Uncapped with Jack Altman
· Kevin Hartz, Jack Altman, Bennett Siegel
[00:00:00] S2: It is. I think that’s where, when you’re spending time with the founder and getting to know them, if they can really articulate what they’re doing, you have to listen so carefully. A great founder will have every word very much have great meaning and intention about what they’re going to build. [00:00:00] S0: You’re saying there can be cues with the language someone’s using, of where their head’s at. [00:00:00] S2: Yes and how they prepare and how they’re thinking about the business. Sequoia had backed my previous two companies, and they were always sticklers on how you presented and how you showed up at the same time. [00:00:00] S0: Do you guys find that meeting founders in a round versus getting to know them before their fundraising is some huge difference? Do you have good examples of success with either? Do you prefer one over the other? [00:00:00] S1: The Decagon team’s a great example. Kevin, why don’t you talk about the history with Ashwin? But I think the prior history informed how we thought about this company. [00:00:00] S2: I had been an angel in a company that Ashwin had founded called Helia. Russell Kaplan and Daniel Barrios were in that too. Russell’s now the president of Cognition, and Daniel’s over at Meta. That company didn’t make it, but I stayed close and was always a big fan of that trio. When Ashwin went off and met up with Jesse to start Decagon, it was kind of a no-brainer to get involved in the seed round there. [00:00:00] S1: The funny thing about Decagon, there wasn’t really an idea. They had this insight.
· Bennett Siegel, Jack Altman
[00:00:00] S1: The funny thing about Decagon, there wasn’t really an idea. They had this insight. [00:00:00] S0: You knew the team was great. [00:00:00] S1: We knew the team was great. We knew there was white space in building on top of the foundational models in a moment in time when no one had really commercialized different enterprise applications. You had the history of the team to say, “Wait a second, we understand why their prior companies were a modest success, but why one plus one equaled more than two in this situation.” That’s an easier bet to take in some ways when you have that history. The flip side is, there are founders we can meet during a process where we try and build as much rapport and relationship as we can. We try and understand them as people. We have to try and understand the opportunity, and those have worked for us well. But it’s a shotgun marriage. You need to move faster many times with less information. [00:00:00] S0: Especially in a market like right now. Sometimes you meet them, you have three days or something like that, or less. [00:00:00] S1: Three days. I would say at A*, more than half of our seeds have been pseudo-proprietary in nature. That doesn’t mean no other funds were around it. That doesn’t mean they’re not meeting other folks. [00:00:00] S0: It means you didn’t start cold during the process.
· Jack Altman, Bennett Siegel, Kevin Hartz
[00:00:00] S0: It means you didn’t start cold during the process. [00:00:00] S1: Exactly. We maybe were first to reach out to them. We had some informed knowledge. We had a dinner with them in the past. There was some relationship of relevance and some insight we had going in around who they were as a founder, what they wanted to do. [00:00:00] S0: Is it obvious to you off the cuff which half of your investments are better? [00:00:00] S1: Yes. The half that we had some prior relationship with, that were somewhat proprietary, have disproportionately generated returns. Though we have done well with some of these shotgun marriages, I would say there’s higher volatility. [00:00:00] S0: One of the things I think is interesting in seed is that there aren’t that many firms that stick around seed for a long time and are very successful. I gave the example of First Round. You guys are obviously doing great. There’s a couple others that have been around for long periods of time. But a lot of times people either leave seed, or they stop doing what they’re doing entirely, or something else happens. Why is it that it’s a less persistent part of the market than multi-stage, in your guys’ view? [00:00:00] S2: Seed is just incredibly hard. It’s so challenging. You’re investing in people, no product, hardly even a roadmap or anything else. You have a great deal of uncertainty day in and day out. Then compound that with the current environment where the multi-stage firms have come in and want to get a toehold in seed, so they spray money in.
· Kevin Hartz, Jack Altman
[00:00:00] S2: Seed is just incredibly hard. It’s so challenging. You’re investing in people, no product, hardly even a roadmap or anything else. You have a great deal of uncertainty day in and day out. Then compound that with the current environment where the multi-stage firms have come in and want to get a toehold in seed, so they spray money in. [00:00:00] S0: When you say seed is hard, do you mean hard in the sense of high effort, or hard in the sense of difficult to get a good result?
· Jack Altman, Bennett Siegel
[00:00:00] S0: When you say seed is hard, do you mean hard in the sense of high effort, or hard in the sense of difficult to get a good result? [00:00:00] S1: Both. You work incredibly hard to build relationships with founders and earn the right to invest $2-5 million in a company that by all odds will likely not work. Most companies do not become billion-dollar-plus companies, and if it’s not a billion-dollar-plus company it has almost no relevance to the performance of your fund. It is genuinely hard to find these founders. It is genuinely a lot of work to convince them to partner with you, and it’s even more work afterwards to support them in building a company. So you have two facets of this. Historically, seed firms that have been successful maybe do not continue to adapt to the environment. They don’t refresh their networks, they don’t continue to be aggressive as new types of founders and new technologies emerge, and they tend to fall by the wayside. That’s one crop of seed funds. Others that have been successful, that have found one or two or three amazing companies, they grow up, they graduate, they raise opportunity funds and growth funds. What’s left is a relatively small group of firms that still specialize at seed and look to work with the best founders, and don’t try to find value deals or diamonds in the rough, but compete to be the partner for the next generation of winners. If you can’t do that, seed is a bad asset class.
· Bennett Siegel, Kevin Hartz
[00:00:00] S1: Both. You work incredibly hard to build relationships with founders and earn the right to invest $2-5 million in a company that by all odds will likely not work. Most companies do not become billion-dollar-plus companies, and if it’s not a billion-dollar-plus company it has almost no relevance to the performance of your fund. It is genuinely hard to find these founders. It is genuinely a lot of work to convince them to partner with you, and it’s even more work afterwards to support them in building a company. So you have two facets of this. Historically, seed firms that have been successful maybe do not continue to adapt to the environment. They don’t refresh their networks, they don’t continue to be aggressive as new types of founders and new technologies emerge, and they tend to fall by the wayside. That’s one crop of seed funds. Others that have been successful, that have found one or two or three amazing companies, they grow up, they graduate, they raise opportunity funds and growth funds. What’s left is a relatively small group of firms that still specialize at seed and look to work with the best founders, and don’t try to find value deals or diamonds in the rough, but compete to be the partner for the next generation of winners. If you can’t do that, seed is a bad asset class. [00:00:00] S2: Just to emphasize, venture capitalists should be much better managers of people, too. The generational change, handing things off, very few firms make it on from there. They usually die with their original GP.