20VC: Three Core Lessons for Founders From the SVB Crisis From Financial Agility (Banking) to Constructing Scenario Plans and Mastering Crisis Communications | How The Western World Has Not Been Responsible with its Money & Why The Fed Is Backing Itself I

Mike Maples is one of the OGs of seed investing. As the Co-Founder of Floodgate, he has backed the likes of Twitch, Okta, Lyft, Twitter and more. Mike has been on the Forbes Midas List eight times in the last decade and was also named a “Rising Star” by FORTUNE and profiled by Harvard Business School for his lifetime contributions to entrepreneurship. In Today's Episode with Mike Maples We Discuss 1.) Lesson from SVB #1: The Importance of Scenario Planning: What is the right way to do scenario planning in startups? What is the difference between good vs bad scenario planning? What do the best scenario plans include and involve? What is the right way to communicate these scenario plans to your stakeholders? 2.) Lesson from SVB #2: The Importance of Financial Agility: What does it mean for a startup to be "financially agile"? From a banking relationships perspective, what can startups do to be financially agile? How many accounts should a startup have? How much runway should be in each? Should startups bank with startup banks as well as traditional banks? Should startups have their money in sweep accounts and money market accounts? 3.) Lesson from SVB #3: How to Master Crisis Communications: Why is it so important for founder to over-communicate in tough times? How transparent should they be in these communications? What does Mike mean when he says "be radically human"? If Mike were to face a crisis, what would he do differently in the way he communicates to his LPs? 4.) Lessons from SVB: The Wider World: Why does Mike believe the level of quantitative easing that occurred in COVID was scandalous? Does Mike believe the USD will continue to be the reserve currency of the world? Will we be in a better or worse macro situation by the end of the year? Has Mike ever had a company that achieved true PMF and failed?

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

• 0:00Mike Maples?

  The Western world has not been adequately responsible with how it treats its money. The solution to every problem has always been print more money. At some point, that's not going to work. It's inevitable that the dollar will not be the reserve currency if we are not more responsible with the stewardship of our money. If we cannot do that, if Washington DC cannot wake up and be a more responsible steward of our money, there will be one crisis after another.

• 0:27Harry Stebbings?

  Welcome back to 20 VC in a very special episode here. Now, since the SVB crisis, there's been a lot of finger pointing among different parties. And today I really wanted to do an episode that was very tangible on helpful lessons that founders can learn and implement moving forward from this time and experience. Now, I thought there would be no one better to join me to do this than Mike Maples, co-founder of Floodgate, one of the OGs of seed investing, having invested in the likes of Twitch, Okta, Lyft, Twitter and more. Mike is incredible in this episode and I cannot wait to dive in. But before we dive into the show today, you've heard me talk about how Coda is the doc that brings it all together and how it can help your team run smoother and more efficiently. I know this because Coda helps me. We use it at 20 VC with every show, we interview 10 references for every guest.

• 1:11Harry Stebbings?

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• 1:52Harry Stebbings?

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• 2:34Harry Stebbings?

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• 3:17Harry Stebbings?

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• 3:48Mike Maples?

  You have now arrived at your destination.

• 3:51Harry Stebbings?

  Mike, I am so excited for this. I always learn so much from our discussions. I'm worried that you're going to invoice me one day and I'm going to get a bit of shock from your advice with the bill that comes. But thank you so much for joining me today. Well, thanks for having me. It's fun to talk to you. Now, I would love to start, we're going to focus on actually the lessons that founders can take from what's been happening in the last few weeks with SVB. But I just want to start, tell us a little bit about yourself and bluntly, why you're so well-placed to advise early-stage founders on the lessons that they can take from the last few weeks. Yeah, well, I suppose.

• 4:20Mike Maples?

  That you could regard me as one of the OG seed investors. And so I've been seed investing since 2005. Some things have changed a lot, but some things remain the same. One of the things that I've seen in this situation and I've seen in other situations like it with COVID or with the financial crisis of 2008 is that you have a choice about how you want to respond to a crisis, both in the moment and in terms of how you want to get better in the future. To me, that's what probably places me well in this situation is that, um, you know, I've seen this movie a few times before and I've learned what the best founders do in response to these different situations and how it makes them better in the future.

• 5:00Harry Stebbings?

  I remember when I was 17, I failed all my school exams and I was just a complete failure in my own mind. And my stepfather told me, it's not that you fail, it's how you respond to failure that determines the type of person you are. I always remember that one.

• 5:12Mike Maples?

  Yep, I agree.

• 5:13Harry Stebbings?

  Now, there's been a lot of like analysis on what went wrong, finger pointing, who to blame. That's not what we're doing today. We're doing the takeaways and the practical lessons that founders can incorporate into their daily roles. So when we think about lesson number one, you said to me, crisis lesson number one is scenario planning. Mike, can you walk me through what is the scenario planning lessons that founders can and should take away?

• 5:35Mike Maples?

