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Key takeaways

Seed funds are highly selective. Seed funds do not scatter their investment and hope something takes off. On average, seed funds invest in 8-20 new companies each year, but meet with hundreds and get sent thousands of pitches. Seed funds tend to have one or more sector theses about the market driving their investment strategy.

Seed folks like to stick to seed. Why? They could move up the stack, raise a bigger fund and make more money. However, seed investors like seed because it provides an opportunity for them to see themselves making a return — provided their thesis and network is strong.

Seed funds raise like it’s 2009. Seed funds prefer to raise a new fund every 3 to 4 years, unlike more recent trends in venture with larger funds raising every other year. This time horizon for raising funds is fitting since the companies in a seed fund’s most recent portfolio will take time to prove product market fit and grow their valuation.

Fun fact: Hunter Walk on theYouTube acquisition by Google back in 2006. “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, [Schmidt] 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.’ ”

Highlights from seed investors

7: Satya Patel and Hunter Walk, Homebrew Founders

Hunter on the market gap at venture

“I was surprised to find that the market gap at venture was returning emails, showing up for meetings [and] 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 will pick up the phone, we will answer the email, we will be on the whiteboard with you.”

Satya on the three things companies have to do well

“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.”

Satya defines a Homebrew company

“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.”

8: Jana Messerschmidt and Katie Stanton, Founding Team #Angels

Jana on founder terms

“When you’re a founder, the terms that are set are ultimately driven by your ability to negotiate. Certain founders may only get one term sheet, so that’s the deal they have to accept because they don’t have as much negotiation leverage. But other founders might go to Sand Hill Road and get six term sheets in a week; they’re going to drive the negotiation, they’re going to have lower dilution and higher valuations, and they’re going to set the terms. That’s something we talked about a lot in our group. Do women have as many options when they go out raising? Are they able to command and demand that same sort of excitement about the companies that they’re building where they’re able to drive the negotiation process and set those terms?”

9: Katie Rae, The Engine CEO

On the second thing

“The second thing I learned is that the effort you put into this and the love you show for the entrepreneurs is so fundamental to great outcomes. You really learn to trust each other, because without that trust people just block each other off and stop telling the truth or stop revealing what’s actually happening. It was so shockingly apparent to me that you have to be genuine in these relationships. It’s not a transactional business, and certainly not in the seed stage. These are early companies where a hundred things could go wrong, but only one needs to go really right to win. If you’re focused on all the wrong, you will kill these companies. That’s what I learned.

“It’s a lesson that gets replayed in almost every piece of life, whether it’s your relationship with a spouse or your children. It’s always the same lesson.”

On the time frame for patient capital

“Whatever the biggest technical risk is, you want to take that out in the first four years. That’s what opens all kinds of capital to the company, whether it’s venture capital, non-dilutive capital or project finance capital. Most funds are 10 years, which means you must be in the market truly deeply within the first four years. Otherwise, you’re not going to get to exit within 10 years. We like to have a slightly longer time frame than that, ours is up to 18 years. And that allows us to take a different set of risks in technologies that we think are really important.”

10: Vas Natarajan, Partner at Accel

On the Rise of Cloud and APX

“The cloud is redefining how end users are working together and collaborating with one another. We spend a lot of time thinking about the future of work [and] the rise of new collaboration productivity systems, and how the cloud has been a major enabler for that.

“Part and parcel with the cloud is the rise of the API economy we call APX: the X means everything. What APIs do is actually integrate multiple different subsystems, so data is no longer siloed and workflows are no longer siloed. You can actually stitch together work across multiple different things. It has allowed entrepreneurs to create new cloud categories that are almost super-sets of individual pieces of workflow.

“The rise of cloud and, in particular, the rise of APIs, are big themes for us right now. We think the combination of those two is going to create a next set of cloud companies, both at the application tier, but also the APIs themselves will become interesting businesses.”

11: Shuly Galili, Co-founder of UpWest

On the challenges of building distributed teams

“It takes specific founders. Ultimately the sacrifice is on the CEO who has to be very communicative. He needs to create a cohesive environment, even though the team is distributed, ultimately live on an airplane, and not say ‘We’re a U.S. company, and you over there are some sort of an offshore.’ It’s actually the other way around; our goal is for our CEOs to share best practices with each other.”

12: Beezer Clarkson, Managing Director, Sapphire Partners

On returns for early-stage funds

“We look to�� underwrite Series A funds with 3x net, and a seed fund [with] 5x net. We have to believe that’s possible. We will look at when you’ve made investments, how many of them have become a 5x or 10x return and how many of those need to be true. And who’s in the team? How big is the team and what are the team dynamics?

“Nothing guarantees you returns. We have yet to find a fund that has had a significant return, call it 5x, that has not had either a decacorn type exit or multiple billion-dollar exits. If you’re a $50 [million] or a $75 million size fund, you still need to have multiple billion-dollar exits.”

On fast in Venture

“The feeling of fast in venture is actually the growth of the companies, and not the management of the funds.”

Main photo courtesy of Frank Vessia via Unsplash.

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Key takeaways

Seed is super collaborative. A majority of seed investors will engage with a broad range of seed funds to co-invest. Seed, the most collaborative round in venture funding, is also the funding round with the most unknowns and the biggest risk. A core role for seed fund managers is to help their companies with fundraising, so seed funds seek out the managers for follow on rounds. And early stage investors want a relationship with seed investors in order to get exposure to the best companies.

“We always co-invest. We’re big believers that syndicates add real value at the seed stage to get various skills, experiences and relationships,” said Satya Patel, Homebrew co-founder.

Founders first. Seed funds are all founders first. This is pretty intuitive as you rely on those running the business to execute.

Traction. Seed funds are largely not traction focused because it is too early to measure traction, but they like to see that customers appreciate the value proposition.

Fun fact: The early vision for Andreessen Horowitz was to build a seed fund, but that quickly morphed, according to Ted Wang who launched the documents backed by�� .

Highlights From The Seed Investors

1:

On the wave of new funds

“I think this is a natural progression. We shared our playbook. We gave out the sense that it is easy to raise funds and build a firm. Your job is to return cash 4 or 5 times. I have a hard time seeing all 600 firms being able to return capital. If you are in the right deals, you can do well.”

On the early days in seed

“ and had raised their first fund. True Ventures and First Round had a team. I was a solo GP. started around the same time. In 2008 and 2009 we were working together as a group of five to seven firms, and syndicating deals. I remember when FitBit raised a $2 million seed round which was a big deal. That now would be considered a small seed.”

On exit ratios

“About 30 to 40 go bust, 30 to 40 return cash, and the final third return 4-,�� 5-�� or 10-x. Some companies will return the whole fund. Big exits are the power law of venture. Fitbit and SendGrid returned the fund once or twice. Those are the homeruns you need.”

2:

On the female consumer

“I’ve always been focused on the female consumer. Women are the dominant consumer, we always have been. We are responsible for 85 percent of commerce, and not just the obvious areas – fashion and beauty, which I think people expect. Women make the final decision on what house you’re going to buy, and what health plan you’re going to use and a hundred other things. So to me, the idea of backing really smart entrepreneurs who intuitively understood the end-user, that female consumer, was going to be a competitive advantage.”

On female fundraising

“I think the issue is pretty simple. This is an industry that has always run on relationship networks. You get in to see a great VC, or a team of people because you get a warm introduction. If women are not part of your network, you’re just at a big disadvantage, but I do think that’s starting to change. We’ve seen a lot of legacy VCs add a female partner this year and I think that’s in part because there’s been a lot of noise about it, but I also think it’s because they’re starting to realize that they could be missing out on significant companies if they don’t have those networks, so there’s more of a focus. And I think with initiatives like , you’re going to see more of that.”

On the pipeline issue

“We have seen over 4,000 companies since we launched. So there’s clearly not a dearth of companies being founded by women. We haven’t actually met with all those, but well over 4,000 have reached out to us or been introduced to us. That’s really limited by the fact that we are two partners and there are companies we miss, so I know there is no lack of companies out there.”

