# Gokul Rajaram's Eight Modes of Software Durability

**Podcast:** The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
**Published:** 2026-03-16

## Transcript

The first mode is data mode.
Second is the workflow mode.
Third one is regulatory mode.
Fourth mode is a distribution mode.
We're on number five.
Ecosystem mode.
Sixth one is a network mode.
Seventh one is the thing you mentioned, physical infrastructure, right?
And the eighth one, I would say scale mode.
You cannot be a single product company.
I think vertical products, you've got to really own full stack.
I think it's harder otherwise to be a 10 plus billion dollar company.
This is 20VC with me, Harry Stebbings, and I'm so excited for the show today.
I'm thrilled to welcome one of the best operator-turned-investors of the last two decades, Gokul Rajaram.
He works with some of the best founders of our time, serving on the boards of three public companies, including Coinbase, Pinterest, and The Trade Desk.
He's also one of the most successful angel investors of the last few decades, with early investments in Airtable, Figma, Vassell, Superbase, and many more.
And now as the founder...
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Gokul, I've wanted to do this for years, and you have, I mean, you've coyly played hard to get, let's put it mildly, after my continuous WhatsApp messages.
But thank you so much for joining me today, man.
It's my pleasure to be here, my friend.
Thank you again.
Now, I wanted to start with how some of your prior companies that you've worked at have shaped your investing mind specifically.
And I wanted to start with Google.
When you reflect on your time with Google, how did that shape your mindset for the types of companies that you like today?
I think the best way to think about the Google experience is Google taught me that ultimately the best companies have a remarkable product at their core.
Google was definitely a philosophy of build it remarkably and they will come.
GTM was not Google's specialty, but what Google was really good at was building amazing products.
Sometimes the go-to-market worked, sometimes it didn't work, but at the core was a remarkable product.
So ultimately my core investing thesis is that if there is not a remarkable product, all the go-to-marketing distribution in the world will not save you.
I look for what the remarkability is in the core product.
or value proposition of the company.
Is it 10x, 100x better than the alternative?
I'll tell you a story at Google.
When I joined in 2003, there was a project going on called Caribou Internally.
It's like, what the hell is this?
This was web email, which gave one gigabyte free storage.
And back then Yahoo Mail offered 10 megabytes of storage.
So it was 100x.
I was like, there's no way it's possible.
And turns out it was.
And it was released on, if you remember, April 1st, 2003.
And that people thought it was an April Fool's show.
But that was Google literally taking something that was unbelievable and making it a reality.
And so that's the kind of products I like.
Something remarkable, something unique, something powerful.
I like it.
It reminds me of actually Neil Mater who talks about kind of jaw-dropping customer experience as one of his core monikers for thinking about companies and investments.
Next, we have Facebook.
How did Facebook impact the types of companies that you like?
What is interesting is that even if you have a remarkable product, you still need distribution.
Facebook taught me the power of distribution.
Mark, I think, is the best distribution.
genius in the world.
He would look at a product and say, this is how this product is not going to work.
And it taught me the power of multiplayer products in particular.
Most software products are single player.
And as soon as you make the multiplayer, there is a uniqueness in switching, distribution, etc.
that comes about.
Facebook, by nature, you can't use it if you only have one person on Facebook.
And so when I saw Figma, the power of Figma I felt was it was not just that A person could use it, but it was much easier to share with other people in your company.
And I think the best PLG software companies are those that you can use, multi-duplican use, and it increases defensibility.
So the power of distribution and multiplayer products.
What about Square?
What did you learn from Square that you've taken to your investing?
The power of a multi-product portfolio.
I think at Square, when I joined, we were a single product company.
payments and payments only.
When I left, we had, I think, 11 products each doing more than 50 million in revenue.
And one of the interesting metrics was our key North Star metric went to median number of products used by a seller, by a merchant.
Turns out that the more products that a merchant uses, the more retentive they are, the more sticky they get.
So this is the other thesis I have.
I mean, this is obviously very clear now.
You cannot be a single product company.
And most importantly, your product number two needs to emanate very naturally.
It can't be like this completely separate product.
It has to be very adjacent.
For Square, it was a product called Square Capital, which was basically a cash advanced product that really came from the fact that Square controlled the payment flows and knew exactly the merchant's credit history and could underwrite based on basically money going in and out.
It was a beautiful product.
The interesting thing about having a multi-product portfolio...
is that not every product needs to generate profit.
People are always like, oh, it's not making money.
Square Capital didn't make much money, but it was very good for retention.
Some products are good for making money.
They're part of the profit pool and some are good for retention.
Companies need to be very clear which are the profit pool products and which are the retentive products.
If you confuse the two, your teams don't know and they're built for the wrong outcomes.
But the power of a multi-product portfolio and being able to have products with different goals, retention versus profits.
I love that in terms of it doesn't need to be profitable.
I also just see so many investors today being relatively inelastic in terms of their mindset on margin, where it's like, oh, the margins are shit.
We had negative gross margins for the first year, I think.
Negative gross margins.
Dude, I don't think DoorDash had great gross margins for the first few years either.
I don't think Deliveroo did, who obviously DoorDash acquired.
And so it's just funny that we kind of repeat the same mental cycles of, oh, the margins are shit.
And it's like...
Yeah, so were the best companies' margins.
Spotify didn't have great margins for a very long time.
And their margin increase has been amazing, actually.
Dude, DoorDash, what is the lesson from DoorDash?
It was the most operational of all four companies.
I thought I was a good operator.
When I got to DoorDash, I really realized what operations means.
And so a lot of my philosophies around how to truly operate in a hard mode have been shaped by it.
It really was the epithesis or the epitome of, I think, how product and operations can work together in the physical world.
So how it shaped my investing philosophy is the kinds of people that came out of DoorDash, I just think they are excellent.
And I try to get them.
It's really around hiring.
It's around talent.
It's around taking really hard problems.
And so I'll never forget when COVID hit, as you know, most restaurants were shut down for the first couple of weeks.
And so DoorDash had to make a very hard call around what to do, how to get these restaurants open.
And ultimately, we decided to.
not take any revenue share from these restaurants for a month even though we were a private company we had somewhat of cash on the balance sheet and that really hurt it was the right thing to do in the long term but it was extremely painful in the short term you spoke about kind of the skill of operators to work both in a physical and in a software-based environment now with doordash even with project europe which we chatted about before we're seeing all of our hardware companies be so freaking popular right now because everyone's just terrified that Bluntly, Anthropic's going to eat their lunch, as we keep seeing with Anthropic doing security and security stocks plunge.
I want to talk about the SaaSpocalypse.
Is the volatility that we're seeing justified, or are we in a manic hype oversell environment with emotional volatility?
Well, as all of our software portfolios are deep red, right?
All of us have some software stocks and the reality is public market has decided that since code is becoming free at the low end and becoming much easier to generate and create at the high end, the market decided that every software company is going to zero.
I think this is 100% overreaction because not all software companies are created equal.
And I actually, I mean, both you and I think about this a lot.
What are the characteristics?
of a durable software company.
And I think there's a few that we can talk about.
But yeah, I think everything has been painted with the same brush at this point.
It is absolutely an overreaction.
You're going to leave me with a cliffhanger gockle.
You're like, there's some very durable characteristics.
We can talk about them if we want.
I would love it if we could talk about them.
Can you please help me understand?
It's basically a play on Hamilton Helmer's seven parts, but it's slightly different.
I call it the eight modes.
The first mode is data mode, which we all talk about, but it truly has to be proprietary.
It has to be data that nobody else has access to.
I think Spotify is a good example.
If you look at their Discover product, it uses a decade of listening behavior across hundreds of billions of people.
You can't create that listening product.
discover product easily.
Second is the workflow mode, which a lot of people argue it's a weak mode.
I agree by itself, it's a weak mode.
But the deeper you're embedded in the company, running their operations, moving their money, the deeper the workflow mode is.
Just by itself, I don't think it's enough in perpetuity.
But the deeper you're embedding is, for example, NetSuite is an ERP that runs your business.
They have a much, much deeper mode than, say, Zendesk, which is a lighter workflow mode.
So that is a mode.
You can say it's one.
Maybe Zendesk is 0.5, NetSuite is a one.
