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The new fund will focus on early-stage investments in technology and health care, and brings NEA’s total committed capital to nearly $24 billion. 

 NEA has invested in high-profile companies like ,   and . Most recently, it invested in ’s $22 million and ’ $105 million , both announced last week, according to Crunchbase.

Along with the new fund, the firm announced it named Liza Landsman as a general partner. Landsman joined NEA as a venture partner in 2018 after her time as president of Jet.com, an NEA portfolio company.

“We are deeply grateful to our limited partners for their commitment to NEA and their confidence in our ability to execute on the tremendous opportunity ahead,” NEA managing general partner Scott Sandell said in a statement. “As technology transforms every industry globally and life sciences innovation continues to accelerate, NEA is in a great position to continue doing what we do best—work alongside entrepreneurs to build great companies that will shape the future of how we live, work and play.”

NEA, which was founded in 1977, says it has had more than 230 of its portfolio companies go public and has been involved in more than 390 mergers and acquisitions.

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The company, which was founded in 2015, is something like a new-age bank: Users can create accounts in the Revolut app and deposit and send money with it. 

Revolut wants to bring in 100 million customers in the next five years and expand outside of Europe, CEO told TV on Tuesday.

The new round brings Revolut’s total funding to about , according to Crunchbase. Its last valuation was $1.5 billion, but with its new $5.5 billion price tag, it’s tied with Swedish payment installment startup for the title of Europe’s most valuable fintech startup, according to .

led the new round, and the company is also backed by investors like , and. It last raised a $250 million Series C, led by DST Global, in April 2018. 

Fintech startups are certainly hot right now–they’re getting plenty of funding and a couple have seen high profile exits. announced plans to acquire for $5.3 billion last month, and just yesterday confirmed rumors that it would be acquired by for $7.1 billion.

Revolut has more than 10 million customers and has processed more than 350 million transactions, according to the company’s website.

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�ұ��é: I want to welcome you both. This is new for us to have two partners. Why the name “Homebrew”?

Hunter: Homebrew was named after the Homebrew Computer Club. As a history major, there’s a certain respect for the shoulders we stand upon. It harkens back to the spirit of you do it for the love and passion, not just the disruption and economics. You’ve benefited from what came before you. So there’s a certain mentality as you continue to pay it forward.

With Homebrew we’ve taken a concentrated involved approach, as opposed to a more passive lottery ticket style, to be able to share some of those learnings across the founders in the portfolio.

�ұ��é: How did you both meet?

Hunter: I ended up at , relatively quickly, but not necessarily intentionally. Google was still a private company, but was well known. One of the things that caused me to leave is that I wanted to touch millions, hundreds of millions of people. That very much matched Google’s ambitions. And that’s where Satya and I met. I joined late 2003 and he joined earlier in 2003. And we are on the same team. First literally on the same team, and then working under the same VP. We spent 2003 to the end of 2006 working on AdSense. The first project we worked on together is how do you bring AdSense from smaller self service websites into the larger publishers.

Satya then left to go to in 2007. And I moved over to just as it had been acquired. Google had moved from 1,000 to 12,000 people over the three years. It was just starting to change. Things were becoming institutionalized. YouTube was very much again the intersection of community and creativity.

�ұ��é: YouTube was a bold acquisition by Google. It felt at the time as if the acquisition came out of nowhere.

Hunter: People were not congratulating YouTube. It was called Google’s folly. They’re spending a billion and a half dollars, for dogs on skateboards. Is this even legal? The hosting and streaming costs were high. At one of the internal TGIF versions, announced the acquisition. Somebody asked Eric, you paid a lot of money. How do you know that was the right amount? Eric paused for a second and said it’s definitely not the right amount. It’s either way too high or way too low. And we will know in 10 years.

Google was the perfect late stage venture capitalist to invest in YouTube.

�ұ��é: At the time the big issues were how does YouTube make money and copyright?

Hunter: Copyright was the large one. YouTube did safe harbor and was DMCA compliant. They built copyright rights management into the licensing tool to help creators manage their content. When it came to terms of service and community standards, our big concerns back then had to do with spam, with people trying to crawl up the leaderboards. And making sure that ahead of some of the sophisticated systems that we were later able to build, that there was no pornography.

YouTube was starting to internationalize, and we realized what a dramatic world wide impact it would have. We were trying to understand and respect local laws, and sometimes local norms in countries where maybe we didn’t have a presence to operate, but we had users. During my first few years it was not taking Silicon Valley assumptions and layering them across the world. At the same time knowing you stood for access to information. This rolled right into the Arab Spring. A protestor who got shot was one of the first tests. This is violent. This is blood. This is somebody dying. This is historically important.

