20VC: How To Do a 10x Seed Fund in 2025 | Three Frameworks to Evaluate Startups an Founders | Lessons from Losing Billions Missing Airbnb and Pinterest & Investing Lessons from Charlie Munger with Mike Maples @ Floodgate

24:10And so that's what we did. And then immediately as soon as our check cleared Iris was trying to buy more. Have you ever done a deal where you bought common knot crafts? We're seeing more and more of this. I've done that. Yeah. And then the other thing I've done is I've been in a situation where the founder wanted me to do something with them and I said, I'd like to work with YouTube with prices too high. And this is one of the things about convertible notes is I could say to that person, look, you can issue convertible note any price you want. If you're raising it 20, you can sell me half of it at 20 and half of them at five.

24:44They might say, well, other people may not like that very much. I'm like, I understand that, but like you can decide, but I'm not gonna pay. I'm not gonna pay that price that everybody else is paying. You know, you learn quickly whether they value your involvement in a differential way or not. Only commons and crafts. So you would buy commons because we had net shells on from notation. It was like, we think you should be more aligned. You should buy common. I really like net, but I think that's bullshit. I would, if it made a difference meaningfully in my ownership early, I'd do it. It's the difference in winning and losing the deal.

25:18It's not so much that it would be, maybe I can say to the founder, hey, look, this is a way for us to have some type of a joint gain. I know you need to get the price you want to get. There are reasons that you want to get that, but maybe we can get some type of a blended price if I buy preferred plus common. Then I own more, I'm taking more risk, but if I believe in the company, I've never made money or lost money based on common or preferred, ever in the ones that work. Well, you do uncap nodes only in very rare cases. Have there been any? We would have done one for applied like right after the series A, we wanted to own more.

25:54And so there are times when doing an uncap node works to your favor if you say, I have so much conviction. I'll pay a discount to whatever the next price is. I don't care. You know, otherwise, why is the founder going to give you any kind of preferential treatment when the round comes together? If you believe in the company, you got to position yourself for the next round. Have you ever done a Chris Sackett and done a nom nom? I call it the nom nom, which is when you go to Twitter employees and you just eat up, eat up, eat up, everyone's, eat up early stock. I've never done that. No. I was tempted to at times, but I never did.

26:26You said there about kind of Anne's incredible investment, 750 into lift. You got a sell for that to be a 250 extra spare free mic, because I don't know what lift market camp is today, but it wouldn't have been a 250 extra few sold today. How do you know when's the right time to sell? Yeah, so I think that there's a couple of things. And by the way, this is something we haven't really talked about yet that is good for seed. So let's imagine it's 2015, lift stock at the time in the private markets was about 25 bucks a share. It was worth more than it is today by a meaningful amount. At the beginning of the year, we said, you know, we need to sell some of this.

27:00We're behind a billion and a half dollar preference stack. We're in this thing at a five and a half million dollar post in my valuation. We're competing against Travis Kalanick, who's a freaking maniac. He's not a fun guy to compete with. This thing is going to impact our fund, right? We are way in the money on this thing. And so Anne had a Post -it note on her monitor that said IQ test. And we put it on in January that year. And the IQ test was I need to find a way to sell some of our lifestyc. So she ended up selling a fair chunk of it. I don't think half of our stake, but a fair amount in 2015.

27:33So one thing I think that a lot of seed, 25 bucks a year, let's say, or 5 billion. Something like that. Yeah, it was really good. The highest it ever got. That was time to fund straight away, didn't it? Yeah. Oh yeah. So we were like, okay, we need to sell enough to return all of fun to. So she did. One thing that I think a lot of seed funds don't get is there's two ways to make money. One is on entry pricing in efficiency. But the other is to arbitrage exit price in efficiency. And like with lift, A16z was in lift. They couldn't have done that because the problem is A, it would have sent a signal and be selling a couple hundred million bucks or whatever, it doesn't matter day 16z.

28:14It doesn't affect their fund enough. And so one of the things that seed funds can do is they can start to say, hey, is the market about to value this thing as if it executes perfectly for all the next five years? Because the capital markets are such that there's so much money that a lot of these companies, no matter how exciting they are, are going to get fully valued as if they're perfect for a very long time. Do you think that's exit price inefficiency today given the incredible excitement around AI? That's the thing, right? This is the other thing I found. Is it when the times you should be selling into some of those rounds, everybody wants a share of the company.

