Max Altman & Ben Braverman chart Saga VC's maiden voyage with Mark Suster | E1948

26:13Partners shouldn't partner with you. Employees shouldn't join you. But you get a sense that this is someone destined for greatness. And for me, that's X factor. The other thing I would say about employees is I don't think it's a bad decision to join. And of course, I know you don't think that either. It's a bad financial decision. I don't think so either. But let me explain because I think when I explain, I think you'll agree with me. I looked at it. I once wrote a blog post called, Is It Time to Earn or Time to Learn? And there are times in your career where the time is to go for the money. And there are times in your career where the best thing to do is to be situated alongside someone like Parker, alongside someone like Ryan, alongside someone like Jack Dorsey.

26:59And being in a startup, it gives you two things. It gives you access to greatness that you can learn from. And it gives you a peer group of people to then go do your next business. So my analogy is it's similar to an MBA, like very different. but an MBA is paying money so that in the future, hopefully you're going to earn more. Yeah, that's exactly right. And I guess I saw you take it back with what I say now is like the long-term compounding of your earning potential by being at a startup for six years, you're going to be way better off. I think the point you were making is right though, which is like economically, you're probably going to learn more than you're going to earn in that scenario.

27:41Sorry, Ben, you were going to add. No, just the food at the Google cafeteria is so good. Legitimately, like it's excellent. My wife worked at Google in, when was it? 2005, when it not only was excellent, but they used to let you take home dinner. So she would not just have lunch, but every night she would go get steak or chicken or fish. And I had a startup, so I had nothing. And she would just bring me home dinner every night. Those were the gravy train days. Um, what are you looking for in terms of sectors? Are there certain things you'll fund or won't fund? Yeah. If you look at all of our histories, it's primarily B2B.

28:24The only crypto investment that any of us have done of any note is, you know, obviously Max is a big shareholder in WorldCoin from one of the prior vehicles. So probably realistically not a lot of crypto going in this fund. Consumer, you know, we all have a pretty specific thesis around consumer, which is it's getting harder and harder unless you have a distribution edge. So friends of ours who work with a lot of celebrities, it makes tons of sense. They're going to dominate consumer. They should continue to dominate consumer. For us, we're kind of down the middle B2B. And I think when someone's like, well, what's a saga company?

28:56The archetypal saga company is going to be... It's the kind of company that founder who has a foot in the old world and a foot in the new world is going to build. um whether generally legacy industry giant existing market incumbents exist and are making lots of money and generally aren't aren't well loved you know building in those kinds of categories are going to tend to be where we're going to focus okay everybody it's your boy jay cal here and i've talked a lot on this week in startups about how the smartest startups are shifting their engineering firepower to latin america to boost their efficiency it just makes sense you just think about how many amazing developers there are in latin america and they're on the same time zone.

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30:05Stop waiting and be proactive about hiring the right people. Head over to curatech.com slash twist, C-U-R-O-T-E-C.com slash T-W-I-S-T and get ready to boost your team's productivity with an elite Latin American engineering team at a fraction of the cost of a U.S. developer. And you'll get 20 % off your first month. How generous. Thanks to the team at Curatech. When I think about unique advantages that you have, Max, if I focus on you for a second, it's not just that you got to work with Parker and you got to work in product management and see what great looks like. But then when you decided to be an investor, it seems like you may have seen some pretty interesting deals from pretty early on.

30:51Maybe you could talk a little bit about that. Yeah. So my foray into venture was 2016 for the first time. And yeah, a lot of it was a pretty fortunate position. My brother, Jack Sam and I were all living together in the mission and invested in companies. And this was a small world. And I think kind of unbeknownst to me at the time, I was in the even smaller world than I had realized. It's just, you kind of just only you don't know what you don't know. So yeah, it's like the first fund, we were in a lot of good things, whether it's like from Reddit to Ripley and to Open Door, like a superhuman and boom.

