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Episode: 20VC: The Truth About Multi-Stage Firms; Why Portfolio Services are for VCs not Founders | Why Politics is Rife & Decision-Making is Broken in Large VCs | Why Reserves are Bad for Founders & How Boutique Firms Will Win with Mark Goldberg @ Chemistry

Author: Harry Stebbings
Duration: 00:56:21

Episode Shownotes

Mark Goldberg is a Managing Partner and Co-Founder at Chemistry, a $350M fund announced just yesterday with the mission to lead the best seed and Series A rounds. Before Chemistry, Mark was a Partner at Index Ventures, where he led early stage investments in Plaid, Bridge, Pilot, Anrok and Persona.

Prior to Index Ventures, Mark was one of the first business hires at Dropbox. In Today’s Episode with Mark Goldberg We Discuss: 1. The Truth About Multi-Stage Firms: Why are portfolio services there to help the investing partners and not the founders? What are the most broken elements within a multi-stage firm? How does decision-making break down in large partnerships? When is the right time to work with multi-stage firms? When is not? 2. From Boutique High Margins to Commoditised Low Margins: With the immense amount of cash that has entered VC, will returns simply get worse? Who will be the winners in the next 10 years of venture? Who will be the losers? What can they do today to change this? What element of the future of venture are not enough people spending time on? 3. Lessons from Leading Unicorn Company Rounds: What happens to all the unicorns with insanely high prices they cannot grow into? What has been Mark’s biggest hit? What did he learn? What has been his biggest miss? How did that change his go-forward approach? Does Mark agree that 90% of VC do not add value?

Full Transcript

00:00:00 Speaker_00
I think one of the dirty secrets of multi-stage investing is that portfolio services teams are not for founders, they're for the VCs. They are a way to make something unscalable, scale. So we have a very light reserve model.

00:00:12 Speaker_00
Peanut buttering all of your reserves and every pro rata round that gets done is not a good thing for the founder. The biggest mistake is when you try to make consensus decisions at the early stage, I think you end up with consensus funds.

00:00:24 Speaker_01
This is 20VC with me, Harry Stebbings, and today we have a very special show for you.

00:00:28 Speaker_01
On Wednesday this week, we saw a new fund announcement in the form of Chemistry, a new $350 million Seedon Series A firm from Mark Goldberg, Ethan Kurzweil, and Christina Shen. Today, I sit down with Mark to unpack it all.

00:00:43 Speaker_01
For those that do not know, prior to Chemistry, Mark was a partner at Index Ventures, where he led early-stage investments in Plaid, Bridge, Pilot, Anrock, and Persona, to name a few. But before we dive in, what do Henry Ford and AI have in common?

00:00:57 Speaker_01
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00:01:40 Speaker_01
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00:02:48 Speaker_01
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00:03:01 Speaker_01
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00:03:12 Speaker_01
The fund is already off to a good start, with $100 million into some of the largest, most in-demand You have now arrived at your destination. Mark, dude, I am so excited for this. When we last did one, I was actually young. So this is a joy.

00:03:54 Speaker_01
And I really appreciate our friendship. So thank you for joining me.

00:03:58 Speaker_00
Harry, it's a total pleasure. And it has been so fun to watch you launch your new fund. I think I read online that it was a 10 year overnight success. And I think that's what most resonated with me. You've been doing such a good job crushing it.

00:04:10 Speaker_00
And I'm thrilled for you. So it's fun to be doing doing new funds at the same time.

00:04:14 Speaker_01
Dude, it is great fun, and there's nothing like having your own shop. I always say this to people, like, having your name above the door is the most special thing, and building your own is just so special.

00:04:24 Speaker_01
I do just want to start with that, which is like, there are so many venture firms, respectfully, why did you feel like the world needed another one, and what was that kind of realization with the founding of Chemistry?

00:04:35 Speaker_00
The world doesn't need another venture fund. It needs a new venture fund. There are too many VCs right now, but we wanted to do something different.

00:04:42 Speaker_00
What Christina, Ethan and I started talking about was if you were going to design a fund where you fully aligned the values of the investors with the founders, what would it look like?

00:04:52 Speaker_00
That was kind of the question that was the jumping point to getting started here. And what we thought about is, first off, it would be smaller. It would be focused.

00:04:58 Speaker_00
It would be a combination of experienced investors from some of the biggest multi-stage platforms coming together, Avenger style, and seeing if you could do something different. And you just talked about what it feels like to be an owner.

00:05:11 Speaker_00
I wanted that. Christina and Ethan wanted that. And we felt like the combination of experience and hustle was something that would kind of be the blueprint for a new fund. So that was kind of the origin of how we started talking about this.

00:05:22 Speaker_01
Why does fund size correlate to alignment to founders?

00:05:26 Speaker_00
I don't necessarily think the fund size does. I think it's the purview of the responsibilities of the fund. So for us, having a stage focus, I think is very important.

00:05:35 Speaker_00
I've seen, I think, what the growth of different products and the size of a portfolio does to the focus of an investor.

00:05:43 Speaker_00
And I think there's a paradox at a lot of the larger legacy institutions where the most experienced VCs have the least amount of time to spend on new deals. And I think that's a problem for founders.

00:05:53 Speaker_00
And that was something that we thought a lot about as we were debating whether or not we were going to jump into this. And one of the things we thought we could help solve with chemistry.

00:06:00 Speaker_01
Is that not just nature of a maturing portfolio, though? Even if you are a Series A only investor at a multistage firm, if you're 10 years in, two a year, over a five year period, fuck, you've got 10 board seats there.

00:06:13 Speaker_00
Absolutely. The longer you're in market, the portfolio is like an iceberg. It just grows. Especially in an environment like today where liquidity is not as readily available.

00:06:22 Speaker_00
That said, taking an axe to all the bureaucracy of a large institution gives you superpowers in terms of what you're able to do with your time.

00:06:31 Speaker_01
What is the bureaucracy of a large institution?

00:06:34 Speaker_00
I think when you're running an organization that is hundreds of people, that is multinational, like many of the large funds are today, I think there's a lot of time spent on people management, on administrative work, that has a tax on the organization.

00:06:47 Speaker_00
When I think the most important thing is spending time with founders and spending time with founders at the early stage.

00:06:52 Speaker_01
They would say that they have incredible teams and they have IR and they have legal and accounting and portfolio services, which mean they are able to just be finding the next Dylan Field. What do you say back to that?

00:07:05 Speaker_00
I would challenge the notion that when you talk about, for example, some of the portfolio services teams, I think one of the dirty secrets of multi-stage investing that portfolio services teams are not for founders, they're for the VCs.

00:07:16 Speaker_00
They are a way to make something unscalable scale. And I think right now we're starting to see the cracks of an industry that has relied on subdivisions of the job, whether it's a talent team or a team that's going out and finding customers.

00:07:31 Speaker_00
But I think what founders really want is not to be disintermediated between the relationship between an investor and the founder. That's really the premise of our fund, and one of the things that I think that some of the industry has gotten wrong.

00:07:43 Speaker_00
Now, I would also clarify, I don't think it started that way. I think the intention, and if you go back to the innovation from 10, 15 years ago, when Andreessen Horowitz started, it was a great idea.

00:07:52 Speaker_00
It was this sense of, you know, excitement and innovation for venture. But I think where we are now is it's become more of a crutch to these organizations to try to get leverage in an area that's very difficult to do.

