Turning $16.5M into $2.1BN; Lessons from the Greatest Venture Investment in European…

founder turned investor. I started my first company in 1999 in New York, horribly timed, arguably the worst time in history to start a tech company. It was a company called SelectMinds. We were building in social networking software, one of the earliest, participants in that space, but hit the crash pretty hard. We survived, ultimately did okay, had a nice exit, and, decided to move to Istanbul, which is where I grew up. I’m Turkish, born and raised in Istanbul. Initially thinking that was going to be for two years.

When I moved back, I started meeting young Turkish tech companies, mostly consumer Internet businesses, and got excited. I think I saw two things that not a lot of people agreed with me on. One is the fact that people behave similarly everywhere, especially in their interaction with technology, with consumer technology. At the time, for example, people were telling me, oh, you know, people in France will never buy shoes online. And I’m thinking, I look at The US, I look at The UK, and I’m like, that’s not right.

People are people. They’re gonna buy shoes online. So saw the playing out of consumer Internet in the West and looked for opportunities to partner with companies that were trying to do the same thing in the rest of the world. And so you’re an angel in these early companies? I was an angel in these early companies. I got very lucky. A few of my early investments turned out to be the biggest exits at the time in the Turkish markets. E commerce company got sold to eBay. Food delivery company, the leader in Turkey, got sold to Delivery Hero.

These were big outcomes, largest exit. So it started to What was the multiple on your angel track? Must have been about 10x overall. So why make the transition to venture then? You’re a super successful angel and you’re liquid. Great question. It was out of getting nervous because what I saw is I was able to syndicate the first couple of million dollars into these companies, but then the moment they needed anything above $510,000,000, there was nobody that targeted that stage in our region, so I’d have to come to Silicon Valley or New York or London and convince people who didn’t really understand our part of the world.

So I thought if I raise a fund to focus on opportunities in Eastern Europe and Turkey, then I can follow on and maybe support these companies for the couple of rounds after my initial entry. Because I thought if I couldn’t do that, some of these companies might actually go bust. Mhmm. So it was out of fear.

Of course. It happens in every cycle. They rush in, and then they rush out very, very quickly. And also when they rush in, they miss miss out on the nuances of the region. What nuances did they miss? The startup venture capital playbook is now visibly played out around the world. So founders know what to say. So they come and a VC that they’re meeting for the first time from Silicon Valley is sitting with them in Bucharest, and they’re able to tell a very, very compelling story irrespective of, you know, whether there’s anything behind it.

I think, you know, being able to reference founders to understand where they come from, get a sense of where they go to school, which companies do they work at, like, what’s the environment they developed in, and is there signal there? Is that what you would expect a great potential founder to be coming from? I think you get that only with immersion.

our job is to play the game. Our business structure is defined by timelines. You know, we raise ten ten year life funds, so our job is to expose our fund to the strongest opportunities in every vintage, not to try to time the market. So when when it’s, you know, bull market, the prices the entry prices are up, hopefully, the exit prices are up as well, so it’s kind of balanced each other. But no, I we we felt that our job was to continue to invest.

that. I think there have been attempts to try to commoditize the early stage market. I don’t think it happens. I think Doug Leone would be the first to agree that if it were a commodity, it would be the same thing to raise from a Sequoia or from us or from ’20 BC or or from your, you know, dentist who’s angel investing. And we all know that that’s not the same thing for a founder. It’s not cash is green and all equal. So I don’t think it is getting commoditized because it’s limited.

It’s you cannot scale it by just pouring money on it. I think that’s what commoditization implies.

I think if you look at those firms as kind of a one strategy, one investment portfolio, I think you could come to that conclusion. But what I see it is at the core of their portfolios, if they are early stage investors. So I don’t mean the later stage or crossover type investors, but if they’re really early stage rooted the way, you know, index, Sequoia, Benchmark are, actually, that’s a great point, where Benchmark has stuck to their seed strategy. So they keep playing the game that they know they have an edge in, which is keeping fund size constant and just deploying concentrated portfolio after concentrated portfolio.

