI could kill my business is a legitimate fear in the same way that Apple have killed many businesses with updates to Torch, Calculator, Maps, you name it? Do you think that is a legitimate fear or we're over emphasizing the concern that an update to OpenAI could kill my business as a application-like AI company?

• 13:12Speaker 00

  So we have to start by acknowledging OpenAI is ruthless and the quality of their execution is just incredible and we should expect them to continue executing and shipping amazing products. Harry, I'll tell you my mental model for this. It's not quite consumer versus enterprise, but the way I think about it is there are some applications that I use the word, and this word is overloaded, but I think it was very foundational, like very foundational primitives and workflows on top of AI. And you talked about like the calculator or maps on the iPhone. You could say those are foundational capabilities for the iPhone. Content generation and writing, editing is a foundational capability. ChatGPT is really good at it. I think coding is a foundational capability and I think if you just take kind of pure code generation,

• 13:57Speaker 00

  I would bet very strongly that OpenAI is going to compete ruthlessly on that. Now, do I think building a co-pilot for lawyers or for physicians? Or building software development tooling, that's not the code generation itself, but maybe it's the incident response and SRE workflow, maybe it's debugging tools. Do I think those are going to be kind of core foundational things that OpenAI is going to need to own? I don't. And so kind of our lens is we're not closed for business, but we've really got to believe to back a team that's competing on something that we'd call, quote unquote, foundational, just like we'd really need to believe if someone wants to go compete with the Apple Calculator or Maps. But we think there's like immense, immense opportunity in really focused applications on top. And that doesn't mean focused applications are small.

• 14:41Speaker 00

  I think there's going to be many, many large companies, public companies built that will be focused applications on top of these large model capabilities, but that's where we're focused.

• 14:51Harry Stebbings?

  So I totally agree with you, and I think it can be very large companies. One of my friends just sold his blinds business, you know, window blinds for $9.5 billion.

• 14:59Speaker 00

  Wow.

• 15:00Harry Stebbings?

  You forget how big some small industries are. Europe has many amazing families built on the back of them. You also did, what, do have a bet in the foundational layer, being a master of an inflection, and many of the big firms do. I'm just interested to hear, how do you think about the foundation model layer and opportunity or not there for venture investors specifically?

• 15:23Speaker 00

  I'm unsure of exactly what the opportunity is going to look like. And I think anything anyone on your show says, you should put high error bars on. Because what the last several years of AI have taught us is it's remarkably hard to predict the future and how this technology plays out. And even the people building it are unsure, and that's why we talk about emerging capabilities and the rest. Now, with that said, our mental model is there may be one or two players who are able to persist a lead and actually compete selling models as a service, right? API clouds, et cetera. OpenAI is obviously a leader there. Anthropic has a scaling business there. Even that you could debate. Like, you and I could have a healthy debate on, three years from now, is there a real

• 16:06Speaker 00

  separation between those models and the next size? And if that separation is small, can those models really command margin? And so I think we at Greylock have taken the point of view of like, we're less excited about that as a space. On the other hand, we do think there are some applications where you need to own the model because the model needs to be tied to the application. Whether it's a personal agent, as an example, you referenced inflection. And for those, we actually do believe money can be made and will be made at the foundation model layer. And so what excites me about an OpenAI, in terms of its opportunity to create enterprise value, is its first-party products. ChatGPT is an outstanding product. I think they're going to have more outstanding products. And those products are going to require a really deep tie-in between the model and the application. And I think those can have enduring value.

• 16:50Speaker 00

  I think if you're just building like, an API service, I think there's a lot of value this year, next year. I'm skeptical how it plays out.

• 16:56Harry Stebbings?

  Are there any other very clear use cases where you see kind of the model and the application needing to be tied together? You said that personal agents, any others?

• 17:05Speaker 00

  Personal agents, possibly horizontal enterprise agents. I think code generation is one where you might want really tight tie in. There are companies taking both approaches and we'll see what ends up winning. But those are three that I think require really tight tie in. Whereas you mentioned customer service AI, that's an area where I don't think you need tie in. Where the startup should be really focused on everything except for the model.

• 17:28Harry Stebbings?

  Everyone says that we're like seeing the death of per seat pricing with AI. Do you agree with that?

• 17:33Speaker 00

  You know, I do and I don't. I think a lot of it depends on how your product drives value. I think we're going to see hybrid pricing models where you're going to layer on to seats. The type of work that you're doing for the end user and you're going to monetize that separately. And that will allow these companies to continue growing inside accounts, even if seats are not expanding.

• 17:53Harry Stebbings?

  You know, Dave Freeburg, I think on All In, he says that like we're going to see the end of SaaS in many respects. Businesses will build their own software for a lot of their own use cases. Do you think that's true? And how do you think about that kind of end of SaaS and people just building their own software now?

• 18:08Speaker 00

  I couldn't disagree more. I sincerely believe it is the best time in a long time to be building SaaS companies and investing in SaaS. And I'll tell you why. If you think about what have been the largest outcomes in SaaS, most of them are deep systems of record for important horizontal functions. We talk about Salesforce, we talk about Workday, which started at Greylock, ServiceNow.

• 18:29Harry Stebbings?

  HubSpot.

• 18:30Speaker 00

  HubSpot, another great example. Now, why has there not been a new, deep, horizontal system of record SaaS company built over the last five or six years? I can't think of one. There have been vertical ones built, there have been features built around the major systems, like a Gong built around Salesforce. But no one's been able to go after the core. I would argue you can only go after the core when either the data model profoundly changes, the delivery model profoundly changes, or the interface changes.

• 18:56Harry Stebbings?

  What's the data model?

• 18:57Speaker 00

  So Salesforce has an opinion on how you should run sales at your company. There's a customer object, there's an account object, there's a relationship between the customer and. The account, there are different dimensions around that that your reps are filling out. And they've picked a model, we can debate if the model is good or bad. The reason why it's important is because everyone around them, whether it's the users, the sales managers, the channel partners who are implementing Salesforce, or the tools like Gong and the rest that have been built on top have adapted to that data model. And so that data model, that schema, if you will, has become the standard for how people think about CRM.

• 19:31Harry Stebbings?

  What's the delivery model?

• 19:32Speaker 00

  Delivery model is how the software is actually delivered and consumed and priced, right? I would think about the shift from on-prem and Oracle Siebel to cloud-based, SaaS-based. And now we may see a new shift in delivery, which I would argue is mainly going to be on pricing. It's not just seat-based, but it's seat plus work or work only. That's pretty disruptive.

• 19:51Harry Stebbings?

  And then the third one is what, sorry?

