20VC: David Tisch on Why High Ownership and Concentration is BS | Why No Manager Actually Wants to Stay Small | Why Competing with the Mega Platforms is a Losing Game | Why the Lean Startup is a Fake?

David Tisch is the Founder of Box Group, one of the best seed funds of the last decade with early investments in Cursor, Baseten and Clay to name a few. Today the fund invests from two funds, a $275M seed fund and a $275M opportunity fund. AGENDA: 10:40 Why we have less dilution now than ever before 12:50 Why I don't want to compete with the best VCs, and why it's a trap 16:15 What concentrated funds know but do not admit to 17:25 Why multiple tranched rounds can be good for founders 18:45 Why the Lean Startup was a total fake 28:55 Why LPs are frustrated by a market that we can't change 31:50 What is the single best-returning investment in the history of BoxGroup? 33:15 Why fund returners are not always obvious in the early years 40:05 Why funding consumer brands at seed no longer makes sense for venture 42:00 Rogo, the now $2B company, got passed on by 39 out of 40 investors 45:40 Why the marketing message that pro rata is not a right is BS 1:01:50 Why we do not allow negativity in the investment decision-making process 1:03:00 The true magic of early-stage venture capital 1:04:35 Why YC has the best business model in all of venture

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

• 0:00Speaker 00

  I've never understood trying to compete head to head against who I would deem to be the best VCs in the world. Every concentrated manager will say that we win 90% of the deals we want to win. And I think that's total BS. I think it's like 20%. I think the lean startup was a total fake. There's people to me right now, and this happens in in hot market conditions, that are playing the short game. I believe the right to invest in subsequent rounds is earned. I work for our LPs and my customers are founders. We don't allow grenades at early stage. You're not allowed to throw a grenade on someone else's deal.

• 0:39Harry Stebbings?

  This is 20 VC with me, Harry Stebbings. Now, over the years, me and David Tisch have done many shows and I've always questioned his model. Low ownerships, very diverse portfolios. And you know what? I was wrong and I was wrong on many different accounts. David has absolutely crushed it. Yes, he was an investor in Curse from one of their earliest rounds to a $60 billion sale to Mr. Elon Musk and X. What an incredible outcome that was for David and Box returning the fund multiple times. But he's done it with so many companies from Base10 to Clay to Rogo. David has crushed. He's one of the best early stage investors of our time. He's a true craftsman in a world where everyone has become a capital accumulation machine. David is one of the best.

• 1:21Harry Stebbings?

  This was a phenomenal discussion and I can't thank David enough for being so open. And in all honesty, willing to go against the grain with some of the things he said today. I loved making this happen. But before we dive into the show today, what do Uber, Curse and Harvey have in common? Well, they made the really wise decision to build on fireworks. Fireworks is the specialized intelligence platform behind many of the world's leading AI products. Companies use fireworks to deploy the latest open models, specialize them with their own data and run them in production with the speed and reliability modern AI applications demand. But getting models into production is only the beginning. As AI usage scales, the best model for one request isn't always the best model for the next.

• 2:05Harry Stebbings?

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• 2:48Harry Stebbings?

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• 3:33Harry Stebbings?

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• 4:16Harry Stebbings?

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• 4:26Speaker 02

  You have now arrived at your destination.

• 4:29Harry Stebbings?

  David, I'm so excited for this dude. It's been two and a half years since you joined me. You very kindly reminded me of a debate that we had a couple of years ago and we're going to get into that. But thank you so much for joining me first.

• 4:42Speaker 00

  Thanks for having me back. Nothing's happened in between the past two and a half years and now. So we can just sort of regurgitate all the old conversations.

• 4:50Harry Stebbings?

  Has our job completely changed, David?

• 4:52Speaker 00

  In some ways, totally, and in other ways, not. I think, you know, I've been doing early stage investing for 17 years now, which makes me old. And I think a lot of the times people try to relate the current moment to a historical moment. So, you know, is this like 2021? To me, no, it has nothing to do with 21. It's a totally separate moment. And this one's funky and interesting and maybe frothy, maybe insane, whatever it is. But it's a standalone new market condition that you have to figure out in today's world. Because in 21, there were a bunch of other factors, macro, micro, that were creating that environment.

• 5:33Speaker 00

  And if you go back to, you know, 18 and 15 and 2010, each one of these moments are just different. And so I could argue our job has totally changed and equally explain that our job is just to do whatever the current market conditions present. And the actual job is like see, meet, get to know great founders, make a decision. Should we invest or not? And beg them to take your money. That's the the funnel that we operate in.

• 6:02Harry Stebbings?

  I totally agree with you there. In 2021, I think we could acknowledge it was just incredibly bubble like. It was a good time to sell. It was a bad time to buy. There was no fundamental technology innovation. There was short term behavioral change with COVID in different respects, communications, buying. Everyone says, well, now starting to feel like 2021. Are you in that camp of the craziness is real? Or are you in the camp of no, we are so early and there is so much room to run?

• 6:31Speaker 00

  I don't think it's as simple as that. I think in each one of these moments, there are good companies and bad companies. And so as a VC generally, and especially as an early stage VC, I think the macro is less impactful than the micro. Is the company that I am fortunate enough to be an investor in the good one? Is it the great one? Is it the the most important one? That transcends the macro. And the macro to me is like a portfolio analysis. It's a industry analysis, but it doesn't come down to a specific company analysis. So do I think there are, you know, not perfect companies raising a lot of money at big valuations? Yeah, but I don't know that that's ever not the case.

• 7:15Speaker 00

  And I think you've seen it historically in our industry. There are incredibly public blowups of some of these companies. It happened in catastrophically messy ways. It sometimes create TV shows or movies or documentaries. And then there's companies that die quietly in the night. But I think underlying all of these moments of of brothiness are probably a handful to a lot of great companies that are building high quality businesses. And they're doing it in, you know, a long term oriented way. Are they raising money quicker? Are they raising money less dilutively? Are they doing it at big valuations? Absolutely. But I don't think that that is a like industry wide harmful set of conditions.

• 7:59Speaker 00

  It's just, is this company a great company? Can this founder, can these founders navigate incredibly complex, changing environments almost in real time today to create an enormous amount of value? That I think you are, to your point, in the early innings of a deployment of a horizontal new technology that will have tremendous impacts. But like all other technologies, what you see is this initial wave of impact, initial set of reactions, some version of plateauing, more innovation, plateau, innovation, plateau. The difference this time is those like cycles are like two to three months. It's the new model release. It's the new revenue growth of a vertical AI business.

• 8:45Speaker 00

  It's a huge M and A deal. All these moments create these mini cycles that feel like they have waves across the industry.

• 8:54Harry Stebbings?

  We've seen seed rounds be 10 to 20 million dollars very consistently.

• 8:59Speaker 00

  Or also 50 or 100 or a billion.

• 9:02Harry Stebbings?

  For sure. But I'm saying kind of if we don't take the real outliers, like 10 to 20, it's really been quite normalized as a round size for good seed companies with, you know, pedigreed founders. I get that our job is just to find them and beg them to take our money. But does the business not really change in that respect? Suddenly, how do you think about sizing? Bluntly, there's nothing there and you're having to write a large proportion of your fund as an entry check. How do you think about that with the massive explosion of brown size?

• 9:31Speaker 00

  You can either come on a podcast and complain about it, or you can do the thing. Make a decision, yes or no. If you're going to play the game that's that's in the market of deals, you don't get to change the competitive dynamics of a free market. So if great founders or potentially great founders are going to raise 10 to 20 because someone else is going to do the deal at that price, you get to say yes or no. I think if you think that is Is an important company and one that you want to be part of, you have to say yes. And there's two conditions that allow for those starting points to not materially change the economics in venture.

• 10:13Speaker 00

  If the outcome sizes are bigger, so if, think about 10 years ago, the idea of building a $10 billion company was farfetched. Today, that is sort of like, you have to sit and look at an early stage company and try to squint and get there. As a sort of normal outcome versus a billion. So I think there is a change factor there. And then you see anomalies well past that in terms of valuation or even acquisition or our future IPOs. And then the second one is the lack of dilution. So as an early stage investor, to me, in the companies that tend to hockey stick very quickly. The series B, C, D are dramatically less dilutive to the founders and the early cap table than in the past.