3:

On raising a larger fund

“The reality is the number of target companies is actually the same as our last fund. We are reserving more money for additional investments. What’s happening in the market has really changed since Aileen raised that first fund in 2012. The size of the rounds were much smaller, and companies would tend to either exit or go public much more quickly than they do today. Now that the private capital period has been extended and we have exposure to these companies for a lot longer period of time, that gives us investment opportunities that we’re going to take advantage of.”

On the Series Seed documentation

“The reason we did it was that for a long time, if you want to do a seed investment, the only document choices were the full-blown Series A documents, which were just long and there was no sort of shortcut to solving that problem. So people did convertible notes, but convertible notes came with some problems. So my goal in drafting those documents was to have something where the legal fees would be the same as in a convertible note, but you could deliver equity to the investors.”

4:

On the platform

“Every company we invest in is plugged into this platform, and there’s essential services that you need. As soon as you raise a round, the first thing you want to do is hire more people. Because all these companies are just in the market, or about to go to market, you need to be better known, so you need communications and marketing. Then you want to make sure you do not repeat the same mistakes everyone else has made. You’ve got kind of best practices. The platform is also a communications platform with colleagues who are founders of other companies. What we try to do is populate this platform with real practical advice and resources and help that will make you smarter and make you utilize your money better; not go after customers where you should not be going and not pay more than you should for customer acquisitions, and what people have done so you don’t repeat the same mistakes. All these things seem kind of almost boring today, but maybe not as obvious if you’re a first-time entrepreneur.”

On whom to co-invest with

“Literally, pretty much everybody. Certainly all the top-tier firms in the valley or San Francisco. All the VCs in New York we have worked with at one time or another, and that is really no concentration. We are very collaborative and don’t have any preconceived ideas about who to work with or not work with, but we do like to work with top-tier VCs.”

5:

On raising that Series A

“What we often say to our founders when they raise capital from us is, ‘This is the last capital you will see until you do something incredibly worthy of a Series A.’ ”

“A company we’ve invested in will come to me and say, ‘Hey, I’m raising a series A.’ And my first question is: ‘What is the narrative for your Series B? Let’s work backwards from there.’ So what we really care about is not just that our companies get funded, but that whoever is funding them is the ideal partner, because either they have expertise in the space or they have something extra above and beyond the capital they’re actually bringing to the company.”

On ‘hack value before you hack worth’

“There is a right time to be focused on growth as a metric. First you have to make sure you created a product that resonates with your target demographic, where they’re willing to actually engage and pay for it in some shape or form. I think that’s a perspective I have which is a little bit different than a lot of early stage investors. Because I’ve seen what it means to actually grow into operational discipline in the future, there are fundamental values that you need to have in place upfront.

“We have the concept of Intelligent Growth, where you’re not just revenue chasing. You get into trouble because you’re basically buying your customers, and then they churn. Rather, from the very beginning having something that is so fundamentally compelling about your product that your customers would be willing to pay for it and not just churn off.”

On follow on funding

“A lot of funds like to say we do 50 percent first checks and 50 percent for reserves. But because our fund size has gone up over time, our reserves are now comparable to our fund-two size. We have to be much more intentional, it can’t be an afterthought.

“Having a really great relationship with the future investors in our companies is something that’s important to us. In the same way that companies have a product roadmap, we feel very strongly that a company should have a fund-raising roadmap. We feel like it’s a mistake if you’re not intentional about knowing how much you are raising and why.”

On M&A

One of the areas in which there is money to be spent acquiring companies is private equity. Selling to private equity is very different than selling to a strategic. They value growth to a certain extent, but what they really are prioritizing is your ability to get cash flow profitable.

6:

On network effects versus viral effects

“Network effects are about defensibility and retention. Viral effects are about growth. Network effects are not about growth, it is about retention,�� about keeping people in. Network effects reduce churn.”

On growth

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

On supporting the creative product culture

“We need a stronger voice in this community about the creative product culture that brought us here originally and, as the waves of money culture flow over us, figure 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.”

And On Apple’s market cap

“If you look at Apple’s market cap, it was $42 billion. Then they added iMusic for sharing music, and then they added iOS; those were their first two network effect products. Then their market cap went up by 10 or 15 times. Before that they were selling hardware and software.”

Main photo courtesy of Frank Vessia via Unsplash.

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To quickly recap, we talked with Accel, #Angels, BBG Ventures, Cowboy Ventures, The Engine, Floodgate, Homebrew, Lerer Hippeau, NFX, UnCork Capital and UpWest.��Here is the customized Crunchbase Pro list of organized by last equity funding amount from smallest to largest.��

Vas Natarajan: Partner, Accel

Natarajan pointed to , a site reliability engineering platform that addresses those instances when a company’s site goes down, potentially costing millions of dollars in lost revenue.

led the seed in 2018. Blameless raised a in March 2019 led by Accel and .

“What Blameless is building is a command and control for engineers, DevOps leaders, product leaders to be able to collaborate by Slack, pull in all the relevant metrics that they’re seeing from different infrastructure monitoring problems, and then push fixes as quickly as possible.”�� said Natarajan.

Secondly is , a data privacy technology company that raised a in April 2019 from Accel.

Every technology company needs to know where their users are logging in from around the globe, and the laws of that country. “That is a whole set of infrastructure solutions, and front end consumer facing tools that Transcend will build and sell for any company,” said Natarajan. “If you go to privacy.trulia.com or privacy.hoteltonight.com, I as an end user can see your privacy policy, I can log in and see what data you’ve collected on me and then I can hit delete. Transcend powers all that.”

Jana Messerschmidt and Katie Stanton: Founding Team #Angels

The #Angels founders have their eyes on , a marketplace that matches celebrities with consumers for personalized video shoutouts. Cameo raised a $50 million Series B in June 2019 led by .

“The consumer will script what they want the celebrity to say. So it could be a happy birthday message. It could be an engagement message. It could be congratulations on your job promotion. Whatever you want it to be. And then the celebrity decides whether they want to fulfill it. The celebrity also sets their price. You have everything from cameos for $25 all the way up to slots charging a few thousand dollars,” said Stanton.

Next is that helps women track their fertility at a fraction of the cost. Modern Fertility raised ain June 2019 led by of . “They’ve helped demystify fertility, and giving you more power towards understanding how fertile am I right now?” said Stanton.

Susan Lyne: Co-founder, BBG Ventures

“ is a marketplace for very large farms to sell the 30 percent of produce that gets ploughed under, because it doesn’t meet cosmetic standards for grocery,” said Lyne who invested in its seed round. Full Harvest connects large farms to food businesses. led its in August 2018.

Then there is .

“GoTenna allows you to send a text message and your location when there is no wireless coverage, no cell coverage, nothing. It was really developed initially for rock and roll concerts, and off-grid sports,” said Lyne. Since its early days it has been adapted for more critical use. “It’s just a great communications protocol that allows anyone to communicate in a disaster.”

Lyne invested in GoTenna’s seed round back in 2013. Most recently it has raised a in June 2019 led by .

Ted Wang: Partner, Cowboy Ventures

is an AI platform for accounting firms to automate routine tasks.

“What you’re really stopping humans from doing is reading and typing. This makes people more effective in their jobs. I can’t imagine anyone is going to be unhappy about not having to do that,” said Wang.

Vic.ai raised an in September 2019 led by .

“ is a company that currently has a product that looks at your job postings, and is able to analyze the text of the job postings and help you to write them in a way that they’ll be more effective,” said Wang. “You can send a posting through the Textio system, and it will send you an augmented version of the same text with suggested changes or highlights.”

Textio raised a in June 2017 led by .

Katie Rae: CEO, The Engine

“ is miniaturising a fusion plant with an invention that allows them to get to net positive energy,” said Rae of this fusion energy company built on top of decades of research. “We believe what they’ve invented will allow you to get there. If that’s true, you basically have endless clean energy. This is a team that has already proven out a bunch of the most significant milestones, and will continue to do that over the next two to three years.”

Commonwealth Fusion raised a in June 2019 led by , with , , and along with other investors.

Next up is , a company that develops technologies to engineer human primary cells and iPSC’s for both discovery and clinical manufacturing of advanced therapies. According to Rae, “They looked at the biotech industry and asked, ‘Why are there PhDs basically injecting things into cells?’ Would there be a way to speed this up in the biotech industry by ten thousand X?”

