Max Altman on The New Seed War: Can Anyone Compete with Sequoia and a16z

But welcome to the show. Yeah. Thanks for having me. I definitely think I’m the most fun of the three, maybe the most media shy, but the most fun. I heard the most intellectual

Yeah. Grew up in St. Louis, now live in Austin, spent a few years Francisco, but then bounced back to near home. How does that impact how you think about investing as an investor? The culture in the Midwest is very different. It’s very humble. It’s very communal. And then I remember I got out to San Francisco and I’m like, everyone is so aggressive and individualistic. So I think it helps a ton. One in that you build a lot more real relationships and a lot more like close friendships because that’s how we grew up.

The flip side is we’re a little less aggressive, aggressive, and some of the earlier mistakes I made was just being a little bit less pushy than some of the people that might have grown up in Atherton. Do you think there are many real relationships in Ventures Day? There are still some. There are less. I think when I got there in San Francisco in 2013, it looked a little more like a small smaller town, maybe Austin or St. Louis, where everyone really trusted everybody and had deep connection.

And naturally, it’s grown 10, a 100 x the number of VC funds, the number of startups out there. So I think, you know, it looks more like a New York where just generally trust in society, I think, breaks down a little bit as you grow.

Yeah.

Yes. Some of them. I think, though, to be fair, there’s a lot of wonderful people in the industry, and I’m at least fortunate enough that there’s dozens of people who I think I have real relationships with who are Single smartest friend who’s a VC, not a family member. Keith Rabois. I mean, whatever people wanna say about him, I think he’s extremely smart. I love Keith. Yeah. Phenomenal. What do you think the

I mean, he’s he’s rough around the edges. He’s honest. He probably doesn’t agree politically with a lot of people in San Francisco, but that’s not taken away from how smart he is, how good of an investor he is. And, like, frankly, the first board I served on was Teespring, and he was also on that board. And people can say, like, oh, he’s he’s kind of a dick or anything. But, I mean, my experience was I was a 27 year old, and he was like, hey. Call me whenever.

He was taking half an hour, hour calls to help help me understand how to do the job. So that’s my experience with him.

Throwback.

That that was the Silicon Valley I grew up with. That was and those were nicer times. It was a blast. Everyone was just winning and making T shirts and hanging out and, you know, it all was good for a little bit.

Oh, it was a blast. That was my foray. I was a quant trader after college because I wanted to go to Chicago as a Midwesterner. Hated that, came out, then joined as the first product manager at Zenefits and got to work for Parker directly for Was that amazing? It was amazing. He’s crazy, but he’s the best salesperson and the best product person that I’ve ever met in my life. How is he crazy first? He is that person that on, you know, a Sunday night at 9PM will just call you and just say, I have this new idea.

You need to get it done before tomorrow. Or if someone screwed up, he would just email them WTF question mark. Not any context. Like, if anything went wrong, if there was a customer case that looked bad, which just means fix this right now. I absolutely love that.

first time in tech as well. Yeah. What I learned first and foremost is you need, especially then, to build an absolutely amazing product, and customers don’t know what they want. So I remember one of the first times, my first week on the job, we would do customer discovery calls and we’d listen in and the customer’s like, want you to build this thing for payroll and this thing for HR tech. And we leave the call. I’m like, okay, great. I’m gonna write some specs for, you know, we’re gonna build that.

Parker’s like, no, no, no. They say that. They don’t actually want that. This is what they wanna build. And we’d go build it and the customers would love it. So I think I learned the founder needs to have intuition of what they want. The customers aren’t gonna know. And then two, sales and growth cure everything. And in Zenefits case, maybe to its detriment a little bit, but we were killing it. The culture was amazing. Sales were off the chart. The salespeople were partying. We were just having a great time and everyone was happy and everyone was loving it.

The flip side is if sales, you know, cure all ailments, sometimes you might not be paying attention to other things that are going on.

I fully agree with you. I mean, first off, when any of my friends are like, I wanna join tech, what should I do? And I say, don’t care about the product, don’t care about anything, just go work at the fastest growing company because winning feels great. Yeah. It feels amazing. And I think we sort of maybe lost our way a little bit in, like, the late teens in tech where everyone was you know, they were making it about their mission and saving the world and we’re doing on demand dry cleaning and on demand dog walking, but it’s gonna help the world this way and you should feel good about yourself.

And I’m like, just go build a great business and, like, winning’s the most fun thing here. And I think we really lost our way for a little bit.

I am. And I think I’ve been quiet for a while, and I’m really loyal to him both, and he’s the one that gave me a chance. He taught me how to do venture. He sort of set the bar for what I wanna be investing in and frankly, you know, let me be one of the earliest investors in Rippling. So I’m very loyal to him. But, yeah, I think there were some small mistakes made, but they were company wide. They were under all departments, not just his.

Everyone knew about it. They weren’t ethical mistakes, and he sort of, you know, took the fall. Maybe the CEO has to always do that, though.

I built a wonderful product. I made no mistakes. What price did you do Rippling at? 25. Us, I had a fund that I was leading that Sam was helping out with a little bit in 2016 called Hydrazine. We were able to put in a pretty good check, co lead it with Initialized Gary and Alexis, who also had a great fund that vintage.

But no. Jack is a legit, like, OG, but, like, no fancy. No. But I also remember talking to Jack one time, and he’s like, yo. I built a multibillion dollar business, and he’s crushed it in one of the most successful early stage ventures. He’s like, but people still call me Sam’s brother.

this all the time where Jack’s just like, you

It’s our family group. Chad, it’s the three of us. But absolutely, Jack can absolutely crush it. And they’re like, but Sam Altman’s brother raised an amazing, you know, $275,000,000 fund. What do you think you’re running towards? I wanna be successful in my own right. Like, ego is a real thing in human nature, and I don’t think I ever wanna say, hey, Max, you know, crushed on these funds, but, you know, Sam was loosely involved, and it’s like it’s not really his. So I I, you know, I left after doing three funds with some combination of Sam and Jack to build out my own firm just for ego and pride, to be completely honest.

