This Week in Startups - Max Altman & Ben Braverman chart Saga VC's maiden voyage with Mark Suster | E1948

Starting point is 00:00:00 When I met Ryan, I desperately wanted to get rich. I came from a middle class background. I really wanted to make money. And Ryan just sort of embodies this. The way you get rich is by doing something really, really useful. And ideally, in a way that gives you scale and in a way that people value enough, they're going to pay you for. But it starts with utilit.

Starting point is 00:00:18 Ryan is a pure force of nature. He gets energized by problems and by pain. Most people, when something's going wrong in their company, their tendencies to run away from. it, Ryan runs towards it. I've never seen anything like it. It totally changed my own relationship with conflict and with dealing with stressful situations where it's just like, no, no, the winners are the people who are running towards the fire. This week in startups is brought to you by Mercury.

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Starting point is 00:01:50 Check out KuroTech.com slash twist and get $5,000 off. Welcome back to this weekend startups. I am not Jason Calcanus. I am his more charming friend, Mark Suster, from Upfront Ventures. I'm really excited to host the show today. I have two guests plus me, but these two guests are two of the three founders of Saga Ventures, Max Altman, Ben Braverman, and Thompson Win. Welcome to the show.

Starting point is 00:02:20 Yeah, thank you so much for having us. Thanks, for it. Saga Ventures, you announced $125 million dollar fund in what is a very difficult time to raise any fund. This is your maiden fund of Saga Ventures. Where does the name come from? The truth is, we were sort of shocked. This name wasn't taken.

Starting point is 00:02:40 Building these companies is a freaking journey. Not one great story, whether it's Apple, whether it's Tesla. Not one of them is clean and easy. Jensen from Nvidia talks about how you have to know suffering. Maybe we're not that extreme or draconian. But we do recognize the building these things, a journey. And Saga just seemed to, hey, it's unbelievable. It's available from a trademark perspective and represents what we believe this to be about. I mean, it is an interesting

Starting point is 00:03:06 way to set it up when you think about entrepreneurship. So my colleagues were the people who initially funded Starbucks and also funded Costco. And both of those companies were on the doorstep of bankruptcy. And a lot of people don't know this. But like the most successful companies out there often really struggled, but you read about the end result and it seems like it was all a success. I suppose there's an analogy also with fundraising. How was it on the road fundraising in 2024? It's a pretty tough market. How did it go? It was hard. People are telling us, it's like, oh, congratulations, you know, seven to eight months, like all in that that's really fast. It didn't feel fast, you know, when you're flying around like hat and hand begging people for

Starting point is 00:03:52 money, I'm not going to lie, we definitely had to work for it. We had to go meet, you know, hundreds of people and fly around the whole country. It took some time. It's interesting. You say fly around the country. I always say to entrepreneurs, like, when you raise money as an entrepreneur, you get to go to one city and meet 50 investors. When you're a VC, you have to go to 50 cities and meet one investor per city, because a lot of times they're in Pittsburgh and St. Louis and Chicago and Houston, and you got to go see them. Was that your experience? Yes. And when you're asking, you know, endowments, research institutions, you know, folks where A, the money really matters and B, where the level of seriousness is turned

Starting point is 00:04:33 up pretty high, when you're asking them to give you $10 or $15 million to steward, you know, you show up. Like this is not a transaction that's going to happen over the internet, I don't think. And what did you learn about the process? I mean, it's kind of nice that you had to go through it because now as entrepreneurs come to ask you for, money, you're going to have presumably some recent empathy, but what did you learn from the process? Ben has been saying this a lot during our internal stand-ups. He's like, I'm glad that it was hard. It's going to make you that much more conservative and thoughtful. If it's your own money, you know, you're like, oh, great, I'll write a 10K angel check or something like that. But if you're

Starting point is 00:05:11 stewarding the capital of other people that you had to grind in order to like have the right to get, you're going to say no even more often. Like, I think you're going to be even kind with how you deploy money. Did you learn anything that you didn't expect, Ben? I know that you have a sales background, so some of this might have come natural to you? No, I actually think a lot of what I loved and had learned about traditional sales,

Starting point is 00:05:36 in many ways, trip me up in the beginning here. Normally in a sales cycle, one of the first things you do is you qualify the customer. Are they in a buying cycle? Do they have budget? And in this case, the blinds between, are they in a buying cycle, do they have budget? There's so much more ephemeral and less clear

Starting point is 00:05:50 than they are in a same, in traditional SaaS or services sale, where it's, you know, let's take Flexport, for example, my customer was going to spend money on transportation by definition. That's what their job was. It was to procure transportation service. In capital allocation, these LPs, very smartly, they don't have to allocate. They can sit in the S&P. They can go to, they can go to buyout, they can go to private equity. There's no reason they have to put another incremental dollar into venture, especially when it hasn't returned any capital for the last three years. Yeah, it was fascinating.

Starting point is 00:06:22 I will say that I think the qualification process, maybe you were used to software so you knew the questions to ask, but the qualification for any VCs listening is relatively straightforward. And I just want to give a playbook away to people. Number one, go talk to your peer group of like-sized funds that have raised. And so if it's a fund one, go talk to emerging managers. Find out the best you can, the pool of people they talk to. you will find names of people who are adding venture capital managers right now and writing checks

Starting point is 00:06:55 and aren't. You have to put in a lot of desk-based research before you ever go out to market. One of the things you probably learn from sales, Ben, I don't want to put words in your mouth, is the best leads that you ever talk to are referrals. And so if you go in cold to sell to a customer, your chances of success are pretty low. So if you get referred into somewhere, your success goes up and the customer is leaning in when they meet you. And the same is true in venture capital. So I always tell people, talk to other VCs, have those VCs introduce you to LPs, make sure

Starting point is 00:07:29 they're qualified that they're really writing checks right now because a lot of them, as you've articulated or not, and that increases your hit rate when you go out there. Yeah, all very smart. Yeah, 100%. But of course, you were on Fund 1, and on Fund 1, I didn't know my ass for my elbow. So I had to learn it all from scratch. I want to talk a bit raison de etra, your reason to exist. I mean, there's a lot of emerging managers that have come in the last five years.

