Uncapped #29 | Thomas Laffont from Coatue

28:13Yeah, and now what would we say is the greatest consumer internet franchise of the past decade? New. ChatGPT. Correct, right? So I'd throw ChatGPT in there. I might throw Robinhood in there, right? I might throw Revolut. But it's just different than when the phone came out and it was Uber and it was Airbnb and it was Spotify and it was Snapchat and it was Instagram and it was like all of these apps that were coming around, explosion of internet apps. Consumers changed. So I don't want to anchor too much on that. So that's why I look more at round composition, patterns of meeting founders, things like that.

28:56Because you think thematically, I assume, and because you invest late stage, I would assume a lot of times you want to invest in multiple companies in a sector. And clearly the public side, that's totally fine. but you probably also want to do it at the private side. And you and I chatted a little bit before and a lot of the people I've spoken to on this podcast have said that in venture, conflicts are a big challenge. And particularly as venture firms scale, it's actually a really big challenge. I remember Mark's quote on that. His biggest stumbling block towards scaling was that. Yeah, I said, what's your number one problem scaling?

29:32That was the one. And I think you have a divergent view here. So I'd be interested to hear it. Yeah, look, I do think traditional venture capitalists have set themselves up to be the entrepreneur's first call. And so think about it as a founder of my own business. Do I want to try and compete with every other person that's trying to be the person's first call? Well, no, actually, I'm trying to be your second call. So the first call you're going to call, you're a VC that's been with you for a long time. And then you're going to think, okay, well, what do I do about this now? And who can I turn to help?

30:07I want to be the second call where it's like, gee, why don't we call Thomas and see if he knows somebody or has a point of view on a market or can make an introduction. It's also a lot more scalable for you, a lot less phone calls. Different types of phone calls, right? Different stakes on the phone calls. I assume they're trickier phone calls. They can be. So look, I still believe that if you're a 20 % owner and on a board of a Series A company, that to back another company that does the exact same thing in the exact same framework, I think that's a legitimate conflict and we don't do that. But I do think that the position of conflict that I have has also a lot of benefits, right?

30:48It might mean domain expertise because I'm able to see the whole playing field, right? It might mean a very deep network in a certain industry. So I think there can be significant advantages there. Now, you have to do it the right way. And so to me, there's a couple foundational principles of if I'm going to invest in conflicting companies. The first thing is I'm going to tell the entrepreneur first. So I am a big believer in disclosure. So if I'm in two companies that might have or might be perceived, because then you get into, well, is the conflict real or is it just imagined by the founder?

31:30Of course. And sometimes we might have a different view on what a conflict is. But I'm mostly going to kind of disclose it. So that's kind of number one. And then the second is kind of trust and reputation. So the trust of making sure that information doesn't leak. We take information, actually security, really seriously. First of all, we're regulated by the SEC. So if you think about a bad piece of information that could come into the firm, if a trade happened on our public side, even if it wasn't related and it was never communicated, could immediately implicate you in something really bad. By the way, I also think when you design for this from the beginning, you can manage it.

32:23YC invest in tons of competitive companies, but you're never going to see them share information across. It just will never happen. People know we have a very stubborn and intrusive compliance department. We would have a zero tolerance policy on anything like that. Again, if I'm in the venture business, I can afford to do things differently. I think for that business model, it works. But again, we're trying to do something different. I always thought about rounds in venture. It's like, God, I got the best at my first round, and then the second or third. Now I'm starting to get a Xerox copy of a Xerox.

32:59By the fifth round, you can barely tell. So I'm like, well, why don't I just add a complementary point of view, a complementary business? We have the opportunity to think really long term over multiple rounds, over an IPO, over a company going public. So it's just about adding a different perspective and network to a cap table. I also think companies in their later stages really need somebody around them who understands the transition from private to public and what happens in public markets and things. It just becomes a very different set that people who traffic in Series A's all day just don't spend their time on.