If you pull those strings hard enough, do you get to where we are today. It’s a challenge of a global company, global audience. We were dealing with year two through year six problems, not year fifteen problems.

�ұ��é: Do you feel like YouTube spiraled out of control?

Hunter: I haven’t been there for seven years now. I feel like each phase has its set of challenges. The team is dealing with challenges that are often the byproduct of what worked, incredible growth, building algorithm around attention, and what the unintended consequences of that are. Google has always been a place where people have been willing to advocate for the right long term decision, no matter what the short term resources or business impact is. I hope the complexity of some of this decision making and the implementation of policy doesn’t get in the way of doing the right things. I have a lot of confidence in the people over there.

�ұ��é: Hunter and Satya, you both have a product background. How did you come together to decide it’s the two of you that should start Homebrew in 2013?

Hunter: Satya left Google early 2007 to go back to venture. People we knew called him back into duty and he went to run product at Twitter for the better part of two years pre-IPO, building what is today. When he left late summer 2012, and unbeknownst to him, I was also thinking about leaving Google at the end of the year.

�ұ��é: What is different about Homebrew?

Satya: Coming from product backgrounds, we thought about Homebrew as a product. So we tried to identify the white space in the market, and for us that was at the seed stage. While there are lots of sources of capital, there were very few investors who were willing to be the investor of record. As angel investors and advisors to lots of companies, we were often the first call when founders were having some operational issues like hiring somebody, a product question, even though there were larger checks on the cap table. We saw this gap where the early stages of company building are incredibly difficult. Most of the time founders don’t have all the skills needed to scale a company for year zero through three. And they were asking for help, and there was no one willing to give it to them. And so the thesis behind Homebrew was to be that investor of record, come to that conversation with empathy having been on the operator side. And to do that for a small number of companies each year, where our focus was not going to be looking for the next investment, but really spending time with the founders.

Hunter: So much capital is coming into the seed stage. There’s no capital gap structurally at the seed stage. Maybe there was 15 years ago. That doesn’t mean that fundraising is equitable or easy. That’s a whole other discussion. But there’s lots of capital.

That capital has come to market in forms that sometimes have more to do with the needs of the investors, than the needs of the entrepreneurs. Increasingly large funds that are multi-stage, and or the size of the fund predetermine what success looks like. It’s just math. We co-invest with those people all the time They’re wonderful. Especially as companies get bigger and know what to do with $20 million, what to do with $27 million. You can’t grow a company without that.

Similarly, there are more and more people who like writing here either institutionally or individually 20, 30, 40, 50 smaller checks, a year. I sometimes joke, they have a general partner name Darwin, because what they do is see who survives. It’s often not in investors’ short term interest to take the model we do. Which is to keep your fund size constrained, concentrate on early investments, and spend more time servicing the deal, than trying to win it. We get involved at the seed and then stay operationally supportive into the Series B. We commit to a three to five year runway with these companies. There’s not many people willing or able to take on that model.

Satya: And this stems from why we created Homebrew in the first place. It was not to become venture capitalists. We would not naturally enjoying being venture capitalists. We really enjoyed building Homebrew, because it’s focused on what we thought for us was the most interesting thing to do was work side by side with founders to help them build businesses.

�ұ��é: What is a Homebrew company?

Satya: A Homebrew company is one in which there is a mission-driven founder who has a firm belief about how the world should operate and a strong set of hypotheses for how to help get there. He or she has experienced the pain being addressed firsthand, has empathy for the customer and a deep appreciation for the target industry, disrupting it with love rather than contempt. The founders want to build a cap table that acts as extensions of the team, helping them increase the scale, velocity or probability of the company’s success. The company is building something that democratizes access to products, services, data or customers for constituencies and industries that haven’t had access previously. When we come across like-minded founders operating in industries in which we feel we have expertise, relationships or know-how, we think of those as Homebrew companies.

�ұ��é: Are you wanting to be the Andreessen Horowitz services model at seed?

Satya: We’re trying to practice venture capital, the way it was originally practiced, when it wasn’t just capital. It was this notion that your investors are part of your team. They’re not your managers. While they’re on your cap table and you’re responsible to them to some degree, you’re not reporting to them.

Hunter: I was surprised to find that the market gap at venture was returning emails, showing up for meetings, spending more than 51 percent of your calendar with the companies that you funded versus that next company, that next fund to raise, that next conference to speak at. We took a model that basically says we would pick up the phone, we will answer the email, we will be on the whiteboard with you.