Were you nervous about

Oh, I I absolutely did. I think a few things are like, one, it’s fun to make it a little harder. Absolutely, it’s gonna be a little harder if Sam’s not involved, but like that’s good. It’s good to be pushed and have to like work for what you want. I also think I was really fortunate that I kinda grew up with a Sequoia or Founders Fund level like training and background. Like we all lived in a house in the mission and all the best people, whether it’s like a Peter Thiel or Keith are coming by the house talking about investing.

You know, I think we had about 17 unicorns across the fund because it’s just a small world and everyone’s coming by. So I’m like, oh, these are the founders of Instacart or Reddit or Rippling or Boom. And it’s like, this is the bar. So I learned the bar and I got my really amazing education. So I felt pretty comfortable going in. And I think my sort of ace in the hole is, dude, Harry, I I can’t fail. You know how embarrassing it would be if it’s fun, like, chat in the bed?

Like, I I can’t fail.

All three of us are very bad at branding. You know, whether it’s ChatGPT or the fun Jack and I did together was called Altman Capital. None of us are good at branding. I I think one day we were just, like, sitting at the kitchen table, and we had to give it a name, and there was, like, one day to do it. And I think I think it was maybe Jack, which they call it Hydrazine. There’s no real reason for it. And the

dude. Yeah. I mean, I was sort of quietly like Did you raise money for it? Not for that one, but then the other one that Sam and I did in 2020 called Apollo, raised money for that.

It’s me full time. Sam’s, you know, helping out a little bit. Jack is barely involved, you know, help helping a tiny bit, bringing us some cool deals, but he’s getting really busy with Lattice.

I would say it was a looser strategy. It was give money to the best people. You know, we did Reddit at a higher valuation. We did Rippling at 20 do do Reddit at? 600.

The Rippling was 1,350,000. At

Yeah. I just was, like, dumb enough to never, like, you know, beat my chest and talk about things. I sort of maybe grew up more as a Midwesterner, you know, from St. Louis who’s like Wow. So you have like a 5% position on that on a 25 inch. Yes. To start. But, you know, we weren’t great at really doing our pro rata and holding it all the way through, but it’s still gonna be a great return for the fund.

Yeah.

We’ve sold a tiny bit, frankly, just because our LPs have asked for liquidity because they’re mostly endowments and have been squeezed. Parker’s amazing, and I’ve never bet against him, so we still hold a a bunch of it.

Yeah. I mean, I think first and foremost, it’s really fortunate to work with family because automatically trust that everyone is doing what is best for the firm and not what’s best for them. You can also be radically candid with each other and just like, this was a dumb deal. We cannot do this. You screwed up up in a way that you might not be able to do with a new partnership. So I think when we were building the firm, we have an equal GP firm. There’s no associates right now.

Everyone is completely incentivized to do what’s best for the firm, not for themselves. And I think we built the firm that way because of what I learned earlier. Do you think most venture firms have fucked up cultures because of the hierarchical structure of them? I don’t know if they’re fucked up cultures, but I don’t think they’re incentivized to have the best returns.

If you’re an associate at a firm and you’re maybe there for five or six years, your job is to get a deal done that’s gonna get marked up quickly so you look good and then can get promoted promoted or get poached to go to another fund, but you have so little carry and you’re probably not gonna be there the twelve years until you see any liquidity. You’re not incentivized the right way.

And what’s your lesson from it? I mean, definitely, Rippling, not not to keep beating on the same drum, but the learning was just give money to the best people that you know in your network. I remember

25

Yeah. At the time, this was 2,016. That was really pricey. And and I remember actually after, you know, everything left, Parker and I, we’re both depressed and and we were chatting and he came back and we were talking. I think it was like at 17th Street Sight Glass in San Francisco in the Mission. He’s just like, wanna build a laptop leasing company. I wanna do something, but I have this fire. I cannot lose to Andreessen. I can’t lose to David. And I’m like, yo, this guy, like, he’s a chip on our shoulder.

He he can’t lose. He’s the best founder I’ve ever met. Like, just give him money and the rest will take care of itself. Do

I think mostly. I mean, that being said, we do have a portfolio construction in the current Saga Fund. We do like to own 10, but I’d rather own 3% of an amazing founder than, you know, hey, we have our 15% ownership in this company that’s gonna be worth zero. That doesn’t help us. If we can even get two or 3% of the next DoorDash or Airbnb, we’re in great shape. What was the biggest mistake of that fund? Not following on to our winners. We were a little bit like loosey goosey.

Dude, Harry, I was running a $200,000,000 fund from my living room in Pack Heights. Just like kinda casually typing away, doing some deals, meeting people for coffee. And we didn’t have a great portfolio construction strategy. So we just like, great. We have our ownership. You know, let let it be. We weren’t trying to put more money into companies.

No. But we’re able to tell within six to nine months who’s gonna be a winner, I think who’s gonna peter out. Do you think so? Yeah.

Sure. Okay.

two to three months probably.

Yeah. I mean, I I think that the investment we’re the most excited about in Saga are now profound. Within three months, I was just like, oh, they’re building an office. They’re hiring best people. They’re working on Saturday nights, and their product looks amazing and they’re closing deals. And it was obvious within three months.

No. I think if I’ve lost faith in you as a person, that’s an asshole thing. I think if you

Okay. I think what I will say to founders is, hey, if it’s been years and it’s not working, I think I’ll say there’s absolutely no shame in shutting this down, taking a break, returning 10¢ on the dollar to us. Harry, we don’t care if it’s 10¢ on the dollar or 50¢. It doesn’t move the needle. We’re not in the game of downside protection. And or just go get acqui hired. Go work at an amazing company. Like, it’s not working out, and that’s okay. I think we tell them that.

Did you have any zeros in that fund? Yeah. We had a lot. Any reflections on those? The things that failed were things that were built for the market of maybe, you know, San Francisco and Manhattan. And the example you I, you know, might use is, you know, on demand dry cleaning app. I love paying extra money to have this, you know, nice shirt go and get and get dry cleaned myself, and I get to stay in my apartment. But people in Austin and people in Saint Louis aren’t gonna want that.

