This Week in Startups - Unicorns: now and then with Aileen Lee | E1887

Episode Date: January 27, 2024

This Week in Startups is brought to you by… Ketone-IQ is a clean energy boost without sugar or caffeine. Get 30% off your first subscription order of Ketone-IQ at http://www.hvmn.com/TWIST The Paintbrush Loan is the earliest startup financing on the internet. No pitch deck, no business plan, no minimum time in business, and no warm intros. Plus, you get to keep your equity. Visit http://www.getpaintbrush.com to see if you qualify for a $50K startup loan in less than 2 minutes. Coda is the all-in-one doc for teams. And they introduced an AI-powered assistant to take the BUSY out of the WORK! Get started for free at https://www.coda.io/twist * Today’s show: Aileen Lee join Jason to talk about her origins and overcoming challenges as a woman in a male-dominated tech space (2:12), the Unicorn Club and the effects of the ZIRP era (11:51), predictions on which startups will maintain their unicorn status (33:09), and more! * Subscribe to This Week in Startups on Apple: https://rb.gy/v19fcp * LINKS: Check out Cowboy Ventures: https://www.cowboy.vc/ Read Aileen’s 2024 article here: https://www.cowboy.vc/news/welcome-back-to-the-unicorn-club-10-years-later Read Aileen’s original Unicorn article here: https://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club/ Check out All Raise: https://www.allraise.org/ * Thanks to our partners: (10:26) Ketone-IQ - Get 30% off your first subscription order of Ketone-IQ at http://www.hvmn.com/TWIST (20:39) Paintbrush - Visit http://www.getpaintbrush.com  to see if you qualify for a $50K startup loan in less than 2 minutes (31:38) Coda - Get started for free at https://www.coda.io/twist * Follow Eileen X: https://twitter.com/aileenlee LinkedIn: https://www.linkedin.com/in/aileenwlee * Follow Jason: X: ⁠https://twitter.com/jason⁠ Instagram: ⁠https://www.instagram.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 Instagram: https://www.instagram.com/thisweekinstartups TikTok: https://www.tiktok.com/@thisweekinstartups * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

entrepreneurial background, having done something, it doesn't almost matter whether it was Jet.com or if it was like a lawn mowing business. It's like basically you have to have tried and have that fire to actually take risk. And failure, I think it's really important. I always tell my founders, getting your ass kicked as a precursor to kicking ass. Yeah, but I do think for the next generation of founders, like for my kids, I encourage them and their friends, like start businesses, talk about business ideas with each other. Why?

As a parent, why are you encouraging them that now? The understanding the risk and all the things you just said about hiring, planning out the business, facing failure and disappointment, selling, satisfying customers, all those things. You kind of need reps. Yeah. And then you get better at it over time. This week in startups is brought to you by,

ketone IQ is a clean energy boost without sugar or caffeine. Get 30% off your first subscription order of ketone IQ at HVMN.com slash twist. The Paintbrush loan is the earliest startup financing on the internet. No pitch deck, no business plan, and no warm intros. Plus, you get to keep your equity. Visit getpaintbrush.com to see if you qualify for a $50,000 startup loan in less than two minutes. And Coda is the all-in-one dock for teams. Get started for free and get a $1,000 startup credit at coda.io slash twist.

All right, everybody, welcome back to the program. Aileen Lee is here. She's the founder and managing partner of Howboy Ventures. You could follow her on Twitter slash X, Aileen Lee, A-I-L-E-E-N-L-E-E. Thank you, James. Welcome back to the program. I don't know when the last time we talked was, but yeah. We've been one to you're- For a long time, though. Yeah, it's been, I don't know, 15 or 20 years. Probably, yeah. You knew me before I was investing in companies and I was just an entrepreneur. And back in 2013, you coined the term unicorn. You've done a lot of research on your unicorns and you just updated the famous 20 was it the 2013 report you did yeah yeah and so i just wanted to talk to you about all that and then we'll talk a little bit about DEI because i know you've

been involved in a lot of those efforts here to and you were one of the people will stay tuned for that part and not be like yeah this is my part to check out when you started in the industry correct me if i'm wrong but when did you start as an investor join kliner perkins the end of 1999 i was about to say it was during the dot com era so you've lived through one two three cycles now. That's right. I think you actually on X said, or didn't you say something about being a three cycle investor? We did a little series here about being a three cycle investor and is just so few of them now because in our line of work investing, a lot of people, you know, if you hit a winner or two, you retire, right? People retire early or they get aged out. You know, like Bill Gurley is no longer

at benchmark and Doug Leone, Michael Moritz. A lot of folks seem to age out or just, you know, Yeah, some firms, I guess, have that in their bylaws, yeah? Well, I think there's different vintages at Sequoia Roloff and Alfred and I are similar vintage. Mamun, similar vintage at Kleiner. So I have a lot of gas in the tank. I'm excited to make more investments. I find this job really invigorating. It's, you know, it's challenging, but it should be.

It's an elite pursuit. It should be challenging. We are in a very important position in society where we get to place bets on who gets to, you know, try and change the world. It's pretty heady stuff when you think about it, you know. It's a privilege, for sure. Yeah. Yeah. And then you got Vanneu Coastal out here. He's in his 70s. And he's sharp. He's sharp. Yeah. Yeah. That dudes, they're going to have to drag him out of the building. He's awesome. I interviewed with Vinod when I was interviewing at Kleiner Perkins. And I fortunately didn't really know what a big deal he was because I came from Gap. So I didn't really, I had heard of venture capital. I was an analyst at Morgan Stanley in San Francisco

office actually. And the people from banking who went to venture were all guys. And I just figured, and all the people who were hiring them were guys. So I just figured, like, I'd both never get a job and I also would have no friends at work. So I never tried to get a job adventure, even though it sounded like such an interesting job and one that I would love. So I got lucky when I went to Kleiner that I interviewed and I wasn't really intimidated by the folks who interviewed me because I didn't know who they were. Well, and yeah, you came into it with the idea that, hey, maybe I'm not welcome here, right? And then you were probably, correct me if I'm wrong, in the 90s in finance, there was a bit of gender representation. I was the only investor at Kleiner in 99 who was a woman.

Right. And when you think about it, there were most firms who were all male at that time. Yeah. And man, it's shockingly changed in the last 10 years with so many women starting firms at all race, the nonprofit, that's really driven representation in the space. But let's talk about unicorns. What was the state of unicorns when you first wrote that report? We then went through this 10-year crazy period. I would say unprecedented, but we did have something similar at the end of the dot-com boom,

but nothing like this. So what are the stats now that you've done the report show? Let's get right into the stats. In 2013, I had a relatively new fund. My Cowboys 1 years old. So basically we had a couple investments and I had a little more time on my hands. And so I thought, let me just do some research and figure out, you know, Because at Seed, especially back then, but still now, at least for us at Cowboy, it was, you know, it's your first

institutional round. So no one's heard of your company before. Many cases, you don't even have a website, right? You haven't even changed your profile on LinkedIn. So there's not really signal and you don't have any traction. So, you know, how do I, I move from being a series A, B, C investor to being a seed investor. So I wanted to learn. If I had started 10 years earlier, what are the best possible companies I could have invested in? And let me make that list and then figure out, like, how could I have found them? Or did they work before? What was the original idea? What did the founders do before? Like, what did they have in common?

That might give me some sense of signal. And so I basically just started hand curating this list. I was like, well, let me just reach a billion dollar in valuation in private or public markets within 10 years. Right. That's pretty good progress. And so that list wound up being 39 companies. I posted it as a guest post on tech rent. And I came up with a shortener for unicorn.

