20VC: BoxGroup's David Tisch on Whether Concentrated Investing At Seed Works, Do Founders Really Want Direct Feedback and Is It Good For Them & Why Consumer Social Is Interesting Again

David Tisch is the Founder & Managing Partner @ BoxGroup, one of the leading early-stage firms in NYC with a portfolio that includes the likes of Flexport, RigUp, Ro, Glossier, Clearbit, PillPack and Plaid, to name a few. Recently they raised their first external capital with 2 separate vehicles totalling over $160m. David is also Professor and Head of Startup Studio @ Cornell Tech. Prior to BoxGroup, he was Managing Director of Techstars NYC and before that was an Executive Vice President @ KGB. In Today’s Episode You Will Learn: 1.) How David made his way into the world of early-stage investing? How he made the transition from prolific angel investor to raising $160m+ in external capital? Why did David feel now was the right time to raise external funding after 10 years of self-funding? How has taking on external capital changed his investing mindset? 2.) Many suggest that "concentrated seed investing does not work", how does David think about and assess portfolio construction? May others also suggest that, "seed investors are not company builders", does David agree with that? Does David believe investors can change the trajectory of a company? Where can they help the most? Where do many think they help but they actually do not? 3.) Why does David believe that founders do not speak openly about bad experiences with VCs? What have been David's biggest lessons on the right way to turn down an opportunity? Do founders really want direct and honest feedback? Is it actually damaging to give it to them? Why? How does David approach this? 4.) Why does David believe "consumer social is interesting again"? Why was it not interesting for a while? How does that mean David is approaching the category? What does David mean when he says, "for the first time ever there is no channel to arbitrage on the internet"? Is David concerned by the state of CACs today? How much attention does David pay to CAC/LTV in the early days? What are the key signals? Items Mentioned In Today’s Show: David’s Fave TV Show: Survivor As always you can follow Harry, The Twenty Minute VC and David on Twitter here!

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

• 0:00Harry Stebbings?

  We are back on the 20 minute VC and it'd be awesome to show you behind the scenes of how we really make the shows and you can do that on Instagram at H Stebbings 1996 with two Bs. However, to the episode today, and this one is particularly special for me as we had this guest on the show five years ago as one of our very first 10 guests on the show. We've now done over 2000 VC interviews, if you can believe it, and their journey since has been incredible to see. And so with that, I'm very, very happy to welcome back to the show David Tisch, founder and managing partner at Box Group. One of the leading early-stage firms in New York with a portfolio that includes the likes of Flexport, Rig Up, Row, Glossier, Clearbit, Pill, Pack and Plaid, just to name a few. Recently, they raised their first external capital with two separate vehicles totaling over $160 million.

• 0:42Harry Stebbings?

  David is also the professor and head of startup studio at Cornell Tech. And prior to Box Group, he was managing director of Techstars New York and before that was an executive vice president at KGB. I'd also want to say huge thank you to the wonderful Zach at Row for providing some fantastic question suggestions today. Zach, I really do appreciate that. But before we dive into the show today, I'm sure you've heard about it, but my word, this is a product I love, Carter. Carter simplifies how startups and investors manage equity, track cap tables and get valuations. Go to Carter.com/20VC to get 10% off and more than 800,000 employees and shareholders use Carter to manage hundreds of billions of dollars of equity.

• 1:20Harry Stebbings?

  And Carter now offers fund admin, so you can see real-time data in the Carter platform and work with Carter's team of experienced fund accountants also in the background. Go to Carter.com/20VC to get 10% off. And speaking of companies that have taken our ecosystem by storm, I have to talk about Brex, the company which built the corporate card for startups and who is the fastest company to reach unicorn status in history. Brex founders Henry Fian Pedro built a payments business in Brazil, but kept getting rejected for a corporate card in the States. So they built Brex with no personal liability, up to 20 times higher card limits and huge rewards like 7X points on Uber and Lyft, 4X on British travel and 2X on SaaS software.

• 1:59Harry Stebbings?

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• 2:42Harry Stebbings?

  Rank Science is used by hundreds of companies to grow organic traffic, from startups to publicly traded companies, including the likes of BuildZoom, Goldbelly, Sweetness and Career Karma. Go to rankscience.com/20vc for your first month free. However, that's quite enough from me, so now I'm very, very excited to hand over to David Tish, founder and managing partner at Box Group.

• 3:08Speaker 01

  You have now arrived at your destination.

• 3:11Harry Stebbings?

  David, my word, it's been over four years since you were last on the show. You were in the single-digit club in terms of being below the first 10 episodes. We've now done 2,697. What a few years it's been, but thank you so much for joining me again today, David.

