Pod Insights The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch 20VC: Why Great Companies are Defined by How Many Things They Say No To, Why Being First Does Not Matter & Why Market Over Traction or Team is the Most Important Thing with Guillermo Rauch, Founder & CEO @ Vercel About this episode Guillermo Rauch is the Founder and CEO @ Vercel, giving developers the frameworks, workflows, and infrastructure to build a faster, more personalized Web. To date, Guillermo has raised $312M from Accel, Bedrock, Greenoaks, GV and more. Prior to founding Vercel, Guillermo co-founded LearnBoost and Cloudup where he served the company as CTO through its acquisition by Automattic in 2013. In Today's Episode with Guillermo Rauch We Discuss: 1. From Argentina to SF: The Boy Making Money Online: How did Guillermo first get into computers and start making money online? Does Guillermo still believe the US and SF offers the same opportunities it did when he came? Did Guillermo feel the weight of responsibility of providing for his family at a young age? 2. Timing, Markets and Narrative Violations: Why does Guillermo believe it does not matter being first but being right? Why does Guillermo believe the most important thing for a company is market selection? Why does Guillermo believe it is crucial that founders and companies have "narrative violations"? 3. The Future of AI: What model will win in the future; open or closed? Where does the value accrue; startups or incumbents? How will the SaaS business model change in a world of AI? 4. Silicon Valley's Most Successful Angel You Did Not Know: What are some of Guillermo's biggest lessons from angel investing? What is his single biggest miss? How has it changed how he thinks? What have been his biggest hits? How did they impact how he thinks about what it takes to win?
Transcript 11,228 words · 2 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 You don't always have to be first, you have to be right. What makes a company good is how much they reject over time. How many things they say no to, how many seemingly attractive on the surface ideas they rule out. Ultimately, it's all about the market. It's all about people's willingness to buy a certain thing that determines winners and losers.
0:21 Harry Stebbings? I mean, wow, there are so many bangers in this episode. This is such a great show and I wanted to do this one for a long time. Having co-invested with Guillermo before and his being one of the most successful but under the radar angel investors in the valley. And so with that, I'm thrilled to welcome Guillermo Rauch, founder and CEO at Vessel. To date, Guillermo has raised three hundred and twelve million dollars for Vessel from the likes of Excel, Bedrock, Green Oaks, G V and more. And prior to founding Vercel, Guillermo co-founded Learn Boost and CloudUp, where he served the company as C T O through its acquisition by Automattic in two thousand and thirteen. But before we dive into the show's date, we have to talk about Canva. Canva is on a mission to empower the world to design.
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3:37 Speaker 00 You have now arrived at your destination.
3:40 Harry Stebbings? Guillermo, I'm so excited for this. As we said, I've wanted to make this happen for quite a while. So first, thank you so much for joining me today.
3:47 Speaker 00 Great to be here. Thank you so much.
3:49 Harry Stebbings? Not at all, but I would love to start. You started developing at ten. Can you just walk me through, how did you first get into computers? And what were you building at ten?
3:57 Speaker 00 Yeah, the first thing I ever did was creating websites for my passions and my interests when I was a kid. At the time, I think it was like Dragon Ball Z. And I was learning just enough HTML to be able to put up a website online. I would use a tool called FrontPage. And you can say that my passion has always drawn me towards the web.
4:19 Harry Stebbings? You then dropped. Out of high school and moved to SF super young. That's got to be a defining process for years.
4:26 Speaker 00 Yeah, that's a funny story because I would have never imagined that I would drop out of the high school that I spent so much blood, sweat and tears getting into. So it's basically I could stay up all night during my early high school days. Like I had these two lives. I was trying to be the good student. And I was trying to also be the entrepreneur, freelance developer, open source contributor at night. And these things got more and more and more into conflict as the years went by. And I had less and less time and my work, my my side hustles of open source and and work were doing better as well. And I was also starting to help my parents financially with, I would like work online, get bounties for solving different problems in like existing open source or private projects.
5:10 Speaker 00 So by the time I was almost ready to finish high school, one of the open source projects that I was developing at the time called Moo Tools. So I had to make a very tough choice at the time. I'm in Argentina, I'm seventeen. This company from Switzerland is inviting me to do a kickoff for a project onsite in Los Angeles, Switzerland. I had two subjects in high school that I needed to complete. My path took me to actually lean more towards work. I flew to Switzerland, then that company opened an office here in SF. And once I got to know the startup world here in San Francisco, it was just a one way street. I left everything behind, moved here and here I am now.
5:47 Harry Stebbings? Can I ask, were you nervous to assume traditional education in favor of bluntly a much more entrepreneurial but less secure life in many ways?
5:58 Speaker 00 It's really interesting, yes and no. So the very first time I'd made money from the internet, I was twelve years old. The eBay of Latin America, MercadoLibre, had kicked off a revenue sharing program. I remember at the time I made like a hundred pesos. So that was the very first time I showed my mom that my skills could be monetized in some fashion. And over the years, the evidence accumulated that on the internet you could do amazing things. I think I was like thirteen or fourteen. I was already contributing to my. My family's finances because the Argentinian economy has always been in shambles. And there's been this huge discrepancy between the purchasing power of the US dollar and the Argentinian peso that is subject to hyperinflation.
6:43 Speaker 00 People in Argentina have always succumbed to hyperinflation. I would bring in, I don't know, even like twenty dollars from solving like CSS bugs on a freelancing website, and that would mean the world to my parents. To make a bill or make ends meet here and there, I helped them out more and more. So by the time I was seventeen, me saying, oh, by the way, you need to sign this paperwork so I can leave the country for this one trip, like, it wasn't that strange. So on one hand, it was difficult to like abandon that really curated yellow brick road to traditional education. But on the other hand, over the years, like, everything was like showing us that this path of software engineering and the internet could change our lives. So at the end of the day, even for my parents, it was easy.
7:27 Harry Stebbings? Did you feel the weight of responsibility? It's a lot to be contributing financially at thirteen or fourteen and not be really meaningful. Did you feel that weight?
