20VC Special: Accel Founders Arthur Patterson and Jim Swartz on Building Accel Into One of the Most Prominent Venture Firms Over Four Decades, How Today's Market Compares To The Dot Com Bubble, How To Do Generational Transition Well and Why Accel Will Nev

Arthur Patterson and Jim Swartz founded Accel in 1983. Under their leadership, they have built Accel into one of the most prominent venture firms of the last 4 decades. Starting with Arthur, as the lead investor, Arthur has helped management teams develop companies into market-defining leaders over an incredible four decades. Prior to co-founding Accel, Arthur was a General Partner of Adler & Company with his career in venture starting at Citicorp Venture Capital. As for Jim, Jim has been the lead director of more than 50 successful companies. He was instrumental as a founder/mentor of Accel London and in the founding of Meritech Capital. Before Accel, Jim was the founding general partner of Adler & Company, which he started with Fred Adler in 1978 after his tenure as a vice president of Citicorp Venture Capital. In Today’s Episode with Arthur Patterson and Jim Swartz You Will Learn: 1.) How Arthur and Jim made their first entry into the world of venture capital in the 70's? What was the founding moment for them with Accel? Where did the first discussion happen? Did they align on strategy? Why did they decide to name the firm Accel? 2.) What did the venture ecosystem look like when Arthur and Jim founded Accel in 1983? Why does Arthur believe the specialist always beats the generalist? What was the hardest Accel fund to raise? Why was it the hardest to raise? When did the Accel brand hit an inflection point and fundraising became easier? Where do Arthur and Jim disagree on this? 3.) How do Jim and Arthur feel about the current frothiness of the venture market? Why does Jim believe we are entering a market correction? How do they feel about the inflation of asset value? Through what lens is now the same vs different to 1999/2000? What have been their biggest lessons from experiencing 5 macro booms and busts? 4.) How did Jim and Arthur think about when to expand with a new Accel product? What did Accel do specifically to make the expansion to London and India so successful? What is the key to doing generational transition well? Where do many go wrong here? Do Jim and Arthur agree with Doug Leone, "when you lose seed, you become private equity"? 5.) How do Jim and Arthur think about partner selection within the firm? How have they structured decision-making to ensure politics do not get introduced? How does one create a decision-making framework of accountability without fear to take big risks? What do Arthur and Jim mean when they speak of "the prepared mind"? How does it help them think and operate better?

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

• 0:00Harry Stebbings?

  This is 20 VC with me, Harry Stebbings, and I'm truly honoured to be able to bring you today's episode welcoming two individuals who do not often do interviews, but have had such an impact on the venture ecosystem that we have today. And so with that, I'm so excited to welcome Arthur Patterson and Jim Schwartz. Arthur and Jim founded Excel Partners in 1983. Under their leadership, they've built Excel into one of the most prominent venture firms of the last four decades. Starting with Arthur, as the lead investor, Arthur's helped management teams develop companies into market-defining leaders over an incredible four decades. Prior to co-founding Excel, Arthur was a general partner of Adler and Company with his career in venture, starting at City Corp Venture Capital. And as for Jim, Jim has been a lead director of more than 50 successful companies.

• 0:41Harry Stebbings?

  He was instrumental as a founder and mentor of Excel London and in the founding of Meritech Capital. Before Excel, Jim was the founding general partner of Adler and Company, which he started with Fred Adler in 1978, after his tenure as a vice president of City Corp Venture Capital. I do also want to say a huge thank you to the entire Excel team for making this happen and providing some fantastic questions. As I said, for me, this was a huge honour to make happen. But before we dive into the show stage, you employ or pay workers in other countries. Yes, well, you need Remote. Remote makes it easy for companies of all sizes to employ global teams. They take care of international payroll, benefits, taxes and local compliance. Remote helps you onboard full-time employees or contractors in countries all over the world in minutes on its simple, easy-to-use platform.

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• 2:54Harry Stebbings?

  But that's enough from me. So now I'm so excited to hand over to Arthur Patterson and Jim Schwartz.

• 3:04Speaker 01

  You have now arrived at your destination.

• 3:07Harry Stebbings?

  Arthur and Jim, I want to start by saying I know that you don't do many of these. So I'm so touched that you took the time out of state to join me and thank you so much for joining me today. I do want to start though with a little bit of context. So you're both in venture pre Excel. Let's start with you, Arthur. How did you make your foray into venture and what was that start for you?