00:08:03 Speaker_01
I think it's also used as a justification for the increase in fund size, because now you can show to LP as well. We've got 10 people in talent, 10 in BD.

00:08:11 Speaker_01
We even do sales for our companies, in which case we need the new huge fund because this is how we've structured our team.

00:08:17 Speaker_00
I think what founders really want is a direct relationship with an experienced investor.

00:08:22 Speaker_01
You said it kind of like, what would it be if it was like true alignment between GP and founder? Sounded so nice. Um, so do you guys only take common shares then? I'm being serious. I can be deliberately spicy with you.

00:08:35 Speaker_00
You can absolutely be. So, you know, I think when we think about alignment, it's more about putting the incentives in, in terms of where you're spending time. One of the things that pulled us into starting a new fund.

00:08:45 Speaker_00
And I bet you saw this as you were kind of going through your fundraisers as well, is this sense from founders that we want experienced investors that have time to spend with us. We want something new and fresh in the ecosystem.

00:08:56 Speaker_00
And I think that's a lot of what we're trying to bring here.

00:08:59 Speaker_01
Do you know what? As I get older, Mark, I'm sorry, it's the end of the day on a Friday, dude. Like, no, I actually, I take the key through a boys' school of thought, which is like, the best founders don't need you.

00:09:08 Speaker_01
I say to founders, listen, generally, 90% of VCs don't really add value. I try to be no different, but I'm a really nice guy. I will always have more money for you, and I have the world's best network.

00:09:19 Speaker_01
Other than that, inshallah, but I will never be a bad investor for you, and I'm super supportive. I think they love that. It's like, just don't get in my way. Give me fucking money and shut up. That's what they want.

00:09:33 Speaker_00
Well, first off, I think that you would clear the bar for, you know, 80% of the industry by doing no harm. And I would agree with that principle. The other thing that I would agree with is that the later stages, that's all that matters.

00:09:44 Speaker_00
When you're doing it, when you're picking what growth investor you want to work with, what you should care about is the price and them staying out of your way. I would disagree with you at the early stages.

00:09:52 Speaker_00
And my experience over almost a decade of doing this is that there are times even the best founders who are running autonomously, where and I actually, there's a concept that we, one of my great mentors, Mike Volpe, talked about magic moments for a founder journey.

00:10:06 Speaker_00
where it's not about placing the IC employee 142, the resume in the right spot of the company.

00:10:12 Speaker_00
It's about building a relationship where when the founder is questioning, hey, I'm not sure if I'm working with my co founder, and they want to call you at 11pm on a Saturday night, you pick up the phone and you're there for that person.

00:10:23 Speaker_00
And when that company does well, and they remember like what were the important moments in my founder journey, I think those are the things they think about. So I would disagree with you at the early stages.

00:10:31 Speaker_00
I do think building that sort of trusted relationship is ultimately what makes an excellent investor, though I would say a great investor might just be due no harm.

00:10:40 Speaker_01
I agree with you. I think this is one of those ones where there's nuance because you're speaking from Silicon Valley and I'm speaking from Europe. Our competitive sets and landscapes are very different.

00:10:50 Speaker_01
I guess my question to you is like, when you looked at that landscape, why were you like, oh yes, we should be here?

00:10:57 Speaker_00
When I joined Index Ventures almost a decade ago, the pitch that I would give to founders when I didn't have a brand or a portfolio was, I'm going to out-hustle anybody else.

00:11:06 Speaker_00
And I remember some early deals where I would be going head to head with the equivalent of a guild from 10 years ago. And a founder would say, why would I choose you? You're an associate. You have no experience. And I would say, that's my advantage.

00:11:18 Speaker_00
My advantage is that your success matters so much to me that if this doesn't work, I don't have a job anymore. And that pitch didn't always work. I lost a bunch of deals, but I won a bunch of deals as well because they're different products.

00:11:29 Speaker_00
That choice is good for founders. Our view with chemistry is that the idea of having a small team, clean slates, this playing offense at a moment when many people are distracted,

00:11:38 Speaker_00
It is a really interesting idea for founders that want that kind of relationship. And that's actually why we named the Fund Chemistry.

00:11:44 Speaker_01
I think the younger the founder, the more they want the brand is the lesson that I have. Different to what people think. People think younger people will take a new firm. Younger people, they crave the brand more.

00:11:55 Speaker_01
I find the second tier serial founders have had the multi-stage product before. They've seen that it's not all it's cracked up to be. And they actually go for the person the second time around. Do you agree or am I missing that?

00:12:07 Speaker_00
I agree with the framework, though I don't think it's the age. I think it's the the relationship to kind of insider outsider in Silicon Valley.

00:12:14 Speaker_00
If you're coming into the ecosystem and you don't really know a lot of venture, what you're thinking about is the big brands, the Andreessen's, the Kleiner Perkins, the Sequoias. And you should.

00:12:23 Speaker_00
Those are the names that are household names that if you stopped a founder on the streets of Austin or Portland, you know, those are what you're going to hear about to me is less about the age and more about kind of the proximity to your kind of networks.

00:12:34 Speaker_01
Doug Lione said to me, I think it was on a show, he said that, you know, venture has transitioned from a high margin boutique community to a low margin commoditized industry. Do you agree with that transition?

00:12:49 Speaker_00
Well, first off, that's really interesting for somebody who is leading one of the multistage, the most successful multistage funds. And God bless Sequoia. I mean, their ability to innovate as a leader. I don't envy that challenge.

00:12:59 Speaker_00
I have always enjoyed being a challenger and punching in that direction. So for him to say that is very interesting.

00:13:05 Speaker_01
I mean, their funds are relatively constrained for what they do. Like, their seed fund is 190. I think their growth is like a billion. Like, they're not crazy. They're always collated in this, like, Sequoia raises 8 billion, and you're like, wow!

00:13:20 Speaker_01
But actually, when you look at it, they are quite constrained products.

00:13:23 Speaker_00
So what I would say is I think the direction of the industry, and I'm sure everybody who observes the industry would say the same thing, has been one of industrialization in the last decade.

00:13:32 Speaker_00
And when I say industrialization, what I mean is the boutique experience of, hey, there's going to be a handful of partners. You're going to know everybody there and their reputations. That was kind of the past.

00:13:43 Speaker_00
And the future seems to be this sense of, let's increase the AUM. Let's increase the team sizes.

00:13:48 Speaker_00
And I would challenge even you, Harry, to say at some of these big platforms, name more than three, four or five partners when there might be 30 check writers.

00:13:55 Speaker_00
So that's what industrialization means to me is when you, you know, the name, the brand of the, of the institution, but you might not know who the check writers are.

00:14:03 Speaker_01
But is chemistry a, like a reversion away from that industrialization back to boutiqueness?

00:14:09 Speaker_00
That's exactly right. It's a contrarian thought right now. Inspired by funds like Benchmark, like USV, we think that there is this kind of personal relationship at the early stage that we're going to try to reconstitute the fund around.

00:14:22 Speaker_01
So how big is the fund? The fund's $350 million. How did you... come to $350 million being the right size fund.

00:14:29 Speaker_00
And stage-wise, this is seed in A. It's seed in A. It's lead checks at seed in A. And it was really a bottoms-up exercise. We thought about what is the right pacing for each GP.