31:35It's just like, yeah, very fortunate position. But the first three months in a job, I'm able to see what it's like. It's like, well, these are the founders that you're going to be interacting with. And this is the bar. And this is how you win a deal. And it's how you allocation the good company. And yeah, it was a pretty awesome experience. Just be like, wait, I already went to jump into looking at tier one deals two weeks into the job. It definitely gave me a huge jumpstart into this. Yeah, I guess not everyone starts with their brother running Y Combinator and having that kind of access. Other brother, a successful entrepreneur.

32:11So that helped. I always tell new VCs that when you start to see deals, if you see seven deals, you're going to like three or four of them. If you see 70 deals, you're going to like three or four of them. And if you see 700 deals, you're going to like seven of them. So be careful not to do the first seven deals that you see. The contrary happened to you, which is super interesting. You saw again, that's twice in a row. You saw what great looked like from the start. Yeah, I think it's exactly that. And then maybe over time, I tried to sort of, like you said, expand, grow the pool. and be like, let's look at more companies.

32:50And the ROI actually wasn't really there. Was there any common thread behind the people that you were backing in 2016, 2017? Or was it just a unique moment in time that you had access to these amazing founders? I think it was just a smaller landscape. I'm sure 2008, 2009 were smaller, but even 2016, 2017, there just were less players. Everyone sort of knew each other. it was easier than it is now. And Ben, have you had a background in investing? I know you've been an operator for a long time, but maybe you could talk to that. Yes, but I've been just taking unguarded layups. So most of my investing to date has been angel investing where Flexport, we were blessed with like an unbelievable cap table.

33:38And a lot of those firms, when they were leading around and it was a business that kind of looked or smelled a little like Flexport, where it was a legacy category. They're going to build a big sales org. Whatever it was, they thought I might be using the founder. These folks were generous in inviting me in. That's playing the video game turned down, not even on easy mode. That's turned down on the mode where you can't even really get killed. If you're just doing founders fund deals over and over again. Frankly, I feel grateful for having gotten to do it. And I met amazing founders. I just spoke at Spike from New Front's annual kickoff with his team.

34:13I'm super grateful I got to do that. What we're doing now is so different than what I was doing that I feel like I'm totally relearning the game. When you switched from being a founder to being a VC, I'm sure you were humble enough to go, okay, I've got to go empty cup. Whatever I learned as a founder, I can't just run the same playbook here. I'm trying to do that same thing right now. I didn't write a check for one year. For one year, I just didn't feel like I knew what was calibrated what was a great deal. Now, it happened to be 2007, 2008. And so the world was kind of melting back then and no one was sure there was going to be a venture capital.

34:48But still, I took my time for sure. Talking about this, this is another thing that I find fascinating about the three of you is you must all three have had just tremendous access to the world's top venture capital firms? Because all of the companies you worked at were backed by great VCs. I know even in the case of Thompson, he worked as an EIR at Kleiner Perkins. He worked closely with Ilya Fushman. I think Ilya backed his startup. I work closely with Ilya. I think Mamoun and Ilya are two of the top people in our industry right now. Having worked with VCs, what positive attributes Have you noticed from venture capitalists you've worked with that you want to model and build this part of your culture?

35:36You have to stay accessible. You can't be an ivory tower. Like, look, a lot of these best investors are, you know, they're very well-respected people. Everyone is trying to come and get money from them and the whole country. And you can't just say, oh, hey, my EA will schedule a meeting with you in two months. and you can drive all the way out to this person's house. It's like, no, the people that are doing this, even if they've been doing it for 20 years, they're still out meeting the founders. They're responding on text. They're responding to emails themselves. So I just don't think you can put a wall between yourself and the founders just to have it be able to access you.

36:17There's this trope that venture is sort of a retirement gig. And it may have been in the prior cycles when the game was easier. Someone told me recently there was 150 GPs in 2004, and now there's 3 ,000. And there's certainly not 20 times as many good companies. So certainly, it's a much harder discipline to win in now. But the folks that are still winning, like there's a famous story that's making the rounds right now about Vinod Khosla being at a YC demo day, where people didn't realize it was Vinod and there were no chairs left. And here was this guy sitting on the floor, just diligently taking notes on every company.

