20VC: Aleph's Michael Eisenberg on Why Generalists Over Specialists, Why Boutique Smaller Firms Over Multi-Stage Firms, Portfolio Construction Theory, Capital Concentration Limits and How To Think Through Reserve Allocations with Market Cycles in Mind?

Michael Eisenberg is a Co-Founder and Equal Partner @ Aleph, with over $550M under management and a portfolio including the likes of Lemonade, Melio and HoneyBook, they are one of the leading early-stage firms of the last decade. Prior to founding Aleph, Michael spent 15 years as a General Partner @ Benchmark and before that, made his way into venture with Israel Seed Partners where he built an incredible portfolio over an 8 year period. If all of this was not enough, Michael is also an author having published 4 books. In Today’s Episode You Will Learn: 1.) How Michael made his way into venture over 25 years ago and how his 15 years at Benchmark led to his founding Aleph? 2.) How has seeing multiple booms and busts impacted Michael's investing mindset? What do many misunderstand when it comes to reserve allocations in market cycles? Why does Michael believe busts are more psychologically impactful than financially impactful? 3.) How does Michael approach portfolio construction with Aleph today? How does Michael think about the right level of portfolio diversification? How does Michael think about the right level of capital concentrated into one company? How does Michael assess the difference between risk and uncertainty? What do many misunderstand between the two? 4.) Why does Michael believe in generalist VCs over specialist VCs? Why do they win? Why does Michael believe in small boutique firms vs large multi-stage firms? How does Michael think about the notion of ownership on first check? Is it possible to really build ownership across rounds today? 5.) How does Michael reflect on his own style of board membership today? How has it changed? What have been some of Michael's biggest lessons on board membership from Bruce Dunlevie @ Benchmark? What advice does Michael have to newer investors joining boards for the first time? Item’s Mentioned In Today’s Episode Michael’s Most Recent Investment: Melio As always you can follow Harry and The Twenty Minute VC on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

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

• 0:00Harry Stebbings?

  This is 20VC and what I believe is one of the best shows that we've done today. Our guest was just incredible and I'm very excited for you to hear it. And so with that, I'm thrilled to welcome Michael Eisenberg. Now, Michael is co-founder and equal partner at LF. With over $550 million under management and a portfolio including the likes of Lemonade, Melio and Honeybook, they are one of the leading early-stage firms of the last decade. Prior to founding LF, Michael spent 15 years as a general partner at Benchmark. And before that, made his way into venture with Israel Seed Partners, where he built an incredible portfolio over an eight-year period. And if that wasn't enough, Michael's also a prolific author, having published four books. I'd also have to say a huge thank you to Bruce Dunleavy, Daniel Schreiber at Lemonade and Mattan at Melio for some fantastic questions and suggestions today, a real team effort there.

• 0:44Harry Stebbings?

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• 2:10Harry Stebbings?

  To grow from workspaces to community to on the ground support. They take the guesswork out of remote management so that you can really thrive. But don't take my word for it. Just ask high growth businesses like Gusto, Chime, Earnin and Hims. All trusting terminal with their remote teams and you can find out more today at www dot terminal dot I O. But now for the show and I'm thrilled to hand over to Michael Eisenberg, equal partner and co-founder at LF.

• 2:34Speaker 02

  Three, two, one, zero. You have now arrived at your destination.

• 2:43Harry Stebbings?

  Michael, what can I say? We've wanted to do this one for a very long time. I've heard so many great things from Bruce Dunlevy, from Bill Gurley, from Josh Koppelmann, Daniel Lemonade. So thank you so much for joining me today, Michael.

• 2:53Speaker 03

  Thank you for having me, Harry. I've been an avid listener of your podcast almost since inception and also know what a great guy you are. Cause in our last correspondence, you mentioned to me how you've been taking care of your mom and the ad revenues go to help her. So thank you for having me. You're a special guy.

• 3:05Harry Stebbings?

  Oh, thank you so much. And that means the world to me, but I do want to start with a little bit on you because you have a few more years in this business than me. And so I want to start with that and say, how did you make your way into the world of venture? And then how did a left come to be?

• 3:18Speaker 03

  So I don't have the typical career path, I would call it. I graduated in 1993 with a degree in political science, kind of barely getting my way through college. Cause I was editing the college newspaper at the same time and I moved to Israel and got married right after I graduated. And so within eight weeks, you know, got a new job, which was in political consulting and got married and moved to Israel from New York where I grew up. Started my career in political consulting for a year and a half, and I like to say I repented from that experience because no one told me that actually politicians come and go from office. And the people we were working for would stop paying us and I found myself summarily fired, but not knowing it because the firm was in Boston and I was in Israel. And it wasn't this kind of internet era. Email barely worked in my apartment in Jerusalem at the time. And I found myself unemployed and couldn't figure out what to do. And I couldn't get a job. That's the truth.

• 4:02Speaker 03

  And I was unemployed for months and my previous employer still to this day owes me a fair amount of money. So I ended up starting something and it was the early days of tech and venture capital in Israel. And I persuaded a firm that people your age don't even know who they are anymore named Montgomery Securities. Okay. Open a paragraph. This is important about the history of venture capital. In the nineties, there were the four horsemen. Investment banks, Hammerch and Quist, Alex Brown, Robertson Stevens and Montgomery Securities. Montgomery Securities was run by a guy named Tom Wiesel at the time, later to be of Thomas Wiesel Partners. And I somehow persuaded them through endless calling to hire me, whatever that meant, as their representative in Israel. And with that contract, I traded it with a guy named Shlomo Kalish, who became a partner and a mentor who had a technology consulting business in Israel, to set up a merchant bank of sorts, where we kind of raised private capitals,

• 4:46Speaker 03

  early days of venture capital in Israel, raised private capital for startups and took companies public alongside a Montgomery. And we were fortunate that it was kind of the early days of the bubble. This is early 95 till sometime in 97 and we did pretty well pretty quick. And back to the first online photo sharing company and a bunch of others. And my basic advantage was, in the not so wealthy college I was in, we were a beta site for what at the time was called desktop publishing. So I knew what this thing called the internet was in 1993, 94, when I graduated. And in Israel, almost nobody knew, so I got to back some of Israel's earliest internet companies. Did that for a few years, then went to the buy side, so to speak. Went to a venture fund called Israel Seed Partners. My partner there, John Medved, who went out to start Our Crowd, likes to tell the story that he turned me down for a job when I was unemployed and then asked me to come be his partner, right? Some truth to that.

