E21: Reddit Founder Alexis Ohanian on Reinventing Venture with Seven Seven Six

25:53Shameless plug for the AI revolution. We'll get into that in a bit. But just to make sure I captured it, my understanding of this is from what you said is it's basically a tool for your founders to get access to to your network and and your distribution in a you know systemized um you know efficient effective way and also for them and you to track the work that you were doing the response time um so that they have uh sort of the confidence that you'll get back to them that you'll be helpful they know exactly what you're doing for them, also your portfolio. And then it's also an internal tool for you to be able to run your firm better, to learn from your decisions, to learn how your team is operating.

26:38Did I miss anything there? Yes. I mean, for the last AGM, we do all our AGMs async, I recorded a 22-minute, and that was pretty crisp, but a 22-minute demo. So I'm not... That's obviously probably the most boring thing I could do right now. But this is an example of the quarterly investor update or founder investor update that our founders get. Cool. And it's just right. It's, it's, you know, whether it's intros, one-to-one intros at scale, that's our campaign tool. Yep. Social posts through the amplified tool. And then all the other stuff every VC does of like, you know, events and workshops and all that stuff.

27:20Like it's, it's an operating system for a VC fund. Yeah. And, And I think we, I'm still so embarrassed by it and it needs to get so much better, but we're, we're tracking in a way that's exciting. Cause it's, I have yet, you know, there's no founder out here. That's like, Oh, have you seen blah, blah, blah, blah, blah, blah, blah, blah. Venture firm. Right. Yeah. No, you're, you're pioneering here. Cause there just isn't. And it's weird. Cause like creating Reddit, I had to hear about dig every fucking day, every day. How are you different from dig? How are you going to beat Dig? Why are you better than Dig?

27:56Why do you even exist? There's already Dig. And so it's weird. And obviously, we buried Dig five years later. But for four or five years, it was incessant. And then this is just weird because there isn't. There's no Goliath from a product standpoint. And so we're not any less motivated. It's just weird. A couple years from now, what use cases or functionality have you not yet built in? that you think could be a big opportunity? Where do you see it going? What's next for it? So if we look at the roadmap right now, probably two-thirds of it is founder tooling. And I'd say there's some stuff which I wouldn't be surprised.

28:46Okay, there's every bit of it we can level up. We should be leveling up. There are other parts of it that have kind of arrived organically that are very interesting to me. So I'll give you an example. Like we didn't have a community three years ago because we didn't really, we didn't exist. Now that three years have gone by, we're super intentional about, because we're remote first, we're super intentional. We bring people away from their homes to come in person. Like it's a high, high quality event and our team does an amazing job making sure like it's worth everyone's time. That's so important to me.

29:23I got two kids. I'd rather be home with them 99 % of the time or, I don't know, playing Call of Duty with my boys. like that. It needs to count to get folks out. And so now that we've started to intentionally build this community, that's been one area where folks have really asked for more to just better know how to connect with one another. That on the one hand is as simple as messaging. Obviously, I reproduced a type of very similar to Reddit forum called the Agora, which is for one to many community stuff, you know, that's nothing as the Reddit guy, that's nothing new, but thinking about, okay, how do we create more serendipity as our founder community gets bigger that allow for these high value moments to happen between our founders?

30:10You know, now that, uh, like for instance, so I can give you a little of an idea, you know, now that like we work is, is it bankrupt now. I think there's an amazing opportunity here to reimagine what we'd call it Agora IRL. So the Agora is what we call our Reddit-like tool online. The Agora in ancient Greece was the place where all people would get together. It was a market. It was where you'd go to vote. It was the town square in ancient Greece. And we have that Agora digitally, but I've talked a lot about doing an Agora IRL where we reimagine what our offices would look like from first principles.

30:51And we say, okay, commercial real estate, quite affordable right now. We find some modest, dope spaces in New York, LA, San Francisco, probably Miami. And we create... WeWork did get some things right. But imagine a space, not that scale, but a place with large benches, is powered by Envoy, shameless plug of a seed investment I made, where you can rent out meeting rooms, hot desks, there's some good coffee. And most importantly, you know that all the other humans who are there are either on the team of 776, in the founder community, or like allies of the firm. So it's all good. It's high quality humans, right?