28:51What I learned was that it's actually win -win for the founder because you say to the founder, you can't just do it on the fly. You can't be transactional. But if you say to the founder, hey, look, let's be realistic here. You're better off in the fullness of time if certain players are in your cap table and not a seed fund, fidelity or, you know, folks like that. So what do you say we get strategic about it? How about we put ourselves in a position where we can get somebody like that in when you raise your next round if it clears a certain threshold? What usually ends up happening, first they're like, hmm, I don't know, but what ends up happening in reality is by the time the round comes together, the founders coming to you saying, dude, you gotta do me a solid.

29:30You said you were gonna sell, I need you to sell more because everybody becomes pigs. Everybody wants in, nobody pays attention. So ironically, the times that it's easiest to sell in these really upgrounds is probably the time you should think seriously about it when you're seed fund. Iris came up with a term for it actually. We call it an initial liquidity event. So it's an event that has the same impact on fund economics as an IPO. So it can't be just 10 million here, 15 million there. It's got to be something where it has the same impact on your fund as if the company went public. They counted to that if we were just gousting and actually would be Brian Singerman, often has talked to me before about the value of the next double.

30:12And actually a company going from two to six billion is much easier than having another four billion in enterprise value gain in the rest of the portfolio. And actually can happen quite quickly. And if you look at Bessima selling all of their Shopify steak at whatever it was two to three, that was probably the worst financial decision ever. They will say the the same one. You never make a trade that you don't somewhat regret. You can trust it with lift, Mike. Lift traded up to like 75 when it went public and lock up, we got out at like 75. And so we would have done even better, but it was still the right decision.

30:50It was still the right risk -adjusted decision. Once you're funds in the carry and you're in the money, and it's like you've still got that upside. Did you, did you know psychology changed when you're in the money? I think it does a little bit, but I think that the other thing is it's like you get into these situations where the variance in the potential outcomes is so great. So I agree with Brian Singerman in one sense, which is some of these things can ride a lot farther and higher than you think. I agree with that. The issue though is that sometimes both can be true, right? You can be in a situation where you're 100 times in the money in five years.

31:28And no matter how good the company is, it's just value to absolute perfection. In those cases, I look at it like even if the Brian Singerman outcome happens and it doubles again or even quadruples again, just have enough stock so that you know you're going to benefit from that upside too. I just think that when your hundred baggers are pretty rare, right, I keep track of them. So I have a list. I can show you on my laptop, right? Hundred baggers of the last 20 years. How many of you go? There's a little over a hundred that are exited and there's a little over a hundred non -exited that I track Most of them I don't track because I don't think they're real, but how many hundred bag is the vehicle?

32:05Let's see how many have I got I've only got like three or four Twitter was a little over 300x And gets all the credit for lift that was 205x applied is probably encroaching on 100x in the first check Which got close but not quite there it got to 94x and there's a few others that I think have a Would you start to sell applied when it gets to a hundred? Yeah, but here's the key. You got to do it in a way where you're not just being selfish about it. You want to do it in a way that, in fact, we did sell some applied, but we did it in a way where it was in full cooperation with gas, right? I was like, I'm not going to do this behind your back or I'm not going to do this against your good wishes.

32:47And so is there a way we can make this a win for you? But you can't have that discussion the day the round closes, right? You got to be like, hey, Here's how I'm seeing things and I'm making sense. You know, Cascer is a grown -up, right? He's like, hey, I get it. I understand you got a business to run. So do I. A hundred percent. The best found is generally doing this. They do. Especially if you don't surprise them and you're just not greedy and transactional about it. Oh, do it behind the eyes. Yeah. And if you say to them, if you say to the founder, hey, look, can we agree that all things being equal, this would be a good investor to have in your cap table after the next round.

33:19And this is a good way for you to get them without getting crazy massive delusion. and what do you say we try to engineer those circumstances? How does your psychology change when you're in the money? Hopefully not much. I think that sometimes the place where I would also agree with Brian, Singerman would be sometimes you get in the money and you lose side of the fact that you can get a lot more in the money. I think more you see this side if you can be more in the money and you lose downside. I always think that, you know, I'm very close to the guys at Sequoia and Team La. I think the reason that's so successful is because they've done so well, they're not fearful of downside.

33:54They just see what it could be. And it almost enables them to have this enlarged, perception or vision. I think it kind of goes back to the first principles, right? You can make money on the buy, and you can make money on the sell. And what most people don't understand is that the seed funds are actually better positioned to make money on the sell than anybody. Better position than the multi -stage by a wide margin. That requires, though, for the seed manager to be much more sophisticated than most are being. Most are just like, should I sell, should I not sell? What you wanna do is have an opinion, right?

