20VC: Max Altman on The New Seed War: Can Anyone Compete with Sequoia and a16z | Leaving $2BN on the Table with Reddit | Lessons from Backing Rippling at $25M Post | Why Climate Tech is a Mirage and Disaster

25:46And I don't think that feels good for anyone. Like, that's not how businesses are going to work moving forward. Do you think climate is a luxury concern? And what I mean by that is like, you know, of course it is. I think it's very real. But yeah. And so your regret is doing climate. Yeah, I think we wanted to be somewhat involved with it. And there were a lot of amazing founders building in it. And they're going to build great things, but they're not going to get us great VC returns. Any others? Yeah, I think it's sort of stay in your lane. And this has really set how we've built in Saga of like, look, I think I'm a very good seed investor.

26:21I think I have a great network and people like me. I think I can slip medium-sized checks into a lot of great deals, but I don't think I can go out and win Series A's at this point in my career. Why? It's a knife fight. And Founders Fund and Sequoia and Index and Kostla, like they're amazing firms that have sort of locked it up. I went to go lead a Series A or try to lead a Series A one time. And I remember the other term sheet came from Sequoia. And I saw the email that the founder got. It was from Mike Vernal. And they basically said, hey, Sequoia is on the board of the six most valuable private tech companies in the world and the six of the 10 most largest IPOs of the last 12 months.

27:08And by the way, feel free to talk to any of these people about their experience working with Sequoia. And it was like the Collisons. It was like, you know, Dylan at Field. It was the guys at DoorDash. And I'm like, dude, I'm not going to win this deal. Like, why the hell would they take my money against that? So don't try to do that. I'm clearly gonna lose the deals that I want to lose and if I win them It's probably not the ones that I want So the takeaway is then that you have to get in before them You have to get in before them or partner with them Do you not find that they are there so much earlier now?

27:40They're there from pre-seed and seed. So go ahead and have square arc for fuck's sake I don't I mean if they did you and I wouldn't have a job frankly I don't think we do We do what? We do have a good job Honestly, why am I in Europe? I'm in Europe because they're not here. I'm in Europe because I can absolutely beat them in Europe at Cidane with a very high win rate. I'm not in the US because why the fuck would they take me when you've got Andreessen or Founders Fund or Benchmark who do the large, large kind of first rounds or any of the great firms with a super low cost of capital. so they're less price sensitive than me, with the brands that they have and the networks they have.

28:21Why are they going to take me? I think seed in SF is for Saga's. I really don't agree with you. I also think the data points of the funds I've done will also disagree with you. We've built the model. Saga is a$125 million fund. If we have one winner and we start with 10 % of it and we can't cover the whole market, we only cover a portion of it, the fund's great. If we start with 10%, end up at 7 % of IPO, it goes for 10 billion, returns 700 million. We just need one. We don't need to be Andreessen where we lead 10 or 20 seed deals. And I also disagree with you that they have them all locked up.

28:59I think there was a stat that came out recently of like post-transformer world in the last four to five years of all the AI companies that have started that are now worth over a billion. Of the first 40 of them, only one person had two lead checks. and that was Andreessen and no one else had two. And if you look through the smattering, there are, you know, Green Oaks is in there, a lot of gills in there, but there's a lot of other random people. And there's really not something where Sequoia and Andreessen is taking up half of those lead checks at the seed. You're totally right. I'm totally wrong.

29:33And your breakout company is profound that you would say. Yeah. Okay, where's profound? Profound's in New York. Oh, right. There we fucking go. Yeah, no. There we go. We gotta be everywhere. Ladies and gents, point for. But I think we have some good companies in San Francisco as well. But yeah, Profound was in New York and we were able to start with a really large position there. And they've obviously had tremendous success. And if that works, the fund's great. And that's our model. We don't need to cover everything. We need to have a few people who love us enough to take our money early on. Do you think the multi-stage players are doing seed well?

30:06No, I don't think they can. And obviously, I'm biased saying this. Because obviously, I don't know if you saw the graph, but it actually outlined how many investments. I'm slightly butchering numbers, but I think it was Andreessen's done 70 seed investments over the last two years. And Sequoia was second with 26. It's a very active strategy from both. Sure. And I think if there's a seed that we're competing against and Mark Andreessen is doing the deal and he's like, I'm going to join your board, we're probably going to lose. But I don't think that's what's happening. And like, not to be an asshole, but usually it's, you know, a partner at Andreessen.

30:39and we can sell against that. We can just say, hey, you are not gonna get the time of the day with the GPs. We have a three GP only firm. You're gonna get the time with us. When you go do your series A, we will be the conduits. I agree with you, they need to have a Thrive or a Sequoia or a Kleiner brand at some point to succeed. But work with us now and we will make sure that you graduate and get in that sort of branded tier one firm by the series A or the series B and you're gonna be successful. I think it works a lot of the time. The one thing I do say to them that really does resonate is the price alignment.

31:14And it's like fundamentally you want people who are price aligned to optimize for the next round. And if you get Andreessen at seed, they're not being like, hey, you should totally go and raise at the best price possible next round because they want to do it. Yeah. And if they don't do it, you're screwed. Exactly. And I know everyone says this, but like the risk of them not following on is massive. Like, I fully believe if they're like, hey, Sequoia led our seed and like, hey, are they doing your A? And they're like, well, they're doing their pro rata. I'm like, this is not a good company. Like, objectively is not a good company.

