This Week in Startups - LP investment strategies, IRR focus, and more with Berkocorp's Joshua Berkowitz | E1882

Episode Date: January 17, 2024

This Week in Startups is brought to you by… Squarespace. Turn your idea into a new website! Go to Squarespace.com/TWIST for a free trial. When you’re ready to launch, use offer code TWIST to save 10% off your first purchase of a website or domain. Northwest Registered Agent. When starting your business, it's important to use a service that will actually help you. Northwest Registered Agent is that service. They'll form your company fast, give you the documents you need to open a business bank account, and even provide you with mail scanning and a business address to keep your personal privacy intact. Visit http://northwestregisteredagent.com/twist to get a 60% discount on your next LLC. LinkedIn Marketing. To redeem a $100 LinkedIn ad credit and launch your first campaign, go to http://linkedin.com/angelpod * Today’s show: Joshua Berkowitz joins Jason discuss the critical role of LPs in venture capital, his family office's diversification into the field (4:37), strategies for evaluating and selecting fund managers (14:26), and the intricacies of fund management and fundraising (30:41). * Timestamps: (0:00) Berkocorp’s Joshua Berkowitz joins Jason (4:37) Why family offices diversify into venture capital - higher returns, high dispersion of returns, and the entrepreneurial aspect (9:32) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://Squarespace.com/twist (10:59) Evaluating emerging managers - looking for exceptional strategies and execution (14:26) Decision making processes at venture firms - consensus vs individual decision-making. (19:56) What a VC fund has to do to be successful (25:48) Northwest Registered Agent - Get a 60% discount on your next LLC at http://northwestregisteredagent.com/twist (26:41) Pros and cons of GPs being very vocal/political on social media (30:41) Quick disqualifications when evaluating new VC funds and challenges with GP "tourism" (34:59) LinkedIn Marketing - Get a $100 LinkedIn ad credit at http://linkedin.com/angelpod (36:20) What kills companies - "likely winners" vs "definitive winners" (58:42) Clarity in the process for GPs raising funds from LPs * Subscribe to This Week in Startups on Apple: https://rb.gy/v19fcp * Check out: https://www.berkocorp.ca/ * Thanks to our partners: (9:32) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://Squarespace.com/twist (25:48) Northwest Registered Agent - Get a 60% discount on your next LLC at http://northwestregisteredagent.com/twist (34:59) LinkedIn Marketing - Get a $100 LinkedIn ad credit at http://linkedin.com/angelpod * Follow at: X: https://twitter.com/berkowitz_josh https://twitter.com/Jason * LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Great 2023 interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland * Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

So if you have cap table problems like low founder equity at the seed stage and they've given away 60% of the company, you're like, well, when they do their series A, that's going to be another 20% gone. Series B, another 20% gone. These founders are going to have very little equity. And then what happens when you have very little equity? Well, then you have to recap the company or give huge grants to new people or the founders leave to start a new company because they screwed up this cap table. So that one. You see a lot of that in Canada and in Boston, actually. Just really broken cap tables at early rounds.

Do you know why that is? I have some theories, but I'm curious if you've figured it out. You have all these angel groups that are just kind of predatory and catch these founders. Yeah, you nailed it before they really know any better. This week in startups is brought to you by Squarespace. Turn your idea into a new website. Go to Squarespace.com slash Twist for a free trial. When you're ready to launch, use offer code Twist to save 10% off your first purchase of a website

or domain. Northwest Registered Agent will form your company fast, give you the documents you need to open a business bank account, and more. Visit Northwest Registeredagent.com slash twist to get a 60% discount on your next LLC. And LinkedIn ads. To redeem a $100 LinkedIn ad credit and launch your first campaign, go to LinkedIn.com slash AngelPod. All right, everybody, welcome back. This is the Angel series on this week in startups. But a little bit of an announcement here. We're not killing this podcast, but I'm rebranding Angel to liquidity. Why am I branding it as liquidity? Well, I'm not an angel investor anymore. I have funds. And a lot of what we do as a fund is talk to LPs and we are working with public market participants now because, hey, a lot of our companies

in the last 10 years have gone public, whether it's Robin Hood or desktop metal or of course, Uber. So this podcast will be called liquidity after this season. And, you know, it's going to be a weekly roundtable and interviews with general partners, emerging a legendary public market investors, still some angels and LPs. And this season, I want to focus on LPs. So if you don't know what a limited partner is and your startup and you're wondering, you've learned over time that a venture capital firm has general partners. That's in the industry referred to as a GP.

We have another term of art in the industry, an LP. That's a limited partner. That includes a wide group of individuals. Pension funds, right? So you retire and your money goes into a pension fund. They remark a certain amount of that to go into venture, private equity, and of course, public markets, bonds, all kinds of different things. You have university endowments.

You've heard about Harvard or Yale having these giant endowments. Those are also LPs, family offices, sovereign wealth funds, and of course the category of fund of funds. This is where people put a pool of capital together and they fund other funds. High net worth individuals are also, or ultra high net worth individuals are also LPs in funds. So when a venture capital puts money in a startup, they're the GP at the venture fund, the general partner in the venture fund. They go and they pass the hat. They pitch LPs who want to deploy capital in order to get market beating returns and have some diversification.

And we'll talk about all that today. The LPs are generally a quiet class. They don't talk too much. They tend to be under the radar, and you might not have heard of them. But it's changed a bit over time as the dialogue between GPs, founders, venture capital firms and these endowments, etc. People have started to cross over and there's overlap. And like anything else in the modern day of podcasting and blogging more and more information. is getting shared so everybody can be better at their games and empathize with the other

people on the other side of the table. So today, our first guest on this season of Angel, we have Josh Berkowitz. He is from Berko Corp, and it's a Canadian family office, one of those types of LPs, and that's the Vancouver Berkowitz family. Josh is the managing principal over there. Josh, welcome to the program. Thanks for having me. All right, so you heard my sort of preamble there. you are an LP in venture funds. So we thought this would be a great place to start is to talk to you a little bit about you have this family office.

My understanding is real estate is how the family made their money. But then you wanted to add the asset class of venture. So why does a family office start to diversify and get into venture? Why do they pick that asset class? Why did you pick that asset class? Yeah.

I think it's first going back just one step and be like, How do most family offices get created? Yeah. Usually the most common way is you sold a company. Yeah. The common way is, especially in the real estate business, is you've been in real estate for a while and it's compounded.

Now you've got a big pool of capital to work with. You make a lot of money by being very concentrated, but you keep your money by being very diversified. And so most family offices, once they have that big liquidity event or they get to a certain size where they say, okay, I'm happy with what we've got. We want to dial down the risk a little bit. then they want to diversify. And at that point, you go, okay, well, what I want to diversify into?

The common asset classes you hear people diversify into are public equities, private equity, traditionally that's buyout, although there's more flavors of that now, venture capital we're going to talk about. There's many other things. You can do bonds. You can do private credit. You can do commodities. There's many other esoteric asset classes out there.

But for the biggest, most diversified family offices, usually they have some allocation to all of those. why do I think venture? I think venture is interesting. Oh, so many reasons. I think it's the most fascinating of those asset classes by far. Start from the top.

