20VC: How Today's Market Changes How Companies Should Approach Burn and Runway, Are Financing Markets Closing? How To Know When To Pay Up vs Stay Price Disciplined & Why The Most Important Thing in Venture is Generating Positive Selection with Bill Cilluf

Bill Cillufo is Partner and Head of International Investments at QED, one of the leading fintech venture firms today with a portfolio including Nubank, Kavak, Klarna, Quinto Andar and Bitso to name a few. As for Bill, he has led investments in Nubank, Loft, Wagestream and Creditas among others. Prior to joining QED, he spent nearly 20 years at Capital One, spanning several roles and leading several businesses. During Bill’s last 3 years at Capital One, he led its Co-Brand and Private Label credit card business, building the business nearly from scratch to one of the top few players in the US market. In Today’s Episode with Bill Cillufo You Will Learn: 1.) Origins into Venture: How Bill made his way from 20 years at Capital One to becoming a Partner @ QED? How did Capital One inform his mindset around unit economics? Having seen booms and busts firsthand with Capital One, how did that impact his investing mindset today? 2.) The Landscape: What is Happening? Where does Bill believe the biggest crunch in funding markets is today? Does Bill believe this will trickle down to the early stage? How does Bill advise his portfolio companies on runway and burn given the environment? What does Bill believe that many have not seen that is coming? 3.) Bill Cillufo: The Investor How does Bill analyse his own relationship to price and price sensitivity? How has Bill changed as an investor over the last 5 years? What caused the changes? How does Bill reflect on reserves management given the new landscape we are in? 4.) QED: The Expansion Does Bill believe that expanding geographically has become easier with time? What has become harder about expanding into new geographies? How important does Bill believe partnering with local firms is when VCs enter new territories? Item’s Mentioned In Today’s Episode with Bill Cillufo Bill’s Favourite Book: Tom Clancy: The Hunt for Red October Bill’s Most Recent Investment: Refyne

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

• 0:00Harry Stebbings?

  Welcome back. This is 20 VC with me, Harry Stebbings, and back to the land of venture investing, following our 20 product with the amazing partner at Robinhood on Wednesday. That was a must-listen if you haven't already. But to the show today, and I'm thrilled to welcome one of the leading fintech investors in the form of Bill Salufo. Bill is a partner and a head of international investments at QED, one of the leading fintech venture firms today, with a portfolio including Nubank, Kavak, Klarna, Quinto and Dara and Bitso, to name a few. As for Bill, he's led investments in Nubank, Loft, WageStream and Creditas, among others. And prior to joining QED, he spent the most incredible 20 years at Capital One, spanning several different roles. And in the last three years at Capital One, he led its co-brand and private label credit card business, building the business from scratch

• 0:44Harry Stebbings?

  to one of the top players in the US market. I'd also want to say a huge thank you to Portman at WageStream and to Nigel at QED and David at NewBank for some fantastic questions and suggestions today. Really did make such a difference. But before we dive into the show today, modern investment analysis is increasingly shifting to using external or alternative data. This data is becoming irreplaceable for investors wishing to automate deal sourcing, enhance decisions and quantify company traction. CoreSignal is a leading alternative data provider, offering continuously refreshed data sets collected from public business-related web platforms, from profiles of business professionals to company records, job postings and company reviews. CoreSignal's data offers unprecedented insights into millions of companies worldwide.

• 1:27Harry Stebbings?

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• 2:12Harry Stebbings?

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• 2:56Harry Stebbings?

  which is purpose-built for founders. With Angel List Stack, you can create a fundraising-ready startup in just a few clicks. Angel List handles your company's incorporation, banking, cap table, and fundraising process, all in one single place. This allows founders to focus on building. If you're a founder, you can launch your company at stack.angelist.com/20vc. Whether you're a founder or a thunder, you're in great hands with Angel List. But that is enough from me, so now I'm so excited to hand over to Bill Salufo at QED.

• 3:30Speaker 01

  You have now arrived at your destination.

• 3:33Harry Stebbings?

  Bill, this is such an exciting time. I've heard so many great things from David Vella's. I heard so many great things from Nigel, from Frank Rotman on your team, from Mate at Loft. So thank you so much for joining me today, my friend.

• 3:44Speaker 02

  Yeah, my pleasure. I don't even know how many episodes I've listened to, and it's an honour to be on.

• 3:48Harry Stebbings?

  Well, that is very, very kind of you. I'm thrilled that you could put up with my British accent. But I do want to start with some context. How did you make your way into the world of venture and come to be a partner at QED today?