• 3:24Speaker 02

  Well, thank you for having me back, Harry. I'm excited to catch up, I guess, or to revisit our history.

• 3:30Harry Stebbings?

  The pleasure is all mine, trust me, but I want to get the ball rolling, say, and for those that missed the first episode, because it was largely just my mother that listened back then, how did you make your way into the wonderful world of venture and come to found Box?

• 3:40Speaker 02

  Yeah, so it's, I would say, pretty accidentally. I grew up loving the internet, and I think it's the internet, not technology, that I fell in love with. And so I watched the internet get deployed through Prodigy and CompuServe and then on to AOL. And AOL was really my entry point into this world. And it was at a moment when the sort of worldwide web, the internet, was starting. And so you watch these ideas come to life, and whether that was successful ones or failed ones, I, as a teenager, was in the sort of mindset of predicting. The same way I was interested in sports, the internet was the same of like, ooh, that's interesting, or ooh, that isn't. The idea of making a career out of it was not something I understood until probably 10 years later. So I was a lawyer for a minute and then I left there to just start a company,

• 4:23Speaker 02

  join this bigger company and left there in New York in two thousand and nine. And two thousand and nine in New York was the nascent period of what today is our modern ecosystem here. And I was watching startups get started, bloom and blossom, and ended up joining David Cohen at Techstars to help start and run the New York program here. And so when I signed up at Techstars, I realized that was an investor job. And so Box Group was about five investments at the time. And I said, I need to take this Box Group seriously on the side of Techstars as a way to explore the opportunities. I was naturally going to see through being part of Techstars. And so Box Group became the vehicle to invest in non-Techstars opportunities. Two thousand and twelve, my partner Adam and I left Techstars to do Box Group full time.

• 5:07Speaker 02

  We, like you, have scaled pretty aggressively over the past ten years. And as of last week, became a true VC in that we took some LP capital. So it's evolved over time.

• 5:17Harry Stebbings?

  I mean, it's just been an incredible journey, but I do want to start on that, taking external money, so to speak. Because I spoke to Zach Ebro, one of the founders that you're very close to and an incredible entrepreneur. And he said, why did you feel now was the right time to take on external capital?

• 5:31Speaker 02

  Absolutely. I think for us, it's something that we were probably slow to. I viewed the credibility of Box Group as something that was very important to me to make sure that both our model and our ability to make good investments were right before we ever took on someone else's risk and someone else's money. And so in this business where the feedback loop is somewhere between, they used to say seven to ten years, but it's really ten to fifteen years. Only ten years in did I get comfortable that we might have a clue what we're doing. And over the past year, we gained confidence that our model made sense, that the style of investing that we approached this with makes sense, and started to have some conversations. I think at the same time, when we look back at the past ten years, I think we've just left a lot of opportunities on the table.

• 6:13Speaker 02

  So as we've found great companies, the ability to continue to follow on and increase our check size and be a bigger partner to those founders was something we were just not capitalized to do. And so I think what we've done is sort of right-size our ship, if you will, by going out and taking some outside money.

• 6:28Harry Stebbings?

  I'm totally with you there, Tom. Of the opportunities and exciting that we can now take a hold of them. The other element, though, that I do want to touch on is, you know, we had Andy at UnCork on the show before. And he said that actually, when he took on external capital in an institutional role, his mindset became more conservative. I guess, how do you think about this? And do you think yours will change with the taking on of institutional capital?

• 6:49Speaker 02

  I definitely think about it. So I think that's a first step to get this right. I hope not. I think that the more you are investing on tilt or the more you're not able to see deals in a clean way, the worse you will be as an investor. And I think for us, it's maintaining that zen status. To meet a founder, get inspired, get excited about what she or he is building, that's most important. And so anything that messes with your head as you're going about your approach to this world, I think can affect you. And so it was very important to me that we found alignment with our investors, that we stayed true to our model, and that we really didn't change very much. And I think I'm at week one, but my hope is that the way that we invest in the future is aligned with the way that we've invested in the past,

• 7:33Speaker 02

  with obviously the idea that we need to keep getting better. So it's not get more conservative. It's instead push ourselves to figure out how we can be better at this job, day by day, week by week, year by year.

• 7:44Harry Stebbings?

  You mentioned the way that you invest, and the way that you invest is always directly related to one's portfolio construction. And there's a lot of different views in the LP world around concentrated versus non-concentrated seed investing. How do you think about the thesis that concentrated seed investing does not work?

