Transcript
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The best founders that I work with are kind of
stubborn.
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It actually takes work to convince them to
change their mind.
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I always ask myself, can we get, on a pre seed
company, can we get a 200 x gross cash on cash
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return from this investment?
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So if we get in at 5, can we get out at a
1,000,000,000?
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I also just try to pay attention to what my
friends who don't work in technology are
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thinking and talking about.
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As much as I love talking about AI and LLMs and
all the greatest, like, new technological
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advancements, talking to my friends about
cultural trends trends and the things that
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they're excited about, for me, is highly
informative.
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How much of good storytelling is explaining how
you're gonna
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do the blocking and tackling versus painting a
large picture?
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A lot of what I try to explain to people is So
tell me about Precursor Ventures.
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Yeah.
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So Precursor Ventures, I started the fund in
2015 after a stint as a general partner at
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Uncork Capital.
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The big for our fund was when I was looking at
the landscape, I noticed one thing.
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Many of the repeat founders I met or founders
who were friends with VCs socially or
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professionally were having a really different
experience raising funds and raising capital
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than founders who were from outside of that
ecosystem.
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So if you were a founder who didn't go to
Harvard or Stanford, didn't come out of Y
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Combinator, wasn't a next door neighbor or best
friend with the VC, and if you didn't have
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product traction, it was pretty tough to get
anybody to give you the time of day.
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So I felt like there was a real opportunity to
back those founders.
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And during my time at Uncork, we've met a lot
of founders that fit that profile, and they've
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been really great investments for us.
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So I wanted to start a firm, that was really
dedicated and focused on finding these
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founders.
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Just to play devil's advocate, there's been
some studies that a lot of these unicorns come
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out of these ecosystems.
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It doesn't have to be Stanford or Harvard.
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It could be OpenAI or Uber or Facebook in
previous generations.
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How do you know that you're not adversely
selecting yourself by going after people that
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are outside the network?
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David, you wouldn't be the 1st person to ask me
that question.
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As you can imagine, a lot of limited partners
when I was getting started with precursors
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said, aren't you just gonna end up with adverse
selection?
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So a couple things I've noticed.
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One is many of the most iconic impressive
founders I've met were first time founders.
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And when we say first time founder, we mean
someone who hasn't had a significant exit
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before.
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They might have dabbled in starting a company
before, but the thing that we're backing them
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to do is their highest and best use.
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So we're big believers that people doing it for
the first time can build iconic companies, and
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we've seen that happen before.
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So that's not to say that repeat founders
aren't successful.
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This is more of an and or an or in my mind.
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The other thing we've noticed is, we live in a
world where I think the premium for backing
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repeat founders is untenable for most seed
stage funds.
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The premium that some of those really
experienced highly pedigreed folks are able to
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command is a function of the supply and demand
for capital, and there's a lot of money chasing
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engineer 1 or 2 from OpenAI or engineer 1 or 2
from Stripe.
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And being early at a company doesn't
necessarily mean you're gonna be an amazing
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founder.
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It just means you were early at that company.
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So I guess we challenged the premise that the
only way to find great founders is to cherry
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pick either repeat people or people who are
very early at well known companies.
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What about everyone talks about serial
entrepreneurs, but there's also serial startup
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employees, somebody that was it doesn't have to
be OpenAI, but at a startup.
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How important are those factors for success as
a founder?
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One of the surprising things that we found at
Precursor is we've done a huge study on all the
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founders that we've backed, the ones that have
been successful and the ones that haven't.
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The biggest predictor of success is previous
startup experience.
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And with the with some ability to reflect, I'm
actually not that surprised once you look at
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the data.
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And that's because I think what happens is when
you're trying to build something from scratch
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from 0 to 1, having been in an environment
where that happened before is really helpful.
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Having been at a big company like a Google or a
Pinterest or an Amazon for the entirety of your
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career, you probably never saw low resource 0
to 1 ever.
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And trying to figure out how to do that can be
really hard.
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So we have a huge bias towards people who have
previous startup experience, even if that
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startup wasn't one that they started and even
if it wasn't one that was wildly successful.
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Talk to me about the compounding benefits of
being in multiple startups.
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What's the perfect amount of startups to be
part of before you start a company?
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Something like probably 2 or 3 is probably the
optimal number.
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Going back to the same, study that we did
internally, the average age at founding for a
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founder in our portfolio is 34 years old.
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And I think a lot of people I talk to have this
notion that, oh, you're doing pre seed.
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These must be new grad founders or people who
just graduated from college or early in their
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career.
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We tend to find it's mostly mid career people.
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And I think with 1 startup, you only know one
way to do things.
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You have one set of relationships.
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You've seen one VP of engineering, one VP of
sales.
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You've seen one of everything.
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I think when you work at multiple startups, you
get to see multiple different ways that
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companies can be built and scaled.
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And I think equally as importantly, you build a
network of startup founder types and other
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people that you can work with across multiple
companies.
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I think it's really helpful to have a broader
pool of experiences and people to draw upon
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when you're trying to start a new company.
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You're investing in first time founders.
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What kind of valuations are you looking at?
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Yeah.
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So about 60% of the people that we back are
first time founders.
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So we will back some people that have done it
before.
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And the beauty of our model is many of the
first time founders we meet were able to invest
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in their companies at mid single digit
valuations.
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So think, you know, 4 to $6,000,000 post money
valuations.
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So maybe not as good as some of the top
accelerators, but certainly a significant
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discount to what we see at seed.
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How does that play into your portfolio
construction?
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I was telling my friend, I think every fund has
some kind of threshold thing you have to get
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over if you're gonna say yes.
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And for us, it's portfolio construction.
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So our typical funds, if you look at it, our
first fund had 83 companies.
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Our most recent fund has about a 100 companies
in it.
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So we're typically 80 to a 100 companies.
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And those companies are chosen over a 2 to 3
year investment period.
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So think kind of, like, 25 to 40 companies a
year depending on the year.
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For us, we're generalist, and we're investing
primarily in companies that are just the
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founders.
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So think 2 people, idea stage, prelaunch,
preproduct market fit.
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So I'd say about as risky as you can get unless
you're gonna go pre idea.
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You have 80 to a 100 portfolio companies.
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You're you're investing when there's only 2
founders.
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What kind of value add do you provide to the
startups, and how do you scale that?
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When I started the fund, a lot of people said,
aren't these founders going to need a lot of
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help?
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How can you support 80 teams per fund?
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It's been interesting to learn what these
founders actually need from us.
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What they don't need is they don't need me as a
virtual cofounder.
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They certainly don't need me as a virtual
product manager, and they don't need me as
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their head of HR or the person who's gonna go
out and recruit those first couple of engineers
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for them.
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I find what they need from us is help with
fundraising.
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Almost by definition, most of the founders that
we meet have fairly underdeveloped networks of
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VCs or even fellow founders who can help them
get the meetings they need to both close the
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round that we join and also get ready for the
next round.
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So consistently, founders have told us we've
made a difference in their fundraising, both
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when we commit to that pre seed round and
helping get them ready for the that seed round.
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In addition, one area where I think we've made
a big impact with founders is giving them a
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ready built founder community that they can
plug into.
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And we have over 750 active founders in our
portfolio today.
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So when we onboard a new founder, if that
person is the only person in their social or
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professional circle who's starting a company
and they've never done this before, we can plug
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them into a community that can give them
everything from moral support to tactical
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advice on which banks or service providers to
work with or how to handle tricky, situations
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with founders.
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What do the most talented first time founders
where do they struggle in fundraising, and how
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do you help them?
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Boy, the biggest point of friction I find is, I
think some of the founders I talked to who are
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doing it for the first time, in some ways, they
are over advised and they consume too much
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information on the Internet.
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They come to me and say, well, I read this
article that says I have to be at a 1,000,000
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in ARR to unlock some magical milestone.
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I tell them, it just isn't true.
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That's really not how this works.
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And I spend most of my time, instead of trying
to work just on the pitch deck and the slides,
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trying to put the in trying to put the founder
in the shoes of the investor.
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And what I remind them is, hey.
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I'm a pre seed investor.
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I'm gonna make a lot of investors.
