How Multi-Stage Funds Changed The Game For Seed Rounds

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Thanks for having me back, Harry. Excited to do this. Are we sparring today, or we’re just going to have a light, fun conversation?

Yeah. I I grew up loving the Internet, and that’s what I fell in love with as a kid. And I never understood what the career path into this world is, and I actually don’t think there is a traditional one. I think everybody finds their own way, and my way was I joined an organization called Techstars early on. And when I did that, I signed up to be an investor. And BoxGroup, at that time, was my side hustle. And then in 2012, left Techstars to do BoxGroup full time.

So now I’m eleven years into that full time BoxGroup journey, so I’m old in this world. I absolutely mourn you on your

You’re getting deep, Harry, really quickly. I feel like I’ve seen the Internet evolve and had a vision for what was gonna happen, and a lot of that ended up happening. And I feel like I watched it and wished that I participated in some of it. And I think the history of being the age I am and watching the evolution of this pushes me forward. Can I ask

There’s a lot of nuance in that answer. I’m an individual, and I have my own ambition and desires and goals that are not necessarily attached to the history of my family. At the same time, I have an immense appreciation for the blessings of coming from a group of people that worked really hard and found success. And so it’s not this rebellion or desire to strike out on my own. I love what I get to do, and it happens to be in a different world than what other people have done.

It’s not negative lens of it versus a positive one.

Yeah. I think I take the personal perspective of success is building a life that you’re content with. And whether that’s family or friends or the people that surround you, the core of that answer is there. And then on the work side, our goal is to be part of other people’s journeys. This is a job that actually isn’t about us, but really about the founders we’re fortunate enough to have the opportunity to work with. And watching them succeed brings us both emotional and psychological success, but also financial success.

So I think there is real alignment in the success of the people we’re able to work with. I totally agree with you. I always

I don’t think the details are as interesting. I think the model is what’s probably more interesting. And so our goal is to work with the best founders we’re able to have the opportunity to work with. And I think more than anything, it’s not putting our business in front of the founder and not making our needs important enough to stop us from investing in a company. And so it really is about agility and flexibility as we think about deploying capital. At the seed fund level, our goal is to back people at the company formation or soon after.

So in a traditional seed round, we’re happy to be the second, third biggest check on a cap table. In a pre seed round, we’re happy to lead it. And so I think the goal is to say how much money are you looking to raise? How much money is available for us to put in? And let’s find a place where we’re both content with that arrangement.

I don’t necessarily walk in and say this doesn’t make sense if the core of the decision is this is a company that we want to be part of, and can I build a portfolio of only 100 k checks? That feels like a bad decision. Can I build a portfolio where there are exceptions to the norm throughout in different ways? Yes. And are individual exceptions capable of creating venture returns on an individual company basis? Probably not. Now, there’s exceptions to that rule. If you put a 100 into the best company of a generation, it was likely a good decision.

So you can fake rationalize the math version of that answer, and you can logically rationalize a handful of other directions as to why that is a logical decision. I think it’s easy to put up rules. It creates consistency, and it aligns to fund math, and I appreciate that, but we truly hold to the idea that we want to invest in companies we’re excited about, and if what we’re able to invest is not in perfect alignment with the math, we’re willing and able to make exceptions. Do you

Yeah. Do I worry about everything? But I’m focused on founders more so than other VCs, and I think if we can build a brand and a reputation with the founders that we’re fortunate enough to work with, their goal is going to be to give us an aligned amount of allocation in a round and not treat us in that pushy way. And I think there’s a history that’s thirteen years deep of BoxGroup building great relationships with founders where people want to work with us and won’t take that approach to it.

It tends to be when we’re late to a company and there’s not a lot of allocation left, that flexibility matters more so than other VCs pushing us around.

Our goal is to invest as much as we can in the company that we’re excited to invest in. And it’s not maximizing check size, so we write a 500 k, 750 k million dollar check. We do that as the core of our business. It is a target in the majority of companies that we’re able to work with. Valuation is the second piece of that. So you get to ownership in each company through those two basic numbers. Is there a strong rule on any of this? No.