So it's basically a company, U.S.-based company that's venture backed in the tech sector, less than 10 years old, worth at least a billion dollars. in private or public markets. So you're not going to write that over and over again in any kind of record reports. I tried to come over with a shortener and home run, monster hit, out of the park. You know, like you could, and like all of them wound up sounding like both annoying and a little douchey. Yeah, for sure. And so unicorn. Yeah, totally.

It just sounds horrible. And I think it also, it doesn't convey how special it is, how much work goes into it. It makes it quite crass and I think pretty empty. And so a unicorn was the word that I felt like. captured that it's special and kind of rare. Special and rare for sure, yeah. It takes a little magic. So that report back then basically wrote up what they had in common, what I found

from the analysis. And so basically it was just the 10-year anniversary of that analysis. So this past summer, actually, we said, well, it's going to be 10 years. Why don't we go back into the data and see what we can find? And there just wound up being so many more and so much more to study. It actually took us a couple months because we went from 39 to 532. Okay. The first list was majority consumer.

So this is fascinating. The age of Facebook and Groupon and LinkedIn and Twitter and Airbnb. There were a couple enterprise companies, Workday, ServiceNow being among them. But the 80% of the value, the aggregate value, if you added up the evaluations of all the companies in the list, it was consumer and enterprise was a minority. And so when you look at this new list, the pendulum has swung to Enterprise massively. It's 80% enterprise companies. Wow.

So that's a big change. And I should say we only look at U.S.-based companies. We invest at Cowboy in the U.S. only. And also it just constrains the list a little bit more. But usually, I think if you were international listener, I hopefully there are a lot of parallels. And the list is probably the U.S. historically in the last decade is about 50% of the list, usually. So it would be about double, I think, if you were looking at it internationally. So we went from high 30s to 500. Yep. So 14X.

14X, the number of them. Yeah. Let's stop there for a moment. What do we attribute that 14X? and then I want to get into sustainability. I don't know if you've gone back and looked at the original 37, was it? Yes, we did.

The first 39, we looked at what happened to them. Yeah, so I think that's a really important discussion because it's one thing for us here in the industry to dub something, you know, a unicorn, but we all know Groupon and some other companies have had a hard time. I don't know if they're still a unicorn or not, but I know they're still around.

So, yeah, what is the data show about those original 39? So the original have had mixed fates. The other thing is 60, I think 66% of them had exited. So they had either been bought or gone public. So a lot of them like Airbnb, some of the networks effects companies like X, like they actually became quite a lot more valuable and Fedda Facebook turning into meta. Yeah. A lot more valuable over the past 10 years.

And then some of them out of business, not worth nearly what they were before, worth less. So it's definitely a little bit of a mixed bad. But for the most part, I do the majority are worth more. that is, I think, one of the key realizations Rulov had at Sequoia, which was, or I think Michael Moritz and Doug Leone had it as well, man, if we hold on to our companies

when they go public, one form of exit. That's right. They did much better as investments after they went public. Now, I don't know if we could say that today because SPACs kind of threw a wrench in there. Some things went out too early,

and then we have overpriced companies going public. So on a sustainability basis, that group had a lot of sustainability and staying power. But this new group, that's a big question. Like, did we? Totally. So of those original 39, the enterprise companies tend to have had more consistent performance

and held up in value than the consumer companies. And the other thing that was a big takeaway and might have been to your question about why are there so many more and so many more in enterprises, the capital efficiency of the enterprise companies in the first batch was much higher than the consumer companies. So the consumer companies on average were worth 11 times the amount that they had raised. The enterprise companies were worth 26 times the amount. they had raised. Ah, so if we pause there and explain that. That's pretty awesome. Yeah. So if they raised a million. Yeah. If you raise a dollar and you wind up becoming worth $26,

that's a pretty good return. Pretty great. When you're in the startup business, you should always be looking for a performance edge. There are simple ways to do this, like getting better sleep. We all know that. But let me tell you about a little hack that elite athletes and U.S. military members use. It's called ketone IQ. A bunch of the quantified self, people like Andrew Huberman have been talking about the benefits of ketones recently, and ketone IQ is a ketone shot that was developed through a contract with DARPA to make American soldiers sharper. You can think of ketones as nature's brain fuel. They have a bunch of proven health benefits like improved focus and weight loss, and ketone IQ is a clean energy boost with no sugar

and no caffeine. I have been on it for a couple of months now, and my energy level has gone up, up, up and my focus as well. I love taking these shots. I take it in the morning before I work out. I take it when I'm skiing. And man, it makes you feel like a superhero. So here's the call to action. Get 30% off your first subscription to ketone IQ at HVMN.com slash twist. That's HVMN.com slash twist for 30% off. Or you can easily find ketone dash IQ at your local sprouts market. Comes in the little bottles and you just take this little shot, boom, you're off to the races. If you raise a dollar in year one and then you sell the company for $26 in year four, I think that's a 40% annual rate of return, which especially when interest rates are

1%, you'd much rather get 40% a year than 1%. I guess one of the big topics. During ZERP, money became free. There were lots of funds, lots of investors. People started dipping down into what we do, like Masayoshi-San, you know, and SoftBank or TOTU, Tiger, hedge funds coming down and putting in those last couple of bets. some of those were perhaps not as efficient, right? Well, not even last.

I mean, they started doing A's and B's. Yeah. And without really being thoughtful about them, I think was, I think the criticism that seemed viable. When you look back on that time, what's the lesson now that we've started to look at the data? What's the lesson from that peak mania, which probably lasted 2019 and 2020 and 2021 and then ended up, obviously. A lot of founders at the time, and I'm like, obviously, this is a conversation because I know

you have a lot of experience and points of view on this too. So I think at the time, because there was so much money swishing around in the system, if you had a new and there was a real war for talent. So people had more money than people in a lot of cases. So they were like, well, let me solve this with technology. I'll just buy more software. And so a whole bunch of venture back software companies found selling their products quite easy. And so everything was what, as they say, up into the right.

You know, it's like you start, you sell and everyone wants it because they've all got fresh venture rounds. And so I think a lot of founders were like, this is not hard. I should just take money. I don't need guidance. I just need money. I'm going to optimize for valuation and build a war chest to scare off competitors because I know exactly what I'm doing. I've been in business for a year.

I got this. And times have changed. So I think a lot of founders out there know that that's not going to be the case for the next five years. And so I think the amount of help that you bring on to your cap table early on is going to be, you're going to need different help. Yeah. When I was on a couple of boards and I watched these.

these late stage season Ds occurred during that time period. You know, people asked me what my advice was. And I was like, well, you've already got a board. You've already got product market fit. This feels like a financial transaction. Why don't we look, why don't you present to the board? I said to one founder, these five offers you have. And just give us a Google sheet and put them next to each other.

What price per share they're paying? What terms? What the pro forma cap table would look like? What would this look like in the case of an exit? what would their ownership be, yada, yada. And just don't even tell us the names of the firms. Just look at it completely as if you were getting a mortgage. Do you care when you get a mortgage for your home?

If it's, you know, from this, you know, firm named after one tree versus another one, oak tree versus this tree versus that tree. You probably don't care, you know, which tree it is for that late stage round or for the mortgage. And so they did, I think, make some decisions like that. And in some cases, they didn't even take board seats, which was. Yeah, right. that was a weird moment too. Like you're putting a hundred million into this company or 200 million to this company. You're not involved in governance. Maybe you could speak to how governance has

changed over your career. I mean, I think that's a whole other topic. Why you're here, Aileen, you've seen this. How lax we got in governance. You know, and I think people now realize that having a board can be a very constructive thing, but who's on your board and what experience they have. And, you know, I think people didn't really want accountability. And so there was a feeling like don't have a board, just, you know what you're doing, just go for it. But I think we're paying the price now of not having proper feedback or proper dashboards or KPI's or being open-minded to different points of view. And I think when you take on a fund that has, you're one of many bets. And it's a very large fund.

