20VC: Turning a $15M Investment in Monday into $1.5BN in Cash | The Strategy Behind a 37x DPI $45M Fund | The Three Step Process to Selling Positions that has Netted Top Percentile Returns with Avi Eyal, Co-Founder @ Entrée Capital

28:08What are your biggest lessons on when to start selling down and how to sell down? When we started Entre, we put down seven or eight principles and one of the principles that we put down was how do we not fall in love with the value we see on paper and so we decided that the minute that the price per share of a current round is, I won't tell you exactly, but six or eight times your price that you came into the round, try seller third. And when you get to the pre IPO round or in the IPO across that kind of time frame, try seller third, when the lockup expires after an IPO, sell everything and or distribute the stock.

28:56The idea behind it is that in the context of VC, we're private investors, we're not public investors, we're not Goldman Sachs or BlackRock or State Street or etc. Our competence is getting the business to a place where there's liquidity and it's successful. From that point on it's someone else's opportunity. We've kept to that and that's managed to save us both in the case of Kazoo where the valuation got to two and a half billion pounds the round before the pre IPO and we sold a bunch and when the company wins public we sold a bit and when the... Were you able to sell? Yeah, there were challenges because how much you could sell but you know so we didn't sell a third at the IPO we sold I think it was 10 % at the IPO and then when the lockup expired it was distribute.

29:49It wasn't oh the prices at $5 now, $4 .55 it's not at $10 but at $4 .55 it was still $2 .5 billion dollar business. How much did Kazoo return for you? We did well. We did well. He can't play the game pushing. You did. That's a fascinating one. What does the take on a stripe? Ben told me to ask about this. Getting it, getting it. Ben's the closest to the scene, but the one thing that I've discussed with Ben and that we've worked on together is the same principle. Luckily for me, we're investors and Ben's fund as well, designer fund, which is a great fund. He took our advice well in the process and I think we've together, I think we've both exited close to 50 % or just on 50 % of our holdings and stripe to date.

30:39You mentioned when it lock up expires, you sell everything. Quite a lot of investors have the idea that they have asymmetric information. They've known the founder for a long time, they've known the company for a long time, and actually that best position to know what to do with that public stock. Why is that not the right case? Bullshit. It's a public stock. So you have inside information, then you run a risk. The fact that you've known how the company operates in the private sector does not mean that you know how the company trades in a public market, where it's at the whims of trading machines, of hedge funds, of other people that can manipulate the stock price and can move the stock price very easily.

31:22When you're a private company and you miss your quarter, it's fine. But when you're a public company and you miss even by one or two percent, you've seen situations where share prices can go down 25 percent, right? So I was fortunate to have a $40 million revenue miss and it dropped 20 percent. I know it was not that. People really fucked up on the analysis of that one, though. I listened to that. But you can't control that, right? And you're in the public market and you can't tell capital one or any other fund, public fund, what to do with their stock. So it's not your opportunity. The point of VC is to get companies to an exit or to get public.

31:59The point of VC is not to venture capital, it's not private equity, it's not long -only funds, it's not hedge funds, it's not asset public, asset managers. That's called VC for a reason. Doug Lee only said on the show and to me that the venture business has transitioned from a boutique kind of cottage history to an institutionalized, commoditized asset pass. Juga with that. As I said earlier, I think that then reasons and the sequoias of this world have become more institutionalized because of the large size of assets they manage. And you know, when you're managing tens of billions or hundreds of billions, it's hard to manage single -digit millions or 10 or 20 million with the same attention and the same oversight that you have on managing a 500 million or a billion dollar position.

32:56And I think that there in is the opportunity for or Tizinal or Bitech or smaller VCs where it does matter to them and a partner can bring the required attention for the required period of time to help you build your business. Do you think founders want your help? I remember Jason Lampkin said on the show, I found this one you give them money and sort of. It's great to have founders who don't need you. You know, they come to you for advice every now and again. They know what they're doing and building a great business and it's going great. So, case in point, when you look at Monday at the beginning, we were very, very involved.

33:35And if you look at Monday once it got to the CEO DOE, it was a meeting every month or every something like that. It just changes. And then they just need course correction sometimes, or a bit of mentorship or a bit of alternative advice. But I think by and large, when you start a business, you can use help. I was the first time founder as well. And I made many mistakes and the one thing that made me make many mistakes and yet still succeeds was that I had someone with more experience who was a mentor. So I wouldn't be so bold as to say that everyone needs us, but it's good to have a partner along the way.

