Why Small Funds Outperform Large Funds & AUM is a Vanity Metric

for having me, man. Yeah. It’s fun to have dug into the chats to see when we first connected. It was January 2016. I called outbound messaging you on Facebook Messenger, which we realized, which is hilarious. And it’s amazing to see what where you’ve come since then.

One is actually a piece of advice one of my partners at Shasta gave me pretty early on, like probably in the first couple months, which is don’t look at the title on your business card, which at the time was associate at Shasta Ventures. Just think about yourself as a venture capitalist and do as venture capitalists do, which is find, win, help, and exit. So the five components of our day to day job and venture. And that advice, I think, was really profound.

It sort of unleashed me, and it’s the advice I give young people at Venture Today, which is, again, don’t look at your title, don’t think about exactly what the role is, just think about yourself as a VC, and I think you’ll be better off for that. And then the second one that came to mind is exceptional companies deserve exceptions.

And it’s a mantra that I’ve tried to always have in my venture career, which is, yes, you have this model of how you wanna invest, this dream idea of portfolio construction and the profile of company that you’re looking for, But it’s so often the ones that you consider an exception for, the ones that just blow you away, that feel like outliers, that end up being the ones. And so I’ve always tried to have that in the back of my head, which is at the end of the day, all of what we’re doing in our job is searching for the outliers and the truly exceptional companies.

I think it’s case

case dependent. And there are so many folks who’ve grown up in the industry to become incredible investors, who started off at the bottom of the ladder at a firm. And so you just don’t know who those people will be. And you’re better off as a founder judging based on the actual conversation you have, which sometimes may be a lot better with the youngest person on the team versus the managing partner of the firm. I always give people a chance, whether it’s the founders who come in through not that warm of an introduction or purely cold.

I always try to review what they’re saying, and I’ll quickly write an email back saying, not interested, comma, thanks, if it truly is not a fit. But I’ve always kept that mentality. And I started at Insight Partners in New York, where I was bottom of the ladder as a summer intern and then an analyst. And so I obviously have bias on this dimension, but I do think that there are people who are really young in our business who are really thoughtful, and that a conversation with them might actually lead to some learning for you as a founder, and it may even lead to an investment, as it’s done for me several times in my career on the venture side.

The Canva investment for us at Shasta was an exception on so many different dimensions. And so it’s obviously the one that stands out out for me personally. You know, the company was based in Sydney, Australia. It was raising a convertible note at a $25,000,000 valuation cap. It had no revenue yet. It had a bunch of early signs of product market fit, actually, like several 100,000 monthly active users of Canva who were using the product really aggressively. It was growing 30 to 40% every month, but it broke a lot of the traditional rules.

And so we thankfully decided to make that investment, But there were all sorts of reasons to let it go.

mean, just for

They were not married then.

when you dug beneath the surface on what was actually happening in people using the product, you could see what I just described, which is, wow, there’s a 100,000 people using this every month who are creating three to 400,000 designs on Canva every month. Those folks it was about six months in after the product had launched, and you could see that those folks that cohort retention in the first six cohorts looked very strong. It looked like it was flatlining of creators who just were using Canva on a very regular basis to to design things.

It was also fragmented usage. It wasn’t just Facebook posts and infographics and social media content. It was also pitch decks. It was also posters. It was a lot of different types of media, and it was growing completely organically. The SEO thing hadn’t yet been figured out, but it was still just growing through word-of-mouth from people using Canva, posting Canvas out in the wild, and other people discovering Canva as a result. And so all of those characteristics gave it some early signs of product market fit. And if you only stared at that, you could see that there was something really special here.

And if you put away the noise of everything you just described, I think what you would have seen is a really interesting product that has strongly signs of product market fit.

very biased here because at Footwork, we’re still investing our first fund. It’s a $175,000,000 fund. And my firm belief in my bones is that small funds outperform bigger funds. It is incredibly difficult to have a five x net return on a billion dollar plus fund. I think there’s incredibly few of those funds in the history of venture.

That’s six x gross, not net of carried interest and fees that LPs pay. And so five x actually net is a high threshold than that.

