20VC: Accel's Sonali De Rycker on Building a Generational Defining Venture Firm; Hiring, Culture, Incentives | Investing; Biggest Mistakes, Biggest Lessons from Prior Crashes, Why Market Size is Dangerous to Focus On | Decision-Making; Type 1 vs Type 2 Ri

Sonali De Rycker is a Partner @ Accel, one of the leading firms of the last 3 decades with a portfolio that includes the likes of UiPath, Miro, Spotify, and many more incredible companies. As for Sonali, Sonali led Accel’s investments in Avito (acquired by Naspers), Spotify (NYSE: SPOT), Primer, Monzo, Letgo (acquired by Naspers), Kry/Livi, Soldo, Hopin, and Sennder. Prior to Accel, Sonali was with Atlas Venture (now Accomplice). She also previously served on the board of Match.com (NASDAQ:MTCH). In Today's Episode with Sonali De Rycker You Will Learn: 1.) From Small Town in India To Leading Venture Capitalist: How Sonali made her way from a small town in India to becoming one of the most prominent VCs of the last decade? What were some of Sonali's biggest lessons from seeing the booms and busts of 2000 and 2008? What climate does the crash today resemble more? Why so? How does Sonali advise younger investors who have not lived through a downturn? What should their investor psychology be right now? 2.) Firm Building: Accel: What are the most challenging and non-obvious elements of building a firm today? What have been some of the biggest mistakes Accel has made when adding to the team? What qualities do Sonali and Accel specifically look for when interviewing candidates to join the team? What specific questions tease out whether the candidate has these traits? What specific structures does Accel have in place to encourage the team to work together as one cohesive unit? How do they use bonuses as a team incentive? 3.) Sonali: The Investor: How has Sonali's investing style changed over the years? What moments caused these changes to happen? What are some of the biggest mistakes Sonali has made in her investing career? What did she learn from them? On the flip side, from winners such as Spotify and Supercell, what did Sonali learn from her biggest winners? Why does Sonali believe that market sizing and outcome scenario planning is useless and will lead you to make the wrong decision? 4.) Decision-Making and Risk: What does Sonali mean when she speaks of Type 1 and Type 2 decisions? How should one's decision-making process change according to which type of decision it is? What are the two biggest risks startups are facing today? Does Sonali believe that seed-stage companies will take money from crossover funds? What does Sonali do when she loses faith in the founder? How does she communicate that to them in the right way? What have been some of her biggest lessons here? What have been some of Sonali's biggest lessons when it comes to reserves management? How does Sonali determine when to double down vs reserve cash? Items Mentioned in Today's Episode with Sonali De Rycker: Sonali's Favourite Book: A Fine Balance Sonali's Most Recent Investment: BeReal

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

• 0:00Speaker 00

  The only problem being is I had no money. I had never been abroad and I wanted to go to the US. So I feel like I was my startup.

• 0:06Harry Stebbings?

  Welcome back to 20 VC with me, Harry Stebbings. And what a show we have in store for you today with the one and only Sonali De Rika. Now, Sonali has been a close friend and mentor to me for many years. And so I was so, so happy to make this one happen. Sonali is a partner at Excel and led Excel's investments in Avito, Spotify, Primer, Monzo, Cree, Hoppin, and Sender, to name a few. And prior to Excel, Sonali was with Atlas Venture, now a accomplice. And also previously, Sonali served on the board of Match.com. I'd also want to say huge thank you to Johnny at Hoppin, David at Sender, Julian Beck, Philippe Botieri, and many more. Some amazing question suggestions today. Really did make this episode so special. But before we move into the episode today, if you are a venture capitalist or corporate strategist, I want to tell you about Tegus.

• 0:49Harry Stebbings?

  Tegus is the only company in the world that aggregates qualitative information on private companies from seed stage to pre-IPO. With Tegus, you can access other VCs and founders' expert call transcripts from previous rounds to help source fast-growing companies, create compelling emails to get a founder's response, and diligence companies when a round is moving fast. I use it personally and I think it's insanely brilliant. Tegus is also providing the most flexible and highest-quality way to run your own expert calls. With no upfront fees or call minimums, the ability to do 30-minute calls and simply paying the expert's rate at an average cost of $300, Tegus makes expert calls easy. Find out why a majority of the top venture funds are using Tegus on a daily basis.

• 1:32Harry Stebbings?

  Head over to tegus.co/growth for your free trial. And speaking of insanely great products, are you and your team still using your personal phone numbers for work? Well, OpenPhone makes it incredibly easy to get dedicated business phone numbers and keep all your work conversations separate and organised. And there's a couple of things in particular that I love about OpenPhone. Each phone number comes with its own inbox for managing calls, texts, and voicemails, making it easy to keep track of every conversation. Numbers can be shared with your teammates, too. Make outgoing calls, answer incoming, and even respond to text threads together, all from the same phone number. And even better on work-life balance, set your Business hours and mute numbers so that customers and clients can only reach you when you're working.

• 2:15Harry Stebbings?

  My word, I wish I had the same. I might have a happier girlfriend then. And then you can sign up and start using your new business phone in minutes. Visit openphone.com/20vc. That's openphone.com/20vc to save 20% on your first six months. And finally, I love history. And you know what happens when you look at the history books of Silicon Valley? Cooley is all over it. They are the global law firm built around startups and venture capital. Since forming the first venture fund in Silicon Valley, Cooley has formed more venture funds than any other law firm in the world with 50-plus years. Working with VCs, they help VCs form and manage funds, make investments, handle the myriad of issues that arise throughout a fund's lifetime.

• 2:56Harry Stebbings?

  So to learn more about the number one most active law firm representing VC-backed companies going public, head over to Cooley.com and also check out Cooleygo.com. But that's enough from me. So now I'm very excited to welcome my dear friend, Sanali De Raike, partner at Excel.

• 3:16Speaker 02

  You have now arrived at your destination.

• 3:19Harry Stebbings?

  Sonali, this is such a joy to do. I can't believe it's taken this long. I think we first met about seven years ago, back when I was actually young and cool. But thank you so much for joining me today, and this is such a joy to do.

