20VC: Sarah Kunst on Why There Is Plenty Of Investor Money Still Available, The Megan Markle Effect and How It Impacts Hiring and Talent & Whether GP Commits Prevent Diversity and Inclusion

Sarah Kunst is the Founder and Managing Director @ Cleo Capital with a portfolio including the likes of StyleSeat, Glow Bar and PlateJoy to name a few. Prior to venture, Sarah served as a senior advisor at Bumble where she focused on their corporate VC arm, Bumble Fund, and on the board of the Michigan State University Foundation endowment. If that was not enough, Sarah is also a contributing editor @ Vanity Fair. Due to her success, Sarah has been named a Future Innovator by Vanity Fair and a top woman in VC by Wall St Journal. In Today’s Episode You Will Learn: 1.) How Sarah made her way into the world of venture from Bumble and how that led to her founding Cleo Capital? 2.) Does Sarah believe VCs really are still "open for business"? What does Sarah make of all the dry powder sitting on the sidelines? How does Sarah think reserve allocation strategies will change today? Why does Sarah believe another great vintage of funds is to come, as it did in 08'? 3.) What would Sarah most like to change about the world of venture? Does Sarah agree that GP commit expectations prevent diversity in venture? How was the fundraising process for Sarah? How can VCs prove skin in the game without having personal capital? 4.) What is the #1 piece of advice Sarah is giving her founders in these COVID times? How does Sarah advise her founders on approaching the talent market today? How does Sarah advise her founders on burn and capital allocation given COVID? Items Mentioned In Today’s Show: Sarah’s Fave Book: Attached: Are you Anxious, Avoidant or Secure? How the science of adult attachment can help you find – and keep Sarah’s Most Recent Investment: Planet Forward As always you can follow Harry, The Twenty Minute VC and Sarah and on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

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

• 0:00Harry Stebbings?

  Welcome back to the 20 Minute VC with me, Harry Stebbings. And I always love feedback for the show on questions, on guests that you'd like to hear from. You can do that on Instagram at H Stabbings 1996 with two Bs. But to the episode today, and I'm thrilled to welcome Sarah Kuntz to the hot seat today. This really was such a fun one to do. And Sarah is the founder and managing director at Clio Capital, with a portfolio including the likes of Style Seat, Globar and Plate Joy, to name a few. Prior to venture, Sarah served as a senior advisor at Bumble, where she focused on their corporate VC arm, Bumble Fund, and on the board of Michigan State University Foundation Endowment. If that wasn't enough, Sarah is also a contributing editor at Marie Claire magazine. And due to her success, Sarah's been named a Future Innovator by Vanity Fair and a Top Woman in VC by Wall Street Journal. But before we move into the show today, I'm sure you've heard about it,

• 0:44Harry Stebbings?

  but my word, I just love this product, Carter. Carter simplifies how startups and investors manage equity, track cap tables and get valuations. Go to Carter.com/20vc to get 10% off. More than 800,000 employees and shareholders use Carter to manage hundreds of billions of dollars in equity. And Carter now offers fund administration, so you can see real time data in the Carter platform and work with Carter's team of experienced fund accountants. Simply go to Carter.com/20vc to get 10% off. And speaking of teams there, did you know there will be 1.4 million job openings for developers in 2020? And that's when my friends at Terminal come in. Terminal is a remote teams engine for fast growing companies,

• 1:25Harry Stebbings?

  connecting you with global talent to deliver the product building powerhouse your business needs to grow. They provide services and infrastructure in a complete solution that allows businesses to build and scale their remote engineering teams from the ground up without sacrificing experience or quality. From workspaces to community to on the ground support, they take the guesswork out of remote so that you can thrive. But don't take my word for it, just ask high growth businesses like Gusto, Chime, Earnin and Hims, all trusting Terminal with their remote teams. And you can find out more today at www terminal.io, that's terminal.io. But enough from me, so now I'm thrilled to hand over to Sarah Kuntz to Managing Director at Cleo Capital.

• 2:09Speaker 01

  You have now arrived at your destination.

• 2:12Harry Stebbings?

  Sarah, it is such a pleasure to have you on the show today. As I said, I've heard so many great things from Katie Stanton, from Beeser Clarkson, from the team at Carter. So thank you so much for joining me today, Sarah.

• 2:21Speaker 02

  Of course. Thank you for having me.

• 2:23Harry Stebbings?

  Not at all, but I want to dive in today with a little bit on you. So tell me, how did you make your way into what I call the wonderful world of venture and come to Found Clio?

