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Transcript of our conversation with Auren Hoffman:
00:00:21 - 00:00:21
Hey everyone. Welcome to Founders in Arms. With me, Immad Akhund, co founder and CEO of Mercury. Today we have Auren Hoffman with us. He's the co founder and now chairman of SafeGraph. Auren is a very OG Silicon Valley entrepreneur.
00:00:38 - 00:00:40 He's been around forever. Every single time I talk to him he's extremely insightful. So I'm excited to have him on.
00:00:48 - 00:00:52 But yeah, Auren like, yeah, you do so much stuff. So what are like the top kind of two or three things that kind of get you excited nowadays?
00:00:56 - 00:01:00 I mean like everybody, it's AI, AI and AI I think. Like SafeGraph is like deep in AI. I mean, I think everybody is, I think if you're not in it, you're, you're not going to be around. So I mean every single business and even all the students, I mean everybody is. It's just if you're not spending like a massive amount of time just like thinking or retooling right now, you,you, you may not be in business in the future. It's kind of like when the Internet hit in the 90s.
00:01:28 - 00:01:30 SafeGraph is a nine year old company. Right. So maybe describe what it does and how you're impacted by. 00:01:34 - 00:01:36 Yeah, SafeGraph sells data.
00:01:36 - 00:01:39 It sells data about physical places.
00:01:39 - 00:01:42 And so 2024 AI really helped us
00:01:42 - 00:01:47 like significantly become more efficient, reduce costs.
00:01:47 - 00:01:49 So the company, the company's a very profitable
00:01:49 - 00:01:52 company and became way more profitable in 2024.
00:01:52 - 00:01:54 And that's true for like tons of data companies.
00:01:54 - 00:01:56 So all the data companies I've been involved with,
00:01:56 - 00:01:59 like 2024 was a year where they just became
00:01:59 - 00:02:01 like way more profitable because of AI.
00:02:01 - 00:02:03 Because there was a bunch of things humans were doing
00:02:03 - 00:02:05 and you kind of just removed them from the loop.
00:02:05 - 00:02:07 Yeah, all the above. Yeah, exactly.
00:02:07 - 00:02:09 And the products often got better and
00:02:09 - 00:02:11 so they could command more, et cetera.
00:02:11 - 00:02:13 Now they haven't yet, most of them haven't
00:02:13 - 00:02:16 yet passed on that savings to the customer.
00:02:16 - 00:02:17 You're going.
00:02:17 - 00:02:19 My guess is in 2025 we were going
00:02:19 - 00:02:21 to see some sort of price competition because
00:02:21 - 00:02:23 you're going to want to gain market Share.
00:02:23 - 00:02:28 So a lot of those gains in profitability will
00:02:28 - 00:02:31 probably go away by the end of 2025.
00:02:31 - 00:02:35 So probably see short term, maybe the profitability
00:02:35 - 00:02:37 at the end of 2025 looks like the
00:02:37 - 00:02:39 profitability at the end of 2023.
00:02:39 - 00:02:40 Oh, yeah, that's kind of interesting.
00:02:40 - 00:02:41 I feel like that's probably true in a lot
00:02:41 - 00:02:46 of businesses where AI brings efficiency, but you don't
00:02:46 - 00:02:50 instantly have to pass on the margin to customers.
00:02:50 - 00:02:52 What are businesses, you think, where people will
00:02:52 - 00:02:53 be able to hold onto the margins?
00:02:53 - 00:02:55 Where, you know, they have, like,
00:02:55 - 00:02:56 enough of a moat or something?
00:02:56 - 00:02:58 I mean, I think in some cases it
00:02:58 - 00:03:00 makes things better, so the product is better.
00:03:00 - 00:03:04 So, like, it's faster or it's more effective or,
00:03:04 - 00:03:05 you know, all these other types of things.
00:03:05 - 00:03:07 So I think in those cases is better.
00:03:07 - 00:03:11 But if it is so much more cheaper and there is
00:03:11 - 00:03:14 a lot of competition, people will eventually compete on price.
00:03:14 - 00:03:17 Price is always one of the levers to compete on.
00:03:17 - 00:03:19 So if you think of, like, you know, voice today.
00:03:19 - 00:03:23 Well, like, you know, certainly if I call up a customer
00:03:23 - 00:03:26 service instead of that annoying phone tree, I get a very
00:03:26 - 00:03:28 friendly AI voice at the other end of the.
00:03:28 - 00:03:30 Well, that's certainly way better than
00:03:30 - 00:03:32 the phone tree in immediate.
00:03:32 - 00:03:33 And it's good and it's nice.
00:03:33 - 00:03:36 At some point, though, if there's 20 of
00:03:36 - 00:03:39 those companies who are competing for business, that
00:03:39 - 00:03:41 price of that will go down.
00:03:41 - 00:03:43 All right, so we've got Raj back.
00:03:43 - 00:03:44 Welcome, Raj.
00:03:44 - 00:03:46 We were just talking about moderating conversations, since
00:03:46 - 00:03:49 dialogue is all about kind of conversations, and.
00:03:49 - 00:03:51 And it's actually happening next week.
00:03:52 - 00:03:55 One thing that was cool about dialogue
00:03:55 - 00:03:57 is you have actual politicians there.
00:03:57 - 00:03:58 You have people from academia there.
00:03:58 - 00:04:00 It's not just a tech conference.
00:04:02 - 00:04:03 And you also moved to D.C.
00:04:03 - 00:04:05 and I guess I always wondered, is
00:04:05 - 00:04:06 that partly why you moved to D.C.
00:04:06 - 00:04:08 to kind of get away from tech?
00:04:09 - 00:04:11 No, I moved to D.C.
00:04:11 - 00:04:13 as my wife's kind of career.
00:04:13 - 00:04:15 Government, national security, law enforcement.
00:04:15 - 00:04:19 And so it made sense for her career to move out here.
00:04:19 - 00:04:20 And. And.
00:04:20 - 00:04:21 And I love San Francisco.
00:04:21 - 00:04:23 I'm not a hater, but I just. I had.
00:04:23 - 00:04:24 I've been there my entire adult life, and I
00:04:24 - 00:04:26 just wanted to try something new as well. Yeah.
00:04:26 - 00:04:28 One piece of advice, Auren
00:04:28 - 00:04:30 I don't even know if you remember giving me this
00:04:30 - 00:04:32 advice, but you gave me your playbook on how to
00:04:32 - 00:04:35 hire execs, and that's exactly what I do nowadays.
00:04:35 - 00:04:37 Do you remember that conversation? Really?
00:04:37 - 00:04:38 Okay, what was the. What was it? Remind me.
00:04:38 - 00:04:41 Because I, you know, I think I forgot, I guess
00:04:41 - 00:04:43 in, like, 2020 by the way, I don't even, you
00:04:43 - 00:04:44 know, just because I gave you that advice back in
00:04:44 - 00:04:46 the day, I may not even agree with it. No, it works.
00:04:46 - 00:04:49 I mean, I've adapted it to my own process now.
