Adam Bain of 01 Advisors on scaling Twitter from 0 to $1B+, being coached by Bill Campbell, and why they don't take board seats

0:00Welcome back to another episode of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. I'm your host, Samir Kaji. And on this episode, we are pleased to be joined by Adam Bain of O1 Advisors, a San Francisco-based firm with nearly $1 billion under management. Adam and his partners have taken a very different approach to the venture model, drawing from their experiences as operators. Adam was CEO at Twitter, and along with his partner, Dick Costolo, helped the company scale from zero to a billion dollars in revenues as fast as any company. During this time, they were able to spend a significant amount of time with Bill Campbell, the legendary CEO coach who helped inspire the foundation for O1 Advisors.

0:40Since founding the firm in 2018, they have a uniquely focused approach to venture coaching, and unlike other Series B and later VCs, they do not take board seats. We went through the why of this model, along with topics such as the transition from operating to investing and the future of potentially using models to determine founder archetypes. If you're a venture investor, then I'm sure you already know about Sidecar, the go-to platform for emerging VCs to manage their SPVs and funds. Sidecar is on a mission to make private markets more accessible, transparent, and liquid by standardizing how investment vehicles are created and executed.

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1:52To learn more, visit sidecar.io forward slash Venture Unlocked. Samir Kaji is the CEO and co-founder of Allocate. Allocate and Venture Unlocked are independent of each other. Any statements or references made by Samir or his guests regarding third parties, investments, or securities are solely their views and opinions and are not intended as investment advice or an endorsement of such parties or securities by Samir, his guests, or Allocate. allocate or its clients may maintain relationships with or investment positions in guests third parties or securities mentioned in this podcast this podcast is for informational purposes only and should not be relied upon as a basis for investment decisions adam good seeing you man thanks for being on the show samira thanks and uh hello to everybody listening to venture unlocked we're here in december right before uh christmas here there's actually a lot to talk about but the thing that I really want to distill down to is that the firm itself, your journey.

2:52So maybe talk a little bit about your journey going into tech and then ultimately the why of why did you start the firm in 2000, I think 2018, 19. We started the firm in 2018 just as I was leaving Twitter. So I spent almost seven years at Twitter as the chief revenue officer and chief operating officer. I came in in 2010 to Twitter when it was less than 100 people, one office location in San Francisco and zero in revenue, and basically took the company from zero to a billion in revenue, and then a billion to 2 billion in revenue, faster than almost any other consumer internet company. We took Twitter public in 2013, ran a public company for a bit.

3:32And then I left after about seven years on great terms with everybody. I just basically got bored of social media and board of advertising and was looking for like something else so that I could continue learning other categories beyond social and beyond advertising business models. And it dawned on me that one awesome way to do that would be advising CEOs. And so in 2018, started doing a bunch of advising work and then called our ex CEO of Twitter, Dick, and said, this is amazing. um i'm learning all kinds of stuff we should go do this together and so we started doing this um in 2018 together just with our own capital first basically did a hybrid investing and also advising uh with ceos and so our first initial deals were companies like air table uh car to trip actions open door um which became monster businesses and we were like oh this is like venture super easy.

4:32And so we raised our first institutional capital in 2019. We've raised now about a billion dollars of capital in just about four years. Three weeks ago, we announced our fund three, which is a$395 million fund. And it's Dick and myself. And then we just brought in David Fisher. David was the chief revenue officer at Facebook for a very long time before that Google. So I think we're like the only venture firm now that can honestly claim the partners have taken companies from zero because Fisher came in when Facebook was just about zero as well. So zero in revenue to 123 billion of yearly revenue.

5:18Although Fisher is about 121 billion of that at Facebook versus us and created about almost a trillion dollars of market cap from the C-suite. It's amazing. So one of the things that I always track is the number of funds that come or number of firms that come every single year. And we saw this steady stream of new VC firms. And I think around 2018, 19, there were so many new firms that have been formed over the past decade. A lot of LPs ask the question, why does the world need another venture firm? And what's different about what you're doing? And there's actually a lot different. And we'll go into each one of those components during the course of this conversation.