  One of the things I noticed during what was happening when the SVB bank run occurred, there was a very wide variance in the quality of response that we saw, some founders versus the others. Some founders would be in a position of saying, look, if we can't get our money back within a certain amount of time, we're out of business. Or, you know, they were talking about what they hope would happen. But the problem is there are some things that you can't control. The best founders, what we saw, they were doing scenario planning. And with the scenario planning, what you try to do is you try to map the choices that you have, you know, the different options against the different uncertain outcomes. And so like maybe an example that would resonate with everybody was when COVID-19 happened,

• 6:21Mike Maples?

  there were lockdowns. Nobody knew how long the lockdowns would be. And so the lockdowns might be three months, they might be six months, it might be 12 months or longer. Given those different scenarios, what are your choices? Don't change my plan, reduce my plan by a certain amount of expense, or reduce my plan by a whole lot more expense. But what you get is like a matrix. And then you start to say, okay, within each of those cells of the matrix, what will we need to do? And so the best founders that I worked with during this crisis with SVB were very clear about, okay, we think we're going to get our 250,000, but there's a scenario where we don't get all of our money back and we don't get it back quickly. And in those scenarios, this is what we would face.

• 7:04Mike Maples?

  And this is the choices we'd have to make if we get no more money from investors or if we get some money from investors. That's the kind of conversation that you want to have. You want to be very sober, very clear about what the options are. None of this, oh, woe is me, how did this happen? This isn't fair because you don't have the luxury to think those thoughts. You don't have the luxury to worry about who's to blame. You don't have the luxury to wish things were different or hope things get better.

• 7:29Harry Stebbings?

  I do just want to drill down a little bit deeper because I want this to be as granular as possible. And I also sadly don't think this is the end of banks collapsing. So I think this might be practical in the future. But is what do scenario plans actually look like? How are they communicated? Is it by email? Is it by phone individually with investors? Is it in a timeline basis? How are they actually presented to you in the best way?

• 7:51Mike Maples?

  Yeah, I think that the guy that did it best this time in our portfolio was probably Michael Gao at SmarterDX. He did a whole bunch of work and then had a call with Ann and some of the other investors on Saturday morning and was basically like, okay, if we only get our, if we only have our insured deposits, we have to make payroll and then we have to figure out what we're going to cut. You know, what's essential, what we would have to cut. And then we have to figure out if we would want to put more money in the business. The way he conducted himself and the way the company's executed so far, I think Ann and I would have been very enthusiastic about putting more money in the business, right? Because some companies, if you have a chance to own more, you would if you could come to a deal that's fair.

• 8:31Mike Maples?

  The other scenario was we get a fraction of our money back and it takes a while. And so then he talked about the implications of one. Week versus a month versus longer. The third scenario was we just get solved this weekend. But we didn't really talk about that scenario, right? Because if that happens, we're good. That, to me, was an example of really handling the situation well. And it wasn't just he sent us an email. And it wasn't just that he sent us a matrix. But he was like, OK, we're partners in this business. We all have a stake in what's the best decision. We all have a stake in what we're going to do. So let's approach it like we're business partners together in building this company. And so I thought he handled himself really well and he led the discussion. It was very much like, here's a set of options we have.

• 9:15Mike Maples?

  And like, how do we think about what's the best option?

• 9:17Harry Stebbings?

  Mike, how many of your founders did snore or blunder?

• 9:20Mike Maples?

  I'd say a fair number, but we were fortunate in that when COVID happened, I had a webinar with our founders called Own Your Runway. One of the aspects of the agenda was scenario planning and the importance of it. I actually think scenario planning is good, not just for crisis management, but it's good for uncertainty. And when you think about it, startups, you don't want to have too much of a rigorous, deliberate plan because you don't know how all the uncertainties are going to play out. What you really want to do is be empowered in the face of uncertainty rather than reacting to uncertainty. And scenario planning lets you have confidence and precision about the actions you take depending on what occurs as events unfold. It could be good for any situation, not just a crisis situation.

• 10:02Harry Stebbings?

  I spoke to a couple of founders and they were like, this is why actually we like multi-stage funds at seed. Because if it comes to situations like this, they just have a lot more capital to put in and to reinvest in uncertain situations when we need cash and we need it fast. Do you worry that there's going to be like this centralization of power back to multi-stage funds just because they have these huge reserves?

• 10:23Mike Maples?

  If anything, I see the multi-stage funds somewhat retreating from seed. So I think that in the last few years, they made a whole bunch of seed investments, many of which aren't working. They haven't engaged with their founders as tightly as they could, right? And so I think that the multi-stage firms, like any firm, your fund size is your strategy. So if there's a crisis, you're going to tend to worry about the companies that move the needle in your large fund, less so than, oh, I wrote a million dollar check to this company 18 months ago.

• 10:51Harry Stebbings?

  What makes you think that they're, I'm just too interested, but what makes you think they're retreating? I had Dave Tish on the show and he talked about the five on 25 product that these wonderful funds have created for us. I don't see them retreating though. What makes you think that? Because I've

• 11:04Mike Maples?

  Yeah, and retreating may be too strong of a word, but I think that they are now, some of them are now seeing the impact of writing a whole lot of seed checks and not having their top people managing those relationships. And now being in a situation where they raised a whole bunch of funds with a lot of money really quickly. And they need to make sure that their fund returners have the capital and help that they need to even break even from the last round. And so if I have a billion dollar fund, I'm going to worry about those types of things more than I'm going to worry about the next million dollar check or protecting the company I wrote a $2 million check for nine months ago.

• 11:44Harry Stebbings?

  Final one before we move to lesson two. Dave did say also that signaling was one of the biggest lies in venture. Do you think signaling is a lie or do you actually think it's very real?

• 11:52Mike Maples?

  I tend to agree with Dave there. I think signaling is overrated. I think that companies that perform well always raise money. And companies that perform so-so can sometimes benefit from a positive signal. But usually not being able to raise is a function of not getting product market fit more than anything else.

