20VC: Why We Are in a Bubble & Now is Frothier Than 2021 | Why $1M ARR is a BS Milestone for Series A | Why Seed Pricing is Rational & Large Seed Rounds Have Less Risk | Why Many AI Apps Have BS Revenue & Are Not Sustainable with Saam Motamedi @ Greylock

24:59Maybe you're building an AI BDR, maybe you're building a co -pilot for lawyers. I think seed pricing is between 20 to 40 posts. For Series A, based on what we're saying, again, for that cohort of companies, if you have a little bit of product market fed, again, we're seeing pricing between 80 and maybe 150 and 200 posts on the high end. Just that's good to the 20 to 40 seed. What do they have there? Is that pre -product pre -revenue? Is that a little bit of product, a little bit of where are we at that? There's variants, but no, I'd say in many cases I'm seeing teams where the company was incorporated last week raising in that range.

25:35Is that rational? I think one of the distortions of the 2020 to 2023 period is we all forgot about the power law and we all forgot that very few companies matter but the companies that matter end up being much larger than we think. And so with that lens, I actually do think it's rational and I get really upset when I hear people say, oh, I love this company at 20 post but at 30 it's too expensive. And the reason for that is like, if you run the scenario math and you ask yourself, Harry, What is the outcome for this company? We're at 30 I'm disappointed, but at 20 I'm thrilled. The only possible outcomes where it would matter are really intermediate ones, right?

26:11Okay, the company sells for 150, and net of delusion you make of 5x versus a 3x. That's irrelevant. It doesn't matter. Maybe it matters if you're really... And I'm not talking about 150 million dollars, I'm talking about a really small fund, but for most funds, those outcomes just don't end up mattering. All that matters is are you backing the team that has a chance of building an iconic enduring company? And those teams are really scarce. So when you find one of those teams, I really don't believe you should be passing on price in those ranges. Because whether you do it at 20, 25, 30, 35, 40, if that company goes on to get to 100 million plus of ARR with high growth, you're gonna be very happy as an investor.

26:48And if it doesn't and it has an intermediate or mediocre or bad outcome, you're gonna be unhappy. And maybe you're slightly less unhappy if you pay 20 than 30. That's not the thing to optimize for. Okay, so I think you can hold two truths in your mind at one time, which is like, I agree with you in terms of the importance of being in the massive companies, but then I also agree that you're not getting paid for the rest that you're taking at that stage. You're making that trade off, and that's fine. And I accept both things to be true, but you are not being paid for the rest that you're taking when you are doing a company that's pre -product and pre -raven you at 20 to 40 with good people coming out of a good company.

27:19This is where it probably comes down to like the specifics of the situation, and it's maybe hard for us to reason about generally, because I would argue that in many cases you are being paid for the risk. I'll give you an example. Like, we backed a team coming out of NetApp where they had previously built and scaled a business and they sold it to NetApp for half a billion dollars and they're building a new cybersecurity company called Upland that's off to the races and we let a really large seed round. In fact, I think the seed round, the round size was $26 million. Now, you could say, hey, Psalm, that's crazy.

27:49You're not getting paid for the risk. But I take the counter and say, hey, I'm getting in business with a team that has built a business to 100 million of ARR before, understands how to build products, sell products, scale management teams, think about how little risk there is on so many dimensions around that project. And so I'd much rather do that than do a $2 million seed round where I'm backing team where I don't know if they actually know how to build a product, sell to the enterprise with crude VP of sales. There's so many layers of risk. And so I grew with you, Harry, generally speaking, but I would say we just have to look at the specifics of each situation.

28:21and I would argue there are many situations where the expensive scene round is a lot less risky than people think. I get you, but your entry process is like 125 if you assume the standard dilution of a 20 % per round, and then you're like, shit, you know, when you look at that dilutive nature of rounds, if it's a $5 billion company, we're getting like a 20x. So in that case, the valuation was not that high and I agree with you. Like, I think you have to have a ceiling on valuations you're willing to pay. I also think that you have to be aware of what is the exception. I agree with you when people are, oh, I'd pay 20, but not 30.

28:54Everything is now 30. You'll blend it entry. It's going to be 30, and your returns are going to be 50 % less. Exactly. That's an excellent point. And that's why we maintain two truths in our head to use your parlance. One is, for the right situations, the rules don't matter. And then the other is, at a portfolio level, the rules do matter. Because if every investment in your portfolio is an exception, then there's no actual portfolio construction rules that you're enforcing. And so for us, we're investing our 17th fund. It's a billion dollar pool of capital. We are more ownership sensitive than price sensitive within a range.

