This Week in Startups - Building Enduring Value and Hitting Incremental Gains with Benchmark’s Sarah Tavel | E1983

Episode Date: July 22, 2024

This Week in Startups is brought to you by… Squarespace. Turn your idea into a new website! Go to http://www.Squarespace.com/TWIST for a free trial. When you’re ready to launch, use offer code TWIST to save 10% off your first purchase of a website or domain. LinkedIn Jobs. A business is only as strong as its people, and every hire matters. Go to https://www.linkedin.com/twist to post your first job for free. Terms and conditions apply. OpenPhone. Create business phone numbers for you and your team that work through an app on your smartphone or desktop. TWiST listeners can get an extra 20% off any plan for your first 6 months at https://www.openphone.com/twist * Todays show: Benchmark’s Sarah Tavel joins Jason to discuss strategies for competing in a changing venture landscape (9:12), the critical role of governance and accountability in startups (19:39), the relationship between hype, investment decisions, and startup promotion (55:20). and more! * Timestamps: (0:00) Sarah Tavel joins Jason. (1:38) Sarah Tavel, Benchmark Partner, on disciplined fund size and efficiency (5:06) Benchmark's commitment to founders and investment strategy (9:12) Strategies for competing in a changing venture landscape (10:00) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at http://www.Squarespace.com/TWIST (15:50) Valuations, ownership, and building deep relationships with founders (18:30) LinkedIn Jobs - Post your first job for free at https://www.linkedin.com/twist (19:39) The critical role of governance and accountability in startups (28:36) OpenPhone - Get 20% off your first six months at https://www.openphone.com/twist (30:16) The power of incremental improvements and executive limitations (34:32) Vanity metrics vs. building enduring value in startups (43:12) The consequences of choosing status over results in startup success (46:22) Building trust in leadership and the pressures of maintaining success (49:03) The importance of non-consensus bets and independent thinking (55:20) The relationship between hype, investment decisions, and startup promotion (58:19) In-person work vs. remote work: Impact on startup productivity (1:02:58) SaaS market challenges: Pricing, AI impact, and future models (1:07:33) Exciting AI investments and the transformative potential of new technologies (1:13:01) AI advancements, new use cases, and the competitive landscape (1:17:16) How incumbents and consumers are benefiting from AI advancements (1:19:15) Embracing AI in daily tasks and business operations * Subscribe to the TWiST500 newsletter: https://ticker.thisweekinstartups.com/ Check out the TWIST500: twist500.com * Subscribe to This Week in Startups on Apple: https://rb.gy/v19fcp * Check out Benchmark: https://www.benchmark.com/ * Follow Sarah: X: https://x.com/sarahtavel LinkedIn: https://www.linkedin.com/in/sarahtavel/ Sarah’s Substack: https://www.sarahtavel.com/ * Follow Jason: X: https://twitter.com/Jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Thank you to our partners: (10:00) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at http://www.Squarespace.com/TWIST (18:30) LinkedIn Jobs - Post your first job for free at https://www.linkedin.com/twist (28:36) OpenPhone - Get 20% off your first six months at https://www.openphone.com/twist * Great TWIST interviews: Will Guidara, Eoghan McCabe, Steve Huffman, Brian Chesky, Bob Moesta, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland * Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow TWiST: Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin Instagram: https://www.instagram.com/thisweekinstartups TikTok: https://www.tiktok.com/@thisweekinstartups Substack: https://twistartups.substack.com * Subscribe to the Founder University Podcast: https://www.youtube.com/@founderuniversity1916

It's hard. Like when you're a CEO, there's a learned ruthlessness that ends up happening, which is that you have these relationships with the people on your leadership team. And by the way, your leadership team has the people on their leadership team that you develop relationships with that you want to be nice. It's, you know, five temptations of a CEO is like an incredible book. Every CEO should read it. The thing about wanting to be liked is like an Achilles heel that we all as humans have. It's a very difficult thing. have a lot of these hard conversations. And so you have these executives and they are not pulling the company up with them. They're being pushed up. When you have too many of those, it's one of those things that even one executive for too long who's being pushed up with whom we're not having a hard conversation really has these ripple effects that you always look back and wish that you had made a decision sooner and faster. This week in startups is brought to you by Squarespace. Turn your idea into a new website. Go to Squarespace.com slash twist for a free trial. When you're ready to launch, use offer code Twist to save 10% off your first purchase of a website or domain.

LinkedIn jobs. A business is only as strong as its people and every hire matters. Go to LinkedIn.com slash twist to post your first job for free. Terms and conditions apply. And open phone. Create business phone numbers for you and your team that work through an app on your smartphone or desktop. Twist listeners can get an extra 20% off any plan for your first six months at openphone.com slash twist. All right, everybody. Welcome back to this weekend startups.

Really excited to have Sarah Taville back on the program. She's a partner over at Benchmark. I think she got there around 2017 before that. She was at Bessemer. Before that, she was at Pinterest for a little bit. And I think you found out about Pinterest when you were at Greylock, because you did the investment and then you joined the company, right, Sarah? Almost Bessemer as when I found Pinterest.

And then from Bessemer went to Pinterest. That's your big win. Details, details, yes. That's your big win. It was a fun one. Yeah, I mean, incredible. I actually had dinner with the founder recently. It's really sweet.

It's great. Anyway, just to give a little brief intro here, I think looking at benchmark, looking at your career, it's really been interesting to watch how the venture capital game has changed. You and I have been in it actually about the same amount of time, about a decade or so. And, you know, all these firms are raising larger and larger funds. and benchmark is just so disciplined. I read in the papers and the trades

that you're just closing a fund. I'm not sure if you can talk about it or not. I know there's a bunch of rules around that, but I think the latest fund is $4.25, yeah? Yes. In my notes here, it says back in 2004, Fund 5 for benchmark was $400 million. So a lot of discipline on having a specific size fund

and a specific type of fund. And so welcome back to the program, Sarah Tavel. How are you? Good to see you. Good to see you. I love having you on every six months because you're dynamic. You're doing a lot. Let's start with the fundraise. Were you involved in it or is it just benchmark is such an institution now that everybody just send them an email and they're like, yeah, we're in and they just give you the ticket size. How does it work at a legendary fund? We're very lucky to have a great group of partners that have been with us for a long period of time. And so when you are not expanding the fund, the core fund, it makes that process all. a lot more efficient. And so it was just a nice, nice efficient process. And we're excited for the group that we have moving forward. Do you get involved in it as a GP? Or is it just like so set up that you don't need to like do that part of the gig? We're all involved in some way you can think of it as like

divide and conquer. We just had our annual meeting. So it was all timed in a way that made it particularly easy. What's it like to be massively oversubscribed like that? Like he I get people when I go out to do my fundraising who are like, hey, can you interest me to, you know, Sequoia, benchmark, whoever, the over-subscribed funds. How do you deal with, like, the fact that you have chosen a small fund size and you keep it disciplined? And obviously, the world's changed a lot. Everybody knows what venture is. This isn't 20 years ago when the firm was founded. It's a much different world. How do you deal with all that inbound and everybody trying to, you know, join the party when you got, like, you know, it's a small dance floor. These are, it's a problem.

I don't feel like I've earned the right to have, but we, you know, it's more, it's a benchmark reality. And it's the nice thing is that it's an easy conversation, which is that when we don't expand our fund, anything that we try to give to somebody else means taking it away from somebody else. And that's, you know, we try to minimize any changes that happen. And so it's a very impersonal response, which is like, it's not you. It's just our fund structure. Yeah. And you never know. you know, we are, we do bring on new, new groups every once in a while, but we try to keep it a pretty stable group because we, you know, we're very grateful for the LPs that we already have. Yeah, it's a super interesting. I've had long talks with Bill who's mentored me a bit about it,

you know, having like each one represent about 5% or so of the fund. But let's talk about portfolio strategy, portfolio management. Yeah, $425 million. You have five partners or six at the firm? Five right now. Five, okay. So that's about, 80 million a partner ish, because you got some management fees coming out of that, obviously, about 10% of the life of the fund. 80 million. You guys like to do series A's, I think typically, typically. Typically, series A.

