20VC: Inside Accel's $4BN Growth Investing Machine | Cursor is Dead is Total BS: Here is Why | What Missing Rippling and ElevenLabs Taught Us | Are $2BN-$10BN IPOs Dead | Why Now is a Great Time to be Thoma Bravo with Miles Clements

13:56Harry Stebbings:When we think about that and the revenue numbers that you see there, it makes other things seem quite boring. It does. I mean, this is the sad case. Are we in a world where triple, triple, double, double is dead when you can have a company like Cursor going from 100 to a billion?

14:15Miles Clements:Absolutely not. I mean, send me all of your triple, triple, double, double companies that you're not interested in investing in.

14:21Harry Stebbings:So I was thinking this last night. Everyone says this on the show. I guarantee you'd be like, no. No, no, no.

14:27Miles Clements:Here's why. I think you can actually be successful in this market investing in consensus. And I think you can actually do really well investing in non-consensus. I think you get hammered sitting in the middle. A company that's not growing 15x year over year, that's fine. There's all these other really important inputs that go into it that I think can make for a really interesting investment outcome.

14:49Harry Stebbings:I'm sorry, I still don't quite understand. If you have a pot of money and you can put it in companies that are growing 15x, to then put it in companies that are growing 3x, 3x, 2x, 2x, the opportunity cost of your cash is real. As your partner, I'd be saying, why are we doing that?

15:05Miles Clements:Yeah, but this is where we're ignoring all of the other important inputs, right? Like quality of the founder, what market are they in? What ownership are you getting in the investment? All of these other things factor in too. So I think one thing that's happened in our market is like investors have tended to just flock to the extremes. Either like, we're AI maximalists. We're going to buy the basket. Ownership valuation, be damned. We want everything. Or like, we hate the valuations. They make no sense. We're going to sit on our hands and wait until things cool off a little bit. The reality is like the best funds in the world, the best investors in the world embrace the nuance.

15:41Miles Clements:The right answer is always somewhere in the middle. Constructing a basket of companies where maybe some, they were undisputed breakout leaders and you didn't get the ownership that you wanted, but you wanted to be a part of that company and you wanted to be partnered with that founder, there's room for that in the portfolio. But there's also bootstrap companies in Little Rock, Arkansas, where you can have a different ownership threshold and work with a really special founder and build the company in a different way. And you can do very well that way too. We don't really run from the nuance, we embrace the nuance and there's a lot of benefit to being a multi-stage, multi-strategy firm.

16:14Harry Stebbings:That's wonderful. But your funds are too big to embrace nuance, dude. How so? I'm sorry. You need to have$50 billion plus companies to return your fund sizes.

16:23Miles Clements:I think we will. I mean, think about this. Like a decade ago, how many trillion dollar companies were there in the world?

16:29Harry Stebbings:No, and you're right. I use this stat too and like the expansion of outcome sizes. But like, dude, they're very, very rare. And they take 17 to 20 years when you look at the majority of them.

16:38Miles Clements:But this is the cycle repeating itself. And like to answer my own rhetorical, which nobody asked me to do. So a decade ago, there were zero companies worth a trillion dollars. Five years later, there were six public companies worth a trillion dollars. Today, there's a dozen companies worth a trillion dollars in the public market. Plus, you have the labs, you have SpaceX and companies in the private market. So the sizes of the outcomes are enormously bigger. And I absolutely think that firms can make substantial returns in the late stage business given those outcomes. And I will say it's really hard if that's the only thing you do.

17:11Miles Clements:If all you're doing is buying late stage momentum companies, I do think that's hard. There are people that do it well, but it's hard. I think being a multi-stage, multi-strategy fund where you also have a really focused early stage effort and a growth effort, I think you can absolutely continue to support companies at every phase of growth and make a lot of money.

17:29Harry Stebbings:But can you do vertical SaaS growing triple, triple, double, double?

17:33Miles Clements:I wouldn't write off a company purely because that's the growth profile. Now, I see the point. You have to focus on large outcomes. And I agree with you there.

17:40Harry Stebbings:I'm like to the team, we need to do two things. One, we need to replace seats. We're replacing labor. And then two, I need to see a billion in revenue. Before it was like 100 million and we can sell it for a billion or IPO. A billion dollar exit doesn't do shit for us now.

17:55Miles Clements:Yeah, I agree with you. As much as I enjoy sparring with you, I agree with you on this point. If you can't articulate the big outcome, and if the founder can't articulate the big outcome, that is probably a sign that you don't want to be involved with the company. But I think that what you're describing is basically the mistake that we made on a company like Service Titan. We had fallen in love with R &V. We were chasing this round that was going to happen in the$250 or$300 million range. And we had these rigid rules about like, you definitely can't pay more than six to eight times forward for vertical SaaS.

18:27Miles Clements:And you definitely can't pay more than 10 times forward for vertical SaaS. We lost it because we sort of got queued on price. And then that went on to be a$9 billion company. If you really understood the depth of the market, and if you really understood what they were disrupting in that era, you would have done it even though it was a vertical SaaS where you might have otherwise historically thought it was constrained.

18:48Harry Stebbings:When we said about Cursor, I liked your description of the platform company for engineers. And I see it, and I see that grand play. But then it kind of goes against something that we kind of noted down before you said, who will win as a narrow-minded framing of the market? Are they not paradoxical? Like if you think about Cursor being that engineering platform company, totally get that. And I believe in that view of the world. But I don't believe the who will win is narrow-minded view.