34:27And you want it to be grounded in the facts. Why do I collect information on the hundred baggers because I'm like a train spotter? I'm like, you know, Britain, right? You have those train spotters. I study them. I stretch it to the selling. So we had Avy from Entreon and he's like, I sell a third, I'm gonna butcher it, but a third in a gross round, a third pre IPO and a third post IPO. There's a real structure to it. Do you like that kind of structure? What do you think gets the case by case? I think it's case by case. I think you should say to yourself, okay, there was a time when we were sober and we kind of said, if the following things happen, we might be sellers.

35:00And that's happening now. So we still feel at least sober decision you made. Most of my mistakes have been in our early funds, we followed on in too many rounds and the companies that weren't gonna make the difference. What was at least sober decision? Our biggest failures have been failures of imagination. You know, it's like when I passed on Airbnb data dog. Do you blame yourself for passing on an Airbnb though? And my reasoning around that is it was a nuts idea. He wasn't from a blue chip company. It wasn't as straight down the fairway deal at the time. It was cracker and you had to see some real...

35:33The way I look at it is I need to understand what I didn't see. And I need to be really tough -minded about that. That's not about beating myself up. It's just saying, is there a set of frameworks that we embrace today that would have caused us to say yes. But we do that not just with Airbnb, we do it with all the hundred baggers. We do these hundred bagger deep dives. We did one on Marquetta. We did one on Zoom. We did one. What do you learn from them? So what are the things we track is, okay, if you'd said yes at the seed round, what kind of a multiple would you've made, how soon would you've made it, what kind of a delusion would you've seen?

36:10Then you say, okay, here's our frameworks. One of our frameworks is, did they have an insight? One of our frameworks is, did it harness an inflection? One framework is, founder, future fit. What's out of future fit? I know. I'll give you an example. Zoom, we didn't see, but started out as this consumer, every man, conferencing thing called Sazby. That's when you would have had to invest in the seed round. Did it harness an inflection? Hard to argue. Did he have a fundamental insight? Hard to argue. His initial vision for the product was just wrong. But like Eric had been at Cisco as part of WebEx for 10 years.

36:46He'd been thinking about video conferencing all the time. So his founder future fit was actually quite good. So like what I found our future fit is it comes from William Gibson. He says the future is already here. It's just not evenly distributed. And what he means by that is that great startup ideas don't come from trying to think of a startup. They come from a founder who's living in the future and who notices what's missing in the future and builds what's missing in the future. And it reminds me of Isaac Newton. He was supposedly at a party, asked when the apple fell on your head, why is it that you all of a sudden had this inside about gravity?

37:23And Newton said, it's because I was thinking about it all the time. And so the founders have found her future fit, that they're like obsessed train spotters in a rabbit hole thinking about this stuff all the time. Do you know what I find really hard? I've learned from you so much over the years, so many things literally, but you literally shape something I do every day, which is I always ask what's your insight development? How do you see the world in a way that's different to other people seeing it? The challenge that I have, Mike, is that so few can articulate it well in any way. And so even if they have it, I worry that I'm missing it because they can't articulate it.

37:57It's really hard, right? I think there's a few, apart from just do you think the founders great, there's a few signals that are interesting, right? One is Does it Harness inflection, Lift Harness, the iPhone 4S had a GPS chip in it. So that happens outside of the startup. The second thing we look for is what do you know about the future that's non -consensus and right? And then the third is Founder Future Fit. One of the things that I've learned in looking at these hundred bagger studies is some of these things become clearer later. And you have to figure out what's the real signal at the time you have to decide.

38:29And so you want to get a time capsule of that startup. you want to know what was the founder like at the time, what was the pitch deck like at the time, what was knowable about it at the time. And quite often I've found in doing these that founder future fit is the best signal. It's the most discernible way to figure out if the founders likely to figure this out. And just so I get it, is the background of the founder commensurate to what we believe successful founders in this space will have? Yeah, so like I look at it like almost every Every great startup is pursuing a future that's meant to be.

39:03There is usually one team that's ideally suited to that future. Give you a couple examples, so like Octa. I meet Todd McKinnon and he's with Todd and Freddie. He says, I've been at Salesforce for all this time. All the early adopters of the cloud use Salesforce. Now they're using other cloud apps. There's going to be identity management problems for cloud apps, and I'm going to build a system. I'm the VP of engineering at Salesforce. force these customers trust me. I know what their problems are. And I'm like, okay, it's a good patch. Pretty damn good. And I'm like, okay, if anybody can do it, he can do it.

39:38And if anyone knows, he knows. If anybody knows, he knows. So what was true about Todd? First of all, he was living in the future with those customers. And when you live in the future with those customers and you're intrinsically motivated by that future, you're more likely to understand what you should build number one, number two, you're more likely to attract early believers because you're more credible. And so I look for founders who are living in a valid future, are intrinsically motivated by the future they're pursuing, are more likely to notice specifically what to build and are more likely to convince people to believe that they built the right thing.

