20VC: Lessons From 2x $Bn Exits in Trulia and lastminute.com, 3 Leading Indicators That Suggest Potential Marketplace Success & Why We Are Going To See A Fundamental Change To The World of VC with Pete Flint, Managing Partner @ NFX

Pete Flint is a Managing Partner @ NFX, one of Silicon Valley's newest and most exciting funds with the recent announcement of their new $150m fund late last year. Prior to VC, Pete was a serial entrepreneur building one of today's most successful marketplaces, as the co-founder of Trulia. Pete led the company from inception to more than 50 million monthly unique users, $250m in VC funding from the likes of Sequoia and Accel culminating in their merger with Zillow in 2015 that valued Trulia at $3.5 billion. Before Trulia, Pete was part of the founding team of lastminute.com, a leading European online travel site that was acquired in 2005 for over $1 billion. In Today’s Episode You Will Learn: 1.) How Pete made his way into the world of startups joining the founding team of lastminute.com and how that led to the founding of Trulia and entry into VC? 2.) Why does Pete believe that startup timing is so crucial? How does Pete analyze market timing risk when investing? What is the right way for investors to think about the innovation cycle we are in today? On review, what does Pete believe lastminute.com did most right? What would he most want to change? 3.) What are the leading indicators that suggest potential in a network effect business? Would Pete agree with Josh @ Jackson Square that not all GMV is created equal? How does Pete anlyse the lack of free and open distribution today and how that affects marketplace scaling? Why does Pete still believe marketplaces are some of the most capital efficient businesses to grow? 4.) What has been Pete's greatest time of failure in his career? What is the framework Pete uses to analyse and assess his own ego? What are the commonalities in how Pete has seen truly great founders overcome failure? How does Pete balance between realism when something is not working and the mission and vision of the founder? 5.) How does Pete think about optimising decision-making, both in investing and operating? How does Pete approach the balance of head vs heart? When is the right time to decide with your head? When is the right time to decide with your heart? Why does Pete argue early stage investing must be decided with your heart? Items Mentioned In Today’s Show: Pete’s Fave Book: Leonardo Da Vinci Pete’s Most Recent Investment: Ribbon As always you can follow Harry, The Twenty Minute VC and Pete on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC. Whether you’re starting your own small business or getting serious about making your small business more efficient, you need to invite FreshBooks to the table. FreshBooks makes cloud accounting software that’s so ridiculously easy to use and you’ll quickly understand why over 10 million people use it to radically streamline how they deal with their admin and paperwork. Plus, FreshBooks can handle a lot more than accounting related tasks. Using FreshBooks is kind of like having your own admin assistant who’s got your back, 24/7. To claim your 30-day unrestricted free trial, click here enter Twenty Minute VC in the “how did you hear about us section”. Highfive makes meetings better for thousands of organizations with insanely simple video conferencing designed for meeting rooms. It’s the easiest-to-use solution, with all-in-one hardware and intuitive cloud software. Plus, it’s a high-quality experience with industry-leading audio powered by Dolby Voice. It’s so easy to use, that there’s no pin codes or app downloads. Just click a link in your browser, and you’re in the meeting. With customers in over 100 countries, Highfive is already trusted by the likes of Evernote, Expensify, and Betterment and you can learn more by simply heading over to highfive.com.

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

• 0:00Harry Stebbings?

  This is the 20 Minute VC with me, Harry Stebbings. I would love to see you on Instagram at H Stebbings 1996, where you can submit future guests for the show and submit questions with the chance to be named in a future episode. But to the episode today, and I'm so excited for this, as I've wanted to do this episode for a long, long time. Yes, he's a Brit. Yes, he's one of the most successful British technology exports we have. So I'm very thrilled and proud to welcome Pete Flint, Managing Partner at NFX, one of Silicon Valley's newest and most exciting funds with the recent announcement of their new $150 million fund late last year. Prior to VC, Pete was a serial entrepreneur, building one of today's most successful marketplaces as a co-founder of Trulia. Pete led the company from inception to more than 50 million monthly

• 0:40Harry Stebbings?

  unit users, $250 million in VC funding from the likes of Sequoia and Excel, culminating in their merger with Zillow in 2015, that valued Trulia at $3.5 billion. Before Trulia, Pete was part of the founding team of LastMinute.com, a leading European online travel site that was acquired in 2005 for over $1 billion. I'd also want to say a huge thank you to wonderful past guests, James Courier and Sammy Incanan, for the fantastic question suggestions today. I really do so appreciate that. But before we dive into the show today, whether you're starting your own small business or getting serious about making your small business more efficient, you need to invite Freshbooks to the table. Freshbooks makes cloud accounting software that's so ridiculously easy to use, trust me, even I use it, and you'll quickly understand why over 10 million people