19:13Miles Clements:I think Cursor will win. I think there's huge value to being the winner in these markets. But the reason I think the conversation is like the framing is overly simplified is people forget we don't operate monopoly markets in this country. Like the forces of capitalism don't permit it. And if they did, then the federal government wouldn't permit it. So I think the best software company in the world is AWS. AWS has like 35 % market share. Everyone aspires to win. And you get into business with these founders because you believe that they can win. But I also think the way that a number of these verticals are going to play out in a number of the AI categories, there's going to be a couple of really big companies in several of them.

19:53Harry Stebbings:Do you not think we do legitimately operate in monopoly markets? I mean, let's look at like NVIDIA. Let's look at Apple for consumer hardware. You know, Salesforce for CRM. And Salesforce is a$250 billion business.

20:05Miles Clements:Yeah, but I think it's different when you get into the mega cap companies. There are monopoly conversations. And that is what the federal government is there for, some would argue. I would not argue, but that's what the federal government tends to do these days. I think in the private markets at the scale of companies that we're talking about, I just don't think so. And I'll give you one framing for the winning conversation. We've talked about, and you talk on the show a lot about deal. People say, deal has won the market. Alex is phenomenal. Deal has won. We're not investors in the company. I think it was published that they passed like a billion dollars of ARR.

20:36Miles Clements:It's incredible. It's like, welcome to the big leagues. ADP has$20 billion of ARR. Like you are 120th the size of ADP. And by the way, in this market, you've got like Paychex is a$60 billion company and Paycom and Paylocity. And I think the venture framing of this company, one, is not always, you know, I think it can be a little bit oversimplified.

20:57Harry Stebbings:Do you reflect on those two? You're not in deal or rippling.

21:00Miles Clements:Stepper conversations. We're not in deal because we're in remote. And I'm thrilled that we're in remote. I think Yob and Marcelo are like very special. I think their product vision is very different and unique. The rippling one, yeah, I think about this one a lot. I mean, this one stings.

21:13Harry Stebbings:Why?

21:14Miles Clements:I think a lot about like the physics of these businesses and like the product mechanics behind a lot of these companies. And what I mean by that is I think a lot of investors tend to look at like, what's the product? What's the growth rate, et cetera, et cetera. No one really has an appropriate appreciation for what I think of as like the marginal ease of ARR accumulation. What are the downstream levers that you're putting into place that you can pull on in the future that will allow you to grow at these crazy growth rates in year four, five, six, seven? And how do you build this growth mechanism that is better than like, I put in a marketing dollar and I get out$1.20 of revenue?

21:52Miles Clements:I think nobody in the world does that better than Parker Conrad. So the first time he sort of outlined the vision, I was like, this is really compelling. I think that's what he does. He has this innate sense for pockets of margin that other people wouldn't go build companies around, like laptop provisioning and physical IT leasing. That would be a tough standalone business. But as a revenue line item for a company like Rippling, it's really interesting. I just think that Parker is a generational founder and we don't get it right all the time, but he's certainly someone I wish we were in business with.

22:23Harry Stebbings:Why are you not? Was it because of the remote situation or price?

22:27Miles Clements:I think it was a couple of things. Parker previously had a reputation. I'm not going to opine on whether it was deserved or not, but he had a reputation that I like to think he's now totally overcome. That just came up in the conversation and in a market where Mamoon was moving very quickly and other people were moving quickly, it probably made us a step slow. I think this is also one where we stuck to our knitting on the investment framework, the ownership thresholds, the opportunity to get involved was going to be at a high valuation. And maybe there was, I don't remember the specifics, but there was like a mechanism where you could invest more over time.

23:00Miles Clements:And it would have required us to break a lot of rules. And I think like, I don't regret not breaking the rules in general, but this would have been a time when it could have been worthwhile.

23:11Harry Stebbings:Slightly confused right now as to whether we should break the rules on Series A's. The prices have gone from 20 on 100 to 20 to 40 on 200 to 400. and I'm forced every day to question, should we break the rules on ownership for these incredibly fast growing hot AI companies? And we go back and forth on it. We're friends sitting in a coffee shop. What would you say to me if I was debating that?

23:34Miles Clements:Yeah, I'm chuckling because there's this funny quote that comes to mind. I've been very lucky at Excel to learn from a lot of really great people. One of them was Jim Breyer. Jim used to say this thing, which I think he was paraphrasing from somebody else, but it was basically that like investing is an art and a science. The science is understanding how to properly value a company and the art is understanding when to break the rules. I just think in this market, like you got to do that constantly. Generally speaking, sticking to your rules is a good place to be. Now, I do think, you know, the vocabulary around what a series A is in this market is just very different.

24:05Miles Clements:And so I would actually, you know, I think there's like multiple subcategories of investing that goes on in series A land. And you just have to decide what you want to participate in and what you don't. it's okay to say no. You don't have to be in every single round. So I think that breaking the rules is something you should do very, very rarely.

24:24Harry Stebbings:You said that kind of brilliantly wanky phrase, the marginal ease of ARR accumulation. I'm going to give you five tequilas and then ask you to say that again. Sounds wonderful. Where did you think there was marginal ease of ARR accumulation where there maybe wasn't? And what did you not see?

24:44Miles Clements:I think as the market has gotten more competitive, the pressure to be right, to pick correctly, has never been greater. It causes you to extrapolate. You have to extrapolate from early data points. There have been investments where a company went from, they had a million dollars of ARR, and then in the period before they fundraise, they had like a$4 million quarter. And it's like, they've got it. Like the product market fit snapped. Like this is it. this is the time to forward invest and you can extrapolate these trends. And then it turns out sometimes they just had an anomaly quarter. I have fallen into that trap before.

25:19Harry Stebbings:You have that more and more now when we see companies being maimed by others so significantly.

