E425: What 30,000 Founders Taught Me About AI, Judgment & Top Founders

23:54He was at a competing firm, but we worked on a number of investments together. And we had the beginning of this style of investing, of just being really early, having specific traits that we looked for, and then having a partnership model where we would just work really close with these founders all the way through product market fit. And so we came together a couple of years ago to start 12 Below, which is a early stage focus firm based in New York. Have things gotten harder or easier in the last couple of years? Overall, it's a very interesting time in the sense that the amount of capital that has come in has never been greater, but the amount of concentration has also never been higher.

24:29So I think we're at our stage in the business of net new, great founder starting companies. As long as that is happening consistently, were thrilled. Some of the nuances that have gotten harder for founders is much of the capital has gone later stage and it's concentrated in called the labs, some of the SpaceX and a couple other companies. And so on the whole, it's a dizzying period. It's what makes it really fun, to be honest, as an investor. You want to feel the mental jiu-jitsu of how to navigate these environments. But for founders, it has been harder. Unless you're a set number of companies where capital has come really cheap, there's a lot of founders at all stages that have had a hard time because of the concentration of capital.

25:11But I think the flip side is, the optimistic side is if you have a great market and you are the beginning to be the market leader, one thing you saw in the 2018 to 2020 era was you would have 10 competitors funded at the same time. So I actually think even though it's hard, what you're probably going to see in the next couple of years is the companies that have just had conviction, They've had market leadership. There were real customers and real venture scale markets. You may actually see an acceleration of those companies, even if there was a period where funding was challenging. Maybe because funding was challenging.

25:44It goes back to what we were talking about in the beginning, which is figuring out people that really have founder product fit, that have a chip on their shoulder, that are really focused on solving this problem. How do you figure that out? Well, you do it in a space where there's not a bunch of funding. Going back to your question, one of the other elements that's been hard in the last year is the pace of the model changes. So just on this point of funding, there was a period where there's some applications in AI getting funded, and then there's been a fear that the labs will do everything, right?

26:12So if you're a founder and you're making this 10-year commitment and you started two or three years ago, the volatility of who's going to win and how can you win as these new foundation models scale has made it hard. But to your point, the flip side, the people who have, it goes back to the fundamentals. They have a clear view of what they want to do. They've got an end market that is in transition. And if they win, there's a really big venture scale prize. You just got to solve through it. And on the other side, when you wake up and you're of scale, you may have a lot fewer competitors and that's going to feel really good.

26:46Yeah, people said that, or investor in Lagora, people said that the large language models are going to disrupt the legal space and publicly disclose they're growing just like wildfire. One of the frameworks I use is if you're thinking about that threat, it's like go talk to a bunch of customers in the end market and ask them, do they even know the names of the different models? Do they even know what Codex is? Do they even know what Hemi or Sonnet or Opus? And you'd be shocked if there's a couple trillion dollars of the economy beyond just AI infrastructure where many of those customers don't know and they frankly don't care.

27:21And I think that's kind of how I think about it. It's so easy to be myopic. Me and my business partner, we once looked up. not how many people know who Scott Besson is, but how many people know that there's such a thing as a treasury secretary in the U.S. And there's something like less than 10 % even knew that it was a position, let alone who filled that position. So it's so easy to be myopic. That's when you're in it day to day, you can feel like this is going to be done soon, right? And it's kind of that adage of people overestimate what's going to get done in a short period and they underestimate what can get done over the long run.

27:51You could track AI adoption by sector. And like today, it's very low. Maybe developers, it's really high. But there's so many parts of the economy where it's barely 1%. Having that balancing act against the volatility of the pace of investment is really important. Lucas Swisher from GoTo talked about these different S-curves. So first you had the consumer adoption, which most people have tried. ChatGPT, and that was the ChatGPT moment. then you have developer adoption but most businesses have not actually seriously integrated AI then that's why you've seen a lot of the investment go on the enterprise side because depending on the industry the amount of there's just so much work still to diffuse AI into their businesses for them to actually get returns so yeah we're still early there are some categories where you mentioned legal where there's been a lot of investment and there's been a lot of companies But when you step back in some of these end markets and realize how big they are, even if there's a couple early winners, having a view, is it going to be one company to rule the entire industry?

