This Week in Startups - ANGEL: Threshold VC’s Emily Melton on market distortion, healthcare investing & culture | E1693

Episode Date: March 8, 2023

Emily Melton joins Molly to discuss her early days in venture and what she learned while working at DFJ (1:30). Then, they talk about the barriers that healthcare imposes on entrepreneurship (17:22), building a diverse culture within venture capital (29:53), market distortions, and how to optimize for a down market (38:42). (0:00) Molly kicks off the show (1:30) Getting started in Venture Capital (8:12) LinkedIn Jobs - Go to https://linkedIn.com/angel and post your first job for free (9:38) Learnings from working at DFJ (17:22) Healthcare being a barrier to entrepreneurship (20:11) Prenuvo - Get $300 off at http://prenuvo.com/twist (21:41) Threshold Ventures’ fund mechanics (26:15) Investing in Tia: Healthcare solutions for woman (29:53) Building culture (37:45) Pilot - Get 20% off the first 6 months at https://pilot.com/twist (38:42) Optimizing for a down market (52:13) What’s next? FOLLOW Emily: https://twitter.com/emelton FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

Hey, everybody, welcome to Wednesday and the Angel series. We have another incredible three cycle investor with us today. This series is incredible. Emily Melton is the co-founder and managing partner at Threshold, BC. And she's just awesome. We're going to talk about health care and how mad it makes us and all the ways that we want to fix it. Company culture, how she invested in Redfin. That's actually how we know each other.

How focus is super important as an investor. investing thesis. And then some of the distortions that we've seen over multiple cycles that were the same, others that were a little bit new. For example, founders getting that opportunity to sell secondaries during this latest bubble and maybe making so much money that they don't want to run their startup anymore. We cover a lot of ground here. The series is amazing. This interview is amazing. You're going to love it. Stick with us. This weekend 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.

Prenuvo. Catch health conditions before they become crises with the prenuvo full-body MRI scan. Get $300 off at prenuvo.com slash twist. And Pilot, grow your business sustainably and operate more effectively. Pilot provides the most reliable accounting, CFO and tax services for startups and small businesses. Head to pilot.com slash twist and get 20% off the first six months. Emily Melton is a managing partner and co-founder of Threshold investing primarily at the intersection of technology and healthcare, an active founding member of Allrays, and a three-cycle investor, if I'm not mistaken, welcome, Emily. That's another way of saying old, right? I've been doing this for a while. No. No, Sage. I think we're going with Sage.

We'll go with Sage. I am thrilled to be here with you today, Molly. I'm delighted as well. Okay, so tell me, let's like, let's do the, the path to sage, the origin story. How did you get your start in this field and like what's been the road? I think you've heard me tell this before. And it's so I'm from Utah. I'm the oldest of six kids. Both my parents grew up on farms. And the one requirement they had is they wanted us to go to college outside of the state

because they had never left the state of Utah. And so I was lucky enough to go to Stanford. And I think it's hard to believe now, but even Stanford in the 90s, there wasn't a lot of talk about startups. They were kind of there, but most people who were good were going to consulting firms or pre-Premed. And so it was there's now you can't go to Stanford campus without everyone giving you a business plan. And even thresholds, my firm, we have special venture fellows, which is a program that we run to help teach people about entrepreneurship. But at the time, it was still relatively nascent. And so through a circuituitous path, I graduated Stanford in 99 and ended up starting getting some job offers from these startups.

And it was not, I didn't have a network of people to really help me understand it. And I remember one of them gave me a job offer that started north of $100,000, which is more money than I had ever seen. And I was talking with one of the executives there. And I said, well, what are your profits? And they're like, we don't have profits. But what are your revenues? And they're like, we don't have revenues. So I'm like, how can you pay me if you don't have profits or revenues?

They're like, well, venture capitalists give us money. I was like, why do venture capitalists give companies money if they don't have profits and revenues? I mean, it was really naive. And so through that, I started to Google Venture Capital. I knew someone in Salt Lake City in Utah who had worked with Tim Draper. One of the companies that I had a job offer from was one of the companies in his portfolio. And so I networked my way in to go and meet with him. Really just, I was just trying to better understand, help me understand how to think about where to go work.

and walked in with a list of questions. And I started the questions. He don't know if he just chose not to answer them or if he didn't know the answers to some of the questions. It was like, the market and competitors. But he liked, he was like, just go through the questions. I was like, are you going to answer them? And he was like, no, but just go through, I want to hear your questions.

And so I went through all the questions. And at the end of it, he said, those are good questions. Why don't you just come and work for me? And that was it. Anyone who's familiar with Tim Draper and the legend of Tim Draper will not be super surprised by this. No, but that was, and then, and there's a lot of craziness to this. There's a lot of the serendipity and there's a lot of what has made Tim as successful as he is, is his willingness to do things like this. It wasn't, you know, like this has to fit a role.

And so I left the building at the time and called, it was my boyfriend at the time now husband and said, I just got a, I think I just got a job in venture. He's like, no one just gets a job and venture. That doesn't make any sense. And started, I was the first, I was called an analyst at the time, they had five partners. And at Sandhill Road in kind of 99, 2000, like that 2000-ish phase, there were most firms kind of looked the same. Most firms were mostly white men. Most of them had either been in a business or had graduated from business school. There weren't a lot of junior professionals. I think there were like seven of us at the time that we got to kind of get together. It was like people at Red Point and Menlo, but there weren't that many on Sanil that were doing this

job. And half of, I think, the partners thought I was an assistant for the first six months. months. But it was a great time to come and learn. And I just, I just had to prove it. And I didn't have expectations. I was just like, I'm here to learn. I'm here to, you know, help Tim and the other partners. And then as I joined literally a couple months into it was when the market corrected. And I remember just trying to think, am I going to get fired? Because the market is down. Why don't I get fired? And I was still so novice. I didn't understand management fees. I didn't understand that, you know, venture firms can usually survive, at least for a period of time. while the firms have all the volatility.