25:25Miles Clements:Yeah. Yeah, definitely. I agree with this. I mean, I think this is why the benchmarks that used to give us all comfort are largely obsolete now. And so like you have to be really clued into the usage intensity of your product and really understand how people are using it because growth can obscure and blind you to a lot of underlying ills in the business. So I do think that being clued into like how people are engaging with the product, whether you're an enterprise company or a consumer app, it's more important than ever.

25:53Harry Stebbings:Do you find it hard, the binary nature of this world? Honestly, we come into work sometimes and we're like, what the fuck are we doing? I'm being serious. I was talking to my dear friend Jason Lemkin the other day and he's like, fuck this. I've had enough of this. I just want to do an Anthropic SPV and go home. I don't want to pick the winner in a SaaS company. Oh my God. We feel so unimportant. I have to be honest with you.

26:19Miles Clements:No, like I fucking love it. To be really honest, like I'm so lucky to be in this industry and the competitive thrill of chasing down these founders and chasing these deals. It's awesome. How lucky are we to get to do this? So no, like I I understand where you're coming from, but I love it.

26:37Harry Stebbings:When we look at the big exits this year, you've got Databricks, you've got Anthropic, you've got OpenAI, and you've got SpaceX. As a partnership, do you guys lament that you're not in them?

26:46Miles Clements:Of course. I mean, we are in some of those companies, but we, yeah, absolutely. Nobody is harder on us than we are. We want to know where we went wrong. We also, though, we do that in the interest of getting it right going forward. And when we look to the future, there's a lot of things that we're really excited about. A lot of companies where we are sort of the investor of record. We intersected them very early, continued to buy up all the way through the growth stages. And we're excited about those. But absolutely, we hold ourselves accountable when we miss companies.

27:14Harry Stebbings:I spoke to one of your LPs before and they said, help me understand why we're not in any of the foundation model companies. Why are we not in Anthropic and OpenAI as an Excel LP? Was that just like a miss or was that a belief that they wouldn't be good companies?

27:27Miles Clements:A lot of firms miss the model companies early and we're guilty of it. So nobody has looked in the mirror harder than we did and course corrected.

27:36Harry Stebbings:Can I ask, when you did, is it like a partnership meeting? Hmm, have we fucked up? Or is it like an unspoken rule like the British people when it rains and we just pretend it doesn't rain and we walk anyway?

27:48Miles Clements:No, it's the most important conversation there is. So it's a global offsite where every partner at Excel sits in a room together and we say, how did we not get this right? And how do we fix it going forward? What are the 50 best private companies in the world right now? for how many of those companies are we not just a passive shareholder, but like the investor of record? And what is our score? And then what do we think is the next set of 50 companies and how many of those are we going to win? And like, if we're not getting better, no one will beat us up more than we will ourselves. So that's what the conversation is.

28:19Miles Clements:I mean, it's the most important thing for the entire partnership globally.

28:22Harry Stebbings:Are you playing a coverage game? You know, when we had Anish from Andreessen on the show, he was like, 100 % we are playing a coverage game. We get split up fiefdoms and we get split up stages. and split up categories, and you are expected to see 100 % of yours. And if you miss, it is not acceptable. For me, for example, we play a different game. I don't have to see 100%, but I need to hit one of the big ones.

28:43Miles Clements:Yeah. We're organized a little bit differently, but of course we hold ourselves to the same standards of coverage. I mean, the aspiration is 100 % coverage, 100 % win rate, right? No one in the industry does 100 % of both, but if we're failing on one dimension or the other, we're going to talk about it and understand where we need to be better.

29:01Harry Stebbings:What was your win rate today? How would you measure it? When you go for a deal with a term sheet put down?

29:06Miles Clements:Mine individually or as a firm?

29:08Harry Stebbings:As a firm.

29:09Miles Clements:I think a healthy win rate would be like 80%. And the reason it's not 100 % is because... Dude, no one's going to have 100%. Some people have come on this show and said that they have 100 % win rate.

29:19Harry Stebbings:And you should, Andreessen.

29:21Miles Clements:Well, I wasn't trying to call him out specifically, but I've just heard it said before.

29:24Harry Stebbings:Well, no, no, if I said I had never lost a deal, I'd be happy if someone said it to me.

29:28Miles Clements:I don't mean to be combative about it. I think my polite and professional response would be, I think if you're not putting yourself out there and losing sometimes, you're not chasing competitive enough things. I really like sticking my nose in a competitive fight, like that I have no right to win. I really like doing that. But I also really find a lot of joy in finding these founders who are just doing things a little bit differently. Maybe they've bootstrap the company. Maybe they're located in some geography that's like far away from Silicon Valley. And having these non-consensus ideas that other people might think are silly or they might not really have their heads wrapped around.

30:06Miles Clements:Like I think that's great too. But part of it -

30:09Harry Stebbings:Is that kind of growth equity like technology venture not inherently the most fucked in this AI world?

30:15Miles Clements:I think that business has gotten harder.

30:16Harry Stebbings:Yeah.

30:17Miles Clements:And I think that was like frankly, that was the core of our early growth strategy. It was unbelievable.

30:22Harry Stebbings:Like the bootstrap, like one password, Qualtrics.

30:26Miles Clements:Totally.

30:26Harry Stebbings:Mike and Scott. From bumfuck nowhere. Amazing. I love this.

30:29Miles Clements:Absolutely. And that is still out there. And we still do a lot of it. And we aspire to be the best in the world at it.

30:35Harry Stebbings:Is it still out there in the world? It is.

30:36Miles Clements:It is. This is the funniest thing. Every time we have an off-site or a strategy conversation, we keep saying like, there's no more Bootstrap. There's no more Bootstrap. And then like you find a Laravel. Like they are still there. They're really hard to find. And I think we're like the best in the world at finding them.

