# Roundtable: Why Early Stage Founders Should Not be Investing

Why Great Founders Have Low EQ, How the Structure of VC Firms Will Change, Will Founder-Led Funds Compete with Sequoia & Is Investing a Team Sport?

20VC · Nov 3, 2023 · 50 min · 10,876 words
Speakers: Jack Altman, Auren Hoffman, Harry Stebbings, Jason Lemkin
Source: https://www.996.fm/episodes/20vc--ep-c5a5ee6b/

## Cold open

**Jack Altman** [0:00]:

Well, most good founders have low EQ. A lot of founders give tougher love or whatever you wanna call it than I've seen investors do. I think early stage founders spending real time investing, it's just too expensive.

**Auren Hoffman** [0:13]:

One of things is is really just a question is like, is investing an individual sport or is it a team sport? I think the question is, can a can a founder led fund

**Harry Stebbings** [0:21]:

compete with Sequoia? This is 20 VC

## Intro

**Harry Stebbings** [0:23]:

with me, Harry Stebbings. I love round table style shows, and I wanted to focus the round table's day on the rise of founder led funds. This is funds who actively are run by founders who manage their companies day to day, but they also have institutional outside capital that they manage through a fund vehicle, and they actively invest at the same time as running their company. For this panel, there's no one better than Jack Altman, cofounder at Lattice, Auren Hoffman, founder at SafeGraph, and Jason Lemkin, founder at SaaStr. Now I'd love to hear your thoughts and feedback on these shows. Let me know on Twitter at Harry Stebbings, and you can watch the full episode YouTube by searching for 20 VC.

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## Conversation

**Harry Stebbings** [3:51]:

I've wanted to do this one for quite a while. So we're gonna start off with some intros, thirty seconds each. Let's do Jack, Oran, and Jason. Jack, starting with you, who are you? Tell me the two hats. I'm Jack.

**Jack Altman** [4:03]:

My founder hat is that I started Lattice in 2015, which is an HR software company. We build a bunch of different products, performance management, employee engagement, compensation, etcetera. We also now have an HRIS. And so we've kind of built this multi product company over the years. And that's what I spend the majority of my time on. And then over the last four years, I've also become an active early stage investor. So that's the other one.

**Auren Hoffman** [4:26]:

Auren, I have a Sure. Orin Hoffman, CEO of SafeGraph. We're a very boring data company. We sell the data on physical places. And then my other hat on the side is help run Flex Capital. We're a series A series B venture capital firm.

**Jason Lemkin** [4:39]:

Mr. Lemkin. I'm Jason Lemkin. I run a community and a blog called SaaStr, and I've been investing for just just over ten years now from a variety of vehicles.

**Harry Stebbings** [4:49]:

So we're gonna dive straight in. Just try and understand, like any product, which, you know, capital is in some ways, we need to have a reason to exist. Why do founders want other founders as their lead?

**Jack Altman** [5:00]:

I can start. Maybe not necessarily lead, but I think at least one of the reasons that founders like to have other founders as investors in general is that it's a good source of tactical advice and general support from somebody who's done the thing that they're doing, and it's relevant. Like, it's not like ten years out of date, which often becomes the case for VCs. My view is actually that I think there's a lot of value to having both active founders and full time investors because I think they just provide sort of different perspectives, types of support, vantage points. So I don't encourage founders ever to not have full time investors involved, but I think both are good. But I think the reasons people want founders are due to just the active hands on advice that you get from someone who's done what you're doing and is still currently doing it.

**Auren Hoffman** [5:43]:

Yeah, almost everything in running a company has changed over the last seven years. So if you sold your company ten years ago, you don't know anything about how customer success works, how new types of sales works, how product led growth works, how even like all the recruiting stack works. You're really just out of date. Maybe on the very, very big things, you're still current because those things are timeless and they don't change. But all the medium and small things have changed dramatically. Everything has changed so much. Just now having somebody who's a little bit more current as kind of that co founder that you can't hire can be really appealing.

**Jason Lemkin** [6:15]:

For what it's worth, just one thought I would, I thought about this question. Why do founders want founder led funds? Right? And I think there's actually, I think it's actually about brand. And I thought about my whole life as an entrepreneur. When I started in the old old days, there were only two brands in venture I knew of. There was Sequoia and Kleiner. You had to take a discount for both of them. Right? You'd go out and you'd get your term sheet from somebody else, and then Kleiner would insist on a 20% discount. And that's the way the world worked. There are a couple of brands and there's more brands now and Andreessen and YC changed the notion of brand. But I actually think as founders have gotten more sophisticated and the markets have gotten bigger, these are brands. These are brands and founder, like especially first time founders, also second time founders, we don't have time and brands are a proxy for quality. Right? So it's like, you know, don't know that much about Altman Capital. Like I know a little bit from the website. I know Jack from all the things he does. And I know and so it's a brand, I think. That's actually why founders are attracted to it. I I think the operational experience is only is only part of it. That's why I think it's a good bet for LPs because it's not just the operational experiences that it's an orthogonal brand.

**Harry Stebbings** [7:18]:

I get you, but we've had founders, investors, angels for years. Why do we need funds? Why do they need to leverage institutional funds? And why do they need to be a bigger part of rounds? They maybe they don't, but I but these guys

**Jason Lemkin** [7:30]:

are pretty good investors. One of thing that changed the last four or five years is LPs wanted to put more and more money into angels and micro funds that performed. When I raised my fund in 2016, you can people thought it was crazy. Like, oh my god. This guy raised a $70,000,000 fund. It's nuts. Like, a guy like this should only be able to raise 15 to 20. Just fast forward, like, a couple years to flex. Right? And, like, the world changed. Right? It went from crazy to commonplace in, like, a couple years.

