Homebrew's Hunter Walk and Satya Patel on Why $100M is Not Enough To Execute a Seed…

Thanks so much. I the think real anniversary, Satya, is this ten since we started pitching the first fund? Did we start pitching this week ten years ago? That’s right. January of

Summer of twenty twelve, Hunter and I were getting together for one of our normal breakfasts and that’s when we first started talking about doing something together. We had no idea what shape it was going to take. But I’d say the decision to work together really happened. Thanksgiving of twenty twelve, Hunter asked his mom whether it was a good idea to work with me or not. By the time we got to the decision, I don’t think we had any reservations.

We spent so much time, even though we had a decade of a relationship together, focused on making sure we had a shared definition of success, clarity around how we wanted to spend our time, and understanding of each other’s strengths and weaknesses that by the time we got to the decision point.

Yeah. As Satya mentioned, we had known each other for a decade before. We always thought we were gonna do something together. But at the moment at which we finally had that blank piece of paper, right, so I was leaving Google, he had left Twitter. If we hadn’t come together at that time, neither one of us was thinking about venture. And so that was probably just the biggest gut check. Like, Satya, who would probably was gonna start a company or join another one in a product leadership role, my question to him was, are you really sure you’re done operating?

Or is this gonna always be a little bit of an itch that you wish you had one more swing at being on the org chart as opposed to the cap table. And for me, it was just I thought I was done doing. I thought I was gonna be helping, but I didn’t know what that meant. But I had to ask my mom.

Was whether she thought it was better for me to take a year and just write, advise, angel invest, see if that was sort of a divining rod, that would show me a true north to what I wanted to do next, or if I could preempt that a little bit by joining a close friend and former colleague to do something that felt very right in the moment, but would sacrifice that sort of value of the journey.

We talked about that shared vision, but I think just as important is understanding what gives energy and saps energy for each person within the context of the day to day. There’s clarity around what role each person will play and what they’re willing and unwilling to do and the other person being comfortable with that. So I think that’s important to talk about whether you’re a founder starting a company or a GP starting a fund because there are so many aspects of managing and building a fund that not everybody is either well suited to or excited about.

I’m sure you appreciate this at this point, Harry. And then the other thing I think was clarity around what makes for a Homebrew investment. And so I think it’s important for GPs to have an understanding around some fundamental joint view of these are the types of things that we want to look for in companies that we support. Right? Because I think a lot of arguments can happen. A lot of partnerships can break up because the types of things that they gravitate towards are so disparate or so unrelated to each other that in small partnerships, the partners can’t jointly be helpful to those companies or get excited about those companies, and then it becomes finger pointing and allocation of credit and those kinds of things.

We’ve never had any of those kinds of issues because we don’t do deal attribution. Every decision is made by consensus.

Satya came from or had previous larger fund experience where he had exposure to what happens in voting dynamics, structure, consensus, non consensus in a large room. And I almost certainly think that if there were three or more of us, consensus would be a foolish goal, founders. I think though, and this is something we continue to, or have interrogated over time, do we need a silver bullet? Do we need this? Do we need that? When we look at the benefit of consensus, we think it does a few things.

First, it, from the get go, unites us against an entrepreneur, against an opportunity. The consensus is never, you like this and I like you, so why don’t we do it? We can have different degrees of certainty, different degrees of enthusiasm, see it in slightly different ways, but we both have to be above the yes threshold. The next thing it does, I think, is it unifies and solidifies the relationship we have with the founders. It’s not Satya wanted to do this deal and Hunter was skeptical. It’s you’re taking money from Homebrew.

You’re not taking money from a GP. And then we look back, and we’ve struggled over ten years to find an occasion where if there was lack of consensus, it meant we didn’t do the deal. And I don’t think we have any quote unquote outliers that were false negative because one of us loved it and one of us didn’t. Our regrets, our false negatives tend to either be misses, we didn’t see the deal at all, in a two phased approach where maybe one of us would look at it first and then decide to bring it forward to the other partner or not, not bringing forward something that had promise.

And I guess, lost deals, which isn’t a false negative, it’s just something you wish you could have done. And so we’ve always focused on how do we get better at those. If we see more of the great opportunities, if we do a better job collaboratively figuring out whether we are the right fit for that founder and they’re the right fit for us, and if once we have intent, we can approach a 100% win rate as best we can, the impact of improvements across those three far outweigh the question about, in our mind, consensus versus non consensus.

I think first, Harry, it started with actually LP selection. We started with the idea we can talk about why, but we’ve started with the idea that we wanted a small group of high quality investors who are committed to venture and hold us accountable to producing not just average returns, but returns as good as the great funds that they already had in their portfolio. The self selecting group we ended up with at the time, this was 2013, we got introduced to a bunch of institutional LPs by our friends at the first generation of seed fund, Saka, Josh Koppelman, Michael Deering, that type of stuff.

The LPs we ended up with were all LPs who were excited about equal partnerships. The ones who passed on us were ones that wanted a single key map. Like, this notion of, it’s great to have multiple GPs, but at funds under a $100,000,000, we really like to see one person in charge. Steve Anderson, Michael Deering, Chris Saka, Jeff Clavier. The people who I think were really concerned about deal attribution and one person’s pilots the ship, that type of stuff, they didn’t invest in us. The people who invested in us were once who were perfectly happy to believe that Homebrew was gonna be greater than the sum of its parts, and those parts were the two of us as equal GPs and cofounders.

I think that’s solved for it. In actuality, even though we don’t do deal attribution, and we don’t submit information to the Midas list or so and so forth, I was really proud when, again, submitting no information, just going on whatever publicly available chatter so on and so forth, Satya got named to whatever the top 10 seed investor list or this or that. Right? Because the companies of the boards he sat on, although they were consensus investments and then those I’ve helped, are, like, really impressive. And I think if we turned over data, actually, on which board Satya was on, he would have been on top of that list.

