Investing Billions - E18: Avlok Kohli, CEO of AngelList on How He Turned AngelList into a $4 Billion Dollar Company

Episode Date: November 7, 2023

Avlok Kohli, CEO of AngelList sits down with David Weisburd and Erik Torenberg to discuss how he grew AngelList into a $4B dollar company. We’re proudly sponsored by Bidav Insurance Group, visit lux-str.com if you’re ready to level up your insurance plans. RECOMMENDED PODCAST:  Every week investor and writer of the popular newsletter The Diff, Byrne Hobart, and co-host Erik Torenberg discuss today’s major inflection points in technology, business, and markets – and help listeners build a diversified portfolio of trends and ideas for the future. Subscribe to “The Riff” with Byrne Hobart and Erik Torenberg: https://link.chtbl.com/theriff The Limited Partner podcast is part of the Turpentine podcast network. Learn more: turpentine.co -- X / Twitter: @avlok (Avlok) @dweisburd (David) @eriktorenberg (Erik) -- LINKS: AngelList: angellist.com/tlp -- SPONSOR: Bidav Insurance Group The Limited Partner Podcast is proudly sponsored by Bidav Insurace Group. Today's episode is sponsored by Bidav Insurance Group. Bidav Insurance Group is run by my close friend, Amit Bidav, who insures me both personally and at the corporate level. Most people are not aware of the inherent conflicts in insurance, where insurance agents are incentivized to send their clients to the most expensive option. Amit has always been an incredible partner to me and 10X Capital, driving down our fees considerably while providing a premium solution. I am proud to personally endorse Amit and I ask that you consider using Bidav Insurance Group for your next insurance need, whether it be D&O, cyber, or even personal, car, and home insurance. You could email Amit at [e-mail]. -- Questions or topics you want us to discuss on The Limited Partner podcast? Email us at [e-mail] -- TIMESTAMPS (00:00) Episode Preview (00:59) Why Founders need to be resilient (02:49) Why it’s rational to double down on yourself (04:57) Founder vs Operator mentality (11:07) Why empathy can hold leaders back (13:21) Episode Sponsor: Bidav Insurance Group (14:16) Do MBAs matter? (16:39) Avlok’s views on emerging managers (19:27) How AngelList services large funds (21:34) AngelList Data Room and why it’s been mass adopted by funds (22:48) How managers should utilize Treasuries (25:04) AngelList’s product philosophy (27:31) How CFOs balance CEOs (29:50) What we can learn from CashApp and Square (32:08) The importance of “disagree and commit” (34:41) The fallacy of the 10% turnover rule (36:24) AngelList’s wealth of data (38:35) “Power law is a hell of a thing” (41:44) Gauging investor skillset (44:09) “The primary place where Naval lives is in building great products” (48:48) AngelList’s plans to be the system of record for all private market transactions (50:51) How to reach Avlok

There's no one way some of the best VCs and investors work, right? For example, Naval's approach is very different than, let's say, another partner at another VC fund or another emerging manager or another solo GP who's very good. They all have different approaches. And so there's no one way to pick a great company. Ultimately, it's a function of unique insight, differentiated insight you have as an investor. And so that's the comparative advantage that matters to you as an investor when you're going to pick companies. Well, Avlak, you're an engineer turned three-time founder and worked two years at Square. After your startup, FastByte was acquired by Square, and you've been the CEO of AngelList now for over four years and really

have been deploying product at a lightning-fast speed. So Eric and I are really excited to chat with you. Welcome to Limited Partner Podcast. Yeah, likewise. I'm excited to be here. You had a very interesting childhood. You grew up between Middle East, India, and Canada. How did growing up in three countries shape you as an entrepreneur? The resiliency, going from one culture to the next, to the next, the formation years of being a kid going into young adulthood and then actual adulthood. There was a pretty deep culture shock every single time I made the change from Middle East to India, India to Canada, and then Canada to the US, though Canada, US wasn't as bad as the other ones or as drastic as the other ones. So I'd probably say resiliency is

the biggest one. Outside of resiliency, what psychological trait, what do you look for in founders? Also resiliency and ambition, creativity. I mean, starting a company and thinking that you're going to go change the world and build the next large company and have a real impact on society is kind of a crazy, it's kind of a, you know, take someone with a bit of a crazy streak in them. And so you are looking for the outlier characteristics and outlier personalities of folks who are truly believe that they can make that happen. And so you're ultimately looking for the, the aberrations, right? The folks that aren't and don't look like, talk like, or are like the average in society. That's typically what I'm looking for

when I'm meeting founders. You mentioned a little crazy. Does it take a crazy person to continuously reject M&A offers? Is that something that you look for? Obviously, we all know about the power laws. How do you look at the willingness to continue doubling down on yourself over and over and

over? Is that a little crazy or is that rational? That's actually rational. I think from the outside, when folks see entrepreneurs turning down offers, they think that it's crazy. But in reality, there's a bit of rationality to it. It all depends on if the entrepreneur and the individual sees that this company is on track to being one of the greats, one of the legendary companies.

