This Week in Startups - ANGEL: Venrock’s Bryan Roberts on 25 years in VC, hitting wins early, avoiding bad habits | E1665

Episode Date: January 25, 2023

Please take our audience survey!: https://launchevents.typeform.com/to/K5RhKaEH Jason sits down with Bryan Roberts of Venrock for another episode of Angel Season 7! They discuss Bryan’s first bets (2:22) and his perception of the dot com bubble. (14:38) The two also dive into topics like creating optionality as a startup (21:24), bad habits in VC (28:49) and Theranos. (36:18) To wrap the show, Bryan and Jason discuss disagreeing with founders (39:07) and the psychology of placing bets! (44:33) (0:00) Jason kicks off the show (2:22) Bryan’s first investment: Illumina (8:52) LinkedIn Jobs - Go to http://linkedin.com/angel and post your first job for free (10:16) Bryan’s second investment: Athena Health (14:38) Bryan’s experience during the dot-com bubble (19:54) Merge - Get started by integrating up to 5 linked accounts for free today at merge.dev/twist (21:24) Creating optionality in a startup (25:30) Understanding your leaders (28:49) Bad habits in venture (34:55) Velocity Growth - Get $500 off your first growth audit or monthly package now with promo code TWIST at velocitygrowth.com/twist (36:18) Bryan’s thoughts on Theranos (39:07) Diligence and disagreements with founders (44:33) The psychology of placing bets + advice for founders FOLLOW Bryan: https://twitter.com/brobertsvc FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

All right, everybody, welcome back to season seven of Angel. Yes, this is a season where we're talking to, what I call three cycle investors. This means they had to start their investing career during the dot-com bubble and then go through the 2000s, Web 2.0 period in this last boom-bust cycle. The longest one of my career, 14 years, we were in an upmarket, and then obviously 2022, you know, was a brutal year for all of us. And we're trying to ask these individuals who've been through three cycles, what do you do as the cycle restarts?

What lessons do you take from it? It's really hard to find these people. There aren't that many of them available because most VCs, they last one or two cycles. They hit a home run or they don't and they quit or they hit a home run or two and they quit and they call in rich. Very few of them will stick with it for three cycles because that means you've been working for three decades or so. So on today's episode, we have Brian Roberts. He's been investing at Fenrock for over 25 years. This is an extraordinary interview which builds on the one I have.

with my friend Brad Feld, which a lot of you are raving about. And we go super deep on the investor-founder relationship and what's special about that and when it works really well. And the most important keys to be successful in your early days as an investor and just so much more. These are turning out to be some of the greatest interviews, I think, in the history of the podcast. It's going to be an amazing episode. Stick with us. 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. Merge. Let your developers get back to their core product. Merge is a single API to add hundreds of integrations to your app. Integrate up to five customers for free today at

merge.dev slash twist. And Velocity Growth is a growth marketing consultant, that'll help you attract, activate, and retain customers. Go to Velocitygrowth.com slash twist and use code Twist to get $500 off any growth audit or monthly package. And they'll even give you a free 30-minute growth strategy session just by mentioning Twist. All right, everybody, we're going to continue our Angel Season 7 here. As we look back on investors who have invested. through three cycles. Why is this important?

Well, every time we go through a boom by bus cycle, there are things that are similar, there are things that are different, there are lessons learned, and I want to capture on video for the entrepreneurial and capital allocator community, these individuals who have seen free wars, essentially. It's like getting vets.

And today, Brian Roberts is with us. He is, I guess you're a GP at Venrock. I'm going to guess you have the title, general partner, managing partner. Partner. We did away with a whole bunch of variations on that about 10 years ago. Yeah, why even everybody's here partnering to build companies. You've been in the capital allocating and company building space for 25 years.

Yeah. When I say that, what comes to your mind? What comes to mind is how much fun I have, not actually with the finding deals or doing deals, but with the relationship with an entrepreneurial leader trying to do something. something the world thinks they can't do. And it's always different, but it's always really intellectually interesting. It's a very interesting profession in that way. You get to place a bet on somebody and then work with them, typically for how long to realize this vision? 10, 15 years. I think you can, honestly, I think you can, I think it takes 10 years to do anything

of any particular consequence. So you're making a bet. People see Shark Tank. they see, you know, these crazy negotiations and this contentiousness and they think that's what we do for a living here in Silicon Valley as capital allocators as venture capitalists. Couldn't be further from the truth. That is a forgotten moment in time, in fact. Yeah. No, I look, it's the honestly, the capital allocation for me is, it's the thing that allows me to keep doing it over years, right? But it's a means to an end, right? The end and the interesting thing that keeps me doing it and hopefully is the reason that people choose to have me involved with them rather than other people is the post-investment council time in the

foxhole together right and as you know like we've been a little foxholeish for the last 12 months this is uh yeah really the point of this entire series is to to look at each of these cycles and what you learned in each of them. One of the things we've seen over time is that people who have early success as a venture capitalist have longevity as a venture capitalist. So maybe you could talk about your first two investments as a venture capitalist and how that got your career flywheel going. Sure. Sure. So I joined Venrock right out of my PhD in chemistry.