**Jack Altman** [7:56]:

But Harry, to your point, I think it's a good question, and I don't think I don't think it's necessary. I think it just works. When people invest more, they naturally end up being closer to the companies. So I think if somebody does half of your seed round versus if they are a small angel, you will generally get more time. But it's not proportionate. To your point, like when I think of a lot of my small angel checks that wrote, you know, a 50 ks check into Lattice, the pound for pound helped to dollars there was crazy because people still help a lot. They have helped a little bit more if they did 500 instead of 50? Maybe, but not 10 times more. I think I accept the premise of the question as I don't think it's necessary.

**Harry Stebbings** [8:35]:

I work with a lot of angels who are founders, and they're brutal to the founders. I mean, we live in this like founder friendly VC world. The founders come in and say, Jason, that's shit. That was stupid. And so my question to you, and you know bluntly, they do it out of tough love and they're very helpful. I don't mean that cruelly. But it's not that empathetic. Are founder led investors and funds as founder friendly or empathetic as people think?

**Auren Hoffman** [9:00]:

Well, most good founders have low EQ. So they generally would not be Is that right? Is that do you think that's right? I think so. Yeah. I don't think EQ is one of the highest things in the list. They are going to kind of tell it like it is. And every VC today is founder friendly, right? It's pretty rare nowadays for a founder to get fired. Whereas like in the eighties and nineties, that was commonplace for a founder to get fired. But there is a big difference in that. Like most founder CEOs are very under compensated. Like the go forward comp for a founder CEO today, once you let's say you're there for over four years, your go forward comp is probably 5X lower than if they hired an outside CEO. And that's really just patented unfair. And a traditional VC is never going to go to the founder and be like, Hey, you should get a hire. You know, we should give you some more options and stuff like that. So there are some like nice things about having these like dual threat CEOs on your cap table.

**Jason Lemkin** [9:55]:

You know, Harry, I just reran the numbers on SaaStr. It's 88 percent of SaaS companies that have IPO'd have the founder as CEO at IPO. Now it's declining. The folks like the Brian Halligans, after twenty years, folks do get tired. That's a different issue. And my guess is VCs have also gotten lazier and we've raised more money. Right? And my guess is when you see the 88% from pattern matching, like, at the margin, you know, when I raised money for my first startup, I was put under the gun by my VCs to to bring in a CEO to replace me. It was part of the term sheet and the goal. All of the ideas were worse than me, but that was part of the deal as a first time founder. I think the thing people are lazy. And I also think the other thing is for founder led funds, I don't think any of us have a room full of these guys. Like, I wrote this term. You have to have a room of guys, and this is there's no gender in this term. If you're gonna get rid of a founder CEO, even if you have the the actual ability to do it, is rare today, you better have someone to step in. Right? And I just don't know any founder led fund that has I call them the guys down the hall because I remember bigger funds used to all you could walk down some big fund. Hey, Jack. Let me introduce you to Bob and Ellen in the rain. If

**Auren Hoffman** [10:55]:

you think of Benchmark in the nineties, like, they had this whole room full of these folks, and they would just bring them in to once they invested in the company, and those folks would take over as CEO.

**Jack Altman** [11:04]:

Could I go back to the the question that led to this, which was about, you know, the founder friendliness, which I think is like an important insight. Because I think you're right, Harry, that a lot of founders give tougher love or whatever you wanna call it than I've seen investors do. I would reframe it as kind, not nice. Like, I had this experience where I'm like, when I look back at the people who really did me, like, justice in the long term, they told me stuff that sucked to hear on a particular day but was good over the long term. It's like when you're like trying to find product market fit, a customer who's like nodding and saying like, oh yeah, that looks really interesting. Like, keep building. We'll check it out because they don't wanna tell you it's not interesting. Like, that person's doing you a great disservice. My hope would be that the reason founders are tougher in their feedback is not because they're callous or low EQ. Hopefully, we could debate that, Auren. But I think it would hopefully be a result of them wanting to help the founders succeed and believing that saying the hard thing is it part of how you do that.

**Auren Hoffman** [11:59]:

It's being long term nice versus short term nice. Like, I don't let my kids eat ice cream for breakfast. That would be short term nice, but it wouldn't be long term nice. Good example.

**Harry Stebbings** [12:08]:

I think the big question is like performance and what makes one better and what makes one produce the best results? If we start, like, how does operating make one a better investor, do we think?

**Jason Lemkin** [12:19]:

I remember a few years ago, I forget whose analysis was, there was no advantage to being a an operators were no better than professional. I think founders preferred it. It didn't necessarily benefit the LPs, apples to oranges. Like the CEO that worked at Benchmark didn't perform better than the person that had the Harvard MBA, but the world the world's different and founders have more choice today, right? They can make their own choices right or wrong.

**Harry Stebbings** [12:41]:

Guys, how do you think operating makes you see companies invest in a better way? And when I say operating, I don't mean like just operating at the same time. Often you're investing

**Auren Hoffman** [12:52]:

in companies that like are your vendors that you're using or you've used the product, like you've played with That's the cheat product and you're code, right? Yeah. They're like, this product's amazing. Like you just see it and you've used it. You're like, this is incredible. Yeah. And then you like call up the CEO. You don't even know who the person is. You're like, Hey, I'm your client. I'm using your product. And they're like, oh, they love to they start talking, start geeking out about the product. And then kind of one thing leads to another and you end up investing. You fall in love with the product first before like the company ever gets a chance to pitch you.