The other firms decide to build an asset management business adjacent to their early stage strategy, and I think that’s where they start to look like commoditized products, but

contract that the founder is looking for. If they’re wanting cash and they wanna turn around and run their business, I think what you’re saying might be right. Most of the best founders we partner with are looking for a contract where they try to align with co founder like partners to be on the journey with them. And in that case, I think they start asking themselves the right questions. And that’s why for some of the top founders, you’ll see out there that their cap tables are not filled with only the sort of very large multi stage, firms.

They pick their investors as people. They almost pick them as if they found they pick, cofounders.

we think this is a founder that we can align with, and if we feel that chemistry with the founder, if we see that the founder also understands us and can understand what we bring to the table, absolutely. And we’ve we’ve gone into situations like that where the founder ended up choosing us over some of the brand names you’re bringing up. How do you feel about price? Great question. Is it Scott Fitzgerald who said that, like, sign of a great intellect is the ability to hold contradictory beliefs at the same time.

Yeah. On the one hand, we look at our biggest outcomes and we do an analysis of what would have happened, what the return would look like if we paid twice as much at the first check. And the answer is that it doesn’t really matter that much for UiPath. If we’d done the seed round at at twice evaluation, it wouldn’t really, you know, made a made a any difference. It would have still been a fantastic outcome. It would, but it would have halved your multiples. Yes. But in that case, I mean, at the type of multiples we’re at, I mean, that’s a, you know, 16,500,000 investments that has brought us back $2,100,000,000 in proceeds.

So yes, I’ll take half of that any day. 16.5 brought back 2.1. Yes. That’s after the sell off, so it wasn’t even the high watermark. It’s power law in action and it’s actually a very humbling experience to see because it shows you where you have to play a very disciplined game, but you also need to get lucky.

be unfair and ask, how much have all your other gains been? If that’s 2,100,000,000? So Fund One is 20 time multiple on invested capital. 2.7 of that is non UiPath. So about 85% of the proceeds of Fund One have been UiPath. But if you take it out, it’s still a 2.7 times fund in Fund One. A very good fund. Yes. It’s I think it would make it a top quartile. Okay. So, like, two opposing thoughts at the same time. So on the one hand, we know that valuation doesn’t matter.

On the other hand, we cannot operate like that. So we also are ultimately tethered to some idea of value and and, you know, what are we paying for and does the company we’re looking at warrant that? So I think, you know, we we try to not lose on price, but constantly question us about is this entry price a fair price that we’re coming in? Or are we now at a point in the cycle? Or is this firm just getting, you know, is this round getting so competitive that the term sheet is getting bit up.

And we’ve passed on price in the past. And I think we have a mixed track record on, you know, whether that was the right decision or not.

question. We’ve lost or we didn’t understand a few businesses. I mean, one example, this is probably our biggest loss is we met Bolt, the car Yeah. Hailing company, and they were called Taxify at the time, a small Baltics ride hailing company. Even though, you know, Marcus, founder, was extraordinary, we really couldn’t see the trajectory to be a global leader in that in that space. We also had question marks about take rates, warranted take rates for an app where you just signal your location. We felt that the, you know, what Uber was establishing as the as the market pricing wouldn’t really warrant that take rate.

So we had question marks about the market as well. So there, what would I have done differently is maybe been more open minded about what the ultimate margin structure of the business would look like.

round was this?

I if I’d been able to see that they they’d be a global contender, of course, it wouldn’t matter, but they were just a little Baltics player in ride hailing.

In that order, founder number one. Ultimately, at our stage, I think it’s the only thing that matters. We’ve seen, great starts get bungled badly because of, founder problems, character problems, ethical, problems, values. So the founder trumps all. We’ve passed on a few very interesting promising companies because we just could not see ourselves partner with the founder across the table. Secondly would be market because everything we do ultimately needs to be able to return our fund if all goes well. We’re in a sort of a high return business by taking high risk, so the high return should be there.

So if it’s a small market, if it’s a crowded market, we’ll pass. The traction at our stages tells us something in some cases, but it’s a distant third.