29:29And so the lens we take on our core early stage positions is how many of them are there where we have adequate ownership. And we think of adequate ownership as 20 to 25 % plus. Do you still get 20 to 25 % plus? It varies Harry. And we're not as religious about that as we once were. In many of our companies we own in those ranges or more. Now the reason why is because we're willing to give founders more capital early when there isn't proof because we have belief in them And so we are willing to do things other people may not do. Do you think that's good? My worst performing companies are the 5 on 25s or bigger because you lack urgency You lack creativity because you can just buy it and you lack real speed of decision making I don't think giving founders much money early is like the solution I think it all depends on the founder It just all depends on the founder and the more I do this the more I come back to like everything is about the founder I can tell you get hairy their situations in our portfolio where we've done large seed rounds and where the velocity and Desperation and paranoia is unlike anything you've seen because the founder is just amazing and their situations where we've done a million dollar Round and there isn't that orientation you are right to say that when there's more capital perhaps there can be more of the temptation to overspend, not be a scrappy the rest, but I think the best founders, they inherently have the right orientation on those dimensions, and so the capital just becomes an accelerant to them.

30:51It allows them to think bigger, build more of a complete product, target larger customers from day one, and that makes a big difference. Parker Conrad at Ripley and I always have beef on Twitter, because he's like, no, it's bullshit Harry. You totally can. I'm like, yes, you can if you're as good as Parker Conrad. Exactly. You mentioned the billion dollar pool. When it's a $100 million seed fund, God, 304 % of your fund is a lot of money. 304 million for a billion dollar pool? How do you maintain a high -bar when the check size is irrelevant? Harry, we make very few investments at Greylock. Each partner might make one to two investments a year, and many of them start as very small checks.

31:28The last two investments I made over the last 12 months, one was a six and a half million dollar check, and the other was a five million dollar check. But our constraint is not the capital. Our constraint is our time because when we make these investments We sign up to be accountable and service of the founder forever like it's not an option for us And so we actually on the six and a half million to our check I spent 90 days getting to know the founders in our offices before we wrote that investment We're as working with them every single day. Is that still possible with Dale compression with heat and market?

31:57It is if you build the founder relationships early in this case we got to know these people when they were still full -time employees elsewhere and we're helping them before the company even existed Actually, I think something like 80 % of our investments, they're of that flavor We met the person before the company existed and that's not to say we don't sometimes make decisions in 48 hours Sometimes we have to but that's our intention and so that's it's an half million dollars might grow into 50 million dollars over time and if you look kind of over our more recent funds whether it's a Figma, Rupric and abnormal security a discord.

32:29Many of these companies we've put real capital to work over time and we've earned the right to do that with the founders, but they all started as really small checks. My question to you on the back of that is like with the growth of Czech per company, it brings the question of signaling. Signaling is often touted as being a very real threat to companies before I weigh in. How do you feel about signaling? I think it's total bullshit. I, uh, I, uh, and, and I think the best found out. It's, it's on. I was, I wasn't using that. Yeah, and of course everyone sells their own product. So at risk of sounding like that's what I'm doing.

33:02There's different ways to cut this, Harry, but I'd say I have never seen a situation in our portfolio where it has mattered and actually it's the flip where the seeds we've done, many cases we lead the series A's and many cases we help the founders land tremendous series A's and I know some other funds run these stats, they publish them on Twitter and all the rest. I don't have the exact data, but I can tell you that our seed companies almost always raise series A's and the conversion rate to A is much higher. That doesn't disprove signaling being a thing. All that does is prove the strength of a great lot of brand on getting subsequent rounds.

33:36I had this conversation with Grady. I said to him, you know, I don't think this core necessarily always invests in better companies, but if you think about actually starvation being the thing that kills companies, not in digestion, the amount of time you have to find product market fit. Because the core and great lot have such great brands, they will generally 90 % of the time always get more money, and because they get more money, they have more time to get product market fit. It doesn't mean signalling is not real. Maybe I misunderstand the signaling argument, but my view of the signaling argument is like, hey, if I raise my seed from graylock and graylock doesn't lead my series A, is it less likely that another investor will lead my series A?

34:09You can have real preempting, but the real thing for me is like on the negative negative side of the way. If graylock doesn't do it at all, will it kill it? It's never been an issue for us. Here, I'll give you an example. I led the series A in a company called Krasta, right? I may have mentioned it earlier, contacts in AI companies, the coiled the bee companies doing great and recent had done the seed. I remember when we looked at the company at the A, I was like, hey, why is it in recent doing the A? They probably passed. I mean, I don't know. I still do this. They don't know, but I assume they passed.

34:37Doesn't matter. We evaluate the company on the merits of the company. We love the founders, we love what they're doing. And you know, we did the A. And I'm just picking, I mean, that's the first example that I jumped into my mind. There's so many ones where we did the A where someone else did the seed. We just look at it as independently. Especially with some of these global platforms that are doing 50, 60, 70 seed deals a year, I think it's hard for them to even keep track of what companies are investors in. And so I'm not gonna let that get in the way of backing a great founder, but if you have 20 % on entry say, you're gonna end up owning 40, 50 % of a company.