But as the junior person, I mean, I was doing assignment for the benefit of creditors. I was helping companies sell chairs. I was, and my CEOs will tell you this, I am very, very concerned about long-term real estate leases because I was trying to help companies get out of those real estate leases in 2000 and 2001. And there was no obligation to do so. So I kind of, I wouldn't say I was a three-cycle investor, but I kind of in that first cycle was just, here's the bike and it's going downhill. And I learned a ton through that experience.

And I think unlike a lot of people who are like, my aspiration is to BBC or think it's some great job. I just really, it's like starting in the mailroom and working your way up. I was that equivalent. I just started at the bottom and kind of had to earn people's respect and learn to do the job over a long period of time. I don't think there was any assumption that I would ever be a partner, let alone someone running my own firm from me or from others around me.

but I just kind of put my head down to do the work. Oh my God, there's so much that is amazing in there that I want to unpack, particularly the part where you just got forged by a downturn, where it was just like, okay, well, my job experience is basically crash. Well, it's important psychologically to understand that for every up there is a down. Yeah, exactly. And I think when you're in the ups, if you haven't experienced a down, you don't understand how that impacted.

And I, and I, it was, again, I was like right out of school. I was in my early 20s and seeing founders cry, seeing, you know, buildings go empty. And it was, there was, it was, it was the excess just came so quickly and seeing people mentally have to, to adjust. And we're in, it's not there, I don't think that this history isn't repeating itself. I think history kind of rhymes or we're in a different stage. Right. But the psychological components of it, of the rug being pulled. out where people are being rewarded for one activity and suddenly that activity is changed.

You know, that's something that I think it is important for people to go through and also just have empathy on the other side for everybody. Because it is, you know, as much as it's an economic downturn, it's also a really profound psychological experience for the players and you have to help people navigate that. And so I feel blessed that I did have that experience because I think it's making me a better investor today. Hiring the right person is so hard. And right now, so many talented people.

People are looking for work. You know, there was a bunch of layoffs this past year. But where are all these laid off tech workers? What are they doing right now? Well, they're on LinkedIn. They're polishing up that resume, their landing page, putting their skills on there, getting endorsements. And right now, you need to use LinkedIn jobs to recruit.

That all start to your team. That's going to be a barraiser. That's going to teach the other people on the team how to do even better work in specific verticals and skills that you need to make your startup successful. There is no hiring platform that comes close to LinkedIn. We all know that. It's almost a billion users, 875 million users. Can you believe that?

All the best executives are on LinkedIn. Obviously, you're there, I'm there, and you can add that very slick purple hiring frame to your profile image. That's going to increase your inbound immediately. Trust me, I know. They put it on for me when we had the last job rack. Oh, my Lord, I got so many great candidates. I'll tell it to you straight, folks. Some of the best people I've ever hired in my career at launch, at Inside, at countless other companies.

They've come through LinkedIn. All you need to know. I'm just say three words to you. Better candidates faster. Okay, let's say it together. Better candidates faster. LinkedIn jobs helps find you the candidates worth interviewing and every week. 50 million job seekers visit LinkedIn. You can post your job for free at LinkedIn.com slash angel. LinkedIn.com slash angel to post your first job for free terms and conditions of course apply. Absolutely. Okay. Well, I want to come back to that in the present. But then tell me about, so then you went on to have a long career at DFJ. and some really, really notable winners there, right?

Redfin, Livongo, Brightline, Better Up. All of those, were all of those from DFC or some from threshold? Yeah, Redfin was DFJ. So that was my first investment that I led. And I know you know Glenn. Oh, my God. That's how we met for everybody who, yes, exactly. I've known Emily previously from doing an event with Glenn and getting to meet you there.

So that was my, yeah, that was the first investment that I led as a partner. and at DFJ. Awesome. And so those, yeah, but the other investments, those were part of threshold. So most recently, yeah, Brightline is part of our threshold fund three. And so that was kind of that transition from DFJ into a more focus fund where I really started to specialize and look at health care around 2010, 2011. And most of my, a number of my investments in a threshold have that kind of general wellness

and health thesis associated with it. Yeah, you have that. Okay, got it. So talk about that, too. There seems to be this probably like, probably eternal debate about generalist versus specialists. Like, what was it that made you want to have found your own firm, which is just a huge awesome deal no matter what, but also one with a thesis, with a sort of a specialty and focus. Focus is like a big part of your website. Yeah. Well, there's a lot there. I mean, I think, I mean, I think when you're starting, I actually really enjoyed starting more as a generalist and getting to understand a lot of different how technology impacts very complex

industries. And so a lot of people are like Redfin to Livongo, how could those two be the same? And I think there's actually a lot of similarities in that there was a really complex established market with a massive amount of inefficiency. I mean, the first battles we had at Redfern were the National Real Estate Association that did not want us to put the MSL and the data on the web. Like now everyone believes, of course, you can just go and look at a home. You can tour it virtually.

At the time, we had to be able to demonstrate that we had agents with licenses, even to be able to unlock some of that data. So forget how hard it is. And once you do tip over the opportunities, but it takes time. So I think I've always kind of just been drawn to complexity and how technology can help, you know, transform really, really large markets. To start my own firm, I think this isn't a unique circumstance. And it also kind of ties into some of the All-Rays experience, which is, you know,

I think if you look at most three cycle female investors, many of them are now running their own firms. They're either running the firm or they have started their own firm. And I think there was both a desire to take the lessons that you had learned of the last 10 years, but also do it differently and be able to drive different kinds of culture, you know, diversity among the investors, diversity among the founders, making sure that all founders who are feeling comfortable walking in those doors. And so, you know, I was lucky that.