5:57But you mentioned this concept of advisory and CEO advisory. And one of the things that I know heavily influenced how you and Dick were thinking about the firm was your experience with Bill Campbell, who, of course, legendary, the late, great Bill Campbell. But tell us about how his influence helped you think about the strategy of the firm when you started it. Well, Bill is a legend here in the Valley. He was Eric, Larry, and Sergei's coach at Google. He was Steve Jobs' coach and very close friend at Apple. He was Jeff Bezos' first coach at Amazon. And what made Bill amazing is he was a ex-operator, first and foremost.

6:41He was, I think, a VP of marketing at Apple originally, and then he was the CEO of Claris, CEO of Go, and CEO of Intuit, and eventually chair, I believe, at Intuit. He was probably like the greatest non-technical Silicon Valley person ever. So I got to Twitter in 2010 and the benchmark folks who were investors in Twitter had brought him in to Twitter to help coach some of us. So I would start me, I was meeting with Bill once a week or once every two weeks starting in 2010. And I, you know, my background was in the sports business and I was brought in to open up the ads business for Twitter. and Bill was a massive sports fan and actually had worked before Apple, had actually worked in the ad business.

7:25Not many people know that. So we instantly connected. He was just absolutely amazing. He was super impactful on my life. He was incredible in terms of the coaching and advice that he gave me personally and gave Twitter overall. Every great exec in Silicon Valley has these types of people around them, these coaches, these advisors. And when we were thinking about launching something in the venture side of the world, we were like, you know, VC, for most people, the C is capital. But our idea was what if VC meant more venture coaching? And so we decided to take a slightly different idea, which was, could we basically become as important to the, I mean, certainly we're coming with capital, but could we become important to the founders and the CEOs as coaches as much as we were capital?

8:21Since many people have probably read the book, at least the listeners that we have, Trillion Dollar Coach, and of course, Bill, coming from being a football coach to now coaching executives, tell us what stuck so much with you in terms of the things that he helped with. So you think about this concept of value add. Some of that is over years feels like it's been bastardized to a point where it's these memes and things like that. But tell us why he was so impactful to you as an operator and to Dick as an operator that helped you then use that as a way to inform your strategy. I learned so much from Bill.

9:02Bill was obsessed with how you get the best idea out of a room. and we've all been in a room before where people are throwing out where people either are throwing out ideas or the room is chill is chilled out and there's not enough dialogue happening and the amazing thing about bill is he was so focused on how to actually generate the best ideas in the room to him the best idea won so he wasn't focused on consensus to him he felt like group think led to inferior decisions. So his whole mentality, especially with getting people together, was how do you get great ideas out in the open? He was all about kind of embracing dissenting opinions, leaning into hard problems.

9:47You know, to him, experiences didn't matter. The ideas matter. And so I watched him in a bunch of meetings where he was able to pull stuff out of people. He actually wasn't on the Twitter board, but he was in the Twitter board meetings, which was also amazing. It was interesting to watch in the board meeting because when it came to Bill talking, Bill would actually pass the ball to somebody else. Maybe somebody else in the meeting who wasn't talking enough. And he'd go around the room and say, you know, hey, Adam, what do you think about that? And put you on the spot. But it was an attempt to pull some of the great ideas out in the open.

10:30And the other thing I saw him do just around ideas is, you know, if you did, there were situations where two people disagreed and VM only disagreed. And Bill did this thing where it was all about getting those two people who VM only disagreed and saying, fine, you two people go out, go figure out a solution and then come back to the team and tell us where you got to. So I learned a ton about getting ideas out in the open and getting ideas out in how great ideas are generated. And it kind of mapped to his view of management and leadership. His big idea ultimately was, yes, your job is to break ties.

11:13And there are a bunch of times when the organization can't ultimately decide what to do. And that ultimately, as a leader, you come in to break ties. but also a good measure of the organization is how many times you have to come in and break those ties. You know, can you get the organization to ultimately break ties on their own without the leader constantly being, you know, needing to jump in and breaking ties? He had a really crystal clear vision of what a leader was. He made a distinction between leadership and management or leaders and managers. In his mind, leaders didn't make all the decisions.