31:45So you think signaling is very real? Signaling is extremely real. Or at least it's like a good way for us to sell. But it's real. I totally agree. You know, the other thing that I think founders don't realize is it's also not always indicative of company quality. And what I mean by that is like people leave firms and then you're orphaned. And when you're orphaned, no one's internally pushing to lead your A because they don't really know you. I just took Vernal's place in managing the position, but I don't really know you. Sure, but they also have like$8 billion and they can't spare like 10 or 20 to put into the A.

32:16And like, to be honest, almost none of the best deals I've ever done have been sent by another fund because like, why would they? They're like, hey, there's this great deal. You should really get in. I'm like, if it was a great deal, you wouldn't be sending it to me. You'd be doing everything. And Harry, the same with us. If we have a great deal like Profound, we are putting in all the money we possibly can. We're obviously fighting with Kleiner and Sequoia, which is challenging because they also want as much as they can. But there's not room to bring in other people. So if a VC sends us a deal like it, we're not normally excited.

32:48The best deals we have come from founders referring their friends. Which founder, when they refer a deal, do you take it most seriously? Or so far has been the best deal referrer? It's a great question. We've had a lot of luck from a lot of actually the CTOs, to be totally honest. The CTOs in the companies that we are in, because they're a little bit less like flashy and they're connected to really deep technical people. We've had a lot of success of them sending us their buddies. Love that. VC-wise, when they send you a deal, who are you like, okay, I'm like, I'm on it right now. I think Box Group is great because I remember growing up around SV Angel and going to the Giants games with Topher and these guys were just awesome.

33:31And they're like, hey, our model is to do a little bit here and there. We don't need to lead anything. There's a reason why there's leftovers when they send them to us. And I think Box Group has actually sort of succeeded in building the same model. I remember everyone's like, hey, for those funds, this is not going to work. You don't have enough ownership. You need to hit 10 unicorns. And SV Angel was like, okay, we will. And they did. I really take seriously what the two of them send us. But you didn't decide that was the structure that you were going to go for. Like actually, when you look at yours, you are ownership sensitive.

34:02You're not an index fund. Why did you decide not to be the, hey, we're going to be in everything and we're going to hit 10 winners. And why did you decide for more concentrated? I think one of it is playing to my strength. I'm not everywhere. I live in Austin. My two partners live in San Francisco. go, we cover a lot, but we don't cover the entire thing. We historically have not, I've done basically no PR, which we can probably dig into later. We're not covering the whole universe. So I don't think that we're set up to have a smattering of 10 to 12 unicorns in this fund. And frankly, I enjoy spending a little bit more time with the founders.

34:40So we're doing 20 to 25 checks in this first fund. We'll get to construction. I just have to ask, you mentioned about kind of being in Austin now, Do you not think that your being in Austin negatively impacts your ability to get deals? No, I think there are actually some really strong companies in Austin, whether it's BasePower or Sironic. They're significantly less than San Francisco. But I've found that when I'm in New York or San Francisco, I make a lot of decisions and a lot of hectic decisions, but I don't make a lot of great decisions. I make the best decisions when I'm in my backyard, meditating by the pool, like calling the founder and really thinking through it.

35:15And I found in San Francisco, I couldn't have that level of like clarity of mind. Okay, so let's go to the first fund where we're like, okay, we're gonna do Saga. I love Bam, by the way, he's such a good dude. And so we decided this is the team. How did we come to the number 125 for the first fund? We were a new partnership. We built a model where we said, hey, we are going to do 20 to 25 lead seed checks. and then we'll probably spend 10 % of the fun doing what we're calling these like opportunistic deals. Jack and I had invested in owner.com before this. Adam, I think is an absolute killer. So when he was raising a little bit more, I texted him.

35:54I'm like, yo, can you like, you know, help us out a little bit? Obviously we went on to do a pretty nice size check in there and like, we'd be stupid not to, but the construction was around 20 to 25 lead seed checks around, you know, two or two and a half million dollar entry price. The math mass then was 30 % reserves to about 100, 125 million. And I think it was actually great to prove out that the three of us could work together. Obviously, we're going to size up from here, but I don't think it would have been great to start with 300 million. It's two and a half million dollars or two million dollars.

36:26Is that enough as an entry ticket? I find now that like seed rounds are five plus. And actually, if you want to have a 10 % plus, almost two to two and a half. It's not enough. Right now it is not, but we started this 18 months ago. And dude, Harry, 18 months ago it was. The deals were at 20 or 25. I was not seeing these 50 or 60 million valuation deals even in last year. How do you think about this? I think AdSym calls them like the watermelon seeds or whatever, the melon seeds or whatever we want to call it, align to a fruit. But the great person who leaves Stripe and they're raising 10 on 50, 20 on 100, How do you think about those deals?

37:06That's what's keeping me up at night. That's why I'm not sleeping for the last six months. I'm extremely price sensitive. I'm just like, hey, we get 25 bullets per fund. And if you pay twice the price, you get half as many bullets. And that's a really tough way to invest. That being said, like we can't fully sit out. And at least right now. It doesn't mean you get half as many bullets. You can just do the same check and have less ownership. Yeah, that's another way to think about it. My biggest mistake on the prior fund, it was a$33 million seed fund and$107 million Series A fund that was deliberately meant to be kind of more collaborative.

37:39We could have done 11 labs at a 25 and put in 200, 250. And it was 1%. And I was like, we can't do a 1 % deal. That would obviously have returned the fund many times over. And very stupidly, I was too tied to ownership. Yeah. And that's been me kind of forever. and I think my partners now are luckily pushing me in the opposite direction, and I'm really warming up to it. Though you have to believe if you're coming in at 50 or even 100 for a seed, that there's a way that this thing exits for 50 to 100 or 200 billion. It can no longer exit for 5 billion and have that be a good investment. So you have to believe that's possible.

