Pod Insights How I Invest with David Weisburd E354: Why Most VCs Misunderstand Peter Thiel’s Power Law About this episode What if venture capital isn’t about finding unicorns—but about consistently making good investments?
In this episode, I sit down with Eric Scott, Co-Founder and Managing Partner at Overlook Capital, to discuss how his approach to venture evolved from chasing power laws to focusing on fundamentals. Eric explains why most venture frameworks only make sense in hindsight, how thinking like a value investor can improve early-stage decision-making, and why founder quality is ultimately revealed through execution, not narratives. We also explore concentrated markets, late-stage venture dynamics, and how reputation, conviction, and timing shape outcomes across cycles.
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 David Weisburd? So tell me about the last round interview you had with Peter Thiel right before you joined Founder's Fun.
0:07 Speaker 01 I don't know if they still do this, but at Founder's Fun, you basically go and you meet everybody who works there. There's not that many people who work there at any given time. It's around a dozen people. And then your last round interview is you go, or it used to be you would go and you'd have breakfast with Peter. I remember walking into his place when he was still living in San Francisco. Obviously, he's not anymore. And we had this two-hour amazing conversation. And this is sort of after a decade of reading his stuff and being deeply engrossed in the gospel of Peter. So this is like, it's an incredible moment for a young Eric, 28 at the time.
0:48 Speaker 01 And we're talking about Zero to One and Founder Psychology and different markets and being contrarian versus being consensus and the trade-offs therein, et cetera, et cetera. Very heavy stuff. And I asked him some question. I don't remember what it was, but he sort of just, one of his textbook pauses where he just stops and thinks for around 15 seconds. And he looks at me and he goes, you know what, Eric? We're just trying to make investments. It's really all we're trying to do here. And that was incredibly profound moment because I, like many other people in Silicon Valley,
1:22 Speaker 01 had been sort of operating under the premise that there is a magical way of selecting these unicorn companies. And that way of thinking about the world, those frameworks were unrelated from the fundamentals of the actual business. You read enough Paul Graham essays, you read Zero to One. Maybe you get into the archives of Max Levchin's blog. I mean, Max is a great guy. You should absolutely read those blog posts. But you start to believe that you can have this portfolio of companies where 19 will go out of business and the 20th of your 20 companies will be 1,000x that makes your entire career. And that was sort of the first time I started to think about this concept of, wait a minute, maybe what we need to do
2:05 Speaker 01 is return to the basics of investing.
2:09 David Weisburd? Double click on that.
2:11 Speaker 01 All of venture is driven by a couple premises that are true, but only in hindsight. The first premise is the premise of the power law. The number one driver of returns in your portfolio is sort of the only thing that matters. It's far more valuable than the next two or three companies combined. True in retrospect, says nothing about how to select for that type of returning company. The second sort of premise that we all operate under is that the founder basically matters more than anything. And there's a whole bunch of Twitter debate on like, is it the founders, the market? The reality is it's both. And great founders wind up finding or creating great markets.
2:50 Speaker 01 Again, absolutely true. If you look at a historical basis, says nothing about how to actually select for a founder who has what it takes to go the distance.
3:02 Speaker 01 Chris Dixon talked about this idea of this concept of an idea maze. And, you know, it's, it's, it's this concept that founders who truly know their space and are obsessed with their space can walk through sort of every possible scenario,
3:18 Speaker 01 thousands of iterations out into the future in ways that you or they never even thought they could, they could iterate upon. And the reality is the most efficient way to navigate the idea maze is to think an awfully lot like a value investor and think about what are the most of this business? What is your business model? What does the market look like? Try to really understand a little bit what the future looks like as far out as you can look. And through that process, two things will happen. One, you will quickly understand if you are impressed with this founder. And the opposite of that, the founder will quickly understand whether or not you are someone they want to, they want to work with.
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5:22 David Weisburd? alongside filings, broker research, news and more than 240,000 expert call transcripts, turning raw conversations into comparable, auditable insight. Take advantage of AlphaSense AI-led expert calls now. The first to see wins, the rest follow. Learn more at alpha-sense.com/howIinvest. Two different ways to look at it. One is how do you build a good business, a sustainable business, maybe a business that compounds? Then there's the exact opposite, which is I would put the Mike Maples camp. So he doesn't even think great startups come from great businesses. They come from movements like Airbnb and Lyft. It's this central idea and then the business model is built around that movement. Are these two ideas in conflict with each other? And if not, why not?
6:05 Speaker 01 I don't think they're in conflict with each other. I think they're fundamentally different ways of driving it, sort of the same truth. It's sort of the, you know, the, the blind men feeling different parts of the elephant, so to speak. Mike Maples has created incredible track record at the early stage because he.
6:22 Speaker 01 Has this way, like a lot of investors from sort of that vintage of early-stage VCs of saying, hey, I'm gonna have your back from day zero. And even like Maples, I would bet, I've never sat in a pitch with him, I've never met Mike Maples, but I would bet.
6:36 David Weisburd? Previous podcast guest.
6:37 Speaker 01 Oh, awesome. Wow. I would bet that during his first one to four meetings with the founding team, he's still asking the same fundamental questions. What are you building? Why are you building it? What makes you tick? How are you eventually gonna make money, even if it's not for the next seven years? He's still probably asking the same question because the only way to filter for somebody who can credibly build a movement is to ask them some very tough questions grounded in reality.