But then in hindsight, sometimes we do the, you know, post exit, we look at our early memos and we laugh about it. In the case of UiPath, I mean, we thought it could return the funds. I mean, it has it has returned 12 and a half times the fund already. So that’s been, you know, very miscalculated analysis. But we we we do do it. It’s a part of the, I think, the discipline of just making sure that the market’s there.

think the word we end up coming to is care. When you are a small partnership, I mean, in our firm, for every fund, each partner writes about four or five checks per fund. Each year, we talk about one or two investments at most. So in terms of the capacity, attention and care that founder stands to receive from that partner is probably very distinct from what you would see at firm with a much broader portfolio. Do you need a board seat with every check? If it’s warranted, if our check is big enough, if our space in the cap table warrants it, yes, we usually like to get a board seat, but not every time.

Will you do a single digit ownership deal? We will. We try not to be dogmatic. If it makes sense, if the math works, typical first check ownership is between ten and twenty percent, but we’ve gone

Yes. But then, you know, I think I think you should stick to principles. Mean, and we do that as well. We’ve passed on in some cases because of the ownership just because we have really a certain number of bullets. Can we we have only four or five investments per partner per fund. How many how many companies per fund? Fund one had only 15, but I’d say that’s probably And that is super concentrated. Fund two had 18. And this is seed? Seed and A. Okay. And we’ve done selective pre seed and selective B round joiner checks as well from both funds.

Are the b round joiner checks good? You know, fund one, we have one of them. We’ll make money from it. It’s not the strong performance driver for the fund. But if that company goes into a billion dollar outcome, which it might, then it’ll it won’t return the fund, but it’ll it’ll carry its weight.

signalling does exist very strongly. And we try to, in every investment we make, we really try to analyze the signals we’re getting from the cap table, from really everyone and how they’re behaving, how they’re voting with their shares, not literally, but like, you know, their follow on decisions, lack thereof, they provide lots of interesting insight.

I think the biggest impediment to that scale for some companies is assuming product market fit prematurely and being tempted into going into hyperscale mode prematurely.

is it? I think it’s a combination of all all the three you mentioned. First of all, ours is a is an industry that fetishizes growth. And and as you know, the easiest metric to grow for a founder is headcount. It creates this sort of perverse validation sense. They’ve just raised a large round very successfully. They have the budget. They put out the ads. They hire the recruiters and off to the races they go. And of course, when you’re especially on the go to market side, if you’re scaling your go to market team, then you give them a script and they start working off that script.

If that script is not a perfect fit for where that company is at the moment, then the sideways trailing starts to happen. Losing ability to adapt and iterate, especially on the go to market side, is what we’ve seen as the biggest cause of that kind of sideways trailing off.

First of all, we believe in being quiet on the board. It’s a skill that we have spent a lot of time thinking about and and also through our kind of apprenticeship model internally, we try to distribute within the firm. Why? Because, you know, we’re we’re the only asset class where the asset chooses the investor. Right? So there’s this enormous pressure to demonstrate value add. What this means, and social media unfortunately compounds this, that there’s this temptation for VCs to be coming up with aphorisms around what a company story should look like.

Whereas every company is unique, every company has its own pace, its own trajectory, we think that you, of course, learn from your experiences in other journeys, but then synthesize that and distill that to very carefully chosen moments to provide input to the founder. I think your job as a board member is to understand the company, be very well prepared on any interaction, like the board meetings, etcetera. We’re obsessive about preparing for board meetings, but we are very careful in choosing when we share strong opinions.

of all, I think the healthy board dynamic is one where with all the board members around the table, but also in one on one conversations with the founders as well. So I think it’s very difficult to have that conversation come up for the first time in a board setting. If it’s sensitive like that, I think, you know, the valuable relationship with the founder that the board member or the VC has should allow for a better introduction, better timing, etcetera, for that sensitive topic. But I think beyond that, as long as you’re choosing what important few topics are carefully, then bringing them up should not

disagree with that. I think what we sell is not our cash. The cash is available. It’s I mean, the seeds and a rounds are flush with new capital coming in all the time. So I I think what we sell is our time and attention and capacity, and we’re selling one of those 20 slots in that fund’s portfolio that I’m going to be devoting my entire set of resources for the next ten years. That’s what I’m selling. Do you think the best founders really need their investor?