31:32You go to WeWork. Reddit had a New York WeWork office right after I came back. And I got us out of there as soon as possible, because the more time you spent there, the worse the company was going to do just because it didn't really attract high-performing founders. And so imagine that, right? You have this Cerebro app now is also your key card to get in to your 776 Agora. So if you're in town, if I'm traveling to LA, if anyone on the team is, now you have a place to go where you know you can work and it's going to be worth the time of being there because all the other humans are similarly motivated to just be doing dope stuff.

32:10So there's interesting ways we can start to layer on now that we actually have scale of community and founders are asking us for this. That again, I'm not trying to actually start another WeWork, but I'm trying to think through for a firm that doesn't have offices, I do think there is value to coming together as long as it counts. And so how do we build that in a way that makes sense with technology and our culture? So get ready for Agora's IRL. Maybe next year. Hey, we'll continue our interview in a moment after a word from our sponsors.

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34:17I love that. It's a really interesting idea. I love that you think about how to differentiate on how the venture firm operates itself because normally when emerging managers or new funds come to market, they either don't differentiate or they maybe think about different like specializing in a certain sector or something, but they don't really think about, hey, how does the VC firm run and how can we reimagine it for what the world looks like in 2023, 2024? This is not going to be a fun job in the next few years. VC, I think for a lot of folks, became a fun job that they could look forward to or almost like a quasi-retirement.

34:55And I'm so excited. Again, I'm a really weird individual. I'm 40 years old. I feel more motivated than I did at 20 starting Reddit. I am licking my chops about how much change is going to come to this industry. And it's already starting, but in these coming years, in a higher interest rate environment, in a place where there's a lot of transition that needed to happen. There was a lot of fat that needed to get trimmed in these funds and in the ecosystem. And that was part of the reason we leaned into becoming a registered investment advisor. Right? I had... Every LP was like, that's dope. They're like, that's great.

35:37Because for them, it's all upside. Right? And a couple though were like, but why would you do that? Like venture capital is the... That's the Wild West. That's part of the fun. You don't have to get audited by the SEC. Like why on earth would you take on more operational work? And again, helping... What really helped was having a founding partner like Caitlin, who because of her people and culture expertise on the executive side and the operational side, she likes that stuff. It's very much in her wheelhouse. And by doing it early, it's way easier than trying to do it way later because you have all your practices, you have all your culture, all that stuff is ossified.

36:13And then you're trying to revamp everything. That's where the pain is. So you do it early. And part of the bet was, I do think venture is going to have to, and I won't name names, but there were some firms that made some pretty bad and public calls. And look, that's part of the job. We have to take big swings. But then when you start getting under the hood and being like, where was the diligence? Where was this or that? And I'm knocking on wood here. That hasn't happened to me. But I look at this and I think, okay, well, more operational rigor is a good thing, especially in this line of work. We manage just under a billion dollars now.

36:57and 9.3 % of it is my money. So this is my kids, this is my grandkids. More rigor sounds great to me. And I think having that alignment with LPs is also... And I look, I'm very lucky. Thankfully, I had a lot of liquidity events and we'll see what happens with this Reddit IPO. But I'm in a place now where most new fund managers don't get to be because they don't have the track record or the capital, but I'm going to take full advantage of it. Are you kidding? Of course. I've got as much... There's probably only a handful of anchor LPs who've actually put more money in because these are big institutions, but that's the kind of alignment I want.

37:42And I don't know. I feel very, very fortunate because the dozen folks we have here around the table are motivated by it and all come from operator backgrounds. So they're also thinking about it with a kind of naivete that's helpful because doing something because the way it's always been done should never be the place where you're starting in a conversation. Totally. So we have a sense for how you guys operate using software. Let's get more of a sense for how you think about fund size and where you fit into the market, right? We have a sense for what Benchmark does, sort of five equal partners,$450 million fund size or whatever their fund size is, and very concentrated Series A, Series B checks.