00:14:39 Speaker_00
And for us, when we looked at our investment history over the last 10 to 15 years, it was about two to three investments per year. There were years that, you know, in 2021, I did far more and you know, which was the wrong decision at that point.

00:14:51 Speaker_00
But when we looked at what was the right number, it was about two or three investments per year. And that's how we built the fund, which is that's about the pace that each GP should have in the fund.

00:14:59 Speaker_00
It's about a three year fund, and we'll have, you know, about 25 investments in each fund.

00:15:03 Speaker_01
Do you think it's big enough for the a because if you think about series a funds okay if we take average series a check will i say ten to fifteen million let's say fifteen fifteen fifteen three hundred minus fees that's your phone done not enough diversification and no seeds in that.

00:15:21 Speaker_00
So this will be a seed and series a fund. And I think when you say a, you have to be careful because when you say a it's like, what does that mean?

00:15:27 Speaker_01
I would argue, you know, I'm seeing a, if you're doing, if you're doing early out from open a eyes, it means a $10 billion check.

00:15:32 Speaker_00
It means you're going to need to raise a much larger fund. But even if you exclude the handful of a billion dollar series, a ideals, You know, I think I'm seeing deals in the market that are 30 to $40 million series A's.

00:15:43 Speaker_00
And I think one thing you have seen or I've observed in the industry is that A's that would have been 15 million, you know, five years ago could be 30 to 40 million today.

00:15:51 Speaker_00
So when you talk about us doing a 30, we could do that from our fund, but it would be a very big swing. What we're looking at is I would say a click in front of that. where it's not totally obvious that there's a category winner.

00:16:01 Speaker_00
You know, we are going to have to roll up our sleeves before there's obvious financial traction. There's more risk at that point, but we think we can do some earlier kind of series A's.

00:16:10 Speaker_00
So almost the concept of a series A, I would argue is it depends, you know, what you're talking about.

00:16:16 Speaker_01
So what size check is that?

00:16:17 Speaker_00
I think a 10 to $15 million lead series A check is a very reasonable thing. If you're willing to go a click earlier in terms of stage.

00:16:23 Speaker_01
But does that work in terms of portfolio construction? Because that's on assuming no reserves, you just don't have enough.

00:16:31 Speaker_00
So we have a very light reserve model that might be worth clicking on.

00:16:34 Speaker_00
I think that the way that as a new fund, we think about reserves is we believe that supporting companies from those early stages is extremely important, but that peanut buttering all of your reserves and every pro rata round that gets done is not a good thing for either the founder or the LPs in a fund.

00:16:51 Speaker_00
And so we have a very light reserve model. We will double down on companies where there's exceptions, but we have a very light reserve model.

00:16:58 Speaker_01
I spoke to one of your LPs before and they were like, oh, well, they're not competing against their old shops because they're going a little bit before. And I was like, I compete with all of their shops and I do precede. So they are competing.

00:17:12 Speaker_01
How do you think about that?

00:17:13 Speaker_00
So first off, we're going to be competing. We're going to be competing with everybody. And that's fine.

00:17:17 Speaker_00
I mean, this is an industry where you're both working with people on one deal and competing against them in the next, but we are certainly going to be competing tooth and nail in every deal that we're we're in, but we think that's a great thing for founders.

00:17:28 Speaker_00
Founders should have choice.

00:17:29 Speaker_01
Do you worry about the expanded round sizes? Something that I am genuinely just concerned about right now is like the amount of $8 million seed rounds where I'm having to stump up six.

00:17:39 Speaker_01
for not a huge amount of traction at a pretty high price, and that's kind of becoming the norm.

00:17:45 Speaker_00
I think you have to play the game on the field. And the question is, are there good companies that are emerging right now in this vintage? I would say yes.

00:17:51 Speaker_00
Now, are there ridiculous deals happening that I don't think fit the risk return profile for you or for me? Absolutely. But I think around that, there's plenty of work to do.

00:18:01 Speaker_01
How do you determine when to pay up versus when to sit it out? Like when it's just not a chemistry deal. I look at like my biggest mistakes this year have been Suno and 11 labs.

00:18:13 Speaker_01
And both of them I didn't do because they were small checks, probably like 1% each. And that didn't fit the model. That was my lack of mental plasticity.

00:18:23 Speaker_00
One of the lessons I learned from index ventures, and certainly two of my mentors, Mike Volpe, Ilya Fushman, was you want to be in the category winner.

00:18:31 Speaker_00
And when you need to pay up to be in a category winner, you don't want to be in the number two or the number three in a category. And there are times when I'm willing to take risk in that direction.

00:18:40 Speaker_00
Your risk is the valuation, but you feel extreme conviction in the leader in a category. That's a time when I'm willing to stretch. The other time, Harry, just before you jump in, and really the way I think about early stage investing,

00:18:53 Speaker_00
It's so much of a founder focus of, do I have insane conviction in this individual, in this founding team? And when those variables line up, I tend to feel more confidence in my ability to kind of stretch on the deal price in terms.

00:19:05 Speaker_01
Totally agree. Taking one by one, you said about kind of the importance of being the category winner. I so agree with you there. It's like the 95% to 1 and 5% to everyone else in the market. Constantly oscillating.

00:19:17 Speaker_01
I don't like competitive markets, but then I consistently hear people say the best markets are competitive because there is incredible value at the end of them. How do you think about market competition?

00:19:28 Speaker_01
Do you like competitive markets or not competitive markets? And how do you think about my statement?

00:19:31 Speaker_00
I don't mind competitive markets. I think so much about ideas are a dime a dozen. You want to find people that are excellent at execution and that have the vision to outcompete the folks in their market.

00:19:41 Speaker_00
I have never shied away from competitive markets. What I lean into is a founder who is willing to go head to head at a competitive market, and I believe has the hotspot to go in it.

00:19:50 Speaker_00
So for me, a competitive market validates the opportunity and is not something that I shy away from.

00:19:55 Speaker_01
You said about execution being everything that I so agree with you, dude. What are the reasons why from zero to one execution goes wrong most often you see?

00:20:04 Speaker_00
To me, it's the founding team. I think that no company I've been a part of from the early days has been a straight line success.

00:20:10 Speaker_00
Everybody takes a punch in the face and the founders that have the grit to take the punch in the face and get back up are the ones that I think have the highest correlation of going from zero to one and ultimately from one to a public company.

00:20:20 Speaker_00
I think a lot about not do they miss their OKR by 30%, you know, this quarter, and therefore this isn't going to work. No, it's is this somebody who's resilient enough to take the adversity to learn from it?

00:20:32 Speaker_00
And the velocity of their learning is ultimately what crosses the chasm.

00:20:35 Speaker_01
Well, I mean, I had Zach from Platt on the show, and he said that OKRs at the early stage were just bullshit entirely.

00:20:40 Speaker_00
So I think he said that OKR, it was a great episode. I think he was saying, why were they lifted from the manufacturing industry and plopped down into the software world? And I would very much agree with that.

00:20:48 Speaker_01
What are the reasons why execution breaks most post product market fit? You've worked with some incredible companies post.

00:20:54 Speaker_00
Post product market fit. I think hiring is, is probably the biggest limitation I've seen.

00:20:59 Speaker_00
When you were an early stage, and this is where, you know, going back to our conversation on what is the value out of a VC, you know, again, do no harm should be beating 80% of the industry, but I wouldn't agree with your zero.