• 3:30Speaker 00

  Harry, it's a personal highlight for me to actually be here with you finally today. I think you know I'm in admiration of everything you have and you continue to do at 20VC, so thank you.

• 3:39Harry Stebbings?

  That is very, very kind of you. I'm truly touched by that. But I do want to start with a little bit of context. You've been in the venture game for a number of years now. Tell us, me, how did you make your way into venture first and then come to be at Excel, obviously, for the last 10 years or so?

• 3:54Speaker 00

  14, yeah. If you will allow me, I'll take you back a little bit longer because I think the history kind of always predicts the future. So I grew up in India in the 70s and 80s, socialist India. And what I mean by that was choices were limited. There were like two choices of soap. There were two TV stations. Means were limited too, so I always knew I had to be a professional, quote unquote. So that was kind of the job career market. Wasn't much business at the time and being a professional meant, at least in my house, from a very young age, I was either gonna be a doctor or hold your breath, I was gonna be a chartered accountant. I had no interest in any of these two things and I thought, no, I gotta get myself out of here. I decided to do that, the only problem being is I had no money, I had never been abroad and I wanted to go to the US.

• 4:37Speaker 00

  So I kind of camped out at a building, which I don't know if it exists in other countries, it was called the USIS, United States Information Service. I would literally go there every day after school, I would climb a ladder, I would pick up this big fat book with frayed edges about how to apply to America. I swear it must have been like five, 10 years old, out of date, I have no idea. I followed the instructions and by some miracle, I landed up on the east coast in America of America with a full scholarship at a liberal arts institution, so.

• 5:05Harry Stebbings?

  Were you very nervous? I mean, it's incredibly intimidating as any young person moving across the world on your own. How did it feel?

• 5:12Speaker 00

  I don't think I've ever been bolder, more ambitious, more entrepreneurial, more scrappy, more resourceful. I feel like I was my startup. Does that make sense?

• 5:19Harry Stebbings?

  Yeah.

• 5:20Speaker 00

  And I was so completely confident that this was the only way that I could forge my own life. I tried to tell that to my 15-year-old kid, whether you know my daughter, it's another story. I didn't even know when I'd go home, so I had no idea when I'd be able to sort of afford to go back. It was really like a one-way ticket. But it changed my life, it changed my family's life, so clearly the best move ever. Fast forward, I graduated, it was liberal arts and where I went to school, none of the big banks came. But I had a lot of debt and I had a student visa, so I thought, okay, I better get myself a job at something pretty stable. So I managed to get a job, this was in 95, at Goldman Sachs. And being kind of the scrappy person that I was while I was there, I weaseled my way into this group

• 6:03Speaker 00

  that ended up spending most of their time with young startup companies. And I happened to join them in a meeting with this business called Spyglass. And in fact, it was the first internet software IPO. And when I walked into that room and I spent time with this founder, this company didn't exist a few years ago, it was growing fast and it had just gone public. I think the founder was wearing Birkenstocks, this is in contrast to like suited, booted people. I got the bug, I was totally hooked. I thought I need to be part of business. Like this and I spent the rest of my time when I was there just being part of teams that sort of touched, if you will, tech or tech IPOs, et cetera. And let me remind you, this was the start of the bubble. Fast forward, I went to business school, collected some more debt, collected some more degrees, did the immigrant thing.

• 6:46Speaker 00

  And while I was there, I did immerse myself in all things, kind of technology, venture capital, entrepreneurship. I stayed out of trouble, I think, too, because it was really like the heyday. I made two decisions, really. One is that I wanted to do venture capital. And then this is the big one, Harry. I decided that I must be in Europe. I was in Boston, Route 128 felt super cluttered. It was so early that I thought it was cluttered back then. And then Silicon Valley was also completely full up. I was like, what am I going to do there? So I said, let me go to Europe. It's ground zero. The ecosystem felt like it was buzzing because I went back and forth and I met people. It really felt like it was the next frontier and I joined a firm called Atlas Venture. I had a great time. It was a difficult time because the bubble was slowly deflating. And I moved to Excel in two thousand and eight and I've been here since.

• 7:30Harry Stebbings?

  Now, the joy of me having the role that I do is I get to learn from incredibly wise people like you. We were talking beforehand a little bit about kind of what we're seeing in markets and how it's impacting my frail nerves. How did seeing the booms and busts, I mean, you saw it first with the dot com early in your career. And then in two thousand eight, two thousand and nine, how did seeing that impact your investing mindset first? Before we get on to advice for me.

• 7:52Speaker 00

  Yeah, I'm sure you have advice for me. I think we're much more aversion in a version of two thousand than we are in a version of two thousand and eight. I sort of contrasted with sort of two thousand eight was more Wall Street. Two thousand was more Main Street. I think this is a version of more Main Street, clearly. Technologies at the epicenter. If you'll allow me, I'll give you two anecdotes that sort of I have imprinted on my brain. One for each sort of downturn, if you will. I joined in the summer of two thousand. It was choppy, right? We had a big downturn, but really the bubble deflated in two thousand and two. And things were really grim at that point in time. And so I was asked to go work with a group of founders, mostly e-commerce founders. This is a time of Bets.com, Cosmo. And so I was asked to sort of go into the trenches and I loved it, working with these founders

• 8:35Speaker 00

  and really trying to figure out what do we do now? There was no follow on capital. There was not a drop of money. Available. So you either had to get to break even if you had a revenue model, or you had to give the cash back, or you had to sell the business. So this is what I was doing. I was working with one particular company, an Irish company. The founder had done a nice job. He got the company to a few million in revenue. It was break even. The founder decided, let me sell it to the wholesaler. So I was in the middle of trying to help him kind of and represent the shareholders of sell the company back to have kind of an elegant outcome or home for the business. I was in the middle of this heated negotiation. It was like a week long negotiation. And my phone rang in those days, it was the front desk, and the reception said, you have somebody on the phone for you. His name is David Bonderman. By the way, I've never talked to David Bonderman since.