• 12:10Harry Stebbings?

  The one thing I think does make a difference is when you have partner churn at multi-stage funds. So if you could be offered the multi-stage funds, even if you do well, if there's no real owner, it can be a lot more difficult to have your internal champion to lead the A, I find.

• 12:23Mike Maples?

  Yeah, I think that's fair.

• 12:24Harry Stebbings?

  Now, lesson number two, before I go too off course, you're going to have to bring me back. I'm like, I'm bringing you back. Financial agility. So crisis, that's number two, financial agility. What should we learn about financial agility from the last few weeks?

• 12:38Mike Maples?

  A lot of what I saw, especially the Twitter sphere, was CEOs should know how to manage risk. And they should know that FDIC only ensures $250,000. I think that's the wrong lesson, right? Like I look at it like startups are impossible, startups start out dead and have to prove they're alive. And they have one job to do, which is get product market fit. And that means answering one very specific question. Which is what can we uniquely do that people are desperate for? And anything that you do not in the service of that is wasted hours of energy. Your time is the only thing that's zero sum. And so the decision to become a part-time hedge fund bond expert subtracts from your efforts to get product market fit.

• 13:20Mike Maples?

  The way I look at it is the real lesson is one of financial agility. What you want is not to become an expert in finances. What you want is to create the conditions where you can move quickly, no matter what happens. And so like, what might that look like? One best practice might be have at least three places to keep your money already set up and have some amount of money in each one. You'd probably want them to not be 100% correlated. If you have an account with this, if you be your first republic, you probably want to be in a big three bank as well. If you have the capital, at least three months runway in each account and then put the balance in the least risky account. If you have less than that, you might want to put three months of the least risky one and divide the rest.

• 14:02Mike Maples?

  You also want to create pathways between the accounts. And so if something happens, you don't want to be typing and surfing online to figure out your wiring instructions. Right? You want to be like mind like water. Okay, we need to move zap money from point A to point B. These are the people authorized to do that in our firm. These are the wiring instructions immediately available. Let's go. Because it's it's the ability to move fast that saves you. You get yourself in trouble if you only have one bank account and like you want to move fast, but you can't because now you're opening other accounts and you got to wait a couple of weeks to get approvals and everybody else is doing the same thing. And so if you already have your own sort of mini rails between your accounts, you're protected much more from random occurrences.

• 14:46Mike Maples?

  And that's independent of insurance, right? That's independent of a lot of things. Now you don't have to worry about it might buy a short-term bonds or long-term bonds or like stuff that a founder shouldn't really have to worry about too much.

• 14:56Harry Stebbings?

  Okay, so this is fantastic. So we have three accounts, three months in each, and then any overhang we have in the safest account, which will probably be a top four bank. So my question to you is a lot of founders have been coming to me saying, hey, do I put it in a money markets account? I don't know what that is. Put it in a sweep account. I don't know what that is either. How do I figure out these different instruments, Harry? How do you advise founders on money markets accounts, sweep accounts?

• 15:20Mike Maples?

  I'm less concerned about that. And some people listening to your show may disagree with me. I think that perfect is the enemy of the good here. Agility is the important thing. We're not trying to optimize a couple of basis points on our money market account or bonds or whatever. What we're trying to do is put ourselves in a position where almost no matter what happens, we can land on our feet. And what I want founders that I work with to be able to do is to say, we are now set up where we're resilient almost no matter what happens. Now I can go back to the thing that matters most, which is getting product market fit, eliminate distractions. And so like, I think that in this case, having an agile setup where you can react quickly to whatever happens

• 16:04Mike Maples?

  and where you're taking risk out of losing your money is the more important thing. Where you should put your money in sweep accounts, this or bonds or that, that's good change through time. And there's going to be good best practices that change through time. But the idea of agility and resiliency, I think, is a durable strategy, no matter what happens.

• 16:22Harry Stebbings?

  You said about agility there and kind of speed. A lot of fans have been coming to me saying agility, speed, agreed. The most beautiful UX is with, you know, your startup bank accounts. When I say startup, I mean still very large companies in our world, but your Brex's, your Mercury's, your big like fintechs in the world, but not your JP's, your Wells Fargo's. And then other people very openly on Twitter have been saying, I don't know about you, but in a crisis like this, I would not be moving to startup accounts. How do you advise founders on like the security of startup banking as an alternative?

• 16:54Mike Maples?

  We don't really know, right? And I'm always reluctant, especially with an audience that you have, to express preferences about one bank versus another. But what I would say is, okay, let's say you decide Brex, let's say you decide Mercury. The general advice still applies. Have money in an account that's not correlated to Brex and Mercury in two other places and have the rails set up between those pools of capital, those deposit accounts, so that you can Immediately move from one to the other very quickly. It's the discipline of having the multiple places to put your money and the ability to move money fast between them that I think is more important than the absolute what's the best answer of the the best account for startups to put their money.

• 17:37Harry Stebbings?

  You mentioned that kind of the overhang just put in the safest account. You know, the safest accounts are always kind of the really too bigs to fails. One thing that I am just worried about, Mike, is the centralization of kind of wealth migration, money movement towards the big four in a way that we haven't seen for many, many years. Are you worried that actually we're just going to see this centralizing of wealth back to them in a flight to safety from consumers and businesses?

• 18:02Mike Maples?