And if you're growing really fast, you're the leader, you're the market leader in the space you're in, then it is actually quite rational to turn down offers. And if you're not in that position, then it's actually rational to take an offer. So it all just depends on the context in that moment in time. And you take a look at someone like Elon who did his first company, sold it. He didn't take that one all the way as an independent company. But of course, by the time he started SpaceX and Tesla, he's actually driven that into what it is today and continue to scale that as an independent company. So again, I don't subscribe to a one size fits all solution,

meaning offer comes in, always reject or offer comes in, always take. I think it's a very nuanced question and you have to understand the context of that moment in time for where the company is, its market positioning, and all of that. We just had a podcast with one of Elon's close friends, Scott Painter, and we really delved into that psychology and what drives him. I think he has a different way to orient himself

into the world. He's not maximizing around dollars, he's maximizing around impact. And I think his craziness came from the $170 million that he put into, I believe it was $100 million into SpaceX and $70 million into Tesla. The rumor, unconfirmed, is that he ended up sleeping on someone's couch after having $170 million. So I think he has his own level of craziness. But I think knowing when to double down and triple down is certainly an art. So speaking of doubling, tripling down, you started three startups and Naval invested in all three startups before asking you to be CEO and AngelList. What did Naval see in you as a founder? If I were to wager, the key thing ultimately is it's rare to find someone with a founder mentality who can really take a company,

wrap their arms around it, understand the customer, understand the product, and then really push and build it into something that it can be. And it typically takes a founder in order to go do that, right? So you really have two types of personalities. You have the founder personality, which is focused on creating like rapid creation. And then you have more operator style personality where you're effectively scaling an existing business line or an existing product line. And for what AngelList needed back in 2019, it was very much someone with the founder mentality. And I did have a bit of the operator skill set coming from Square. I've

actually learned quite a bit of that around like, how do you actually scale up a team? How do you scale up a product line? But ultimately, what was needed was the founder mentality for Angelus back in 2019. We had known with Naval, I'd known him since 2011. So the very first company I started was in 2011. So that's basically eight years of effectively seeing how it operated across three companies, obviously sold to them. I also saw my transition out of a larger company back into startups. So I think ultimately he was able to connect those dots and really took a chance on the same thing playing out at AngelList. Let me push back a little bit on that. You mentioned that there's a time for a founder

and time for an operator. That was the common wisdom. You start in 2008, I start in 2008. That was what was sold to us. Congrats, you did the seed series A, now we're going to bring in professional management. But you mentioned Elon. A lot of people would think Steve Jobs, Apple would be better with Steve Jobs versus Tim Cook today. Is there really a glass ceiling for founders? Or is that just a social construct that has been messaged over and over to founders? Yeah, so I don't necessarily think of it as the founder personality and operator personality are always different. In fact, you actually ideally want to have both in the same person and you want to be able to switch on or off depending on what mode you're in.

It is an interesting perspective, though, because in this environment where we're in the middle of such massive technological change and call it volatility, you have no choice but to have a founder mentality when you're leading companies. And so it is a good question. Does the advice that was given out in 2008, 2009, does it still apply in this day and age when you literally have full-blown industries getting rewired and rewritten because of the technological sea change with AI? So it is actually a very good question. I was just looking at Stack Overflow's decline in monthly users, and it is wild. It is like the wildest thing I've seen

for a website that was a staple, a product that was a staple in any engineer's workflow and outcomes, chat GPT, outcomes, co-pilot, get a co-pilot, and overnight, it's gone, right? Overnight, that website is basically done. And so if you play that out over the next few years, you probably don't want to have a pure operator style running any company because you just don't know what moats exist anymore. You don't know what comparative advantage you continue to have or what's been disrupted. And so you do need a founder style mentality. I do think that it's important for a founder style person to have the operator skill sets. And operator skill sets, what I really mean by this is how do you manage a larger team or growing team? Because ultimately a growing team of humans,

they're humans, they have emotions. You have to manage emotions, right? And when you're going through massive change and you're leading a company in a certain direction, your execution is a function of people's emotions, how deeply they believe in the vision and all of that. So it does take some finesse in order to do that well without a lot of chaos.

I do think that's important. Now, I don't think there is any one way of doing it, right? Elon, I actually read Elon's biography and was very inspired by it. You know, you just sort of look at it and he has a way of just like blasting through bullshit, right? Like, he has this line in there that stuck with me, which is empathy as a leader actually holds you back. Right now, for every strength, there's actually a trade off, right? That strength, you take it to a max is also your trade off. And so there's no one right answer. But that's one thing that's actually stuck with me where it's like, yeah, actually, it does blind you from seeing the truth. And the one

thing that Elon does is he just sees the truth very quickly and takes action very quickly on it. And then there is a wake of chaos. And I don't think that's necessarily a bad thing. I just think it's a function of what problem are you looking to solve, right? In any given project, if that's the thing that has to be solved, you have to move quickly. Chaos is okay. But sometimes you don't want chaos everywhere in an organization. You have to have some element of stability in some parts of the organization.

And I can't remember what the term was in the book. When the team is just like really focused on a thing and they need to go solve it, that's needed. That's actually how you get out of a rut. And I think most organizations by default are in ruts. Because the natural state of any growing group of humans is inertia, things slow down. There is a ton of reasons why something's not getting done.

