Uncapped #10 | David Tisch from BoxGroup

25:52I just think the way we've built our model is by being authentic to it and not forcing it. And so it's evolved into being able to talk about it in easier way than I think actually executing it. And so I think there's a like being consistent at anything is harder than trying new things to me. It's like you have to stay disciplined. And we've done the exact same style investing for the 15 years it box group has been around. There have been nuance changes in it. We've scaled as you said, but the style of how we've built our portfolio is the same. And the style of relationship that we build with founders is the exact same as it was 15 years ago.

26:38I mean, I don't see why you couldn't keep scaling it as long as you had enough people as long as you could scale your team. I don't see why you couldn't keep I mean, it's like YC has obviously proven that you can go unbelievably far with this. I don't know why you couldn't be three times bigger or something. I think YC is totally underappreciated and I think gets criticized because people feel threatened by it. But I think how they've proven scale at the earliest stage is one of the most amazing. It's unreal. It's a magical machine. Hundreds and hundreds of companies every year. But it's predicated on seeing them.

27:10Right. So what YC what people don't talk about is why YC works is the top of their funnel, the application pool and the pool they're recruiting to join YC is so strong. So they're able to see like application pool of thousands of fascinating opportunities. And then they're amazing. And good taste. Right. And so you take this huge funnel and filter way down. It's not that they're accepting a high acceptance rate. They're picking like an amazing batch and they're doing it over and over and over. And now there's obviously enough brand signal that a good economic deal for YC is also a genuinely good deal for the founder.

27:50And the founders go in knowing how to be great with in the confines of the YC opportunity. And they come out of it taking advantage of the opportunity that YC afforded it. So I like YC to me is a generational firm inside of it looks different than everybody else. Right. And it's succeeded better than everybody that they competed with a long time ago. And I give them a ton of credit for just like out executing and staying consistent. Right. And if you look at YC today, other than scale, it's sort of the exact same thing it started. Well, I actually I talked to Gary about this on the podcast, which was basically it was a certain way when it got started.

28:32Then, you know, Sam, which was all really good, but Sam came in and there was a lot of new stuff. And now it's gone back to basics, but at a much grander scale. And it's actually kind of a great evolution that's happened. But the core of like the essence of the accelerator product really didn't change even when Sam was trying new things. And I think trying new things is important. Yeah. And it helped grow the whole thing. Absolutely. But I think the core of why the core was the same thing. And I think Gary's yeah, I was in YC while that other stuff was happening. And it was the same. I think as it is now, you talked about helping companies and how like one of the things that you do is like, you know, help access to capital and it's horizontal.

29:08Everybody needs it. In general, I would love to hear the way you think about like VCs helping. You've had some like funny quips over time about like, you know, it's all ridiculous. I know you have more new on stocks than that. Can you talk about like is VC help overrated? Like, are there things that you want to be doing? Like, I've seen the way Boxworks with companies. So I don't think I think you guys do help companies a lot. But like, I'd love to hear your commentary just on like, how important is the actual helping? So I think it really comes down to like, what is the company? I think VCs in order to like build their business need to take credit for investing in companies, not for building companies.

29:49But like, to make themselves feel good and to make themselves feel deeper, I think you attach yourself to the best companies that you've invested in and try to identify, you know, by the transitive property of investing into those companies. They're so good. I'm so good. Yeah, I did this. My companies, our companies, I find that weird and possess. I find it extremely frustrating. Yeah. Like the 50th employee at a great company is probably going to be way more impactful than like your second best investment. The thing I my mental model of like an unbelievable board member is like, basically, maybe there is important as like one of the, you know, like a not top exact, but like a good exact at the later stages.

30:36Like that's my mental model. Yeah. Right. So a later stage is when a company is working, you can make a series of introductions, which is the main job of a VC at scale is to like help companies get access to things and access to things can be money access to things can be customer introductions, design partners, employees, employees. Yes. And within each of those, there's nuance, right? It's either opening the door or helping to close the deal through a relationship. So I think scaling a network of relationships is the most important way to add value at scale. I think there's a very narrow handful of VCs that are actually able to like help operationally.