  Well, I have a broad set of concerns about our banking system and how we're treating our money and a lot of things, but like when I talk to founders, I'm like, that's, that's not your problem. You have a job to do and your job is to get product market fit. Your job is not to worry about what's going to happen with the central banks or with the big banks or any of that stuff, right? You're not a banker and you're not a macro economist. What we need to do is just create the conditions where no matter what happens, we'll land on our feet. You know, are you going to be a shaper or are you going to be a reactor? What you want to do is be in a position where you can always take the initiative, back to product market fit, eliminate distractions.

• 18:37Harry Stebbings?

  What is a shaper versus a reactor, Mike? I haven't heard this one of yours before.

• 18:40Mike Maples?

  Yeah, so we've, I think we've maybe riffed on something similar in the past, Harry, which is this Commander John Boyd, right? So he was an air force instructor pilot and he was the reason that the F-16 was designed the way it was. And so Boyd had this belief that the best pilot was the most agile pilot. And so an F-16 fighter jet isn't as fast as a MiG in a straight line, but it changes direction faster. What Boyd understood is that if I'm in a dogfight against you, I make a move. Even if my first move is wrong, if I'm moving at twice the rate that you're moving, I can adjust and make my next move before you make your first move. And so even though I was wrong, I end up being right because I'm getting feedback from your decisions. I'm deciding faster than you are.

• 19:24Mike Maples?

  And so Boyd called this getting inside the enemy's decision loop, right? And like his instinct was you had to. Take the initiative that if you're in a dogfight, you take the initiative, you move faster. And even if you move wrong, the first time you move more correctly the next time. And it disorients the other guy because they think they see you in one place, then they see you in another place. It's very hard and disoriented for them to be able to fight you. And because the F-16 was designed to be a hyper agile plane, the F-16 was a system. It was the plane, but it was also the mind of the pilot flying the plane and their attack initiative approach. And so I look at it this way when it comes to a crisis. When you're faced with a crisis, you want to be in a situation where you're like, I know what to do. I know how to take the initiative.

• 20:09Mike Maples?

  I've already set up my bank accounts. I've already got a strategy. I know how to get money from point A to point B. I know who's authorized to do that. So when I say go, boom, we go. That's kind of the energy that I like to see founders have. Whenever you're in a crisis, you have to take the initiative. You're a shaper and not a reactor.

• 20:28Harry Stebbings?

  Mike, I didn't know if you know, I run my a lot and long distances and I run listening to David Goggins. He's like one of the hardest men on the planet.

• 20:35Mike Maples?

  He's awesome.

• 20:36Harry Stebbings?

  So he always says like, I'm not running for a race. I'm running for the day that a crisis happens and I need to be ready and I need to be mentally fit for anything. And I, I just think I was hearing David Goggins when I heard you say that. And I was like, I wasn't expecting that in this talk. I love that. Okay. So lesson number three, and this is a really tough one where I think actually I like all of them. It's impossible to expect founders to have known this, but crisis communications. What are some of the biggest lessons for founders in terms of how to navigate communications from the last few weeks?

• 21:08Mike Maples?

  There's a wide variety of opinions on this. And so I thought I'm going to go to the person who I think understands this better than anybody and ask him. And so that would be Christopher Lockhead, who wrote a book called Play Bigger, CMO at Mercury Interactive. And one day they announced that the CEO is going to be investigated for backdated options. And you know, all of a sudden he has to like, you know, company is going to get delisted. All these kinds of horrible things happen to Mercury Interactive. And Christopher Lockhead had to be the guy explaining what was going on and he hardly. Really knew what was going on himself. And so I just went to him and I said, okay, what are the durable lessons we can learn about crisis communication? Like, what should founders know? What's like the checklist manifesto for crisis communication?

• 21:53Mike Maples?

  Things that I'm offering here is really channeling Christopher Lockett.

• 21:57Harry Stebbings?

  Number one, Mike, you're clearly not a versed venture capitalist because if you were, our job is to take others' wisdom and attribute it to ourselves. But I appreciate your attributing this to Christopher. But I want to dive into this four step plan. What is a four step plan?

• 22:10Mike Maples?

  So I'd say if I just had to say what are the steps that we can go into each? The first is over communicate, don't hide. The second is be radically transparent. Number three, be radically human. And number four, keep going. And so maybe we just take them one at a time.

• 22:25Harry Stebbings?

  Over communicate, don't hide. Let's unpack that.

• 22:28Mike Maples?

  Yeah, so the worst thing a leader can do in a crisis is hide. And not having information is not an excuse to hide. So you got to lead from the front, be visible. You got to communicate frequently. I think we could have done a better job of this with our LPs. If this ever happens again, what I will do is I'll say, we're going to have a designated time each day where we say everything we know at the time. You want to communicate frequently. You want to talk to the stakeholders that matter. You know, your customers, your investors, your partners, most importantly, your employees. You can't use the fact that you don't know all the answers as a reason not to tell people what's going on. So that's really important.

• 23:06Harry Stebbings?

  Do you think investors respond in a productive way? When people say, I'm not fully aware of the situation, but this is what I do know, which according to this would be the right thing to do. I don't find GPs or LPs necessarily respond that well to it, which is why people don't do it.

• 23:24Mike Maples?