36:53Like one of the most successful humans ever to walk this earth sitting on the floor at a demo day, like that, that's what you're up against. Like Bill Trenchard is another example of like, you know, there are some of the folks at first round who have stepped back. Bill is still, you know, every deal we send to Bill that looks interesting, he takes himself. There's a level of engagement from people, even people who've had bigger wins than certainly either of us have ever had in our careers. That's what you're up against in this new world. Like there's no more of this, oh, it's an easy way to get returns.

37:2580 % of venture funds are sub 1x. Yeah. When you describe the force of nature that Ryan is, when I hear you describe Parker, the best VCs are exactly the same. I know... I said this to someone, I think Vinod's in his 70s, right? And they've just done a tremendous job. I love working with them. I emailed Vinod on a weekend, a few weekends ago, and I got a response back saying he was on vacation. And then I got a text message 10 minutes later. And he's that kind of guy. I think that's what Ben and I saw too. I mean, we saw this two weeks ago, we were wrapping up our clothes. Ben asked Alfred Lynn for a favor.

38:08He responded immediately and did it. I asked Keith for something. Can you help me out? He texted me back within 10 minutes. Yes. And that's the people that are making a lot of money. That's what they're still doing. So Heath is so responsive. He's phenomenal. Yeah, it's really good. So yeah, I guess you need that kind of hustle. You guys are not in the Bay Area. Thompson is. Thompson's in the Bay Area. But you guys are in New York and Austin, respectively. Tell me a little bit about what you think about those markets. Will you be funding in those markets? Why are you in those markets? Does that give you an advantage or a disadvantage?

38:44Maybe, Ben, we start with you, and then we'll go over to Max. We expect that 90 % of the companies we invest in will be in San Francisco and New York in that order. 10 % will be everywhere else. The network density in these places is still so real. Probably the biggest change in the market in the last 5 or 10 years, since I started really investing regularly, has been that New York is a much more real force than it was before. I don't know if you can give Ramp all the credit or Thrive. or, you know, USV has obviously been here a long time doing the Lord's work. But something changed here in New York where, you know, the founders are building to the same quality of San Francisco.

39:24The volume just still is 5x in San Francisco. So we're going to spend the majority of our time in these two cities. And so you've got New York covered. Max, you're in Austin. I'm in Austin. I got here two years ago. I looked back at deals I've done the last like four years. about 10 % of them are in Austin but that's a giant drop off. I think Ben's right 85-90 % of the things will be in San Francisco and New York Austin's the third biggest market but it's a third biggest market for us I think San Francisco and New York will be dominant Austin as a tech hub do we want to go into this? Let's go It's a good place for tech it's never going to be a tech mecca and I think that's sort of by design that's not like a bug There's a lot of cool stuff going on here.

40:14There's a lot of very impressive, smart people. In San Francisco, people work until 8 or 9 or 10 p.m. And Austin, people will do that if they need to. But right after this podcast, I'm going to a Founders Pickleball League. It's championship tonight. It's literally happening as we speak. I'm going to jump in, I think, for the quarterfinals. It's going on right now. It's in half an hour. Hopefully, we've advanced to the quarterfinals that I'm in. It's all really impressive people. founders of awesome businesses that are not just tech, real estate people, people that are in finance, people have built great things.

40:47And they are impressive people. There is a little bit more of a work life balance in Austin than there is in San Francisco and New York, where if you want people to come together at 5 or 6pm on a Wednesday in Austin, you can do that. In San Francisco, it's like, forget about it. Someone's like, fun, like, I'm not gonna have fun at 6pm, I need to be working on my company. So that does make it a little bit harder here to invest. Do you have observations about San Francisco as we sit here in May 2024? Because during COVID, it was a ghost town and everybody was staying at home. And I think that kind of driving energy got zapped for maybe 18 to 24 months.

41:26I noticed a tremendous change when AI started taking off a little bit more. Do you have any observations about what you're seeing in San Francisco now? I lived there for seven years. Like everyone else, I have a love-hate relationship with San Francisco. It definitely has some downsides to it. But San Francisco, of course, has the most ambitious, educated, you know, builder mindset people, group of people in the world. I think the entire world. So it's not surprising at all when there's an opportunity to build something really cool. Like, you know, if someone's like that, they're going to move to San Francisco.

