The Pomp Podcast - #1251 Avlok Kohli | AngelList CEO on How To Build A Startup

Episode Date: October 2, 2023

Avlok Kohli is the CEO of AngelList. This conversation was recorded at the BUILD Summit in New York. In this conversation, we talk about the culture of shipping speed at AngelList, fundraising environment, how cap tables are usually wrong, treasury management, hiring, private equity, and numerous industry trends. ======================= Trust and Will has simplified the process of creating and managing your will or trust online. They leverage a data-driven, design-first approach and amazing customer support to help you protect your legacy from the comfort of your home starting at just $159. Sign up today for 10% off using ⁠⁠⁠⁠⁠https://trustandwill.com/pomp⁠⁠⁠⁠ ======================= Get Better Crypto Data: Do you want faster, easier crypto data? Sign up for Velo Data, a new product that we have been working on to solve this problem: ⁠⁠⁠⁠⁠⁠⁠⁠⁠velowaitlist.com⁠⁠⁠⁠⁠⁠⁠⁠⁠ ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. The following episode is a conversation with Avlok Kohli, the CEO of AngelList. This conversation was recorded as part of Build Summit, where 700 founders came together in New York City a few weeks ago to talk about the

tactical ways to build a company, scale, and ultimately exit. In this conversation, Avlok and I talk about the culture of shipping speed at AngelList, what the current fundraising environment is like, how cap tables are usually wrong, how you can think about treasury management today in a world where banks continue to be under stress, what hiring is like in the current environment, how AngelList is expanding into private equity, and a number of different industry trends related to artificial intelligence, Bitcoin and cryptocurrencies, and many others. I always enjoy talking to Avlock, and this conversation was no different. So here is my conversation with Avlock Kohli.

Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by Trust and will. I've gone through a number of different changes in my life over the last few years. I got married, I had a kid, and I had to start thinking about how could I ensure that my wife and my child would be okay if anything ever happened to me. That's where trust, wills,

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Before we get into this episode, I also want to tell you about a brand new product called Velo. Velo is faster, easier crypto data. Everyone in the industry is always looking for what's the price? What's going on on the exchanges? Where are assets flowing or not flowing? How is things like open interest and derivatives actually playing out in the market? Well, that's where Velo comes in. It's faster and easier crypto data.

You can go to VeloWaitlist.com today. myself and a couple of friends we invested in the business we're advising the founder and we think it's pretty cool this one is something that keeps me informed on a daily basis so you should check them out at velo waitlist.com that's velo waitlist.com so avlock is uh the ceo of angelus many of you have probably heard of angelus before um you all help companies in a variety of different ways but i thought a great place to start is rather than how you all help other companies talk about AngelList itself. One of the things I've noticed from the outside is how fast you guys ship product. And it seems like there's almost rogue employees internally who kind of

see a problem, go write some code and like on the way out the door, they're like, Hey, by the way, this is getting published. Right. Talk about where's that culture of shipping fast and kind of just a bias for action come from. Yeah. And can everyone hear me? Yeah, we're good. Yeah. It's funny you say rogue employees. I mean, the number of debates that we have internally is quite high. I would say the culture of shipping just comes from a pure founder mentality. I mean, the entire existence of AngelList is to make sure that we're here to serve the founder. And that bleeds into everything we do, all the products we pursue, the way we build teams. And at the very beginning or at the top of it, it starts with engineers and designers at the top

totem pole so culturally they're at the very top and then when we think about um uh resourcing projects products it's typically a very small team with a single leader that's typically an engineer or a designer so it's actually pretty rare that it's a product manager we do have that for exceptions but typically it's an engineer or a designer that leads and then it's just an insane sense of urgency just to push push push because um when you think about a technology company the entire purpose of it is to grow and to serve your mission and typically your first product if you're a google will become massive and you can just uh basically continue to scale off of that but for most companies they'll build one product but then they have to be a multi-product company

and the thing about being a multi-product company is you can't skip steps just because one product reaches scale doesn't mean that the second product the third product that you build is going to naturally reach scale so you're going to have a zero to one moment multiple times in a company And so the only way to do that is to make sure you have a team that's tightly aligned, that understands how to launch new products, also how to just take failure. Right. Like it's not that every product we launch succeeds, but you can't skip steps. So for us, we have a sole focus on being a multi-product company and making sure that we're taking enough at-bats to build an enduring company. Now, one of the key themes across many businesses, so Amazon, Jeff Bezos would say, never have a meeting where two pieces can't cover it. If you read the book, The Outsiders, they talk a lot about decentralization and kind of pushing decision making as far down in the organization as possible.

Hearing you talk about the setup of Angel is, how do you make sure that you continue to create a culture of speed, right? So there's a bias of action and kind of shipping, and you're doing that by pushing some decision making down. But what about motivating employees, especially when we have remote work now, when we have, you know, kind of all of these things that could serve as distractions? How do you keep people kind of on edge and really wanting to build these products? Yeah, honestly, it just starts top down in terms of applying a strong sense of urgency and making sure that folks understand that, look, if you're going to naturally default to next week, two weeks from now, why not tomorrow? Why not, you know, the day after that? I really pulled that from Frank Slootman. And actually now I'm also reading Elon's biography.

So if you all haven't picked it up, definitely pick it up. You'll put it this way. My sense of urgency is going to increase after reading that biography. But it starts at the top. You have to set the pace. You have to set the tempo. And then you have to expect folks are going to rise to that tempo. And then you have to have other folks in the company that are going to be the culture carriers.

They're going to call out when we're not being as fast as we could be. It's interesting you bring up the remote and in-person. I think it's really hard to do this remote. You have to have folks coming in person. I don't know if five days a week is going to be the new norm or two days a week. It really depends on the company. But for AngelLess, we are coming back in the office and we are there because you have to build that in-person collaboration.