• 5:30Speaker 03

  Then, you know, Bill Gurley and Alex Wolcansky and Bruce came calling to join Benchmark Israel, which I did, did that for a while. And my agreement when Benchmark, as Peter Fenton has so famously said, decided to get out of the imperial era of venture capital and focus locally, the partners at Benchmark were super supportive and went out on my own, so to speak, found a partner, Edin Shohat, a wonderful partner, and set up Alif in 2013. And with the amazing support of my partners at Benchmark, all of whom invested and were really supportive along the way, we launched Alif. And, you know, here we are, three funds later.

• 6:02Harry Stebbings?

  I mean, it's amazing to hear. There are a couple of things that I have to unpack there. I do want to start though, actually, on way, way back. You mentioned the move from New York to Israel, back in like very formative years for you with your first job. It's such a seismic change bluntly, just in life and in how you live it. How did that impact your mindset, having such a seismic change so early?

• 6:21Speaker 03

  I actually got inspired to move to Israel as a 19-year-old. I was doing a gap year in Israel that turned into two years. And I was in this place of study called in Jerusalem and I had this interaction with a rabbi who's thought of as a spiritual leader and he said to me, don't ask me spiritual questions. The most important thing you can do in life is enable the employment or employ 10,000 people who can earn an honest and decent living. And that was like a challenge to me. And he said, you need to come to Israel to do that. The economy wasn't so good in Israel at the time. And I just got inspired to try to help build an economy and create good jobs. I didn't know if I'd be good at it in any way, but it was like a mission, you know, like you talked about, in our last correspondence with your mom, wanted to put the benefits in business to good use and to helping other people.

• 7:01Speaker 03

  And that was what I was inspired to do and Israel felt like a great place to do it. So I basically decided at the moment that I'd move here when I finished college and found a wife would be willing to do it with me. We came and landed and it wasn't that easy at first. It's still always strange to be an immigrant, by the way, even 27 years later. A lot of things you still don't understand, but it's been an unbelievable place to raise a family and it's a vibrant society and an innovative society and creative and an inspired society on a values basis.

• 7:25Harry Stebbings?

  I mean, it's been an incredible journey. I do want to touch on another thing that you said and you said there about kind of the early days of the boom and the bust with kind of 97 and kind of your placement there. When you think about that, I haven't been lucky enough or unfortunate enough to seen kind of the booms and the busts in terms of the macro. How do you think that impacted your investment mindset? It's funny, one of our mutual friends, Josh Koppelman said, oh, it made me much more conservative. Would you agree and how did it impact you?

• 7:49Speaker 03

  I'm old enough and long enough in this business to remember when Josh Koppelman christened the city or named the city of Half.com. I think it was in Indiana. At the halfway point of the United States in what was perhaps the greatest marketing stunt of the early internet days. And I just respected Josh Koppelman ever since and we had breakfast together actually right before COVID after a tweet of Keith Raboy. And I wouldn't say I've gotten more conservative. I think I'm more nuanced. It's made me more aggressive on the investing side. Because these things come in boom and bust cycles, but innovation is constant. So I knew a lot of people in 2000, 2001, who took their foot off the gas from an investment perspective and they let the psychology of the NASDAQ impact the psychology of early stage investing. But it turns out that the best time to invest is when it busts. And so you need to maintain a constant investment pace,

• 8:34Speaker 03

  no matter what the external circumstances are around the bust in early stage venture capital. So that actually made me more aggressive. Be conservative, or shall I say more uncertain view is, I think a lot of people think they got winners in their portfolio and then the bust comes. And a lot of people kind of, especially investors who haven't seen downturns, don't understand what happens in downturns and how that impacts reserves. Where you generally need to have more capital available than you think, how that impacts the psychology of founders, how difficult it gets to recruit people into early-stage tech. How many investors around the table, even current investors in the company behave differently than you'd expect. Because there's partnership pressures that you don't see at the board table, but they're experienced when they go back to the Sunday or Monday partner meeting.

• 9:15Speaker 03

  And that has a huge impact on your boards, your CEOs, and it's totally unpredictable. So there's a lot of unknown and uncertainty in bust. And I hear a lot of people talking today who haven't seen downturns, we can pull the model forward. You know, it's doing 10 to 15 million in ARR now, and so in four years it'll do 25 or 40 million or 100 million in ARR and it'll be worth 35 times revenue. Except the world just doesn't work that way. It just doesn't.

• 9:37Harry Stebbings?

  There's so many elements that I have to unpack. In terms of like reserves management, as you said, I'm seeing a lot more people be a lot more aggressive and actually push out reserves, putting in more and more on the initial. What were your big lessons specifically on reserves management that you'd advise others when it comes to reserve allocations, thinking with bust in mind?

• 9:55Speaker 03

  So there's a few elements you need to kind of unpack here. One is, although my partner, Edin, would disagree, and I think other people might, reserves is an art and not a science. That's the first thing. It's impossible to know what kind of comes in and out of favor, what people want to invest, et cetera. So I think it's more art than science. The second part of this is, it informs our investment strategy in general at Olive, which is a lot along the lines of Benchmark, which is, we like to work with partners. And that means we are a single-stage, basically C to N A fund. We're not doing the big, big fund with the multi-stage thing, where I think you have a lot more risks around reserves and around signaling risk when times go get bad. And so we end up with a larger and broader partner network that we always play nice in the sandbox with, because in bad times, you need them there too.