That’s, like, clearly not a real scalable VC business. Like, why the hell are we investing in that? My favorite is I

Yeah. And and I do believe that the majority of the best companies are gonna be built from San Francisco, but the people need to be a little bit outward looking in what they’re building because your market better be the entire United States at a minimum to be able to succeed. I mean, I think that’s why Rippling is doing great as Parker’s like, hey, our our main target demographic is a really nice HR woman in Nebraska, so we’re gonna build a product that she’s gonna love. So you enter Reddit at 600,

about 9,000,000,000 when the lockup ended. What’s the reflections on that? That was tough. I think the market cap’s about 39,000,000,000 now. I think it’s pretty public, the fund owned just about 7%. You can do the math. That’s about maybe 2,000,000,000 of gains that could have been. It’s a lot, but but we’re in the business of saying after the lockup, we’re not public market investors. And, you know, LPs are like, thank you. You did your job. We would like you to distribute it back. And I think that’s reasonable.

We aren’t public market investors. So you would do that again? I think that has changed my thinking. And I think from here, it’s gonna become a discussion on a one off basis because that’s that’s the difference between a five x fund and a 15 x fund.

Yeah. I believe that. And I think, yeah, moving forward, it’s just gonna be call your anchor LPs and say, let’s talk through how we wanna handle the situation. Obviously, go the other direction, but there’s a world where they could all get hundreds of millions of dollars back more.

Yeah. Apollo. How big was Apollo? That was also 200,000,000. Stick with the 200. Same strategy? Same strategy. We wanted to add a little more hard tech, so we sort of branded it as we’re doing a little bit more robotics manufacturing, climate tech. Maybe we can get into that later too. Because we had less deal flow there and we had a great deal flow in SaaS. Why

Yeah. I I think I mostly agree with you. I do think there are clear winners, maybe, you know, an Androl or a Hadrian that we’re in that are clearly gonna help the fund. But I do think it’s sort of like it’s more fun, maybe. You know what I mean? Because, like, we were getting a little bored, and it’s it’s like it’s more fun to do that stuff. And frankly, we maybe branded ourselves that way, but we were doing Palantir. We we were doing other good things.

You know? You

Yeah. A little bit.

High. About 4,000,000,000.

300, but again, we sold on exit.

Yeah. We we we did well, but My heart’s not bleeding for you throughout any of this,

but I I do think most VCs have the position to say once things become liquid and the lockup ends that their job is to distribute. It’s not just us. The hard thing

Stay focused. I think we got a little bit, like you just said, we’re doing this, and we’re touching climate tech because we’re curious and, like, didn’t have a ton of success there. Was climate a disaster? Yeah. Of course, it was a disaster. I think it’s gonna be a disaster. Like, hey. Climate change is real. The government should deal with it. I I don’t think

Completely dependent on the price of carbon. And when the economy starts to do less well and you are a mega company and you need to say we’re spending billions of dollars a year on carbon credits, at the end of the day, it’s like, great. So if you spend your money there, you’re gonna have to lay off people and tell them, hey. By the way, you’re unemployed and can’t feed your family because we really wanted to buy some carbon credits. Because the money’s the same pot of money.

And I don’t think that feels good for anyone. Like, that’s not how businesses are gonna work moving forward.

I think it’s very real. But, yeah. And so your regret is doing climate? Yeah. I think we wanted to be somewhat involved with it, and there were a lot of amazing founders building in it. And they’re gonna build great things, but they’re not gonna get us great VC returns. Any others? Yeah. I think it’s sort of stay in your lane. And this has really set how we’ve built in Saga of like, look, I think I’m a very good seed investor. I think I have a great network and people like me.

I think I can slip, you know, medium sized checks into a lot of great deals. But I don’t think I can go out and win series a’s at this point in my career. Why? It’s a knife fight. And Founders Fund and Sequoia and Index and Khosla, like, they’re amazing firms that have sort of locked it up. I went to go lead a Series A or try to lead a Series A one time, and I remember the other term sheet came from Sequoia. And I saw the email that the founder got.

I it was from Mike Vernal. And they basically basically said, said, hey, Sequoia is on the board of the six most valuable private tech companies in the world and the six of the 10 most largest IPOs of the last twelve months. And by the way, feel free to talk to any of these people about their experience working with Sequoia and it was like the Collisins. It was like, you know, Dylan at Field. It was the guys at DoorDash. And I’m like, dude, I’m not gonna win this deal.

Like, why the hell would they take my money against that? So don’t try to do that. I’m clearly gonna lose the deals that I wanna lose. And if I win them, it’s probably not the ones that I want. So the takeaway is then that you have to get in before them?

I don’t. I mean, if they did, you and I wouldn’t have a job, frankly.

I I really don’t agree with you. I also think the data points of, like, the funds I’ve done will also disagree with you. We’ve built the model. Saga is a $125,000,000 fund. If we have one winner and we start with 10% of it and we can’t cover the whole market, we only cover a portion of it, the fund’s great. If we start with 10%, end up at 7% of IPO, it goes for 10,000,000,000, return 700,000,000. We just need one. We don’t need to be Andreessen where we lead 10 or 20 seed deals.

And I also disagree with you that they have them all locked up. I think there was a stat that came out recently of like post transformer world in the last four to five years of all the AI companies that have started that are now worth over 1,000,000,000. Of the first 40 of them, only one person had two lead checks and that was Andreessen and no one else had two. And if you look through this mattering, there are, you know, Green Oaks is in there, a lot of Gill’s in there, but there’s a lot of other random people.

And it there’s really not something where Sequoia and Andreessen is taking up half of those lead checks at the seed.

But but I think we have some good companies in San Francisco as well. But, yeah, ProFound was in New York, and and we were able to start with a really large position there. And they’ve obviously had tremendous success. And if that works, the fund’s great. And and that’s our model. We don’t need to cover everything. We need to have a few people who love us enough to take our money early on. Do you think the multistage players are doing seed well? No. I don’t think they can.