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A seed investor is gonna make far fewer
investments than we would make at Pre Gerser.
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And remember, these people are trying to
underwrite a couple of things.
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How much of good storytelling is explaining how
you're gonna do the blocking and tackling
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versus painting a large picture?
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And how do you balance those?
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It's funny.
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We find a lot of founders that we work with
tend to gravitate towards one of those 2 poles.
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They either wanna get so far in the weeds and
talk about what the next 12 month product road
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map looks like that you miss out on the big
vision, or they wanna tell you what the
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terminal end state of the company looks like,
which is oftentimes this beautiful, huge
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company.
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And there's no narrative about how you get
there.
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So a lot of what I try to explain to people is
building a big company is a series of hops, and
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you wanna go from one hop to the next hop.
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And those hops need to be logical, large, and
meaningful.
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So a lot of what I tell people is, okay.
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You're this early product market fit company.
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We have some revenue.
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We have some customers.
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The next big thing we need to prove is that we
can scale what's largely probably been founder
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led sales or founder driven growth.
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We need to show that we can turn that into
something that's more scalable at small scale.
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And if we can show that we can scale it at
small scale, then we can show that we can scale
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it at larger scale.
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Once we get to larger scale, hopefully, that
will create the surface area where we can
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release multiple new products above and beyond
the core product that we use to start the
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company.
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And so some of this is about tying all these
things together in a narrative arc, where
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you're not asking people to make these gigantic
leaps.
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From today, we're gonna launch the product, and
tomorrow, we're gonna be at a 100,000,000 in
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ARR.
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There's a lot of steps that have to happen
along the way, and we try to help people
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understand how to stitch those steps together
in a story that feels achievable but also
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exciting.
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And in reality, do you see that companies kind
of stick to their plan?
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We've had a couple of companies that have told
us they had really ambitious plans and they've
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achieved them.
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If I think about Bobbie Baby, Laura laid out a
really ambitious revenue ramp for that company,
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and she's one of the few people who've achieved
it essentially on schedule and on time.
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In most cases, the most important thing I tell
companies is let's figure out what it would
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take to get to a 100,000,000 in ARR.
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Let's use that as a simple frame.
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Is a 100,000,000 in ARR enough to go public
these days?
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It used to be.
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Probably isn't.
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But at a 100,000,000 in ARR, you have a real
substantial company.
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And the best way to figure out how to get to a
100,000,000 in ARR is to look at the
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fundamentals of your business.
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How much do we charge customers?
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How many customers are there out there today?
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How much do we think the number of addressable
customers will grow over time?
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And how many of those will we get?
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And oftentimes, I tell people the question I'm
always asking is how hard do I have to squint
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to see the picture?
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If we're in a fast growing market without a lot
of established incumbents, oftentimes, you
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don't have to squint that hard to see how you
get to a 100,000,000 in revenue.
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In other cases, I'm like, boy, this might be a
market where the total opportunity for
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everybody is only $400,000,000 a year.
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For us to get to a 100, we need 25% market
share from scratch.
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That takes a lot of squinting to see how that
works.
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What I tell people is your ability to predict
the next 18 to 24 months is probably pretty
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reasonable.
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Beyond that, doubtful.
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How do you go about ascertaining the total
addressable market or the TAM for a brand new
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market?
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Going back to my core belief is if you can
figure out how to get to a 100,000,000 in
220
00:11:01,839 --> 00:11:06,554
revenue in the foreseeable future, which to me
is kind of 5 to 7 years in the future.
221
00:11:07,174 --> 00:11:10,934
Usually, the only way to get there is either
you have a really moribund market where the
222
00:11:10,934 --> 00:11:14,934
start up is gonna release a product that really
is revolutionary and is gonna shake things up,
223
00:11:14,934 --> 00:11:16,375
or there's a brand new market.
224
00:11:16,375 --> 00:11:19,080
And truthfully, part of this is hunches.
225
00:11:19,779 --> 00:11:21,000
It's looking at trends.
226
00:11:21,300 --> 00:11:26,580
It's looking at tailwinds and saying, this
feels like something that consumers are more
227
00:11:26,580 --> 00:11:29,240
interested in now than they used to be.
228
00:11:29,300 --> 00:11:33,000
And if that continues to be the case, this is
gonna go from something that's a niche behavior
229
00:11:33,174 --> 00:11:35,514
to something that people are really passionate
about.
230
00:11:35,575 --> 00:11:39,815
I've I've invested in a handful of companies,
particularly on the consumer side, where
231
00:11:39,815 --> 00:11:41,815
there's some macro trend in consumer behavior.
232
00:11:41,815 --> 00:11:44,075
It could be, more climate consciousness.
233
00:11:44,215 --> 00:11:47,549
It could be a greater desire to use clean and
natural products.
234
00:11:47,549 --> 00:11:51,149
I think you can usually tell yourself a story
about some trend or tailwind that will
235
00:11:51,149 --> 00:11:52,929
hopefully make the market bigger in the future.
236
00:11:53,070 --> 00:11:54,690
I had Mike Maples on the podcast.
237
00:11:54,909 --> 00:11:55,309
Mhmm.
238
00:11:55,309 --> 00:12:00,029
And he mentioned that a lot of the top
entrepreneurs pivot looking back at kind of his
239
00:12:00,029 --> 00:12:00,669
biggest wins.
240
00:12:00,669 --> 00:12:04,745
Do you ever invest in a startup that you think
is a bad idea but a great founder?
241
00:12:04,965 --> 00:12:07,784
We have had terrible luck with that strategy,
David.
242
00:12:08,085 --> 00:12:10,245
I've I've learned a lot from Mike Maples.
243
00:12:10,245 --> 00:12:13,524
I have other peers who I know are like, it's
all about the founder.
244
00:12:13,524 --> 00:12:14,825
The idea doesn't matter.
245
00:12:15,100 --> 00:12:17,100
We haven't found that that works for Precursor.
246
00:12:17,100 --> 00:12:18,299
It doesn't work for me.
247
00:12:18,299 --> 00:12:21,419
And there have been a handful of people where
we've told them, I really like you.
248
00:12:21,419 --> 00:12:22,639
I like what you're building.
249
00:12:22,940 --> 00:12:24,779
I really wish you were working on something
else.
250
00:12:24,779 --> 00:12:28,875
If you find something else different than this
idea, I would gladly take another meeting.
251
00:12:28,875 --> 00:12:32,634
And the reason why I think maybe it hasn't
worked for us is most of the rounds we do at
252
00:12:32,634 --> 00:12:34,654
precede are a $1,000,000 in size.
253
00:12:35,034 --> 00:12:40,154
That's actually not a lot of money to
experiment if you don't have some notion for
254
00:12:40,154 --> 00:12:40,889
what you wanna build.
255
00:12:41,049 --> 00:12:41,129
Build.
256
00:12:41,129 --> 00:12:45,769
Now if you raise 3 or $4,000,000 as a seed
round with no clear idea, I actually am okay
257
00:12:45,769 --> 00:12:46,170
with that.
258
00:12:46,170 --> 00:12:47,470
That probably works better.
259
00:12:47,769 --> 00:12:52,009
You've got enough money and time that if the
first couple things you work on don't work, you
260
00:12:52,009 --> 00:12:55,549
could still keep together a team of 4 or 5
people as you pivot through ideas.
261
00:12:55,735 --> 00:12:59,654
Do you find that there's a correlation between
founders who are open to feedback and their
262
00:12:59,654 --> 00:13:00,615
eventual success?
263
00:13:00,615 --> 00:13:05,254
I walk all the founders be back through this
little 2 by 2 matrix that somebody taught me a
264
00:13:05,254 --> 00:13:09,434
long time ago, which one axis is, like, did it
work out in the end?
265
00:13:09,750 --> 00:13:12,250
And the other axis is, like, did you listen to
what I said?
266
00:13:12,470 --> 00:13:13,610
Did you take my input?
267
00:13:13,669 --> 00:13:17,029
And what I tell founders is the most important
thing is to end up in the it worked out
268
00:13:17,029 --> 00:13:17,529
category.
