20VC: Is Seed Investing Dead Without a $1BN Fund? | Does Ownership and Price Matter When Companies Can Be $1TRN Exits | Are AI Revenue Numbers Real and What to Watch Out For with Venky Ganesan, Menlo Ventures

Venky Ganesan is a Partner at Menlo Ventures, whose portfolio includes Anthropic, Lovable, Legora and Higgsfield, alongside earlier hits Uber and Roku. Venky's own investment track record includes Palo Alto Networks, Upwork, Poshmark and Rover. He is a three-time Forbes Midas List investor and former Chair of the National Venture Capital Association. AGENDA: 07:00 Can You Still Do Seed Without a $1 Billion Fund? 11:00 How Much of AI's Revenue Growth Is Actually Real? 19:00 When Is "Overpaying" the Smartest Investment You Can Make? 25:00 Does Ownership Still Matter in a World of Trillion-Dollar Outcomes? 31:00 Is "Big Tech Will Buy Us" a Dangerous Investment Thesis? 36:00 Why Invest in Venture When You Can Just Buy the Magnificent Seven? 45:00 When Should You Sell a 40x Winner—and When Should You Double Down? 54:00 Can a $50 Million Fund Still Compete With the Venture Giants? 58:00 Quickfire: Is Benchmark Harder to Beat Than Sequoia?

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

• 0:00Speaker 00

  At this point in Menlo's history, right, we are going broke. We are going for the grand slam home run. We want to see everything. We want to win everything. Full stop. It is a very disorienting, confusing time. Each seed investment is an option bet. You're buying an option to see if it's an outlier. You never want to let your ego come in the way. My only ego is to make money for my investors. If there's an opportunity to make money on investment, we should do it. The rest of this is all noise. The game has changed. You have to focus on I R R. There is no way for venture to be successful in today's era without the Mac seven participating in everything you're doing. There's no limit to what a person can do, as long as they don't care who gets the credit.

• 0:41Harry Stebbings?

  This is 20 V C with me, Harry Stebbings. Now, I love shows like this. Firstly, because I actually know what I'm talking about when we re-enter the world of venture and move away from deep tech. But second, because it's a real discussion. You know, quite frankly, do you play the game on the field? Even when it's crazy, the music is playing louder than ever. Do you grab a chair or do you keep dancing? In this discussion with Venky, we discuss the craziness that's happening in venture. Pricing, when to pay up, when not to, how to think about market sizing, how to think about when to sell, how to think about being collaborative in rounds. This and so much more in a true nerd venture fest that is this episode. But before we dive into the show today, Blitzy, the autonomous software development platform that's built for enterprise scale,

• 1:26Harry Stebbings?

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• 2:06Harry Stebbings?

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• 2:51Harry Stebbings?

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• 3:31Harry Stebbings?

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• 4:14Harry Stebbings?

  You have now arrived at your destination. Venky, dude, I am so excited to do this. I am such a fan of your tweets. Who would ever call them blowhard, right? That's a terrible commentary on it, and I was so looking forward to this. So thank you so much for doing it in person.

• 4:29Speaker 00

  Oh, I love this. Thank you so much, and I cannot wait to see if I pass your test.

• 4:34Harry Stebbings?

  Oh dude, you'll pass my test. Now, I want to use this as a real learning discussion for me. Because I want to build a firm like Menlo, and I want to learn from the wisdom that you've had now seeing multiple different cycles. You just told me a story that I loved, and it was from two decades ago, holding a certain stock. Can you tell me that story and your takeaway?

• 4:54Speaker 00

  Yeah, so a little bit of a past. Previously, I was at a firm called Globespan Capital Partners, and we happened to be investors in a company called AVNX, which is, nobody knows about this company, A V N X. I remember the stock symbol even now. I was an associate, did not have carry the fund. AVNX was a big winner, goes public. They gave the associates a chance to own shares of the IPO. So I bought some shares of the IPO. I remember putting the princely sum of $5,000. And at one point, AVNX got up to 200,000. It was such a big portion of my portfolio. And my wife, who was much smarter than me, she was my fiance then, we were getting married. She said, hey, why don't you sell some so that we can have something for a down payment for the house? And I was like, no, no, no. AVNX is going to go up. Optical components is a critical part of the internet bubble. It's going to go, we're going to make a million dollars on it.

• 5:40Speaker 00

  And you know how the story ends, right? It drops 90%, and I think I sell it for around eight to $9,000. So I call it the most important lesson I learned from a 90% loss, which is at some point, you should take some chips off the table.

• 5:53Harry Stebbings?

  I'm not sure what to take from that, because I know I remember having Jake Saper on from Emergence. And when he broke down Emergence's returns, basically you just saw this one meteoric outlier that returned 90 to 90. Well, Viva, yes, but it was actually Salesforce.

• 6:09Speaker 00

  Wow.

• 6:10Harry Stebbings?

  And if they had have held it longer and longer, obviously, it would have been even more meteoric. And so I guess my question is, what should we take from that? Because we also see the dangers of selling too early.

• 6:21Speaker 00

  Agreed. I think a lot of this advice depends on the context of who you are as a person and what your balance sheet is. At this point in Menlo's history, right, we are going broke. We are going for the grand slam home run. Because we have had home runs before. We have a history of bringing it on the table. As a 24-year-old with very little in your bank account, when you have that kind of, for me, AVNX game-changing money, it just makes economic sense to take some off the table. And so I do think like the advice is, there's no one-size-fits-all for these things.

• 6:52Harry Stebbings?

  Did you say you're going for broke? All hands to the pump. We are going for this. Does anything change with that mindset internally? Like, is it more aggression? Is it more willingness to pay up? Is it more willingness to have less ownership? What changes with that?

• 7:07Speaker 00

  I think what we mean is we are going to fight and try to be in the defining AI companies of our era. We want to see everything. We want to win everything. Full stop.

• 7:18Harry Stebbings?

  I want to start with a concern, which is, I don't know what business we're in anymore. Venture is not venture anymore. I had my team come to me and say, hey, we can't find anything under 100 million. And I said, wow, that's a lot of, that's a high price for a pre-seed or a seed round. And they said, no, no, no, Harry, that's the size of the round. Thank you. This is not venture. What am I to do in this world? And can you invest without a billion-dollar fund?

• 7:41Speaker 00

  Venture has changed, but I also think that you can't take a snapshot in time and draw, a dot is not a line. And right now, you're right. Every AI company wants to raise, you know, hundreds of millions of dollars. And I'm surprised they only said 100 million, because there's some new labs who want to raise billions of dollars, right? They all have arguments for it. It is a very disorienting, confusing time. I will admit that. But I also think like these things change quickly. So you don't want to necessarily draw your long-term strategy with a snapshot in time.

• 8:12Harry Stebbings?

  These things change quickly. Do you play the game on the field, as Bill Gurley says? Or do you call timeout and say, you know what? I learned from 2021. You know what I wish I'd done in 2021? Less.

• 8:25Speaker 00

  This is a really hard conundrum for professional investors. You're referring to my tweets, right? The Chuck Prince quote is, when the music is playing, you got to dance. And as a professional investor, the danger of not dancing is that you do not know when this ends. Like, I'll give you a story. Like, there were a bunch of really smart venture firms during the dot com boom that got in in 93, 94, made money, and decided to step out of the game in 96, 97. And when they stepped out of the game, they missed out on 97, 98, 99. And the LPs were like, what happened? Like, we asked you, we invested in you because you're going to be at the cutting edge. You stepped out, and they stepped back in 2000. So timing markets is really, really hard. I think you have to play the game.

• 9:09Speaker 00

  But I think you can play the game differently. You can choose to be more selective. And you can hopefully think about portfolio composition and position sizing as a way of mitigating what happens in the cycle turns.

• 9:21Harry Stebbings?

  Portfolio composition and position sizing. What do we do with both of those in a market then like this? How do we change them?