• 10:39Speaker 03

  And in good times, and specifically if you're kind of piling money into companies at early stage and not leaving room for other people, when times go bad, they're not there to help you either. And when times go bad, you actually need that help. And so that's informed strategy as well from the fund. And then I think the third element, which is perhaps very nuanced, is busts are psychologically impactful far more than they're financially impactful. It takes people a long time to realize you're in a bust and then even longer time to come out the other side. And that's true of founders, it's true of most investors. And so you can gain a lot of advantage in a bust if you've got capital on hand. Capital becomes scarce and we should have a conversation whether this time is different.

• 11:20Speaker 03

  But capital becomes scarcer, but mindset becomes scarcer yet. And so how you think about, you know, when COVID started and it was a short bus, so to speak, on March the 4th, I sent a letter to our CEOs saying, I've seen this before. I don't know what it looks like exactly because no two are the same, but history tends to prefer the prepared of mind and it prefers those people who keep something in reserve to kind of plow in when everybody else is scared. And so I encourage people to be opportunistic about it. And I think that's another thing about reserves. It enables you to be opportunistic in spots. We have a company in the travel space that was slaughtered by COVID. We got a pile of money reserved for it. We plowed in. We think this is going to come back and when everyone else was not there, we are. And I think that's enabled us to be nimble. A company called Bookaway, keep your eye out for it. It'll be interesting.

• 12:05Harry Stebbings?

  A lot of founders have used this time as an example of why always be raising is the right mantra to take. Because they say if we're taking that mantra, we'd have plenty of reserve and plenty of runway to sustain this through this pandemic. I don't always hold the same theory on always be raising. How do you think about that if the money is on the table, take it?

• 12:22Speaker 03

  No, Bill Gurley is fond of saying play the game on the field. I think he got that maybe from Bezos. And there's definitely some truth to that. You can't be at a capital disadvantage to competitors raising money. But to my mind, this comes back to a more fundamental question, which is how large is your competitive moat in what you're doing? That's number one. And so if you have low competitive moat, you can't lose the capital game. If you have a high competitive moat, what's commonly misrefered to my view is network effects or an increasing competitive boundary, you may be able actually or even advantaged by taking less capital over time because it enables you to be more nimble and not need to kind of modulate your growth to catch up with the valuation expectations. And capital return expectations. And I think the next element of is it really depends on the

• 13:04Speaker 03

  character and personality of the founder. The first thing I did when this pandemic hit, I was call a couple of the founders and say, you ought to get profitable, maybe be able to raise money, maybe not. But even if you raise money, you know, I think the personality of the company should maybe be slower growth because you got real competitive advantage and it fits your personality better. And no two founders are created equal. And I think that's a really important point. When you overstuffed founders who are better at lean with capital, they explode. And conversely, if you've got guys who can press on the gas and play the game on the field when everyone's got capital, you ought to load them up. And I think it's important to be really specific about that.

• 13:36Harry Stebbings?

  Can I ask, do you think this time's different? Because I like you in terms of writing to your founders at the start of this pandemic, you know, we wrote to our founders in terms of being leaner and just having a mindset towards more capital efficient growth. And you know, now bluntly, it looks like that wasn't needed and that lens of preservation wasn't needed. Is this time different? And do you think we were wrong to be capital efficient lent?

• 13:56Speaker 03

  Maybe. I have a view of the world that says that there is a lot of uncertainty out there. And those people try too hard to predict the future and end up failing. And so here are some things we can point to that are different. One, technology has become more part of the mainstream economy. So no one invested in insurance before and called it a tech investment, but Lemonade has proven that insurance is really technology at the end of the day. And same thing is true of these neo banks potentially, maybe I'm a little less convinced about that. But there's a pile of categories in the economy that are going digital that were atoms. And so they become opportunities for venture capital. And because of that, more of the global TAM is opened up to what we now call venture capital. Nobody thought of doing insurance business, venture capital, even 15 years ago, right? So more money therefore has flowed in and become

• 14:38Speaker 03

  accessible to technology investment. The second thing is, and I think Gurley and Howard Marks touched on this in your podcast, zero interest rates just screws with the model. Blows up every DCF model, that's first of all. But more than that, if you're seeking return and you look at the last 10 years of the economy, which by the way, most people do, which is a silly idea, but most people do it, you look and say, technology has been the place of returns. So let me pour more dollars in there. So every asset manager looks back, plows more money and going forward to catch the same return, of course, reducing returns over time. And then the third thing is, and I've been talking about this a lot in our LP meeting presentation. Technology has had two facets that have changed the dynamic. One is the winner takes most aspect of it, which has been proven out means that there are outsized returns at venture level at later stages.

• 15:21Speaker 03

  And so therefore it's brought in all sorts of sources of capital that weren't around and didn't exist before for this market. But the second thing is technology has become a long duration asset, which it never was before. So you used to think of bonds as long duration assets, refrigerators as long duration assets, houses. But now people look at Amazon and go, whoa, 30 years plus a boom and bust in the middle. You go, that's a long duration asset. I can predict this 25 years in the future. Microsoft achieving when Dan and the bomber era has come back with a vengeance. So this is a long duration asset. I can park a ton of dough here forever and take it out of bonds. So maybe it's different, but at the end of the day, I think we have boom and bust cycles in every business. And you know, if you read Ray Dalio, you know what he thinks to the world. And I tend to think things go up and down and because human psychology is the same thing. I'll spot for a commercial one thing, which is I read a couple of books in Hebrew, one

• 16:04Speaker 03

  come out in English, I read four books actually, but two of them or three of them are on the intersection of the Bible and economics. And one of them is on the book of Genesis and some rabbi reads the book and he gets on a panel within the book launch tonight and says, I'll tell you what I learned about the Bible economics. I'll tell you about innovation and Andrew Carnegie and Abraham and this, that, the other. And he says, here's what I've learned in thousands of years of history, the one constant is people don't change. And I think that's really true. People are people and we have our own psychologies that kind of change.

