This Week in Startups - ANGEL: Surviving a down market, early VC stories & more with four-cycle investor Geoff Yang | E1676

Episode Date: February 11, 2023

Four-cycle investor and Redpoint Ventures Co-Founder Geoff Yang joins to discuss his early years in VC (1:45), what it takes for a founder to survive in a down market (11:47), what makes CEOs like Frank Slootman and David Zaslav stand out, and more! (43:35) (0:00) Jason kicks off the show (1:45) Geoff Yang’s experience cracking into VC (10:26) LinkedIn Jobs - Go to https://linkedIn.com/angel and post your first job for free. (11:47) Surviving and thriving in a down market (22:35) First Republic Bank - Discover what a long-term financial relationship can do for you. Visit https://firstrepublic.com today to learn more. (23:29) Being flexible and understanding risk as an entrepreneur (30:00) Accomplishing the most with the least (34:05) ProsperStack - Take 10% off your subscription by mentioning TWIST at https://prosperstack.com/twist (35:17) Geoff’s favorite investments (43:35) Working with David Zaslav (50:57) What’s next for Geoff + Generative AI FOLLOW Geoff: https://twitter.com/geoff_yang FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

Okay, everybody got an amazing angel interview for you today. Not only do we have a three-cycle investor, today our first four-cycle investor. That's right. Jeff Yang is the co-founder of Red Point, and he started venture capital back in 1985 right out of school. We cover his entire career, everything he's learned. We talk about the different downturns and their impact on startups at that time, from Black Monday in 1987 to the dot-com bus, then the GFC, the great financial crisis, as well as now our 2022 speculative asset bubble bursting, the downturn that we're in right now. We discuss the characteristics of the companies and founders that make it through these rough economic times and so much more.

He was an investor in Snowflake, Uber, the list of them goes on. TiVo, Excite if you're going from the dot-com era. It's an amazing episode. Please stick with us. Bring a pen and paper. You're going to need to take some notes on this one. This Week in Startups is brought to you by LinkedIn. jobs. A business is only as strong as its people and every hire matters. Post your first job for free

at LinkedIn.com slash angel. First Republic Bank. At First Republic, everyone gets a personal banker who will sit down and learn about you and your financial goals. Isn't it time you align yourself with a bank that believes in you and your future success? Learn more at first republic.com. Member FDIC, Equal Housing and ProsperStack. ProsperStack makes it easy for subscription brands to reduce churn up to 30% by automating and enhancing retention experiences. Take 10% off your subscription when you mention Twist. All right, everybody.

Welcome back to the show. We have been wondering what this boom bus cycle is going to look like. And we went and we did a ton of research. We said, who has been in venture capital? Through the last three boom bus cycles. who is old and weather and a warrior. We were looking for the samurai, the Jedi's, the Obi-Wans in our space.

And of course, Jeff Yan came up because Jeff started his interest in venture capital, I kid you not, in high school. Welcome to the program, Jeff. Everybody knows. Thanks, Jason. You were the co-founder or the actual singular founder of Red Point? No, one of the co-founders.

One of the co-fonders, yes. We started, yeah, we started Red Point. really with, you know, three partners from IVP and three partners from Redwood. So the six of us started Red Point, yeah. Now, you were interested in venture capital in high school. Is this because a relative was in venture capital? Yeah. Or because you were an Uber nerd?

I don't know. I'm ashamed to say maybe a little bit of both. So I grew up in New York and my parents were both engineers. My mom had actually worked at IBM and it left IBM to start. start a software company in the 70s, late 60s, early 70s. And I'd always been interested in technology. And then a family friend was in venture capital, and I went with him to work one day. You know, one Saturday, and he was with Exxon enterprises at the time.

And, you know, they had invested in Atari and KIPP and, you know, a whole bunch of kind of really cool companies. And I'm like, wow, this is really neat. And it was more than, you know, it was technology. It was innovation, but it was also kind of the business side. And I always thought that was really neat. And so I kind of got it in my head that it would be a really fun thing to do, not really knowing what it was all about. But in the back of my mind, I had kind of zeroed in on that.

And when I went to college, you know, I went as an engineer, not really thinking I was going to be a professional engineer, but more thinking I wanted to be on the business side of engineering. And, you know, I applied at grad school. and went to work at Goldman Sachs for the summer and between years of business school. And then when I was finishing business school, I'd always, I said,

God, I've been thinking about venture capital forever. I might as well try to go in. And it was a very hard industry to break into. But, you know, when I got an opportunity to do it, I just joined. And then that was 38 years ago. Wow. And so tell me,

what was it like trying to break into venture capital? Because this was a very small. And listen, when you got in IVP in 19, I was just graduating high school and I went to Fordham at night. I was right behind you in terms of like my interest in technology and investing because I met Fred Wilson shortly thereafter in Jerry Colonna in the early 90s. It was like, whoa, that's a cool job. But what was it actually like?

What was it like going and trying to find a venture capital firm and get a job from them? Because there weren't that many, right? It was a very small number of people in venture. Right. I mean, you know, I thought it was, it seemed like it was a large and number, but in retrospect, it's tiny, right? I think when I joined in 1985, I think the aggregate amount of capital that was raised in the industry was like $3.7 billion, right? Which was a local maximum, but by contrast, it's just like a drop in the bucket, right? You know, it's a size of

of some medium-sized funds, you know, for in certain categories now. And I was in business school and and I wanted to do it, but most venture firms really didn't have a hiring process. And so there was something called Stan Pratt's guide to venture capital, listed every venture capital firm in the country, which wasn't that big. And I went through and I basically wrote letters and called almost everyone that was either in Silicon Valley, Boston, or New York. and I just We're talking dozens, hundreds? I don't know.