We don’t do attribution. We believe the partnership is a success because we care about each other first and foremost. But I also don’t think that, like, lack of attribution should lead to anonymity, should lead to lack of congratulations. And I feel great that Homebrew has succeeded, and often that’s because of my partner. Attribution or no attribution.

you know, sometimes, like, when a little scuffle breaks out of the court between two teams, there’s one guy on the same team trying to hold his teammate back, and that teammate is, get the fuck off me. I wanna punch this guy. I think we have those. We’re never the two people on opposite teams scuffling, but sometimes Satya has to hold me back when I’m like, are you kidding? I have 280,000 Twitter followers and no LPs. I’m I’m gonna call this bullshit out. He’s like, why is that helpful?

Or or vice versa. And I think the reason our partnership doesn’t have that conflict is not because we started in such a charmed place that there’s never a speed bump. It’s because we commit to the relationship to reexamining it, to understanding each other. We used to do every other year, like, an externally led 360 degree feedback real process with our founders and some of our co investors, talking thirty minutes to each of our founders and some of our co investors about Homebrew, about each of us, and getting that data back, trying to become the best version of ourselves.

I do therapy. That’s great for me too. We try not to just have a notion of what Hunter and Satya were in 2003 working at Google or what Hunter and Satya were in 2013 when they started Homebrew, but what Hunter and Satya are in 2023 and how we meet each other. I’ll tell you a quick anecdote. When we got our first, what do you call, like, term sheet from LPs, very standard, like I said, institutional LPs, so nothing was weird one way or the other. And some of the things we negotiated hard on were LPAC votes that would have to do with our ability to run our firm.

Right? So we got rid of things that would have any degree of micromanagement or approvals or so on and so forth. But the the thing we didn’t negotiate on was the notion that if one of us left the firm, that we had to have some very high LP voting threshold in order to continue Homebrew. Because we wanted that dead man trigger. We sort of wanted this notion that Homebrew is the two of us, and if it ever ceased to be the two of us, there should be a real cost to that.

There should be a real deliberate decision, not some capricious thing of, like, I got a better offer to do this, or you wanna do that, or we’re not getting along, or I wanna work in the office, and you wanna work from home. Silly little thing. I feel like we’ve embraced this notion that the two of us are Homebrew, and Homebrew will grow and evolve, and I’m sure we’re gonna talk about that evolution. But it’s a commitment to the two of us ahead of it as anything else.

We also started with the idea of no succession plan, no growth. We started in a space where we had a lot of the same vision for what we were building. A lot of those tensions are often what cause conflict, either because they weren’t discussed early enough or because there’s disagreement from the get go and you figure success will solve

all things, and that’s not true. The other thing I’d say we’re cognizant of is that people and circumstances change. And so much like a marriage, we invest in making sure that the relationship remains healthy. We do a quarterly off-site with just the two of us every quarter. And a part of that conversation is, how happy are you?

you

have our next one on Monday. Yeah. We do have an agenda. Yeah. We do have an agenda for it, and there’s no fixed time. We set aside most of a day, and sometimes it’s two hours depending on the agenda and how things are going and what we want to talk about, and sometimes it rolls over into dinner. So it really depends.

Every decision we’ve made has been consistent with the idea that it is a partnership that is oriented around the two of us being mutually successful and mutually happy. When you think about things that way, decisions around economics are easy. We’ve been to equal partnership from day one. We never changed that and never will, even as we’re investing our own money. Furthermore,

we built a structure where we’re both comfortable being long term greedy, like playing the long game of, hey, everything we’re doing here is based on the notion that we’re good at this. If we’re good at this, we’re gonna make money. If we’re not, who cares? I don’t wanna spend twenty years not being good at something. I think not that this is unspoken because I think we’ve both talked about this, but we also started this later in our careers. We were both in our mid late thirties.

We were both above a financial threshold. We both had paid millions of dollars and saved that and lived below our means. Right? And so we didn’t have to build towards, look, I made this much last year. I need to make two x of this because I’ve got three wives and four mortgages. Like, we were able to make some deferrals on optimizing for short term economics because of our individual and collective successes. And we were starting at the same place in our lives with the same types of material goals, which was like, we don’t have to maximize for dollars.

We want to maximize for spending time together. We want to maximize for the people we work with. And we think we have a model that if we do that well, everybody’s also going to make a lot of money.

Not surprisingly, when we were executing for that first decade, our seed lead investor model, and we had lots of conversations with founders about wanting to make sure that they were in a situation that they could focus fully on. Sometimes that meant salary bumps. Sometimes that meant a little bit of early secondary. It didn’t mean winning ahead of the business. It didn’t mean taking advantage of hot markets to cash out ahead of your team or investors.

But it did mean, if you just raised a $20,000,000 a round, but yet you’re still living in a three bedroom apartment because you’re student loan heavy cash poor, let’s figure out how to solve that problem for you so you can move into a place that you can actually work out of without worrying about whether your roommate is drunk and focus on your business. Satya talked about seeing each other as people and how important that was to our partnership. I think that’s the same thing when it comes to founders, trying to see them as people and understand that if you’re going to bat with this long standing notion of, hey, we all win at exit and nobody should talk about economics ahead of that.

At the very least, you’re missing opportunities to destress founders in a way that will increase the probability of a wonderful outcome. And at the worst, you’re exploiting founders who have all their eggs in one basket while you’re sitting on this portfolio and fee structure and preaching ramen profitable from the Yellowstone Club.