Kytopen raised a in May 2019 led by and .

Iris Choi: Partner, FloodGate

has built software for simulation testing of autonomous vehicles. Applied Intuition raised its Series B of $40 million led by in September 2019.

“Instead of physically having to run autonomous vehicles in Arizona in a quarantined off area, you can do billions of test runs, in various scenarios, using software. There is a benefit to having a mutual third party, instead of everyone building it in-house whether you are an OEM or a rideshare provider. This is only going to become increasingly necessary in the future,” said Choi.

Another company worth watching is , which offers business owners a simple procurement app for their daily supplies, reducing time spent on managing their inventory, and helping lower waste. Cheetah last raised its in October 2018 led by and .

Satya Patel and Hunter Walk: Homebrew Founders

“�� 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,” said Patel.

“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 seemed 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,” said Patel.

“Shield AI is a company that has such a powerful mission around ensuring the safety of civilian and military lives.”

Shield AI raised a $25 million Series B in August 2019 led by .

Also on his radar is , which�� creates software infrastructure for any software company to become a payments company. Finix raised a in July 2019 led by .

“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,” said Patel.

Eric Hippeau: Co-founder, Lerer Hippeau

is an AI powered app for personalized health information

“They can answer pretty precisely all your health questions. If you use the app then you have the choice of very quickly getting on in a telemedicine way talking to an experienced doctor,” said Hippeau.

“It’s also a B2B business where you’ll see it appear at the front end to a number of different kinds of service providers, who would rather have something like this, as the first point of contact. It might be a hospital or it might be a clinic so that they can better direct the patient to the right service,” said Hippeau.

K Health last raised ain December 2018 led by , and .

Also up is , which automates retirement plans for small to medium sized companies. “They basically offer a very easy, low cost for SMBs. It’s really low cost,” said Hippeau. “They do all this hard work for about $8 per employee per month. And so they now originate a huge percentage of all new 401K plans in the United States.”

Guideline raised their in December 2018 led by .

James Currier: Co-founder, NFX

New York-based centers on financial products in the real estate sector.

“They allow people to buy residential houses for cash,” said Currier. “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.”

Ribbon raised a led by �� in October 2019.

is the largest repository of in the world, for disease detection. “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,” said Currier.

Mammoth Biosciences raised its in June 2018 led by the .

Jeff Clavier: Founder, Uncork Capital

“ is a hardware company that makes air purification technology for allergy, asthma or respiratory disease,” said Clavier. “It has a huge potential market. When you think about pollution in India and China this is a big market.”

Molekule raised their in November 2018 led by .

Another on the watchlist is , a chat inbox for teams. “Companies can aggregate a bunch of email, text accounts and any communication into one single chat inbox where teams can collaborate and have way more efficient customer support,” said Clavier.�� Front raised a led by in 2018.

Shuly Galili: Co-Founder, UpWest

is a company automating accounts payable to decrease time spent chasing invoice approval. Stampli raised a in October 2019 led by .

“They’re dealing with customers who have thousands and thousands of invoices, are inundated with paperwork, with a paper trail, with not knowing where the invoice started, and when is it going to be paid,” said Galili. Customers include retailers through to companies that have many outsourced vendors.

Also up is , a cybersecurity startup that addresses the risks in a company’s IT systems. CyCognito recently raised an funding in Nov 2019 led by .

“The attack surface has changed because it’s no longer just the technology that is on your laptop. There are many ways that servers, mobile technologies, customer lists and credit cards are being exposed today,” said Galili. CyCognito monitors these shadow risks an IT team might not be aware of to minimize exposure to attack.

Pro Tip. Crunchbase Pro subscribers can save this to their account to track changes over time, and get alerts.��

To Note: Some of the investors mentioned in this article are ��

Illustration: .

Sapphire was first structured to invest directly in growth stage companies. More recently the firm added Sapphire Sport. We talk about Sapphire Partners approach to investing in funds, how there is no ‘fast’ in venture, and about #OpenLP. , VP of Marketing, joined the conversation. The following has been edited for brevity and clarity.

�ұ��é: How did Sapphire move from investing in growth stage companies to investing in venture funds around 2011?

Beezer: The direct side existed first. There was a team of direct investors and when they were thinking about accessing the early stage, predominantly Series A, they decided what would be interesting, would be to be an LP in funds because then you touch many more early stage portfolio companies. We have three different investing groups on the platform. Each team is a separate team to a separate pool of capital, and sometimes a different LP base.

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�ұ��é: The three groups are Sapphire Ventures, Sapphire Partners and now Sapphire Sports. How is Sapphire Partners set up to invest in early stage funds?

Beezer: We specifically constructed our vehicle with the thinking of what do the General Partners (GPs) want. GPs want permanent capital. So we went with an evergreen structure which is different from how Sapphire Sport and Sapphire Growth has done their fund.

If our goal is to invest in the best early stage venture funds, they will be the best because they invest in great companies. And great companies by default should be of interest to our growth fund. That’s why it’s virtually organic, but we don’t believe in creating rules around that.

You need to have more than capital to bring to the table. And that is true for the direct side and the indirect side. We think your LP should be a strategic asset. I don’t mean that in a corporate strategic way. Maybe what you need right now is just money. Maybe you need advice. Maybe you need introductions. These are folks who are on your side. What more can you do together. Having that conversation feels very logical.

�ұ��é: How do you assess a potential fund investment?��

Beezer: We try to understand — why you? Why are you doing this fund? Why are you going after whatever opportunity set you are after? Why do you think you’ll be competitive, your geographic focus, your expertise — it could be all sorts of things. Understanding your General Partner CEO company fit is really important.

We have not invested in people who have never invested before. We have invested in people who have spun out. We’ve invested in very strong non-institutional angels. We look to�� underwrite Series A funds with 3x net. And a seed fund 5x net. We have to believe that’s possible. We will look at when you’ve made investments, how many of them have become a 5x or 10x return, and how many of those need to be true. And who’s in the team? How big is the team, and what are the team dynamics?

�ұ��é: What is a 3x net return?��

Beezer: A 3x net return means that the fund has returned 3x the capital they raised net of fees and other costs. So from an LP perspective, that means if an LP invested $10m -they received back a full $30m.

�ұ��é: What is a good return and how do funds achieve that?

Beezer: How do you make a 5x seed fund? What needs to be true? And it’s different if you’re a $250 million NFX seed fund versus a $25 million seed fund. There is no formula. Around the $40 million dollar fund size your ownership starts to matter. Most people say they start being conscious of the impact of ownership of their checks around the $40 million fund size. Smaller than than you can write a range of check sizes. It’s easier to get in for $250K or $50K, and your ownership can be smaller, and still be impactful.

Nothing guarantees you returns. We have yet to find a fund that has had a significant return, call it 5x, that has not had either a decacorn type exit or multiple billion dollar exits. If you’re a $50 or a $75 million size fund, you still need to have multiple billion dollar exits.

�ұ��é: You mentioned it is a busy time in seed.��

Beezer: From an entrepreneur’s perspective, I’m sure it�� can be great news, as it represents more opportunities to find someone who will fund their companies. Which can also benefit the follow-on investors (say those focused at the Series A and on), as the more amazing companies that get started, the better. The downside is of course the fears of overcrowding and increased competition, which can drive valuations up, and then potentially drive returns down.

�ұ��é: Given that even seed funds need decacorn or multiple billion dollar exits, are most seed funds too risky as a funding bet?��

Beezer: It is certainly a question that LPs consider. And some LPs just don’t do seed funds, or not first time ones, or ones under a certain size. Other investors look at the institutionalization of seed and see it as an opportunity. I would suspect though that most seed funds, especially the smaller ones, do not have predominantly institutional LPs. Most small funds start out raising from friends and family, HNWs, entrepreneurs they have backed or family offices. As they raise subsequent funds over time seed funds then tend to institutionalize.

�ұ��é: How much do you invest annually in early stage funds?

Beezer: Right now we’re between $100 and $125 million per year. We work in the US, Europe and Israel — predominantly US, predominantly Bay Area, some New York, a little Boston, LA and then Europe, and then the smallest categories in Israel.