7:03 David Weisburd? To your point, he said that 70% of his best companies pivoted. So what do you do with that? When you invest, you're not investing in that business idea. You have to invest in the founder because if 70% of them will pivot, it's about the founder and not the business at the early stage.
7:18 Speaker 01 That might be a result of his strategy and his style of asking the screen questions. Like when I think about sort of the top four or five best investments I've made historically, I don't think any of them have pivoted. And these are, at this point, anywhere from sort of one to $60 billion companies. Some of that might be, there are different archetypes of founders. There's not an infinite number of archetypes definitionally, but there are many types of good founders. And I think one archetype is this person who is fundamentally driven by starting companies. Jack Dorsey is sort of this persona. He was starting companies early on in his career.
8:01 Speaker 01 He started several that are famous and have gone on to great success. That is different from somebody like Palmer Lucky or Trey Stevens, who have sort of a singular mission that drives them forward. And it's clear from day zero, when Trey and Matt, Palmer and Brian set out to start Android, they said, we are going to fix this problem, come hell or high water. Like this is the most important problem to protect the West that we can think of, and nothing will come in our way of solving that. So you're a lot less likely to pivot if that is the case. Show Energy, another great example. You could say they pivoted. Man, I was there in those seed and Series A pitch meetings. They were talking about AI from day zero. Now, we may not have believed them.
8:46 Speaker 01 We may have thought they were just like a cute little Bitcoin mining company. But it was in the pitch deck and it was explicitly said at every, at every meeting. This is the direction of travel.
8:56 David Weisburd? You were in the earlier days of Founders Fund. And last time you chatted, you said that every partner was completely idiosyncratic, completely different from every other partner. And everyone from the team was fundamentally different. What did you mean by that?
9:08 Speaker 01 I joined, I think it was around a billion dollar fund. When I left, it was around three billion dollar fund.
9:14 Speaker 01 By the time I left Founders Fund, Cyan Banister had left, Ken Hari had left, Kevin Hartz had left, Jeff Lewis had left, Luke Nosak had left. So it was a substantially different place from the beginning to the end.
9:28 Speaker 01 I think everybody at Founders Fund has a completely different strategy for selecting for effectively what become the world's best startups.
9:36 David Weisburd? Give me an example of that.
9:37 Speaker 01 I could talk about every one of these people because they're all so awesome in their own unique way. Trying to think who the most contrasted are. Let's start with Napoleon Todd. Napoleon, extremely analytical, extremely data-driven, has what it takes to probably be a managing partner at any growth fund in the world. That is a wildly different approach than somebody like a Brian Singerman had when I was there. Brian, I don't think he's ever looked at a spreadsheet. I say I don't think he's ever looked at a spreadsheet because that's what he told me. Or at least not, you know, he didn't look at a spreadsheet when I was there. But Brian has this incredibly impressive way of filtering for authenticity.
10:17 Speaker 01 He can sit down with effectively any founder and with incredibly high bar, tell if this person is authentically driven in a way that will allow them to work on this for the next 15 years, not the next two years, not the next seven years, for the next 15 years.
10:37 Speaker 01 If there are any similarities within the founders and partners, it's twofold. You know, one, founders fund has never fired a founder. That's number one. That's the core tenet that you have to believe.
10:49 David Weisburd? What does that mean?
10:50 Speaker 01 The quantitative way of explaining this is the best returning companies in the world are led by founders. And they're led by founders.
10:58 David Weisburd? They've never fired a founder from the board.
11:00 Speaker 01 Correct. Correct. They've never pushed a founder out. I mean, the lore is.
11:05 David Weisburd? And that's part of the pitch.
11:07 Speaker 01 That is, that is part of the pitch.
11:08 David Weisburd? It's in the name.
11:08 Speaker 01 It's in the name. I mean, that is sort of the founding mythos of founders fund was there was a PayPal. Max and Peter and Luke and Ken started PayPal and merged with Elon's X.com to create this big PayPal entity. There were some board shenanigans. I'm not super familiar with what they are, but I think it's extensively documented. Somebody tried to effectively fire Peter and when they sold PayPal, Peter and Ken and Luke got together and said, we're going to start a venture fund where this never happens. Because that would have been the most value destructive moment in the entire company's history. This is a company that had a ton of life and death moments.
11:46 David Weisburd? Venture capital is obviously this recurring game of game theory. It's not just about the latest round, the latest founder. So it makes sense why not firing founders might make sense as a sustainable strategy. You could, you could use it to get into the next company. If you took every deal in its own, is there not times to fire founders? And I'm not talking about fraud or sexual abuse or some obvious answer, but strategically, does it not make sense to fire founders?
12:12 Speaker 01 I think by the time you're having a conversation about firing a founder,
12:19 Speaker 01 you have made the wrong choice. You have not properly underwritten the deal. The vast majority of alpha in venture capital comes down to deal selection. And founders, what I have found, founders are attracted to VCs that are credible and have conviction.
12:37 David Weisburd? And don't fire them.
12:39 Speaker 01 Or at least have a track record of not firing founders.
12:42 David Weisburd? That's always a nice to have.
12:43 Speaker 01 Yeah, right. Well, it's a nice to have, and I think it's an imperative if you want to have one of the best portfolios in the world. I mean, even look at the most valuable companies in the world right now, how many of them are still in some way actively run by a founder? I mean, obviously Nvidia, obviously Meta, in some ways Alphabet, although obviously they have a professional CEO, but they have an entire history of having a professional CEO.