7:36 Speaker 00 Yeah, yeah, a hundred percent. It's like the more money, more problems. I think the one time that it showed up the most was my revenue stream was strong but unreliable. What it created was a certain sense of like, we really can depend on this, but it's really nice when it's there. So it did come with some drawbacks and it was also so much fun. There's this intersection between like, what do you love and what are you going to make money with? So overall, even though it came with its own stressors over the years, I think it was an amazing choice.
8:06 Harry Stebbings? I'd love to know your thoughts on immigrant founders and why we have a disproportionate number that are successful and why you believe immigrant founders are more likely to be successful than not.
8:17 Speaker 00 Yeah, that's excellent because I truly believe that only immigrants can have a very in-depth appreciation for the unique qualities of the place that they immigrate into. And I do think that appreciation for what's unique, different, special, awesome about a place or even a company is something that really empowers the individual. I think about who would I recruit to be a part of this journey of building a startup. I really think that the people that appreciate what you're building and the mission even before they join the company are the ones that are most motivated and driven. I also believe this to be true of people that come into, let's think of a country as a super company.
9:01 Speaker 00 In fact, folks like to call the US an experiment because it's so young, it still is a system, right? So it's like this massive startup that draws people in. There's still a high bar to even get in, first of all, like it was really hard for me to even immigrate. So you'd really have to have this appreciation for what's already here and what that can set you up to do. So you call it infrastructure. What you can do in your lifetime will be a function of the underlying infrastructure that you're given. And if you're not given that infrastructure, the best thing you can do is move to where you can find that.
9:33 Harry Stebbings? Do you believe you have that in the US today with all the political changes?
9:37 Speaker 00 I think so, and I think that despite the turmoil, there's something very compelling about having the right framework that sort of governs and keeps the system in balance over long periods of time. So really what I'm betting on is not the present state of a local micro-measurement that you could make about the system. I'm a bigger believer in the rules, checks and balances of the overarching system. Something that a lot of folks will point out about Argentina that's broken is the justice system. And I notice that even though like things can be in the short term unjust, I think the system coalesces into fairness and justice much more frequently here than where I come from.
10:19 Speaker 00 So I think really you're not betting on like what you read on the news or on the front page of a newspaper on a given day. You're betting on how does the system evolve over time? And which system seems to be more likely to honor its foundations and its checks and balances? Those are the things that I look for when evaluating, let alone engineering systems, but also countries.
10:40 Harry Stebbings? If like immigrant founders have this high propensity to be successful, I spoke to some of your team. And they said that across the board, the talent within the company, and Jeff said this too. But the talent within the company is just consistently exceptionally high. And they asked in particular, what are some uncommon or unexpected signals that you see in the talent that you hire? Given that you may hire people who traditional tech companies may overlook from the Stanfords or the Harvard or the MITs.
11:07 Speaker 00 I think a lot about our mission as working backwards from what outstanding products look like and work like. You come to Vercel because you want to build a great product. And you want our infrastructure and our tools to enable that. So I'm constantly thinking, okay, what does incredible look like? And work backwards into the implementation. And that's why actually we posited the market that front end is so important. Even though it was overlooked for years and years and years, it goes back to like when I even started. My dad was like, why are you wasting time with like JavaScript? You should be learning hardcore backend languages and things like that. But in reality, to me, that's so upside down, it's so inverted.
11:48 Speaker 00 Because the thing that matters the most is the look and feel and the capability of the application, the device. And then how you make that happen, I couldn't care less as an end user, right? So let's bring that back to how I evaluate folks that want to join the company or companies that we acquire. Or folks that we reach out to is that what are they putting out into the world that is tangible? What can I use? What hyperlinks have you shared with the world about your creations? This is a beautiful thing about the internet, right? Like you could be anywhere in the world and a hyperlink travels to me within a hundred milliseconds. So it really ends up being that you're communicating your capability through your creations. I want to see more of that in the world.
12:29 Harry Stebbings? It also solves the big problem of attribution, which is like when they're publishing personal projects. Attribution is quite clear than when you're like, I was five years at brand name company. And you're like, well, what did you do?
12:41 Speaker 00 That's what I said in my silver bullet. Although, you know, there is something even about like your writing. Your writing could be that front end to your mind. So the ability for you to convey your thoughts, the discipline to actually follow through with your writing. What is the quality with which you present yourself and your experience? I mean, your front end could even be the way that you talk and the stories that you tell. I actually encourage a lot of folks to, with the attribution problem in particular, right? Like, I was at Apple for twenty five years. I can't even say what I worked on. But there's still a narrative of where did you move the needle? Is it measurable? How are you able to relate and express the business impact that a certain contribution you made?
13:24 Speaker 00 To even maybe some internal of a distributed system or compiler? Like, how did that actually permeate? And if you can connect the dots all the way to how you made someone's experience better? Because I think this is the other thing is at the end of this rainbow, there's either you're making some end user experience better. Whether it's a visitor or a user of your app or some internal process, like I made the life of a developer better. So you have to be able to connect the dots from technology to sentiment and even the way you talk about it.
13:53 Harry Stebbings? But the trouble that I have, and I'm loving this conversation, but where I fuck up is on the front end. When they're so good at selling and articulating that and they can say all the brilliant words and stories.
14:06 Speaker 00 Yes.
14:06 Harry Stebbings? And I'm taken in. And it turns out that the founder is much better at articulating the story than actually doing the work.
14:14 Speaker 00 There's no depth. That's a great pushback. What I do sometimes is, I mean, this is probably an advantage that we have at Vercel, right? Like, you want to talk details, let's get into the details, right? Like, let's, let's go into the specific, down to the CISC all of how you implemented and solved a certain problem. Let's talk about what cloud infrastructure you use. Let's talk about what options you wait on the table. Let's hear your awareness about what vendors and what alternatives existed. I think being able to dive into like the absolute depth of the problem is something that everyone should be able to do. That doesn't mean that you have the complete texture. I think really what you need is the conceptual understanding. You might not know exactly how, like writing a custom module for the Linux kernel works.
14:59 Speaker 00 But you should be able to understand how the parts fit together. If you're evaluating a systems engineer that's joining your company. That texture is what allows you to discern better whether someone is just telling you a good story or there's actually depth to the story.