38:17And I kind of think that is the direction where things are going. Like not to be on the AI hype train, But I do think we are going to have a lot of exits eight years from now around the$100 billion mark. I have a framework for the three things that I would need in a deal if it's kind of slightly off strategy, like 1 % of 11 apps in this way or like a situation here with the Stripe. And it's one, financial. Do I think that we're going to make a 10x plus? If you're going to make a 10x plus, just do the fucking deal anyway. I agree. Two, does it give us brand halo effects? We're both building firms.

38:50if you're investing with Sequoia, Kleiner, the best of the best, you do get a brand halo from being associated. And then third, do we get network benefits from being close to Matty? He will share super cool deals from the best in AI in Europe, and we will get a network that we didn't have before. And I think if you have those three, if it doesn't tie to the 10%, I'll still do it. Yeah, absolutely. And I love that you mentioned the last two of just having the brand cachet and being around the best people. We've done that. I've done that for the last eight years. Like it's absolutely the right way to invest.

39:26You go to people's websites, other funds, and they're like, we've invested in all these amazing companies. And you're like, well, I do that too because it really helps. And founders don't care if you did a 25K check or a million dollar check at the seed. They just think that you've invested in the best companies. We absolutely should be doing that. So you would say to do brand checks because a lot of managers like, oh, I don't know. It's not pure. Absolutely. And also, like you just said, it gets you around the right people. It is always a good thing to have a CEO of a multi-billion dollar company that you're texting with on a weekly basis.

39:59It's never going to be bad for the firm. Totally agree with you there. OK, so we have 125. How is the fundraise process? It was pretty easy, relatively speaking, but it was harder than I was maybe expecting. How long did it take? Five to six months. Pretty good. Pretty good. But I don't know, it felt longer when I was there. Why was it harder than you thought? We were three partners who had not had traditional VC backgrounds. And it was a new partnership. And I think the biggest reason we got no's was everyone's like, you haven't worked together. You're not living in the same city. So we want to hold out and see how these things go and feel it out for fun, too.

40:40Also, we went right to institutionals. I was fortunate enough to not be a maybe traditional emerging manager because of the prior fund track record. So we went right to endowments and foundations. And some of them loved that. We ended up with, I think, six endowments in the first fund. But a lot of the endowments don't love new partnerships and first funds. And we were sort of elephant hunting rather than going to some smaller family offices. Was that a mistake in hindsight? No, it was amazing. because now we have really sticky, amazing capital for the rest of our careers as long as we like perform.

41:13And then going into fun too. What would you advise managers on anchor hunting? This was the advice, but I will give him credit that Sam gave me that I did not listen to, which is don't talk to other LPs until you have your really high quality anchors locked in. And then of course we went and talked to everyone and everyone's like, how much capital have you raised? And like, we're about to raise, 20 from this person. They're like, okay, so you've raised zero. But we had a few people that I had worked with before in Hydrazine and Apollo. They took a little bit of time, but we got them across the finish line.

41:44They came in with some pretty nice checks. And then we went back to the other LPs and they're like, oh, okay, we're automatically in. These endowments that have worked with you before are in. Clearly you must be good. So I think wait until you have your anchors locked up. Did you notice that different LPs wanted different things? Endowments, foundations, pensions, corporates, family offices, did you notice a disparate communication requirement? Of course, they're all incentivized completely different. A fund of funds or someone that works at a family office is incentivized to get the best returns possible because they're paid out on the upside.

42:21An endowment or a foundation, for the most part, just wants to keep their brand intact, have a nice relationship with you, make sure you don't do anything dumb. But like, why do they care if you're a 7x fund or a 2x fund at least financially so we absolutely saw that as like for the more traditional institutional capital like give them a story and a product that feels good for what they're investing in for a family office or a fund of funds tell them how much money they're going to make if they invest with you what's the largest check you have in a 125 fund 15 i don't really want more than 15 from any one lp so we have then like six core endowments did we do the brand as well were we just getting a load of founders to put in community tickets or not really no and i don't have a good reason to why not we just sort of said okay great we have this we had our number we're done i think in the future we might spend a little more time getting that in what was the biggest surprise about the fundraise that the goal was not to tell the lps how much money you're gonna make them even though they're financially you know my job is to get lps the most money back and i thought that's what they wanted to hear but i think what they want to hear is you have a strategy that fits exactly what their portfolio wants i think it's also a way to show naivety with respect which is like if you come out with these big numbers of oh we're gonna i have so many young gps and i sound so fucking old despite being quite young but i've been doing this 11 years so yeah and uh they're like oh you know if we really fuck up we'll be like a seven eight x and you know if we really hit it up and you're how hard it is to do a 5x.

43:58It's hard. And so I think you can show your immaturity and naivety if you throw out numbers. Absolutely. I was fortunate enough to have data from the earlier funds to say, we have absolutely crushed it. And we're now at about 4x DPI. I think we can get to 5 or 6 and we knocked it out of the park. 10 is insane. Our goal here is to get you to 4 or 5. And that's amazing. If someone comes in and says, we're going to get you an 8x, I would kind of walk out of the room. Totally agree with you there. And so we have 20 to 25 positions, 3 million each, reserves a little bit, but you're not doing much reserves there.