33:38Yeah, I also think, look, public market investors think really differently, right? They don't mind going to a company and saying, I don't understand your business or it makes no sense. or why they can be very direct, they can be very confrontational because at the end of the day, it's a transactional kind of relationship, right? Venture investors might feel really differently, right? If I've invested in your company, I really want to make sure that the next founder that I'm trying to invest in calls you and boy, you better say something really nice, right? So the incentives can really start to get murky.

34:16So I've always prided myself on being direct and at times saying what everybody else in the room is thinking but not saying. Yeah, which I think is refreshing. You talked about the wide aperture lens of investing and what it means to have this kind of broader mindset. I'm curious what that particular phrase means to you because when we were catching up, you used it a couple times. I really love technology.

34:48I just have a curious mind. You know, from when I was a kid, I was the youngest in my family. And so I just, I read a lot and played a lot of video games. So I was just really curious about the world. And I think almost every great investor I've ever met from Stan Druckenmiller to Mark Andreessen or, you know, are just deeply curious about the world, right? And so I'm just lucky where I don't have to be bound in my curiosity. I can just go out and seek out people and information. And then I kind of figure it out later on what does it mean or where is it relevant. I don't have to use a filter and say, well, because I can only do this, I probably have to focus.

35:36Now, that can have a downside, right? It can mean that in crypto, as an example, I think that served us poorly. Because I think crypto was an area where deep specialization actually in the beginning really helped you. So it's not a perfect formula. It's got trade-offs. And I think the investors who early on when crypto came around and were willing to deeply go down the rabbit hole and specialize and really understand something, that was brand new, right? That had no equivalent in the public market or anywhere else in the world, right? It was almost like this big bang. Yeah, I always think of Bitcoin as like a big bang that just kind of happened, right?

36:20So I think those investors kind of benefited. So it's not foolproof, but I do think it's kind of how my mind has tended to work. And I've always kind of made bets on myself and the parts of how I worked that I thought were the most productive. And that's one of them. We've talked so far mostly about markets and themes. Obviously, you care a lot about the founder and the person you're investing into. I'm sure this is true at all stages. I would guess even at the latest stages of private, public companies, you're still thinking quite a lot about the person. What guides you on people? A lesson I learned at CAA is star quality is real.

37:11Most people don't have it. Some do. What is it? You just know it when you see it in a room. Tom Cruise is maybe my favorite actor growing up. I've seen Top Gun a zillion times. I'd loved Maverick. I had the opportunity to meet him one day in a very kind of random setting. I was delivering a package to him, and he shook my hand and looked me in the eye, and we talked for three minutes. And for three minutes, I thought, wow, no one cares more about me in the world right now than Tom Cruise does, right? The way he just commands a room and his presence. But also when Colin Farrell came to us and he had never been in a movie before and you spent 30 minutes in a room with him and he just had so much magnetism about him, the way he composed himself and talked to you and looked at you and just his general kind of persona.

38:03So I do think that to me, I do look for that in founders. It's the combination of a mind at work and an opportunity that they're addressing, right? I remember when I first met Evan from Snap, he basically was making the argument that look at the generation of young people coming up with the Iraq war essentially having been you might say a hoax, right? The WMDs were never there. Rolling into the financial crisis. Oh, you told us we had the best economic system and then it almost collapsed, right? And then COVID, right, he built Snap as a platform, as a reflection of those trends, right? So what was it?

38:54well, everything disappears, right? No one kind of stores your data. You can't trust institutions to look out for you. I think it ended up being incredibly prescient of where we are today as a world, right? Where the institutional breakdown that we've seen. So I think that magnetism about a person in a room and an idea and a market that they're going after. Yeah. One of the things I often think about with the magnetism quality is there's examples of people who are pure magnets where everybody loves them and everybody wants them to succeed. And then there's examples where people are highly polar, where half the world loves them and half the world hates them.

39:37And both of those work, but I think you've got to at least have the strong pull, if not the whole thing. Well, Travis from Uber is an example, right? Polar. I think if you referenced him, to your point, half the people liked him and half hated him, right? I remember meeting him at the Goldman Sachs technology conference in Vegas. And we were in like a little cubicle. We had like 20 minutes.