• 7:59Speaker 02

  Yeah, I'll touch on that in a different way. So we view ourselves as collaborative seed investors. That means we typically don't compete for deals. We compete for allocation, we compete for getting involved with a company. But our view of this space is that if we meet a founder and what they're building is something that we want to be part of, we should have a business that is flexible enough to invest into that company and into that founder's dream. And so our check size typically ranges from basically 200,000 to 500,000. We're typically not the lead of a traditional seed round. We will lead a pre-seed round. So Zac at Rose, a perfect example of this. If we find a founder on our own, if we have a great relationship with somebody and they want us to. Lead their pre-seed round, we'll do that. But otherwise, we don't write competitive term sheet.

• 8:44Speaker 02

  Our view is that seed is should be a collaborative experience for both the founders and the investors. In the sense of a founder wants to surround themselves with a group of people that can ideally create the right infrastructure for them to lean on as they go about this journey. And we want to be part of that. And so in our mind, that 200 to 500 K check without a focus on ownership, without a focus on taking board seats or over promising and under delivering is the way that we're able to scale our model. So we make about 40 investments a year. We've done that case for about 10 years now. And so our view is that we can find 40 amazing, interesting founders with awesome dreams that we want to be part of.

• 9:26Speaker 02

  We should focus mostly on how do we get involved versus on the business side of our business, which just at the end of the day is not something that we think founders should have to worry about or stress about.

• 9:38Harry Stebbings?

  So I love the collaborative mindset. The trouble for me is I just think of like fun math and what it takes to return a fund. Can I ask for you, how do you think about that less stringent relationship with ownership? And in context of returning the sheer dollar amount that one has under management?

• 9:53Speaker 02

  Totally, and I think if we dismiss that as a factor, we'd be a terrible business. And so I don't want to overstate our lack of focus on our business. I just don't think pushing that to the founder is ever something that's relevant. In terms of returns, I think this business is a business that's built on power law dynamics. And so we have to be in great companies. The best companies will make all the math work, no matter what your check size, no matter what your entry point. And obviously that sort of stops at some scale. But if you are an early investor in one of the sort of unique, once in a decade, once every five year breakout companies, the math works itself out. If you're not an investor in one of those companies, the math is a lot harder.

• 10:37Speaker 02

  So you have to be an investor in a lot of great companies. So our view is if we can find ourselves in the middle of deal flow that we think has a potential to produce outsized returns, our model's going to work. If we instead are Investing in companies that just never hit that ridiculous scale and ridiculous outcomes, our math isn't going to work. And so the bet falls back to us of being good at finding the best opportunities and finding our way into them. And if we can do that, our math works.

• 11:07Harry Stebbings?

  Totally get you in terms of just finding your way into them and the outlier model that we do live in. I guess my question to you is, and I'm constantly thinking about this, and I'm sorry that it's off schedule, but it's in terms of ownership, do you think ownership is built on first check? Or do you see, and have you learnt over the years, that actually ownership can be built across rounds, actually?

• 11:24Speaker 02

  I think building ownership after your first check is probably hard as a seed investor, because series A, series B is just so competitive. And the idea of increasing ownership in those rounds feels like a false hope most of the time, or adverse selection. Sometimes you can build a relationship with a entrepreneur where they want you to increase and they'll create that opportunity. But in general, if your model is predicated on increasing ownership after your first check, that feels quite daunting unless you're a multi-stage firm taking option bets at seed. As a seed investor, that doesn't feel like the best optimization of model. I do believe that you can maintain ownership by building great relationships with both founders and other

• 12:08Speaker 02

  investors. And so that's one. And at the same time, again, if you fund the right companies, that optimization of ownership just doesn't feel like the primary factor for driving our business.

• 12:19Harry Stebbings?

  So ownership is a big topic of debate, but another one is also whether seed investors today are company builders or they're not company builders. As I said, stirs a lot of debate. How do you feel on this company builder versus not? And how do you respond to that statement?

• 12:32Speaker 02

  I generally think that, and your podcast is probably helping this, in many ways, in a good and bad way, there's too much focus on the venture capitalists. There's too much focus on the investors. At the end of the day, why companies are successful is because a amazing founding team has a dream. They go out and they attack that dream with amazing execution, team building, a little bit of luck, a great product, and iteration. And so the idea that a Investor can come along and promise time after time, the ability to build a company feels very hard for me to believe. On the flip side, I think there are a small number, I don't want to say handful, but it's not that much bigger, of amazing investors that if at some point during

• 13:16Speaker 02

  your company journey, you're lucky enough to get on your board, they can have a material impact on the trajectory of your company. But the idea that there's anybody wearing the venture capitalist hat and anybody that's writing checks into companies is naturally going to change the potential outcome of that company, I take the under big time on that. So instead, to me, it's about supporting the founder. It's about being on their side to give them whatever they need to make this a little bit easier because what they're doing is exponentially harder than what we're doing. They have one dream, they have one portfolio company, they're all in on that. And so the idea that a diverse portfolio amongst the VC can deploy this value

• 14:00Speaker 02

  add and company building at scale, I just haven't seen that happen over my ten years doing this.