15:14 Harry Stebbings? What've been your biggest mistakes on talent identification?
15:18 Speaker 00 I have an easy one because I have betrayed that rule in the past. Sometimes I've placed more weight than I should have on this stellar linked list of awesome brands that you worked at. I did X at, let's just name random companies for the sake of it, Apple, Google, Amazon. And you look at that and you're like, well, four companies in a row couldn't have been wrong about this candidate, right? Again, I think you do have to have a curiosity about what that candidate can bring to the table. And when I've overweighted brands on the resume, and I think this for other folks, this could happen with universities, I think. That's one way where, looking back, I think I could have done better with a few candidates.
16:01 Speaker 00 But, but yeah, I think at the end of the day, it comes back to, can you evaluate the opportunity in its more objective and measurable merits than the approximations of merit?
16:13 Harry Stebbings? I totally agree with you. I fucked up in that way too. I think it is the biggest mistake that first time and young founders make, where they place more weight on external credentials. Because they view that as kind of a validator resource of, you know, what they maybe don't know what they're looking for. So my, my question to you is, I as a result favor second time or serial entrepreneurs. Cause I believe that there are so many things that you fuck up the first time, that you will not do the second and third. And I then won't
16:41 Speaker 00 I like that.
16:41 Harry Stebbings? for those learnings. So I basically only like second and third time founders. Am I right or wrong?
16:48 Speaker 00 No, I think you're right. I, I think the only risk there is that the pool could be constrained. But you don't have to get every single opportunity right. You just have to get a few great ones. And I think as a way of constraining the state space, the search space, I think that's a very good technique. I would add to that from my own personal experience, like someone that had an experience being an early member of, of a startup. And was able to learn a lot about like, I had seen decisions A, B and C get made. Where I would have chosen the exact opposite. And I was like, okay, I want to start something because this Non-obvious decisions that I would have taken a different path. I can now take the right path and I felt like that was almost like an unfair advantage in the marketplace.
17:33 Speaker 00 It really is all about finding whatever alpha you can across a number of dimensions, right? And to me, I was like, okay, like, I want to do hiring very differently. I want to do product development very differently. I want to just move faster, period. I felt that even without even getting into the weeds of the technology, I would set up different foundations for success for what I would start. To your point, I had my first startup, which had a moderately successful exit. And my second startup, build on the learnings of the first startup. So it is a good heuristic.
18:05 Harry Stebbings? You said there are product development done differently. I have this question always, which is like, is simple always better in product? It feels like we always just aim for the least number of clicks, the least number of buttons. Simple always better, Giamma?
18:21 Speaker 00 No, and it's for the same reason I said, I think the approach you described is good because it won't get you a hundred percent of the great companies. But that's not your job. Your job is to even just find a few of the greatest companies, right? And I think that's also true for product development. The inspiration for me is like Google search, where like there is nothing to do except for an input and like everything is so simple and like the magic is in the implementation and there is all this unfair advantages of access to data that gets constantly refined and all that. But I do think that if your job is, okay, I want to find a few of the greatest products that will be produced in this generation. I do think that a lot of those will be this deceptively simple things.
19:05 Speaker 00 Where the interface of the user is just magical, the company took on the burden. So one of my earliest investments was Auth0. It was one of those things where I was incredibly skeptical and yet I was like, I'll do it. Like this is all about asymmetric upside, right? But I remember the thing that I rooted myself in was a simple API call that hides a tremendous amount of complexity behind. So I never want to deal with like Mastercard and Visa and like. All this payment gateways and all this nonsense, retries and workflows and latency. And on the other side, you have like this awesome simplicity of like, here's the API call. Here's a curl command that you can run to get started.
19:48 Speaker 00 So I do think that a lot of companies will follow that. Now, where it gets more complicated is the famous like, what got you here? What gets you there? What got you to Sirius A or what got you to Sirius B? It's not necessarily what gets you from Sirius B to IPO. We, and I mean like in the entire like tech industry, we can become so formulaic to our own detriment. I think in the early stages, a company is trying to find its wedge into the universe. I actually remember a fascinating conversation that I had with the original CEO of Snowflake, whose point of view was that open source was overrated. And by the way, I I'm super open source filled, next to JS, even before next to JS, I I built Socket A O.
20:31 Speaker 00 I contributed a lot of Node JS since like zero point one. Mongo is the most popular O R M for MongoDB. So I'm like drinking the Kool-Aid of open source, I'm drunk on it. And I have this guy saying, well, you know what, like, to me, open source solves a concrete problem, which is market positioning and developing market awareness. It solves this zero to one problem. But open source is necessarily solve the one to one million problem, right? And if you look around, this is certainly true for every successful open source company, right? Like, the reason that GitLab, Mongo, Hashy, you know, a lot of these companies are successful, it's not just because they did only open source. So I think it's really important to understand that we are operating in a sequencing.
21:13 Speaker 00 And in the beginning of my career, I tended to look at like Sirius, seed A, B, C, D, S, so silly, like so arbitrary. But I do think we have to think more in terms of sequencing. And there's a long journey ahead and you have to be very adapted at each step of the sequence.
21:29 Harry Stebbings? What do you mean by sequencing? Sequencing by funding around, sequencing by like stage of product market fit?
21:34 Speaker 00 Yeah, I I think the product development strategy that gets you to the. And again, like the reason I like this A, B, C, and D thing is they're arbitrary, but they help us anchor. And they help give us a common language to evaluate and pressure test different frameworks. The simplicity of your product from zero to one might not be the simplicity of your product from one to two and two to three. Or let's call it series C to A to B to C to D. This is very clear in that companies become multi-product over time. And it's really easy to look at AWS and say, whoa, what a cluster F they have going there with like. They have all these products and like they have all this complexity. Yeah, but like that's where they are at now.
22:17 Speaker 00 And certainly, if you're trying to compete with them, you're not going to replicate their approach. You're going to try to bring a simplification to the market, but over time you have to reevaluate your priors. Because the challenge, the market, the growth, like things are changing over time. So. You asked me the question of is what I should be looking for only really simple products? And to me is the answer is very much stage dependent, very much market dependent. And there is no universal truth to the question.