Starting point is 00:07:56 When I read the announcement about you guys, when I first spoke with you about raising your fund, one of the things that stood out that was unique about you relative to almost any other firm that I've seen out there is the configuration of the three of you. Max, you come from a product background, graduated Duke with a computer science background. Ben, you actually ran sales at Flexport and you were CRO and you were at Flexport for I think almost nine years. And then when you look at Thompson, Thompson has a data science background and for Square, I guess now called Block, but Square Capital, he ran data science there and is a very technical

Starting point is 00:08:37 guy with an applied math background. And it's a kind of a unique configuration. Was that luck and happenstance? Am I seeing it right? Do you agree with that? Max sort of engineered the serendipity here and I'll let him talk about how it happens. No, I don't think it was just random and happenstance. You need to give different founders are going to want different things.

Starting point is 00:09:00 We're in the business of selling money and the thing that might resonate well with one founder will be different with another. And I think you really kind of pigeonhole yourself if you say we just do expert founders, should we just do why for founders? I was fortunate to be with people that are a lot better investors than me. And they're just like, you know, we're pitching our LPs. Hey, how do you win a deal? I'm like, well, we just ask the founder.

Starting point is 00:09:25 How do we win this deal? Like, what do you want from us? And as soon as you can unlock that, it's really different. You're like, how can we win the right to give you money? And they'll tell you. And sometimes it's helping with sales. Sometimes it's helping with products. Sometimes that's helping with technical hiring.

Starting point is 00:09:42 It's going to be really different. If you have more arrows in your quiver to go in that deal, it's always a good thing. Most startups have tight runways. We know that. And you got to keep your finances in order. And it's complicated, isn't it? You got all these tools, bill pay, invoicing, reimbursements. You got so many financial workflows.

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Starting point is 00:10:49 all the errors by just categorizing a bill the moment you pay it. All these details will sync with your accounting software, easy, peasy, lemon squeezy. In the end, Mercury will simplify your workflows and make everything tight. It's going to give you more control. It's going to help you work faster than ever before. So apply in minutes, Mercury.com, to join 200,000 ambitious startups that trust Mercury with their business. It's elegantly simple yet complex. And it's going to simplify all your finances so that you can get back to running your company. Well, I think one of the things, and we'll come to both of your backgrounds, but Ben, let's start with you. One of the things that's unique about you, I always tell people, VCs tend to be pretty terrible at sales. They tend

Starting point is 00:11:30 not to have sales skill sets on their roster. They tend not to be that great at marketing. So this is really unique for me to talk to you that you bring that to bear. What are you looking for and where do you think you can help with startups? I've got to be super careful that I do follow somewhat in the founders fund discipline that the best founders really don't need your help. Maybe they wanted it to Maxis's point at these key inflection moments in their trajectory. But for the most part, if I make it about me, if I'm like, oh, man, I'm going to be so useful to this company, it's probably actually a very negative signal. And occasionally, like, there are some founders, like Ryan Peterson, who I served for the better part of a decade, there are some folks that you just meet and fall in love with, and you want to, you know, you want to be a sounding board to them, but you're never, you're never really doing the work for them. In the case of what we look for, you know, we tend to look for folks who are sort of living in two worlds, like deeply technical and have some deep understanding of an arcane, although important part of the economy. So like, you know, we actually met with a company today that is building back off,

Starting point is 00:12:36 automation, you know, now using LLMs for transportation companies. And it was a young person graduated from Cambridge, did a master's at Cambridge in computer science, who had also learned an incredible amount about how freight forwarding and and ocean transportation worked. I loved it. I was just like, oh, and by the way, the three founders lived together in a house together in San Francisco. It's like, okay, all of a sudden, all the alarm bells, you know, for pattern recognition

Starting point is 00:13:00 and start going off. And you get excited by, hey, there's not that many people on Earth, like just like Ryan Peterson in the same category 10 years ago, there's not that many people on Earth or Parker Conrad with Rippling. Not that many people know HR, like the back of their hand, and also know Silicon Valley best practices and can build a world-class engineering team. Parker Conrad was that person kind of sent from the heavens to do it. Yeah, these people who live in both worlds and impress you in both worlds. Let's start with Ryan because obviously Max worked directly with Parker and I want a chance to ask Max about that. But let's start with Ryan. Like anything that you learn from him,

Starting point is 00:13:37 I mean, he seems like an exceptional founder. What advice or what could you pass on from what you learn from him? Ryan is a pure force of nature. He gets energized by problems and by pain. Most people, when something's going wrong in their company, their tendencies to run away from it. Ryan runs towards it. I've never seen anything like it. It totally changed my own relationship with with conflict and with dealing with stressful situations where it's just like, no, no, the winners are the people who are running towards the fire. You know, when I met Ryan, I desperately wanted to get rich. I came from a middle class background. I really wanted to make money. And Ryan just sort of embodies this. The way you get rich is by doing something really, really useful.

Starting point is 00:14:20 And ideally, in a way that gives you scale and in a way that people value enough they're going to pay you for. But it starts with utility. And I was like, in my youth, I thought you could just jump to the, to the rewards. And no, no, like, utility comes from. first, and then if you write enough utility to enough people, maybe you make some money. So that was really the key lesson I learned from Ryan. But no, and bias towards action, like, Ryan would rather make 10 mistakes and correct them all 24 hours later than experience a moment of stasis. And when you think about what a company is, like, it's just this constant iterative experiment.