• 14:06Harry Stebbings?

  No, I do totally get you and I take full blame and responsibility for the show glorified.

• 14:11Speaker 02

  I would, if you do 2000 VC podcasts, it's probably your fault. I agree.

• 14:17Harry Stebbings?

  But you said there about the VCs that can change the game for the company trajectory. When we spoke before, you also said to me on the flip side, that you wish people would maybe speak more openly about bad experiences with VCs. Why do you say this, David? And why do they not speak so openly?

• 14:31Speaker 02

  I think it's incredibly hard to be public about bad experiences because as an entrepreneur, as a founder, you at some point will need to go back to market. And if you're viewed in any way as a risk, that just lowers the probability that you're going to get the outcome from the market that you want. If you are too outspoken, I think people become scared of you in a either proper improper way. That said, what happens is founders talk to other founders. And so the bad behavior gets translated through the grapevine more than, I think, in public. And it comes back to the belief that all VCs are not created equal and all investors are not viewed as sort of The same set of ethics, set of behaviors.

• 15:12Speaker 02

  And so I think it's very important that founders know who they are getting in a relationship with. And in this current market that we're in, this speed that rounds are happening, it is very hard to get to know people on either side. For us as an investor to get to know a founder very well, and as a founder to get to know an investor. The best way in today's market to get to know the investor, if you don't know them before you're raising money, is through whatever public persona is out there, right? I read their Twitter feed, I read Medium, I watch YouTube, I listen to podcasts, specifically this podcast. And that's the takeaway I have of who that investor is. What's missing from that is sort of the review. And I think that that is such a vital part

• 15:55Speaker 02

  of working with somebody that you're signing up to work with for 10 years. And so as a founder, if you don't have access to a truth network that's going to tell you about past experiences, and if you're simply asking an investor for a set of references, and sometimes you can say, can you introduce me to a founder that hasn't worked and a founder that has, you're still getting a biased pick there. And so I think the more that founders can share their experiences with people, individuals through their journeys, the better it is for that next set of founders that's coming about.

• 16:25Harry Stebbings?

  I'm really interested. You said that about kind of the compression of fundraising timelines and the difficulty in building that real relationship in the compressed timeframes. I'm struggling with this bluntly, David. So help me out here. What do you do to build that relationship of trust and transparency in such a short timeframe? How does that relationship get built so quickly in your mind?

• 16:44Speaker 02

  It's hard, and I think it's becoming harder. And if you're competing against the best firms in the country who are amazing in what they do and very fast to do what they do. So Sequoia, Founders Fund, Andreessen, Excel, and all the other names that I now offended somebody by not mentioning. As those funds look at a deal and you're looking at a similar deal, you better move really quickly. And move quickly to build that relationship, make your decision, and get the founder to care about you as an investor, being part of their journey all at once. And so it's this balancing. And the balancing act is being authentic and transparent with who you are, allowing the founder to have any which way they can to get to know you.

• 17:28Speaker 02

  And in those first meeting, and sometimes it's only one meeting, or those first two to three meetings, it's really showing just what you're about and what you as an investor stand for, and presenting that in the best way you can. So my pitch has to get honed over time to attract founders to want to work with us. I think at the same time, building that public reputation in a way that people are attracted to want to work with you. And I think that that takes a long time, or it takes a lot of noise. And I think the noise is risky and the time is risky. So I don't have a perfect answer. I think if you play this out long enough, you go through cycles and firms change their behavior, firms change their focus and speed. And so there's a time over the past 10 years

• 18:10Speaker 02

  when you can really pause and get to know people. We are not currently operating in that time. This is a market today that if you don't move quickly, you lose your chance. And so I think you have to be totally aware of the market, or at the same time, totally disciplined and not affected by the market. To go anywhere in the middle is super risky. So I think you see great firms with amazing returns just stay incredibly disciplined, whether that's Harrison Metal or an IA Ventures. It feels like they don't change their playbook. And then there's other firms that are totally adaptive to a market condition on a week to week basis. I think just being in the middle is the danger spot.