Third one is regulatory mode.
So licenses, capital require multi-year procurement contracts.
Coinbase, where I'm on the board, is a great example.
They have MTLs, money transmission licenses, state-by-state.
They raise with the Fini, CN, all of those things.
It makes it impossible for a company to use anybody else than Coinbase to custody their crypto because of that reason.
Fourth mode is a distribution mode where you have proprietary exclusive distribution.
Intuit is a great example.
Anybody who wants to build an accounting system?
I remember when I started a company, it was after Google, I basically tried to use this company called Xero, X-E-R-O.
And I was like, let's use Xero.
It's like the new it had just started.
It seems like a cooler interface.
My accountant said, no, I'm sorry.
I don't use Xero.
You shut it down.
I had to cancel Xero and go to QuickBooks.
What a great distribution model.
You've trained a network of CPAs to only on QuickBooks.
I don't know if they have a commission or what they get, but that's a proprietary distribution channel that these guys have.
Very hard to displace them.
Fifth one, ecosystem mode.
If you have a platform or ecosystem where many third parties are built on and rely on, you have a mode.
Shopify is a great example.
You can wipe code an e-commerce hosting platform, no problem.
But can you wipe code the hundreds of thousands of developers and third parties who built all these applications on Shopify?
Every Shopify merchant I know uses like at least five or six other third party apps.
That's a huge part of the Shopify ecosystem.
That's a mode.
Sixth one.
It's a network mode.
That's classic DoorDash.
I think DoorDash and many other modes, but AI can vibe code the ability to access restaurants, but it can't vibe code liquidity, courier density, reputation history, all of those things.
So marketplace density is a network effect, which is structural.
Seventh one is the thing you mentioned, physical infrastructure, right?
Atoms, wherever you have atoms.
it makes for a mode that's hard to displace.
You can't, again, I think humanoid robots will maybe at some points are taking, but it's probably a few years away.
And the eighth one, I would say scale mode.
If by virtue of your scale, your costs are so low that it's hard to replicate.
I think Amazon is a great example.
TSMC in semiconductors, scale mode.
So those are the eight modes, basically.
Data.
workflow, regulatory distribution, ecosystem, network, physical, and scale.
And so what you do, I think any one of these modes is not enough, but what you want to do is you want to take a company and score it across them, maybe assign one point to each mode they have.
And I think anything four or more, you're pretty damn secure.
But if you have a two or three, it's a weak mode.
And if you're one or less, you probably need to really build some more modes or you need to do something to make up for it.
If you have zero, you're screwed, basically.
I'm just doing this in a thought exercise.
So we have Atlassian and we have Monday.
They're both down kind of 75%.
I've had both their CEOs on the show.
If you look at them and you put them across this eight kind of rules, you would probably say that Atlassian is being massively oversold and that Monday, as awful as it sounds, is maybe being rightly priced in this environment.
I agree with that.
I think Atlassian has proprietary data.
Now they need to use that data to build products.
They have unique proprietary data on all the code out there because it's being checked in.
There's a lot of stuff they have which they need to use for better.
They have a workflow mode.
They don't have a regulatory mode.
I don't know what distribution would need to think of whether they have something there.
ecosystem mode, I think there's a lot of third-party things that are built around them.
So they at least have a score of three here.
They have a network mode.
Do they have a network mode?
No, I don't think.
They're not a network effects company, the way you think about it.
They don't have a physical mode, and they don't have a scale mode.
So they have a score of three.
Monday probably has a score of one, I think.
They have a workflow mode.
I'm not sure if they have the other modes.
So you're right.
Monday, in theory, has a much weaker score, I guess, than Atlassian on this.
This is so unfair of me.
How would you think about Klaviyo in this way?
Like when you look at bluntly the ability for public companies to build good agent products, it would seem very obvious that Shopify will bluntly build Klaviyo now in the need to re-accelerate.
How would they rate?
I don't think Shopify will build it.
Shopify is an investor.
And Shopify, I think, has decided, at least in my opinion, that this is, Shopify has these things called missions.
And I think they've decided this is not part of their mission to build this product.
So I don't think the risk is Shopify.
It is that it has become easier to build Klaviyo now than it was a year ago.
So it's easy to build Klaviyo.
I haven't talked about brand.
I think brand is no longer a strong word.
I explicitly excluded brand.
I don't know how strong.
Shopify's promotion of Klaviyo is.
I think a lot of it depends on whether the proprietary distribution they get from Shopify, how strong and tight it is.
If Shopify is actually going to promote them as a, you know, when you search for messaging or communications, Google has a vote with Apple.
When you use Apple, you're basically Apple products.
You get Google search engine.
If Klaviyo is a preferred product and they have a relationship that makes it work.
I think it's very hard to displace them.
It's hard to at least displace that part of their business.
Dude, you just throw a grenade in and don't expect me to pick up on that.
I think brand mode is not so relevant anymore.
I just actually had Elena Werner, who's the head of growth at Lovable on our 20 growth show.
And she said that actually brand is the most important thing as you commoditize technology and it's easier and easier to create.
How people resonate with a brand is the most important.
Why do you think brand mode is not as important?
Businesses are much more rational.
in thinking about it, less irrational.
And the alternatives are going to be much stronger.
I think on the consumer side, consumers are much more like dollars.
And there is dollars and cents, but there is a natural inclination to just trust brands.
I think on the business side, it is going to get weaker.
I think I actually disagree a little bit because switching costs are so much lower.
One of Hamilton Helmer's seven powers is switching costs.
I think switching costs is just going to go to essentially zero because over the next one or two years.
Ability to port data, your data, as a business or consumer from any ecosystem to another ecosystem is going to be very easy.
And then people are going to be able to replicate almost pixel by pixel the experience you have with one product in a different product.
So you'll have clones popping up left, right, and center, and data portability is going to be easy.
In that case...
What is that brand really?
It's like in professional sports, do you cheer for the player or the team when they switch teams?
I need your help because the one that I continuously oscillate on is Salesforce.
When you say about data portability being increasingly easy, we had Seb from Klarna on the show.
He said agents would make data migration from systems were a record increasingly easy.
So they wouldn't have the lock-in that we think or reduce the switching costs.
But then I look at your...
eight factors and I'm like, well, they have workflow, they have distribution, they have ecosystem, they have scale.
Well, they don't have scale.
Their scale means that it is cheaper for them to produce.
I think they have a score of three because that's the thing.
Software earlier was a scale game where because you had produced a lot of software, it was cheaper for you to produce a lot of software.
Guess what?
Now, everybody can produce software as cheaply as anybody else.
If they had their own...
Data centers, I think hyperscalers are the ones that basically are able to say confidently that they have scale or people in the physical world.
A pure software company can't get that scale more.
But yes, they are very similar to Atlassian where they have a score of three, I would say.
So do you think Salesforce and systems of record like Salesforce are inherently attractive or less attractive given the data portability increasing?
They are more attractive than most companies, most software companies.
But if they don't build agentic workflows and commoditize a complement by figuring out where the profit pool is, I think they have to figure out is the profit pool in the data or the workflows.
If in the workflows, they need to make data storage free and basically change pricing to an outcome-based model based on workflows.
If they feel the profit pool is in the data, then they need to give away these workflows for free.
And so they need to...
really commoditize all the agentic companies that you know that are trying to build on top of them and charge for that.
They need to build better products using their data and make it free.
And I think that's the way that a NetSuite or a sales for the system record needs to operate.
They have to commoditize their complement.
They can't just wait around for other people to build on top of them.
We're seeing buybacks like never before for your work days and your sales forces of the world.
Is that...
Truly indicative, do you think, of internal company confidence?
Or do you think it's a necessity to externally show the world that we are confident?
It's both.
They are confident internally, but they need a signal to show that they are confident.
I think the founder buyback is the most, the strongest signal.
It's not just the company, but also the founder.
Did you see ServiceNow CEO's three million buyback?
And then they saw that his garage of classic cars was like three times as much.
I was just like, oh, that's a bad comms move.
Yeah, I think there are buybacks and there are buybacks with a capital B.
You want the capital B one.
You want a CEO of a large company to do a $20, $50 million buyback to show confidence.
I completely agree.
We've mentioned Monday.