38:30We have a sense for how A6 and Z operates, massive staff, massive AUM, all stages, this really big aggregator. Have a sense for how founders fund operates. What's our mental model for how 776 thinks about fund size, portfolio construction, et cetera, place of market? So pre-seed to series A. We're even doing incubations now too. Love early stage. Seeds the bulk of it though. But I do think incubations are going to get some more love. And for us, it's actually a little unfair because, okay, founded Reddit, cool. But we also have deep people expertise. And so when you are incubating, practically speaking, what's one of the first things you're doing, right?

39:16Finding the right people to build out for that team. And so I think we're uniquely positioned for a few reasons there. But you can think of us, like I said, early stage from idea to series A. I am technically the sole GP when it comes to the ass on the line and the legal docs. but all four of us, that includes my three other partners, source deals, lead deals, run deals. And it just so happens, you know, Caitlin, Christina, and then Chris are at different sort of experience levels as investors. Caitlin's already got a couple of angel investments that are billion dollar companies, companies like Lattice.

39:55And she's got a few heaters from the first fund that are already tracking well. one of the things I really wanted to make sure we nailed at 776 was having... I talked about that performance culture, having an environment where folks are getting consistent feedback to understand how to be better as investors. I know I am decades away from hanging it up. I'm not going anywhere. But I already want to be thinking about succession because I think that's an area where plenty of venture firms have struggled and where it's part of the reason you have these zombie VC firms running around because the founders are gone and no one else has a track record or knows what they're doing.

40:33And it's just, it's tough. I already want to make sure we have this kind of development process for all the partners as we go, because it only helps the firm more for them to develop their reputations as great early investors, as great helpers of companies, et cetera. So it looks and feels a lot more, I don't know if collaborative is the right word, but I want to keep that energy while still having a mindset of, you know, you got to do your job. And at the end of the day, our job is to deliver outsized returns. And the nice thing is I can be a, I don't know, a beacon. Latest company we announced was Scoreplay.

41:17And that was a seed investment that my partner, Christina, sourced, led, and won. I got on one call during the conversation. She's not even a sports fan. It's sports tech. And I own a couple of sports teams. I'm obviously pretty well connected to sports. But it wasn't an Alexis deal. It wasn't an Alexis pitch. I was a little bit icing maybe on that cake. But she won that. And that competitive deal being won by her, especially the fact that she's not a sports fan, should probably make some folks really question like, okay, well, to your point earlier, being a generalist fund that has strong conviction about different sectors, different industries, certainly, but just comes from a background of operating.

42:01And as long as we have a great network of founders, we can win in sports tech, we can win in space tech, we can win in AI. It is, I don't know, it's also way more mentally stimulating because you get to just have to get smart about a lot of things quickly. And then I'll say the last thing too, I don't know how many firms do this. We have every employee gets carry. And why? Well, because again, the only way you're building a billion dollar business is if every single person at the company to the newest admin is incentivized. And you start to see this ripple effect where just by having everyone bought in and caring and feeling like there's upside, it makes everything better.

42:46It means the CRM is a little cleaner. It means the response time is a little faster. It means interacting with the founder is a little bit better. There's a lot of things that we can learn when a team is properly incentivized. And so how do you incentivize people to create that environment? And look, we're only three years in. So what the hell do I know? We'll do a follow-up interview in seven more years and we'll see how it's going. Yeah, but you've figured out quite a bit so far. You mentioned pre-seed to Series A. What do you think about the accelerator market? Is that a game that YC has won and thus you didn't really consider doing something there?

43:24How do you think about the accelerator landscape end of 2023 here? No comment. No, I think it is, I've been on both sides, right? I think early on, probably for the first 10 years of YC, it was an intelligence test, right? 2005 to probably the mid-teens. And what's so interesting now is I don't think, I don't know if the accelerator model, because it hasn't changed much since 2005, is the right model for most companies in 2023. And there's a bunch of factors in there. But the bottom line is I remember we got$12 ,000 from YC in 05 for Reddit. I raised another 60 grand at Demo Day. It was a different time.

44:20That was a good raise back then, by the way. And part of why YC was so important was because there was just no knowledge about how to do a startup, especially like a modern startup, because it was such a wasteland. And there were, I mean, I made tremendous mistakes as a first time CEO, but I still made fewer than if I didn't have YC. But by comparison, the 21-year-old first-time CEO who graduates from UVA in 2023, she is so much better equipped than I was. So much. Just because of how much is so much more mainstream in terms of startup culture and how much you can just self-serve from smart people on the internet.