�ұ��é: How much do you like to invest in each fund?

Beezer: For a series A fund that’s a couple hundred million to four or five you are looking at checks that are $10 to $15 million. Our goal is to write a check, that is�� meaningful to the GP, but also friendly and collaborative. We have written smaller checks for smaller funds.

�ұ��é: Are those funds committed to existing firms that you’ve invested with in the past?��

Beezer: There’s not been a year we have not invested in somebody who’s net new to us, whether or not they’re also net new to the world. We believe that’s a very healthy part of our product that we want to keep going.

�ұ��é: Do you reassess your commitment to non-performing funds?

Beezer: You anticipate being in a fund for decades. You make the investment because you believe this will be a five to six to seven fund run, and maybe longer. Some rejuvenation on the platform, is where funds have had strong performance, but it’s been something with the team. For whatever reason they decided to do different things. Maybe someone wants to go later stage, someone wants to go earlier. That creates room for new managers. Once you commit, typically LPs stay part of it,�� because the fund is working. Why would you want to step out? Getting back in is not gonna be easy.

�ұ��é: Are there funds you invested in that you can disclose?

Beezer: So we’ve got some funds like , , , that have talked about us and .

�ұ��é: Do you look for new fund areas where you do not have exposure?

Beezer: We’ve joined a fund this year that I can’t name. They’ve been pushing into the frontier edges. It’s about noticing someone who has a thesis around a space that we find interesting. We do want to make sure our portfolio is well-rounded. We have a large love for enterprise, and a large love for consumer and we want to have both in our portfolio. We have DNA on the platform that we can pull on the enterprise side. If you look at the returns in the market, you absolutely have to have consumer. So we’ve been careful to make sure that is represented. We don’t want to be too narrow.

�ұ��é: What is the timeframe for returns?

Beezer: The bulk of the returns will start coming back to an LP at somewhere between years eight and ten to be conservative. We can push it out a year or two. You do see acquisitions that can happen sooner, and this also depends on your fund size. If you’re in a smaller fund, you can have exits that happened earlier because a company was acquired, and it’s meaningful.

You don’t have to wait for year fifteen for every company. For most funds the actual number is a fourteen or fifteen year life. And then there’s a way of managing out the tail. Usually, the tail is not where you expect the big productivity to come from.

The feeling of fast in venture is actually the growth of the companies, and not the management of the funds.

�ұ��é: And finally, why did you start #OpenLP?

Beezer: We launched in 2016. You go online, and there are all these direct investors, all these entrepreneurs, and why aren’t the LPs talking? Some folks were active like , , , and . The goal was to be supportive of the industry. Encouraging getting more LPs to communicate, and collaborate and amplify the message.

When we were mulling the idea of , launched their podcast . They said, we think there’s an interest in the voice of the money behind the money. We want to do a podcast just about LPs. Would you come on, and would you help us invite guests? It’s like the serendipity of an idea.

Scott: It’s interesting to see what topics people are actually looking at. It ranges from market trends; sector and geography. Then you get a lot of people looking at the basics like– How do I run an annual meeting? What’s a good best practices for data rooms set up? It’s almost like people don’t want to feel alone in the wilderness and they’re looking for context and best practices from others. There’s definitely a community of sharing around them.

�ұ��é: Thank you Beezer and Scott.

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�ұ��é: Welcome Shuly Galili, founding partner of UpWest based here in Silicon Valley investing in pre-seed stage Israeli companies. What is UpWest’s charter?

Shuly: looked at what was the gap for Israeli founders at the very early stages. We started eight years ago in 2012. There wasn’t a seed environment established in Israel then. Startups were trying to bootstrap with very little money. However the number one pain for Israeli founders, was never money. Israel as an ecosystem is cash rich, market access poor. The number one pain that we identified very early was speed to market, understanding the customer, and who you are selling to at the seed stage. How do I validate my technology with the first US customer. It’s really hard to do it when you are far away. Many of my conversations with founders over the years before starting UpWest was, why are you testing it in Israel? Why are you not trying to do it immediately in your target market.

Our thesis from the beginning was, can we take these founders who are super-focused on the US market, give them a little bit of money and then mostly work with them on validation in the early days of the company, and then help them scale their business in the US. And that’s how we started in 2012 with a $2 million fund that we bootstrapped with friends, colleagues, angels and investors who are still involved to this day.

It wasn’t, ‘let’s build a VC’. We’re passionate about helping Israeli founders. The model of building a fund was the most aligned model that we could find. We do invest in primarily Israeli founders at the pre-seed, and seed stage, very early, pre-product market fit, who are anxiously looking to meet new customers, to validate their technology and then to build a bigger business here in the US. It means that they’re leaving their engineering in Israel. They are hiring the business know-how here in the Midwest, Silicon Valley, New York, or Boston depending on where the customer is.

�ұ��é: Your most recent fund III was $18.5 million. How much do you invest at the pre-seed stage and how much equity do you seek to get?

Shuly: Today our average check size is between $250-400k pre-seed. We typically get around 8 percent. Then we deploy more capital at the seed and series A as well.

�ұ��é: Do you co-invest for the first check in?

Shuly: We do our own checks. We may have added a few angel investors and people from our network, who are value-add, to act for the company in the early days — the CEO of Waze , and a unique angel investor that comes in at the early stage and plays a role at the board level.

We look at the category of seed and we see a lot of players. But few people understand the trials and tribulations that are going on between when a company starts and then to raise institutional Series A. And for us it’s important to have people that can really help the founders through those turbulent times.

�ұ��é: After your initial investment are there firms that you like to work with?

Shuly: What we’ve created for Israeli founders is expanded capital. Within the Israel ecosystem there is a robust VC system. We just tripled that by having the relationships that are happening here. We co-invest with , , , people that understand both the type of technology that comes out of UpWest, as well as the founders’ mentality.

�ұ��é: Is there a particular sector that you invest in?

Shuly: We’re sector agnostic. We’re the first check in a company. So if you look at the common denominator, it’s the character of these founders, and the fact that they are eager to take risk, in going to market without the cushy ‘we raised $10 million.’ We know it’s going to be challenging. You’re going to a place where nobody knows who you are, your background, or expertise.

In terms of sectors, we’re dividing it into three buckets. Sixty percent of our portfolio are typical for Israel in terms of domain expertise. Cyber-security, analytics, marketing tech, SaaS, B2B, and enterprise cloud infrastructure. Twenty percent would be emerging technologies, related to IoT,�� healthcare IT, agriculture technology, drones and robotics, that come out of either military or academia. Another twenty percent are companies who are innovative in the business model that they have. So companies in the future of work, like that are doing business software for small businesses. We lean a lot towards technical founders, and enterprise B2B.

�ұ��é: You are meeting companies here or in Israel?

Shuly: We source out of Israel, mostly. Ten percent of our investments are US, 90 percent we source in Israel. We look at around a thousand startups a year, and we invest in about six to eight companies.

Our involvement is for the long term. How do you run distributed teams? Silicon Valley is really looking at that. We’ve been doing it for a long time. When we started one of the VCs was saying ‘we can’t invest in your companies because they are not all sitting in one place.’ For us that’s capital efficiency, when they’re hiring tech somewhere else. They’re getting the best of both worlds. How do you build a company that has two offices from day one? How do you really continue to grow these two offices, both hiring technology, as well as building the business here?

�ұ��é: What are the challenges of building a distributed team that you’ve seen?

Shuly: It takes specific founders. Ultimately the sacrifice is on the CEO. It has to be a very communicative CEO. He needs to create a cohesive environment, even though the team is distributed. And ultimately live on an airplane. And not say we’re a US company, and you over there are some sort of an offshore. It’s actually the other way around. Our goal is for our CEOs to share best practices with each other.

�ұ��é: What is the stage that these companies start hiring here?

Shuly: The series A round is when they are seriously ramping up hiring here. Until then, a lot of the focus is on building tech, hiring a lot of great engineers in Israel. Some CEOs feel compelled to move earlier than others. Some CEOs have moved here immediately after we invested. Some CEOs after the series A. We really see the difference in that the longer you wait, the more difficult it becomes.

�ұ��é: Finally, tell us about a couple of companies that you’re excited by and why?

