# Semil Shah on The Biggest Mistakes VCs and LPs Made Over the Last 24 Months Why LP Churn is Coming, Core Lessons on Scaling from $1M Haystack Fund I to Today and How To Find, Win and Manage LPs as an Emerging Manager 20VC · Nov 21, 2022 · 65 min · 13,623 words Speakers: Semil Shah, Harry Stebbings Source: https://www.996.fm/episodes/20vc--ep-0ca20e4a/ ## Cold open **Semil Shah** [0:00]: HashiCorp where we invested in the first round, and that was just a huge win. I think it was, like, the 25 k turned into something like $3,035,000,000, but **Harry Stebbings** [0:08]: Welcome back. This is 20 VC ## Intro **Harry Stebbings** [0:10]: with me, Harry Stebbings. Now today's show is my favorite type of show. Two managers sharing war stories in deep discussion, and there's no one better than Semil Shah to join me in the hot seat for this one. For those that do not know, Semil is the founder of Haystack, one of the leading pre seed and seed firms of the last decade. Among Semil's incredible portfolio is DoorDash, Instacart, Opendoor, Figma, Carta, and many more. Semil's first fund is marked between a 30 and a 40 x, and I wanna say a huge thank you to Satya Patel and Hunter Walk at Homebrew, and and for some amazing questions today. A real team effort on the schedule. But before we move into the episode today, ## Sponsor read **Harry Stebbings** [0:47]: Harvard Management Company is constantly seeking out the next generation of great investors and entrepreneurs. HMC has managed Harvard University's endowment for nearly fifty years and was one of the first institutional investors in venture capital. Their experience and long term investment horizon makes them ideal partners to get world changing ideas on a path to viability and success. They work as a true partner, providing insightful perspectives to help managers succeed. 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But that's enough from me, so now I'm so excited to hand over to Semil Shah, founder at Haystack. **Semil Shah** [3:08]: Three, two, **Harry Stebbings** [3:10]: one, zero. You have now arrived at your destination. ## Conversation **Harry Stebbings** [3:16]: Semil, this is gonna be the best podcast you've ever done. You've done a few with me. You've done a few with other people. So this is gonna be the best. We've started before with that How You Got Into Vangelist. So for anyone that hasn't listened to that, fuck it. They can listen to the last episodes. I wanna go deep with you, my friend. We're gonna go with we're all a function of our histories, and so we're all running towards something, and we're running away from something. What are you running away from first, and then what are you running towards? In a **Semil Shah** [3:43]: professional context, what I'm running from is just the fear of not being able to participate in the way I want to in the ecosystem. Way before we met, there was, like, a long period of time where I would even confide in my wife and say, like, hey. I don't know if we'll live in the Bay Area and make it here. So over those ten plus years, I've had lots of industry friends move out of the Bay Area when I say, like, involuntarily, and a lot of personal friends, especially through COVID and the fires moved. And I do love living in California. I feel like it's the only place I can live and do what I wanna do. When did you start to believe **Harry Stebbings** [4:17]: that would be possible and that you would be able to do it? **Semil Shah** [4:20]: Kinda like 2015, 2016, but there was probably like a two to three year period where I just wasn't sure, and then you see other people drop off. Again, people drop off voluntarily, but it's when you have people who leave involuntarily, and you start to see that and it builds up. I sort of run away from that. What are you running towards, my friend? Someone that you and I have talked about, someone like Roger Ehrenberg, where you can try to become the investor of record and an important company and an important partner to a founder early, and then you show up on the s one and people are surprised. That's just you're running towards is, like, a lot of us as investors for the most part, we can't do what entrepreneurs do. We choose not to do what entrepreneurs do. We have the best job in the world, and so to get a chance to be close to one to sort of steal a line from the Reagan speech and touch a face of God is an amazing opportunity. I certainly agree. My favorite **Harry Stebbings** [5:13]: is the Roosevelt, the man in the arena quote. It's one of the best, I Yeah. Totally. Now, I wanna dive straight in today. I spoke to many mutual friends, which is great fun. And I wanna start with the firm itself being Haystack and Hunter Walk, obviously, from Homebrew. He asked, how do you decide what each fund size for Haystack will be? Let's start there. Well, **Semil Shah** [5:32]: remember the first four, I was never able to reach the target of what we wanted to raise. They were always underwhelming in that sense, or what's the opposite of oversubscribed? Underparticipant. Undersubscribed. And so for the last two, they were just marked at 50. And so to answer Hunter's question, I thought of 50 in the first $50,000,000 fund as enabling us to get to a 10% position and pre seed seed rounds. And then in COVID, I felt like a lot of LPs were gonna support us regardless of what we're doing and Fund V at that 50,000,000 stake was working. So I just thought, let's not complicate things. Let's literally use the same documents, the same size. It's a rinse and repeat strategy, and I clearly communicated that to everyone because the model was working. I just took the path of least resistance there rather than introducing more variability. We probably could have raised a lot more, but I just felt, hey. It's an easier pitch to go back to people when they can't meet you and can't meet the portfolio. Our next funds, by the way, will modestly grow, but I still think for what we do, it's gotta be under a $100,000,000. **Harry Stebbings** [6:34]: Pre seed rounds have gone. I never see a round that's less than three on 15. Do you agree? What do you do you see something different? I think there **Semil Shah** [6:42]: are classes around. I mean, this gets into this black hole of what is a round and what do you call it, where I've sort of given up. I think that one thing we could talk about is these pre seed rounds where they're traditionally 4 or $8,000,000 cap rounds where people are raising under 1,000,000. I think over the last ten years, just simply because of inflation, those have all doubled. So to your point, the three on 15 does feel like a median entry point. And then if you wanna do the math and you wanna own 10% of everything and have 25 names, you quickly get above with reserves over a $100,000,000 fund. I've tried to keep it under a 100,000,000 for a variety of reasons. One is we don't wanna make a promise to LPs and founders that we have to own 10 plus percent of every company or lead every deal, and then also just the percentage that we would hold at exit if we're lucky enough to be part of an exit, it may not be meaningful enough if the fund is over a $100,000,000. **Harry Stebbings** [7:33]: I totally get you. So if we think about a $50,000,000 funds, what's the average ownership in those funds? We've been able to **Semil Shah** [7:40]: get close to 7% initial entry ownership in the last two funds. Rent's been going up. I would say it's like a slow march. What I call it is, like, we slowly creep up the cap table. But one of the things I'm really proud of with Haystack is if you look at the activity of all the deals over ten years, I would say there's a tight clustering between 8 and $15,000,000 as the entry point and the rounds being 3,000,000 or less. So to your point, Harry, I think that is a sweet spot median deal for a good founding team. I think the problem comes in as, like, how much evidence is there on the three and fifteen? I think we went through this period where a lot of entrepreneurs are getting credit for having done nothing yet and getting three and fifteen to start. The problem is now the gap to get the $10,000,000 check is so wide, so what's the right entry point at seed? And I would argue that's changing to teams that already have a product in market, where there's some de risking there where you can bridge gap from the seed to a. **Harry Stebbings** [8:31]: I was analyzing the portfolio that I have the other day. I looked at seeds and I looked at those that haven't really worked. And all of those that haven't really worked have often been head of product at Twitter, head of product at Twitch, head of product at amazing company. The hottest of hot seed rounds with Andreessen, Sequoia, Amazon, you name it. And they all just moved really slowly. They were very competitive five on 25 rounds. None of them really went anywhere. Have you found the same with that profile of deal? We avoid **Semil Shah** [9:01]: a lot of those, to be honest. By the way, the logic for doing them for these big funds is