It’s, you know, at least one Canva in that size fund. With 10%. With 10% ownership. Right. That’s high. And it’s every fund. You need that on a two year cycle. Exactly. And there’s so so few companies that get to that stage. And so when you do that math, it just makes sense to me that small funds are gonna outperform big funds on average. But do you

then people have made decisions and taken actions that would suggest that they don’t believe in it. Right? If the purpose of what you’re trying to achieve as a venture capitalist is maximizing returns, therefore, of maximizing carried interest Well, there’s a

100%. And that’s part of the issue, I think, which is if there was true alignment, it would be about maximizing the multiple. And that’s certainly how we think about it at Footwork.

I think a handful will, and I think there’ll be a very smart handful that will, but it’s a really difficult and painful decision to do that.

Yes. Although, I would say most venture firms have plenty of fees to cover the team and more, especially at that fund size scale. But more than that, I think there’s this narrative in the industry, right, about how big your fund size is and how much AUM you have. And so it’s really hard to go from even a brand and reputation standpoint in the market from, you know, having a $2,000,000,000 fund to having a $400,000,000 fund. And the handful of firms that have actually made that type of decision historically, I think some of them have been really better off for it.

It is certainly a challenge, and it’s something I think all of us have faced against the big multistage firms with billion dollar plus funds. What I’ll say about that and what I try to explain to founders is I think that that’s actually a misalignment between founders and these types of investors, which is oftentimes in the founder’s best interest is actually taking less money, being more constrained in the early days to find product market fit as we were talking about earlier, given just how big of a inflection that is.

I mean, how many times have you seen a big early stage financing yield to nothing for the founders, nothing for the company? I just think there’s very few of those rounds that actually have worked historically. I think I’m gonna get in

We and we don’t do those types of rounds. And we’re not set up to do those types of rounds. So actually, in a strange way, I really like the constraint of our fund size. I actually think it forces us to make better decisions. Mhmm. And I think there’s a laziness and a lack of great decision making that can come from having a bigger fund in the same way that it can come from having too much capital in the early days as a company.

The variables that would go into my thinking are the firm, the partner, etcetera, sort of the match of that to the type of business, and the capital match to the type of business. Because there are some companies that actually do need more capital in the early days, and that will benefit from that. But, of course, based on Footwork being a stage specialist firm at early stage, we only lead early stage rounds. We only lead and we only do early stage. I have a bias towards the stage specialists.

I think it’s very hard. That’s why more often than not, the the companies that we invest in are not the star studded team with that type of round. It’s a team that looks a bit more like a mellencliff at Canva, but that has a product that’s already out in the market that already has some early signs that it’s working, something that’s resonating with customers. And so it’s typically not in a really hot area like AI at the moment, and it’s typically not from a really hot star studded team.

Yeah. I think so.

we don’t think the foundational model investments, for example, that are raising hundreds of millions of dollars in a seed, make any sense. They they don’t make sense for sure for our firm, but we don’t think they actually make much sense for the the big funds either. I mean, the money is going to fund CapEx to to Nvidia h one hundreds. It’s going straight out the door in many cases. I don’t get it. And so I’d I’d love for you to have a bunch of those folks on your on your show.

I think they declined.

product market fit somewhere to deserve to exist for a longer period of time. And I think there’s a lot of companies that are just having, you know, really honest, hard conversations around this right now, or at least there should be. Because the runway doesn’t matter unless it leads to a takeoff or landing. And, of course, ideally, a takeoff in in start up land. The other thing is momentum and winning for companies, as I’m sure you’ve seen, is everything. Like, if you do not have that, it is really hard to have a great culture at a company.

It’s really hard to hire the best people. It’s hard to do your best work yourself as a founder, and so you just have to have that at some level.

Yeah. It’s kind of the conversation that we are just having, which is, do you wanna feel like you’re winning? Do you wanna feel like you have momentum? Because that’s what we want you to feel. And invariably, the answer is, yes, we we wanna feel that way too. And so the question is, like, are we banging our head against the wall at the same thing for too long? Should we move on if so? We can move on and and keep the capital. But at some level, I think you have to have that type of conversation.

I think it can be if you’re having the right types of honest, transparent conversations around it. And if you’re seeing that the team is iterating and experimenting around something, and moving quickly around something, it’s okay to throw eight different ideas at the wall in an experiment of phase when you realize the thing you have that you thought was gonna work is not working. I think it’s not okay to not be operating with a sense of urgency and to not be able to have transparent conversations around it.

Those are the two things that I would try to suss out and judge.

