E263: Inside the $5 Billion Fund Backed by 700 LPs

How do you scale a growth equity firm from a $52M first fund to $5B across six funds—without losing discipline or trust? In this episode, I talk with Brian Neider, Managing Partner at Lead Edge Capital, about building a durable growth equity platform by combining rigorous metrics with deep relationship-building. Brian shares how Lead Edge created a differentiated LP model centered on high-net-worth individuals who actively support portfolio companies, why communication and education compound trust over decades, and how a strict investment framework helps avoid negative alpha as the firm scales. We also discuss why exits matter more than paper gains, how to think about “walking dead” portfolio companies, and what truly energizes long-term investing.

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

• 0:00David Weisburd?

  Brian, you've accomplished what many of our listeners dream of doing, which is you've raised $5 billion across six funds. I want to start, though, when you started in 2011. Tell me about that very first fund.

• 0:13Speaker 01

  I appreciate you saying such nice things about it. I remember when we started, I never knew what this was going to become. I was always just about putting one foot in front of the other and trying to be successful. But back then, it was difficult. I would say that the idea behind what we were doing was that we were going to create a new type of fund. I started my career at a firm called Bessemer Venture Partners, and I worked with my partner, Mitchell. And my partner, Mitchell, really was the one that spearheaded the initial fundraise. And I joined right in the middle of Fund One. When he did that fundraise, the concept was pretty simple. And the idea was, instead of raising money from lots of institutional investors, let's try raising money from individuals. And if we raise money from these individuals, we could then have them help our portfolio of companies.

• 0:58Speaker 01

  And we'd be very upfront and transparent about what we were trying to do. That was a model that we just aren't familiar with and really hadn't been tried out all that much. So Mitchell has an unbelievable presence about him and a way in which to sort of engage with folks. And probably, I think, a lot of them invested, so he stopped bothering them. And they ended up putting capital into the fund. And we're off to the races. That first fund was a $52 million fund. We raised money from about 100 individual investors. And you know, you mentioned a lot of people would look at the success that we've had as a firm, would appreciate that. I'd say that early on, the advice that I would give is, you know, start small. It's really hard to get institutional investors' attention. Many of them need to write bigger checks.

• 1:43Speaker 01

  It's hard to sort of compel them in a way. And getting individuals on board was a really powerful thing for us because you always felt the success building. You're able to talk to a lot of individuals. Many times, they're able to make those commitments very quickly. They decide that they like you. And because of that, you feel the snowball rolling down the hill and building, building, building. And that's a really good thing for building momentum for the firm and always feeling like you're going to be successful.

• 2:10David Weisburd?

  Rahul Mukdal, who jumped on the podcast, he talks about just how busy institutional investors are. He had a billion-dollar, $1 billion foundation. So not a small, but not by any means a large foundation. And the CIO Told him that he had over 900 voicemails the previous year, not even from funds that they had invested in and not even funds that they were looking at, but in funds that had cold outreach to him, just to give you a sense for how busy institutional investors are. But you went to the other barbell, which is high net worth individuals. And you also married your capital base to your value add to portfolio companies. Tell me how you went about doing that.

• 2:55Speaker 01

  Our LP days today, we have about 700 individual limited partners, many of whom have built, run, managed some of the world's best businesses. And we're very upfront with them when they invest. We say, don't, don't invest unless you're willing to help the portfolio companies. Now, what you notice oftentimes is a lot of these folks, they, they want to find a place to invest and they want to find something that's comfortable to them. So whenever we're talking to executives that might have a pretty significant net worth, they're kind of plus or minus five years from retirement generally. And they're in a place where they've got to figure out what to do with their money and they want to stay engaged. That's a good place for us to be having a conversation. And usually the conversation goes something like,

• 3:38Speaker 01

  hey, so you were the former CFO of XYZ company. It's a Fortune 500 business. Congratulations. That's amazing. What are you investing in these days? And you'll oftentimes hear the exact same story, which is, I was the CFO of, I don't know, pick a Fortune 500 oil company, energy company. And you say, what are you invested in? And they say, you know, my brother-in-law's friend got me involved in this biotech. Super interesting. I'm really excited by it. Like, okay. And what else? Well, my, my son's friend started a company and they have a social media website. So, okay, great. So tell me a little bit about what compelled you to invest in those things. And I said, well, I don't know. You know, I put $250,000 in each one and they keep calling me for more capital. And that's what I'm doing.

• 4:23Speaker 01

  Okay, sometimes that works out. But your knee jerk reaction is someone who is a CFO of some Fortune 500 company, they're a genius and they know everything. And you know what? They probably are genius insofar as that they're really smart, but they don't necessarily have the reps in terms of investing and looking at a lot of different things across a lot of different industries. And what ends up happening is oftentimes whatever comes across their desk first is what they might actually end up investing in. That creates a difficult dynamic because many of them end up kind of dejected and disappointed with the results. They end up in companies where they're trying to help them, but the companies aren't really appropriate for them to be helping. They end up in situations where the companies are asking that person to tap their networks.