applicable. Like, it makes sense to me. But I think for a fund like ours, which is small and constrained, they'll get to take those type of shots. We maybe say we do three or four of those if we have a relationship per fund, but we're not able to do that as a matter of just normal business. What you're saying we can unpack a lot, which is, are those hot seed rounds necessarily indicators of entrepreneurial value creation? Probably not. Are they best suited to, like, understand what's at the cutting edge of product development or infrastructure? Probably. But I think it goes back to this more philosophical question, which is, are talented people also entrepreneurial? And I don't believe that. I believe there's tons of talented people who are not entrepreneurial, and there are bunch of entrepreneurial people who don't have the requisite talent. Really, what we're trying to do is trying to find that overlap of who has the talent plus entrepreneurial ability. I'm sure you've seen in some of these rounds, Harry, because the rounds are so competitive and people are fawning over them and people believe that they're gonna create the next big thing, there's sometimes lack of urgency. There's lack of direction. There's lack of passion. **Harry Stebbings** [10:09]: I agree with all those things, but the trouble is when you have the head of product at your Twitters or your big companies, when they talk about products, they do just talk with such gravitas and experience and wisdom compared to a first time founder or any kind of less domain experienced founder, where you're just like, holy shit. Back up the truck on these people. So my question to you is, and it's such a shit question, but how do you try and identify the overlap of talent and entrepreneurialism? Again, this is just a very **Semil Shah** [10:37]: philosophical point, and I could be entirely wrong. Roger, we both went to University of Michigan, so he just recently, about a month ago, invited me back and interviewed me, which was surreal, for, like, three hours, and we talked about this point. And I said, which was possibly, like, a politically incorrect way of saying this, but I just felt that a lot of people that knock on our door with this amazing product experience or amazing experience, you don't get the sense that they sometimes again, I'm not trying to cast all of them this way, that they really want it, that they're really hungry. And I also believe, again, this is just personal, that most people who have an entrepreneurial gene in their sort of hard coding have expressed that in some other way before they've knocked on our doors. **Harry Stebbings** [11:18]: Brad Gersor on the show said the other day, I ask everyone, how did you make money the first time? **Semil Shah** [11:24]: Yeah. And that's what I'm getting towards where we try to interview the person to get to know them and how they got here, and then you're testing for overcoming adversity. It doesn't need to be in business. Enduring pain, passion that they've devoted, there's a 100 things you could evaluate where you could say, okay. This person expressed some bit of hustle, some bit of grit, some bit of handling adversity. Again, it's not all that you need to get there, but it feels you need to feel a little bit of that as an investor because what you're doing is you're kind of trading off talent, sophistication, artistic endeavors with grit and hustle. You can't just have a 100 on one end and zero on the other or vice versa. There needs to **Harry Stebbings** [12:04]: be bit of a blend. David Goggins said that you wanna back people who are uncivilized, and the trouble is with your heads of products at Twitter, they're often quite civilized. **Semil Shah** [12:13]: A lot of people will say also now that, like, once you make it through to, like, certain organizations and you are in this PM role, you do have more of, a political job than you do **Harry Stebbings** [12:24]: a breaking glass job. No. I completely agree. Politicalization of leadership, actually spoke to Brian Armstrong about it the other day on the show. That was, like, the seed trend that I noticed. The series a trend that I noticed, it was the hot a's absolutely do correlate to hot b's. Weirdly, the hot c's often don't. Hot a's very commonly move to hot b's. What you've seen as well? **Semil Shah** [12:45]: Overall, I think your observation is correct. I think there's a ton of capital that wants to follow the signal and validation of, like, a premium or competitive Series A. We mentioned that **Harry Stebbings** [12:56]: you could have raised more. I'm gonna push your thinking here. You should raise more. 50 and a 100, it is a difference, but it's not a huge difference at this stage. It gives you more lines of diversification. I get if it's 50 versus 200 or two fifty, then we're talking about big bandwidth differences. But actually, 50 to a 100, it's still in the same ballpark. Why have you resisted scaling AUM? **Semil Shah** [13:18]: I think it comes down to, like, ownership and exit where I've done enough of these small funds on a small base that have been wildly successful and accretive, and I just see how much dilution comes in, how long it takes, what the return profile is. It leads me to just think that we would need to start out if we had a $100,150,000,000 dollar fund owning 15% of everything that we do. There's a possibility where, Harry, your question is right on, where you'd say, okay. In this environment now, why don't you wait? Do the $3,000,000 checks for the 15% ownership and do the small a's and compete. I think it also changes what you need to bring. Do you have to lead every deal If you're competing for that entrepreneur, you have to bring a certain set of things to the table. And I'm not sure I'm ready to make that promise versus leading a few deals. And then also what we tell entrepreneurs sometimes is we can sit in the driver's seat and lead the deal. We can sit in the passenger seat and be a co lead or the second biggest check, or we can be in the back seat as the third check, but that's basically it. We don't do partying rounds and things like that. So I like that flexibility, and it enables us to play with the entrepreneurs we wanna play What percent of deals do you lead? I would say if you look over the last **Harry Stebbings** [14:29]: three years, we've maybe led 10 deals. 10 ish deals. If I was competing against you, I would say to the founder, which we don't because we're wonderful fans. We don't compete with anyone, Semil. That's our game. Right? I would say to the founder, Semil is amazing. I love Semil. But look at these deals. He can be a passenger, and so let me lead it. And let's put him as the passenger. Do you worry that by being willing to do both, you put yourself in a position where you can be pushed to the passenger seat by anyone you're competing against? **Semil Shah** [14:58]: Not really because I kind of have a zen approach about it, which is our job is to teach the founders how to interact with investors and raise capital over successive rounds. And part of that should be to choose the best partners for you. I kinda learned this from a Brad Feld interview, and he just said, like, mentioned some deal that they did that they lost maybe the true. And he was like, I thought it was great. He's like, I'm friends with everyone. The true and the entrepreneur is really happy, so we're fine with that. I'm also fine with that. **Harry Stebbings** [15:27]: Why? I think this is the game of intense competition. I remember Peter Fanton telling me the best people are hypercompetitive and hyper curious. And if I lose money, I should be upset. Yeah. I mean, **Semil Shah** [15:38]: you don't want to, but I think of it as like flipping it a little bit, which is if we try to lead everything, we would lower the quality of the portfolio that we're in. Being able to be flexible suits my personality, so it fits me, but then it also enables us to move around. So we've been tracking someone to do a deal. It's actually one of these three on fifteens that you mentioned, pre everything, but it's someone who's a known quantity in a really interesting sector. We actually had a friend who's just got a fund based in that sector, and so we sent it to them and we told the entrepreneur, like, we'll give you a term sheet if you want a term sheet from us, but we think you should talk to these three groups because they're right in the wheelhouse of what you do. The entrepreneur was super happy with that, and it's probably gonna work with one of them. By being flexible, we get to work with who we wanna work with. On the cases where we do lead, to come back to your original question, Harry, I think speed wins and conviction. So we will lead deals that we wanna lead, and we're just closing one now. We're technically leading, but someone else is putting in a bigger check, and we cut back a little bit to bring in a friend who really wanted to come in. I think of this as, like, we're always trying to co invest with people that we know, and these are