20VC: Why 95% of Venture Capital is Not Really "Venture Capital" | The Five Core Levers Needed To Assess Risk and Price a Startup | The Future of Venture; Who Wins, Who Loses, What Happens to the Crossover Funds with Will Quist, Partner @ Slow Ventures

Will Quist is a Partner @ Slow Ventures. Over the last decade, the team at Slow Ventures have invested in the earliest rounds of over 500 companies including Robinhood, NextDoor, Airtable, Solana and many more. As for Will, prior to Slow he spent over 8 years at Industry Ventures and before industry, cut his teeth in the world of finance at Banc of America. In Todays Episode with Will Quist We Discuss: 1.) Entry into Venture: How Will made his way from 6th generation San Francisco to Partner @ Slow? What are 1-2 of the biggest takeaways from his early 1-1s with Don Valentine? What does Will know now that he wishes he had known when he started in venture with Industry? 2.) WTF Really is Venture Capital? Why does Will believe that 95% of venture capital today is not really venture capital? What is true venture capital in Will's mind? How does Will divide the world of VC into two with; venture classic and new venture? How are they different? How are their return profiles different? 3.) The Questions: Discovering Greatness: Why does Will believe “for the most part, investors across asset classes are just asking the same questions”? What are those questions? What different answers are each looking for? What are the 5 core questions that will needs to understand to determine conviction and accurately price an asset? How does Will think through and analyze the question when meeting founders of; “what needs to come true for this business to become a great business”? 4.) The Future of Venture Capital: How does Will predict the venture capital ecosystem will look in 5 and then 10 years? What are the most concerning traits of the venture ecosystem for Will today? Who will be the winners of the next decade? Who will be the losers? What happens to the crossover funds? What will happen to Tiger?

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

• 0:00Harry Stebbings?

  Now about seven years ago, I was at a VC event in San Francisco hosted by Samuel Shaw. And there was one person that really stood out. They were incredibly insightful on the future of venture capital. They were amazing in terms of presenting fantastic questions and ever since I've wanted to have them on the show. And so I'm thrilled to make that happen today with our welcoming Will Quist, partner at Slow Ventures to the hot seat. Now, over the last decade, the team at Slow Ventures have invested in the earliest rounds of over 500 companies, including Robinhood, Nextdoor, Airtable, Solana and many more. As for Will, prior to Slow, he spent over eight years at Industry Ventures. And before Industry, cut his teeth in the world of finance at Bank of America. This was also a real team effort in terms of the schedule.

• 0:40Harry Stebbings?

  Huge thanks to Frank Rotman, Samuel Shaw, Cara Norton and Kanye Macubela for the fantastic question suggestions today. Really did make such a difference. But before we move into the episode today, Harvard Management Company is constantly seeking out the next generation of great investors and entrepreneurs. HMC has managed Harvard University's in Downwind for nearly 50 years and was one of the first institutional investors in venture capital. Their experience and long-term investment horizon makes them ideal partners to get world-changing ideas on a path to viability and success. They work as a true partner, providing insightful perspectives to help managers succeed. I personally have had the pleasure of working with the HMC team and can say that they are truly exceptional partners and savvy investors.

• 1:24Harry Stebbings?

  Whether you are launching your first fund or your fifth, HMC welcomes the opportunity to partner with both developing and established managers. Have an idea you want to share with the team? Just send it to [email protected]. And speaking of amazing partners with HMC there, Mercury is building full-stack banking for startups. Apply in under 10 minutes from anywhere for FDIC insured bank accounts, physical and virtual debit cards, domestic and international wires, and integrations with Gusto, Stripe, QuickBooks, Plaid, basically every other tool your startup uses. They also offer unusual features like API access, custom team management, and their newly launched Mercury Treasury, a cash management product for high-growth startups. And they'll even help you build your startup with Mercury Rays, which

• 2:10Harry Stebbings?

  Is so cool. It's a program to connect you to Silicon Valley's top investors. Head to mercury.com forward slash sign up to apply. And finally, you have to check out Market X. Market X is a one stop shop for over 300 family offices, funds and high net worth individuals, providing access to high growth private tech investment opportunities. With $100,000 in your Market X investment account, you get access to investment opportunities in the highest growth companies all over the world. Plus, Market X allows you to learn from global experts, get intimate interviews with startup execs behind the companies that you're investing in. And their track record includes the likes of Airbnb, SpaceX, Palantir, and many more incredible companies.

• 2:52Harry Stebbings?

  So head over to marketxventures.com to unlock a world of incredible later stage private market investments. That is marketxventures.com. That is enough from me though. So now I'm very, very excited to hand over to the one and only Will Quist, partner at Slow Ventures.

• 3:12Speaker 01

  You have now arrived at your destination.

• 3:15Harry Stebbings?

  Will, I am so excited for this. I've heard so many good things from Cara, from Samo, from Kanye, and I finally found someone who's as nerdly interested in venture as me. So thank you so much for joining me today.

• 3:27Speaker 02

  It's a good intro. Every time I listen or every time I see your tweets, I'm like, honestly, I think Harry is the only other one who wants to go as deep and study this as much as I end up doing.

• 3:35Harry Stebbings?

  I think it's why I was single for all of my teenage years, to be honest. But I want to start with you, Will. So talk to me. How did you make your way into the world of venture? And then how did you come to join Sam and the team at Slow?

• 3:44Speaker 02

  I'll just tell it to you. I don't know how to describe my journey. So I'm actually sixth generation Bay Area, it's sixth generation peninsula, growing up around the Stanford campus. I grew up riding my bike down Sand Hill Road to go play water polo at Stanford. But there's a sense of growing up like a fish and not knowing what the water is, right? I had very little awareness beyond the IPO market because my dad was an investment banker and was pretty focused on being a water polo player. What's funny is growing up in Woodside and riding down Sand Hill Road, my first real taste of startups came when I moved to Berkeley. It was just a flexible resource for startups that were getting small grants out of HSP business school competitions. And quickly fell in love with it and swore. Coming from a family who'd only been on the finance side swore I would never that I was going to be an operator. So I really fell in love with it then left Berkeley became a professional water pole player. Actually, I lived in Hungary for a year.