Satya: All companies at this stage really have to do three things well. They have to build a product, distribute that product, and build a team. So that’s where we spent a lot of time.

�ұ��é: What do you mean by investing in the bottom-up economy?

Satya: The notion of bottom-up economy is based on this overarching arc that we see within the technology industry. As technology is getting cheaper and more flexible, more accessible, it’s finally being leveraged by constituencies, and industries that haven’t yet leveraged it. That means everything from enabling the business of one, to empowering teams within larger organizations. It’s about democratizing access to products, services, data, marketplaces, and revenue streams. That’s what the bottom-up economy encompasses. We tend to say we like to invest in sexy software for unsexy industries. So it’s a lot of financial services, healthcare, manufacturing, logistics, retail, everything from kids clothing to autonomous cars.

Hunter: You don’t see a lot of stuff in the portfolio that’s meant to sell into the top 50 CMOs or the top one percent of consumers. was an early fund one investment, also an early fund one exit. But we came to that with the prepared mind, given some of our experiences at Google and beyond, with AI and computer vision. All of a sudden you’re given some credibility and through [Vogt] the CEO there, you’re given a set of founder relationships and you start pulling the strings and it leads to a few companies in the second portfolio.

Some things are evergreen. We just have incredible domain expertise in fintech, . I don’t think there is anybody who has a better seed portfolio in financial services over the last six years. But then there’s other things where your own personal interest, or meeting the right founder at the right time, you start to build a market presence, build the capability and then you just have to decide how far you want to follow that down or not. So now the stuff we’re doing in automation, and computer vision is less to do with autonomous cars, and more to do with manufacturing.

�ұ��é: How did the investment in Cruise happen?

Hunter: There’s been two investments in our first six, seven years that started with a password protected video. Both of those turned out to be very good investments. Kyle sent us a password protected video of him driving down the 101 Highway to demo day with periods of the drive, having no hands or feet on the wheel. Ok, we are in. At the time people thought if this was going to happen, it was going to be Google, there’s going to be an Apple car. People were not talking about componentry, what do you do with LIDAR? This is why GM bought them. That acquisition was 18 months after the seed round. And people say, how did they come up with this number for that acquisition. The GM board decided what percentage of the market cap they wanted to spend to de-risk the rest of it.

�ұ��é: Your most recent fund in 2018 was $90 million. How are you planning to invest that fund?

Hunter: So we’ve stayed very much the same since the first fund. Each fund is a byproduct of how many companies we think we’re going to invest in doing six to eight a year. And what’s the check size needed to get to 10 to 15 percent ownership in a seed round.

Our first fund was about 20 companies over two and a half years. Our second fund was 27 companies over three and a half years. And when we went to set up fund three, we decided to do it even a little bit longer. So it’s targeting to be about 32 companies over four and a half years. If you are going to live up to the expectation that you set for founders, that cascades through fund size and fund strategy.

�ұ��é: How much do you need to invest in this market to get your 10 to 15 percent? And are you co-investing?

Satya: We always co-invest. We’re big believers that syndicates add real value at the seed stage to get various skills, experiences, and relationships. Our average investment is probably a million dollars now, but anywhere between half a million to two million as a range. The average investment has had to tick up a little bit from when we started as round size and valuations have gone up.

�ұ��é: How large is a typical seed round?

Satya: $3 million on an average but anywhere between $2 and $4 million is pretty established as a Bay Area seed round.

Hunter: We had a geographic collar on ourselves for the first few years. We didn’t want to stray too far out of California or New York because we really want to make sure we could deploy our model without spreading ourselves too thin. As we gain confidence, we’ve been willing to make investments in Portland, Boston, Salt Lake, San Diego, and Toronto.

In the 1990s software was a vertical. Now, every business has a software component, and sometimes the best companies being built in some of these verticals have an academic background or domain expertise that’s not necessarily native to Silicon Valley. And so we look at each geo as — is it neutral to positive for this company to be located here. Are we going to invest in a Spotify competitor in Kansas City? Probably not. Is there a lot of really compelling vertical AI work being done out of Toronto because of the university footprint there? Absolutely.

In a competitive market, how do you make sure that for the handful of verticals that we have the deepest expertise, how do we make sure we’re top choice, for founders in that area? Because there’s lots of wonderfully smart investors, lots of capital. It’s not just enough to be thought of as ‘they’re good people.’ You need to be preferenced. And so we’ve done a lot of work around some of the co-investor relationships, some of the founder relationships. In year seven, we’re finally starting to see our own proprietary deal flow from employees at the first companies. Either those companies got acquired and handcuffs are off, or people invested in doing things. We’re starting to see referrals from the companies that we back in fund one.