I had worked with Josh Dye and my partner for most of that experience at DFJ. We shared a lot of similar values and we shared a lot of a similar focus, which is the website, which is we really believe that there's a difference between investing at this early product market stage of a company where there's early product market fit, but it needs to become a company. And we were seeing at DFJ, we had started where, you know, he and I were always investing kind of that series A, that phase where we're taking a board seat and getting involved all the way through IPO, but as firms get larger, you start to do a lot of different things. And we had kind of

seen and experienced that where we were focused on our little niches, but the firm was investing in China. We had India partners. We were doing a growth fund. We were doing a seed fund. And it's just that lack of focus. We felt diffused, not only didn't lead to great performance, but it diffused our ability to be really successful. And I like to use this example, which is so, it's early so work with me, But there's, like, if you think about the evolution of an engine, there's like tinkering to try to see if something works, right? There's building the engine. And then there's pouring gas into the engine to make it go faster. Right.

And I think tinkering, you can put a lot of money in a lot of little things and see if something works. But you don't have to spend a lot of time because it's mostly the founders of small team putting things out to see if something is working. And then gas is another thing, which once something's evidence, you can, you know, you can put a lot of money into a small number of companies. If you're looking to increase AUM, increase the money that you're putting under management, those are good places to play because they don't require a lot of time. But a lot of seeds out there and then wait until things flourish and then we'll try to dump a lot of gas. The problem, what doesn't scale is that engine building. The mechanic isn't sexy, but it's required because if you pour gas in an engine that isn't well built, you're not going to go anywhere. Or it explodes.

That is an intense thing. that is hiring and firing the right CEOs, or VP of sales, or looking at your go-to-market engine and really, what got you to $25 million or to $50 million in revenue is not what's going to get you to $200 million in revenue. And going through that process, it is not something that can be scaled. It is a human relationship. It's someone sitting on the board and it's working closely with those companies. And we really structured threshold around optimizing for, you know, being the best mechanics, which means we have to have a small fund. We have to have a concentrated portfolio. We are one of our SLA is one of our ways of valuing ourselves. Are we doing our

job? Are we the first call for our founders? It's our founders. Like if something good happens, great, but if something bad happens, we want to also be that first call. Are we the people that you can come to and actually help you think through those challenges? And, over time, because we come in early, we start to have very aligned incentives with the founder. So when we're giving them advice, it's not just, it's hard to always give advice that it's to give advice without being self-serving. We like to say that. And sometimes I'll be like, here's my threshold hat and here's my board hat. But what I really love is when the threshold and the board hatter is closely aligned as possible because then there isn't that conflict. And if

we're early investors, then I can help them navigate downstream investors, thinking about liquidity, thinking about structure, if that's something we have to do, because I'm going to look very similar to them on the cap table. So that was, for threshold, it was really wanting to build a firm with a different kind of a culture that perceived differently that had that focus strategy investing at the early stages with a concentrated portfolio. And then the healthcare was something I had two very complicated pregnancies. I have survived melanoma. And I, as a consumer, was experiencing all this stuff and looking at me like, this is just so. broken.

And there's all, it was the same time where all these technologies are starting, you have this opportunity for technologies to come in to this ecosystem, but it's not just about the product of the technologies, it's also about really understanding the ecosystem and payers and the alignment of incentives. But, you know, I've said, I think finding ways to actually better scale our healthcare, you know, our healthcare services and our healthcare industry, it's not just a huge economic opportunity. And I believe that. I believe there's real financial returns.

But I also believe it's kind of a social. moral, political imperative because otherwise it's going to bankrupt us. Like, we don't really have an option. And so when something is going to force it, it's kind of like you're investing in climate change. You're like, if there is a crisis, that will drive innovation, right? And I think there is this crisis, that will drive innovation. And how can we harness that innovation effectively? And so it was one of the things that was personally really compelling to me that also

aligned with where I think there was a financial opportunity. You know, I find it so ironic. I think about this a lot. And I talk about a lot of, as it happens, women, roughly my age, do want to start their own companies for various reasons. And I would say that health care is probably, you know, it's ironic to be an investor in healthcare when healthcare is probably the biggest barrier to entrepreneurship that I can think of in this country.

Like so many people could figure out how to get the rent paid and do the things that they need to do to build a startup if they didn't have to pay two grand a month or more for healthcare. Or healthcare. Yeah. That's just fascinating. I mean, it's not just, it's, and as we can, talk about how we're even limiting women's rights further in health care and limiting their ability to participate economically, which is honestly, if you look at, you know, the past

where we were, when you had early Roe U. Age was a percentage of GDP versus where we are today. Like the economic growth of our country is really dependent upon the involvement of women and our ability to participate effectively in the workforce. So there's a lot of challenges. But on the other side, you know, the number one reason for bankruptcy in our country is medical debt, right? And so there's a lot of a lot of challenges here. And there's a lot of, yeah, there's going to need to be like, you know, these technologies that can increase access that can better do diagnostic. There's a, there's not a silver bullet.

And it's not, you know, it's not going to happen overnight. But I do believe there's a lot of really brilliant people that are now working hard to actually bring some of these solutions to market. And I'm, I always, I try to say positive. I do think that the way that my children, my daughters are going to be treated and how they experience health care will be very different than what we experience. I hope so they're going to be raised like super pissed. So I just think they're going to come in with a different set of requests. They are very, very activated.

I think that the children of these generations. That's a much more positive word. Activated. Well, I think there is something that's like this is our job as well. Problem identification is not that valuable. The problem identification with helping to find solutions is where the magic exists. So I am very much against victimhood. I'm very much against complaining.

If my kids come and tell me there is a problem, they know my next question is going to be and what are we going to do about it? And so it's hard because some of the problems are really big, but you can break them down and start to think about ways to drag those solutions. And that's fundamentally at its best what venture capital is. you know, what it's working and helping founders that have identified a problem who have a unique solution, look at the status quo and say, we can do better, even though it's risky and hard, and that's what we enable. And that's why I love this job. Okay, you've heard about free new vote.