• 3:26Speaker 02

  I think what you were interested in is sort of how did we get to Excel? You know, Excel, the adventure market had expanded for about eight years from 75 from almost non-existence in 74. A can and computer was about the only thing. And about 78, all the firms that you knew of and had raised money were really formed in about 78. And those were the name, brand names and even KP that had been started earlier, they had a tiny amount of money. And so 78, so there'd been about a, we formed Adler and Company in 78. And so there'd been about a five year run by 83, which was great for everybody and a real nice change from the prior period. But the portfolios of all the firms, because the business was so small, were very diverse.

• 4:10Speaker 02

  And the individual partners within the firms had very diverse board roles and relationships. So everybody had a semiconductor company and a software company and a healthcare company and the. Portfolios and the individuals were very spread and that really set it up for Excel. Today, the business is two orders of magnitude what it was in those days. It's just, everybody knew everybody in those days and today it's two orders of magnitude. But the business increased a lot from seventy eight to eighty three. I think our fund went from fifteen to seventy million during that period of time.

• 4:43Speaker 03

  Can we go back to the first conversation that you guys had about starting Excel? What did that look like? How did the discussion go? Can you take me back to it?

• 4:52Speaker 02

  Sure. Well, every entrepreneur has, he both has necessity and he has opportunity. And we had a necessity because our prior partner didn't want to build a major firm. And we needed a job and we've been doing this for ten years and we didn't know what else to do. And there was the opportunity because of the very favorable prior environment. And we'd done about sixty startups and we had a good record and we had institutional investors that were money supporters. So it didn't take many brains at that point to know what to do. Exactly how we were going to do it might have taken a little, but.

• 5:25Speaker 03

  Can I ask, did you completely align on strategy when you were in those early days? Jim, if you go back to that first conversation, did you completely align on strategy? And where did the name come from too?

• 5:35Speaker 04

  Yeah, Arthur and I knew each other briefly at school, came together at Citicorp in the early seventies. And that era was also, you know, it was a very formative period for us. We did a number of really interesting projects. And it was a time when you could take six months learning a business or whatever before you had to pull the trigger. So it was a very analytical, thought-driven process. And then when we joined Fred in seventy eight, it became much more. Fred was a, you know, a hip shooter, very entrepreneurial. It was a really, really interesting blend of talents and ways of approaching the business. We became more entrepreneurial. I'm not sure he ever got more disciplined, but voted him two to one, so it worked that way. So strategies, the diversity of portfolios that an individual partner would have.

• 6:19Speaker 04

  And I, for whatever reason, during that period in the Adler days, focused on the communications industry. It was emerging. Fortunately, I made an investment in nineteen seventy five. Which was a combined cable modem, satellite modem. It was an incredible groundwork. I ended up running the CEO died. I ran it for a while. So I became pretty steeped in communications early on. Similarly, Arthur had similar experiences in the software industry and became one of the early prominent software investors. So when we started Excel, it was pretty clear to us. We wanted to focus. It was a time to focus. You could start to see the benefits of it. And so he with a communications background, he with a software background. It was a very complimentary and critical focusing strategy.

• 7:04Speaker 04

  And you go back in that era, those two sectors were maybe 10 to 15% of the total investing that was going on at the time. So in some respects, a very risky strategy because we were dealing only with a very narrow segment of the activity level. But as it turned out, it was the two most important sectors for the next several decades. The Excel name, both Arthur and I spent our lives at the tail end of the alphabet. We wanted something at the front end of the alphabet. Going through a dictionary, you came across, it's actually a music term. It's short for accelerando if you're into music. It just seemed like a natural and it was all strange at the beginning. It was a mouthful, but it stuck and it's worked.

• 7:43Speaker 03

  Can I ask, how big was the first fund? And what did the first fundraise look like, Arthur? How was that? I'd love to hear. How was that first fundraise with Excel?

• 7:52Speaker 02

  First fundraise is always your most difficult. But we fortunately had the loyalty of some of the guys that had been in the Adler funds from the larger institutions. And we had some other friends, particularly some international friends in Fleming and others. It helped us put together our international fund at the same time we put together the domestic. As I say, that was a period of time where the onus of proof had shifted. It wasn't today, but you could raise money as an early fund. If we'd waited another six months, I don't think we could have.

• 8:21Speaker 04

  Yeah, I disagree a little bit. I mean, I think it was the easiest fund we ever raised. We raised it in ninety days or so. And as Arthur points out, it was a particularly ebullient era, you know, a relatively big bull market in eighty-three. We were at the tail end of that, and nobody knew it was over yet. You never know for sure. So between September and December of eighty-three, we were able to raise most of the money. And I think, just one thing I'd add, you know, it's important, we realized from day one that we wanted an international presence. And so we actually spent a large time traveling through Europe in that era, which was not most venture guys weren't doing. You know, we ended up, actually, the first fund was two funds, was a domestic fund and an international

• 9:04Speaker 04

  fund, about equal size, totaling seventy million. But in the process, we engaged with and built a substantial institutional presence in England and on the continent in that period. And many of those investors are still with us. So they've been important hallworks to the firm.