repeated gains. It's better over the long run to pick the entrepreneurs you wanna work with and collaborate with those syndicates over time rather than trying to box out your territory on each one. And I think going back to your previous question of if I had a 100, a $150,000,000 fund, that whole collaboration layer of how we work would change, which would then set off a chain reaction of how the deal flow would change and how we would have to operate with the companies would change. Then you look back over ten years where there's tons of DPI, tons of IPOs on paper, Haystack Haystack looks like I can't believe it. Would you risk all that magic of meeting entrepreneurs early in order to have more money? It's just better to raise the next fund and go for it again. **Harry Stebbings** [17:21]: I get you. My question is how **Semil Shah** [17:22]: low will you go on ownership? I would say we stop around 5%. So if you look at like, what we tell the entrepreneur is, look. We're trying to own 510% to start. We wanna earn the right to maintain that over a few rounds, and we'll never own more than you as a founder. We'll always give you advice. You will be voting our shares. That's kind of a nonthreatening way of sort of coming at an entrepreneur. **Harry Stebbings** [17:46]: In Europe, that's an uncomfortable position, if I'm honest. Because you have the leads, Excel, Index, Sequoia, Europe, and they always want 15 minimum. And then they have normally that 5% for angels. You're very much in no man's land in that position. Do you find the same for you? **Semil Shah** [18:02]: No. Because I think, like, The US market, there's so many seed funds. There's so many series a funds. There's so many top tier funds. Our job isn't to invest when Excel, Lightspeed, Greylock invest. Our job is to invest around before that. I'm just seeing multistage move earlier and earlier while they're doing pre seeds. They are. But the reality at the same time is they're more attracted to the more experienced people coming out of these big orgs, whereas most of what we do are first time founders, maybe not as startup pedigreed as those. And also, these funds are really big and slow, so they're not gonna be able to move and prosecute the things in the same way that they say on Twitter. **Harry Stebbings** [18:42]: I find because the check sizes are so small to them, they don't really give a shit, they do it in seconds. We have tons of examples of ones where they didn't move fast. I got this from one of your teammates. They listened to our last shows, and they said about you saying three year deployment cycle for the fund. Did you stick to the three year deployment cycle, Semil? And Yeah. **Semil Shah** [19:02]: No. I I knew you would have said that, and I was thinking about it. So what I kinda concluded over that time and what I told our LPs is that for the seed market, I felt the thing we could promise is twenty four to thirty month deployments and then doing new funds. And I would say that since we last spoke, I would say it's closer to 24 than 30, but I didn't try to make a promise **Harry Stebbings** [19:24]: of 36. **Semil Shah** [19:25]: I didn't think it was **Harry Stebbings** [19:25]: possible. Semil, at 24, you're still twelve months longer than most managers in the last cycle, so don't worry. Well, that's really that's crazy to me. **Semil Shah** [19:33]: I don't know how you go back to LPs unless you have a really deep relationship or history of returns when you deploy that fast in this environment. **Harry Stebbings** [19:42]: I think it's a challenge. Given that, a lot of people regret the speed of their investing there, as we said, doing it in twelve months for many. What investing mistakes do you think you made over the last three years that you wish you hadn't have made? **Semil Shah** [19:53]: I think in fund four, I always worry about the carnage in that fund. And I knew there was gonna be turbulence because it was the first time was really going for ownership. And I knew in going for ownership to our earlier part of the conversation that there is a trade off in quality when you're trying to make a move on just getting into a round versus getting a certain percent of ownership. We made a lot of errors of selection, **Harry Stebbings** [20:15]: me, in that fund. Was it an error of selection being picking or access being adverse selection? You just chose what you could get the ownership in. **Semil Shah** [20:24]: I think it's a mix in that fund. I would say 20% adverse and 80% poor selection. That really course corrected in the next two funds where I feel boom, just hit again. I remember an LP telling me a long time ago, just when I was starting, that typically they stay with good managers for five funds, and they assume that three of them will be so so, maybe two to three x funds. One of them will be a complete turd, and one of them will be spectacular. I kinda knew going into that one that this was gonna be a change in motion. This is 2017 to 2019. That's a fund I look back on as where mistakes were concentrated. What do you put that fund out in your head? Is that a two x or three x? The good thing about all of this is that we have five to 10% positions in three or four really amazing companies that all could be public actually at some point. There's a ladder to get out of this that's pretty exciting. But if I look back on it as a player looking over the game film, that's a fun I look over and say, oh, I wish I had made this play different. I wish I had done this different. Do you give a shit about loss ratio, Semil? No. I think at seed, it's just par for the course where that's going to happen as virtue of being in this position. Is venture more a game of picking or more a game of access, do you think? For the early stage, I think it's both. You need access to creative people. You need to select from the ones that come your way. I think it's really hard to generate that access in a repeatable way, and it's super hard to select. **Harry Stebbings** [21:48]: So I think it's equal. I spoke to many of our friends again before, and specifically, it was Napool who told me about the instrumental impact you had on his fundraise, Broadaceous. And so I wanna kind of go through the life cycle of raising a fund. Napool told me you introduced him to 50 plus LPs. I love that. Most people did two or three. Semil gave me 50. So my question to you is, what's your biggest advice to emerging managers on just finding new LPs? What works? What doesn't? Because it is a game of discovery. People **Semil Shah** [22:18]: in the last three or four years, and I miss this wave. It's like I got married right when Tinder was taking off, bought two cars right when Uber was taking off, and I didn't live in the city. So I just missed these waves, and I started my fund before AngelList. But I think in the last three years with the capital acceleration, you have people who their first debut fund or their second funds are actually pretty big, and they don't have investment experience. A lot of people didn't go through the proof of concept funds like I went through. Then they go knock on the door of Notre Dame or somebody else, and you sort of wonder why are you doing that. Again, my advice may not really click with people because they don't wanna go through that. But I think one is on AngelList now, there's really no excuse not to have some kind of track record before you go talk to an institutional. **Harry Stebbings** [23:01]: We're trying to take time, Semil. Like, the truth be told, like, you're not gonna know if you're a good investor for ten years. So I could show you a knot load of great logos that I've built through AngelList. It doesn't really show much. **Semil Shah** [23:12]: It just becomes a specific thing you can point to that you can have a richer conversation with. You could say, Hey, look, for two years, I've made at least 20 angel investments. Here's how much money I put in. Here's how much money other people gave me. Here's who followed on. It's just a richer conversation with an LP and a more substantive conversation than saying, Hey, I just want to deploy $50,000,000. So that would be number one is using angel lists again for people who don't want to wait and go. I would just say you have to have other GPs vouch for you. Only way they vouch for you is if they see you work, the only way they see you work is if you're an executive in one of their companies or you're around to deal with them. So it was easy for me to, you had mentioned on on air and and me making, like, a lot of impactful intros for them. That was easy to do because I had worked with them a lot. But it's hard for me to do that with someone I **Harry Stebbings** [24:02]: haven't worked with. There's also things like whenever an LP committed to my first funds, I'd be like, Semil, thank you because you like it. Who are three people with a similar mindset to you that you think would share your excitement for what I'm doing? And then they commit to names. And once you commit to names, I'm gonna hound