And they've got a portfolio. And they are basically, there's a bunch of flowers that they've pollinated. and they just needed a couple of them to grow really, really tall and everything else doesn't matter. So I think the incentives, when you take on money from large funds, you just have to really understand that they want you to have a giant outcome that you may, at that period of time, I think it will change in the coming years. But at the period of time, I was like, you know, spend as much as you can get as big as fast as you can. Let's see if it works. So I can see if I can have the big outcome that I need for my giant fund.

I think there's risks associated with that. To your point, if you were to get in on these companies at a billion, two billion, three billion, and you had any of the ones, you know, from Airbnb over here, and you start seeing the enterprise value of these, and this is the original enterprise value, anybody getting in at these, and these companies became very large, right? I mean, if you took something like Airbnb, which here was, it looks like it's at about three or four billion on this chart, that became an $80 billion company, Uber, I don't see it here on the chart.

Alta networks, huge. Huge. These are $50 million. Uber much bigger. There's a lot of folks on this chart that have gotten a lot bigger over. I mean, Facebook, I think, is more than 7x in the past 10 years. Yeah. So, you know, that's a very important thing to understand about your investor.

If they are placing, you know, 30 bets on 30 unicorns, you know, they're looking for one or two of them to go more than 30x and then they've doubled their returns. and that's what late stage investors are looking for. And this is where strategics also become problematic or challenging because they don't care about the returns on a financial basis primarily, yeah? What have you seen in your career with Strategics? I'm curious. I mean, like a lot of things, it's a mixed bag.

I mean, sometimes they can be very helpful. And with door opening, customer introductions, validation, but then, yeah, sometimes they say they're going to be helpful and then they're not. They also can screw up and exit potentially, yada, yada. So you have to be thoughtful about where you take the money from. Now, what's happened to, because you did this at the 10-year anniversary, which means you got those seven years of just up into the right, but then you got these last two years of everything constricting.

So what have we learned about paper corns? Yes. Okay. So that was one of the things that we did. So basically, we looked at this new set. Wow, there's 532. I think it was really interesting. It's obviously the 14X.

and then also just how many sectors they cover. So when you look at the OG list, as you mentioned, like meta, right? It's kind of a horizontal company. Like anybody can, like anybody around the world can use Facebook or WhatsApp or Instagram. You've got now all kinds of companies serving many more. In the original list, I don't think there were any healthcare companies. And obviously there were enterprise companies were really the minority. In this new list, we basically mapped out 19 different sectors.

There are unicorns in. in logistics, in mobility, in healthcare, in climate, in vertical SaaS, in horizontal SaaS, in HR tech, in learning tech, and ed tech, consumer marketplaces, B2B marketplaces. They basically fanned out to serve many more sectors and kind of more verticals, if you will, of society, which I think is really exciting. When you think about it, the iPhone is less than 20 years old, which is kind of crazy, right? Yeah. I think things like the iPhone where people now have incredible U.S. and storage.

and processing power in their everyday life. Then they got to work and they were like, God, why do I have to wait for this shitty software to load this ugly page? And then I have to click 20 times to get to, or why do I have to use this clipboard and fill it in and deal with these operator errors in people inputting information into mainframe systems?

So I think it's just basically every kind of business, whether you're a fintech or a doctor's office, people have gotten a lot more comfortable with modern technology and they see how powerful it is. And so then when a vendor calls and says, hey, I've got this software that can fix your doctor's office and make it really magical. And on your phone, they're like, show me more.

Yeah, because if you think about it, the expectation of consumers now has risen so dramatically that they're like, hey, this is not as elegant as Instagram. It's not as efficient as Airbnb or Uber or DoorDash. Yes. I want a DoorDash experience. And if I can get food delivered and a burrito is at stake, well, when my health care is at stake, why am I filling out a piece of paper that you're retyping in? This makes no sense. Or when I'm procuring for my company, why should I wait 60 days to get this order?

They've had the Amazon experiences. And that's right. It's very interesting that it went consumer to enterprise. The consumerization of the enterprise is a theme. Make it easy. Make it simple. Yeah. And then this speaks also to entrepreneurship and the efficiency of capitalism. If you just think, about what happened here over the last 15 years or 10 years when you and I were, you know, active and placing bets, entrepreneurs just took those lessons. They saw Uber, Facebook, Instagram, everybody do really well, DoorDash. And they just said, well, where can I apply this? Didn't think. Listen, not every business is venture scale. If you're not, you won't be able to raise money from VCs. We all know that. And not everybody has a rich family member to do their friends at Family Round. So if you want to jumpstart your business with $50,000, let me tell you about

Paymbrush loans. Paynebrush has created a new kind of loan product. They connect ID-State startups with bank capital, so you don't need to give up any equity, and there's no pitch deck or revenue required. And the Paynebrush loan is available at the IDEA state. In fact, you can apply the moment you incorporate your company. Monthly repayment is a flat, predictable amount, which makes cash flow planning really simple. So here's your call to action. If you're a founder in the U.S., go to getpaintbrush.com to see if you qualify for a $50,000 startup loan in less than two minutes. That's getpaintbrush.com to see if you qualify in less than two minutes. And also, I think what was exciting about that is, so it's modernizing a lot of industries

that haven't had the benefit of mainstream technology. And when we looked at the founder backgrounds and the geographies, it also democratized quite a bit. So in the original analysis, the majority of founders went to highly selective schools. And they also worked in tech and they tended to know each other from their tech jobs. Yep. The new founder crop, first of all, we moved from, I think, about 100 to co-founders that we were studying the backgrounds of to 1,300. Oh, wow. So kind of by definition, you're going to see a lot of change. And so we did. Most of them were not technical. And most of them did not work as a software engineer before. Wow. People, different backgrounds, different schools, the leading market share school for where these founders went to school was Stanford,

but it was 5%. Right. So it's a big change. Like, it used to be that VCs would like just camp out like near the dorms or in the kind of cafeterias at Stanford, just hoping to meet computer science students. Like that's important, but like it's not the majority anymore. And you witnessed that.

I mean, John Doer actually had a famous quote. He said, oh, yeah, I just, I mean, it's a cringe worthy quote now. But at the time, he didn't mean it in a bad way. He's just like, listen, if you want to. be good at venture capital, just hang out at Stanford, like you're saying. And, you know, two or three white dudes come along in khaki pants. He was kind of giving him a little bit of a fashion dig. But it was true that that maybe was the majority of, you know, the teams coming out was Stanford's computer science or whatever. Now you've, you know, I watch the team at YC that they're

obsessed with Waterloo, you know, and other universities that, you know, really produce great computer science students. Tech me on in Israel. Like, it's, I mean, another topic is immigration. And we didn't actually, it's hard to understand the immigration statics. There's a bunch of dimensions, whether you're in the military, you know, like, what's your sexual warrant trait? There's a bunch of stuff that's just obviously very hard to capture. But my guess is if we were able to get the data, a high percentage of the founders would still be immigrants. I know in the first set, that was the case. We didn't see as much progress as I hoped on gender mix for founders.

So that's slow. We got a lot of work to do on that. But I think what was consistent was most of the founders were in their mid-30s when they founded their companies. And most teams were co-founding teams of three. both, you know, 10 years ago and now. These are two very important facts. There is a bias from people they think everybody who's going to be successful dropped out of college and they started their company when 19 and 20. Yeah.

