Building a Venture Firm Like a Product | Jeff Morris Jr, Chapter One

0:03

Jeff, welcome to the show. Great to be here. You guys publish these kind of internal IC meeting minutes that you do inside of Chapter One. So what is that? What have you guys been talking about lately inside the firm? Yeah, basically we have investment committees like every firm once a week.

0:21

And we found those are probably our best conversations and we talk about everything behind the scenes in venture. And I was like, if we record these notes and publish them, I think people will find them to be really interesting. And so we just started to do that every week. It's like investment committees at venture firms are when the partners get together.

0:41

And I have this idea if we just capture everything we do all day long, you kind of do this in venture through granola and everything else. There's a lot of really interesting topics that come up every week. And so rather than having a content strategy, it's like, let's just record everything we talk about all day long and then share that publicly.

1:02

And it's kind of an extension of building in public, which is obviously a thing in operating but venture as well. And if you as a venture firm can be more open around what you're thinking and doing all day long, people do find that interesting. It's just venture firms are very, well, historically they've been very kind of like private, right? Yeah.

1:26

You're kind of like automating the building in public where you're just like taking the conversations and it's just synthesizing all the stuff for you. Pretty much, yeah. What have been some of the interesting things from the past couple weeks, like the things that have been the most, I mean, you could probably go what's been like the most liked post about these? Yeah, I think the firm topics, firm building get a lot of reactions from other VCs and LPs.

1:54

It's like when we're talking about portfolio construction, that seems to get a lot of interest.

2:01

Everyone's like, like loves to talk about the seed market right now and what seed versus growth. It's like the thing people love. Seed, series A, growth, like that's all. People just love to talk about like round definitions and, you know, should like emerging managers be doing things that aren't like three seed or seed. Those topics, I think, because everybody's at home like shit, like should we be adjusting our strategy? And I think that's just like become more of a thing.

2:32

So those are popular than we try. I wish we could like name companies and like actual, we try to anonymize everything so it's not as obvious about who we're talking about. Yeah, because you'll, I noticed you'll say something like you have some questions about it and you don't want to say anything that's like not positive about a founder. Trying to be really hard.

2:55

You don't want to like put anyone on the spot. Yeah, we, I think Sequoia's had this philosophy for a long time, like never, never disparage or talk poorly about a founder. Like that's. Building a company is like super hard and the last thing you need is some random VC. Like just like chirping away at like the obvious thing. Yeah. Yeah, we would never like nag or speak poorly about anyone building a company because it's so hard.

3:22

Yeah. I think some VCs use that for marketing and I think it's entirely wrong strategy. Really? And just why, like why would you do that? Yeah. If someone's, you know, building a company, it's their life's work and they're like, you know, the least you can do is like not talk shit about them online. Yeah. Yeah. Hopefully you support them.

3:45

Yeah. Yeah. And so the interesting thing you brought up was the evolution of all these different rounds and naming sizes. What is your current thinking about that? And maybe there's not a concrete answer to that, but yeah, what's been kind of top of mind and all that, the evolution of all these different rounds and stuff? Yeah. I think we've had to evolve our model to not think of ourselves as being like a pure seed fund.

4:16

That's how you started initially? We did. That's where most new managers start. Like you have a smaller fund to you, you know, and you want to pitch like some version of, hey, we can grow up to lead or co -lead or into show ownership. And the only way to do that is to be a seed fund. Just because the amounts of capital that they're raising are smallest, the boxes into this, like what's likely going to be a small fund.

4:42

It's a pretty easy, simple pitch kind of package up and pitch the strategy to people. Yeah. And I think a lot of LPs want seed exposure. Historically, it was like, hey, especially if you're like a fund to fund, you're probably pitching a very concentrated seed strategy. Yeah. And you want your managers to fit within those buckets. I think what's happening now in venture is those buckets like literally don't mean anything anymore because like Sequoia this morning did a seed round.

5:15

It was, I think it was a $60 million seed round, right? And so first round of capital. This is happening every single day. It's like literally every single day you read a $60 million actually sounds like a small seed round. Yeah. It would be like below average. It would be like $60 million. I don't mean valuation. I mean the amount of capital pin to the company was $60 million.

5:39

Yeah. And so like why do we have three seed or seed labels anymore when you're really just talking about valuation and amount of capital that's being raised. So our thinking is to stick with what's like an earlier stage model but then to have at least a percentage of our portfolio that we can be really flexible with. And so if we meet the next Elon Musk or whatever and they're a known quantity, should we partner with them and become part of their journeys? Like definitely.

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8:24

They first started it, but that was not your classic down the fairway pre -seed round. That was not. So we did Erebor, the $2 billion round. We put a large percentage of one of our bonds into that. We actually got to know Owen, the CEO. But obviously, Palmer is a big part of the company. And, you know, there's a pretty obvious, like, you were really all pounding the tables to do that deal.

8:53

Where, you know, I think a lot of, if we, if we had set up IC, like, no, we can't do that deal. Like, we're a seed fund. And then we would have just eliminated a big part of the market. And Erebor is, you know, in five months, one of the fastest growing banks of all time. And so do you want to, why would you not put 5 or 10% of your fund into that company? It just kind of, like, makes sense relative to just doing all, you know, really early stage investing.

9:24

When you say really early stage investing, what does that mean, like, today? Because some of these definitions are all over the place. We've got, you know, quote unquote, seed rounds, inception rounds that are the size of, like, a series C, historically, sometimes. Yeah. That would be, like, a more classic, like, the earliest is a pre -seed round.

9:44

So we've done $7 .5 million posts in the current fund. That was the valuation of the company. Yeah. He was raising, like, $7 .50, so selling 10% of the company at the pre -seed. And that's historically what venture kind of looks like, right? Yeah. That's when someone says pre -seed, that's what they think of. You put in, you raise a million dollars, and you're selling about 10% of the company.

10:07

Something like that. Exactly. And there still is, that deal still happens. It's just, you know, you're probably, it's probably a first -time founder. There's probably something, like, you know, like, actually wrong with, like, the pitch being, like, the, for some reason, it's just, like, such, uh, maybe it's the market or the way it's being communicated.

10:28

But there's a founder who's talented who's not telling the story of the company in, like, a, you know, like, a way that would make sense to most firms. Yeah. My favorite, just to kind of define this, like, legible to capital. Yeah. Like, I hate that we've kind of come to this, but it's a good way to think about it. Like, is it legible to capital? Yes.

10:50

Like, this big pool of capital, like, these allocators, they're doing their meetings, and it's like, does this pitch make sense to them? Will they, like, shift some chips over to, like, make a bet on this thing or whatever? Yeah. The legibility thing is, like, such a, that became a thing, like, a year ago, where it's, like, legible. I actually think it describes it pretty well, but.

11:08

Yeah. It's just, like, so. It's, like, such a great way to describe it. I'm also, like, I fucking hate that we're calling it that. Yeah. At the same time. I don't know. Yeah, because, like, and there are categories, too, that are just, like, illegitimate, like, you know. Like CPG. CPG or marketplaces, consumer.

11:32

Like, categories that have been historically have had great outcomes today are just not interesting to most of the market. It's so fascinating, though, but it does change. Because, I mean, even as recently as three years ago, deep tech hardware was just a hard no. Like, I don't even care what you're doing, who the founder is, the market, etc.

11:55

Like, it's just, we don't do that. Like, and there's, like, an instant pass from every investor. But it's kind of evolved to a point now where, in some cases, like, people prefer that. Like, they don't do software. Yeah. Like, we need a physical component to this thing. Yeah, I think my theory on that is that a lot of investors have just kind of wrecked by their AI investments from 2022 to 2025.

12:20

And they've gotten wrecked. Yeah, just, like, you know, you invested in 10 vertical AI companies and 9 out of the 10 just got destroyed by cloud or open AI. Yeah. And so you're like, oh, this software stuff, it's really hard. Like, maybe I'll go do physical world. And, like, hard tech and deep tech haven't gotten easier. It's just that is, like, the last place that it seems the big labs won't come in and just disrupt your company two months after you do the seed investment.

12:59

There's also, to be fair, a lot of really interesting things being built in deep tech. And, you know, a lot of, I think the culture and zeitgeist of national interest and, like, the American Dynamism theme is really, at least in the tech community, become, you know, not only accepted, but embraced. Where two or three years ago, that theme was still pretty new.