And you really do need something to shock the system. And those shocks are important. At the same time, you also need the counterbalance for other parts of the system where you have some stability there. So I do think it's an art. If you were asked me, if you asked me to choose to choose, would I take a founder personality who can then learn operating or an operator self-personality and become a founder? I'd obviously take the founder. I think the founder piece is literally like, it's kind of just a way of being. I don't

know what other personality would go through the pain and torture. The founder personality is a scarce resource, not the operator. You mentioned empathy could hold you back. Is that how you've been able to scale so quickly in AngelList? After reading Elon's biography, I feel like I still have too much empathy. And to be clear, I think each person is going to have their own way of leading. I don't think anyone should sit there and model themselves off of, okay, I got to be like Elon. But you can always pull lessons and you can reflect on it. And I actually think that there are aspects of the way I lead where there has been little too much empathy. And I think there are things that I could do to actually be even more clear-eyed about the moment we're in and the products we're building and how we're scaling. One of the weaknesses, if you will, the trade-off actually that I've been told

is a certain lack of when decisions are made, like how it impacts other people. So effectively some lack of empathy, because ultimately the only thing that goes through my mind is, hey, we're going here. We got to get there fast. Let's go. Right. And let's make sure we're all moving there very, very quickly. And then I lean on the rest of my leadership team to make sure that the rest of the organization is coming along, as well as consistently communicating to the rest of the team around where we're going.

In terms of us moving very quickly and us shipping, I think that just comes from a consistent focus on the culture being one that moves quickly. When a culture is operating in that way, you then have the antibodies in the company. So if there are things that aren't moving as quickly, there's an individual that's not living up to the way we ship product, or, you know, there's just a little too much swirl, then you have the antibodies that kick in. And the way the antibodies kick in is basically frustrated people, right? And when you have high performing frustrated people, that's an antibody kicking in. And that's an antibody that you have to like, listen to and understand, okay, what's going on. And so I do operate very, very quickly, when those antibodies kick in, and just making

sure that we are creating a culture of just builders and people who want to move very, very quickly, and eliminating process meetings wherever possible. You know, there's no perfect solution. It's all a game of trade-offs. It's just really a question of where we are in that moment in time, what products we are really focusing on, the speed at which we want to move, the team that we have. But one of the things I do do react to those antibodies very quickly. Today's episode is sponsored by Badaw Insurance Group. Badaw Insurance Group is run by my close friend, Amit Badaw, who insures me both personally and at the corporate level. Most people are not aware of the inherent conflicts in insurance, where insurance agents

are incentivized to send their clients to the most expensive option. Amit has always been an incredible partner to me in 10x Capital, driving down our fees considerably while providing a premium solution. I'm proud to personally endorse Amit and I ask that you consider using Badaw Insurance Group for your next insurance need, whether it be DNO, cyber, or even personal car and home insurance. You could email Amit at amit at luxstr.com. That's A-H-M-E-T at L-U-X hyphen S-T-R dot com. Thank you. I know Naval famously said, I don't hire MBAs. I don't know if that was a philosophy or literal. What is your stance on that? You know, I've actually never really thought about MBAs. I don't think I've looked at it on a resume. I don't know for better or worse. I've literally never looked at what, you know, do they have an MBA or not? So I guess that that's quite telling. So my philosophy on it is I don't think you need an MBA to understand how to, you know, how to run a

business, how to build products. I've known people who've had MBAs and they've been awesome. They've been great. And I think what you get from MBA is you get the network, which is really important. Outside of that, in terms of are they better suited to run a company? I don't think so. I think what you really need is you need hustle, you need curiosity come together to build a product to serve a customer. That's it. Right. Everything else, all the other shit that happens in and around it is all just to serve that end goal. Right. If that's all that matters and every company lives and dies by product market fit. The only question that people should be asking is, is this individual going to either help us get the product market fit, or is this individual going to help us scale this product market fit, create modes?

That's it. And I don't think that comes from an MBA or not an MBA. I think that just comes from folks who are very curious. They understand the customer deeply. They understand how businesses are built. So they're really a student of the customer. They're a student of how businesses get built. And you don't need an MBA to go do all of that.

Go read investor presentations. I've read all of Jeff Bezos' annual letters. I've read Warren Buffett's annual letters. You'll learn so much in just like those two views of the world, which, by the way, both of their views of the world are actually can best be summarized as Buffett underwrites based on the past, right? He looks at stable cash flows, moats, everything, and Bezos underwrites based on the future, right? So take all of the profits, plow it into the business,

and then create even more free cash flow in the future. But the fundamentals of how they view the world are actually the same. And so if you read just those two folks' annual letters, Jeff Bezos and Warren Buffett, that's your masterclass in understanding businesses and what businesses are valuable, what aren't. So let's talk a little bit about the GP product at AngelList. The GP product, at least initially, was built for emerging managers. What are your views on emerging managers today as they relate to the market, but also as it relates to AngelList? I'll define emerging managers as any fund size that's less than $100 million.