44:33We have a third for the reserves. Not really, mate. Do you think... Sub fees, you're at 100. And then you're at 2.5, 30, you're at 75. Yeah, so we have like 25 % realistically. Harry, question for you. Do you think pro rata is a real legal right? No, but I think it's a moral obligation that you earn, which is like, I don't think anyone should have a right to in the future bullshit. I think you earn the right to step up and write another check. Yeah, I 100 % agree with you. And you have to earn the right for doing your pro rata in the series A and the series B and the series C. But I think we've gotten to a point where Sequoia or Kleiner or someone leads you around.

45:15You're not often getting your full pro rata. And I think you have to be honest with yourself on that. So I think a lot of the times that I've learned is like, hey, model in the pro rata, but you're only going to get 70 or 80 percent of it. We've never had 100 percent of ours taken away, but we've definitely had cases in a really great deal. Who's the worst? No one's the worst. They're doing their job. Like, what am I supposed to say? Number one rule of an interview, when their voice goes up a notch in terms of tone, no one's the worst. You're like, okay. But I mean, like, realistically, we're in a place.

45:45Who's the most collaborative large fund? I've had a great time working with KOSLA in this fund. We've had two deals where we've ended up at the seed with 10 % and they've ended up with 10 % and we've just had a great time working together. Who's the least collaborative? Sequoia is tough, man. I don't blame them. Like, they're the best of the best and I don't blame them. That's very funny. So I don't think it's like a legal right. I think it's something you earn the right to. And I think good founders understand that and will fight for you to have it. Yeah. And in our cases, the founders that we've spent the most time with, they always go to bat.

46:22We get 70, 80 % of our parada, even in the best deal. But often they say, hey, can you step back a little tiny bit? We're seeing incredible preemption on rounds like never before. You've obviously mentioned profound a lot. There's this incredible preemption on rounds. Do you tell founders the money's there? Take it. You have to. Or do you worry that actually too much money too quickly will distort the company? It'll absolutely distort the company. Like getting fat and happy early on is not great. You know, people used to say like, hey, be ramen profitable. And like, maybe we're not in the days anymore of like sleeping on a mattress in the ground, eating ramen.

46:59But I don't think it's good to say, hey, we can just burn through money trying tons of different things. There's no rush. Like, let's throw big parties. Like you need to have like a lot of fear that you're going to kind of run out of money every day to be pushed to work harder. So do you tell them not to raise that round? Yeah. How often do they listen? They didn't listen once in this fund, but for the most part, they listen. And I think what we tell them is, I think Mark Andreessen said it really well on my brother Jack's podcast is like, VC's job is to be a brand for the company until the company can build its own brand long-term.

47:35So I'm like, well, then our job as a new fund is to make sure we get them the best brand, whether it's the Thrive or Sequoia or Kleiner to lead their A. So we're like, hey, hold tight. Please listen to us and run a really clean Series A process and get one of those best people on your cap table. And then hiring will be easier. Selling will be easier. Raising capital will be easier. Super interesting. You said that you say, hey, don't. It can distort you. It can also king make you. And what you see with a Harvey or a Bridge or any of these kind of king made companies or a Rillit even. I don't know if you saw Rillick, but it raised from Sequoia and an iconic, very quick succession.

48:15It makes everyone else scared to enter the space. And so if you tell companies, and this is where I don't have the answer. I'm kind of oscillating with you on this. If you tell them not to, because I share your concern, then someone else can king make in that time. And that makes it very hard to get the oxygen back in the room. Oh, absolutely. One of my biggest fears for companies that we've invested in is Andreessen coming out and putting$100 million right off the bat into one of their competitors. That's absolutely terrifying. So I do believe, yes, we need to get all of the gravity behind our best companies.

48:50We need all the best investors. They need to get hundreds of millions of dollars to build out their moat and have their war chest against any of their competitors. I just don't think that should maybe happen right at the seed. Maybe wait until after the A to do that. Do you think profound raise too much too soon? No, they didn't raise that much. In quick succession? I think it's really hard if you get Sequoia to offer you money and be on your cap table and have that amazing brand halo effect to not take it. And I think someone always should. You said about raising a clean series A. Interesting description.

49:21How do you advise founders on raising a clean series A? What does that mean? I think it looks a lot better and feels a lot better if someone's raising 30 million and someone has a lead check that comes in with 20 and then they fill in the rest after that, people do these wonky things where they're like, we raised five from this person and we have this thing soft circle and then you get to your lead and they're like, there's only room for us to do under half of this deal. We're out. And I'm like, don't do that. I promise you they're gonna sit out if you filled up two thirds behind it. And I think a clean series A also looks like a nice process.

49:55The metaphor I always give them is it's like a big horse race where all the VCs are chasing you And what you want to do is maybe have one horse start first. So you maybe talk to a potential lead like a week or two before. Then you send the deck out to everyone. But you want all eight horses chasing after you at the same time. You don't want to have this as like a random sloppy process. I totally agree. I think the biggest mistake they make is they speak kind of sporadically. And what they forget is, and I don't think people know this, but like the WhatsApp, especially in Europe, WhatsApp, I don't know what you have in the US.

50:24But the WhatsApp group channels with associates, with junior partners, and I'm not being derogatory, but just truth, where they're like, ah, Max, honestly, company not growing as fast as I thought. Easy pass for us. That can be seriously detrimental when there's 20 other funds on it. Absolutely. Like, why would you not say we're about to start this race, work with your lead seed investor, get the deck ready. and when you're ready, open the gates, aka have me and my partners introduce you to one of the GPs at all of the firms and then have the fundraise process start. They have to do it that, they should do it that way.