The best founders need a group of smart aligned individuals that they know are on their side and pushing in the same direction, rowing in the same direction as they are when they’re trying to create this miracle called a successful startup. Because I think every successful startup is a miracle. They shouldn’t happen. Do you think the boards that you’re on are valuable to the founder? I hope so. Not you, but the boards. We’ve seen board dynamics where, alluding to what I was saying a minute ago, there’s just so much pressure to demonstrate value add that we find some board members just get overly eager to contribute, to add, to maybe even iterate over and over topics that maybe don’t warrant it.

But I think it’s important to understand that, first of all, the founder always knows their business better than us. A lot of times they’re smarter than us. They’re certainly harder working than us. They have more skin in the game with us. So our job is to just support them when we can and

I think for practical reasons, that’s a that’s a good benchmark, whether it’s two, two and a half, or three, that could be discussed based on the stage. But more or less, I think that’s a good heuristic, a good rule of thumb. What we try to align with our founders is the early rounds are not real rounds. They are contracts where you’re demonstrating alignment around a a target that is very far out ahead. Every early stage check, you’re buying a very out of the money call option on these business.

It’s not a trade. I think a lot of people get that wrong. It’s not a trade. It’s really a construct for alignment, for a partnership where the founder is saying, I’m gonna have a few people around this table on this journey with me. And what I’m saying in return is this company and your team, the founder team, is going to be one of my four or five slots for this fund. So for the next five years, I’m all in with you on this. The early stage, the seed round, a round, is really a contract that establishes this alignment.

It’s not a real investment. It’s not a it’s not same as buying Apple shares in the market. What are the biggest ways that founders and VCs become misaligned? I think we usually try to sort of disagree with the with the founders in the term sheet process at least once so that we kind of see the dynamics of what what happens around that. So usually what what we see companies go in the wrong direction and board dynamics go in the wrong direction is if there was a lot of tension in the early round discussions, if this was a very contentious negotiation around specific governance terms, etcetera, sometimes that leaves a bad taste in the mouth on both sides.

And there’s this lack of trust that is in place as soon as the investment is done. We’ve had very few cases of this, but it’s a very negative environment to operate in.

rushed, we mind and we will not get rushed into decisions. In In 2021, when the market was in a frenzy, we would never categorically pass on a valuation. So we’ve written very expensive checks in that period, but we would categorically pass on not having enough time to understand the business and digest the opportunity. And sometimes the process that gets communicated to us will not let us understand and digest the company. In those cases, we’ll pass. And it doesn’t feel good because categorically passing is not right, and I’m sure there’s probably some good companies in there we may have passed passed on because it felt rushed.

The jury’s out on on the entire set. A few of them, a few very critical ones have matured into now grown into the multiples that we ended up paying for them at the time. A few others are still on their way there. And it’s a young portfolio, so I can’t

in analyzing our track record and mistakes is the round parameters have become quite fungible. What’s called a pre seed, what’s called a seed, what’s called an A are a bit all over the place. Sure. I mean, week was the announcement of a seed round, a $100,000,000 seed round at a billion dollar valuation. So that’s not really a seed. That’s a unique case. That’s something else, but it’s not a seed route.

So, okay, that sounds like a very big seed round. Oh, I’m sorry, a very big pre seed round if there’s nothing to look at. Would you do that? If we’re sold on the founders and the markets, since there is no traction, we can’t look at that.

job to be uncomfortable because we’re writing very high risk checks that should lead to high return. So, but the high risk always feels uncomfortable. So I think it’s normal to feel uncomfortable. Does it think it got easier over time for you? No, it hasn’t. Okay. Venture investing is never easy. I think it’s a very hard profession. What’s the hardest thing that people don’t often see, do you think? How long things take. And I’m saying this as a very fortunate VC that, you know, the big performer in our first fund matured very rapidly, but things take long.

I think it should help with the with that risk equation. We think a lot about GP commitment size. We have a very high GP commitment in the fund and Cursor, what is it? It’s it’s close to 10% of a $250,000,000 fund. We were very proud of this saying that, look, you know, this shows our confidence in what we’re doing and it gets us aligned with our our LPs. A very experienced LP challenged me on that and said, wait a minute, I don’t like that. What I’m allocating to to your fund is the highest return, but the highest risk part of my portfolio.