13:07 David Weisburd? That's my razor for whether I keep my positions when they go public.
13:10 Speaker 01 Is the founder staying on?
13:11 David Weisburd? That's like 80% of it. Is the founder still leading it?
13:14 Speaker 01 Yep. Yeah. Potentially makes sense because every business has a stated market size. And that stated market size is tied to a series of products, just tied to a whole bunch of teams working really hard on those products. And if you want truly uncapped upside, you have to continuously reinvent yourself and create new products and create new markets. And the only way you're going to do that efficiently, at scale, with a level of aggression that you need to really dominate these markets is if you're founder-led.
13:44 David Weisburd? Founders fund at least position themselves or market themselves as we give money to founders and stay out of their way?
13:51 Speaker 01 For the most part, yes. Again, this is one of those things that it totally depends on the personality of the partner you're working with. Keith R. Boyd was there when I was there. Keith has a very different style, super hands-on. At least when he was at Founders Fund, and probably today, I think he would still say he's never fired a founder, but he would select for a type of founder that wanted him to be very involved with the business. They wanted that active membership. They wanted him on the board. They wanted him as a thought partner, thinking strategically about a whole slew of issues that Keith could see around the corner for. What Scott Nolan would say, and I've since adapted this into my own elevator pitch for founders, is
14:38 Speaker 01 If you think I can run your business better than you can, I should not be investing in this company. I want to invest in founders who have such conviction in what they're doing and are so well researched in it. And this is the tough part. They are so in touch with reality that everybody agrees. I'm effectively here to be a sounding board, to help them think through problems, but fundamentally not run the business.
15:01 David Weisburd? Is there an age aspect to that? I could see a 25 year old founder that found himself running a $10 billion company might need some help versus a 45 year old founder may have some tricks up their sleeve.
15:14 Speaker 01 It's a really good question. It depends on the tactical problem you're talking about. And most importantly, how good of a product and company you've built. Because the best companies in the world are not necessarily the nicest places to work at. And they're not necessarily the environments that are the most professional and doing things that seem really clean. They're oftentimes, I don't want to say all the time, because I don't know every company in the world, but they're oftentimes some of the messiest environments. And they can afford to be messy because they have something else. A product, a distribution channel, a sales team, whatever it is, that is so good, it enables them to color outside of the lines and mess up pretty much everything else.
15:59 Speaker 01 And they're still going to succeed.
16:02 David Weisburd? People say good founder and some people confuse good founder with good person or good founder and nice person. What does it mean to be a good founder? I know it's the most basic question in the world. But what are some characteristics?
16:16 Speaker 01 I have this sort of ideal founder in my mind. And it's sort of my original mentor in Max Lechman. And it's such a tough question because in some ways, every great founder is singular. There will only ever be one Max. There will only ever be one Steve Jobs. There will only ever be one Peter and Zuck, et cetera, et cetera. And yet, there are these ways that feel like you can really easily make a 45 minute MBA lecture about, you know, you have to be tenacious. There is some raw IQ element. You have to be good at convincing people to join your team.
17:04 Speaker 01 I do think, these are all sort of obvious. And then I think the one thing that maybe is not obvious, or at least more controversial, is I do think you need to have a really good sense for product strategy. And effectively, what that means is you can, you can A B test your way to a really good, really big company, but I don't think you will ever be able to A B test your way to one of the biggest companies of all time.
17:33 David Weisburd? The biggest companies are category definers, which by definition means there is no playbook.
17:38 Speaker 01 Yes, yes. And A B testing is effectively a reversion to the mean, which is incredibly powerful tool and an incredibly logical thing to do, but it will more likely than not get you to a local maximum.
17:54 David Weisburd? I guess I've never thought about this, but A B testing is the exact opposite. It's like this, this arc between A B testing and first principles. They're opposite of each other, but they both get you to a certain place. But first principles is the one that actually creates the power laws.
18:09 Speaker 01 It creates the power law in the global sense. Like, I think you can run a strategy where you invest in companies, maybe at early stage, certainly at later stages, certainly in private equity. You can run a strategy where your power law company is like the best company in your portfolio, provides really good returns to LPs, but is not necessarily the next meta.
18:34 David Weisburd? Play devil's advocate on that. Have you ever been involved in a lot of great companies? Have you ever seen 100X where somebody A B tested or Uber for dogs or, you know, whatever this derivative idea and get to 100X? Is that even possible? I've never seen it.
18:49 Speaker 01 100X, I mean, I don't have that many 100Xs. I have a few.
19:01 Speaker 01 I've seen it once.
19:04 Speaker 01 Critically, they did not use A B testing for the product. They use A B testing as a tool in their tool belt. But I'll never, oh man, I'll never forget this company. I invested, I did see around this company called Hugo Insurance. Keith was on the board and they launched their beta test in California. This must have been 2019, I want to say. And they had, there was some magical number for CAC. I can't remember what it was, but like, let's just say it's $250 per user. The company for contacts is basically instant car insurance. It's on demand car insurance. So you can get car insurance for 24 hour period instead of signing up for six month cycle. And It's like the original Metro Mile. It's more like, it's more like the general.