But on a portfolio basis, we find a balance of all these things. Valuation is not something that as an investor you actually control. I just don’t believe that. The market as a whole controls that. So if a founder gets enough optionality for their round that they’re able to raise at a valuation that you as an investor don’t like, you have two options, invest or don’t invest. If you get the opportunity to invest and this is the deal, you can say yes or no. I can sit here and complain about valuations, but if I’m a founder, my job is to build a company that is a lot bigger than whatever valuation I’m raising my seed and pre seed.

My job is to take the capital and create immense value so that the next round and the next round are bigger. If a company goes well, the pre seed, the seed, those are the lowest points that you’re ever going to be able to invest in a company. Would I like to own more of the best investments we’ve ever made? Would I like for us to have written a bigger check or the valuation to have been cheaper? Sure. But that’s not realistic. You have to be, more than anything, patient and long term and consistent.

And when I look at our business, those are the three things that we hold true to. And on a deal by deal basis, valuation is a fact and not a pain. I think I love this debate, and you don’t.

My fund’s too big if I can’t produce outlier returns. That’s my job. So I need to produce outlier returns. That’s my responsibility to our investors, to our LPs, is to produce outlier returns. The way that we’re able to do that is funding companies that have amazing outcomes, and the math works itself out. So I don’t obsess over the ownership and the portfolio construction in a way that I think it matters on a deal by deal basis. I think it matters on a portfolio basis. If the perfect alignment is we own the most ownership in the best companies in that given fund.

Our belief is that if a founder is able to build a company from the seed stage to a billion or $2,000,000,000 outcome, there’s gonna be a lot of people that’s a life changing outcome for. And those are the journeys that we’re signing up to be part of. I don’t view it as a dismissive outcome. Can I build an entire fund off of billion, $2,000,000,000 outcomes? If there’s a high enough percentage of the companies that we invest in that end there, sure. But is that the ambition when we set out to deploy capital?

That’s the target outcome for every company? No. We need to have and hope to have some outcomes that are bigger than that. And you’re investing whether in your world and your numbers at 25, at $50,000,000 entry points, or at 5 or $10,000,000 entry points. That founder that embarks on that journey, exiting at a billion, $2,000,000,000, as long as they didn’t raise an egregious amount of capital and get offensively diluted along the way, they’re gonna have a wonderful day, and they’re gonna have a wonderful life changing moment in that journey.

That’s what I’m here for. I get you. I didn’t mean it

Hit me. Reserves wise, from the fund, how much do you have in reserves? You wanna put as much money as you can into the best companies in the portfolio. The math has to work. It’s my job to make the math work. Somebody is investing in our firm because That doesn’t seem to be

But are we in the bad times right now from a seed investing standpoint? I think we will be, yeah. From seed investing, Yeah, I think 20. My job is to fund a ten year journey, and so the macro change in the environment impacts our prior investments much more so than our future investments. Cut it to A seed round tomorrow becomes relevant in the customer side of the market in the next one to four years. It becomes relevant in the venture market in the next one to three years to raise another round.

So the macro of today doesn’t have this immediacy in terms of its impact on our seed business and our deployment of the fund. Does it have an impact on the reserves that I have to deploy into the pre existing, the prior investments? Okay, sure. How does it? We have to use the capital thoughtfully, and we have to back again the companies that we are most excited about. And I just don’t believe in evaluating venture, especially seed venture, on a minute to minute, year to year basis.

It is an incorrect use of energy and mind. If you’re investing over our fund life is a ten year plus fund, our companies are going on a ten plus year journey. In a moment in time, you can make up illiquid private valuations. You can mark things up. You can mark things down. It’s a snapshot in a business where snapshots make no sense. And so I don’t operate on short term. My whole life is oriented around long term, and I’m super content living there and actually trying as hard as possible to both live there in a zen like consistency and get great at what we do.

Our job is to back amazing people in good times, in bad times, in times where every series b is punishing. Our job is to help people navigate that, not obsess over our business because we believe that our business is going to work out over the long term if if we back great companies. I love you, David.

question and not getting into the details, because I Are believe you a politician? No. But I truly don’t think how we go about managing that is that important in the abstract, which is what our conversation is gonna remain in. It has to, because you’re not sitting inside of the decision room, looking at each decision that we have to make, and understanding why we say yes and why we say no to a specific company. Our job is to deploy follow on capital into ideally the best places we can.