If you sort of line up all of those asset classes I mentioned, historically, at least the last probably decade or so, venture is the highest returning one on average. On average, if you look at Burgess data or pitch book data, I think there's columns with the data, but on average it is. So first one, you have the opportunity to make a lot of money or make higher returns. It also is the asset class that has. has the highest dispersion of returns.

So if you, let's, let's like compare and contrast it to public equities. If you invest in public equities, in other words, stocks in the S&P 500 or globally or whatever index you pick, the best managers over a long period of time perform like a few percentage points better than the average manager. So let's suppose you're like, I'm going to go try to play that game and go find the best public equities investor in the world. on average, if you're good at it, you're going to beat the market by a few percent. We can have an argument over whether or not that's actually a worthwhile thing to do

in index investing versus active investing. But even if you're good at it and you take the active investment hat, you're only going to beat the market by a few percent percent. Venture capital is like the other extreme. If you're in the top venture funds, they crush it, right? They hit returns 20, 30, 40 percent funds that return 5, 10, 10, 20 extra money and your opportunity for for outsized returns and success is just much higher if you're good at it. Yeah.

So if you sort of think as a family office, where do I want to diversify into? Well, an asset class that is historically high returning that rewards patient capital because you're locking your money up for sometimes 10 plus years and where if you put a lot of effort in to find the best GPs and get access to the best funds, you can make a lot of money. Well, it seems like a good place to allocate capital to. So that's that's sort of like the financial reason to do it. And a lot of family offices are entrepreneurial.

They made their money because some matriarch, patriarch, or son's daughters, multi-generation. I just got back from the Middle East where, you know, we saw these incredible family offices that have now, you know, three, four generations into wealth creation. It turns out they're entrepreneurial. They have some person who, you know, came to their country or America or in their country found some great opportunity and slowly compounded over decades. And then, you know, the, the kids participated. And it's entrepreneurial. And that's part of the exciting fun part about

it, I think, as well, as opposed to just buying the index and, you know, just accepting whatever the average is. So there's a little bit of that. I guess further to and say it's both entrepreneurial and it's a bet on the future. It's a bet on making the world better, not just rolling up vet clinics. Yeah. And again, to people who've made their money starting businesses, that like sort of optimism that's baked into the industry is an, and the desire to change things for the better, I think is also baked into the reason to do it. Yeah, so this is a really great point. You get to, when you have a family office or you've accumulated some amount of wealth, you get to build the world you want to live in. You get to optimize for things that you

find personally enjoyable or rewarding. And people forget that. It's why I've chosen to be a GP and an LP. I like hanging out with founders because they're world positive and they want to change the world and do interesting things. It also makes you feel young to hang out with the young people who are, you know, trying to change the world. And since super smart people that are interested in the weirdest shit that, you know, are experts at super strange industries you didn't know existed that have divergent points of view. I mean, it's exactly who I want to spend my day, my day working with. If your landing page looks terrible, customers are just going to leave. They're going to bounce. It's 2024. There are no excuse.

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And when you're ready to launch, go to Squarespace.com slash twist for 10% off your first purchase of a website or a domain. So then, of course, the question becomes, are too many people interested in venture capital? where there are too many venture capital funds over the last couple of years, it does feel like, there was a little bit of saturation. And the industry is kind of boutique. It is unlike some other industries where, yeah, a lot of people can own Apple stock. You do also have issues of too many people wanting to own Apple stock, perhaps, and it becoming, getting ahead of its skis, let's say. But let's talk about the selection process. I'm a LP and I think 24 funds, My Four and 20 others.

I'm curious, how do you evaluate funds, and do you have a preference for seed stage, series A, growth stage, later stage? And so two-part question there, the stages, and then what you look for in terms of managers, etc. Big question. Yeah. So when I start from the top, I'm a family office, we write meaningful checks to the GPS. me back from a few hundred K to a few million, but we're much smaller than the big endowments and institutions. And so that will color the kinds of funds I look at and will color how I think about what funds to invest in. I say that because like, let's suppose you know, the other end of the spectrum is let's suppose your calipers and you manage a few

hundred billion dollars, the Canadian pension funds. The smallest check you can write is maybe $100 million. That means you can only invest in massive venture funds. That's a totally different game than the one I play where we're investing much less than that. And as a result, I can look at much smaller funds and bigger funds. But it sort of opens the aperture on the kinds of funds I can invest in. And the reason I say that is because, well, the way I'm going to diligence, you know, Jason of 10 years ago, you know, raising a small, a small angel fund or a small first seed fund relative to the diligence in a Sequoia or Andreessen is just wildly different. And the things you're going to look for, the way you're going to evaluate them are different.

So let's maybe start with the small guys. Sure. Or small girls, small teams. Emerging managers, I think is kind of where people are now putting this umbrella. And I would guess emerging managers means, you know, three or four funds or less, right? Something in that range. I think that's right. I think the challenge with that definition is there, sometimes there's a first fund and it's a

$400 million first fund. Yeah, you do have that weird. Yeah. Right? Like, it's sort of a size thing, too. And then you have the person who's raised seven funds and they're all sub-50 million dollars because they've stayed, you know, in a certain size range. So putting that aside, so let's just say small funds.

Almost always, there's a few people involved. There's a few key partners, right? One to three people, let's say. So the diligence work is getting to know them, getting to know what's super special about that group of people. To your point earlier, venture capital is like a really cool thing to do right now. there's probably too many people doing it. The people that do it, though, tend to be a super exceptional group of people.

So pretty much every VC you make that's out there doing this is going to be a really, really impressive person. So what you're trying to do is separate out the really impressive people and try to say, like, are they so damn good? Are they so perfectly set up to execute their strategy that you think they're going to beat everybody else? When I look for talented GPs, I'm just trying to find people that have absolutely exceptional unique strategies and that they're uniquely the perfect person in the world to go execute it.

Ah, see, this is important. So is it a unique strategy and is it that is that person able to execute that strategy? People come up with all kinds of really interesting ideas. I get pitched on a ton of funds because people have found out now that I LP funds and I add one a year or so. And I'm not quite in the family office, you know, portion of my career. Maybe my daughters will be I'm still in the GP sort of phase of my career. But yeah, you do have to not just have a great idea, but the ability to exit. So maybe we could talk a little bit about strategies you've seen at the early stage. And maybe you talk about the background that people have.

Some people think you got to be an operator, have run businesses. Other people think you have to be a strategist, a Bill Gurley type, an analyst, somebody is super analytical. So take me through interesting strategies that you've seen in the market and then interesting backgrounds for emerging managers. Sure. So I think in the early stage, you could, you know, the most easy to wrap your head around strategies are the geographic focus strategies or the sector specific strategies.

So you can have, you know, a backup group that's based up in Seattle. And they are, they have an amazing ground game in Seattle. They know everyone there, their LPs or Hughes who have the network up there. They're sort of in front of all of the right people. and there's a handful of institutions in the Pacific Northwest like Allen Institute and a handful of others that like if you can build a great network within those nodes that shoot off a lot of startups, you have a built advantage to see all of the best companies in the area and also to win the deals because you can you can use your network to win and reference you and all of that stuff.