• 18:47Harry Stebbings?

  I do agree with you in terms of being in the middle. You touched on that, the elements that you can use to get to know an investor better. You said podcasts, you also said Twitter. I'm intrigued because I really started scaling up my Twitter. And you scaled yours down. What was the thinking around the scaling of Twitter down for you?

• 19:02Speaker 02

  I'm scared of getting yelled at, and there's a lot of people that yell at you on Twitter. The real answer, I think I do this job because I'd love to be part of the founder's dream. I feel like we are so lucky to be able to work with people who want to go build something and build something to a scale that has such a wide impact. And sometimes you can sort of use these kiffy statements like change the world, but some of these companies do change the world. And if you're not changing Changing quote the world, you are changing an industry, you're impacting a lot of customers, a lot of users at the end of the day, and that's an incredibly powerful thing. And I think we've gotten to the point where the romanticism of startups is gone. That was sort of the era we lived in from 2008 to probably 2014.

• 19:47Speaker 02

  And then I think the tone changed. So as the sort of word unicorn got spread, what to me has happened is we've seen the the development of the unicorn hunter. And so as somebody gets deemed a unicorn, outcome the claws and the people trying to kill that unicorn. And to me, if I'm part of the echo chamber of either promoting the romanticism of startups, you are looked at as a promoter and somebody that's just overly positive. And what I'm not interested in doing is shitting on other people's companies. The people that are building these companies are working day by day, night by night, to get these to a point where they're able to make the impact they are. And it just feels dangerous to me to be a unicorn killer, and I want nothing to do with that.

• 20:30Harry Stebbings?

  You said the word unicorn there, unicorn hunters, and it's spawned the rise in AUMs that we've seen across huge amounts of funds. When we spoke before, though, you said something quite controversial because everyone is talking about how heated the market is, the proliferation of capital, the oversupply of capital. But you said that actually there's not too much money in the market, David. So what makes you say this? And how do you think then that affects how you invest today?

• 20:53Speaker 02

  I think there are too many companies. So I think the idea that every company is going to succeed and every company deserves to be funded through a series C, that's a risk to me. So there's a massive dilution of talent in our industry in that when everybody starts their own company, no one can hire, no one can build the depth of talent that's required to get a company to just magic land. I think you see exceptions to that. Stripe is a perfect example. The quality of talent inside of Stripe, the retention of the talent, the quality of just the culture is what I think creates that and the scale of the opportunity. So you do see startups that are able to build incredible depths of talent and scale.

• 21:35Speaker 02

  But sort of the five to 10 person startup that isn't going to work, at the end of the day. Should shut down and those founders or those employees should join a company that's working until they're ready to do something that gets to the scale of their initial ambition. And I think that that's the key. By raising venture capital, for the most part, and there's what Bryce Roberts does is a great example of not venture capital style fundraising. I think if your ambition is to build a profitable business, VC early on, obviously later on, everybody should, but VC isn't the right weapon. It's VC is to go fast and big. And instead VC to me is just funding anything that moves because there's a chance that it is fast and big. And so I'm not really answering your question yet.

• 22:20Speaker 02

  Why is there not too much money? Because I think in order to win in this market where there is no free customer acquisition channel, there's no arbitrageable channel on the internet, probably for the first time since the internet was born. You need capital to attack whatever opportunity you're going after. And for the most part, as you've seen the shift from technology as a vertical to technology as a horizontal, so the software is eating the world lens, as software is attacking very established industries where the big players are incredibly capitalized or within the narrow tech world, you have giants that are incredibly capitalized and can throw money at problems. As a startup, being super undercapitalized is a massive disadvantage.

• 23:04Speaker 02

  You are not only asked to thread a needle, you're asked to thread a needle and play the lottery at the same time. And that just feels like you're really handcuffed into building your company. And so at some point, when you have product market fit, when you're able to start building a team of talent around you, I do believe that pouring capital in is the only way you're going to get from one to a hundred or whatever analogy you want to pick.

• 23:27Harry Stebbings?

  So, I mean, I do agree with you there in terms of pouring capital in when you see those inflection points. You said the words, so customer acquisition channels. I do want to touch on that because as you said, you know, it's probably harder than it's ever been now. And Peter Fanton said on the show that there's a lack of free and open distribution.

• 23:41Speaker 02

  Totally agree.

• 23:42Harry Stebbings?

  So for me, it's like a massive concern that actually deters me from investing in many consumer brands even because I'm just concerned that we can Competing against massive, massive brands on Facebook and Google. And that's where the majority of VC dollars go. Am I right to have this concern and how do you view it?