• 3:59Speaker 02

  Yeah, I mean, look, I started my career at Capital One right out of undergrad. Had the honour as a 19-year-old, sitting in the audience, of listening to Nigel Morris speak on campus, which was quite a treat at the time. So no one called it a fintech at that point in time, but I think there's good case that Capital One was one of the original fintechs. And had a wonderful run. Couldn't think of any place better to start my career as a young kid. Wonderful run. The first 10 years of going public, one of the best performing stocks in the market, one of the most innovative companies. As with any company, as it succeeds, as it gets larger, it starts to slow down, it starts to have more regulators all over it, it starts to really have issues with moving quickly. And so I had the great opportunity to take a summer off, do the executive program at Stanford, which was kind of my first real taste of Silicon Valley

• 4:41Speaker 02

  and technology, and then had five-year wonderful run up in Toronto, leading our Canadian business, our international business, and almost going back to the future for the early days of Capital One. Eventually, it was time to come back and just realize, look, I was probably in the biggest job I'd ever had, the biggest team I'd ever had, the biggest P and L. You know, I just didn't like it. I realized for me, smaller is better, faster is better, innovative is better. And so for me, it was finally just time to do something else. And after several years of not seeing each other, I kind of got reconnected with Nigel via mutual angel investment. And when I started to think about leaving, we started talking about, hey, what's going on at Q E D? Where is that going? What's going on in fintech? And after a six-month little decompression and playing a lot of golf and coaching a lot of kids' sports, I started out as an advisor and started helping the guys at

• 5:25Speaker 02

  Q E D, kind of fell in love with the space.

• 5:27Harry Stebbings?

  I bet you're very handy with the sandwich by now, though. So at least I spanned it for about six months.

• 5:32Speaker 02

  I can get around the golf course from time to time.

• 5:34Harry Stebbings?

  It was an incredible journey into the hypergrowth phase and beyond with Capital One. When you look back and reflect, what were some of the biggest takeaways for you from that journey first?

• 5:44Speaker 02

  It's corporate values includes a statement, hire the best people and create an environment where they can be great. And I think that phrase sort of really sticks with me. I think one of the other things Capital One really kind of pioneered back in the day is a relentless focus on unit economics. I think many people do that today, but I think Capital One really built its entire company around the management of the unit economics of a business. And it is one of the things I've learned now, working with the 150 companies in our portfolio, it's really not easy. And if you don't do it from the start, it's much harder to add later. And I think that we found that that was just one of the key factors that allowed us to get through good times, get through bad times, really focus on what are we investing money in and what's going to come out the other end.

• 6:24Harry Stebbings?

  Relentless focus on unit economics is not what I would say most founders have.

• 6:30Harry Stebbings?

  That is not it.

• 6:31Speaker 02

  Interestingly enough, many do. I mean, you talked earlier about David Velez. I think that's one of the many things that New Bank does an incredible job of is really focusing on that aspect of the business. We find that a lot of the companies in our portfolio, and again, it's probably biased, those companies that want to work with QED are probably the ones that think similarly. But I think there is a wide variety out there in the business, and we probably gravitate toward those, more of that mindset.

• 6:53Harry Stebbings?

  How do you discover or evaluate a founder's mindset towards them? I guess, what questions uncover the true depth of a founder's approach and attitude towards unit economics you need to see?

• 7:07Speaker 02

  I think it's mostly about, do we feel like there's cultural compatibility? Founders are open to taking our feedback. When we talk about the business and how we see monetizing the business, once they've been successful, how do those conversations go? Admittedly, it's a little easier sometimes for QED to invest in businesses where monetization is built in upfront. That's not always the case, and I think over the years, we've learned how to be much better at partnering with so-called act-two businesses, where the first act is not necessarily intended to be monetized, and you'll monetize it later. But for us, it's really about how do you think about the problem? Do you have a strategy and approach on how we think it's going to work over time? I think we know as well as anyone that what you think is going to happen isn't really what's going to happen three or four years from now. But I think it's more about kind of an approach and a mindset and a cultural compatibility.

• 7:50Harry Stebbings?

  Focus on unit economics is crucial, especially in harder times when blunty runway needs to be preserved, and sustainable businesses obviously need to be much more front and center. When you look back at the time that you had with Capital One and the macro environments that you went through, what were some of your biggest takeaways from seeing the booms and busts that you did? And how did seeing them impact your mindset to investing today, do you think?

• 8:12Speaker 02

  Something I think we really always tried to do at Capital One is make decisions assuming that the future looks worse than the past. We were on the cutting edge of really building advanced statistical models. This is sort of before machine learning and AI really sort of hit the levels they are today. But I think my biggest learning about that is that no matter how good your modeling technology is, it's only so good as the inputs. And the inputs are only so good as the environment in which they're created. If you're building a business in boom times, and then you hit challenging times, All of your assumptions of what might happen in the future are gonna be biased by the environment that you built the business in. And so we always tried the best we could at assume the future looks worse than the past. And if the decisions you're making, we think are still gonna look good, then it gives you a lot of confidence really to step on the gas and grow aggressively.

• 8:55Harry Stebbings?

  Given the bias inputs, does that mean it's not worth doing the future modeling? If it's so unpredictable and unrealistic, given as we said, the bias and challenging inputs that you have. Does that mean it's not worth doing almost?

• 9:09Speaker 02

  Yeah, I mean, I don't know that I'd quite go that far because I think that you can certainly learn a lot from the past and learn how to apply it in the future. We've learned over the years that it needs to be a combination of advanced analytics combined with some judgment and experience. I think in the earlier days of Capital One, we were probably much more focused on the advanced analytics part and in some cases, learn the hard way. Over the years, I think we got more balanced at both try to progress on advancing the capabilities around analytics, but also making sure that you value judgment, experience and having seen it before. As you apply that to the venture world, we're sitting at a pretty interesting time when most companies out there have been growing at an incredibly positive environment. The economy's been really strong, consumers are looking for new things, capital's been abundant.