• 9:18Speaker 00

  He has no idea who I am, no idea that he's telling, I'm telling this story. And I thought I knew who David Bonderman was clearly. And I thought, why is he calling me? And I remember he was a very small shareholder in the cap table of this company. I got on the phone and he said, look, I can't talk for long. This is who I am. I'm calling from a satellite phone. So it was important enough to call me a nobody. You know, try to negotiate a very small outcome. We're talking about like hundreds of thousands of back or a few single digit million at best. And he proceeded to ask me in excruciating detail what I was working on in terms of the sale. Harry, the fact that this legendary founder investor could call me to ask about a very small amount of money, I figured out two things. One is the world was bad out there.

• 10:00Speaker 00

  And the second one was that's how he became a legendary investor. Detail, the value for money, it sort of, it never left me. The second episode was two thousand and eight. We were raising our early funded Excel. We were in New York City. It was mid September. You know where I'm going. We were actually at the basement of the Four Seasons. We were lucky enough to sort of ask LPs to join us there. It was the day Lehman collapsed. Just seeing the LPs, it was really a testament to our relationships over so many years that they came to the meeting. But it was a disastrous time, right? The bottom had fallen out of the market, the everyone's portfolio value had come down. Alternatives, including bunch of capital was disproportionately high. That was hard. But I can tell you, both those instances taught me the value of the capital

• 10:46Speaker 00

  and the importance of being a fiduciary, if you will, to the founder, to the shareholders. Our whole is to our LPs and we just were talking about that, Harry, weren't we before this? So those are my two kind of anecdotes. At a high level, what I'll tell you is what I really learned is that probably two things. One is never stop investing. The minute you lose your confidence, you lose your right to exist. Because if you look at the funds that were around in 2000, so many of them disappeared exactly for that reason. That's one thing. And the second one is partner. It's not about just your investing mindset, it's your partnering mindset. You have to partner with your entrepreneurs. And right now, I'd love kind of what you think. It's such a confusing time for these founders, right? We told them, cut costs during COVID, it's a recession, who knows, the demand is gone. Then there was money flowing through the system, money had never been cheaper. It was all about growth.

• 11:31Speaker 00

  We said, no, no, no, no, no, forget that, just grow, grow, grow at all costs. Like burn, doesn't matter about the burn, it's all about growth. And now the messages are like, no, no, no, you've got to get to profitability, all within two years. It's almost psychotic, so it's almost unfair. So I think embracing, putting your arm around the founders you work with is the name of the game right now.

• 11:48Harry Stebbings?

  I interviewed a brilliant person yesterday, who actually was really not very brilliant at all. And they were saying that their advice to founders is to cut costs at all cost, but to be aggressive in areas where they have confidence. And I was like, that is the most paradoxical useless advice anyone could give. I've got some questions there, just on the back of that. You don't think I kind of go off on tangents? You said there about kind of finding a landing pad for the company where David Bonderman called you. I've honestly been taught by some of the greats. Harry, it's not worth your time getting sense back on the dollar. Just spend time on the outliers, given the impact they have on your portfolio value. How do you respond to that? And how do you think about like time allocation across the portfolio? And the worthiness of spending time with companies where it is?

• 12:30Speaker 00

  Yeah, we are in the business of partnering very, very early with founders, right? The majority of what we do is either seed, who knows, whether it's pre-seed or seed these days, it all got sort of merged or series A. And those are 10 to 12 year relationships, they're certainly 10 to 12 year funds. And I think you only stay in business for 30, 40 years as we've done is if you have the references and those relationships and you know very well about that because you're at the epicenter of a lot of it. And I think we have kind of a commitment to really be there for the highs as well as the lows. Now, maybe we can. Staff it differently, maybe we can support them in different ways, but I don't think you could just check out. It's just not the right thing to do. And the question is then how do you do it at a fun level? So you allocate your time wisely, which is something we do spend a lot of time thinking about.

• 13:12Speaker 00

  I think the relationship with the founders matters a lot because that's what we're in the business of doing is back and repeat founders. Company number one didn't work, but company number two might be a blockbuster.

• 13:23Harry Stebbings?

  You also mentioned two thousand and eight and the day Lehman crashed, obviously. And I'm most interested by the book value that you mentioned there because we're seeing this now where I was on the phone with LPs this morning and they're like, our private books are about to get obliterated. They're not yet, but they're about to. My question is, are we going to see managers be extremely proactive in revaluing their books? Are they going to be delayed in doing so? How do you expect this to play out in the next six months? But how do you expect them to be revalued?

• 13:50Speaker 00

  What I'm really surprised at, Harry, because I sometimes check where things are sitting. Because we're now going to be soon in our fortieth year. We've always seen that it pays to be a combination of conservative and realistic. We don't make up our own way of accounting. And so we're pretty proactive about taking down the valuations. But they're already sitting at pretty deep discounts. That's us depending upon, we have various layers of doing the analysis. And I do think people will be proactive because you have to be, but it's going to take time. And it's going to happen much more on the companies that have to have an outside mark, right? In terms of doing around. And the challenge is that people are just not interested in going out and getting an outside mark right now.

• 14:34Speaker 00

  They'd much rather just put their head down and take the capital that they have and keep going. So I think you have to sort of really take a different view. Is it going to be about a multiple change? Is it going to be about a business risk? There's two different things that are going on. There's contraction multiples and then some there are businesses that are being affected. I think we're mostly just seeing a contraction multiples for the most part right now. I think there's a little bit of a wait and see, especially given the divergence in the venture business.

• 14:56Harry Stebbings?

  You mentioned the accounting principles that you have at Excel. I spoke to so many of your teammates before the show. I even spoke to Jim and Arthur, who say hello and how wonderful you are.

• 15:05Speaker 00

  You really do your work, Harry.

• 15:07Harry Stebbings?

  I really do. I just like talking to people, honestly. But I was shouting to them and everyone used the same word to describe you, which is the glue of Excel London. I thought it was just a very striking thing that so many describe you in this way. What do you think they mean by the glue of Excel London? And what do you think you bring to bring that cohesion and stability?