• 16:29Harry Stebbings?

  I totally agree. And I think central to that mindset is also something that you said earlier, which is kind of uncertainty and specifically risk and uncertainty, because I think they're often kind of bracketed in the same bucket. And I think maybe they're quite different. And so I'd love to hear, how do you think about risk versus uncertainty and the relationship between the two?

• 16:45Speaker 03

  Well, I often describe this is hedge fund managers deal with risk, venture capitalists deal with uncertainty. And so risk has a band and you essentially buy insurance or hedge against risks because you don't want catastrophic outcomes. And uncertainty, you actually don't mind the catastrophic outcomes. You could lose all your money, which you're looking for is asymmetrical upside. You live in the uncertainty. Bruce Donlevy once said, venture business, something like this, if this happens and this happens and this happens and then this happens and this, then you got a big outcome. The odds of each of those things happening is like 5%. So it's a really minuscule possibility that outcome, but it's certainly high impact. And by the way, I think of COVID the same way. The reason that a model is broke is Most people looked at COVID as a risk problem, and I think it's an uncertainty problem. And you behave differently in uncertainty than you do in risk.

• 17:27Speaker 03

  In risk, you want to centralize to make sure people don't go off the reservation. And in uncertainty, you actually want to diffuse responsibility. In risk, you kind of want to bring things in and make sure you don't have a cash out for outcome. In uncertainty, you want to make more bets because more things become possible. We accelerated digitization 10x in COVID. And it's the same thing Walt Disney did the same thing. I often joke that COVID is like Walt Disney. He had a lot of characters, none of them hit until Snow White did. And when she finally hit, it was a huge outcome. And the venture business is like that. Whereas the hedge fund business, it's asymmetric, but it's within a band. You try to get asymmetry, but it's within a band. It's arbitrage within a band. And that's just a different mindset.

• 18:00Harry Stebbings?

  Can I ask, given kind of doing more bets, as you said, the 10x digitization of society. Given that, do you then switch the mindset of, okay, we need a massively diverse, or not massively, but a much more diversified portfolio? And does that switch to uncertainty, maybe especially in COVID, but just the switch to uncertainty? Does that favor much more diversified portfolios in your mind?

• 18:19Speaker 03

  The word diversity is so loaded these days, I'm not even sure what it means anymore. I don't think of our portfolio as diversity. I know there's all these portfolio theories. In the venture business, I think about it as shots on goal, which is a portfolio should have somewhere between 15 and 25, call it, shots on goal. I don't care what businesses they're in, because again, it comes back to people. People are inherently different. You want 15 to 25 brave souls trying to do something most people think is not possible or looks foolish or has asymmetric upside. And so by having 15 to 25 entrepreneurs in there, going after maybe different markets, maybe related markets, maybe correlated markets, I don't know. I don't think the outcomes are correlated in any way. And so it's just the shots on goal question.

• 19:01Speaker 03

  And then you want to have concentrated ownership in them because some significant number of them will fail. I know it doesn't look like that right now where everyone's raising money for everything. Eventually, it does shake out. You know, the venture math tends to work over time. There's a small number of funds that deliver outsized returns or a small number of investors at firms that deliver outsized returns. And it's, I think, ultimately going to work out that way. And so maybe a diversion for a second. Diversity suggests that this is a portfolio management business. It's not, in my view. This is a business about great individual entrepreneurs. Who are change makers, who are difference makers, who you gotta pick and you can't always get it right. And so kind of traditional notions of portfolio diversification, which is where I think diversity comes from, are poorly applied in venture, where you're actually looking for a lot of outliers.

• 19:46Speaker 03

  And that doesn't actually create diversification. It creates concentration risk around a certain type of people. But you believe that in that group of people, there are special human beings, special souls, special heroes who are giant change makers.

• 19:58Harry Stebbings?

  Can I ask a couple of things that offshoot that is I love that in terms of kind of traditional portfolio management theory. How do you think about like temporal diversification with that in mind then? And given, as you said, the 10x digitization in COVID, which could mean an accelerated deployment cycle. Do you think temporal diversification is another feature of portfolio management? Or actually, is it fundamentally important?

• 20:17Speaker 03

  I think the key is that innovation is constant, whereas markets are fluctuating. And so you need to kind of invest consistently in the venture business, almost roughly the same amount of companies every year to be able to get your shot on different innovations. And as years go on and technology stacks build or unpack, you run into different opportunities. If you put all your money in four years ago, two years ago, you probably won't run into DeFi. But you know, you need to kind of invest over time to be able to catch the next great technology innovation. And the next guy who came out of university or in Israel, the military, who's got a new view on the world. And what you're really looking for in temporal diversification, in my view, is the new technology stack that comes in, plus a new view on the world influenced by whatever is has changed around you.

• 20:58Speaker 03

  And I think a lot of this business comes down to connecting very broad, diverse dots that form a picture that meets an entrepreneur who has a different or related picture or something you can relate to about the world. I think diffusion as a strategy or distribution to the edges is a strategy I've been investing behind for the last five or six years. It's happening in every industry on the planet, whether it's DeFi, I think old age homes, for example, or thing of the past, edge networking, all those kinds of things. You start to see patterns emerge in this way.

• 21:26Harry Stebbings?

  You mentioned the word outliers a minute ago, and I spoke to Brian Seaman at Founders Fund. And he said, the reason that a lot of venture funds actually have pretty mediocre returns is they have these capital concentration limits, which means they can't fundamentally concentrate 20, 30% into the very Best companies that they have and that fundamentally reduces their ability to perform in a five X, six X, seven X manner. How do you feel about capital concentration limits and have you got any lessons from seeing some of the incredible companies you have in portfolio? Really rocket ship growth.