Starting point is 00:14:52 And Ryan was just like completely fearless in running that experiment and being at the center of that experiment, you know, now for the better part of a decade. I always say for me, the biggest telltel sign of whether a company is going to be successful is a sense of urgency. When you have a sense of urgency and you complete things at superhuman time, even when you make mistakes, at least in a startup world, in my experience is always better than the people who take time to make things perfect in the startup sense. Max, you came from a different background. You had a product background and you worked at Zenefits, if I have that correct, and you might be. must have worked with Parker Conrad. So tell me about your journey there.

Starting point is 00:15:33 Parker was my boss at two different companies, first Zenefits, and then courageously enough at Ripleyn-A-N-Again again. How big was Zeneffits when you arrived? Eight, eight people. Okay, so you were there from almost ground floor. Yeah, yeah, yeah. There were eight of us in a little office in the mission. Parker is, and I know he gets, you know, his ego's been to bladed a lot recently,

Starting point is 00:15:55 but he is like the best guy at product and sales that I've ever worked for or really. like, kind of learn from. Parker had an interesting knack of on calls with customers. To be, hey, let's do a customer to discover call. What do they need so we can figure out what we're building next? And we get off the call together. And then one time he was just like, I know they said that they actually wanted X and Y. That's not what they want.

Starting point is 00:16:20 They want Z. They've never even seen Z before. So we're going to go build Z and I promise you this is actually what they want. And that's how he's built a lot of this. stuff. It's like, he will talk to customers, but he kind of listens to them and says, yeah, yeah, yeah, I know you said you want this. I got it. I understand your pain points. And then shipped out a product that they didn't even maybe knew that they wanted. So that was really impressive on the price. What attracted you to work at Zenefits in the

Starting point is 00:16:45 first place? I could see if they had raised $100 million and had 300 people, you know? No, I had offers at a few spots to be the first product. We had a drug multiple companies. It's 2013 now. And he was just like, look, this is, why we're going to be a $50 billion company. This is crazy thing. We're giving away this product for free and we're going to make $450 a year per seat. He was just like, we're going to win. Everyone in the entire country needs this and I'm the guy and we're the company to give

Starting point is 00:17:15 it to them. And he just had this mindset of like nothing is going to stop me until I get there. So I often talk about this as being like an X factor of founders. Like you don't really know why you should join them and it sounds like it's kind of a weird idea, like benefits and why would I want to go work at that company when there's all this exciting other stuff going on? But you get a sense that this person is destined for greatness and you should join their journey. And I look for that in founders. He's still doing it now. He kind of got, you know, like pushed off the horse a little bit. In my opinion, he's just like, nope,

Starting point is 00:17:49 I'm going to do this all over again. And then my target was $50 billion company. And I'm still going. I maybe got derailed a little bit, but he's not stopping. What was it like day and day out working with Parker, I imagine pretty intense? It's intense. He has a high bar, and I'm watching it for people that aren't even me. It's, you know, sales loses a deal. He's like, what the hell, why do we lose this? Or you turn a customer churned immediately.

Starting point is 00:18:16 What the hell? Why did we learn? Why do we lose this? What can we learn? How do we get them back? It's all gas, no breaks. But to be really good, you can't lose that sale. You can't turn that customer.

Starting point is 00:18:25 You can't screw up that product launch. And I think that's kind of what it takes. to be good. I think that's what a lot of people who are not in our industry don't understand is it takes a certain intensity. It takes a certain drive ambition. You know, I think you described it Ben as a force of nature. It's a certain force of nature. And that kind of individual is often not warm and cuddly. And often it's what takes to get past the nose that you hear from everybody and and get to yeses. So,

Starting point is 00:18:57 you know, that's been my experience, too. You know, the example that I know we've talked about before and it's maybe commonplace in some

Starting point is 00:19:04 smaller VC mindset that's like, if you're a professional athlete and you're missing a lot of free throws, your team's not like, oh, hey, you tried your best,

Starting point is 00:19:12 like, you know, do better next time. It's like, what the hell are you doing? Go practice and get better and you can't do that otherwise you're out. And you get the same thing

Starting point is 00:19:22 in startups. Yeah. The best example is if you watch 30 for 30 and you watch Michael Jordan and you watch how intense he was with his teammates if they weren't at their top quality. And he was just a first class asshole. But he's also the best players ever played. You can't have a CEO that's like, oh, no worries that his customer churned. You tried your best to keep of like, okay, great. Your company is going to be out of business pretty soon. You can. You can be like that, but you can't be like that and be a super high growth,

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Starting point is 00:21:14 I guess one of the things I hadn't really thought about before today's call, if I at Thompson, he worked at Square, he must have worked, I'm guessing with Jackie and with Jack, Jackie Reesis and with Jack Dorsey, you guys work collectively with Ryan and Parker. You've seen what great looks like. So I guess that must give you a little bit of a compass for, like, you know, I always say the advantage that you have in Silicon Valley sometimes is not that you're necessarily a better engineer than someone from Milwaukee. You know, that person from Milwaukee might be just as smart and maybe smarter, but when you are at Salesforce.com or Oracle, Google, Facebook, and you've seen the top of the industry and you've seen what success looks like,

Starting point is 00:22:03 you have a different set of skills and attributes. You guys have seen that. So you're probably no better what you're looking for. The only thing that scares me a little bit is biasing too much on the recency of working with these folks later in their careers where, you know, at this point in history, whether it's Parker, whether it's Ryan, I mean, these these folks are polished, right? Like, these are folks who are ready to run public companies who in all ways have practiced the art of being a great leader at scale. And, you know, not every 23-year-old we meet with is going to have already gone on that journey. And so I feel like sometimes I'm almost overly critical of folks and I have to look back and go,

Starting point is 00:22:41 oh, no, like much earlier, you know, the Ryan I met who was working in a one-room office with his giant bulldog on Flexport, he was less polished than than Ryan Peterson today. And it's not fair for me to comp a young founder against the model of Ryan I have now. It's fair to go, okay, let's use the mental time machine.