I probably reached out to 30 or 40 and there weren't that many firms and the firms that, and many firms didn't recruit people fresh out of grad school. You know, they would only,

some firms would just recruit operating execs. So I'd say about a third the firms only recruited operating execs as partners and I was looking for places that had the capability of bringing on an associate or knew what an associate was. And, you know, I lucked out and I got in the industry and I thought, hey, I'm going to stay for a few years and if I don't like it, I'll leave. You know, it's not a big deal. And so I started at the venture affiliate of Smith Barney. It was called First Century Partners.

And at the time, a lot of financial institutions had venture arms like commercial banks, investment banks, actually GE had a venture arm called GE Ventures, you know, Jivenko, which was kind of, you know, iconic city group venture capital, which is now known as CBC. And, you know, a lot of those institutional firms tended to hire associates versus smaller private partnerships, which may only have kind of three partners, may or may not hire an associate. And so it was just kind of pounding the pay.

and kind of grinding through it. But it felt a lot like a door-to-door salesman job. But I got my foot in the door. And that was 38 years ago. 1985, right? 1987, you go to IVP. Right. And then, of course, you have the great stock market crash.

So without knowing it, you actually are the first person on the program who I think we've had, who in this series, who actually lived through four of them. Tell me about the first deal you ever did. Tell me about the first deal that you either sourced or research were critically involved in, and that resulted in a check. Everybody says you remember your first deal. So tell us about it. Gosh.

So the first deal I was ever point on was at First Century, and it was in this, it was in a company, it was a communications company called Concord Communications. And what they did was they did manufacturing, they did manufacturing. they did manufacturing floor networking so that different pieces of equipment on the manufacturing floor could all talk to one another. And there was a protocol at the time, which was based on TCPIP called Map, Manufacturing Automation Protocol. And that's what they did.

When I got to IVP, the first one that I really worked on that kind of came to fruition was probably something called synoptics, which was, you. which was the first hub, networking hub. I was what I said. I remember it like Cisco and there were a couple of other contemporaries. And then shortly thereafter, I invested in something called Wellfleet Communications,

which was a router company. Yeah, and so Cisco and Wellfleet were the two routing companies kind of in that period of time, which was kind of a late 80s, early 90s. And then I also invested in a seed company that was selling equipment to telcos called Applied Digital Access, which ultimately went public and then got acquired by somebody else. So funny. In the early 90s, I was fixing laser printers.

And then I was at an IT company. And this is how I paid for college. They said, hey, you should come working this company, land systems in New York. Sure, yeah. And Mike Savino, who works with me now as an investor, hired me just because I had gone. to a high school and I came in and they were putting in Wellfayette routers and we were putting in Banyan vines, Ethernet, all this stuff was just coming out.

People forget that before the internet, you had computers where people were just trading floppy disks inside of an office and then you could connect them and law firms wait a second. We don't have to run this document up 12 floors or down to the office and Wellfleet would have these $50,000 routers and we would set them up between the two with the hubs and you could then have a document from Sherman Sterling's office in another city

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That's right. But yeah, then the crash happened. How did the crash, did the crash impact the venture scene? Because at that time, man, the PC era and the networking era was a boom. Yeah, it was, it was, I just remember, you know,

it was 80, 87, I think. It was, you know, Black Monday. Yeah. Yeah. And actually somewhere in my office, I have this little clock. that there was this firm, this technology banking firm called Montgomery Securities. And every year they would, it was headed by this guy, Tom Weisel, who's kind of, you know, a legend.

And Montgomery Securities would have a big party every year around their Montgomery security party. And I remember they had a big party the day the market crashed, you know, on Black Monday. Wow. And the giveaway was this little clock and it said, Montgomery Security, annual investment conference, October 1987. And so I've saved that thing for, you know, whatever, 36 years. And it sits as a reminder, you know, to me. But, you know, it was, it was a big correction.

And by big correction, I can't remember how much the market dropped, but the Dow probably dropped 500 points or something like that, you know. And it was this big monumental event. And, you know, by today's standards, on a percentage basis, that was a big, you know, that was a big percentage. drop. But by today's standards, you know, that happens on a volatile day, you know. But it was, it didn't pretty much, you know, I guess I lived through that. And then in 1990, there was a small kind of recession. The internet bubble was obviously very impactful. And I'm sure we'll talk

about, we'll talk about that. The GFC in 2007 was a big impact to the financial system and kind of how economies and markets interacted, but we were really on the periphery. And the internet bubble, we were the center of the blast radius, right? Yeah. And this one is definitely worse than GFC, but not as bad, I think, as the internet bubble was, because, you know, this one feels like a fundamental revaluation. And of course, there's a global downturn. It's not as, it's not as, we're not as much on the peripheries we were on the

GFC, but we're not really the center of the storm like the internet bubble. When you look at the companies that made it through previous bubbles, what do they have in common? What were the traits that when, hey, venture dollars dry up, public markets close and IPOs can't happen, and all the venture tourists, which we always experience at the last third of the bubble, when the venture tourists are like, yeah, you know, it was fun to live in Tahoe or it was fun to live in Hawaii for a year, but I'm out going back to wherever I was. what are those companies that make it through? What are the qualities of them?

And what are the techniques that venture capital use? Because, you know, there's a lot of moving parts here in terms of saving these companies. Because that's where we're at right now. I assume, I'm assuming in your portfolio, you're in, hey, what can we save mode? Yeah. Gosh. I mean, the common trait on all of them is they survived, right? Okay.

And there's some attributes about, you know, we can talk a little bit about, well, what you do when the downturn first starts to kind of assure or increases your chances of survival, and then we can talk about people who thrive in these types of periods. But let me talk about the differences, if you will, between kind of the internet bubble and the GFC. And the first one, I think, and then I'll come back to your question, I think. Sure, yeah. But the difference was in the internet bubble, and I remember at the time, before the bubble burst. I think the market peaked, I think in March 2000.