• 5:08Speaker 01

  And that person doesn't necessarily want to do it because the company's not doing that well. That creates a difficult dynamic. And so, um,

• 5:16Speaker 01

  what we offer and what we talk to them about oftentimes is, look, that's great. You've got all of these like early stage things. Tell me about what else? And they'd say, well, my Goldman broker put me into this big fund and maybe, maybe they have some exposure to Blackstone or to Goldman Sachs or something like that. And so it's like a barbell, there's nothing in between. There's these early stage things that they probably shouldn't be getting involved in. And then there's very late stage, much more institutionalized type offerings where they'll probably make good money, but they're not really having a sense of involvement. And we say, and look, we've got this framework and we've got a very specific set of metrics that we follow. And we're constantly looking at these businesses and we love to engage you and you were the CFO of an oil company.

• 5:59Speaker 01

  How about when one of our companies is looking to hire a CFO? Or how about if we're investing in a software company that sells into the energy sector? We'd tap you to help. Would you be interested in that? And I said, well, that would be great. And then I say to them, well, what if there were companies that are growing really fast and doing very well? So I would love that too. And that creates a very different dynamic. And by talking through that with people, they start realizing, gosh, I might have made some bad choices early on in what I'm investing in on the early stage. I could get involved in things that are interesting to me. Let me push on that. And, and, and ultimately it's served us very well and served them very well.

• 6:34David Weisburd?

  Couple of really important principles there is people forget that they are in a market. So that biotech startup is in a market, which means by the time it gets to the CFO's desk, hundreds of, tens, if not hundreds of biotech companies have said no on that. The other aspect is style drift. So you're familiar with this in private equity. If you were to go from $50 million EBITDA companies to 150 million, a lot of LPs would have a lot of questions on why are you now doing 150 million dollar companies versus 50 million? And you might say, well, there's still the same widgets, there's same management teams.

• 7:13David Weisburd?

  But even that style drift of going 50 million middle market to upper middle market is scrutinized so heavily. Why is that? Because your other competition, that 150 million dollar market is the same level of intelligence, the same level of experience, the same level of deal flow. So when the CFOs are going to the biotech market, they're not only kind of picking up one foot pivot foot, they're like jumping to another whole part of the industry and then whole nother stage. And even if they could provide the value, which I'm sure they're actually providing some value, their deal flow is just abysmal.

• 7:46Speaker 01

  I couldn't agree more.

• 7:47David Weisburd?

  How do you manage having 700 LPs? And how does this practically help you win on the deal flow side when you're sourcing targets?

• 7:54Speaker 01

  So the first question is, how do we manage it all? And it's been pretty organic over time. I'd say that we do a couple of things in order to maintain those relationships. So the first thing that we do is we probably have an inordinately large investor relations team, right? And so the concept of just sort of fielding questions isn't something that we subscribe to. We actually have a couple of people who their sole job is to spend all of their waking hours meeting with and talking to our existing LPs. And so they're traveling around, they're spending time. And usually these are young folks who are engaged, who understand our business really well. And they're spending time trying to understand our LPs and build relationship with them.

• 8:37Speaker 01

  So that's from a day to day standpoint, that's a lot of how we manage it. Now, what are some of the things that we do to make sure that it's a good experience for both of us? So the first thing that we do is when we have a new investor, a new individual investor, what we'll do is almost like an intake form and really have a conversation with that person about what it is that is interesting to them in terms of being able to help businesses. And what you'll realize is different people want to help in different ways. So you might talk to one investor that's an LP and they've come in. You say, look, how do you want to help companies? And they say, look, I've gone through IPOs. I've gone through geographic expansion. If a company needs advice in any of those areas, I am so happy to help.

• 9:21Speaker 01

  But the one thing that I want to stay away from is I don't love the concept of

• 9:26Speaker 01

  helping with customer intros. It makes me feel uncomfortable to make an introduction. I don't want to necessarily endorse anything. I'd really not rather not be asked because I feel like I'll be put in a tough position if you do that. Okay, well, now you know what that person cares about. And then you might go to the next person that's an LP who's new and you talk to them and you say, and they say, all I want to do is open up my network. I have so many relationships. I want to keep them fresh. People love hearing what I think is cool or interesting. I would love to make a lot of introductions for the portfolio of companies. So anytime that you have an introduction that you think that I could make, just ask me. I'm sure that 95% of the time I'm going to be willing to do it. Well, those are two very different attitudes across these folks. And you kind of know who's willing to play ball in what situation.

• 10:10Speaker 01

  Once you do that and you have that information logged properly and easily categorized, now you're in a situation where you actually know who to ask for different things. And when you have a company that's looking to get some guidance on their IPO planning, send this person number one. And when you have a company that says, gosh, I've been trying to bang down the door at Coca-Cola, selling them my software. It's been a difficult journey. I can't get to the right person. Do you have someone that could help me? Maybe person number two knows somebody at Coca-Cola and we could get that conversation flowing. That's a lot of it. So on the front end, it's a lot about communication and understanding how they want to help.