22:51 Harry Stebbings? Is that not the biggest challenge there, which is like bluntly, everyone struggles to retain simplicity with products over time and feature creep is so real. And now we we also serve enterprise as well as SMB and so we need this and this and now we serve this. And and suddenly the product looks like, you know, workday.
23:07 Speaker 00 Yes, my answer to that is we don't need to fight every battle. The job of a good VC will be to find two or per fund, right? A handful of the best companies in the world. My job will be to create a few of the best products that I can bring to my category. I don't need to solve every single problem my customer has. I can partner. I can push solutions to user space. I can not enter every market. I can wait and hold, meaning when. Ever there is a temptation to solve a problem with urgency. Sometimes you're better off waiting, right? Like, this is something that Apple does remarkably well because they don't react to every trend that emerges.
23:51 Speaker 00 They pick their battles and markets. Yes, sometimes there is a opportunity that you have to catalyze at a given moment. But sometimes you're better off letting the truth emerge from all of the experiments that are constantly being run. And then you pick your solution. And this actually matters more as the company becomes more mature. Because again, you don't always have to be first, you have to be right. And that's what I think companies over time optimize more around.
24:18 Harry Stebbings? How do you pick your battles?
24:20 Speaker 00 So number one, culturally, there's an expectation adversal. We will go deeper into what we consider to be complete or ready for a product. Then I think most people are willing to go. We spend a lot of time on what we would call the internal testing of a product. Before we feel is ready to get to market. Setting up a really, really high bar for what gets to the customer's hands. This is really tricky because I think some people might confuse having a high bar with being slow. And I really think this is the crux of the problem. I actually had a an entrepreneur reach out the other day and he was saying like. The number one problem that I have is I want to move really fast.
25:04 Speaker 00 But my customers are telling me that I'm breaking their stuff too frequently. So my advice was you can find ways of reducing the blast radius of your experimentation. Such that when it's the time that you bring the product to everybody. You've accumulated enough evidence of success that you have an overwhelming amount of confidence in what you're bringing to the market. So it's easy to dismiss when like this keynote happen and and say like. This is the best phone we've ever made and like. You can dismiss some of those statements as just a an effective product marketing team. Or you can actually earn that confidence yourself. And when you've done all of that pressure testing. Sometimes I talk about this awesome video that I come back to on YouTube, I send it a lot.
25:49 Speaker 00 A lot of people of Boeing bending the wings of the airplane inside the factory. Beyond the point that is actually realistically possible that a turbulence event will bend the wings. They will bend them so much that it looks like the plane has molded into like a cylinder. But that gives them the confidence that, you know, you can do millions of flights a year and tolerate any storm and tolerate any weather event. And yeah, the wings will bend, but you've gone above and beyond to certify and sign off. This is the plane that I want people to fly and feel safe inside.
26:24 Harry Stebbings? Can I ask you a bit of a weird one, but I've been thinking more and more kind of about the integration or kind of the relationship between front end and AI. I I think more and more UI will matter less and less with the increasing prominence of AI. Creating this kind of chasm between consumer and UI. Doesn't remove the importance of UX, but UI for sure. Do you agree?
26:45 Speaker 00 I think UIs will change. If we can go to a chatbot and that chatbot is acting as a simplification of what used to be a very complex dashboard of lots of menus and submenus and like you're like, where did I go to find this and that? But at the end of the day, the information has to be surfaced to you. So I think it might just be that. I'll give you an example. I just saw this incredible approach to surfacing data that you just interface with the system with natural language. And then the system is basically guiding you to where the data is, right? Like it's surfacing what otherwise would have been maybe like twenty, thirty different clicks.
27:26 Speaker 00 Now the AI is just like serving on demand. With some of our products, we're basically going in that direction, right? Like what used to be dragging and dropping and like spending like hours or going into a text editor and like going through like all these auto completions and like errors. And now it's just you go into a UI that expects that you type in English. But our point of view is that now people will be creating a lot more of those UIs. It's a new tool in your toolbox.
27:55 Harry Stebbings? Do you worry about the commoditization of UI? When you, as you said there, have the explosion on the supply side of new user interfaces created, which means actually you lose the creativity. You create a discovery problem of sorts and actually the explosion of supply means a reduction in in price, so to speak.
28:13 Speaker 00 I think it'll be the opposite because my hypothesis of how I look at the entire AI space right now is very simple. There are a lot of jobs to be done that people will have to perform no matter what. Decisions that need to be made, there is data that needs to get visualized. There is communication that needs to be made, like I need to send you an email, I need to make a phone call, like. A lot of those things won't go away, but how we do them is going to be profoundly transformed. Let's say that I want to create a new email client. Basically, what Superhuman did, I want to do again. What's really fascinating about what's happening today is that when we were creating software over the past ten years. Part of our input into the design space, meaning part of what I thought was possible when conceiving a piece of software.
28:58 Speaker 00 Didn't involve AI in the past, didn't involve the fact that we can have this reasoning machines. That we can invoke on demand, call them the large language models or the AI as a service. Now that I have those, how profoundly different will my design be? So if I have to create the next notion, the next superhuman. My bet is that it certainly is going to look completely different. Because before I would reach for what I would call like software one point O solutions. And over, what makes someone really good at product design, frankly, is that they looked a lot of designs over their lifetime. They looked at a lot of data, they have a good instinct, it's almost like a good Go player.
29:39 Speaker 00 What made Lee Sedol a formidable adversary to AlphaGo is that there was this instant, this pattern matching. But now it's almost like the board has shifted. What made you a good software one point O designer, it needs to be actualized. It's not that you're not going to be good at a software two point O design. But you need to say, okay, now when I sit down with my conceptually empty canvas. Now I have this other set of tools that I can use to solve the problem. And it's exciting because startups don't have any privacy, they don't have any legacy software. In which they have to retrofit AI onto. It's a great opportunity for incumbents potentially, because they can now say, I added AI, ship it.
30:20 Speaker 00 And they can increase their TAM, they can say I'm AI ready. But it's also a really. Scary situation to be in when someone can come in and produce a completely different design, if that makes sense.