Satya: We really think of ourselves as seed phase investors. So while our average check is a million dollars. We’re happy to be the $200,000 check in the pre-seed, or the last $2 million that goes into the company right before the Series A. Our focus is in that early period where companies are largely pre-product market fit. Pre-product or post-product with some early customers.

�ұ��é: You have around 20 exits with Cruise being the biggest. That is a high count of exits six years in.

Hunter: Because we’re investing in companies that are often innovating within traditional verticals, they’re quick to the customer, and quick to revenue. They are proving their worth. Why do companies choose to be acquired? Somebody is willing to pay into the future, to bring them in-house. Which means that they’ve done very well in their first few years, and developed something. Another reason is founders feel there’s a compelling offer on the table, and they’ve constructed a cap table that allows them to take that offer. We want teams to be able to play both offense, and maintain optionality until they decide that they know who they are, and raising several hundred millions of dollars of venture capital is what they need to get there.

I’ll give you an example of a company in our first fund that has provided a meaningful return. in the construction SaaS that Autodesk bought earlier this year for $265 million in cash. That company had some growth term sheets on the table, could have played forward, but decided based upon where they were in their own development that Autodesk would be a natural partner for them, the roles they would be given there, that it was something that founders wanted to do. Not controversial because they hadn’t made promises to the cap table, and raised at valuations that made only a $300 million exit a loss. Right? I would be really happy if each fund, produced one or two public companies, and a bunch of outcomes that were really great for the founders, really great for their teams, and really great for their investors, because they didn’t get so far out over their skis, that they closed too many doors prematurely.

Satya: Because we’re investing early, we’re investing in people, and our commitment is to those people. There are also situations in which things don’t work out as everybody had hoped. Maybe the offers that they’re getting aren’t of the nature that Buildingconnected got. Because our commitment is to those people, it’s our job to make sure that we help them find a home for them and their employees that ends up helping them move forward with their careers. Part of what you see reflected on the website are also acquisitions, where we’re just doing our job as good investors and good partners to these teams, and helping them land in places that are going to be positive.

Hunter: Do the early investors have not just conviction, but alignment? Some of these first time funds need to keep a company alive, so their LPs don’t ask, how come these companies are failing? Or in the face of a good offer, that wouldn’t move the needle for the fund, so they make it hard on the company and tell the companies to play on. Because it’s not a $5 billion company, it doesn’t matter to us.

�ұ��é: Why do you do this? A lot of firms would step away.

Hunter: The best rationale is when there’s both self-interest, intersecting with it’s the right thing to do. So the self interest is those founders become incredible evangelists for us. More and more smart founders when they do diligence want to talk to founders in a portfolio where things didn’t work out, not just the ones that did. If you can get one, two, three times your money back on your dollars you get to recycle that back into the companies that are going to do that. For a sub $100 million dollar fund, we can turn that into something that actually does contribute back and we put that into a , into a , into a .

Satya: And it comes back to we didn’t start Homebrew to start a fund. We started Homebrew because we saw that there was a lack of service being provided to founders.

Hunter: I hope when we turn off the lights, years and years from now, one of the things we can say is we were the best version of who we wanted to be. We don’t want to be a junior version of Andreessen Horowitz, we don’t want to be First Round 2.0. We don’t want to be an incubator, accelerator, crypto, or whatever flavor of the month is.

We always say the way to get better fund over fund is just to make one better decision.

�ұ��é: How many companies do you meet?

Satya: 3,000 intros, and we meet about 800.

�ұ��é: Are a lot of the deals coming through other seed investors?

Satya: It’s about two thirds through founders, entrepreneurs, and executives in our network. It’s about one quarter from other investors, and the rest is some combination of inbound/outbound.

Hunter: So there’s this interesting trend. There’s a bunch of wonderful funds that write these $100K to $250K checks. There’s certain pockets of entrepreneurs that they’re pretty well connected to, because it’s the ex-Airbnb guy. The challenge that some of those funds face is that there is a surplus of their dollars, and they can’t make a round come together by themselves. And they’re very interested in placing the lead, not just because they care about the company, but because if they place the lead, they’re less likely to get squeezed down. Oh, I know you want $250k but sorry you’re only getting $100k.