• 1:24Harry Stebbings?

  use it to radically streamline how they deal with their admin and paperwork. Oh, and Freshbooks can handle a lot more than accounting-related tasks. Using Freshbooks is kind of like having your own admin assistant who's got your back 24/7. And to claim your 30-day unrestricted free trial, go to freshbooks.com/VC and enter 20minutevc in the "How did you hear about us?" section. And who doesn't love a fun fact? So fun fact, did you know that 83% of the software developer talent is international? And that's where Terminal come in. Terminal help you create world-class technical teams through remote operations as a service. What does that mean? Well, it means a complete solution that delivers push-button recruiting, operations, workspace development, human resources, plus professional learning and development, so you can innovate faster. But don't take my word for this. Take the word of a Venbrite.

• 2:10Harry Stebbings?

  Former 20 VC guest, Hims, DialPad, all customers and lovers of Terminal, and you can find out more today at terminal.io. Finally, a major pillar of any successful business is communication, and that's the role of Hi5. Hi5 simplifies business collaboration with a conferencing platform that builds connected cultures. It's this incredible all-in-one solution, including intuitive cloud software and purpose-built meeting room hardware. Plus, it's a high-quality experience with industry-leading audio powered by Dolby Voice, and it's so easy to use that there's no PIN codes or app downloads. Just click a link in your browser and you're in the meeting. Growing fast with customers in over 100 countries, Hi5 is already trusted by the likes of Harry's, Rula La, Expensify, The Atlantic, and Betterment, just to name a few. And to learn more and start simplifying your team's video and audio conferencing,

• 2:55Harry Stebbings?

  visit hi5.com/20vc. That's hi5.com/20vc. But I'm now thrilled to hand over to Pete Flint, Managing Partner at NFX.

• 3:11Speaker 01

  You have now arrived at your destination.

• 3:14Harry Stebbings?

  Pete, it's so fantastic to have you on the show today. I've heard so many wonderful things from your fantastic partner, James Courier, but thank you so much for joining me today, Pete.

• 3:22Speaker 02

  My pleasure to be here. Looking forward to it.

• 3:24Harry Stebbings?

  I would love though to start today on a little about you and how you made your foray into what I most definitely call the wonderful world of venture capital.

• 3:31Speaker 02

  So I got involved in internet startups back in the mid late 90s. So I was finishing my undergrad degree and then got connected with a startup scene in London. And it was a very small group of people there. And I ended up connecting myself with Brent and Martha at Lastminute.com and joined them as part of the early team there. So that was 1998, 20 years ago. And then we ended up launching Lastminute.com, taking that public. It was a crazy, crazy ride. And I did a number of roles there, growth and so forth. And ultimately, Lastminute was just after the dot com collapse and recession was a great success. As you know, it acquired for over a billion dollars. And then after that, I went to the Mecca, which is Silicon Valley. So I went to Stanford Business School. That was my kind of route to Silicon Valley.

• 4:16Speaker 02

  And then after a year there, I sort of dreamed up this idea for Which focused on the real estate industry. And that was the summer between first and second year. Figured that out and recruited and co-founded Sammy Ink and then joined me to do that. And that was just a sort of incredible epic ride. So we launched in two thousand and five, went public in two thousand and twelve, navigated the housing collapsed and then ultimately in two thousand and fifteen, merged with Zillow in a three point five billion dollar transaction. Which is incredible and and we'll talk about that later. So that's been a phenomenal kind of two amazing marketplace businesses. And then and after that, I really took a little bit of time off and just spent some time angel investing, was on the Zillow board for bits and nonprofits and and really thought about what's next.

• 5:00Speaker 02

  And I'd always had a passion for venture capital and was thinking about that as a career choice. And I teamed up with James Correa and Gigi Levoy Wise to to launch NFX. So it's been a little over six months since we announced the the seed fund and it's going incredibly well. So what we really focused on is building and and investing in network effect companies. And just delighted to have three partners where we've collectively founded ten companies with exits of ten billion dollars and hundreds of investments and really delighted about this space.

• 5:32Harry Stebbings?

  And you know what a fan I am of NFX and the exciting times ahead. But I do have two subsequent questions from your intro there. You mentioned on your time with Last Minute when you were on Twist with Jason, you mentioned that there were things you did right and things you did very wrong with Last Minute. If you were to maybe very harsh question of me, but to pick the biggest from each, what would you say they would be?