Then you have the sector specialists, people who are, can be super technical, could be supply chain experts, space experts, hardware experts, pick your vertical. if you can become known as a global expert in that unique niche, AI infrastructure, pick whatever it is, you can differentiate yourself. And if your background is the right person that do it, then I think you'd be really successful with that strategy. Then you have another class of people, I think, that have just worked for their entire careers in and around startups.

It could be that maybe you are a former partner, YC, and you've seen hundreds of businesses. Maybe you've started a bunch of businesses yourself, and you've been, then you began angel investing for a long time. And as a result, you know, hundreds of founders and you're in the exact right networks. And, you know, you live in the heart of San Francisco and you see, you see everyone and you're known as a super sharp person. I think everyone in their own personal lives can sort of think about different people like

that, you know, in the early stage world, there's all sorts of sort of nodes of people like that. And many of the best investors are sort of that person that's on an island that everyone looks up to and is like, that's, you know, that's the person you want, has your early stage backer because they're going to help you and just have a lot of value. So I think all of those things can work, right? The first two are sort of more specialist strategies. They've tons of super talented generalists that have been successful in this business as well.

I just think that the most important thing is like they really need to be incredible people, like absolutely incredible one-of-a-kind people. And I mean that like in the in the sense of if you leave a conversation and you sort of forget about it afterwards, that it's not good enough. Like, it needs to be a spiky individual that just really knocks your socks off and also has a network and career path that shows that. And that probably correlates with the experience that a founder would have meeting them. Is this founder going to feel that this person is sharp, a creative, they're going to, they're well networked, they've got good insights. Maybe they've been down a lot of paths and know where some of the potholes are and some of the sharp turns are to help you out.

But they can also be. I always get really impressed, too, when a GP closes me the way they'll try to close a founder. Because, like, lots of the VC business, I got to win a deal, especially if it's a hot one way to oversubscribed or, you know, there's capacity constrained. How are you going to close that? You're probably going to add a lot of value. You're probably going to, you know, get your friends to maybe add some value in and reference you in and do whatever you can to work and win the deal. I get very impressed when, when GPs do that with me too. And, you know, I, you know, find out.

The billionaire founders are willing to reference them to me in five seconds because they care so much about, I know that GP and what they've done for each other. Yeah, that is significant if you can list somebody on your references or even activate them. And, yeah, I've been lucky enough to have some high, high caliber people in my network be able to act as references for me. And just even the ability to say, like, oh, well, if you wanted to call Travis from Uber or you wanted to call Jonathan from Thumbtack or. or Vlad from, you know, I've done that before. I remember, like, emailing Paul Graham and getting an answer and a few hours later being like, this person is awesome, you could absolutely do it.

Yeah. I talked to, I'm supposed to say this. I talked to Jamie Siminoff the other day who in two hours called me back the founder of ring to reference someone. It's like that matters. It shows how much they value the person's investment and mentorship. Yeah, the fact that they would actually take the time to respond to the email when they don't have to.

And when people don't respond to an email, that kind of tells you a lot. you know, if you've ever had a difficult relationship, it's not that you're going to give a bad reference, so you don't respond. I always tell people to be very cognizant of that. You know, you're not going to get a bad reputation, a bad reference, you're just going to get no reference. And no references, whoof, that's tough.

So when you look at what a GP has to do in their job, I've been giving this a lot of thought, both introspectively, running my own firms, and also when I pick firms, what do you think a GP does and a fund does at its core, at its essence, Joshua? What does a VC fund have to do to be successful?

So, like, the simplest mental model is you got a source, you got to pick, you got to win, you got to support. Maybe you can say exit afterwards. Of those, certainly the most important thing is picking, most I think it is. That said, if you're not in front of good startups, picking doesn't matter. but you got to do all of them well

and you've got to have a good answer for what your system is for doing all of those well. So sourcing, are you a podcast host that knows everyone? Are you super well-networked? Are you a big Twitter personality? Are you really well-known for your technical shops in a certain area?

Are you really well-known in a certain industry vertical that it was important to you? Are you really well-known in a geography? Are you, you know, that's all really, really important because if you're not in the right rooms with the best founders and best startups, it doesn't matter how well you do the rest of your job, you're not going to be successful.

So that's step one. Then you got to pick well. I tend to think picking is a game of, first, you've got to be talented enough to do it, but you also got to do it a lot. You've got to see a lot. You've got to get reps in. I think it's really tough to just come out of the womb

and be good at picking which startups are going to be successful. So when I pick GPs, I tend to bias towards people who have seen a lot of startups from the earliest stages be successful. If I met Travis when he was raising, I would have no idea if he was good because I don't have the reps. I have no idea. The vast majority of people have no idea what good looks like when a future $10 billion business founder is working out of a garage. You got to have a lot of reps. You got to know what good looks like. Sometimes only you can do that is by getting the experience. Working in a venture fund, working at an accelerator, being around the valley for much of your life to see what that

looks like. People really who come out of accelerators, I find, have really had a great experience because you have to sort through so many companies. And the average GP, I find they do like a meeting a day. You know, so they're doing five meetings a week. On our team, you know, I watch my researchers and analysts, which are the sort of entry level or like the starting part of point of people's careers when we hire them out of school essentially as a researcher and then they become analysts and we train them up. You know, they're doing six meetings a day. It's awesome.

And you start to think about, now these are introductory meetings. So they take, they should take 20, 30 minutes over Zoom, which is also a new thing, you know, as opposed to coming to an office and taking two hours because you've got to have coffee with the person and do all this performative stuff. You know, things have gotten pretty efficient in introductory meetings, at least, founders just want to get on and off the phone. And man, when you get to 500 meetings, something magical happens, like in terms of signaling and just being able to understand very quickly, you know, where this founder is coming from,

let alone when you get to thousands of meetings. And I track this now. This is a key metric for me internally is how many meetings people are doing. And I've actually now coordinated raises and, you know, advancement in terms of job title with the number of meetings. because there's just no substitute for it. And if somebody wants to go faster, I'm just like,

yeah, take more meetings. I think that's an important step one. I think the other thing is, if you do that, you probably get really good at separating out the bottom, probably 90% of startups. Yes.

But in a game where most of your money is made from the top 0.01% of startups, yes. It's a bad experience that's actually so damn hard to get, right? Because, you know, if you're one of your, your research analysts and they've met, say, 500 people in a year more, they still don't know what are the one or two that would return the fund in there? They haven't seen what Vlad did

with, you know, Robin Hood. They haven't seen what Alex and Michael did with Com. They actually haven't seen the full arc of a company, right? Yeah. So I think that's actually a really And they haven't seen the difference between a top 1% founder and a top 0.01% founder. Yeah. I could have a better way to say. I literally had this on our investment team meeting this week. And I was like, you know, people were lamenting, you know, sort of how difficult somebody was being. And I was like, yeah, by the way, extreme competency and agreeableness. These are not, it's inverse.

