EP 112: Mike Maples (Founding Partner, Floodgate): What Makes Startups Win & The Future of Venture Capital

26:08And what was your premise of where that broke down on the hierarchy and had you stress tested it? What would you have said to Quibi's founders? I think that there's a bunch of things, right? But apart from just they spent too much money and did a bunch of stuff that you're not supposed to do. But like, I would say they didn't really have an inflection. And so Quibi was more like, okay, hey, mobile is hot, short form video is hot, young people consume this stuff, let's combine it. It's more like a Hollywood script meets a startup, right? But there was no specific inflection that they were harnessing.

26:47And because of that, they had nothing really new to say. It's like they crashed the party of streaming, but they're like, they had nothing new to say and they had no reason to be a welcome guest. And so they didn't have anything, people didn't understand why should I pay for another subscription when I've already got Netflix, I've already using Twitch, I've already got Hulu and Disney Plus and all this other stuff. What's this for? And it can't just be an incrementally better product. You've got to show up in a radically differentiated way to get people's attention. Because in one of the things I thought you highlighted in the book that was a very clear articulation of this is that you want to force a choice and not a comparison.

27:30And so to be TikTok and, you know, people have their own political opinions about TikTok, but as a business and products is very profound. And they leveraged both the algorithmic elements, they leveraged mobile, and they leveraged UGC, the fact that we're all now able to create in a way that we had infinitely personalized content to us versus Quibi was sort of playing yesterday's game, which is just the traditional streaming wars on mobile. That's right. And it's this idea of forcing a choice. So let's take the original Tesla Roadster. Like the original Tesla Roadster would not have survived a normal comparison with a Porsche 911.

28:13Seats aren't as comfortable. Radio is not as good. The fit and finish isn't anywhere close. And so if somebody had said, how does that compare to a 911, Elon Musk loses. But people didn't say that, right? And the reason is that the Tesla Roadster couldn't be reconciled with a Porsche 911. So like what does Elon say when he does the Tesla Roadster? Be in this different future with me or don't. But like there's no middle ground, right? And people don't – people didn't buy the original Tesla Roadster for the utility value of it versus the 911. They bought it for aesthetic reasons, right? They believed that Elon had an aesthetically different and compelling view of the future, a world of sustainable energy.

28:59And so most people bought it for those reasons rather than the typical reasons they'd buy a car. You know, I like to say that if everybody's an Apple, don't be a 10 times better Apple. Be the world's first banana. and most people might not like bananas, but all the people in the world who do are gonna say, oh my gosh, where have you been all my life? And most of the startups that have great success, it kind of have that energy at first. The analogy I've used in the past is in the world of infinite choice, it's much better to be Donald Trump in the primary process than it is to be Jeb Bush in the primary process.

29:37And you're not trying to be broadly neutral to appealing. Once upon a time, Happy Days or I Love Lucy got made. And it was about, hey, how can we get the 75 million people that have televisions to enjoy what they're watching? Now we live in this world of infinite choice. And so it's actually about being the number one for not everyone, being as narrow of a sliver as you possibly, I mean, as big of a narrow sliver as you possibly can and appealing very deeply to that. And that's one of the analogies. It's provocative in that anything with comparing to Donald Trump is sort of provocative, but you don't just want to be incrementally better or broadly appealing because otherwise you get lost to the noise of everything else.

30:23You get lost in the comparison trap and a startup can't win the comparison game because like no rational customer should want to do business with a company that's 80 % likely to go out of business. And so the customer has to be desperate for the empowerment that's offered by the startup. And for them to be desperate, it can't be reconcilable with any other choices they have. Because if the customer has a valid way to solve their problem that the startup's solving, why would they do business with a startup, right? So that the startup has to offer a solution that's so radically different, that so can't be reconciled with anything that's come before that the customer says, well, it's the only possible route I have to solving this.

31:08It's either work with a startup or don't solve the problem. And so if they, because if they have the ability to fall back to the incumbent choice, they will. And ideally you're picking a lighthouse customer that's going to set the pace of where the future's headed. And so this is a tip of the spear into the market where you have very deep product market fit with a small subset, but that's a very fast growing subset over time. That's right. So like when I was selling to Industrial Light and Magic, the SGI computers could render and re-render radically faster than anything else in the market. Like if IBM had said, oh, well, we're going to ship a new version of AIX and it's going to have faster graphics on the motherboard nine months from now, Lucasfilm would have been like, well, the movie's got to be released nine months from now, right?

31:53Like I need this today. and you know i can't render these dinosaurs with eight layers of skin unless i use exactly this machine and only this machine and so that's what you you don't want to be the best you want to be the only and you want to be seen as by the customer as the only possible way they have to solve it because you're going to make mistakes like when you're a startup you don't have any people you don't have any money you don't have a lot of execution capabilities so you're gonna make a lot of mistakes. A lot of things are being screwed up. And your value proposition has to be so radically different that the customer will tolerate all those mistakes.

32:31Yeah. And that's where the Lyft and Uber versus a taxi, no one was confusing those things in our portfolio. I guess, as you talk, I think about DraftKings and no one was confusing DraftKings with Caesar's Palace, you know, or the sports book that existed there. Right. Exactly. Obviously it went from Daily fantasy. But as that market opened up, they were on the slope of the line. I think that's a, it's a, it's a profound thing where oftentimes a lot of our best investments, I'd be curious if you agree with this, the markets are actually super small initially, but they're growing really quickly to some inevitable future state.

33:08That's going to be much more mainstream than it was before, because if it was actually a big market today, someone else would address it. That's right. If it's a big market today, then it's defined by the rules of today. Right. So like I like to say, there's a difference between the TAM, the total available or accessible market, and the TFM, the total future market. And most of the great products I've been involved with defined the markets. And so they they created entire new categories and became the category king. And so what they started with was not a high TAM. They started with a powerful inflection that resulted in a future high TAM.

33:44And it's the power of the inflections and the empowerment that they provide that create the conditions for the large future category. One of the things you talked about in the book, General Magic, which is long lost history, I think. There's a great documentary on General Magic. Oh, yeah, it's awesome. Yeah, people should go watch it. It's fantastic. Maybe for people that don't know what was General Magic and then as that relates to the iPhone or the circumstances around why General Magic wasn't able to succeed to the extent and the potential it had. I thought that was a particularly interesting one.

34:19So like General Magic had a lot of people at that company who were my heroes, right? A lot of them came from Apple's hardware team. I think Andy Hertzfeld was there. They had Tony Fidel before he got famous. He was about to do some cool things with the iPod and eventually with Nest. Susan Kerr, who did the original icons for the Apple Macintosh, was there. So the people they had, the talent they had assembles was just wild. And all of their ideas about the future were right. What year is this, Circa? This would have been early 90s. This would have been like 92 to 95-ish timeframe. And so they had this vision that someday you're gonna have mobile devices that can, you know, surf networks and allow you to buy things online.

35:05And this is before the internet took off. And so like they had like these virtual, you know, corner stores and stuff like that. And you'd go shopping and you could buy things and you could browse for stuff because I think, I think Atkinson may have been there too, the guy that invented HyperCard. So they had, you know, they had all these hyperlinked different types of experiences. They did a big network agreement with AT &T. In fact, I think AT &T owned a significant amount of the company. And so if you look back on all the things they were saying were going to happen in the future, they were right.

35:39It's just that the technologies weren't good enough to enable the future of their design. You know, the inflections hadn't occurred that would allow these devices to be powerful enough to empower people. Emmett Shear from Twitch will say, like, you can either be too early or too late. And you're never started on the exact right day. And so your job, if you're too early, is to survive until the point at which. That's right. And that's probably true of General Matt. Had they been able to survive, which is obviously impossible, you know, for it probably would have taken another eight to 10 years for them to actually get to where they're going.

36:18But your job is to hunker down and be a cockroach until that inevitability comes. Yeah, like in today's world, a good example of that would be 3D printing. So like I sit there and I say, OK, someday trillions of parts will be 3D printed, probably because trillions of parts are right now used tool and die. but is that going to happen 10 years from now, five years from now, 30 years from now? Not sure. Yeah. And so I think you're exactly right. In those situations, you have to be alive when the market develops, when the inflection occurs. And so if you get your burn up too high before that happens, you can end up being out of business.

36:58And then the person that comes later gets it. I think you share the opinion that I do that no idea is really new. And it's sort of like some combination of why you and why now to some extent, I guess. How do you think about that? How does that inform your investing? I think that's right. So like my partner, Ann and I, we like to say that you should assume that there's a pretty efficient market for startup ideas. And so probably just about any startup idea you can conceive of, somebody's thought of it before. But we also like to say all of it will happen. And so the question is just when is the time for it to happen?

37:37And inflections help us increase the odds of being right that this is the right time because it gives us a specific example of a specific form of empowerment for specific people in specific ways. And so now we can all of a sudden time box the ability of that change event to create the new kinds of empowerment. Now, as you've reflected on these pivots, and 85%, you said of your - Yeah, I think 80 to 85%. Between, so Twitch, Twitter, Lyft. Yeah. Yeah, Chegg. Chegg, yeah. A number of these have evolved over time. I guess I know that was sort of the foundational premise of wanting to write the book.