28:57These are some questions to think through when you're thinking about doing more investments in a certain category. Yeah, it's that second order of thinking. Yeah. What makes it really fun is you're kind of dealing with this new form of magic intelligence, and that's going to create more volatility too. Like what are the language models like in a year or two? Does that impact when we look back in 10 or 15 years, when we look back at the products built in year two compared to year five and say, oh, of course, we should have thought about that. It's volatile. It makes it challenging, but I think that's what makes it fun.

29:28Sitting right where you're sitting a couple weeks ago was Michael Gilroy from Marathon Venture Partners,$400 million, mostly Series A fund. And you're saying one of the challenging things in venture capital today is that so many people could vibe code startups that you'll have the 10, 20 startups that look almost indifferentiable. Are you seeing that seed around? Yeah. I mean, the cost of developing software, the cost of getting up and going, that's been a real advantage for the companies we fund. Because when you're trying to figure out product market fit, you're just trying to get iterations to the customer.

29:59You're trying to find this breakthrough around this deep unmet need. but that doesn't change the quality of the authenticity like the connection to the purpose he's absolutely right in that there's been a way for sure since all these vibe coding tools tons of founders starting things that probably have low depth meaning there's not a lot in the product that it was up it was easy to get up and running maybe it was easy to get a little bit of scale but the insight wasn't that deep or the pain point wasn't that deep and so when we think about the ease of building the product. So we spend all the time thinking about the moat specifically.

30:36And I feel like that's kind of the inverse around not just how hard is this product to build, but why is this going to be a great product with scale? Why is it going to be hard to rip out? Tell me more about that. What are you looking for? This comes back to being a second level thinker on the market. Have you thought through the integrations, the existing software stack today? If someone just says, this is a big market and here's a problem I'm going to go after, that might work. We tend to be more convicted when they can say, here's like the treasure map to win. And in many cases, it's, this is the wedge to get in the door.

31:13It's the way to get integrations. But if you have a 10-year view, you're thinking about defensibility. You're thinking about why is this the best part of the market to go after? One of the analyses I'll sometimes introduce to founders if they don't know it is a profit pool chart. And all it does is show an industry on the X axis, the different stakeholders in a value chain, and on the Y axis, it's the margin. And so when you see it in a chart, it's basically you can see visually where are the most profits owned and by who and by what margin. And it's okay if they don't know that, but what I like to understand is where does your vision intersect with that?

31:48And maybe tell me about the industry. How has market share changed over the years. That tends to force you to say, huh, is my wedge really strong? Is my position going to be defensible if I get there? Those are the questions we try to better understand defensibility. The way that we think about it, our business is a little bit different in that we have the media side to business and the venture side to business. And we always think about not what happens if AI gets better, but what happens when AI gets better. How do we continue building value? On the media side, we think about, well, what will continue to be true?

32:24People still want the best guests. People still want to see how the top people are thinking in the space. What will AI improve? AI will improve guest booking, guest follow-up, editing, all these things. So we think about, are we in a business where the pace of AI and the acceleration of AI hurts us or helps us? On the venture side, it's almost all about access to these companies. Our value proposition is connecting them to these 10 trillion and AUM and guests. Are any parts of our business getting disrupted when AI improves, not if AI improves? A lot of people look at it defensively, like how do I defend against AI versus thinking about how do I build my business that is accelerated by AI?

33:05We've built a bunch of agents. I would say on the early stage side, I think some of these tools will help amplify the things that you care about. So I'll give you a couple examples. So I'm sure you use tools like Granola and Scribes and whatnot. One of the things that's been helpful is stitching together what are the patterns that we've cared about in the past and making sure, are you being more thorough in your follow-up conversations? Are you covering all the points that matter when you think about a long history of investing? The other thing it's been helpful for is getting to founders more quickly.

33:40There's a lot of tooling out there across data and AI where you can say, hey, here's a set of traits that we care about, and here's maybe some public data around writing or things that they've published that lets us increase this top of our funnel and then choose to proactively go after some founders because we feel like they might be founders that we're going to like. The parts that it's not going to replace is just the quality of your judgment, the quality of how you build trust in person. This is still a business where the founder picks the investor. It's not like buying stocks in the public markets.

