Uncapped #22 | Greg Rosen from BoxGroup

0:00you are better off just focusing on the thing that you are a lyrin. And like, I think the biggest thing is just figuring out what that is. Which of the archetypes you are and then you click out? Which of the archetypes, like if you have like hyper networker, philosopher, and specialists, like, there's probably more, but like of those three, like, which one are you? Yeah. Where do you have an advantage? And then just focus all your energy and effort on being amazing there. All right, Greg, I am very happy to be here with you. And I'm going to give a little disclaimer that I could jolt you into doing this.

0:29and you normally wouldn't, but you're one of my best friends, and so you're doing this favor for coming on. So thanks for doing this. It's just like your first podcast. This is my first podcast. I heard this is like a small boutique. No one really knows about it, right? It's a small little thing, and you agreed to do it once, and then you're never again. Yeah, don't invite me back. Okay, so I want to start with one of the things that you've taught me a lot about, which is the idea of collaborative venture. What's interesting about it to me is it used to be the case in venture that funds were smaller and collaborative was like the nature of how the whole world worked and funds would like sort of like team up and like do rounds together.

1:06And then at some point in the last 10, 15 years, I think it's swung to a place where funds got huge, people got sharp elbows, people wanted lots of ownership and whatever. And so a lot of that went away. And so in some sense that declined. But box is like bigger than ever, doing more than ever. And so I wanted you to just start by hearing your overall view on this like collaborative adventure model. Yeah, collaborative venture is hard and almost by definition it has to be anti -scale in certain dimensions, right? And so for us like if we started leading seed rounds or series A rounds and certainly beyond that we would lose our collaborative Switzerland nature.

1:47So instead what we said is okay that is an easy way to scale capital is start leading rounds writing larger and larger checks. And that's what others have done and why it's like hard to stay collaborative. That's like usually what happens, right? That's usually what happens, right? Everyone starts a new fund or new firm and they say we're going to be super collaborative, we're going to work together. And then all of a sudden they start leading one, two, three deals. And the second that happens, it's this binary moment. You're going to make it a dog. Because if you're collaborative, right? We're a boxer.

2:19And then let's say we make 80 investments a year. And let's say we only lead two or three seeds of that. Now when I'm sharing a deal with you or anyone else in the market, you're going to be thinking in the back of your mind, is this fully being shared all the deals? Or is it the one or two deals that they're leading and actually most excited about? I'm not getting shared. I'm not seeing. And so it's this binary moment that like the second you start leading those rounds, you just can't be Switzerland. And for us, we have been, you know, since the beginning a box group, you know, 15 plus years ago to now, it is like, we are not doing that.

2:56We are Switzerland and, and that's, I think, what's enabled us to like, so just as like a little side, bro, on that, do that mean no matter how excited you are at a seed, you think it's amazing, crazy differentiated access. It's long term not worth it for you to break the model and just like lead a seed. Correct. It's why we like our check size from, you know, the beginning to now has gone up, but it's basically scaled directly with like the inflation of rounds. And so, you know, seed rounds a decade ago might be like a fully loaded seed round might have been $2 million. Now that's $5 million.

3:27And so our check size started at, you know, way back in the day, 50, 75K. Now I would say it's like $750 to a million. And the reason we do that is that we want to make it as easy as possible for a founder to say yes to us. And so that means if we get to a founder first, We can commit a million dollars or 750K and be like, hey, you don't have a lead. We are aligned with you. You're raising three, four, five million bucks. We're going to be your first yes. And let's go help you find an amazing lead. Or we could meet a founder and they'd be like, hey, we already have Jack Alman as a lead. And we're like, great.

4:02We can sort of round out a syndicate very quickly here and we can also get to yes. And so the design for us is making as easy as possible for a founder to say yes in whatever the round structure is. but it is not writing a $3, $4 million lead check. Why do you think that more people haven't scaled it up? Cause there's like a lot of funds out there that are 20 to 75 million that do 250K, 750K checks. But most don't scale it. Most basically get to this jumping point that you've talked about where you're either like, I gotta go lead rounds and like compete to lead seeds or not. Everyone wants to get like, anyone who's doing this is ambitious, right?

