This Week in Startups - Benchmark's Sarah Tavel on the state of VC, AI's impact on startups & more! | E1813

Episode Date: September 20, 2023

This Week in Startups is brought to you by… Miro. Working remotely doesn't mean you need to feel disconnected from your team. Miro is an online whiteboard that brings teams together - anytime, anywhere. Go to https://miro.com/startups to sign up for a FREE account with unlimited team members. Vanta. Compliance and security shouldn't be a deal-breaker for startups to win new business. Vanta makes it easy for companies to get a SOC 2 report fast. TWiST listeners can get $1,000 off for a limited time at https://vanta.com/twist Mercury. 90% of startups fail. Just 10 out of every 100 make it. Mercury exists to close that gap — helping companies succeed with banking and credit cards engineered for the startup journey. Join over 100,000 companies banking with Mercury at http://mercury.com Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust; Members FDIC. * Today's show: Benchmark's Sarah Tavel joins Jason to discuss the state of VC (1:57), her time at Benchmark (13:33), her recent Substack blogs (31:51), AI's impact on startups (44:31), and much more! * Time stamps: (0:00) Benchmark's Sarah Tavel joins Jason (1:57) The state of VC and the biggest things founders have had to contend with (12:08) Miro - Sign up for a free account at https://miro.com/startups (13:33) Benchmark's culture (21:35) Evolving trends in VC (24:37) Vanta - Get $1000 off your SOC 2 at https://vanta.com/twist (25:45) Tradeoffs and common VC mistakes (31:51) Sarah's Substack blogs and the inspiration behind her writing (35:42) Mercury - Join 100K+ startups banking with Mercury at http://mercury.com (36:54) Entrepreneurship in 2023 and the importance of a founder's long-term vision (44:31) Technology catalysts and how AI is impacting startups (58:36) Business models, the amount of developers needed, and navigating funding rounds (1:04:42) The complexities of strategic partnerships and corporate VC (1:14:54) M&A in the era of Lina Kahn and looking at the macro picture as an investor * Follow Sarah: https://twitter.com/sarahtavel Check out Sarah's Substack: https://www.sarahtavel.com * Read LAUNCH Fund 4 Deal Memo: https://www.launch.co/four Apply for Funding: https://www.launch.co/apply Buy ANGEL: https://www.angelthebook.com Great recent interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland, PrayingForExits, Jenny Lefcourt Check out Jason's suite of newsletters: https://substack.com/@calacanis * Follow Jason: Twitter: https://twitter.com/jason Instagram: https://www.instagram.com/jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

You know, what I think about for the last few years is, yeah, you have elements of the kind of first bubble, just that implosion. But there just has been so much else going on. Of course, there's the zero rate environment, what effect that's had. But you have just so many other things that you've had to contend with as a founder over the last few years that, you know, of course it was grow, grow, grow. Cash, cash, cash, but in person, not in person, having to handle so many of the kind of progressive movements that were coming along. How do you respond as a CEO in those moments? You have the Silicon Valley Bank thing that's happening.

I never would have thought. I mean, it's a long list. And certainly, you know, it's a resilient. To be a founder now, you have to, you've had a lot of resilience. This Weekend Startups is brought to you by Miro helps take ideas from in your head to out there in the world with its ability to democratize collaboration and input. Sign up for free at Miro.com slash startups.

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engineered for the startup journey. Join over 100,000 companies banking with Mercury at Mercury.com. All right, everybody, we've been crushing it with guests. during this week in startups, All-Star Summer. So many amazing guests that it's spilling into September. That's right. Your summer's not over.

Look at this lineup of Murderers Row. Rich from Zillow, Nikesh from Palo Alto Network, Dave from MongoDB, Scott from Atlasse and Ryan from Qualtricks, Darmesh from HubSpot, all the greats. And, you know, one of the great guests we've had on doesn't like to do podcast. She likes to work.

But she's quietly built up a little stub stack. audience. And, you know, like my bestie Bill Gurley, she doesn't write often, but when she does, it's very much worth your attention. So go ahead, before we do anything here, search for Sarah Taville, T-A-V-E-L, substack, and put your email in, especially if you're a founder, because you're going to want to read what she has to say. Because she's, let's just put it out there. She's brilliant. She was the first product manager of Pinterest. And I guess she left. Greylock to join Pinterest and then you went on to join Benchmark because let's be honest, the economics that benchmark are equal and other venture firms.

They make you work for decades to get to the top of the hill. So welcome back. Second time show guest, Sarah Taple. Always a pleasure. Thanks for having me. A little intro there. My substack's new, so I'm like scraping my way. So I appreciate you doing a shout out there.

Trust me. I know how to get guests back on the program. I get to a thousand founders signing up. That's a good start. It's a good start. I'll send you a thank you note. The thank you note is just promising to come on every year or two. And I guess the last time you were on, we were in the studio.

So it was before COVID. Way back when. It was a world ago. And so, and you had just joined, I think. You were on February 2020. Oh, my God. You were on. It was like the week or two before.

Wow. COVID hit. It was when people just stopped shaking hands just for, oh, this is what we had, the controversy where Mark and Dresen put on his door. No handshakes, please. No handshakes, please.

And then everybody in the mainstream media said he's hysterical lunatic. And then they told everybody to stay in for two years. The world is insane. That was such a different time. It's wild to think. You know, I think a lot about founders who have gone through those last. few years. Like, can you, is there a time in like the modern, you know, internet era where we've had

a more thrashy, crazy time to be a founder? The only two you could ever put up against that would be the dot-com bust. Yeah. And the great financial crisis, which as great as it was, was kind of like that happened on Wall Street and in housing. So it was kind of like a bomb that went off that didn't hit us all that directly. We just got the aftershocks, right? So that's probably the only two. Yeah, the first, you know, what I think about for the last few years is, yeah, you have elements of the kind of first bubble, just that, that implosion.

But there just has been so much else going on. Of course, there's the, you know, zero rate environment, what effect that's had. But you have just so many other things. that you've had to contend with as a founder over the last few years that, you know, of course it was grow, grow, grow, cash, cash, but in person, not in person, having to handle so many of the

kind of progressive movements that were coming along. How do you respond as a CEO in those moments? You have the Silicon Valley Bank thing that's happening. I never would have thought. I mean, it's a lot. long list and certainly, you know, it's a resilient, to be a founder now, you have to, you've had a lot of resilience. And if you look at all four of the ones you rattled off the top of your head and, man, that's

a great summary. You know, sometimes you just, as a founder or a capital allocator like we do now, you just assume it's going to be hard. But each one of those is like a grenade being thrown into the lobby of your building. Like, okay, now we've got. Silicon Valley Bank's gone under. We don't know if our cash is going to be there on Monday. Yeah.

Everybody run around all 72 hours, you know, doing caps, all caps lock tweets. Number two. Okay, it's COVID. Your business is either Airbnb and it's turned off or your door dash and it went 10x and you can't deliver all the food. Then you got a bunch of insane people inside your company that are putting a gun to the founder's head and telling them, whatever the social movement of the day is, we'd like you to alienate half of our customers for the next six months.

Or your employees. Or your employees. It's madness. And then, oh yeah, by the way, we don't want to come back to work and I'm probably working two jobs. Right. I just saw that the other day.