38:22But as you as you now think about how that informs your investing, do you spend less time on the actual idea itself and focus on the inflection and the insight? I do. And this this is where like the way you invest in the way I invest might be a little different. Right. So when I invest, there is very little data about the customer demand for the product. And so what I realized is that, okay, if 85 % of my exit profits come from pivots, okay, if I pick right, there's an 85 % chance it's going to change. So I'm like, okay, how do I think about that? What am I investing in? And what I realized was that in a startup, the first product is a reference implementation of the insight.

39:09And so when you have a valid insight about the future, you're in the future before other people. you have a first mover advantage into the future and you're showing your product implementation to people in that future. And they're either going to love it right away, in which case you get product market fit or more likely is the case there. You're talking to the wrong people or your implementation is off. And so what you realize is that if your insight is correct, the art and science of product market fit is modifying your implementation or modifying your audience until you get perfect alignment.

39:47And so what you're betting on when you bet on a startup is, A, do I believe this insight and the authenticity of it to the future? And B, do I believe in this founder's ability to juke and jive and navigate the product to the right alchemy of the right desperate customers? but then also are they going to have the persuasive skills to convince people to move with them to that future and convince them to deal with the fact that the product's going to have lots of warts and bugs and be screwed up in a lot of ways. And so that's what you're really betting on. And so when you look at it that way, you start to say, at least in seed, I need to not be too attached to whether this product for what it is, is going to succeed or not.

40:32I need to, really understand the, cause like, you know, Zoom, it started out as a consumer, every man's product called SASB, but Eric Yuan had been at Cisco for what, like 10 years working on video conferencing software. So like if you, the signal of him as a future founder was very strong for conferencing, but if you'd focused on what his first product was, you, you wouldn't have seen the opportunity, you wouldn't have seen what the real investment opportunity was. And so as you distill down then and you go through these different frameworks or considerations of investing today and you're looking at this, do you have predefined inflections that you're currently looking for, kind of a prepared mind around it?

41:20Or do you wait for founders to come in and tell you both the inflection and the insight and then you react to whether or not it's true? Some of both. So there will be, from time to time, we'll see an inflection and we'll say, that's really interesting. So for example, everybody knows LLMs are pretty interesting. But for me, the question becomes, okay, how can you connect that inflection of LLMs to an insight that is truly non-consensus and right, and that isn't going to get leapfrogged and copied right away. So that's a harder question. The other interesting question to me about LLMs is what are the unanticipated types of empowerment they can provide?

42:06So like, how might LLMs provide more fun for consumers? How might they provide more social connections? How might they provide better gaming experiences, whatever the case may be? It's not my job as the investor to know the answer to that, but it helps me pose questions, right? So I'll be having a dinner with a bunch of smart consumer people and I'll just start asking, okay, this feels like an inflection. Do you guys agree? You know, in what ways might this inflection empower people? Who does it empower? How many people is that? How, how powerful is it? So I find that useful and I find it as a useful sanity check.

42:44And so when I'm, I need to do two things as a seed investor. I need to protect ideas that sound dumb, that are good. So I passed on air, bed and breakfast back in the day and would have made over a thousand times my money. Right. But, you know, at the time I saw it, it was a WordPress site. And at the time I saw it, they didn't have Facebook connect yet. And they didn't have, you know, the hosts and the guests stayed at the same time. And the host gave pop tarts to the guests the next morning and had an air mattress and all this stuff. So, you know, you have to protect the ideas that sound bad that are actually good or could lead to something good.

43:21But you also want to eliminate the ideas that sound plausibly good that aren't good. And that's the most dangerous. Those are the worst. Yeah. And why is that the worst? So like this is what happens so often. And and by the way, I'm not trying to dog on MBAs, but like I'll interact a lot of times with business schools and they'll have some type of a class or program about doing a startup. And lots of people want to do startups. Right. So what do they usually do? They say, go find a big market, assess that market, find gaps in the market, find white space and build a product for an underserved customer in an underserved market.

44:00And so what will happen is that we'll end up with a plausibly good sounding mundane idea that has a limited upside. So the reason that good sounding ideas are so dangerous is everyone you talk to will say, I could see that. So like Sarah Leary and Nirav Tolia, who are great founders, before they did Nextdoor, they had a startup called Fanbase, social network for sports fans. And so they would talk to people, hey, I got this idea, social network for sports fans. People say, I think that's a great idea. You know, social networking, hot, sports fans, lots of them. You know, that sounds like a good idea.

44:42The problem is there was nobody desperate for a social network for sports fans. And since there were no desperate customers for that empowering set of capabilities, it was a zero billion dollar market. Right. And so that was the problem they ran into. This is the biggest problem most founders I meet face is they pursue an idea that sounds good on the surface, but that is not a valid use of their talent and time. And that was another reason that I worked on this book was I wanted to help founders avoid the avoidable trap of pursuing an idea with bounded upside. And so then is the inflection, and you had in here like the inflection stress test, is that the best means of assessing whether or not something's worth their time?

45:34Or how do you think about it? That's the way I looked at it. I looked at it like, you know, before you take off in a plane, you do this pre-flight check, right? You check a bunch of knobs and levers and, you know, levels of different gas and fuel mixture and all this stuff. Do I have enough gas to do the flight? And the reason you do that, it's kind of like a sanity check, right? Before you take off, you want to make sure that all the conditions are met for you to have a safe flight. And so what I say to founders is I'm not in a position to judge whether you have a good idea or not, but I can ask you a set of questions that you can you decide if you think it's a good idea.

46:10If your idea doesn't embody any inflections at all, it still may end up being a good idea. You might find an inflection later. You know, Twitter found an inflection later in the iPhone, which massively improved their ability to take advantage of people tweeting. I mean, they had inflections before that. So you might stumble into one later, but you don't get to do that many startups in your career. And so you might as well pick opportunities that you think are the most worthy use of your time. And then the other thing I like to say to founders is you only have to be right once if you're doing it right, right?

46:46So if you're pursuing big ideas with Unbounded Upside, you only have to be right once in your career. And so the Twitter example, we talked about the JustinTV one, but the ODO to Twitter example, how, one, how did you make that decision to roll forward the capital or to reinvest? Was it a roll forward or a reinvestment? Well, it ended up being a new investment. So Ev gave me my money back. Got it. Yeah. So it was – Was it dollar for dollar, money back, and then money over? Yeah, so, and I would like to say that I was present in any way here, but, like, I was excited about podcasting. I invested in Odeo.

47:25Two weeks after our check clears, Apple decides to get podcasting away on iTunes. And at the time, there wasn't an iPhone, and so, like, 90 % of all the MP3 playback devices were iPods. So, like, there's no way you're going to make money as a legitimate podcasting company, you know, when all the playback devices are owned by them and they give it away on their platform. So, Ev, to his credit, tried really hard to figure out what to do. And after about a year and a half, he said, you know, I just don't think we have business here. And I won't highlight any specific individuals, but there were individual investors who were pretty disenchanted with Ev and with Odeo.

48:10And so he decided it was easiest to just give everybody all their money back because Ev had made money by selling Blogger to Google. So he could afford to just give back the entire Series A. So that's what he did. And so I was like, look, Ev, you don't owe me anything. I'm perfectly happy to just take the L here, right? You win some, you lose some. He goes, it'll just be easier for me if you just sign these documents and take your money and everybody takes their money. Well, he got to have all the intellectual property and they had this side hustle that was working in the background called TWTTR.

48:43And he even told me about it at the time. He's like, we're working on this thing on the side. We're going to either call it TWTTR or voicemail 2.0. And, you know, I'm like, OK, well, what does it do? And he says, you say what you're doing. And I'm like, OK, yeah, then what does it do? And he's like, that's it. Then 140 characters or less, that's all it does. And I'm like, what's the roadmap? There is no roadmap. What's the revenue model? There is no revenue model. And he's like, I don't, I don't even know if it's a product. And so, and then it blows up at South by. And I figured that I was probably going to get aced out of the deal.

49:19All of a sudden, it became this hot deal at Silicon Valley. And Ev came back to me to his credit and said, hey, did you mean it when you said you wanted to invest in Twitter? And I said, heck yeah. And he said, okay, now's the time. So he showed a great deal of, you know, honorable behavior there, you know. And it was funny because at the time, I told him I wanted to invest in his next thing no matter what it was after he gave me my money back. And then when he described Twitter to me, I was thinking, okay, now I've lost it for sure. Yeah, yeah, yeah. One thing to be wrong once, another to be wrong twice.

49:55Yeah. By the way, just to replay the history, and it's been a while since I've read Hatching Twitter or whatever was the case. So they went to South By. It blew up at South By. Then they came back. And what was that initial round that was pulled together? I think that the initial round was led by Fred Wilson at Union Square. So I think it was something on the 6.5 million at 20 pre or something like that. Really expensive for those days. In those days, it was. I mean, a lot of people decided not to do it because they thought it was too expensive. Some of the angels. Yeah. That's a wild trip down memory lane.