34:12So there's a lot of things around efficiency, thinking about analysis and whatnot, but I don't know that it's going to replace how you pick and more importantly, how you win that deal. You mentioned you use agents to find traits of founders that you would want to talk to. And I think it's so important with AI integration gets lost in the details. How do you exactly do that? This is a work in progress, but where we've started to have some success. And a lot of it is really, again, this is specific to us where we can look at a profile or a body of work online and pull together and say, going back to writing, that's something I think a lot about.

34:50So you can even start to train a model and say, based on someone I've never met, but I've got all these artifacts around how they describe themselves on their LinkedIn profile. What have they said on a podcast? Maybe they have a blog from a couple of years ago. I can then start to piece together a picture of, I haven't even met you, but like, boy, you have really clear thinking in a way that reminds me of another founder I backed that we had a lot of success with. I don't think that is anywhere close to making a judgment on investing, but it's helping pull together. Can you reach out and find founders before anyone else?

35:25And can you also find a better hit rate from the first meeting to the second meeting? That's another thing we think about, which is not just the total number of meetings. Are we finding more of the people that we should be backing? Is your new model better than your old model? You're just trying to get better every day, like a little bit every day and just try to find edges and experiment with things as I'm sure you guys are. But a lot of it, you're not changing the core judgment, but you're saying, can we make better decisions every day? It reminds me of this parable. All clear writers are clear thinkers, but not all clear thinkers are clear writers.

35:58So if you do have clear writing, you are a clear thinker. And it's just such a great razor to get to the essence of whether someone's a clear thinker. The reason I've always clung to writing, whether it's email back and forth when we're in touch, or I love looking at, did they have a personal website at some point that they forgot about? It's kind of like breadcrumbs over someone's journey. One of the interesting things is it's not that were they an amazing writer eight years ago. It could be, wow, I saw how they wrote eight years ago and how they write today. And like, boy, they did something.

36:28You can find clues around this growth mindset. Writing matters for just clarity of thought as well. How are you going to recruit a talented person to join you? How are you going to fundraise? But it also just shows you a line around maybe they've really improved. Maybe they just became an amazing writer and thinker. through. It's another way to tell that speed of learning that you're focused on. I was just on a podcast with Jason Galacanis, and we had this debate on this panel about whether using AI in emails and communications was acceptable. How do you look at that? Is that a positive or a negative trait?

37:05That's become something where you have to really discern because I think a lot of written communication has become AI enabled. Sometimes it's done from a position of helping on grammar. Sometimes it's done entirely by AI. For the most part, today, still easy to tell, but it's increasingly going to be more difficult to tell. And I think this is where the in-person really matters. Seeing written communication is helpful. Being able to have a spar, sparring back and forth in person on a topic, I think is when you're going to get, it's going to reveal whether the person has that depth, whether they really wrote it or not.

37:37It's going to make it more challenging, but this makes that, like most things in life, it's going to elevate the role of in-person. It's going to elevate the role of going on a walk together, going to have a coffee or what have you, especially in the early stage business. So I've thought a lot philosophically, even internally, I'll draft up an email and then I'll have AI make it sound better. Because I don't want to train people's cognitive resources trying to figure out what it is that I'm writing to them. AI is really good at kind of cleaning that up. A lot of this comes back to intent. Like, why did I do that?

38:06Was I doing that to see my business partner and the other team members? as well as doing it from a place of care and wanting to. There's an intent aspect there. There's also a disclosure aspect. Oftentimes I'll say ridden with love from AI, but I think that's something that's evolving in real time in the market. That's a very nuanced point around decisiveness, and that's another trait you always want to understand. And decisiveness is not just how did you choose this vision to go on this journey for 15 years. Decisiveness could be as simple as how did you think through using AI to edit the email?

38:39Did you use it because you're trying to improve your grammar and you're communicating in a fundraising process and it was well-intentioned? Or did you just use AI slot to respond and the decisiveness behind that was fairly low quality? So that's the nuance you want to understand. It's really hard to get at that unless you just go deep with someone in person. It's really hard to do all of this online. But coming back to your question of how do you tell, well, you'll know pretty quickly in person. If you just try to go deeper around simply, what do you know about this market? Does it match up to your answers in writing?