Like, extreme competency can make you a very cantankerous person because when people say stupid things or they do stupid things or they don't perform at a high level, you know, like a Michael Jordan of the CEO is like, You watch that Michael Jordan documentary, and you just see how profoundly critical he was of himself and everybody around him in the details. And yeah, you're not going to make money with agreeable people. There's an element that applies to VCGPs as well, right? Like the number of characters I know in this industry is too many to count. And I think it's the same effect, right? Great people are, to your point, agreeableness and competence. The skill of the job, competence are not correlated at all.

Yeah, it's inverse, at least in my mind. Now, you could have somebody who is supremely incompetent and also disagreeable, but I just haven't seen it all that often. That quadrant in the box, in the four quadrant box. You get kicked out of the industry, right? If you're an idiot and no one likes you, you don't last very long. So I think the reason they're undecorrelated is if you can make it in the industry and be crumpy and whatever, it's only because you're super competent.

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They'll form your LLC, corporation, or nonprofit, and launch your business in just minutes. Visit Northwest Registeredagent.com slash twist today. That's Northwest Registeredagent.com slash twist today. This leads me to a question. When you're evaluating folks, there is this now, when I came into the industry 20 years ago, you know, and went from a journalist into, you know, founder and then eventually started investing. VCs were very quiet.

Then blogging came along. Fred Wilson started blogging. Brad Feld started blogging. Jerry Colonna started blogging. I started blogging. A lot of people blogging. Then I started a podcast. Some other people started a podcast. And then social media. And now you're on social media. And it's, there's almost like a meme of like, you know what? Oh, there's a war in the world or there's some conflict or there's some political thing going on. I guess we have to get some venture capitalist opinions on this. And it's like, do you need a venture capitalist on world affairs? And, you know, you'll have Bill Ackman out there as a fund manager, you know, talking about DEI, talking about Harvard. You've got Paul Graham on another side of the, you know, spectrum talking about, you know, the Palestinian conflict. And this is a new thing. So how do you think about that as an LP?

And then you've got people really chiming in on the world's most intense, cantankerous, you know, charged issues. Is that something where you're like, doesn't matter performance or, you know, that's just to be expected, you know, these people are going to be out there talking about all kinds of topics? Yeah, how do you process all that? I think I'd probably say it's to be expected when you're backing one of a kind of, people. Like, I'm a family office.

We don't have a, you know, if a GP we backed says something inflammatory or stupid in public, I'm not getting in trouble from my board from it. Yes. Yeah. I bet it's a bit more problematic for the big institutions that have a big investment committee and then a board of governors who is not just financially motivated, you know, who may actually make allocation decisions based on that kind of thing. for me it's just part and parcel

in being in a world full of you know, one of a kind disagreeable people who often have you money at this point and have earned their right to be themselves in public. Do I like it all the time? No. Does it have I, has it ever really impacted

an investment decision I've made? Not yet, at least. Could it if they say something I strongly disagree with, probably. But then they probably wouldn't want to work with me either if I disagreed so strongly with something they said. And there's enough people in the industry that, yeah, I think you, if those conflicts do occur, you could basically route around them. You know, not everybody in this industry, you're not working with everybody by definition. It's just too fragmented of an industry for that to happen.

I did have it happen one time when Trump first became president. I was on CNBC. And for whatever reason, it happened to be the day after, you see their inauguration or the thing. They just asked me, what are you thinking? And I said, well, you know, it's not my guy. I hope he can, you know, I'm rooting for him. I hope he, the gravity of the office makes him, you know, rise to the occasion, but quite unprecedented to make fun of, you know, John McCain for his injuries that he

suffered as a P-O-W. And somebody who I just pitched as an LP was on fire that I called him unprecedented. And I was like, but was he unpresidential? making fun of the job game felt a little unprecedented. That doesn't sound like you said something too off the ball, too. Could have been a much, much more inflammatory way of saying what you just said. It almost seems benign by today's standards of where we're at. Look, I think the nature of raising money, though, from family offices is they also are often

dominated by one-of-a-kind, weird eccentric slash crazy people. And so as a result, you're going to piss them off because people are people. Yeah, people like to debate. of things. How do you think about, so deal flow is super important. How do you get deal flow? You know, I got lucky because I have podcasts. I get too much deal flow.

And the biggest issue I've had is managing and having to build a very large staff of team members to sort through deal flow. Most people are trying to fight to get deal flow and trying to build a brand. So I think we understand deal flow there. But when you start, it's pretty apparent, right? So decision making, I think, becomes the next part of this. How do you figure out and what have you learned about decision making as you're placing bets on GPs and how they, what's their process for coming to a decision? Consensus versus non-consensus and individuals that founder funds just, you know, they make their own decisions.

And then you saw Keith Rabeau went from Founders Fund back to Coastal because he wanted to be in a meeting. He said, you know, an investment team meeting. I'm sure you saw it. he was like, I want to be in an investment team meeting that's long and contangorous and people are arguing and, you know, he wanted that kind of spirit as opposed to founders fund, which he said, you know, people are kind of off doing their own thing, making their own decisions. So, so first on the deal flow side, I think for for me at least, there's three sources of deal flow, there's founders, there's GPs, and there's LPs.

All of them know great GPs, right? Founders know great GPs because they're their best investors. GPs know that, no other great GPs because they're their favorite co-investors or their favorite follow-on investors. LPs, no other great GPs because they're their best performing funds. So every time I meet with any of those groups, I tend to keep my eyes peeled for any groups they mention or I'll ask explicitly for ideas. I try very hard to do more outbound than inbound, right?

Like there's a class of LP that's just like going to wait for a fundraising process to happen. And then when a GP is pitching, then I'll get in front of the GP. I try to be more proactive if there's a GP or investment fund I want to get into, I'd much rather meet them when they're not fundraising so that when they are fundraising, one, I actually have a chance to get in because sometimes those processes take a month

if it's a small fund that's really oversubscribed and also so I can do my work before beforehand so that I'm not rushed or under the gun. So that's sort of the sourcing side. The picking side is like to your point about like decision making internally. Every venture fund does it differently. And there's been every kind of success, right?

Like if you look at benchmark and Sequoia, benchmarks like partners only, they're all equal. You know, there's almost no staff. Obviously an insane track record. And you look at Sequoia and you've got a massive platform, massive fun, tons of partners, tons of stages, also massive success. Every part of what they do is different.

All of them can be successful. The most important thing to me is that like the strategy is internally consistent, that every way they've structured their firm works together in concert to deliver returns. And so if I have a black and white rule, which is like, I like consensus only firms or I like, you know, individual decision maker only firms, both can be successful. The most important thing is if it's a consensus driven firm, do you have the right people at the firm that can work well together and solve those decisions well?

Is it a collaborative environment? do they still flush things out? Can you still pursue the idiosyncratic deals? And then vice versa, if it's a, you know, everyone's sort of a free agent style founders fund structure, do you have the right people there? Do you have the right incentive structure that fits that? Is the culture set up to make that successful?

