Uncapped #5 | Sarah Guo from Conviction

0:00All right, so thank you for doing this. I realized that you've been spending more time being the interviewer than being interviewed, but I appreciate you doing this and it's nice to be doing it in your office. Yeah, well, any excuse to hang out with you. The first thing I want to ask you about is what a VC firm sort of is. And the thing I've been thinking about a bunch is when I was doing lattice, I kind of knew what a company was. Like, you know, you build a product, you sell the product, like there's like a sort of a very tractable thing. And then over the last year doing venture a full time for the first time, it struck me that it's a much more sort of flimsy concept.

0:34And you know, there's obviously like a fund that own shares, but then there's like a brand and there's people and there's these other parts. And as I've been thinking about building a VC firm, I've realized that thinking about what it actually is is sort of like a wispy idea. And so I would love just to hear from you as you've thought about, you know, you've been at one like a very substantial longstanding one. Now you've built your own. How do you think about what a VC firm is? We've taken like two steps toward building our own. You've built something now. It's an interesting question. Like the way we think of it internally is, and it's not like the most flattering view, but venture is a bundle of like money.

1:13I'm thinking about the value of the customer, right? The customer is the founder. Venture is a bundle of money where like everybody's money is approximately green, right? You can have like lower and higher quality LPs, but generally that's not how founders make their decision. Then you have people and beliefs that you are associated with as a founder. And then you have advantage, right? Like what can like, Ken? And I wouldn't do the job if I didn't figure like that the last piece could matter at all, but help you can give companies and to try to make things happen faster or make ideas like more possible to actually make real.

1:53It is a weird way to think about venture as a business because for all tech investors love to talk about like, you know, like moats and differentiation and sustainable advantage. I think venture, like when you think about those components, money is the purest commodity. The rest of it is pretty squishy. It's a lot of like brand and individuals that feel quite fragile or like point in time. But you know, some of the great venture brands they've been around for a long time and I think still possible build an enduring institution. So yeah, and some of those brands do something is compounding there.

2:31And I guess maybe that's an interesting sort of way to pull on the thread is like, what is compounding at Sequoia or Greylock or these firms that have been successful for decades? What's the thing that is like hard to knock off balance? Like what is the thing that's making that is it like, is it the brand, is it the network of founders, is it something about the way they do business? Like what is holding on through different years and teams and cycles? Yeah, well, I would start by saying like, I actually really want to try to live like this. And I think your entire personality expresses this, but like this doesn't feel like a particularly zero some environment.

3:06I think you can try to build a new thing without saying we're like completely after somebody else. But in terms of durability, I think you have like ethos, right? Like what matters to the people in a firm that goes from generation to generation and different investors, you have like some tribal knowledge. And that is like what has worked in the last generation of companies, good and bad biases like the history of technology, right? Like sure, so how Apple or Google or Nvidia did it or Facebook from that matter. And then you have brand, which is just, obviously what founders think of the place, how much success you've had and then you have network.

3:44And I think those are, I think those are the things that are harder to replicate very quickly. I think you also, if you are at a platform venture firm, you have a lot of capital available to you, but there's also just a lot of capital in the world. Yeah, I want to come back to what you said about sort of the whole zero some nature of it all and to what degree more value gets created versus venture capitalists are sort of capturing. I've heard some people say that they think that great founders select, like the truly great founders are actually selecting for a different thing than other founders when they're thinking about their VCs.

4:22I can't remember, but you know, who all but one name that comes around, I know Parker at Rippling has said that like brand is the most valuable thing that he can get from a VC because it makes it easier to recruit easier to get the next customer, et cetera, and like he's going to do the work anyway. And so at least he can get a brand. Do you think like as you've experienced sort of working with companies and founders, do you think that there are different attributes and venture firm that different founders prioritize and does that impact at all the way that you want to build when you think about, you know, your founder is the customer but obviously you're looking for certain founders within that customer set.