• 9:21Speaker 03

  Jim, can I ask, you know, Arthur said the first is always the most challenging fundraiser. That's traditionally the notion in venture. What would you say was the most challenging?

• 9:28Speaker 04

  Oh, it's very clear. It was the third fund, which we raised in nineteen eighty-nine, because, I mean, I could write a book on the tactics to get that damn thing done. It took us a year, maybe a little more. It was, you know, we'd been investing at that point from eighty-three. That was an era where there were no IPOs. IPO market just started to open up toward the end of that period. We had lots of good stories, but we didn't have a lot of proven demonstrated results. So we were in our third fund, still no major wins on the board. And so it was challenging.

• 10:00Speaker 03

  What did you do to get it over the line? I'm too intrigued.

• 10:02Speaker 02

  Well, let me give you an example. One of the major fund of funds, who was in there in the prior funds, they had us fill out a matrix, which across the top were about ten different ways we could add value to a company. And then down the horizontal column was where all the companies, and you had to fill in something like... Three hundred boxes. That was his due diligence. In the end, actually, we were a little bit short and we were going to write checks ourselves to bring it over a hundred.

• 10:32Speaker 04

  Yeah, exactly. Yeah, so we raised a hundred million. It came together finally and it was a great fun. And then those people continued in the XL4, which was a fantastic fun.

• 10:42Speaker 02

  Harry, I'm going to go back to the founding question, which is we didn't have a huge network. We didn't have as good networks as some of the firms had been started in seventy eight in Silicon Valley. And that, you know, you just waited for the deals to come in. So because everybody was so spread and the brokers were spread, they didn't concentrate by area. We decided, you know, if you're a market share leader, you'll do better. And to distinguish ourselves from the other, we could specialize. The others really couldn't because of the, you know, the way their companies were spread out. So it set up the opportunity to specialize. And that in turn led to us thinking more seriously about the segments. You know, gradually moved into, you know, the idea of a prepared mind.

• 11:23Speaker 02

  Because when you're following, you know, seven industries or one, and all the partners are in different seven industries, you can't take the time to think things through. So the specialization, which is pretty obvious, and only became possible when the market had had that five years run. And there were enough companies. In seventy eight, you couldn't specialize. They just weren't, the supply wasn't there. By eighty three, the supply was there. And you know, the specialist always wins over the generalist. But the question is, do you have a market where that's possible? And it was possible. And that really was the, you know, founding investment culture of the firm.

• 11:58Speaker 03

  You know, you mentioned that the third fundraise being a year and it being the most challenging. When did you see things very clearly in flight? When did the Excel brand really hit with LPs and bluntly fundraising was much, much easier? What do you think it was that changed in LPs minds and in the brand of Excel?

• 12:15Speaker 04

  Yeah, I think it was several things. I mean, the period when it got easier was in the mid nineties and there on thereafter. You know, we had some wrinkles in the post two thousand era. We bounced back from that pretty quickly. But, you know, it got easier. And that was a function of us being known as a firm. I mean, XL, when we started, it was Jim and Arthur, Arthur and Jim, you know, it wasn't XL. It became XL in somewhere in the, in the nineties. And we became really dominantly known for communications and software investing. We became a brand name in that context, not as a venture firm, but in that context in those industries. And we spent enormous amount of intellectual energy building that brand within those industries.

• 12:58Speaker 04

  Trade shows in those days and marketing pitches and panels and such and such and such. We just kept beating that drum and it eventually started. I think the other factor is it became easier in that era too, because the whole business became easy. You know, the IPO market started, opened up broadly, money was flowing, times are good. I mean, the nineties were a period of great prosperity in the country. Called an economic boom, but it was certainly an economic surge, which ended up peaking in two thousand, two thousand one.

• 13:27Speaker 02

  And Jim had made a really strategic move in about eighty three, eighty five, where we raised a XL two was actually a focus telecom fund of a smaller size, I think it was about forty million. I think KP even invested in it.

• 13:41Speaker 04

  KP invested.

• 13:42Speaker 02

  So that did a lot for, you know, the focus of the firm.