30:52Harry Stebbings:And it makes sense from opportunity cost of capital to put your money there versus just putting another$100 million into Cursor.

30:58Miles Clements:Nuance in portfolio theory. A part of our business will always be doing that. It's very distinctive. At the moment, we have a$1.4 billion growth fund and we have a larger sort of later stage pool of capital.

31:09Harry Stebbings:No, 100 % is like 1.4 and then you've got leaders, which is like three or four. Is the growth fund subscale then? Because David George has got six or seven to play with and Josh has got nine to play with. Is that subscale or should we think of leaders as the growth fund in the same way?

31:24Miles Clements:In many ways, the market today is like what the venture market was in 2000, but inverted. So the idea was like, I'll do my series A, I'll get 30 % ownership. I'll take a bunch of dilution. And when the company goes public, I'll own 20 % of it. That was like roughly the math. Today, you have to back into 20 % the other way. You do what the market will allow in the earliest possible investment. You sponsor a tender, you do a growth round, you do an IPO round. and you can ladder your way up to 20 % ownership. You have to be a multi-stage fund to do that.

31:54Harry Stebbings:Or you hope and pray that the expansion or like the multiple or the size of the exit, sorry, is so much bigger than it was. It's not a billion to 5 billion, it's 50 to 100. That actually having 5 % is actually just as meaningful as having 20 % of the prior.

32:10Miles Clements:Sure, I think you won't be surprised to find that like, I don't think hoping and praying is a great strategy.

32:14Harry Stebbings:Dude, we are all fucking hoping and praying right now. I'm sorry, that is an absolute, Like Figma is an$11 billion company. The unbelievable, unwaveringly brilliant founder of Dillon and this was the swan song of software is$11 billion, which is incredible and incredible and incredible. But, you know, it doesn't return your growth fund. But we're arguing two separate points.

32:38Miles Clements:And I agree with you on the Figma case study and all these like fundamentally incredible businesses out there that have gotten beat up. That's a separate point that we should circle back to. The other point is like, do you have to swing for the fences? You know, I go back to Arthur Patterson, co-founder of Excel, always says this thing, focus on hitting singles and doubles and let the home runs take care of themselves. And what he means by that is if you're just constantly stepping to the plate and trying to, I can see at the Series A that this is going to be a$100 billion exit, you will just overswing and you will fail.

33:08Harry Stebbings:No, but isn't that what I'm deliberately being, I'm not actually, I'm actually just fundamentally disagreeing with that. That is like not what venture is about. especially at the Series 8. You want to have a diversified portfolio enough that you have one or two of them hit, but you want 30 swing the fuck out of this and it could be 100 billion. We're not here to do the singles and doubles.

33:30Miles Clements:I think different ways to practice the craft. I do think the market has evolved a little bit and a single and double today might look different than it did in the year 2000. I think what he means is know what you're good at, focus on founder relationships, stick to whatever your particular strategy is and just try to do that really well. Don't just go sling it into things that are momentum chasing opportunities where you're not going to be any better than the next investor. I think that advice is fair.

33:57Harry Stebbings:Do you not think we're all momentum chasing? I mean, if we look at the AI entry for you guys and then the defense entry with Helsing, we're all slightly momentum chasing.

34:05Miles Clements:I would go back to nuance, subtlety, portfolio theory. There are absolutely companies where it is justified to chase momentum. We don't like to use that vocabulary, but we see a company like Anthropic and how valuable they are as a technology partner to every other company in our portfolio. The momentum is very obvious, but the business logic and the business intrinsics are also very obvious. So does it make sense to have a relationship with Anthropic? Absolutely. So guilty of that.

34:36Harry Stebbings:You did the 180 round?

34:38Miles Clements:We've invested in a few rounds of Anthropic.

34:40Harry Stebbings:Can I ask what was the first round you did?

34:42Miles Clements:180.

34:43Harry Stebbings:When you were doing that as a team, how did you think about outcome planning that and sizing that?

34:49Miles Clements:I think that company and a small handful of companies in the private market today are operating on a different plane. I think it is not bombastic to say that some of those businesses could be trillion dollar companies. You know, people who are underwriting these rounds believe that. So I think that is like a different category. But the danger in this business is ascribing the characteristics of an Anthropic or an Andrel or an OpenAI or a Stripe to like the things that don't really fit the paradigm at the Series A.

35:18Harry Stebbings:But when you're doing an Anthropic round at 180, are you saying we fundamentally think this can be a$2 trillion company and a 10X? Implicitly, yeah. What do you need to see to write the check? It's like, you know what, three to five X is enough on growth.

35:33Miles Clements:There's never a partnership conversation where we sort of say, hey, we've built a model and squinted our way to a 3X outcome. Like, that's just not exciting. The reality is that I do think like a lot of these funds revert to the mean. If you can generate 3X net funds, that's a pretty good business to be in. But if all you do is aim for 3X investments, like, of course, that's not really the math that gets you there. If we can have a conversation about this company is special, its reach is unprecedented, its founders are very, very different, the comps for this business would be platform companies like Google and Microsoft and Amazon, then of course you want to participate in those companies in the private markets.

36:11Harry Stebbings:You said about Spice. Do you feel better or worse to be an Anthropic shareholder post-Anthropic versus the Pentagon?

36:19Miles Clements:Yeah, you were definitely going to give me some spicy ones.

36:23Harry Stebbings:I can feel your compliance team just shit themselves in the corner. They're just crying.

36:30Miles Clements:Look, I don't want to answer this question. How can you not admire the founders for sticking to their knitting on and sticking to their conviction and sticking to their principles? Now, I have no idea how this is going to shake out, right? I mean, like. Did you not write Dario's memo for him? Ghostwritten. I'm definitely not intelligent enough to ghostwrite anything for Dario. I think this is an opportunity for, you know, a lot of these companies, they signal virtue and they believe in a world where AI is going to be a force for good. And then there are commercial opportunities where that gets put to the test.