And it’s the same with the opportunity fund, the follow on the growth fund. Our job is to lean into investments that have the chance to have outlier returns to that single investment, and on a portfolio basis, to the whole portfolio. If I was trying to build this business to what you said before, 1x, 2x funds, I should go do something else.

Been down rounds and sideways rounds in so many of the long lasting great companies of prior vintages as well. It is not catastrophic that it is hard and there are bumps in the road for a company to build. It’s not this gigantic net negative for a founder that they raise at a high valuation if they can power through a bump in the road. It’s a net negative if they don’t build a good company. If you don’t build a product, you don’t build a business model, if you don’t build revenue growth that the market views as good enough, that’s the problem.

The valuation to me is the investor’s problem, and I just don’t, like, I don’t believe that my sympathy sits for all the VCs that overpaid on things that they did. Again, back to this, you could have said no. If you thought something was too expensive, you could have said no. So if you said yes, am I losing sleep over the fact that people’s portfolios are too expensive? I don’t know. Not my problem. Okay.

Well, there’s the thing that has not happened over the past three to four years, and it’s really before ’21 ’22, is that companies have shut down, and that’s going to happen. And that’s actually the math that hasn’t played out over that four year period, in that when you see seed to a graduation rates and a to b graduation rates, they went from a historical consistent set of numbers, call it if you’re graded this 70% c to a, and if you’re great, 50 to 70% a to b.

And over that nineteen or eighteen to twenty two period, it went to basically a 100% of companies that raised the seed got an a. Maybe it was ninety, ninety five, but that’s inevitably going to mean that certain companies don’t work out, and they’re gonna not work out when they’re later and bigger. And that is going to happen in the next eighteen to thirty six months. As runway runs out, as companies come back to market, as the businesses didn’t work, and there’s not an m and a market to do acqui hires or small acquisitions, companies are gonna shut down.

That founder dream is gonna come to an end, and there’s gonna be a bunch of people that work there that believed in the company, that had equity in the company, that hoped for economic returns from the company that are not gonna get it. And those are not down rounds. That is the death of a startup that we just haven’t experienced over the past four years. And I assume we’re gonna have that throughout our portfolio, and I assume that’s gonna happen in everybody’s portfolio. Although everybody likes to say that’s going to happen, but my companies are great.

It’s unrealistic that the math skews that way. Down rounds are, to Albert’s point, like, they are going to be traumatic on company morale, but if you can figure out how to rally around that and a founder can figure out how to compensate the people that work there in a way that makes them reenergized to go build and tighten and move forward. It’s just like a bump on a long journey. I think USV is also world class, and they have an amazing ability to select unique quality companies and have been long term partners for almost every investment they’ve ever invested in to see them through the tough times in a unbelievably supportive way, and it’s why they’re world class VCs.

I think the thing

If somebody gives them that, then the market is that. Everybody can ask for whatever they want, and everybody can say yes or no. That’s the way this business works. If somebody says yes, that’s the price. Sure.

that’s the choice you made, and that’s the choice the founder makes. And if the founder wants to go talk to 200, 300, 400 seed funds, which there are these days, and one of them says yes and gives them money at 25, so there’s three variables. Right? It’s how much money are you raising, at what price, and from who. And you can try to optimize all three. You can try to optimize one or two. I think each founder takes an approach that’s specific to them to each one of those variable.

If I were starting a seed company, I would try to optimize all three. I’ll get as much money as I need can at whatever price I can from the best people that I can raise from, and I think that is the job of a founder in each round, is to think about those three variables and try to optimize the ones that are most important. David, which one would you let slick? You can only have two. It matters the gap between who. If you’re talking about my top choice versus my fifth choice, that’s a fine compromise.

My top choice versus my hundredth choice, that’s not a fine compromise. So I think figuring out who you want to work with is vital. So I’d actually put that as the most important, but I think a bit fluid in you don’t just pick one person. So I would not over optimize for a single person, but I would put that first. The second is how much money is vital. You need enough money to make enough progress, to hire enough people, to use that capital effectively to build your company, and the third is price.