• 4:29Speaker 02

  It was wild, man, and I wasn't in Budapest. Like I was out in the beautiful countryside and no one spoke English. That could be a podcast itself. When I came home, it was time to figure out what to do. And you ever heard of the Red Herring?

• 4:41Harry Stebbings?

  No, what is that?

• 4:42Speaker 02

  Oh, man, you're not quite nerdy enough. The Red Herring was the TechCrunch of the 90s, but it was a printed magazine. The go to media resource for venture for startups, right? Throughout the 90s, and then obviously in the dot com boom, it became a huge thing. This is like oh, four oh five. I sat down with the founder of Red Herring. Media brands are transitioning online in a collaborative fashion. He had a really good thesis, actually, of like, kind of what TechCrunch became. And he said, hey, so I'm gonna launch something. Why don't you come do it with me for a year? And so I said, that sounds great. I want to find a company eventually. I'll navigate. I'll spend a year with you. But the thing that I got tasked with that resonated the most is he'd promised a top 100 company list back when that was like still a novel thing. And so I ended up being heavily involved with thousands of submissions, having to review probably a thousand companies.

• 5:25Speaker 02

  I met with four or 500 companies in person over six months. I was this 24 year old kid with no technical background in his first job in a room with KPMG Auto, all these people who kind of sponsored it to get it. And I just fell in love with hearing the story, having to make a decision, putting it on a list and ending up having to narrow it down to the top 100, publish it and then write up the top 10. It was awesome. In that process, I was like, oh, I get it now. This is amazing. So after that, I was like, I want to go pick companies, put money behind it and be involved in this. But I had to take a long route. From there, I go, how do you get in if you're not technical through the finance angle? The key catalyst was going to industry ventures. So when I was interviewing out of banking, I ended up talking to a bunch of traditional venture funds.

• 6:06Speaker 02

  I wasn't really a fit, as we discussed, given my background and found these three partners who had gotten together and were convinced the private markets had changed forever. Again, this was a debate in oh, six oh seven where companies stay private longer with the public markets open up. And they said, it's changed. It's going to create all kinds of problems, needs for capital that don't exist around the secondary market, later stage market for LPs. Raised a hundred billion dollar fund and it was me and Joey from Allbirds, who was a good friend of mine from college. We were the first two associates. Long story short, I jumped on there, grew that to a couple billion of AUM and it was then it being the best thing that could happen in my career. There was no deal we could reject, no sector, no deal too big or small. It was like a crash course in understanding the realities of venture. With a lot of seniority because we were building. So by the time I got to my early 30s,

• 6:47Speaker 02

  I had a track record, I had a lot of contacts, I'd built, I'd raised up money from LPs. And so I said, I think I can do this on my own. If I don't do it now, I'm never going to do it. Just as I was setting out to do that, the slow guys who were close friends of mine were taking what they'd done with their personal capital and wanted to launch a long-term venture fund with outside capital. I always say, I knew what they didn't and they knew what I didn't. It was a perfect match.

• 7:07Harry Stebbings?

  You mentioned there, the kind of the confluence of a couple of different things, the public and private and kind of what industry foresaw in terms of where we were going as an industry. I don't normally start with what the fuck is venture capital, as you know, when you listen to the show. But I think this is a really good place for us to start because you've said before, 95% of venture capital isn't actually venture capital. Provocative statement, tick. Why?

• 7:29Speaker 02

  I think there's like New Coke and Coke Classic. We have New Venture and Venture Classic. I fundamentally believe the point of venture capital is to allow a founder to run an experiment against a hypothesis that is knowable, testable, where a true answer dramatically changes the enterprise value of the company. If you look over history, that's when it's performed best. And that's really how it works. The scale of it is using a little bit of money to do something that delivers a ton of value over a long period of term. There's a real equity efficiency. That's where the scale comes from. So start from that being the definition of venture. And when you start from there, you'll look and go like, listen, that doesn't scale. So as we've scaled, a lot of the capital doesn't fall within that bucket. When we talk about it internally, it's a lot of the money out there isn't a seeking novelty.

• 8:13Speaker 02

  They're seeking things they know how to model. They're looking for data they can extrapolate, things that they can sink their teeth into that are actuals, not theories. So I think you kind of have to remove a lot of that from the venture capital bucket. And then when you layer in the equity efficiency side, when you're doing really equity inefficient things, that's hard too. So I think when you remove those two qualifiers and you just got really big, right? And so you get to a point where, yeah, 5% of the industry or the capital of the industry, I think, is really seeking out classic venture bets and the rest of it is piling on into growth, which is a great strategy. I just, I think we bristle a little bit when you talk about a $200 million round and a $5 billion valuation being venture capital.

• 8:49Harry Stebbings?

  You said before, and we chatted before, and you said ventures, simple but hard, I think was the statement you said. Why did you say that?

• 8:56Speaker 02

  What gets hard is thinking through the risks and rewards of any given experiment a company is going to run, which is composed of a number of different levers trying to understand, and they're almost always contextual. So it's a simple mental formula. I think having the art and science and the discipline to run through it, to ask the right questions. How do you weigh a really strong value prop in the product versus a small market versus a founder without a background in the space? That's hard. The equation is simple, but understanding how to balance those factors and when to make a bet is hard.

• 9:26Harry Stebbings?

  We're going to get into that. I do just want to stay on the top level, which is like, actually, fuck it. Let's go to the conversation that I had with you before this, and I was moaning that we don't have enough rebels in this industry. All the smart people coming out and wanting to get into venture, they just want to go to multi-stage funds. Why is that fundamentally? Help me understand. Why do they lack rebels? And why do they want to go to multi-stage funds?