Somebody was on Twitter and they found out their employee who they hired away from another company that they didn't actually hire them away from that company. They're still working there. heard those stories. And there's a subreddit called Overemployed. It is now a playbook. There are

playbooks on how to have multiple jobs. Let's start with that. Can great companies be built with everybody being spread to the four corners? Or is this something missing here, especially in the stage you and I tend to invest?

Benchmark is the classic of the classic series. Investors, you're looking for a little inflection point in consumer, you're looking for domain expertise in enterprise. And that's when you like to slide in there and get your 10, 15% slice of the pie and join the board, most importantly. Can this be done at that stage or my stage when you're trying to find product market fit in the seed stage? Can it be done remote or are we missing something by promoting this remote culture? Man, if I could go back in time and the companies that we invested in, I would say the founders

would tell you this, if they could go back in time and be co-located instead of distributed, they would do that. Obviously, there's exceptions to all rules, right? And this is certainly no rule. But I would say, unless you're a really experienced manager already as a founder, most cases the companies that we're looking at are founders and this is they're they're young they've in most cases have never managed people before starting a company and to do it distributed to me is like trying to sprint with a parachute tattoo your back you know it's just they're so and I get you

get into this mindset of I want to I want to access to global maximum of talent and that talent has gone everywhere, and I get that. It's a real trade-off. But man, in that beginning stages, especially before you've really figured out product market fit and are starting to have that momentum build, the cost of communication, collaboration, culture, you know, the intensity, I don't know about you. Like, I remember some of my favorite memories from Pinterest were the late nights or coming into the office on the weekend and like seeing your buddies there. And that just creates this intensity and identity with the company. And I think more collaboration, more throughput, better decision making, better ideas.

And so I've been noticing in 2023 how many more companies I see, these early founder stories where the founders live together. Yeah. It's even more than having an office. It's more than I've ever seen. It's in the area I live, the wider peninsula area, San Mateo-ish, there are a bunch of founder homes now. And founders are renting giant mansions, which are cheaper on a per bedroom basis. And they're just working seven days a week, which, by the way, that's kind of what put Silicon Valley on the map.

I think that's what it takes. Yeah. And it's such an interesting snapback from what we're. we saw in 2021 as an example where it was always like two zoom screens, you know, two squares, somebody's here, somebody's there. And man, the the bones that you set when you're living together or your team is co-located and that's such an important part of the culture, I feel like that is like you have to, it's just rare and special. And one of the unique things that you have as a small sub-scale startup and to not take advantage of that in the

beginning seems like, you know, that parachute. Yeah, it's a wasted opportunity. But you did say there's a tradeoff. So when you start thinking about, hey, we need this very specific talent. And here in the United States, we have record low unemployment of our lifetimes. It's so, you know, I have employees in Canada as but one example. I started a Canadian company during the boom time to hire people in Canada

because I found people in the US were turning over every 18 months just much faster and that Canadians turned over at half the rate it's a slight discount but not ridiculous but there was just much more talent available

and what venture capital jobs are available in Canada, none you know, like so if you can if you're hiring analysts it worked out pretty well but now I find myself longing for more in person Founders always ask me for pitch deck punchups and how to present their startup in a better way. Well, I've got some great news. We worked with a team at Miro, the awesome whiteboarding software, to create an amazing pitch deck template for founders.

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mural account at murow mireo.com slash startups again mireo.com slash startups mirro.com slash startups. Is the firm, you guys had a great office in the city at one point. I don't know where our benchmark is these days. Yes. And you were famous for the, I think it was Monday or Tuesday night dinners. You would do these dinners as a team at Monday night dinners at this like weird table. It's the triangular table for five.

Tell us about those dinners. And are they back? We've been doing, you know, we, I don't remember when we started coming back in person. after shelter in place, but we were pretty eager to come back. You know, we just felt, you just felt the difference of Monday, you know, team of six people and what happens when you're all on Zoom versus the, you know, it's kind of like being only being able to see two colors versus seeing all the colors that happen when you're, when you're in person.

So we were pretty quick to come back as a partnership on Monday. on Mondays. And then the thing that was slower was bringing the dinners back. And the dinners, you know, one of the things that I think is a real cultural tenant to benchmark is that we're just deeply curious people. And we, I think, also just really like being together and having, you know, some, you know, good wine, good food together. And so one of the things that we do, both to nurture that curiosity that we all,

have. And then just to have fun together and have a good time is having these guests come on Mondays. It's one of the things that Bill actually brought to benchmark, I think, inspired by Benjamin Franklin and how Benjamin Franklin also nurtured his own curiosity of bringing in people who are experts in whatever, you know, a domain that he was curious about at the time. And so for us, it's like it's a pretty broad spectrum of people. I won't name drop. But it's, you know, it's one of the things I most look forward to. And we try to do it almost every Monday. Yeah, I won't name drop names.

I know that have been there either. But, you know, an author, a politician, a retired politician, a former entrepreneur, a scientist. It could be anybody doing something very interesting in the world. And I think the great investments, I'm curious how you think about outliers, they tend not to fit in a box. They tend to be multidisciplinary. the founders tend to be difficult, contankerous, you know, I'm talking about the successful ones.

You know, driven, mission driven, driven because of whatever trauma they went through in their childhoods. Right, whatever chip on their shoulder. Yes, whatever chip they happen to have. But there is something about when you learn about other disciplines and you see innovation happen in other

verticals that really can help you in your vertical. Maybe talk a little bit about that kind of multidisciplinary, cross-disciplinary mindset. Yeah, it's it's, I don't, have you read Range by David Epstein? Yeah, I mean, it's incredible, yeah.

It's, you know, and it's such, by the way, it's such a great example of one of those books that, you know, I forget who read it first, whether it was Peter, Bill, or Eric, or whoever it was, but someone read it when comes to our group and says, oh my God,

you have to read this. It's so interesting. And we're all, you know, it's just curious. And it's, you know, it's, it's, it's part of the fun thinking outside the box that happens is, is being able to go down whatever rabbit hole, uh, or pull whatever thread you might have, um, from whatever you're learning or been curious about recently. And I love that book. It's, I highly recommend it to people because the thesis, you know, he explores, it was actually catalyzed by a debate he was doing with Malcolm Gladwell on the 10,000 hours specialization, you know, Tiger Woods, studying, you know, playing golf from when he was four years old

and becoming the great that he is today versus, I think it was Nadal. No, it was it, no, it was the Swedish. Oh, no, Andre Agassi, was it? No, not Andre Accese. It was somebody who had played multiple sports and came to it later. Yeah, well, he has, I'm terrible for forgetting his name. He's one of the greats. I just, I'm not a sports person, but he, his, he ended up playing tennis, actually,

his parents were tennis coaches. But what they told him to do was first to study, to play all these sports. You know, they didn't let him specialize early. And so he did. He did a range of sports. Fetterer? And then eventually. Yeah, Federer.

It was Federer. You know how I know that? How? I hate to tell people my secrets. I literally just typed into chat, GPD4, which we're going to talk about. Yeah, I for the second half of this. Who are the athletes in the book range? And it literally put it in a table.