I don’t want your team nervous because you personally have a lot of money in this fund. I want you to take very, very high risk investments as long as the return is there. Will this high GP commitment make you nervous, make you more risk averse? I thought that was a brilliant challenge, brilliant question. So I think it plays out

Of course. And if LP can’t see that, shame on them. I I I think that’s inexcusable to hold a young emerging manager to to that hurdle. I mean, without my first fund outcome, wouldn’t be able to put the large GP commitment in fund three.

exotic for most traditional allocators to VC funds. So our LP base is is very diverse, but it’s not concentrated in large North American institutions. What should they know that they don’t know? I think venture capital has made the mistake of following private equity in terms of LP allocation categorization. And in private equity, regional investment strategy ultimately is exposed to the regional macro dynamics. Whereas in venture capital, because the outcomes are typically global outcomes, you may be hunting in a region with certain macro dynamics, but the outcomes are never impacted by the macro.

My portfolio is a global portfolio. My outcomes are American outcomes, you know, London Stock Exchange outcomes, you know, acquisitions by global tech companies. They’re not outcomes that are subject to the turbulence of whatever country that founder team may be coming from.

We go to our track record and show them that there was not a single case where any of our portfolio companies were impacted by those risks. When things that when bad things happen to our portfolio companies, they’re the same bad things that can happen to a a a Silicon Valley based company. When you lose a deal, why do you lose the deal? Sometimes ultimately, have to underwrite to a certain level of return. I always feel that there are venture investors out there with a very much lower cost of capital than us.

So somebody will come and underwrite the same opportunity to a lower outcome. In those cases, our offer ends up being not high enough. So we we’ve lost on price. Sometimes we’ve lost on ownership, desired ownership, where we find the existing investors would not let a new lead investor get to the level of, ownership that they would like to get. Those have been some cases.

So Daniel had been building a company called Deskover, I think since 2005 or 2006. It was a more of a consulting firm that was doing custom automation and different sort of back office applications for different workflows for various clients. We met him in Bucharest. I think the company was 12 people, when we met him. And he struck us as having being at the right place where, you know, here’s a founder who was deeply immersed in the problems that his clients were facing. Very technical, had a very strong vision on the immediate problem he wanted to solve.

He didn’t start out with painting ultimate picture of what UiPath would look like ten years out as a, you know, large global enterprise software company, but he was very keenly focused on what is the next feature he would need to add and how long that would take and what would that solve at what customer or what new customer would that then allow him to sign. So very pragmatic, very iteration focused, very technical, very hands on. And he also wowed us on how he saw what he was building to be so applicable in so many diverse situations.

And he came and convinced us that at one point, every single company in the world could be his customer. Was he immediately exceptional? In these regards that I talked about? Yes. Now, what we were worried about when we first met him, and we spent a lot of time with him, we met him in 2014, we ultimately wrote the first check-in 2015. So we had six to nine months that we were able to spend with him and the team. One concern we had was, is he a go to market leader?

Our Eastern European rooted founders are not polished. His English wasn’t fluent. He was not a great narrative storyteller at the time. Can he be the sales leader here? We introduced him to a few early hires or potential co founders to to to kind of join him with very senior responsibility in the company. And then, but along the way, the way he interacted with them, one, we saw how earnest he was and how much he wanted to make this happen. So he was giving these people the time, the efforts to try to see if they would work.

In the process, we got convinced that, no, Daniel will be able to handle all the responsibilities of a of a of a leader and a and a founder of the company. So we didn’t insist on this go to market question being fully answered at the time. But, yeah, he didn’t fit the fit the enterprise software founder mold.

He was raising 1,500,000. Initially, we thought we should do the full 1,500,000. I mean, this is a $150,000,000 fund, we would have been able to write that check. But then we thought this is a big enough vision that this company, at the time, he was struggling to raise. We showed the company to I think at at that first seed round, we showed it 14 funds to co invest with us. Credo ultimately came in with a 500,000 check. We led with a million dollars, and then seed camp joined us with a $100,000 check.

So it was 1,600,000 raised. I believe it was just south of 7,000,000 pre. So that was the that was the initial round.