35:08If you continuously lead round, round, round. At what point does it become damaging for the company? Yeah, so a couple of things. One I should say, if we own 20 % of a company at seed, like we will view that as kind of being in our core ownership bucket. And so it's less likely we will necessarily have to lead the next round. Where's the wheel and 10 % is a different equation. You know Harry, like on every round, we sincerely ask what is the right thing for the company. And our view is most people in venture capital are not helpful. They're not additive. We don't think founders need incremental brand when they already have the gray lock brand behind them.

35:39And so we challenge founders and we say, hey, build the list of people who if we get them on the board, they will actually change and have impact on this business. It's a really small list. Every time I do this exercise with the founder gearing up for a fundraise, I'm disappointed by how small the list is. I mean, you mentioned our shared friend Pat earlier. He's on that list, but there's not a lot of names on that list. What are the common names on that list? You know, an enterprise where I play on the early stage side. I have a lot of respect for Pat. I love Eric at Ben Schmark. I'm on a board with Robbie at light speed who I think is excellent.

36:08I'm on a board with Ted at Cliner who's excellent in security. Like, there are names, but it's not 50 names. It might be five to 10. And I think the names vary a lot based on the domain that you're in. I can't talk about this company yet, but there's an exact one where we led the seed. We both that list. We would have loved to lead the series A. The founder went, pitch the three names on the list, all three of them wanted to invest. He picked the one he liked the best. And we invested as well. Do we own a little bit less than we would have if we had led the A, of course. Is that the right thing for the company, of course?

36:36Because that person's gonna be additive to the business. And if that makes the company bigger, like, we'll all do better. And so we're not in the business of like, we want to own 40 % of companies and do every round. We're more than happy to win great businesses, but we first always ask ourselves the question, Is there someone out there that could actually be additive? And if so, let's go get that person. But if we're just gonna go get capital from someone who's gonna show up to board meetings once a quarter and not do anything, like I'd rather give the capital because number one, we can do that at better price since we already have an existing position in the company.

37:04And number two, let's keep the company tightly held. Why not? It's better for the founder. What's your approach to reserves? Many people have different perspectives. What's your approach? We don't have a super formulaic perspective. Like we at a portfolio level think about it. We reserve a lot generally because we invest in things early. We're fortunate that at least to date, a good portion of them have had the chance to go long, which means that even just the pirata dollars really add up. And so as I said, it's not uncommon for us to start with a five million dollar position and it yields a 70, 75 hundred million dollar position.

37:33By the way, the other thing on reserves, which nobody talks about anymore, is like reserves aren't just for when things are going great. It's also for when companies hit an air pocket. And many of the great companies we've been apart have hit those air pockets. And we've had to step up and we have gladly done that and let inside rounds not out of offense But out of defense and we won't have the capital to be able to do that So I say we want a relatively high percent of our fund and reserves so that we have ample opportunity to play offense and defense for our companies When we're thinking about evaluating series a I think we take quite brutal mental models to how we evaluate companies at this stage Mostly it's kind of error or dependent as a good way to screen for it Why do you think ARR is wrong in terms of a filtering mechanism at Series A?

38:16It reminds me of what we were just talking about when an investor says I like something at 20 and not at 30. So it drives me crazy. When I hear investors write these blog posts, you're checked list for the Series A, number one, a million dollars of ARR. Why does that drive me crazy? Because for you to make money on a Series A, unless just take SaaS or enterprise software to simplify, you've got to get into a business that gets into the hundreds of millions of ARR. because that's the only way you can become a public company. And so, if your goal is to get into the hundreds of millions of ARR and your main thing that you're looking at is, is this a company at a million or two million of ARR?

38:50Harry, how many companies get to a million of ARR that don't get to 10, that don't get to 50, that don't get to 100? The vast, vast majority. And so my argument is like, I don't get why that's the primary thing that people look at. I really believe it's misleading because you might look at that and be like, oh, this thing is at two million of ARR, it's great. When it turns out that the market's super -capped and it's going to grow to 20 million and then massively decelerate and the business is going to be worthless. Or turns out you don't really believe it's a superstar founder. And conversely, we did invest in this company at the Series A.

39:19We fortunately invested later in the growth rounds. When you take Wiz, I'd argue Wiz is one of the most important privately held companies today. Wiz, when they raised their Series A at a 500 million dollar valuation, had zero in ARR. But what did it have? It had an amazing iconic founder and was going after the cloud security market at a time of dramatic transition. and look, 500's a big price. Most of them don't need to be that high, but I would much rather take that shape of bet and bet a head on the ARR than be happy that I'm getting into a business with a couple million of ARR, but where I'm in a stunted market where I don't believe I'm backing an iconic founder.