  I think that might surprise you, right? So which relates to kind of the second point of being radically transparent, right? So you got to tell people what you know. You tell people what you don't know. And you tell people what you're doing to figure out what you don't know. You want to focus on facts and not happy talk, zero spin. You know, you don't want to say, we worked feverishly to get our money out of SVB because we anticipated the crisis. It's like your partners don't want to hear that, right? The partners want to know. What's going on objectively? No happy talk, just, just the facts. And how are you going to figure out what you don't know the answer to yet? I find that if you communicate with that energy, it actually goes a long way. I don't have the answers on all of it, but I know what the issues are. We're on it, you know, we're doing everything possible to get to the answer.

• 24:09Mike Maples?

  Where you get yourself in trouble is where people think you're hiding something because you're not talking about certain things. Natural instinct is if you're not telling me, something must be wrong. Take that fear-based thinking out of people's minds. It just make it very straightforward and objective.

• 24:24Harry Stebbings?

  In terms of being straightforward and objective, kind of being radically human was the third. What does rat and human mean in these communications?

• 24:33Mike Maples?

  Business is a personal pursuit, right? No matter what anybody says, people have feelings. People are scared when stuff they care a lot about is threatened. You know, their jobs, their money, is this startup going to survive? You don't just take a casual clinical approach to that kind of stuff, right? And so the first thing you got to do is kind of meet people where they are as humans and help them understand, hey, I get this. This is crazy. None of us asked for this, none of us planned on this, but we have a job to do. Get through it. The other thing I've learned is that some people are going to behave pretty weirdly. You know, people that you might think are going to be very poised are just going to turn into mush. You can't be that person. You got to be the person that people look to and say, they're on it, they got this.

• 25:18Mike Maples?

  And they understand me and they empathize with what I'm worried about. And, you know, they're taking those concerns into account as they work through this. Now I want to work through it with the leadership team.

• 25:28Harry Stebbings?

  I mean this in a nice way, Mike. We're paid a lot for what we do and we were responsible for people's money. I don't think you can turn to mush. You can't turn to mush. So we took this on and we absorbed this responsibility. We've got to be the strong ones. Is it acceptable to turn to mush?

• 25:44Mike Maples?

  They'll know, but there will be people around you who will. And, you know, you just got to be ready for it, right? And, and you can't, you can't let yourself say, how dare they? You got to get through the situation at the time. Mind like water, going from one thing to the next. No distractions, no noise.

• 26:01Harry Stebbings?

  Communications plan, keep going.

• 26:03Mike Maples?

  Momentum is a big deal in startups, right? Like, um, this may date me some, but like, a while ago, there was this pilot named Sullenberger, who landed a plane in the Hudson River when these geese took the engines out. And, you know, so you had to land a plane without any engines, but a plane is still going forward. It still has momentum. Momentum has the ability to create momentum. And so like, you always have to keep going. And by the way, this is true, not just in a crisis, right? Like, you want to be making forward progress always as a startup, because forward progress begets other forward progress. And so when something like this happens, you've got to keep everyone's head in the game, right? You don't have time for scapegoating or finger pointing. You just don't have the luxury to waste any energy.

• 26:47Mike Maples?

  Helping people understand it's going to get better if we keep making forward progress, but we have to make progress one day at a time, one hour at a time. We have a job to do, we need to do the job. Momentum begets momentum, keep going. Communicating that explicitly, I think, is really important.

• 27:03Harry Stebbings?

  Can I be honest? It really pissed me off when I saw a lot of people say, oh, VCs are to blame for the bank runs. I was like, are you kidding me? Have you studied the mechanics of how banks work and SVB's balance sheet? It was not VCs that caused the bank runs.

• 27:15Mike Maples?

  Yeah, and I, and I sort of look at, um, there's this philosopher one time, um, Schopenhauer, who said something to the effect of whenever somebody misbehaves or acts inappropriately or in bad faith towards you, don't let it be a reason to get angry. Think of it as an opportunity to increase your knowledge. There's some learnings from the fact that people don't seem to like VCs very much, or don't seem to like techies very much, or think that it was a bailout. It's incredible to me that you could put your money in a bank, that there's not transparent reporting that the federal government said was okay, and now it's like somehow an entrepreneur's fault, because the bank's assets weren't what they said they were, and you would have had to be a financial guru reading footnotes to know that that was the case.

• 27:57Mike Maples?

  It's incredible to me that anybody would say that remotely resembles a bailout.

• 28:01Harry Stebbings?

  The one thing that I do struggle with is like, given what we not like knew at the time, there were people who actively came out in support of SVB. If you have a fiduciary duty to the money that your LPs have given you, and you are aware of the situation, to come out and actively encourage your companies to keep your money there, to me is a clear obfuscation of your fiduciary duty. Now, I don't think that's causing a bank run. I think that's actually just honoring the loyalty to your LPs.

• 28:28Mike Maples?

  That's not the decision I would have made. My view is that it's not my money. If I was the Stanford Endowment, if I was Sloan Kettering, what would I want Floodgate to do? That's what I need to be doing. That's kind of the North Star in my view of how you decide those kinds of things. Yeah, I totally agree. Sorry, I'm not trying to pull you into something there. You know, I try pretty hard not to comment on how other people do their job, right? It's hard enough for us to do a good job. But so it's like, I have a set of beliefs about how certain things could be handled, but like, other people's mileage may vary. I totally get you. Mike, I do want to do a quick firearm with you. So it's going to be a short statement. You give me your immediate thoughts.

• 29:10Mike Maples?