So I think you end up having and should compromise on price if you can get the other two. It’s not opinion based. This

I agree generally with that. I think there’s too much sound bites on Twitter saying I’m seeing crazy cheap valuations. We’re seeing a bifurcation of the market. I think the biggest thing that happened and really happened again, I think people are trying to isolate ’21. The first part of ’22 is equally frothy as this stand alone period, but it started before that. So I would go back to, like, 2018, ’19, and then into ’20, which was this weird year with COVID and the shift to Zoom. But the multistage firms have a product for seed that changed the market.

They write a $5,000,000 check at a 20 to $30,000,000 valuation per your post, and that $5,000,000 check could be seven. So you’re seeing rounds of five to seven at 20 to 30 per your post, and that’s a product that hasn’t changed. And I don’t think it’s going to change, and I think it totally evolved the seed market to say, you raising from a multistage fund? If so, that’s the style standard deal that you can go get. And if you’re not raising from a multistage fund, there’s a different deal on the table.

That’s a 2 to $4,000,000 round. Maybe you can stretch it to five, and that’s being done at a 10 to $15,000,000 valuation. But single digits, it’s not the norm. Now at the same time, if you’re early enough and at the sort of friends and family as it’s called or the angel round, there’s a different structure of that round, but it comes back to this, how much money, price, who, and I think you can We still have those angel and friends and family rounds. When I see people spin out of any And that is who?

Not that person who’s spinning out of a company with a great reputation. In reality, can and should go get bit more money because they have a different track record than the person who is totally unproven and needs to get some capital to show their idea and their ability to build the thing they wanna build is realistic. And so there is a cohort of companies that come out of big companies that raise very healthy seed rounds that are gonna build great companies, and there are a lot of companies in that category that are not gonna be great.

That’s the inevitability of the world that we invest into, where there’s going to be more failure than success. There will be more failure than success. In each of those journeys, there’s a team of people that had a dream, that it didn’t work out. And I think the venture conversation removes that emotional and psychological hit the founders and the early employees take from a failed journey. And I try very hard in our business not to trivialize that because I think it’s important to not, again, take my business and make it a founder’s problem.

those seed checks.

It’s safer and easier to deploy a seed check if you have a huge fund than it is to write a Series A or B check at this moment. Exactly. So Is it gonna get worse with their intrusion into seed? It’s not even worse. It’s been this way. I think the idea that it hasn’t been this way, and this is a net new thing, is just totally incorrect. Since 2018, multi stage firms figured out that the competition for Series A is so steep, and there’s only one winner, that if you don’t take risk on seed, you might not have a shot at the A.

And so they’ve they’ve been slanting earlier for a long time. And if you talk to each one of these firms, whether it’s dedicated capital, whether it’s dedicated people, whether it’s a certain amount of time firm wide, they’ve been writing that $5,000,000 seed round for long before the ’21 period and long after this new downturn we’re in. So you

Amount of money, valuation, who? And if you go to a multistage firm and feel like they are the right fit for you in terms of who, I don’t think it’s a general wrong thing to do. There’s not a generic answer to any of these questions. It’s so founder specific. What are you working on? What are the capital needs? What’s the background of the investors that you’re working with? I do think it’s important to surround yourself with a group of people, group, not individual, people that can be a bit different in their perspectives.

What we do at BoxGroup and what we hone ourselves in on is being aligned with founders. We say we want to be a friend of the founder, and we mean that in the longest term, most authentic way possible. So if you work with a multistage firm, and they write the lead check, we’re happy to be the second biggest check-in the round. If you want to work with a seed lead, a traditional seed firm, we’re also happy to be the second biggest check-in that round. If you want to do a pre seed or a small seed, and you want us to write a term sheet and write a adorably nice check alongside a group of amazing angels, we’re also happy to do that.

And our job is to help you get to the next round, and then help you get to the next round, and the next round. And in doing so, there’s some operational stuff that an investor can help with, but that is always overstated. What we are world class at is helping companies raise money, because we live there, and we’ve been doing that for a long time. And it doesn’t necessarily mean if you raise from a multistage firm, it’s going to be harder or easier, and it doesn’t necessarily mean if you raise from a seed firm, it’s going to be harder or easier.