39:51And so it's not that I don't look at ARR. I look at it, it's an important proxy for product market fit, but I always start with who's the founder and what's the market, and then I go to ARR as a secondary consideration. I hate competition. It's probably one of my biggest reasons saying, like there's five people doing it. We're one of them. We're pricing power and none. I just don't, and you said earlier, oh, isn't everything in composition we get? No, like, you know, I look at my biggest and best property management in Berlin, commodities pricing providers, unsexy businesses where no one is going after it.

40:26That's, I think, where great money is made. I agree with you, but I would say that great money is made, being contrarian and being right, right? And there are multiple ways to do that. I think the common way people do that and congrats you on those companies, like, is they find companies or markets that others aren't all over and they invest in them and then a year later it's clear that things really working and they benefit from cheap following capital. But another way you can be contrarian is, right, is to take a really competitive situation and say, hey, I'm willing to pay twice the price that anybody else is willing to pay because I actually am such a believer in this thing that I'm willing to price it at twice the price you are.

41:02And again, I come back to the Wiz Series A, right? That's a good example. I think at the time the price was astronomical. I'm sure many people passed due to the price credit to the people who funded it They were right when do you think most obviously you would contraire and enright in that way? I think for graylock writ large and then I'll give you a couple concrete examples for myself personally We are willing to invest behind great people in great markets when the traction data is not there often when others would pass For instance, we were fortunate at a graylock to initiate a company called abnormal security which recently announced they crossed 100 million of ARR growing north of 100%.

41:35You know, it's one of the fastest growing private companies today. We did multiple rounds in that company before it was clear that there was repeatable product market fit. But we had really deep conviction in the market and in the founders of an insanjay. You know, we mentioned upwind in the large seed round. I'm sure many people looked at that and were like, wow, these guys are smoking something, 26 million dollar seed round. It's like, no, Omiram is amazing. He's gonna be an iconic founder. That company just started sales. It's one of our fastest growing new companies. That's the form of risk we're willing to take.

42:02And I think any investor has to be willing to take some type of risk that the market writ large is not willing to take. Does a frame what you use to invest at seed differ from Series A? I would argue that actually whether you are buying a Series C or a seed, ultimately it comes back down to the founder. Why do most companies stool out at some growth level at 50 million hour? It's because the founder doesn't have a second act because they can't operate a new and new product, a new market. They can't get that second layer of the exact team. It gets back to the very seed investing principle of is this a Bezos that's sitting in front of me?

42:37Is this a Zuck? Is this a Spiego? I think the way you just articulated that is spot on and I'm gonna steal that because it's very clarifying for me is I think about how we look at seeds versus seeds. You're mostly right, there are two exceptions. One is markets have gravity and I don't think even the best founder can overcome a market that has the wrong dynamics. when it's too late. What do I mean by too late? If you start a SMB SaaS company that sells to other startups and you start flying the plane and the plane gets to 50 million of ARR, but the overall market is 100 million, it's really hard at that point to re -engineer the plane and to go after some other segment.

43:13And so as these companies get more baked in the valuations go up, we pay even more attention to is this really one of those markets that matters and not just matters, but has the right dynamics to support a new company. Do you know what they're the best to? You know, when you look at like Dalmash and Brian's pivot with CR -Ams with HubSpot, a market that no one fucking foresaw them going into, and is now, you know, a 700 million market for them. I think it's a little bit of a philosophical debate. I mean, yes, I think the best do there are many examples, but I think you make the odds just lower by picking the market incorrectly, and maybe the best teams are able to pivot, but there's so many things that can go wrong as part of that process.

43:48It's like, hey, why not just get it right from the beginning? That's interesting. So if you have a founder way, you love them, hate the market. Would you do the deal? This question is the being of my existence. Like it's one week debate every day at Greylock. Really hard. It's really hard, Harry. I think the only things I can offer as learnings I've had and I've made so many mistakes. So many mistakes on this exact question. It's painful. Is one like you've got to be really honest with yourself? Like is this truly an iconic founder, right? Is this, you know, the next George Kurtz at Crowdstrike or near Zaka Palo Alta?

44:20networks and that's a really high bar so one that and then two I think we are more likely to do it if we think the general zip code is good so like if you're in a good zip code but the street you've picked to build your house on as a bad street that we're more willing to get behind because we're like hey Harry Smart he's gonna figure that out he's gonna shift streets before he starts construction but if you're in the totally wrong zip code it's hard for us does that differ by stage we do it at seed we're more likely to do it at seed but But even at seed, that's been when we've made some of our biggest mistakes.

44:52I'd say it's seen our biggest mistakes where we have not pursued the investment. Has been where we've met someone truly iconic. And we did not like the idea. And by the way, Harry, often we're right. Often two years later, the founder is working on something different, but we should have been a business with them. That is the worst when you meet them and you're like, this is not a tool what we discussed. Like, of course I would have said yes to this. Okay, we have that. Growth, a step further. Everyone's like, wow, growth is totally dead today, right? There's no growth rounds happening. It's not true.

