Why the Traditional Seed Fund Model No Longer Works

Yeah. I mean, it’s a long time ago now, but literally ten years ago, my cohort of SaaS founders, the Aaron Levy’s, the David Sax’s, the others, I was the first one to have a a half decent exit. Exit. And so when SaaS was harder, when cloud was much harder today, when there were one unicorn called Salesforce, I was the first one that didn’t have to pretend, that didn’t have to always claim every day was great. And I just started blogging my mistakes. And that blog took off.

One of the VCs that had invested in me, Storm Ventures, brought me in as a partner. I’d never done any investments before, but I just invested in some of the founders that were fans of the SaaStr blog. And the first four investments eventually became unicorns, five out of the first six. And so it kinda took off organically, but I certainly didn’t intend to invest out of that or build a huge community. It was just to share my learnings and mistakes when I had nothing to hide.

I would say two things. One, especially in the last twenty months, the world has changed. The funny thing was back even five or six years ago in SaaS and Cloud, you could meet with every good SaaS founder. I remember waking up when I read that Moon had invested in Slack back in the day. I’m like, I didn’t see that deal. Now, like, 90% of the unicorns, I never heard of them. Right? The the universe is so big. So that’s changed. The sheer scale of the cloud, obviously, is a 100 x what it was five years ago, a thousand x what it was ten years ago, which is difficult to wrap your brain around.

So that’s changed. Right? You were saying before we went on some great deals you missed. You should miss tons of deals today because there’s too many good ones. I’ll tell you what hasn’t changed when I look back over the years. You’ve gotta be crazy to be a founder and build a decacorn. You have to be crazy. It’s so hard. Right? It is easier today. Let’s be clear. It is easier to build a SaaS company today. The tools are there. The systems are there. The markets are larger.

But the best ones, the decacorns and the unicorns, these founders were insanely committed to building something huge in a way that almost doesn’t make rational sense. And Harry, you have a little bit of that with the 20. I see it. That’s why I’ve always known it would be wildly successful. But when you don’t see that, my rule is, and I’ve made this mistake since, don’t invest. No matter how much you love, you can love them as humans. They can be doing very well. But if you don’t have this crazy twenty year commitment to building something huge, it’s hard to make money eventually.

the one thing that

I think it’s a great argument on a spreadsheet. Certainly owning 2% of a data dog, 1%. And we look at all the individual investors in Uber that became decacamillionaires out of me. Like, wow. I could have done that. I don’t know. I’m not smart enough. But when I look over my eight year history of investing, it’s the ones with the double digit ownership that move the needle. And for better or worse, when I’ve had my own fund, when I look at what the companies I’m sitting on today, obviously, you regret ones you missed or you didn’t.

But all of my core positions are double digit ownership, largest investor in most of them. That one puts you in a good position if you get a unicorn. Right? Owning 20% of a unicorn still works today. If you give up a decacorn, it was a miss. I guess it all boils down to I think there was one rule when I started investing that the folks I worked with disagreed with vehemently, it certainly turned out to be true. When you meet a winner, you buy all the shares.

Now if you can buy a quarter of the company, you buy a quarter of the company. If you can buy 2% of the company, you buy 2% of the company. But you either buy all of them or none. And I think that’s the way you solve through this. I mean, if all you could buy was 2% of a decacorn and it’s you get 200,000,000, that’s pretty good. But buying less doesn’t help. Would you agree that venture’s less collaborative now than ever before? Without question. And without question, it’s better for founders.

Much of the collaboration in venture did not benefit founders. The craziest thing to me in venture isn’t anything you’re saying. The craziest thing to me in venture is there are over a 100 founder and operator led funds of over 50,000,000. That means if you are connected, okay, and this is for the privilege. But if you’re connected, you might not never need a VC until series b. If you can raise 10,000,000 from founder led fund, operator funds, rolling funds, and that works for you, like, why would you deal with a bunch of collaborative VCs that all wanna own 15 or 20% of your company when value is not consistent with ownership?

That’s the underlying tension that we’ve been talking about for years, but we’re realizing is we get value out of our cap table. We don’t get value consistent with ownership. And for me, it’s hard. I’m sure it’s hard for you, Harry. I get so many inbounds, and they’re like, Jason, would you join our round? We have 100 or 200 k left, And I can’t do it because they’re asking me to recruit their VP of Sales, build their team for less than 1% of the company. And if I was angel investing, I might do it.

And if I had time on my hand. But I can’t do it. I don’t know. You get so overloaded. But that’s a smart thing for a founder to do. And if the founders can get a great operator, a great CMO, CRO, ex founders with time on their hands to all do this, it’s amazing. And and I invested in a lot of French startups, Algolia’s and France and Gorgias and Pledo. And it’s interesting. Olivia from Datadog would invest in all of them back in the day. They all knew him.

He was a hub. But back in the day, he was so helpful on every cap table. Why wouldn’t you want him for 1% versus some fund that complains that the board meetings are inconvenient for his schedule? Why wouldn’t you want Olivia in your cap table? Of course, you

it. I believe that the best founders eventually hire great VPs. Okay? Sometimes they screw up a few VP hires. Oftentimes, they’ll fall in love with the logo. They’ll want someone from Datadog or Dropbox, whoever. Everyone makes that mistake. Maybe your advisers help you avoid it. But the great VPs, the truly great ones, not the good ones, the great VPs know how to spend the money. The mediocre ones fall into a hole. What happens is you hire a mediocre VP of Sales, and let’s say, oh my god.