• 5:52Speaker 02

  Great question. So I think of the biggest right things, I think I'll probably say two things stand out. So one is building a really incredible brand. Very early on, Last Minute built this remarkable brand through PR and online marketing, creative. And we did that incredibly cheaply and that's kind of stood the test of time, which was enormous. The second was, you know, twenty years ago, building a Silicon Valley culture in London was sort of never seen before. And they built an incredible kind of Silicon Valley culture in the heart of London, which really stood the test of time, particularly when things got tough. That was really incredible. I guess the biggest wrong thing, I think, you know, history is a great guide and you look at.

• 6:30Speaker 02

  The online travel space in Europe and you look at booking.com, whose parent companies were something like a hundred billion dollars and you know, the X is a hundred X compared to the last minute. So I think, you know, what that comes down to and the observations around focus, particularly for these network effect businesses focusing on the most profitable and fragmented part of the business. And the European hotel market is that last minute was in like seven, eight countries and sort of seven-ish product lines and was doing so many things was so incredible. But it's really, when you take a look at booking.com, their focus was just undeniable and incredible, which enabled them to build.

• 7:07Harry Stebbings?

  The other aspect that I do have to pick up on is you mentioned the crash that you experienced there with first minute and then also with Trulia, with kind of the macro crashes. I'm intrigued, given the two firsthand experiences of market crashes, how do you think that experience fundamentally affects maybe your investing mentality today?

• 7:24Speaker 02

  Yeah, no, I seem to have either kind of really bad luck or good luck being in travel in two thousand and one after nine eleven and real estate in two thousand and eight. So I think the observations are that I think this is, again, in retrospect, it's easy, but the biggest and most valuable businesses are those that built at precisely the point when there's market corrections. You look at travel, you think of booking.com, you think of Expedia, all really built out of the first dot com collapse in nine eleven. Then in real estate, you look at Zillow and Trulia and Airbnb really came out of the kind of housing collapse and the great recession. And although it sort of seems very smart to say that all those were obvious contrarian bets at the time, it certainly didn't feel like that.

• 8:07Speaker 02

  So again, that that contrarian mindset when others are not investing, perhaps that is the time to invest. A number of other things that impact my investing today is, one is about capital efficiency. Both companies had the efficiency to ride out the storm, opportunistically raising money, perhaps when they didn't need it. You know, Trulia, we raised money just before the market crash, last minute, went public in March two thousand. And then, as I mentioned earlier, around culture, when the going gets tough, if you're creating a culture where you empower people, they feel recognized and rewarded, then they will stick. With you when the going gets tough. So we certainly had some tough times. You know, we're under a lot of pressure at the time to

• 8:46Speaker 02

  from Sequoia to cut deep, deep, deep to get profitable. But you know, really, I think the experience from last minute gave us the experience of taking the long view on the category and investing for market share while others around us were just cutting to the bone or going bankrupt.

• 9:00Harry Stebbings?

  No, absolutely. I mean, speaking of taking the long view, I want to break the interview today into a couple of different segments, starting on the impact of startup timing. We mentioned kind of market corrections there. So a nice follow on from that. Then move maybe to scaling network effect businesses, discussing the leaders behind those businesses and finishing on my passion being the decision making process. How does that sound?

• 9:19Speaker 02

  Sounds great.

• 9:20Harry Stebbings?

  So on the theme of timing, we spoke before the episode and you mentioned to me that startup timing is everything. Walk me through this. What makes you say that? And how have you really seen it play out?

• 9:30Speaker 02

  So I guess when I think about startup timing, it really comes down to founders and investors understanding the innovation cycle, whether you're too early or too late. And it kind of how your position and the lifestyle stage of the company and the market impacts the strategy. So the framework that I use is what I call the critical mass theory of startups. And it's really that tipping point when you see a product or market undergoing rapid change and transformation seemingly overnight. The industry is nothing changes and then kind of all of a sudden, everything changes. And it's really about three things that kind of impact that change. One is the enabling technology.