We see companies like Notion, like Amplitude, I'm mixing publics and privates.
But kind of growth stage companies and even privates do bolt-on strategies.
Hey, our core product, we're the bolt-on of AI.
How do we determine bolt-on AI strategies that work versus...
bolt-on AI that doesn't?
It's an interesting thing.
The bolt-on AI strategy by itself has a real ceiling, but I think the companies where the bolt-on really works are the ones that reframe what the product does, not just add the capability.
So I think if you just add AI search...
As there's one thing, you just add AI search or you build search as an experience with new UX primitives.
One is just an upgrade.
The other is doing something completely different.
So Notion, for example, I think very highly of them.
I think Notion is adding AI.
You mentioned they're adding a lot of AI agents.
I'm hoping that the way they've added it, I've actually played around with the product.
I think it's pretty good.
But the AI agents need to now get better based on how the user interacts with it.
And they need to tune the model for their customer base.
Most bolt-on players are not doing it.
They're simply using a GPT or anthropic model, adding a thin layer.
you have to rebuild the entire experience end-to-end.
You do that by identifying something where AI doesn't just improve the margin, it changes the experience and the economics.
Document processing was a good example.
I think Alton recently, you couldn't actually extract structured information from unstructured documents until about six or nine months ago.
Now, you can reliably read dense legal contracts.
Your experience around documents needs to be fundamentally different.
If you're just getting someone to upload a document in the flow, You need to instantly give them immediate insight from the document while they're uploading it versus the same document upload thing.
That's crazy because now you should be able to infer any document that enters what the hell is going on instantly.
So you need to re-evaluate every single interaction and see what has changed.
That's the biggest difference in product development today.
Model capabilities are improving every six months because if you have too long a product roadmap, you're going around your program and the model comes and just...
blows it out of the water.
So you've got to really understand what the capabilities are of each new generation.
You can't have too long a roadmap because your roadmap is going to be blown out by the next model iteration.
Speaking of being blown out by the next model iteration, how do you as an ambassador today, educate me, how do you ascertain safety from model intrusion versus in the way of models and you will be eaten with the next update?
If you have some of the other ones, if you're physical and so on, it becomes easier.
If you're a pure software companies, which of those apply to you?
I think fintech is a good one.
I think fintech goes through these cycles.
I think fintech, especially Marathon, we invest a lot in fintech.
We actually think, oh my God, fintech is not the best.
If you're moving money, you're generally in a good place.
So anything touches money, we feel there's a very strong moat there, much more defensible.
And so data and workflow modes are the two things you're really hanging your hat on as a software investor, because if you're not doing fintech.
And then I think at early stage, it's too hard to know what a distribution mode is unless they have some hack and these hacks never really stand the test of time.
Ecosystem too early to say, network effects too early to say.
So really physical infrastructure, they don't have any software company.
Scale, they don't have any.
So it's really about, okay, go deep into what is the data asset you're creating.
Does it get better with time?
Do I believe it gets better with time?
Are you building your own model over time?
Are you fine tuning a model and improving it over time?
And then how deeply are you truly embedded in the workflow?
Are you just a lightweight thing that the underlying system of record could create?
So these are the two things that you have to hang your hat on.
A data asset that gets better with every interaction and then a workflow.
It's hard, man.
I think pure software companies are hard.
I think applications and software companies are, you've got to really believe that the founders can ship with great velocity to basically build that and see proof of that compounding.
I got in trouble in the partnership the other day.
I'm quite grumpy, generally speaking.
You?
No, my Twitter is getting grumpier and grumpier, I know.
But I've met support agents, voice agents, for auto manufacturers, for dentists, for chiropractors.
And I'm like, guys, this is like OpenAI, 11 labs, 4, and then all of these different verticals.
Would you say, Harry, no, no, no, you're wrong.
They're building verticalized data over time.
They're able to fine tune their own.
They are deeply embedded in workflows.
They might have distributionary, like, yeah, the kind of like dentist cool agent is a little bit plaster on top of a wound.
I do think these are viable businesses.
I don't think they're going to be big businesses.
As soon as you do vertical, I don't think you can do one function within a vertical.
I think what you want to see there is the ambition and ability to truly own the full stack, build the whole product for the vertical.
Service Titan, for example, is a canonical example.
It went public last year.
Great outcome.
It's still a sub $10 billion company or something like that.
And they own like 30.
If you look at the S1, they have 32 different products.
And even after selling 32 different products and really being, at least in the US, for any field services company, they are the canonical company.
They still are a $10 billion company.
You know what's astonishing when you compare that to a Robinhood is Robinhood has 13 product lines now doing over $100 million in revenue.
13.
Coinbase has 12 doing 100 billion revenue.
Exactly.
You're a horizontal product.
You're serving a broad base.
I think vertical products, you've got to really own full stack.
I think it's harder otherwise to be a 10 plus billion dollar company.
I'm going for spice.
In a world of 2026, can we as venture investors do vertical SaaS given the fund sizes that we have?
I think you can.
Maybe the mega funds might say, look, it might not be a 100 billion dollar outcome, but...
I think if you're a $200, $300, $400 million fund, you can absolutely create a $10 billion company.
Because remember, one of the big changes is that vertical SaaS does take over labor.
And so vertical software, right, is no longer SaaS.
It's basically just software as a service, but it is services.
So you're going after the services spent.
So one of the interesting things, as you know, is that...
Verticals, mostly, especially if you're selling to small businesses, they spend some amount of tooling, but they spend a tremendous amount on both BPO as well as on human capital, human labor.
You need to basically target those two spends.
And I think if you do that and you're committed to building the whole product, you can, absolutely.
You very kindly said before the show that you like the show that we do with Jason and Rory.
It's very humbling when I do the show for 10 years and then I find out that it's actually much more popular when I actually bring other people on to do it instead of me.
Always good for the ego.
But Rory always says to me with AI, very simple, we need to see the transition of spend from software budgets to human labor budgets.
And if we do, the TAM obviously opens up immensely.
Do you think we will realistically see that?
And maybe you're seeing it already.
Or do you think we will actually remain in software budgets as we have been in some categories?
No, we are seeing that.
We are seeing that.
I think the first one, most businesses don't want to lay off people.
So the way we are seeing it, the first thing that's happening is businesses are outsourcing to third-party BPOs, many of them in India, Philippines, etc.
That spend is the easiest to cut because now you can offer the same service higher quality, faster, and 20, 30% cheaper.
The second thing they do is when somebody leaves, they don't replace that person.
And the third thing they do...
is layoff.
So I think layoff is still maybe a little bit of a while away, but you're seeing absolutely BPO spend.
All the call center companies that you mentioned, all the next generation AI customer service companies, they're going after BPO budgets.
I was shocked when I was doing work in this space, how many different verticals, doctor's offices, etc., use call centers outside the US.
They already have budget clearly allocated, and there's a better service.
So I think it's BPO spent first, don't replace the person second, and then potentially think about laying off.
Do you know Goldman Sachs and Barclays, both financial institutions, both have over 30,000 people in India?
I didn't know 30,000.
I thought there were like a few thousand.
I didn't know 30,000.
Isn't that nuts?
I was so shocked when I heard about that.
I want to understand two different types of company profiles and what happens to them.
We've got private companies and I don't want to pick on them, but it is helpful to give examples.
I'm sorry.
They're my friends as well.
So I can kind of do it and they'll love me hopefully regardless.
But like, you know, your sneaks.
Amazing security business that's got great customers who love it.
But it was valued at $7 billion, and it's now 300 million ARR growing 15%.
What happens to that cohort, which is a great business serving great customers, but 15% growth, 300 million ARR, and you've got a very high price?
What happens to that private cohort?
There are two outcomes for these companies.
All of us have those companies in our portfolio.
A bunch of them are going to become zombie companies.
They're going to try to add AI features as a last resort, not succeed, and be sold to PE.
The problem is even that might not be a good outcome because PE itself is struggling to digest the companies they bought a couple of years ago and the prices are reset.
They do have good assets.
I am seeing in some verticals there are companies merging with each other.
I think we'll see if that happens just to create more scale, but it'll be interesting.
But hopefully the better outcome that many of them go to is with strong leadership.
You basically can burn the bridges and create a completely new AI-native product.