• 23:58Speaker 02

  And I don't just view it as consumer brands as the single vertical that is at risk here. It's the first time there's not a arbitrageable channel on the internet, right? If you go back in time, whether it was Google for basically, you know, 10, 15 years, and then Facebook and Twitter, those platforms had an ability to build your company on top of them, to find customers, to reach them, to reach them in a viral-ish way. Those days feel gone. When you see Instagram and Snapchat open up their advertising products, they're basically mature on day one. Yes, there are pockets that you can find, you know, a good CAC on, but in reality, you've seen a maturity of all these platforms as money has gotten poured into them.

• 24:41Speaker 02

  I think what you instead have to do is build an authentic core foundation community to start your company. I think a great example of that is Glossier. Glossier is able to scale what they've done, not just through paid. Paid amplifies the community that they've built, this core community that is rabid about their products. It talks about their products, that spreads their word. And I think there's an authenticity in that type of brand that totally is able to scale in this era. But if you're dependent upon paid acquisition, your LTV better be magical and your conversion rates better be magical as well. Otherwise, the math will break pretty quickly if you can't keep funding that top of the funnel.

• 25:23Harry Stebbings?

  Speaking of the math, a lot of the founders say to me, hey, my CAC/LTV ratio is this. Look at how low our CACs are in the early days. Honestly, I really don't pay that much attention to the CAC in the early days because of the volatility that's for sure going to ensue and the just sheer increase that is going to ensue over time. Do you pay much interest to CAC in the early days? And how do you think actually about its importance and variation over time?

• 25:46Speaker 02

  I think at some point you will run into a wall. And if the founding team is not able to see around the wall or get over it, you're probably dead and the math breaks at some point. So I think it's important to understand the foundation of what They are pitching you much more so than early data. I think early data can be very helpful to show that there's a customer appreciation for a product. That there might be some early product market fit. And I don't just want to isolate this to the D to C brands or the companies that are going out and spending money. But it really, if your end that you are pitching of your early traction is not big enough. I think we're at a point right now where it's easy to see something just runs out of interest. They run into a wall, they're unable to scale past something.

• 26:29Speaker 02

  And so we tend as a fund to look for founders that are able to articulate the long-term opportunity, the strategic vision of how they're going to get past these walls that are inevitable. I think when you can have a founder that can marry that early traction to that long-term strategic vision, that is worth listening to and becomes compelling. But investment isn't about reward, right? I'm not giving somebody a reward for what they've done. I'm investing into the future. And so as a fund, we typically spend a lot more of our time talking about where this is going and where this has been.

• 27:01Harry Stebbings?

  Talking about where it's going and putting in more positives on my English doom and gloom, which to be fair, us Brits are accustomed to. But you said before that consumer social is interesting again in one of our chats. So many things to say on this, but I guess why has it not been interesting for a while? And why do you think it's interesting now to you, David?

• 27:18Speaker 02

  People are bored with technology. People are bored on their phone. Go look at what people do on their phone. It's the same thing they've been doing for years. The internet has become a bit stale in terms of the new experience. I think there are pockets of newness. So something like TikTok is new. It's attractive to a certain demographic. But for the most part, the scale usage of the internet is sitting in places that it has been for a long time. I think when you can create new products that tap into human desire, human nature, you're going to be able to scale in this market quicker than people believe because people want that. Now, are you going to be able to sustain that scale and sustain that engagement? If you're an amazing product and you create fun or happiness or joy,

• 28:01Speaker 02

  which are all the same words, or an opportunity, right? The internet is all about distributing opportunities. So a site like Shopify is able to do that in. sites back in the day like eBay were able to do that before Shopify. And so I think if you're able to create a product where people can find one of those core human desires out of it, you're going to be able to scale. And I think you've seen that happen in verticals. That's what Tinder hit on. Tinder hit on a space that if you had asked every single venture capitalist at the time, if dating was an interesting space, nobody would have raised their hand. Instead Tinder comes along, blows the whole space up and shows that consumers are wanting a new happy experience, something that they find to be fun and interesting.

• 28:44Speaker 02

  And I think that goes across all of consumer social, whether that's the traditional social networks, whether that's sharing its micro sort of communities of people that have the same interests. There's just new experiences that I feel like we're on the verge of seeing. It's also one of the first times, I'm not a true historian, that I feel like the youngest demographic that is active on technology, so call it the like 18 to 25 year old demo, is not using a product that's built by somebody of their generation. And I feel like they've experienced technology and how to use it differently than I have. I'm quite old and there's a newness that should be applicable to that demographic that only they appreciate and understand.