00:04:49 - 00:04:51 But yeah, the normal way people do it is
00:04:51 - 00:04:54 they go get an exec recruiter and they pay
00:04:54 - 00:04:57 them some exorbitant amount, like 150k or at least
00:04:57 - 00:05:01 guaranteed, and then they will go look at the
00:05:01 - 00:05:03 network and then, you know, eventually you'll find a.
00:05:03 - 00:05:06 Whatever VP of Product or VP of Engineering or whatever
00:05:06 - 00:05:08 it is, which is the way I was doing it.
00:05:08 - 00:05:10 And I was not like super happy with it.
00:05:10 - 00:05:11 And Auren was like, hey, you
00:05:11 - 00:05:13 know, why are you wasting money?
00:05:13 - 00:05:15 Giving them, Giving them money and they do a bad job.
00:05:15 - 00:05:18 Like, they're not really incentivized as middlemen.
00:05:18 - 00:05:21 And your advice was that I should just have
00:05:21 - 00:05:23 like work with an internal recruiter or even an
00:05:23 - 00:05:27 EA, refine a profile of like a candidate I
00:05:27 - 00:05:29 want and basically email them from my own inbox
00:05:29 - 00:05:32 and say, hey, love what you're doing at Meta.
00:05:32 - 00:05:35 We would love to have you work at Mercury.
00:05:35 - 00:05:36 And the response rate is way higher
00:05:36 - 00:05:38 because it's coming straight from the CEO.
00:05:39 - 00:05:40 And that's what we do now.
00:05:40 - 00:05:41 So we have internal.
00:05:42 - 00:05:44 And basically, I think the first two execs
00:05:44 - 00:05:46 I hired were from an external firm.
00:05:46 - 00:05:48 And then the next eight have been
00:05:48 - 00:05:50 like just internally done through this process.
00:05:50 - 00:05:52 And yeah, it's been great.
00:05:52 - 00:05:55 I much prefer it and the results are much better.
00:05:56 - 00:05:58 One of the things I found, which
00:05:58 - 00:06:00 I don't know if this was even.
00:06:00 - 00:06:04 I knew this when you and I talked about this, is
00:06:04 - 00:06:06 when you create that initial list, let's say you create like
00:06:06 - 00:06:11 the first 10 people or something like that is you often
00:06:11 - 00:06:14 have many people in your company take a look at it.
00:06:14 - 00:06:17 Other execs, other people that would be reporting to this person,
00:06:17 - 00:06:20 et cetera, they take a look at these profiles and then
00:06:20 - 00:06:21 they might say, I don't know about this one.
00:06:21 - 00:06:23 Or here's why I don't.
00:06:23 - 00:06:24 Here's why I think we.
00:06:24 - 00:06:26 And it actually helps you hone what you're looking
00:06:26 - 00:06:28 for early and get on the same page.
00:06:28 - 00:06:30 You don't have to have as many conversations.
00:06:30 - 00:06:33 And you could start to look for the.
00:06:33 - 00:06:35 And actually, Instead of the 10, it's
00:06:35 - 00:06:37 actually really, there's these six people.
00:06:37 - 00:06:39 Then we want to find more people like those six.
00:06:39 - 00:06:43 So let's go find 60 or 200 that look like
00:06:43 - 00:06:46 those six people and then reach out to those people.
00:06:46 - 00:06:48 I also do this thing, which is, I guess
00:06:48 - 00:06:50 an adaption on this is like if there's some
00:06:50 - 00:06:53 stretch candidate where I'm like, okay, there's no way
00:06:53 - 00:06:54 this person would work at Mercury.
00:06:54 - 00:06:56 I just send them an email saying, hey, I'm
00:06:56 - 00:06:58 looking for someone, I'm looking for a cfo.
00:06:58 - 00:06:59 But yeah, you're probably not it.
00:06:59 - 00:07:02 But I'd love to have a conversation just to calibrate.
00:07:02 - 00:07:03 And then sometimes that person
00:07:03 - 00:07:06 ends up being actually interested.
00:07:06 - 00:07:09 But even if they're not, they know people that are.
00:07:09 - 00:07:10 Yeah.
00:07:11 - 00:07:13 That's literally how we hired our VP of finance.
00:07:13 - 00:07:15 He was not. Oh wow.
00:07:15 - 00:07:17 It was a collaboration goal and that
00:07:17 - 00:07:18 ended up being like six months later.
00:07:18 - 00:07:20 I was like, oh, I didn't find anyone better than you.
00:07:20 - 00:07:22 Can you just work? He was like.
00:07:22 - 00:07:23 He was like, okay, fine.
00:07:24 - 00:07:27 Now Immad do you think that works for every role?
00:07:27 - 00:07:30 Because I've done both internal and external and
00:07:30 - 00:07:31 I found the internal works really well when
00:07:31 - 00:07:34 there is a decent market for a role.
00:07:34 - 00:07:37 But external works good for really hard to find roles.
00:07:38 - 00:07:40 But did you find any differentiation?
00:07:40 - 00:07:41 It sounds like you've had the
00:07:41 - 00:07:43 internal work for every role.
00:07:43 - 00:07:45 Yeah, honestly, I think I'm
00:07:45 - 00:07:46 like really extreme on this.
00:07:46 - 00:07:48 I think any middlemen that a
00:07:48 - 00:07:50 startup works with are generally bad.
00:07:50 - 00:07:54 It's very, very hard for middlemen to give
00:07:54 - 00:07:56 you like a good performance, including VCs.
00:07:58 - 00:07:59 I think VC is a middleman.
00:07:59 - 00:08:03 I mean VCs give you money, but it's
00:08:03 - 00:08:05 not their own money, it's someone else's money.
00:08:05 - 00:08:06 Yeah, yeah, that's true.
00:08:06 - 00:08:07 I guess they are.
00:08:07 - 00:08:10 But they're efficient.
00:08:11 - 00:08:12 Connection to capital.
00:08:12 - 00:08:14 I don't know if pitching a ton of small
00:08:14 - 00:08:18 lp' the way any contractors, any sort of people
00:08:18 - 00:08:20 like that I generally try to avoid.
00:08:20 - 00:08:22 So we don't work with any external recruiters
00:08:22 - 00:08:25 and I haven't pretty much apart from the
00:08:25 - 00:08:27 two exec searches I did, I've never worked
00:08:27 - 00:08:29 with an external recruiter for Mercury.
00:08:29 - 00:08:32 I think it's actually much better to just initially
00:08:32 - 00:08:33 when you don't have an internal recruiting team.
00:08:33 - 00:08:35 I think it's better for founders to just hustle and
00:08:35 - 00:08:39 find people and yeah, they get better results from that.
00:08:39 - 00:08:41 Yeah, you learn a lot too.
00:08:41 - 00:08:42 And you can find, you could
00:08:42 - 00:08:45 find these exec recruiters relatively easily.
00:08:45 - 00:08:47 I would say like they're not like some
00:08:47 - 00:08:50 unicorn type of talent that you know a.
00:08:50 - 00:08:53 There's a lot of ex recruiters out there, ex
00:08:53 - 00:08:55 headhunters, but also just a really good people person
00:08:55 - 00:08:58 who like who has been in a recruiting role
00:08:58 - 00:08:59 can be an eternal exec recruiter. Right.