you for intros to those names. Yeah. At one I also flywheel. **Semil Shah** [24:22]: I also think that's the hustle part, but I think closing the deals are harder. What I coach a lot of emerging managers on is, like, okay. If you go meet an institutional LP, they're predisposed to passing on your first fund, primarily out of the fact of they probably don't think you're gonna raise your first fund or deploy it well if you do. So they just wanna wait for the second one to just make sure you've actually raised the first one, that you've stuck with it, that you like it, because it is kind of a lot of busy work is painfully. So it kind of logically makes sense that a lot of the people, for example, I introduced knuckle to, was like, think of them as a fund two LP because they probably don't even think you're gonna raise your target for this fund. **Harry Stebbings** [24:56]: I do know I meet two new LPs every single week even when I'm not raising. Because I think if you ever meet them when you're raising for the first time, you've got no chance. **Semil Shah** [25:05]: That is smart to do because I do think relationships matter. And then, obviously, the diligence you go through, I go through, is way more than what an entrepreneur goes through. That's the other thing too, just having all of your ducks in a row. You have to have some kind of reputation where people call around and name check you. Do you have decks? Do you have blurbs? Do you have what do you have supporting material wise? I think all of that is your mix of collateral that you're gonna use to convey messages to different people at different time. I have a one pager for every new fund we raise, which is on one page, everything you would wanna know and link to that's, like, not super sensitive. Obviously, we have a deck and a dataroom, but now we're at a point where we just copy and paste a new dataroom into Dropbox and and do all that. We try to reduce all the friction. What do you think are the biggest mistakes that GPs make in fundraisers? You alluded to some, right, which is just talking to people when they're raising, not really having a richer conversation about what they're trying to do and why. Again, the decks or the presentation just show a lot of pontification. So I think people most VCs or or emerging managers, especially, are not good fundraisers because they don't really have a north star to where they're going and why. And it kinda makes sense because it takes a while to develop that, but at the same time, it's not as inspiring for someone to let go of their dollars. **Harry Stebbings** [26:22]: I I I've done a lot of LP checks. The GP decks they see, just shit. Why now? No one articulates that why specifically now is the right time. You much more than me. You're v one OG compared to me. But like in the like solo capitalist with me with like Josh Buckley and Rocky Grooms, this was a personalization of capital. There was strategic shifts in venture that led to this, I think. I clearly articulate why now. I see a ton also which is, oh, I got into pipe series b. I got into hop in series b. Name your company series b, and now I'm doing a seed fund as a former operator. And it's a lack of correlation between prior track and where you wanna go. And then the advisor page, brilliant advisor page. Get fucking rid of it. None of these advisor pages make any difference. Ridiculous. **Semil Shah** [27:08]: I think that if you're not getting name checked by institutional LPs, and other people aren't talking about what you're doing, it's almost impossible to raise institutional capital whether it's a $3,000,000 check or $30,000,000 check from an LP. So, really, that should be the first for an emerging manager is how do I get in the chatter zone of these LPs? And that's different than just having a deck. So you could argue the deck is one of the least important things in the hierarchy of things you would need to do, which is do good deals, help entrepreneurs and other investors in the ecosystem, have people talk about you as, like, a unique person or someone who's uniquely helpful or uniquely insightful. And then it's okay, they want to meet you, and then you could be like, oh, well, here's my little deck. Honestly, for like an emerging manager, the deck probably doesn't need to be more than five to 10 slides. I've never done a deck. Yeah. Well, I mean, again, your body of work is different, so your deck is all the two Yeah. Thousand plus Yeah. People wanted to support you. You were in that chatter zone, so you showed the ability to help, the ability to connect with people, the ability to get in the chatter zone. Again, I don't think people can extrapolate from what you did. **Harry Stebbings** [28:16]: I was also lucky I had track really pre institutions. Like you said that my first fund was, like, 8,000,000. It was like your proof of concept fund. Can I ask the big challenge that I hear from a lot of GPs is, there's a lot of people around the hoop, but they're not quite getting in the hoop? How do you create urgency with LPs to get them to a conclusion? Do you have any tips on this? I wouldn't say I'm great at this, **Semil Shah** [28:40]: so grain of salt. I think, like, in a certain point in your career and as an adult, you have to just be willing to walk away and accept a no in different formats. One way we do it is we kind of just say, hey, Julie Smith, LP. Hey. If we don't hear from you past this day, we're just gonna assume this is not a fit for you. That's okay. But it's not waiting around the phone for someone to call. It's more we're gonna move in this direction. Most LPs have plenty of time to decide. You don't wait for a response. You just sort of move forward **Harry Stebbings** [29:11]: on your own timeline. A lot of people, kind of like a sales cycle, I guess, in enterprise sales, think that it might help to offer preferential terms in terms of carrying or in terms of fees. Have you ever done that? And how do you advise managers on preferential terms for first close, second close? **Semil Shah** [29:27]: I haven't done that ever, and not a lot of people have suggested that. So it's not probably something I would advise people to do only because it could set a weird precedent over time. That being said, I think to get off the ground, sometimes people have to make deals. And so what I would just say is think about it in the sense of how do you survive and thrive? So the first point is how do you survive and get off the ground? You probably need to do what it takes to get the plane off the runway. I wouldn't sit here and say, do it this way, do it that way. It's just like, okay. If you don't take off and leave the runway, then we don't have anything to talk about. Once you're in the air and can stabilize, I would move away from preferential terms. Basically, if you're trying to offer preferential terms to get the jet off the runway and get some thrust, that's fine. But just don't have it be successive in future funds. **Harry Stebbings** [30:14]: Gate it to that one fund. Very tough to do. I totally agree. That's a challenge because you're right. It does set a precedent. Cass, what do you advise managers who say, I've got a big check, but they do also wanna buy part of the GP? How do you advise those managers where it's also a bit of a sale of the GP as part of it? **Semil Shah** [30:30]: It really depends on who that person is and what the timeline is. Let's say a really well respected endowment foundation came to you, Harry, in 2018 and said, we wanna put you in business with a 200,000,000 fund, and we'll do 75 of it, and we'll introduce it to everyone we know. If they take part of your carry as a GP, not the management company where the fee income goes through. Right? And you could say, well, normally, was gonna have 20 points of carry, but now maybe I'll have 16. But to get the $200,000,000 fund, that name, and all the network, you could say, yeah, for one fund. Okay. Now the problems could be the other 125,000,000 that come with the 75 may also want that same thing. And so you'd have to operationally tell them, hey. We're just doing this for our anchor. Right? And some other people may say, well, I don't like that or whatever. I think the problem comes in is when that's in perpetuity. To get off the ground, you may have to spend some the jet fuel is more expensive. What terms do you go out with, and how do you feel about kickers **Harry Stebbings** [31:28]: on funds? **Semil Shah** [31:29]: We haven't done those yet, **Harry Stebbings** [31:30]: although I'm thinking about that now, but I don't have I don't I don't do them either. I always say, like, listen. If we do a great five x fund, six x fund, we shall make a load of money. Let's not be greedy. And I find institutions really appreciate that. But more and more people do it, and they don't seem to get pushed back. It's not a topic I know well, to **Semil Shah** [31:48]: be honest. Did you go out with two and twenty? I follow a lot of, honestly, what USV does. I like try to learn. I think they're the