And so one of the interesting trends over the last seven years is the increase in volume and quality of introductions from that segment of the smaller supporting seed funds, who really need to protect their allocation. Why we play nicely with them is because we’re not trying to do 80 percent of a round. They’re hoping a founder protects their allocation, but you also really need the funds to protect their allocation. That’s definitely been one of the interesting structural changes in seed that has impacted where we see deals from. It’s definitely different than 2013.

�ұ��é: Satya, you were at Twitter as the VP of Product when Twitter was making some crucial decisions about enabling an ecosystem through a platform or becoming a destination. And they went with destination. In retrospect, do you think Twitter made the right call?

Satya: I would argue in many ways we didn’t make a decision. We tried to play the middle. And I think it’s pretty clear, in retrospect, that was the wrong answer. And frankly, I think it was probably clear to a lot of people internally, it was the wrong answer then. There was a whole host of reasons why that played out the way that it did. They did both because they closed down the platform to a smaller set, but they still wanted to be a platform. And of course they’re driving towards being a destination. I think there was a little bit of wanting to be both, but doing neither well.

�ұ��é: Was that the biggest question Twitter was trying to answer at the time?

Satya: It was everything from making sure the service stayed up, to monetization. It was pre-IPO. Platform was certainly a big component of it. You might recall a time when there were no photos or images on Twitter. That was a big decision to do even that. So there were lots and lots of decisions that played into what Twitter became. I do think that it would be a very different service if it had moved to the platform direction. I think potentially a much more broadly used service.

�ұ��é: What are two companies in your portfolio that you’re excited by and why?

Satya: We’re investors in a company called . Shield AI was started by two brothers, one who was a Navy Seal and the other who was an engineer at MIT. And the brother who was a Navy Seal came back for his tour of duty in Iraq and Afghanistan, and he came to the realization that none of his colleagues, fellow soldiers died in battle. They died when they were doing reconnaissance into areas where there was no information about the building or the terrain that they were going into. And it seemedd crazy to him that that can’t be solved in some different way. And so he got together with his brother, and they decided to build a company called Shield AI, which is developing fully autonomous drones for the public sector. These drones can by themselves navigate into buildings and caves. Collect intelligence about what’s going on inside through thermal cameras, regular cameras and then communicate that back to people who can do analysis on it.

�ұ��é: Is this product targeted at the military?

Satya: The public sector broadly, but DoD obviously is a big target of theirs. And so we seeded that company a few years back. Andreessen Horowitz did the Series A. The company is in the process of closing its Series B. And already the impact that companies are having in terms of keeping people out of harm’s way (both military personnel and citizens) is phenomenal. A company that nobody will probably ever hear about. It is based down in San Diego. But a company that has such a powerful mission around ensuring the safety of civilian and military lives. And started by founders for all the right reasons. One we’re super excited to be part of. And an example of a company that stems from the work that we did at Cruise. Because these fully autonomous drones are using computer vision and all the same types of technologies, that allowed us to have a point-of-view around that market.

The other company is called . They started based on the idea that every software company has become a payments company. They all want to be able to accept payments and disperse payment. And the norm for doing that is by signing up with a processor and paying that processor three percent or whatever that might be.

What Finix is doing is creating the software infrastructure for any software company to become a payments company itself. Instead of paying three percent you then turn that into a revenue center. It’s also software driven, it can be adopted and used by companies of any size. And so we think of it as democratizing access to a financial services infrastructure, helping a whole generation of software companies create more value for themselves and their employees and their customers.

�ұ��é: Who do they sell to?

Satya: They are targeting marketplaces, software companies, and financial services companies.They work with companies like Lightspeed POS, they work with companies like Visa. Literally any company that wants to be able to accept payment of some kind, credit card or otherwise.

�ұ��é: How do they charge?

Satya: It’s software based subscription plus transaction. We seeded that company. And , , and led the A recently. Incredible founding story where the founder is a self taught engineer, first generation college graduate, with a Latino American background and just the hardest working guy you could ever meet.

�ұ��é: Thank you I think we have it.

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�ұ��é: Welcome James Currier founder, angel investor turned into a fund manager with the founding of NFX fund in 2015. Why NFX?

James: We said let’s try to build a venture firm with network effects. We believe that the most interesting, most impactful things have big network effects. Originally we started with an accelerator. We dropped that two years ago. We were doing 15 companies per class. We either need to scale up to 80 per class, to get the random effect, to make that model work. Or we needed to scale down and increase the percentage ownership. In the end we decided to scale down and increase the percentage ownership and be a straight fund.

�ұ��é: Why the name NFX?