I’ve always been traction, early signs of product market fit first investor, then people, and then market. And so That’s really interesting. I would

Yeah.

Yeah.

I remember having a chat with Keith Raboy about this, where he was just like, look, I I just look for sort of founder plus keynote. That’s my stage. Founder plus presentation plus idea. And I was like, Keith, that I could never do that. I’ve made very few of any investments like that because I like to see the early sparks of something working. And I’m willing to take more risk on the market than I think other investors. And so I’m happy to unpack that if that’s

Yeah. So it’s certainly not necessarily revenue. Right? As I mentioned with Canva, there was no monetization. It is those early signals that you’ve built something that people love using. And so that can come in the form of, you know, high frequency of usage or high repeat usage or high retention. Retention even on a really small base of users. It can come from word-of-mouth growth even on a small base. It can come from just anecdotes, like, could not possibly live without this now that I’ve tried it from customers.

Absolutely. Product reviews in in general.

I mean, you can literally Google and learn a ton about what’s happening to a product in the wild without ever speaking to the company, and we always try to do that. And so The

at Footwork, we only lead rounds. We only do early stage. We lead seeds and a’s. So we’ve made 11 investments so far. We’ve done five series a’s and six seeds. I think our average initial check’s about 4,500,000, and the range has been 2 to 9,000,000. We’ve done later Seeds and earlier A’s precisely because we love this stage that I’m talking about, where there is a little something that’s working, where the founders can articulate why and have a bunch of unique insights, and where the why now is strong, and where they have a big vision for what it can become.

But there may be some level of market risk. You know, it may not be clear how big it can become. I wrote recently, this is the question that keeps me up the most, like how big can this company be? Can Can it be one of the ones?

Well, so couple things. One, this is precisely why I underweight market. Does that make sense? Like, I weight market third on the three that you asked me about because I just think it’s the hardest one to assess and predict for myself. And I think when you look at the investments you just described and some of the very great ones, that was true for those investors as well. You can imagine and dream the dream that the product market fit that this company has, the team that’s building it, can expand the market beyond your wildest dreams, can actually create a whole new market.

Those are oftentimes the most special companies. My thinking around this, it comes back to, well, this is exactly why I underweight market in the analysis.

The first thing that comes to mind though, Harry, is there’s this difference between the ability to fundraise and the ability to build a business. Yeah. I have been sucked in and seduced by founders that can tell a great story, that are great in a handful of one hour sessions and in person for the first time, who feel like they’re magnets for talent, who know their business inside now, it seems, and who are great at fundraising, and so attract multiple term sheets.

And what I’ve seen happen a handful of times is that they are not good at the fundamentals of building the product and building the team, actually finding product market fit or growing the product market fit that we thought that they had, and that there’s that huge difference between fundraising and business building. And I think that’s showing up all over the place right now. Right? Like, there were so many companies that were able to fundraise in 2021 that now don’t have p and l’s and fundamentals that to show for the vision that they told.

Yeah. It’s not like that is a necessary precondition to failure by any means. But I think it’s been a failure mode for me.

Yeah. For sure. Like, just how much substance is there really beneath the surface? How much does this founder actually care? How much they really understand? There’s a bunch of questions that I try to ask to suss these things out.

Yeah. So oftentimes, if I’m really digging in and really excited about something, I’ll I’ll say something like, hey, let’s just pretend that this is our first board meeting right now, that we just invested in the company. What’s the main challenge topic or discussion topic that you wanna have in our first board meeting right now. The spirit of that question is just assessing, like, are they clear eyed in their thinking right now about what’s happening in the business, and can they articulate that? You know, usually, you want what they say to be the most important thing that’s also on your mind to prioritize and figure out in this phase, and you want some level of transparency and vulnerability around the answer.

But I find that that question and the answer you get tells you me quite a bit.

with what I’ve seen as well. Again, that ability to be confident in what is actually working, but also confident in what’s not working yet and clear eyed and self aware about it is I think a characteristic of many of the great ones.

I think there’s certainly some truth to it. I think there’s an insecurity that comes from not yet having delivered in distributions many, many multiples of what I’ve invested. And an insecurity that comes from having started a firm that has so much to prove, everything to prove, an anxiousness that they’ll have until, you know, we’ve many times over returned our first fund. But I also think that who I am more than I’ve ever known. I’m able to authentically be myself. I think I’ve sort of been able to find my voice as a writer over the last three, four years of trying to do the newsletter.

