Pod Insights The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch 20VC: Homebrew's Hunter Walk and Satya Patel on Why $100M is Not Enough To Execute a Seed Strategy Today | Why They Decided not to Raise New External Funds | Where Are We in the Cycle & What is Truly F***** | Why Founders Should Take Secondaries Earlier About this episode Hunter Walk and Satya Patel are Co-Founders and Partners @ Homebrew, one of the leading seed funds of the last decade. Following 10 years of stellar returns with investments in the likes of Chime, Plaid, Gusto and many others, they decided to not accept any further LP capital and to only invest their own money moving forward through Homebrew Forever. In Today's Discussion on Homebrew We Breakdown: 1. ) The Foundings of a Great Partnership: What was the moment when Hunter and Satya decided they were going to go out and raise their first fund with Homebrew I? What are the core principles that all founding partners need to align on before they start a firm together? What questions should they ask of each other? Why does being independently wealthy coming into a partnership make the partnership easier and more efficient to operate? What changes when the partners have money already? 2.) What Changes When Moving From LP Dollars to Personal Capital: Why did Hunter and Satya decide to not raise any further capital from external LPs? Asset allocation-wise, how did they determine how much is the right amount to set aside for the first 2 years of investing? How many investments do they want to make with that cash? How does investing their personal capital change their deployment pace and cadence? How does it change their approach to reserves management and follow-on financing? How does it change their approach to pricing? How price sensitive are they today? 3.) Analyzing the Seed Landscape Today: Why do Hunter and Satya not think that a $100M seed fund is enough to properly execute a world-class seed strategy today? Who is their competition with the new strategy? How does it change their relationship with large multi-stage funds? How does it change their relationship with seed funds? Do they agree that the last generation of sub $20M micro-funds will not raise another fund in this cycle? How did their entrance impact the seed landscape over the last few years? Why are LPs also to blame for many of the original seed managers raising larger and larger funds? 4.) Companies: Money and People are The Problem: Why has too much money been such a problem for many Homebrew portfolio companies over the last few years? How has too much money changed their execution plans? What happens to the "living dead" companies with many years of runway but no product market fit? Who does this market cater to well? Who will thrive in this market? What have people forgotten about both startups and venture in the last 2 years that we have to remember? Why is this generation so entitled and expectant? Why are startups not a get-rich-quick scheme?
Transcript 13,870 words · 4 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 In today's market, at the seed stage in particular, a hundred million dollar fund is a bit of a tweener. You've either got to be larger to be able to write large checks and get the ownership that you need, or you've got to be smaller and give yourself flexibility in terms of check size and ownership, but have a small enough fund that doesn't require you to demise all those things with every single investment.
0:19 Harry Stebbings? This is 20 VC with me, Harry Stebbings. And last year, Hunter Walk and Satya Patel, two of the greatest of the seed investing landscape with Homebrew, announced they would not raise any further external funding, and they would be investing their own money from this point on through Homebrew forever. Now, this is such a unique move in venture, and I've wanted to sit down with them ever since they announced it. And so this is an incredibly special discussion on their biggest learnings throughout the incredible 10-year Homebrew journey, the making and maintenance of a truly great venture partnership, and the future ahead, both for them in their investing capital, and then also for the venture and startup landscape. But before we dive into the show today, SecureFrame is the leading all-in-one platform for automated security and privacy compliance.
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3:38 Speaker 02 You have now arrived at your destination.
3:41 Harry Stebbings? I am so excited for this. It's been six and seven years. As we just discussed, Satya was first. But first, thank you both so much for joining me again today.
3:50 Speaker 03 Thanks so much. I think the real anniversary, Satya, is this 10 years since we started pitching the first fund? Did we start pitching this week 10 years ago?
3:58 Speaker 00 That's right, January.
3:59 Harry Stebbings? My word, there we go, 10 years. What an incredible milestone. But I want to start with a little bit of context. And so when was that we're gonna do this? There's that moment in a partnership when it's like, should we take the jump? Should we? When was that moment of let's take the jump and let's do this together? And either one of you can lead on this one.
4:17 Speaker 00 Summer of 2012, Hunter and I were getting together. Together for one of our normal breakfasts. And that's when we first started talking about doing something together. We had no idea what shape it was going to take. But I'd say the decision to work together really happened Thanksgiving of 2012. Hunter asked his mom whether it was a good idea to work with me or not. By the time we got to the decision, I don't think we had any reservations. We spent so much time, even though we had a decade of a relationship together, focused on making sure we had a shared definition of success, clarity around how we wanted to spend our time, and understanding of each other's strengths and weaknesses, that by the time we got to the decision point.
4:51 Speaker 03 Yeah, as Sacha mentioned, we had known each other for a decade before. We always thought we were going to do something together. But at the moment at which we finally had that blank piece of paper, right? So I was leaving Google, he had left Twitter. If we hadn't come together at that time, neither one of us was thinking about venture. And so that was probably just the biggest gut check. Like Sacha, who would probably was going to start a company or join another one in a product leadership role. My question to him was, are you really sure you're done operating? Or is this going to always be a little bit of an itch that you wish you had one more swing at being on the org chart as opposed to the cap table? And for me, it was just, I thought I was done doing. I thought I was going to be helping, but I didn't know what that meant. What I had to ask my mom was whether she thought it was better for me to take a year and just write, advise, angel invest, see if that was sort of a divining rod,
5:36 Speaker 03 that would show me a true north to what I wanted to do next? Or if I could preempt that a little bit by joining a close friend and former colleague to do something that felt very right in the moment, but would sacrifice that sort of value of the journey?
5:47 Harry Stebbings? Hunter, my mother still sends me a weather update in the morning and tells me to wear a jumper. Have no fear, I am heavily reliant on her as well for her advice. We see a lot of partnerships form today. Bluntly, one of the biggest reasons funds don't work is because partnerships break down. For people coming together in that very early stage, are there any cool questions that you would say they should align on first before engaging on the partnership? You said there about a shared definition of success. Is there anything else where you think they should align before engaging in the full partnership?
6:17 Speaker 00 We talked about that shared vision, but I think just as important is understanding what gives energy and SAP's energy for each person. Within the context of the day to day, there's clarity around what role each person will play. And what they're willing and unwilling to do and the other person being comfortable with that. So I think that's important to talk about whether your founder is starting a company or a GP is starting a fund. Because there are so many aspects of managing and building a fund that not everybody is either well suited to or excited about. I'm sure you appreciate this at this point, Harry. And then the other thing I think was clarity around what makes for a homebrew investment. And so I think it's important for GPs to have an understanding around some fundamental joint view of these are the types of things that we want to look for in companies that we support, right?
7:02 Speaker 00 Because I think a lot of arguments can happen, a lot of partnerships can break up because the types of things that they gravitate towards are so disparate or so unrelated to each other that in small partnerships, the partners can't jointly be helpful to those companies or get excited about those companies. And then it becomes finger pointing and allocation of credit and those kinds of things. And we've never had any of those kinds of issues because we don't do deal attribution. Every decision is made by consensus.
7:29 Harry Stebbings? Were you not concerned that actually you would lose the outliers with the consensus decision making that you both had to love it?
7:34 Speaker 03 Satya came from or had previous larger fund experience where he had exposure to what happens in voting dynamics, structure, consensus, non-consensus in a large room. And I almost certainly think that if there were three or more of us, consensus would be a foolish goal. Wouldn't serve us or the founders. I think though, and this is something we continue to or have interrogated over time. Do we need a silver bullet? Do we need this? Do we need that? When we look at the benefit of consensus, we think it does a few things. First, it from the get-go unites us against an entrepreneur, against an opportunity. The consensus is never you like this and I like you, so why don't we do it? We can have different degrees of certainty, different degrees of enthusiasm, see it in slightly different ways, but we both have to be above the yes threshold.