45:24All the best companies raising growth rounds help me out here. Yeah, it's not true again. I see the same thing as you do. And I just don't understand the data of people are looking at, because I see a totally different battlefield. Do you think the data that I'm looking at is median companies? And that sounds really arrogant of me, but we do operate in rare for IDA. If you are in middle America or middle Europe, and like a series B is a $10 million around for a industrial's machinery business. It probably isn't even traditional venture. Yes, it's impacted. Exactly, you nailed it. And it comes back to the power line, right?

45:57Which is very few companies matter, but the ones that matter become much bigger than you think. If you're a company that's building something secular, maybe it's AI enabled, maybe it's not by the way. You have great growth, great market dynamics. This is gonna be controversial. I think the series B market may be even from Frothier than it was in 21. We've seen the softbound retreat, co -2 retreat, D1 retreat, durable, do less. All of these guys, and there's no discredit to any of them, but just do less and slow their cadence. I thought it would make it less competitive. That's what I thought too, but I think the thing maybe we both missed is those players would leave the market, but there's a new set of players.

46:35And those players are the early stage platforms that have raised these massive growth, global growth, et cetera, funds. incredible amounts of capital and dry powder at these platforms. These platforms have all hired a lot of new partners who need to come out of the gate swinging. And because those platforms don't have public market teams, they don't have to face the harsh reality of where public multiples are the way if you're at a co -tour at D1, you're thinking about every day. By the way, that can also be an advantage because you could argue it allows you to be longer -term blah, blah, blah.

47:05And those players are competing for smaller set of companies. Because in 21, so many SaaS companies He's recording from like one to four to 12. Yeah, all those companies got funded by big prices, but there were a lot of them. Now there's fewer, but the ones that have it, you overlay that with all of this demand, the pricing is exuberant. I mean, I really wonder if the Series B asset class as a whole is positioned to make money this vintage. Wow, I mean, that's a bold statement. Again, Harry, I come back to, unless you're betting that public market multiples are gonna re -expand or that the growth durability of these assets is a lot stronger than what we've seen in the past.

47:39The vintage writ large is not going to perform. It does not mean that there won't be outstanding series B investments made. There of course will be. The vintage and the basket overall I don't think will perform well. That's really interesting. And then you see people like Pat Grady move earlier and earlier. I think Pat's one of the best. And it's incredible. It speaks to who he is as an investor that he's able to do that. When you look at like his pristine pick of like a Harvey very early, I agree, but it's also indicative. If it was ripe and fruitful at B, you wouldn't be leaving earlier. And Pat's obviously one of the all -time great growth investors, and so to your point, I think it's interesting that that's what he's doing when many others are playing the quote -unquote game on the field and paying up for these businesses.

48:19Do you agree with the play of the game on the field, Mantra? I don't. I think playing the game on the field would have cost you dearly at many different periods in time, both in the generation that you and I have been investing in and the generations that predate us. So I think you've got to be really cognizant. And if you're not playing the game on the field, you better be right. But I think you have to have independent thinking you mentioned a lot of mistakes when it's like amazing founder But you hate the market. I'm just interested the best shows are always when one's very open with mistakes But then also has lessons tied to it if I were to ask you what are your biggest lessons when you think of that and what situation was it?

48:56What would that be? There are many right the two that like first came to mind the first is clean We agree like I'm known Arvin Jane co -founder of CLC for a long time because we were the Series B investors of rubric where he was one of the co -founders. And so, have known him for a long time, have thought super highly of him. When he started Gleene, I took the meeting on the, I think the Series B, around that general catalyst ended up doing at the time, and still now, but at the time, there was an enterprise search company, enterprise search as a market was littered with so many people who had tried, and had been unsuccessful, and who hadn't been able to crack enough and user value to get recurring user love.

49:33And you know, the business was early. And so we made a really bad decision, which is we didn't try to win the right to invest. And today I'd say Glean is on its path to being an iconic company. In my view, it's one of the most important AI application companies. And I think anyone who's not using it should immediately start using it if you're a large enterprise. And so if I were to like back on like, what was the learning? I think there's two learnings there for me. One is, Arvind is an iconic founder. He had a long tenure career at Google, started Rubric, which has gone on, you know, just one public recently become the defining company in the next generation of ransomware protection and data back up.

50:06And when you have the opportunity to work with someone like that, you don't overthink the dynamics around the market, because he for sure understands it better than you do. That's number one. And then number two, I think the thing we also failed to see, which I think was hard to see at the time, but we failed to see it, because this was a few years before Chatchee PT, was that the rise of generative AI would fundamentally change the way search and the enterprise worked and what would be possible. And Arvin and his team were the best positioned to take advantage of that and build truly transformative experiences.