13:23

And for a variety of reasons wasn't the thing that people wanted to invest in. Not all of these. It's like everyone wants to be an American Dynamism investor. Yeah. Well, I think it ultimately just comes down to how fast will customers adopt the product? And then how efficiently can you make them adopt it? In what size will they adopt it? And, like, how efficiently and fast can you serve the product? Whether that's software, whether it's hardware.

13:53

And if you, like, think about a lot of those things, like a drone company, for example, there's just, like, the customers are more willing to pay for it faster. The supply chains, we've solved it. We can get them to them faster. And there's, like, more of a need for it. So, like, it's more efficient to sell it. The CAC, the customer acquisition is, like, more efficient, faster, etc.

14:11

So, just when you look at it as a spreadsheet, the spreadsheet looks better. And that's, like, mostly if you're a classic, you know, multi -stage fund. Like, it's literally just a spreadsheet. Like, what does the spreadsheet look like to them? Do they like what the spreadsheet tells them? Yeah. And so, like, I think some of those things are, like, that's ultimately what drives.

14:28

I feel like a lot of these sectors coming in and out of favor where, you know, they're looking at, like, what's the exit multiple on this thing? What do the public markets think about this thing? There's almost this, like, and I feel like that's kind of the danger. But then when it comes to, you know, if you raise too much money and you're, you know, you kind of, like, make it difficult to hit, like, the next target that gets you closer to the public markets.

14:52

Like, that's kind of the danger where you have to always be thinking about, like, can you hit milestones going from kind of round to round and how heated, how hot it is? Yeah. What the kind of next round looks like, what the exit looks like, whether that's just public or you sell the company, et cetera. But, yeah, a lot of those multi -stage firms are just thinking about that stuff.

15:13

Like, what are they deploying capital into? And they're really just like, what does the good spreadsheet look like at the end of the day? Yeah. Like, really, it's like, you're like an unromanticized thing. But it's, like, kind of true. Yeah. I mean, I think a lot of deep tech and hard tech is more financial engineering in some ways. What do you think about, like, raising debt? Like, should you, in, like, having sort of, like, a capital strategy as a deep tech company, like, do you need to be more intentional about that? Yeah.

15:43

I think debt is obviously, like, at some point a great idea for deep tech companies. The question is, if you see a pre -seed or seed founder and they're saying, hey, you know, we're going to raise one or two rounds of seed capital and then we'll do that going forward. I think that's a... If you look at the history of great deep tech companies, it's a combination of equity and debt.

16:09

And the debt usually funds some kind of inventory or capex, like building a physical world. It's like a physical build -out of factories, but by that point, you've raised a lot of capital. You have some contracts or real things that the credit provider can actually underwrite. Yeah. It's actually why we love Airbor is because their specific market is to...

16:36

One of them is to really underwrite deep tech companies and do that from a builder perspective, being Palmer and team have built. And they really understand kind of the nuances of building a deep tech company. So can they be a better lending partner than J .P. Morgan to the nuclear founder? And their feeling is that they can do that. But it takes time to get to the point where you can raise debt.

17:04

Is there... Talking about some of these kind of evolution of stages in venture, should you still be calling these pre -seed, seed, series A? Or do you think of them more of just the amount of capital that you've raised? How do you guys think about this internally? Like, hey, these guys are raising a pre -seed round, a seed round. Or do you say Palmer is a new bank.

17:27

They're raising hundreds of millions of dollars. How do you internally talk through this stuff? We still talk about... We still call them pre -seed or seed because I think it gives us a better view of how the founder views the company. Does that make sense? Like, if a founder is raising a pre -seed at a $7 .5 million post, like, they have a very different view on kind of where the company...

17:52

Like, the path to company building, then the founder comes in and raises the billion -dollar seed round. And so, yeah. And then our actually underwriting model is different because you assume different dilution in those two scenarios. Like, the pre -seed founder is likely going to have much more dilution along the way. Although both will have a lot of dilution.

18:18

So, yeah. I think it's like a pretty intuitive thing where you just... You kind of understand, like, what the framing of the company is based on the... More like the capital they're raising, the amount they're raising. But sometimes we'll meet a founder who thinks they're the next Elon. And, you know, we can kind of tell, like, the $20 million seed round might not happen.

18:41

But we like the founder. And those are actually interesting conversations because it's like, hey, we like you. We just don't think that, like, the $20 million seed round is the best strategy right now. Would you work with us in a more traditional seed structure?

18:59

And sometimes those founders do come back and say, yeah, I agree with you. That's a good idea. How do you figure out that specific example of thinking through a situation where, you know, should this company be raising hundreds of millions of dollars or should they just raise a million? Like, how do you... Whether it's whether you pull the trigger and actually invest or you're just, like, looking at it in a situation.

19:20

I guess it's just, like, not a good... This is the right thing to do. This is the wrong thing to do. Yeah. I think it obviously depends a lot on the business and the category. But, you know, a big thing we think about is just, like, what are the milestones you need to actually raise the next run of capital? And if you're... We talked about this earlier.

19:39

If you're raising at a multi -billion dollar valuation as a seed deal, the markets, especially if the markets do turn in the other direction. And, like, that could be fatal to your company because you have to go... One, like, no founder ever wants to raise a flat round or a down round right after their seed round. Yeah. Those are, like, the hardest things to do.

20:02

They're incredibly hard. And so you have to just have an honest conversation with the team and the founder around kind of what success looks like to get to the next round of financing. And sometimes that's kind of also a good alignment between you and the founder as to whether you'd be good partners, how they respond to that feedback. What's been one of the biggest changes to the venture industry since you kind of started chapter one? Or maybe when you got in because you actually did some angel investing before that.

20:35

Yeah. I mean, the industry feels very... It's like a cottage industry even back in 2019 where I used to be able to call you or call our, you know, 10 pre -seed emerging manager friends. And we kind of knew, like, everything that was going on in the market. At least I felt like you could kind of, like, have a feel for, hey, this round's in progress.

21:01

Whereas that's, like, the hot round of the week. And now it's just... There's so much capital in so many different firms and so many more companies. It's, like, almost, like, impossible to have that kind of, like, industry -wide perspective. And so it's just gotten bigger. Do you still try to pay attention? Or do you kind of, like... Have you just, like, accepted that we know we're not going to, quote, unquote, see everything and that's okay? Yeah, I think we had to become, like, very comfortable with not seeing everything.

21:32

Maybe in 2021 or 2022, we're like, hey... It's mostly, like, a choice for how we wanted to grow the firm. Where we wanted to be more... A bit more concentrated, a bit more, like, leader -co -lead focused. I like to do a good... Like, if you want to just run an access strategy, it's totally possible. There are firms that do that really well.

21:58

Like, firms that see everything would be, like... Like, SB Angel sees almost every deal, I think. Because they've been great partners and great kind of friends around the industry to so many different firms. Where they're not seen as being competitive. But there have been some firms who are, like, access. Now they're doing more leader -lead.

22:19

And then kind of, like, their whole network changes, too.

22:24

So, I've actually just been amazed. Somebody told me when you... Like, actually, Scott Belsky told me, like, one of the things that he didn't love about being at a venture firm was just how his, like... You know, group of, like, collaborators changed. Like, yeah, like, literally, the people you came into venture with who were your friends became, like, competitors at some point.

22:45

Because you're both now trying to get that lead ticket versus you're just kind of, you know, more of, like, an angel. Exactly. And he told me that in, like, 2020. And I didn't... You know when someone gives you advice and you, like, understand what they mean? You're kind of like, ah, I don't know if I need to do that. Yeah, then you actually...

23:03

You become, like, the wise person who experiences it. That's happened to me so many times. But I look back on that conversation. I'm like, my friends have definitely changed in venture over the past six or seven years. We'll still... Those people are still my friends. We'll go grab, like, whatever, coffee. But, like, we're not calling each other and doing business like we used to.

23:24

Yeah. How did you adjust? Because now you're doing more of, like, what you're doing in the early, early stage. So I was, like, 10% ownership. How did you adjust the strategy and, like, your thinking? Yeah, I think it was a bunch of things. But one was being more thematic in what we do. So, you know, we can presumably get to a founder, a company before the, like, rest of the market.

23:50

It has been a big thing. We're being, like, insanely aggressive on creating our own sourcing strategies. So we see parts of the market that other firms maybe don't.

24:03

And then saying yes a lot more quickly. Oh, really? So just, you know, you used to kind of like meet a founder and you'd call and be like, hey, what do you think? Like, yeah, kind of comparing notes. And now it's like, if you meet that founder and you love them, like, you have to say yes. Almost like within, you know, that, I don't want to sound like we're moving too fast, but you have to say yes, like within a couple days at this point, or else the deal just kind of gets away.