First board members, kind of what we aspire to. Got it. So you want to come in and have some discipline, some governance, typically a $10, $15 million check, I'm guessing in today's economics? Yeah, we, that's probably the median. You know, we have ones that we just did, you know, a pretty large investment in a company called HN, that's definitely outside of our norm.

And then we have smaller, you know, companies that are, we're incorporating as part of our investment that are on the smaller end of that. Got it. So each partner then, if we're just doing this back of the envelope math, they're going to do what,

five, six bets per fund? Is that about the ballpark? Yeah, we always think of, you know, it's on average, maybe one to two per partner per year. So that's a three year, four year investment period? That's been the norm.

Got it. So this kind of discipline means you're investing, you, Sarah, as a partner at Benchmark, just so founders get the idea here. Six companies per fund. Yes. How many new startups per week per month do you meet with? Ballpark. You know, call it five to ten. Got it. So you're very selective, five to ten a week. So if you eight seven a week, you know, you work 50 weeks a year, 350, maybe take a couple weeks off. You're meeting 300 to do two. You bet on one out of 150 that you meet with? Is that about the numbers, if I were to break it down? Yeah, that sounds about right. So for people who are listening, you say no, 149 times every time you say yes. And this is the discipline you need to have to be successful at venture in your mind? It's the discipline that you

have to have for our model of partnering with founders. And so, you know, when we make a new investment, like I just let an investment in a company, we haven't announced yet, but it's in the AI space. And we made the investment a few months ago. And I wouldn't be exaggerating to say that I probably do five related calls per week for that company. We're doing a lot of recruiting. So recruiting calls with a recruiter, first interviews, closing calls, you know, I'm interviewed, like, you know, the founder basically just wants, you know, my judgment on people. And so I'm very, very involved in all the hiring that he does, not to mention, you know, he and I talking all the time, what's happening all the time. And so it's just, it's a level of commitment and engagement with

a founder where every investment we make is really a commitment that we care a lot about the founder. And we care a lot about the company. And so when you have that model of partnering with a founder, you, you, you just don't have, it's not a cat, we always talk about the dollars, but it's actually just, you know, number of hours in the day and our capacity, because we don't have a platform team, right? Our model at benchmark is that we just believe that the core work of being a partner to the founder, especially in the very, very early stages of the company when a small change in the trajectory of a rocket ship can make a big difference, that we don't want to outsource any part of that work to internal consultants. We want to be the people on the calls, doing the

recruiting ourselves. And that just creates a scarcity. And it creates a very high bar for getting to yes, as you're pointing out. But then when we get to yes, it's a very different level of commitment. And that's the model, this kind of core belief that Ventry just doesn't scale, at least this type of partnership with a founder on the journey doesn't scale. And so that level of rigor and discipline in selection then has to meet the real world. And things have changed since the founding of benchmark. You got a lot combinator over here doing 500 bets. And then they've got like a little bit of like, they put their extra 350 in at the

notes. So they're kind of getting themselves 10, 12% of a company, it seems like. And then you have, you know, some venture firms that are, you know, have $10 billion under management. And they have a whole department for HR. And they're doing all of that. And there is one venture firm that just decided they were going to be AWS this week as were taping and they were like, hey, you know what?

We'll just give you $10,000, $20,000 clusters. So apparently, Injoreson is setting up, they're standing up an IT department and where they're renting clusters. No one knows your product like you do, but knowing how to build something customers want is only half the battle. You have to sell it to them. And that's where Squarespace comes in. Squarespace is the e-commerce tool that you need.

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And they're like, yeah, you know, cool people listen to the pod. And we should support that pod. They're the longest running partner we've ever had on this week in startups. And for that, I am so grateful. How do you compete as benchmark in this changing, landscape. And you have to communicate to the founder, your value prop. Yes. Do the, where do the founders, what is the founders feedback when they come back and say, well, hey, this, this firm has a 20 people in their recruiting department. Hey, this person's offering me a thousand GPUs. Hey, this fund just gives me a,

a note that's open and they don't even want to be on the board and they don't want to be up in my governance. Yeah. How do you explain this to founders? There gives and takes for every fun model. and we all, in a way, I believe, probably have some kind of selection bias. You know, my experience when I was at Greylock, which was where I was before joining Benchmark, was that I had this realization, you know, Benchmark had an incredible recruiting team, Dan Prettillo, Jeff Markowitz, and I remember being at Greylock and thinking, oh, this is fantastic. One of my companies, Sonder, was doing a CRO search. I was like, oh, I have the best executive recruiter in the industry of all the venture firms.

So I throw that search over to Jeff. And then he ends up working with Francis, the CEO, on that search. And like Francis ends up playing this game of telephone then. He's talking to Jeff Markowitz. He's syncing up with me. He's trying to give me all the context on the candidates. And it's more efficient for my time. And it's way worse for Francis this time, the CEO.

And what I realize is that those platform teams are more about scaling the GP, so the GP can make more investments than it is about scaling the founder. And so our approach, and again, some founders, like, and I speak to some, they say, you know what, I don't trust myself for these things. I really want to have, you know, the extra help of a platform team. I think that's great. They should work with a fund like in Driesen in that case. But there are the founders who believe that they need to figure these things out themselves in order to be great at them and that they want a partner through that who's going to help them hire the best team around them to be world class and all these functions.

And that's the deep work that we do. And I think the selection bias that emerges with the founders that we work with. Tell me about the portfolio management. You know, the valuations in Silicon Valley have gone up, the Series A space, is the most competitive space. So it's great to be benchmark, great to have this incredible history, great to have, you know, B. Sequoia have all these great things in the world. But there's a lot more firms now. We've got sovereign wealth funds coming in. We've got high net worth individuals. They're backing a ton of VCs. The number of firms has gone up dramatically from, you know, 10, 20 years ago.

It's been a little bit of pairing of it. So that's good. It seems like that's healthy. But that does mean valuations have gotten very high. And the ownership percentage has gone down. So talk to me about how you think about as a firm, hey, we're going to own, instead of owning, you know, in the old days, people used to own 25% in that series A, 20%, now it might be 10. And it's hard to get to 15. You may have to do that over two rounds. So what's the betting strategy? You know, I'm told I'm not supposed to use betting anymore. I'm supposed to say, that's my strategy. So the gambler in me. Do you play poker yet, by the way? Have you gotten into it? No, I'm not. I'm not a poker player. Got it. I'm told I need to get into it. I don't want to play poker with you. I want to play

poker with you for the first year? I don't want to play year three, Sarah. I'll just put it out there. I'll gladly pay for the first 18 months when you're learning. Costs can be high of learning. But tell me about how you think about that, because, man, people seem to have lost their discipline. Entry price really matters. First round of, you know, Uber was 4.5 million posts when I invested. Thumbtack, 4 or 5 million, com, 4 or 5 million. Data stacks, 4 or 5 million. And then I'll have like a Well, I see founder come to me, no shade on YC, but it is a bit of a competition there to see, you know, as one founder told me when they asked for our $20 million valuation, so how'd you come to that number?

They said, oh, well, my friend got 15, so I wanted to beat him. And I was like, oh, okay, very interesting. That's how the value of the company is determined now. And I told him like, wow, you know, your progress is great. But these three other companies, you know, the valuation was 15. And he said, oh, I'm only asking for 5 million more. And I said, no, no, combined. It was 15 combined for the three companies.

It didn't have an answer to that. That company no longer exists, but let's talk about that. Because that is having an issue is the ownership percentage and the valuation and the entry price. And you just had your offsite. You talk to LPs about this, I'm sure. It seems to be a big topic. So how do you think about it? There's two things.

I want to say one thing on this, and then I actually want to go back to our prior conversation, just flesh out one point. We always say we have to play the game on the field. And if there's a founder with whom we want a partner, we're not going to let numbers get in the way of partner. And so that often means that we're in the ownership range that we target as a fund, but there are outliers for sure. And we're going to continue to make those decisions on a case-by-case basis because we make so few investments. Each time we do, it's so case-specific to that unique founder and the unique space that they're attacking,

that we're able to kind of both play the game on the field, but then also make. make those decisions that end up feeling consistent at a fund level with what we, what we target. I just wanted to go back to one other point, though, on the prior conversation, because I feel I would be remiss if I didn't, I didn't flesh out one thing, which is that, you know, when you have a level of commitment and a depth with a founder, you are, you know, I'm literally texting with, you know, the founders with whom I work, sometimes day of, you at the very least weekly.

