E81: Inside Seven Seven Six with Alexis Ohanian [Classic Interview]

26:25And also for them and you to track the work that you were doing, the response time, so that they have 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. Did 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.

27:03But this is an example of the quarterly investor update or investor update that our founders get. Cool. And it's just, whether it's intros one-to-one, intros at scale, that's our campaign tool. Social posts through the Amplify tool. And then all the other stuff every VC does of events and workshops and all that stuff. It's an operating system for a VC fund. 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, venture firm.

27:49Right. Yeah. No, you're, you're pioneering here because 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 be dig? Why are you better than dig? Why 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?

28:31Where do you see it going? what's next for it. So if we look at the roadmap right now has probably two thirds of it is founder tooling. And I'd say there's some stuff which I wouldn't be surprised. Okay. 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. We didn't have a community three years ago because 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.

29:20It's a high, high quality event. And our team does an amazing job, making sure it's worth everyone's time. That's so important to me. I got two kids. I'd rather be home with them 99 % of the time or playing Call of Duty with my boys. 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.

30:02That'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? Now that... For instance, so I can give you a little of an idea. Now that WeWork is is it bankrupt now i i think there is there's an amazing opportunity here to reimagine what a we'd call it agora irl so the agora is what we call our our sort of reddit like tool online the agora in ancient greece was like the place where all people would get together if it was like a market it was like where you'd go to vote it was like the town square in ancient greece and we have that agora digitally but i i've talked a lot about doing an Agora IRL, where we reimagine what our offices would look like from first principles.

30:54And 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, 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?

31:34You 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 worst the company was going to do, just because it didn't really attract high-performing founders. And so imagine that. You have this Cerebro app now as 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. I 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.

32:52But 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. And 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.

33:44them. And that was part of the reason we leaned into becoming a registered investment advisor. I had... Every LP was like, that's dope. They're like, that's great. Because for them, it's all upside. And a couple though were like, but why would you do that? 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. 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.

34:20It'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. And 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 where we have to take big swings. But then when you start getting under the hood and being like, where was the diligence?

34:53Where 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 and 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... Now look, I'm very lucky. I didn't have... 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.

35:42But I'm going to take full advantage of it. Are you kidding? Of course.

35:49There's probably only a handful of anchor LPs who have actually put more money in because these are big institutions. But that's the kind of alignment I want. And 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?

36:34We have a sense for what Benchmark does, right? Five equal partners,$450 million fund size or whatever their fund size is, and very concentrated series A, series B checks. We have a sense for how A, 16, Z operates, right? Massive staff, massive A, all stages, kind of 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 and 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.

37:16And 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? Finding 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, There's source deals, lead deals, run deals.

37:53And it just so happens, 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. And 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.

38:30But 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. And 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.

39:14And 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 score play. And that was a seed investment that my partner, Christina sourced led and one, I got on one call during the conversation, like she's not even a sports fan it's sports tech and like i own a couple of sports teams like i'm obviously pretty well connected to sports but it wasn't an alexis deal it wasn't an alexis pitch like 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 she's not a sports fan should probably make some folks really question like okay well like to your point earlier you know being a generalist fund that has you strong conviction about different sectors, different industries, certainly, but just comes from a background of operating.

40:10And 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'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.

40:52It 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 gone. 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?

41:27Or how do you think about the accelerator landscape in the 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.

42:20It was a different time. That 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.

43:00Especially 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.

43:41It 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 the 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 in many ways.

44:18But yeah. Oh, yeah. 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. Then what's the next? Again, even that is starting to now not be enough of an edge. I don't know. It'd be interesting. Like I said, it's not going away overnight, but there is 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.

45:04With 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, where I see gone sort of upmarket, you know, they used to maybe take people who were just talented in an idea, but as they got so, you know, so competitive, they can now have the luxury of waiting. 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, leave their company.

45:41So things like what South Park Commons is doing, the neck, the negative one space, I think is the, is the place to play. And the question is basically had 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, there's more risk. And so, and maybe that leads to incubations, like what, like what you're thinking about in a more narrowly way, scoped way. So, so those are the things, the, the ideas I'm, 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 um certainly you have you have on supporting i'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 haven't done don't even exist yet others you know you've got maybe a few months worth the data six months, maybe a year, but then you're also wondering what's taken so long.

46:36Like I, it's, 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 what, where they worked and what college they went to. Like that's dumb. So, so I really, I'm very skeptical on using software to be this magic wand. Yeah. It's helpful at later stage. Sure. But I, I 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 is 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.

47:14Because 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 and that's if you know anyone goes above and beyond you know for it could be it could be a caterer that gives us a bunch of free tacos it could be a founder that introduces us to another amazing founder we also know where we get introduced and all that stuff but like we really wanted to create a culture of gratitude where we can start to understand like who is really helping us out and the next version of that is to then understand of people who are high signal like who would they recommend?

47:52Who 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 underpins, even the invites that go out and the acceptance rates and tracks, all this stuff in one place. I 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.

48:27And 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. And 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.

49:06Obviously, they're both ambitious in terms of return profiles. When you look at fund five, let's say, or just the future of 776, what do you think it could look like from a fund size perspective? Or do you think you'll go outside of precede to A? Or what do you think is the future for 776? i eric i love dpi once you've had once you've had a taste of that juice you don't want to give it up and so i i think a lot of what we saw was a byproduct of zerp the zero interest rate phenomenon and and i don't know if the math maths in the same way right a larger fund size just means higher bar to make lots of money right and and i want everyone on the team aligned with one goal, which is DPI.

49:51And 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? You talked about incubation. If there were a way to do the incubator accelerator model intelligently, I think you'd have to first... I think you'd have to figure out also just the optics of, well, are you doing every company?

50:45If 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. But 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. Because in this interest rate environment, in this environment, I don't know how the math, maths. The Founders Fund did a really impressive thing.

51:20We share a couple LPs with them. And when we heard the news, it's public now, that they were giving back money on that billion five early stage fund. We're not quite giving it back, but saying, hey, we're going to reduce this fund size, this money will go elsewhere. That was really great. 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. You're trying to buy 10%. How big are those rounds? And then...

51:53I mean, how do you build a fund-returning profile in early-stage, 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, 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. So thank you for coming on and sharing your lessons with us.

52:29My pleasure, man. Dude, Eric, 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. I'm an open book. And 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 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. And so we get to come at this with fresh eyes.

53:01And 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. Turpentine VC is a podcast from Turpentine, the network behind Moment of Zen and Econ 102.

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