50:29What did you see in Ev? Because he had lost your, or I guess you got your money back, but it was a zero from an investment standpoint or a 1x from an investment standpoint. And it sounds like they toiled away at the idea and it was just kind of the wrong idea. Like what were the, was it, was it the blogger success that had given you some confidence? Hey, this person probably can figure something out or what was your confidence in him? Well, and it's one of the secrets. I like to say the secret to getting on the Midas list or having success in venture is to be lucky in your first five years. And, you know, you think about the two first entrepreneurs I backed were Evan Williams and Kevin Rose.

51:07And I mean, that's pretty dang lucky, right? Like I just, I just show up out of nowhere from Austin, Texas and Silicon Valley. And I remember meeting Ev at South Park. And he's describing Odeo to me. And I was already doing, I was playing around with podcasting. I had an aux input in my car. And I was playing podcasts and I was using the iPod or it was an open source thing. and so I already knew about podcasting and was excited about it thought was going to be a big deal uh and then when Ev described it to me he was doing one and then this guy uh Adam Curry who was doing one called Podshow and I just thought Ev was a more authentic match to this idea than I thought you know now it's funny because most people thought Adam Curry was going to be it was kind of a media idea all this stuff but I thought Ev was Ev just has kind of this um je ne sais quoi about expression, you know, and he just, he just knows how to make a product sort of look tastefully good for self-expression.

52:10I mean, we'll see what happens with medium, right? But even medium is a well-crafted product, right? And Odeo was certainly that way. Twitter turned out that way. But yeah, it was a bet on Ev and his ability to make it work. Yeah, that's fascinating. So on the first choice, not a comparison, I mean, I think it's true of not just technology companies. It's probably true of almost any decision you make in some ways that you want to. And I think about venture firms as well. I'm sure you do with Floodgate. In the early days, you were one of the original seed firms pioneering that industry. And so you were not fighting the fight of a comparison versus Sequoia or Benchmark or whoever it was.

53:02You were, hey, we do this one specific thing pretty well. Is that? Yeah. So in the early days, it was you can't raise a million dollars in Silicon Valley. And so myself and another guy, Josh Koppelman, had this opinion that$500 ,000 is the new$5 million. And that was around the time that lean startups were starting to happen and all this stuff. And so we just kind of caught the zeitgeist of this lean startup movement. And so there was a change event at the exact same time that there was a lack of funding for that type of company that was being built. so nobody ever said to me or josh well how does your five hundred thousand dollar check compare to red points five million dollar check or axel or whatever i mean none of those firms had any desire to compete with us and i had no reason to say anything negative about those folks and so i was like well you know if you want to raise about a million bucks we're your guys and chances are we didn't have enough money to do the whole round and so i'd call josh or he called me and so we didn't even think of ourselves as competitors.

54:02It was like, how are we going to scare up enough money to do this? And so it went from that world to now there's over like 2000 seed funds and there's accelerators and there's angels. And there's, if you type in angel investor in LinkedIn, there's more angels than there are founders. And so the world just utterly changed in terms of seed funding. How much of the seed funding element was that insight that you had and there was a unique opportunity to force a choice and not a comparison versus circumstances of like, hey, this is what I can go do. I could get, I don't know, how big was your first fund?

54:40My first fund was$15 million. $15 million. So with that, you probably couldn't have gone and led$5 million rounds either. And so how much was circumstance versus just like the unique passion around? It was, I was living in the future almost by accident. So I was running into all these founders, I'd go to the Web2.0 conference and people forget, right, that there had been this dot-com crash. And so consumer internet wasn't really in favor, right? Like Google had had a huge IPO, but it's funny to think back, like back in those days, people thought that there's only about two or three people who should even be allowed to invest in consumer internet, right?

55:20Right. John Doerr, Mike Moritz, Ram Sriram is an angel, Bob Cagle from Benchmark. That's about it. Right. Like there weren't consumer Internet investors. And so there was kind of this bubbling up of stuff happening. You had like the PayPal mafia doing some interesting things, but all of them were trying to raise like just a million bucks. So if you went to the Web 2.0 conference, you would have seen Stuart Butterfield. You would have seen Evan Williams. You would have seen all of these people, but they were doing these little web 2.0 startups and they weren't really sure that they were going to be big companies.

55:58And so I was just seeing all these founders where the amount they wanted to raise was like a million dollars and there was no place for them to go. And so like Kevin Rose, right, he had started Dig for$1 ,500 over a weekend. And so I was like, I would say to him, you know, why, why don't you, what are you going to spend your money on marketing or whatever? And he'd say, oh God, no. He's like, I don't want to spend money on marketing. My servers are crashing all the time. I need to buy more servers. And so I remember saying, okay, my checkbook is in my car. I'll be right back. And, you know, it was just, I just saw project after project where those were the, the characteristics of what was happening.

56:40What is the through line of these founders that are all very different? You mentioned some of the characteristics around storytelling and what's the term? Not difficult. Yeah, disagreeable. Disagreeable. Like these different types of founders, the ones that you found to be most successful and the ones you've enjoyed working with over the years, like what are their traits that they share? Yeah, most of them are willing to do things that would seem to be kind of unthinkable. And so, for example, Justin Kahn, when I met him, I thought this is a pretty wacky startup. I went home that night to study it, and I discovered that he and Emmett Shearard started a calendar company called Kiko, and Google decides to come out with Google Calendar.

57:25So it's kind of like Apple doing podcasting, right? They're clearly they're out of business. And so they decide to sell the company on eBay. And I was like, I didn't even know, like I'd never heard of anybody selling their company on eBay before. But they had sold it for like a quarter of a million bucks, and here they are 18 months out of college. And so I just remember thinking, who does that? And I didn't have any theories at the time to think about investing. It's just instinctively I thought that feels like a good sign for a founder. Brian Chesky had started Airbnb, funded it by selling cereal boxes, right?

58:00Obama owes and Captain McCain crunch. and you know the Lyft guys they launched a service that they knew was illegal in San Francisco and so it was like they were just and they put these big fuzzy pink mustaches on these cars and it's just like who does that and so time and again I've seen founders willing to do things that just you know there's they don't teach you that anywhere but they somehow they manage to do something that deviates from norms, but in a good way. Is that... a trait that you now look for in some way when talking to an entrepreneur? Like, how do you tease that out of people?

58:41Yeah. And so the reason we want that is we want people who are able to think outside of the box and the existing patterns, right? And so that's a good sign that they can. And so what we want is people who are willing to zig when the rest of the world is willing to zag. Because most of us get rewarded in life, in school, for having answers that the teacher wants to hear, for doing things that allow us to progress in the current status dominance hierarchy, right? And the great founders are able to think their own independent thoughts and act their own independent ways. And, you know, that's going to be important if they're going to create a radically different future.

59:23As you think about the ability to bring people to where the future is headed and establish that movement, the storytelling element of it, storytelling is part of, I think, every job when you get senior enough in an organization. How do you think about storytelling and the traits of a good storyteller? And if a founder or a company has a mission or stands for something that can be a good story to get behind? Yeah, the person who taught me the most about storytelling is Nancy Duarte, who helped Al Gore with An Inconvenient Truth. And she's done some work with Benioff at Salesforce. force. So that combined with watching Brian Chesky later after I foolishly passed, he started to do these narrative storyboards, right, for Airbnb.

1:00:20And so what I come to realize is that storytelling even happened before the written word. And so you needed to have a way to persuade groups of people. and it relates a little bit to Sapiens by Yuval Harari, right? So you need to find a way to get people to move from where they are to a different place. And storytelling done well taps into your emotions. You know, it can cause involuntary reaction, your heart race, your eyes to blink faster, all these things. And so what you realize is that the entrepreneur has to be a storyteller because they need to But they need to convince all of the early believers that their lives will be transformed by working with the startup.

1:01:06And so, like I like to say that a startup founder is like Obi-Wan and the early customer employee or venture capitalist is like Luke. And you have to say, OK, you're living this boring life on dusty Tatooine. You don't want to be here anymore. You want to be a pilot. You want to use the force. You want to go beat the empire. You want to rescue the princess. but usually the hero resists the call at first. They say, no, I got to work for my Aunt Bru and Uncle Owen for the summer. And so then he comes back and the farm is all burned up and he says, okay, forget about it. Let's go. So Obi-Wan takes them.

1:01:40They find co-conspirators. They defeat the bad guys. They rescue the princess. They merge transformed. And so what a, what an entrepreneur does is the world that is, is the world of the present. And they need to create a sense of grievance with the present. And then they need to present the world that could be, and they need to present the world that could be in such a way that the initial set of people ready to believe are compelled to accept their call to adventure. And so like, like, um, what I've learned is that even, even insights and products play into this. So the, the hero has to have a reason to believe that he can credibly succeed.

1:02:18And so Obi-Wan, right, goes to Luke and says, okay, there's this thing called the force. Well, that's the insight, right? And he has this thing called a lightsaber. Well, that's the product. And so now Luke's like, you know, with this new kind of magical thing and this new magical tool, I have a credible chance of defeating the bad guys. I couldn't have done it before, but now I believe I can. So like, if you go back to a startup, Lyft, the insight was you could share rides using an app and a mobile phone. And then the product was at, the riders were the initial heroes. The world that is, is parking sucks in San Francisco, taxis never come.