And you end up having just a depth of experience and context with the founder through, you know, all the recruiting you do, all the conversations, you know, the weekly one-on-ones. And then that also means that because you have so much more context before, because you're shoulder to shoulder with the founder, you end up being a better strategic partner to the founder and a better partner in helping the founder kind of become the expression of themselves. And I think that actually is the work that we do

that we get most excited about. It's the reason, you know, benchmark, we could raise a bigger fund, right? Obviously, yeah. We could play this game. But then it becomes more transaction with each founder because you get into a mindset of having to make a certain number

of investments every year. You end up just not having the same capacity just because we're all, you know, governed by the same 24 hours and every day as everybody else. There's no shortcuts there, right? There's no loophole. And so that doesn't translate, you know, if you want to have that depth of relationship of the founder.

And that's the big part of who we are as partners and why we're here at benchmark is, is that type of partnership with the founders we work. Founders, I know that you're keeping a close eye on your burn rate. I am too. In today's venture market, every single hire you make has to be perfect, right? You can't make mistakes. You got to keep that runway as long as possible so that you can run more experiments. And you need talented people to run those experiments and figure out how you're going to get product market fit, how are you going to scale your company? And that's why you need to use LinkedIn

jobs. As you know, LinkedIn brings you the candidates that you can't find anywhere else. LinkedIn passed the one billion member mark. Think about that. One billion members. And 70% of LinkedIn users don't visit the other leading job sites. This is a phenomenal statistic. They don't even go to the other job sites. Why? Because they might not be looking. And those are the best hires.

But they're hanging out on LinkedIn, doing professional development, checking in on their network, building their network, sharing content, finding leads, all that great stuff. Bottom line, there's amazing hires waiting for your company on LinkedIn and nowhere else. And they have a special deal right now. Post a job for free. What? F-R-E-E?

What a great price? LinkedIn.com slash twist. That's right. LinkedIn.com slash TWIST to post your job for free. Terms and conditions, of course, apply. Let's talk about governance. Really bad trend. Last 10 years.

Governance, board meetings, not cool. VC should be treated like mushrooms, you know, you just keep them in the dark and you feed them manure. It's, they're, you know, don't trust them. It's like really bad, I think, toxic kind of philosophy that spread in this adversarial thing, you know. Don't give up a lot. aboard C, whatever. Right.

Make your best argument here of why governance is accretive, important, and just otherwise an advantage for founders, team members, shareholders, etc. I think the biggest thing is that governance creates a level of accountability that every executive joining a company wants in the CEO that they're joining and they're following and reporting to. And so there's there's just something that's very healthy there when a founder, CEO feels that level of accountability. It ups everybody's game. I will say, though, on the flip side, that, like, it is a high level of trust that you need to have with the, with your board. And I can imagine a world where when, especially during the COVID craze, when we were all

making commitments over Zoom. You know, you just had this like very impersonal, very transaction oriented way of making decisions during that time that the founders didn't know with whom they'd be partnering. They didn't, like they knew the name on the, on the logo, but what, who is this person? You didn't have an opportunity to have that depth

of relationship building before making this type of commitment. So I understand where that came from. And then at the same time, look at how crazy the world has been over the last few years. And really knowing who the person is who's going to be in your corner during that time is so important. And I think as founders have realized that and spend more time with the partners that they're potentially adding to the board. It's actually in my experience so far, it softens some of the governance obsession. And it made it more about who is the partner joining the board. And I think that's a super healthy movement in the ecosystem.

Maybe you could talk a little bit about competing against this recent crop of lunatics who would use governance, valuation, and secondary as weapons. Since they didn't have, say, the legacy, the brand, so they come in, hey, I can't beat Sequoia. Hey, I can't beat Greylock. I can't beat benchmark. I can't beat Excel. you know, in terms of our offering. So, well, where can we beat them?

I'm going to do a term sheet where I'll raise the valuation. Okay, fair enough. Okay, yeah, I'm going to give the founders, you know, each $2 million in secondary products not even launched or pre-revenue. Oh, yeah, and governance. Yeah, we don't even need information rights. Nonsense, nonsense, nonsense, nonsense. Or even the most pernicious that I saw, typically winning the series B,

hey, you know what? We'll buy secondary from you, or we'll top you up. We'll let you sell secondary and we'll top you up. So it's like, what's going on here? It's just like a bribe to close a deal. And this is, let's call it what it is, kind of was a bribe in my mind. I don't know how you feel about it.

I mean, it seems like some secondary, you know, buy a house, put a down payment. It seems reasonable after some number of years, four or five, six, seven years. It doesn't seem reasonable in years one, two, and three. How do you look at that weirdness and these lunatics that infected the space? My words, not yours.

Yes. Yes. I don't know if you were thinking specifically of Tiger, but if we were to name names, Tiger did a lot of this. And I think I remember hearing someone say, Tiger may not have gotten a single markup in that kind of crazy deployment. Maybe they got a small number,

but a very, very small number relative to the total investments they made. And so founders are making decisions. And in all of those circumstances, there were some founders who opted in to that high price, low governance, whatever bribe, as you might put it, a decision. And that created a lot of challenges for those companies. And there were other founders. And we engaged with a ton of these. Like every investment that we made during this period had these types of competing offers.

And the founders with whom we ended up partnering, It was like, yeah, this is happening, but that's not what I want. It was a very clear optimization, very clear. I as a founder, I want to build the best iconic company I can build. And to do that, I want a partner. And, you know, look, this stuff is really fucking hard. Right? Like, it's so hard.

And if you can do it by yourself, then that's great. Like, all the power to you. but I'd like to think that even like an Olympic athlete still has a coach and they still think they can get better. And that's a little bit, you know, that is our, the bar that we set for ourselves. And some founders want that. And it's not for everybody. But I think for the founder, there is a, there's a positive selection bias that we see of like the ambitious,

learn it all, you know, low ego, just want to win founder. that is, those are the people that were dying to meet every day. Yeah. See, I think this is the key observation, maybe the key brilliance that the founders of the firm kind of learned in those early years, which is there's a selection bias. Yes. If it's really attractive to you to take that payoff, you know, to not have another board member, to have this hundred million dollars dropped into the bank account with no governance and nobody going to work with it and no ownership of that bet, you know, what's going to happen? Is that person going to be there when stuff hits the fan? Yes. And, you know, that person who made that bet, based on some management consulting report or whatever they made the decision on, they're not going to be there.

And when you lose that person, you know, I remember somebody telling it to me when I was running companies, they were like, if you lose your rabbi at Time Warner, like, what are you going to do? Like, who's going to fight for you? I was doing the M&A. Actually, it's when I was selling Weblogs Inc. And they're like, it's going to happen. You know, Ted Leonsis will leave or somebody will leave and you're not going to have your rabbi. by there. There's nobody to protect you and boom, you're going to be out. You got to really build consensus. It's like, okay, okay, I got it. I got it. Yes, yes. I need to have like a strong

connection and hopefully multiple ones. And that's really what building this board is about when you get to that level. I really like the insight of, hey, if you're going to hire an executive team, and that executive team thinks, well, the founder is a god king or god queen and they're not going to like answer to anybody. And there's some advantages there in terms of moving fast and being bowl, but then there's also some problems there. You know, they could just, maybe you just don't have the trust level there or the discipline level. Yeah.