• 9:46Speaker 02

  I think there's always been a lack of rebels. And again, I think this is a proportionality question. We probably put out the same amount of rebels, but the amount of firms branding themselves as venture capitalists have grown so dramatically. So that would probably be my first reaction is like inherently there aren't that many rebels in society. There aren't that many people who think left instead of right. And I think when you look at what folks scaling need, it makes sense that they would attract people that are less down the rebellious curve. I've been talking about for a while that all capital gains end up looking the same.

• 10:16Harry Stebbings?

  So what do you mean by all capital gains end up looking the same?

• 10:18Speaker 02

  It started as it's all investment banking was the first thing I would say, but I found parallels that go beyond that. When I look at whether it's investment banking, mutual funds, hedge funds, private equity, and now venture, they've all followed a very similar curve where early on in the assets class lifestyle or business model lifestyle, it's subscale and it's volatile. There's no consensus way of how do you make money every year? Nobody knows, right? There's no formula yet, and there's not enough scale where where people, it's worth going zero sum. You need collaborators. Early on in venture, nobody had enough money. There was small partnerships who all collaborated and got along really well because like no single firm can raise enough money. And it was still unclear exactly how the formula would play out. So there was a non-zero sum dynamic when it was subscale, volatile, without a consensus path forward.

• 11:02Speaker 02

  I think what happens is soon as there is some consensus amongst the players and there's enough scale to warrant zero sum type behavior, you kind of have the same things happen. If you look at the other industries, they've kind of organized on the axis of are you more zero sum or you more collaborator on the on kind of the X axis and the Y axis is are you a generalist doing all the things all the time or are you a specialist? As soon as you have that kind of consensus dynamic, you need to sprint to one of those strategies and you need to build your organization and asset base accordingly. And so what happens in those consensus games is you're looking for less rebels and you're looking for people who fit the organization and can run the playbook that you've laid out.

• 11:40Harry Stebbings?

  I think my subsequent question then is like, do we see the denigration of returns in venture?

• 11:45Speaker 02

  Yeah, 100%. But again, this is like in new venture or venture classic. This is where the definition of the asset class matters.

• 11:51Harry Stebbings?

  Well, does new venture not actually disable or disarm old venture or venture classic? Because actually you could say new venture is Co2, Tiger, you name any of the new venture or actually, you know, any of the solo capitalists or any new model that we've seen over the last years. That disarms or handicaps traditional venture because in some cases, they will take some of the biggest winners, which will then deteriorate the returns of venture classic.

• 12:17Speaker 02

  I think there's a real incentive when you're operating at scale to not back novelty. You don't want to conflict yourself out of categories, right? Doing a $3 million seed check, even if the category is 50/50 and conflicting out of a 300 to 500 million AUM opportunity down the line is really hard to do and being wrong and looking silly has a penalty.

• 12:35Harry Stebbings?

  Do you really think they care? Like number one conflicts, I think the only big multi-stage fund that does care and honor it really well is Sequoia. The rest are like, they're option bets, especially at seed. Me and you both invest with multi-stage funds at seed, they do a lot. They're in competitors, they're option bets for them. And then two, do they worry about them going wrong? Nah, they're seed. I say to them, God, you put 20 million in and they're like, yeah, but it's a 2 billion fund, Harry.

• 12:58Speaker 02

  No, they don't worry about the loss of capital. And I do think the conflict is real. I think all the players are getting so big, it only takes two at a table. And if Sequoia's got a better widget in that moment, you win if you're not conflicting. And I always joke, like I've gone through this with some investment bankers with companies that have novel business models, right? How do you describe them to the street or novel stories? And They end up almost all saying the same thing because their game is relative, right? They don't want to be the one who comes in with underwriting advice that's novel and could be wrong. Like, it's the correct thing to say, it could go poorly. And so they all kind of say versions of what each other says because to win the next 10 deals, you don't want to be the one who did something that was intellectually correct but worked out poorly. And so I think you end up with the same dynamic inherently at really big, massive firms.

• 13:41Harry Stebbings?

  How do you think we as seed managers compete against the new firms and the multi-stage firms coming in as aggressively as they are now to seed, especially with the migration away from growth? When their price sensitivity is so low and they're willing to pay five on 50, I've seen multiple times, and I'm shooting it at 20.

• 13:58Speaker 02

  The capital game I described is like you want to play the consensus game. You believe the consensus game of a certain kind of entrepreneur in a certain kind of product category in a certain kind of market is where returns are going to be generated.

• 14:08Harry Stebbings?

  I believe there's a higher likelihood of that happening, yes.

• 14:11Speaker 02

  Well, so that's the first place as a manager that you need to step off of. I think we're in the bucket of, no, truthfully, I think we would say we concede the consensus game at the earliest stages. We think our job is to go a click out further on a belief system than in other people. And I think that's a lot of the point of Venture Classic, is to go out for defensible reasons to yourself, a click farther out the believability curve.

• 14:34Harry Stebbings?

  Okay, so let's talk about then a click further out. If we're a click further out, how does our questioning change? You said before that for the most part, investors ask the same questions across asset classes. Does the questioning and underwriting process change when being a click further out from consensus?

• 14:52Speaker 02

  100%. Charlie Munger is one of my religious figures. I think universal principles are universal. You know what I mean? When you find truth, it carries across the spectrum. And so I was like, I wonder if like all the reading I've done about him and his processes, I wonder if I can find a similar vein to how I think the best VCs think. Because if you can tie those two together, you probably have found some like universal principles of investing. I kind of landed on the fact that we're all trying to bet on what the enterprise like value over X period of a company is going to be, right? And how we should price it today. That's the job. There's like Five levers that in my mind that go into that is the arc of history bending this company's way. You know what I mean? Like for the next five, 10 years, do I believe the world will work in such a way that dramatically benefits this company? Whether you're a buyout fund,