1:02:57You can't use your credit card. You can't get places on time. The world that could be is you just have this cool app. You just zap yourself there. You don't need to bring a car to San Francisco. You don't need to park in San Francisco. This was where the genius of the mustache came in. So they understood that people might resist the call, right? They might say, hey, it's scary to get in a stranger's car. That's kind of crazy. But now when you see a bunch of cars driving around in San Francisco with these pink mustaches, people say, what's going on with that? There's like, oh, have you heard about this new thing?

1:03:28And so we need as founders to honor the fact that customers, early customers are likely to resist the call. And we need to give those people a reason to, if they're on the fence, to give us a chance. Yeah, I think it was in your book, you articulated like appealing to a higher purpose and attacking the status quo. And Tesla, I think, is a great example of that, or Salesforce and the no software way back when is a great example of like building that narrative. Maybe the Tesla, like their slogans of what you see in the car, maybe use that as an example as well. So pattern breaking product has to go to market differently.

1:04:07So like most people, when they think of go to market, they say, I've got a sales funnel, I've got customers, I've got a marketing mix, and I just need to optimize my marketing spend across various channels and bring people into the funnel and convert them. That's not how pattern-breaking products take hold. They take hold by creating a movement that harnesses the grievance of a minority against the tyranny of the majority, the status quo. So like movements, most of us think of them in terms of social, you know, Martin Luther King and civil rights. So movement creates this stark dichotomy between the world that is and the world that could be.

1:04:44and they, you know, when you're Martin Luther King, you can't be half in on not being racist, right? Like you're sort of, you either believe people should be judged by their character and not the color of their skin, or you don't. There's not a middle ground. You know, it's like, occupy this future with me or don't. And so what you do then is you find the people who are ready to move with you and you create that tension between the world that is and the tyranny that that world represents and the world that could be and the way that you would self-actualize if that world came about. And you focus on the people who are ready to move with you at first.

1:05:24And then over time, what was once heresy accumulates and accelerates and becomes the conventional wisdom. I think one of the elements that until I've gotten involved and worked with more startups or lived this ecosystem for a longer period of time, I didn't fully appreciate is the amount of attack that founders can go on and just well or poorly intentioned PR or misreporting of stuff and all that. I know you've lived that with different ones of your businesses as well. I'm curious how you think about, is that just an inevitable state of trying to get people to the future? And so founders need to be psychologically ready for all the takedown hit pieces that are going to come their way?

1:06:12I think so. Yeah. So I think the irony of being a founder is at first, it's frustrating because nobody believes your idea is right or not enough people do. So most people think you're stupid or wrong or it doesn't matter. And so that's frustrating because like you're not getting, nobody believes what you believe or not enough people, but then it flips in the other direction. Then, then you succeed and everybody's like, well, who said you deserve to have all this power? And who said, you know, the status quo has the word status embedded in it, right? And so there are a lot of people in the status quo who want to see the status quo persist, in fact, possibly most people.

1:06:51And so they're going to, the president's going to fight back, it's not going to fight back fair. You know, the taxi lobby wasn't interested in negotiating with Lyft, right? There's no way to reconcile what you're doing with the taxi medallion system, Right. Like one's going to win and one's going to lose. So there's no middle ground. And they're not going to just say, ah, easy come, easy go. You know, we don't want we don't want our business anymore. Do you think founders appreciate going in and starting a company that that this is something that they're going to first time founders that they're going to have to wage war on if they're successful?

1:07:24Or do you think this sneaks up on a lot of founders? I think it varies. I think it sneaks up, though. And I think this is another aspect of disagreeableness. So just like being non-consensus is a little bit different from being contrarian for its own sake, I think a lot of these founders, because they're not so focused on status by conventional means, it's almost like they just don't even notice that people are upset with them the way normal people would. And so it doesn't occur to them as much that they're going to piss people off. They just kind of do the thing they're doing because they're interested in what they're working on.

1:08:00And so the company becomes a vehicle to actualize the thing they're obsessed with. But a lot of times they're just confused at the hostility, right? They're just like, hey, I'm just doing the thing to make my thing real. I don't see what the fuss is all about. Yeah, it's fascinating. As you've reflected on examples like Airbnb or air bed and breakfast at the time, I certainly think part of this book is making sure that you've refined your mental model for thinking about those types of things. But as you see those situations present themselves today, what would you have done differently in that moment with Airbnb when he came in and barely had a website that was up and running and it was, you know, kind of funded through cereal box campaigns and all that?

1:08:53Do you think that you would have made a different decision? I assume you hope you would have made a different decision today. But what are the reflections that you sort of think about in that example? I think that the fact that he was funding it with cereal boxes and just – you know, Brian Chesky, even then, you could tell he had a certain X factor to him. I mean, right after our meeting, I introduced him to Reid Hoffman, and I was like, this is somebody you should know. I don't know about this thing, but he's going to do something interesting. And so you just knew that he had that extra gear for sure.

1:09:26Just like the first time I met Justin Kahn, like he's just a very memorable, compelling persona. Right. And you're just like, this is the type of person who's going to attract luck in the universe. And so I should have I should have leaned into that more. And what is that? I mean, I realize those are distinct, but what is the reflection that you or the feeling you get when you meet someone like that? Is it just, you know it when you see it or is it, is it, does it, does it make you uncomfortable in some way or does it? Usually. Yeah. Special and consumer. Yeah. Yeah. And what, like, what are the characteristics of, I mean, Justin was doing something weird.

1:10:06I assume Brian, was Brian super intense or what, what is, I don't know Brian well enough to notice. Brian was just, it's hard to describe. He had a charisma to him. And a lot of these great founders, I find, they have a certain type of charisma and it can vary. Like Evan Williams had charisma, especially when you got him talking about his products. And Brian had a charisma in how he would describe how he evolved the idea and how he would talk to customers and how he was figuring this stuff out. And just, you know, the fact that he was selling cereal boxes. Right. He just he was just interesting.

1:10:46Right. He was the type of, you know, you know how many meetings we take. Right. And, you know, a lot of them you don't remember that well. but he was one you were going to remember. And, you know, so I'd say that that's true. But then the other thing I would say is that they just, they have this authenticity to the future that they're trying to pursue. You know, you look at them sometimes and you say, man, I can't imagine them doing any startup but this idea. That's the part where it would have still been hard to spot Airbnb because it still changed a lot. And, you know, the inflections were there, but they weren't as powerfully obvious as in some cases.

1:11:26Have there been CEOs that you've just sort of, maybe you haven't seen that inflection or the insight necessarily that you've just felt like this person was going to win in some way, shape or form? Or do you really always go back to the inflection and the insight, and then the person's going to be more of a derivative of that? The most recent person I felt that about in a very palpable way where it's played out that way would be Kasser Yunus at Applied Intuition. Like I remember meeting him. And part of what led to this book was I was like, okay, I tell founders force a choice and not a comparison, and now I'm one of 2 ,000 seed funds.

1:12:10Sure. And so I'm basically a hypocrite now. And so how do you, how do you stand out as a seed fund? I thought, okay, one way you can is you can help the founder evaluate their ideas. You could help the founder stress test their ideas, and then they start to know you before there's a company to present. And so in the case of Kasser, we'd spent 14 months together riffing on ideas back and forth before he decided to start applied intuition. What was Kasser doing at the time? So at the time he was at Y Combinators, the COO at YC, and he was thinking about starting a startup. But he said, there's a certain set of things that have to be true of any startup idea that I'm going to pursue.

1:12:50And he was going through a bunch of different ideas and eventually converged on this idea of the AV simulation software for cars and then broadened from there. But I felt like he was going to be great. You know, I and it's funny because we got to a point where he had the idea and I invited him to just talk to some other folks at Floodgate and he didn't have slides or anything. He just came in with Peter and they described what they were doing. Then Iris, who tends to be our most skeptical partner, as soon as he left, she's like, what the hell are you doing? This guy, as soon as he pitches people, everybody's going to want to fund this because this is amazing.

1:13:33This guy's a stud. Like, we have to find a way to get into this project. And so that was one where I felt very strong convictions about it. So you've been, I guess, in this industry now for, I guess, seed investing officially 19 years? Yeah, it's pretty crazy. And were you doing angel or anything before that? No, I'd never made an angel investment in my life before I moved to California. Wow. And so you moved to California in, oh. Yes, I moved to California in January of 2005. January 2005. five. And was it with the intent of raising a seed fund or was that a happenstance afterwards? Yeah, it's funny.

1:14:13I knew I wanted to come back to California from Austin and I was hoping to get a job at a venture firm. I didn't know anything about venture capital. I couldn't spell LP. I mean, I knew literally nothing. I'd never made an angel investment. What had you been doing right before that? I'd started a company called Motive. So we had just gone public and, but I was pretty crispy. You know, we'd started the thing in 97, gone through the run up. We were going to go public in early 2000. Chuck Phillips of Morgan Stanley was our banker. And we were going to, you know, you make the mistake of adding up your shares and the value per share and how much money you're going to make.

1:14:51And you just, in your mind, you're going to be worth that much someday. And then everything melted down. And the longest IPO window had ever been closed, like nine months, four years later, we went public. And so I was kind of tired and I thought about starting another startup, but I didn't feel like I was, I didn't feel like I had the juice of the fire to do it because you got to will that thing into existence. And so I thought I would look at venture. And so I spent some time in California and I was like, oh, man, I've got to come back to California. I'm sitting on the sidelines. Web 2.0 is happening.