30:33 Harry Stebbings? Can I push back on you and say, I think that's like a transitory phase, like Miles Grimshaw said it on the show from Benchmark very well, he said co-pilot's an incumbent strategy. The things that you think we will need to do, but that new marketing copy, that new accounts, that phone call that needs to be made, actually won't need to be made. You'll say, I want this cat to LTV across Facebook, Instagram and Twitter, here's a thousand dollars, go do it. And there will be no decisions on where it's been, which micro influencer, and it'll just do it. And actually, selling the work and not the tools is what the true transition will be. And incumbents will win in the intermediary.
31:15 Speaker 00 I, I think I agree over a long enough timeline, but that doesn't actually result in practical advice for what to do over the next three quarters or even couple of years. I think the most successful innovations tend to meet the world where the world is. So when I think about the iPhone, famously, there were two concurrent experiments for what would become the operating system of the iPhone. iPodOS evolves and it was a fresh new code base, it was already on mobile devices in the sense of like, it was already being deployed to like smaller miniaturized hardware that was portable. And concurrently was the strategy of let's retrofit macOS to fit it into the iPhone. And obviously macOS being forked into iOS is a strategy that won.
31:59 Speaker 00 And it met the world where it was. The first killer app was being able to downsize websites and put them into a smaller screen and then find new evolutions within that, which became responsive design and so on and so forth. And then new native things happened within the context of that platform, namely new applications that weren't possible by just retrofitting. New applications that took advantage of the medium and new capabilities that were unique to the medium. But even fast forwarded today, like 20 years later. We're still in that world of there is this hybrid of the DNA of what already existed with all of this new DNA of what's now possible because you're on a mobile device and they continue to co-evolve. I think this will be the co-evolution of AI and traditional software as well.
32:43 Speaker 00 But again, going to like what makes practical advice possible. I think a lot of those chat type interfaces will have to meet the customer where they are. If you say to the AI, please help me make an advertising that's going to be deployed onto X and Meta or Facebook and Instagram, it'll have to give you some UI as feedback of what's proposing back to you. And then you'll have to interface with the system further. So I think it's still all UIs all the way down. Now, the key magical part of this is that there are UIs that are unique to the AI problem space. And those UIs will definitely be different.
33:18 Harry Stebbings? How do we think about great UI in an AI-first world versus not in an AI-first world? It sells the work, it completes the the project and it delivers it back to you. Is that a world of visual first, chart first, aesthetic beauty by data and data relayal versus simplicity and beauty? Does it change the way we think about great UI?
33:42 Speaker 00 One of my hypotheses is that we actually in some ways have to give people more UI. Let's actually look at what's succeeding in the AI world today. We have Midjourney. Midjourney gives you this text interface, but as a as a result of your text prompt gives you four choices of what you could possibly like. That's what I mean by it's actually giving you more UI, not less. It's uncertain about what it is that you actually want, so it needs to give you more choices. This is very different from software one point O, which is the world of determinism, the world of rule following, the world of predictable algorithms. If you give me a form and I put A, B and C, I give you a result D a hundred percent of the time.
34:25 Speaker 00 And if it's not D, someone gets paged because we monitor it, right? Now, software one point two point O AI, I don't know if I what I'm giving you, you're actually gonna like. I don't even know if it's offensive because like there is all this like craziness that happens when like you give this AI that is like not supervised and you gave it a lot of data and you can't even comprehend the amount of data that it has. So you actually have to create UIs that tame the craziness of the machine. You have to create UIs and give the creator So another easy to dismiss thing about the brilliance of some of those products is that because they're giving you choices, they're now feeding data back into the system
35:07 Speaker 00 to make it better in the next iteration by once again relying on new kind of capabilities that are more in this realm of probability rather than certainty. So I think that's a very important departure is that now we're entering the realm of I can assist you in the creative process. And again, that means that you have to think about software differently.
35:27 Harry Stebbings? I love the book, you know, The Paradox of Choice. I believe that too many options make an enemy of us all. How do we think about kind of actually simple and telling users what they need versus this kind of explosion of options that any consumer can choose between one of eight? Is that really a better user experience?
35:46 Speaker 00 It depends on what stage of the problem solving workflow you're in. If it's in a very creative side of the process, I do think having more options is better. I like to give the Rick Rubin reference of like, his contribution to the world is telling the artist if they like something or not. He says in that interview, like, I'm not an expert in the specific music techniques. I don't know how to play an instrument. The feedback that I give to the artist is what's valuable. What I like and what I don't like is what's valuable. So if the tool is very much in the creative stage, I do think having options to go through is really good because I was mentioning, in my experience, was made a designer of a certain piece of software or UI really good is just how much they've
36:31 Speaker 00 rejected over time. What makes a company good is how much they reject over time. How many things they say no to, how many seemingly attractive on the surface ideas they rule out before they decide, yes, that's the one that goes to market. Yes, that's the one that earns the position being in our product lineup. So it's really going through lots of iterations of yes and no, that gets you to the point where you can say confidently, this is what I like. So I do think that accelerating the iteration loop and turning down things could be really healthy, provided that the trajectory is Is good. What really matters in these AI systems is that the system is learning when you're turning things down.
37:12 Speaker 00 Because to your point, I like the pushback because the best assistant in the world will have rich context about what you already like. And will over time propose better variations of the solution that tailor to your preferences and tailor to the context that you're in. But we can't be too absolutist in that process because otherwise we're just gonna give you garbage. And notice that a lot of the successful AI systems so far have been in the realm of being suggestive rather than authoritative. Copilot suggests a completion to your text. Gmail's Smart Compose suggested what to reply to the email. Notion AI is saying, I can go ahead and like complete or give you ideas or finish the bullet points for you.
37:55 Speaker 00 When it gets into the realm of authoritative like agents, like I'm just gonna let an agent go into the world and act on my behalf. Without supervision, we haven't seen a lot of products that are successful in that are in that space.
38:07 Harry Stebbings? What do you think it takes to make that transition to agent? And do you think we will?