This is a company doing about $0.5500000 in revenues.

to get to that stage. Yes. Although, I mean, he he it’s not the same business. I mean, he he started out as more of a solutions provider and then ended up finding the product idea along the way and building a product.

Why didn’t you? The most you can invest out of a $150,000,000 fund is $1,520,000,000 dollars. And we know that it costs more than that to build a global software company. And again, this looked so off the beaten path for, you know, London based or New York based growth fund to come and invest into. We thought we may have to support the company. In fact, probably about a year later, year and a half later, we ended up then showing the company to about 40 firms. Everybody passed.

Every single European VC has passed on UiPath at least once. So we had to bridge the company by ourselves. I mean, not by ourselves. Our co investors came in. Was it doing well? It was, yes, it was headed in the right direction. The numbers were not exceptional, but we could see how the clients were getting value out of the product. It was certainly headed in the right direction. That’s what our reserves are for. Our reserves are for those companies that will be misunderstood by the market or overlooked by the market because they don’t fit into the mold.

And we were able to write that check with conviction.

So there’s a learning from there. Like, when the numbers are pointed in the right direction, double down, do the price round. We felt that feedback from the market was so poor that nobody else was interested. What was the feedback? The feedback was okay. Keep us posted. Not enough traction for us to care at the moment. And this is coming from 40 firms. A very large number of firms. Okay. And so we get that feedback. Right. So we then do the do the we agree on a convertible structure.

I think ultimately it’s converted at something in the $60,000,000 range because a was 80, I believe. But we did the convertible, we then regretted the price, but of course, I mean, from that point, when the numbers start to show, then the picture changed a 180 degrees.

everybody was much did you do in the convertible? Two and a half. So you do two and a half in the convertible? So we did one in the seed round, two and a half in the bridge round, and then we put in $3,000,000 at the a round. We introduced them to Excel. What changed in that business? The traction numbers. Essentially, all of a sudden, the proof was there out there for everyone to see. In that case, everybody got it. Everybody it clicked, lots of interest, everybody was wanted a piece of the company.

Excel came in and led the a round. We joined and, yeah, they raised at that $80,000,000 valuation. Then about a year and a half later or two years later, Rich Wong at Excel Growth came and led the B round at a billion dollar valuation.

Yes, we did. We wrote a $10,000,000 late check with our hands shaking at the time. But again That’s a bold check for That’s actually, I mean, this is the the way we ended up continuing to invest into what looked like a very strong performer in our hands. That’s why we raised the size of fund we raised. At a billion dollars, that’s a tough one to underwrite. Right. How did you think about that? The trajectory. The trajectory and the fact that there were a few things in in place.

One, we saw what happened in Japan. Japan was a very important early market for UiPath and the Japanese uptake was very, very fast. So we could see that when the market conditions are right, back office clerical work in Japan is hard to fill by enterprises there because of the demographic reasons. So, but we could see, if one market behaves like that, we could see this in other markets as well. So the revenue trajectory at the company I believe I believe UiPath went from a million to a 100,000,000 ARR in twenty one months.

At the time, that was, I think, the fastest ever for a company to to have grown that fast. So we could see early signs of this this trajectory.

ride that big momentum that we have.

an internal question for us. At that billion dollar valuation, we ended up deciding to write that 10,000,000, and that was that turned out to be the right decision, but it was not a fast decision for us. Then when Sequoia led the $3,000,000,000 next round, we set it out. We did not participate. And then when the 7,000,000,000 valuation Series C happened, then we started to carefully divest. So start to I mean, again, you know, this had been such a big win for us in terms of returns.

Our prudent investor responsibility to our LPs would be to then try to start to realize some of these

each case, was between one and ten percent of our holding at I mean, I don’t think we ever went up as high as 10%. Is there a kind of strategic thought process behind how much you sell? It’s an analysis at the time of what our holding of that company looks like at the time, and we try to just triangulate to the price we may be able to sell at. I mean, our our secondaries were all at a premium to the primary round. So there was each round was so over subscribed that we were able to actually sell at a premium our share class, you know, shares that are at a at a lower class on the on the liquidation stack.