• 9:52Speaker 02

  Hard to say for sure, but it sure looks like we're heading into an environment that doesn't look quite as rosy. And so I think that it's probably a really important lesson to keep in mind as companies make decisions about how to invest and what to focus on over the next coming couple of years.

• 10:04Harry Stebbings?

  If we have the mindset that the future is worse than the past in many respects when we do modeling, how does that impact how you think about reserve allocations and the reinvestment decision-making process?

• 10:15Speaker 02

  Yeah, I mean, it's interesting question in venture and I think so much of venture in the last couple of years has been in an environment where capital is abundant. I do think that we've always tried to be thoughtful and apply some of these mindsets of look, let's assume that things are a little more challenging in the future. If we think that even in a more challenging environment, the decisions we're making are likely to be successful and we're likely to be happy with them, then it gives us even more confidence to be aggressive. If we think that there's decisions that we're trying to make that if the world turns and if the world doesn't look as rosy, we probably wouldn't be happy with those decisions, then I think we try to be a little bit more cautious.

• 10:49Harry Stebbings?

  As the pricing, we're in this kind of strange time now, I find. We have this impending potential recession and impending rate hikes. And then we have the crash in public markets. But actually, early stage valuations haven't really changed. Growth seems to have been a hit. How do you think about your price sensitivity today? Given to me, it feels like we're in the chasm between crash and between boom.

• 11:11Speaker 02

  Yeah, I mean, look, there's probably no other topic that gets discussed as much, either internally or externally as that one. And I think you have a great observation, right? The publics have crashed, the growth stage is choppy, the early stage really hasn't changed very much. If I had to predict the future, my guess is the early stage will eventually get affected. Do I think it'll crash as much as some of the later stage? Probably not. And I think there's some really good reasons why valuations at the early stage have been quite high. Talent that we see coming into fintech is better than it's ever been. Growth rates among early-stage fintechs have been faster than they've ever been. I mean, the number of companies that we've invested in the last couple of years that have literally doubled between when we submitted a term sheet and when we closed the deal, it's stunning.

• 11:52Speaker 02

  And it probably five, seven years ago, if a company grew two X in a year, that was incredible. Now we're seeing three X, four X, five X, seven X absolutely being possible. I think the evolution of the banking as a service, insurance as a service, X as a service market has just allowed companies to move way faster, innovate way faster, offer new services and grow to places we never really thought possible.

• 12:14Harry Stebbings?

  To what extent do you think it's the quality of entrepreneur, of business versus the sheer influx of capital? Because I would argue that actually it's actually largely the sheer influx of capital. I agree with all of your statements, but it's not really that. It's eighty percent of the capital.

• 12:30Speaker 02

  I absolutely think it's both. I think because people can have been able to essentially get unlimited capital at incredibly cheap prices, it's enabled them to be aggressive in ways that they wouldn't have been able to before. But I also think the playbook at some level is out there. So if you're an entrepreneur now and you're just getting started, there are so many people who have done it before. There's so many people you can talk to. I think if you rewind the clock 10 years ago, a lot of people were pioneering what's out there and really didn't know the roadmap. So I think the success rates have been Much higher, but we think there's a bunch of real reasons why it makes sense that valuations would be elevated from a few years ago. Do I think they got too much? Probably. And I do think as the later stage comes down, probably eventually that'll flow in. But I don't think there'll be the same level of crash at the early stage that there is later.

• 13:15Harry Stebbings?

  Bill, I fully expect you to invoice me after this because I'm asking a load of advice.

• 13:19Speaker 02

  I love it.

• 13:20Harry Stebbings?

  And you give it to me for free, but I totally understand.

• 13:23Speaker 02

  Harry, we're co-investors in some places, so I'm excited to help.

• 13:26Harry Stebbings?

  This is true. I'm really stuck when you have a great company with the growth rates that you have. And let's start on the first investment decision. It's a 200 million price. And you're looking at going, oof, that is high. That is high, high. And I'm stuck on the, it's a great business, but I don't know whether to stretch. How do you determine whether to stretch or whether to remain disciplined on first investment decision?

• 13:51Speaker 02

  If I knew the answer to that question, I would absolutely be a genius. Here's my take. I think one of the most important things in venture is generating positive selection, right? If you can see the very best companies, I don't want to say it's easy to make decisions on which ones are going to be successful, but it's a whole lot easier if you're able to see a much more robust pipeline. You're able to see the best companies and you can pick from among them. And unfortunately, the best companies with the best founders and the best ideas and the best hands also have the best valuations. And so I do think as we look in the past at mistakes that we've made, some of the most painful ones have been where did we absolutely love the team? Where did we absolutely love the business? Where did we think we were in a good position to win? And we kind of walked away because we were afraid on price.

• 14:33Speaker 02

  Very rarely have we made investments where we've loved the team, loved everything about it, decided to pay the price that we didn't like and then regretted it later. And so I think we've gotten more aggressive. It's so-called being willing to play the game. I think the biggest problem though is I can have that insight and I'm not always sure what to do with it in the future, right? Because you can't take that insight to infinity. Then if you wanted to pay 20 and you have to pay 40, well, that's a lot different than if you wanted to pay 40 and have to pay 200, right? I do think that's truly one of the things we struggle with every day. But I also have come to believe that truly being a quote, value investor at the early stage, that has a serious risk of. Adverse selection problems. And so that topic you raise is literally one of the ones, the most challenging and most common ones that we're talking about every day.