• 10:49Speaker 01

  On the back end, it's about sending our team out to go spend a lot of time with the LPs. Amongst a lot of other things that we do, I'll name two more dynamics or two more activities that we pursue. Number one is we have a lot of dinners with our LPs. So we have about 16 or 17 dinners each year in different cities where we invite our LPs geographically to come, come to the dinner. And I will tell you, it started out as sort of like this awkward thing where we're talking about our fund and spending some time with the LPs. And now 14 years into it, we have a lot of situations where people have been coming to these dinners for years. And they get excited because they get to see, you know, people who are now old friends. They used to be new friends. Now they're old friends.

• 11:34Speaker 01

  And it's great. And you start seeing these dynamics where people become friendly with each other. They do different deals together outside of us. And you start seeing them hang out with each other, even not under the LIDGE umbrella. I'll tell you a quick story. Like I was, I was just, um, I was skiing last winter with my family and I called one of our LPs who lives in Colorado. And said, you know, I'm going to be in town. Let's go grab dinner. And he said, well, would you mind going with me and this third guy? I said, yeah, I know, I know that third guy. Absolutely. He's one of our LPs. He said, yeah, I met him at your dinners. He happens to be in town. I met him down in one of your Miami dinners when I was there and he's in town. He called me.

• 12:16Speaker 01

  I said, I didn't even know he was there. Okay. That's wonderful. So now we're meeting up as a group. And I think that it's a really powerful thing to have that network. So that's the first thing that we do is these dinners that I was going to mention. And the second thing that I'd also mention is we have what's called the next gen of them. And every quarter, we do our next gen teach in. And the concept of that is we end up talking about very basic topics in finance and do seminars and sessions for our LPs. But more importantly, oftentimes for their spouses and their children. One day, in many cases, it's a spouse or, or, or a next of kin, it's a, a child that's going to end up controlling the capital. And it's really kind of incumbent upon them to understand what does it mean to invest in a private equity fund? What does it mean to invest in a public equity fund?

• 13:02Speaker 01

  What should we be looking for? And we sort of teach on an objective basis and have these discussions. And oftentimes there's like three, 400 people that join. So that's been a powerful tool for us to keep people engaged. And then the last thing that I mentioned, I guess, would be, we've always been militant about our communication. We have, um, quarterly calls where we update on the portfolio for every one of our funds. We've done that every single quarter for the last 14 years. Nobody can ever accuse us of not sharing information. It doesn't always go the way that we want. But we're upfront and we spend the time to communicate it. And I think that that builds a lot of trust.

• 13:41David Weisburd?

  I recently heard a statistic that 60% of women of widows, when their husband passes away, change their financial advisors. So this, people kind of take the next of kin or the widow or the family for granted when it comes to investing in LP relationships.

• 14:01Speaker 01

  That's right. And I'll tell you, we've seen it time and time again. We've seen situations, actually, where unfortunate circumstances have taken place. And oftentimes, the LPs are calling us, saying, okay, you were the one that the patriarch or matriarch or whoever it was trusted the most. We, what should we be doing? Like, I don't know necessarily, but I'm happy that they trusted us. I'm more than happy to have a conversation with you to try to figure it out. But that happens from time to time and we want to be someone and a group. We want to be a group that people really trust. And I think that that's a powerful thing. I think a lot of it comes from the education that we provide and the fact that we're so straightforward and communicative.

• 14:40David Weisburd?

  You mentioned you have two full-time people that travel around and work with your LPs. What primarily are they doing and what's their week look like?

• 14:50Speaker 01

  I get like an update from our team every week from a bunch of the different folks that work on our team, just about what their weeks look like. And if I opened up what those updates look like, you'd say, gosh, this looks crazy. More or less, it's just they'll, they'll pick out a city. They'll travel to it and they'll reach out to everybody that's an LP beforehand. And they'll try to schedule meetings with as many of them as they possibly can. So in a given week, you know, like Garrett, who works on our team, he might have 30 meetings in person, 40 meetings in person with LPs. And it's amazing, like we, I'll talk to him, I'll say, okay, like I haven't seen you in office in three weeks. You're like, oh, I was in Austin last week for three days. Then I went to Dallas for two days.

• 15:34Speaker 01

  I was in Miami for, for three days. I went to Denver for, for three days. Say, who do you see? And then I get the, the emails at the end of every week. And it's like amazing. And so keeping that engagement is really important because ultimately, when we ask the LPs for a little bit of help with our portfolio companies or whatever it might be, we want them on the spot. We want them right there, willing to help and feeling like they're part of a team. And if they don't feel like we're constantly catering to them, um, that sense of urgency isn't going to be there. And we want them to feel our sense of urgency and we want in turn to have them create that for themselves.

• 16:10David Weisburd?

  There's an adage that's become so, so overused. It's try, build your well before you're thirsty. I think it's the name of the, and the reason is because most people do not build their well before they're thirsty.

• 16:21Speaker 01

  My partner, Mitchell, is the best I've ever seen at this. It is, it is amazing. The guy is just, he's out there, he's talking to people and he's constantly asking the question, how could I help you? And when you think about it through that lens and you frame it through that lens, what ends up happening is you end up being helpful to a lot of people. And on the back end, a lot of people end up wanting to be helpful to you.

• 16:41David Weisburd?

  We have this meme we create internally called forced value add. Whenever we're on calls, we force the person to find a way that we could be helpful because we're building these, these long-term games, playing these long-term games with these partners. Moving over to the investing side, you look for eight key metrics before you invest in a company. What are those eight key metrics?