• 13:45Speaker 04

  Yeah, exactly. And it was, we had this communications thing going and we're just looking for how do we really cement this in concrete and blast ourselves ahead of everybody. And so we just came up with the idea of a dedicated fund, brought in some dedicated professionals in that area. Really, really went to town on it. And I think it's indicative, you know, our number one competitor that we always looked up to was KP in that era. And the fact that they wanted to invest in our fund, I think was great validation.

• 14:13Speaker 03

  No, absolutely. That's a very special moment.

• 14:15Speaker 04

  Yeah.

• 14:16Speaker 03

  I do want to talk about kind of the cycles. You mentioned we're going to go to kind of ninety nine and two thousand, but you know, I spoke to a lot of people before the show. And it was actually Doug Leone at Sequoia who said, I'd love to hear Arthur on seventeen year cycle thesis, how he thinks about the seventeen year cycle that you've discussed before and what you think that means to you today.

• 14:36Speaker 02

  Well, the venture business did have a cycle, had a fairly predictable cycle from the late sixties. And it was sort of eight years up, six years down. But this cycle has clearly had, what, fourteen years up? And I think the reason for the change was. That the prior cycle was driven primarily by the secular forces of semiconductor costs, which were going down at thirty percent per year, which meant that every six years, your raw material was basically free and that enabled a whole new range of businesses. This time we have, you know, at least a half dozen separate technologies and changes driving all these opportunities. So the dependence on the semiconductors in the cycle has gone away and you've got to look at the underlying causes of these things.

• 15:20Speaker 04

  I would add a macro point here, which is we've been in an era of free money here for quite a while. When did the Fed start its expansion program? Some ten, twelve, somewhere in there. So we've been in...

• 15:32Speaker 02

  Oh, exactly.

• 15:32Speaker 04

  Yeah, well, they started, yeah, with some specific stuff, but the whole quantitative easing stuff and, you know, modern monetary theory, which is crap. So we've been going on with it in a zero or negative interest rate environment for, you know, a decade. Money's just being thrown against the wall. So there's been no countervailing force to trigger the cycle. I personally think we're at the beginning of one right now, but we'll see.

• 15:56Speaker 03

  What do you mean we're at the beginning of one right now? That we're going to see interest rates change and the environment?

• 16:01Speaker 04

  Well, when people start having to pay interest on debt again, including our US government, I don't think that's going to enable a further boom.

• 16:09Speaker 02

  But I, I think there's been a big difference between the, you know, the quote bubble in 2000. Today, this is an incredibly broad phenomenon affecting all asset classes. And whether it's art or houses or SPACs or cryptos or every imaginable asset that well-off people putting their money in, they're all equally inflated. And at these interest rates, actually, the PEs of public stocks are almost, you know, mathematically attractive in a historical sense. So, you know, maybe it'll turn out to be more like a huge inflation of assets driven by the cash flows into the marketplace. And, you know, inflation in CPI is permanent. It never goes down. It just wobbles going up

• 16:52Speaker 02

  because it's consumer base. But here we have it in assets and it might be more sustainable. And, you know, why should cryptos go down? Well, unless all these categories are tightly linked today and the money flows between the categories that are the weakest. So it's a totally different situation.

• 17:10Speaker 04

  That's the key word. It's different this time.

• 17:13Speaker 02

  Yeah.

• 17:13Speaker 04

  Bullshit.

• 17:15Speaker 04

  I can't believe Arthur actually said that. It's different this time. He's bought into it. Yeah.

• 17:20Speaker 02

  The end result may be the same.

• 17:22Speaker 03

  Can I also, you know, I've never lived through a boom and a bust bluntly in terms of my working life. And actually, you mentioned fourteen years that, you know, many people who listen to the show, many who are investing on boards today, founders, have never lived through booms and busts. What advice would you have for me, having seen many in different forms? What advice would you have for me?

• 17:42Speaker 04

  Yeah, before we get the advice, I mean, this is actually the fifth cycle we've experienced. You know, there was a market boom, speculative market boom in sixty-eight. There was one in eighty-three that we talked about. There was one in two thousand, and again in oh eight. And so, you know, this is the fifth one that we've seen. Advice, just hold on. Arthur and I looked at each other in nineteen ninety-seven and said, oh, man, this is getting really overblown. Well, what do we do? And we said, well, let's just hang on. And, and thank God we did, because the next three years, I don't know, market went up two or three times more. My only advice is be a realist and recognize that when it turns, it's not always obvious that it's turning, but be a realist and start to look for when it really has turned, and then adjust quickly.