• 10:56Speaker 00

  They are raising these later stage rounds at three to 8% dilution instead of 12 to 20%. And if you take that across multiple rounds, your early stage investment just gets diluted less. And that is an economic factor. Now, we Box Group, we invest in a wider set of companies, which you've criticized before many times for not an ownership focus. If our entire portfolio is filled with $20 million seeds at, you know, 200 million pre. Do I think that the, the business is fundamentally changed? Yes. And so you have to find in this market of varied entry points for early stage investing.

• 11:39Speaker 00

  I think you have to have a portfolio balance, but not on an individual deal basis.

• 11:43Harry Stebbings?

  Totally get that in terms of portfolio balance, kind of on a blending entry price and making it a little bit more palatable. You said there about my criticizing your portfolio.

• 11:52Speaker 00

  I mean, speaking about it, I didn't use the word criticize on purpose.

• 11:55Harry Stebbings?

  No, I do. I, trust me. I, I think one of the most important things to look for in anyone, actually personal or professionals, like someone who's willing to like, admit that they were wrong. I have no problem admitting that I was wrong. And what I was wrong on very specifically, I think, is like not seeing outcome size expansion in the way that we have done. And that's very rigid minded of me, which is my fault, but it's enabled incredible returns from companies with smaller checks and not having ownership, so to speak. How would you characterize what I got wrong? Did I do a good job of it there? You can own me for it.

• 12:29Speaker 00

  I want like a soundtrack as you're doing that. So if we could add post-production music in.

• 12:35Harry Stebbings?

  Oh, yeah, we will.

• 12:36Speaker 00

  It would go a little, it would go a little wider on the, on the, you know.

• 12:39Harry Stebbings?

  It's kind of like, lose, you know, lose yourself, the first kind of 30 seconds.

• 12:43Speaker 00

  Yeah, just like a little background music, Harry getting deep. I think that I've always believed that ventures is a pure power law dynamic industry. You have to be in the outliers. The idea that me or you, to pick on both of us, are going to be able to find and buy 10 to 20% of a true outlier in the seed round and beat the rest of the market, which I truly think a lot of, not all, are great at their jobs. You're going to fight them head to head and convince the founder to pick you, and that's the company that matters. I think it's a lot of steps that you have to believe to get that business right.

• 13:26Speaker 00

  And so I've never understood trying to compete head to head against who I would deem to be the best VCs in the world. And I think these are brands and these are people that have spent decades building what their organization stands for and attracting the best set of founders to want them in their deal. And I think those multi-stage firms that have been around for a long time are really, really good at seed investing.

• 13:52Harry Stebbings?

  In a way that they weren't before, huh?

• 13:54Speaker 00

  They're more concentrated focused on it and they're more accessible and they're more efficient and the market's more efficient. I think founders know how to reach them and know how to run a process very differently than in the past. So I think post-COVID, there's a tremendous efficiency in the fundraising market. Competitive deals, it used to be three to five term sheets in an early stage round can these days be 10 to 15. Or it's purposely only three to five, but those three to five are really competing against each other. And that is something you can complain about or just accept the market conditions. And so for us, the belief has always been, we have to be able to invest in the people that we meet that we think are the best.

• 14:37Speaker 00

  And we can't let our business get in the way of it. So to me, the thing that you got wrong is two pieces. One is the math. Our business math on our side as a venture manager that has LPs, that needs to return our capital to LPs at a outlier way. I think you didn't do the math right. And I think a lot of people don't appreciate that our business makes sense. And that's okay. We like what we do. We think it's really interesting.

• 15:03Harry Stebbings?

  And I specifically didn't do the math right because I didn't see the outcome size expanding. Is that, is that it? You've got the numbers.

• 15:09Speaker 00

  Well, the second part is, yeah, maybe that's it, or maybe the lack of dilution part that I made before is, is what you get at the beginning actually stays pretty consistent. Whereas I think in the past, you would probably put like a negative 80% on that number.

• 15:23Harry Stebbings?

  Well, Jason Lemkin, who I do a lot of shows with every week, we do the weekly show and he's like, 100%, 60%, you'll be diluted. Is that not true in your?

• 15:33Speaker 00

  I don't think in the best companies. Now, like, not every company goes up and to the right and never sort of runs into bumps. I think the macro, when you get big, can cause some bumps in valuation. You're seeing it right now in some of the biggest labs going out and trying to raise rounds and sort of re, reevaluating the price that they're raising at. If you go back in history, Uber, Facebook, Airbnb, Ramp, which I think is one of the best modern companies ever. They've all had a bump, a down round. And so I don't think it's always just up and to the right. But I think in this specific sort of three-year window, there is a lot of continued momentum in terms of valuations.

• 16:12Speaker 00

  But the second piece, which I think is related to the first piece, that I, I think concentrated funds dismiss is there is an adverse selection in the concentrated model of what gets in versus what you want to get in. Meaning every concentrated manager will say that we win 90% of the deals we want to win. And I think that's total BS. I think it's like 20%. And so in a given fund cycle, if you're funding 30 companies that you have this immense conviction in, concentration of 30 names with 10%. You need, obviously you need, because it's vital, need 10% of the company in order to make the deal work.

• 16:52Speaker 00

  I think you actually offer that deal to upwards of 120, maybe 150 companies to get your 30. And I don't think people admit that. So I do believe that the best companies, the ones you're most excited about, don't always make it into the portfolio. And so just because you have 30 that you own 10% of, it doesn't mean those are the 30 that you would have liked to be in that portfolio. I think in our model, what we're able to do is get into more of the companies that we're excited about than other people.

• 17:24Harry Stebbings?

  I get that. And you know, all worries me, there's so much, and I'm asking here, but it worries me is I completely agree with you in terms of that supposed win rate. What happens now though is they just say, David, okay, fuck it. I lost to Sequoia and Box Group. Let's do another round. I'll, I'll do it at 800. I know David just did the first tranche at 400, but I'll do it at 800 today. And for the founders, like, well, good deal. Like, nothing's changed in the company. I get more money and double the price. I think it distorts companies and really.

• 17:53Speaker 00

  Who are you worried about?

• 17:54Harry Stebbings?

  I'm worried about founders losing focus and becoming distracted with way too much money way too quickly.

• 18:00Speaker 00

  That is like a babysitting problem. It is. Sometimes that's going to happen for sure. But to attribute that fear to every founder, some founders are going to tremendously benefit from having more runway, higher valuation, more momentum, more buzz in order to recruit people, in order to show that there are believers that think this can be huge, so that they can justify it to customers to get early partners. If you are a great founder, and it doesn't mean all of them are going to do it properly, you have to take all the conditions that you've chosen to take on. So if you took on two tranches, if you took on high valuations, if you took on a lot of money, you're going to have to use those variables

• 18:41Speaker 00

  and execute your company building in a different way than if you're super capital constrained. I think the lean startup was a total fake. It was a like stupid, like brainwash that happened for 10 years with like professors and books and tweets and blog posts that was just like totally awful. And I think it sent people like the wrong message.

• 19:02Harry Stebbings?

  Why, why was it totally awful?

• 19:04Speaker 00

  Because name a company that actually ran the lean startup playbook that worked. One, every company, if you're going to be actually successful, needs a lot of money, especially today.

• 19:15Harry Stebbings?

  But like 37 signals is, is one that's not.

• 19:17Speaker 00

  Yeah, some bootstrap companies, but if you, if you want to get on the venture flywheel, lean is not the answer. Inevitably, you're going to be fat. You're not going to be lean. You have to be. It doesn't mean undisciplined. The difference between the word like lean and the word well-funded is not lack of discipline. It's just not automatically attributable. Does that mean that every company that raises a ton of money is going to be well-disciplined? No, there's going to be, again, back to where we started, bad companies.

• 19:45Harry Stebbings?

  Will you do tranched rounds? If so, founders that.

• 19:49Speaker 00

  I don't like them, but like, again, there's the like emotional reaction and the business decision, and those are very decoupled.

