The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:40:10 · Harry Stebbings, David Tisch
[00:40:10] S1: I don't want to, like, single out a company, but it's a company that we both know and everyone will know, which is testament to its success. But would you fund, like, a Harry's today? [00:40:20] S0: I think Jeff and Andy from Harry's are world class founders that if you put inside of any company, they would build something of importance and of meaning. We at Box Group have stopped funding brands, not because I actually think they're small. I don't think you can fund brands at Seed. Because brands to me are built off of your initial data set of like, does the brand resonate? Does the product resonate? Do people buy it? Do you have like customer LTV or CAC to LTV ratios that make sense? And you don't get any of that data at seed. I think one of like the more interesting investor products out there is like doing brand investing at Series I don't think it fits in your traditional venture firms today, but I think there's a subset of investors that fund brands. If you look at the beverage industry is a great example. If you look at some of the QSRs, if you look at personal care, there are scaling brands that are fascinating business. I just don't think where we sit today, we're equipped to invest pre momentum. [00:41:27] S1: Can I ask one thing that I see, you said it's very much a founder's market earlier? They can choose the price they want with the people they want. To me, it's like a real haves and have nots, which is like there are three categories where if you're in that category, how
00:41:27 · Harry Stebbings, David Tisch
[00:41:27] S1: Can I ask one thing that I see, you said it's very much a founder's market earlier? They can choose the price they want with the people they want. To me, it's like a real haves and have nots, which is like there are three categories where if you're in that category, how [00:41:39] S0: There categories of haves and have nots. That's... You only named two. [00:41:43] S1: No. Three categories of interesting company that investors just go nuts for. And then, obviously, it's more than three, but a small number. And if you're not in that, even if you are in AI four x, investors are, nah. Not interesting. Not in compute. Not in inference. Nah. Not in data centers. Not in chips. Whatever. And you're instantly dismissed. Do you see that too? [00:42:04] S0: Yes. But I, again, come back to founder quality and founder ambition and execution. So we were in the earliest round of a company called Rogo. They were building AI for finance. Gabe finally told the story. But after the seed round, I helped them go out to try to raise an A. I put my name behind this company fully, and I'm like, Rogo is going after something huge, and Gabe is sensational. And I sent it out to make up a number. He said 40. 40 Series A lead investors. He got fully passed on by 39 of them. Did Keith do [00:42:37] S1: that round? [00:42:38] S0: Keith did that round. So 39 nos. This is now a consensus company. It has now been funded by Keith led the A, Sequoia did it, Kleiner did it. [00:42:50] S1: Do you doubt yourself? Yeah. You do, or you just think, God, the mimicry of this market's ridiculous?
00:42:50 · Harry Stebbings, David Tisch
[00:42:50] S1: Do you doubt yourself? Yeah. You do, or you just think, God, the mimicry of this market's ridiculous? [00:42:56] S0: Oh, I just get sad. I'm like, I've done this a long time. I'm telling you to spend time here, and some of the passes were quick. We don't think this is interesting, we don't know that this could get big, or they don't have enough traction, whatever they were. But I just think there are companies in this moment of your point of like king making haves, have nots that are misread at different stages and then become one of the other categories. And so that to me means, as it should be, early stage is not a perfect market. And there's not perfect information. There are gonna be companies that are not in the zeitgeist, off the radar, that compound value, compound momentum, and build something that's very important outside of the immediacy of those funding conditions. And I think Rogo to me was like totally misinterpreted by a series of investors at a specific point in time, kept building, kept getting better. And then I think in the right way, rewarded for the execution of what they've done. [00:44:04] S1: And you do follow on checks into just the next round, next two rounds? [00:44:08] S0: So we operate today two funds. They're both $275,000,000 So it's a core seed fund. And then we do a follow on fund. We write 20 to 30 lean in checks into companies almost all from our portfolio. [00:44:23] S1: And the lean in checks are $5,000,000? [00:44:25] S0: Five to 30.