4:56Yeah, I definitely don't have to appeal to everybody. I think if you are going to go to the sort of highest prestige brand, like you want to buy, I don't know, I was going to say like IBM, but I mean this in a flattering way, like you want to buy like the known winner. Apple, let's say. Apple, you buy Sequoia, right? And like, you know, a number of challengers in the established tier, but I think a lot of people make decision like founders are not a homogenous set. And like let's just use examples here. I think a lot of people make decisions very individually, right? If they know, and you know, we also want to back first time founders who've never met anybody in venture capital and we talk about how you build that trust in those relationships, but Brett Taylor, when he builds his third company, he's just calling people he wants to work with.

5:47He does not care where they work, right? I don't think he like particularly cares about the brand of the firms. He is working with firms with nice brands, but he is picking individuals, probably because he doesn't feel like he particularly needs the halo. I think if you asked Parker because I have, like I'm pretty sure he called Mike actually, because there's, and maybe that's also a symptom of him also being a third time founder. I think his specific words here were like, if I were ever to build another company, please God know. But I'd call Mike. And so I think that at some point, like the things that you feel like you want help with or support on and how much brand matters to you change as a founder.

6:29And so we want to attract a particular set. And I think our brand does stand for something, we're trying to make it stand for something now, but it doesn't have to be like the most established prestige. We actually can't go back in time and do that. Totally. Yeah, okay. I want to shift to brand now, because this is, it's something that you've done notably. I promised you I wouldn't like ask like a question that was rooted in flattery, but like you've done a good job branding the firm since you started. And actually in some ways, I would say, you know, the last sort of really great firm to be built that I can think of, you know, that also launched with what I think was a very strong market presence with Andrewson.

7:08This is like 2009. And like all of a sudden they were like everywhere. They did many things. They like dominated PR. They were like, you know, investing in great companies at what seemed like the high prices, many of them were actually still really good investments from there. But like there were a bunch of things that let them get this brand very quickly. And then they scaled rapidly and all of that. And in some ways, there was not, you know, another firm that did that. And you know, at risk of flattery, you've been, you've built a very good brand very quickly. And you've kind of been everywhere.

7:39And you know, people see you in a lot of different places in high value places. They see you on good cap tables. They see you at good events. They see you, you know, they see you just like frequently. To what degree is that just what's been happening by a product of you sort of working hard, having a clear view and whatever or to what extent is this all like wrapped around like an intentional goal building the firm in a particular direction. And this is part of the story. There's a founder that we both know who has like a medium scale SaaS business now. And at one point, I lost an investment at my prior firm to Andrew Send.

8:19It was a series A for this company. This lovely founder was like, hey, love you guys. But they're paying more. And like, let me, like I was, and I was like, oh, well, like it doesn't matter. Like all of these other things matter. And we sat down in a bar for like three hours and he explained to me like how he saw the firms. And he basically was like, ah, these things like, they look pretty similar except they look bigger and like they're better at PR and they're willing to pay more. And I was like, oh, that's bummer. I took this like list that this founder gave me and like stuck it on my office door at my old firm for a number of years.

8:54I was salty about it or wanted to like try to solve the problem. And so one of the things that I think you just like think about when you start a company and you've worked on early stage companies for a while is like, the who said this originally? Like it's such an important thing. Like nobody cares. Nobody cares about Jack or Sarah or their firms or your new startup. And so like you have to make them care. The other thing that like we thought about was just if we think we are good partners to entrepreneurs, like why should they know? We have to like solve an information asymmetry for them. And one of the things that this founder said to me is like, you say you have a good network.

9:32They say they have a good network. It all kind of looks the same. And so one of the things that we wanted to do and like all the stuff is like, I don't know, you can just like try stuff and then see what sticks. But one of the things that we thought would be important would just be like demonstrate who the network is to founders in ways that are like accessible to them without us like man to man combat, women to women combat proving it. And so we did a bunch of what you would consider if you were in a company, it was like a, you know, SaaS founder of Lattice be like partner marketing. Yep, right?