• 19:53Speaker 00

  The interface. So, Harry, you probably have a lot of sales reps in the companies that you work with who complain about Salesforce. They hate using it, they hate the UI, it's super clunky. They're constrained by the interface, yet they've learned how to use it. If you hired me as a new sales rep tomorrow, you're going to train me on some, here's how you do your work inside Salesforce. With generative AI, the entire interface can change. There may no longer be an interface. I may have an agent that's working alongside me as the sales rep, helping me do my job, and it's navigating all the underlying systems on my behalf. And by the way, when it doesn't know something, it'll come back to me. And it's not just going to be a chatbot, it might be a UI, but it'll be a generated UI, it'll be very dynamic. And I would argue in 10 years, sales reps won't even know what the Salesforce UI looks like, because the interface to the underlying system of record has changed.

• 20:38Harry Stebbings?

  So now we understand those three. What does that mean in context of like now's the best time to be investing in AI and that question?

• 20:46Speaker 00

  Yeah, so now to connect it back to why is now a great time to be investing in SaaS? If you buy my point that the largest outcomes in SaaS come from when you're able to go after these horizontal, big application companies, right? Again, think Salesforce, think ServiceNow, think Workday, think SAP. You need disruption on these three buckets for the opportunity to be real. Otherwise, it's just incremental. And I'll give you an example of what I mean to make it more concrete. There are many like mobile CRM companies, like hey, I'll put, you know, CRM on the iPhone. Great. That's not that different. It's just another client for interacting with the CRM. Salesforce now has a mobile app and you and I don't talk about any of the mobile CRM companies anymore. Let's take the last eight years that I've been investing. Those three things have not been true, which is why I would argue it's been impossible to go after those large platform companies.

• 21:30Speaker 00

  I now think they are true. I now think you don't need the data model that Salesforce suggests anymore. Because your AI agent can go and just suck up your inbox, suck up all your gone call recordings. And on the fly, materialize the views of data it needs to help you run your sales team. So when you're doing a pipeline forecast, you don't need to go into Salesforce. You can just ask an AI application to generate your pipeline forecasts for you. And by the way, it's going to be a lot more accurate because it's not going to be based on what your sales reps put into Salesforce. It's going to be based on the actual raw text of all the interactions with your customers. That's on data model. On delivery model, pricing is going to change to our earlier conversation. The way you think about seats is not going to be the same. And sure, Salesforce over time will adopt that. But there's going to be a window where they won't adopt that because it's going to cannibalize their business.

• 22:13Speaker 00

  And startups can come in with really disruptive pricing. And then number three, and most importantly, I think the interface is going to change. I don't think we're going to be spending our time doing pivot tables in Salesforce and figuring out where to put in dimensions. We're going to be talking to an agent, that agent's going to be consuming information from us and it's going to be navigating systems for us. And those three things mean that you and I could go start a very different CRM company. And I think actually build the next Salesforce, but something that feels radically different. And the same is true across all of these functions. That's why I'm excited about going and investing.

• 22:45Harry Stebbings?

  Do you think AI allows companies to actually make more money from their existing customers? I know it's kind of a little bit off tangent, but like when you look at like Box, they add AI. It's like, great, thank you. That makes my product better, but fuck, I'm not going to pay for it. Same with Notion. Is it actually just like a thanks, but I'm not paying more?

• 23:04Speaker 00

  I think it's too early to say. A year ago, everyone got really excited. All these public companies were telling analysts, hey, people are going to pay a lot more. I can't remember exactly what week it was, but there was that week, three weeks ago, I think Salesforce reported earnings and all of software had a bit of a correction.

• 23:17Harry Stebbings?

  We did a show with Jason Lamkin this week in SaaS and it was Mongo down 20%, Salesforce down 20%, UI path down 30%.

• 23:24Speaker 00

  And I think people like saw like, hey, actually it's not going to have the impact we thought, at least this quickly. But the bet I would take is if you take a slightly longer term view, I do think you will be able to increase pricing power. But the way you're going to do that is by really replacing elements of work. And if we take the sales rep example, actually making the sales rep twice as productive. It's not just like a copilot inside Salesforce. I think I'm less likely to pay more for that. But if Salesforce would come to me and say, hey, Sam, you don't need a BDR anymore. Because I have this AI BDR and they can go out and email Harry and get Harry on the phone and book a sales qualified meeting with Harry for you. And you just show up and that meeting is booked on your calendar. Well, suddenly that's really valuable. And so I could see myself paying a lot more as a sales rep for a tool that could replace

• 24:08Speaker 00

  that element of work for me. I just think it's too early and we haven't yet seen. Again, you and I are seeing it in the seed stage founders that are pitching us. But in terms of like companies at real revenue scale, really delivering replacement to parts of work. And when that happens, we'll see pricing power improve.

• 24:24Harry Stebbings?

  Uh, listen, you mentioned kind of the founders that pitches at seed. I want to go through the stack a little bit with you today. Cause I think there's not enough discussion on what we're actually seeing on the ground. When you look at seed and series A today, what are you seeing in terms of seed and series A pricing and is it rational?

• 24:39Speaker 00

  Let's talk about pricing first and then is it rational? And I'll start by saying the thing we all know, which is there's a wide range. But let's talk about kind of what is the bread and butter. So in seed, if you are a high quality team coming out of a company where, you know, you've been on a growth clip, you've seen how a great business gets built and you're building a new company in an area that is secular, right? Maybe you're building an AI BDR, maybe you're building a copilot for lawyers. I think seed pricing is between 20 to 40 post. For series A, based on what we're seeing, again, for that cohort of companies, if you have a little bit of product market fit, again, we're seeing pricing between 80 and and maybe 150 and 200 post on the high end.

• 25:20Harry Stebbings?

  Just let's go to the 20 to 40 seed. What do they have there? Is that pre-product, pre-revenue? Is that a little bit of product, a little bit of, where are we at there?

• 25:28Speaker 00

  There's variance, but no, I'd say in many cases, I'm seeing teams where the company was incorporated last week, raising in that range.

• 25:35Harry Stebbings?

  Is that rational?

• 25:36Speaker 00

  I think one of the distortions of the 2020 to 2023 period is we all forgot about the power law and we all forgot that very few companies matter. But the companies that matter end up being much larger than we think. And so with that lens, I actually do think it's rational. And I get really upset when I hear people say, oh, I love this company at 20 post, but at 30, it's too expensive. And the reason for that is like, if you run the scenario math and you ask yourself, Harry, what is the outcome for this company where at thirty I'm disappointed, but at twenty, I'm thrilled? The only possible outcomes where it would matter are really intermediate ones, right? Okay, the company sells for a hundred fifty, a net of dilution, you make a five X versus a three X. That's irrelevant. It doesn't matter. Maybe it matters if you're really, and I'm not talking about a hundred fifty million

• 26:20Speaker 00

  fund, I'm talking about a really small fund, but for most funds, those outcomes just don't end up mattering. All that matters is are you backing the team that has a chance of building an iconic enduring company? And those teams are really scarce. So when you find one of those teams, I really don't believe you should be passing on price in those ranges. Because whether you do it at twenty, twenty-five, thirty, thirty-five, forty, if that company goes on to get to a hundred million plus of ARR with high growth, you're going to be very happy as an investor. And if it doesn't, and it has an intermediate or mediocre or bad outcome, you're going to be unhappy. And maybe you're slightly less unhappy if you paid twenty than thirty. That's not the thing to optimize for.