The the CEO promised we’re gonna go from 1,000,000 to 10,000,000 this year. That’s what I promised when I raised the money. I didn’t promise one to two or one to three. Even one to three was the old days was a lot. I’m promising one to 10. Right? And we’re seeing at least one to five, one to six all the time these days. Right? So I did the promise. What does a mediocre VP of Sales do if there’s 60,000,000 in the bank? They spend it all. 100 percent of them spend it all.

The marketers spend everything. Harry, you and I have seen it multiple times. A mediocre CMO will come in or just more often, it’s a mismatch CMO, and they’ll spend everything on advertising and media. But the great ones, you know what? They spend maybe 50% more. The great ones don’t hire crummy reps, the great sales leaders, right? They build amazing teams, right? They just might hire a bigger sales enablement team, a bigger rev ops team to support them. The great marketers don’t spend money on programs that don’t perform, right?

I think this is true, but I blame the CEOs for lowering the bar on hiring for VPs. I don’t see them blowing through all the money. I never see it. I haven’t seen it. I do wanna dive

I would say the majority of B2B companies that are successful, you and I have worked with, Harry, the majority, but not all. The founder has been the first head of sales. My first decacorn, SaaStr Podkas001 you did with Thiago from Talkdesk. He was the only salesperson through the first 2,000,000 of revenue. That’s where I learned. On the other hand, sometimes it’s just not you. Right? Sometimes you cannot be a great sales rep. And when I look at my second investment back in the day, another unicorn, Algolia, Nicholas, who you’ve interviewed was okay at this, but he brought in Gayton like his chief business officer, really as almost a late cofounder.

He was probably employee number one or two because these engineers just weren’t great at sales, and it became clearly that the search API had a sales element. So if you don’t have that DNA, find that great almost co founder like salesperson early, and it can work. But hiring that person over Craigslist, right, or over LinkedIn or whatever, that’s the one that fails. We all believe in this early founder led sales, and it’s true most of time, but it’s not true all the time. But you sure better found a co founder like person to pick up the slack.

We’ve learned over time there’s the scenario that works 80% of the time. What works 80% of the time is 80% of the great cloud SaaS CEOs we’ve worked with, they hire two quirky sales reps and get them doing pretty well, hitting quota or beyond. Often one of them just crazy good, right? And we can talk about what that persona looks like. And when you’ve hired two, you’re generally ready to hire a VP to hire 300. You have just enough of an engine, just enough of a playbook, just as importantly, a playbook that works that you can start reproducing that playbook from three to 300.

If you don’t have those two AEs and you hire a VP of Sales, 80% of the time it doesn’t work because there’s nothing for them to work with. Right? And importantly, today, a good VP of Sales usually join a startup that phase. That’s one thing that’s changed the last five years we could chat about is the great VP of sales are waiting for 10,000,000. The ones that used to join at 1,000,000, they’re all waiting for a 10,000,000 ARR startup today or a unicorn, whichever comes earlier.

But if you possibly can get two performing reps yourself, it’s gonna make that whole process 10 times easier. I wanna talk

clear. The 10x reps in the early days are not the 10x reps later. Hopefully, they stay forever. The best ones stay. If you’re lucky, keep them, but they’re different. But I will tell you, hire them and what they look like because they’re two different things. The 10x sales rep in the early days has one and a half criteria. It’s really this simple. First, make sure they’ve sold at your price point. A sales if you’re a five k ACV startup, do not hire someone from a million dollar a year group no matter how much you love them.

It’s the wrong toolkit. The toolkit is roughly the same for every startup at a given ACV, at a given price point. So make sure they’ve sold in cloud, in SaaS, at your price point. Otherwise, don’t fall in love with them. Two, and most folks screw that up. The second one, all the founders screw this up. Harry, would you buy from her? They listen to the buzzwords, and they listen to the talk, and they do the reference check. But if, Harry, if you’ve sold the first 100 copies of your product, if you’ve sold the first 200 sponsorships at 20, you know whether you can trust these precious leads to somebody else.

And whenever I talk with the founder and I’m like, how did it go when my first two reps didn’t work out? I’m like, what happened? And I always ask them one question, well, would you bought from them? Would you buy your own the answer is always no. So you can give on a lot. You can give on the fact that they were never great, that they were always mid pack. You can give on the fact that they sold at a six tier competitor. You can give on the fact that they never got to 20,000,000 in their whole lives.

You can give on a lot of things. ACV is tough to give on. The fact that you would buy from never works. K. And then so that’s the criteria. And then I’ll tell you, they just pass those two criteria. They will work, and they can stay for a decade. Now I’ll tell you what makes them 10x. What makes them 10x, and it took me a long time to figure this they can change their playbook. 90% of sales reps, and this works out the bigger you get, they sell exactly the same way.

Harry, hi. This is Jason from twenty twenty Media. We have a podcast sponsorship. We started a $100,000 a month. Where can I send the PO? Now when twenty gets beat really big, that actually will work eight times out of 10. But think about the early days. It wouldn’t work. And actually, 90% of sales reps, no matter how, they just run the same playbook again and again and again. And the bigger your brand gets, the more that works. But the great ones, especially in the early days, they change the playbook based on who the prospect is.