• 15:27Speaker 00

  Creating an environment where you can really be the best version of yourself and do that authentically, because everything else, and you've discovered this, is so, so hard. You have to be comfortable with yourself and you have to kind of exercise your voice and figure out how you can be the best investor with what you bring to the table. And so that's easy said and done. And you need to do that over a 10-year period because that's your commitment to your founders, that's your commitment to investors. And so what does that mean in practice? It means there's a lot of communication, so constantly pulling people in, giving feedback, asking how they're doing, keeping an eye on when you see somebody sort of is not kind of as active or as happy as they were. I remember I had a review once and it was at the end of the year

• 16:10Speaker 00

  that I was giving this feedback, whatever the feedback was, let's not talk about that. And I thought, why are you telling me at the end of the year? If you had just told me like in Q1, I could have course corrected and then you wouldn't have this impression for me for three quarters. And that really stuck with me and I kind of made a commitment. And we have a commitment that we give real-time feedback. And because of the way we mentor, we're actually able to do that. So that's one thing we do. It's a lot of communication. I think the second one, which I think shows a commitment to the talent and the people. We hired someone who's only responsible for talent for the team at Excel a few years ago. Have you seen Billions?

• 16:46Harry Stebbings?

  Yeah, of course. I love Billions.

• 16:47Speaker 00

  We thought that we needed a Wendy-like figure. But because it's all about, if you're telling your companies to focus on culture, you're telling your companies to focus on talent, why would you not want to do that? And of course, you can do that yourself, but it's not a side hustle. You need one person to really be thinking about it all the time in terms of how you can be world-class. So I've had candidates tell me, the fact that you have, Chloe, that shows me how serious you are to sort of mentorship and commitment. I think the final thing I'd say is one of the reasons I think I maybe have people say that is because I open up a lot. You have to give, you have to get. And part of that is being vulnerable and being very open. And so I do that a lot and I think you know, because you've been incredibly supportive and thoughtful. I had a tough situation with my son for a year and a bit. And there's not a person in this office who didn't know that and who wasn't supportive

• 17:32Speaker 00

  because that's how I do it.

• 17:34Harry Stebbings?

  I think the world of you, but apart from that, I wanted to ask, like, do you think it's easier on the vulnerability side? Bluntly, now that you are very successful, like, you know, when I started, there's no way I would have been as vulnerable as I am now. But you can be more and you're afforded more luxuries with seniority. Do you find that that's the case? And is that the case for you, do you think?

• 17:53Speaker 00

  It's a really, really good question because that's what you do. You ask good questions. I think so. I was in a conversation with my Harvard Business School Lead Professor, Leadership Professor, she's incredible. And I was sort of going on about being authentic and being the best version of yourself. And Shomis Anali, why do you think people can be authentic and be the best version of yourself? You're just lucky. So I thought that was good feedback, which is like, it's not so easy. So you're right, it's not so easy. I don't know, I've always been kind of a version of this, so I feel that I pushed the envelope on that front. But yeah, I think it is easier when you're more senior and that's great because you can role model it. And hopefully you can change that discrepancy, to be candid.

• 18:32Harry Stebbings?

  I do want to ask, you know, I had Doug Leone on the show and he described Sequoia's culture as not a family, but as a team, where performance is number one. And I wanted to ask you, if you were to kind of describe Excel's culture that you want to build for Excel London in that same way, how would you describe it?

• 18:49Speaker 00

  The sentence that we use is that we want to be hyper competitive on the outside, but we're ultra collaborative on the inside. There are no sharp elbows here. It's not a star culture. It is a safe place and there are written rules, there are unwritten rules on the written side at a young level. If one of the younger investment team members identifies a great company, a great founder that we actually end up investing in, everybody gets a bonus because that's sort of a way to hard code collaboration. An unwritten rule, anyone here picks up their hand and says, we really need to work with this founder. We need to do everything we can to convince him or her. We will all drop everything to get on a plane. Actually, that's the funnest part, the chase.

• 19:31Speaker 00

  And when we're all together, because as you know, venture can sometimes be a lonely business. So I think it's the code of conduct because we all know, we're all very kind of aligned in terms of our mission.

• 19:40Harry Stebbings?

  Can I ask, how do you prevent yourself being the bottleneck? And what I mean by that is when you have great young people sourcing great companies and they find something great, sure, but you're on eight, 10, 12 boards. I'm on a ton of boards. I have a ton of other commitments. I can't just drop everything and fly to Helsinki. It's not that easy, like it isn't for you. Like, how do you prevent yourself from being a bottleneck in decision making consistently?

• 20:03Speaker 00

  At the end of the day, you have to empower the right individual to be able to make those decisions and help them, support them, help them win. But there's a time to start, right? So I think for the right person, they'll be on the plane, making the call with a team. If we can't be there, one of us can't be there. But I think we really empower people maybe earlier than they think they're ready. But they're ready, if that makes sense, because we've seen it, we have pattern recognition. And it's the second thing is what I said, we genuinely drop things to support people. There's nothing more important than the team here and the team winning.

• 20:36Harry Stebbings?

  I remember when Be Real was happening and Julian called me from Andorra. And I said to him, where are you, buddy? And he goes, I'm in Andorra. I said, do you know where the founder is? No, but it's a small country, so I'm gonna start knocking on doors.

• 20:52Speaker 00

  And it was during the lockdown, but we made it. That was fun.

• 20:55Harry Stebbings?

  I thought it was hilarious. It was the most funny, cool. I do wanna talk about that, because you said about kind of the delegation and the ambition of the younger team members.

• 21:03Speaker 00

  Yeah, yeah, yeah.

• 21:04Harry Stebbings?

  They've also got to want that and be as ambitious internally. And so I wanna talk about talent detection a little bit. And so if we think about what to look for, when we spoke before, you said to me, it's not about can you work a spreadsheet or produce a waterfall outcome scenario plan? Very good for someone like me to know. So when you're in those interviews, what are you looking for? And what qualities do you really want to uncover and tease out?

• 21:26Speaker 00

  Yeah, so I think we figured out a while ago that we don't have the operator pool here back in sort of the late 2000s. And there's a lot of investor talent, but it's later stage. And given we're trying to be the first partner, that didn't work either. So we really had to figure out the homegrown nature of talent. And it's, it's what the track record was with the US too. And we thought when we made mistakes, what we were getting wrong was kind of the emotion. Characteristics, really the who as opposed to the how or the what. And so we started to think about, you know, we wrote it down on the whiteboard, actually. And we realized that what really mattered, and it seems so obvious, but we weren't testing for it, we weren't asking for it, like resilience.