• 19:56Harry Stebbings?

  But you will do the second or third.

• 19:58Speaker 00

  Don't put this on air. I don't want. Founders to know that will just rip checks into tron rounds. But yeah.

• 20:03Harry Stebbings?

  Whenever I I I.

• 20:05Speaker 00

  I don't want to. I would like to invest at this at the lower price.

• 20:08Harry Stebbings?

  I'm too I'm fu- fuck off. This is a.

• 20:11Speaker 00

  I get it, but that's your problem. Get a shrink.

• 20:14Harry Stebbings?

  This is a partnership and you're saying you're inherently less valuable than them. Well, fine. Just don't take me then.

• 20:19Speaker 00

  Okay, that's their choice. And and guess what? They're not going to take you. And you can go back and you can choose. That company is not going to be. That's a yes no decision. That's it.

• 20:29Harry Stebbings?

  But you're happy then to just to take.

• 20:31Speaker 00

  I didn't say happy. That's now an emotional attribute.

• 20:34Harry Stebbings?

  But you will say.

• 20:35Speaker 00

  I will. I will be sad and take it. That's it. That's like a different thing. You will.

• 20:40Harry Stebbings?

  I will be sad.

• 20:41Speaker 00

  Yeah, you will. You will just admit that this is sad and fall in line. But like, I think it's our responsibility to earn the right to do what we want to do versus what a founder is offering us. And so, again, you can beg to have a entrepreneur do what you're asking him to do. So if if there's two tranches, I would like to enter in the lower tranche. I need to convince the founder to allow me to do that. And if I don't, it's a me problem.

• 21:11Harry Stebbings?

  I would like the lower tranche, please. Cake or death? Cake, please.

• 21:16Speaker 00

  And then they say no. And then you're like, pretty please. And then they say no again. And then you have to like beg differently.

• 21:23Harry Stebbings?

  Come on, please. I'm just a little seed fund. Come on.

• 21:27Speaker 00

  You have to use all your little sale tactics and then you get rejected. But like, is that an enjoyable market condition that's been emerging more and more in the past couple of years? No. If I am sitting there and I view it as like, not the founder that trunched us, but the other VC, it's good to know. I also have a long memory.

• 21:47Harry Stebbings?

  Scathing.

• 21:48Speaker 00

  But it is, right? Like, you have decided that I will pay another price. Not the founder. You've created the structure of this deal such that I am not sitting on the cap table with you. I am pushed to a a different product than you get to invest in. That means when we have early stage investments and are going out to market to help them raise capital, if I get to be a voice in the ear of a founder, I have opinions too.

• 22:13Harry Stebbings?

  Remember, I was on your side, David. It was I was always on your side. I was on your side. Come on.

• 22:18Speaker 00

  But I mean it, right? Like, there's people to me right now, and this happens in in hot market conditions that are playing the short game, and there's people that play a long game.

• 22:27Harry Stebbings?

  And sorry, just they're playing a short game because they're cutting people out, they're pushing them into second.

• 22:32Speaker 00

  It's like, I just think like, there's a set of relationships that you build in this business because we're all dependent upon each other in very different ways that ebb and flow in different times, in different conditions, in different companies. If you're in the business of maintaining and building long term relationships, you're going to choose certain behaviors over others in different moments. And the thing that we've done at Box Group that I think is different than a lot of other firms as they've built is we've stayed very true to who we are. We do early stage investing. We try to be there on day one. We don't take our problems and put them in front of founders.

• 23:10Speaker 00

  We try to be as helpful as we can be, and we try to be founder friendly in every step of the way. Does that work perfectly every time? No, but that's the intention. So we write checks that are not needing of ownership. We don't sit on boards. We don't write competitive term sheets. We are happy to lead a deal. We are happy to help a founder get in business with some money. We're happy to be totally creative in how we invest, but it's oriented around early stage and getting in at that dream level.

• 23:41Harry Stebbings?

  What is the average ownership?

• 23:43Speaker 00

  I don't know. I have to. That's math question.

• 23:45Harry Stebbings?

  But like, Jenny, is it like 5%, 2%?

• 23:49Speaker 00

  There are deals we do where we own at the initial check 1%. There's deals we do at 10% and everything in between.

• 23:57Harry Stebbings?

  But there's no too low.

• 23:58Speaker 00

  Again, that's an emotional thing, not a business thing. I'm sad if we have to write a really small check, but it comes down to like, yes or no. When does that happen the most frequently? When we get to a deal late. When you when you meet a founder and the deal's in process, you're now begging for scraps, as you should. That's our fault for getting to something late. And that's something we can do better as a firm, is meet founders earlier in their journey. And if we didn't do it, we need to figure out internally what could we have done better to meet a founder before there was a company?

• 24:31Harry Stebbings?

  Can I ask you, what's your win rate?

• 24:33Speaker 00

  So different market conditions, it ebbs and flows probably between 70 and 90%. And I think the single factor that causes us to lose the most is getting to something too late, like speed of our decision making and accessing the opportunity are the two factors that we control that hurt us the most. There's a subset of companies that just meet us and don't want us, but that's harder to to course correct because you almost don't know why they didn't like you. It's like a EQ emotional outcome, or they didn't think you were valuable enough, or maybe they referenced you and they they got something that said not as good as you need them to be.

• 25:14Speaker 00

  I think we care a lot about those situations, but I think that happens sometimes. The ones that I think we organizationally can work on is how do we get to everything before everybody else? And I think that's the obsession. We're a team of 10 investors. There are six partners at the firm. We've all worked together for a long time. We all like each other and we all do the work. Like, our job every day is to wake up and meet the next founder that we're excited to back.

• 25:41Harry Stebbings?

  I think both of us having flexibility to not have to be lead, like, again, I admitted my wrongdoing. I I turned down great businesses over time because of ownership, and it was terrible decisions. And so now we invest very differently. You know, we will absolutely do the 1% or 2% if we think it's an unbelievable founder and it's an amazing opportunity. So, great. That means I I never lose because I will just do a smaller check. Or not never, but you know what I mean? Rarely lose because. But if I had to only lead, that would come down dramatically. And so my question to you is, does the pure play lead only seed funds still have a business?

• 26:21Speaker 00

  What are the pure play lead only seed funds left?

• 26:24Harry Stebbings?

  I mean, I think you've got your like uncorks, your floodgates, your, I mean, Susan, no, first round?

• 26:33Speaker 00

  I think they've moved into a different style of investing and more flexible and play it a little bit later when necessary. Unlike strategic purpose.

• 26:42Harry Stebbings?

  So what you're saying is that business doesn't exist anymore?

• 26:46Speaker 00

  I don't want to be in that business.

• 26:47Harry Stebbings?

  And why? Why is that?

• 26:49Speaker 00

  Because I don't think you can compete against the greatest firms in the world who are running that strategy as part of what they do.

• 26:57Harry Stebbings?

  With much less price sensitivity and much bigger checkbooks.

• 27:00Speaker 00

  Yeah, I don't even think that's a factor. They're great at what they do. I like very much pedestal.

• 27:05Harry Stebbings?

  I I do think it is a factor. Like, we have lost to like a GC of the world, and with respect, a junior there. And I don't mean that disparagingly, but someone who is more junior, because they offer treble the price and treble the check. I agree with the founder for taking it, like, wholly within your right to do it, but that's why.

• 27:23Speaker 00

  Yeah, but I like, it's an offer in the market, a free market, and I think they take the majority of the air out of the room if you're trying to compete for, I'm going to lead, sit on your board or not sit on your board, but I need 10 to 15% of your seed company. I just think there's a greater efficiency to access the multi-stage firms and the multi-stage firms are happy to do those deals. I also think like, what you've seen happen is it used to be a lot of firms would be like, okay, I'm not going to do this. I want to wait to see this at the A. Or I'm not going to do this at the A. I want to wait to see this at the B. And what's happened is they don't get to see it. That might have been your only shot to do the deal because there's an efficiency in the market and there's other people that also want to do it at the B. And you might lose there

• 28:06Speaker 00

  and you might lose at the C. And so what you're seeing is if Sequoia wins, it might mean that, you know, Andreessen or Kleiner or someone else needs to immediately come into the next round because they know that that's the best probability they have of getting a real check into that company. And they do it quickly and they do it aggressively. And I think that if you lose head to head in a seed and an A in a B, you can either sort of put your tail between your legs and call it a day, or you can try to figure out a new entry point with minimal progress and minimal developments to get your check into that company if you believe that was an important one.

