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I don't think there is any excuse saying that you can't start a venture capital firm with no money because I was literally flat broke uh when I started Abstract.
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>> Did you filed bankruptcy?
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>> I literally had filed bankruptcy at 24 years old when my previous startup company had failed.
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I was literally out of bankruptcy starting a venture capital firm. >> All right.
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So I think the place we have to begin is in the art world.
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to begin is in the art world. I I think you have the most systematic intense art collector story that I've heard and I want to start here not because it's like some esoteric side topic but because I think there will be lots of inspiring points for what we'll talk about in
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investing as well uh not art but companies um so can you just lay out for us your art collecting journey like where it started why you got interested in it and as and how you began to learn about how the art world actually works because I basically that's my basic one big question explain how this works to us. >> I have two incredibly close mentors. Um,
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>> I have two incredibly close mentors.
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Um, one who introduced the two of us, Michael Oitz, and then another guy named Stuart Peterson.
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Uh, both of them have worldass art collections.
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Michael has like a storied art collection. I'm sure you've seen it. >> Yeah.
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>> But I spent a lot of time at their houses um over the years.
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And every time I went, I kind of just tried to learn a little bit more about what was in their house.
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and they could both spend two, three hours walking you around their home and talking about what they have and how they got it and the the story behind it, the history behind it, the significance of it.
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And I always just thought that was really interesting and I never really had much time for hobbies and it was one that I thought my wife and I could enjoy together.
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Um, I needed to find the golf and I I thought golf was a little one-sided.
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So for me, art collecting seemed like it could be golf for both me and my wife.
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Um, so then I just started dabbling in understanding the markets and then I realized nothing in Michael's collection is attainable.
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Uh, so kind of scratched most of those artists off my list.
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Um, and then I looked at Stuart's collection and most of it was unattainable.
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Some of it was artists who were still somewhat attainable.
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And then I worked with an adviser briefly just so I can familiarize myself with the market.
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And then once I spent enough time familiarizing myself with the market, I realized like anything, if you're going to invest time and resources into something, you're better off doing the majority of the work yourself.
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Obviously, it's good to have people like advisers who are experts who are boots on the ground in the ecosystem advising you here and there.
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But I think you need to maintain the relationships with the galleries yourself.
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You need to maintain the relationships the auction houses yourself.
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Even having some direct artist relationships yourself.
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So I spent time and energy and resources dedicated to learning as much about it as I possibly could.
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So um I wanted to collect primarily contemporary artists and primarily living artists.
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And I decided to collect three different buckets of artists and I break them down by generation.
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So I have artists who are two generations before me and these guys are in their mid to late 60s, early 70s.
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Artists that are maybe one generation before me.
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These guys are late 40s to late 50s.
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late 50s. and then artists of my generation and that's everyone who's you know 28 years old to 38 years old and I started to understand you know who is important in the conversation at a given time and who is getting uh museum institutional interest like who are are
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museums paying attention to who are museums hosting uh exhibitions for um what makes this artist unique where does this artist draw inspiration from and also there's a lot of artists that are great and have all those boxes, but might necessarily be something that I want to live with. And I personally, uh,
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And I personally, uh, my wife as well, we like living with our art.
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So, even if something could be like a great asset to hold, if we don't want to hang it up on our walls, we don't feel right about the concept of just hanging of buying art for the port purpose of putting it in storage.
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purpose of putting it in storage. two generations before me, it tends to be more heavily dominated like white male artists, guys like Richard Prince, uh guys like Christopher Wool, uh George Condo, and uh a generation before me, uh it's
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guys like Mark Gro, and uh a lot of female artists like Jenny Savile, uh Laura Owens, Cesaly Brown, um Jacqueline Humphre, and then in my generation, um it's more along the lines of Rashie Johnson, uh Christina Quarl, Avery Singer, Marina Ryance, Anna Wyant. Um,
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Um, and all of these artists tend to be now uh represented by all of the blue chip galleries.
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And when I started dabbling into the art world is when I realized that there's actually like an overwhelming number of parallels between the venture world and the art world, primarily in the way like blue chip galleries work and the way that the big platform venture capital firms work.
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But if at any given time there's you know 50 important practicing artists in the world um or even the estates of the most iconic dead artists they tend to be represented by the big four galleries.
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Hower, Gigosian, Zwer, Pace, and once they're represented by those galleries, they are now deemed a blue chip artist and their prices are very, very high.
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But their prices tend to sustain or even appreciate because those galleries are very large and they have very big clients and they represent a lot of institutions.
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So, they can control the markets for those artists.
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So, people tend to be more comfortable paying a premium to buy art from those galleries because of the inherent safety net you get when buying from them.
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Um, but then I started to realize that there's, you know, smaller galleries and even smaller galleries beyond that that tend to share a lot of artists with the larger galleries.
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And it's because they were the ones who initially discovered them.
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And it's the same ones over and over again, similar to the venture capital world.
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You have the four, five, six top venture capital firms in the world that tend to have exposure to every power law company in any generational company in any given vintage.
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And then more often than not, you'll see the same firms that financed those companies earlier and earlier and earlier.
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And like the big venture capital firms try to maintain relationships with those firms that spot talent earlier and earlier, the big galleries tend to maintain relationships with a few of the mid-tier or smaller tier galleries early.
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So then what I started to do after that was spend time with those galleries that I started noticing were the early spotters of talent and finding these artists early in their career that had a high, you know, so to speak, graduation rate um to getting picked up by the blue chip mega galleries.
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And then as soon as that happened, their prices basically quadruple.
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Um not saying that's the purpose behind doing this, but obviously it's nicer to pay 25% of the cost of something versus full full value.
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And then so yeah, basically just started maintaining those relationships and then trying to see what I actually liked from their programs because like anything not 100% of the artists graduate.
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So from there that's when you have to start apply some of your own judgment and hope that you have the right taste to identify you know what are other people going to find appealing?
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What are institutions going to find appealing?
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>> What made a collection like ovitzes unattainable?
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That's like an interesting word.
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What why could you not replicate it?
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And I guess behind that question is what is shared in common from your perspective of the collections that you respect the most?
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>> The reason Oitz's collection is not attainable is due to the sheer value of it.
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Um, and the reason it's not like there's this one art list, I'm blanking on the name of it, that that ranks collections based on the means at which they were obtained.
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Um, which is actually really interesting because people today say like Steve Cohen and Ken Griffin have the world's greatest collections, and they probably do.
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Um but they don't assign the same uh score to them because >> it's like a low IR collection. >> Exactly. Right.
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So like if you can afford to buy any piece of art in the world, it's easy to know what the 50 most iconic things in the world are and you just have to and everything's for sale in the art world.
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So as long as you're willing to pay the price, you can build that collection, right?
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And then the the collection that scored the highest score, and I'm going to I don't remember their name, but it's easy to look at this article.
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um was a wife and husband who were both uh who were both government employees.
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The the husband was a was a postman and the wife was a librarian and they spent their weekends uh collecting art in the '60s and they were collecting Pollocks and Rothkco and they and by the way they ended up giving it away all to museums.
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They never actually did it for for any monetary gain, but their collection ranked so high because they were actually able to judge based purely off of talent and skill before anybody had any idea who these artists were and before there was any value assigned to their assigned to their work.
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their work. Um so I do believe you know in every great generation in every you know decade long period decade long window there are certain bodies of work that are considered iconic that if you think to that decade these are considered iconic bodies of work in the
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80s you have the Richard Prince Cowboys um which Michael has probably one of the greatest ones out there still has a couple of great ones um but these were basically old Marlboro bro ads that uh Richard Prince had basically ripped out of magazines and then turned them into photography graphy and sold them. But
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But they became iconic because he sort of owned the concept of appropriation as an artist.
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Um, and then, you know, in the early 2000s, late 90s, Richard Prince came out with those nurses where he was printing out those old nurse book covers and then painting over them.
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And then that became more iconic thing about appropriation.
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And then you had Tracy Emmen with her, you know, she was a lot more graphic than most female artists were in the '9s about, you know, the female body as a subject.
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when you're trying to identify those things in real time, it's very very difficult because there's a lot of art show you know exhibitions at any time in the city of New York.
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I mean like New York is like the king of exhibitions right and there's ones that are positively acclaimed but you know two three years that artist fizzles out.
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So when you're collecting artists who are practicing and active it's very challenging because you know there's a thousand artists in any generation and only you know 10 of them end up mattering 20 or 30 years later.
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I collect active and then I try to go back and look at some historical things.
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And for whatever reason in the art world um and this is actually if you look at all the data in the art world, it tends to work like this this cycle continuously where things that were iconic 20 years ago tend to be de undervalued 20 years later then get very highly valued 30 to 40 years later.
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So I tend to find things that were the undisputable iconic bodies of work from the '9s and 2000s that today might be out of favor.
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And a lot of the people who were very iconic in the 90s and the 2000s happen to be white male artists who are currently out of favor in the art world.
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And there's not a lot of demand for their work, but it's a really good buying opportunity for those artists, at least in my opinion.
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Um, and then the next thing you look for is depth in that artist's collector base.
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So, there are certain artists who have huge followings.
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They put out, you know, 50 paintings through their multiple galleries per year and they're all sold.
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They have 50 paintings that show up at auction and they all sell and they clear large price tags because their art appeals to a large demographic of collectors and George Condo and Rashi Johnson are probably the two artists that fit the most squarely in that bucket today.
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And then there are artists who are a little bit more niche who have collectors um and their markets are very very strong but their markets can't sustain you know 50 paintings 100 paintings transacting every year.
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Their markets can sustain you know 8 to 12 very high value paintings transacting every year.
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So then you always try to think about that in your calculus because you're like, well, if the market depth is shallow and I'm a young collector and everybody else collecting this artist is 30 to 40 years older than me in 20 to 30 years, am I going to be the only person who's collecting this artist?
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So there's a lot of things to try to think about there, but I think at the end of the day, you're really just trying to buy art that stands the test of time.
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>> Is there any interesting thing you've learned about the literal cost of things and and what generates return from that?
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>> This is this has changed dramatically in recent years.
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Zitz always tells me that, you know, he wishes I started my collecting 20 to 25 years ago versus starting collecting today.
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And I asked what was different about 20 to 25 years ago.
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And he said 20 to 25 years ago, you know, entry- level art was $10,000.
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And blue chip art, you know, not blue chip kasos and Rothos, but like blue chip contemporary art was in the order of magnitudes of like lowund thousands.
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20, 25 years ago, you could walk into a gallery and if there was a painting you liked.
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Um, you could take it home, you could place it on hold, you could live it within your living room for two weeks and decide whether or not you wanted it and you could make a gallery and offer to 20 to 25% less than than than what they were asking for it and have the painting.
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The number of collectors in recent years has dramatically increased.
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Here's another parallel to venture.
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Um the same way the number of investors have dramatically increased and as a result the entry valuations to art have dramatically increased as well and the competition to acquire art has dramatically increased as well.
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You know there's 10 20 artists exhibiting primary shows um with with a given gallery and that artist will present 12 paintings in that show and that'll be the only 12 paintings they make available to the public for the next two years.
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Um, and a 100 people want those paintings and now the now you have to jump through hoops of well you're saying well I'll buy this painting and I'll also buy one painting give it to a museum if you give this one to me.
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So the the real costs of actually collecting are not what the prices of are the primary because you actually can't get you can't just walk in and pay that much for the painting and get it.
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And one of my mentors tells me he's never bought a painting for less than $100,000 that he's made any money on.
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So I do think the barriers of entry are quite high um to actually get the higher quality blue chip art.
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Obviously, like there are totally still examples today where you can get lucky and get something before it's truly discovered and and and do well on it financially.
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I do think like anything when competition comes into the market, the market services that demand.
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So there's way more artists represented by these galleries today than historically.
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I mean historically these galleries would represent 10 15 artists.
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Now the bigger galleries are representing 75 to 80 artists.
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Smaller ones are representing 25 to 30 artists.
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They're putting shows on for them constantly.
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Every day in my inbox, I'm probably getting 30 previews for exhibitions for new shows opening by new artists.
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So, similar to seed investing, like the volume of the volume of art you're being sent daily and the entry prices to access, you know, entry-level art are just getting astronomically higher.
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Um, so, you know, your your bar needs to be incredibly high for for the new living contemporary artists.
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But it honestly makes the the value investing of looking to, you know, what is the art that's proven the test of time that might be an opportunity to get a great example of today.
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um what might those opportunities be?
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I'd say probably the most interesting thing I've learned about the art world, which is something I didn't appreciate until I started actively collecting is quality of a painting versus just like work by a given artist.
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And it's why you see certain Picassos sell for 5 million and one sell for 100 million.
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Like I never truly understood the concept of masterpiece until I I I started actively collecting.
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But you know, in every exhibition put on by a new artist today, as I mentioned, there's 12 paintings.
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And of those 12 paintings, there's probably one that's incredible that everyone's going to be fighting over and two that are really good that most people will be happy with.
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And then the rest of the show is kind of just like the artist made like 20 paintings and then the gallery was like we could sell 12 of them.
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And what you start to notice over time is the most dramatic appreciation in art happens in the highest quality examples of their work.
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It's somebody could look back and be like that was one of the best paintings that artist made.
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And that's what's so special about Michael's collection is he has definitive masterpieces by some of the most iconic artists in history, right?
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So there are certain artists who have a lot of depth in their collection.
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You know, they might have 20 Picassos or they might have eight or nine Twamblies.
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Um Michael, you know, I think he's got three Picassos, but I think he's got the three best Picassos ever.
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Um and he's got probably the best Mark Rothkco I've ever seen.
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He's got the best Fron Klein I'd seen.
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Even on contemporary artists, he has the single best Laura Owens abstraction.
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I think that was ever released to the public.
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So, I think what he was really good at doing is, you know, like anything else, there's competitive dynamics.
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People get, you know, drawn into the competitive game of, well, I can't get that painting.
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Just give me this one instead. Right?
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And I think a lot of it has to do with the discipline of waiting until you can actually get the highest highest quality examples of the best work by these artists, cuz there's no shortage of collectors homes you could walk into.
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That's like lowquality art by great artists.
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um where they kind of just wanted to have a home filled with art by recognizable artist names, but nothing that in their collection is something that, you know, a real collector would say is truly great.
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>> When we talk about abstract, I'm going to ask about the time that you spent studying power law outcomes in companies.
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I mean, one of the lessons I've learned from doing this show for so many years is that that concept, that power law concept applies literally everywhere.
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And it sounds like not only does it apply in art, but actually within a given artist's collection of work.
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So the idea of masterpiece or high quality is really interesting to me.
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What can you say about those two concepts and what you've learned about them?
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It it's so strange because there's no earnings against which to measure you know success.
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There's nothing really quantitative.
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It's in the eye of the collective beholder.
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But but what is try to define you know what's shared in common amongst high quality or masterpiece works.
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I think in the art world like it's very definitive examples of what that artist is known for.
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Um something that you could look at and basically say this is exactly what the artist was trying to get across in his message and it came through very clearly in this painting um or this sculpture.
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Often times you'll see a painting by an artist and you'll have to do a double take to actually like to realize which artist actually painted it. Right?
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So there are certain paintings that you look at by an artist and it's so obvious that it was painted by that artist.
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You within the first second of looking at it, you know who painted it.
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Um so that's obviously a really good indication.
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And then a lot of it is just like frame of reference.
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You don't actually appreciate what is a great example until you've seen tons of examples, right?
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So it's a phrase that oates always talks about frame of reference.
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I'm sure you've heard of him mentioned before and it's the same thing with the more companies you meet, the easier it gets to discern what the better companies are.