• 10:06Speaker 02

  We see many great founders who have a really clear understanding of the trajectory of emerging technologies. And when these technologies are on the cusp of transition that enables transformational product experiences. And you know, the examples there, sort of self-driving cars and computer vision. The other is what is the economic impetus for the opportunity? So you know, economic changes turn unprofitable businesses or services to profitable businesses or niche markets become enormous markets. And you see that in some ways in kind of Uber and Lyft, where the enabling technology was mobile, but then really the the sort of economic transition of and the impetus enabled the businesses to scale and become very profitable. And then finally, it's about the cultural acceptance. You know, I see really every

• 10:50Speaker 02

  Significant, meaningful startup has an impact on the culture. Either it's driving that cultural change or it's really cresting and surfing that cultural change. So how we think about and how we interact with technology changes rapidly. And you know, you look at companies such as Instagram and Snapchat and YouTube. They have become cultural phenomenons and founders that have a deep sense of culture, both at the, you know, both on the consumer side, but also culture within enterprises. And how they think about that can really highlight and identify novel and very interesting and important startup ideas.

• 11:24Harry Stebbings?

  Can I ask, with this kind of extreme emphasis on culture, one aspect which I really struggle on today as an investor is just assessing market timing risk, be it in AR, VR, be it in drones, be it in self-driving cars, be it in blockchain. How do you think about market timing risk today as an investor, given this importance of startup timing?

• 11:43Speaker 02

  Yeah, I think it's super interesting. I think what's really important is it's not about whether you're earlier or later than your competitors on an absolute basis. It's really about who can achieve the necessary scale to be a breakout leader when they're closer to this critical mass point. When everything changes, who has got that necessary scale? And thinking about investor, are you able to fund that company to achieve that scale? Or is that company about to achieve that scale? And you mentioned blockchain specifically. I think this is classic. It's a great example where while the technologies have been around for a decade, it's really only last year that you've seen this kind of massive transition in that market. And that's really going back to the kind of this three core tenants. It's the, the technology's been around, it's been evolving kind of incrementally.

• 12:27Speaker 02

  But the economic impetus, which is in part been driven by speculation, but with a long-term view of really transforming parts of our society and economy has kind of really accelerated the pace. And then culturally, it was like not that long ago, like people that are involved in blockchain businesses were, seem to be facilitating fraud and money laundering and drug trafficking. And now it's like, you know, there's sort of very serious kind of hedge farmers and banks and kind of an organizations really building. And so what is exciting is that, you know, you're seeing these three waves which are starting to. Tip right now and we think in certain areas they're achieving that kind of critical mass point which enables rapid transformational change and it's again it's super super early in

• 13:09Speaker 02

  both the technology in both the cultural acceptance it's still very niche and then also the economic impetus will transition from one which is speculative to one that will create real economic value for the participants.

• 13:21Harry Stebbings?

  Can I ask, when you absorb that market timing risk as an investor's say, do you inherently accept the risk of having to carry the company for considerably longer than you might otherwise have to with a traditional, say, consumer marketplace?

• 13:34Speaker 02

  Yes, for sure. I think we as founders and operators ourselves, we kind of anticipate that these things are going to take a long, long time. You look at truly, that was a ten year journey through ups and downs. And I think we're kind of inherently wired to support the entrepreneur through those ups and downs. That's the, you know, the benefit for us having a pretty large seed fund with lots of potential capacity for participating and following rounds gives us the sort of capacity to support investors when perhaps things don't go to plan over multiple years. And it does take multiple years to see these breakout businesses succeed.

• 14:08Harry Stebbings?

  Yeah, I am intrigued with such a large fund and kind of a one to two million dollar, say, initial check size. How do you think about initial to follow on funding in terms of kind of ratios?

• 14:17Speaker 02

  So I think the ratios that we think about are kind of roughly one dollar initial capital, two dollars for follow on capital. So that's the sort of benchmark we think about. We're pretty early on. We're like nine months in into the fund. So it's hard to see how things will would have played out. That's the plan, right? That's the plan right now.

• 14:35Harry Stebbings?

  We spoke about kind of those companies and those technologies achieving scale. I'm really intrigued because in your episode with Jason, you stated your role to discover network effect businesses before they take flight. With that in mind, and kind of having seen the scaling of two incredible businesses firsthand on founding teams and as the founder, what are the leading indicators to you, do you think, that suggest potential in a network effect business?

• 14:58Speaker 02

  So there are a few things. So one is just that the definition of a network effect business is one that for every additional user, the product experience gets better for every existing user. So by definition, you've got You want to see increasing retention by cohorts. So the later the cohorts, the retention rates are going up as more users are being added. So that's critical in terms of understanding those metrics. The other piece is really about understanding kind of defensibility and part of that is fragmentation. So you know, there's a phrase in marketplace that marketplace businesses that fragmentation aids the aggregator. And so understanding what is the degree of fragmentation in a marketplace and often the more fragmented and the less multi-tenanting either

• 15:41Speaker 02

  the kind of less cost usage between substitute platforms, the more defensibility is. So that's really the second. And then third is the, you know, what is the ability of the marketplace to create and extract economic value? If the market is not big enough or the gross margins are not significant enough, then you just can't build a viable business. So, so those are things that I think about when it comes to looking at the sustainability and viability of network effect businesses.