10:07Let's do it. And we'll just, like if it was a business, it would be a funnel as part of marketing. Like what can we do that is efficient with people who have the distribution that we want that like us like, okay, let's go show up with Nvidia and Snowflake and OpenAI and whoever it is that like as part of the community, we want to be part of. I mean, there's also the reality that you doing, you know, to the Parker point. There's reality that you doing the brand work actually also helps the companies in some ways because you know, you doing branding can help your, at least at the early stage companies, there's value to it.

10:40So you talked about, so there's like partner marketing which is sort of like express the network. You also touched on something before which was like stand for something and then like, you know, share that. Is that like an essential part of it? Is that like the center of it? Is like believing something in the world and like that's what the marketing is about? Like, you know, I know like this was like a Steve Jobs thing was like, you know, we stand for something at Apple and like, that's what Apple's brand is as we believe in like, you know, we believe in, you know, X, Y, Z things and I think like that could be the analogy here.

11:10But do you think of it, you know, is it network? Is it stand for something? Is there a third pillar? Like, what are those components in your mind? Be willing to take risk on having an opinion as an important one for us. I think a number of founders choose to work with us because they believe that like the firm is AI native in terms of understanding of these sets of things that the companies are trying to do and then some is access to network, some is understanding of the research itself, some is just like company specific challenges. I also think that maybe entrepreneurs like, if you like want to go one level deeper, like I don't know what the world looks like 20 years from now.

11:47I really hope that like conviction as an institution exists. But if you think about the like name we chose as well, it is like, have an opinion. Maybe we're in the like post AI abundance age and like venture is irrelevant or like we're onto the next big technology thing and I hope the people at the firm, and maybe it's me like are onto the next big thing too. But part of the core ethos for me about venture is like, I want to understand the new thing and then like we take risk on it. Like we published our LP letters recently. Some of those beliefs and predictions are going to be wrong and look very stupid.

12:18But for a generation of entrepreneurs right now where everybody is in like a very dynamic environment and I think people are unwilling to like make any claim about understanding or about prediction. I think that can be like very grounding of like, well at least these people have an opinion and I can decide if I have that worldview or not. It's actually funny that you said that because about conviction, before you said that I had been thinking of the brand as AI native and now that you say it, I actually can immediately re -understand it as have strong conviction and what we believe right now is that AI is the most important thing.

12:52But if in 10 years that's solved and now it's about space travel, like conviction could be about space travel and that actually, that resonates. That makes sense to me. Do you think that in venture, do you think like brands typically like need to follow returns or do you think like do returns follow brand to some extent? Is there a strong correlation or causation between these two things? I think the most important part of brand should be success and success for venture firm is like the quality of the companies. I actually don't even think that most founders have that much visibility into how early you are or how much of the companies you own and sometimes I think that would be useful to founders to have more transparency around where like, hey, that person that says they're part of this journey bought secondary at the series F, right?

13:41And that's probably different than working on the company from eight or 10 years. But I think like year zero, you gotta do something. It also brings up a funny point though of like from a founder's perspective, what is a VC being successful? What does that mean in the way they care about? Like should they care more that you partnered with important companies or that you deployed a lot of capital or should they care more that you got crazy returns and companies they never heard of and didn't play a role. You know, so it's not so obvious. And I do think that there are firms that can kind of impact the direction of capital flows and firms that are working with the most important companies that maybe don't have as good of returns as firms that are not doing those things.

14:20And so I do also, as we're talking about it, wonder from a founder's perspective, which type of success is actually important? You know, like I joked recently that somebody was talking about like, oh, why should a founder want to work with that company? You know, they're huge and they don't have bigger turns. And I was like, if I'm thinking from a founder lens, I'm like, low return for that means that that was less dilution for me. So that sounds great. You know, it's not so one -to -one. Yeah, I think it's a really good point of like, I actually don't know that founders should care about the quality of our multiple.