And that may sound obvious because as founders, we do this intuitively, but it’s not how great many great reps are trained. They’re trained in a process and a system. They get really good at the 10 questions in the script. So those early reps can be great just if they’re at your ACV and you would trust your lead. That’s enough. Hire her. But if they actually can sell three or four different use cases, they understand the different buying personas already, that’s when the magic the magic just happens when you get the 10xer.

And that’s the criteria of every top rep at any SaaS company I’ve talked to is they can completely change the sales playbook based on the prospect.

The good news is the middle’s hard, but the beginning of this process and the end are easy. When you’re really early stage, your quota should be enough that the sales rep won’t quit that they can eat. So you need to make sure that at least the first three to six months, if you’re sub 1,000,000 to 2,000,000 in ARR, that they get a boost. Okay? And often, it’s simplest to almost give them I know it sounds can sound crazy. Sometimes it’s almost easy to give them a 100% of what they close.

If it’s hard, right, you close 10 k this month, you take home 10 k. Like, it’s really simple. Right? Obviously, that’s not profitable, but it’s almost a 100%. Like, they take home a 100%. That can be okay for the first three months. You have to train people. You have to onboard them. It’s not the end of the world. It doesn’t work at scale. Right? But you need to back into it. Okay. I’ve hired this new rep Harry. He’s gotta make a 100 k a year. Let me be honest with myself.

If he can close 200 k, it’s so early. That’s a gift. So I’m gonna pay Harry half of what he closes. That turns out to be if you have to be analytical, they have to eat. And then at scale, we end up at these three x, four x, five x numbers. Right? Which is quotas are an SMB, usually three x your fully burdened comp, your on target earnings, your OTA, up to five x in the enterprise. That’s the way it works. Three x, four x, five x.

Like, it’s always been three to five x of profits going back to automobile sales, anything you could sell. Right? Pool supplies. It’s just because software approaches 100% gross margin, sales reps keep this three to five X work for revenue, right? Not the profit. But that’s the way it works. So at scale, if you wanna make $200,000 a year as a sales rep, great. In SMB, you gotta bring in 600, mid market 800, enterprise a million. And then the question is in the middle, in the middle, especially if you have capital or if you don’t, where do you wanna bend those rules until you’re at scale?

But ultimately, at some point, as you approach IPO or something, your metrics have to be normal, don’t they? Absolutely, they do. My

Yeah. There’s a startup I invested in. It’s taken a while. They were founded in 2017. Beginning of this quarter, they were at 2,000,000. This quarter, they finally closed a million. So 2 to 3,000,000 in one quarter. Not a single enterprise rep has ever worked out. You keep waiting and waiting and waiting. When you’re at scale, you know, because long sales cycles don’t matter at scale. North of $2,030,000,000 in revenue, you’re lining up so many deals at the same time that long sales cycles don’t matter. Because if you have a 100 deals in flight, it actually starts to happen very predictably.

Right? But you need, like, a 100 long sales cycle deals, not Sony baloney pipeline, but actually in flight that are gonna close before this gets destressed. And how many startup founders have a 100 enterprise deals in flight? It takes a while. Right? There’s really only two answers, and it’s stressful. There’s no great answer. One is I found that in true enterprise, like real enterprise, the founder is often the VP of sales until 10,000,000. I’ve seen this again and again and again. Now I’m not saying they don’t have a VP of sales, but I think in SMB, can be hands off at a million or 2 in revenue, even if you did founder- sales.

I find that in enterprise, they’re so good at speaking to the big customers. They’re they’re so trusted. Harry, we know. Like, we trust him. All the customers trust him. Google trusts him. Whoever trusts him. And and so Harry is already in every deal until this brand is so established that Harry just gets pulled into the deal. So I actually think to tell founders that are pulling their hair out in enterprise, keep pulling it out because it’s not going to get better. It’s just going to get more repeatable, and you will be the head of sales till 10,000,000.

And so what that means is the big mistake that I see founders that are true enterprise make is they just have too much faith in these AEs. You have to see more progress. You have to judge it. Even if you have a nine month sales cycle, you have to say four months in, are these deals really moving at the pace they did when I run them? Because otherwise, it’s fake. It’s fake energy, isn’t it?

what would

SpaceX if Elon Musk was gone or Tesla? Founder dependency is part of the game. Yeah. You know what mean? It’s part of the game. I think it’s one of these existential risks for investing too. Right? What if something happens? I got an email over the weekend from a great literally one of the best founders I’ve known my entire life saying, you know, his co founder is kind of transitioning to an IC role. I’m like, God, that’s high risk. That’s higher risk than losing a customer, some sort of other existential issue.

Right? Because a founder dependency is it’s an existential problem. And now making yourself obsolete is the dream of every founder, but maybe you can only come close. And it’s true in sales. And when I started doing these SaaStr events, I would interview all the CEOs. The early days, I would ask the Jeff Lawson from Twilio and the Peter Gassner from Viva, and I would say, how much time do you spend in sales? Like, in the early days before they all they were all bigger. And they’re like, more than ever.

I’m like, really, Jeff? You just went public in Twilio in 2017. You’re spending you’re a developer focused company. You’re spending more time in sales than ever. Yes. Now sometimes that means more time with customers. It’s not always prospects. Right? As you get bigger, you talk about ten year customers. You wanna move your time as CEO more to customers prospects, but it never goes down. And that that I think that’s emblematic of this level of founder dependency. As we think

What I mean is one of the very first things I wrote in SaaStr literally probably in 2012 or ’13, a long time ago was, I’ve been doing this for five years. My startup’s doing pretty well. I wanna quit. I’m tired. What do I do? And I’ve updated versions of over the years. Literally last week, had the conversation with a freight founder that almost wanted to throw in the towel. And even though they had over 1,000,000 revenue, it just taken a while. Right? Mental health and everything, these are important issues.