50:36So that's one. And then the second is a company called Codium. It's company in the co -generation space. We've known the founder of Arun for many years. In fact, he was a Greylock fellow when he was still a student in college. You spent 30 minutes with this guy, and it is very clear to you that he is of the making of these very, very, very special entrepreneurs. But when he pitched us on his seed round, he was building a completely different company idea. At the time, his model inference, which ironically now turns out to be a great idea. but several years ago, you know, there wasn't a lot of demand for.

51:04And so we made a mistake of not trying to compete to invest in his round. Did you change how you invested on the back of these? Yeah. So now, at the seed, when we see someone like a ruin or an arven, our orientation is towards yes. I ask Keith to avoid this one, but I think it's really interesting. When you think about sourcing, selecting, and servicing, kind of three elements that make up great venture investors. What do you best add? And what do you worst add? And why? I think all three are important. I don't want to give you an answer, but I think one of the hard things about venture capital is you have to be good at all three.

51:36Especially if you're playing at a seed and series A firm like I am, I didn't think you'd have to be good at servicing. That's a good point. You're right, there are many great examples of investors who don't do the servicing and there are many founders who don't need that. But I think the hardest and most important is sourcing. I believe like you are only as good as what you source. It is incredibly difficult to stay relevant to understand where the new pockets of entrepreneurs are going to be and to see them before anybody else and we have a 9 person investment team at Greylock and we're competing with people with 50 investors.

52:07We have to be on top of our game and we care about sourcing tremendously. That would have been my answer for both what I think is hardest and I think what's most important because if you find the right founders you could argue you don't need to do any servicing. Class, your trajectory within Greylock has been pretty unbelievable. What would you advise younger investors on successful career navigation in a firm? I think most young investors make a big mistake, which is they think too much about themselves and not enough about the firm. I'll give them the benefit of the doubt, maybe it's not their fault.

52:39What I mean by that is a young investor shows up at a firm, and classically the way they think they can have impact on the firm and progress themselves in their career is by sourcing great investments. So they start sourcing investments and they come to their partners and their colleagues and they say, hey, this is a great company, that's a great company, all of these things are great companies. In their minds, they just want to make investments happen. And I've seen many people, including people formerly worked at Greylock and at other firms be oriented in that way. And I think those people are doing themselves a wild disservice.

53:06I think there's just one distinction to make. Are you using this as a stepping stone to a better fund or your own fund? Or do you want to scale within this fund? If you want to scale within that fund, 100 % judicious, thoughtful, preserving capital being very intelligent around, slow deployment, yes. I think on the flip side, if you just want to use it as a stepping stone, attach yourself to as many names as possible, what matters is being able to say I was a part of a winner and leverage the shit out of it for your personal brand to be able to raise your fund or get a job but one of the best.

53:38I think you're right that does happen quite a bit. I hope we don't ever hire anyone I feel like I was worried that way, but you are right that does happen. So then to your point of okay if you do want to stay, you're then a judicious, you're thought what is that advice? I think at Grillock, the lens we would take is why is this person going to have something to offer entrepreneur. Like why would any entrepreneur at some point want to work with this person? And if you don't have a really good answer for that, I think it's really tough to be successful. Certainly at Greylock. Do you think you need to have an answer for that?

54:07I would not say that many have an answer for that. But actually what I would ask is does this person have a unique different way to find the best talent before anyone else? I think they can learn servicing and knowledge on the slide, whatever. I just care, can they help me find the next call us in before someone else. Did they run FinTech meetups in their university and have the best small dance environment of amazing entrepreneurs? I think it's both Harry. I think it points fair, but I think it's both. By the way, I don't just mean it because I'm servicing. I just think it is the case that entrepreneurs fundamentally in my mind make decisions to work with venture capitalists and they have the power and they choose who they want to work.

54:45But then by the way, that might be they have six term sheets. It might be that you're trying to preempt a series A and a clubbing that doesn't need to raise. And the founder, of course, is excited about the capital, but also has to be excited about you. And again, Harry, doesn't mean that you're gonna come on the board and drive a ton of value. That's one flavor of it. There are different reasons why I found her might wanna work with you. You might have a great brand. You might have great distribution. Like, there are great reasons. But there has to be a reason. I fundamentally believe that. When we add people to the team, we think about telling them, hey, what's your reason gonna be?

55:10And Harry, often that will also connect to sourcing. Because your reason might be, I'm gonna go become an expert in FinTech. And I'm not gonna be focused on like, what's the deal I bring in this week? But I'm gonna take the bet that over the next 10 years, Fintech is going to be important. And the next year I'm going to go map out Stripe and Square and Clarna and all these great businesses. I'm going to meet the product managers, the directors of engineering. I'm going to know everybody in the next generation of Fintech. And a year from now, that's going to result in me meeting Sally coming out of Stripe six months before every other venture firm.

