This Week in Startups - E1075: Cendana Capital’s Michael Kim on investing in Seed funds as a serial LP, Robinhood as an acquisition target, greatest Seed funds of all time & more

Episode Date: June 16, 2020

0:38 Jason talks about the now fully-virtual LAUNCH Accelerator and intros Cendana Capital's Michael Kim 2:47 What is a fund of funds & why do they exist? History of raising Cendana's first fund 6:06 Portfolio construction of fund of funds 10:19 Why ownership percentage is paramount, ideal ownership % for Seed funds, what makes a great Seed fund manager 17:04 How do fund of funds make money? 18:51 Hedging bets by selling secondary shares to generate liquid cash for LPs 24:33 Michael on Call of Duty, using secondary shares to win a deal 30:46 What was the greatest Seed fund ever raised? 32:42 What is the ideal number of managers in a Seed fund? 36:38 What has the last 90 days been like for Cendana? Influx of new fund managers into the market 41:50 How fast is Cendana in making decisions compared to institutional LPs? 44:47 Will there be a wave of white-collar layoffs, and how will COVID change large tech companies? 52:29 Writing small "pilot" checks over Zoom, venture/growth fund deployment, which companies in non-obvious markets will come out of COVID in great shape? 1:03:37 Robinhood as an acquisition target (Should Facebook buy it?), Dropbox/Slack merger 1:06:17 Why right now is the best time to invest in the early-stage

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Hey, everybody. Welcome to another episode of This Week in Startups. I'm your host, Jason Kalakannis, an angel investor here in the Silicon Valley. If you'd like to apply to our accelerator, it has now moved to virtual, which means over four months and about 20 sessions, we introduce you to over 500 investors. they hear your pitch and then you contact them and hopefully that's the top of your funnel with no work on your part. The only work you have to do is really build a great business that grows 10, 20% month over month and then meet those investors in clothes and a round of investing.

And it's now all virtual. You can apply at launch.com slash apply if you want to come to the accelerator. If you got a great idea, anytime you can DM me on Twitter. I'm at Jason and you can email me, Jason at calicanus.com. My guest today, is the man behind a lot of the seed funds you've heard of. He runs something called Sandana? How do you pronounce it? Sandana. Sandana.

It's a Malaysian word for Sandalwood. Sandalwood, Sandana. And his name is Michael Kim. Welcome to the program finally. Thank you. We've got to organize this for a while. I hope family is safe. Everybody is healthy.

Yep. All good. For historical purposes, during the once in a hundred year pandemic known as COVID-19. Right. How are you doing psychologically at your job, which is being a fund of funds? I think things are going actually pretty well in terms of, you know, operating the business, working with our fund managers, looking at new opportunities.

You know, I was just thinking that unlike a direct investor, we can actually spend a lot of time with fund managers over the phone and on Zoom. And so, you know, I would say that it's a different world, of course, but I think we're adapting to it. And, you know, we're finishing up raising our fund, a new one. And luckily for us, most of that was done already before a shelter in place. And so, you know, I feel like things are going pretty well, actually. Fantastic.

Explain to people who are listening who have, they know what a seed, they know what an angel investor is. They know what a seed fund is. They know what a venture fund is. They invest money on behalf of LPs. What is a fund of funds and why do they exist? Sure. So, you know, a fund of funds, we're basically an investment management firm. We raise capital from institutional LPs, from family offices and from individuals. And then we take that capital and we invest it with other fund managers. So one use case, for example, is, um, the University of Texas, which is our largest investor. And they are so large that they cannot write small checks.

And so to access the seed market where funds are generally under $100 million, you know, they work through us. Or take, for example, a small foundation like the National Public Radio Foundation in Washington, D.C. They don't really have a full-time investment staff. And so they outsource the investing to us. or, for example, a family office may have one or two people who are working their asset allocation, but they can't spend the time to execute on a strategy for something like seed investing. So they work through us.

So effectively, we're a way for pools of capital to outsource their investments in a particular field. And for us, it's seed investing. And what I'm reading into that, and correct me if I'm wrong, is it takes a certain amount of expertise and time and effort to really pick a seed fund or a new manager. Sure. And it's just not either worth the time or they're just under resource based on the size of what they're doing.

Right. So I started Sundan in 2010. Took about 18 months to raise the first fund. Back then, there were probably 10 to 15 seed funds that were institutional and quality, meaning that, you know, endowments and foundations would back them. And if you remember back then, there were the, the phrase super angel. You don't really hear that that often, but a lot of the super angels like Jeff Clavier actually became professional, institutional quality fund managers. And, you know, I think

the taxonomy would be that, you know, angels are using their own capital to make investments into companies. Super Angel were using, they were using their own capital, but doing that job full time. That was their full time job. And then, you know, now you have institutional quality seed funds where where these fund managers are managing outside capital. And so, you know, it's a significant commitment for a fund manager to do that because, number one, it's other people's money. You have to be a fiduciary to it. And number three, it's for 12 years. And so, you know, as you raise more and more funds, you can see how a fund manager with fund one can suddenly be into it for three or four funds and like 25 years of their life has gone by. And so it's a very

different kind of mentality that you want to take out. outside capital and manage it. What is the average check size for you? So if you were going to be in one of Jeff's funds, and he's been on the pot a couple of times over the last decade, uncorked capital, previously soft tech VC, what a typical slug be for you? So you have a $100 million or $200 million or $300 million or $300 million fund,

and you put $10 million, $5 million into X number of funds? How does it work? So this is what you're asking about is portfolio construction, and that's something that we really focus on the fund managers that we look at. We, you know, we really get into what is your portfolio construction, number of companies, what kind of checks your writing, how much you have in reserves. So for portfolio construction for us, we actually look at the world in three buckets. We look at seed, pre-seed, and international.

So seed funds, I think generally speaking, around $80 to $100 million. They're investing in companies that have initial product market fit. they have some traction, whether it's in form of users or actual revenue and some management team. Precede, on the other hand, is investing into a PowerPoint, into an idea. They may just be one or two co-founders. And then international is all of that, but outside the U.S. So we divide the world into three buckets. And for each bucket, we write a different kind of check.

So we think of it as core. So for a core check, we would write $15 million into a seed fund and then seven and a half to both pre-seed and international. But we also have a pilot program where we write $1 million checks to groups that we like, but we have some question about their strategy or story, whether it's geography or sector they're pursuing or business model. So those are kind of try before you buy. We make those investments with an eye toward converting them into a core. but, you know, it's just a way that we can engage with fund managers be relevant in the market. And the reason why I say it that way is there are plenty of fund of funds who raise their pool of capital and all they do is just re-up with their existing managers, maybe drop one, add one.

I think, you know, by doing a pilot program and we do five for each of those buckets, you know, that's 15 new managers that we're working with. So I think it lets us stay very relevant and keep an eye on. how the market is. But to answer your question specifically, you know, someone like Jeff Clavier, we are his largest LP and we wrote him a $20 million check, actually. Yeah. And so when we get back from this quick break, I want to know how you assess new fund management. In uncertain times, supporting your community and growing relationships with your customers will be appreciated, remembered, and shared. In good times and bad, open and empathetic

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Michael Kim is our guest today. He runs a fund of funds. Sandana. Did I get it right? Sendana. Sendana. My dyslexia flaring up. Sendana.