00:21:08 Speaker_00
So I think that at every stage, and when you go, when you, when you, you feel the pull of product market fit. You need to really consider who are the leaders of your functions, especially your go-to-market functions, and are they the right people?

00:21:20 Speaker_00
And when you move from founder-led sales into a professional organization, really asking yourself, do I have the right people in those seats? And back to the point of, you know, what can a VC do to be helpful?

00:21:30 Speaker_00
Showing people what great looks like one, two, three stages in front of where they are, and giving them a way to evaluate where their team is relative to that, I think is a very helpful thing.

00:21:39 Speaker_00
And the folks that I've seen take longer to get from that one to 10, 10 to 100, are the folks that tend to make the wrong decisions around hiring in their leadership teams. And by the way, I'm very bullish on their leaders.

00:21:50 Speaker_00
And I can give you examples that have scaled from the early days all the way to, you know, an exit. It's unusual, but it's possible.

00:21:57 Speaker_00
But I think having a way to give founders a sense of this is what great looks like for your stage and these functions that you might not have seen before is a very important thing for them.

00:22:05 Speaker_01
So I would say pre-product market fit, also everyone forgets how long hiring takes. It takes 3-6 months to find the person, 3-6 months to ramp them, and then 50% of the time, 3-6 months to fire them.

00:22:16 Speaker_01
And you've gone 18 months and you've still got nowhere. And that's why I prefer serial founders.

00:22:21 Speaker_01
Because they have an existing network, they've worked with Mark before, they know how Mark works, sign Mark next week, he onboards a week later, job done and he's fully ramped by week 4. Now,

00:22:31 Speaker_01
I then have so many people say, but the naivety, the brilliance of first-time founders, how do you, I'm forcing you to pick one, which one and why?

00:22:40 Speaker_00
First-time founders.

00:22:41 Speaker_00
I think the ability to think from a clean slate, to do potentially foolish, but on the other side, potentially visionary and transformative things, the hunger, the naivety that you described and a first-time founder, I think outweigh a lot of the benefits of having seen the show from one, two, three times in the past.

00:23:00 Speaker_00
There are caveats. I love founders that have tried and not broken through with a first business.

00:23:06 Speaker_00
So a founder who feels like they gave it a shot but ended in a place that they weren't happy with and they have a chip on their shoulder, I think is a great profile.

00:23:14 Speaker_00
A founder who has done so well that, you know, they are financially independent or they might not have the same level of hunger that they brought to their first business, I'm less excited about that.

00:23:24 Speaker_01
Founders should not choose chemistry if they want dot, dot, dot.

00:23:29 Speaker_00
If they want an established brand that's been around for 30 to 50 years. Do you think that's still worthy? I think different founders want different things.

00:23:35 Speaker_00
You know, you and I talked about earlier in the conversation, a founder that is coming new to Silicon Valley that really wants the validation of a, you know, of an established fund that's been around. We're probably not a great fit for.

00:23:45 Speaker_01
For founders listening, does the established brand, I don't think the established brand helps with hiring because I think it helps with hiring the wrong type of people.

00:23:52 Speaker_01
You want people who love the founder, love the team, love the mission, not love the fact that a big brand is in there. Does it help with customers?

00:23:59 Speaker_00
I don't think it helps with customers. I think it helps with funding. You know, when Sequoia does a deal, there's going to be money that follows it. That's great. That's a feature of the brand equity they've built over a long period of time.

00:24:08 Speaker_01
Tell me, when you were doing the fundraise, how did you organize it? I know that sounds strange, but did you go to friends and family style first, people you knew who were super high likelihood?

00:24:20 Speaker_01
Or did you go for the anchors, big names first to solidify the base? Which approach?

00:24:25 Speaker_00
I think we tapped a rich vein in the LP community that there was some frustration, especially at this point in the cycle, that some of the venture funds that they had invested in 10 years ago, 20 years ago, they felt like had become asset managers.

00:24:37 Speaker_00
And the idea of being able to invest in a pure play venture fund that had experience, but also a lot of hustle was something that we think resonated in the market.

00:24:46 Speaker_00
So I think we were fortunate that we hit a market moment in the fundraise that aligned with a lot of the zeitgeist in that community.

00:24:52 Speaker_00
When did you start the race at what type of time of year we raised this summer so we went out from kind of june to august was our fundraise it's pretty quick and in summer is even quicker we were very fortunate i think again we were you know tapping into some real excitement about a team that

00:25:07 Speaker_00
I don't think there's a team of experienced GPs that's come together with three folks in quite some time. And I think that was something novel.

00:25:14 Speaker_00
And again, at a time where the macro backdrop was a little bit of frustration with how big some of the multistage funds, the legacy institutions have become.

00:25:21 Speaker_00
And this sense that the returns you saw 10, 15 years ago from small teams and focus partnerships may not be the same going forward.

00:25:28 Speaker_01
What size of check was the largest check?

00:25:31 Speaker_00
We wanted to keep enough diversity in the fund where we didn't get anybody, you know, kind of much over 10%. That was kind of where we adhered to. So we wanted about 20 LPs and that's, that's pretty close to where we landed.

00:25:41 Speaker_01
In terms of like LP construction, was there any specifically that you wanted? I find some managers get a bit wanky about like, Oh, we won't take family offices.

00:25:49 Speaker_00
No, we want to good people. I feel like I have learned so much about being an investor from going through a fundraise.

00:25:55 Speaker_01
What did you learn about Tell me, what did you learn?

00:25:58 Speaker_00
I mean, so many things. First off, I feel like every VC should have to fundraise just to be table stakes as a VC. And in some ways, I think my order of operation was wrong, where I invested for almost a decade before becoming a founder.

00:26:10 Speaker_00
I wish, though, it would have been difficult to have done in the opposite direction. But some of the learnings. So first off, there was so much empathy from having to pitch. For a decade, I sat on one side of the table and heard the pitches.

00:26:22 Speaker_00
And to be forced to feel the pressure of stepping into a room with everybody's eyes on you and you need to deliver is something everybody should do at, you know, in some regular interval to kind of balance the equilibrium of power.

00:26:32 Speaker_00
And I think I don't know if you felt the same way, Harry, when you were fundraising, but for me, I felt tremendous empathy for that. And I'll just give you an example. When you're pitching somebody, this is one of many meetings to them.

00:26:42 Speaker_00
And this is the most important meeting of your day. I mean, for me, there were a handful of meetings like that.

00:26:46 Speaker_01
I have one meeting where I just couldn't stop sweating. And then it's just the most awful thing in a big meeting room with like 12 people and you're standing at the front and you're like, Oh, and everyone knows you're sweating.

00:27:00 Speaker_00
And it's like, Oh, well, as we know, it didn't hurt your ability to do, you know, something incredible with your own fundraise. And in some ways, I hope to give you a perspective. So when a founder is sweating in front of you, you have that empathy.

00:27:11 Speaker_00
And that's, that's a lot of what I felt the sense of, you know, Oh, okay, this is a really helpful reminder of what it takes to really put yourself in the shoes of a founder.

00:27:20 Speaker_01
And do you raise money only from people you met in person? Were there any checks which were non-virtual, which were virtual checks?

00:27:27 Speaker_00
That is a very good question. And I think that we met everybody in person. Now we, because we're in San Francisco, a lot of people were coming through for different LP events.