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25:58

When you talk about updating sourcing strategy, every VC is, you know, you got to keep this stuff as proprietary as you can. But any examples of like how you've maybe figured that out? Like for anybody who's trying to like figure out how to get better at sourcing, like any examples of something that's maybe like worked and, you know, don't have to spill all your secrets? Yeah.

26:22

I mean, since here we do a lot of data driven sourcing. So Jameson, my WGP is a data scientist her entire career. And so we build a ton of software internally, which has been true since I started chapter one. And so when I started the firm, I was still operating at Tinder and I built a piece of software that kind of like did different scraping the internet and I'd wake up to every morning.

26:49

And it was just because I didn't have time to call founders all day. Like I literally had a full -time job. And so it was a way for me to compete without having to be a VC all day long. And that's kind of bled into our DNA. And then for me, you know, the big thing to maybe like two years ago, I've really leaned into geography has been a big advantage for me.

27:16

So like six out of our last eight investments that I've led have been local to Los Angeles, as an example. Which is funny because I grew up in the Bay Area and started my career in San Francisco. And I think I've like actually tried to not be in L .A. VC publicly because I just think it's.

27:39

I find like the more you brand yourself in different directions, it kind of boxes you in. So if you're like, hey, I'm only investing in Los Angeles or I'm only investing in deep tech or fintech. So I do my best to not have any labels. But I think if you were to label me today, I'd be like just pretty focused on what's going on in Los Angeles.

28:01

I didn't even know. Yeah. I haven't talked about that very much. Because you like I feel like sometimes you have you have been more thematic. Yeah. You are kind of trying to stay general. Like how do you did you like mess that up at all? Or like were you too thematic at any points? Or like how do you think about staying general? Well, now you're kind of sounds like maybe very recently all in on play.

28:24

Yeah. How does that go? I think in 2021, we at the start of our fund to our crypto portfolio is marked at a brief fund to like, like a 22X. Okay. Like actually. That's crazy. And the whole world was shifting towards people building crypto companies. Yeah. And so we kind of were like, hey, should we just focus on that? And then to raise the fund 2021, then the markets turned in like 2022.

28:56

And very quickly, we're like, no, let's not only do that.

29:01

But I think that was probably our biggest moment. We're like, hey, we don't need to brand ourselves as being any specific type of firm. Like we're never going to be a. A deep tech fund. We're never going to be like a. Fast fund or if you look at the best franchises, I would argue all of them are generalists. Like, yeah, you could look at some firms are more thematic or thesis driven.

29:24

So if you have like USV is very thesis driven, but they're all kind of generalists. Right. And so this idea is how do you evolve with what's happening in the world to be relevant in any given vintage? And so I actually have seen a lot of firms that have probably overrated being AI firms over the past three or four years. Yeah, for sure. Again, that's.

29:51

Could be a good go to market, but at some point you have to evolve. So I think I actually think of building venture firms a lot like if you're building a company and you had to go to market, maybe going to market with a message or a theme is helpful. And at some point, if you have success, it's like, OK, you need to expand your business line.

30:12

So you have new themes or new focus areas and normally do that through.

30:18

Getting a win in an area. So if you're feeling stuck by being a. AI investor today, if you were to go do like a great. You let's say you did like a great nuclear deal and like, oh, that guy's like a nuclear investor. You know, yeah, but you have to get a win within those categories and then. You have to hire great people in those areas. If you feel like, hey, I really want to do something new as a venture firm.

30:46

The best way to do that is to hire somebody who's not at your firm or if you feel like you can learn quickly enough. But most of them, it's hiring someone who who has a great network or point of view within a market. What you just described, that reminds me of maybe paradigm. Good example where historically everyone kind of thought of them as a crypto firm.

31:06

But they've been a little they had one vocal moment like, hey, we're not just doing crypto anymore. And then they went out and they invested in send cut send. It's literally a machine shop, essentially like a CNC machine shop manufacturing company. Really, they kind of co -invested, I think, led around with Sequoia. And they kind of like branded themselves like, hey, we're not just doing crypto.

31:26

This is like the complete opposite. It's like a manufacturing company. Yeah, that was actually a big moment where people were like, wow, paradigm's really doing things outside of crypto because it's not even adjacent. Like this isn't a fintech company that has stable coins and they're calling it a non crypto investment. I think you mentioned you think that a lot of crypto firms kind of did that where they sort of like waded into the waters and like did some fintech, quote unquote.

31:51

Yeah. Kind of like make it acceptable to start expanding outside. Yeah, I think that's what's happening today, actually, where you have a lot of.

31:59

Branded crypto funds that are doing more fintech and that's because there is an overlap between something in crypto and fintech. But I think also it's for some of them like culturally really hard to go do a manufacturing deal because that's so far from where the firm started, right? The DNA where Paradigm actually had a moment maybe two years ago where they changed their website to be more like generalist language.

32:30

Yeah, I remember this. Like it became a Twitter. It was like a meme. It was like a huge thing. Yeah, people were just like, you know, this is like the biggest day in crypto Twitter in years. Yeah, I mean, I think a lot of people felt like it was kind of like for the rest of the crypto venture community. It kind of like made their thesis and positions less like accepted to the LP community because it's like, hey, you have like the name brand crypto firm and they're pivoting like where does that leave everybody else? Yeah.

33:06

But with the SenCutSend deal, I actually think that was the right strategy for Paradigm to say, hey, we're going to completely broaden the firm. And if you're going to pivot away from being crypto only in their case, like why not? Why not like completely refound the firm? It's like the opposite of crypto. Yeah. Yeah. Yeah. If you like map this thing out, manufacturing company Company and crypto completely opposite ends of the spectrum.

33:34

Yeah. I think there's a lot of companies who do a similar thing. They'll do a soft pivot or an adjacent pivot that's one deviation away from what they're currently doing when actually probably the right thing if you're going to pivot is to actually refund the company. And that might mean doing something that's radically different from what you're doing today.

33:59

And I think the mistake that people make when they're pivoting, it could be their company, their venture firm, their careers is not being bold enough and kind of actually like what that new direction might be. Because I think it's primarily because it's almost like an admission that what you were doing before is wrong, which might not be the case.

34:22

It might just be what you were doing before is no longer the right strategy going forward. So they can, in Paradigm's case, maybe it was the right choice to be a crypto -only fund from 2017 to 2026. I don't know if that was, I'm sure there were moments where it's a good choice, bad choice, whatever.

34:42

But you have to, you're not underwriting like your historical decision -making. You're taking a forward -looking view on what is happening in the world and how you should position your firm or your company. And that's what I think people get wrong. There's actually like an academic research paper on this that talks about having one single pivot is actually a greater predictor of success for a startup than no pivots or a bunch of pivots.

35:09

And I think like the practical reason that that becomes true is like you start kind of working on something and then you come across the big problem while you're working on a different problem. And you're like, oh, we need to like adjust our product and company strategy around this like new thing that we discovered. So like an example, I'm just kind of trying to like back into like how this could be true, like with Slack, right? They're working on a game, like built this internal chat platform to like run the company on where they're building this game.

35:38

And then the game failed. Like, wait a minute, like we have kind of built this other thing, like not gaming anymore. It's like a chat platform, but let's do that. Or if it's like, I mean, maybe an example. I don't think this would show up in this research paper specifically, but like with Facebook, when they like went all in on mobile. Like initially, right? Like it was initially like a desktop website and you realize like, oh, mobile is actually like the big opportunity here.

36:03

And I think like that's that's like practically kind of how this plays out where it's like you're working on something that you thought was the big thing. But then you come across an even bigger problem. And because you're you're like kind of like attuned to and you're so accustomed to solving and like identifying these need for customers, you like actually find the big issue.

36:23

Yeah, I agree. I think especially in the past six years, you think about it. Think about when we started our venture funds, there was pre -COVID.

36:33

There was basically like the end of mobile, as you mentioned, kind of like you had cloud. You have maybe like some interesting things happening in bottom -up SaaS. But think about how much has changed in the world back then. And imagine if you as an investor hadn't evolved your strategy to where the world is today. And I think the same is true for founders like the.

36:57

Like that pivoting moment, proving you can do that stuff once, I think gives you the confidence to do it again and again and again. I think if pivot's almost the wrong word, it's just like iterating and trying to find new markets or new products that can expand what you're doing today. And actually, we haven't talked yet about Flex in terms of the kind of like we're both investors in Flex, right? And I think it took them two or three years to really find like the big market and kind of find product market fit.