• 15:35Speaker 02

  you're right, that's the durability of the cash flows. Then you get into the product or the set of products a company creates and understanding the absolute value proposition they're proposing and then the proposition relative to the competitive industry. Then there's a question on market and I think a lot of TAM analyses like starts off on the wrong foot. I like to ask, and I think the question you want to have about marketizing is most products are built to solve a problem. Most problems are solved, but inefficiently. And so the question I have is like, how much was spent on the problem last year? Or if you're tackling an opportunity or selling consumer goods, how much did consumers spend last year? Right? Like, let's look backwards and figure out how much was spent. And then we can get into levers of like, why do we believe in the market growth? What do you have to believe that this market grows at 0%, 5%, 300%? To fast forward, like that

• 16:17Speaker 02

  becomes an interesting discount you apply. And if you discount a deal too much, it gets a theoretical enterprise value. These will tell you how to discount it. And you get to a point where you're like, I can't put a price on this. The next question becomes defensibility. I think as soon as you begin talking about a product, there's only a few ways people have ever created defensibility. And I know it all erodes. There's no sure thing modes, but there are higher walls than others right around network effects, intellectual property, regulatory arms, etc. So you need to ask yourself, like, if they're creating a novel product in the arc of history with a lot of value and more than competitors in a category, like, why will they defend their market share over time? And then that all comes together and what's the business model? What's the equity efficiency of that business model? What kind of capital is it going to take to produce what kind of cash flows over what period? Those are the questions that I, I think those are at the root of

• 17:01Speaker 02

  what Charlie Munger asked himself and what Waxman asked themselves and absolutely what Sequoia and Benchmark implicitly or explicitly are asking themselves as they wade into, how can I price this and do I do this?

• 17:13Harry Stebbings?

  But then are you not asking the same questions that every other asset class asks?

• 17:16Speaker 02

  You ask the same questions. The nuance is what answers make you most comfortable in pricing it over the rest of the market. There's really four states of answers to any of these questions. There is statistically relevant longitudinal first-party data from the company. There is a depth of third-party data that's highly relevant that you can't debate. There is anecdotal first-party data from the company, right? Early signal. And then there's hypotheses or theories. All of these questions exist in one of those four states. To cut to the chase, the job of the venture asset class, even new venture, is you're betting on theories. You want to come in when there's a highly credible theory that you have more conviction in than somebody else on at least one of those levers.

• 18:00Speaker 02

  You want to finance the company to go run the experiment. The more you're financing people to take hypotheses and turn them into first-party data, the discount rate of the enterprise value, that's the biggest tick you can get.

• 18:10Harry Stebbings?

  My question to you is, how do you think about the primary nature of the market over the founder? And how do you assess that?

• 18:15Speaker 02

  What I would agree with is on any one of those levers, you can get an answer that shuts the whole thing down.

• 18:22Harry Stebbings?

  We are going in the biggest option tree discussion ever.

• 18:25Speaker 02

  Well, this is why ventures are simple but complex. Like, I don't have a pithy one-word answer for you.

• 18:30Harry Stebbings?

  How do you feel when I say that?

• 18:32Speaker 02

  My immediate reaction is I think you failed to create a product that has such easily identifiable value proposition that customers in a segment understood why you were giving them a dollar and charging them less than a dollar. You're giving them a dollar value and charging them less.

• 18:46Harry Stebbings?

  Yeah, but it doesn't matter.

• 18:47Speaker 02

  That's all that matters. All that matters, yes.

• 18:50Harry Stebbings?

  It doesn't, because you're forgetting macro and you're forgetting political. You can have a currency devaluation in LatAm that fucks you in a way that your business is completely unsustainable. You can have a political regime.

• 19:02Speaker 02

  But that means that, I think we're saying the same thing. Sure, are there some black swan things that can wipe out every investment? The answer is yes. Could you have understood long-term capital management getting blown up by the ruble was going to have an effect on fintech services businesses? No, but like, it did. There's black swans. One of the things I've gotten really addicted to recently is like, the point of the industry and of investing in general is that somebody can manufacture out of thin air value in excess of what it costs them to produce. And the more you can quantify that and make it causal, if I'm like, hey, here, here's a dollar, I'm going to charge you 90 cents.

• 19:34Harry Stebbings?

  I'll take it.

• 19:34Speaker 02

  You're gonna, you're gonna line up, I'm gonna have no sales and marketing costs. I'm gonna be able to price that right at the line. And if it costs me five cents to produce that whole thing, I gotta make eighty five cents of market. Like, that's magic. And so I do think why venture is simple but complex is like, I do think it's a big option tree, right? But I think at a root of a lot of problems are products that at a minimum have qualitative value propositions that are correlating with a lot of other factors in life. And that makes them really hard to sell. But there are some markets that I think at a minimum are really capital inefficient to go after and not worth it. And no matter how charismatic the founder is, they're swimming upstream hard.

• 20:10Harry Stebbings?

  We mentioned risk earlier. How do you think about kind of the risk matrix? Candy in particular told me to ask you this one. But how do you think about the risk matrix and the framework with which you apply risk to each investment decision?

• 20:22Speaker 02

  So back to the five questions I just laid out. What I do is I go through any problem they're thinking about solving, or especially what they're gonna go tackle on the money I'm investing. And try to think about, do I love their answers? And then how many of the answers, most importantly, are theoretical versus rooted in some first or third party data? Like, one of the things that's just logical to me is having a novel theory and being correct, having one of them in your life, is a low odds proposition. There just aren't that many. Having two isn't linear risk, or the odds of being right on two vectors is exponentially lower. And I think that there's a point at which you're backing too many theoreticals and you can't put a price on it. It's NPV negative and it's not worth the risk.

• 21:01Harry Stebbings?

  If you think about a situation where you have a theory, a novel theory, that is true and correct. You scale a company very successfully. In the scaling of that successful company, you see the challenges of people management, culture management, treasury management, whatever this could be, and you see it in a novel way. Does actually, I'm just intrigued, I don't know the answer here. Does it not increase the odds of you having a second novel idea through having the very rare experience that very few people have of the success of the first novel idea?