• 17:01Speaker 01

  I'll, I'll share with you the key metrics in a moment, but let me first speak to how that came into being. So it might be helpful just for, for framing for you because I'm not sure that we've spoken about this in the past. About 20 years ago, I was hired to a firm called Best Room Venture Partners to be the first person that they ever hired to do cold calling. And they didn't even know exactly what they were looking for when they hired me. They just said, we think that if we go outbound, we could find some really interesting deal opportunities. And um, I met my partner, Mitchell there and.

• 17:34Speaker 01

  We started about the same time. We start calling these companies and spending time with them. And what would end up happening is every Monday, we were supposed to present to the partners at the firm, the different companies that we spoke to. And they were supposed to then pick which ones they wanted to follow up on. And they'd say, okay, Brian, this is great. You had, you left 112 voicemails this week. You wrote 140 emails. Wonderful. We're tracking you. You had 11 calls with CEOs. Wonderful. Which are the ones that we want to follow up on? And when we first started, there was no framework around anything. And I would say, guys, I got this amazing company. Let me tell you about it. The product is going to be unbelievable. The founder, they went to Harvard. It is crazy amazing. And they'd look at me and they'd say, all right, that's great, Brian.

• 18:20Speaker 01

  You know, so like, how big is the company? I said, oh, my God, I had to ask how big it is. I don't know how big it is. Okay, well, get me a revenue scale. Let's do this. Don't bring any companies to me unless they're like $5 million plus in revenue. So, okay, fine. So you go back out, you do a bunch of calls the next week. Same thing happens. Talk to another company. Say, oh, my God, this company, it's amazing. It's got this great product. I went to Harvard. It's another company and they've got $7 million of revenue. And they're like, okay, good, good. All right. So how fast are they growing? I'm like, oh, my God, I had to ask that question? Jesus, I didn't know that. Okay, well, go back and find out. So you could see where this is going, which is they kept asking lots of questions. And because they were asking lots of questions, it became harder and harder to find companies that met all of their criteria.

• 19:04Speaker 01

  And at a certain point, when I was there, we got to about five or six criteria. And that was it. And there were like no more questions that they were asking. And they basically said to us, look, don't worry about what the company does and, and, and, and all of the framing around it. The first thing we wanted you to talk about is how many of the metrics it meets. Once you tell us that and it's qualified as a lead based upon the number of metrics, then let's talk about all of those exciting things, why the company is so amazing, what their business model is, what their product is. And that's more or less how we've decided to run our firm at Lead Edge. So we're thematic, we try to understand the various industries, we try to get really smart about different companies.

• 19:47Speaker 01

  But we really try to stick to a very deliberate framework in terms of the metrics of the company. So back to your question of what the Lead Edge eight criteria are. It's revenue, we're looking for companies $10 million and up in revenue. It's growth rate, a lot of companies, a lot of investors might make money through leverage or through buying things super cheap. We make money through growth, so we look for companies 25, 30% growth rate annually at a minimum. We look for companies that have high gross margins. Many companies that we look at are not yet profitable, some are, but many are not. And so gross margins are a good indicator of future profitability. We look for companies that are kind of profitable or break even in a perfect world.

• 20:30Speaker 01

  Then we have a series of non sort of P and L metrics. So there's recurring revenue is a business recurring revenue business. High retention rates, so we look for companies with like 90% plus gross retention. It's probably the most important metric that we track. We look for businesses with a nice diverse customer base. If they only have three customers and you lose one, the business is going to go under. That's a real problem, so you want to be able to sleep at night. And then last, we look at the unit economics. And for us, that's sort of like a return on equity type metric based upon the amount of cash that the company has burned historically. How big is the business? And we see way too many businesses that have burned through $100 million to get to 10 million of revenue. It's just not an efficient business. It might be perfectly good, it might be super technologically advanced.

• 21:14Speaker 01

  Other people can invest in those types of things. We're going to look at that one to one, two to one type ratio. If you burn through $10 million, maybe you're around $10 million of revenue. Something in that neighborhood feels good to us and we judge every company based upon that metric stream. And once we do that, it kind of leads us to where we should end up.

• 21:31David Weisburd?

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• 22:15David Weisburd?

  Playing your check size is typically 50 to 300 million. So you're really brushing up some very competitive companies with, with very fierce competitors going after those companies. How do you win in this kind of market?

• 22:30Speaker 01

  It's not always easy. And I think that there's a couple of different ways that I would cite. Number one is RLP based. So we've already talked about this a little bit, but I think that we have a really unique differentiator in regard to how we're constructed. So because we're communicating with our LPs and saying, don't invest unless you're willing to help the portfolio companies. I think that that gives us a leg up during the courting process. Because what we're able to do oftentimes is make a lot of really great introductions to the prospect companies. And if you're courting a business and trying to learn more about it, it's really great. If you could introduce that healthcare software business to the CEO of a big hospital system, that could oftentimes work wonders.

• 23:10Speaker 01

  And because we're able to do that, and because there's always more to go back to in the well, because we have so many LPs.