37:29

And it's kind of like initially that's like really niche software, fintech software for construction. Exactly. Like you could say that's like, I think, I think like a lot of Zayde got was like, ah, it's too niche. Like won't work. Not big enough TAM for us kind of a thing. Yeah. And I think that's what most investors get wrong with these initial.

37:49

So you need a wedge, right? To go to market. In that case, the wedge was like so specific. And I think it like, it like was so illegible to the venture market. Yeah. Like very few people want to find that idea. But in going that niche, I think he was able to get closer to a set of customers, which gave him the idea to expand what they were doing.

38:12

Yeah. I've been trying to like reverse post success, try to figure out like why it kind of worked. And like a lot of people had started these sort of like online lending companies where like you get a loan or whatever. And it's kind of interesting with Flex positioning. It was like it was a credit card. So it was still like a loan. But it's something you used every day to like run your business versus you go to this website, get a loan, you refinance your bad debt onto this new platform.

38:40

And then you just kind of like stop using it. And you never log back in. You maybe make some payments. Maybe don't. Maybe the loan defaults. Maybe it doesn't. But if you want like is the lending company, if you want to re -underwrite another loan, you got to like you got to figure out how do you get another loan, right? Maybe you're like running ads, etc.

38:58

But with Flex, it's just like a credit card that you used every day. So you're like always re -topping up the loan balance. Like you're always lending them more money. It was like kind of an interesting is no one had really done that before in that specific vertical and credit either. So it was like he takes what's like traditionally like a graveyard of like lending to small businesses or like the economics don't make any sense.

39:21

Because you got to like reacquire these customers over and over again for all these other loans.

39:26

And you're typically lending to like bad customer. Like you're bidding on keywords of like I need a loan. Like that's not that's probably not a person you want to loan for loan to, right? Yeah, there are two keywords you say which automatically create like the venture fire alarms, right? Of a pitch. It's like lending. So most VCs hate lending companies.

39:46

And then most VCs hate anything that's like a SMB go to market. Yeah. And so they were they had two of those within a single pitch. Yeah. And it's so funny. There are these like words that VCs dislike in a pitch which automatically becomes a no ad investment committee. And then as a founder if you like tweak one of those keywords then suddenly you become fundable, right? Yeah.

40:13

And how do you know when should you be pivoting if you're working on something? And is it like acceptable? Like what if you are building like a consumer thing? Like a, you know, DC fashion brand like t -shirts. But then all of a sudden you're making like developer software or something. Like that's like V180. Like is that okay to do? Like do you find founders? Like is it hard to say that and like come to terms with that? Yeah, I think, you know, probably in the last five years I got that more phone calls with founders around the, you know, should I pivot conversation.

40:51

And the one thing that I've heard 100% of the time is like I didn't know that I could have this conversation with my investors, right? Like you didn't know you were allowed to change what you were doing as a founder. I think it was seen as a sign of weakness or maybe you're worried like are we losing faith in the company? Like does this mean we won't be able to raise next round? Whatever it is.

41:13

But on those calls I always say like you should consider pivoting the company if it's at all a thought in the back of your mind. And most of the time the conversation starts with you're getting the same investor update for two quarters in a row. Because hey, none of the metrics are moving, small iterations on the idea, and there's nothing that's going to profoundly change the business from where it is today.

41:39

And so now I'm like, I think more investors should have that conversation. And it's when it creates a lot of trust with you and the team where, hey, we can have actually a real conversation, but most of the time they're really excited to have that conversation with you. And I think in probably every single case that they have ended up pivoting the company, almost all of them.

42:03

And that just shows that the team knows already that they need to pivot. They just haven't been able to come to terms with that either internally or with their investors. Yeah.

42:18

And so as if you see, like we care about the, like every month that you're spending time on the wrong ideas, just like a bad use of dollars and also your time as a founder. And especially right now when you have so many things that you can build, you should not waste any time. Like you should go work on really important problems and try and find those problems as opposed to just like being stubborn about the thing that you pitch in your pitch deck.

42:46

Yeah. And I think you had an experience with this, with a company that you were working at, I think it was one of your first jobs in tech where there's maybe like a, it took you a while to figure out like, hey, maybe this isn't working. Maybe we should pivot. Yeah. I worked at a marketplace called Zarly. It's a Craigslist competitor. We basically tried to be like Uber for everything.

43:08

So you could request any service or product on your phone and people in your community would take me like, I want, I need a ride to their airport. I need a place to stay. It's like a meta marketplace. It was all those like a hundred million dollar companies you're selling one, like Airbnb, Uber, et cetera. Yeah. We used to, like we would host parties in San Francisco.

43:29

And I remember Max Mullen from Instacart was at one of the parties and he was telling us about Instacart and we're like, oh, we're, we do grocery deliveries or we have like a, a startup like beef. It was more on our side. We're like, we're going to, we're going to beat Uber, right? Yeah. I'm sure they weren't thinking about us at all, but in our minds we were like competing with all them.

43:50

And anyways, it, it became clear after like a year that that strategy of trying to compete in every market. By the way, we also launched nationally on day one and across the, so like a non -local, completely horizontal marketplace wasn't a good idea, but we, we never really fully pivoted the company. We ended up trying like home services, but it was still like adjacent to what we were doing.

44:15

And yeah, I think within like two years, I knew the company probably wasn't going to succeed at the level we, we wanted to, but I stuck around because I did love the people and kept convinced myself that we get this new feature out, we ship this new thing, it'll solve all of our problems. And I think you can get caught in that mindset at a company that's either a founder and employee where you know in your heart that somebody's like the core assumption of the foundation of the company is probably not the right idea, but it's really hard to pivot.

44:49

And so my advice to anybody is to, when you discover that that idea is not going to work and you've obviously tested a bunch of different versions of whatever your, your pitches, like to then pivot the company and, and do so aggressively, like with the same intentionality and speed that you found in the company, like do that same thing for the pivot as opposed to kind of like soft pivoting.

45:16

I think the interesting kind of arc with Zarley too, is you were, you grew up in the Bay area. You had lived in LA for school, you went to school, UCLA, and then you kind of moved back to SF, but you like left, like everyone's trying to move to the Bay area. You, Zarley was in Kansas city, right? Yeah, exactly. So I like, how did that, how did that process go? I think you had like a pretty quick interview turnaround, I think.

45:40

Yeah. I saw the company on Twitter, which is, you know, what I was doing at the time was mostly just meeting people on Twitter and then they put out a job posting for a growth marketer. But you need to be, I called them, well, I DM the founder and then we got to call the next day with the team. And they said, you need to move to Kansas city tomorrow because we have all these other people want the job.

46:03

And I left San Francisco and moved to Kansas city with, without even knowing if it was Kansas city, Missouri or Kansas city, Kansas. I didn't actually know the difference between the two. To me, it was just Kansas city was a place.

46:17

And so I went there with just like one bag of clothes and I didn't have a place to live and just moved from San Francisco. My friends thought I was absolutely crazy because it was like, why are you leaving the tech ecosystem to go work in the Midwest at some company? And why were they in Kansas city? That's just like super random. So the founder lived there.

46:42

And part of the idea was we were going to focus on kind of like the Midwest. So it was really like the team live there. The company came together so quickly in terms of getting funded that it just didn't make sense to like be anywhere else at that time. They ended up moving, I ended up moving back to San Francisco with the company eventually, but we were all there for about six months and it was, it's a pretty, pretty intense time.

47:09

But you know, again, I think the experience taught me that you can do crazy things, pivot your career, pivot, literally leave the city and go to Kansas city to start your tech career. That seemed like a crazy idea at the time. And you were doing door to door sales, I think for Charlie, like what's the story with that? Yeah. Yeah. So I think, uh, Jameson mentioned she might, uh, my partner.

47:36

So no, I was doing growth and the story there is we did this Valentine's day campaign where we were like subsidizing the cost, but you could buy flowers and get them hand delivered to your door for like $30. It's like, you know, it's like, okay, it's basically marketing and we charge a nominal amount. And we were, so we launched this in San Francisco,

48:00

New York and Kansas city. And I found people to deliver the flowers in San Francisco, New York. And then realized like, I was like, I don't have enough people in Kansas city. So I flew there and I was driving through Kansas and Missouri and I just delivered all the flowers myself. Um, but the, the idea was like, I think at the time, like I just learned how to do things that were like very unsexy and to have fun with it.