4:41and wants to get to scale. And so there's really only two paths that we've seen to scale the craft of what we are doing. One, scale AUM and then go further up the stack, start leading seeds and A's and B's right larger checks. Or, and sort of the approach that we have taken, is do more deals, right? Scale velocity in terms of early deals with this collaborative Switzerland structure. And why do more people choose the former versus the latter? It's really hard, right? Like if you took a look at anyone of the people who work at Box Troops Calendar, the sheer number of net new deals is ridiculous.

5:27It is ridiculous. And I think if you audited the average partner or general partner or managing partner of a lot of other firms and you looked at how many net new deals they are meeting a week, I think you would be shocked. Yeah, yeah, I truly shocked. I want to come back to the calendar on it because that's like one of my favorite topics with you and I think everyone gets this super wrong. But on the scaling, what is it like, I guess, first of all, I think I'm planning what you said is that one of the big deals here is not getting adverse selection, right? And like, I guess when you're thinking about scaling and what makes this work, to what extent do you think it's about you not getting adverse selection and to what What extent is it just about you seeing tons and tons of deals?

6:08Look, it's both, but it's primarily not getting on for selection. That's like the big thing to solve. That is the big thing, right? Every strength has a corresponding weakness in vice versa. The knock on that I hear from other people knocking on our model is you need to own a ton of the companies that work in order to make venture work. And for us, what we would say is that is true, but also you've got to be in the right companies and it's much harder to be in the right companies. And so what we do is we trade ultimate ownership percentage points for a more collaborative, flexible model that lets us just see better companies and hopefully get into more companies.

6:48And then the math basically is you've got to get into the $30 billion companies, not just the three, but by doing a bunch of companies, your odds of that go way up. Exactly. Like, we are, you know, the other thing that I hear sort of as a knock against our models, like, well, this is an index, right? And, you know, again, we are holding such a high bar. We are like always asking ourselves, is this going to be the most important company started over the next decade? But it's really hard. And so we take more shots on goal to try and get those outcomes. And then when we capture them, you know, it's our job, you know, to continue supporting them and piling money on.

7:23Gary Tann talked a lot about this. Like he said this on Twitter, I think we talked about it here, that he was like, basically if you look at all these funds that just do very big baskets of YC, they outperform like ridiculously. Yeah. And it's like hard to believe that it could work like that, but it somehow seems to work like that. Yeah. I mean, I don't know the exact statistics and, you know, someone from YC should correct me, but it was like the class sizes were about 100. And I think it was like, you would get two to three billion dollar companies per batch, actually, historically. And so let's call it whatever it is, one, two, three percent.

7:57Where else can you get one in a hundred, two in a hundred, three in a hundred chance of hitting a unicorn or a multi -billion dollar company? And that's what makes it so great because that pool is sort of a really elite pool. And that's sort of what we think about internally at Box Group. Now we have to sift through a lot more than a hundred deals to get there. But that's sort of the Basheur machine that we talk about in terms of trying to just see as many deals as possible. I think implied in your worldview about adverse selection is that at seed it is somewhat knowable what's good. In other words, you're saying you'd rather get to go alongside Sequoia than have to compete with Sequoia or whatever.

8:40There's other views that seed is super unknown and nobody can tell, but I think your view is that... Like some, it, some of this is a fair characterization. Something like picking is actually, you know, most people can see a good thing when they see it and you actually just have to like see the stuff and just like get in some way somehow. Yes, I would say especially as Ventura shifted from a cottage industry to like, you know, a machine industry with tons and tons of capital and tons of firms, I think there's no such thing really as a proprietary deal and if it is, it lasts for like literally a blink of an eye, like not even a day anymore.

