This Week in Startups - VC Roundtable: Recruiting Secrets, Second-Time Founders & Product-Market Fit Myths | E2143

Episode Date: June 26, 2025

Today’s show:In this powerhouse VC roundtable, @Jason sits down with Sequoia’s Doug Leone and Cyberstarts’ Gili Raanan to share brutally honest insights on startup recruiting, evaluating second-time founders, and how to truly find product-market fit. They break down why big-tech résumés can be misleading, how to structure early teams, and what separates “missionary” talent from mercenaries. Plus, the myth of early ARR, the art of founder-board trust, and how AI is (and isn’t) reshaping startup velocity. Must-watch for founders, VCs, and anyone building from 0 to 1.Timestamps:(03:25) The origins of Wiz and how VCs know when to invest(05:17) What qualities are investors looking for in founders and entrepreneurs?(09:53) LinkedIn Ads - Get a $100 LinkedIn ad credit at http://www.linkedin.com/thisweekinstartups(18:40) How to know when you’ve reached true Product Market Fit: the experts sound off(19:20) Notion - Try it for free today at https://notion.com/twist(25:39) The secrets of recruiting top talent(29:54) CLA - Get started with CLA's CPAs, consultants, and wealth advisors now at https://claconnect.com/tech(39:38) Judging a startup’s revenue quality and “founder vs. salesman” deals(53:38) Is venture capital kind of a SCAM?(55:00) Seed Investing: “Pick them right and early”Subscribe to the TWiST500 newsletter: https://ticker.thisweekinstartups.comCheck out the TWIST500: https://www.twist500.comSubscribe to This Week in Startups on Apple: https://rb.gy/v19fcpFollow Lon:X: https://x.com/lonsFollow Alex:X: https://x.com/alexLinkedIn: ⁠https://www.linkedin.com/in/alexwilhelmFollow Jason:X: https://twitter.com/JasonLinkedIn: https://www.linkedin.com/in/jasoncalacanisThank you to our partners:(09:53) LinkedIn Ads - Get a $100 LinkedIn ad credit at http://www.linkedin.com/thisweekinstartups(19:20) Notion - Try it for free today at https://notion.com/twist(29:54) CLA - Get started with CLA's CPAs, consultants, and wealth advisors now at https://claconnect.com/techGreat TWIST interviews: Will Guidara, Eoghan McCabe, Steve Huffman, Brian Chesky, Bob Moesta, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarlandCheck out Jason’s suite of newsletters: https://substack.com/@calacanisFollow TWiST:Twitter: https://twitter.com/TWiStartupsYouTube: https://www.youtube.com/thisweekinInstagram: https://www.instagram.com/thisweekinstartupsTikTok: https://www.tiktok.com/@thisweekinstartupsSubstack: https://twistartups.substack.comSubscribe to the Founder University Podcast: https://www.youtube.com/@founderuniversity1916

Tell me a little bit about secrets to recruiting you've learned the hard way. You know, people who look great on paper or, hey, they were at, you know, whatever company, Microsoft, Salesforce, whatever, they were selling all the stuff. But it had more to do with that company and their product market fit than maybe the grid, right, of that individual salesperson. And then also, I think, is a really interesting topic of integrating people into the team and making them feel that they're part of the team, even though, you know, they came from the outside. Maybe they weren't part of the formation of the company, but you got to make them feel that they're really part of something.

It reminds me of Kevin Durant coming to the Warriors who never quite felt like he was part of the core, right? So I had given away my secrets on these podcasts. I've known you for a long time, Jason. For example, when I'm recruiting against a Google, I say to the candidate, This Weekend Startups is brought to you by LinkedIn Ads for a $100 LinkedIn Ad, credit and launch your first campaign, go to LinkedIn.com slash this week in startups. Notion. Notion combines your notes, docs, and projects into one beautifully designed space with AI

built right in. Try it for free today at notion.com slash twist. And CLA, innovation takes balance. CLA, CPAs, consultants, and wealth advisors can help you get from startup to where you want to end up. Get started now at cLA connect.com slash tech. All right, everybody. Welcome back to this week in startups.

I'm very lucky today. to have two of the legends in venture capital, Doug Leone, who got me my start in many ways in the venture business from Sequoia, which he ran for a couple of decades. Now my guy Roloff and my friend Alfred are running the show and, you know, some of his amazing investments. New Bank service now, whiz, just bought by Google. How you doing, Doug? Wonderful. I am no longer a very active partner, meaning I only do an occasional investment, but I am on eight or nine boards for Sequoia, and I'm fortunate enough to have what I call a good backlog of companies for which are in cybersecurity.

Yeah. What's it like going into retirement? You're not the type who retires. You seem just as busy, and you told me you were retiring a couple years ago. You're transitioning. and then every time I go to the office, you're there. And it's 8 in the morning, 9 in the morning. Yeah, it's not retirement. The 809 boards keep me quite busy. I co-founded a biotech company, something I have to talk about publicly, but we just raised a Series C for $200 million.

I have to be one of the three founders. So that keeps me quite busy. So I've got a fairly full plate. And if something magnificent comes across the desk and somebody wants me on a board and we can make an investment, I'm happy to do it. What I don't want to do is listen to 50 new companies a week. So I'm not really retired. I'm picking and choosing my spots a little more.

Yeah. And you brought one of your friends here today, Gilly Ronan, was at Sequoia for a bit and now runs Cyberstarts. That's a venture capital firm that's focused exclusively on cybersecurity. Is that right, Gilly? Absolutely right. Now, famously, you guys have been working together for a bit and you did. I think the largest acquisition in Google's history, WIS, which we just had happened earlier

this year. Maybe you could tell me a little bit of background of how this company started, Gilly, and then how Segoe got involved? I'd love to. Pending acquisition, by the way. Oh, yes. That's important. Actually, you know, Wies is a company that both says. Sequoia and Cyber Starts, Doug and myself were the seed investors. And it's the second time we back the same team.