• 2:31Speaker 02

  Yeah, so I'm from Michigan. I went to Michigan State in college and I ended up working for Apple as a campus rep. And that was sort of my first glimpse into Silicon Valley and my first opportunity to start to meet people who would go on to work in the tech world at places like Facebook. And so after college, took a totally different direction, moved to New York, was working in marketing at Chanel. It was 2008. So much like now, I was sitting at my desk one day and said, you know, who's Bernie Madoff? And then the entire world fell apart. And so within a year, a little after a little bit over a year there, I ended up in technology because no big company was hiring, but startups were. And so I worked for the Winklevoss twins, actually, at an early media startup that Cameron Winklevoss was a founder of. And so got to know a lot of people in the

• 3:16Speaker 02

  New York tech world, got to hear about crypto incredibly early, which I bought a little bit, not enough. I held it for a little while, not nearly long enough, but it was a super interesting kind of introduction into that world. And then I ended up working for a Y Combinator-backed startup in Silicon Valley. And when that we sunsetted, and when that happened, I was talking to investors, saying, what do we do? And a very nice investor told me, look, the company's definitely run out of money. It's definitely going to shut down. But you seem smart. Do you want a job in venture? And I said, yes, I mean, I want a job, period. So I ended up at Moore David Al Ventures and was there. And it was a super interesting experience. They were a massive Sand Hill Road fund, 1.7 billion under management.

• 3:57Speaker 02

  But like a lot of the firms in the 2007, 2008 vintage, they'd had a really hard time coming through the financial crisis. And so they ended up drastically kind of reformulating, relaunched as Wildcat. And there was quite the team shakeup when that happened. So I ended up leaving and starting a startup. And so started Pro Day, which was a fitness and sports company and ran. And that for almost three years, the L A Dodgers were investors. Really amazing, interesting experience, but ultimately that ran out of money. And as I was winding it down, I was also a scout for Sequoia. I was a limited partner at Michigan State University where I went to undergrad. And so I was just seeing all these different, interesting opportunities. And I was sort of thinking I would go back into a bigger venture fund. But then I really got a lot of conviction around this idea

• 4:42Speaker 02

  that I was seeing all these scout investors across a bunch of different funds. And the vast, vast, vast majority were men. And so decided to launch Cleo Capital to do two things. One, to do my direct investing. And then two, to put a bunch of amazing female founders into businesses scout investors.

• 4:59Harry Stebbings?

  I mean, Michael, what an incredible array of perspectives and the background that you have there. As you said, kind of starting in Chanel, joining a startup, founding your own startup, being at Michigan. I mean, my work, it really is a unique and diverse background. So even more interested to dive in and really kind of start stay on the investing landscape today. Cause many founders quite rightly are extremely fearful of kind of the complete VC retrenchment, so to speak. And, you know, a lot of VCs on Twitter are actively open for business. So I'd love to start with, why do you believe that there's still maybe plenty of money available from investors? And is open for business really true?

• 5:31Speaker 02

  The thing to keep in mind, right? There's a book that I love, although it's not exactly the most exciting reading, but it's incredibly, incredibly informative called Venture Deals. And if you haven't read that book and you want to kind of understand what's going on in a venture capitalist's mind, it's a great book to read because it really just talks about the economics. So the thing to keep in mind is that venture capital funds are sort of a complete black box of capital to our investors. We have to work probably harder than any other asset class to raise our money. But once we raise it, our investors can't come to us like they could do a hedge fund or to the public markets and say, hey, I'm down 30% in my other stuff. I gotta take money out, right? They give us the money and we have the money. We do capital calls.

• 6:13Speaker 02

  It's incredibly, incredibly rare, even during the 2008 financial crisis, that investors refuse to allocate to their venture funds unless they have actually gone bankrupt themselves. Right? So your investors, your VCs, every VC, and it's very different. For angel investors, they're investing off their own balance sheet. But for VCs, they're one of the only places right now that isn't going to see a huge reduction in their amount of money. They will struggle likely, we will all struggle likely in the coming year to raise more money. But the money they have now, and the way to think about it is investors usually invest for at least three years after they close a fund. So a 2018 vintage year fund is investing through 2021. And a 2019 fund, of which there were many very large ones, right, is going to invest through 2022,

• 6:57Speaker 02

  which, you know, pandemics last a year, right? And pandemics are something, everybody thinks that Bill Gates is a psychic. No, Bill Gates just does a really good job of reading because he has lots and lots and lots of free time, because that is what money buys you. So there's a pandemic roughly every hundred years. It lasts for about a year to a year and a half as it spreads through countries, the globe, and eventually everybody gets herd immunity, right? And so there is an end to this, and there's a relatively finite end to this, and this being, you know, sort of sheltering in place and social distancing and all of that. And when that is over, these 2018, 2019, and 2020 funds, places like General Catalyst are still raising multi-billion dollar funds that they're announcing now,

• 7:38Speaker 02

  they're still going to be investing out for the next one, two, three years, depending on when they started. And so obviously, their biggest shift now is, one, everybody, I think emotionally, is a little bit shell shocked, and it's a little bit bizarre to go on like business as usual, right? So there's certainly the emotional component, but financially, VCs are still getting paid. No VC has lost their paycheck over this, right? And they still have money in the bank to invest. They will likely be more cognizant of wanting to put more money into their own winners. But certainly, no 2020 fund has enough winners to say, we're only going to put money into those that we've already deployed to. They have a lot of dry powder left. And so VCs still have money. The question is, how do you get them to unlock it for you?