• 18:27Speaker 04

  So whatever exposures you have, whether you need to raise money for a company, or sell assets, convert to, you know, more liquid assets, whatever your personal situation is. I mean, we went through in, when the market broke in oh one, we, I remember very well, we sat around, it was May or June, we had just raised a massive fund, and we sat around, looked at each other and said, this is over. What can we do to minimize the damage at this point? You just have to adjust your behavior and recognize where you are. It's very hard to predict, you know, too soon, trouble. You've left too much on the table.

• 19:00Speaker 02

  I think that one big difference, and there is a difference, between two thousand and now, is the nature of the companies, per se. In the venture companies, used to be almost entirely capital goods kind of purchases, and they were one-time sales. You bought your oracle, and then you paid some maintenance, or you bought your billing system. As a result, they were much more cyclical, and capital budgets would absolutely clamp down in companies. When the cycle turned negative, this time, almost all the companies are continuing revenue service companies. The managements are planning, you know, multi-years ahead and they're much easier businesses to run and build. And they're much more sustainable and much less vulnerable to the economic cycle.

• 19:41Speaker 02

  One of the disciplines we learned in prior cycles was that if you didn't get out of the companies at the top, you might be five percent left by the time if you waited another three months. So the volatility of the companies was, I think, a lot higher than you're gonna see.

• 19:57Speaker 04

  Yeah, I agree with Arthur's point on capital intensity and all that and capital cycles. But if you do a careful analysis of the multiples here in the marketplace, we're at, we're at three to five X where we've ever been in our lifetime in terms of price to revenue of companies. Three to five X where we were at the peak ever before. That leaves a lot of room for contraction. Yeah, the companies, I agree, are, are more self-sustaining, but that doesn't mean the valuations. When the cycle turns and when money becomes expensive.

• 20:26Speaker 03

  It's so hard, I find now, because it's like, you know, you've said about ninety-seven going, oof, Arthur, this is looking inflated. And then, you know, you kept on deploying for three years and it was a great three years.

• 20:36Speaker 04

  Exactly.

• 20:36Speaker 03

  The trouble that I have now is I go, deployment timelines are so compressed, prices are higher than ever. This is crazy, but I also don't wanna be pulling back in ninety-seven and missing three years. So do you play the game on the field or do you try and be smarter than the market?

• 20:51Speaker 02

  Well, I think if you're in the early stage particularly, you're more price protected. You can still have a good idea for a startup, your exposure. When you're putting money into things at the four billion dollar valuation or something like that, and large amounts of money, you're much more exposed to simply the market cycle. If you're back in the early stage, the early-stage deals are so messy that, uh, you, you, smart guys choose the better ones, usually, sometimes.

• 21:18Speaker 03

  Jim, what do you think?

• 21:19Speaker 04

  Well, I agree with that statement for sure. That doesn't help you with your question. Personally, I'm behaving like there's a major crash coming. And so whatever opportunity I have to get out of very high-priced assets, I do. But I'm continuing to invest and continuing to. File back and I think the the issue is looking at your portfolio and and looking at, you know, where you're really exposed from a valuation perspective where you've got a stock that's, you know, a hundred times revenues or whatever. Everything reverts to the mean at some point and, you know, a hundred times revenue is just not sustainable. So I think you have to look at your assets and try to take things off the table where they're extremely, extremely overvalued.

• 21:59Speaker 03

  Can I ask, you know, you've been in some of the most impactful companies of the last, you know, three decades. What have you learned about, you know, when to sell and how to think that through?

• 22:07Speaker 02

  I think if you look overall, because these companies had such high growth rates, if you have a portfolio and you get to say distributions of ten different companies and three of them sort of go way down and are very disappointing, or maybe even if seven of them go way down and disappointing. The level that you've been able to achieve in the three that go up make the whole portfolio look really good and you can't tell which are the seven and which are the three. So holding these things has, in the last five or eight years, it's been extremely valuable to be holding them.

• 22:42Speaker 04

  Yeah, and that's a very valid theory and driven also by tax strategy of just letting it roll.

• 22:48Speaker 02

  We'd agree with the statement, hold on to your winners. Problem is, which are those? You know, it's like telling you to buy low, sell high, okay?

• 22:56Speaker 04

  And it's like predicting what your kids are going to be at age five, where they're going to end up. Who knows?

• 23:01Speaker 03

  Totally with you. I think my parents would probably have said prison, but I surprised them. But my question to you is, you know, when we look at, you said there about reinvesting and I spoke to so many of your team and they said the thing that makes Arthur and Jim so special is the legacy and also the culture that they've made so that when they're not in the room, it still feels like they are and we still think like they are, which I thought was a very special thing. That was from Ping. So my question is, you've navigated multiple generational transitions, really hard to do. How have you done that so successfully? And what do you think is key to your being able to do so?