best pound for pound fund in the world, both operationally and in every way. And I think Fred has been on the record of just saying they just do a standard two and twenty on every fund. So I haven't really seen the need to deviate from **Harry Stebbings** [32:06]: that. When you look at your fundraising journey in hindsight and with the many years of wisdom that you have now, Semil, what's the biggest mistakes that you've made? **Semil Shah** [32:15]: This was actually the one question I was thinking about in the shower this morning where I was, okay. I know Harry will ask this question. I think you learn from mistakes. Yes. I think there are two, and one was a minor little warning, and one was a major shift in my own psychology. So the minor one is I remember that not to out this person, but I would say a major leader of a major successful fund who spent a lot of time with me, who's been on your show, who introduced me. They only have 24 LPs, and they're all endowments and foundations, and introduced me personally to the head of this one huge university. And I thought, holy cow. This is for the Fund IV that was supposed to be about 30,000,000. They end up being like two. I thought, oh my god. I've never gotten an introduction like this. I've already had three funds. They do smaller funds. I had met this person before. I knew that this GP's annual meeting is every year in q one at the Rosewood. So I have all this stuff on my calendar because I know when these meetings happen. And I sent her an email. I was literally across the street at a meeting, and I was like, Hey, I know you're across the street. It would be great to get together while you're here. In five minutes, she wrote back, Sorry, really busy. Send for my iPad. That was sort of a warning of you could have really good track record, an amazing introduction. You've already met this person. They've already done small funds, and this person literally doesn't give a shit. **Harry Stebbings** [33:40]: I find that very rare. Amazing track. Met them before blah blah blah. The thing that I find really gets it. I was introduced the other day by an OG of OGs to one of their biggest. They're basically done and in. So I'm surprised that with the great intro, she was still like that. **Semil Shah** [33:55]: Yeah. I appreciate the response, and I appreciate the brevity. But for me, it was more of a warning. What do you take away from that though? That, like, fuck. It doesn't You know, luckily, that happened because it was in January. They host our annual meeting in January, and I had just started that campaign in January. So I felt like I got this omen early, whereas, like, I was probably in my head thinking, oh, yeah. I'll meet her on the strip. And so it went one eighty real quickly. Okay. This will be difficult. And so I felt it was kind of a gift in terms of the timing. The bigger mistake is thinking naively that all LPs will, once they've committed to you, want to see you succeed and want to just be along for the ride if you stay true to what you said you're gonna do. It's interesting because I've had to fire is the wrong word. I don't think of it that way, but I've blocked two LPs from investing in future funds. And I think both of the behavior in what they did and how they did it, I just felt, hey. I don't work like that. What did they do? One person asked for a phone call, asked before we were raising the next fund for all these terms. I remember I was driving along the Embarcadero, and I was like, hey. It sounds like you really want all this stuff now. I'm happy to talk about it when we raise fund five. And he was, we won't even be in it unless we get all this stuff now. And I was like, okay. And then I just thought about it. And then I talked to the colleagues and they were like, yeah, he doesn't change his mind. He just went rogue and he wants all these things. And I just thought, Hey, I just don't work like that. But I just feel these things are gifts because then you end up cherishing and valuing more of the LPs who treat you well. I guess the point I'm trying to make Harry is that once people get the funds and go in, you just think that everyone's going to support you and people can have very different motives or ways of revealing information or asking for things. A mistake, I think, that I made was not being open minded to that. So there was more of a surprise. Have you had LP churn? No. These two we let go of really for behavioral reasons. Everyone else has been super great. But I think everybody in our position should expect churn moving forward for a variety of reasons. **Harry Stebbings** [35:58]: So churn is coming. Okay. Talk to me about that. Why is churn coming? And then also for emerging managers today, moving today, why is it gonna be harder to **Semil Shah** [36:06]: raise? Churn is coming because I think, one, most GPs don't understand how different LP business models work to begin with. But right now, the liquidity profiles of these endowments, foundations, family offices, etcetera, could be wildly idiosyncratic. Certain endowments and foundations could have gotten really liquid in nineteen twenty twenty one. A number of them haven't gotten liquid, and they don't know where their portfolio sit. So I think it's gonna end up becoming two kind of opposing forces clashing. You'll see a lot of institutional capital constrict out of conservatism and the lack of visibility into what they own that's already on the ground because they haven't been able to see it. But then on the same side, you'll also see a realization that a lot of their capital in these larger funds will be stranded capital that they may not see a return on. A stranded capital is what capital? How do you define that? It's either stuck in a portfolio company that doesn't have product market fit, or it's stuck in a fund that will deploy it, but the fund size may be so large that it's impossible to get over the hurdle. **Harry Stebbings** [37:08]: One of the things that concerns me is the misalignment of incentives within the LP landscape, whereby they say, hey. We'll do Andreessen, and we'll take agreed lower multiple because we won't get fired for doing Andreessen, but we will get fired for putting 10,000,000 into Haystack if Semil suddenly goes off the plot. That worries me. **Semil Shah** [37:28]: That hasn't been my experience. I think most people have barbelled, and so the people who get caught are the people in the middle. Now that was what I would say a year ago. I think right now, most LPs I've talked to feel like the bigger funds that they're in, they're more worried about those positions because of the market contraction. Whereas I think for you, for example, you're on Fund II now. Right? Yeah. Fund II and III, we'd raise two at a time early **Harry Stebbings** [37:50]: in **Semil Shah** [37:50]: Series A **Harry Stebbings** [37:50]: and B. **Semil Shah** [37:51]: So when you go out for your third vintage, assuming your funds are similar size, you're gonna be more in demand because these LPs now are now downshifting to the smaller vehicles because they realized that they would rather incinerate $10,000,000 with you than a $100,000,000 in a larger fund. **Harry Stebbings** [38:08]: People forget this, though. We're seeing this whole new generation of LPs. We see it in Europe with a huge amount of European corporates with huge balance sheets wanting to enter venture, realizing bluntly the lack of innovation they have within their incumbent structures. A more controversial one, but with the commodity prices changing the way they have done, I've seen a massive rise in Middle Eastern interest from Saudi, Kuwait, Qatar with bloody oil prices in the 400% higher. I think **Semil Shah** [38:35]: what you're saying, Harry, is it's true. There's lots of capital that's hungry to go into venture. And I think the question is, how do those people decide where to put it, or how do you as a GP go grab it? I think historically, the case has been that the endowments and foundations who have been in venture capital for the longest period of time are your stickiest partners. That being said, for you, for me, for a lot of those people, they haven't even lived through a recession. You have to be well over 40, 50 years old to have actually lived through a recession as an adult. All the dips that we've had have been pretty narrow in terms of their duration. **Harry Stebbings** [39:10]: Semil, who struggles in this environment moving forward? Which is the cohort that struggles? Which is the cohort that thrives? **Semil Shah** [39:15]: On the fund side, people who can pair the magic of meeting entrepreneurs early and getting the ownership early with the firepower of putting enough wood behind the arrows at work. It's probably these funds that are in the billion to 4,000,000,000 range, so to speak, where they'll have a lot of firepower if they have that magic. I also think you'll see a lot of 100 to $200,000,000 seed funds start to fill that seed series a gap in a more pronounced way. There'll obviously be winners