I joined it was the second or third year of the Kauffman Fellows program. the other thing that I might have gone and done was be a medicinal chemist at Merck in Rauway, New Jersey. That was the other job I had. And a guy named Tony Evanan, wonderful mentor now retired, decided to take a shot at inviting me in for a year or two. Right. And God bless him. He had an associate or whatever you call people coming up in the business for six or seven years who'd just left and gone somewhere. else and I show up like newbie knowing nothing and I think he was like holy moly what have I done

and about 11 months in um I found my first investment which was the series A of Illumina the DNA sequencing business I think I got that deal because I was working during August when the rest of the venture world was off doing. So like one lesson of 25 years is like elbow grease counts for an enormous amount, right? And in our business, what is elbow grease? What is elbow grease? In my mind, elbow grease is is, is the intersection of working hard and helping anybody that you can find in the ecosystem. Got it.

Whether you've placed the bat or not. Absolutely. 100%. 100%. Just try and help. Yeah. The currency of this business is being helpful. And so when people say it's kind of been made fun of it mock now, how can I be helpful?

The reason venture capital say, how can I be helpful is because if you're known for being helpful, somebody might say, you know, I had an idea and you were helpful to me this one time. You don't remember it, but I asked you what you did with my career and you gave me some good counsel. and hey, I'm starting this Illumina. This thing was started in 1998 to do DNA sequencing. What did DNA sequencing cost at that time?

Oh, well, you know, the first sequencing of the human genome was completed in 2000 for something like a billion dollars. Amazing, yeah. And, you know, very recently it became possible to sequence

a genome for $200. It's extraordinary. So it's a pretty good Moore's law. Slope. Yeah. And that, I mean,

and when things get that cheap and fast, boy, do opportunities. Yeah. Right. You never know. Like, that's the amazing thing about it.

Right. You never know, like, if you could take the cost of something down by a hundred thousand or a million times, like, what would you do with it?

Like, you know, but nobody, nobody ever has any knowledge. It's one of the funnest things is making interesting bets that have market size risk. right? Because if you do something special that no one's ever done before, a lot of times it's really hard to figure out how you're going to use it. Yeah, what is the market for a supercomputer in your

pocket? You got. Exactly. As it turns out, now big. Yeah, it turns out you can do a lot of things with it. You got it. There's a great William Gibson quote where he said, the street finds its own use for technology. If you're a small business owner or you'll manage hiring at your company. You know that success in 2023. It's totally dependent on the team members you surround yourself with. Of course, that's why you have to check out LinkedIn Jobs. It's really simple.

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so simply over at LinkedIn because they have everybody with a profile. while 875 million people are on LinkedIn. I mean, the March to a Billion continues. And they do this by matching your open roles with people who have the skills, values, and experience to help you achieve your goals. So I can only speak from personal experience here, right?

I can read the ad, but the truth is, I found some of the most amazing team members at LinkedIn jobs. It works better than any other hiring platform because they have the tools, right? And they have the network. It's all sitting there waiting for you. Some of my top contributors from launching inside were found on LinkedIn. the targeting, the screening, the rating tools, it's all built in. It's simple, easy, breezy,

lemon squeezy. All of this is why small businesses rate LinkedIn jobs number one in delivering quality hires versus the leading competitor. So post your job for free at LinkedIn.com slash angel. That's LinkedIn.com slash angel to post your job for free. Terms and conditions do apply. Yeah. So the second investment was really the first of the new generation. of healthcare IT companies, a company called Athena Health, started by Jonathan Bush and Todd Park, and that ended up working out okay. Honestly, like getting lucky early in your career is super useful.

Why is it so super useful? One, it convinces the people in your organization that you should stick around. But two, you, you know, back to what are entrepreneurs looking for. Like, they're looking for people who will help increase the likelihood and scale of their success, right? Like, they're trying to solve problems or trying to do something. And if you get a reputation of having been associated with really successful businesses and the leaders in those businesses will be like, totally. Like, Brian Roberts was super helpful to me.