You've been doing this for a while now, huh? About 10 years. 10 years. And you've done three or four funds in that time? Yeah, as I mentioned, we're finishing up raising our new fund, and that's fund for. And so thank you. And, you know, I think I think what one thing that really has served us well in terms of how we do this is that we're very focused. So we're focused on seed, as I was mentioning. And, you know, I think in terms of the fund managers, you know, part of the black box of how we think about fund managers is we actually, we look for the fund managers who have that credibility to lead their investments because we think ownership is paramount.

Yeah. And so, you know, why is ownership? power amount. What does it mean ownership is power mount? So if you take on the one hand a group that's putting it 100K checks and they're getting 1% and the average exit and venture is about 100 million, you know, they're getting a million dollar return on their 100K check. So that's a 10x multiple. But a million dollar return on a 60 million dollar fund doesn't move the needle. But if you're a $60 million fund and you own 15%, so you're getting 15 million back, that's, you're you you've just returned a quarter of your fund at $100 million. And that's why we think ownership is paramount.

What is the ownership a seed fund should have sitting here in 2020? What is an impressive number for you that would make you want to be involved with that fund? Generally speaking, our core managers get 10 to 20%. I would say it averages out to about 12 to 13. But also, if you look at our pre-seed managers, they're getting 15 to 20% with the smaller check. And so it depends on the type of strategy you're doing, whether it's pre-seed or seed. And also our international funds, you know, they're investing in companies at sub-2 million-dollar preys that already have some traction. So, you know, I think like in everything, it depends. But in general,

we would want to see 10 to 20 percent ownership. And I would also say that, you know, if you're a first-time fund manager and you're running a 10 to $20 million fund, you don't need to get the 15% ownership. You should do the math and think through an average exit of $100 million, will I get a material return to the fund? And with like a 5% ownership in your $10 million fund, that math works out, actually. And when you look at fund managers, you know, it's pretty well established what people look for in founders, personality traits. We talk about it all time on this podcast. I talk about it all the time when I'm talking to LPs and when I'm running the syndicate.com. What do you look for, not in founders, but in for managers? Is there a

personality type? Is there signaling? Is there a pattern of who makes a great fund manager over time? That's an excellent question. I think at a high level, I would say that, you know, we look at people's networks, we look at their drive, we look at their vision, and and what they want to do for their firm. And I think if you talk to all of our fund managers, another sort of unique characteristic is that they're all very nice people. So I would say that we actually look for that. And I think perhaps it's a virtuous circle or cycle in that the people who play fair,

who have high integrity and are nice to work with are the ones who are actually able to lead these investments because the founders want to work with them. And is there something between being an operator or being a finance person that has hashed itself out in terms of what's desirable in a fund manager? Everybody talks about growth people or product people being sought after. What are your thoughts there? Yeah. So if you look at our fund managers, I would say at least two thirds of them actually were

ex-entrepreneurs that had their own startup, venture backed, exited. And a good example would be like founder collective. Eric Paley and Dave Frankel and Michael Rosenblum. Or we also have a handful of people who, like Tim Connors, was at Sequoia and then at USVP. So he's someone who came from a bigger firm. And then we have people like Kirsten Green who, you know, was deep into the commerce space initially as an equity research person and then later stage and then earlier stage.

So I would say it's a mix, but about two-thirds of our fund managers are entrepreneurs. And that's very important and ties to the fact that we want to see these people who have the credibility to lead their investments because the founders want to work with them because they've had that experience in the field. Now, if you look at later stage firms, a lot of them are actually ex-bankers and lawyers. So it's a different kind of skill set. But I think at the seed stage and probably Series A, you'd want to see former operators and people who have experience running teams and managing, you know, P&L. And how do you diligence these funds? So when I diligence a company, I'm talking to the customers. I'm assuming when you diligence a manager, you talk to their previous investments or you talk to other co-investors.

How does that process work of selecting which venture fund you back? Yeah. Let me just give you an example. I've actually said publicly before. So hopefully she won't mind. But, you know, when we were starting to work with Kirsten Green, this is back in 2011. You know, she had a small pool of capital that she had raised from a friend, and she was making these investments. And so, you know, she set out to raise a $40 million institutional fund.

We ultimately committed $10 million to her, so we were a quarter of her capital. But the way we did diligence is I would call, I called all the portfolio CEOs. And to use an example, you know, we were talking to the Warby Parker founders. And they were saying, yes, Kirsten is the first person we call for advice. first person we would call at 11 p.m. if we were worried about something. She has tremendous domain expertise. And then, you know, the natural question I would ask that I would follow up with is if she had a much larger fund, could you have envisioned her leading year around? And they absolutely all said, you know, completely. So, you know, when you hear 40 founders say that,

you kind of get the sense that, yes, someone like Kirsten Green can lead an event, lead around. And, you know, with an institutional-sized fund. How does a fund of funds make money? How do you make money investing? That's a good question. Yeah. So just to use an example, our first fund is about a 3x. And what that means is, you know, we've invested X and it's now worth three times that.

And how it all works through is that, you know, fund managers like Forerunner or Jeff Klavier, you know, their portfolios are increasing in size. And as they exit companies like, you know, like, um, a Fitbit, for example, to use Jeff's company, Jeff's firm, you know, they would send us a distribution. So, you know, for example, um, we, uh, so as we, we started getting distributions, uh, you know, I send that to our LPs. And, uh, I think ultimately that's what's most important is how much cash we're sending back to our LPs. Cash on cash.

What is that? Multiple on invested capital? Well, you know, I mean, people talk about their multiple. So they're like, oh, yeah, we're a 5x fund. But then you ask them, how much have you actually distributed back to your LPs? It might be 0.5 because all of its paper gain, right? And so I would say that LPs are very focused on getting cash back. And, you know, I'm very proud that our funds are actually, two of our funds are already

in the carry, meaning that we've actually returned more than the capital invested. Well, and that's, that's something because it takes typically 10 years for these investments to be realized. My Uber investment didn't get, well, I was able to sell a little bit earlier on, but generally speaking, these things don't get realized until year 8, 9, 10, typically. That's right. And I would say that looking back in the last 12 months, a lot of it actually has been some secondary. So these companies are getting to unicorn level and these rounds are like $200 million on a billion five, then our fund managers actually have that sort of degree of freedom to actually sell into that round. And they may sell all of it. Well, that's a good

question. You know, so. Because I was taught by Sequoia, never sell. Hold. So there's, so the, so the answer is that most of our fund managers, when they do secondary, sell 20 to 30%. Got it. They're still, they're getting their, they're getting capital and, and then some back. But they still have a significant amount on the table. And what I would also say is that just because a company becomes a unicorn level, you know, a lot of bad things can happen. So if a company is raising capital a billion five, the new investor comes in. They probably want a three X from there, right?

So then you're looking at, you know, something like a four and a half billion dollar exit valuation. A lot of things can go wrong between that billion and a half to four and a half billion. CEO could get replaced. There could be, you know, the growth could slow down. Then there's a down round. There's a pay-to-play around. And so we actually have been advising our fund managers from the get-go. If you have like a 10x NAV on a company, consider selling some of that.