• 8:20Harry Stebbings?

  Speaking of unlocking it, and you mentioned that kind of the 2008 era slightly when you touched on that. And when you look at that era of fund managers, it's quite rightly, as you've said to me before, it's kind of the best generation in terms of vintages. So I guess my question to you is, do you think that will be the case with the current downturn, as is compared to the returns and macro of 2008 and 2009? Terms of the best performing ventures being invested in the downturn potentially being the coming years.

• 8:43Speaker 02

  So, look, if I had a crystal ball, I would buy Lotto tickets and I would, I would not be a VC. I would just be an angel investor, right? So the short answer is, who knows? The longer answer, right? If you want to extrapolate from history is that it is incredibly hard to make a lot of money when things are expensive. Right? So if you buy a house, I live in California and California is a living example of this. Right? If you go and buy a house in a fancy neighborhood like Pacific Heights now in San Francisco, you're going to be paying multimillion dollars. Right? If you bought that same house in the eighties, even adjusted for inflation, you probably paid 25% of the price. Right? And so when you sell it, so two houses right next to each other could be on sale at the same time in five years.

• 9:28Speaker 02

  One person inherently is going to make a lot more money than the other one, even if the sale prices are similar. And it's similar when it comes to investing. So if you invested in a Y Combinator company post demo day, three demo days ago. So it would have been about a year and a half ago. And you were paying 15 million valuation on a company that just launched and only had a tiny bit of revenue. And now six months from now, you can invest in a similar company, maybe at an $8 million cap or valuation. Fast forward five, 10 years, when they exit, who's going to make more money? Two companies that could have very similar trajectories, have very similar exits. If you got into one and it was cheaper and then it goes on through the economic cycles to do just as well as the other one,

• 10:12Speaker 02

  that's real money in your pocket. And so some of it is just sort of money ball. It's the simplest thing in investing, right? Buy low, sell high. And because of market forces for the past couple of years, it's been buy high and hope you can sell higher. And I think that's going to change at least a little bit right now.

• 10:29Harry Stebbings?

  I absolutely agree with you in terms of pricing changes. Can I ask, because I completely share your perspective in terms of price discipline. But it is quite rare at the early stage. I often hear managers say on the show, Harry, if it's a $5 billion company, eight or 15 pre, it really doesn't matter. And it doesn't matter, you will still make a lot of money, but you will make disproportionately different amounts of money. How price discipline would you say that you are investing?

• 10:51Speaker 02

  I invest in pre-seed, right? So I invest in like friends and family. When you're in an accelerator, I'm happy to be the first check-in. If you have a bunch of other funds, I might still invest, but it's less likely that that would be a fit for me. So I go incredibly early and the pricing questions are a lot different really early because I have one goal for you. It's the same goal you have for you, which is for you to build a wildly successful business. But there's two different things that I have my eye on for founders, which is one, I don't want them to be priced so high that other investors aren't going to want to invest. And I don't want them to be priced so low that they sell so much of the company that they're not going to be excited to keep building it two years from now. And so what that tends to look like, when you think about it, assume a

• 11:33Speaker 02

  company has, we'll call it two founders. So day one of the company, they have a 50/50 split of that equity. If they raise a half a million dollars at a 2 million valuation, they've given away 25% of the company before they've done any. And then six months, 10 months, a year later, they're going to have to raise another 500,000 or a million at like a five or seven valuation. And great, now another relatively large chunk of the company's gone. So by the time they're post-Series A, they're going to be pretty diluted, right? And that's if they only have two co-founders. So you keep doing that math, assuming they have three or four. And all of a sudden, three years in, when they're in that sort of brow of sorrow that every startup goes through, when you're like, I don't know how I got here. I don't know how I'm going to get out. I hate everything. I wish a meteor would hit me so I don't have to keep running the stupid

• 12:17Speaker 02

  company, right? Everybody has that. And then you look on paper and you go, wait, we could sell for a billion dollars and sure, I'm going to be rich. But like, if you don't own a lot of your company, right? If you get diluted down and down and down, right? Because if you're a Series A and you assume you're still going to have to raise B through D before you can exit, and you're just going to just keep diluting yourself, diluting yourself, diluting yourself, that compounding, right? It's like when you're little and your parents are trying to explain compounding interest to you, to like convince you to keep your money in the bank. It's the same thing, but in reverse. So that lack of equity upfront is not going to bother you on day one because you're just excited you got a check. It's likely to be a reason when you're thinking about, do I want to raise a Series B and keep slogging for another six years, three years in?