8:19 Speaker 03 The next thing it does, I think, is it unifies and solidifies the relationship we have with the founders. It's not Satya wanted to do this deal and Hunter was skeptical. It's you're taking money from homebrew. You're not taking money from a GP. And then we look back and we've struggled over 10 years to find an occasion where if there was lack of consensus, it meant we didn't do the deal. And I don't think we have any quote unquote. Outliers that were false negative because one of us loved it and one of us didn't. Our regrets, our false negatives tend to either be misses. We didn't see the deal at all in a two phased approach where maybe one of us would look at it first and then decide to bring it forward to the other partner or not, not bringing forward something that had promise. And I guess lost deals, which isn't a false negative, is just something you wish you could have done. And so we've always focused on how do we get better at those?
9:03 Speaker 03 If we see more of the great opportunities, if we do a better job collaboratively figuring out whether we are the right fit for that founder and they're the right fit for us. And if once we have intent, we can approach 100% win rate as best we can. The impact of improvements across those three far outweigh the question about, in our mind, consensus versus non-consensus.
9:22 Harry Stebbings? Deal attribution, you mentioned that, and then I promised to get to the schedule, but you mentioned deal attribution. I'm totally with you. I like not having deal attribution, but LPs do love it. And I know obviously you don't have LPs now and we're going to get to that. But how did you get around that with LPs who are like, we want partner attribution on deals? And that's not always possible for a lot of funds. How do you think about that?
9:39 Speaker 03 I think first, Harry, it started with actually LP selection. We started with the idea, and we can talk about why, but we've started with the idea that we wanted a small group of high quality investors who are committed to venture and hold us accountable to producing not just average returns, but returns as good as the great funds that they already had in their portfolio. The self-selecting group we ended up with at the time, this was 2013. We got introduced to a bunch of institutional LPs by our friends at the first generation of seed funds. Sokka, Josh Koppelman, Michael Deering, that type of stuff. The LPs we ended up with were all LPs who were excited about equal partnerships. The ones who passed on us were ones that wanted a single keymat. Like this notion of it's great to have multiple GPs, but at funds under $100 million, we really like to see one person in charge. Steve Anderson, Michael Deering, Chris Sokka, Jeff Clavier.
10:23 Speaker 03 The people who I think were really concerned about deal attribution and one person's pilots the ship, that type of stuff. They didn't invest in us. The people who invested in us were ones who were perfectly happy to believe that Homebrew was going to be greater than the sum of its parts. And those parts were the two of us as equal GPs and co-founders. I think that's solved for it. In actuality, even though we don't do deal attribution and we don't submit information to the Midas list or so on and so forth. I was really proud when, again, submitting no information, just going on whatever publicly available chatter or so. And so forth. Satya got named to whatever the top 10 seed investor list or this or that, right? Because the companies of the boards he sat on, although they were consensus investments and then those I've helped are like really impressive. And I think if we turned over data actually on which board Satya was on, he would have been on top of that list. We don't do attribution.
11:06 Speaker 03 We believe the partnership is a success because we care about each other first and foremost. But I also don't think that like lack of attribution should lead to anonymity, should lead to lack of congratulations. And I feel great that Homebrew has succeeded. And often that's because of my partner, attribution or no attribution.
11:23 Harry Stebbings? On the theme of sweet, there's also a flip side. It's sometimes tough, like marriage. It's not always easy. I'm not married, so I have no idea. But what were the toughest moments as long-term partners? When you actually think back, are there some that really stand out?
11:37 Speaker 03 So you know, sometimes like when a little scuffle breaks out of the court between two teams, there's one guy on the same team trying to hold his teammate back. And that teammate is, get the fuck off me. I want to punch this guy. I think we have those. We're never the two people on opposite teams scuffling, but sometimes Satya has to hold me back when I'm like, are you kidding? I have 280,000 Twitter followers and no LPs. I'm going to call this bullshit out. He's like, why is that helpful? Or vice versa? And I think the reason our partnership doesn't have that conflict is not because we started in such a charmed place that there's never a speed bump. It's because we commit to the relationship, to re-examining it, to understand each other. We used to do every other year like an externally-led 360-degree feedback real process with our founders
12:18 Speaker 03 and some of our co-investors, talking 30 minutes to each of our founders and some of our co-investors about Homebrew, about each of us, and getting that data back, trying to become the best version of ourselves. I do therapy. That's great for me, too. We try not to just have a notion of what Hunter and Satya were in 2003 working at Google, or what Hunter and Satya were in 2013 when they started Homebrew, but what Hunter and Satya are in 2023 and how we meet each other. I'll tell you a quick anecdote. When we got our first, what do you call it, like term sheet from our LPs, very standard, like I said, institutional LPs, so nothing was weird in one way or the other. And some of the things we negotiated hard on were LPAC votes that would have to do with our ability to run our firm, right? So we got rid of things that would have any degree of micromanagement or approvals or so on and so forth.
13:00 Speaker 03 The thing we didn't negotiate on was the notion that if one of us left the firm, that we had to have some very high LP voting threshold in order to continue homebrew. Because we wanted that dead man trigger. We sort of wanted this notion that homebrew is the two of us. And if it ever ceased to be the two of us, there should be a real cost to that. There should be a real deliberate decision, not some capricious thing of, I got a better offer to do this, or you want to do that, or we're not getting along, or I want to work in the office and you want to work from home. Silly little things. I feel like we've embraced this notion that the two of us are homebrew, and homebrew will grow and evolve, and I'm sure we're going to talk about that evolution. But it's a commitment to the two of us ahead of it as anything else. We also started with the idea of no succession plan, no growth. We started in a space where we had a lot of the same vision for what we were building.
13:45 Speaker 03 A lot of those tensions are often what cause conflict, either because they weren't discussed early enough, or because there's disagreement from the get go and you figure success will solve all things, and that's not true.
13:55 Speaker 00 The other thing I'd say we're cognizant of is that people and circumstances change. And so, much like a marriage, we invest in making sure that the relationship remains healthy. We do a quarterly offsite with just the two of us every quarter. And a part of that conversation is, how happy are you?
14:10 Harry Stebbings? Do you put a plan in place for it? I would love to understand so I can implement that.
14:15 Speaker 03 We have our next one on Monday.
14:16 Speaker 00 Yeah, we do have an agenda. Yeah, we do have an agenda for it. And there's no fixed time. We set aside most of a day. And sometimes it's two hours, depending on the agenda and how things are going and what we want to talk about. And sometimes it rolls over into dinner. So it really depends.
14:30 Harry Stebbings? I do have to ask you, a lot of partnerships, I think, break down because of financials, actually. Carry structures, salary structures, how important is equal salary and carry in a partnership like this?
14:41 Speaker 00 Every decision we've made has been consistent with the idea that it is a partnership that is oriented around the two of us being mutually successful and mutually happy. When you think about things that way, decisions around economics are easy. We've been to equal partnership from day one, never changed that and never will, even as we're investing our own money. Furthermore, we've built a structure where we're both comfortable being long-term greedy, like playing the long game of, hey, everything we're doing here is based on the notion that we're good at this. If we're good at this, we're going to make money.