• 23:18Speaker 01

  The companies that we're spending time with really feel like, gosh, not only are they helping me now, but I really feel like they're going to be helpful throughout the deal lifecycle. So that's kind of like thing number one that we do is like we made, we left.

• 23:29David Weisburd?

  There, is there an art to that in that?

• 23:33David Weisburd?

  There's a optimal frontier of how much value add you provide before you win the win, you win the deal, or is it just give as much value add to get the deal closed? And then, as you mentioned, you have, you have just this well of A add you could, you could give.

• 23:48Speaker 01

  A lot of it is what you talked about before, which is like, what's the force value add? You're going to ask that question. We always ask that question. I've been asking a question for 20 years.

• 23:56David Weisburd?

  Phrase it.

• 23:57Speaker 01

  It is usually when we're talking to a company that's, you know, we're, we're starting to discuss, it is two questions. Number one, what do you feel like you need help with? And then number two, what do you feel like you're doing uniquely well? And what you're doing with those two questions is when you're asking what they need help with, or what they're doing poorly, or feel like they're not as sufficient with, you're figuring out a way that you could alleviate some of that issue by helping them. And when you're asking them what they're uniquely good at, people generally love to talk about the things that they're uniquely good at. And so ultimately what ends up happening is if you find that thing, then oftentimes you could leverage those folks to say, okay, we could, well, let me connect you with somebody else because they need help with that thing that you're uniquely good at.

• 24:42Speaker 01

  And it creates, that's what creates a network effect to the whole thing.

• 24:46David Weisburd?

  When I met Blake Scholl from founder of Boom Supersonic, he asks, he frames and he asks things in such, such a way that is incredibly powerful. He once had breakfast with Richard Branson. He needed him to write an ROI. He had nothing. He had his model supersonic jet and he was going to YC demo day with nothing. And he framed it so elegantly before he even sat down with Richard Branson. He, they, the first thing he said is, Richard, I'm not here to ask for your money. Right? Yeah, that's been, they were pitching for 15 minutes and Richard's like, oh, you know, I don't know. Some of the parts he liked, some of the parts he didn't. And he said, Richard, I'm not asking you to believe.

• 25:24David Weisburd?

  I'm not asking you to believe that this will work, but if we do accomplish what I say we will accomplish, do you want the first flight to have a Virgin logo on it?

• 25:32Speaker 01

  There you go.

• 25:32David Weisburd?

  And he ended up getting the LOI and you know, now it's revolutionizing private aviation.

• 25:40David Weisburd?

  So that video really got me thinking about the power of questions and framing. Said two great questions, which is what do you need help with? And what are you uniquely good at? What are some other powerful questions that you've asked at your career? That have gotten you great answers or that it really helped accelerated your career?

• 25:58Speaker 01

  Gosh, that's a really good question.

• 26:00David Weisburd?

  They set the standard high with your two questions.

• 26:02Speaker 01

  Those two questions that I outlined before are probably like our best two. And there's the most bang for the buck. Oftentimes, when you say, how do you need help? It doesn't necessarily translate to who could I introduce you to? And I think that one of the other questions that's always very powerful is who could I introduce you to? Who do you want to meet? Because it might not necessarily be that they feel like they need help with something. It might just be that they want some knowledge or to pick somebody's brain more proactively. That might be a luminary in their field or something along those lines. So we end up having a lot of situations where when you ask how do you need help? They might identify some specific tactical thing. And you could figure out who to introduce them to for that. But when you ask who they want to meet, that ends up being a different slice of the conversation.

• 26:47Speaker 01

  And oftentimes, if it's a software company that let's say sells into banks, they might want to meet certain bank executives that might not even work at the banks anymore, but that they just consider luminaries in the field or would want to learn from. And that also is a good strength to pull on.

• 27:03David Weisburd?

  So I've been thinking about this paradox where some of the most successful entrepreneurs or managers, they want both advice and also introductions. And some of the mediocre ones just want introductions because they have this blind spot where they think, well, I'm perfect. I don't need anything. If only you just got me to a customer, everything else would be fine. Do you find this or that? This humility is a necessary component in order to scale an enterprise?

• 27:31Speaker 01

  The best, the best situations for us and the best things that I see in companies are very self-aware people who are managing the company. And when they feel like they're not doing something as well, or are not able to do something as well, they're willing to ask for the help. And it's usually not that we can give them the help. I haven't run a company that's a 300-person software company. So it'd be unfair of me to say that I could definitively help them. I could give them some guidance based on other things that I've seen, but I wasn't necessarily in the trenches. Where we can help is by making those, you know, the right introductions to people that have been there and done that before. And that's why we've created the firm and the way in which we've created it. Now, that being said, I've seen both ends of the spectrum.

• 28:14Speaker 01

  I'd say on balance, the bell curve would be, you know, people that are going to be the most successful are going to be self-aware. They're going to ask for advice and they're going to ask for introductions and they're not worried about that. But I've also seen other ends of the bell curve. And so I've seen people who are successful and they're an outlier, but they are completely self-unaware. And actually, that self-unawareness is the best thing about them because they are not afraid to ask for anything, anything. And they will follow up with you 100 times. And that's what makes them special and unique. And if you put other people around them that could, um, uh, make their shortcomings improve, that can work. And I've seen that work really well.