55:39And that's going to enable me to win or help our firm win that opportunity. That's the type of thing that I think a thoughtful young investor who really wants to build a lane for themselves that a firm should be focused on. And Harry, I actually think we're saying two sides at the same point, because you become known for something. And that something both helps your sourcing, I would argue. And it helps over time your ability to win the best opportunities. I want to do a quick fight. I could talk to you all day, son. This is so much fun. But I want to do a quick fight. So I say, sure, it was Damon.

56:06You give me your immediate thoughts. That sound okay. Sounds awesome. What do you believe that most around you disbelieve? I think investors can help companies in the pre -product market fit stage. I think there's a conception that finding product market fit is magic, and I disagree. I think if you're an investor, you can be a thought partner to the founder on how to segment customers, how to worry about an ICP, you can sit in customer meetings and give real feedback, and I've seen it have real impact. I totally agree with you. I really do. I was so many times it's like, your ICP is way too wide, your product marketing is not tight enough, and that's really been detrimental to your ability to get your first hundred customers.

56:41Which venture investor do you most respect and learn from on outside Gradle and it can't be Pat Grady. I love Pat and there are many amazing people that you and I both know who I learn from. So it's hard to pick one name, but I'll go with a lot. I think a lot, Gil, is just an outstanding thinker and an investor. We've worked with him closely over the years. I have the good fortune of working with him at BrainTrust, which is a company in the AI Developer Platform space. And his ability to do everything from help initiate new companies like BrainTrust, the lead series A is to do terrific growth routes.

57:12He's a thinker that can extend across all stages in a single person and I'm just very impressed by him One of my lessons is when someone really great brings you into a round Don't ask twice and what I meant by that is like he brought me into agent sink amazing business very grateful to him for that He offered me van to at seat and I was like sock to what is that like sock? I don't even get that Compliance is weird and boring Christina was amazing by the way. Yes, I like just amazing Yeah, why the fuck was I questioning Elad at C? You don't know? I've also learned that mistake paid fully on companies he's been involved with.

57:46What was the most memorable first founder meeting you've had? So there are many, Harry, but the one I would mention actually talking about brain trust is the founder of BrainTrust, my friend, Ankur Goyal. So Ankur is someone we've known for a long time. He was the first VP of engineering at a company called Single Store, then went on to start in Piroge, Figma acquired an airport folio, Randei, Figma, Figma. But when I met up with him last year when he was getting brain trust started, and he painted a vision of how people would actually build AI applications. And everyone's debating, where's the value going to accrue, the tooling layer, the model layer, the app layer, and he's like, some, I was at Figma, I know the team at Notion, I know the team at Zapier, here's what actual developers care about in their pain points, and here's how I'm going to go build a solution.

58:26There was such clarity in the way he spoke about an emerging market. I walked out of that first meeting, I texted my team, I was like, we are immediately investing in this man. I'm glad we did. Now all of those companies are customers of this. How big was that first round? We wrote a $5 million investment. Tell me, why have some firm incubations worked and others not? Broadly, I think incubations don't work for a number of reasons. I think most firms take too much of the cap table. There's negative selection bias where they don't get the best founders to want to work with them. They can't actually help.

58:56And so I broadly think incubations don't work. That said, some have worked out outstandingly and you know, Gray Lock, Pelot, all to networks in work day are two largest historical outcomes. My partner, Shemen, I were fortunate to help incubator coming called out Normal Security. I mentioned earlier that it was on its path to be a company of that elk. And if I think about those businesses, they had amazing founders. They picked really large markets. And then they worked really collaboratively with their venture partners around recruiting and customer development to build the right team and initial set of customers out of the gate.

59:24And others like the folks at Cedars Hill have done that really well. But broadly speaking, I don't think incubations work. I love Nick Ashut Palo Alto. I had him on the show and he was fantastic. What if you changed your mind on in the last 12 months? 12 months ago, I was of the mindset that the large foundation model companies would crush all of the smaller focus models. So if you were building a model for audio generation or voice synthesis, yeah, you might have an advantage today, but how is it not going to be the case that OpenAI two years from now is going to have this way better? And so we didn't invest in any of those.

59:57And I still hold the view that just on the raw, like generate a voice, the underlying large models will get better. But the thing I have changed my mind on is if you can start with a better focused model and then very quickly move up the stack into the application layer, it's actually a very good strategy. What is the best thing's done? 11 labs, which unfortunately we're not investors then, but it's the best example. We got a tiny check offered to us at like a hundred million price. And I was like, what was the point in day 200, okay? I mean, you just go look at the product they've built around their underlying model.

1:00:29It's amazing. And if tomorrow, OpenAI actually releases, you know, the research preview they've shown that competes, yeah, sure, it might compete on the model layer. But I don't think it will matter for 11 laps because I think they built really fantastic workflow around it. Tell me, which VC would you most swap portfolios with today? I have immense respect for many, but you know, the first statement that comes to my mind is Gilly, who I think has been on your show Gilly Rennon and what he's done at Cyber Stards and the companies he's been a part of when helping initiate and get started, it's outstanding.