I think you had the Intercom CEO, right, Finn?
Great example.
Podium, another great example.
Both of them with their new products have gone to 100-plus million in a couple of years and basically just burned the bridges.
This is legacy software.
I think the more you fixate on how do we fix the business, the less you're going to focus on how do we create a new business.
So you've got to create a new business from scratch.
You have customers.
You almost got to say, I'm going to be ruthless about migrating the customers from the current business to the new product.
Even if it's lower price, it's a bright thing to do.
And you've got to abandon sunk cost fallacy.
Help me on podium.
100 million agent revenue, okay, it triples, 300 million, and then it triples again, 900 million.
If the price today is 5 billion that I'm paying, I'm paying for two years of treble-treble ahead of time for that asset, for that's what it would be priced in public markets.
For this business to work, we need the multiples in publics to be way more than they are now, do we not?
I think you need to assume that...
they will take over huge parts of the service budget in the businesses and that they will not just be a billion dollar company.
I believe that they'll be a multi-billion dollar company because earlier, I think they were limited to one part of the stack and they were on top of a bunch of systems.
Now they're taking over the entire software stack.
And that's the thing I like about you want founders who are ambitious enough to go after the entire stack, not just the earlier piece of the stack they were in.
You want to be the only product.
that the company uses, and you want to replace as much of the digital labor as you can possible.
That's the ambition.
So what you want to say is, what's your market size here?
In all your customers, how many people do they have that are doing digital work?
And do you have the ability to replace all of that payroll over time and all of the other things they're doing and take a part of the payments transaction revenue?
And if you think that's a big enough opportunity, that's when you invest.
Do we see the total death of seat pricing, my friend?
I hear you completely in terms of that movement into services.
Does seat pricing die and we actually have consumption-based pricing as the primary pricing mechanism?
Seat pricing doesn't die.
You know why?
If you look at ChatGPT Enterprise, ChatGPT Enterprise is priced based on seats because seats provide predictability for enterprise buyers, but they don't drive expansion revenue by themselves.
So you basically have to bundle a lot more into each seat.
So ChatGPT OpenAI.
sell seeds based on different tiers, but they have different functionality.
I think Figma sells three different types of seeds.
You're going to see different kinds of seeds.
The big challenge is seed-based pricing, which you alluded to, is it breaks when the product's core value is not about access, but it's about something doing the work on your behalf.
So at that point, charging per user doesn't make sense because user isn't the constraint anymore.
It's the work output.
So at that point, you've got to go to outcome-based pricing.
So for example, if I'm something like Harvey, I don't know how Harvey prices.
I bet that they're priced based purely on how many contracts they process versus how many people are using it.
For example, even if 100 people are using it and they process zero contracts, in theory, they should get zero.
So I think you have two kinds of products.
You have access products and you have work products.
Access products is basically seed-based, like I think Chad GVD Enterprise is a good example, and then work products like Harvey are probably more outcome-based and not seed-based.
You mentioned Harvey there.
We are seeing increasing competition within certain categories.
If I think about law, it's Harvey and Lagora.
If I think about customer support, Sierra and Decagon, and there are dominant funded players.
How do you think about the ability for firms to kingmake?
Is kingmaking complete bullshit?
Is it not?
I'm just intrigued to get your thoughts on that.
Kingmaking is a thing.
I think it is a thing.
You see earlier and earlier companies are getting these rounds that are valuing them at valuations, which really are eye-opening.
That said, I think it won't work unless the company executes on the promise.
I think other firms can take it as a signal and decide to pile on or not, but ultimately the company has to execute on the vision.
If it doesn't, then it's just a bad bet.
So yes, it is there, but it by itself, just because you're kingming doesn't mean they are the king.
They still have to execute and justify it.
I think the reality is everyone's playing different games.
You and I know, being venture capitalists now, that somebody with a $10 billion fund is playing a fundamentally different game than somebody with a $400 million fund.
And if you try to play the same game they are, you're going to lose.
You've got to play the game that you're best equipped to play.
Benchmark plays a different game than, say, Andreessen Horowitz, but both of them play different games, and both of them do well at their game.
We mentioned Podium earlier and going to 100 million with that agent first product.
The growth is incredible.
And the growth across this cohort of companies is, dude, we were doing this eight years ago when, you know, you went from one to 10 at Slack and it was like, holy shit, that's amazing.
Now it's like one to 10 is still great, but there's quite a few who've done one to 10.
How does your mindset change around growth expectations for the companies that you invest in?
Is a world of triple, triple, double, double dead?
It's not dead, but it's no longer elicits the jaw-dropping odd that it used to a few years ago.
As you said, I mean, you know, the one to 10 is becoming more and more common.
And those numbers will basically get you, I mean, lovable could probably go public with that kind of trajectory.
Now, the bigger question for me is durability.
And it's not even quality, it's durability.
Because like you and I discussed, margins can improve over time and will improve over time.
So it's not about margins, it's about...
Is this revenue durable?
And so retention is basically very important for me to understand.
Are people using it as, I think we saw in the first way of AI, we saw many chart GPT, like there was a company called Jasper, not to pick on them, but they went from one to 40 and then they came back from 40 to 10 or something like that.
Maybe one to 100 and 100 to 40 within very quick timeframe.
So there's a lot of tire kickers out there, especially in prosumer products who test the product and then move on to something else.
So what you want to look under the hood behind all these numbers.
is two things, which I think are the fundamental indicators of business quality, customer retention or gross retention, and then net revenue retention.
Those two, I think, are the biggest indicators of quality.
I would always take a company that's just, just, I should say, just as crazy, doing a triple, triple, double, double with excellent gross and excellent net revenue retention, then a company that's growing 10x in a year with really bad customer retention and less than 100% or less than 90% net revenue retention.
How do we think about ceilings on those markets?
And I'm specifically thinking about one that haunts me, which is Granola.
I was one of the first investors to meet Chris and clearly Granola has crushed it and is an amazing product.
But customer retention sky high, revenue retention sky high.
Honestly.
If Anthropic or OpenAI did an enterprise product that's note-taking and it's connected to all of the different suite of products that they have, I think that heavily threatens the market size that Granola is able to expand into large enterprise.
How do you think about the worthiness of those retention numbers if there are alternative factors like that that could impact it?
Yeah, I think you want to basically weigh the retention.
in the light of what they have encountered.
You're absolutely right.
I think just like you want to weigh the growth of a company in light of, have you gone through any seismic events?
If they've not gone through any seismic events, you've got to then take it to the grain of salt.
What comparative threats have you faced?
Has a single competitor come out?
Have you been able to ward off that?
Has your attention stayed strong in light of that?
Some of these products like Granola, et cetera, we'll see if they are the case, but they are these unique products that really...
opened up non-consumption markets, which means that I would never have actually bought a note-taker before, a separate note-taker outside of Zoom or something, because Zoom comes with its own note-taker.
Gmeet comes with a note-taker, but Granola is so powerful that it basically got me to consume a separate note-taking product, and it's probably true for many of us, and I think that just changed the market opportunity for them.
I think Uber and so on are great examples where it's just non-consumption markets.
Also do Gamma.
You've got Google Slides built in.
Exactly.
Great.
The very good parallel.
Non-consumption market.
You would never assume, why would you ever buy a PowerPoint thing or a presentation thing separately?
It's a non-consumption market.
It's a zero market.
But the product is so good, so remarkable, that it gets people to buy it separately as a separate SKU.
I think we need more of these standalone remarkable products.
Intuit is a great example.
As you know, Microsoft tried to crush Intuit again and again and again back in the 80s and 90s with bundling everything into office.
But Intuit TurboTax survived and thrived.
Okay, but does that go against what you said earlier about the need to be multi-product?
You know, what you've done with Gamma is you've taken slides out of Google's G Suite and made it on steroids, amazing, very deep.
You will need to multi-product.
They can't just be a single product and go, they will need to have a second product.
I'm so sure of that they will need to have a second product.
Intuit has multiple products.
Okay, but what's Granola and Gamma's multi-product?
I don't know.
I don't know why Gamma would not create, just like they have taken their riff on PowerPoint.
Why can't they have their own take on documents or slides the same way?
I have to assume it's basically the different kinds of content that people create, or even websites.