• 21:30Speaker 02

  There's a winner's edge, right? And I think that you can absolutely, by being correct on some novel but right proposition, you begin to understand how to approach and view the world and understand which of those kinds of propositions are more likely to be correct or not. You're operating off better information, both that you're getting from the world as well as you've had in firsthand experience. So I absolutely think you can spot a lot of it. In advance. So I actually, those five questions, I like to think about them as columns. When I'm thinking about a company and go, great companies have multiple of those columns that you need to think through. And a lot of times, having success on one of the columns actually gives you leg up for doing something right for the second S being more true.

• 22:07Harry Stebbings?

  I can constantly go back to the idea of like consensus versus one click away. Given that, from a portfolio standpoint, I do also think a lot about portfolio construction and building like anti-fragile portfolios. Is your loss rate not higher, given it's one click away and it's less consensus, less down the fair way?

• 22:23Speaker 02

  Yeah, I think everyone's loss rates are really hard to understand over the last three years, given the amount of speculation in capital, candidly. But yeah, your loss rate should be higher.

• 22:32Harry Stebbings?

  Okay, so your loss rates are higher. So we need more lines in the portfolio. How do we think about kind of right levels?

• 22:37Speaker 02

  No, you don't need more lines in the portfolio. You need more aggregate optionality. So you can either get that by taking really, things that if they are correct, right, can be massive economic wins, right? That's like one way to offset it. And the other is a more indexed portfolio.

• 22:53Harry Stebbings?

  When you look at a venture over the next like three to five years, how do you think it looks then? I get a lot of LPs ask me this.

• 23:00Speaker 02

  You'll find capital gains, they all end up looking alike. I just don't think so on the consensus new venture scale. It's instructive to look at what's happened in investment banking and private equity and hedge fund land. Like, I think that's very instructive about where new venture is going. I think the pie gets bigger, but unfortunately it subsists less people. Goldman and Morgan are much more profitable than a lot of other investment banks. You'll see firms that have picked a quadrant and set up their organization and strategy work really well. The ones who are early and dedicated to that are gonna do wonderfully in the new venture game. I think people who have been slow to react to that changing reality are gonna have a harder time. And then I think you're gonna have a handful of people who pick to play a more classic non-consensus game. Some portion of them will do well and some portion will fail to be non-consensus and be right.

• 23:44Speaker 02

  But I think there's a large middle that I think will need to find a home or struggle to find edge and alpha in the market. Everything in venture is always caving up. Like, when there's a massive shift, it creates so much margin for everyone that like, all bets are off for a little while and everyone can continue to play.

• 24:00Harry Stebbings?

  The other hard thing is it takes a while to die in venture. I agree with you in terms of the middle there. But a lot of the middle, we see in the news, they get new funds because they've got lagging data from eight years when they had, you know, an IPO that's just come through in the last years.

• 24:13Speaker 02

  This is the first time we're really seeing a zero sum type behavior and people that can absorb LP dollars in such mass. I don't disagree with you. Like, I've had, probably had the same comment for a long time, but like, I think we're now in a different era.

• 24:24Harry Stebbings?

  One of my biggest things that I'd like to change about the world of venture is LP incentives. Mostly it's salary and bonus. If that's the case, you would absolutely give money to, you name your large multi-stage fund with accredited brand, even though you know it's a 1.6 to 1.8x. You would do that every day over a potential 5 to 10x with slow because you're not going to get fired here and you have no incentive on upside versus could get fired and zero incentive on upside too. That's what I'd most like to change. Why do you think LPs keep funding them? You know, at 6 billion, you can't return 3x.

• 24:57Speaker 02

  I, I don't think they expect that. All capital gains are the same. Like, I think when you get to consensus like that, people are comfortable and, and there's a playbook and people understand it. Again, I think a lot of what Tiger did was really rational, like, yet returns at scale start looking very similar. I think we get to a place on a $6 billion fund, expecting 30 to 40% net IRRs isn't reasonable. I don't think LPs are doing that. I think they're looking, going, say, hey, we can say we have venture exposure or exposure to tech equities and 15 to 17% net on a $300 million commitment is meaningful. I think they're sensitive to the quantum of capital they're able to move and when it comes to IRR, I think that's more the math they're doing.

• 25:34Harry Stebbings?

  What do you find the most disturbing trend in venture right now, Will? What worries you most?

• 25:38Speaker 02

  I had a hard time, the transition to competing to win deals versus underwriting. There, there became a real premium on, hey, this is something everyone likes and so I better set up my widget to go compete for that deal versus, I've got three bullets to shoot. There's a hunting analogy I love, which was, for years it was about elk hunting, right? You had, you had expensive bullets, you'd go on a long walk through the woods, you'd learn over the years how to get signs of an elk had been here. You'd be really patient, you'd lay there, you'd call them, one would come, you'd make sure you had a clear shot so you didn't waste a bullet. And if you got it, you took down a lot of meat. Were fed for the year. As bullets became cheaper, the incentive became shoot at anything that moves because you'll get another bullet. So even if you get a squirrel, it's okay.

• 26:20Speaker 02

  And then it became such a relative game that everybody was hunting in packs and just trying to be in position to be the first to shoot at the thing moving.

• 26:28Harry Stebbings?

  You said about kind of the movement to packs there. Do you think venture is more or less collaborative than ever?

• 26:33Speaker 02

  New ventures, new venture is less collaborative than ever and the incentive structure is to be less collaborative.

• 26:37Harry Stebbings?

  Why do you say that?

• 26:38Speaker 02

  Once there is a game plan, like you just want to do all of it. At the upper ends, when you have all the money and all the products and all the strategies and all the sectors, you don't really have a need to offlay risk. Or right, the risk doesn't seem that high that you need to offlay it with another partnership and you don't run out of money yet. Take and do its extreme. There's no real incentive for collaboration.

• 26:55Harry Stebbings?

  Venture classic, is it more collaborative or less?

• 26:58Speaker 02

  Yeah, absolutely, because you're dealing in lower quantums of overall money and higher risk pools.

• 27:03Harry Stebbings?

  Do you think so? Because of that, you need more ownership. Higher risk pools mean you need more ownership unless you're going for the spray and pray.