• 21:54Speaker 03

  I think Brian is right if you have a large fund like he does. We are deep believers in the small fund theory. I was talking yesterday with one of the partners at Emergence and with one of our LPs. You said, you know, there's like a handful of people left who are like generalists, but keep the small fund size, you're looking for multiples. So I think you have less of a risk, even with the kind of limits, if you're a smaller fund, because the returns can still be way outsized on the fund size. But if you're buying size fund, you want to be able to deploy as much capital as possible to those winners. You're dealing with a different kind of return profile than we are. And if you need multiple on a billion and a half dollar fund, you need to own thirty percent of open door. You need to own percent of whatever Keith's working on now and Brian. So that's the way I think about the problem. And like I said, we play nice in the sandbox with everybody and we find that that's good when the bus comes to.

• 22:39Harry Stebbings?

  I'm really interested by the different perspective there, as you said, from like the large multi-stage and then the much more concentrated in terms of stage focus that you have. In terms of the small versus multi-stage and mega fund, how do you approach it and think about it? I guess from a high level before we move into like the founder's perspective.

• 22:55Speaker 03

  So on a personal level, I want to be a company builder alongside the entrepreneur and not an investor. That's the way I want to live. And so what Benchmark taught me over time was if you want to be a company builder, you need to stay small. And the reason you need to stay small and focused is your most precious commodity is not your money, it's your time. You need to be there shoulder to shoulder with the entrepreneur. They're the heroes, you're the supporting cast while doing this. And so if you've got kind of a huge multi-stage fund, you end up becoming over time an investor. And I never fool myself, I'm not building the company, but I still think that being able to spend real time with these founders is super important. That's at the really high level and it's a personal choice question.

• 23:38Speaker 03

  I mean, you can find exceptions, you know, guys like Keith, Raboy, who incept companies, even though they're at these giant funds right now. I think it's more true of this, you know, it's a handful left of people who are kind of smaller, just early stage focused generalists that are kind of small craft players in the business.

• 23:52Harry Stebbings?

  The expansion of AUM is one kind of big strategic question a lot of managers think through. The other is do they move from either generalist to specialist or specialist to generalist? I'm really intrigued with your generalist stance. How do you think about the generalist versus specialist debate and how do you approach it?

• 24:08Speaker 03

  I'm a generalist mostly because I don't know much about anything. I don't understand technology terribly well. I have a pretty uncertain view of markets as a general proposition. And I think the one thing I semi-understand is people and have been fortunate enough to be surrounded by wonderful people in my life, from my wife to my partners and parents and everybody. That's what I optimize for. And I think in the investment business, in this generalist versus specialist, when we think we're specialists, we think we know a lot about something. If you think you know a lot about something, you have really expert questions, so to speak, to ask a lot of the founders. But my guess is if you were that knowledgeable and specialized about something, you probably should do it yourself or think you could do it yourself. And not necessarily have enough open mind that maybe this founder knows a lot more than I know, or knows something entirely different. It was a different frame of reference for how he thinks about the problem.

• 24:53Speaker 03

  And I like to say I'm not encumbered by any management experience and any specific knowledge about much of anything. And that leaves me an open mind to be able to listen to the founders who I think have insights. I don't care about my insights. I care about theirs.

• 25:04Harry Stebbings?

  Can I ask, do you have an example of a company that you've backed where you're like, if you knew too much about the industry, you probably would have found far too many holes to invest, but no offense, given the less deep domain knowledge that you saw the upside that others maybe wouldn't have seen if they'd known the space so well.

• 25:19Speaker 03

  Well, Lemonade, by the way, is the prime example of this because I introduced Daniel and Shai, the two founders of Lemonade. I know Daniel for thirty years and Shai for a while since he started Fiverr. And I introduced him and Daniel came to pitch me before he met Shai and said, I'm going to do this thing called P2P insurance. And he described this kind of amazing world where we can remove conflicts in the insurance business. And so he got together with Shai, they said, okay, abracadabra, there's going to be a company. Shai's got a great name for it called Lemonade. And we're going to shut the insurance business. And I said, we're in. Two amazing founders, big TAM, et cetera. We anchored around, it was thirteen million dollar seed round. We put six and a half in the term sheet. You need it because of regulatory capital in the insurance business. You need a lot of dough. And we called around and I called a bunch of fintech investors in particular, and this is I can't remember many years ago, it was five and a half, six years ago. And they all said, who's the insurance guy at the company?

• 26:04Speaker 03

  I said, well, there's this guy named Ty who was like an advisor to the company. You know, who knows insurance? I guess nobody. That would give them a virgin look at it. And most fintech guys who really knew insurance thought it was a coin flip. By the way, so did I, whether we'd get our license. In New York and thought if you didn't know insurance, you couldn't do this. And being as dumb as I am and looking at this and knowing nothing about insurance turned out to be a hell of an advantage. We've now got a seven or eight billion dollar public company and we were the first to check in. Sequoia, God bless them, came in and the guy who joined from Sequoia, hi him. He still knows less than I do probably about insurance, but what an investment man. He loved the guys. I don't know that much either still.

• 26:37Harry Stebbings?

  I totally with you on that kind of fresh perspective and fresh eyes. Can I ask, you mentioned the deal dynamics and that was an expensive round, one would call it for first round of any company. How do you think about price sensitivity, say, it's one where I'm constantly looking at prices going, it's what? And today, more than ever, I'm questioning my own price sensitivity. What advice would you have for me and how do you think about price sensitivity for yourself?

• 26:59Speaker 03

  My benchmark partner, Peter Fenton, used to be firmly of the view, it doesn't matter what price you get in at, matters what price you get out at. And I hear that for what it's worth. So I've come with a different heuristic to it, which is if the founder wants my money based on price, I'm not doing the deal. And so that may sound obnoxious, but I actually think it's become a view of how the founder thinks about the world. Eventually, if this works out, everyone gets paid and we make a big impact. You want founders who optimize for the help and network that they can get from their investors, rather than who are optimizing on the price. And so Daniel and Shai could have gotten a much higher price probably than they got from me. I said to them, what's the right and fair price you think? And I'm going to tell you yes or no. And they said it and I hit it. Was it high?

