Investing Billions - E438: Will Robbins on Elon Musk, AI & the Future of Silicon Valley

Episode Date: October 5, 2026

What if the biggest edge in venture capital is identifying an exceptional founder before everyone else does? Will Robbins is a technology-focused venture investor and founder of Robbins Capital, where he backs companies starting at formation. Previously, Will joined Contrary as its first employee and helped grow the firm to more than $250 million in AUM. In this episode, Will explains why traditional VC brands may matter less in an AI-driven world, how he identifies exceptional founders before they have traction, why the best startups often pivot, and why reputation with founders may be the most important asset a venture investor can build.

In a world where it's so easy and cheap to go build software and get to product market fit, where you need almost no money to spend on tokens to write your code for you. The only thing standing between you and a fully featured product is no longer a year of engineer time. It's 50 billion tokens. If you look at the average unicorn startup, the profile looks something like some 40-something-year-old executive, spins out, builds a company in the domain they know about. But if you wait these companies by market cap, it's a very different story. If you look at the college and grad school dropouts, you get Facebook.

You get Google. You get Airbnb. You get Stripe. You get so many others. You're not looking for somebody with the right product or right market. You're looking for something else. What exactly are you looking for it? So before we started recording, you told me that VC brands no longer matter. What did you mean by that? There's a great irony today that I see, which within the Valley, people obsess over the relative hierarchies of different venture brands, right? How does Sequoia compare to Kleiner Perkins? How does index compare to Bessemer? And to me, I find that funny because if you pull a person off the street here in New York City, you know, they've never heard of any venture fund and they don't really care. And so in a world where, you know, talent and capital access is the most important thing for a startup,

then, you know, maybe which venture firm you work with matters more. But in a world where software is largely a solved problem with AI and the costs of company building have fallen so precipitously. And if distribution and real world, you know, trust network are the main constraints to, you know, AI and software percolating into the real economy, it's unclear to me if there's any venture brand that has a real edge there. You see a lot of firms building executive education centers where we can go, you know, pull people into a conference room and, you know, tell them all the cool things that their competitors and peers are doing with software. And of course, the portfolio companies of these firms. And I think that works well, but the trust and the reputation doesn't transfer over. I'll give an example.

We had a portfolio company. Did the first check at my last firm contrary about five or six years ago. They raised money from a bunch of investors. You know, they scaled up and they sell to insurance companies. And, you know, there's one advisor who has been, you know, sorry to throw the other VCs under the bus, but I'm in the same bucket. This one advisor who was formerly a senior executive at the U.S. Medicaid program has been more helpful to this company than all the VCs combined, right? This is just one guy who had a small number of advisor shares. And why is that?

It's because the government and because, you know, the insurance companies, you know, know, know, know, who these, you know, Medicaid leaders are and Medicare leaders are. They don't know who the VCs are, right? And to me, this is a kind of a shocking revelation in such a large part of our economy that the whole healthcare world can't really go pick and choose what tech solutions to use because there's just no legibility to it all. Me and my business partner Curtis were talking about this curse of knowledge where you forget how much you know and how insider your world perception is.

Most people in the United States not only don't even know who Scott Besson is, but don't even know the position of Treasury Secretary, what it does and all these things that to me and you seem very obvious. But just as Steelman, your argument, arguably the number one thing that a startup needs to get right is talent. And being this talent magnet, Elon Musk famously, is the best talent magnet of our generation. That's in many ways a secret sauce of how he's able to build these companies. Don't you need the VC brands to build out the right talent early on, especially before the company itself has a brand? I think the frontier for these companies is elsewhere now.

There's a couple reasons for that. One is that there are so many rounds being done, right? It used to be that five years ago, if you had a tier one brand go lead your round, you'd have a tech-conch article, I'd have your three hours of dominance on the Twitter timeline. Everybody would read the article and talk about it and say, did we see this company that this firm led around into? But nowadays, again, the industry is so mature, right? It's a good jungle where you see a different high-profile series A announced twice a day, seemingly, right? And so there's an inherent dilution effect that's, you know, through nobody's fault,

but it still creates a fuzziness to the signal if there's, you know, 300 companies that all have the same signals that you do. And so you can debate whether or not, you know, the brands have diluted. You can debate whether or not it's not table stakes for founders trying to go attract talent and capital and so on. But regardless, I think we can agree that's just not enough and that the real frontier has to be either a highly differentiated unique brand. And by the way, this is why a lot of the solo capitalists have been so prominent recently in that, you know, Dylan Field is like a more unique name as a kind of, you know, Figma CEO founder-type brand than a firm. It's also why you see the mission and the storytelling and the going direct-to-your customers take such a precedence in that people want to join inspiring missions. And so the wordsmithing around your mission and why people should join you is

almost more important now than capital. Is this why you've seen founders and CEOs being so obsessed about their public perception and their personal brands? There's markets and everything, right? There's markets in capital, it's markets in talent, and markets and information. And maybe the interesting way to frame this environment right now is that each market has its own ups and downs. And sometimes these are correlated, right? Sometimes they're not. And maybe a tough economy, maybe capital is more scarce,

but then talent is also, you know, more hungry for quality roles. And so, you know, maybe an unfavorable capital market can actually mean a favorable talent market. And this is the way that most businesses in the economy probably operate. A funny quirk about the tech world right now is that things are just fully on all the way, both regards to the capital markets and the competition for talent. And so the argument against people raising less money now in venture because you can go build companies and build software so much more cheaply is probably that you're going to have to spend, you know, twice as much on half the number of seats. And it's going to balance out and capital will be consumed just as it was before rather than people choosing not to raise early on when starting companies and just, you know, building software with AI. Is that how you explain this paradox where it's become increasingly cheaper to start businesses and to scale businesses, but yet they're raising $50 million seed rounds?

for example. So this is a huge topic of debate, actually, with a lot of early-stage friends. Me and others have hypothesized on this idea of the token round, right? What is the token round? It used to be that in the old days, you have a sort of de-risking ladder, right? Where you raise a seed round, you hire some engineers, you incrementally de-risk your business, and then you raise a larger round, and then you get to some sort of product market fit, whether it be a million dollars of revenue or some other signal, and you go raise $20 million,

and you kind of ladder up the capital curve as you go prove out each incremental element of your business. In a world where it's so easy and cheap to go build software and get to product market fit, the latter just can collapse and become more of an L shape where you need almost no money to spend on tokens and to kind of write your code for you. And then once you can go test it in the market and get feedback, you can immediately go validate and go straight to a $20, $30, $50 million round with that validation. And so there's a bit of a kind of an amorphous or maybe more rough capital requirement curve these days. One consequence of this might be that you just raise less money. And you raise half million dollars or a million dollars to spend on tokens with a belief that the only thing standing between you and a fully featured product is no longer a year of engineer time.

It's 50 billion tokens, in which case you can go raise very little and dilute very little, and then scale up and raise your scaling around from a multi-stage firm when you have that validation. The other argument is that there's markets in all things. And so even though the cost of company building is falling so much, first of all you can go take on other types of businesses that are more operationally intensive and expensive and you see this in like the deep tech companies you see this in the sort of like the neo banks right which obviously have a lot of ops and other requirements and then you compete for talent right and that's what you know

makes the five million dollar seed round you know kind of a such persistent thing and so those are two sides of the coin I think there's truth to both and we've seen both I've seen a lot of companies that raise you know five or ten million dollars out of the gate to go hire a bunch of people and should do a lot of stuff that you can't just do with software. I've also seen people raise very little and spend even less. I'll give an example. I have one friend who previously took a company public. He then started a second company, and of course, having taken a company public before, had a lot of offers for a lot of capital from a lot of different places. Being the disciplined, humble operator he is, he thought, I don't need that much money.

I'm going to raise only $4 million. And I'll build a team, I'll build a product and I'll go from there. And if there's any gap, I'll just, you know, I'll self-fund it. But I don't want to overextend and build a big preference deck. I thought that was very prudent. And six months in, he has a fully featured product ready to launch. How much you think he spent out of that four million he raised to go build a fully featured product? Small amount. $800,000. He didn't realize that the coding models would get so good. And of course, this is a pure software product, right? And very few companies have only software as their main product building constraints. But I see this. And it happens. And I wonder, man, play this forward another few years. If people start to see these examples,

what happens to the seed round? I think these days people should be building funds and sizing their funds with that in mind. So you can play, you know, both within the small token round where capital requirements are lessened, but also the larger capital-intensive physical world or ops-heavy round. This episode is presented by Juniper Square, the operations partner for private markets. In venture capital, it's reverse. It's a access class, non-assaclass, so your customer is really the entrepreneur. So if you're not building around the entrepreneur's capital needs, what exactly are you doing? Right. And that's a funny question. Who is the customer in venture, right? Is it the LP? Is it the founder?

