This Week in Startups - E981: Roy Bahat, Head of Bloomberg Beta, shares the myths of venture capital, the great value of founders turned investors, why VCs reject startups, searing insights on fundraising & valuations, and predictions on the future of enterprise, AI, work & automation @ LAUNCH Accelerator

Episode Date: September 27, 2019

1:00 Jason Demant intros Roy Bahat 3:14 Roy's thoughts on raising venture capital 4:14 Debunking the myth of pitching VCs 9:24 Two questions VCs ask themselves after hearing a pitch, and how founders can apply them 15:33 The startup paradox 18:04 Does Bloomberg Beta keep up with companies they passed on? 19:51 Selection bias in Silicon Valley 25:32 Why Angel $ from venture-backed founders is so valuable 28:30 Top reasons Roy rejects companies 31:38 Importance of trust founder-investor relationships 34:41 How Roy thinks about valuation & pricing 40:13 Understanding how investors make money 44:18 Roy's thoughts on pitch decks 47:45 How to tell if a VC is interested based on emails 49:40 Pre-qualifying VCs based on your business 51:04 Importance of Founders taking secondary 54:00 How does Roy process upside? 55:40 Roy's views on the future of work regarding creatives 1:01:10 Difficulty of raising different rounds 1:02:00 Investment thesis of Bloomberg Beta 1:05:50 Dealing with rejection from VCs 1:07:40 Raising children in the technological age

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Go to LinkedIn.com slash twist and get a $50 credit towards your first job post. Upcoming launch events, get your free founder pass or purchase a VIP ticket for LaunchScale in San Francisco, October 7th and 8th at launchscale.net slash tickets. Roy is, as I'm sure you heard earlier, the head of Bloomberg beta. So they focus. on investing in the future of work, especially in machine intelligence, a $75 million fund, at least according to LinkedIn, so who knows if that's right. If you haven't checked out their site,

I highly recommend it. It is the only VC firm that I know that redirects to GitHub and then has a bunch of documents and a little repo around what they do. It is absolutely unique, at least as far as I've ever seen. Also, the co-founder of Uya,

if I remember, correct? So I don't know if people remember. this was like this really cool like Android Kickstarter gaming a little controller and it was like super big on Kickstarter for a little while when Kickstarter was like pretty cool and new. Anyway, let's give a round of applause to Roy. Thank you. All right. So I'm Roy but I want to spend the next hour being useful to you. So you know before starting a company I worked at a Fortune 500 media company. I worked in government. I'm one of the very few VCs who worked in government. I worked in New York City government after 9-11. I was briefly and painfully a management consultant. I ran a

nonprofit. And so because our fund focuses on the future of work and because my own career has been so twisted, I've given a lot of thought to career planning and how being a founder fits into that, including, by the way, the financial life of a founder, like one of these taboo topics is how you make your money life work. And I've written about that and posted a piece online about how to have those conversations with your investors. We can certainly talk about automation in the future of work. We can talk about that perennial favorite, how to raise money from VCs, which, by the way, I was a terrible fundraiser as a founder, the CEO of the company that I started, she was a way better fundraiser than I was. And she and I, I learned a ton on the road.

Now I see it a little bit from the other side, and so I have some views. So we can talk about culture, we can talk about career paths, we can talk about your money, we can talk about automation in the future of work, we can talk about how to raise money or something else. What do you guys want to talk about? Okay, let's talk about raising money. Okay, that's the thing. I'm going to give you my idiots view now on the other side of how money is raised in venture capital. And I'll say, I'm speaking now about professional investors, and when I say the word professional,

I don't mean better. I just mean they manage somebody else's money for a living because that creates a totally different set of considerations. And Irwin and I were just speaking earlier. When somebody's an angel investor investing their own money, that's super powerful. And they make decisions the way any human makes decisions, which is to say, who knows?

And I will say dollar for dollar, the angel dollars of a founder of a venture-backed company, especially the founder of a successful venture-backed company, are dollar for dollar way more valuable, in my opinion, than VC money, including our funds as much as I think we're great. And I'm happy to have that conversation. And a lot of you are raising money at the scale where you can access that source of capital

where if you wanted to raise $100 million, it'd be a little more challenging. So here's my idiot's view. There's a myth. And the myth goes something like this. You know, you guys probably know, traction, product, team, like whatever those things are

that investors care about. And the myth is get a warm introduction, show up and meet that VC, and present to them what you're doing, and make the case. And then somehow you end up with crickets when that happens. And so I was like thinking about this problem, and why is it that when people follow the guidance they've been given and do it pretty well, they still struggle with it? And when there's so much money out there and all this stuff, and yet despite there being so much money, everybody struggles to raise money, or not everybody, but most people do. So something is broken in this market. And so I have a new mental model. I hope this does not apply to our fund, but I have a new mental model for how VCs tend to think about investment, which is you get

connected to somebody at a VC fund. And in that initial moment of connection is an enormous amount of information about you and your company. So the second you land, usually in their inbox, but maybe it's some other way they see your product. The vast majority of the fight is already won or lost, in my opinion, because who introduced you carries a lot of information, the reason to be excited about what you do carries a lot of information, and the argument about what you do, the like, please stop for a second and think about me and what I do,

the reality is most VCs are not really even spending the time to do that, or worse, they're paunting you off to somebody on their team who doesn't have investment power, who doesn't have the power to say yes. And Bloomberg Beto, one of the things we did differently, I was frustrated as a founder because you'd go meet these funds, and then they'd be like,

yeah, I think I'm going to talk to my partners about this. And you're like, hey, I thought you were like a serious hitter and here you have to like go talk to other people, like what's going on here? And then I realize I'm doing an enterprise sale to this weird enterprise of like 10 people, and I got to figure out who's the champion and who's the blocker.

And it's like, well, this is hard. So in our fund, anybody you talk to, anybody in our team can say yes to any deal. End of story. And part of the issue is if you are meeting with a typical VC, even take you've followed the advice, don't me with the associates.

I agree with that advice. Associates hate me for saying that, but whatever. You're in there with the general partner of the fund. What are they really thinking? You think they're thinking, is this a good business, should I fund this company? I've found in practice what they're really thinking is. Is it worth me continuing to do work

on this company or not? Is it worth me risking some of my internal political capital within my own venture capital fund in order to talk about this company or not? Because if I'm a VC, unless I'm like the head of the fund, in most cases, my career advancement is actually much more dependent on what my partners think of me and how fast they advance me and my economics and my status within the firm than whether I make a good investment. And that's crazy. There's a lot of other ways that VC stuff is crazy,

which I'll tell you about markups and capital in a second, but let's just talk about the pitch moment. Like, that is the mental model. And so what does that mean for you? It means by the time you get down to traction team, blah, blah, blah, blah, blah, if you're starting there, chances are you've already lost. And instead, I'll give you my simple mental model, which is VC receives pitch.

It goes like this. Has this person ever made money for me before? It's like, if yes, then I will for sure fund the person. Okay, that applies to like, I don't know, 0.01% of founders maybe. Then it's like, has this person ever made money for somebody who I know before? Am I jealous? It's like, okay, maybe that applies to 1% of founders or something like that. And it's like, okay, no.