Or if you are already remote, one of the things that could be useful is just fly somewhere, uh just jam on a product launch and just don't fucking leave the place until it's out there um so again it starts at the top you got to set the tempo you got to bring people together uh and you just gotta push push push push and it will be uncomfortable because it's it's um the default for most people and the default for any group of humans is slowness it's um uh it's um yeah let's take another few weeks to get it right get it perfect but in reality you just have to push hard and you have to treat urgency as a core principle in the company. I want to talk about some tactical things that startups face as problems. In some of these cases, you guys have

built products because you solved the problem in the market and said, hey, we need to go solve this for founders. One of them, which is somewhat nuanced, but actually is a huge, almost pandemic in startups, is the cap tables are almost always wrong. And talk a little bit about why the cap tables are wrong and then how you guys thought about we can just solve this with software and of provide a solution yeah it's super interesting actually um so if you think about cap tables uh about a decade ago uh cap tables were all managed in spreadsheets right um and you would effectively update the cap table uh every financing round like the lawyers would manage it and the big innovation back then was okay let's take it from spreadsheets and let's move it online um but since then there's

been zero innovation in cap tables and the issues that we saw uh with cap tables was that you would have cap tables i'll just be completely wrong so what happens is between a financing round in the next financing round a bunch of agreements are made you hire employees you may bring on advisors and then when it's recorded in the cap table it departs from the underlying legal docs and when it departs from the underlying legal docs it's now a um it's just a thing that lawyers do in the next financing round called tie outs you just tie everything out i mean angelus went through it herself recently where it was last year tied out our legal docs to the cap table make sure everything's updated but the root of the problem is that cap tables are just hard to use

you talk to any founder today none of them use it even those experienced founders do not touch it i have a close friend who's i think a third time founder pretty sophisticated just like i literally can't touch cap table software because i'm worried i'm going to mess something up so what does he do pays for the subscription and pays for a lawyer who goes and manages it and so the root issue that we saw was people founders can't use a cap table as what we think of as currency right you think about cash you raise cash you pay people in cash and they can do great work but when it comes to equity it's really hard to use equity in the same way now to be clear i'm not saying go out and give equity to everyone right but it's an irreversible decision you want to manage your

Cap table well but if you can make it easy to manage the cap table like almost as simple as Setting a venmo transaction uh so the founder can use it they meet uh to meet someone who can help Them with a customer introduction to meet someone who can help them with a hire they should be able To just send that equity and know that it's correct and everything is perfect uh and that's Actually if you look at the set of innovations we've had around cap tables ruvs um we've had equity blocks even um we just launched a co-pilot and cap table so you can actually talk to it and you can say hey grant x amount of equity to this person and everything is managed perfectly it's coming from that place of put it back in the hands of founders um two of angelus executive

hires actually came from uh me pinpointing someone who i thought can help with that hire i gave them equity and they made amazing referrals and they actually one of them became our cfo the The other one became our head of design and head of marketing that actually changed the trajectory of the company. So, again, I think a really great equity cap table solution can give a superpower to the founders. And it's just doesn't exist today. It's just completely broken. Let's talk fundraising. Obviously, AngelList is known for helping companies fundraise. A lot of investors also look for access to startups via AngelList. Talk what you're seeing in the environment today, given that interest rates are high, tech funding is slowed.

But then also how maybe people are using the product differently. Are you these maybe explain what that is and kind of are you seeing smaller checks and people rounding up rounds or institutional investors still coming in? Just talk a little bit. Yeah. So when it comes to fundraising, every time I talk to a founder, I try to anchor them back in 2019 and 2020, not 2021 and 2022. So when you actually just have amnesia for the past couple of years and you just anchor back on 2019 and 2020, What you'll see is that pre-seed, so pre-seed median Valuation and pre-seed median valuation today, so 2019 to Today, actually is up. Same thing with seed. It's up. Series a is like slightly up

And series b is flat and series c is flat. And for context, we see this across 20,000 funds and Syndicates and 13,000 startups. So we are pretty much have a Very, very broad view of the market at this point. And so from a fundraising perspective, it actually is, you know, when you anchor it back on 2019, 2020, it's fairly healthy. Yes, deal count is down. It is harder. But again, humans just anchor on like the highest possible thing. And then now we're like, oh, no, fundraising is down completely. It's actually a pretty healthy market out there. In terms of what we're seeing around how rounds are getting done, I would say at the earliest stages, pre-seed and seed, there are the party rounds.

they're coming together we are seeing more um more leads relative to the past but there's still a pretty healthy set of activity around like a bunch of investors coming in no single lead for precedency um series a series b series c has always been you you should get an anchor and go from there just because the dollar is much larger um so we're not really seeing any departure in that behavior we are seeing actually one thing i will add we are seeing i would say at the later stages again this is a reflection of i would say 2021 2022 where companies are starting to hit that brick wall for those companies we are seeing um uh additional uh terms coming in around the additional you know 2x 3x liquidation preference uh pay to plays so that is happening but that's

healthy that's that's a very unique moment for startups that raised then um and there are now basically kind of deal with that situation but in general if you're starting off today like the Like the fundraising market is fairly healthy. One of the things I've seen, some of its rolling funds, some of its RUVs, some of its founders have just been at this now kind of through a zero interest rate environment over the last decade or so. And people have gotten liquidity. More founders are saying, hey, I'm going to run my business, but I also want to become an angel investor. And so they're starting to invest. What are you either seeing there or what is some of the advice that you would give to founders that are focused 99.9% of their time on their company, but they also want to begin to invest and kind of dabble in that side of the market?

Yeah, this is a heavy debate typically. So I would say what we're seeing is for anyone who's post-product market fit and they end up raising a small fund and deploying it, it's actually similar to them investing their personal capital anyways. they do they typically do pretty well mainly because when you're post-product market fit as a founder you also just have deal flow that comes in naturally i think if you're pre-product market fit and you don't have a brand um it it is it is tougher you kind of have to focus on your company you have to focus on building your company because when you're pre-product market fit like the only that matters is get the product market fit and nothing else matters um so typically we see folks that are post-product market fit founders um raising a fund because it's just an extension of their personal investing anyways and that does do pretty well and every now and then we'll see

someone who was a founder they exit and now they decide to go into investing full-time the one thing about rolling funds that does make it interesting is rolling funds um just for context it's it's something angelus invented uh in 29 2020 and it basically uh reduces the friction for fundraising into a venture fund. So a typical venture fund, for context, someone will say, okay, great, I want to go invest in startups. Let's say I want to raise $10 million.