• 29:27Speaker 02

  It feels like that exists on pockets of YouTube, pockets of Instagram, but where is that next product built by that generation that captures their imagination? So I would love people are working on that to see what that is.

• 29:38Harry Stebbings?

  Speaking very transparently, there was an opportunity I saw a couple of months ago, turned it down and it was funded by a very well-known fund. And you have the question of, oh no, did I miss it? And kind of that classic VC fear. My question to you is, do you ever do postmortems? And how do you think about structuring them and potential opportunities that you've missed?

• 29:57Speaker 02

  Mainly with my shrink. But serious, um, yeah, it haunts me. We keep a list of everything that we've either looked at or didn't have an opportunity to see that gets funded by a firm that we have respect for because we assume that somebody sees something in it. I think we don't sit down and write a essay about why we missed the deal or why we didn't make an investment. Think instead it has to be one of the variables and factors that goes into your future thinking. So what behavior opportunity did we miss when we passed on something that worked? What did we miss in that founding team? So I think we spend a lot of time talking about it internally, but in terms of a formal process, no.

• 30:37Harry Stebbings?

  I'm really interested and the final question before we move into the quickfire. Hopefully my founder MPS is good. One area where it's maybe been hit is in terms of feedback and feedback in saying no. As you said there, I used to write very long reasoning as to why it wasn't a fit or wasn't a yes. In terms of feedback, help me out here, David. Do founders really want honest feedback and how do you approach that element?

• 31:00Speaker 02

  I think it's hard. I think some founders absolutely want to get your opinion. I don't want to say learn because I'm not a teacher. I don't know any better than they do. They should hopefully know more about what they're building than I do. I think very few founders want the radical transparency of why somebody passed. And at the end of the day, a lot of the early passes are around team. And so to tell somebody I'm passing because of you is not something I think people want to hear. I'm passing because I'm afraid of X, Y and Z. You sort of set up this adversarial conversation where either they're out to prove to you that you're wrong, which isn't the intention. I'm most likely declining an opportunity to invest because it doesn't rise to my random specific bar or my random specific interest.

• 31:45Speaker 02

  The other thing you can do is send founders down the wrong path of saying, if they pedestal you as a VC because they listen to your podcast, then they're going to take your word as gospel and go and do what you say. That is a terrible thing to tell a founder to do because at the end of the day, they should be betting on themselves. Entrepreneurship is about betting on yourself. And anytime you start hedging that bet, I think you're lowering the probability of success. And so for us, I'm happy to have a honest conversation about the reasons that we're not going to make an investment. But to send it in an email and say, here's my brain dump as to why I don't like you. That's like a harsh dump email, which I'm totally not going to do.

• 32:25Harry Stebbings?

  Listen, I'm learning a lot here, absolutely. And I agree with you, especially in terms of the sway that it can have. And unintentionally so. I do want to move into my favorite there, as you know, and it's the quick fire round. So I say the short statement, you hit me with your immediate thoughts. Are you ready to dive in?

• 32:38Speaker 02

  Fire away.

• 32:39Harry Stebbings?

  Okay, so we're gonna slightly change up from the normal favorite book because it's been a while since I read much, but what's the favorite TV watching, David, and why?

• 32:46Speaker 02

  Back to like the consumer thing, I try to stay in the mainstream zeitgeist and not necessarily, or the mainstream world and not sort of the hipster world. And so I watch a lot of network television. I'm in the middle of season thirty nine of Survivor without missing an episode. So that was on last night and pretty deep into it.

• 33:03Harry Stebbings?

  I mean, listen, it's just a joy not to say, oh, you know, my favorite was Sapiens for the hundredth time the spin on the show. So that's thrilling for me. Tell me, and this one's from a very special person. His question to you is, why is Finn Barnes your favorite co-investor? Slightly biased.

• 33:19Speaker 02

  Yeah, noted. We don't have favorites at Box Group. We are a collaborative seed fund. I think what First Round has built is a magical brand at the seed stage. We love working with them. Finn was one of the first people I got to meet in this industry and we've grown up together and we do love doing deals with First Round. So. But we are a non-biased, open venture capital firm that loves to work with everybody.

• 33:40Harry Stebbings?

  God, what a misleading question, Finn. For consumer, does Amazon do more to make the market than destroy it?

• 33:47Speaker 02

  I think that the big companies get punished and shit on by our industry just to sort of feel good. There are total negatives the big companies are contributing to. But in reality, if you ask a normal consumer, do they love Amazon? Amazon will bring them what they want overnight at a low, if not the lowest, cost possible. It's pretty magical service.