269
00:13:17,910 --> 00:13:21,610
So if it worked out I always tell them if it
worked out and you took my advice, everybody's
270
00:13:21,669 --> 00:13:22,389
super happy.
271
00:13:22,389 --> 00:13:27,024
If you take my advice and it doesn't work out,
human nature as a VC is to explain away that
272
00:13:27,024 --> 00:13:29,365
that advice was merely a suggestion, not a
directive.
273
00:13:29,904 --> 00:13:33,504
And I find if you take my if you don't take my
advice and it doesn't work out, everybody's
274
00:13:33,504 --> 00:13:34,725
frustrated, but who cares?
275
00:13:34,785 --> 00:13:36,144
The big point is it didn't work out.
276
00:13:36,144 --> 00:13:39,524
So I would say on average, the best founders
that I work with are kinda stubborn.
277
00:13:40,279 --> 00:13:43,259
It actually takes work to convince them to
change their mind.
278
00:13:43,399 --> 00:13:48,199
And I think that's probably the right balance
for most founders because they're far closer to
279
00:13:48,199 --> 00:13:51,159
the problems that they're working on than most
VCs are.
280
00:13:51,159 --> 00:13:55,225
The places where I think VCs tend to have
better advice is sometimes when you're not in
281
00:13:55,225 --> 00:13:58,504
the company, if a company is not on track,
sometimes it's more obvious to you as an
282
00:13:58,504 --> 00:14:01,884
outsider than it is someone who's fighting to
make the company successful.
283
00:14:02,105 --> 00:14:05,945
You're on your 5th fund now, so you should
should start seeing some results.
284
00:14:06,105 --> 00:14:08,820
Tell me about your first two funds and how how
those panning out.
285
00:14:08,980 --> 00:14:09,220
Yeah.
286
00:14:09,220 --> 00:14:12,600
So the the theory for the first two funds was
pretty straightforward.
287
00:14:13,139 --> 00:14:16,500
You know, we made 83 investments out of the
first fund.
288
00:14:16,500 --> 00:14:18,759
This was the fund we started investing in in
2015.
289
00:14:19,299 --> 00:14:20,259
It's kinda crazy.
290
00:14:20,259 --> 00:14:23,024
40 of those 83 companies are still alive and
active.
291
00:14:23,105 --> 00:14:25,345
We've returned about a third of that fund.
292
00:14:25,345 --> 00:14:26,965
We had one really good outcome.
293
00:14:27,665 --> 00:14:30,945
The New York Times acquired The Athletic, and
we were the 1st outside investor in that
294
00:14:30,945 --> 00:14:31,264
company.
295
00:14:31,264 --> 00:14:35,159
So, feels good to have delivered some DPI from
the first fund.
296
00:14:35,399 --> 00:14:39,659
But I still think most of the good news for
that fund is still yet to come.
297
00:14:39,799 --> 00:14:40,039
Look.
298
00:14:40,039 --> 00:14:44,759
I just think, to be honest, pre seed is the
longest hold possible that most LPs are gonna
299
00:14:44,759 --> 00:14:45,259
experience.
300
00:14:45,480 --> 00:14:50,134
It's like taking your seed portfolio and
tacking an extra 18 or 24 months onto the hold
301
00:14:50,134 --> 00:14:51,514
if you hold everything to maturity.
302
00:14:51,654 --> 00:14:55,735
And I think if we're gonna do that, we have to
believe as a firm that we can give people 4 x
303
00:14:55,735 --> 00:14:56,774
net funds at a minimum.
304
00:14:56,774 --> 00:14:59,414
Otherwise, we're holding on to their money for
too long, and we're not giving them a good
305
00:14:59,414 --> 00:15:00,054
enough return.
306
00:15:00,054 --> 00:15:04,200
So I'm really confident Fund 1 is gonna more
than clear that bar based on what I know about
307
00:15:04,200 --> 00:15:05,740
the companies that are in that portfolio.
308
00:15:06,440 --> 00:15:09,339
Our second fund has just shy of a 100
companies.
309
00:15:10,039 --> 00:15:14,039
It has greater than 0 but kinda negligible DPI
at this point.
310
00:15:14,039 --> 00:15:15,080
It's still really early.
311
00:15:15,080 --> 00:15:18,394
And we have a handful of companies that I'm
really excited about in that fund.
312
00:15:18,394 --> 00:15:21,995
The most interesting thing, though, I think,
David, is, you know, we talk about power law in
313
00:15:21,995 --> 00:15:22,475
venture.
314
00:15:22,475 --> 00:15:24,254
Precursor is super power law.
315
00:15:24,554 --> 00:15:28,554
So in our first fund, we've done a bunch of
internal modeling about where we think this
316
00:15:28,554 --> 00:15:29,850
fund will land with returns.
317
00:15:30,490 --> 00:15:36,169
Even in the median cases, the top 8 or top 10%
of the companies end up accounting for 80 or
318
00:15:36,169 --> 00:15:37,389
85% of the returns.
319
00:15:38,409 --> 00:15:40,649
So it's not your typical a third, a third, a
third.
320
00:15:40,649 --> 00:15:43,845
You know, a third really work, a third give you
your money back, and a third fail.
321
00:15:44,004 --> 00:15:49,444
We're more like 40% of them are gonna be less
than 20¢ of the dollar back in return.
322
00:15:49,444 --> 00:15:54,564
You'll have another chunk of them that give you
back somewhere between, you know, 50¢ $2 on the
323
00:15:54,564 --> 00:15:55,044
dollar.
324
00:15:55,044 --> 00:15:59,524
So, you know, your money back plus or minus a
little and a very small sliver of the top 10%
325
00:15:59,524 --> 00:16:02,639
of the portfolio that's gonna deliver the the
bulk of the returns.
326
00:16:03,259 --> 00:16:03,740
Hey.
327
00:16:03,740 --> 00:16:05,840
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328
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That'sz.carta.comforward/10xpod.
338
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And you're on the sharpest spear of the power
law because you are at the very early stage,
339
00:16:45,784 --> 00:16:46,524
pre seed.
340
00:16:47,065 --> 00:16:49,245
How does that inform your investing strategy?
341
00:16:49,304 --> 00:16:55,784
I always ask myself, can we get, on a pre seed
company, can we get a 200 x gross cash on cash
342
00:16:55,784 --> 00:16:57,004
return from this investment?
343
00:16:57,809 --> 00:17:00,769
So if we get in at 5, can we get out at a
1,000,000,000?
344
00:17:00,769 --> 00:17:03,110
Is that even conceivable with this idea?
345
00:17:03,250 --> 00:17:08,849
And truthfully, 200 x gross probably turns out
to be 75 to a 100 x net accounting for future
346
00:17:08,849 --> 00:17:09,349
dilution.
347
00:17:09,615 --> 00:17:10,095
That's meaningful.
348
00:17:10,095 --> 00:17:14,275
That means if we write a 500 k check today, at
some point in the future, we'll get $50,000,000
349
00:17:14,654 --> 00:17:14,974
back.
350
00:17:14,974 --> 00:17:19,295
And given that all of our funds are sub a
$100,000,000, that's a meaningful amount of
351
00:17:19,295 --> 00:17:22,914
capital to get back in the context of what
we're trying to do as a fund.
352
00:17:23,940 --> 00:17:28,259
So I I always ask myself, are we taking enough
risk, and are we going after ideas that feel
353
00:17:28,259 --> 00:17:29,799
like they could be big enough?
354
00:17:30,099 --> 00:17:34,099
A number of our what looked like they're gonna
be our big winners were would have been
355
00:17:34,099 --> 00:17:36,519
controversial investments if I were in a
partnership.
356
00:17:36,579 --> 00:17:37,994
They were scary in some way.
357
00:17:38,075 --> 00:17:42,255
A lot of things or multiple things had to be
simultaneously true for that to be a good idea.
358
00:17:42,315 --> 00:17:48,954
And I worry more that we'll do too many middle
of the fairway safe b to b SaaS companies that
359
00:17:48,954 --> 00:17:51,615
will never become true outliers.
360
00:17:53,019 --> 00:17:53,980
That'll tank our fund.
361
00:17:53,980 --> 00:17:56,079
We really do need those binary big bet winners.