40:06But man, I walked out thinking, wow, that is someone who's going to dominate. So it doesn't necessarily mean magnetism. It could just be, yeah, their aura, their energy. Yeah. Yeah, it doesn't have to all be positive. Yeah, yeah. A competitiveness. But it does have to be strong, I think. Absolutely. Yeah. Yeah. Yeah. When you're making these investment decisions, one of the things that is often hard is some of the great founders are not to everyone's taste. And so a lot of the best investment decisions were extremely contentious in a firm. I think this probably relates to how a firm is run overall, where you have there's the investment decision process, which can either be single trigger or fully unanimous or somewhere in the middle.

40:58There's how a whole firm is run, which can be a CEO, hierarchical model or an equal partnership. I'm curious just to hear your reflections after being in it and around both at the decision-making level and at the firm level, especially as you think about the fact that a lot of what needs to happen is kind of counterintuitive a lot of times. I've always envied firms that had this quote investment committee where the wise men and women would get together and decide yes or no. And the smoke's going to go up the chimney. Exactly. We've tended not to do well in that environment. What I would say, and we do have an investment committee, but the way we've tended to work is just momentums of deals.

41:45and we're very collaborative from the very beginning. So people will come in and pitch an idea. The public market team's going to opine. Philippe's going to have a point of view. You're going to be fielding information, points of view, possible connection points. You're talking about internal momentum, like there's a groundswell inside Code 2. By the time you get to a yes, it's like, come on, we've got to do this as a firm. It's not any single meeting. We do have these check-ins over time. we pitch the idea, but it's incredibly collaborative where we solicit opinion incredibly early from a wide variety of people.

42:20That's similar to how we do it, actually. I've never heard it described that way. But by the time you get there, it's like there have been so many conversations and you've worked so many kinks out that you're not like debating. The investment committee is more like, okay. It's been a process. Correct. Yeah. Or the opposite is that the no's tend to not necessarily happen by then. It's just an idea peters out and it loses momentum. So the way we found more or less it works is, and it's the number one thing I tell people when they join is realize that when people want to come in and chime in about something or help you with something, that's not credit being taken away or that's actually what makes us better.

43:01So yeah, if we're pitching a software idea, the software analyst who covers our public business is going to chime in with an idea and with a point of view. And in fact, if we don't, because you don't want to then be in that meeting and say, well, what does so-and-so say? Oh, well, I didn't ask him. What do you mean you didn't ask him? He's an expert in this space. He works at Co2, and you didn't ask him what he thinks about this idea. So I solicit input really early on. I want to get that feedback, whether it's positive or negative, how to improve the idea, how to make it better. I want to iterate it in real time, right?

43:37Versus just having this holy grail moment in a meeting, the perfect deck where all of the data that you need is there to make this decision and all the council of popes has gone, of cardinals has gone together, right? We just don't work that way. Yeah. When you think about sort of that's at the decision-making level, when you think about at the firm level, because obviously you also need to say, hey this year we're going to slow down our pacing or we're going to focus more on this area, this theme, this stage. Obviously you guys are sort of run in not like an equal partnership model. How do you think about the trade-offs of those two?

44:13And like obviously you guys are running code to a certain way and have a preference. But like when you think about what's the advantage of each, what comes to mind? I think that because we can run kind of incremental, right? You can get promoted and have an impact, I think, faster at a firm like ours because we don't have to say, gee, we're going to have to wait eight years for you to become a general partner. And by the way, there's these other 12 general partners around, and we're going to have to wait for them to term out of this fund. So we don't have any of that. So I think we offer an opportunity for young people who want to have an impact quickly.

44:55they can probably do so at our firm.

45:03That's going to be a great opportunity for someone like that. Now the converse is we also don't suffer debt weight. And by the way, by debt weight, I mean two kinds of debt weight. Younger people that come in and just aren't good, they're just not going to last long with us. On the flip side, also, we don't want a lot of debt weight at the top either. So it cuts both ways. The expectation has to be, whether you're new, whether you're young, or whether you're old, your contributions better match the economics that you have in the business. I think from my time, I was in New York for a few years after college and spent time around a lot of people in private equity and hedge funds.