• 23:35Speaker 04

  We're on what we would characterize as our fourth generation team at this point. So, and Arthur and I are still around. At least we're, you know, still I think there's a couple of basic things that's enabled it. The single most important one is our philosophy of equal ownership. You know, we've always had, you're either a full partner or you're on your way to becoming a full partner as you grow. There are no gradations. There's no senior partners and junior partners and whatever. You're equal partners. So in the way that the funds roll through every three or four years, it allows you to restructure the ownership of the firm periodically. And you have to be aggressive with that and keep giving ownership to the young people

• 24:17Speaker 04

  who are coming along who are building the firm and not get greedy with retaining it yourself. So it starts there. I think as you mature, as Arthur and I have, you need to learn to get out of the way from an ownership point of view. So we started giving up our ownership in the firm, you know, beginning in around 2000 or so, late 90s, early 2000s, started scaling back, which allowed others to grow. And that is perpetuated with the way the firm is run. And I think that there's no single person that runs Accel. Arthur and I were struck in the 70s when we were raising money from the Flemings and we would go to a conference with them and sit around a table and try to figure out who was making decisions. We could never figure it out. And our firm's the same way. You can't figure out how the decisions are made, but they're made. There's no one dominant personality.

• 25:02Speaker 04

  There's no one dominant strategy, whatever. It's a team, but it's a team of equal leaders that ebbs and flows in how the firm is run and the decisions that are made. You know, I think it's been important for Arthur and I to remain engaged. So it's been important for us to remain engaged. We're there and talk to the guys periodically and we keep reinforcing what we think is going on and so forth. So we bit of transferability of the culture in that way. But you have to learn to just get out of the way. In my case, I had to learn how to bite my tongue pretty a lot. So anyhow, I think it's the single most thing that both of us are most proud of is is the fact that, not the fact that the firm is what it is and such, but the fact

• 25:45Speaker 04

  that the culture is still intact 38 years later or whatever.

• 25:49Speaker 02

  Just the cultures, everything. And as Jim said, we do believe in this horizontal management structure. That was the case of Jim and I, and that was the reason the firm was as successful is that it was two people running it. Because, you know, we're just human beings and any human being goes up and down and you get just better balanced decision making. And venture investing can be quite emotional because the companies are so dynamic and get in such trouble. And it's very important to have a balanced decision making and not have it dependent on how one guy gets out of bed in the morning. And that's not true in private equity, which is much more hierarchical. But in the venture business, we think it's very important that it be spread. And then there's the culture and, you know, creating a culture

• 26:32Speaker 02

  of professionalism and discipline. So that's the standard under which everybody operates is incredible because it reinforces itself if it's done properly. Because if then people behave in different ways, they don't present investments that they haven't thought about, and know who the people are, and making quality judgments, then they're rejected by the organism. So the culture is so important.

• 26:56Speaker 04

  Yeah, just pick up on what Arthur just said there to explain it just a little bit. You know, the decision making process, there's no votes. But, you know, you go around the table and at the end of the discussion, project, it's always a project manager, somebody who's making the call. He or she knows whether they have the support of the group or not by what is said. And it's perfectly fine to not have the support of the group and to go ahead and make the investment. It's perfectly fine. Nobody's going to stop you from doing that. And we've had more than one occasion of that. And if it works out, well, then that's great. But if it doesn't work out, you've used up a chip, right? You've used up some credibility. So it comes back to the individuals responsible for it from birth to death and gets input, but then has to learn how to adjust to that input.

• 27:40Speaker 03

  How do you think about the balance between safety and risk taking there? I'm with you in terms of, you know, do the deal if you see something that everyone else doesn't see. But you also, you said there you lose a chip. And bluntly, that would scare, if I was in Excel, you know, I mean, it would scare a lot of people to lose the chip. And it would make me pull back even with conviction. How do you make people not lose that risk taking at the thought of losing a chip?

• 28:05Speaker 04

  Yeah, you have to have people that are self-confident enough to withstand withering criticism. In Excel, if you can't withstand withering criticism, you probably aren't going to last.

• 28:16Speaker 02

  This idea of individual responsibility versus firm responsibility is the hardest thing to get, but the firm as a whole is responsible for that project too. And the most important thing to us is we don't have politics because what you can get into in these firms is, well, I approve your deal and you'll approve mine. That's not the way to create the right risk environment. We have to encourage risk, but we have to have intellectual integrity at all times and not have the politics controlling which investments get.