That's not actually a case. That is a bias that people remember those stories because there's such iconic stories, whether it's Gates or Zuckerberg or Elizabeth Holmes. You know, it's almost like this pattern recognition. Oh, if you quit the Ivy League, you're dope. Right. So much so that Peter Thiel created an interesting. accepting thing called the Teal Fellows to try to manifest more of those people. And you would expect that from him since he did so well on Facebook. He literally made a program for that. But the truth is,

people in their 30s who've worked at two or three companies, are the ones who create the most value on average. Yeah. And that's actually one of the reasons why I published the first analysis was because in 2013, Mark Zuckerberg was the most aspirational entrepreneur in the world. And VCs were saying, like, I pattern match. I'm a patterned. matcher. And basically, I'm looking for white guys in hoodies who dropped out of Harvard who've been programmed since their kids. That's who I'm going to back over and over again. And so I was having meetings with founders who had great ideas and they would come in kind of sheepishly and being like, I know I'm kind of old for this, but I just can't stop thinking about it. And I think it could be

a really good business. And it'd be like someone who was 32 years old. And it's like, no, it's like you don't, it's great that you have experience and that you can't stop thinking about this. And let's have a deep conversation about it. You could be a great. under. Yeah. So I think that's, I think that's encouraging. Yeah, I mean, Uber was Travis's third company, Tesla SpaceX were Elon's third and fourth or second and third? He had Zip2, PayPal, it was it third and fourth. So, you know, pretty obvious. There's something like third times a charm. That exists for a reason. Like, you really start faster because you've, all the blocking and tackling, I mean, really silly stuff, but cap tables, accounting, HR,

your first five hires, all of that goes so much easier when it's your third time. That takes two years of mistakes out of the process. I totally agree. And in the first analysis and in this one, we found entrepreneurial background, having done something, at least one co-founder has started a company, but it doesn't almost matter whether it was Jet.com or if it was like a lawnmowing business. It's like basically you have to have tried and have that fire to actually take risk. And failure, I think, I wish I could capture or quantify what percentage of the people have had prior failure, but I think it's really important. Getting your ass kicked, I always tell my founders, getting your ass kicked is a precursor to kicking ass. Yeah, but I do think for the next generation

of founders, like for my kids, for example, and we have three kids and two of them are girls, and I encourage them and they're friends, like start businesses, talk about business ideas with each other. Why? As a parent, why are you encouraging them that now? The understanding the risk and all the things you just said about hiring, planning out the business, facing failure and disappointment, selling, satisfying customers, all those things. You kind of need reps. Yeah. And then you get better at it over time. Literally having sold or done customer support at a pizzeria or at my dad's bar, being able to sell people the specials. My dad would like, hey, veal chop, let's get some of those moving because, wait, where was this? This is in Bay Ridge,

Brooklyn. I would, you know, my dad would be like, hey, listen, we got, we got these veal chops to $36. Like, let's get the double stuff veal chop going here, you know, and dessert is all margin. Your mom made, my mom would make the chocolate moose. Chocolate moose. Nice. And then he had a cappuccino machine, which, by the way, in the late 70s, early 80s, to have a cappuccino machine was a very rare thing. And I remember, this was like one of my first entrepreneurial lessons, alien.

I was in the kitchen and I was watching the dishwasher. And the dishwasher would take the espresso cups and he would go like this and he'd say, buck 50. Then he would do the cappuccino cup and he would say 250. And he would be counting up how much money my dad was making. And he'd be like $275 like tonight on espresso and cappuccinos before storebub. my dad, I figured it out. And I was just like, wow, holy cow, that's how money works.

These are units cells and the espresso. I have three daughters. I am obsessed with teaching them about entrepreneurship. I let them listen to the podcast. I talked to them about it and explain it to them. And then I started taking my 14-year-old to parties here in Silicon Valley. And like, I just, hey, what do you do? And the person is like, I work in human resources and culture.

I'm like, can you explain to my daughter? That's awesome. what you do here. Because if they get access to that in this next wave, what's going to be left? Because if you look at chat GPT and you look at like what skill is going to be needed, I'm unsure which skill will still be around. Is being a developer going to be that important in the future? It might not be. I think being able to learn, being curious, being able to connect with people and being a critical thinker. I think those are like the things that can enable you to morph because, yeah, the puck's going to keep moving. And we might have called those soft skills, right? We might have called those like,

you know, oh, those are, you know, the softer skills. You need hard tech skills. And it's like, do you need hard tech skills? Because this didn't take your study here didn't take into account, you know, the international ones. But the thing I'm seeing over and over now is the company is on your list, many of them are having more employees outside the U.S. and inside the U.S. We did a little bit, like in the new list, we know, I think, at least 22 of the companies of the 532 actually have a completely distributed company and no physical office headquarters. That did not exist 10 years ago.

And a lot of them are multi-hub. So I think that is completely like, I mean, kind of to your early question about like, why did this happen? It was a combination of like interest rates were super low. We had cloud and mobile and security and AI and all these exciting things. things that were basically giving lots of entrepreneurs ideas and opportunities. And like you said, it was easier to develop software. It's easier to adopt software than ever. So it kind of made the adoption curve a lot easier.

And then we had COVID, right, where people could work in lots of different places. We were surrounded by technology all day and all night. Like we were basically running our work in our personal lives through these new delivery services through Zoom and things like that. So it kind of created this perfect storm. But I think it also planted lots of seeds for people to start companies in different places, which is exciting. What do you think about public marketing?

and the stagnation we have there, what happens to all these companies if they can't get public? What's happening to them now with the papercorn? Yes, okay. So let's get back to papercorn. Indigestion going on in the system. Totally. So another big change in the past 10 years is going from 66% kind of liquid exited to 93% of this list being private still. So only 7% of the companies have had exits.

And I think it's only 3% that have gone public and 4% were bought. So 4% were bought. So it's a really tiny percentage. And so 93% of these companies and 60% of them are what we call Zerbricorns. I was talking to someone this morning, Samaricaji, he called them some of them are COVIDicorns. In other words, that would mean they got very big artificially and then came back down to reality. They raised money when interest rates were really low and public tech companies were flying high and trading at incredible multiples. And there were so much money in the private markets that so much more money had gone into venture capital funds and they were looking to deploy.

They looked at public companies and they're like, wow, like tech is a great place to invest. You make so much money. These companies can trade at 50 times revenues. And so we and founders are like, well, this company's trading at 50 times revenues. I should be valued at 50 times revenues. So a company, well, even more. A company doing one million dollars in revenue was worth, was raising money at least a 50 pre during those times.

But it was really that time when interest rates were quite low. So 2021 in particular. And so 60% of the companies on our list, basically got their unicorn crowning or valuation during that period of time. Listen, I got a lot on my plate. I got a couple of podcasts I do, you know, all in this week in startups. I run Founder University. Man, we had over 2,000 people apply.

We got 250 teams in there right now. The list, it goes on and on. And I'm able to manage it all with an amazing piece of software called Coda, C-O-D-A. It's the all-in-one platform that combines the best of documents with spreadsheets and apps. Here's an example. We use Coda to run our fast. founder university. Remember I talked about all those founders applying? Well, after they get accepted to the program, every week, we ask those founders to submit a progress update. How is your company

doing? How's your startup doing? Well, we built this application in Coda, and now we have a database of all those weekly updates. And we can look at all the changes, graphs and charts, all that builds right into Coda. And this week-to-week tracker has given me the ability to look at thousands of startups we've invested in and invested time in and then pick the best ones to give money to. So if we see strong growth, we invest, and it certainly changed my world. So if you want a platform that empowers your startup to strategize plan and track goals effectively, well, you can get started with Kota for free today. And not only that, they're going to give you $1,000 in credit at coda.io slash twist. That's CodA.orgia.io slash twist. Special, limited time only for startups,

and that means you can start planning and build these apps at no cost right now, Koda.io slash twist to get started for free. You can't beat that price. Not only is it free, they're going to give you a grand. That's 10 hundies. All right. I love the Cota team. They're constantly giving me new features to make my business more efficient. Thank you to the team of Cota. If you had to guess what percentage of 500 change would or, you know, raw number will maintain their unicorn status here. So our prediction, when we basically triangulated it a couple different ways. We looked at how are people trading in the secondary markets? So for the companies that we have data on, 40% of them are trading below a billion dollars in the secondary markets. Oh, wow. So they're already took the haircuts. Yeah. So

That would, well, people who are like, let's say someone who worked at the company who's trying to sell their shares or they're willing to take at least, at least half the valuation. And then the other thing that kind of happened is the distribution of valuation skewed downwards. So I think 20% of our list was valued at just a billion dollars. Right. And 40% I think is trading at two or below. So if you kind of take those companies and say, well, they probably raised at least double the valuation that they would have today in today's market. maybe even four or five times. So you kind of pull those people out of the list.