• 28:49Harry Stebbings?

  I think it's an amazing point that there was a willingness to wait before that's now gone. I think that's absolutely right and very pertinent. Can I ask you, though, I speak to so many LPs, as we said, they love to talk, and every LP wants one category of venture. We want the pure play seed investor in Silicon Valley, small fund, under 100 million, pure play seed. And I go, that is the single worst fucking segment to be in. That's the one segment you don't want to be in. And they all kind of look at me rather horrified. What advice would you give an LP when they look at the segments today and go, ah, I want pure play seed in San Francisco as my bucket?

• 29:27Speaker 00

  I'm going to answer your question in a roundabout way. I think there are three different stakeholders in our industry and their incentives and current conditions are very decoupled. Like, we're in a founder world. I think GPs are struggling to have a very static and focused strategy because of we're in a founder-friendly world. And I think LPs are frustrated because they want certain versions of exposure or portfolio construction that basically aren't available. And I don't think there's an easy solve for the LP problems. And I don't think there's a clean way to operate as a GP in a ever-changing market

• 30:12Speaker 00

  that is very complicated right now. And so I think founders get the leverage. They get to raise capital from people they like at prices that they like. And you, as a GP, can say yes or no. And on the LP side, they're going to look at your portfolio construction, your entry point, your ownership. And then a lot of the multi-stage funds have multiple products that LPs will tell you and me that they don't like to do, but yet it's going to be the majority of their allocation into ventures going to go to the multi-stage firms that are established that are a way to get scaled capital into the industry. And frankly, like exposure to some of the best companies in the industry through that. So your question is around like the LP conditions.

• 30:55Speaker 00

  I believe my relationship with our partners is one of truth. We invest out of a $275 million seed fund right now. It will invest in around 150 companies. So we are pure play seed with lack of a focus on ownership and concentration. There is a large cohort of LPs that are confused by our math and doesn't think it works and that don't believe in our model.

• 31:25Harry Stebbings?

  You do 50 companies a year?

• 31:27Speaker 00

  A little more, probably.

• 31:29Harry Stebbings?

  Not being rude. David, do you remember them all?

• 31:31Speaker 00

  Yeah. I don't know what the other people who do one to two deals a year do all day.

• 31:35Harry Stebbings?

  Podcast.

• 31:35Speaker 00

  That confuses me.

• 31:36Harry Stebbings?

  Podcast.

• 31:40Speaker 00

  It sounds lovely. But there are LPs that don't believe in our math. Our math works. I know our math works. I see our math and I think our partners also believe our math works and that's awesome. Because our model's terrible if the math doesn't work.

• 31:54Harry Stebbings?

  From a liquid returns basis, what has been the single best investment?

• 31:58Speaker 00

  We were fortunate enough to have met Cursor sort of before they were working on the business that scaled and my partner Claire got to know Michael when they were investing on dorm room fund together. And we were in the earliest round of Cursor.

• 32:15Harry Stebbings?

  Did that return the fund?

• 32:16Speaker 00

  Yes.

• 32:17Harry Stebbings?

  Multiple times?

• 32:18Speaker 00

  Yeah.

• 32:19Harry Stebbings?

  I told you this model doesn't work, David.

• 32:21Speaker 00

  I know.

• 32:21Harry Stebbings?

  You didn't listen.

• 32:22Speaker 00

  I know. I got to do better math. Our Excel sheet broke. I tried to update it one day and...

• 32:29Harry Stebbings?

  Do you know what's astonishing with that? And I'm really pleased you chose that actually as an example, which is the speed to that enterprise value as well. Four years. I thought every LP was moaning that ventures taking too long. Now we're seeing OpenRuder. Was OpenRuder one of yours?

• 32:43Speaker 00

  It was not.

• 32:43Harry Stebbings?

  Oh, bugger. It wasn't mine.

• 32:45Speaker 00

  I know, next time.

• 32:45Harry Stebbings?

  Next time. But like, you know, this was whatever, two, two years to $8 billion?

• 32:51Speaker 00

  Yeah. I think the speed of company creation, growth, explosion is different. And I also think underlying, like blessed to have been in early part of the Cursor story. And I think, you know, what they did and accomplished is truly sensational and it's a generational outcome. It's the biggest venture M&A deal in history. We were just lucky to have been there early. Underlying, like in the fund that Cursor sits in, in the early-stage fund that Cursor sits in, for me, what I love is there's 10 other companies that are fascinating. And they're just taking a slightly more reasonable timeline to grow and compound.

• 33:31Speaker 00

  Do I think any of them will get to the accomplishment of how big and great Cursor was? I don't know. And that's not like a binary, they did it or didn't. But I think what you have to appreciate in this early-stage investing is that things take time. We were the earliest investor in a company called Clay. Clay is a bumpy four-year road to explosive growth and now is growing and compounding what they're doing in an amazing way. But it's not a clean, perfect story. And I think it takes learning and it takes iteration and developing their go-to-market. They got them to where they are at today. We're in the seed round of Base10.

• 34:15Speaker 00

  You needed inference to sort of become a space. And Base10 today is a full outlier company and they're running at full speed and sort of hitting that hockey stick fully. But it wasn't this just start up and to the right.

• 34:29Harry Stebbings?

  Do you think the best companies are generally immediately obvious? Or do you think actually the value is generally actually in the messy middle and the ones you don't expect?

• 34:39Speaker 00

  I think there are signs early on that a founder is running the experiment at a world-class level. And that is either they are hiring total outlier people to join them quickly. They are finding customers that are inaccessible early. And you're almost confused as to how they're getting so far ahead so quickly. And it's a lot of the time, some combination of the product and the go-to-market conversations that they're having, or they picked the right idea. But I think there are always challenges and bumps. And sometimes those are prolonged and sometimes those are immediate. And so what you're really identifying is can this founding team navigate?

• 35:23Speaker 00

  Again, like I think the market is so complicated today. We spend time and we ask young people, we go to college campuses a lot. And we were up at Harvard and MIT recently and talking to undergrads. And I asked like, raise your hand if you have a vision for what the world is in 10 years, which is our job and which if you go back in time, young people, old people, there was like, I can see what the world's like in 10 years or some guess of it. No hands went up. And I'm like, five years? One hand. Two years. That's when you started to get some hands. And I think that's what people are feeling today is uncertainty as to the timelines of what the future looks like. And when you're in this moment of AI and you have people saying, we're all about to

• 36:07Speaker 00

  die from AI, and you have other people saying we're entering an age of abundance and free-flowing markets that will change the way labor forces work, like that's a pretty wide gap between the prediction of the future. And then you have the models rolling out frequently with major innovations that in some way are important to a subset of companies. But in the end, not every company is going to need the cutting-edge, bleeding-edge model. And so you're watching this age of AI deployment, AI adoption, and it's going to impact people differently at different speeds. So it's complicated. And then you're seeing AI impact the physical world, science, all these spaces that felt

• 36:50Speaker 00

  hard to access before that are getting opened up because of this horizontal technology shift. So there's just a ton of uncertainty. I think you feel it in the public markets. You see it with compute access, compute pricing, energy, data centers, the politics around all of it. This is complicated. And so when you're asked to predict the future, I don't know that anybody sits here today and actually has an answer. And it's cool that people come on podcasts or tweet or do whatever they do and say like, I know where the world's going. And you're like, no, you don't. So I think what you're looking for in today's founders are people that are capable of real-time navigating ever-changing conditions that are insanely fast and insanely complicated.

• 37:33Speaker 00

  And so to your question of like, do you fund somebody and know it immediately? No, because I think the world's changing too quickly today for that to be a condition.

• 37:42Harry Stebbings?