Roger Fetter, Tiger Woods, Vince Van Gogh, Jack Nicholas. Perfect. Perfect. It'll be a great segue. But so he did a range, and then he's special. And when David Epstein studied these two opposing models, what he found was that there was actually far more success going after the breadth and then specializing than just specializing. But then, you know, you kind of start to expand that, you know, thinking about teams and teams, you know, that are all specialists aren't as good at solving problems as like a team of people from different disciplines or perspectives. And similarly, it's a type of thing that, like, I remember meeting a CFO candidate.

And I loved that he hadn't been a SaaS CFO or VP of finance his entire career. He had done some e-commerce. He had, you know, done a consumption model company, a SaaS model. And when you have that breadth of experience, what ends up happening is that your creative problem solving is better. you're not a hammer looking for a nail. You see things in a way that other people don't see things. And it's just a, you know, it's the ingredients that you need. We think about it a lot for our partnership construction, too, of just making sure we're

always having people from different areas, perspectives coming in. Victor, our most recent addition being a great example of that. Why is he a great example of it? Well, he's, you know, he was the CEO and founder of an incredible company in the, in the gaming space called Wildlife. And he, we actually, we were investors in it. So he was a benchmark funded CEO from Brazil, natively, and built this just incredible business. And we both, you know, we recognize, you know, Eric Vistria is another partner at at benchmark who had been a founder, CEO.

You know, I obviously spent a few years doing real work at Pinterest, but we felt like we wanted somebody else in the mix who had, you know, had that experience and then also had this, you know, a different perspective, both as someone, you know, natively from Brazil, having that more kind of global point of view, but then very importantly, also building a type of company that none of us really had deep exposure to. And then he has these incredible relationships

that he's built over the years with so many incredible founders, the Brex founders as an example whom he's on the board of Brex. And so anyway, just, you know, spikes a different way. You got a continent, you got a category in gaming, and you got a skill set being a founder. And let's double click on that last one.

It seems like the industry is, and listen, I'm a beneficiary of this. I was a founder and a journalist, so I kind of got two of the things that people look for in VCs these days. It used to be analysts like Gurley, lifelong career venture capitalist Fred Wilson. That was how VC worked. You got a bunch of MBAs. You got a bunch of analysts. And that seemed to be really good. But then the industry pivoted and said, hey, journalists seem to ask really good questions.

They're very curious people. let's give a couple slots to them. And then now, hey, are you a CEO founder? Maybe a little bit of a divergence. Like, did you work at a successful company? And because maybe VC got a little too big, that doesn't seem like just because you happen to be at Uber or happen to be at Pinterest or whatever.

Like, what did you actually do there? You know, like if you're a Chimov and you grew it from 40 million to 400 million of Facebook, okay, you got the bona fides. But it did seem like we just started taking random people from logos. Well, I'll give a little twist on that, which is that, you know, when you are an operator, the parallel of an investment decision is the company that you join. And so it's one thing to be at a company and I just, oh, I got lucky I was just there and then it happened around me.

And I think there's a lot of instances where that does happen or the company is already and inevitability when someone joins. But then I think about, you know, my partner, Matt Kohler, whom was first five employees at LinkedIn and then made a very intentional decision to leave LinkedIn and join Facebook. You know, for me, with Pinterest, like obviously invested at the Series A,

and then I was just so excited about the company. It was four people when we invested. Yeah. And just so excited. about what was possible there, that I couldn't imagine a world where I didn't throw my hat into the ring and beg for a job, basically. And so there's an intentionality, I think, that you see for some people in the early, like, deciding to commit to a company as an operator that, in a way, is an investment, is a sign of an investment decision.

It is. You are placing five years of your life. I mean, four, if we, just are totally cutthroat about it and think about like a stock vesting, you're trading four years of your life and you may have 30 productive years depending on when you start taking your career seriously and when you decide to retire. So, hey, listen, you're talking about 15% of your career. You're making a bet. Yes. Cheryl Sandberg made a bet on Google and then she made a bet on Facebook and, you know, she had that famous quote. Doesn't matter what seat. Yeah. Yeah, like if there's a rocket ship, take a seat. If you're a SaaS or services come that stores customer data in the cloud, then you need to be, uh, SOC2 compliant.

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And I love your framing of that. It's the first time I've ever considered that framing of it is an investment decision. And hey, four years of your life. Yeah, if it doesn't go now. And it's a much stronger, you know, a lot of operators that talk to me about getting into investing and then their seed investing and our angel investing rather. And it's a reflection of something like your network and sourcing, but ultimately the strongest reflection of the type of investing we do, which is one or two. deeply committed investments every year. There's that, the closest parallel to that is the company you choose to join and why.

And that's one or two per partner per year? Correct. Yeah. And there's five partners. So that's one or six? There's six now in Victor. So you're talking about one or two means one point five. So you're talking about the firm does nine, ten investments per year, one every month or, you know, one every six weeks or so.

So it really is done incredibly thoughtfully. Yes. And you're joining the board. Most people, excuse me, in the industry, think the deal flow is destiny. Obviously, I think that's a big part of it. But you are saying here, selection is equally important or more important than deal flow. I don't think in those terms because it's, there's two things at play. or rather I would think of it this way, which is like, I'm a big believer, every strength has a corresponding weakness and vice versa.

And so everything has tradeoffs. It's kind of like, you know, the employees who complain about a company feeling like a show internally because it's decentralized and there's all these redundancy and all these things. But the strength of that, you can see the weakness, but the strength of that is that the company is moving really quickly and scaling. really quickly with revenue and everything else. And so there's tradeoffs. For benchmark, the strength, I believe, in our model is that we are, you know, we're a team of equal partners. And all we want is to find the, you know, the founders that will be those generational

founders. And then partner with them in that shoulder to shoulder work that, you know, means that we're not delegating any part of what we consider to be the core work of a board member to an internal team of consultants, to a platform team. So we have deep commitment, truth seeking as a partnership, and all alignment that once we invest in a company, we all are empowered and want that company equally to be successful. So you have the full benchmark partnership behind you. The corresponding weakness of that is that, that we don't have a team of dozens of junior people who are reaching out to founders, you know?

And so my fear always is that a founder doesn't hear from us, you know, and they consider, they just assume that the fact that no person from benchmark has reached out to them means we're not interested in them. When really it's, there's, there's a constraint that we naturally have with our model that just means that we don't have that, you know, that army of people who are doing that work, reaching out, you know, nurturing all the seed relationships. And it's a paranoia I have. And, you know, I'm all, you know, that's why we're always, you know,

I'm writing or doing podcasts or reaching out to, you know, friends or, you know, developing notes, hoping, cold, you know, DMing people as much as we can. But at the end of the day, we have this constraint. And we have to hope. that the product that we do have, which is that deep commitment where we're not delegating any part of that job, means that when that really ambitious founder who wants the best partner that they can have, make sure to find an introduction to us or, you know, a, some way of getting to us.

And by the way, I'm sarah benchmark.com. I think sometimes people think that, oh, you know, it's, well, go ahead. No, I was going to say, you know, a lot of VCs get high on their own supply. Yes. This is when I know that a VC is about to crash and they should retire, is when they start writing about how you should contact me. Here are the rules for contacting me. And it's like, hey, dummy, we're in a service business. Stop complaining about your email, your DMs.