NAV. Net asset value. So like if you have, you know, a million dollars in a company and it's now worth $10 million because of markups, then you might want to consider selling a third of that. So you get $3 million back. And, you know, you've banked 3 million on your $1 million investment, but you still have seven. I did this with com.com. We sold a little bit at the $250 million, 10% at the $250 million valuation.

Now it's been public. It's at a one point, whatever, $3 or $4 billion valuation. So a cynical person would look at that and say, oh, my God, you idiot, there was a 4x in two years that you missed out on by selling that 10. But we were able to book our investors, whatever it was, a three or four X cash on cash. win with 90% remaining. So I took the idiot insurance. Yeah, exactly. Good move or bad move? I think that's a brilliant move. Should I've done 20 or 30? Should I do another 10 now? Tell me. What I would tell you is that there are examples where actually the founders are doing secondaries and they're making more money than ultimately the venture capitalists because the company might go to zero actually. And there are some examples of that out there. And, you know, I would say that- where the founders, just so we recap what you just said,

there are examples of a founder selling in secondary. They're selling their common shares. So they sell $10 million worth $5 million, but the VCs haven't booked a win yet. Even the seed funds haven't booked a win yet. Correct. And then it goes to zero. Correct.

Which is crazy when you think about it. Yeah. And but it used to be an venture that, you know, VCs would not really look kindly upon secondaries until much, much later stage. But you actually hear of secondaries being done at series A and B. We just had it happen with Clubhouse where the founders took a million dollars off.

Exactly, right, at the $100 million valuation. The cynical version of the interpretation of that is you paid for the deal. You paid the founders off to get the deal. That would be the cynical look at it. If you as a fund manager, a fund manager, if one of your fund managers said to win this deal, we have to give, you know, $8 million in primary, $2 million to the founders. As the steward of capital fiduciary, and let's just say, it's a great company. It looks like a great investment. On a pre-launch company or a first-year company,

would you advise them to do it or not do it? You think it's a bad precedent? You think it's a okay thing to do? Answer that question. We get back on this big start. The way we work has changed overnight. And if there's one thing we've learned, having access to the right resources is essential for adapting your business. 2020 has been full of uncertainty and every business needs a plan for the unexpected. Finding the right talent can be so time-consuming and frustrating and expensive, of course. Well, that's where Fiverr can help. Fiverr's marketplace connects you and your business with freelancers offering hundreds of digital services, including the important stuff, like graphic design, copywriting, often overlooked, web programming, film editing, you get the idea.

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as in this week in startups. So I want you to visit Fiverr.com slash twist. That's F-I-V-E-R-R dot com. Two-Rs. Fiverr.com slash twist. Michael Kim is with us. You can follow him on the Twitter.

M-K. Rocks. At M-K. Rocks. So... That was my gamer tag, actually. Was it really? What are you... What do you play?

What do you play? You're a World of Warcraft guy. You're a wizard. You're a bard. Are you a call-Duty sniper? Are you a StarCraft pro-toss? What are you? You know, I used to play a lot of Call of Duty.

And I started playing video games back in the 90s when I had my Sega and I was playing NHL hockey. You can knock Wayne Gretzky out. Yeah. Blood would pour out of his head, just like the movie Swingers. But, you know, I haven't played recently, but I used to play a lot of Call of Duty at one point. And this would be on Xbox.

So I was a console gamer, not a PC gamer. And the best I ever reached was sort of about 200. $150,000 out of 10 million. So I was in the top two and a half percent. Really? Kill death ratio? What's the? Yeah, that was pretty good. I actually was not a sniper. I never was able to do that well. I snipe. I'm a sniper. Okay. But that's just my angel investing. It's also what I do in Caller Duty. Yeah. I just snipe it. Boom. Headshot. That'd be an interesting study. Like what's your gaming style versus your investing style if there's any correlation. Yeah. There's something about sniping that it's just so rewarding that you're just...

Oh, yeah. If you can do it, it's amazing. For sure. Yeah, it takes a little bit of patience. And also, you know, half the time you wind up having like an AR-15 pointed in your face as you're like camped out on the ground and you just like look up and you're like, ah, boom, boom. Right. All right. Back to the secondary. Yep. One of your fund managers comes to you and says, hey, forget about Clubhouse. You know, could be unique circumstances, et cetera. previous relationship with the founders, etc., etc. But just what would your general feeling be and how would you talk to me

if I was running your fund managers about that approach, 20% of your dollars and your LPs dollars going towards the founders pre-launch, you know, or first-year-launch? I mean, ultimately, you know,

you're right. Cynically, you could view it as buying the deal. You could also make the argument that it allows the founders to execute on the company and not worry about near-term cash flows. I think that ultimately, if the company is very successful, then that $2 million

is well spent. If not, then, you know, I think every institution of LP goes into a venture capital fund eyes wide open and expects substantial losses. And so they're actually looking for that unicorn, that decadcorn to actually return multiples of the fund. And in the case of Clubhouse, maybe it will be. Maybe it'll turn out to be like Miracat. Who knows? Right. And, you know, ultimately, I think I think that LPs recognize that venture is, you know, you basically have one or two major hits per fund. And if you, and if clubhouse, the way that Andrewsson got the deal is, it works out, then, you know, I think all is forgiven. Yeah. And that is the nature of these When you look at a fund and you see shutdown after shutdown after shutdown, that to you is not a negative signal.

It's the magnitude of the win, correct? Yeah, exactly. And, you know, you have to, what's actually remarkable is that we over, we have over 1,600 companies or a portfolio. 40 are unicorns. Over 160 are actually valued at 100 million or more, you know. And I mentioned it that way. That's exceptional because that's 10%. wait, 10% are valued nine figures or more, which we'd have to know when you invested,

but still, that's incredible. They were all seed. They were all seed. They were all seed. Entry point was seed. We have about 10% of our portfolio that are now over 100 million and 40 that are, you know, unicorns. Which one was the biggest out of all of those, of the 40 unicorns, which was the biggest

ultimate success, cash on cash, top three maybe? For our fund managers, I would say, well, for you actually, I was thinking, but yeah, cash on So, well, so we actually, so we have a fund of funds business, but, and that's predominantly what we do, but we actually also make direct investments. So we're investing with our fund managers into companies. And in our first direct fund, we were a Series A dollar shave club. We were Series A, Casper. We were Series B, honey.

And we were Series C in Looker. And so, wow. So you make more from those ultimately, or do you make more from? the indexed fund, do you think? I mean, ultimately, you know, if you think about the risk-reward profile, it's a continuum. You know, investing in a company directly, you have the highest potential return, but you also have a potential for zero. If you invest in a fund, you know, more than likely most funds don't go to zero, but they

can lose money. If you invest in a fund of funds, it's so diversified that the returns are probably muted, you know, certainly compared to a direct investment in a company. but there's almost no chance of actually getting to a zero. And so, you know, that's the risk reward profile. And I think the way we think about this is that we have our fund to fund business. It has amazing portfolio companies from our fund managers. It's all because of the fund managers that we have an opportunity to invest in some of these

companies directly. And so, you know, we are very fortunate to be in a company like Honey, which, you know, for the mucker guys actually returned something like 20. 28X their entire fund. Yeah. And it was amazing, right? And, but you know, we have guys like Roger Aaronberg at IA Ventures. And, you know, he owned 17% of trade desk when it went public.