I'm going to now go out and fundraise. You find an anchor, and then you fill up the rest of the fund, and then you start investing. Then every two years, which is typically a deployment period of three years, you then have to go raise another fund, start from scratch.

Rolling Funds basically took that and said, what if you could make the fundraising a subscription? So it just keeps flowing forward. so you can invest every quarter or every year and the subscription just renews just like your netflix subscription so you can invest 100k 500k a year but it just renews instantly so it actually reduces the friction for someone coming into your fund and because of that that ends up being actually a really good product for founders that want to have a fund because they don't need to worry about the additional fundraising and the fund will just continue growing and they can just

continue deploying it so we do naturally see um uh founders gravitating to that product like i'm personally honored as well i rolled my personal investing into it um and then you'll see uh folks who are uh looking for the more like anchor investors do the traditional uh venture fund now the one thing uh just to anchor back on like why angelus does all of this uh we originally started and i can mention to serve the founder and we exist to uh accelerate the rate of innovation in the world and believe startups founders are really a driving force in that and um what we did was we actually focused on at the beginning of the earliest stage of fundraising pre-seed and seed and we built a product that uh effectively allowed a lot more people to get into venture

raise capital deploy capital so pre-seed founders seed founders can actually have additional investors to raise from uh because at the earliest stages uh it's it's more of an art than a science you need someone to believe in you to write that first check uh so that you can get going and And AngelList basically created the market because we reduced the cost, got more people in. So any fund less than $50 million basically fits that bucket, investing in the pre-seed and seed stage. And so for us, it's a positive benefit to the ecosystem where founders have a lot more investors to raise money. Let's talk about the change maybe in strategy that startups have had over the last 18, 24 months. Growth at all costs.

Now maybe there's even been an over-rotation to like, hey, I have to have cash. I've got to get some sort of cash flow and not grow at all costs. That then lends more of itself to private equity. I know you guys have done some expansion into private equity. Just talk about where's the balance between spending venture dollars to grow versus trying to operate your business to actually drive cash? Yeah. The way I think about this and the way we think about it internally is you have your core business. And especially in this environment, if you're not operating towards getting to break even and being default alive, like, strong recommendation to do that.

There are exceptions, of course, if you're growing, you know, 200%, 300%, 400% breakneck pace and you think it will continue to grow in this environment, go for it. But generally, you want to operate so that you're default alive. now as your core business continues to grow and you make new product bets um the way that we approach it is all the product bets are very tightly constrained it's a small team uh and we're watching how uh that particular product is growing and then based off of that we actually move from a phase of like zero to one which is you can think of it as best as like okay this is an early stage startup and then we move it to one to end that's what we call it internally which is great this is ready for scale and now we can drive more dollars to it so we actually have that

discipline in the company uh every quarter we have an off-site where we've basically broken the entire company down uh by op-ex with people what products are they actually working on so you can just literally think like a spreadsheet names of all everyone in the company as a row and then we have products that we're working on as a columns and then we have people that are allocated to each one and then we're able to understand okay how much have we spent in this particular product line and then what's the um what's the um momentum they have what's the progress they've made and then we're able to assess and go okay uh do we want to continue investing here or not and to be clear it's it's not always a like scientific calculation of like nope this much

burn they haven't hit this revenue it's it's a little bit more again it goes back to like early stage investing it's more art than science but at least gives us the natural constraints to understand how are we spending our dollars where do we need to invest more versus less uh and it gives everyone in the company a common framework for how we make decisions now when you think about metrics inside of the business how do you actually put this into practice right you kind of have new products and there's things that you're probably trying to figure out you've got old products that you know work and have found product market fit what is the process for identifying what metrics you're going to use for these new products and then how do you track them is this a hourly

process a daily a weekly just talk a little bit as to like measuring you know we're launching something new is it working yeah i would say um a zero to one product and this is the case for any startup that's that's just launching a product uh what you're really looking for is product market fit and typically product market fit um the best way to measure it is just do people love it honestly like does even one person love your product do two people love it to five people love it most times no one loves it uh you know you're essentially fighting apathy um and so for us that's what we look at we're just asking hey do people love this product like what we've built do they love it are we seeing signs of um of uh let's just call it engagement it really it's a function

of the product but that you can definitely measure some metric that's some sign of engagement where people are just pulling it out of you uh and you know if there's one if there's one thing i could somehow and maybe with neural link we will be able to just like explain to founders like what product market fit feels like because you know most people think their product market they don't Like, product market just feels like the part's getting pulled out of you that you just can't hang on. Like, there's just so many things that are breaking because customers are banging down the door. When we launched Rolling Funds, we literally had people pinging my, like, friends on LinkedIn to try and get access to, like, Rolling Funds. It was absolutely just insane.

Like, it was just, like, it was overflowing with demand. And so that's what we look for with these zero-to-one products. It's more around engagement, like customer love and all of that. Then for something that starts to scale, now it looks a little Bit more like a traditional focus of revenue. It looks like what does the pipeline health look like? So if it's more of an enterprise-y product, what does Top of the funnel pipeline look like?