14:50I think that is a proxy for like something founders should care about, which is taste. I do think some of the very best people, if you ask them, like when they say they're choosing brand, they care about association with quality and with success. Yeah. And so if you do a small number of companies and the hit rate is high quality and the people is like a set of people that you would be excited to learn from, I think that is attractive, right? And there is often a debate about whether or not you learn more from success or failure. I believe you learn more from success. Me too. And so I think people want the tribal knowledge going back to like what is a venture firm really of like, what is working at like the handful of companies that are really working in this era?

15:34And so I think we want that to be, you know, part of the value prop and then part of the brand. But to your point of like should founders choose the same thing and are the incentives fully aligned? I think not. Like there's a whole range, right? And I think it is, I actually joke with my partner, Mike of like, I think it is very reasonable if you think about if a bunch of you see these, you can argue about whether or not they're good operators. But once they've been investors, like how might they raise money? They might raise money from their friends. They might raise money from the like highest taste people and people who are most helpful.

16:14They might also raise the most money they can at the least dilution possible with the least control. It really depends on what you're looking for and like what your view is of what you're looking for from your investors. And so I also think it's like very stage specific. I don't think that founders should be optimizing for our returns. I think that's just a proxy for other things they might care about. As you think about the current market landscape, and you've been investing, you know, professionally through the teens and then you got to, you know, live through sort of the, the Zerapescalation and like sort of late stage SaaS, before AI and all this other stuff.

16:50You know, for me on the founder side, what I remember in 2020 and 2021 was all these crossover firms that I just thought were hedge funds like came and were, you know, doing all these crazy market distortions and as founders, everyone was like, cool. But like that was what was going on. Then everybody kind of went away in 2023 and now back in 2025, we have what looks to me like a similar but different dynamic where the crossovers don't seem to be back in a, you know, particularly important way at least. But you have the sort of bulge bracket institutional VCs that have gotten as big as those firms were.

17:26And they're now, you know, three or five or nine billion or whatever. So you've got that going on. The other thing that I think is interesting that you sort of were the, maybe the first of the most recent set, but there's like a number of now successful GPs that have left multi -stages, started their own firms. So now there's going to be, you know, there's always new firms being started but there's now a set that is sort of like ostensibly going to be slightly more institutional over time, probably smaller. But so you have these two sort of ends of the market going on at once. And you have, you know, AI Mania, which, you know, as we know from, you know, internet in 1999 could be, could be undervalued still, could be overvalued, who knows?

18:06What do you make of the shape of this market right now? What does it mean for where you think people can successfully play? What do you think it means for you and where you want to be playing? But like what's your read on that sort of market map? Starting a venture firm has like made me slightly more cynical about the end. I'm like a, I'm the opposite of a cynic in many ways. Like I'm a deep optimist about technology. I like working with really earnest people. I try to be an earnest person. But it is clear to me that raising money, like the capital markets are really deep. And raising money is an awful lot easier than making money in venture from a returns perspective.

18:42I think like if you actually think about the economics of a venture firm to the investors, there's a crossover point of like, you could be a, like a best in class in any vintage investor delivering, let's say like respectable eight to 10 times multiple returns on a small fund and make not that much more money than somebody who's charging traditional venture fees on a fund 10 plus times your size. And so I think there's a very rational thing happening in the maturation of certain asset platforms where it is very easy to unconsciously be attracted by growth because like, you know, you've built a company, growth feels good.

19:24Growth is not a natural state for venture. It changes your ability to invest, right? But people are growing their firms. It's also like a natural organizational thing, right? If you hire young people and then you hire 10, then you hire 50, like they got, they got no somewhere. And that also means like, that means opportunity, that means comp, that means agency. So I think that like a very natural thing has been happening where these things that were little boutiques are acting like businesses, the businesses naturally grow, there's capital available to them, the feedback loop for whether or not the returns are supported are also distorted by the fact that lots of people see the backwards looking multiple of the best funds of the vintage right before Zerp and were under invested in venture and are still trying to invest in venture.