Right. So, like, John Stulteneagle, who was the original CEO. and co-founder at Illumina, he and I are now involved in five businesses together. Wow. Right. So, you know, God bless him. Like, when you have one investment as a venture capitalist, you're either super dangerous or super helpful. Because you don't have a lot to do with your time, right?

Yeah. You know, I moved to San Diego for a month to help write their S-1 to go public. And I can remember walking into the senior guy at Venrox. office. I'm like, hey, look, I'm going to, I'm going to go to San Diego for a month. He's like, we don't do that. And I was like, well, I appreciate that, but I can't think of anything that would be of more use than getting them public as quickly as possible. And so if you come up with something that is of more use, you know where I'll be, which is San Diego. Good, getting back to how can I be helpful? What is the most useful thing I can do?

At any point in time. At any point in time. Yeah. It totally makes sense. For sure. Now, you talked about this, like, hey, I went to work in August, which everybody knows, you know, August is for Italy and December is for Aspen for VCs. Yeah. It's don't work 12 weeks of the year. Those two months plus or minus a week on either end, typically. So you're just banging around in Palo Alto and somebody says, hey, you got to meet this person?

Or how did you meet a Lula? So actually, at that point in time, I was in New York because of the Venrocks, you know, we were late, honestly, in moving a big locus of operations to California. You know, we were in 30 Rockefeller Plaza, et cetera, as part of the Rockefeller family. And so I was in New York and they'd gotten some seed money and they called, I think, three or four venture firms saying, hey, we're going to do our A and they like made that call the last week of July or something. And again, you know,

I wasn't busy at the time. So I hopped on it. And by the time other people got organized, it may have been they had a whole bunch of board meetings. And so they were busier than I was, right? Or they could have been in Italy or who knows. No, they were in Italy. But I ended up, you know,

getting the work done and forming a relationship with the CEO and leader. and John, and it's been a terrific, you know, 20 years. Same thing happened at Athena Health, right? Like, I'm now involved in the company that Todd and his younger brother, Ed, Todd and Ed Park started called Devoted Health, which is a, you know, big, value, highly valued, terrific private business now. Wouldn't happen if I hadn't been involved in Athena and hadn't been, hadn't been of some use.

And this is where your network, totally, your deal, flow becomes a driver of future success. Exactly. So having an open calendar is a great driver of success because of serendipity, like showing up matters. Yep. For sure. I agree.

So at some point, the market corrects violently. And that was called the dot-com bust. Yeah. And it stayed down for a couple years. Yeah, more so than the second one, right? Yeah. The second one was like, I felt like we had, what, maybe three, to five quarters of choppy, depressing,

like the... Much more V in 2009 than you. Which you can see in the NASDAQ, right? It went from like $5,000 to $1,600, and then, yeah, so it starts its climb back up. You got it. No big deal. But the dot-com bust was distinctly different

because you had the dot-com bust and then you had 9-11. Yeah. So back-to-back cataclysmic events, you know, and very different ones. But maybe take me to the time when... It was peak market. And did you know it was a bubble?

And how did your behavior change during the bubble of the dot-com bubble? And then we'll get into the best. I think at that point I was so young and inexperienced, I had no real sense of perception about the whole thing. Really, right? It feels tough now, right? For folks, you know, what percent of you, you've been talking? of folks who have been through three wars.

Like, what? Have like 90% of people never been through one war until now? I think that's probably right. So this was a 14 year bull market, right? 13 year, 14 year market. It's really hard that first time that you feel like you've been, you've grown up under a set of rules. And the rules just changed dramatic.

Right? Like the ability to reorient yourself. is hard. And frankly, much of the first three quarters of 2022 was me spent spending time with leaders in portfolio companies saying like, look,

like we need to, we need to react to this environment. Right. The world has changed. Exactly. And it was amazing. Like in January of 22, people were like,

oh, this hasn't really changed very much. And then like by March, April, they were like, oh, no, no, no, it's changed. But thankfully, we're really efficient. So we're okay. We'll be okay, yes. And then like six weeks later, everybody had figured out they could take like 20 to 25% out of their budget without hurting growth. Right.

Like, it was a stunning arc. A stunning arc. And some people were quicker to realize the new normal than others. Yes. For sure. For sure. But let's go back to your question about like what did I know? I think the two things I learned in the aftermath of those various downturn events.

One was times of stress and difficulty are really the only periods in which you learn anything about anybody. So true. Why is this true? Yeah. Well, shoot, when the sledding's easy, like no one has to make hard decisions, right? Like the interesting thing is when you have to make hard decisions, especially time frame decisions, short term versus long term, or self-interested, you know, acutely personal decisions versus organizational ecosystem, right? Example. You can make it an amalgamation.