That's the job. You have to live because you don't have an army of people screening your inbound like I do. or you don't have an army of people like, listen, Indrice and Horowitz, you know, it's the platform company. You might not have mentioned their name,

but I will. You know, they've got 50 recruiters, 30 recruiters sitting there doing the recruiting job where, you know, hey, benchmarks feeling is,

and I've talked to Bill Gurley about this, and Bill Gurley's email me. You know, any CFOs for a company like this? Who do you think might be great? I mean, I've gotten 50 emails over the years. What do you think of this person? I see you're connected to them on LinkedIn.

That's Bill Gurley. Yes. The girl is rich. You don't need to do that. But then you know when he brings that CFO or that person, chief product officer, you know, whatever VP of Inge to that founder, hey, yeah, I check with Jake Al, I check with this person. And that's a super, that's a superpower right there.

Yes. And so different strokes or different folks, but you in your, because I was just down the Sarataville rabbit hole, I read like all your substacks from this year, really, really worth checking out. You know, hey, reach out. DM's open. Email me. and you said it in a very nice way,

if this sounds, if this resonates with you, or something like that, you had a little hook that I thought was very charming and thoughtful. Talk to me about writing as clarity of thought

and a way to find the mutants out there. I look at my podcast and, you know, that happens to be my zone and I'm a writer too, but, you know,

I look at my podcast as a way for me to be Professor X, you know, put on Cerebro and go look for mutants, right? If they're listening to the pod, they self-selected, hey, they want to hear us talk for an hour about the gritty details of this.

Most people want a 15-minute interview. I'm like, yeah, enjoy 75 minutes or don't. I don't care. But that's a way of me clarifying my thought and showing my intellectual curiosity. Your writing shows yours. Talk about getting on the horse here and trying to be disciplined about writing on a regular basis in your process. Yeah, I mean, I'm, I know, I've been blogging since 2006. I remember a blog spot.

And for me, you know, especially back then, I was a year out of college starting in venture. And I probably felt at the time, if I look back on my very first blog post, I was struggling being the only woman at my firm. It was just a brand new experience. I had never, I thought would be fine, but actually was rather intimidating in the beginning. I was, you know, 21, 22. And so blogging in the beginning was a way for me to just find another outlet that was more comfortable for me. And what ended up happening is I learned two things, which is one, exactly as you said,

that when you are forced to write, you, you know, you always have these ideas and they're little wisps, you know, and you have to really grab onto it and pull it all the way. And it takes work, you know, writing, as you know, my, you know, I think about my hierarchy of marketplaces that I wrote, that's actually on my media where I'd been writing before, it took me hundreds, like way more than 100 hours to work on that piece. And it's one of those things that in the beginning I thought I knew. I remember I put it first draft together and showed it to Bill,

and he came back generously with all these notes, and you realize you don't really know something until you rate it. And so through writing it and synthesizing, I find that it puts me in more of a learning mindset and I learn more. And then the second thing that you have is the community or the people for whom those pieces then resonate. And you talked about your selection bias for mutants. I hope my selection bias is always looking for learning animals. You know, people who are just, they're working on something and they're curious and they're learning.

and they're thinking about how to build something that's going to dominate, you know, the competition. I want those people to read something I wrote. And like they want to build an enduring business, an enduring company where you're not just focused on, you know, getting to the Series A and then the B and then C, but you're focused on how do I build something great for my customer work backwards from there? I want those founders to read what I write and have it resonate for them. And that really is three things. It's curious, but they also have to have some competition in them.

Absolutely. Yeah. And then they have to be decade thinkers. Those are the three things when you gave that answer that I immediately parsed. Let's take the second one. Got a competition in me. I don't like to see other people succeed. There will be blood.

You got a little competition in you. You're a competitive person. You were the head of your rugby team. That's like, I think your avatar is you with like, war paint under your eyes with turtle over you. If you're an ambitious startup, you can't have an old sluggish banking service slowing you down. No, Mercury is banking for ambitious companies

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Talk about competition and the, I think it was Roloff, who said this to me. Like, you know, there are certain people who have like a little overdrive. They can put it into fifth gear, six gear. They can hit the afterburners and get that little extra 20%, which I interpreted as that competitive spirit, that next gear. Why is that so rare? How do you identify? You know, I find, why is it so rare?

You've got to have a chip on your shoulder. There's got to be something. You know, I know for me, my hypothesis for me is that I'm the oldest of five. There were four of us in four and a half years. And in a way, I had to compete for attention for my parents, you know. And so for me, achieving was my way of getting attention. And all, you know, and so that was, that was what it was for me. Everybody has their own thing that, that, that creates that competitive spirit.

And I think there's probably a feedback loop that also happens, which is that you are successful and it fuels it, right? And so whatever it is, like you want someone, this stuff, it's really freaking hard, right? Like building a company that indoors that is, you know, able to be eventually one of those kind of rare, iconic, independent companies, it's a relentless pursuit of excellence. It's, you know, you have to be so vulnerable and admit how little you know. because you're constantly in the biggest job you've ever had. Like, you're constantly growing, being challenged, you know, feeling like all the things that you don't know or all the mistakes you're making.

Like, it's just part of being a founder, being a CEO in particular. And you have to have a drive that's going to get you through that. Mission is one of the most important drives, right? Like just feeling so committed to the reason why you started the company and the first place and what your customer needs from you. But there's there's another thing that I think creates that overdrive and it's that desire to win that pushes you, you know, winning is hard, right? Like you, I was a competitive swimmer and like, man, the hours that I put into the pool and like the race itself, there's there's so much discipline that comes there, but it's really hard

to answer your second question, how do you see it? I don't think people, people just become competitive out of nowhere. I think people that are competitive have a track record of being competitive, you know. And so I seeing that, it's, I remember when I used to interview for the analyst position at Bessemer, to be an analyst at, you know, one of these junior people, cold calling companies, you have to be persistent. and I would always ask the candidate, like tell me a story of when you were persistent, and they would always have a story. And then I would say, tell me another one. Tell me another one.

Yeah, the third one. And the same thing would be competitive. You and I could do three hours on competitive moments in our life. Yes. And I was, I just, somebody just did a retrospective of me of the Silicon Alley days. And they're like, oh, we heard these four stories of your magazine and whatever. And I said, yeah, I was deranged in my. Competitiveness. I felt that anybody who had a win that meant I had a loss when I, and it was even in

categories where I had yet to build a product. So there was some newsletter called at New York that was a weekly. And I had the biggest magazine, one of the top five magazines in New York, so an hour reporter was booming, 12 million in revenue. But these guys had a weekly and they would beat me to news stories. And I would stare at the ceiling if they scooped me on a story. It would my teeth would grind. And I went to my team and I said, Silicon Allie Daly. I wanted up and running today.

And they're like, this is in 1996 or seven. And they're like, what is that? I'm like, a daily email newsletter about technology companies. And they're like, hey, boss, we need time to do this. I don't give a, I want it out. We're starting this week. First email is going out today. Give me a story.

Like, that's competing with the magazine. I don't care. We have to destroy this company. And this company was like, two great journalists. I was psychotic in my belief. And then, you know, my co-founders are all in now. You know, we're like, okay, we have to create this conference. It's got to be the greatest one ever held.