And typically, emerging managers will be investing into the pre-seed round or the seed round of a startup. And a pre-seed round, seed round of a startup is typically when a company gets started. They're looking to hire the first few folks. They're looking to get the product market fit. They need capital to hire the first few folks. They're looking to get the product market fit. They need capital to get going. And so my view of emerging managers is that they're absolutely critical, especially in this moment in this market, right? We're kind of going through a pretty major down market. And the emerging managers are the folks that are consistently deploying and they're consistently there to make sure that we have a very active pre-seed and seed market. And you can ask, you can kind of play out the counterfactual. Let's

say there were no emerging managers, right? None, zero, less than a hundred million dollars. Okay, great. Now you just have the mega funds, right? Okay. Now if it's just the mega funds, then the issue ends up being that the rate of startup creation is now a function of the GP's time. And there's just not that many investing partners across these large funds. So my view is more emerging managers, the better, because that means more startups get started. They get the first set of checks and they get going. And, you know, I can also cite anecdotal example after example, where even when the market was crashing last year, there's a startup that,

you know, I helped create. And even as they were going through their pre-seed round and seed round, the folks that were writing the check in that moment were the emerging managers. And now this company is breaking out and growing incredibly fast. And, you know, you have to ask, well, the counterfactual for that would have been if there were no emerging managers, that company would have died. What about for AngelList? How does AngelList look at emerging managers? We did start with the emerging manager crowd. We effectively created that market. And our view on it was when you're an emerging manager, you're typically a solo GP. Maybe you've got one other person that's helping you. What you're really looking for is you're

looking for a full service product, meaning we handle everything. So you can just go focus on raising capital and investing into the best founders. And Angelus will literally be your entire system of record, back office, everything in one place. And so we effectively created that whole market. Now we're a little bit different. We obviously take on a lot of emerging managers, but we've now moved up market. We serve, you know, multi-billion dollar funds. And so it's a bit different now, but again, we're consistently making sure we serve the emerging manager crowd. We think they are doing a massive service to the startup ecosystem. And we think they're here to stay. Going up market, what changes have you made to the GP product that makes it more attractive to larger funds and also traditional institutional LPs?

Yeah, so the best way to think about what changes when you get to a larger fund, really two things. One is you now have a team in place, right? So things that would have been attractive that Angelus was doing where we handle everything. Well, you may not need everything that Angelus does. Now you want pieces of it. And those pieces of it are still very attractive and solve a pretty deep problem, but you now have a team that can help you execute. So for example, one thing AngelList does for the emerging manager segment is we actually are the signatory for all the investments. So we get all

the legal docs. We do full-on legal reviews. We actually send an email called a transaction review. The GP can see the terms of the deal. They can see pay to plays everything. We handle it all and we handle it. We're also the signatory there. Well, once you become a larger fund, you have a team that does that and you don't need that piece of the service. But you may want our you know, may want our investor portal solution, our treasury solution and a few other things that we've already built. So that's one piece. And then the second piece that happens as you get larger is you just take on a different class of LPs. And these LPs are very large institutions, endowments, and they have certain compliance requirements. They have certain customizations they need, right? And so the default ends up being you want a very configurable, flexible system

versus with emerging managers, you can actually standardize quite a bit of it. So that's the other big delta between emerging managers and larger funds is that you have more customization. So as we've gone upmarket and served these funds and these larger LPs, the two big things that we did was we unbundled the offering. So you can actually just adopt our treasury solution or just adopt our investor portal, data room, all of that. And these are all infinitely configurable and customizable for what you need. And that's been working phenomenally well. And yeah, we're off to the

races there. I don't want this to be all about AngelList products, but what are two or three AngelList products for GPs? What are two or three products that have gotten the most reception that you see GPs leveraging the most from AngelList? It's been Data Room. Because we built a Data Room product that we thought was sorely missing in the market. And I've been pleasantly surprised at how quickly folks are adopting it. Like almost every day I look at Slack and we see notification, this person just adopted the data room, this one, this one, which makes sense, right? Like we're in the middle of a market where emerging managers and larger managers are looking to fundraise. And honestly, the prior comparable data room was like DocSend and, you know, and maybe Google Slides.

There aren't that many great options that are built for what we do, right, built for the private market. So that's actually been something that's been working very well for us. In addition to that, we've got sub-doc software. We have our treasury system, which is our, you know, pretty sophisticated banking system meant for funds. And that one's also doing pretty well. But the thing that's been flying off the shelves right now is the data room, which makes sense given the moment we're in. You mentioned the treasury product.

Do you think funds should keep 100% of their money in treasuries? Even Sequoia would recommend startups to have a certain asset allocation. What are your views on that? I'll segment this into emerging managers and larger funds, and we can just talk about what they actually do. So I think for emerging managers, I think it's fine to keep your capital in a highly insured FDIC account. Just make sure it's fully insured FDIC account, right? Just make sure it's like fully insured and you're good to go. I think once you get past the emerging manager segment, like let's say past $100 million fund size, $200 million fund size, I think at that point, you actually want more sophisticated cash management strategies. And typically what we see is capital is placed in US treasuries, it's earning

yield, highest yield possible. Then you have a smaller segment that's in the operating account that, of course, should be FDIC insured so that that's available to deploy into companies. And so you typically want to do that sort of a separation, some in U.S. Treasuries, some in operating accounts you can deploy. And then you kind of move back and forth. So we've actually built our treasury system to do just this. And by the way, we've actually built this and built it off the infrastructure we've used for our entire business. We've already moved like many, many, many billions of dollars through the ledger, like 50 plus billion through the ledger. And so we've taken the exact same system and now we've made it available to the larger funds. And so that's typically the setup that happens. And that's what I recommend. So again, if you're an emerging manager, just keep it in like, you know, very high, high amount of FDIC