That’s the key is, like, startups are hard enough. If part of our job is to help reduce distress for a founder, if we can have the conversation around what’s the minimum you need to make so you don’t have to worry about your personal life, that’s the conversation that we should be having at the beginning, but then throughout because life circumstances also change. So to Hunter’s point, there’s lots of conversations in today’s world about secondary liquidity for founders. And I think we’re of the opinion obscene amounts of liquidity is obscene, but small amounts of liquidity can really free up a founder to do their best work.

Sometimes that might be at the Series A, and sometimes it might be at the Series D. You’ve gotta be really and be willing to engage in the conversation with the founder to determine what’s needed, and the founder has to be practical about what’s realistic. So much for our industry is predicated

I’m gonna let Satya describe it because he does things much more succinctly than I do. What’s important to point out is that fee minimization wasn’t the there’s nothing wrong with fees. The question was, is it something you’re seeking to maximize for, and thus that makes a bunch of other decisions? Or are you building a model that you think is at sort of the intersection of success and happiness and can live with some of the implications for what that means short term? Now, let’s Satya do it.

Yeah.

Feeds were never part of the conversation. When Hunter and I started Homebrew, again, we talked about our long term vision. And we always had this notion in our minds that maybe after twenty years, we could become a family office and do things on our own and the good fortune of the last decade. And our view of where the market was headed led us to decide to do that sooner. And really, was a strategic decision. Our view was and continues to be that in today’s market at the seed stage in particular, a $100,000,000 fund is a bit of a tweener.

You either gotta be larger to be able to write large checks and get the ownership that you need in order to win the best opportunities and deliver the types of returns that LPs expect, or you’ve got to be smaller and give yourself flexibility in terms of check size and ownership, but have a small enough fund that doesn’t require you to demise all those things with every single investment. And so we decided that getting larger was an option and our LPs were going be supportive of that.

But it required breaking from what Hunter and I had said at the beginning, which was this is gonna be a two person partnership. It’s gonna be that way forever, and we don’t wanna build a firm and infrastructure and a services platform and all those kinds of things, which having 3 or $400,000,000 in a fund would require. It also puts you in a box from a strategy standpoint because the larger your fund gets, the more disciplined you have to be about check size and ownership and stage, all those kinds of things.

We weren’t interested in getting bigger, but from that strategic standpoint and economics of management fees were never part of the conversation. Once we decided that smaller was the better option for us, then it became a question of if it’s smaller, isn’t the ultimate flexibility to be investing our own money rather than third party capital and being able to experiment with different ways of investing and doing that in a way that we feel is responsible. And then

The choice that we made last year was something that we had in this glass case that originally was gonna say break glass in 2030. So we had thought about this. All we really did was break glass eight years earlier. We’ll see if it was premature or not. As Satya talked about a little bit, one of the reasons for doing that was trying to think about what fund size and did we wanna get bigger, which was always a non goal. When we then did the bottoms up question, okay, how do we budget for this?

We decided that nominally, let’s assume the same investment cadence, 10 to 12 investments a year. Whereas before, maybe we had an ownership, a goal of 10 to 15%, and thus an average check size of $1,500,000 or whatever, and held reserves. That, we wouldn’t necessarily have an ownership target. We wouldn’t necessarily hold reserves. Where do we think we fit in nicely on a cap table at a seed a or b that we want to work at? Let’s just nominally say that our check size is going to be between a 100 k and 500 k.

And indeed, in 10 of the 11 investments we made in 2022, it was within that range. And so let’s do the math. What’s 10 to 12 investments a year, time a 100 to 500 k, no reserve model, and let’s budget that for the first two years. So let’s think about how much we wanna take from our savings combined to make 20 to 24 investments over a period of twenty four months that are likely to be between a 100 k and 500 k. Look, this is all rarefied air.

So when I say to be honest, quote unquote, that’s not that much money, obviously, it’s a luxury to be able to do it, a privilege to be able do it. But when we told some people this, they assumed that we were billionaires putting aside a $100,000,000 to invest in startups, and that’s not the case. The idea and hope is that by year three of this model, we’re not pulling from savings. We are taking carry from the continued carry from years one through 10, Homebrew I through III, and that is funding years three through seven of Homebrew Forever.

And by year eight, that magical 2030 that originally was when we were gonna start this, hopefully, we’re recycling proceeds from twenty twenty two, twenty twenty three. So if you look at it and say, what sort of capital do you need to get started in this model? It’s not replacing the next decade of otherwise institutionally led funds and 9 figures of capital. It was basically like, are we risk seeking enough to take two years worth of investment capital from our bank accounts and put it back into the market?

And we looked at each other and we said, yes. So, like And

So does it not Oh, Harry, you’re thinking like such a fund manager because I said a 100 to 500 k, and you’re immediately thinking that means we go and wanna take the 500 k. We’re happy to take the 100 k, 150 k, 200 k. In 10 of the 11 investments that we made last year, we were offered more allocation than we took because what we care about is really working with great founders and great co investors. And with a large fund standpoint, actually, it’s flipped. Larger funds who before really could only work with us when they were following on the seed companies that we had led, now are actually quite excited to get us involved earlier.

The idea of getting our help stewardship collaboration and not having to place 10 to 15% of the company with us, only having to place 1% of the company with us is a boon. The place that we’ve seen actually decrease deal flow are from other seed stage funds writing similar sized checks to us now. Because before, those folks and the people who we are close with this is a safe space, Harry. Right? We can name names. We work just as much with founder collective and box group and these folks who we’ve always been very close with.

But some of the people who we also like, who would approach us on almost any deal that they were doing, we fell off their radar because their goal is to place a lead. If they place a lead, the round gets done, and they protect their allocation. And there’s a bunch of 100 to 500 k people wanting to get into these deals who need to find a lead. So we’ve seen a dramatic increase in deal flow from the multi stage. But if we’ve decreased deal flow anywhere, it’s actually in sort of the things we look more similar to now.