I just did it. Why did I do it? My bestie Chimoth mentioned it on the all-in podcast to have locations here in the Bay Area and many other cities. And then I had all these people on Twitter and on email telling me confidentially, hey, I went for one of these scans, and it detected something that was life-threatening, and I took care of it. And I said, I got to go do this. So I signed up, I did it, and I fell in love with the service. It's really easy. You sit in the machine, and they play Netflix for you. So I watched up, I watched that knives out. It was wonderful. And then you go over it with your doctors. You go over it with consultants, and you say, hey, is there anything in here? Luckily for me, there were a couple of things for me to monitor and look at, but nothing that was a game-changing or

problematic and you know I want to be healthy for my family for my daughters I'm getting emotional now and for my besties and to live my best life and part of that is losing weight you know I went through that part of that's getting more active doing that skiing and part of it is proactive health care and pre-newvo is the way to do this they screen for over 500 conditions including cancers and aneurysms it takes less than 60 minutes it's no contrast and radiation free I'm going to give you 300 bucks off. P-R-E-N-U-O-O-com slash twist. Go start taking care of yourself today.

It's a wonderful experience. $300 off. They make it super easy for you. It's super affordable. Free N-V-O-S-R-E-N-U-O-com slash twist. Thank you for taking good care of me. How big is the, in terms of mechanics, no pun intended? How big is the fund and what is the check size and like how many investments would you say you do a year?

So our current fund is $375? million dollars. Um, and we, um, our typical check size is anywhere from five or six million dollars up to like 12 to 15. So it depends on the company where they are on that stage. I, the vernacular is changing. Right. Right. Like what is early, what seed? Um, but oftentimes we are the first board member or we are the first board member that you would anticipate staying all the way through like if, you know, through an exit. So kind of thinking about that is like usually they're at that stage where they're not just a product and they're looking to stabilize as a company. You know, we can invest.

Like for that, we would look to over time, if companies were doing well, look to invest like $25 to $30, you know, $1 million as they progress. But our portfolio is going to be reasonably concentrated. So 25 to 30 positions. Yeah. And because we take board seats or board observer seats in almost every investment, you know, your finite resource is your time. And so we're oftentimes doing, you know, to invest.

investments a quarter, maybe one or two. And so we do, but I think there is an importance, and this is part of being in the industry. We spend a lot of time with a lot of founders. We're not saying no. There's a lot of things we think are great, but they're just not right for us for whatever reason, right? And sometimes it's just we don't think we're going to be the best partner can really actually help you de-rescue business. And we try to have those conversations and very explain them.

And I think for us, we can also be helpful in making introductions or helping them navigate other investors because people look at us and they're like, oh, no, that's a concentrated fund. It's not, there's no signal risk. There's no signal risk if we don't invest. There's also no signal risk. Like, I think this is going to be another profound issue for a lot of companies that have raised a ton of seed capital from platforms. You know, if everyone keeps sending me investments, I'm like, well, why am I so lucky? Like, you guys have better data than I do. You've supposedly been following the company. It's like, it's really great. Why don't you just want to lean in? Why do you want me to lean in? And so that becomes a challenge that I think I'm seeing a lot of founders.

now navigate, whereas if it's a, you know, we've had this happen a number of times, particularly the last couple years, where we had large platform funds that were investing in our companies and then they wanted to preempt the next round. Right. But they're, the board members conflicted with the founder because they want the cheapest price, the founder wants the highest price. And they're trying to manage that. And so you end up with a board that's like, like, it's thresholds in the founders.

And I can call a late stage investor and say, hey, there's inside interest, but we're actually exploring outside interest. And if you guys hit off with the, you know, with the founder, I will ensure that you guys have a place in this, you know, and you get excited. I'll make sure that you actually get to invest. They can take that call for me and know that I'm being totally sincere because I don't have a conflict. I'm not going to be writing the $50 to $75 million check.

And so there's, I think we have our founders. You want all of them. But you just try to make sure that you actually have the right people on your cap table that can help you navigate. That's going to be important. Right. So there's sort of, you're describing, I think, like, multiple layers of value. You have a thesis that keeps you specific so that if you see a great company and you want to pass them onto somebody else, you can easily say they are amazing.

I promise you, I vouch for them. They're just not within our thesis. And that's why we're not investing because that really is seen. That can be seen as like, don't show me something that you wouldn't invest in. So that's one layer of value. And then the other layer of value, it sounds like you're saying, is because you're so stage specific that when you recommend a company for a first, round, it's believable because you're not trying to continue to follow on? I'm not the gas. I'm the mechanic. I don't compete with gas. Right. I actually want to help

the company find the best pump available. Yeah. That is the right quality investor at the right price. I selfishly want to like figure out how we can turn this metaphor into something more renewable energy ish, but you know, we can. There, yes, if you, if it works, that's fine. We'll I started that later. But I think there is, yeah, I mean, that's that that is the, you know, that it's married with, we think it helps us, you know, sometimes it helps us drive better returns because we are focused and, you know, we know what we can do. We know what we can't do.

But there's lots of rules for, we're grateful for a lot of our peer investors that are doing follow-on capital because that's great for the companies as well. We just, you know, we've just carved out our niche and we're really happy with it. Yeah. I have like a million questions I want to ask you, but I also want to ask about some of the companies in the portfolio, especially one that I got selfishly obsessed with, and that's why I get to do these interviews,

is Tia, the one-stop-shop solution for women's health care, because we have this sort of double whammy, which is that health care is broken, and health care for women specifically is medieval in many cases. Yeah, I mean, when you start to look at the data, it's actually really shocking. I mean, we weren't even, women were not even considered in most clinical trials until like the 90s. I mean, I don't know.