Then after that, it's like, did somebody whose judgment I deeply trust on what will make me money, tell me about this company? Not a friend from college, not somebody who was at a portfolio company once, but in the signal about the introducer is so much of the information, because literally the first thing the VC sees is the name of the person who is telling them about you and whatever's in the subject line. And you have more control over those two things

than you may realize. It's one of the reasons we really advise founders spend a tremendous amount of time before pitching a fund reference checking that fund. And you can find online I wrote another piece about this. It's not like reference checking a hire. In a bunch of ways it's really different. But when you reference check the fund,

one thing you get out of that is you'll understand who knows this fund well, who is respected by this fund. And there's a huge difference between me. Like, I think we have great relationships with a bunch of good VCs. Like, you'll see our list of co-investors we're super proud of, best names in the valley. And still, when I send them a deal, they know it's in a process. They know that that company is now raising money. And so they know that I've been very thoughtful and intentional and strategic, which I am, because it's as investments that I care about, about when to introduce them. And so you got to reverse it from the perspective of the recipient VC.

And so they're thinking to themselves, how should I do more work on this when they get it? And I'm going to break that down into two sub-questions, and this will apply to your pitches. Because your pitches were good, but honestly, none of your pitches were great. And the reason your pitches were good because, like, you got traction. It's up into the right. You know, you're talking about the right things. You're not spending time on stupid stuff. You know, it's good.

But great is, can I explain to my partners in the, like, half a sense. while they're still paying attention to me, a reason, not like an opinion, but a reason, a fact, why this company has a chance to be one of the most extraordinary companies ever. That's really what they're thinking about. They're not thinking, do you have a good business? They're not even thinking, do you have a great business? The good VCs are thinking, is there a reason to separate this bird from the flock and believe that this company can be an outlier?

And unless you know what that reason is, and it can't be bullshit, it's usually not like, well, we're the blah, blah, blah, blah, blah. It's usually associated with words like first, best, only, and it can be a really modest signal. With Pinterest, one of the early signals I heard about, and I'm not a consumer investor, so I don't know this firsthand, was they just had such extraordinary engagement numbers. The engagement numbers were some of the best engagement numbers they'd seen. I'll give you an easy example. Nest. Well, this guy designed the iPhone. Maybe he'd be good at doing a hardware company.

It's like when you talk about team, that's a reason to believe a team is an outlier. This person built all the machine learning infrastructure for Make Up Your Company Facebook, and they're doing a machine learning infrastructure company. It's like, okay, I'm paying attention. But you need a fact-driven reason. Oftentimes at the early stage that you guys are at, it's a little glimmer of something with your customers, some early usage. Or it's an insight. It can often be an insight. We see something in this market that is completely determinative of success and that nobody else sees.

So that's the first thing they're thinking is what is an easy reason that I can explain to my partners, that I believe in my heart, but I got to be able to justify it to them before I lose their attention. The second question, I believe they ask is, why me? Everybody's secretly insecure about their own judgment. You know, it's not like VCC see things and stroke our chins and think like, well, allow me to stare off and contemplate the nature of the universe and yeah, this is the company. Like, really, you want a reason to believe that it's come to you. And in our case as Bloomberg Beta, that reason is focused. Like, I know only one company here in this room is even something we would consider investing in. And so when we consider

investing in something, I got a reasonable shot to think I know something about the domain that they're in, I may have better judgment at our stage for those. I mean, that's our reason. But everybody has their own reasons. It might be this is my best friend from college. So that's why I have this special thing. It might be, I saw something in one portfolio company at a certain stage that nobody else saw, and that rhymes with the thing this company is going through. But if you're the founder, it's your job to back solve for that VC and guess at, not too explicitly, there's some art to it, but you got to guess at why will they believe this is for them? And that's the reason why, for me, cold emails so rarely work. You know, we say we want warm introductions.

The reality is we have responded to cold emails and invested on them. But if I see that you've spent almost no time customizing it for me, it's not about your respect for me. It's not about anything like that. It's like, well, why would I be the best investor for this? And every time I invest, I want to have a chance to be the best investor in the world, a chance, for that dollar on the cap table. And if I can't convince myself that we could pass that test, then I don't want to invest. Because if I'm not the best investor for that dollar on the cap table, startups, like, there is no second place. There's first place is Valhalla and second place is nothing. And so those two questions of really like, number one, why should I believe this is an outlier? How do I explain

this to my partners? And number two, why me are the things that you as the founder kind of have to back solve for for professional investors. So that's my mental model and I'm happy to take more questions on it. As a founder, you've got to make a lot of choices. That's your whole life is making choices, picking who your customers are, hiring new employees. Well, here's a choice that you no longer have to worry about. That is getting insurance. You need your insurance and every company needs different levels of protection. Well, how are you going to figure that out? How are you going to make that choice? Well, the easiest way to make that choice is the Hartford. They provide products and capabilities. abilities that allow you to select a solution that can be tailored to your needs. The Hartford has

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All right, let's get back to this amazing episode. Yeah, so it sounds like number one is a lot of social bias, right? It's like, what are my partners going to think of me, who is introducing me? And that definitely gets you very far. And I've seen that get you very far. Number two is kind of having a lot to do with investment thesis. Can you take me through potentially, I don't know if you have these figures, but some numbers in terms of how many meetings you, or how many decks you look through, how many meetings you take, how many gets a second, third, and maybe stratify by thesis and also by social bias. When you say thesis and social bias, what do you mean?

I'm kind of categorizing like the first, who you know, who introduces you. It's all everything for all of it. Like I think these things are inseparable. There's this endless quest with startups to, startups have a paradox. One of the paradoxes is you've got to focus on certain things. The other paradox is it's never just one thing. Like in a movie, it's never just the script or just the actor. It's how the actor does the script. When a chef is cooking a dish, it's never what are the ingredients and what's the technique? It's how did they use the technique on the ingredients? So I think it is literally, I don't know a way to separate those two things. Like, I don't know how to do it in my mind. You know, we, I want to say our numbers, I'm going to get this approximately wrong,

but if you email me, I'll try to get it right. But we meet with tens of companies per month, not 100 companies a month. I myself do a lot, I was just telling to ruin this, I do a lot of back and forth over email because I've found that I can often find, I'm looking for a reason not to invest at first, because if I can find some easy thing that's a reason not to invest, then I don't have to burn your time. And my nightmare, like why are we so transparent? Because as a founder, like you spend all your time, you get the intro, you drive down the 280, you show up in this office, you wait, you get their Wi-Fi password, the admin, you know,

asks you if you have a PowerPoint presentation and you think, oh, shoot, was I supposed to bring one? Then they serve you fancy water. And then you sit down. Finally, the person is there. They have the whole like stack of business cards. They hand you one. And then you feel like you're in a law office. And then like three minutes in the meeting, you're like, oh, shit, what I'm doing is

just not at all a fit for this fund. It's like, well, why did I have to do all this other stuff? And so we're looking for reasons to disqualify. So I can sometimes have 10 emails back and forth with a founder before we get together. And I would say personally, I probably meet three companies a week, new companies a week, very few. But I've had a lot of dialogue with them. By the time I'm meeting with you, I've done my background reference checks on you generally. Maybe not all of them, but enough to know that somebody I know thinks you're great or that I have no data. No data is not bad. It's just no data. Yeah, so I don't know if that answers your question.

But then second and third meeting, we don't really think about it that way, because it's so organic after that point. It's like, I've said yes in the first meeting. You know, I've, you know, like, I've had cases where literally, before the founder got home at the end of that day, I had my investment documents waiting in his inbox. And then I've had cases where we knew the person for two years and passed twice. And so it's real hard to make it transactional.

It's kind of like, how long does it take when you're dating somebody to know they're the one? It's like, I don't know. sometimes it's fast and sometimes it's slow. In terms of companies that you pass on, how many do you actually keep up with and take follow-up meetings further on in the lifecycle of that company? Well, define, okay, so keep up with, could mean do we proactively track?