So 110 is a little bit more systematic and you can Effectively look at other metrics and benchmark yourself into other companies, but zero to one is just, does anyone love it? Let's talk talent and kind of hiring. I know you guys had a kind of a talent part of the business. You spun that out into a separate company, but you're obviously hiring yourselves. What are you seeing there in terms of compensation packages that you're having to put together that maybe 2019, 2021, and today? And then also the quality of the talent, you know, when markets draw down, sometimes people want to run into the fire. Other people say, Hey, I'm going to go back and take my job at Facebook or

Google and you know just chill for two or three years and take the easy life what are you seeing there yeah we've um I would say what we're seeing there is um folks who are interested in working at startups they're they're definitely starting to to take the jumps up we're not actually seeing too much of a drag there I will say though that the the general rate of turnover has slowed down right relative to 2021 2022 so what this means is folks are generally staying put but you also have a positive selection bias of people who want to go take a chance on a startup or at least a startup or jumping ship some of that could just be the overhang of like right on their company um some of it could be like hey there's no better time is we'll just do it now um but we are

generally broadly speaking we're seeing people stay put but then you have positive selection bias of folks who do want to jump into startups they are making that jump um i'd say in terms of are like recruiting at angelist um it's actually really really strong and um and we we also look to hire ex-founders um and we're we're seeing that being pretty healthy and some of it's just because again we're kind of going through the cycle where a lot of companies are starts are shutting down and folks are getting back in out in the market so from that perspective it's actually pretty great i've heard nabal i've heard nidhi i've heard you i've heard other executives at angel has continue to say we hire ex-founders describe a little less like why is that such an important

part of where you guys go look for talent and then once they're inside the organization what benefits do you see from it yeah i mean i mentioned this earlier right the um you need culture carriers uh so if you're going to serve founders like overall as a mission for the company and you're going to build products very quickly you need founders who understand that you can move quickly right um because if you work at a larger organization uh where there's a bunch of process flow and it takes longer to get something out the door and you only hire from there then you you bring people in the organization that think that's how products get built but that's not how products get built that's actually how products go to die um and so founders when you bring them in they can

inject that source of energy into the company because they do understand that you can move really fast right you don't need to uh you don't need to wait uh like weeks months at all uh you know when um my second company was bought by square and so i'd spend about two and a half years around the acquisition term at square and uh when we came in we actually had to take what we built and we launched it within the uh within the product there and uh it was pretty clear that within the broader process it was going to take months and so what we did i was just like it let's just go to uh like one of the top floors no one was there locked ourselves in a conference room so every day whoever's working on the project just came up went there and we just got it done

in a couple of weeks and launched the thing and so again you just have you need founder energy and founder mentality to break through the process break through any other drag so that you can just focus on shipping great product and focusing on what matters and the reason founders are very good at this is because if you've started a company you have to go through a range of things you've got to raise money you got to build the initial product you got to motivate the team you have to launch you have to listen to feedback and because you've gone through that range you just have a broader experience to pull from and so for us we just find that very valuable talk about the engineering talent obviously now with this move to remote you're talking about people being in person

i think the argument for remote is that you can get talent anywhere in the world right and you do cheaper better etc um is that true in terms of what you guys are seeing and how do you think about the balance between you talked earlier about people in person and kind of the culture versus you know an amazing engineer somewhere else in the world and the ability to work with them but how do you net out yeah i'm gonna get canceled for this one um so don't worry me too um okay so i think if you're hiring a very senior engineer i think it can work remotely but i'm talking the senior engineer our designer is like a savant right we actually have someone like that that's worked at ageless um actually even before the pandemic in 2019 and he's just

a savant like i mean just everything he builds is pure art is super fast uh very independent but i think for most people um and especially someone just coming out of school they crave being in person they have to learn from others and what we're actually seeing actually going back to recruiting is that people who are just coming out of school uh and especially the ambitious ones the ones who want to become founders are saying i'm actually rejecting offers where their company is remote i want to be in person uh we actually had this happen in our pipeline too it's like hey if this was like a while ago before we sort of reverted back to coming back in office um it's like hey if you guys want to be remote it's not going to be a fit um and so again if

you want to hire the best young talent you have to be in person it's just very very hard to for them to learn by osmosis um so that's one piece i think the second piece is um you're just able to communicate a lot more when you're in person and so when you're in the early stages of building a product and your pre-product market fit there's just a lot of information you you're not optimizing for efficiency you're actually optimizing for creativity and when you optimize for creativity you you have to be in person you're typically jamming through different ideas uh you're building something you're launching it um but then when you're remote especially time zones like if your time zones are so far apart guess what you have some idea today you send it out

now you wait for i don't know 24 hours until someone uh responds back well you just lost your flow your flow is gone or if you have to wait to schedule a zoom meeting and hop on the Zoom meeting. Again, it just breaks the entire flow. So what we've just found is when folks are in person and you can optimize for that creative flow, you just get a lot more creative ideas out of it. Now, it is a little bit tougher as you scale. Like, for example, Angelus has, we have three offices, San Francisco, New York, and Seattle. But then what I just do is going, I just say, look, we're going to solve some hard problem. Fuck it. Like, fly out here later this week or next week and we're all meeting in person we're not leaving the room until we solve this problem

we build this thing um and so that's the way you also solve for it is just fly people out get this shit done in person because you can't solve hard problems in my view remotely so i want to talk about frontier technologies or opportunity and ambition one of the benefits of the position that you have is you got a hard day job or you gotta go build the product and head out a company but you also get to talk to some of the best founders in the world right and so you're seeing a lot of where talent is flowing, where's capital flowing, but also what's working and what's not working. There's a number of different sectors that I think people are very interested in. So there's kind of Bitcoin, cryptocurrency, artificial intelligence, space, the whole

renaissance in energy. These are things that are not kind of your traditional B2B SaaS type business. What are you seeing that is actually working? And then maybe are there areas where you're like, yeah, I know a lot of people are talking about that, but it's probably more you know kind of smoke than actual fire yeah uh i mean it's always really tough having to the smoke and actual fire like early on right it's because again it's part of the zero to one you're you're trying to build something and you don't quite know where the world's going um i i think i'll kind of talk i'll start with off with the ai piece because ai is actually not really a category in its own it's actually seeping into everything every single industry i think on

on the ai side the one thing we are seeing is that you have companies that are uh starting founders are starting and actually pivoting pretty quickly because the underlying infrastructure is just changing really really fast so when your underlying infrastructure is changing fast you don't know where the world is going to settle in and so we are seeing founders pivoting a lot more because what they thought could be a great business uh now just got commoditized or just got folded into open ai like maybe an open ai release you know open air release a new feature and all of a sudden it's commoditized so i think generally we're seeing a lot of call it change just within ai and like all the companies are building up in and around it um we i would say