00:27:37 Speaker_00
So there was a lot of kind of the community moving through, but we hustled too. We spent a lot of time on plans and we, I mean, we were. We were out there. It was a quick fundraise, but we were out there hustling very hard.

00:27:47 Speaker_00
By the way, it's a great way to get to know your co-founders better. When we're in equal partnership, all three of us were telling our story. It's kind of like a group interview.

00:27:55 Speaker_00
And poor Christina and Ethan, who had to suffer through me telling the same jokes and anecdotes over and over and over, sometimes 8-10 times a day,

00:28:03 Speaker_01
Well, there's the Tokyo test. I don't know if you know this.

00:28:06 Speaker_00
I don't know.

00:28:07 Speaker_01
Okay, the Tokyo test is, can you fly to Tokyo with someone and be engaged fully in conversation throughout the duration of the flight? And if you can, that is either the sign that you should marry them or start a company with them.

00:28:19 Speaker_00
We did many, many tests throughout the relationship and the founding story of the three of us. The Tokyo test was not on there.

00:28:25 Speaker_01
How many LP meetings did you take? We probably took 100 LP meetings. 100 LP meetings.

00:28:30 Speaker_00
Yeah. Now we divided and conquered. And the other thing is we tried to vet those meetings by first screening for the appetite for a first fund. There was, I think, a lot of interest in a shiny object to say, you know, I want to go meet this team.

00:28:46 Speaker_00
And we tried to weed that out by saying, you know, what are some first time funds you've done? If you haven't done anything in the last two years, you're probably not going to be excited. know, about doing things.

00:28:55 Speaker_00
So we did a lot of pre-screening, but we actually got to probably 100 meetings.

00:28:58 Speaker_01
Okay, so you have 100 meetings, and so you have like 20 yeses for people who don't understand fundraisers.

00:29:03 Speaker_00
We were fortunate in that we were pretty well oversubscribed, so it ended up being more than 20 yeses, and I think we could have raised a fund significantly larger than the one we raised. That said, we got a lot of nos as well.

00:29:14 Speaker_00
I mean, part of the LP community and understanding is, what are they interested in? And I

00:29:18 Speaker_00
And if we walked into a meeting and they said, our belief in the asset class is that, you know, venture is no longer a good return, or the only way to play venture is to be in, you know, five legacy brands, we probably had done a poor job in vetting that meeting.

00:29:31 Speaker_00
And there were a handful of those that we did not have success with.

00:29:34 Speaker_01
Okay, so you have 100, and then say, we end up with 20 there. And what was the number one reason in commonality wise, why people said no?

00:29:42 Speaker_00
Well, it's an interesting parallel to why we say no as GPs. And again, to the empathy point, I think a lot of the reasons people gave as a no were not the actual reasons, but the biggest reason we heard was the three of you haven't worked together.

00:29:55 Speaker_00
And there's a lot of team risk in a new fund at this size with three people. And to their credit, there is risk. I feel very comfortable with that risk.

00:30:04 Speaker_00
In the same way that a VC might say it's too early for our fund, you never really know what people are thinking.

00:30:08 Speaker_01
Did you push back when you felt like they weren't giving you the right feedback?

00:30:12 Speaker_01
Like, I of course got no's, and I of course got kind of bullshit ones, and I would always say like, I really appreciate your desire to protect my feelings, but I really want to get better above everything else.

00:30:22 Speaker_01
Please tell me the real reason why you said no.

00:30:24 Speaker_00
We did. Yeah. And we got some great, I mean, again, back to the parallels of being a good LP is very similar to being a good GP.

00:30:31 Speaker_00
The funds that we most liked working with, whether or not they invested or not, were clear, direct, communicative, gave real feedback. It's a good lesson for me. It's a good lesson for anyone on the GP side.

00:30:41 Speaker_00
And again, why I would encourage anybody to go through a fundraise like we did, you know, when we tell our friends, what are the best LPs, it wasn't the ones that necessarily all said yes to our fund, it was the ones that were great to work with.

00:30:51 Speaker_00
And they were great to work with for the reasons they gave great feedback. They were very sophisticated on their perspective in the market.

00:30:57 Speaker_00
Whether or not we aligned with that vision, that was what made a great LP and I think ultimately what makes a great GP.

00:31:02 Speaker_01
What was the single best LP meeting that you had?

00:31:05 Speaker_00
We did have some funny stories from the fundraise itself. And at one point I remember Christina was having what I thought was her best fundraising meeting. She's just, you know, really doing a nice job with her talking points.

00:31:16 Speaker_00
And I look over and she's, and she's, you know, laughing and having fun. I look over and it's, it's nine o'clock in the morning. And instead of a seltzer water, we had, we had, you know, we're borrowing somebody's office.

00:31:26 Speaker_00
She had grabbed a white claw instead. And so she's drinking her second White Claw thinking that she's drinking seltzer water. And, you know, we had a few things like that where, you know, you just kind of have to laugh in hindsight.

00:31:36 Speaker_00
And we had to tell her afterwards, you know, we didn't want to stop the train at that point, but we had to tell her she wasn't drinking, you know, something that was that was seltzer water. Mark, did you have any terrible ones?

00:31:45 Speaker_00
The terrible ones were more misalignment, I would say, where we would get into a meeting and someone would ask us to pitch venture capital as an asset class.

00:31:54 Speaker_00
We had one or two of those where I was like, why is this asset class still worth investing in? That was more, again, an alignment challenge where if you're starting from that question, we're probably not in the right conversation.

00:32:05 Speaker_00
And we did have a few of those.

00:32:06 Speaker_01
Did you find one group more sophisticated, intelligent than others? Foundations, endowments, family offices?

00:32:13 Speaker_00
One of the best pieces of advice we got was build a diverse set of LPs and not in terms of the institutions you just described, fund-to-fund, family office, endowments and foundations, but people that think differently and think independently.

00:32:27 Speaker_00
And that's why I think we ended up with such an interesting mix of people that we almost didn't want people to correlate with one another. And I think it would have been very easy to do.

00:32:36 Speaker_00
And for people that that go this route where there's a lot of correlation between, hey, these are all alumni of the same institution, and so they're going to group things together. We wanted to avoid that.

00:32:46 Speaker_00
And I think we're very fortunate we were able to.

00:32:48 Speaker_01
I'm going to push you. What single LP check meant the most to get to you personally?

00:32:53 Speaker_00
So we had a few groups that told us this is going to be a six month process. You know, there's no way to accelerate it. And after the meeting, we're kind of done in two weeks. And we loved that kind of speed to conviction. And that meant a lot.

00:33:06 Speaker_00
Some of those early conviction checks where, you know, we weren't sure exactly how long the fundraise would take and having a few people say, like, we believe so much in what you're doing.

00:33:14 Speaker_00
We're going to make exceptions to do this quickly and to get behind you.

00:33:17 Speaker_01
What was your most recent disagreement as a partnership?

00:33:20 Speaker_00
Well, this wasn't the most recent disagreement, but a really substantive disagreement was about whether or not to build a junior team at chemistry. Where did that net out? We are doing it, but I'll give you some of the color around it.

00:33:33 Speaker_00
So I came in with more perspective that we need to be extremely streamlined. You know, having a GP only group is going to be an advantage in terms of the ecosystem.

00:33:44 Speaker_00
I think Ethan and Christina had a much stronger feeling that working with a junior team is going to add an element and dynamic element in terms of different ages, different networks, that's really going to complement the GPs.