  Do you think the founders that succeed today are different to those in the past? Yeah, if I look at the founders, I mean, they're inherently a lot more technical. There's a lot fewer sales-led founders today than there are...

• 37:56Speaker 00

  You're in a moment of that, right? And so the question to me is like, if you're an early-stage investor, is there two years out when actually sales matter again in some way and go-to-market becomes a differentiator? And if that's the answer, you should fund those people today. Because their exposure to the bigger markets is not going to be as purely relevant for like one to four years when their company is a bit further along, their product's ready. And so if that is your bet, it actually makes sense to start rotating a little differently today than... You can't, as an early-stage investor, solve an immediate opportunity or need. Nothing goes fast enough. But I do. I think the founders today are more technical in, you know, a non-offensive way, smarter than ever before.

• 38:41Speaker 00

  I think there's less opportunity for mediocrity to succeed. And you can't just like identify a gap in a business market and go attack it with like laissez-faire approaches. You have to be so good in order to win right now. And, you know, you saw, I don't know if you saw the Scott Wu video that went viral where he's doing counting. You're like, I can't compete with that.

• 39:05Harry Stebbings?

  I saw a great one, which is cognition is just a wrapper around Scott Wu.

• 39:09Speaker 00

  But you have to, if you look at every company right now that to me is becoming an outlier, the founder quality of each of them is really, really impressive. There was an era where like everybody was told you should start a company. Everybody should start a company. Company and I don't think we're there anymore. I think it's can everybody start a business? Sure. And I think that's okay. And I think the word company and business are in some way different. And venture capital for probably 10 years was funding a lot of categories that were not capable of becoming as big as maybe you thought at the beginning, because what they were aiming for was a bit smaller.

• 39:53Speaker 00

  I think today, the appetite for scale from the venture product is uncompromisable because you need to get huge to make the math work. And I think the founders ambitions today are A, huge and B, the opportunity set feels unlimited.

• 40:10Harry Stebbings?

  I don't want to like single out a company, but it's a company that we both know and everyone will know, which is testament to its success. But would you fund like a Harry's today?

• 40:20Speaker 00

  I think Jeff and Andy from Harry's are like world-class founders that if you put inside of any company, they would build something of importance and of meaning. We at Box Group have stopped funding brands, not because I actually think they're small. I don't think you can fund brands at seed because brands to me are built off of your initial data set of like, does the brand resonate? Does a product resonate that people buy it? Do you have like customer LTV or CAC to LTV ratios that make sense? And you don't get any of that data at seed. I think one of like the more interesting investor products out there is like doing brand investing at Series A.

• 41:05Speaker 00

  I don't think it fits in your traditional venture firms today, but I think there's a subset of investors that fund brands. If you look at the beverage industry is a great example. If you look at some of the QSRs, if you look at personal care, there are scaling brands that are fascinating businesses. I just don't think where we sit today, we're equipped to invest pre-momentum.

• 41:27Harry Stebbings?

  And that's one thing that I see. You said it's very much a founder's market earlier. They can choose the price they want with the people they want. To me, it's like a real haves and have nots, which is like, there are three categories where if you're in that category, how?

• 41:39Speaker 00

  There are three categories of haves and have nots that you only named two.

• 41:43Harry Stebbings?

  No, three categories of interesting company that investors just go nuts for. And then obviously it's more than three, but a small number. And if you're not in that, even if you are in AI for X, investors like nah, not interesting, not in compute, not in inference, nah, not in data centers, not in chips, whatever. And you're instantly dismissed. Do you see that too?

• 42:04Speaker 00

  Yes, but I again, come back to founder quality and founder ambition and execution. So we were in the earliest round of a company called Rogo. They were building AI for finance. Gabe finally told the story, but after the seed round, I helped them go out to try to raise an A. I put my name behind this company fully and I'm like, Rogo is going after something huge and Gabe is sensational. And I sent it out to make up a number. He said 40, 40 Series A lead investors. He got fully passed on by 39 of them.

• 42:37Harry Stebbings?

  Did Keith do that round?

• 42:38Speaker 00

  Keith did that round. So 39 knows, this is now a consensus company. It is now been funded by Keith led the A, Sequoia did it, Kleiner did it.

• 42:50Harry Stebbings?

  Do you doubt yourself?

• 42:52Speaker 00

  Yeah.

• 42:52Harry Stebbings?

  You do, or you just think, God, the mimicry of this market is ridiculous?

• 42:56Speaker 00

  Both. Well, I just get sad. I'm like, I'm, I've like done this a long time. I'm like telling you to spend time here and some of the passes were quick of like, we don't think this is interesting or like, we don't know that this could get big or they don't have enough traction, whatever they were. But I just think there are companies in this moment of your, your point of like kingmaking haves, have nots that are misread at different stages and then become one of the other categories. And so that to me means, as it should be, early stage is not a perfect market. And there's not perfect information. There are going to be companies that are not in the zeitgeist, off the radar,

• 43:39Speaker 00

  that compound value, compound momentum and build something that's very important outside of the immediacy of, of those funding conditions. And I think Rogo to me was like totally misinterpreted by a series of investors at a specific point in time. Kept building, kept getting better. And then I think in the right way, rewarded for, you know, the, the execution of what they've done.

• 44:04Harry Stebbings?

  And you do follow-on checks into just the next round, next two rounds?

• 44:08Speaker 00

  So we, we operate today, two funds. They're both $275 million. So it's a core seed fund and then we do a follow-on fund. We write 20 to 30 lean-in checks into companies, almost all from our portfolio.

• 44:23Harry Stebbings?

  And the lean-in checks are five million bucks?

• 44:25Speaker 00

  Five to 30.

• 44:26Harry Stebbings?

  And that's across the A and the B, the next couple of rounds?

• 44:29Speaker 00

  Yeah.

• 44:29Harry Stebbings?

  What's the most you've ever invested in a company across the two?

• 44:33Speaker 00

  Like in aggregate?

• 44:34Harry Stebbings?

  Yeah.

• 44:35Speaker 00

  Probably $40 million.

• 44:37Harry Stebbings?

  Which company was that?

• 44:39Speaker 00

  I mean, we've, we've written substantial checks into Ramp, into Clay, into Base 10, into Rogo, into Tandem.

• 44:46Harry Stebbings?

  Which did you not, and on reflection, what did you not see?

• 44:51Speaker 00

  Sometimes you can't get more than your pro rata in companies. And that's a fight for allocation in future rounds. And that might be the founder choosing not to take a bigger check from you. So that's one condition. And then the other condition is like, we misread the company and didn't lean in hard enough when we could have. And I think we don't make perfect decisions. I wish we did. So I look back and there are so many opportunities of great companies that we were fortunate enough to be early in that we were too slow to react to.

• 45:23Harry Stebbings?

  Is there one that you think of first there and what?

• 45:25Speaker 00

  I think of a lot, but I think we're like incredibly fortunate to be in business with that founder at the earliest stage. And I think our job is to like, continue to help them in the ways that they ask us to help them and make our customers who are the founders happy.

• 45:41Harry Stebbings?

  David, is pro rata right?

• 45:43Speaker 00

  No, like, do I think, do I think a bunch of the VCs that are, the early-stage VCs that are out there saying like, we don't need pro rata, we're gonna like, give it up, like, it's all marketing garbage. It's just nonsense. I can write a blog post too. I just don't believe that that it's that black and white. I believe the right to invest in subsequent rounds is earned. Whether you have it in the documents or not, it's earned. There are multiple factors that go into it. So having it in the documents to me is more helpful for the founder than for you as a firm. If you as a firm are asked by the founder to step back for whatever reason, that is up to you to say yes or no, knowing that if you say no,

• 46:27Speaker 00

  you are getting into a fight that you are likely going to lose in some form. You are either going to lose it financially and that you're not going to get your pro rata because of whatever mechanism can be used to remove your pro rata. Or more importantly, you're going to lose it because of reputation. You are going to piss off the founder and they are not going to like you anymore. So if you say no to a founder and you want to take reputational risk, that's on you. So why is it important to have it in the documents? Because I think that funds that follow you into rounds in the A and the B, they are happy to squash you in any way they can. And the more that you have it in the documents, the more leverage a founder has to negotiate the terms of their next round.