by by funding just by dollars overall of course um a lot of dollars just by nature goes to some of the uh you know uh you may want to call it space tech just because it needs a lot more dollars uh we are seeing a lot of dollars go there but not seeing as much interest from founders like relatively speaking right relatively speaking um if you're a founder that's starting a new company um you're probably going to start a new company in something that's more software based because you just you're getting going you don't quite know enough about space technology you don't know enough about maybe even sometimes crypto right because so on this this is interesting right if you look at elon maybe it's a quite essential example like he kind of got a single

or a double and then he went for the home run right um we've seen this over and over again in history how important is it to almost like kind of get your legs under you get some confidence and stuff like okay you know and i had to build a business and then go for the really hard thing versus um i don't you know i don't know if it was palmer uh lucky right like he kind of went for it right out of the gate and it was this weird thing and everyone's like you know he's putting a box on his face is it gonna work yeah like how do you think about those two strategies of if you're 22 25 years old do you just go for the big thing or do the odds tell you no go build something make it work get some money and then go try for the big thing i think you just need to follow whatever

unique insight unique viewpoint you have of the world um because ultimately a like any company you build any product you build you're you're you're imprinting some view you have of the world uh some opinion of how the world should exist and that's what you're doing and you're building a product around that and so if you have a view of the world that is goes directly into something around space or something uh around cars even go do it right um so i don't think there's any like recipe for start here then go here then go here um but ultimately it comes down to like do you have enough experience to have the unique viewpoint or not and if you do go for it uh because again i would say the fundraising market is actually quite healthy um for taking those

types of big shocks um but again it comes from like what's your unique view uh and are you drawing from some pool of experience are you starting from scratch and i always love the idea of the or the concept of the idea maze i think apology first talked about it and then it was posted up on a16z blog um and the idea maze is basically if you look at any founder who started a successful company and you trace that you know you trace their um interest in the company back they've been thinking about it for a long time they've been sitting in that idea maze for a long time connecting all the dots and by the time they start the company and they go to scale the company it's like four years in anyways so that's another interesting concept so i'll come down to that like

how long have you been thinking about do you have a unique insight unique viewpoint in the world now one of the key themes i see over and over again is many of the biggest companies in the world start out as science projects or almost a joke and so google obviously they want to sell for a million bucks they're just like oh this is a cool paper like let's get it you know let's take a million dollars go buy a nice car and leave um uber literally travis didn't even run the company at first like he was kind of like oh this would be cool to get you know a baller thing where i press a button the car shows up even if you look at varta delian basically tweeted it was like oh interest rates are low i should just go raise a bunch of free money and then like try to go

manufacture things in space yeah and then he was kind of like i might around and find out this works right and book company that's now worth hundreds of millions of dollars and so how do you think about the intentionality of like i am starting a company let me go do you know customer research and really kind of understand what the problem is versus some of these really large companies people kind of back their way into and it almost starts out as like a toy or a joke yeah um i see more of like the toy or a joke as in you're experimenting you put something out there and then if it works you can build a company around it um this actually i picked up from nabal a few years ago where when you think about early stage companies it's actually about a small

team a founder maybe the founding team sitting uh crafting creating something and then you know they're kind of in their like lab and then they put it out in the world and they're like hey do you like this and then most of the time the world's just like no like i don't give a right go back and then you go back you know you kind of crawl back in you're like okay back to work again and you're kind of crafting and you come back out and you're like hey do you like this yeah i think notion famously um i think notion the product that worked i think was like version two or version three which was slack a bunch of slack which came out of full rebuild again kind of a similar concept so when you look at that across all of these different companies you'll

actually see a period in time where they're just sitting there just um uh crafting a product they think could work in the world and then they're putting it out there and so i think a lot of the times it comes from the founders not knowing because you don't know you actually you can't you can't know ahead of time whether the product's going to work and you can only know when you actually put it out in the world um and uh and and people are saying yep i love it and then they pull it out of you and then when they pull it out of you then the question is can this be a big company like can this growth sustain or maybe like what if it tapers out um and but that's actually an easier uh question to answer than like the early stage of like will this work you just don't know same

thing you know go back to uber who knows like i mean it was just a a black car service uh who knew like how could you predict that yep you can actually bring the cost down you can bring you actually literally bring a lot more people into the supply side of the market to start driving their cars um so i would actually say more often than not it's uh it's it's not perfectly planned you can't quite predict it take that same idea now bring it inside of a couple like angel list uh you all don't have the good fortune of hiding right i think a lot about you know use bitcoin as an example like probably some of its success was just like no one's paying attention and so it could kind of flourish without critiques and critics and all this kind of stuff if angelist

does anything if you guys breathe on the internet somebody notices and there's an article written yeah how do you test ideas how do you know this is worth potential uh a hit to the brand or you know kind of failure being in public and taking these ideas like it almost has to start as a toy or you know something you're playing with what you're doing inside this company where you don't get credit for hey we're just you know we're in the arena testing things if you will yeah i just tweet i'm in the arena so um i honestly i don't care like i i actually i and i say that in the most positive way possible i don't care in the sense that um when you so okay if you actually study uh if you study history of entrepreneurship and you actually study the

greats who built companies from like hundreds of years ago uh like i'm talking uh uh the polaroid founder talking about um you know talking about even like bill gates building microsoft Like, if you start studying all of these founders, you'll notice that there's just so much tinkering that happens. There's so much experimentation that happens. And there will be false starts. But when you look at it through the, you know, when you look at it across time, it just doesn't matter. These are all, like, little blips. So even if Angelus launches something that doesn't work, it's a blip. Yeah, maybe there's an article written. Maybe there's some opinion piece or some blog post. but it honestly just doesn't matter because all we're really here to do is just build an enduring