It's got to be better than Ted. It's got to be better than everything that exists in the marketplace. And, you know, the three compatriots I have on that are also lunatic competitors. And so it's either you have it or you don't. And it makes people uncomfortable, I know. But, you know, that's the weird thing about entrepreneurship, I think, in 2023. versus, you know, I guess I think you're a Gen Xer, maybe you're

I'm on the cusp, I'm a millennial. You feel more JetX than millennial to me. I'm going to take you for the Gen X side and the draft. I'll take it. But, you know, it's uncomfortable for people to talk about competition for some reason today. Yeah. With the, you know,

what if you guys got participation trophies and all this kind of stuff, like throw it in the fucking garbage. It's worthless. Your participation trophy means nothing. why is this I difficult for people you think to understand that like there's winners and losers in the world? I wish I understood that. I wish I knew. It's it's it's it's part of this culture that if I were to reflect just, you know,

there's a reaction against capitalism. There's, you know, this desire that you should be able to have your cake you need it to, you know, success and life and it's terrible even you know these are the types of areas where we could talk about where people get canceled on Twitter you know like all the time and I remember the stripe founders Patrick almost sheepishly saying like just you know I had we had to work really freaking hard to make Stripe a success I don't know another way of doing it and I'll say though I meet a lot of founders now, young guys and gals that are really freaking driven and obsessed. And so I think there is, you know, a snapback.

I hope there is because I don't see how people build companies that matter without that drive. I mean, the world needs somebody to create innovation, great companies, to move the human species forward, you know. and competition is part of that. And it's actually a beautiful, great thing. You know, there's been great moments in cinema where people were competitive each other. You know, Scorsese and Francis Fort Coppola and Oliver Stone, all that generation. They wanted to one up each other. Spielberg, George Lucas.

They all wanted to make the next great film. We saw it in poetry, authors. We saw it in rock and roll. Like, people wanted to one up each other. but it's in a healthy way. It doesn't always have to be deranged and sociopathic, and the world must move forward. AI is this incredible innovation that I don't think any of us saw,

and I'm interested in your position on this. Oh, I'm predicted it all, Jason. I predict it. I mean, we all predicted it's going to play a bigger and bigger role, but did any of us predict it would do that in nine months? Because here we are. We're taping this in September of 2020. And I think chat GPT 3.5 came out in October and November when it wanted to come out last year.

Yes. It has turned the entire table over in our industry. It would be as if broadband came in 1999 and everybody had it the same year. So maybe talk a little bit about how fun this is and how much it's changing everything and every pitch and every startup. Oh, gosh, how could I synthesize that? I mean, you know, most innovation, you know, most new experiences, new product experiences happen, usually are preceded by some technology catalyst, right? And you talked about broadband, that's a technology catalyst.

You know, adding the camera or the GPS to the phone that you hold is technology catalyst. And so, wow. It's, and what's also, I think, part of what is so transformative or just why it's so disruptive right now is that it used to be, I always think of it as like a color palette. Like, you're a painter. As a founder, an entrepreneur, you're a painter and you, you know, what happens sometimes GPS gets added to the phone or a camera gets out to the phone. And all of a sudden, you have this new color with which you can, you can, you can,

paint a new picture, right? What, you know, Instagram, Uber, like those are all kind of of taking advantage of new colors that you have on your palette. What happened with,

with large language models is that instead of it just being a color, it's, you know, metaphorically and literally giving you the picture. And the, and it just means that

that kind of, the ability of so many companies then to take advantage of this technology at the same time very quickly, it's remarkable. And it's a type of thing where we think about natural language, right? If you can have this interface to this incredible, powerful model that is one that every single person can easily use and understand, I mean, it's just the pure democratization of that type of technology when usually it was, you know, through the, the, the, the kind of interface that a developer would create for you.

So it is, it's touching everything. Yeah. And it's, I have a punch up for your framing for your next subset. The palette didn't change. Canvas did. Explain more.

Well, if you think about it, like what you're putting all of these experiences and these features onto, the whole thing has changed now where there's a, there's a whole new platform that can solve the problem. And you wrote a really good blog post about like augmenting people or just solving the damn problem for them. And I really liked your framing of this piece.

This was, I think, your best piece of the year amongst a good one. I give this one the kind of award. Because you went to a website for business process outsourcing. And this is a very interesting device you used. If you go to a BPO website, these are people in India, Manila, you know, knowledge workers who cost a tenth of what the knowledge worker would cost here in the U.S. A fifth, whatever it is. with globalization and they can take something that a lawyer does that's on the low end of the spectrum and just get it done and you can outsource to them just like you might be able

to Amazon Turk. In a way, this new canvas that we have can just do the entire thing. You don't just make the lawyer at Wilson-Sincini 10% or 20% better at doing some litigation task at doing some IP task or trademark task. You can just do the task. Right. So maybe explain your thesis here and what you're seeing out there on the playing field. Sure. And there's more, we can, you know, let's bookmark just talking a little bit more about that because there's something about, you know, how much of the work is the large language model doing and how do you build enduring value if you're one of these companies. But the thesis, you know, when you have a technology as powerful as a large language model with so much. of what we talked about before, it's really a paradigm shift. And what tends to happen when you have a paradigm shift is that the first wave of

companies of applications of that paradigm are in the mental model of the prior paradigm. And usually, you know, we talk about skemorphicism as a way of describing some of what you see at a design level. And the thing I was reflecting on is that the first wave of companies, leveraging large language models or generative AI generally, were extending the mental model that we've had for the last 25 years in application software development, which is about increasing the productivity of an employee, the team collaboration, the company, the management's ability to better manage the team. But all those things are about increasing productivity. And all

those companies, they were all about increasing productivity and then charging on a per seat basis that was essentially benchmark to the price of that employee, the cost of that employee, and your ability to move their productivity higher. It's why an HR startup has a harder time than a developer-oriented one because the HR employee is a lower cost employee generally than the engineer. And so you have... We see this manifested in Percy pricing. This model has taken off.

Percy pricing is like, hey, if you're a salesperson, $2,000 a year for Salesforce. If you're a developer, $4,000 a year for this tool, and it abstracts in some way, as you're pointing out, to their salary. Correct. That's exactly right. And that actually also then has dictated where these application software companies have been built, what verticals they can go after, because you have to have a go-to-market that is getting software in employees' hands, having those employees start to use that

software actively, whatever integrations you have to have in order to do that. And there's a certain cost to that and a certain value to the seat. And so it's meant that some verticals just haven't been penetrated by software companies, which is, you know, very hard to find right now. Right now it's been feeling, and this is, you know, Parker Conrad's point on compound startups is that there's been so many point solutions in SaaS now because everybody's been looking for these like little pieces of white space after the big opportunities have been taken.

And so then the first generation of these startups leveraging LLMs have been in that same mental model of let's sell software to, companies that increase the productivity of their employees. And, you know, the co-pilot for X idea is a reflection of that. And I don't mean to poo-poo it. It's certainly extremely valuable. The risk that I feel is that, you know, there's always this feeling of, there's an expression. The startup has to unlock distribution before the incumbent unlocks innovation. And one of the the challenges with playing and this kind of extending this mental model of productivity is that you're playing the incumbent's game on the incumbent's turf. You know, like who is going to be

better positioned to offer this type of software to employees? It's the company that already has software they're using every day. And because of, you know, the analogy we described before of like the canvas, the large language model is doing so much of the work to create the step function change in productivity for the employee that it's been incredibly simple for incumbents to add this type of productivity improvement. And go ahead. No, I just noticed it today because I use a wonderful piece of software called Speechify. Oh, yes.