• 13:01Speaker 02

  I want to take this quick aqua hire and like we were talking about earlier, right? You you sell to Google and you have free salad for life and they probably, you know, pay for your Peloton, right? So those questions are what I want to incentivize founders for. And so to me, anything much lower than five million in the US for even a very early round, it's a little bit hard for me to understand and get excited about unless it's an accelerator, which is a very different way of giving away equity. Because I worry that you're not going to have enough equity and runway long term to be incentivized to run your company. And then anything much above 10, I start to get concerned, right? If you tell me, hey, Sarah, I'm raising at a 12 million valuation and benchmark is in

• 13:42Speaker 02

  and my best friend is part of the Facebook family or Google family or whatever, and they're putting money in as well. Okay, great. I may or may not invest. It might feel a little bit rich for my taste, but I believe that you have a path. If you sort of come out of nowhere and you haven't raised any money yet, I think a slightly high valuation is something that someone else should give you, not something you should decide for yourself, if that makes sense. Because if somebody else sets the price, then you know they're willing to pay it and likely others are as well. If you set the price, you have no idea if that price is going to be attractive to a buyer, right, to an investor. And you might find out too late that everybody loves your deal, but they feel like it's too expensive, so they all pass. And once investors pass, they tend not to come back around and do it.

• 14:25Harry Stebbings?

  Totally agree with you. I always find the biggest challenge is founders set the price way, way, way too high, burn a bunch of relationships and then it's very difficult to come back from that with a readjusted valuation. So it totally aligns there. You mentioned the trough of sorry there and kind of correlating that to the pandemic that we're in today. Freiberg said, you know, you build wealth with great companies and you build reputation with failed companies. We've chatted before about kind of really determining the strength and character of someone in these challenging times. So I guess, how do you think about people assessment and character assessment in a crisis like this?

• 14:55Speaker 02

  Yeah, I mean, much has been made, right, of Sequoia's infamous memos. And it's always fun to call the bottom because eventually you'll be right and you'll be re-remembered for that. Fun's not maybe the right word, but it's always nice to be known as the person who called the bottom. And I certainly think that's true, that when And you're sort of in high cotton. It's easy to say life is perfect. And then, as Warren Buffett says, the tide goes out and you see who's swimming naked. But I do think that for a lot of founders, showing their resilience, their integrity, their grit, that's been something that's always happened. And so the narrative of like, oh, it's been so easy for everyone to raise for years now, and now it's going to get hard. No, I mean, it's been easy for certain segments to raise, right?

• 15:38Speaker 02

  But when women are still getting like 10% of all invested capital or some, and they think it's a lower number than that, it's hard to have an argument that like, oh, women, it's been so easy. Now you're going to have to buckle down and see what it's like on the other side. So to me, and I don't just invest in women, I invest in everyone. But for me, I think a lot of the founders that I respect the most, that I'm the closest with, that I support the most, they've been showing that because they've been living through incredibly challenging times. And now, when the going gets tough, the tough get going, right? And these are people who've been going. And I think Bill Gurley was subtweeting about now we're going to see who's a tourist in Silicon Valley. And I think he aimed it at VCs, although God knows I'm the last person on earth qualified to interpret Bill Gurley's tweets.

• 16:23Speaker 02

  But the interesting thing is I had that same thought about founders, right? I think a lot of founders, you know, I think we're about the same age. I'm 33. I think when we were like coming out of college and stuff, there wasn't, and certainly in college, there wasn't as nearly as much of a sort of, of course, you have to go start a company. And then at some point in like maybe 2011 through 2014, starting a company sort of just became another box to check, I think, for a certain kind of person, right? You go to your fancy undergrad school, you get into your consulting or banking job for two years. You go do an internship at a big tech startup this summer before you start your MBA. You go to do your MBA. Your second year, you start hacking on an idea.

• 17:06Speaker 02

  You place or win in some MBA hackathon with your idea. You go raise a seed round, you get into whatever accelerator. And then like, that's just the thing you do, right? And if that company doesn't work, whatever, you just go join a venture fund or you go work. Work at a big tech company. And so entrepreneurship used to be perceived as a massive risk. And now I think for a certain segment of people, they see it as just another box you check. And if you happen to be really good at it, great. But it's just something you have to do the same way that you have to do your two-year rotation through Goldman or Bain. And I think that a lot of those people are going to be the ones who turn out to be tourists. And that's okay. Like, being a founder is a little bit of a masochistic career path. And so if you're not a masochist, this is a great time to go do a job

• 17:51Speaker 02

  that like feels a thousand times better on a day by day basis.

• 17:54Harry Stebbings?