00:33:55 Speaker_00
What all of us were aligned in not wanting to recreate was the hierarchy and institution and bureaucracy of a really large organization. So what we netted out to is just a very small junior team. We're going to have two folks.

00:34:06 Speaker_00
We've hired one so far who's fantastic and already making a massive impact on the fund. But that was something we really needed to unpack and try to think about the pros and cons.

00:34:14 Speaker_01
Are you doing office, are you doing remote?

00:34:17 Speaker_00
Office, in office every day is a really important tenant of how we think about building. You know, we're a new team, we're a startup, right? Like we need to be shoulder to shoulder.

00:34:25 Speaker_01
If you could choose anyone to join as the fourth partner, who would you choose and why them?

00:34:30 Speaker_00
Some of the folks that I respect immensely are the Excel Venture Team, Dan Levine, Vasanth Arajan, some of the folks that I would describe as similar age to the three of us that are doing a tremendous job in the ecosystem.

00:34:41 Speaker_00
There are some funds that I would consider new guard funds a little bit in front of us. I think Sarah Guo has done a tremendous job with conviction. Jack Altman doing amazing things with Alt Capital.

00:34:52 Speaker_00
It's probably the most dynamic moment in 20 years in venture, where you have these legacy institutions that are dealing with generational change, huge portfolios.

00:35:01 Speaker_01
Fund investing is like a company investing in a couple of ways. One, the best fund managers are like the best founders. They make you feel a little bit uncomfortable with their intensity. And then, you know, second, there needs to be a why now.

00:35:11 Speaker_01
There needs to be a moment in the ecosystem that causes this company or fund to be more exciting today than it was yesterday. And I completely share the perspective there. I do worry there's just too much money in this ecosystem though.

00:35:23 Speaker_01
I lost a deal this week and I lost it because the competition doubled the price and accepted common shares.

00:35:29 Speaker_00
Yeah, I think both can be true. I think there can both be a shakeout that is already happening in terms of the amount of dollars. And I think there can be a turnover between an old guard and a new guard.

00:35:38 Speaker_00
And I think you and some other funds I respect represent that next chapter and what a new guard, but I think there's a moment. And I don't think that moment existed three years ago, five years ago, even 10 years ago. And I think it's happening now.

00:35:49 Speaker_01
Are you worried by the extended window of privatization by great, great founders like the Collisons continuously being private for years and years and years?

00:35:57 Speaker_00
No, I'm not. First off, I think products will evolve to create liquidity for those late-stage private companies that give liquidity options to early-stage investors. So I think the market will evolve.

00:36:07 Speaker_00
So just because companies are staying private longer doesn't mean I think the liquidity duration will be as long as it is today. I think we'll see innovation in that area. So there'll be more secondary opportunities for early-stage investors.

00:36:18 Speaker_00
I mean, my belief is the capital markets will create new products to solve for that. I do think that you need to have a long-term outlook in this industry. And even when I started fundraising, I thought the duration of a fund was 10 years.

00:36:30 Speaker_00
And I was surprised to learn that many of the LPs said, we rarely see closed funds before 15 years. Just you have to have kind of the stomach to be in this for a long time.

00:36:39 Speaker_01
Have you had your first carry check yet? I have. When did you get it? What year?

00:36:43 Speaker_00
I was very fortunate to join the venture industry at the end of 2015, early 2016. And I'm very grateful to have been at a fund that did really well in those vintages and was able to get some liquidity. So I'm fortunate that I've seen that.

00:36:56 Speaker_01
OK, I'm going to make a statement. You can agree or not. I don't think many of the 2021 vintage funds will return 1x. Agree or disagree?

00:37:03 Speaker_00
It's a very, what I would say is I don't think those funds will do very well. I mean, the, the vintage is going to be very, very challenged. Will it be a one X? I don't know. I think it'll be better than a one X. Maybe they're going to be tough funds.

00:37:14 Speaker_01
What happens to all the companies that are marked up insanely highly with insane valuations by many of the multistage funds and a worth 2 billion, 3 billion, not 10 billion.

00:37:25 Speaker_00
Well, I think we're already seeing some of the oxygen being sucked out of those companies.

00:37:29 Speaker_00
I think, you know, as you talk about your frustration with founders choosing to kind of raise at terms that feel unreasonable, I think we're seeing the other side of that, which is many companies wish that they'd taken a more graduated approach to their fundraising.

00:37:41 Speaker_00
Because the momentum, the cultural momentum, and I've got some companies that have been very thoughtful and deliberate in this effort.

00:37:48 Speaker_00
The momentum you lose when a fund, when the employees know that the valuation isn't realistic, I think really hurts the morale and hurts the ability of the company to do its best work.

00:37:57 Speaker_00
So I think really deliberate founders that don't overstretch, actually, you're seeing the advantage of that, but everybody has to go their own path.

00:38:05 Speaker_01
I kind of have this new approach, which is I say, listen, I will let you choose the price. And they're like, what? And I'm like, there's just one clause.

00:38:13 Speaker_01
Whatever price you choose, you have to be 90% confident that you can 3x that by the time you're going to raise your next. And if you don't, I'm going to be pissed.

00:38:23 Speaker_00
Yep. How's that working for you?

00:38:24 Speaker_01
Honestly, founders love it.

00:38:28 Speaker_00
Are you seeing bigger or smaller numbers than you expected? Smaller. I mean, that's amazing.

00:38:32 Speaker_01
Because they're like, oh shit, the 25. I don't know if we'll be 75 when we're 1 million in ARR. Especially at Seed, I'm seeing the 25s go to 15s because they're like, I could do 45, but really confidently predicting 80.

00:38:48 Speaker_00
Yeah.

00:38:49 Speaker_00
I mean, I think it at least changes the tone of the conversation from one of this is a zero-sum game where the valuation is a reflection of my self-worth and kind of a scoreboard win to one of let's put this in the perspective of a long-term journey.

00:39:00 Speaker_00
So I think it's, you know, I think it's a really interesting framing you're giving the founders of let's think about this in a different way.

00:39:05 Speaker_01
I'm not literally letting them choose the prize.

00:39:07 Speaker_00
No, of course, of course. But it's a little bit of mental jujitsu, which I will, I will think hard on.

00:39:12 Speaker_01
How do you think about investing in AI today, given rounds being the sizes they are being the competition being what it is? How do you think about that?

00:39:21 Speaker_00
So I think we're already seeing the oxygen in this bubble start to get sucked out. Now, obviously, there are exceptions. There's still some extremely unreasonable deals happening within AI.

00:39:32 Speaker_01
But I think what's starting to happen is... What makes you say that we're seeing the oxygen sucked out? Because I don't see that.

00:39:37 Speaker_00
I think that just calling yourself a .AI company is no longer tacking the same premium onto your business as it would have a year and a half ago.

00:39:45 Speaker_00
And the people that were the same camp of founders that were a .XYZ during the crypto boom that have migrated to .AI for the AI boom are starting to recognize that they actually need a sustainable business and that's what they're going to be evaluated on.

00:39:57 Speaker_00
Now, that doesn't mean that there aren't rounds happening at the red hot center of the AI infrastructure ecosystem. But I do think you're starting to see some pullback and some proportionality brought back into the other side of the market.

00:40:10 Speaker_00
It doesn't sound like you're seeing that by the way you looked at me.