And, obviously,

strategy

Sure. And I I think if there’s a seed that we’re competing against and Marc Andreessen is doing the deal, he’s like, I’m gonna join your board, we’re probably gonna lose. But I don’t think that’s what’s happening. And like, not to be an asshole, but usually it’s, you know, a partner at Andreessen, and we can sell against that. We can just say, hey, you are not gonna get the time of the day with the GPs. We have a three GP only firm. You’re gonna get the time with us.

When you go do your Series A, we will be the conduit. I agree with you. They need to have a Thrive or a Sequoia or a Kleiner brand at some point to succeed. But work with us now, and we will make sure that you graduate and get in that sort of branded tier one firm by the Series A or the Series B, and you’re gonna be successful. I think it works a lot of the times.

Yeah. And if they don’t do it, you’re screwed. Exactly. And I know everyone says this, but like the risk of them not following on is massive. Like, I fully believe if they’re like, hey, Sequoia led our seed and I’m like, hey, are they doing your a? And they’re like, well, they’re doing their pro rata. I’m like, this is not a good company. Like, objectively is not a good company. So you think signaling is very real? Signaling is extremely real or at least it’s a good way for us to sell, but it’s real.

Sure. But they also have, like, $8,000,000,000 and they can’t spare, like, 10 or 20 to put into the a. And like to be honest, almost none of the best deals I’ve ever done have been set by another fund because like why would they? They’re like, hey, there’s this great deal. You should really get in. I’m like, if it was a great deal, you wouldn’t be sending it to me. You’d be doing everything. And Harry, the same with us. If we have a great deal like Profound, we are putting in all of the money we possibly can.

We’re obviously fighting with Kleiner and Sequoia, which is challenging because they also want as much as they can, but there’s not room to bring in other people. So if a VC sends us a deal, like, it’s it’s we’re not normally excited. The best deals we have come from founders referring their friends.

It’s a great question. We’ve had a lot of luck from a lot of actually the CTOs, to be totally honest. The CTOs in the companies that we are in, because they’re a little bit less, like, flashy and they’re connected to really deep technical people. We’ve had a lot of success of them sending us their buddies. Love

I think Box Group is great because I remember growing up around SV Angel and, you know, going to the Giants games with like Topher and these guys were just like awesome. And they’re like, hey, our model is to do a little bit here and there. We don’t need to lead anything. Like, there’s a reason why there’s leftovers when they send them to us. And I think Box Group has actually sort of succeeded in building the same model. I remember everyone’s like, hey, for those funds, like, this is not gonna work.

You don’t have enough ownership. You need to hit 10 unicorns. And SV Angel was like, okay, we will. They did. You know, I really take seriously what the two of them send us. But

I think one of it is playing to my strength. I’m not everywhere. I live in Austin. My two partners live in San Francisco. We cover a lot, but we don’t cover the entire thing. We historically have not I’ve done basically no PR, which we can probably dig into later. We’re not covering the whole universe, so I don’t think that we’re set up to have a smattering of 10 to 12 unicorns in this fund. And frankly, I enjoy spending a little bit more time with the founders.

So we’re we’re doing 20 to 25 checks in in this first month.

No. I think there are actually some really strong companies in Austin, whether it’s Base Power or Ceramic. They’re significantly less than San Francisco, but I’ve found that when I’m in New York or San Francisco, I make a lot of decisions and a lot of hectic decisions, but I don’t make a lot of great decisions. Like, I make the best decisions when I’m, like, in my backyard meditating by the pool, like, calling the founder and really thinking through it. And I found in San Francisco, I couldn’t have that level of, like, clarity of mind.

Okay. So let’s

We were a new partnership. We built a model where we said, hey, we are going to do 20 to 25 lead seed checks, and then we’ll probably spend 10% of the fund doing what we’re calling these, like, opportunistic deals. Jack and I had invested in owner.com before this. Adam, I think, is an absolute killer. So when he was raising a little bit more, I texted him. I’m like, yo, can you, like, you know, help us out a little bit? Obviously, we went on to to do a pretty nice sized check-in there, we’d and be stupid not to.

But the construction was around 20 to 25 lead seed checks around, you know, 2 or $2,500,000 entry price. The math math then was 30% reserves to about $100,125,000,000. And I think it was actually great to prove out that the three of us could work together. Obviously, we’re gonna size up from here, but I I don’t think it would have been great to start with 300,000,000.

Right now, it is not, but we started this eighteen months ago. And and, dude, Harry, eighteen months ago, it was. The deals were at 20 or 20 5. I was not seeing these 50 or 60,000,000 valuation deals even in last year. How do

That’s what’s keeping me up at night. If I’m not sleeping for the last six months, I’m extremely price sensitive. I’m just like, hey. We get 25 bullets per fund. And if you pay twice the price, you get half as many bullets. And that’s a really tough way to invest. That being said, like, we can’t fully sit out. And at least right

Yeah. And and that’s been me kind of forever, and I think my partners now are luckily pushing me in the opposite direction, and I’m I’m really warming up to it. Though you have to believe if you’re coming in at 50 or even a 100 for a seed that there’s a way that this thing exits for 50 or 100 or 200,000,000,000. It can no longer exit for 5,000,000,000 and have that be a good investment. So you have to believe that’s possible. And and I kinda think that is the direction where things are going.

Like, not to be on the AI hype train, but I do think we are gonna have a lot of exits eight years from now around the $100,000,000,000 mark.

I’ll still do it. Yeah. Absolutely. And love that you mentioned the last two of just having the brand cache and being around the best people. We’ve done that. I’ve done that for the last eight years. Like, it’s absolutely the right way to invest. You you go to people’s websites, other funds, and they’re like, we’ve invested in all these amazing companies. And you’re like, well, I do that too because it really helps. And founders don’t care if you did a 25 k check or a million dollar check at the seed.