1:15:26It's time to get the party started again on the Internet. And I just I just knew I had to do that. And so did you actually go? You hung out at some venture firms for a while, right? So I hung out at Foundation Capital for nine months and then August Capital for nine months. And just sitting in partner meetings. Yeah, just doing whatever. Right. And just trying to learn the venture business. And it was in the course of doing that, that I started to see this whole 500 ,000 is the new 5 million. And so it was, you know, but I thought, okay, maybe I don't know what I'm doing here. I should make a few angel investments.

1:16:01I should see if this works. And so, you know, and at the time I was still living in Austin. And so I was flying out every Sunday night and staying till every Thursday. And the goal was to find something exciting in Silicon Valley. And so then this idea, this gap between angels and VCs emerged. And, you know, in many ways, without knowing it, I was embodying some of the behaviors I encourage others. You know, I was living in the future and I was noticing what was missing and paying very strict attention to the things that were being overlooked by most. Do you think about joining one of those or a different venture firm full time or how close was the consideration?

1:16:42I thought about it. You know, if if if Kleiner Perkins or Sequoia had made me an offer at the time, I would have surely done it. And I give them a lot of credit. So I'd known John Doerr from a long, long time ago. And so we started to have some discussions, but, you know, I realized in hindsight how incredibly naive it is to think you're going to get a job at Clymer Perkins when you've never made a VC or angel investment ever in your life. And then, but here's something kind of interesting about Sequoia. A friend introduced me to Don Valentine. And so I went and met him. And was Don still active at the time?

1:17:24Yeah. And, you know, obviously you take that meeting, right? Sure. So I'm like, I meet Don Valentine and I said, Hey, look, I, I, I've already met one of your partners, Doug Leone. He said, he's not hiring. I'm not here looking for a job because I've heard that I've heard that Don Valentine could be a little curmudgeonly. And I didn't want him to say, what the hell are you doing here? We're not hiring. You're wasting my time. So he's like, well, who said we're not hiring partners? I said, look, I'm not like Doug said that. And that's fine. I'm, I'm totally cool with that. And so then he's like, okay, well, it's kind of random, but you know, do you have have any questions?

1:17:58And I'm like, okay, sure. So I asked him questions probably like an hour and a half and he was super gracious and would just answer everything. And then his phone started blowing up. He's like, oh no, I got to, I got to, I'm supposed to be in Carmel. I got to go. And so, so, so he leaves and I just remember thinking, man, that was awesome meeting Don Valentine. And then by the time I'd landed in Austin, I get a call from Doug Leone that says, would you ever consider coming up here to meet Mike Moritz? And so I was like, okay, things are looking up, right? So I go to meet Mike and Mike tells me five minutes in, okay, look, I hope we haven't mismanaged your expectations here.

1:18:37We're not going to hire you. You've never made an angel or investment or any of this stuff, but like, you never know what's going to happen in the future and stuff. And so, so I was like, oh, okay, well then I've got a bunch of questions for you. And so, and Mike Moritz, I mean, another set, just the guy can just turn a phrase like people, people underappreciate just what a gift he has with words and the way he can say something profound in a short sentence that captures the tapestry of like a huge amount of things. And so I just remember just marveling at just his vocabulary and the way he would express himself and just how he could get to the heart of an issue so quickly.

1:19:21But like I give Sequoia a lot of props in hindsight. I mean, I'd never met any of those people. They had no idea who I was. I mean, I'm just some rando from Austin, Texas. But they gave me the time to kind of teach me a few things and, you know, at least considered it, you know. Was Motive locally funded? Was it Austin Ventures or who was it? It was Austin Ventures and then Jim Breyer from Excel, who I've kept in touch with over the years. He's now in Austin, right? He's in Austin, yeah. Yeah, yeah. And so, yeah. And so we used to, when we had Motive, my dad has a pretty cool ranch outside of Austin.

1:19:59And so we'd have these off sites at the ranch. Oh, that's cool. So you've been in the industry and seen it evolve from that point in time to now. I guess I'm curious, where do you think, from an inflection standpoint, like what are you paying attention to? Are we in a trough with this or is AI kind of the opportunity that presents itself? Is it too consensus to really be an inflection? Yeah, so one of these days we should spend some time riffing on this a little bit. But like, so here's how I've been thinking about it lately. So occasionally you have something bigger than an inflection. You have a sea change, right?

1:20:41And so when I was a kid, the sea change was mass computation. And you had Moore's law and you had the transistor becoming asymptotically free. And you start to realize, okay, in that world, power shifts and the scarce resource becomes software. And so if you'd understood what was happening, your mind would have been more awake to the possibility that companies like Microsoft were going to be important companies, right? or Intel, right, because they were providing the commodity inputs for mass computation. So then in the early 90s, you have what I now call mass connectivity. And rather than it being animated by Moore's law, it was Metcalfe's law.

1:21:21And rather than have a computer on every desk in every home, you try to get all the people in the world as connected nodes. And rather than microprocessing becoming asymptotically free, communications bandwidth becomes asymptotically free. And so rather than software becoming scarce and expensive, it becomes open source and commoditized. And now the valuable companies are the people that can aggregate the largest number of network nodes and the largest amount of attention among the people who occupy those nodes. And so I'm like, okay, that's what happened just now. Now I think we're in this era.

1:21:56Until that point in time, by the way, you would have invested in Cisco. No, what would have been it would have started with Netscape, started with eBay. But this kind of comes back to the question, right? Because people don't remember now, but that the early wave of Internet companies, a lot of them didn't end up being that persistently valuable. Right. Like the companies we all take for granted today, Google, Facebook, Amazon. I mean, Amazon took off kind of early, but like you could have, if you'd invested in Amazon in 1999, you would have lost 95 % of your money before you made 300 times your money or whatever.

1:22:31And, you know, eBay was really – eBay was the most successful company of that era in its time, right? But you had a lot of these companies nobody even remembers now. AltaVista, HotWired, all kinds – you know, GeoCities, all these companies. And so now we're sort of in this era of mass cognition, or at least I think we are. And I think that the interesting question is what types of cognition are becoming asymptotically free? And so then you start to say, okay, in what cases can cognition be bundled or unbundled? And in what cases is cognition expensive and rare and it's going to someday be cheap?

1:23:18And in what places is cognition, you know, mass cognition a complement to humans is what situation is a substitute? What is the relative value of new knowledge in the future versus preexisting knowledge in the future? All these kinds of interesting questions. What types of fields is cognition overpriced relative to what it's about to be? And, you know, where are there chances to bundle and unbundle it? So that's one thing I've been thinking about a lot. But then it also brings me back to the days of the Internet, because I remember Roger McNamee back in those days talking about Internet manias and how all these companies were investing insane amounts of money into creating broadband infrastructure.

1:24:02People forget At Home was a company, right, that went bankrupt, but it was one of the hot companies of the era. And so now you see the CapEx in these, you know, NVIDIA clusters, right? And it just it rhymes a lot with those early days of the Internet. And so what does that mean? Given eBay was the one that was kind of contemporaneously successful and others had their volatility around it. Does that mean you're more patient with, hey, just because a trend's happening doesn't mean the companies that are going to create equity value out of it are? Yeah. So like the, for example, I see a lot of LLMs that are really exciting and I look at the products and I'm like, I could totally see using that product, but I don't see the insight or I don't see why there won't be a flood of competitors.

1:24:51and because I have a set of frameworks for thinking about this, I tend to shy away from those kinds of projects, right? Like when I saw Applied Intuition, I'm like, okay, not everybody is going to be someone like Kasser who grew up in Detroit, went to General Motors Institute, worked on Google's Maps teams and partnered with a guy that grew up in Michigan and also was on the Waymo team. I was like, those guys are from Central Casting And Sam Altman's not going to be able to just put out an LLM that just like helps cars drive. The GM is going to say, oh, OK, I'll take that. So so like I thought, OK, he has an insight.

1:25:29But but a lot of the a lot of the ideas I see, I'm like, I could see myself using that product. But the problem is I don't see the structural competitive advantage for this company. So so so there's that. The other thing that rhymes, though, for me with the Internet was, in hindsight, you had to hold two things in your head at the same time, right? Like the dot-coms were overvalued, but the new economy was actually going to be a thing. Like when you look at John Doerr's pitch at the time on the new economy, all the stuff he said was right in the main, in the long run. And the new economy was underpriced if you had the right time horizon.

1:26:13But if you had a two-year time horizon, you were going to get in trouble. Do you think that's true today? Do you think that's kind of where we are? I don't know, but it is interesting. We have a lot of young folks on our team, and I find myself a lot of times them saying, you don't understand. We've got to be in this space. We've got to be in this category. This is where the hot happening new deals are happening. These are where all the hipster AI folks are hanging out. and I'm like, man, this rhymes with what I've seen, right? Like I was, it's like, you know, it really turns out that you don't have to do anything if you don't, if you're not like convinced that they're onto something.