• 26:56Harry Stebbings?

  Okay, so I think you can hold two truths in your mind at one time, which is I agree with you in terms of the importance of being in the massive companies, but then I also agree that you're not getting paid for the risk that you're taking at that stage. You're making that trade off, and that's fine. And I accept both things to be true, but you are not being paid for the risk that you're taking when you are doing a company that's pre-product and pre-revenue at twenty to forty with good people coming out of a good company.

• 27:19Speaker 00

  And this is where it probably comes down to like the specifics of the situation, and it's maybe harder for us to reason about generally, because I would argue that in many cases, you are being paid for the risk. I'll give you an example, like we backed a team coming out of NetApp where they had previously built and scaled a business, and they sold it to NetApp for half a billion dollars, and they're building a new cybersecurity company called Upwind that's off to the races. And we led a really large seed round. In fact, I think the seed round, the round size was twenty-six million dollars. Now, you could say, hey, Sam, that's crazy, you're not getting paid for the risk. But I take the counter and say, hey, I'm getting in business with a team that has built a business to a hundred million of ARR before, understands how to build products, sell products, scale management teams. Think about how little risk there is on so many dimensions around that project.

• 28:04Speaker 00

  And so I'd much rather do that than do a $2 million seed round where I'm backing a team where I don't know if they actually know how to build a product, sell to the enterprise, recruit a VP of Sales. There's so many layers of risk. And so I agree with you, Harry, generally speaking, but I would say we just have to look at the specifics of each situation. And I would argue there are many situations where the expensive seed round is a lot less risky than people think.

• 28:27Harry Stebbings?

  I get you, but your entry price there is 125 if you assume the standard dilution of 20% per round. And then you're like, shit, you know, when you look at the dilutive nature of rounds, if it's a $5 billion company, we're getting like a 20x.

• 28:42Speaker 00

  So in that case, the valuation was not that high. And I agree with you. Like, I think you have to have a ceiling on valuations you're willing to pay.

• 28:48Harry Stebbings?

  I also think that you have to be aware of what is the exception. I agree with you. When people are like, oh, I'd pay 20, but not 30. Everything is now 30. Your blended entry is going to be 30 and your returns are going to be 50% less.

• 29:01Speaker 00

  Exactly. That's an excellent point. And that's why we maintain two truths in our head, to use your parlance. One is, for the right situations, the rules don't matter. And then the other is, at a portfolio level, the rules do matter. Because if every investment in your portfolio is an exception, then there's no actual portfolio construction rules that you're enforcing. And so for us, you know, we invest, you know, we're investing in our 17th fund. It's a billion dollar pool of capital. We are more ownership sensitive than price sensitive within a range. And so the lens we take on our kind of core early stage positions is how many of them are there where we have adequate ownership. And we think of adequate ownership as 20 to 25% plus, right?

• 29:38Harry Stebbings?

  Do you still get 20 to 25% plus?

• 29:41Speaker 00

  It varies, Harry, and we're not as religious about that as we once were. In many of our companies, we own in those ranges or more. Now, the reason why is because we're willing to give founders more capital early when there isn't proof, because we have belief in them. And so we are willing to do things other people may not do.

• 29:58Harry Stebbings?

  Do you think that's good? My worst performing companies are the five on 25s or bigger, because you lack urgency, you lack creativity, because you can just buy it, and you lack real speed of decision making. I don't think giving founders much money early is like the

• 30:14Speaker 00

  I think it all depends on the founder. It just all depends on the founder. And the more I do this, the more I come back to like, everything is about the founder. I can tell you, Harry, there are situations in our portfolio where we've done large seed rounds and where the velocity and desperation and paranoia is unlike anything you've seen because the founder is just amazing. And there are situations where we've done a million dollar round and there isn't that orientation. You are right to say that when there's more capital, perhaps there can be more of a temptation to overspend, not be a scrap, be the rest. But I think the best founders, they inherently have the right orientation on those dimensions. And so the capital just becomes an accelerant to them. It allows them to think bigger, build more of a complete product, target larger customers from day one, and that makes a big difference.

• 30:57Harry Stebbings?

  Parker Conrad at Rippling and I always have beef on Twitter because he's like, no, it's bullshit, Harry. Like you totally can. And I'm like, yes, you can if you're as good as Parker Conrad.

• 31:05Speaker 00

  Exactly.

• 31:06Harry Stebbings?

  You mentioned the billion dollar pool. When it's a hundred million dollar seed fund, God, three or four percent of your fund is a lot of money. Three or four million for a billion dollar pool? How do you maintain a high bar when the check size is irrelevant?

• 31:20Speaker 00

  Harry, we make very few investments at Greylock. Each partner might make one to two investments a year, and many of them start as very small checks. The last two investments I made over the last 12 months, one was a six and a half million dollar check and the other was a five million dollar check. But our constraint is not the capital. Our constraint is our time because when we make these investments, we sign up to be accountable and service of the founder forever. Like, it's not an option for us. And so we actually, on the six and a half million dollar check, I spent 90 days getting to know the founders in our offices before we wrote that investment where I was working with them every single day.

• 31:53Harry Stebbings?

  Is that still possible with deal compression with heat in markets?

• 31:57Speaker 00

  It is if you build the founder relationships early. In this case, we got to know these people when they were still full-time employees elsewhere and were helping them before the company even existed. Actually, I think something like 80% of our investments, they're of that flavor, where we met the person before the company existed. And that's not to say we don't sometimes make decisions in 48 hours. Sometimes we have to, but that's our orientation. And so that six and a half million dollars might grow into 50 million dollars over time. And if you look kind of Over our more recent funds, whether it's a Figma, a Rubrik, an abnormal security, a Discord. Many of these companies, we've put real capital to work over time and we've earned the right to do that with the founders. But they all started as really small checks.

• 32:37Harry Stebbings?

  My question to you on the back of that is like with the growth of check per company, it brings the question of signaling. Signaling is often touted as being a very real threat to companies. Before I weigh in, how do you feel about signaling?

• 32:50Speaker 00

  I think it's total bullshit. I, uh, I, uh, and, and I think the best founders.

• 32:54Harry Stebbings?

  Do you some? I was, I wasn't expecting that.