I wish I had any answers there. I’ll tell you what I’ve learned more tactically about this topic, which is one, every company, every SaaS. SaaS is good in that you don’t have to change the product like every week. It’s not Clubhouse or TikTok. You know, the competition level is it’s visceral, but it’s slower. But you do need to reinvent yourself every four to five years. And the only way you can do that is if you kinda reinvent the team and your mission, not your mission, but your strategy every four to five years.

And what bails you out of tiredness again and again, if if you get bailed out, if you do, is that magical VP that you find that is more than a VP, that is almost like a founder, almost like a founder. And that is the only thing that has saved me over time. And that is the only thing that has saved me even running SaaStr is finding someone that would join and own more of it, take over some of that burden. If you’re a founder and you’re burnt out and you’re up to here, right?

Find someone to take over a piece of it. All of a sudden, everything’s down here. Your stress level and everything drops 34. It’s not to nothing. And then you’ll realize I should have almost dropped everything to find her. Right? To find this VP that could carry some of the load. Again, when that founder sent me the email over the weekend, the first thing I’m gonna talk to him about is, okay, who can we find on the team or outside that can carry some of the load?

Because the startup’s doing great, but you need someone that’s gonna put some of those concrete blocks on their back and own some of this. Back in the old days at EchoSign, Adobe Sign, I I had three of those, and I didn’t appreciate how great it was. I didn’t appreciate it. I thought I needed that out of every VP. Right? But I only had it out of three of my VPs. And then I realized I was in an event, and I was backstage with Wade from Zapier, and we were talking about it.

And he’s like, you’re lucky if you have half. I said, what do you mean? He’s like, you’re lucky if half your VPs not only do their job well, right, but do more than their job. Like, carry some of that load. And if you can even have half of your management team do it, that’s like magic. And I realized he’s right. And so that’s what if you’re tired, that’s what you’re missing. You don’t have someone to carry the load for you. And great people will do that.

And that’s what’s crazy about startups is people get these emotional attachments to them. They will do things they would never do in a big company. If they don’t

No. I think Wade’s point was, look. Like, we didn’t talk about any sort of person. He’s like, I’m lucky to have a VP of marketing that hits plan. That’s enough. Whatever the the goal is, like, you’re gonna have VPs on your team that are gonna hit their numbers, and that’s hard enough as it is. A lot of human beings, especially as you get bigger and it becomes more process oriented, they don’t wanna worry about the competition and where the company will be in ten years and the deep future.

They don’t, and that’s okay. But having even half your management team care 80% as much as you do, that’s when you can just blow it out of the water. It gets harder as you scale, as you hire process oriented people, but you can find them, but you need them. But if you can find a couple of these before even 20,000,000 ARR, the romantics exist. They’re romantics. They’re romantics. They’re romantics that want more out of life than a salary or even RSUs or equity at a big company.

They want more. They want a sense of belonging, a sense of worth out of their company. And you can mock that, but it’s incredibly powerful when they get so much value out of creating themselves, out of being a creator, out of the magic of a startup. And if you can harness that authentically, that’s when magic happens. I mean, I don’t know why you’ve had an interesting career, Harry. You know, I quit my first so called corporate job to do startups. I actually had no job, no savings, anything, but it was wanting to be part of something bigger than me that I did it.

And I don’t think that’s changed. That’s why people join early stage stuff. Right? Because it’s not rational, is it? Not rational in many cases. I I was just unemployable, Jason, actually. Well, you’re unemployable. But you’re a romantic. And when I say this to people, they don’t understand what I mean. But I mean, these some of these great early stage and I mean early stage, almost up to 20,000,000 these days. They’re romantics. They want more out of life. They wanna be on this special journey. Tap the right person that desire if you’re giving them that special journey and they wanna be on a special journey and they’re great, then they’re super great.

it. You you get it. I mean, like, 20 is so big. You get it that you’re overwhelmed now. Right? And it may take you two years to find that person, which sounds horrible. Right? But when you find that person, magic will happen.

You know, I have been thinking about that a bit lately because you do need to think about that. The quality of unicorns is not consistent. Now that this 100x ARR thing set startup has become a meme, it’s justified behavior that I think in the aggregate will work out, but on specific deals can make no sense because 100x ARR completely makes sense for a Datadog or a Snowflake. But basically, 100x ARR startup has to at least quintuple next year with high quality revenue. At least quintuple. And a lot of these folks that get these crazy evaluations, the next year is not as good.

It’s okay. It’s not that it’s terrible or they would never get the valuation, but are not quintupling or sex tupling or septupling the next year. And then a set of issues set in that compound. You have to understand what’s going on. Is this generational company, right, or is this a moment in time? And I think it might be if you’re a great VC, an easy bet to make. It might be if you’re great. Your job is to know the difference. Right? Do I have a HubSpot or not?

What do I have on my hands? I have one the other day, and

And it sounds silly, but whoever led that round, if they’re smart, they’re doing 30. 30 of them. Okay? So then you start to see this bell shaped distribution and if they do okay on the long tail of it, right, they’re gonna need four or five unicorns, right, of those 30 to make it work. They’re probably gonna need more than 10%. They’re probably gonna need 15% to be decacorn. So if you plug that into a Google Sheet, you’re gonna see that they can write off three or four at the bottom.