company and building an enduring company takes a lot about that it takes a lot of experimentation and i think the second you start looking at what others are saying about you you're not building what customers actually want from you and the only thing that matters is what customers want from you not what others are saying about you because who cares um now of course it doesn't mean that you know we're making a lot of egregious like decisions um because angelus we are in a regulated space um and uh you know we we have actually we're kind of sitting across different pieces of regulation because we are not just under the venture exemption we're also we have a ria um and so we do we do have to be careful about that but generally we lean more towards taking more

at-bats more experiments uh and not really caring about what others think let's talk about capital allocation you know when you have multiple bets kind of going on at the same time some are mature some are not mature how do you think about one um the new bets is there a dollar amount is there head count but like how do you say like hey these are the resources we're basically willing to like lose over whether this works or not and then how do you think about feeding the machine you know the thing that's already working and kind of is there a framework or is it a case-by-case decision yeah i mean the framework i lightly mentioned earlier which is we'll we'll generally have a good idea of what products people are working on with core business or a new product and then

anything that's a new product like a zero to one um will effectively treat it as a pre-seed company um uh and we'll say all right you generally have this much in allocation this much capital to go with and there's a product lead there's a product lead where we actually frame it as look this is your startup um and here are the you know the team uh the team members you have and you can also say you don't want this person to work with you and that's okay because you want to keep a very tight team and then we'll actually see the progress they're making across multiple quarters or even sometimes mid-quarter we'll just do a check-in on it and so we're pretty tightly scoped based off of that and then for the core business it really depends on the stage and it

depends on the scale of the business and we really think about it as will more capital accelerate it or not and more often than not more capital does not accelerate right i think the uh one of the things that got lost in uh 2021 uh and 2022 the beginning part of 2022 is this assumption that hey raise more capital you can go faster but in reality most companies cannot go faster when you raise more capital there are exceptions like if you're in the i've spent a lot of time in the logistics space um where you do need more capital you have to launch multiple cities you literally have to pay out uh for every city you launch but for vast majority of companies like software companies you don't need more capital to scale or at least that is not the that's not what's

on critical path so it's actually very rare that more capital means you grow faster so you have to kind of break down in the core business is more capital the issue or is there some other issue that's uh preventing you from scaling um and so or can you actually just take the cash that's coming off uh you know uh getting generated from a company and invest that and then keep the money raised separately so that's the way i we think about on the core business side it's like is capital really the issue or not um and in general we actually lean towards not burning cash for the sake of it i mean that sounds obvious but you know i think a lot of people just literally just like hey the next round is on around the corner we don't think that way and in fact even if you

take a look at angel assistory before the round that we raised in uh beginning of last year we hadn't raised capital in i don't know four or five years it was just a long time so we haven't actually like for being actually first for for being the platform for a lot of venture funds uh you know we have a pretty large percent of the market for venture funds we don't raise a lot of cash we haven't gone back out to the market uh often at all you let me invest i appreciate you you thank you um another part of capital allocation is protecting the cash you do have in treasury management um i think that a lot of tech startups really just have the idea of like i put in the bank and i'm good uh in the crypto world i think they over the last couple years

realized like that's not good right like there could be some problems uh and they actually were the ones who avoided kind of the bank run the fastest because like i've seen this playbook before um but the people who hadn't had that experience silicon valley bank signature these different uh organizations first public etc how do you all think about it now and you guys have built some products here to kind of help people with treasury management so like what are either best practices or what are you guys doing uh to kind of think about the cash you do have on the balance sheet yeah yeah it's funny yeah because before svb everyone's like just keep it at svb and that's perfect um within my bingo cards that that was going to happen um the way that we do

treasury management is uh and this would recommend for all startups is you typically want to take the cash you have and you want to make sure that you're putting it in a place where it either is uh in uh us treasury bills um or you actually have it across multiple banks or you have one of the big big big banks the problem with one of the big big big banks is they just don't want to work with you right i mean a jp morgan um or uh you know bank of america actually well one some of their uis is terrible but in general they don't typically like working with small like early stage startups so what i would recommend is uh actually uh you know putting your money into into a banking solution where the money actually gets spread out across multiple banks uh so you actually have 100

fdic insurance um and uh take anything you want to earn yield and just put in u.s treasuries so typically have you know three months six months of runway that's in in a bank account so you can just pay the bill to make sure everything's running smoothly and then take the rest and and you put it in U.S. treasuries. What AngelList does, like what we do ourselves, is we actually have it spread across some of the big, big banks, and then we have money that goes into a sweep account that goes into U.S. treasuries.

One of the topics that founders have to face when they go from a very early-stage company to some degree of success, this could be they raise a Series A or Series B, it could be product-market fit, whatever kind of milestone that brings up the conversation is CEO compensation. And it's always this weird thing

where every time I've had the conversation, whether I'm on the board or I'm just an investor, the CEO is like, hey, I'm used to thinking of the compensation decisions for everyone else. I want the company to succeed. I know we're trying to keep costs down, but also like I have a family

or I want to live my life or whatever. How have you both at AngelList, but also in other places, seen CEOs kind of navigate this correctly? And are there any best practices that you think other founders should take away? Yeah, it's a tough one. um i would say it depends by stage right if you're pre-seed seed um you could theoretically try and

get uh you know some market comps and try and set it that way but in reality at precedency you're just looking to preserve as much cash as possible right you're getting paid handsomely in equity uh as a founder and what you wanted it's actually in your incentive to keep your burn for the company as low as possible and also keep your personal burn as low as possible and so my advice for precedency founders is take as little as you need because you actually want the company to have as little work as possible uh because you need to make progress to get to the next stage and the next stage after that i think once you get past series a again a little bit post product market fit series a series b series c then it's actually more of a science there's a lot of comp data out

there so the way that angelus does it uh we have a comp committee um of course if it's you know Discussing my pay then i've recused myself. But we have a Comp committee. There's one, you know, a Couple of folks on there that are also sitting on other boards And they have a lot of this data. So it is actually more of a Science as you get to later and later stage. And i would actually look to the bc as well as someone External, someone who's actually an independent sitting