40:14If that team is present, I say, is this team the most likely team in the world to make this future real the quickest? Does that exclude first time founders who've not done anything before? No, because let's take one Mark Andreessen, right? He was at the University of Illinois. He'd never run a business before. He was in a supercomputer lab. At the time the internet had just been made legal for business. So it could only be used at universities and academia. And Mark is trying to make a collaboration software for a team of researchers. And so he starts tinkering with the early technologies of World Wide Web.

40:50and he creates a browser, but was Mark going after a market for browsers? Heck no. Mark didn't know what markets were at the time, right? He was just trying to build what was missing about the Internet. He was trying to make the Internet immediately more useful for him and his team. So why is that important? Well, Mark was living in a time machine. It turns out that he was using machines similar to the machines everybody would have soon. He was on a network similar to the kind of networks everybody would be on soon. and he was using the type of web protocols everybody would be using soon. And so his knowledge about that, that domain knowledge of the future was more important than any business person's knowledge of improving the present.

41:31Everybody thought AT &T is going to build a digital highway or that time -warner or Microsoft network or AOL or maybe the government should build the digital super highway. Everybody just assumed it would be a top -down extension of what is. and nobody assumed that some kid making minimum wage as a programmer in a super computer lab would have the better answer. It wasn't going to be topstowns. It would be a messy bottoms -up web of stuff. And that was the paradigm. That was the winning paradigm. Mark's advantage was not born of his experience in business. It was born of his experience with the future.

42:05Where is your biggest weakness in how you analyze founders today? My biggest weakness has always been that I'm too optimistic about whether people can pull it off. It's just exceptionalism is so rare and so few people are truly great. And so few people just have the willpower and the grit and just the... Will you invest in people if you don't like them? Oh yeah, yeah, there's nothing to do with it. There is an aspect of great founders quite often where they're disagreeable because when you think about it, a breakthrough startup is a provocative act. It's a disagreement with the present. And the more of a breakthrough it is, the more disagreeable it is.

42:42Quite often these founders are disagreeable people because the present will fight back and it won't fight back fair. What do you do when you lose faith in a founder? When you invest in a company, they don't turn out to your e -thought. I have this saying, uh, uh, detach with love. So I'm like, Hey, you know, it seems like I'm not able to help much here. I'm not just going to sit here and tell you that you're not doing a good job and that we disagree about everything. And so that's okay. It's nothing personal. and if you change your mind, I can be helpful. Let me know. Do you find the messy middle is where the most value often lies?

43:17I've found that, you know, the winners, very clearly from the offset, are in the messy middle because the ones that really break out Clubhouse Hoppin B -Real, it's unsustainable. And then the loses are very clear. Are the winners immediately obvious? No. But you can't affect it that much regardless. I've never worked with a company that got product market fit that wasn't wildly successful. and so that's kind of the only thing in the early days. I didn't get that. I've heard you say that before, but I have several companies as a product market event, which are not successful. We mentioned them Clubhouse.

43:49I got product. I don't think they have product market fit. Really? No. I mean, they have millions of users engaging daily for hours at a time. I would say that was product market fit. Do they still? Absolutely not. No, but so they didn't. They just had a temporary, they were like a solar flare. I would say that how do you, what sustainably defined product market fit? It's funny, I was talking to a, buys you bought last week, you know, one of the co -founders Robinhood. I like him. Yeah. Love that guy. We were talking about product fit and he goes, when we got it at Robinhood, I was like, oh, that's what product market fit looks like.

44:22And so, I just think it's like stages. It's like a chapter in a book and you have to continue as the own the next product market fit chapter. But like if we go back to the, kind of the notion that I think you were getting at, can I help the founder get product market fit? Not that much in my opinion. There are some things I can do. Part of what I can do is edition by subtraction. I can remind them that, you know, no matter what everybody's saying, that is the thing. It's like Vince Lombardi, you say, winning isn't everything. It's the only thing. Product market fit isn't everything. It's the only thing.

44:51Get product market fit, eliminate distractions. What can I do to help? And last time we talked, you said, this is the bottleneck between us getting strong product market fit and today. Is that still the case? How can I be helpful there? other thing though is, and I've heard some of your prior guests get to this, being a founder is not a fun job. It's almost like being an artist, you know, it's almost sometimes is almost more of a curse than a blessing, and it's almost like you have to do it because you're called to do it, but it's a hard -freaking job, and it's not a fun job, it's a shit job. One of my biggest concerns right now is that we are seeing a generation of growth investors, or funds that were serious, they have now raised billions and billions, who assumed that the efficiency of dollars is the same regardless of company stage or how much they have raised.