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the more art you look at and the more art you look at by a specific artist, the easier it becomes to identify what a great example of that artist is.
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And you know, certain things you look at, you're like, well, this looks like one of their paintings, but it looks like a messy version of one of their paintings.
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Or this looks like a painting that they started working on and they realized it wasn't going in the right direction, so they kind of halfass the rest of it versus like this is something like they nailed and they know they nailed it.
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And a lot of that just has to do with, you know, training your own eye and looking at a lot.
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>> Talk about the role of status in the art world, both for collectors, for galleries, for artists.
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>> So, that's a real thing.
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I don't actually get involved in any of that cuz that I don't have time for it.
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Like I I don't think I've ever gone to actual exhibition opening.
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It's part of the the upside and downside of being in San Francisco is there's no art in San Francisco.
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So, I don't think I've ever bought anything um that I saw in person before buying it.
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I've only ever bought previews.
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Yeah, cuz you have to find time to actually fly somewhere and go see something in person and I don't have my schedule unfortunately is not lend me to have that leisure to do that.
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>> Um, but I think absolutely I think it's very common in the New York world.
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Um, especially among finance guys who are active art collectors.
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I think it becomes competitive dynamics of, oh, you have one of these, I actually have the better one.
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Oh, we're both fighting over the same painting. I'm the one who got it.
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Um, and then I think that's where, you know, the galleries leverage leverage those competitive dynamics to do what's ultimately best for the artist, right?
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So, at the end of the day, artists actually don't want their art in people's homes.
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They want their art in museums.
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And they don't want their art to go in someone's living room where only 20 people will ever see it.
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They want it to be hung up in the MoMA where millions of people will see it over time.
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And that's why you see a lot of these guys on the boards of those museums because those museums want to ultimately foster the relationships with the people that have the greatest collection.
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those collections, at least a large portion of them, one day end up in their museum.
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And that's why museum affiliation is also a really great way to access great art.
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Um, because galleries are more inclined to give great paintings to people who are on the boards of the MoMA and the Met and the Whitney and the Guggenheim because they know that more likely than not, this painting maybe not tomorrow, but eventually will end up in the collection of this museum.
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So that is definitely where status comes into play.
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That's why you want That's why when you see the boards of these museums, they don't look like boards of any other industry in the world because the boards unlock access to what these guys consider to be the greatest art.
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>> What is surprising about how the big four houses work that you've learned?
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>> I mean, the funny thing is that they they compete for the artists very similarly to the way VCs compete for deals, right?
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like it's very obvious who are the artists who are the most in commercial demand, who are the most in institutional demand and who they could see building their careers over the next 10, 20 years.
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And the courting process is the same, right?
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It's like we'll do a better commission split with you, you know, like it's it's not 50/50 with us. We'll we'll go 6040. We'll go 7030.
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Um do you want a signing bonus?
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Here's a million dollars cash up front. Like go with us. Don't go with them.
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It's very competitive dynamics amongst them to to get the best artists and then artists are always leaving one and going to the other.
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I still don't quite understand um because generally speaking in like the talent world contracts are pretty ironclad.
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You can't just go from one person to the next but there is I still don't quite understand how that works.
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I'm still curious to learn that aspect but artists do frequently go from one gallery to another.
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>> What are the keys to being known or building a reputation as a great collector?
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There's like things that Owitz has taught me over the years, right?
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Like in the early parts of my my collecting, you know, there was a painting that I wanted and they didn't offer me that one.
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They offered me the consolation prize instead.
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And I was talking to Oitz or Steu.
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I'm like, "What do you think? Should I take it?"
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And they said, "No, because if you do, >> you're Paty." >> Exactly. Right.
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Like they're going to know that they can, you know, just keep giving you consolation prizes, right?
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Like ultimately they want you as a collector.
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So if they realize you're only going to buy what you want to buy, they'll ultimately give you what you want.
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If if you if you play along and play ball, but if you, you know, you're the guy they can give second tier and third tier work to, you will always be the guy they give second and third tier work to.
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So there's that aspect of it.
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And a lot of it is just staying top of mind.
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What's worked best with me is, and works best for me in venture also, right?
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Like I see early stage seed companies at a high level of frequency because I stay top of mind for my founders who have friends that might be starting companies.
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I stay top of mind for angel investors that are actively grooming uh the next generation of founders and and are looking for people to introduce them to introduce them to to lead their seed rounds.
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But in the art world, it's the same thing.
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It's, you know, sending sending your dealer a gift when their baby's born, sending them Christmas gifts, uh you know, checking in from them from time to time.
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And the reason I mentioned staying top of mind is the most competitive time to get a painting is during an artist's primary exhibition or during a fair like Basel because they send that preview out to their entire collector base.
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5,000 people are going to see that painting and your art, you're definitely not the only person who wants that individual painting and your odds of getting that are just close to nothing unless you're willing to jump through a million hoops to get there.
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But every single artist, I mean, they're working. They need to make money.
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So, more often than not, you know, in between exhibitions and in between fairs, they might make one painting and give it to the gallery and say, "Please sell this for me."
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And that's where I found most of my work.
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It's the artist just made this one painting available.
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We're offering it to you and three other people.
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please let us know what you think.
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And your odds are much higher when it's just shared with you and two or three other people.
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>> If you think about um the artists, the galleries, both kinds of galleries, the collector who buys and then maybe sells in the future, um other players, auction houses, etc.
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, who makes the most money?
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>> I would say the galleries.
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I think the big galleries uh do quite well.
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Um because not only the big galleries that have great clients and are able to control their markets tend to not only manage all the primary sales, but they tend to also manage the majority of the secondary sales.
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So, and this is how they control the market, right?
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If you're buying great work from Hower or Gigoian or Zwer or Pace and you want to sell a painting, they don't want that painting to go to auction.
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They want that painting to go back to them because they probably have 20 other people that might be interested in that painting.
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And not only did they get their 50% commission when they sold the painting to you in the first place, now they're going to get, you know, somewhere between 15 and 25% for selling it for you.
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Again, on a multiple round trips of a painting, they probably made more money on the painting than initial cost of the painting.
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I would say they make the most.
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Auction houses you would think make, you know, just they have no costs except for marketing and and displaying the art.
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And then they take anywhere between 15 to 26% commission depending on the value of the art.
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And then I started realizing that's actually not the case, right?
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the case, right? because they have competitive dynamics also when what was the most famous uh Paul Allen when he passed away a few years ago uh his entire collection uh became available for sale and I think it was at Sabes and the collection sold for I think well over a billion dollars in cumulative sales when someone like him dies or he's an extreme example but there's plenty of
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people that have collections worth 50 million 100 million 300 million and it's usually um the estates of those people that auctions want and it's part of the reason that the estates actually have to go to the auctions because obviously you have a finite amount of time before you have to pay the taxes and the quickest way to sell everything to send it to auction. Um, that's when the auction
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Um, that's when the auction houses start competing with each other over commission split and guarantees.
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It's more along the lines of, hey, we will guarantee you at least $500 million for this collection.
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We'll guarantee you at least, you know, hundred million for this collection.
25:00
Um, we will reduce our commission from, you know, 26% to 13% because we're we're going to give half the commission back to you.
25:07
And there's no shortage of stories where their guarantee was they they guaranteed too high to compete with the other auction house and they ended up losing money or their net margin on ended up being 2 or 3%.
25:19
I don't think the auction houses have huge market caps.
25:20
I think set is about like a $3 billion market cap and it's well over a hundred-year-old company.
25:25
So I think good businesses not phenomenal businesses um because I think their their margins are a lot more volatile than one would think um looking into it externally.
25:34
But I'd say the blue chip galleries seem to have like endless pockets.
25:39
What they spend money on is beautiful gallery space and and making beautiful exhibitions, but you know they have a cost of goods which is basically zero and then very very large tickets and then 50% rev share. >> Good business.
25:51
Where are venture and art the most divergent in how the two worlds work?
25:58
>> It's a lot easier to identify what is going to be a great company than who is going to be an artist that stands the test of time.
26:03
There's a lot more tangible things you can look at.
26:05
There's much more fundamental and technical things that you can look at that'll tell you that something is special and something is good.
26:11
There is a market for pricing in in the venture world that might not necessarily be the case in the art world.
26:18
So, you know, fair market value is very clearly determined in the venture world.
26:22
A company goes out to fundra, an auction is run and term sheets are offered and a price is set.
26:28
Those things are obviously very different.
26:29
They say like those are the primary differences is really just venture is a much more tangible even though art's tangible but you kind of get my point in that like there's a lot more to underwrite. >> Yeah.
26:40
There's an E, not just a P. >> Exactly. >> Okay.
26:43
I want to talk about the way that you've learned the entire early stage venture world works now.
26:47
And Abstract has very quickly become one of the firms whose name you hear a lot.
26:52
You hear your name a lot.
26:54
But I'd love you to explain in the same way you explain sort of the art world mark I'll call it market structure.
26:59
Could you explain your perspective on the early stage investing market structure just like how it works and how it got to there? >> Sure.
27:07
The simplest way to describe this is like how I came up with a thesis for how abstract actually invests and this thesis is involved has evolved over time but the the thesis in which I started abstract was trying to identify which companies have the highest likelihood of becoming power law companies.
27:22
And I identified power law by any companies that um had had a private market cap or exited north of a $5 billion uh valuation.
27:30
And what I'd realized over time was that if you eliminate uh Uber and Roblox from the equation whose seed rounds were led by first round capital, it's it's close to impossible to identify power law companies in which the seed round was led by a seedstage venture capital firm.
27:45
This has changed in recent years which is why our strategy has also evolved.
27:47
the thesis in which it was built off has stayed constant and that multi-stage tier one VC firms were better at seed investing than than seed funds are.
27:54
And it's not to say that um they'll outperform them because I don't think the the portfolio construction model allows for that anymore at the scale of those funds.
28:02
But I do believe that the power law companies of the future um will be more likely have seed financings led by seedstage venture capital firms, multi-stage venture capital firms and seedstage venture capital firms.
28:13
And you know, in the early days, people didn't think multi-stage firms did much seed investing.
28:18
But if you look at Sequoia, they led the seed round for Stripe, Airbnb, Dropbox, and New Bank.
28:21
And Andre led the first institutional rounds for Octa, Data Bricks, and Slack.
28:26
And Kosa led the seed round for Instacart and and Door Dash.
28:31
And Index led the seed round for Robin Hood and Figma.
28:33
And Lightseed led the seed round for Snap and I think App Dynamics.
28:36
And and the list kind of goes on and on.
28:38
But what became obvious to me was that seed funds that claim they had proprietary deal flow or mostly kidding themselves.
28:44
They're a little delusional.
28:45
And it's hard to believe that a seed firm that has two or three people have more coverage at early stage than a multi-stage fund that has 30 or 40 people.
28:51
And then it became very apparent to me that when a multi-stage fund and a seed fund tried to compete with one another that it was very hard for a seedstage venture capital firm to compete with a multi-stage venture capital firm.
29:01
Um, oftent times multi-stage venture capital firms had brand weight that the seed funds couldn't compete with, but more often than not, it was the fact that they were willing to offer valuation in terms that a seed fund couldn't compete with.
29:12
And I decided to build a seedstage venture capital business initially aligning my interest with multi-stage funds as opposed to aligning my interest with seed funds.
29:21
The reason I was actually thinking that people were wrong uh when saying multi-stage funds were were jacking up the prices of all these deals is, you know, we pulled the data on this and if you look between like it was either I think like 2008 and 2011, there were about 1,000 seed deals funded in that time frame or at least publicly announced seed deals in that time frame.
29:41
So there's some survivorship bias there.
29:43
But what you need to ultimately look at is that probably 80% of the companies got announced because that's just what ends up happening in ventures.
29:49
So, let's assume there was a thousand companies and Uber was in that bucket.
29:52
And if you wrote an equal-sized check into every single one of those 10,000 companies, you would have gotten a 3,000x just on Uber.
30:01
So, you would have actually had a 3x net venture capital portfolio blanketing the entire market.
30:06
And then there was also Airbnb and Dropbox and so many other companies and Instagram um that were funded in that window.
30:13
There is no world in which you could blanket an asset class and should be able to generate a 3, five, 7x.
30:18
So that was very clear sign that deals were too cheap back then.
30:22
And as anything, as markets get more efficient over time, deals start to price a little bit more accurately.
30:28
And I thought that seed funds were holding on to those low prices a little too a little too drastically.
30:34
And multi-stage funds had a bit more of the right idea.
30:36
If you start to think that a 3000x a 3000x multiple on a seed deal like Uber gave you a 3x across a blanketed coverage between 2008 and 2011 then you could argue seed deals need to be 3x more expensive as a floor.
30:50
But if you mix in all the other companies you probably assume that seed deals should be 5x more expensive as a floor.
30:54
Um and by the way even if that's the case that means at an average entry valuation of 25 million if you blanket the entire market you should be able to break even on your money which should never be the case because as you know like investing is challenging.
31:04
So now we're in a market where you actually need to be better at picking than you were historically.
31:10
In terms of what we started to do, um, in the early days, what I did was I looked the last few hundred companies that were backed by the multi-stage tier one venture capital firms and I started to identify patterns that existed in the foundaries they were backing.
31:24
And uh, venture is a pattern matching business for better or for worse.
31:28
But what I started to notice was that they liked founders that went to one of these schools, got one of these degrees, worked at one of these companies and one of these roles and one of these periods of time in that company's inflection.
31:37
So I started just tracking individuals that fit the bill um on LinkedIn and it's probably I don't know six or seven thousand people that that that qualified and anytime one of them changed their job title to founder, I got a push notification and I started reaching out to them and that's >> What year is this? Just to ground us. 2016, 2016.
31:58
>> And that's kind of when I realized that um an unfunded seedstage founder might be like the easiest person in the world to get a meeting with.
32:04
And because I mean I was a nobody at this point in Silicon Valley and the fact that anybody would take a meeting with me was was nice.
32:10
And as their financing rounds came together, I would ask for any allocation.
32:14
They would give me anything from a $25,000 check that I raise an angel upwards to a $500,000 check that I'd raise as an SPV.
32:20
Um and I'd use Angelist for that.
32:22
I'm probably like the number one Angelist success story.
32:25
Angelist really catapulted my career and I think it's actually an amazing business that more people should should should uh pay attention to and and and leverage the same way I leveraged.
32:33
Um >> but I think over you know the my first 47 uh seed deals I I funded in a 10-month window between August of 2016 and June of 2017.
32:44
And >> you did 47 in that first year.
32:47
>> 47 in that first 10 months.
32:47
Uh 47 deals in that first 10 months. an and end there.
32:51
I got an angel check into Rippling.
32:53
I got a first dollar check into Salana at four cents a a token.
32:55
I got a seed check into Clay.
32:57
I got a seed check into Cherry, a seed check into Newfront.
33:01
Uh a bunch of crypto companies.
33:03
I got into the management company round of a hedge fund called Polychain Capital for yeah for a brief period of time was the largest cryptocurrency hedge fund uh in the world and even privates as well.
33:11
And then I got to seed a bunch of the companies that that spun out in the early crypto ecosystem.
33:15
So, Avalanche, DYDX, like I think our our our R SPVS have returned close to $100 million on on Angelist at this point.
33:22
But, um, within the first 47 companies that I had funded, uh, two of them, you know, Ripple and Salana have have coined market caps of north of hundred billion today.
33:32
Uh, Rippling is is approaching a $20 billion market cap.
33:36
And everything else I mentioned is, you know, between a two and seven billion market cap.