• 22:05Speaker 00

  Most of this business is rough, you have to reboot yourself so many times, especially historically it was mostly bad news. Because the companies that didn't work would shut down and then the good news, it took longer for great companies to percolate. And we weren't testing for like how reflective you are, how self-aware you are. You have to be the person sitting at the side of the founder, it's not about being the star in the room. It's really about building those relationships, being able to persuade. So how self-aware you are in terms of how you change your tune, how you work with people. It was about how persuasive you are, because you're always persuading someone, right? You're persuading the founder to work with you, you're persuading your partners as a great idea. When you're doing a follow-on capital investment decision, there's persuasion.

• 22:46Speaker 00

  So we started asking questions around that, there's no magic, Harry, in terms of the question. But when you ask someone, for example, what was the most surprising negative feedback that you got? And why do you think you got it? The person will tell you something that you're never going to find out. So that was a really interesting question for me, because you shortcut like a whole bunch of references that you end up doing to find out that answer. Because they'll tell you. If you ask someone, what do they think the biggest mistake they've made, and we're not talking about investing mistakes. It's sort of super personal, so then you go into a really deep area. These are the kinds of things that we started to do.

• 23:21Harry Stebbings?

  Do you find people actually engage with that? They are, and like when you said those things, I immediately thought of things that I would answer. But like, if I was in an interview and I was like starting out in the industry, I'd probably give like false answers, do you know what I mean? Not I work too hard style, but do you find people do actually open up and engage? Or are there things you have to do to make them feel at ease to engage in a way that's productive for you?

• 23:43Speaker 00

  The smart ones figure out that this is a real conversation and they've got to give it their all. And that's the other thing, by the way, Arthur said is you cannot convince people to be an investor. They really need to want it because it is so hard over a long term. And I think the individuals that we've met, that I've met, who really want this, who crave it. I think they give it their all and they really engage. And if they don't, that's telling you something, right? There's like, you're not really getting to them. And maybe you have a follow up meeting, but generally I feel like you get a lot out of it. Look, it's not perfect, but it helps us a lot to really distill kind of characters, traits.

• 24:17Harry Stebbings?

  You mentioned the resilience there. We're about to go through an interesting kind of macro environment and changing times for our business. And there's a lot of young people who've never seen a recession or downturn before, who are going to have some pretty bad outcomes that they've never had before. We talked before about, I'm very open in the show too, about the company of mine that's not doing very well. If you're advising me and you're advising a generation of young investors out there who haven't seen this before about resilience and about what to do when a company goes bust and how not to lose confidence, what would your advice be?

• 24:46Speaker 00

  So I do two things. The one is, and I think this is important, is I'd really lean in into your early stage businesses, right? And the vast majority, what we've done is seed investing, definitely pre-product market fed, or even this product market fed is super early. I think the joy there in terms of really supporting those entrepreneurs, I think you need to keep that joy alive, if you will, during tough times to remind yourself what good looks like, what's possible, kind of the infectious enthusiasm around building something. So I think you need to really lean into those situations. And we all know the great companies get built in a downturn. And I think a lot has been said about it, but it's truly a special time to be partnering with your entrepreneurs that you've already backed. So I think that psychology element is incredibly important. Of course, it's incredibly important for them.

• 25:31Speaker 00

  We all know it's not about the type one mistakes, frankly. It's all about the type two mistakes. So candidly, yes, you could lose some confidence, but it's about distilling what you've learned and moving on. Because experienced is just going to a rat hole. You feel a bunch of regret, you think what you get wrong. But the key is to extract some learning from that situation. Make sure you keep investing. The worst thing you can do, as I said before, is be frozen and stop investing. You always have to be meeting those entrepreneurs because that's how you get out of it. You get out of the funk.

• 26:05Harry Stebbings?

  I told you I just use this for advice. In this case, I don't think the process in terms of the investment decision was wrong. And I don't think the business was bad. It was a change in macro environments and capital markets, which meant that a business that would have normally succeeded in a prior thirteen year bull market no longer succeeds in a downturn. I kind of leave going, well, do I have any lessons? And that makes me feel quite guilty.

• 26:28Speaker 00

  Well, there are some situations where you can do all of the right things, where the entrepreneur does all the right things. Go back to what I said, it was a bull market, grow fast, go big or go home. The money was flowing into our system as we know why for a number of years and especially the last two years. So, but Harry, have learned something. You have learned that capital was cheap for a while, but it's not forever cheap. So you think about the business models you back next. The role of what the cost of capital plays in the unit economics will be front and center. And the other thing I've learned in some of the situations I've been involved in is that actually, you know how you do a memo, we do a memo because that's sort of part of being a responsible investor. It helps you articulate your thinking. You write down, oh, there's regulatory risk. Or you write down this funding risk, or you write down this geopolitical risk, but you just write it down.

• 27:13Speaker 00

  I now have deep respect and learned that over the years. If something can go wrong and in a long enough period, it actually might go wrong. So don't just write it down, absorb it, internalize it. So maybe there was no learning, but I I'm hundred percent sure that you've learned something coming out of it, the capital intensive business models.

• 27:29Harry Stebbings?

  What worries me is it kind of prevents us being ambitious. We're going to see a reversion to high margin enterprise SaaS investing. Actually, we're going to see a retrenchment away from emerging markets. You're going to see a retrenchment away from capital intensive businesses. And then what are we left with? SaaS and enterprise? Yeah, I get it. But I I don't know, it just saddens me because that's the takeaway that you have.

• 27:48Speaker 00

  I'm not worried about us losing confidence, not backing the outliers. I mean, we invested in Spotify in the early eleven is when we were talking to them. It wasn't kind of the most obvious time either and was incredibly bold plan. I think these exceptional founders absolutely are there. They have the confidence, they have the attention now. And yeah, maybe they're more capital intensive, less capital intensive. But there is enough dry powder, Harry, right now. I think it's like the numbers are two, three, four hundred billion. That is out there in venture capital at the moment and dry powder. So I think long term secular trends are not going anywhere, right? You agree, digitization, AI, etc. The cloud, the founders are there. It's never been more vibrant. After two thousand, it was B to B and B to C. Do you know what that meant?