362
00:17:56,299 --> 00:18:00,380
Given that you have a much bigger portfolio
than the typical fund, does that change your
363
00:18:00,380 --> 00:18:03,740
thinking in terms of every investment having to
return the fund?
364
00:18:03,740 --> 00:18:08,375
When I look at our first fund companies, the
ones that look like they're gonna be the real
365
00:18:08,375 --> 00:18:12,455
return drivers, I thought they were all
interesting, but they weren't obviously bigger
366
00:18:12,455 --> 00:18:15,974
or better ideas than the other companies in the
fund.
367
00:18:15,974 --> 00:18:19,674
Many of them at the time were going after small
emerging niche markets.
368
00:18:20,269 --> 00:18:24,769
And so I've continued to see that pattern play
out also in fund too.
369
00:18:24,909 --> 00:18:30,190
Many of those companies, the ones that are
likely to drive the majority of returns, they
370
00:18:30,190 --> 00:18:34,210
didn't feel smaller or bigger at the time of
the investment.
371
00:18:34,684 --> 00:18:40,125
So the ones that ended up being the the
parallel outcomes, they didn't seem like bigger
372
00:18:40,125 --> 00:18:40,525
markets.
373
00:18:40,525 --> 00:18:41,724
What's your takeaway there?
374
00:18:41,724 --> 00:18:43,025
How do you process that information?
375
00:18:43,085 --> 00:18:44,384
I'll give you one example.
376
00:18:44,444 --> 00:18:50,059
We invested in a company called Carrot
Fertility, which provides reproductive benefits
377
00:18:50,059 --> 00:18:51,279
through the employer channel.
378
00:18:51,740 --> 00:18:53,840
We made that investment in our first fund.
379
00:18:53,900 --> 00:19:00,000
So in 2016, there wasn't that much of a
conversation around employer provided fertility
380
00:19:00,059 --> 00:19:00,539
benefits.
381
00:19:00,539 --> 00:19:02,700
Egg freezing was not something you talked about
on Twitter.
382
00:19:02,700 --> 00:19:05,924
It was something you maybe talked about with
your friends at a dinner party.
383
00:19:05,924 --> 00:19:10,085
The conversation wasn't where it is today, and
I didn't know how quickly things would change.
384
00:19:10,085 --> 00:19:14,505
It just felt to me that we were on the cusp of
an inflection point for that market.
385
00:19:14,805 --> 00:19:18,950
And it turned out that the inflection point for
that market was much greater than we had
386
00:19:18,950 --> 00:19:19,450
anticipated.
387
00:19:19,830 --> 00:19:23,269
And that's gone on to be a, you know, a pretty
substantial company, and and Tammy and the team
388
00:19:23,269 --> 00:19:25,349
there have done a great job growing and scaling
it.
389
00:19:25,349 --> 00:19:26,309
And but I just thought, hey.
390
00:19:26,309 --> 00:19:30,070
This is a benefit that only the the only way
you can really scale this benefit is to have
391
00:19:30,070 --> 00:19:34,705
the employer in the loop because most people
can't afford it on their own, and it's highly
392
00:19:34,705 --> 00:19:35,184
desirable.
393
00:19:35,184 --> 00:19:38,465
And I said, well, this seems like something
where the employer should have a role, and
394
00:19:38,465 --> 00:19:41,825
hopefully, more employers will see fit to offer
this benefit.
395
00:19:41,825 --> 00:19:46,019
But it was really kind of a cultural tailwind
that pushed that company.
396
00:19:46,019 --> 00:19:51,700
Again, if I go back to Bobbie Baby, there was
just a ton of demand for a clean formula
397
00:19:51,700 --> 00:19:53,779
product manufactured in the United States.
398
00:19:53,779 --> 00:19:57,859
And then sometimes, like, bad news for the
world ends up being an opportunity for the
399
00:19:57,859 --> 00:19:58,359
company.
400
00:19:58,555 --> 00:20:03,295
You know, the the formula shortage really
brought a lot of attention to their category.
401
00:20:03,914 --> 00:20:08,494
And so I think almost all of our successful
companies have had something that's happened
402
00:20:09,035 --> 00:20:14,589
external to them that was a tailwind that was
either hard to predict the magnitude of or the
403
00:20:14,589 --> 00:20:15,970
existence of it at all.
404
00:20:16,589 --> 00:20:21,070
And so I think if you pick really good people
working in interesting markets and you're
405
00:20:21,070 --> 00:20:25,164
patient and the company stay alive, oftentimes,
you get these inflection points that can really
406
00:20:25,164 --> 00:20:26,384
turbocharge those businesses.
407
00:20:26,605 --> 00:20:27,085
It's interesting.
408
00:20:27,085 --> 00:20:32,285
It's almost like if you have enough good shots
on goal, something good will happen.
409
00:20:32,285 --> 00:20:32,684
Yeah.
410
00:20:33,085 --> 00:20:34,525
It's kind of like in soccer.
411
00:20:34,525 --> 00:20:36,845
You you you shoot it, and sometimes there'll be
a deflection.
412
00:20:36,845 --> 00:20:39,164
But if it wasn't on close to goal, it wouldn't
have gone in.
413
00:20:39,164 --> 00:20:39,569
Yeah.
414
00:20:39,809 --> 00:20:43,089
It it reminds me, like, a lot of times, you
know, I'd say probably the meanest thing people
415
00:20:43,089 --> 00:20:45,569
say about Precursor is they call it spray and
pray.
416
00:20:45,569 --> 00:20:47,089
It doesn't feel that way to me.
417
00:20:47,089 --> 00:20:51,190
It's not like we're just driving by throwing
money out the window to whoever catches it.
418
00:20:51,329 --> 00:20:54,825
There is a plan and there is, like, a there is
a structure to it.
419
00:20:54,984 --> 00:21:00,184
And I think when you're a generalist investing
in people, the notion that you could find 40
420
00:21:00,184 --> 00:21:05,484
people a year out of a few thousand who you
think are working on really interesting ideas
421
00:21:06,345 --> 00:21:07,964
is anything but spray and pray.
422
00:21:08,059 --> 00:21:09,519
You mentioned cultural tailwinds.
423
00:21:09,660 --> 00:21:13,179
And, again, you're investing at the very, very
earliest stage of a company.
424
00:21:13,179 --> 00:21:16,779
What what does your information die consist of
in order to get ahead of some of these
425
00:21:16,779 --> 00:21:17,279
tailwinds?
426
00:21:17,419 --> 00:21:23,099
While I enjoy reading, technology press, I
think there's diminishing returns to reading
427
00:21:23,099 --> 00:21:26,785
things about about, like, the industry that you
spend all of your time in.
428
00:21:26,785 --> 00:21:30,704
And so I try to read, a wide variety of things.
429
00:21:30,704 --> 00:21:36,144
I also just try to pay attention to what my
friends who don't work in technology are
430
00:21:36,144 --> 00:21:37,525
thinking and talking about.
431
00:21:37,859 --> 00:21:43,400
As much as I love talking about AI and LOMs
and, all the greatest, like, new technological
432
00:21:43,619 --> 00:21:47,940
advancements, talking to my friends about
cultural trends and the things that they're
433
00:21:47,940 --> 00:21:51,000
excited about, for me, is highly informative.
434
00:21:51,744 --> 00:21:56,304
Also, you know, at this point, I'm generally
older than a lot of the founders that I end up
435
00:21:56,304 --> 00:21:57,125
investing in.
436
00:21:57,424 --> 00:22:01,044
And so just talking to them about what are the
things that they care about in their lives,
437
00:22:01,105 --> 00:22:04,804
what are the things that are meaningful to
them, gives me a really good window.
438
00:22:04,944 --> 00:22:10,619
The last thing I'll say is I try personally to
meet 750 to a 1000 founders a year while
439
00:22:10,619 --> 00:22:12,140
running the firm and supporting our portfolio.
440
00:22:12,140 --> 00:22:13,279
It's it's a big commitment.
441
00:22:13,340 --> 00:22:18,700
And I think if if you can talk to 750 to a 1000
people a year and you're not a a specialist,
442
00:22:18,700 --> 00:22:22,654
you know, I'm not talking to 750 Fintech
founders a year, you get a pretty good sense of
443
00:22:22,654 --> 00:22:24,674
where people's energy and attention is going.