34:13What in the idea do you think that people disagree with me on us? I think SUVs can be helpful pre -product market fit. I think this is something we drastically underestimate, which is I think a lot of founders that don't have a tight enough ICP, the product marketing isn't quite right, they're too diversified on channel acquisition, and actually, you can actually say, hey, we need to be tighter, we need to be more focused, and you can really direct the acquisition of product market fit by having those lessons. I tend to agree with you. I think that founders, you can't always have everything complete.

34:42Everyone's got challenges, everyone's got weaknesses. You, me, everyone, and so, So, you know, some founders have a challenge in understanding how to raise money. We've got a founder and he's an ex -Google fellow, he's got 40 patents to his name, unbelievable guy in terms of the technology side of the business. And he couldn't hire for shit. And what we've done is we've got an organizational development specialist on our team and she's helped him recruit unbelievable sales channel, you know, around him. We've got another person on our team who's been very involved in helping him understand how to raise his Series A which he did successfully But on the basis that we kind of gave him a path and we showed him how to pick which VCs to go to when to go to them How to go to them and he did the work But there was just that element that added that necessary gap that he didn't have Do you think the best CEO is the best one raises?

35:37No, I think it's a great advantage to have a CEO I don't think that if you can't raise you not a good CEO, I think there are, depending on the business again, there are businesses where the primary day -to -day job is not raising money. The primary day -to -day job is building a product and closing customers. Raising money is a necessary evil that needs to happen every couple of years, so I don't think that. I agree. I also think people often come with, if you think about it, you sell to three people, your customers, your team and investors. I mean, people like, yes, they are because you need to be able to sell to those three, but selling to customers and team is very different to selling to investors.

36:14Often it takes a different investor language, mindset, knowing what you've... Correct. ...compared to the other two. So you can be greater at those two, but not that. My mistake in the past cycle has been not selling when I probably could have done. When that's my biggest mistake, what's your biggest investing mistake? Well, my biggest loss as an investment was very early on. We invested in a Boston based company called Harvest Automation. A bunch of really clever guys out of I -Robot and... How much did you put in? Over the period time we put about $4 .5 million in and we lost the money and...

36:47All of it. All of it, to the cent. And as an engineer, I fell in love completely with the product and what they were building and robotics. And this was in 2010, 2011. But I didn't have a clue about Agtech. I didn't understand that these robots, they're going to run around, understood, they're running around the field and they're moving pots and things and, you know, etc. I thought, wow, we can do this, you know. And those, you know, we had like, light dollars on these things and, you know, and light dollars were like, at that time, I think it was the most expensive piece of the robot. I think it was like $12 ,000 for a light dollar.

37:24Today a light dollar can set you back $150 kind of thing. And I fell in love with the product and with the engineering. I completely was green and didn't understand that the founders weren't suited for this. The market wasn't suited for this. And so you learn your lessons as you go along. When you don't believe in a founder anymore, do you tell them? I've had on occasion the situation where I've had to have a heart to heart with a founder. What's the advantage of telling them this is a question that I ask myself. because it's like it's just going to hit that. They're not going to say, oh, you're right.

37:58I'll stop. I'll give all the money back to all the investors. No, I think it's, I think it's, it, it allows you to reset your relationship with the founder and reset their expectations from you as a funder, as a person who's either on their board or person involved in their business. And I think it's important because I think it's important to explain and put your position forward. Hear them out and I'm sure that in many times they have their rational, but it kind of allows you to then be honest with them and move on from that. They don't have to carry it, you don't have to carry it. It's much easier for everyone, just being honest.

38:36Monday, one and a half billion. What was your second best return? Hundreds and millions, I'll tell you that the next ten investments that were successful didn't equate to the gain on Monday. It's a hard lives. It is an unbelievably strange business. It is, but to say to my mother, can you imagine a chef when 99 of the meals that they cook suck at people. I hate them. They leave the restaurant. But one is the best in the world for that. And then they are the best staff in the world. No, I think a good restaurant is you have a few outstanding meals that happen on a night and the bulk of the other meals are good.

39:17and that's a good restaurant and hopefully only one or two people leave the restaurant interesting because one of the fund of funds looked at our portfolio a couple of years ago and they said to us that they couldn't get couldn't get us and the rationale was when they put us on their on their chart of evaluating they said your returns of top 5th percentile VC returns but your losses are private equity losses and they try to argue to us that we actually don't take enough risk. You know, our losses at maturity, in other words, we're not telling you, we've got three funds that are over 10 years old or are two or 12 years old now, 13 years old and one is about 10 years old.