And he owned a substantial portion of data dog. And those are, those are companies that are, are $20 billion market caps now. You know, Manu Kumar at K9 Ventures was a seed investor in Twilio and Carta and Lyft. and, you know, Twilio and Lyft are, you know, 10 billion plus dollar companies. And he invested pretty much actually at the pre-seed stage. What's the highest cash-on-cash-multable you've seen in any seed fund? What are the records? I'm curious.

People talk about Chris Saka. Yeah. Were you in that or no? No, it was before I started, unfortunately. So what is that one was an $8 million fund or $9 million fund? It had Uber and Twitter in it. And Instagram. And Instagram.

What did that wind up doing? I think 250X. 250X. Wow. Cash on cash. So $1. $250 in that fund. A million in that fund turns into $250 million.

And that's not percent for people who are listening. It's X, which I frequently have to remind people because when you're on CNBC, they think you're talking about percentages. No, exactly. And that's the funny thing about when you talk to later stage, or actually, public equity guys, they're talking about getting, you know, 10% IRAs and, you know, venture, if it works well, it's substantially above that. It's a different risk-reward profile, of course. But, you know, I think the other thing- Who was after that, do you think? Who do you think was after that? I'm curious.

You know, I am fishing here a bit for the audience, but yeah, I'm just curious. I'm the next. I mean, I just think about our fund managers. Mucker, you know, as I mentioned, it's like a 27. I think they'll end up being a 30-X fund, that first fund. And, you know, if you think about the kind of carry that generates, that's life-changing carry. And, you know, my main point with that is that you don't need to have a $500 million fund to create personal wealth. You can do extremely well with small funds. Tim Connors, you know, every single one of these funds is, What is Tim Connors fund? Pivot North. And he basically invests $1 million for 20% ownership. And, you know, he's in companies like Chime and Looker at the seat stage. And, you know, he has a phenomenal.

track record, he's very disciplined at 35 million and, you know, he can create great personal wealth and also returns for his investors. In order for these funds to work, these seed, pre-seed funds, the smaller ones, they need to have one fund manager, two fund managers? What is the ideal dollars to fund manager? Good question. We actually track that. So I would say that on average, it's about 25 to 35 million of capital per partner. And so, you know, you know, you'd see a two-person firm as having maybe 60 million or so, 60-70 million. And the other interesting thing is that, you know, in general, it's about one new investment per partner per quarter. And so if you had a two-person firm over a three-year period,

that's about 24 investments. A three-person firm might have 36 investments. So that's how we see it. And our single GPs, the funds that have one person, they're typically doing 12 to 15 investments. How do you look at those single GPs, I wonder? Do you look at them and that's a concern? Is it a feature? Is it a bug? To be honest, a lot of LPs don't like single GP funds. Don't I know it? And, you know, it could be a, you know, one reason is, well, what happens if they get hit by the bus? Right. But, you know, the fact is that limited partner agreement, you know, the documents, the financing documents, basically have provisions for that. So if someone gets, incapacitated, you know, you can replace them and manage out the fund. I think the bigger issue

about a single GP fund is that there's not another pair of eyes looking at an investment decision. So a fund manager could fall in love with a company and just start throwing good money after bad. And so that's the bigger question for us. But, you know, a lot of guys mitigate it because they have advisory boards. They have a lot of friends in the industry. Yeah, they could go rogue, I guess, is the issue. Exactly. And the other, and the issue with, partners is they could get divorced. They could get divorced or it becomes very political. I think partnerships of three are probably ideal if you're going to have multiple partners.

When you get to six or seven, you're kind of insinuating. It could be tribal. Yeah. I'll support your follow on if you support mine. Ooh. See, this is why I'm a solo guy. I think two people try to play the guitar at the same time or two people try to write the lyrics to the song. Unless you're Lenin McCartney, like, don't think it's working out, right?

Right. It's just too hard to get two people to think, you know, and collaborate on that level well. And so I just built a team around myself. But it makes me feel good that your second, the second highest you know is the marker guys, because I put 600K or so to work when I was a scout at Sequoia. And that became worth over $100 million. Maybe it was being $120. So I think I'm in the almost $150, 200 clubs.

I'm behind my friend Chris Saka. But he's kind of retired. Well, no, I think Ron Conway's probably in there. And Bill Lee, who was a seed investor in Tesla and SpaceX. I think he's probably like anonymous, so not on the board. And then I got to think Ron Conway's up there somewhere. But I don't know. I heard his fund with the Google in it.

He didn't have a meaningful percentage. You know, all I know is what's been reported in the press. And I think it was publicly reported that it basically returned the fund, but that's about it. because ownership was low and there were a lot of companies in that internet bubble that didn't work out.

Okay. What is the change that you're seeing? Right. What has your last 90 days been like? Because this has got to be a terrorizing time for somebody like yourself who's making a bet on the early stage. Early stage companies are like little baby turtles

going to the ocean. They can get scooped up by seagulls and any other creatures, just pick them off as they go into the ocean. And you're like running an entire hatchery of sea turtles. What has the last 90 days been like for you? Yeah. Ultimately, I think people really don't know how things are going to turn out. I mean, they can wave their hands and say, we've done the triage.

We looked at meeting, you know, they looked at their portfolios, which companies have how much runway, thinking about value drivers versus, you know, their smaller investments that aren't doing as well. And that's really what triage is so that you can identify the companies you want to support and make sure that they have the capital to succeed. But, you know, I think at the end of the day, really, people do not know what the top line's going to look like. You know, I mean, we're talking 38 million people have filed unemployment. And, you know, I think people have been using their stimulus checks to pay rent. And, you know, that might have worked in April and May, but June and July,

they may not start paying rent. And so a lot of negative, I think there's going to be a lot more negative news on the economic front. But, you know, the volatility in the stock market, that directly impacts, I think, the later stage guys, because they're actually thinking about what kind of returns they can make on their late stage investments. It's a little bit less as you get down to series B, series A. And then, to be honest, at the seed stage, you know, we talk to our fund managers monthly. And so we've been hearing, you know, a number of them talking about the new rounds that they see. And, you know, for the most part, you know, the round sizes are about the same, somewhere between two to three million. But actually the,

the pre-moneys actually come down a bit. So that, you know, what that actually means is that the founders giving up more of the company. So instead of 12 million 15? Exactly. Instead of three on 12s, we're seeing three on nines or even three on sixes. How quaint. That's what it was when I started in the business. Yeah, exactly. I mean, when I did Mahalo, it was three on, I think an 11 or 12 post with Sequoia. Yeah. Yeah, perfect. I mean, that's what we really want to see. And I think part of the increase in valuations is because there's been so many seed funds coming into the market, right? As I said, you know, when I started, there's probably 10 to 15. And now people are talking 8 to 900 in the U.S. alone. And so. So wait a second. You're saying when you started,

there were two dozen. And now there might be something like 500 of them. Like seven to Eight to 900 is what I hear. Is that a good thing or a bad thing? I think that's actually not a great thing, but it depends on who you are. If you're an entrepreneur, you know, certainly there are a lot more sources of capital. And, you know, so I think being an entrepreneur is extremely difficult, but from a financing perspective, you should be able to at least get going and having so many firms out there. And to be honest, you know, the barrier to entry to becoming a seed fund is relatively low.