So you really just need to make sure each of these is internally all lined up to create the firm that they want to create, which makes the picking job harder because now you actually have to understand how the firm works inside. It's actually part of the reason why I tend to like smaller funds and like one, two, three partner firms rather than the big platforms because the big platforms are so difficult to diligence. You often have no idea what's going on inside. It takes a long time to get straight answers from everybody and you probably won't ever get straight answers because there's all this politics of diligence. Whereas if it's like a solo GP fund or, you know, there's one or two people

that are really the important decision makers, it's a lot easier to understand what's happening, understand how they think and understand how the process is along with that. All right, listen, B2B marketing is hard. We all know that. Why is it hard? Because buying cycles can be long and B2B decision makers are hard to find and they're really hard to target. So here's the best solution for B2B marketers, you know, LinkedIn ads.

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LinkedIn ads, they generate two to five times higher return on ad spend than other social media platforms. LinkedIn ads is a no-brainer for B2B companies. You'll build relationships with these decision makers, you'll drive results for your business, and you'll do all of this on a platform that respects the world you operate in. So here's a call to action, make B2B marketing, everything it can be, and get a $100 credit on your next campaign. Go to LinkedIn.com slash angel pod to claim your credit. That's LinkedIn.com slash angel POD for a $100 credit terms and conditions do apply. Yeah, this is something I'm obsessed with right now is decision making and picking, because we now are making a lot more investments per fund.

We have a lot more surface area because of the programs. Foundry University is like a pre-accelerator we do, and then we have the accelerator, launch accelerator, which is kind of like YC. And so, and we have 20,000 people applying for funding. We have 21,000 startups now in our database. And we have a database approach to this now. Like you said, you know, getting rid of the bottom,

you mentioned 90%. Getting rid of the bottom, 50% super easy. Okay, this person is doing a D2. business. This person's in another language in another country. They better off having a local investor who understands the culture, et cetera. So you can really start to, you know, narrow it down pretty quick. But the top 20%, you got to be really thoughtful. And you kind of made that point. So we really started looking at the qualifications of companies that we saw succeed in seed. And what succeeds in seed and what succeeds in the series A and series B, it's actually kind of really

different. Because when you get to that series B, you might have 36 months of revenue data, you know, and cohort data. When you're a seed stage investor, you have no cohort data. You have six months of revenue, right? And so you start looking for things that may be more qualitative, because you don't have the quantitative, and obviously public market investors do that. And so we literally have made a playbook. Here are the 13 qualities of why we should invest. And then that's a really interesting thing happened. We started making, we, I started making a list of things that killed companies and, you know, previously. And that list grew to 25 very quickly.

Now, those reasons, you can't block an investment, but you can't also try to solve them. And they're also problems. What are some of the first examples of those that come to mind? In which group? The ones that kill companies. Cap table concerns are a major one. So if you have cap table problems like low, equity at the seed stage.

And they've given away 60% of the company, you're like, well, when they do their Series A, that's going to be another 20% gone, a series B, another 20% gone. These founders are going to have very little equity. And then what happens when you have very little equity? Well, then you have to recap the company or give huge grants to new people

or the founders leave to start a new company because they screwed up this cap table. So that one... You see a lot of that in Canada, in Boston, actually. Just really broken cap tables at early rounds. And do you know why that is? I have some theories, but I'm curious if you've figured it out. You have all these angel groups that are just kind of predatory and catch these founders

before they really know any better. They catch the founders before they know any better. They put 250K in for 40% of the company or 30% of the company. Now, the founder is not in Silicon Valley. They're like, wait a second, I can go to Jason's accelerator and get 100K for 6%. Why am I giving 20% away for 100K? Or they've got like some massive liquidation preference and they put protective provisions in the documents that out here in the Valley were like,

why are you bothering with all that downside protection? This is about the power law and the outliers. And in Boston and in Canada, maybe you haven't seen as many. So the angel groups, etc., maybe aren't as predatory. But it's really short-term thinking. So that one's a broken cap table is challenging.

We had one company we loved. I'll make this a bit of an amalgamation of multiple ones, but we see this often. They had some devshapped. build version 1.0 of their app, which they've since moved on from in rebuild or whatever. But they gave them, you know, they paid them 10K and then they gave them 250K in stock

in their $2 million on. Now that company owns 15% of the company or 14% of the company. And we go, wait a second, this is dead money on the cap table. If this thing becomes Google or Uber, they don't deserve $14 billion worth of equity. So we just say to that dev shop, hey, you can keep two points of equity.

we want to pay you for the dev work you did. And you know what? Nothing is probably happy about that, right? Because they're probably like actually I wanted cash anyways. Well, and also if the choice is high profile investor comes in, you get cash and you still have some idiot insurance on the equity or the company goes out of business. And we'll coach a company on how to present this. Hey, we're going to shut the company down.

We can't raise money. Your equity's worth nothing. Or door number two, you could get a little bit of equity, right? But counting nightmares, that can be problematic where people don't understand their gross margin. Their accounting's problematic. We've seen, I think meandering is an interesting one. We sometimes call it Lost in the Wilderness or Meandering. We'll say, when was the startup incorporated?

And, you know, they're telling us like about two years of the company, this new product they've done, but then the company's nine years old. And we're like, what happened here? Oh, they, you know, four pivots, the same cap table. And then you have cap table problems, accounting problems. So there's a capital inefficient businesses, a slow sale cycle. You know, people are going after, you know, education. Right. Education defense.

Yeah. Super slow sales cycle. Now, if you've got an extraordinary product, great. Outsource tech, I find that one. Solo founders is another one. Most of the great founders, even if you see them today, they were not solo founders on their companies. They had many co-founders at PayPal, many co-founders.

you know, at Facebook even. You know, you just only remember Zuck. You don't remember Rardo and everybody else who was involved. So, you know, they're just, it's just a framework for decision making. But I like your kind of concept there that it has to be, you know, it has to match the overall architecture of the strategy of the fund. So maybe it's like, I could probably play the same game with venture funds. So if you think of like things that are quick disqualifications, people that have never invested

before, people that have never worked together before. People that have invested at totally different stages than the way they're trying to invest now. People that are trying to lead rounds that have never let around before. People that are trying to invest in areas that probably shouldn't have traditional venture capital in it. Media, consumer package goods, yeah. Exactly. Investing in areas that are having a tracker that shows you invested in areas that, like, you, I don't know, like crypto investors investing in AI. These are not analogous, yeah.

I can quickly say no. Also, the reality is, like, if you sort of look at the GP ecosystem, there's now thousands of venture capitalists, but most of those are small first-time funds in terms of the count. Like, a venture capital LP commitment is like a 12 to 14-year commitment. It's pretty hard to justify making that to someone who's doing a job they've never done before. even the best CEOs aren't that good at hiring executives. There's just tons of misfires.