• 47:10Speaker 00

  So if a firm comes in and says, we want 22%, and you look at your cap table and you're like, I have 6% of my cap table that needs pro rata, you're able to actually create more leverage with your follow-on investor to say like, that map doesn't work for me, I would like to redo this. And then you can use that in help of your negotiation.

• 47:32Harry Stebbings?

  Do you see large firms be more ownership hungry or more willing to accept less ownership?

• 47:38Speaker 00

  Haves and have nots. There are firms sometimes that need 20% in a deal. And then you're like, but last week you did a deal at 5%. And I see it because I'm in that deal too. And so I always think that's funny when the word need comes up in venture and you're like, I, I know what need means and it does not mean need. It means I'd like, I hope for, but it doesn't mean actually a binary need. I think within the big firms, there are very different style actors. I think there are people who are on the way up or competitive inside of their firm that behave one way. And there are people that are very confident in their position at a firm and their standing and their success that behave a different way.

• 48:19Speaker 00

  And, you know, you can say junior or senior, whatever terminology you want to use for that. But I think that relationships matter. There are times when we send a deal to a multi-stage firm and they write the term sheet and then try to squash us. And I'm like, that's weird. And those tend to be, again, this orientation towards short-term decision-making versus long-term and not appreciating the, the consistency of a relationship. And again, I've been doing this a long time. There are people that you build great relationships with that tend not to have overly sharp elbows with you. And then sometimes you catch an elbow out of nowhere and like, ooh, I didn't see that one coming.

• 48:58Harry Stebbings?

  Who, when they send you a deal, do you pay most attention to?

• 49:01Speaker 00

  Great founders. That's who I pay the most attention to. When founders inside of our portfolio, and I don't think it's the best ones only. I think it's the founders who we believe have high-quality taste bars and high-quality networks. When those people send you someone they know, someone they like, that's when you pay the most attention.

• 49:19Harry Stebbings?

  When you look at one part of our business that's investing, another part is also partly making money for our LPs and selling. And we have very lit- Secondary markets today. How do you think about that and taking cash off the table? When there is so much demand for some of these names?

• 49:36Speaker 00

  I work for our LPs and my customers are founders. And that I think is a totally, again, dislocated two sets of relationships. My job is, as you said, to give the people who believe in us and invest money in us as much money as I possibly can. And one way to do that is to try to get out of positions at different times. And there's a risk to it. And there's a financial risk to it and a relationship, a sort of reputational risk to it. And I think that's a really important thing to balance. So in general, we don't sell early. We believe we are investing at the seed stage to join the founder for their journey.

• 50:18Speaker 00

  And that could be 15 years, it could be 20 years, it could be four years. But selling early to me risks two things. One is like, if a founder doesn't want you to sell early, you're risking reputational risk and relationship with that founder. In this market, a lot of founders are taking secondary. So you could argue like, if you're doing it, I can do it. I don't think that's necessarily the right framework. I really don't, and I can talk about why. But I don't use that framework to think about it. And then the second one, I think the best companies compound the most at the end. Right? Going from like a $2 billion to a $4 billion to an $8 billion company is easier than going from zero to a billion. And if you believe that you are in a company, that's great. I don't see why you would get out early.

• 51:02Speaker 00

  I think you're leaving the most money on the table by getting out of something early. And I don't want to do that. I want to see it through. And if I still believe in a company or one of my partners believes in a company, I don't think de-risking it is the right answer. We're in the business of risk and we should stay investors in the companies that are going to keep compounding. Because every turn you have at the end is a big win for your LPs and for your firm and for the founders.

• 51:34Harry Stebbings?

  Why do you not think that if a founder is taking money off the table, investors should maybe do the same?

• 51:39Speaker 00

  Because I think founders have a different set of economic conditions that are not related to what investors have. Let's say a founder has debt. Let's say a founder is living in a place that creates stress and overhead cognitively for their life. In reality, having some money to improve some things outside of work allows them to be better at their company. Or knowing that I have 10, 20, 30 million dollars in my pocket, I am now willing to see this through. I'm willing to have bigger risk appetite, to like, go for it. Because I feel some safety net.

• 52:21Speaker 00

  I don't think that that is the same risk analysis that a VC uses to be like, I need to take, you know, 20% of my position off here to like, make my fund math look good or tell my partners I took some money out of this thing. I just think they're totally different. Or giving early employees like a tender offer and allowing them to have some early liquidity, I think it could help with retention. I think it could keep a lot of those employees happy and engaged and, you know, excited to work at a company, knowing that they offer tenders every couple of years. We have a bunch of companies in our portfolio that are regularly doing tenders to the employee base. And I think that that's an incredibly valuable culture to set and a retention tactic.

• 53:03Speaker 00

  And so I just don't believe that they're always related.

• 53:07Harry Stebbings?

  What did you believe about Vanisher that you now no longer believe, David?

• 53:11Speaker 00

  Well, it just took a while to see, right? Every firm thinks they're in the top decile, right?

• 53:16Harry Stebbings?

  I've never heard any firm be like, no, we're bottom, bottom quartile.

• 53:21Speaker 00

  Right. So I'm like waiting to meet all the bottom three quartile firms in the, in the venture industry. When you hear all the LPs explain that, and you look at the, the data and it says, you know, all the returns in venture are aggregated to the top 5, 10% of firms. I haven't met the, the others yet.

• 53:38Harry Stebbings?

  Do you think we'll have more or less VCs in five years' time?

• 53:41Speaker 00

  There's less noise in the venture market than ever before, and there's more competition.

• 53:47Harry Stebbings?

  What do you mean less noise and more?

• 53:48Speaker 00

  There's less new firms.

• 53:50Harry Stebbings?

  Really? It feels like there's more spin outs than ever before.

• 53:53Speaker 00

  I think they're less. Like, I think on, I think if you actually look at the data, you know, it takes a long time for firms to go away, even if they're still alive. They become irrelevant, they're not investing a lot, they might not have raised a new fund. Nobody's sort of taking them off the map. So the names remain, but the activity goes away. You know, you had asked before about like, sub $100 million in San Francisco concentrated seed funds. I think I like, didn't answer that fully. I don't think very many people get into venture and want to stay consistent in doing what they do. Meaning, the starter VC is a seed fund, right?

• 54:32Speaker 00

  You get like, if you're new, if you're sort of unproven, you'll get a 20, 40, 80 million dollar fund, whatever it is, to start. But your goal is to raise a way bigger fund one day. When you raise a bigger fund, when you scale your business, when you have partners and scale AUM, your investment style, your stage, your concentration, your check size is all going to fundamentally change. So when I meet new investors, I always ask like, what's Fund Four look like? Because Fund Four is actually your vision. It's the same as when you meet a founder and you ask like, what's the big vision? So I want to know not what Fund One is doing today. I want to know where you're going with this.

• 55:11Speaker 00

  Because to me, the advice that you give that person should be in line with how do you get to your actual ambition? Not how do you execute your starter fund? And I think what you see in the new firms today is a big ambition. They want to start with something small and get bigger and do something different really quickly. And I think what's, I love about what we do here is this is who we are. This is who we've always been. We are an early-stage firm, we write checks at the very early stage, and we don't have any ambition to do anything else.

• 55:45Harry Stebbings?

  To be clear, like, you did just raise, what, 550 across two funds? I mean, I get you. Yeah, the scale has changed.

• 55:52Speaker 00

  Sure, but the same exact investment style. And I think we see founders today come to us and say, you're doing the same, like, you're, you're exactly where you were 10 years ago when I started my last company. Maybe the check size is different, but we are not, we as a firm, our DNA, our craft is oriented towards being there at the very beginning, at the dream stage. And that to me is like, what I wake up and get excited about. And I think that when you look at new venture firms, their ambition is to be a multi-stage firm for the most part. And that's a very competitive part of the market.

• 56:25Harry Stebbings?

  It is. I don't actually think they know what their dream is. And I know, and what I mean by that is like, you know, one thing I would say to young people, and I sound really old, is like, be careful what you wish for because you might just get it. And I think the truth is, if you know the people at the multi-stage firms, a lot of them are not happy, the ones who are running it, and wish they were the smaller firms.