19:49 Speaker 01 It's more like the general because they weren't saying, the gap they identified was basically saying, hey, there's a whole category of people who don't have car insurance. And a lot of them are working gig jobs. And, you know, maybe they need to drive for a three day period, but they don't have their own car that they're just using every day. So economically, it doesn't make sense for them to sign up for a one month or six month period of time. When they're just going to be using this thing for a few days and they just want to stay within the bounds of the law. Sort of the flip side of that is you can price the risk much higher. And it's still a good deal for those drivers because they're, they're concerned about the absolute dollar amount. They're not concerned about the like price per hour driving. That's you go, really good idea. Like, that is an idea that you don't get to by A B testing your way.
20:32 Speaker 01 You get it through sort of deep relationships with the customer really thinking hard, being super creative about what can we offer to this user base? So they launched this beta test and customer acquisition costs, again, I don't remember the exact numbers, but it comes in way higher than the target. It was like five to 10 times higher. It was, you know, multiple, multiple thousands of dollars. We had this board meeting. You know, David, CEO, super cool head, sort of presents the data, says, here's where the numbers came out. I'm like looking at Keith, Keith is on board. Okay, Keith, I'm like, oh man, this, these are like way over what we thought they would be.
21:13 Speaker 01 Keith and I are sort of like, hey, it's time to, you know, really think deeply about whether or not you guys have the right product. And David like does not skip a beat, says, no, no, no, we have the right product. I am confident we have the right product. So this is the anti A B testing thesis.
21:34 Speaker 01 There are these seven parts of the conversion funnel, and we just need to A B test and iterate our way on each of them.
21:40 David Weisburd? And ironically, that's first principle, which is it may seem unreasonable, but if point two times point two times point two times point two, then the math works. So therefore it is reasonable.
21:49 Speaker 01 Yes, yes, exactly. Keith and I are basically saying, if you can do that, great, but you you will be the first founder we've ever seen, sort of take something from such a super high CAC to such a low CAC. And sure enough, you know, three months later, next board meeting, cat comes back and it's like 50% of what it was, but still way above the mark. And then three months later, it's 50% lower and now it's 2X above the mark. And the next board meeting, it's
22:20 Speaker 01 just above where it needs to be, but not quite there. And, you know, long story short, it just hit sort of the target and just kept going down.
22:27 David Weisburd? When I look at that, I think moat. Who else is going to go through all these machinations to get to this low CAC? That's, that's a great business.
22:34 Speaker 01 Yeah. Yeah. You know what? I never, I never actually thought about it like moat. I just thought about it like.
22:38 David Weisburd? It's hard work as a form of moat.
22:40 Speaker 01 Hard, hard work.
22:41 David Weisburd? Compounding is a form of moat.
22:42 Speaker 01 And this, this is the exact type of founder personality, where I look at that and say, there are all these points on that journey, where I would have
22:52 Speaker 01 given up in some way. Perhaps I wouldn't have quit. I like to think I wouldn't have quit. But, you know, I would have pivoted. I would have tried to really aggressively change the product or go to a different state. I would have changed the team in all sorts of dramatic ways. And David just had conviction, knew what he was doing and executed like crazy.
23:09 David Weisburd? And that's why I think. These whole founder attributes, the canonical founder, I actually think most people have it right. What most people don't realize is the degree. Tenacity. When people think about what it takes to be a great founder, they're off at least by an order of magnitude of 10 in terms of persistence and tenacity.
23:26 Speaker 01 Yes.
23:26 David Weisburd? You can only see it. You must experience it either as the founder or as somebody next to the founder.
23:31 Speaker 01 Yep.
23:32 David Weisburd? You can internalize how much more difficult it is than your perception. So you're off by an order of magnitude of 10. Let's say you think it's 10 and it's 100. So now when you're at 25, you're like, I've done two and a half times more than like the greatest tenacity. No, you're four times off.
23:46 Speaker 01 Yes.
23:46 David Weisburd? So I think that's the issue. Same with IQ, or maybe I would reframe it as first principles thinking. How contrarian you have to be. It's a nihilism. Society is so memetic that it takes somebody on the spectrum to actually be truly first principles. Like if you're not autistic or have, you know, any kind of neurodivergent, thank you. If you're not neurodivergent, you don't have what it takes to build the next $100 billion. That's the order of magnitude. Like, said another way, like you have no chance as a normal human being with a normal mind. So I think canonical founder attributes are right. I just think people don't know the order of magnitude.
24:20 Speaker 01 Yes, the most unfair part of this game is you don't know what greatness looks like until you've seen it. And once you've seen it, it is super obvious and it will be super obvious to you for the rest of your life. But if you haven't seen it, you're kind of just feeling in the dark for it and you can identify it. It's harder to find, it's hard to seek out, it's hard to attract that type of talent. It's constrained to the neurodivergent filter, but that is, that is a super powerful filter because it's one that everybody can understand.
24:48 David Weisburd? It's directionally correct.
24:49 Speaker 01 It's directionally correct. Yep.
24:51 David Weisburd? Let's say neurodivergent is 100. Yes, you could be 80.
24:54 Speaker 01 Yep.
24:54 David Weisburd? But if you're 12.5 and you thought it was 10.
24:56 Speaker 01 Yep, yep.
24:57 David Weisburd? By the way, immigrants are so successful. You think about it. First generation immigrants have raised at some point 50% of all venture capital. And then you think, holy crap, a lot of them can't even speak English without an accent. Like they have so many barriers and yet they still raise 50% of the capital. Why is that?
25:11 Speaker 01 Right.
25:12 David Weisburd? Because it takes that level of non-conformity where you are a true outsider to the society in order to have the ample amount of contrarianism to succeed as founder.