And I'll add, like, you know, a lot of what I know we do at the board for the companies that we work with is that we're often advocating for a little, you know, making a decision, a long-term decision, a little bit clearer, a little bit faster, you know, advocating for, oh, I noticed that a certain, you know, your CFO is starting to have some scaling challenges. And maybe like let's introduce that person to some other great CFOs from whom they can learn. Or maybe it's time to make a decision on on finding somebody new. And those conversations like you and I both know that when you already have somebody in the seat, the last thing you want to do unless things are really breaking is create a

a huge amount of work for yourself of having to have a difficult conversation with that, with that executive, having to then kick off a search, do all the work of the search, do all the work of ramping up somebody new when you all, you know, it's the, it's the important over the urgent. And a lot of what we do in the board is like, believe that if you make the decision to hire somebody new, 5% sooner, you make that search 5% better and you close somebody 5% better, whatever the percentages is, those moments compound for a company. And it's just like, again, it's hard to imagine a founder that doesn't benefit from having a great group of people around them, their executives and the board that's pushing them to make

the best decisions as quickly as possible. And that's what a great board, I think, can do. If you use multiple devices and apps to run your business, you need open phone. simplifies your communications with one simple app. An open phone has rethought what a modern business phone can be. What's magical about open phone is that it works through a simple, elegant app right on your existing phone or you can even use it on your desktop. I know because we use it here at launch and our sales team loves it. And you know what? Those phone numbers, those discussions, all those text messages, we need those to be on launch phone numbers. We don't want those on people's personal phones where if they leave the company, it's distracting, it's annoying to your sales team as but one

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The first six months, that's incredibly generous. Just head over to openphone.com slash twist. And what if you have an existing number with another service that you hate? Well, Open Phone will port them over at no extra cost, easy, easy, lemon squeezy. So head over to openphone.com slash twist and get a free trial and get 20% off. You know, there's something about making things 5% better. everybody believes that what we do in Silicon Valley is like throw these Hail Mary passes or half court shots from the logo. The truth is, you're grinding it out. You're trying to get 5% better in 20 different places.

And sometimes you get some big win and it's 20% better. And sometimes, you know, you make it worse. You screw something up and it gets 5% worse. But that actually, that incrementalism, that compounding interest, it's just so powerful. And it's hard, like you're saying, to, yeah, you know, God, we spend so much time. This is our third VP of sales. I'm on the board of one company, man. You know how this goes. Yes.

The white knight is coming. This person has the resume, and they come in with the cuff links and the $4,000 suit. And you're like, oh, God, here we go again. This person's, oh, they want a huge base and they want their comp, you know, so low and tied to, like, the milestones. But, oh, and they really are concerned about their exit package. I'm like, why are we spending so much from your exit package? Who cares about your exit package? you're easily hireable.

Why do you want 12 months severance? Twelve months severance at a startup? Yes, I know. And the whole, I can just see it. I see it. Man, I can see it happening right now in Manhattan from here in California. I see that conversation from 2,000 miles away. It's nuts.

It's nuts. And it's just hard for a first-time founder or a founder who's just, you know, trying to get so much done. And when you're on the board and you see this for the fifth, the sixth, the seventh time, It's just so obvious. Like, this is not the person. This person is coming in with those cufflings. They want to do the, you know, I'll, you know, give me the $600,000 base and the 2% commission. I'm like, how about $150,000 base and I'll give you 7% when you hit a million and 15% when you hit 2 million?

Like, let's make something awesome so you can make twice that amount of money. They're like, yeah, no, I got to beat my base from the last time. What are the other things you see inside these boards over? over and over and over again, but that is just so critical in not flipping the car when you come around those turns. I think there's maybe there's a couple things that come to mind for me. One is sometimes it's just very clear that an executive has reached their Peter principle, right? Like, I'm a big believer that when, you know, you as a CEO, you want your leadership team

to, like two-thirds of your leadership team to be pulling the company. company up with them, you know, not being pushed up by the company. Like, yes, you want those, you know, the culture carriers, the people who have been there for a long time, who have a lot of contexts and have the history of the company in their minds. Like, you need some ratio of those people. And by the way, those people benefit, like through osmosis by seeing the way that the executives who have seen what great looks like, who have been at companies and scale past the company that you're at right now, like having those people. And so one of the things that I see is just it's hard. Like when you're a CEO, there's a learned ruthlessness that ends up happening,

which is that, you know, you have these relationships with the people on your leadership team. And by the way, your leadership team has the people on their leadership team that you develop relationships with that you want to be nice. It's, you know, five temptations of a CEO is like an incredible book, every CEO should read it. The thing about wanting to be liked is like an Achilles heel that we all as humans have. It's a very difficult thing to have a lot of these hard conversations. And so you have these executives and they are not pulling the company up with them. They're being pushed up. When you have too many of those, it's one of those things that even one executive for too long who's being pushed up with whom we're not having a hard conversation

really has these ripple effects that you always look back and wish that you had made a decision sooner and faster. And so that's like a huge one for me. And the second one is just any orientation towards vanity metrics. You know, like there are so many times

so many times when we can have metrics as our North Star that feel good. You know, I always, you know, the lowest common denominator one, It could be, you know, MAUs for a social product. It could be actually revenue or GMV for a marketplace. These metrics, I always say what you measure matters, like they can go up into the right and still you aren't creating the true enduring value.

And I always think of it as like, if you're climbing a mountain, you don't want to go around the circumference. You want to just find the most direct path. But if you get lulled, if your ego gets satisfied. by a vanity metric or chasing the next round, you end up wasting a lot of energy versus having the clarity you need of that future path, what creates the most value for your customer

working backwards from there. And you're avoiding. You're avoiding. This is like what people who are avoiding the hard work do. They find a metric that serves them. The great point. Yeah. And, you know, like, I remember in the early days of apps.

in the days of Com and Uber and everybody's talking about app downloads. And then all of a sudden these app companies come out, oh, venture firms care about app downloads. Great. Hey, give us, you know, $5,000. We'll get you to the number one rank in the app store. And everybody in the early days of apps would look at the top 100 apps, and they'd download them and they'd sample them.

Remember when you first got your phone? You're like, I have nothing to do. I'm just going to sit here for an hour and download apps and play with them. It was like the greatest thing ever. Now it's like, dealing with apps is like a, a chore, right? My hunting changed, but I remember these folks and they would come to us and say, hey, give us five grand. Then they would hire people in the Philippines that have banks of phones. You can look at these phones online. They would download them all. They wouldn't

tell you how they were doing it, by the way. All of a sudden, you're number one. You go to your board meeting. Oh, yeah, look at, here's our cumulative downloads. I'm like, can I see that by day? And can you show me what you paid for and what was organic? You know, give me the source. And you start getting into the granular discussion, you realize, okay, cumulative charts only go up into the rent. That's how cumulative works. Yes. Yes. Yes. We don't need cumulative here. And then where's the engagement? How leaky is this goddamn bucket?

And, you know, it really is cowardice and avoidance. And when I went to a high school run by Severian brothers in Brooklyn, there was a sign above the door. And I always say, the founders, the truth shall make you free. And when the truth is, people are uninstalling your app, and just find out why. Find out why. It's too expensive. The design sucks. Whatever it is, find out why, right?

And that Lansioni book that you mentioned, and he did the five dysfunctions of a team. Also excellent. Also, I always give that book, both of those books to have found out. I'll add something, though, which is also true, which is that a lot of times, I think founders make the mistake of playing to what they think the venture investor wants. Right. And so, performative. It's a lack of intellectual rigor. It's a lack of kind of really going to first principles of what is what am I building and what is like the most important thing to measure.

It's instead kind of just the surface thinking of, oh, I hear VCs care about downloads as you as you talked about. or, you know, in marketplaces, I wrote a piece about kind of chasing GMV that a lot of founders would come in and they thought they had to show a million dollars of GMV in order to raise their Series A. The challenge is that if you chase GMV back to my mountain, you know, the fastest way to a million dollars of GMV actually pulls you away from building enduring value. If you're, let's take a food delivery company, if you're, you could get a million dollars of GMV by having 10 cities with 100K of GMV or you could have a million dollars of GMV by like going deep in Cedar Rapids, Iowa or deep in New York City. Those three buckets are very different companies. And the one that actually I think would be most interesting, a million dollars in Cedar Rapids, Iowa. Why? It's also the hardest.

Because there you're building liquidity. you're really, in order to do a million dollars of GMV in Cedar Rapids, Iowa, you have to be really focused and have like very strong product market fit. You're building liquidity. I always think of it as like boiling the thimble, not the ocean. And I wrote a whole series on this called my hierarchy of marketplaces. But like, if you do a million dollars of GMV in New York City, like, you're just scratching the surface, right? They're picking off the cream of the, you know, the cream. But you're, you're just like scratching the surface. You have so much further to go in order to have true penetration of New York.