Starting point is 00:23:01 Let's go back to 2011. How big was Flexport when you got there? I met Ryan free YC. So I met Ryan at DuBose Park in San Francisco and he was wearing a YC hoodie that had been his brother's YC and his brother David, who's another genius, had gone through with BuildZo,

Starting point is 00:23:17 the batch before. And I just fell in love with the guy. Do your point around around these of these personalities. I was just captivated by everything Ryan represented. So I was, I was, you know, sort of his, I don't want to say lackey, but I was, I was following Ryan around like a puppy for probably a year before he finally acquiesced and hired me. So it's so it sounds like it's the same for Parker. If I take Ryan and you zoom into the early days of working with them, what attributes could you say you observe there, or if you want to answer it differently, what different attributes are you looking for in founders when you're looking to back him going forward?

Starting point is 00:23:56 For me, it's like a boundless well of energy. If you look at Ryan's history, that the guy speaks five languages, he did a year in Brazil when he was like a sophomore in high school. He lived in mainland China for two and a half years. He rode a bicycle from China to Vietnam. Like, this is a person who, for whatever reason, whether it's God, whether it's the universe, like, whatever you believe in, like, the court is plugged straight in. And there's just like, okay, like, there's, if you can really do this much in a day, even if it's imperfect, you know, you're going to get so much further than the average person. One thing that we look for in founders a lot related to this is basically it's a bad financial decision to join a startup.

Starting point is 00:24:38 And I mean that even if it hits out of the park, it's probably a bad financial dispute. decision. Your expected value with your stock grant as the 40th or 50th employee at a startup, even if it's a $3 billion company, you're better off working at Google. Just like, you know, Google's top office that are really nice. You don't work that much. It's a bad decision. So you have to make someone make a bad decision or make a bad financial decision, whether you think it's a good decision. So you have to just be so compelling as a founder to convince that 50th person, whether it's an engineer or a support person or an account manager to join your company. I think that's something that Parker did really well.

Starting point is 00:25:19 He just would be so magnetic to get everyone to want to join benefits. And then if you look at Ripley, you know, half of that employee base is X benefits of people. So we've done it again. And that's something we really ask ourselves. You know, Ben Thompson and I are like, is this person going to be able to hire their 30th employee? How are they going to get someone to not go work at? a giant company and get paid, you know, a really nice salary instead. The way I would characterize that, that's when I say X factor, that's what I'm talking

Starting point is 00:25:49 about. It's like the ability to persuade people to do unreasonable things because it's not just employees shouldn't join you, but customers probably shouldn't bet on you because you haven't built enough software and you probably in the early days don't have enough financing to guarantee you're going to be around. Journalists shouldn't write about you because they're probably going to end up looking stupid for saying, you know, something good about you. Partner shouldn't partner with you. Employees shouldn't join you. But you get a sense that this is someone destined for greatness.

Starting point is 00:26:19 And for me, that's X factor. The other thing I would say about employees is I don't think it's a bad decision to join. And of course, I know you don't think that either. It's a bad financial decision. I don't. I don't think so either. But let me explain, because I think when I explain, I think you'll agree with me. I look at it. I once wrote a blog post called, is it time to earn or time to learn? And there are times in your career where the time is to go for the money. And there are times in your career where the best thing to do is to be situated alongside someone like Parker, alongside someone, you know, like Ryan, alongside someone like Jack Dorsey. And being in a startup, it gives you two things. It gives you access to greatness that you can learn from. And it gives you a

Starting point is 00:27:07 peer group of people to then go do your next business. So, My analogy is it's similar to an MBA, like very different, but an MBA is paying money so that in the future, hopefully you're going to earn. Yeah, that's exactly right. And I guess I saw you take it back with what I say now is like the long-term compounding of your earning potential by being at a startup for six years, you're going to be way better off. I think the point you were making is right, though, which is like economically you're probably going to learn more than you're going to earn.

Starting point is 00:27:40 earn in that scenario. Sorry, Ben, you were going to add. No, just the food at the Google cafeteria is so good. Legitimately. Like, it's excellent. My wife worked at Google in, when was it 2005, when it not only was excellent, but they used to let you take home dinner. So she would not just have lunch, but every night she would go get steak or chicken or fish.

Starting point is 00:28:06 And I had a startup, so I had nothing. And she would just bring me home dinner every night. Right, those were the gravy train days. What are you looking for in terms of sectors? Are there certain things you'll fund or won't fund? If you look at all of our histories, it's primarily B2B. The only crypto investment that any of us have done of any note is, you know, obviously Max is a big shareholder in WorldCoin from one of the prior vehicles.

Starting point is 00:28:32 So probably, realistically, not a lot of crypto going in this fund. Consumer, you know, we all have a pretty specific thesis around consumer, which is it's getting harder and harder unless you have a distribution edge. So like friends of ours who work with a lot of celebrities makes tons of sense. They're going to dominate consumer. They should continue to dominate consumer. For us, like we're kind of down the middle B2B. And I think like when someone's like, what's a saga company?

Starting point is 00:28:56 The archetypal saga company is going to be, you know, it's the kind of company that founder who has a foot in the old world and a foot in the new world is going to build. whether generally legacy industry, giant existing market, incumbents exist and are making lots of money and generally aren't well-love. Building in those kinds of categories are going to tend to be where we're going to focus. Okay, everybody, it's your boy, J-Cal here, and I've talked a lot on this weekend startups about how the smartest startups are shifting their engineering firepower to Latin America to boost their efficiency.