A couple can have mediocre outcomes as long as they get at least 15% to be decacorns. You could argue that given all the unicorns, all seed is still underpriced today. As crazy as it sounds, might be the only bargain because expensive as it is I’ll tell you the problem with pre seed next. As expensive as is, it may not have seen the same inflation as series a, even though it seemed inflation. But tripling is not the same thing as 20 It’s not. My

But what about the less privileged, Harry? That’s what we’re we don’t spend enough time talking about. I’m not even talking about less represented or truly underprivileged. That’s an even larger issue. I’m just talking about great folks that didn’t come out of Facebook, Twitter, or Y Combinator. I would say most of my best investments did not. And those have not seen the same level of pre seed inflation, but they have seen enough that can break the seed model. Okay. Talk to me. What do you mean break the seed model?

There has been a classic seed model in The US where for at least a decade, if not longer, like 40 to $5,060,000,000 per partner. Right? That’s been a seed model for a long time. Three partners, $180,000,021.20. When I could be a solo GP, which was seen as insane at the time, 60,000,000 for one. But it basically rolled up into the same math, $4,050.60 per partner. You’d invest very early at valuations between 3 and 10,000,000 pre depending on who they were, and you could get enough ownership for 2% of your fund, right, to have diversity.

So 2% of a $50,000,000 fund is a million. So how many deals can I get ten, fifteen, 20% of a million? That model probably doesn’t work anymore. Right? You say, why is everyone raising a 3 to $400,000,000 seed fund? Well, it’s the 2% model. It’s not just a game. It’s okay. I wanna write 2% checks that are 2% of my fund or less. Even as seed has become pre seed, and that’s okay. All the names changed. You know, series a became seed. It’s it’s all cool.

But does the traditional $5,060,000,000 dollar seed fund work? I think it doesn’t work unless you go with anything that has any proof, any social proof, anything privileged, it doesn’t work. So you either have to find the less privileged where I think it works, or you have to settle for a very different model. A lot of these founder led funds are okay with de minimis ownership or very high valuations. They think it’ll all work out in the end because they have decacorns.

And that’s disrupting seed too because if you need to own 10% in your seed fund and a founder led fund is okay with 3% or 2% because they’re doing 30 deals a year and they know they’re gonna have four decacorns per fund, that completely breaks the traditional seed fund model too. So I think it’s the only part that hasn’t adapted. We see these Greylocks and Andreessen’s and others and Sequoia sort of adapting, but I don’t know that this model exists at least in the same way as when I started investing.

You

No. I think all I meant was that I think the media confuses the privileged pre seed with the less privileged. I don’t think we’ve seen the same levels of inflation for folks that have no social proof.

Here’s a point. I’ll give you the advice, I’ll tell you a point that’s changed over the last two to three years. First of all, you don’t have to spend it. Just always remember you don’t have to spend it. But let me go to the point. It used to be just a few years ago, couple of problems with big huge funds doing seed, right? One was, of course, signaling. Oh my god, Excel, Sequoia, whoever did the seed, but they didn’t do the A. Let’s be clear. That was a signaling problem.

The big funds would say it wasn’t. It was a huge signaling problem. It was a seven on a scale of one to 10. And the only people that said it wasn’t was the people running these programs. It’s a huge signaling problem. Of course, if Sequoia or Accelerant, Andreessen or Lightspeed has two years of data and they don’t preempt the A, of course it’s a problem. Of course it’s a bad thing. So that was a problem, and that exists today. One weird thing, though, today is if you take money from a big fund as an early stage founder, there’s actually less pressure.

This is so changed. The funds are so big, and they’re raising funds every twelve months. We have different portfolios. In my portfolios, when the multi billion dollar funds have come in and led the a or the seed, they’re barely invested. And you know what? They don’t even care if you have board meetings. And here’s the thing, Harry. They don’t care if you lose all the money because it’s just $20,000,000. They don’t have time. They’ve done 40 investments. They’re on 20 boards, and the 20,000,000 is the entry position.

And listen. They might be a little upset if you don’t get to a billion in twenty four months, but they don’t care anymore. That used to be a career limiting move. You used to lose your job if that $20,000,000 check didn’t perform, now nobody cares.

it’s 2,000,000,000 in a year, Harry, instead of four to five years. It’s in a year. You don’t even have time. Deploying a fund in a year requires a level of velocity that we’ve never seen before. You can’t care. And the good news is if you woke up this morning and another one of your portfolio got marked up to a unicorn at a thousand x or whatever, that’s fine. That’s the way the game is. And if and if they’re gonna lose money on the other one or if it’s just slow, they don’t care.

And if you’re an empathetic founder like I was, and it may not all be a positive, it takes a lot of pressure off you as a founder if your investors don’t care. I worried about it too much. They literally don’t care. If you’re the right type of founder, the fact that there is less investor pressure for large checks can destress your life if you play it the right way. The pressure even to raise it a couple 100,000,000 evaluation years ago was so high. Today, they may just leave you alone.

If you’re the right founder, that’s a gift.

Look, everyone’s different. Right? What has changed, I think I’ve learned over time, is the burden of being the lead investor over time has gone up. As everyone does less work, right? The number two, the number three, the number four investor does less work. The amount of work the lead investor has gone up. And I was just looking at my portfolio the other day. I added a column, where am I the number one investor? Because that’s where the time is. People used to do it, how many board seats am I on, which was the amount of work.