• 15:16Harry Stebbings?

  On the reinvestment decision making, quite often my biggest mistakes or misses have been not doubling down on my actual winners. And again, I'm in at the seed and then the A comes and I'm going, what? I know you've done well, but it's how much? No, I'm not doing that. And fuck, I should have done it.

• 15:35Speaker 02

  And by the way, it's not even just what you described, right? It's also that, hey, I expected the next round to come 12 months from now and now it's coming two months from now. And what do I do? Because I haven't reserved for that. So I think the problem is even more challenging than that.

• 15:47Harry Stebbings?

  So how do you think about that reinvestment process for you?

• 15:50Speaker 02

  Yeah, look, I think the same principle probably applies. I mean, we do actively look to make new decisions. We know many investors sort of make an investment and reserve and just kind of automatically do their next several investments. We do try to do some level of re-underwriting, but I think the same principle applies. I mean, if you get to know the company, the company is doing incredibly well, they're growing well, we're confident in the economics. Maybe the valuation is a little ahead of the progress. Our objective is still to kind of lean into those companies. How do you draw the line? How do you know exactly how to approach it in any individual situation? So sometimes we've leaned in fully, sometimes we've leaned in partially, sometime with the situation dictates it, we haven't always.

• 16:30Speaker 02

  But it's challenging, but I think at the end of the day, the best companies, the best founders, the best ideas, you know, have rarely disappointed in the long run.

• 16:37Harry Stebbings?

  Josh, do you do outcome scenario planning? Cause I like to say, we're doing a deal at 200. I like to go, okay, realistically, we can see this landing in the three to five billion range. There's an upside if they add payments and transactions to hit the 10 billion, but we can see a home at three to five. Okay, 200, so we're gonna do a, say a 14, 15 X, maybe a couple less with dilution. Do you find it effective to outcome scenario planning? And how do you think about attractive enough on outcome scenario plans?

• 17:07Speaker 02

  I would say we do quite a bit of that, but probably a little less valuation oriented and a little more sort of business economics oriented. So I think one of the things that you learn is that we spend a decent amount of time with our teams, looking at what their financial plans are. I think the only thing we know for sure is nobody's ever going to hit the financial plan that they put together. But what I think we find it really useful is how do they think about the business in the future? What are the key assumptions that they're banking on? If they achieve what they think they're going to achieve, is this an exciting business? And is this a sustainable, profitable business in the long run? And one that we're confident that somebody wants to own? And so again, back to the focus on unit economics, you know, we're very much focused on, well, what do you need to believe? For this thing to be a big, interesting, sustainable, profitable business? Do you generally believe in those assumptions?

• 17:51Speaker 02

  And if we do, that gives you a lot of confidence. We're probably a little less focused on, hey, what do I think the valuation of this thing is going to be a few years ago? Because I think as we've seen in the markets, those change so much. But if you have a sustainable, profitable business, somebody is going to want to own it and somebody is going to value that well.

• 18:06Harry Stebbings?

  Speaking of valuation changes, a lot of people want to invest in Q E D companies after you've invested. Preemptive rounds happen more and more often today. How do you advise founders when they get a fat preemptive term sheet from a big incumbent? How do you advise them when that situation arises?

• 18:22Speaker 02

  I would say that by and large, our advice over the past several months is take the money. Because the market is so hot, you never know if that market's going to continue. You never know if you're going to be able to tap that again. I think we've been pretty aggressive over the last six months, encouraging our companies to sort of take the money if they have it. I would say if you rewind a couple of years, that was not the typical advice. I would say our advice was much more on, well, why would you raise more money than you need? Sometimes scarcity actually causes a lot better decision making. If you have too much money, burning your hole in the pocket may not cause you to to make the right decisions. Our advice definitely depends on the environment that you're sitting in. And I feel really good that we've encouraged companies to take the extra money over the last six months.

• 19:03Speaker 02

  Whereas I think when we're moving into the environment that we see coming in the future, our advice has been much more cautious. Hey, maybe instead of trying to grow three X, you should grow two X and try to extend runway, have the cash last longer. And I think more and more of those conversations are happening. So I think it really depends on the environment.

• 19:18Harry Stebbings?

  I do want to ask that when we project out and look at you see that I have this schedule and then like we don't stick to any of it.

• 19:24Speaker 02

  That's great. That's what makes it fun.

• 19:25Harry Stebbings?

  I'm just too interested that when you think about kind of portfolio discussions with the next 12, 18 months markets in mind. How do you think about the conversations that you are having with your companies? And are that consistent messages that you're finding yourself say to them, whether it's on burn runway, unit econ. Are that consistent messages that you're having across the portfolio, given the macro?