• 28:45Speaker 04

  Yeah, that's an excellent point. And to your question, Harry, the individual has, they may feel that they're the only one out there on the limb, but they know that they've got the support of the firm. The firm will never carve the limb off them, even though didn't necessarily think it was a great idea. Firm's still behind it and each of us will do whatever we can to support it and make it happen.

• 29:07Speaker 03

  Can I ask, you know, we spoke about this kind of culture and the intricacies of it. It becomes a lot harder when you decide to expand, when you have different geographies. What do you think you did that made Excel India excel Europe? The incredible successes they are, when you look back with hindsight?

• 29:21Speaker 02

  Jim should take this because he was the more entrepreneurial of the two of us and he was the guy that really led the international expansion. But by way of history, I might add that when Jim was at Citicorp Venture Capital, one of his first jobs was to go to close down their English operation because there weren't any good deals in Europe.

• 29:38Speaker 04

  Well, my first job at Citicorp Venture Capital was Vice President International. That was the slot I came in on. So I had three or four guys in Canada, four or five in London, couple in Geneva, a worldwide portfolio of 70 or 80 investments all over the world where it was basically bank debt that gotten kickers, so-called kickers on. But anyhow, so I set about looking at this and I ended up closing the whole thing down. It made no sense whatsoever, right? I'll never forget sitting in the London office in 1974 and having the team explain to me about why this new fiberglass 16-foot boat was going to take the market. Did you realize how many boats manufacturers there are?

• 30:19Speaker 04

  As the 90s wore on, it became increasingly obvious that from a technology perspective was being homogenized. Two thousand, I was so ticked off at Silicon Valley and the world and business was crazy. I mean, it was absolutely crazy. I gotta have to get out of Dodge. I can't stand this anymore. It's driving me crazy. We decided to see if we can launch a fund in London. We hired Kevin Kamoli, the business school, and he and I went off to Europe, put it together and raised the money. And so what made it successful, I think, we had a very successful transfer of the culture through myself and through other partners who started. We required Kevin to spend a year working in Palo Alto before we launched this. As we launched it, we had a large number of meetings back and forth.

• 31:02Speaker 04

  We had a large amount of integration between Palo Alto and the London team. That was challenging and dicey at the beginning, but now it's a thing of beauty. So it was a very successful transfer of a business model and a culture into a new market. India, a separate case. There, we saw the market. We thought it was a great opportunity. It was a question of how to get at it. I didn't want to go off to India and launch something, and no one else did either at the time. We were very, very fortunate. There was a young team, the Indian Americans, who, born in India, I I T, highly credentialed, off to America, worked in American industry, who went back to India and started an early venture fund.

• 31:43Speaker 04

  And we connected with them, and they had raised a fund. We're having trouble raising a sec fund. And it was just a very good cultural fit. So we merged our efforts and that became Exel India. And if you listen to those guys and talk, they know more about the Exel culture than Palo Alto does. I mean, it's absolutely incredible. It's a very, very coherent culture across the firm now, which has led to this new Leaders Fund that they're doing, which is, we now have the three geographies integrated at a higher level on later stage. That's a long winded answer, your question.

• 32:16Speaker 03

  Can I ask, you know, final one before the quick fire, Alan, but do you ever worry with new global fund, with the many different geographies, with the seed fund, with everything that's encapsulated? Do you ever worry that there's a loss of focus?

• 32:28Speaker 04

  It's our single biggest worry. And Arthur, you might want to comment on that. I mean, we talk about this all the time.

• 32:32Speaker 02

  The international funds actually don't affect focus because we decentralize all the investment decisions, which is about ninety-nine percent of it to them. The biggest problem with the big firms that have had these additions of growth and later stage things, they're the tension between early stage, I think Doug said, you know, if you, once you get out of early stage, you have private equity. He's absolutely right. They're totally different businesses and totally different ways of thinking about them and your relationship management and having both of those operating in the same environment. We use all the same early-stage people to get the growth going and we try to stay in the same areas, but that's going to be a significant problem for XL and a significant problem for anybody else doing that.

• 33:15Speaker 02

  And then you're going to see a lot of spin-outs from a lot of the big firms with guys focusing on early stage. That's where the, your focus issue comes. It's not the international.

• 33:23Speaker 03

  But I do want to move into a quick fire round. So I say a short statement and I'll direct it at one of you for each and then you give me your immediate thoughts, about sixty seconds or less per one. Arthur, let's start on you. When you look back, but what are you most proud of when you look back at all that you and Jim have built?