**Jack Altman** [13:20]:

Yeah. I plus won that. I think another big one is that you end up spending a lot of time with people who are building and execs and ICs who use tools and you hear about their problems. And so you are steeped in customers just by your the nature of your work all the time. And I think it helps you triangulate to for example, right now, I have a good sense for what the execs of each function at most software companies, I have a good general sense for what are their top few software solutions that they care about just because I'm like living in it. And so that does build a slightly more prepared mind for if you see a finance tool that does this thing that you know is not on the radar, you know, you have some better sort of intuition for, this gonna matter? Could it matter? Could it grow into some adjacency that matters?

**Jason Lemkin** [14:07]:

I wonder if it helps you go into that point, Jack. When I think back, I was five for five in my first venture investments, right? Not perfect, but five for five. And I really did just invest in the problems I had as a founder, but it's not that simple because I see founders making the dumbest angel investments of all time. What I realized I could see was where spaces were changing because I was so deep in them. So I could see where the call center was changing because I had so many headaches. I could see where search for Talkdesk and search for Algolia, even though these all seemed like tired categories. Like, all of these were actually tired categories that no one at the fund I worked with supported because they've all been done before. That's something that operator will get is see how these things are in motion. For early stage, can be very if you're good, it can be very advantageous.

**Harry Stebbings** [14:49]:

Advantageous. I think the most helpful heuristic though, Jason, is one that you say quite often, which is like, I measure every CEO against myself. Are they better than I was? And if they're better than I was, and I did a 100,000,000 asset like you did, shit, then they're gonna pass the bar of quality. Do see you what I mean? It gives you that benchmark, which you wouldn't have if you weren't an

**Jason Lemkin** [15:05]:

operator. That's the superpower that everyone on this podcast has, which is everyone knows who's better than them. Right? That is one superpower that successful founders have that that money investors, they don't even know what it means. Or who's better than you're pretty good. Who's better than you? Who have you interviewed on your DAS that's better than you? Who's better than you? Keith. Who's in your in in the HR space, who's better than you, Jack? Who's better than you as a as a CEO? Who's better founder.

**Jack Altman** [15:29]:

Better founder. Maybe not better CEO. A better founder. Parker from Rippling is really good. The deal founder, the Gusto founders. They're

**Jason Lemkin** [15:35]:

good. Right? They're really good. So you can see that. Right? Take take a typical all money in when I say that, they don't even know what it means. Well,

**Auren Hoffman** [15:41]:

one of the things is really just the question is like, is investing an individual sport or is it a team sport? The problem is I think in the past, really just really even in the present, it's really been thought of as an individual sport. Even think of the awards that are given up to the, to the investors are given to a person, not to the firm, which is just crazy. But you know, are these great full stack investors, Mike Moritzes of the world who are just like this incredible full stack who can literally do everything all through the stack. But most of us are just one them. Why

**Harry Stebbings** [16:12]:

isn't it crazy to give it to a one in master Alfred Lemkin sourced lad sat on the

**Auren Hoffman** [16:18]:

board of Airbnb? I think these things are complicated in that, like, I'm not the best person in the world at like doing the deep diligence in a company and really diving into the financials and really diving into their churn analysis. And you're going to start to see different firms start splitting the stack a bit. And they're going to have certain people who are going to be good at just like as in a company. We have engineers and we have salespeople at our company. They're not the same person. We could have somebody who does both, but they wouldn't be nearly as good as the person who just does engineering, the person who just does sales. Right? You split the stack. You play to people's strengths. You're going to start to see that much more so with investing where if you're going to have a team and if you're going to have a team of five people, you might as well have teams where you can play to people's strengths and they can, they can divide it up and you work as a team rather than just five random individuals who are sharing a pool of capital.

**Harry Stebbings** [17:07]:

Okay. So how would you divide that up then? Sorry, Jack. I just I'm intrigued. You have someone for inbound sourcing. You have someone for diligence. You have someone for closing. How

**Auren Hoffman** [17:15]:

does that work? Exactly. All the above. So, you know, and you're gonna have people who are very good. So like a professional investor is going to be very good at like diving into the financials. Very good at diving into the due diligence. They're generally probably going be a lot more skeptical. Current founder. So one of these dual threat CEOs like Jack or I or something like that. We're going to be a little bit more optimistic. So we're going to see we're going to see the opportunities, but we might miss the threats. You know, having this team approach can be really, really exciting

**Harry Stebbings** [17:42]:

if you have the right team. I get you. But you're not actually breaking it down by function there. You're breaking that down more by mindset.

**Jason Lemkin** [17:49]:

Yeah. I've thought a lot a lot about because I started off completely full stack. Right? I started off working at a third party VC firm all on my own, loan guy, no help, doing everything, and I've done that. And now I've seen after ten years, it it it's not optimal. The deals I've missed, I I should only be doing what I'm good at. The problem with Fullstack is it's like doing sales engineering marketing and all you can do it in the early days. Right? I I feel

**Harry Stebbings** [18:11]:

like, like, the grandpa curmudgeon on this call. I don't do Halloween, and you guys all do, and I'm just, like, throwing arguments at you. But I disagree with you all again because we actually do the team sport in a way where we all co lead rounds with amazing professional investors. And they supplement or complement our skills in the way that they would if they were on our team, but they're not on our team. So the question is, do they actually even need to be on our team? Just structure rounds that way.

**Jack Altman** [18:37]:

I was going to take the slightly other side of this, which is that it does seem to me when I, like, think about a lot of the, like, greatest investors, there does seem to be a full stackiness about them in certain cases where they do seem to create their own brand, have their own taste for what they're willing to spend time on, make their own investments, and work with those companies through the life cycle. For every sort of venture firm that is highly specialized, where you have a ton of people doing a lot of roles, there are also good examples where it's closer to like a collection of lone wolves who are a loose coupling of a lot of people who are each doing something that is a bit more full. Obviously, with, you know, qualification and things like that and outreach happening from junior people, and then obviously, you know, you see platform teams, which we could debate how valuable they are, but there's other stuff like that too. But I would just add that there is at least value to the other format too, and lots of good examples where people have been very successful in the full stacky approach.