It's hard to see.
We'll see.
Both of them are in a wave of incredibly hot, attractive companies, which have lower margins than we are used to in traditional SaaS minds.
How has your mindset changed or stayed the same around margins?
How should I think about margin assessment when looking at companies today?
Yeah, I think...
Inference costs are dropping, so you automatically assume that margins, in theory, should go up.
But I think it's not about margins in year one or two.
The more defensibility or leverage you have, in some ways, over your customers and what choices they have, the more pricing leverage you have.
So I would rather see margins go up with price increases than cost decreases.
A good example is PayPal.
Roloff Botha was on our board at Square, and he told us at PayPal, back in the day, raised prices five times in three years because there's such stickiness.
They knew their customers really couldn't do anything.
And you see, I mean, those are, I mean, Uber, I have to say, I don't know if they have raised price or not, but I know that they have basically changed the economics of how much they pay drivers over time so that their margins have just expanded continuously.
And they've also raised prices in different ways.
So I think you have two ways of increasing margins.
So first of all, You and I both, we don't look at margins in year one and two.
I mean, it doesn't make sense even years four and five.
But you want to have on one side the ability to increase prices.
On the second side, you want the ability to cost to get lower.
I think that second thing is happening by nature.
What you want to see is in addition, the ability to have...
such a good product and ideally multi-product a story which makes switching really hard and you can raise prices can i be blunt dude in the environment that we're in today the two things that you said their ability to increase prices and margins in years three four and five dude the world is changing so much i have no idea about their margin structure in years three four and five i said you don't you don't look at margins you look you look to see whether or not they have they have a product that is compelling enough for example I think obviously Disney Plus for every year, I think they increase prices on me.
Like they've gone from $20 to $30 to $40 or something like that.
Amazon Prime is another one.
But this takes many years.
But you want the potential.
You want to evaluate the potential.
Do they have the potential?
Do they have the ability to increase prices in the future?
It's not something I worry about.
I think durability and defensibility is much more of a worry.
I think good companies, if they're defensible, they will have the ability to increase margins.
That's what I was saying, actually.
Have you ever shopped in Chanel, Gokul?
I think they do have stores or mini stores, yes.
I've never shopped myself.
I buy my mother every year a Chanel handbag for Christmas and birthday.
Do you know what they do every six months?
Prices up 10% every six months.
10% for the same product?
I used to buy a handbag and it was £500.
Now it's £10,000.
Holy cow.
My question is, we should invest in LVMH.
Clearly.
Durable, defensible, 100 plus years, right?
100%.
And dude, in a world of increasing wealth inequality, actually, awful statement.
Can you have good businesses selling to non-wealthy people?
You've worked in fintech before.
I think Robinhood is a good example.
I think you've got to have massive scale.
I'm an investment company called Atlas, which sells to billionaires.
It's the opposite.
It's a great business.
You need massive scale.
You need a wedge product that is almost cheap or free.
Up in Robinhood, you have to have free, canonically in your thing.
Robinhood offered free stock trading for a long time.
And that was their core pitch.
And that allowed them to basically get a lot of people.
You need to have something free or some hook that is really low cost that allows you to expand.
But it is a harder business because you can't make the ARPU or the average revenue per user is low enough that you need millions, if not tens of millions or hundreds of millions of people.
When you sell to very rich people or wealthy people or large enterprises, look at Palantir, which is the business equivalent of selling to wealthy people.
They have, I think, what, less than a thousand customers, maybe even less.
And each customer pays them 20 million or 30 million or 100 million or billion.
It's an easier business to...
Obviously, it's a very hard business, but you can see I like those businesses.
I mean, look at Viva.
They went public with four customers.
Four customers.
Do you bother to do market sizing today, given the transience of markets?
As you said there, some of the best companies make you pay for things you never thought you'd pay for.
Do you bother to do market sizing?
I think non-consumption is the biggest challenge.
But yes, you can't not do market sizing.
I do bottoms up with a specific segment.
And I always know, I think...
Any customer base that has more than 10,000 customers or a few thousand customers, you've got to segment them.
There'll be a few different segments.
So you want to understand within each segment what the bottom's up propensity to pay is, what's the problem you're trying to solve with them.
And then you've got to talk to them to understand what the budget is.
You've got to do the work.
That said, I have misread non-consumption markets many, many times because you just don't know how big it's going to be.
It's very hard.
Kudos to those who've been able to bet on Uber every time when Uber hit a billion, buy billion, 10 billion.
I was like, Hang on.
And then you see your own behavior.
Sometimes your own behavior is the proxy for how it's expanding.
But the non-consuming markets are the hardest.
What's your biggest misread on market size and how did it shape?
Shopify.
I remember seeing Shopify at a billion.
And I was like, how many e-commerce merchants are there really?
Or maybe even before a billion, one of the early rounds.
Tam felt really concerned.
I think what I missed was that Shopify was not just selling e-commerce.
It was basically allowing anybody to sell.
So it basically changed any entrepreneur on the planet, anybody who wants to sell something.
So it wasn't just existing e-commerce merchants.
And that's what you want platforms to do.
They literally make it possible for every person, every person to think of the possibility of selling or renting their home out or taking a ride, which they never would have thought before, or installing a part, buying a new presentation app or a note-taking app.
They are the biggest hits.
They're also the biggest misses.
If the bet doesn't play out, they're screwed.
The bet plays out, they could be bigger than anything else.
Google, non-consumption.
Many of them are non-consumption markets.
They're new behaviors that didn't exist before.
That's in some ways what venture is all about.
It's not about existing, it's about new behaviors and betting on them.
Facebook, non-consumption market.
I mean, think of all of these iconic companies.
The thing that's amazing with Facebook is the ease for you to dismiss it for being the 50-second social network.
I mean, we forget now that Friendster and MySpace and everything before it had been, there'd been so many.
But the biggest difference was identity.
And for instance, in MySpace, you didn't know who the people were.
They didn't have the real photo.
I remember when Facebook tried to go into Japan, Japanese cultural norms were that all the Japanese social networks back then were incognito.
You couldn't, for some reason, maybe saving face or something.
You could not share your real name or your photo.
So everyone said, Facebook, you've got to adhere to Japanese cultural norms.
You've got to change Facebook and make it similar.
Mark said, absolutely not.
Even if it takes us longer, and they succeeded.
How do you prevent prior wins or losses?
impacting future decision making.
My biggest mistake is I lose or make money in a market and it inherently makes me attracted or not attracted to it in a way that could subvert decision making.
This is very hard.
I think it's a mental thing where you've got to take every opportunity at first principles.
We all struggle with it.
I think the best venture capital, someone asked me what the best venture capital bets, I talk about a paradoxical one.
I think it's Mike Moritz betting on Instacart.
Why?
Because he lost 370 million on Webvan less than a decade ago.
He burnt it through.
Same space, Apuva comes to him, he bets on it.
He bets on it after losing hundreds of millions of dollars.
It is not all Sequoia money, but...
the whole thing burned to the ground and think about the first prince was thinking needed and the courage needed to make that bet.
I think it's brilliant.
You've got to laugh at being a Sequoia partner.
You're going, dude, not this shit again.
Come on, Mike.
Really?
I'm so curious to see how he like, just incredible.
You're like, we know you did Google and like, we love you, but come on, not food delivery again.
Online grocery shopping.
Exactly.
Market is one way we trip ourselves up.
Oh, market's too small, market's too small.
The other one that I always make mistakes on is price.
How do you think about when you reflect on you've done so many good deals?
Are the best deals the most expensive in your experience?
I think there are two ways I've now realized after many years of doing this.
At seed and a price almost doesn't matter if you're right about the company.
So I think you just invest it whatever the price is.
For example, I invested in the seed round of fare back in the days about eight, nine years ago, 20 million, which is very expensive for a seed round.
highest price YC deal at that point.
I think it's been 100 or 200x for me.
So I think you invest in a company which is great.
You have conviction you invest.
Now, I think the B, I think B plus, that's when price starts destroying returns.
I think by then you got real revenue, real traction.
You can pick a generally good company and still get crushed.
For example, one of my friends invested in this security company and they had 100 million in revenue.
He invested in them at 4 billion.
I think they've gotten to 500 million in revenue.