37:09Miles Clements:Can you really blame a founder for saying, I'm sticking to the mission? I get it and I respect it.

37:14Harry Stebbings:I mean, we're seeing it bluntly play out for him in terms of loyalty, in terms of talent. Totally. Consumer adoption. Mike Krieger put they're doing a million a day in net new consumer signups.

37:23Miles Clements:Yeah, I mean, they passed GPT in the App Store.

37:26Harry Stebbings:Isn't it ironic that this is what was needed for them to surpass?

37:29Miles Clements:No, I don't actually believe that they were doing it for that reason. I don't think they did it as a calculated business move. I think this comes down to... No, I think it was an accidental bit of luck. I agree. It's worked out well. I think it comes down to like ethics and principles and call me old fashioned, but if you behave the right way, you will be rewarded.

37:45Harry Stebbings:Are you in OpenAI as well? We're not. There are a lot of businesses today that we're in historically, which I don't know what's going to happen. I love Sneak. I love Mirror. I love 1Password. But it was done at such high prices, and the new reality is very real. How do you opine and think about businesses like that when you sit in the partnership meeting?

38:06Miles Clements:The market has gotten so humbling. The greatest companies of three, four, five years ago, many have gotten totally beat up in the public markets. I believe many are oversold. I think this is where it comes back to this being a human business. Who is the founder that you've gone into business with? What is that founder going to do when their back is against the wall?

38:26Harry Stebbings:If you look at his sneak, I'm in Guy's new company, but he ain't there. What do you do? It's 300 million ARR growing 15%. And his last price was seven.

38:35Miles Clements:I think this is, in some regards, like as the founder of the company, we lose sight of this. That's not a great setup for people who might have invested at$17 billion. dollars, but it's a great business with a great product, with a great customer base. You know, there will be an outcome for that company. It is humbling relative to, you know, the valuations of the 2021 era. But again, who is the team that you're in business with and how are they behaving and how are you behaving more importantly as an investor when the team's back is collectively against the wall?

39:07Harry Stebbings:What happens? Do these businesses go public? Do they get taken out by M &A? What do you think is the route for them?

39:13Miles Clements:I think it's probably a good time to be in the LBO business. I think it's probably a good time to be in the Toma Bravo, Vista, Blackstone, KKR business. There will be homes for a lot of those companies who get themselves to a sustainable place and they will find homes. These homes for a lot of companies will be different than what the aspiration was when the founder started the company. That's just a reality of this market.

39:37Harry Stebbings:I totally agree. Are you with me in the camp of when the founder goes, my conviction goes? Now, when Andre's at Mirror, I'm like, Andre is still batting. If Andre is still batting, I'm still there.

39:47Miles Clements:There is unmistakably something special about a founder-led company.

39:51Harry Stebbings:Mike being at Atlassian, when I interview him, I'm like, I still feel that you've, and his passion is still there.

39:56Miles Clements:Never bet against Mike Cannonbrooks. Absolutely not.

39:58Harry Stebbings:But when the CEO's there, I'm like. It's not that it can't work.

40:02Miles Clements:There are incredible professional CEOs. Like if I could have Frank Slootman come be the CEO of a number of companies I work with, I bet the founders would say, yeah, that's a great trade. I mean, there are incredible professional CEOs.

40:16Harry Stebbings:What have you changed your mind on most in the last 12 months as an investor? I believed this thing a year ago that in hindsight, I feel very stupid for having said.

40:24Miles Clements:I believe that all of the generational investments in AI had been made. I looked at my partner, Dan Levine, incubating scale AI, building a relationship with Alex Wang in 2016 and making that investment. You know, the early investments in the labs, I sort of thought, listen, the bets were made eight years ago and it's too late. And now we're all sort of fighting for what's left over. That was a really stupid thing to say and I no longer believe it. That's probably the thing that I've, you know, fundamentally changed my mind on, both because those companies will be bigger than the outcomes that I probably envisioned a year ago.

40:59Miles Clements:And there is still time to be a part of some of them. And because like the innovation flywheel is just getting started. We are barely scratching the surface.

41:07Harry Stebbings:When you had the scale exit for Context$14.9 billion, amazing exit. Dan was like unwaveringly the first investor there from like, you know, the Dornham style moment. Epic. When you had that, so the company's got an offer for$14.9 billion. Is there like high fives and this is awesome around the table?

41:31Miles Clements:No, there is an appropriate congratulations and acknowledgement to Dan. there is a huge, loud, full-throated thank you to Alex. And then everybody gets the fuck back to work. It's a humbling industry and you are only as good as the next thing that you do. How do you analyze that market stakes?

41:49Harry Stebbings:There's one that I really struggle to get my head around in a way that not cynically, not paranoid, I just don't know. There's so many different providers that are all at very meaningful revenue scales. Yeah. The scale Mercor market? Yeah. As we said, with your Mercos, with your Turings, with your, I mean, there's 10 or 12 of them, micro ones.

42:07Miles Clements:I probably struggle with services, businesses in general, getting valued on like extreme, extreme ARR multiples.

42:14Harry Stebbings:You said about kind of the value of different revenue multiples. And we've spoken a lot about Mike and Atlassian before. There are clearly things that Mike is not able to do because he's public that private company founders like the Collison's are able to do. How do you think about the benefits of public versus private today? And given the liquidity so inherent within secondary markets, like we're seeing with even as early as your linears, where you're doing tenders for them, clay has tenders and then stripes on bigger scales, has obviously much more liquid markets. Why would anyone go public?