44:59Especially for pure software, there's just so much there. And then I think you just have to go back to asking that hard question of why. And I don't know if the math maths anymore for a lot of companies to do that traditional accelerator. And I've heard, I know all the talking points, but I do think we're due for another iteration. I don't know what it is. but it's just the math doesn't math for a lot of the exact founders you would want who are going to build billion-dollar companies today as it used to back in the day. And that's not just YC, that's across the board. It's going to take asking that question why enough times to really get to why should someone really want to do this.

45:42It is a hell of a time though to try to come up with what's next because the time is definitely now for it. And certainly with the secular shift that AI has brought on. We'll be able to build an app in our sleep in no time. Totally. It is the dream if you can figure out a way to at scale get special economics and have a Coinbase every year and trust that you're getting amazing founders. I mean, it's almost like a can't lose business model. But the market has gotten more efficient and founders don't need it in the same way. So you have to find undiscovered founders. And that's why I think YC has gone internationally.

46:18in many ways. But yeah. Oh, yeah. You know, and I've said for a while now, if I could just invest in the YC International batches of the last decade, I'm sure you would have made a ton of money because it was that beacon in startup communities that just didn't have that. But then what's the next? Again, what's the like, it's even that is starting to now not be enough of an edge. It'll be interesting. Like I said, it's not going away overnight, but there's absolutely a room to innovate. Maybe that's what you're going to do. I mean, Village was a version of that. Yeah, we tried our own model and had some success with it, but didn't quite make a structural dent in the ecosystem.

47:11With OnDeck, I appreciate the pre-company. What did you learn from it? Yeah, a few things. So one is, I think the pre-company is the way to compete. You know, YCGON sort of upmarket. You know, they used to maybe take people who were just talented in an idea, but as they got so competitive, they can now have the luxury of waiting. And sort of the in-between phase before people have a company idea, or maybe even before they've left their job, if you can add a lot of value there, maybe help them find a co-founder, maybe help them find their idea, or just create sort of a supportive community that helps them, you know, sort of leave their company.

47:49So things like what South Park Commons is doing, the negative one space, I think, is the place to play. And the question is basically, that I haven't figured out yet, is how do you get paid for the risk you take? Because, you know, you're going earlier, and there's more risk. And so, and maybe that leads to incubations, like what you're thinking about in a more narrowly scoped way. So those are the ideas I'm wrestling with. I think you're right. One question I have is, have you figured out a way to use software to get an edge as it relates to sourcing or evaluating? Certainly you have on supporting.

48:28I'm curious if you or anyone has figured that out or if that's possible. It's at early stage. I mean, right, there's no data on the companies. or very, very little because they've only been around. Some don't even exist yet. Others, you've got maybe a few months worth of data, six months, maybe a year. But then you're also wondering what's taking so long. There's no data. And then if you are looking at data, I would just be so reluctant. I don't know. I mean, what are you doing? You're looking at where they worked and what college they went to. That's dumb. So I'm very skeptical on using software to be this magic wand.

49:05And yeah, it's helpful at later stage, sure. But I'm skeptical about it on early. The way that we'll go about doing it is through our network, which I know still opens up problems. Part of what I hope we can do as we're using software at the heart of this is to start discovering nodes in the network that we wouldn't have otherwise known about. Because we actually know who have been the most helpful people on our network because we track them. We actually have a thing in every note you can do slash thanks to give someone flowers. And that's if anyone goes above and beyond. It could be a caterer that gives us a bunch of free tacos.

49:44It could be a founder that introduces us to another amazing founder. We also know where we get introduced and all that stuff. But we really wanted to create a culture of gratitude where we can start to understand who is really helping us out. And the next version of that is to then understand of people who are high signal, who would they recommend? Who are people who are not in our network that they should know or that we should know that they know? And then we create an event where they get to bring their plus one. And it's some person who we don't know that they think we should know. And again, it's all software under pins, even the invites that go out and the acceptance rates and tracks all this stuff in one place.