48:28

So like that moment I was like, this is awesome. Like I'm in Kansas driving flowers to people. They're all happy. And this is, you know, I'm listening to good music or whatever.

48:39

And I, you know, I see a lot of employees at venture firms and companies who just want to like go straight to the top. It's like, I just remember like, man, I was delivering flowers. Like you have to do some of that just like really groundwork. Yeah. Yeah. Grindy work. And, and, you know, back to the founders who, who will like win, I think they'll do a certain amount of like grindy work and, and have fun with it.

49:09

Like you can actually have fun doing that stuff. If you just change your mindset and, and think about, Hey, this is a fun day in Kansas city. And you mentioned actually that now is like the most fun you've ever had in venture. What's the most, like, why is it fun? And I think like, why is that such a bold thing to say? Like, do a lot of people not have fun or, well, I think For me, it's fun because there's so many things happening at once.

49:35

So if you Love like At the heart of why I think most DC's got into tech would be well Maybe this is Too romantic but would be like you love technology, right? Like a very basic statement like I love Technology. I love seeing New things happening in the world that I've never seen before and today that's happening more so than any point in my career across You know probably 10 different like huge industries whereas so it could be

50:09

Defense, Manufacturing, Robotics, Energy, AI, FinTech like you can name all the categories Where I felt like when I started in venture maybe Seven years ago It was kind of like hey, we're in this like Kind of like post -mobile cloud world. There's like A lot of like bottoms -up software. There's You know, like some weird things happening in crypto and FinTech

50:35

Maybe like some cool new like ideas in bio, but there wasn't this explosion of Possibilities at the same exact moment in time And that's all happening today. So if you Like actually love the grind of doing this job and waking up every day and finding New companies it should be the best time in your career. I think people Can get jaded by the industry just being like so deep in the weeds or saying hey This doesn't look like venture anymore because everything's so financialized and Hey that round that's that's not a seed round.

51:07

That's a billion dollar You know like it's like an IPO round. Yeah, and you can kind of like get Way too lost in Why you think that's not a good idea or or why that's not the industry you grew up in To just like stop and say hey, there's some really cool shit happening right now and I want to go find that company and And so that's I think what's going on

51:31

actually, uh Talking about something else. I saw you say you you kind of like Offhand mentioned. Oh, yeah, we raised our third fund recently I guess this is the announcement of the fund like you didn't even like say anything so like So did you you raised a new fund recently you're like what's that what happened? Yeah, we raised our third fund and We haven't announced yet.

51:51

Although I did I like just like wrote on a random it might have even been like a twitter reply. Yeah It's just like a random comment Like I you're like I guess this is the announcement. Well, I did that because I truly think that nobody cares Okay, like I think that everybody like is so self Involved with what they have going on in their firm That's like we're gonna do the best and biggest announcement and like The whole world's gonna care and you can launch video influencers quote tweets like Totally if I was building a company like a real company I would be valuable, but I think VCs tend to over Think how much other people care about what they're doing.

52:29

Yeah, and um It was like it's not a big deal like we're not

52:37

If you compare the funds has we raised to the billion dollar seed round it's it's like small peanuts, right? Yeah, so the yeah the idea the idea I think was just like hey

52:49

Let's just keep doing the work and and if someone wants to You know cover our fundraising announcement. That's awesome, but Let's not like spend too much time on on sharing this message with with the world Hmm that's fair what If there's like 30 seconds on the message like well, so what it like what was the fun like like Have you thought through what you'd actually like say if someone was like what's the new thing you'd announce? Yeah, I think it well It's fun three and so it's You know like just Doing the same thing we've been doing for the past couple years with A slightly bigger fund so we raise 64 million dollars for the fund and we have Yeah, small team still great

53:31

great group of people who are doing Primarily early stage investing so But it's across a bunch of different categories. I mentioned i'm I'm like very much focused on what's happening in LA so that tends to be A bit more on the deep tech side Jameson is in London. She's doing more Oh, I didn't realize she was in London. Yeah And so she tends to do things that that look more like AI

53:58

And then I we still both do a lot um within Financial services And so I think the the big message is that we're not Going to do a big Announcement but it is nice I think why people do announcements is To tell the market a we have capital like yeah, you should come pitch us Well, I think part of the announcements too is like like for you and me like I might just like tweet something Like I have a couple tweets on my phone right now that like I just have like hundreds of likes on them and I You know 100 000 views and like whatever.

54:30

It's just like It's just like another day, but Some people that might like an announcement of a new fund is like a notable thing to like get Attention around what they're doing so they kind of you kind of announce it is like that's That's the thing to remind people that we exist. Yeah, so and like I think some of my like fund announcements posted Like not done that when i've done them.

54:50

It's like Yeah, I think um You know both kind of lived in the twitter world for a very long time. Yeah, for better or worse. I think for better But mental health is maybe like struggled a little bit like the phone addiction or whatever social media addiction totally and so I think Maybe because of that we just view like a lot of like a fun announcement.

55:12

It's just been like Another tweet or like content. Yeah as opposed to like something that needs to be Like a tent -hole strategy like social strategy or whatever. Yeah

55:50

Yeah Yeah Really You know like kind of like Do you see you know people people want to know what's going on behind the scenes at A venture firm or company and so it's like if you Share more of that And take that to almost like the logical extreme like I think you'll get more views Yeah, so if we want to like open source literally the the most probably like uh viral version this would be What if we just like did like live stream our in our investment committee like that would probably get more views We can't do that for Yeah

56:24

Yeah You have to figure out what the line is on okay Like we want to publish content that's interesting that we'll get traction But obviously we can't share everything so yeah, that's fair And actually so I wanted to ask you after Zarly You I don't know if it was immediately but soon after you moved I think back to la and you started working at tinder Um, that's right Yeah, so I moved at some point from Kansas City to New York to San Francisco with the company Zarly at the time okay And then in 2015 I was debating whether I wanted to start a company and or Join a company and luckily I got a phone call around that time because the company ideas we're exploring were in

57:07

retrospect not the best ideas But to join tinder as a employee 50 and kind of be like the Second product person on the team

57:18

And so I moved to la thinking it's going to be a really short Couple years just because I was like Go there tinder's kind of a crazy company like What's this dating app? And But moved back to San Francisco after and I just ended up, yeah, I'm still here, so. Oh yeah, yeah, we're still in LA. And I think you added like $30 million in revenue from like one feature, like your first week or something like that.

57:44

What's the story? Well, my first week, basically our Tinder had no ability to send a push notification at the time. You couldn't send push notifications? We as a company, if we wanted to send a push notification, could not send the transaction notifications to like, you have a message or you have a like, like kind of like things. But we as a company could not send like a push notification.

58:10

Just like, hey, check out Tinder, open it up. Yeah, exactly. Okay. Like, was that like an Apple thing or you had not built the infrastructure? That was the company just had not invested the resources in the building. And so basically like within a week, I came in there like, can you help us figure out how to send push notifications? I was like, okay.

58:34

But then I was like, you know what, if I send our first push notification to 40 million people, like I guarantee you we're going to have a big day. And so I got, at the time they gave me like a CSV file of the like mobile IDs to send out the notification. Literally like exported a single file that was like lived on my hard drive at the time.

59:00

It was like something you would never do as a public company. We weren't public at the time, but.

59:06

And we figured out how to send a push notification. And so this was announcing a feature called super like at the time, which. That's what you pay for that, right? You pay for that. Okay. But we sent the notification to, so had to figure out how to get translated into, you know. What different languages? 40 different languages or whatever.

59:24

And then had to figure out a bunch of things. One of the things I figured out quickly was that you should rate limit the notifications. Because our servers weren't able to handle like the, if we just sent 40 million people a single notification once. Or like Tinder would go down the service, the servers when I ended up doing that by accident once or twice.

59:46

We took down Tinder. But yeah, we sent that on it. We had our highest daily active day ever. So we had the most DAUs ever. That was within my first, I want to say two or three weeks, not first week. But everyone's like, Jeff is like, Jeff is a smart guy. You know, he's had to like. Send push notifications. It was amazing. I was like, this is, I was like, literally I can be a hero at this company.

1:00:12

And so then from that, they put me in charge of revenue. And we ended up becoming the top grossing app in the world. And so for many years. And so then I became like the revenue guy at the top grossing app. And I think that really. Does it help build your brand, right? Yeah, definitely. It'd be, you know, if you go to. Well, we were the fastest, one of the fastest growing consumer companies at that time.