And so my hope is that Footwork is an embodiment of sort of who my partner Mike and I are, and that we express ourselves fully, authentically through the investments we make and how we conduct ourselves as a firm.

two that come to mind. The first is I’ve just always loved those first meetings with founders. I live for the couple every year that just blow me away and that suck me in. I’ve had a bunch of those now in my career, but I just love that. As a venture investor, you have to love that thrill. At least I I believe in my Do you find with those great ones, it’s immediately obvious that it’s great? Oh, I’ve gone back and forth so much on this. Right?

Because it it’s this is what decision yeah. This is what decision making and judgment’s all about. I do think consistent thing for me is and I’ve gone back to try to study this. If I’m thinking about it that evening, if I’m reaching out to people to sort of suss it out better, I’m just researching on my own about it, you know, hours after the the first meeting, there’s something there that I should pay attention to. And conversely, if I haven’t done anything about it two days later, that’s probably not a fit.

Maybe it goes on to be really special, but I actually haven’t had that many of those where I didn’t really think anything of it. I didn’t follow-up on any interest in it after a couple days, and it turned out to be a massive company. And so I certainly reflect a lot on on that. Do you and Mike have to agree to get a deal done? We don’t. One of us has to absolutely love the company. The other can like it, not love it, or dislike it.

The other can’t hate it. If you think about the one through four voting scale, where one is strongly unsupportive and four is strongly supportive, three is supportive and and two is unsupportive, one of us has to be a four. One of us has to be strongly supportive to make an investment. Sure. The other cannot be a one, strongly unsupportive.

I believe that there can be a place in the middle. So for example, I’ve rarely been a one on anything in my venture career. But where I have been, I felt like there’s actual downside risk to the firm potentially with making this investment, or there’s just something really off about it. And therefore, I feel very strongly we shouldn’t do it. But I’ve disliked a lot of companies. I’ve been a two on a lot of stuff where others have been fours, where I’m really glad that we did it.

And, conversely, I’ve been very glad for myself that I’ve been a four and strongly supportive, and other folks have been a two because they didn’t think it made sense, but they didn’t hate it so much they wanted to block it or say we that there’s no way we should do it. So that’s the way I think about it. I think you have to be intellectually honest, obviously, about

that

Yeah. I think because of my bias towards companies that have some signs that they’re working, some early signs of product market fit, The ones that most stand out there are ones that didn’t have that, where at Shasta, for example, we made a decision to invest in something that was preproduct, but that actually turned out to work. Probably the other ones sort of that I can think of off the top of my head is ones where we stretch on price to do it. I liked it, didn’t love it, but then I didn’t like the price.

And so I was net net it out as a two.

Yeah. For Mike and me, it is very easy for us to disagree, but very seriously commit. Every investment that we make at Footwork so obviously a a Footwork investment. We actually don’t even do attribution at the firm. We’ve never talked about which are Mike’s investments versus my investments. We’ve done some kind of crazy and wacky things. I

Well, look, we actually, for the first year after we invest, both go to all the board meetings together. We both do the work. We have joint

That that’s why I was about to say it is weird and and wacky and nontraditional, and of course, it doesn’t scale. But it’s been really important for us in the first couple years of building the firm to operate in this way because we think that’s the purest form of teamwork. Like, venture firm talks about we work as a team. But very few, I think, actually show up as a team, and we’ve tried to do that from the earliest days.

Both of us being on the text threads with all of our founders and both of us showing up to those board meetings in year one is reflective of that commitment to actually work together because we think we have complementary skills that founders can benefit from that, and we really don’t want to think about any of the decisions we make as individual decisions.

Look, there are partnerships where decisions are made based on the ability of individuals to sell internally. There’s some folks that are just naturally more gifted to sell the deal to their partners, and there’s political points back and forth on the voting system. That’s a terrible way to make decisions. I think there’s a lot of stuff that can bleed out from that that selling process. I think also in general, it’s sort of intellectual dishonesty that unfortunately a lot of partnerships have. Those are the things that I would cite that lead to the dysfunction.

I come back to the mantra, which is exceptional companies deserve exceptions. So our entire job is to find the companies that are outliers and to invest in those companies. If you really believe in your bones that something’s an outlier, you should be trying to make that investment. I think it’s as simple as that.