20:15And like the outcome of all that to me is there's obviously secular increasing opportunity and technology over time. And that's the thing we index as venture investors. And so I think there should be some growth in the venture industry. I think this is like a skew from that and it will not end well in terms of returns for folks but it is also just maturation of the asset class. And so I don't know that it goes away. If you like take private equity as an asset class prior or those platform businesses, it is very hard to make money in private equity at a top tier and people are not moving money out of the asset class.

20:52Does it skew the ability for small firms to make money because these big firms though are going to play at every stage and in the same way that the crossovers got into late stage growth and sort of sort of starting to do non -economic things, do the venture firms that are huge are is it rational for them to do non -economic things at seed because it fills the pipeline and they know that they're just gonna play a different game on the winners and take sort of like a different IRR on that and does that impact the whole ecosystem in a big way? I think it does. And so I think the like if you ask me what is a, what could I be wrong about in the whole like strategy or the ecosystem?

21:36I think there is a point of view of like you can't make money in venture anymore in terms of like an outsized multiple in early because it's just a sourcing funnel for the late stage firms and the expectation on multiple like the cost of that capital is lower. Right. And so like and you can just spend resource on it subsidized by the growth firm to you know be more competitive federally. Right. In terms of like marketing or people or whatever. We have eight people today. We had six people until last week. I guess like I would pause it until proven wrong. Like I think in the very early end of the ecosystem like we're not trying to win everyone.

22:16We only have $200 million of capital. We need to have a couple really important companies to have a hugely winning fund in every cycle. You don't need that many people and that much money to compete because people are looking for different things and the experience of working with you or working with a like a very specific set of people that have an opinion and have some certain understandings quite different than working with a very large business. And like people choose different things. It's not a homogenous market. We talked about how like there's a certain type of round that is obvious. Sometimes obvious is Brett Taylor at the seed but maybe more often it is cursor or something like that.

22:55Like a company that is really working and there's things in the middle, there's things past that. But as you think about these types of companies ranging from completely not obvious to extremely obvious and you think about where money is most likely to be made and sort of line that up against sort of the dynamic we've talked about with Sequoia is able to sort of play a dominant strategy of like they can go win the obvious things at a very high rate. Small firms can do different things. Where do you think that that leaves? If you had to take your best guess of where in today's market like the most alpha exists?

23:31Like is the winning strategy right now to become able to win things? Because to this recent point, there's the non -obvious feeders but there's more money to be made at doing the first obvious round. Is it sort of the much later stage stuff where actually the 10 billion dollar companies look much better than the 1 billion dollar companies because we now live in this world where things are going to get way bigger than we thought. Like what is your current read on where the pockets of value are at the moment? I think it's a super interesting question but I don't spend that much energy on this question in particular because my orientation is actually just like my taste is my taste down at early stage person.

24:08I actually think my taste is like pretty mainstream in many ways, right? Let me contrast this. I think we will have opinions on companies that other people will not have and we might choose to be earlier or make. Like it's very hard for me actually to tell what the mainstream opinion is, right? Because if you remember the GPD wrapper era where nobody's gonna make any money in the application layer and now it's like you're only gonna make money in the application layer. It's pretty good that flipped very quickly. Yeah, it's exactly. And so one thing is like I don't think a lot about, I think great investors do this, but not me.

24:41I don't think a lot about like where is the risk reward and like, yeah a lot does, like where's the risk reward and like the mid stage, the late stage, the early stage because I'm like, well, I'm only gonna make money. I've got my game, it doesn't matter what. I am pretty sure being great at early is gonna be valuable no matter what and I'm not like globally optimizing, right? And then I think your point of view on product and people just is what it is. I do think that if you think that like, let's say you just want to be able to win whatever opportunities you wanna work on, then you have to like build your ability to win, right?