1:00:38

And definitely the largest within the dating space. But if you, if you're like one of the key people at a company that's growing that quickly. And you're, you're being vocal online about what you're doing. Yeah. Like people will take interest in your career. And that happened for me at the time. Yeah. I want to talk more about what happened next.

1:00:59

But I know you get asked a lot. Like starting a dating app. But can you, like, I'm assuming like every, every pitch, every, every like pre -see they're raising when you started a dating app. So what do you, how do those conversations usually go? And like, what do you usually help people think through? And is it a good idea, bad idea? Yeah.

1:01:17

Luckily, I used to get pitched a lot more dating apps than not as many anymore. But when I was leaving the company, I think. Yeah. Whenever you leave a company, people think of you as being a certain category. Or so a lot of people thought of me as being like a consumer investor. And then like a sub category was dating app. I probably did do that too.

1:01:34

Like, I met this cool dating app. What do you think? Yeah. Oh, I got so many.

1:01:40

And the mistake that, that every, almost every founder made was pitching a slight, like a slight tweak on the swiping model, which is like, you know, you have a stack of profiles and you swipe right or left on them. And I was always like, no, we're going to add this restriction or this feature or we'll build it for some different audience.

1:02:05

And people just need to be shown something that's like a totally new form factor or like a very new experience or they're just not going to care. Like it's kind of back to the content conversation. I think people are just, just don't tend to have like a lot of attention for anything anymore. And so if you're going to build a dating app or new product, consumer product, especially it needs to just like shock people.

1:02:31

Cause no one cares. Like if it's just like a little bit different than something else, like I've already seen this before. Like this isn't that. Nobody cares and nobody wants to download a new app. And so there's also just like app fatigue. There are some exceptions. Like I think Polly Market and Calci have become obviously huge because they help people presumably like make money or bet.

1:02:55

A lot of people don't make money using those products, but hey, the data, they put out data that says that their users are profitable is what they say. But I think anything finance or trading is the exception. But if you're building like a consumer social product, people really need to see something new. And most products I've seen dating wise have been not new enough.

1:03:22

And so we like category, I don't take dating pitches at all. Like I most of them will just say it would be a better use of your time to.

1:03:34

And I also don't really want to give like a ton of feedback because my feedback I've like seen too much. And so like part of the, like the person who builds the next great dating app will probably be someone who like just is so naive to how hard it is that they just do it and it like catches fire. And my, like my feedback would generally be to not start a new dating app.

1:03:59

On the whole. So although we are, we haven't shared it publicly, but we've kind of got involved in, in incubating some that's in the kind of in the relationship space. But, but we, yeah, that was like a really rare reason why we did that. And you still, do you still pay attention to what's happening in the consumer technology landscape? Like, are you, are you still kind of interested? Do you think more people should be building and investing in there or no? Or, yeah, I think the, like Josh Elman rejoining A16Z is kind of the mindset I'm in, which is, Hey, there should be some really cool new consumer products around with AI kind of as the foundation that emerge in the

1:04:47

next. Yeah. Yeah. Three to five years within this, the current fund we're investing in, there should be some really cool consumer products that come to market. It,

1:04:57

the view one of consumer AI has been way too predictable where it's been a lot of like, Hey, we're going to take the same activity feed that is on Instagram and just put like generative content in there. And people just love it because it's, you know, like people love watching like the AI version of, of what Instagram is. And in most cases, like that's just not going to, that's just not going to work because if you trace on the same form factor, then the content needs to compete on just like how fun and interesting is this.

1:05:31

And most AI content, at least consumed in like a single feed, if you just show people all AI content, will become really boring pretty quickly. And so I think that what we're seeing consumer now, which is pretty exciting, I think probably the best design space would just be like how we use context and memory to create better experiences that are more intelligent and more predictive and personalized.

1:06:00

And that's starting to kind of happen where we're starting to see a lot of that. And a lot of the products that I use are just things we've built, primarily for work reasons. But it'd be like giving agents or any AI tool complete access to all of your basic everything that's happening in your life and in your firm and helping them have that context to create really cool products.

1:06:34

I think that's like intelligence is a pretty big unlock to how you would design a product for consumers today versus five years ago. Anyone who's done that well, like good examples, but people kind of know what you're talking about. Yeah, I think there have been a couple like SMS based products that are trying to do this. I'm trying to think of like poke was like the most recent example of of like hinting at what this is, which is, hey, you're going to give us access to your email account, you're kind of like all your tools in your life, and we're going to create as much context as possible as quickly as possible.

1:07:15

And so in that case, like you, by getting someone access to your email, they know where you travel, what airline you use, who you talk to all day long, types of things that you're thinking about, what you subscribe to, and then they can start to just automate different things in your life pretty quickly. I think that's, I think that's probably, probably like, in the shape of what things might look like, where I think sometimes founders get things wrong is assuming that people want to automate everything in their lives.

1:07:46

Like a lot of people like the human, like the humanity of like shopping. Some people like just scrolling and or walking around the mall and trying on clothes. Totally. Actually, I think about this a lot. So it's like shopping is entertainment, right? And so you, it's very visual. It's very personal. You, you as the human one, almost feel like you're the curator too.

1:08:12

Yeah. Because if you have good style, you want, you want that to be like your, your choice. I see a lot of founders building like agentic e -commerce products. And I think for the most part, they're not understanding that piece of psychology, which is, or like travel is actually a pretty good one too, where like some people just really love to plan trips.

1:08:36

Right. And so not all trips where like business travel, people don't care as much about as, you know, planning like the next epic trip for your family. But I think there's a broad stroke that's applied to these categories where it's, you know, we're going to try and do everything and ignoring kind of like the entertainment aspect, which we know is true for a lot of things we do in our lives.

1:08:59

Yeah. I feel like it's been, it's been tough in consumer because when you just think about this purely from the spreadsheet side of like how valuable and how profitable is this thing on the consumer side, you know, you think of like the canonical chat GPT where somebody is using chat GPT is almost like glorified Google. Like it's like better Google basically and or like a therapist and you're, you're like maybe not even paying for it.

1:09:24

And if you do, you maybe pay 30 bucks a month or something like that. Like just, and you have to go to acquire all the users versus on the other side, on the enterprise side, you can like land Google as a customer and you have thousands of underlying employees who use it. And it's like a $50 million contract. And just like the math of that business is so much better.

1:09:44

And on the consumer side too, like the inference costs historically has been like insane to where like the customers are unprofitable. Like a consumer business is like, I mean, OpenAI has been public about this. It's like, it's hard to make money and be profitable as a consumer business. So hopefully that starts to flip. Yeah. I think, look, a lot of people are going to try and as, again, like as flawed and OpenAI kill more and more enterprise companies, the logical next place founders would spend time would be doing things in consumer.

1:10:19

And so I actually think probably like one of the most underrated themes of company, you know, it's like the simplicity of network effects, which we seem to forget. And you can, I think with AI today, build network effects potentially faster than before in consumer businesses. Have you seen it happen yet? Or what do you think it could happen? I think it could happen much faster because for a lot of reasons, but the one is you can just build software much faster.

1:10:48

So if you identify, you know, a segment or market, you can really kind of like go more aggressively after those customers. And then two, it's a little bit more nuances, like non -human web traffic is going to become such a bigger piece of the internet than humans. And there are network effects with how agents interact with each other and the decisions they make as to what products they choose to use.

1:11:18

And so a non -consumer version, this would be like, like Supabase has great network effects within like agents spinning up databases. And it's like this whole new category of company building on the enterprise side, but like building products that really appeal to the non -human customer, I think is going to be a really interesting place to spend time to.

1:11:42

Yeah. And you think that there is, so like the existing database company that is not built for agents, they're not like positioned to capture that market in a lot of cases or in not just in database, but like a lot of these like human made products are not custom tailored towards agent needs or something like that? Well, I think in Supabase's case, they were built for humans, but the product position and the experience was like based on, you know, like reducing friction and simplifying the integration time to set up a database.

1:12:20

And so that same framework applies to agents. So it's almost like the bottoms up companies that were like really lean into AI over the past three or four years are in a pretty good position. So, yeah, but if you just look at like web traffic as a whole, if you look at their growth, a lot of it's been due to agentic enterprise software decisions.