in that. Like, if you think about initialized in the last decade, there's probably one starting now that'll have a rise like that now. Thrive started in the last decade. So I think there are opportunities for these folks to go make deals and put **Harry Stebbings** [39:58]: it on the line. I think the winners will be Chanel, and it'll be Walmart. Chanel, it's a very boutique product for a very specific customer base. It makes you feel a certain way, and you either opt in or opt out. And that is your USB. It's your benchmark. It's even your ribbon in terms of the specificity of the product. And then I think the Walmart is Sequoia, Andreessen, dare I say it, Tiger tea walls of cash, which are relatively infinite and current carry you life cycle. I think the ones where I'm like, is when you're 700 to 1.5, no brand or middle tier brand, lots of partners, bloated decision making structures. There, I think you have the real pain. I **Semil Shah** [40:41]: guess the reason maybe I would have a slightly different perspective, Harry, is that I think so much of this can pin on one deal. Probably had Duvos on, and he will famously talk about getting off the Excel train in the pre Facebook fund. They were going through a lot of hard times or Peter Fernandez came in interviews about this. So I think it just takes one deal to completely change the trajectory of some of these funds, and so I always keep that in mind. It's too hard to predict what's going to happen. We can predict in a fundraising sense what will happen, but in the deals and what's going to work. Like, if you think about a round that's happening now, this company replet. Right? Very unique, exciting company. A lot of people are talking about it. I don't think a lot of people thought about the seed or Andreessen did the a. It was like a $4,000,000 seed paycheck, whatever you want to call it. It only was started four or five years ago in terms of the, sorry, the investment going in. Some of this can change over time. How much are they raising? Oh, I have no idea, But it's just such a unique company that people are talking about. I'm not close to it. I'm just saying it's an interesting company. And what if you're the series b investor in that company in a no name billion dollar fund? They could totally change the trajectory of your franchise. **Harry Stebbings** [41:48]: I'm writing a note now to ping AMJAD to see what we can do. From personal money? That sounds like a good place, and I'm hoping it's repriced given where we are at the market. So Yeah. Absolutely savage. **Semil Shah** [41:59]: I'm only calling that out to just illustrate that we can pontificate about who will have fundraising success or pain with, I think, some good precision. I think it's impossible to know who can catch **Harry Stebbings** [42:10]: a tiger by the tail. I agree with that. I think also the interesting thing is lagging. Like, track is a lagging indicator. And I mean this nicely, but you look at maybe older firm brands like Mayfield, where you may look and think a slightly more challenged brand for a firm and not a hot brand. But actually, Lyft, HashiCorp, Tonal, they're gonna be showing some pretty great distributions. **Semil Shah** [42:31]: We know a couple LPs have been long time Mayfield investors who are extremely happy. Yeah. **Harry Stebbings** [42:35]: This is my book with Brilliant Returns. Brilliant returns. And so you also have that, which is the ten year lag on the numbers, which will give you another ten years moving forward and forward indicators. Totally agree with you. **Semil Shah** [42:47]: Look at Crosslink. I mean, no one really talks about Crosslink. I don't even know if you've had an investor from Crosslink on twenty minute VC, but they ended up owning over 20% of Chime through, like, a pretty modest deal because **Harry Stebbings** [42:58]: no one was looking at it. Wow. I did not know that. But, no, I haven't had anyone from Crossing on the show, but fuck. 20% of the time, well done. Retirement is coming. Quiet. Question for you. Tell me, world of LPs. GPs fucked up a lot over the last years, as we said. Where did LPs make mistakes, Semil? **Semil Shah** [43:14]: I think that everyone in the ecosystem has committed sin. We can talk about what those main sins are. I think on the LP side, the sin was going along with fund size escalation and allowing and enabling those firms to allocate within those funds. So I believe in having separate vehicles for separate activities because that's the best governor. And so I think when you have the blind pool of capital going all over the place, it really puts a burden on the management of that firm to allocate it properly, and I think it's really hard to do. So I think that's the biggest sin that LPs have committed. **Harry Stebbings** [43:50]: So I'm just being devil's advocate here. Let's pretend we're on a partnership here. What can we do? We want to continue being in this franchise. We're either in or we're out. If we're out, that's tough for the relationship. So I get you, but I don't see what can be done to remedy it in a very boring environment. I **Semil Shah** [44:06]: agree, and it's easier to say that today than a year or two ago. I think what I've heard from LPs is some of them picked a few to go stay on the train, and a number of them last year dropped off. A number of endowments foundations, fund to funds, who were longtime investors in, like, top tier funds that had gone really big, have, for a variety of reasons, just said, hey. We're great. Thank you for all the returns. Thank you for the partnership. It's time to move earlier for us. I'm not saying that LPs should have abandoned all those, but I think they probably stand on too **Harry Stebbings** [44:35]: many trains than they should have. I find that they often actually have adverse selection because of rigidity of bucket allocation. And what I mean by that is we need a series a fund in New York. That's what we're missing. So they find a series a fund in New York in that quarter that is raising at that time, and it's crap. Maybe you should have just allocated to the best managers that you see. And I find that kind of bucket thinking really Yeah. A big problem often. It's funny when you **Semil Shah** [45:03]: mention it that way because I know what you're talking about, I've never heard it put that way. **Harry Stebbings** [45:06]: Oh, I have often. **Semil Shah** [45:08]: Yeah. Maybe the canonical example of this is the sector focus fund is like, hey. I wanna play this sector because I think it's gonna work out that way. I think in some cases, it makes sense for early stage because you're filtering more early, but I tend to believe in again, this could be not true in the future, but I feel like if you look at the big important companies and outcomes, when they go public, they have three or four venture capital firms that we recognize on the cap table, and I don't think that's an accident. I think that there are a set of funds, maybe 50 to 75, that in partnership with other funds and entrepreneurs know how to guide a company towards a big outcome or a public offering. I would just say to the bucketed approach, unless it's really early and bespoke, it probably doesn't really make sense because you would assume the best investors will catch the best things at seed a or b. That's the flypaper that you're buying. **Harry Stebbings** [45:57]: The other truth is I think there's a utility value to board members that resembles a barbell, which is Fenton, Gurley at the a, Alfred Lin at the a, Rodolphe Beazer at the a, amazing Pat Grade at the a, great. And then your pre IPO people who are amazing for setting you up for getting on the public markets. I find actually the middle, I'd rather have amazing operators who are functional leads at the best companies in the world than having, like, a series c or d investor that Mhmm. **Semil Shah** [46:26]: Doesn't But remember, if you're an LP and thinking about this bucketed approach, most LPs don't live in the Bay Area or they're not in the market. They're not talking to founders. They're not talking to VCs all the time, and they just have to map it out. Most of them have to present a strategy or a map of how they cover what they wanna cover. So it kinda makes sense why they do that. It doesn't make sense to you and I because we know all the people. **Harry Stebbings** [46:48]: And that is why they listen to twenty BC, and that's why I have a job and get paid too much money. Fantastic. Thank you, guys. I do wanna ask, Semil, I'm starting Shah Endowment Fund, and you're in charge. How do you run the venture allocations for Shaw Endowment? **Semil Shah** [47:03]: I'd probably do it the way you alluded to earlier, which is if I were an LP not living in the Bay Area or New York, I'd probably go spend a month in each location, get an apartment or Airbnb for an entire month, hang out with lots of people after hours, name check lots of people, and place money with the people that the network told me were the most interesting. Now that's for