33:38
So, out of 47 companies, two centacorns, one deck of corn, and about eight or nine unicorns.
33:44
these individual types of foundaries that I was tracking turned out to be the right types of individuals to track.
33:48
And >> is that how you found all those people? >> For the most part. >> Wow.
33:52
>> And then uh some of them were obviously like I just spent time with every junior VC at every single venture capital firm in the Silicon Valley and I would have catchup meetings with all of them on a weekly basis and when I heard multiple people in one week mention the same names over and over again, I just started reaching out to those individuals and I got into a bunch of deals and the >> How did you do that?
34:09
How did you get into them?
34:10
You must have had to been quite aggressive. >> Very aggressive.
34:13
Um, >> what does aggressive mean for you?
34:16
>> For me, it just meant being relentless.
34:18
Um, you know, just checking in constantly, like what can I do? How can I be helpful?
34:21
I really did focus on just being likable, though.
34:24
I just wanted to be somebody that the founders were like, you know, he's a good guy, he's working hard, like let's let's get him on our cap table.
34:30
And I wasn't aggressive about my check size.
34:32
I'm like, I don't care if it's 25,000 or 500,000.
34:33
Anywhere in like anywhere in that range, I'm happy with.
34:38
So, I made myself flexible enough that it became hard to say no to me.
34:40
Um, you know, if you if you give founders hard constraints on an allocation you need or ownership targeting, you make it very easy for them to say no to you because they're like, "Sorry, I can't make that work."
34:51
But if you're flexible, like people just generally if they like you want to work with you.
34:54
After I I financed those companies, three different freaking co-investors we had were founders Andre and Klan.
34:59
I didn't have a relationship with any of those venture capital firms.
35:02
So individuals I was tracking turned out to be the right individuals and the firms that I wanted to co-invest alongside ended up being the firms I ended up co-investing alongside by by just the nature of finding these these individual foundaries to back.
35:13
Um and that's kind of when my journey sort of picked up was um Banister who was a partner at Founders Fund at the time but had spent a lot of time at Angel List uh she had noticed me and her and I spent some time together and she introduced me to her close friend Kevin Harts.
35:28
Um, and Kevin Harts at the time was a partner at Foundry Fund.
35:31
And Kevin Harts is a legend in Silicon Valley.
35:33
I'm sure I'm I'm not sure if you know him, but you know, >> I don't know him, but I know I know the story.
35:38
>> He founded Zoom, XOM Zoom uh in the, you know, I think oh, early 2000 >> and Eventbrite too, right?
35:45
>> And Eventbrite as well.
35:45
And and you know, he took Zoom public and then ultimately sold that to PayPal for over a billion dollars.
35:49
But he's also been a phenomenal investor.
35:51
He um, you know, he was in the $3 million post money valuation round of Airbnb.
35:55
He was the first dollar into Pinterest. He was early in Uber. He was early in PayPal.
36:01
Um and and all roads from my network ultimately actually lead back to Kevin Harts.
36:05
Um so Kevin and I met him and I hit it off maybe in his first year of tenure as a partner at Founders Fund.
36:09
He started um writing checks into a few managers.
36:14
He wanted to find a way to work with me, but then also just opened up his network to me.
36:17
And this is part of like the most special thing about Silicon Valley is there are certain people in Silicon Valley who just want to help other people succeed.
36:25
And I've been fortunate to be blessed by having a relationship with a lot of those people.
36:31
And Kevin met me and I think when he ended the meeting, he basically said, "If you were this good at this, not knowing anybody, I wonder how much better you'll get if you know all the right people."
36:38
And Kevin had introduced me to Chris Dixon at Andre Horowitz and Keith Rabo.
36:42
Uh Chris Dixon introduced me to Mark Andre.
36:45
I think it was Mark Andre who introduced me to Michael Oitz.
36:47
Uh Michael Oitz introduced him to Bill Aman and Kevin Worsh and David Saxs.
36:51
And then ultimately um a consortium came together with all those individuals and they uh bought an equity stake in my management company >> uh when I was 26 years old.
37:02
Uh that deal had a timer on it cuz I didn't want to be owned by anybody in perpetuity and that lapsed a couple years ago.
37:07
So I'm I'm proud to say own 100% of my business again.
37:10
It was kind of a surreal experience where I went from having no network.
37:14
Um, and these were only individuals that I'd read about to having met all of those people in a matter of like three weeks and finding a way to structure a deal with all of them.
37:23
Kevin and Michael were probably the two most instrumental people in that and and have stayed my two closest mentors to date.
37:28
And then I kept doing the SPVS and I kept writing the angel checks for an additional year.
37:33
Um, until at which point I realized that I actually can can institutionalize this approach.
37:38
I set out to raise seed fund one.
37:40
Uh that was a hund00 million fund that I raised in 2018, end of 2018.
37:43
And those guys had anchored the fund uh with about $50 million.
37:49
And then the remaining uh chunk of the fund came from a lot of people that looked like them.
37:56
So, you know, Josh Kushner, Matt Kohler, uh Neil Meta, uh Leaf Excel, Dan Rose, Thomas Lefant, Chase Coleman, Santo Piti, and then I got a bunch of operators.
38:08
So, so Jerry Yank who founded Yahoo, uh Frederick Crest who founded Octa.
38:12
I ended up getting four institutional LLPs in fund one.
38:13
And um those four institutions uh were two college endowments and two fund of funds.
38:19
But I basically rewrote the book on portfolio construction with my first fund.
38:23
And it was part of the stems back to what my initial part of the strategy was.
38:26
But what I was basically doing, part of the reason I had such a hard time attracting institutional capital was institutions had this framework that venture capital firms needed to own 15% of a company in order for the math of of a deal to work out, which never made that much sense to me because they were stuck on that 15% framework for like the last 25 years.
38:42
Um, and the difference is in that 25-y year window, these funds have grown 10, 20, 30x, but that 15% threshold still kind of stayed a constant or 15 20% they wanted these firms to own.
38:52
What I focused on was ownership as a relative metric as opposed to an absolute metric.
38:55
And what I mean by that was I knew I could get 5% ownership in these deals very consistently, and I knew the firms that I was co-investing alongside can get 15% ownership in these deals very consistently.
39:06
And back then, these firms are much smaller than they are today.
39:09
Um, so let's assume the typical multi-stage fund that I was co-investing alongside in 2016 was $1.
39:12
5 billion and my fund was $und00 million.
39:17
If I can get 5%, they were getting 15.
39:19
Sure, I had one third their ownership out of a fund that was 115th the size.
39:23
So I actually had 5x the exposure.
39:25
And this is actually frustrating to explain to people because people ask me if I had an index approach.
39:30
I'm like, it's the opposite of that.
39:31
I'm I'm the most concentrated exposure you can get to these companies.
39:33
There's only four institutions that truly grasp that.
39:34
And by the time we fully deployed fund one, um it became pretty obvious that in 94% of the companies we'd invested in, there was not a venture fund you could have invested in anywhere in the world that would have gotten you more look through ownership in that company you would have gotten through abstract.
39:48
And then our next fund was highly institutional.
39:49
Now we're very institutional today and everything over subscribed uh quickly in time.
39:54
>> How many companies were in that first fund? >> Uh probably about 55. >> Okay.
39:58
>> And what we did early on in that fund was um it's purely co-investment model.
40:03
Um, I met founders and I now knew all the tier top guys at all the multi-stage venture capital firms.
40:08
So, the companies that I thought were were the best, I would introduce to the relevant partner at one of the top funds and I'd say, I think these guys are impressive.
40:15
I like what they're working on.
40:16
You know more about this category than I do.
40:17
Why don't you take a meeting with them and if you like it, let's find a way to work on it together.
40:22
You take your 15, I'll take my five.
40:23
And I did that about 20 times perfectly.
40:25
And what I mean by perfectly is 20 for 20.
40:26
They got their 15, I got my five, I got a tier one co-lead. My LPs were happy.
40:31
The strategy was working.
40:32
And then I started to get like a little annoyed um in terms of I felt like I was doing most of the leg work and and getting kind of like this 5% tax. Exactly.
40:39
I wanted to find a way to start getting more ownership in these deals while still being collaborative.
40:45
Um cuz I was still had no name at this point in Silicon Valley and arguable whether I have much of a name today, but back then definitely nothing.
40:50
And what I wanted to figure out is the foundaries that I wanted to work with wanted those firms on the cap table.
40:56
There was no world in which I was saying you know it's me or Andre and who are you going to go with because I was going to lose that 10 times out of 10.
41:01
But what I started understanding was that I could lead these financings and breed the multi-stage firms in as a co-lead.
41:07
And when I led, I still left enough room for a co-lead, but I really started to stress test how far can I push a multi-stage firm down on ownership before they ultimately walk on a deal, but are still happy about it.
41:17
And the number I settled on was about 10%.
41:19
Um, pretty much every multi-stage tier one VC firm um will do a seed deal at 10% if if if they have to.
41:25
If we push them down to six or seven, it's just not worth it.
41:28
They'd rather wait for the series A.
41:28
They'd rather wait for the series A. So then we started leading financings more consistently and you know we ended up leading 14 companies in that first fund and the first four deals I ever led two had raised followon from benchmark one had raised follow on from Sequoia one had raised follow on from Andre so I had a very positive feedback loop that the deals that I was leading at seed were not adverse selection and that gave me
41:48
more confidence to continue leading and then the more time I spent just focused on seed I just get a lot more confident in my ability to pick seeds versus versus relying on other people um as proxy and Now we have a ton of data that
42:01
actually shows quite clearly that um the deals that we have led as a venture capital firm have actually dramatically outperformed the deals in which we're not the lead investor but we' co-invested in. So nowadays we probably
42:09
So nowadays we probably lead like 80 or 90% of the companies in our portfolio and I'd say the most we actually we pulled the stat just recently but we pulled the data on every seed firm out there and we are the firm that has the highest likelihood of getting a follow-on series A by tier 1 BC firm.
42:26
So the highest graduation rate of any seed fund from seed to series A to a tier one fund is us um by a pretty large by a pretty wide margin.
42:32
And that was sort of what we started to focus on was by the time we closed the first fund um it became pretty apparent that I accidentally built probably the most well-worked LP base in Silicon Valley.
42:42
And I wanted to find a way to leverage that for the benefit of our founders because that's ultimately who our primary customer is.
42:47
Over time we really started focusing on being the number one venture capital firm to get a founder from seed to series A.
42:52
I'm curious how you got the capital in the angelist days to first do those deals, the 25k to 500k deals.
43:00
And I'm also curious about the structure of the agreement to sell a stake of your management company that had the sunset provision in it.
43:07
And I'm asking about both of these because there's there's always this cold start problem with people that want to do what you've done or want to run their own investing firm or get going. Yeah.
43:17
And you solved two of you solved that with these two ways.
43:20
So detenture capital firm with no money because I was literally flat broke when I started abstract.
43:31
Um >> you filed bankruptcy.
43:33
>> I literally had filed bankruptcy at 24 years old when my previous startup company had failed.
43:36
Um so I was literally out of bankruptcy starting a venture capital firm which it's funny because at the time it was this humiliating experience.
43:43
I was like I put everything I had into this one company.
43:47
Turned out to be the wrong category to build a company in. I pulled the plug.
43:50
Thankfully, I got a job after that.
43:50
Um, so I was able to get back on my feet somewhat quickly.
43:53
Um, but no, I didn't have, you know, the parents that I could rely on for for seed cash to to start being a venture capitalist.
44:00
I didn't have, you know, I I didn't go to, you know, an Ivy League school where where all of my friends parents were the guys who ran every single one of these venture capital firms.
44:08
venture capital firms. So I truly believe that there is no excuse to saying that you know there because I think there is enough tools at least in venture I can't speak to other asset classes really democratized access to capital and if you prove that you deserve capital there is people in
44:25
Silicon Valley who will give that to you and Angelus is the perfect platform for that right like Angelist has capital on their platform dedicated plat capital and it's just if you find a deal we'll put the money into it and I started finding deals And I started bringing it to the platform and they and the money showed up. I was like, "This is real."
44:42
I was like, "This is real."
44:43
Like I I could bring a deal to the platform.
44:45
I could write a summary on the company.
44:46
I could write about the deal dynamics.
44:47
And then, you know, within 24 hours, they're like, "We raised $300,000 this deal. We raised 400."
44:51
I remember the first deal I put on Angel List.
44:52
Um, it's >> kind of crazy when you >> It's crazy.
44:56
I was stunned the first time this happened.
44:58
The first deal I ever put on Angel List. I I wrote the write up.
45:00
I put the syndicate up and then sent it to Angelist.
45:04
And then I refreshed it 4 hours later and there was $470,000 subscribed to the deal.
45:08
And I was like, "Holy shit." Like >> what was that? >> It was Ripple.
45:12
Um, and like this is incredible.
45:15
Like I can't believe like this actually works.
45:17
>> So the money came from the from Angela's platform.
45:19
You didn't you didn't know >> I didn't source $1 of the capital on that platform.
45:23
Angela sourced every penny of capital that came into those deals.
45:27
And once I realized it was real, I just >> went ham. >> I went ham.
45:30
I was I was looking for deals.
45:32
I I was just hunting for deals all day long.
45:34
Um, >> and what are the economics split between you and the platform in those deals?
45:39
>> Angel List, it's it's 0 and 20 for the LPs.
45:41
And then if if Angelist sources the capital, which in my case they did in every single deal, they get 5%. I get 15.
45:47
So, it's actually a great deal.
45:49
>> It's incredibly it's a fantastic deal.
45:51
>> So, you get 0 15 on all those.
45:52
>> 0 and 15 on every single one of those deals.
45:53
I got so so excited and so jacked up by this that I got so active that I ended up um for a brief period of time, I think for a six-month window, I was one-third of all the volume on on Angelist. Um and it was fantastic.
46:05
What the cool thing about it was when I had stopped doing deals on Angel List and decided to raise my fund, a bunch of the the syndicate investors who were actively supporting my L like what happened?
46:18
Your deals aren't on the platform, but I'm starting a fund.
46:19
And those guys all became LPs as well.
46:21
So it not it even helped like you know establish the platform for for me to raise a fund with but then also you know not every single founder in the world wanted um SPVS um because you know there's there's a public nature to that uh and I still wanted to I I didn't want to be limited by the ability to invest in companies.
46:40
So so at one point um Lightseed invited me to be a scout for them and you know I put half my scout fund into the seed round at Ripling. So that worked out well.
46:46
I was working a job at Core Innovation Capital at the time and I had some money there and did some angel checks and tandem to everything.
46:52
You could literally bootstrap a venture capital firm out of bankruptcy.
46:55
>> So then you sold 20% to this consortium of the guys you mentioned earlier. How did you do that?
46:59
Like how did you know how to price it?
47:01
>> That was one of the situations in life where I was actually quite fortunate where there was a lot of demand for what I wanted to do.
47:06
So, I was actually able to set a price and I set a price that I thought, you know, was fair.
47:10
And at the time, the price seemed high for me.
47:13
In retrospect, it seems low for them, right?
47:16
And I think those are the best deals in the world where everyone's happy.
47:19
Like, I was happy to get the deal up front and they're happy they made that deal at the end. >> What was the price? >> Just shy of 50.
47:23
I had some experience with this because I mentioned I mentioned I invested in the management company of Polychain, right?
47:27
And uh so I learned a little bit about what a management comp equity financing looks like and and there were some learnings I took away from that.
47:35
But the one thing that I really wanted was you know I wanted to ultimately own my own company and I thought that over time if I scaled um having you know the the founders of every single big platform fund owning an equity piece of my management company is probably not the best thing for me long term.