• 56:44Speaker 00

  Yeah, but I think, I think, I think there are different form factors of the multi-stage firm. I think you see Benchmark scaled today, USV scaled today. And the DNA inside of those firms and the relationships inside of those firms are very different than some of your other scaled firms. I think what Conviction has done is amazing and scaled. I think what Ribbit's done is amazing and scaled. And then, then you go to Thrive. Like, Thrive has created a generational venture firm in a different flavor in a rapid amount of time and challenges at the very top of venture. And I think the way that they've built that firm is so different than, again, your traditional multi-stage firms. And so I don't think it's as simple as categorizing every firm is the same.

• 57:26Speaker 00

  I think you have to look at each firm individually and the execution of how they've done it. I think like, what Daniel and Nat had done for the moment, that was incredible. And what a lot has done is incredible. All those firms I just mentioned are new. In the grand scheme of things, I guess Benchmark and USV are not, but the other ones are new. And the speed at which they've gotten to where they've gotten is incredible. And the, the quality of what they've built is incredible. And that was ambitious. And I think when you look at the new firms today, I think the, the ones that are great are going to execute great and have real ambition and make a real space for themselves in this industry. And the rest of them are going to go away.

• 58:08Harry Stebbings?

  When you think about finding, picking and winning, if I were to ask you to review yourself, one through three, one being best, two being mediocre, three being worst, how would you review yourself?

• 58:21Speaker 00

  I just think we're mid constantly. I know. That's what the kids say. Our obsession at our firm is to see things. We all wake up every day and try to see. I think we see somewhere between 50 and 75% of what we want to see. That's my guess. Hard to know, but we can always be better there. There's like always something out there that we didn't see that we want to see. Getting in front of people, finding a way not just to get in front of them, but for them to take you seriously. That's like what we wake up and obsess over. Winning, when you don't win, it hurts. Like that, that is like a, that's like a, what could we have done better?

• 59:02Speaker 00

  It is the area in venture, I think you can tactically work to improve. You can try different things. You can like figure out what you can do better. And I think we spend a lot of time on that.

• 59:13Harry Stebbings?

  What has that led to? You spent a lot of time on that. What have you changed as a result?

• 59:17Speaker 00

  Everything. I mean, you, you have to know what tactics to bring to the fight. That's like reading a room and guessing which playbook of really relationship building that you want to use. What does a founder want from you? What are they looking for? And how do you convince them that you are the answer to what they're looking for? And it really is so founder dependent. Like there are certain founders that don't want to talk a lot. There are certain founders that want transactional help. There are certain founders that want a friend, that wanted a set of experience, that want somebody who is around all the time to balance things. Like it's a services industry.

• 59:57Speaker 00

  And so the win condition to me is selling your service to the point where a founder wants it. And that's complicated, especially in this market. The picking is the art of this business and it's so hard. You can look at our firm from afar and assume we say yes more than other firms. We don't. We are hyper focused on saying yes when we should. But that's a really, really hard thing to do at the early stage in real time. And I like want to tell you, I know how to get better at that, or we can get better at that. And yet like there comes a point when you're in your career and you've seen enough reps, that your taste is your taste.

• 1:00:41Speaker 00

  And you're going to say yes, you're like butterflies show up. You're going to say yes, they don't. You're going to say no, you can convince, like we think about how to make the right decision a lot and don't know the tactics to get better at it.

• 1:00:55Harry Stebbings?

  David, how many companies do you meet a week as a firm?

• 1:00:57Speaker 00

  A lot, 50 to 100.

• 1:01:00Harry Stebbings?

  So people are meeting 20 companies a week?

• 1:01:02Speaker 00

  Yeah, at least.

• 1:01:03Harry Stebbings?

  And then every Monday you come for an IC and you talk about the five best?

• 1:01:07Speaker 00

  Like Tuesdays and Thursdays.

• 1:01:09Harry Stebbings?

  Twice a week.

• 1:01:10Speaker 00

  We use Mondays for work. Now, um, we are agile with our decision making. I think group think is terrible. We don't vote. Somebody here has to want to do a deal if we're going to do it. Somebody needs to be like, this is something that I am excited about and I think we should do. And so I think decisions start with a human on our side being excited about something. Whether that happens inside or outside our meeting is not important. If we get to our meeting and one of my partners is like, I did a deal yesterday. Great. And equally so, like I'm leaning into this. I want to talk through it. Great. We internally don't allow negativity in making early stage decisions.

• 1:01:55Harry Stebbings?

  What do you mean by that?

• 1:01:56Speaker 00

  If you aren't the person that has spent time with the founders, you aren't allowed to be negative about it.

• 1:02:02Harry Stebbings?

  But what if you know something about the market that you feel?

• 1:02:06Speaker 00

  I don't think anybody knows anything about markets at the early stage. Markets evolve. Um, if you know something about the founders, but we've probably diligence that before we're taking meetings and leaning into something. Like if there are like ethical issues, if there's reputational issues with a founder, I think that is an important thing to share. We don't allow grenades at early stage. You're not allowed to throw a grenade on someone else's deal. Our job is to get to yes. If you name a company at early stage, I can tell you why it's going to fail. Any company, here are the five risk conditions and here's why it's going to fail. The easiest thing to do, if you've done this for like a year, you can guess why a company's going to fail. Your memos that every firm writes are very obvious why it's not going to work. That's not the job.

• 1:02:51Speaker 00

  And by the way, on a probability basis, it's not going to work. Cause 70, 90, whatever the number is percent of early stage companies don't work. So you explaining why something isn't going to work is incredibly obvious and incredibly irrelevant. The magic of our business is, is squinting and seeing why something is going to work by believing in the thing that you see, that the founder sees, that you are aligned with the founder and seeing is going to work and saying yes. Our job is to say yes to the right things, not to be fearful of saying yes to the ones that don't work.

• 1:03:29Harry Stebbings?

  Totally get that and understand that. I always love that Google will just build it or the OpenAI or.

• 1:03:36Speaker 00

  Whatever it is, but, but like you can't hire. You don't know how to hire. You're not going to get like, it's not big enough. All these things, they're just not factors for the win. Why is it going to work?

• 1:03:46Harry Stebbings?

  You said that 17 to 90% don't work. Keith Roy said before, that's dramatically overestimated. And in fact, if you're investing in great people, your loss rate, in other words, it actually really not working, being a zero or close to a zero is much lower than people think.

• 1:04:02Speaker 00

  I think it's series A, that's true. I think it's seed, it's, it's some real scale of, of numbers.

• 1:04:09Harry Stebbings?

  You do?

• 1:04:09Speaker 00

  But I think, I think you go one stage ahead and that number is dramatically lower. I also think Keith is a generationally talented investor. And if his loss rate is, I don't know, a 10th of everybody else's, that wouldn't surprise me.

• 1:04:22Harry Stebbings?

  Yeah. Listen, David, I want to do a quick fire. So I say a short statement, you give me your immediate thoughts.

• 1:04:27Speaker 00

  Oh, sure.

• 1:04:28Harry Stebbings?

  60 seconds per one.

• 1:04:29Speaker 00

  Let's go.

• 1:04:30Harry Stebbings?

  I'm going to set a timer. You can choose one seed fund, one series A and one growth fund to be an LP in. Which one?

• 1:04:40Speaker 00

  I think Y Combinator has invented the only product in our industry. And I think for all the people that say anything, you know, critical about them, it's probably just rooted in some version of jealousy. I think what they've built is a world-class brand, a world-class attractor of great talent, and I think run the best business model in our whole industry. So seed fund, like YC.

• 1:05:05Harry Stebbings?

  Fantastic. Completely agree with you. Series A.

• 1:05:08Speaker 00

  I think there are five to seven equally impressive multi-stage firms that just continue to find themselves in the best companies. You can choose Benchmark, you can choose Sequoia. I think the machine Andreessen's built. I think what Thrive has done. You know what, what Lee Fixle does at Edition is fascinating and off the radar in an interesting way, and sometimes is a great series A investor. So I think, you know, I think what Ribbit has built over the years, if you look at what they've done is incredible. And so I don't think, and then you have Founder's Fund, which operates in their own world and is incredible. And I think, you know, we, we said Keith, Keith at Cosla has done generational level investing. So I actually don't think it's series A.