50:27I want to start to be able to map out the network so that over time, maybe we can get a little smarter about how we're sourcing folks. But right now we're just very fortunate because there's just a ton of great founders who happen to want to meet with us. And we haven't had to hunt, let's say, like a lot of other folks do. But that's good. I don't want my team taking random pitch meetings with founders that waste the founder's time. Yeah. And so gearing towards closing here, it seems like your early success means you'll have your pick for what strategy you look at. But we've seen firms like Benchmark and USV stick to a fund size and a strategy and just rinse and repeat.

51:12And we've seen firms like Thrive and A6Z and others say, hey, let's actually step up. There's more and more great companies every year. Let's increase AUM and be more ambitious in that way. Obviously, they're both ambitious in terms of return profiles. When you look at Fund 5, let's say, or just the future of 7.76, what do you think it could look like from a fund size perspective? Or do you think you'll go outside of pre-seed to A? What do you think is the future for 7.76? Eric, I love DPI. Once you've had a taste of that juice, you don't want to give it up. And so I think a lot of what we saw was a byproduct of ZERP, the zero interest rate phenomenon.

51:57And I don't know if the math math's in the same way, right? Larger fund size just means higher bar to make lots of money, right? And I want everyone on the team aligned with one goal, which is DPI. And to that end, I don't think... I mean, we have a sweet spot right now of our core fund is around 400. And I think for early stage, reserving half for follow-on, I want to believe that's in the neighborhood of where we're at a few years from now. But I do think there's other opportunity through different fund types that are complementary that are also not a growth fund, to be clear. But there's some other interesting stuff, right?

52:48You talked about incubation. If there were a way to do the incubator accelerator model intelligently, I think you'd have to figure out also just the optics of, well, are you doing every company? If you're not doing every company, why are you not? And so then if you're not, which is probably the most equitable one, you'd probably want it to be a separate fund vehicle so that it just stands on its own and it's got its own thing. Anyway, I wouldn't rule it out. I just don't want to be on here 10 years from now and you'll be like, aha. But generally speaking, I think for early stage in the next five, six years, it will be very hard to grow to the scale that we saw before.

53:34because in this interest rate environment, in this environment, I don't know how the math, the Founders Fund did a really impressive thing. We share a couple LPs with them. And when we heard the news, it's public now, that they were giving back money on that like billion five early stage fund. We're not quite giving it back, but saying, hey, we're going to reduce this fund size. You can, you know, this money will go elsewhere. That was really great. Like that was a sober, smart move because a lot of us were looking around going, how in the hell do you have a billion-dollar early-stage fund. Even if, let's say you reserve half of it, you're really putting$500 million to work in early-stage companies.

54:09You're trying to buy 10%. How big are those rounds? And how do you build a fund-returning profile in early-stage with that, let alone manage it and everything else? So I'm glad that sobriety kicked in. I don't see that changing over the coming decade. Yeah. No, that maybe it's a great place to wrap. We're at the hour. Alexis, I really appreciate not just how you're innovating with 776, but how you're sharing it with the public or sharing with other investors listening in because you could keep all these secrets to yourself, but it's better for the industry if everyone's innovating and pushing the ball forward.

54:50So thank you for coming on and sharing your lessons with us. my pleasure man dude eric i've had i've had gps at all the tier one firms you talked about earlier call me up they're like let's get on a zoom i want you to talk to my product team i want you to show us what you're building in cerebro like i'm an open book and it's again we're a three-year-old firm we haven't done jack shit yet but the fact that the baddest in the industry are like hey we want to learn from you is a good sign and and like i said i don't think i have all the answers i think we're fortunate to be doing it in a different way at the perfect time.

55:22And so we get to come at this with fresh eyes. And I know the space just needs innovation, man. I mean, you come over here... This is why I try to talk young people out of becoming VCs or joining VC firms until they've done some stuff and built some stuff because this space is no longer going to be an early retirement job. And that's exhilarating for the folks who are hungry and want it. And it should be terrifying for the folks who don't. But hey, that's good. Free market's a beautiful thing when it works like that. Amen. Great place to know. Thanks so much, Alexis. Thanks, Eric. Thanks for having me, man.

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56:11you