• 27:42Speaker 03

  I don't know. It doesn't matter. We weren't optimizing for price. They could have gotten a higher price. That's how I think about the problem.

• 27:47Harry Stebbings?

  We talked about Lemonade and I spoke to Bruce Dunlevy before this show and he said many wonderful things. And then I also spoke to Bill Gurley, actually, and this is a quote from Bill. He said, you're the most dogged board member he's ever had the joy of working with. And so I'd love to hear, how do you think about your own board management style and how has it evolved over time?

• 28:06Speaker 03

  Really good question. So you mentioned Bruce. The guy is the biggest gentleman and mensch in this business by a long shot and has unbelievable wisdom. And one of the things he taught me earlier in my career, he used a basketball analogy where he said, you know, if you're constantly pushing up against the center. So he's pushing back at you and it's hard to push him out. If sometimes you take a step back and let him fall on his own weight, that's a better approach. And one of the things you learn from that is you have to let people come to their own conclusions over time. And a big difference between my early board membership and my later board membership is do you push back hard all the time? Or is this kind of a slow evolve where you enable people to come to what are their own conclusions that are maybe influenced by yours? He often says it's an influence business. And he's the smartest board member I've probably worked with.

• 28:51Speaker 03

  And so I think there's a view of venture capitalists in many cases that they don't work that hard around the board table. And I've always had the belief that one, if you want to work with the best entrepreneurs, you need to work hard. And you need to kind of stay in the game and be as knowledgeable or more so than anybody else around the table. I don't know if I'm dogged, but I think a big job of the board member is to have a network that's not necessarily available to the entrepreneur who's just starting out or growing his business and focused in his areas. And that network and networked view enables you to see maybe more forest and less trees, point things out. I try not to do the, well, I saw this company do this here because that's really annoying to founders. But also to bring the value of repeat iterations of the game to this specific entrepreneur. And you can do that if you've been at this a while.

• 29:36Speaker 03

  And one of the things that I realized early on was the value of network. And so the kind of doggedness is just go meet everybody and give them respect and respect them and try to do things for them. Because you never know when your entrepreneur is going to want to avail themselves of that network. And the last thing I'll add, I've always been a tireless optimist. I know no other way to kind of say that, that I'm optimistic about everything. Even today where we're sitting today after what happened yesterday in the Capitol, I'm an optimist. And I think America will be resilient, or I hope it will certainly. But sometimes that optimism can be blinding. Josh says he became more conservative. I haven't become more conservative. What I have become is more realistic, like money's not in the bank until it's in the bank.

• 30:13Speaker 03

  And so I will chase down signatures, getting on a board member sooner rather than later and fast and just get it done and get it done. And I think I let, as a younger board member, I let things play out. And now I want to chase them down and get them done and behind me fast. I wish I'd known that earlier.

• 30:29Harry Stebbings?

  Can I ask, you mentioned there about kind of bringing past experiences to current situations, especially in a board and how founders find that frustrating. In terms of your investment mindset, I think it's very easy where you have incredible success like one does with Lemonade in the insurance space. And then you see new insurance companies today and think the world is paved with gold in insurance because you've seen such success in it. How do you prevent past successes or failures impacting future investment decision making?

• 30:54Speaker 03

  I have a bad memory. It's really true. I have a bad memory. I had an early failure in my career. I had a success in the first online photo sharing company. I thought I knew a lot about digital imaging. And I invested in another company. It was like the first of the photo book space. Boy, did we mess up the business model and boy, was I partly responsible for that. And we kind of got way out over our skis and then the market crash came and you know, the bubble burst and we were Buffett says when Ty went out, we were definitely naked. You know, you need an iron stomach in this business. That's kind of first of all, and then you kind of develop what I would call heuristics and pattern matching around people. And I think most of these failures are around people, pick bad, and then you didn't see the warning signs. You didn't surround them with executives. You didn't bring outside board members. Although I'm fond of saying the companies only go out of business for one reason, they run out of money. You tend to run out of money for reasons.

• 31:39Speaker 03

  I tend not to dwell on the failures. I just kind of move on and move past really, really quick. I credit my parents for teaching me that for what it's worth.

• 31:45Harry Stebbings?

  In terms of like dwelling on failures, do you dwell on, I struggle with this. Do you dwell on the ones you missed?

• 31:50Speaker 03

  No. No. I, I have zero FOMO. We have this discussion in the partnership all the time. I have no FOMO. I have. Bruce once told me, I think it's true, you need to make sure you manage your time well because you never know when the next Google walks into the lobby. Or gets on a Zoom or whatever it is today, the equivalent. And I think that's true. This is a low market share business at the end of the day. You only get some number of the winners. The key is to get some of the winners. And so if you miss some, God bless the venture capitalists who did it, send them a congratulatory note and say, Mal, man, I hope we can invest together again. I really, I don't have FOMO. I try to teach my children not to have FOMO. Our motto at Olive is different is better than better. Everything we do should be different, not better. Everything our company should do should be different and not better.

• 32:33Speaker 03

  And so I obsess, my partners will tell you I obsess about missing deals up until the point that we miss them. And then they're gone and they're not coming back. The one exception that I'll tell you is a deal, I mean, there are many exceptions. The one exception is a deal that I passed on two and a half years ago. I had no FOMO. I let it go. But I had a real interaction with them. We spent a lot of time explaining to them what I didn't like about it, but they had to prove a certain thesis. Guy calls me up about two and a half, three months ago and says, hey, Michael, remember what you said about this certain feature? Said you were dead wrong and I can prove it to you. Can I come in? And I really appreciated that actually. And he walked in the door and said, it's. Working, you didn't think it would. I understood you, but it's working. So now you can be my partner. And you sit there and you go, man, I could have had this at a third of the price two years ago. Do I do it now? And I just looked at and said, who cares? Let's go do it. We did it.