We were lucky to invest in the first company. Adelom in 2012. I was still with Sequoia Capital in Tel Aviv. They were a typical young team, coming out of the Israeli intelligence forces, what many people know as 8,200 and we back them with a small seed. That company had a nice, modest sale to Microsoft three years later. And then happened the real transformation.

You know, these guys got a lot of responsibility and built a big responsibility and build billion dollar worth of cloud security business within Microsoft and then went out to start their own cloud security business and we were there waiting for them to go for this amazing journey. Doug, this is a reoccurring theme, second time, third time founders. If they still have the energy, you just snap back them, right? And then how do you know if this is like maybe their third or fourth company where it's a vanity play or maybe they're not really into it or if they still have that energy to lead a company, which we both know is just that's a large amount of energy you need to have. So there are two funny stories I want to tell you prior to answering your question.

The first funny story is when I met Asaf, an Adalom, I went to Israel. I met Asaf and somehow he got his wire cross. he thought it was Don Valentine. And he was very surprised that I was as young looking as I was 10, 13 years ago for a 7-year-old. And so that's the first part of the funny story. The second part of the funny story, when we invested in WIS, they did not know what they wanted to build. In fact, I'm now told they created a bologna presentation with Poya the night before so they can pitch something. And truth be known, we had no idea what they were talking about.

We have a partner who's far more technical than I called Bogumil. And I asked them, hey, Bogumil, I don't know what these guys said. You got to write the memo because I can't write a memo based on what they told us. It makes no sense. Of course it made no sense. It was a made-up pitch. But we invested, and now I'm going to answer your question. The thing we look for is second-time founders who had a modest M&A exit.

It's one thing if you've got second time founders who may be built a $40 billion company and they have the summer house, the third wife, want to go play in L.A. But second time founders who had a modest exit have gotten a little taste of success. Maybe they sold too early. And the second time they're real serious. And look, here the second time was an M&A. It's the largest M&A for a private company ever done. it's still an MNA.

You know, who knows what could have happened to Wizz if we had kept it. Private, maybe would be much bigger. But a $32 billion with the founder and the board just motivated because it was a great price, we decided to sell. But we looked for the second time founders, not who had a smashing success the first time, but who had a modest success. Because, yeah, when you had that modest success, You still got a little fire.

Yeah, you sold too early, a little chippy, something still to prove. But you got that taste. Yeah, I liked it. And it's worth pointing out, Don Valentine, for those youngans listening to the program, founder of Sequoia from the Bronx, from Brooklyn. Both of us went to Fordham. Yes. From Yonkers, New York.

Yeah. And he always had this amazing four-by-four quadrant that he would explain to young folks at Sequoia, agreeable, disagreeable, competent, not competent, this, where we make our money as venture capitalists. So I guess the punchline, and not to remember the quadrant, was all the adjectives that people throw our founders, irreverent, doesn't listen. Those are things we look for. And quite frankly, those are the traits the Sequoia partners have.

And so we look for those outliers. We look for those people that are special in some ways. They're outliers. And they can be outliers in drive, in intellect, and knowledge in some ways. And they're missiles. And our job as venture capital, let them do their black magic because that's the part that we can't do. But then help them build a business. Take this incredibly raw asset.

And if you think of the people coming out of 8200, they're not only in Israel, but they're far away from the market. And they haven't been near a commercial enterprise. It's not that they worked at a tech company for five years and have seen something. And so the magic that they do, we can't replace. We can't come close. What Gilly and I do is the mere moral stuff. Are the things based on many years of experience when you hire your first salesperson, what does your first CRO looks like when you inject product marketing?

Those are the kinds of things that I think would become the very best in the world. do it. And I put Gillian along with Sequoia. Hey, founders, I want to share with you an experience I love. It's when I get an ad that is relevant and not some nonsense. Like the other day, I got an ad for a fund management platform, and it was like a new one I'd never heard of. I clicked on the ad because, well, I managed for venture capital firms. We scheduled to call with them, and it was amazing. How did this happen? Well, I was on LinkedIn because I'd like to share links from the podcast. this weekend startups, we're right on LinkedIn. In fact, we live streamed to LinkedIn three days

a week, and we get a great audience over there. And I happen to be presented with this fund management platform, and it was a direct hit. Like, I mean, talk about hitting the bullseye. If you're in business and you're making a product or service, it's really hard to find customers in the business to business space. And doing B2B advertising is hard, but LinkedIn makes it so easy because, you know, their tools let you target people by job title, industry, company size, and more. So this fund management platform obviously was looking for people in venture capital who had a fun size and a number of people, maybe 10 people, maybe 50 people. And they found me. They got me. They split the arrow. Boom, right on target. And there's two things you really need to know about LinkedIn going into 2025. First,

they broke a billion members. And 130 million of those billion are decision makers and 10 million of the billion are C-level executives like myself. Where can you get to those people? It's really hard. And the second thing you need to know, LinkedIn makes an impact. B2B markers report, five times higher return on ad spend or ROAS return on the ad spend. You should know that acronym. Compared to other social platforms, 79% of B2B marketers say LinkedIn is the best platform for paid media. LinkedIn's going to let you build the right relationships. It's going to drive results. And you're going to reach your customers in a super respectful business environment. It's not a place where people are dancing around saying inappropriate things or debating politics. Nope,

LinkedIn equals business, business equals LinkedIn. Start converting your B2B audience into high quality leads today. We'll even give you a hundy, a $100 credit on your next campaign. Go to LinkedIn.com slash this week in startups to claim your credit. That's LinkedIn.com slash this week in startups terms and conditions do apply. These tactical, strategic, important parts of the playbook, these things founders haven't done in some cases. So when they come to them, they might, if they're irreverent, if they're a rule breaker, they might want to reinvent it. So maybe you can talk a little bit about that conversation of the founder wants to do something non-traditional, but you don't want to squash the non-traditional. But, hey, you probably don't want to get too creative with legal and accounting and the HR department. And maybe on the margins, they want to totally reinterpret things that maybe the SEC or the IRS don't want reinterpret it.