• 9:29Speaker 00

  I think you have to think about the venture portfolio as a bunch of options. Each seed investment is an option bet. You're buying an option to see if it's an outlier. And so you want to have enough of those so you can make sure you have an outlier. And then when there are true quantitative evidence based on revenue and quantifiable metrics that there's going to be an outlier, then you position size up. So to me, like, you have to think about, okay, what is my fund size? How do I have enough at-bats, to use a baseball analogy? And make sure that you have enough at-bats, and then you only position size up on the things that are already proven.

• 10:06Harry Stebbings?

  Do you think seeds still really exist today?

• 10:09Speaker 00

  If you want to go into the core AI world with the Neo Labs, I think seed is hard.

• 10:15Harry Stebbings?

  But even like AI application-like companies, they're raising 10 to 20. Like, the old three to five days, which were still quite large seeds, and that's gone.

• 10:24Speaker 00

  Honestly, I think there are two things that impact seed investing today is, one is the size of the round. And then you have this other sort of externality, which is these large funds, maybe including us, somewhat being indifferent to seed valuations, because they're using that as an option check.

• 10:38Harry Stebbings?

  Because you are, aren't you? I didn't mean that to put you on the spot, but.

• 10:42Speaker 00

  Yes. I mean, we are trying to buy ourselves a seat at the table. And the cost of buying that seat at the table, we are somewhat indifferent to at the seed stage, because our real goal is to size up and invest in them if they become outliers.

• 10:54Harry Stebbings?

  Thank you for making my life harder in that respect. But I.

• 10:57Speaker 00

  You should just invest in our funds.

• 11:00Harry Stebbings?

  I had that you'd be fine. That's very funny. Nicely transitioned there. I give you credit for that one. You said, so you place these bets, so to speak. And then when you see discernible traction, then you can double down. Completely agree with that logic. We're seeing strange numbers. You know, contracted annual revenue that's not actually annual revenue and it's kind of not live. You're seeing revenue run rate that's kind of extrapolated out from the best day in history. And then we times that by 365 days. There's a murkiness to this revenue that we've never seen before. It makes me feel quite icky in a lot of cases. Do you share that? And how would you advise me? And what do internal discussions look like around that?

• 11:41Speaker 00

  If any metric is measured by an investor and they put a lot of weight on it, it's going to be gamed. And that's just the nature. Maybe they should coin a law for it. And there are two elements that are going on. One, I'm blanking. I don't know if it's Keynes or another famous economist who's coined the term bezel. When there's a boom, the bezel is high, which means like it's a notion that the embezzlement of things will be. So not just people are going to pick metrics. People are also going to have some interesting accounting techniques, which by the way, will happen every cycle. And this is probably happening at this cycle. So we're going to find out in the next few years, exactly the accounting creativity of some of our founders. And the metrics being gamed by some other people, right?

• 12:24Speaker 00

  One good example of it in doing the SAS way was a lot of investors put a lot of weight on net revenue retention. And so one of the ways to game net revenue retention is you could get a hundred dollar P O. But better get a $10 P O and get a $50 P O a week later. Because your net revenue retention, if you just got a hundred dollar P O was a hundred percent. If you got the $10 P O and $50 P O, it's now, you know, 500%. And then net revenue retention looks much better. Once a metric is measured, it can be gamed and that happens. To me, a lot of this comes down to are the founders really focused on building a business? Are they focused on terminal value or are they focused on markups? And I think you want to find founders and investors who are focused on terminal value.

• 13:06Harry Stebbings?

  Do you believe in king making? I know that sounds like a strange question. King making the theory that multiple successive and quick rounds led by strong investors can really help increase the chances of a company being successful.

• 13:20Speaker 00

  See, to me, that is a great example of Soros's reflexivity. What I mean by that is you have a company that does well. And because it does well and the revenue is growing really fast, has a quick markup. And because of that quick markup, it gets more capital. It gets to come on Harry's show and then it gets more notoriety. That allows it to get more human capital and along to the financial capital. It grows faster and that's another markup. Now, these are good things as long as the revenue is happening and the core business is building. But someone, a copycat can look at that and say, oh, the secret is to have a markup. And a copycat investor might look at it and say, if it's marked up, it's going to be marked up again. And then reflexivity kicks in and then everybody starts acting that way.

• 14:04Speaker 00

  And this explains how market cycles work until it stops. And the one thing we know from Soros is that all reflexivity will eventually stop. We just don't know how and when. And but until it stops, a lot of people can look very smart.

• 14:19Harry Stebbings?

  We don't know how and when, but we can play the game of predicting how and when. If you were to predict how, what is the first signs of this cracking?

• 14:28Speaker 00

  I think usually the first sign comes with some major debt default. Generally, equity is never the reason why these things crack. Because equity, you write it down, you just take the loss. Debt, on the other hand, people have this expectation they're going to pay, get paid back. And so most of the cycles I know, it breaks because people lever themselves. And so if you see what happened with Leopold, I'm going to reinvest it. Right. But when you're Forex leverage, it doesn't matter if you're right. You have to also get that timing correct.

• 15:01Harry Stebbings?

  Mr. Risk management class at high school, didn't he? For old Leopold when the music's going. So yes, I completely get you there. How do you feel about like the multiple tranche rounds so quickly? I'm meeting founders very often where they're like, oh, we're doing around this week at a hundred. But then we'll be opening up the second turn of it later next week at 200 because we've got so much demand. This just gives me shivers and I feel like, okay, we buy any gold or we buy any car.

• 15:28Speaker 00

  I feel like in every cycle, you get the innovators, then you get the imitators, and then you eventually get the idiots. And I think the innovation of the tranche financing was the notion that I can get build with me money. And then you said build with me money at a low valuation to get just money at higher valuation. And then eventually transition to just pure dumb money. And I think that's the logic of this, right? And so I don't need like money, all money is not the same. I will bring in some investors who are going to actually build a company with me. And then I will bring in some capital along. And then eventually I'll bring in some very low cost of capital. That was the intention. But again, like everything else, now people, everyone's doing it. And it's not tied to the quality of the company anymore.

• 16:13Speaker 00

  It's become another technique for people to do. So I find like these things start initially with some, the core of the idea is actually a good one. Okay, I want to actually raise capital, but I want to distinguish between capital that adds value and capital that doesn't add value.

• 16:26Harry Stebbings?

  Will you do it as a firm if you're coming in the latter tranche?

• 16:30Speaker 00

  Absolutely depends on the situation. We have been on both sides of this situation. And I think if the company is interesting, the founders are special, absolutely.

• 16:39Harry Stebbings?

  Really?

• 16:39Speaker 00

  Yeah. At the end of the day, I never care about what other people invest, what they do. I'm looking at this round and say.

• 16:44Harry Stebbings?

  Are you not hurt by the fact that they are saying you're legitimately less valuable than Peter Fanton, who we're letting in at half the price?

• 16:51Speaker 00

  Peter is amazing. I think the biggest thing I've learned over time is you never want to let your ego come in the way. My only ego is to make money for my investors. If I can make money for my investors, who the hell cares?

• 17:03Harry Stebbings?

  Have you let your ego ever get in the way? I have done.

• 17:05Speaker 00

  Hundred percent.

• 17:06Harry Stebbings?

  What happened?

• 17:07Speaker 00

  I think you get caught in ways of our negotiating for valuation or being in a syndicate. Or sometimes you're offered the opportunity where you think you're offered a small piece and you're like, well, I'm too big for that piece. I think in this business, you have to have a high degree of humility because every week I get hit. I get punched in my face by things I don't know. The biggest mistakes are when we get too caught in our ego. Look, the reality is simple. We raise money for institutional investors with one and one new goal, which is to return more of them back. If there's an opportunity to make money on investment, we should do it. The rest of this is all noise. And I think too often, because venture capital tends to be dominated by personalities, people get caught in these. You probably don't know, a lot of people are Goldman.