If you're like three people from Facebook, three engineers that made it, let's say, a million dollars, two million dollars each and you pull that together, suddenly you're a $6 million seed fund or a $6 million pre-seed fund. So, you know, I think the barriers of entry have been low. I think right now it's a pretty tough time to raise new capital for a fund manager. Yeah, that was my next question. Last year, how many new fund managers did you meet with? Because I, well, I guess I can't talk about things. But let's just say, what I heard from my friends is that there were my friends who were LPs, that they were getting hammered with just an unbelievable deluge of new fund managers last year.

Well, you know, if you're a VC, you're probably meeting three companies, four companies a day, perhaps, or somehow, you know, filtering through three to four a day. I would say that from an LP perspective, you know, we probably talk to, or meet with, you know, about three a day. So 15 a week. So times like 50 is like 700. And that's like. And then how many do you add a year versus take out or have you ever taken ones out?

Yeah. I mean, we've, we've actually not re-uped with two of our best performing fund managers. What? They retired. So, you know, no, they actually became series A funds or multi-stage funds. So substantially larger. It's not the strategy. that my LPs want us to do.

So sadly, we did not re-up with them, but we love them. And what I would say is that I think, you know, that we're meeting five to 700 new funds a year or staying in touch with five to 700 groups, and that's both in the U.S. and worldwide. And so I think we have a pretty good sense of the seed stage market globally. And we are adding new managers because I mentioned our-

One a year? year? What is the goal? What is the goal? Yeah. Oh, yeah. Our pilot program now, yeah.

Allows us to do at least 15 new managers, five from seed, five from pre-seed, five from international. And that's, but that's over a course of three years. So that's probably two to three new ones a year. Our most recent new fund manager is Katie Stanton. Oh, yeah. Of course. Katie's great.

Yeah. We did that as pilot. Those quick little one million dollar checks are like a feel or bet. You get to build a relationship. It's interesting you say that because. because my friend, who I was talking to, wink, wink, nudge, nudge, found after multiple meetings with the largest that they take three or four funds to get to know a manager before making a decision. The sales cycle for some of the big institutions in LPs is in two, three, four funds they get to know a manager.

Right. How long does it take you to get to know a manager typically? Putting aside the $1 million. dollar. You know, I would say that, no, I think we could do it within 30, 30 days. Wow. So this is such a competitive advantage for you because these other big funds take like literally whatever, five years to get to know a fund. And they don't change any out for a year. You know, Kirsten Green, Roger Arenberg, you know, Tim Connors and Jeff Clavia, I've known for a long time. Eric Rinala at Mucker, I've known for a long time. Mark Sugarman at MHS Capital. You

We met with him and pretty much committed to him within 30 days. Ashmeet Sedona at Engineering Capital, the same. You know, Lara Hippo, those guys, I met with them once, spent time with them. Within 30, 40 days, we were committed to him. So I'm not saying a fast check is what we are. But I would say that we're not social proof investors. We're not afraid to be first. and we're not afraid to write a big check to something that we like.

How do you deal with the direct invests and competing in a way with your fund? So if I was a fund and I had a 10% allocation and a company that's doing a series B and it's a $30 million series B and I've got a $3 million check, but my fund can't cover it. Am I giving you my allocation and splitting the carry with you? How is that working? Well, in an ideal world, we're investing in Series B. That's sort of our target. And, you know, our fund managers as seed investors don't have the fund size to write a full pro rata check typically

at Series B. And that actually creates an intrinsic advantage for us to co-invest with them. You know, the seed investors have known the founders from the beginning. So they have a very tight relationship. And typically, they're able to get us in. You know, our co-investors, program is pretty modest. Our current fund is 35 million. So we're writing $2 million checks to 18 companies. And so, you know, I think the biggest thing that we worry about is adverse selection. Why am I being shown this opportunity? And so, you know, we try to mitigate that by requiring that our fund managers are investing in the same round as that as we are. And also that there's, that we're not bridging so that there's a new outside lead. Right. And that's important because

somebody's done all that diligence and they feel confident and you get to follow along with that. What are the companies that are going to succeed coming out of this COVID-19 pandemic? Do you think the world changes radically forever in 2021, 2022, or are we back to normal? What is your gut telling you? You know, I think there's a complete disconnect with the equity markets and that's being driven by Microsoft and Fang. I think that, you know, fundamentally there's a lot of pain in the streets. And, you know, I think, you know, you could argue that, well, the bulk of the people have been laid off are actually on the relatively lower end of the economic scale because it's restaurant and hospitality and travel.

But I think ultimately with work from home, the corporates are going to realize they don't need all these people. And so, you know, I think that you're going to see a wave of white collar job elimination. So true. And nobody's talking about this. But I'm seeing it in my own companies. where they were fighting to get this extra, you know, VP in and get the board to approve some amount of, like, exceptional out-of-line options. And here we are nine months later, 18 months later, and they're saying, yeah, we're laying this person off. It's just too

expensive. Right. And the issue is that the U.S. is about 70, the U.S. economy is about 70% driven by, you know, discretionary consumer spend. And so, you know, if you're starting to reduce that, that's a material impact on all companies, not. Not just the ones that you think about in the startup land, you know, travel and hospitality that are being materially impacted. Enterprise software companies actually, you know, you really got to keep an eye on the renewal rates because they just very well may not renew. And so I don't think any company in any sectors is immune to this. I mean, certainly there's some that have tailwinds. But, you know, I think in general we're, and that's why I preface a lot of this by saying no one really knows.

And I'm not going to try to pretend that I do, but you can see, I think, certain elements that really are very worrisome. And so that white collar slow cutting of white collar jobs, we're talking, you know, above 75K a year, 70K a year, whatever it is, 60, 70, 80K a year. Those are getting cut because if you're working from home, your thesis is, the managers start to realize who actually is getting stuff done, who's who's GSD and who's not. It's so funny, you have the same exact observation I've been talking about on this podcast recently because I think a large portion of old school management, which you and I were part of as Gen Xers, I believe we're both Gen Xers, I know I am, was like, you know, who got in first to the office, who left latest, who came back after they went to the gym,

who was here on Saturday. People used to judge a company by how, you know, VCs would judge a company by how filled the parking lock was on Saturday and Sunday. Right. And that would be the company stock you wanted to buy. And once you get people working from home, you actually look at the work they're doing. And you're like, what did you get done today? Give me a list.

Yeah. And I think also you have to bifurcate that between the developers and also just the management types. Because actually, our fund managers have been working with their CEOs to track the number of key strikes, key strokes that their developers are doing. And they've noticed that it's actually increased because of work from home. What's the thesis there? Why would it increase if they're working from home? I have my... Because they don't have the distraction of hanging out at the water cooler, right?