45:38And so they go, fuck it, we need to deploy 50, 75, 100 million, saw it. Let's put it in this company that's doing really well. I know we're paying well ahead of time. I know we're paying two years out, but we can still see a three acts if we pay three billion from here, saw it. But when you drop 100 million into a company, suddenly they do 10 and other things, they are, and that 10 billion out of it massively reduces in likelihood because then our way less for it. Right. And this is why I really appreciate some of these founders that I've worked with who've done a good job, you know, like Cascer.

46:09I mean, he has enough money to do whatever the heck he wants. But in fairness to the CEOs of those companies, a lot of them never had any influences around them that said, hey, you're about to raise a bunch of money. That's cool. But like, let's not you and I be breathing our own fumes. we don't have product market fit yet. We don't have an objective way to say, yes, check the box, we have product market fit. And so if we're not careful, we're gonna... Even if we do have product market fit, taking $150 million, you're gonna find a way to use that. Yeah, but what usually happens that's even worse is these companies raise a lot of money before they have legitimate product market fit and they hire ahead of achieving it.

46:49And now all of a sudden, they're doing a bunch of wacky nonsense that's not contributing to product market fit, and they just become culturally broken, right? They just end up never developing any muscle memory for what an attractive customer is, how you should find one, which ones to avoid, what features are gonna be added to the strategy, which ones won't. What happens to the generation of companies that have raised these $100 million plus rounds at billion dollar plus prices? And they didn't really have a product market for it. What happens? I think most of them won't clearly prefer in stack.

47:21But they've got five years of runway, My ex -70 is runway. So they just kind of keep going in GPs, they're just telling LPs, it's fine, it's fine that... The problem is there's an element of this where everybody in the game has an incentive to keep the plate spinning. It goes back to the first thing we were talking about. My business is hard, your business is hard, but it's not complicated. Hundred bagger on the first check. And it's like, if we get one or two or three of those in a fund, we're gonna be successful. Have you ever had a company without product market be successful? Oh yeah. What one comes to mind?

47:54We had one that was struggling and we were about out of money, co -tweet. So this is kind of a funny story, actually. So talk about it in the US football, right? I have this expression. I call it a forward fumble. So Steve Anderson, a baseline, is talking to this company co -tweet. He's like, hey, what do you think the valuation ought to be? And I said, I don't know, man. They don't have a lot of traction. I don't think I would do much more than three million pre if I was you. So Steve comes back and says they accepted our offer. And I was like, what do you mean our offer? I thought you're just looking for my just side about just what the price ought to be.

48:33I didn't say I was offering anything. It is like, come on dude, you know, like you can't leave me hanging now. Jesse's like, we're both in this thing. It's something and shit. I really like Steve a lot. I think he's really a great guy, brilliant. I was like, I'm kind of interested in it, I guess, and I don't know, and I need to think about this. At least the price is pretty good. So we do this thing together. You know, I probably put in a few hundred thousand bucks, and Steve put in more. Not that much later, co -tweets pretty much out of money, and Steve's like, hey, we kind of got this problem, almost out of money, and I'm thinking to myself, damn it, you know, I can't believe I let him talk me into this.

49:13This is the dumbest. I'm never gonna make this mistake again. And then next thing I know, Steve says, hey, well, it looks like exact target is gonna buy this company. At the time, I've never heard of exact target. They're gonna buy him for stock, and I'm thinking to myself, great, the last thing I, at least we're not out of business, but now I have exact target stock. I've never heard of some company in Minneapolis. Exact target buys him. And then exact target goes public. And I'm like, wow, they're going public. And I'm like, how soon can I sell? Right, because I know nothing about exact target.

49:43Well, before the lock up expires, Salesforce decides to buy exact target. So we end up making 23 times our money. It was like when you fumble the football, it just bounces end over, end up the field, just keeps going and going and going. And every time we're like, oh man, I wish I could get out of this. We couldn't. And it just kept going. I love that. So listen, I want to do 2024 in review. Okay. I'm going to say a couple of different statements and you're going to meet your thoughts. What was the company of the year in 2024? SpaceX. They are starting to blast a lot of rockets into outer space.

50:16I mean, what they have done is just so incredible. And I don't have to squint too hard to see a world where they're the most valuable company in the world. I mean, because if you're the most important dominant company in outer space, that's a big deal. You look at like North Carolina, you know, has this hurricane. We've passed some, what it was, it $40 billion billed broadband better bullshit bill. Nobody's built any broadband connections. as I'm aware of. And everybody's like, Elon, can you help? Putze's satellites above and like, you know, kind of makes it free. You know, he helped with Ukraine.