• 17:52Speaker 00

  Everybody can say David Solomon, who's the CEO. But the idea is Goldman makes a ton of money and those people just go do their job. Too often venture capital, we end up, because there's so many personalities and people, it becomes more about who and our ego as opposed to just do the job.

• 18:08Harry Stebbings?

  I think that's forced by the fact that we are fighting for constrained supply though. If you're looking at, say, Goldman's public team, you can buy Nvidia, I can buy Nvidia, they can buy Nvidia. It is a free market. Here, we are both competing for Mattis at Lagora. And our check, if he takes yours, he won't take mine because there's one lead check. And so we have to have personality. We have to sell ourselves because there is a constrained supply, no?

• 18:34Speaker 00

  Yes. What you say is absolutely true, which is that you have to have these two dualities and manage them. One is you have to have a personality. You have to be able to project a sense of differentiation, right? Because why does someone choose Harry and not me? It's because they like Harry.

• 18:49Harry Stebbings?

  My good looks and charm.

• 18:51Speaker 00

  Yeah, I see that in person even more so. But I think if you get caught in that and you get so immersed in it, then you lose the sense of what the core purpose is, right? The core purpose of having that personality and charm is to make money for your investors. That's why it is, right? And if there's a time for you to make money for your investors where you have to let your ego take a backseat, you should do it. And that's the right thing to do. Now, I'm not saying it's easy to do. I'm not saying I've done it, but it's the right thing to do. It's kind of like, I know I got to eat right and exercise. I know that. I don't do it often, but I know it's the right thing to do.

• 19:25Harry Stebbings?

  Yeah, but Jim Khan is so good.

• 19:29Harry Stebbings?

  Some things in life are worth it, like butter chicken.

• 19:31Speaker 00

  I'm a dishum.

• 19:32Harry Stebbings?

  Oh, you are. Oh, well done. Well, don't worry, I like a dishum too. We said about price, kind of, hey, we're a little bit less focused on it when it's early. There comes a time when it does matter with the greatest of respects.

• 19:46Speaker 00

  Say it, say it.

• 19:46Harry Stebbings?

  Well, men, men, they kind of pay up.

• 19:49Speaker 00

  And for all you entrepreneurs out there, we definitely pay up. So definitely call us.

• 19:53Harry Stebbings?

  Yeah, you do. And every time I'm like, men are paying up. And you proved me right. Like, you, you, you're right. And I'm proved wrong when I'm like, God, they're not disciplined on price. And so I guess I'm questioning, do we just need to completely reshape how we think about TAMs and market sizing?

• 20:13Speaker 00

  Let's think about when people pay up. People just sometimes pay up to be able to win the deal. I think sometimes people pay up because they're able to see a bigger TAM than the other investor. And in those cases, you're not actually paying a higher market price. You're able to see that the opportunity is bigger and therefore you're willing to see that possibility. Now, sometimes you're going to be right, sometimes you're going to be wrong. So to me, I don't necessarily think it's just price. Now, now, sometimes you don't see the TAM, you're just trying to win the deal and you're, you're, that's what the price it takes. And you're just a clear price taker. And that happens too. The, the problem is venture is an asymmetric game. You lose the dollars you invest, but you can make 10x if you're right. And that asymmetry means that the sense of emissions are way higher than the sense of commissions. What do I mean by this?

• 20:57Speaker 00

  You only see the deals we do, right? You don't see the deals we pass. But the most expensive mistakes venture capitalists make are the deals they passed, not the deals they did.

• 21:06Harry Stebbings?

  When you say that, what was the most memorable pass that haunts you? What is it?

• 21:12Speaker 00

  My most memorable pass was that I was a young board member in a company called Plaxo, which had an incredible board, Mike Moritz, Ram, Sri Ram, Tim Kugel from Yahoo, and little unknown me, and Sean Parker, and Todd Massonis, and was the founder, and Cameron Rend. Sean had some challenges on that board and was asked to leave that board because I was the only person within 10 years of his age in that group. He was telling me he was going to Boston and he's going to work with this college dropout. And he's like, you should be getting involved. And I'm like, Sean, you just got booted out of this board. And I have no idea what I'm doing and I didn't even take that meeting.

• 21:55Speaker 00

  And I probably had the opportunity to write a $50,000 check. Does that right? And those are, those seed rounds were different. They were million dollar seed rounds.

• 22:03Harry Stebbings?

  That's a tough one. Not always Sean like that, then?

• 22:05Speaker 00

  The way he described Plaxo, his vision worked out. He understood virality, network effects, his thought process around what happened at Napster. You know, so, so my rule of thumb is I'm always looking for people who are incredibly good at communicating very complex concepts in a simple manner and just have insight. And Sean just had insight around human behavior and complex concepts and could boil it down in a simple way. He was a very good communicator.

• 22:33Harry Stebbings?

  What a character.

• 22:36Speaker 00

  He gets to have Justin Timberlake play him, so.

• 22:38Harry Stebbings?

  I mean, it's a pretty cool one. Drops of the, yeah, love, love it. We actually did that. We were the 20 minute VC. No, it's just 20 VC. Yeah, yeah, yeah. Thanks, dude. I was talking to Amy beforehand, speaking of kind of the fans you back there.

• 22:50Speaker 00

  Amazing partner of mine.

• 22:51Harry Stebbings?

  Amazing partner of yours. And she said that you care a lot about understanding what brought founders together. Hearing about, you're talking about Sean there made me think of this. Why do you care about what brings founders together? And are there any patterns or signals that excite you?

• 23:05Speaker 00

  I think the company you build is a team you build. And, and so, so much of the DNA of a company is set by its founding team. And so what brought them together? Why they thought in a world of 6 billion people, they should be the people to do this? How they think about each other's strengths and weaknesses? I think these things all sort of like Minority Report. They are like a precog that tells you around how they're going to make decisions, how they're going to build the rest of their team. So I think it gives you a clue about who are these people. And ultimately, I think the company's culture and DNA is going to be shaped by the founders.

• 23:39Harry Stebbings?

  You can ask one question that you find most revealing of founder quality. Doug Leone is, to me, was the one I remember most. And he always says, what's your worst reference?

• 23:48Speaker 00

  So, you know, that's a great question. I generally ask your five best friends, right? And imagine they're in a room. And if I had to ask them three words to describe you, what would that be? That's the question I normally ask people. I'll tell you, I, I listened to Mike Moritz on the interview and he asked a question. And his favorite question is, if you could go back in your life and change one thing, what would that be? I think that, that's a pretty interesting question. If I were to ask you, what do you think about yourself? It's harder, but when you think about your friends, you can sort of externalize it. And then that gives you a clue about how the people around you think about you. And it also tells you your self-awareness. Because usually after I do that, I also do references and I'm trying to see if the references match someone's self-awareness, right? It's actually okay.

• 24:30Speaker 00

  If you know your weaknesses, then you have a much better chance of managing them. It's the people who are blind to their weaknesses that usually have challenges.

• 24:38Harry Stebbings?

  Don't mind, my weaknesses are revealed in the comments section of every interview, so I, I see them glaringly. One thing that's been, I think, uniform across the industry is we've seen ownerships go down. Even the hailed benchmark now take less than 10%.

• 24:51Speaker 00

  I thought, I thought they said 20, 20% of bust.

• 24:54Harry Stebbings?

  Ah, maybe, maybe, let's stick to that message. I love the benchmark guys, so that, absolutely. But does ownership matter as much anymore?

• 25:04Speaker 00

  Of course it does. Ownership always matters, but I think you have to think of that relative to the opportunity, right? What, what I mean by that is, yeah, would I love to have 20% of a company? Sure. But I'd rather take 2% of a trillion dollar company than, than 20% of a hundred million dollar company, right?

• 25:19Harry Stebbings?

  So you'll do deals now for 2%, 3%?

• 25:22Speaker 00

  Well, we did. Anthropic, we own less than 2%. So my, my point is that I think when you think about ownership, you can't think of that in isolation.