So maybe you can take us through some of those conversations you've had and when to let the founder run amok and innovate and when to tell them, hey, let's just do this one by the books and save the innovation for the product. Yeah, absolutely. And as you mentioned, I spent nearly a decade with Sequoia Capital before I started branched out and started cyber and started cyber starts. And one of the learnings I had was that, you know, we spent a little, you know, specifically at the very early stage, at the seed stage, we spend so many calories on product ideas and technologies and markets that do not exist because within three weeks, it would be something else, regardless of what the founders have told you. And then three weeks later, it would be something else again. So at Cyber Starts, I became a complete purist on that, and I stopped asking any questions about technologies, product or market, focused study on the talent. And Whiz is a great example for that, where, you know, they started with a different name for the company called Beyond Corp, different idea. and, you know, within 60 days after having a series of conversations with security practitioners,

with chief information officers and chief information security officers, they switched their idea to cloud security, and the rest is history. And we had those conversations to begin with, just to make sure that they are not locked on the idea and understand that we are locked on the team. But it doesn't happen. There are cases where founders have been right with the idea from day one. You know, speaking about another terrific company, Doug and I invested in called Ireland, these guys came to us with the idea to build an enterprise browser.

And that was a shocking concept for us. does the world need another browser? And it turns out that yes, the answer is yes. Specifically inside an enterprise where that is the number one attack vector you can contain. I remember hearing that pitch back in the day and I was like, a new browser. Yeah, that's necessary. And it was a really great pitch, yeah.

Yeah, so I don't think there is a cookie cutter for that as long as you keep, you know, true honest conversation with the founders. And you train them not what to do, but what questions to ask and to keep their ear muscle flexed enough to listen well and adapt. I think that's the key lesson from those experiences. You see, the founders are super smart.

And we learn from founders, recruiting from Google. You know, we have all these lessons that we borrow from one company, if you will. We're inspired if you're in a jewelry business by one company and we bring it to another. But the thing you don't want to do is pull the rug from under the founders. So if we talk about the case of whiz, the operating plan that was put in front of us was absurd. Or it looked absurd. I mean, revenue growth of that magnitude. We hadn't seen it.

I hadn't ever seen it before. So the deal we cut with the team is, let's make sure we have linear headcount increase. You keep on making quarters. We keep on doing this what looks like an absurd-looking headcount. And yet they made quarter, actually they beat quarter after quarter. And so retrospectively, it didn't look so absurd. You know, the fastest company to, well, there was 100 to 100 million in bookings and so on. But that was the courage and the vision of yet another way to do things.

And so to me, you want to let the founder run, unless it's something extremely silly, like you said, in finance. We don't want creativity in finance. But here, we have creativity in the speed of go-to-market. It was really, really fast. What was that secret? What was the go-to-market? Secret they discovered. Exquisite, timing, and product market fit. That's the only way you can get away with that. Because the product has to fly off. the shelf. But I insisted in linear headcount growth so we could have a check off every quarter. So we would hire 500 salespeople on making up the number right now and find out that no one's selling and they were stuck. If you want to hire 500 salespeople, let's get to it by the end of the year, but let's hire, if you will, a hundred a quarter. Again, these are not the real numbers, but it just made the case. So we can preserve cash in case we're off a little, in case we didn't

hit the bullseye. In a case of whiz, they completely hit the bullseye. If you think of an arrow and a bullseye, they could not hit the middle any better. But even some of the other company, I would say that Ireland has done that. Sierra, which is another data security company, they didn't hit the bullseye right away. We had the board meeting, oh my God, the business plan made sense, but people don't seem to be interested in securing their data. That lasted two quarters. And then the world exploded. Everybody wanted to secure everything. But that wasn't one that from day one at it.

It took 60 days for the market to come around or maybe a quarter and a half for the market to come around. And now that company's running extremely fast. But the trick is let the founders do their thing and just install some guardrails so you can protect the company. Let's talk about product market fit. How do you know, Gilly, when you've got... the start of product market fit, and then all the way at the end is you're taking orders. The phone's ringing, the product's flying off shelves. You show up at the storefront and there's 10 people in line already. You know, you got the best bagels in Brooklyn when people are there and you sell out by noon,

you know, but it's a journey to get there. So maybe let's talk a little bit about that journey and the iterative process. And then when the founders actually know, they're sort of tipping in from having to call a customer and convince them and do a long sale cycle to, you know, How many would you like? And then, you know, eventually they just come running in the store and just self-order. Yeah. Notion AI is an all-in-one AI powered by your work and all in one place. It automatically captures meeting notes, instantly finds the exact content you need, drafts detailed

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towards an organized, productive work and life today. That's a great question, Jason, because many people even in the industry believe that product market feed is just a product exercise. I call it company market fit because it's much bigger than just a product exercise. At those companies at Twizz, Island, Sierra, we had the founders run a process we call Sunrise, which takes 9 to 18 months. So it's a long process where you go and ask all the tough questions about your company. In a way, you are going out and breaking your company every week and then figure out. it and break it again and you address questions like, you know, what would make people move faster to procurement with me? Not just what's their biggest pain or would they buy

it, would they spend money on it, but what would make them run super fast with me? You know, what are the right channels? How would they evaluate the product? So in a way, it's a simulation for the founders of everything that can go bad for this company the next three years. But you do that in a very condensed time frame, which is something like 12 months. And if you do that right, and if you ask all the tough questions

and you challenge yourself, and you challenge your customers. So in a typical sales cycle, in a typical sales call, you know, you don't present your competitive product. If the prospect is happy, you are rushing to get an order.

In a sunrise, even if the prospect is happy, you present the competitive product and ask them, why wouldn't you buy from the competition? For instance, so you are breaking the company and then fixing it,

and the hour, outcome are companies that are perfectly matching the market. So a company like Weiz can conclude that process and then go and really run as faster than any company has done before, a company like Ireland or company like Sierra. You look at those companies, they run faster than anything else than any of the other players in the market. And the reason is that those companies, not just the project, are perfectly matching the market.