And the answer to there? Not in terms of proactively track, but let's say you pass on, you know, and they come back? Yeah, usually when they come back, the issue is still the issue, meaning, first of all, usually we're like, hey, we had this concern about X,

and the founder comes back, They're like, hey, can we catch up? And it's like, well, what about that thing that we told you was the reason we passed? And they're like, hide the ball a little bit. And it's like, well, just tell me, if you solve that thing, I'll happily eat my words. I love eating my words. You have to as a VC if you want to be good. But then the other challenge for us is a stage challenge, which is we invest as close to day zero as possible.

If you've taken money from another VC fund, especially another VC fund bigger than us, chance starts too late for us. And so people, sometimes we pass, people like, great, see you at the A. And I'm like, no, I know a lot of VCs say that. that, which by the way, I think that's awful behavior too. Like, if you pitch me as a VC and I write you back and I say, but come back for the A, like, I'm sorry, you offered me a chance to invest.

I said, no, you don't owe me anything at that point. You don't owe me coming back. Like, I just think that's like really obnoxious behavior. But the answer is if it's a fit, we'll invest whenever it's a fit, it just has to go from not being a fit to being a fit, and that's really rare. It happens, but it's rare. Yeah.

I love your thing about you don't owe me coming back because I'm not coming back to any investor that turned me down at this point. Yeah, up to you. Yeah, so. Unless, by the way, you need to raise money at some point, and there's only eight investors that write checks in that domain at that check size. No, I won't do it.

Okay. Say that now, but tough talk. Okay, we'll check in. So speaking of tough talk, I feel like you've asked some really aggressive questions and not participated in all the rules and stuff, and so I hope you don't mind if we're, like, sort of equally challenging. Oh, yeah. No, I love it.

Truth is the thing. So do you think that these selection factors for who introduced you and how you know them for make your selections? race, gender, and privilege bias? That's part one. And then do you think that some of the selection signals that you mentioned about like first and best might be a little too early for some of this? People in this group who haven't had time yet to develop their model? And don't you think that creates an opportunity, essentially in both cases for VCs who are a couple notches more patient to catch an idea before it fully forms and then also to select entrepreneurs who maybe didn't

go to the same elite school you did? Yeah, so let me say, first of all, I was just, and I don't mind, by the way, I'd be curious which questions you thought were aggressive earlier because I just thought I was asking questions. But I didn't say we do it based on when the inbox arrives. I was describing other VCs, and we actually have an explicit, but of course there's real information. Who introduces it to me? Of course it's real information. And of course that information carries a tremendous amount of bias. And that means we set different bars depending on where the information came from.

If you are a recent immigrant to the United States, and therefore I couldn't reasonably expect for you to have a community in San Francisco, and you send me a cold email, I'm going to look at that really differently than if you're a Goldman Sachs Stanford Business School graduate who sends me the same email, because the contexts are totally different. And so the way I look at it is, yeah, I mean, I started a company with a woman. I'd never seen sexism, like the sexism I saw that she experienced. And my guess is our case was not even that extreme. And my view is, their bias, their sexism, their racism, their classism, that's my profit opportunity. So every time I see somebody from an underrepresented background, I not only think, yeah, it's the right thing to do to engage with them fully, but also like if I am over indexing on engaging with them, any place my competitors aren't looking, I want to spend more time looking. It's just like a business. I sell money. And so my competitors are not selling money in that part of the market. So I'm going to invest more time in that part of the market. So that is my answer on bias. But I do think in general, it absolutely is one of the reasons why we have such a distorted, uh, last.

of diversity among the startup founders. We actually did an exercise, you know, so like I said, our business is selling money. We sell money really early. And if I pitched you my business and I said, I sell money to companies and you said, how do you meet your customers? Imagine one of you was pitching this. How do you meet your customer? I said, I wait for somebody to introduce them to me. You know, you'd be like, right, exactly. It'd be stupid. And that is what most VCs do. And so we started thinking, well, by the time somebody tells us they're raising money, which, by the way, if you think a good VC cares whether you say you're raising money, it didn't like that. Like, It's like a cab and you're going by, the light isn't on,

but I'll flag you down if I want to. You don't have to stop, but I certainly don't have to care whether your light is on. But we started thinking, is there a way we can get to know founders before they start raising money? Now, that's hard when you invest at the formation and concept stage because we've invested oftentimes where the founder incorporates the business. Like the delay in closing is they don't have a bank account yet.

And so how do you do that? And we asked, could we predict based on data who had yet to start a company, who was going to start a company in the future. And so we've now done this exercise three times. We work with Berkeley. We're now doing it on our own. And we crunch a bunch of public data

about people in the technology industry. And it's like the minority report of starting companies. We tap them on the shoulder. We say, our model is predicted. You are statistically likely to start a venture back company in the future. And the first year, everybody thought it was spam.

And then some people showed up, and the second year more people. And then the New York Times wrote about it and stuff like that. And so we're trying to, very hard to circumvent the introduction bias that happens that, you know, it's just who you know, including using data. And that group, by the way, was so much more diverse. I was terrified that it was going to be a group of white guys because we used, I mean, it's a model, so we used

as training data. We didn't use race or gender, but we used the professional backgrounds and the educational backgrounds of the current community of venture-back founders, because how do I predict if you're going to start a VC-back company? But even just using that, the predict group had twice the proportion of female founders. We didn't get race data because it's hard to collect consistently, but just showing up at the first event, it's like, we had three black female founders in the room. I was like, other than events, four underrepresented groups, I didn't see that many rooms of Silicon Valley founders that look like that. So that's our attempt. Then you asked a really good question, which is at the stage of which companies in this room are at

are words like first, best, and only possibly inappropriately early. And I think the answer is yes. I think it depends a lot on precisely where you are. So given where you, you're, you are what is an eligible reason to believe you might be great. And sometimes there is no such reason. And we call that an alchemy bet. Sometimes it's like a consumer product or an end user-facing product because we do end-user-facing things, but not necessarily in their role as consumers. And you mess around and one day you got product market fit. You know, you just move the right button in the right place or something like that. And those bets are very hard, candidly, for us to judge. But at the concept stage, it could be things like the best insight we've ever heard about this market,

the founder whose empathy with the customer based on their background is better than anybody else we saw. So no matter what your stage, it is possible that there will be a reason to believe you could be extraordinary. It's not definite that there is a reason. And sometimes you can't find a reason, even though the company does turn out to be extraordinary. So the model has limitations. But I do think it's worth trying. And look, we happily take criticism. Our investment criteria are posted online. So if you think there could be better, I'd love to know. I mean, seriously, like we take pull requests from anybody and we'll happily make change. because that's how we get better.

And I appreciate what you said about, you know, tough questions. Keep asking them. Yeah. Maybe a less tough question. It's all right. You said that you think that angel money is really valuable for founders. Angel money from founders of venture back companies, not your cousin, the dentist. Okay, that's good to clarify.

My question was, where are some recommendations of how to find those people? Because it's a lot easy to find venture capital. No. It's way easier to find financial. of venture back companies. I mean, crunch base, LinkedIn, you look them up, they're so much more likely to respond to a cold email or an introduction from a friend.

Like, they're not assessing you in the same way, in part because you're not necessarily, I'm not suggesting approach every founder you meet as a potential investor. First of all, someone don't have money. But increasingly, in part because of venture capital scout programs, some do, some who have yet to have a liquidity event do. But you are founder to founder.

Like, that's like a sacred bond. And so I think you can oftentimes surprisingly get mentorship and input, you know, maybe not from like Brian Chesky today. Maybe him, you know, maybe he loves what you're doing. In fact, it's actually very similar to how Airbnb took photos of their properties as a former super host. I could say that was really valuable. But some founder who's a couple clicks ahead of where you are in terms of progress and

who seems to be doing a great job, if you can't get to that person, you're going to have a lot of other challenges in this business. and I do think it's easier than VCs. Walker Corporate Law. You've been there with me since the beginning. Thank you, Scott Walker. Walker Corporate Law is a boutique law firm that specializes in the representation of entrepreneurs and founders.