• 16:07Harry Stebbings?

  Can I ask, in terms of kind of value extraction, we had Josh Brynlinger from Jackson Square on the show. And he said that not all GMVs equal. From your experience, is that something you'd very much agree with? And how do you think about that kind of value creation versus value extraction component?

• 16:21Speaker 02

  Well, I think it's fundamentally about value creation. When you think about startups, that has to be the guiding light for the entrepreneur and the founder. You know, I, I think when, you know, yes, every all GMV is not created, not created equal. I think the, the stuff that we think about is very much driven by growth rates. Like what is the growth rate, where's that coming from? You know, I spent much of my career focused on growth at truly around last minute. And so deeply understanding growth and how do you get scale pretty early on? And then again, when it comes to the stage where we're thinking about, we don't often have that many metrics. You know, the seed stage, there are some metrics, but it really comes down to the team and really comes down to what is the market opportunity?

• 17:03Speaker 02

  That the founders are focused on, those are the, the most important stuff for us to, to think about.

• 17:07Harry Stebbings?

  Now, there was one element from your interview with Jason on this week in startups that I, that I struggled with. And it was the element that kind of network effect businesses are the cheapest to build. We have Peter Fanton on the show. He said that free and open distribution was the Biggest challenge facing consumer startups today. So for me, although obviously that's the natural referral and each incremental user adds value. Today, it costs so much to acquire new customers with incumbency advantages on distribution channels. Then actually, it's still an inherently expensive business to scale. How do you think about this and what leads your thinking on the effectiveness kind of of consumer channels?

• 17:41Speaker 02

  It's a really interesting point. I think at this time in two thousand and eighteen, it's just like there's not a sort of obvious free and open distribution channel that is driving a whole bunch of startup innovation. Really, behind every great startup wave of last several decades has been driven by that distribution. Whether that's the internet and the web browser, whether that's ecosystem, whether that's Facebook or Google. And it's just not clear what that is today. And I think the fundamental premise is that defensibility can be driven by a number of things. Brand or scale or embedding and network effects sort of by definition are less capital efficient. Require less marketing dollars or less salespeople. But obviously in today's environments, that's somewhat diminished.

• 18:21Speaker 02

  Building sort of core, building business on top of core distribution platforms like Facebook and Google is just so much harder these days. But fundamentally, you look back over the sort of course of history and see these network effect businesses are tremendously capital efficient. The classic example is eBay. You know eBay back twenty years ago, I think you you mentioned Peter Fenton. I think eBay said they didn't even spend the initial investment from benchmark. It was so capital efficient and they grew incredibly quickly. And there was a time when eBay was thought to be the superior business to to Amazon. Obviously, things changed as Amazon kind of delighted consumers in a way that eBay didn't. That was a feeling back then. I I think the, you know, as we think about network effect business today, they're go way beyond the sort of

• 19:06Speaker 02

  consumer marketplaces that people perhaps traditionally think of. We're thinking about applying network effects on a whole range of different industries from synthetic biology to blockchain to traditional industries that have been transformed. These core principles are being applied to multiple industries which, and again, we we think we can have that additional capital efficiency and and focus. Provide that that additional capital efficiency and focus to the.

• 19:30Harry Stebbings?

  Oh, you're setting me up too well here, Pete, with that, a capital efficiency focus. Because with Jason, you said about being at Trulia, and during that time, you had a culture of frugality, but were aggressive on market share. And this thing kind of seemed paradoxical to me. So I'm intrigued, how do you think about culture of frugality and aggressive on market share? And when is that right time to really pour fuel on the fire?

• 19:51Speaker 02

  Yeah, I think that the reality about network of fit businesses is that they create so much value that they are winner take most or winner take all opportunities. You know, that means you have to be the number one or number two player. And that's just incredibly hard when you think about you're a small startup with limited resources. So you have to be hyper efficient. The way that I think about this is sort of frugality is not about being cheap. It's really looking for the points of leverage in the business. So that's hiring a bunch of engineers to kind of build a great product experience, and that has compounding impact, then do that. If that's about spending money to buy, to acquire users or salespeople, then, and you think that's the maximum use of leverage, then go do that. I think it's really about just finding these compounding investments that give you an

• 20:36Speaker 02

  unfair advantage versus the incumbents. You know, when is the right time to kind of double down? I think the consumer internet world and the, similarly in the kind of enterprise side, it's so competitive. And we're increasingly transparent competitors can see what your startup is doing. They have a sort of access to open metrics. So when you start to kind of see that spark, when you start to see that product marketing fit, then it's essential to scale extremely rapidly, spending significantly to capture market share and doing that when you can, you know, spending really as much as you can, depending on your balance sheet, your ability to raise capital, and when you're not having significant inefficiency in their spend. But it's so critical to get that rapid scale super quickly when you can.