So we basically triangulated a bunch of different ways and said, okay, this list of 532 is probably going to shrink, let's say, to 350. But there's a lot of, I mean, 350 is still almost 10x growth from 39. So it's still a huge change. And I think all the things like the moving to enterprise, the number of enterprise companies, the numbers of sectors, the democratization of the founder backgrounds and 10xing in 10 years is still quite impressive.

And the capital efficiency is something I don't think we've talked that much about. But that was the other thing that really fell quite. a bit in 10 years that I think is something we have to be pretty careful about. Yeah. And just to look at sectors, I want to get the capital efficiency, I was just ripping through the deck and I said, wow, oh my God, two dozen crypto companies. And like, Coinbase was able to go public. But my lord, I mean, talk about a sector that, you know, I mean, essentially the whole sector has gotten wiped out, except for Bitcoin, Solana and maybe Coinbase, one or a couple of players. So, you know, Silicon Valley doesn't always get it right. We are capital inefficient.

in venture, and that's part of the magic, isn't it? And I think this is, well, the risk-taking may be the way to say it, you know, we're so risk-taking that I think people who don't understand the job, like, why would you bet on these companies? Well, because they don't understand the power law, yeah. There are plenty of companies. I think Amazon's probably the best example of companies that know that they're losing money and are willing to lose money for a long time because the pot of gold at the end of rainbow is very big. And they have a strategy to basically be willing to lose money on categories for up to 10 years because once they get dominant market share,

they can start to creep up prices and figure out and work on profitability and margins. And they've kind of flood, they've washed out the competition. So I think Amazon has been masterful at that. If you look at their history of how much they raised and I mean, they went public very quickly. And they raised a lot of, because that was the only way they could actually access capital and then they raised a lot of money as a very wildly unprofitable company for many years. So I'm not to, this is not saying that every company has to be like Viva where they got profitable on four million dollars and then went on to be worth billions of dollars. But that is a really great way to build a company that has sustainable value is that you, you know, you're not

spending too much on marketing, you know that you're being really efficient with your people, you know you're building and shipping a product that customers like because you have very low churn, you have high margins and a very healthy P&L. So that is a really nice, sustainable way to build value. And here's the chart for average capital efficiency. Valuation divided by the equity raise, 2013 versus 2023. Maybe walk us through what we're seeing here with the two bar charts. Yeah.

So you can see the right hand two bar charts is 2023. And you can see that enterprise companies basically went from 26x to 7X. So basically being worth, let's say, if you raised $100 million and you're worth $700 million, that is a big decrease. And enterprise and consumer being the same is kind of very surprising. Because when you look at what's going on the public markets, I think, didn't Microsoft just pass $3 billion or something crazy? They just dipped above it. Yeah, you're correct.

And the Dow hit a higher. I mean, to make 7X in 10 years, in many cases, you would have been better off picking a basket of public stocks. which are a liquid and freely tradable. And you can decide every day whether you want to hold or sell versus locking your money up in a private company where you cannot sell freely. So with three decades of experience doing this, having watched three cycles, you come to the conclusion that the industry got too big. There was just too much money chasing too few high quality deals. And so then efficiency goes down. Is that the reasonable conclusion? I wouldn't say, I think quality is so. I mean, there are a lot of.

of quality companies that I think are going to get screwed up or quality ideas that when you raise too much money and you can't grow into your valuation, you put yourself in a big zone of risk. And they might have been quality opportunities that kind of got screwed up by the fact that they raised too much at a high valuation. We lost discipline around valuation because we had like a, I guess there was, yeah, it was too much demand. There was too much money in the venture ecosystem. In a way, it's a boutique business, isn't it? Well, it's not anymore. Yeah, well, so then should it be, you know, or can it be a scale business like, you know, because it seems like we try to scale this business, or at least the private equity folks dipping down thinking, oh, well, this is easy.

I just look at what Sequoia and Indrisen and whoever, Kleiner, have invested in, and we just double it and we give the founder more money and we're the next round. So we don't have to do diligence. We don't have to have a board seat. We'll just double or triple their valuation and give them, you know, a hundred million bucks. And that's it. We punched our ticket. doesn't work? It's funny. Aaron Griffith and the New York Times just published something today about how everyone always says there's like many times in the history of the tech and venture industry where people are like, there's too much money, it's a bubble, it's going to pop, and like it just never does. And I have to agree with her. Like, I don't, the genie is not going to go back in the

bottle. Like, we have delivered fantastic returns in the past. You and I are both very excited and bullish about the power of software. And I think believers of how many more great software companies are yet to be built and that will deliver great returns for people. And there's still so much money out there that doesn't have venture exposure. You know, there's sovereign wealth funds, there's pensions. I think this is going to be a great time because the next couple, I think, people are going to have learned a lot of hard, painful lessons. They're going to be more disciplined in the next five years. Valuations are going to be lower. People are going to raise less and be more disciplined with how they use their money. So the next vintage is a venture, I think, should be much

better than the past three years, like the past vintage is. So it's going to be a great perspective for people to actually get into venture because we're going to be better. Yeah, this would be the best time to do it. The valuations I'm seeing are the same valuations I saw back when I did Uber and Vemtack and Com and companies with products in markets that are valued in the seed round between 5 and 15 million as opposed to 15 and 100 million before they even have products launched. So where do you think the opportunity is? If you were to look at it in venture, you're in seed.

I'm in seed and pre-seed. Then there's Series A seems super competitive. Series B and C seem to be a commodity. Where is the opportunity in venture today? I think there's opportunity across the board. Okay. I mean, I think at every round there's opportunity. I am a little worried.

I've heard from some multi-stage firms that they're just, like one guy at a multi-stage firm recently told me he's just doing seed and B. And the fund is, it's a $1.5 billion fund. That doesn't make any sense to me. I do think founders, we do a lot of seed, right? And we're telling our founders to just be a lot of the people who could do A's could also do B's and C's. And so they've gotten pretty conservative to look at the A and be like, this is kind of promising, but it's not perfectly de-rest.

I'll wait for the B and be willing to pay a higher price and invest in a bigger round because I've really big fund. And I'd rather wait and see more cards turned over. And so I think it's creating a little bit of a gap in A. So I think, and A's are, you know, when you're a board member for Series A, you're carrying the water for a long time. you have to be willing to sign up to really be committed to this company for 10 years. We've added a lot of people to the venture business in the past five years, but not that many people who have training to be great board members. So I'm a little worried about that, but I think there's opportunity across the board.

A cowboy, we're very excited to make some new investments this year. I think the founders know that it could be potentially a marathon, and it's not a get-rich quick scheme. And the people who are down for it, and they're like, I don't care. I just really want to help build something. substantial that stands the test of time. The next three to five years, we're going to see tons of great founders like that. See, this, I think, is so important. We talk about venture tourists. There were a lot of people who were trying on being a venture capitalist. You really have to

have a certain personality for it. My friend, David Freiburg, got incredibly frustrated running the production board, and he's been very public about this. I wouldn't speak about it publicly if he hadn't, but he's been on a bunch of podcasts talking about how frustrated he was trying to get founders to do what he wanted. He wasn't. And then now he's CEO of his own company again. And so, and he's much happier because he can come in and make that change. The people who you did also have founder tourists, people who might have been a great, I don't know, CTO, CMO, VP of sales, whatever it is. They would have been a great number three, four, five on a team.