Shuly: One of them announced funding last week (their Series B) a company called . They’re based here in Mountain View. There are industries that demand new technologies to automate and make it more productive. So Stampli is doing that for invoice processing. They are an accounts payable technology company. They’re dealing with customers who have thousands and thousands of invoices, are inundated with paperwork, with paper trail, with not knowing where the invoice started, and when is it going to be paid. Stampli improves with digitization and AI. They’re in the fintech space

�ұ��é: Who is the target customer?

Shuly: Anyone from retailers to companies that have a lot of outsourced vendors. They raised a Series B from . Two brothers are the founders, one is the CEO and the other the CTO. The CEO is here building the team, the CTO in Tel Aviv.

�ұ��é: And another portfolio company to watch?

Shuly: It’s a company called . Really incredible team in cyber that comes from the offensive side. They view customers from the hacker perspective. What is vulnerable? How do you really map the attack surface of Marriott? The attack surface has changed, because it’s no longer just the technology that is on your laptop. There are many ways that servers, mobile technologies, customer lists, and credit cards are being exposed today. We have been working with early validation, customers, and helping them get the funding.

�ұ��é: Who are the customers are they talking to?

Shuly: Banks, hospitality, and enterprises.

�ұ��é: Thank you Shuly

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�ұ��é: Welcome to Vas Natarajan a partner at Accel since 2010? Vas how did you become an investor?

Vas: I have a technical background. I went to Penn, where I also studied finance and entrepreneurship. was one of the few places that hired out of undergrad. They gave you a platform to learn about company creation, and the impact of software technology on business problems worldwide. There was no better place to learn what it was like to invest in companies, to build companies. This was 2008. Venture was still very much a cottage industry. It didn’t have the size and scale that it has today. We were at the dawn of software and technology, refactoring and reorienting all aspects of the economy.

To think how much value has been created by the technology industry just over the last 10 years. In 2008 we didn’t realize what we were about to embark on. Technology is touching every corner of the economy, every dollar within the GDP of the world is ultimately going to flow through some technology system. We’re in the earliest, earliest innings of that transition.

�ұ��é: Are the skills of an operator a different skill set from an investor?

Vas: Jim and Arthur, our founders, would always say the people you hire is the company. Understanding what a really great VP of Marketing looks like, or a really great Head of Engineering, or a great CFO. We have honed that barometer for talent over many, many companies. And we spend so much time with great operators. A lot of what we counsel and help our founders on, is just understanding how to surround themselves with excellence. That is a skill set that venture uniquely gives you, because we have a portfolio of 50 to 100 companies. I’m on 13 boards. I interview multiple execs throughout the week for our companies. I think that is a valuable skill set for an operator, because ultimately, the company you’re going to build is based on people.

�ұ��é: How do you balance the early stage and late stage side of your business?

Vas: The commonality between those two sides of the business are that we want to be the first institutional investor. We want to be the founding investor in business. Whether we are coming in at a seed stage level, where we are writing a $2 to $3 million check and it’s literally the first capital into business. Or it’s a company like Atlassian. We were the first institutional investor in that business that was a $60 million Series A. We want to be the founding investor on a company’s cap table. That is the inherent commonality between our early stage practice and late stage practice.

Many companies that I work with right now I intersect on day one. Many of the founders I work with haven’t even left their companies. They’re just starting to incorporate. We just wanted to structure ourselves so that we could be the founding investor. Early stage and late stage might seem like conflicting ideologies to certain firms, but I think the most important thread there is that we want to be the founding investor.

�ұ��é: You have two separate teams?

Vas: We do, but we share a lot. We share an office. A big part of our philosophy, and something that we inherited from our founders, Jim and Arthur, is this idea of the prepared mind methodology. We spend a lot of time understanding and dissecting markets, talking to customers, meeting with CIOs. We share that data. We are actively investing right now in the low code no code movement. It’s the idea of delivering technology abstractions to non-technical users so that they can build products and services. They can build software. We’ve looked at a number of early stage businesses following that theme. We’ve made one or two seed investments in that space. We just led a big $75 million around in a company called . A later stage investment, but still the first institutional investor in.

�ұ��é: Accel has raised $2.5 billion across three funds. $525 million for early stage, $1.5 million for growth stage, and $500 million for the leaders fund. Why invest in seed at all if you have to deploy that much capital?

Vas: What matters is that we are the first founding investor behind really great entrepreneurs that are chasing big spaces. How do we do seed differently? We’re very selective. We tend not to do seed deals where we’re just passively participating in a deal. Don’t get me wrong, we’d love to be collaborative, and we are collaborative with many other seed firms. If we have the conviction to do a deal, we want to put as much money into it and potentially even take a board seat and work actively like a Series A investment. It’s not 50 seed investments that we hope five work out, and then we’ll maybe lead Series A in a couple of them. We lean into seeds with a lot of intentionality. We treat our seeds like Series As. And so for a certain set of founder, I think they appreciate that philosophy. They get the resources, and the attention of a Series A firm or a classic venture firm. We will lean into a seed when we have a strong perspective.

�ұ��é: Is there a framework for how many seed versus Series A investments?

Vas: We’d like to target 30 to 35 new investments out of a fund, whether those are 30 to 35 seeds or 30 to 35 Series A. It’s hard for us to be prescriptive out of the gate to say what that mixture looks like. And anywhere from $1 to $4 million on the seed side, and then the Series A side anywhere from $6 to $12 million.

Accel invented the concept of the EIR twenty to twenty five years ago. We were coming across great operators, great technologists within our existing portfolio companies. We wanted ways to engage operators or technologists who were thinking about what they want to do next. We do our best to open our Rolodex to our network of customers, operators, and partners so that they can accelerate validation of their hypothesis. We try and surround them with as much high signal data as possible. And the goal would be to seed them, and build a small team to go out and prosecute an idea that they have.

�ұ��é: How is the Entrepreneur in Residence (EIR) program structured?

Vas: At any time we have two to three EIRs. Their ideas will gestate for three to six months. We’re doing market exploration together. It’s very much a collaborative process. And the outcome of that can be any number of things. We could seed an idea. In the course of their journey they [could] meet a company that is in the Accel family that they want to join. That’s happened as well.

�ұ��é: Do you have a scouting program?

Vas: We work with a handful of operators within our network, who will invest on our behalf. We call them starters. They tend to invest anywhere from $25k to $50k. It exposes us to diversity of opportunities. It’s a learning mechanism for us. It gives them an opportunity to participate in the success of their friends and their family that are going out starting companies. We keep it very small. It’s not a scale program by any means. We have 10 or 15 at any time. And these are the folks that we know very well, we trust, they are in our network. It’s a very collaborative process. We pull a group portfolio review a couple times a year. They begin to see what we’re looking at. We get a chance to see what they’re seeing.

�ұ��é: Anything stand out about your network?

Vas: I have inherited a wonderful portfolio of companies that have been invested in, and founded before I got started here. And so if you look at in 2005, , , in 2008, those networks propagate and spawn additional sets of founders and entrepreneurs. A couple of the original founders from Cloudera were ex-Facebook. That network advantage is an important part of our platform. It’s the people that we get to know, and surround ourselves with.

�ұ��é: How many partners in the fund?

Vas: US venture includes five early stage partners, , , , and . The other five do US venture as well as growth.

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

Vas: There are a few broad forces that we pay a lot of attention to. We’re still so early in the migration to cloud. The cloud is redefining how end users are working together, and collaborating with one another. We spend a lot of time thinking about the future of work, the rise of new collaboration productivity systems, and how the cloud has been a major enabler for that.

Part and parcel with the cloud is the rise of the API economy, we call APX. The X means everything. What APIs do is they actually integrate multiple different subsystems. So data is no longer siloed. Workflows are no longer siloed. You can actually stitch together work across multiple different things. It’s allowed entrepreneurs to create new cloud categories that are almost super-sets of individual pieces of workflow.