00:08:59 - 00:09:02 Like is there special profile for that? Person.
00:09:02 - 00:09:04 I think it helps if they've been in
00:09:04 - 00:09:07 recruiting and being at companies for a bit.
00:09:07 - 00:09:09 Like with a normal internal recruiter, it can be a
00:09:09 - 00:09:11 relatively junior person, but I think with an exec recruiter
00:09:11 - 00:09:14 you want it to be a little more senior.
00:09:14 - 00:09:16 But yeah, I think it's like not most
00:09:16 - 00:09:19 recruiters at contingency firms hate their job.
00:09:19 - 00:09:21 So it's not hard to recruit them out
00:09:21 - 00:09:24 of those firms and bring them inside.
00:09:24 - 00:09:26 What are other views you have, Auren
00:09:26 - 00:09:28 on kind of executives either hiring them
00:09:28 - 00:09:30 or managing them or working with them?
00:09:30 - 00:09:33 I mean, my biggest view, which may have changed since
00:09:33 - 00:09:36 you and I talked, is that you shouldn't hire executives
00:09:36 - 00:09:38 or you should avoid it as much as possible.
00:09:39 - 00:09:43 So I think nowadays you can rent almost
00:09:43 - 00:09:46 anybody for two to three days a month.
00:09:46 - 00:09:48 You can rent literally the best person in
00:09:48 - 00:09:50 the world for a couple days a month.
00:09:51 - 00:09:53 You don't have to buy.
00:09:53 - 00:09:56 And the advantage for them is that they get to
00:09:56 - 00:10:01 do just the most strategic, most fun, most interesting thing
00:10:01 - 00:10:04 to do during those two to three days a month.
00:10:05 - 00:10:07 And they could have many clients or they
00:10:07 - 00:10:08 could actually have like a real job.
00:10:08 - 00:10:11 Maybe they're the CFO of another company and they work for
00:10:11 - 00:10:15 you on the side for, for a couple days a month.
00:10:15 - 00:10:18 And then, and then you could have a more of an
00:10:18 - 00:10:21 up and comer like that person was 20 years ago or
00:10:21 - 00:10:24 something who really wants to do the grind, who wants to
00:10:24 - 00:10:27 do other thing, but also will benefit from having this mentor
00:10:27 - 00:10:30 to help them with this, with the strategy.
00:10:30 - 00:10:33 So in general, obviously there's plenty of
00:10:33 - 00:10:35 exceptions, but in general, I would always
00:10:35 - 00:10:38 advise companies nowadays to not hire execs.
00:10:38 - 00:10:41 So you're saying let's just pick finance.
00:10:41 - 00:10:43 Let's say, so you have a head of finance
00:10:43 - 00:10:46 or something, you deliberately don't call them an exec.
00:10:46 - 00:10:47 And you could call them an
00:10:47 - 00:10:49 exec or whatever, it doesn't matter.
00:10:49 - 00:10:51 So you can call them, but you don't hire somebody
00:10:51 - 00:10:55 with an exec profile who's been there, done that before.
00:10:55 - 00:10:58 You're hiring somebody who's, you know, they're early
00:10:58 - 00:11:01 in their career, they're, they're learn it all.
00:11:01 - 00:11:04 They're incredible, they're a great executor.
00:11:04 - 00:11:06 They're, they're, they're, they're an A player.
00:11:06 - 00:11:08 They're going to be that person in the future.
00:11:08 - 00:11:10 So you're basically hiring very likely slightly
00:11:10 - 00:11:14 more junior talent for that position and
00:11:14 - 00:11:16 potentially way more junior talent. Yes.
00:11:16 - 00:11:19 And this isn't about like price or is
00:11:19 - 00:11:21 it about like getting someone a little cheaper?
00:11:21 - 00:11:23 No, it's not about price.
00:11:23 - 00:11:24 It's about the.
00:11:24 - 00:11:28 Often what happens is people hire execs, but that they
00:11:28 - 00:11:30 don't actually want to do all the other work.
00:11:30 - 00:11:31 So then they hire a bigger team.
00:11:31 - 00:11:32 They want to do a bunch.
00:11:32 - 00:11:34 They want to do the strategy.
00:11:34 - 00:11:36 They like doing the strategy.
00:11:36 - 00:11:37 A lot of times, like a lot of CROs
00:11:37 - 00:11:39 don't even want to get on a plane.
00:11:39 - 00:11:42 Sometimes you'll talk to a CRO and it's like, like you, you
00:11:42 - 00:11:44 know, your job is to always be on a plane, right?
00:11:44 - 00:11:47 Like if you're a CRO, like, but they, you know
00:11:47 - 00:11:49 that they've got other things going on in their life.
00:11:49 - 00:11:49 They did that.
00:11:49 - 00:11:51 They, they took like tons of
00:11:51 - 00:11:53 red eyes when they were younger.
00:11:53 - 00:11:54 They don't want to keep that.
00:11:54 - 00:11:56 That really, when you're 50, that kind
00:11:56 - 00:11:57 of really wears on your body.
00:11:57 - 00:11:59 They don't want to do that anymore.
00:11:59 - 00:12:02 So they don't want to do that grind that
00:12:02 - 00:12:05 they used to do that they remember doing.
00:12:05 - 00:12:06 It's a lot of hard work.
00:12:06 - 00:12:09 They don't want to work 70, 80 hours a week anymore.
00:12:10 - 00:12:13 And they feel like they've earned the strategy spot of
00:12:13 - 00:12:16 working 40 to 50 hours a week, which is great.
00:12:16 - 00:12:17 You can rent those people.
00:12:19 - 00:12:22 And I think they kind of corrode often in a
00:12:22 - 00:12:25 company because they're only working a certain number of hours.
00:12:25 - 00:12:27 They have certain types of, you know,
00:12:27 - 00:12:29 they often want a bigger staff.
00:12:29 - 00:12:31 They, they, there are certain things that
00:12:31 - 00:12:32 they don't want to dive into, basically.
00:12:32 - 00:12:34 Like separating the strategy side
00:12:34 - 00:12:35 with the execution side.
00:12:35 - 00:12:38 And instead of saying, like, hey, let's get one exec
00:12:38 - 00:12:40 that does, like, is amazing at strategy and is going
00:12:40 - 00:12:42 to grind and is going to manage a huge team
00:12:42 - 00:12:44 and is going to like, get on the plane.
00:12:44 - 00:12:46 You know, you have complete, you
00:12:46 - 00:12:48 have separate brains for those things.
00:12:48 - 00:12:49 And by the way, you could, you
00:12:49 - 00:12:51 could rent three CFOs if you want.
00:12:51 - 00:12:53 And these are people that often
00:12:53 - 00:12:55 would never work for my companies.
00:12:55 - 00:12:57 Like, they're just too senior. They're too good.
00:12:57 - 00:12:58 They're, they're.
00:12:58 - 00:13:01 But you can, like, it's actually so easy to rent them.
00:13:01 - 00:13:03 You know, I, I would
00:13:03 - 00:13:05 probably strongly disagree on this.