You know what, Harry? Now that we do it over Zoom, a board meeting is not like the end of the world, is it? But being number one. And so I think how many active investments can you be number one in? And it might be five. Like, the traditional the old school metric for board seats was it was supposed to be 10. Okay? But when you started to run the place, it would be 20. Okay? If you go back and talk when you do the 20 VCU talks, they would be on the Arthur Rocks, whatever.

They’d probably be on 20 boards. Okay? I bet Byron Peter is my favorite. I bet he’s on 20 boards. That would be this capacity for going to boards. Right? But being the only active investor, it might be five if you take it seriously. So you have to wait. If you wanna be a seed investor and have high ownership, that’s the compounding effect. And what I’m asked to do by founders, what I’m asked to do, which is help build the teams, I haven’t found I could do more than a few of those at the same time.

No. I agree. That’s the problem. And I don’t think that’s a wise way to invest. The better way is to not help at all. The truth is most top VCs will tell you historically that the the best startups don’t need any help. And they’ll say that meme again and again. And if if you think through it, that really means you should do the least you can other than win the deal. You should win the deal and exit any time commitment.

will, as you have more money, Harry, and as you become, in some cases, the only investor in a company, you’ve already raised a 180,000,000 in your last two funds. Let’s imagine you raised $3.60 in the next one. You may end up being the only investor in a number of your investments, right, or the only significant investment. Right? Because as these cap tables are getting sliced finer and finer, you could have one person owning 20. Right? Probably my single best investment today, I own a little more than 20.

And I don’t think then I have one that owns eight and then everyone else owns a tiny bit. And I love this company, but I’m on the hook forever, aren’t I? Yeah. And so it’s great to just make those and listen. You have such an incredible network. If you can just make connections, that’s worth it to have Harry on my cap table. Like, anyone listening to this, put Harry on your cap table. But if we’re doing insider baseball, as you will you be able to sustain that as you have more ones and ones and ones as an investor?

And those ones get so big that two is just doing emails. I

You

do.

And then as time goes on and you start to see distributions and other things happen, you start to see the benefits of of even being the largest investment in one winner. Being the largest investor in one winner can out unless you can just nail that 2% of Datadog strategy, you know, this is Ho Nam’s point, right, which is being the largest investor in a generational company. That’s enough in venture. Right? And the world is different today, and you’re running a different playbook. But that one does as time goes on, you get busier and busier.

The slugging it out and trying to be the largest investor in a decacorn becomes more and more appealing.

It does. I mean, the investment I made in Talkdesk, it’s Storm. Storm Storm was the largest investor. They’re still close. You know, if it’s worth 20 or 30,000,000,000, that will be the best investment in twenty five years for that fund. That more than outweighs all the other stuff. So if you just think about slugging, and as time goes on and you get busier and 20 VCs doing 300,000,000 a year and you’re managing 4,000,000,000 under capital, there is a temptation to slug it out and wanna have that number one position on the cap table, isn’t there?

But you learn from it. Right? And you learn listen. If you can maintain what you’re doing at 20, it’s epic because there’s a lot of folks who have kinda done the next generation thing of what Socket did in the early days. Socket just had such a large social following. He could move the needle. Right? And if that alone doesn’t work today, that it almost seems like most things, it seems it seems so basic today. But if you can continue to make connections through your network, you’re more valuable than 95% of the investors on the cap table.

Do you actually find board meetings help? I have changed my mind. So when I started investing, I felt there was nothing more torturous than going to a board meeting. I remember my first investment was Pipedrive. Vista bought them for 1,500,000,000, and I had to be tortured to go to those board meetings. I’m like, oh, like, I got you your VP of Sales, your CFO, all your other I gotta do this again. I thought I sold my company so I didn’t have to go to board meetings anymore.

I thought I was supposed to get a break from this crap when you have an exit. And I really thought they were terrible. And none of the first investments that I do did I appreciate them at all. Right? None of them. I viewed them. But time goes on, and I’ve learned a couple of things. First of all, as I transitioned to having more and more number one investor positions on the cap table, I realized that there’s a fiduciary obligation in the lead investor, and it’s very serious in this day and age of Therados and 1000x deals.

Who’s responsible for the diligence? Who’s responsible? Oh, you raised 20,000,000 in your seed, but who’s responsible for that money that it’s used properly? And I don’t mean going through the books or anything like that, but who is providing every six weeks a check and balance? And that check and balance is that you show up and you report against revenue, you report against cash, and you report against sales and marketing. I actually view this in this age of more and more investors with smaller positions who care less.

This fiduciary responsibility when I’m number one, it’s weighty. And the ones where I’m number two or number three, I’m like, woo hoo. I don’t have to do this. So there’s fiduciary. Two, and boy, for founders, this is so important. Until you’re big, until you’re at $4,050,000,000, when board meetings really are about money around the table. Right? Until that phase, board meetings are at least 50% for your management team to present. Few things more valuable to a CEO than having an external forcing function for your VPs to have to hit their numbers.

How often a CEO can you yell at your team? I would argue once a year. Now there are CEOs that there are yellers out there, but I would argue you can really only yell at one of your VPs. And I put yell in quotes, whatever this means. I think you can really only be so upset with them once or twice a year. Otherwise, it’s it’s demoralizing and people quit. But if every six weeks, your VP of sales that’s a little bit behind has to report, Harry, my plan for q one was 10,000,000.