39:13It comes through very quickly. AI and venture capital. It's another one of these memes that everyone's talking about. Oh, well, AI is changing the way that I invest, changing everything about my firm. Is AI really changing your firm? And what are some early adoptions of AI that you see a lot of return on? The biggest thing so far has been increasing the throughput and quality of founders that we can meet. And a lot of this comes down to there's a lot of tools out there that can now identify individuals, often before it's public that they're starting companies. You can use some of these tools to help say, what do we care about?

39:49Things like writing, things like clarity of thought. Top of funnel stuff. The venture business at the early stages is always a ground game. You always have to be offensive if you're doing this really well. But these tools can say, hey, are you being smart when you're offensive? Are you finding – it's not just finding people. It's finding people that have a high likelihood that you want to be in business with. That's the first part where it's had an impact. Again, it's not making the decision, but it's helping you see more. The second part is really there are aspects of doing diligence using these tools.

40:20Again, I don't think those are making decisions. They're just helping you process more companies at the same time. And so I do think a lot of smaller funds have the resourcing to process a much higher number of deals than they would have a couple of years ago. Those are the main ways today. Like, I don't think it's changing much about how you make decisions. I've heard stories of some funds with an AI investment committee member who's non-voting. And I think there's a lot of great experimentation, trying all of this stuff. We're in the business of learning. How can you invest in founders and then at the firm level not try these things?

40:54So it's been great on that front on the early stage side. I still think the earliest stages is still a very human-to-human relationship. And a lot of that comes down to these companies just take so long, they're incredibly hard to get off the ground. I'm not sure founders are going to eventually want some AI-only lead investor. Maybe I'm wrong, but I just don't think that's the case. Sometimes I question some of these AI. Some of these things are so memeable that it's like, are they real? or they just travel through the social media very quickly because it's such a sexy narrative. Perhaps overly simplified, but I think one of the trends I see across different venture firms is what could be called back office versus front office.

41:38We have the back office figure out which founders we want to talk to. And then we have the front office, the human one-to-one relationship. We have the back office go through the deck and see if it's an obvious no or go through a term sheet, see if it's obviously off market. and then we have the front office negotiating or meeting the founder. So that's one of these kind of simplified. The dynamic of back office in the sense of like accounting and some of the reporting workflows, there's definitely a lot of opportunity there. On the point you described of looking at the deck, I don't feel like you can disaggregate that.

42:13The person who is the one building the relationship with the founder, who's the one who's going to eventually have to win, they have to be close to the work though. I don't think they can entirely depend on AI producing the questions that need to be asked. I think they have to put that thought because if you're making a commitment for 10 or 15 years, you don't want to outsource that thinking. You might want that to help augment your thinking and say, hey, here's another question that you might want to consider asking the founder. But I feel like separating the salesmanship, the winning from the actual investment judgment, I wouldn't want to do that personally, but maybe some people aren't.

42:49Said another way, you're getting a lot of your benefit, not necessarily in figuring out exactly where you want to invest a funnel so that instead of having seven negatives out of every 10, maybe you have three negatives out of every 10 that would give you two and a half times. Yeah. So I think when the companies, I'm sure there are some funds when the companies are later stage and there's metrics, some funds have very specific buy boxes. They look for X percent growth. They look for Y scale of revenue. At the earliest stages, the decks are helpful, but there's typically no product. There's typically no traction.

43:26And so in that model, you would be depending on the AI to ingest everything the founder is saying, all the interactions and then making a decision. So I think, again, you can use these tools to help you, but you have to be the engine, and then you have to figure out how to put these tools around you to hopefully make better decisions. From a human resources standpoint, have you changed with 12 Below how you plan to hire out internally? One of the things that great talent, whether you're coming to the industry for the first time or you've been doing it for a couple of years or you're seasoned, I think those individuals just have a killer instinct early.

44:03It doesn't mean they have a track record, but they just develop a nose for people assuming they want to do early stage investing where you have to have this felt sense about the person and then you have to have a felt sense about the market. One of the areas where AI has been helpful is it can do a lot of the sort of tertiary work around a market size, analyzing financials. And so I still think those are valuable skills, but I think they are increasingly, in a lot of firms over 10 years ago, they would have hired younger people to process all the information. The left brain type. Yeah, to write a memo, to analyze customer calls, to look at a financial model.