I think it was March 10th of 2000. And I remember beforehand thinking, boy, these things are, you know, like in the year coming up beforehand thinking, boy, these valuations are really kind of out of control. And these companies are going public on especially internet advertising businesses and e-commerce businesses on basically no revenue and everyone was spending, you know, spending all the public market dollars because that's what the public market, you know, the public market investors wanted to do is to get, get eyeballs and growth. And I remember thinking, boy, we probably should

back away from that space because it seems ripe for, you know, a possible correction. and but what we'll go is we'll start going in, you know, to internet infrastructure, basically data networking, right? And and so we started leaning more into being arms, you know, being arms dealers for an arms race. And then I remember I had a lunch with a guy named Dave Dorman who was running BT concert at the time. And they were the fourth backbone internet network. And I was talking to him and he said, yeah, you know, we're building out our network. I'm not really sure the world needs for, you know, backbone networks, but that's what the public is giving us the dollars for.

But there's a ton of capacity out there, right? And there's probably way more capacity than we're ever going to use. And this is the time when backbone networks were being built out and fiber, you know, all the fiber optics companies were, you know, selling this incredible equipment. But when you started looking into it, there was so much extra excess capacity. I remember sitting, leaving the lunch going, uh-oh, this is really not good, right? You know, because if there's too much excess capacity,

something's going to blow up. And so we went around and talked to all our companies and said, hey, raise a bunch of money because there could be a correction company and everybody raised money. And the difference between like the GFC and when the internet bubble burst is when it burst, people went on a buyer strike.

I mean, there was a buyer, there was a buyer strike, and there was basically no customers in the market. They were for either consumer or for networking. And that lasted more than two years, almost three years. And I think early stage innovative companies can't really go that long without selling product, right? Because everything starts getting stale and you can't really make it. The difference with GFC was we had a correction,

but it was relatively short-lived, right? Within, you know, things had corrected, a bunch of companies went out of business, and buyers kind of came back into the market because it really wasn't targeted at the technology business, it was kind of targeted around the world. And so the first thing is, you know, surviving, right? And so it feels to me like this is a period of time that's more like the GFC kind of correction than it is like the Internet bubble bursting correction where we got a ton of excess capacity and a bunch of business model.

that really didn't work yet, right? And so now getting to your question, I think some of the lessons you learn in downturns is, you know, first you got to survive. You got to be there, you know, at the end. And so one of the things you always say, you know, I always say is, you know, always be early in adjusting expenses and burn rate.

And it's a little bit frustrating because I feel like I've been through this movie a few times and I kind of see how it ends. And I can almost have the, role play the discussion of how it's going to go with a lot of relatively young management teams where they're going to say, well, you know, what's going on? You know, you told us that we had to grow and and we can't really cut because it'll scare people and there's nothing to cut and all this kind of stuff. And I always say, yeah, but you really want to lean up and you want

to do it, you want to do it quickly and do it deep because you're going to have to do it at some point. The earlier you do it, the more runway you'll save. And actually the people around in the company, they'll have more confidence that there's a sustainability, you know, that the company can be self-sustaining and that it's a hard thing to do, but the people who remain will be more motivated and they'll totally get it. And most management teams don't, aren't comfortable with it, right? And they think, well, you know, I've cut all the fat.

And the reality is it ends up going a couple cuts. And almost every company can take out their bottom 10 to 15% on any given day on performers and really not feel it and actually probably get better performance. And so, you know, that's kind of the magnitude. The death by 1,000 cuts is really hard. The second thing that I think people do is they then change their philosophy on how to, how to get expenses. They start layering expenses with revenue, not in advance of it.

And so, you know, one of the things you really got to do is, as a manager in one of these companies, is have, really understand that the world has changed. And everything is about risk reward, right? You know, how much risk do you really need to take for what reward? And to the extent that you layer expenses with revenue, that de-risks the plan and gives you a better chance of success. The third is I think you got to focus vigilantly on the core value proposition and cut all the extraneous projects, right? Cut all the stuff that was kind of nice to have.

We'll see how in a loose capital environment, it's okay to do that. Just go back to, you know, what is core, what's your core value proposition. The fourth is spend time with your team, you know, be present, right? But it's a very, it shakes the confidence of everybody when they see what's happening out, out there in the world. And you really, that's the time when you really, and I think being in person is really important for that, you know, being present and being around and having your door open and checking in with people just to know, just so that you're, the company sees you're not scared, you know,

that this is really, this is really important. And then the last is creative, sustainable business model. You know, lots of times you may, even if you didn't have a sustainable business model because you had a lot of capital and capital was free, well, you've got to change that because that's not, you're not going to survive if you don't have a sustainable business model. This week in startups is supported by First Republic Bank. Banking should be about more than checking and savings. It should be about building relationships, the kind where you can share your financial goals

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That's firstrepublic.com member FDIC, Equal Housing Lender. I think it's just such a brilliant observation. As simple as it is, you have to survive. And that means by any means necessary. And when founders say to you, oh, you know, we're going to get this venture loan. We're going to raise another round. we're going to we got these like the pipeline

these conversations and you've had them many more times than I have and across a couple of more of these cycles than I have but the reoccurring theme is people don't take the medicine and they just wait and they think they're going to write it out and I am getting so many people emailing me oh no we're going to do $5 million in venture debt

we're going to do $10 million in venture down and I'm like wait a second if we can't raise money from the market and we don't have a path to profitability We're now going to do a 12% loan that's due in 24 months. We have to start paying. Like, whoa, this is, this seems incredibly dangerous to me. Why are we doing this instead of making the cuts and increasing revenue? And yeah, I guess it's really hard to change gears for people.