How great are you building your company? That is the core variable of what’s going to make your next round easier. Do you agree with the signalling risk that everyone plays? Is everyone No. Why? Because none of the next set of investors really care. Every investor thinks that they have their own opinion, and they’re right, and they’re not really looking for someone else’s opinion to create their opinion, and the multi stage firms don’t care about the other multi stage firm. That signalling risk, I feel, is the single most overstated part of the ecosystem.

I think Series B and later, signalling risk matters. Maybe Series A to B, it matters a little bit. If your Series A lead is not doing their pro rata in your B, that is a material data point. But if your seed lead multi stage firm is not doing it, there are ways to navigate that as a founder, and we are very happy to help you do that.

Yeah. And look, there’s also a reason sometimes multistage firms are not going to follow on. Let’s say they buy 15% of a company in the seed round. That’s a lot. Keeping pro rata at 15 might be good enough versus needing to get to 30, which is a lot of the company. Or 15 to 22 isn’t this necessary optimization. I don’t think it’s black and white. What I’ve struggled with in my venture career is watching investors put out generic advice, and founders read generic advice and assume that it applies to them.

Every single company is very different, and each specific variable in that company drives to how to build it. And I think our job as early stage investors is to provide a customized service to founders. At BoxGroup, we spend a ton of time trying to understand all the dynamics at play and give very nuanced specific advice and tactical advice how to achieve that specific company’s goals. The hardest part is when it’s not gonna work. And I’m not here to kill companies. I’m here to provide as best as I can honest advice, and do so with a goal of achieving success in whatever the next thing you have to do as a company is.

You mentioned

becomes back to this generic thing. Every investor in the market has a different view of the types of people and the types of companies they’re looking to back. Venture gets viewed as an asset class, and it’s not. These are all very small businesses with independent investment styles and independent investment beliefs. And in some way, the best thing a company can do is go to as many investors as they can get in front of because everybody’s totally different. Just because you’re a Series A or Series B or a seed firm, there’s such a uniqueness to each approach that the idea that we can predict perfectly, of course, is just a stretch.

I do at the same time think what the meme and the sort of content world has done a disservice to founders, and I think we’re past this, is telling founders, put your head down, build a product, don’t worry about fundraising. It’s distracting and annoying. The CEO specifically, their job is to become great at fundraising, and they need to view that as a core competency that they should take responsibility for, getting better at, learning, and being world class at. And to your point, sometimes when you see companies raise a lot of money at crazy valuations, it’s because the CEO became great at fundraising and pulled the company forward.

Is that a net positive or negative? It’s not black and white. It’s a net negative if they can’t execute and build a great company. It’s a net positive if they can, because you’ve done your job. You got your company money at a valuation that was not punishing to the dilution of not just you as a founder, but to your employees as well, and that’s a good thing.

So I think first off is just listening to them. What do you want? How much time do you want to spend on this? How much risk do you want to take in this process? Understanding their psyche is super important, and so a lot of the time, the beginning is, what’s your style? Where are you going to excel? Are you distracted by 50 conversations? There are certain founders that are not, and that’s a strength for them. It’s a weakness for other people that then you shouldn’t push them to do.

And so I think it’s really helpful for us to, again, view each journey, each company, and each step in the process as very specific. I believe very strongly founders should consistently be building great relationships at every step of the way on their journey in every single category. So long term potential customers, long term potential partners, long term potential acquirers, and long term potential investors. Mark Suster wrote that blog post years ago, invest in lines and not dots. Right? And it’s that core view of how the world works.

In ’21, that frothy moment that we love to isolate, everything became transactional. You could show up one day, meet six firms, and have six term sheets, and everybody spent about eighteen minutes making that decision. The transactional shift happened because of speed and panic. Is that how life should work? Probably not. That’s not how our business should work. It’s a disservice to founders because they don’t get to know the people that they’re transacting with other than by back channel reputation. And that’s challenging. So in a world where you’re not optimizing for purely speed, the more you get to know somebody, the higher probability if both sides like each other, there’s a deal to be had.

And I view that the same way in venture. So I don’t overly arc orient towards don’t talk to investors until you’re raising, or ignore all the inbound and play hard to get. You wanna get to know somebody, get to know them. And if it’s not gonna be this massive distraction to you to have breakfast one day, which you’re probably gonna have anyway, have breakfast.