00:13:05 - 00:13:08 I would say, like, you know, the biggest output
00:13:08 - 00:13:11 of a strategic person is making quality decisions.
00:13:11 - 00:13:14 And the biggest input into making quality decisions
00:13:14 - 00:13:16 is like, really good data and like, really
00:13:16 - 00:13:19 deep understanding of your company and your situation.
00:13:19 - 00:13:22 And I find that a lot of people coming in,
00:13:22 - 00:13:27 and I've done the fractional thing before, and what they
00:13:27 - 00:13:30 do is they end up making decisions that are very
00:13:30 - 00:13:33 similar to past decisions they made based on surface level
00:13:33 - 00:13:38 data and they're unable to adapt to the situation if
00:13:38 - 00:13:42 they're not super deep into the company and super deeply
00:13:42 - 00:13:44 committed to your mission.
00:13:45 - 00:13:47 And what you want to do is you want to
00:13:47 - 00:13:50 find the exact, who is going to be working 60,
00:13:50 - 00:13:53 70 hours a week at an experienced level.
00:13:53 - 00:13:54 Someone who still is hands on.
00:13:54 - 00:13:55 And those people are out there,
00:13:55 - 00:13:58 you know, they're, you know. Yeah.
00:13:58 - 00:13:59 And you can find them.
00:13:59 - 00:14:00 They, they exist.
00:14:00 - 00:14:01 It's just really hard to find.
00:14:01 - 00:14:03 You got to get the internal recruiter.
00:14:03 - 00:14:05 Yeah, it's so much easier to, to, to
00:14:05 - 00:14:08 have someone who's like already amazing, already grinder.
00:14:08 - 00:14:11 And then just instead of, instead of, instead of putting
00:14:11 - 00:14:13 somebody above that, you already have this amazing person, your
00:14:13 - 00:14:18 company, instead of hiring the CFO above them, just, just,
00:14:18 - 00:14:20 just rent one to give them advice.
00:14:20 - 00:14:22 Because often, by the way, sometimes you
00:14:22 - 00:14:24 end up losing that amazing person because
00:14:24 - 00:14:26 you just, you just layered them.
00:14:26 - 00:14:28 So you have this incredible person and of course you
00:14:28 - 00:14:30 tell them, oh, you're going to get mentorship and stuff.
00:14:30 - 00:14:32 But now they're no longer reporting to the
00:14:32 - 00:14:34 CEO and you know, you have these.
00:14:34 - 00:14:36 And so they, they, they leave your company.
00:14:36 - 00:14:39 Maybe they go start a company or, and you may have been
00:14:39 - 00:14:41 able to get two or three more years out of them. So.
00:14:41 - 00:14:42 But it's interesting.
00:14:42 - 00:14:45 I'm, what I'm saying is super controversial.
00:14:45 - 00:14:46 So I don't, I don't expect that
00:14:46 - 00:14:47 many people will go do it.
00:14:48 - 00:14:49 People should try it.
00:14:49 - 00:14:51 But I guess Auren you're saying to
00:14:51 - 00:14:52 Raj's point, like, hey, these people aren't
00:14:52 - 00:14:55 necessarily making like deep strategic decisions.
00:14:55 - 00:14:57 They, they're giving advice to the person that's
00:14:57 - 00:15:00 making that a deep context based decision.
00:15:00 - 00:15:00 Yeah, exactly.
00:15:00 - 00:15:03 They're the, the, the still that, that amazing.
00:15:03 - 00:15:04 Just think of yourself when you're 30, like
00:15:04 - 00:15:06 you could have made deep strategic decisions.
00:15:06 - 00:15:09 You may have not had the full experience to
00:15:09 - 00:15:12 do that, but if you had, if you had
00:15:12 - 00:15:15 some people helping you and you're able to ask
00:15:15 - 00:15:17 them certain things, they could give you advice.
00:15:17 - 00:15:19 They could, you know, maybe, maybe you could have
00:15:19 - 00:15:23 done that de decisions that when you were 30.
00:15:23 - 00:15:25 I think my, my middle grand solution to this, which
00:15:25 - 00:15:30 like it's probably actually closer to orange, is to find
00:15:30 - 00:15:33 someone who, who we give exact roles to.
00:15:33 - 00:15:35 But it is a bit of a stretch role for them.
00:15:35 - 00:15:38 Like it's, you know, maybe they ran a finance
00:15:38 - 00:15:40 team, but it was at a smaller company.
00:15:40 - 00:15:42 Maybe they ran a sales team, but it
00:15:42 - 00:15:43 was a 20 person sales team and we're
00:15:43 - 00:15:45 growing to like a 50 person sales team.
00:15:45 - 00:15:48 So it is like a stretch role for them or they
00:15:48 - 00:15:52 were like reporting to someone who was in that exact role.
00:15:52 - 00:15:56 I actually found it really hard and you know,
00:15:56 - 00:15:58 and actually like, I think VCs didn't love that
00:15:58 - 00:16:00 I did this because like VCs would much prefer
00:16:00 - 00:16:02 that I get like some seasoned exec.
00:16:02 - 00:16:04 Like they're exactly like, why this is an area
00:16:04 - 00:16:06 where I think the VCs are almost always wrong.
00:16:06 - 00:16:07 Every single time.
00:16:07 - 00:16:09 I was like, VCs were always like, you
00:16:09 - 00:16:10 know, why are you getting this person?
00:16:10 - 00:16:11 Like, why don't you get someone who's just done it
00:16:11 - 00:16:13 and like, you'll be amazed at how great they are.
00:16:13 - 00:16:14 And I was like, every time I talk to
00:16:14 - 00:16:17 those people, they're just like so much ego.
00:16:17 - 00:16:20 Like, I like it never felt like they
00:16:20 - 00:16:21 were going to put their heart and soul
00:16:21 - 00:16:24 into kind of making this a success.
00:16:24 - 00:16:27 So I think that's been so I do kind of agree with
00:16:27 - 00:16:30 Auren but I would still say I gave them like an exact
00:16:30 - 00:16:35 role and I expect them to like rise to that challenge.
00:16:35 - 00:16:39 And yeah, also I found that the Silicon Valley
00:16:39 - 00:16:42 thing with execs is, I mean, similar with employees.
00:16:42 - 00:16:44 It's like there's, you know, they're there for like two
00:16:44 - 00:16:46 years or three years and then they move on.
00:16:46 - 00:16:48 I'm always like, how are you going to build
00:16:48 - 00:16:50 a long term culture when you have like people
00:16:50 - 00:16:53 that are like so short term, especially senior roles.
00:16:53 - 00:16:56 And I found that like if you get people who
00:16:56 - 00:16:58 it is a stretch for, they'll stay in the role
00:16:58 - 00:17:00 longer because they're learning so much from it.
00:17:00 - 00:17:01 Yeah, that's true.
00:17:01 - 00:17:05 I'll put another like counterpoint to you guys
00:17:05 - 00:17:06 points is that like you, I think you
00:17:06 - 00:17:09 can find hungry people at every experience level.
00:17:09 - 00:17:12 So like even if someone is 20, 25 years, you know,
00:17:12 - 00:17:15 have done, have done it, there's some people out there who
00:17:15 - 00:17:17 actually want to keep doing it and like want.