9:20And so what that means is, is just like it's the whole, you know, inner workings of ventures, just way, way harder. Yeah, like competition has gone through the roof. And I think what's interesting to me is that most, most people, if not everyone, limited partners, general partners, employees, I think everyone would agree that venture has gotten more competitive, is gotten way harder, right? And what's interesting then is that if you look at the math formula of venture, the like seeing, picking, and winning a deal, and then equals enterprise value output, everyone says, like, okay, those are the three things, and venture has gotten harder.

9:59But if you don't change any of those variables, what are you accepting? You're accepting that returns are going to go down, like you're just going to perform worse as an investor. And so then what the counter is for most investors. We'll be better at picking. We're gonna be better at picking. It's gonna be hard. And we're just like, I'll think harder. Yeah, we're gonna exactly. We're gonna be thought -boys. And in reality, maybe I'm just not good enough at this job. I don't know how to be 50 % better at picking, let alone 2x, let alone 10x. I just think it's like a fool's errand to think that you're magically gonna become better pickers.

10:34And so for us, we've said, okay, venture has gotten harder. We don't know how to be better pickers. Let's take winning aside, we are going to be really focused on seeing. How do we see more in order to counteract how much more difficult it is? And then let's have a model back to making it easy for founders to get to a yes, to allow us to win more. And what I would call this is like, you know, Josh Coppeman came on your podcast and talked about the Venture arrogance score, I would say this is our like Venture humility score, which is we don't know how to have a basket of 20 companies in, you know, a fund or, you know, in a year and pick the most important ones given how competitive and hard it is.

11:23So for us, we're saying we need to do more. We need to see more. We see on average about five to 6 ,000 qualified or referred opportunities a year. And then we at Box Group end up making about 70 to 80 investments a year. And like that's our humility is like, if I could at the extreme make one investment, and I would know that that investment would be open AI, of course I would do that. I'd have the best performing venture fund of all time. We don't know. And so we take more shots on goal because it's much harder, so that we can counteract how much more difficult and competitive venture has become.

11:59So then the game is like, see a ridiculous amount. Exactly. So how do you see a ridiculous amount? Like, what is the body of work that goes into saying, we can't get better picking, but we can see a bunch more stuff. I would break it up into inbound and outbound. Inbound is like the icing on the cake that tastes really great. It's awesome, but you can't just eat icing, right? You need the actual body of the cake, and that is outbound. So we really focus on a bunch of great outbounding activities. that looks like running a ton of different events across the country. So in turn events, events on campuses, and engineering leaders.

12:38And again, these things aren't unique in terms of like, oh, we figured out unique alpha here. No one else is running events. But like quality matters here, right? Again, back to empty calories. It is very easy to do a bunch of events that return nothing because you didn't cure great, great people and do all the hard legwork. And I think our team does an exceptional job at running and doing these events. I think probably 25 % maybe slightly more of deals is from the sharing and Switzerland work that we do with other investors and people. And why do they share openly with us? It's because we're not going to snipe a deal.

13:19We're not going to compete with them for a lead position. And more so, they want to be preferred partners for, you know, when a company that we are fortunate to back in the preseater seed in Flex, we can, you know, say like, hey, we've loved working with Jack Altman. And so you should go take, you know, it's exactly his money for the series. You don't just have somebody for the most part who's just like reaching out to people like it is to some extent this inbound outbound mix where you're kind of like warming up groups of people that you think are interesting and you're talking to your network or are you also like really good?

13:52be reaching out and just machine gun pathways. Like we built some software to do LinkedIn scraping when someone changes their job title or whatever. It would be great if someone posted on Twitter, hey, I'm amazing and awesome and I'm starting a new company. That doesn't happen. And usually when that does, it's way too late. There's already probably been two rounds into the business. And so for us, we really think about, we have the saying internally, if there's a deck, it's too late. right? It means that not only has there been like a team co -less, but enough work has gone in to think to build an actual deck and that means we're late to the party.

14:31And so so much of our outbounding and work gets to like before there's a company, there's a human being. How do we get that human being oftentimes before they've even left the company and that's what earns us the right to be that first check, that first yes. How do you do that part? Because this is one of things I've and you invest mostly a lot earlier than I do, but I've always wondered, how do you get to people in some reasonable way that will make sense at the top of funnel? Because in my mind, you need to be talking to thousands and thousands of people, then hopefully someone's gonna leave at some point in some way, how do you do it?