**Harry Stebbings** [19:32]:

I totally agree with you. I sat down with one of the best investors at the last twenty, twenty five years. And I said, how do you feel about the changing nature of venture? He said, what are you talking about? And he said, there's two to three great entrepreneurs a year. You need to invest in one of them. It's simple, but hard. I

**Jason Lemkin** [19:47]:

don't know. Yeah, but you know what's changed, Harry? It's a good I don't think that's changed, but that's why I thought a lot about Auren's point. If you're going to be early stage, there's so many startups today. And you know, it's funny when I started investing ten years ago and I remember when Slack and Zoom took off, was like, I didn't see them. I'm a horrible investor. Right? I felt like an idiot. Today, I never feel that way because there's too many start. I can never open up a TechCrunch or StrictlyVC and feel like an idiot for not hearing something because it's, it's, if you want to see ever those one or two, I actually think it helps to see 10 times more startups than it did five or six years ago. 10 times. You don't have to if your top of the funnel is perfect. Like if you can get everyone in, but it's just such a big world. How do you do it as one person?

**Jack Altman** [20:27]:

Because, like, yeah, you know, I hear both of those things. Hopefully, I've heard more than two to three, but let's say there's 10. But, like, there's some small number of companies that are gonna matter in any given year that are if you're not in one of them, it's venture so power law that you just like have to hit a good company each fund for the fund to work. But there's so many companies. And so then I think this would now be countering my point. How does an individual see nearly enough of the landscape to get one of those shots somewhere in their inbox, you know?

**Harry Stebbings** [20:57]:

I think it's specialization and brand dominance, I think would be one, which is like you go, I'm gonna do early stage pre seed and seed SaaS, and I'm gonna have a massive brand. And actually, just to increase the aperture on But that will increase your

**Jason Lemkin** [21:09]:

deal, then you'll have more

**Harry Stebbings** [21:10]:

lots

**Jason Lemkin** [21:10]:

of deal flow to deal with.

**Harry Stebbings** [21:12]:

Yeah. Absolutely. But your opportunity to get into one of those 10 expands. Now you have to pick Sure. But you're not gonna miss the chance to see them. If

**Auren Hoffman** [21:22]:

you're a dual threat CEO, you cannot meet with all of them. Not take that first meeting. You'll, you need somebody to help you vet these things out there because you have a, you have another job. And so you can really only meet with the ones that you think are super special. And that could be again, the products that you've used, that you love, you know, somebody that you, that you know, and you trust has said, I really love this company. You should dive in.

**Harry Stebbings** [21:44]:

Well, does investing make you a sole proprietor?

**Jack Altman** [21:46]:

I have a strong view on this. I think it does when constraints are the dominant force. And for that reason, I think early stage founders spending real time investing, it's just too expensive. There are definitely things to be learned from your investing that port over to operating. But in the early days of a company, and by early days, I'm not saying like a year, I'm saying like several years, until you get a company set up that can tolerate you being away for a month or something like that. I think until you're at those phases, generally speaking, it's so expensive to be putting any sort of blockers on your time. I think the costs are really hard to make up for. My experience with it was that once we got to a certain size, I found that incremental hours on Lattice were not that valuable past a certain number of reasonable hours, past fifty hours. At some point, it just doesn't more hours doesn't do you good the way it does in an early stage company. And at that point, think there is a lot to learn from companies. You learn from the founders, you learn from other markets, you learn new business models, you learn about the venture ecosystem. You just, you do pick up valuable stuff. But to me, doesn't work when the trade off on time is too onerous.

**Auren Hoffman** [22:58]:

Anytime a CEO is not spending on their company, it's bad for the business. But that's true if you're dating. It's true if you're being a spouse, if you're parenting kids, if you're working out, if you're spending time with friends, literally anything you do is bad for your business. It's all a trade off. So it's really just important. It's like, are you keeping the main thing, main thing? And if so, if being CEO is the main thing, are you keeping that the main thing? Is that the core thing? Is that the thing that you're going to drop everything and go do When that's the most important.

**Harry Stebbings** [23:26]:

But like, when you raise that external money for a fund, you are taking on immense responsibility, and it's immense privilege to manage other people's money. I agree with you. The CEO is the Yeah. You're The main thing is the main thing. So if there's a fire and it's going to shit in your company, you gotta go fix that. Well, hang on a minute. You've just taken a load of institutional cash and raised that institutional fund. What are you gonna do with that? Because I gave you money for the fund. What are you putting

**Auren Hoffman** [23:51]:

their money ahead of my money? So I think for the for the LPs in the fund, they're generally not happy when someone in the fund is like also a CEO, but they should be because that fund's gonna end up doing so much better. You're gonna get into better deals, etcetera. But the VCs in the CEO's company, if the CEOs have a fund, then they shouldn't be as happy. And they're usually plenty happy if you go, like, do a fund on the side. So they should be really swapping places.

**Harry Stebbings** [24:16]:

If you have a LP in a fund that is founder led with the GP who's a CEO, and their business is going to shit, and they're spending no time on the fund drawing fees, and they're working on their business, I'd be pissed as an LP.

**Jason Lemkin** [24:31]:

Absolutely. If the returns aren't good, you should be. It is an interesting topic. Right? And if you read these L PAC agreements, which it's worth reading, I didn't read the ones that I signed the first time that was in town. But if you read them, there are a lot of provisions. And I assure everyone on this in this podcast had to add an exception to the boilerplate that says everything you do will be for the fund. Okay. I had to have it back in my first one in 2016. It created discussions. Right? I'm like, I've already got this community. I'm already running it. But the thing is all they care about is returns. And if they see it as an edge, it's a tax. And I think the last thing an LP wants to do, Harry, you've done this. I think we're almost at the 3,020 VC, aren't we on 27 something?