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Starting point is 00:30:28 When I think about unique advantages that you have, Max, if I focus on you for a second, it's not just that you got to work with Parker and you got to work in product management and see what great looks like. But then when you decided to be an investor, it seems like you may have seen some pretty interesting deals from pretty early on. Maybe you could talk a little bit about that. Yeah. So my foray and adventure was 2016 for the first time. And yeah, a lot of it was a pretty fortunate position. You know, my brother, Jack Sam, and I were all living together and, you know, in the mission and, you know, invested in companies and this was a small world.

Starting point is 00:31:13 And, you know, I think kind of unbeknownst to me at the time, I was in the even smaller world than I had realized. It's just, you know, you kind of just only, you don't know what you don't know. So, yeah, it's like the first fun, we were in a lot of good things, whether, you know, it's like, from Reddit to Ripley to Open Door, like, you know, superhuman and boom, it's just like, yeah, you know, very fortunate position, but the first three months in a job, I'm able to see what it's like. I'm like, well, these are the founders that you're going to be interacting with,

Starting point is 00:31:44 and this is the bar, and this is how you win a deal, and it's how you allocation in a good company. And yeah, it's a pretty awesome experience. Just be like, wait, I already went to like, you know, to jump into like looking at Tier 1 deals two weeks into the job. It definitely gave me a huge jumpstart into this. Yeah, I guess not everyone starts with their brother running my combinator and having that kind of access. Other brother, a successful entrepreneur, so that helped.

Starting point is 00:32:12 I always tell new VCs that when you start to see deals, if you see seven deals, you're going to like three or four of them. If you see 70 deals, you're going to like three or four of them. And if you see 700 deals, you're going to like seven. of them. So be careful not to do the first seven deals that you see. The contrary happened to you, which is super interesting. You saw, again, that's twice in a row. You saw what great look like from the start. Yeah. I think it's exactly that. And then maybe over time, I tried to sort of like you said, expand, grow the pool, like, you know, and let's look at more companies. And the ROI actually

Starting point is 00:32:51 wasn't really there. Was there any common thread behind the people that you were backing in 2016, 2017, or was it just a unique moment in time that you had access to these amazing founders? I think it was just, it was a smaller landscape. I'm sure 2008, 2009 were smaller, but even 2016, 2017, there just were less players. Everyone sort of knew each other. It was easier than it is now. And Ben, have you had a background in investing? I know you've been an operator for a long time, but maybe you could talk to that. Yes, but I've been just taking unguarded layups. So most of my investing to date has been angel investing where, you know, Flexport, we were blessed with like an unbelievable cap table. And a lot of those

Starting point is 00:33:39 firms when they were leading around and it was a business that kind of looked or smelled a little like Flexport where it was, you know, it was a legacy category. They're going to build a big sales org, you know, whatever it was when they thought I might be used as with the founder. You know, these folks were generous and inviting me in. You know, that's playing the video game turned down, not even on easy mode, like, that's turned down on the mode where you can't even really get killed. Like, if you're just doing founders fun deals over and over again, you know, frankly, like, I feel grateful for having gotten to do it. And I, you know, I met amazing founders. Like, I just spoke at Spike from New Front's annual kickoff with his team. Like,

Starting point is 00:34:13 I'm super grateful I got to do that. What we're doing now is so different than what I was doing that I feel like I'm totally relearning the game. You know, when you switch for being a founder to being a VC, I'm sure you were humble enough to go, okay, I've got to go empty cup. Whatever I learned as a founder, I can't just run the same playbook here. I'm trying to do that same thing right now. I didn't write a check for one year. For one year, I just didn't feel like I knew what was calibrated and what was a great deal. Now, it happened to be 2007, 2008.

Starting point is 00:34:43 And so the world was kind of melting back then and no one was sure there was going to be a venture capital. But still, I took my time for sure. talking about this, this is another thing that I find fascinating about the three of you is you must all three have had just tremendous access to the world's top venture capital firms, like, because all of the companies you worked at were backed by great VCs. I know even in the case of Thompson, he worked as an EIR at Kleiner Perkins. He worked closely with Ilya Fushman. I think Ilya backed his startup.

Starting point is 00:35:18 You know, I work closely with Ilya. I think Mamun and Elia are two of the top people in our industry right now. Having worked with VCs, what positive attributes have you noticed from venture capitalists you've worked with that you want to model and build as part of your culture? You have to say accessible. You can't be an ivory tower. Look, a lot of these best investors are, you know, are, they're very well-respected people. everyone is trying to come get money from them

Starting point is 00:35:51 and the whole country. And you can't just say, oh, hey, my EA will schedule, you know, a meeting with you in two months and like you can drive all way out to this person's house. It's like, no, the people that are doing this, even if they're, you know, been doing it for 20 years, they're still out meeting founders. You know, they're responding on text.

Starting point is 00:36:11 They're responding to emails themselves. So I just don't think you can put a wall between yourself and the founders just to have it to be able to access you. There's this trope that ventures, sort of a retirement gig. And it may have been in the prior cycles when the game was easier. You know, someone told me recently there was 150 GPs in 2004, now there's 3,000.

Starting point is 00:36:31 And there's certainly not 20 times as many good companies. So certainly, you know, it's a much harder discipline to win in now. But the folks that are still winning, like there's a famous story that's making the rounds right now about Vinod Kosovo being at a YC demo day where people didn't realize it was Vinod and there were no chairs left. And here was this guy sitting on the floor, just diligently taking notes on every company, like one of the most successful humans ever to walk this earth sitting on the floor at a demo day. Like that's what you're up again.