I led an investment, along with my partner Steve, in a company called , which is a cloud platform for contract management. A lot of the early value proposition was — let’s use the APIs that are now readily available to us to stitch together DocuSign, Salesforce, Dropbox, and Box. So now all of these subsystems can speak to one another because they all have a common language and they have a continuity to one another. Let’s orchestrate contract management across these different subsystems. If you’re a legal ops professional you’re locking into each of those different systems, and you’re hoping that everything coheres and connects. Ironclad sits above those systems, and makes sure that everything is synchronizing correctly. From there Ironclad can start to layer on its own logic, and start to deliver more of an automated feel to a legal team, so that they are not so burdened by the crush of work.

The rise of cloud, and in particular the rise of APIs are big themes for us right now. We think the combination of those two is going to create a next set of cloud companies, both at the application tier, but also the APIs themselves will become interesting businesses.

I led an investment in which is in the customer data infrastructure space. They’re collecting, and cohering all the customer data that a company will collect. And through their integration platform, they’re structuring the data. Those API’s themselves are becoming big and important companies. And so between Segment, , , , and , we’ve probably invested in five to ten API companies that are becoming big businesses.

�ұ��é: Two of the areas you invest in are collaboration software and workflow automation. So how do you differentiate?

Vas: Collaboration software to me is how do you stitch together users, data, and conversation in one single pane of glass so that they can be well coordinated and in sync. That is happening across many horizontal spaces as well as many vertical spaces.

I led the seed and Series A in , which is a video post production collaboration system. Right now, video editors and post production teams are sharing files across Dropbox and email. The video files themselves are very dense, they’re large, it’s hard to move those into the cloud. And then when you want to comment or collaborate on those video files you actually have to synchronize your comments with a timestamp. So there’s another dimension to that data that is hard to parse out. It’s what Frame.io does. It pulls all of that content into one system. It pulls all those users into one system and then the conversation can be synchronized into one single pane of glass. And that’s what collaboration software is. It’s pulling together those three dimensions into a system that is much more coherent.

If you layer on cloud software plus APIs, what you now have is the opportunity to automate workflows. That software can now speak to other systems, and so work exists across multiple different subsystems.

In Ironclad if a contract might come in that has a specific clause, well, anytime we see this clause, let’s make sure that it fires off an event to Slack to notify our chief legal officer. That approval workflow can now be automated because you have cloud systems that can speak to one another through APIs. That’s what we think about from a workflow automation standpoint. It’s the ability to put work on rails, because systems can now speak the same language.

�ұ��é: Who are Ironclad’s initial customers?

Vas: Ironclad is going after legal operations teams, general counsels, the legal team within a technology company like Dropbox, which is one of the early customers. The fascinating thing is that contracts touch every constituent within an organization. So you are signing contracts for procurement, offer letters, sales contracts. There’s so many different constituents that touch contracts within an organization. And companies themselves are built on a lattice of different contracts. We can insert with the legal team. But that legal team will then pull in so many other constituents. And that’s what’s really exciting about collaboration software companies is they almost sub-propagate within organizations. You solve a workflow for a specific set of power users, but then those power users ultimately have to speak with other people in the company. Those end up being additional seats that you can upsell.

�ұ��é: Are there any other companies that you’re excited by and why?

Vas: I led the seed in a company called , which is a site reliability engineering platform. SRE is a concept that merges principles behind DevOps with principles behind product management. The whole concept behind SRE is that every company goes down. It’s in those acute moments that you need to synchronize the relevant users around your product stack, and make sure that they are pushing a fix as quickly as possible. If Salesforce goes down, if Amazon goes down, that’s millions of dollars of revenue, that’s upset customers. You need to make sure that the right people inside of your organization are coordinated and collaborating around how to get systems back up and running. And so what Blameless is building is a command and control for engineers, DevOps leaders, product leaders to be able to collaborate by Slack, pull in all the relevant metrics that they’re seeing from different infrastructure monitoring problems, and then push fixes as quickly as possible. And over time, they’ll allow you to build playbooks around those fixes, so that the next time you see an error, the next time you see downtime, hopefully you can automate some of those workflows.

�ұ��é: And another portfolio company you are excited by?

Vas: I also led the seed investment in a very interesting company called . We’ve been fascinated by data privacy technology. The atmospheric pressure on privacy has been building for probably 18 to 24 months. Europe has codified GDPR. California is just about to launch CCPA. Nation by nation, they’re all starting to define their own sets of data governance laws, and data privacy laws. If you are a technology company, that is serving end users around the world, you have to know where the end user is logging in from, and you have to understand the laws of their home country.

For any company that has to be GDPR compliant, you have to give your end users the right to know what data you’ve collected and how the data is being used and you have to give them the right to be forgotten. You have to give them the opportunity to delete their data. This is any company that is serving users from Europe. That is a whole set of infrastructure solutions, front end consumer facing tools that Transcend will build and sell for any company. And so if you go to privacy.trulia.com or privacy.hoteltonight.com, I as an end user can see your privacy policy, I can log in and see what data you’ve collected on me and then I can hit delete. Transcend powers all that. We’re starting to see companies that need to be compliant and privacy conscious have a new set of workflows that they need to encode in their companies and those workflows are creating the opportunity for new products.

�ұ��é: The fund in India and in the UK are separate funds? Is there cross investing between funds?

Vas: Despite our global perspective our seed strategy is still very local. Every one of our companies that ends up being a long term investment, by year four or five of their journey, they’re probably doing 20 to 40 percent of their revenue or have 20 to 40 percent of their users in global markets.

My partner Ryan and I led the Series A in a company called , which is a consumer photography platform. Half of our users are global. And so we can’t just be thinking in the vein of Silicon Valley or the United States. We’re thinking globally from day one. And so that team at VSCO has access to our partnership in London, our partnership in India. They’re thinking about how they capture the global opportunity for VSCO.

�ұ��é: Vas, thank you.

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�ұ��é: Welcome to Katie Rae, CEO and Managing Partner of The Engine. How did you get into this role of an operator in tech, and then switch to investing?

Katie: I ended up at business school where I met my first set of engineers who wanted to start a company. I was so naive that I thought maybe I could help them do it. We just started a company. It was that simple. It’s where I learned what a venture capitalist was, what an angel investor was, and from there I joined Elon Musk’s first startup called . I learned how to be a general manager, how to run things, and build technology companies.

I had helped so many people start companies over the years, I wanted to learn how to be an investor. I met at . He was one of the first people I called and said, ‘Brad, you’ve been doing this for a long time. How should I think about this?’ He’s such an open wonderful person that he very earnestly sat down with me and started to talk about it. He said, we’re just kicking off . You want to learn how to run a fund? He and hired me to run the Boston program of Techstars. This is late 2010. It all kind of went from there. Then I decided to leave Techstars and raise my own fund. I started a firm called .

�ұ��é: What did you learn through running Techstars in Boston?

Katie: There’s almost no shortcut in venture. You have to see your first two to three thousand companies before you can start to judge teams fairly. Do they meet the bar or not? Everyone gave the same number, two to three thousand companies. For most people that takes five to seven years. But when you run Techstars, in the first year I met two thousand companies.

The second thing I learned is that the effort you put into this, and the love you show for the entrepreneurs, is so fundamental to great outcomes. You really learn to trust each other. Because without that trust people just block each other off, and they stop telling the truth or they stop revealing what’s actually happening. It was so shockingly apparent to me that you have to be genuine in these relationships. It’s not a transactional business, and certainly not in the seed stage. These are early companies where a hundred things could go wrong, but only one needs to go really right to win. If you’re focused on all the wrong, you will kill these companies. That’s what I learned.

It’s a lesson that gets replayed in almost every piece of life, whether it’s your relationship with a spouse, or your children. It’s always that same lesson.

�ұ��é: The Engine was founded fairly recently in 2016. I think you joined in 2017?

Katie: It was formed as an entity at the end of 2016. We closed the funded in 2017.

�ұ��é: The Engine is part of MIT, is that correct?

Katie: It’s a spin out of MIT. It’s a for profit spin out, an independent entity. We have a board of directors in which two members are from MIT. Then we have six members outside MIT.1

�ұ��é: What is different about The Engine?

Katie: I’ll tell you what’s the same and what’s different. We are a public benefit corp at the very top, and some other funds are that as well. But we’re on a mission to create, enormous impactful tough tech companies. We start within the Boston region. We are targeted on solving really big problems with technology. That’s why you see us in things like clean energy, or how to cure disease, or feed the world’s people. At the top, we have a true mission, and our board holds us accountable to that mission.