38:11 Speaker 00 I think we absolutely will, but it requires the close feedback loop with the person that that agent is acting on behalf of. It requires the person is still in charge. The metaphor that I like to use is being the editor in the newsroom. You're having the agents bring you the ideas and you're saying, nope, go back to your drawing board. This is a feedback. Nope, this doesn't make the cut. And you're the one that's also setting the creative direction. This week, we have to go after AI safety. That's a hot topic that people are interested in. Next week, we have to go into this. We have to go into that. So you're still in charge and this is why ultimately this is the healthiest version of an AI future after all, right?
38:53 Speaker 00 Because we don't want an AI future that inverts and puts us in the, we are the agent, the AI is calling shots. That's what people actually get scared about. So I very much like this idea of AI in the assistance of the creative process and AI just making processes more efficient.
39:09 Harry Stebbings? I don't. I don't because it plays into incumbents, I feel, who have the distribution, who have the existing product suite and can service that incredibly well. And as a venture investor looking for value creation, they make startups with limited pools, limited modes, fucking impossible to fund. That's my problem.
39:30 Speaker 00 I'll give you a good example, right? Like incumbents are in a very problematic position when, as I mentioned earlier, the new AI alternative is just really disruptive to their historical approach to solving the problem. The best example would be Microsoft Word, the infamous bad designer. A word shipped with a really thick toolbar that exposed every option that used to be nested within menus. They made it visual. Thirty percent of the screen real estate was tools. I remember a lot of the reactions at the time was like, holy crap, like, I didn't even know you had all these options, Word. The way that a company like that was looking at the problem of making the best possible word processor was very additive. It was a more is more approach to the world. What does this mean? That adding
40:14 Speaker 00 more utilities gets you promoted. Adding another way of changing the color of the text, or even adding more colors. Now, look at Notion, for example. It doesn't actually even give you every color on the spectrum. The designers of Notion said there is eight or sixteen colors that mostly work well for the purpose of writing this wiki-style documents and whatnot. So they actually said, we're gonna do less. We're gonna have a lot fewer text editing and text formatting options. And that's gonna give people agility, that's gonna make them more focused. Now, there's an extreme version of this, which is that can I actually not implement any of that? Because AI exists now. And my software 1.0 simplification strategy, which was creating fewer options or creating options that are
40:58 Speaker 00 more general, pales in comparison to an AI that can actually just like, do exactly what you want, even without having the options. I actually didn't software engineer any of those utilities and icons and blocks and whatever. The entry players can win because they do a lot less. And because it's so disruptive, then the incumbent has to say, holy crap, we have to delete everything? Like, I feel so invested. I crafted every icon, I crafted every menu, I crafted every piece of documentation for how to use this. I recorded all the videos that taught you how to use those. So I think that's the generational disruption that happens in software that is extremely problematic for incumbents.
41:39 Harry Stebbings? I agree normally, but I feel this set of incumbents are better than ever, stronger than ever and faster than ever. And we look at your, yeah, I think Notion would be considered an incumbent now. Let's put them in that category. But your notions of the world, your Adobes of the world have moved faster than ever on integrating AI very well. And actually disregarded a lot of, I'm sure, existing product strategy, I'm sure existing roadmap in favor of moving fast, getting shit done. And have killed a generation of companies in between. I'm like, shit, we didn't, when everyone was like comparing it to mobile. Well, we had Apple BlackBerry, which was an accidental pager that worked. And Nokia, which was a failed division of a Swedish, you know, Scandinavian company and a division in a corporate. This is fucking fang, right? They're gonna come and kill you.
42:22 Speaker 00 Well, I, I do think that a lot of these companies can be underestimated. One thing I'll give some kudos to Microsoft for is that. They told the company they had to work and focus and have a look toward AI much earlier than a lot of other people. So they have years of strategically thinking in the direction of AI. Now, a lot of these companies have the right strategy, the right foresight, the right internal talking points, the right investments. And they still get disrupted because the new way of doing things is so radically different. That initially they don't even look at the alternatives as a competitor. The best example would be potentially mid-journey to Photoshop or to something like that. Like, I'm actually very impressed with Adobe's incremental addition of AI.
43:04 Speaker 00 It was swift, it seems high quality, well considered, it gets the job done, like it's strictly in a measurable basis, like better. But there's a chance that like, again, there's such a platform shift towards now the interface is go to mid-journey. Where all of their tools just don't exist. They literally don't exist. Like all of the drag and drop and magic wand and selection tool and color switcher. So people just go and spend their time elsewhere. I think this is how desktop software sort of became less important than mobile apps when that transition happened. It's not that the right tactical determination was stop improving the desktop software, delete the desktop software. And this is what.
43:49 Speaker 00 Meta ended up doing well. It was that the user minutes and the attention and the growth was gonna go to a different way of expressing their mission. In the case of Meta, which was like, connect the world, they needed to go and almost start over. You needed to go to mobile and start over because everything that you've built for desktop, again, it still exists to this day. Very much like AM and FM radio still exist, but the growth is elsewhere. The growth is in this new approach. So you can have an incumbent that does that really well, but historically, most don't. Which is when the platform shifts and they need to do things very, very differently.
44:25 Harry Stebbings? I'm thinking about needing to do things very, very differently, and then we will move into a quick fire because I could talk to you all day. But business models have not changed at all in many, many years, largely on a per-seat basis. Does AI like solidify the shift away from per-seat pricing and entirely change the business model of software?
44:42 Speaker 00 I think it's an acceleration of what was already happening with cloud. If you look at Vercel, Vercel offers you two very powerful things for your organization. Number one, the most obvious and the most visceral to a lot of developers, which is that you give us your front-end project and we host it. We give you infrastructure to scale it autonomously. And that's traditionally a consumption. You pay for what you use business model, like Snowflake. But what Vercel also gives you is the iteration velocity and agility. Very much like what Google Docs or Figma give you, which is like now I can collaborate really fast with hyperlinks. And I can share around my entire organization what everybody's working on. It's almost like a Jira.