50:49You know, it's like, do you worry about the power that one man has? He controls the digital town hall now. It trumped a, controls the physical town hall. Well, that's a different question. But like, if you're asking me to accompany the year, or hit SpaceX, in my view, you know, if, if, if people are saying, look, the problem with SpaceX is they're too powerful and that they dominate the skies and all that stuff. to me that kind of underscores the year they had, but also just like the impact that they have, right? Their ability to just provide broadband arbitrarily anywhere in the world. And by the way, it's not gonna be just broadband, they're gonna be able to launch payloads of all kinds of things, Bayes -U -Bots new company, he's trying to have these satellites that have these solar panels that beam lasers down to earth, for energy anywhere at these base stations.

51:36And so who's gonna put those things up into outer space? It's gonna be SpaceX, you know, putting the payload out there. And so, you know, you get to a world where SpaceX becomes a platform dominant supplier for outer space. And I think that's pretty impressive. What do you think was the fund of the year? I'm gonna go with 20 VC. Dude, $400 million fundraise this bump for the win, man. I mean, it's very very complicated. It's barely not even a kid. I know. And you're doing this in Europe and I mean, 400 million bucks in Europe, that's something. You should be proud of what you did. I remember when we met in the battery years ago, I was desperate for you to give me a job.

52:14I was desperate. Well, if you had to come to America, I would have done it. That's very, very kind of you. It's interesting. I don't know if you feel this, but some situations I've had when things worked my way, you didn't always let yourself be fully aware of it at the time. You didn't stop and say, hot damn, that was something. I really did something there. And maybe you're not doing that when it comes to this 400 million dollar fund. But give yourself some time to come up for air and be like, hot damn, I did that. I feel the desperate responsibility. Yeah. It's huge huge amount of money, which I'm very grateful and appreciative of.

52:52But the water starts now. Yeah. But also, it was legendary. What you did was legendary. You still have a lot to do. every now and then it's good to come up for air and take it in. For me, that means the world to me. Founder of the year. Elon. You know, an investor of the year as an homage, I'd say it's Charlie Munger, because I think the world's really going to miss him. Probably of all the investors, you know, I'd say that Charlie Munger and Howard Marks have influenced my view of how to be a good all -around investor more than anybody. How has Howard Marx most influenced you? His memos for oak tree capital are just insane.

53:33A lot of the ideas in pattern breakers were a realization that startups are all about being non -consensus and right, but in a much more massively disruptive way. And so Howard looks at it through the lens of second level thinking and knowing something that the market doesn't know when you make an investment so that you can outperform. But what startup capitalism is about is Refusing the premise of the current rules and showing up out of nowhere and changing the subject and the only way you can do that is to be Non -consensus and right you can't only by being radically different can you make a radical difference and a lot of that thinking I internalized from Howard M &A or accident of the year.

54:13I don't think I have as good of an answer for that I'm gonna go with loom 975 million. It's a lot. Yeah, it's pretty great timing. I think they definitely Optimized their outcome predictions to 2025. What will we see? I continue to be Intrigued by what could happen with Bitcoin when I think about the way venture capital has thought about crypto Most of the really smartest people I know have been focused on Ethereum and so on and I look at Bitcoin And it just feels to me like it's the thing hidden in plain sight It feels to me like there's a world where Bitcoin becomes more valuable than gold and then some where There's an entire financial ecosystem and rails around it and if that happens Bitcoin's got a lot of room to run But I think that there would be a lot of startups that could create an ecosystem around it that would be interesting I asked Reid Hoffman this morning 2025 and a year.

55:06What is the price of Bitcoin end of the year or the highest point in the year? End of the year 130 you went with 200 Yeah, what happens with doge? Success or not a success? To me success would be it changes the cultural norms of What's acceptable from an accountability standpoint? Like I don't think that Elon is gonna be able to do what he did with say Twitter fire a bunch of people and Change all the rules and bring in a sink. Yeah, and he might be able to do that Am I the only one who's a little bit of him bringing in a sink again? Oh, yeah, it was all that fit Let that let yeah, let that sink in Here's what I think is happening.

55:42And by the way, it's not just Doge, but like, I think for example, what a lawnsdale, Joe lawnsdale is doing with his project Cicero is really good. One of the problems that we have with government in the US is you'll have a government entity that has a bunch of money that produces terrible results that are only getting worse and they keep hoovering up more money. At some point, we need to get to a place where we can say, can we agree that if we put money into something. We should have a goal. If the entity achieves the goal, it gets more money. And if it doesn't achieve the goal, it gets less money.