1:26:54And so, you know, I would say that that rhymes a little bit for me. And I, the person I talked to about this recently is Hans Tung, who I think is very talented. And Hans is very much like, you know, the AI feels a lot like the early days of the dot-coms, right? That it's like, you know, it's valid. It's probably underhyped in the fullness of time. But the specific, the question you got to answer is what specific companies are you going to fund today? Yeah. And those can't be overpriced or you lose your money. I've only been doing this now for 11, 12 years in venture specifically. And any time we've considered altering our investment process, either the underwriting frameworks or how we prosecute investments, not because of an individual company.

1:27:50Any individual company, you should be willing to break rules. Hey, maybe you're late to the process. Maybe it's competitive, whatever. You should break the rules around it. When you're holistically talking about a category and it's like, no, we have to think of it this way because this is the way that these things are now being thought of. Anytime that's proven true, crypto was that way. I think 2021 growth investing was that way. There was the chatbots before that. There was mobile before that. Anytime it's been holistically true of a category, it's proven to be a bubble. And I think it's hard for me to not be so enthused by what AI is doing right now.

1:28:30And it's also hard for me to call it anything but a bubble within the venture ecosystem, at least just with how many people are changing their underwriting frameworks, how they prosecute investments, all these things. Just it smells like these frameworks or the process would imply bubble. Well, and the other thing is it has a set of conditions that correspond to a lot of wishful thinking. So like a lot of these funds that have been raised are just gigantic. And so what a great time to be funding companies that consume crazy amounts of GPU expense, right? It's appealing to think that that's the way the world is going, that that's the way the avant-garde, cutting-edge people should think.

1:29:18And you can tell LPs, it's a forgivable thing right now to tell limited partners, we're long AI and we're going to be investing in lots of AI. And it happens to, to your point, conveniently tied to a need for three, four or five billion dollar funds in some cases to justify it. And some of these, I think, like inflection is a good example of this. A lot of these, I think, are just future divisions of big tech companies, company TBD. And so what they're really creating is sustaining innovations that would normally happen inside the big tech companies, but they could just move faster. but their economic model as it is right now in many cases is I don't think viable.

1:30:07I don't think that their underlying economics are even viable because they're getting these big money investments and this funny money back and forth with credits and things like that. And so you've got that issue as one. The other one that I think is convenient for the fact that some funds are pretty big is this Adams meet Bits kind of startups, right? So like now everybody wants to do defense tech. Everybody wants to do Adams meet bits. And I'm like, I'm like, that'd be great if, and I hope that a lot of those companies succeed. But when I look at the sweep of history, the ones that have succeeded have usually had a founder like Elon Musk who can just overcome the amount of pain and anguish and impossibility.

1:30:49So I think that there are some startup ideas where the founder future fit needs to be somebody like Elon. They can't just be right that they can build a car. They can't just be right that they can blast a rocket into outer space. Like Elon probably is going to have to sue NASA along the way. Or, you know, and the Andrel guys did have to sue the Palantir or guys like that. And so, you know, the capabilities of the prime mover in those kinds of startups just have to be off the charts. And where is the company that gets started and is successful at the peak or at some like top point in a market cycle?

1:31:32And so those examples you just articulated of SpaceX, Palantir, Andrel, those were started way before this defense tech thing got going. And now they're held in this esteem. And I think part of that is, to your point, the non-consensus element of it and the founder future fit of those people uniquely had a passion of going after this. And so they're willing to chew glass or whatever it is to will these things into existence versus when it becomes the cool thing, the incremental founder might want to pursue something like this that doesn't have that unique passion. And there's probably three or four other companies that are going to copy them in some way, shape or form, and they're all going to try to pull each other down.

1:32:17And they're going to find out that selling to the government's hard. Yes. Right. I've heard. They're going to be like, no. Yeah. But it's also that a friend of mine, Eric Paley at Founder Collective, told me this once. I'm still trying to coax the data out of him. But he said that they looked at the companies that had the biggest exit and the year that they started. And they were almost never popular in the year they started. They were never in a popular sector. So, like, I remember 10 years ago, direct-to-consumer was all the rage. Sure. And it's like this year, you just almost can't get a direct-to-consumer startup.

1:32:50Sure. Right? And this would probably be the year to do one. That's one of the things I think about consumer right now is into your earlier point of talking about like there was only four people who were allowed to do consumer in the early 2000s. And it's funny, it's fallen so far out of vogue over the years. And AI seems to have breathed a little bit of life back into it. But everyone seems to be a B2B investor these days. It does make me think that if everyone has decided that that's a good idea, it might mean that now is actually the right time to go do something totally different. Yeah. The other one that intrigues me is crypto.

1:33:35So I think a lot of the crypto stuff was just ridiculous, right? But Bitcoin strikes me still as pretty profound. And if you believe that Bitcoin in the steady state is going to approach the market cap of, say, gold, you're going to have not just that appreciation, but you're going to have a financial services industry around Bitcoin. And I look at that and I say, OK, can I squint and see that? I'm like, eh, you know, I could see that. Do you think that financial services around Bitcoin would be different than the existing financial services? I think that it could be the reason I think it could be different is, you know, I think there'll be some hybrid stuff where you've got the rails between fiat and Bitcoin.

1:34:22But I think that you'll have dedicated Bitcoin centric products. Like, let's let's say that I'm Michael Saylor and I'm just unbelievably all in on Bitcoin. And now I want to buy a house and I want to get a loan for this house. I'd probably like to use my Bitcoin as collateral for the loan without selling my Bitcoin. And so there's probably going to be services that get better at that. Is it possible that all the big companies someday are going to want to have some amount of Bitcoin on their balance sheets? I think it's reasonable to assume they might, right? Are there going to be countries, right, that sort of decide to adopt the posture of El Salvador?

1:35:01I'm like, eh, you know, I could see that happening. I could see that happening in a lot of African countries. I could see that happening, you know, in a lot of the Asian countries. So I'm like, you know, and if that happens, it doesn't have to move very far for that to amount to a lot of money. Yeah. And I think that's probably I've been a historically very negative on crypto. But I think that if what you're saying is centered around Bitcoin specifically, and the the ancillary services that are going to need to be provided for Bitcoin, or you could even, I don't know, talk me into Ethereum or something.

1:35:37It's when you really go deep in the Web3 use cases that it starts to break my brain a little bit or I start to feel like we're recreating things that already exist. But it does seem that Bitcoin has had staying power. And at the end of the day, if people believe it to be worth something, then that's sort of what everything is. It's not like we're using gold and melting it down for some utility at this point. It's sort of a shared belief that it has value. And I don't know if you've ever gone down this rabbit hole with like this. It's like a 14-part interview series with Michael Saylor and this guy.

1:36:16It's a show called What Is Money? No, 14. Michael Saylor seems like a very interesting guy. 14 of any Michael Saylor thing, I will not. But I'll tell you what, man. It is really interesting. I mean, you can agree or disagree with Michael, but he ain't stupid. Yeah. He is a smart guy. Oh, yeah. And his reasoning is very tight about Bitcoin. That's interesting. What about the venture industry? You mentioned a bunch of capital. I think we both probably share some level of cynicism on people back solving for not giving money back or something and trying to find new avenues of parking capital. I guess I'd be curious just at a higher level of someone that's both studied the companies as well as lived the industry in a lot of ways.

1:37:09I'm curious just your zoomed out view of where we are today in the industry. Yeah, I think it's hard to say for sure. You know, I guess I used to think, OK, there's this cycle of capital where there's way too much and then there's too little. There's way too much. There's way too little. It's like a sawtooth. I think there's still some truth to that, right? The thing that I think is a permanent change is just increasing competition and increasing efficiency, right? Like, I just think that when I first saw venture capital, it was a very inefficient market, very little transparency. and now I think there's a lot of noise, but I also think it's harder than ever to find inefficient gaps in the market.

1:38:01And in the end, that's how we've got to make money. We've got to find stuff that other people haven't found or there's no way to outperform the index. And so to me, that's the thing that's gotten permanently harder. I mean, I think every market probably moves to more efficiency over time, at least I would hope. And so one of the questions I guess I would ask about the sawtooth is I agree that capital, there's inflows and outflows. It seems like that's maybe become something of a consensus view. And so in reaction to that, it feels like the limited partners are actually being far more even keeled and less manic in their dollars because they recognize that.

1:38:49This year. This year, yeah. Yeah. And it might be another three or four or five, six years before we feel the full brunt of the implications around that. I haven't seen it totally be the case with the number of funds that are still raising four or five, six billion dollar funds in 2024. Even like it doesn't feel anywhere near at least what I have studied to be true of O2, O3, O4 and all of that. I'm curious, your perspective on that from a, you know. I think that the thing that's pretty different. So in the late 90s, early 2000s, you had these big funds, not as big as what's happening today. Right.

1:39:32And a lot of them ended up giving most of the money or half of the money back. Yep, we did it. Because back then, the tech industry was still kind of its own thing. Yeah. And, you know, it was just so comically overvalued that you couldn't think about it any other way. It really was a mania. Now I think there's a strong argument to be made that tech is embedded in the very fabric of the economy, probably started in the late 2000s. And so, like, if I'm going to steel man it and say it's justified to raise these giant funds, I would say tech is the most important industry in the world. It's animating all factors of the economy.