And then back to the 10 cities with 10, 100K, same thing. Like, you're just scratching the city. Like, you haven't really proven anything. And so, you know, there's, there's, you need to have that first. And I think, you know, Tony Adoradash did this fantastically of just like, the first principles thinking, what are we really building? How do we build enduring value? And just trust that if you show that to a VC, they're going to get it versus playing the game that you think you have to play in order to get that next round.

Yeah, it's, I have this, because, you know, we invest way before a benchmark typically, right? We're doing year zero companies. Like, they're working on the products, two or three people. Sometimes they're not even incorporated. And I always tell them, hey, whatever the numbers are, just own them. The opportunity for benchmark is that you haven't figured everything out. The opportunity for Sequoia is you haven't figured everything out. So just own it.

And they're going to look and, you know, when they see spiky revenue month over month, they're going to understand you're running experiments. That's okay. And if you lose customers, they're going to understand. You're trying to figure out your ICP, your ideal customer profile. They know you're not going to know that yet. So, yes, you know, in and out burger kicked Tony out. Tony was like doing the hack.

And Stanley were putting in and out burger, in and out burger doesn't allow delivery. You know, like, perfect example of like, hey, you can really spike your revenue by putting in and out in your app, you know, illegally against their terms of service, you know, and just having somebody show up and buy it and deliver it because there's demand pent up there.

Yes. But you're going to get a legal letter the second you get to the thousandth order. You're going to get to the thousandth order real fast. I can tell you that. And that legal letter is going to come smashing down. And now you've got to hire a lawyer and you've got to deal with all those nonsense. And so, like, there's no, There's no shortcuts here.

So just own the numbers. It's okay. It's okay. And my lord, the gamesmanship I see. I don't know if you see it sometimes where there was, I remember in the early, right in the middle of the Y Combinator days, it got a little weird. And tech stars too, because people learned how the Facebook ad network were. And it was so magical. I don't know if you remember this number.

I'm sure Pinterest had this similar effect. They'd be like, huh, I have this new product. And they just gave me 125K. I got 12 weeks. And then I got to meet Sarah and I got to meet Pear and I got to meet this firm and that firm. Okay, great. Here's what we're going to do.

And somebody kind of shared this and infected the whole ecosystem for five years. We're going to spend $1,000 in week one, $2,000 in week two, four thousand in week three. You can see where this is going. And they're just a magical, very beautiful 12-week chart. I love it. It doesn't need to be cumulative now. Right?

We got past the cumulative chart. Yes. Now we're on this. And I say, huh. It's so perfect And page views and Signups, everything's so Wow, how did you do that?

And then they'd be like, yeah, you know, just so we got figured out product market fit. I'm like, in 12 weeks you got product market fit while you're inside of tech stars and white combinator. Wow, that's fascinating. And he paid? Oh, yeah, we did a little pay. Oh, would you do the pay on Facebook?

Okay, can you pull up the Facebook ad manager? Let's take a look at it and talk about it. And I would literally pick it up with them. And they would pull it up. And I was using it too. I understand how it works. I've used it to do promotion. It was hilarious, right?

So that enduring values. I love it. So key. This is where game knows game. Game knows game. Of course. Of course. All the tricks are there.

I appreciate a good hack. Yes. Not get me wrong. Great hack is awesome. But like, you know, the, I just want to go over the Lansseoni five. I pulled it up here while we're talking in chat GPT, just to give myself a refresher. Let's do these. Let's do these real quick.

choosing status over results. CEOs may prioritize their personal status at ego over the success and results of the company. Oh, yeah. And that's the most dangerous one. That's the most dangerous one. Why? Well, it's the one,

if you're oriented towards status, then the status, founders who have their proclivity to status are the ones that are most vulnerable to the vanity metrics because they are, you know, focused on how do I look good?

How do I look good externally and internally in order to maintain my status as, you know, unicorn founder or, you know, and they're the ones I play for those accolades. And if you get oriented that way, if you're focused on the status, which means you're focused on the vanity metrics, the things that make you look good, you're just, it's incredibly difficult to build enduring value as a byproduct of those two things. It's so well said. And I remember we bring up this unicorn status that infected the industry. Shout out to Aileen, who's an awesome VC. And I get her to come on the spot every three years. The only problem with the unicorn status thing was it became like we didn't really have like a black belt in our world. Like there was like, you know, these founders want to hit some goal, which is virtuous, right?

I want to hit the goal. Okay. The industry told us being a unicorn is the goal. Okay. How do I hack the unicorn status? Exactly. You know, we talked about the other two, cumulative charts, whatever. Facebook hack.

Now here's the next hack. Okay. I'm going to take this, you know, $50 million at this crazy valuation and it's got a 7x liquidation. Whatever it's got. Just being preferred. And then they're trying to do vanity metrics, like you're saying, to get the vanity and the status and they're playing stupid status games. The only game that matters is, are you building a great team that builds a kick-ass product that delights users? And you've just basically eyes off the prize, right?

Yes. Yes, absolutely. You see it in basketball. I don't know, you fan of basketball? I'm a fan of all sports. in the abstract. I don't watch anything. I mean, like, there's this whole thing where like, oh, this, this guy in the NBA is a 20 and 10, you know, it gets 20 points, 10, you know, he's like so consistent. And he plays for a team that doesn't make the playoffs. And like, you could be the, the, like, you could be the best player with the most incredible stats on a team that never makes it to the dance. They never make it to the top four teams, eight teams, 16 teams are always in the bottom. But man, this person's got 30 points. Oh, they had a 50 point game. They never got there. That's like the perfect example of it. Okay.

Okay, popularity over accountability. CEOs might avoid holding their team accountable to the team popularity and harmony. Man, I got over this one a long time ago, but I see this all the time. And this is, this is, you know, it's very holding people accountable is really hard. You have to be. And actually, it's, I think we're, we're starting from top down. Yeah. But really, you should start bottom up because each one builds on each other.

But it's related to this, the need to be liked. And when you need to be like that's the pop, you know, leads to popularity, then you aren't going to lean in on these hard conversations that create accountability for your team. And going down to the fifth one, choosing invulnerability over trust. CEOs may avoid showing vulnerability, which can prevent the building of January and trust with leadership team. Yes. You know, I try to do this inside my own firm, Sarah. I'm like, we cannot ride on my past victories. It's great that we hit Uber.

It's great we hit Robin Hood. It does not matter to our LPs. They've already gotten those distributions. We need to find the next one. All of this history, it doesn't matter where the podcast rank. It doesn't matter if people want to excelves me. We're only as good as that next deal. We have to take these founders and figure out how to get them from 250K in ARR to 2.5 million or there's no fund.

We're a new firm. We're on our fourth fund. We have to fight to exist. And man, they're like, oh, you don't have it all figure it out. I'm like, have it all figure it out. Do you know how hard this industry is? We talk about hard it is for a founder. I mean, you hit a hit.

And then everybody's like, where's the next one? Jesus, you know, like, this is one of the problems with hitting big hits. Like you guys have hit or you hitting Pinterest. Like, what was Pinterest peak valuation? And when did you invest in it? It's probably now. I think it's more than a $40 billion company. When did you invest?

What was the valuation? I want to say something like 35 or 40. Okay. So just a thousand. It's a small, small improvement. Yeah, 1000x, 500x after dilution, whatever. I mean, this is incredible. Like, it doesn't happen.

And now, do you ever have this, like, wake up and, like, how do I top that? Yeah, I mean, I think the people I most admire have that anxiety. And I certainly do, which is that you're only as good as your next deal. And, like, there is nothing that hurts more in my heart. and it's just, you know, specifically within the working world than somebody else making a better decision than me or seeing a company I didn't see and it being a great one. And that's, that is the paranoia I think we all have here

is the one or two companies every year that really matter. We have to make sure we find those companies. Yeah. You know, and get to partner. I mean, you think about it like, Pinterest might be one of the great non-concessing census bets ever. Social shopping, the entire category of social shopping was considered stupid when you made that invested. That was the most idiotic investment you could have made that year in most VCs

mind. Oh, a bunch of like women at home making a board of what they want to purchase in the face of Amazon and Walmart and Target and Facebook and Instagram. Are you dumb, Sarah? Like, why would you ever make that bet when they're up against all these things? Like this seems. How did you make that bet? How did you make the non-consensus bet? Take us through it. It's actually funny. I did a fireside chat with Ben recently, and he made a point.