15:10 Speaker 03 Or not, who cares? I don't want to spend 20 years not being good at something. I think, not that this is unspoken, because I think we've both talked about this, but we also started this later in our careers. We were both in our mid to late 30s. We were both above a financial threshold. We both had made millions of dollars and saved that and lived below our means, right? And so we didn't have to build towards, look, I made this much last year. I need to make 2X this because I've got three wives and four mortgages. Like, we were able to make some deferrals on optimizing for short-term economics because of our individual and collective successes. And we were starting at the same place in our lives with the same types of material goals, which was like, we don't have to maximize for dollars. We want to maximize for spending time together. We want to maximize for the people we work with. And we think we have a model that if we do that well, everybody's also going to make a lot of money.
15:55 Harry Stebbings? You spoke there about the financials and the personal financials, which we all shy away from, the British of all of us. But how should founders and B C's then talk about personal money, do you think, to each other?
16:06 Speaker 03 Not surprisingly, when we were executing for that first decade, our seed lead investor model, and we had lots of conversations with founders about wanting to make sure that they were in a situation that they could focus fully on. Sometimes that meant salary bump. Sometimes that meant a little bit of early secondary. It didn't mean winning ahead of the business. It didn't mean taking advantage of hot markets to cash out ahead of your team or investors. But it did mean if you just raised a $20 million A round, but yet you're still living in a three-bedroom apartment because you're student loan-heavy, cash poor. Let's figure out how to solve that problem for you so you can move into a place that you can actually work out of without worrying about whether your roommate is drunk and focus on your business. Sucha talked about seeing each other as people and how important that was to our partnership. I think that's the same thing when it comes to founders, trying to see them as people
16:50 Speaker 03 and understand that if you're going to bat with this longstanding notion of, hey, we all win at exit and nobody should talk about economics ahead of that. At the very least, you're missing opportunities to de-stress founders in a way that will increase the probability of a wonderful outcome. And at the worst, you're exploiting founders who have all their eggs in one basket while you're sitting on this portfolio and fee structure and preaching ramen profitable from the Yellowstone Club.
17:16 Speaker 00 That's the key is startups are hard enough. If part of our job is to Help reduce distress for a founder. If we can have the conversation around what's the minimum you need to make? So you don't have to worry about your personal life. That's the conversation that we should be having at the beginning, but then throughout, because life circumstances also change. So to Hunter's point, there's lots of conversations in today's world about secondary liquidity for founders. And I think where of the opinion obscene amounts of liquidity is obscene, but small amounts of liquidity can really free up a founder to do their best work. Sometimes that might be at the series A and sometimes it might be at the series D. You've got to be really thoughtful and be willing to engage in the conversation with the founder to determine what's needed. And the founder has to be practical about what's realistic.
17:56 Harry Stebbings? So much for our industry is predicated on fees. And you guys decide, no, I'm not going to do this fee gathering. I'm not going to make $20 million a year on fees like some of our wonderful friends at multi-stage funds. Wonderful decision in many cases, by the way. I just want to understand that. So take me to this decision. Whose idea was it to do your own money and say, thank you, LPs? We're going to do our own money from here. Whose idea was it? And how did that discussion go down, guys?
18:21 Speaker 03 I'm going to let Satya describe it because he does things much more succinctly than I do. What's important to point out is that fee minimization wasn't the, there's nothing wrong with fees. The question was, is it something you're seeking to maximize for? And thus that makes a bunch of other decisions? Or are you building a model that you think is that sort of the intersection of success and happiness? And can live with some of the implications for what that means in short term? Now I'll let Satya do it.
18:42 Speaker 00 Yeah, fees were never part of the conversation. When Hunter and I started Homero again, we talked about our long-term vision. And we always have this notion in our minds that maybe after 20 years, we could become a family office and do things on our own and the good fortune of the last decade. And our view of where the market was headed led us to decide to do that sooner. And really it was just strategic decision. Our view was and continues to be that in today's market at the seed stage in particular, a hundred million dollar fund is a bit of a tweener. You've either got to be larger to be able to write large checks and get the ownership that you need in order to win the best opportunities and deliver the types of returns that LPs expect. Or you've got to be smaller and give yourself flexibility in terms of check size and ownership,
19:23 Speaker 00 but have a small enough fund that doesn't require you to demise all those things with every single investment. And so. We decided that getting larger was an option and our LPs were going to be supportive of that. But it required breaking from what Hunter and I had said at the beginning, which was this is going to be a two-person partnership. It's going to be that way forever. And we don't want to build a firm and infrastructure and a services platform and all those kinds of things, which having three or $400 million in a fund would require. It also puts you in a box from a strategy standpoint, because the larger your fund gets, the more disciplined you have to be about check size and ownership and stage, all those kinds of things. We weren't interested in getting bigger, but from that strategic standpoint and economics of management fees were never part of the conversation. Once we decided that smaller was the better option for us,
20:07 Speaker 00 then it became a question of, could smaller isn't the ultimate flexibility to be investing our own money rather than third-party capital? And being able to experiment with different ways of investing and doing that in a way that we feel is responsible?
20:20 Harry Stebbings? And then you have the next question of like resource allocation. Do you then say, okay, we're going to put 25 million, say, I'm just taking 20%, 25% carry, saying in terms of the invested capital, it will go back to you. Do you take 20 million of your own money and say, great, this is our budget and that's the same as a $100 million fund? How did you do resource allocation on the initial budget?
20:41 Speaker 03 The choice that we made last year was something that we had in this glass case that originally was going to say break glass in 2030. So we had thought about this. All we really did was break glass eight years earlier. We'll see if it was premature or not. As Sacha talked about a little bit, one of the reasons for doing that was trying to think about what fund size and did we want to get bigger, which was always a non-goal. When we then did the bottoms-up question, okay, how do we budget for this? We decided that nominally, let's assume the same investment cadence, 10 to 12 investments a year. Whereas before, maybe we had an ownership, a goal of 10 to 15% and thus an average check size of one and a half million dollars or whatever, and held reserves. That, but we wouldn't necessarily have an ownership target. We wouldn't necessarily hold reserves. Where do we think we fit in nicely on a cap table at a seed A or B that we want to work at? Let's just nominally say that our check size is going to be between 100K and 500K.
21:25 Speaker 03 And indeed, in 10 of the 11 investments we made in 2022, it was within that range. And so let's do the math. What's 10 to 12 investments a year, time 100 to 500K, no reserve model? And let's budget that for the first two years. So let's think. Think about how much we want to take from our savings combined to make 20 to 24 investments over a period of 24 months that are likely to be between 100K and 500K. Look, this is all rarefied air. So when I say to be honest, quote unquote, that's not that much money. Obviously, it's a luxury to be able to do it, a privilege to be able to do it. But when we told some people this, they assumed that we were billionaires putting aside $100 million to invest in startups. And that's not the case. The idea and hope is that by year three of this model, we're not pulling from savings.
22:07 Speaker 03 We are taking carry from the continued carry from years one through 10, Homebrew one through three. And that is funding years three through seven of Homebrew forever. And by year eight, that magical 2030, that originally was when we were going to start this. Hopefully, we're recycling proceeds from 2022, 2023. So if you look at it and say, what sort of capital do you need to get started in this model? It's not replacing the next decade of otherwise institutionally led funds and nine figures of capital. It was basically like, are we risk seeking enough to take two years' worth of investment capital from our bank accounts and put it back into the market? And we looked at each other and we said, yes, so let's do it.