• 1:05:52Speaker 00

  It's easy to isolate because you're looking at this combination, if you put your LP hat on of like fund size, accessing early stage versus growth, these blended products. And I don't think it's a black and white answer. Like I think the two funds that were just very narrow focused for series A over a historical period were USV and Benchmark. And I think they've changed their fund size today, but not really the partnership dynamic.

• 1:06:20Harry Stebbings?

  Okay, fine. Yeah, absurd punting there.

• 1:06:23Speaker 00

  Yeah. I weaved in and out of your forced question.

• 1:06:27Harry Stebbings?

  Growth fund, you got one growth fund?

• 1:06:29Speaker 00

  Again, like I think there, like I think Spark Growth comes to mind as a amazing, slightly off the radar, unique outlier decision-making. I think what Meritech did for a while, I think what Menlo has done. These are new names in my weaving of your answer that I wanted to get in. I think what Kotu is doing or Dragon ears doing right now, I think are interesting.

• 1:06:52Harry Stebbings?

  Fucking, you're fucking Switzerland.

• 1:06:54Speaker 00

  I am Switzerland.

• 1:06:55Harry Stebbings?

  Why, but you show us your Toblerone, David, come on.

• 1:06:59Speaker 00

  I hand, but I mean it. I think there's a tier, a Green Oaks, right? I could easily just say Green Oaks is the answer to your question.

• 1:07:06Harry Stebbings?

  No, because I'm asking you, I want money, dollar for dollar. Where am I going to make the most money?

• 1:07:12Speaker 00

  I think it changes in every market, like.

• 1:07:13Harry Stebbings?

  No, but I can give you mine. YC, I agree with you for ownership. No one gets the ownership they get.

• 1:07:17Speaker 00

  But I think YC is the only differentiated product in venture.

• 1:07:20Harry Stebbings?

  And then I think Benchmark for series A. And then I think Sequoia for series B and beyond.

• 1:07:26Speaker 00

  So you're discounting Sequoia's early-stage investing?

• 1:07:29Harry Stebbings?

  I'm suggesting I would rather be in YCs than Sequoia seeds, yes.

• 1:07:32Speaker 00

  I think the real answer to your question is you're in a period of consolidation in venture, and the best firms are going to continue to compound in every which way because they're going to access the best founders, they're going to access the best scaled LP capital, and it's going to turn into the best set of returns. And there's going to be a haves and have nots in venture. And I think there's probably, you know, 20 to 30 names that are competitive and probably 10 that are outliers amongst that 20 to 30.

• 1:08:01Harry Stebbings?

  What was the single most memorable founder meeting in the last 12 months? First founder meeting?

• 1:08:07Speaker 00

  Like, in our firm, my partner Greg, you know, got to spend time with Noah from Instinct early. And I think for him, that was the mind blowing initial meeting and conversation. And we were lucky enough to be part of that early round.

• 1:08:22Harry Stebbings?

  Woo, baby. Well done.

• 1:08:24Speaker 00

  I think for me, the things we've done in the past 12 months are not mature enough yet to talk about because they're coming. And

• 1:08:35Harry Stebbings?

  But just like, which founder did you find most mind blowing, where you were like, I left like, wow?

• 1:08:40Speaker 00

  I have to be as excited every time I say yes. So I actually, I don't operate like that. I operate like this. And if something rises above this, you lean in. And if something doesn't, you lean out. And so I view my job as a continuum of like steadiness in order to make the right decisions. And so I think what to this point satisfies me the most, to answer your question, is like, the relationship that comes out of it. We funded this 22 year old who's building a game that's going to release in like, two months, like a single game, level difficulty, one trillion, right? To win a game business. But like, he has been

• 1:09:25Speaker 00

  thinking about this game for a long, long time. And we're going to see if it like, hits. And if it hits, it's going to be awesome. But like, low probability of market, all these factors are negative. But he's awesome. And then I met this woman who's building this really cool piece of hardware that goes in like, your home. It's a point solution. That's like, huge market. Everybody has a need for this. But like, again, level difficulty impossible. And then you meet veteran founders who are building a foundational model for a physical world application. And you're like, well, that's crazy. And you guys seem like, totally the right people to do this. And then you have someone in science who's doing something. So I really do believe you have to be excited about everybody in some

• 1:10:09Speaker 00

  form equally. Who do I like hanging out with? I like, I'm a consumer mindset. I find the consumer founders the most interesting because they're nuts. Because they're, they're going after the biggest, most confusing end user. And I think, you know, that, that's like, I learned from them. We're an early investor in a company called Triumph. I think spending time with Jake is like, an amazing, I love talking to him. I love hearing about what they're doing. I think they'll start making a lot of noise in the coming year and sort of be one of those haves.

• 1:10:43Harry Stebbings?

  David, what, what are you most excited about in the next 10 years?

• 1:10:47Speaker 00

  I think seeing this play out. Where are we going? Where is the world going? It's like, such a curious uncertainty right now. That's what makes this job a special opportunity, is you get to meet the people who are going to answer that question and get to be part of their journey. I don't know.

• 1:11:06Harry Stebbings?

  What is certain in the next five to 10 years?

• 1:11:09Speaker 00

  What should be, like autonomous driving, that should be. Like, it irritates me that it's not today. Like, it would save lives, it would save, it would. The data on autonomous driving would save hundreds of thousands of lives worldwide if we just mandated it. But yet, like, freedom and all these other factors go into holding that back. But the technology is a solved thing.

• 1:11:34Harry Stebbings?

  Well, I mean, I'm not being, I'm not, the technology is not like, quite a solved thing for ambiguous cities, for challenging weather conditions.

• 1:11:42Speaker 00

  It's pretty solved. Pretty solved. Like, from a, from a, like, a safety profile perspective, it's pretty solved. It's not perfect, but pretty solved. Like, if I told you, pretty solved equals decrease of 80% of the deaths that automobiles cause, pretty solved. But freedom, like, I don't like that, as a society, we don't adopt future things because we hold on to the wrong establishments.

• 1:12:08Harry Stebbings?

  Well, it's because incentive design is skewed in a lot of frameworks.

• 1:12:12Speaker 00

  I think, I think modernizing society long term is the right way to, to think. I think like,

• 1:12:19Harry Stebbings?

  And you know, I agree with you. And I think it's kind of like the roll up play versus an entirely new company play. I think it's much easier to create an incredible AI first school from nothing than try and incentivize innovation in stale architectures.

• 1:12:35Speaker 00

  Or we should do both.

• 1:12:36Harry Stebbings?

  You should know, you can try both, but it's much easier to do the best.

• 1:12:39Speaker 00

  Just move forward, right? And I think, I think like, the politics, the social dynamics, the economic dynamics of all of the challenges in the world would be best served with like, practical decision making than charged decision making. And that, I hope, is where we find ourselves over time. Because if you end up in the age of abundance, I think it's important to figure out, like, how does that benefit everybody and not just a few? And I think technology generally is an equalizer and a positive force. Hopefully, AI can move

• 1:13:19Speaker 00

  in ways that impact health, impact science, impact every industry, such that it benefits a global population in, you know, great ways.

• 1:13:30Harry Stebbings?

  I think this was probably the most low friction conversation we've had. There wasn't like a dramatic debate.

• 1:13:35Speaker 00

  Should we fight at the end?

• 1:13:36Harry Stebbings?

  Well, I don't know. I feel like we should at least try.

• 1:13:39Speaker 00

  We fought over you deciding benchmark.

• 1:13:42Harry Stebbings?

  It was the most nerdy venture fight. We fought about ownership versus diversification in portfolios. You're like, all right, guys, calm down. Dude, I love chatting to you. I have so much, regardless of me being wrong, I have so much respect for the business that you've built.

• 1:13:56Speaker 00

  Thanks for having me. I like coming on here.

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