**Harry Stebbings** [25:12]:

Yeah. Yeah.

**Jason Lemkin** [25:13]:

The last thing an LP wants is an undifferentiated manager. The last thing. And they'll they'll cut corners and they'll invest in someone that didn't finish high school and they'll invest in the 10,000 whatever. But if they're if they perceive an edge, they'll take the risk at the rather than the person that slugs to the office seven days, you know, VCs four and a half days a week. The real question is just what's the bar? How much better in an LP's mind do you have to be than a sand if it's just if sandhill still exists, a sandhill VC to justify the trade off. Right? How much better does the edge have to be? Now the interesting question I would I've maybe maybe you guys know or Harry, you know, from interviewing in 2024 going forward, there's so much retreat from LPs. Right? And I have I'm lucky. I've I have pretty good LPs. It's it's really, I didn't really earn them, but they're in a lot of better managers than me. And they're dropping great names. Do LPs want to invest in the hot blogger or hot whatever in 2024? I, I don't know if that appetite exists. Right? Or the founder seat, like, they want to run this experiment going forward? Or is the appetite declined? It's a question. One,

**Harry Stebbings** [26:16]:

I speak to two new LPs a week. And so I don't know, whatever, it's been 50 since the correction. I'm not really seeing them drop great names. Some of them are downsizing significantly. Okay. Downsizing. Where where they've got, you know, mandated outflows in the case of endowment funds or hospital institutions. But they're not dropping great names. They're still open for business. And actually, do you know what? The ones that are struggling are ones which don't have existing relationships and are undifferentiated. If you have built a relationship over years and you actually have something different, LPs are dying for anything different. Oh, I've got experience in a network. Well, great.

**Auren Hoffman** [26:54]:

Well, do, I do think there were a lot of VCs with subpar returns that were still raising their third, fourth, fifth, sixth, seventh funds. That is very unlikely going to happen in the future. Sorry, I have VCs that were doing that from LPs. And so I think these LPs are going to be much more discerning. And if someone is not performing, if a manager is not performing, they will switch to a better manager. They might do one more fund, but they're not going to do two more funds with that manager.

**Harry Stebbings** [27:19]:

I get you. And then, sorry, I'm just going. There's also a Well,

**Jason Lemkin** [27:22]:

you're learning Harry, because you do talk to more than any of us. The idea of investing in new emerging managers that are either founder led, brand led, non traditional way of having differentiated. You view the appetite as strong as it was two years ago. You view the appetite just as strong.

**Harry Stebbings** [27:39]:

Yeah. If you have a true form of differentiation, it could be the carry sharing model that you have across your portfolio, the way that you structure the team, the media plan. Yeah. Absolutely. If you're undifferentiated, yeah, it sucks and it's fucking hard. What also no one's talking about is the migration of LP capital that was going to China, which was I'm forgetting the stat, but it's about 25% of US venture dollars used to go to venture in China. Well, that's migrated out. Well,

**Jason Lemkin** [28:02]:

they're talking I was on a conversation yesterday on that.

**Harry Stebbings** [28:04]:

Yeah. Yeah. That's over. Yeah. That's over. And that dollar those dollars aren't going back into PE or credit or public markets. They're going back into venture, but just venture in The US largely or Europe. And so there's that. You've got the rise of The UAE on mass, which they have been for years, but even more so now than ever before. I think everyone's actually overly pessimistic on this. Hope you're right. That that is my view. I ran over. Sorry, guys. In terms of like team comms and what I worry about, how do you guys talk about it to your teams? They're in it for the company, and then you've got this moneymaker on the side. How do you broach that one?

**Jack Altman** [28:42]:

I might be on far end of the spectrum on this. I have never also been one to ask our employees not to do other work. A lot of our employees are also angel investors, sit on other boards, and I think that's great for them. I don't think that Lattice should be something that demands 90% of somebody's waking hours. It's always been in our culture that people have other activities, and that as long as they're doing the full job that's on their plate, that that's something that we, like, are proud of.

**Harry Stebbings** [29:11]:

What about doing a sorry. I'm it's really late. I'm just going for a fuck it. Jason's like, Harry, stop. But like, happened to going above and beyond? Let's say I'm in sales. I can get more leads. I can do more outreach. Let's say I'm in marketing. I can do more copy. More ads. I can test more channels. Like, I go home and work at my desk late into the night. And actually, if I were in sales or marketing or any of these functions, if I didn't have those extra things, Jack, I'd have much more output for you.

**Jack Altman** [29:40]:

I just I think I see it differently than Well, I sort of believe it, but yeah. I also see this it is it I mean, keep going with your answer, but I don't think it's a hypothetical. I think there's a lot to be considered here. I think you might be right that on some level, you can get more out of somebody if they are burning the candle on both ends. That's probably true. What I've also seen though is things like employee retention for long periods of time is extremely valuable. And so a company that retains employees for five years instead of one and a half on average, those employees are gonna be so valuable in years three, four, five. And so things that a company can do to retain people for longer outperforms incremental work hours in most cases, in my view. I also just don't think that like the only optimization function of a company is to squeeze every last bit of productivity out of everybody. And maybe that's where I'm, like, alone there, but I don't think that's the only consideration here. And so that's also where you just choose what kind of company do you wanna build. And do you wanna build a company where people can have other components to their life? And that's something that we've always wanted at Lattice.