Three things that we thought about when we raised our first fund, and we actually ranked LPs based on these three dimensions. And they were, one, what’s just the quality of the relationship with the people? We really tried to prioritize people who we built relationships with, who we really liked as humans. Second, we thought a lot about, are these people who have seen what world class looks like, and will they push us to be world class? And third, we thought about the mission values of the institutions themselves, and whether they were institutions that we are really excited to make money for and be partners with.

And so those were the three dimensions that we prioritized. We assigned, like, a one through five rank on each of those. And then at a macro level, we were really lucky in our first fund. We had about 450,000,000 of commitments for a $150,000,000 fund, and we ended up raising a 175,000,000. And but what we thought about as we were constructing the full LP base was just having a little bit of diversity across both check size and type of LP. And so we wanted a nice mix of LPs where there were a few at the 20 to $30,000,000 level out of one seventy five, a bunch at sort of the 10 to $20,000,000 level, a bunch at the 5 to $10,000,000 level.

So Twenty to thirty five

We

more than 20% of our fund. Mhmm. We don’t want one, two, three LPs having the majority of our fund and having therefore outsized control in our thinking or decision making in some way.

diversity, and I think we have about 15 institutional LPs. We have six university endowments, three other foundations. So we’re a little bit weighted towards endowments and foundations, but we have a bunch of fund of funds, and we have a couple family offices as well. And so we like that mix because while the endowments are great names and they are long term oriented, there’s still some level of risk of having an entire endowment based LP base because they may all have the same denominator effect issues at the same time.

They also perhaps tend to be more aligned in what they care about. And so we, in general, like the diversity, and that’s what we prioritized.

Yeah. Look, I think that there’s, especially in a first fund, there’s a handful of LPs around the world, at least that I know of and have met, who are truly independent thinking, who will truly raise their hand and say, we’re willing to do a first time fund, and we’re willing to be the first commitment or the first big commitment. That group of LPs is very small. It’s probably 10 LPs, 15. Our biggest LPs are not LPs in my private firm. They took a chance without having known Mike and me for a very long period of time.

We have a bunch that are LPs from my private firm, but not interestingly the very largest ones.

Well, what we tried to do is we had a bunch of our friends who’s proactively said to us, wanna commit to invest in the firm. And we went out to a broad group of LPs at the beginning of the first wave, a sort of set of friendly conversations to get feedback on our story, to practice. And we had one institution that we’ve known for a long time who said we’d love to do it. They didn’t actually say what the check size would be, it ended up being a small check.

But it’s really impactful to have one institution that’s known you for a while, that’s a well known institution, say yes. And then we did try to prioritize the larger institutions, the sort of group of 10 to 15 that I referenced, that would do a larger check-in a first time fund. Because that’s a small n, that’s the right group to see if we can get anyone to do it out of.

Yeah.

We we had two slides in our fun one fundraising deck, which actually we barely got to present. We only had it properly designed in February 2021, and by then we already had the whole fund committed. But in that deck, the last two slides, one board members that we’ve served alongside, both Mike and me, people who we’ve literally been in the boardroom with. That was a subtle way to say like, here’s all the people you can call as references, and you probably know a bunch of these people.

And then the next slide after that was, here are all the people who’ve inbound said that they wanna invest in the fund. And that was a bunch of founders that we worked with, a bunch of GPs that we worked with other firms. Honestly, we we never asked any of those folks or or any individuals if they wanted to invest in Footwork. We just let them say that they wanted to invest. And when they did, we put them on that on that slide, again, as a way to just have a very easy way to reference us for LPs.

I actually haven’t asked our LPs who ended up seeing that deck if those two pages resonated, but I suspect that they did.

There’s a difference in hunger and energy and drive that some managers have that others don’t. It’s sort of what we look for in the companies that we invest in. You know, of course, if it’s a manager like you, for example, that really has a unique spin, a unique story and is an n of one on different dimensions, it’s sort of easy to see that because you can put it on a page It’s tangible. You can touch it as well. Yeah. Exactly. It’s like, oh, it’s sector focused in this area and I believe in that area.

Great. It’s like super easy to check the boxes on some some funds like that. And don’t get me wrong, there’s incredible funds that are like that. Right? But I think a lot of this business is the human side. I don’t think that that’s gonna change. Assessing a person, individual GP’s real commitment to doing this, their level of driving hunger, their ability, of course, to improve themselves and learn, their ability to source and make investment decisions and to win and and help companies, it’s actually hard to get to the bottom of that, just as it is hard to get to the bottom of how great a founder is for us in in our jobs as VCs.