Is it the Twitter followers who promote you, right? And, you know, give you the attention you want so desperately, right? It's always hard to say. I mean, obviously, it's that famous, you know, Buffett quote that's like in the short run, or mid to munger, mongerism, I'm not sure. In the short run, markets are, you know, voting machines, right? In the long term, they're weighing machines. And I think kind of similarly, you can probably say that in the short run on a fund-by-fund basis,

you live or die by your LPs. I think in the long run, as a firm, right, if you want it to be 20-year career, you have to live or die by your founders, because if you don't have the deep founder relationships. The flywheel is not going to persist. I want to go back to your friend who raised $4 million, spent $800,000, $3.2 million in the bank. A lot of VCs will say raising too much capital is a problem because it creates poorly run companies. Is that just VC rationalization into why founders should raise that lower valuation or is there something there? Everybody has different incentives and people's viewpoints are largely downstream of those. Maybe the classic example of

You know, VC versus founder incentives is that of acquisition offers, right? Where a VC only cares if you can go 100x the investment and return the whole fund on that one deal. And so anytime you have a 10x acquisition offer that may be life changing for the founder, or maybe even in the best interest of the shareholders, given that, you know, you may not see a long-term 100-x outcome. The VC is going to want to push for that, and then the founder's going to want to go take liquidity or shut down that business, you know, sell out to somebody and then go start a new one that does have the venture outcome possibility. And I think every business is so unique. and I almost reject all forms of, you know, speaking in blanket terms, there are companies that should go raise a 5.5 and, you know, stay very lean and, you know,

just buy 10 different Claude Code max accounts and just write a ton of software and build a lot of product. There are teams that should go take on more ambitious and operationally intensive experiments and treat their time and, you know, treat the learning as the more valuable asset than the capital. One of the parts of this decision making is the dynamics of the business, how it scales, whether it's when or take all, whether it's network effects. My personal view is that almost all startups, one way or another, are network effect businesses. What are your views on this? That's a great question.

I think the essence of all great software companies and technology companies must be some accumulating advantage. A network effect is maybe one category of those, maybe the economies of scale that made the retailers like the great outcomes of the 20th century. Can you double click on that? Sure. Maybe I'll tell this lens, this is a good way to go talk about Zepto, this Indian retailer It's been a really interesting technology company.

I've been involved in. We forget that retail is just like the greatest business model of all time, right? If you go look at Amazon and Walmart and Target and Home Depot, right, there's trillions of dollars of market cap between these companies. And savings to the consumer that have been provided are unbelievable, right? That access in the savings as well. We live in a fully economized retail landscape managed by complex software systems and ERPs and systems of record and obviously decades of experience.

And so we forget the water that we're swimming in. But without these large retailers, goods could be 50% or 100% more expensive than they are and so much less accessible. And so I think the economy of scale is one of the great modes of all time. And it's one that is great, hopefully both for consumers and for businesses. This company called Zepto in India, it's a very unique company. There were two 17-year-olds I met who wanted to go to college at Stanford. COVID happened, and they thought that going to school and doing Zoom college was a bit of a fool's errand. And so it came to me when I was at my last firm, Contrary, and said, we would love to go start a company and skip college and build a grocer in India.

It's so hard to get groceries. There's, you know, the retail infrastructure is disorganized. It's unreliable. Our neighbors need food. And so, you know, we offered to invest. We made an investment. They incorporated. They didn't go to college.

They stayed in India. And at the time was just a WhatsApp chat organizing some grocery deliveries between neighbors became a little software app where you can go. you know, purchase groceries online, you know, connect to the farmers or whoever was producing it, and, you know, order food by the bunch. Fast forward about five years, they built a network of dark stores that cover a mile long or kind of mile radius. The core insight behind Zepto was that the Indian retail landscape was largely made up of mom and pops, right? This very diverse, you know, very ingrained kind of ocean. It's almost culturally embedded.

Exactly, right? And so the team realized that building software for these mom and pops was too hard to get. go do it. It didn't make sense to go sell software to these businesses with their amazing variety and diversity and custom workflows. They decided that they should just go build the Walmart of the Indian 21st century. They built dark stores that cover about a mile radius. They have a system of kind of delivery drivers that will go and, you know, 10 to 15 minutes go, pick up an order that's packed, delivered to you, and then go back to the store. And they do that over and over and dozens of orders per day. They built a network of these dark stores, which are each supported by

one like big mother hub warehouse. Imagine a job. Imagine a job. giant, you know, million square foot warehouse in each city that then serves these, you know, dozens of kind of smaller spoke dark stores that are hyper-local. And it's been remarkable growth. I mean, they started about, you know, five, six years ago. They're now doing about two million orders a day, about $4 billion in sales annualized, more or less. And, yeah, the founders are still, I think the CEO just turned 24, two weeks ago. And so it's a remarkable kind of Indian story both in terms of the team and a very kind of young, precocious Zuckerberg-style Cinderella story.

I think it's also story of the kind of development of nations and how Zepto was not only able to go deliver food in 15 minutes, you know, on demand and a very convenient way, is able to do so with better selection and better prices as well because the economies of scale, right, and buying things in bulk and organizing them into warehouses and building software tools to go plan your inventory and understand the lead times and purchasing amounts. Leads to great efficiencies. That said is a tough business, right? There's no true low-hanging fruits in retail.

I remember the Zepto team would do things like redesign their packaging to save a single rupee on an order, right? And rupees, rupee is about a penny more or less, right? And so to redesign your entire packaging flow to save kind of one penny per order, right, shows the kind of level of operational rigor and discipline you need to have to win in the space. But once you build a retailer, then, you know, you have the kind of scale, you have the selection, you have all these other benefits of the loyalty and the infrastructure and the cross-selling, right? on that point, we think of companies like Instacart during marketplaces, right? I think it was 2019 that Instacart started doing advertising.

Now ads are about a third of Instacart's revenue and almost all with their profit margin, right? It's almost remarkable that these companies we think are operational businesses or marketplaces are really sort of like economies of scale with some sort of cash flow machine strapped onto them. The Zepto team understood this early and they layered in ads to their product to help people find things I'm looking for. They layered in private labels, right, to go kind of verticalize certain skews that were higher margin and more reliable and reputable to sell and build. And they also try to verticalize relationships with the farmers, actually grow the food and have their own needs on capital and logistics and so on, right? If you do it from the very start, you can build a cash

flow flywheel, but then it gives you the right to go to exercise your economy of scale and become a really big outcome. And so we forget this in the West because, you know, there hasn't really been a truly great retailer since Amazon, probably. I want to get back to the Zepto founders and when the world would compel to 17-year-olds that were going to Stanford to quit and start a grocery delivery service in India. But before we get into that, you mentioned this Mark Zuckerberg type story, this whole Stanford dropout or Harvard dropout. Is that overdone?

I think no. And I'll tell you why. So if you look at the average unicorn startup, right, the profile. look something like, you know, some 40-something year old executives, spins out, builds a company in the domain they know about, right? But if you wait these companies by market cap, it's a very different story, right? And if you look at the college and grad school dropouts, you get, you get Facebook, and you get Google, you get Airbnb, you get Stripe, you get so many others. I think it tells a very different story. With the market cap in mind, right, which is really what we should all

care about as investors and VC's just, you know, the magnitude of outcome that fits such a power law, that's all that matters. And so the more interesting question might be, you know, why is that, Is it something innate about technology or power law talent, you could say? How identifiable is it? And what are the things you go do to go find these people early and track them into the valley? And will that continue? There was a bit of a dry spell and call it the 2019 to 2022 era where I think companies like Zepto did emerge from that. But there was no stripe that came out from that era.

But then you look at the kind of 2021 to now vintages. And you see companies like cursor, one of the great. to seed investments of all time, right? Mercor, you know, $30 billion company, etched $20 billion company, right? That's a very remarkable amount of value creation started by, you know, what amounts to kind of, you know, young college dropouts. And you could say that these things

are random and unpredictable. You could say that new wave of AI and software created kind of new opportunity sets for people. Or this is probably my favorite explanation. It's that COVID created this wave of people not wanting to go work a job or go to school. And it turns out that the talent

was there all along, it was very tracked towards these institutions that took up a lot of your time and energy and focus. And so if people realize that, you know, going to remote college was a waste of time, as did the Zepto guys, as did a lot of these other founders I mentioned, and you just say, hey, why don't I go raise a little bit of money and try to build the company? And then, worst case, I go back to school when COVID is done and I can enjoy my college experience, you'll realize that a handful of these people end up a couple years later saying, oh, my God, I have a company and a product that's working very well. Imagine if I didn't try applying myself. And so that's the interesting counterfactual in my mind. It's what would happen if school went on as normal and people never tried.