40:02And at that stage, you know what the, you pretty much the loss rate has matured And the loss rate has been around 15%, 12 % to 12 % to other 15%. So you take enough risk? I hope so. Clearly I'm told not enough, but it's kind of in a public company, you know, they're right at the bottom of the quarterly. They're right there that past performances, no indicator of future returns. So it's easy to sit here and talk about the last 12 years, but keeps me up at night. What's going to happen with the businesses now over the next 10 years? because we have tens of businesses that are preceded, seed, and A, and they have to get somewhere, right?

40:40They have to mature and they have to grow and they have to succeed. You only as good as your last deal or you only as good as your next exit, right? What's the DPI on your best performance fund? 38x. 38x. But the other two funds, a small fund is $45 million fund, But the other two fans which are 80 million dollar fans the DPI is around 566 pretty good. It's yeah It's wasn't a big show to me though, which is like there's a generous I might sound so freaking old Bill Gertie calls me Boomer Which you know coming from Bill But I hate the way that so many like young artists like I don't know if it's like gonna be at 20x fun But we'll definitely be at 810x fun.

41:21I don't look at I'd kind of look at how many x's is the fund after your 8 or your 10 before in it just doesn't, doesn't count. Sourcing, selecting, servicing, three core talents of venture. How do you think about what you're best at and what you're worst at? Our sourcing could be much better. We're very good at servicing our, our companies. Where are you weakest and investors, say? In everything. Want to be better and everything. For better or worse, one of my characteristics is that I always think that I'm not good enough and I always have to improve. And... Where does that come from? I think it comes from much older, but I think comes from having very strict parents, having expectations by your parents.

42:01Did your parents tell you they were proud of you? Not enough, not enough. Did how your parents parent you, and the fact how you parent your children? I try to take the good. I hope that one day my kids will come back to me when they're much older and say that we did a good job. I had a brilliant one the other day, which is like success as a parent is when your adult children choose to spend time with you. They act to be more than happy. That's true. Another brilliant one is when you have well -behaved grandchildren. You know, I think as your kids get a bit older, I've got 20 years old and one is 15.

42:34I think that as they get older, they come to you for wisdom. I'm sure other parents are of guilty of this, as I am guilty of this, is that unfortunately, it takes us time to learn that they're coming to us for wisdom. And many times we inadvertently take it as an opportunity to control. So many times the advice we give them or the things we tell them is more about us trying to still control them or have some level of control over them versus trusting them that we've installed the right values in them and hopefully giving some of our wisdom that we've learned over the years. What we think about misses, I do think misses also shape mindsets.

43:14What's a big miss that you have? Now how did that shape your mindset? A big miss. I might as a Vanta. I remember Eli, the semi -vanta, and I met Chris Diner and I'll say, she's great, like, what is this sock too? Mrs. All good to have. Mrs. All things that it helps shape you, it helps you learn and it helps you, and you can't win everything, right? But Mrs. That you learn from, I'll give you two examples. There's one example where at lemonade that had done the A and I remember I was driving home and I'm speaking to the founder of Lemonade and we didn't do the A and I said to him, can I give you a safe because we want to be involved with you, we want to be in the business.

43:55And he said, God, let's meet and talk about it and I'm open to it and I said, all right, fine, I'm leaving, I'm going overseas, I'm back in a week, we'll set up, we'll do it. And the rush of things are forgot and never invested. Learn to listen from that. Fun enough, it's the same thing. We got it the A. Just after the A. Now I don't know that he would have taken it and this and that and etc but my mistake. So what did you learn as a result? If you're in that you cancel the trip and you do the deal, you write this safe when you're on the plane, is there anything you would do different? No just be more determined, be more action -oriented where you have an opening put in your diary, you know don't leave it for I'll remember.

44:34I kind of tell a lot of founders that there's three W's who what and when that everything they do has to be who what and when. When you start a business and when you're running off to your client and trying to get a customer or trying to develop a feature or everything else, it's very simple. Who's going to do it? What are they going to do? And by when are they going to do it? And if you install that kind of principle through your managers and they do that to their employees, then the culture that you develop in a business is that much stronger. That's one. You said they were two. The second one was literally a repeat of the first one and then there hasn't been a third one.

45:09That fucking memory, I should give you a memory game. That's like, I love that. Well, yeah, that's a pain in the ass. You know what I do? I send emails to myself with that subject, like, it's then safe to let me. Is there anything that you know now that you wish you'd know when you started on trade? Final one and then we'll do it quick for. The experience is something that you should go through. Do I wish that I had acted differently at different points along the way? I suppose so. I suppose we all make mistakes. it's not about making the mistake, it's kind of learning from it and dealing with it.