• 21:20Harry Stebbings?

  No, absolutely. In terms of that kind of rapid scale, I was just reading a piece by Eugene Wei, who was one of the first kind of financial controllers at Amazon. And they said that every business has an invisible asymptote, basically the inhibitor of growth that you have to foresee to prevent that being a ceiling on your growth. Would you agree that every business has this invisible asymptote? And how do you kind of think about that when inserting yourself into a business at such early stages?

• 21:44Speaker 02

  So I think there is this sort of invisible asymptote. The classic example is something like Netflix, which is just a company I admire enormously. You look back and you see, well, the DVD business was pretty good and really showed Blockbuster a thing or two. And then this streaming business, well, that's pretty damn good as well. On top of that, there's this online original content creation. And it's remarkable that a company like Netflix is able to do these three different businesses during its lifetime and build an enormous company. So I think there's, you know, there's a real view in Silicon Valley today, particularly with founder-driven companies that are able to transform their businesses, moving from one business, which may be a pure software business, to being what I often call a software plus businesses.

• 22:29Speaker 02

  They're providing additional leverage, whether that's capital, whether that's operational expertise, whether that's investments in some of that content. They're able to transform these businesses and that enables them to break through these invisible asymptotes.

• 22:42Harry Stebbings?

  You said there about kind of founder-driven businesses. I know that we're all always crushing it when we're in the valley. But, you know, sometimes failure does happen. And so I'd love to hear from your experience, both angel investing and having such a operational successes yourself. How do you find that true leaders recover from failure and are there commonalities amongst their recovery?

• 23:00Speaker 02

  I learned an enormous amount being a founder CEO during the time at Trulia. You know, I guess I'd been sort of fortunate to have a really good career, good schools, good grades and was the youngest person in the room. That's like you, Harry.

• 23:14Harry Stebbings?

  Do you want to know when you joined last minute, I was two.

• 23:19Harry Stebbings?

  Sorry, I had to drop that in.

• 23:21Speaker 02

  That's a frightening thought. So kudos to you. The role of a founder CEO, you're kind of doing this job for the very first time. And, you know, you are fundamentally inexperienced to do what you're able to do. And so, you know, I, I think just to kind of share one perspective. Having that, there was a time when I was, I was almost sort of on top of the world. Two thousand and seven, we just closed a investment round led by Sequoia. And my traffic grew 10x. You know, this was just a sort of highlight of my profession. Your career at that time and and I kind of felt invincible. And then we did a big kind of product relaunch and it was a total disaster. The kind of metrics tanked, everything tanked. And it was an incredibly humbling experience for me, having to kind of like

• 24:03Speaker 02

  tail between my legs, go to the kind of our new investors, you know, and board and sort of talk about what happened. And, you know, I think the sort of lessons from that for me was that in some ways you don't, you don't want to believe your own bullshit. You know, this is like sort of overconfidence is incredibly dangerous experience. And I think there's also, I kind of realised I perhaps didn't have this authentic, as authentic leadership style as I could have done. And so that was a really pivotal moment for me as a kind of founder CEO. And it really forced me to kind of change a whole bunch of things about how I ran Trulia at the time. So really sort of transitioned the kind of organisational stuff from being one of more bottoms up compared to tops down.

• 24:42Speaker 02

  We created this organisational framework to think about how do we enable rapid decision making and empowerment at scale and do that quickly. Sharing a whole bunch of KPIs, we shared our KPIs top to bottom to the board on a daily basis. And it really encouraged this sort of organisational empowerment and kind of passion about failure. And that was just an incredibly humbling experience. And I think something that, you know, many, many founders go through, they go through these kind of dark days. And then they figure it out and that creates a really lasting and enduring company.

• 25:13Harry Stebbings?

  Can I ask, you said that about ego check, remember it's just me and you and you're giving advice to me here, Pete. You said about the ego check, is there a framework for doing it? Is it a consulting with a career coach? Is it a asking yourself in the mirror, you know, am I all I'm stacked up to be? Is there a framework to really check your ego at the door, so to speak?