• 32:58Speaker 00

  Yeah. And, and of course everyone sells their own products. So at risk of sounding like that's what I'm doing. There's different ways to cut this, Harry, but I'd say I have never seen a situation in our portfolio where it has mattered. And actually it's the flip where the seeds we've done, many cases we lead the series As. In many cases, we helped the founders land tremendous series As and I, you know, I know some other funds run these stats and they publish them on Twitter and all the rest. I don't have the exact data, but I can tell you that our seed companies almost always raise series As. And the conversion rate to A is, is much higher.

• 33:29Harry Stebbings?

  That doesn't disprove signaling being a thing. All that does is prove the strength of a Greylock brand on getting subsequent rounds. I had this conversation with Grady. I said to him, you know, I don't think that Sequoia necessarily always invest in better companies. But if you think about actually starvation being the thing that kills companies, not indigestion, the amount of time you have to find product market fit. Because Sequoia and Greylock have such great brands, they will generally 90% of the time always get more money. And because they get more money, they have more time to get product market fit. It doesn't mean signaling is not real.

• 33:59Speaker 00

  Maybe I misunderstand the signaling argument, but my view of the signaling argument is like, hey, if I raise my seed from Greylock and Greylock doesn't lead my series A. Is it less likely that another investor will lead my series A?

• 34:09Harry Stebbings?

  You can have real preempting, but the real thing for me is like on the negative, negative side of like, if Greylock doesn't do it at all, will it kill it?

• 34:18Speaker 00

  It's never been an issue for us. Harry, I'll, I'll give you an example. Like I led the series A in a company called Cresta, right? I may have mentioned it earlier, contact and I had a company Sequoia led the B, company's doing great. Andreessen had done the seed. I remember when we looked at the company at the A, I was like, hey, why isn't Andreessen doing the A? They probably passed. I mean, I don't, I still to this day don't know, but I assume they passed. Doesn't matter. We evaluate the company on the merits of the company. We love the founders. We love what they're doing. And, you know, we did the A and, and, and I'm just picking, I mean, that's the first example that jumped in my mind. There's so many ones where we did the A where someone else did the seed. We just look at it as independently, especially with some of these global platforms that are doing 50, 60, 70 seed deals a year. I think it's hard for them to even keep track of what companies are investors in. And so I'm not going to let that get in the way of backing a great founder.

• 35:02Harry Stebbings?

  But if you have 20% on entry, say, you're going to end up owning 40, 50% of a company. If you continuously lead round, round, round, at what point does it become damaging for the company?

• 35:13Speaker 00

  Yeah. So a couple of things. One, I should say, if we own 20% of a company at seed, like we will view that as kind of being in our core ownership bucket. And so it's less likely we will necessarily have to lead the next round. Whereas if we own 10%, it's a different equation. You know, Harry, like on every round, we sincerely ask, what is the right thing for the company? And our view is most people in venture capital are not helpful. They're not additive. We don't think founders need incremental brand when they already have the Greylock brand behind them. And so we challenge founders and we say, hey, build the list of people who if we get them on the board, they will actually change and have impact on this business. It's a really small list. Every time I do this exercise with a founder gearing up for a fundraiser, I'm disappointed by how small the list is. I mean, you mentioned our shared friend, Pat earlier. He's on that list, but there's not a lot of names on that list.

• 35:57Harry Stebbings?

  What are the common names on that list?

• 35:59Speaker 00

  You know, in enterprise where I play on the early stage side, I have a lot of respect for Pat. I love Eric at Benchmark. I'm on a board with Ravi at Lightspeed, who I think is excellent. I'm on a board with Ted at Kleiner, who's excellent in security. Like there are names, but it's not 50 names. It might be five to 10. And I think the names vary a lot based on the domain that you're in. I can't talk about this company yet, but there's an exact one where we led the seed. We built that list. We would have loved to lead the series A. The founder went, pitched the three names on the list. All three of them wanted to invest. He picked the one he liked the best. And we invested as well. Do we own a little bit less than we would have if we had led the A? Of course. Is that the right thing for the company? Of course, because that person's going to be additive to the business. And if that makes the company bigger, like we'll all do better.

• 36:41Speaker 00

  And so we're not in the business of like, we want to own 40% of companies and do every round. We're more than happy to win great businesses, but we first always ask ourselves the question, is there someone out there that could actually be additive? And if so, let's go get that person. But if we're just going to go get capital from someone who's going to show up to board meetings once a quarter and not do anything, like I'd rather give the capital because number one, we can do it at a better price since we already have an existing position in the company. And number two, let's keep the company tightly held. Why not? It's better for the founder.

• 37:07Harry Stebbings?

  What's your approach to reserves? Many people have different perspectives. What's your approach?

• 37:12Speaker 00

  We don't have a super formulaic perspective. Like we, at a portfolio level, think about it. We reserve a lot generally because we invest in things early. We're fortunate that at least to date, a good portion of them have had the chance to go long, which means that even just the parata dollars really add up. And so, as I said, it's not uncommon for us to start with a $5 million position. It yields a 70, 75, 100 million dollar position. By the way, the other thing on reserves, which nobody talks about anymore, is like reserves aren't just for when things are going great. It's also for when like companies hit an air pocket. And many of the great companies we've been a part of have hit those air pockets. And we've had to step up and we have gladly done that and led inside rounds, not out of offense, but out of defense. And we won't have the capital to be able to do that. So I'd say we run a relatively high percent of our fund in reserves

• 37:54Speaker 00

  so that we have ample opportunity to play offense and defense for our companies.

• 37:58Harry Stebbings?

  When we're thinking about evaluating Series As, I think we take quite brute mental models to how we evaluate companies at this stage. Mostly it's kind of ARR dependent as a good way to screen for it. Why do you think ARR is wrong in terms of a filtering mechanism at Series A?

• 38:16Speaker 00

  Yeah, this, this reminds me of what we were just talking about when investor says, I like something at 20 and not at 30. So it drives me crazy when I hear, you know, investors write these blog posts, your checklist for the Series A, number one, a million dollars of ARR. Why does that drive me crazy? Because for you to make money on a Series A, and let's just take SaaS or enterprise software to simplify, you've got to get into a business that gets into the hundreds of millions of ARR, because that's the only way you can become a public company. And so if your goal is to get into the hundreds of millions of ARR, and your main thing that you're looking at is, is this company at a million or 2 million of ARR? Harry, how many companies get to a million of ARR that don't get to 10, that don't get to 50, that don't get to 100, the vast, vast majority? And so my argument is like, I don't get why that's the primary thing that people look at.