• 19:46Speaker 02

  Yeah, look, I think the types of conversations vary quite a lot depending on the stage. But certainly related to the growth stage companies, I think very similar conversations are happening across geographies, across business types. And it's almost all of the flavor of look, you shouldn't be planning on needing to raise money in the next 12 to 18 months. We don't know what the world's going to look like. There's a chance that the world looks better than we all think. And if so, great, we'll adjust to it. But if you sort of assume the worst and hope for the best, you'll position your business to be able to withstand problems. I think the good news is so many of the later stage companies, both in our portfolio and around the world, have raised a ton of money over the last three to six months. And so many businesses are sitting on very impressive war chests that they were assuming they would use to grow really fast, to do a bunch of M and A, to do a bunch of that.

• 20:31Speaker 02

  And I think now we're very much in a situation where we should be using some of that, much of that war chest to really extend runway and and make sure that we can withstand any kind of disruption the market see.

• 20:40Harry Stebbings?

  In terms of rate hikes, everyone says like impending rate hikes and when rate hikes happen, we see a flight away from venture, fundraising becomes more difficult for managers. How do you think impending rate hikes impact our business?

• 20:53Speaker 02

  Yeah, look, it certainly is going to have an impact. And I would say a lot of the impact that we're already seeing is because of people assuming there will be rate hikes. I mean, if you're building a business that says, hey, I'm going to spend a ton of money and seven years from now, I'm going to make a bunch of money. The interest rate matters a lot. Inflation matters a lot. And so when interest rates were basically zero, when inflation was basically zero, a dollar that you create in 2029 is just as good as a dollar that you create today. Obviously, if interest rates and inflation go up, that's no longer the case. So I think a lot of the disruption we're seeing in the market has to do with that very fact that you're talking about.

• 21:25Harry Stebbings?

  You mentioned M and A there. Do you worry about the regulator? I worry more and more that the regulatory environment is just so confined and restricted now that actually combined with the restriction in access to public markets and the reduction in M and A because of regulatory challenges exit options are becoming narrower and narrower.

• 21:45Speaker 02

  You know, I probably would see it the opposite way, to be honest. There are some instances where the regulatory restrictions really do constrain someone. I think there are other examples we've seen where regulatory changes have opened up possibilities. I think one of the biggest trends that we've seen over the last year or so, and and look, maybe it'll slow down a little bit if the market slows down, but is successful fintechs buying other fintechs. And I'm not sure that that's an exit strategy that at least I had spent a lot of time contemplating five years ago. We've seen a number of our companies in our portfolio actively buying three, four, or five companies a year over the last couple of years. And I think that's by and large been successful. Not that every M and A is successful, but the ability to expand geographies, expand your product mix, consolidate competition.

• 22:27Speaker 02

  I think there's a really healthy role that M and A can play within the fintech market. We've also seen banks start to be more active. And interestingly enough, a challenging funding environment might make that more plausible, right? I mean, fintech valuations were so sky high that banks really couldn't afford to buy anyone. The banks so far have held up generally much better than the fintechs in the public markets. And so valuation environment might become more conducive to some more sort of fintech to bank type M and A. We've started to see some of it. I think there's probably more that'll come.

• 22:55Harry Stebbings?

  Can I ask, Bill, you seem very level. What worries you today investing?

• 23:00Speaker 02

  Yeah, I mean, look, we've talked a lot about the valuation environment. Maybe a little leaning into the trend relative to your question. That still is one of the things that worries me greatly. By far, number one is this notion of the funding environment and where is that going in the future? So I guess what gets me comfortable with those is just, I do believe that fintech is a mega trend. I do believe that we are still only very early innings in that trend, and this has decades longer to go. I think the idea of building businesses that can withstand boom cycles, bust cycles, can succeed across multiple environments is important. And so there's a piece of this which actually has me excited that if the market's more challenging, businesses will get better for it, they'll learn. How to deal with it and they'll be even stronger coming out of it.

• 23:40Harry Stebbings?

  Bill, what was your biggest miss and how did it impact your investing style today?

• 23:45Speaker 02

  Yeah, look, I think as we look throughout Q E D and this certainly applies to myself, our biggest misses have been on this question of valuation. Love the team, love the business, love the opportunity, have a great relationship, feel like this is going to work. And then we just sort of balk at the price. A number of these, we never were able to get a second bite at the apple. We see the company succeed. Good for them, a little bit depressing for us. But just to talk about two tangible examples that actually had happier endings. We turned down both New Bank and Loft at their seed stage, right? So in both cases, we knew the CEO long before they had the idea for the company. We were involved in the creation for the idea for the company. I mean, Nigel had been advising David for years. I had known Mate for a long time. We had spent time with Mate and Florian on PropTech and what the opportunities were.

• 24:30Speaker 02

  And in both cases, they had what at the time looked like offer sheets with really high valuations. We looked at and said, oh, for a PowerPoint, you know, I don't know about that. Thankfully, we maintained those relationships and we had the chance to come back later and invest. Much less ownership than we'd like, maybe less investment than we'd like. Thankfully, kudos to them for letting us back in later. But it's just a good example of this is hard and I think that's part of our learning on sometimes if you have that much belief, maybe you should be willing to pay a little bit more. But I think most of our big misses have been some version of that story.

• 25:00Harry Stebbings?

  What do you do when you think the founder's world class, but you hate the idea?