They just think that you’ve invested in the best companies. We absolutely should be doing that. So you would say to do brand checks because a lot of managers like, oh, I don’t know. It’s not pure. Absolutely. And also, like you just said, it gets you around the right people. It is always a good thing to have a CEO of a multibillion dollar company that you’re texting with on a weekly basis. It’s never gonna be bad for the firm. Totally agree with you there. Okay. So we have one twenty five.

Is the fundraise process? It was pretty easy relatively speaking, but it was harder than I was maybe expecting. How long did it take? Five to six months. Pretty good. Pretty good. But I don’t know. It it felt longer when I was there. Was it harder than you thought? We were three partners who had not had traditional VC backgrounds, and it was a new partnership. And I think the biggest reason we got no’s was everyone’s like, you haven’t worked together. You’re not living in the same city.

So we wanna hold out and see how these things go and feel it out for fun too. Also, went right to institutionals. I was fortunate enough to, like, not be a maybe traditional emerging manager because of the prior fund track record. So we went right to endowments and foundations, and some of them loved that. We ended up with, I think, six endowments in the first fund, but a lot of the endowments don’t love new partnerships in first funds, and we were sort of elephant hunting rather than going to some smaller family offices.

Was that a mistake in hindsight? No. It was amazing because now we have really sticky, capital for the rest of our careers as long as we like Exactly. And then going into fun too, like What would you advise managers on anchor hunting? This was the advice, but I will give him credit that Sam gave me that I did not listen to, which is don’t talk to other LPs until you have your really high quality anchors locked in. And then, of course, we went and talked to everyone and everyone’s like, to how much capital have you raised?

And, like, we’re about to raise, you know, 20 from this person. They’re like, okay. So you’ve raised a zero. But we had a few people that I had worked with before in Hydrazine and Apollo. Took a little bit of time, but we got them across the finish line. They came in with some pretty nice checks, and then we went back to the other LPs and was like, oh, okay. We’re automatically in. These endowments that have worked with you before are in, clearly, you must be good.

So I think wait until you have your anchors locked up.

Of course, they’re all incentivized completely different. A fund of funds or someone that works in a family office is incentivized to get the best returns possible because they’re paid out on the upside. An endowment or a foundation for the most part just wants to keep their brand intact, have a nice relationship with you, make sure you don’t do anything dumb, but, like, why do they care if you’re a seven x fund or a two x fund, at least financially? So we absolutely saw that as, like, for the more traditional institutional capital, like, give them a story and a product that feels good for what they’re investing in for a family office or a fund of funds.

Tell them how much money they’re gonna make if they invest with you. What’s the largest check you have in a one twenty five fund? 15.

No. And and I I don’t have a good reason to why not. We just sort of said, okay. Great. We have this. We had our number. We’re done. I think in the future, we might spend a little more time getting that in. What was the biggest surprise about the fundraise? That the goal was not to tell the LPs how much money you’re gonna make them even though they’re financially you know, my job is to get LPs the most money back. And I thought that’s what they wanted to hear.

But I think what they wanna hear is you have a strategy that fits exactly what their portfolio wants.

Absolutely. I was fortunate enough to have data from the earlier funds to say we have absolutely crushed it, and we’re now at, like, about four x DPI. I think we can get to five or six, and we knocked it out of the park. 10 is insane. Like, our goal here is to get you to four or five and that’s amazing. Like, if someone comes in and says we’re gonna get you an eight x, I I would kind of walk out of the room. Totally

we have, like, 25% realistically. Mhmm. Harry, question for you. Do you think pro rata is a real legal right?

Yeah. I 100% agree with you, and you have to earn the right for doing your pro rata in the series a and the series b and the series c. But I think we’ve gotten to a point where Sequoia or Kleiner or someone leads you around. Like, you’re not often getting your full pro rata, and I think you just have to be honest with yourself on that. So I think a lot of the times that I’ve learned is like, hey. Model in the pro rata, but you’re only gonna get 70 or 80% of it.

We’ve never had a 100% of ours taken away, but we’ve definitely had cases in a really great deal. Worst? No one’s the worst. They’re doing their job. What what am I supposed to

realistically, we’re in a place Who’s the most collaborative large fund? I’ve had a great time working with Khosla in this fund. We we’ve had two deals where we’ve ended up at the seed with 10%, and they’ve ended up with 10%, and we’ve just had, like, a great time working together. Who’s the least collaborative? Sequoia is tough, man. And I I don’t blame them. Like, they’re they’re the best of the best, and I I don’t I don’t blame them.

Yeah. And and in our cases, the founders that we’ve spent the most time with, they always go to bat. We get 80% of our pro rata even in the best deal. But often they say, hey, can you step back a little tiny bit?

It’ll absolutely distort the company. Like, getting fat and happy early on is not great. You know, people used to say, like, hey, be ramen profitable. And, like, maybe we’re not in the days anymore of, like, sleeping on a mattress in the ground eating ramen, but I don’t think it’s good to say, hey, we can just burn through money trying tons of different things. There’s no rush. Like, let’s throw big parties. Like, you need to have, like, a lot of fear that you’re gonna kind of run out of money every day to be pushed to work harder.

So do you tell them not to raise that round? Yeah. How often do they listen? They didn’t listen once in this fund, but for the most part, they for the most part, they listen. And I think what we tell them is I I think Marc Andreessen said it really well on my brother Jack’s podcast is like VC’s job is to be a brand for the company until the company can build its own brand long term. So I’m like, well, then our job as a new fund is to make sure we get them the best brand whether it’s the Thrive or Sequoia or Kleiner to lead their eggs.

So we’re like, hey, hold tight. Please listen to us and run a really clean Series A process and get one of those best people on your cap table. And then hiring will be easier, selling will be easier, raising capital will be easier. Super

Mhmm.

Oh, absolutely. One of my biggest fears for companies that we’ve invested in is Andreessen coming out and putting a $100, like, right off the bat into one of their competitors. Like, that’s absolutely terrifying. So I do believe, yes, we need to get all of the gravity behind our best companies. We need all of the best investors. They need to get hundreds of millions of dollars to build out their moat and have their war chest against any of their competitors. I just don’t think that should maybe happen right at the seed.