• 39:01Speaker 00

  I really believe it's misleading because you might look at that and be like, oh, this thing's at 2 million of ARR, it's great. When it turns out that the market's super capped and it's going to grow to 20 million and then massively decelerate and the business is going to be worthless. Or it turns out you don't really believe it's a superstar founder. And conversely, we did invest in this company at the Series A. We fortunately invested later in the growth rounds. We take Wiz, I'd argue Wiz is one of the most important privately held companies today. Wiz, when they raised their Series A at a $500 million valuation, had zero in ARR. But what did it have? It had an amazing iconic founder and was going after the cloud security market at a time of dramatic transition. And look, 500 is a big price, most of them don't need to be that high. But I would much rather take that shape of bet and bet ahead on the ARR

• 39:44Speaker 00

  than be happy that I'm, you know, getting into a business with a couple of million of ARR, but where I'm in a stunted market where I don't believe I'm backing an iconic founder. And so it's not that I don't look at ARR. I look at it, it's an important proxy for product market fit. But I always start with who's the founder and what's the market? And then I go to ARR as a secondary consideration.

• 40:02Harry Stebbings?

  I hate competition. It's probably one of my biggest reasons for saying that, like, there's five people doing it. We're one of them, we're pricing power, none. I just don't, and you said earlier, oh, isn't everything competition? No, like, you know, I look at my biggest and best property management in Berlin, commodities pricing providers, unsexy businesses where no one is going after it. That's, I think, where great money is made.

• 40:29Speaker 00

  I agree with you, but I would say that great money is made being contrarian and being right, right? And there are multiple ways to do that. I think the common way people do that, and congrats to you on those companies, like, Is they find companies or markets that others aren't all over and they invest in them. And then a year later, it's clear that thing's really working and they benefit from cheap follow on capital. But another way you can be contrarian is right, is to take a really competitive situation and say, hey, I'm willing to pay twice the price anybody else is willing to pay because I actually am such a believer in this thing that I I'm willing to price it at twice the price you are. And again, I come back to the Wiz Series A, right? That's a good example. I think at the time, the price was astronomical. I'm sure many people passed due to the price. Credit to the people who funded it. They were right.

• 41:11Harry Stebbings?

  When do you think most obviously you were contrarian and right in that way?

• 41:15Speaker 00

  I think for Greylock writ large, and then I'll give you a couple of concrete examples for myself personally. We are willing to invest behind great people and great markets when the traction data is not there, often when others would pass. For instance, we we were fortunate at Greylock to initiate a company called Abnormal Security, which recently announced they've crossed a hundred million of ARR, growing north of a hundred percent. You know, it's one of the fastest growing private companies today. We did multiple rounds in that company before it was clear that there was repeatable product market fit. But we had really deep conviction in the market and in the founder's evidence, Anjay. You know, we mentioned Upwind and the large seed round. I'm sure many people looked at that and were like, wow, these guys are smoking something 26 million dollar seed round. It's like, no, Amiram's amazing. He's he's going to be an iconic founder. That company just started sales. It's one of our fastest growing new companies.

• 42:00Speaker 00

  That's the form of risk we're willing to take. And I think any investor has to be willing to take some type of risk that the market writ large is not willing to take.

• 42:08Harry Stebbings?

  Does the framework you use to invest as seed differ from Series A? I would argue that actually, whether you are buying a Series C or a seed, ultimately, it comes back down to the founder. Why do most companies stall out at some growth level at 50 million ARR? It's because the founder doesn't have a second act because they can't operate a new geography, a new product, a new market. They can't get that second layer of the exact team. It gets back to the very seed investing principle of is this a Bezos that's sitting in front of me? Is this a Zuck? Is this a Spiegel?

• 42:39Speaker 00

  I think the way you just articulated that is spot on, and I'm going to steal that because it's very clarifying for me as I think about how we look at Cs versus seeds. You're mostly right. There are two exceptions. One is markets have And I don't think even the best founder can overcome a market that has the wrong dynamics when it's too late. What do I mean by too late? If you start a SMB SaaS company that sells to other startups and you start flying the plane and the plane gets to 50 million of ARR, but the overall market is 100 million, it's really hard at that point to re-engineer the plane and to go after some other segment. And so as these companies get more big and the valuations go up, we pay even more attention to is this really one of those markets that matters? And not just matters, but has the right dynamics to support a new company.

• 43:23Harry Stebbings?

  Do you not think they're the best do? You know, when you look at like Darmash and Brian's pivot with CRMs with HubSpot, a market that no one fucking foresaw them going into and is now, you know, 700 million market for them.

• 43:35Speaker 00

  I think it's a little bit of a philosophical debate. I mean, yes, I think the best do, there are many examples, but I think you make the odds just lower by picking the market incorrectly. And maybe the best teams are able to pivot, but there's so many things that can go wrong as part of that process. It's like, hey, why not just get it right from the beginning?

• 43:50Harry Stebbings?

  So that's interesting. So if you have a founder where you love them, but hate the market, would you do the deal?

• 43:56Speaker 00

  This question is the bane of my existence. Like it's one we debate every day at Greylock.

• 44:01Harry Stebbings?

  Really hard.

• 44:02Speaker 00

  It's really hard, Harry. I think the only things I can offer as learnings I've had and I've made so many mistakes, so many mistakes on this exact question, it's painful. Is one, like you've got to be really honest with yourself. Like, is this truly an iconic founder, right? Is this, you know, the next George Kurtz at CrowdStrike or Nirzak at Palo Alto Networks? And that's a really high bar. So one, that. And then two, I think we are more likely to do it if we think the general zip code is good. So like, if you're in a good zip code, but the street you've picked to build your house on is a bad street, that we're more willing to get behind because we're like, hey, Harry's smart. He's going to figure that out. He's going to shift streets before he starts construction. But if you're in the totally wrong zip code, it's hard for us.

• 44:45Harry Stebbings?

  Does that differ by stage? Will you do it at seed?

• 44:47Speaker 00

  We're more likely to do it at seed. But even at seed, that's been where we've made some of our biggest mistakes. I'd say at seed, our biggest mistakes where we have not pursued the investment has been where we've met someone truly iconic and we did not like the idea. And by the way, Harry, often we were right. Often two years later, the founder was working on something different, but we should have been in business with them.

• 45:06Harry Stebbings?

  That is the worst when you meet them and you're like, this is not at all what we discussed. Like, of course I would have said yes to this. Okay, we have that. Growth a step further. Everyone's like, wow, growth is totally dead today, right? There's no growth rounds happening. Is that true? Are the best companies raising growth rounds? Help me out here.

• 45:27Speaker 00

  Yeah, it's not true again. I see the same things you do. And I, I just don't understand the data people are looking at because I see a totally different battlefield.

• 45:34Harry Stebbings?

  Do you think the data they're looking at is median companies? And that sounds really arrogant of me, but we do operate in rarefied air. If you are in middle America or middle Europe and like a series B is a $10 million round for a industrials machinery business, it probably isn't even traditional venture. Yes, it's impacted.