• 33:18Harry Stebbings?

  I love that. And I think totally the right decision to do it. I have to ask you, you mentioned time allocation, then speaking to your kids. And final question before the quick fire, I can barely look after myself, one, and I definitely can't look after how I spend my time. How do you think about time allocation, also in the context of having eight children? I'm in awe, Michael.

• 33:35Speaker 03

  You should be in awe of my wife. That's the first thing.

• 33:38Harry Stebbings?

  That is true.

• 33:38Speaker 03

  I should add, it's one wife and quite an amazing one at that. So I'll say a couple of things. One is, I think many people tend to be transactional and more so in this business now than it was when I started. By the way, it was much more of a relationship and a clubbing and a crafty business. I think relationships matter a lot and relationships matter in the venture business and personal life and everywhere else. Because if you have a trusting relationship with people, you know, they make your life easier. They invest with you, they want to come on boards with you, wanting to pick up slack when you drop it. And you need some personal time and you can share burdens and share triumphs and share everything else. And relationships truly matter. That's kind of point one. It's true in personal life and business life as well. And long-term relationships matter even more than that.

• 34:18Speaker 03

  And because it's long-term, you need to think about how you raise your children and your relationship with your spouse or significant other. In long-term terms as well, and there are ups and downs and you know, nothing's ever better roses. And have ups and downs and struggles along the way, but if you're in it together for a common purpose, then it works better. And I think our children have been fortunate to have an amazing mom who does a better job than I do of that. For what it's worth, I think I've been a better parent of older children than I was of younger ones. I think my children would agree to that if you ask them. And now it's public, so you can ask them.

• 34:46Harry Stebbings?

  Why do you think that is?

• 34:47Speaker 03

  I don't know. I view it as a failure of mine. I was never really good at getting on the floor and playing with kids and doing that. The thing I would add is I've actually never, ever thought about work-life balance. I don't believe in it. I think it's a failure of modern culture to seek work-life balance. And it's become the bon ton. I gotta find balance. And the truth is, in life, nothing is ever in balance. Relationships aren't in balance, the markets aren't in balance, nothing in life is in balance, ever. And if you're always seeking it, you'll never find it. And so. I've always described myself as trying to do the best at parenting and spending time with family because that matters most and trying to be the best venture investor I can be and trying to be the best at my faith that I can be and trying to be the best contributor to not-for-profits that I can be. And it's just an aspiration to try

• 35:30Speaker 03

  to get better at these things and knowing that you fail at it most of the time. I fail at a lot of these things over and over and over again, but I never think they're in balance. Balance is a flawed pursuit in my view.

• 35:39Harry Stebbings?

  Can I ask, when you realize that something is, I totally agree in terms of things are never in balance. When you realize something isn't in balance, whatever that may be, how do you respond to that? And do you then suddenly go the other way? Do you just appreciate that it's that way? How do you think about the subsequent act post-recognition?

• 35:56Speaker 03

  It depends what it is. I don't think you can live in a situation where your family life or your kids are out of balance for too long. Or not out of balance, you know, you don't need enough attention. And for what it's worth, and people have been saying you gotta give your kids tons of attention. No, you need to develop independent kids. They need to become independent adults by themselves. That's what they need to be. So coddling is a terrible idea and we've got bizarre things, you know, helicopter parents and coddling parents going on in the world right now. And so, you know, you need to invest in your kids. So that can't be, but I tend to become pretty total when things require taking care of. And so you can find me diving into my books for hours when I'm on deadline, buried in my basement. Or, you know, yesterday or a day and a half ago, my wife's grandmother unfortunately passed away. They got canceled, we're done. And, you know, you jump in and everything in life is out of balance and things are uncertain and we need to embrace

• 36:41Speaker 03

  that. And I think the pursuit for, I need my balance back in my life is just, and I don't pursue it.

• 36:45Harry Stebbings?

  Can I ask one final thing? I could speak to you for hours, honestly, Michael. How do you get comfortable with extreme uncertainty? And also maybe uncertainty in the irreversible decisions, the 10-year-out decisions. How do you get comfortable with that?

• 36:58Speaker 03

  As you probably read, I'm a person of faith and I'm fond of saying that God lives in uncertainty. And I have another deep belief, it's already written in Ecclesiastes and places, but it's everywhere. It's obvious. The world is getting better. People will say that the past was better. Just offer them to trade places. They want to go back to a place where there weren't vaccines, where there wasn't the internet, the food wasn't readily available. It's ridiculous. And so the future is definitely getting better, but it's very uncertain. And as a person of faith, I just assume uncertainty and that I'm not in control. And if you're not in control, you can let go of a bunch of things. One of my earliest memories is of a family member of mine. We're on a plane and we're going through turbulence and she grabs my arm and is like digging her nails into my arm. Probably doesn't know how to fly a plane. Nothing we can do about that at this point. It's like, it is what it is. And it's kind of a lesson. There are things that are just out of our control.

• 37:43Speaker 03

  And by the way, there are more things that are out of our control than we actually know. But we have this false sense, particularly in modern society, of control. We need our control back. I don't think that way. By the way, I think it's a good mindset for venture because we don't fully understand the outcomes. And you know, sometimes you've got to trust the entrepreneur, even if you think he's wrong, because it's really uncertain out there. And that's a wonderful thing. It's a mysterium tremendum, to use the Latin phrase, that we can kind of, you know, behold. How amazing, how amazing is the world? How amazing are different people that you and I can talk like this? We don't really know each other that well and I can discover you and, you know, the amazing work you've done with your mom. And I'll find out that you have a deep soul and just an amazing guy living in London who started a venture business by starting a podcast. God, that's amazing. Did you ever believe that 10 years ago?

• 38:23Harry Stebbings?

  Trust me, no, I would not have believed it at all when I started. I had fifty dollars and literally my mother.

• 38:27Speaker 03

  So the future is uncertain. The future was uncertain and better for you. And so you just kind of dove into it and you dove into it totally. Look how amazing it's become for you.