42:45Miles Clements:Well, the reverse is true too. There are things that Mike can do as a public CEO and that public companies can do that private companies cannot.

42:51Harry Stebbings:But I think you're asking the right question.

42:53Miles Clements:I mean, I think there's a reason a lot of these founders are staying private longer. What are the things that you typically needed to access the public markets in order to do? Liquidity for employees. You can certainly do that now as a private company. M &A currency and just increasing your valuation benchmarks or your valuation mark. You can totally do that as a private company. So I think that is all true. With that said, I think that applies to like the 10 best private companies in the world. Like Databricks can do those things. Stripe can do those things. There's a lot of companies that just do need to get public.

43:26Harry Stebbings:The trouble is those companies need to get public, but they're in the$2 to$10 billion range. Does anyone care about the$2 to$10 billion range?

43:34Miles Clements:I think you've seen this phenomenon where I would actually peg the range a little bit lower. These companies that have gotten public in the$2 to$4,$5 billion range, and then they never really break out. I think that's a difficult, that has been a difficult threshold for a lot of these companies to break through. And I do think this is why you see a lot of good companies waiting. People say, oh, it's because the investors will be underwater. I don't think that's actually the reason. I think it's because generally speaking, you want to go public and you want to be able to have like fairly clear line of sight to hitting the$5 billion threshold and trading beyond that because it's murky below that.

44:09Harry Stebbings:Is the SaaSpocalypse an overreaction or is it actually the fact that we were just bluntly valuing them far too highly on actually relatively mediocre 18 to 20 % growth rates? and this is a realization of that?

44:22Miles Clements:Fundamentally, people are valuing the future cash flows and the future terminal value of these companies differently. And I don't think that's wrong, but I do think this has been an over-rotation. What is the most oversold stock? We are not a part of Figma, but have a lot of respect for that company. But I know that Dylan is a generational founder and it's a very important company with an incredible financial profile. And it just feels for a lot of ways, for a lot of reasons, oversold.

44:49Harry Stebbings:We mentioned the liquidity inherent within companies now as it goes later and later stage. How do you think about when's the right time to take chips off the table?

44:57Miles Clements:I think you have to operate from the first principle of what is best for the company. Now, if the company is saying, hey, we're going to do a big tender and a secondary round that it's okay if investors want to sell, I think in those circumstances, it's generally wise to diversify. But I think that it's got to be the right thing for the company and for the founders first and foremost.

45:18Harry Stebbings:Can I ask you, I'm sorry to be so annoying. I used to be so nice. You should have done the show five years ago when I was a sweet little boy. That's just not true. When you look at, say, a WeWork, Benchmark were fantastically smart to get out of it. When you look at Lightspeed and Jeremy Liu selling with Snap, they were very wise to get out of it. We're seeing prices so far ahead of company traction now. It's not in their interest for the investor to sell. Jesus, we're paying four years ahead of time. It's in our interest.

45:46Miles Clements:But it's so situational. So as a principle, do I think it's good to get liquidity back when it's available? I do. But it's so situational. You use the WeWork example. We were not a part of WeWork, but had I been a shareholder in that company when it was worth like$50 billion, I don't know a whole lot about the commercial real estate market and the office space market, but I probably would have been seeking liquidity. That just feels rational.

46:11Harry Stebbings:But does it not seem rational to seek liquidity at Mira at$17 billion?

46:15Miles Clements:I think that was, you know, we didn't take liquidity out of Miro at$17 billion. But again, what was Andre doing? What was the founder doing? What did he, you know, what was the course that he wanted for the company? And that's like the only thing that matters. The example I would point to is CrowdStrike. Samir Gandhi and John Locke intersected CrowdStrike when it was, you know, there was like a million dollars of software revenue and there was a$9 million consulting business. And like that was the company. And I think they invested in 2011 at 160 post. Now, there have been nonstop opportunities to diversify and sell CrowdStrike stock.

46:51Miles Clements:It's a public company. You could do that today. But Samir and John led the next round. They led the next round. They bought the IPO. And, you know, it's a$100 billion company today. We're sure glad we didn't take chips off the table.

47:01Harry Stebbings:The question there of like, you mentioned obviously buying into the IPO and kind of the decision to hold thereafter. You know, obviously, Secora have that evergreen vehicle, which there's been a lot of talk about. Do you think that venture firms should have the responsibility of managing the book into the public? Or do you think it should be a distributor LP and it's discussed from there?

47:19Miles Clements:Yeah, I think fundamentally we're in the business of identifying outlier founders. If you're a multi-stage fund that gives you the flexibility to stick with some of those founders for the long run, you should definitely do it. I think in the George Kurtz case, absolutely worth doing. In the Mike Cannonbrook-Scott Farkar case, absolutely worth doing. But not every company has the mechanics to compound for a long time. You can't just do it as a blanket rule.

47:45Harry Stebbings:I don't like public markets right now. And I think it's just a bad place to be because you're seeing the casinoization of public markets where a Citrini report can wipe billions of dollars off. Anthropic doing a security release impacts CrowdStrike. I think the public markets are no longer rational.

48:06Miles Clements:Yeah. To me, it's not good or bad. It's just a different asset class. And it's stick to what you're good at. And I don't think we would be excellent stock pickers. but I think we're pretty good at what we do in terms of early stage technology investing. So I just think it's an asset class that I'm never going to be best in the world at understanding public stocks. And I think that's okay.

48:24Harry Stebbings:Who's the best sourcer inside Excel? Sourcer is finding great companies.

48:29Miles Clements:Christine Esserman, really, really good eye for companies. And she is relentless in getting in front of founders. She's great. Who's the best picker? Andrew brought you by far. Andrew is wise. Andrew has seen success at incredible scale. He's our best picker.