50:58It's the biggest way that they fuck up and actually it really frustrates me when that happens. So it's also so annoying. They kind of, I don't know if they just want to be independent, but you'll speak to them and they'll be like, oh, I reached out to all these people. I'm like, why? I know Mamoun at Kleiner. Why reach out to someone else on the team who's more junior and who doesn't know the space as well who's the wrong partner i think there's two things to that one is it it's really hard if like a more junior partner from an andresen or someone like that reaches out or an associate another firm reaches out from a branded firm and they're like we want to talk to you it's you're like oh i feel great about myself oh my god i can't control myself i've done work on a space they've mind mapped it and they're like the one who's covering insurance yeah and and they go talk or you know the harry like there are a lot of people in this industry that say they know, you know, it's sort of like name drop, they know everybody.

51:51And then we're going to make this introduction to, like you said, Mamoon or Alfred Lynn. And they can't. And I think there's a few seed funders, I think both of us in this room can just like text those people directly. And I think some of the founders don't believe that, you know, we can necessarily do that. And it will be as easy as it is for us to do it. Do you find there's more and more low dilution rounds? This is another thing I'm finding, which is like before it was like generally rounds for like 20 % dilution. You'd have 15 for a lead and 5 % for angels and pro rata. Now more and more I'm seeing just the 10%.

52:24Yeah. I mean, I think it's just economics to be honest. There's now like hundreds of billions of capital chasing slightly more companies. I think the experiment we're going through right now and went through in 2020 is like, hey, if we put 10 times as much capital into the market, There better be 10 times as much good equity to be sold and 10 times as many amazing companies being built. And there's definitely more, but there's like two or three more. So now we have this system where there's just so much capital chasing not that many great deals. So the founders have all of the sway and all of the decision making of how they want to run their process.

52:59Are you enjoying this time? I like it. It's fun. People are building really cool things. And that's what's getting me excited is during that lull i was talking about when it was on demand dry cleaning like that's not fun i can't get out of bed to like go invest in that but now we're seeing people that are really swinging for the fences like it's fun to think about you know andrel or hadrian manufacturing or you know saronic and austin or it's fun to just be investing in these really cool companies that wasn't the case before do you think trump has done more for us tech to help or to hurt him help i'm generally someone that less regulation is a good thing.

53:38It is opening up the M &A market, having people feel like we have a hot IPO market is wonderful because it gets money back to the LPs and the VCs get that money back and just everything is healthier. And I think it's clearly better. On the H1B, where did you sit on that? I sit in the UK where it seems like an obviously moronic decision. Terrible. Like maybe the worst decision related to tech that this administration has had. Like, First off, why would you not want an amazing engineer immigrating to your country? Just like straight up, we want all of the best, smartest people going to work in our country.

54:12And then also, it's really bad for the small guy. Like, cool, Amazon, Google, they're like, well, we got this really great engineer who graduated from IIT. We want him 100K, no big deal. But if you're a Cedar Series A company, it's completely hamstringing you. I was really frustrated to see that. But I mean, I actually went on CNBC. I said it's like the biggest opportunity for Europe. Or Canada. great for you guys phenomenal sadly we continue to put on a suicide vest and shoot ourselves when we're doing about companies that you like dude this was beforehand you said about a sphere of influence of ai labs and how that builds our framework for investment thesis i put what the does that mean okay that means i could not explain it well enough at least in writing a sphere of The influence of AI labs.

54:59Help me out. I was a CS and math guy. I was not an English guy. I think what I mean is when OpenAI and Anthropics started getting popular, everyone's like, we're going to build things that are adjacent to that. And they are AI voice or AI video gen. Because right now, OpenAI is worth$30 billion and is offering chat. And I was like, look, it's not because of inside information. and it's not because I know that he is one of the most ambitious people in the world, but like they're trying to be a multi-trillion dollar public company and solo anthropic. And that means they're going to have to try everything.

55:35Amazon tried making a freaking phone. You know what I mean? Like they're going to try everything. So if you have like the naivety to think you're going to build something that's really close to what OpenAI is building and they're not going to build it, you're crazy. Like, you know what I mean? So I think we've really stayed away from things that OpenAI will encroach on and just offer a better product. Everyone's like, oh my God, they had this Dev Day thing and it's going to kill a couple dozen companies, you know, in San Francisco. How often do you think they actually do kill them? And that's what I mean.

56:04Like, yeah, if you look at like an 11 labs, no one would touch that because like, oh, that's kind of a voice. I mean, Sam's going to come back. Well, turns out he didn't. Yeah. And I think there are a few examples where they just have gotten - Shopify and Stripe, partnership of the decade. Yeah, but I think you're forgetting the ones that are like, hey, we whipped this up in a weekend and it's sort of some API thing that OpenAI is going to build. I think 11 Labs is the exception to the rule. So this kind of led us to leading in what we're calling like second order effect AI companies that are further away from what OpenAI looks like when it's a$3 trillion company.

56:40How do you determine whether it's further away? Like it's a little bit of an art, not a science. I think I just try to visualize, I meditate and I visualize like what they're going to offer when it's a$3 trillion company. I sit in the pool and I think, will they do this or not? Yeah, but I think the two real things that I think about, one, what are these world-class engineers that are sitting in downtown San Francisco going to build and what do they not want to touch? So when we're looking at companies, we did a company called Fleetworks that we're pretty excited about and they are doing, while it's in the AI voice space, it is for supply chain trucking logistics and they're helping them match things better for shipping.

57:22And I don't think the people there are going to want to be calling and dealing with a shipment of oranges from, you know, Miami to New York that are late. I think they want to stay sort of in their ivory castle a little bit. If you have the chance to use every advantage to your benefit, and it's not public information, but it's like allowed, you're both private companies. It's not insider information. can you not just call your bro up and say hey are you gonna go into trucking and logistics he goes nah or are you gonna go into profound a lot of people with profound or peak were like oh well open ai will do it like can you just call him up and say hey dude are you gonna do it like he would with me or parker i think i i could i i don't i think for a lot of reasons is first and foremost like the company's under you know scrutiny like obviously i don't want to put him in a weird position where he's leaking anything.