11:53The job of the leader was to ask the right questions, you know, to get the team to inspire imaginations and get the team to dream big. And ultimately, the second job was to create an environment for them to do the best work of their lives. So he had this line about, you know, the title makes you a manager, but the people will decide if you're a leader. His view is you earned leadership from your people. Leadership is something that the people bestow on you. And it maps into, you know, it maps into these stories that he used to tell. The amazing thing about Bill's style was half the time he was swearing at you and the other half he was telling stories.

12:38And he was telling stories about stuff that he had experienced in his operating background. And they were incredible because they weren't stories they were able to get from anybody else. Like we had a, our board was incredible at Twitter. Originally in 2010 it wasn't filled with operators except Bill would fill in the gaps. so you would go ask a question of people around the table and you'd get awesome answers back bill's answers were answers in the form of stories you know thinking about ideas and decisions and stuff like that you know bill bill used to tell this story about um he had just gotten to claris as the ceo of claris and he was going into ceo mode you know the first like six weeks.

13:25And he had an exec named Donna Dubinsky, who comes to our first six weeks and says, hey, Bill, if you're going to make all the decisions, then like all of us are going to go back to Apple. You know, you hired us because we know what we're doing, led us to our jobs. And so part of his view was how do you actually enable the teams to operate effectively and be the best versions of themselves. And again, the role of the manager and the leader is to step in and course correct if they need it. You mentioned something I hadn't heard before, and that's the concept of venture coaching versus venture capitalism.

14:03And it does make sense given that how you've constructed your model of not taking board seats. Bill, as you mentioned, was not on the board of Twitter, but presumably had a influence that was equal or probably even greater in some cases than the rest of the board members. Maybe we can distill down to how does this actually work? Because not taking a board seat is fairly antithetical to venture firms, maybe outside of seed. How does that work from an operating standpoint in terms of how you're helping companies? We do a couple of things that are maybe antithetical to what most VCs do. Not taking board seats, that was a total Bill Campbellism.

14:43We tried to get Bill on the Twitter board back in 2010. And he turned around and said, I'm not going to serve on the board because you're going to end up telling me more and I'll be more helpful to you if I'm not on the board. And sure enough, it absolutely became true. Bill was the call before the board if there was good news or bad news. That stuck with me. And when we started at 01, part of the idea was how could we be that first call if there's good news or bad news. How do we almost fly above the board? There is a, there is absolutely a case when you join a board, you by nature have to sit partly across the table from the CEO.

15:30And we like to sit on the same, closer, at least on the same side. You know, the question, the logical question that is like from a governance standpoint or from a, you know, Does it bias your view? And actually, no. I mean, the thing about being a close advisor to the CEO is you actually are able to be more frank with the CEO. You're able to spot questions and problems and issues maybe in a different way and speak in a more unfettered way with the CEO. Give them truth, ultimately. so primarily our not taking boards not taking board seats is that we are still getting obviously all the board materials and we are sitting in on board meetings to give feedback to the ceo and probably how to run a more effective board meeting but our hope is we know more about what's going on at our companies than the boards do themselves i'll give you one one other thing though is in 2018 we started just dissecting venture capital is how does it work and you know we talked to a bunch of our friends who are massive institutional uh vcs and they it dawned on us that one of the problems with venture capital is in linear scale which is to keep scaling ultimately when you take board seats, you therefore need to add more and more and more partners, right?

16:58As you, as you continue to scale out the size of the firm or the capital under management, et cetera. And so it leads to this linear scaling of, of people. And that at times that's when things seem, seem, you know, to go wrong in venture capital. And so the one advantage for us is it It is a massive free up on our time and it allows us to scale a little bit more effectively. So not taking board seats is one of, I'd say there's like two or three other things that we do that's a little bit different. Let's go into some of those things in a second, but I want to come back to this whole concept of not taking a board seat because many of the firms that you did consult with maybe before starting the firm, they all take board seats.

17:42Part of that is, you're right, it's around controlling some level of governance at the board level, having the ability to make certain decisions. LPs often ask the question, are you taking board seats? As a part of your own firm and fund governance, how did LPs, when you were raising with this kind of model of, we're not taking board seats, we're simply being the coach, we will get better information? What were some of the questions that came up and how did you think about answering those? Well, so one is when we do lead in price and there is a board seat that comes with the round, we don't abandon the board seat, right?