56:16Can we agree that that's true? Republican, Democrat, whatever. Can we agree that we should even at least try to see what the goal is? Hold people accountable for making those goals. Now, you'd be surprised like, imagine like the crappiest company you ever saw. Now, imagine that company and the worse it does, the more money it gets. And the worst departments in the company get the most money because they say, well, the problem is that we're underperforming because you guys are under investing in us. That's what, like, so much of the government is like today. And so it's not just Doge in terms of the federal government, what Elon's doing, what Vivek Ramaswamy's doing, what Elon's doing is important too because he's trying to take it to the local level.

56:57You're not going to be able to solve this stuff overnight, but what you want to create is a culture and a set of mechanisms for accountability and for a natural way for things to recede when they're not effective. And if you could create a permanent change on that front, that would really be a big deal. What damaging element of venture needs to recede? Right now, there's just too much money, but I don't think it's ever received worse. I think it might be. Yeah, I speak to so many LPs, new sovereign wealth funds, new pension funds, new endowment funds. You have sub -three percent, exposure to ventures today who want to take its 10 to 15.

57:33The thing that I think that most people don't have a handle on yet is exits are cyclical too. Throughout my career, you have these 15 -year windows where close to half of the exit profits are made like in an 18 -months -of -two -year window. Horsey Bridge, a brilliant in terms of analysis on exit markets, and they've found that really ventures are very challenging asset class, but brilliant when you take advantage of very constrained liquidity windows. That is where you're able to have that is the business. So, so you know, every 15 years or so, you get this window of about 18 months to two years.

58:07And if you want to do really well, the secret is to have a bunch of very good companies in flight when that happens. So a lot of these big multi -stage funds, the problem they're going to run into is they raised money on exits predicated by 2020 to 22 exits, there's a lot of evidence that's just not going to happen, that there's going to be a long window of time before we ever see that again. The multi -stage funds will over time feel pressure to rationalize their fund sizes. They'll do it slowly and they'll do it, quote unquote, deliberately. I do just suppose that though, just was the thought that like, 15 years ago, it was insane to have a $150 million seed fund.

58:50Now, it's like, obviously, how could you not have a seed fund over $100 million before it was a trillion -dollar company, Mike. Are you serious? Well, now we have five. Well, and the other thing that's happened is, I think a lot of people have forgotten what a seed round even is. And so now you have seed rounds that are like $45 million. To me, the purpose of a seed round is, you have an insight about the future and you have a massive risk that you're hoping to take out. The ideal seed round is one which provides slightly more than the minimum viable amount of money and time to take out that risk.

59:24The reason is that that's the riskiest time in the company, and it's also the most expensive time to use capital because you never get more diluted than you do in the seed round. What founders should do with their seed round is they say, I've got an insight about the future that's non -consensus, I need to prove that I'm right. Because once that you prove that you're right, you've taken the single biggest risk factor out of the business. You've done the most value additive possible thing you can do to the company. You'll raise it will at a much higher price. I agree, but I disagree. You've proved that you're right, but then you need to scale into enterprise and then you need to prove that you're right again.

59:58That's fine. And then you need, like, this is why I haven't put it. But here's the problem. What happens more often is people raise four million bucks and they just go do a bunch of stuff. They just don't have a clear line of sight. Like what you want to be able to say is, I need to establish that my insight is true. And if I establish that my insight is true, now I've done more than any single thing I can do to take risk out of this. And that is the best thing I can do to enhance value creation. If that means they raise a lot of money after that, okay, fine, so be it. That's a different discussion.

1:00:30Then the question becomes, what is the value strategy, value creation strategy for Series A? But what's happening now is people are raising $4 million because that's what it takes to dilute 20%. That's just stupid. It's not a good way to get started and it hurts the founders even more than it hurts the VCs because the one thing you never get back as a founder is your time and if you raise $4 million, you know, your three years in, you're doing seed extensions, you've hired a bunch of people, you're much better off if the insight was wrong, you're much better off knowing that within a year. But then raising more money gives you more time to tinker and iterate.

1:01:06I look at Clavio, I look at Uipath, I look at Service Titan. Most of those didn't raise a lot of money before product market fit. They didn't a tool. But if they had have done, they would have had more comfort in terms of, I think they'd have been worst companies. So did they. I asked every single founder. Oh, good. Yeah. They got my back. They got my back. You know, constraints are powerful in the early days. And constraints are the thing that allows you to understand what the true laws of physics are for your company. And if you operate in the early days without constraints in terms of time and profit and finding desperate customers, you'll be a worse business.