  I love that in terms of the masochistic career path. And I do agree with you. If we focus in on the founders, you have some incredible founders in your portfolio. We've interviewed Melody from Star Seat, who's one of my favorites. Amazing. I do want to ask him because it's just such an uncertain time right now. And I'm sure you've spoken to many of your portfolio founders since the pandemic really kind of came into play. I guess my question is, what's the number one piece of advice that you found yourself most commonly giving to your portfolio CEOs today? In those conversations?

• 18:20Speaker 02

  So I think there's two different categories right now. There are categories where you're just sort of screwed. And that's terrible. And it doesn't mean you're going to go out of business, but you're just sort of screwed. And companies in that category, if you're selling high heels and party dresses right now, I don't know who wants to buy those, right? Because nobody is dressing up right now, right? If you're selling things that are inherently to be used outside of the home, right? If you sell travel neck pillows, no one's traveling, right? So those companies, I think the thing they have to do right now is just live to survive another day. They almost have to hibernate. Because for a lot of them, if there's not an obvious pivot, then they're just going to have to wait it out and have faith that if they can wait it out,

• 19:05Speaker 02

  the economy will recover and people will want to buy what they're selling again, maybe even in an accelerated pace to make up for lost time. But there's a whole other category of companies that they have something people want right now, right? I'm sure you saw the articles about the toilet paper companies and the bidet companies like a month ago. And there was a run on toilet paper that all these companies all of a sudden had crazy sales, right? One of the bidet companies was doing a $500,000 a day in sales for a while during that. Right? That's insane. And I'm not in any of those companies, but I'm in companies in like Yumi, right? Which is a baby food delivery company. The last thing like you and I can be like, eh, I guess all else fails. I'll live off of wine and Doritos, right? Babies, I've heard, I don't have any,

• 19:49Speaker 02

  don't want to live off wine and Doritos. So if you have a baby, you have to make sure your baby has food, right? You can't just assume you'll stop by the store and grab something. So companies like that, companies that are selling towels and sheets and obviously face mask and all of these companies that are selling things that we need right now, like look at Zoom, right? And that's obviously a public company, but there's private market analogs to Zoom and Slack and social media tools. And I call it socializing distance tools, things so you can hang out with people remotely and feel closer to them. Dating apps are seeing surges, gaming companies are seeing surges. So those companies, it's insane. Like this is a literally once in a hundred year situation. So it's very unlikely you will ever be building a startup during a global pandemic

• 20:33Speaker 02

  again. And so there's a bunch to learn on the fly. But that being said, if you are in a company that isn't in sort of default hibernation mode and there's nothing you can do about it, this is an amazing time to sort of run out there and run at the problem and make some real headway. And investors know, right? Like if Zoom's daily average users went from 10 million to 200 million, right? Which is a 20x increase. I don't expect you to be at 200 million daily active users if you are a seed stage startup. But if you are a startup in a similar space and your daily active users were flat during this period, candidly, I'm not going to blame the market. I'm probably going to think that you missed something when it comes to understanding growth.

• 21:12Harry Stebbings?

  Absolutely agree. And you are now my favorite person, having known the Doritos and the wine. Great minds must think alike. That's the era.

• 21:18Speaker 02

  Obviously, we've been having dinner parties together.

• 21:21Harry Stebbings?

  Yeah, virtual on Zoom. That's the 200 million right there. Can I ask you, you mentioned that kind of the ones that accelerate massively and those that maybe need to go into hibernation. How does your thinking around reserve allocation change in these times? Or does it stay the same?

• 21:34Speaker 02

  So we're a small fund. And so for me, reserve allocation isn't a huge part of the model. That being said, I've been spending a lot of time with family offices, particularly Overseas via Zoom, of course. And there is dry powder that's very interested in series B, series C SPVs, and even buying secondaries if they're a little bit later. And so if you are a fund manager and you're thinking, the people I normally go to for SPVs are executives, you know, at places like Uber and Lyft. And now they're in a world of hurt of their own and their stock price is down and they don't know if they're going to have a job long term. It doesn't mean that there's no money anywhere. And if you have a solid company that's call it post series B probably,

• 22:18Speaker 02

  and they're growing and they have some interesting numbers. I think that deals still get done. They might be a little bit slower and they might be a little bit less expensive. But I think that deals still get done. And I think if you think of it as looking at your money in the bank and saying, how long do we have? And then assuming that in two years for startups, that we will be relatively close to back to normal 24 months from now. If you have 12 months of runway in the bank, and that means that if you go out and raise another 12 months of runway, right, or even six months of runway and then stretch that 12 months to 18, you're going to be pretty solid. So all of a sudden, the idea of I don't want to raise at a flat valuation or a little bit down or whatever. You're not raising your blockbuster series D

• 23:03Speaker 02

  that makes you a unicorn and gets you on the front page of TechCrunch. You're taking just enough money to sort of survive to live another day. And so if you have to do a bridge and you go out and find family offices or find venture funds that are looking for a little bit of a value opportunity, you're going to be able to make it. It's a lot harder when you're really early because there's not the obvious traction. And I think that's when you have to get creative in terms of showing a lot of growth, showing a lot of sales, showing a lot of customer loyalty. And you really have to hustle for that still. But I mean, that's sort of the pre-seed game anyway, which is you're just consistently hustling. And if everybody's doing really well, then you consistently hustle because your good metrics aren't as good as somebody's great metrics.