insured accounts. And AngelList has 125 million FDIC insurance. And then if you're a larger manager, you'll want to get a little bit more sophisticated, put a bunch in treasuries, you earn yield, and then the rest can be in the FDIC insured account. The one note I will make when you earn yield on any of this, it's considered pass-through income. So you've got to be really careful about how the LPS structure. Some international LPs do not pass-through income because it gets taxed. There's a whole bunch of complexities there. But again, once you get past a certain fund size, you typically take on those complexities because you can actually earn more in yield and you can

actually start managing the fund that way. I've seen you say in terms of product development that you want to only build products where they're not deployed in other companies. At the same time, you're trying to build a moat and make sure that GPs come to you and stay with you and that you're sticky. How do you balance these two product philosophies? Yeah, so at the core, the product philosophy comes from a view that you don't build anything interesting by building just a slightly better version of the past. Anything you build,

you have to make it significantly better. It's hard to see that when you're in the middle of building, right? You have, typically you have some hypothesis, some insight, some curiosity that you're in the middle of the building, right? You have, typically you have some hypothesis, some insight, some curiosity that you're pursuing. And then you share it with the world. And, you know, eight times out of 10, nine times out of 10, the world just like slaps it back.

It's like, we don't like this, whatever, right? Well, most of the time it's just app that people just don't give a shit, right? And then, you know, one out of 10, two out of 10 times, you've got something that hits product market fit. And they're like, we love this. This is awesome. Right.

So the way that we think about it is what are we doing? What products are we building where we have a unique insight and a unique view of how the world should work that we are best suited to do? Because if we're not best suited to do it, what are we doing? Meaning someone else is doing it. We're just, you know, we're just best suited to do it, what are we doing? Meaning someone else is doing it. We're just following someone else's playbook. And you never build anything interesting when you're doing that. In fact, what typically happens when you're executing on someone else's playbook is sure you may get some momentum, but at some point it's going to get competed away

because you don't have a unique insight. You're not building any unique advantages, any unique modes. And so we typically try to stay away from that. Now, to be clear, we're not perfect. We have made missteps where we've done something where we sort of look back on it and we're like, well, that wasn't very differentiated. We didn't really have a unique view on it. But we've also done things that have worked out and was very uniquely done by AngelList. And I don't think anyone else would have done it. Rolling Fonz are a good example. Roll Up Vehicle is another good example. Our CapTable product is very quickly moving in that direction as well now, right? We just recently launched Tieouts. We have a certain view of the world of how CapTable should

work. And so we really try to bring that with every product that we are building and we're putting out there on the topic of modes i don't think modes exist on day one but i do think you can play out how the modes build up over time and you want to execute against that strategy so that's the way that you know that's how we view um how we ship product you mentioned the successes certainly there's product failures are you willing and have you been able to take the product that's failing in the back of the barn and put a bullet in its head? Do you have that discipline on AngelList? We do have that discipline. It's a discipline that we've put in place, I think,

over the last year, a year and a half. You know, being an optimist myself, I have the personality of like, yep, maybe we try this one thing and maybe it works. But I think over the last year, year and a half, we've definitely built that muscle and that discipline. So we just look at it with a clear eye and a clear mind. In terms of advice for other CEOs and how to approach this, I think you need to have a very strong counterpart as a CFO who understands product, has product sensibility, understands business strategy, and understands the numbers. And you have a good counterpart. Because the CFO ultimately is the arbiter of truth, right? Is the person who ultimately will share with a clear mind, here's where we are. And then you have to effectively look at the narrative. Look, every product, every company is a narrative, right? It's a narrative of the future. The

narrative is used to raise money. The narrative is used to recruit a team. And now the question is, is that narrative true? Who are you actually going to go do it? And having a great, you know, a strong counterpart as a CFO can help you anchor, right? This is the most important part, anchor on the reality of today. So then you can look at that narrative and go, okay, given we're talking about where we are today, let's, do we still believe this narrative? Do we still think it can happen? And so we've started to build that discipline over the last year and a half in the company. And I think we've gone a lot better than we were even a few years ago. But I do think we have more room to get better at that. The decisions are never obvious, right? It's not that you get a strong counterpart, a CFO,

and all of a sudden everything is clear. All the decisions are clear and you just make them. That's not the case. What it does, it just gives you more information to then make higher quality decisions so that you can either choose to sunset or choose to actually green light a project. The reason I share it's never obvious decision is because there are many cases when you look at other companies where the CEO of the company had to sit there and sit where they do or die decision on a product. And majority of the company is saying, kill it. Why are we doing this? But they're like, nope, we're still going to do it. You know, an example, I cite Cash App at Square. So I was at Square when Square was going public.

And Cash App at the time wasn't what it is today, right? It was kind of going sideways, losing money every transaction. The narrative was Venmo is like, you know, already has network effects. It's the big behemoth. Like, how could we ever beat Venmo and all of that? And, you know, folks may forget, but Square did not have the best IPO, right? It was actually a very brutal IPO. And there was all this also this weird Starbucks deal that like, if you look at the numbers back then, they would like show the numbers and show numbers excluding Starbucks. It was like, it was really odd. There was some significant preference there on the cap table too, if I remember. Preference as well.