• 25:30Harry Stebbings?

  But I think you're either in the ownership game or you're in the money movement game.

• 25:33Speaker 00

  I disagree a little bit. I, I think when you're getting your option bet, you want to have ownership. Because when it's not clear. So let's say you know it's an outlier. If it's an outlier company, then you are in the capital invested game. Prior to it being an outlier company, you have to be in the ownership game. Your best situation is you're in the ownership game in an outlier company. And then because then you go into the money movement game.

• 25:57Harry Stebbings?

  No, I thought you, you, the, the ownership doesn't matter pre it being an outlier because you're there for the information. When it does become known, it becomes a money concentration game.

• 26:06Speaker 00

  You want to have enough ownership though. I mean, you look at Higgs field, my partner Amy, she killed it. She, he got 15% of the company for a $5 million check. You had Alex on, on your podcast, incredible entrepreneur, incredible business. So in that case, we got the ownership and then we also have the opportunity to then size up.

• 26:25Harry Stebbings?

  Did you?

• 26:26Speaker 00

  Yeah, we invested.

• 26:27Harry Stebbings?

  Do you get my rationale though? For actually, it doesn't matter if you have ownership in the first place. What you're buying is the information to size up.

• 26:34Speaker 00

  I get that. If you're asking me, is it better to be in the company regardless of ownership or not be in the company? Yeah, it's better to be in the company. But it's even better to be in the company with ownership because now you actually have gotten your ownership that's going to, it's going to drive real returns. Because the problem is, once it's an outlier, everybody knows about it. It's no longer a selection game. It's just, okay, can you get access? And can, it's a position sizing game. There's no alpha there. And then that's the true, in the AI greatest hits, everybody knows these companies.

• 27:05Harry Stebbings?

  How much of your fund will you put in a single company?

• 27:08Speaker 00

  I don't think we would put more than 20% of.

• 27:11Harry Stebbings?

  Have you gone up to 20% before?

• 27:13Speaker 00

  We have hit 20% on one company.

• 27:15Harry Stebbings?

  Whoa, what company?

• 27:17Speaker 00

  Anthropic.

• 27:21Speaker 00

  It's got to be an exception, right?

• 27:23Harry Stebbings?

  But that was a hard conversation. We 10x this year, we 10x last year. Okay, thank you. Let's do it.

• 27:30Speaker 00

  But I do feel that you have to think about the question of ownership and concentration as when. What I mean is that where was the company? What information do you have? How much conviction can you have as an outlier company? Because the, the thing about position sizing is you want to position sizes when the data is there. And if you position size it ahead of the data, then you're taking a lot more risk. So the question is not, did you put 20% of the fund of a company in one check at the beginning of the fund? Or did you ladder up to 20% on the basis of new data? Obviously, it's much better to ladder up on the basis of new data. And, and I, I think in an era where venture capitalists are going to have ownership come down, right? I mean, I wish we could get 10%. Even 10% is hard, right?

• 28:11Speaker 00

  Now, your way you're going to win is you're going to establish a position and then size up as a company does well. So that you have sized it commensurate to the outlier opportunity.

• 28:21Harry Stebbings?

  Totally get you and get that. And everyone says, but ownership doesn't matter so much because outcome sizes are so much larger than they've ever been. And they are. That is a valid answer. My question is, are they on the whole? Like, do we just have a breadth of companies that will be much larger? Or is it really just a handful of Anthropics and SpaceX? And Curse are on the small one at $60 billion, which is still enormous and amazing. But is that a good enough justification for ownerships going down?

• 28:49Speaker 00

  I think the problem comes down to your portfolio composition, right? If, if you are in one of those outliers, I think you can survive with low ownership. But what happens if you are not in these big outliers? Because what, essentially, you're playing a game to use baseball analogies. You're playing a game where there's only grand slam home runs or strikeouts. There's no singles, doubles or triples, right? And in cricket terms, it's like you're only scoring sixes and not having ones and twos. And the problem with that is that if you don't score the six and you don't have the ones and twos, that's going to be a tough fund. And so part of getting ownership is giving some insurance for you that if you missed out on the outlier, the sort of mid-sized outcomes can still move the needle for you.

• 29:29Harry Stebbings?

  But will you do singles and doubles?

• 29:31Speaker 00

  No, the goal is always to score home runs, right? But sometimes you strike out. And, and so if you strike out all the time, that's going to be a tough fund. So the idea is that you want to at least say, okay, I went for the homerun and I got a triple.

• 29:43Harry Stebbings?

  But I just don't think founders are aware, and I say this, and people always get at me and I, I think they kind of miss the point. Because I say it like lovingly for awareness of founders, that the game has changed. And that, you know, going from one to 4 million, and then four to 8 million, and then eight to 16, and then banking in five years' time, we're going to hit 30. That's an amazing achievement, but it is just not enough to get venture excited today. Do you agree with that?

• 30:10Speaker 00

  Yes, I agree with that. Again, snapshot in time, because you're seeing companies.

• 30:15Harry Stebbings?

  But do you think venture will ever go back to being excited about that?

• 30:17Speaker 00

  Well, they're not excited about it today because they're seeing companies go from one to 10 to 50 to 100. So you're getting to 100 in three years. Or in some cases, they're going from 0 to 1 billion in 18 months, right? So when you see those kind of companies, of course you want to do those. But that's because we are a moment in time where there's certain trends allowing you to do it. I don't think this continues forever. So I think this is where I, I think you have to take the long, long horizon look at this, right? There were companies who grew, they grow fast, but there's a combination of things that make these companies grow fast today that may or may not continue.

• 30:50Harry Stebbings?

  When they grow as fast as they are, the rounds come thick and fast and the prices are high.

• 30:54Speaker 00

  Yeah, I mean, you look at instinct, God bless, I wish we were, they've gone from, I don't know, two hundred and fifty million to ten billion in ten weeks.

• 31:01Harry Stebbings?

  Would you have done that round at ten billion?

• 31:03Speaker 00

  Smart people have done it. We are in town, which we love and we think very highly of and we're excited about that. I think that there's something going on there. There's a true phenomenon. What I don't know is to understand their data and what it costs for them to keep growing their user base. And how does the muse launch affect their growth?

• 31:24Harry Stebbings?

  Can I ask you, everyone kind of goes into a lot of investing now with the idea that there's downside protection. Noah's incredible. It's in a very strategic space with the incumbents. Worst case, one and a half billion, Mick Praff. It's a no brainer for Microsoft to do it as an addendum to Copilot or Apple to do it. Jesus, Apple, please do it. Do us all a favor and save us from Siri. Do you think that downside protection, ah, don't worry, the incumbents will buy it? Is okay to have or quite a dangerous mindset to have?

• 31:53Speaker 00

  I think you can easily rationalize a lot of things if you take that mindset. And the problem is that, again, you threw out this billion and a half number casually because we are in this environment where, you know, AMD is buying a company for eight and a half billion, Nvidia bought Hugging Face for fourteen billion, Stripe bought Open Router allegedly for on eight billion, you know.

• 32:14Harry Stebbings?

  Allegedly, allegedly.

• 32:15Speaker 00

  Allegedly. And I think we have to go and say, these are a point in time where companies are doing it. It may not be that way. And so today it feels like a billion and a half is, oh, no big deal. If I'm right, it's going to be worth hundred, two hundred billion. If I'm wrong, someone is going to pick it up for three, four billion. By the way, that's what you're referring to my tweets. I wrote this thing about if you go back and look at doing the dot com era. Nortel bought Kairos for three and a half billion, Lucen bought Chromatus for four and a half billion. These were companies with no product, no revenue, just teams. And they bought it with their stock. And so it felt very similar. In fact, I believe Jeff Yang from Redpoint, legendary investor,

• 32:55Speaker 00

  had this quote in the Internet Standard, which is a magazine that doesn't exist anymore. He said, you know, there's no, there's no risk in venture capital. If the company is successful, it will be sold for billions. If not, it will be bought for the proof stack. And it didn't quite work out that way on the other end of the cycle after March two thousand. So I go with trepidation, but I just wouldn't take the mindset, oh, some large strategy is going to buy my company for the professional stack. Because they don't care about the investors. They care about the founder. Why would they do that? Why wouldn't they just hire the founders for the same package?