It's an interesting COVID unbundled, the value proposition of a Stanford or Harvard where you could argue it was brand and it was your network. But if you're at home in front of your Zoom, you let go of the network now you're comparing a brand and four years over your life versus just starting something. Totally. I love this so much because the first leg of my career was built on mapping out the world as the young college talent. I mean, this was the strategy we had a contrary from the very start. And so when I was 20 years old, I would just go fly to a city like Cambridge and get some Airbnb for cheap and just go spend time with my peers who are plus or minus a couple years of age because I was going to college in the cornfields of Champaign, Illinois, and I was a little bit desperate to go find people that shared my interests in more volume. And we built up a community of people. We spent hundreds of hours every year kind of finding, interviewing the best scouts across all these different campuses and turning that into a really powerful network of people. people that either in a short term would go start companies and drop out and graduate and do so,

or in five or ten years would quit their third job and give us the first call because, you know, we were the first VC they'd known. We were the deepest and most trusted relationship. And so the other thing that changed over these years is that when we got started and called 2017-ish, there really wasn't too much infrastructure for these people to go, you know, meet their co-founders and mix and find each other. I think it was, you know, Y Cominator. It was a dorm room fund was great at this.

but maybe the Teal Fellowship was nascent at the time. There's nobody else that really had sole focus on this demographic. And in the 10 years since we got started with that, of course, myself and that old firm had kind of evolved beyond the campus scouts since then. But there's now a whole set of infrastructure, whether it be Ali Portovia at Neo with his scholars program, that identifies the best technical talent and interviews them and gives them technical challenges to go create a sort of alternative community

of really special people, or whether it be like people like, you know, Corey Levy with the Z fellows or Josh Browder, right, who systematically go identify these people as early as like high school. Josh has them stay with him in his house. Exactly. The amount of infrastructure available to you as like a young, inspired person. I think at this point has eclipsed the set of opportunity available to anyone campus, which has further kind of increased this kind of unbundling you mentioned of the kind of the valley stack of college.

It's almost like there's a brain drain now from the universities of the most talent. people that are going on to certain companies. That's right. That's right. What would the next, you know, Mark and Riesin or Max Lovchen do, right? Would they go to Champaign, Illinois as well and, you know, spend four years in the cornfields? Would they just ship off to SF? And I think that's probably a preferences question. It's also a talent identification question.

And it's a lifestyle question. So give another 10 years. And I think the amount of social infrastructure and, you know, group houses and so on is only going up. And from the investment point of view, I find it quite exciting because, again, there's such a rich history of these companies being built by this demographic. And yet, nobody can really own that space. Every couple of years, you know, the friend groups turn over, right? Best people, you know, nationwide that care about startups just kind of naturally revives and recreates itself. And also, it's such a nitty-gritty, like stone-turning game. It took thousands and thousands of meetings and calls to go kind of

find the Zepto team, for example, right? And I think that's always going to continue. Most firms that have scale don't have the focus or discipline or grit to just go literally meet every young person nationwide and then systematically go spend time with the most long-term-minded ones. It's a very time-consuming game. And when it comes to these founders, you're not looking for somebody with the right product or right market. You're looking for something else. What exactly are you looking for through these thousands of meetings? This is a question I get all the time from friends and investors and LPs. And it's a question I have to find myself not dismissing disrespect fully because it's so hard to answer, right? I've never built a really true and nuanced and

correct answer for it. I think you need the raw talent. I think you need the sort of personality traits that make you perpetually hungry, right, or wanting to do something a little bit different. You need the ability to go recruit talent, whether it be through clarity of mind and discipline and results or whether it be through kind of raw cult building personality and coming back to the Elon talent magnet. Right. And every great talent magnet, by the way, has its own flavor, right? The Elon is maybe the best in the world. We think of him as an engineer, but I think he's the best in the world at creating narratives that really inspire people, right? And he almost has this amazing talent arbitrage where you can hire the best people and pay them less

at a lot of these companies like Tesla and SpaceX because they have the best mission where you can only go to Tesla and SpaceX to do the best work in the world. That's why you have so many lifers as SpaceX I've had many former SpaceX engineers. I had Brian Hargis, who started Castilian now, that was there for 20 years. And he said one of the reasons why people stay long at SpaceX, despite it famously having this almost impossible culture to survive. They can't find a bigger vision than SpaceX and making humans interplanetary. So they almost have this monopoly on the narrative that it's very hard to get out of. Right.

And so we'll talk about like talent equity and capital equity and all those the kind of forms of traction and things on the company's quote-unquote balance sheet. I think that the narrative equity is very important. And you can argue this is maybe a hangover from the SaaS era where everybody was just working very boring, repetitive things for questionably big markets. And there's such a hunger for these things. And that said, you can't really fake it, right? You need to be the right founder in the right market

and go combine those into a great narrative. And it's extremely, extremely rare. One thing I've learned from talking to hundreds of investors is that great investment firms aren't built on investment returns alone. The firms that endure are great at the things most people don't see, their operations, their relationship with LPs, and the quality of information they use to make decisions. And here's what AI has changed.

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This episode is brought to you by Juniper Square, the operations partner for private market GPs. Learn more at Junipersquare.com slash how I invest. That's junipersquare.com slash how I invest. The best conferences do two things well. The content challenges how you think and the people in the seats are the ones whose opinions actually move markets. Alpha Summit is AlphaSense's annual user conference and it's built around both.

Join me at the Glass House in New York City, October 5th through 7th, for sessions going deep on where AI, data, and human expertise converge. The room will bring together over a thousand institutional investors, corporate decision makers, and capital markets professionals from firms at Goldman Sachs, JPMorgan, and the top PE and hedge funds. If you listen to the show, you're already asking the right questions. Alpha Summit is where you go to stress test your thinking

with the people working through the same problems at the highest level. Register at AlphaSummit.AI to secure your seat, and as a how-invest listener, you will get 50, percent off. Check the show notes for exclusive discount code. I look forward to seeing you there. I want to go back to what you said because you have this track record of finding these top founders and you said it's very hard to put your finger on it. Is that because it's so idiosyncratic every time it's different? Or is that because it's just hard to articulate? I think it's both. I joke that, you know, the Hollywood people kind of have it right because they just call it the

X factor and they leave it that. And they don't try to rationalize, you know, they don't make up stories, they don't say, you know, what somebody was like when they first interact with this person and what the exact things about their style were so compelling. They just say it's the act factor and you know when you see it and it either hits you in the face or it doesn't. And going back to this talent identification point, you know, we're finding these people now at 17, 18, 19 years old and they drop out and start companies and we fund them, right? How far back can you go, right? Is the logical conclusion of the strategy going to, you know, the middle schools and high schools, right, to go find talent? And, you know, I said only half jokingly because if you

you look at the musical stars and movie stars, Stevie Wonder, you know, was literally a name, you know, Stevie Kid Wonder, right? Yeah, they found him when he was,

you know, what, seven or ten years old. Yeah. Michael Jackson famously was, you know, a superstar nearly from birth, right?

Maybe Scooter Braun famously found Justin Bieber when he was, what, was it, 14, yeah. Right? And, you know, Scooter will tell you there's,

I don't know if the dates actually lined up, but the, he told you he had to decide between going to meet Mark Zuckerberg or going to meet Justin Bieber on the same day. And based on the YouTube videos of Justin, he ended up going and

flying to Canada and seeing Justin. And of course, his life has changed since. Clearly, something about these people so early on where you can kind of sense a star power. And that's both with the kind of creative agents like Scooter who are, you know, taking risks and trying to make a career. But it's also these bureaucratic machines like the Disney Channel, right? There's a set of executives you've never heard of who systematically go identify people and run them through a process and, you know, pluck people that, you know, join his Disney stars. And many of them kind of wash out and, you know, do their stint and then retire. But many of them become, you know, global superstars for life.