• 34:09Harry Stebbings?

  What do you know now that you wish you'd known at the beginning of your time with Box?

• 34:13Speaker 02

  That I don't know very much about the future of the investments we make. I think finding conviction on a deal by deal basis is very important. But believing that you're great at this takes so long to get the feedback loops that I think the rational perspective that we take today is a lot healthier than believing we're right very often.

• 34:33Harry Stebbings?

  Sorry, this one's a personal one and it's off schedule. What's the first feedback loop that you think you received? I'm obviously awaiting mine, which Be many years out, but is it the first sale? Is it the first cash back? Is it the first big, big up round series D style? Was there a first real inflection signal?

• 34:48Speaker 02

  I think the first feedback loop you get is actually something that goes all the way up and then all the way back down. And so I think that that's where you are able to find the rational side of this business. So if you for two years see a company go all the way up and then it doesn't work out, you are suddenly unable to believe every story that's going up is going to end as you played it out in your dreams. And so that to me is the most important feedback loop. The second one is probably first exit where you're like, okay, I did something right and the math worked on this one a little bit.

• 35:19Harry Stebbings?

  Absolutely. Tell me, the hardest element of your role with Box today?

• 35:23Speaker 02

  I think the job is about seeing the deals you want to see. And so every day we wake up and say, there's somebody out there starting a company that we would love to back. How do they know about us? How do we get to meet them? And how do we have a chance to invest in them? That's the core of my job.

• 35:38Harry Stebbings?

  Start a podcast that glorifies VC.

• 35:40Speaker 02

  But I'm going to answer that a separate way. I think the other hardest part of this job is that we make an investment in somebody's dream and sometimes those dreams don't work out. And these are people that you A, believe in and over time build great relationships with. And to watch their dream collapse and to watch them as a human not succeed at what they wanted to succeed at, I think is emotionally and psychologically challenging. As an investor, you're able to just move on to the next one, but as a founder, you're not. And I think having that operational empathy for that person on the other side is vital to build into my day to day.

• 36:11Harry Stebbings?

  So tell me, David, the next five years for you and for Box, what's the exciting roadmap?

• 36:16Speaker 02

  It is a horrible answer, Harry. Hopefully business as usual. I think we just raised our first outside capital fund. And the key to me is not changing what we do every day. Because if we're in a business where the feedback loop is 10 to 15 years, if I'm changing what we do every two years, I'm going to move the thing that should have been constant that I needed to maintain to get that sort of results depend no matter where we are in a cycle and controlling those variables is super important to me.

• 36:41Harry Stebbings?

  Well, David, listen, I've absolutely loved having you on again. If we stick to this current cadence, then we'll be back for 5,500 episodes. Seriously, it's been such a pleasure.

• 36:50Speaker 02

  See you in three months when you're on that number. Awesome, Harry. Thank you very much for having me.

• 36:56Harry Stebbings?

  On top of David being an incredible guest, I do also want to say huge thank you to David. He's also always been there for me, always been a great supporter and mentor. So David, I really do appreciate it and it means a lot to me. If you'd like to see more from David, then you can find him on Twitter @DaveTish. Likewise, it'd be great to welcome you behind the scenes here. You can do so on Instagram @HStebbings1996 with two Bs. However, before we leave you today, I'm sure you've heard about it, but my word, this is a product I love, Carter. Carter simplifies how startups and investors manage equity, track cap tables and get valuations. Go to Carter.com/20vc to get 10% off and more than 800,000 employees and shareholders use Carter to manage hundreds of billions of dollars of equity. And Carter now offers fund admin, so you can see real time data in the Carter platform

• 37:40Harry Stebbings?

  and work with Carter's team of experienced fund accountants also in the background. Go to Carter.com/20vc to get 10% off. And speaking of companies that have taken our ecosystem by storm, I have to talk about Brex, the company which built the corporate card for startups and who is the fastest company to reach unicorn status in history. Brex founders Henry F. and Pedro built a payments business in Brazil, but kept getting rejected for a corporate card in the States. So they built Brex with no personal liability, up to 20 times higher card limits and huge rewards like 7X points on Uber and Lyft, 4X on Brex Travel and 2X on SaaS software. If you're a VC backed startup based in the US, see if you qualify for a Brex card today at Brex.com and get Card bees waived for life by entering the code HARRY during signup.

• 38:24Harry Stebbings?

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• 39:06Harry Stebbings?

  Go to RankScience.com/20vc for your first month free. As always, I so appreciate all your support and I can't wait to bring you another set of fantastic episodes this coming week.