MIT’s mission is also impact, and not only through technology. Our missions are aligned. We have access to things that are very unusual. This deep rich history of incredible technology development, and people, but also facilities. MIT opened all their facilities to the startups. They helped us build out this first space. We’re thinking about how to 10X everything we’re doing. It’s why the breakthroughs matter because they actually have to impact the world. It’s not for knowledge only, it’s both for knowledge and to impact the world.

�ұ��é: What is the connection with MIT Media lab?

Katie: The is part of the institute, and it’s funded quite differently. The way we work across MIT is we work with all the different professors, postdocs, and PhDs and some of the undergrads, on the companies they’re thinking of creating. We try to work with the ones that we believe are in this kind of tough tech zone and are ready to spin out of the university. We will nurture very early, and try to help those companies along and then fund them when we think they’re ready to spin out.

�ұ��é: How do you plan to invest the $205 million fund?

Katie: We’ve made 19 investments to date. It’ll probably be about 30 companies to 35 companies in this portfolio. We fund the gap between the lab and other venture capital. We do the first four years of a company. So pre-seed to Series A. If we were willing to invest into technical risk, the returns could be extraordinary. We spend the majority of our time in true technical risk with massive opportunity, if they get through that technical risk.

�ұ��é: How many partners on the team?

Katie: There are three partners , , and myself.

�ұ��é: How much do you typically invest? And how much equity do you like to get for that investment?

Katie: We like to get 10 to 20 percent of the company and the investment varies. Our first checks are from one to five million dollars. Sometimes we do experimental checks that are less than that because there’s something to prove out, or we’ve got to develop the team.

�ұ��é: What is the time frame for patient capital?

Katie: Whatever the biggest technical risk is, you want to take that out in the first four years. That’s what opens all kinds of capital to the company, whether it’s venture capital, or non dilutive capital, or project finance capital. Most funds are 10 years, which means that you must be in market truly deeply within the first four years. Otherwise, you’re not going to get to exit within 10 years. We like to have a slightly longer time frame than that. Ours is up to 18 years. And that allows us to take a different set of risks in technology that we think are really important. For , if this is the first commercialized fusion company, it will be very valuable. But it will take a number of years, more than most venture capital is willing to take to get there. Maybe four or five years longer. If they get there, the win is enormous. You’ll see those across the tough tech space, whether it’s in biology, or chemistry, or physics.

�ұ��é: Are there a couple of companies that you’re excited by and why?

Katie: is doing something really extraordinary. It’s an almost perfect Engine story. It’s built off of 50 years of research, in the plasma fusion center, and billions of dollars of U.S. government funding. An incredible team of postdocs launched the company out of MIT. What they’re doing is miniaturising a fusion plant, with an invention that allows them to get to net positive energy. The problem is that it hasn’t generated net energy, because it takes so much energy to run the power plant. We believe what they’ve invented will allow you to get there. If that’s true, you basically have endless clean energy. This is a team that has already proven out a bunch of the most significant milestones, and will continue to do that over the next two to three years. They are a year old as a company.

Another one that that’s probably more accessible. There’s a company here called . It’s built by a mechanical engineer out of MIT and a research biologist. They looked at the biotech industry and said, ‘Why are there PhDs basically injecting things into cells?’ Would there be a way to speed this up in the biotech industry by ten thousand X. It’s a platform. It affects almost every biotech company. They are 18 months old. We did the seed round.

�ұ��é: Is there anyone else doing what you’re trying to do around the world?

Katie: I’ve talked to probably 150 universities in the last two years. I think there are some gating factors for some of the universities, but I think you’re gonna see more of these partnerships. They have so much physical infrastructure that tough tech companies need. There is discipline that is important to company development by getting capital in, which formalizes a board and formalizes a process of focusing on things that could be enormous.

One of the things we love to do is help others. Teach others what we’ve learned already, in collaboration, so that we can learn together. There are some venture funds like and that do look at these big breakthrough technologies. We do a lot of work with on the clean energy side. These are funds that have the same longer time frame, big technology focus.

�ұ��é: Are pockets around the U.S. that are focused on deep tech outside of Boston Cambridge?

Katie: You could look at Berkeley or places in the Bay Area, Stanford, and LA. There are pockets, certainly at the big universities like , , any of the big research universities. The concentration of startups really does end up mattering. When you’re one of three startups in an ecosystem versus one of three hundred, it makes a big difference. Concentrating these tough tech startups is very much on purpose. All the research will tell you that it is good for all of them, whether it’s talent or capital or infrastructure that clustering does matter. We think this is one of the best places in the country to do companies like this.

�ұ��é: Is there anything we didn’t cover?

Katie: Sometimes people get confused between impact and returns. I don’t think you have to sacrifice return to go after really big impactful companies.

The second is that we really bet on scientists and engineers growing into the leadership of the company. We think it is fundamental that you have inventors that understand this technology, but then also want to grow into great business people. If you nurture them in growing into business leaders, they catch on super-quickly, and have the total package for running a company.

�ұ��é: And these are people who haven’t gone through business school?

Katie: Most have gotten a PhD and probably done a postdoc. We don’t want people to think, you can’t be the CEO unless you have an MBA. Lots of great MBAs are great CEOs. But if you’re running a fusion company, you better know a lot about fusion or if you’re doing a biology company, you better know a lot about that. We like to build the business expertise around someone.

�ұ��é: Well, thank you Katie.

Illustration: .

�ұ��é: Welcome to the #Angels founding team’s Katie Stanton and Jana Messerschmitt. All six founding angels met at Twitter. What was the momentum for creating #Angels?

Jana: After the IPO, one night over cocktails, we shared different tidbits around angel investing. We realized pretty quickly that we were very fortunate to come out of Twitter to see lots of entrepreneurs, and companies that were about to be formed. We decided it would actually be really fun to form this group or collective. Founders get to tap into the operating experience of all six of us. We all ran different parts of organizations and teams at Twitter across a wide variety of areas. We would also be able to take our deal flow and multiply it times six. Working at Twitter together, we built up a tremendous amount of trust. And so we wanted to be able to extend that into angel investing.

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�ұ��é: You all have day jobs outside of #Angels?��

Katie: Our day jobs have actually made us better angel investors. It helps us with with operating experiences across product, legal, marketing, and PR. As an investment collective you can put in as much time as you want. You can slow things down, you can dial it up when you need to. We joke that we’re just winging it as angels.

�ұ��é: Do you have a fund structure?

Jana: We invest personal capital. In some cases all six of us might write a check that goes into a company and other cases it might just be one or two of us. Flexibility is really important because at different moments in time with our operating gigs, we might have conflicts of interest. We might be busy with our operating career and we might not have time to look at deals closely.

Katie: A couple of us have been lucky enough to be scouts, which means working with different VCs that give us the capital to further invest in companies. This is a great way for other women, who may not have access to capital, to participate in this economy. The firm can extend their eyes and ears on the ground to different deals and different networks. It’s great for that angel investor who can learn, and have that practice with that capital. It’s great for the founder to reach a wider group of potential investors.

�ұ��é: How does scouting work?

Katie: They’re all a bit different. A VC firm will work with a particular scout, they’ll negotiate terms. That scout will find the different investments and ultimately will make the decision to invest or not to invest, maybe putting together a lightweight deal memo. That scouts name is typically on the cap table of that company.

Jana: scout program is pretty widely talked about. It’s a mix of founders, operators, and just people who are well-networked, and who have a sense of deal flow. I think that’s the primary driver for a lot of venture firms for their scouts programs is how do we get into networks, into companies that they may not necessarily see at this stage.

�ұ��é: Two of #Angels team are partners at venture firms. Jana you are an investing partner at Lightspeed Venture Partners, and Jessica Verrilli is a general partner at GV. How does that fit with your angel investing strategy?

Jana: #Angels was such a big driver for me to get into venture. It was a great way to try investing, understand what it’s like to work with founders, to come to a consensus on whether you’re excited about something, to get into the right networks. And so through the process of #Angels, I got to know a lot of different venture firms. It ended up turning into an opportunity for me to join . I am nine months in so still early. Jessica had been an associate at , earlier in her career right after undergrad. Then she ended up going back into venture, having understood a lot more through the #Angels experience.