Starting point is 00:37:01 Like Bill Trenchard's another example of like, you know, there are some of the folks at first round who have stepped back. Bill is still, you know, every deal we send a bill that looks interesting, he takes himself. There's a level of engagement from people, even people who've had bigger wins than certainly, either of us have ever had in our careers, that's what you're up against in this new world. Like, there's no more of this, oh, it's an easy way to get returns. Like 80% of venture funds are sub 1x. Yeah. When you describe like the force of nature that Ryan is, when I hear you describe Parker,

Starting point is 00:37:34 the best VCs are exactly the same. I know, I said this is someone. I think, you know, Venoid's in his 70s, right? And, you know, they've just done a tremendous job. I love working with them. I emailed Vanneau on a weekend a few weekends ago and I got a response back saying he was on vacation and then I got a text message 10 minutes later

Starting point is 00:37:57 and he's that kind of guy. I think that's what Ben and I saw too. I mean, we saw this two weeks ago. We were wrapping up our clothes. Ben was like asked Alfred Lynn for a favor. He responded immediately and did it. I asked Keith for something. Can you help me out?

Starting point is 00:38:12 He texted me back within 10 minutes, yes. And that's the people that are making. making a lot of money. That's what they're still doing. Heath is so responsive. He's phenomenal. Yeah, it's really good. So yeah, I guess you need that kind of hustle. You guys are not in the Bay Area. Thompson is. Thompson's in the Bay Area, but you guys are in New York and Austin, respectively. Tell me a little bit about what you think about those markets. Will you be funding in those markets? Why are you in those markets? Does that give you an advantage or a disadvantage? Maybe Ben, we start with you, and then we'll go

Starting point is 00:38:46 to max. We expect that 90% of the companies we invest in will be in San Francisco in New York and New York in that order. 10% will be everywhere else. The network density in these places is still so real. Probably the biggest change in the market in the last five or 10 years, since I started really investing regularly has been that New York is a much more real force than it was before. I don't know if you can give ramp all the credit or thrive or, you know, USVs obviously been here a long time doing the Lord's work, but something changed here in New York where the founders are building to the same quality of San Francisco. The volume just still is 5x in San Francisco. So we're going to spend the majority of our time in these two cities.

Starting point is 00:39:30 And so you've got New York covered. Max, you're in Austin. I'm in Austin. I got here two years ago. I looked back deals I've done the last like four years. About 10% of them are in Austin, But that's a giant drop off. I think Ben's right. 85, 90% of the things will be in San Francisco in New York. Austin's the third biggest market. But it's a third biggest market for us. I think San Francisco in New York will be dominant.

Starting point is 00:39:59 Austin is a tech hub. Do we want to go into this? Sure. Let's go. Let's go. It's a good place for tech. It's never going to be a tech mecca. And I think that's sort of by design.

Starting point is 00:40:10 That's not like the bug. There's a lot of cool stuff going on here. There's a lot of very impressive smart people. In San Francisco, people work until 8 or 9 or 10 p.m. And Austin people will do that if they need to. But right after this podcast, I'm going to a founder's pickleball league. It's championship tonight. It's literally happening.

Starting point is 00:40:29 As we speak, I'm going to jump in, I think, for the quarterfinals. It's going on right now. In half an hour, hopefully we've advanced the quarterfinals that I'm in. It's all really impressive people, founders of awesome businesses that are not just real estate people, people. that are in finance, people have built great things. And they are impressive people. There is a little bit more of a work-life balance in Austin than there is in San Francisco in New York, where if you want people to come together at 5 or 6 p.m. on a Wednesday in Austin, you can do that. In San Francisco,

Starting point is 00:41:01 it's like, forget about it. Someone's like, fun. I'm not going to have fun at 6 p.m. I need to be working on my company. So that does make it a little bit harder here to invest. Do you have observations about San Francisco as we sit here in May 24 because during COVID, it was a ghost town and everybody was staying at home. And I think that kind of drive and energy got zapped for maybe 18 to 24 months. I noticed a tremendous change when AI started taking off a little bit more. Do you have any observations about what you're seeing in San Francisco now? I lived there for seven years. Like everyone else, I have a love-hate relationship with San Francisco. it definitely has some downsides to it.

Starting point is 00:41:43 But San Francisco, of course, has the most ambitious, educated, you know, builder mindset people, group of people in the world. I think it's the entire world. So it's not surprising at all when there's an opportunity to build something really cool. Like, you know, if someone's like that, they're going to move to San Francisco. You know, you could knock and say, well, people there don't have fun. People don't do other. thing, you know, they don't, they don't socialize. And the flip side of that is, yeah, because

Starting point is 00:42:13 they are just like building really cool things all the time and they're hustling and they want, they want to make a ton of money and they want to build a great company. So that's what they're doing instead of having fun. There's nothing wrong with that. Great place to be investing capital. And it's sort of a weird, perverse way. Like, a lot of the problems we had in San Francisco scaling flex poor during the boom, as I will refer to 2014 through COVID. there was no office space in the whole city above 25,000 square feet available. We literally, we were on a list. We were fighting with Google, Apple, and Facebook on every office.

Starting point is 00:42:46 The prices for everything were outrageous. Startups were really being bled dry by that era, both in terms of the competition on employee compensation, the cost to build the offices. Everything was bad in terms of building profitable companies. And now, like, rents are down for the employees, rents are way down for the companies. You sort of have this opening where potentially you're going to have a lot of great

Starting point is 00:43:10 companies that can flourish and have a lower fixed cost base than maybe some of these companies like Flexport that were built during the boom. It could actually be an amazing setup for growth in NSF just because of how poorly the city's been managed. One very controversial thing about San Francisco is the fact of the city for better or worse is set up where it's like feels like one of the most wealthy. in equal cities in the country is you see very quickly which side of the tracks you're going to be odd. There are billionaires living next to homeless people and there's no other cities like that

Starting point is 00:43:45 in the country. So if you're in a more equal city and you know, you don't do great, it's like, well, you know, like, it's fine. If you're in San Francisco, like, this city's not going to like lift you up and help you. And this is where you can't be if you make a lot of money. So I think that pushes people, frankly, but just work really hard there. I want to talk for a minute about the thing that everyone is funding these days, and that's AI. There's both a blessing and a curse of AI. AI should lead to a lot more productivity, a lot more automation, a whole new spending cycle, but AI itself is very expensive for companies to build, both in terms of talent, in terms of training and building models. I'm guessing, Max, you know a few people who know something about