• 28:56Speaker 01

  And I've seen other people that are super bashful about asking certain things. I'd say on balance, that really usually is not the best situation. And usually it's either because they're super arrogant and they don't want the help, or they're bashful and shy. And in either case, that's probably not the best thing. But on the other end of the spectrum, I definitely have seen people who are totally self-unaware and it's the best thing that ever happened to them.

• 29:18David Weisburd?

  Sometimes.

• 29:20David Weisburd?

  The flaw could be the feature. Just use Bitcoin as an example. It's not very flexible. You can't change the rules and that's what's made it such a great store of value. People criticize that, but that is the thing. That's what it's basically doing for the market.

• 29:36Speaker 01

  A hundred percent. And there are just people out there that I've seen that are willing to ask for things that other people aren't willing to ask for. They're willing to think about things that other people don't think or they should concern themselves thinking about. And because of that, they end up having the largest outlier

• 29:53Speaker 01

  results oftentimes. And I think that that's, that's great. But as far as the bell curve in general, I'd say that most people that are, that are going to be successful are going to ask for that advice and ask for the networking and some balance.

• 30:05David Weisburd?

  You've grown from 52 million to 5 billion over six funds. What things have grown exponentially and compounded exponentially versus linearly? Which things get significantly easier and which things just are always hard or just you need to put more bodies onto it?

• 30:20Speaker 01

  The things that compound exponentially are a few. First of all, are pattern recognition. So because we see so many things, you're able to put together a lot of patterns that you might not otherwise put together when we first started. And I think that you only get the benefit of that through having a large funnel of deal opportunities, having capital to put behind that, being able to have legitimate conversations with companies and people taking you seriously. When that happens, you just, you see a lot. And so that pattern recognition, I think, is turbocharged as you see more and more things and as you have more capital and more scale, you see all different types of deals. So that, absolutely.

• 31:02Speaker 01

  I think that the network effect of the overall LP base, for us at least, at Lead Edge, that's improved exponentially. Because what ends up happening is you start with a bunch of relationships and you're kind of begging people for money. And that's, that's how the whole thing began. But today, we get introductions weekly where

• 31:23Speaker 01

  One of our LPs says, hey, you should meet this person. Go, go meet Tom Smith. He just, he just retired as the CFO of this Fortune 500 company. Or meet Jen Smith. She just retired as the, you know, head of sales for this company. They should be investors with you. And so it has become increasingly, I don't want to say easy because it's always hard, but it's become increasingly more reasonable to find people that are interested in what we're doing because we have such a referral base. So that's absolutely, we've done well with that. I think that the things that become hard and more scale linearly is we have a number of portfolio companies. As the firm grows, inevitably, you're going to have certain companies that have just been

• 32:08Speaker 01

  the portfolio for a while. They haven't necessarily lived up to expectations. Those types of businesses end up creating an immense amount of pressure because you have to spend time with them and you've made a commitment to that management team that you're going to try to help them improve themselves and see them through growth and see them through an exit. And when you're just starting out, you have no baggage in that regard. There's no extra companies. There's no old portfolio companies that you have. There's no boards that you're sitting on. So you could just spend 100% of your time finding that next great thing. And when you move and you fast forward into it, you say, okay, hold on.

• 32:48Speaker 01

  We've got a bunch of companies that like, they've been sitting around for a while. What are we doing with these? How are we going to exit them? What's our plan? And that creates friction and that scales linearly, but it, it does create, um, you know, an imbalance to some degree and you have to be able to manage that. I think that we're uniquely, but it's hard.

• 33:06David Weisburd?

  One of the things that you're maybe implying and not saying is that those are the most difficult portfolio companies to deal with and the most thankless. So it's very hard to hire. It's like, go do this very thankless, difficult job. So you end up having to own more of that as a senior leadership.

• 33:24Speaker 01

  That is largely correct. I think, look, for us, we invest in the growth equity space. We've had very few like zeros. It's really fun to go to every board meeting when the companies are crushing it.

• 33:36Speaker 01

  And conversely, if you were more like a venture fund, you might find that a lot of your businesses that are no good, they just sort of like fall by the wayside quickly. And within a couple of years, they're, they don't exist anymore. But it's that walking dead in the middle. That's where it gets really tricky because it's like, the business isn't so bad, but it's not so good. You're trying your best to improve it, but it doesn't always work. And you have to be reasonable and rational about the fact that these things will exist. There's no portfolio on which it's not going to exist. But those things do take time and they do take effort and we have to continue to spend the time on it because that's the pact that we've made. And oftentimes the smartest companies, when they ask us for references, they'll say, give me some references for your great companies. But also give me the references for the companies where you've been on the board for the longest and it's not so great.

• 34:21Speaker 01

  And that's where they're going to learn how you behave and if you stick with it and if you're helpful, have people like you. If you're irritable, that's an important aspect and those types of pieces of feedback get around and that can be an issue.

• 34:34David Weisburd?

  Those, those unscalable things are also your competitive advantage, especially if you assume that those people only ask us questions when they have many different term sheets on the table. You end up winning that incremental great deal because of how you, how you treat the companies that aren't doing as well.