• 27:09Speaker 02

  That becomes, are you going to put 10 bets in the fund or are you going to put 50 in the seed fund? Now, you can make a case for both.

• 27:14Harry Stebbings?

  Which do you go for?

• 27:16Speaker 02

  We've learned a lot and respect what Josh has built at First Round a lot. So we're in the, there's enough risk in these things in the upside of winning a Miss Dramatic enough that we want to be collaborators.

• 27:26Harry Stebbings?

  On the price sensitivity, how do you reflect on your own price sensitivity today?

• 27:30Speaker 02

  I mean, it's so hard. Everyone, it's all mistakes. Cause when it wins, you don't look at your pricing and be like, oh, I really nailed it on pricing. The only time pricing really screws you up is when you stay disciplined and miss a dramatic winner. What's one of the biggest mistakes you can make as an early manager, right? It's like you put 2 million bucks to work at this, at a seed price. No, don't know what the stage is. You put 3 million bucks to work for 10% owner or 15% ownership in something super risky. And then you put 100 grand into something at 150 post that's less risky. That's more of a portfolio management mistake. Like what I would say to you is maybe you got priced wrong, but what you really got wrong was allocation.

• 28:06Harry Stebbings?

  Well, what's been your biggest hit so far? And what did you learn from it?

• 28:10Speaker 02

  So I was lucky enough, there's a company called LiveRamp that Orin Hoffman founded, that I was lucky enough to lead the Series B. This was at a time when ad tech related products were kind of written off as, as hard to differentiate, hard to find novelty, hard to find defensibility and really. Dug in with Orin to understand the business and the potential and we led the round it very quickly was a 10 or 12x on within two years on acquisition. It ended up swallowing the public business that it went into and now is publicly traded at a couple billion dollar market cap. The learning was to not come to sweeping conclusions, to sift through the business and think through the problem they were proposing solving and how they were thinking about building a scalable unit to deliver value to their customers.

• 28:54Speaker 02

  So I think that was like the very tactical learning I took with me is to like really think through those, get to the customer who pays, the defensibility dynamic. I don't think enough venture investors think of themselves as an investor first and then venture second. I don't think they, a lot of people think venture is some art that is unrelated to what a great public equity manager does. And I think when you invert it, right, you think, what am I looking for? What are the characteristics? What are the questions I'm asking? It'll take you into much more interesting places consistently and give you a framework to double click, dig in and process things, I think, more consistently and bring some objectivity to the subjectivity.

• 29:27Harry Stebbings?

  What's the biggest miss and what did you learn from that?

• 29:30Speaker 02

  Maybe there's a lot of miss. I'm gonna do this one.

• 29:32Harry Stebbings?

  This is really embarrassing.

• 29:33Speaker 02

  We're very price sensitive on deal and that was a bad idea.

• 29:37Harry Stebbings?

  On deal, like D E L?

• 29:39Speaker 02

  Yeah, we were negotiating to be the lead of the seed. We're like this far apart and decided that was too far apart.

• 29:45Harry Stebbings?

  What did you learn?

• 29:46Speaker 02

  This is the hard take away about price, right? Which is like, it matters till it doesn't. So I don't know that I have a good core learning that you can take and extrapolate and use over and over again.

• 29:55Harry Stebbings?

  I think one thing that I learned from one of my failures, which was an interesting one recently, was that internal mindsets around goal orientation are much slower to change than strategic decisions to change them. And what I mean by that is, we as a company need to optimize for capital efficiency on a per basket basis. Changing to that mindset from growth is impossible overnight. When you have a hundred people, there is a significant time lag between strategic decision made and employee mindset and how they focus and prioritize. It does not happen overnight. It's six months.

• 30:28Speaker 02

  Absolutely. The lens I use the most to try to figure out what part of the organization is in special forces mode and what parts in infantry. Founders are special forces. Founders operate with lots of subjectivity. And I like to think, go in and you kind of go, yeah, you know, I've got a set of tools, an objective, no real path to it. Like, I always go, you send the SEALs in where you're like, go secure that town. Jump out of an airplane with a couple of different weapons and a plan you come up with yourself and call us when it's secure. And they do an unbelievably effective job at it, more so than you could do with a thousand people put against it. The cost of that output is dramatically different. Once you've secured that objective, building fences and putting supply lines in and thinking about troop movements and how many Humvees you're going to need, that's a totally different skill set than special forces. Does that make sense? The special forces, they're like, yeah, tell me the loosely the thing to do and I'll

• 31:13Speaker 02

  call you when I'm done and I'll get it done well.

• 31:15Harry Stebbings?

  And so you need to understand that when investing in a company in terms of what parts are which?

• 31:20Speaker 02

  When you're running a company, you need to understand, the first time you do something needs to be done by the leader of the SEAL team. Doing it the next 10 times, the SEAL team needs to manage it, right? It's special forces managing special forces. But doing it time number 11 through 100 is when you want to bring the infantry in. You want to bring people who love, embrace and have a depth in process repetition, refining the standard deviations of outcomes in any given entity, et cetera. I think it's a really great awareness for where you are on a skill set, Eric. Do you have both skill sets? Do you love one skill set over the other? And then where are you as a company in terms of that repetition and what do you need to bring in?

• 31:56Harry Stebbings?

  I was reminiscing on my own mistakes in life. Last year I had a chance to get out on a load of different investments and I didn't. I always believed the hold on to your winners, hold on to your winners. I should have sold. How do you think about secondaries? When's the right time to sell?

• 32:11Speaker 02

  Yeah, literally anyone who's gotten skin in the game in the last 10 years is like learning the same lesson you are, which is, I'm not sure it's ever healthy to be in hold mode. I don't think you should ever mentally be holding because, one, selling is really hard. Selling is emotionally hard, it's intellectually hard and it's structurally hard in illiquid assets. So being in hold and then reacting is wildly difficult. We've kind of adopted this mindset of like, I think you either are a buyer Now, you may not have the capital or the right cost of capital, but I, I think you either see signals that tell you you would continue to accumulate, or you should mentally be thinking about selling. And that doesn't mean you sell tomorrow. That doesn't mean you sell three years from now, but you begin to build a mental framework of I've gone past the point where I'm comfortable adding.