And then they were putting the CEO slot. And, man, it's not for everybody, right? And I think now we're starting to see people who are built for it. When I hear your description of the grit, tenacity, and what people are signing up for, that to me is like, yeah, people who are built for war. And let's just face it, you know, these companies, we've seen it up close and personal,

they're always on the verge of flipping over, going off a cliff. Even the public ones are, you know, always have somebody looking to disrupt them. So you need to have a certain amount of grit that maybe we didn't see in the peak era, did we? Another combo is, I mean, there was just a lot more budget,

years ago, you know, and then there were so much money that these new venture-backed high-growth companies had in their bank accounts, and they could buy one of everything. And so as we've seen as the recycle investors, also that economies tend to move and go in cycles and enterprise budgets also kind of do. So I think I've seen, you've probably seen this too. It's like, you, people used to, there used to be the saying, you never get fired for buying IBM, right? There were like certain vendors that everyone was like, yeah, it's not the best, but like, it's safe. And so people had bought software and they had a rep who had a relationship, but they would buy software from the same vendors over and over again.

It was very tight. And then something changes. There's some new technical innovation or something that the incumbents are a little slow to grasp. And some new software companies like, I've got Best of Breed for this problem that you're trying to solve. And I've got the new thing that you don't, that IBM doesn't have, like buy this new package. And then you kind of move into this best of breed cycle where you wind up having a bunch of kind of point solutions or smaller software vendors who solve very acute problems, but then you

wind up having a lot of vendors. And then you might have a security breach or your company misses a couple quarters and you need to get back on financial plan. And what where we are right now is because of the refocus on margins and profitability and because public market multiples are compressed, everyone's cut people are cutting budgets, cutting vendors, also their security risks. So the CIO, the CTO, the chief security officer. The CFO, they're all like, hey, we spent way too much. This whole like, B.Y.O.A, like, bring your own app. Just like, you know, sure, you can start using Dropbox or Slack or whatever. Just expense it. Like, no more. Right. We need too many vendors. We need to cut back. And so there's a lot of headwinds right now selling to the enterprise.

Big time. And so I think to your point about, like, everyone thought that could be a founder. Like, you have to be a founder who has an idea that actually can break through the headwinds of today's enterprise market. Yeah. The benchmark is much higher. for what people would say, you know what, we have this built into our office suite over here, or are we getting this from Google Docs, or, you know,

Notion and Coda have this built in. And I had this happen. Somebody wanted to introduce a certain project management software that they had. And I was like, so we got to train 21 people in our venture firm, how to use this. And we've got to pay per seat.

And in Notion Incoda, which we're already paying for, there's a template for project management. And we only have four projects that really need project management. Right. So what are we doing here? Yeah.

Like, just even the idea of stopping everybody's day to have them log into a new piece of software, learn it, you know, forget about the $10,000. Just that part to me is what I'm worried about. And then, you know, so let's keep everybody in notion and code and whatever. And that's what we wound up doing. And I see it in my portfolio of enterprise software companies where they're saying, yeah, we lost this customer. Why do we lose it?

Oh, they loved it. The people who were using it loved it. But, you know, the CFO and the CFL. the CTO, CIO, all conspired to say we're going to get rid of, we have to get from 20 vendors down to 15, and we were one of the five that got cut. So the benchmark's higher. One of the great things, I want to you to talk about talent here in the valley. The Bay Area is just unbelievably magical in terms of the density here. I mean, people ask me if I could change anything in life, but what I do, I might have had a great run in New York City, but I might have just come here

in the 90s. That might have been like a better thing for my career to get here a decade earlier or something. I think you're doing okay. I think I did. okay, the kid from Brooklyn did okay. But shout out to Dara and Uber hitting another 52 week. That's like the crazy thing about investing. He's like, I talk to investors like they hit some home run. You hit some great company and then they sell their shares. And I'm like, my thesis about Uber has not changed since I made the first bet. And I keep getting rewarded for not selling shares just by hanging around. And I was talking to somebody who had Google shares and another person

and Facebook shares at a dinner and they both sold their positions and they were just sitting there lamenting like, why did I ever sell my positions in those companies? I know, but there's so many counter examples to that. Yeah. People who held on to Peloton. People who, you know, just, I love that product

so I don't mean to trash talk them. I think it's an amazing company. No, product is incredible. But the valuation did get wonky. I do think selling half is like where I've come to. I feel very good about selling half and then putting it somewhere else for safety. Yeah, or putting it on a regular program,

every quarter you sell a certain percentage, regardless of where the price is. Yeah, and then you can just, you have some downside protection. It seems to make sense. But the thing I want to talk about was talent here in the valley. Things are much more diverse. We have founders coming from anywhere, but I do see a correlation between people who come here kind of wanting it more, or maybe they're more serious, or maybe they're able to deal with more pain, or maybe it's just self-fulfilling prophecy.

You're here. And then people projecting to you that you're more serious. seriously, and then they invest in you, and then, you know, the flywheel just gets going your top of mind. I don't know what it is about this place that's so magical. I think it's a super magical place, too. I will note in our analysis, so in our first analysis, the Bay Area, Silicon Valley and San Francisco were the hands-down winner for being Unicorn Central, right? Like 70% of the companies were here.

And all the other GOs, I think New York had three unicorns. And that was like the number two. So it was a huge gap between San Francisco and New York and then everyone else had none, or maybe one. So that changed a lot. San Francisco lost a lot of ground. We went from 70% to 45%. Now, the list is a lot bigger.

So there's a lot more unicorns in Sanvers. We lost a lot of ground. And New York jumped to 19%. Wow. It's almost half Fintac. And you showed the crypto, it's like crypto and Web 3. So we'll have to see how it plays out.

And then Denver, Austin, Southern California, Boston, all now more than 10 unicorns. And so I think the Bay Area, I mean, I love it. So I hope we get it. It's expensive place to live. Public schools are not consistently excellent. Living in San Francisco, my sister lives in San Francisco,

her car has been stolen and broken into like three times. And we got to clean up our act if we want to be as compelling a place in the future as we were in the past. Yeah. It's definitely the safety, security in the city is an issue. And yeah, the doom loop is very real. and yeah, the areas around it still doing great, but there's not a lot of space here. And we're so nimbie and anti-building housing.

It's just unbelievable. If somebody was like, expensive place for, if you want to be a teacher or it's like, we have a lot of things to fix. And so I'm hopeful that maybe people who are paying attention and will look at the number and be like, we had 70% and now we have 45%.

We better get on our game. Yeah, I, you know, watching the people who are very, passionate about San Francisco, the city. And we live in the wider Bay area we say here, like there's a Bay area. And then San Francisco's part of it, seven by seven mile part of it. You know, Michael Moritz and Gary Tan and his brother and just any number of people in the city who are really committed to changing the political landscape there to maybe have more will to keep up with this change.