It's not to be about one company. Yeah, yeah. No, sure. So you see it a bunch now in companies deciding how to deal with their expense run rates. You see like some of the more enlightened better leadership teams I see saying like look, boy, cash is tough. We have an annual performance bonus. We're going to pay out bonuses for below director. and all the senior folks are not going to take any.

Okay, seems reasonable. Right? Seems like a mature decision. So you save a bunch of money, right? And at the end of the day, like the senior folks, A, you know, they, if things go well, they benefit in an hugely outsized fashion compared to the younger, less experienced rank and file people. Right. and they generally have substantially greater base cashcom

yeah so they got better so they can take the head exactly and and as with most of those things around comp it's so much in the messaging rather than just the numbers right so when you go to the team and you're like look with times are tight right we need to we need to conserve wherever we can and as part of that the rank and file are getting the performance bonuses and the senior folks are not. It makes it a lot easier for the whole

organization to rally around a whole bunch of other we need to do more with less aspects. Listen, it's 2023. Closing business to business deals is going to be harder this year because, let's face it, some companies are reducing their spend. These days, B2B buyers expect integrations in their products. We expect our people management tool to work seamlessly with our payroll provider, right? You expect your CRM to work seamlessly with your accounting software. And if it doesn't, well, that's a huge issue, right? And how are you going to do this all? Who's going to develop all of these integrations? When you start a company, integrations are critical. This is how you attract customers, but it's brutal and it can take a long time and it's a never-ending

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So it's priced very fairly. They are going to give you five linked accounts for free today at merge.dev slash twist. Again, five linked accounts for free at merge. Dot d-EV slash TWIST. As a business, you need to create optionality for yourself in these times. That's probably the second piece of it in addition to what does it mean? I mean, we understand what the word create optionality is. you have options, but what does it really mean for a startup to have options?

So it means practical examples, yeah. Practical examples are you don't build up expense rates in advance of revenue, expecting revenue to come, right? In that case, probably the best example. Yeah, and that example is a fascinating one because what a founder will do is they'll be like, well, I'm going to deploy $3 million to create this product. It's going to generate in month one, $300,000

and in month two, $400,000. So it pays for itself. But you don't know if it even will make $1. You don't. And actually, it's interesting. For me, at least, the early times when you're doing product development are less fraught with danger than early commercial.

When you're building a commercial organization and everybody builds a commercial organization, before they have lots of revenue, right? Sort of it's tautological. You kind of have to. So maybe the way to describe it is, you know, anybody who, anybody who has a product and goes out to sell it,

you know, there's some amount of that revenue that would come in if you had no commercial organization at all, right? Like they're finding you. And then, but everyone's like, I want to grow more. So they put a bunch of commercial people on the ground. And so the efficiency of their customer acquisition goes down, the more they try to grow. Right.

For the last 10 years, right? Like, the penalty, the penalty of not quite hitting your milestones was you go out and raise an up round. Right. I mean, they talk about a perverse reinforcement loop. It's like, I just smoked crack.

I ran the mile faster and they gave me more crack to run the next mile faster. This is not going to end well. Don't smoke crack during the marathon is like literally, We taught a generation of founders that raising money was the skill. Yeah.

Not making money. Yep. And part of that was the whole growth at all costs super fast. Don't worry about what the actual unit economics of the business were. So there were lots of people. And like, you all, we all know this from other aspects of our lives. Like, it's really hard to repair a car driving 80 miles an hour down the highway. Yeah.

You don't want to be changing the, yeah, exactly. You're fixing the carburetor at 80. No, right? And so the notion of get your stuff together, right? Figure out, figure out what you have, who will buy it, how much it'll cost, et cetera. Sort of the nail it before you scale it. Notion. Yeah.

Right. Is that's the, what that does is if you nail it before you scale, that gives you optionality. Because if you're, if you're spending, you're always spending money. If you're spending a little bit of money, not a problem. If you now have brought on a bunch of customers, but your margins are low and your churns high, so you're sort of running on the hamster treadmill to try and keep things going. You're spending lots of money to do that. Yeah.

And that paints you into a corner. So there is where the optionality comes in. Yeah. If you are not being thoughtful about your gross margins, if you're not being thoughtful about the unit economics, however you want to phrase the same thing, your profitability, and you have it nailed product market fit, and you have nailed raising money at increasing valuations and making you feel good and giving you that dopamine hit, your net worth is going up, your cash balances are going up, the size of the people in your organization, you are literally getting all this

incorrect signaling. It's right. It's short-term signaling, not long-term signaling. Right? But that's what you're doing. Capital allocator, how do you tell a 25, now, as an elder statesman like we are? As an elder statesman, you got some 30-year-old. So the funny conversation, yeah.