1:12:48

Yeah. There's just like calling things. They're looking things up. Yeah. Yeah. So, but we'll see. I think this is, again, like why it's so interesting to invest in, to be a venture investor right now. There's just so much going on. And then when you, when you first kind of got transitioned into venture, you started posting about what you were doing at Tinder, lessons, started investing in sort of like, you were kind of sort of like a product driven investor.

1:13:15

How did you kind of transition from working at Tinder to say, you've got chapter one? What was that arc? Yeah. So we, well, it's just me at the time, but launched the firm from my desk, still at Tinder. And a lot of the reasons why I was getting on cap tables as an operator was because people need help with their product. Very simple things.

1:13:40

Yeah. But come through, I was like product growth and monetization. And so that really meant kind of the shape of like what I want to do is build a firm that was very product driven. And so that meant, and I did like the, like Silicon Valley interview tour where I talked to different venture firms about, do I join them or start chapter one? And what were some of those conversations like, like what was your biggest takeaways?

1:14:06

I think it's just the pace at which a lot of them moved was much slower than I liked across all aspects. One was like hiring was a really simple one where there's like this lag between the first conversation and second conversation. And a lot of venture firms, it can take a while.

1:14:26

And, you know, on the other side, I kind of understand why, because when you're hiring an investor, like you really want to get to know them as a person, like why they do what they do, how they think.

1:14:37

But at the time I was like, you know what? I know how to move quickly. Like I've been moving quickly for the past, you know, 10 years as an operator. Like I just want to get going. And I want to find people who moved at like a pace I'd expect at an engineering organization or product organization. And people are really hungry to do that. And then kind of the second part was I wanted people who were really iterative in terms of how they approach their work.

1:15:05

So, yeah, I think my career as a product person was very much like here are 50 experiments. I don't always know what's going to work, but I'm just going to try them all and follow the customer. I think in many ways how we've built Chapter One is similar. Like we're, you know, we're going to launch like 50 different experiments within a fun cycle and most of them won't work.

1:15:35

Most of them will actually probably be a really bad idea. Really? Well, but we're like very OK with that failure rate. And then we need to kind of follow the things that are working. And so I think that's been a staple of our firm. Like we don't overthink anything on the experiment side. We're like if you have a good idea, let's test it. And almost like you would at a product org.

1:16:00

And so I actually think our LPs to their, you know, they've like followed us on that journey and understand it. But if you're just watching, you know, outside and you might think it's all a bit random. But what's been you said some of those failed spectacularly. So I'm curious. Worst thing that you tried or like just like didn't work or like embarrassing.

1:16:21

It was like failed, whatever. Like what's been like the worst experiment that you guys have run? It's a great.

1:16:28

I don't think anything's been the worst. It's just like they weren't the thing that was going to like get us the next. Like it just didn't do anything. Like it just like ended up kind of being a waste of time. Yeah, like I wouldn't call it a waste of time at all, but we did in fun one. We launched an accelerator called Product Club. Oh, I remember that.

1:16:45

Yeah. Can you do demo days for that too? We did a demo day. Yeah, I did some of the demo days. And it was actually like hugely gratifying. We had like that is to build the world's smallest accelerator. Yeah. There's only a couple of companies, right? Three per batch. Oh, yeah. Almost like like like ridiculously small batches. Yeah. Yeah. Actually, but it was interesting for me because there's a lot of accelerators.

1:17:07

There's like 50 companies and they're like, hey, we've got our demo day. Here's a list of all the companies. There's like 50 of them. And I'm like, I just don't even know where to start. Like it's going to take me a true day to go through this. But if you just give me like two that you're like, hey, these are the best ones. Then you'll pay attention.

1:17:25

Yeah. So it was kind of nice. There's three. You're like, I remember like each one. I was like, oh, this makes sense. I think I actually remember two of them. One of them was Medify. Medify. Yeah. One of them was a Brazilian Yellow Pages. Yes. Oh, this is impressive. I can't remember the third one. The Spline was the third one. Oh, yeah. And I actually did meet the Spline founder too.

1:17:45

Yeah. It was. So that was more like, hey, do you want to like really commit ourselves to doing it? I think the lesson was to be an accelerator. You have to probably only be an accelerator. Yeah. Yeah. Or. Yeah. If you're a smaller firm, like we only have so much time and and capital, people, money, everything else. Yeah. And so it's more of like, hey, do we think this is really going to be our thing? Yeah.

1:18:13

Yeah. We moved on. It's like, it was great. It's like a ton of fun. I ended up, I think it was, you know, Spline and Medify were like standout companies who had, you know, and you, you became really close to the founders. So it's almost like that experience showed me why I wanted to do like a bit more concentrated investing work because I was like helping Alejandro with literally every, everything you can imagine

1:18:41

at the time. And, and almost like thought of him as being, you know, like a teammate where a lot of, a lot of like the funnel one investments, you do like a 50 K check or 100 K check. And it's just kind of how it works. You, you get the founder updates, but you don't necessarily have like deep involved with the companies. Yeah. And then, so you guys have evolved that model where you're not doing, so how many companies did you invest in out of the first one?

1:19:09

It's 56 is close to 60 companies. Yeah. Okay. I actually, I think I did 64. The advice I got was actually from David Lee at SV Angel. He was kind of like running it for a couple of funds and he told me, he's like, hey, you're going to do a diversified fund. Yeah. You're going to make a bunch of mistakes and you're going to do a bunch of dumb things and just make sure you get a lot of shots on goal so that the ones that work, like and the things that don't work, don't sink.

1:19:36

Yeah. Do a diversified fund with a lot of smaller checks.

1:19:40

And looking back, he was right. 100%. He was right. And then with the second fund, I went more concentrated because I basically took all the lessons I learned and it's like, okay, if I just like chop off the companies I wouldn't have invested in with these lessons I've kind of learned, I'm at like 25 companies. And like that was, that was the second fund.

1:19:58

Yeah. What was it like for you? It's a little bit the same where I see the main difference is we have, we actually still have like a large number of companies being like our goal is to have really concentrated positions in a small set of companies. But to get there, we're not like precious about how we get there being like we'll probably invest in close to 60 companies per fund.

1:20:24

It's our entry point on those or the initial check size can vary quite a bit. And then we kind of like funnel it into can we really get like 20 core positions that and that's ownership dollars deployed. Like it's percentage of the fund. Yeah. It's like, can we concentrate our dollars in a smaller set of companies? But we're like totally okay with the number of companies being large.

1:20:51

And that's just about, can we, you know, be close to the teams and the founders to one, just know what's working, which is, and then two, earn the right to get more capital in those companies that are starting to work.

1:21:07

And that's been, and then, you know, I think, I think a lot of this is just a response to what's happening in the market, right?

1:21:16

That strategy I just described might be very different in three or four years because venture might look a lot different. And so, again, I think you have to have like a open mind, be very open minded about what's happening in the industry. I would say right now, it's like much, much harder to pick a winning company at the seed than it was five years ago is my theory.

1:21:38

And so you. So what's changed? Just the number of companies and ideas that come to market and then the pace at which those same companies can be disrupted. And so if you were to build a model based on like, actually, when I started the firm, I went and spent time with Mike Maples at Pluggate. And he's super generous, gave us like access to all their historical data and some data from other firms who gave them permission to share.

1:22:09

But it like gave us the picking rates from the best firms. And you could kind of like back into your own math on what your portfolio size should look like. I'd be willing to bet that data, while directionally useful today, is not as relevant because the my ideas of the picking rates have gone down quite a bit across the board. Oh, you think so? Yeah.

1:22:36

So what when maybe what is picking rate? If somebody is listening to this and is like, what does that mean? And then how has it kind of changed over time? Like, what was it and what do you think it is? Yeah. So picking rates is just, you know, what percentage of companies you invest in end up becoming fund returning investments. So does it return one X? The entire pool of capital you're investing out of? Yeah.