�ұ��é: Is there a conflict doing #Angels and investing with a fund?��

Jana: I think it’s pretty complimentary. #Angels is a valuable source of deal flow. We see so many interesting opportunities. LightSpeed is a little bit further downstream. They’re going to write much larger checks. We do everything from seed, all the way up through growth investing.

�ұ��é: How much do you typically invest per deal? And how do you compete to get into deals?��

Katie: Across all the deals that we’ve done, I would say the most common check size has been $25K, sometimes we’ve done $50K. The most we’ve ever done is $200K where we have a lot of conviction in the deal. That’s per person. The large majority have been seed and Series A. Because of our network, from time to time we’ve gotten access to these breakout deals. We’ve invested in , , , and when they were a little bit further along.

�ұ��é: How do you get into them at that late stage? There’s a lot of competing dollars trying to get into those successful companies.��

Katie: I think across all six of us we have relationships with many of those founders, or CEOs, or even some of the investors who are looking at not just capital because they get capital from a lot of places. That added value comes from our different experiences, in product, engineering, legal, international, and go to market strategy. Many of them were also looking for more diversity on the cap table, knowing that they had a lot of catch up work to do in terms of bringing diversity to their teams, to their executive teams, but also to their capitalization tables.

�ұ��é: You are interested in getting more women on the cap table of successful startups. How do you make that happen?

Jana: Even though women are making gains in terms of representation in tech, we think that they hold just a fraction of the equity. from Carta reached out and said, I’m sitting on a bunch of data, do you guys want to work together? What came out was that even though women make up a third of employees at tech companies, they hold just value. So that’s a jarring statistic. If you think about what happens then with the wealth generation from these tech companies. It’s what shapes what products get started, and which companies get started, venture funds, angel investors or who has the ability to fund politics, and philanthropic endeavors. We thought that this was a watershed moment for the industry, the first study of its kind.

You have to get more women into the roles that take up the chunks of the cap table. So what are those roles. There’s four major areas. Number one is obviously founders — women still only get 2 to 3 percent of all venture funding. Number two is early employees. These tend to skew to the engineers, because you need people to build products. We need more women in engineering, hired for that first 10, 50, 100 employees. Number three is executives at companies. We need more women in executive roles. And then investors. That could be angel investors, check writing partners at firms. Those are the ways that we start to correct the gap.

Katie: Women on average makes 79 cents on the dollar. But when you factor in the equity involved, it goes to about 47 cents. When we started to angel invest, no one ever asked about who’s on your cap table. Are there women on your cap table? Are there people of color on your cap table? And increasingly we’ve seen founders approach us and say deliberately we have only male investors, we want to diversify our cap table. Would you be interested? That’s a change of mindset, which we think is very important.

Jana: In almost every deal that venture firms structure, there’s usually some amount left on the cap table for strategic investors. And so whether that’s individual angels, or maybe it’s a corporate. Now being a professional investor as well on the venture side whenever I’m doing a deal, I’m often saying, who are the other diverse investors that I can bring along?

Katie: Sometimes you can invest in a company with as little as $5K. You can add other value. You can be an advisor to those companies for free, and they will pay you to deliver some expertise that you have. We host these programming events called Angels Access. We will partner with a different VC firm, or another organization to host something around negotiations, around crypto, to help demystify what it means to become an angel investor.

�ұ��é: Have you worked with any of the angel groups out there?��

Jana: There’s a group out of Facebook called . They are a group of ex-operators out of Facebook that we’ve worked with quite a bit. And we work with a ton of pre-seed, seed stage funds. You’ll continue to see more of this trend especially since 2019 has been a year rich with tech IPOs. There is an amazing alumni group from Uber that we’ve done some co-investing with. You’ll continue to see more and more companies IPO, more operators who have liquidity to invest.

�ұ��é: Were these groups inspired by #Angels?

Katie: We were so thrilled when launched bringing so many women in venture together, sharing, not just deals but approaches and building community. Having more insight about how other firms perform. I am a principal. How do I become a partner? How much carry should I expect? To be able to ask questions and push the industry forward.

�ұ��é: What have been the key learnings for you as a group?��

Jana: We’ve now invested in 120 companies. We’ve done a bunch of consumer because a lot of us have ties to consumer companies. We’ve actually done quite a bit of enterprise, because we also do have that expertise. One of our #Angels, was the chief product officer at . I worked quite a bit on Twitter’s enterprise business. Katie was the CMO of a genetics company called , so she is our healthcare expert. We invested in a few companies in aerospace. Why not invest in rockets? We invest across multiple different industries, multiple stages. A lot in Silicon Valley, but we have portfolio companies in LA, Austin, Chicago, Denver, Boston, and New York. We have one in Latvia, but not that many internationally. 40 percent of the companies have a female founder or CEO.

�ұ��é: What’s next?

Katie: Becoming great investors and ultimately getting more women on the cap table of successful companies. And I think we want to show progress, pushing the industry forward to close that gap. There are other studies that we think could be informative. What are the root causes of that gap? For example, if you look at all seed stage funds and valuations, do valuations of companies founded by women skew less. I have an offhand observation at the most recent demo day with Y Combinator is that female founded companies that I saw were valued much lower than the male founded companies. Is that a source of part of that disparity?

Jana: When you’re a founder the terms that are set are ultimately driven by your ability to negotiate. Certain founders may only get one term sheet. So that’s the deal that they have to accept because they don’t have as much negotiation leverage. But other founders might go to Sand Hill Road and get six term sheets in a week. They’re going to drive the negotiation. They’re going to have lower dilution, higher valuations, and they’re going to set the terms. And so that’s something we talked about a lot in our group. Do women have as many options when they go out raising? Are they able to command and demand that same sort of excitement about the companies that they’re building where they’re able to drive the negotiation process and set those terms?

�ұ��é: Are there a couple of companies you are excited by?

Jana: So one is , the scooter company. If you just look at product market fit for consumer companies over the last five years, scooters and micro-mobility, it’s one of those incredible companies with consumer product market fit. Both Bird as well as Lime are working on the unit economics and really trying to figure out how to scale this business. When I first talked to the founder a few years ago, it was just so exciting to be part of that journey because it’s completely changing the way that people get around.

�ұ��é: And what stage, did you get involved in Bird?

Jana: I was an angel in Bird a couple of years ago. To see a physical product in the real world —�� scooters parked on corners. It is constantly reminding people that this is a way to get around your city. Because consumers love the experience so much they are sharing it on social media. It’s a bit like you’re flying. You don’t have to spend marketing dollars to get consumers.

Another company that we were both excited about is a company called . Most of our deal flow comes through people we know, the founders, or maybe other investors, or people in our network. This was one I randomly saw in the wild on social media. A friend of mine was using Cameo to propose to his girlfriend using the stars of the Bravo show Vanderpump Rules. How did they get these videos from these “celebrities”? I started doing research on the company and dmning the founder on Twitter and LinkedIn. It’s a marketplace that matches celebrities with consumers. The consumer will script what they want the celebrity to say. So it could be a happy birthday message. It could be an engagement message. It could be congratulations on your job promotion. Whatever you want it to be. And then the celebrity decides whether they want to fulfill it. The celebrity also sets their price. You have everything from cameos for $25 all the way up to slots charging a few thousand dollars.

The reaction videos that you get from people are, how did this happen? Is this real? How do you know this person? It’s one of those consumer products where you have virality in so many ways. You have the receiver of the cameo who takes and shares it on social media. You will also have the celebrities promoting it because this is a great way for them to make money.

Katie: Another company is . We saw that at seed and we love the idea of more products and services giving women more agency over their health. Fertility has been sort of a taboo issue. When I was trying to get pregnant, no one ever talked about it. Am I the only person not getting pregnant immediately? They’ve helped demystify fertility, and giving you more power towards understanding how fertile am I right now? What are my options? The two female founders are incredible. They recently raised their Series A from at , which is a perfect person and team to be able to bring that forward and reach a larger audience.

Illustration: .

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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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