1:01:41You'll just be a worse startup. It just is true. I totally agree. I can talk to you all day. So I want to do a quick fire. I say a short statement. You give me your immediate thoughts. What do you believe that most around you disbelief? I believe that more people should pay attention to the core tenets of Christianity. And I don't mean that in a religious way. I mean it in a philosophical way. There were some things that Christianity introduced to the world that were important. One is this idea of the forward notion of time, rather than cyclical time. The other thing that Christianity introduced was human rights as an inalienable right.

1:02:19The other thing that it introduced is this idea of unconditional love, which is a little bit harder to explain in a sound bite, but it's sort of this idea that real love doesn't have conditions. And I think that those ideas are really important for sort of. Do you believe that real love doesn't have conditions? I do. But if you don't set the boundaries to your love, then someone will. Yeah. So boundaries are different from conditions. So like a condition would be, I get my feelings hurt somehow. So I say something intentionally mean to hurt, hurt you back. Well, if you buy into the premise of unconditional love, you'd say it would be irrational for me to ever do that because I love this person.

1:02:59Why would I intentionally want to harm that person? If they say something bad to me, I can say, hey, look, something's clearly going wrong with this conversation. We need to have this conversation some other way. This isn't working for us. But like unconditional love is a really powerful way to think about stuff because it causes you to realize that if you love somebody that you always want what's best for them. That doesn't mean you always agree with them. That doesn't mean you always put up with crap, but it means that you sincerely want what's best for them no matter what they do. And that you try to show up in the world in a way that that's true.

1:03:33And one of the things that I really like about the teachings of Jesus was he basically said, when you step back, that's really true about everybody, that you should try to be that way about everybody. That doesn't mean if somebody's hostile to you and you got to defend yourself, you defend yourself, but you do it through the lens of saying, I regret the fact that I have to harm you because you've made a choice that gives me no alternative. But what you try to avoid is calling them names and you know all this other stuff. I think that that is a really profound idea and not enough people have internalized that idea how powerful philosophically that was.

1:04:10But like everything around us in the Western world, much of it came from Christianity. And by that I don't mean Jesus is a religious figure, but Jesus is more like a philosopher king. I saw a picture of your father and he was a very early Microsoft employee, I think it was neat. It was your biggest lesson from your father. That's another good one. It was do your best. So my dad helped me realize, so you know, in another Brit, Adam Smith, did you ever read the wealth of nations? Yeah. It's pretty good, right? Fantastic. Pretty legit. And so one of the things that he talks about in the wealth of nations is this principle of comparative advantage.

1:04:49I think most people have the wrong idea about competition. If you think about it, you have your strand of DNA. I have mine. Nobody in human history has ever had the same DNA as anybody else ever. And so that means every single one of us is like a node on a network completely unique, which means that everybody in the world, everybody, I don't care who it is, has some set of comparative advantages. And so the failure mode that a lot of people get into is they try to be the best. What I learned from my dad is that what you want to do is do your best because there's only one you and you can't be better than your best.

1:05:26I think Peter Teal is really smart, but I'm never going to be better at seed investing than Peter Teal by trying to study, you know, Strauss and like, Geartha and like, Nietzsche and like all all these historical, economic sort of trends and macro stuff, he's going to beat me at that game. But if it's like, who's the better philosopher king about seed and like what makes greatness in a seed ground and what makes greatness in a startup, I think I can win that game against anybody, right? And so what I learned from my dad was that you as a person have intrinsic motivation, you as a person can provide something that the world wants that values that you can get paid to do, part of honoring the limited time you have in this life is to figure out how to show up every day to honor the gift of your time by being your best, by doing the best you can do.

1:06:16Final one, and it's a hard one, but I find it quite revealing, what about the way that your parents brought you up? Did you deliberately decide to do differently in the way that you bring your children up? That's a good one. Yeah, there's one thing I can tell you later, but I'd rather not say. The one thing that I think would have been good would have been and I still need to do better about it But just to get outside more and do more sports and stuff like that my dad was a very cerebral into computers and everything We talked about was computers and the computer business and programming and stuff He was not like into sports.

1:06:50That's something that I'd like to do a better job of over time is to kind of promote that a little bit more. Mike, I could always chat to you all day. It's such a joy to have you here. Thank you so much for doing this. Thanks for having me, Harry. Thanks for putting up with me. I mean, I just love my discussions with Mike, and if you want to see that conversation live in the studio, you can check it out on YouTube by searching for 20VC. That's 2 -0VC on YouTube. But before we leave you today, it can be difficult to build a team that's aligned on everything from values to workflow. But that's exactly what Coda was made to do.

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1:09:53As always, we so appreciate your support and stay tuned for an incredible episode in just 48 hours.