Takes a little bit of courage, huh, Doug, to ask, wow, you know, what's going to kill this company? Where are the breaking points? Where are our competitors actually better than us? Well, so I have a visual that I tell to founders. I said, your company's a river, and there are rocks in the river,

and your job is to remove the rocks and let that water flow as fast as possible. And we built a methodology at Sequoia called the merchandising cycle. That goes from product management to product marketing to demand and to sales. And the trick is to debug this merchandising cycle backwards. Why is the sale going fast enough? Oh, because we don't have enough leads.

That's the answer you get. Okay, let's get some BDRs. Let's have some more BDRs. Well, now they get the budget and you have the conversation. You find out, well, you know, it's not a matter of more BDRs. the story's not resonating. Ah, okay, let's debug into marketing. Now we're in product marketing.

We're the leader of, and you go online and you type the category, and data showed up on page one, page two, page three of Google in SEO. Well, if you don't show up on page one, you might as well be in the final scene of the Raiders of the Lost Arc if you're old enough to know what I'm talking about. The warehouse scene. Yeah, your warehouse scene where you lost forever. Sometimes it's product management,

and it's never engineering. Sooner later, the product goes to work, and it's often the vision. But assuming the vision's right and the product works, you've got to debug this merchandising cycle from sales on backwards so you can run like a bat out of hell. So that stream, that water can come down as fast as possible. And that is the exercise that we bring, that we ask our founders to go do. You know, why is it that the plan is the plan?

Why is it you want the net new ARR to triple next year? Why can it be four times, five X, just as a thought exercise? And usually it's market size, it's cash, it's unit economics on each sale, maybe they're horrible and you don't want to go any faster. And what it's often is, is Mandarin's ability to manage maximum growth. Because these are young executives. These are young founders. And so once we get on that beating the issue, then how do we surround them?

with the right people so they can go faster. And that's what we do as board members. And this process of understanding who the right talent is, this is always a crucible moment for a founder. Gosh, I brought a team together. These are all my friends. We went to college together or we worked on this previous two projects together. But listen, this drummer is not able to drum at the base.

We need a better drummer. And this is where hard conversations that boards happen. How do you manage that piece, Jilliel, and then I'll come back to you. Or Doug, you can take it if you want. The hard conversations about talent. So I'll start and Gilly should give the long answer. To me, it starts with the founder equity split because I tell them, you don't get that right.

Somebody's going to leave the company because the other founders are going to get upset about it. So I have a very honest conversation on what you all bring to the table and get the equity split right because if you all go the kumbaya third a third a third a third it's never a third a third a third in talent it turns out one person usually as you know maybe two people have talent we often see two founders 50-50 where it makes sense but the moment you have more founders where n is three or above those equity splits are usually off and we ask them to think about that good and hard so we can retain these founders because there's no faster way than a founder to be removed by other founders to have

a huge equity share and not carrying anywhere at that level of load. So we ask them to be thoughtful at that point, among them, it's not for us to opine. And then there's everything else, people in a company that Gilly can address that. Yeah, it's kind of interesting. It turns out the Steph Curry doesn't get paid the same amount as the five players on the bench on the Warriors. Yeah, they all have different salaries based on their performance. But a hard conversation to have, I think, Gilly, because people go socialist. Hey, yeah, we have three founders. That's 33% each, or four of us is 25% each. And clearly that's going to rub some people the wrong way when the fourth one doesn't show up for work. You know, when I was much younger, Doug taught me one, you know,

one lesson, which is, you know, there are many ways to to help, but there's more than one way to heaven, which means in this case that I'm not sure there is one great way to address it. Take, for instance, we have equal partners and amazing partnership and wonderful company. And we had the portfolio companies where founders departed for whatever reasons. I think it all comes back to having true partnership with the founders. It starts in day one. And the same transparency and honest conversation about products, about markets, you know, goes also to the essence and the core of the partners.

partnership among the founders. And if you have established that level of trust with the founders, and that's what early stage investors like Doug and myself practice, if you establish that level of trust with the founders, you know, you could, you can resolve any situation. And, you know, whenever you have people, you'll have social situations that you need to resolve.

There's no way to avoid. Yeah, humans are human and they're going to do human things. But I love the idea of like, hey, let's talk about the equity split because now the entire formation of the company, Doug, is being the foundation is performance. And what do we get if we perform as opposed to everybody just gets what they get? It's just a math equation as opposed to a value-based equation, yeah? One of the themes we talk about over and over again on this, we can start. is making sure you do your chores. I'm no expert on these things. I have some experience. Stephen Estes from CLA is an expert. Let's talk about being cash efficient. Tell us about

efficiency and what you see in the top tier startups in your practice. We're seeing kind of an interesting trend out there where companies aren't needing to raise quite as much as they had in the past. You really have to be careful as a founder to only take on as much money as you really need. You've got to do the forecast and you've got to do the modeling and you've got to dialed in and get it right. Otherwise, you're going to end up either not raising enough capital to get to where you're going and you're going to have to go get venture debt or go back, have an extended to the round. Or you're going to give up too much of the company because you just didn't recognize how much money actually needed. Yeah, very important to get this stuff right, folks. And that's really a bummer when startups don't do things in a button up.

I always have a great partner, a good partner to have on this adventure. While things change, my friend Stephen over at CLA. visit c l a connect.com slash tech and don't forget to mention that your boy jkal sent you that's c lacconnect dot com slash tech start today yeah look the things get interesting more when you start asking questions of who do you bring in when you know what should your salesperson look like and the answer the short answer is never suits the the short answers is catching talent on their way up and higher, higher for smarts, higher for hunger,

and a bit of experience. I'd rather have that than a whole bunch of experience and all the downsides that go with that. But plugging in this outside talent, imagine you are four founders, even in WIS, just imagine. You have a close circuit. By definition, you have four people

that are like brothers that were at Alam. Now, how do you integrate? outside expertise to that so they feel part of that team. That takes conversations. That takes skills. That takes the board being aware of that issue. That takes the four founders being aware of that issue. Trust between the founders of the board because that is not an easy thing.