I mean, literally, they were just like, oh, I'm sure their bodies are basically just like dude bodies, but maybe small men with like ovaries, right? So, I mean, there is, I think that really distinctly understanding the biology and how we're impacted. There's even things that like thinking about when you should get immunizations based off of your menstruate cycle. and the fact that your immune system is naturally suppressed while you're ovulating because they're trying to kill them. This is stuff that should not be like hidden, right? This is for 51% of the population and 80% of the medical spent. So we have the numbers.

We have our disproportionate amount of the dollars. And yet there hasn't been customized solutions for this audience. And yeah, when I think about health care, I try, I'm pretty simple in it that I just go after really big markets, right? Because there's so much complexity and there's so many people going after super, super niche. And we've done this in pharma, like every single sub derivative derivative derivative of cancer from a therapeutic, that then you can charge a million dollars for. We've broken our body into so many different pieces and subpieces, but no one is actually just looking at the person ahead of you, which is doesn't make any sense given that this body is the most amazing complex biological system. And it's a system.

And so for systems, you need system-level solutions, which means that if you are having issues with your weight, we also probably need to address your sleep and we also probably need to destroy your mental health because if you are depressed, you're not going to be able to make the behavior modifications to actually be able to reduce the weight, which will probably reduce your chances of diabetes or cardiovascular. I need to look at you as a person to understand what's going on and thinking about a solution that holistically addresses those issues. And so I got very excited with Tia because it was a company that was predicated upon the best clinical protocols for women, but did it in a way that made the experience something that you wanted to do.

And I say this to people, which is how many other companies can you, any healthcare company can you think of that where people will go and post Instagram experiences of their health and origin. Right. I can't think of one. follow Tia on Instagram or Twitter. I'm looking at it up right now. And they feel, they feel seen and they feel heard.

And we haven't, there's enough money going after, particularly these young women that are having babies, like, you know, spoiler alert, that's some of the most important revenue for our health systems. And so treating them with dignity

and respect and helping them navigate all the complexities of going through those transitions, which are huge that we've just kind of put women through, that should be a really big business. You overlay some of the challenges we're having in the political environment and other. And there's just, I think healthcare is becoming something that people are going to have to actively select as a consumer. And it's going to be representative of what they value. I think T is well positioned for that.

Yeah. And how much of, okay, so you were, as I mentioned, a founding member of All Raise. We have had this kind of culture conversation. Talk to me about culture. The culture you want to build in threshold, the importance of women's, Inventure, how VC has changed. I mean, again, as we started looking for three cycle investors, it is startling, especially the further you go back in time, how the number of women dwindle even more than the pretty

small number we're currently at. Yeah. Well, and it dwindled after 2000. If you looked at that number, we had more women partners in 2000 than we had in like 2008. Oh, super. Because a lot of them left. And there's, it is probably one of my biggest concerns right now. It is, it is a capitalistic industry.

Right. Which means our job is to take money, invest in companies and make more money. And you can overlay that with all the things that we're talking about, which are very important. And I believe can align incentives and make people do amazing things. Because oftentimes founders, we ask for the impossible, which means that they can't just be driven by financial returns. There has to be something that's compelling and drawing them to do it that's bigger than that. Right. But at the end of the day, your ability to be a successful venture investor is return driven.

And so I think that's important to explain to any investor, particularly one woman coming in, is that there's no title. It's not the job that just, you know, protects you. Your investments have to ultimately return capital. And anytime there are downturns, that gets really challenging because a lot of people who've been investing, you know, very simplicity, best ventures, buy low, sell high. and we're in our market where you bought high and you might not be, maybe you're going to be working really hard just to get your money out.

Maybe it's not going to work. And there's some risk associated with it, but where you started is in a really challenged position. And so a lot of investors that just have only been investing the last cycle in these last couple of years, particularly the last two or three years, that's going to be really challenging. And we need to kind of address that and help them navigate it

so they can continue to have successful careers. But I, so what I mean, just to be more specific, do you mean that some people are going to look like they are poor performers? Some people will be poor performers. Right. And then the question is over what period of time do you judge them and how are you giving

the same amount of runway to the same number of people? That's what's going to be the really important component here. Right. And so when I was thinking about, and Josh and I were talking about building threshold, it is important to put front and center that our business is about returning capital to our limited partners. Making money is going to be important and that will be something that we all need to be held accountable to. Our business is also about risk, which means that some of them will not work out and that is okay. I don't want to punish people if they make it risky bet that doesn't pay out, but you do want to say you at least have to be aware of the risks.

Do the diligence so you understand the risk that you are taking and that the upside is worth the risk. high risk, not a lot of upside, not what we should be doing, right? But high risk and enormous upside, that's what we should be doing every day. And some of those won't work out, but that's okay. I also really believe, like, a good partnership isn't about consensus. And it's not about trying to sell a deal to your partners or horse trading. Like, I'll like your deal if you like my deal. That leads to all kinds of bad behavior.

And so we really think about it as our job is to try to push each, other to make the best decision possible. And so it's not a voting system where it's like everyone approves this deal. It's you bring a deal and everybody's job around the table is to ask questions, to question assumptions, to push that individual or the couple of individuals that are digging into the company to make sure they've seen every potential risk. And if they look at that and they're deeper and saying, I'm willing to go, then it's kind of the Jeff Bezos, you know, you could disagree, but you commit.

Then it's a threshold company. And we've made collectively that commitment to each other and to the company that we're going to do everything we can to have them be successful. And so there is an individualist component to it. But I also think it's really important that it's a small enough team where people feel like they're working for the threshold portfolio in all companies versus here my deals. Here's my partner's deals. People writing their own spreadsheet for their performance. That's just not how we operate. Yeah.