No. Hate it. I think it’s risky for founders to listen to things that are not specific to them, and believe them, and take them to heart, and act upon them. That’s totally decoupled from you building a business, a content machine, and creating content. The value of that content creation for the investor is enormous. You get brand recognition, you get deal flow, you get people valuing your distribution channels that wanna let you get into companies that are hard to get into because you can help them grow audience.

Those are incredibly valuable things. Again, we decoupled the message from the value. I played hockey in high school, and my hockey coach was a amazing man who taught me a lot of lessons. And there’s a quote that live on, which is don’t believe everything you read in the newspaper. Totally agree with that. And I view TikTok, I view podcasts, I view blogs and Twitter as, in essence, a newspaper. And I think it’s important just not to believe everything you read in the newspaper. I think it’s hard when you are a operator and you see someone in a space or someone raise some crazy round at some frothy price, and you’re like, look at what they did, let’s get to the details.

There’s probably more more backstory to whatever you read.

Here’s what I will take, I will apply to me, and I will take and not just do it, but I will process it and do it in my way, in my style, that’s customized to me. Yeah. Like, the other line that I talk to founders a lot about is make you watch the Facebook movie, which is inspiring, and people can say it’s a good movie, bad movie. It’s amazing. Doesn’t it? Everybody wants to And that’s why I became a VC. I was 13. I saw Puget T and invest in Facebook from it.

It’s to me, it’s the most magical story of our industry. And you can be overly critical, but that’s the goal. But make your own movie. You know what you’re not gonna do? You’re not gonna replicate that movie. You’re not gonna replicate anyone else’s movie. So figure out what movie is yours and make that, and do that from minute one. So you are taking such a bet when you start a company on yourself. You’re saying, I know something nobody else knows, or I’m gonna do something better than everybody else.

And then you start listening to outsiders, and you start hedging that risk. You already took the risk. Don’t hedge it. Just keep compoundingly betting on yourself. Take advice. Learn. Iterate. But don’t compromise the bet on yourself because that’s the binary thing that you did that you should lean into.

You spent the first half of this podcast telling me why my model sucks because everybody else’s model’s different. So in Your some way model sucks because you don’t have a model. In some way, I am doing what I believe is my way of building this business, and if everybody else does something else, awesome. I’m not judging them. I hope they’re successful. I’m gonna do it our way. I need to be successful to our stakeholders and to myself and our team. I have three amazing partners. I have three other amazing investors on our team.

We’re a seven person investment team. I owe them immense responsibility, just like they owe me to all of us seven. Do great work together. Our job is to return as much capital as we can to our investors. That’s who we work for. But we work in service of the companies that we invest in, and the reason we do this job is because we get to work with people who have dreams and help them achieve those dreams.

Carefully. We try hard and really align ourselves with founders long term. And so our goal isn’t to look at the secondary markets constantly in private companies. At the same time, my job is not to manage public stock. I have investors who are very capable of making their own decisions in the public markets that I don’t feel the need to try to say I know better. That’s an easy lesson. Let your LPs own the thing that they own when you can. And in between, there is all this gray.

I don’t have a sound bite for you that you can go put on TikTok. Trust me. There will be many from this show, my friend.

As entrepreneurs and founders, I think the lessons is that starting a company is hard. It’s hard in every single market because the market isn’t consistent. And so even if you start a company in a hot, frothy market where you’re getting overfunded and high valuations, it doesn’t mean that’s gonna be the status quo for the extent of the company, and things change. And it’s really hard. You’re going to go on those ups and downs. Going in eyes wide open to knowing what you’re signing up for is important, and just because you can start a company doesn’t mean you should start a company because that’s something you’re gonna see through all the way.

It became very easy to raise seed funding and to start a company, and everybody got to do that. I don’t think people went in his eyes wide open to the challenges that they were signing up for, and I think it will end in a lot of failure. On the investment side, it was very hard to not be transactional. Speed became a core tenant of the market, and it was at every round. And so seed, a, b, were happening in hours to days versus weeks and month.

We participated in that because that’s the game on the field, but the transactional nature of the industry, it’s not the most fulfilling way to do this business. It doesn’t lead to relationship building. It’s not that we wanna be best friends with every company that we invest in. It’s that we want to get to know you so we can try to help you, and we want you to get to know us so you can know how to ask us for help.