1:40:13If you're an LP and you want exposure to tech, you have to be in those funds. Right? And it's like some of those funds will do well, some won't do so well. But, like, you have to be at that table in that game if you really care about tech as a permanent fixture of your investing strategy. and I can see the logic in that. Like, I don't think those funds will necessarily have the highest cash on cash returns, the highest IRRs, but they might outperform S &P. I've heard some LPs refer to it as venture alpha versus venture beta, depending on what funds they're participating in and how they think about it.

1:40:51They're like, hey, we're looking for beta in this case, or no, we're just, we're actually seeking alpha in this case, which is an interesting, I never heard that adage before, but whether or not they really think it's going to outperform the median or the return of the industry. Yeah. So, so it's, it's interesting, right? Because one interesting question is, are, are there an increasing number of amazing exits happening year after year? I don't see a lot of evidence, right? Like I, I think for the most part, there's 20 to 30 amazing new companies created each year in the U S and I don't think that that's varied a whole lot through time.

1:41:29I think it may be an expanding universe, but it's linearly expanded, right? Not exponentially expanded. It's up from 18, 10 years ago to 24 this year. Exactly. And you have these exit windows where there's these acceleration times from like 98 to 2000. We just went through one and probably 80 % of the profits of 15 year window are made in that. Yeah, sure. You know, in many ways, you could argue the secret of the venture business is have enough good companies in flight when that, you know, you guys had Snowflake. It's like, if you have enough of those, like, it almost doesn't matter what you did.

1:42:07Totally. The window gets out. Yeah. It's funny. I joke that like all my friends that I grew up in venture with are now running firms. And it's like, oh, well, Logan, you pick great firms, friends. It's like, no, actually, I got going in 2013, 14. And these were all the associates sourcing software deals at their respective firms. And it's kind of this fooled by randomness, like survivorship bias of these people rising in the industry. And the consumer people that were at these firms are now operating or have long pivoted to B2B or something else. Right. And so it's just having the unique luck of the moment in time.

1:42:45Yeah, it's funny because this would be a great time for someone to start a career adventure with an eye towards having a bunch of companies that come of age. in that 18-month window 13 years out. Oh, sure. Right? And it's like, and why is that maybe profound? I've met so many people who entered the venture business from 2019 until, say, last year, and they're going to have to unlearn most of what they learned. 100%. Like, the stuff they learned that they think is true about venture is the opposite of, like, what they should be thinking about. Right? Totally. So they're actually worse off than being naive.

1:43:30It's interesting the number of people that are, I think, the iconic investors in the industry that got going after the dot-com bubble. And some of that is, hey, if you rode the dot-com bubble, then you probably got fabulously wealthy and you've retired since then. So some of this might be some episodic, you know, whatever exits that ended up happening. But I do think it's interesting. Yourself, my partner, Scott Rainey, Jeremy Levine, Peter Fenton, Neeraj Agarwal. I mean, we can come up with a laundry list of names of folks that are amazing investors that got going in 01, 02, 03, 04. And it's probably, yes, some right age and whatever all those stuff is.

1:44:16But it's also probably learned a lot of good lessons coming out of the Internet bubble. And I wonder if we're going to see the opposite of that, of people that have been around in 2021. And I learned a lot about this from Breyer. So Jim Breyer used to tell me, this is a long time ago, it's like 2000, 2001, that like navigating bubbles is part of the job. And it's like knowing when everyone in the present is too excited and hyped up, like you need to find a way to exit companies in those windows. And you need to be very clear on the fact that you need to do that. And I just always remembered that because I remember the feeling in 2001, 2002, when I was a founder of like, oh, my gosh, like, how are we going to find a path to the light?

1:45:05Like, what are we going to do here? And I think about that a lot when we make our decisions to sell in recent years. You know, it's like, okay, this is an exciting company, but like, it has to be like, it has to be like the best company the next 15 years to be this exciting. How do you, do you guys have some distribution methodology or is it case by case? We don't have too much of one, but we, we always, whenever one company starts to become more valuable than the entire fund, we start to say it's important for us to have a point of view about whether we should sell or not. or sell some. Sell something, yeah.

1:45:44That's what I've always respected about Fred Wilson specifically is I feel like no matter what, they're selling some into the IPO or maybe a little bit before the IPO and just recognizing, hey, this is an iterative opportunity. Why not take a little bit of your principal back or whatever it is? Yeah, and I think Naveen over at Mayfield did a good job of this in the kind of the early 2020s. Interesting. Because here's the other thing. People say, well, that's easy for you to say, how are you going to get out? But like what happens is you've probably seen this dynamic the company is so hot that like if you want to sell people are like okay well you got to do me a solid and sell way more than that so like you know if anything it's like you struggle to sell uh you know less than what you end up having to sell totally but like you know and usually when that's happening that's kind of a sign of the top yeah everybody when there's no price that's too high and everybody wants it and you got to sell more than you even want to sell.

1:46:41Usually I've written down some of the lessons, uh, or some of the things. And at some point maybe I'll, I'll share them of like, this is a sign of a bubble and it's a good, uh, I just did it. Cause I feel like we've gone through a few of them in the last, even, uh, I don't know, 48 months or something. And just there's, there's little things like that, that if it's happening, then it's probably a good sign to head for the exits, at least in part. Now Well, the scary part about our industry is one, the outliers end up paying for the rest of the pattern breakers, if you will, end up paying for all of the sins that we make.

1:47:18And two, quite a bit of money is made on the run up right before the music stops as well. And so getting out early might be missing out on some of that. But yeah, I think psychologically it's a lot better to not be left holding the bag. Yeah, I think so. And, you know, there's just no easy answers to it. But I do think that it's surprising to me how few people are on a posture of wanting to sell at the time they should be in this industry. It's human nature, isn't it? I mean, it's just it's all the things that you learn and think about. And you read an Annie Duke book or you read whatever, Fooled by Randomness and a Seem Taleb book.

1:47:58You read these things and you're like, oh, of course, I won't fall victim to that. It's like you read Howard Marks saying, well, I pay attention to what people are saying in the present because, you know, they get overhyped. And it's like, you're just like, yeah, he's right. Yeah, he's totally right. And can I buy some more in that company? He's arguing with his son about whether they should buy more Zoom. Yeah, exactly. And it's like, you're just like, you're watching it play out in real time. And it's just so hard to have the presence of mind. You know, 2021, 2022, you start to say, yep, this is the first real year of the 21st century.

1:48:30and like there's a permanent change. COVID accelerated the future. Everything's going to be remote and distributed and worldwide and digital and all this. You know, you start to believe the hype, right? There's a handful of these moments that have happened and COVID was one of them and what it's done to e-commerce sales and just like how we're right back on the line that we were headed on before all this. I think COVID is one of the all time, hey, I really don't know. I can't project the future. And so it's just like you probability weight and you try to hedge a little bit and you go all in where you can.

1:49:07But if you had told me we were going to end up exactly back on the same slope of e-commerce sales that we were in 2019 was projecting, I never would have bought it in a million years. And here we are right back there. And if you'd told me in March of 2020, we were going to have this major acceleration window where 80 % of the profits and venture were going to be made, I would have said, how is that possible? Yeah, exactly. How is that going to work? So there's a lot of young investors that listen to this podcast or aspiring investors. What would you say, other than unlearn what you've learned in the last couple of years, beyond that, what would you, if you're giving advice to a junior employee, a floodgate, or just someone randomly wanting to get into the industry or already in the industry, but trying to think about how to make a career that sticks.

1:49:59Are there things beyond reading your book that you would recommend for people? Yeah. So I spend a lot of time studying Buffett Munger, right? And so, and I think they have some lessons that are pretty durable. Like one lesson they have that the opposite is true. They say, let rule one is don't lose money. Rule number two, don't forget rule number one. And in our business, rule number one and seed is don't pass on Airbnb. So, you know, you fail because of a failure of imagination and a failure of understanding the underlying powers of the startup. But I'd say that the thing that feels really durable is this idea of knowing what your circle of competence is.

1:50:41And so, for example, I think that I'm better than some at being willing to invest in a incomplete product idea that embodies a powerful insight with a big inflection. Right. Like I'm willing to say I'm comfortable with the uncertainty of whether the product's right or not. In the case where a lot of people wouldn't be comfortable. And sometimes that allows me to get a better evaluation, for example. but like this idea of a circle of competence I think is big and so it sort of says there's there's times where you know you have an advantage and you do have an advantage and then there's every other time and and so one of the ways that we've moderated our investing pace is I have a list of every first check I ever wrote where I made more than 20x and after a while it becomes an existence proof right like i'm like okay i'm about to write a check for an idea and a strategy where i've never once made money doing that in 20 years so uh does that mean i just need to expand my circle or do i need to stay within it usually i do better when i stay within it and try to most people don't know what their circle of competence is that's the problem they have and most people don't realize that without having a circle of competence, all you're ever going to be at best is the average because you have there's no basis for you to be an outperformer.