47:51
So uh so we had set a sunset on that.
47:53
I believe it's six or seven years.
47:55
The nature of it was basically they invest because it sunsets they just got some top of waterfall participation in the first seven years of your economics or something like that.
48:04
>> They get economics on everything I did in that first seven years in perpetuity. Got it.
48:09
>> Everything I do in seven years and one day they're not entitled to economics. >> Yeah. Got it.
48:12
So it it effectively lasts as long as you raise the fund in year six.
48:16
They get it for another 12 years.
48:17
>> A sevenyear timer in venture is nothing. They get no carrier. Right. Right.
48:19
So most of the most of the excitement in venture starts to happen in years 9 and 10.
48:24
And then you used that capital to finance the business and build a team.
48:29
>> Yeah, you know, we hired a team.
48:29
We built a really cool backend uh platform from scratch.
48:32
Um you know, we wanted to be seen as a very serious institution early in our funds life cycle.
48:36
Um Alex, my partner, has a much more traditional background than I do.
48:41
He's a Bridgewater Colombia guy.
48:43
So, uh very processoriented, very analytical, very data driven.
48:49
And early on in our fund, we basically built a CRM from ground up.
48:54
Um, which we're actually spinning out as a company right now because every venture capitalist I've shown it to has been like, "Oh, if this is a product, we would pay for it."
48:59
So, uh, the guy who built that for us, Will, is actually spinning that out into a standalone business.
49:03
But there is a million ways going back to this that to to bootstrap your way into the venture capital world. >> Okay.
49:12
So now if I start to think about more elements of the process here, 55 companies in the first fund, 47 in the in the angelist days.
49:18
Um, talk me through the process of engaging with a new company that's young and the sorts of things that you're pattern matching on or looking for and the things that turn you off and cause you to not be interested.
49:33
>> I've learned over time that investing in founders for me works a lot better than investing in markets.
49:37
um I'm better at identifying what a good founder is and what a good market is.
49:41
There is genetic makeup that I look for in a founding team of a company and whether it's you know spread amongst one founder or multiple founders.
49:48
I'm looking for a combination of very strong commercial ability and very strong technical ability.
49:53
I'm not technical but Alex on my team is technical. Andre is technical. Will is technical.
49:57
Uh and so they're they're more suited to vet the technical capabilities of an individual than I would be.
50:02
But when I mentioned the commercial uh aspect, I'm really looking for salesmanship in three different verticals.
50:08
Uh vertical one is ability to fundra um which is seems simple but building a startup company is hard and anything you can do to put the odds slightly in your favor just you know makes your odds of success that much more likely.
50:20
There are certain founders who are good at fundraising, certain founders who are not good at fundraising.
50:23
The founders who are good at fundraising get to build their startup company that much more easy than someone who's bad at fundraising.
50:28
Um, that's obviously somewhat sometimes solve for because you could help with that as an investor, but it's very beneficial when a founder has like that that salesmanship rigor.
50:37
And the next one is hiring.
50:40
Um, hiring in early stage startup companies is sales.
50:43
85% of the companies we finance are based in the Bay Area.
50:47
Um, they need to hire engineers who can easily get a job at Meta or Google or OpenAI for $400,000 a year.
50:56
and the seedstage company is trying to hire that person for $150,000 a year.
50:59
It takes a very specific person to convince somebody a $250,000 annual pay cut is in that person's best interest in exchange for equity in this company that just has like a concept of an idea.
51:09
Um so that's really important because recruiting is something that I think a lot of people underestimate how important is at the early stage uh founding like the founding stages of these companies.
51:17
And then next is selling a product.
51:18
oftentimes V1 of these products are like these half-ass broken glitchy things that no one would pay for, but these foundaries are able to go out and find individuals who will at least be a a design partner or a pilot customer and give them a shot um to build something because often times it's not even in their best interest.
51:37
It's it's it's a time suck.
51:37
They will say come back to them and there's actually a working product and convincing somebody that it's actually worth spending time with them to perfect the product is also a specific type of individual.
51:46
Um, on the technical side, you know, we're looking for someone with extremely high strong technical capability that other engineers would actually work for.
51:53
Um, some people are great engineers that other engineers might necessarily want to work for and other people are great engineers or maybe not maybe or just great engineers that other engineers would happily work for.
52:02
Um, but what I look for on that side is like shipping velocity.
52:04
Like is this the kind of engineer who's going to ship a product in six weeks or six months?
52:08
And at the end of the day, I think seedstage investing, at least for us, is very momentum driven.
52:12
I want to build a portfolio of 60 high momentum companies and you know hope that three to five of them escape velocity and become amazing companies.
52:23
Another thing that I've started to gravitate to over time which is a little counterintuitive to being a venture capitalist because you want to own a lot of these companies is I've found I've had a lot of success with dilution sensitive founders.
52:34
with dilution sensitive founders. And what I mean by dilution sensitive is is you kind of meet like two buckets of founders at the seed stage and you ask them what kind of a round they want to raise and they're like oh you know typical you know 5 million 25 post round you know down to sell 20 to 25% of my
52:47
company pretty standard and I'm like I don't think there's anything standard is selling 20 to 25% of your company to see you don't have to sell 20 to 25% of your company do you need $5 million and then there's the other founder who comes in and says I need $3 million and I want to sell as little of my company as humanly possible for that $3 million. And I
53:00
And I found that those founders um tend to just be a little bit more high conviction in what they're building.
53:05
And they tend to believe that every percent of equity they give away is 1% of equity they'll never get back.
53:12
And that's incredibly powerful because more so than you know negotiating with investors, which is great, they tend to maintain the highest bar of talent that they hire because they think about equity the same way whether it's going to an investor, whether it's going to an employee.
53:26
and they want to make sure everybody they hire is worth every ounce of equity they get.
53:32
Those founders also tend to be the ones that aren't wasteful with their equity.
53:35
You know, if someone's not working out, they're going to fire them before their 12-month cliff.
53:38
So that there's not dead weight equity with, you know, 30 to 40 people that no longer work at the company, which is also really great from an IR perspective in your investment because it makes it such that the option will refresh in the next round is not as big as it would have been if they just loosey goosey gave away a lot of equity.
53:50
Um, but I will say those founders who are the delusion sensitive ones in my portfolio that have the highest bar for the talent they hire, the companies in my portfolio where where where all of those things ring true and the companies are doing quite well, people are always shocked at how small the teams of those companies are relative to the scale of what they've achieved.
54:07
Um, so I truly do believe um, you know, incredibly high quality talent has like an has like a multiplier effect on company efficiency.
54:16
>> How fast do you work your way through one of these?
54:18
like how much time measured in hours or or time or whatever do you spend with the founding team before making an investment?
54:24
Typically >> it varies but you know it's typically you know somewhere between three to four sometimes five meetings and then doing a lot of back channel work in between those meetings.
54:35
Um sometimes you have the time to do that other times you don't.
54:39
Having said that the way our firm is set up um we have a we have standing meetings multiple times a day.
54:43
Um, so our whole firm is designed around speed.
54:48
Um, and we've built our model around being able to do what might take another venture capital firm two to three weeks, we can do in, you know, two to three days. >> Okay. So, talk through that.
54:54
I want to hear like the cadence of a week at Abstract.
54:57
Like if I just walked through the office halls for a week, what I would say, >> tons of pitch meetings.
55:01
That is what I think our time is best spent doing pitch meetings and then helping our existing portfolio.
55:06
>> Founders pitching you. >> Founders pitching us.
55:07
I always tell people it's not a flex to get a meeting with me because I pretty much don't say no to meetings.
55:11
Um, but I probably take anywhere between >> 18 to 30 pitches per week. >> Wow.
55:17
>> Um, and it goes back to the the Michael phrase of frame of reference.
55:20
Um, >> the more companies you meet, the easier it is to spot the people that truly stand out.
55:25
Um, obviously you miss things over time, but I think you >> it's hard to know what great looks like without seeing a lot of things.
55:32
And I also find that the VCs I who I believe are the most successful VCs and have had the most, you know, storied careers tend to be the people that take every single introduction I send them.
55:42
And then the VCs who are still building their careers and I send them deals are like, "Oh, you know, I'm a little swamp for bandwidth right now."
55:49
I'm like, "All right, that guy's not going to make it."
55:49
Um, it's pretty obvious who really wants to meet Ruof at Sequoa.
55:54
I think you heard this line from from Doug Leone.
55:56
I think when I first met Rulof, he told me in order to be successful in venture capital, you have to have Dumbo ears, which means you have to hear everything or see everything.
56:03
Um, and I saw Neil's podcast here yesterday where he was talking about how they don't care about coverage.
56:08
I think that could be true at growth stage.
56:10
I think at seed stage, coverage is absolutely key because there is no market map of everything that exists.
56:15
Most of these companies don't even have websites yet.
56:16
There is nothing to exist.
56:17
So, you really just need to have your tentacles everywhere um to get as many companies as possible surfaced up to you.
56:24
And there is so little that exists about these companies that there is very little work you can do to qualify or disqualify in advance.
56:28
So you really just need to spend time with them.
56:31
>> What are the standing meetings that you have with your team, the internal ones?
56:34
>> Oh, it's literally we we have a 30-minute meeting at least once a day to just catch up on every company people have met with that day because we met we meet with so many companies >> that it's very easy to forget what was interesting.
56:44
So like on a daily basis, we're kind of just syncing up has anybody met anything that other people on the team should meet.
56:48
In the meetings themselves, do you have favorite questions that you find yourself returning to again and again to ask founders?
56:56
>> I the number one thing that I look to from founders is like sign of like prove to me that you're exceptional.
57:02
Um, and what I mean by that is like if you look at the most successful impressive founders out there like they tend to have been impressive not maybe not successful but impressive people prior to starting that company.
57:16
to starting that company. they had a history of doing special and impressive things and there was this famous question on Quora once upon a time that um somebody asked and said is it true that nobody's ever started a successful company after 35 years old because in Silicon Valley everyone's like all the
57:31
power law companies are founded by by by younger individuals which has some truth and and also doesn't and the people who answered that question were like Reed Hoffman he's like I founded LinkedIn when I was over 35 and and Mark Beni off he's like I founded Salesforce when I was over 35 and uh Reed Hastings. Like I
57:44
Like I founded Netflix when I was over 35.
57:47
And every single one of those people were very successful by the time they had started those companies.
57:53
Um so it's hard for me to believe if I meet somebody that if I can't get a sense that this person is special or has been special or has done impressive things in their life that the first impressive thing they're ever going to do is this company that they're asking me to invest in.
58:10
>> So do you literally ask them like tell me the most impressive things you've done?
58:13
>> I ask about what are entrepreneurial things you've done.
58:14
things you've done. Um what are like like tell me your story right like if there is something impressive in their story they will make sure it stands out right and you know sometimes the the special thing is you know they got into the school of their dreams so did everybody else that went to that school right so like something that's truly different um that I'm I'm looking for and then you know resilience is key um
58:35
that's a little harder to discern especially with the age of founders that I back not everybody's had a situation where they've had to deal with with with hardship to determine that to develop that resilience But you know, some of
58:46
the founders in our portfolio that have done pivot after pivot after pivot um have survived for years and then ultimately started a company that had nothing to do with their first company ended up being very very successful. Now
58:54
Now I'm not saying that that every founder should stick with every single company over a certain period of time.
58:58
Like there's founders who should absolutely stop working on a company and either return cash or find a soft landing or something and move on.
59:04
Um but there are other founders who will just do these non-local pivots.
59:09
I think the local pivot is is what kills companies.
59:11
And an example of this, we invested in a company called Paparazzi.
59:14
Do you remember that one? >> Sure. >> Yeah.
59:16
So, we had seated them when it was TTY.
59:19
And then TTY pop pivoted five or six times until it turned into Paparazzi.
59:23
And then Paparazzi launched.
59:25
I think it was the first consumer social application ever to debut at number one on the app store.
59:28
And by the end of that day, they had three term sheets from three tier one VC firms and they signed a term sheet with Benchmark.
59:34
And then within six weeks, it became very obvious that there was no retention.
59:38
The growth was there, but the retention wasn't there.
59:41
and he just returned cash.
59:41
He didn't He had all this money from benchmark.
59:45
Nobody was telling to shut the company down.
59:46
But he was like, "I've only been thinking about consumer social for the last three years.
59:49
And if I know if I pivot again, it's going to be another consumer social idea because it's all my brain is wired to do right now.
59:55
So, I need to shut this company down. I need to return cash.
59:57
And I need to just go back to the drawing board.
1:00:00
And if and when I come up with another company, I'm going to come back to with a seed round so I don't have this, you know, series A valuation hanging over my head."
1:00:05
Um, and then there's other founders who have, you know, just churned their entire team, maybe even half their founders, but they maintained the balance sheet and they and they went to like skeleton crew mode until they figured out things that had nothing to do with their first version of their business.
1:00:20
Clay is a really good example of that.
1:00:22
>> I think we we wrote a small check in to the seed round of Clay, I think like eight years ago.
1:00:26
Um, >> and then I think they hard pivoted two years ago into what Clay ultimately is.
1:00:31
Vappy is a company in our portfolio that was originally called Superpowered.
1:00:34
They're going to um they're doing very very well.
1:00:36
They they they've they they've scaled from zero to double digit millions.
1:00:39
They have ARR within 14 months of launch, but that was four years after I seated them and seven pivots later.
1:00:43
Um Craya is another example of of multiple pivots until like they finally caught fire with the latest version of their product.
1:00:50
Craya was originally called Genverse.
1:00:52
So, do you care at the beginning?
1:00:53
You told me a line about art one time, something like all good art is ugly or something like that.
1:00:58
Um, do you care much about the idea or are you really really really just focused on the attributes of the founder?
1:01:07
>> The idea needs to be thematically interesting to me and not an overly saturated market that shows some sign of novel thinking.
1:01:13
Um, what I mean by that is like there is this weird phenomenon in Silicon Valley that every time a tier one fund or maybe two tier one funds finance a company in a category in the next three months I'll get pitched 15 companies doing the exact same thing.
1:01:28
and it's very hard to discern whether that person truly wants to build a company in that category or whether that person just wants to be a venturebacked founder and they know that there is capital available for this category right now.
1:01:37
So oftent times I'm looking for signs of novel thinking.
1:01:39
So it's either it needs to be one of the first, you know, one or two times I've heard this company pitched to me before or it's getting pitched to me with a completely brand new perspective.
1:01:48
Um a perspective that I haven't heard before that I think means that this person actually truly thought about what they were trying to build.
1:01:55
And when I go back to like the idea specific idea is less important to me.
1:02:00
It's more about the founders's understanding of the idea.
1:02:03
It's very easy to understand how thoughtful someone has been about anything just by questioning them.
1:02:07
There are certain founders you ask questions to and their questions lack depth and their questions l their answers lack depth.
1:02:15
Their answer their answers lack substance and you end up in these situations where I'm like even when I ask you the question, the answer still isn't a real answer.
1:02:22
I don't actually feel like you even know the answer.
1:02:23
And then there's the other founder who'll ask a question and they can give you a 15-minute long answer to to every question you ask.
1:02:29
And it's like no, this person is clearly like he's either been asked this question five times before, he's asked himself this question 10 times already and thought about every angle to it.
1:02:36
Not saying that that's absolutely necessary, but at least it shows to me that they've actually like came to this with like a first principles mindset and they truly have thought a lot about building this specific company.
1:02:46
I do also not like, you know, at the end of the day, I do try to look, you know, 18 months in the future if this company does well, how many how many investors do I personally know that'll be interested in leading a follow- on round of financing for this company?