But guess what?
They're still at 4 billion.
And so basically they will not make 1x the capital they invested.
And so that's a challenge, I think.
But guess what?
Even in WeWork, Benchmark made money.
Benchmark made money at WeWork because they invested early enough.
So I think at sub 100 million, maybe that's an arbitrary number.
You can, if the company is good, you'll make money regardless.
You mentioned WeWork there.
We'll get to selling because I used it as an example in a show we did with Mars.
Clements from Excel.
But I just want to touch on the A market there and you saying about pricing kind of where it matters, where it doesn't.
I'm with you 100%, but we're seeing 100X ARRs for 3 million revenue companies and they're being priced at $300, $400 million in this new environment.
How do you advise me as a Series A lead investor to operate?
in a market where a's are not 10 to 20 now on 100 to 150 they're actually 300 to 500 and 30 to 50 million rounds i don't think an a a investor can do there are two kinds of deals that investors have to do one is i think where there is less legibility on the company where you're betting on there's some early product market fit there's not three million revenue there's half a million revenue And that's like you said, when you get it basically for 50 or sub 100 million, a million or so.
But then as soon as it gets to three or four, it gets you.
Maybe you can do a couple of deals like that, but I don't think you can build a series A fund doing deals at three or 400 million because it's not going to be enough ownership.
Some of these are going to fail, et cetera.
So I don't think, I think you can probably, all of us, you know.
I think even Benchmark, I think on your pod, or one of the pods, I think Chetan mentioned this, they've done a few of those deals where they have single digit ownership percentages in high valuation companies like Merkur or something like that.
But most deals, I think you've got to have double digit ownership.
You've got to invest slightly earlier.
It's a tough game, but you've got to be patient.
I think the good news is...
concentration is your friend in some ways.
It can be your enemy, it's also your friend.
It can be your enemy if you're picking wrong in some ways, but it can be your friend because then you don't feel that you've got to do 10 deals a year.
You can do four deals a year and do 15 companies in the portfolio.
Dude, you've got 250 million bucks in the fund.
You've got 200 million when you actually look at investable cash.
If you don't have any reserves, you've got, say, 10, $20 million Series A checks if you're wanting to get ownership, double digits that we all say that we want.
Is that enough?
I'm not being cynical.
I'm asking for my own advice.
Is that enough?
We have 35% reserves.
So you have to have a mix of...
Come on, we need a bigger fund.
This doesn't work.
You've got to have a mix of seed and incubation bets and a mix of Series A bets.
I don't think you can do...
purely series A's out of a fund that's like 200 or 250 million.
You've got to have a mix of bets.
So the incubation bets are bets you take on founders who are basically the best in the world at what they've done.
A good example, I think, was invested in a company.
This was before Marathon, but with my Marathon partners, or part of the Marathon, they led the round with Vinod.
Vinod Khosla and Mickey Malka at Ribbit and a company called Lead Bank, which was my colleague, Jackie Reeses.
Yeah, I interviewed her.
She's amazing.
Yeah, so that was his inception round at like some crazy valuation.
I mean, very strong valuation, not a crazy valuation, but a strong valuation because Jackie was Jackie and she had built the bank at Square.
She built this bank again.
So you want somebody in an industry where they know the inner workings are better than anybody else in the world.
And you say you back those people.
And that's a much.
much better risk reward there.
So you want to do a few of those in addition to, you want to do a few incubations and seed in addition to, in addition to seed.
You're doing that, right?
In some ways, I think every early stage firm, I think you've got to have proprietary founder access and access to founders and their first call when they go to start a company.
And then you meet founders, you don't know them before, you're kind of betting on traction and so on.
You've got to have a mix of both kinds.
Do you buy the proprietary founder access?
Again, this is where I get grumpy as fuck, but I've done 3,000 shows, dude.
You know, at some point you have to get cranky.
Like every venture investor sells the proprietary vendor access.
What is proprietary is your ability to add value.
And I think founders, you basically have to, I think, build.
If you're just capital and assuming founders will come to you, you're not going to win.
But what you have to offer them is something.
What you offer them is something very different and unique.
What I offer them is something very different and unique.
We all have, I think you've got to hone as investors, what is it that we're offering?
Is it...
Counsel, yes, that's free.
Is it distribution?
You offer incredible distribution.
Is it a network of customers that you can get them access to?
Is it like talent hiring?
What is it they can do?
One of the most interesting firms, I think, which I like a lot, is a firm called The GP.
The GP, basically, they work with companies to help them place their first few hires.
I've been impressed, very impressed.
Dan Portillo founded it.
His job was sweat equity.
He would basically work alongside you to place your first five engineers, to face your first business people, and he would take equity instead of cash in exchange to create a fund alongside that.
That's true value add, I think, for example, very differentiated.
Do the best founders need you?
Keith Roboy always says the best founders do not need a venture investor's help.
You've worked with the best.
How do you feel?
They will not need it.
I generally agree with Keith that on the margins.
investors don't add value and the value they add gets less and less as the company grows.
But I do think there are a few points where a few things you can do on the margin, for example, helping them choose between this candidate or that when they're hiring, helping them think about go to market, that could make a difference between the company being a mediocre exit or an outcome or being a generation company.
You don't need to do everything for them, but just those one or two things that you can help on.
on the margins can hopefully be the difference.
What would be your advice to LPs when they are consistently sold by GPs, like me and you, proprietary founder access?
Oh, I have the best network.
I'm a super smart fintech expert, so I know it better than anyone.
What would you advise them on manager selection when everyone says proprietary founder access?
Very simple.
Go and talk to the founders.
Go and talk to the founders.
and see why they chose, especially the earliest stage founders.
Go to the seed founders that they invested in and the inception stage founders and ask them, what is different?
Why did you choose them?
What are the options that you have?
And I think you've got to use the data.
You're right.
Most VC pitches look the same.
What you want to do is dig one level deeper and talk to the founders themselves and understand for each of the last five companies that they're invested in, why did this founder pick this firm?
Can I?
push back on the model that you have and just pretend that we're a hypothetical partner, okay?
You have 35% reserves.
Why is that optimal over just having more lines in the portfolio?
When you hear about the 100x, 200x multiple on FAQ, I'm like, focus on ownership, have more, increase diversification, and take away the reserves.
I think there are two ways of operating.
I'll give you an example.
Trade Desk, where I'm on the board, had two seed investors.
IA Ventures, Roger Ellenberg, who's absolutely a goat, and then Founder Collective, again, goat firm.
So they have two completely different philosophies.
Founder Collective only does first checks.
They never do any prorata afterwards, period.
Roger, on the other hand, doubles down again and again and again.
So Trade Desk...
raised, I think, two or three rounds of financing, that's it, and went public very early.
It was very hard for them to raise financing.
So the multiple that Founder Collective generated was incredible because they only invested at the seed round, and they got it at five billion or something like that, or even more.
I think they held for longer.
Well, Roger generated a huge dollar return, even though his multiple was different.
So there are two philosophies.
My philosophy is more, if you look at Founders Fund, which I think is one of the best performing funds, a huge part of their success is basically doubling down on the companies that matter.
The unsung hero of Founder Fund is a guy called Napoleon Tha, who leads a growth practice.
And Napoleon basically is the one who decides which of the companies should we double down on.
And I think if you double down properly, it changes the complexion of the fund.
Because you have much more insight.
I would argue that if you work closely with these founders, you have much more insight into these companies and how they're going to do and even how they think about the future opportunity because you've thought about it with them than a random company you meet.
Now, there is a balance there.
You don't want to be over-concentrated.
But I would argue that if you have X number of bets and you've worked with the founder and you think highly of them.
That's why each founder's fund fund is named after the company that makes it, like in colloquial terms.
There's the Anduril fund.
There's a SpaceX fund, et cetera.
Why?
Because that one company is the one that makes it.
And that's the reality, Harry.
I mean, literally, you have one company, most likely, one or two companies that will drive most of the returns of any given fund.
The question is, do you just want to have the initial stake?
Do you want to increase the probability of finding the initial company?
There is an explore-exploit thing, right?
Where do you stop exploring?
And when do you stop exploiting?
So different people have different points of view there.
My fun one could have been, which you're an Alpine, and I'm very grateful to you for supporting me when I was 18, 19.