• 38:36Harry Stebbings?

  I mean, I so appreciate that and it's, it shows like this where I really appreciate doing what I do. But I do want to move into my favorite, which is a quick fire round, Michael. So I say a short statement and then you give me your immediate thoughts. Does that sound okay?

• 38:48Speaker 03

  Uh, do I have a choice?

• 38:49Harry Stebbings?

  Definitely not. Ready to roll? Okay, so what's the favorite book and why?

• 38:55Speaker 03

  Oh, that's easy for me. The Bible or the Torah, as we call it in Hebrew. It is the richest piece of literature and life wisdom. By the way, you know, everyone talks about monthly active users and daily active users. The Bible has the most active users in the history of humanity. And it's had the most written about it in the history of humanity and it's just incredibly rich. And I think there's timeless wisdom there that's as applicable today as it was ever.

• 39:17Harry Stebbings?

  What's your writing process? Do you have a standardized process? How do you approach the art of writing?

• 39:22Speaker 03

  Most of my books are around textual analysis and then modernization of ancient concepts that appear in the Bible into modern economics and technology. And so it's not science fiction. It's actually textual analysis and then trying to develop modern economic and technology. Theories based on timeless wisdom, you know, it's coming out in English in the summer, I hope. And so that's what I do. I just do textual analysis and then try to apply my daily life, which is economics and venture capital and technology to ancient texts.

• 39:47Harry Stebbings?

  You've had many deals that do incredibly well. Think of a deal that maybe didn't go to plan. What did you not foresee?

• 39:53Speaker 03

  Well, there's been a lot of those. Most of them have been founders that blow up in one way or another. The line between founders that do amazing things and ones that blow up is really thin. And I just admire them for the process. Kevin Compton told me 25 years ago, his ex client at Perkins Partner, always respect the founders, even when they fail because they do yeoman's job. And I believe that. And then other ones where it became haughty. I thought I knew something about digital imaging. I did another deal. I was wrong. And so I try to reduce what I know in order to leave my mind open to do just absolutely new things. I've become obsessed because of Josh Hanna. He's made me obsessed about DeFi because it fits kind of my distributed everything thing. So I, he's down a rabbit hole. He got me down a rabbit hole. I'm obsessing about that now. Hopefully I can be dumb enough about it to be able to understand the words.

• 40:36Harry Stebbings?

  Tell me, what would you most like to change about the world of venture capital today?

• 40:40Speaker 03

  I don't spend any time thinking about that. I don't think about this as an industry. This is a craft business with a small number of practitioners who actually do it well. Read Michael Mabusian's research on the difference between PE and venture capital. The one thing I would like is I'd like to become, it's become more transactional. And I'd like to be more relationship driven. And I love that. I love the people, you know, and I miss that a bit. It's become too transactional. And I hate this Zoom thing, by the way. This is the worst. I like to shake people's hands, see them. I remember the coach used to give the big hugs. I miss that.

• 41:05Harry Stebbings?

  Yeah. And listen, I'm totally with you in missing that. Tell me, final one. What's the most recent investment and why do you say yes and get so excited?

• 41:12Speaker 03

  So I knew you'd ask this question. The last seven investments I've made are all in stealth. So literally, and I like stealth for what it's worth. I don't see why people rush to announce investments. So the last one we announced is actually Emilio, which has now gone through four rounds of funding, three this year. And Matan Barr and I had been meeting for years, about once every month or two. We're a few blocks down from each other on Wallchild Boulevard in Tel Aviv. And he kept talking about payments and this, that, the other. And I said to him, okay, what are you going to do different? What could we brand? And back and forth and back and forth. And one day he just walks in my office and says, I got it. We're going to brand ACH checks and pants. And we're going to create a consumer user experience for small businesses. And I said, done, because Mottan is amazing. And I know a little bit about small business from Wix and Honeybook,

• 41:54Speaker 03

  another amazing company. And we jumped in and Bessemer joined and things been off to the races. And this team of Mottan and Elon and Ziv are amazingly complimentary to each other, amazingly ambitious, and they had a unique insight about small business payments that nobody else had. And this has been a hell of a ride. I mean, Philippe at Co2 and Julian at Excel and Philippe at Excel, and just amazing people. And Adam at Bessemer, obviously.

• 42:17Harry Stebbings?

  It's been amazing to see that journey and some very exciting times ahead there. Michael, honestly, this has been so much fun. Thank you so much for doing this and I really appreciate it.

• 42:25Speaker 03

  Thanks, Harry. I hope I won't have to wait another 2,697 episodes in order to see you again. That'd be unfortunate.

• 42:33Harry Stebbings?

  And speaking of Emilio, we have Mottan on the show this coming Thursday. And so stay tuned for that. It's an incredible episode to come. As I said, Michael was just incredible. I couldn't thank him enough for being so fantastic and open in terms of the show. It really was one of my favorites to do. But before we leave you today, I have to say, I just love using Angel List Fund Admin Platform to manage my investments. The team and the platform at Angel List takes care of all my back office needs so that I can focus on working with great founders. Leading fund managers have made over 10,000 investments into 6,000 startups via Angel List, all online and all in one place. And with recently announced rolling funds, you can easily find and invest in these top fund managers on angellist.com/rolling. And speaking of incredible products there like Angel List Fund Admin Platform,

• 43:18Harry Stebbings?

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• 44:02Harry Stebbings?

  by connecting you with elite global talent and owning end-to-end processes from hiring to onboarding to remote teams integration. Terminal delivers the product-building powerhouse your business needs to grow. From workspaces to community to on-the-ground support, they take the guesswork out of remote management so that you can really thrive. But don't take my word for it, just ask high-growth businesses like Gusto, Chime, Earnin and Hims, all trusting Terminal with their remote teams. And you can find out more today at www terminal.io. As always, I so appreciate all your support and I can't wait to bring you our episode with Mattan at Melio on Thursday.