I’m at 8.4. Here’s how. That forcing function for you not to have to do it yourself as CEO and each function like your sales, marketing, product, engineering, it’s like a nine on the value scale. And that’s also as an aside, that’s why I beg founders not to use Notion and board meetings. I beg them to force everyone to make slides to spend the time because we all love Notion and Coda. We just put our stuff in our Google Docs. It’s so efficient, isn’t it? But not only did I think board meetings were stupid when I started investing, you know what I thought was even stupider?

Founders using slides. I’m like, oh my god. Like, people are still standing up in rooms and then clicking? Like, I can’t believe people are still do like, I get what you do. Like, I don’t need to see your stupid presentation. But then I realized as time goes on, the work you force your management team to put into those slides for each board meeting forces organization, self discipline, reporting, goal analytics, that otherwise they just don’t bother to do in Notion. They don’t do it. They just write a stream of consciousness or an update to a table.

It’s not the same. If you don’t put the work in, you don’t get the value out, do you?

For sure. But I think as we’ve gone into the era where you can use saves up to 200,000,000 and other things, the the presentations, the board meetings have atrophied, and I think it’s So even if the CEO doesn’t get it for their investors, even if they don’t really respect any value add from their investors, your VPs take these board meetings very seriously. Here’s the other point. You may not as the founder, but your VPs, I gotta present to the board. Oh my god. Every VP I’ve ever worked with gets nervous.

That is a gift to you as a founder. Harness that. Harness the fact that they may be comfortable with you as a founder, but they’re nervous about presenting to Harry or Jason. It’s just Harry or Jason. Give me a break. Why should you be nervous presenting to us? But the fact that they are is an amazing management tool for a CEO. Yeah. And that’s a gift as a founder because you don’t have to yell. I think I think What does the board member really have to yell?

They just have to be like, that’s enough. We miss plan. Okay. Nice job. Nice job. Any questions from the board on this one?

And

What has changed the most has also not changed, which is outbound. Outbound still works. Even when we’ve all deployed a 150 SaaS apps, evaluated a thousand, even when we’re overloaded in the cloud, great outbound works. We do not all have time to do discovery on our own. So you’re running a business, Harry. What’s your number one problem that you have today in 20 overall? What’s the number one problem you Concentration of responsibility around me. Lack of delegation. Okay. What if I had a tool that auto delegated everything at 20 BC?

You didn’t have to put any work into it and it handled it with AI. Would you take a quick call? Yeah. Okay. There you go. That’s called outbound. I just did outbound to you. I was lucky enough to get you on Riverside. That has worked. Has sending that email to 10000 people through Salesloft or Outreach or Mixmax, does that still work? Like, I love all those tools. Right? I’ve invested in two out of three of them. It works, but its efficacy has declined. Right? My point is that one of the things that’s changed most is this outbound playbook we perfected five years ago that we’re all running has declined in efficacy, but outbound itself works better than ever.

And I’m just shocked with all the applications out there and all the competitors that great outbound works better than ever, but mediocre outbound still works but is declining in in its efficacy. Well, the sales tactics have died to death. Which do we just not see anymore? I think the playbook keeps getting better and better with RevOps becoming a function and all these other things becoming a function. I’m not sure any of it does. The only thing that has really changed the most is just when in the funnel we’re doing face to face and when in the funnel we’re making those connections.

And I think the biggest change in venture and enterprise sales, because they’re similar, venture and enterprise sales actually have some similarities to them, is that those first meetings are no longer done in person. And that has changed venture radically, and it has also changed enterprise sales. Right? COVID changed it in that. Like, I don’t know what you see in your portfolio, but all of the enterprise SaaS companies I’ve invested in and worked with, they’re all going back to face to face meetings. Nick met on Gainsight’s talking about it.

They’re all going back. But no sales reps are doing it for the first meeting anymore. We’ve learned what works from home and what doesn’t over the last twenty months. And we’ve learned we wanna get together, but we wanna do it at the best possible time. So we wanna do it in the middle of the sales funnel. And where do we wanna do in customer success? I’m actually not sure I know the answer, but it’s probably less in the kickoff meeting, the plus ninety day meeting. That’s when you wanna fly out.

And we’ve gotten better at when to use that in person time,

No. I hate it. I hate it, But I didn’t know why until a couple weeks ago. Okay. It’s not because of the risk and there is it is increased risk. We’ve increased risk in venture, but the returns have gone up commensurate with the risk. Right? It is for me and it’s not because I’m so amazing at sussing out a founder when I meet them in person. Like, I have such a human superpower. Mean, we all think we’re better at that than we do. Right? Including all CEOs think they’re amazing at it.

It’s more because the cadence was perfect for me. I would get an email, and it would explain the business. We could meet in a week in person. I could ruminate on it. I could see if what I hoped was true was true in person. I could see if I trusted them and loved them and fell in love with them. And then I could decide about twenty minutes into that meeting if I wanted to invest. So I made all my investments decisions pre COVID in ’20 seemingly in twenty minutes.

Like, can ask all my initial investments. I would interrupt the the first in person about twenty minutes, and I would always say the same thing. If everything you’ve told me, Harry, is true, I’m in. And I would mean it. Like, I would always say that. But I got a chance to do the work ahead of time. I got a chance to not be under intense pressure to make an instant decision. And I got a chance to spend that week or so ruminating and then using that in person meeting to solidify that conclusion.