00:44:25 · David Tisch, Harry Stebbings
[00:44:25] S0: Five to 30. [00:44:26] S1: And that's across the a and the b, the next couple of rounds? Yeah. What's the most you've ever invested in a company across the two? [00:44:33] S0: Like, in aggregate? Yeah. Probably $40,000,000. [00:44:37] S1: Which company was that? [00:44:39] S0: I mean, we've we've written substantial checks into RAMP, into Clay, into Baseten, into Rogo, into Tandem. [00:44:47] S1: Which did you not? And on reflection, what did you not see? [00:44:51] S0: Sometimes you can't get more than your pro rata in companies, and that's a fight for allocation in future rounds. And that might be the founder choosing not to take a bigger check from you. So that's one condition. And then the other condition is like we misread the company and didn't lean in hard enough when we could have. And I think we don't make perfect decisions. I wish we did. So I look back and there are so many opportunities of great companies that we were fortunate enough to be early in that we were too slow to react to. [00:45:23] S1: Is there one that you think of first there? What do [00:45:25] S0: I think think of a lot, but I think we're incredibly fortunate to be in business with that founder at the earliest stage. And I think our job is to continue to help them in the ways that they ask us to help them and make our customers who are the founders happy. [00:45:41] S1: David, is pro rata a right?
00:45:43 · David Tisch
[00:45:43] S0: No, do I think a bunch of the early stage VCs that are out there saying, We don't need pro rata. We're gonna give it up. It's all marketing garbage. It's just nonsense. I can write a blog post too. I just don't believe that that it's that black and white. I believe the right to invest in subsequent rounds is earned. Whether you have it in the documents or not, it's earned. There are multiple factors that go into it. So having it in the documents, to me, is more helpful for the founder than for you as a firm. If you as a firm are asked by the founder to step back for whatever reason, that is up to you to say yes or no, knowing that if you say no, you are getting into a fight that you are likely going to lose in some form. You are either going to lose it financially and that you're not going get your pro rata because of whatever mechanism can be used to remove your pro rata, or more importantly, you're gonna lose it because of reputation. You are gonna piss off the founder, and they are not going to like you anymore. So if you say no to a founder and you wanna take reputational risk, that's on you. So why is it important to have it in the documents? Because I think that funds that follow you into rounds in the a and the b, they are happy to squash you in any way they can. And the more that you have it in the documents, the more leverage a founder has to negotiate the terms of their next round. So if a firm comes in and says, We want 22, and you look at your cap table and you're like, I have 6% of my cap table that needs pro rata, you're able to actually create more leverage with your follow on investor to say, that math doesn't work for me. I would like to redo this. And then you can use that in help of your negotiation. Do you
00:47:32 · Harry Stebbings, David Tisch
[00:47:32] S1: see large firms being more ownership hungry or more willing to accept less ownership? [00:47:38] S0: Haves and have nots. There are firms sometimes that need 20% in a deal, then you're like, But last week, you did a deal at 5%. And I see it because I'm in that deal too. And so I always think that's funny when the word need comes up in Venture and you're like, I know what need means. And it does not mean need. It means I'd like, I hope for, but it doesn't mean actually a binary need. I think within the big firms, there are very different style actors. I think there are people who are on the way up or competitive inside of their firm that behave one way. And there are people that are very confident in their position at a firm and their standing and their success that behave a different way. And you can say junior or senior, whatever terminology you wanna use for that. But I think that relationships matter. There are times when we send a deal to a multistage firm and they write the term sheet and then try to squash us. And I'm like, that's weird. And those tend to be, again, this orientation towards short term decision making versus long term and not appreciating the consistency of a relationship. Again, I've been doing this a long time. There are people that you build great relationships with that tend not to have overly sharp elbows with you. And then sometimes you catch your elbow out of nowhere. You're like, Oh, I didn't see that one coming. [00:48:58] S1: Who, when they send you a deal, do you pay most attention to?