James: It stands for network effects. What we realized in about 2010, is that all the companies we had invested in as angels, that we were really excited about, all had network effects. They were growing. They were defensible. Mostly about defensibility.

�ұ��é: Given that we’re in the Internet era and everything’s connected, does almost every company have a network effect?

James: About 20 percent of the business plans have network effects in them, and 80 percent don’t. So if you’re a medical device, a synthetic biology company, SaaS software, enterprise software, or direct to consumer products, these things do not have network effects. These things have scale effects. They could have embedding effects, or they could have brand effects as their defensibility. But in the digital age, there are very few defensibilities left.

�ұ��é: And why don’t they have network effects?

James: So the basic definition of a network effect is that every new user or new customer makes the product more valuable for every other customer. The first time we saw network effects was with telephones.

�ұ��é: Which companies have stood out with a huge network effect?

James: Just look at the most valuable companies in the world. Microsoft is still one of the top market cap companies in the world, and they’ve been working on that two sided platform network effect since 1976. And then you’ve got Facebook, you’ve got Google, and you’ve got PayPal.

There’s like five or six of us who just spend so much time looking at this, at Harvard Business School, from Intuit, and a few others. There’s actually some interesting what we call “social network effects,” but not social network. One of them is naming. So “let’s grab an Uber” is a real problem for Lyft right. “Google that” is a real problem for Bing, Once Google became a verb, that’s an incredible social lock. It’s just awkward for me to use Bing if you tell me to Google something. That’s right on the edge of brand. Brand is different or the bandwagon effect.

�ұ��é: What other companies have a network effect?

James: Think of the big valuable companies, Uber, Lyft, and Slack. The more people in your company that use Slack the more valuable Slack becomes for you. Dropbox. Once my designer said, “Hey, I’m going to be sending you the mocks of the website on Dropbox”, and suddenly 76 people signed up in the next 48 hours because we had to get his mocks, all the engineers did and all product managers. Airbnb, the more properties, the more buyers. The more buyers the more properties. eBay,  Amazon Marketplace. More than 50 percent of all transactions on Amazon are now going to the marketplace. They’ve basically taken over what eBay was 15 years ago. It’s a two sided marketplace network effect. IOS. If you look at Apple’s market cap. It was $42 billion. And then they added iMusic for sharing music. And then they added iOS. Those were their first two network effect products. And then their market cap went up by 10 or 15 times. Before that they were selling hardware and software.

Since 1994, since the Internet connected everything, we looked at the 336 companies which have become worth over a billion. We looked at each of their business models and said, “Did they have a network effect at the core?” And if they did we looked at the market cap. 70 percent of the market cap came from companies with network effects, 30 percent did not. Yet only 20 percent of the businesses had network effects in the business plans, and 80 percent did not. So that seemed like a huge imbalance. So that’s why we decided to do NFX in 2010 but we didn’t get around to it because I was still running .

�ұ��é: What else are you trying to fix in venture?

James: We’re trying to help seed stage founders figure out how to navigate to their best investor. And that’s why we built to find the best investor for you. We don’t take salaries. We use the management fee to hire engineers and staff to support the company. We are building a platform to help the ecosystem.

We build our own CRM, and data analysis. And we’ve got an internal group which helps with pitch development, which helps with PR, culture building, hiring. Within a few weeks we’ll just answer so many questions, so that the founders can get back to product and iterating.

�ұ��é: Your most recent fund is $275 million, a pretty large seed fund, which you raised in April 2019?

James: We are a seed and pre-seed fund. Instead of investing over two years we’re going to invest over three years. We’re still going to be investing one to three million and lead seeds. In this fund we will make 35 investments. Four of them will be at a valuation which we would all consider to be a Series A, which is over $20 million. But we’ve also done probably 10 pre-seeds where we put in $250K, and help the company figure out what they want to do.

�ұ��é: What are the valuations for pre-seed and seed rounds?

James: Valuations for pre-seeds are typically one million dollars pre-money. For a seed round I guess the average would be about eight or nine million dollars pre-money. Our sweet spot for seed is investing is about $1.5 million in a round.

�ұ��é: How many companies do you meet in a year as a team?

James: We evaluate 3,000 companies a year, and then we’ll probably meet with 400. And invest in 15 companies in year.

�ұ��é: You invest in the Bay Area and Israel. How do you help startups build a network effect?

James: We’ve published this about the 13 different network effects. Starting with  the physical, which is the telephone or Comcast in the middle. And then you go into weaker and weaker network effects as you go out.