It's really hard to accept reality for first-time founders or management teams. No, I think you're exactly right. And that gets a little bit to, you know, who thrott, in these kind of periods, right? And one of the things you just said, it's people who are, who have the flexibility and also the intelligence to kind of recognize what's happening, right? And there are rarely straight lines from A to B. You know, the secret is knowing when to adapt and when to stay the course, right? And you got to be flexible. And you got to adjust to the changing environment. And one of the things I have found is one of my lessons is it's really hard to

substitute for raw intellect, you know, really smart, you know, backing people who are really smart is an important aspect, not just book smart or subject matter smart, but just people who kind of get it and they kind of see what's happening in the world. And you need, you need perseverance, but you all people also have to be able to understand when the world has changed, they've got to change or else they're going to get run over. Yeah, and the change that we're experiencing now, how would you define, if we were to look at this correction, where we are in the correction, and what were the mistakes that we made that need to be corrected?

Well, more generically, I would say, you know, great, great entrepreneurs are people who really manage, a great managed risk takers. In other words, you kind of see, you know, everybody thinks, oh, entrepreneurs love risk, right? My experience is the best entrepreneurs are the ones who understand risk, but they also understand reward, and they know when to take what risk for what reward. I mean, nobody really just likes risk just to take risk, right? Yes. I mean, nobody wants to jump off, you know, jump out of a, out of a building, you know, with a blanket, hoping that they build a parachute. But if that's your only choice, then you're going to have to jump off the building, right?

And so, you know, when you go from periods of very loose capital where raising money is easy, you don't have to be as tight with kind of how you spend your money and you're able to kind of experiment more to get to bigger outcomes with more speculative, models and the market let you do that, that's great. But as soon as that world has changed, you have to change with it, right? And that's a hard thing to do because it's culturally, you know, kind of very difficult. But I think the best entrepreneurs view is a challenge and they see it's happening and they realize they have to do it, right? You know, greatness comes from understanding risk and reward and when to take risk is as important as understanding

and kind of what the reward is. And so it's those types of people who can kind of see those things and adjust that ultimately, you know, really thrive and survive, you know, in these kind of really uncertain times. You know, the other things I'll say is they're also, I also find that they're very realistic and they're very honest. and, you know, I said this before, but I think you always have to assume that your employees, your customers, your partners are smart and they understand what's going on, right? And I often see people who think, hey, my job is to be the unbridled optimist,

and they confuse that with confident leadership, right? And I've found that employees are generally really smart, customers are generally, really smart. Partners are generally really smart. They see the same world that you see. And if you're headed down this path of driving off a cliff, it's going to shake their confidence in you much more than this person is doing kind of what it takes to survive and to thrive. And I think if you use these types of crises, view them as opportunities. And opportunities, I mean, In times of great uncertainty in crisis, I think metal is forged. And it's very easy to see who on your team locks up and who goes and solves problems, right?

And so the opportunity is leadership is going to become evident. And so promote the people who rally the troops to solve problems and hold the herd of the people who lock up, you know. Yeah, I mean, I think probably watching what Elon has done at Twitter, watching what Zuckerberg did at, at first kind of driving meta off this cliff in terms of spending and just hiring. And then all of a sudden he was like, hmm, stocks at $90 a share. Nobody believes in us anymore. I think we're going to get rid of this middle layer of management. And he, I don't know if you saw this past week where he said, if you're not building stuff here, please leave.

If you're like, if we have too many layers of management, if you're just managing and you don't actually believe you're actually contributing, you can leave. Please leave. I mean, this was like, talk about a 180. Maybe you could talk a little bit about how bloated our industry got in the free money environment. And then this reaction where, hey, it almost seems like people are now saying, well, what's the least amount of resources we need to achieve a goal as opposed to what's the largest amount of money we can raise?

And my value is how many employees I have and how big this company is. Well, I think you're exactly right. I think this shakeout, if you will, is going to take a while. And when I say shakeout, I don't just mean in the venture world. I mean, I think just generally, you know, there's been, for whatever reason, the money supply grew at a very rapid rate, right? And if for a very long time, we got asset bubbles and companies, including ours, raised kind of too much money, and it's going to take a while for that.

to kind of leave the system. And the mentality is, it's going to take a while for the mentality to leave the system. You know, we've been going on a kind of go bigger, go home kind of path for pretty much since after the GFC, so kind of 09, something like that, 0910, maybe start happening kind of 0607. And that's a long time, right? And so people are going to have to go back to how do I accomplish the most with the least, right? And one of the things I always believe that a lean company ends up producing a better company, right?

You know, necessities of the mother of invention. And I've always been in general for raising a little bit less than a lot more. And I understand that when a company is offered a lot of money at low dilution, it's probably the right thing to do to put it on the balance sheet. But my history has been that culturally leads to more sloppy decisions, right? And someone, management always says, oh, don't worry, we're going to raise it and it'll be a rainy day fund, right? But what ends up happening is, you know, employees go, well, we have all that money. Let's just do a parallel project or let's not cut this person.

Let's just hire another person to kind of do what this. person was supposed to do. And you don't have the, you don't have the, the, the razor's edge, you know, that makes startups successful, you know, more than not. It gets a little bit, it gets a little bit sloppy. It gets a little bit more like a bigger company, right? And so I think ultimately this will be really positive. And, and I think the companies will come, the companies that make it will come out better companies. And the new companies that will get started will definitely be better companies. companies.

Yeah. But it's going to take a while for this to, you know, for this to shake itself out. Maybe several years. Several years, yeah, because this has been a year, 2022, completely down market, brutal. 2023, seems like the dead cat has bounced, at least in the public markets. And people are saying, oh, maybe this isn't going to be a soft landing. But you say a couple more years of working this out for founder, startups, capital allocators. So two, three, four year cycle and we're a third of the way through it.