42:05you know, you could knock and say, well, people there don't have fun. People don't do other things. You know, they don't socialize. And the flip side of that is, yeah, because they are just like building really cool things all the time and they're hustling and they want to make a ton of money and they want to build a great company. So that's what they're doing instead of having fun. There's nothing wrong with that. Great place to be investing capital. And in sort of a weird, perverse way, like a lot of the problems we had in San Francisco scaling Flexport during the boom, as I will refer to 2014 through COVID, There was no office space in the whole city above 25 ,000 square feet available.

42:39We literally, we were on a list. We were fighting with Google, Apple, and Facebook on every office. The prices for everything were outrageous. Startups were really being bled dry by that era, both in terms of the competition on employee compensation, the cost to build the offices. Everything was bad in terms of building profitable companies. and now like rents are down for the employees rents are way down for the companies um like you sort of have this this opening where potentially you're going to have a lot of great companies that can flourish and have a lower fixed cost base than than maybe some of these companies like flexport that were built during the boom um it could actually be an amazing setup for growth in sf just because of how poorly the city's been managed one very controversial thing about san francisco so let's talk about the fact of the city for better or worse is set up where it's like feels like one of the most wealth in equal cities in the country is you see very quickly which side of the tracks you're going to be on there are billionaires living next to homeless people and there's no other cities like that in the country so if you're in a more equal city and you know you don't do great it's like well you know like it's fine if you're in san Francisco, this city is not going to lift you up and help you.

43:56And this is where you can't be if you make a lot of money. So I think that pushes people, frankly, that just worked really hard there. I want to talk for a minute about the thing that everyone is funding these days, and that's AI. There's both a blessing and a curse of AI. AI should lead to a lot more productivity, a lot more automation, a whole new spending cycle. But AI itself is very expensive for companies to build both in terms of talent, in terms of training and building models. I'm guessing, Max, you know a few people who know something about AI. What insights do you have about funding AI companies?

44:34How will that determine what you guys look at? I think if you're looking to invest in really core things like open AI, obviously, or an anthropic or whatever, I kind of think that the ship has sailed a little bit on that, we get pitched companies that are like, hey, to get started, we need$100 million to fund our compute. So that's a huge issue. How do I do that? My answer is, some teams clearly can. That's happening in the last year or two. But for the most part, you probably can't. The financial moat and the compute moat has gotten too big now. So we're really looking at companies that are utilizing AI rather than our AI companies.

45:19I think the things that we've had in the past are like, they're using it to leverage how they build their business. And they're not trying to market themselves as an AI company. Are there important elements to how AI will determine the companies that are built or the products or how your end customers will use the product that will inform your investments or you're just going to take the best entrepreneurs that you're meeting? The best entrepreneurs have figured out how to leverage AI and not reinvent their business, but just sort of superpower it. Like an example, I get a good company that Jack and I invested in called Durable.co, actually in Vancouver.

45:57So we'll go sometimes in Canada as well, too. They're helping people with physical storefronts help get their business online, whether it's website, marketing collateral, just kind of run their online business. Let's say you do our normal mom and pop physical hardware store. They have an AI-powered website builder. You could be like Mark's Laundry Mat in LA, and it can pop up something pretty cool for you. People love that chip. People thought it was so cool, and it's really powerful. Because everyone's like, well, wait, I can make my own website now, and I don't even have to have any sort of graphic design background.

46:33I can just type in a few things. I don't think of that as an AI company. But they're definitely having a tool that was for, you know, getting digital or web storefronts for physical hardware for businesses, and they use AI to do it. And I think that's the kind of company that we like. I think what a lot of people don't think about is just how many industry-specific uses for machine learning or AI there are. Some of the stuff before there was OpenAI, some of the stuff that we were funding in machine learning was like for healthcare insurance companies to evaluate healthcare providers. And they were building machine learning rules engines on the healthcare that was being provided to look at things like value-based care.