And when you’re doing things so quickly, a lot of that authentic actual deep relationship building that I think is fulfilling, it’s fulfilling either emotionally or psychologically, but actually long term, it it allows you to feel support That got removed from the industry for a bit. You mentioned the transactional nature. When did you raise the lost set of funds? 2021. How fast will they be deployed? ’2 fund cycles? We are trying to be super responsible with our LP’s capital. So three years. I think we the hardest part of a seed model and a non concentrated seed model is the reserves.

We’ve come full circle. So how much of the fund makes sense to reserve when the initial dollars are deployed up to that percentage is when we need a new fund. And so what I’ve seen happen over the past couple quarters is there’s been a slowing of what we view as, like, opportunities that we’re excited enough to invest in at the seed stage, and so our deployment capital per quarter has gone down. I need to see it play out over the next couple quarters to know when it makes sense to switch the next set of funds.

For the

a three x? Every every single investment out of our opportunity fund needs to be able to have outlier outcome because it’s a net new investment. It’s not attached to the pro rata of the seed fund. So What’s an outlier investment, though? Is that a fund return, or is that a

It matters what the risk profile is. It needs to have upside. The whole fund can’t be built off of underwriting a company to a three x outcome because you’re not gonna be perfect, and it that’s out to three x, and that’s not the inherent goal. And it needs to have real upside. In certain ones, you have unknown exponential upside, and other ones that are probably later and more established in, you know, industry where you can get to a more predictable outcome are gonna have more confined upside.

Did you make LPs invest in the two alongside each other? The word make is such a strong word, Harry. I don’t make anybody do anything. Did investors invest in both alongside each other? Our investors are aligned with the strategy that we go after the business with, and I feel very much our job is to have a business and a structure that aligns with LPs and find LPs that feel aligned

job is to work for founders. We get upset when founders are dishonest or renegotiate agreements. Those are the areas that I find to be upsetting, and not what I signed up for. We are honest with who we are, how we work. We put our word first, and we try to live up to that. I like to work with people who do the same. I agree. I always say liquidity is Nope. Not my problem. Nope. On a portfolio basis, it’s my problem. On an individual deal basis, it’s their company, and I’m here to support them.

And we truly live by those words. Can I give them advice? Yes. Is advice meant to be listened to? No. It’s not my job to tell a founder what to do. I can give strong advice, but it’s their company. I respect that structure of the relationship. Final one for you. The mistake is gonna be much more costly to them than it is gonna be to me. I think not

boutique survive? How I thought the crossover funds were coming to seed imminently if the market maintained the up moment that it was having. So I think if you didn’t have the turn of the market in ’22, you were going to see enormous amounts of capital pointed at seed. Whether that was good, bad, or right or wrong, we didn’t get to see that play out. I think the multistage firms have, as I said, been doing seed for a while, will continue to do it. There will probably be less investors because what this has done is push out the tourists.

And I think the tourists were dangerous, and the tourists were not here for the long term. And that was capital that doesn’t make sense for founders who are here for the long term to be working with. Who are the tourists? Whether the tourists were crossover funds that came in just because the numbers looked good and wanted to grab onto that. It’s people that are I go back to USV. USV is the opposite of a tourist. They are so focused and long term in every single thing they do.

They’re consistent. They’re loyal. They live by their commitments. I have immense respect for the long term nature of their business. When I look at what we want to do at BoxGroup, we are who we are. We are who we say we are, and we’re gonna continue to be that. And that’s the business we wanna build. And that to me aligns with the timeline of starting and building a company. And so investors who are here, whether that’s early stage funds that started and then funded things because they were going up and now are getting nervous and questioning things, or it’s crossover funds that showed up at the last minute.

I think you pointed out, Tiger and Cotu, they’re easy to criticize, but they’ve been investing in tech for a long time. They’ve changed their model. They changed their velocity. They’ve done things differently at points, but they have been investing into private startups at a consistent basis for a long time.

about And there’s there’s bit more depth to that too, of they came in because it was hot, and they’re not going to stick with it. I think when you have investors who, you know, two years into your company’s journey are no longer doing this business, it’s not the best group of people to have around the table. We are going to run, whether you like it or not, the same model for a long time. And I think what that does is it aligns us with founders who are also going to build their business for a long time.