• 23:47Speaker 02

  And when everybody's doing poorly, you have to hustle because it's just harder. And so I don't do a lot of reserve investing. But I do see from what I'm hearing in the market, the conversations I'm having, there's still money and there's a lot of money that been sitting on the sidelines for the last six, 12, 18 months, maybe still investing a little bit here or there, but their general feeling was the market's overheated and now they're seeing a right sizing of that and they're excited to deploy their capital.

• 24:15Harry Stebbings?

  I totally agree with you in terms of the right sizing and talking kind of readjustments. You know, it's been probably one of the most aggressive war for talents we've seen over the last few years with the influx of capital and the well-funded startups. In terms of like this changing in this environment, how do you expect the talent and hiring market to change in this crisis? And I guess, how do you advise founders that you work with when it comes to adding those A star players to their team?

• 24:36Speaker 02

  I mean, the way to think about it, and this is sort of the Megan Markle approach. So Megan Markle is wonderful, but before she started marrying a man that, from your accent, I think you probably are familiar with.

• 24:50Harry Stebbings?

  I'm the same name, I hasten to add.

• 24:52Speaker 02

  Exactly, exactly. She meant to date you, there was a mix up. But before that, right, like I love Suits and Suits was great and she's like gorgeous and smart and interesting and whatever, but like a relatively small name actress, right? Certainly not like a massive, massive blockbuster, you know, not Beyonce, not J Lo, not whatever, right? But there was a shot, right? So if on paper, if you'd said, guess who Prince Harry's gonna marry, you would have had to ask a lot of people to get somebody to say, I bet, a TV actress who's based in Toronto, right? That was not on anybody's obvious list, but she was able to get in front of him and was able to close it, right? And so the Megan Markle-ing right now in hiring is who's the person that not even you

• 25:34Speaker 02

  never thought you could get, but you would say, oh, I would love to work with XYZ, but obviously, how would I even get in front of them? They must have so many other options. I can't imagine, like, I just know that we would connect, you know, I've seen so many things about them. I think they seem amazing. I'm not saying Megan Markle said any of these things about Harry. So Megan Markle, please don't sue me. But it's one of those things where on paper, it makes sense, but you figure you're never gonna get a chance to do that because that's just not how the world works. Well, if there's one thing we've learned over the past month. Is that clearly none of us have any idea how the world works anymore. And so whatever sort of pie in the sky hire you've always dreamed about, shoot your shot, right?

• 26:14Speaker 02

  Slide into somebody's DMs on Twitter or on LinkedIn or Instagram and send them a really concise, hey, I'm Sarah, I'm the managing director of Cleo Capital. We're an early-stage venture capital fund and I'm just so impressed with you. I've followed your career for years. I love when you, you know, and mentioned some obscure interview they did five years ago, not their 20-minute VC that everyone hears, right? But something super random. Let them know that you really care and follow them. Let them know how they've shaped your thinking. And then say, look, if you have any free time, I would love to get to know you a bit better because I think that you are somebody that I would love to find a way to work with. And I think especially right now, there's a lot of people who are just like, great, I'll do a 20-minute call. Why not?

• 26:59Speaker 02

  Great, I hate my job. Great, I just got laid off. Great, I've secretly hated my business partner for 10 years and I think this is a good sign from the universe that it's time to call it. Right? Like, shoot your shot, why not?

• 27:09Harry Stebbings?

  I absolutely love that in terms of taking that opportunity. And we do have a very large audience. I'm sad to say, I don't think Megan Markle is part of it, so I think you're safe on that one, but I love that in terms of the Megan Markle effect. I would love to move into my favorite though, Sarah, which is a quick fire round. So I say a short statement and you give me your immediate thoughts. Are you ready to dive in?

• 27:27Speaker 02

  Sure.

• 27:28Harry Stebbings?

  So I promised that I would read more books this year. Even in the pandemic, it's going terribly, so clearly not a great sign. But what's your favorite book and why?

• 27:35Speaker 02

  My favorite book is a book called Attached, which is about attachment styles and it totally explains everything about every human you have to interact with, like work, personal life, family, friends, everything. So you have to read Attached.

• 27:48Harry Stebbings?

  Wow, that's quite an endorsement. What's the biggest challenge of your role with Clio today?

• 27:52Speaker 02

  Well, it's a little bit hard to run a venture fund from your couch.

• 27:55Harry Stebbings?

  It is indeed. Yeah, that's a fair enough challenge. What would you most like to change about the world of venture today?