And when you make a mistake, you recognize it quickly and you move on. And it's really that simple. I think unpacking, there's like an important piece to unpack that you said there, Doug, which is, and having been on a couple boards here and seen this, movie, they're some incredible salesperson. They look incredible on paper. They show up. They've had four, you know, top tier jobs. They've got the cufflings. They've got this polish. But they're not hungry anymore. They're negotiating their exit package on the way in. That's their focus. But this is critical. Like the person is coming up. They've got enough experience. They've got, but they still have the hunger.

And they're not kind of just delegating work and maybe more concerned with the accrued your of the executive position, yeah? So I've been shocked by people that can sell $8 million a year at a major tech company and can sell $500,000 a year for a startup. That is one of the problems. The other problems of people that have sold widget versus solutions. A widget is a straightforward sales, a solution.

You have to understand the bigger picture. I've been shocked at that. And so those are the mistakes that we tried not to make. And the other thing is, what does your first VP sales or head of sales, as we call them early on, look like? Is he someone that has managed 200 million or someone that's managed 30 million? You can't get to a person that's managed 200 million. Because that person, you have no customers. You may have three customers, maybe.

And so there are these steps you take. You know, at Snowflake, the first person they hired who was a fairly low-level sales manager ended up running, ended up running all of sales. And he rose. And it's our hope when we hire these people that they go all the way. But often they have to make a stop and become a regional manager, maybe stop there to get some experience. We hire someone over them.

So those are the things we get to do. And to convince our founders, that's how you should build a team. And we do that often. Gilly, tell me a little bit about secrets to recruiting you've learned. the hard way. You know, people who look great on paper or, hey, they were at, you know, whatever company, Microsoft, Salesforce, whatever, they were selling all the stuff. But it had more to do with that company and their product market fit than maybe the grid, right, of that individual salesperson. And then also, I think, is a really interesting topic of integrating

people into the team and making them feel that they're part of the team, even though, you know, they came from the outside. Maybe they weren't part of the formation of the company, but you've got to make them feel that they're really part of something. It reminds me of Kevin Durant coming to the Warriors who never quite felt like he was part of the core, right? Yeah, absolutely. And, you know, I'll take even a step backwards and mention that many of those cybersecurity, all those cybersecurity companies that Doug and I invested together,

and I think those are seven companies by now. they all started in Tel Aviv with an office that's mostly R&D. So for many companies, when you build an office, you build actually the DNA. You know, you have a center of gravity for that company. You build your DNA once. And once you have 50, maybe 100, maybe 200 employees, most of them in the office, you've got the company's DNA. For those companies that are coming out of Tel Aviv,

you have to do this DNA buildup twice. Because you build the DNA in Tel Aviv, maybe you've got it right, but then you need to build another office, maybe in New York, maybe in San Francisco, maybe in other location. So you've got to go through that exercise twice, which makes it, you know, riskier and definitely more difficult.

And there are many reasons why I've seen new hires that have done amazingly well in previous lives and didn't do well. You know, maybe they were younger and hungrier. Maybe, you know, they work with a different set of founders that brought different set of qualities to the table. I think when it comes to, you know, to hiring, especially, you know, the first, you know, the first. line of executives, it goes back to first principles, you know, how high energy, you know, energy is so important for early stage company, you know, because you are going to fail a lot. You know, early stage is all about failing, learning, and fixing. So high energy, high intelligence and terrific teamwork.

And if you go back to those first principles, you'll do, you know, you have a higher likelihood to do well. Doug, I want to, okay, Doug, you want to add something to that, yeah. So I had given away my secrets on these podcasts. I've known you for a long time, Jason. For example, when I'm recruiting against Google, I say to the candidate, my God, working at Google is fabulous. I said the food, have you seen the food at Google? It's world-rash, meat. Have you seen those colors?

It's always red, yellow. They have those beautiful colors. They have bicycle. The campus is a blast. They pay a lot better. It's not a thing you can do to drive that price of that stock by one penny. you're a small cog and a large machine. Let me tell you about our company.

In our company, the food stinks. It rains. When it's sunny and outside, it rains even indoors at times. We don't pay that well. Yeah, you're going to get stock. But if you have an idea at 10 o'clock, we could implement it at 10.30, and you can change the course of the company.

So go look at a mirror and tell me what kind of human being you are. And if you're interested in a job, come talk to us again. And that's how recruit against the big companies. I force these people to have it come to Jesus with themselves, whether they're just done in life, basically, or they want to do something. Missionary, yeah, or mercenary, yeah. Like, if you're just going there for the food and the steak and, you know, getting your RSUs, they really have, it's so interesting how big tech has created this rest-invest culture,

you know, even lampooned on the HBO show Silicon Valley with the Hooli company. And Google was such an intellectual powerhouse. But when things get big, it is to your point. Like, how do you make an impact? If you're going to go work at Facebook for Zuckerberg, he has to offer you these crazy incentives as AI versus going and working for Elon or some other company that's got grit and is just starting from the beginning. Yeah?

Yeah. It's exactly right. Look, a new hire can shift the trajectory of one of our little companies. for the better or for the worse. But they'll have impact. Yeah. I want to talk about revenue quality. I know it's like kind of a boring subject,

but it's one of the things I've seen is so profound. We have these companies that appear to be rocket ships. They're getting elevation and looks like they're going to get to, you know, orbit. And then all of a sudden, it explodes, goes off. And you're like, what happened? And you look at the revenue quality and churn. not profitable, et cetera. Doug, how do you assess the quality of the revenue of a company and if that needs to be fixed,

you know, at the early stages? And I see it today with AI. And I think we saw it with apps for a little bit. People would sample a lot of different products, but they didn't actually use them. And AI, I'm seeing this all over the place. People will spend $3 or $400 on an AI product for the year, put it on their corporate card, and then they never use it. So there's many answers to that.