The funny conversation these days is sort of, you know, I'm like, okay, so, you know, we have a V1 of the product. Can we agree that in three or four years, this product is going to be a lot better than it is today. Everyone's like, oh, totally, right? Yeah, reasonable. Right. And you're like, so in three or four years, we'll be embarrassed. We'll bring this product back up and we will look at it.

We'll go like, oh, my God, this is embarrassing. This is dog. Exactly. Right. Why do we want to put dog shit out in front of more people than we have to? Like, absolutely. We need to go out and get some market feedback. We need some people to use it.

Like, stuff happens. Like, you learn an enormous amount of really good. great stuff, right? But that's, honestly, those customers are more continued product development than they are really growth and scaling. Right. So that's one conversation. Like, what do I look?

Like, honestly, it's so funny. It was three or four years ago, there was a venture guy who said, we just did the analysis and first meeting to term sheet is now nine days. days. And my response was, oh, my God, I think mine's gone to nine months. And it's all about knowing the people way better. So that you end up looking for something like 90% of the leaders I'm involved with, our first time leaders.

Right? and it's they end up hopefully being long-term focused givers who have something to prove to the world. Right. So that gets them working all the time, super focused on it. But it's not, they care way more about what their efforts are going to look like in 10 years than next year. Like a reasonable way to think about it is trying to figure out whether someone. makes decisions consistently based on the notion of what would their sort of 10-year future self be proud of? Yes, this sense of pride, mission, purpose, and that long-term decision-making will be reflected in what this product looks like every month and the product velocity and the care and craft that goes into it, whereas a generation has learned some really bad habits.

Bad habits. You know, it's such an adrenaline pop when an unexpected term sheet comes in from some private equity firm for $100 million. And we didn't even ask them to give us this money. And they also want to give, you know, 10% of it in secondary, each of the early investors and CEOs. These are new, these were new wrinkles. Yeah, the venture folks learned a lot of bad habits too. Well, let's talk about that. Because in the early days, what?

what are the bad habits that venture capitalists had in the 90s? What are the bad habits in this cycle? And then when you look at the bad habits in the 90s, are there some that maybe now we should actually be a little more thoughtful about one that comes to mind for me? Not to answer my own question is governance. Because when I came into the industry, it seemed like people really seem to care about this. And maybe we're even,

I don't want to say lording it over founders, but it was, it did at times maybe even feel heavy-handed. And then it felt like you were insulting people by wanting to even have a board meeting or to have projections. I'm an early stage investor. Even doing diligence seem to offend some founders.

Sure, for sure. So, well, one, one bad habit back at the tail end of the, the dot-com bubble was fund size, for sure, right? Fun size matters. Fund size matters. Explain why for young venture capitalists out there who are like, hey, you know, got the opportunity to go big here.

Yeah. For that, it matters for slightly different reasons in the short term versus the long term. And the long term, the reason it matters is that larger funds are harder to make a good multiple on. And so, you know, your ability to be to be terrific at what you do, which is returning more capital, lots more capital than you got. What's terrific? If you were to put a multiple, you got a, you guys do a 450, 500 million dollar fund, something in that range. If you have a $450 million fund, I think terrific is anything north of six to eight X net. wow yeah that's incredible yeah that's i think that's right put you in the top five percent top

two percent which which by the way you know all of the graphs that every academic throws out there like if you're not in that if you're not out on that right hand end of the curve it's pretty uncertain it's worth the lockup time frame and the risk right now all of that has gotten mushed about by a total overabundance of capital trying to get into the system for the last 10 years, right? But that's it in the long term. I think there are actually short-term reasons that the big fund size back then, right? And we can talk about whether that's still true now or not. I mean, I think it's an interesting question.

But back then, the other reason it's a hard thing to do is like, if you have too much money, you want to put it to work. And so you end up lowering your bar, right? You end up as a firm being like, oh, we raised a bunch more money. We got to go hire some people to be investors. Like, I don't know about you. Like, it is really hard to tell whether someone coming into an organization is going to be a great investor or not. Right.

Like the great investors over time have come from every different walk of life possible. PhDs in chemistry, journalists. The whole line yards. Yeah. You got it. You got them. Right. And so you end up hiring a bunch of new people who they come in.