early. And then I would probably recruit somebody who has VC deal experience to help go do directs on top of it and to stay close to the winning graduating companies. And then I would probably try to get into using my network five to 10 franchises where I feel you wanna be part of their ecosystems. **Harry Stebbings** [47:44]: I don't think you can get access to the best. I have so many, like, oh, I wanna put in a 10,000,000 check into Square. And I'm like, well, if you can write two fifty in twenty four hours, then you might get a chance. And it'll be split across all the different funds. Otherwise, good luck. There are amazing people though in a load of big franchises who are sitting on carry that's just been halved, if not more, in pretty tough partnerships with politics. I would say, hey, you are a rock star. Let's put an anchor in the ground. I'm gonna anchor you. I'm gonna put 30 of your 100,000,000 fund. Let's go do this and build a franchise. I'll do that with five people and put people in business. I think that's a much better one. And then on top of that, I get young hungry hustlers, not like BC direct people to just go get drunk on with the GPs and team members of these funds to know exactly what is happening. I find there's this complete wrong, like, LP conception that the bigger your check size, the closer you are to the direct deals. It's not that much. I'm sure you and me are the same. It's just if you have a great relationship with them, and if you respect and like them, you show them the deals. Do you know what I mean? Yes. I agree. **Semil Shah** [48:49]: One thing I think we should talk about before we wrap up too is, like, when I mentioned we all committed sins. Right? Okay. We talked about the sins that LPs committed. What are the sins VC committed? I think the biggest one, in addition to, like, fund size escalation for fee grab and AUM, is this lowering the threshold for having each financing be an actual true checkpoint for an entrepreneur. A lot of people just deployed capital like a speculative real estate, and it's just stranded in these companies now. I'm sure you've seen this too. There's probably multiple multiple companies with, like, over $50,000,000 of cash with no product market fit. **Harry Stebbings** [49:25]: That's just wild. But I'm seeing now, I've seen four this month where the series b's are saying, hey, preemptively, we fucked up, but give us our cash back. And we'll give you a million each. So you'll get a million secondary, but give us our money back. **Semil Shah** [49:39]: I mean, that should happen more. I think a lot of traditional VCs are loath to do that for reputational reasons. I would just say from the founder side, their cost of time right now is probably pretty great. So, like, we may start to see that. And then what are the original sins that the founders committed here is I think that a lot of them didn't have their own discipline about creating the checkpoint and milestones for themselves. They didn't get into a habit of bringing certain investors along for the journey or keeping them updated. But we have a few entrepreneurs over the years who really wanna get better at their updates and metrics and really tune that every month. And we have some where they just don't think it's important and don't think it's important to bring us along for the ride, and then they don't realize it's really hard to socialize it with other people if we're not part of the story. So I think that is a sin that will come home to roost for a lot of founders. What happens now? Can these companies just slow die? I think it's kind of Darwinian, honestly, is if you can't respect the dollars that you've taken and you can't give those people a transparent brief view into what you're doing and allow them to guide you in a polite way, then you're probably not set out for the journey. And I think we've had a lot of people who, on both funds and as founders of companies or hopeful founders of companies, do that, take the money without really thinking about how do I respect the investment that someone made in me. And that manifests in a lot of different ways. Reporting is one way. How many of your companies percentage wise give you company updates? I would say the overwhelming majority, but we talk about that in the diligence investment process. And then we actively try to get them on a cadence, like early part of the month, first of the month thing, because then that triggers a conversation for the month. Right? And some people, frankly, it's impossible to get them to do it. Again, it's okay. It's not, like, required, but then it's hard for us to advocate for you if we're not in the know. **Harry Stebbings** [51:30]: I totally get you, and I agree. I think if you don't send the updates, then you're halved in terms of recommitments for next round. So totally with you. **Semil Shah** [51:37]: That's an example of not respecting the money. Just to put a finer point on it, the sin that certain GPs have made or certain founders have made that I think will cost them now in this new environment is if you didn't respect where the money came from and treat it like a some sort of light partnership, it's gonna be really hard to advance. And that's why I think it's sort of Darwinian, which is the new environment now calls for not only capital efficiency, product led growth, hustle, integrity, grit, all of that. I think it also calls for this as well. **Harry Stebbings** [52:06]: We want you to grow faster than ever and spend less than ever. Very simple rule. Rule of business from the VC. I could speak to you all day, Semil, so I'm gonna move into a quick firearm before I completely kill twenty minute. We should just rename it, like, eighty minute VC. It's ridiculous. That was great. Love the conversation. Yeah. Go for it. Let's start. We've done this many times. What's the new favorite book in why? Any that you've read recently and loved? **Semil Shah** [52:28]: Oh, man. You know what else, Harry? I I shared an article with a lot of people recently that is available on the Internet. So it's an article, but it's about one of the famous game creators on the New Yorker from Nintendo, and it talks about how he grew up in the woods in Japan and saw all these amazing natural things in the wild, and that ended up becoming the landscape in which he painted on for his video games. And I thought that was really interesting because so much of people playing on computers like us or working online, we forget about that. And, like, so so many people are gamers and love gaming as well, more casual gaming. But it's just interesting that this guy's whole inspiration came from being outside. **Harry Stebbings** [53:07]: What worries you most about the venture landscape today? **Semil Shah** [53:10]: The thing that worries me the most is the portfolio of risks that are around us in addition to, like, the lower money supply. I saw Scott Menard, who's the Guggenheim CIO, said that this is the lowest m two since the depression. So there's less cash around and much more risk around. And so it feels like we're just in the early innings of this, like, administration of pain or the game hasn't even really started. So it feels like it will be quite prolonged. How much did **Harry Stebbings** [53:37]: you cut your book back to your LPs in the remarks? **Semil Shah** [53:40]: We're doing that right now. I would say doing that literally in q three for the q three report, Harry, where we have as virtue of our LPA, we obviously have to have a professional third party audit. So we're doing that audit with the firm and remarking the portfolio now. If we had talked two weeks later, I probably could give you, like, a firmer answer. How much do you think they should be remarked? 20305070%? Yeah. I spent a lot of time talking to a variety of LPs and GPs about this. There is no consensus on this. I think I would just bucket it, which is get seed in early where you don't really know yet, even if you have a great series b that you've seeded where it is. You do have to pick some methodology and stick with the number and go, but I don't think I could say this is the right number or not. That being said, let's say you're a growth fund, Meritech, where your entry they're a great fund. Everything they're investing in has product market fit. There are larger checks. They probably need to comp everything they have against public comps to go company by company. And so I think it just really depends what your portfolio mix is like. You have a career in politics, my friend. No. But, mean, it's I'm not trying to give a political answer. It's just like I don't know what it is. Is it 25%? Is it 50%? Is it eighty percent? Fifty. 