And I don’t think it’s competitive. I don’t I don’t know. I don’t feel competitive. But I think it’s just more pragmatic. They have a goal to get to to find leads. And what’s funny for us is it’s flipped a little bit because we can still be first person to commit to a round, and we can form an institutional round around us in a second. So, like, we still have the relationships and credibility that if you’re trying to raise $4,000,000 and we only wanna do $2.50 given our new model, we can find you that other 3,750,000 within a week.

I’d say it’s important. The flexibility that we have in not having a fund now is that we don’t have to think of every investment as having the potential to return the fund. Every investment just has to be a good return. And that means that if a founder wants to work with us and we want to work with that founder, we can fit into the cap table in whatever way makes sense given the construct of that round. All of that said, we’re also big believers that you’re a buyer or you’re a seller.

When we want to buy, we want to buy as as makes sense and is available to us. And we can be greedy, but we’re only greedy He’s cleaning up my statement and saying

that he’s taken less than offered because he wants to be able to take it all in the future. The one thing that and now I’ll clean up his statement. It’s important that the way that we’re thinking about outcomes is still venture scale. It’s not, oh, hey, because this is all our money, instead of needing a 20 x to get five x net, four x net into our pocket, we can just hit a bunch of three x and four x’s, that’ll be wonderful. I don’t think there’s such a thing as de risked seed.

You should be betting on companies that in a success scenario can be wildly successful and worth an incredible amount of capital and want to own a percentage of those. To your questions around, like, deal selection, I think we’ve maintained the same bar. We’ve probably narrowed the top of funnel a little bit before. You could imagine that when you’re thinking about a portfolio, 30 companies, a fund, that some things that you’re not that interested in, but come to you via trusted source and pattern match founders, you’re like, I’m not passionate about this, but we should at least take a meeting because I could see low code marketing automation for enterprise CMOs started by an ex whatever person.

You’d be like, oh, I could see that as part of a portfolio, and that’s likely to raise an A, so on and so forth. Now if you look at each other, you’re like, are we familiar with this market? Are we passionate about it? And we’re excited by the founders and co investors. If all those don’t check off, let somebody else do the deal. We don’t need to construct a portfolio anymore. We just want to invest in people that we want to get up every day with and go to work on behalf of.

Sorry. This is landing on Mars. I’m 3,000 shows in with V season. Harry, when we told our LPs that we were thinking about this model, they said two things. One, this is very consistent with what you’ve told us despite our disappointment. And two, you have to give me a few minutes to think about this and decide what questions I’m gonna ask you. What fund managers usually tell me, this was twenty twenty twenty, 2021, was like, I’m used to everybody coming back and saying, we want to get bigger and invest faster.

And I have my set of questions to say, why do you think that’s a good idea? Are you really getting too big for your strategy? Is that the right model for outsized returns? What’s your capacity? When you say we want to get smaller and maybe not use your capital, I don’t have a standard set of questions to ask you as an as an LP. It’s not even like a

less price sensitive with this shift? What I think is we become price agnostic as it comes and turns agnostic when you think about how much do we own. We’re not doing that math. We don’t change our model, our discipline, our thinking on the question about the way this company is being financed. Is that a help or a hindrance to its ability to get a future financing done, to create upside for shareholders, so on and so forth? Both in absolute terms and then in opportunity cost terms, where are we gonna invest?

It’s not that, oh, yeah. Hey. We now we do uncapped notes or we do seeds at 100,000,000 pre or whatever because who cares? It’s our money, not somebody else’s. We care more in these cases about who the lead investor is in the rounds we’re joining because it’s not us. We used to not care who the other investors were. We’re gonna help you, and we’ll get other people great around us. Now we actually care about quality of the lead investor. We care about whether somebody is pricing themselves to perfection.

We care about whether they’re adding new pockets around the table versus just drawing down the last check from investors already on the cap table. And then we write the check. So, yes, we are less price sensitive in a computational manner, but not less price sensitive in a strategic one.

I never felt like we had the felt the pressure to deploy, but I feel like one of the reasons we made the switch early was we were questioning the looking forward strategy of raising a large fund, a potentially even larger fund, without confidence that we wanted execute the same strategy for the next three, five, seven, ten years. So it was gonna be tail wagging the dog a little bit. We knew we could be successful doing it. We didn’t know if we could be happy doing it.

I think that’s important to point out. It wasn’t so much that raising $203,100,000,000 dollars like some of our peers and going to market in a model where we brought in another GP, we expanded our team, we brought on another platform person, I actually think we could exceed our benchmarks and be perfectly fine in market. I think it would have forced more and more time and energy and choices that would have sacrificed happiness for success. We would have spent more time on internal operations, hiring and managing a team, rather than with one another and with founders.

Whether people want to admit it or not, I think people attribute this to to Mike Maples affiliated, and it’s 100% true, like, fund size is your strategy. Right? And so whether it’s implicit or explicitly, you start looking through this question of, I gotta return the fund. I do the math. What does an outcome look like? It means you start increasing your ownership target to the point of where you can no longer be collaborative, and or you grow impatient, you’re looking for the next write up, rather than patience on how do we build this company and help it become the best version of what it’s going to be.

And I think if those are your true norths, if you’re like, if we do all those things well, we are gonna have companies that we’re so proud to be associated with and make a lot of money, then you do a different type of math on what a quote unquote fund model looks like. Than if you look at the market around you and say, how much does it take to lead a seed round? How many of those deals are we gonna do? What sort of reserve structure?