45:44Contrasting that with venture, I would say it is, maybe ruthless is a negative word, meritocratic might be a positive word, but it is much more clinical, I would say, than the way venture firms are run. And I think that comes with both positives and negatives, but it's definitely different. Is KOTU run like a West Coast VC, an East Coast financial firm, somewhere in the middle? It's in the middle. And I will say, I think it is very difficult to run an East Coast firm and a West Coast firm because they are very different, right? Look, if you think about the hedge fund business, right? The hedge fund business is one where every single year - You know if someone did well or not.

46:30You do. And we get paid out on a yearly basis, right? Yeah. So we know at the end of the year, did we do well? Did we not? And who did? And so forth and so on, right? I mean, there's so many examples of a venture firm firing a partner because they thought they were a bad investor. and then five years progressed and that was the best investor they had. And venture plays out maybe in six or seven year cycles. So it's just different.

46:59If I think about what the crossover funds brought is I think we brought a competitive metabolism to the industry that I think might not have been there before. I think what founders like Andreessen brought is a competitive metabolism born from being an entrepreneur. I think both of those energies kind of collided at the same time into the venture market in the, call it late aughts, 2000 post-financial crisis, 2009 kind of time frame. So they both kind of collided into the world of venture. And I think what we're seeing is kind of the outcome of that. What I love about what Mark and Ben have built, and ironically, we shared an office building when they first started.

47:50So I just really, really like them and what they've built. And Mark's father-in-law was someone I care deeply about. But their ability to think as an entrepreneur and say, we're just going to think about this as a business and a company, ironically modeled after the company's CAA, which was the only other job I've ever had was that. We love that. So they brought that competitive metabolism from being an entrepreneur, and I think we brought it from a bit of that kind of hedge fund culture. Okay, total gear change. It turned out we have some similar interests. I got into golf last year, which I'm kind of embarrassed to admit, but here I am, started becoming an investor, and I picked up golf and I think it's awesome.

48:37I'm still really bad, but we chatted a tiny bit before and you were actually talking about it in a much deeper way than like an excuse to just like get out and have fun. What is your experience with golf been? Golf changed my life. Just point blank, without exception. My life would be completely different if I had chosen not to play. And I think that can sound strange to maybe people that don't play or don't understand the game. Like, what do you mean it kind of changed your life? Well, it really has. The amount of people that I've met, mentors that I've had through the game of golf has just been incomparable.

49:25The game is so layered, right? There's an integrity layer, which I really like, which is at the end of the day, in golf, you're responsible for your own score. There's so many opportunities to cheat in golf where no one would really know. Moving your ball slightly out of a divot. Sometimes an inch can make a complete difference. So I love the continuous test of integrity and character that it shows. The competition at the end of the day, you're not really competing against anyone else. You're kind of competing against yourself. The ball doesn't move. It's right there. You just have to kind of decide on how to execute the shot.

50:01so there's dynamics of the game that i love but to me those are entirely secondary to the social element right and the opportunity to spend four hours with um either a close friend who's having a difficult time or someone i've just met and who i don't know and we're not looking at our phones, right? We're actually kind of in the open air, right? Walking. Yeah. Is so rare in this world, right? There's a defined end, right? So it's not like you're having a coffee with someone and someone's wondering like, oh, gee, you know, do I have to go to my next meeting or is it time to go, right? So we know we're on hole one.

50:45Yeah. We're going to go through 18. And by the way, afterwards, we're going to sit and we're going to have an iced tea or a beer and we're going to just kind of catch up, right? It's an incredible test of character. Oh, yeah. I mean, it's so frustrating. You have to, like, have such control. How people respond, right, to adversity. Sometimes the inherent randomness of golf and where your ball's going to bounce. So, but for me, fundamentally, it's about the people. Also, just the presence to not be on your phone. It's so hard to come by. we actually talked about a couple other interests that we both you know like video games i love video games and i think partially similar reason i love like listening to vinyl records i think things that force you to just be present are so valuable because we're all just addicted to our phones all the time otherwise yeah absolutely um surfing is another really important part of my life and uh very similar traits to golf right you're kind of out in the water you're not looking at your phone, you're kind of in the moment, you're kind of meeting other people in the lineup.