1:22:58

Okay. And the picking rates historically for some of the best venture firms I'm talking like the best, the best, the Sequoia, USV, etc. The general range between those firms would be anywhere between 4% and 7% And so you can kind of model in Again, I don't know if this is their picking rate today But if a tier 1 fund has a 4% chance of finding a return on the fund investment They need to have 25 companies in their portfolio to Have a single one To just return a fund Return a whole fund And so you have to ask yourself as a newer manager Are my companies that I'm seeing, are they as good as the best firms in the world? For most people, obviously the answer is no And so

1:23:43

you'd have to construct a portfolio to probably have more companies Because you have to have more shots on goal But I think everyone, literally every investor I talk to Thinks that they're On average? Exactly Everybody does, yeah, that's true They source better companies or they have better judgment And I think there's like a self -awareness that comes by saying like Okay, we're actually, we don't know if we're We have a feeling we're like, you know, fishing the right ponds But we can't say for a fact that our companies are better than the best firm in the world

1:24:22

And I know a huge number of companies that we think we're trying to fund won't And so maybe we need to have a bigger portfolio size So I guess what I'm like in long form saying that I think bigger portfolios are In most cases really good, a good strategy

1:24:41

And then so does that mean you should just have a bigger fund? Like you should raise a hundred million dollar first fund Kind of like get going so you have enough like money to work with Or like what do you usually see people do? And like how do those conversations go when somebody asks like, hey Jeff I'm like, I'm starting to start my own firm What should I do? I think you just want to get in business And so you could be in business with a three million dollar fund or a five million dollar fund Like the mistake I see too many people make is Coming out to market with a fund one that's just way too big And then in regards to check size, you would Just if you raise a $100

1:25:18

million fund and you were doing One million dollar checks if you were to raise You know, a $10 million fund you just

1:25:26

Just adjust the strategy proportionally and to have $100 ,000 investments in the same number of companies But I think smaller funds can be fantastic You can also do things that are more illegible Because you can do As an example, if you were doing a smaller fund So you did a $10 million fund You could actually make the case that CPG is a great category to invest in You could totally make that case Because the $500 million exit for a smaller fund Is a fantastic outcome Where the bigger fund size gets the more It's almost like the more legible the categories need to be Because there needs to be The trillion dollar exit opportunity Which only exists within a couple

1:26:12

categories today Theoretically Yeah, you need to make the next anthropic, I guess You do So then your aperture narrows Yeah So then, why are more small funds not investing in CPG?

1:26:26

Or in certain other eligible category? I think it's just because they're trying to do exactly what the Big firms are doing And also Try raising money for a CPG fund right now So they're kind of They're Following the big funds And then they're also In the categories they think They can invest in to raise the next venture fund Yeah, that's the I mean, that's the trick of threading that needle Is like you kind of have to invest in Hot categories Because those will Raise fall on capital Which keeps you in business And or I feel like a lot of times You kind of have to raise money from downstream investors Like I mean, like One strategy that people use is like Is a fund to fund

1:27:08

You invest in a seed fund And you want to participate in the Series Bs Of those companies So You want them investing in Specific categories that will raise Series B Grounds that Work for your fund Also Yeah So probably not CPG Or Some of those other categories Yeah

1:27:25

Agree Yeah, I think I think this all comes down to like The

1:27:31

Managing needs to get in business And to do that Most of the time they need to invest in categories that The Kind of LP community wants to fund And it's a hard thing to do It's hard to be original as an investor You get very hard to be original Yeah How do you do it? Like how do you keep yourself You know Maybe As divorced from the FOMO as you can And like as creative as you can Yeah, I mean I would say I'm not totally divorced from it Like I'm

1:27:58

On Twitter like everybody else But The Like there's One thing I've done Which Which is Intentional Is I Live outside of Silicon Valley Full time And so there's a Distance between Kind of like what's happening In San Francisco That Creates I guess Original thought Although I go up there all the time So Like You're still in there, yeah Yeah, you're in there You can be like in and out of the bubble You're in and out So I can go in and out But I think also just being A Newer fund Like we need to be more creative To Compete Like you I look at Our fund One returning companies None of them were in the barrier One was in Singapore One was in New York And one was in Miami And so

1:28:50

And then I look at fund two Our likely fund Returning investments will be Two of them are Companies in Canada And so Okay

1:29:01

And then if you So And then fund three I think Probably Will again Probably be like Maybe one in Los Angeles If Just based on like How things are And so So I think there's

1:29:16

I think as a newer fund You need to Look outside of the Bubble I see I actually really admire Rooms that can go into San Francisco As like newer funds And just like compete Head to head Extremely hard to do Probably like Two or three of them Can actually do it And But there's a few of them Who have done a really great job And you deliberately Try to avoid Doing that In a sense Like going to San Francisco Going head to head In the Consensus Hot Rounds That would require you To go head to head

1:29:52

I'd say like we We can like Do that occasionally But I think if I think if we were to Well it depends on who We're going head to head Against But for the most part That's just not What we Tend to do Because

1:30:07

Those rounds End up just being like Huge rounds Where it's Again like We don't do that many Of these like Mega Seed rounds You know we haven't Invested on any Neo labs Or But I think on the whole The best strategy For a newer manager Would be to not Try to compete Head to head Unless you actually can Do that repeatedly And that's like The Firm's Goal But I'd say for 99% of new funds Like You should not Try and compete with The Sequoia Or benchmark On a CDL Yeah well it's Probably figuring out What are you the best at And just doing what You're the best at Yeah exactly Whether it's like You know you have Networking this thing You help with this thing You have experience

1:30:55

With this thing You gravitate to These specific types Of founders And markets Like Just figure out what that is. And you can actually probably compete and go head to head if that event diagram overlaps in that middle. Yeah, totally. It could just be like, again, we're going to go really focus on day one company creation and doing more pre -seed investing.

1:31:21

We just did a pre -seed defense company in LA and we talked about it earlier. We did it at a $7 .5 million post and then they ended up raising, the last one was like 60 from well -known barrier firms. And so there's like an art to being early, but still being in categories that you know will be like fundable in the near term.

1:31:50

I think kind of like putting yourself in a position to see founders earlier than other firms and say yes faster is probably like the simplest way to do that. Do you have a favorite founder, CEO, business, historical person from history that you've gotten a lot of inspiration from? Whether it's an investor, could be an athlete, and when you get inspiration from it that you've learned a lot from?

1:32:18

Yeah, I would say so my grandfather is probably like my favorite businessman of all time. Okay, who's your grandfather? He started a store or something? He was like a retailer? Yeah, he was a retailer. So he started, his name was Mervin Morris, and he started Mervin's, which became a public company. Mervin's? Yeah. I don't know if you ever heard of that department store.

1:32:39

I don't think so. What did they sell or what was like the differentiation in the market? It was, so he served in the military and came back from, he actually never was deployed, but he was a, he grew up in a, his family was based in Delano, California, and owned a, like the local store. There was like a single store in Delano. Okay. The general store? The general store.

1:33:05

And so he got to the army and he was really good at retailing. And so they put him in charge of, this was in Arkansas and they put him in charge of the bases store. And he got back from, from that deployment and being in Arkansas and was like, everybody's going to be coming back from the war and they're all going to need clothes for them themselves and their family.

1:33:30

And so he just started a store that became like the, the idea was to build a store that everybody in your family could go shop at. So like a, uh, kind of like family oriented department store. But it's kind of for veterans or not specifically? No, he just had that insight. It was, it could be for anybody, but it's kind of like just, yeah, there's not a single place where everybody, your kids in here can go, can go to.

1:33:53

So it'd be like today it'd be like target or Kohl's or something. Like back in the day, it was just like a department store specifically for women or men or something like that. It was adults. It was more adults and it wasn't as like the pricing wasn't as affordable to, because also these people aren't going to have a lot of, you know, huge amounts of money to spend on clothes.

1:34:17

So building like an affordable family first retailer in California was the core idea.

1:34:26

He grinded his way to, he has one store. He took up loans just to open the store. His family was very poor, like dirt poor and ended up building a public company. So I got to see him and spend a lot of time with him.

1:34:42

He ended up, he lived towards 101, but I like very close to him and he taught me a lot about business and also taught me like a lot of his employees.

1:34:52

We're very close to him and all of their families were close to him. So he's also just like someone who people loved in the company. He treated people really well. Yeah. And so it's just, you know, being around that from a young age was pretty, pretty informative and cool. And you lived to be 101? He did. Yeah. Yeah. He stopped going to the office when he was 96 and he ate really well.

1:35:17

He's like Brian Johnson before Brian Johnson. I was going to say, Brian Johnson would love this guy. He's the original Brian Johnson. He had a heart condition that he discovered in his early 40s, might have been late 30s, but. So he just started eating like really well and he would, he was like obsessed with.

1:35:35

Radio and going to doctors, like all these things that you read about now. Yeah. That are like, we like have become an industries, but. Yeah. Took care of himself. And then I think going to work was pretty helpful. He never let his mind go. So. Yeah. Well, it's been a lot of fun. Thanks for coming on the show. This is great. Thank you. And thank you for listening to my conversation with Jeff.

1:35:56

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1:36:17

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1:36:43

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1:36:52

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