Is that kind of where you're thinking? Yeah, that's kind of what I'm thinking. And part of it is a lot of the bigger companies have raised a lot of money. And they've got a couple years of cash. And, you know, the shakeout won't really occur until everybody's kind of out of cash. And, you know, similarly with capital allocators, a lot of people raise fund, big funds. and, you know, they'll try to be disciplined. But the fact of the matter is when you're funded

and your job is to, quote, quote, invest, you'll probably invest. Are you focused on subscriber retention this year? Well, you should be. Because if there is anything that can kill a startup fast, it's a high churn rate. Some people call it the leaky bucket, right? You fill the bucket, it's got leaks.

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personally from your family, Snap, Uber, D,D, Instacart, Dell, I mean, so many different companies. Which company and the effort they put in that you were sort of front row seat for are you the most proud of or amongst those which ones are the one you said wow what an amazing effort there by the team and that gives you just that was a pretty great moment in my career to have found that company to back it

and been part of their story of changing the world yeah gosh um hard to pick favorites I know yeah I mean everyone's a little bit different everyone's everyone's kind of really has its own fun unique story

I guess, you know, if I go way back, you know, when I made an investment in this company, excite, right? And that was one of the first Internet search engines. And one of the reasons I got interested in the Internet was, as you mentioned earlier, high performance networking came out of work that was done by ARPA and something called the ARPA net. And the ARPA net was the pre-generator to the Internet. And because I'd done so much work in high performance networking, I knew a lot of the original architects of ARPANET. And I start hanging around them.

And I'm like, wow, this internet thing could be something interesting. And so I met a bunch of kids at the time who were just still in college or just coming out of college. And they had no appreciation for how the internet was built, what you could do with it. And I put some seed money in a few of these companies, you know, and ended up, they became consumer companies and consumer media companies, right? And what was really fun about that journey was none of us knew what we were, what the business model was. I mean, most of the other kind of data networking things, whether it was Wellfleet or Juniper or Calix or, you know, what have you,

you know, they're doing the same thing kind of faster, faster, better, cheaper, right? You know, a Ristah when I put some money and it was because I knew I knew the founder J. Shariulal from a previous company and but but you knew they knew how to do it. They were just building you know a faster, better, cheaper thing. You know, the ones that are really gratifying is when there's no business model and you're kind of in there trying to figure out is there something here and our our customer's going to do what has never been done or a company's going to use this to get into a world that that they've never done before. And those are somewhat the most gratifying,

the most, sort of the most fun. You know, that's what Excite was like. You know, I did something called MMC Networks, which was the first network processor company, which came to us as a systems company, and it talked them into being a chip company, you know, and we did all the market research to see if there was a market there.

You know, when we did TiVo, there was this concept of, you know, how can we change the way people watch television, right? You know, how we go from live television into something that's time delayed and they could watch the shows whenever they want to, what they want to watch, whenever they want to watch it. You could pause TV. Live television. Yeah, exactly. I think that was their tagline.

Pause live TV. He was like, what? Exactly. You know, and when we did, you know, it's invested in Snowflake, it was, well, you know, this data, data is going to be a really important kind of resource in the cloud. And, and, well, is that really going to be true, right? And so it's in these things where the most fun is working with people who have this vision and they say things like, we're going to do something that people have never been able to do. And, you know, whether it's live their lives or how corporations do their work or how people kind of communicate with each other.

And those are, frankly, are some of the most fun. they're the most nerve-wracking because you're talking about markets that don't really exist but when they it does work it's it's incredibly fun it's amazing when market pull occurs

like people talk about product market fit okay a couple people like this product they're spending a little bit money but then something weird happens when there's market pull and like all of a sudden everybody's got a Ti-bo or everybody's taking an Uber or you know using excite

whatever it happens to be and you're like whoa The world recognizes this is brilliant and they're knocking our doors down. That is kind of the height of entrepreneurship, I think. Well, you know, what's really funny is, and you've experienced this, when someone says, boy, that's, you know, in the beginning when you start a company, you start a company, you have this idea, and typically either someone brings you the idea or you have the idea and you kind of noodle over it, you noodle over it,

But, you know, somebody has to take the initiative to say, you know what, I can't stand the thought that this doesn't exist or I can't stand the thought that someone else is going to do this because it's so obvious to me that something like this exists. So then you go do you go do the work. And then at one point, you know, the founders look each other, they look each other in the eye and they go, okay, do we really believe this? We believe this enough to leave our jobs and actually go do this. And you go do it, right?

And nobody really believes, nobody knows it's really going to work. And you have this period where you're willing the company into existence, right? You know, you have to believe enough and be able to convince others that this is really going to work in order to raise money or bring in employees or get your first customer, what have you. There's that period where you just will it into existence. And if you stop willing it, the founders stop willing into existence, it dies. Right. Yeah. And in that period, you're telling you.

everybody, what you do? And they go, yeah, it sounds like a good idea, but, but, you know, is the market big enough? Or will this really work? Or, you know, will this person put you out of business? And then it starts working. And people start coming on and you go, and the founders inevitably turn to each other and go, wow, I wasn't really sure this is going to work. I can't believe it's working, right? We're flying. It's working. We're flying. It's working. And then somebody comes up to you and goes, oh, I know that company. It was so obvious. I can't believe. I can't believe nobody did it before you. And you go, and you sit there and you go, thanks.

But then what you're really, what you're really thinking is, yeah, it's obvious now, but it wasn't obvious then. And if I told you about it then and you didn't jump all over it, right? You know, and it's an incredibly fun process. It literally is the definition of what's so exhilarating about being a capital allocator and helping place these bets literally had. Joe Jebbya for one of the three co-founders of Airbnb on just yesterday, or two days ago. And the number of VCs who said no was just unbelievable, you know, dozens and dozens of people.