31:19And I think everybody fancies themselves as that like company builder person. Yeah. And there's like maybe five. And so to me, as you scale your company, the less VCs you have telling you what to do and the more operators you're able to surround yourself with that are a stage or three ahead of you that can help you get advice as to how to continue to scale. I think the better. And so I don't believe that VCs are magical company builders. I don't think that VCs are able to magically make companies great. I think instead, VCs make a great investment and take credit for it. Is this related to why you don't do like platform teams and have our job is to help the company.

32:04Like I am, I am the person that should provide the service. Box group is built of investors and we have a back office team to like help run the fund. But you could hire recruiters or other people. It's our job. My job is to build the relationship with the founder and to help do anything that the founder asks in real time. So if a founder asks for something, we should try to do it and we should be able to do it or very quickly say we can't do that because the worst thing you can do is distract the founder from what they need to go do to make their company successful. And I think when you have all this posturing of all the help you can do, you're going to distract a founder.

32:48And if you go look at second, third time founders, they don't want distractions from the outside. They know what to do. And so I think it's the first time founders that typically get tricked by the hand waving, here's all the value we're going to provide. And I think on the way in and why this this is confusing is on the way into a pitch when you're a founder and you have options to pick from a series of investors, everybody has the exact same pitch. We're going to give you money. We're going to take equity. The best pitch is like we're going to give you more money and take less equity. So that's a really big factor.

33:21And then after that, the differentiation is pick me. I am great or pick us. Here's all the things we can do for you. And at the end of the day, like the differentiation of all the things we can do for you is not very real. So to me, what I would like people to pick box group for is they want to work with us. They like us. They hear great things about us. They talk to founders we worked with before, who like us. We don't want to be your best investor. We want to be your favorite investor. And favorite investor means you like us because we talk to you like humans and we don't mislead you. We ideally under promise and over deliver.

34:01So we would like to help. We just don't want to like proclaim we're going to make your company great. It's not how it works. I think in some cases, I think this is actually even more favorable than the truth. I think involvement in the wrong ways can be so actively damaging. Strategy advice from investors is so risky and can be so damaging. It's not only wrong in damaging it rattles a founder's mind to lose confidence. You again are back to this core thing of your taking risk to do something impossible. And the second that you get input from the outside that isn't helpful to your like focus and your mission.

34:42Yes, you're screwed. And so to me, sometimes external insights or external course correction. If you're looking for it or you trust the source of it, can maybe be helpful. But if all you're getting is like inbound ideas, like think the founder wakes up and goes to sleep thinking about their thing constantly. The investor is eight seconds or they were like, oh, I have an idea. I'm going to I came up the great idea. I saw a competitor. I'm going to send you a tech crunch. I'm going to share my idea with this person who's obsessed with something. And the person is going to feel like my investors doubting me.

35:16Now, maybe you have to listen to them. And how do I pretend to care? How do I pretend to like interact with that advice? But knowing that I am living and breathing this and that person has a diversified portfolio of other things that they are thinking about and external interests like hobbies because that's on brand. I think that's just it's not helpful. And so my I believe our job is to align with a founder and do what they ask us to do and don't do much more than that. And it doesn't mean that we aren't great at helping companies do certain things. Boxgrip is great at helping companies raise money because it's the only thing that every company we invest in needs to do.

35:59And I think that that is something that as a founder, you do need to be great at, but it's a foreign disconnected thing to operating. And so if we can make the external fundraising process easier and we could help you learn how to be great at it, that's a real needle that we can move. But the operations, what you are working on, your idea, how to execute your idea, if we know more than you, we shouldn't invest in your company. Yeah. And if you come in, we want to feel like you have an idea, you see the world differently, you have a 10, 15, 30 year vision. And we're like, here, go, go get on. It could be kind of a hard thing to sell because what's interesting about it is I've watched Box help with this.

36:42And it's like, it's like really impressive, honestly, where because you have all these connections, people trust the brand, they trust the team, you're able to, I've seen you guys line up just like these ridiculous processes in parallel for people. But I would guess it's the type of thing that is hard to sell a founder on in a process sometimes. Totally. But I think the sale is hard because I think everybody else is selling, they're over promising and eventually under deliver. The problem actually isn't thinking a lot about it is I think about, let's say, not, no names, but like a multi stage at seed.