44:43And I think some of that today can be automated. Again, you have to put work around it. You can't just trust it. But I don't know that anything is going to change around what matters to the founder. Can someone build trust quickly? Can they have an instinct on how to get to that founder really quickly? When it comes to the decision to invest, can they sit in front of that founder and go on a walk or meet them wherever they are and still win them? I don't think any of those traits are going to change. And I think the best firms are always looking for people who can do that. some of the other stuff that we talked about around analysis, I think, is going to matter less.

45:17Respectfully, what you're really saying is that you've completely changed your hiring practice from these analysts that are basically doing this analysis and doing these models to what I would call mini partners, somebody that you want to see a partner five to 10 years out there just earlier on in their career. That's a great point. I think what's happening is access and awareness around the people starting companies is increasingly more accessible. What is scarce is the judgment. Can you sit in a first meeting and with really good accuracy say, this is someone special. Let's go to a second. And the judgment doesn't just come from reps.

45:52I'm really obsessed with getting these thousand reps, but a person that didn't have good judgment to start even after a thousand reps would come to the wrong decision. It can be developed or you can start to see it early. You can see it in people who haven't really been practicing the craft, but they just say, yeah, something about that founder was really special. And they start to learn how to put words around it. You're actually right in the sense that going forward, I think that has always mattered. And that's kind of the reason I said nothing has really changed, because I think that kind of is the difference between excellent investors versus not.

46:25But I think for us and in general, a lot of firms, focusing more on that quality of judgment rate of learning is probably more important than do you know how to write a memo in a way that we need? Do you know how to do a financial model in the way that we would analyze it? Are you going after a different type of analyst and associate? Are they – do they have different background, different pedigree, different career path? So the firm is just myself and my partner, Taylor. We're an equal partnership model. We are going to expand the firm. But we actually take a similar view, going back to the earlier part of the conversation on founders, around it's not really bounded by levels of experience, where you went to school, what companies you worked at.

47:11It's do you just have a slope that we think can be incredible for the types of founders that we want to back? And then there's also things like cultural fit. We're a small firm. Do we love being around you? Do we feel like you're raising the bar? But I would say it's a lot of the traits that we look for in founders. There's a nuance where we fall in love with the person who really wants to be an investor. And what I mean by that, the clues that I look for is like, how have they learned about investing? Do they talk about being an investor, but then spend their free time doing other things? Or are they constantly reading letters, trying to meet people to learn from?

47:47And I think that's probably the thing that we look for. But the traits that we look for around unbelievable chip on their shoulder, something to prove to the world, second-level thinking, really important, not just as a founder, but as an investor. And the resilience component is just as important, especially in these extremely long journeys where you really don't know if a company is going to be successful for 8, 10, 15 years. And so somebody who is just very inwardly focused, is passionate about being an investor for the rest of their career, tends to have that resilience because they're convicted of their long-term path.

48:26I realized as we're talking, I also looked for the second level thinking. I don't frame it that way, but I always like to ask why and just keep on asking why and see if people really at a basic level understand what they're talking about. One of the other things, I don't want to say test, but I'll try to probe on, especially in markets where I don't know anything about it, but a founder clearly knows a lot, is to almost try to push on their points and take the opposite view. And the point isn't actually to challenge them. The point is to see how they approach being challenged. Going back to second level thinking, the people who have thought about the problem in the market every way possible, their approach is not defensive.

49:06They actually are like, oh, great question. I've thought about that angle and I've talked to these 17 people. And here's why I think that's actually the wrong point of view. So I think you just learn going back to how deep are they. And I think that's just such an important part of being a founder. Putting my master's psychology hat on. Sometimes people get triggered because they don't have a strong point of view. So it's actually threatening to them. Feel exposed. First principle. Instead of accepting it, they project their anger onto you. One of the other things I'll try in a first meeting is, I mean, I don't know if you do this, but like if you're a professional, you go into things prepared in your head.

49:44But that doesn't necessarily mean you're trying to run the meeting in a structured way. And oftentimes, whether it's the first or second meeting with a founder, I'll kind of leave it open ended. I'll give an overview, a proper introduction. But then it's like, well, where do you want to take this? What do you want to accomplish with this time? Obviously, in many cases, they're fundraising and whatnot. but I think the people who are sort of maniacal, they've got a view, but it's nuance. It's subtle. It's not going to be, well, let me run you through this pitch deck and go through every single slide.