• 28:30Harry Stebbings?

  Yeah.

• 28:31Speaker 00

  It was back to banking and back to consulting. All the founders disappeared. It was dry. It was like watching paint dry. This is the opposite of where we are today. I think there's a lot to be excited about and the good news is I think you can maybe focus talent, concentrate talent again in some of the really great businesses versus this fragmentation of talent that happened.

• 28:48Harry Stebbings?

  Do you know what worries me though, actually, and I'm just free flowing here, but it's like, actually, I speak to a lot of the big players. Your co-tos, your D ones, your durables, your soft banks of the world, your tigers, and all of them are going five hundred to a billion. Nowhere are we doing these growth rounds anymore. Wow, we can pay fifty instead of twenty five at seed and put in five on fifty? Great. And I think we're going to see the migration of capital from growth to super early. And then actually price inflation at the seed, like we've never seen it before, ironically. I'm concerned about that. How do you think about that?

• 29:18Speaker 00

  Yeah, I don't know. Do you think the early entrepreneurs, we talked about us doing seed and A and being there at ground zero and partnering with them? Do you think they're gonna work with funds that are totally passive?

• 29:29Harry Stebbings?

  Yeah, I do. I had this argument at dinner last night with someone and they were like, no, they wanna partner with a VC. Honestly, they don't really. If you give them five on fifty versus five on twenty, they'll go great. Thank you.

• 29:43Speaker 00

  You know, Harry, I have more faith because you know what? I'm seeing situations and you're seeing them too at the later stages that some of the crossover hedge funds, call them what you want, it's not easy to work with them and things are not going so well, right? And they're nowhere to be. And I really believe that entrepreneurs talk to other entrepreneurs and if anything, you want someone to call. Literally, I mean, a couple of these situations right now, and the founders tend to call the ground zero investors, even after like a cap table or series A, B, C, D, E. It just tends to be the case that they want to be able to, there's alignment around being early, frankly, that never goes away. I mean, just the other point I want to make, because the reason you might take this capital is because they'll come later.

• 30:26Speaker 00

  But it's not so obvious that they will come later, right? Because people are not investing anymore, and I think that's something that the founders care a lot about. Maybe just a related point to a previous question around these capital intensive businesses not getting funded. One of the reasons there was such capital intensity was because of competition, because you had so many companies in the QSR, like in the delivery space, and I can keep going to 10 other spaces. And now maybe there'll be a couple, and back to the concentration of talent, there'll also be a concentration of capital. So not always a good thing, but I think largely it's not a bad thing. It's the way it used to be. But I digress. My answer to you on the other question is I believe that it reverts to relationships and founders care about. Not all, but a lot do, and enough of the great ones will.

• 31:09Harry Stebbings?

  No, listen, I hope so, and I think you're absolutely right. I think also, especially for founders that have experienced great partners and great board members before, you definitely see them appreciating the value. So I hope so, and so I will take your optimism on it. I do want to, we mentioned kind of like investing sales, and I'm like, what I learned from like this challenge that I'm going through. When we think about your investing style, how has your investing style changed over the years, Sonali? And at that point, it's like it really changed how you think.

• 31:34Speaker 00

  One thing that I honestly could not say I understood how great great was. It's only when you're confronted with it in reality that I think you realize what uncapped kind of exceptional greatness looks like. And I think Spotify is a great example where we invested, it was unfortunately not the first money and shame on us. But when we invested, it was sort of 70 ish million in gross revenue. I mean, it's 10 billion now, and it was about a million and a half paying users. So still tiny in a world of where. It could have gone. We had no idea that it could get as big as it ultimately got. Yes, we dreamed etcetera, but it was never at the same

• 32:16Speaker 00

  kind of range of what it eventually, of what Daniel like was able to achieve with that business. So I think it's only when you see it close up that you really start to believe it. Learning is all about seeing. So I think that's probably was my big learning in terms of how uncapped this business can be. People told me, but it's only when you experience it, do you believe it?

• 32:36Harry Stebbings?

  Given that the best are so uncapped in many different ways, and that's something that I've learned from doing a series called The Memo where you know, everyone paid say three billion and points last year, it was sixty billion. Consistently, we always underestimate the size of our winners. Is there any point in doing outcome scenario planning in that case?

• 32:52Speaker 00

  None, totally none. The truth is that when you have conviction, and this is my other big lesson, when you have complete unadulterated visceral conviction around a founder and what they're doing, just find a way to partner with them. Just find a way. And it's great. We do the work. We're very thoughtful in terms of prepared mind. This is what allows us to do that. I'm sure when you had our founders, Jim and Arthur, they talked about prepared mind, which just for the benefit, it was a term coin by Jim and Arthur after the quote of Louis Pasteur, which is chance favors the prepared mind. And you have to have luck, you have to have serendipity, but you better be able to recognize what good looks like, you know, to recognize what makes for a great founder in a certain business, right? Because it's also about where the space is.

• 33:34Speaker 00

  And I think when you have the magic of that founder and the magic of actually being prepared in some way or fashion around the category, it's really explosive. And I think that's also been a big learning is you can do all your outcome analysis. It doesn't really matter, especially if you invest as early as we do.

• 33:51Harry Stebbings?

  In terms of reserves, what have been some big lessons for you on reserves? Like I think Prarata is quite a lazy one. I always think like you should either be all in and wanna lead the next round or not in at all. What have been your lessons on like effective reserves, management, deployment, decision making?

• 34:05Speaker 00

  Yeah, you know, the challenge in this last cycle, the follow on rounds came so quickly. That it was really hard to make the decision around, okay, what worked, what didn't work, et cetera, versus what we used to do. Rewind a couple of cycles ago. I don't think it's as simple as all in or nothing. For an initial investment decision, we're very much a conviction, not a consensus organization, right? It's all about, we get around the table, it's in your prepared mind, thinking you have to be first, that's the way we think about it. But the intellectual integrity, honesty, all are on the table. But when it comes to a follow on, we think of the company as a we. That's also the reason when it doesn't go well, there's no like finger pointing, there's no naughty corner.