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His number, 415-97999-98. 415-979-98. How cool is that that he puts his phone number and his email right out there for you to email him at Scott at Walker Corporate Law.com? Thanks again, Scott, for supporting this weekend start-ups. You're the longest running sponsor, I think, along with Squarespace. I really appreciate that. Okay, let's get back to this amazing episode.

So, Roy, can you give the top five reasons why you reject companies? Or, you know, you said you had that stack rank. You're finding reasons to reject if you can categorize them in top five or something. Yeah, I mean, top five in terms of frequency sort of doesn't matter because it's an outlier game. So the real reason from our perspective is what are the reasons we've tended to reject the very best companies? The most vexing one is price, because we're really price, a way. price sensitive, like, yeah, valuation. We feel like we're taking a lot of risk. We're happy to be, like, we never ask who else is in the round. If I'm going to write a dollar into a company,

I'm willing to price the round. Like, we are high conviction investors. But in exchange for that, we feel we're taking real risk. And I think that it's not clear to me that the current valuations in the market accurately price the risks of companies. And so we've lost a lot of stuff on price. So that's number one. Number two is skepticism that the company actually needs money. Like when I ask, you know, why are you raising money? Usually you get some version of VC marketing spat back at you, which, you know, VCs, we sell a commodity product and commodity money, right? My money is legal tender for all debts, public and private, just like everybody else's money. And when you sell a commodity product like fruit, you differentiate it with a brand.

And so VCs, whoa, lo and behold, surprise, surprise, have gotten really good at marketing. And they'll say something like, wow, I just want to go big. I mean, or you say like, why are you raising money? they're like, well, I don't want to just build a lifestyle business as if, like, somehow you can't build a monster company without raising venture capital money. But we like answers that are of some form of like, what do you mean? I need the money. Like, I got to pay rent or I need to hire somebody to make the thing.

Like, that's a good reason. And we're trying to get at, to what degree is this person playing house, like, just like going through the motions and they could be in an episode of Silicon Valley next month, versus to what degree are they using the methods of Silicon Valley and technology and venture capital in order to build the company that they want to build. So I'd say those are the two most frequent reasons. But then, you know, then there's a whole set of other stuff and our criteria are posted on our websites. You'll see all of them there. Yeah. So starting this program and, you know, talking with advisors and different people that have raised money, you know, one of the things that

keeps getting brought up is make sure you're, you know, partnering with a VC firm that you could have a really good relationship with because it's a relationship, right? It's a marriage from which there is no divorce. Exactly. So I really think about that when I take meetings and if I even have a video meeting and I can tell that like we just don't really see eye to eye. And I see going down the way of, you know, I might reject a VC just because I don't like them. Yeah. You have a pretty strong personality and I could see maybe somebody

just rejecting your term sheet because they don't like me. They just don't like you. Happens all the time. Has that happened quite often? I mean, I wouldn't know. I wouldn't know, to be honest, because... And how big, and my real question is how big on the VC side is like, you know,

you, that person's personality, you know, we have a... You said organically, you mentioned that, like how well we jell together. Or I just don't like that person. Yeah. So, So I would say for me, first of all, I'll speak as an investor and then I'll, well, let's talk about me first. You know, you get this advice that like you have to have a defined brand.

That just means be yourself as a company. And I'm myself. I'm extremely blunt and extremely transparent. The reason I am that way is because I think it's a faster way to get at the truth. Some people love that. Some people can't stand it. And it is a cost of my model of doing business that I'm going to deter people who do not want to work with me. On the other hand, there are lots of people who feel like we can have.

have the best relationship that they could have with an investor because they could be open and share things they can't share with anybody else. You know, they can drop the mask at two o'clock in the morning when they're freaking out because they just got sued or because they're going through some personal issue that could blow up the company or because their mom just got sick and they can't figure out where to get the money to pay the bills. And so like any good market-facing presence, if it's authentic, it's going to deter some people. And I have to live with that. And my partners, fortunately, are much nicer than I am. And so one of the nice things about having a diverse team. I'm our only white male partner, but diverse in many ways, is that if somebody doesn't

like me, they might love James, they might love Karen, they might love men, and that really makes a huge difference to it. Now, as far as my own feeling toward a founder, I'll start with something simple, which is if I distrust the person, I won't invest. I've heard lots of cases, though, where VCs are like, oh, no, no, no, you can't trust this guy, but we'll make a lot of money. I just decide I'm fine, giving up the money. If I don't like the person, then I really query this. that. Like, is that because of some issue I have that I need to get over? Is it because it's a signal of something that could be a performance issue? But I've had plenty of cases where I didn't like the person at first. They didn't like me, but I really respected what they were doing,

and I spent more time with them, and now we have a really good relationship. And so merely disliking them, I think, deserves further inquiry about what is that really all about? That's how I think about it. Does I answer your question? Are we just doing Q&A? Or are we getting in the way of the presentation? I don't care. I'm here for you. So, like, unless you want to, I just didn't want to interrupt. No, not at all. Thank you. This is interesting. You're talking about valuation and that you think that risk is mispriced.

Can you take us through like a quick pass at like how you would look at it? Since you said you would never invest in my company, you saw the stats, you know, next month we'll make 60-something grand. You know, blah, blah, blah, attacking a market of X size. Like, how do you think about the pricing for that and, you know, be as direct as you want? You won't hurt my feelings. And then the second one is, um, you know, Do you think that a balance of power is changing between capital and entrepreneurship in the sense that now with so many years of interest rates at basically zero when you factor in inflation, not just here but worldwide, that essentially, like, since you're selling money, like, money's really cheap and widely abundant. I'd rather be in your shoes than mine.

Right. So, and then, like, entrepreneurship is the new scarcity. How do you think about the next 10 years in VC and how maybe you're going to have to do more of what you say you're already? doing where like you come find me instead of I come call on you. I mean I I believe we are already there and we're not already there for everybody meaning we're not already there in a founder power environment for everybody but we're religious about founders our customers we use founder NPS as the metric we use to run our fund in part because I can't think of a better metric to use many vCs use the paper value of their portfolio and the reason they use the paper value of their portfolio I'll

just tell you something scary for a second if I can digress I'll come back tale of two companies Company one, VC invests a dollar, and 10 years later, they get back $100. Happy VC, happy founder, I hope. Company two, VC invests a dollar, and 10 years later gets back $80. Seems a little less good, but still really good. But company one, the $100 company, never raised after that initial round. Company two raised every 12 to 18 months, like a clock on higher and higher and higher evaluations.

Which company do you think the VC, the typical VC would want to invest in? company number two, even though it's worse for them in terms of returns, definitely way worse for the founder because all that dilutions come out at your end. Why do you think they prefer company two? I think the reason is because they are trying to raise another fund from limited partners, and the limited partners need evidence of progress of the VC funds quality, and if it takes 10 years for a company to get liquid, the paper gains are their only evidence. And so that's why is that they're really solving.

I mean, I remember a great seed fund passed on the company I started. And they were one of the few that passed, by the way, in the sense that most of them just never responded. None of them said yes. I got 40 non-yeses. Yeah. Oh, yeah, tons. And then, by the way, first day on Kickstarter, $2.8 million, the email started coming in. What would happen to that follow-up meeting we were going to schedule?

It's like, you know you dodged me for a month. Like, just be a human being and admit it. If all they said was, wow, I messed up, I should have re-answered your emails, shoot, like, I'd have been fine. Like, we all have, you know. But this great seed stage VC, I then saw a year later. And he said, oh, we messed up on passing on you. And I said, why?