Like, maybe wait until after the eight to do that.

No. They didn’t raise that much. In quick succession? I think it’s really hard if you get Sequoia to offer you money and be on your cap table and have that amazing brand halo effect to not take it. And I I think someone always should. You said

I think it looks a lot better and feels a lot better if someone’s raising 30,000,000 and someone has a lead check that comes in with 20 and then they fill in the rest after that. People do these wonky things where they’re like, we raised 5 from this person, we have this thing soft circle. And then you get to your lead, and they’re like, there’s only room for us to do under half of this deal. We’re out. And I’m like, don’t do I promise you they’re gonna sit out if you filled up two thirds behind it.

And I think a clean Series A also looks like a nice process. The metaphor I always give them is it’s like a big horse race where all the VCs are chasing you and what you wanna do is maybe have one horse start first. So you maybe talk to a potential lead like a week or two before, then you send the deck out to everyone. But you want all eight horses chasing after you at the same time. You don’t wanna have this as like a random sloppy process.

Absolutely. Like, why would you not say we’re about to start this race, work with your lead seed investor, get the deck ready, and when you’re ready, open the gates, aka, have me and my partners introduce you to one of the GPs at all of the firms and then have the the fund raise process start. They have to do it that they should do it that way. It’s the biggest way that they fuck up

I think there’s two things to that. One is it it’s really hard if, like, a more junior partner from an Andreessen or someone like that reaches out or an associate on a firm reaches out from a branded firm and like, we wanna talk to you. It’s you’re like, oh, I feel great about myself. Oh my god. I can’t control myself enough

Yeah. And and and they go talk or, you know, Harry, like, are a lot of people in this industry that say they know, you know, it’s sort of like name drop. They know everybody and we’re gonna make this introduction to, like you said, Mahmoon or Alfred Lin and they can’t. And I think there’s a few seed funders. I think both of us in this room can just like text those people directly. And I think some of the founders don’t believe that we can necessarily do that and it’ll be as easy as it is for us to do it.

Yeah. I mean, I think it’s just economics, to be honest. There’s now, like, hundreds of billions of capital chasing slightly more companies. I think the experiment we’re going through right now and went through in 2020 is like, hey, if we put 10 times as much capital into the market, there better be 10 times as much good equity to be sold and 10 times as many amazing companies being built. And there’s definitely more, but there’s like two or three more. So now we have this system where there’s just so much capital chasing not that many great deals.

So the founders have all of the sway and all of the decision making of how they wanna run their process.

I like it. It’s fun. People are building really cool things. And that’s what’s getting me excited is during that lull I was talking about when it was on demand dry cleaning, like, that’s not fun. I I can’t get out of bed to, like, go invest in that. But now we’re seeing people that are really swinging for the fences. Like, it’s fun to think about, you know, Androl or Hadrian manufacturing or, you know, Ceramic and Austin, or it’s fun to just be investing in these really cool companies.

That wasn’t the case before.

US tech to help or to hurt him? Help. I’m generally someone that less regulation’s a good thing. It is opening up the M and A market, having people feel like we have a hot IPO market is wonderful because it gets money back to the LPs and the VCs get that money back and just everything is healthier. And I I think it’s clearly better.

Terrible. Like, maybe maybe the worst decision related to tech that this administration has had. Like, first off, why would you not want an amazing engineer immigrating to your country? Just like straight up, we want all of the best smartest people going to work in our country. And then also, it’s really bad for the small guy. Like, cool. Amazon, Google, they’re like, well, we got this really great engineer who graduated from my IT. We want m 100 k. No big deal. But if you’re a seed series a company, it’s completely hamstringing you.

I was really frustrated to see that.

Okay. That means I could not explain it well enough. It’s in writing. I’m like, a sphere of influence of AI labs. Help me out. I was a CS and math guy. I was I was not I was not an English guy. I think what I mean is when OpenAI and Anthropic started getting popular, everyone’s like, we’re gonna build things that are adjacent to that and they are, you know, AI voice or AI video gen because right now, you know, OpenAI is worth $30,000,000,000 and is, you know, offering chat.

And I was like, look, it’s not because of inside information and it’s not because I know that he is one of the most ambitious people in the world, but like they’re trying to be a multi trillion dollar public company and so anthropic. And that means they’re gonna have to try everything. Amazon tried making a freaking phone. You know what I mean? Like, they’re gonna try everything. So if you have, like, the naivety to think you’re gonna build something that’s really close to what OpenAI is building and they’re not gonna build it, You’re crazy.

Like, you know what I mean? So I think we’ve really stayed away from things that OpenAI will encroach on and just offer a better product. Everyone’s like, oh my god. They had this Dev Day thing and it’s gonna kill a couple dozen companies, you know, in San Francisco.

Yeah. And I think there are a few examples where they just have gotten Shopify

Yeah. But I think you’re forgetting the ones that are like, hey. We whipped this up in a weekend, and it’s sort of some API thing that OpenAI is gonna build. I think Eleven Labs is the exception to the rule. So this kinda led us to lead in what we’re calling, like, second order effect AI companies that are further away from what OpenAI looks like when it’s a $3,000,000,000,000 company.

Like, it’s a little bit of an art, not a science. I think I just try to visualize. I meditate, I visualize, like, what what they’re gonna offer when it’s a $3,000,000,000 company. I sit in the pool, and I think, will they do this or not? Yeah. But I I think the two real things that I think about, one, what are these world class engineers that are sitting in Downtown San Francisco going to build, and what do they not want to touch? So when we’re looking at companies, we did a company called Fleetworks that we’re pretty excited about, and they are doing while it’s in the AI voice space, it is for supply chain trucking logistics, and they’re helping them match things better for shipping.

And I don’t think the people there are gonna want to be calling and dealing with a shipment of oranges from, you know, Miami to New York that are late. I think they wanna stay sort of in their ivory castle a little bit.