First of all, there are transient markets like we saw with these apps, where things exploded. The internet got so big, you have enough people trying things that that look like momentum. And if you probably had an AI engine analyzing the quality of revenue, you probably would have been told that. But even if you had a brain, you could have known that. The other, though, that we found in the enterprise where Gillie and I spent a lot of our time is these companies that sold to other little tech companies. The company formation was so rapid for such a long time that companies got revenue by just selling to all the other little companies. And as long as the venture investors were funding and so on. Now, superimposed that to the fact that you start usually at the low end, the midrange, and then you get pulled up market.

In order to sell to the enterprise, you have to earn the right to sell to the enterprise. And to me, revenue quality starts being interesting. even if you start a lower end, by now you get dragged up. I remember when we looked at Figma. Figma, yeah, it all started with credit cards, people buying it, but now you saw people saying, I want 5,000 licenses. Can you send a sales rep over? Holy cow, we didn't have a salesman.

It was BLG, you know, we better hire some enterprise sales reps. And so, yeah, you've got to be careful in the enterprise of the low end selling to other tech companies or people trying things for the heck of it. And you've got to look for those leading indicators, you know, a few companies sticking their neck out and wanting to spend a lot more money. And then you know that you have something. And then the low end becomes a lead-gen vehicle. It doesn't become revenue. It looks like revenue, but it's really lead-gen for everything else.

Yeah, Gilead, it seems like founders, sometimes they learn the wrong lessons. They're hackers. And, you know, I won't mention any specific, you know, startup, accelerators, etc. But I remember we had to learn this lesson as pre-seed investors when they would show us their first 10 companies. We'd be like, oh, that's pretty promising. Then we said, well, can you just in the Google sheet when you send us the 10 companies, what date they started, you know, did they use the product? And how did you source them? And, you know, we had one company who was like, yeah, these seven came were our in our accelerator and these three were our fraternity brothers.

And we're like, have it tried to sell to somebody on LinkedIn, like a cold email? or did anybody Google you and find your product? And yeah, so the sources of the company, the customers was how we unraveled this little gamesmanship that was occurring. But maybe some dots on the quality of revenue, Gilly. So maybe I led to two insights to that because I thought that Doug's answer was perfect. One is most of the company, all of the companies we invest in in cybersecurity

are B-to-B software companies. And they're all approaching new market, solving new problems. So you can go up market, downmarket, enterprise, SMB, you know, everything is open. And our recommendation is always to start with the more difficult, longer, a journey which is to sell to larger organizations.

So just go right to the pain, go right to the hardest task? Go to the most sophisticated buyers and users, because if they buy it and if they use it, everyone else would follow. And that's why you see the first deal of Sierra was a company that bought it for $400,000. The second deal at Weiss was a million dollars. The third deal at Ireland was half a million dollars. So those are large organizations, sophisticated users, and they do a lot of diligence before they add a new product to their arsenal.

And that is terrific for the founders, although it looks more difficult on the surface, and it's great for investors to build confidence in the business. the team and in the product. The other insight is that in many of those companies, once they get to 1020 logos, so it's not about the first few days, but once they get to some number of deployments, you know, RAS at the board is that first slide would be usage, not a error. Show us usage. And if you see the usage graph going like steady, not growing, that's a major red flag. So usage, adoption, stickiness are in that stage super important.

We have a company called Zafrin that the first few customers are all $500,000. A lot of it happens because it's the founders. who sell those deals. And then you start bringing the mere mortals, the sales rep, suddenly, you may see the next 10 deals being 150K. Because now the found, you know, one of the things that we look for is a repeatable sales model. When is the first deal the founder doesn't have to be involved?

And it turns out the founders are often the best salespeople. Yeah, there's an authenticity and a transference of enthusiasm when the founders in the room explaining why they made something that you could feel the enthusiasm. just go right across the table or in nowadays the Zoom to the customer where they're like, I want to be part of this. I want to be part of this new paradigm, yeah? And how do you get salespeople to have that same level? I want to talk a little bit about sort of our jobs as investors and the game on the field.

The number of, and it seems like it's because of AI, but obviously cloud computing over the years, we work and office sharing, everything has made the cost of starting a company go down. and the skill levels going up and the ability to get the first product at the door. So what are we seeing in terms of team size, Gilly, and what it takes to stand up a product today versus 10, 20 years ago? But even in the last two years with AI and these AI solutions coming, it feels like, my Lord, some companies are getting to their first million with just a handful of people at the company.

So are you seeing that as well, game on the field? Look, I think we are still really early on in the cycle, but the trend is there, and we would see companies getting to milestones like the first 10 customers, the first million dollars, the first 100 million dollars of ARR with lower number of employees. And it would not just be for, you know, building products. It's everything around that. It's, you know, the design, the customer success, support, BDR, and maybe five years into the future sales. So I think that the day where we would see the one employee company with a million dollar ARR is very, very soon.

I think at the time we would see maybe the less than 100 employees company with $100 million of ARR is probably... Yeah, it's happening. Yeah, some of these products are catching fire. It's behind the corner. Yeah, some of these co-pilots, like cursor had hit pretty crazy revenue numbers with even more than a million dollars per person, Doug, and you've got enough history in the business to have watched this trend.

you know, Google, Microsoft, Facebook, YouTube, just Instagram, you guys were investors in that as well. You know, large number of users, large amounts of revenue coming in with a small number of employees, yeah. Yeah, maybe that's going to happen in consumer. And we've all heard what Toby, a Shopify said. I won't give you any tech account unless you can prove to me can't be done with AI. But that's a mature company. I actually have a contrarian here.

Yes, we can do more. more with less cost of cloud computing, blah, blah, blah. But we also have to run a heck of a lot faster than we ever had to. There used to be a time, I don't want to update myself here, where we could build a product, get a first few customers, take our time, hire two salespeople, get the U.S. profitable. Maybe we'd go to Europe. Can't do that anymore.

Because if you do that, it's going to take it three years. You'll have 23 competitors. The speed of company building has gotten so fast that we have to hire a heck count. And also, if you're selling to the enterprise, the enterprise is not interested in a one-man vendor. The enterprise wants to see bodies, wants to see support. Try dealing with purchasing. Like, after you've sold your product, now you've got to go fight another war with purchasing. Try doing that with an AI agent and see how far that goes.