37:20If I think about them in your series A, all they can, for the most part, unless they themselves do the next round, kind of all they can do is hurt. I mean, directly speaking, they either did the round themselves or they, I think signaling is the fakes word. Say, there's no, they're like, so if a great multi stage firm funds your seed round. Yeah. And another great multi stage firm is interested in your A, what they're probably not doing is calling the one that did your see, are you going to do the A2? I agree. They want to get ahead of the process. So they will likely try to build a relationship with the founder, potentially give an offer before the other multi stage firm can react.

37:59So it creates this like preemption that happens. And I think in this market specifically, the speed of C to A, A to B, B to C is so fast that there's not this signaling risk. The only time signaling plays out is in a sort of bottom half of a portfolio. So if you are struggling and your existing investors aren't stepping up to help you continue, that is a external signal that is very real. But at the top part of the market, signaling just isn't relevant. Well, I directly agree. And I don't feel very strong about signaling one way or another because I think there's a lot of benefits from the great firm, but just to talk it out, like I think there's clearly in the case where it's like amazing firm A does, you know, your A or C or whatever, the next amazing firm B comes in does the next one and they're trying to swipe it from under them.

38:48Obviously in those cases, I'm wondering if there are some medium cases where, you know, like we were talking about earlier, like a series A, it's not always yet super obvious that a company's working or not. And there's probably medium cases where something's going to be very good. And, you know, it's not quite gotten it landed yet. I think signaling has a positive effect in that if you have a great brand attached to your company, the probability of you raising the next round is higher. And so the signaling of that great brand participating or not is secondary to that great brand being involved in your company.

39:24So if a top three to five VC, not a top 25 because there aren't 25 brand and it's probably always good because the way does your A, the probability of getting a B is way higher than if not so quite agree. And so that's signaling to me in a positive way. Yeah, basically the countervailing help of the fact that they invested at all and the venture capital is the only financial asset class where brand matters and brand is a real thing. Actually, it's like one of the most helpful things VCs do. It's like in the top three or three. And brand matters with recruiting, brand matters with customers, brand matters with like a external thing, customer higher partnership, believing in your longevity.

40:08Because if a great brand is attached to the company, the probability of it staying alive, which is the key to all startups is default the live. And then successful is higher. And I think that back to I see like why see as a great brand, there are a series of great brands with adventure that matter. But you're right. And why see as a good brand, it leads to you get a better seed round. It leads to you having higher likelihood to run more experiments and all the rest of it. And it actually leads to success. And it's not like it's not an exclusive. So if you don't have a great brand, it doesn't mean you won't succeed.

40:38It is just more friction. It's more friction, right? It means that if you are a unknown entity coming from outside of the great brands attached to your company, you have to show more. And I think that that is hard for founders to appreciate is why did this company raise around despite my progress and their progress apples to apples or I'm ahead of them. There's there's like unfair leverage in reputation and brand that get attached to the narrative. And I think it's underrated, especially today to like create a narrative for your company that builds momentum. And momentum does not equate to success.

41:20It equates to permission. And permission is a like you are a challenger. And if you are a challenger, the bigger gap that you can have between progress and permission is incredibly valuable. It gives you the ability to fulfill the promise easier. I want to ask you about why you think VCs pass in like in like a Roni S. Wizz like obviously you've seen like a ton of deals probably as many as anyone at seed. What do you think are some of the like wrong mindsets or sort of like bad frameworks or just like wrong mentalities? Let's say that make people pass in companies. Well, I think like when you ask a VC for why they are passing and you get a series of reasons, I typically think that is a very lovely sound bites to make you feel better.

42:11I think at the like end of the day, somebody is passing because it didn't cross the bar. It wasn't good enough. What isn't good enough? Most of the time, the team. And the VC and the VC feels that this team is not good enough for us to invest. Alongside of that, it's the market. The idea isn't exciting enough for us to invest. So if you are working on something that isn't exciting in a market or isn't exciting as an idea and you're not the oh my god best team ever, that combination is going to be a no. If you are working on something that is obviously really interesting and obviously a fast and any market and someone says no, it's it's just team and like there's not much more to it.