• 32:55Speaker 02

  What would it take? How would I get out? What would my logic be? Again, I'm always looking for things you can do over a thousand hands of blackjack. And so that's become a really interesting way for me to like take action consistently. I mean, I think the other thing you can do is like at a certain point of fund return, right? You just sell secondaries, which is a great heuristic. It's served a lot of early stage investors really well. Though I do think you may cut off the tail on some things that were obvious holds or things you would have still been, you know what I mean? If you go through this lens of is the business generating answers that say this is going to continue to compound? Or has price gotten ahead of itself?

• 33:27Harry Stebbings?

  So I totally am with you on the like, hold is like a weak position to be in. I'm kind of aligned. It's like pro rata, which is I think pro rata is really lazy. I'm either like progressive to put money into Will's company or I'm not.

• 33:39Speaker 02

  Starting from that mental position is like a really helpful way to start thinking about secondaries and liquidity, et cetera. That's been a key learning of mine in the last year. That's been really fun to back test and it changes how you view things.

• 33:49Harry Stebbings?

  How do you think about reserves? I think reserves are going to be very different moving forwards. Before, if we didn't take our reserves, no one gave a shit. There was so much money. Like now, I think we're going to see a completely different environment around reserves. How future investors see us putting in reserves? How do you think about that today, especially moving forward?

• 34:06Speaker 02

  I mean, I understand the two camps who are like, put low cost basis things in there. Keep your absolute valuation low, add up the number of call options, don't do reserves. I understand that logic. I also think if you can get disciplined about your underwriting, right? You may increase the overall capital you can return. And so.

• 34:23Harry Stebbings?

  Well, that is the opportunity cost on that capital though. This is what I have, which is like, yes, I had this the other day, which is like, yes, I've got a great company, but I'm going in again at a 300.

• 34:32Speaker 02

  Yeah, but this goes down to what's your opportunity cost, right? If you have. Limited partners, right? This goes to your cost of a bullet, right? Back to cost of a bullet. Sure. If you're somebody that's confident in your cost in a bullet, then you'll use it in attractive situations, even though it may be a 10x and not 100x. And understand that. So I think that's one lens to bring to it is, how expensive is this bullet? Which is very manager specific, it's fund specific, it's firm specific, that answer. And I do think you can get disproportionately good at underwriting. Like, I think in companies that are really important and high quality, now the question is, how good can you be at being honest with yourself and looking for those? You're almost always better off accumulating stock in those companies over the first eight years of their life than you are in any diversified venture portfolio. Right? So I would just posit that those are the two extremes.

• 35:16Speaker 02

  And I think it comes down to your own opportunity, cost of capital, and what skill set you think you've refined the most. I mean, this is something we've talked about. And like, one of the reasons I initially got involved in Slowback to, I was good at things they weren't. I had spent my life at B, C, D, right? At that kind of later stage. And so it was this interesting lens to have somebody who was more comfortable underwriting that stage of asset in an early-stage partnership.

• 35:37Harry Stebbings?

  Tough question. What firm do you admire the most?

• 35:40Speaker 02

  Sequoia, not even tough question. I think it's a top two or three investment management firm in the world, one of the most well-run businesses that I can see. My five questions on enterprise value, like, is arc of history in their favor? Absolutely. And it always has been. Will the world work in a way that's advantageous to them going forward? Absolutely.

• 35:56Harry Stebbings?

  I always think like, success in ventures cyclical. Do you agree with that? It's like, you know, great firm gets great company, which leads to more great entrepreneurs wanting great company. It's this self-fulfilling flywheel, I often think. And I said that to Doug Leoni when he was on the show. And brilliantly humbly, he was like, I would love that to happen, but people don't just go, oh, Doug, here you go, take my unicorn, future company.

• 36:15Speaker 02

  So I got really like, Don Valentine was a contemporary of my grandfather's and was a friend of his. And I got lucky to get a couple one-on-one sessions with Don Valentine back in the day. And it was clear from that get-go that they looked at it, they looked at this as a product and a business, right? That they came at to this, that this wasn't a purely subjective artistic endeavor that was kind of up to your ability to read tarot cards, right? Like, he understood from, if not the get-go very early on, that this was a business that you needed to ask those questions that we talked about earlier of yourself. Come up with answers that are theories are real and execute on them. And so I think they've had that DNA from the get go to really think about. Is the arc of history in our favor? Do we need to create new product sets right that create absolute and relative value? Do we have a sense of what the market size is going to be? What are we betting on?

• 37:00Speaker 02

  Have we thought about how we continue to defend ourselves, right? They take that view of their business and they do a great job of continuing to innovate, add S curves, right? Back to great company. They continue to add a column to their business very intelligently or revisit a prior column and realize that the defensibility may be going away and they need to add to it. So I don't think that's who we'd want to be. I don't think we have the DNA to aspire to be that. But when you go, who do you admire and who do you learn from the most? If you're not saying Sequoia, I'd have a long debate over a year.

• 37:28Harry Stebbings?

  Question, final one, I promise, and then the quick fire. What do you want to be? Like often people ask me like, Harry, you know, 20 VC in many directions, where do you want it to be? I know my answer. Why do you want slow and new to be? Do you want to do multi-stage?

• 37:39Speaker 02

  No, I mean, early on, I think we would have said multi-stage. I think the amount of human capital and what it means on a daily basis to be a competitive multi-stage firm is not what we do. It's not our strength. It's not our DNA.

• 37:50Harry Stebbings?

  It's also a different life. I think this is what people.