1:02:59
If it's a company that, you know, three tier one funds have already led a series A or series B financing in, most of their tier one funds are going to be more interested in falling onto one of those companies than the new company.
1:03:09
So then there's certain times where maybe it's a mistake where I just believe a category is too saturated and the odds of success are not like the riskreward ratio isn't quite there. >> Okay.
1:03:18
So now we get through you like it, you like a company.
1:03:20
How do you think about the pricing for a round that you will tolerate?
1:03:24
Like there's some degree to which you you you know you're you're a price taker.
1:03:28
Like there's market prices for these things and that those eb and flow.
1:03:31
Are you just basically a price taker or do you have limits to what you'll do?
1:03:35
If there's multi-stage funds around the table, the deal will get done no lower than 25 and it'll probably get done no higher than 50.
1:03:41
If it gets done higher than 50, it means one multi-stage got really excited and just turned it straight into a series A, at which point it's not really a fit for me anymore. And that does happen.
1:03:48
Um, and then the 50 is something I actually need to take into consideration because every venture capital firm has a portfolio construction model, right?
1:03:55
And my portfolio construction model says that I want to own 8 to 10% of 60 companies at seed.
1:04:03
And I want to maintain that 10% ownership and the best 10 of those companies through series B.
1:04:09
Now I have assumptions for what my entry valuation needs to be into these companies.
1:04:14
You know, it used to be I want to maintain an average entry valuation of sub20 million.
1:04:17
That's become impossible.
1:04:18
I used to be able to do that, but I know could no longer maintain an average entry valuation of sub20 million.
1:04:22
But if I'm doing it, maybe my average entry valuation today I want to maintain is sub 30 million.
1:04:26
That means sometimes I'll do a deal at 15 post because I found a deal that was off the beaten path and it's a preede.
1:04:32
Maybe I took an early bet on people.
1:04:33
Some I'll do a deal at 50 post.
1:04:35
But if I can maintain an average entry valuation of sub 30, it'll be nice.
1:04:38
But if you start doing too many deals that are north of your 30, you start messing up your portfolio construction model because the more deals you do over 30, the less number of shots you have on goal, right?
1:04:50
Because if my goal is to have 60 companies per fund and suddenly my my entry valuation starts to deviate from what I modeled in my portfolio construction model, then I start need to consider myself like is investing in this company worth losing one shot on goal out of this fund.
1:05:04
And that's kind of when you need to start thinking about price a little bit more discerningly.
1:05:10
Um, and sometimes the answer is yes.
1:05:10
I'm just like, I want to invest in this company.
1:05:13
This company needs to be in the fund.
1:05:14
um you kind of need to convince yourself that you like it twice as much as as another company in your fund because you're you're basically shooting two bullets on on one deal.
1:05:21
But once we've decided to invest in a company and price tends to be not something that dissuades us from investing in that company until it gets so egregious that you can no longer call it a seed deal.
1:05:34
Um but that's basically our point of view.
1:05:36
Obviously we try to get you know we try to get it to fit within the confines of our portfolio construction model but oftent times you know you have to deviate from that to get the company into your portfolio because ultimately like venture is an outliers business and you have no idea if the deal that you passed on due to price will be the outliers.
1:05:49
So you kind of just have to swallow the bullet sometimes.
1:05:51
>> Now we come to winning.
1:05:51
So you have to convince the founders take your money and not other people's. Yeah.
1:05:55
And I love this idea that the pitch you give to founders that's increasingly proven true is that by taking your money, they're effectively getting a fantastic fundraising partner for the future and that you are like you and Abstract are lowering their future cost of capital.
1:06:14
>> Um so talk us through that pitch that you give and and then how you execute against it.
1:06:19
>> Competing for deals is very challenging.
1:06:21
Um, I think it is an incredibly time-consuming process and for us competing is a very laborintensive process because as you know prior to doing this podcast there's like nothing publicly available about me on the internet period.
1:06:32
So pretty much all of the selling I need to do is explaining to the founder who we are, what we do and having, you know, seven or eight of my other founders and calling them and explaining the benefits of working with us and saying that if they were to start a company again, they would absolutely come back to us for our seed round.
1:06:46
So, um, when we do decide to win a deal, we really do go all in in terms of how much we're putting behind to make the case for the founder that we are their best seed partner, period.
1:06:58
Um, in addition to fundraising, obviously, we we have a full platform team now, like anybody else would expect from a large seed fund that we have today.
1:07:06
Uh, we have an incredible head of we have an incredible head of GTM, we have an incredible head of comms, we have an incredible head of of uh talent.
1:07:12
Um, so we can help with all of those things, but what we really wanted to do is is be exceptional at one particular thing or at least what I wanted to focus on.
1:07:23
And I think everybody in our team specializes in their own specific things, but the one process that I thought was broken in in in venture ecosystem was the fundraising process when I first got into this.
1:07:32
And you're an investor, so you've you've seen these spreadsheets before.
1:07:35
When a founder wants to fund raise, they put together a Google doc and they share that Google doc with all of their investors.
1:07:41
And on that Google doc on the lefth hand column, it's a list of every single venture capital firm they want to talk to.
1:07:47
And then they ask all of their investors to go through that list and say, "Please mark whether or not you have a relationship with one of these venture capital firms, how senior your relationship is, and how close you are with that individual."
1:07:57
And then the founder will go through that list at the end and ask nine of his investors for intros to 30 different venture capitalists, and they'll kick off their process.
1:08:05
The reason I thought that was bad was there's too many people involved in the fundraising process and there's too many potentially misaligned incentives, right?
1:08:13
This potential investor might have a really close relationship with this VC.
1:08:16
They might be trying to do their buddy a favor by helping him win a deal.
1:08:19
Too many people work at these venture capital firms and that's too many young people telling their friends about who this fund is talking to, who's passing, who's not passing, you know, what the valuations are coming in.
1:08:29
And VCs are just trying to gather information as much as they possibly can.
1:08:33
And when you when you sort of choke off that information, then they're focused then they're forced to really just like do their own work and truly build conviction in a company.
1:08:41
Um, and they tend to work faster this way.
1:08:46
Um, so after I closed my fund, as I mentioned all the LPs we had, it became pretty apparent to me that I became like the person in Silicon Valley that had the direct line to the most senior GPS at every single one of these venture capital firms.
1:08:58
So in the early days, I got some of my founders to trust me and I'd say, "Listen, let's not bring anybody else in the fundraising process.
1:09:04
like I will be the sole node.
1:09:04
I'll help you with the deck.
1:09:06
I'll help you with the data room.
1:09:07
Let's do a few mock pitches with people on my team.
1:09:09
I will make introductions to every single top GP that's the relevant partner at every single one of these venture capital firms for your company.
1:09:16
We'll line up all of these meetings over a 3-day window next week.
1:09:19
And at the end of every single day, I will check in with all of them and I will get feedback and I'll find out what you're what's resonating, what's not resonating, and who's truly interested versus who's not interested.
1:09:28
And and we'll keep the process going. We'll keep it tight.
1:09:31
we'll keep it efficient and we won't have any information leaks and then we'll try to get you the best deal possible.
1:09:35
But ultimately with the best deal possible is like what I ultimately try to do is get as much leverage for my founders as possible.
1:09:41
Um leverage comes in the form of term sheets.
1:09:43
The more term sheets they have, the more negotiating power they have.
1:09:46
Um everybody wants negotiating power and making a good deal for themselves and for their company and for their existing shareholders.
1:09:53
So when you don't have leverage, you will sell 25% of your company at series A to whoever gives you the terms that you want to work with.
1:09:59
When you do have leverage, you can get that down dramatically.
1:10:02
And what I thought could be the number one value additive thing that I could do for my companies is make sure that by the time they exit, they own more of their company than they would have had I not been on the cap table.
1:10:13
And now we have data that not only do we have the highest graduation rate from seed to series A, we're also have the the highest decile of average valuation of series A and the lowest average dilution in the series A.
1:10:24
So we can basically make your company have way better access to lowerc cost capital in the future from the highest quality partners.
1:10:35
And I had one of my founders do a reference with another founder saying that the likelihood that you own 10% more of your company at exit is 10x higher with abstract on your cable on your cap table than not because if I can save you 5% at the A and 3% at the B and 2% at the C um these things tend to add up nicely and you know if you end up exiting your company for $2 billion and you can end up with an extra $200 million in your pocket.
1:10:57
I can't personally think of a singer a single value ad that a venture capital brings to the table that translates to more than an extra $200 million in your pocket.
1:11:05
>> Having done so many of these where you're helping a founder uh rate let's let's focus on series A to start because that's what follows what you do.
1:11:12
What have you learned about running these processes?
1:11:15
Well, and I'm interested in like very nitty-gritty detail of like what time of night to call the you know VC or something to get the feedback or how to solicit true feedback that's not like whitewashed or something.
1:11:25
I think I've been doing it for long enough that I have very trusted parties.
1:11:32
>> They'll just tell you >> at every venture capital. They'll just tell me.
1:11:34
>> But how did that start?
1:11:36
>> In the early days, it was really just a lot of like who is this kid?
1:11:39
Why is he running these processes?
1:11:41
Why are these people trusting him to run this fund raise?
1:11:44
Like why why is he kind of the gatekeeper for this round?
1:11:46
Over time, it just kind of became accepted that I was that person.
1:11:49
And I think the the definitive thing that made it proven that it's that I'm the accepted party to do that, whether it's at the A or the B or the C, is I think we've proven to do such a service for founders when we're running these processes for them that even in deals where our co-lead is a multi-stage tier one bigname platform fund.
1:12:09
When that next round is coming, they will tell the founder, "We're more than happy to let Romon/abstract run this process because they'll do a better job at it than anybody else will."
1:12:16
Um, so I think once we got the validation from our co-investors that they think we would do a better job running this than they would, then I think it just kind of became like accepted that for our portfolio companies is the way it's going to be.
1:12:30
>> So you're you're sort of sabes now for for this process.
1:12:34
>> Yeah, that's a fair way to describe it.
1:12:36
>> Um, what have you learned about the dynamics of who tends to win at series A when they want to?
1:12:41
>> There's different types of ways rounds come together, right?
1:12:43
There is the typical process where the founder puts together a deck in a data room and lines up meetings of every single venture capital firm and they go out and they pitch.
1:12:50
Um and then there is deals that happen with outside of that dynamic, right?
1:12:55
That we have less involvement in.
1:12:56
Um oftent times, you know, we help our foundaries build relationships with certain VCs in in advance of the series A process because that's actually a good way that we get information on what those people would want to like what should be this company's northstar metrics.
1:13:08
How should we know when this company will be ready to raise a series A?
1:13:10
And often times one of those people will just come in and preemptively make the founder an offer and the founder, you know, likes this partner, the terms are fair and they don't want to spend, you know, the next 3 to four weeks of their life fundraising and and they call it a day and they move forward.
1:13:21
I think certain VCs are very very good at doing that.
1:13:25
Um, but in like the bakeoff process when there's, you know, 15, 18, 20 firms around the table, very few companies end up getting more than three or four term sheets.
1:13:36
Um there's a few companies that get, you know, seven, eight or nine term sheets.
1:13:41
The firms who I think truly excel in winning hyper competitive series A rounds um that I've seen from my experience over and over again tend to be Sequoia Benchmark and Anderson.
1:13:50
be Sequoia Benchmark and Anderson. um even to this day and and some somebody pulled out a stat and shared it on LinkedIn the other day that I looked at that showed um the number the VC firms that have the highest number of unicorns that they have led financings in prior
1:14:06
to them becoming unicorns since 2015 and first place was Andrea and second place was Sequoia which validates this truth already and then like fifth place was Benchmark which is kind of shocking when you consider how much smaller their funds is and how funds are and how targeted they have to with with the checks that they write. Um, but
1:14:22
Um, but typically when one of those three firms extends an offer to a company, they tend to win unless they're competing with one of the two other ones and then they tend to only lose to one of the other two.
1:14:36
If you eliminate those firms, then it's kind of like a free-for-all, and there are certain people who are more qualified to win certain deals than other deals.
1:14:42
If you eliminate the dynamic, there's plenty of companies that could have absolutely raised a series A from one of those firms that somebody else ends up winning, but they preempt the deal and they just are very good at sniping deals.
1:14:53
And um and I think those three individual firms have built brand weight that's so strong that founders really just want to be affiliated with them.
1:15:04
And there are certain partners at those firms that have such amazing reputations as board directors that a series A is the first time you're giving up a board director seat.
1:15:13
Not to say there aren't phenomenal board directors at a multi a bunch of firms because there really are.
1:15:16
But the density of high-quality board members that have storied reputations of being great board members at those three particular firms I think outweighs the number of high-quality board members that exist at pretty much any other venture capital firm.
1:15:27
Um, and founders, the advice they get from their seed investor is in addition to optimizing for, you know, a good deal for yourself at the series A, you really should be optimizing for who's going to be the best board director to have on this journey with you for the next 10 years.
1:15:41
Um, and you know, the early days Andre who who were the founding partners, every single one of them were operators who had sold companies for hundreds of millions of dollars, right?
1:15:48
It was hard to compete with.
1:15:49
This guy's going to be on your company who knows exactly what it takes to build a successful outcome in venture capital.
1:15:54
And then the benchmark and coil alternative.
1:15:55
They have some individuals like that, but they also have individuals who have been on the boards of the most successful successful most incredible outcomes in Silicon Valley history.
1:16:05
So they have a much better sense of what exceptional looks like more so than mo more so than other people.
1:16:11
They know things that work and they know things that don't work.
1:16:14
Um, and there's great board members at every venture capital firm and they're all very public.
1:16:17
You know who they all are.
1:16:19
Um, and there's a lot of people at those venture capital firms that don't have those experiences, that haven't sold a company and haven't yet been affiliated with a great company.
1:16:26
And those guys will do great and some of them will join boards and become one of those people individually.
1:16:30
But when a founder is choosing, they're more likely to choose the person with that experience and the person without.
1:16:35
If you take a snapshot today of abstract and you had to go out and gather feedback from like everyone that engages with the firm, founders, LPs, other venture investors, other random people and you bucketed all that feedback into like uh a spectrum.
1:16:53
What would the most complimentary people say and what would the most critical people say do you think? >> Sure.
1:17:01
Um, I would say the most complimentary people would say that we become one of the leading seed firms in Silicon Valley in a relatively short period of time.
1:17:10
Um, that we have a great reputation among our founders.
1:17:16
We're routinely referred to as the most trusted investor on the cap table of our portfolio companies.
1:17:20
I think a lot of the multi-stage firms would consider us their most trusted seedstage venture capital firm partner.
1:17:25
Um, and I think some would say that we've achieved a lot more success than other people have that have started a venture capital firm in the same time duration that we have.
1:17:33
I'd say the people that would say critical things, uh, would probably say that we're like heat seekers, uh, signal chasers, um, which wouldn't have been inaccurate if you said that six or seven years ago because a lot of the model was aligned was around how do I get into deals alongside those firms, which candidly I had to because I wouldn't be able to raise SPVS otherwise, right?