45:24 Speaker 00 My narrative violation is that businesses that only do one half of the equation are gonna become less and less popular over time. Because when I buy software, I expect to buy a comprehensive platform that solves business problems. And solving business problems is never about just procuring a very specific material, a cog. I want this to do more for me. I want it to be like an operating system for my organization, especially as you hit scale. You're like, oh, I'm using Vercel for this little thing here to like host this, but I'm using Azure here and Google here. Give me the foundation to level up my product development. And organization. That's what most of my customers actually want. So the way that we've built against that is that we've done a combination of like
46:07 Speaker 00 SaaS that is by seat and purchasing platform capabilities with infrastructure that grows when your visitors use the software. I think AI from the outset is doing this because AI is about getting some workflow or some tool. But it's also spending GPU cycles on very expensive outsourced intelligence, so to speak. And the more I use it, the more it costs. If I use a lot of GPT four, it doesn't matter that you're charging me like twenty, thirty bucks a month. You have to like somehow model piggybacking on your infrastructure for intelligence a lot. So I think we're going to see a lot of more of these hybrid models where you give me a baseline of utility, but I can also burst
46:49 Speaker 00 to utilize more of what you can automate for me, if that makes sense.
46:53 Harry Stebbings? Dude, you said about open that and you're the master of open source. You have been for years and years and years. Question is, if you just say there about kind of buying that kind of platform, that kind of validated product set. Who wins in the next ten years in terms of kind of AI development? Is it open or closed systems? Because closed systems are the ones that can deliver that packaged Microsoft tick bundle with a ribbon. And closed and opens like, ah, I mean, it's great in many ways, but we both know it's not the packaged product that Microsoft is. Who wins?
47:25 Speaker 00 Right now, Llama is not as good as GPT four, not even close. But with the ecosystem saying, this is what we're going to bet on. This is what we're going to throw all of our AI researchers. This is what we're going to throw all our hardware, AI chip accelerator budgets. This is what we're going to throw in all our software acceleration budgets. This is what we're going to throw all our documentation. This is what we're going to throw all the user space frameworks. Like Llama Index and Lancher and this and that. Like now you have this entire community that's saying, we're going to bet on this thing becoming better. The counter thesis to that is that famous Jeff Bezos quote on why AWS got so far ahead of the competition. Even though the competition knew full well that cloud was a strategic place to go, is that even a two-year advantage
48:09 Speaker 00 Technology can be lethal. Two years in tech is very hard to overcome. Five years in tech is just exponential. Ten years, good luck catching up to that company if for whatever reason you ignore their advantage for ten years. This has certainly been true in our space. When we were betting on dynamic front-end rendering technology, a lot of folks were betting on static. And I feel like a lot of folks have now said like, oh, like Versale, you're growing so fast, you did this and that. And like, they think like it's some act of magic. But going back, we just were willing to like bet on what was a little less popular, especially among VCs in the valley at a few crucial points. So, yeah, I can tell you like Llama will win or G P T four will win because I have evidence in favor of both.
48:53 Speaker 00 But I can tell you that every day we're getting more data and it's one of the most fascinating open questions to me right now.
49:00 Harry Stebbings? I totally agree. I also love that in terms of going against the popular narrative. I always ask companies like, you know, with the problem that you're solving, what do you believe that no one else believes?
49:09 Speaker 00 Correct. Most important thing.
49:10 Harry Stebbings? Listen, I want to move into a quick fire round. So I say a short statement and you give me your immediate thoughts. Does that sound okay?
49:15 Speaker 00 Alright, fun.
49:16 Harry Stebbings? So is ninety-nine percent of the cash going into A I companies today going to go to zero?
49:21 Speaker 00 False. My prediction is just like what happened with Web two point O, where because of the platform shift toward mobile and social, you have countless successful I P Os from that generation. You have the Ubers, you have the Airbnbs, you have the Facebooks. We're going to see the exact same thing happening with A I. Now, I can tell you exactly what the ratio will be, but I I would be willing to bet that twenty percent of investments will be productive ones. Now, productive means companies that then get merged and acquired, like we might buy an A I company. That doesn't mean twenty percent will be unicorns, but I think we will be see a lot of positive R O I.
49:55 Harry Stebbings? What's your biggest lessons from angel investing? You're secretly one of the most successful angel investors, I think, in the valley. What's your biggest lessons from doing so?
50:03 Speaker 00 People underestimate just how much their own time goes into thinking about important problems that need to be solved, but you just don't have the bandwidth to solve them. What do I mean by this? If I look back on some of the most interesting investments that I've ever made, there are things that I would have loved to do myself, I just didn't have the time and I was in the right place. Maybe I was working on another project, maybe I was working on a different company to actually execute on those. Just to give you some examples, I invested in this company called Scale AI. I really badly wanted to work on a product like Scale AI. I don't know if I would have been the person to build it, and I think I got really lucky by I chose the right horse in that particular space. But I do think your own experiences are very validating, especially I think this was making
50:48 Speaker 00 a lot of founders, CEOs successful in angel investing is that the things that you see, the things that you perceive, and this is also why I'm so bullish on AI as well, like there's so many AI products I want our company to buy. There's so many AI products that I want the world to benefit from. There's so many inefficiencies, there's so much repetition that's happening. There's this mismatch between supply and demand, and that's how a lot of great investments happen.
51:13 Harry Stebbings? So I worry when I think I could do that. Like, you know, I saw a company the other day and I was like, I'm better positioned to do this than the founder is. Do you not feel that it's a requirement when investing in a company that the founder is uniquely positioned to the extent that no one else is?
51:30 Speaker 00 I think the founder needs to be uniquely positioned in a number of dimensions, uniquely willing to go through the grind. That's a very important side of it. Uniquely positioned to either have the background or learn really fast what it takes to solve the problem. That's one that's kind of messed up about angel investing, like you can lose a lot of deals if you just look for expertise sometimes, and this is also true for my hiring philosophy, it's about the slope, it's about how fast people can learn. Here's a universal truth, ultimately, it's all about the market. It's all about people's willingness to buy a certain thing that determines winners and losers. That's why I wouldn't underestimate your own ability to judge what it is that you want to buy. Buy what it is that you ultimately need.