And there's a remarkable hit right there. And so if we're thinking about, you know, talents is this kind of ethereal force that makes people special and, you know, drives them to, you know, keep achieving and drives them for more attention and success and so on, I think my core belief is that the psychological elements are probably more like Hollywood in Silicon Valley than we appreciate. And so that's why I take my, you know, X-factor approach. And this is why I'm so open-minded. It's funny you say Hollywood because the way that I would distill this X-Factor approach, the best distillation of finding the very earliest investment was actually from Ashton Coucher.

And he has a very simple rule, which is if even for one second he thinks about quitting and working for the founder, he will invest in that founder. It's this gut reaction. You're being pulled to the founder. We talk about talent magnet. You're literally like a magnet being pulled into this founder, even for one second. because if it works on you, it'll work on other people. And I actually think this it factor, this X factor is actually underpriced today more than overpriced. Because if you think about in a world where you could iterate, you could have thousand agents working for you,

the ability to scale, the ability to iterate so much quicker will lead downstream to that to, can you recruit the very top talent? You could argue the product doesn't necessarily matter. The market doesn't necessarily matter. The market could be nascent or company could even. pivot, you have a really strong team. They will find the market. But today, more than ever, I think this X factor is highly underrated. Totally. Just as trends in markets come and go, trends and founder profiles come and go, I think what used to be hot five or ten years ago was

looking at Coinbase and seeing the product manager from Airbnb spin out to go build Coinbase, right? And you look for more of those profiles. Nowadays, maybe the thought, trendy thing is the mathematical Olympiad medalist, right, or the Teal Fellow, because you look at these companies like cognition that you know created 60-ish billion dollars of value in just a few years, right? And you realize that certain power law technical talent will be able to go do really interesting things in the age of AI. I tend to see this is largely comparable to just the market-by-market trends in that, you know, there was no heat in defense tech and people thought it was an impossible category, and then

Anderun came along. The same thing happens in talent where I think kind of new emergent profiles. First, have a really special outcome. and then people backfill towards the sort of profiles they'd look for. And to me that, there's going to be winners and losers there. You can kind of directionally probably be right with that. And you can, of course, make money and get lucky in a number of ways. But overall, I tend to think it as a lagging indicator.

You already see this as well with some of the founders start to talk about their psychology and their childhoods in a way that is a new trend. Trauma's a new trend. And I don't know if, like, you know, Elon and was really the paragon of this or the one that really set it off. But, you know, of the couple of founders I can think of that have actual psychological trauma, they're not talking about it in pitch meetings, right? In fact, there's only probably a few people that know about these sorts of things that, you know, in somebody's past that led to their current emotional or psychological states. So it is true that there's an element of truth to it, but you never want to index on that. You never want to, you know, work with somebody who's trying to present that.

There's also this whole aspect of once something gets known as a predictable trait, there's a gaming system. and everybody believes they could sift through BS, but sales like great influence is seamless. The reason the concept of a salesperson has such negative reputation is because you only see it when it's bad. When sales is done really well, it's seamless. Same with plastic surgery. Plastic surgery has a bad reputation

because when you look at somebody and you're like, oh, they have bad plastic surgery, you never see good plastic surgery. Same thing is with these straits and people over-index on their ability to sift through the bullshit and realize what's genuine trauma versus what's this kind of performative trauma. You're exactly right.

And this reminds you about the talent approach that is very special. It's that as the world gets more recorded and documented and sophisticated, there's just more information at how to go play these games, whether it be playing the college admissions game,

whether it be seeking funding for a startup or so on, even dating, right? This system is almost too well known now. And so what is the defense against that, right? The defense is just like knowing somebody very deeply and knowing their entire social network, right? If it's something that we as humans evolved to do well, it's probably create sort of reputational graphs

and your kind of natural hierarchies within people. And so the thing I really love about the talent playbook, it's not that you find people early, right? That's one piece of it. It's that you're not assessing an individual in a pitch meeting at a point in time. If you have a social graph, you can look at a founder,

you can know who their college roommates were, you can know who they go on vacation with. You can ask those people, you know, what are you and what have all of your friends thinking about this person? And that's essentially unfakable signal, right? Either by, you know, kind of direct contact and feedback or whether by kind of association of kind of the kinds of people that founder spends time around. I've really yet to find a great founder that is not universally spoken extremely highly of or at least in a very kind of spiky way by the people around them.

And if we agree that, you know, talent is the asset class at the early stages and that maybe before product market fit, all that matters is the founder more or less, then I think it's hard to find. find a deeper way to go underwrite that. I like to say that somebody that pretends to be a good person for 20 years is a good person, somebody that pretends to be a bad person for 20 years is a bad person. So ultimately, your behavior ends up being who you are. Your behavior is revealing. You talked about references. I think it's one of the most boring and one most underrated aspects of all finance.

There's famous process called top grading. It goes back about 25 years in private equity. They created the CIA-like process where instead of going through a meeting and kind of all the biases that typically go through the typical interview processes, they would do this reference checking. And they would say, tell me about your life. And then they would go through every single part of their life. And they would say, who did you work with then? And then that would be their roadmap for reference checks throughout the entire life. And then again, if they just happened to be acting like they were very competent in every stage of the way, they are ultimately a competent

person regardless of their intent. Yeah. That's funny. You mentioned the CIA. I joke there is only two great liberal arts remaining. It's investing. an espionage, right? Nowhere else can kind of combine the totality of, you know, human nature and psychology and technology and economy and so on. You could argue, well, wouldn't the, you know, wouldn't academia be a great way to go, kind of, you know, have the world at your doorstep? But I think these days a lot of academia could be described as, you know, studying very specific niche things. Like you can spend your life looking at like, you know, the legs of a centipede, right? And so I think you're totally right. The sort of network visibility and kind of the people focus of both

kind of investing in espionage are more so than we appreciate. And I've been surprised there hasn't been more overlap between those cohorts. There's maybe a few people I've met who have kind of worked in one industry before switching to the other, but it's probably uncommon. Makes me think of my second master's I got in master's psychology from Harvard. And I was surprised. I don't want to throw my professors under the bus. But I was surprised by oftentimes a lack of understanding of psychology or the lack of ability

to influence students, whether it is to learn or to follow what it is that they're saying. And there's this paradox there, a professor at one of the top programs in the world, and yet they don't know their own craft. Yeah, a psychology guy, you know, DSM, right, is the book that kind of outlines all the criteria for certain mental disorders. And, you know, you might say to have this disorder, you need to have, you know, three of these six criteria and the behaviors that you observe. I've always thought it'd be fun to make a sort of DSM VC, right, venture capital, where you kind of outline the founder archetypes and then, you know, list the sort of personality traits to go with that. Because in company building, there are many like dominant personalities, right? And you see this with the sort of hyper-autistic engineer sort of personas. You see this with a very reflective and intellectual, kind of pensive sort of stripe team sort of personas.

And you also see a lot of like hard charging, extroverted, you know, Travis Kalanick style persona. The big failure case with the people's strategy of investing is probably, you know, mixing your traits, right? And looking for a Travis Kalinick personality and what's a all around player. Right. Yeah, yeah. And so maybe it'd be a kind of fun project to work on at some point. You've seen probably thousands of founders and founding teams. Have you found that the best teams are really complementary?

Or are there really this Travis Galinick that's also hyper empathetic and maybe hyper-technical? Could these traits exist in one person? I think they can. As a company, I think you need to have it all. As a founder and individual, you do not. Right. And so I think that's the whole game is finding everything that is either innate or hireable, right? If you don't have both of those, then it's tough to get conviction. But I think the

unpopular reality, if I'm being fully honest, is that the vast majority of investment decisions tend to come from one founder. And I think this is true with a lot of investor friends I talk to as well at the early stages where investment as in capital, people, resources. Exactly. And a lot of the outcome, right, you often see some founders spin out early on, right? A couple of the best companies I've invested in. There's one that's a $5 billion company that started just three years ago. that had half the team leave early on, right? And it turns out that, you know, one driving CEO was the main force behind it all,

and the main visionary and the main kind of source of the talent magnetism and so on. And if you have that, it's been great. Nothing else really matters. The company can succeed. If not, then, you know, kind of no amount of kind of compensating and hedging is going to save you.

You talk about this fake ability of these traits, the talent magnates. Are they all true believers? I think they are. I think they are. And the one trait that I've, at the beginning of my career under-indexed, and now I try to appropriately index, is just the raw focus element. What people miss about a lot of these companies from just kind of the raw volume of, like, hustle porn,

and like, I work so hard content slop out there now is that I think these founders tend to be monically focused and think about basically nothing itself the company. I didn't witness this myself directly, but one of the most memorable stories I've heard from an early Amazon executive was that of working in the early warehouses where everybody would be there all day, every day, and just would not even think about social life outside of it, you know, think about paying your bills and so on. And if you could do that as a, you know, one of the 50 or 100 employees at Amazon, right, you know, imagine how the rest of the team behaves.