22:44 Harry Stebbings? Can I ask you, you said they're about 100 to 500. Does that not put you in a little bit of an uncomfortable position? Because you're not leading rounds and you're not an angel. And so say we have now, as we often do, many of the multi-stage funds come earlier. I'm just doing a hypothetical scenario here. It's a 3 million seed round. Excel want to do 2.4, 2.5 of the 3 million seed round. And then they've saved the rest for angels. They're not going to let you come in and take 500K or even 400K and replace all of the angels. And because you're not leading, you don't have ball control of the round. So does it not put you?
23:17 Speaker 03 Oh, Harry, you're thinking like such a fund manager because I said 100 to 500K. And you're immediately thinking that means we go and want to take the 500K. We're happy to take the 100K, 150K, 200K. And 10 of the 11 investments that we made last year, we were offered more allocation than we took. Because what we care about is really working with great founders and great co-investors. And with a large fund standpoint, actually, it's flipped. Larger funds who before really could only work with us when they were following on the seed companies that we had led now are actually quite excited to get us involved earlier. The idea of getting our help, stewardship, collaboration. And not having to place 10 to 15% of the company with us, only having to place 1% of the company with us is a boon.
23:56 Speaker 03 The place that we've seen actually decreased deal flow are from other seed stage funds writing similar sized checks to us now. Because before, those folks and the people who we are close with, this is a safe space, Harry, right? We can name names. We work just as much with Founder Collective and Box Group and these folks who we've always been very close with. But some of the people who we also like, who would approach us on almost any deal that they were doing, we fell off their radar because their goal is to place a lead. If they place a lead, the round gets done and they protect their allocation. And there's a bunch of 100 to 500K people wanting to get into these deals who need to find a lead. So we've seen a dramatic increase in deal flow from the multi-stage. But if we've seen decreased deal flow anywhere, it's actually in sort of the things we look more similar to now.
24:38 Speaker 03 And I don't think it's competitive. I don't, I don't know. I don't feel competitive, but I think it's just more pragmatic. They have a goal to get to find leads. And what's funny for us is it's flipped a little bit because we can still be first person to commit to a round and we can form an institutional around, around us in a second. So like, we still have the relationships and credibility that if you're trying to raise $4 million and we only want to do 250, given our new model, we can find you that other 3.75 million within a week.
25:02 Speaker 00 I'd say it's important, the flexibility that we have in not having a fund now is that we don't have to think of every investment as having the potential to return the fund. Every investment just has to be a good return. And that means that if a founder wants to work with us and we want to work with that founder, we can fit into the cap table in whatever way makes sense, given the construct of that round. All of that said, we're also big believers that you're a buyer or you're a seller. When we want to buy, we want to buy as much as makes sense and is available to us. And we can be greedy, but we're only greedy.
25:31 Speaker 03 Uh, he's cleaning up my statement and saying that we've taken less than offered because he wants to be able to take it all in the future. The one thing that, now I'll clean up his statement. It's important that the way that we're thinking about outcomes is still venture scale. It's not, oh, hey, because this is all our money. Instead of needing a 20X to get 5X net, 4X net into our pocket, we can just hit a bunch of 3X and 4Xs and that'll be wonderful. I don't think there's such a thing as de-risk seed. You should be betting on companies that in a success scenario can be wildly successful and worth an incredible. Amount of capital and want to own a percentage of those to your questions around like deal selection. I think we've maintained the same bar. We've probably narrowed the top of funnel a little bit before. You could imagine that when you're thinking about a portfolio, 30 companies, a fund, that's some things that you're not that interested in, but come to you via trusted
26:16 Speaker 03 source and pattern match founders. You're like, I'm not passionate about this, but we should at least take a meeting because I could see low code, marketing automation for enterprise CMOs started by an ex-whatever person. You'd be like, oh, I could see that as part of a portfolio and that's likely to raise an A so on and so forth. Now, if you look at each other, you're like, are we familiar with this market? Are we passionate about it? And we're excited by the founders and co-investors? If all of those don't check off, let somebody else do the deal. We don't need to construct a portfolio anymore. We just want to invest in people that we want to get up every day with and go to work on behalf of.
26:45 Harry Stebbings? Sorry, this is landing on Mars. I'm 3,000 shows in with VCs and-
26:50 Speaker 03 Harry, when we told our LPs that we were thinking about this model, they said two things. One, this is very consistent with what you've told us despite our disappointment. And two, you have to give me a few minutes to think about this and decide what questions I'm going to ask you. What fund managers usually tell me, this was 2020, 2021, was like, I'm used to everybody coming back and saying, we want to get bigger and invest faster. And I have my set of questions to say, why do you think that's a good idea? Are you really getting too big for your strategy? Is that the right model for outsized returns? What's your capacity? When you say we want to get smaller and maybe not use your capital, I don't have a standard set of questions to ask you as an LP.
27:23 Harry Stebbings? Not even like a founder collective. We're staying disciplined. It's like, we absolutely just don't need it at all. I was just, what? But I'm just like, I'm confused. So do you become less price sensitive with this shift?
27:33 Speaker 03 What I think is we become price agnostic as it comes and turns agnostic. When you think about how much do we own? We're not doing that math. We don't change our model, our discipline, our thinking on the question about the way this company is being financed. Is that a help or hindrance to its ability to get a future financing done, to create upside for shareholders, so on and so forth, both in absolute terms and then in opportunity cost terms? Where are we going to invest? It's not that, oh, yeah, hey, now we do on cap notes or we do seeds at 100 million pre or whatever, because who cares? It's our money, not somebody else's. We care more in these cases about who the lead investor is in the round. We're joining because it's not us. We used to not care who the other investors were. We're going to help you and we'll get other people great around us. Now we actually care about quality of the lead investor.
28:18 Speaker 03 We care about whether somebody is pricing themselves to perfection. We care about whether they're adding new pockets around the table versus just drawing down the last check from investors already on the cap table. And then we write the check. So yes, we are less price sensitive in a computational manner, but not less price sensitive in a strategic one.
28:35 Harry Stebbings? I have to ask, everyone feels the pressure to deploy when you have institutional money. I speak to many friends that, you know, multi-stage funds and they're like, fuck, Harry, with these big ass funds, how are we going to spend them this year? There's no flow. I've got nothing now, Harry. Do you have anything on my? Did you feel the pressure to deploy honestly when you had Homebrew? And is that very different now?
28:53 Speaker 03 I never felt like we had the, felt the pressure to deploy, but I feel like one of the reasons we made the switch early was we were questioning the looking forward strategy of raising a large fund, a potentially even larger fund, without confidence that we wanted to execute the same strategy for the next three, five, seven, 10 years. So it was going to be tail wagging the dog a little bit. We knew we could be successful doing it. We didn't know if we could be happy doing it. I think that's important to point out. It wasn't so much that raising 200, 300 million dollars like some of our peers and going to market in a model where we brought on another GP, we expanded our team, we brought on another platform person. I actually think we could exceed our benchmarks and be perfectly fine in market. I think it would have forced more and more time and energy and choices that would have sacrificed happiness for success.
29:37 Speaker 03 We would have spent more time on internal operations, hiring and managing a team rather than with one another and with founders. Whether people want to admit it or not, I think people attribute this to Mike Maples affiliate game and it's 100% true, like your fund size is your strategy. And so whether it's implicit or explicitly, you start looking through this question of, I gotta return the fund. I do the math. What does an outcome look like? It means you start increasing your ownership target to the point of where you can no longer be collaborative and/or you grow impatient or you're looking for the next write-up rather than patience on how do we build this company and help it become the best version of what it's going to be. And I think if those are your true norths, if you're like, if we do all those things well, we are going to have companies that we're so proud to be associated with and make a lot of money, then you do a.