You've got too much money. They start putting money to work. They don't know what they're doing. Your bar goes. Like it's just, and then you're like, the thing that's worse than investing in something that's not good is then having to be with it for 10 years. Right? Like it's just the gift that keeps on taking.

It's just no fun. Yeah. So. And I suppose it to be different if the average venture deal were good, not mediocre. Right. But like if the whole point about venture from a portfolio perspective is how do you get as far away from the median as possible? Yeah. Right.

Like you got to keep your standards high and value your time more than anything. Now, I think you now today. have deals staying private longer. So, like, we have four healthcare IT deals that are north of 400 million revenue, each private. Those would have been in their fifth year

being public in the first cycle. Back then. You got it. You go public. In the dot-com area, you went public with 25 to 50 million in revenue? Yeah, before it got really frothy. Then you went public

with 25 million of round-trip revenue. Oh. Yeah, we know about that. You give $50 million to AOL, AOL, invest $50 million, you buy $50 million. I mean, we literally were talking about round-tripping on the all-in podcast, my other podcast the other day, because actually, what we're talking about it on the pod or we were talking about it maybe in the group chat, because if you're buying cloud credits from a certain company and you're spending $3 million a day on cloud credits and they're investing in your company. Yeah, it gets into. Yeah, you're a little tied together there in some manner. I mean, the SEC might look at that and say, would you...

Like, you're getting this. This is the whole thing that, who is it? Matt Levine, who I love reading, is talking about, you know, on, you know, F-TX's making their own coins, you know, and buying one of them. And that's the, of course, then it's worth, you know, a billion dollars. Sure. Right? Like, same thing.

It would be like one of your biotech companies. is like everybody in the company buying a Theranos blood test every day. Not that that's your company, but like, yeah, everybody in the company is going to do a thermos, but all the VCs who invested in the company are going to buy a million blood tests. It's like, wait a second. Exactly. Because that were. Exactly.

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I did not see it, and it was so funny for like five years. So I didn't see it, nor did I seek it out. But not because I knew anything about Elizabeth Holmes, just because I didn't like the business. Like, you're competing with LabCorp and Quest. It's a high volume commodity business, which is a hard place to start, like, innovative small companies. It's hard to compete in a high volume, low margin game, right? You're starting a burger restaurant against McDonald's and Burger King. You're starting a soda pop company against Coke and Pepsi.

Yeah, exactly, right? How's that going to work out? And so for like five years, I'd have people, you know, like, oh, you do health care, you're out in the valley. Are you an investor in Theranos? Like, no, I'm not. And they'd look at me and be like, oh, that's disappointing. I thought you were a good investor. Exactly.

Exactly. When did you first hear the buzz around, well, this is obviously not reality and something, this is a Fugazi. Because it was back channeling around. I was at dinner parties. People were like, hey, this doesn't seem legit. It's like, yeah, it's like they're not, well. not adding up. When in any,

in any industry sub segment, when people talk a big game and don't ship for an extended period of time, you're like, well, I don't understand. Like, why,

why no shipping? Right? Like, why can't I use this sort of thing? And every once in a while, people, you know, you'd go into the Walgreens on University Avenue in Palo Alto

and try and get a test on. And, you know, you'd get something different there. Um, so it's probably, you know, couple years before the Wall Street Journal article broke.

It was just getting sort of long in the tooth on the style over substance. Yeah, the one I saw was Jean-Louis Gassier, who worked for, he worked for jobs. He ran Apple in France. And he lived by Stanford and went for a blood test at Stanford. They went for a Theronose test. And then he compared the results. pretty big delta. Then he did it again and he wrote another blog post.

Then he emailed there andos and gets no answer. And there was a term that we used to have here in Silicon Valley called due diligence. Yeah. Here's the here's, by the way, here's his piece. Yeah, his piece. This is 2015. And it's like, yeah, a blogger who's not an investor in the company figured it out. by using the product.

What was the diligence process like, you know, in each of these cycles and how does the diligence, the time you have to understand what's going on at the company, how is that changed? And then how have you kept your discipline in a world where, you know, doing diligence maybe is best described as a lost art? Yeah, right. At least a less valued one. So again, some of it goes back to fun size, right? Like if you're if you if you've constrained yourself, you're like, look, I'm going to do one or two deals a year, right? You have the time.

Ah, so that's step one. You have to have the time. Yeah, for sure, right? Yeah. And then step two is, you know, do you have a willing receptor on the other side of the equation to spend the time with you? And for me, it's actually a fascinating discussion with entrepreneurs. when you're like, look, I want to do a bunch of diligence. And by the way, you should want me to do it too.