47:18We had another company that was doing machine learning, looking at consumer lending and looking for patterns in how to underwrite thin file credit consumers. We had another company looking at call center data and probabilistically determining the success of your sales and marketing campaigns based on billions of records that humans couldn't evaluate. I have another company that was looking at babies and how baby development was going to see whether they were sleeping or had mobility problems. All of that was training on AI models that was not like the LLMs that we talk about today. So I just think the use cases are pretty vast.

48:00I don't know if that kind of stuff appeals to you, like the industrial use cases. Absolutely. Probably the investment that I did personally that is performing the best in terms of like last six months is AI for industrial quality system. And they are saving some of these manufacturers absolutely insane sums of money. In the case of one engine program, I think it was something like$50 or$60 million a year of savings in a category that you would have no idea that AI would even make a dent. So, yeah, super interesting. And at the stage that you're investing at, you guys, I assume, are mostly seed stage?

48:38Yeah. We want to stay away from trying to lead Series A's as much as possible. We want to play games that we can win. And the Series A is a knife fight. And we think there's still space to be competitive. co-leading a city round. So you will either lead or co-lead? Do you care if it's lead or co-lead? Not really. I mean, our focus, especially because this is a first fund with the three of us working together, we just want to be in great assets and build relationships with the best folks. That's sort of how you build the foundation for the next four or five of these to work. You can't be overly ownership focused before you frankly earn the right, or there's just terrible adverse selection, we think.

49:18Yeah. And a lot of that came into how we kind of did our fund size. frankly, which is we want to have enough ownership that we can get good returns. But we're not going to be out here saying we need 18 % every time, because then you can't collaborate with other great funds. And you kind of become a lone wolf hunting by yourself and start making enemies. So we backed into our fund size based off that. Hey, you know, if we have 8 % and someone else has 8%, that's great. We can't have 2 % of a company, but we don't need to have 15 % or 17%. It is interesting when you start a fund, if you're at the$125 million range, if you're at 50, if you're at 75, it's really easy to get included in great deals because your needs and demands are not as much.

50:02When you get to$300 million,$400 million,$500 million, you really have a need for ownership and it becomes harder to play at the same round. You end up having to play more serial than parallel the bigger your fund gets unless you become like a multi-stage just hey we'll be collaborative check writer the harder it is the hardest to work with other people like we we didn't set out to raise a 400 million dollar fund partially for that reason too ben you you referenced founders fund and that maybe being a little bit of an inspiration amongst others does that mean you don't plan to take board seats or do you plan to take board seats?

50:43I think we will occasionally take board seats, but very infrequently, particularly on this first fund where we are investing very early. For the most part, the best founders don't want you to join the board at that stage. They'd rather wait for Series A, do a formal Series A, price round, have someone from a multi-stage firm join the board. That seems to be what the market has decided the best founders are going to do. Occasionally, if we do something where it's like a longtime friend of ours, or if we work with someone for a few months on building something and semi-incubated or incubated, there may be exceptions.

51:19But I think for us at this stage, probably an anti-signal if we need to join the board. Mark, I think of us as our job is we're like the elementary school teachers. Our job is to get them right when they're growing up, help them do whatever we can to get a Series A from that tier one lead that they want, have them join the board, and then check our egos at the door and then we're the second fiddle it's not like five forever but it's we have to be like yeah like someone else is now the adult in the room is someone else on the board and we are we are the number two and and that's okay um if we can do that we've done our job like amazingly i think some of the best seed stage funds through the last 15 years founder collective or first round capital, people like that.

52:08They've been incredible at both getting access to super early stage, maybe younger founders, and then shepherding them to the best A round investors. And in part, they have the relationship with the A round investors. So you know, a founder collective or first round did their seed deal. You're looking at a deal that's already been qualified by somebody you trust and respect. And if Bill or Josh is calling you, if the guys over at Founder Collective, Eric's calling you, Mike is calling you, you're more likely to take the meeting. So I think what people outside the industry don't understand is what a closed industry it is.

52:47When I get called by people who invested before me that I've known for 10 or 15 years, and there's a lot of trust there, I'm way more likely to take the meaning and to come leaning in. For sure. So I think that's somewhere where you guys will stand out a bit. We should talk about Thompson before we wrap because he's not here. He doesn't get to defend himself. Thompson's the smartest one of the three of us by far. What does he add to your team? Yeah, he was an applied math guy. I read that he was at Berkeley and Cambridge and he did data science and he seems a pretty smart guy. How is he going to fit into the mix?