30:20 Speaker 03 Different type of math on what a quote unquote fund model looks like than if you look at the market around you and say, how much does it take to lead a seed round? How many of those deals are we going to do? What sort of reserve structure? Okay, we need 300 million dollars. Let me tell you, LPs, it's not just fund managers are greedy. LPs are complicit in this. We love our LPs. We've always had a small group of institutional LPs. And we used to joke with them, especially when the first fund started to become a really high performer. And we held to our model in Fund 2 and everybody was congratulating us for being so disciplined. When we'd go to fundraise, they'd want to double their super parata in the next fund. I'd be like, you just complimented us on being disciplined. How do we give you double parata and stay disciplined? There is a pile on to what works mentality that sometimes then you get what you didn't want, which was like too big a fund to deliver the types of returns matched against the capabilities and preferences of the GPs
31:05 Speaker 03 and the market stage and strategy they're executing it.
31:08 Speaker 00 I'm just going to come back and answer.
31:09 Speaker 03 What are we talking about? Who is this?
31:11 Speaker 00 We never felt pressured to deploy capital, I think for two reasons. One, we had institutional LPs who have a very long-term commitment and perspective on the space. And because they're institutions, we're actually a pretty small fund for them. And so whether we invest.
31:24 Speaker 03 Yeah, nobody cares about IRR.
31:25 Speaker 00 Two years or five years makes actually no difference to them.
31:28 Speaker 03 Satya, what's the number one predictor of returns fund? The right, you always said the vintage.
31:34 Harry Stebbings? I think vintage diversification, you'll really see the benefits in this next slide. I look at mine now and it's like, I'll have some 2021 pricing in there, but I'll also have 2324 pricing in there. And I think that's really where you see it. Cause vintage diversification didn't matter over the last 10 years because the vintage was all ridiculous.
31:49 Speaker 03 This is adjacent to what he's saying, but I'd say the one place we did feel quote unquote pressure to deploy was the notion of if you're a lead seed investor and an institutional A round is getting done, it's that parata question. It's always dancing around this, this like have to be supportive, especially during a bull market. There's a lot of deals that get done at prices that are higher and maybe rounds that are premature that you decide in a nuanced way whether we've got something here that's doing really well and so and so sees it also, so let's pile on into it versus like, gee, I'd love to see more cards turned over before we put 3 million dollars from a 65 million dollar fund into it. To all the way at in a up market, it's not just that rounds are bigger and higher priced. It's that some rounds get done that wouldn't get done because. Everybody has a rosy picture of what could happen and you're like, wow,
32:32 Speaker 03 some of the companies that maybe we have questions about are still raising healthy rounds. And I'm sure how you're very nuanced as well. You do those and what you do and what you just talk to the entrepreneurs in that case, you say, look, we probably own as much of this as we want. We're going to be supportive, but I'm sure there'll be a surplus of interest. And if you could squeeze us down, that would be preferable. But part of the reputation effect is if somebody wants to lead the next round and we're like, hey, we're doing zero of our prorata. That has that challenge to scuttle around in a lead institutional seed model. That was, I'd say we felt that pressure sometimes in a nuanced way.
33:02 Harry Stebbings? What was so amazing about the boom of the last about few years was, Brunn, if you said you're not going to do it, they were like, great, we've got more. And so it was just so much capital that you could very easily say, I'm not doing it and no one would give a shit. And my question to you is, does your reserves thinking ratio deployment change in a world where you are deploying your own money?
33:20 Speaker 03 Oh, this is what we're debating right now.
33:22 Harry Stebbings? Like live conversation.
33:23 Speaker 00 The good news is like, again, there's not a fixed fund size. There's not necessarily an expectation that we're leading the round and hence are a signal in the market. And I think it's going to depend on the situation. We're effectively the co-leading a couple of investments that we've done. We're smaller checks in a lot of the investments that we've done. It's going to depend, but we don't have to think of it as a fund and a fixed pool of capital.
33:44 Speaker 03 Yes, but structurally, don't worry about proratas. Who cares? It's just a money opportunity. It doesn't change the nature of how we work with these companies and so forth. We made our initial investment. Sometimes we'll do prorata, sometimes we won't, so on and so forth. They're quote unquote, small checks anyway, off a modest first investment. Or heck, that's how you get paid for your work. We already probably work harder than our ownership percentage relative to the value we bring to a company we back. Prorata is how we quote unquote double down on the winners. And we need a structure to accommodate that, especially when it does or doesn't fall within our budget. Or hey, one of our opportunities is like, we've got access to the capital markets. Why not do a barbell strategy where it's our money at the beginning? And then in select opportunities, we back up the truck, so to speak, and put seven and eight figures of blended our capital and other people's capital
34:29 Speaker 03 into the companies that we think could use it at the, you know, B, C and D, let's say.
34:33 Speaker 00 One of the experiments we're running here is testing the thinking around can capital and counsel be separated over the course of time? One of the things we're trying to evaluate is in some cases, when we do a smaller check, can we still have the influence and add the value that a lead investor might have in a situation? And earn the right, not just to do prorata, but potentially do super or prorata, or even leave the next finance.
34:55 Harry Stebbings? I've thought the same, but is that like a decentralized network of operators that say me and you both have in our networks? Where we could deploy them on a company basis and incentivize them with a carry deal.
35:07 Speaker 03 That sounds so complicated. I'm thinking more it's our time and whatever we put in there normally, which can be incentivized, non-incentivized, direct on the cap table, indirect through us, whatever. But it's just the notion of then we have access to fifty, five to fifty million dollar checks when we want to deploy them. And are those SPVs or is that from another pooled vehicle? I don't know. We are very cautious. We want to be in business, even though it doesn't sound like it. We want to be in business with our LPs in some way because we actually really enjoy working with them. We're in business with them to the tune of several hundred million dollars in Homebrew Funds one through three. We're in business with many of them through Screen Door Partners, a fund of funds that we help start with some of our peers and your friends, Charles Hudson, Kirsten Green, Aileen Lee, so on and so forth, that backs emerging managers from underrepresented segments that the first vehicle there is in, what is it, like a ninety million dollar fund?
35:52 Speaker 03 We've deployed half of it. We backed eleven. So we have LP relationships that transcend Homebrew. Maybe there's continued interesting ways to bring capital to bear when we think the opportunity and the relationship deserves it, rather than pre-raising the capital and then saying, we're going to figure out where to put it.
36:08 Speaker 00 An example, I think we've done a handful of SPVs now, but we did two last year, which led the Series E and Series D rounds for two of our later-stage companies.
36:17 Speaker 03 It reminds me of when you bet a number straight up and then the two and fours on roulette and it hits and you're like, the stack of chips that comes back to you is larger than you understood because, you know, you're in it three, four different ways. So we are unafraid when we see something that we think is spectacular to figure out how to support them through multiple vehicles. We just believe that comes from a relationship and mutual trust and confidence that you're going to make money together. It doesn't come from pre-raising it, believing that all things go up and to the right, that mid to late-stage SPVs are risk-free. And by the way, when we do an SPV, at least historically, subject to change, we've historically priced them very attractively because the idea is we want to make money with our friends and we're already doing this work anyway.
36:58 Speaker 03 So why should we get paid optimal carry and fees for just placing a check into a company we're in business with anyway? We've been very relationship focused, long-term greedy. And I think that works when you believe you're good at what you do, as opposed to needing to get paid first.