So they're just cranking. And there's another one. To GSD. Which is GSD because they don't have to go to the water cooler or somebody just doing that stupid gopher thing where they pop up and then you're like, why are you interrupting the entire team? It's like, I saw a viral video. It's like, why are you looking at viral videos? Dummy.

Yeah. But the management team is what you've got to wonder about. Do you need like your example, that extra VP? and maybe the answer is no. And if you're a public company, you know, maybe you don't need 20 assistant vice presidents.

Yeah, this was a problem. When I was at AOL, John Miller and was talking to me about how many EVPs he had and how many SVPs there were. Right. Just it was out of control

and because they had a money printing machine, you didn't really look at human capital, you looked at the culture and you're like, well, you can't really get rid of that guy who gets paid 300 grand a year. Right. Because he's been here so long. What I would also tell you is that our fund managers are talking about how a lot of their companies are not going to renew their leases.

And so I think there's going to be a major impact on commercial real estate. And in fact, some of our fund managers are not going to renew their leases on their own offices. So I think, you know, that's a material step. It's not like saying, okay, we're going to take the year and work from home. It's actually we're going to give up our office. Right. That's like fully committing. Yeah.

That's what are they? It's like burning the boats. You know, you land at the new world and you're like, burn the boats, we're staying. We're not going back. We're going to make this work in the new world. And do you think, oh, by the way, my other thesis to close a loop is that because people aren't commuting, they are gaining, what, 90 minutes a day, three hours a day. I don't know what the average commute is. Maybe let's just pick 45 minutes.

There's 90 minutes gained a day, which means people might stay an extra half hour or start a half hour early or whatever it is. And then the line between when you're working and when you're not has blurred so much because your offices at home. Right. It used to be people came home and during that half hour, 45 minute, hour long commute, they reset their world and they were now in family mode. It was like a buffer, right? A transition buffer. Exactly. And so, you know, you get home after your commute, you're like, that's it.

This is now family time. I am not doing anything but my family or me or whatever it is. Whereas now I couldn't even tell you the day of the week. Like, do you know what it is today? What month it is? I mean, it's all blurring. You and I and VCs and LPs, we all, you know, pretty much work straight 24-7, right? Right.

And but, you know, the other thing about work from home, obviously, is that, you know, not everyone has the ability to take care of their children while they're working. And so schools provided that function. And if the schools aren't opening, then you have serious issues. That's a serious, serious issue. And I don't know how. that gets resolved, especially here in Northern California where we seem to be the least impacted by COVID-19 because we started early and people here respect the lockdown like crazy.

There's been like no cases in Northern California and no deaths like so de minimis compared to like I think we've had a total number of debts that equals like the lightest day in New York during this crisis. Yeah. Like literally our total is the same as, you know, yesterday. Francisco, I think is 34. And I think New York this past week has been 30 to 50. So literally one day of the 100-day crisis in New York is the entirety of San Francisco.

So, yeah, getting back to work is predicated on having people be able to have their kids go to school or have help because you can't have help come to the house either if you could afford that because you're in quarantine. You're not allowed to have help even. No, I know. And so, but I would say that our fund managers are basically making investments without meeting people in person. And, you know, they can kind of triangulate and through talking to other investors who might have known them or obviously doing a lot of reference checking. And maybe at the end of the day, you'll go and do a social distance walk or two. But, you know, our guys are actually writing checks to people that they've never met in person.

Thank God I have the accelerator because that's a hundred K check. And I, with such a small check size there for a decent chunk of equity, it's a pretty good deal if you can run an exceptional accelerator. I get to get to really have a 16-week Zoom relationship. So it's almost like the 100K is the same as your million-dollar feel or bet into Katie's fund. It's like, yeah, just see what this feels like. Let's see if it works. Let's see if we vibe.

Let's see how she does, you know, evaluating companies and what the companies say about having her on the cap table, right? You get to just have a... I mean, and exactly on that point, you know, our fund managers are also talking about doing small checks kind of as a pilot. to start working with someone and not writing that one and a half million dollar check, but maybe a 200k check to see and then ultimately converting that into a bigger check in the next round. But one major dynamic that we haven't talked about that's been going on for about the last 12 to 18 months is that, you know, you had a resurgence of the series A funds coming in and leading seed rounds. And so that was actually a real threat to some of our fund managers where someone

like founders fund or light speed would come in and write a $4 million check at 16 prate. Whereas everyone, all the other seed funds are talking about doing like three on nine, right? And so the founders are like, well, we're going to take the larger round and we'll be off to the races. And so that was actually a material impact on some of our fund managers. And part of the reason for that is because these larger firms, you know, the junior partners or the principals, they wouldn't have to get full investment committee approval to write a $3 million check. If you're a billion dollar fund, it's a lighter approval process to write a $3 million check

than a $20 million check. So we were seeing a lot of that. That kind of pulled back a little bit, thankfully. And I would say that back in 2015 and 16, if you remember like Greylock's Discovery Fund or Andreessen was doing a lot of seed or Excel was doing a lot of seed. they actually pulled back from that as well because, you know, they were realizing that they were writing a lot of checks to groups and they wouldn't know all the company names or the CEOs. And then in the Series A, if they weren't leading, that would be a negative signal to the rest of

the Series A funds. And, you know, that would negatively impact the company's fundraising. And it also, what I heard, and again, I'll use the term like charitable or cynical, the cynical view of a lot of that was some of those funds were saying, you know what, I don't even want to take the Series A bet because what if they don't win and somebody else wins? So I don't know, there's Blue Jeans and Zoom. And you're like, I'm not so sure about, I got blue jeans.

I can do the Series A right now, but I don't want to miss hitting a Zoom with my growth fund or my Series C or D round, you know, or my late stage fund. So therefore, I'm just going to wait and not commit unless, because I'm, I'm afraid that if we make a bet on the lift in this equation, we don't get Uber or Blue Jeans, we don't get Zoom. Have you heard of that theory of what some of the bigger funds that have, you know, multi-stage? I mean, I think that, you know, Sequoia is by far the greatest venture capital firm ever.

And they're so smart and also ability to manage through generations of great investors. It's truly phenomenal. And if you look at sort of their stack of funds, they have early, they have seed stage, they have early stage, they have growth, and then on top of it, they have their global growth fund. And I think that's just so smart because they might have missed or not done Zoom at the early stage, but then they backed up the truck for the later stage, and they did phenomenally well with that investment. So what do you think are the companies and the verticals coming out of this that might benefit? This is a question that's been coming up, or is it too soon to tell what companies actually benefit?

are obviously ones like telemedicine or work from home tools. Do you see anything else out there besides those two obvious ones? Food delivery, like, okay, we get it. It's a pandemic. But who knows if that lasts? Is there anything else emerging that's non-obvious? I mean, you know, I think one way to think about this perhaps is that the COVID and sheltering in place has really accelerated a lot of trends. And so you looked at the stat that came out on Instacart, for example, how they surpassed Walmart and groceries in the past few months. So, you know, certain things have accelerated. You know, when we invested in Forerunner back in 2012, they were talking about how 3% of retail is done online. But now, you know, obviously with sheltering in place, it's skyrocketed like 16 to 20%.