And so when you're an LP and a GP that has never done the job before and you're making a 12, 14, 15 year commitment, it's just likely not going to work for so many different reasons. They don't say they don't like it. They're not good at it. They're not good at it. That one is like a big one. They're trying on VC as a concept. I see a lot of venture, a lot of GP tourism.

and people getting out of it. Actually, my bestie, Freedberg was doing it. It was so cool for a while, right? It was like the thing to do. Well, yeah, and Freeberg, you know, ran the production board, and he said just now that he is at Ohana, he feels like he's so much more engaged and his natural position. He was on a couple of podcasts, and he's talked about it on our podcast,

just how frustrated he was working with CEOs who, you know, didn't move quick enough or didn't make right decisions and how he felt powerless. It's like, you should be CEO. you're a CEO, bro. If you can't handle, you know, somebody else flying the plane, you need to be the CEO yourself. I think it's a super,

um, a critical. And if you're lucky, you know, like, like, you have a GP that gracefully exits that finds a good person to take care of the portfolio and manage it out.

If you're unlucky and it's a smaller fund with someone who's less experienced, doesn't have a platform, then like that portfolio is kind of orphaned. Yeah. Have you seen that yet? Have you experienced that or talk to people who've had that happen? Because it does happen. I've talked to people who've had that happen.

Oh, yeah. What if, because, yeah, I got approached once where somebody was like, hey, this. Yeah, I got to be careful here because if I tell you any more details, it would be obvious. Anyway, something blew up in the program space where I am. And they said, like, hey, you do programs. Would you take this dumpster fire and try to manage it for us? And I'm like, so all of my cycles is going to be every day turning over what disaster happened here in this crime scene of a insane, you know, implosion?

No, thank you. And then how are you going to get paid for that? Just going to give me management fees on it or the carry or whatever. And they're probably not going to be carry, right? Because otherwise they'd probably still be involved somewhat. And in fund administration is not zero work, right? Like there's a lot of back office BS that it takes to run a venture fund. And I actually think a ton of GPs, this is an especially problem for the spinouts.

Like, you know, if you're spinning out of a major platform, you're like, I'm a great investor. I want to, I want to have a shop that has my name on it. I want to do things my way. Great. You spin out. And previously, nearly 100% of your time was investing in startups or supporting the startups you invested in. And now half of your time is fundraising, fund administration, hiring other investors and staff. And you're like, this is not what I signed up for.

Plus, you also lack now the power of a brand, right? Maybe you are at Andresa or Sequoia or whatever. And when you sent someone an email, you had that at A16Z in your email address. And so everyone responded to you. And now you have nothing. And so now you're spending half your time fundraising and dealing with administration and you don't have a brand that helps you get in fund of founders like you used to. Suddenly your tracker is not so good.

suddenly this isn't a job we want to do. And then you shut it down a few years later. That also happens. That is a major challenge. And people who should start a fund, like you're saying, hey, you've been at another platform and you have an idea that you feel uniquely qualified to do. Hey, you were at Founders Fund or Sequoia and you want to go into defense tech and there's a clear lane and nobody's got it as their mandate. You're going to be the defense tech firm of the future and fund those things and you did a couple of select investments or you were the crypto person at Andresa and Harrow, which had great success. Now you're going to have your own crypto fund, whatever it is. Yeah, that's a great reason to go do it. So for people who are wondering

who gets to start a venture firm, might be helpful if you worked at a venture firm before. You know, if you want to open a restaurant, you might have want to have been a chef at a restaurant before a front of house or back of house. I don't know why this seems so revolutionary to some people like the VC industry is you know really easy to break into I know everybody thinks it's so hard all you have to do is make 10 angel investments or be an advisor to 10 companies or have worked at a venture firm or have worked at startups and done a great job in some capacity I mean there are like five or six different lanes even journalists are getting gigs right we had a whole series and click but also if you can't pass that bar and do one of those things you certainly have

no business starting a venture fund because starting the fund is like a thousand times harder than getting a job at a venture fund. So you better be able to clear that first hurdle before you move on to doing your own thing. All right. So we did deal flow. We did decision making. My third is doubling down because I know you have to compete for deals. I'm going to take that off the table, not to be conceded in any way.

But I haven't had to compete heavily to get on cap tables because people, one, I'm at the seed stage. and most deals, 90% of deals, are passing the hat. There's allocations available. So that's one thing at seed stage. You don't have to compete as hard. It's like Series A or Series B, where it is very, very competitive. And usually one person wins, everybody else loses. I think it's harder if you're writing lead checks, right?

If you're a seed firm that wants to write two, three million dollars into the seed round, very different game than writing the $200,000 support check. Absolutely. I actually think one of the challenges right now is there's too many lead seed investors. I don't know if you're seeing that, but I think what happened was there's a whole bunch of new lead seed funds that were started over the last few years. And then you have the mega funds that because they're slowing down,

suddenly have the time and resources to go down. And so you have a lot of capital competing for that lead spot earlier. It is interesting to see venture firms say, you know what, I need to get some seed deals going here because I'm overpaying from series B and I'm overpaying for Series A and I'm losing Series A. So let me get down there. And then what happens is they're like,

oh, can we put $5 million in? I'm like, you're talking about a series A now. This is a company that wants to raise 2 million and they only want to dilute 10% or 15%. How do you slam $5 million into a $14 million or $12 million valuation company? You can't. And so there's like unnatural acts. Like, yeah, it kind of happens. Absolutely.

I mean, the good news, too, for founders, I find with that situation is they got multiple seed funds. And if they're coming out of our accelerator and they do have that, I say, well, if you like two of them, just do what Larry and Sergey did with Kleiner and Sequoia and just say, here's the deal. You're working together. We want to put both of you on the board. We want both of you to work hard. And then, oh, you shouldn't have that many board members at the beginning.

No, put them both to work. They want to do $4 million? Great. You got two each. Or you're each getting $1.5 and I'm saving $1 million for my angels. And if you're a hot company, you actually can dictate to the GPs. And I think sometimes founders forget that, you know, because somebody wants to hit some ownership target. If you tell them, like, no, you don't get to hit that ownership target right now.

You could compete in the future for it. but you can own 5% now. People are going to take the 5% trust me. The one I am curious that you think about is doubling down, dry powder and those strategies. This is the thing. The two things I've been obsessed with internally with our funds and when I invest in other ones, decision making process and doubling down and the process of doubling down.

Why is that important? Pretty obvious. If you hit a winner, you tend to know it's a winner and you want to get as much money and possible. So how do you think about doubling down and the strategies you hear from GPs about increasing their ownership percentage and their winners. So I think I probably have a different point of view on this than maybe is the most common. First, I don't think everybody should be doubling down or even have any reserves.

I think if you are a early stage firm that's running small checks into most of these companies, and then the only information you have afterwards is that you're reading the same quarterly update as every other investor, I don't actually know if you have any extra information to make you think you should double down at the A or B. You're not on the board. You're probably not getting direct information from the founder. You have no new information on like market size necessarily or any of the other information the typical A or B investor would look at

to make a series A or B investment decision. I don't know why you're wasting your time with a doubling down decision. Because like you're not a good, you're not a good late stage investor and you have no special information. The time where I would disagree with that is if you are very close to the founders, you back, if you're spending a lot of time with them, if you're also spending a lot of time with their series A and B potential follow-on investors, and you have that information advantage and information asymmetry, then you can do it. And of course, if you're going to do that, you structure your fund differently. So going back to, you know, what I was talking about earlier,

if you're writing $200,000 checks into, I don't know, 50 companies and you have a $12, $1, $1,000, fund, you shouldn't have a lot of reserves. If you're a $100 million fund, then you're writing $2,000, $3 million early stage checks of these companies and you're staying really close to them and supporting them and you have a decent size portfolio so you can also measure them against each other. So you know what good looks like. Okay, fine, you should have more reserves in that strategy. You should probably also have, you know, you should spend more time thinking about how to

evaluate Series A and B opportunities. Yeah. And then you can do it. But I think you need to be really thoughtful about whether that's the thing you're good at and whether you should be doing it at all. Because I definitely don't think it's a, it's in one of those no-brainer decisions. I also think it's, you have to have that decision-making process and that portfolio structure. I also think it's a bit of an LP-GP agency problem. Like, why do GPs want to double down?