48:46Harry Stebbings:When it comes to winning, core part that we don't talk about enough, I don't think, who's the one you're like, okay, we need to win the deal. We need to bring in.

48:54Miles Clements:I think Samir Gandhi is incredibly compelling and hits it off with founders in a very special way.

49:01Harry Stebbings:Do you think the best founders need your help? I was going through the pillars of venture there in terms of sourcing, selecting, securing, and servicing. And I was like, do you think the best founders actually need your help?

49:12Miles Clements:I think need our help is an overstatement. I think of the role of a good investor. There's basically these bumper decisions that come up a couple of times a year. If you're a founder, your life is a bunch of little decisions and then a couple of really big decisions. The little decisions are design decisions about the product and pricing and should we dial up CAC and should we make this hire? You don't need an investor micromanaging you through all the little decisions. I do think every year, there's probably a couple of like big decisions where having a good sounding board can be really useful.

49:48Miles Clements:Should we do this partnership? Should we make this acquisition? Do we need to pivot? And there, yeah, I think having a good investor or just a good partner to the business can be really useful. It's all about striking the right balance.

50:01Harry Stebbings:You'd like being involved in that.

50:02Miles Clements:Yeah, I love it.

50:03Harry Stebbings:Who's the best board member you sit on a board with?

50:05Miles Clements:The best board member I've ever seen in action. My friend Ravi at Sequoia is a very good board member. He was at Sequoia, now he's doing his own company. He's done a lot of different things. He's been an operator. He's been a buyout guy. He's been a growth equity investor. But I think it's more about his demeanor and the humility with which he delivers feedback. He has this way of sort of saying, let me politely make an observation and you can sort of choose to accept it or reject it. There's just sort of like wisdom and humility in how he communicates, which I appreciate.

50:36Harry Stebbings:If you're a founder listening to this, what advice would you give them on how to observe for potentially not helpful behavior from a board? There's a lot of bad board members.

50:46Miles Clements:I think there's generally an inverse correlation between how vocal somebody is and how helpful they actually are. So the person who just has to get the first and last word in and shows up at the board meeting and has to teach you something that you didn't already know. Like, I don't actually think

51:03Harry Stebbings:that is the model for wisdom as a board member. It's a brilliant one. The coin box that rattles loudest has the least in it. And another one that a fan told me the other day I thought was helpful is like my lesson from boards is VCs are great at identifying when to hire someone and they're awful at identifying who to hire. Your buddy is probably like the CRO of Atlassian. That's not great for my 10 million ARR business. That's exactly right. That's not a good thing. That's

51:29Miles Clements:exactly right.

51:29Harry Stebbings:So yes. Dude, I'd love to do a quick fire with you. I'd love it. So Seed Firm, Series A Firm, and Growth Firm that you have to invest in. And it can't obviously, obviously you put all your money in Excel. Yeah. Yeah, of course.

51:42Miles Clements:Seed Fund, I really like the guys at Liquid 2. Nate and Matt Mulvey. Those guys are prolific. They have an incredible network. They have great taste in companies and they are kind, enjoyable people to work with. So when they send me something, I take it very seriously.

51:58Harry Stebbings:Series A?

51:59Miles Clements:The vocabulary on what a Series A is these days has evolved. So I'm not sure how you would bucket these guys. I really like the team at Meritech. I think they have very good tasting companies. They do some Series B and later stage things also, but great tasting companies and they are gritty and they hustle. I would say it's not coincidental that Max and Alex were also trained at Summit Partners. I really respect that part of their pedigree, but I really like those guys. Growth? How can you not acknowledge how successful Josh has been at Thrive? I really admire the way that they have scaled a business that not only can initiate investments and invest across funds, but really reflect their conviction at the late stages.

52:41Miles Clements:So we compete with them fiercely. We also work with them. I've gotten to work with Miles Grimshaw through the cursor board, which has been a great experience.

52:49Harry Stebbings:Miles is amazing.

52:50Miles Clements:He's great. He is my much more articulate, intelligent VC alter ego. the other miles. But we have a lot of competitive respect for those guys.

52:57Harry Stebbings:He's also like a marathon runner in like two hours, 10 minutes. This guy is like a specimen of a human being. I could finish a marathon

53:04Miles Clements:in two hours and 10 minutes like on a motorcycle but it's different. Honestly, I see miles

53:08Harry Stebbings:and I'm like, oh, I need to be better as a human being. Different strikes. I totally agree with that.

53:13Miles Clements:I could win in an arm wrestling match.

53:15Harry Stebbings:If you could add one person to your team, who would you add? This can be completely hypothetical. It can be Pat Brady, it can be Josh Kushner, it can be Eli Gill. They are going to most move the needle in our ability to win.

53:28Miles Clements:I'd probably try my very hardest to talk Mike Cannon Brooks into retiring from operating into being an investor. He would never do it. If I could go to war side by side every day with somebody, it would be Mike. Never bet against Mike. What about other VCs?

53:43Harry Stebbings:I agree with you. I think it might be amazing. I'd probably take Neil Mater. I don't know anyone who has the investor breadth that Neil has from doing windsurf's first round and sticking with them throughout many pivots to doing carvana in the public markets and having that breadth of aperture.

53:57Miles Clements:This is actually a really fucking good question. Or Mickey Malka.

54:00Harry Stebbings:Mickey Malka's ability to see trends so early is just exceptional.

54:06Miles Clements:I'm going to answer this one, but it's a really good question I hadn't thought about. Do you ask this one a lot? This is a really good one.

54:11Harry Stebbings:Thank you. I saved it for you.