Now I’ve gotta make do that in the first Zoom. You can get a second or third follow-up, transactional. I feel like I’m not as emotionally engaged, and I just I fade away a bit on that, the transactional element of it. So but maybe I’m just been doing this too long. I kinda get a d for investing over Zoom. Even though I seemingly used to invest in twenty minutes, there was this secret process where I had ten days to ruminate and learn that just changed everything, and I don’t like it.

That I think of all the things is less different than it used to be. Even back when I started investing 2013, 2014, if a startup was hot, at least by the time I met them, because I’m different, they already had a term sheet. So even though I did that twenty minute thing, I always felt like I kinda had to anyway because they already had maybe today, it’s gonna close this afternoon. Like, that’s different. A couple years back. But they already had an offer. I mean, even in my very first startup, I got term sheets the same day.

Like, that is nothing new. There’s nothing new when that startup just stands out and they just they used grab the partners down the hall right on Sandy Hill and they throw them into the room and they’re like, Harry, just just actually, before you go, can I just have you meet this bunch of white men that work at my firm? Rob, Bill, Biff, Bobby, the other Bobby, and James and James and While you’re here, do you have to just run through the deck again, having dinner that night in Downtown Palo Alto to get a term sheet.

It is compression. I actually think the compression, what I’ve seen, I think it’s harder on the late stage investors who no longer can do diligence. I had an investment recently that did a now it wasn’t a thousand ASR, but did a very relatively hot round. And one of the best VCs I’ve ever worked with called me is like, we don’t have time to do any can you just do all the diligence for us? And I told them all the VPs, all the issues, and I think it was very helpful.

They literally and this is a relatively conservative firm. They just there’s just no time. The advantage to seed is the diligence universe is a little bit more confined. So I it’s somewhat easier to do it on that compressed time saying.

Yeah. I think those things have just got people coming. It’s just gotten faster as it should on the Internet. The fact that the whole process is transactional is new, highly transactional. And then I see these founder led funds literally making decisions in five minutes with relatively large pools of capital for seed funds. That one is like the ultimate disruption. Like, you know, was just on the phone with some some unicorn CEO. She’s throwing in $2.50 k into the round in five minutes. That’s great for the founder.

But as a traditional investor, it’s hard to compete with that, isn’t it? I see this all the time. And you do 10 calls with founders, all of whom have their own fund or maybe have a very large scout fund or whatever, and they’ve put in 3 to 4,000,000 in a day. The founders don’t do any diligence. Right? Like, they just decide if they’re great. That’s the ultimate inversion of this this hyperversion.

what? If you’d even talked to me eight months ago, would have agreed. Now, like Doc’s End and other things, you gotta give up. It’s the trains left the station. There’s too many founders that are gonna raise 9 figure funds while they’re running their own startups, and it used to be a bad sign for the startup. How could you do anything other than run your own startup? But it doesn’t matter what you and I think because there’s gonna be 50 of those funds. There’s gonna be 59 figure funds.

they think four more of them will raise a 100 though, Harry. And they think they’ll do four to five x funds. And so if they and their partner can split up extra $100,000,000 in carry while they’re running their company and say take 20 or 30,000,000 of secondary out of their own series b round, they feel like that’s a world they like to live in. Like, I can get 20,000,000 in cash for my secondary. I can run my company to a decacorn, and I can make another 100,000,000 from my founder fund.

I think that’s appealing. That’s not a tiny little seed fund. That’s people are gonna give me a 100,000,000. And because I’m at a center of some hub, I can deploy this $100,000,000 effectively. Right? Likely with limited pro rata and other issues. So my absolute return if I do enough of these deals could be good. Right? Most of these funds like this, they have one great decacorn in their portfolio, and it just works. Like, yeah, you’re like, god. I would never invest in a founder that has their own fund. 2022, you may be doing this every week.

The recent one was from a little while ago. Boy, it was and you have to keep challenging your player. Maybe the most recent public one is a company called owner.com to oversimplify maybe as a next generation toast. It’s in a space that’s very competitive, right? Has margin issues, lots of challenges, hard to understand the competitive landscape quickly. So those things seem to break a lot of the traditional rules. One of the things I’ve realized is I’ve just fallen in love with the incredible CEO CTO pair.

I don’t mean both good. I mean incredible. When you have an incredible CEO that can see the future and a CTO that can ship software five times faster than a pretty good CTO, their ability to iterate is so jaw dropping. Right? And when I see that CEO, CTO combination, I honestly, when they’re both A pluses, right? Everyone thinks everyone’s when I see both as an A plus and any traction at all, like any traction at all, I feel like I literally cannot lose money on that combination.

And as an ex founder myself, I feel like and a lot of investors are now. Right? It’s no longer unique. But I feel like I have the ability to know when both are great that some people can’t. And when they are, I’m like, god. Even if they screwed all up this quarter, the software they’ll have next quarter. Right? I just got an email from Owner and, like, they added this whole new marketing automation level. And its first month, it added 200,000 in revenue. Its first month.

Who does that? The level of agility, and we see hints of this in Stripe, and others at scale, but that’s my rambling answer to what I’m obsessed with. And when I look back at startups I’ve done where the CEO’s pretty good, but the CTO’s turned over a couple times, or there’s just not that that Batman and Robin pairing, you can do it, but I’m done with those ones, I think.