• 33:27Harry Stebbings?

  In a lot of cases, they kind of are in these structured deals, let's be honest, and screwing the ambassadors.

• 33:32Speaker 00

  So you've seen that and you can't take that, that there's no reason for them to take care of the captive.

• 33:37Harry Stebbings?

  Do you think about the dilutive nature of businesses today? And what I mean by that is just like, we are suffering more and more dilution as an investor class than ever before. And it's a better time than ever to be an employee, given the levels of stock-based compensation, SBC for people. Do you worry about that? Think about that? Should I worry about that and think about that?

• 33:55Speaker 00

  For sure. I mean, we look at whatever we invest in at the seed round. And we assume by the time we sell, like I said, the company, if we own ten percent, we would have three and a half to four percent. We expect sixty percent dilution from the point of our first check, right? And that's a combination of dilution from financing, there's a dilution from optional expansions. And so you have to like really think of yourself as whatever ownership you bought in your first check, it'll only be fifty percent by the, at the end.

• 34:24Harry Stebbings?

  The interesting thing is that is very common in a lot of companies we're seeing today. And then the other interesting thing is companies are sometimes scaling so fast, à la Open Router, Alex, a friend of both of ours, where they actually don't take that much dilution because they scale so fast, so quickly and so efficiently. Where actually you suffer almost much less dilution. So it's almost a tale of two dilution worlds. Do you know what I mean?

• 34:46Speaker 00

  Yeah, it's a function of time. So the way to think about it is that, and I don't think we spend enough time in venture capital thinking about that. We should say, what is the time horizon you're going to hold the company? Because the time horizon will determine your dilution. So part of the reason when you are in situations where your dilution is less is they have quick exits. They grew their value fastly, they have quick exits. And that's a double win. When your time horizon is long, there are two hits. Your IRR gets hit and you're going to have meaningful dilution.

• 35:13Harry Stebbings?

  Did you think of that when investing, which is just like, what really is the ramp? There's like businesses like in the ERP space where they're like, ah, but the revenue is such high quality, Harry. I get you. It's not as fast as your Higgs field or your Lagora, but it's so high quality. And I'm like, yeah, fuck, it's slow. Am I wrong to think that?

• 35:34Speaker 00

  No, I think the velocity of the business is very important for venture capitalists, right? And the velocity will determine a bunch of things, right? Because the other reason why your dilution goes down is like if you have a fast uptick in valuation, the amount of ownership you've got to give for your next set of human capital is a lot lower, right? So you are a two hundred million dollar company and you're giving, you know, two percent of the company to hire a senior exec, like that's pretty meaningful. You quickly go to a two billion dollar company, you don't need to give, you're going to give RSUs and you give the same person twenty million dollars, right? Which is point one percent.

• 36:11Harry Stebbings?

  DPI or IRR?

• 36:13Speaker 00

  Both. I mean, you can. I do think actually that you can't have IRR without DPI. I think the question you're trying to ask is, hey, will you settle for a larger DPI over a longer horizon? Or do you want quicker DPI with a faster IRR? I think the reality of venture when I joined, this now dating myself, twenty eight years ago, people didn't focus on IRR. People were like focused on like cash on cash return because IRR took care of itself. I think in today's venture, the game has changed. You have to focus on IRR. You know why? Because there's no way for venture to be successful in today's era without the mag seven participating in everything you're doing. Every venture company is writing a tax to Nvidia in some way, shape or form, writing the tax to a hyperscaler in some way, shape or form,

• 36:57Speaker 00

  and possibly writing a tax to the foundational model in some way, tax or form. So if you're going to be successful, right, you're going to be writing a tax to all of them. All of them are available in the public markets or they will be soon in the public markets for someone to invest in a no fee, no carry index fund. And so you have to think about your IRR as I've got to beat that with thousand basis points to justify anyone giving your capital in the private markets.

• 37:21Harry Stebbings?

  You mentioned town. I had JD on the show, really like him. I've known him since the Plaid days. I'm pissed off about that one because he started the company when he left. And I remember talking to him about it when he started and he was doing something in some terrible space, no offence. He'll agree with me. And then he obviously pivoted.

• 37:37Speaker 00

  Attacked, they were doing something attacked and pivoted.

• 37:39Harry Stebbings?

  Thank you. I'm too old for this shit.

• 37:42Speaker 00

  If you're too old, what am I, I'm a kid?

• 37:44Harry Stebbings?

  You're a spring chicken. And for anyone watching, I'll see that you look much younger than me. But my question to you is, we obviously know what happened with the town round in terms of competitive nature and dynamics there. I don't want to go into that. What I want to go into is actually, does competition matter for VCs to invest against now? It seems like Andreessen has, you know, three companies all doing the same thing and many big platforms do. Does it matter being in many players in the same space anymore?

• 38:09Speaker 00

  I mean, this is a personal preference, right? I think, I think culturally for Matt, Sean and I, you know, we like to be committed to the entrepreneur. And the situation has got to be like, look, if we take a board seat and we write a big check, then we want to be. If it's like, if you're investing the seed round and you have a small check, you're a passive investor, that's a different issue, right? But when we, when we make a commitment to the entrepreneur, we want that to feel like a two-way commitment, right? We expect them to put the interests of their shareholders and commit to it. And we as shareholders need to commit to them. And that's why we didn't invest in OpenAI. We only stayed with Anthropic. There's no shade. Again, venture is changing in a way that multiple people are doing different things.

• 38:51Speaker 00

  I think you just have to figure out what is authentic to us and our values and live by those. And I think for us, when we make a big commitment to the founder, we think of as a two-way street. They commit to us, we commit to them.

• 39:04Harry Stebbings?

  One thing that we see a lot today is the compression and deployment timelines. In other words, people investing much faster. All the LPs that I speak to are just saying, God, Harry, Jesus. Everyone is coming back to market so much quicker, they're bigger. Is that okay or is that a sign of peak bubble?

• 39:19Speaker 00

  Yeah, it's very interesting. LPs want smaller funds and then they want you to not come back quicker. The problem is like one of those can't be true. Like if the opportunity we have is real and there's AI, the biggest economic platform ship of a lifetime, and you want smaller funds, they're going to come back quicker. Now, there are also large funds who are coming back quicker. So that's a different issue. But I think that the time we are in is one in which you're seeing companies grow so fast and they need capital to grow. Like this is not a situation where you can grow without capital. This is not Google. Google, we go back, probably raised less than fifty million in the private markets. You can't do that today in AI. You need compute, you need to scale. So to me, because you're seeing them grow so fast, their capital needs are growing.

• 40:04Speaker 00

  And if a venture firm doesn't provide it, they're going to get it from their competitor.

• 40:08Harry Stebbings?

  So actually, if managers are deploying a fund in eighteen months, LPs should forgive them.

• 40:12Speaker 00

  I think the LPs should ask questions and say, have you thought about it? How are you managing it? What's going to happen if things go? Vintage diversification does matter. People have to be conscious about that. When I look at Menlo's history, the one fund that wasn't successful at Menlo's history, you know, fifty year history, we only had one fund that's not returned capital, which was Menlo eight, which was invested in a ten month period between two thousand and two thousand and one. Yeah, that did not, was not quite the outcome we wanted.

• 40:38Harry Stebbings?

  Menlo eight.

• 40:40Speaker 00

  Menlo eight. But I bring that up because I do think time diversification matters. Now, by the way, Menlo seven was one of the best funds in Menlo history and.

• 40:47Harry Stebbings?

  Yeah, but you remember XL two thousand and five, just pre the Facebook fund? And they had massive LP churn because they went and did like a load of clean tech and bio and it was not good. And then Facebook fund.

