Traction Podcast
00:25:46 · Lobo, Roy Luo
[00:25:46] S2: Trust is the cornerstone of all relationships, and great companies get relationships, great partnerships are built in an alignment of core values. Do you have a couple of nonnegotiables that you try to align on with founders or in general with any relationship? [00:26:02] S1: I think different firms have different principles, and different people, individual people have different principles for sure. And so in this industry, you've seen all sorts of different structures and colors. For us, I really value simplicity. And so when we work with founders, the the nonnegotiables, in my opinion, are really when it comes to the nature of your partnerships. We try to keep things as simple, clean, like standard terms, no structure, things like that. I think with complexity breeds misalignment in incentives. Obviously, when you're actually building a partnership with the founder, you need to spend time. You need to really get to know the person. And when you have that, that serves as a foundation for... From a commercial angle, hey. Are we rolling in the right direction in terms of building a great business? And then obviously, from there, making sure that everything about the partnership is as straightforward as possible so that there's really nothing to be thinking about other than how do we win together.
00:27:00 · Lobo
[00:27:00] S2: Makes sense. I like that. Oftentimes, every actually relationship, friendship in my life, when I reflect back that is... That has gone bad, it's like a fundamental misalignment of core values. And there's often this one thing where the core nonnegotiable value is in violent opposition with the others. And you could never see it because when you're starting out or when you're poor, you ignore those things. And then money doesn't change you. It just brings out your true values. Right? And then you start to see friction. Even in the companies I advise, it's just commonplace. So I like that focus on alignment. Has there been a crazy chaotic company situation where this co founder or relationship with the founders and collaboration with them were pivotal to saving the day. Can you maybe give us Yeah. Some indecent What's the you...
00:27:52 · Roy Luo
[00:27:52] S1: I would say during the Silicon Valley Bank saga, that was a really crazy time. I think everyone was stressed. There was real existential risk for businesses, our own business, other businesses in our portfolio. And how do you think about partnering in one of the darkest periods of time? I would say the onset of COVID was another one of those moments. But I just remember SVB very vividly because when that was really going down... I work with a double digit number of businesses, and I'm spending ten, fifteen, thirty minutes, an hour each. And so quickly, I'm working through my list, making sure I call everybody, and I'm in the weeds working with them, coming up with a game plan, coming up with contingency plans around how to manage this situation, reporting what we're hearing from other places, and just working deeply as partners with them. And then in that crisis moment, it was interesting because before you knew it, it was the evening, and I had started the day at 7AM making phone calls. And I was in my room doing all these calls, and I couldn't believe how quickly the time passed by, basically. That was a wild time. And I think that to be able to work in deep partnership and an intimate way with all your businesses, that comes from trust and vulnerability. Everything's on fire at the moment. No one knows what's going on. And to be able to make quick decisions, I think you can only enable that if you really have deep trust in your partners.
00:29:23 · Lobo
[00:29:23] S2: Fantastic. Now we're heading in an interesting world. Right? Every company is becoming a fintech company was the theme for a bit. And now every company is forced to become an AI company. You either stick to the past and die or embrace the future and thrive. What's happening? I guess I see this VC 3.0 in a broad sense. If you say the first technological was on prem silicon, and then it was the 2.0, which is cloud, mobile, SaaS, it's all in the cloud. And now it's all AI first. How is this impacting the way you invest and the way you look at startups?
00:30:09 · Roy Luo
[00:30:09] S1: I think that's a great question. I think there are some folks who are talking a little bit about how AI is gonna crush everything, change everything. I think that's a little extreme for sure. Mhmm. I absolutely believe that AI is an essential to be a conduit to make yourself competitive and relevant in this new paradigm that we're living in going forward. I think Canva is a great example of this, actually. I think there is a lot of, like, dear or considerations around how AI can transform or disrupt industries by which Canva plays, for example. But I think and my personal thesis was, and what drives our continued partnership there is, ultimately, it's a little philosophical. I think creatives and humans want to maintain their agency when it comes to decision making. And so the love for something like a Canva really comes in the form of the workflows, the UI, how they work with the product, how the product helps them realize their creative vision. And, yes, do they have amazing tools, content, templates, things like that? Absolutely. And historically, there was a whole marketplace of sorts to be able to help drive that. But Canva is one of the most forward thinking businesses in AI, being able to leverage AI to improve their cost structure, expand their capabilities, and deliver them in faster, more efficient ways. And ultimately, the agency of the creative is maintained. Their love and their interaction with the product is maintained. In fact, it's enhanced, but they're getting even more out of it because of AI. And I think credit to Mel and Cliff for leaning in hard and building upon that to be able to be the conduit that brings AI to the masses. But without that philosophy, you could put yourself at risk of actually getting disrupted. But what I personally believe and what we're really seeing is that the big brands and the big winners of AI are going to be the ones who already have that distribution, have that customer advocacy, and aren't sitting back, but are really leaning in and bringing AI and leveraging it to deliver more to those customers and to their communities. And I think Behave is a great example of that.
00:32:21 · Lobo
[00:32:21] S2: I a 100% agree. A lot of people... And I've been in this space of automation, like dating back to rules engine, to AI, to models, and so on. Right? A lot of people think like, they'll just ship a single agent application and it's gonna disrupt industries. You have the opportunity to disrupt industries that are largely service oriented. But if you're competing with people like Canva or sitting on so much data, in the AI space, these agents will get commoditized very quickly. Your real moat is a data network effect that gets you to a concept drift resilience, which is you can adapt in real time, built on voluminous data where workflows perform at high intensity, high velocity, high frequency. Canva has that. They have the data. A new startup for it to come and say, oh, I'm the AI version of Canva. And to make that fully autonomous, they're going to have to get the volume of data that Canva has and train it. And that's a hard thing to build. I think we are bang on. Companies that have already established brand and customer moats have volumes of data and they have the opportunity to build these AI agents on top of that data that become the standard. So, you build something like in the SaaS world, you could build an application that's better than an on prem clunky application that went from just put a veneer and didn't really have the product DNA and went from on prem to SaaS. You could crush them by some growth tactics. Think in the AI world, it's gonna be a lot harder because how are you gonna get proprietary high quality data?