**Harry Stebbings** [30:42]:

Well, I think that's the sorry. Am, but I'm not, like, you know, pushing them to a desk at midnight. But actually, when you go home and it's 08:00 and your partner's, you know, reading the paper, you could be reading the latest demand gen techniques or the latest ABM techniques. Out of kind of passion, I'm not like forcing you at your desk, but you're doing things around the job that make you better.

**Jack Altman** [31:04]:

Do you do you want Would you have a problem with people who work with you having another activity? Yeah. Yeah. I would actually. So that so that's I think maybe that's the even though you have two, you say it, I have two, but you don't?

**Harry Stebbings** [31:19]:

They're aligned. They're exactly aligned. We leverage media to be a better investor. Like, they are directly aligned. If they were like, we do two things that are highly aligned. I'm happy to listen. And if you're like, hey, I'm joining a video editing society, and they want me to be a chairman. Sure. Show me the ways that it makes you a better video editor. Yeah. I get that. Also, like, sales teams. Hey, I wanna join the board of Salesloft. I'm just saying, I'll find the latest sales tactics and techniques. Cool. I'd say that's aligned to your job. That makes sense.

**Auren Hoffman** [31:49]:

Do you see what I would say, Harry, that the people I've worked with who have been the most impactful people, it is extremely higher core that they also put in the most hours. Maybe because they got so inspired and they had so much fun. They put in hours and that made them a better. It's not necessarily because they put in the hours that they were the better employee necessarily. It could just be because they, they love what they're doing or some for, for some reason I was able to inspire Jane, but I wasn't able to inspire Tom. It's very hard to know how it goes, but I do think it's probably good for their career. If you're a 24 year old, putting in working more hours is probably going to accelerate your career than if you're not. Now, the other flip side I would say is that if you can get a good 40 out of somebody a week, that's amazing. Most companies are not getting anywhere close to 40. So now for some people, they have to work 60 to get the 40. For some people, for an experienced person, they can work 40 and get 40. But a lot of companies like you're lucky if you're getting 20. Or why are we not getting 40? Why are we lucky to get 20? Because they're doing other things and they're on Instagram and they're not, they're not as engaged and either they're not inspired by the company. There could be a lot of reasons.

**Jason Lemkin** [32:59]:

Sometimes I think people work less than than they used to. I think they work the same. It's just they're not present nearly as often. Jack,

**Harry Stebbings** [33:06]:

I totally hear you on employee retention. I think it's super important, and you see the benefits of people post five years. I actually sat down with one of the biggest execs at Amazon, and they don't have side activities generally at all. And he said, the reason why we have such amazing employee retention, amazing performance. Our company stock went up every year significantly, and we've got richer and richer. Leaving was losing. Is performance above all in company stock, the ultimate driver of retention?

**Jason Lemkin** [33:31]:

It's not today. There's no way it is today that absolute comp is the biggest driver of retention.

**Jack Altman** [33:36]:

I think there are a few special companies that have such commanding market dominance and appreciating equity value to extreme degrees that the rules are gonna be a little different in those cases. So it's hard to map to Amazon and Apple and Stripe and some of those where I think like the merely very good companies, think the rules are a little bit different.

**Jason Lemkin** [33:57]:

Why do they leave OpenAI then? Like you get a $80,000,000,000 tender off. You think why would anyone in their right mind, even if they don't love the job. Right? If you're doing tender offers at 80,000,000,000, I might stick it out another quarter or two, wouldn't you? I think 22

**Auren Hoffman** [34:10]:

out of the first 25 people at Facebook left after within the first three or four years.

**Jason Lemkin** [34:15]:

But it's accelerated with, and I'm just, mean, I'm having a little fun with Jack, but it is open. Forget about whether we happen to have an Altman on this, but it's faster. I mean, how fast did OpenAI get to 80,000,000,000 faster than Facebook, didn't it? Why are they leaving, Orin?

**Auren Hoffman** [34:26]:

The more you're winning, the more likely it is that people will stay and they'll stay longer. That's only one variable. And there's lots of other variables why people stay and why they leave. And also depends on the types of people you recruit. A lot of times, like the companies that are winning recruit these incredibly founder oriented people. And those people leave to go start companies. And so you can't keep that person for that long. And so there's lots of different types of people out there that you need at different stages and there's lots of different reasons, but just because everyone's leaving like in Facebook's case where so many of the first 25 people left early doesn't mean that's a bad company. It turned out to be amazing company. Because everyone's staying doesn't mean it's a good company. There's lots of other factors that go into it. I think that's just one of many. I think the past I spent way too much time recruiting. You wanna spend even less time recruiting? I I well, now I spend very, very little time, but I think I think there was I think there's many, many years where I overspent the time recruiting. Interesting. You just hire we hire too many people. So

**Jason Lemkin** [35:22]:

there's like, you're just growing too fast.

**Auren Hoffman** [35:24]:

You think you

**Jason Lemkin** [35:24]:

spend too much time hiring great VPs at your company though? Too much time recruiting the best executives?

**Auren Hoffman** [35:29]:

Yes. I generally think most of these companies, like they should be figuring out how to run with less people. You should be spending much more time figuring out how to get more leverage. And don't the VPs need to be even better if the company is smaller or at least as good? It different for that type of VP? Cause they don't have that many people to manage. And so it's like, they've got to be a little bit more in the weeds. They've got to be a little bit more about how to use vendors effectively and things like that. And so maybe they're probably a little bit less experienced and a little bit more, you're betting a little bit more potential. There's a lot of companies that are like a thousand people at a 100,000,000 ARR. That's Yeah, it's pretty common.