• 40:57Speaker 00

  So to me, I just bring that up as like, look, as GPs, you've got to take the fiduciary duty you have to LPs very seriously. And you've got to balance that decision. What I do know is that you can't have, like, it's not, you can't just have dogmatic rules. You have to play the game on the field. And then you had to communicate what you're doing in a transparent way to your LPs and tell them what's happening. And some LPs are gonna be like, okay, I agree with you. I want to play it. Some people are not, and you got to respect that. But the point is that you might have no choice to play the game this way.

• 41:28Harry Stebbings?

  Did you ever scale out of an LP class? And what I mean by that is, you know, the funds now are reasonably sized. They're not egregiously sized. You're not David George asking for the US Treasury, but your $3 billion, it's a lot of money. For some LPs, they're like, a lot. Was there a time when you scaled out of endowment, say, and suddenly you had to be pension fund invested?

• 41:52Speaker 00

  We have historically, our anchor tenant has historically been the Washington State Investment Board, which is a public sector pension fund of the state of Washington, from MSLP, by the way. Highly recommend them to anybody. They've been our anchor tenants since 1981. So we have never had a reason to scale out because public sector pension funds have been a part. It's a little bit of a cultural dynamic. I think the founders of Menlo came from very humble beginnings. They both grew up in a house with no running water or toilets. I think John was orphaned very early. He was a scholarship student at MIT. And so they loved the idea of working for public sector employees because that felt like working for their parents and less, these people look more like their parents than their children.

• 42:33Harry Stebbings?

  Love that. So there wasn't a fund where LPs went, oh, Venky, you're getting pretty big now. I think you're just scaling out of our sweet spot.

• 42:42Speaker 00

  No, that wasn't the case, but we had, we raised the first billion dollar fund in venture capital. Menlo raised, Menlo nine, which was raised in 2001, was a $1.5 billion fund. And Menlo 10, which was raised in 2004, was a $1.2 billion fund. Those funds did not perform as well as we would have liked. And many LPs did leave us.

• 43:03Harry Stebbings?

  You manage a lot of the LP conversations today, correct?

• 43:07Speaker 00

  I do. Matt and I do a lot of them, yes.

• 43:09Harry Stebbings?

  What do you hear from them? As I said, I hear deployment time is down in terms of how people investing much faster, and the funds are just getting bigger. And then I also just see mimicry, which is like, I'm calling this out because it's a compliment to her. And I never shit down on people, other than LPs.

• 43:29Harry Stebbings?

  Every LP just wants Sarah Guo's fund. And I completely agree, Sarah Guo is incredible, and you should want her fund great. But like, just this complete herd mentality.

• 43:37Speaker 00

  And Sarah and Mike are amazing.

• 43:39Harry Stebbings?

  Amazing.

• 43:39Speaker 00

  No question about that. You know, I spend a lot of time with them, with LPs. And I think first of all, a lot of them have two complaints. One, they're like, enough TV over PI, I need to get some DPI. So I think if you deliver DPI, I think you're already in the, in the right side of the table. And I think it's easier to come back to them to ask for more capital when you deliver DPI, right? So that's one. Second, I don't think people can afford not to be in the AI economy. And I'll tell you why. Most of them have much bigger private equity portfolios than they have venture portfolios. Like, in many cases, three to four X exposure to private equity. A lot of private equity over the last few years have been software, and those positions are directly impacted

• 44:23Speaker 00

  by AI. If you want to hedge into your private equity portfolio, you got to be in the AI economy. And so that's the, that's the piece that forces them to come back. So if you are someone who has given people DPI, and you can credibly make the case that you are going to be a player in the AI economy, I think you can raise money from LPs.

• 44:43Harry Stebbings?

  You got to have given DPI. We see companies scale faster than ever. As we said, we see prices that are very high. How do you think about the internal conversation of, whoa, X company is now valued at $10 billion. Can we take some chips off the table? What does that discussion look like? And any lessons on how to sell successfully?

• 45:02Speaker 00

  I think you have to step back and look at any situation in which you have a 30, 40, 50 X return on your dollar and ask yourself, should I take some off the table? And I think the right time to do that is when the entrepreneur is thinking about taking some right off the table. And I think if you were to work in conjunction with them.

• 45:24Harry Stebbings?

  What if it's not material? I'm, you fuck this, I'm using this as a consulting lesson. You can invoice me later. I have a company where we are like 40 X up.

• 45:32Speaker 00

  Yeah.

• 45:32Harry Stebbings?

  And wow, fantastic. You've got 100K in there. Return $4 million back to $100 million fund that it's in.

• 45:39Speaker 00

  I don't think it's a, it's a size issue. It's just, to me, like, look, lock in the gains. If you go back to the SaaS portfolio in 2021, there were valuations done at, let's say, pretty high prices. If people had taken 10, 15% off the table, even if it's small, it locks in, allows you to go long. The other thing I, I tell entrepreneurs is that, just like, when you take some chips off the table, you're more likely to go long. So are we, right? Because we, we, we can now afford to go long with you. And so it aligns. And so to me.

• 46:08Harry Stebbings?

  Will you ever settle all of your position?

• 46:10Speaker 00

  Generally, no. Not unless the company's being sold. Not interested. I think that's a different situation. I mean, the only time, I think, it's like, if you do not have a relationship with the founder, and you, like, that's, that's different. But if you, as long as you are in your, in, you're gonna ride, we ride and die with our founders.

• 46:26Harry Stebbings?

  Jason Lemkin says on the show, you know, whenever a founder leaves, like, I ride it to zero. When a founder's gone, it's zero, zero, zero. Do you find it to be the same when the founder leaves? You're like, we're supportive, of course, and we're still here, but like mentally, you're like, not to zero?

• 46:42Speaker 00

  I mean, my friend and your friend, Nikesh Aurora, would disagree with you and say, he goes on founder mode. I mean, look, there are people like Nikesh, G2 Patel at Cisco, they go on founder mode as, as an exec. It's sort of an insult to people like that when you say, oh, the founder leaves. Like, look at the situation. Who, who replaced them? Founder mode is a mode of working. It's not, it's not tied to anyone personally. I think anyone can be a founder in terms of the founder, working in a founder mode. And I think some people do. And I mean, Frank Slutman, Frank joined Data Domain, No Flake, ServiceNow. In each of those places, he acted like a founder. He didn't act like an exec.

• 47:19Harry Stebbings?

  By the way, Nikesh, please don't kill me. I love you more than ever. And I've always loved you. And it was Venky that said it. It wasn't me that said it. Don't, I'll give you Venky's address later.

• 47:30Harry Stebbings?

  I'm gonna get a brick through my window. I'm terrified of Nikesh. Are you kidding me?

• 47:37Harry Stebbings?

  So yes, that's very funny. Can I ask you then, we see so many sales now. It's like, you know, Fefiadi sells for 8.2 billion. It's like, it's amazing. A phenomenal exit. Well done to everyone involved. Yesterday's news. I mean, OpenRudder is so yesterday's news. We've all forgotten about it. And I don't mean this glibly or any, I know that sounds so child of this ecosystem, which I'm not sadly. Are we just gonna see a load more exits now?

• 48:03Speaker 00

  Yeah, I think you're going to see, because I think there's competitive pressure. There is also this notion that we have a regulatory regime that will let you do M and As, right? There's been a backlog of M and As that been have, that was supposed to happen. Didn't happen because we had a different regulatory regime. There's this notion that this is, may not continue forever. So one, you have a window of time. You also have competitive pressure. When AMD buys a real world model, does Nvidia need to do something? Do other people need to react? And so I think every acquisition forces a bunch of competitive dynamics we have to consider. And then people have equity prices, right? AMD is now a trillion dollar company. Eight and a half billion dollars to, I think, less than 0.1% of the

• 48:45Speaker 00

  company, right? So you can do stuff because of this combination of things. And then the notion that, you know, anything that lets you catch up in the AI wave is very high. Like, did Meta do a good job paying up for scale? I think they would say, yeah. If you look at the market cap add of Muse to Meta, maybe that 15 billion seems cheap now.