• 28:01Speaker 02

  I'd like to see more diversity in fund managers. And the reason for that is simple. It drives better returns and I'm an incredibly greedy person and I want to make more money.

• 28:10Harry Stebbings?

  I'm totally aligned to you. I think absolutely not just Doritos and wine that we agree on. Question to you is, and sorry, this is slightly off schedule, but GP commits are fundamentally non-inclusive. If you think about venture fund sizes and you get LPs that say, or two or three percent is standard, well, that could be two or three million dollars or one million dollars.

• 28:27Speaker 02

  Yeah, and I've found that investors who don't understand that are probably not going to invest in your fund. They might be a good fit later down the road, right? Like, because there's only really two buckets of investors who don't understand that. They either understand it, but that's just the way structurally they have to proceed. And that's probably like an endowment or a pension fund that has incredibly strict rules because they are managing real humans retirement accounts, right? And those ones are not going to be a fit for you really, really, really early on. And then the other bucket are just people who don't fundamentally understand that everyone in the world is not rich. And from my experience raising a fund, neither of those buckets are going to be a great use of your time.

• 29:09Speaker 02

  So what I do, right, when I hear somebody say that is I just know they're not a fit for me. That being said, almost every LP that I've ever talked to, I'm incredibly upfront about that. I'm like, look, yeah, I'm super broke. And they're like, okay, that makes sense. I'm like, okay, great. And no one's ever pushed me on an LP commit, right? I think there's a middle ground, which is a little bit different than the situation I'm in, which is when you have some money, but you want to use it for other things, right? So if you have a few million dollars in the bank, which is a ton of money, but at the same time, in the venture and tech world, it's not a ton of money. But you also have elderly parents who need your support because they're going to be in a nursing home. And you have kids who have to go to school and you have a house with a mortgage because you live in an expensive area.

• 29:52Speaker 02

  Like that, I think, is probably where that commit conversation gets a little bit trickier. But there are so many problems in venture. I haven't found for micro fund managers that not having a ton of your own capital to put into your fund is a huge problem. I think you do have to assume that as soon as you start making money from your fund, meaning like as soon as there's an exit, that there's going to be an assumption that like over your first three funds, whenever you start to get money back, you're going to sort of, you know, load more into your GP commit to maybe smooth that over. I think if you've taken A decent amount of money off the table and you're still unwilling to put a lot of money into your fund, then it is fair to question if you really believe in your fund as much as people think you will.

• 30:34Speaker 02

  But I used to joke when people would ask about that. I'm like, look, you're happy. Do you want to look at my tax returns? Like, if you want to see something really sad, I am happy to show you my tax returns. And then you're going to be like, giving me 20 bucks for my Uber home, like not asking me for a GP commit.

• 30:48Harry Stebbings?

  Yeah, I totally understand that. That's interesting. Tell me.

• 30:52Speaker 02

  That's what people want, though, right? Like, they want, they want to understand you. They want authenticity. They want to feel like they can trust you, right? Fund managers like you and I are taking so much more risk. Like, we are relatively hireable people, right? We could go and have a job inside of like a Google or a Facebook or whatever, make a quarter million, half a million a year, whatever. That would be a lot less risk, right? And so when I see, I have one friend who's an LP in my fund and he's lovely. But he invested in my fund. He pulled money from his trust and put it into my fund. He also runs a fund. So when people talk to me about my GP commit, I'm like, I'm forsaking any sort of normal life to run a fund and run all over the world and try to raise money and to like operate on the shoestring budget.

• 31:32Speaker 02

  Do you really think that my very lovely friend who just moved money from a trust into his fund for his GP commit? Do you think he's more committed than I am? And everybody, including him, is like, well, no, obviously you're the one who's putting a lot more skin in the game. Like, yeah, thanks. And so people get that. I just think that if you're a fund manager thinking about starting a fund and you're listening to this, you just have to be authentic and have that conversation. What I think doesn't work is if you try to stonewall investors and tell them my LP commit is to be determined, like you're counting your millions like Scrooge McDuck and can't decide exactly how much to allocate. No, just tell them, I have no money. Here's why and here's what I'm going to do about it in the fund. And any LP who's a good fit for you will say, okay.

• 32:13Harry Stebbings?

  Yeah, I totally agree. All a matter of proportion. So totally aligned there. Can I ask, what do you know now that you wish you'd known at the start of your career in venture?