50:14It's going to be, I'm going to build some serotonin up. I'm going to get to know you pretty quickly. But in the back of my head, I've got things that I've got to accomplish in this meeting. I've got points that I've got to make, and I'm going to quickly get the conversation through those points, and I'm going to navigate it, but I've got a goal here. The other part that we look for also, though, is are they just like learning machines? I feel like a lot of founders sometimes feel like a pitch meeting is the investor sort of grilling them and them having to answer. But the thing that I actually really love and why I try to keep it open ended is I love the founder who says, hey, you mentioned something that might be relevant to my business.

50:53You talked about a company that you either was successful or failed that you worked on. I'm going to interrupt this meeting and I'm going to pull all that information out of your brain. And that's also a telltale sign of someone who's incredible. It doesn't happen that often because sometimes they either don't want to mess up or they don't even think to do it. So I love that. Hey, where do you want to take this? Yes, we'll get through the pitch. But like I almost if I just pretend like I'm just there for you, what do you get out of it? And usually what you want to see is they're just incredible learners.

51:24And they also are almost, sorry to interrupt, they're almost not shy about it. They're like, I'm in pursuit of this vision. I don't really care if you invest or not, but I'm going to make this one hour helpful, and it's going to advantage me on my journey. Alex Sermozzi recognizes all the billionaires that he met, or many of them, would be just these freaks at learning things. So the story he says is they would be seeing somebody putting in a light bulb or an engineer work and they would just be asking essentially, why did you do this? Why did you like, why not this way? They're just intrinsically curious people, whether it's a light bulb or a business or a market, it's almost compulsive.

52:03They have to learn more. Yeah. And I think that's one of these things where you never want to lead the witness because I think a lot of founders know that rate of learning, being learning machines is attractive to people. They listen to podcasts. Yeah. They listen to podcasts. And so I think that's where if you take the approach of, let's just have a conversation. This isn't a pitch meeting. What I love to understand is like, where do they learn? Like, what are the sources? And one, sometimes you'll be really surprised. I mean, YouTube's an incredible wealth of knowledge, like the corners of YouTube.

52:35And so you'd be surprised how people find ways to learn. And I think the other thing, when you figure out how people learn, one of the things that I try to figure out is like, have they been really clever in their life? They can be really clever about learning, but have they just been clever in their life? And I feel like that's another trait that you want to look for, especially for early stage founders. One of your hottest takes is that venture capital today is obsessed on underwriting$100 billion outcomes. Why do you think that? People are considering outcome size as the input. And I think what you need to think about is what are the inputs of those companies that eventually have become$100 billion or trillion dollar our companies.

53:14And so I think this goes back to earlier in our conversation. If people are talking about the foundation models or companies like SpaceX, being a student of history is really important and really not looking at what those companies are today, but what were they like in the earliest stages and saying, what are the patterns I can learn about those companies where they were likely in many cases underappreciated or not appreciated by the market at the time. We're in a moment right now where the capital has really concentrated into a select few companies And on one hand, that is hard for some entrepreneurs.

53:46But on the other hand, that makes a lot of opportunity if you're not just focused on those companies and you're focused on the shape of those companies when they were much earlier. There's this concept called seed strapping, which is a play on bootstrapping, which is you raise a seed round and then you never have to raise again. There's a whole leaderboard tracking people that do this. What do you think about that? That was a response to disliking the need for venture capital. I think I'm sort of neutral on it because I think generally if you're going on a very big endeavor, a journey where you are going to need capital, you need to find this middle ground of marshalling capital, marshalling talent.

54:26Sometimes talent comes when there's more capital. There are definitely businesses where they shouldn't raise venture capital. And I think if you are in a market where you either don't want to be on a company that needs to be fast growing or you're in an end market that's at a size where you shouldn't raise venture capital, I actually think that's amazing, which is don't raise a lot of capital, own a lot of your business and just be in control of your own destiny. But I think if you are trying to build something great, I think it's important to think about how capital is going to help accelerate that because many of the best markets are not in a vacuum.