52:15 Speaker 00 Now, you might be actually really bad at judging the solution. So you have to be extremely open minded. I made a quick comment earlier that the thing where I got lucky with Otzero is that I just didn't feel like a hundred percent confident about their solution, frankly. And if the founders are listening, they're gonna hate me. Like, I felt at the time, holy shit, outsourcing off to a startup? How does that make sense from a chicken and egg point of view? How does it make sense that your home's and your company's door and the lock? You outsource to the lowest bidder, like a startup that has three people? So I was like, okay, it's kind of crazy that you want to turn off into a microservice. At the same time, I do know that implementing off, it's freaking hell. So this is the other advice I would give people is that
53:00 Speaker 00 there are a lot of things that people overestimate their own capacity to solve in an excellent way. What do I mean by this? Every company I would advise, every startup I would start, I used to set up a chat server in IRC. I would set up an IRC server so that people could collaborate. I knew the right problem to be solved. I knew that in order for software engineers to be more productive and collaborate with the rest of the company, they needed a chat medium to collaborate with others. I had the wrong solution. The solution was not to set up an IRC server. Very few people know this, but when Slack was coming up, a few competitors to Slack were actually giving you IRC as a service with some UI. So the market knew that there was a great opportunity around collaboration with chat for organizations.
53:44 Speaker 00 But the spectrum of solutions was incredibly bizarre. Some involved IRC hosting, some involved a hybrid of Slack with IRC. Slack even for a minute had an IRC proxy to help people move from the old world to the new world. And then they discontinued that. It's the solution that becomes kind of like the tricky thing to where do you place your bet? I remember when Matt from WordPress, I sold my company to WordPress, said, we have to install Slack and deprecate IRC. And at the time, I was like, whoa, are we really gonna trust this company with all of our communication? Same visceral reaction that I had with my own investment in Otzero. Are we gonna trust this company with all of our X? So you can almost see a pattern there. When you know that the problem is so painful,
54:28 Speaker 00 but your only hesitation is whether you can offload it to somebody, there might be a huge opportunity there.
54:34 Harry Stebbings? I love Mullenwerk. Listen, final one, Guillermo. Where are we in 10 years' time?
54:39 Speaker 00 The way we talk about this is, we still live in a world where there are a lot of bad products. There are a lot of bad experiences that you have on a given day. Our dream and our vision is that Vercel has raised the bar of every experience that people have with software, with applications, with products. It has to permeate all the way down to the average person doesn't have applications they hate, processes that bog them down. Why? Because we empowered every creator, every developer to fulfill their creative dreams and we gave them the tools to turn those dreams into the best products that they can. And I think AI will play a huge role in this. I think part of what we're doing now is creating a bigger funnel,
55:23 Speaker 00 bringing this knowledge into more and more people and putting the creative process in charge.
55:28 Harry Stebbings? Guillermo, listen, I've loved it. I mean, the breadth of this conversation for me now, infrastructure in Argentina to the future business model of artificial intelligence. Credit to both of us on this one. This was real breadth. I've loved it. Thank you so much for doing it and you've been fantastic.
55:44 Speaker 00 It was fun. Thank you so much.
55:47 Harry Stebbings? I mean, what an incredible discussion. If you want to see more from behind the scenes, you can check us out on YouTube by searching for 20VC, that's two zero VC. But before we leave you today, we have to talk about Canva. Canva is on a mission to empower the world to design. That is why they've introduced Magic Studio. Magic Studio brings together the best AI-powered tools for you and your team to help you redefine the way you design. Magic Design creates custom designs for you in seconds. Just provide a text prompt or upload your media and Magic Design crafts professional social posts, presentations and even videos. And something that I in particular really love is Magic Edit. It lets you add to, replace or edit your images with a single text prompt.
56:31 Harry Stebbings? It's incredible. Simply select where you want to see the change, write your prompt and watch as your image transforms. With Canva, you can realise your ideas with ease. Start inspired with over 500,000 free Templates and a rich content library to help you and your team achieve their goals. Explore Magic Studio at canva.com/magic. And tech startups are some of the fastest growing and scalable companies. But even the greatest startups can hit hard times. And that's why I want to tell you about arising ventures. If you're looking for a second chance for your tech business, you'll want to hear about this. A rising ventures is a holding company that acquires tech startups that are facing setbacks.
57:11 Harry Stebbings? Whether it's because of cap table issues, outsized preference stacks, unanticipated market dynamics. The team behind arising ventures, they're not made up of bankers. They're tech founders who've built and sold companies. So they know what other founders care about and they have the flexibility to structure accordingly. They're really awesome people, plenty. And since arising ventures is a holding company and not a fund, their team has total flexibility to do what is best for each individual business without the pressures of return timelines. They even have a team of operators ready to go for businesses that need a quick landing. A rising ventures helps get tech businesses back on track to reach their true potential. Let them do the same for yours.
57:52 Harry Stebbings? Visit arisingventures.com/20vc to learn more and connect with the team. That's arisingventures.com/20vc. And finally, travel and expense are never associated with cost savings. But now you can reduce costs up to 30% and actually reward your employees. How? Well, Navan rewards your employees with personal travel credit every time they save their company money when booking business travel under company policy. Does that sound too good to be true? Well, Navan is so confident you'll move to their game changing all in one travel corporate card and expense super app that they'll give you $250 in personal travel credit just for taking a quick demo. Check them out now at navan.com/20vc.
58:37 Harry Stebbings? As always, I so appreciate all your support and we have an incredible episode with Scott, co-founder at Atlassian, coming out on Monday.
Previous 20Sales: Why the Founder Should Not Be the One to Create the Sales Playbook, Why You Should Hire a Sales Leader Before Sales Reps & Why You Should Not Hire Sales Leaders From Big Companies with Matt Rosenberg, CRO @ Grammarly Next 20VC: Atlassian Co-Founder Scott Farquhar on The Biggest Lessons Scaling Atlassian to $50BN Market Cap; The Four Roles of the CEO, The Funding Round That Net Accel $6BN, The Regrets of Omission and Commission & The Honeymoon Cut Short Page updated October 26, 2026 · transcript and summary are machine-generated