And I think building that sort of culture has happened historically over and over. It's very rare, but when you find it, it's very special. And I think a couple of the founders, there's maybe two to three founders that I've observed that in to the same extent from these stories I've heard from, you know, people 20 years old than myself. And two out of three are now billion-dollar companies. People are oftentimes disturbed when they meet these super effective founders and they hang out with them and they go around them and they start judging actually things that are leading to their success. You mentioned paperwork. Sometimes they're laid on their taxes. They have terrible relationships

with their parents. Sometimes they have no friends and people are like, well, I want to be a billionaire founder, a decadionaire founder, but also have all this balance and all this stuff, not realizing that this is actually part of what has made them successful. It's not even a judgment on whether they're good people, but they're effective people. Oftentimes, effectiveness is also what you're not doing. Alex Hermosey, previous two-time guests, talks about no is the number one productivity tool, the ability to say no to people. And oftentimes these founders are just so good at saying no, to the point that they're laid on their taxes, they're 20 pounds overweight, all these things that people see as unattractive characteristics, that's part of the.

their will to win. That's fueling them. And I think it's so hard to learn all this from the histories of any great company. So I'll give you an example. There's an author here in New York by the name of Kevin Maney who wrote a book on Tom Watson at IBM. And he was given access to the IBM archives for 100 plus years of history at this point. And he gave a really well done recollection of kind of the early company and the business decisions that mattered and how the culture was engineered. Support for today's episode comes from Square. The all in one way for business owners to take payments, book appointments, man and staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique, or managing a service

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receipts are instant, and sometimes I even get loyalty rewards automatically. There's something about businesses that use Square. They just feel more put together. The experience is smoother for them and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are, in store, online, on your phone, or even at pop-ups and everything stay synced in real-time. You could track sales, manage inventory, book appointments, and see reports instantly, whether you you're in your shop or on the go. And when you make a sale, you don't have to wait days to get paid. Square gives you fast access to your earnings through Square checking.

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get started today. By the way, I think a lot of the kind of Silicon Valley cultural elements we have today are kind of downstream of IBM in a way that people don't quite appreciate. The kind of personal and psychological histories of IBM, one of the greatest companies of all time, were modest but stuck out to me in a big way. So, for example, there was a couple anecdotes of how Tom Watson, Sr. would host guests and then just talk at them until late hours where the guests would try to leave, but, you know, Tom would never stop talking, right, and would just chat and chat and chat.

And eventually the guests would be so tired, they fall asleep in their chair, or they just say, I'm sorry, I can't do this, I need to leave. And to me, if you create a kind of mental picture in your head, right, what is the learning from that, right? Is it somebody who is so generative and so high energy that in all avenues of life, they just continue to go kind of spout and organize people around them, right? Is that the trait to look for? Or was there kind of a deep, you know, unawareness of social context that, you know, maybe Watson kind of had a channeled productively? It's always hard to say without knowing these people that are no longer around. But, you know, you take that example, you take maybe the other elements of the book where Tom Watson, Jr. was a bit of a screw up rich kid, right?

He had a hundred thousand dollar a month in today's dollars allowance as a student at Brown. By the way, he got into Brown because, you know, his father, you know, basically forced the admissions council to let him in as a son of Thomas Watson, senior. He spent his, you know, kind of college years and 20s partying, not really doing much. and it seemed like he had enough prospect, right, in life. Eventually he joins the European division of IBM to start kind of working his way up in the company and, you know, taking a job from his father. By today's standards, this would be the most like obvious

radioactive story of all time, right? A fail son who's never done anything in his life who suckled enormous amounts of capital to go party for years and years and end and doesn't know too much about the business. He grew up in, right? You would not touch that with a 10-foot pole. Imagine that on an earnings call today.

I don't think they'd go very well. Fast forward another 10 or so years, Tom Jr. takes over the European division and kind of eventually inherits the company as his father dies. And that transition actually was the thing that kind of saved to IPM and actually kind of brought them into kind of being the giant of the digital age. Watson Sr. was a little bit old school and didn't want to go move from the mechanical machines that they'd spent his lifetime building. He was a little bit skeptical of digital, right? Maybe he did a good job kind of betting the company in World War II and taking big bets and spending a lot and hiring a lot in hopes of growing post-war. But that was really the last great move that I think Watson Sr. made. And so if it were not for the kind of timely death of senior, Watson Jr. would not have kind of exercised his own opinion that digital was the future and then

built IBM into the kind of absolute big blue monolith that it was for so many decades. My grandfather was a physicist who worked at IBM for his entire career from undergrad school to retirement. And I think today we forget how absolutely dominant it was as a country. It's so hard to really reflect based on the books and the stories and the interviews that you read because the actual elements of the people behind the businesses are either too impolite to talk about, right? They're either too hidden from the archives or too hard to distill if you don't actually know the person. And so to me, this is kind of the great challenge of reading business books day is that like, who did what, when doesn't matter as much as the, you know, what were the people

like. I want to tie back to what we were talking about before, which is the most iconic, the most successful founders of every generation. There's not that many of them, yet they lead to 70, 80% of market cap of all startups, these extreme power laws where the Google or the Facebook pays off for the next 9,000 misses. What does that look like in the age of AI? What first principles do you bring to that question of what makes a founder great today? I defer to the X factor, always.

And let me actually flip this question a little bit and talk more about business models. because I've been so founder-focused to my whole career and in this discussion. I do think it's important to note for the sake of balance that most returns have come from a very small number of business models, right? To be clear, business model is different than sector, right? I'm not looking at retail versus software

versus energy versus something. I'm talking about exact business models within a sector. And so if you look at the social network effects, right, that's one category that sells ads to people. Great business model. We talked about retail is one of the world's great forgotten models. I would say the capital moat to kind of factory as moat businesses, right, Tesla being the exemplar there, are one category.

And I think a lot of the great, you know, kind of workflow and payments and systems of record categories are another really, really special moat. You can put, you know, Palantir and Oracle or arguably Stripe in this category, right? You would think that, for example, Stripe would be, you know, competed to zero margin by competitors as if you can just replace Stripe with a single, API call. And, you know, by the way, a lot of really sophisticated companies actually do have multiple payment portals implemented, right? What if Stripe fails or has downtime or latency or a bug? You have to be able to fall back to process your payments into something else. This is actually what I worked on as an engineer, you know, many moons ago. And yet they persist in just the raw quality of execution and centralization of all data.

And so I think what I look for now is, of course, the great founder is, you know, the root of all good things. but all the returns also constitute to a very slim set of outcomes and business models. This is why I'm not so pessimistic on software and SaaS and the whole, you know, a SaaSpocalypse term that's been throwing around recently, it's that, you know, yes, it'll be easier to go, compete on a feature basis with some businesses. And, you know, some companies are probably at risk of extinction just by virtue of, you know, the ease of custom software nowadays. But the pure software companies that have payments flow to monetize, for example,

but then sell a free product, right, are categories. where maybe toast is in this category where, you know, anybody can go build a new, like, restaurant reservation system. It's not hard, but could have integrated, you know, payments flow is something that's very sticking, very valuable. Businesses like the ERPs, right? So, you know, NetSuite is one of the great businesses of all time. And all the, you know, Quickbook style accounting systems have done a really remarkable job

over the past, you know, 20, 30 years in the markets. But, you know, they're remarkably sticky. And the most hated, unusable products, maybe in the entire world, have stuck around for a while. And I think the only way that you can kind of possibly see a line of sight to replacing NetSuite and building a new system of record for the 20th century is probably built on, you know, automation and orchestration and so on and the ease of integration. A long-winded way of saying in such a dynamic market, you have to have a great team,

but you have to also not lose sight of the fact that certain businesses are just fundamentally better than others. And if I had to take a bit of a contrarian pessimistic view on something, it's that There's been too much overcorrection away from pure software business models towards the deep tech, the nuclear, the defense, the physical. These are fundamentally extremely dilutive, right? They're fundamentally very hard to do. They're fundamentally unforgiving with the iteration and the bats you have to get the right product. Whereas the software models are fundamentally opposite.