51:48So I always encourage people, do yourself a favor and learn how to play. You're just going to spend incredible time with the friends that you already have. And you're going to meet new friends. By the way, you're going to meet new friends of different ages, because what's also unique about the sport is you can compete with anyone at any level. So if I'm an expert, I've been playing my whole life and you're brand new and you've been playing a month you and I can have a competitive match think of how many sports in the world that's actually possible to do tennis uh-huh UFC fighting like Zuck or anything like that impossible in golf you can pair people through the handicap system yes right of completely different abilities and have a good match what does that mean it means you can play with people that are older it means you can play with people that are younger it means you can play with men and women and kids you can all be paired up and you can all be competitive and have fun what's funny is when i so i grew up in like a you know suburb ofst louis and i had like i i don't know why but i i grew up with like sort of like an aversion to things that felt pretentious or snooty or country clubby and i think i had golf bucketed there and then when i learned that it's i do think it's associated with some of that stuff and that's like a separate thing but just the game itself and the experience itself is so good look no question um it doesn't have to be yeah you know something else i get is i i gotta be good it's like no you don't yeah you just gotta understand the rules and to me you gotta play fast and if you're not good you actually have to bring a stronger mentality because it's so frustrating when you're not good yeah um it also it rewards great teachers i've been incredibly lucky to have amazing teachers right i i love i there's a lot of benefits of of of doing well um and being successful financially for me um one of the greatest is the ability to to seek out true experts in a field and learn from them um i have an amazing teacher actually based at stanford right um and i'm just so lucky to be able to to kind of learn from him right um and i kind of bring that to the different you know approaches that I bring is seeking out amazing people in their field and be able to learn from them right golf is a game where you will get better with a good teacher you will not get better by just going out on your own yeah just trying to you know make stuff happen yeah so I've been looking at great teachers another question just about sort of your life experiences um you got gotten to work with family, you work with your brother.

54:31I think that's like a super enviable thing. Another example I think of is like at SV Angel, Ron came to work with the Conways. And I think that's just special to work with family like that. And you've done it for a long time, and you've done it in a obviously very successful and sort of hyper-competitive together way. Just like what has that meant for you? Like what has it meant for the relationship? I mean, Philippe and I talk every day. I mean, I can't even count, right? Constant. How many times, right? Yeah. I think to me, the biggest positive by far is we don't question each other's motives.

55:11So there's no politics. Why? Because we know we're kind of stuck with each other, right? No matter what. Even whatever happened with Code 2, we're still going to be brothers, right? So it completely eliminates a whole waste of energy around the politics and all this kind of stuff that can happen at other firms. Like we just have none of that. He and I, I always laugh about this. I think we've talked about economics, i.e. what he gets and what I get over the almost 25 years we've been working together. If you accumulated the amount of time that we've discussed that topic for himself and for myself, it probably adds up to 30 minutes.

55:53And it's just because you trust that it'll be fair. Absolutely. Yeah. So I just never think about it. That's amazing. And I go to everybody else, and I'm like, look, I want to keep contributing. And if I don't, then my economics have gone diluted over time as others have come on, and I'm delighted by that. so it makes a lot of things simpler right so that's good the bad is that it just but I think that's just part of being a founder is it is kind of almost all you think about kind of all day long so it's so it dominates the relationship basically when you're at a family dinner when there's a prom at the end of the day it's kind of upon us so it can become really overwhelming and it can be difficult to turn it off, right, when we're together because it's kind of a lot of what we think about, right?

56:50Yeah. So we've learned to modulate that and find actually activities like golf and others, right, where you can kind of turn the volume down a little bit on that. But, you know, actually I was chatting with Jensen about this one day and, you know, it's like, what does it matter where you work in an office this, that way? We're kind of working all the time, right? I mean, it's always on my mind. It's always something I'm thinking about. So that can be the downside. Yeah, makes sense. Any final question I would ask is, you know, you spent a lot of time, you talked about the importance of mentorship for you.