On comp committees that may be a public company and you can have Someone else to lean on. So that's what i would do for is being serious. So another piece of this, um, again, which is kind of like a tough conversation, I think for both the founder and also the investors, these secondaries, uh, for the founder and on one hand founders have, you know, 99.9% of their net worth tied up in a company, especially if it's their first one, that's really successful. Um, and I think from an investor standpoint, they don't want the founder to be worried and stressed out about shit. They shouldn't be stressed out about. On the other hand, the greatest, you know, kind of risk is the founder

takes a multi-million dollar secondary even if it's a small percentage of their ownership and then they've got a ferrari and you know they kind of get distracted yeah what have you seen there that's worked or kind of if you were sitting on the board or an investor in a company you would kind of guide the founder to think about yeah um i i kind of anchor back to 2018 2019 and what the norm was then and i would say the norm then was if you're getting to series a series b uh there it was not common practice, but it was fine for a founder to take a couple of million off the table. And the incentives are actually very much aligned with the investors and the shareholders, because by doing that, you actually take a little bit of that pressure off the table

for the founder. And again, everyone's situation is different. It depends on if the founder has already had liquidity in the past, so this thing doesn't matter, or if they haven't, and they've been spending five years, six years on it, and they have specific personal financial needs. So it's really an honest conversation that has to happen. But generally, you know, taking a couple million off the table to relieve some of that pressure does align you with all the shareholders and the investors because it means you're going to be more likely to go for the big home run, the big grand slam versus looking to sell the company. And, you know, once you get to that post-product market fit moment and the company scaling, and if it's a healthy company, you will get acquisition offers. It will be tempting. it's like oh wow it's life-changing money for the founder and interestingly enough i would say the

incentives do skew what when you have a um when you actually uh get bought that uh when your company gets bought and it's not a massive outcome the incentives are skewed because of the founder it's life-changing money but for the investor it doesn't matter because the way venture works is when you invest in uh in a portfolio of companies you're hoping for one or two or three of them to to become massive companies, grand slams. And a company that ends up 2X and 3X and 4X-ing is just, it's a rounding error, it doesn't matter. And it was actually one of the most perplexing things

for me as a founder. But now that I'm running AngelList, I fully understand it. It was like, oh, why do investors not care about the 2X or 3X? It's like, oh, right. It literally is a rounding error. It doesn't even matter. It's in the venture math.

It just, it's not where all the returns are made. Describe this a little bit more, because I think people who have experienced investing understand but from an investor standpoint maybe just describe like what is the investor thinking in that scenario as to why two to three s doesn't matter yeah so the way to think about it is um when you go to raise a venture fund um so every investor is typically not investing on personal capital until they're unless they're angel investing but by and large you should assume they're actually investing other people's capital so when you start a venture fund you go raise from

other people just like a founder a founder raises from investors and a vc raises from their own investors and what they do is they raise this capital and they have a specific strategy and they're going to invest in let's say 20 companies or 25 companies now it's in the venture map that by investing the 20 or 25 companies probably two maybe three if you're good are going to be massive like uh you know massive home runs and the rest of them will kind of be like a 1x or will just be a complete write-off because again you're investing in early stage companies the uh the survival rate of companies uh of venture-backed companies is like two and a half percent or one or two percent and then of those the ones that actually become enduring companies like large

sustainable companies is like 0.1 so when you do that is literally the venture map so when you take that back into a venture fund and you look at a portfolio let's say 20 companies when only two or three companies are the ones that are going to be massive fund returners uh and actually return a lot of capital that's where the investor actually makes what's called their carry, which is they get a profit off of, or they get a cut of the profits off the venture fund. So the incentives are aligned with the companies that will be grand slams. It's not aligned with companies that will be the 1X or 2X or 3X. But for the founder, if you own 40%, 50%, 60%, and the outcome is 30 million, 40 million, that's pretty good. That is life-changing

money. So again, going back to the question earlier of, does it make sense for founders take a secondary i would say yes within reason uh and and this was you know some part of the practice in 2018 2019 because it'll allow them to go for the grand slam it'll allow them to like relieve that pressure so that when there is an acquisition offer they're just more likely to say hey not a right fit i think this company can be uh can continue to scale now as part of building these companies and kind of talking about taking secondaries paying yourself etc there's some things that you can do at the beginning of the company to set yourself up as a founder. Some people in this room, it's going to be too late, right? They kind of already messed it up.

But there's things like QSBS, et cetera. Like if you were to go back and start a company today, what are like the one or two big decisions that you would really try to get right? So that if the company ended up being a big success, you would be thankful you did that at the start of the setup of the company. Yeah. I think one of the biggest decisions is actually the distribution of equity amongst the founders so um i would really ask you need equal co-founders or do you need a late co-founder uh and the reason i frame it this way is because typically companies uh venture-backed companies and really every company is authoritative right you have a single a leader a single ceo who's going to lead the company and a lot of like a lot of the success and failure

company is going to ride on that one person and you should really ask like can you start the company yourself and you basically get more equity if you're going to be the ceo of the company and then are you looking to bring in a late co-founder and it's not to say that the distribution of equity needs to be like 95 5 but i think generally making sure that out the gate you set the right stage in terms of allocation solves for a lot of the potential founder breakup issues that come up in the future because if you're equal co-founders but one person is actually taking on a lot of the leadership risk that and uh if there are decisions that need to be made decisions don't get made by consensus and startups at all it has to be authoritative uh it has to be a singular person

that's accountable to it and if you have an equal co-founder relationship it can cause a lot of tension so i think that's one of the most important things now i would say structurally there are things that you can optimize for sure every startup qualifies what's called qsbs qsbs basically means for any you know for any um if you have a liquidity event for any outcome that reaches uh up to 10 million it's basically tax free at the federal level i believe i can't remember california has that or not um and you qualify for qsbs um you could do some other optimizations uh though i think some of them may some of the loopholes may be closed now there's the like you take some of the equity and you put it into like different trusts right and then different sbs on