00:17:17 - 00:17:19 And they love startups, they love the, you
00:17:19 - 00:17:22 know, the early stage of getting their hands
00:17:22 - 00:17:24 dirty helps them make better decisions.
00:17:24 - 00:17:26 I found those people in every single role and
00:17:26 - 00:17:28 I consider them almost like co founders in that
00:17:28 - 00:17:31 particular, you know, in that subject area.
00:17:31 - 00:17:34 So finance, your CFO is like like your main
00:17:34 - 00:17:36 business partner and like that feeling of being in
00:17:36 - 00:17:39 the trenches with someone, like with a great CFO
00:17:39 - 00:17:41 or a great CRO where you're like in this
00:17:41 - 00:17:46 together, you're presenting to the board together, you're hitting
00:17:46 - 00:17:49 your numbers together, that feeling is really, really important.
00:17:49 - 00:17:51 I think as a founder, CEO, I feel like you're
00:17:51 - 00:17:54 right there with somebody getting the Job done and you're
00:17:54 - 00:17:56 not going to get that in a fractional level.
00:17:56 - 00:17:59 I think the stretch thing is, okay, you can find
00:17:59 - 00:18:02 someone where it's a little bit of stretch for you.
00:18:02 - 00:18:03 It always needs to make sense for their
00:18:03 - 00:18:05 career and it needs to make sense.
00:18:05 - 00:18:07 They need to be motivated to do it.
00:18:07 - 00:18:09 But you want to find that person who,
00:18:09 - 00:18:11 who has the experience but also is hungry.
00:18:11 - 00:18:13 And I, there are, you know, I
00:18:13 - 00:18:14 would say to founders out there, they're
00:18:14 - 00:18:16 definitely those people out there, don't, don't.
00:18:16 - 00:18:18 Even though 90 of people won't be like that.
00:18:18 - 00:18:19 Do you have a good test
00:18:19 - 00:18:21 to like tell whether someone's hungry?
00:18:21 - 00:18:23 Like is that a question that you
00:18:23 - 00:18:24 ask or how do you judge that?
00:18:24 - 00:18:26 Or you meet, you meet them at 11pm
00:18:26 - 00:18:29 yeah, that's a good, that's a good proxy.
00:18:29 - 00:18:34 You know, interview processes I think can show this.
00:18:34 - 00:18:37 Like when you, when you have
00:18:37 - 00:18:38 like there's two ways to tell.
00:18:38 - 00:18:41 One is if you give an assignment, you know, you
00:18:41 - 00:18:43 can see kind of how they do on the assignment.
00:18:43 - 00:18:46 Even my exec interviews had assignments so they have
00:18:46 - 00:18:47 to do a presentation or some kind of work
00:18:47 - 00:18:50 product and you can, you can tell there.
00:18:50 - 00:18:52 And then also references can tell you a lot.
00:18:52 - 00:18:55 You know, like one thing that references can
00:18:55 - 00:18:57 tell you often about someone is how hungry
00:18:57 - 00:18:59 they like how hard they work.
00:18:59 - 00:19:02 And it's hard to tell sometimes in an interview process,
00:19:02 - 00:19:05 but references almost always will tell you that and that
00:19:05 - 00:19:08 it will come out unprompted like in a reference.
00:19:08 - 00:19:09 Like you don't even ask about this.
00:19:09 - 00:19:11 People will tell you like this person works super hard.
00:19:11 - 00:19:14 Like that's the sign you're looking for
00:19:14 - 00:19:16 when people are telling you that unprompted.
00:19:16 - 00:19:19 And if you don't get that, it's kind of like, you
00:19:19 - 00:19:22 know, a bit of a red flag actually if they don't
00:19:22 - 00:19:25 impress you with the assignment with like going overboard or you
00:19:25 - 00:19:27 know, if it doesn't come in the reference references.
00:19:27 - 00:19:28 But it's hard to tell in a conversation.
00:19:28 - 00:19:30 One of the things is that I found that the
00:19:30 - 00:19:34 like the 50 year old kind of more experienced exec,
00:19:34 - 00:19:38 they are very good at picking the winning companies.
00:19:38 - 00:19:41 And so if you're Lyft or if you're Mercury and
00:19:41 - 00:19:44 you're clearly like one of the best companies around, well
00:19:44 - 00:19:48 yeah, you can still, you can get that amazing exec,
00:19:48 - 00:19:51 but if you're a less well known company and you're,
00:19:51 - 00:19:55 it's, it's harder to, and maybe you're, you're kind of
00:19:55 - 00:19:57 more of up and coming or you're, or you're going
00:19:57 - 00:20:00 through your own struggles or other types of things.
00:20:00 - 00:20:02 The chance that you're going to get like an
00:20:02 - 00:20:07 amazing exec, amazing 50 year old is almost zero.
00:20:07 - 00:20:09 And so you, you, you are going to have to go, if
00:20:09 - 00:20:11 you're going to hire an exec, you are going to have to
00:20:11 - 00:20:14 get that more up and comer who's going to, you're taking a
00:20:14 - 00:20:16 risk on them and they're taking a risk on you.
00:20:16 - 00:20:17 I think that's a good point.
00:20:17 - 00:20:19 It's worth knowing yourself.
00:20:19 - 00:20:21 It's, it's true for any role.
00:20:21 - 00:20:23 Like I think if you're trying to get, if you're
00:20:23 - 00:20:25 a tiny startup and trying to get like some Fang
00:20:25 - 00:20:28 employee to quit and like yeah, you have to like
00:20:28 - 00:20:31 understand yourself and understand like what the other person's motivation
00:20:31 - 00:20:32 might be to like join you.
00:20:34 - 00:20:36 You know I would say one last point on
00:20:36 - 00:20:39 this is like I have found really good talent.
00:20:39 - 00:20:42 Even 60 plus I would say. Right.
00:20:42 - 00:20:46 And you know, people like they're actually hungry,
00:20:46 - 00:20:48 it's harder for them to find roles.
00:20:48 - 00:20:51 So like they actually are hungrier, you know, and
00:20:51 - 00:20:53 work harder, you know, versus like someone I would
00:20:53 - 00:20:55 say in the prime of their career which is
00:20:55 - 00:20:58 probably from 40 to you know, 60 or something. Right.
00:20:59 - 00:21:00 Or maybe 30 in Silicon Valley.
00:21:00 - 00:21:02 By the way, one, one thing Rogers, interesting.
00:21:02 - 00:21:05 I have a bunch of friends who've, who's, who've kids
00:21:05 - 00:21:07 now gone to college and they're empty nested and they
00:21:07 - 00:21:09 are working so hard because they literally have nothing.
00:21:09 - 00:21:10 Exactly.
00:21:10 - 00:21:12 It's like, you know, so you kind of see these people
00:21:12 - 00:21:15 who hit like 50 something and their kids go to college
00:21:15 - 00:21:17 and now they can like literally do whatever they want.
00:21:17 - 00:21:19 They could go travel all the time
00:21:19 - 00:21:20 whereas before they were held back.