Okay. We need $300,000,000. Let me tell you, LPs, it’s not just fund managers are greedy. LPs are complicit in this. We love our LPs. We’ve always had a small group of institutional LPs. We used to joke with them, especially when the first fund started to become a really high performer, and we held to our model in fund two, and everybody was congratulating us for being so disciplined. When we’d go to fundraise, they’d wanna double their super pro rata in the next fund. I’d like, you just complimented us on being disciplined.

How do we give you double prurata and stay disciplined? There is a pile on to what works mentality that sometimes then you get what you didn’t want, which was like, too big a fund to deliver the types of returns matched against the capabilities and preferences of the GPs, and the market stage and strategy they’re executing in. I’m just gonna come back and answer. What are we talking about?

Who is this? We never felt pressured to deploy capital, I think, for two reasons. One, we had institutional LPs who have a very long term commitment and perspective on the space. And because they’re institutions, we’re actually a pretty small fund for them. And so whether we invest yeah. Nobody cares about IRR. Two years or five years makes actually no difference to them.

Satya, what’s the number one predictor of returns And fund? So The right?

This is adjacent to what he’s saying, but I’d say the one place we did feel, quote unquote, pressure to deploy was the notion of if you’re a lead seed investor and an institutional lay around is getting done, it’s that pro rata question. Right. So he’s dancing around this this, you have to be supportive. Right? Especially during a bull market. There’s a lot of deals that get done at prices that are higher and maybe rounds that are premature that you decide in a nuanced way whether we’ve got something here that’s doing really well, and so and so sees it also.

So let’s pile on into it versus, like, gee, I’d love to see more cards turned over before we put $3,000,000 from a $65,000,000 fund into it, to all the way at in a upmarket. It’s not just that rounds are bigger and higher priced. It’s that some rounds get done that wouldn’t get done because everybody has a rosy picture of what could happen. And you’re like, wow. Some of the companies that maybe we have questions about are still raising healthy rounds. And I’m sure how you’re very nuanced as well.

You do those, and what you do to when you just talk to the entrepreneurs, in that case, you say, look, we probably own as much of this as we want. We’re gonna be supportive, but I’m sure there’ll be a surplus of interest. And if you could squeeze us down, that would be preferable. But part of the reputation effect is if somebody wants to lead the next round and we’re like, hey, we’re doing zero of our pro rata, that has that challenge to scuttle around into a lead institutional seed model.

That was I’d say we felt that pressure sometimes in a nuanced way. What

right now. Oh, Live conversation. The good news is, again, there’s not a fixed fund size. There’s not necessarily an expectation that we’re leading the round and hence are a signal in the market. And I think it’s gonna depend on the situation. We’re effectively the co lead in a couple of investments that we’ve done. We’re smaller checks in a lot of the investments that we’ve done. It’s gonna depend, but we don’t have to think of it as a fund and a fixed pool of capital.

Yes. But structurally, don’t worry about pro rata. Who cares? It’s just a money opportunity. It doesn’t change the nature of how we work with these companies, so on and forth. We made our initial investment, sometimes we’ll do pro rata, sometimes we won’t, so on and so forth. They’re quote unquote small checks anyway off a modest first investment. Or, heck, that’s how you get paid for your work. We already probably work harder than our ownership percentage relative to the value we bring to a company we back.

Pro rata is how we quote unquote double down on the winners. And we need a structure to accommodate that, especially when it does or doesn’t fall within our budget. Or, hey, one of our opportunities is, like, we’ve got access to the capital markets. Why not do a barbell strategy where it’s our money at the beginning, and then in select opportunities, we back up the truck, so to speak, and put 7 and 8 figures of blended our capital and other people’s capital into the companies that we think could use it at the, you know, B, C, and D, let’s say.

One of the experiments we’re running, Harry, is testing the thinking around can capital and counsel be separated over the course of time? One of the things we’re trying to evaluate is, in some cases, when we do a smaller check, can we still have the influence and add the value that a lead investor might have in a situation and earn the right not just to do pro rata, but potentially do super pro rata or even leave the next finance.

That sounds so complicated. I’m thinking more it’s our time and whenever normally, which can be incentivized, non incentivized, direct on the cap table, indirect through us, whatever. But it’s just the notion of then we have access to 55,000,000 to $50,000,000 checks when we want to deploy them. And are those SPVs, or is that from another pooled vehicle? I don’t know. We are very cautious. We wanna be in business, even though it doesn’t sound like it. We wanna be in business with our LPs in some way, because we actually really enjoy working with them.

We’re in business with them to the tune of several $100,000,000,000 in Homebrew Funds one through three. We’re in business with many of them through Screen Door Partners, a fund of funds that we help start with some of our peers and your friends, Charles Hudson, Kirsten Green, Aileen Lee, so on and so forth, that backs emerging managers from underrepresented segments. That the first vehicle there is in, what is it, like a $90,000,000 fund. We’ve deployed half of it. Backed 11. So we have LP relationships that transcend Homebrew.

Maybe there’s continued interesting ways to bring capital to bear when we think the opportunity and the relationship deserves it, rather than pre raising the capital and then saying, we’re gonna figure out

where to put it. An example, I think we’ve done a handful of SPVs now, but we did two last year, which led the Series E and Series D rounds for two of our later stage companies.

It reminds me of when you bet a number straight up and then the two and fours on roulette, and it hits, and you’re like, the stack of chips that comes back to you is larger than you understood because, you know, you’re in it three, four different ways. So we are unafraid when we see something that we think is spectacular to figure out how to support them through multiple vehicles. We just believe that comes from a relationship and mutual trust and confidence that you’re gonna make money together.

Doesn’t come from pre raising it, believing that all things go up into the right, that mid to late stage SPVs are risk free. And by the way, when we do an SPV, at least historically subject subject to change, we’ve historically priced them very attractively because the idea is we wanna make money with our friends, and we’re already doing this work anyway. So why should we get paid optimal carry and fees for just placing a check into a company we’re in business with anyway? So we’ve been relationship focused, long term greedy, and I think that works when you believe you’re good at what you do, as opposed to needing to get paid first.