50. You gotta call me. I think if you and I were in the bar and we would say, oh, you have a three x fund, Semil. What is it now? I'd probably say it's one and a half x one. I don't think that's out of bounds. Who's the most underrated angel in the ecosystem, do you think? Maybe you know him, Charlie Songhurst. **Harry Stebbings** [55:07]: Yeah. **Semil Shah** [55:08]: Love Charlie. I think he has an amazing ability to find interesting entrepreneurs and connect with them very quickly. **Harry Stebbings** [55:14]: I also think Charlie invests in 500 or 800 or a thousand entrepreneurs. Diversification makes picking easier. **Semil Shah** [55:21]: Yes. Yes. But he is a true angel that way. Has he been on your show? **Harry Stebbings** [55:25]: No. I love Charlie dearly. I would love to have him on the show. He's always very coy and shy about it, but I'd love to make it happen. **Semil Shah** [55:31]: And then this is more of a he's a close friend for many years, but I think Scott Belsky, if I were in early stage Oh, Bell. Yeah. That would be **Harry Stebbings** [55:39]: my top pick. Love Belsky and Fidel, actually. Tony Fidel's fantastic. Yeah. Don't understand that. What's been the single hardest moment of the Haystack journey, my friend? **Semil Shah** [55:48]: I think the first four fundraises were really hard because it just were continuous. I think in those first four, I only took, like, six months off, and I was too naive to know, like, the angel of syndicates were enough. There wasn't this rush of people, and it was the only real option I really had. That's probably been the toughest part where finally in Fund V got over that hurdle. **Harry Stebbings** [56:09]: Did you doubt that you'd be able to do it every fund? **Semil Shah** [56:12]: Oh, I still think that way. I still am paranoid about being able to raise capital and deploy it well every day. **Harry Stebbings** [56:17]: What's been your single biggest return? **Semil Shah** [56:20]: Just in terms of pure gross volume. Yeah. Gross cashback. It's in Filecoin. Wow. You know? You share the multiple? I don't know what the exact multiple is because it fluctuated a lot, but I can give you some of the I honestly don't know the multiple because there were like so many sales, but essentially met the founders when they were in YC. Remember meeting him, asking for a couple of meetings. He's obviously brilliant. I didn't understand everything he was doing. I had some friends come investing, so we invested 50 k at the 8,000,000 cap or something that he didn't raise for a while. And then USB and I think Blue Yard invested, I think, million dollars total in the small seed round. And then in 2017, I think there was the ICO. So they had raised it's public. All of this is public, like a 150 plus million in the IPO. And then they went on a journey to build their product. As part of that, we got tokens as part of being equity investors. So all the equity investors got tokens. And then basically in the first year of the pandemic, when they were about to release, they, like, completely shot up. And so a lot of equity token holders were able to every month sell those tokens because we had such a huge position. We would sell the max every month for months to go. Now the price of that has gone down. I mean, the return would have been absolutely insane, but it was still been probably the most accretive thing. How much were you able to stake out? I have to look at the number, but I wanna say it's over 10. It's pretty good for a 50 k check. That is that's tasty, my friend. It was a $3,000,000 fund. Well, I don't know the exact numbers, but it was pretty asymmetric. Probably the other one is HashiCorp, where we invested in the first round and that was just a huge win. That was a 50 k check? 25. **Harry Stebbings** [58:03]: 25. Yeah. What did that turn into? **Semil Shah** [58:05]: Well, we distributed the shares right at lockup. That's when the market crashed, but I also felt we weren't trying to juice our numbers at that point. I think it was, like, the 25 k turned into something like $3,035,000,000 bucks. **Harry Stebbings** [58:16]: Woah. How big was the fund? **Semil Shah** [58:19]: A million. What? That is insane. Yeah. That fund had Instacart, DoorDash, HashiCorp, and it still has $2,000,000,000 companies that are still growing in there. So it's crazy. What's that fund mark at, do you think? Somewhere between 30 and 40 something. No one cares because the base is super small and you get lucky. And then as the fund size get bigger, the multiples will go down, right, unless you hit something. I think it's like going back to the jet fuel comment. That was a jet fuel to get off the runway. But in a way, the people I talked to today, they don't really care about that today. It's like, what are gonna do tomorrow? Tell me, my friend, what's the miss, and how did it change your mindset? The biggest miss was OpenSea. I had known Nick Tomano for a long time. Like, helped him raise some of his fund and introduce him to tons of LPs because I thought Nick was doing a fabulous job. He's the opposite of a tourist in crypto Because we were so helpful, he would send all the deals he was doing to us, and he sent us OpendSea three times. Now I don't know if OpendSea will end up who knows what it'll be. Right? But for a period of time, I had spent time with Devin. I had looked at the numbers. I didn't understand. I just thought it was about gaming. We didn't talk about NFTs earlier, and it was just sitting right in front of me, like, why is this working? I think the last round I looked at was, like, a 28 post extension. And because I didn't understand it, I just let it go rather than just looking at what was working. **Harry Stebbings** [59:39]: I think we can overthink things. Sometimes you don't need to understand it. Just go where it's working. Our customers are using and loving. **Semil Shah** [59:47]: Of course, this was during my fund four vintage, which was littered with mistakes. So there were make mistakes of commission that I mentioned, and this was a mistake of omission. **Harry Stebbings** [59:55]: I didn't have any sympathy for you after hearing about Filecoin and HashiCorp. **Semil Shah** [59:59]: There is zero sympathy. That is You know what's funny though is, like, athletes on the field, I end up, and I'm sure you do too, we end up thinking more about that than HashiCorp. **Harry Stebbings** [60:08]: 100%. I think we should. Yeah. I know. I mean, I lost money early this year for the first time, and I told one of my LPs, I was like, it should hurt. It really does. If it ever becomes okay to lose money or to miss something, you need to wise up. Again, yeah, that goes back to my respect for the dollar. Penultimate one, my friend. **Semil Shah** [60:25]: What's the best investment advice you've received? Paul Martino, DGD, do good deals. I think the business is that simple, and I think we can complicate it with all sorts of different things, but it all comes down to that. **Harry Stebbings** [60:37]: And that came from Martino. From Martino. I love pool. The man is obsessed with poker. Every time he's in London, it's like, what are you saying? The w near the casino? That's where I got these chips, **Semil Shah** [60:47]: Harry. I love that. All Martino. And so I made these poker chips for shares that we get in companies through acquisitions. So this one, this company where I passed on the seed round in a friend, that was gonna be a huge mistake, but we ended up getting can you see that? What is it? Rubric. Rubric. And then there was in Fund I, we had an acquisition to Datadog, and then this is one of my favorites. We own shares in WeWork, but not at the 40,000,000,000 price. But I created the poker chips through Martino to show, like, **Harry Stebbings** [61:14]: how random the business can be. Tell me, my friend, final one. What was the most recent publicly announced investment, and why did you get so excited? Wow. We haven't been a part of publicly **Semil Shah** [61:22]: announced ones recently. I think oh, in part security, which is a a team that left signal sciences that was doing a new way of collaboration across security teams, and we like this idea of collaboration. But, again, it was a bet on the people. Right? And so they may take it in a different direction, but we just thought they had a mastery of product. They weren't trying to raise too much money. They were the entrepreneurs we like to work with, which is they use us for very specific advice, and then they sort of move accordingly, and they reference really well. So we're really excited about that category overall and just working with the in park team. **Harry Stebbings** [61:54]: Semil, I love you. I love this. This was so much fun. Oh, thank you so much. Putting up with my waywardness, but you're a hero, my friend. Alright. **Semil Shah** [62:03]: Well, I hope you enjoyed it. **Harry Stebbings** [62:04]: I did **Semil Shah** [62:04]: as well. **Harry Stebbings** [62:06]: What I hear, that was so much fun, Steve. If you wanna see more from us, you can check out our YouTube channel by searching twenty VC. You can go to 20vc.com to see more. But before we leave you today, ## Sponsor read **Harry Stebbings** [62:17]: Harvard management company is constantly seeking out the next generation of great investors and entrepreneurs. 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