And if not, you just, you lose the companies to New York, which is a dope place to live. And Austin, which is also a dope place to live. And you got a lot more room to move around. and Utah is amazing. Totally. Some of our most valuable companies were not based in the Bay Area. And also founders that didn't work in traditional tech. So we love when you're asking about where the opportunities, I mean, we, at Cowboy,

we invest a lot pre-product. So founders need the money to actually build the product. We are a great place to call. And also founders who don't come out of central casting. We invest in both, obviously. And we've got lots of people who are experienced CTOs or came out of Coinbase or Google other, but a lot, we've had a lot of success investing in people who just have a great idea and have a ridiculous amount of hustle and intelligence and learning mentality, but maybe

never worked in tech before. I was about to ask you what you look for pre-product because you don't have the product to play with. And obviously, if the product doesn't exist, you don't have metrics. So, you know, people who are doing series A, series B, they're going to be looking at some early metrics talking to some customers, seed. You might have product, you might not. You can kind of talk about the product, but pre-product, pre-seed, kind of, what do you look

for at that stage. It's a conversation. And I think that's one of the good things about things slowing down a little bit, right? In the boom boom time when there was so much money, everyone was like, nice to meet you. Can you tell me this afternoon if you will give me $5 million? Like that's not, I think, a good way to build a relationship. No.

You want to meet over the course of meetings for both sides. You know, it's harder to get someone off your cap table than to get divorced, as they say. Yeah. And so for founders, you want, if you're going to have choices, which hopefully Hopefully you will. Meet your investor a couple different times. Ask them questions. Do references on them and see how they handle things. But also for us, we want to see how you process information. We want to understand how you learn. When you are hit with a both what do you figure out when you have very little resources? Like how in genius can you be? Or when you get thrown a curve ball, how do you take in the information? How do you respond? Because I think one of the things that we found is we use this term learning animal. The people who we've backed who have actually survived and thrived and scaled also because I think what was really impressive, was of the companies that have had exits or gone public or been bought in the most recent set, similar to the prior set, it takes about seven years to get to an exit and whether you get bought or go public, but 70 to 75 percent of those founders scaled from being the person with no money

and just an idea to being a public company CEO or a multi-billion dollar company leader. That's like, it's just you have to live through so many different phases from basically being like an infant to being kind of an adult and all the stages of development. over those seven years, it's really impressive. So you're trying to look for both, is the idea innovative enough? Is it going to deliver really significant measurable user or customer value and a quick time to value is, you know, how big is the market? And then, you know, the founding DNA and kind of the hustle and ingenuity of the founders

are the things that we're looking for. You use that term learning machines? I think it's a learning animal, yeah. Learning animal. Yeah. I love it. because we have one internally, because we also do precede, pre-product,

or while they're in this MVP stage. And we say, we like this product velocity. And then people say, what's product velocity? I'm like, well, you know when you meet with them last week, and then you meet with them this week, and they shipped a new product, and you saw the app was updated in the app store, or you looked at their corporate blog

and they had a new blog post up, and then this other company was outsourcing, you know, their tech to some place, you know, halfway around the world. and, you know, they ship every six months. Like people who, I have some people in the portfolio. I've watched them ship, you know, every couple of days. And man, the learning, that you become learning animals when you ship.

Because you then hit the customer. You make contact with the ball. There's nothing like getting punched in the face or making contact with the ball to sort of drive learning, yeah? Yeah, totally. I'm just fascinated by, you know, people in the early stage and how they try to figure these things out. And I too have seen now the funding cycle feels like we're back to, you know, for seed stage, you know, six, 12 weeks of running a process. And man, is that so much better than six hours or six days?

It was so weird for people to say, like, get off a Zoom call and be like, are you in? And I'm like, in what? Interested? I'm interested. Yeah. Yeah, let's have another call. And then I just took the same approach because I am old school. I think like you.

when they would say, like, well, I have to know today. I'd say, okay, well, then obviously the answer is no, but would still love to meet next week and keep hearing about the product. And I would just keep the meeting on the books. A lot of times I've been watching, people are not clearing market. So I've taken to this, Roloff kind of taught me about this, not yet, kind of thing, which is like, I like everything you're doing.

It's a not yet for us. And I've been training my team, like, let's explain to them what we would need to see That's right. For the next meeting. Kirsten Green told me at Forewinter. They basically have gotten COVID taught them to become more transparent with, I think she wouldn't mind me telling you this, with founders about the reasons for not yet.

And so we've been doing the same thing of kind of being like, here's where I'm stuck. And these are the questions I have, almost like, let us show you what's in our memo. Yeah. And let's work through it together. And through that process, you start to get a feeling of what it would be like to work together and how they think.

ah, this is because you want to have a great relationship. And if the person can handle, hey, we're not convinced yet. Yeah. It's a sign of maturity of it. And how they respond to it, like, you know what? You're right. We do need to have a customer that's not a friend of ours. We do need to earn a customer through a cold call, right?

That's what I always tell them. Like, I like the two customers you have right now. How did you get them? And they're like, I worked at that company, and that's my brother's company. Yeah. And I'm like, I've seen this trick before, you know, like with YC companies. Replicable. Yeah.

Well, YC companies had this great trick. And one of them explained it to me. I said, where did you get these 12 customers? Like, oh, it's great. You go on to Bookface. You say that what your company is, and then you trade customers. So I buy your product, you probably mine. I'm like, and they literally explained to me that this was like a process that people were.

And listen, I'm not, I don't want to get into it with the YC founders. I'm not saying everybody did this. But it was like build your roster of customers through the YC, you know, ecosystem. And it's, if you even double-click just on but two customers before an investment, you'll find this out. Where did you source this customer and, you know, look at their LinkedIn page? How many employees have? So I think some of it is the transparency.

It's like, if the founder tells you right away, like, look, I have these 12 and I did kind of like bootstrap in this way, but I learned a lot through the process and I had to start somewhere. So here's how I'm thinking about when I cold call someone that I don't have a warm intro to here. So I'm going to do it. Like, that is a great conversation now. But if you pretend, like, no, these are, you know, then you are starting to be like, well, if this person isn't honest with me about this, what else they're not going to be honest with me about?

Exactly. And this is where sometimes founders make a mistake. The opportunity for us to invest at the early stage is that it's not perfect. Is that you are figuring it out. If you had figured it out, you would be raising a series B. That's right. And we'd be having a totally different comp. You know, we'd be doing comps versus public market, whatever.

Let's end on this. you know, you've been at it for a little bit. And I, you know, well, listen, I, I'm saying it out of respect because every time I talk to you, I learn something, I'm like writing stuff down as you talk. It's one of the great things about having a podcast as I get to learn. And I was, I was talking to Brian Singerman about this, like, from Founders Fund. What do you think now that you've watched a couple of different archetypes over three cycles, succeed adventure? Sure. And you're part of the Bill Gurley analyst mindset, I would say, right? You were an analyst. Oh, interesting. Okay. Well, you were an analyst, right? Um, not like Bill Gurley kind, but I was a financial analyst. Yes, I was an M&A analyst.

Okay. So that requires like creating mental models and architectures and really, you know, thinking strategically. And then of course we have people who were operators and growth hackers and there's relationship people. What, what archetypes really work? in venture in your experience that just create massive value for founders and for LPs. Yeah. I mean, I guess the beautiful thing is I don't think there's one archetype. I did actually, when I was at Kleiner, we were really small. There were eight GPs and three associates. That was the whole firm. And what was really cool about that is we had one partner meeting for everything, whether it was chips or medical diagnostics or routers or consumer internet. So I got exposed to a ton. But all the GPs He's had a lot of operating experience. And so we had a belief that you kind of had to have walked in the shoes of the operator or the founder.

So actually, when I was at Kleiner, I was a partner. I think I was a GP, but maybe not yet a senior partner. And I had always felt like I was, I had operating experience from working at Gap after business school and before moving to Cliner, but not like in tech. And so I actually went and ran one of our portfolio companies for two years. It was in between Series A. And I actually raised Series B. And it was actually really interesting time to do it because it was. was between 07 and 09.