I’m sure we’re gonna talk about this, but I think over the last decade, there’s some fundamental things about this business that people have forgotten. First is, like, it’s a relationship driven business. It’s not a transactional business, and being long term greedy and good long term partners makes a difference in your performance over time. And the second, I think, is that it pays to be nonconsensus and right. Everyone was focused on being part of every company that seemed like it had momentum because everybody else was investing in it, and that looked great because the bull market ran longer than it did.

I’m sure Harry and I were in some of the same funds. When you see some of these helium unicorns deflate, we get the same four notes from the same four funds through the angel list, whatever, funds, all writing down their exposure at the same time because there was a bunch of strategies of we share deal flow, we pile into the same deals, and then we show it to the same leads to market up. And it feels great when everything is blah blah blah blah, and then it doesn’t always work.

Do you know what?

The struggle even on the old stuff, because we think there’s three sets of books. Right? There’s your accounting docs. How are you reporting this stuff to your LPs, so on and so forth? There’s your sensitivity model for reserves, so on and so forth. Is there upside here? Is it And then there’s your what have you actually returned? How real or not real are these numbers? In the former, we’ve always said, we don’t mark things up or down unless there’s, like, a new financing or a radical change in a particular company’s trajectory that deserves it.

But we get pressure, not from our LPs, but from our auditors, to be like, all these numbers are arbitrary. If I could tell you perfectly what any of these companies are worth today, I’d do that as a business. And so our strategy, and our LPs are fine with it over the last year or so, has been, from a reporting standpoint, use financings to mark up or down. From a sensitivity analysis, yeah, some of these things are probably quote unquote have to grow into their valuation, so on and so forth.

Let’s talk about what the fund looks like if these were worth 20% less, 50% less, so on and so forth. Then how does that influence our buying or selling behavior? And then let’s manage over time, which I think we did very successfully in fund one. We still have quite a bit of upside, but we managed to take a sort of money off the table at opportune times, both through early exits and m and a, which we’re lucky, and then some sort of secondary transactions to be well above the benchmark returns for twenty thirteen to twenty fifteen vintage funds, not in spreadsheets, but in distributions.

Grow into their valuations, Hunter. Come on. Give me a breath. Everybody else’s portfolio is a bunch of zombies. Really? My companies just have to grow into their valuations.

Satya, tell them about recycling too, because we’ve only returned cash when we think that there’s a reason to return it and not recycle it. And thus, we’re at, like, are we at? $1.17 in fund one now? 120 percent. So we also a lot of portfolio management, let’s say.

But the short answer to your question, Harry, is ultimately, I think we’re always asking the question, are we a buyer or a seller at this moment in time? You’re a buyer if you believe that the risk adjusted return is going to exceed your expectation for the return at that time, and you’re a seller if it’s the opposite. We’ve always tried to evaluate, like, do we believe we can earn at least five to 10 x from here? And if we believe that, then we’re more likely to be a buyer.

And if we don’t, then we’re more likely to be a seller. And then the other factor is, have you actually returned any money for your LPs? When you haven’t, there’s a lot of pressure to do that, and there’s a lot of freedom that comes from doing that as well. Because once you get into the carry, we’re humans, and your behavior will change in terms of how you think about investing. I think those are the two factors, and we’d encourage all investors to ask that question.

Do we think if we’re being honest about it that there’s upside, or does it just feel good to be part of this company because we caught it it early and we may be giving up the potential of some marginal upside? Right?

You know, Homebrew was my first institutional venture experience. Satya did institutional venture 98 to 2000 and then again, like, 2007 till 2011. And so he’s seen different business cycles, different partnership structures in a way that I think we don’t look backwards and say, over learn those lessons here or there, or the markets now are the same as they were in the nineties. But I think of our value proposition as a partnership to Satya’s smart enough and pragmatic enough and experienced enough to prevent Hunter from doing the stupid shit.

And sometimes Hunter’s stupid ideas are actually good ideas. The combination of that, I think, led to a bunch of good debate, but ultimately, good decision making, and good frameworks for when do we sell. And I think it can sometimes be come down to also this question of, if it doubles from here, are we going to be sad that we took 5% off the table? Or are you gonna be excited that the 95% has now doubled? And that’s another type of question we ask ourselves, and always in situations that were neutral to positive for the company, because we never wanted to hurt a company through our actions, we had some good chances to do our job, and we did our job.

It depends on, one, the quality of your LPs, and two, there’s a difference between your existing LPs and newer LPs. I think if you’ve got the right LPs, they’ve seen enough in this business to understand generating DPI through pressure isn’t the best long term outcome for them and for the GP. And then existing LPs have more data to evaluate progress and understand the companies than outside LPs do. Outside LPs may care more about seeing DPI because that’s proof, but the right inside LPs have more context to be able to make a more informed decision about how a GP is performing and doesn’t necessarily have to see that DPI.

The answer to your question is, I think there can be a disconnect. Satya, what’s the craziest idea Hunter’s had that was actually a good idea? Getting the logo tattooed on my shoulder. No. Hunter does have the logo tattooed on his shoulder. In many ways, I give him credit for us deciding to start a fund. So the crazy idea was to be a fund as opposed to doing something else. Because as he said, like, I had having worked in the venture business, wasn’t considering doing it again.

And he walked us through the thinking around, like, actually, the way we want to spend our time lines up really nicely with being helpful to companies. We can be helpful to companies if we’re venture capitalists because the cost of entry is money ten years ago. So the crazy idea was to be VC, and I think I’d give him credit for that, and I wouldn’t have done it with anybody else.