And I hadn't thought about it before. But, you know, I was an early user of Pinterest. I just, the first time I used that product, I just, it felt like there was something special here. And this was during a time when Twitter was ascendant. And Twitter was just tech space at the time. And so you had all these other companies that were aping Twitter, very tech. space type UIs. And then all of a sudden, you know, to use this product where it was all about

images and actually essentially creating lists, you know, when you pin something to a board, that's basically a list. It's just a visual list. It felt so different to me. And I remember, you know, we went to go meet the founders, Jeremy Levine and I in the Palo Alto office. I just felt like this had to be the hottest deal in Silicon Valley because the product It was so incredible. You meet the founders. They're so compelling. The engagement data was so compelling.

I couldn't sleep that night. I wanted to invest so badly. It just seemed obvious to me that this would be the hottest company that everybody was going to be competing for. And I just, you know, I was just like, please, please let this happen. It turned out there was no other term sheets. And there were no other term sheets because I was in. New York. Everybody here had shared this consensus view where, you know, all the gossip that goes

around, everybody just started, they got, once somebody in sepsis idea that like is just going to be a small niche site, it became hard for other people to unsee that. And I had actually just moved to San Francisco. I wasn't in the gossip networks. I wasn't part of, you know, the consensus view. And so I had an outsider, Jeremy and I had an outsider perspective on, Pinterest and I think that is what it took, you know, to see it. And so everybody else, and this is, this was the point that Ben made to me. He's like, you guys, you were out of the consensus conversation. And because of that, had the independence of thought when you, when you met the company. And I think that's actually the greatest risk that we all have right now is that everybody

talks about everything. We all develop these consensus ways of thinking. And it's the companies that are disruptive to those views that end up being the outliers. It's the great paradox. The consensus that I see in my own firm with just 12 investment professionals doing this like Citi-State stuff, I had to create a tag in my database. I came up with 13 tags of why we invest in a company and 25 red flags. That can also be pink. Like, I don't know, the stupid stuff like the founders paying for their apart or like they're, you know, giving themselves a draw, but not doing proper accounting. Now, it could be a sign, is unethical founder or just naive and just hasn't gotten their accounting together. We can fix it if it's a pink flag. If they're like going to Vegas and

buying chips, you know, like obviously, you know, there's a, there's a different thing going on here. Maybe it makes them more attractive if they're a lunatics. But putting it all aside, and non, I had to create two different tags in our database. And these are now my Joker cards. basically it's like the blank tile in I've never talked about this talk about it here because I want your feedback it's like the blank tile in Scrabble you know you get that blank tile you're going to probably win the game

so one of them is an outlier founder and the other is this is an outlier idea and I just told anybody you okay one of the things we like is product velocity we like world class design we like four business for specific business models that you like

FinTech marketplace, consumer, whatever. SaaS. It's all obvious stuff. But you can throw that Trump card down. You throw that blank tile down and say, outlier founder. Outlier idea. And that is worth like five tiles.

I don't have a number. If we don't understand the idea or we can't get consensus around it, it doesn't fit. It's not like SaaS. It's not like a marketplace. And the three companies that fit that, a cap company, a meditation company, and a stock trading app for millennials

who live in their mom's basement and it's free to trade. You told me those were my three biggest wins. I'm like, this makes no sense. Social shopping? You don't actually do the shopping here. You just take a picture and put it on a board, and your vision board.

Wait, wait, but you don't actually ship the product? No, no, no, no. It's just a place where you put a bunch of stuff that you're interested in. Like, it's such a great bed. And isn't it so wonderful when you are the non-consensus? It's so rewarding to be the non-consensus believer. I mean, this is part of the pleasure center,

I think so many of us have. is to make, you know, I know when I invested in chain analysis, which was my first investment here at Benchmark, this was a time when the ICO craze was happening. Yeah. And everybody who was interested in tokens or in crypto were investing in these ICOs, which were essentially white papers, nothing, no code written most of the time, and very big valuations. And then here we were investing.

There's a quote that the founders of Chenalysis made fun of me for that I said it was like a meat and potatoes SaaS company in crypto. But and people, you know, said like, what are you doing investing in a SaaS company? It's like all about tokens now. Yeah. It's, you know, incredible founders who saw an opportunity in a market that no one else was seeing with like a real net. with like a real network effect. Like there was a real dynamic to the company that they should dominate their, you know, their vertical.

When you see those types of opportunities, you meet those founders, you just feel so lucky. And there's nothing like I, you know, I know for the last company that I mentioned, like I just remember thinking, we need to be in business with this person. You can announce it here, by the way, sorry, it's totally isn't.

Not yet, not yet. Okay. Don't chip your cards. You can't blame me for trying. I'm always trying to get a little something here. I know. I don't know if you know my philosophy. I hate announcing companies.

Oh, yeah. Tell me more. Why? I am the anti-hype person. I think I wrote a whole blog post on why hype kills companies, particularly in consumer. But I just think that hype, it creates an expectation from your customer ahead of where the product reality might be. It catalyzes your competitors to be aware and respond to you. and it may, you know, announce to a bunch of founders that are thinking about an idea to go after that,

hey, here's something interesting. And so, you know, the biggest reason to do it, there's, you know, and B2B is like maybe the legitimacy is important for your customer. And so there's, there's a reason to do it there. And, you know, potentially for recruiting. But I think you can get the benefits of, you know, benchmark as an investment, as an investment, through the one-on-one emailing, you know, have it on your website, do whatever you want to do. But the announcement, more often than not, is an ego thing as opposed to a building enduring value thing. And there are outliers. Like, you know, I heard the Mistral founder, Arthur, talk about the brand for Mistral being important because a developer isn't going to try 20 different foundation models.

they're going to have a small number that they want to try. And so having the brand, having that legitimacy helps with the kind of shelling point of making that decision. That is true. You know, that is also true. But again, case by case, but by and large, I try not to announce for as long as possible. I think it's wise. There's a time to promote. You're talking to a hype man here on the program.

I'm kind of like the flave of flavor of the industry. Let's go. I can read the yin-yang on that. Exactly. Well, I mean, I do think there's a time to hype. But you're right. You do not want to poke the tiger and have Zuckerberg wake up one day and be like, oh, you want to take our business? Okay, next door.

Here we go. Yes. Yes. Oh, you do want to. Okay, great. We're launching threads. You know, like you just don't want to wait the sleeping tiger. You know, like, over here we found oil.

It's like, oh, you found oil and that little, you own three acres. Great. I'll buy the 300 around you. I drink your milkshake. Game over. Not fun for a founder. Let's talk about a couple trends here as we wrap up, and I try to keep this to 75 minutes with you

because you agreed to come on every six months, and I'm going to hold you to it because you're one of my favorite guests. And this is, no, it's good for me because I get to talk to somebody who I think's really smart. I think like these are the conversations sharpening your blade a little bit, right? I think you, yeah. I always think, like, smart people, it's good to just hash out what you're thinking at the moment.

All right. In-person work. You and I have talked about this. We both think. there's an advantage. I was talking to somebody and they just said, like, if there's a venture firm, I think I was talking to an LP, there's like, if there's a venture firm and they only invest in people with fully in office companies, can you let me know because I want to be an LP in that fund? And I was like, huh. We're probably pretty close to that.

I think it, wasn't. Yeah. Talk about it. Talk about it. Because like, I just saw a Pritzker media told everybody to come back. Michael Dell told everybody to come back and a bunch of people resigned and he said, resignation accepted. You know, and like, I think now we're at, I think it's, I think we're kind of at four days a week. You want to, you know, fuck off on Fridays. Fuck off on Fridays. Fuck off Fridays. Go for it.