1:17:54
like that's why I got that's why the LPVS raised the raised the money they did right that was my go to market strategy um but over time I think we became the signal um but I think people still tend to hold on to old narratives so I could totally see that being the case >> and then you know in the earlier days we were high volume we're not anymore as a
1:18:10
firm I think we invest you know 14 net new seed deals per year which is you know a little over one deal per month um so I don't think we're high volume today by any means but as again people tend to stick to old narratives and people will say that we're high volume and they're all call options which I just would say is not true. I can't help but think
1:18:25
is not true. I can't help but think about all the different art world analogies that you've built very quickly uh one of these talent spotter you know up and cominging galleries and so of course it demands the question when and
1:18:37
if you'll become Gigosian u I think Agoian has a really cool story he was a total outsider with no relevant pedigree and he was kind of just dismissed um his you know first few years or first decade until he ultimately became the leading guy in the category. Now I'm far far far
1:18:57
Now I'm far far far away from that.
1:19:00
Uh and I think Silicon Valley is a more friendly place than the art world.
1:19:04
Silicon Valley has been nicer to me than maybe the art world was to to Larry Gigosian in the early days.
1:19:08
So I don't want to draw the direct analogy, but um I think the main thing is just staying consistent and maintaining the reputation and building upon that reputation and then producing great results.
1:19:22
Venture is the only asset class where historical results is somewhat indicative of future performance >> and you can actually somewhat forecast how a venture capital firm will do over time based on how they've done historically.
1:19:33
So I do believe if we just stay consistent, we have a pretty long trajectory and a long career ahead of us. Like I'm 34 today.
1:19:38
I started this when I was 26.
1:19:39
I think I have at least 20 years left in me to keep doing this.
1:19:43
And I think you know you could build quite a brand and quite a platform in that time frame.
1:19:47
>> What feels missing from the core machine today?
1:19:49
You mentioned speed being an objective function that you optimize around a lot.
1:19:53
What if if you could just snap your fingers and improve some aspect of the abstract platform would you would you improve or change? >> It would be brand.
1:20:01
Um I think brand would trump the the would trump anything else that the that the machine doesn't have today primarily because when a founder comes referred to us by an existing portfolio company, most of the work is done for us.
1:20:17
You're not going to find much about these guys online, but they've been phenomenal partners to me.
1:20:21
They've opened doors for me.
1:20:21
They knocked it out of the park on our fund raise.
1:20:24
They they brought together the most solid angels um for to to fill out our cap table, and he's always available when I need him for anything.
1:20:31
If we don't have that and we're cold reaching out to founders, the the it's much more of an uphill battle to convince them like why we should be in the same conversation of all of the other venture capital firms they're talking to whose names they've heard of before.
1:20:45
Um, which is why I mentioned that winning deals for us is a very manual process.
1:20:48
Um, other firms just get to win because of their brand.
1:20:52
I don't have to spend the the the manh hours that I have to and call in all the favors that I have to to win the deal.
1:20:57
So, part of the reason I'm doing this. >> Yeah.
1:21:00
>> Um, >> coming out of obscurity. >> Exactly.
1:21:02
Um, but I think that's really that's really the missing link.
1:21:04
And you know, there's other people that work at the firm and you'd mentioned this earlier where my name is you hear it more often than abstract.
1:21:13
And I really do want the firm to be abstract.
1:21:16
And I think that'll be beneficial because scaling a platform, scaling a team helps when everybody at the team can do things.
1:21:23
When everybody at the team can go out and compete, win and support their own portfolio companies.
1:21:29
And if there is a brand weight that they can all leverage to compete, that allows them to all be, you know, have more level playing field and doing their jobs.
1:21:37
say more about that tendency for individuals to have more of a quote unquote brand these days as investors than firms.
1:21:43
investors than firms. another VC that explained this to me once and I asked him how he identified who to hire for his venture capital firm and he said he tends to optimize for people who either already have personal brands or have the ability to build a personal brand and very good venture capital firm, strong brand but um he was the one who actually
1:22:04
explained to me uh Sequoia Benchmark and Andre have incredibly strong brands such that you know if you're a less well-known individual partner at Sequoia or a less well-known individual partner at Andre, you can still compete and win some of the most competitive deals in Silicon Valley because of the brand that you're affiliated with. And he said,
1:22:24
And he said, "Now, the amount of time and resources it takes to build a brand that can compete with those firms on brand is is counterproductive to what it takes to be a great venture capitalist.
1:22:36
Um, but building a personal brand is something you do in tandem to being a great venture capitalist.
1:22:41
venture capitalist. and the personal brand and I asked him to explain I was like elaborate what personal brand versus venture brand he goes well I hear the name Romton multiple times a week I hear the name abstract once a month that's the difference between personal brand and and venture capital firm brand
1:22:55
and he goes people know who you are foundaries know who you are VCs know who you are you have a reputation there's companies that people associate with you there is skill sets that you have that people associate with you um and people who have personal brands at venture capital firms tend to be able to compete for competitive financing rounds. And if
1:23:12
And if you look at every venture capital firm, excluding those top three, and even in those top three, this tends to be true more often than not for the most competitive deals.
1:23:21
But when those firms are competing for a hyperco competitive financing, it tends to be the same one, two, or three partners who tends to do most of the selling and closing for those deals to bring those deals home.
1:23:37
And very few venture capital firms have more than one, two, and at the most three individuals that can independently go out and source and compete and close financings in the most competitive deals.
1:23:48
Which is why venture is hard to scale as an asset class.
1:23:50
Which is why a lot of LPs look at these large platform funds and say, "If I could just invest in these four GPS, that'd be way more appealing than investing in 16 of them and having to have exposure to the other 12 when I really just want exposure to these four."
1:24:03
Um, >> again it's like the art thing with the paintings where you got to buy the >> Yeah, exactly.
1:24:07
You got you got to support the program.
1:24:08
Um, so, so yeah, there's tons of analogies.
1:24:12
I do think there are certain individuals that you meet that tend to be charismatic, trustworthy, have good judgment, and will will have an ability that given enough time and opportunity, they can build a very good reputation, a personal brand for themselves as well.
1:24:28
>> Do you think this whole ecosystem is in a healthy place? >> Yes and no.
1:24:31
You know, people argue that these AI companies are raising at astronomically high valuations.
1:24:35
And I actually don't know if that's true.
1:24:37
And I don't think anybody will know if it's true for another three or four years because while the multiples seem insane, the companies are also growing at unprecedented rates.
1:24:46
So historically, you could look at a SAS company and say, well, if it's growing 3x, 4x year-over-year, and you could project a 5x over the next two years, you can justify paying, you know, this price today.
1:24:59
With AI companies, it's this company grew 20x year-over-year last year.
1:25:02
It's on track to grow 15x year over year this year.
1:25:06
Maybe it grows 10x year over year next year.
1:25:08
Like what kind of what is the fair multiple to assign to that deal?
1:25:11
It's kind of hard to determine what the correct answer to that is.
1:25:13
But there's also way less predictability in its potential growth, right?
1:25:17
Because there's no shortage of application layer companies that become obsolete overnight when it becomes a new feature of one of the foundation model companies.
1:25:23
So a company can could have grown 20x last year and 10x this year that shrinks next year.
1:25:30
I think at the end of the day with B with venture, you're trying to capture outliers.
1:25:34
So if the companies are shaping up to be the next power law companies of the future, you'll do whatever it takes to get into one of those companies.
1:25:40
So for the follow-on rounds, I will say that I don't think it's in a bad place because these are truly incredible companies growing at truly unprecedented rates and achieving adoption that no one ever thought was possible.
1:25:51
So they're clearly have unbelievable signs of product market fit very early in their life cycle.
1:25:55
Um so that's the side that I wouldn't say is is healthy or unhealthy.
1:25:59
I'd say it's undetermined.
1:26:01
I'd say it's good for the asset class overall.
1:26:05
If you're investing in companies that are growing this fast, LPS will ultimately do well.
1:26:07
Will they do as well if they would have if these companies were invested at half the price and double the ownership? Sure.
1:26:15
But markets get efficient over time.
1:26:15
And I think venture as an asset class is getting efficient and efficiency, you know, brings returns back to the mean and then you're starting to invest in managers that you think could find alpha in one way or another.
1:26:27
The part of the ecosystem that seems unhealthy to me uh and is very reminiscent of 2021 uh is the timeline from graduation from seed to A, A to B, B to C.
1:26:38
In the last six months, I think I funded seven companies that have already raised series A rounds.
1:26:46
um within weeks of me leading their seed financings and at a four to 5x multiple at which I financed the company at just a few weeks prior and not a whole lot >> of like fundamental business >> fundamental business progress in that time frame and that hasn't happened since 2021.
1:27:04
Um in 2021 I was funding companies and within a couple months the series A got done and that is very actively happening again.
1:27:10
And I'm funding companies that are raising A's within a couple months and then B's within a couple months after that.
1:27:15
And if you look at the company relative to what I invested in versus what the company is today, they're basically just paying 10 times the price for the same exact company I invested in a couple months or four months ago, you know, plus or minus a few hires um and maybe some and maybe some design partners.
1:27:31
So I do see I do think the industry is getting a little like drunk on drunk on IR.
1:27:38
And the same thing that happened in 2021 is happening again.
1:27:40
And in the terms of like my latest funds are getting into J-Curve territory, are coming out of JC curve way too quickly.
1:27:48
Um I think in venture your IR should be back like should be like backed >> rising. Correct. >> Exactly. Right.
1:27:53
And in in the 2021 vintage in the latest vintage like our funds are getting to 30 to 40% IRR within the first few initial months of initial deployment which you know just shouldn't be the case.
1:28:03
There should be negative IR for like at least during the deployment period, right?
1:28:06
The velocity at which companies are raising follow on funding is a little is a little jarring.
1:28:11
>> If I rewind back to prior to age 26 and think about the rest of your life, what are the things that have happened to you that have most made you who and how you are?
1:28:22
>> I had a very I mean non-traditional by Silicon Valley standards uh childhood.
1:28:26
My parents uh are Iranian immigrants.
1:28:26
Um my dad immigrated pre-revolution, my mom postrevolution.
1:28:32
Um I have an older brother.
1:28:35
He's 5 years older than I am.
1:28:37
And we grew up in Los Angeles and just outside of Calabasas.
1:28:39
My parents are small business owners when I lived in LA.
1:28:42
My father owned a couple of restaurants, a couple dry cleaners, and my mom was in school to be a dental hygienist.
1:28:46
And when we moved to the Bay Area, cuz that's where my mom had a sister and she wanted to be closer to family.
1:28:52
I was probably about 12 or 13 years old.
1:28:54
My dad, I mean, he he's an immigrant coming from another country.
1:28:58
So, and they're they're all financially motivated.
1:29:00
And he kind of in an early stage instilled in me that like America revolves around money.
1:29:05
And you know, you need to figure out a way to make it.
1:29:08
I heard it a little a little too often as as as a kid.
1:29:12
And you know, one of the things that I could point to when I was younger uh was the stock market.
1:29:16
For whatever reason, my dad always had CNBC on in the mornings before school started and always saw in the background.
1:29:21
And when I was 13 years old, um he was kind enough to to lend me $2,000, him and my mom.
1:29:29
And I wanted to teach myself to trade stocks.
1:29:31
And I quickly learned that $2,000 was not enough money to trade stocks.
1:29:35
And I wanted to learn to trade derivatives instead.
1:29:36
I learned that the the multiple potential derivatives was order of magnitudes, what what what you get in the stock market.
1:29:42
I did that throughout my my duration high school.
1:29:45
And then I also had a couple cool high school jobs.
1:29:46
Uh I only had two real jobs in my life.
1:29:48
Job number one was uh when I was 14 years old, I sheld books at the local library.
1:29:53
And then job number two uh was I worked at Westelm uh the furniture store.
1:29:58
Um which is actually my wife's favorite story about like my my upbringing because of the way I did sales.
1:30:05
>> Tell us how'd you do it.
1:30:06
>> Um at Westm I had this job when I was 16 and 17 years old and I used it to finance a side hustle which I'll tell you about in a second.
1:30:14
But everybody in West has a corner of the store and every corner is a is its own version of a of a style of an apartment that you can have. >> Okay.
1:30:22
>> And I work there on the weekends and I always kept an eye out for people that came uh to Marin from the city with zip cars.
1:30:27
So they rented a car clearly to to take some furniture home.
1:30:29
So I always spotted the people who rented a car cuz I knew they were there for a mission.
1:30:35
And when they came in um Westm wasn't commission based, it was incentive based.
1:30:39
So you didn't get a percentage of your sales, you got um a progressive bonus.
1:30:44
based on the size of a sale.
1:30:44
So, you were you were incentivized to upsell people and you know, if a if a sale was $500, you got a $10 incentive.
1:30:50
If a sale was $1,500, you got like $150 incentive.
1:30:56
So, like the the the graduated exponentially.
1:30:58
So, somebody would come in and they would want to buy a sectional and they were ready to take it home.
1:31:03
And staging is everything in those stores.
1:31:06
So, I'd be like, "Do you guys want to take home the pillows?
1:31:08
Do you want to take home the coffee table? What about the rug?"
1:31:10
They're like, "No, no, no.
1:31:11
We just want the sectional."
1:31:11
And I would take everything off of it just to show them what it would look like when it when when it got home.
1:31:16
And then um I would constantly encourage them to take it because they would be very unhappy with the way it looked when it came home.
1:31:24
And there was nothing no harm in returning it because unlike commissions uh incentives were not rolled back uh when when things were returned. So I did focus on that.
1:31:33
And while some had a lot of very low uh sectionals and and sofas and I would ask them if they have a coffee table at home.
1:31:39
I'm like yeah I'm like is it a low coffee table? They said, "No."
1:31:42
I'm like, "Well, have you ever seen a coffee table that's higher than than a than a than a sectional?
1:31:46
Like, you need to prop your legs upward.
1:31:48
It's not going to look good.
1:31:48
It's not going to be comfortable.
1:31:49
You should take this coffee table also."
1:31:50
And so I ended up having like the highest average ticket sales westm just the hourly rate was nothing compared to what you got on those incentives.
1:31:58
Um, so I really just focused on on upsizing those sales.
1:32:00
Um, but then half a summer and half a school year, I actually opted to go to the stock room because I was able to get more work done in the stock room because you weren't on the floor all day long.
1:32:11
And that's when I actually like got an appreciation for hard labor because as I mentioned, West Elm was like one of those uh stores that stocks everything.
1:32:19
So they had a deal with UPS.
1:32:19
Every morning UPS would pull up a truck and the stock guys would unload it and put it in there and that's just how they made the inventory.
1:32:26
And I remember this is probably like the single hardest day of physical work I had in my life where our manager said, "Tomorrow we have four trucks."
1:32:33
So we staffed six uh stock guys to unload these four trucks.
1:32:36
it's going to take half the day and uh we're going to call it a day.
1:32:40
And and the guys at UPS, they didn't actually unload.
1:32:41
The deal was just to drop the trucks off and then they would pick it up when they were empty.
1:32:45
And everybody showed up that next day and everybody called in sick except for me.
1:32:48
And I had to single-handedly unload four UPS trucks worth of furniture.
1:32:52
And I I started at 7:30 in the morning and I think I was there till 7:30 at night.
1:32:56
And for whatever reason, I ended the day very proud of myself, even though I don't know if I should have, but um I really appreciated like what hard work was.
1:33:05
Well, I do think there's a concept of working hard and smart.
1:33:06
I do think you have to do both.
1:33:07
And I think hard work is just something that was always instilled in me an early age.
1:33:10
And I think founders work hard.
1:33:12
I think you have to build hard to build anything of value or anything of success.
1:33:15
And I think there are certain people who are willing to work that hard and certain people who aren't.
1:33:20
I would argue that the five people who called in sick that day aren't willing to work that hard and they probably haven't really gone much further in life than that Westm stock room.
1:33:27
my side hustle business, which where I actually made the most of my money in high school, was um I grew up in Marin County, which is a relatively affluent neighborhood, and there are some people with that are a lot more affluent than others.