Once you understand each of these, you can start to imagine how to add these network effects to the various businesses. Whoever adds a network effect first wins. Because it adds more value without you doing anything. Someone signs up and pays you money, and suddenly your product is more valuable for everyone else. We’ve written long articles about and their defensibility. They’re not going anywhere.

�ұ��é: Facebook from what I understand worked hard to get each user 10 to 20 friends. Once you have that network you were never going to leave.

James: 10 for Facebook, 16 for Twitter, and 6 for Path. We call that network density

�ұ��é: Path however was not successful?

James: They weren’t because they were too late and the other platforms were largely serving the needs of people. Facebook messenger is a personal utility, which is actually stronger than Facebook. I can make payments, my wife wants me to pick the kids up at school. I can’t leave. Whereas Facebook, I can turn off.

Interestingly enough, the reason I exited the companies that I have is because they didn’t have network effects…Because if you really want to make  an impact in the world, the best way to do it is to run a network effects business like Nextdoor, or LinkedIn, or Tencent.

Stan, who’s a minor partner at an NFX, is now running Facebook Messenger. He and I have been talking about building the global currency since 2004 when I bought Blue.com with the intention of either building a spiritual group, or building a global currency.

I never got to do it, but he’s doing it as a part of Facebook. So once you get in a platform like that you have the opportunity to actually do these important things for the planet. Had I had a network effect business, I would not be a VC, I would be running that.

�ұ��é: Given that you’re investing in such an early stage, how do you perceive growth focus in our industry.

James: So let me be clear. Network effects is about defensibility and retention. Viral effects are about growth. Network effects are not about growth. It is about retention. It is about keeping people in. Network effects reduce churn.

We also want companies to grow very quickly, because fast growing companies attract the best people. Fast growing companies have more opportunities to do more creative stuff. Fast growing companies means that they’ve hit on something important to somebody. That is different from the sugar-coated viral growth of 2004, that people think of as growth hacking. We were very good at that, at that time. We did a bunch of that between 1999 and 2007. We invented a lot of A/B testing methodologies, and a lot of the viral loops. But since Facebook shut down Facebook Platform, virality has gone to near zero across the digital world.

�ұ��é: What is virality?

James: Virality is when a user of yours gets you another user for free.That was a 1998 to 2012 thing. It had a good 14 year period, and then it was over. But a very interesting period, with a lot of math, a lot of iteration.The culture of Silicon Valley, that we think of as Silicon Valley came from that age of rapid iteration, and changing all the time, and never sleeping. It was very exciting. It’s like running a 24 hour news program because things were changing so fast.

�ұ��é: Viral still seems to be here for users recommending brands?

James: Yes, there are still incentivised as viral programs. If you get someone to try Lyft, I’ll give you 20 bucks. Those are very popular. But that’s not for free. And in fact, for most of those companies their cost of user acquisition to the channel is higher than just buying ads on Facebook. But they don’t want to stop it, because it makes so much sense. And it gets the users to attach their own brand to the brand of the company.

So what we talk about is more fundamental growth. And that has to do with the name of the company, what is this thing for people, how valuable is it compared to the alternative, how do you lower the barriers to friction for people to use it. These are fundamental growth issues as opposed to growth hacking.

�ұ��é: So would you throw growth hacking out?

James: We do throw out growth hacking, except for the iterative culture that growth hacking bequeathed us. Because there was no A/B testing until about 1999. You can’t A/B test a shoe, or a computer, or a car. You put it out there. It works or it doesn’t. The mentality of A/B testing, the mentality of iteration, and letting go of what doesn’t work and trying something until it does, that we want to keep.

But the idea of creating very slick viral flows across the Facebook platform. Those days are gone. Even Upworthy, which was viral with their positive psychology stuff, which I loved, that’s dead now. is dead.

There are fundamental growth principles that are very deep. Which means you gotta get the founders to change the name of the company. The old name, no-one can remember it. No-one can spell it. Every ad you put out there, you’re going to lose 40 percent of value, because no-one can remember the name.

We need a stronger voice in this community about the creative product culture that brought us here, originally, as the waves of money culture flow over us. And figuring out how to create a protected area for entrepreneurs and founders who care more about the product and customer than they do about money. It is just a switch. Money can be second. You need fuel to grow, to attract talent to build the product. But that’s not the goal. And if it’s money first and creative to get the money, that’s really different. It’s really sour.

�ұ��é: Do you think Silicon Valley has gone that way?

James: If you’re writing a blog post and or tweet and you want someone to pay attention to it, you gotta put the numbers in. For instance, a lot of journalists say unless you have a financing they can’t really write about you. I think it’s because it’s the path of least resistance to aggregate confidence in something.