  Will we be in a better or a worse place by the end of 2023? I'm afraid we will be in a more difficult place by the end of 2023. How does that look? The Western world has not been adequately responsible with how it treats its money. The solution to every problem has always been print more money. At some point, that's not going to work. You know, some people are extreme in their predictions and think that something really catastrophic is going to happen very soon. Other people think not, but it's inevitable that the dollar will not be the reserve currency if we are not more responsible with the stewardship of our money in the United States. If we cannot do that, if Washington DC cannot wake up and be a more responsible steward

• 29:53Mike Maples?

  of our money, there will be one crisis after another. And the people impacted by these crises will have to respond in a way that has nothing to do with market forces or nothing to do with whether they're running a good business. It'll just be external random shocks that they have to deal with, that they couldn't plan for, that wasn't their doing. And so I hope that our leaders in Washington can start to even adopt some of the things we talked about here, being more transparent, not sort of obfuscating things, not playing politics. You know, we need to do a better job separating politics and economics. We've not doing a good job of that right now. Should the Fed just guarantee all depositors across all banks to prevent bank runs? I have some opinions on that, but I think I probably should abstain from that.

• 30:38Mike Maples?

  To me, to me, the, the, the, the thing that we need to do is to zoom out and say, when are we going to get more responsible with how we treat the dollar? And when are we going to get more responsible with resisting the urge to always print money as the reflexive response to everything? The amount of money that we printed during the COVID crisis is just a scandal. And, you know, they wanted to print more. It's just crazy. And so, you know, it's just been a series of unforced errors. We print a ton of money. Some people say that's going to cause inflation. Other people say, no, it won't. Well, of course it was going to cause inflation. And of course it was going to be not just a short term inflation. Everybody who was paying attention thought that. And so now, lo and behold, we have inflation. We've got to jack up interest rates. And so that creates another set of problems. All of these things were just a sequence of unforced errors,

• 31:22Mike Maples?

  where if we'd just been more responsible with our money and not played politics with our money, we'd have been so much better off. And, and I just think it's a real shame. I, I think we need to learn from this, kind of in DC and in our economy and how we, how we treat the money.

• 31:36Harry Stebbings?

  The job is the alternative to Q E is to make more money. Really fricking hard when you're comparing how much money we've printed. And so it's like, one side's impossible and the other's really easy. Let's just do that easy side.

• 31:49Mike Maples?

  Yeah. And the problem is eventually doing too much of the easy thing for too long backs you into a corner. The Fed is progressively backing itself into a corner where it has fewer and fewer good options. And that's why I think we're going to have some challenging situations ahead. Sometimes I think that the best way to predict the future is to have a firm grasp of the present. And if I look at what's happening in the present, we have not had an honest discussion about what it means to have responsible stewardship of our money. And if we're not willing to have that grown up conversation, we're not willing to act on that conversation, the future is not going to be as good as we want it to be.

• 32:23Harry Stebbings?

  What trend are you seeing that you don't think others are seeing?

• 32:27Mike Maples?

  This would be a, a longer discussion, but I think that AI is going to potentially change how companies can be built. Before I started Floodgate, the way funding worked was you funded technical milestones. So, you know, I've got a router. It's going to go 10 times faster than the other guy's router. If I can prove that I can build that thing, I get more money. If you could. Solve that, there was no market risk. Like, so in the old days of tech, you funded technical risk, right? If I can cure cancer, if I solve that problem, there's no market risk. And so you would fund projects where if you could build the thing, people would want it. Then came the era of the Lamp stack and lean startups. And this is really what enabled firms like Floodgate and this early seed funds.

• 33:11Mike Maples?

  What we realized was that at the other end of the spectrum, there'd be a market risk. And so Kevin Rose had started DIG for $1,500 over a weekend. There's no technical risk there. The only question is, given that just about anybody could have built DIG, who's going to be the first company to get product market fit? So it became who's going to get adoption first, who's going to get distribution first? And so lean startups and seed funds had the insight to understand that you could fund market risk takeout rather than technical risk takeout. And as you increased your certainty that people wanted what you were building, then you escalated your funding and you escalated your commitments, which was a different model.

• 33:47Harry Stebbings?

  Do you think the capital intensive nature of startups is kind of going in a U-shaped form? Which is like, you know, when pre-Floodgate or at the start of Floodgate, it was actually very high starting companies. Then you've got kind of the democratization of tools and amazing tools, which made it much cheaper to start companies. And now, when we look at most AI companies I speak to, and I'm naive here, I don't actually know the breakdown in costings of starting an AI company. But all founders that I speak to and AI tell me, the data is extremely expensive, the storage is extremely expensive. Like, we're taking everything back to actually, it's really expensive to start AI companies today. And you need four or five million.

• 34:19Mike Maples?

  So there's expense, but to me, the important question is the type of risk that's getting funded, right? And so what I find interesting about AI, and this is why it'd be a longer conversation, but I think that it's the emergence of what I would call big T technical risk, simultaneous with big M market risk. So what do I mean by that? So some ideas require $100 million of mass compute to prove that you could do it. You're saying, I'm solving an important problem that's going to make a big difference in humanity, but it's going to take massive computing resources for me to train the models and for me to run the computing cycles to solve it. And so maybe you raise not $100 million.

• 34:58Mike Maples?

  Right away, although some people are, but you raise enough money that you can take out enough of the technical risk to prove that that amount of mass compute down the line is justified. So I would call that big T technical risk, right? The key to success, I think, is to pick technical problems where there's unambiguous desire in the market for the solution. If you have it, right? Like it's it's dumb to solve a hard technical problem that nobody wants if you solve it. You want to solve a technical problem where people will unambiguously desperately want it if you solve it.