• 34:47Speaker 00

  It's our company, we collectively made the decision, even if one person had the conviction, but we all asked the hard questions. There was real debate, there was real transparency, there was real trust. But we take the decision as a we, we'll really look at it together. It's no longer just about what the individual on the board. So we have some heated debates around follow on, which is very important, by the way. Because that's where a lot of your capital goes in, into the companies. And I think we do believe that if we really are fans, we buy up. It's only gonna get more expensive, right? And you'll never get the ownership, that is the important element of our business, is getting the ownership when you're partnering so early with these founders. But we do have some heated debates. I mean, if you look at the last cycle, the biggest mistakes were just putting a lot of pro rata money in.

• 35:29Speaker 00

  Or just following it and supporting companies. So you get your outliers. But then if a lot of your, percentage of your fund goes into companies that actually don't return capital. Because you've just been supporting them blindly, the return here, and then you have the loss here, and it adds up to a pretty average fund. So you've got to think very hard about that following capital, which is why for us, it's the we versus just somebody believing in it.

• 35:52Harry Stebbings?

  I mean, I'm getting this now, which is like the opportunity cost of that capital in this interim stage that we're in. I've got a couple now where the up rounds are coming, but they're still kind of priced at twenty one pricing. And I've got kind of two, three million pro orders. And I'm looking at it going, well, I have a very limited fund size. I would rather actually have that two, three million across three deals or nine in total. To deploy in depressed pricing that we'll see over the next year than in this twenty one pricing that's coming now. Do you see what I mean? I think people forget the opportunity cost of that capital.

• 36:20Speaker 00

  Yeah, totally. But at the same time, it's either you believe or you don't believe. Does that make sense? And then if you believe, you should allocate funds and actually even buy up. But this is a great time to buy ownership in the right companies. But yeah, if you think the pricing is out of whack, then it doesn't make sense to go deeper.

• 36:35Harry Stebbings?

  What do you do when you lose faith in the founder, when you don't trust them anymore?

• 36:38Speaker 00

  I think it's very hard because as we all know, it's all about backing the founder. And I think you are able to have open discussions with the founder to ask them, where are we going? What do you think? I think you have to be open if you feel like you have the support of the board and you actually can have an open, non-defensive chat with the founder. I've certainly had to do it. It's not easy. The way to mitigate that is not getting into that situation in the first place. But I think we owe it to us LPs, we owe it to ourselves to be able to have open and authentic discussions. And by the way, there's very few of those discussions that happen. It's become a cheerleading market and I hope that goes away with this current cycle. But it's pretty dismaying to see where the market had got to. It was like fragmented cap tables, party rounds and a lot of cheerleading.

• 37:23Harry Stebbings?

  Can I ask, in terms of like mistakes that you've made investing, are there any that stand out to you? And what were some big takeaways for you from those?

• 37:30Speaker 00

  That was about the type two, right? You're asking me type, it's the ones that you let get away.

• 37:35Harry Stebbings?

  So sorry, type one versus type two, what does that mean?

• 37:37Speaker 00

  Okay, okay. So for me, it's false negative versus false positive. The false positive, it doesn't work out, you can only lose one time to your money. But the false negative, when you say no to outlier business, right? To a founder that creates an exceptional business that could have returned the fund multiple times over, that really hurts. And so those are the ones you really have to learn from. I made two mistakes and we actually do this as a group. We put all the companies down that we got wrong and we really figured out why we got it wrong as a group. And we try to learn from each other's mistakes. So there's real vulnerability there and I think that allows people to kind of admit and put their hand up too. My mistakes have been, one is I kind of fixated on market size. It's so silly because the great founders, they just create adjacencies. They change user behavior with beautiful products.

• 38:21Speaker 00

  And I completely got that wrong because the markets, they look small. Clearly, if it's very small, it's very obvious, but generally speaking, founders can do some magical. Thing in terms of creating multiple products or just delighting users in a way that they kind of buy things that they never thought they ever needed. So I think that's been one piece of it. The second one is I really underestimated this bull market. Maybe it goes back to sort of the fact that I grew up in kind of post the two thousand and then of course the two thousand and eight. There was just no focus on the first principles in the business. We care about kind of enduring businesses and legacy, if that makes sense. Companies that will go public, companies that will be remembered, the likes of the Atlassians and the Slacks and the Dropbox and the Facebooks, et cetera, of the world and many others.

• 39:03Speaker 00

  We care about that. And as a result, sometimes we do ask questions around, well, what is the first principle thinking on the business here? And where that trips you up is where you think it's exactly what we talked about, if it's going to take a lot of capital to get there. And I think I personally just misjudged how much capital was available for the entrepreneurs who could fundraise really well. I really got that wrong. So it would have been better just to be early in some of these great businesses.

• 39:28Harry Stebbings?

  What do you think your biggest insecurities are today? Cause I think a lot of people will bluntly look at you and look at the incredible track, look at your position and go, no insecurities. And I think we will have them and it's humanizing. What do you think yours are today?

• 39:40Speaker 00

  Oh my God, there are so many insecurities. It's probably around the fact, I don't know if I can always get it right in terms of the exceptional founder. I mean, that really hurts. At the seed stage, I spent a lot of time with seed companies, as you know, because we exchange notes and that's so much fun. It's difficult to get it right.

• 39:57Harry Stebbings?

  I'm sorry, I'm giving you advice back here, not in a patronizing, anyway, you know, you don't have to though. And what I mean by that is, I know we want to be in every ten billion, twenty billion dollar business.

• 40:06Speaker 00

  Right.

• 40:07Harry Stebbings?

  You don't have to be. It's just a case of how many can you be in? Anything that takes you away from being in the next Drew Houston or next Daniel Eck or you name it, you want to remove, but you don't have to be in everyone.

• 40:18Speaker 00

  No, you're absolutely right. Yeah. So that's the answer. So good answer, Harry. That's the own question.

• 40:24Harry Stebbings?

  Sorry, but I totally agree with you and I totally get that. What are the biggest challenges of firm building? You obviously know me now building the firm with twenty VC, but you're ten chapters ahead with so many more learnings. What are the biggest challenges that you think people should know and what it takes to build a successful firm, really?