00:40:13 Speaker_01
No, honestly, I see it being more crazy than ever. I mean, I've met three companies that raised it north of 750 pre-product. How do you structure decision making as a new firm?

00:40:22 Speaker_00
So we are a single trigger model, which means that any one of the three of us can make a decision on an investment and go with it.

00:40:28 Speaker_00
Now, the biggest mistake that I have seen from my own personal experience and from other funds is when you try to make consensus decisions at the early stage, I think you end up with consensus funds.

00:40:38 Speaker_00
And I think it's the errors of omissions at the early stage where one person or two people have super strong conviction in an idea that end up being the outliers.

00:40:47 Speaker_00
If you think about the outliers, you're going to get, you know, when you open the aperture, when you've got kind of the decision framework that I just described, you're going to get both.

00:40:54 Speaker_00
You're going to get deals that don't do as well, but I think you're also going to solve for the extremes that do very well. And that was the model that we landed on.

00:41:02 Speaker_01
You mentioned the sin of omission there. What miss weighs on your mind most?

00:41:06 Speaker_00
Chime. I really love that business. From a fintech perspective, it was one where, you know, I would love to have been a part of the early stage rounds and kudos to the folks that figured that out earlier than I did.

00:41:17 Speaker_01
Why is Chime a third the size of Revolut in a market that's five times bigger?

00:41:22 Speaker_00
I think nobody has really cracked the product velocity that Revolut has. I mean, Revolut's product velocity is just unparalleled in really any market at this point, including Nubank.

00:41:33 Speaker_00
And you could argue the US is a harder market to differentiate on features, but Revolut has had a superpower. They just move so quickly in terms of the breadth of products they're able to offer its customers.

00:41:45 Speaker_00
I don't think anybody's been able to match that in the US. That said, I think a lot of people get consumer finance wrong in the US and say, just because nobody has built a Revolut-sized business means that it's not going to happen.

00:41:55 Speaker_00
Actually, the last time I was on your show, I think I predicted $100 billion Neobank coming out of somewhere. And I think we're a lot closer. I think Revolut's the closest we're going to see to that.

00:42:04 Speaker_01
I absolutely agree that I think Revolut is that, but I would actually place a lot bigger bet on Revolut taking the U.S. than Chime.

00:42:11 Speaker_00
I would argue that there might be a company nobody's ever heard of yet that actually wins the mantle.

00:42:15 Speaker_01
You know, we have Mamoun on the show. He just lost Tally, brilliant founder, Jason, but difficult business in the lending business. And his lesson he told me was just that lending's really, really hard. Is lending just an uninvestable category?

00:42:28 Speaker_00
I think lending businesses are very, very, very challenging. And if you look at the way that I've been comfortable investing in fintech, it's mostly been through the infrastructure that supports the growth of digital finance.

00:42:40 Speaker_01
What do you do when you meet an amazing founder in a shit market where you're like, Oh, I hate this.

00:42:45 Speaker_00
To me, it's a very obvious answer. I would, I would go all in on it. That would include lending as well.

00:42:49 Speaker_00
It gives me heartburn, but at the early stage, the stage I'm investing at the stage that's core to chemistry, finding great people at this stage, they're going to iterate into something that's interesting. And again, please take the other side of it.

00:43:01 Speaker_00
You know, even in my partnership, you would hear Ethan's much more markets focused than I am. But for me, great founders figure out a way to create market. I mean, if you look at.

00:43:09 Speaker_00
You know, I was very fortunate to see some amazing companies from Index from the early days, whether it was a Figma, whether it was a Wiz, whether it was a Datadog.

00:43:17 Speaker_00
Companies that, you know, have been able to build TAM by just increasing the surface area of their products. That's the lesson I draw from some of those businesses that I've seen from the early days.

00:43:26 Speaker_01
My question to you is what other markets do you like? Like for me, recruitment software. Oh, oh, no. I'm like, honestly, I'm really sorry. Education, ad tech just sucks.

00:43:38 Speaker_00
OK, so. One of it's funny, we just looked at a recruiting software company. So I'm just laughing about that.

00:43:43 Speaker_00
But what I would say is one of the dangers of experience, and having done this for almost a decade now, is shutting your brain off for a category that didn't work in the past.

00:43:53 Speaker_00
So I have a little bit of an allergic reaction when you say that not because I disagree with you in any of those specifics, but in the sense of a trap that people fall into. And this happened in fintech, you look at the evolution of fintech,

00:44:02 Speaker_00
So in FinTech, the most knowledgeable people were a bunch of the East Coast funds that had spent two decades inside of financial institutions and knew the market way better than the West Coast funds.

00:44:13 Speaker_00
And they outsmarted themselves from every money-making deal in the category, the really, really big ones. And the West Coast funds that had the naivety to lean in, I think still did really, really well.

00:44:23 Speaker_01
I would say the smartest in FinTech are Matt Harris and Mickey Malka. And they've made a fuck ton of money.

00:44:30 Speaker_00
What I would say is Matt Harris is probably the smartest and best FinTech investor out there. I mean, Rivet's obviously incredible as well, but Matt Harris, I think, has kind of set the direction of FinTech for a very long time.

00:44:43 Speaker_00
But what I would argue is that knowledge can be counterproductive as well. If you know too much, because the crazy ideas are crazy, right? Like you can out think yourself from any good series A by overthinking. I've done it myself.

00:44:54 Speaker_00
I've seen other people do it. And I think knowing too much can actually be dangerous. So what industry are you like? Sales, sales tools, the next AI for sales tools company. I have a very hard time, you know, keeping an open mind at this point.

00:45:09 Speaker_01
I did, I did 11X.

00:45:10 Speaker_00
You mentioned at the beginning, listen, I know how well they're doing, but I just have a hard time seeing. I've just heard the pitch so many times. There's a lot of activity that I don't think is going to go anywhere there.

00:45:21 Speaker_01
How do you turn people down? Do you say the honest truth or would you rather gloss it over because there's no point being that honest and blunt?

00:45:30 Speaker_00
My answer to that question has changed by fundraising myself. There were a lot of times where it was easier as a VC just to say something polite to not give people the real feedback.

00:45:42 Speaker_00
And having been on the other side of a fundraise and now felt the other direction, I think it's really helped me understand how useless that is and the importance of giving strong, constructive feedback.

00:45:53 Speaker_01
The other big change, though, in you is you've moved from a multistage fund where you have to preserve optionality and you have to keep them on side.

00:46:00 Speaker_00
That is such a good point, because you can be wrong and right at a multistage fund. When you're doing what we're doing at Chemistry, you get one bite at the apple. And that is that's actually for what it's worth. That's a new muscle for me.

00:46:10 Speaker_00
But it's also really empowering.

00:46:12 Speaker_00
And it's one of the reasons I'm having so much fun right now, because it focuses you in a way that I had not done before, where the danger of the optionality of being able to do every stage at every time is you have to keep so many doors open, there is something that focuses the mind by saying, this is the stage we're doing.

00:46:28 Speaker_00
And this is the stage we are not doing, and therefore kind of giving yourself the kind of the test of conviction of where you are, and then being able to kind of adapt and change the operations around that.

00:46:38 Speaker_00
What will you break first or more willingly? Check size or ownership? The check size. It kind of goes back to my sense of you have to be in the winners.

00:46:48 Speaker_00
And I think that when we feel like we are in a winner, I'm willing to, to move up on check size to be a part of those companies.