37:14 Speaker 00 I'm sure we're going to talk about this, but I think over the last decade, there's some fundamental things about this business that people have forgotten. First is like, it's a relationship-driven business. It's not a transactional business. And being long-term greedy and good long-term partners makes a difference in your performance over time. And the second, I think, is that it pays to be non-consensus and right. Everyone was focused on being part of every company that seemed like it had momentum because everybody else was investing in it. And that looked great because the bull market ran longer than it did.
37:44 Speaker 03 I'm sure Harry and I are LPs of the same funds. When you see some of these kilim unicorns deflate, we get the same four notes from the same four funds through the Angel List, whatever, rolling funds, all writing down their exposure at the same time, because there was a bunch of strategies of, we share deal flow, we pile into the same deals, and then we show it to the same leads to mark it up. And it feels great when everything is ba, ba, ba, ba, ba. And then it doesn't always work.
38:06 Harry Stebbings? Do you know what? No, because that would make me happy. What I'm seeing is no one's marking their books down and they're keeping them all at the incredibly inflated prices and claiming that's still how it is. You don't have to change your markdowns. Now you just mark down to yourself, I take it.
38:22 Speaker 03 The struggle even on the old stuff, because we think there's three sets of books, right? There's your accounting docs. How are you reporting this stuff to your LPs, so on and so forth? There's your sensitivity model for reserves and so on and so forth. Is there upside here? And then there's your, what have you actually returned? How real or not real are these numbers? In the former, we've always said, we don't mark things up or down unless there's like a new financing or a radical change in a particular company's trajectory that deserves it. But we get pressure, not from our LPs, but from our auditors, to be like, all these numbers are arbitrary. If I could tell you perfectly what any of these companies are worth today, I'd do that as a business. And so our strategy, and our LPs are fine with it, over the last year or so, has been, from a reporting standpoint, use financings to mark up or down.
39:06 Speaker 03 From a sensitivity analysis, yeah, some of these things are probably, quote unquote, have to grow into their valuation, so on and so forth. Let's talk about what the fund looks like if these were worth 20%. Less 50% less so and so over then how does that influence our buying or selling behavior? And then let's manage over time, which I think we did very successfully in Fund One. We still have quite a bit of upside, but we managed to take a sort of money off the table at opportune times, both through early exits and M and A, which we're lucky, and then some sort of secondary transactions to be well above the benchmark returns for 2013 to 2015 vintage funds, not in spreadsheets, but in distributions.
39:41 Harry Stebbings? Grow into their valuations, Hunter.
39:43 Speaker 03 Come on, give me a break. Everybody's portfolio is a bunch of zombies. My companies just have to grow into their valuations.
39:50 Harry Stebbings? I've got one that was in 500K ARR and valued at 700 million and I was like, wow.
39:56 Speaker 03 It just needs to get to 100 million ARR.
39:59 Harry Stebbings? You mentioned there about returning cash to investors. I can't remember who said this to me, but they said you have to ask them because they've returned a lot of cash. How do you think about when's the right time to sell in those secondary transactions that you did? Not when it's like M and A where you obviously have to. How do you advise managers and how do you think about when's the right time to sell?
40:17 Speaker 03 Sacha, tell them about recycling too, because we've only returned cash when we think that there's a reason to return it and not recycle it. And thus we're at like, what are we at 117% in Fund One now? I'm trying for that. So we also do a lot of portfolio management, let's say.
40:29 Speaker 00 But the short answer to your question, Harry, is ultimately, I think we're always asking the question, are we a buyer or a seller at this moment in time? You're a buyer if you believe that the risk adjusted return is going to exceed your expectation for the return at that time. And you're a seller if it's the opposite. We've always tried to evaluate like, do we believe we can earn at least five to 10x from here? And if we believe that, then we're more likely to be a buyer. And if we don't, then we're more likely to be a seller. And then the other factor is have you actually returned any money for your LPs? When you haven't, there's a lot of pressure to do that. And there's a lot of freedom that comes from doing that as well, because once you get into the carry, we're humans and your behavior will change in terms of how you think about investing.
41:11 Speaker 00 I think those are the two factors and we'd encourage all investors to ask that question. Do we think if we're being honest about it, that there's upside? Or does it just feel good to be part of this company because we caught it early? And we may be giving up the potential of. Some marginal upside, right?
41:27 Speaker 03 You know, Homebrew was my first institutional venture experience. Satya did institutional venture 98 to 2000 and then again like 2007 till 2011. And so he's seen different business cycles, different partnership structures in a way that I think we don't look backwards and say overlearn those lessons here or there, or the markets now are the same as they were in the 90s. But I think of our value proposition as a partnership to Satya's smart enough and pragmatic enough and experienced enough to prevent Hunter from doing the stupid shit. And sometimes Hunter's stupid ideas are actually good ideas. The combination of that, I think, led to a bunch of good debate, but ultimately a good decision-making and good frameworks for when do we sell? And I think it can sometimes come down to also this question of if it doubles from here, are we going to be sad that we took 5% off the table?
42:11 Speaker 03 Or are you going to be excited that the 95% has now doubled? And that's another type of question we ask ourselves and always in situations that were neutral to positive for the company, because we'd never wanted to hurt a company through our actions. We had some good chances to do our job and we did our job.
42:27 Harry Stebbings? Is there a misalignment between GP and LP when it comes to liquidity and selling? And what I mean by that is I'm an early-stage manager. Shit, I want to raise my new fund. It'll help if I have DPI. I'm going to sell a couple of positions to provide DPI. But actually, for my LP, it would have been much better if I held on to those positions in amazing companies and in the long term would have provided a lot more returns to them, but I needed my new fund.
42:51 Speaker 00 It depends on, one, the quality of your LPs and, two, there's a difference between your existing LPs and new LPs. I think if you've got the right LPs, they've seen enough in this business to understand generating DPI through pressure isn't the best long-term outcome for them and for the GP. And then existing LPs have more data to evaluate progress and understand the companies than outside LPs do. Outside LPs may care more about seeing DPI because that's proof, but the right inside LPs have more context to be able to make a more informed decision about how a GP is performing and doesn't necessarily have to see that DPI. The answer to your question is I think there could be a disconnect.
43:30 Harry Stebbings? Satya, what's the craziest idea Hunter's had that was actually a good idea?
43:34 Speaker 00 Getting the logo tattooed on my shirt. No, it does have the logo tattooed on his shoulder. In many ways, I give him credit for us deciding to start a fund. So the crazy idea was to be a fund as opposed to doing something else. Because as he said, like I had, having worked in the venture business, wasn't considering doing it again. And he walked us through the thinking around like, actually, the way we want to spend our time lines up really nicely with being helpful to companies. We can be helpful to companies if we're venture capitalists because the cost of entry is money 10 years ago. So the crazy idea was to be VC and I think I'd give him credit for that and I wouldn't have done it with anybody else.
44:11 Harry Stebbings? I have to ask just quickly on the landscape, Stan, and then I promise to do a quick fire. This is fucking terrifying for a generation of investors that haven't seen downturn. How do you analyze where we're at today? Will this get worse? How do you predict the next 24 months playing for the early stage?
44:25 Speaker 03 I think it'll get worse for series A through D companies that can't remain default investable. David Sacks wrote a very smart blog post last summer or last spring at a point at which some of the common wisdom was for every company, make sure you have three years of cash and so forth. And I don't think those are uniformly smart recommendations to make for venture backed companies that are relying upon a next financing. What you have to prove is that you have an insight and opportunity in a market that's large enough to where if you do your job, build your product, get to market and exploit that opportunity, you're going to create enterprise value that's worth a new investor coming into your company. It's true that the dynamics around that equation have changed, reverted to the norm, maybe even a little bit pessimistic right now.