• 32:21Speaker 02

  Oh my God, don't waste time on anyone. It's like angel investing, right? Like, I love coffee checks. I teach sometimes a little seminar called So You Want to Angel Invest, primarily for women, but I'll do it sometimes. And it's to help people understand how to get into angel investing. And the thing I tell people is you want to be an easy check. An easy doesn't mean you're stupid, doesn't mean that you write checks for everybody, but it means that you're not trying to take 10 meetings to write a $25,000 check. And I think there's something similar in the LP world, particularly for micro fund managers. There's very little track record to judge. However, the person got on your radar in the first place, you probably immediately did a little bit of digging on them, and you should diligence them, you should talk to them, you should make sure that they seem smart

• 33:03Speaker 02

  and that they seem like they're doing or understand how to do what they say they're gonna do. So when it comes to fundraising, if you're raising a micro fund, right? And someone's giving you a relatively small check, and they are not your anchor, and they can't quite wrap their head around it, and they just want meeting after meeting after meeting. If the meetings are interesting, if they're inviting you on their yacht and you like yachts, if they are fun and cool and interesting in introducing you to other people, great. But if they're just sort of doing your $100 round trip Uber from San Francisco down to Menlo Park every two months, and you sit there with them for an hour, and they move their meeting five times, and then you talk about the same things, and then they tell you to come back two months later, at some point, even though it's a big name person

• 33:46Speaker 02

  and it seems like a big check, you have to value your time and prioritize them. And so I think the biggest thing, and I think this is true for fund managers and for founders, for anybody raising money, is just because somebody has money on the other end of a transaction doesn't mean that your time isn't valuable and that they're the only person in the world you should be focusing on.

• 34:04Harry Stebbings?

  Yeah, no, listen, I totally agree with you in terms of the valuing of your own time. And I think actually few people do it religiously enough, so totally aligned. Tell me, final one, what's the most recent publicly announced investment for you? And why did you say yes and get so excited?

• 34:17Speaker 02

  Planet Forward. So my entrepreneur in residence, who's also one of my scouts, Julia Collins, is an amazing entrepreneur, and she was a co-founder at Zoom, the pizza delivery company, and well, the robotics company, but I was mainly excited about the pizza. And you know, she left there about a year and a half ago because she really, really, really wanted to build something around climate. So Planet Forward is an amazing regenerative agriculture company. They haven't announced a lot of what they're doing, so I won't talk about it too much. But in getting to know her over the years and her vision, in her understanding of what it'll take to build a profitable category defining company that also can fundamentally just make

• 34:58Speaker 02

  it so much easier as an individual human in the world who's not perfect and who's not Mother Teresa, to be responsible about our consumption and help the climate, particularly with regenerative agriculture, is just one of the most inspiring things I've ever seen and the way that she's thinking about building a tech platform around it, consumer facing products, just her grasp of the space was just so incredible that I knew I had to invest. And it was exciting because after I invested, I told her, I was like, look, I don't know what you're doing next, but I'm in. She's like, do you want to know what it is? I was like, nope, I'm in. And so, you know, I was the first check in. And then after me, people like Precursor invested, people like Emerson Collective, which is Lorraine Powell Jobs' family office. And it's exciting to say, yeah, like, I saw that

• 35:39Speaker 02

  in this person and I knew exactly what she's capable of. And welcome, Lorraine Powell Jobs, I'm glad you see that, too.

• 35:46Harry Stebbings?

  It sounds super exciting for sure. And I totally understand in terms of that, in terms of the quality of Netshand investors that Emerson are incredible. As I said, though, Sarah, I'd heard so many good things before the show about you. This has been so much fun. So thank you so much for joining me today.

• 35:59Speaker 02

  Of course. Thank you.

• 36:02Harry Stebbings?

  Absolutely loved that discussion with Sarah. And if you'd like to see more from Sarah, you can find her on Twitter at Sarah Kunst. Likewise, it'd be great to welcome you behind the scenes here. You can do so on Instagram at Hstabbingz1996 with two Bs. I always love to see you there. But before we leave you today, I'm sure you've heard about it, but my word, I just love this product, Carter. Carter simplifies how startups and investors manage equity, track cap tables, and get valuations. Go to Carter.com/20vc to get 10% off. More than 800,000 employees and shareholders use Carter to manage hundreds of billions of dollars in equity. And Carter now offers fund administration, so you can see real time data in the Carter platform and work with Carter's team of Experienced fund accountants, simply go to Carter.com/20vc to get 10% off.

• 36:47Harry Stebbings?

  And speaking of teams there, did you know there will be 1.4 million job openings for developers in 2020? And that's when my friends at Terminal come in. Terminal is a remote teams engine for fast-growing companies, connecting you with global talent to deliver the product-building powerhouse your business needs to grow. They provide services and infrastructure in a complete solution that allows businesses to build and scale their remote engineering teams from the ground up without sacrificing experience or quality. From workspaces to community to on-the-ground support, they take the guesswork out of remote so that you can thrive. But don't take my word for it, just ask high-growth businesses like Gusto, Chime, Earnin and Hims, all trusting Terminal with their remote teams. And you can find out more today at www terminal.io, that's terminal.io.

• 37:32Harry Stebbings?

  As always, I so appreciate all your support and I can't wait to bring you a phenomenal set of episodes next week.