Well, it's a way you can raise bigger funds. Right. If you're like, I have 50, so we talk about the reserve ratio. So say you raise $100 million fund, you'll tell your LPs half of that. So $40 million of the investable cap. So say you have $100 million fund, 20% will just be fees. $40 million you can say will be for initial checks and $40 million will be for a layer checks if you have a 50% of reserve strategy.

The reason to have reserves is because now you can raise a bigger fund. If you raise a bigger fund, you have more fees, you can build a bigger firm, right? If you didn't have reserves in that bucket, you'd have a $50 million fund. So half the fees, half the carry, half of everything. As an LP, I don't really care about how big your fund is. I just want the highest possible multiple, the highest possible IRA. I've looked at lots of funds where their later stage checks have roughly the same multiple, roughly the same IRA as the early stage checks.

So I don't really care if they do it. It doesn't add any IRA to me. It just makes their fund bigger. So I'm happy the GP is more successful because your fund is bigger and you have more fees and carry. But as a return to the LP, I'm not. I don't really care. Yeah. It's definitely

it has to be well-vowed out, and I like your framing of it. For me, the great frustration of my career is knowing you have a winner, Robin Hood, Uber, whatever, and not doing that second investment

because you look at that second investment would be the second best investment of your career. And so, and then I've How many times are there, how often were there times

where you thought you had a winner like that, you would have invested, and they would have gone to zero. Yeah, that happens frequently as well. Yeah, I mean, so this is where you have to understand the difference between, and I actually came up with language for this. I, you know, as a, I'm a former writer. And when you're training people, language really matters so that they can remember it, right?

So when I was talking to you about meandering, lost in the wilderness or cap table concerns, I really like to solo founders versus teams, et cetera. Serial teams is one of the things we look for. We love serial teams. and so I came up with likely winner, definitive winner. And I made definitions of those two things for our internal team for when we're debating in the investment team. Is this a likely winner or a definitive winner? Now, a likely winner, you might see product velocity, you might see it's grown

3x year over year and you might see some investment interest in the company. Okay, great. But when you have a definitive winner, okay, and nothing's guaranteed. as we've seen. You know, big companies can blow up. But a definitive winner, they typically have tripled revenue, double tripled revenue three years in a row. And they've had multiple term sheets and a competitive environment,

not just investor interest in closing their rounds, but a competitive environment with top tier firms. So, you know, just being able to parse that to your point, which is like when I was making a lot of my early investments in funds one and two and then into three, I was kind of gut. I was a gut-based investor. And everybody told me,

oh, you're great at picking because you hit three unicorns and your first seven investors as a Sequoia Scout. And then I started saying, well, or I got lucky. And my vintage was the best vintage ever, 2010, 2011.

It's more likely a bit of both, right? And I don't know if you've read these studies, but it turns out if one of the most important traits of successful venture capitalist is getting lucky early. because what happens when you get lucky early is everybody tells you you're great just like some kid on the basketball

hit a three-pointer and they're like wow you won the game with a three-point shooter and the kid comes back and starts shooting more threes and then somebody says I got a coach for you I looked up a coach online who specializes in three-pointers and I watch some videos and you get momentum that happened to me with the Uber investment because people are like you're the guy who did Uber

and Robin Hood and Com wow and you were the first invest in Thumbtack, and then more founders wanted to work with me, more LPs wanted to work with me, and the credibility went up. If I had hit those in my fifth year, I might not have gotten to my fifth year. Yeah. It's a very weird phenomenon of early success. I actually don't think that's that unique to venture capital. I think that's pretty common among most investing disciplines is if you make a mistake early, if your initial years of underperformance, sorry, if you've underperforming in your years. You won't make it for the next few years.

And partly that's because no one will give you money, partly because you'll just quit and you won't stick with it. Yeah. You know, compounds in all sorts of different ways. And you may not put as much effort in. You know, you think about poker players. Somebody goes into a poker tournament. They outlast everybody and they make the final table.

And if they win, oh, my God, I beat out 300 other people. I made $10,000 in this 50 buying poker game, whatever it is. They're like, wow. And people are like, you're really good. You have good instincts. And they're like, yeah, I should read a couple of books on this and get better. I should play more tournaments. I get more reps in.

And really is something to that. Listen, this has been amazing. What a great hour together. Any questions for me? I'm curious because you're, how long have you been in doing this as an LP? About five years at this point? Five years. Yeah.

So questions for me because I'm also a fellow LP. Yeah, yeah. It's been a great conversation because you have contrarian ideas, which has made this a really good discussion. I'm curious when you're, a GP fundraising from LPs, how legible is the process to you? Like, do you understand why people are saying yes or no?

Is it just like a black box and you just get like random money thrown at you? Permission to speak freely? Of course. Okay. So here's the challenge I have. If you have some notoriety, which I have from this weekend startups, and then that one supernova with All In, obviously,

people want to meet because I think you're an interesting person. And so I get probably a disproportionate number of meetings. And then when people say, hey, it's not a fit, they say, hey, we're not in market right now. We're not adding anybody we love you. I never get candid feedback. And literally today, I had a meeting with somebody who was a dear friend of mine who had run our numbers and found a couple of weaknesses in our model and was like, hey, do you know about this?

do you know about this? And he walked me through specific details. And he said, listen, I got to tell you, like, you know, he's a,

he's a fellow GP and also an LP. So it's very simple to me. He's like, this is the business that I think you're selling. This is the business as you're pitching it. And then this is actually the business you have. And this is where it's out of sync. And then he was like,

and then one of the people work from said, also, like, I don't want to insult you, but like, you know, you're asking for pretty high, 25% carry and 30%

if you, 2x, there are some folks who, you know, they just don't do that right now. And I said, really? Because the last time I went out, nobody even questioned it. And this time nobody's having questions. Oh, they'll never tell you. I say, they'll never tell you. I have embarrassing admission, which is I got the launch fund deck. Yeah. And I saw a few of those things. And so I didn't bother engaging because there, there's a few things in there. They're like, I'm not going to do this. Yeah. Too high for the carry. Yeah. And so I was like, wow, I didn't know that. I, the advice site gone was this standard for somebody who's got your quartile to ask for that. And I was like,