It was brutal. Yeah. So you can imagine like, you know, the reason I'm sharing all this is that moment in time, to be clear, Square was like growing very quickly. So growth rates were great. The company was great. But in that moment in time, as you're going public, there were all of these concerns, right?

These valid concerns that build up. And of course, looking in Cash App and saying, well, this is, you know, this is actually taking a lot of money and we're also losing money every transaction. How's this going to look when you go public? A lot of people were questioning, why are we doing this? And I think Jack has now publicly talked about this on Sequoia's Crucible Moments podcast, right? I haven't listened to that episode yet, but, you know, he basically said, we're going to do this. And, you know, one thing that he used to always say at all hands is you don't need to always agree with me. And that's okay. But ultimately, we're going to go do this, right? It's like basically saying, I'm the decision maker, right? It's an I'll take accountability for the decision. And kind of relatedly,

even when you read Elon's biography, there are so many stories and moments where literally people are like pushing back and he's just like, I don't think you understand. I am the decision maker. I'm making the decision. I will take accountability. If we're just, we're doing this and we're moving forward, you're either onboarding or not. And so the reason I share that is even when you have all of the data and the information, it's still never going to be a clear decision on what path you need to go down, what you need to sunset, what you should green light. My advice to CEOs also is I keep that in mind. How does that play out?

So you say your entire team is against this new product, let's say rolling funds early on. I know they had a great start, but let's say they didn't. And you had high conviction on that. You bulldozed that through. How does that play out? Is the percentage of the employee base basically hate you forever? I mean, you have a certain amount of call it like pent up energy of like, well, I don't just I don't agree with the decision. You just have it there. And ultimately, what it comes down to is you just

look at the success or the failure of the product. And you share context about the learnings or you share context about, hey, here's why it worked. In terms of how it plays out in the culture, I think you have to be clear around where the decision-making lies and then share context around how the decision was made and why the decision was made. And I think that's the best that you can do. I don't think you ever want to be in a position where you're trying to convince everyone and bring everyone along. Let me rephrase, you want to bring everyone along

by sharing context, but you're not looking for, oh, we need 80% of the company to be on board with this in order to go do it. And that just needs to be clear in terms of how the companies run, how decisions get made. And I think if you have that and people are bought into

it, then that's great. Right. And there's like a cult, you know, there's a thing Amazon does, for example, as like disagree and commit. So once you like once the decision is made, even if you disagree, you got to commit. We're just we're moving forward in this direction. And so I think that's all expectation setting. And I think as long as you set those expectations, it's fine. Now, on the margin, you'll have people that quit, they leave, they lose conviction and leadership. And that's okay, right? You're not you're not trying to cater to everyone. Ultimately, it's the CEO's job to push the company push the team in a certain direction. And the direction that you push in is always non consensus, always non obvious, right? You know, VCs talk about this

a ton. Investors talk about this a ton. Like you want to look for the, you know, you want to look for the team. You want to look for the idea that's non-obvious, right? Other people are looking over it. Well, it's no different when you're in a company and you're making decisions. If majority of the team agrees with you, probably, you know, you're probably not doing anything interesting. So I think it's a it's an active, maybe it's unintentional way to build a business cult, cultural cult, where you follow the leader in that regard. And I think one of the things goes back to having a lack of empathy, I would phrase it a little bit differently, which is being comfortable with not being liked by everybody. And that is something that I've had to develop as well. And one of the things that I realized is leadership is taking people to another place. And some people do not want to go to that other place. And some people do.

If you're going for moonshots like an Elon Musk, your business model should include significant turnover. Yeah. And it's interesting you know, it's interesting, you talk about turnover, I think, you know, you obviously want to track your regrettable, irregrettable turnover in the company. But, you know, for the longest time, the common wisdom was you want to have very little turnover, like you want to have 10% turnover. And that's insane. That is like absolutely insane, because, okay, that does that mean that you're going to be hiring people at a 90% accuracy rate? All right. Number one. Number two, does it mean that as your company is blitzscaling and growing and you're pursuing your opportunities, the team that you have consistently approaching the product, the same energy based on tenure and everything. So I just think that by anchoring on a certain percentage turnover, or like a very low one, you're not looking at the core question,

which is, where do you want to go? And how do you get there as quickly as possible? Right? And so that's where I don't think having a turnover goal makes sense. I think ultimately, you just have to like, you have to understand where you're going, what you're trying to do and make a decision based off the context in that moment in time. I just don't think having a universal like good or bad turnover rate makes any sense. It all just comes down to like, where are you in that moment in time with the company, the team, and all of that. It's a perfect segue of all the data sources in the world. AngelList would probably be able to see the positive correlation between a low turnover and a success and how that relates. Let's talk about the data. You have, I think, in terms of proprietary data, the largest data set in startups. Tell me a little bit about your data. Tell me where you are as a company. And then I want to talk specifically about the generalized learnings across the data set. The data itself, we're basically powering a very large percentage of the entire emerging manager base. We're also a signatory for those funds.