• 40:39Speaker 00

  Yeah. So it's interesting because I think it's the timing is quite unique in terms of European venture, right? We both know that. If we just go back when we started out in two thousand, we made the commitment to start Excel here because it wasn't just about Silicon Valley. It was our first step in going global and then India was two thousand and eight, which has also been very successful. So it took a lot of conviction, but you will know very well, Harry, that there were many folks who came here. Everyone other than Excel left. And if you ask us why? And the answer is that we figured out the structure of how do you do global well? Is that you have boots on the ground, you have local decision making, you're investing in entrepreneurs, it's a relationship business.

• 41:20Speaker 00

  You need to be able to make that investment decision sitting across the table, but not from thousands of miles away. So we got that structure right, but it took a lot of blood, sweat and tears to kind of evolve how we do global great, but local decision making very well too. So that was sort of a structural consideration, if you will, that has really stood the test of times and we're very proud of what we've achieved. And I think that was always a challenge. Me, the second challenge is really honoring our commitment. Great founder, great ambition, we will back you no matter where you are. So it meant going very early to Russia, to Vilnius. So we've invested in forty cities in Europe from London, which is not easy, right?

• 42:02Speaker 00

  To pull off, it means the way you structure your team, the way you think about thematic investing, the way you think about covering the ground and to do that, being the early investor, being sometimes the first investor was not trivial. So I know these are more sort of structural as opposed to talent answers. These are two things that we thought very hard about and we feel like we got right in the end.

• 42:22Harry Stebbings?

  Final one, and I'm slightly throwing in a grenade here. What do you make of the big US players all coming to London? We've sat on a panel before and we agreed on this and another delightful participant didn't agree and I still think he's wrong. But my question to you is that everyone's like, oh, all the US teams are in London. How do you respond and feel about that?

• 42:38Speaker 00

  I think it is sign of a maturing ecosystem, right? We all know how vibrant and exciting it is here and it truly is, right? I think the downturn here is not only is it the fundamental of the great entrepreneurs in terms of what they're building. So I think it's a sign of the fact that it's a very interesting market to be in. And how do you say you're a global investor if you haven't figured out Europe properly? So it had to happen, but the reality is it takes decades to build the capillary networks, the relationships, to really honor that commitment, as I said, to the founders, which is what we've been doing.

• 43:09Harry Stebbings?

  I could talk to you all day. I want to move into a quick fire round. So I say a short statement, you give me your immediate thoughts. Does that sound okay?

• 43:15Speaker 00

  Yeah, let's do it.

• 43:16Harry Stebbings?

  I need to read more. I'm still failing on this task, but what's your favorite book and why?

• 43:21Speaker 00

  Absolutely. My favorite, The Fine Balance. It was set in the emergency India in the seventies and it's like a very tough tale of everyday people and the injustice, but the elegance with which they live your life. You know, when some characters stay with you, those characters have stayed with me. It's an incredible book.

• 43:36Harry Stebbings?

  That's a first recommendation also. I mean, thank God, normally we live in the world of sapiens, so I'm thrilled to have something different. Tell me, what's your biggest strength and your biggest weakness? Thirty seconds each.

• 43:45Speaker 00

  I care a lot about people, so I'm always trying to help. Biggest weakness, I'm a worrier. I come, I'm an Indian mother. I worry.

• 43:53Harry Stebbings?

  I did actually get that from a couple of teammates. They were like, yeah, I know what she worries about. Yeah, yeah. What's the hardest element of your role today?

• 44:01Speaker 00

  You know, you asked about team building. It's about ensuring that we have and that we keep the highest concentration of just the greatest talent in the venture business. That's the goal. It's hard.

• 44:11Harry Stebbings?

  What three traits would you most want your children to adopt?

• 44:14Speaker 00

  Well, that's nice, Harry. Empathy, independent thought, be independent. And the third one is, I would say, they should be kind of responsible to everybody around them, their team, the environment, their mother.

• 44:29Speaker 00

  Parents.

• 44:29Harry Stebbings?

  What piece of advice do you often give but find hard to actually do yourself?

• 44:34Speaker 00

  Okay, I always tell people, don't have regrets. Put a line in the sand, move on. That I find myself going and unpacking the past, thinking, why did I do what I did?

• 44:43Harry Stebbings?

  What do you know now that you wish you'd known way back when you started with your first role in venture with Atlas many years ago?

• 44:49Speaker 00

  Oh, how, it's what I said, how exceptional great founders can be and how incredibly ambitious some people are in what they can build.

• 44:57Harry Stebbings?

  Final one, what's the most recent publicly enhanced investment? And why did you say yes and get so excited?

• 45:02Speaker 00

  I think the fun one is be real. And the reason is because, I mean, you should tell me, but we're lucky to be in it together. But the founder there is Alexi, he's really recreating social identity. I mean, it's such an important thing he's doing. I have a 15 year old daughter, so this matters a lot to me personally. It's also very bold. Yeah, it got me to Andorra to visit a two person company.

• 45:22Harry Stebbings?

  Sonali, as we said at the beginning, this is like seven years in the making. I'm so grateful to you for joining me today and thank you so much for, for being so willing to move off schedule and be so accommodating with my questions.

• 45:32Speaker 00

  Thank you, Harry, that was great.

• 45:37Harry Stebbings?

  A final note, I do want to say again, Sonali's been such an incredible supporter and mentor to me. I so appreciate all your support, Sonali. It really does mean the world to me. But before we leave you today, if you are a venture capitalist or corporate strategist, I want to tell you about Tegus. Tegus is the only company in the world that aggregates qualitative information on private companies from seed stage to pre-IPO. With Tegus, you can access other VCs and founders' expert call transcripts from previous rounds to help source fast growing companies, create compelling emails to get a founder's response, and diligence companies when a round is moving fast. I use it personally and I think it's insanely brilliant. Tegus is also providing the most flexible and highest quality way to run your own expert calls with no upfront fees or call minimums.

• 46:21Harry Stebbings?

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• 47:00Harry Stebbings?

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• 47:41Harry Stebbings?

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