And given the volume of capital going to different areas, we should be aware of that. Business models are one of those things that seems like everybody thinks about, but, is actually very undervalued. I had a close friend who was very early in Google, and he's told me, I'm not going to out him. It's been off the record that it was the worst and most poorly managed company he's ever seen, to this day. This was like 25 years ago. And there's no management.

Everything was basically like socialist, like nobody had roles, nobody had hierarchies. It was so poorly managed. And yet that the world's greatest business model, the search engine. And it was just bringing in so much cash that eventually they figured it out. They brought in famously Eric Schmidt. and all this management. But the business model was so good that it didn't matter because the business model was so good. And it's one of these extreme cases that really show how important business models.

The problem, too, is that if we're very intellectually honest, we know that these special business models are so rare and oftentimes so hard to achieve. But they come along so rarely, right? And every venture fund, you know, every asset manager is usually operating out of vehicles that are looking for a larger volume of deals that are looking for exposure to certain classes. and they're pattern matching. Right. And I think exactly. And how many managers, you know, kind of dream of having like a permanent capital base that lets them just go concentrate into, you know, one or two or three companies at a time, right?

And just go focus purely on these businesses, whether it be doing the hard work to find them or the hard work to go, you know, get access and earn trust. This is why I see a big wave of people that have, you know, ditched the traditional venture fund model and solely focused on what you might call like, you know, consensus winner large outcomes. And so there's a kind of an orbit of people around companies like the Elon companies, right, who have basically built a career as on going really, really, really deep into Tesla and SpaceX and maybe the boring company and Neurrelink on occasion. But if you can get the allocation and if you can do the hard work to go, you know, recruit the right talent or solve the right political problems or just go be a, you know, useful, you know, friend and supporter of the company. You know, you know, you don't need to overcomplicate yourself with, you know, finding, you know, 50 new venture investments.

you can just go plow much money to all these. And you're starting to see the kind of the same dynamic happen with the ramp and cognition style companies, which were maybe the next generation of hyperscalers. There is maybe three or five different firms I can think of that solely go focus on those. And I think they're going to do quite well.

Why is that? They've identified a couple of the amazing business models that are going to continue to go compound. And you can debate the exact pricing and terms of these rounds, but in aggregate, the markets are expanding and the businesses are ripping. Let's use Ramp as an example.

It's a best in class product. There's a lot of market to be eaten up, whether it be Amex market share or the kind of expensify style reporting competitors. Ramp's just winning. If you look at the sales efficiency metrics, which I probably shouldn't say publicly, they're quite strong and give it another five years.

And you'd be a fool to not build, to go put as much money as possible into something that has such certainty and stability and such upside. I think about these, let's call them power law business models, the business model is driving this extreme outcome. And I think about the different models like Facebook, Google, Amazon, I would put into this kind of power law business model.

A lot of them are singular in basis, and they're based on first principles. They're not based on some memetic trend. The reason I think a lot of these business models, not everyone, but a lot of these business models could only exist in the absence of competition. Peter Thiel famously said competition is for losers. But a lot of these build during times and against a market backdrop where a lot of investors, many of which just have conservative dispositions, even in venture capital, are continuously betting against us. Even SpaceX. For so many years, SpaceX was seen as maybe a grand vision, but a bad business.

Amazon, from the very beginning, it had so many doubters. For over a decade, Tesla short sellers were like a meme. It's probably now support groups for them. But you have these business models where very smart investors are continuously saying, these are dumb business models, this is a bubble, all these different ways to demean them. But to quote the Charlie Munger quote, you mentioned before, over enough time, it goes from a voting machine to weighing machine by the time it's being weighed. The game is over.

The network effect has been established. The economies of scale have been established. And now it's almost impossible to compete against this business model. And that's why they're now worth $100 billion or today, trillion dollars. If I go back in the history of these companies, nobody was arguing that Amazon didn't have customer demand or that retail is a bad business. Nobody's arguing that an electric car with infrastructure paired with it would be a kind of interesting and defensible play. The argument was always that it's too hard. You're going to run out of money.

Nobody wants the first car. Maybe sure they'll want the cheaper car, but nobody's going to want a car at this price point. And likewise, you know, the argument against Amazon was that, yeah, it's too expensive to run a retailer. They've got too much debt. They're going to collapse and the dot-com bust, right? And to me, that's a very subtle but important difference. And maybe the lesson here is that there is certain very large outcomes on the other end of the tunnel, which then goes back to the management team. A fun intellectual question here, we're talking so much about Tesla and SpaceX and kind of Elon versus the kind of a big cultural moment this year with the IPO and whatnot.

A fun question there for us investors to ask ourselves would be, you know, what is like the talent premium placed on these businesses, right? I think there's actually a bit of a growing consensus that like the management team is what matters, both for the early state. stages of a company, but also for the latest stages of public companies. And what is the sort of like, you know, genius multiple you can put on a business, right? And if you look at like the actual SpaceX numbers, I don't have them in front of me, but you can probably, you know, look at like the next highest multiple in the public markets for a high quality of tech business with some form of moat. And then, you know, the SpaceX multiple on that was about, you know, 2x. And so if you kind of say there is a great team multiple, right, of something like 2x on top

of what the other multiple would be, is that reasonable or not? And I would never bet against that. This is a specific example, but quantifying the degree to which this has been kind of factored into these stories is maybe like a kind of a self-reflective thing that maybe, you know, allocators should be thinking about. You're giving away my alpha. That's my razor for whether to keep companies when they go public is are they still driven by the founder? Yeah. Because I think all things being equal, the founder, he or she is the only one that could really continue to make those bets, continue to reinvent the business in such a fast-based world. You have to give all the credit to Mark Zuckerberg and his ability to reinvent Facebook.

For a while, Google as well, Larry Page and Sergey Brin came back and tried to turn around the business. We'll see if that still works. There are counterfactual. There are Satya Nadella and other executives that have come on and navigate the business as well, but all things being equal, the founder being there and the founder being able to do things really only founders can do and only founders have internal mandate to do, I think that's still underpriced even today. Yeah. We're talking about founder profiles and how they're changing. Here's my guess is for like where people are overlooking the right founder profiles now.

So as I mentioned, there's a, uh, an over-indexing on the young technical, autistic, uh, sort of dropout founder profile. And I think right now, the big theme that's interesting to me is, software eating the world. There's a lot of founders I can think of. For example, one I work with is a healthcare founder, right? On his LinkedIn profile, he wears a suit, right? He mentions his, you know, business school credentials, not his, like, you know,

Stanford Dropout credentials. And if you go talk to a lot of VCs, he says, eh, I don't know, I'm kind of interested in technical founders, right? And I'm kind of interested in, like, the people that aren't looking like this. And my response to that has been, well, look, you know, this company started the year at 24 million in revenue. last month in August they got to about 60 million and profitable. And they heard about 100 million revenue profitable, right?

So it's really remarkable growth. And 80% gross margin, no less. And how many companies in your drop-up portfolio are doing those kind of numbers, right? To which the answer is always kind of like, well, I'll talk about that. And I had a similar experience with a couple other founder profiles. Again, we're pitching themselves to the real world, to their customers, you know, the salt of the earth, the people in health care and education, supply chain and so on, that do not see these signals in the same way that Valley sees them. And to me, there's a class of founders that will go, you know, sell to the VCEs and kind of hone their image that way.

And then there's a set of, you know, founders will go, folks in the founders and, like, are happy to go wear a suit and, you know, on all their interviews and whatnot, which sets them apart from the Valley culture. But that's what builds trust with customers. Because, you know, the healthcare people hopping on a Zoom call with you are very likely to just, you know, laugh you off as another guy in San Francisco with a laptop who thinks he can go fix. health care with some code, which is just not the case. So I've noticed a handful of kind of judgment errors or kind of first impression errors in that way. And I think that's something that's going to last us for another five or ten years probably, again, as real kind of vertical opportunities, both in pure software and AI and kind of tech-enabled businesses are so ripe.

Do you believe that there's this canonical great founder that could build in any market and any product? Or do you think there's assuading of this founder market fit that's undervalue? I tend to think there has to be like a personality match. I think there's always a hard part. The question is where that lives, right? It can live in, you know, the raw technical challenges, can live in the sort of, you know, social. Non-commoditized thing, the thing that you can't hire. Right.

Exactly. And in a lot of businesses, it's just a tolerance for extremely boring, extremely regulated, extremely, you know, handshake at a conference in Iowa kind of businesses. And the founder has to understand what their personality is and build a company around that. And a deep self-awareness of that is certainly a very important trait to look for. Prior to starting your firm today, you're a contrary capital for nearly a decade. And you found that most of the companies, most of the biggest winners in your portfolio pivoted. Why is that?