So I think we've got to segregate the B2B and B2C. I think we're going to see some of the smaller companies in B2C before we see them in B2B. And yes, once you reach the scale of whiz or Sierra, now we can talk about efficiency in engineering, in R&D, you know, and so on. But when you've got the first three guys working until midnight trying to build a product, I don't think an AI engine is going to help you that much. That's just my view. Yeah.

Let's talk a little bit about this concept of overfunding companies. It happens every five, ten years. New entrants come in, Venture Tourist, Doug. They start dumping money on top of, you know, companies that we've, you know, really been thoughtful about building. And founders, of course, look at it and go, hey, Doug, Gilly, I've been offered this crazy, you know, check with no board seat, no information rights. I've never heard of this firm or maybe they do public socks and now they're dipping into privates. And that created quite an overhang in the SaaS space. Yeah, Gilly?

like where we had maybe companies get overfunded. And then you have, you know, some members of the board who invested at, you know, $2 billion and the other ones invested at $200 million and the companies in between those two sort of realities. And then it becomes a lot of hand-wringing and pain and suffering. Maybe where are we at in that part of the cycle, Gilly? It seems like people are getting super excited again just this year. Yeah.

My view is that the venture business is a complex business. And if it was easy, then everyone would do that. So some of the complexity is to keep the balance between the need for speed and then not throwing too much. money on a company. And that's a fine balance because my experience is that in order to build a large, important, sustainable business, definitely in cybersecurity, which is my focus, that's an expensive exercise. It's expensive. You need to build a massive amount of code and products, army of people to sell and support the product.

It's an expensive exercise of money and sufficient capital for the company early on. That's really important. But you're right. There are tourists. There are all kinds of unhealthy situations. And again, it goes back to the same element. I've touched earlier, which is having a honest, transparent conversation with the founders. And they may have all type of temptations.

And you simply address that for a conversation. And if you've built a trust and if you are fair, as an investor, you know, the founders would listen. Doug, we've seen this movie over and over again. So you're going to find my answer sarcastic. First of all, the sham of the scam that is called venture capital. Let's take a look at this.

We raise money for which we get paid fees for the pleasure of investing the money. if we lose the money, so what. And if we make money, we get to key somewhere between 20 and 30%. You wonder why the balance between greed and fear always lean towards greed. A much more fair review would be, here's the money, no fees, and you have to match dollar for dollar what you raise with your own money. Now you would see the greed and fear balance. So already you have this proclivity to lean in.

because of the compensation structure. Point one. Point two, we have seen every generate, and by the way, I know my partners or certainly in Sequoia marketing won't be happy that I said all that, but who cares? You know, I'm old enough that I can say that.

Second, we've seen every wave to be stronger and stronger. If we just look at the Internet wave, 1995, when Netscape goes public, 1999, two great companies get built, then, oh my God, the internet is a fraud, nine, ten years, death, and then here we go again. Mobile, there wasn't a 10-year gap.

There was a two to three or four-year gap between the head fake and reality. And I think AI is going to give us even a smaller head-fake. So I think the opportunity in front of us is huge. So you have a proclivity to lean in by the money, and the fact that we know each wave is bigger, is quicker and quicker and bigger and bigger. And so I think we're in for quite a show, actually.

And the trick is to pick them, though, right? Because if you invest in everything, you're going to get nailed. And so, like everything else, it's a pick-um business. And we do know that if it pick-em right, chances are it doesn't matter which round you came in. But I'd also urge all your listeners to think about all the dead FMV, all the dead companies that exist. Think about the thousands of companies that have revenue run rates, 30 million, grown to 33 million, who are being carried on their books maybe at 120 million value, and they're really worth nothing. And so as you think about leaning in and doing something silly,

like some venture investor did four or five, three, four years ago, I won't name any names, who had a theme investing in everything, you're going to get nailed. And so there's all these great forces. And the trick is just, is just being the right one. There's two or three or four investments a year that matter. And being those, and you'll do just fine. Yeah, and that is over-indexing on the companies that lose, even though your reputation is kind of built with those founders, right?

We talked earlier about second-time founders, kind of a sweet spot, you know, and sincerely investing in teams. Your reputation in some ways is made equally by the companies that don't make it, but obviously the power law defines, you know, by definition, is one or two companies per fund, determine the fund success. Look, the real tough thing is do what Gilly and I do. And that is, pick them early, find them early. I mean, it's easy to find WIS at the $10 billion round.

You know, it was a made company. And the question on that point was, am I going to make twice our money or six, seven times our money? And nobody knew. And you buy yourself either a poster or a small return at a poster. The real trick is getting there as early as you can. Yeah, and that is a function of your reputation, your deal flow, how many companies you meet with, and your ability to actually identify talent, yeah, Doug?

Yeah, and I might add a little luck. You know, a little luck does help. You know, I made a trip to Israel. Yes, I may have been a fake Don Valentine, but that trip to Israel is what eventually got a sussar. off to say, I'd like Doug on the board. So there's all this serendipity that has happened throughout my life. The Ron Conway call on Google, you know, Ron and I became friends.

God knows from where. We share maybe one glass of wine, white wine, too many. But that led to Google call. And so these things happen. And you just got to do the right thing for years. Make sure you do the right thing by others. And if you do that, chances are. you're going to get some calls at the right time.

It really is like your reputation and the effort you put in, saying yes to a couple of random things, works. I was at a party once, not to make it about myself, and somebody said, you got lucky investing in Uber. And I said, yeah, you're right. And Travis was standing next to me and he said, I'm going to stop you right there. You don't know this, but J-Cal helped me on my first two companies,

Scour and Retsbush. And whenever I needed help, he always picked up the phone and he always took me out to dinner and talked to me about my companies. All of that is why he got that investment. Exactly. And you just don't see it. And you and I, Jason, that's how you're filled. You needed a little help. I gave you two hours on my time, maybe an hour.