And the smartest ones in the room. And he's like, it was crazy, J. Cal. We were like pitching legends and people who we totally respected who had backed YouTube and Google and this and that. And they kept saying no. And we're like, okay, well, maybe we should. pull the plug on this? No, we know this is going to work. We know that it works. And it really was Paul Graham who told him like, hey, keep going, keep talking to your customers. You got 30 people who are hosts. Go meet those 30 people. And if Paul Graham hadn't just, you know, as he said,

like, wagged his finger in the air and said, just go meet those customers and talk to them. It would have never have happened. Same thing with Uber. I introduced Uber to maybe 20 people and three of us invested. Everybody else was like, that's a stupid idea. Car is going to get an accident. Somebody's going to get killed in a car. And I'm like, I think 30,000 people killed every year in a car. Like, that's not a reason

not to make a business. Like, maybe we can make car safer. Who knows? You've worked with two really interesting people. One I had on the show, Franks Luteman. And then one,

I've met a couple of times, Zazlov. And I think you're still on the board of WBD. I've been buying their stock. I'm a complete Zazloffam since I met him when he gave a pitch on discovery

at a investor conference. Tell me about these two individuals because they do seem to be, I call him General Zazlov. He seems like a real hardcore guy. And Slufman as well seems like a general. Tell me about working with those two individuals and why they're so absolutely successful at what they do. Well, you know, I, I haven't worked directly with Frank, so I can, you know, he, he just exudes confidence and and experience and determination, you know, and he's someone that he just, just don't, you know, don't get in the way of because he's just going to, you know, go through.

But I can really talk much more about Zaz. And, you know, I met Zaz because, originally, because when we had, when we, you know, started TiVo, I brought in, I was really worried that the network's going to try to shut us down because we were potentially, you know, skip commercials and stuff. And so we went to a few networks and asked them to invest in the company and help us kind of define how the DVR was going to work and how consumer experiences and how to work with content owners and providers and stuff. And so NBC ended up investing and Zaz ended up coming on the board.

And so he was on the, we were on the board of TiVo together for about, for about 10 years. and I just really liked the guy. He was really pragmatic. He said exactly what he thought and he was kind of a no BS type of person. And I had been on the 18T board and when AT&T spun off WarnerMedia with Discovery to create Warner Brothers Discovery, you know, I was asked, you know, would you have an interest in going over to Warner Brothers Discovery? And when Zaz called me about it, I said, yeah, I'd love to work with him, right? and he is, he's kind of a remarkable guy.

He is, he is very high EQ. You know, what I like about him is, firstly, he's a great guy. And he's got, he's got his head on straight, screwed on straight, and he has very strong principles and morals and understands, you know, he engenders a ton of loyalty when the people around him and the people who work with him. And that doesn't mean he, he, there's something in Hollywood generally where lots of times you can't really tell of someone who commits to you who's really committing to you. He's the kind of guy who will look at you in the eye and he said, you know, we're not, we'll commit to you. And he will uphold his commitments.

And so he engenders a lot of trust and a lot of loyalty. You know, he took over this company or they took over Warner Brothers or Warren. media and discovery, put them together at a, you know, without a ton of due diligence about what the combined entity was going to look like, without a lot of knowledge about what all the different management people were going to go and how the integration was going to work. And he did it into a down market. And I got to give them a lot of credit because through this whole experience, they jumped in, they solved it, you know, in the public eye, if you will, they rationalized expense.

They made some really hard decisions. They did a bunch of, you know, layoffs and they cut some products and shows and they merged different functions that were doing the same thing. But through the whole experience, he had a very strong, unifying vision of what Warner Brothers discovery could be and what the legacy was and why it was really important and what kind of company he and the rest of the management team wanted to build for its employees and for its customers and for its partners. And it hasn't been easy. And I hope we're on the path where a lot of the hard work. Yeah. Yeah. But he's a remarkable.

Disney too. Yeah. I'm watching Disney now like just the last 48 hours of this taping. They're like, hey, you know what? This business needs to be profitable. There needs to be a path to profitability here. And everybody's spending money. Everybody's making shows, but we need to make shows that actually fit the brand. And, you know, they're cutting their spending and they're getting fit and saying, hey, you know, how do we make this into a business that can pay a dividend that is worthy of people owning large chunks of stock in it? And I've been buying Disney and one. Brother's just, you look at the hits coming out of those two companies. And we were having a conversation of it with the producer of this podcast. And everybody was like, White Lotus, Euphoria, Last of Us. We were going down like the favorite shows of the last couple of years. It was like, holy cow, like these are all like either a Disney Plus show or it's on Hulu or it's on HBO Max. Secession, House of the Dragon. And the ones that actually had the quality that you would watch them live in an era where there's absolutely no need to do that other than the absolute joy that the show brings you and the excitement that it brings you was HBO.

That was the only one that really had that water cooler factor, which was just extraordinary. It is extraordinary because in an era where. I mean, HBO, it's hard to argue with the success they've had in the hits that, many of which you just named. And to kind of, to release something on a episodic basis on a Sunday night in a environment where Netflix is all about binge viewing is, but they stuck to it. And I remember a friend of mine, David Kelly, is a, is a producer. producer and he was doing, I think he was doing big little lies.

And I asked him, why did you do it? Why did you do it on HBO? You know, I'm sure you had a lot of other offers. At the end of the day, he said, you know, being Sunday night, being on HBO on Sunday night still means something, right? And I like the promotion and I really wanted an audience to see our work. You know, and I went, okay, I get it. That makes sense to me.