And Gwenith Powell's voices in it. she's an investor, she told us at the Holland Summit. And I can take a New York Times article that hasn't been, you know, and I can just listen to it in Obama's voice or Guadapalra's voice, whatever it is. And that's better for me if I'm walking around or my eyes are hurt from too much screen time. And I noticed today in the app, it said summarize this article with AI. Now, I would normally do that by opening up chat cheap, PT4 or bar to putting in the URL. Now it's there.

So, and then, uh, notion, uh, and, uh, notion, uh, and, uh, And Koda, which I love both of those products and we use them at all my companies, that has it. And then I just saw at Dreamforce last week that Slack is going to have, and they've been the slowest of everybody. I mean, my God, that company's product velocity is horrific right now. It really got to, and Beninov's got to, you know, really get somebody down into the trenches there and get Slack grinding again. But they added something that will summarize all your, what you missed, you know.

while you were away, here's what happened on Slack. You know, the little catch-up when you watch the next episode of your favorite streaming show. Like, I need that. If I'm off for two days or something or I'm off for 10 hours, I love that little recap. But just that, that call. Probably to your point, it's de minimis to add it to any product. So it is. And so.

Starups must do more. What must they do? Yeah, they have to do more. And there's what I think about, and, you know, I wrote in my blog posts even up as just probably the best example I've seen of this so far is don't play you know in a way

you always are looking for if you're a sub-scale startup you're looking for the jujitsu move and what's the jiu-jitsu move? There's an element of the monetization model of these incumbents being on a per seed basis is

an Achilles heel. It's a vulnerability you can take advantage of but you also So kind of think about it as like there's there are some verticals, some areas where actually, if you leverage a large language model, you can pick off work products. You can pick off something that you usually need a human to do, but it's transactional enough. It's kind of more of a repeat. Oh, yeah, thank you.

Rinse and repeat. thing that you do that leverages some of what large language models are so good at, if you can find those work products and then translate that into a product that you sell

a work product that you sell to a customer, then you're going to be better off. And so let's take Even Up as an example. And we're showing it here on the screen, EvenUp Law.com, if you want to go check it out and play along at home. So these guys are, you know, incredible and I talked about them in my post because I feel like they are well on their way to escaping competition. So what happens when you're a personal, God forbid, any of you ever have to

hire a personal injury lawyer. My mom had to. She got bit by a dog. And what happens is that you, you know, you hire a personal injury lawyer. They get a contingency of a third of whatever your settlement is from the insurer. And you, you know, you hire a personal injury lawyer. They're, they get a contingency of a third of whatever your settlement is from the insurer. And you, my mom gave her personal injury lawyer all her medical records. You know, you talk about pain and suffering, loss wages, whatever it is. And then what the lawyer does is they summarize all the medical records into something called a demand letter.

And the demand letter is a summary of the case, you know, loss, like everything, and then has a demand on what they think the settlement. should be. Now, this is a work product that personal injury lawyers who are super busy, spread across so many things, are usually trying to fit time into their schedule to get done. And what even up realized is that they could use different techniques, including LLMs, to automate the creation of these letters. And they sell that to a personal injury lawyer on a, you know, on a, think of it as as if you were selling it on a per demand letter basis. And it's a completely different paradigm of selling the go to market, you know, I'm just selling a product.

You send me the medical records will give you the finished product. It's, the pricing then is based basically as, you know, you think about it not as a productivity improvement, 15% productivity improvement. You think of it as like a 95% productivity improvement. Yes. And what would the costs of the headcount have been if they were having to do it themselves? You know, the loss, you know, it's a pretty simple thing to do. I have a company like this as well. And so you can't sell it on a per piece per seat basis.

Correct. Because this can do an infinite number of them. And so selling it on a per report basis makes more sense. And if your cost to do it internally was 10 hours. of a person's time at 40 bucks an hour, that's 400. Hey, we'll do it for 50. We'll do it for 100, whatever it is. That's right. And if you have 10 this month, great. If you have a busy month next month, you have 30, great. But you're not paying for seats. That makes no sense. We're just going to charge you 5 or 10 percent of whatever your cost is. I'm making that up.

But you see this in other arduous, painful jobs. And there are white collar jobs that are repetitive, arduous, and nobody wants. SDR comes to mind, sales development, right? You're in SDR. You got to get leads. You got to warm them up. Perfect job for AI. Lead IQ is the company we have that's doing this kind of thing. And I think everybody's got to just start thinking about these businesses and maybe a new business model.

And proceed business may, you know, work for some co-pilots and stuff like that. But that could be a big change, huh? And it's, you know, it's so interesting to me to think about what EvenUp could have done. They could have sold software. And instead selling the work product, you know, when you think about personal insurance, lawyers, it's not exactly like there's a software company that's going after that, you know. No. They have changed the equation on a market that, you know, wouldn't have otherwise been profitable to go after.

But when you've changed the product that you sell, and instead of selling software, you sell work, you actually open up markets that wouldn't have otherwise been viable for a software company. and that creates, you know, blue ocean opportunities for stars to go after. It just clicked for me. There's not enough seats to sell, but there are enough reports to run.

So we're changing our perspective on what's possible. You're not just, because, yeah, you go into personal injury attorney, paralegals or assistants or wherever's doing this work. How many of those are there?

How much do they get paid? What is 10% of making them more efficient? Right. It's a blue ocean opportunity. Startups see, you know, were able to launch for a fraction, a fraction of the cost of startups just a decade earlier when the cloud came out.

And startups that weren't even possible, like YouTube, maybe Instagram, you know, these type of Dropbox comes to mind as well. They required massive storage was expensive, bandwidth was expensive, and even processing power

and cameras were expensive if you wanted to do a filter on a photo, My God, Photoshop and a powerful MacBook Pro is what was necessary. And then maybe you got to get the creative suite from Adobe. And then Instagram abstracts it into a phone, smartphone. Wow, incredible. So I guess my question to you is you see startups needing less money to achieve greater goals. And then what does that do for your business as a Series A investor?

I would like to correct the record. I'm not seeing startups need less money. Not, I mean, if you were to compare in 2021, but if you were to look at a, you know, regression over the last 10 years, it feels like, you know, even there's a lot of companies right now and that are playing with large language models that think that they have to eventually train their own model, fine tune. That's not cheap. Right. And so, yeah. go ahead. Well, as I say,

that, yeah, it takes a lot of big R in at this moment in time, but we did see cloud computing lower the cost of having to buy a million dollars in servers, right? Absolutely.

So I guess I'll, I think it's a good point, because those AI companies are an exception, but the average startup, might they need less developers, if developers are going to be more, you know,

effective at what they do, or is it just going to be steady state? I'll just redeploy that money into marketing or something. What I see is that the average round is larger now than it was in 2018. And, you know, there's more companies, more competition, more venture capitalists with bigger and bigger funds.

Yeah, that seems to be a big driver. It's a big driver. And then, of course, like a lot of these AI companies, like, we are still so early. We're so early. And one of the things that, you know, I see is that a lot of the tooling that, you know, you rely on when you're as an application developer to be able to build and scale something still hasn't been built. And so a lot of these companies are having to recreate the wheel on a lot of different things in order to try to leverage large language models in a production system.