I I think I I could. I I don’t. I think for a lot of reasons is, first and foremost, like, the company’s under, you know, scrutiny. Like, obviously, I don’t want to put him in a weird position where he’s leaking anything. It just it does doesn’t seem like good for for OpenAI, and it doesn’t feel good. Like, I kinda want and you might say this is stupid to, like, earn this on my own right.

you know what I mean? It it it’s not actually that different. Yeah. I think I just wanna be really sensitive as my brother that, like, he is not putting himself in a compromised position at all sharing information he shouldn’t. Has his

I mean, like, hey, let’s be honest. Like, clearly, it allows me to have more success in investing where it’s just like I have, because of him, some brand halo effect. And people are like, oh, Max, do you invest in AI? And I’m like, I I can. You know what I mean? Like, there there’s something around that. It definitely helps. It helps a little bit with deal flow. I think it makes it worse of like, dude, when I’m in San Francisco and you’re out at, like, a party on a Saturday night, you know, someone will ask about it.

You know, my friend wants to go work at OpenAI. Can you help him get a job? I’m a little bit Do you get that? Yeah. San Francisco, of course. In Austin, I don’t. San Francisco, I get that all the time. Oh, god. Gross. Right? Oh. I love a lot of the people there. The culture can be challenging for you

Yeah. Of course. And and I think I’ve been fortunate enough to know who’s like that and have my sort of crew there that’s not like that. But I I do think it gives me more motivation to sort of prove that I can be an amazing investor myself and build out a huge brand for Saga. And I think that will take some of the pressure off of that, to be honest. It’s it’s definitely a driving factor for me. And frankly, like, we have not done the PR, but that’s part of the reason that I’m doing it now to show that, like, I’m a really good investor myself.

Why not doing the PR? It was a mistake. So in 2015, 2016, when I started doing this, it was very much just hang out with great people, like be a mensch for a decade, do like a lot of favors, be really likable, and you’re gonna get into the good deals. There’s now too many VC funds and too many companies. And I think right now you do have to do PR and build your brand. I think it just took me a little bit longer, frankly, to be able to come to that realization.

But, yeah, moving forward, and you are the first, I think the PR train is gonna start a little bit. Do what do you want with Saga? I wanna build, I think, what, like, a first round capital looked like when I grew up. I wanna have something where ten or fifteen years from now, we are maybe a quiet luxury brand, a la like a Thrive or a USB, where everyone’s like, hey, they are the premier early stage brand. They’re not as loud as everyone, but we think of them as excellent.

It’s where So you don’t wanna get bigger and bigger and bigger? A little bigger. I think we’d like to be, you know, five or six GPs, two or three associates, so we have the incentives, you know, cap out around maybe $3,400,000,000 per fund. How do you

Oh, for sure. I think it’s really challenging to be like a $700,000,000 fund. Now I think you’re either a really massive powerful platform like an Andreessen or a GC, or you just have the legacy cachet like a Sequoia or recliner, or you have to be a boutique firm that has a very specific offering and stays small and you kinda I I know you’re Do you think like a first round

I think so, but I also think it’s sort of just like every generation has a refresh. I mean, you mentioned Cerela. I think conviction is gonna be a great firm. I think there’s room to have a new set of firms maybe every decade. To be honest, like, I kinda think that Not on top of the old though. No. Replacing. Yeah. I think

Yeah. And I I think you have to. And I think I was fortunate enough. I actually interned for Steve Anderson at baseline when I in 2009, who I think was one of the most amazing investors and taught me a ton. And then he kind of, you know, rode off into the sunset after hitting Twitter and Instagram and is like an almond farmer or something now, like, living a great life. And those guys were absolutely amazing and really set the stage for what seed investing looks like.

But I kinda think, yeah, we have to compete with them. We have to do better than them. There’s not room for all of us. And frankly, I kinda think, Harry, you you were younger when you started, so you might have a little more time. I got, like, fifteen years of this until I’m really good, and then I’m kind of irrelevant, and a new set of seed funds will replace me.

Yeah. It it was crazy. I I mean, I think I like Paul Graham connected me to Ron Conway, and then Ron was like, oh, you should meet this guy, Steve Anderson. I was like 20 years old, and I was like, okay, cool. Like VC job sounds great. He was, I think, really focused on just doing a few things well and not covering the whole market. And he sort of stayed in his lane. He was liked by a lot of people. He just didn’t try to cover everything.

He’s like, at a fund of his size, he just needed to have one or two wins per fund. I think he had more than that, and I think it’s kind of guiding how I’m building this fund.

It has. And I think historically, I’ve held longer. We’ve also had some, frankly, that, you know, had their $510,000,000,000 valuations in 2022. What did you hold when you should have sold? It it might not have hurt to sell Gusto. I think Gusto is a great business, but I think, you know, they were valued at 10,000,000,000 at one point, and I think they’re still gonna be a strong business. I don’t know if they’re gonna have explosive growth from there. Great guys, but couldn’t have hurt to take a little bit off the table.

I think our job has definitely changed now. We need to spot when the market is inefficient and there’s too much hype, and some things just get overvalued. And especially as a seed investor, not a growth stage investor, if we can show that we’re a 100 x or get money off the table at a 100 x, we don’t need to wait for that two or 300 x. So we have to sort of make our own again, it’s almost like a gut instinct when we think it’s overpriced.

This all being said, some of the best advice I’ve got is that last double or that last triple comes really fast where, you know, things grow quickly and then they’re around, you know, 500,000,000 to a $2,000,000,000 valuation, and they sputter in a little bit, and then at the very end, they just go. And people are like, hey. Hold, Andrew. Hold more Rippling. Hold more SpaceX. It’s gonna double. And it’s a difference between your three x firm and your six x firms. It’s really hard to let these things go, Harry.

Yeah. Oh, if you hold for fifteen years, it needs to be seven, eight x to make it worth it.

and and

Absolutely. And, I mean, there’s something to be said of, like, if you’re still early in your career and making money and you’re like, hey. I can get out. I can sell this for a few 100,000,000, not to you, but, you know, back to the LPs and you take a nice chunk yourself, yourself, or I can wait and see if it goes to 500,000,000. It’s pretty hard to, like, not take what’s on the table. If, yeah, if you don’t need the money, like, let it ride all the way up.