• 35:29Harry Stebbings?

  I always think of actually Vinod Khosla, who said like, I will take as much technical risk as you give me, but I just don't want any market risk.

• 35:36Mike Maples?

  That's right. So now you have the opposite end of the spectrum, big end market risk. You used to have the lamp stack and AWS and stuff like that that let you reduce the cost of experimentation and getting people to adopt your products. Well, now, you know, people can write code faster. They can generate things, they can create programs, they can, I think, if anything, it takes even less to develop an idea using AI than it did with lean startup techniques. And so, OK, there's going to be a lot of companies that do really cool stuff, but there could be a thousand just like them. And in that scenario, all the benefits go to the customer, which is great for customers. But, you know, when you're a startup, you've got to not just create value, you've got to capture value for your startup.

• 36:16Mike Maples?

  And so I think with big end market risk, the key is going to be how do you thrive in an environment where the market risk goes way up? If if that's the type of product that you're building. And so there are solutions at both ends of the spectrum, but I think they're not obvious. And I think that there's going to be some people who succeed by understanding that.

• 36:36Harry Stebbings?

  Mike, in the last few years, we saw fund deployment paces increased significantly. Yours did not, if I'm right, yours was actually a much longer duration. How do you think about fund deployment pacing?

• 36:47Mike Maples?

  One of the most underappreciated variables that a fund can control is its timeline. The more risky the investments that you make, and let's let's face it, seed is as risky as it gets, seed and pre seed. The more time diversification works to your advantage. If you're raising a fund every 18 months at the height of 2020 to 2022, You're going to be paying high prices the whole time. You're going to be exposed completely to whatever risk was involved in that window of time. The advantage of time diversification is you don't have to try to predict the future. It's a lot like what we were talking about earlier with financial agility. What you're saying is, all things being equal, if I invest over a five-year time horizon,

• 37:28Mike Maples?

  which is, you know, our Fund VI was from 2017 to early 2022. If you invest over a five-year time horizon, if the market corrects, you've got a bunch of companies that already got product market fit. You're not suddenly triage mode of all your, you know, companies, the last two funds. You might be worried about 20% of your last fund. You're not paying high prices the whole time. You're paying the prices that characterize the market, but you're able to diversify that over time. The riskier you are in terms of the stage that you invest, the better it is for you to have a longer time horizon.

• 38:02Harry Stebbings?

  Can I say, I think reserves are an irresponsible way to deploy capital. And that's a bold statement, but I say it because you've been doing this a long time. I've not been doing this anywhere near as long as you, but eight years is long enough. My winners have not been obvious early and my losers were often obvious winners early. And so it's very difficult to project out which are the winners and which are the losers within the timeframe of your reserves deployment.

• 38:28Mike Maples?

  Yeah.

• 38:28Harry Stebbings?

  How do you think about that?

• 38:29Mike Maples?

  We could do a whole episode on that someday, but I guess I'll net it out. What we do at Floodgate is 70/30. So Dave Swenson at Yale once told me, your allocation decision is one of the most important decisions that you make. So if you're an individual investor, how much you're going to put stocks and bonds and cash and those types of things is a huge determinant of success. And so allocation in a VC sense is how much upfront, how much in reserve. Pro rata rights are a right. And so there's an amount of reserve that's valid if you play offense with those reserves. If you're not just backstopping companies that are, have uncertain performance, because pro rata rights are a right. They are a competitively advantaged use of your money, if you use it correctly. Now, the second thing that we did was we have a partner dedicated just to follow on investing.

• 39:14Mike Maples?

  And so the person that writes the first check doesn't get to decide who writes. The follow-on check, that's Iris in our partnership. And to us, that's a matter of governance. And so Iris says, hey, look, I'm accountable for the same type of returns that every other partner is. So I need to play offense with my money. So I need to decide where I put my money. So I want to harvest our pro rata rights in a way that I'm playing offense. So I think if you do that, you can do well. I think that the risk-adjusted returns of acting that way could be quite good. But I think a lot of people don't use reserves well and don't put most of their money in their top companies.

• 39:47Harry Stebbings?

  Is the partner who led the investment and is closest to the founder not best positioned to write the follow-on investment? I understand the decision-making separation that comes from having a separate partner. But is that knowledge not all bestowed upon the one who wrote it and has that relationship?

• 40:03Mike Maples?

  We're all in the same firm, right? So we talk about these, but I would say that I would like the person to write the first check to be irrationally committed to the success of the company. So I want them to be trying every way they can to help the company succeed. I think it's better if someone like Iris can sort of say, hey, look, we want everybody to succeed. But my job is to put the most money in the best companies. Cut five years into Fund Six, right? We have a chart of these are the most valuable companies in Fund Six based on valuations, not based on opinion. What percent of our reserves are in those companies? If it's high, you can guess that we're doing a good job on the follow-on dollars. But like, to me, that's the valid way to think about it.

• 40:47Mike Maples?

  What too many seed managers do is they say, oh, I know this company better than the rest of the world knows it. So I'm going to put some more money in. All too often, they know things that aren't so. There's a reason that the company struggles to raise. I try really hard not to overestimate our ability to fund the companies that the market doesn't want to fund when that's their job at that stage and we know more than the rest of the entire market. I'm pretty skeptical of that. What was your biggest mistake of the last five years? You know, last five years, I feel pretty good in general. I don't think I was as good from, say, 2011 to 2013 as I'd been up until that point. I feel like we were quite good. Why was 2011 to 2013 bad, then? I was on too many boards and just when you're on too many boards, sometimes you don't learn fast enough.