Yeah, for sure. That's incredible. You know David Kelly as well. I mean, he's done some of the most amazing shows in the history of all this. So when you look at your career, I know you've kind of, I don't know if you've stepped back from Red Point a little bit, but you're kind of thinking about retiring. But man, this list of things you're doing seems very long. So how do you think about falling in a career or not? Well, I, you know, I'm not as active with Red Point as I have been. Yeah. I'm still, I'm still a huge supporter. I'm kind of an advisor, if you will. I work on deals on a one-off, on a one-off basis.

I'm still, like, I'm here at the Red Point offices now, and I'm still the largest individual investor, I think, in the funds. But part of what I wanted to do is the next step. really don't have an interest in retiring. I just want to, but I want to, you know, be able to do, you know, some more things that I really wanted to do. So I've been investing, you know, in my own account, but I also have helped start four companies and I have an active management role in all four companies. And so I've gotten really involved in a smaller number of companies and I really, I enjoy it and I regret it at the same time. But, what?

But because it's so all-encompassing, right? Yes. You can't stop thinking about it. Yes. And nothing happens unless, you know, unless I've got much more responsibility for what happens with these companies versus, you know, kind of calling up, calling up the CEO and saying, hey, you know, you should do better or, you know, you should sell more or whatever. We just watched, I'm sure as your thoughts on this, crypto, you know, this like decade or, you know,

almost a decade of people talking about they were going to change the world. And as far as I can see, yeah, Bitcoin, pretty amazing, radical concept. And after that, it trails up pretty quick, at least for me as an investor, and as somebody who comments on this stuff. And then I watch AI.

And in a couple of months, we've watched just an absolute flurry of real products dropping that have real impact on people's careers, etc. Maybe you could talk a little bit about what you'd think of chat GPT, Google releasing theirs finally,

which they seem to have had on ice. They didn't release it for some reason. I wonder what the speculation is there. I have some ideas, but what do you think about this massive generative AI AI moment that we've seen in the last couple of months? And then maybe comparing it to VR and other things that maybe have fizzled or just not gotten critical mess,

and certainly crypto, which was a weird one for me. Right. So, you know, obviously AI has been something that people have been talking about, you know, since the 70s, right? And I remember being at Stanford, you know, for grad school, for business school and taking some AI courses, you know, back in the mid-80s, right? But to me, this, the, and I think to a lot of people, the chat GPT announcement felt a little bit like a seminal event, like a real. real wow moment, right? And if you think back on the major discontinuities that have driven kind of technology and as a consequence of the venture business, you know, because it's so closely tied with technology, you know, you have the transistor and then you have the mini

computer, then you have the desktop PC, then you have kind of IP networking, and then the growth of the internet, you know, the search box, you know, the first time you type something in the search box and return to result, no one's ever going to forget that. You know, the mobile phone, and if you had to put one thing on it is probably the launch of the iPhone, right? Cloud computing. And it feels like, you know, AI in its multiple forms, but really as personified by the release of chat GPT, it feels like a kind of a seminal moment that is like a major discontinuity, right? Yeah.

And, you know, whether it is, in fact, chat GPT, or it's another, you know, conversational AI or it's other, any kind of some other generative AI. It kind of, it took this broad concept that people have been talking about and it kind of all of a sudden personified it as, this is what it is, this is how I use it. Boy, I can see all these, you know, extensions of how it's going to change my life. Yeah. You know, I think you can take it obviously to an extreme, which is. which is probably not going to happen,

but I happen to think AI is going to improve our lives, not replace them. And I think it's going to allow people to really add value at kind of higher order, higher order stacks. It's undoubtedly going to disenfranchise a lot of jobs and things that can be done by computers. And it'll accelerate what's kind of been happening But as an example, customer support, you know, you can see it'd be really easy to kind of train

datasets into conversational AI and reduce your customer support staffs by like, you know, 90% or something like that, right? But I choose to think that it'll become a tool so that people can do what people are really great at, which is original thought. And, you know, these systems aren't really systems of original thought. You know, somebody has to program them, and then you give them learning sets, data sets to learn from. And what it does is it quickly optimizes kind of known problems with known solutions. And it gets you quicker to, you know, where you would be by doing, you know, multiple iterations.

But in terms of thinking out of the box and then creating true original thought, I just think it probably raises the bar and helps us do what we do best anyway. Augmenting human talent and human uniqueness feels like what this is going to do, which is what word processors did, spell check did, right? Every time somebody told me like, that's the end of writers or whatever it is. And it's like, hey, you know, grammar is pretty great, but you still have to think about what you want to communicate, right? Grammally makes almost everybody, you know, close to perfect writer.

Right. Amazing piece of software. but I mean, it really is fascinating to think about what will happen to developers and white collar jobs. We're living in a time where we have not enough people to fill blue collar jobs, healthcare, etc. And then we're saying, oh, you know what, you may only need 10% as many customer support people, or maybe you need two developers, not five, to get the same output. Really fascinating.

Somebody sent me an image of a company where you give it text prompts and it comes back with UX designs. So it's like, I would like to make a marketplace for, dog sitters. And it's like, okay, boom, and it shows you a design. It's like, I want to have a, you know, a change or login and, you know, reset my email page. And it's like, boop, here it is. And you're like, oh, well, that's interesting UX design.

And then somebody else made the same thing, autopilot, right? Like GitHub, where we'll write the code. And I'm like, wait a second, when are they going to put those two things together where it does the UX design and then it adds the, you know, reset your password functionality? And boom, the code is there. And then it says, yeah, publish it. Go ahead and publish it to the app store. And let's see if anybody uses it.

Like, you could literally just be sitting there talking to your computer and make an app. Right. Well, I mean, when you think about it on web pages, right, before that, you need a lot of expertise, you know, probably a lot of Java expertise to kind of create a web page. And then all of a sudden you had HTML editors and, you know, graphical user interface editors and stuff. And now anybody can kind of create web pages. and now all of a sudden everybody can kind of put stuff up, right? And so I don't know. To me, that moment, it just smells like an important moment, right?