What did the subsequent sell down look like? We ended up I think our high watermark ownership was 18% Mhmm. In the company, and we entered the IPO slightly below 10%. So we sold about I mean, I can’t I can’t remember the the dilution effect on that, but, you know, we were still the largest shareholder going into the IPO in the company. You know, we had also realized already, I think, three, four times the funds at that point.

IPO, we executed an a divestment structure that was faster than that. Of course, we didn’t wanna impact the price of the shares, but as you know, once the stock is public, we felt that we have lost our entire edge in trying to manage that investment. I think as early stage investors, our job is to then leave that decision to our LPs. We were able to distribute in kind to our LPs who prefer to receive shares as opposed to cash? Hard question.

I think it’s a very personal question, a personal decision. You’re absolutely right. But for us, I understand that my team wants to work for a firm that one day they will inherit, and I want this to be bigger than me, that this is around for decades, if not longer. And when I look at the best, most inspirational venture firms out there, I see that the ones that have done the best are the ones who were able to create that institutionalization, and that doesn’t happen with your family office.

opinion, tech sector moves too fast for your edge to remain. It it decays your your whatever insight or asymmetric information you have until the point of the IPO starts to decay. If you’re still on the board, if you’re still an insider in the company, then your ability to manage that position is diminished. Right? I mean, then you’re essentially like a founder long term, and our our funds have a very specific lifetime. So, you know, even if I wanted to hang on to my stake, it would only post IPO, it would only for a few year be for a years for a few years because then we have to divest anyway, because structurally.

I’d love for them to change. I think a ten year life for a seed and a focused fund is too short. This is evidenced by the fact that almost I don’t know a single early stage VC fund that was liquid by year ten. It is also probably a healthy pressure and friction to put on a GP team so that they’re actually thinking about liquidity as they approach that ten year mark, even though there’s perhaps understanding implicitly around around the table with all the investors that it’ll probably not be fully liquid by the end of fund life.

In hindsight, we should have participated in that $3,000,000,000 round by by Sequoia. We post IPO, we did some block trades that felt as if we were playing in a in a market that we’re not naturally suited for. So maybe the divestment strategy post IPO would have been a bit different.

Fortunately, we haven’t had big losses, and we’ve had relatively low loss ratios, which is maybe even a criticism of What is a low loss ratio? In fund one out of 15 investments, only three of them did not return capital for us. Now six companies are still alive, but we expect to make money from all six of them. So they will not be loss making. So we will have made a positive return on 12 out of 15 investments in fund one. Now, when I think about it, some of those returns were capped returns.

Probably lower risk investments than we should have made. Even though they returned us capital, they cost us two higher risk, higher return opportunities we should have probably backed. That was a learning for us from Fund One. Do you think about downside protection when investing? I do, maybe because I was an angel investor before, or maybe I’m human. I know I shouldn’t be thinking about downside protection, but it enters the thought process, it enters enters the equation. I think it’s overrated. Why? You know, as I mentioned before, our deals, our investments are not real investments the way you go buy Apple shares on the stock market.

They are long term contracts around a vision. Ultimately, it doesn’t really move the needle that much whether, you have a liquidation preference that can lock in some asymmetric returns if things go bad. Many times we’ve seen those type of structures get renegotiated at the point of liquidity because it just serves one right purpose or another. We’ve never really seen downside protection measures make a big difference in any outcome. What has been your biggest loss? About 6,000,000 in a in a company that, was faced with some regulatory, it was an HR, business, that faced some regulatory, issues around it.

Loss changed that made their vision very difficult to execute and they ended up liquidating. Did that impact your mindset moving forwards in any way? In that case, we had written a follow on check where, I think about that follow on check that we maybe didn’t have enough data to evaluate that follow on check. So that would that could have been a smaller loss learning there. That was an early investment of ours in our in our first fund, so I think we were still somewhat novice around fund management and fund investing as opposed to personal investing.

So the the learning is around maybe Do diligencing a follow on investments more thoroughly. How do you approach the diligencing of follow on investments today? Depends on the follow on investment. I think it’s different when you’ve written a $500,000 check and you’re writing another $500,000 check early on in a journey, whereas you’re really doubling down with a 10,000,000 UiPath late check.