But it could have been at one point the Hopin Fund.
It could have been the Clubhouse Fund.
And it turns out that it will most likely be the Linear Fund.
I think linear is a great business and we were very early there.
But my point being with the transitions in name, it wasn't obvious.
And so my question to you is, with preemptive rounds coming so fast, how accurate do you think you can be in predicting the winners?
Because it definitely wasn't obvious to me.
You've got to be pieces different first and foremost.
I think what we are is we think about...
What is the thesis?
In other words, you've got to have a good sense of who the other companies are and players of in the space, and you've got to understand why this company is better than every other company.
On what dimensions is it better, and is that durable enough over a venture time frame, which is 7 to 10 years, or even maybe 10 to 12 years now.
So you've got to do work.
You've got to be thoughtful and patient.
Remember, what being concentrated does, it gives you more time.
It gives you more time to meet companies.
It gives you more time to think.
It gives you more time to be helpful to companies.
But you don't feel the pressure to deploy on a monthly basis.
If you look at a 30 portfolio fund over three years, which is the initial deploying period, you're basically almost investing one company a month.
And so that's incredible.
I almost feel there's pressure on the folks who do 30 to 40 to do basically one company as a partnership per month.
If you're doing Green Oaks, I think if you had asked me who's one of my favorite, Neil, you mentioned Neil, was on the show.
Six, there's seven funds have, what, 65 companies overall.
Six funds have 65 companies, 11 companies per fund.
He's an absolute beast.
He's got 10 companies that have returned over $2 billion.
The shit thing about my life, Gokul, is I hang out with these people and I just leave feeling like a total loser.
You're just like, you leave Mickey Malka and you're just like, yep, no, I didn't do the Robin Hood round.
I think you've gotten better with every one of those interviews.
I've seen just your style and just your investing.
Who do you learn from?
Entrepreneurs, most people in the arena.
I think for me, since I'm so trend-driven and we really care about what is a thesis, what's a market, the best way is I think you can talk to investors, but they're always one click away.
You've got to talk to people who are in the trenches building products.
You've got to understand what's changing in their lives, how they're thinking about the customer.
Today's world, you've got to stay close to the model companies, for example.
So I have people that I meet with at each of the model companies to understand what's coming down the pike, how they are thinking over the world, et cetera.
Because like you said, you've got to also understand, I realize this is a joke.
This joke like this was 10 years ago.
If you're a startup, which is directly in Google's roadmap, like directly, you should not be building it.
Because Google is very good when something is directly in a roadmap.
They're like a tank.
It will just roll over you.
Slowly, but doesn't matter.
They were implacable.
They would roll.
But if you're even...
10 degrees to the side it's very hard for them to like move like that so you're generally safe because it's just not they're just rolling in one direction i think you just want to know what direction the the turrets or the guns are pointed at for each of these models there's one part of this is what the labs are going to do.
The second part is what a customer is going to do and what customer behaviors there are.
And so you want to talk to, you do learn from entrepreneurs a little bit to better understand who are the companies, but then you want to go and talk to the companies themselves.
And you want to understand, you talk to three or four companies in the same space, you very quickly, I think I'll never forget, I think people who met Tony at DoorDash and many of the other folks who are fundraising at the same time, they always felt Tony had a deeper understanding of the same market than others globally.
That's why I think my biggest regret is, one of my biggest regrets is actually passing on Vanta because I met Christina, but I had already committed.
I was like, this person is going to win the market, but I've already committed to another company in the space.
And sadly enough, I believe in like, once you invest in a company, as an angel, I didn't have the time to scan the landscape and meet with all the companies in the space.
And that's what I do now.
I have time, but Vanta will be definitely part of my anti-portfolio.
I think it's part of yours too, if I remember correctly.
Oh, don't.
Elad sent me and he was like, dude, this is amazing.
This is amazing.
Every time Elad sent me something and said, it's amazing.
Just fucking do it.
Do not think you're smarter is my takeaway there.
There are other people when they do it, just like, do you think you're smarter?
I will leave them out of it.
But there's some friends where I'm like, you've consistently sent me this.
It is shit.
Anyway, we mentioned WeWork earlier.
I use WeWork as an example with Miles Clements about selling.
I'd love to hear your thoughts on how do you think about when to sell?
Obviously, we have investors, you have LP stake.
They care about DPI today more than ever.
How do you think about liquidity and when's the right time to take chips off the table?
Yeah.
As an angel, I used to hold till IPO.
So Figma had many liquidity opportunities during the years, but I kept holding it for 13 years till it went public.
I think at the IPO, it was actually...
price very nicely.
Unfortunately, after the IPO, it has been more challenging price-wise.
But I think as a fund investor, it becomes interesting.
I think there are two situations.
One of the things I think most early-stage firms get wrong is they just focus on Moik.
They don't focus on IRR.
And Moik is multiple or invested capital.
I think IRR matters a lot, as you know.
An LP told us about a firm that gave them a 7x Moik over 20 years, and that was a teen's IRR.
And that is like, okay, you know, there's something crazy here.
I mean, that is a venture firm.
And so you've got to look at go forward IRR and your projection.
If your go forward IRR at every liquidity opportunity is lower than what you're basically promising your LPs or what you think your fund should have, I think you should sell.
I think you have an obligation to your LPs to at least sell.
I like Fred Wilson's strategy around selling, which is sell a third.
hold a third and trade a third.
This is when the asset is completely liquid.
But in this case, I think you want to sell at least part of it, especially if the asset is a company that will return a chunk of your fund.
So if it's going to return 20, 30, 40% of your fund, you owe it your LPs to sell a piece of it, especially if the go forward IRR is not compelling.
On top of that, you then have the hold period after the IPO where you have...
Obviously, you're a star.
Exactly.
And you don't have, exactly.
And that's another uncertainty.
So I do think the secondary markets have been one of the best or most interesting developments over the last few years.
And so now all these great companies have pretty liquid secondary markets where you can sell gel.
Obviously, there's Rofer and so on the company has.
I do think there are these hyper liquid periods in the market.
Now is one of them.
So I do think one should be very careful and thoughtful about what the go forward IRR is for any asset one owns and really think carefully about whether one should sell or not.
Can I ask you, when you look back at the angel portfolio, what's the biggest regret?
Pattern matching too much.
I think a good example is Quince recently raised at 10 billion.
I saw Quince four years ago when it was at a hundred million valuation.
And I was like a D2C company.
D2C companies are kind of on the downswing.
How good can this company be?
What do you, I literally just dismissed it.
I didn't even look deeper into the company.
What's the takeaway from that then?
The takeaway is that you can't just, Take an industry and say it's good or bad within every category.
There are great companies and there are mediocre companies.
And you've got to understand each company's remarkability and differentiation.
Quince, for example, had an incredible 35 to 40% repeat purchase rate, which was like...
higher retention than most consumer apps and so i should have paid more attention to that versus dismissing it it was literally in the blurb and i was like okay you know so what how big can this get what i didn't like and respectfully when you said about kind of your trend style of investing is actually some of the biggest misses i also have is when there's an amazing founder that's clearly amazing, but operating in a bad space.
And they pivot three months later into a good space.
But I turn them down when they're in a bad space.
And I'm like, I don't care what they're building.
I don't care what trend it is.
Gokul, you're amazing.
If you're selling pillows, I'm in.
If you're a seed investor, if you're a pure seed investor, I think you have to do that.
I think that's what YC does, right?
I think that's actually the right way to do pure seed investing.
First round capital, I think is one of the best seed firms.
Guess how many companies they have in each fund?
80 companies.
Why?
Because you've got to take 80 bets, which means that some of them, and YC, of course, best seed investor of all time or pre-seed.
I mean, you've got to take hundreds of bets because most companies will pivot.
But I think as a concentrated portfolio, you've got to basically understand the business and you've got to bet on both the business and the founder, unless the founder is an N of one founder in a space.
I think there are two categories of actually there is...
Three categories of founders in some ways.
They're repeat founders who know a space exceptionally well, who've done it before.
You're betting on them again and again to do it.
The security is a great example.
Security is full of repeat founders.
They know the market.
They know the customers, all of that.
But then there are consumer companies.