• 41:32Mike Maples?

  You're not present and mentally awake enough and you're not incorporating lessons quick enough. Whereas last five years, I feel the numbers one day will reveal themselves one way or the other. But like you kind of know when you're executing, right? You know, when you're bringing your best self to work. I feel we've been largely successful at bringing our best selves to work. But the regret I would have when I made mistakes has been somebody comes in with a product that is very similar to something I believe is interesting about the world. And I fall in love with the idea without adequately diligencing the founder's ability to make it real. I'm a sucker for things that are on strategy for how I think the future is going to be. And then I overlook whether the founder really has the stuff to make it happen.

• 42:16Mike Maples?

  Should founders have boards as seed? I think it varies. You know, I like to say every company is its own snowflake and every company has its own situation. I had a conversation with Michael Seibel a few months ago. And so I funded Justin TV when he was on the founding team back in 07. And he asked me a question that I really liked, which was, have you ever worked with a startup that got real product market fit and failed or wasn't even wildly successful? And I was like, that's a really good question. And I thought about it some and I said, I can't think of a single example. And then I asked him, okay, at YC, how about you? You've seen 3,000 companies. Have you ever seen a company get true product market fit and not be wildly successful? I'm not going to cast dispersions on a specific company, but he said he could only name

• 43:00Mike Maples?

  one example out of 3,000 companies. The takeaway is it's like when Vince Lombardi used to say, winning isn't everything. It's the only thing. In a zero to one startup, product market fit isn't everything. It's the only thing. It is the only thing. And it's like, we need to answer a specific question. What can we do unique that people are desperate for? Eliminate distractions. If it means I've joined the board to help. The founder do that? Great. I join the board. On some level, my job is to help the founder always return to true north. If we get product market fit, we will be successful, almost no matter what else happens. And if we don't get product market fit, we could do everything else right. It won't matter. So there's only one thing.

• 43:38Harry Stebbings?

  Do you believe that though? Because product market fit is so transient. I was in Clubhouse.

• 43:42Mike Maples?

  When it's real, I don't think it is. I think real product market fit is not transient.

• 43:47Harry Stebbings?

  So Clubhouse didn't have product market fit?

• 43:49Mike Maples?

  I don't think so. I think it had COVID market fit. I think it had a bunch of people staying home bored out of their minds, trying to figure out what to do. It was kind of this meme worthy thing. And product market fit gets to something more profound, right? Like product market fit shows up in the world with something radically unique that that people are desperate for, that they can't unsee it. If you achieve that milestone, it's very hard to fail.

• 44:13Harry Stebbings?

  Tell me, I want to finish on this one. From a DPI perspective, which is the same as cash back, what's been the biggest home run investment for you and how did it come to be?

• 44:22Mike Maples?

  Oh, that's a good question. I guess Lyft would probably be up there. We did pretty well on that one. You know, Anne invested like $750,000 at five and a half million post money in the seed round. And so we got a pretty good multiple on that and got cash out at good times.

• 44:38Harry Stebbings?

  Final one. One LP said to me the other day, the managers who will have trouble raising are those who had the chance to have liquidity, but didn't take it in the good times. Do you agree? And how do you think about kind of liquidity and the ability to take it over the next few years?

• 44:52Mike Maples?

  In the end, people care if you made them money or if you didn't make them money. And if you don't make somebody money, there's going to be a lot of reasons that they don't like what you did. If you didn't distribute things at a high, that'll be another reason that they didn't like what you did. And rightfully so. They're giving you money. They want you to send them back more money. And that's, that's the job. It is what it is. Now, just, just something I wanted to, um, you know, there's a lot of founders who listen to your show, even though it's a show about VC. And I think that one of the underappreciated things in this whole epic with SVB and the aftermath is how well so many people acquitted themselves. And you know, like founders were.

• 45:31Mike Maples?

  Running from the front, handling a situation not of their making. And I just, I just want to thank them. You know, I don't think enough people have recognized some of the amazing work that they did in really tough times. And I hope that we can somehow learn from what just happened so that the next time will even be better. The next time they face a crisis, they'll feel even more empowered. But man, did they do a good job. I sure am impressed with what they did and just how they acquitted themselves. So I'd just like to thank them all, you know?

• 46:02Harry Stebbings?

  Mike, I've loved doing this. I always learn so much from our chats. Thank you so much for doing this and I super appreciate it.

• 46:09Mike Maples?

  All right. Thanks, Harry. Good talk to you.

• 46:13Harry Stebbings?

  Mike is just the best. I so enjoyed that discussion. A huge thank you, Tim, for being so open and so willing to move off schedule there. If you'd like to see more from us, of course you can by searching for 20VC on YouTube or heading to 20vc.com. But before we leave you today, you've heard me talk about how Coda is the doc that brings it all together and how it can help your team run smoother and more efficiently. I know this because Coda helps me. We use it at 20VC. With every show, we interview 10 references for every guest. And then we store all the information and data in Coda. So our teams and researchers can easily collaborate on all the data and information in one single centralized place. And here's how Coda can help your team run smoother and be more efficient.

• 46:53Harry Stebbings?

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• 47:37Harry Stebbings?

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• 48:22Harry Stebbings?

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• 49:05Harry Stebbings?

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