Of course, that’s a very strong signal, but we’ve we’ve done, I mean, the bridge round at UiPath. No great fund was touching the the company, and we had to build our conviction internally. I think if you had the luxury to get validated the way, you you mentioned, of course.

a sustaining trend, I am. I suspect it’s not. Cyclical. I think exuberance will come back. We’ve started the rates change direction recently. You know, we’ll see what the FTC governance will look like post election. So I think those are cyclical. I think it’ll come back. Great companies are defined by sustainability that that they’re not dependent on the mood of the markets. The outcomes are very dependent on the vintage. You know, the I think a very humbling fact is the biggest predictor of a fund’s performance is its vintage, you know, irrespective of how Do we all get a pass for last vintage?

Depends on how you played it. I don’t think you get an automatic pass. I think, you know, the the question that will get asked would be, what did you say you would do? Did you do what you said? If there is a performance issue, can it be attributed to the markets? Or was it other factors that led to it? If it’s pure vintage related, I think I think it’s not a coincidence that funds get benchmarked based on based on vintage. The majority of

I would suspect that is probably the case. I’m afraid that

more difficult than it’s ever been? I’m not sure. I think in these kind of in between cycles situations, I think things get a bit more murky. That’s why it’s important to have clear strategy. It’s like, what’s the game you’re playing? What do you think your edge is there? Are you sticking to that game? I think that delivers. That gives me confidence. I agree. Do you play the game on the field for AI companies, or do you just say this is a bubble right now? Everything that touches software today is AI.

There is no software company that doesn’t utilize machine learning and artificial intelligence in some way to do their job better. Better. So, of course, every investment we’ve made out of fund three, the last five investments, are all in one way or another AI companies. Now, are we investing into, you know, hundreds of millions of dollars rounds of, you know, foundational models? We’re not we’re not in that.

he’d he’d like that to be the case because then, you know, there’s only four players in that game. Right? Yeah. I mean,

not

believe that most people believe wrongly that an early stage investment is is a trade. You’re you’re buying something for, you know, you’re buying a share for for a price. I believe it’s a contract for long term alignment to build a great company. Which venture investor do you most respect and learn from outside of your own firm? Fred Wilson was the first person to tell me that I He thought I might make a good venture investor. This is back in 2005 when I just sold my company.

Did he say why? He thought I was well rounded and he’s been an inspiration and a source of learning for me, like through his writing online as I developed into investor. I also have a lot of respect for USV and Benchmark in how they’ve kept their discipline around, you know, what they think they do better than anyone else, and I think the the results show. So those are the two firms I would name. Most memorable first founder meeting? One of our fund two founders, I met when he was six years old.

I I picked him for my soccer team.

the leverage they have on their cap table. They negotiate things for very obscure situations, etcetera. Experienced founders know that it’s their company. They will have a lot of flexibility around managing things when it happens, when the opportunity comes down the road. I always find myself smiling when, you know, we’re negotiating a very sort of obscure one off, you know, far fetched scenario where I just know in my actual portfolio, I know how much weight the founder carries and it’s their company, you know, it’s it’s kind of funny.

What do founders most care about in the term sheet that they shouldn’t? For the founder, I think the most important thing is probability of success. Is this round that I’m closing? Is this gonna impact my potential of getting where I want to get to? As a percentage, will it make up for the dilution I’m suffering? So if I’m giving up 20% in this round, after this is signed, am I 20% more likely to get to that vision? If the answer is yes,

Very rarely. We’ve seen a few, but usually they’re in very difficult situations. So I doubt there’ll be any good outcomes coming from those dirty terms. What concerns you most in the world today? Technology has been a factor in concentrating resources in the hands of very few, and I think that is causing a lot of problems right now, and it’s I think it’s going to get worse before it gets better. Is there any way that can be solving that? Is that not by nature just capitalism and innovation that is?

I’m hoping, you know, with the with the existential threats that our world and humanity faces, solutions that are compatible with capitalism or how resources get allocated will also emerge. However, in the short term, technology has been a very strong accelerator of the trend. What do

not ever asked that you should be asked more? I’m surprised founders don’t ask us about data around our follow ons, you know, at the seed stage, early stages. When I mentioned that founders are buying care by investors, that’s

fan of yours for a long time. It’s it’s fantastic to be here. Thank you.