• 34:49Speaker 01

  I always say, look, there's puts and takes to everything. As we've grown, right? We've always been doing like the same types of deals. We have this lead edge eight criteria that we talked about before. When we had a $52 million fund, it was more or less the same criteria. So, so the companies are the same, right? If I were to give you all of our investment memos from our first fund and give you all of our investment memos from our sixth fund, they look like identical to one another. The issue ends up being back then, we had no brand name. So there was no way for us to kind of like reinforce what we were trying to do and nobody would speak on our behalf. Everything was just, we think that they'll be helpful, but we don't know.

• 35:26Speaker 01

  But we were trying to do very small deals. So we were five or $10 million out of a $200 million deal. So we could wedge our way in. It didn't work always, but it worked oftentimes. And today you fast forward and we've got a much larger fund and we can do that whole $200 million deal. And there's an argument to say it becomes more competitive. But the thing that we have on our side now is that our flywheel is spinning faster than it ever has. And we feel really good about our referenceability and our ability to help the entrepreneurs, to help the management teams. And if they don't believe us, go talk to our CEOs and we're going to get the right vibes and they're going to get the right vibes.

• 36:03David Weisburd?

  I like to think about your reputation or your reference, like the scoreboard. You look up at the scoreboard and it's 42 to 10. And that is a scoreboard. You can say, yeah, maybe like victim, this person, you know, upbringing, but it's still 42 to 10. So after a certain, after a certain time, the score is what it is.

• 36:23David Weisburd?

  You mentioned maybe that's a little bit of a tougher part of your job, which is being there and providing value for companies that might not be going up into the right. What brings you the most energy? What's the most fun part of your job?

• 36:35Speaker 01

  I'll tell you what brings me the most energy, but this might not exactly be what you were going for with this question. I'll tell you what brings me the most energy. All right. The job is simple. We take capital from LPs. We tell them what our strategy is going to be. We deploy that capital and then we try to earn returns at or in excess of what we told them that our returns were going to be. And so what gets me the most amped up?

• 37:03Speaker 01

  When I'm at an LP meeting or when we're having our annual LP meeting gathering of three, 400 people and people come up to me or come up to my colleagues and they say, I invested with you because I believed in you and you've hit my expectations. I'm going to do it again because I really appreciate everything that you're doing and I know how hard you're working. That gets me more amped up than anything because in this world, in this life, all that matters is did you do what you're saying that you're going to do? If you can deliver, that makes you feel great. It makes me feel so good. I would never want to know what it feels like to be in a position where I've told people that we're going to get a certain level of returns or work in a certain manner and then not achieve that. That would be really hard and it happens. Sometimes you don't want, you know, obviously most people don't want it to happen.

• 37:50Speaker 01

  But the energy that it gives you when it is happening, you just want to keep doing it and keep working hard and keep hearing that. And that's what amps me up and that's what keeps me going. And we have people here that are so amazing. So many of our colleagues are like unbelievable. I watch these guys, I'm 44 years old now, so I'm not like an old man, but there's guys that have been working with us for 12, 13 years. And I'm like, oh my God, they're like better than I ever was. This is unbelievable. We've built a lot and I'm delighted to have them as part of the fold. And it makes me really happy to know that all of us share a vision of delivering for LPs. That's what gets me most hyped up.

• 38:25David Weisburd?

  I've been thinking about this concept of how you process information, how people look at different opportunity sets. And one of the things I see among some of the top managers is that they look at everything through the people lens. So they might be doing widgets. You actually are in a pretty interesting space, but some people might be doing laundromats for one to five million. But the ones that actually have the energy are the ones that see the owner and see the people and the families that they're having. Do you see that among yourself and your partners in that you're filtering through the people lens versus the thing or the widget lens?

• 38:58Speaker 01

  To some degree, I think that there's, there's a funnel that exists and you have to figure out where the appropriate place within the funnel is to be making that judgment, right? So for us, we have about nine or so thousand calls a year with companies. So we're talking to about 9,000 companies here.

• 39:19Speaker 01

  About 10% of those companies meet more than five of our lead edge criteria. And that's the quality bar we set for ourselves. And so call it eight or 900 companies per year that we actually are like, okay, look, the quality bar is good enough that we maybe could even invest in this company. Anything that falls below that quality bar, we probably don't want to mess with, even if it was a really great price, because it's just life's too short. You have to define what your universe looks like. Bounding that down from one place to another. That's not really about the people. One person that we engage with might be more exciting than another person. But that's a very objective framework. And the reason we need to do it that way is because it's too easy to get enamored with a person.

• 40:00Speaker 01

  So if the first thing that we were screening for was, oh, is this a great manager? You'd end up with a lot of stuff that meets none of your criteria and you got a problem. So what ends up happening is I would say that the the person question ends up coming. Once you've filtered down to those eight or 900 companies. Then it is how many of those companies are actually willing to kind of like do a deal? Spend some time with you. They don't have, they do not have unrealistic expectations to start out with. That ends up being two or 300 companies per year. And at that point, you're doing all of your real diligence, all of the market work, competitive dynamics, all of the modeling and the management diligence. And that's where it comes in and it is absolutely of the utmost importance.