And so you think LPs don’t do that well? I don’t think that they spend enough cycles on it, but I actually think some of the great ones do. And of course, I’m biased here. You know, we had LPs who did thirty, forty references that we heard about on on us each. You know, we were heavily scrutinized on us as people because so much of our strategy is really just about Mike and me and our ability to make decisions in the partnership that we have. That’s where we found LP GP fit with our LPs, is the folks who really dug in on us as people and how we make decisions.

My worst right now that I feel is on the sourcing side. You know, I think when you’re a duo investing at CNA as a generalist firm, it’s impossible to see everything you wanna see. And I think it’s hard to when you have started a firm, you have other responsibilities to be able to purely focus on sourcing companies. We do calendar audits, and Catherine and Rachel, who are our operations folks at Footwork, actually send both Mike and me every week. What does our calendar audit look like for this week that’s just passed, and what does it look like for the upcoming week?

And the single metric that we’re focused on there is, are we spending more than 50% of our time on meeting new companies and sourcing new investments? I firmly believe you have to spend the majority of your time on those things to be able to find the next great one. And the beauty of our business is the next one can be the one. Right? The next one can be the one that changes everything and the trajectory of the firm.

Look, I think there’s a handful of firms that have done it well, but every firm getting ahead of talent and Well, this is sort of If

And it’s a muscle that the great companies build themselves. Yeah. Again, I I do think there are a handful of firms that have platform offerings that have moved the needle. But most of those platform offerings are about scaling the firm themselves versus about actually scaling companies and really helping companies get to the next level.

biggest hit, at least as I can best predict it, is not Canva. On a dollar gains perspective and on an IRR basis as well, it’s a company called The Farmer’s Dog, which is in the pet food space. A subscription service for fresh pet food. It’s doing fabulously well. Two things. First, that some of the best businesses are incredibly simple. They’re simple to understand. They’re actually simple to build, but they’re based on unique insights. I think that that’s gonna be the story of The Farmer’s Dog once the story fully fully gets out.

And the second is the pet category is a fabulous category. There are some markets where the tailwinds are just so strong in multiple different ways that there’s a lot of opportunity for incredible enterprise value, and I think that that’s the case for The Farmer’s Dog.

What about a miss, and what did you learn from that? The first one that comes to mind that I’ve reflected on a few times over the last year is Figma. You know, I spent time with Dylan Field in the very early days. I was actually one of the early interviewers for the Thiel Fellowship program, which she was in. And I remember going on walks with him in Palo Alto, and a little bit like you, actually, he was mature for his age. Now I’m just trying to think back to our first meetings in San Francisco and London.

Dylan was really mature in a bunch of different ways. Like, the way he was thinking about the need for perfecting the product before getting it it out there, the opportunity to go after sketch and others that were in that market already, but also just on life related stuff. Like, I remember asking him asking me about my relationship with my then girlfriend, now wife, and just how we make decisions together, and how how we communicate, and what’s good about our communication, what’s poor in our communication, all sorts of stuff like that where I he was about 20 years old at the time, maybe even younger than that.

I don’t think I’ve still seen anyone at that age be able to think about those things in sort of work and personal life at the level that he was thinking about. I’ve reflected on that a bunch of times because I wish I could have been in both Canva and Figma. Why did you not? This comes back to my bias around wanting to see some early signs of product market fit before investing, and Figma did not have a launched product before its first couple venture rounds. So I give the folks that did those rounds, think John Lilly, Greylock, and Danny Reimer at Index, if I’m not mistaken, I give them a ton of credit.

They saw the specialness, I think, in Dylan and in that market opportunity. And were willing to wait. Because there were a couple of years where I was like, once he has to release something. They were willing to do it and then be patient enough. And I think there are multiple rounds. I think I talked to John Lilly Greylock about this. Multiple rounds that that John was involved in before the product even launched, which is incredible. Hats off to Dylan. Hats off to those early backers.

Well, first I would say, you think you have a bunch of control over your life, and you kinda do have a bunch of control over your life right now. But tomorrow, you suddenly are not gonna have a bunch of control over your life. All these things are gonna be out of your control as a parent. You can’t control exactly who your kid is. You can’t control how they’re gonna behave in certain places and dimensions of life. You think you have the perfect childcare set up, but stuff’s gonna go wrong.