�ұ��é: This whole ecosystem is becoming global. Do you think that’s a protection against this money first culture, or do you think that just travels from Silicon Valley.

James: I think it travels, because people perceive Silicon Valley through the eyes of the bloggers and journalists. And the people tweeting out. And what they are  blogging about is the money, and who made what. Because that’s what people click on and read. So people outside understand if I go to Silicon Valley, I can make money. Silicon Valley is a product. People are incepting that I get money if I go there.

�ұ��é: So how do you change that?

James: I don’t think we can stop that. But I think we can create a pocket of people, and language, and writing, and events like the lobby. And the stronger the community who wants to keep it about creativity, and about product; and the more of Silicon Valley we influence; the more the products will be influenced; the more of the rest of the world we influence to really go after the creative future, rather than ‘I made a lot more money than you and therefore I have more worth.’

�ұ��é: What wave of technology are you riding?

James: We are riding synthetic biology. We are finding two-sided platform network effect businesses in the synthetic biology area where there’s three technologies which are all three on Moore’s Law sort of curves.

What is synthetic biology?

James: It’s essentially applying computation to the measurement and design of biology. You can do a lot more now, than you could because you have robotics, which are getting much cheaper, and are able to do 600,000 tests in an hour, versus six tests in five years. Machine learning, machine vision, and AI is getting better and better at processing and speed. Then the actual editing, the sequencing cost is coming down. Which is opening up vast new capabilities people haven’t even thought of. We are now waiting for the founders. There’s this gap between what the tech can do today, and what the founders are even thinking of doing, which is exactly where you want to invest.

�ұ��é: This is for disease prevention?

James: For disease, agriculture, oil and gas, replacing palm oil, and impossible foods. It touches almost every industry. It is incredible.

The other thing we see happening right now is that there has been enough fintech infrastructures built on top of the old rails, so that it’s becoming easier and easier to build faster and faster fintech related companies, or fintech enabled marketplaces, fintech enabled brokerages. The ease of developing in the fintech area, through regulation is much easier than it was three or four years ago.

�ұ��é: Is this due to platform players in the fintech?

Companies like that make it easier to get an API, or . So that’s another technology wave that we’re going with.

I feel as if the waves of tech change are slowing down compared to where they were in 1994 to 2012, because of TCP/IP and then because of mobile devices, opened up a huge Pandora’s box of potential. We haven’t had one of those big tectonic shifts since 2008. These are micro changes but the markets are so much bigger. Then the access is so much bigger. So the cost of acquisition is so much lower than it was in 1994 to 1998, because so many more people are on these networks and are easily addressable. So I think that’s making up for the fact that it’s not necessarily a tech wave. It’s a scale wave.

�ұ��é: What are the two companies that you are excited by and why?

James: based in New York is doing financial products in the real estate sector. They allow people to buy residential houses for cash. It’s a product that the agent can give to their buyer and then get the other agent to use the other side. So the network effect to new agents using Ribbon lowers the cost of house acquisition, and increases the amount of cash transactions.

So I go from saying I offer you $100k for your home and I’ll get a mortgage to saying I’m going to give you cash but I’ll give you $95k right now. And you say deal, done. And so Ribbon takes 2 percent. I as the buyer save 3 percent. You get the cash you want. The agent gets the transaction done. They each make their commission. Ribbon gives the cash for two to eight weeks for the transition to take place. And then the home buyer gets a mortgage. It really helps when you want to buy a home before you sell your other one. I can’t afford to buy a new home, until I sell my old home.

Another one would be , which is the largest repository of CRISPR IP in the world, which is gene editing. , a co-founder is a discoverer of CRISPR. They’ve created a platform play, and then they’re working with pharma and agricultural companies to develop diagnostics and therapies to edit change in a responsible way. The more people use the platform, the fewer experiments everyone needs to do because things have already been checked off. And there’s just more data available.

�ұ��é: Anything we did not cover?

James: We as founders have built 10 companies prior to starting NFX. Despite the money culture, we have exited for $10 billion. No other group has done that. It is about 2x any other new venture firm. As a venture firm of founders we’ve really been in the trenches for a while. I’ve made so many mistakes and have so much scar tissue. Let’s build a venture firm which is about building companies from the operators perspective who have been in their shoes. And that brings ethos, and respect, and authenticity to the conversation. That’s one thing that I think is important to us. We don’t dislike VCs who haven’t been operators. There are a lot of great VCs. But if I’m a founder, I want a founder.

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