• 25:31Speaker 02

  I guess I don't have a sort of specific ego, I don't have a specific kind of framework as I think about this. But I I spend a lot of time having founder to founder interactions and kind of talking through this in sort of closed circles. So seeing it's just me and you on this, then it was just like having these kind of like frank and open discussions. I had quarterly dinners with peers and we talked through all this stuff, something that you can't do with necessarily your investors. And it was just a incredibly insightful and rewarding. Conversation to realise that others are going through the same thing. And then you're really at the bleeding edge of startup tactics and kind of hiring and your first time CEOs.

• 26:09Speaker 02

  And so learning from my peers always found was sort of way more valuable than learning from sort of board members and often coaches, quite frankly.

• 26:17Harry Stebbings?

  No, absolutely. I mean, one element that you said there about authenticity of leadership and the decision making aspect is one of my key passion points, particularly investment decision making. So talk to me about how you evaluate decision making processes when it comes to a fundamental problem that I always have, which is your heart versus your head.

• 26:33Speaker 02

  Yeah, no, this is, I think, really the big decisions in life and business come from just this understanding of how you're thinking and how you evaluate decisions, both intuitively and then analytically, kind of really this kind of heart versus your head. And clearly, if you're too analytical, then you're going to make some bad calls and vice versa if you're too intuitive. So from my own experience, one of the hardest professional decisions I've made was around the merger between Trulia and Zillow. Founder, CEO, best job in the world, and then merging it with Zillow. And it was a time when I felt that in my heart, I just didn't want to do it. The kind of initial action was like, you know, things were going incredibly well. But my head was saying this is the right thing to do and started to kind of really sort of press on it and think through the different experience.

• 27:17Speaker 02

  And over time, I kind of heart caught up in my head. And I think this is one of the hardest things for founders to really think about. How do you feel about something and how do you think about something? And really that ability to deeply understand kind of your emotional state and how you emotionally think about decisions. Versus kind of the analytical perspective, which fuels a lot of what startups execute on is really a remarkable thing and something that I've had to work really hard on over the years.

• 27:45Harry Stebbings?

  My word, I'm so enjoying this interview for advice because I need some help then. Say you're now investing with NFX and your heart's telling you, I love the entrepreneur, this is so exciting. But your head sees inherent flaws in business model, flaws as an investment opportunity from the analytical perspective. How do you address that with an investor hat on?

• 28:02Speaker 02

  So I think that the margin, obviously you've got to consider both, but at the margin, it does come down to the heart. You know, at the early Early stages, there is so much about passion involved in really foreseeing success. And if you as an investor are not passionate about this, you're not feeling the true passion for the entrepreneurs, you're not seeing that passion in them, then I think it's a pass. Even if you think it's a really kind of smart analytical perspective. So, you know, at the margin, really trust the intuitive nature and follow your heart because life is long and the road is hard. And you need that kind of passion and assistance to see you through the really tough times.

• 28:40Harry Stebbings?

  Well, I'll add that term sheet to my stew list for tonight. Thanks for that.

• 28:45Harry Stebbings?

  But I do want to finish on a quick fire round. As you know, so I say a short statement, you give me your immediate thoughts. About sixty seconds per one. Are you strapped in?

• 28:53Speaker 02

  Ready to go.

• 28:54Harry Stebbings?

  Okay, so favourite book and why? What must I be reading?

• 28:57Speaker 02

  So I don't know if it's my favourite, but my favourite book right now, which I'm reading is Leonardo da Vinci's biography by Walter Isaacson. I just love biographies and kind of that's sort of where I actually try to read them. You know, you may know the author who did Jobs and Einstein and kind of what is sort of remarkable about Leonardo and the story is really the ability and focus on understanding and learning and really the curiosity that surrounds Leonardo, which is inspiring. It's also a time when science and art are really one and the same and it's just a fascinating story and remarkable individual.

• 29:32Harry Stebbings?

  No, I love that. Tell me, I was wondering when I wrote this question, you've had so many incredible achievements in the career. What's the career highlight for you so far and why?

• 29:40Speaker 02

  So cer- you know, certainly the IPO truly at two thousand and twelve. Just a few years earlier, we were kind of like an online real estate company in two thousand and eight. And it was just terrible, terrible industry to be in and like everyone felt sorry for me. You know, the US real estate industry was in a state of collapse and we were kind of close to death multiple times. And just coming out of that and going public and a great team, without doubt, found the CEO to take a company public was incredible.

• 30:08Harry Stebbings?

  What advice do you often hear being given that you disagree with?