An example of this. The model, the underlying model that you use is changing. You know, you don't control. If you're using open AI, you know, there's, there's something that can shift beneath your feet all the time, or there's the own work that you're doing to fine-tune that can have so many downstream effects that are harder to anticipate. And so you build kind of test queries as an example that you use to then understand is the experience that my users are getting

from the large language model consistent with what we've had in the past, And so these are things that you kind of have to build from the ground up, the human evaluation, how are you going to get a human in the loop on a lot of these things? And it's all pieces that companies have to build from the ground up right now in order to deliver on an application experience. And that takes engineers. And so there's just a lot of investment that still has to happen in these companies. How does benchmark or how, how,

have you stayed competitive in a world in which there's many more venture capitalists, many more people trying to get to the Series A stage, you know, when Bill was at the firm, you know, whatever, 10 years ago, like 20 years ago even, it seemed like a much different playing field. Now, you're, you're not just competing with Sequoia and Kleiner and whatever, you know, little clubby, Sandhill Road, you know, hop that founders could do. You got funding from sovereign wealth ones who want to invest direct. You got people all over the globe competing, you've got all these new funds competing. And let's face it, people are running up the valuations because they don't have reputation.

So what they do is they will offer more money than benchmark. They can't beat you on reputation or track record, but they can beat you on price. So how do you maintain discipline when, you know, people are running up the price versus you in competitive deals? How do you think about it? You're close with Bill. You know how he says. You always play the game on the field. I'd say, though, that part of my answer to that and part of the conversation we always have with founders, and you know, in the very beginning of this conversation, you talked about how one of the selection biases I hope I have is a founder who's thinking, you know, a decade out working backwards from there.

And there are founders for whom getting the cheapest capital. at that financing and like, great, if there's no board seat even better, there's some founders for whom that's the right fit. We don't need to play for that founder. What we want is the founder who is going to be thinking about that decision on a decade long journey that they're going to go on and that they want to build the best because they're that competitive person who knows that they don't have all the answers that wants, you know, to be surrounded by the best people they possibly can be at every step in the way. What's the partner look like that they can they can work with through that journey? And so it's not looking at it just as an optimization for that round.

It's an optimization over the course of the journey that you're going to be going on. And that calculus for the founder, for whom we want to serve and attract, tends to be a clearer decision. Yeah, I have my own filter for this as well. It's like if you're going to argue over meaningless points in standard documents and we have a discussion about, like, I've gotten back the standard documents with, you probably have this happen, you know, 20 changes in them. And you're like, well, why are we not using the standard documents and, you know, all these changes to these documents? it's going to screw up the next round. It's not actually in your best interest. I mean, forget about like you're taking away some of our rights, whatever. As investors, we can debate whether those are important or not. But the next set of investors is going to want the same thing. So now you're

going to have this battle again. And then what does it say about a founder who doesn't want to build proper governance in a company and doesn't care about who's on the cap table? That's a level of, you know, biopic thinking and optimization. that is likely going to send them off a cliff. Because a lot of times the people who would take that deal are stupid. Or they're as cutthroat. And then now you got two people with myopic thinking and cutthroat thinking on the same cap table. The person who's like, I know I'm overpaying, I know I don't have rights.

But screw it. I need to get into this deal. And then this founders got this cutthroat thing. Like, what is that company going to look like in three or four years? I mean, you didn't say it as. It can be challenging. But, and look like, you know, At the end of the day, like, the reality is, is that in the opportunities that we, you know,

are spent time with, the founders that we're getting to know, I don't think I've ever seen one of these, like, sovereign wealth or, you know, big, multi-stage. Strategic. Yeah. It's never, it's, it's never come up. And I, and there's probably some filter that happens before we even see it of, you know, you know, the founders that want, you know, a partner and that, and with whom we end up really wanting to serve and, and the vision that they have, they're, they're already thinking about

the game a little differently. Yeah, the strategics. I'm curious, like, how often you see those come in, but man, when I see them come in, I'm just like, red flag, red flag, like, this person, these strategics, man, they cost so much problem if they get in too early. And too early, it can be, it can be tricky. The, you know, this AI world. Explain why to people who, you know,

a founder who for the first time has some, you know, big handset manufacturer or, you know, social network, want to own shares in their company at the Series B, you know,

and they want to do the round instead of a, you know, classic financial interested party. Explain why that is weird. It's a few things. Number one, it's like,

you know, at the end of the day, do you want a partner at the board who is going to be, you know, thinking about only the company and it's, you know, what's best for the company working backwards from there? Or you're going to want someone on your board who has this other incentive structure, usually because of whatever organization they're part of, that ends up affecting kind of the council that you get from that. from the partner. The second, you know, and it's kind of related, which is,

I remember when I was at Pinterest, we, you know, one of my first jobs at Pinterest actually was to close our Series C financing, which was with, with Rakuten. And Rakuten's an incredible Japanese conglomerate.

And, and then, like, my next job was, you know, localizing Pinterest. We were only in English. And, and so, what were the first languages that we were going to support. Japan is a very unique world, right? There's a little bit of a Galapagos effect there

in terms of kind of consumer social. And so there was this, you know, influence, you know, a small kind of on the scale of which countries to launch first, this, you know, light thumb pushing on Japan, you know. And there's no question. forward Japan, in my recollection, we pulled forward Japan ahead of when we would have otherwise done it because we had racketon saying, you know, let's do Japan. We're excited to support you. We'll help you in all these ways. And it's a very subtle thing, but, you know,

building a company is already difficult enough. And when you add any distortion in your decision making to serve a third party that you might not have to otherwise have served, it creates some challenges. And then the last thing is always just the complexity that it creates when you're thinking about M&A. You know, and we could, you know, open that kind of works up. If you were going to sell the company, it went an IPO, obviously, but if you were going to sell it, Rocket Town would be like, okay, we'd like to buy it.

And okay, well, what's the price for them? And they're on the board. and then who are the other buyers, just the nature that there are other buyers would tip off Rockatine and make them be able to compete better in the bidding process. So now you've distorted the bidding process.

Right. And what acquires worry about is, oh, there's a strategic, they probably have a right of first notification. And so if I spend all this work, do all this work internally to get people excited about this acquisition, and then I make an offer,

and they tell them, strategic investor and then they counter did I just, was I just a stocking horse, you know? And so there's a little bit of that effect that you have to neutralize. And to translate the first point you made for the audience, the compensation you and I get as being fund managers, GPs, general partners in a fund, well, you guys get 25, 30% because your benchmark, I get 25%. And then most get 2 in 20 and it's management fees and 20% carry. What that means is your stock.

price goes up in Pinterest or whatever startup it is, Uber. We only do as well as your stock price does. And, oh, by the way, you have stock price too? Oh, you have shares as well. Okay, all of our shares go up. We all win equally. Now you get somebody who's on it. They're the VP of BizDev corporate development at some big company.