15:04The almost tactics aside getting to the mentality, because I think that's most important here, back to the calendar audit, there is no substitute for your time, right? And most people, especially check writers, do not spend time with someone who hasn't left their job yet, who may never start a company. That's primarily how every single one of us at Box Group spends our time is trying to meet and create those people before they've even left their job. And so step one is there's no substitute for putting in the time and you have to be okay with taking a lot of really, I don't wanna say bad meetings, but bad meetings, and they can exist in different ways.

15:50It's not that it's bad people, it's that it's meetings with a director of engineering at a cool company and you spend an hour with them and it turns out they just love being a director of engineering. Exactly, we have different sort of verbiage internally when we meet unlike how we describe and talk about founders or companies and sometimes you get someone who is an amazing big company person who's not a founder. Sometimes you get an extremely technical founder who's not commercial. You get all these things. And by the way, you then have to line up those different archetypes with what are they working on.

16:22So like you can't make these blanket statements. But more so my point is when you go super early and nothing is formed, you cannot look for perfection. You cannot look for cohesion even in ideas, right? Like oftentimes we've missed and passed on companies because we were like, like we met this human, they were really interesting and amazing, but like they were all over the place. They're talking about 10 different ideas. And it's like, that's a feature, not a bug. That means we're getting to them before they've actually figured out exactly what they wanna work on. And ideas are not precious, you can work on anything.

16:55And so now we've sort of iterated away from that and said like, okay, that's actually a sign that we're doing our job and getting to there early. I guess that's also not just people leaving companies, You're probably getting people out of school and stuff like that too, which is another big body of work, I guess. Absolutely. Like the number and look, I think that has increased dramatically with the rise of AI. Mean. Because it favors younger founders. It favors younger founders. Like whenever you get new technology, right? Like it's always the younger generation that figures out the most native ways to use that technology.

17:27And even the old ways of building a company become less relevant. So the advantages of experience decline. Yeah. Like the rules get rewritten. And I've certainly felt that with co -gen and other areas. It just feels like every day something new comes out, some new piece of technology is what makes the job so great. But that favors young folks. And I think if you charted the number of 18, 19 year olds that we are funding now versus 10 years from now, I mean, I don't know off the top of my head, but it's at least one order if not two orders of magnitude higher. Wow. Yeah. When you're bringing people in or I don't know to the extent you like bring them in for a partner meeting, but like We don't do partner meetings.

18:08You don't do part. Yeah. I think partner meetings make no sense. Why? One like a partner meeting is designed so that you get multiple like partners or decision -makers to like give you an opinion on the person and what we found is one very few founders like doing that. Because you're just regurgitating the same thing. You're getting everyone's like super performative too. Exactly. But like that aside, which is like a huge waste of time on the founders part, for us at Box Group, it's like we've found that like there's three classes of deals that come in that we discuss as a group. Obviously great, obviously bad, everything in the middle.

18:51The obviously greats are easy. It's like, all right, let's go find a way to invest. Those actually interestingly as a basket perform worse. They're higher priced. Usually they're more likely to get acquisition offers. Obviously bad. We don't spend any time on. And then all the elf is in the middle bucket. But you do the obviously greats anyway. We do the obviously greats anyways. Looking back at your biggest hits, have any of them started in that basket and then in fact been obviously great or have most of your, or have all of your good, really good stuff? I don't want to say all but like most.

19:21Wow. And it's all for different reasons, right? But this sort of gets to my point, which is the sort of middle is where all the alpha is. And because it's so early, like oftentimes, the deals, deals that are there are pre -product, oftentimes pre -team, like there's nothing. And more often than not, we are discussing those deals as just like we're talking about the human being for 15 minutes, right? and like a little bit maybe two minutes on what exactly they're working on. So what are you talking about with the part when you're having a debate like that? What are the things you're debate? Like what are you talking about?