• 33:39Speaker 02

  Well, you know, what you get most personal satisfaction out of, everybody does, is helping other people. And I'm most happy and content because I think we've improved the lives of a huge number of people, both in the companies and the employees and, and we've just done a really good professional job that helped lots of people. That's what I get most satisfaction out of. And when you're working close to these companies every day, you can really help an entrepreneur.

• 34:03Speaker 03

  Jim, what was the single most challenging part? Which was the part which was, oh shit, Arthur, this is hard?

• 34:10Speaker 04

  We talked about it earlier, the nineteen eighty-nine era. Everything else, we had our challenges, but we figured it out and, and we got through it. But the thing that gave me the most sleepless nights was that era trying to get that fund raised, because that was everything. If we didn't get that fund raised, we were dead.

• 34:26Speaker 03

  Arthur, respectfully, you're very different personality types. What do you think makes you such a great partnership?

• 34:32Speaker 02

  Like all great partnerships, they're based on mutual respect and confidence and trust in the other person and the other person being able to say and have completely different views and be able to, you know, go through. And intellectually honest process and it makes the partnership per se, I think, produces much better balanced decision making and we've got to be committed to that and we've kept the firm that way. That's why it's horizontal ownership.

• 34:54Speaker 03

  Jim, what do you know now that you wish you'd known way back in nineteen eighty-three when you founded Excel with Arthur?

• 35:00Speaker 04

  Yeah, how much fun it would be.

• 35:04Speaker 03

  I love that. That's a very good answer. Arthur, what would you most like to change about the world of Ventures Day?

• 35:09Speaker 02

  Well, I'd like to see the government encourage venture capital instead of, you know, throwing up regulations. I mean, I think the stock options, for example, should be taxed the same way founder shares are taxed. So if you want to take a step in the direction of equality, that's the best thing you can do in Silicon Valley.

• 35:27Speaker 03

  Jim, what does culture mean to you and what does independent thought in venture mean to you today?

• 35:31Speaker 04

  It's a very fine line between an independent viewpoint and sitting in the luncheon area of Sand Hill Road and listening to gossip. People get on the wrong track. In terms of culture, that's why we never ever would have an office on Sand Hill Road. We want to be anti-Sand Hill Road. We want to be anti-culture, venture capital culture. We want our own culture, independent thought process. We don't care what other people.

• 35:59Speaker 03

  Final one, but I'm excited for this one and I'd love to hear it from both of you and see if they're the same. Thirty-eight years ago, founding Excel, what does Excel look like in thirty-eight years, which would be twenty fifty-nine?

• 36:11Speaker 04

  I guess my answer is whatever the people there want it to be. I think they've got an incredible platform and a wide open. So hopefully they'll continue to make smart decisions and keep staying on top of the market, whatever the market is. And I would hope that it's still a very people-focused, early-stage, help-the-entrepreneur-focused environment. It's easy to lose that and so they've got to hold on to it.

• 36:35Speaker 02

  Well, I think venture businesses are a function of the supply and I just hope the supply of great entrepreneurship keeps flowing through and then Excel will take its place and do the best job it can at the feast. And I'm not predicting, you know, you never know, a venture capitalist never knows whether there's one new deal, good new deal ahead of him. He just never knows. You just can't predict the future.

• 36:56Speaker 03

  Jim, Arthur, honestly, as I said, I've wanted to do this for such a long time. Huge, huge honour for me. So thank you so much for joining me today and I really appreciate the time.

• 37:03Speaker 04

  Thank you, Harry. This has been a lot of fun.

• 37:05Speaker 02

  Harry, we feel great company.

• 37:08Harry Stebbings?

  For me, that was one of the most special shows I've done. I am a student of venture. I've always loved this ecosystem with everything that I have, which is why I fell in love with it when I was 13. And so to bring that story to life of Excel and that founding journey was just incredible. I want to say huge thank you again to Arthur and Jim and the whole Excel team for making it happen. I really do so appreciate it. If you'd like to see more from us, of course you can, on the 20minutevc.com. Always love to see you there. But before we leave you today. Do you employ or pay workers in other countries? Yes. Well, you need Remote. Remote makes it easy for companies of all sizes to employ global teams. They take care of international payroll, benefits, taxes, and local compliance. Remote helps you onboard full-time employees or contractors in countries all over the world

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• 39:15Harry Stebbings?

  Rolling Funds, you can easily find and invest in these top fund managers on angellist.com/rolling. As always, I so appreciate all your support and I can't wait to bring you an incredible The Memo episode on Android with Brian Singerman at Founder's Fund on Wednesday.