• 25:04Speaker 02

  I would say historically, we have either tried to convince them to do something else. And in some cases, we've actually succeeded and in some cases kind of walked away. I would say the inverse of that has been a place where we have learned a lot. And one of the terms we use is operators masquerading as investors. A lot of us have experience either at Capital One or at startups or other places operating businesses. And I do think at times we've fallen in love with an idea. We may not have been totally sold on all of the team, but sort of said, look, we have skills that can complement the team and we can really help. And I think while that's true, I think at the end of the day, there's no substitute for just a truly world-class team. And if we can help them be even better, well, that's wonderful. The idea of using skills that we might have to help fill in some gaps is a little bit scary.

• 25:47Harry Stebbings?

  Playing wholesome, my friend. I don't like that. That sounds too hands on. I do want to ask, Q E D has seen this fantastic expansion over the years. And so I want to jump into that. And especially, you know, we've seen it jump across stage and geo, as you call it, jumping geos. You did a lot of international expansion at Capital One, leading many of their efforts on international expansion. How has international expansion changed since the days of Capital One?

• 26:11Speaker 02

  Yeah, I think it's dramatically different now. I think when Capital One was going to new geos, it was incredibly difficult. And I think you really had to start over in every single country that you went in. So we may have learned some things in the U S that helped us be successful in Canada, U K, France, South Africa, you name it. But at some level, the customers are different, the regulations are different, the data is different, the banks are different, the competitive environment is different. I think you've got many businesses in tech, Facebook and Google being two of them, that are called default global. Yeah, maybe they have to be adjusted in different markets, maybe you have to translate them, but at the end of the day, they sort of work globally. I think most fintech businesses are default local and that unless you sort of go through heroic efforts, they're probably not going to work in the next country unless you really adapt.

• 26:55Speaker 02

  I do think that has changed quite a bit. I think the advent of the banking as a service, insurance as a service, X as a service market has made it much easier for companies to figure out what works in one country and take it to a new geography. We're seeing people jump borders at a rate way beyond anything, even that we saw five years ago. I think consumer tastes, I don't want to say they're harmonizing, I mean, they're definitely different in Brazil and Mexico and the U S and U K and Nigeria. But I also think just people are becoming mobile, people are into tech, people are all watching TikTok, they're all looking at Instagram and all watching YouTube videos. I do think there's some harmonization of, hey, if I have a consumer app that's working really great in one country, with some small modifications, maybe it'll work well in the next country. So I don't think it's easy, but I think it's definitely getting easier every day.

• 27:40Harry Stebbings?

  You've led the expansion into Las Am in particular. What are some of the biggest challenges of scaling into new geos today with Q E D?

• 27:48Speaker 02

  The venture business, I think, has changed a lot over the last couple of years with the advent of technologies like Zoom. So when we entered Latin America, flying to Brazil six times a year, Mexico six times. Times a year, we had other people on the team regularly in the markets. And I think we probably shied away from very rapid geo-expansion because at some level, there's only so many times you can get on an airplane. Thinking about different time zones, whether it's in Asia or Africa or whatever, is really kind of intimidating and challenging. And I think the advent of Zoom helps that. And I think that's enabled us to be more aggressive. I think one of the things where we've also, though, really added to our playbook is realizing that, look, Q E D has a lot of skills that we think can apply in new geos, but there's a lot that we don't know. When we entered Latin America, I think we're very aggressive at partnering with local firms.

• 28:31Speaker 02

  I mean, I've lost count of how many co-investments we have with Kazakh. I think as we go into some of these new geos, we still like the idea of partnering with local firms, but we've also been much more aggressive at hiring people that already know these geos.

• 28:42Harry Stebbings?

  Does that work in, sorry, I love Nico, intensity at Kazakh, what a fucking hero. Does that actually work? And what I mean by that is they have their ownership targets. You have your ownership targets. We have founders who want less dilution than ever. Help me out, Bill. How do I make that work? Because I want to partner with them too.

• 28:58Speaker 02

  Look, I think partnering has gotten much harder. I think the phenomenon you mentioned, successful firms are growing a lot. We need to deploy more capital. We want to have higher ownership. So I think the partnering has gotten more challenging. Venture firms used to share rounds. I think it's much more common for one of them to lead than the next one to do the next round. I think we've all kind of moved in the direction of being multi-stage, both going earlier and going later. And I think that's become one of the ways in which we kind of play together. I think one of the things Q E D, though, has realized is something does get lost if you can't partner on individual deals. And so we've come up with a handful of programs really targeted at kind of the pre-seed and seed stage where we're intended to be smaller investment size. Maybe we don't join the board. We're trying to join coalition rounds, trying to be a good partner,

• 29:42Speaker 02

  but maybe a little bit less dominant. So we can maintain great relationships with seed funds, see a much broader array of founders and then be ready for the ones that are breaking out, having an inside ticket to try and build the partnership over time.

• 29:55Harry Stebbings?

  I remember Doug Leoni said on the show, when you lose pre-seed, you become private equity. Do you agree with him? And how do you think about expanding without losing an inch on the early-stage side?