58:16It just, it doesn't seem like good for open AI. And it doesn't feel good. Like I kind of want, and you might say this is stupid, to like earn this on my own right. I get you. If it was your buddy, if it was a adjacent company to Rippling, you'd probably text Parker and be like, hey dude, is this on the product roadmap? Yeah, sure. And he'd be like, nah, we're super busy, dude. And you're like, do you know what I mean? It's not actually that different. Yeah, I think I just want to be really sensitive as my brother that like he is not putting himself in a compromised position at all sharing information he shouldn't has his fame made your life harder or easier both i mean like hey let's be honest like clearly it allows me to have more success in investing where it's just like i have because of him some brand halo effect and people are like oh max do you invest in ai and i'm like i can you know what i mean like there's something around that it definitely helps it helps a little bit with deal flow.

59:10I think it makes it worse of like, dude, when I'm in San Francisco and you're out at like a party on a Saturday night, you know, someone will ask about it. You know, my friend wants to go work at OpenAI. Can you help him get a job? I'm a little bit just like - Do you get that? Yeah, San Francisco, of course. In Austin, I don't. San Francisco, I get that all the time. Oh, God. Gross, right? Oh. I love a lot of the people there. The culture can be challenging. Do you not just find it transactional? It's like also like, it's like with me. Okay, it sounds awful, but people will be really nice to me And I think, oh, they like me.

59:41No, they just want to get on the show. And it's like, they just want to meet your brother or ask you a favor with your brother. And they'll wait till three coffees down. And they're like, by the way. Yeah. And you're like, oh, no, it's coming. It's coming. Yeah, of course. And I think I've been fortunate enough to know who's like that and have my sort of crew there that's not like that. But I do think it gives me more motivation to sort of prove that I can be an amazing investor myself and build out a huge brand for Saga. And I think that will take some of the pressure off of that, to be honest.

1:00:10It's definitely a driving factor for me. And frankly, we have not done the PR, but that's part of the reason that I'm doing it now to show that I'm a really good investor myself. Why not doing the PR? It was a mistake. So in 2015, 2016, when I started doing this, it was very much just hang out with great people, be a mensch for a decade, do a lot of favors, be really likable, and you're going to get into the good deals. There's now too many VC funds and too many companies. And I think right now you do have to do PR and build your brand. I think it just took me a little bit longer, frankly, to be able to come to that realization.

1:00:47But yeah, moving forward, and you are the first, I think the PR train is going to start a little bit. What do you want with Saga? I want to build, I think, what like a first round capital looked like when I grew up. I want to have something where 10 or 15 years from now, we are maybe a quiet luxury brand, a la like a Thrive or a USV where everyone's like, hey, they are the premier early stage brand. They're not as loud as everyone, but we think of them as excellent. So you don't want to get bigger and bigger and bigger? A little bigger. I think we'd like to be, you know, five or six GPs, two or three associates.

1:01:20So we have the incentives, you know, cap out around maybe three, four hundred million per fund. How do you feel about the prior generation of seed firms in the Valley? Because I think there's a really hard chasm to be in, transparently, which is you have seen the movement earlier from large multi-stage funds with larger costs of capital and bigger and bigger teams so they can actually equip them to do seed. And they've done that pretty well. Your founders funds to your sequoias. And then you have this new generation, which is your convictions, your use, and many new great firms. And then there's kind of the firms founded in 2008, 2016.

1:01:55Wow, you're in a bit of a messy middle. Oh, for sure. I think it's really challenging to be like a$700 million fund. Now I think you're either a really massive, powerful platform like an Andreessen or a GC, or you have the legacy cachet like a Sequoia or a Kleiner, or you have to be a boutique firm that has a very specific offering and stays small. and you kind of, I know you're struggling. Do you think like a first round or a floodgate or a uncork or a boutique seed firm that stayed boutique, you know, Felicis, I would actually put differently because I think they cleverly scaled AUM into a multi-stage very efficiently.

1:02:34But I think that boutique seed firm of old is in a tough spot. I think so. But I also think it's sort of just like every generation has a refresh. I mean, you mentioned Sarah, like I think Conviction is going to be a great firm. I think there's room to have a new set of firms maybe every decade. And to be honest, like I kind of think - Not on top of the old though. No, replacing. Yeah, I think they have to replace. There's not room for both. And so they are replacing the floodgates, the uncorks, the first rounds, because the multi-stage players have come in so efficiently. You can't have your bro, you, Sarah, me come in and not have a displacement.

1:03:10Yeah, and I think you have to. And I think I was fortunate enough. I actually interned for Steve Anderson at Baseline in 2009, who I think was one of the most amazing investors and taught me a ton. And then he kind of rode off into the sunset after hitting Twitter and Instagram and is like an almond farmer or something now, like living a great life. And those guys were absolutely amazing and really set the stage for what seed investing looks like. But I kind of think, yeah, we have to compete with them. We have to do better than them. There's not room for all of us. And frankly, I kind of think, Harry, you were younger when you started, so you might have a little more time.