1:33:38
And uh there were certain girls whose parents would throw them very extravagant sweet 16s, and there were other girls whose parents wouldn't, and I saw a hole in the market there.
1:33:49
Uh so my high school business was I would uh finance uh basically birthday sweet 16s uh for anybody who wanted a sweet 16.
1:33:58
I did this for a couple years between the years of me being 16 and 17 years old.
1:34:02
I would run out of venue.
1:34:02
I would get a DJ and my only condition was they could hire they could invite anybody they want.
1:34:09
It was going to be their birthday.
1:34:10
Their name was going to be on the banner.
1:34:12
The DJ was going to do shout outs to their name.
1:34:13
But I got to charge cover charge.
1:34:16
And I also got to make the party dramatically larger.
1:34:18
Um, and and invite anybody from every other high school in Marin County.
1:34:23
>> And I I turned this into a real business. I would get the venue.
1:34:25
I'd get insurance for the venue.
1:34:26
I would I would go to the local gym and get the roided out meattheads.
1:34:30
I'd give them 50 bucks for the night.
1:34:32
And they would they would block the side doors so nobody snuck in.
1:34:36
And uh I spent so much money on the first party that my parents were worried that I was going to lose all my all my savings that I I'd saved up for throw that one event.
1:34:43
And the funny joke was I I had a pencil box to to collect all the cash.
1:34:47
And then within about 10 minutes of the party, I couldn't there was there was too much cash.
1:34:50
I couldn't close the pencil box anymore.
1:34:52
So I I ran to the bathroom and I took out like a garbage bag and I just started stuffing it with cash.
1:34:57
And then that became like a business that ran for like the next couple years until it didn't really make sense to host parties.
1:35:02
>> So like how much money would you make on a party or something?
1:35:05
>> I would net like 2,000 bucks a weekend and I would do like two to three parties per month.
1:35:08
Uh so it was a good little side business for high school.
1:35:11
Talk to me about the experience of starting a hedge fund and getting a little bit more serious about the investing side of things from a young age.
1:35:18
It >> wasn't until my senior of high school that I actually made money trading.
1:35:21
And I got very fortunate through a combination of uh lucking out with volatility and not understanding risk management where I was trading out of the money call options and put options against triple levered ETFs that tracked the banking sector during the financial crisis.
1:35:41
Um, so things that would an ETF that would swing, you know, anywhere between 10 to 30% on a daily basis given what the Federal Reserve was doing on TARP or no TARP or Lehman getting bankrupt or Bear Steins getting acquired by JPM.
1:35:54
I had made a few hundred thousand bucks um trading over a few uh short weekend a short week windows um on on derivatives against those instruments and that was like a good thing and a bad thing for me.
1:36:04
The good thing was that like it gave me a ton of confidence in myself and I convinced myself that I was a genius.
1:36:09
And the bad thing was it gave me way too much confidence in myself and convinced me that I was a genius.
1:36:13
I decided that I wasn't going to go to college and I was going to start a hedge fund straight out of high school.
1:36:17
I got a series 65 license, which is the license you need to to start a hedge fund.
1:36:21
fund. And um there was a local financial adviser that I I spent some time with for a summer and he did PWM for uh some high net worth individuals and some of those guys saw me trading on my screen like oh if you start something we'll put like 10 15 20,000 bucks into it and I
1:36:36
ended up raising a fund in January of09 and I rolled my money into that fund which is the largest check in the fund and then I raised you know additional $3 million from call it 45 individuals so lots of tiny checks that didn't really mean a whole lot to anybody and launched a fund in January of09. Uh so timing was
1:36:53
Uh so timing was definitely on my side.
1:36:56
Fund con focused on concentrated positions in triple lever ETFs, momentum trading on high volt tech stocks and then derivatives on those two strategies to get even more leverage on on the first two strategies.
1:37:07
Um so like kind of like I just had no idea what I was doing but but thankfully the market was forgiving of a strategy like that but extreme volatility along the way.
1:37:15
I had certain months where I was down 37%, one month I was down 51%.
1:37:18
August of 2011, I remember as distinctly being one of the worst months of my life because it was the European debt crisis when Greek when Greece was on the on the crux of of of defaulting and I think the market had 13 consecutive down days and I was short bull.
1:37:31
Um I actually experienced why you could actually go into debt running a venture capital firm but thankfully recovered from that.
1:37:37
It took a few months but that was a very very painful month.
1:37:40
I was in the Bay Area and I just kept hearing more and more about tech and I didn't particularly enjoy running a hedge fund.
1:37:47
I I did well financially relative to my age doing it, but I didn't like sitting in front of a computer screen for 15 hours a day.
1:37:52
It's a very lonely job and it's a very stressful job.
1:37:54
I think people don't like people in venture complain that the feedback loops are too long.
1:37:59
I I agree the feedback loops in hedge funds are too tight.
1:38:01
I think you can convince yourself you're a good investor or convince yourself you're a bad investor too quickly in in in hedge funds.
1:38:07
And I think there's which is why I mean if you look at hedge funds by by in default they tend to have a shorter uh duration of life than like a legacy private equity firm or legacy venture capital firm because it's just very hard to outperform in public markets for extended periods of time.
1:38:25
But I was in the Bay Area and I wanted to learn more about tech just because it was my backyard and I kept reading about it and I started cold emailing VCs, angel investors, founders, just anybody I could read about online and and Silicon Valley is a nice place.
1:38:39
people are are pretty receptive to cold emails and I got a few meetings with individuals and uh I just learned more about tech and I wanted to find a way to immerse myself in the ecosystem and I just spent more time with individuals and I wasn't really getting anywhere.
1:38:53
So I was like I kind of if I want to do this for a living I kind of just I can't be one foot in one foot out.
1:38:57
I need to just immerse myself into this entirely.
1:38:59
Um so I decided to wind down my hedge fund and and focus on that and the hedge fund did well.
1:39:05
Everybody produced multiples on on their investment and then I tried to get a job at one of the big venture capital firms.
1:39:12
I ultimately got a couple of interviews and I remember I look back on this and cringe but one of the one of the first guys who ever took a meeting with me I reconnected with recently um this guy named David Crane.
1:39:22
Uh he runs Google Ventures and I shot him a cold email and he responded and he was one he was probably the most senior person who responded and he asked me to come in for a meeting and I wore a suit and tie and I walked into the office.
1:39:33
It was my first time walking into like a venture capital from a and I felt like a salesman.
1:39:38
Uh, everybody was wearing jeans, t-shirt, baseball cap, sneakers, and just based on the way I dressed, I knew I blew it on on the initial meeting. But he was kind.
1:39:46
He gave me some pointers. He gave me feedback.
1:39:47
And I met a few other people as well.
1:39:49
But the consistent feedback was, "Hey, listen.
1:39:52
Your background is not that relevant to venture capital, but you should consider starting a company instead."
1:39:55
And over time, I've just learned that there actually is no relevant background to venture capital.
1:39:59
Similarly, there's no relevant background to starting Art Gallery, apparently.
1:40:01
And everybody suggested I should start a company.
1:40:03
And I think that's terrible advice to give anybody.
1:40:05
You should never advise anybody to start a company.
1:40:06
they should start it on their own or not start one at all.
1:40:07
But I ended up taking that advice and I started a company and I funneled everything I had left over from my hedge fund into that company.
1:40:14
And this is in mid 2014 when marketplace lending uh was a popular sector. Yeah.
1:40:19
>> So, think companies like Lending Club and and Prosper.
1:40:21
And I thought that sector was going to be the next big thing because given the rate of capital going into it, the rate of expo um growth of those companies and I thought that if that sector would reach its full potential, there would need to be a liquid secondary market for it because those loans did have maturity periods.
1:40:35
And those maturity periods scaled anywhere from three years to 5 years to seven years.
1:40:40
And um you know, banks trade debt like a liquid asset class all the time.
1:40:43
So why wouldn't the individuals trading on these platforms be able to have the same same access to liquidity?
1:40:47
So I wanted to build an exchange that allowed debt investors to have that same uh level of liquidity.
1:40:52
So I selfunded this company with everything I made previously and I built out a team and went to the regulatory framework of setting up an exchange.
1:41:03
And then 14 months in when I had a product I was actually ready to raise external financing for that sector had completely collapsed.
1:41:11
I think Sequoia started writing Prosper down to zero and then and Lending Club had plummeted like 85% from its peak IPO price and I had spent my entire net worth building a supplemental product to to a collapse industry.
1:41:20
Pretty much everything I made on my hedge fund I I lost on that company and ended up in debt.
1:41:26
And that was kind of my first reality check in life when I realized no no I'm actually not a genius and I could lose money and maybe I should have just gone to college.
1:41:32
Like why did I put myself through all of this?
1:41:33
One of the venture capital firms that I pitched that company to was a firm called Core Innovation Capital.
1:41:39
The founding partner of that firm is a guy named Aron Chute.
1:41:43
Um, who's one of the kindest people I've ever met in my life.
1:41:44
He's just just a good good guy.
1:41:46
And, uh, COR's focus is a investing in fintech that provides upward mobility for the emerging middle class.
1:41:53
So, somewhat impact in nature, but very much focused on returns.
1:41:55
And when I wound down the company, I ended up reaching out to him and he gave me a job.
1:42:01
Um, so I ended up ultimately getting my venture capital job. Um, uh, flat broke.
1:42:06
And when I ended up in all this debt, I needed a way to restructure it.
1:42:09
And that was probably the worst moment of my life was sitting in the waiting room of a of a bankruptcy lawyer's office trying to figure out what type of bankruptcy I need to file and ended up being chapter 13, which is a not a write-off of debt, but a restructuring for 5 years.
1:42:19
And thankfully things worked out and I wiped it all off within two years.
1:42:22
Um, so it was a was a nice comeback.
1:42:24
But um, >> what was the headsp space like at that time? >> It's awful.
1:42:29
There's nothing there's nothing there's nothing pleasant about that experience.
1:42:32
Um, in hindsight, losing your net worth is a lesson better learned at 24 years old than 54 years old.
1:42:38
So, I'm grateful for that.
1:42:38
The learning there is if you're going to start a startup company, raise other people's money instead of your own money.
1:42:44
Um, >> I remember once when I was explaining this to institutional LPs in the early days, it was something I was very embarrassed about and I was trying to figure out like how to how to talk about it.
1:42:53
Jerry Yang was one of my LPs who I spoke to about it and then he said, "No, I knew about it."
1:42:57
And I he's like I I loved it. And I was like, "Why?
1:43:00
Why did you love He goes, "You should wear that as an entrepreneurial badge of honor."
1:43:04
He goes, "Any founder in the world with a failed company would have been in that same exact position had they put their own money up for a company."
1:43:08
He's like, "That's that's true entrepreneur.
1:43:11
That's like that's true entrepreneurship.
1:43:13
You you put everything you had into something because you believed in it.
1:43:17
And when it didn't work, you had to start from scratch."
1:43:18
He's like, "Venture capital is you put everything somebody else has into whatever you believe in.
1:43:24
And if it doesn't work out, then you get a job at Apple or Google, right?"
1:43:25
So, um, so that was actually a really interesting way to to to phrase it for me.
1:43:32
Not that I, you know, don't think there's various tiers of entrepreneurship, but like the the the whole concept of wearing is a badge of honor.
1:43:38
It's like, yeah, you lost your own money on something that, you know, typically most people just lose other people's money on.
1:43:42
Looking back on it, I'm like, that was cool.
1:43:43
That was that was the that was the epitome of my resilience journey, right?
1:43:47
like I I got knocked as hard on my ass as I possibly could have and was um humbled as much as somebody possibly could have been and had to start completely from scratch once again.
1:43:57
And then I ended up with an entry-le job at a small venture capital firm.
1:44:01
And that's where I met my partner today, Alex David.
1:44:04
He was a he was a partner at Core Innovation Capital.
1:44:06
And within a few months of being at core, it became pretty obvious to me that fintech series A impactish investing wasn't wasn't what I wanted to spend my career doing.
1:44:19
Even though I have a ton of respect for Arian and the mission that that firm is on and they've actually done phenomenally well um with returns, they actually led the seed round of Ripple.
1:44:26
I ultimately um wanted to figure out how to become a generalist seedstage investor.
1:44:32
And the reason I focused on seed stage was because that was the only place where I thought I could access enough capital to the point where I mattered.
1:44:40
Any later stage, there's no amount of capital that I thought I could access that would actually that would make me a relevant conversation those places.
1:44:46
So that's why seed was the was the was the obvious starting point for me and then I needed to find a way to build a track record that didn't involve working at a firm for a decade until I got you know serious check writing ability or raising my own fund because who would give me a fund at that point in life and that's when I learned about Angelus.
1:45:00
What's behind the name abstract? >> Abstract. Uh, a couple things.
1:45:02
The definition of abstract is is existing in concept but not reality.
1:45:06
And that's kind of pretty uh synonymous with seedstage companies.
1:45:11
Um, and two, I wanted the name to to to show up places quickly.
1:45:16
And I remember back then I spent all my days on Crunchb and Crunchbase had things alphabetically listed and I realized if my firm started with an A, it would be at the top of the list on everything.
1:45:25
Um, so I wanted a firm that started with A and so that's kind of where I started.
1:45:29
And then I wanted a word um that was easy to remember.
1:45:33
Didn't sound like any other venture capital firm.
1:45:34
And then came up with the word abstract.
1:45:36
Then I found the definition for abstract.
1:45:37
And I'm like this actually just seems like a perfect name for a seed stage venture capital firm.
1:45:41
>> If you were to describe the nature of whatever chip you have on your shoulder from let's say um you know your early to mid20s through to today, how has it changed and how would you describe it?
1:45:53
>> I think the number one thing that's changed is in the early days I just wanted to be accepted as an outsider.
1:45:59
And I think that's happened because I actually think Silicon Valley is a very special place that if you prove that to earn your seat at the table, um, no one actually cares about anything else.
1:46:06
It's it's it's you're at this seat for a reason and and we'll leave it at that.
1:46:11
So I think that is no longer that's no longer a chip.
1:46:14
Um, I think at any at any instance of the of the firm's history, it was, you know, the early days were like they don't know what they're doing.
1:46:23
They're just they're just following other people. I'm like, okay, cool.
1:46:24
Like I'll start leading deals.
1:46:26
And then we started leading deals and it's like okay like they only know what to do at seed.
1:46:31
They have no idea what to do at later stage. And they might be right.
1:46:32
We're still early and and doing some early side later stage things.
1:46:37
But in any type of business when there's other people who who have a right to be there and they see you as someone who doesn't have a right to be there um you're going to get like a lot of shade thrown your way.
1:46:50
I encourage my founders not to focus on competition.
1:46:52
I try not to focus on competition.
1:46:53
And I just try to focus on doing what we can as best as we possibly can.
1:46:58
And I think everything we have done historically has has proven that, you know, we can do what we think we can do, what we said we can do, what we said we will do.
1:47:06
And I think we can continue that pace.
1:47:09
>> Say a couple adjectives each about your parents.
1:47:10
How would you describe them?
1:47:12
>> My mom is really tough.
1:47:12
Um, but also like the most loving mom in the world.
1:47:16
And my dad is actually like totally soft, like really soft-hearted guy, but like very strict about like having direction um in life.
1:47:25
So my dad's number one thing was like as long as you're working hard and you're good at something and you know how to how to create something out of it, you'll be successful at it.
1:47:34
And you know, my brother, he he started a company as well.
