The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:07:34 · Nick Shalek, Harry Stebbings
[00:07:34] S1: Yeah, I just think the odds of a new fund working are extremely improbable. You know, the reasons to be in the venture business is to have a chance to work with the best entrepreneurs. And it's very hard for most people to get in venture because there are these amazing storied institutions and legions of angels and VCs with every sort of angle and specialty. And I don't think you can learn the venture business the right way if you don't see what great companies and founders look like. And you're just at very high risk of that happening with new funds. So you need a really realistic appraisal of the situation. So I knew that and I knew the probabilities, but what, you know, why did I do it? Can I push back on you that? Like, there's a ton of firms that have technical debt. It could be in strategy. It could [00:08:10] S0: be in structure. It could be in team that is bogging them down, that is slowing down investment decision making processes, that's reducing the quality of processes. I would actually posit a different opinion and say that actually a new firm can start with a completely real time thesis that works for today with no existing politics, no existing people debt, structural debt. And actually, you could put that in a poll position over the storied firm.
00:08:36 · Nick Shalek
[00:08:36] S1: I think that's right, Harry. But hundreds or thousands of people who try to get into venture business, very few of them managed to figure out how to stick around. And the reason I'd say it and the reason I joined Micky, despite what I told you earlier, that what he wanted to do, what we were talking about broke the rules of venture as I learned them. My gut feeling from spending time with him very quickly was that he passed this sort of simple litmus test. And I think it's the key one to answer your question, which is, say it this way, a friend of mine has a theory that any decision or any investment can be whittled down to like one single most important question. And for me, in venture capital, that's like, will great entrepreneurs consider working with us? Know, there are lots of good people with smart ideas like you talked about. But if you can't get the best entrepreneurs to consider giving you a meaningful slot on their cap table, then it's not worth it. And after spending time with Micky, I thought that could be true at Ribbit. And I thought I'd have a lot of fun and learn a lot working with him. So we got started trying to make that true. But this is the other thing I'd say, like, even with all that, a lot had to go right for us. Like we've been able to track a brilliant team of people who work exceptionally hard from our partner, Nikolay, who was the first person to join us to our partner, Jordan, who recently joined just about everyone who's landed at Ribbit's been extraordinary. But even with the right people, we just benefited enormously from timing, like the wind being at our back in tech and FinTech, and even more from getting to back entrepreneurs like Fred and Brian at Coinbase, or Ken at Credit Karma, Vlad and Pedro at Robinhood, you know, early on, and that gave us the right to play further and find the next set of great founders. My comments are really about trying to build a firm that establishes a presence and lasts. And I just think that's a really hard thing to do. It requires a lot of luck and a lot of good timing and hustle.
00:10:04 · Harry Stebbings
[00:10:04] S0: No, listen, doing it today, I totally understand and agree. It's it's challenging, but I totally understand the perspective there. I wouldn't wanna say because you mentioned there about kind of the fundamental question being, will founders pick you? On the flip side of that, obviously, you also have to wanna invest. You said first principles being, like, thrown around a lot. The other one is conviction. Conviction and everyone has conviction on this investment. So when we chatted before, you said conviction is critical, but certainty will kill you. Can you unpack this one for me? What did you mean when you said that?
00:10:33 · Nick Shalek
[00:10:33] S1: Yeah. Yeah, definitely. And I'll make sure to say this all with a lot of conviction. You know, we felt from the start of Ribbit, one way to be a great investor is to be thesis driven. It doesn't mean you have to have the answers. In fact, you shouldn't. But it means that you have thought hard about what they might be, you've looked at all the data you have available to you, developed a reasonable hypothesis about the future. So we might take an area like crypto or insurance and write a thesis and share with our friends and LPs and entrepreneurs and use the feedback and dialogue from all that to get us to a level of conviction that gives us an advantage. And that advantage is when a great founder walks in the door and wants to start something, it's easy to say yes, since we've already pre negotiated our enthusiasm for what the company might be or how the space might evolve. And to me, that's conviction. The danger in all this is you get too stuck on your ideas. Focusing intently on something doesn't give you a crystal ball about it. Things that work are often the things that fly in the face of experience. So for example, early days at Ribbit, we had a view that digital payments were commoditizing and would be a declining margin business. And it's the kind of thing an expert would say, and it sounded smart to me at the time, but it turns out to be very naive and reflect a very static view of the world. We just had too much certainty, you know, and at some point, we wised up and adjusted, but it costs us a lot of great returns. In the meantime, I had to generalize this, and I think you probably agree, like I'd say, in most cases in tech investing, it's great to have conviction about things to invest in or to do, but you got to be really wary of conviction around things not to invest in. Type two errors are a lot more painful than type one errors.
00:11:56 · Harry Stebbings
[00:11:56] S0: Can I ask, how do you prevent past successes or failures in investment decision making? So you could look at a certain vertical and it went incredibly well. You name many of your companies that have gone to multi billions in valuations. And then kind of anything else in that vein, you automatically view with this kind of rose tinted spectacle. And then everything is done badly. Like, oh, we're never gonna make money. As you said, that kind of payments declining, margin business, whatever. How do you retain that mental plasticity
00:12:20 · Nick Shalek
[00:12:20] S1: with the successes that one has? You just have to train your mind to constantly be paranoid. And for me, this is a lot of what trying to be a good investor about is maintaining the optimism to see how big something can be, and the skepticism to not believe sort of your own BS. And I think it comes from constantly examining what you believe, and then comparing it against the actual data, you know, does this belief hold up, you know, we're all subject to confirmation bias, and we want to find data points that suggest that we're right. And it's really easy with the sort of filter bubbles that exist today to go find lots of people who tell you that you're really right about something. But I think when you step back and you say, Well, what's the consumer actually doing? What's the customer want? Are they responding to this thing? And why are they doing that? And that was the thing with payments was, we might have this intellectual view of how the space was going to develop. But then when you really looked at what developers were doing, or merchants were doing, and then you started to see the incredibly smart people who were attracted to companies, like, you know, Stripe is, of course, the most iconic example, you know, at some point you just have to capitulate and realize you're fooling yourself.