444
00:22:25,055 --> 00:22:29,134
How do you balance, the desire to be
nonconsensus, right, as they say in venture
445
00:22:29,134 --> 00:22:30,974
capital versus kind of chasing these trends?
446
00:22:30,974 --> 00:22:32,035
Tell me about the nuance.
447
00:22:32,174 --> 00:22:36,059
The hardest thing about being an investor at
Pre Seed is that, like, people should laugh at
448
00:22:36,059 --> 00:22:38,859
you on a regular basis for some of the
investments you make.
449
00:22:38,859 --> 00:22:41,100
They should literally, David, like, question
your judgment.
450
00:22:41,100 --> 00:22:44,059
What are some examples of ones that they
laughed at you and that that
451
00:22:44,380 --> 00:22:48,400
I'll give you so we were one of the first
investors in CoStar, which is a social
452
00:22:48,525 --> 00:22:49,424
astrology company.
453
00:22:49,484 --> 00:22:52,384
And when I made that investment, a lot of my
friends were like, are you anti science?
454
00:22:52,605 --> 00:22:52,765
Yeah.
455
00:22:52,765 --> 00:22:55,325
And this goes back to your question about sort
of cultural milieu.
456
00:22:55,325 --> 00:23:01,164
When I started talking to a lot of my, younger
female friends, they were all very in tune with
457
00:23:01,164 --> 00:23:01,664
astrology.
458
00:23:02,480 --> 00:23:04,559
Like, it was something that they talked about
with their friends.
459
00:23:04,559 --> 00:23:06,259
It was something they were aware of.
460
00:23:06,480 --> 00:23:10,400
And I was like, all judgment aside, like, this
is something that they care about.
461
00:23:10,400 --> 00:23:12,240
There is an audience for this product.
462
00:23:12,240 --> 00:23:15,859
We also invested in an electric boat company
called Navir.
463
00:23:16,444 --> 00:23:17,585
I I love Navir.
464
00:23:17,644 --> 00:23:19,505
That's one of the most amazing products.
465
00:23:19,884 --> 00:23:21,964
My investors were like, what do you know about
electric boats?
466
00:23:21,964 --> 00:23:25,804
I'd say the irony is we've done an electric
vertical takeoff and landing cargo drone
467
00:23:25,804 --> 00:23:26,125
company.
468
00:23:26,125 --> 00:23:29,579
I've learned a thing or 2 from those guys about
what electric drive trains can do.
469
00:23:29,659 --> 00:23:34,380
And in some ways, I think the beauty of PreSeed
is the fewer people you have that need to say
470
00:23:34,380 --> 00:23:37,339
yes, I think the easier it is to do hard and
strange things.
471
00:23:37,339 --> 00:23:41,279
And I think we have companies that I've
invested in that it would have been hard to get
472
00:23:41,500 --> 00:23:45,244
other people as excited about those companies
as I was.
473
00:23:45,244 --> 00:23:46,684
And now look, the flip side is true.
474
00:23:46,684 --> 00:23:50,284
There's probably some investments I've made at
PreCursor where a partner would have said, hey,
475
00:23:50,284 --> 00:23:50,444
man.
476
00:23:50,444 --> 00:23:53,984
I think this is probably one you've just gotten
a little too excited about.
477
00:23:54,684 --> 00:23:58,284
But again, I I think when we're doing our job
right, we should be doing things that when I
478
00:23:58,284 --> 00:24:00,930
tell people what the company does, we should
get a blank look.
479
00:24:00,990 --> 00:24:03,150
People should be like, I don't understand why
that's a thing.
480
00:24:03,150 --> 00:24:07,570
Because we're supposed to be 2 years ahead of
what's obvious and interesting.
481
00:24:07,789 --> 00:24:10,450
What are some trends that you're 2 years ahead
of today?
482
00:24:10,590 --> 00:24:11,150
Oh, boy.
483
00:24:11,150 --> 00:24:15,825
I mean, I think probably the most there's one
where I I worry that we've we've made a pretty
484
00:24:15,825 --> 00:24:20,785
big decision as a firm that we're not gonna
chase buzzy hot AI deals, partially because of
485
00:24:20,785 --> 00:24:22,545
price, partially because of some questions I
have.
486
00:24:22,545 --> 00:24:27,119
That's probably a trend that we're not as in on
as as everybody else is.
487
00:24:27,119 --> 00:24:32,259
Let's talk about Screen Door, your GP advisor
to one of the most highly sought after LP.
488
00:24:32,319 --> 00:24:33,599
Tell me about Screen Door.
489
00:24:33,599 --> 00:24:35,779
Screen Door has been an awesome experience.
490
00:24:36,079 --> 00:24:39,875
I've had the privilege of being on the
investment committee a couple of years now, and
491
00:24:39,875 --> 00:24:41,494
there were a handful of us GPs.
492
00:24:41,794 --> 00:24:44,274
As you know, David, like, once you've been in
this business for a little while, you've raised
493
00:24:44,274 --> 00:24:46,615
a few funds, people come to you and ask you for
advice.
494
00:24:46,914 --> 00:24:50,755
And I realized that as much as these people
needed advice, what they really needed was
495
00:24:50,755 --> 00:24:51,255
money.
496
00:24:51,599 --> 00:24:52,720
They really needed money.
497
00:24:52,720 --> 00:24:56,420
And they needed money in the context of a first
close for a first fund.
498
00:24:57,039 --> 00:25:02,019
And I give a lot of credit to the people to the
guys at Homebrew and some of the people who
499
00:25:02,079 --> 00:25:04,484
worked on on Screen Door in the earliest days.
500
00:25:04,484 --> 00:25:07,684
I think there was this this light bulb moment
where it's like, well, there are all there are
501
00:25:07,684 --> 00:25:12,005
some experienced GP advisors who are constantly
being hit up for advice from people who wanna
502
00:25:12,005 --> 00:25:12,404
start funds.
503
00:25:12,404 --> 00:25:14,664
And we all try to help as many people as we
can.
504
00:25:14,724 --> 00:25:18,404
And there were some large allocators who were
interested in emerging managers, but just
505
00:25:18,404 --> 00:25:20,279
didn't have a vehicle for accessing them.
506
00:25:20,599 --> 00:25:23,820
The check sizes they wanted to write were too
big for those funds.
507
00:25:23,960 --> 00:25:27,740
They really needed people who had been more
mature in terms of the fund management side.
508
00:25:27,799 --> 00:25:33,194
And so we had this idea of what if we pooled
our interest, capital, and expertise and built
509
00:25:33,194 --> 00:25:37,095
a model where we had some of the world's
largest, most highly sought after institutional
510
00:25:37,315 --> 00:25:41,794
LPs combined with a set of GP advisors and
thankfully now combined with a really
511
00:25:41,794 --> 00:25:43,075
experienced professional staff?
512
00:25:43,075 --> 00:25:43,815
You know?
513
00:25:44,194 --> 00:25:52,299
Jamie and Lisa and Lane have probably, as a as
a trio, funded more emerging managers than just
514
00:25:52,299 --> 00:25:53,820
about anybody I know on the planet.
515
00:25:53,820 --> 00:25:57,500
And I think it's a really unique investment
committee because the goal was to try to be a
516
00:25:57,500 --> 00:26:02,494
significant, like, think 10% commitment that
could come into somebody's fund as early as the
517
00:26:02,494 --> 00:26:05,154
first close and hopefully be a signal and give
them momentum.
518
00:26:05,535 --> 00:26:07,955
How has being an LP made you a better GP?
519
00:26:08,095 --> 00:26:08,994
Oh my god.
520
00:26:09,134 --> 00:26:13,474
You think as a GP, I have the most interesting,
amazing, unique story.
521
00:26:13,690 --> 00:26:16,430
And then you hear 50 pitches and you're like,
these all sound the same.
522
00:26:17,130 --> 00:26:21,369
And I don't I think I have made significant
changes to the way that we talk about and
523
00:26:21,369 --> 00:26:22,269
present precursor.