54:59You can be early to it, but it's likely there's going to be other competitors. And so if you really want to win, you have to ask yourself, am I going to be able to get away with that as a seed-strap company if my next biggest competitor raises$100 million? How am I going to feel? So another way, if it's a winner-take-all market and you're not number one, you're going to lose. Ultimately, a lot of it comes down to your drive and what you want to build and the end market size. The end market size, by the way, may do that decision for you if capital isn't there. It feels like seed strapping is also almost a fun thought experiment, but shouldn't be taken literally, should be taken as a philosophy to consider in certain circumstance.

55:37Going back to decisiveness, seed strapping implies you took a bit of capital, but then made the decision to say, I'm kind of getting off the venture capital train. And so then where I would go is like, well, before you even started the company, why did you raise that capital? Assuming that capital was initially on that train. It feels like maybe there's a change of heart, which is totally fine. But that would be something I would want to probe. It's like, well, if you want to go on this journey, like, why would you bother with high cost capital? It's going to be expensive. People have high expectations.

56:07I think the other nuance is some markets change. People realize maybe the companies won't grow as fast as you can, and it might just be the right outcome for the company. Doubling and tripling down when you know it's not going to work. You study a lot about these cognitive biases of different investors. What are some cognitive biases that you have that you worked on? It's having experience in markets that either didn't work or business models is a common one. I really just having that beginner mindset, both on founders, but also company business model and market is really important. It's sort of a business where you can only lose one times your money, but missing out on a company that can be an incredible return is really painful.

56:52So I think being willing to say, maybe we have scar tissue from the past and you have to simultaneously say this time is different. So I think there's some blending, but you have to be cognizant of that. The other thing is also, if you feel like you had a bad experience with a certain founder, that doesn't mean someone who reminds you of them is going to be that same experience. Just treating each net new founder and opportunity is completely isolated from the past because chances are it is. It's about not over pattern match. You can be mired in star tissue from the past, but if the world is totally different as it is today compared to five years ago, You may miss the best opportunities because you're so focused on it not working again as opposed to, well, what has changed in the world?

57:40How has that changed in the world opened the doors? Is there brand new oxygen that wasn't possible five years ago? If there's scar tissue from five years ago, that may not be relevant at all, and it could cost you a lot. you have the two most famous examples web van became instacart and pets.com became chewy both multi-billion dollar outcomes and for at least a decade it was it was lampooned as these are like the worst business ideas of all time it's quote-unquote everyone knows how could they do something stupid and then a decade later they're 10 billion that's a great example i think it was Michael Moritz from Sequoia, to have the fortitude to do WebVN, see that through, and then make the early investment in Instacart again, I actually don't think a lot of people would do that.

58:28I think it requires you to reinvent yourself, open up your mind, and say, are you taking the right lessons from it, as opposed to the lesson of just don't reinvest in that category again? And that makes it doubly hard when it's not your own money, because now you're not only making the decision to invest and avoid this over pattern matching, but now you're opening up yourself for criticism from your limited partners on why you're making the same mistake twice. There's definitely an aspect of, in the earliest stages of, if you make investments, do you have courage? I mean, do you have courage looking silly?

59:02Maybe your peers will laugh at you and they won't understand what you're doing. But where I come back to is that's the job. Your LPs are not giving you money just to do what the market's doing. They're giving you capital to generate something that's superior than the market. And so I think having a very specific view on how your system, your model, the way you generate alpha is different is really important. If you go back 11 years ago when you first started as a venture investor and you could give yourself one timeless piece of advice, what would that be? Just take more risk. I think when you're starting out, it's always easy to worry about the investment that won't work or you're more risk off because you're early, but risk is how you learn.

59:46And more importantly, if you fail a lot quickly, you might actually become a better investor. So I require the right people around you to accept it. Absolutely. I was really lucky to be in great environments where I was empowered early. I was empowered to take a ton of risk early. That's not the case for everyone. But I think if you're committed to being in the venture business for decades, for the rest of your career, it's one of the things where you want to get those reps you want to get the track record you want to build the lessons really early so that when you start to make even bigger decisions that are more costly you feel like you're picking really well baron this has been episode masterclass thanks so much for stopping by thank you thanks for having me it was great thanks