00:21:20 - 00:21:22 So I think you're right, you're seeing this renaissance
00:21:22 - 00:21:25 of these people there who can, who can really.
00:21:25 - 00:21:28 And maybe they always wanted to like work their
00:21:28 - 00:21:29 tail off but haven't been able to do that
00:21:29 - 00:21:31 for a long time for family reasons.
00:21:31 - 00:21:34 I mean look, I mean we have a president
00:21:34 - 00:21:36 of 78, you know, working pretty hard still.
00:21:36 - 00:21:39 And like, you know, we, I think
00:21:39 - 00:21:41 actually like Silicon Valley dismisses too many
00:21:41 - 00:21:43 people, you know, at a certain age.
00:21:43 - 00:21:45 And there actually there's a lot of good talent there.
00:21:46 - 00:21:47 Yeah.
00:21:47 - 00:21:49 And then of course nowadays like with Brian Johnson,
00:21:49 - 00:21:52 like they're all going to be amazing in 72.
00:21:52 - 00:21:53 Yeah, there'll be hundred year olds.
00:21:53 - 00:21:55 We're hiring.
00:21:55 - 00:21:56 Yeah, totally.
00:21:57 - 00:21:59 Another question that I think is kind of interesting and
00:22:00 - 00:22:02 it was a topic that you were interested in chatting
00:22:02 - 00:22:05 about was founder, CEOs and how much they get paid.
00:22:06 - 00:22:09 I think that's, that's a topic that
00:22:09 - 00:22:10 no one talks about too much.
00:22:10 - 00:22:12 You know most people, most of the time
00:22:12 - 00:22:15 the founder gets like four years of vesting.
00:22:15 - 00:22:19 But nowadays a company takes 12 years to build or more.
00:22:21 - 00:22:22 What advice do you give
00:22:22 - 00:22:23 founders after those four years?
00:22:24 - 00:22:25 How much equity should they ask for
00:22:25 - 00:22:28 and how do they ask for it?
00:22:28 - 00:22:30 I think for all to me there's a question.
00:22:30 - 00:22:36 So your go forward comp is important for everybody.
00:22:36 - 00:22:38 So for every employee, for everybody at the
00:22:38 - 00:22:40 company, I think one wants to look at
00:22:40 - 00:22:42 their go forward comp, not their past competition.
00:22:42 - 00:22:44 So if you already vested stock or you already
00:22:44 - 00:22:47 got a big bonus or whatever, that's great and
00:22:47 - 00:22:50 there certainly makes somebody more loyal to the company.
00:22:50 - 00:22:51 But it's what's your go
00:22:51 - 00:22:53 forward compensation is really important.
00:22:53 - 00:22:55 So a lot of times a founder, they
00:22:55 - 00:22:57 may have a huge slice of equity in
00:22:57 - 00:23:01 the company but that equity is vested already.
00:23:01 - 00:23:03 And their go forward equity sometimes
00:23:03 - 00:23:05 for some founders is zero.
00:23:05 - 00:23:08 It's sometimes so low and then of course
00:23:08 - 00:23:09 they don't want to pay themselves that much.
00:23:09 - 00:23:11 So the go forward cash is also low.
00:23:12 - 00:23:14 I think one thing we should look at is let's
00:23:14 - 00:23:16 say that founder got hit by a bus and the
00:23:16 - 00:23:20 company had to hire an external CEO, which is probably
00:23:20 - 00:23:22 not going to be as good as that founder CEO.
00:23:22 - 00:23:25 What would they have to compensate that person?
00:23:25 - 00:23:31 And usually the founder CEO is getting somewhere between 10
00:23:31 - 00:23:35 and 30% of what the external CEO would get.
00:23:35 - 00:23:38 I think they should get 200%
00:23:38 - 00:23:39 but that's not going to fly.
00:23:39 - 00:23:42 So maybe we should, maybe within a board we should say
00:23:42 - 00:23:46 70 to 80% is about right of what the, the go
00:23:46 - 00:23:48 forward comp and, and kind of leave it at that.
00:23:48 - 00:23:50 But it is, it is very, very
00:23:50 - 00:23:52 hard to convince VCs of this.
00:23:52 - 00:23:55 Most VCs they like, they don't get it and they're
00:23:55 - 00:23:56 like well the founder's not going to leave anyway.
00:23:56 - 00:23:58 I'm like that's true.
00:23:58 - 00:24:00 But if we can just motivate them a little bit more
00:24:00 - 00:24:03 and get them and show them that we love them and
00:24:03 - 00:24:06 show them, you know, we might get a 2, another, another
00:24:06 - 00:24:09 2x on our, on our outcome of this.
00:24:09 - 00:24:12 You know, it's, it's so short sighted to not
00:24:12 - 00:24:14 give them a few more points in the company.
00:24:14 - 00:24:16 I think it founders a little bit more.
00:24:16 - 00:24:18 I mean maybe the founder already has 15%.
00:24:18 - 00:24:21 Like will another 2% motivate them that much?
00:24:21 - 00:24:24 I think it does in many weird ways
00:24:24 - 00:24:27 just by the fact that you're telling this
00:24:27 - 00:24:29 person that they're so good and you're trying.
00:24:29 - 00:24:32 You know, I, I think these things do motivate people.
00:24:32 - 00:24:33 And even if the founder doesn't think
00:24:33 - 00:24:35 it motivates them, I think it does.
00:24:35 - 00:24:37 And again, you don't have to give them cash.
00:24:37 - 00:24:38 A lot of founders don't want
00:24:38 - 00:24:41 the cash, but give them stock.
00:24:41 - 00:24:42 You could even give them some sort of
00:24:42 - 00:24:47 like more esoteric type of stock, like out
00:24:47 - 00:24:49 of the money options or something like that.
00:24:49 - 00:24:51 There's lots of different ways to do it.
00:24:51 - 00:24:54 But, but really think, think about that.
00:24:54 - 00:24:57 Founder, CEO and other founder compensation,
00:24:57 - 00:24:58 I think is really important.
00:24:58 - 00:25:01 And almost every VC disagrees with me.
00:25:01 - 00:25:02 I mean, it is like a fight
00:25:02 - 00:25:04 on all the companies I'm involved.
00:25:04 - 00:25:07 I'm constantly trying to get my founders more money.
00:25:08 - 00:25:10 And yeah, I'm diluting myself as an investor.
00:25:11 - 00:25:12 I mean that is why it's a fight.
00:25:12 - 00:25:15 It's a direct, like, you know, to give the founder
00:25:15 - 00:25:18 more equity, you're taking it away from existing cap table.
00:25:18 - 00:25:20 So you're taking away from the VCs, right?
00:25:20 - 00:25:21 Like it's like a direct
00:25:21 - 00:25:22 kind of like incentive misalignment.
00:25:22 - 00:25:24 But I agree, I mean if you can not
00:25:24 - 00:25:27 even 2x, like, even if it changed the outcome
00:25:27 - 00:25:29 by 20%, like that would be huge.
00:25:29 - 00:25:31 Yeah, exactly, exactly. I've actually been through
00:25:31 - 00:25:33 these conversations several times.