So we get all the legal docs. So all the way from initial investment right down to all fall on investments right down to some sort of, or it goes public acquisition, whatever. We get all of that information. We're actually seeing the full lifecycle of a startup. And because we're a very large segment of the emerging manager segment, we see all of that data. And now we have longitudinal data going all the way back to 2016. So we're kind of seeing a very, very long lifecycle of all these companies. And we've publicly shared this. We see something between 65% to 70% of all the

top tier USVC tech deal flow. What this means is for any company that has raised from a top tier USVC, there's a 65%, 70% chance a GP on the platform is already invested in them. So they're already in the portfolio that we're managing. And we manage now 20,000 funds in syndicates, 13,000 portfolio companies. And so that's how we get the breadth of the data. In terms of the trends that we end up seeing and we're very close to early on, we'll typically see the trends, LP trends, right? Based on like the type of LP, individual LP, institutional LP going into funds. The other trends that we end up seeing

are just company valuations. So it's based on pre-seed, seed, series A, series B, series C, like we'll kind of see all of that. And then the other trend we see, of course, is the exit trends, acquisitions going public, all of that. And then we'll also see the, call it the kind of the complex pay to plays and all, like the basic deal structuring financing terms that come in that aren't clean. So we get a pretty good sense of the world of venture through all of that. You have your own rolling fund on AngelList. It's 506C, so we could talk about it. What are three learnings that you've gained from the data set and from seeing everything within

how you go about choosing your own deals? Yeah, honestly, power law is a hell of a fucking thing. Having seen it, you're just like, oh my God, it imprints on you, right? When you see it a few times. And what I mean by that is the returns made on a very small number of investments dwarf even the successful, quote unquote, successful investments that may be 10X, 20X, 30X, right? Maybe. And so power law is a hell of a fucking thing. I think second piece is that, you know, because of that insight, that parallel is a hell of a thing. You do want to think about entry price and exit price, right? And I do think

that matters. Now, the entry and exit price matters in terms of you need to understand that range. So if you think a company is actually going to be a hundred billion dollar company, then your sensitivity to the entry price is different than if you think it's only going to be a $100 billion company, then your sensitivity to the entry price is different than if you think it's only going to be a billion dollar company. And so I think that's another thing that's important to consider. And I would say the third is you get an appreciation for the top tier US VCs, right? Where you do see that it isn't luck, right? When you look at the best of the best VCs, and we see this in our data. In fact, we have an internal metric we look at called markup over baseline, which is effectively looking at how likely is it that a GP or fund is going to be marked up by a top tier US VC, right? So we actually look at that as a signal because in sitting with the data,

we've realized that, yeah, there is a certain amount of skillset when you look at the best of the best VCs and certain partners, they are very good at picking and seeing which companies can be great. And so I'd say that's a third piece is it is a skill. I don't think you can, you know,

you can just simply choose any and all companies and expect to make alpha. Now, we do think that broad indexing, you can build a great beta product. And in fact, we do have a beta product. Beta product just means you can get really good returns relative to the public markets without taking a lot of risk because you're broadly indexing into the world of startups early on. If you're looking to generate alpha, you know, picking matters, learning that skill matters. And the top tier VCs, some of the partners are very good at it. And so you want to understand how to be like them.

And the other last piece I'll kind of end on with that particular question is there's no one way some of the best VCs and investors work. Right. For example, Naval's approach is very different than, let's say, another partner, another VC fund or another emerging manager or another solo GPU is very good. Like they all have different approaches. And so there's no one way to pick a great company. Ultimately, it's a function of unique insight, differentiated insight you have as an investor. And so that's the comparative advantage that matters to you as an investor when you're going to pick companies. What is the quantitative metric around generating alpha? You mentioned skill set. How do you gauge skill set? So I think about skill set, that's more of a lagging indicator. So the skill set that we look at is, have they consistently generated and invested in a world-changing company,

an enduring company? And so it ends up being more of a lagging indicator. Now, when we look at evaluating the emerging managers, folks who haven't had successful exits in DPI, that's basically like a distributions metric, then we look at the likelihood of them getting their investments marked up by a top tier fund in a meaningful round. So we're effectively doing a, think of it as like a proxy metric of the likelihood that this person will become a great investor in the future. Ultimately, the only metric that matters is DPI. I think all of the other interim metrics like IRR, unrealized IRR, TVPI, and everything, these are like metrics that don't really matter for the ultimate end goal of DPI.

So when you think about that, you have to ask yourself, okay, what metrics do you track that could correlate and lead to DPI in the future? And that's ultimately what we think a lot about at AngelList and why we look at metrics like markups over baseline. And we have a few other ones that are very custom to AngelList. Now you have to ask the question, why does AngelList care about this? Well, we care about it because we also are consistently raising a fund that invests in other funds on the platform. And so we have a capital part of the platform where we are raising large and larger funds and we're effectively becoming a fund of funds for a certain subset of the funds on the platform.

So we generally look at that metric and that's how the fund is structured and created. It has an investment committee around how it makes decisions on what funds to invest in. I want to zoom out a little bit. You mentioned Naval's sort of investing approach. We hear a lot about Naval as an investor. We hear a lot about, obviously, people have been reading Naval as a philosopher and thinker for many years, but we don't hear a ton about Naval's genius as a business strategist, right? Angel is such a fascinating business and had a bunch of evolutions over the years.