You’re gonna have to keep adjusting your schedule. And so you have to embrace the lack of control and the surprise that is gonna come from all of this experience. The joy of parenthood is in the randomness and surprises of it. And so it’s still something that I’m comprehending, but challenging to you. You’re

Absolutely. And yet it’s an incredible gift too. You know, we all get to live this life once, and so having that has been one of the the great joys of having a kid. How does it change your relationship with your wife? Yeah. It certainly makes things harder on a bunch of dimensions. The the cliche thing that people say, which is you you just have less time for each other, is absolutely true. But I also think it it gives us purpose. Like, we have this unified person who we’re thinking about and co parenting and co working on.

It’s also strengthened our partnership in a lot of different ways. It’s given clarity to kinda what matters.

It does in the sense that my time obviously matters more than ever, and that’s only gonna continue being the case in my life. And so I have to believe in my bones when we make an investment decision, this is something I really wanna spend time on. It perhaps used to be much more just about the capital and the economics, and now it’s about that and time, because time is such a precious commodity.

I think I was 32 when we had our daughter Shreya, and I got a lot done in my twenties. Can you work

No. And I believe the answer is no. It it has not been the case for me. I want to preserve that window, for example, from 05:30 to 07:30PM every day, every day that I can, because that’s a really special window to do dinnertime, bath, bedtime. I also spend time with her in the mornings because my wife works starting pretty early East Coast hours. I’m typically the one who takes our daughter to Montessori in the mornings. It just means that I have to spend my 07:30 to 10PM window working every day.

That’s the only way I found to be able to make up for some of those lost hours on work. Now the flip side is I think I have to be present in those windows with her, so I hope that it does something better for my brain when I’m actually focusing on work, that I can be slightly more efficient. But I was also pretty efficient before. So

overall, I am less productive.

AI is being a very, very interesting category to I honestly don’t know if there’s great AI first opportunities for us at Footwork to invest in, and that’s because of just the insane hype cycle around it at the moment. We over rotated once again very, very quickly towards excitement here. But as I’ve thought through the venture investments here, I don’t think that there’s a lot of AI first, AI enabled companies that are gonna be for us in this phase. And yet I do believe Because they’re too expensive.

Too expensive. And there’s just so much competitive noise. And there’s also so much that, for example, in the large language model world, that the LLMs themselves will serve as a use case versus an application layer on top of those LLMs. You know, I’ve heard there are several companies now that have grown rapidly in ARR and have now started declining in ARR ARR as retention actually starts to affect these businesses. Because there’s churn from folks who just try out products built on top of these LLMs because they’re interested in the novelty of them, but then churn away.

And there’s also just the reality that as ChatGPT itself gets better than leveraging GPT four and other models, as an example, it serves those use cases that some of the application layers on top of ChatGPT and GPT four

People talking about AUM as a metric. I think AUM is the stupidest thing to talk about as a venture firm. Because back to what we were talking about earlier, small funds outperform larger funds. You really shouldn’t be talking about how much capital you’ve raised. I’m okay with people talking about how much capital they’ve returned and how much enterprise value they’ve created. I just think talking about the aggregate size of all the funds that you’ve raised is a complete vanity metric.

think dollars returned, that’s the thing that matters the most.

our pro rata in companies that quickly raised another round at a huge step up from where we first invested. Because fundamentally, there was very little de risked. And we saw this happen where a company had raised a series a from us, and two months later, they did a series this is a real example. Two months later, they did a series b at a seven x six to seven x markup. And we did our full pro rata, And that becomes a very big position for you without that much being derisked from the initial round.

And that then Do do now? We do. Yeah. Why? A couple things. One is, obviously, there’s gonna be some cases where an entrepreneur’s gonna need a little bit of extra support to get to the next round. You know, of course, some of those may not be the right decision to make, but some of those I I do think will be. The other thing is that I think in a world where bridges that lead anyone? I’ve had a couple in my career. Yeah. But I think the other reason is, especially as a newer firm, you wanna be able to say that we can support the company in that next round.