57:27Obviously, you spent a lot of time mentoring people. You talked about sort of, you know, young people coming up in KOTU, elsewhere. Any sort of things you find yourself repeating often when you're speaking with younger people? First of all, I think having a mentor is a blessing. I was really fortunate where the first job I had out of college was I went to CAA, which is a talent agency in Los Angeles. I got promoted to the desk of an agent. I ended up working with him for almost three years. And to sit with someone in a room for that period of time, this is Brian Lord, who actually still runs the agency to this day, to watch the integrity with which he pursued his career.

58:14And the way he just treated me as someone who made mistakes and just said, just don't do them again, right, is something that, yeah, it's kind of helped me my whole life. And I just think it's a more interesting and rewarding way to lead your life. I do find sometimes in tech we can be very focused on the mission that we're driving. And I think the ability to kind of share it with others is so much more rewarding. So it's both being a mentor and then being a mentee, right? It's something that I take a lot of pride in. And I always tell people when they think about coming to KOTU or investing in us, I'm like, talk to everyone that's worked with me, whether they still work with me or not.

59:05I think that's how people kind of define themselves. So yeah, for me, it's a fundamentally kind of a core principle that I live by. You mentioned something about gift wrapping. Yeah. So when I was at CAA, before you got to work on a desk, you had to work in the mailroom. And that's literally what it was. We would kind of sort through mail. we would copy scripts. And I'm so grateful to have had that job because when you're starting out, I kind of tell young people, I'm like, focus is a luxury. Think about Jensen at NVIDIA today, the amount of things that he has to worry about. He's got China and what's going on there and he's got Amazon trying to build competing chips and he's got to run his own company and he's got to like the government.

59:58I mean, every day there's something new that he's got to think about, right? And he can't afford the luxury of just thinking about one thing. Well, generally, when you start in the workforce, you have the luxury of actually focusing on one thing. So I always tell people, I'm like, that is a luxury and enjoy it. So the example that I use is during the holidays, we would send out a lot of gifts to our clients. And so we kind of had a gift wrapping station. And the way mostly it worked is an agent would put a gift in their outbox and say, gift wrap it for me. So you would take the gift, you would go down, you'd kind of wrap it as quickly as you could, you know, this, that, and you'd bring it back to the agent, right?

1:00:39So I looked at it as an opportunity to differentiate myself. So if I saw an agent, a gift, I would take it and I'd be very meticulous on how I gift wrapped it. And I started experimenting with different techniques. And one that I really liked is actually putting cellophane around the paper. And it just kind of gave it a really glossy feel. And it looked really nice. So I went, I bought the, you know, the film myself. And I would put it and I would kind of make these really nice gifts. It's like Joe Dreams and Sushi. Yeah, exactly. For gift wrapping. Well, what ended up happening is that agents ended up seeing like the nice gifts.

1:01:15And I ended up being pulled out of my regular duties. And I became like the gift wrapping guy. So what was nice is no, I no longer had to run around everywhere. I had like my own little station and, you know, for two weeks I was just responsible. And, um, well, as it turns out that when a desk opens, you know, think of an agent who's got, you know, like 15 different trainees that he can, uh, he or she can pick from. It turns out that being known for being really having attention to detail and doing something well, it turns out that that served me really well. and so um so i always think when i i tell an analyst and they're just starting i'm like you might only have one or two companies like think of that model the way you know i was thinking about gift wrapping watch over every cell every line the formatting what font you use right every line has to be have a purpose right because you might live in a world of 10 000 lines but when you pitch the idea to philippe he's got 17 other things he's thinking about that moment so your ability to crystallize that model in a way that's simple, that shows that you understand what you're talking about, and that you can do it in 50 lines, not 10 ,000, is an incredible skill, right?

1:02:29And so a lot of how we mentor our analysts are derived from kind of some of those principles. I love it. Thomas, this was really fun. Thanks a ton for making the time. I learned a ton. All right. Thank you.