• 45:54Speaker 00

  Exactly. You nailed it. And it comes back to the power law, right? Which is very few companies matter, but the ones that matter become much bigger than you think. If your company that's building something secular, maybe it's AI enabled, maybe it's not, by the way. You have great growth, great market dynamics. This is going to be controversial. I think the series B market may be even frothier than it was in 21.

• 46:15Harry Stebbings?

  We've seen the SoftBank retreat, Co2 retreat, D1 retreat, durable do less. All of these guys, and there's no discredit to any of them, but just do less and slow their cadence. I thought it would make it less competitive.

• 46:29Speaker 00

  That's what I thought too, but I think the thing maybe we both missed is those players would leave the market. But there's a new set of players and those players are the early stage platforms that have raised these massive growth, global growth, et cetera, funds. Incredible amounts of capital and dry powder at these platforms. These platforms have all hired a lot of new partners who need to come out of the gate swinging. And because those platforms don't have public market teams, they don't have to face the harsh reality of where public multiples are the way if you're at a Co2 or a D1, you're thinking about every day. By the way, that can also be an advantage because you could argue it allows you to be longer term, blah, blah, blah. And, and those players are competing for a smaller set of companies. Because in 21, so many SaaS companies were growing from like one to four to 12.

• 47:12Speaker 00

  Yeah, all those companies got funded at big prices, but there were a lot of them. Now there's fewer, but the ones that have it, you overlay that with all of this demand. The pricing is exuberant. I, I mean, I, I really wonder if the series B asset class as a whole is positioned to make money this vintage.

• 47:28Harry Stebbings?

  Wow. I mean, that's a bold statement.

• 47:30Speaker 00

  Again, Harry, I come back to unless you're betting that public market multiples are going to re-expand or that the growth durability of these assets is a lot stronger than what we've seen in the past, the vintage writ large is not going to perform. It does not mean that there won't be outstanding Series B investments made. There of course will be. The vintage in the basket overall, I don't think will perform well.

• 47:50Harry Stebbings?

  That's really interesting. And then you see people like Pat Grady move earlier and earlier. I think Pat's one of the best.

• 47:55Speaker 00

  And it's incredible. It speaks to who he is as an investor that he's able to do that.

• 47:59Harry Stebbings?

  When you look at like his press in pick of like a Harvey very early, I agree, but it's also indicative. If it was ripe and fruitful at B, you wouldn't be moving earlier.

• 48:09Speaker 00

  And Pat's obviously one of the all time great growth investors. And so to your point, I think it's interesting that that's what he's doing when many others are playing the quote unquote game on the field and paying up for these Bs and Cs.

• 48:19Harry Stebbings?

  Do you agree with the play the game on the field mantra?

• 48:22Speaker 00

  I don't. I think playing the game on the field would have cost you dearly at many different periods in time, both in the generation that you and I had been investing in and the generations that predate us. So I think you've got to be really cognizant. And if you're not playing the game on the field, you better be right. But I think you have to have independent thinking.

• 48:39Harry Stebbings?

  You mentioned a lot of mistakes when it's like amazing founder, but you hate the market. I'm just interested. The best shows are always when one's very open with mistakes, but then also has lessons tied to it. If I were to ask you, what are your biggest lessons when you think of that? And what situation was it? What would that be?

• 48:57Speaker 00

  There are many, right? The two that like first came to mind. The first is Glean. We at Greylock have known Arvin Jain, co-founder and CEO of Glean for a long time because we were the Series B investors of Rubrik where he was one of the co-founders. And so have known him for a long time, have thought super highly of him. When he started Glean, I took the meeting on the, I think the Series B, the round that General Catalyst ended up doing. At the time, and still now, but at the time, you know, it was an enterprise search company. Enterprise search as a market was littered. With so many people who had tried and had been unsuccessful and who hadn't been able to crack enough end user value to get recurring user love. And you know, the business was early. And so we made a really bad decision, which is we didn't try to win the right to invest.

• 49:39Speaker 00

  And today I'd say Lean is on its path to being an iconic company. In my view, it's one of the most important AI application companies. And I think anyone who's not using it should immediately start using it if you're a large enterprise. And so if I reflect back on like, what was the learning? I think there's two learnings there for me. One is Arvin is an iconic founder. He had a long tenured career at Google, started Rubrik, which has gone on to, you know, just went public recently, become the defining company, the next generation of ransomware protection and data backup. And when you have the opportunity to work with someone like that, you don't overthink the dynamics around the market because he for sure understands it better than you do. That's number one. And then number two, I think the thing we also failed to see, which I think was hard to see at the time, but we failed to see it because this was a few

• 50:22Speaker 00

  years before ChatGPT, was that the rise of generative AI would fundamentally change the way search in the enterprise worked and what would be possible. And Arvin and his team were the best positioned to take advantage of that and build truly transformative experiences. So that's one. And then the second is a company called Codium. It's a company in the code generation space. We've known the founder of Arun for many years. In fact, he was a Greylock fellow when he was still a student in college. You spend 30 minutes with this guy and it is very clear to you that he is of the making of these very, very, very special entrepreneurs. But when he pitched us on his seed round, he was building a completely different company idea. At the time, it was model inference, which ironically now turns out to be a great idea. But several years ago, you know, there wasn't a lot of demand for. And so we made a mistake of not

• 51:06Speaker 00

  trying to compete to invest in his round.

• 51:08Harry Stebbings?

  Did you change how you invested on the back of these?

• 51:11Speaker 00

  Yeah. So now at the seed, when we see someone like a ruin or an Arvin, our orientation is towards yes.

• 51:17Harry Stebbings?

  I asked Keith Roy this one, but I think it's really interesting. When you think about sourcing, selecting and servicing, kind of three elements that make up great venture investors. What are you best at and what are you worst at and why?

• 51:29Speaker 00

  I think all three are important. I don't want to give you a non-answer, but I think one of the hard things about venture capital is you have to be good at all three, especially if you're playing at a seed and series A firm like I am.

• 51:39Harry Stebbings?

  I don't think you have to be good at servicing.

• 51:41Speaker 00

  That's a good point. You're right. There are many great examples of investors who don't do the servicing, and there are many founders who don't need that. But I think the hardest and most important is sourcing. I believe like you are only as good as what you source. It is incredibly difficult to stay relevant, to understand where the new pockets of entrepreneurs are going to be, and to see them before anybody else. And we have a nine-person investment team at Greylock, and we're competing with people with 50 investors. We have to be on top of our game, and we care about sourcing tremendously. That would be my answer for both what I think is hardest and I think what's most important, because if you find the right founders, you could argue you don't need to do any servicing.