Things were really good. We, I learned a lot because it was enterprise software. I became a sales animal with two twin one-year-olds. I basically like lived on a plane. And then we did well enough to raise a $20 million dollar series B in 2007, which was really big back then. And then 08 hit and I had to lay off half the company. But we kind of, because we had done a kind of financing strategy,

we had basically conserved all the cash. We had a lot of cash in the bank. And we lowered our burn significantly. and then we want to acquiring our two closest competitors. And then ironically, that company went after I left and replaced myself, that company went public in the spec. But I would say, like, that's just, it's not the same as being like a true. I had a job at Kleiner still.

So it was a little different than the average founder. But, I mean, you see people like Martin Casado, right, who was a very successful enterprise infrastructure, technical founder, ran a company, now a partner, Andreessen. So I think you've got lots of former operators and former CEOs. And you've got people who basically have been brought up in venture their whole lives. And Michael Mertz, who you mentioned earlier was a journalist. Yeah.

Before he became a venture investor. Right? Yeah, exactly. Yeah. Yeah. So I think all kinds of people can be successful in venture. I don't think there's one answer. The ability to be a learning machine seems to be part of it.

When you look at journalists and what we do, or what I used to do when I'm interested. Like Rebecca Cade and at Union Square as an example, she was a journalist. We had to ask questions. And what I was trained was, you're going to ask these questions. you've got to look them in the eye and figure out if they're BSing you or not or what the spin is and what the actual truth is

and then you've got to find other people who you can ask the same questions to and get the same recounting of events and then triangulate the truth and then now you do that I talk to competitors I talk to customers you know you kind of triangulate the truth

that's right yeah totally so I feel like we're very lucky to be in this job and I guess we can end with I think with privilege comes responsibility. So I think we have a lot of opportunity as people with privilege in the tech ecosystem to watch out for its future and to make sure that we do more good than harm. How do you think we need to do better or what should we focus on in that regard? I think we still have a lot of bias. There's still not a lot of diversity. So I think we can do a lot better there. The people who

control the big funds and manage most of the money in the industry is still pretty much look the same and tend to look for themselves in their successors. But I also think when it comes to, obviously, AI, I mean, when we look at the impact that social media has had on society, I think we probably could have done a lot better than we did. Absolutely, yeah. And so for the stuff that's coming down on the pike neck, next, I hope we will learn those lessons.

Yeah, it's been pretty great to see some change in regards to diversity. I often joke, like, when I go to my poker game now, I'm part of like the last white guys at the poker table. We were seeing a lot more diversity. Is it all guys still? And that is part of the challenge. But yeah, yeah, at the poker table, yes. You guys have access to great deal flow, lots of insights.

When you're trading information or you've got a company that's doing really well and you want to invite people to take a look, like just think about who you're inviting and brought in your networks. Yeah, it's we're on this pendulum now. I don't know if you saw the fearless founders, they got sued. And I was just like, huh, that's interesting.

Oh, Alice has been sued by the same group. There's this group that basically has a war chest that is going to try and sue the people who are actually trying to make things a little bit better, write some past wrongs. It's very fucked up. I'm sorry. No, it's okay. I can blibbleep it out.

Put a beep. No, it's, I thought it was kind of strange to pick like the one tiny, you know, seed fund that I was like, you know what? There's not enough black women who are funded. And they're like, you know what we should do? We should sue that fund.

And it's like, really? That is why they did it. Yes. Yeah. And it's just like, they want to scare the shit out of people and they should know it is not going to scare us. Yeah. And if people want to learn more about that, Allraise is this incredible organization.

Thank you. Always. org. Just check it out. I mean, if you're a woman who, and you want to learn about venture capital, you can come to one of these all race events and hang out with 50 women who have

the job already and are supporting the heck out of each other and just telling you how to, you know, basically hack the system or get into it without, you know. Yep. And if you're a man in venture or in tech and you want to be a great ally or you want to hire new people, meet new people, we are also here for you. Because I think, you know, it's something, when we started all raised, 75% of venture firms had not a single woman partner. That's wild.

Now, I think, hopefully to some of our efforts, we're doing better. So now only 65% of venture firms have not a single woman. But so if you are a founder and you're going to have choices, you can make choices with who you invite to invest in your company. Make money for people whose values you are aligned with. Yeah, I think that is well said. And just go check out all raise.org as great organization to support. And we'll see you all next time on this week.

Thank you, Jason. Hey, everybody. I talk to a lot of founders here on this week in startups and as an investor. And they tell me the same thing over and over again. They want two things from me, more FaceTime and money. They want me to invest in their companies, and they want to spend time together. So we've been working here on a new meetup program. We call it Founder Fridays, and Founder Fridays are an event by founders for founders.

This is an event that is hosted in cities by people like you. If you're listening to This Week in startups, you're a founder. So what are you going to do at Founder Fridays? You're going to get together with other founders in your community. It could be four or five of you. it could be maybe up to 30 or view in a location. Pick a cafe, pick a co-working space. I like to go to a great Mexican joint or maybe a dim sum restaurant.

You know, where you can do shared food, have a couple of cocktails maybe. You do it on a Friday. You get together and you host it. Now, why is it important for founders to get together? Shouldn't you be at home just focusing? Shouldn't you be in the office just focusing on your startup? Well, if you get together with other founders, true founders who are in the arena, building like you are, you're going to get a lot of value from that because you're

you can trade notes with that other founder about what's working at your startup and what's not working. The truth is, if you're facing a problem, there are hundreds of founders out there who have probably solved it already. And instead of you banging your head against the wall, when you sit there and you talk to three or four founders, you're having some dim sum, you're splitting a cassidia, some prajitas, somebody says, oh, you know what? I had that same human resources problem. Oh, I had that same technical problem. Oh, I had that same marketing problem. And they might tell you about a tool or a service that'll solve that problem for you. This happens over and over and over again when I do Founder Fridays with our portfolio companies. Now we're going to give you that same experience,

but here's what I need you to do. I need you to host this in your city. So you're going to go to this week in startups.com slash meetups. That's it. And you'll see a landing page where you can sign up and you can say, I want to host in my city. Now, your city may already be hosting so you can just join that person. And what if you go to this event and you learn some go-to market strategy, that 10x is your growth. That might unlock funding. Or you might be talking to somebody and they say, hey, I'm a marketplace too. I'm not a competitive marketplace. Your marketplace is for use cars. My marketplace is for hairstylists, whatever your jam is, whatever you're working on. But they give you some technique that you didn't know about to increase your supply side or get more demand in your marketplace

and you 10x your business. I see this happen all the time. And founders are like mutants, right? And I'm like Professor X here. I'm trying to put on Cerebro and find all the founder mutants in the world and then have you get together and do your own little meetup. And here's what you're not going to have to deal with. You're not going to have to deal with a bunch of service providers trying to sell you software or services. And you're not going to have to sit through a bunch of passive speakers. You can listen to this week and start off saying at the greatest speakers in the world on your own time. And you're not going to have to pay for a ticket to a conference or get on a plane or fly somewhere. No. This is about having an intimate experience with five, 10, maybe two dozen other

founders in your city, please go to this week in startups.com slash meetups if you are a founder. This is four founders by founders only. If you are not a founder, this event is not for you. You can start your own meetup for lawyers, accountants, recruiters. This is four founders by founders. We vet everybody to make sure you're a founder. And if you host it, it's a non-commercial event. Our first founder Friday will start on February 2nd. So please mark your calendars. and we're going to do these on a rolling basis. You can join an existing meetup if it's already occurring in your city, or you and one or two other founders can start your own. We're using a wonderful piece of software that we've invested in called River. You can sign up for a River account

just by going to this week in startups.com slash meetups. We've already got host and attendees lined up in San Francisco, New York City, Toronto, Los Angeles, Las Vegas, London, and even in India. So this is your chance to connect. And if you didn't hear your city named, you can start your city go to this week and startups.com slash meetups.