**Jason Lemkin** [36:03]:

Crazy. Do you think the least, what do think the least in a competitive space? What do you think the least you could do for a B2B company at a 100,000,000 ARR? Because I know you've, I love when you write about this. I'm very attuned to it. What do you think the least amount of headcount you could pull off? I

**Auren Hoffman** [36:17]:

think it's I mean, obviously Vizio, I think they hit a billion in revenue with 14 people with the TVs, but that's a, not a high margin business. I think a good metric would be like a SaaS company. Certainly the ARR per person should be going up and not down. It's 300 down the public companies. It's like the highest in 300,300 thousand dollars $300,000 per person. I would say that would be the minimum that you should have. So in that case that would be $3.33 at 100.

**Harry Stebbings** [36:42]:

Really bringing it back, is there a limit to how much founder led funds scale? Will we see billion dollar funds? Or is there a cap to how large they can be?

**Auren Hoffman** [36:51]:

I think if it's just a solo GP, whether it's founder led or not, I think in the end, some of these things are team sports. It's hard to build a real enduring company as a one person company. And that's true if you're running a SaaS company. There's, there are a lot of these amazing SaaS companies that have like 20,000,000 ARR and have one employee. You look at them and you're like, woah, these are incredible. Right? But it's hard to get like to a billion ARR with one employee. The same thing is true with venture. And venture is just like incredibly competitive. It's way more competitive than any type of SaaS business that's out there. You're basically selling a commodity, you're selling money. Eventually, you are going to need to build some sort of team if you want to scale it. But what do you, because all you

**Harry Stebbings** [37:32]:

need to do is actually just go later, go to Series D and you can deploy $100,000,000 checks. And actually that same is probably possible. You could raise a billion dollar fund, $1,000,000,000 checks.

**Auren Hoffman** [37:42]:

Yeah. But I think if you're successfully deploying a 100,000,000,000, a $100,000,000,000 checks, just the amount of diligence that you need to do on a company and just the amount of work. You think of like an insight, which is one of the more successful late stage, like they have like a 20 person team evaluate a deal. They don't just have like one person do the whole thing. It's a, it's a huge, huge deal. It's very hard to go. If you're going to do it right, easy to deploy a $100,100 a $100,000,000. That's the simple part. The hard part is actually making consistent return. Jason, what do you think?

**Jason Lemkin** [38:14]:

I think the question is can a can a founder led fund compete with Sequoia? Let me flip it around. And maybe you need a billion dollars to do that at some level. It could be. But like, doesn't it

**Harry Stebbings** [38:23]:

depend on the founder? Like, I I but like, if you think about, like, Ryan Peterson doing Ryan Peterson Capital, I probably could. Definitely, Sam Altman Capital could. I

**Jason Lemkin** [38:32]:

think you could know, Jason. There is a crossover point where it's niche where you would need a huge team. So maybe it breaks for any traditional founder led fund. Right? Because if you need 20 or 40 or 50 people, that might be a management burden. Unless you're unless you're the figurehead. Like, Auren from Freshworks. Right? And Jody Bonsal with Unusual Ventures. I mean, they manage a lot of money. Are those founder led funds or are they sort of founder topped or founder flagship funds? And there actually is a pretty big difference. Right? Getting a call here or two with someone once a year is not the same as being the partner on the deal, is it? It's true. Flex Capital, I'm

**Auren Hoffman** [39:05]:

not the CEO. So we have a CEO, a full time CEO at Flex Capital. I don't think we would have been nearly as successful if, like, I was the CEO. Is there anything that

**Jason Lemkin** [39:15]:

I haven't discussed that you think we should discuss, guys? I'll throw out one thought I'd like to hear Orin and Jack's thought. I was thinking when I was listening to them. I think one advantage to taking money from a founder led fund, to raise the kind of funds that these guys do, you have to have a certain measure of success as a founder. And so I just don't know that founder led funds today are gonna sweat some of the things as much as a traditional investor would be whose job is on the line in a different way. They're next on the line. I was just on with the CEO today at one of my most successful companies, but one of a mega big billion dollar fund, like the the the partner who doesn't run the place, isn't sure he can do his pro rata. Doesn't sure he has the juice at the fund. I'm like, this is a no brainer. I just don't think Orin or Jack are gonna sweat it if growth slows a little bit at their portfolio company. They may help. I don't think they're gonna throw their shoe at the monitor or at the board meeting. I think that's appealing for founders. Right? I do think that's appealing. There's many things those of us have been around for a long time don't like about VCs. Right? But it's sweating the wrong things, being overly dramatic about small things, worrying about, oh, you know, we said in October, we would do 6.8%, and we came in at 6.6, and someone gets mad. And I just don't think that Jack and Orin, even if you run out of money, I I just don't think they're gonna sweat it the exact same way, but I just don't think the downs are as dramatic. Challenge me, though. May maybe maybe you do throw your shoes at the monitor. But I think

**Jack Altman** [40:34]:

my not shoe throwing at the monitor is Yes. More a matter of my constitution as much as anything, which is maybe just like But your job doesn't end if one of your investments fails. Your life doesn't end. Your career doesn't end. The outcomes of the matter differ they still are very important to me, but it's hard for me to say because I'm, like, a bad example for this because I just, like, don't get upset enough in general. Like, even in Lattice context, it's just, like, not in my DNA. So that might just be, like, a me specific thing. Because to the point earlier, there are a lot of founders I've seen, like, be pretty tough on other founders and get pretty upset when something's not going the way that they would do it. So it might be case by case, but. Maybe

**Auren Hoffman** [41:10]:

Jason, where I think you might be more correct is when you're negotiating with a dual threat CEO, let's say you're negotiating a term sheet or you're negotiating the actual docs, the series B docs or something like that. Most of the terms don't matter. And sometimes when you're negotiating with like a more traditional venture capitalist, they get hung up on these things that like have, will have no outcome to their return. There is no scenario where, especially when the world is power law driven, like there's no scenario that these, any of these things will really ever matter to them, but they get so hung up on some of these things. And I think sometimes a founder led VC is going to be more accommodating, not on the things that matter, like things like valuation, know, all these other things that actually really do matter, on just like the random stuff that nobody, you know, will never actually change the outcome. I think

**Harry Stebbings** [41:59]:

quite a lot of people are pissed off that in some cases, founder led firms have dropped the ball on not dropped the ball, but then, hey. Hey. We don't need board seats. And in some cases, there hasn't been governance where governance should have happened. That has been because of relaxing of what we need is what some people would criticize them.