• 49:04Harry Stebbings?

  I'm also like so happy for Zuck. It feels like he's kind of almost got like a co-founder in Alex Wang, who he can delegate some of the shit to. Do you know what I mean?

• 49:13Speaker 00

  I mean, Zuck is a great capital allocator. Go back and look at the history of his capital allocation has been phenomenal.

• 49:18Harry Stebbings?

  Best, best of CEOs.

• 49:20Speaker 00

  He bought Instagram for a billion dollars. He has executed.

• 49:24Harry Stebbings?

  He bought a Novo for 400 million, which allowed him to see everything that worked. So smart.

• 49:29Speaker 00

  Like, I think they're incredible technologists, but I think there are very few people, I think, who are incredible technologists and good capital allocators. Zuck is right up there.

• 49:37Harry Stebbings?

  If you could choose one skill for a founder at scale between capital allocation or product visionary, what would you choose?

• 49:44Speaker 00

  I'd choose capital allocation. Because by the way, capital allocation by itself also captures product visionary, because you, you're allocating the capital to the things that matter. So in some ways, you know, part of the dynamics of deciding on capital allocation is which product direction you need to go. The other way is not true. There are some people who can be great product visionaries, but who might not think about what is going to be the return on that.

• 50:03Harry Stebbings?

  Avast Snap. Love the dude. I mean, like, free candy every year. SPC through the roof.

• 50:09Speaker 00

  You a shareholder of Snap? We are not a shareholder of Snap, but look, look, Avast is a product genius. There's no question about that.

• 50:14Harry Stebbings?

  Genius.

• 50:15Speaker 00

  Right? And his vision for Snapchat and what it executed. I think it'd be fair to say, you have not been rewarded being a shareholder of Snap, at least for the last seven, eight years.

• 50:24Harry Stebbings?

  Not been rewarded?

• 50:25Speaker 00

  I was trying to be polite here.

• 50:27Harry Stebbings?

  That's like giving Titanic an eight out of 10 in the holiday review book.

• 50:33Speaker 00

  I think rewarded.

• 50:34Harry Stebbings?

  Not been rewarded. I blow hard.

• 50:38Harry Stebbings?

  Yeah, no, that's a good way to put it. Okay, that's really interesting. Are you worried by how much money is being made by people? Like, I'm seeing sales reps at OpenAI walk out with thirty, forty million bucks.

• 50:50Speaker 00

  You know, here's the thing. I always believe this. Money doesn't change people. It reveals them. So what do I mean by that? Is money and power, people think, changes people? No, it only reveals them. What it means, like, if you're an asshole before, when you have money and power, you reveal that. What I have found is that the people who are really motivated, they're going to be motivated, even if they have lots of money. And the people who are not motivated, who are acting it, when the money shows up, they will opt out. And so, to me, it won't change for the A players. Because for the A players, money is just a way of keeping score, but what they love is the game.

• 51:23Harry Stebbings?

  So you're not worried about house prices in the Bay and the inflation that we're going to see with IPOs from SpaceX, Anthropic, OpenAI? That worries you?

• 51:33Speaker 00

  Of course it does. I mean, it changes the character of the place. But the real issue we have, and this is an issue in California, hopefully not in London, is a question of supply. It's not a question of demand. Like, at the end of the day, we have tremendously increased the cost of, and the process of building a house, there's no supply coming in. So any uptick in demand results in prices going up. The way to address that is not to worry about the demand, but to increase the supply of housing stock. And we just do not have the collective willpower and this. For a progressive state, there's more nimbyism in California than I expected. And the nimbyism prevents you from building more housing stock.

• 52:11Harry Stebbings?

  I saw a tweet where you said something. You responded to Brian Armstrong. I did my work.

• 52:18Speaker 00

  Okay, all right, that's dangerous.

• 52:19Harry Stebbings?

  Yeah, it is dangerous, but I'm joining you on this side if this is where you're going. And you said, I appreciate your leadership through the woke times.

• 52:28Speaker 00

  I mean, I think what I particularly appreciated about Brian is that he laid out his principles of what he believed, and he told people, hey, if you really want to engage in political activism, then Coinbase is not the place for you, because we do not want to have political dialogue here. And if that's important for you, you should go and find a place in which you can do it. I think that takes courage to say, and I think, but it's being true to what he wanted to do. And to me, I think that's most, that's the most important, is try to be authentic to who you are. And I think I appreciated him being authentic, but I think it came at a cost, right? There were definitely, he was castigated in the press and maybe on Twitter. And yet people leave. But I think he ultimately said, we want people who are authentic to Coinbase values articulated by me, the founder.

• 53:12Harry Stebbings?

  Have you ever been inauthentic to who you are?

• 53:14Speaker 00

  I think there are times when, you know, you say certain things to founders because you want them to like you, or you want to win a deal that may not be truly authentic. What I'll tell you is that I have dealt with my own insecurities and feeling like an imposter. And I've gotten more comfortable in my skin now, where I just feel like I just don't do it. And if it, if it means I have to say something inauthentic to me to win the deal, I'd rather not win it. But that's easy to say, because I'm sort of at the point in my life, I like, you know, that win doesn't matter. Of course, I like to win, but it's not going to change my life. So I always say, it's very different when you're a twenty-five-year-old and you're trying to build your career. You do whatever it takes to win.

• 53:58Speaker 00

  And so, in some way, morality is sort of a privilege of the people who already succeeded. It's easy to be moral now, when you already have the things you have. The question is, will I be a moral person if I were to go back twenty years ago and start there? That's the real test. And I don't think I'd live to that test as much as I would like.

• 54:16Harry Stebbings?

  Are you a better investor now you're richer?

• 54:19Speaker 00

  Yes. You're not afraid as much. You're not afraid of failure. You're willing to go all in and go to the hilt. And so, I just think you can go for broke more easily. It's sort of like, think about it on a poker table. The guy with the big amount of chips has so much leverage to win, right? They can see more cards and there's. And so ironically, this is why I think, you know, like, the way our capitalism system is set up, the rich are going to get richer, because they just have more opportunities to be the bully of the poker table.

• 54:48Harry Stebbings?

  Does that mean emerging managers are just in the old stacked against them game? I don't see, and forgive me for this, but I don't like binaries, but fuck it, we're media, so you kind of have to do binaries. It depends, doesn't sell. Thirty to hundred million dollar funds are just the worst place to be.

• 55:03Speaker 00

  Yes, they are today. That's a tough place to be, because you're playing in a poker table where people have such high chip stacks.

• 55:09Harry Stebbings?

  I think they were five years ago, dude.

• 55:11Speaker 00

  I think what happens is, if you are lucky enough, right? And I don't know if this is true, but I'm sure if you were to go and look at the cap table, there was some small investor who wrote a check. Oh, Andrei wrote a check into Anthropic. Now, maybe he didn't have a fund then, but like, you wrote a check, you were a thirty to fifty million dollar check, you wrote a check into the Anthropic round, not the four billion dollar round we did, but like, much earlier. You're doing fine.

• 55:32Harry Stebbings?

  Yeah, but he was an angel not competing for rounds. And so, what I'm saying is the thirty to hundred million dollar funds, where they need to move like a million, two million, three million, it's kind of a pain to fit them into rounds. No, I'm actually putting in a hundred K or two hundred K a show.

• 55:45Speaker 00

  I would, yes, I'm just, your principle is right, but I'm just trying to think about counting. I try to be intellectually honest, right? Think about conviction. How did Sarah and, how big was Sarah's fund? I want to say two hundred. Two hundred million dollar fund, and she found a way to be in some of the most interesting companies out there. Can be done.

• 56:02Harry Stebbings?

  And then you've got Dave Tish, I think would be a really good example, actually, as well, with Box Group.