18:22So what we do is we work with the CEO to take that seat and find an independent operator. So somebody from our network, ultimately, that will sit in the seat. And so the positioning to the founder is like, this is a plus plus. You get us and all the things that we're able to do. And in addition, we also are going to bring a really interesting, experienced operator. Now, you obviously need to approve that person as well, but bring a really amazing operator to sit in that seat so you will get incredible guidance, not just from us, but also from a great operator. The second thing is, on the governance standpoint, there's one, it all seems like it makes sense on paper, but here's the truth.

19:10Most VCs are bouncing from boardroom to boardroom to boardroom. And so from a time perspective, they don't have a lot of time to get into the actual details of what's going on at the company. What we do is we team our board approach also with the idea that we are super concentrated in the amount of companies that we invest out of the fund. And so in each fund, there's about 15 to 20 companies that we invest per fund. And so that's different, as you know, than a traditional Silicon Valley firm of 50 to 80 companies in a fund. By being more concentrated, our view is that we can go deeper with companies and we can also spot opportunities, but also problems, hopefully faster and better, than what you might otherwise see.

20:00And then we've seen it already. Like I, we've got examples of boards who, you know, we are almost like the early warning signal. We'll come to the board and say, hey, you know, we, we see a pretty massive problem. And in the bunch of times that we've done that, the boards have said, we don't see it yet. And then sure enough, a couple quarters later, it becomes more obvious. I think it's just hard. It's hard for them because they are, you know, in so many board meetings doing so much. And by not being, you know, spread too thin, we've, we feel like we can go deeper. So, so the merits that you're articulating, of course, Bill Campbell did this really, really well in terms of helping these companies grow and scale probably better than the vast majority of the VCs that were in these different companies.

20:55But are there situations where you think, because in some ways the argument is like, why does any VC take a board seat? Do you really need to do it? It definitely is important. Governance is absolutely important. Having a sounding board, both for the CEO and the management team and also the employee base, there are massively important roles and responsibilities the boards play. Our view is to say there can't be everybody in Silicon Valley doing this because then it wouldn't work. But if there are folks like us where it's unique and different, then it basically works together with the institutional board that's in place.

21:39That makes total sense. And maybe shifting a little bit to some of the other things that you might do that are not traditional or conventional. And we talked about the number companies you do taking and also thinking about leading rounds versus not leading rounds. So maybe we look at portfolio construction. The common convention is 25, 30 companies. That gives you enough to get those outliers. Tell us a little bit about how you think about portfolio construction, why you arrived at what you did. Okay. So first off, we aren't a series seed or pre-seed or early a fund where you see most of the great funds in silicon valley kind of live in i think what those people do are amazing i can't do that at all where you just you meet with a founder and then instant where there's nothing built but you instantly know it in your gut and soul that this person is going to be great and the thing that they're building even though there's not much there is going to be world changing.

22:43Like I just, I wish I could do that, but I can't. And we're pretty, and neither can Dick and neither could David Fisher. We're, we're pretty realistic about who we are. We are at scale operators. We've come into situations where the product has been built and it's been time then to take the product from being a great product to being an amazing business We're an amazing company. That's the situation we all found ourselves in, in each one of our operating experiences, operating roles. For us, that means usually a series B, sometimes a late A, is when the company has found product market fit, the bolts are coming off the rocket ship in a good way, the founder's having great kind of problems, the problems we all wish for in business.

23:32And at that point, there's usually great investors already on the cap table. so in some ways the last thing the founder needs is yet another investor and instead since it's about to go through a pretty interesting scaling exercise they usually want people who have been there done it before and that's why for us the stage where we invest in kind of matches our background weirdly there's not a there's not a ton of at scale operators in venture like true at scale operators um there's certainly not a lot hanging around in series b in fact the later stage, the later you go in terms of stage in venture, the less operating experience you seem to see, right?

24:13And the reason for that is because, you know, the underwriting becomes a little bit more less about the intuition about the founder and the product and more about facts. But weirdly, that's actually precisely where the operating experience becomes really valuable, right? Is in this operating centric or operating intensive moment at the company. So the one difference is we come in usually at series B, you know, our thesis to our LPs is pretty simple, which is we don't want to take any product market fit risk. What we're seeking is execution risk. And we believe as former operators that we really understand execution risk or operating risk better than anybody because we've lived it.