• 40:44Speaker 01

  But if we were just to evaluate based upon manager and have the volume of the number of companies that we speak to, it wouldn't really work very well because that shouldn't be the first of the calling mechanisms. The first of the calling mechanisms needs to be a very specific numerical framework. The second ends up having management teams be like a pretty heavy part of it.

• 41:03David Weisburd?

  Which is why your managers going back 14 years ago, why your managers at Bessemer would ask you for these, these binary components, which is are they profitable? What's the revenue? What's the growth?

• 41:15Speaker 01

  A little. Because it's too easy for like, I got a bunch of 23 year olds that sit right here outside my office every single day. They're talking to companies all the time. If I said to them, CEO, did you like? They'd be like, oh, my God, I love this guy. I love that guy. I love this guy. He was amazing. She was amazing. We'd end up with 7,000 companies to diligence because there's no other framework to do it. That doesn't work. You need to focus. And so you start with that set of metrics to your point.

• 41:41David Weisburd?

  There's this term that I'm trying to get in the zeitgeist by repeating it, negative alpha, which I can create, but it's the opposite of alpha and it's a real thing. To your point, if I put you, if I, if you're retired and I put you on a beach in Miami and everybody around you was biotech people, you would lead to more biotech investments than if I put you in another, another beach. And being able to filter and create criteria around your surroundings. Just not being in that, in that area will lead you from making mistakes. So being conscious, conscious about your processes and making sure that you don't have negative alpha, which is like, who gave the most charming presentation is also really critical from a process standpoint.

• 42:21Speaker 01

  Worked well for us. I agree.

• 42:23David Weisburd?

  What's one piece of advice that you could give yourself going back to when you started at Lead Edge, a year into the firm and you were on the $52 million fund? That would have either helped you accelerate your success or helped you avoid costly mistakes.

• 42:36Speaker 01

  In today's market, one of the things that you're going to see is that LPs are focusing on a metric called DPI, distributions relative to paid in capital. It's a very important metric. And what it really shows is how much cash has been given back to that LP and any given fund relative to the amount of cash that they've invested. And there's a real lack of liquidity in the market today. And I think that had you told me when you started that we would have a couple of companies that were in the portfolio for a long time, that would have surprised me because I would have said, gosh, like we should be able to exit everything within a very particular timeframe. Now, I feel very lucky, but incrementally, what would have helped is to put a framework from the very beginning around how you think about exits.

• 43:21Speaker 01

  And I think that we've done generally a very good job of this, but it hasn't been perfect. And what I mean by that is there's probably about four or five ways to exit a business. There's strategic exit to a big public acquirer. There's M and A exit to a, another private equity firm or a private equity backed company. There's a secondary sale. Could I just sell my stake in a business to somebody else? There's an IPO, initial public offering. There's two more dynamics that are probably less familiar to a lot of folks. One is continuation vehicles, which is now all the rage, but it's very hot, but it hasn't been, you know, you go back 10 years, not so much. And then the last thing is almost like a put right.

• 44:03Speaker 01

  How do you effectuate something where you could put your stock back to the company and have them purchase it from you or force some type of a sale? And I think that a lot of the devil is in the details on the way in which these things are documented and how you can ultimately force liquidity. And that's a really, really, really important thing. And The reality of this situation is as a minority investor, you could end up getting involved in certain companies where for whatever reason, the management team doesn't want to exit. The other investors don't want to exit. We've had companies where there have been investors in the company for like 12, 13 years at another private equity fund where they have no intention of exiting the business, like in the next five years.

• 44:46Speaker 01

  And we're scratching our heads saying, gosh, like, why are you not aligned with us on this? Like, this is crazy. We've been at it for like seven. You've been at it for 13. What is going on here? And there's like zero sense of urgency, nothing. And so if you're asking for the advice, if I was a smaller fund or starting out or some of the things that create, you know, looking at some of the things that create friction, I would say, think very critically about what your exit path is going to be within any company that you invest in so that you could make sure that you could deliver on that promise to LPs. That when you say that you want to write to a five year timeframe, it's more or less, not always going to be, but more or less that five year, six year timeframe.

• 45:27Speaker 01

  And make sure that you know what your plan is going to be. And don't end up with a situation where you could have some of that walking dead. Go look at a lot of the RVPI, the residual value relative to the paid in capital on a lot of funds in the venture and growth ecosystem from 15 years ago. There's still tons of private companies left in these portfolios. And that creates friction because those usually aren't the best performers and they're usually not the worst performers, but they're the ones that take up the most time. So for me, that would be the advice I would give is like, don't bend on some of those discussions when you're going to invest in something, figure out what the way out is going to be and do your absolute best to, to keep that as a focal point.

• 46:07David Weisburd?

  Brian, this has been an absolute masterclass. Thanks so much for your time and looking forward to continue this conversation live.

• 46:13Speaker 01

  My pleasure. Thank you so much for having me.

• 46:14David Weisburd?

  That's it for today's episode of How I Invest. If this conversation gave you new insights or ideas, do me a quick favor. Share with one person in your network who'd find it valuable or leave a short review wherever you listen. This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.