But other than that, like, can we let's be here four days a week? What's the case here in terms of advantage for startup specifically, especially the ones we invest in early stitch? Most of the time, the companies that we invest in, the founders are already, you know, if it's a five-person company, they're already managing the biggest company that has managed, the biggest team they've ever managed. And I just believe, I wrote a post about this,

that being remote is like trying to run a race with a parachute tied to your back. You just, you get slowed down on every interaction. There's just so much more friction. Everything gets slowed down. And you talk to experience executives, experience, you know, of people at other companies. And they all feel this too, that when you're in the same room, the kind of the throughput of conversation is so much higher, the being able to nip things in the bud. it's not a, oh, let's schedule 30 minutes on your calendar to do something. It's just everything is faster. The velocity is better.

The culture is better. You get to know each other. That, you know, then retains people. There's just so many things. And so I think, you know, if you're starting a company, you've got to be all in. You know, this is, you know, why do it? It's so, there's so many easier things to do than start a company. and a venture back company specifically.

Like if we're partnering, trying to partner with the most ambitious founders, and those founders are going to want to be in the place with the most ambitious people and shoulder to shoulder with them in their office. And truly that happens, you know, if San Francisco may have had a dip during the COVID years. But like, I think very clearly. it is back and the best place to do that is here right now. Sure. At least in the United States.

Yeah, absolutely. It's a lot of executives are you using this as a commitment test now. I've heard this from a lot of them. Now, they will make exceptions. Elon, I talked to him about it. It's like if you are like world class and there's, you're one of one, and you live at Lake Tahoe and you do something like, you know, an assembly language on like some chip, like, okay, fine.

everybody else, like, I'm in the office, get in the office, let's go. I was talking to Travis from Uber about it. He's in office for his new company. And he said to me, you know what? You have to be there. And it's just a momentum thing to get people out of this. Once you get the momentum switched, he said, it really starts to work. But if you don't have the momentum and the senior team doesn't come in, then nobody else is going to come in.

And it just starts going the other way. And so you just have to have this like fortitude, consistency. I don't know what the word is. And it's one of those things that the more senior you are, the more likely it is that you want to work from home. You know, you have kids. You know, there's just a lot. You have a nice house.

Yeah, exactly. You got a couple of nice houses? Yes, yes. I mean, Zuckerberg's having a real problem with this because Lake Tahoe, Kauai, he's got all these incredible houses. And I know people in his circle, and he's zipping around with like a pot of people and he's got his own teachers and everything.

It's like public knowledge or whatever, but, you know, it's like, he's not in the office. So people are like, wait a second, we have to come back to the office, you're not in the office. It's like, and then he's flying executives out to hang out with him at his ranches or whatever, like more power to him. But, you know, it does, is his top down. Yeah. And I think the important thing then is like, you're, you know, every great company has to have a way of getting young, hungry people, incorporated into the culture, learning through osmosis. from the more senior people who have seen it before. And it's just so hard to do that in a remote world.

Talk about this like SaaS pricing headwinds. I think you've invested in some SaaS companies. I've got a bunch of SaaS companies. We've seen like two or three years of just, man, this has been brutal. Not only have the multiples come down, not overly where they overfunded and burning too much money. Then you get their customers are consolidating their SaaS vendors from 50 to 20.

And some CFO somewhere is like, Yep, you're in the 60% that we're cutting. And then you have people saying, I'm going to build rippling or whatever. You know, it's like, oh, you don't need expensive file. You have rippling. We're going to just knock that product off and put 70% of it into our product. Good enough. You can cancel that.

So there's a lot of headwinds. And then on a per se basis, I have a bunch of companies. They're like, yeah, we didn't lose the logo. We just lost 30% of the logo. What happened? Oh, they did a logo. They did a rip. Yeah.

I mean, we can't sell the product to cut employees who aren't there anymore. Then, you know, there's just usage thing starting to pull. pop up. People selling best on usage. You and I talked about that last time with one of your BPO kind of companies. Maybe talk a little bit about that. The general pricing change. Like we may not be calling the SaaS at maybe. I don't know. You know, so I wrote a piece. So there are a few things happening here to unbundle. Certainly just on the multiple side, growth for these companies, as you allude, has come down a lot. And there's a number of reasons for that. Consolidation, and saturation.

And of course, AI, you know, starting to nip into the per seat model pricing. Like, you know, it's kind of classic. If you're a Zendesk, you don't want to be vulnerable to an innovator's dilemma, but in an AI world where you're starting to have people automate the tickets,

which means fewer seats are necessary, how do you adapt your model so that you can be kind of consistent with the kind of the clear direction of momentum and of the kind of technology where the puck is going. I personally get excited by companies right now that aren't actually selling software in the way that we have always thought about it. And talk about kind of non-consensus view. I wrote a piece that you were alluding to maybe a year or so ago just about how I believe that AI companies, you know, AI native companies, you know, should get out of the mindset of selling software where you're selling it to an existing employee for their existing workflow.

And you should be thinking about like, what does it look like to sell the work instead, the finished product where you are, you know, taking all the friction really of working with a person in that particular instance, having somebody adapt to a new technology. And instead, you're able to automate those. work products in a way that it's just a very different kind of consumption-based way of charging for the product that actually is relative to the cost of the human who would have otherwise done the work as opposed to increasing productivity of that headcount. And so it's a very different mindset.

You know, instead of selling a 10% productivity improvement where you have to get everybody to adopt to the software, you're selling a 95% productivity improvement. And yes, there's going to be some, you know, know, on the edges, improvements that happened at the company, but by and large, you are taking that work off of their plate and selling it as a service almost to the company. That model, I believe, is the future for these kind of AI companies building B2B products. There are other, it's not to say that that's going to be the exclusive future. There's certainly going to be so many, other companies that get built that look more like software or are more like infrastructure

where then internal teams in these enterprises are building their own applications or leveraging the technology themselves in different ways. But it just feels like it is a paradigm change that's happened. And we're going to see a lot more consumption-based pricing in these companies moving forward. I kind of like it better. You know, the per seat model, you know, but it felt fair and it felt much more competitive than the client server model where you had this like buy a couple of servers, you can buy licenses, it was just all too complicated. It got simpler. And then consumption is even simpler.

And I think, you know, if there's any trend, it's, you know, this trend of better, cheaper, faster, simpler. Yes. Right? Like some, some combination of that maelstrom, you know? And that is like actually the area that I get most excited about now, which is like, if you think, you know, we have a few investments, companies like Deepel and H.J. And some others, where what they did is they built a product that removes all the friction of working with a

human to do something. And by doing that, very much unlock the market opportunity for that. So let's take Deep L as an example. Deep L is an investment we made several years ago, maybe six or so years ago. And it is, you can think of it most simply as AI translation. It's the best AI translation that's available right now. And, you know, head-to-head tests again, again, their translations come out ahead. They, you know, I was at Pinterest. I remember one of the first jobs I had to do was to translate Pinterest into all these different languages and then all of our materials. Exactly, localization. And I hired a bunch of translators. through Upwork and had to find them, manage them, pay them,

figure out ways to get the... Thousands of hours of work. It's just such an annoyance. And also, it was like, you know, okay, in two weeks, we'll get the translations back type thing. Now with something like D.FL, you have an ATI and you're able to, you know, there's a custom library so you can have, you know, the things that are specific to your company. and it is instant. And when you do that,

then all of a sudden, the things that you would have otherwise not bothered to translate because it wasn't worth the cost or it wasn't worth the effort, you just do it instantly. Yeah, this is a super interesting trend. It's like, this wasn't worth it before.

Exactly. Because we were pricing it at translating something for $2 per minute. So $128 an hour to translate a podcast made no sense. then Descript probably using this product. All of a sudden it's just like, yeah, well, when you upload your video,

we do a transcript and YouTube has a transcript and this does a transcript. And it's just like, transcripts are now table snakes. And so we invested in a company called Podcast AI. And they were kind of automating podcast. And I said,

can you just make this a website? Because I'm on WordPress right now. Shout out to my guys over there, Matt Mullen, my Brian Alvey. And I was like, and I was going to hire all these people to do translation

and to do transcripts. And they're like, yeah, we can set up your website. Here it is. And literally in two days, they sent me. And I said, oh, okay, how many episodes are you? And they said, all of them. I said, well, at the time, 1,400 episodes of this week and serve. It's like, yeah, yeah, we just pointed out the R-Savis feedable and we did them all.