**Jason Lemkin** [42:16]:

For founder led funds or just for life in general in 2021 or or overly sliced cap tables? Well,

**Harry Stebbings** [42:24]:

I mean, specifically more for, like, solo GPs because you can't take board seats and have that governance level. Try them out on a bunch of boards. But you're a much more concentrated portfolio, Jason. You, seven

**Jason Lemkin** [42:34]:

to 10 per portfolio, so narrow. You think founder led funds are worse on governance? I'm just not sure it's true. I definitely believe less diligence is done. There's more hip shooting going to Orin's point. There's more pattern matching. There's less checking on stuff, but I doubt there's less oversight, but maybe there is.

**Auren Hoffman** [42:50]:

I also don't, I don't know how much oversight matters And if it's really power law driven, the bad ones are bad and yeah, maybe you could have got a one X and you get a 0.5 X or something out of this thing. If you, if you're really in it, you might've gone from 0.5 to one, which is great. But the most important thing is that you're investing in these, you know, 10 plus x things.

**Jason Lemkin** [43:10]:

So this power law and venture thing, if you're an early stage investor, here's what I've learned. I've been doing it ten years. So I've had enough time. I haven't found I can see it early enough to take action. You can see who the winners are. There's time to see who the winners are. Right? No question. That edge of the the curve. Right? The inflection, the exponential growth, it's beyond it's too late to either write a check or do anything. So this it ties to how involved to be, like, the the five x versus one x, but I actually don't know if you can see it early enough to to really have those impacts you described. Oh, I I 100% agree with you.

**Harry Stebbings** [43:40]:

You said about where we spend time and the importance of spending time with the pat. Do you agree with the spend time with the winners? They're the ones who return the portfolio. A lot of people worry about that in the NPS. A lot of people worry about just loyalty quite rightly. So I think it's a commitment. How do you feel about that? Spend time with your winners are the ones that return the fund.

**Auren Hoffman** [43:56]:

It's like a little bit weird where like the winners don't really need you. So spending time with them doesn't really change the outcome. The losers don't really need you either because they're going to lose. So it's actually kind of the people in the middle that probably need you the most. And so really just spending time with those, like spend time with Airbnb or not. I don't know. They're probably just going to be amazing. And like, I don't know if there's anything that any one of us could have done to change that trajectory. Like they would have been amazing regardless. But there are other companies where like you maybe could have really changed an outcome and got them from 200,000,000 outcome to a billion outcome or something and really changed the trajectory.

**Jason Lemkin** [44:31]:

This is what I figured out last year, which is if the founders are truly still giving it a 100% for real, I mean, a real 100 per point 0%, I'll never be out for a variety of reasons. I've never see those ones actually fail if they're a 100% committed and they have any customers. And I actually think the difference between point five x and one x can be huge if the funds in carry mode. Let let's not be gleeful. Like, getting to from a just a a $50,000,000 exit to a $200,000,000 exit, if you own 20% of the fund, that that's a lot of money. But as soon as it's less than a 100, I decided I'm out. I'm either quietly out or I'm introducing you to my board partner, Harry. We all have dark days as founders. Right? We know. Right? And so it's it's never actually a 100, but that's the line.

**Auren Hoffman** [45:10]:

What I agree with you, what you just said is profound, Jason, which is that if you ever see a scenario where a founder is putting more than a 100% in, I have never seen that company do less than a one X ever. That company has always been successful. At some point, maybe the founders give up. Some point. It's it's just too hard or it's too much of a grind and stuff like that, which I totally understand. But when they're, when they're at a 100% plus it's going to work. We're going to do the bat. So Jason, what is our bat

**Jason Lemkin** [45:38]:

for today? The bet is October Halloween twenty twenty four are the trifecta of the the newest IPOs. ARM, Instacart, and Klaviyo, one of my all time favorites. Are all of them up from their trading price? Because it's struggling now. Like, we're struggling when we're doing this today. So the bet is $10, $5. What do we wanna do? Who wants to take what side? So the bet is that they'll be up or down. All of them. The whole trifecta has to be at least just unbroken above their above their IPO price.

**Auren Hoffman** [46:04]:

Well, I'm not a big betting person, but I would definitely bet you a burger. A burger? I will say no. I'd say chance that they're all up would be very, very would be very low. I would

**Jason Lemkin** [46:14]:

say hell no. Not all of them up. Should we go $2? I'll say all three are up. I'll go $2 on this one. Oh, totally. I'll take that on $2. Yeah. Or you coming, Orin? Did you

**Harry Stebbings** [46:23]:

I'll be your witness. I'm not smart enough to put a bet on this one. Game on, my friend. Listen. Thank you so much for doing this, chaps. I've loved this. $2 in a burger. $2 in a burger. Alright. This has been fantastic. So thank you so much, chaps. Thanks. Talk to you soon, Harry. I just so loved doing that, and I always really wanna hear your thoughts. I want to make the show as good as possible for you. So let me know what you think on the roundtables. If there are people specifically that you'd like for us to have on the roundtables, if there are topics you'd like for us to address on them. Also, let me know what you think of our YouTube. You can find that at twenty VC. I always love to hear your thoughts there. But before we leave you today,

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