What do you mean? He's like, oh, you raised an A. I was like, yeah. And we did raise an A. We raised a big A after an $8.5 million Kickstarter campaign, so that helped. It was still hard, by the way. It was not easy to raise that A. But that was his whole mentality was if you raise an A,

it's a good investment. And that's, especially because the capital's available, what you end up with is some, not the good VCs, by the way. Good VCs are like good startups. They're few and far between. They're the outliers, but they do great work. What you end up with is this environment where really what a lot of investors are solving for is investing in companies that the next bigger fund wants to fund.

And that is just, like, bizarre. Because I don't, I want the market, like your customers, those auto dealerships, I assume it's dealerships, not manufacturers. Yeah, those auto dealerships to, you know, to decide the fate of your company. I don't want some random other fund with a 10-person, like, you know, fraternal lodge of like, you know, Freemason Society thing to decide. It just doesn't make sense. And so that's that's the danger in there.

Hiring isn't about putting a wand ad in a newspaper anymore, posting to some Fugazi job board and waiting to see what knuckleheads apply. No, you need serious talent, right? You're growing your business. You need to reach the right candidates, the people who are going to fit in with your team and be A players, right? Well, where are you going to find the A players? You know where to find them. It's LinkedIn, of course.

Members of LinkedIn are there to make connections. They love to go learn. And they like to grow as professionals and discover new job opportunities. Maybe they're not looking for a job, but they'll opportunistically take a little perusky. Maybe find something interesting, and that interesting company might be yours. In fact, a hire is made every eight seconds on LinkedIn. That's it. One, two, three, four, five, six, seven, eight.

Somebody got hired on LinkedIn. That's how LinkedIn gets your job post. They get right to the people who have the skills, hard and soft, to solve the problems you need in whatever role you're trying to fill. I know this because we filled a number of important positions here at our company by using LinkedIn. And I'm going to give you 50 bucks to use towards your first credit in just a moment. And here you see CMO Fresh posting for our new client service manager position in our Toronto office. You know, we have this growing podcast and we need someone to maintain the client relationships and help us with growth and marketing and all that good stuff.

So we write in the skills we need. We write the description. We add some additional screening questions. These are critical. Great hack screening question. Why do you want the job? What podcast do you listen to? You know, things that people who don't care about the job will skip.

And it's all done within a couple of minutes. He sets his daily budgets and he's on his way to finding a qualified candidate. And the first $50 is on them. me, your uncle Jason, go to LinkedIn.com slash twist. LinkedIn.com slash twist and get a 50, a 50, 50 clams from LinkedIn and Jason. Go ahead. Go to LinkedIn.com slash twist.

Okay, let's get back to this amazing episode. I feel like I lost a thread on your original question, though, with my own digression. What was the original question? Give me, give to me. How you think about the valuation of a company like mine. So here's a really important thing to understand about how VC funds value companies.

Pretty much every time we get out bid, I'm like, is it a bigger fund than us? Yeah, pretty much every time. If I am an investor with a fund, I have a fund of a certain size. And understanding this math is like so few founders spend the time to understand the math from the VC's perspective. If I want to make money, I need to return the entire fund before I start getting carry, generally speaking, most funds. Which means I need investments that in total, total up more in their returns than the size of the fund. And in practice, the way many VCs think about that, and we think about it this way, is we want to believe every company in which we invest has a chance to return the whole fund that that company can. Because the successful funds almost always, if not always, have that pattern. And so then you start thinking, okay, well, how much of the company do I have to own for that to happen? And that's why VCs are very focused on ownership percentage, because they make money when their outlier hits, the only question about how much money they make is how much of that company do they own. And then they think, okay, well, what's my constraint? I have limited money, sure, but more importantly, I have limited time.

I can only serve so many companies because VCs have this implicit model of trying to work with you. Serve on a board, which we don't do because I don't like boards. I call them B-O-R-E-D-S. But they only have a certain number of slots. And once you realize how many slots you have, then you realize, oh, I should probably invest roughly the same amount of money in each company. and then what you realize is across VC firms, the percentage of their fund that they put into a first check,

it's within a pretty tight range. I mean, it varies depending on strategy, but that's the number. And then, by the way, take a bulge bracket Sandhill Road firm. They want to own 20%. And so the valuation is actually the dependent variable, not the independent variable. They may sit there and pretend, oh, is this worth $30 or $50 million?

And by the way, the bigger the fund is, I think the less it is like this, because then you do have independent market valuations, and obviously there's competitive pressures. But generally speaking, it's like if I'm a huge fund writing $2 million on a 20 post to own 10% of your company versus $1 million on a 10 post for 10% of your company, actually might not be that big a difference if I have a $400 million fund.

I don't care. And so that produces a huge variation in price. If you're a little fund like us, then it can make an enormous difference. And so fund strategy is a function of fund size, and valuation is as much a function of fund strategy as it is of you. Or a different way of putting it is, if you are a company that a bigger investment fund wants to invest in, you generally will be able to earn a higher price, end of story. Does that help answer that? Was there another question in there?

All right, cool. Yeah. Yeah, you spent a bit of time talking about intros and investor perspective. What about in the last week? How would you say, how many would have you got and what kind of type were they? Warm intro, cold outreach, and which ones did you respond to? I love to know. I don't know the last week.

I'll give you my biased memory, which is I probably get, I don't know, three to five non-noise introductions per day, something like that. Non-noise signal, like real companies, not like somebody was like downloading a list and copied my name in and I can see because there's a space between my name and the comma that they did a mail merge, you know, that kind of stuff. But like real companies per day, something like that. And cold companies that are real, very few. I mean, I would say once every three or four months does somebody hit the bar of doing the work?

And part of it is just, it's a lot of work to land a cold email. And you have a lot of funds out there. And so from their perspective, it's like, why should they invest a bunch of time in me when I might just hit delete? And so that's the challenge. What? LinkedIn messages or emails or DMs, like, I don't care. I'm Omni Channel.

If I'm not on the other end of your guess about where to find me on the internet, I should be, so please give me the feedback. And if you can't find me on the internet, you should be in a different line of work. With the introductions that come through, how many would you say you actually look at the pitch deck? So, for example, like you and I got connected before this, and you actually spent the time to look at the pitch deck. Would you always do that?

No. I would do it when it's valuable to look at the pitch deck. So in this case, because you have a friend who's a colleague of mine, I want to understand a little more about what you're doing, even though what you're doing is not in scope for us. I want to take a look. So it was that kind of thing. I don't know how often I look at the pitch deck. Honestly, we've invested in a lot of cases without there being a pitch deck because there's no rule that says there has to be a pitch deck. But I don't know. I don't really think about that. But for sure, if there is a deck and it's in scope for us, then I'll look at it because I'll look at whatever information I can get up front. And, you know, I just want to say something about, decks because so much of the effort goes into the deck. And in my opinion, I have mixed feelings about it. Because on the one hand, it's really valuable to do the thought. And I have a piece that I wrote about how to do business planning in a startup called a thesis plan. You may notice, I asked you, what are you derisking for some of you? The whole way I think about startup progress is not like, did you go from 1x to 10x, but like, what risk did you eliminate? You eliminated the risk first that

you have product market fit, maybe. Then you eliminated the risk that you could sell sustainably. So, you know, I think thinking about planning as de-risking can be really valuable. And I don't think I am unaware of cases where anybody is persuaded by a deck. And what I mean by that is I'll give you a mental model. One mental model, the myth model, and I said that earlier in fundraising is, you get the intro, you make your case, and the person's like, I agree with that case. Yeah, let's invest. I think a more accurate mental model might be the person has whatever pre-existing beliefs they have.