25:21 Speaker 01 Yes. And this comes back to your age question. Does it matter how old the founder is? Because there's, you know, just the amount of support the VC gives the founder, is that connected to age in some way? And I struggle to answer it because if you're younger.
25:35 Speaker 01 You have all these things going against you. If you're able to break through and find product market fit, whatever it is that got you to that point is probably so powerful that the other stuff doesn't really matter as much. Your accent, if you're an immigrant founder, does not matter if you are one of the best coders in the world.
25:54 David Weisburd? I say something a little bit controversial, but I've evolved massively in this direction. So when I started out, started my first company in early twenties and I learned, I read books like Early X. It's like how to flip your company for 10, 20 million dollars. Like my family grew up in section eight housing. Came here with $600. All I wanted to do was just to be financially successful, help my family. And I used to look at these VCs. They're like, oh, if you're not a billion dollar company, you're nothing. And I'm like, that is the most elitist crap I've ever heard. And now I've actually went to the opposite direction where when people pitch me these A B tested companies that could get to 75 million, I almost want to barf. I'm like, that's so uninteresting. And I cringe because it's so elitist to look at it that way. And yet dedicating your life, your time, your money to these, you know, two to three X's.
26:37 David Weisburd? It feels like really not living up to my potential. And I guess my question is, do people at Founder Fund think that like that? Or when you were there?
26:47 Speaker 01 There's a lot in that question. So let me, let me meander a little bit here. The first question I have is, is that tactically correct? That's my first, my first instinct. And where I would disagree with you is it's, it's not elitist. It is memetic. And where you get into trouble, it's not when you're trying to, um, you know, push for more ambitious ideas and push for more ambitious founding teams. It's when you have a model in your head of exactly what that type of elite founder looks like.
27:27 David Weisburd? Because that, that memetic is based on last generation.
27:29 Speaker 01 Yes.
27:29 David Weisburd? It doesn't come from anywhere. It comes from work last.
27:31 Speaker 01 I'm not even sure it's last generation. I think it's probably like from Twitter or something, something way. You know, it's from Twitter or it's from your cocktail party, you know, in South Park in San Francisco or something.
27:40 David Weisburd? To make your argument for you, you'd say it's sequential. It's great if you want to have a hundred billion dollar company, but you need to, it's sequential. You need to build a real business, then raise 100 million, then build an even more real business. And it's sequential in nature.
27:52 Speaker 01 Like I said, the, the way to get these moonshots is not to try really hard to squint your eye and determine what's a moonshot and what's not. The best. I have been able to do is understand what the three to five X story is at that point in time. And that is never a cap on the size of business. In fact, if I really, really thought that was as big as a company could, could get, I would have that conversation with the founder. And if I walk away from that debate saying, yeah, I'm pretty sure I'm right, then you just don't invest. But most of the time, I think people are way better off. And certainly at overall capital, what we're trying to do is spend our time just thinking about what is the next three to five X?
28:35 Speaker 01 And do we really believe that company is intrinsically, will intrinsically be that three to five X value sort of three to five years out? The reason we do that is it's just so hard to predict what the future looks like in 10 years. There are so many, like you say, sort of sequential points.
28:53 David Weisburd? Previous guy summed it up. No company has ever died for saturating market.
28:56 Speaker 01 I think that's right. I think that's right. I think that's probably.
28:59 David Weisburd? I think the best example of that is Carta. Henry Ward.
29:02 Speaker 01 Yeah. Yep.
29:03 David Weisburd? Saturate at this very small, but highly strategic cap table, now $10 billion company, and they just continue to build.
29:09 Speaker 01 Henry pitched, pitched us when I was still working for Max and we totally got it wrong. That, and that was.
29:17 David Weisburd? For that reason.
29:18 Speaker 01 Yes, yes. Cap table management for startups, how many startups are there? Pretty much all in San Francisco, can't, can't possibly be that big. It was in retrospect, you know, very, very clearly wrong. Now, I, I do think it's, it's more, um, there's a trade off here at later stages. Because at later stages, one, the valuations start to get richer and therefore you do need to have a sharper pencil on what market size looks like. But on the other side of that coin, there's more operating history, there's more metrics, you can actually verify whether or not these things are true. And at that point, the debates with founders about what the future of their company looks like and the conversations you have with them, call them debates or brainstorming sessions,
30:01 Speaker 01 sometimes a little of both, they become much richer, much richer, because all of a sudden they have something to play with. You know, talking to Carta, when we talked to them, it wasn't, it wasn't even called Carta at that point. I almost wish I'd had the the chance to look at the company again when it was around a billion dollar valuation, because at that point, you have these tools to really talk about what the future looks like, and you're credible. You know, you have a jumping off point.
30:24 David Weisburd? Enough to have a sustainable, defensible moat, but small enough where you could take in a couple of different directions and build a really huge business.
30:32 Speaker 01 What matters more than than size is probably again, is it founder-led? Because it's about how aggressive you move. And no further than Elon Musk, of course, to show how you can take a huge organization, move really aggressively.
30:45 David Weisburd? I've actually had some of the top public investors on the podcast as well. They actually think about it almost like venture capital, where they're making investment, and they assume that basically they become frozen for three to five years, and then they wake up. And is it valuable?
30:56 Speaker 01 Yep.
30:57 David Weisburd? And everything in the middle, while the stock's going up and down, it's essentially noise.