• 37:52Speaker 02

  A hundred percent, right? It's, and again, capital gains look the same. Like you need to be the same way in certain bankers or private equities, get on a plane and a whim because you need to go deal with it, right? Like there's certain realities to running that model really well. I thought it's really interesting if you can marry being a very good venture classic craftsman, right? If you can sit and consistently think through non-consensus intelligent bets, right? That are risk adjusted in your favor and then have an element of being a collaborator, going into the consensus game as a generalist collaborator. Someone that in that function brings value, not only to the companies itself, but also the other venture funds and general partners in the world. And it's not a perfect analog, but I often look to Alan and Co. As someone who's done that really well.

• 38:36Speaker 02

  When they're involved, they actually play a unique role, even when, when another bank is at the table. And so I've always been really intellectually curious to see if you could bring that model to bear in venture where you marry a classic venture practice with a generalist collaborator model.

• 38:50Harry Stebbings?

  Well, we're going to do a quick fire on, otherwise I could talk to you all day. Tell me, what's your favorite book and why, Will?

• 38:55Speaker 02

  Professionally, it's The Success Equation by Mike Mabusian. Full stop. Everyone in venture should read it. It changed how I operate day to day.

• 39:01Harry Stebbings?

  Who's the most underrated angel in the ecosystem and why?

• 39:04Speaker 02

  Mark Goins. To me, I never worked with Bill Campbell. Mark was at Intuit back in the day, was a VC for a while and now kind of plays the independent advisory role. For founders, especially in fintech, understands organizational challenges. He has founder empathy and he's got very independent tactical, logical advice across the spectrum of what a founder might encounter.

• 39:23Harry Stebbings?

  What happens to Tiger from here?

• 39:25Speaker 02

  I think they retrench, probably at slightly smaller scale on the private side. The public book, I don't know, there aren't a lot of, not a lot of public books that have recovered from being down that far. But they're kind of an unprecedented institution in general. I think a lot of what they believed was right. I think they probably were putting out maybe too much capital or had too loose a filter. But this idea that companies very quickly become growth stage, right? Where you can take the data and model it. Once you kind of feel comfortable about the standard deviation of outcomes, build a portfolio around it, I think is correct. And so I think it's probably a smaller quantum of capital, at least on an annual basis, but that the overall hypothesis was largely correct.

• 40:01Harry Stebbings?

  What would you most like to change about the world of startups, Will?

• 40:04Speaker 02

  I wish founders slowed down before they ran out the door and really understood where do they have unfair insights in the world? What's their theory on building a product with value? What's the right capitalization path? That's probably the biggest thing. Like venture to me, as I've made clear, is a very specific product. And I think a lot of folks seek it that don't necessarily need it or are not a fit for it. And so I wish there was just more of a universal understanding of what calls for venture and what doesn't. I think that would save a lot of time and heartbreak for all parties.

• 40:30Harry Stebbings?

  What have you recently changed your mind on?

• 40:32Speaker 02

  Oh, here's a good one. I've gotten really fascinated by branding. I think like, yeah.

• 40:38Harry Stebbings?

  Yourself, Will.

• 40:40Speaker 02

  Okay, so applying it to myself is interesting, right? Which is, we went through a period, at least in my venture career, where everyone spent too much money on branding too early. There was, hey, we're going to seed round, we're going to take $350,000 and go work with someone on brand, brand identity and a brand plan. So the hard pivot away from that was like, don't brand, SEM, right? If you're going to spend marketing dollars, have it be performance oriented, lots of tough metrics. Which made total sense to me. I think we've over rotated. I've changed my mind that branding is more important than I thought it was. And I've gotten really fascinated though about the right time to lean into branding. And I've changed my mind that it's really important. I've started sending more founders to meet with branding specialists. But I'm trying to really understand, I think there can be a magical moment.

• 41:22Speaker 02

  And it's different for each company. For me, it has a lot to do with value proposition because I think that's the core atomic unit of any great company. And I think there's a point at which you have enough case studies, you verify that you actually create a lot of value in the market. And continuing to go through performance marketing, which has diminishing returns, is probably not the highest operating leverage way versus getting brand and brand awareness, right? And going for more subjective soft ROI spend. I don't have an answer, but I've changed my mind and I'm fascinated by it.

• 41:47Harry Stebbings?

  Do you think VCs do branding well today?

• 41:49Speaker 02

  I think new, successful new venture, absolutely. They're great at it.

• 41:53Harry Stebbings?

  Who would you say is great at it?

• 41:55Speaker 02

  I mean, anyone outperforming. I mean, I think Sequoia does great, Andreessen does great, Benchmark in their own way does great, Founder's Fund does great. Like, they've all made really great, I think, intentional branding choices.

• 42:04Harry Stebbings?

  Final one for you, my friend. What was the most recent publicly announced investment and why did you say yes and get so excited?

• 42:10Speaker 02

  Well, one got announced yesterday, which is Fair Square Medicare. We got excited for a couple of reasons. One, it was a founder who was just executing, right? It's been a space, so he's starting a Medicare brokerage with the idea that you can bring much more transparency and a more 2022 buying experience and take a ton of market share in that way, in a high operating leverage way, outside of a traditional call center brokerage. Yes, logically, is my mom gonna buy Medicare different than my grandmother did? Absolutely. That hadn't been mixed up. And there are a few startups that went after it and Daniel was just executing, so we continued to pour money in. He just announced a round from Lin and Shraga to find. What was really interesting to me is that in digital care, everyone's gonna have a digital care platform, every demographic, where you deal with a lot of your health issues there and then you bridge that with the offline world.

• 42:52Speaker 02

  I think the way to get there with seniors is to start, what's the most common problem they all have? Making sure they transition to the right Medicare plan. What got me to a yes was a guy delivering value, executing in the markets, who had several S-curbs that I thought were pretty logical ahead of him.

• 43:07Harry Stebbings?

  Well, listen, this conversation has taken many twists and turns. I would love to go for a drink. I think we'd have much more fun with the tequila in hand. You are a star for putting up with my wayward turns, but thank you so much for doing this, man.

• 43:18Speaker 02

  Yeah, man, this was really fun. Like, coming on your show teaches you a lot about what you think.

• 43:24Harry Stebbings?

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• 44:08Harry Stebbings?

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