524
00:26:22,890 --> 00:26:27,049
Having been a GP advisor at Screen Door and
listened to a bunch of pitches where I'm like,
525
00:26:27,049 --> 00:26:27,549
okay.
526
00:26:27,634 --> 00:26:31,315
10 minutes in, the essential narrative for this
pitch is that you're a smart person with a good
527
00:26:31,315 --> 00:26:31,815
network.
528
00:26:32,434 --> 00:26:35,394
That's true of, like, 95% of people who pitch
us.
529
00:26:35,394 --> 00:26:37,634
Like, what makes you special and unique?
530
00:26:37,634 --> 00:26:39,174
And I had no idea.
531
00:26:39,829 --> 00:26:43,750
And maybe I was like this in the beginning too,
how hard it is to understand what a
532
00:26:43,750 --> 00:26:48,549
differentiated pitch sounds like from the to
the ears of an LP versus what you think it
533
00:26:48,549 --> 00:26:49,750
sounds like in your own head.
534
00:26:49,750 --> 00:26:54,069
The story you just told me, if I took your name
out and took the firm's name out, it sounds
535
00:26:54,069 --> 00:26:56,825
like 85% of the other pitches I've heard.
536
00:26:56,825 --> 00:26:58,105
That's not good enough.
537
00:26:58,105 --> 00:26:59,785
Like, what is it that really makes you unique?
538
00:26:59,785 --> 00:27:01,625
A good pitch is also a good strategy.
539
00:27:01,625 --> 00:27:06,025
So you could actually improve a pitch by
improving the strategy, not just not just put
540
00:27:06,025 --> 00:27:10,045
in another layer, not not just put lipstick on
a pick, for lack of a better analogy.
541
00:27:10,660 --> 00:27:13,799
What is a differentiated pitch, and what is a
differentiated strategy?
542
00:27:13,940 --> 00:27:15,240
Always ask them the same question.
543
00:27:15,380 --> 00:27:19,720
Given your strategy, why are the very best
founders going to choose you?
544
00:27:20,019 --> 00:27:21,539
Like, why are they going to choose you?
545
00:27:21,539 --> 00:27:26,455
And I'd say half of the GPs I pitch think of
venture capital as a stock picking business.
546
00:27:26,455 --> 00:27:31,174
Like, if I'm good at identifying companies, I'm
like, well, that's only 20% of the battle.
547
00:27:31,174 --> 00:27:34,634
80% of the battle is actually convincing the
ones you want to take your money.
548
00:27:35,015 --> 00:27:38,375
So if you're good at picking, but you're not
good at selling and winning, like, what's the
549
00:27:38,375 --> 00:27:38,894
what's the point?
550
00:27:38,894 --> 00:27:39,095
Do you
551
00:27:39,095 --> 00:27:42,509
think that's the case for pre seed as well, or
is it more of a picking game for pre seed?
552
00:27:42,670 --> 00:27:47,710
I think in pre seed, it is less competitive
than seed just because the people almost by to
553
00:27:47,710 --> 00:27:48,769
your point about strategy.
554
00:27:49,069 --> 00:27:54,174
The construct of our fund is we're going after
people who are, generally speaking, less sought
555
00:27:54,174 --> 00:27:54,674
after.
556
00:27:55,295 --> 00:27:58,815
So I do think, like, picking in precursor is
probably more important than it would be if you
557
00:27:58,815 --> 00:28:02,835
were at a $200,000,000 seed fund, where, like,
winning is maybe more important.
558
00:28:03,055 --> 00:28:08,119
But a lot of the a lot of the fund managers
that I meet are building funds in strategies
559
00:28:08,119 --> 00:28:09,900
where there are existing competitors.
560
00:28:09,960 --> 00:28:15,000
Like, you know, if you're a vertical fund
manager going after Fintech or AI or b2b SaaS
561
00:28:15,000 --> 00:28:19,534
or PropTech, there are other people in your
ecosystem who have established brands.
562
00:28:19,595 --> 00:28:22,575
And also the generalist folks are pretty much
all over everything.
563
00:28:23,034 --> 00:28:25,274
So I always ask people, like, tell me why you
win.
564
00:28:25,274 --> 00:28:27,994
Like, why are they gonna pick you in head to
head situations?
565
00:28:27,994 --> 00:28:32,940
And I find the best the best fund managers I
meet have a pretty clear sense about when and
566
00:28:32,940 --> 00:28:33,919
how they'll win.
567
00:28:34,700 --> 00:28:37,339
And the ones who who get that and some of them
are just like, hey.
568
00:28:37,339 --> 00:28:41,659
You know, we we deliver on these 10 things
before we even invest.
569
00:28:41,659 --> 00:28:45,740
And the founders who we've get money we've
taken money from really go to bat for us.
570
00:28:45,740 --> 00:28:50,355
Or there's usually 1 or 2 really tangible
specific actions or activities that that fund
571
00:28:50,355 --> 00:28:52,275
manager is doing that helps them win.
572
00:28:52,275 --> 00:28:54,515
Talk to me about the portfolio strategy for
screen door.
573
00:28:54,515 --> 00:28:56,515
In most cases, we're gonna back people.
574
00:28:56,515 --> 00:29:02,619
Out of the first vehicle, probably a dozen, 15
managers in total, with the idea of of being a
575
00:29:02,619 --> 00:29:04,940
significant LP in almost all cases.
576
00:29:04,940 --> 00:29:09,900
There's a couple cases where, we invested in
funds that had pretty good momentum by the time
577
00:29:09,900 --> 00:29:12,319
we'd found them, but they're people we really
wanted to work with.
578
00:29:12,380 --> 00:29:16,945
Now sort of we're entering into kinda the next
era of screen door, which is we've had a lot of
579
00:29:16,945 --> 00:29:21,205
managers that we backed for Fund 1, and now the
question is like, how do we support those folks
580
00:29:21,345 --> 00:29:22,065
in 2 ways?
581
00:29:22,065 --> 00:29:26,705
One way is we wanna continue to support the
next generation of first time fund managers,
582
00:29:26,705 --> 00:29:29,424
but we've also discovered some people that we
think are great and we wanna be able to
583
00:29:29,424 --> 00:29:32,005
participate in their future funds too.
584
00:29:32,670 --> 00:29:35,230
Congratulations, 10X Capital podcast listeners.
585
00:29:35,230 --> 00:29:38,690
We have officially cracked the top 10 rankings
in the United States for investing.
586
00:29:38,910 --> 00:29:43,150
Please help this podcast continue climbing up
in the rankings by clicking the follow button
587
00:29:43,150 --> 00:29:43,630
above.
588
00:29:43,630 --> 00:29:47,444
This helps our podcast rank higher, which
brings more revenue to the show and helps us
589
00:29:47,444 --> 00:29:51,464
bring in the very highest quality guests and to
produce the very highest quality content.
590
00:29:51,605 --> 00:29:52,744
Thank you for your support.
591
00:29:53,444 --> 00:29:55,765
Do you think Screen Door is creating TAM
expansion?
592
00:29:55,765 --> 00:29:59,365
In other words, are you creating managers that
otherwise wouldn't have been able to be
593
00:29:59,365 --> 00:30:01,704
managers by solving around the the anchor
check?
594
00:30:01,845 --> 00:30:05,570
I think in some ways, we're doing what a good
precede fund does is we're, like, bringing
595
00:30:05,570 --> 00:30:11,829
attention to things that are interesting that
people might not get to if they're just sifting
596
00:30:11,890 --> 00:30:13,430
through everything that's out there.
597
00:30:13,730 --> 00:30:19,884
And, hopefully, more than TAM expansion, what
we're really doing is we're making the Fund 1
598
00:30:19,884 --> 00:30:25,965
experience more pleasant and less stressful for
talented managers who are maybe getting
599
00:30:25,965 --> 00:30:26,465
overlooked.
600
00:30:26,684 --> 00:30:31,750
I mean, if you spin out of a big established
platform, there are a lot of existing large LPs
601
00:30:31,890 --> 00:30:35,109
who have practice digesting and meeting with
those people.