20:01We're basically looking at I hate the term spikiness because it's so annoying. But like maybe set a different way is like we're we see again five, six thousand opportunities a year. What is outlier? What is standing out? What is just different? What is making us likely to want to go quit our jobs where we get a portfolio and go work for them. When we see all these really interesting companies, and that's different. Sometimes that can look like their talent magnet. Sometimes it's like we're talking to an 18 -year -old and it feels like you're talking to a 30 -year -old. And they're like, mature beyond their years.

20:34Sometimes it's amazing technical prowess or expertise. Sometimes it's like jump off the page commerciality, right? But I guess my point is almost always in that bucket. It is not obvious. We're talking about it in an obvious way. But these are decisions that are so on the margin. And it's like if you wake up the wrong way and you're kind of in a grumpy mood, and that causes you to pass on the one great 100 billion dollar, $1 trillion dollar company that gets created either that year or that decade. that is extremely costly. And so instead, what we've found is that we should design a model that like we are trying as a team instead of sort of poking holes and trying to figure out all the ways that it can't work, which like I could do, by the way.

21:24I could have every single company that comes in even the good ones. I could find a million reasons why it's going to fail in network and be very negative in trying to talk all my partners and team out of it. We take the opposite view, which is we have to help the sort of person that's dreaming with the founder or squinting is sort of the term we use internally to sort of get to their own version of yes. And so what you hear is that the sort of individual stakeholder that's meeting the company will sort of talk about it as the group. And then all of us, instead of poking holes, and it's not that we're not critical, we try and pull on the thread on, hey, like you mentioned this language, that seems pretty outlier to me.

22:05like, can you expand on that on like what you saw in this founder? And so we're all trying to help them basically get to a yes in our model, which is very, very unique. And then we are, you know, single trigger. I feel like that's your whole orientation. Like even when I call you, which I do all the time about like a deal, you're often trying to help me get to a yes, when like almost the whole industry is trying to get you to a no in some weird way. Yeah, and this is the, you know, cost of omission versus, you know, commission. And it goes back to you doing a lot of companies per fund. Exactly.

22:36It's like you just the number one thing that matters is just being in the right companies. And you know, and I remember, you know, I won't mention the name of the company, but like you called me on a deal that you were looking at. And the first conversation, I was like, here's the critical pieces of the market and product and like the competitive landscape. And sort of I was like, you should think about that. And then I I remember you called me again later that week. And intuitively, I didn't realize I was doing it. We were just debriefing earlier than this. But then I swapped in that second meeting to like, oh, you now are seeing something.

23:12You're squinting and seeing something that's not obvious in the market. Let me like help pull on those threads to help you get to a yes and you ended up investing in the company. And I think that's what we aim to do as an entire team across the board. not just partners, but like a associate or analyst who just joins. It's like all everyone, that's the mission and ethos of like someone at Boshcher. So you've described now like a few attributes of doing like super early stage investing, which include like a big basket, an orientation of trying to get to a yes, not trying to get to a no. Yep. Looking for people, not ideas.

23:47Yeah. All of those things are like extremely different than everything about how like a big firm operates. Like those Those are opposites on all dimensions. I'm curious how you think about a big firm trying to do this, I don't know if you want to call it pre -seed or first round or whatever, but they're just such different sets of work. Everything about its opposite. Yeah, and it's, look, it's why I always ask myself why are they're not ventures so competitive, why are they're not more boxers? and it's so counter to how so many people run their business and do their work. I think for us, it's just the only thing we know.

24:28I come back to, if your ultimate goal and orientation is not how do we maximize ownership, and then hopefully we are in some really good companies there, and instead say, how do If we look at all the good companies that get started in a year, we think about how many of those did we see? And then how many of those did we actually get right versus wrong? And the way that we look at it, and I think my partner, David Tissue, started the firm, owns a lot of credit, like deserves a lot of credit here, which is like the failure mode is we didn't see it. If we made the wrong decision, okay, let's like figure out and debug that.