42:58But nobody's going to send an email being like I met you. You're not good enough. You never say that. You can't say that. It's not it's not like nobody wants to hear that. And it's not sort of the job to like be mean to somebody for the sake of being mean. But it's also like. But that creates a weird issue, which is then you want to help and give useful feedback. But you have to say some other thing. We just we try to be honest in like this isn't for us. And that's not it and it doesn't mean that we're right. We are mostly wrong in most decisions we make. If we say yes, most of these things we say yes to will not work.

43:35And if we say no, a lot of the things that we say no to will work. And like you have to accept the important thing and people misread teams all the time too. We we continually 15 years in misread teams. And I wish we didn't. I would love to never like miss a team. But we do. And in a market that's moving fast, sometimes you have 30 minutes to meet a team. And sometimes you have like three months to meet a team. And sometimes seeing a team too early is one of the easiest ways to misread a team because seeing something early and then seeing something a little bit later, like I already made up my mind early.

44:12This wasn't good enough mistake. And so I would love to not misread people. I would like that's the my paranoia is like the person that I met yesterday is great. And I didn't see that. Yeah. But I like, I mean, I think that the common reasons that people say no are like we misunderstood the market. We didn't like the idea that anything is too early for a seat investor. I think is another fake answer. Nothing is too early. The market sometimes decides it's ready or not ready. Yeah. And it's not ready for funding if everybody says no, or it's totally ready for funding if everybody says yes, or one person says yes.

44:53And I think the word too early is hard to use. You just want to see more because you don't understand the team enough. You don't understand their capabilities enough. And so too early is typically like I would love to see more. But the market can counter that overnight. So if you're like, I want to see more, but then they get three terms sheets suddenly, you don't get to see more. And so the choice that a VC to me typically has to make consistently is you get to say yes, or you get to say no. And that's there's not really a gray area anymore of like I would like to wait three months. And then please come back to me and ask again, unless you're multi stage.

45:33Yeah. Then you could just wait to the next round and the next round and the next round. Yeah, which actually, I mean, there's a tangent. But there's a lot of incentive to do that, especially as these firms are growing conflict risk is like a bigger and bigger problem. And so you you're kind of incentivized to just like wait and pay up for the for sure winner. And almost the better the market is in some ways, the more you want to do that. In your scene firms, it used to be very disciplined about not doing that, doing that more consistently now of just chasing something that they missed at a series C or a D when traditionally they would never fund anything past series A.

46:08Yeah. And the hopeful logic for that, I guess, is that things will be bigger than ever. Ever. And so it's big ever. Still going to have trillion dollar companies all over the place. Like 15 years ago, the idea of a 10 billion dollar company, I saw a stat, right? It's like the 99th percentile exit today is 20 billion plus. Which that's crazy to me. I saw that too. And I was like, is that real? It's a big number. That's a huge number, right? But 99 is also a big number, right? 95 is less big than 99. I didn't know. I don't know if I agree with you, but it's probably right. But it used to be a billion, right?

46:38Used to a billion was like a big enough outcome. And if it's now 20X that size to get to big enough, but you have companies, like if you look at the public markets, and I think this gets underappreciated in venture two, is the compounding at the end is so much more important than the compounding at the beginning. Yeah. It is, it is way harder to get to, you know, zero to a billion dollars or zero to 10. So much harder than like 20 to 30. Right. There's 10 more billion dollars evaluated. Correct. And for a VC that invested early, that turned those 10 extra billion dollars just as much as that first extremely rare billion.

47:15Most of the time, yeah. Yeah. Right? You did. You did. But the end and like holding on to see the compounding, right? If you invested in, you know, Shopify as a VC, it went public at a billion dollar evaluation. Right. Shopify is 120 billion dollar company. It's crazy. In the public markets, it compounded a 119. Correct. That's crazy. That's a big X. Yeah. And that's like the XU dream of as early stage VC. That can happen in the public markets. If you look at Facebook today, when Facebook went public, it's up a lot over 10X as a public company. The compounding at the end in this market has shown that the winners can be way bigger than we had ever assumed as an early stage VC.