45:10 Speaker 03 But that means continuing to execute against a plan, smart growth, not growth at any cost, but smart growth. And I think we have too many companies that have been encumbered by capital ahead of product market fit, don't know how to find product market fit. Too many companies that are encumbered by a culture and an employee base that doesn't know how to deal with this is going to be tough and you're not going to get rich overnight. And too many investors who don't want to do the work, don't want to reconcile these companies because it would destroy their paper evaluations as opposed to let's reset them and give them a chance to succeed. Take our lumps and see what we have. Have or let's have a tough combination of tough conversation about this isn't going anywhere. You may have $50 million in the bank, but what are we going to do with it?
45:53 Speaker 03 For most of those companies, layoffs are going to turn into silent disappearance, low value, aqua hires, or noisy collapses. I think for new entrepreneurs, it's a great time to build companies. You just need to figure out what you're building, why, and the juice is worth the squeeze. And I actually think there's a number of companies that are in the public market trajectory that it's not a question so much about it's they're waiting for an opportunity to make sure that they have not just the balance sheet and the P and L, a predictability so that once they are public, they don't get punished by the ups and downs of potential underperformance. We have a few that I think could have been public already, but have decided for various reasons to hold off. And I think when they become public, they'll be even stronger company.
46:35 Harry Stebbings? Jason Lamkin said for employees join companies, unicorn companies in 2021 or 2022, they will make nothing from their equity. Do you agree?
46:43 Speaker 00 I think that's definitely true for a lot of unicorn companies. But that's the difference between companies that raise money on momentum and hype and companies that raise money on fundamentals. I see many companies last year, when the market turned, who said, oh, we just got to buy ourselves some time. And when the market comes back, we'll be able to raise money again. And what you're seeing is that time's run out. Last year, they bought time by doing the layoffs and slowing down spend. And this year, they're realizing that the market's not coming back to what it was. And they actually have to demonstrate real business value. And those companies are not going to be able to attract capital and they're going to go away. And that's earlier stage companies and later stage companies. And then you've got that with compounded by the fact that there's this VC overhang that everyone's talking about, but the reality is they've got shit in their portfolios.
47:27 Speaker 00 So they're going to do their one or two investments a year. And every fund with this overhang is going to be focused on the same small set of companies. And so those companies are going to be able to attract capital at prices that may seem like the market's turned around potentially.
47:40 Speaker 03 The question I'd be asking, do I think this company is going to succeed or fail? If you think this company is going to fail, regardless of stage, you need to make some decisions about, are you learning, so on and so forth? The question, if this company succeeds to some extent, am I going to participate in that success? Or is it being structured in a way where the investors and the Founders are the only ones who are likely to see any of the gains. And if you're an employee who believes that your hard work is not going to be recognized because of choices that your cap table and your founders have made, that's where you should have some tough questions for your manager, for your founders, for your board, and make decisions not out of loyalty and hope, but out of pragmatism. Because I'm a big believer in teams should win when founders and investors win. It's the happiest moment in my existence as an investor when I see a promising company
48:24 Speaker 03 cross a threshold where I believe that it's going to change the lives for a lot of the team members, not just for us and the founders. And I'm hoping that one of the success metrics for Homebrew is the value created post-public exit. I want us to be part of companies where it's not that we sold at exactly the right time and the retail investors lost and we won, or even that we've held on to the share, this now multi-stage, public-private market crossover, like where we've held on to shares so long that we've exploited all the gains. I hope we're part of companies where we got our bag and then that company grew 10x from there over the 10, 20, 30, 40 years once it was public. I want to die with public company logos on my casket that endured, weren't just somebody else's goodwill write-off, and I got paid.
49:05 Speaker 00 Over the last decade, we moved into a world where people join startups because they thought they were going to get rich. And I think that what people should be thinking about is you join a startup because you enjoy the experience, you learn, you meet great people, you learn something, and that hopefully you get compensated fairly. But the idea that like getting rich was table stakes when joining a startup was a delusion.
49:25 Speaker 03 Or maybe the scale, what it means to have access to millions of dollars quickly versus, oh man, my salary is 200K and I can make another 200K when this company like for my stock. Like, how liberating is that in your twenties to be able to put that in the bank and then make decisions that you don't have to optimize for making your student loan payments or so and so forth? Where it's the byproduct of the bull market where you have your perception reshaped by outliers. And it's not that those things aren't possible or not obtainable. It's just they're called outliers for a reason. But founders are like, well, I want the Jack Dorsey deal. I'm like, go found Twitter and then you'll get the Square deal type of thing.
49:59 Harry Stebbings? I would tell those entitled people to start a podcast, it's much more lucrative. The final one, I promise, is what I the entitled young. Maybe don't want to do the work. My problem is, and I'm being very open in a way that I shouldn't be and I'll probably get killed for this. There's one company I'm in that's not very good and it's got far too much money and no product market fit. And I said, hey, it's okay. Give the cash back. You've tried your best. Seventy cents on the dollar. It's fine. You know what? Everyone goes home with their respect and pride intact. It's okay. And I went to the other investors, more senior, more mature, and they all went, oh, Harry, no, it's a bad look. We don't want to get money back from founders. And it was just like, they all made a fucked on and it was quiet quitting and they didn't want to look bad. And there was too much of a protection of their own MPS.
50:43 Harry Stebbings? So I'll push back on that and be like, hey, respectfully, for the people who are more senior GPs who have made a lot of money, they don't want to rock the boat. And I'm sitting here going, fuck, I don't have any support.
50:53 Speaker 03 Yeah, not knowing the specific situation, but I generally fall in your camp, which is there's an opportunity cost to everybody's time and capital. And the idea that some notion of an upside that doesn't exist, we have to raise our next fund on this paper mark. So let's not speak truth to founders or let's not let the founders off the hook because of our ego, our credibility, our reputation. Neither one of those is the job of an investor, right?
51:16 Speaker 00 I'm going to take the other side of this because my view would be like, as VCs, we're in the business of losing money. There's a reason that the power law is a thing. And if you still believe that the founders are smart enough to try to figure something out, even if it's a pivot, then you let it ride and they can make it happen.
51:32 Speaker 03 Sort of I got the sense though, but we really believe, let's go back down to a small core team and try again, or we really believe this. And they're still going to go to an FX, not 4X, but and it's not like I want that money back to redeploy. It's like the, let's have a real conversation about what's going on here. And are we going to spend that $40 million to create a multiple of an enterprise value? Or are we just kicking hands down the road because we don't want to ask these questions?
51:51 Harry Stebbings? Yeah, I'm burning more and more money every day with something that we know is actually not what it was.
51:55 Speaker 03 When you have a lot of capital, you end up trying to use money to solve problems that money not shouldn't be solved for. Money doesn't buy you product market fit. Money doesn't solve for upside down economics and money doesn't solve for not being able to hire. Yes, in the short term, it's sugar. You'll feel a burst of energy. It's not sustainable. And some of the biggest challenges we've had in the portfolio, just in terms of spending time and resetting them. Have been the promising companies that got funded ahead of product market fit or ahead of knowing what they would do with the capital. And even with patient investors, even with investors who exert no pressure. It changes the mindset of the founders. It creates pressure from within the company. The clock starts, you start spending it. And so in some ways, I think part of our portfolio that's really going to have benefit from the slowdown are the early product market fit companies that now have some capital in
52:38 Speaker 03 the bank, but aren't getting the crossover investors pitching them on taking another round just because it's available to them at great terms and don't have to have the notion if they don't raise an up round 12 months from now, they're not going to be on the unicorn list, type of stuff. I'm so happy to have a reset for those folks because we can actually focus on product building and team building, not on fundraising and hope that the capital makes everything else work.