00:46:55 Speaker_01
What's your capital concentration limit on a per company basis?

00:46:59 Speaker_00
I can't remember what legally we have as the concentration limit, but certainly we don't want more than 10% of the fund in a single company.

00:47:05 Speaker_01
I remember Brian Singerman said to me on the show that the enemy of great venture returns is capital concentration limits on a per company basis. And he mentioned that they have 30% in some funds just for one company.

00:47:17 Speaker_00
Listen, if it's the right company, that's incredible. I would have a hard time sleeping at night with that sort of concentration. But if it was Airbnb, I'd probably... Then you're sleeping just great.

00:47:28 Speaker_00
But you're probably sleeping on a yacht in Saint-Tropez. So it's different. But I think having some sense of perspective. But listen, I think one of the advantages of being a new fund is taking a lot of risk.

00:47:37 Speaker_00
I think we are going to try a bunch of things that don't work and I'm totally comfortable. I'm excited for that. Like we should be doing all sorts of things and seeing how do we push the innovation in this industry.

00:47:46 Speaker_00
And I think that's going to create a better founder experience even when we get it wrong.

00:47:50 Speaker_01
If I were to give you just one bit of advice, and everyone will tell you the opposite, don't be afraid to do brand deals where you do get into brand names with tiny ownerships.

00:47:59 Speaker_01
The most important thing is that you align yourself with incredible founders and incredible companies in this new era, especially in this new era of AI. Just get into some great companies and be aligned with them.

00:48:10 Speaker_00
So funny enough, we had some LPs say exactly the same advice, which was one of our more surprising moments from our fundraise, where some of the LP said, it's that important that you're in some of these brand deals to be able to establish yourselves.

00:48:23 Speaker_00
And don't be afraid to lean into that. We had other we had LPs say exactly the opposite, too.

00:48:27 Speaker_00
But it was interesting that even the LP community was their positive externalities from being in these, you know, these winners, and you should be willing to kind of compromise to do that.

00:48:35 Speaker_01
Listen, my friend, are you ready to do a quick fire? Yeah, let's do it. So who outside of chemistry do you learn most from in the venture industry?

00:48:43 Speaker_00
The person I learned the most from has been Mike Volpe, just a tremendous mentor to me at Index Ventures and somebody I continue to call regularly for advice as I'm kind of navigating our new fund in next chapter.

00:48:54 Speaker_00
What would you most like to change about the world of venture? I would change the groupthink. I think it's bad for founders.

00:49:00 Speaker_00
And I saw a great meme go around yesterday of, you know, a cheetah, an airplane, a rocket ship, and then the speed at which venture gossip moves between associates. And that resonated with me.

00:49:11 Speaker_00
I wish there was a little bit more independent thinking in the industry.

00:49:13 Speaker_01
One thing i do say to founders is like you are either fundraising or you're not nowadays sadly what whatsapp groups have changed is the ability for associates to communicate very very fast with large groups that actually oh i met mark he wasn't great and actually they're not even at half a million an hour so we turned it down it can really damage a raise when you're not even raising.

00:49:35 Speaker_00
I agree. I think you're totally right. I think companies need to be very cognizant of those dynamics.

00:49:40 Speaker_01
What do you most need to change in yourself as an investor to be better?

00:49:45 Speaker_00
You know, really thinking about how I spend time and reorienting it 100% towards playing offense is a new skill for me right now after having been in a large... You think that's even possible, dude.

00:49:55 Speaker_01
I mean it nicely, but like you get board seats, portfolios accumulate. You can't. You have team members, they have culture, morale, promotions.

00:50:03 Speaker_00
So you can't forever. You can when you have a clean slate from day one. So you don't have it forever, but I have it now. I feel like I'm running with a jetpack on my back right now. It is a tremendous feeling.

00:50:13 Speaker_00
And it's probably what you felt for your fun one before you made an investment. That's the level of energy and the juxtaposition from carrying a very heavy board load and portfolio load and going to that. So you're right.

00:50:27 Speaker_00
It's not infinitely scalable, but it's very exciting right now.

00:50:30 Speaker_01
You can invest in a seed firm, a Series A firm, and a growth firm. Can't be yours or mine. Which would you invest in?

00:50:36 Speaker_00
Pick the fund? Oh, this is a good one.

00:50:39 Speaker_01
Mine would be like Cyber Starts at Seed or Nico at Adjacent. A, it would have to be Benchmark. And then growth, I'd do Thrive.

00:50:48 Speaker_00
So growth, I would do Meritech. I think they're doing extremely interesting work right now. Series A?

00:50:53 Speaker_01
I'm very constrained fund size for growth.

00:50:55 Speaker_00
And they're a constrained fund size for growth. And they're, they're just doing some really interesting work.

00:50:59 Speaker_01
So I'm a huge fan of, of kind of the strategy and the people nailed generational transition with Alex, Max and Max.

00:51:05 Speaker_00
it's a team of hitters. It's independent thinkers. They're going to have tremendous returns and founders love working with them.

00:51:10 Speaker_00
So that's an obvious choice for me that there are some other great funds as well, including IVP at the series a, I think Excel ventures continues to just do really interesting, innovative work, very independent, very strong crew between Dan Voss, Steve, a bunch of the other folks there on it.

00:51:25 Speaker_00
And it's seed. There's so many good, interesting seed funds right now. I, I have a hard time giving you one off the cuff of my head. Come on.

00:51:32 Speaker_00
I'll tell you what though, we worked out of the Uncork office to start the fund, and they're a fantastic institution. What's the most challenging thing about starting a new firm? It's hard building something from scratch.

00:51:41 Speaker_00
Here we are before this interview, I was trying to figure out how to get my microphone and lighting set up. At a big fund, there would have been a whole team helping me do that. It's both the fun part, it's also hard.

00:51:51 Speaker_00
And that's, I think, what makes it fun.

00:51:53 Speaker_01
Mark, do you think richer investors make better investors? Because you're not afraid of richer, like, personal wealth. Yeah, because you're not afraid of downside. You see upside.

00:52:02 Speaker_00
Nobody has ever asked me that. That is such an interesting question. My gut reaction is to say the opposite, which is that the wealth level correlates with a lack of hustle and therefore, but it's, that's actually not in practice what I've seen.

00:52:16 Speaker_00
I think there is a correlation less about the money and more about the people who are so good at this job that it's not actually the money is the afterthought. They love the job and they love doing this.

00:52:27 Speaker_00
And I don't know if it's the I don't give a shit anymore because I have so much money that I actually I'm not sure it's that I think there is to get to that level.

00:52:35 Speaker_00
There's such a love of the craft and of doing this job that they're probably pretty good at it.

00:52:39 Speaker_01
Dude, listen, I'm so thrilled for you. Honestly, I'm so happy to see the news. And this is such an exciting time. So thank you for doing this with me. And it really means a lot to have the friendship.

00:52:49 Speaker_00
Harry, it's a total pleasure. Like I said from the beginning, congratulations again on your fund. Thank you for having me on the show. And thank you again.

00:52:57 Speaker_01
I want to say a huge thank you to Mark for joining us today. It was the only podcast episode that Chemistry have done as part of the release. Such a joy to make that happen, and you can watch the full episode on YouTube by searching for 20VC.

00:53:07 Speaker_01
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00:56:01 Speaker_01
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00:56:17 Speaker_01
An incredible turnaround story on Monday.