1:00:55I'm lucky to work with him at Upland and we at Greylock work with him on several companies and I think he's a phenomenally smart investor and an incredibly impactful board member. 19 companies, eight unicorns, one deca corn. It's amazing. Outrages. Outrages. And by the way, a wonderful human being. Wonderful. Wonderful. Penultimate one. What do you know now that you wish you'd known when you started Greloch? I knew this when I started. I wish I knew how important it was, which is the importance of building in large markets and that most markets just don't matter. You talked about in the cash from Palo Alto.

1:01:29I spent a lot of time in cyber, so I think carefully up Palo or CrowdStrike, both of which are now, you know, ballpark $100 billion market cap companies. They're operating in phenomenally large markets. And so I now am very oriented. Like if you're a new founder, and you're gonna spend the next decade doing something, let's pick something where there's no ceiling and where the growth can keep compounding. Because why not go build a 50 billion dollar company, not just a five billion dollar company, and so I'm incredibly oriented on market size? Is everything great not start small? Facebook was a half a campus social network.

1:01:59I think this is a misnomer. Yes. I think of markets as having concentric circles. The great thing start with a really narrow concentric circle. Palo Alto started as an add -on to a firewall. There's intentionality from the founder and there's a sequencing of how that's going to build into bigger and bigger concentric circles. And they're swimming in just to go back to the zip code parlance in zip codes that are really fertile. Okay, final one. What question have I not asked? Or are you never asked? that you think you should be asked. I think people don't ask enough how you actually work with founders.

1:02:30And I know that sounds so basic. Like I'm stunned by how few founders do references on VCs when they decide who to go with on a term sheet. Is it not very case by case? Like I'm very dependent on the founder. Some like weekly cools, some don't ever want to have a cool. Am I job - No, no, no, Harry, I mean like when you have a term sheet out on a founder and the founders evaluating whether he should work with you or three other great firms. Like how often new founders actually pick up the phone and call the CEOs you work with a lot do but a lot don't Is that not a sign of quality? It's not correlated like I have back great founders who do 12 references on me And I've backed great founders who did zero references on me And so for what it's worth in my data set it hasn't been correlated But I really believe people should be asking like what is the nature of how you work with the companies and what would be Different about your company without this person's involvement.

1:03:19That's a very good one I'm sorry for my continuous batting back and forth, but I've loved this discussion. For me, the best shows are when it's like a very open discussion. Thank you so much for putting up with me and you've been such a great guest, man. This was a lot of fun, Harry. I love the conversation. I mean, my word, some has patience. That was a argumentative Harry that came out in that episode, but I love that show. And I always think the best shows are really natural discussions. If you want to see the full episode, you can find it on YouTube by searching for 20 We always love to see you there.

1:03:50But before we leave you today, when a promising startup files for an IPO or a venture capital firm loses its marquee partner, being the first to know gives you an advantage and time to plan your strategic response. Chances are the information reported it first. The information is the trusted source for that important first look at actionable news across technology and finance, driving decisions with breaking stories, proprietary data tools, and a spotlight on industry trends. With a subscription, you will join an elite community that includes leaders from the top VC firms, CEOs from Fortune 500 companies and esteemed banking and investment professionals.

1:04:27In addition to mastery journalism in your inbox every day, you'll engage with fellow leaders in the active discussions or in person at exclusive events. Learn more and access a special offer for 20 VCs listeners at www .thewmation .com slash deals, slash 20 VC. And speaking of incredible products that allows your team to do more, we need to talk about secure frame. Secure frame provides incredible levels of trust to your customers through automation. 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, ANGELLIST, DUDELE and CODE, trust secure frame to expedite their compliance journey for global security and privacy standards, such as SOC2, ISO2701, HIPER, GDPR and more.

1:05:19Backed by top tier investors and corporations, such as Google, Client, and Perkins, the company is among the Forbes list of top 100 startup employers for 2023 and Business Insiders list of the 34 most promising AI startups of 2023. Learn more today at secureframe .com, it really is a must. And finally, a company is nothing without its people. The global law firm built around startups and venture capital. Since forming the first venture fund in Silicon Valley, Cooley has formed more venture capital funds than any other law firm in the world, with 60 plus years working with VCs. They help VCs form and manage funds, make investments, and handle the myriad issues that arise through a fund's lifetime.

1:06:00We use them at 20 VCs and have loved working with their teams in the US, London and Asia over the last few years. So to learn more about the number one most active law firm representing VC backed companies going public, head over to coolee .com and also cooleego .com. Coolees award winning free legal resource for entrepreneur. As always I so appreciate all your support and stay tuned for an incredible episode coming this Wednesday.