53:02 Harry Stebbings? Final one, I promise. Does money make you happy? I would say that it's removed so much pressure and stress from your relationship that it's given you the foundations of a truly beautiful relationship, which is great. Does money make you happy?
53:13 Speaker 03 For me, it's been a step function. I grew up downwardly mobile. I started out like zero through 10, upper middle class and then middle class from there. So I got to see what it was like to be around things I wanted, but not be able to have them. So the chance to, through my experience at Google and what we've been able to do at Homebrew so far, my chance to get to a point of stability where I know I'll be okay, like I can pay for my daughter's school, I can pay my mortgage, all that type of stuff and has relieved a lot of stress and allowed me to focus on what also makes me happy. There's probably a next bump up where, look, I'm the strange VC who only owns one house. There's another bump up where, oh, hey, getting a pied-à-terre in New York would make me happy. That's where I'm from. I'd love my daughter to have a set of keys there, that type of thing. Fortunately, I think we're on the path to that, but I wouldn't-
53:55 Harry Stebbings? Under Gulfstream.
53:57 Speaker 03 No, no, I wouldn't optimize for getting there. And I, and once I get there, I'm not sure there's another step function that is a goal that I'd shoot for. I've always said if I became really wealthy at any point, it would be a byproduct of something else, not the objective.
54:10 Harry Stebbings? Sasha?
54:11 Speaker 00 I'm the child of immigrants who came here with nothing. And I think money has afforded me the freedom to not have to worry about the basics and allow me to spend my time the way I want to spend my time, with the people I want to spend it with and to give back. In a way that allows hopefully people to have the same type of success.
54:30 Speaker 03 Harry, I'll say this, though. Look at any, look at any partnership where there's difference in age or unequal distribution of economics and money is an issue. We have similar age.
54:40 Harry Stebbings? No comment.
54:41 Speaker 03 We have similar age and, and similar goals and similarish economics and so, and similar values. That matters too.
54:48 Harry Stebbings? I'm going to do a quick fire on and we're going to bash through them. Okay. So we're going to start. Hunter, why the fuck did you quit Twitter?
54:53 Speaker 03 I was a blogger before I was a tweeter, so I wanted to go back to more than 280 characters. Hunterwalk.com.
54:59 Harry Stebbings? There we go. Salesman at heart. Sacha, tell me, what are you most optimistic and hopeful for today?
55:04 Speaker 00 I guess one's professional and one's personal. I'm most optimistic about the, on the professional side, about the democratization of access to capital, including expertise that allows startups to thrive, especially capital for, we've got a lot of work to do, but for underrepresented founders from underrepresented managers, which we're trying to contribute to. And on the personal side, I have a 17 year old and a 14 year old effectively. I think that generation has an entirely different perspective on the world than the generation before it and willing to question everything from first principles, willing to do the work to see that the change that they want and really care for other people on the planet.
55:40 Harry Stebbings? Hunter, what are you most worried about that you see in the world today?
55:43 Speaker 03 I worry that some of the people most empowered to make positive change also have the wealth and comfort to protect themselves from the changes occurring. And so rather than risk something, disrupt their lives to put themselves on the front lines of environment, equality, democracy, they protect themselves from being impacted by them.
56:03 Harry Stebbings? Sacha, what do you believe that many around you disbelieve?
56:06 Speaker 00 In the context of our business, there's probably a couple of things. One, at the earliest stages, when it comes to hiring, attitude is more important than aptitude. It's something that we really focus on when helping our companies hire early on. And then the second thing, which is probably odd for a former product person to say, I tend to believe that it's not the best product that wins, it's the best distribution that wins and that the best distribution creates a feedback cycle that allows you to have the best product over time, but distribution wins over product in the early days.
56:35 Harry Stebbings? So what's the best investment advice you've ever received?
56:38 Speaker 03 It was from Sacha and it was during a pre-investment process where we were maybe enamored by the idea or the social proof around it, but just not feeling great relationship with the founders. And he said, if it doesn't feel right before you write the check, it definitely doesn't get better after. And so he passed on it.
56:55 Harry Stebbings? What does true success mean to you? Everyone has a different definition of success. What does success mean to you?
57:01 Speaker 00 It touches on what I said before, like success is having the freedom to spend my time the way I want to spend it with people that I want to spend it with and leaving those people in the world a better place in which I found it. Money affords some of that, but a lot of it is just work and effort as well.
57:16 Harry Stebbings? Hunter?
57:17 Speaker 03 I think that the work I do or the way I spend my time, I want to grow the pie, I'd say, you know, before I get my piece. And so for me, it's about making sure that the benefits I've had, access to people, ideas, knowledge, information, resources, that I'm paying that forward in my work with my family, and especially with people who are trying to sort of access tech in the tech community. I was a history major, so I believe that like, even though we're so focused on disruption, obviously as technologists, that it's important to know the shoulders that you stand on. And that's in fact where the Homebrew name comes from, after the Homebrew Computer Club. You know, PC enthusiasts who met on Stanford's campus in the seventies and eighties as hobbyists before they were, you know, sort of entrepreneurs. And so Steve Jobs and Steve Wozniak met.
58:00 Speaker 03 And although a lot has changed, including the breadth and diversity of the people who get together to talk about this stuff, I think it's important to remember that you should be interested in what you can create ahead of what that creation is worth.
58:13 Harry Stebbings? Guys, I've absolutely loved this. This has been the highlight of my day, highlight of my week. Honestly, it shows like this, which make me remember why I love what I do so much. So thank you both for being such rock stars today.
58:24 Harry Stebbings? I have to say, for me personally, I love doing that. It was so great to have both of them on the show at the same time. And you can just feel the love and chemistry they have in their relationship. And so that was wonderful. If you'd like to see more from us, of course you can on YouTube by searching for 20VC. I'd love to see you there. But before we leave you today, Secureframe is the leading all-in-one platform for automated security and privacy compliance. Secureframe simplifies and streamlines the process of getting and staying compliant to the most rigorous global privacy and security standards like SOC 2, ISO 2701, HIPAA, GDPR and others. Secureframe's industry-leading compliance automation platform, paired with their in-house compliance experts and former auditors, helps you get audit-ready in weeks, not months.
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1:01:10 Harry Stebbings? Just get started at retool.com/20vc. That's retool.com/20vc. As always, I so appreciate all your support and we have a fantastic 20 product to mash up of when to hire your first product hire, how to hire them, what to look for, what questions to ask, how to run the interview process. It's an incredible episode.
Previous 20VC: Canva Co-Founder, Cliff Obrecht on The Journey From 100 VC Rejections to a $40BN Company, Why Good Enough is Not Good Enough, The Secret to Hiring Non-Obvious Talent and Relationships to Money and Why They Are Giving Away Billions Next 20VC: From $57M in ARR to $297M in Just 12 Months; Why Speed of Execution is the Most Important Factor to Success, Hiring 2,000 People in 3 Years Remotely & Secondaries; Why, When and How Much To Take Out with Alex Bouaziz, Co-Founder & CEO @ Deel Page updated October 26, 2026 · transcript and summary are machine-generated