At the early stages, founders have a clear idea of what a world should look like. But there's enormous complexity living under the surface. And, you know, this phrase Chesterton's fence comes to mind. Like, there's always a reason that something is built the way that's built. The question is, what is that reason? And so what I see founders doing is they realize a big problem. They realize there's some opportunity to build something different, whether by virtue of timing or new technology or just the fact that this founder was the first person to come up

with this idea and they're the only ones that can get it right with focused execution. But that said, they often run into complexities and difficulties and demand that is spikier in some areas and more unappealing in others. And so I would say if I look at the companies that have pivoted, and this is from an analysis that I did before I left of every deal that I've done and could be which ones worked. 50% pivoted, as you said. But all those pivots were into a space that was adjacent or kind of related to their initial idea. Right. And so I think to me that shows a degree of negotiation with realities and kind of balancing the, you know, the kind of clarity of opportunity paired with a sort of adaptive realism based on contacting reality.

What's the best framework to think about whether you should push through a pivot? I think the failure case for founders is spending too much time hoping that with an incremental feature or incremental minutes of go-to-market effort, things will change and you'll start to compound. With most of the companies that we've seen, there was a very, very clear, immediate need for something. The question was how big or small that was, right? And with some businesses, it was a very big problem and a lot of pull and insatiable demand from the very start. In some companies, it was a very niche, hyper-technical thing that gave you a wedge into a broader right to go. own the workflows, the software products, or the customer relationships. And so if there's not a very clear thing that's selling, then you should just pivot. What happens to the teams when these

pivots happen? I think this comes back to kind of the DNA of the team. Nobody joins an early stage startup because some customer feedback or some early sales. People join because of the long-term vision and because of the quality of the peers they work with. The big thing that psychologically causes founders to not pivot or adapt when they should is that they feel like they're locked into a track, right? They tell their investors that they have this business line and this product and they want to send out another update next quarter with good metrics. They tell their team that like this is where things are headed and this is their discovery and now we have to implement this and make it happen. And it's hard to go back to investors into the team and saying

like something's not working, but in a way like that's just the worst thing you can do. And if handled well, it increases the respect that you have and increases the velocity increases the conviction. But it's very hard to live that. To quote Jim Collins, good. It could be the enemy of great. And to your point, you see the, your business going from one million to five million to six million. And then you just, you have to rip that out. And many times the governor there to this pivot and to the size of the business is the founding team's ambitions. If the founding team wants to build a hundred million dollar business, then maybe they could A, B, tested and iterate it into a hundred million dollar business. But if they want to build a billion dollar or a

$10 billion revenue business, then they almost are forced into this pivot. I started this discussion talking about how VC founder incentives can be famously misaligned with kind of large outcomes versus more modest outcomes. This is actually the virtue of the venture path, it's that there's a very positive side to swinging big, right? And I think it's very hard for humans with teams and families to support to go swing big unless there's a kind of external forcing function that gives you a preference stack and has the expectation of 100x outcomes.

And so there's a very important counterbalance we forget about on that topic. There's one company that I've known for seven or eight years now since when I really first moved to San Francisco and out into venture. There's a company that I unfortunately passed out of the seed. They were doing... There was a Slack bot at the time for travel planning.

Right? You go book a flight through Slack. And I thought, you know, who cares, frankly, right? I hope to pivot. And of course it did. The founder recruited one of the absolute best technical people I'd ever met my life as a co-founder. I thought that was a great sign.

I started to wonder if I'd miss something. They pivoted to data infrastructure back in most of been 2020. That did well. They raised some money. They had some revenue. But it wasn't going where they wanted to. So they pivoted again, right? Spent another year or two on another business.

And they pivoted again. And I think now they have a multi-billion dollar of your marketing tech company. And it's been a while since I've been in touch. But to me, this was always one of these kind of paragon's four or five, six different pivots all shooting for the big swing. and now these guys are running what seems to be a successful billion dollar company solely because of this like kind of venture constraint where you either have to swing big or shut it down. And if that constraint wasn't there, they would probably have sold a company for $20 million and done fine for themselves.

But now they have a company worth multiple billions. And that's a very, very different outcome. And so we have to appreciate those as well. I love this concept of the VC driven ambition. It's one of the most optimistic from a VC standpoint, which is the VC is forcing you to go bigger. And it's really a mark of capitalism as well. A lot of people look at the disparity or somebody's ambition. You could say, well, there's well disparity.

It's negative. But that is actually when you look at the numbers, when you look at the market cap, when you look at GDP, which is upstream of tax revenue and all the social programs, this ambition, you could call it greed as well, is what's actually driving society from every aspect. When it comes to pivots, a lot of people, especially by the time they hear about the company, it's years after pivots. And some of the most famous companies, you mentioned the Slackbot Slack itself was a pivot.

Some of the best companies are pivots. And one of the most undervalued aspects, again, because it's really at the infancy of the pivot, is the team and the relationship between the team. And taken two examples, one, you have a team that maybe doesn't even hate each other, but just are kind of don't mind working together, but aren't that passionate about the team.

Maybe they do one pivot. It doesn't work. They kind of, you know, call a day. say everyone did it, worked hard, everyone did a good job. And on the other side, you have a team like Airbnb where they're out there selling cereal boxes because they want to survive and they want to work together. They might say they have this passion for travel and whatever narrative they want to tell today. But ultimately, it's actually the team cohesion and the relationship between the team that is upstream of continuing to pivot and continue to push through

these very dark times. This revisionism is maybe the hardest part of being a venture investor. I think at early stages because, uh, you know, the principles of venture can be learned in a series of blog posts, right? It's really not that hard. The hard part is, you know, drawing the bell curve of data and understanding how to set the bar and how to read people and understanding the difference. And the degrees, yeah. On the Airbnb example, early in my career, I asked somebody who was in the YC batch with Airbnb and I asked them, you know, they were the world's best underdog storytellers? What was it like? You know, what did people think of them? You know, did people like the idea, you know, hate the idea? Did they like the team? Were they unclear on the team? And the answer

got was something along the lines of the way. if everybody knew there were absolute superstars from the very start. They didn't even do Demo Day because, like, Sequoia had basically already, you know, planned to invest. They were just so good, right? And I kind of changed my mental model. I thought, man, you might have some hindsight bias. You can never ever really know.

But there's a reason for everything that's put out there publicly, right? There's kind of a narrative or kind of fear of PR intent behind it. And I think untailing that has been one of the great challenges of my career. People love this underdog narrative. Right. People love it. But, like, everybody has some narrative, right? And maybe like Uber, for example, might tell more of a dominant winner narrative, right?

It's more of like a hustle narrative nonetheless. But again, what did people actually think of Uber when they were looking at kind of the ride share model and getting started, right? How obvious of a deal was it? How non-obvious was it? It's very hard to know unless you were there. And that's maybe the one thing that comes with kind of, you know, experience in age and venture. It's that maybe you're kind of talent networks and your kind of proximity to the edge is very easy

to go fade over time as you age. but the experience of seeing the real psychology and the real personas without any of the narrative after the fact is just as good as gold. I'm going to age myself here, but I was at the Airbnb Series A party. It was actually their office and their home. And I still have the email. I kept the email. I wrote an email to my dad saying this is going to be a billion dollar company. This is back when unicorns were unicorns.

And again, I didn't know the team that well. one of my companies I started actually almost got acquired by them, but that's a separate story. But you could see it. You could see this talent. You could see this execution. You could see the team and how they vibed. And that was kind of going back to this it factor. I had no read on the travel industry or disruption or business model. These are pre-VC days. But you knew that something special was there. It was just the X factor. There was no, nothing that you can put a finger on. The competency of the team and the way that they interacted with each other and their ambition. A previous podcast guest was just telling me about Vlad Tanna, Robin Hood founder and how he was with him at a dinner.

And this was a couple of months ago. So they're already a public company. They're, you know, worth billions and tens of billions of dollars. And Vlad was going around and basically pitching a new product and getting customer feedback at the dinner, trying to figure out which one of his products. This degree of obsession. I actually think founder traits and all these things that we talk to about today, some of them are a bit contrarian. but most of them are generally known by most VCs. The degree of them is very hard to internalize.

Exactly. And it reminds me I was in Las Vegas with Alex Hermose, who's now a top five YouTuber and one social media guy. He's also worth half a billion dollars from private equities, one of the smartest and most underrated thinkers. And I was walking around with him, and you see these five floors of his business and the business that he's built. And I asked him how he became so successful in social media and con.