Consumer internet is full of first-time extraordinary founders.
Mark Zuckerberg, Larry Page, all of these are just first-time founders.
So those are two archetypes.
The third archetype that has come up is AI labs researchers.
And so I think you...
That one is a more interesting bag where you have, of course, Dario and the OpenAI folks, but then you have a bunch of other labs that came up and ultimately didn't turn out to be anything.
So you want to, for these kinds of folks, as a seed investor, you just want to blindly write a check into them, a brilliant young person who's done something extraordinary, a repeat founder, or maybe an A-lab researcher.
Will you do a frontier model, a neolab, periodic labs, ineffable, where they're clearly fucking amazing people, pedigreed to the hills, but the price is in the billions?
Not possible.
I don't think with our fund it's possible.
I think the ownership is just literally the first round for these companies is, like you said, a billion dollars.
So I think it's just too high.
The risk reward is just not worth it.
Are you seeing the mega funds cannibalize the business model of our Series A?
They're playing a different game.
I think very highly of the mega funds.
They've basically gone and they deploy $15 million checks almost as an option and a lead generation for the next round.
And their strategy is obviously to have an index at the A of every single good A company and then double down on the ones that truly matter and triple down and quadruple down and do SPVs in them and do specialized funds in them and so on.
It works.
It works for LPs in some way.
It's a different asset class than the funds that the early stage funds, but it's different.
I think smart founders, good founders have started to look beyond just the fact that they can get 10 million very quickly from a mega fund and say, what am I getting here?
We see many examples actually in mega funds of partners leaving the fund and the companies orphaned within the mega fund because their partner has left and now they don't have a single person to advocate for them in any way, shape or form and they're adrift.
And anybody who saw repeat founders, actually, what is interesting is repeat founders are most likely to essentially know and see behind just the glitz of a mega fund in some ways, because many of them have gone through, especially the ones that have started a company in the last five or six years.
We have many stories where the mid-level partner at a mega fund has left, who was their partner.
And then they're like, OK, shit, I basically don't have.
and advocated in the fund.
And I now am left with a person who I don't know, and they don't know me, and they're joining my board.
And that's a tough one.
You've seen Nico Bonazos, you've seen Max Gazor, you've seen Arif Yan Mohamed.
Are we just seeing the start of this continuing wave, and there will be a huge amount more spin-outs, or do you think we're going to see that curtail?
I think we're going to see more spin-outs.
I do think there is a limit.
We're going to see these mega-funds train, again, more waves of investors.
And these investors are going to realize that being a mid-level partner at a mega fund is not all it's cracked out to be.
So they're going to spin out and go back to, you know, the way of doing things that venture used to be 20, 30 years ago, which is a small group of partners building a deep relationship with entrepreneurs.
And we're going to do a quick fire.
So what have you changed your mind on in the last 12 months?
I used to think pure remote would...
would scale for early-stage companies if you have the right culture, but I don't think that anymore.
I think you've got to be in person at least a few days a week.
What made you change your mind there?
I think just seeing a few companies where literally the companies died because the founders were unable to agree.
They had everything going, but the founders were just not in the same place, and they were just not able to move fast enough and agree and align on the strategy and change things.
So iteration speed just suffers massively if you're a pure remote.
It doesn't need to be five days a week, but at least three days a week.
Biggest advice to a young person leaving university today?
I know it feels exciting to start a company.
Everyone's doing a startup.
AI is a new way.
But my strong advice is to first get two to three years of work experience at a company, at a good company.
You won't regret it.
You learn a lot.
Both the experience and the network of people will be invaluable for you.
So just two or three years.
Don't be impatient.
Life is long.
Get some work experience before starting a company.
You've got to answer an unfair one.
You've got to invest in three different types of funds, a seed fund, a series A fund, and a growth fund.
Which three are you choosing?
First round capital and benchmark, where I win an LP in both, and then Green Oaks.
First round would be the seed, then check with the series A, and Green Oaks would be the growth.
Wow, that wasn't a hard one, was it?
You thought about that.
Most people are like, oh, I can't do this.
You know, one of the LPs asked us this question.
They basically said, I don't know whether they were asking us for it.
They literally asked us, okay, so I've actually answered this question with LP before.
Dude, that's fantastic.
What has been the hardest decision that you've made in your career?
You've left amazing companies.
What's been the hardest decision?
Leaving Google.
Leaving Google, I think there was a saying, you leave Google only once.
So leaving Google to start a company.
I was on a pretty incredible trajectory there.
I was learning a lot, really enjoying it.
It was really tough to leave Google.
I don't regret it, but it was very, very hard to leave Google.
Who's the best CEO you've ever worked with?
I think they're all different.
I would say all four of them, Larry, Mark, Jack, and Tony, and now Brian Armstrong, Bill, and Ben at Pinterest.
It's a hard one.
I think all four of them are different superpowers.
I would say the best technical CEO, Larry Page.
the best growth-centric CEO, Mark Zuckerberg, the best design-centric CEO, Jack Dorsey, and the best physical world operational CEO, the most likely to be Jeff Bezos next, Tony Hsu.
What's the biggest miss?
We've said banter.
Is it banter?
Quinns, Quinns, man.
Most recently, Quinns, but to be honest, even bigger miss than that in some ways.
It's not a miss in terms of investing.
It's that I couldn't...
predict that Facebook could be a $2 trillion company.
When our company was going to be acquired by Facebook, I was arguing with the corporate team at Facebook, and we were arguing over the terminal value of Facebook.
And we had to put China into the mix saying, basically, China will get us to $40 billion in market cap.
And we were arguing whether it was $20 billion or $40 billion in several years.
And then this was in, like, 2010.
And it turns out in less than 10 years, 11 years, it was a trillion-dollar company.
So when these things work, they work in a scale that is unimaginable.
And even at Google, I remember very well after the IPO.
I was there doing the IPO, and we were sitting around with a bunch of PMs.
They were saying, man, the company's valued at $30 billion.
It's too expensive, too expensive.
And so you just, these things compound.
It's just incredible to see these things become trillion-dollar companies.
So Facebook and Google, in some ways, are the biggest misses in terms of not being able to predict that they were going to be multi-trillion-dollar companies.
Which angel investment is the highest multiple?
Figma.
What was the multiple?
Between 500 and 1,000x at the time of IPO, but it has sadly gone down since then.
Oh, 500 to 1,000x.
Jesus Christ.
Tell me, final one, what most excites you about the next 10 years?
I like to be optimistic.
I think we have too much pessimism.
What are you like?
I'm really freaking pumped about this.
The most ambitious entrepreneurs are finally tackling the hardest problems.
The ambition with AI especially has unlocked is just incredible.
The ambition of entrepreneurs tackling the hardest problem facing humanity and society is just absolutely incredible.
How can you not be optimistic when you have Elon going?
I mean, I think we have now these entrepreneurs who are role models who are not just building these.
small companies, but they're truly taking on humanity problems.
So the answer to Peter Thiel's question of, we were looking for flying cars and we got 140 character apps, I think has been, finally, I think it's coming into focus.
I've got to ask one more, but you said about Peter Thiel there.
Obviously, he has the Thiel Fellowship and the preference for young, ambitious founders.
We're seeing this massive movement towards very, very young founders.
We mentioned McCaw earlier, who are brilliant.
Are you in line with the shift to the earliest, youngest founders?
And how do you feel about that shift to super young founders?
I actually am a huge fan of it.
I feel even at companies, I feel some of the companies that are not hiring young people, they're making a huge mistake because young people are more AI maxed.
as you could call it, like looks maxing, AI maxing than anybody else.
The younger people are adopting tools better and they just live and breathe differently than others.
So I'm a huge fan.
I've actually invested in more dropouts as an angel now over the last few months than I have invested in by the rest of the last 15 years I've been investing.
So I don't think it's the right thing, to be honest, for many of them to be dropping out and starting.
I do think they could benefit socially, emotionally, etc.
But some of them are just exceptional.
I don't think all of them are.
But I do think this crop is going to produce some incredible founders.
Gokul, dude, I so appreciate you.
I've got so many notes that had to go on different sides.
This has been fantastic.
So thank you so much for being so amazing, dude.
My pleasure, my friend.
Look forward to doing stuff together.
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