And then the other piece of it is really thinking about it. Is that unusual, would you say, for people who don't work? inside venture? I think if you get big, it's hard because you're not like you're such a small cog and a very big machine that a lot of people, and I saw this at DFJ. Like if there's 15 or 20 partners, if things are going well, maybe I get rewarded broadly, but really what people are going to evaluate me are on my own companies. Right. And so building my track record is really important for both staying at the firm, but also being able to have opportunities to go elsewhere. And that creates a weird dynamic, right, where decisions, because the product of a venture

firm is its portfolio. And so thinking holistically about that portfolio on how to do reserves and how to help companies and who are the fund drivers, if everybody is caring about themselves versus thinking about the whole of the portfolio, I think it can make, people don't share information as freely. decisions aren't as strong. So I think transparency is one of the most critical components to strong decision making. And so you have to create a clearly outline the rules of how people are going to be thought through and rewarded, clearly aligned incentives, create safety where people can share what's going wrong without being worried about immediate snack reactions, but problem solving.

It's like you've identified a problem. What's the solution? or how can we work together to have a solution. And then I wanted different people from different perspectives. We have, you know, very young investors. We have investor. What Heidi Royzen sits around our table? Like, you want to talk about a three-cycle investor?

Like, I'm not going to tell you how many cycles. But she's had a lot of cycles. Legend. There's nothing that she hasn't seen or experienced. And if not her, it's one, someone in her network. And so it's really important for someone from that context to be talking to someone in their 20s, both have really valuable insights. insights. One is not right. These are the problems, but the world is always constantly changing.

And the way that that person in their 20 sees the world and how they're engaging with the world helps force us to think about how things are changing. So we really try to think about how to bring that diversity. And then that diversity also plays for the founders because they walk into a room or a Zoom Brady Bunch screen and they see lots of different people of different, you know, backgrounds, genders, ages. And that to me makes, like that, they also, in some way they can see themselves somewhere on that screen. And one of the things that makes me really excited is a lot of people talk about, you know, gender diversity, which is one of those I've spent more time on, I know better. I have a number of female founders, but so to every single one of my male partners.

Yep. Because they, and those females walk into that room and know that that male partner is completely comfortable working with a strong woman and helping them navigate them and treating them as a true equal and partner. And so that gets me more excited. It's not just me doing it, but how do you actually create an ecosystem where, you know, we're looking for the best companies that we can invest in in the sectors we know. And then disproportionately, we're able to win when those founders are women. Yep. All right, everybody, I'm here with Asim Dahar.

He is the CEO and founder of Pilot. You guys know Pilot. They help everybody with their accounting, CFO and tax services. Welcome to the program. Thanks for having me. All right. There's a lot of talk about first time. founders and the mistakes they made, what mistakes do repeat founders make as well?

Sure. I think the challenge for repeat founders is really understanding what you know and what you don't know. And specifically, I think there's a tendency on the part of second time founders to really overgeneralize the lessons that worked for them the first time. Like, yes, you know a lot more about running a company, but the specific go-to-market strategy you undertook in company A may or may not actually work for company B. And I think it's easy to fall into that. trap. All right. Listen, if you're a twist listener, you can get 20% off for the first six months of doing your accounting with pilot. Pilot.com slash twist. That's pilot.com slash twist for 20% off the first six months. I could talk to you about women all day, but I do want to talk about

bubbles bursting. And I think that that that kind of age diversity seems really interesting now because you have on the one hand founders and investors who have never seen. And any kind of a downturn. Who might in some ways be able to see through it in a way that's sort of positive? Like, I wonder how you're managing right now the tension between scar tissue and, like, this sort of obliviousness that could let you just push through and be like, no, no, no, that's not going to happen again. I don't know if I'm seeing the oblivious push through being positive.

I have to think through that. Yeah. So far I haven't either. I just sort of, I just invented that in my mind. Like, what if that was a good thing? I was joking. My husband at one point, you know, where you, when you have kids, you go through the process which you're like, oh, my God, my parents didn't know what the hell they were doing.

Because you realize, like, you're giving all this advice and they're looking at you and you're like, wow. And there's definitely that moment in these, a lot of these boardrooms or a lot of these discussions where suddenly people are like, well, Emily, you know, you look around and you're like, who's the sage person? and then everyone's looking like, you're in. Oh, no. How did that happen? How did that happen?

And I think there's like, that's one of those things of like approaching all of them with humility. So I have seen bubbles burst. I have. And I can experience, you know, winding down companies. I know how structure impacts companies long term. I've had young investors come to me and say, can Carter walk me through anti-dilution? and I was like, build your own Excel model. Like, you need to, like, and honestly, most of the industry needs to walk through a term sheet

and actually understand what most of those terms mean, because they didn't understand what they were signing up for. And if you don't know it and someone else is coming and putting structure on your company, I guarantee you that they're going to win. So make sure you deeply understand it because there's whole industries that are built off of that kind of proprietary behavior. And so I think there's some of those tricks and components and you've experienced. And oftentimes experience comes through bad decisions, right, or seeing others bad decisions.

And so I do think there's a toolbox that I have that a lot of individuals don't have. But also, if we're being really frank, you know, I called a mentor of mine who's in his late 60s and said, what was it like when interest rates were high? Because let's be honest, we've never invested. The venture industry, the modern venture industry as we know it from 2009 has never experienced substantial interest rates. and particularly from 08 down forward, we've basically been in almost a zero interest rate environment. We've got capital. There was no,

when was the last time you heard the word fixed income? You're starting to hear it a lot now. You are now, yeah. Because you can't get money on fixed income. And so people are going to start to allocate investments really differently. So there's some things that are the same. There's some things that are different, right? Interest rates are different.

We had amazing globalization, you know, tailwinds that are now headwinds, and that's going to be a challenging thing to navigate. It used to be the technology adoption was, like, every company was starting to do technology adoption, and that was something that could be a competitive advantage. Technology in a lot of industries that are now table stakes. And you're also starting to see consolidation of vendors because there are so many different options. We've had created so many companies that people get to choose and there's pricing pressure on that. And so I think it's important. I look through and saying, yes, here's things that I've learned in the past that can be useful, but also making sure.

sure, I think the analogy game in venture is really dangerous. Well, when I saw this in 2000, because there's never a perfect analogy in our business, there's always something different. And trying to look at those and saying, like, let's just really break it down to this basis levels and what are the key risks for this business and how shall we think about what the risks are that we have going forward? And then if you want to get really, which is important, is what are the key risk for our customers?