• 30:05Speaker 02

  Yeah, I mean, look, our roots are very much. On the early stage, I'm not sure that we were ever quite as early as Sequoia perhaps. What really resonates to me is that you've got to know what your core is and stay true to your core. Maybe at Sequoia, the core is pre-seed. Look, I think at Q E D, we very much have this ethos of operators masquerading as investors. We talked about our relentless focus on unit economics. I think those are some of the things we need to stay true to. I think we've tried to create programs to move earlier. We've tried to create programs to move later. We've jumped G O's. We have a really interesting joint venture going on in the debt space. So I think we felt comfortable expanding because I think in all of those expansions, we believe we can stay true to the core of who Q E D is and behave in that way across these different types of products.

• 30:47Harry Stebbings?

  How do you make decisions at Q E D? Is it consensus? How do you think about effective decision making on the investing side?

• 30:53Speaker 02

  Yeah, I mean, look, I very much believe in a notion that venture should be a team sport. I think so often in venture, it's viewed as a very much individual sport. Joe Smith is some genius that goes and invests in company X, Y, and Z, and they build this track record. Or some firms may have a number of talented partners that honestly exist as a loose confederation of individual people doing their thing. And look, that can work. That's been really successful for lots of people. I very much believe, though, that if you can make venture a team sport, you're going to be better for it. You know, both Frank and I, we couldn't be more opposite in terms of what our skill sets are. But when we're both able to look at a problem, we're probably much more likely to come up with a better answer than either of us independently. I think the thing we struggle with is honestly wanting so much input into what we do that we also need to realize speed matters.

• 31:38Speaker 02

  And sometimes speed is easier when it's just an individual person. But something I really try to work hard on is this notion of venture as a team sport. It's not always easy and the market doesn't really work that way usually. But I think it's a big advantage when you can pull it off.

• 31:51Harry Stebbings?

  How could Q E D be better?

• 31:53Speaker 02

  Because of this consensus orientation and this desire to get so much input, I think at times we haven't been as fast as we've needed to be. I think we've made a lot of progress over the years. I actually think a slightly less hot market may give a lot more time. I mean, we like to be thorough. We really like to understand the businesses we invest in. Most importantly, we really value the relationships we have with founding teams. And when a company comes to market and you only get three days to get to know them, Of building relationships is really challenging, but that's probably an aspect that we wrestle with a lot. Speed has become a weapon in the market. Back to the discussion of positive selection. If you're not moving quickly, you're going to get adversely selected. How do you trade off speed versus being thorough versus building relationships and how all those things intersect?

• 32:35Harry Stebbings?

  I do want to move into my favorite, which is a quick fire round, Bill. So I say a short statement and then you give me your immediate thoughts. Does that sound okay?

• 32:42Speaker 02

  I'm a little scared, but I'm ready.

• 32:43Harry Stebbings?

  You should be terrified. Tell me, what's your favorite book and why?

• 32:47Speaker 02

  So I'm gonna say Hunt for Red October by Tom Clancy. When I was a kid, I used to read all the time. Probably like many teenagers, by the time I got to high school, books were just not the thing that was gonna captivate my attention. And I remember taking a road trip my last year in college and realizing I'm gonna be bored out of my mind if I don't figure out something to do. Cell phones didn't exist, internet didn't exist. And so I'm like, alright, maybe I'll read a book. And I remember just loving the movie, decided to try the book, absolutely loved it. It kind of rekindled kind of a joy of reading.

• 33:16Harry Stebbings?

  Tell me, Bill, what's your biggest strength and what's your biggest weakness?

• 33:19Speaker 02

  Yeah, I mean, I think my biggest strength is really the ability to leverage the eighty twenty rule. How can you really figure out where the leverage is in a situation, what's gonna be important, what's gonna make a difference? And really focus as much energy as possible on that. And I think that's something that I've done pretty well for a while.

• 33:34Harry Stebbings?

  Do you ever get that wrong? And how long is enough time to determine whether you were right or wrong on the eighty twenty?

• 33:40Speaker 02

  Back to my biggest weakness, it's getting that wrong. I think that oftentimes people's biggest weakness are kind of a mirror reflection of their biggest strength. And so when I've made mistakes in the past, it often comes in the territory of, hey, I missed something. I should have gone really deep. I should have delivered to a hundred percent. And because I didn't, I missed something. And so I think ways of dealing with that are partly experience, trying to understand, okay, where might that tool sort of be wrong? Where have I made mistakes in the past? Where might I need to change? I think the other difference is how do you surround yourself with people that have strengths in opposite areas? And I think we've got certainly some at Q E D that are just wonderful at going super deep, ripping apart industries, understanding everything there is to know.

• 34:20Speaker 02

  And sometimes I can add differential value by kind of really trying to focus us back on what are the key true important points? And I think that's a really healthy dialogue.

• 34:29Harry Stebbings?

  Well, I mean, Nigel said if it has a shortcut, Bill will find it. I'm the same as you, by the way. I do want to ask three traits that you would most want your children to adopt.

• 34:38Speaker 02

  Well, the truth is, my kids are twenty and eighteen, so they pretty much listen to nothing that I have to say in truth. But if I were to get them to listen, I mean, I think a couple that have stuck with me over the years. Find something you love and figure out how to be great at it is probably way more important in the long run than what do I think is going to make the most money now? What do people want me to do? What do I feel like I should do? I think that's just really important in life. And then I think a similar kind of thing is how do you just kind of do the best job of being yourself you can? I've certainly seen over the years, people struggle trying to be somebody they're not, trying to do what they think they're supposed to do. I think if people can just be who they are, they're probably likely to be way happier and way more successful.