The question is whether that's sustainable. And I think, you know, more and more people are finding, it's always hard for people living in our little bubble that it's a perhaps a daunting thing to execute something online or transact online. And, you know, because it's like second nature to a lot of us. But as more and more people do it out of necessity, I think they, you know, they realize how great that is. Yeah, like it's actually like my parents have never ordered from Instacart. And my brother had never ordered from Instacart.

and they were still going to the stores during the New York City pandemic. I said, this has to stop. Download the following three apps. Right. What are you doing? Like you, and you even have Mercado in New York delivering from like A&S pork store and like you can get rice balls and managoth and, you know, all the good moots and everything's available. What are you doing? You don't have to.

I have one that I just realized in talking to you. One of the reasons I even do this podcast to get smart people on here like you and just chop it up and hash things out. because it gives me right after. Well, I write all these notes while we're talking. And people are like, oh, my God, thanks for the podcast. It changed my life. I'm like, by the way, every podcast episode pretty much changes my life too. Because I realized something, I just realized self-improvement.

And the little bit of, all this free time people got during the pandemic that they filled with a hobby. We saw companies like Calm for meditation and self-improvement there and equanimity and sleep, et cetera, do very well during this. Steezy or dance company, FitBod, our cross-fitness company, musician, music, construction, tone. We're in freestyle and they're in Steezy also. Yes, we introduced them to it. Thank you. Yeah, well, they, you know, Josh and Dave, and Josh is coming on the podcast to talk about mental health, by the way. He hasn't been on yet, I don't think.

But Dave's been on twice, and they're doing great things there. But some of those companies are just going gangbusters because I think with a large number of people unemployed, they're going to, I believe in the human spirit and I believe they will want to improve themselves during that downtime to try to find jobs and to just generally be better humans and improve themselves just generally speaking. All the educational opportunities in every possible vertical or what I'm looking for. I'm looking for more people who want to teach me something for $10 a month or $100 a year. Like if you have that, email me now.

Yeah, exactly. I think the online learning and, you know, you might even have a certain. certification in, you know, say inside sales and instead of getting a whole MBA online, you're actually going to get sort of that narrow vertical and be certified for that. So, you know, I think in general, it's just accelerating a lot of trends that were out there. And, you know, I would also add that, that, you know, basically because of the connectivity, there's just an amazing amount of data that's being generated and to be able to titrate through that to get insight. And, you know, some learnings, I think that's going to be super critical. And so, you know, that might, marketing,

mark tech and, you know, marketing technology, ad tech, a lot of that has always been kind of out of favor, I suppose, in the last five, eight years. But, you know, I think that'll come back. And, you know, I think AI is not a space. I think AI permeates everything horizontally. And I think there'll be a lot more interesting companies coming out of that. For sure. You know, the interesting thing is Robin Hood, which we were in this, I don't know, 20 or $30 million round for that one. That's when I might need to sell 10% of my shares. But it just keeps going up. So I can't sell. I can't sell. Our guys at Souser are in that at the seed stage. Yeah. It's going to be, I mean, that one could return my first fund. Calm, that one, desktop metal. Those are all

potentially just fun. We're in those with you. Desktop metal with the founder of collective guys and Calm through a Trubik actually. Oh, fantastic. Yeah. That's actually going to be our biggest win of all time, I predict, even bigger than Uber. Yeah, because we put in $378,000 when it was a $4 or $5 million round, so we owned 5% of the company. Amazing. Yeah. That's amazing. I mean, that is an interesting, and it was, you know, when we've talked about my strategy,

when you've given me some great advice, in my first and second fund, we were doing those single bets. And I had Elizabeth on from Hustle Fund, which I think you're an open in. No, we're not. We know them well. Yeah. So we were just talking about it. And she was asking me all these questions about while I was interviewed, she was asking how we're increasing our percentage ownership. And she's where I was on my first fund or two, which is just like, hey, we write a 50-100-K check and then we move on to the next thing. Right. But we've started to now do four, five investments. And now we're investing in a series B at 150 million and putting like probably three million into it. And we were the original seed stage people. So we were increasing our percentage ownership at a $150 million round. Wow. Yeah. It's kind of a weird. kind of thing, but just watching what Sequoia did with WhatsApp, and I was in one of those funds that had WhatsApp in it, and it was just like, wow, they did every round of funding. When you see a fund manager doing that, how do you determine if they're not covering a mistake,

right? Because they're not supposed to do every round, right? You would want outside capital you mentioned before, or they're just being super savvy. I mean, we're talking about adverse selection, right? Why am I being shown this? Well, in the case of WhatsApp, they were not showing that to anybody. And so, you know, that's one thing. And then the other is that, you know, Sequoia is a partnership of a lot of people.

It's not a single GP. He's putting good money after bad. So, you know, I think it was a team decision, and it was a phenomenal investment for them. Yeah. Robin Hood jumped from 10 million subscribers to 13 million, I'm sorry, users. And I don't know what percentage of the modern pro accounts, but it's got to be 510% or something. I wish I knew that actual number. I don't have any inside information.

Yeah, they recovered pretty nicely from their hiccups, right? They had two or three days of outages. That's my hope for every one of my companies. Every company, like when you look at Twitter, like there is nobody who knows what the farewell is at this point. Like, we all know the farewell because we loaded Twitter. But like 99% of people on Twitter today, if you said, what's the farewell? They would be like, I don't know. Explain it to me.

Right, right. Although with Robin Hood, you have a slightly bigger thing at stake than not being able to tweet. because not being able to trade, you could have serious damages. I mean, I would say that Robin Hood is an extremely valuable property, and you saw the consolidation of the consumer, you know, stock trading companies. And so, you know, I think they're going to be a very valuable target. Yes. Who would be the acquirer that would make the most brilliant acquisition ever by buying them?

If you had to pick somebody who's not in finance, that's the best. buyer, right? Because they will overpay. Facebook. Facebook buying Robin Hood. Because then they can roll out part of Libra with that, you know, and they have all the data and certainly they can market it. Wow. Facebook buys. Let's get it done. Robin Hood for $20 billion. Yeah. That would be, I mean, I always thought Amazon should buy Uber. I thought that was like the no-brose. brain or bold acquisition. And I mean, something like that could still happen with Lyft or Uber since they're not

like skyrocketing right now. And I always thought Apple should buy Tesla or Google with their self-driving, which should buy Tesla. But man, they missed the boat on that too. I mean, Slack Dropbox and Airtable. How are those not owned by Microsoft right now or Apple? Or those three companies should combine and then be a viable alternative to Microsoft and Salesforce.

Oh, Slack buying Airtable. Asana is going to go public. Yeah. Asana, Slack, air table. What else would you put in there? Maybe a storage company like Dropbox? Oh, yeah, Dropbox, for sure. And Dropbox, yeah, Dropbox and a Dropbox Slack merger would be magical.

Yes. That would be magical. Because all of those, each corporate client could then just add the other product. there's probably only 10, 20, 30 percent overlap. And so you take a short-term hit to give everybody both products for one price. Yeah. And if, you know, Salesforce has been very innovative, but, you know, you look at their integration in Tableau, it's non-existent.