45:41And sometimes you have to learn how to deal with things differently. So I think it's a life lessons, but would I have it any other way? Suppose I'm a piece with what we've done and what we've built. Final one, I promise, for a quick piece. I don't know what they're saying. But you decided to be more public in terms of finding for Israel's right to protect itself and against global anti -Semitism. I spoke to Sean McGuire and she about this. and he said how amazing you've been and how you built your friendship. And on the back of this in many respects, why did you decide to be so actively public when it is easier for you to show your way, keep your views private?

46:15Shaun's a wonderful guy, so there's two questions here. The first is the new government that came into power in Israel in 2022. And the events that led to the October 7th Hamasatek on Israel and his Bollah in the North, which are still in play today, I find that Israel, civil society is broken today. Why is it broken? So contributions by one segment versus the expectations of another or misaligned in Israel, segments of the population. And as a nation, and as being a Jew, I feel we held, I'd like to think we held to a higher standard. And I find that our nation, our ego, our self -interest, coupled with things like corruption, are affecting our daily lives, and have been for over a decade, and it's gone into the situation where government services like education and things like that are breaking down, and that in turn is breaking down our social fabric.

47:11And there's enough blame to go around. The biggest consequence of all of this is October 7th. And I really fear that very little has been learned from the 7th of October and events leading to 7th of October. We've reached a critical juncture as a society and as a nation and things need to change. We need to change to empathy, to tolerance, to self -awareness and the restoration of our collective morality. The tide seemed to turn against this road where it's like incredible empathy and sadness for the terrible attacks to a belief that actually the response is not aligned. So we need a new generation of leaders in Israel.

47:52How Israelis feel? I hope they feel that way. I think a fear among do. But we need a new generation of leaders. You know, in Israel there's it's a young country. If you look at the bell shape of Israel versus other countries, given the high birth rate in Israel, it's a young country. And so there are two and a half million people, just over quarter of the population is under the age of... It's kind of between the ages of 18 and 30, in other words, voters. and they the future and they can create a new block. Most of the 120 members of parliament, members of the Knesset, and Israel should go home.

48:26And like I told you, the comment about kids and wisdom, I think that the older folks, like me and others, in Israel can provide wisdom and can provide management skill and things are good. But I think the decisions are for the youngsters in Israel to make. It's always been a nation that's driven by the young folks with great vision and great ideals, historically. like the Kibots movement and kind of the early 60s and things like that. And we need to go back to that and I think there's a big block of youngsters that can go out and vote. And all this leads to, and that's the first part. The second part is the issue of anti -semitism.

49:01No one around the world likes when a minority group raises its head too much. Monorities are great when they are a minority. Right? And we see that... Do you think we've always had this underground of anti -semitism. You see it in the US collegiate system. And I look at that and I'm like, I didn't think a lot of these students were always anti -Semitic. It's just that, sorry, it sounds awful, but the topic did your climate change riots are in Oxford Street and we hate fast fashion and people just join. So I think anti -Semitism has always been there, you know, since literally the birth of Judaism over 3 ,000 years ago, the oldest religion in the world, the oldest This nation, living nation which can trace its roots 3 ,000 years or more.

49:42Jews were hated for being Jews. They were hated for being segregated. They were hated for being different. In the middle ages, Europeans didn't like to handle money because they thought it was dirty. And so they made the Jews deal with it. And then, you know, 100, 200 years later, they say Jews financed the world and, you know, the root of all evil. You know, now what's become is that you hate, not you, the folks hate Jews for having a country. As small as it is. I mean, it's one tenth the size of the United Kingdom. Out of six, seven billion people around the world, there are maybe 16 million Jews.

50:17There are fewer Jews today in the world than there were in the beginning of the Second World War, the start of the Holocaust. But Zionism, which is self -determination, that's all it is, is just simply a step too far. The anti -Semitism today is about Israel, is about Jews having a country, Jews having self -determination, there's Lord Rabassac, who was one of probably the greatest philosophers of the 21st century, said that in history, hatred starts with the Jews, but never ends with the Jews. Western society needs to get a wake -up call. Israel and anti -Semitism are... We're the Canary in the coal mine.