Right. And there's some set of folks who are like, dude, look, I just want to get this financing closed and I want to be done with it. And I kind of understand it, right? But at that point, you're getting a financing closed. You're not bringing a partner on to try and help you build the business. And to me, that's what the company diligence on me is, right? is like they should want to spend the time to figure out how I think and, you know, whether I'm really all that I say I am.

The founder of Sequoia said, like there's, here's a, he said to rule off at one point. Here's like four quadrants. How likable a founder is, how easy they are to get along with. Easy and then hire difficult. And then here's how effective they are at their job as a founder. Not effective, really effective. and he said one of these quadrants is where we see our biggest success. I think you can guess which quadrant is.

So maybe you could speak to the unique nature of the great entrepreneurs. And maybe the challenge sometimes of working with, you know, really the best of them and how agreeable they are or not and how you've navigated that. Yeah. So I think they would say, I'm not all that agreeable. So we're probably pretty sympathetic on the, on the, on the whole thing. But it is, look, the best founders, certainly thinking long term, right?

Certainly giving everything they can to the business, putting the business in front of themselves. But they're also always looking for what's wrong. And that's kind of what makes them sort of low level, me too, low level disagreeable all the time. You're like, okay, actually what's going well is fine. going to spend a ton of time celebrating. Yeah, you do that at all hands every once in a while, et cetera. But like, I'm actually focused on what's the next horizon that I need to tackle? And it's, to me, the long time that we spend, I spend with entrepreneurs before investing is, is understanding how they think about that sort of stuff. So that I, we like, we talk about

the business. Like, what, what do we want to do? Why do we want to do it? And, Let's argue about, let's argue about some things. Let's argue about how we should price this. Let's argue about what features should be. Who should we be selling to? Like, how should we measure ourselves? The ability to debate to argue important issues is a prerequisite in this relationship between a capital allocator and a founder.

I think it should be. Yeah. You have to be able to argue also in good faith. And you have to be able to really doggedly fight and change positions. There's an intellectual flexibility that you, are required to have in a dynamic environment, whether it's biotech or startups, whatever it happens to be.

Health care, T, enterprise software, take your pick for sure. And you need to, and the other thing I think you need to be is to be led by data when data comes. Right? Rather than be like, oh, well, this is my position.

I have some ego in this position, so we're going to stick with it. Right? Like, this bad money after good, this sunk and cost fallacy. Bad time over. good, after good time.

Yeah, the sunken cost fallacy is totally very real in what we do. You could spend two years working on something and then the obvious path, the exit ramp off that bad idea to a genius idea, is sitting right there. I mean,

Apple being perhaps the greatest example in history, it's like, well, a gadget, an iPhone, dwarfed all revenue from their PC on every desk. You got it. And it just took, you know, someone like jobs to realize it.

Yeah. No, I think it's actually true. So, you know, the, you know, and in those arguments, nothing's personal, right? You're talking about issues, topics, and comfort with ambiguity and uncertainty and being non-consensus. Like, I think the, like, for the first three or four years of any really interesting startup, you're non-consensus. Because if you were consensus, someone else has already done it, it's bigger, et cetera, right? And so the real interesting thing is when any of these companies transitions from non-consensus to consensus, like the rest of the world sees it. Tolerance for ambiguity and being non-consensus. These are very hard, cognitive disciplines.

Uncomfortable. It's uncomfortable, yeah. And this is when you think about going through a war, you know, when you're in that foxhole, it's like, hmm. Totally, right? Like, you can retreat or go forward? And you see it in all of the private investing world now. Like it was part of the it was part of the bull run momentum investing, right? Yep.

But when the tide goes out like it is now, momentum investing swings way back the other way. And so this notion of being willing to put out more capital into businesses. Right. now is a non-consensus decision today. What's your decision? Today, when you're sitting here today, Brian. Oh, totally, totally putting out capital. You're excited.

You see the opportunity. For sure. I'm literally raising my fourth fund right now. I'm doing it publicly. And I'm investing. I'm meeting with more founders. And my eyes are so bright open. I'm like, this is like 2009, 2010, when I found Com and Uber and Robin Hood.

And I'm like, these founders are so focused. these products are so transcendent and look at the prices. And all hubris has left the room. Yeah, there's no bullshit artists. Exactly. All the theatrics are gone. It's like you can get a cab in a shorter period of time and pay and see the cab coming to you. I'm like, great, let's go.