You either satisfy those pre-existing beliefs or you don't. and you don't convince them of anything ever. This is why I think market sizing is ludicrous. Like, I've really never seen a case where somebody did a market sizing exercise. No, market size is important, but you doing a sizing exercise. I know, it's like either I buy it's big or I don't. And no bees in your deck. I mean, maybe the one exception of that is Flexport, which is a company in our portfolio

that's a shipping broker. It was the first time I ever saw market size with a T in it for trillion. And I was like, I knew it was big, but I didn't know it was that big. That was like an outlier. In that case, by the way, the reason to believe was in part market size. But unless it's an outlier, I just think you're not persuading anybody of anything. It's why the whole thing with the comment about the Dexter, the education company, is anybody here from Dexter still here in the room?

He's gone. Yeah, that's fine. But that one, part, a different way to reframe why do all this elaborated thing in the beginning is like either somebody believes that or they don't. And one way to look at your job as a founder is how do you get an introduction? And by the way, I know I keep sending you to my blog, but my best. trafficked blog posts, sadly, like by 100X, I think,

over other stuff, near as I could tell, is about how to write an introduction email because I think there's like a trade craft to that too. I'm glad to forward intro email. I'm happy to talk about that, but I do get into the micro mechanics. Oh, I was saying,

instead of thinking your job is to convince somebody, think of your job, like an enterprise salesperson, your job is to disqualify leads. Your job is to figure out as quickly as possible how do I not spend time with a VC who's a waste of time? because they have time, especially their associates have lots of time. I'll be with you again and again and again. I'll tell you to come back because they're terrified that you might be the one and they might

miss out, but it's not your job to re-asuage their fear. And unless it's progressing rapidly toward an investment, it's probably not progressing at all. By the way, another thing founders often ask me is, how do I tell if the VC is interested? First of all, it depends which person and what they said. My best metric on this I learned from one of the best fundraisers in the world, Peter Pham, at Science, is speed of response. If the investor responds to your emails rapidly, like under an hour, they're in the hunt. You know, a day, you're probably doing pretty well. One to two days, maybe, longer than two days, it's over.

So one of the things that you talked about, Roy, was how the two types of companies and how the VC always picks the one that, you know, even makes them less money. But raises more money. Yeah, exactly. And I think that probably has to do with, you know, the long feedback loops in VC, right? It typically takes seven to ten years. and that affects founders a lot, right? Like the VCs put a ton of pressure on founders to raise more money.

Sometimes they don't even need to, but it makes them look better. How do you solve for that from the perspective of a VC and from the perspective of a founder? I don't know. I mean, that might be one of the attributes of this game. That might be kind of like asking how do you solve for the fact that like, you know, when you're playing basketball, if you're standing at the three point line, it's harder to hit it in than if you're, you know, going for two. it just might be, I'm not sure if it's solvable.

I'm just not sure. I do think secondary for founders plays a big role. I'm a big fan of secondary. I think take it early and often appropriately. But, you know, that's, I don't know that it is solvable, but I'm open ideas if you have thoughts. And open debates with me on Twitter are like my favorite. So for a company like ETSI that has, I guess,

it's pretty easy to get your head around what we do. And I mean, a lot of investors invests in their own verticals and I've found challenge in trying to find people that are just like investing in this space that I can even reach out to like to pre-qualify them online beforehand and usually it's whether they've invested in a food tech company but I feel like you know I don't think that's valuable enough to to be able to say I'm wasting their time and I'm wasting mine should I reach out yeah it's a great question about how to pre-qualify I'd say domain is only one way business model is another way hey this is analogous business model it's an analogous market

strategy. I mean, you know, if only what's it called Atlassian had investors, then, you know, like starting in an Australian market might make some people more comfortable. So I would look for dimensions other than domain on which to explore connecting with the investor. And if they don't say what they're interested in, you know, on some level that's their fault for that and then you should hit them and get just try to get them to tell you if they're not a fit. Thank you. Have you seen pitches that are structured around the risks that have been deep. risked. We tend to see this similar structure. I'm wondering. You know, it's interesting. I don't know that I have. In part because I think there's strong advice, don't talk about your negatives. Don't talk

about the risks. I don't see risks as a negative. It's not like a risk of like this business might fail because the weather will be bad tomorrow. It's like, here's my game plan for like first I'm going to tackle this and then I'm going to tackle that and then I'm going to tackle the other thing. I do think verbally there are many founders who that's the way they naturally think. But I don't know that I've seen a deck structured in that way. I'd be really interested in what one might look like. Thank you. If you could talk a little bit about how you think about secondary and if I could like get into a little detail. Ask me questions. I like it early and often.

Okay. So like many of us here in the room, the founders are like millionaires on paper, but just paper. In order to kind of play the game you're playing where we're trying to make billions, it seems smart to me to have a conversation with founder and say, hey, so but. Early often and just right amount. How does that award? Yeah, exactly. what is just the right amount? How does that work? And how do you manage the fact that that's kind of an odd signal to send an investor that like, hey, I'm raising two million for my business and 400 for me? Yeah. So I think it all depends on stage. It's like a back to the chef analogy. It's a dosage and timing question as far as the ingredients, which is to say, if you have yet to prove out that very much is working, taken secondary feels a little gauche. So I've yet to see a $2 million round with secondary. that I can think of. Okay, but let's go to the next round for a second.

Because let's say you've been working on this business for eight years. You've been getting paid $90,000 a year. And you have product market fit and it's growing and you just did this whole thing. And by the way, these guys have billions of dollars and you have credit card debt. Like, I can't tell you how important I think that is. And the only way I know to get about at it is ultimately it isn't as much about the business as it is about you. and so this is why I write about it. I think you need to, ideally need is too strong a word.

I think the best way it can work is when you can find an investor who you can trust enough to have an honest conversation about it. And my view is, if the money thing is distracting you, and I can get secondary to you to remove the distraction, I've just helped the business. If you took enough money off the table that if the thing goes to zero, you're not going to feel like your life was a failure. That might let you go the distance.

And different investors, I would say, have different styles and religions around this. Not everybody sees it as a negative signal. Most people, I think, accept the fact that it happens so long as there is some reasonable story and understanding for it. And look, it is super different if you're the sole breadwinner of a family with three kids. Like, your personal circumstances do really matter with respect to secondary, because that's about how much money you take. And it's a weird mix of business and personal because, like, you're the company's best asset. And so we as investors, ideally the good ones, want to invest in you as the asset. They want to protect you.

They want to take care of you. both because it's the right thing to do and because it helps the business succeed, but it's a real tricky conversation because you definitely have like the Lamborghini secondary at the A always feels a little like, I don't know. Yeah, so, you know, obviously there's a couple different ways

that a company exits, and, you know, the goal, obviously, for everybody is to, you know, do an IPO, everyone made millions, but, or billions. I don't know, WhatsApp did pretty well with that an IPO. Right, so what? Hourses for courses as they say. Like when you're processing an investment and saying like what's the upside, you know,

how do you work your way down or do you even work your way down of saying, okay, you know, you know, there's, you know, acquisitions in a similar industry, you know, some of our stage. I think at later stages people do it. At our stage, we think in a more coarse way, which is like, is there some reason we think this has a high risk of getting stuck in a cul-de-sac where it serves some initial market and then it can't get out? well, that's a real risk that we have to get. Is there some general multiple in this industry? I mean, I give you an example of that. Media companies.

We love funding media companies. But getting high exit valuations for media companies really hard. It just hasn't been done a lot. And so that puts some pressure on the valuation for sure. But it's that sort of general thinking as opposed to like, we think this could be worth $2 billion instead of $4 billion. Of course. No, no, no, yeah.