50:55We the front line Remember the knee mold it starts and then you know kind of ends with them then they came for me Yes, and so it starts there, but never ends there and you've got to take a stand you got to do something Find a one that what actually happens from here Do you know just breathe generation of Palestinians that continue to hate Israel and Jews? There has to be a change Israel has to have fixed borders because set and fixed borders enables you to operate legitimately as a nation state, right? And I think that the Palestinians need real leadership and I think the world needs to you stop using the Palestinians as a scapegoat.

51:36And I think that everyone has to be a bit mature and come to agreements whatever they are that will promote peace. And I'm a patriot, I believe in my country, I'm a zarnest and I have to take a stand. and if I don't, who will. And in humanity, humanity's progress is us leaving for the next generation, the world which is slightly better than the world we found. That's what we want to do, and that's why I hope. And others like me help folks and help the evacuees, the hostages, the soldiers' families, building resilience, trying to protect our country better and helping the army if it needs help.

52:14We got to get to the next step and that's why I said to you anti -Semitism the first part of the answer I gave you about Israel's society and the future that we want for our children You take these three three circles and you put them There's an overlap in the middle somewhere and we need to find that and you need real leadership and you need real on both sides You need real leadership and you need real vision and it's not clear to me today sitting here what it is I wish I knew wide -ranging discussion. Yeah much deeper and quite pointy, community humanity and progress. I do want to see a quick fire there, Abbey.

52:49So I say a short statement, you give me your immediate thoughts. Does that sound okay? Sure, let's do it. So what if you changed your mind almost in the last 12 months? That the world has become a far more dangerous place. What's the biggest misconception of the Israeli startup ecosystem? That it's done for that one bounce back. Michael Eisenberg, so I want to share the other day. It's already bounce back. Cash is already flying in faster than ever. True. I think it's starting to. I think there's a long way to go. What's the best investment advice you've ever received? It's only your psychology.

53:18Complace and C is the ultimate killer. What if your views on some of David's services? So I don't know David sex personally. I've had one or two interactions with him in the past, but I think that you can point to as being a relationship. But you know, honestly for the life of me, I can't work out what he believes America stands for, if it stands for even anything. You can't look off to your own interests and not understand that the world is connected. You need to find commonality of interests and sometimes to promote others' interests because the net effect down the line is supportive of your interests.

53:52What's the biggest piece of BS advice that you hear given most often? Contracted ARR. Oh, I'm not that bad. Folks tell you how they've signed a client, a customer, which has given them 50 users or 50 deals, but that customer represents potentially 500 ,000 deals or it represents 20 ,000 users or something like that. And so they write down the contracted ARR, here's the sum total of all those users. It's just another community adjusted the EBITDA. Tell me, what was the biggest mistake that you see first time founders make? Underestimating Burn and overestimating their capabilities. biggest sin of the zup era.

54:37Vincere debt, capital raising, with no thought about how money gets returned. Most people think capital is sunk cost, almost like a grant, but capital needs to be returned. It's a soft loan. What would you be in 10 years? What do you want for Andre? What do you want for yourself, Avi? I want to be on the beach with my wife, with my grown -up kids, Hannah Aria and Michal, and my two -shit -sus -relphan -Charlie. I know you. Yeah, it wouldn't be you. You'd be bored after. I know you would. You'd be like, where's the next deal? I look forward to it. Harry, where's the deal? I'm looking forward to being bored.

55:12Dude, thank you so much for doing this. I love having you on. You've been amazing. Thank you. I really appreciate it. I have to say that was such a special show to do with Avi after so many years of friendship. And if you want to watch the full episode, of course you can watch it on YouTube by searching for two zero VC. That's 20 VC. leave a comment, I always love to hear your thoughts and feedback. But before we leave you today, all of you listening use tons of software every day. Sometimes it fills us with rage. You can't figure something out. The chatbot in the bottom right is useless. You keep getting bombarded with these useless pop -ups.

55:44And for those of you who build products, no one wants their product to feel like this. Thankfully, a company exists to help users without annoying them. Command bar. It does a couple of very helpful things. First, it's a chap bought that uses AI to give users extremely personalized responses and deflect tickets. But it can be beyond just text. It can also co -browse with the user and show them how to do things inside the UI. Magic. But it can also detect when users would benefit from a proactive nudge, like a helpful hint, or an invitation to start a free trial. Command Bar is already used by world -class companies like Gusto, HaschaCorp, Yoppo and Angelist.

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58:20As always, I so appreciate all your support, and with the 4th of July tomorrow, we will not have an episode coming out on Friday, so stay tuned for an incredible episode, the following Monday with the one and only Pat Grady at Sequoia.