• 52:19Harry Stebbings?

  Can I ask, your trajectory within Greylock has been pretty unbelievable. What would you advise younger investors on successful career navigation in a firm?

• 52:29Speaker 00

  I think most young investors make a big mistake, which is they think too much about themselves and not enough about the firm. I'll give them the benefit of the doubt, maybe it's not their fault. And what I mean by that is, a young investor shows up at a firm, and classically, the way they think they can have impact on the firm and progress themselves in their career is by sourcing great investments. And so they start sourcing investments, and they, you know, come to their partners and their colleagues, and they say, hey, you know, this is a great company, that's a great company, all of these things are great companies. Because in their minds, they just want to make investments happen. And I've seen many people, including people who formerly worked at Greylock and at other firms, be oriented in that way. And I think those people are doing themselves a wild disservice.

• 53:06Harry Stebbings?

  I think there's just one distinction to make. Are you using this as a stepping stone to a better fund or your own fund, or do you want to scale within this fund? If you want to scale within that fund, 100% judicious, thoughtful, preserving capital, being very intelligent around slow deployment, yes. I think on the flip side, if you just want to use it as a stepping stone, attach yourself to as many names as possible. What matters is being able to say, I was a part of a winner, and leverage the shit out of it for your personal brand to be able to raise your fund or get a job at one of the best.

• 53:37Speaker 00

  I think you're right, that does happen quite a bit. I hope we don't ever hire anyone at Greylock who's wired that way, but you are right that that does happen.

• 53:44Harry Stebbings?

  So then to your point of, okay, if you do want to stay, you then are judicious, you're thoughtful. What is that advice?

• 53:50Speaker 00

  I think at Greylock, like the lens we would take is why is this person going to have something to offer an entrepreneur? Like, why would any entrepreneur at some point want to work with this person? And if you don't have a really good answer for that, I think it's really tough to be successful, certainly at Greylock.

• 54:04Harry Stebbings?

  Do you think you need to have an answer for that? I would not say that many have an answer for that, but actually what I would ask is, does this person have a unique, different way to find the best talent before anyone else? I don't care, they can learn servicing and knowledge on the side, whatever. I just care, can they help me find the next Colson before someone else? Do they run fintech meetups in their university and have the best, small, dense environment of amazing entrepreneurs?

• 54:31Speaker 00

  I think it's both, Harry. I think your point's fair, but I think it's both. By the way, I don't just mean it because of servicing. I just think it is the case that entrepreneurs, fundamentally in my mind, make decisions to work with venture capitalists and they have the power and they choose who they want to work with. And by the way, that might be they have six term sheets. It might be that you're trying to preempt a series A in a company that doesn't need to raise and the founder, of course, is excited about the capital, but also has to be excited about you. And again, Harry, doesn't mean that you're going to come on the board and drive a ton of value. That's one flavor of it. There are different reasons why a founder might want to work with you. You might have a great brand. You might have great distribution. Like, there are great reasons, but there has to be a reason. I fundamentally believe that. When we add people to the team, we think about telling them, hey, what's your reason going to be? And Harry, often that will also connect to sourcing because your reason might be, I'm going

• 55:14Speaker 00

  to go become an expert in fintech and I'm not going to be focused on like, what's the deal I bring in this week, but I'm going to take the bet that over the next 10 years fintech is going to be important. And the next year I'm going to go map out Stripe and Square and Klarna and all these great businesses. I'm going to meet the product managers. The directors of engineering, I'm going to know everybody in the next generation of fintech. And a year from now, that's going to result in me meeting Sally coming out of Stripe, six months before every other venture firm, and that's going to enable me to win or help our firm win that opportunity. That's the type of thing that I think a thoughtful young investor who really wants to build a lane for themselves that a firm should be focused on. And Harry, I actually think we're saying two sides of the same coin because you become known for something.

• 55:54Speaker 00

  And that's something both helps your sourcing, I would argue, and it helps over time your ability to win the best opportunities.

• 56:00Harry Stebbings?

  I want to do a quick fire. I could talk to you all day, Sam. This is so much fun. But I want to do a quick fire. So I say a short statement, you give me your immediate thoughts. Does that sound okay?

• 56:08Speaker 00

  Sounds awesome.

• 56:09Harry Stebbings?

  What do you believe that most around you disbelieve?

• 56:11Speaker 00

  I think investors can help companies in the pre-product market fit stage. I think there's a conception that finding product market fit is magic, and I disagree. I think if you're an investor, you can be a thought partner to the founder on how to segment customers, how to orient on an ICP. You can sit in customer meetings and give real feedback, and I've seen it have real impact.

• 56:30Harry Stebbings?

  I totally agree with you. I really do. I so many times it's like your ICP is way too wide. Your product marketing is not tight enough, and that's really been detrimental to your ability to get your first hundred customers. Which venture investor do you most respect and learn from outside Greylock? And it can't be Pat Grady.

• 56:47Speaker 00

  I love Pat, and there are many amazing people that you and I both know who I learned from, so it's hard to pick one name. But I'll go with Alad. I think Alad Gill is just an outstanding thinker and ambassador. You know, we've worked with him closely over the years. I have the good fortune of working with him at Brain Trust, which is a company in the AI developer platform space. And his ability to do everything from, you know, help initiate new companies like Brain Trust, to lead Series As, to do terrific growth rounds. He's a thinker that can extend across all stages in a single person, and I'm just very impressed by him.

• 57:18Harry Stebbings?

  One of my lessons is when someone really great brings you into a round, don't ask twice. And what I meant by that is like, he brought me into Agent Sync, amazing business, very grateful to him for that. He offered me Vanta at seat, and I was like, SOC two? What is that? Like SOC, I don't even get that. Compliance is weird and boring. Christina was amazing, by the way.

• 57:37Speaker 00

  Yes, she's amazing.

• 57:39Harry Stebbings?

  Yeah, why the fuck was I questioning Alad at seat on that?

• 57:42Speaker 00

  I've also learned that mistake painfully on companies he's been involved with.

• 57:45Harry Stebbings?

  What's the most memorable first founder meeting you've had?

• 57:48Speaker 00

  So there are many, Harry, but the one I would mention, actually talking about Brain Trust is the founder of Brain Trust, my friend Anker Gueyal. So Anker is someone who I've known for a long time. He was the first VP of Engineering at a company called Single Store, then went on to start Imperial, which Figma acquired in our portfolio, ran the AI team at Figma. But when I met up with him last year, when he was, you know, getting Brain Trust started, and he painted a vision of how people would actually build AI applications. And everyone's debating, where's the value going to accrue the tooling layer, the model layer, the app layer? And he's like, Sam, I was at Figma, I know the team at Notion, I know the team at Zapier. Here's what actual developers care about in their pain points, and here's how I'm going to go build a solution. There was such clarity in the way he spoke about an emerging market.