602
00:30:35,329 --> 00:30:39,250
A lot of people I meet from screen door,
they're they were an operator and they're
603
00:30:39,250 --> 00:30:42,289
starting a fund, or they were an angel investor
and they're starting a fund, or they were a
604
00:30:42,289 --> 00:30:46,115
junior person at somebody else's venture fund,
but they weren't senior enough that their
605
00:30:46,115 --> 00:30:49,234
departure, you know, caused the managing
partner to pick up the phone and call all their
606
00:30:49,234 --> 00:30:51,474
biggest LPs and say you have to support so and
so.
607
00:30:51,474 --> 00:30:55,974
Last time we spoke, you said you were shocked
that many of the VCs that left top brand firms
608
00:30:56,034 --> 00:30:59,234
have almost no connectivity and sometimes zero
connectivity with LPs.
609
00:30:59,234 --> 00:31:00,150
Tell me about that.
610
00:31:00,630 --> 00:31:03,029
I was floored, David.
611
00:31:03,029 --> 00:31:06,150
I've talked to a handful of my friends who've
left big platforms.
612
00:31:06,150 --> 00:31:08,150
I'm like, well, you shouldn't have a hard time
fundraising.
613
00:31:08,150 --> 00:31:11,670
And they've essentially told me, like, I'm not
really involved in the funds fundraising.
614
00:31:11,670 --> 00:31:12,390
I go, what do you mean?
615
00:31:12,390 --> 00:31:16,144
They go, well, we have a really professional
investor relations team.
616
00:31:16,444 --> 00:31:20,944
And between the investor relations team and the
senior GPs, those are the people who talk to
617
00:31:21,325 --> 00:31:25,664
and get to spend time with the LPs, both during
the fundraising and after.
618
00:31:25,859 --> 00:31:31,619
And in some cases, the people I talked to were
actively discouraged from talking to LPs, lest
619
00:31:31,619 --> 00:31:33,380
they say something that's off script.
620
00:31:33,380 --> 00:31:38,039
I do a bit of everything, a lot of fundraising,
a lot of selection, a lot of fund management.
621
00:31:38,224 --> 00:31:41,904
The notion that people would be at a fund and
not have access to a relationship with LPs
622
00:31:41,904 --> 00:31:43,765
wasn't something that had really entered my
head.
623
00:31:43,904 --> 00:31:46,705
And then when they told me about it, I was
like, oh, that's interesting.
624
00:31:46,705 --> 00:31:50,005
And a couple of them have come to me and said,
well, how do you actually raise a fund?
625
00:31:50,625 --> 00:31:53,924
And these are people who are very experienced
investors.
626
00:31:54,680 --> 00:31:59,319
They'd be amazing board members for any startup
company, but the business of building a venture
627
00:31:59,319 --> 00:32:01,640
fund is a bit of a black box and a mystery to
them.
628
00:32:01,640 --> 00:32:03,420
Clearly, they need to listen to the podcast.
629
00:32:03,480 --> 00:32:03,980
Yeah.
630
00:32:05,160 --> 00:32:11,045
Some of those situations, not just going off
script in terms of talking to LPs, but the top
631
00:32:11,045 --> 00:32:15,525
general partners want to have a succession plan
for their junior junior level people, and they
632
00:32:15,525 --> 00:32:17,765
don't want them going out and starting a fund.
633
00:32:17,765 --> 00:32:20,549
So it's it's kind of a direct counter incentive
for that.
634
00:32:20,609 --> 00:32:22,549
I think there's definitely some LP gatekeeping.
635
00:32:22,849 --> 00:32:27,329
When you talk about somebody that leaves a top
branded VC, what are the main challenges that
636
00:32:27,329 --> 00:32:28,929
keeps them from raising their fund 1?
637
00:32:28,929 --> 00:32:30,630
It's kinda like when you leave Google.
638
00:32:30,984 --> 00:32:35,625
Sometimes it's hard to know how much of my
professional success was me and how much of it
639
00:32:35,625 --> 00:32:37,644
was the place where I worked.
640
00:32:38,424 --> 00:32:44,105
And I think sometimes LPs make judgments about
value of the platform that the person was on
641
00:32:44,105 --> 00:32:48,450
versus, like, them as an individual that are
different from that person's own self
642
00:32:48,450 --> 00:32:48,850
perception.
643
00:32:48,850 --> 00:32:52,369
And I don't know that that means that limited
partners are right when they say, well, gee.
644
00:32:52,369 --> 00:32:56,850
Maybe a lot of this person's success was due to
the fact that they were on a platform where
645
00:32:56,850 --> 00:33:00,974
they got easy access to great entrepreneurs and
that, you know, they're essentially you know,
646
00:33:01,214 --> 00:33:03,934
success was based on the hard work of others
who came before them.
647
00:33:03,934 --> 00:33:07,615
I don't know if LPs are right or wrong, but
I've seen them make that decision before that,
648
00:33:07,615 --> 00:33:12,275
like, this person without that tailwind of a
brand will be less successful.
649
00:33:12,654 --> 00:33:15,660
How does a GP that's leaving a large platform
test the waters?
650
00:33:15,900 --> 00:33:17,359
I think it's really dangerous.
651
00:33:18,299 --> 00:33:22,080
I think it's, like, really dangerous unless
you're pretty committed to leaving.
652
00:33:22,299 --> 00:33:27,019
The best way I've seen it done is the person
kind of makes the decision that they wanna
653
00:33:27,019 --> 00:33:28,640
leave and go start something else.
654
00:33:29,019 --> 00:33:33,565
They figure out depend in some firms, you could
tell the leadership that this is something you
655
00:33:33,565 --> 00:33:35,244
wanna do, and they'd be supportive.
656
00:33:35,244 --> 00:33:38,144
In other cases, I think it might be your last
day.
657
00:33:38,845 --> 00:33:41,505
If you were to tell them that, it really
depends on the culture of the firm.
658
00:33:41,644 --> 00:33:46,849
I think the danger is if the firm you're at
doesn't really have any clue at all that you're
659
00:33:46,849 --> 00:33:51,089
doing this, and LPs, you meet with them and
they go back and say, hey.
660
00:33:51,089 --> 00:33:54,609
I heard so and so from your firm is thinking
about leaving to start a new fund.
661
00:33:54,609 --> 00:33:58,365
Like, is this something I should be taking a
closer look at, and that's news to the
662
00:33:58,365 --> 00:33:58,865
management.
663
00:33:58,924 --> 00:34:00,525
That's just not good.
664
00:34:00,525 --> 00:34:03,424
Like, nobody nobody wins when that's the case.
665
00:34:03,805 --> 00:34:08,525
So I think if you're gonna do it, the only
people you can really test the waters with are
666
00:34:08,525 --> 00:34:12,224
people that you really, really trust to keep it
confidential.
667
00:34:13,099 --> 00:34:17,420
And oftentimes, that's a really small number of
LPs, usually people you've gotten to know
668
00:34:17,420 --> 00:34:18,460
really well in some context.
669
00:34:18,460 --> 00:34:19,360
This is the irony.
670
00:34:19,500 --> 00:34:23,980
You mentioned one of the biggest risk factors
for an LP is whether the GP was just drifting
671
00:34:23,980 --> 00:34:25,980
off the brand of the of the previous platform.
672
00:34:25,980 --> 00:34:32,045
How do you sess out yourself as an LP whether
the GP that's spinning out is actually good or
673
00:34:32,045 --> 00:34:35,824
they were just benefiting from the brand of the
previous LP of previous VC?
674
00:34:36,045 --> 00:34:39,885
A lot of times, I'll just ask people, like, how
do you think life is gonna be different for you
675
00:34:39,885 --> 00:34:42,599
as a GP now that you're not at x y z platform
firm?
676
00:34:42,599 --> 00:34:43,980
Like, what do you think is gonna be different?
677
00:34:44,519 --> 00:34:47,980
And I find the people who are like, nothing's
gonna be different.
678
00:34:48,119 --> 00:34:49,159
I'm great at sourcing.
679
00:34:49,159 --> 00:34:49,960
I have a great network.
680
00:34:49,960 --> 00:34:50,599
People love me.
681
00:34:50,599 --> 00:34:52,219
I'm like, that's kinda naive.