huh, I'm going to maybe change that the next time I go out fundraising or with some of the big ticket people who are coming in. I might just say, you know what? The game on the field has changed. Maybe I should change that. Because, you know, so this is one of the problems in, it also happens with founders when they meet with GPs. What's the honest reason? Like, you would never tell me, like, oh, I don't want to piss Jason off. I don't want to create an enemy with this founder. I'll only share it fast because there's just too, too much to lose with certain personalities,

if you're honest, which I imagine is probably what you feel with some founders. Absolutely. I'm getting feedback, right? Well, I have had to tell my team, like, keep it positive because what if they figure it out is the general consensus. What I will say with founders,

and as the founder of the fund, I can kind of get away with a little bit more because of my experience, et cetera, and just how people will say, listen, permission to speak freely. I literally use that language. How would you like a candidate and unvarnished or, you know, how would you like me to give you fee if they do ask? And I'll say, you know, listen, I'm concerned that you're a solo founder and I'm concerned

that, you know, you've outsourced the tech. And we just have a rule inside the company. When we see outsourced tech and a solo founder, we think, well, maybe they can't hire a great technical partner to come work at the company. And that's a red flag for us. and, you know, I sort of abstracted away from them and just talk about the general trend. And for you, it's like, oh, yeah, you know, we have a rule.

We only do, you know, two and a half and 20, or we'll do two and a half and 20 and up to 25, but we don't do 25 to 30, whatever it is. I'm curious, did you ever ask for the investment memos of any of your LPs? And did they ever share them with you? Yeah, I've gotten a couple of them. I don't ask for them on a regular basis, but I should. That's actually another really good idea.

It's one way to find out, because almost every memo has a section that's like, and here's what we're concerned about. And in some ways, they'll get more honesty there because the people have said yes to you, so they're less afraid of pissing you off. Ah, that's interesting. So you get the deal memo from the person who said yes. And yeah, these are the red flags, but they're really pink flags. And that's what we tell people, hey, this can be a red flag or a pink flag.

Most of the deals I've done have very clear red flags, because often like the best people are also the worst people at other things? What makes you great? It's double-sided story is basically what you're saying. Exactly. Exactly. And it is that, yeah, so it's,

it's been very interesting. Also, you know, it's, this is, this is the hardest fundraising environment and venture from what I'm told from people who've been at it, you know, since the dot-com era. It wasn't even this hard during the great financial crisis

because you still had so many great companies and the great financial crisis had nothing to do with venture capital. Had to do with real estate. You probably experienced that. given the family office's primary business. And so this time around, this is really challenging. Many people are out of market.

So I've had over the last, you know, six months or so of doing this, people say, oh, you know, we're out of market. We're happy to meet and start the relationship, but there's no way we would actually hit your timing. And I say, yeah, let's just meet. And I'm learning the discipline and building the discipline now of having an LP database and working with LPs because I can raise the first 25, 35, 35,

million from high net worth individuals in my existing network. It's only if I want to go past 50 to 100 if I need to go to institutions, right? And so I made that decision. 50 million was my first target, 100 million is the second target. We hit the first one, or we're about to hit the first one. And yeah, if we hit the second one, we hit it, great. If not, market is what it is. I'll just deploy the 50 million, you know, very thoughtfully.

And there is something about the size of a fund and performance. I do believe that. I strongly agree with you there. Yeah. There's some upper bound to seed stage investing where you kind of drift. I think it's like 150 to 250 is where I see people. It's just too much money to run seed properly. I think there's like two break points.

It's like going from support to lead checks and then going from lead checks to now I'm too big and I have to follow along a lot. And then kind of actually when you look at where the capital is deployed, if you have a four or $500 million seed fund, actually most of the money is deployed at Series A and B. Yeah. And usually they're out that good at that. Series A and Series B is really about concentrating on 30 names in your fund, right?

Or 20 names in your fund. And fighting with the best firms in the world. Yeah, you're going to really go up against Benchmark and Sequoia and Dreson. I mean, it's just, it's a dog fight at the Series A. And then being on the boards of companies that are doing their Series B and C has been super enlightening for me and also starting to publicly public market invest just to sort of learn a bit more about that because I have to learn how to do distributions and then should I personally hold on to my Robin Hood Uber shares or should I liquidate

them and just put it into startups. I have to make those like really thoughtful decisions and tax decisions, etc., which LPs have to make. So I've been kind of trying to learn the full life cycle. I'm really lucky to have Bill Gurley, Brad Gersner, Chimoth, etc. in my life during a poker game to just shoot the, get advice on it, right? It's been super helpful. But on the later stage, it's kind of crazy. What I've come to, when people ask me for advice, I say, best price, lowest rights. And they're like, what do you mean?

I'm like, the Series C person is not even joining the board. Get the highest price you can for the shares and lowest amount of rights for them. And so if you think of that's the advice, I'm giving the founder. The founders are cutthroat now. And they just, they'll get five term sheets. They just, they're literally cut. the brand name off the top. They don't care what the brand name is.

They're not buying a brand at that stage. They've already made it. You've got four term sheets for your Series C. It's just like picking a bank. Who's going to give me the lowest checking fees? Like, what's my ATM fees? And it's got to make LPs going. So really, what is your competitive advantage if you are one of those firms?

And then there's an LP you go, do you want to do this stage of investing at all? Right. And often the only reason those firms exist are because, like, CalPERS and the huge pensions want to be able to say that they're doing venture capital, right? And if they have to write $100 million checks, the only types of firms that can take that money

and invest it sort of responsibility are the super late stage firms. And so you have this sort of like weird effect in venture capital where a lot of, like, you know, when you see the venture capital dollars reports, most of those dollars are not what we think of as venture capital. Most of those dollars are late stage private companies

that are de-risk, have revenue, and it's just a question of how big can they get. It's like a, you know, it's a different asset class than what I think of such a capital. I think they should take anything over $500 million valuations and put it in a different class, like between class. This is like pre-IPO money.

It would be really actually, that would be an amazing thing for Pitchbook carda, crunch base, whoever's got this data. Oh, yeah. To just show 500 million dollars and above as venture, classic venture, classic VC, and then do 500 to pre-IPO as other,

you know, as late-stage growth because it does pervert everything. I remember this when Uber raised some big round, and you saw the carda data, pitchbook data, whatever was like spiking. It's also like the power law on such display, right?

Um, where like, you know, the total amounts of money raised just spikes because of one round at one company. And you had, we were, when Mossa came in and then Tiger after them,

you had this like really weird like trying to get the data. And then people are like, oh, and by the way, people in this demographic, race, gender, etc.

are only getting 0.01% of the funding. It's like, okay, if you take out Uber and you take out WeWR and you take out some of these crazy five, there were literally $5 billion venture rounds going on. You take out the four or $5 billion venture rounds, the entire industry investment goes down 80% for that quarter. I was like, okay, well, now, 5X every one of those numbers. And you know, you'll actually understand the change that's occurring in the industry.

This has been amazing, dude. Can't wait to meet you in person. If you're ever in the valley, let's get some ramen or sushi, whatever your bag is. And I'll let you know if I'm in Toronto, we can go see my former Nick. and play there. All right, everybody, we'll see you next time. Thanks, Joshua for coming on, and we'll see you next time on the pod. Bye.