I think it’ll get worse for Series A through D companies that can’t remain default investable. David Sachs wrote a very smart blog post last summer or last spring at a point at which some of the common wisdom was, for every company, sure you have three years of cash and so forth. And I don’t think those are uniformly smart recommendations to make for venture backed companies that are relying upon a next financing. What you have to prove is that you have an insight and opportunity in a market that’s large enough to where if you do your job, build your product, get to market, and exploit that opportunity, you’re gonna create enterprise value that’s worth a new investor coming into your company.

It’s true that the dynamics around that equation have changed, reverted to the norm, maybe even a little bit pessimistic right now. But that means continuing to execute against a plan, smart growth, not growth at any cost, but smart growth. And I think we have too many companies that have been encumbered by capital, ahead of product market fit, don’t know how to find product market fit. Too many companies that are encumbered by a culture and an employee base that doesn’t know how to deal with this is gonna be tough, and you’re not gonna get rich overnight.

And too many investors who don’t wanna do the work, don’t want to reconcile these companies because it would destroy their paper evaluations as opposed to let’s reset them and give them a chance to succeed, take our lumps and see what we have, or let’s have a tough combination, a tough conversation about this isn’t going anywhere. You may have $50,000,000 in the bank, but what are we gonna do with it? For most of those companies, layoffs are going to turn into silent disappearance, low value acqui hires, or noisy collapses.

I think for new entrepreneurs, it’s a great time to build companies. You just need to figure out what you’re building, why, and the juice is worth the squeeze. And I actually think there’s a number of companies that are in the public market trajectory that it’s not a question so much about, it’s they’re waiting for an opportunity to make sure that they have not just the balance sheet and the p and l, a predictability so that once they are public, they don’t get punished by the ups and downs of potential underperformance.

We have a few that I think could have been public already, but have decided for various reasons to hold off. And I think when they become public, they’ll be even stronger company. Jason Lambkin

that’s definitely true for a lot of unicorn come. But that’s the difference between companies that raise money on momentum and hype and companies that raise money on fundamentals. Right? Too many companies last year, when the market turned, who said, oh, we just gotta buy ourselves some time. And when the market comes back, we’ll be able to raise money again. And what you’re seeing is that time’s run out. Last year, they bought time by doing the layoffs and slowing down spend. And this year, they’re realizing that the market’s not coming back to what it was, and they actually haven’t demonstrated real business value.

And those companies are not going to be able to attract capital, they’re going go away. And that’s earlier stage companies and later stage companies. And then you’ve got that with compounded by the fact that there’s this VC overhang that everyone’s talking about, but the reality is some got shit in their portfolios. So they’re gonna do their one or two investments a year. And every fund with this overhang is gonna be focused on the same small set of companies. And so those companies are going to be able to attract capital at prices that may seem like the market’s turned around potentially.

The question I’d be asking, do I think this company is gonna succeed or fail? If you think this company is gonna fail, regardless of stage, you need to make some decisions about are you learning, so on and so forth. The question, if this company succeeds to some extent, am I gonna participate in that success? Or is it being structured in a way where the investors and the founders are the only ones who are likely to see any of the gains?

And if you’re an employee who believes that your hard work is not gonna be recognized because of choices that your cap table and your founders have made, that’s where you should have some tough questions for your manager, for your founders, for your board, and make decisions not out of loyalty and hope, but out of pragmatism. Because I’m a big believer in teams should win when founders and investors win. It’s the happiest moment in my existence as an investor when I see a promising company cross a threshold where I believe that it’s gonna change the lives for a lot of the team members, not just for us and the founders.

And I’m hoping that one of the success metrics for Homebrew is the value created post public exit. I want us to be part of companies where it’s not that we sold at exactly the right time and the retail investors lost and we won, or even that we’ve held on to the share, this now multistage public private market crossover like, where we’ve hold on to shares so long that we’ve exploited all the gains. I hope we’re part of companies where we got our bag, and then that company grew 10 x from there over the ten, twenty, thirty, forty years once it was public.

I wanna die with public company logos on my casket that endured weren’t just somebody else’s goodwill write off, and I got paid. Over the last

decade, we moved into a world where people joined startups because they thought they were going to get rich. And I think that what people should be thinking about is you join a startup because you enjoy the experience, you learn, you meet great people, you learn something, and that hopefully you get compensated fairly. But the idea that, like, getting rich was table stakes when joining a startup was a delusion.

Or maybe the scale, what it means to have access to millions of dollars quickly versus, oh, man, my salary is 200 k, and I can make another 200 k when this company, like, for my stock? Like, how liberating is that in your twenties to be able to put that in the bank and then make decisions that you don’t have to optimize for making your student loan payments or so on and so forth? Where it’s the byproduct of the bull market where you have your perception reshaped by outliers.

And it’s not that those things are impossible or not obtainable, it’s just they’re called outliers for a reason. But so when founders are like, why want the Jack Dorsey deal? I’m like, go found Twitter, and then you’ll get the Square deal type of thing. I would tell

Yeah. Not knowing the specific situation, but I generally fall in your camp, which is there’s an opportunity cost to everybody’s time and capital, and the idea that some notion of an upside that doesn’t exist, we have to raise our next fund on this paper mark. So let’s not speak truth to founders, or let’s not let the founders off the hook because of our ego, our credibility, our reputation. Neither one of those is the job of an investor. Right? I’m

gonna take the other side of this because my view would be, like, as VCs, we’re in the business of losing money. There’s a reason that the power law is a thing. And if you still believe that the founders are smart enough to try to figure something out, even if it’s a pivot, then you let it ride and they can make it happen.