And he's like, how many pieces of content do you think I post? The day, I'm like, I don't know, 10. He's like, I post 640 unique pieces of content a week. This is my team. This is where they work on. And at that point, I understood the degree. I was off by another magnitude of 10. I thought maybe he did 50 pieces of content.

The degrees of these traits are something that almost you have to viscerally feel and experience in person. It's very hard to read a post or to really understand context without being there, which is why oftentimes the best founders are former SpaceX, former Google. It's not just because of their brand and the halo effect. It's also because they knew what excellence looks like. They knew what it took to build a world-class business. I agree entirely. That's very well said. There's a bit of a difference between the process and the inputs and the kind of quality of execution and then the understanding of the sizing and the opportunity, right? Maybe using my date to point of, like, Zepto with the early days.

It was only after the execution was exceptional all the way in, but it was only after a year or two of actually building out the infrastructure, where we all realized, oh, wait, if you can go build, like, a next generation of retailer for India, this can be a, you know, $5, 10, $50 billion company of terminal value if you go, you know, implement X, Y, and Z and do so in a world-class way. But the emergence of ambition is something that is an open question for me, because my understanding is that if this episode goes, you know, the company didn't work out, they just go to school after COVID finishes and live happily ever after and maybe go build another business down the road.

When you were valuing that business at that point, it was $2.5 million. now it's multi-billion dollar company. How did you weigh the risk and reward and how did you look at that business? Because obviously it just had so little of tangible proof to make an investment. So this is an example of why I disagree with the dichotomy between seed stage and pre-seed and series A as opposed to kind of a broader kind of early stage or formation stage framing. Kind of like Zepta was very obvious of the pre-seed because it was an amazing, amazing team that was, you know, had history of commercial success selling a company in high school for $100,000, right,

which is, you know, to do it, 17 is impressive. It had a remarkable clarity of mind and maturity. And it had kind of performed, you know, very well academically at, you know, an international level. And that made me feel that it was a great team bet based on what we were discussing at the time. And, you know, it's easy to go write a small check monthly there. If I was going to write a one to five million dollar seed bet, in all honesty, I'm not sure I would have done it. It was all the kind of the risks of a, you know, the 17, 18 year old founder, you know, all the uncertainty of doing grocery in India.

It's a market and a space I really knew nothing about at the time. And a 10% ownership check would have been a large position for a concentrated fund. It was only the series A or B once they had, again, built out an actual like full stack retailer with remarkable speed and quality where I realized, oh my God, there's like, there's something really special here. And if you can do X, Y, Z things, then it can be a generational outcome. And so that's a kind of horrifying thing in hindsight because if I'd only evaluated within a very narrow, you know, seed stage context, I could have missed it. And so if we all agree that, you know, being in the best companies with the best founders is the primary thing, you have to be flexible and have the capability to write a first check.

You have to also be flexible to be maybe a little bit post seed if both the investor and the founder discovers something about what's going on that is extremely optimistic. There's this meme among VCs, which is you have to ask yourself, what happens if this goes. right. Did that factor into your thinking? I think it's a great team in a great space. You don't have to think too hard. Right. I think it's one of the cases where in venture it's, you know, a lot about doing the kind of the legwork to, you know, have the pattern matching and see the degree of talent. It's a lot of work to go actually find the person early and, you know, build that network and have a system of, you know, scouts and visibility and so on. But then once you get to the actual decision, you don't need to think that hard. It's not that, you know, we're not doing, we're not doing quant trading here. It's, it can kind of just, you know, squint and make the right call on the right people.

big enough Tam, smart team, going after an interesting project and some early traction, it's worth a $2.5 million values. I think the really hard part of venture is building a meticulous and high-quality machine that attracts the right people around the firm to go make such a decision so simple. And if you can do that in your sourcing and kind of the ways in which you support yourself in decision-making, and probably most importantly, if you can do that on the winning side to go, build a extremely strong set of references with founders and so on, then if you can do all those, then you have a robust, repeatable firm that gets access to great companies.

And that's all in service of making that decision moment as easy as possible. I hate this. One of my pet pieces in venture is the lack of consideration on the downside. Obviously, you want to go for power loss, but it's almost like the downside doesn't matter. Founders Fund famously meme this across the industry that the downside doesn't matter. But the reality is if you have 20 positions and you take one position on a company that will go to zero and you could have taken that to invest in the next Airbnb and Uber, suddenly it does matter. So yes, in terms of outcomes, in terms of power laws, it doesn't matter. But you need to make every shot count.

And I think that's one of these memes that has traveled because it's so sexy. It's so dismissive. But it doesn't stand the test of first principles. Every asset class has its own. set of cognitive biases, right? I think in the trading world, right, people talk a lot about, you know, loss aversion, right, and how that kind of changes your trading psychology and how you should maybe just exit a position if it's not going to work out and just take the pain. In the venture world, there's a few cognitive biases that the entire industry is basically built on.

One is that it's very hard for humans to understand the difference between a million and a billion, right? This sort of, you know, power loss scale is just like unimaginable to people in an intuitive way. And a lot of the alpha has come from the realization that these businesses can just compound and compound and compound in a way that almost kind of expands beyond the kind of human psychology of like simple, you know, spreadsheet math. The second bias might be the time horizon bias and that it's really, really hard to go imagine a series of decisions and a series of inputs, whether it be execution or team quality or capital compounded on a 15-year timeline, right? We've been talking a lot about SpaceX today. This was not an overnight success. I mean, it's been nearly 20 years in the main. And I think thinking through that is extremely hard.

People talk about how the fund cycles of venture are actually a feature not a bug and that you're kind of locked into these capital structures and you can't sell. And I've been saying this for years. I've been saying this for years. I'm a liquidity is a feature, not a book. I think probably the third bias here is a sort of venture form of loss ofversion and that rationally does matter, but something about the psychology of venture investing means that there's only so much certainty possible in any company.

And so if you're trying to minimize loss at all whatsoever, you're going to probably miss the really exceptional extreme and contrarian companies. And if you actually look at the data, there isn't much of a correlation between loss ratio and then ultimate returns. In fact, there may be an inverse correlation where the higher loss ratio portfolios end up having these extremely outsized outcomes. If you look at a few of the most iconic vintages in history, I think of one of my LPs is that was in the Ribbitt Capital, 86-Net fund that had Coinbase as well as a Bitcoin position, right? Very unpopular at the time, and we may never see another, you know, 86x fund again and venture at these prices, right?

And so I do think that there is a bit of a kind of feature of the portfolio construction that actually addresses our kind of, you know, natural psychology in a way that allows you to have permission to take bets that you just otherwise would not, as a rational person, investing your own money. We also talk a lot about the incentive problems with investing other people's money compared to your own.

It is true that, you know, the incentive for managing us. people's money is maybe with a lower fiduciary standard than managing your own book. I think this is a kind of unfortunate open secret of the asset management business. This is maybe why a lot of people scale funds too much. It's that they have enough money on their own. If they want to go write seed checks, they'll just do it on their own. Maybe they want to go raise a much, much bigger fund because it's the only thing that's interesting. And expanding into growth is the only way to go. I would argue that Venture is the only asset class in which that effect actually works in your

favor, where, you know, taking bets that you wouldn't have the guts to go take on your own unless you're an absolute crazy person. It's actually good for returns. And there's like a kind of fundamental mental alignment there with this other people's money and fiduciary topic, which is underappreciated. And I think that we should try to build firms around promoting that and nurturing it as much as possible. Reminds me if Chris Williamson has this whole set of beliefs that are untrue but useful. Like porcupines could throw their pines. Not true, but you probably don't want to be sitting next to a porcupine. There's these useful heuristics that even though they're untrue, get us closer to ground truth,

get us closer to the reality that helps us as investors. If you could go back to when you just started out as a 20-year-old VC at Contrary, and you can give yourself one-time piece of advice, what would that be? I think all that matters in venture is having an enormous reputational wealth with the right founders. You can build that in many ways, whether it be as a, you know, college student with no fund, helping connect your talent friends to a founder as they're hiring. It can be as a VC who rolls up their sleeves, and, you know, goes way above and beyond, you go support a company.

It can be bleeding to somebody when nobody else does. But in the long run, the only thing that matters for a flourishing career and flourishing returns is just being in the circle with an iconic founder and earning that place and parling that into a kind of fruitful portfolio and right to win. Oh, well, this has been an absolute masterclass. Thanks so much for stopping by. It was a pleasure.