What was your first big hit personally, like, financially? Rippling and Reddit. We sold a little bit of Rippling on the way up just because, like, our LPs wanted money and know? Did you notice that change in your mindset? Yeah. It’s a lot more relaxed where you’re just like, hey. Let’s let this thing go. You do have to be careful in our industry, though, because it’s just we’re around a lot of people that have done really well, and I think it’s hard to not get on the ladder to nowhere where you want more and more and more, so I’m pretty careful that not

Yeah. I think I’m unfortunately in a little different position where I’m closer age to those people and just around them a lot. And I think for me, it’s just very important to say, like, for my own happiness and, like, ability to succeed at work to sort of stay off of that, like, hedonic treadmill. Do you genuinely think that

Yeah. I I know a few that are. I think it’s the ones that have kind of prioritized family and things. I think I would be less happy as a billionaire than I am right now. Why? Because of the things you’re talking about. I would want a nicer house, then I’d want a boat, and I wanna constantly just upgrade my life. And I would I don’t think I would just be happy with what I had. It’s really dangerous because it’s like, hey, I bought a $20,000,000 house, but my buddy, you know, down the street has a $40,000,000 house and I’m good friends with him and I go over there.

It’s really challenging, I think, to just say I don’t want that. What single purchase has brought you the most happiness? I got some really sick outdoor speakers from my backyard. I love listening to music. I love sort of meditating and just chilling back there, and it was absolutely worth it. Dude, we’re gonna do a

I think Lux Srini, who was the CTO at Zenefits, went on to build ZeroDown. It didn’t quite work out, but the timing was wrong, and then joined leading a special, like, kind of special architectural projects at Rippling, has just been an amazing guy to watch over the last kind of decade. What’s the biggest BS about venture today? Oh, boy. I think that it is people say it’s a sort of chummy, like, collaborative thing where we’re all kumbaya and having fun, and then, like, you know, you get to it and someone just, like, elbows you out of the way.

It’s not. It’s a competitive market. We’re all competing for a scarce amount of good equity.

Yeah. Absolutely. We we look much more like a hedge fund or PE world than we do VC from ten years ago. What deal do you regret passing on most? Hadrian. I was friends with Chris just, like, socially. We were hanging out a ton during COVID, whiteboarding things, and I remember I just, like, wasn’t maybe I wasn’t as aggressive those days, I didn’t give him an offer. And then, like, he talked to me, like, two weeks later, and he’s like, hey. Like, Delian’s leading around and everything.

Know? And I was like, well, you know, why didn’t you talk to me? He’s like, why didn’t you talk to me? We were sitting together for, like, weeks on end. I was like, oh, shit. Maybe I should be a little more aggressive offering term sheets. What’s the biggest lesson you’ve learned from Sam about how to analyze people? Figure out what someone truly wants, and the answer is not always money. It might be title. It might be recognition. It might be the ability to work on what they want.

So when you’re either hiring someone or trying to partner with them in any way, truly understand, like, what is the most important thing to them. It can’t just be compensation.

Be humble and know to stay in your lane. The worst thing you can do is come right out of the gate and say, we’re gonna lead Series A’s. Know what you’re good at. That might be seed. That might be box group strategy, that might be coming in, but just stay in your lane and and be honest with yourself.

That you could be what I call like a text guy where you can kinda just sit at home and text people and build great relationships and fly totally under the radar. I don’t think you can do that anymore.

Yeah. I remember when I first got to San Francisco, like, Andreessen was more up and coming, and I was like, no. Like, it’s, you know, it’s Sequoia and Founders Fund and Benchmark, and they’re just these loud splashy people. I I don’t see this working. I was clearly wrong, and they got it right just like you.

Or or more. And absolutely, I think people are like, how is Thrive gonna deploy all this money well? There needs to be these multi $100,000,000,000 exits. So like turns out there are or, you know, and it’s not just gonna be OpenAI. I think it’s gonna be a lot of them.

what

and do what we do. Yeah. People also just can’t wrap their head around the size of some of these markets. Like the example always is like, oh, you’re selling software to customer service agents to like improve their efficiency. It’s like, well, what if you just like were the whole market cap of all customer service agencies? I think that’s like 400,000,000,000 of value right now.

30,000,000. If it’s a big bank, I don’t know. Is this like Barclays or something? It was 520. 520,000,000? Yeah. It’s a big bank. It’s a big bank. So you’re not selling software to it. You’re selling the whole thing. All 520,000,000. Lot of fucking money to go to customer service. And even if, you know, the cost of labor goes down and it’s like you can capture 50% of bank spends 350,000,000 on KYC alone. I I think people forget all the time just how big these markets are.

One of the companies we’re really excited about we invested in is Stand, which is redoing the insurance market in California as all of the big insurance companies are pulling out there. And they’re basically saying we can now use fly drones over and visualize the houses and help underwrite exactly what we think the fire risk is. Harry, right now, if you’re in a fire zone in California, your premiums are like 5%, like literally 5% of the home. Like, you have a $5,000,000 home, you’re spending 250,000 a year on home insurance and fire risk zones.

So they’re like, great. Other people are modeling this based off the ZIP codes. We are actually going to be able to have computer vision and model this, and we’re gonna be our own home insurance broker. Harry, if they succeed, the market cap of the big ones in The US are a 100,000,000,000. I think Allstate’s private. They’re worth 300,000,000,000. Like, it’s so freaking big, and people can’t get their head around that. Final one for you. What would you do if you weren’t scared? I think I would do a lot more to sort of brand myself as a thought leader.

I’ve definitely been a little bit more PR shy. I wasn’t like, you know, I always had, stage fright growing up. I think I would be that guy who’s just like, hey, I’m gonna host these fireside chats, and I’m gonna, like, be the person who is everywhere and their faces everywhere.