Because it's not just what our business is. our best businesses that are predicated upon the success of our customers. And so I think every single investor should do that exercise and really try to understand the impacts of these new environments on their companies, not just running out of cash, which is, of course, is a critical one. But there's like that the second and third derivatives. And I find that when boards are starting to have those discussions, then you can kind of work toward solutions.

Like we talked about, it's like, here are the problems, what are the solutions? when people devolve into panic or fear or trying not wanting to tell their partners the company isn't working out or not that's when I'm seeing really bad behavior and that's an enormous stress for founders because that's not about that's providing solutions that are about the investors versus solutions that are really useful for the company and so I haven't seen that optimism necessarily help me yet I have most of what we've seen in the market it is really experienced people that are a little bit bummed and realize the next couple years are going to be really hard, some of whom are rolling up their sleeves and some of who are rolling

out saying, I've done this. I don't want to do this again. And you're seeing younger investors that are on the spectrum of panic to humility and learning, right? And I think in this job, the best way to be a long-term investor is to stay humble. What about founders on that trajectory, especially since a lot of founders have never, could never even imagine a scenario where you have to aggressively cut spending or you will not be able to raise potentially a dollar, right? Like, it's not even, in some cases, it's not even about raising an upround. It's like, you might not be able to raise.

We'll stop. Yeah, one of the things I said frequently in 0809 when I was on the board is that, I mean, we're in the business of being long-term right in venture, right? Long-term trends. So you want to have that long-term perspective. but you got to be present to win. So it doesn't matter if you have the right idea if you're not there at the finish line.

And so how do you think about balancing those trends with survival and going through that? And again, each company is its own exercise. I think that for a lot of these founders, the analogy that I have used, and I think I didn't like analogies, but they were playing American football. They had like all the pads and tons of people out on the field

and was being really aggressive. And then suddenly everyone's like, no, no, no. We meant the other football. Soccer. So it's like, it's just a ball. Nothing else. Like, get rid of everybody. And like, by the way, do that right now.

And it really is the rules. I would argue we might even be entering into rugby territory. Like, it's a ball and you're going to get hit a lot. Everyone's going to be bloodied and bruised. Yeah. Fair. That's actually, I will take that going forward. Take it.

Take it. It's all yours. It is not. It's, and we really, the rules just changed it almost overnight. And the, playbook, which people had established, suddenly they have to play a different game. And that is, I do honestly believe the companies that make those changes and can optimize for this game, because it's bad that we're going through this process.

But if we really zoom out, this is a better game to play. Driving companies toward profitability is a better and more sustainable business, right? Really finding where there's true leverage versus like just throwing capital at companies, true leverage in that technology is going to lead to more scalable solution. So it's hard, but I honestly believe the companies that do learn how to play this game and do it will be substantially better off for it

and we'll be able to be much better, much more viable, long-term, enduring businesses. But you've got to get through that transition. And I think a lot of it, it's not just about the money and it's helping manage the psychology. And I think one of the things that you can't, one thing I don't have a lot of patients where there's a lot of like shaming of the founders while they screwed up.

Boards approved plans. Yeah. And then now they're asking for a new plan. And that is fine and that's rational. But it's like we made decisions and now we need to make different decisions. And you're going to have to implement it and it's hard and an enormous amount of the weight goes on it. But also recognizing individual board members culpability, individual investors culpability, the industry's culpability in it.

And then trying to figure out how to actually work through it where you, you can. I think that's important because it wasn't just a lot of bad actors that weren't being rewarded for that action. It's amazing. Like aligned incentives. If you do this action, you get a really big round, they're going to do that action. It reminds me a little bit of the conversation that's happening about tech employees now, you know, like, oh, they're so entitled when that was 100% a two-way street in terms of perks and benefits. And so it seems like, what you're saying is the culpability goes both ways. You can equally shame the venture industry for throwing massively distorting size checks

at young founders who were, of course, going to crash that car. Yeah, and I think, well, the other, and one of the things we have that is risky, that's not a lot of people talk about, is the founder's secondaries. And that was a really new phenomenon that I had not seen. Right. And define this. This is the ability for a founder to sell their own, This is when the founders are selling their own shares.

And so I think we've seen it over the last, like I'd seen it in my first 15 years, but more was usually like, I just want to be able to buy a house so my wife stopped yelling at me. I just want to be able to, you know, like there's a stability to go big where you just take some risk off, but it's already a very stable. It's a business that clearly is generating those revenues clearly has a path. That got, because there was so much money that was not only coming into fuel. primary capital, but because there was so much money, there was also a lot of activity on the

secondary capital. And sometimes you did see, you know, founders, primaries that were in the tens of millions of dollars, secondaries in the tens of millions of dollars. That is also good. I think another thing that's going to really bite the industry. Because that gets hard to still work. And if you're, if you took the money out. Will it bite the industry because you have founders who are so rich that they don't have to stick it out anymore or because you will have founders who expect that going forward and it's not going to happen. I think they're so rich, they won't stick it out. Because there's a certain point where you're, depending upon how truly motivated you are to solve

the problem, there's a certain point where you do need some, you know, alignment or incentives. And we've already seen that. You actually, I don't need names, so there's a lot of companies that the founders are no longer there. And one of the kind of, or they're hiring CEOs, I talked to another large platform fund, and they said, this is the largest number of CEO searches they've done in their history. and the one, the highest kind of factor that they saw where there's a correlation was founder secondary.

So there's been a lot of challenge. Those are a lot of great founders that have been working their butts off, haven't done secondaries, and are now looking at valuations where they have to run to stand still, right? They have to work for the next three years, and they have to try to explain to their employees for the next three years for what they thought they were worth, you know, a year ago. But it was kind of funny money.