25:01And that if we do our job right, we can understand that risk better than anyone, underwrite that risk, that operating risk better than anyone, and then really help the founders put the thumb on the scale to mitigate that operating risk. When you look at some of these companies, right, so you're doing this small select group of companies, so you're not doing 20 investments per year, you're looking at these companies that I've crossed the chasm of clearly they have a product that the market needs and is willing to pay for. You have a team in place that might have been in place for now three, four, five years, depending on when you're coming in.

25:39But still, there's a lot that still needs to be done for this to be a venture style exit. And, you know, the old triangle of, you know, it's people, it's product and it's market, right? So size of marketing, people have different opinions on which one's important. And as you think about it at that stage, while there is some traction, you're taking execution risk, which does matter when it comes to the people, the management team. How do you index these different parts of like the analysis to be able to make a decision on, hey, this is the right product, this is the right market, but more about it's the right team to do this?

26:17So I'll give you two parts of the answer. The first one is just the technical part, which is since all of us really came into our companies and help inflect revenue. And at Series B, it really is when revenue, you've got a little bit of revenue and it's really starting to inflect. And this is the beginnings of really repeatable revenue. One area that we heavily diligence, heavily weight and heavily focus on is I'm assuming there's product market fit. we really are able to go in and dig deep into the revenue stream of a company. And part of the thing that we do when we underwrite is we really get into the weeds on how revenue is generated.

27:01And then the other question is, what can we do to help put the finger on the thumb on the scale? Are there customers that we can introduce en masse? Can we factor or refactor or the go-to-market or the sales team? Can we help on hiring? A big thing for us and a place where we truly are, we believe different is really on this go-to-market activity. And it's just based on, again, our backgrounds for doing this and also knowing that this is really what a bunch of CEOs need at this phase is how do I begin to inflect revenue? The second part is CEO EQ and IQ is still massively important at this phase.

27:48And we started, we got obsessed with this question, which is how do you actually understand talent? Again, starting in 2018, we started going around and realizing that the selection part of all the S's of venture, you know, seeing, selecting, et cetera. The, on the selecting side, the question that we kept going around to folks and asking is like, well, how did, how do you know? How do you know? Like that was the question. How do you, when you see somebody, how do you know, how do you know that this is the person? How do you know this is the company? And I was expecting an algorithm. I was expecting a rubric.

28:30I was expecting like science. And surprisingly, a lot of the answers came back are very similar to like the old Moneyball book where, you know, the scouts were evaluating talent. We started wondering if there was alternative ways to begin to get data. And about a year ago, we met an incredible person to help us answer this question. He's, his name is Dr. Jay Harrison, Dr. Jay Harrison. He spent 16 years in professional hockey, 11 of them in the NHL. He's a four-time Canadian national team player. He is, so he spent all this time in the NHL and then leaves the NHL and goes to get his PhD in cognitive psychology.

29:19It's like a true N of one. Like I can count on one finger the amount of NHL players who then go out and get a PhD in cognitive psychology. And his focus was, how do I take this psychology degree and apply it back to the world sports initially to answer this question around understanding leadership and management in sports. And so his first version of his company is he actually built a way to help evaluate and analyze talent for sports teams who were going to the draft. And about a decade ago, two decades ago now, there used to be this thing called the Wunderlich tests that NHL teams, for example, would give draftees, quarterbacks primarily, and it would be an evaluation not just of the athletic piece, but an evaluation of the mind, the study of the mind.

30:14Yeah, the classic Wunderlich test, A-B test was Peyton Manning and Ryan Leaf, who came out at the same time, and there was a Wunderlich test that was given to both of them, and Peyton scored off the charts and Ryan didn't do so well. And it certainly played out that way. So it ended up being somewhat predictive. Anyway, we meet Jay and he's doing this for NHL teams and MLB teams and some NFL teams and the like. He's also doing it for the, he just started doing it for the Navy Seals, I believe, or some of the special ops folks. So we got really interested in this. We're like, I wonder if you could take this evaluation and not just push it towards sports, but could it work for CEOs?