like every single one as a founder you could do it but i just don't know if it's worth the trouble uh i would just focus on just get the product market fit there are other things you could do like founder preferred stock though i think in this market it'll be a little bit harder some of these things get re negotiated out anyways in later rounds um so my my advice actually is the number one thing is the is the equity split between the founders and look if you really want to be equal co-founders go for it but generally i think having a step down in equity based off the second founder third founder um works well because then you can actually it can be clear who's actually running the business 51 49 or like 70 30 when you talk about not having equal like

how how egregious is two creatures and does it actually matter or is it more of just literally you're the authoritative decision maker and someone else is kind of like the second you know authoritative decision maker it could be that but sometimes uh you know it goes back to you just take a look at the incentives right um personally again this is just my opinion i would say more like 70 30 60 40 and then like 49 49 51 just looks cute right it's like kind of a cute thing to do but 60 40 70 30 is it can work um and then i'd say if you actually have a late co-founder meaning they join later on they're taking a lot less risk then it could be like 10 15 percent and you're 85 percent 90 and that actually does work pretty well like i've started

a company where i brought in lake hill founder was awesome um uh sometimes it can work if you bring on a key hire later on right the company's been around for a year i'm close with one company um uh you know it's been operating for a year and a half brought in a cro gave that person i think five percent uh which is very healthy and ended up being game-changing for the company um so again every situation's uh different but generally i'm seeing the step down in equity works pretty well one other thing i want to talk about is technology companies are usually pretty good at building products they're almost always horrible at sales and marketing and there's like this big difference um one of the things when i worked at facebook that was always so funny to me is like there's

no customer service number yeah and when you first get there you're like hey should we have a customer cert no we shouldn't here's kind of logic why and then it makes sense yeah talk a little bit as to like how much of it is just like the product should sell itself and as you said you know people are like literally finding your linkedin connections like begging for the product versus being able to really go out there explain people what does this do have a sales team and kind of build what i think most people would consider more traditional type of company yeah um i i don't think of it as like an either or um i think it all starts with a great product so you know forced to choose where you allocate your dollars um we allocate it towards product versus allocating

it towards sales and marketing um and you sometimes i mean you can basically look at the income statement of any company and basically tell like hey are they a product-led company are they sales and marketing-led company um and typically sales and marketing-led companies a lot more of the dollars go into sales and marketing snm versus um r d like the design engineering product so generally my take is that you want to be a product-led company because by being a product-led company you can actually focus on real innovation uh one of the things that we think about at angel list is uh we should we don't want to build a better version of the past most products are just building a better version of the past and the reason that's a problem is when you're

building a better version of the past you're building a commodity product and when you build a commodity product um it goes back to like you're fighting apathy right no one cares they're like well why not just use this thing that's already there it's good enough and hearing that from a customer is like oh this other thing i use is good enough is the worst and so you want to focus on building something that's insanely great that is just so much better than the past right imagine the uh depending on how old folks are here but first time you pick up an iphone from going from a blackberry right just absolutely insane it's just insanely better uh first time you wrote a tesla relative to any other car it's just insanely better and so the only way you do that is be

having a ruthless focus on building a great product now for sales and marketing i will say that depending on the type of product you're building and selling if you're selling the enterprises and your uh size of the contract is 25 000 30 000 50 000 or requires coordination across multiple teams personally i've never seen that work through pure product-led growth i think that's when you do need a sales team and you do because again you have to talk to a human once you get past 25k in average contract value there's approval processes that happen internally they have to justify it so that's what we see so going back to what you mentioned with rolling funds um are like for majority of the history of angelus we had like one salesperson and we had no marketing

team like it was just pure product like road as we entered and entered larger uh larger fund sizes all of a sudden now we do have a sales motion because the acv goes up the average contract value goes up and you need more of a um uh you know a kind of tackling motion to make sure that we're getting in front of the right people and then we're selling the product there but it still starts with having a great product to get in the door but then when you sell larger acvs you just need uh you need a sales team last question my last question for you is um ambition and the the importance of it for startups and kind of um you know it's friday night it's two o'clock in the morning this shit sucks i'm eating glass i've been doing it for you know six six years six months

whatever it is how important is the ambition and the motivation to kind of keep people going oh i mean it's everything i mean it's fucking everything like it's look it's it's not easy at all um my you know first startup uh uh you know we um with my co-founder at the time i think we built like 20 companies or 20 products before we actually even landed on something that raised money and it was just like soul-sucking and then we finally built something and then we figured out how to scale it and then we didn't have product market fit we got distribution we didn't have any product market fit and then i ran that thing for another two and a half years and it was soul sucking right and you know coming out of it you're just like nope gotta keep going um and it just

came from a sense of no i actually i just i'm viewing this as a stepping stone i'm viewing this as something that i'm learning from so i can go build something even better and then that led to the second company uh that actually ended up getting acquired in like you know very quickly like six months which then was a complete step function change so what i'm trying to say here is that startups are a step function change it will never ever ever ever feel linear ever it's always a step function change you start off with you're uh building a product you're crafting in the lab and then you're putting out in the world and then people swat it most of the time you're like oh crap you have to go back right you're back you it feels like you're back to zero because

you are you know in a way but in some ways you've already learned something and now you can iterate to the next thing so it's not linear and you'll do another try at it another try it and you'll you'll share it with the world and then when people like it and they pull it out of you you've just made a step function change so the way to think about startups is it's all about step function change and the ambition is what gives you the motivation to keep going and um you know I mean, I've been in San Francisco, the Bay Area and Silicon Valley since 2008. So I've seen multiple cycles now. I've seen friends, you know, actually go from failure after failure to building large companies.

And I'll tell you, every single time it looked bleak. It looked like everything was just shit. And then it was just that one insight, that one iteration that just changed everything. And it just, like, it's really just a massive step function change up. And then you just go from there. I think we're like, you know, launching a rocket. That's all it is. and you just got to keep that ambition you're launching a rocket and uh you just keep going

at it you know how many how many feelings are you on have three yeah there you go um just think about it like that thank you so much for doing this i really appreciate it everyone angela ceo