Starting point is 00:44:29 AI, what insights do you have about funding AI companies? How will that determine what you guys look at? I think if you're looking to invest in really core things like an open AI obviously or anthropic or whatever, I kind of think that the ship has sailed a little bit on that. Like, we get pitched companies. Or, hey, to get started, we need $100 million to fund our compute. So that's a huge issue. how do I do that? My answer is like, I don't, you know, some teams really can

Starting point is 00:45:02 that's happening in the last year or two. But for the most part, like you probably can't. The financial moat and the compute mode has gotten too big now. So we're really looking at companies that are utilizing AI rather than our AI companies. I think the things that we've had in the past are like, they're used it to leverage how they build their business and they're not trying to market themselves as an AI company. Are there important elements to how AI will determine the companies that are built or the products or how you're in customers will use the product that will inform your investments,

Starting point is 00:45:39 or you're just going to take the best entrepreneurs that you're meeting? The best entrepreneurs have figured out how to leverage AI and not reinvent their business, but just sort of superpower it. Like an example, a good company that Jack and I invested in called Durable.com, actually in Vancouver, So we'll go sometimes in Canada as well, too. They're helping people with like physical storefronts, help get, help get their business online, whether it's website, marketing collateral, just kind of run their online business. Let's say you do our general mom and pop physical hardware store.

Starting point is 00:46:14 They have an AI powered website builder. You could be like, you know, Mark's laundromat in L.A., and it can pop up something pretty cool for you. People love that chip. People thought it was so cool. and it's really powerful because everyone's like, well, wait, I can make my own website now, and I don't even have to have any sort of like graphic design background. I can just type in a few things.

Starting point is 00:46:35 I don't think of that as an AI company, but they're definitely having a tool that was for, you know, getting digital or web storefronts for physical, you know, hardware for businesses, and they use AI to do it. And I think that's the kind of company that you like. I think what a lot of people don't think about is just how many industry-specific uses for machine learning or AI, there are some of the stuff before there was Open AI, some of the stuff that we were funding in machine learning was like for healthcare insurance companies to evaluate healthcare providers.

Starting point is 00:47:11 And they were building machine learning rules engines on the health care that was being provided to look at things like value-based care. We had another company that was doing machine learning, looking at consumer lending, and looking for patterns in how did underwrite thin-file credit consumers. We had another company looking at call center data and probabilistically determining the success of your sales and marketing campaigns based on billions of records that humans couldn't evaluate. I have another company that was looking at babies

Starting point is 00:47:45 and how baby development was going to see whether they were sleeping or had mobility problems. And all of that was training on AI models that was not like the LLMs that we talk about today. So I just think the use cases are pretty vast. I don't know if that kind of stuff appeals to you, like the industrial use cases. Absolutely.

Starting point is 00:48:06 Probably the investment that I did personally that is performing the best in terms of like the last six months is AI for industrial quality system. And they are saving some of these manufacturers absolutely insane sums of money. like in the case of one engine program, I think it was saying like $50 or $60 million a year of savings, in a category that you would have no idea that AI would even make a dent. So yeah, super interesting. And at the stage that you're investing at, you guys,

Starting point is 00:48:36 I assume are mostly seed stage. Yeah, we want to stay away from trying to lead Series A's as much as possible. We want to play games that we can win, and the Series A is a knife fight. So, and we think there's still space to be competitive. co-leading a seat the ground. So you will either lead or co-lead. Do you care if it's lead or co-lead? Not really.

Starting point is 00:48:59 I mean, our focus, especially this is a first fund with the three of us working together. We just want to be in great assets and build relationships with the best folks. That sort of is how you build the foundation for the next four or five of these to work. You can't be overly ownership focused before you frankly earn the right. Or there's just terrible adverse selection, we think. Yeah. And a lot of that came into how we kind of did our fun size. frankly, which is we want to have enough ownership that we can get good returns,

Starting point is 00:49:26 but we're not going to be out here saying we need 18% every time, because then you can't collaborate it with other great funds, and you kind of become a lone wolf hunting by yourself and start making enemies. So we backed into our fund size based off that. Hey, you know, if we have 8% and someone else has 8%, that's great. We can't have 2% of a company, but we don't need to have 15% or 17%. It is interesting. When you start a fund,

Starting point is 00:49:51 And if you're at the $125 million range, if you're at 50, if you're at 75, it's really easy to get included in great deals because your needs and demands are not as much. When you get to $300 million, $400 million, $500 million, you really have a need for ownership and it becomes harder to play at the same round. You end up having to play more cereal than parallel. The bigger your fund gets, unless you become like a multi-stage, just, hey, we'll be collaborative. checkwriter, the hardest to work with other people. Like, we, we didn't set out to raise a $400 million fund, partially for that reason, too.

Starting point is 00:50:30 Ben, you referenced founders fund and that maybe being a little bit of an inspiration amongst others. Does that mean you don't plan to take board seats, or do you plan to take board seats? I think we will occasionally take board seats, but very infrequently, particularly, is, you know, on this first fund, what we are investing very early, for the most part, the best founders don't want you to join the board at that stage. You know, they'd rather wait for Series A, do a formal Series A, priced round, have someone from a multi-stage firm during the board. That seems to be what the market has decided the best founders are going to do.

Starting point is 00:51:09 Occasionally, if we do something where it's like a longtime friend of ours, or if we work with someone for a few months on building something and, like, semi-igibundated, or incubated, there may be exceptions, but I think for us at this stage, probably an anti-signal if we need to join the board. Mark, I think of us is like our job is, we're like the like elementary school teachers. Our job is to get them like right when they're growing up, help them do whatever we can to get a series A from that tier one lead that they want, have them join the board and then check our egos at the door and then we're the second fiddle.