So there's a lot of this, which is there's the economic survival of the business, tune the engine to optimize for this new environment. But then there's the psychology of like, how do we do this and get people aligned and allow them to go through the challenging process of recognizing that the world has just changed because that just doesn't happen. On a kind of related note, how do you think about secondary sales by fund managers? Because especially as returns get, harder, maybe funds that took some money off the table during those boom times and made

sure they got closer to returning a vintage, did the right thing there? I don't, I think that's, I mean, I think that's different funds have different strategies there. And I think that is fine. I mean, I think it's like, again, you want to have, be explicit with the founders and the incentive alignment and you don't want to have investors pumping a value. Right. to sell other than getting out, which I don't think is really, but there's a lot of smaller venture firms.

That's a critical component. And not just because they need the returns, but also as companies are staying private longer and you're accessing capital in like the seventh, eighth, ninth year of your, you know, of your existence, it makes a ton of sense for some of those early investors to be able to get liquidity for their funds. cycle because that's not what they you know we all have our own cycles and so that's like a transition of people who are looking we have a lot of like this was more common i don't know if it'll be as common crossover investors who are looking to come in when they're private but could also support the company when they're public and that can create a lot of stability in the cap table right because what you don't want as a founder is to go public and then everyone be like yay party i'm out that creates enormous volatility um with your company so right uh i think that that is actually a strategy that if

deployed thoughtfully can help a company, you know, make multiple transitions, including when they actually go public. I want to be mindful of your time. You have to get back to supporting all these founders, but I do want to ask you what you, as our, let's stick with our rugby metaphor for a minute here. As the match goes on, you know, people are, the bruising is getting more noticeable, certainly. I think we all agree we're in for at least a couple more quarters of pain. what do you see coming based on your experience in you know 99 2000 2001 2008 like what are the rhyming hits that we should start to watch out for like we haven't seen a lot of recaps yet you know yeah I mean it'll be

interesting I think we will start to see I think there's been a lot of quiet activity a lot of bridges I think that you there's and I I I would ask I think one of the things that is challenging this environment. It's like the up and down. Everyone wants to celebrate the big valuations, but then it's like, you know, shaming companies that are doing layoffs and then shaming companies.

And I kind of feel like there is this world where you just have to exist outside of it and really think through what's right for this business and how do we help structure this business. And I am kind of grateful we're at this age where, you know, who cares about a layoff? Because everyone is, every company needs to do them. And I think that that's,

that that's the psychological piece of like stop worrying about the outside world what it tells you to do it's like play the game that makes the most sense for you um i do think one of the things that you saw in 2000 2001 and definitely in 08 oh 9 were the founders that were in the game regardless of what like they were going to play the game and if it gets harder they play harder and they're like i guess we're like true rugby players that game always scared the crap out of me because i felt like like people's ears I ripped off.

I played in college and let me tell you, don't do it. I think I still have bruises that haven't healed from then. But there's a certain kind of, there's a certain kind of persona that will do that. Yeah. There's a certain kind of person that is willing to put them out there and get hurt over and over again and you almost have a, there's, there's something about your psychology that is drawn to that and uniquely capable of handling that. Yeah.

That is truly a good analogy for being a founder. It is not an easy journey. And that's one of the things that we always explore at threshold. It's not just what are they doing, but why? Because the why doesn't change. The what can evolve over time, but the why is that motivating factor that puts them out on that field, willing to get those bruises or ears ripped off or other components of their body.

And if the why was, I want, this is cool. If the why was I saw, I wanted to go like to YC and I think I'm going to be rich, those whys, those get off. the field pretty quickly. Yeah. Because those are not like your true rugby players. You know, those are the people that like the pads or they wanted to be taking care of. And I think so they might have gone to Wall Street, right?

But this was a similarly easy path to a lot of money. And so. Yeah. I had people from Utah talking to me about my kid is going to go to YC. Isn't that like just a master's degree and then they'll make money? Right. Like, no. No.

So does this then start to bias the, tip the field, toward mission aligned founders, like founders who do want to tackle big, complex society-changing problems unless, like, I don't want to name names, but like B2BHR SaaS type thing. I think some of the, there, I think it will definitely mean that the field is going to be true Rwami players that aren't afraid of the bruises and that are there to play the game.

I would argue that, like, you might be bored of, you know, HR systems, but. They're really important. They're really important. Like, I would, I would say, Neil is a rugby player. Like, building workday was not easy, even if it's, so I mean, I have my, I think you and I have a lens that has this mission component,

but I think there's going to be a lot of different, I don't necessarily want to say that it's just like a founder going after one industry or not, because people have their, their missions can be their own thing. But I do think that this idea that it is a, a calling, not a company, and it is a fight and it's going to be challenging versus, you know, this easy walkway.

I think that that's, we're seeing the founders right now that are, okay, this is the new game, I'm playing this game, and I'm going to win this game, and we're seeing the ones that are going to be like, this is not what I signed up for.

And I think you're going to find that that's going to go those ways. And we're going to go through that process. And then companies that are started in this environment where people recognize that, you know, this is, you know,

rugby without the pads. Those are going to be the companies that I think can be really compelling. And that's to me, it's less about, like everyone's like, oh, down markets and, you know, it's less on the economic piece of it. It's really about the psychology of why do you do this and how hard you're willing to fight to get it.

Because that is really oftentimes the difference. We invest in companies, but companies are built by people. And the people's psychology and their ability to recruit and their ability to do the impossible is what long-term creates value. And I think we're going to have a phenomenal slate of entrepreneurs, both the ones that. survive this game, but also the ones that want to get on the field right now. I love it. I love it. This is the perfect place to end. Emily Melton is a managing partner and

co-founder of Threshold. And my tip to all of you, founders, as you head out onto the rugby pitch, you just wrap tape around your ears. That's what keeps them on. Get your tape and let's go. Thank you for having me. Amazing.