I mean, they might have a different business model by then. Right. Yeah. So, again, what we're trying to do is match the judgment to what's appropriate at this stage. It's why there was a whole conversation on Twitter about, about like, is it good to ask founders for three to five year financial projections? I'm on the side of like, I think that's crazy because like your work of fiction is as good

as mine. I do care about what are your assumptions about unit economics. And I care a lot about because that's stuff that you'll have to validate. And I care a lot about how you plan to spend money because you control that. But like equally bad is when I'm like, hey, startup, what's your spending plan? And I got a three year spending plan. I'm like, no, no, no, no. I want to know like how much money's going out in the door in August and how much money's

going out the door in September. Because before I write you a check, that's my only. time to get a sense of your financial attitude towards spending money. And some people are really thrifty. Some people are too thrifty. I mean, again, it's a timing and dosage thing of just getting it right. Yeah, that's good. You're vertical and your wheelhouse within the future of work. There tends to be this notion that if you're in a creative field, then you're somehow protected from this automation. And that's kind of less and less true as time goes on. But what are your views on the future of work for creatives?

where do we start um i don't think anybody is safe from automation and my evidence of that is if you i think 100% of the jobs will be automated and my evidence of that is that they always have been if you go back to our grandparents generation they'd be like yeah all the jobs we did are basically automated maybe with the exception of like some high-end tailoring or something like that um what i do think is more important to focus on than that is from the individual's perspective it's like how do you keep learning so you keep riding up the curve as, and how do you actually use automation? You know, there was this story written about,

based on an apocryphal maybe story from Reddit, about a guy who was like a DevOps guy who wrote a script to automate himself and then sat at his job for five years and didn't tell anybody. And like, it's crazy, but then if you think, had he told somebody, all his friends might have gotten fired. And like, it's a, my partner James calls it the Automator's dilemma.

And I think some other people have written about that. And I think it's like a real question about what we do. do I think some occupations are more safe than others? Yeah, I think so. I think some are protected by regulation. But, like, I mean, you know, synthetically generated creative media is already here. You know, like, it's not here where I could, like, push a button and have a movie come out or have, like, when Harry Met Sally come out. But the line between where we are now, which is, like, I can type something and Open AI has already shown some stuff, I believe, or some of the, the guys there around synthetically generated images, you know, it's, it's a, it's a pretty blurry line. So my view is that's what you think about from the individual's perspective. I also think automation's already happening. Like, there's a reason we haven't had wage growth in the United States. So like, let's focus on it now and not some distant robotic future. You know, I think that's, it's like the tech people are like, don't worry, everything will be fine. The Luddites

were worried too, except they neglect to leave out the fact that even if total employment recovered, I can't eat total employment. And by the way, there were like revolutions and world wars caused in part by economic dislocation. Like, that seems like an important footnote to the whole story. And then from a societal perspective, which we think about it a lot, I mean, part of what we do to serve our founders

is we engage with constituencies outside of tech, government, cultural leaders, people in other domains to try to understand what are the effects of our work, if successful, and how do we participate? Because I know each founder doesn't have time to like go, you know, talk to California government about the future of work. But if I borrow a sliver of time from all of them, maybe I have time. I think there's a real question I say this as a father around what are the occupations of the future that kids might get into. You know, I believe,

and maybe this is, I'm a little biased because of what I do, I think entrepreneurship, not necessarily starting companies, but learning to work for yourself as opposed to be a supplicant in a job is probably a major thing because that's the only job from which you can never be fired by definition. We took our portfolio to the country's first vocational high school for entrepreneurship, which is in Fresno. If you're interested in going, let me know. We'll take another bus in the fall. So we spend a lot of time on that.

I've also, to get out of this bubble, over the last year, done three trips that we've led together with a couple members of Congress, including Tim Ryan, who's a congressman from Youngstown, Ohio, where we take VCs to smaller cities around the country to figure out how to get investment flowing there or what the economic opportunity is there. So this issue is like front and center for me, but I don't, I used to worry about the will the robots take all the jobs thing. By the way, we were the first venture fund to say we wanted to invest in AI. I was late 2014. I totally objected to it. But our culture is like if one person wants to do it, as long as it's not ethically inconsistent with what we do, we do it. My partner, she did

it. She went ahead. She showed me 2,000 AI companies. I was like, whoops, I was wrong. School of Fish. You know, like let's all invest in AI now. And so we created a structure that's forgiving in that way. And so I used to worry a lot about the future of the robots. Now I'm worried about today. Go talk to Walmart workers, ask them about the self-checkout cashier. They'll be like, do you know about the cash recycler? Cash recycler is a machine that's been rolled out to every Walmart that takes away, I think, two jobs, let's say, at every Walmart. And it's a reverse ATM machine. It counts the money at the end of the day. And they're like, yeah, and they have this machine. They fired the people, but then the machine breaks, and it doesn't work. And we

got to stay late anyway. And the repairman comes and all this stuff. It's happening now. This is not a future issue. Yeah. If you want to read more about it, we actually spent a year doing a commission with a non-profit organization called New America led by this amazing woman Anne Marie Slaughter, who's an expert among other things like international affairs

in family and work. And we did meetings in five cities around the country trying to do scenario planning exercise to figure out what would happen. And what we learned is your prediction about what's going to happen doesn't matter that much because anything you want to work on in the future exists right now. And I've given a bunch of interviews and talks

on that. Happy to talk about it more. I have a question about the... I mean, I could keep going on that subject for literally four hours, but... It's a great subject, by the way. Andrew Yang is championing this, and he's a good friend of mine. Yeah, I mean, I have real respect for Andrew introducing the conversation. I happen to disagree with him about automation being the thing to worry about in the future. Maybe now it is, but I've been active in the universal basic income movement for a long time, and, you know, I really, I admire the fact that he has elevated this issue in the public discourse. Right. So my question is about the difficulty of different rounds. So I've heard that the B round is the killer round that's impossible.

Do you have a view on this at all? First of all, everybody's name for a round is somebody's marketing to somebody else. Like, what is a seed round now? It used to be an A. Now there's a pre-seed. I don't know if it's a pre-pre-seed. And so what is an A? Like I raised at the A for the company that my co-founder and I did, we raised a $20 million

A. Is there a stage that the company's at that makes the round of challenge? Yeah, whenever the, I mean, it, Yes, but the answer I would give you is so general as to be useless. And because it's about availability of capital relative to company progress, I think it differs a lot for consumer versus enterprise. So I'm happy to talk about any particular company, but I don't know that there is a single general answer that I'm aware of.

Hey, I feel like you should be answering these questions. Oh, thank you. No. Two questions. One, I'm not sure about your investment thesis. Would love to hear about it. And then second, very curious about AI for the enterprise. What do you see is happening in that space and any companies to just check out and research? So many things. Let's see.

So our investment thesis is, well, when we started six years ago, we said we're going to invest in the future work. And the simple idea was Bloomberg, which is our LP, cares about all of modern business. It's a big financial data company, media company. And our simple, we want to invest, we're not a strategic, we just invest to make money. but we invest in an area that's generally of interest to Bloomberg, which say future business. And my view, after having been in the working world and been unemployed for a year and struggle to get a job

and learn the job market doesn't work, and hiring software engineers, which we used to do with my old company, without looking at their resumes, not all of our engineers, but some of them, is like a lot of stuff at work seemed broken to me. And my basic view was, technology has improved our lives as shoppers and as family members and as restaurant eaters and as all these other ways, But our work life still kind of the same.