00:25:33 - 00:25:34 You know, my last company, I was there for well
00:25:34 - 00:25:37 over a decade, so I would say it left me
00:25:37 - 00:25:40 with a bad taste in my mouth when VCs would
00:25:40 - 00:25:43 try to get me down close to zero.
00:25:43 - 00:25:46 It was a very marginal amount that you would be
00:25:46 - 00:25:49 revesting after your time is valuable as a founder.
00:25:50 - 00:25:52 Someone like Immad could start another company tomorrow
00:25:52 - 00:25:55 and it could easily be worth billions.
00:25:55 - 00:25:57 Again, we have a lot of
00:25:57 - 00:25:59 opportunity costs as founders as well.
00:26:01 - 00:26:03 At some point when you build a good exec team, you
00:26:03 - 00:26:05 do start thinking, okay, well do you still need me?
00:26:05 - 00:26:07 Or I can go do something else often.
00:26:07 - 00:26:09 We also want variety too in our lives.
00:26:09 - 00:26:11 Like VCs get a lot of variety, you
00:26:11 - 00:26:13 know, but, but, but founders don't get much.
00:26:13 - 00:26:15 They're, you know, you're very much stuck
00:26:15 - 00:26:17 in one thing for a while.
00:26:17 - 00:26:20 And I, I think, you know, too many
00:26:20 - 00:26:23 VCs take founder and CEOs for granted.
00:26:23 - 00:26:27 And I think this, this, this point of like
00:26:27 - 00:26:29 feeling, you know, like you're a real partner and
00:26:29 - 00:26:32 you're being appreciated and like your time is valued.
00:26:32 - 00:26:33 Right?
00:26:33 - 00:26:34 Because like you're putting so much
00:26:34 - 00:26:35 more time into the VCs.
00:26:35 - 00:26:39 So like are spending really other people's money, you
00:26:39 - 00:26:41 know, like, or you know, investing other people's money.
00:26:41 - 00:26:43 So it does leave a bad taste in your mouth.
00:26:43 - 00:26:44 And for sure it makes diff.
00:26:44 - 00:26:47 It affects your decisions, affects your motivation.
00:26:47 - 00:26:50 Another factor that, that makes me feel like,
00:26:50 - 00:26:52 oh, I want more is I, you know,
00:26:52 - 00:26:54 founders getting diluted all the time.
00:26:54 - 00:26:56 There's every, every funding round, you're
00:26:56 - 00:26:57 like, oh, yeah, I'm 10% more.
00:26:57 - 00:26:59 And then every time you hire. Yeah.
00:26:59 - 00:27:01 Every year there's like an options pool, dilution.
00:27:01 - 00:27:03 So especially after, you know,
00:27:03 - 00:27:05 Mercury's like eight years in.
00:27:05 - 00:27:07 Yeah, you get every year that
00:27:07 - 00:27:10 dilution hits you and it compounds.
00:27:10 - 00:27:14 I think we should actually ask VCs like before
00:27:14 - 00:27:17 they invest in your company, should they, you know,
00:27:17 - 00:27:19 what, what's their philosophy on it, et cetera.
00:27:19 - 00:27:20 And right now, I mean, I think if you did
00:27:20 - 00:27:26 that, you would eliminate more than 99% of VCs, because
00:27:26 - 00:27:30 their philosophy is really, is really to not do that.
00:27:30 - 00:27:31 But I think if you started to, if people
00:27:31 - 00:27:34 started to ask them, it would change that.
00:27:34 - 00:27:36 Once they're on the board, then, by the
00:27:36 - 00:27:37 way, the VC can get fired often.
00:27:37 - 00:27:39 And once they're on the, you know, they can set.
00:27:39 - 00:27:39 They're often.
00:27:39 - 00:27:41 It's often you need the VC vote.
00:27:41 - 00:27:43 So even if you people like, oh,
00:27:43 - 00:27:45 well, the founders control the board.
00:27:45 - 00:27:47 Well, usually they still have to get their VC
00:27:47 - 00:27:50 vote to, to get the compensation as well.
00:27:50 - 00:27:51 One point I would make is this is
00:27:51 - 00:27:52 not just an issue for founder, CEO, this
00:27:52 - 00:27:54 is also an issue for your employees. Right.
00:27:54 - 00:27:56 Like, employees are often early.
00:27:56 - 00:27:58 Employees are often the same boat.
00:27:58 - 00:28:00 So I'm on the other side of the table.
00:28:00 - 00:28:03 But I try to be very generous to my 100%.
00:28:03 - 00:28:04 I try to be very generous to
00:28:04 - 00:28:07 my early employees because they're so valuable.
00:28:07 - 00:28:10 They become rarer and rarer as you scale
00:28:10 - 00:28:13 divide that type of person who's that committed
00:28:13 - 00:28:15 to the company and that entrepreneurial.
00:28:16 - 00:28:19 But I find it very different, my approach
00:28:19 - 00:28:21 to it versus the VC's approach to it.
00:28:21 - 00:28:22 The second thing is, I do think the middle
00:28:22 - 00:28:26 ground is this out of the money options, like
00:28:26 - 00:28:29 the Elon thing, which hopefully will be declared legal
00:28:29 - 00:28:31 at some point and you know, or where you
00:28:31 - 00:28:32 have to reincorporate different state.
00:28:32 - 00:28:34 But like, it makes a ton of sense.
00:28:34 - 00:28:36 It makes a ton of sense. If you.
00:28:36 - 00:28:39 So I get it for a public company, how would you do?
00:28:39 - 00:28:41 Has anyone seen a private company construct
00:28:41 - 00:28:43 a good out of the money option?
00:28:43 - 00:28:44 Oh, yeah, I've seen a ton of them.
00:28:44 - 00:28:45 Okay, what's the construction?
00:28:45 - 00:28:47 Yeah, yeah.
00:28:47 - 00:28:48 There's lots of different ways to do it and there's even
00:28:48 - 00:28:51 Ways to do it where you can buy the stock.
00:28:52 - 00:28:53 So one way to.
00:28:53 - 00:28:54 Because the problem with out of money options is
00:28:54 - 00:28:57 that then you get taxed at an income.
00:28:57 - 00:28:59 And so what you can do is you can
00:28:59 - 00:29:02 create a synthetic stock where you get like a
00:29:02 - 00:29:05 thousand shares and you buy those shares.
00:29:05 - 00:29:08 And then if the company is worth more
00:29:08 - 00:29:11 than X in the future, those thousand shares
00:29:11 - 00:29:13 could, could be times by a hundred.
00:29:13 - 00:29:15 Or if you do, if it's like 3x in
00:29:15 - 00:29:17 the future, maybe they're times by a thousand and
00:29:17 - 00:29:19 go from a thousand shares to a million shares.
00:29:20 - 00:29:21 And so they kind of.
00:29:21 - 00:29:23 And is it normally based on valuation?
00:29:23 - 00:29:25 It's like once you get to this valuation you get.
00:29:25 - 00:29:27 Well, usually yeah, but share prices are better
00:29:27 - 00:29:30 than valuation because valuation is not always a
00:29:30 - 00:29:32 fair thing for the rest of the shareholders.