So describe a little bit where you think Naval's superpower as it relates to business strategy and how does it overlap and sort of different from your approach? The primary place where Naval lives is in building great products, right? So what I mentioned earlier around AngelList really focusing on products that were uniquely suited to build for the world, products that are differentiated. That actually comes from some of Naval's DNA and something I've learned quite a bit from as well. He is really focused on how do you build a wonderful product

and just is not anchored on the way the past works, is not anchored on the way the world works today, right? It's almost like a blank slate. Like, given what we know today, what's the ideal product that should exist, right? And the existing structures and the existing world as it is today be damned, it doesn't matter. And so that's a very pure lens through which he views the world on like, what products should exist? And then we ask the question, okay, how do we make this product exist? How do we see this into the world? So that's like one piece that has been really refreshing, actually, because when you talk to a lot of people,

the, you know, the default is, oh, can't do it for x, y, z reason, right? And those x, y, z reasons are typically artificial anyways, right? They're not real reasons. You can create any world that you want to exist. And so that, I think, is one of his superpowers. he has a just a natural ability to think about how does this ladder up into a business that has moats something that can be valuable it can compound it can have network effects how do you get distribution that's another one of his like superpowers so kind of marrying the product you know having a pure product lens in the world and understanding how, how business, like what type of strategy makes sense, how modes get built into a single individual ends up being very, very powerful. And so a lot of our conversations around product are, honestly, they're actually typically quite fast. And we hear it quite fast, because we look at the world in the

same way in terms of Yep, you need a product that ultimately is great, that when people look at it, use it, they're like, how do we ever do this thing in the past? Why do these other products even exist? And you want to make sure that what you're building compounds into something much, much larger through network effects or through other modes that get built in. Henry Ford famously said, if I had asked people what they want, they would have asked for faster horses. What percentage of your products are pushed from what you and Naval and senior management talk about internally?

And how many are pulled from customer requests? I'd say all the products that are net new end up getting pushed out. And then typically as it's working, we end up understanding how to build out the roadmap based off of customer input. So it really depends on if we're pushing something zero to one, it's pure push, right? It's really hard for people to imagine a different world, imagine how the world could work. And so you typically have to push that out and that's what we end up

doing. And then building out the roadmap when something's working, we do look at what our customers are saying. Though, even when we look at what customers are saying, we're generally listening in for the problems that they're facing. We're not trying to go build exactly what they're saying. If you go build exactly what they're saying, there's no vision behind it. They may have their own reasons why they're asking for something. And sometimes people also ask for things that, you know, there's no skin in the game for them. It's cheap.

Even then you want to always anchor it on, you want to anchor, have some costs associated with that. And so that's how we think about it. So we generally push into the world. We generally, even when we listen to customers, we're putting through the lens of, okay, what problem are they actually trying to solve?

And then we also just ask, like, should we even solve it? Like, are we even best suited to solve it? Is this even an important problem? Does it even matter to us? So we are always asking those questions. And, you know, there are a list of things that customers have asked of us, and we haven't even gotten to it yet. We haven't touched it. And by the way, this is the case for every company.

You look at every company's backlog they'll never they'll never make it happen like it's just the backlog will just go forever so there is a certain amount of taste and editing required for what you decide to pursue as a as a company speaking of taste and editing you guys have launched so many products in the last year. What are the next five years look like for AngelList? You know, it's interesting. We don't actually plan five years out. A lot of what happens at AngelList is we'll effectively launch these products that start scaling and inevitably we see something we didn't see before. We'll see different dots that start to connect that we just didn't see before.

What I will say is the directional, the direction we're heading in is continuing to be the system of record for all private market transactions. So what you'll see from us is a lot more product that will cement us as being the system of record. So whether it's all the way from investor portal to treasury system to accounting systems, right? We plan to be the system of record for small and large funds alike across the board. So that's the direction that

you're going to see from us. I think the second is you'll see our startup products around cap tables continue to have a very unique view of the world and unique lens on the world. And you see it in some of the recent features we launched around tie outs. And we're continuing down that path. And then lastly, we, of course, have a capital part of the business. And there were certain moves that we were making before the market crashed in May of last year that we are planning to get back to. And you can basically think about that as we're going to continue to vertically integrate and use our advantages to help drive more capital to funds. We're not ready to talk about that exact thing. We're very close to publicly launching it and we got approval for it, regulatory approval,

but we're gonna be getting back to that going next year. What a cliffhanger to end the interview on, but you've let us really probe. I feel like I'm a doctor. I've been probing you for an hour, so we won't probe any further. I really appreciate you getting in the hot seat, answering all these questions. What would you like our listeners to know about you

and about AngelList? Yeah, I think the main thing to know about AngelList is we really love, love, love hearing customers' perspectives. And so I would just say, if you have a certain perspective, ideas, really anything, just tweet at me, twitter.com.avlock. Email me, it's avlock at angelist.com. We lean very, very heavily towards listening to customers' perspectives. Of course, we're not something amazing for emerging managers and established managers alike. Almost the definition of a great CEO is somebody that you would for a second consider quitting your job and working for. And I've definitely felt that in the interview. So thanks so much for joining us.

Cool. Thank you. This is great. Thank you for listening to today's episode. We hope you enjoyed it. Eric and I. Thank you for listening to today's episode. We hope you enjoyed it. Eric and I have a special RFP to the community. Please intro us to any family offices, endowments, or foundations that are currently investing into emerging managers. All introductions which result in a podcast will receive a $500 Amazon gift card, as well as a special shout out on the episode. Not to mention, you'll forever hold a special place in the heart of the LP introduced.

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