And now we have a relationship. And that's the way it's like. And Gilly the same way. Yeah. You know, Gilly and I are now friends. But that friendship was built by helping one another out. It's, I want to talk about firm building, specifically because, you know, I have this podcast for selfish reasons.

I love to talk, but it's also a great way to learn. And here I am. I got my own firm. I'm four funds in. And we're all seemed to be getting earlier. Earlier seems to be the focus. It seems to be getting very crowded. Obviously, Series B is bonkers.

Series A, also getting very crowded. people want to take the whole round. So we're all moving earlier. Sequoia's experimented with ARC. I'd like to hear how that's going. I know, Gilead, your firm, you do some incubation. Maybe what have we learned about going earlier and maybe creating some programs for folks?

Gilee, I'll start with you. So, first of all, we don't do incubations. Okay. We are dedicated to investing... seed investors. We are the first check with amazing teams that we believe can build important cybersecurity companies. And the you know we started you know a started cyber starts you know in 2018 it was super small super super super humble fund we started with us first fund was $50 million, really small, solo GP,

and then invested in, I would say, nine teams out of those $50 million. And many people thought that my approach is complete craziness because you've seen a grown-up writing large checks, multi-million dollars checks to young fellows without asking them, what do they do? And then three years later, the world found out that those nine companies valued at over $25 billion. That was a major branding event for Cybersetarts.

So that's really helped cyberstarts accelerate and build into a bigger operation. And today we have four GPs, four general partners on the ground in Israel and two operating partners in the U.S. We've raised multiple funds, more than $700 million. Talk about deal flow. How did you get those first nine? And then how do you get deal flow now? I mean, one of the things I've read is that early success in venture capital is a predictor of later success. because the founders and the LPs all chase the people who have early success.

So there's some manifest destiny there, I guess, or some self-fulfilling prophecy. But the first nine, how do you source those companies? And then today, I'm sure the success of WIS and Island and other companies drives founders to come to you because they want to have the investor who did WIS, yeah? Yeah. And again, keep in mind that in our business, we are always as good as our next. investment. So having a wonderful portfolio, that's great. No complaints. But you always, you know, if you feel too comfortable, you already lost the game. So the, you know,

at Cyber Starts, the first batch of companies, we, you know, was simply through the network of entrepreneurs I've already knew by then, you know, spending 10 years with, nearly 10 years with Sequoia and being an entrepreneur and founder of two cyber companies beforehand. But they were mostly younger guys and girls out of 8,200 looking to build their first business. And they weren't, you know, 2018, keep in mind, cybersecurity. wasn't cool. No.

It was this, the opposite. You know, boring office within IT. You know, nobody cared about cybersecurity. So if you were, you know,

a 25, 27 years old individual with a desire to build a cybersecurity company and you had a vague idea what you like to be, you didn't have many options.

So they found me. and I help them to build those businesses. Now it's a little bit different. And, you know, we are very lucky to get many entrepreneurs call us, but we still, as I said, we don't get ourselves too comfortable. We work really hard to get ourselves in front of amazing founders. Doug, maybe you could talk about this getting earlier. and earlier, Sequoia's got a reputation of backing people before the product launches, doing

series A's, and obviously, yeah, later stage funds now. Maybe a little bit about the ARC program and just how getting earlier is important today. Maybe it's always been. So many roads to heaven. You can make money at every stage. We vertically integrated. We had a C fund, a venture fund, a growth fund, and a public market vehicle. Seed, we've done number of seed.

Powell Alton Networks was a seed. DoorDash was a seed and many others. Series A, Whiz, Island, and so on. Series B, Sierra, kind enough, Gilly gave me the call and so many others. Growth just quickly.

You know, Zoom, snowflake. And even public, Shopify. We made as much money in Shopify and the public market. We held that thing for, you know, we made a ton. But when you get there early, you have a shot investing in every fund,

one. two, you have a shot of really helping the founders set in the right footing. Unfortunately, the venture people, the venture industry has a lot of people, not everybody, but there's a lot of people that don't really have as much experience as you'd like. Let me just leave it at that. So we do want to go early. The ARC program has worked quite well for us. We've decided to limit it, though, not to go en masse, not to have hundreds of companies.

because at the end of the day, you know, they all have your brand. Those are all founders that expect your help. Like you can't say to an art company, okay, we're only going to give you an hour and a half. That conversation is not a brand augmenting type of conversation. That destroys your brand. And so we keep it tight, you know,

whether it's 15, 20 companies, a class, but that's worked well. But we do try to be the first money in, the first of seed or otherwise. And if we can meet that, then we want to be the first Series A money. Because once you get to Series B, now the ownership comes down.

Look, the ownership has come down already, a whole bunch. We used to own 30%, then 25, then 20. Now Series A may get you 15 points. And so it's really brutal. The venture industry was a niche business. Now it's a broad-based business, and everybody and their mother and father is a venture investors.

And so the thing we know is to ingrain ourselves in the entrepreneurial type community and get there either, as I think of it, through a Salesforce, our own partners, or an indirect channel. You can tell I'm a go-to-market guy. You are a indirect channel, Jason. You call us things. Gillie's an indirect channel. And so we have both a direct and indirect channel, and we try to get to as many things,

as early as we can. and when we either miss them or make a mistake at the Series A, we try to pass in the most elegant ways because we may want to catch them one round later and so on. Amazing. All right, listen, great job, gentlemen. Let's do it again in a year. I'm going to book you both,

and we're going to check in both on your very modest retirement, Doug. This isn't a retirement. You're working just as hard. You're just as engaged. Bad word. It's a bad word. You're just as engaged. And look, you know, you look young and you look energetic.

You look vibrant. I think it's great that you're still in the game. I don't know about this. It's so weird that a lot of the firms have this like forced retirement at a certain age or these weird rules because we're all living so much longer. And cognitive function is continuing on. I don't know. And there's all this wisdom to be passed down.

So I just love the fact that you're still in the game. Gilead's great to get to know you. I'll look forward to seeing you in the region the next time I'm over there and we'll see you all next time on this week in startups. Bye-bye.