Oh, you can sequence the human genome and it was a hundred million and it's going to be a million and then it's going to be $10,000 and it's going to be $100. Okay, great. Yeah, let's pull that string and see where it leads us. Now is the greatest time to place bets. but it's a scary time to be an LP and a fund. It's a scary time to place a bed. It is a scary time to place the bed because, well, because nobody likes to look,

no human being on planet Earth likes to look stupid, right? And there's a false sense of that you won't look stupid in the bull run, right? And there's a false sense that you will look stupid in the current market. because it's all bad news here and there. That is such a great insight for capital allocators. I'm just thinking about my own psychology and really the psychology of placing bets and this fear of looking stupid.

You're in a poker game. You don't have the best hand. You've got some range of poker hands and you call. Somebody goes, you know, raises and you call them. You got to turn your cards over and see if you made the right decision. And if you are not willing to have that

absolutely acidic feeling a little bit of bile poke up into your throat just like okay this company is run out of cash nobody will fund them

and I'm going to give them that bridge I'm going to give them that 12 take me to that scariest moment when you place that bat in any of the three wars that you live through any of those

where you place the bat and it worked out just you know but you did have that bile coming up, making you feel that, like, geez,

where's the pepto? Can I get a... Sure. This is... Well, you know, as a firm, I'm trying to think,

we did the first, we did half of the seed round of cloud flare. 20- 10-ish. Yeah. I think nine. What a great company.

I think it was December of 29. Mm. Okay. Right? Matthew, Michelle, you know, right out of Harvard Business School,

blah, there, back of a napkin. And, you know, they had actually, it's so funny, they had done a one of those summer programs in the offices of a different venture firm. Right? Wow. Who didn't fund them. Because they were doing a CDN in the face of Akamai and they were going to do DNS routing.

I was on the board of Dyn at the time, DYN in New Hampshire. And I remember Cloudfro coming up and I was like, wow, this guy seemed pretty clever. and we were like talking about them like but yeah it felt like a derivative business or a copycat business and it turned out to be an exceptional business.

Absolutely. What was why? Why did it? Why did they do so well? Just better execution I guess is what it comes down to. More dog in management? So

really hardware to software. Right? Like number one. And two, the team was purely focused on themselves, on what they could do well, how they could do it, not any of the hype around the world.

And frankly, for, you know, it wasn't the easiest thing to get funded for a couple rounds, right? And then you're getting into 20, 13, 14, and like, prices are going way up. And you're like, wow, our prices aren't going up that much. I wonder, like, I had the same thing at 10x genomics, single cell genomics business, right? Like, I kind of like, honestly, it's weird about me.

Like, I like being so non-consensus that people leave you alone for a little while, right? Until you get together enough to be able to do something interesting and defend yourself, right? What's your best advice to founders who are looking at this market and saying, huh, should I take the jump? This is like the eye of the storm. It's a hurricane. I got this little boat. I think... Do I leave the dock?

Yeah. I think you should only start. part of company if you can't stop yourself from doing it in any market. Like, I think, I think you need to find yourself in the shower, on your run, you know, out at the movie with your girlfriend, thinking about the company. Right. Obsession. Obsession, right.

Has to be like, and literally, don't spend your time trying to figure out positive proof points for your idea. Yeah. Just go after, can I kill it? Right? And if you're like, golly, like, I can't, I got to do this. I'm going to feel, I'm going to feel terrible if I don't go do this. Then definitely go do it. I think this is the greatest advice you could possibly give to a founder. It is the absolute prerequisite of if you should start a company is that you can't not start a company. And you will know that. And you will know. And honestly, you'll also know when you're faking it. Exactly. And only you will know. It's in your heart. you know, it's in your soul.

Like you just, if you, if you're showing up for your day job at Huli or Google or whatever company, and you're, it's soul crushing and you're literally, you know, in a secret window in another browser on a VPN, working on your startup,

like get the hell out of there. Yeah. And, uh, go meet with Venrock or come to my accelerator. Exactly. And, uh, let us place a bet on you. Honestly,

just find, find somebody who you believe will be, be your partner for the next decade. It really is a partnership. Brian, this has been amazing. I want to have you back on the show. This is like,

I don't think you and I have ever met. No. It's funny. I've heard lots of great things. Thank you for this. I mean, literally, I have like five,

I know when I have a great guest because I have five blog post ideas and I have notes that I'm taking like, oh, I have to sharpen my sword a bit based on the lessons you've made and, you know, having gone through two more worse than I have.

I really appreciate you being so candid. I appreciate it. There it is, Brian Roberts, everybody. And yeah, come on again in like six months. You got it. I'm around. In six months, I want to just continue this conversation. And we'll see you all next time on this week in startups.

Bye-bye. See you.