1:52:07If you don't know something the market doesn't know or have access, the market doesn't have. And that's one of the things that I've thought about is like it's counterintuitive to when you're early in your career to narrow your scope in a really meaningful way because you want the optionality of doing the other things. And so you want the choice of like, well, you know, yeah, AI sounds interesting. And then, but, but consumer, we'll see how that plays out and, you know, infrastructure software, that that's always been good. And you sort of dabble in a bunch of different things. And what's hard about that is you never build the full competency in any one of those.

1:52:51And it's going to require you to, like the way I've articulated, and I think this is similar to companies, is like, pick something that you think is going to be more important tomorrow or in the future than it is today. Become the smartest person you possibly can on that. And then as your firm or as the industry moves in that direction, you will be there to meet them and you'll be the AI expert when AI is blowing up or whatever the case may be. It could be health. It could be digital health. It could be genomics. It could be a defense stack. It could be whatever it is. Right. But like if what you were pursuing today as an associate or, you know, whatever principal at a venture firm is the popular thing, they have more than enough people to go do that.

1:53:37People want to do the popular thing. You should be going over, which is a really hard thing to do. It's really hard to tell people, no, don't focus singularly on AI or go pick some really narrow subsegment of AI if you want to do that and go really deep there because that's going to be more important in the future. And it's funny, I now realize how profound, so like when I was a kid, my dad used to always say, do your best. And a lot of people, a lot of people would say to their kids, be the best, but, but that's not what he was getting at. So he was basically saying that there's only one you and if, and every day is a gift and you're never going to get today back.

1:54:16And so how are you going to spend the time to honor the gift of your time to be your very best self? Because if you're your very best self, there's only one you, nobody's going to be able to compete with you or you're going to be hard to compete with. But like, like, let's say that I think Peter Thiel is a really smart guy. He is. If I try to be like Peter Thiel, there's no way I'll ever be as good at it as he is. But like, I have a database of every seed company that I've ever found that you would have made more than 100x on the first check. And I study those things like a train spotter. And I'll tell a founder sometimes, why take my money versus the next seed investors?

1:54:57I'm like, put us each in a room, give us a pop quiz on how do startups work and how to start up capitalism work and see who knows more. Yeah. Just see who's thought about it more. And it's not that like I was trying to be better at it. It's just I'm more interested in it. Right. I'm more interested in what makes a great startup. And I want to understand it the way Buffett Munger would read every Fortune 500 annual report just because like I want to understand startups better than anybody's ever understood them ever. And you're reframing the conversation or the consideration set. And so in that Peter Thiel example, I actually think Vowder's Fund's done an amazing job of appealing to a libertarian, anti-establishment, you know, or even politically conservative, like contrarian type.

1:55:45Like they, and to those people, which I think if you had asked San Francisco 10 years ago, what percentage of entrepreneurs that was, people maybe would have said 5 % or 10 % or something. And it turns out, actually, we found latently, and as times have changed, it's actually maybe closer to 50 % or 60%. It's a high percent of the good ones. It's a high percentage of the good ones. And to that group, now they've become Sequoia, right? And those people uniquely appeal to them. And you can't – you need to pick some lane or some narrowness that deeply appeals to some subset of the population. And so you, when you're having that discussion with someone, if what they want is Peter Thiel and the zero to one and the libertarian and whatever, then you can disqualify yourself from that conversation as well.

1:56:35Because the worst thing is to come in second. It's like – because then you've wasted all the time and the cycles and all that, right? Better to get disqualified early on. They need to want me because they think I'm like a startup philosopher king. Yes. Like that's what they need to care about. And, you know, you can't be for everybody. No, you can't. It's fine. It's actually that's actually you want to deeply appeal to some narrower subset of people that are going to opt in to you. And to you, you are the end all that they want to work with. Right. And that doesn't have to be easy to be. You mentioned 20 to 30 a year.

1:57:07like if you get four or five of those you're if you get one yeah you're gonna be fun small yeah keep your fun small you get one of those you're gonna be doing this a long long time and it kind of goes back to then and the the founder future fit and that kind of this idea of doing your best if you're doing your authentic best you can't be defeated in that thing you're doing your best at yes because everybody in the world is different everybody in the world has their own balance sheet of comparative advantages and disadvantages. And so nobody can be exactly like you at the thing you're the best at being you about.

1:57:41Yes. And so ironically, the way to be broadly successful is to not pay attention to too much of what everybody else is doing and to be better at tuning into what you can be your authentic best at. Picking the single or the things that are the most Mike Maples that you can possibly be in leaning into those. And you want it to appeal as broadly as you can. But what's most important is appealing as deeply as you possibly can. And that's what that's what domains are probably the easiest way for more junior investors to they probably won't be able to be the train spotter that you are. Write the book or write the zero to one and be the political, you know, influencer and savant that Peter Thiel is or whatever.

1:58:25Like you're not going to be able to do that. So domain is the one that I tend to tend to tell people to lean into. do. Now then the question that I inevitably get back is what domain? And I say, that's not for me. Like, listen, I don't know. Like, it's not for me to decide that I'll still, I'll be able to pivot into that if it becomes the new thing, because I have a fancy title at Redpoint. And so if that becomes true, then, but if you're the associate at XYZ firm, your ability to rise within your organization is going to be threaded to your domain and your knowledge of that. Yeah. And I think that a lot of it does, it's what a lot of good founders do is you find an area that is an authentic match to your train spotting level interest.

1:59:09Yes. And you just go down the rabbit hole and it doesn't seem like work, right? You get in this state of flow and you lose sense of time and all that stuff. And it's like, it's by doing that, that you're going to open these fractals of knowledge and find the insights that aren't obvious. and the founders are going to instantly magnetize to you because they're going to see that you care about what they're doing more than other people care. I think that's the path to the light. And it's not something that you inherently need to have studied in school. It's just like when you get into it, you find it insatiable in your pursuit of it.

1:59:42That's the way I was with software way back 12 years ago. Even before you got into VC, I bet. Yeah, no, no, before I got into VC and I read all the software books, software and hard drive, and I learned all these things. And now it's even easy. You don't have to go buy hardback books like you did way back when. Now you can go get an acquire guy to steal this stuff down. And there's YouTube transcripts of a lot of these anthologies. And so I just think picking a category. And the acquired guys are a great example of this. they weren't famous people, right? But they just are train spotters about like breaking down these companies and they do it just because they're just darn interested in it.

2:00:23And you know what? If you look at all their growth, it's compounded and it's grown over time just by them doing it and getting better at it consistently. And it builds on itself. And that's what I think is interesting of like, there's no shortcuts. And in this, there aren't any shortcuts. And what's interesting is if you look at the people that have grown to be the best at podcasting, for example, they've generally started from no names around it. And then they built over time. And what's nice about that is when you're at your worst, no one's listening. And as you get better and better, then people discover you and you've refined your product.

2:01:04And I know the Acquired guys have thought about that or Harry Stebbings or I don't know, Patrick O'Shaughnessy or Tim Ferriss or all these people, Bill Simmons, like whatever industry it is, like people generally. And I, it's hard. I mean, I fell victim to like, well, let's get the biggest guests I possibly can on. And it turned out in the early days, I was just very bad. It's, it's inevitable. It's not even being self-deprecating. It's true. You hadn't practiced it. You've done a pretty good run though. You were a quick study. I'm working hard at it. It's a lot of work. But it is interesting, right?

2:01:33Because like all those people that you mentioned, they were Here we go. They, they weren't like Lenny Ruchiski, right? Like who would have thought that 700 ,000 people want to listen to a podcast about product management. like you would have never, you would have never foreseen that. Like you had Lenny's show is good because he just cares about the subject. He cares about it. And by the way, Lex Friedman, uh, AI podcast, and it's easier to start super narrow. And this goes back to the same thing with industries. It goes back to the same thing with startups. Lex Friedman was called the AI podcast.

2:02:06Uh, acquired was only focused on acquisitions. Uh, you know, Harry Stebbings was 20 minutes with venture capitalists. Yeah. Lenny was just product managers. And you know what? You get the opportunity to build concentric circles around it when you build a lawyer listener base rather than starting broad with your own interests, which again is counterintuitive. Like going super deep with product is something that you wouldn't have guessed, but it turns out a lot of people are interested in product. Yeah. And the other thing I think that's counterintuitive about it is if you're going super niche at the beginning, if it doesn't amount to anything, you're no worse off because nobody's paying attention.

2:02:41That's right. Nobody knows you screwed up because nobody was paying attention. That's right. No one listened anyway. So, yeah. So, like Brian Chesky, right? He would relaunch Airbnb every month. And he realized, I might as well because nobody knows who Airbnb is. I can just pretend it's a new thing, right? So, like, if you're doing something that you're interested in just for its own sake, if it doesn't take off, okay, fine. You learn something you're interested in. Totally. Totally. Yeah. Well, Mike, this is great. Thanks for doing this. Thanks for putting up with me. A lot of fun.

2:03:12Thank you for joining this episode of The Logan Bartlett Show with co-founder and general partner of Floodgate, Mike Maples. If you enjoyed this discussion, we'd love for you to share with anyone else you think might find it interesting, as well as subscribe on whatever podcast platform you're listening on. We look forward to seeing you next week with another great guest on The Logan Bartlett Show. Have a great weekend, everyone.

2:03:41Thank you.