It clearly is, yeah. It's to me akin to that first time you see the search box and you type your name in and all of a sudden you go, wow. Whoa. I didn't know you could do that. Yeah. Nobody told me about these webpages where they mentioned my name. The inside line I got from somebody.

listen, it was an anonymous tip anyway, so they said, listen, I work at Google. They told me this months ago in GPT of previous GTPT came out, which was two or something. They're like, yeah, they're like, listen, we've had this. We've got better.

The point is, like, we don't want to release it because it's a little bit scary. You're going to just think about all the jobs that are lost, and it's a bad look for Google to be killing jobs, you know, in an environment where we're winning so big kind of situation. And it's like, that tracks for me.

Like, this is going to be scary for people who have certain jobs. But I don't think it needs to be. You know, you think about the number of people who are creating podcast today or doing other jobs creatively. Humans find something to do. I just think entrepreneurship is the greatest thing in the world. The thing I am very concerned about is kind of the AI ethics around it. And that, and that manifests itself in a, in a whole number of ways,

including the fact that I think people tend to, when it comes from a computer, they give it a higher rate. Authority, yeah. Authority, exactly, right? And it's got to be accurate when, in fact, it's only as good as the code that went into it, and it's only as good as the training set,

you know, that leads to the conclusion. But when they're learning models, and you can't trace their black boxes, they just give you answers. You know, I'd hope you'd never put, you know, nuclear launches in the hands of machines like this, right? You know, there are certain decisions that should always have a human, you know, kind of in the middle.

But anyway, I think there are a lot of interesting sociological and ethical questions. This is the one I'm concerned about as a content creator my whole live, blogger, writer, et cetera, is where did you get the data? And how do we get paid? And there's a search engine, I think it's called Neva. And they showed me an example of them doing citations. So it's like, oh, okay, you use this chat GPT to give us an answer. But then it was like, this first sentence was constructed from a CNBC article. This next one was from a Financial Times article. This third one was from the Wikipedia. And I was like, oh, well, Google and chat GPT have the ability to do that. So let's get some citations going here.

And then there's, so what you're talking about, it's like really interesting and fascinating, I hadn't even thought about it. Like, if it's trained on a bad data set and it gives a bad answer, and then people are like, oh, yeah, that fits my worldview or you're a computer. So I guess I'll go with that. Like people, when they had GPS,

some people literally drove off roads. And they were like in a, in a, remember those stories? It's like, you literally drove into a cord field. You didn't see the cord field in front of you. You made the left. It said turn left and you went right into the cordfield. Okay, great. It would literally happen.

And they were like, I'm going to sue Apple. I'm like, because you turn left into a cordial. Okay, got it. The one that's going to be actually really scaring for people is this is going to find some things that are going to be uncomfortable and that humans might have correctly or incorrectly use their bias to say, you know what? That's an answer. I don't think I want to publish in the real world.

The bell curve comes to mind. You know, you have this scientist who's like, hey, we're going to give this IQ test to a bunch of different populations. Oh, it turns out certain populations have slightly, ever so slightly scores. And then people are like going to run with that. Oh, no, these people are super than these people. It's like, no, the test was made by this group of people. Maybe it doesn't apply to other places in the world.

It's like a million different reasons. But what could this thing find when it gets its hand on genetic data, right? And what is it going to tell us about intelligence or genetics or whatever about humans and populations and it could be uncomfortable for people? Well, I think you're right. And I think a little bit about kind of Facebook as a precedent kind of environment where, you know, I think Facebook was created to connect people of like-minded communities and to find people, reconnect people that you hadn't seen in a while or meet new people who want to be in like-minded communities and have discussions to kind of feel a greater sense. sense of community, right? And yet what's kind of happened is it's become at its, on the bad side, it's become these echoes chambers for extreme thought, right? Where people just say,

you know, I was kidnapped by an alien and someone says, oh yeah, aliens are there all the time. And it just, and it just kind of reverberates, right? And it was an unintended consequence of kind of the other side of the coin, right? And I'm sure the same thing happened with telephone, You know, no one created a telephone to have spam calls or to defraud people, but it just kind of happens. And so I think we're a little bit in the romance period right now about, God, look at this, this universe of opportunities, right, of all the things how it could improve our lives. But soon it's going to be all the downside stuff, right? And if you, if that happened, if you look at Facebook as an example, you know, I feel like, Zuck and the team have always been trying to catch up because they were very, in my opinion,

they're very positively inclined about all the altruistic things they could do and didn't really spend all this time thinking about all the negative aspects, you know, to it. And I'm worried that there aren't enough people thinking about all the potential negative aspects and cutting those off at the past, right? I mean, and if you think about capitalism, you think about entrepreneurship, you know, move fast, break things was literally, you know, Zuck's credo. And he didn't come out with it, but he embraced it.

And, you know, like, oh, you broke a democracy here. You know, you broke the truth over here. Like, you really, with this technology, this one feels faster and more powerful than social networking. Social network seems benign by comparison to a computer telling people, here's the canonical answer to your question and go forth and execute based upon it. Like, oh, boy. We got to really tread the idea.

All right, listen, I've taken an hour of your time. It's been amazing. Come back on the show like in a year. Let's just chop it up again and continued success. Thanks for sharing all these great war stories and everything. What a great career. And it's just great to get to learn from you and hear all these stories. And this is like a great, you know, the audience gets to hear all this.

And I'm like, literally, this is how I'm getting better as an investor is just having a series where I'm like, who's done this three times longer than me? Let's talk for an hour. It's a fun way to get reconnected. So it's nice to see you again. It's nice to see you. Yeah, let's hang soon. Hopefully I'll see you in person soon. Yes, been too long.

All right, everybody. We'll see you next time on this week and startups. Bye-bye.