31:00 Speaker 01 Volatility, it's noise. Yep.
31:01 David Weisburd? Who has who has the gumption to go through that noise and and avoid the analysts and all these other frictions as a public company outside of the founder that either has very high stake in the business, and sometimes even super voting shares where they control the business?
31:15 Speaker 01 It is structurally impossible to do that unless you have sort of those those provisions in place with with your equity. What I have found is there's usually something driving the founder that is not incentive-based.
31:30 David Weisburd? Interesting.
31:32 Speaker 01 Whether it's a nerd virgin thing, it's a mission thing, oftentimes it's a religious thing. It's a chip on the shoulder, go down the list. But usually, there's something that is causing these managers to wake up and say, I'm going at full speed today. I'm gonna do that every day, no matter what, no matter what. The only other sort of modification I would make is it's not that these companies at later stages have moats. Oh, that is critical for underwriting through the space case and trying to get a sense for what changes and what doesn't change five years from now. It's also that certain businesses, by achieving a certain scale, unlock things that they didn't have available to them before.
32:16 David Weisburd? Double click on that.
32:18 Speaker 01 If you have a fulfillment business, you're trying to, you know, ship boxes from a warehouse to a consumer's front porch.
32:30 Speaker 01 You were going to benefit immensely from density and from having a physical network of different fulfillment centers throughout the country and throughout the world. And for each marginal node in your network, you're able to deliver more boxes. And once you have a big enough network, you can start to layer on other products that you wouldn't have been able to do at a smaller scale, whether that's last mile or software services or whatever it is. You can look at the business on day 10 and say, oh, today you own a warehouse. And that's great. And if you look at the business, let's say day 2000, and they have an entire network of warehouses, say, well, your market size for fulfillment was X, but now all of a sudden you can do last mile, which means you're now X plus Y, because you've broken into a totally, totally different industry.
33:12 David Weisburd? One of the mental mistakes that a lot of VCs and LPs make is they don't realize the world is probabilistic. In your case of the fulfillment business, maybe there was a 20% chance that they were going to get from day 10 to day 2000. But once they got there, it became an underwritable business versus before, maybe on a risk reward basis.
33:30 Speaker 01 Yes, it's Bayesian, like thinking sort of in these Bayesian models is-
33:32 David Weisburd? And everybody wants to say, well, you made a mistake not investing at the seed round, but maybe you didn't. Maybe they just got lucky.
33:37 Speaker 01 Maybe you didn't. And the bigger mistake, and man, psychologically, this is hard to do, but the bigger mistake is not realizing you were wrong and then investing at a later stage.
33:48 David Weisburd? So the mistake is not catching your initial mistake and then making the mistake of not investing again?
33:53 Speaker 01 Yes. Yes.
33:56 David Weisburd? It's a variation of the Peter Thiel's biggest mistake. Peter Thiel says his biggest mistake was not doing the series A for Facebook. He did the seed, he was on the inside, he passed on the series A.
34:04 Speaker 01 Yes.
34:04 David Weisburd? That was his worst mistake ever.
34:05 Speaker 01 Yes. Yes. I don't know if founders want an exact portfolio, but I bet you would see a few repeats of that where most investors don't ever learn that lesson. And they just-
34:16 David Weisburd? And that's why they got their religion of concentration.
34:18 Speaker 01 I'm not sure about that, but I just think, I think it's, you know- You're so present in those investment meetings that you're able to just say, is this a good investment today? Yes, we did the seed. Yes, we missed the A and the B, and now it's the C. But today's the C.
34:34 David Weisburd? It takes a lot of humility. I was right here. I was wrong here.
34:38 Speaker 01 Yep.
34:38 David Weisburd? I was right here, and now I'm going to be wrong not to do that. It not only takes humility, it takes a lot of mental capacity to be able to process all these paradoxes.
34:46 Speaker 01 Yes, yes, yes.
34:48 David Weisburd? And all might be right. You might have been right to invest in the seed, wrong to pass on the A, right to pass on the B, but wrong not to invest in the C. And all of them probabilistically could be.
34:57 Speaker 01 Yes, yes. And that is, that is a superpower. That is a superpower that, that they have, for sure.
35:03 David Weisburd? Raw mental compute.
35:05 Speaker 01 It's raw mental compute, but more importantly, it is the ability to focus on what really matters today. A lot of, there's a lot of big egos in, in our industry. But when the chips are down and it's time to actually make a decision, you know, the investors I admire the most are able to just say, yep, I was wrong. What matters way more than convincing myself I was right is making the right decision today.
35:27 David Weisburd? Tell me about what you're working on today.
35:29 Speaker 01 So today I'm working on a company called Overlook Capital. We are a capacity constrained growth fund. So what that means is we are
35:39 Speaker 01 a relatively small growth fund. We cut basically five to $10 million checks into companies that we think are the best in the world and clearly sort of category, category winners.
35:52 Speaker 01 Internally, my partner, Roby Miller, and I don't think of ourselves like late-stage investors, but that is what we are doing. And the reason we're doing that is the venture capital markets today have become incredibly concentrated. 10 years ago, top 20 funds controlled around 40% of the market. Today, they control around 75% of all capital.