1:47:39
Um, a vertical SAS company that sells into the into the automotive industry, which when we moved to the Bay Area is the is the industry my dad got into.
1:47:46
He ended up working um at car dealerships and then working his way up until eventually became a partner of a franchise group that primarily deals in in in like luxury exotic cars.
1:47:57
And my brother worked with him for a little bit and learned a little bit about that industry.
1:47:59
and you know he he bootstrapped a vertical SAS business and that he just recently sold for a little less than 30 million bucks.
1:48:05
Um but the cool thing about it was he went to YC and raised less than $600,000 for the company and and it just ran it with him and his co-founder and no employees and they got it to just shy of six million of ARR but like highly highly profitable um because besides two employees and um and some hosting fees and some data licenses like there was no expenses to the business whatsoever.
1:48:24
But there are certain founders like him and other people in our portfolio that I point to um of how much money you like how much you could actually do with just you know $600,000 or a million dollars.
1:48:33
But the reason I pointed to him is um we were raised the exact same way.
1:48:38
We think about things differently but you know I think for two immigrant parents um having kids that have both you know built things you know my brother sold the company for $30 million bucks.
1:48:49
I have a venture capital firm that's you know just shy of $2 billion in AUM today.
1:48:54
um with very humble beginnings like whatever they did instilled something in us, instilled some sort of a chip in a shoulder in us, but I think the probably the smartest thing that they had done and I don't know if this specific to to to Iranian immigrants or other types of immigrants, but my mom was way more focused on us being in the best neighborhoods growing up versus the best house.
1:49:13
and she thought being exposed um to what is possible is better than to have a nice house or a big house in in a place where you know you're you're a big fish in a little pond.
1:49:24
Uh she, you know, we were the we were the tiniest fish in the biggest pond in the neighborhood that we'd grown up in.
1:49:30
So I had friends whose whose fathers were the CEO of Visa or the CEO of Blue Shield and lived in these extravagant homes.
1:49:36
So I knew these things existed and you know I knew the path to to that wasn't just being a doctor lawyer and and there was other things there.
1:49:44
So I think the the best thing that my parents did for for me and my brother um was exposing us to that.
1:49:51
>> What else outside of art and investing gets most of your attention?
1:49:55
>> I have a wife and three kids.
1:49:55
Um my wife is is pretty involved in my business actually.
1:50:00
And so >> I actually met my wife at a holiday party.
1:50:03
Uh when I first met her, she was the director of market marketing and communications at Bessemer.
1:50:08
During our relationship, she became the head of marketing communications uh at Spark Capital and now she sort of freelances uh and and keeps herself busy by making sure we don't screw those things up at Abstract.
1:50:20
Um she she oversaw our entire rebrand and she's very big on like founder experience and and and aesthetic um of of the brand and the firm that we built.
1:50:30
I met her I want to say when I just turned 26 years old.
1:50:33
So really she was there at the founding days of abstract.
1:50:36
And what was really special about her or meeting somebody like her was that I love what I do and I love talking about it.
1:50:46
And because she worked in the industry herself for six or seven years, she understands the significance of something that I might be excited about.
1:50:54
She understands significant the significance of something that I might be upset about.
1:50:57
So, it's actually really interesting.
1:51:00
And she appreciates what I do.
1:51:03
She she views it as a family business.
1:51:05
She's she's very involved.
1:51:07
She, you know, she she's outside the office.
1:51:09
She she's she's friends with everybody.
1:51:10
Uh she's she's close with my partner.
1:51:12
Um and she actually cares about what I do and and she's always been my biggest cheerleader since day one.
1:51:17
March 2020 came around and uh we were engaged.
1:51:24
Um, and we ended up having to postpone our wedding because every venue was closed for the next 2 years.
1:51:28
And we saw a lot of our friends, you know, traveling the world and really enjoying their co experience.
1:51:33
And we basically decided whether we were going to do that or whether we were just going to start having kids.
1:51:38
And so we did start having kids and and our first daughter uh Lily was born in October of 2020.
1:51:42
And then so during CO we actually had two kids and raised two funds.
1:51:47
So we were very productive during CO and and people say if we're able to do all of that during CO uh we'll get through anything.
1:51:52
So basically in two years we lived in one house together and had two kids together and I ran my business from the house for two two years and uh it was a great experience and honestly we didn't even argue once throughout it.
1:52:02
So that's when it kind of became that it was just like a a made to be relationship and then we ended up getting married in the backyard of our current home uh when we were pregnant with our second child.
1:52:11
And now we have uh we just had a third um in December uh who's now almost 6 months old.
1:52:19
So >> family art and investing.
1:52:21
>> Family art and investing.
1:52:21
I have no time for anything else.
1:52:24
>> If you think about the entire process now of this little world you've constructed around yourself to have this incredible um high throughput, high uh expansive frame of reference to use's term and just all the things you're doing 30 pitch meetings a week.
1:52:37
If you had to zone in on the single thing that gives you the most energy over and over again, what is it?
1:52:45
>> The companies that I decide to invest in when I decide to invest in them. >> Like that moment. >> That moment.
1:52:50
It's it's you meet all these companies.
1:52:52
It's kind of like uh it's like you meet a company like, "Okay, okay, okay, hey, hey, this is cool.
1:52:57
This is really interesting."
1:52:57
And then you start peeling back some layers and you just get more and more excited about it.
1:53:02
And then and then you have to win and then like it's you pull out every single stop, you clear your calendar to whatever you need to do to to earn your slot on that foundaries cap table and and to earn their trust as their as their partner.
1:53:13
There have been windows of time where we went two months, three months without investing in a single company.
1:53:17
And in those three-month periods, I'm like, "What happened?"
1:53:20
I know there was good companies.
1:53:21
Did we just not see any of them?
1:53:23
Did we pass on ones that were obviously good?
1:53:24
And I kind of just feel like I had three months where I just wasted time.
1:53:27
Like, we we achieved nothing of value in the last 90 days.
1:53:31
Like, how do we prevent that from happening again?
1:53:32
Are we not seeing enough companies?
1:53:33
I find a lot of excitement and and enthusiasm.
1:53:36
And then also, um I mean, outside of family related things, obviously watching, you know, my kids talk or speak or catch a ball or draw something.
1:53:46
I mean that that that that trumps everything relating into business when a company you invested in really starts to work.
1:53:52
Um that's always really exciting when you see the stars start to align for one of your companies and and you can be there to, you know, fuel the fire in any way you possibly can and and be the be the pit crew to that Formula 1 driver.
1:54:02
I think those things are are really special.
1:54:06
The only part of this ecosystem I haven't asked about is the LP side.
1:54:09
What have you learned matters to LPS?
1:54:13
And I guess like a similar set of sensibilities of like how you structure things to find, you know, pick and win the best the best LPS as well and the sort of process that you run to do so.
1:54:24
>> So we're very fortunate.
1:54:24
We have a incredibly high quality LP base that consists of blue chip endowments and foundations and founders of of of generational companies and either them directly or through their or through their foundations as well.
1:54:38
um great hospitals, just great organizations to make money for, candidly.
1:54:42
Uh some and then some other, you know, more traditional down the fairway guys who are just good because they've done this for a very very long time and they're good mentors because they've been LPs and other funds for 20 to 30 years.
1:54:51
I think there's two types of LPS you you meet.
1:54:56
Um probably more than that, but I'll I'll narrow it down into two.
1:54:58
Um there's like the ones with imagination and the ones without imagination.
1:55:03
Um, and I don't want to like throw shade at any at anyone in particular, but you know, there are certain LPs who have built portfolios of amazing venture capital firms and they had invested in them before they were amazing venture capital firms.
1:55:17
Um, and they and they were fund one commitments to to people who might necessarily have checked all the boxes of a traditional venture capital firm.
1:55:25
I think by and large those people have done dramatically better than than the LPs who may be less imaginative and tend to only back, you know, managers who've spun out from other platforms, right?
1:55:35
I think that's like the easy manager to back. It's okay, cool.
1:55:39
This person's been a venture capitalist for 10 years.
1:55:43
You can look at their historical track record and pretty much underwrite what their future track record is going to be.
1:55:47
Arguably, their future track record won't be as good as their historical track record because the deals they were able to access those platform funds might not be deals that they have the ability to access or win in the future.
1:55:56
Paula Valent is a great example of this.
1:55:58
I think I don't think she'd mind me using her name.
1:55:59
Um, she used to be a Bowden and now she's a Rockefeller.
1:56:01
You know, she was a day one LP to Chase Coleman.
1:56:05
I think she was very early to Josh Kushner.
1:56:06
She was my first institutional LP.
1:56:08
institutional LP. and you know Bowden small endowment but I actually think there's stories that show that it's actually one of the best performing endowments in the world um relative to its scale and Stan Ducken Miller famously chairs their IC oftentimes you'll see that the managers she's in are are mega managers today but she was with them since day one I think like anything right like you know if you
1:56:29
there's a riskreward profile you take more risk with somebody that the reward potential is higher if you take less risk with somebody the the the risk is lower uh the the reward is higher looking for individuals at least especially if you're if you have a more non-pedigreed background like I had that are going to be more interested in manager strategy fit versus like what is your track record and why should I care
1:56:50
and then in terms of like what you need to do to make yourself appealing to LPs right like there's multiple tiers of LPs there's the highest tier of LP that can access any fund they they want and they're already in amazing venture capital firms and then there's you know LPs that don't get into those deals and are looking for more exposure to to other types of companies we, you know, fortunately have um an LP base that is
1:57:12
heavily concentrated in in the best firms in the world and then they added abstract to their roster and that actually ended up being very beneficial for us because those are a lot of institutions that hadn't added a manager
1:57:23
to their platform in a while because they already had the best managers and and getting abstract added to that roster was kind of like a a signal to the market that pay attention to this fund. And I think what we had brought to
1:57:31
And I think what we had brought to the table um was something that they were already bought into.
1:57:35
And it was that, you know, these multi-stage platform brands will continue to dominate and they're going to continue to get double- digit ownership and the best companies in the world early.
1:57:45
Their funds will get bigger and bigger and as LPs, your exposure to those companies will be less and less, but you still will have exposure to the greatest companies.
1:57:52
And I think what we brought to the table was definitive proof that we're accessing the same quality of company.
1:57:58
um granted less ownership but granted dramatically more relative ownership.
1:58:02
When they look at our fund, if there's overlapping companies in our fund with any other fund they have in their portfolio, 94% of the time they have orders of magnitude more look through ownership to that company through our fund than they would through one of the others.
1:58:16
>> What have we not talked about in the world of VC investing that you think is important and intrigues you?
1:58:22
One thing I tend to talk about somewhat frequently, which I'm trying to figure out whether or not it's a feature or a bug, is the the scale of the companies that are staying private.
1:58:32
And it's kind of like a a one hand feeds the other type of thing.
1:58:37
Because as these mega funds and you know, all of them scale um they can only scale because >> other ones are scaling. >> Exactly. Right.
1:58:46
So they can scale because the size of the companies that are staying private are scaling. Right.
1:58:52
So if you have, you know, a 5 billion, 8 billion, 10 billion, 12 billion venture capital firm, you need places where you can write 500 million to1 billion checks.
1:59:03
You now have that in a way that you didn't have 10 years ago.
1:59:05
And you probably have about a dozen, maybe 15 places you can write checks that large in venture capital today.
1:59:10
Those companies fan the flame that allow these VC funds to get larger and larger.
1:59:13
and and you know they they break the narrative that venture doesn't scale because venture actually does scale if you can write billion-dollar checks into companies that are still growing.
1:59:21
Um because you know the the companies in venture that are the the largest are still outpacing the growth of any of their public company comps.
1:59:28
So they still do have venture scale growth um and they do have but they're they're still private companies.
1:59:33
The one thing that's interesting to think about from that perspective is what that actually means um for an LP and what it means for early managers.
1:59:42
I think it actually benefits us um in a way that it might not benefit the later stage guys.
1:59:47
But I think one thing that's kind of like an unintended consequence of this is it maintains like hyperproductivity in these companies.
1:59:56
Um I always joke that a joke it's honest truth but that early liquidity was the bug and not the future of crypto.
2:00:03
Um people got rich too quickly and they stopped building things.
2:00:06
This latest swath of these companies that can absorb 500 billion to1 billion dollar checks.
2:00:11
to1 billion dollar checks. The reason the productivity of these companies is is comparable to an early stage startup company is because there's been no early liquidity and you have people still grinding and working and the liquidity
2:00:22
is coming via these you know 1% to 5% tender offers which is more than enough you know give people a down payment on a house but not enough to give people you know $40 million of cash and generational wealth >> and and the restrictions on secondary have gotten really really tight. So you
2:00:36
So you can make an argument that like excess liquidity early is a killer of productivity and is there a way to throttle that and it's yeah you keep your companies private you keep people satisfied with with liquidity.
2:00:47
I think that's very good from a company building perspective.
2:00:51
I think it's problematic from a from a venture returns perspective.
2:00:55
I mean no LP is interested in in you know getting liquidity in three to 5% installments.
2:00:59
Um so I do think there needs to be a solution to that.
2:01:04
there's this seemingly like a a new swath of of continuation vehicles popping up in Silicon Valley.
2:01:09
So, it seems like there will be ways for people to get large sums of liquidity and and the venture managers get to maintain their basis and their position of these companies.
2:01:17
So, I think it'll all net itself out, but I don't think the end result is ultimately these companies are all just going to go public.
2:01:22
I think they've all found a hack um which is, you know, your top 100 performers today, if you give them all instant liquidity on their position tomorrow, 92 of them probably might not be your top performers tomorrow, right?
2:01:33
And if you want these companies to continue like running circles around their their public counterparts, I think this, you know, I shouldn't call it trickle liquidity, but you know, it's not like winning a lottery.
2:01:45
It's not like if these companies go public, I mean the what was the the instance with Google like something like over a hundred million over a hundred people made over $und00 million, >> something crazy >> and and like 92 of them were never heard of again, right?
2:01:57
and then the other eight ended up becoming VCs who who wanted to make more money than that.
2:02:04
So I think that's kind of the risk you run into uh wi with with that kind of liquidity is as people as people win these lottos and these companies are so large right now that that is the type of liquidity that the early hires and and the senior management of those companies will will experience.
2:02:18
>> It's a really interesting way to think about it that I I hadn't I hadn't heard that specific angle on it before.
2:02:21
Um but I glad I'm glad I asked the question.
2:02:23
I feel like we've covered like a tremendous amount of information in three hours or whatever um and gotten so much of of your life.
2:02:30
It's so interesting um how all the pieces fit together and how your tendency for approaching a new situation or problem uh they they sort of mirror each other and you've got this method that's I think clearly emerged.
2:02:42
So thank you so much for the time.
2:02:44
When I do this I ask the same traditional closing question of everybody.
2:02:48
What is the kindest thing that anyone's ever done for you >> on a business standpoint?
2:02:51
And it was probably Arian Shu giving me that job at Core Innovation Capital.
2:02:54
I actually look at that one single point in my life that had I not landed a job at a venture capital firm when I was flat broke with nothing to my name, where would I have ended up?
2:03:05
Like would I have just gotten a job somewhere where like I I there's a million scenarios that I can point to where I wouldn't have ended up where I am today.
2:03:11
So I could point a lot of things to that guy giving me a job when no one else in the world would have at that point.
2:03:16
Um so that's probably the kindest thing someone's ever done for me in business.
2:03:20
kindest thing anything has ever done through my personal life is my wife just being like the perfect wife.
2:03:27
So, she truly is like the embodiment of like everything you need to succeed in life.
2:03:35
>> Thanks so much for your time. >> Thank you.