48:00So your hope in your career is that you are able to invest at the earliest stage in one of these incredible outlier companies. And then after that, you have a series of other really great companies. You started box like 15 years ago and you were in New York. And I guess you kind of must have started around the same time as Thrive. And so you two are, I would say, are like the New York firms at least sort of, I guess I graduated a little bit right after that. And those are kind of the two firms, I think, that really made it in this latest generation that are New York based. And I'm curious to hear about the way you think about being there versus here.

48:37Obviously, when your partner's my very close friend Greg is here. And so you have a huge footprint here. But you're, you know, started in New York. You've got a certain New York DNA about you in a good way. And I think that probably propagates through the mindset of the firm. But what is being in New York meant for you and how do you think good impacts you? I think there's like our firm being in New York. And I think there's like the geography of where companies get started. And I don't think they're very related. Like we are in New York, because that's where we live. And that's where we want to live.

49:08And that's where we're from. And that's where we want to make our lives. I think it's important to not underestimate the value of the Bay Area for our industry. And historically as a New York based fund. And I think Thrive is probably similar. The majority of our investments and the majority of our dollars have continually been in the Bay Area. Yeah. So I think you like the mistake would be to be like a New York firm that only invests in New York. It's not to under appreciate the value of building companies in New York. But it's would be cutting off like the head. I would guess you don't even invest in New York have much higher rate than anybody else.

49:45I think if you don't invest in the Bay Area, you were cutting off the majority of value creation historically in this industry. And it is not like a neg to New York. New York to me is a place that people go to win. And I think the DNA of people that want to live in New York, that want to build in New York are people that have like incredible ambition and tenacity and are not taking to me the easiest way. I think everything in New York is hard and harsh. And so you are fighting like friction every step of the way. And there are certain types of companies that make sense to build in New York. We're building in FinTech.

50:21We're building in in fashion or an ad tech. There's like a center to the the world you're building. And that is in New York. But if you're building developer tools or you're building consumer tech and you're doing in New York, you're doing that because you want to live in New York. And you take slightly hard mode. Which is awesome. Right. But now we're in era of AI. And I think the center of our universe has fully shifted back to San Francisco, where there is more depth of talent. It's not more talent. There are still great people in many different geographies. There are just more more of it here.

50:56And to underappreciate that I just think is a mistake. I think we have, as you said, Greg is out here. We are committed to being a firm that is in both coasts. And I think we equally will invest in other ecosystems. I think you can build a great company everywhere. But I think you can only build a certain amount of great companies in every location. I don't think your hometown is St. Louis is capable of having like 100 great tech companies. You don't know that. I do. But it's probably capable of one, right? Or two or five. Yeah. And I think depth is the thing that you're looking at in ecosystems and in cities to appreciate.

51:35And it's not just depth of starting. It's depth of scale. So can you get to a thousand people in almost every city? Probably. Can you get to 100? Definitely. Can you get to 10 ,000 in very field? And I think that's the lens that I would look at sort of scaling with. And I think you see great companies today open up secondary offices quicker than you did historically. I feel like you adopted a certain West Coast tech bias where I've seen some other New York's HQ'd investors think more like New York investors. And I think it's great actually. And I think both UN thrive have like a smidge in a very healthy valuable way of the New York mindset.

52:15But did you intentionally cultivate that? Or do you think that this difference isn't so real? Or do you just? Yeah. Look, I think in New York to me, the pedestal firm is union square ventures. I think they were probably the most underappreciated best VC. I like it. Like nobody turns or like they don't get enough credit because they don't look for the same style of credit that the big multi stage firms that are named brands have built. I think they are just excellent at what they do and they do it. And they do it over and over. And over and over. Let me say a little more about it. They're like they're they're the opposite of the multi stage firm.

52:56They don't have phoma. They operate. They couldn't care less with their people to look correct. They like find the things they like and they lean in so hard to them. And they got their first thesis like perfectly right. And then their next set of feces were good enough. What was first networks? It was just networks, right? The world. The world is crypto. They crypto. They had a there was nuance after but within the core of all the feces is this concept of network, which is this like catch all, but it's correct. And they just at the end of the day, like why is a VC great? They fund great companies.