• 30:11Speaker 02

  Uh, so I think it's, you know, often here kind of focus from investors on kind of market science versus other things such as product and team. And I think, you know, what they often get wrong is that it's really not about the size of the market, it's about the size of the problem. And what is the available market for that? And kind of often the most interesting businesses have no market today. But how can you build that market? That's something that I see a lot of investors get wrong.

• 30:35Harry Stebbings?

  You've been an institutional investor with NFX now for for under a year. What's been the biggest unforeseen challenge about making the move to institutional investor?

• 30:43Speaker 02

  It's been that that kind of change in what I call muscle memory. Really, the change from being kind of deep and into one company versus being horizontal and a whole bunch of different companies. I think quite frankly, it's taken me about a year to kind of reprogram my brain into kind of thinking about all these different industries and and different companies. And now it feels great, but it was like, you know, I did get to the end of that, I was exhausted. Because I'd just been like learning about all these kind of industries and thinking about things in frankly, a very different way than what it was before.

• 31:11Harry Stebbings?

  What would you most like to change in the world of Silicon Valley?

• 31:14Speaker 02

  A lot of things, but I think others is I think the kind of process is really still incredibly medieval. When you look at the sort of impact of technology in almost every part of our society, you know, the venture capital process and fundraising process itself is incredibly antiquated. Investors meet founders in all sorts of kind of random ways and places and evaluate things all sorts of different ways. And I think there is, it's going to be a sea change. I think just in the same way that Wall Street has been transformed by technology over the last decade. And platform businesses are built. I think you'll see the same thing in Silicon Valley where technology will transform it and platforms will be built.

• 31:49Harry Stebbings?

  What's the rising tide of that change? Is it kind of data availability like you're doing with Signal?

• 31:53Speaker 02

  I think in part is sort of data availability, it's sort of necessary scale as well. You know, when you look at sort of capital is traditionally seen as a commodity. Capitalism, a commodity and venture capitalists have their own kind of flavors of that. And there's just not much defensibility kind of fundamentally or value added. And I think venture investors will look to add way more value. And you're starting to see this obviously in building platforms to help different entrepreneurs. Part of that's data, part of that's services, and I think part of that is inherently network effects.

• 32:23Harry Stebbings?

  When I see success, who's the first person that comes to your mind?

• 32:27Speaker 02

  Oh, well, today I was just texting my brother and so that's the first person. He runs Sky Bet and he's run that for a decade and it was just, his company was just acquired in a multi-billion dollar deal. Flint's are doing all right. And so my brother is just like, he's just an incredible success.

• 32:43Harry Stebbings?

  So I have your brother to thank for losing £500 on the Liverpool game. That's great to know. But I do want to finish today, Pete, on the most recent publicly announced investment for NFX and why you said yes.

• 32:55Speaker 02

  Yeah, so we just announced a few weeks ago an investment in Ribbon, www.ribenhome.com. And Ribbon is a company that's set out to transform the real estate transaction. So to look back, 2005 to 2015 was really about transforming the way that you find your home. And Ribbon is looking, with a number of other companies in the category, looking to transform the way that you transact on your home. So working as a cash transaction platform, working with other real estate agents across the country. So you find your home on Trulia, obviously, and then you use Ribbon to help to secure it quickly and simply and easily. So we're super excited about that one.

• 33:32Harry Stebbings?

  Well, I mean, such exciting times to have both for Ribbon, but for you also with NFX and with James and Gigi, I'm so excited for the coming years. And thank you so much for joining me today, Pete.

• 33:41Speaker 02

  My pleasure, it's been great.

• 33:44Harry Stebbings?

  And I want to say again what a real pleasure and honour it was to have Pete on the show. And a huge thank you again to James Courier and to Sammy Incanum for the fantastic questions today. Likewise, we'd love to see you behind the scenes here at the 20 Minute VC. You can find us on Instagram at H Stebbings 1996 with two Bs. It'd be fantastic to see you there. But before we leave you today, whether you're starting your own small business or getting serious about making your small business more efficient, you need to invite Freshbooks to the table. Freshbooks makes cloud accounting software that's so ridiculously easy to use, trust me, even I use it, and you'll quickly understand why over 10 million people use it to radically streamline how they deal with their admin and paperwork. Oh, and Freshbooks can handle a lot more than accounting-related tasks. Using Freshbooks is kind of like having your own admin assistant who's got your back 24/7.

• 34:28Harry Stebbings?

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• 35:12Harry Stebbings?

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• 35:57Harry Stebbings?

  much to me and I cannot wait to bring you a very special Founders Friday