That’s what I got the sense though. We really believe let’s go back down to a small core team and try again, or we really believe this, and they’re still gonna grow to a half x, not four x, but and it’s not like I want that money back to redeploy. It’s like the let’s have a real conversation about what’s going on here, and are we gonna spend that $40,000,000 to create a multiple of an enterprise value, or are we just kicking hands down the road because we don’t wanna ask these Yeah.

And burning more and more money every day with something that we know is actually not gonna work. When you have a lot of capital, you end up you’re trying to use money to solve problems that money not shouldn’t be solved for. Money doesn’t buy you product market fit. Money doesn’t solve for upside down economics, and money doesn’t solve for not being able to hire. Yes. In the short term, it’s sugared. You’ll feel a burst of energy. It’s not sustainable. And some of the biggest challenges we’ve had in the portfolio, just in terms of spending time and resetting them, have been the promising companies that got funded ahead of product market fit or ahead of knowing what they would do with the capital.

And even with patient investors, even with investors who exert no pressure, it changes the mindset of the founders. It creates pressure from within the company. The clock starts. You start spending it. And so in some ways, I think part of our portfolio that’s really gonna benefit from the slowdown are the early product market fit companies that now have some capital in the bank, but aren’t getting the crossover investors pitching them on taking another round just because it’s available to them at great terms, and don’t have to have the notion if they don’t raise an up round twelve months from now, they’re gonna not be on the unicorn list type of stuff.

I’m so happy to have a reset for those folks because we can actually focus on product building and team building, not on fundraising and hope that the capital makes everything else work.

For me, it’s been a step function. I grew up downwardly mobile. I started out like zero through 10, upper middle class, and then middle class from there. So I got to see what it was like to be around things I wanted, but not be able to have them. So the chance to, through my experience at Google and what we’ve been able to do at Homebrew so far, my chance to get to a point of stability where I know I’ll be okay, like I can pay for my daughter’s school, I can pay my mortgage, all that type of stuff, and has relieved a lot of stress and allowed me to focus on what also makes me happy.

There’s probably a next bump up where, look, I’m the strange VC who only owns one house. There’s another bump up where, oh, hey, getting a Pied De Terre in New York would make me happy. That’s where I’m from. I’d love my daughter to have a set of keys there, that type of thing. Fortunately, I think we’re on the path to that. But I wouldn’t I’m under Gulf Stream. No. No. I wouldn’t optimize for getting there, and I and once I get there, I’m not sure there’s another step function that is a goal that I’d shoot for.

I’ve always said, if I became really wealthy at any point, it would be a byproduct of something else, not the objective.

Satya. I’m the child of immigrants who came here with nothing, and I think money has afforded me the freedom to not have to worry about the basics and allow me to spend my time the way I want to spend my time, with the people I wanna spend it with, and to give back in a way that allows, hopefully, people to have the same type of success.

Harry, I’ll say this though. Look at any Yeah. Look at any partnership where there’s difference in age or unequal distribution of economics, and money is an issue. We have similar age. Hunter, no comment. I have We have similar age and and similar goals and similar ish economics, and so and similar values. That matters too.

did you quit Twitter? I was a blogger before I was a twitter, so I wanted to go back to more than 280 characters. Hunterwalk.com. There we go. Salesman at heart. Satya, tell me, what

are you most optimistic and hope for for today? I guess one’s professional and one’s personal. I’m most optimistic about the on the professional side about the democratization of access to capital, including expertise that allows some startups to thrive, especially capital for about a lot of work to do, but for underrepresented founders from underrepresented managers, which we’re trying to contribute to. And then on the personal side, I have a 17 year old and a 14 year old effectively. I think that generation has an entirely different perspective on the world than the generation before it and willing to question everything from first principles, willing to do the work to see that the change that they want, and really care for other people on the planet.

Hunter, what are you most worried about that you see

I worry that some of the people most empowered to make positive change also have the wealth and comfort to protect themselves from the changes occurring. And so rather than risk something, disrupt their lives, to put themselves on the front lines of environment, equality, democracy, they protect themselves from being impacted by them. Satya, what do you believe that many around you disbelieve?

In the context of our business, there’s probably a couple things. One, at the earliest stages when it comes to hiring, attitude is more important than aptitude. It’s something that we really focus on when helping our companies hire early on. And then the second thing, which is probably odd for a former product person to say, I tend to believe that it’s not the best product that wins. It’s the best distribution that wins. And that the best distribution creates a feedback cycle that allows you to have the best product over time, but distribution wins over product in the early days.

Hunter, what’s the best investment

It was from Satya, and it was during a pre investment process where we were, you know, maybe enamored by the idea or the social proof around it, but just not feeling great relationship with the founders. And he said, if it doesn’t feel right before you write the check, it definitely doesn’t get better after. And so he passed on it. What

It touches on what I said before, success is having the freedom to spend my time the way I want to spend it with people that I want to spend it with, and leaving those people in the world a better place in in which I found it. Money affords some of that, but a lot of it is just work and effort as well.

Hunter? I think that the work I do or the the way I spend my time, I want to grow the pie, I’d say, you know, before I get my piece. And so for me, it’s about making sure that the benefits I’ve had, access to people, ideas, knowledge, information, resources, that I’m paying that forward in my work, with my family, with and especially with people who are trying to, you know, sort of access tech in the tech community. I was a history major, so I believe that, like, even though we’re so focused on disruption, obviously, as technologists, that it’s important to know the shoulders that you stand on, and that’s in fact where the Homebrew name comes from.

After Homebrew Computer Club, you know, PC enthusiasts who met on Stanford’s campus in the seventies and eighties as hobbyists before they were, you know, sort of entrepreneurs, and so Steve Jobs and Steve Wozniak met. And although a lot has changed, including diversity of the people who get together to talk about this stuff, I think it’s important to remember that you should be interested in what you can create ahead of what that creation is worth.