53:30And I think you you as V has funded great companies early with lots of ownership and small funds. It's crazy constantly. And so I with like talking about VC in New York without pedestal in them. Yeah, I think is is you know, just not fair. I think we've always just discounted the idea that geography matters. I think geography matters for like where do you want to live? And like where do you want to build your life? And I think that allows you to get into a framework of being comfortable with the things outside of work. So you can be great at work. And so I don't want to live in San Francisco. You know, like you can live here.

54:10But I don't want to live here. I want to live in New York. I love New York. And I also don't care about funding people in San Francisco. I think we have an appreciation that like we fund software the majority of software businesses historically were started in the Bay Area. And you can't just eliminate that. And so back to like not chopping off the head from Box Group one, which was 2010 through 13, the majority of companies in that fund were in the Bay Area. And we saw companies that we funded in New York moved to the Bay Area. So we funded Plod. They started in New York, moved to the Bay Area, started the scale here.

54:48And I think that is just a natural tendency to find the depth of talent that you need to scale a company. Final question I have. This is it. Well, we can keep going. But I know you got to go to your next thing. You're very important to do. We cancela, we keep going. In a lot of ways, you're, I would say slightly like La Zaire in your opinions about a lot of parts of venture intact meaning like I've seen you talk about how like the market prices, the market price and like don't want it just is what it is and like stop talking about it. Or what we talked about earlier that like it's like pretty unknowable what's going to be good early.

55:21So just like you need a big basket or like don't try to big brain a market like you were not very likely to understand it. So there's a lot of that. And I think in general that's been like a super power for you. But I guess my last question is like what are the one or two things that you do hold as like strong North stars because you know, even though like the the front is sometimes like, oh, it's all unknowable. Like you do, I know believe certain things to have built what you've built. And so like what are those? What are the couple or the one North star for you that you do hold on to pretty closely?

55:55I think the most important thing is to build a team that you have implicit trust and belief and probably assume is way better than you. So when I look at my partners, I feel privileged to get to work with them. But they are much better than you actually. But equally excited that like they are going to make great decisions that I never could have made because they are amazing at this job. And my job is to like get convinced them to work with me and make everybody happy. I think Box Group is a place where we all like want to work with each other. And I think that that adventure is incredibly rare.

56:42Like there are not very many firms where at the core, people do actually enjoy each other. Yeah. And you guys, that's like step one is like happiness. But more importantly, it's like be great at the job. And I think that that's why we're happy is we all look at each other and believe that that person is individually great at what they do. And so if that's Greg, your best friend best friend of it's Nimmie, Adam, Claire, Adina, on our team. And then we have a group of people that are earlier in their career that are growing. Our hope is that we all like each other. We all enjoy each other. We all want to do this together.

57:19And I think the other thing is you have to shoot for huge, ambitious investments. And so it's not that we're out thinking the market. It's the or have some magical feces on certain markets. It's that you have to understand, can this get big and big is so big. It's irrational. Again, back to like you're meeting a person and can that person hire, inspire and manage a thousand great people, 10 ,000 great people because when you get to 10 ,000 from from two or four or one, you've funded something important and big. And big is the only way that the math adventure works. And what's cool, you see a founder start, you see a founder build and you see a founder sell for a hundred million dollars for two hundred million dollars.

58:09These are life changing outcomes for humans. Like the people that started those companies are changing their lives. And in venture, those things get ridden off sometimes is like not important. And I don't think that's fair. It is incredibly important to the people behind those companies for what it did for their life, for their families life, for their like ambition. It achieved it. At the same time, the venture math doesn't get driven by those outcomes. And that's a real decoupling of like VCs talking in these crazy numbers and the founders behind them having life changing outcomes at different scale.

58:51You have to like on one hand deeply appreciate the outcome of success at any scale because that changes somebody's life. And I do find our job when you align with somebody's dream if they've achieved it is incredibly like emotionally meaningful. The amount of friends that I've made through investing in their company and they had an outcome that wasn't a hundred billion dollar outcome. But they saved they like one and they made enough money and they had enough success to fully change their lives. Like that's the like heart of this business is to see people's lives changed. I think at the exact same time to build a great venture firm, you have to get lucky and find that that huge outcome.

59:35So I think going in the thing we hold to is like can you squint and see this being one of the most important companies in the world or in a more realistic way in the industry that they're going after? It's an incredible answer. David, thanks for doing this with me. Thanks for having me. Real trade.