How much that cost? It's like, I think it was like $400. It's like, yeah, you know, it's like 50 cents per episode or something. So we just did it for you. I was like, this is the greatest product ever. And so now they sell this product for 500 bucks a month. And you can just, in podcast, day, it does everything for your podcast, including the timestamps.

So this, when we publish this episode, you'll have the timestamps, they'll summarize it, you'll say the major themes we talked about, and then the next step, it'll be linking to things, and then it's going to take your two other episodes and link them together.

So here, and it's doing it all automatically. And it's like, whoa. And then the next piece is, anybody can go in and highlight a section, so they can highlight us talking about Lanzioni's book and say, make a clip. And then it makes a clip, ready for TikTok,

with the text over it. Yes. That process was 30 hours of work that I just described, and it's now zero hours of work. Whoa. And this is like, part of what is so fun about this, another company that we invested in, Hagen, my partner, Victor's on the board, Joshua, incredible founder. Like, if you went to the website for Hagen, oh, you would think, man, how big of an opportunity

can this company be? It's like they create these avatars for you where it looks like a huge, it looks, you record yourself or you use one of their available models and you write text and then it like lifelike makes it look like you're saying those words. And the bias in our brains, and this is, you know, reminds me a little bit of, you know, Uber, Airbnb, like so many of these companies initially get very, very underestimated because the opportunity they're going after initially is small. But the value proposition is so compelling that it. it blows open what that use case could be and the creativity that happens once something like

that is possible. And so, you know, at HN, it started out with these avatars and used to be like, who would have a video of themselves on the website? No one. It just was never worth the time to film yourself, do all the production. It's a one-off. You have to go through all that effort all over again to do another video, but instead you can have something like Haysen where all you have to do is write some new script and it automatically gets updated. So great for training. You think about like the HR department does some training or like, I don't want to say an MLM, but let's say you got a sales team at scale. You know, you got a thousand people working at Toyota dealerships. And you got this great training person who trains them on how to sell the new Prius. Now you just, you don't have to

hire a video crew to go do that all over again for the new preyships. You know, you got this. and the 17 new features? Or what about the 1600, you know, little things for the mechanics? Now you've got some mechanic who's been in there and it just, the mechanical teacher stuff. And that is like mind-blowing. It's just amazing. Are you more enthused than ever about AI and as an investor? Are you in the trow of despair?

Where are you at? Are you giddy? Where are you at? You know, giddy is close. Like, I, you know, we're. just deeply optimistic. I love it. Gitty up.

I think this is one of those things where you could imagine that this is like the internet that came and then the window opens and if you're not there at the very beginning of that window, then like you missed your chance or the app store happens

and then all of a sudden it's a gold rush land grab, whatever you want to say and then you know good luck if you come later, I think what we're going to see in AI is just a rolling thunder of opportunities that get opened up. Each time, you know, any of these foundation model companies makes an improvement to their model.

New things that weren't yet possible become possible. You know, there are things like latency for voice. I meet so many companies and you speak to them in the voice, the voice models, and it's still, there's still just a little bit too much latency. for it to feel like a human or some of the reasoning or memory. There's a bunch of of things where you still

feel the constraint of where the technology is in terms of what use cases become possible. But as we progress from four to five, as new research comes out

that makes these things on the edges better, I think new use cases, are going to continue to be opened up. And so there is just like this thing of like, we are still in the early inning. We're still meaning companies that have completely orthogonal approaches

to building foundation models. And so you're just reminded that this is still wide open and keeping optimistic and almost naive in believing that every company still has an opportunity to disrupt the incumbents

is a really fun, fun place to be. It's definitely, you talk about the game on the field. I think you described it pretty accurately, which is it's anybody's game. You know, you start looking at these foundational models and it's like, oh my God, chat GPT, opening eyes run away with it. And you're like, actually, nope. I'm using this quad minstrel or whatever it is,

like their last version. I'm like, oh, that's actually better. You know, and then I go to this other one, and I'm like, oh, that's actually better. And then I do like, I just cut and paste the same prompts into three of them. And I'm like, wait, that one is better for this. Oh, wait, this one does better citations. oh, this one does better tables.

Oh, this one does better visualizations. And to keep up with it, it reminds me of the 80s when I was first, you know, like a young adult in like in 1883, 84, 85, I was 13, 14, 15 years old. Yeah. I was 13, 14, 15 years old. I was obsessed with PCs. And I was a piece of sports schedules. I used to get PC magazine in a magazine called Byte. And they became so thick.

And you would just go page by page. It was like my vogue. It would be 300 page magazines, 200 page magazines. PC magazine got so big. the U.S. Postal Service said we can no longer let you send this as a magazine. So they're like, oh, okay, I guess we'll go from monthly to weekly so that we could lower the number of ads. But you would go Falcon computer, you know, Eagle computer, Oak computer. And it would be like a different page with them selling a PC.

There were 1,000 people selling PCs. And, you know, it wasn't like today where it's like, oh, well, you can get a Mac or you can get a Dell and you're not on or surface and you're kind of done. But we were in that phase. It reminds me of exactly that. like just people in garages, just figuring stuff out. And then one of them's going to be Dell. And look at Dell today or look at Apple today, right? Like, where you start is not where you finish.

What Michael, and I text with Michael Dell all the time. I talked to him all the time and he's invigorated. He's still at it. I mean, we're talking about 40 years later. Yeah. And that company's doing better than ever. Right. Right.

I has been the greatest gift to the incumbents, that's for sure. Yeah. But I absolutely agree. I mean, the half-life on any opinion on AI is very, very short. Because it is the type of thing where I was joking with a friend of mine who is at anthropic. When they came out with plot three, I was like, man, I thought you guys were gone, you know? A roadkill. What a friend.

Your friend's like Sarah. Your company was toast, man. It was over. I can set your resume around for you. And then, of course, they're back in the game. they're back in the game. And then Gemini comes out and they have a million token context window. And you're just like, it was just every.

And then of course, then Open AI comes back and they have 4-0. And so, you know, there is no resting on Laurels here. You know, we are also at a time when you just think about the tremendous amount of investment that's going into these companies, going to NVIDIA's balance sheet. And consumers are the big beneficiaries. It reminds me a little bit of, you know, the food delivery wars early on where... So great. You remember how it was?

They were fighting for each incremental point of market share. And so if your order was 10 minutes late and you let them know, they'd refund the whole order, right? Yeah, take it. It's all good. Consumers were huge beneficiaries. We're going through something similar now. Yeah. Where, you know, Open AI is pricing these things below cost, is my understanding, at least on the consumer side of the business.

For sure, for sure. We are as consumers in a golden age where these products are unbelievably expensive to get to where they are, still very expensive to run, and so powerful at our fingertips. That is a really fun time. I changed when I open a new window in my browser. I hit this a little tip for folks. You have to become AI native. Yes. It means you just have to be using it every day multiple times a day.

I open a new tab or I open my browser. It opens up to the chat chippy window for a and I just do everything there first. And then when I was talking to you on the show, I just typed in Lansioni, you know, five, whatever and five dysfunctions. And I said in five sentences. So I get now what, like I have producers of this show. They spent two hours on the news. notes. I got the notes here. But in real time, you'll say something. I type it, type it in there. And I'm like, oh, yeah, that was the one. I forgot that. Or I put in, tell me about the, I just put

social shopping 2010 to 2015. And it was like, oh, Winlo, the wish. Yes. Yes. I remember all those companies. And I was like, oh, wow. Yeah. Fancy. Fancy. Like all this great stuff. I'm like, yeah. And who, who won? Right. Like, and I didn't think it was like fait accompli that, you know, your, your jockey was going to win that race. Like, It was not clear at that time. Listen, you're amazing. Thanks for coming on again. You got it again, folks.

75 great minutes, Sarah Tavel. You can subscribe, and you will to her substack right now. Just Sarah, T-A-V-E-L, substack. You'll find it there. And she doesn't do a lot of interviews, so we'll see her back here, January 10th. We'll do our, we'll do our, this is what I do with my great guest. I just lock them in. Or you're chasing anything.

There you go. I love it. January 10th, she'll be back with her. 2025 preview. Let's make it fun. For the next one, let's talk about what we expect in 2025. We'll kick off the year with our predictions and ideas. All right, we'll see everybody next time. Bye-bye.