We are consistent. We’re not gonna suddenly be a Series A lead next year. We’re not gonna scale the size of an entry point in where we focus our business, because our view is if we hold true to who we are, we’re actually maintaining that relationship with the founder for the extent of the journey. David, I want to move into a quick fire. I could talk to you all day.

I would like that the ability for founders who are treated unethically by venture capitalists to be able to confidently discuss that publicly. Not casual bad behavior, but actual bad behavior gets policed out. I think it’s really important that we find a way to expose predatory behavior. And that’s not aggressive valuations, that’s not structuring rounds, that is harmful intent to hurt founders’ behavior by VCs. I’ve seen that. A company and a tier three shitty VC come together, bad things can happen. I saw a VC try to personally bankrupt a founder.

That is unacceptable to me. And there are tactical ways that they do that. And when that happens, my view is I don’t care if that company failed. I don’t care how much money we as a fund lost. My job is to protect that human from bad actors, and I wish that all of those examples got exposed.

I’m talking way past the performance and

The trend to me that’s most interesting is that people are bored with today’s consumer products. None of them are fun. What’s fun on your phone today? The fun has moved to content. Content is TikTok. Content is YouTube. And content is, if you’re into certain things, Discord or Reddit or Twitter or whatever those niches of the world. And you can call them communities, and sometimes they are, but sometimes they’re just content. And in reality, content’s always been fun. People have always watched TV. People have always watched movies.

That time is actually still pretty consistent. It’s just shifted into more diversified places where you are consuming content. And then you go back to the early days of mobile and the early days of the Internet around connecting with people, and whether it’s photo sharing or different versions of that, the social part of the Internet, it feels like it’s become very boring, and I long for the days when that gets exciting again. We are open for consumer social businesses. We would love to fund them. We get excited about them.

I think you’re at a point where the generation, the 12 to 18 year olds, and then separately the eighteen to twenty five year olds, have not experienced native products for them built by their generation that are fun. I did the pre seed for Be Real. I would

I wanna see the v ones too. So if there are new people out there who are starting something that are v one, please The trouble with the v two is it’s at a 100. Tell me, who, if they send you a deal, do you take it most seriously? Who would you like? Sequoia. They’re good at this business. I take Sequoia. We take mostly founders in our portfolio who send us things very seriously because they know who we are, and they’re choosing to send things to us.

And we appreciate that, and that to us is as strong of feedback loop as it gets. What’s the nicest thing anyone’s ever done for you, David? My wife married me. That was nice. What’s the secret to a happy marriage, David? Mutual respect and trust. It’s trust. Loyalty and trust, and it’s pretty simple. What’s the hardest element of your role with Box today? Waking up tomorrow and finding the next deal. That’s my job. I get FOMO when you miss a deal. Yeah. And I obsess over tomorrow, and I spend less time on yesterday.

Does the

Because sometimes it can. Probably not, but our job is to make an investment tomorrow, and that’s gonna be our job, hopefully, for the next thirty years. What’s the best investment advice you’ve ever received? Investors invest. Brad Feld said that to me when I was just starting my career, and it stuck with me. I appreciate that line. My job as an investor is to invest. Pretty simple. Who do you think is the most underrated angel in the ecosystem? I don’t know if they’re underrated. I think the Collison brothers have built a investment portfolio that’s probably quite unique and doesn’t get discussed as much as some of the louder operator angels out there.

It feels like they, just like in building Stripe, do things at this unique quality that extends to all portions of their life. What do you believe that few around you believe? I don’t think geography matters for startups, and I think we’re based in New York because we live here, and we want to live here. Just because we’re based in New York doesn’t mean that we invest only in New York, and Greg, our partner, lives in San Francisco because he wants to live in San Francisco. I think geography gets overrated.

I truly hope BoxGroup is exactly where we are today. We don’t want to be different than who we are today because we have immense belief that staying consistent is the best way to hone in on being world class at your craft. And so this is our craft. Our craft is seed. We wanna be world class at pre seed and seed investing in people with dreams and ambitions who are going out to build ten, fifteen, twenty year, and much longer term companies, and we would like to be there day one.

And so five years from now, I hope the answer is the exact same. David, listen. It wasn’t quite a duel or a fight to the death, but it was a