53:22Thompson's the best. We've seen it a few times recently where founders were willing to take money from Thompson over the most prestigious firms in the world because he is just one of those people who will be endlessly patient and useful on day zero. Before you have anything, when you're just a guy or gal who's wrapping up a PhD at MIT, you've never built a business, you know YC is what you're supposed to do if you have an idea, He will spend that six months with you going from really smart person to polished enough to getting into YC, and people just love him. He was born to do this. His parents were founding engineers at Qualcomm.

54:01They emigrated here from Vietnam. Pretty remarkable story to come to the United States and be a part of the founding of Qualcomm. Both of his parents hold all these patents for Qualcomm. He never thought he was going to be in tech. For him, rebellion was being a mathematician because his parents were in tech. And then at some point, I think he was a third of the way through his PhD at Cambridge. And he realized, oh, my gosh, I can't spend the rest of my life just thinking. I want to build stuff. And his third grade best friend was Kevin Mahathie from Lookout. And at that point, Lookout was a good startup, but it wasn't a multi-billion dollar outcome yet.

54:37He called Kevin and said, hey, I want to come home, left Cambridge, went to work for Kevin. That was a success. He worked for Sean Parker at Causes. And then his big win was he built a company called Frame Data. And you were sort of referencing how magnetic some of these founders, and in this case, Jack, can be. Thompson had no reason to sell Frame Data. He had just raised the Series A. Gary led it. This is like when, obviously, before Gary took over YC. Gary led the Series A. Very hot, very prestigious, unbelievably good team. team. As soon as Jack made a list of... He basically wanted to learn more about machine learning.

55:16He somehow got Thompson's name, called him into the Square offices. Within two days, they had an acquisition offer that Thompson just couldn't turn down. He goes, yeah, the opportunity to go work for Jack is special enough. I will exit this company. And then good timing. When the acquisition happened, the Square stock price was in the dumps. And then let's give Thompson all the credit. They built Square Capital. They built all this great stuff. Stock price absolutely soared, made the acquisition totally rational for everybody involved. Then he went, Mary Meeker was on the board at Square. She brought Thompson into Kleiner.

55:50And this is like on Thompson's first day, it turned out Mary was leaving and forming Bond. So Thompson got to be a fly on the wall through that transition from Kleiner 17 to Kleiner 18. Kleiner then backed his next company. He sold that one about a year ago, So not as great of an outcome as the first one, but returned all the investor capital. Everybody was pretty happy. It was a cool business, just rising interest rates and an SMB neobank didn't mix. Yeah, as Mac said, he is one of the smartest people I've ever met. I think this is probably a good place to wrap, but I want to give you a chance to tell people how to get in touch with you.

56:30Are you guys active a lot on Twitter? How should people reach out to you? You got to fax us. Are you putting out content? facts facts is i think we really should be retro like let's put up barriers to see who's innovative enough to get around it i kind of would respect that if you made it a little bit harder but yeah we're super active we're super active investing now we have historically not been big twitter people but that's pushing you that mark you can push me to be too i'm happy to i love engaging on twitter now so um yeah you know we're all available with our twitter handle max is is just Max Altman, 5 ,000 followers as of this morning, really blew up.

57:11Well, I'm hoping that you all follow Max Altman. Ben, what is your Twitter handle? I am Brave Ben, and I'm less likely to be retweeted by Sam Altman, but still a very nice guy. A lot of fine qualities. And I am at Msuster on Twitter, and I work for Upfront Ventures. I noticed you didn't say you were going to do a lot of deals in Los Angeles, but I just want to put a plug in for the great city of LA. There's a lot of great founders here, a lot of great energy here. And I hope to be your collaborator when you decide to do deals in LA. Yeah, we would love that. Yeah. Thank you so much for having us.

57:51Like, obviously your reputation precedes you. It was really, really cool to spend some time. I appreciate it. It's been great and good luck in pickleball today. Thank you. All right. Take care.