682
00:34:52,760 --> 00:34:53,659
It will be different.
683
00:34:54,125 --> 00:34:55,085
Like, it it will be different.
684
00:34:55,085 --> 00:34:57,344
You're gonna be starting from scratch with a
new brand.
685
00:34:57,484 --> 00:35:01,244
And, yes, you will have some core relationships
that will come with you, but a lot of it is
686
00:35:01,244 --> 00:35:02,864
starting over and building from scratch.
687
00:35:02,924 --> 00:35:08,525
So the first thing I try to get a sense for is,
like, how aware is this person of what's likely
688
00:35:08,525 --> 00:35:11,640
to be different on the other side starting from
scratch?
689
00:35:11,940 --> 00:35:17,239
Reintroducing yourself to your network as a new
person is a big job.
690
00:35:17,940 --> 00:35:20,760
So that's that's one of the questions I ask
them.
691
00:35:21,140 --> 00:35:22,840
Second, I'll ask them a lot about sourcing.
692
00:35:22,900 --> 00:35:26,275
Do you think that kept you from developing
important skills, having that early in your
693
00:35:26,275 --> 00:35:26,775
career?
694
00:35:26,914 --> 00:35:28,614
That is actually why I left Google.
695
00:35:29,555 --> 00:35:30,515
That's a big part of it.
696
00:35:30,515 --> 00:35:37,715
I said, I wanna I wanna get better at business
development faster, and I think I need to be in
697
00:35:37,715 --> 00:35:43,260
a place where I I don't have all of these
tailwinds and where more responsibility will be
698
00:35:43,260 --> 00:35:44,559
put on my shoulders sooner.
699
00:35:45,339 --> 00:35:50,139
And so I went to a I left Google to go to a
start up, and there were 2 of us on the revenue
700
00:35:50,139 --> 00:35:51,199
team when I joined.
701
00:35:51,739 --> 00:35:53,339
And my boss was like, well, it's me and you.
702
00:35:53,339 --> 00:35:54,780
We're gonna have to pump up with all the ideas.
703
00:35:54,780 --> 00:35:56,644
We're gonna have to do all these things.
704
00:35:56,644 --> 00:35:58,804
And he I learned so much.
705
00:35:58,804 --> 00:36:00,105
His name was Joe Horkin.
706
00:36:00,724 --> 00:36:06,405
I learned so much from Joe because it was just
me and him, and he's like, well, this deal came
707
00:36:06,405 --> 00:36:06,644
in.
708
00:36:06,644 --> 00:36:08,005
We gotta figure out how to structure it.
709
00:36:08,005 --> 00:36:08,724
What do you think we should do?
710
00:36:08,724 --> 00:36:09,364
And I'm looking around.
711
00:36:09,364 --> 00:36:09,684
He's like, no.
712
00:36:09,684 --> 00:36:09,925
No.
713
00:36:09,925 --> 00:36:10,739
I'm talking to you.
714
00:36:10,739 --> 00:36:12,980
You and I are gonna have a conversation about
this.
715
00:36:12,980 --> 00:36:19,380
And it was a huge accelerant for my learning to
be in a position with less brand power and, I'd
716
00:36:19,380 --> 00:36:20,679
say, kind of more responsibility.
717
00:36:21,380 --> 00:36:22,679
Were you in your mid twenties?
718
00:36:23,424 --> 00:36:25,184
I was at that point late twenties.
719
00:36:25,184 --> 00:36:25,585
Yeah.
720
00:36:25,585 --> 00:36:26,324
Late twenties.
721
00:36:26,385 --> 00:36:31,184
So one of the life hacks for somebody early on
in their career is actually just to be a good
722
00:36:31,184 --> 00:36:33,125
thought partner, to be a good listener.
723
00:36:33,585 --> 00:36:37,585
It's an amazingly rare skill, and you'll have
very senior people come to you.
724
00:36:37,585 --> 00:36:42,920
And we'll just talk to talk at you for 45
minutes, and, you know, you could ask probing
725
00:36:42,920 --> 00:36:45,820
questions, but that could be very valuable to a
senior partner.
726
00:36:45,960 --> 00:36:46,920
It's super useful.
727
00:36:46,920 --> 00:36:52,184
And I've had people who've worked in the office
with me at times, and I find myself doing that.
728
00:36:52,184 --> 00:36:53,105
They're right there, and I'm like, hey.
729
00:36:53,105 --> 00:36:55,224
I just wanna run something by you and why
you're input on something.
730
00:36:55,224 --> 00:36:58,824
And it's just a natural thing to do when you're
around people.
731
00:36:58,824 --> 00:37:01,804
And so, I'm really grateful for that
experience.
732
00:37:01,944 --> 00:37:03,085
It was really seminal.
733
00:37:03,480 --> 00:37:09,079
Speaking of a seminal experience, you were
chairman of the NVCA, which is a trade trade
734
00:37:09,079 --> 00:37:11,719
association for for the venture capital
industry.
735
00:37:11,719 --> 00:37:12,599
Tell me about that.
736
00:37:12,599 --> 00:37:14,840
It was an amazing experience being chair for a
year.
737
00:37:14,840 --> 00:37:19,695
Byron Dieter has taken over for me, from from
Bessemer, and he's doing a great job.
738
00:37:19,835 --> 00:37:24,155
It's really fascinating because, you know, I
run a pretty small venture fund in the grand
739
00:37:24,155 --> 00:37:24,974
scheme of things.
740
00:37:25,275 --> 00:37:31,699
And the NVCA represents everybody, the biggest
venture the biggest multi stage platform funds
741
00:37:31,699 --> 00:37:36,519
in our industry, all the way down to small
regional venture firms, life sciences,
742
00:37:37,539 --> 00:37:38,679
software, hardware.
743
00:37:39,139 --> 00:37:42,119
It's this really interesting nexus of all
things venture.
744
00:37:42,755 --> 00:37:49,074
And I think 2 of the biggest things I learned
is, 1, the venture capital industry has a huge
745
00:37:49,074 --> 00:37:53,715
role in the innovation economy, but it's a
pretty small trade association compared to most
746
00:37:53,715 --> 00:37:56,535
of the other folks that are out trying to
influence policy in Washington.
747
00:37:56,840 --> 00:38:00,119
And I I had that was sort of took me a while to
wrap my head around it.
748
00:38:00,119 --> 00:38:04,920
And second, there are many laws that are
drafted to solve one problem that have
749
00:38:04,920 --> 00:38:08,059
meaningful unintended consequences for the
venture capital industry.
750
00:38:08,679 --> 00:38:15,554
And I found that policymakers were actually
quite receptive to hearing about the unintended
751
00:38:15,855 --> 00:38:20,655
consequences of some of the things that they
proposed and how those things would impact the
752
00:38:20,655 --> 00:38:21,875
venture capital industry.
753
00:38:22,255 --> 00:38:24,894
And the US venture capital industry is the envy
of the world.
754
00:38:24,894 --> 00:38:27,309
Like, we have the best we have the best thing
going.
755
00:38:27,309 --> 00:38:30,369
And so, you know, reminding them that we don't
wanna break that thing was important.
756
00:38:30,429 --> 00:38:32,849
Well, Charles, you did not disappoint with the
podcast.
757
00:38:33,230 --> 00:38:34,429
I really enjoyed chatting.
758
00:38:34,429 --> 00:38:37,010
What would you like our listeners to know about
you, about Precursor?
759
00:38:37,309 --> 00:38:42,324
I mean, the only thing I'll say is I really
love meeting new people, and I keep quite a bit
760
00:38:42,324 --> 00:38:47,844
of time on my schedule to meet people who are
unknown to me but are really committed to
761
00:38:47,844 --> 00:38:48,565
building something special.
762
00:38:48,565 --> 00:38:50,585
And if you're one of those people, please reach
out.
763
00:38:51,844 --> 00:38:52,985
Thank you for listening.
764
00:38:53,139 --> 00:38:58,199
The 10x Capital podcast now receives more than
a 170,000 downloads per month.
765
00:38:58,338 --> 00:39:01,478
If you are interested in sponsoring, please
email me at david@10xcapital.com.