• 56:06Speaker 00

  Yeah.

• 56:07Harry Stebbings?

  Like, it goes against the portfolio construction that all LPs love, which is high ownership, concentrated portfolio.

• 56:13Speaker 00

  I think there's always people who figure out how to play a GNC odd, right? And so, but they are the best of the best, and so you don't want to extrapolate. But in general, those are tough places to be unless you're exceptional. And I think, like, I was reading a tweet between Sarah and Patrick Grady, and Patrick Grady, like, she was like, Sarah was telling LPs, like, my strategies are just going to work harder. That's probably the truth, right? The truth is, everybody wants to have some magic strategy that you're going to do, that nobody else is going to do. There's no magic strategy. Everybody in the venture industry is smart. You have to out hustle and have grit to make through, and Sarah definitely has to.

• 56:46Harry Stebbings?

  Final one before we do a quickfire. We mentioned PE being challenged in a lot of ways by a lot of AI companies. We're seeing the keys being handed back at companies like Medallia. You're seeing plenty, a lot of struggling companies in a lot of these PE providers' books. Is PE pretty structurally fucked?

• 57:05Speaker 00

  Look, they're smart guys, and they know how to figure out and operate these companies, right? They also have majority control. In some ways, the venture-backed companies, that SaaS companies, where the people paid high multiples, they add tables and mirrors, and they got spooned, as I say. And I think those are in a tougher situation. Don't get me wrong, I think PE is a challenge too. But the reason why I say the venture-backed companies are even tougher, is at least at PE, you have a majority owner who controls the company, who can do things. You have a lot of zombie SaaS companies where nobody owns enough to be able to do anything, nobody cares. And so, how do you actually land that ship? At least at PE, they can do some stuff to it.

• 57:48Speaker 00

  Now, landing that ship is going to be hard for everybody, but I think in that class of two thousand twenty-one SaaS companies, the best outcome is getting spooned, which really means getting your capital back. And the worst outcome is going to be zero.

• 58:00Harry Stebbings?

  Good old bending spoons, European, just going to put it out there. So the quickfire is a combination of mine and Joff.

• 58:07Speaker 00

  Okay.

• 58:08Harry Stebbings?

  On your team.

• 58:08Speaker 00

  Joff.

• 58:09Harry Stebbings?

  Yeah, yeah, he came back with some buyers.

• 58:11Speaker 00

  My partner's a.

• 58:12Harry Stebbings?

  Why do you love pocket squares?

• 58:14Speaker 00

  When I was growing up, I didn't care about how I dressed, and I did not take any effort into it. Until I had this one conversation with my dad, when he said, listen, when you dress, you're not dressing for yourself, you're dressing for others. You're showing them that this is an important meeting, that you're expressing the importance of what you're doing to them. And so, to me, and my partners make fun of this, I dress up for partner meetings, because it's like, it's a self-message to me about the people I'm meeting are very important, and what I'm going to do is important. I need to take that very seriously.

• 58:46Harry Stebbings?

  Well, now I feel guilty. Oh, Christ, wait a minute, Joff teed me up for that one, didn't he? Gosh, I like that, it's really nice. Yeah, yeah, fuck, good, well done, I should probably think about that more. You can invest in one seed fund and one growth fund. It's not Menlo. Which fund do you invest in?

• 59:05Speaker 00

  I have tremendous respect for the Bessemer folks. I was a co-founder with Byron, and I've known David Kahn, and I think they are super disciplined. So if I could invest outside of Menlo, I'd invest in Bessemer.

• 59:17Harry Stebbings?

  That's for the growth fund. What about the seed fund?

• 59:20Speaker 00

  You know, so I'm looking for people who are going to be in interesting AI companies. There's this group of guys called E14 out of MIT, and I find them to be in interesting AI companies, and they seem to really understand the MIT ecosystem, so.

• 59:37Harry Stebbings?

  Who, when you hear you're competing against them, are you like, oh, fuck?

• 59:43Speaker 00

  I think of more people than firms, but I would say benchmark, super hard to beat.

• 59:48Harry Stebbings?

  A benchmark harder to beat than Sequoia?

• 59:51Speaker 00

  I think so. I mean, I, I, I, obviously they're both great firms, but like benchmark, I think is super hard to beat. And whatever they do, combination of Eric, Chayton and Everett and Jack, they are just, they're just a beast.

• 1:00:05Harry Stebbings?

  What would be your single biggest piece of advice to an LP allocating into venture in this time?

• 1:00:11Speaker 00

  Look at the windshield, not the rearview mirror. The results and financial performance are rearview mirror calculations, and they're good about telling you what they did in the past. They don't tell you how some of firms are going to do. Performance is a lagging indicator, and it's actually a five to seven year lagging indicator. So my advice would be call a bunch of entrepreneurs or successful AI companies and ask them, who are the partners they respect? And my aim is they didn't take the money. And if the firm you're talking to doesn't have a few of those partners in the mix, then that's your, that's your windshield.

• 1:00:48Harry Stebbings?

  How do you stop your team getting arrogant? You guys have got the winning hand.

• 1:00:51Speaker 00

  You're only as good as your last investment. It doesn't matter if you're the lion or the antelope in the savannah. You wake up in the morning, if you're the lion, if you don't run, you don't eat. If you're the antelope, you don't run, you don't live. You just have to run. I feel like you have to think about the most important meeting is the next one. The most important investment is the next one. The most important board meeting is the next one. And if you don't spend time in the present thinking about it, I think you lose this game.

• 1:01:18Harry Stebbings?

  What's the secret to marriage when you scale wealth over time together?

• 1:01:23Speaker 00

  Oh, wow. Well, you got to marry someone better than you, which I did. Thank you. Thank you. That's, thank. And you got to convince her to stay with you or whatever your preference might be. Finding a life partner who inspires you to be the best version of yourself and supports you to be that is, I think, critical. And if you can do that for each other, I think that'll, because I, I think at the core of a long-term marriage, I think, real respect. It's love and real respect, but I think respect is super important. And, and, and that comes from inspiring each other to be the best version of you can be.

• 1:01:56Harry Stebbings?

  What's the best advice you've ever been given? You mentioned Mr. Steve Sloan and his father-in-law. His father-in-law is one of my closest friends, and he once said to me, you're never wrong to do the right thing, but the right thing is very often the hard thing.

• 1:02:10Speaker 00

  Yeah. I think the best advice I've gotten have really centered around being, around people. Like, like, I think, I think that Ronald Reagan has a quote that Tom Riley, who was a CEO of Trico, told me wanted to do that. There's no limit to what a person can do, as long as they don't care who gets the credit. I have felt when I was early in my career, I was very focused on getting credit. I really, like, am I going to get credit? And then I have let go of that and focused on just doing what's right and not worrying about if I'm going to get credit. That's actually been pretty freeing. And I think that's made me a better teammate.

• 1:02:49Harry Stebbings?

  I love that. I didn't think there's a better way to end than on that. Your humility is astonishing. It's, it's really just like, one, you're very calming. I almost feel like you should be like on Headspace or Calm, one. And two, it's just a wonderful humility that I rarely see.

• 1:03:04Speaker 00

  Venture investor.

• 1:03:06Harry Stebbings?

  But thank you so much for doing this.

• 1:03:08Speaker 00

  You have too many successful people on your show. I tried to lower the bar for you.

• 1:03:11Harry Stebbings?

  I've so enjoyed this. Thank you for doing it. And you see shows like this, why it's so much better in person. You can't have this virtue. So thank you for doing it.

• 1:03:19Speaker 00

  Thank you, Harry. And thank you for, and look, I have to say, my colleague Claire was coming with me and she said, I watch Harry all the time. He has become my favorite show, especially the one you do with Rory and Jason. And this is, and she said, oh, this is Trump, the all-in podcast as my number one show. So I have to say, you're getting fans all over the place.

• 1:03:40Harry Stebbings?

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