• 35:16Harry Stebbings?

  What do you know now that you wish you'd known seven years ago when you started in venture and at Q E D?

• 35:21Speaker 02

  So I've found over the years that conventional wisdom is an interesting thing. I mean, on one hand, challenging conventional wisdom is at the root of innovation. But I also have found that conventional wisdom is there for a reason. You've probably had every single venture capitalist on your show tell you the most important thing is people and the most important thing is founding team. So I kind of knew that coming in. It was, okay, that's obvious. Yeah, everyone knows that, whatever. I way underestimated that point and it is impossible to underestimate. The most important thing by far is how talented and how creative, how much able to hire the founding teams are. And it's one of those where I kind of knew it in my brain, but I didn't really feel it in my bones. And I think seven years has definitely reinforced that conventional wisdom, which again, I think is there for a reason.

• 36:04Harry Stebbings?

  I think one thing that always frustrates me is people's comfort from hearing, no one knows what they're doing, so don't worry. Fucking bullshit. People do know what they're doing. You know how to build great credit lines. There's many different examples of brilliant people with exceptional knowledge. I find it so lazy of like, oh, don't worry, no one knows.

• 36:24Speaker 02

  I do think there is a tendency for people to be generic in talking about you're either a great person or you're not. I think so much of it is situational. Some people are great at some things, some people are great at other things. How do you really work with people to have folks focus on what they're truly great at?

• 36:38Harry Stebbings?

  What first founder meeting sticks with you more than any other? So mine would be like Johnny and Hopin. I remember this guy told me, I will build the fastest growing business in the world in twelve months. I was like, fuck.

• 36:50Speaker 02

  That's a great question. So I don't know if it was the whole meeting that really sticks out more than another, but it was one quote, okay? And it was Gabriel from Quinto and Dar. One of the things that I have noticed very big difference between Latin America and the US is just the approach with which people tried to build gigantic platform style businesses in Latin America. And so I was talking about his business and it's very broad, it's very complex, it's very all encompassing. And I'm sort of like, well, why are you doing this? Why are you trying to tackle an entire twenty five step value chain? Why don't you just pick off one or two and do a great job at it? And he's like, it's so terrible renting an apartment in Brazil. If I fix part of the process, the process still sucks. So what's the point of fixing part of the process if the whole process sucks?

• 37:32Speaker 02

  And I think that's really stuck with me and we've seen so many businesses, particularly in emerging markets, that if they don't challenge very huge problems, you're just not going to get anywhere. And so I don't know if it was the overall meeting, but that particular quote has always stuck with me.

• 37:45Harry Stebbings?

  Does that mean they need to raise more money sooner to tackle more of the value chain?

• 37:49Speaker 02

  Sometimes. I think emerging markets, though, also have a tendency to be, you know, much more profitable from a unit economic standpoint. Brazil's an extreme on that where it tends to have the most profitable banking industry in the entire world. So while you do need more capital because of the breadth, at times you need less capital because the unit profitability can be much higher.

• 38:08Harry Stebbings?

  Final one for you, my friend. What's the most recent publicly announced investment? And why did you say yes and get so excited?

• 38:14Speaker 02

  Yeah, I mean, back to this notion of venture as a team sport. I mean, I do spend most of my time kind of working with other team members on deals as opposed to necessarily doing them myself. So the last one I actually led personally was almost eighteen months ago at this point, but it was refined in India, which is an earn wage access player. It's a trend that we're big believers in and we've made a few different investments around the world. We had already decided to enter India and we were active in searching for a partner to lead that, which eventually led us to Sandeep, who's been great. But we had the chance to meet Chitresh and Apurv and really believe that they were going to be a fantastic team to really take this product category to India where we thought it would be hugely successful and couldn't be happier. I mean, they've made great progress. They've done a couple more funding rounds and really off to the races.

• 38:57Harry Stebbings?

  Bill, this has been so much fun. As we said, it's always the best when you can say fuck the schedule and just have a great chat. So I can't thank you enough. It's been such a joy to do, my friend.

• 39:05Speaker 02

  That's good. I will take payment in mojitos. I look forward to it.

• 39:09Harry Stebbings?

  I really did so enjoy that one with Bill. If you'd like to see more from us behind the scenes, of course you can on 20vc.com. We'd love to see you there. But before we leave you today, modern investment analysis is increasingly shifting to using external or alternative data. This data is becoming irreplaceable for investors wishing to automate deal sourcing, enhance decisions and quantify company traction. Core Signal is a leading alternative data provider, offering continuously refreshed data sets collected from public business-related web platforms. From profiles of business professionals to company records, job postings and company reviews, Core Signal's data offers unprecedented insights into millions of companies worldwide. Some of the largest global VC funds are already leveraging

• 39:51Harry Stebbings?

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• 40:34Harry Stebbings?

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• 41:18Harry Stebbings?

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• 41:41Speaker 01

  But that is enough from me. So appreciate your support as always and can't wait to bring you an incredible set of episodes next week.