I mean, there's still people who use Lotus Notes. Like, just think about that for a second. And so our work life is pretty much the same. And so our basic view was that that would catch up and that work would be transformed. And it was in the early days of companies like Slack where we were really honored to be tiny investors, you know. But that was our high-level view.

The thing that I didn't anticipate was AI, which a year later was like, oh, automation is going to be a big piece of this. AI in the enterprise. My partner James is a better expert on this than I am. So I'm going to tell you some of my views that are in part probably just mimicking his, which are, number one, it's possible. You know, the economists say that, like, software doesn't show up in the productivity numbers. Productivity hasn't been growing with the IT revolution. And, you know, some people say as AI, as big a trend as, like, maybe it's as big as mobile. Maybe it's as big as

the Internet. I think it might be where we actually finally see software's economic benefits. Like, We may not yet have seen software's economic benefits because what is machine intelligence? There's a great book that describes it just as software that predicts things. And ultimately as humans, that's so much of what we're doing at work. Judgment is prediction. It's prediction of what you ought to do. So that's the big picture answer. The small bar answer is we see a bunch of things doing infrastructure to make it more possible.

So there's like a whole stack of tooling companies and there's going to be a big market there. We see a bunch of companies that are just first party entrance in a market that have AI on the inside. They could just, you know, make a better calculation for some business process and therefore beat the incumbents and that's good. And then the hardest ones in some ways are ones that introduce automation into some existing business process because that's where you get the automator's dilemma. It's where you get what I think it's Brian Merchant called shitty automation of things that like, yeah, they're repetitive, but they're so bad that they break and don't quite work as well as the other thing. I think James's critical insight, he has this piece that's

worth reading about where is the Peter Drucker of AI, the management philosopher, is that managing models is different than code, is different than people, it's this thing you have to take care of that keeps making predictions for you, and it's possible that we need as much innovation in how organizations are managed in order to use AI, automation, and predictive AI of different kinds, as we need technological innovation, because the reality is, you know, we're investors in an AI-related accelerator. And somebody pitched this company. And I said, do you think you could just cross out AI and write, for those of you

you are somewhat mathy, write linear regression instead? And it's like that probably 90% of the time is what AI is. It's like dots in a line. And we still haven't figured out how to realize the business value of dots and align. So this is more to do with your experience as a founder. How do you deal with like? I've blocked a lot of it out because of the pain. My wife, I've literally, she wouldn't let me start another company.

Yeah, how do you deal with rejection? Like from a VC. Oh. And how you got to ignore it? Ignore it. Well, I mean, look, a great piece of advice I got is if a VC rejects you, you know you've heard to like believe the no, don't believe the reason thing. I think that's probably true. My view is the feedback is not feedback about your business.

It's feedback about whether that VC wants to fund your business. File it under that category, move on. And look, I think you just get better. Starting companies is treated in our modern organizational life as an asterisk. It's like you could be a lawyer, you could be a doctor, or you could be weird and start something. I just think it's an occupation, like other occupations. You can practice it and get better at it. And one of the things you get better at is being indifferent to rejection.

And it's really hard, by the way, because you have to be indifferent while listening to see if there's any truth in it that is data that causes you to change your behavior. I mean, I think one of the reasons so many tech leaders have become so tone deaf about the role technology plays in the broader world is because they got too good at the skill of ignoring rejection. And then what happens is you stop listening to anything because every time everybody told you X and you did Y, in the beginning you were right, you just stop listening. And that is cool when you're tiny and like societally poisonous when you're huge. Thank you. So I'm fascinated by your take on the future of work, and I think I agree with you on the future of the workforce needing to be more entrepreneur-related or having their own hustle, so to speak. And especially, I'm curious, you know, being a father. So how are you raising your kids and preparing them for that?

It's a great question. I wish I'd answer. I do think about the question a lot about, like, would I rather they have a summer job or, like, open an Etsy store? because kids have the tools now to compete on a level playing field with adults, and I don't want to infantilize my children. I want them to make their choices, but I think I have to listen to them and figure out where they are and apply the right amount of guidance at the right time, and I feel like my kids are 8 and 10, so they're still a little young for me to be doing that, but I do believe being entrepreneurial, it is about hustling, but it's not just that. It's all this other package

of skills. Like, how do you sell something? How do you manage risk? How do you deal with a portfolio of activities. How do you set your own priorities? I mean, school doesn't teach you to set priorities. In school, you get 100 questions on a test. You're graded based on completeness. In startup life, you get a thousand, a million questions, and your job is to answer one of them with the best answer the world's ever seen and ignore the other 99 that are screaming at you and trying to get your attention. We don't learn how to do that in school. And I think that there's some tradecraft in that that deserves to be practiced. Dave? Let me just do a time check. Sorry, I don't mean to be rude, but. How later is? I'm good. I've got another five minutes.

minutes or so. Okay, so you touched on like anything that you think is happening in the future is actually happening right now. With respect to automation in the future of work. Okay. And like, you could talk about that for four hours or whatever. So it's obviously since you need to go, I don't want to open that. But I'm just kind of interested in like why that fascinates you and why you think that's true, like the thesis of you, that backs up your excitement about that. Yeah. So the reason I think it's important is because I believe that our economic freedom as individuals is the single best determinant of the health of the society as a whole. I think it holds up families.

I think it holds up civil society. It holds up institutions. And I think right now we have more than inequality, which is awful. What's really bad about it is not the inequality itself per se as the unfairness of it, which is to say, like, if I play the game by the rules and I work hard and I bust my ass, I still might not be able to provide for people around me. So that seems like enough of a crisis to me that it may. that it merits being focused on it in the present,

even if it's going to get worse. It merits, like, you think too much future, you stop taking action right now. And so that's the reason that I care about it. You know, I tried to predict what would happen and learn about how to figure out the prediction, and then I just came to see the signals are already here, and the psychology is so tempting to push it off

that, because it's uncomfortable to say, like, hey, like, it's already failing. And I think there's a lot of evidence in this country that things aren't right. And of course, things have gotten in general much better in lots of ways, but worse, in enough ways that it's unstable. And I fear for the stability of the society, and I want to live in a healthy ecosystem.

So, yeah, but I could keep going on. Maybe the last question, yeah. So as kind of a seed stage founder, so much of our job is to sell this vision to VCs, and so much of the VCs job is to say, well, show me your traction and say, like, you know, you're not doing what you say. think your job is to sell the vision. Honestly, I think every good company has a vision. I think

it's like roughly undifferentiated. Oh, but that person's vision. Oh, but their vision. You never hear that. Never. So, like, it's important for you to know what the vision is because that's the thing that motivates you. And I think it's important to disclose it and share it. But I just want to point out, and other VCs may feel differently. I am unaware of cases where the vision itself is that powerful a differentiator. That's my question. Yeah. Okay. Yeah, I mean, build something. that works. Most things die on the way to the market. And so if you can get to the market, that's great. Now, if you're a person who just seems to be doing it for like venal, self-interested or small reasons, if your motivation is not to do something extraordinary, then probably

getting venture capital is not right for you. There are ways to do extraordinary things without venture capital. But if your plan is like, hey, I'm just shown up at the office and I'm just going to like double it in size and then figure out how to flip it, there's way less painful ways to do something like that, as I'm sure you guys know. So I would like to minimize founder pain because you guys are doing the hard part. Like, my part is super easy. I've never swung a golf club in my life,

but I think VC might be like golf, and that's why maybe a lot of VCs like golf. Real easy to do, really hard to be good at, but I have a lot of respect for the fact that what you guys do is, like, that's where all the juice is. And so I'm grateful for you guys spending so much time and, you know, Jason for inviting me, Jason's for inviting me in.

Great. Roy, thank you so much.