36:15 Speaker 01 50% of all venture dollars in 2025 went into around eight companies. Those are for good reasons. Those are going to be some of the biggest, best companies in the world. And man, if you have an opportunity to invest in Founder Fund or Thrive, I would, I would certainly take that opportunity. So these, these companies will continue to do well and these funds will continue to do well. But the externality of that is there are all these companies that fit the profile of founder, market, stage of company are billyed underwrite to what this thing looks like in three to five years. And they are economically invisible to the big platforms. If you have-
36:49 David Weisburd? Because they can't return the fund. They can't return a meaningful multiple to drive these $10 billion funds.
36:55 Speaker 01 I think most have been structural in that, in that exact way. If you have a $100 million fund and you cut a $10 million check, well, if that thing 10X's knocks it out of the park, you return the fund. If you have a $6 billion fund, it no longer matters. You know, that, that $10 million check should either be put into a Series A, where there is a non-zero chance, because you've access to the best talent in the world, that that single investment will be a 100 to 1,000X or, or more.
37:27 David Weisburd? So you put in 60 million and it has some percentage chance to return 100X.
37:31 Speaker 01 Or you should be investing $500 million at a time in the companies that are proven to be category winners. And if you're sort of anywhere in between there, you wind up with all of these sort of dislocated market dynamics.
37:44 David Weisburd? When these funds are investing $500 million, is it, let me phrase it this way. Is it a consensus, high expected value investment? And then they're just like warring against other venture firms? Or is there contrarian plays versus non-contrarian?
37:57 Speaker 01 There are definitely consensus plays.
37:59 David Weisburd? But overlooked capital, you obviously avoid those. So you're not just doing smaller checks. You're going into fundamentally different businesses. What are you looking for?
38:06 Speaker 01 To clarify, we will definitely look at those deals. And you know, what we've noticed is every once in a while, there is a super consensus company that is category leader. And we think-
38:18 Speaker 01 Even at nosebleed high prices, it's actually discount to the future. And this thing's going to compound for a really long time. We should get access and there we rely on the size of check. That'll probably be-
38:28 David Weisburd? You could get in through the edges with a $5, $10 million check.
38:31 Speaker 01 Yes, yes. It's very rare. If you have-
38:34 David Weisburd? What's the pitch to the founder at that point?
38:36 Speaker 01 The pitch to the founder for a $5, $10 million check is effectively, hey, we're going to be here and be helpful when we can be, otherwise we'll stay out of your way. And these rounds are always syndicated out, so there's always some room at the table. It's just you're not precluded because your minimum check size is $100 million. So that's how we get into-
38:56 David Weisburd? How do those rounds come together? Is there a general cadence where it's like the lead or the two leads or? Obviously, every round is slightly different, but what are some of the patterns of these super hot rounds? How do they come together?
39:10 Speaker 01 Super hot rounds, extremely white hot center of the circles.
39:14 David Weisburd? Enthropic, OpenAI.
39:16 Speaker 01 Founder decides it's time to raise more money.
39:21 Speaker 01 They send, I don't know, six text messages. They've got five term sheets within two weeks.
39:27 David Weisburd? These are what we're talking about, the $100 billion plus round. What about the $5 to $10 billion rounds, super hot company? They're raising a billion dollars. How do those rounds-
39:35 Speaker 01 Honestly, they come together the same way a $500 million valuation company would have come together seven years ago. It's just the numbers have gotten so-
39:43 David Weisburd? How much is the lead typically putting in?
39:45 Speaker 01 Depends on the round size. You know, I think minimum 30%, maybe 25%. If it's less than a billion dollars, I have to imagine 30% is sort of the base, the base there. And you're still going out and you know, plus then you have another sort of 30 plus percent. That's accounted for by existing investors, presumably you've given up 25, 30% of the company. Then you have the rest to sort of fill out and that basically only flexes up. So if the lead investor is putting in 50, 75%, all of a sudden-
40:15 David Weisburd? You're getting really tight.
40:16 Speaker 01 The margin for somebody else, it starts to get pretty tight now.
40:18 David Weisburd? How are the founders choosing the non-lead, the non-current investors?
40:23 Speaker 01 It's different for every founder, but my philosophy, again, comes back to conviction and credibility. Those are the two biggest things you can look for. Is this somebody who truly, truly understands my business and what I want to do with it and strategically why it makes sense? And are they credible? Or are they just gassing me up because they know I'm chasing momentum and...
40:44 David Weisburd? You're the hot commodity.
40:45 Speaker 01 Right, right. Exactly. Which is easy to do. It's easy to do. You know, oh...
40:49 David Weisburd? Perhaps a dumb question, but why is somebody that has conviction important on your cap table? And what are its second order effects for them?
40:57 Speaker 01 Reputation matters immensely. Conviction without credibility, people look like idiots eventually. And so you don't want somebody out there who is effectively a fool, talk about how great your company is, because all of a sudden, people will just pattern match to the fool element, not the great company element.
41:11 David Weisburd? They won't even do the diligence for the next round. They're like, if they let this guy in, I'm shorting the company. I can't technically short it.
41:17 Speaker 01 Even if it's totally not true and the company is exceptional. And then obviously, credibility without conviction, those are cowards and they're probably not going to invest anyways. The other element here is, we are talking about the most consensus, most memetic companies you can imagine. As soon as you go sort of one company below that, and sort of the most valuable companies in the world, so you know, company number 25 or 30, or whatever, whatever that number is, the dynamics for those rounds are completely different. Because you are usually oversubscribed, but you're not oversubscribed within two weeks.
41:54 David Weisburd? You have time.