They're just trying to make the board and the CEO happy. That's how they get a raise and a bonus. They don't get 20 or 25 or 30% of the increase in our share price value. they get some strategic value from this. And then they're taking their product roadmap, your product roadmap, and then they're putting them up on a board and saying, when does this company hit our strategic interests? And now I'll add that as a fourth, which is,

when do these things start overlapping or competing against each other? And Rockatans, like, you know what? We learned so much on this board that on our e-commerce site, we edit a share button. But don't worry, it's just a share button. Right. And then, oh, you know what, but you can share multiple things. So we just made a profile page.

with a couple of things you've shared before, but it's not competitive. And then, oh, yeah, now we make collections, but they're not called boards, but they're collections. Yes. You're right to highlight this. Amazon was in particular notorious

for these types of moves in the beginning. Yeah. And then Lena Khan came along and wrote her thesis on why Amazon is horrible. What's happening with M&A in the era of Lena Khan and the EU basically saying,

whatever you want, we're going to say no, just because we hate tech. So by all means, you know, we don't give a, we don't care, we put an expletive there, but we don't care expletive of your choice. What the law says, we're just interpreting tack M&A equals bad. And we don't even care of that.

It's great for a consumer that these companies would be part of the same group, but maybe some relief with Microsoft winning their case and offering more to consumers then was asked, right? They're like, yeah, you can be on Xbox or whatever, we don't care. So maybe talk about your thoughts on that. And what's the back channel in our industry on M&A?

You know, well, I think a lot of people are watching what happens with Figma and wondering what's going to go on there. You know, I think the bigger challenge is that you have most public companies that would be acquirers still in a bit of a defensive crouch. You know, like there is still this transition. that a lot of companies are going through where there's a little bit more defensiveness in their posture as opposed to thinking offensively of what are the moves that we can make to really, you know, expand our opportunity. And it's a natural, you know, after shock or kind of effect of just this

change in the interest rate environment and all the subtle things that that tends to affect. And every every decision to make an investment is just much more expensive than it used to be. And so I feel like that's the bigger thing. You're starting to see some, you know, more offensive moves, more kind of people thinking more about the future as opposed to reacting to some of the decisions they felt like they may be made in, you know, in the past that got them into, you know, overhiring being the big one. but we're still thawing from that. Yeah.

We had Whoop on the show this summer, met with Amazon, wanted to invest, passed on investing after meeting with them, and then wound up launching competing products. That's episode 1,786, 1786 for super fans who want to double click on it. Do you think about macro as an investor, or do you just think great founders, product, market fit, company building?

You know, we obviously are affected by the macro, like, you know, all of our companies that were invested in can't ignore it, but ultimately you're investing in a great founder who sees something other people don't see. If there was, you know, maybe the one thing that you do feel is certainly, I think it may have been Bill who said this, that you can, almost feel how much you're into a bull market by the gross margin of the startups that people are investing in. And certainly with the zero rate environment, the bull market, you've tolerated lower and lower gross margin businesses. That's not the case today. I can't tell you how many companies I meet now where on their slide, they talk about burn ratio. You know, how much did they have

to burn in order to get to the ARR, let's call it, that they're at now. And I love that people are thinking that way. It's healthy. It's so healthy. Ultimately, this is what startup businesses should be, venture businesses are opportunities where you can take small amount of capital and have a huge multiple of value that you drive from that. and we lost that a little bit over the last few years

and so now people are really coming back to it. My big trio, CPG, becoming a venture business. Like, really? I'm not so sure about this one. Yeah. I mean, there could be differentiated products that have technology in them. I think eight sleep falls into that category, very, you know, high-horse margin business.

But then, like, 15-minute delivery, like, okay, nobody needs to 15-dim in delivery. Like, even if I forgot my shaving cream, like, I actually don't eat 15-minute. Like, Uber eats, delivers, DoorDash, delivers, grocery stuff. Like, one hour's just fine, 45 minutes, just fine, 15 minutes. Like, what am I? There's very few things that somebody needs in 15 minutes. Yeah. And then, of course, like, BuzzFeed is worth like $50 million right now.

And, you know, like, who is investing in a media company? Listen, I'm a media guy. I love media. I build many businesses. There's no, media businesses are for people who are passionate. about it who want to build a 10, 20, 30, $30, $40 million a year business. If you love it, great. Or if you're a rich person, you're Bezos and you want to own or you're Benny Off,

you want to own Time Magazine and Washington Post or I guess Lorraine Powell now owns the Atlantic. You know, like if you love it and it's like, you know, owning a hotel or resort, you know, kind of thing. And great. It's a bespoke, you know, business for you. But that is not where we should be spending our time. There's no gross margin in those businesses. All right, Sarah, it's been an hour plus Sarah Tavo.

Read her substack, go to Saratavo. Oh, and I asked you about your portfolio. You never want to talk about your companies. Why don't you want to talk about your investments? You're trying to keep them stealth or you just don't want to be taking credit for them? What you're thinking here? I think 99 times out of 100 announcing a financing serves the ego of the investor over the purpose of the company. And, you know, especially, you know, I'm a student of dominating competition, right?

Like, how do you build one of those businesses that, you know, isn't just number one in a pack, but like number one by a mile. I have this Usain Bolt image that I love on my Twitter. And there are very few things you get out of doing an announcement at the very early stages of a company besides educating people who are thinking about what they want to start. Yes. Yes. And, and, you know, I could imagine someone saying, and by the way, the other big thing for it is that it catalyzes incumbents to compete with you.

You know, like I, you know, I hate hype. I think hype hurts companies so much. And I can't help but think about kind of the clubhouse early days. where this small company, small team, incredible founders trying to build something. And the hype cycle that got created around Clubhouse was so great that it catalyzed Twitter. That Twitter is not a company that builds things quickly. And wow. Holy cow was that activating to Twitter.

That hype felt existential to Twitter. and it got them to act and added spaces to Twitter. And here we are. All these people. And here we are. And so it's just particularly in consumer social hype is the worst thing. But generally, and especially in this world we live in now, where it's so much incumbents are not fools.

They are moving really quickly. They are innovating. And I would rather keep something a secret as long as we possibly can and then surprise people, then pound my chest about the company. I like Super Great, though. Can I mention Super Great? I love those guys. What is it?

What did you make that investment? For me, you know, the first thing was the founders, which is Tyler and Dan. Just incredible founders whom had a great partnership were, you know, really committed to what they were doing and had a unique point of view to what they want to do with Super Great. And the second thing was, I think there was a little bit of unfinished business for me from Pinterest, which was like Pinterest was this UGC site, but you couldn't control what people brought into Pinterest. It was, you know, and so you would click through on a pin and it could be to, you know, a dead link or whatever it was. And so it made it difficult for Pinterest to get into commerce because you didn't, you never trained in the users. Never knew what you're going to go.

Yeah. You never really trained the users to trust clicking through, I think. And super great was 100% products and a UGC site around that. Around makeup and beauty. It's awesome. Around beauty. And what was cool about beauty is that super long tail of products, you know, the Shopify world has made it so that there's like so much more fragmentation,

new brands coming around all the time, high gross margin products, easy to ship and felt like there was an opportunity to build something. Awesome. An hour and a half with Sarah Tavel. Will you come back next year? Can I get you to pre-book you for next year? Always.

That's all I ask. This is my new thing with my all-stars. I just say, hey, one year from now, because you'll make that commitment and my team will hold you to it. Now the audience is in on it, so they can't wait for September of 2024 to get an update from Sarah. You're amazing. And we'll see you next time.

Bye-bye. Awesome. Thanks, Jason.