1:03:45I got like 15 years of this until I'm really good and then I'm kind of over elephant and a new set of seed funds will replace me. What did you learn from Steve Anderson? He's one of the OGs. Yeah, it was crazy. I mean, I think I like Paul Graham connected me to Ron Conway. And then Ron was like, oh, you should meet this guy, Steve Anderson. I was like 20 years old and I was like, OK, cool. Like VC job sounds great. he was I think really focused on just doing a few things well and not covering the whole market and he sort of stayed in his lane he was liked by a lot of people and he just didn't try to cover everything he's got a fund of his size he just needed to have one or two good wins per fund I think he had more than that and I think it's kind of guiding how I'm building this fund.

1:04:30How do you think about selling and when to sell you know we see this extension in private markets where companies take much longer to get public, obviously, and secondaries are a much more active thought process for managers. I think trading, sadly, has become a lot more prominent part of our job, actually, as investors. It has, and I think historically I've held longer. We've also had some, frankly, that had their$5-10 billion valuations in 2022. What did you hold when you should have sold? It might not have hurt to sell Gusto. I think Gusto is a great business, but I think they were valued at$10 billion at one point, and I think they're still going to be a strong business.

1:05:10I don't know if they're going to have explosive growth from there. Great guys, but couldn't have hurt to take a little bit off the table. I think our job has definitely changed now. We need to spot when the market is inefficient, and there's too much hype, and some things just get overvalued. And especially as a seed investor, not a growth stage investor, if we can show that we're 100x or get money off the table at 100x, We don't need to wait for that 200 or 300x. So we have to sort of make our own. Again, it's almost like a gut instinct when we think it's overpriced. This all being said, some of the best advice I've got is that last double or that last triple comes really fast where, you know, things grow quickly and then they're around, you know, 500 million to a$2 billion valuation and they sputter in a little bit and then at the very end, they just go.

1:05:59And people are like, hey, hold Andro, hold more Rippling, hold more SpaceX is gonna double. And it's the difference between your 3x firm and your 6x firms. It's really hard to let these things go, Harry. There's two points. So the one on duration, it's like when you actually look at the numbers, when you have like a 4x DPI fund and it takes 17 years. Not great. It's actually the same as like a 2.6x fund in 10 years. Yeah. And that really struck me because you're like 4x, amazing. but actually the power of duration and time and the importance of time really has an impact on your material returns yeah oh if you hold for 15 years it needs to be 7 8x to make it worth it and then on the last double i completely agree again it was brian singerman who taught me about the last double and how as you said on your andrials going from 18 to 36 is not actually that fundamentally monumental a movement of company it can go there just progressing as planned but the 18 billion in value you're probably not going to see in the rest of your entire portfolio no i know and you risk losing it which is really scary do you think it gets better when you're just rich already and i think i so i actually have a theory on this which is like when you're sequoia you have a let it ride mentality because honestly you're not about shit i've got to return money to lp so I can get my next fund.

1:07:18You don't need more money personally, so it's not going to move the needle for you there. It's a let it ride mentality. Absolutely. And I mean, there's something to be said of like, if you're still early in your career and making money and you're like, hey, I can get out, I can sell this for a few hundred million, not to you, but you know, back to the LPs and you take a nice chunk yourself, or I can wait and see if it goes to half a billion. It's pretty hard to like not take what's on the table. If you don't need the money, like let it ride all the way up. What was your first big hit personally, like financially?

1:07:48Rippling and Reddit. We sold a little bit of rippling on the way up just because like our LP is one of money. And did you notice that change in your mindset? Yeah, it's a lot more relaxed where you're just like, hey, let's let this thing go. You do have to be careful in our industry, though, because it's just we're around a lot of people that have done really well. And I think it's hard to not get on the ladder to nowhere where you want more and more and more. So I'm pretty careful. Do you feel that you're on that? Like one thing that I've I was very lucky because I grew up so young in this business where people were so much richer than me that almost the competition just wasn't there.

1:08:23Do you know what I mean? At 20, you'd hang out with Doug Leone. And I have no money. And Doug's obviously very, it's fine. Yeah, I think I'm unfortunately in a little different position where I'm closer age to those people and just around them a lot. And I think for me, it's just very important to say, like for my own happiness and like ability to succeed at work to sort of stay off of that like hedonic treadmill. Do you genuinely think that they are happy in large part? Some of them are, some of them are not. Take every billionaire that you know. You know a lot, I'm sure. I know a lot. I would say one is happy.

1:08:57Yeah, I know a few that are. I think it's the ones that have kind of prioritized family and things. I think I would be less happy as a billionaire than I am right now. Why? Because of the things you're talking about. I would want a nicer house and then I'd want a boat and I want to constantly just upgrade my life. and I don't think I would just be happy with what I had. It's really dangerous because it's like, hey, I bought a$20 million house, but my buddy down the street has a$40 million house and I'm good friends with him and I go over there. It's really challenging, I think, to just say, I don't want that.

1:09:27What single purchase has brought you the most happiness? I got some really sick outdoor speakers from my backyard. I love listening to music. I love sort of meditating and just chilling back there and it was absolutely worth it. Dude, we're going to do a quick fire. So I say a short statement. you give me your immediate thoughts okay yep favorite underrated founder of the last five years so like parker's amazing but very much in the mainstream who didn't people not talk about enough who's a killer i think lux srini who was the cto at zenefits went on to build zero down it didn't quite work out but the timing was wrong and then joined leading a special kind of special architectural projects at rippling has just been an amazing guy to watch over the last kind of decade.

1:10:11What's the biggest BS about venture today? Oh boy. I think that it is, people say it's this sort of chummy, like collaborative thing where we're all kumbaya and having fun. And then like, you know, you get to it and someone just like elbows you out of the way. It's not, it's a competitive market. We're all competing for a scarce amount of good equity. Well, I think we've just seen the complete commoditization of venture and this is essentially Wall Street now. Yeah, absolutely. We look much more like a hedge fund or PE world than we do VC from 10 years ago. What deal do you regret passing on most?