• 58:30Speaker 00

  I walked out of that first meeting, I texted my team, I was like, we are immediately investing in this man. I'm glad we did. Now all of those companies are customers of his.

• 58:37Harry Stebbings?

  How big was that first round?

• 58:38Speaker 00

  We wrote a $5 million investment.

• 58:40Harry Stebbings?

  Tell me, why have some firm incubations worked and others not?

• 58:43Speaker 00

  Broadly, I think incubations don't work for a number of reasons. I think most firms take too much of the cap table. There's negative selection bias where they don't get the best founders to want to work with them. They can't actually help. And so I broadly think incubations don't work. That said, some have worked out outstandingly. And you know, Greylock, Palo Alto Networks and Workday are two largest historical outcomes. My partner, Sheem, and I were fortunate to help incubate a company called Abnormal Security I mentioned earlier, that, you know, is on its path to be a company of that ilk. And if I think about those businesses, they had amazing founders, they picked really large markets. And then they worked really collaboratively with their venture partners around recruiting and customer development to build the right team and initial set of customers out of the gate. And, you know, others like the folks at Sir Hill have done that really well.

• 59:27Speaker 00

  But broadly speaking, I don't think incubations work.

• 59:30Harry Stebbings?

  I love Nick Ash at Palo Alto. I had him on the show and he was fantastic. What have you changed your mind on in the last 12 months?

• 59:37Speaker 00

  Twelve months ago, I was of the mindset that the large foundation model companies would crush all of the smaller focused models. So if you're building a model for audio generation or, you know, voice synthesis, yeah, you might have an advantage today, but how is it not going to be the case that OpenAI two years from now is going to have this way better? And so we didn't invest in any of those. And I still hold the view that just on the raw, like, generate a voice, the underlying large models will get better. But the thing I have changed my mind on is if you can start with a better focused model and then very quickly move up the stack into the application layer, it's actually a very good strategy.

• 1:00:14Harry Stebbings?

  What is the best example?

• 1:00:15Speaker 00

  Eleven Labs, which unfortunately we're not investors in, but it's the best example.

• 1:00:19Harry Stebbings?

  We got, we got a tiny check offered to us at like a hundred million price. And I was like, what's the point in doing 200K?

• 1:00:26Speaker 00

  I mean, you just go look at the product they've built around their underlying model. It's amazing. And if tomorrow OpenAI actually releases, you know, the research preview they've shown that competes, yeah, sure, it might compete on the model layer. But I don't think it'll matter for 11 Labs because I think they've built really fantastic workflow around it.

• 1:00:40Harry Stebbings?

  Tell me, which VC would you most swap portfolios with today?

• 1:00:44Speaker 00

  I have immense respect for many, but, but you know, the first statement that comes to my mind is Gilly, who I think has been on your show, Gilly Ronan, and what he's done at Cyberstarts and the companies he's been a part of when helping initiate and get started. It's outstanding. I'm lucky to work with him at Upwind and we at Greylock work with him on several companies. And I think he's a phenomenally smart investor and an incredibly impactful board member.

• 1:01:05Harry Stebbings?

  Nineteen companies, eight unicorns, one deck of corn.

• 1:01:09Speaker 00

  It's amazing.

• 1:01:10Harry Stebbings?

  Outrageous, outrageous. And by the way, a wonderful human being. So yes.

• 1:01:15Speaker 00

  Wonderful.

• 1:01:15Harry Stebbings?

  Penultimate one, what do you know now that you wish you'd known when you started Greylock?

• 1:01:19Speaker 00

  I knew this when I started. I wish I knew how important it was, which is the importance of building in large markets and that most markets just don't matter. You talked about Nekesh from Palo Alto. I spent a lot of time in cyber, so I think carefully Apollo or CrowdStrike, both of which are now, you know, ballpark hundred billion dollar market cap companies. They're operating in phenomenally large markets. And so I now am very oriented, like if you're a new founder and you're going to spend the next decade doing something, let's pick something where there's no ceiling and where the growth can keep compounding. Because why not go build a 50 billion dollar company, not just a 5 billion dollar company? And so I'm Incredibly oriented on market size.

• 1:01:55Harry Stebbings?

  Does everything great not start small? Facebook was a Harvard campus social network.

• 1:01:59Speaker 00

  I think this is a misnomer. Yes. I think of markets as having concentric circles. The great things start with a really narrow concentric circle. Palo Alto started as an add-on to a firewall. There's intentionality from the founder and there's a sequencing of how that's going to build into bigger and bigger concentric circles. And they're swimming in, just to go back to the zip code parlance, in zip codes that are really fertile.

• 1:02:19Harry Stebbings?

  Okay, final one. What question have I not asked, or are you never asked, that you think you should be asked?

• 1:02:25Speaker 00

  I think people don't ask enough how you actually work with founders. And I know that sounds so basic. Like, I'm stunned by how few founders do references on VCs when they decide who to go with on a term sheet.

• 1:02:37Harry Stebbings?

  Is it not very case by case? Like, I'm very dependent on the founder. Some like weekly calls, some don't ever want to have a call. My job is to.

• 1:02:45Speaker 00

  No, no, no, Harry. I mean, like, when, you know, you have a term sheet out on a founder and the founder's evaluating whether he should work with you or three other great firms. Like, how often do founders actually pick up the phone and call the CEOs you work with? A lot do, but a lot don't.

• 1:02:58Harry Stebbings?

  Is that not a sign of quality?

• 1:03:00Speaker 00

  It's not correlated. Like, I have backed great founders who did 12 references on me, and I've backed great founders who did zero references on me. And so, for what it's worth, and my data said it hasn't been correlated, but I really believe people should be asking, like, what is the nature of how you work with companies? And what would be different about your company without this person's involvement?

• 1:03:19Harry Stebbings?

  That's a very good one. Sam, I'm sorry for my continuous batting back and forth, but I've loved this discussion. For me, the best shows are when it's like a very open discussion. Thank you so much for putting up with me, and you've been such a great guest, man.

• 1:03:32Speaker 00

  This was a lot of fun, Harry. I loved the conversation.

• 1:03:35Harry Stebbings?

  I mean, my word, Sam has patience. That was a argumentative Harry that came out in that episode, but I loved that show. And I always think the best shows are really natural discussions. If you want to see the full episode, you can find it on YouTube by searching for 20VC. We always love to see you there. But before we leave you today, when a promising startup files for an IPO or a venture capital firm loses its marquee partner, being the first to know gives you an advantage and time to plan your strategic response. The information reported it first. The information is the trusted source for that important first look at actionable news across technology and finance, driving decisions with breaking stories, proprietary data tools, and a spotlight on industry trends.

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