54:12Miles Clements:Thank you for that. This is great. I'm jet lag discombobulated and I didn't prepare for this. I think somebody who I not only have a lot of professional respect for, but somebody who I personally just like a lot is actually Matt Bornstein at Andreessen. Do you know Matt? He works with Martine. He's deeply technical and very thoughtful. He's instrumental in there finding the cursor investment. Matt doesn't like admitting that he also has an MBA from Harvard, but we sat next to each other for a semester at school. I really like him. I enjoy spending time around him. I think he's really, really smart.

54:45Harry Stebbings:What advice would you give to someone starting their career in venture today?

54:50Miles Clements:I would give the same advice that Arthur Patterson gave me and says all the time to us as a firm, which is it's just about professionalism. Arthur says this thing that anybody, any firm can be professional over short periods of time. But his aspiration in starting Excel with Jim was to maintain a standard of professionalism over long extended periods of time. That means respecting the process, respecting the partner meeting, respecting the portfolio review, respecting the rituals of the firm and going about the job in a professional way. I would give that same advice.

55:24Harry Stebbings:Tell me, what deal did you not do that you wish you'd done in the last 12 months?

55:29Miles Clements:I think Eleven Labs is a clear company that we wish we had been a part of. We haven't spent enough time with the founder, which is our loss. I think we really regret that one.

55:39Harry Stebbings:Did you try and do the 11 billion round? We didn't. We didn't.

55:42Miles Clements:You know, as I said, nobody has a perfect success rate. Like this is one that at the next offsite, we will beat ourselves up over. But as I understand it, very special founder, very clearly an important part of the modern AI stack. So that one stings.

55:54Harry Stebbings:What's worse, losing or not seeing it? Because losing, everyone says not seeing it, not seeing it, but losing really sucks.

56:00Miles Clements:They're equally bad, but losing stings more. Having had the opportunity and failed, stings.

56:07Harry Stebbings:Can I ask which loss hurts the most?

56:09Miles Clements:I don't know that I would characterize it as we lost, but the company that I really, really loved, the founder, and we didn't get there was Shiv and Abridge. We actually hosted this AI dinner a couple of weeks ago, and I was like, I'm going to manipulate the seating chart and get to sit next to Shiv because I think he's generational and very good. And I regret that we didn't get to work with him.

56:30Harry Stebbings:What win feels the best, that moment of jubilation?

56:34Miles Clements:There was one where I was going through some personal things and happened to be able to compete for and ultimately win the opportunity to work with Linear. That one on a personal level was maybe the best week. It had been the worst couple of months that I'd experienced in a long time. There was this very surreal week where it felt like Kari might decide to raise capital. I basically decided that I was going to go park myself in Southern California. California, you know, he lives in Del Mar outside of San Diego until he basically decided, you know, whether or not he was going to raise money.

57:05Harry Stebbings:When you say parked yourself there, I didn't mean as badly, but like, he literally parked outside of his apartment.

57:10Miles Clements:No, I like got a hotel room somewhere and I would like get up and go for runs and see if he wanted to hang out and try not to bother him. But in the event that he said, yeah, I'd love to get lunch. Like I just wanted to be nearby. It's a little bit creepy as I say it out loud, but at the time, you know, it seemed right. And I had a lot of stuff going on at home. It was my best friend, my best friend Craig's birthday. Craig, by the way, is the only reason I got into this industry to begin with. He got me my first job and then my second job.

57:34Harry Stebbings:And, you know, I was flying back and forth.

57:37Miles Clements:I would go home, see my kids, go to San Diego, sit there, try to hang out with Kari, go home, attend Craig's birthday, which he wouldn't have cared about. But he's my best friend and I needed to do it. Go back down to San Diego. And there was just a lot coming to a boil in my personal life. And when Kari called and said that, you know, he wanted to work together, like it was pretty euphoric. I will always remember that week. And it's been a special company to work with. But on a personal level, that one felt pretty good.

58:00Harry Stebbings:The two companies that I've never had more requests for intros to is that I had just carry every growth investor wanted to meet him before that round. It was like, it was annoying, to be honest. And then Lovable was really annoying. That was really annoying. Pre the round that Genia did, because we were in the round before, it was just embarrassing. I mean, like five to ten a day. And it is very awkward.

58:25Miles Clements:Who else are you getting bothered about right now? I should go see them while I'm here.

58:29Harry Stebbings:Yeah, there's two or three. And it's so funny. You see the investor wins where it's just like, you don't bother sending it to the founders because it's like, I'll send you a list of names of people who want to.

58:38Miles Clements:Yeah.

58:38Harry Stebbings:And it's even worse for me because I often have them on the show. And so people assume that you're great friends. Yeah. I know I just met, like, you know, whoever it is when we did the show.

58:48Miles Clements:I just assumed you were best friends with everyone who comes on the show.

58:50Harry Stebbings:Best friends. Final one for you, dude. What are you most excited about when you look forward? I think it's really important to be optimistic optimistic optimists make money, pessimists are right. What are you most excited about?

59:01Miles Clements:Honestly, the thing that I'm the most excited about is watching the younger team at Excel flourish. I'm not smart enough to predict where the world is going to be a decade from now, but I can tell you that Christine Esserman and Ben Quazzo and Josh and Rohan and a bunch of folks on the team, Gonzo and everyone who's going to be mad that I'm leaving them out. We have such a talented team. They are the unsung heroes of the firm that don't get necessarily the attention that they deserve. I'm so excited to see what they're doing a decade from now. And like, I'm proud to know them.

59:28Harry Stebbings:Dude, it's such a pleasure to have you on. It's so nice to see you in person. Thank you so much for joining me, dude. This is a blast.

59:33Miles Clements:Thanks, Harry.

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