1:10:45Hadrian. I was friends with Chris, just like socially. We were hanging out a ton during COVID, whiteboarding things. And I remember I just like wasn't, maybe I wasn't as aggressive those days. So I didn't give him an offer. And then like he talked to me like two weeks later and he's like, hey, like Delian's leading around and everything, you know, and I was like, well, you know, why didn't you talk to me? He's like, why didn't you talk to me? We were sitting together for like weeks on end. And I was like, oh shit, Maybe I should be a little more aggressive offering term sheets. What's the biggest lesson you've learned from Sam about how to analyze people?

1:11:15Figure out what someone truly wants. And the answer is not always money. It might be title. It might be recognition. It might be the ability to work on what they want. So when you're either hiring someone or trying to partner with them in any way, truly understand what is the most important thing to them. It can't just be compensation. What's the biggest advice you have to an emerging manager raising their first time fund? Be humble and know to stay in your lane. The worst thing you can do is come right out of the gate and say, we're going to lead series A's. Know what you're good at. That might be seed.

1:11:49That might be box group strategy. That might be coming in. But just stay in your lane and be honest with yourself. What did you believe about venture capital that you've since changed your mind on? That you could be what I call like a text guy where you can kind of just sit at home and text people and build great relationships and fly totally under the radar. I don't think you can do that anymore. I agree. And I think that's aligned to the commoditization of venture. That was my theory though, 10 years ago. Mike Maples always says, I look for an insight development in founders, a unique way that you see the world that others don't share.

1:12:22And the insight development I had 10 years ago was I thought we'd see the commoditization of venture and that you fundamentally need to show yourself differently as it got more and more crowded. Yeah, I remember when I first got to San Francisco, like Andreessen was more up and coming and I was like, no, like it's, you know, it's Sequoia and Founders Fund and Benchmark and they're just these loud, splashy people. I don't see this working. I was clearly wrong and they got it right just like you. I think they will do so well, I have to say. Absolutely. Like when you look at also the size of X, it's expanding so much.

1:12:55I was always like, oh, well, the rate of return is just expected to be lower and they'll be happy with that. No, no, not necessarily, because if Databricks is a$200 to$500 billion company, the return would be like, Josh, with his check into OpenAI, I don't want to bring in here. But at$30 billion, I was like, dude, come on. Well, actually, there could be a 30x on a billion-dollar check. Or more. And absolutely. I think people are like, how is Thrive going to deploy all this money well or needs to be these multi-hundred-billion-dollar exits? And it turns out there are. Or it's not just going to be OpenAI.

1:13:24I think it's going to be a lot of them. You know what I like about Marc Andreessen? And I saw a tweet from him yesterday and it was a newspaper article from like, you know, the early days of the Internet. And it said, you know, serious concerns about amount of Internet users. And I spoke to an LP yesterday and theirs was like, really? Like OpenAI, they've got all the users they could get for AI. And I was like, yeah, really? Like, OK. And it just I like the optimism. I don't understand people who are negative about the future and do what we do. Yeah, people also just can't wrap their head around the size of some of these markets.

1:14:02Like the example always is like, oh, you're selling software to customer service agents to like improve their efficiency. It's like, well, what if you just like were the whole market cap of all customer service agencies? I think that's like 400 billion of value right now. I spoke to a bank in Europe the other day and they said, oh, you know, about customer service. How much do you spend a year on customer service? Guess their number. 30 million. If it's a big bank, I don't know. Is it like Barclays or something? It was$520. $520 million? Yeah. It's a big bank. It's a big bank. So you're not selling software to it.

1:14:34You're selling the whole thing, the whole$520 million. That's a lot of fucking money to go to customer service. And even if, you know, the cost of labor goes down and it's like you can capture 50 % of that. This bank spends$350 million on KYC alone. I think people forget all the time just how big these markets are. one of the companies we're really excited about, we invested in is Stand, which is redoing the insurance market in California as all of the big insurance companies are pulling out there. And they're basically saying we can now use fly drones over and visualize the houses and help underwrite exactly what we think the fire risk is.

1:15:11Harry, right now, if you're in a fire zone in California, your premiums are like 5%, like literally 5 % of the home. Like if you have a $5 million home, you're spending$250 ,000 a year on home insurance and fire risk loans. So they're like, great. Other people are modeling this based off the zip codes. We are actually going to be able to have computer vision and model this. And we're going to be our own home insurance broker. Harry, if they succeed, the market cap of the big ones in the US are$100 billion. I think all states private, they're worth$300 billion. It's so freaking big and people can't get their head around that.

1:15:42Final one for you. What would you do if you weren't scared i think i would do a lot more to sort of brand myself as a thought leader i've definitely been a little bit more pr shy it wasn't like you know i always had like stage fright growing up i think i would be that guy who's just like hey i'm gonna host these fireside chats and i'm gonna like be the person who is everywhere and their faces everywhere dude i've so enjoyed this for me the joys is when it's like a real conversation and when it totally does not follow a structure which this one did not clearly did not but thank you so much for doing this with me man it's so nice to do in person yeah absolutely but before we leave you today secure frame empowers businesses to build trust with customers by simplifying information security and compliance through ai and automation thousands of fast-growing businesses including nasdaq angel list doodle and coda trust secure frame to expedite their compliance journey for global security and privacy standards such as SOC2 and ISO 27001, CMMC, NIST standards and more.

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