And, you know, they obviously acquired Tableau, but it's still not an integrated product. So, you know, I think there's always opportunities for startups. And that's why, you know, people say, well, you know, out of downturns, great companies can get formed. And another way of saying that, obviously, is that, you know, you can't time technology innovation, right? This will be the best time to invest as an early stage investor. The moment we're in right now for the next three years, this is the best time to deploy capital, correct? Yes, exactly.

Why? Explain to the audience why this seems completely illogical that you would want to push chips in during a pandemic, during a market crash, recession, whatever we're in right now. You know, when I was a little kid, I wanted to win the Nobel Prize in literature. And then I actually looked at all the winners. And, you know, a lot of them had gone through really constrained lives, like Solstsen-Nitson, for example. And, you know, as the perfect example, someone who was in jail. And, you know, I think when there's an abundance of capital and it's relatively easy to get, I think it teaches a lot of bad habits. And whether that's, you know, spending a lot on Facebook ads, or Instagram ads or whatever.

But, you know, I think when you're in a more resource-constrained environment, it actually spurs creativity. Right. And so, you know, I think there'll be very, there's, there'll be a ton of younger people who are going to be great founders out there and they just don't know it. Or, and then also, I think, you know, the nuts and bolts of things, a lot of things are going to be a lot cheaper hiring people. If you get office space, then, you know,

commercial rents are going to go down. So I think it's actually, on the one hand, a more constrained environment that's going to spur creativity. But on the expense side, you may not need as much capital. And, you know, Uber's round that you were in, right? It was, what, it was like one and a half on four? One and a half on four. Something like that. Yeah, yeah, that's exactly right. That's exactly right. It was pretty crazy. And I didn't take my pro rata. Oh. Oi. Well, you know, But the Sequoia Scouts program specifically didn't have prorata as an option. And Rulov was like, if you want to take the barraata, you're welcome to it. We can't do pro rata in the syndicate.

I'm sorry, because if we do it, then it's going to be a signaling issue. So scouts run independently of everything. Right. Yeah. What are your thoughts on those scout programs? You know, I think it really, you know, you would know better than I, but I think it does add a lot of value to the sponsoring firm. it really becomes a question of, does that translate into a material check for them?

And, you know, I think there's a balance between keeping the identity somewhat, you know, not public because, you know, I think if Sequoia was involved to use them as example at the seed stage through a scout and they don't lead the A, that could send a negative signal. So I would think about those kind of issues. But in general, it seems like, you know, that they've been a pretty, creative overall. All right. This has been amazing. Thank you, Michael Kim. Everybody follow Michael on MK Rocks on the Twitter. Thanks so much for doing the pot. I hope you stay safe. Yeah. Very fun to chat with you. Yeah, it was great to catch up. I'm so lonely. I'm so lonely.

I just want my friends back and I want to see you all perfect and give you a hug. But I mean, when are you going to, it's a very personal question. When are you going to feel comfortable sitting outside at a restaurant, having a nice lunch outside. That's a good question. When would you, would you go to lunch this weekend if you were sitting outside and everybody to the other table is six feet away? Would you do that? You know, the answer is yes.

I would too. In fact, I was in Colorado for the past two and a half weeks and we would go to dinner parties and we would have cocktails and maybe it's our quarantine where we knew the family and know that they're not sick. But as for going to a restaurant and sitting outside, I think there's no issue with it, to be honest. Quarantine. I like that. It's the first time I've heard of that. So you have your quarantine. Were you in Boulder? Were you in Denver? We were in Aspen, actually. Oh, okay. And you know, restaurants that are open.

Oh, you mentioned that, yeah. Yeah. And so it was a nice time. Oh, people were inside the restaurants? No. Well, yes, we weren't, but restaurants were open inside. But, you know, in Aspen, this is a very outdoor culture. And so there are a lot of restaurants. outside. Yeah, see, I think that this could be rethinking cities a bit because the city, you and I live in or live and or work in, is a mess right now. It could be an amazing boom, I think, for our industry if rents went down 30 percent, still be the most expensive rent in the United States, I think.

But boy, is it going to be amazing. If all these office spaces are empty, we need to convert them into residential. and repurposed. Yeah, totally, exactly. I mean, what are we going to do with all this office space? It's crazy. And then what is San Francisco going to do if Twitter, Square, you know, and any number of other companies decide to not renew their lease or go down to half the amount of space has worked from home companies. That means the tax basis is going to collapse in a city that is already overspending and underperforming. Yeah, I mean, you look at McKesson. They actually moved to Dallas, right? And so, that's a, That was actually one of the largest companies in San Francisco. Chevron moved out also to the East Bay. And so, you know, I worry for San Francisco that the gravy train of tax revenue is going to slow down and they're not going to be able to adjust accordingly. It's a startup and they have to manage their cash burn, right?

Yeah. And they have to. And retain workers. So, I mean, you can just view the city as a startup. And right now, San Francisco has a high burn rate and the revenues are probably peaking. are peaked and now on the decline. And the product itself crashes. Yeah, exactly.

You know, like we're getting the spinning wheel of death in more ways than one in this city. Like if the product sucks, then, you know, you could expect the churn is going to be high. And the product kind of sucks right now. And the churn is, I mean, how many people do you know who have decamped and NAR coming back? Yeah. I mean, you mentioned Dave Samuel and he mentioned, he announced this publicly, but he's moving to the East Coast. He's moving out of the Bay Area. What?

I didn't know that. Wow. He's moving to Maine. And, you know, that's, it's a loss for, I think, Bay Area entrepreneurs because he won't be able to work with them directly in person. But I think it also is a, you know, to take a very clinical look, he's a, a person of means who's now exiting the tax base. Right. That's less tax. He's going to be a high taxpayer who pays for God knows how many, you know, kids' school, public service roads, whatever. Right. You know, his taxes pay for it. It's a really phenomenal.

My thesis on all this is that I see the green shoot as the companies that make it through this are going to be so wildly efficient because they'll master distributed. And salaries are going to go down 30% because of market conditions and because you don't pay the San Francisco premium. Right. people will stay at companies longer, and so turnover is going to go down, and you're going to be able to hire people faster, and it's going to be a more attractive job because they can work from anywhere. Exactly. I think you'll see less churn, right, because they're not spending 90 minutes on a commute. They're living in Portland or wherever, you know, some bucolic place and enjoying their lives better and spending more time with their family instead of in the car. Right. So they're happier, so they stay longer, they're more productive, they get paid less, but they're happier.

And that is really the unlock is if people can get, if a company can pay less and get more, if they get two employees for every one they would get in San Francisco, well, what do you think is going to happen to this market here?

It's going to be shaky. All right, listen, Michael, I could talk to you for 10 hours and listen, we talk for over an hour. Thanks so much for coming on the pod. We'll have you back. Let's book this as a yearly. I think this is such a good conversation.

This has got to be a yearly, Nick. Let's put it on the clock, okay? Absolutely. Follow Michael Kim, MK. We'll see you all next time on this week. Bye-bye.