Starting point is 00:51:43 It's not like five forever, but it's that we have to be like. Like, someone else is now the adult in the room and someone else is on the board and we are the number two. And that's okay. If we can do that, we've done our job like amazingly. I think some of the best seed stage funds through the last 15 years, founder collective for first round capital, people like that, they've been incredible at both getting access to super early stage, maybe younger founders and then shepherding them. to the best A round investors. And in part, they have the relationship with the A round investors. So you know if Founder Collective or First Round did their seed deal, you're looking at a deal

Starting point is 00:52:28 that's already been qualified by somebody you trust and respect. And if Bill or Josh is calling you, if, you know, the guy's over at Founder Collective, Eric's calling you, Mike is calling you, you're more likely to take the meeting. So I think what people outside the industry don't understand is what a closed industry it is. When I get called by people who invested before me that I've known for 10 or 15 years and there's a lot of trust there, I'm way more likely to take the meeting and to come leaning in. For sure. So I think that's somewhere where you guys will stand out a bit. We should we should talk about Thompson before we wrap because he's not here. He doesn't get to defend himself.

Starting point is 00:53:07 Tom's the smartest one of the three of us by far. What is he? What is he? What is he had to your team? Yeah, he was an applied math guy. I read that he was at Berkeley and Cambridge. He did data science and he seems a pretty smart guy. Like, how is he going to fit into the mix? Thompson's the best. We've seen it a few times recently where founders were willing to take money from Thompson over the most prestigious firms in the world because he is just one of those people who will be endlessly patient and useful on day zero.

Starting point is 00:53:38 Like, before you have anything, when you're just like a guy or gal who's wrapping up a PhD at MIT, you've never built a business, you know why C. is what you're supposed to do if you have an idea. He will spend that six months with you going from really smart person to polish enough to getting into YC and people just love him. He was born to do this. His parents were founding engineers at Qualcomm. They emigrated here from Vietnam.

Starting point is 00:54:03 Pretty remarkable story to come to the United States to be a part of the founding of Qualcomm. Both of his parents hold all these patents for Qualcomm. He never thought he was going to be in tech. Like for him, rebellion was being a mathematician because his parents weren't. And then at some point, he was, I think he was a third of the way through his PhD at Cambridge. And he realized, oh, my gosh, like, I can't spend the rest of my life just thinking, I want to build stuff. And his third grade best friend was Kevin McHathie from Lookout.

Starting point is 00:54:32 And at that point, Lookout was like a good startup, but not, you know, wasn't a multi-billion dollar outcome yet. He called Kevin and said, hey, I want to come home, left Cambridge, went to work for Kevin. That was a success. He worked for Sean Parker at causes. And then his big win was he built a company called Frame Data. And you know, you were sort of referencing how magnetic some of these founders. And in this case, Jack can be Thompson had no reason to sell Frame Data. He had just raised the Series A.

Starting point is 00:55:00 Gary led it. This is like when, you know, obviously before Gary took over YC. So Gary led the Series A, very hot, very prestigious, unbelievably good team. As soon as Jack made a list of, you know, of he basically wanted to learn more of machine learning. He somehow got Thompson's name, called them into the square offices. Within like two days, they had an acquisition offer that Thompson just couldn't turn down.

Starting point is 00:55:24 He was, yeah, the opportunity to go work for Jack is special enough. I will exit this company. And then, you know, good timing. When the acquisition happened, the square stock price was in the dumps. And then, you know, let's give Thompson all the credit. They built square capital. They built all this great stuff. Stock price absolutely soared, made the acquisition totally rational for everybody.

Starting point is 00:55:43 involved. Then he went, Mary Meeker was on the board at Square. She brought Thompson into Kleiner. And this is like on Thompson's first day, it turned out Mary was leaving and forming bond. Thompson got like to be a fly on the wall through that transition from Kleiner 17

Starting point is 00:56:00 to Kleiner 18. You know, Kleiner then backed his next company. You know, he sold that one about a year ago. Not as great of an outcome as the first one, but returned all the investor capital. Everybody was pretty happy. It was a cool business. rising interest rates and an S&B Neobank didn't mix. Yeah, as Max said, he is one of the smartest people I've ever met.

Starting point is 00:56:21 I think this is probably a good place to wrap, but I want to give you a chance to tell people how to get in touch with you. Are you guys active a lot on Twitter? How should people reach out to you? You got to fax us. Are you putting out content? Facts. Facts is, I think we really should be retro.

Starting point is 00:56:40 Like, let's put up barriers to see who's innovative enough to get. around it. I kind of would respect that if you made it a little bit harder. But yeah, we're super active. We're super active investing now. We have historically not been big Twitter people, but Ben is pushing me to be that. Mark, you can push me to be too. I love to engage in on Twitter now. So, yeah, you know, we're all available with our own first. Your Twitter handle Max is. It's just Max Altman, 5,000 followers as of this morning. Really blew up. Well, I'm hoping that you all follow Max Altman. Ben, what is your Twitter handle? I am brave Ben. And I'm less likely to be retweeted by Sam Altman, but still, a very nice guy.

Starting point is 00:57:23 A lot of fine qualities. And I am at M. Suster on Twitter, and I work for upfront ventures. I noticed you didn't say you were going to do a lot of deals in Los Angeles, but I just want to put a plug in for the great city of L.A. there's a lot of great founders here, a lot of great energy here, and I hope to be your collaborator when you decide to do deals in L.A. We would love that, yeah. Thank you so much for having us. Obviously, your reputation proceeds. You was really, really cool to spend some time.

Starting point is 00:57:55 I appreciate it. It's been great, and good luck in pickleball today. Thank you. All right, take care.

This Week in Startups - Max Altman & Ben Braverman chart Saga VC's maiden voyage with Mark Suster | E1948

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