I do think there’s validity to that in especially today’s market where capital isn’t as free, where folks are leading the next round, maybe looking at whether the insiders are gonna do their pro rata or not as a signal. And so we like to do our pro rata on the next round following ours, and then we pay back. If you think about our total fund, our total fund size is about 175,000,000. Right? We think we’ll make about 20 investments out of that fund, average check of 4 to $5,000,000.

So let’s call it sort of 80 to $100,000,000 on initial investments, and the rest is for follow I see you’re, like, 30 to 40 for follow on. That’s right. So it’s still and hopefully, we have recycling as well, but it’s still weighted towards initial checks, but we do think there’s value in having a little bit reserved.

Yeah.

we started off this particular conversation, which is the decisions that I regret in that twenty twenty to twenty two era were those pro rata decisions, and I think we’ve gotta be a lot more disciplined on those moving forward. Which less well known firm do you most respect? I’ll name two. USV doesn’t get the credit that it deserves. It should be in that pantheon of greatness that sort of Sequoia and Benchmark are typically put in. Do know it’s just being on the East Coast? I think so.

And and I think it’s because I don’t know if I forget, for example, when Coinbase went public, every investor was on CNBC or wrote a blog post about it, whether they were on the board or, you know, just a tiny investor in the company or whatever relationship they They using Exactly. And yet you heard absolutely nothing from Fred Wilson on that day. Absolutely nothing from USB on that day.

the guy who writes a daily blog, from the the person in the firm that led the series A Round, you heard absolutely nothing. And I was just floored by that, and I I just loved it. And so I just respect the hell out of those guys. And I do think they are one of the most collaborative and team based firms, if not the most out there, which is as you know, a north star for Mike and me at Footwork. I’ll say another that that I think is less well known, which is IA Ventures.

I was gonna say IA. Yeah. Jesse Bearudi, who’s one of the two GPs now with Brad at IA, was a fellow intern with me at Insight. And so we’ve known each other since we were 20 years old, And he’s just incredibly thoughtful. And the thing I love about them is very few people know about them, they do very little on the external brand front, but they have crushed it. And I think they know what they are good at. They know what is their type of deal as well.

Yes. They know I that think you know, Yeah. They they know their taste, and they have great taste. And they’ve kept disciplined on everything. And as you know, they have done fabulously well from a return standpoint.

Exactly. Exactly. And you could see the data, I think,

I’ll put one that I miss right now working with, which is Vasantharajan at Excel. Vas and I were also at Insight together in the summer of twenty ten. He left soon thereafter to join Excel, so he’s been there, I think, for about twelve, thirteen years now. He led the seed round in frame.io. We did the Series A with them at Shasta, and so I got to work with Vas and Founder Emery and the team there. You know, I picked Vas because I think he’s not that well known, but he’s got a great portfolio.

Frame.io was acquired by Adobe for for $1,300,000,000 a couple years ago. Segment was another one that that he did. But as a board member, he just asks really thoughtful questions. He sticks to just what’s most important to prioritize as company. And in my peer group and sort of our generation, although you’re younger than me and I’m younger than Vas, I still think of us as sort of the same generation. I think he’s one of the best and probably hasn’t gotten the credit he yet deserves for that.

Who do

Two of my heroes wrote a book together, and so they have a ton of chemistry. And that’s sir Alex Ferguson, the longtime manager of Manchester United, and sir Michael Moritz, the longtime partner at Sequoia. And I think what would be special about dinner with both of them I’ve actually had dinner with Sir Michael, but sadly, I’ve never met Sir Alex. I think what would be special about dinner with both of them is the chemistry they would have in that dinner. The fact that they are my two heroes and two of my favorite subjects would make that so much fun.

We perhaps add one or two equal general partners to our group who are re founders and co owners of the firm with Mike and me. But most importantly, we’ve been able to already work with a handful of really special founders and companies where we’ve been their lead Series A or Seed partner. And again, that probably in five to ten years is not gonna show up with distributions and and DPI, but hopefully it shows up in just the fundamental nature of a couple of the companies that we work with and their scale and revenue, their business fundamentals, the impact that they’re having on markets and on hopefully creating categories.

You know, Mike got to work with a woman named Katrina Lake, the founder of Stitch Fix, from five people to 10,000 people and from zero revenue to a couple billion in revenue. And we hope that we get to work with a handful of Katrina’s, of Melanie Perkins from Canva’s, of Jonathan Regis from The Founder’s Dogs. We hope to work with a handful of those folks over the next ten years.