41:55 Speaker 01 You have time. And those founders we have discovered are more than happy to build a relationship over the course of two to 12 months. Make sure that they trust us, that we're going to be good spokespeople for that business. They're obviously willing to take a bet on us because we're an emerging fund. And, you know, they're betting that one day, it will be a great signal to have overlooked capital on your cap table. But critically, we can enter those rounds. And even though they're competitive and they have... Multiple term sheets, they're not 5x over subscribed within two weeks.
42:30 David Weisburd? Because I'm embarrassed because I obviously understood the value of a lead investor and a large investor. I never thought about the credibility importance of the smaller investors, how they're also mouthpieces in the marketplace, talking about the company, building credibility.
42:41 Speaker 01 I don't think this is something that makes or breaks the company.
42:44 David Weisburd? You hear authentizize about value add. You don't hear about kind of the reputation of the company through the smaller investors.
42:50 Speaker 01 I think it's probably the biggest way in which investors can add value.
42:55 David Weisburd? Reputation. That's what Naval Ravikant, he said, Naval Ravikant has now invested in your company. This is my value add.
43:01 Speaker 01 Yeah, I think that's.
43:02 David Weisburd? And it's true.
43:03 Speaker 01 I think.
43:03 David Weisburd? It sounds arrogant, but it's, it's true.
43:05 Speaker 01 No, I think, I think that's, I think that's about right. Obviously trying to be humble about this, it's not like we can say, oh, definitively overlooked capital is the highest signal you can possibly get. But at the end of the day, the biggest alpha comes from deal selection. I don't think it comes from a team of business development people or recruiters. Those things are all nice to have, but they are marginal. And what are you thinking about as CEO? You're thinking about how do I recruit the best people? How do I raise the next round? What is the best way to enable those things to happen? Signal. And who has put the most skin in the game next to employees and founders? It's investors.
43:43 David Weisburd? Leverage is capital and people and obviously technology. But if you don't have a good technology, you shouldn't be raising or hiring people. There's one piece of advice you'd give a younger Eric that just started your career that would have either accelerated your career or helped you avoid cost of mistakes.
43:56 Speaker 01 Early on in my career, I think I was very hesitant to make investing mistakes. And the reality is I'm confident in overlooked capital in large part because of some of the mistakes I've made in the past, because I know what to avoid. Being, there's value in being aggressive early on in your career when the stakes are lower that compounds in a really big way. That being said.
44:22 Speaker 01 You know, I started the company in college, graduated, went to run that company, ran that company for around 12 or 18 months out of college, didn't work out. And then reached out to Max Levchin, started working for Max and Ellie Levchin. And I probably learned more in the first six weeks of seeing how it's done with Max and Ellie than I did through the entire period of my, you know, at that time, very short career, but before then.
44:51 David Weisburd? Seeing what greatness looks like.
44:52 Speaker 01 Seeing what greatness looks like, doesn't even need to be greatness. It's just seeing what it takes to win is significantly more valuable and will compound significantly faster than trying to learn this stuff all on your own. It comes down to selecting for good teams more than any other criteria early on in your career. Flip side of this, which I wish I had known, is the seat really matters. The seat really, really matters because it's especially in investing.
45:25 Speaker 01 It is impossible to decouple the individual investor from the team. And by that, I mean, what were the investments you were able to make and not able to make? Which investments do you really get credit for? Which investments were you, a supporting role in the team for versus the lead? All these things effectively get thrown into a blender and are just poured into this gray soup of your LinkedIn. On one hand, what matters the most is being with a great team,
45:50 Speaker 01 which I have been incredibly fortunate sort of to work with the Levchins, to work at Founder's Fund, to work with ABC. But the flip side of that is when it comes to building a track record over 15 years,
46:02 Speaker 01 you need to be very sharp about what you're going to be able to do in that seat. And that's not just investing, it's also operating.
46:08 David Weisburd? Skills and attribution. One is making sure that you're around greatness and the other one is making sure that you're able to use your skills and also you get credit for those skills.
46:19 Speaker 01 Use the skills is the most important part. I think the credit, I mean, this is one thing that I've done right. I don't care about credit, I just want to win and be on teams that win. But the seat you're in matters for being able to win.
46:33 David Weisburd? Going all the way back, being with Max and Nellie Leffchen, one of the things that seeing greatness does, what does it practically do? It solves two things. One is it is achievable. Going down to that 100 points, it is humanly, it does not break people, it does not kill people, it does not break the laws of physics. And two is if you're around them and doing it, I am able to achieve those things.
46:50 Speaker 01 Yes.
46:51 David Weisburd? And those two things can never be unseen.
46:53 Speaker 01 Yes. Yes. The, I can't remember, I don't know who has this quote, but the, or this trope, but it's like, what would you do if you had 10,000 times the amount of agency you have today? Or what would you do if you knew you weren't going to fail? And that is a really interesting exercise when you don't actually know how to succeed. But when you couple that with people who actually do know what they're doing, it can supercharge your career. And that, I mean, that's certainly what happened when I first went to HBF, which would become Sci-Fi VC, and started working with Leffchens.
47:24 David Weisburd? On that note, thanks so much for jumping on and sharing your wisdom and your career. And I'm looking forward to doing this again soon.
47:30 Speaker 01 Sounds great. Thanks so much for having me.
47:32 David Weisburd? If you found this conversation valuable, please click Follow How I Invest so that you don't miss the next episode with the world's top investors.
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