00:29:32 - 00:29:34 So you want to do it by share price.
00:29:34 - 00:29:36 So let's say the share price is $20 today.
00:29:36 - 00:29:40 If you say, hey, if it gets to $100, then I
00:29:40 - 00:29:43 go up by 100x if I are sorry, you know, and
00:29:43 - 00:29:46 then if I, if it goes, if it goes to $2,000,
00:29:46 - 00:29:48 I go 1,000, you know, whatever it is.
00:29:48 - 00:29:49 I've never heard a private company do that.
00:29:49 - 00:29:54 But yeah, I've seen it and it's annoying to do, but
00:29:54 - 00:29:57 I've worked with many, many companies to, to do that.
00:29:57 - 00:29:59 And you get both the tax benefits to the
00:29:59 - 00:30:03 CEO and it is more shareholder aligned for sure.
00:30:03 - 00:30:05 And the, the benefit here is like, hey,
00:30:05 - 00:30:07 if I'm not performing, I'm not getting this
00:30:07 - 00:30:10 like big equity package, but if I'm performing,
00:30:10 - 00:30:12 you know, then it's like worth it.
00:30:12 - 00:30:15 I mean, I think almost everybody I know would
00:30:15 - 00:30:19 say that the package that Elon Musk got at
00:30:19 - 00:30:23 Tesla was an amazing like incentive package for him
00:30:23 - 00:30:25 to work his tail off to make Tesla better.
00:30:25 - 00:30:27 It was great for the shareholders.
00:30:27 - 00:30:28 It was great for everybody.
00:30:28 - 00:30:30 I know there's a few folks suing right now, but
00:30:30 - 00:30:34 almost everyone I know this is completely shareholder aligned.
00:30:34 - 00:30:36 It's a great way of compensating people.
00:30:36 - 00:30:37 And by the way, it might be
00:30:37 - 00:30:39 a way to compensate employees too.
00:30:39 - 00:30:40 Maybe your employee.
00:30:40 - 00:30:41 You know, you're hiring an exec and
00:30:41 - 00:30:43 they want 2% of the company.
00:30:43 - 00:30:45 You only have 1% to give them.
00:30:45 - 00:30:48 So great, I can give you 4% of the company.
00:30:48 - 00:30:51 But, but that extra 3% comes only if you,
00:30:51 - 00:30:55 only if we achieve certain things together and you
00:30:55 - 00:30:57 got to stick around and you know, a whole
00:30:57 - 00:30:58 bunch of other types of things. Totally agree.
00:30:58 - 00:31:01 I think it should be a standard, but still,
00:31:01 - 00:31:03 it seems like there's ways to go to making
00:31:03 - 00:31:04 a standard, which is a whole nother question.
00:31:04 - 00:31:06 How do you make things a standard in Silicon Valley?
00:31:06 - 00:31:09 Feels like, like, you know, Y Combinator does
00:31:09 - 00:31:11 a pretty good job of, like, creating standards.
00:31:11 - 00:31:12 They do a great job, but, like, yeah,
00:31:12 - 00:31:13 it's hard to get anything else done.
00:31:13 - 00:31:14 Like, there's, there's a lot
00:31:14 - 00:31:15 of things that need improve.
00:31:16 - 00:31:20 Yeah, you get a lot more standards at the early stages.
00:31:20 - 00:31:23 Because early stages are a little bit more of a factory.
00:31:23 - 00:31:25 There's just so many companies, whereas later
00:31:25 - 00:31:28 stages, everyone's like a unique butterfly.
00:31:28 - 00:31:30 So there's like, you know, even this exec stuff.
00:31:30 - 00:31:32 Like, there's not that many people that even hire
00:31:32 - 00:31:34 execs and know about it or think about it.
00:31:34 - 00:31:35 Exactly, yeah. Yeah.
00:31:35 - 00:31:37 I mean, look, by the time you get to being
00:31:37 - 00:31:40 a public company, you have to standardize in many ways.
00:31:40 - 00:31:41 So, like, it's. Yeah.
00:31:41 - 00:31:45 You know, so I would argue Series E is
00:31:45 - 00:31:50 the weirdest free ipo, but even that's actually an
00:31:50 - 00:31:53 issue with public companies to some extent. Right.
00:31:53 - 00:31:55 The reason Elon's thing is being rejected
00:31:55 - 00:32:00 is because everyone wants this cargo cult.
00:32:00 - 00:32:01 Kind of like this is how execs
00:32:01 - 00:32:03 and this is how CEOs are comped.
00:32:03 - 00:32:04 And whenever you try to break the
00:32:04 - 00:32:07 mold, there's just a lot of pressure.
00:32:07 - 00:32:08 Another example of this is like the
00:32:08 - 00:32:10 Class A, Class B voting shares. Right?
00:32:10 - 00:32:12 And that was very controversial 10 years
00:32:12 - 00:32:15 ago, now become a lot more standard. Right.
00:32:15 - 00:32:18 Like, you know, I mean, there's these, there's
00:32:18 - 00:32:20 these groups, I'm sure, Raj, you came across
00:32:20 - 00:32:25 them, like the institutional shareholder groups which, like,
00:32:25 - 00:32:27 grade every company and like, you get hit
00:32:27 - 00:32:29 if you, like, have dual class shares.
00:32:29 - 00:32:31 All those groups are, are terrible. Yeah.
00:32:31 - 00:32:33 They all, none of them
00:32:33 - 00:32:34 are actually good for shareholders.
00:32:34 - 00:32:36 I was, I was talking to someone yesterday who said
00:32:36 - 00:32:42 he had to leave a board because after, after those
00:32:42 - 00:32:44 groups have decided, if you're on the board for 10
00:32:44 - 00:32:47 years, you're no longer like, truly an independent board member.
00:32:47 - 00:32:48 Right. Which is ridiculous.
00:32:48 - 00:32:49 I'm like, this person was.
00:32:49 - 00:32:51 If they're great and they're on the board, you
00:32:51 - 00:32:52 want to keep them for as long as possible.
00:32:52 - 00:32:54 Like, why would you want to
00:32:54 - 00:32:55 kick them out after 10 years?
00:32:55 - 00:32:56 Almost everything they say you
00:32:56 - 00:32:58 should just do the opposite.
00:32:58 - 00:32:59 But it's hard because it's
00:32:59 - 00:33:00 hitting your share price, right?
00:33:00 - 00:33:01 Totally, Totally. Yeah.
00:33:01 - 00:33:04 I mean, if you're, if you're meta, it doesn't matter
00:33:04 - 00:33:06 because you can, you can, you can control the company.
00:33:06 - 00:33:07 You can do that.
00:33:07 - 00:33:08 But a lot of these CEOs, they
00:33:08 - 00:33:10 own less than 1% of the company.
00:33:10 - 00:33:13 The whole board owns less than 2% of the company.
00:33:13 - 00:33:16 And a lot of these companies and then they, you
00:33:16 - 00:33:19 know, it's, it's, it's tough to think long term.
00:33:19 - 00:33:21 Well, there's also this factor where
00:33:21 - 00:33:23 more and more investing is passive.
00:33:23 - 00:33:25 So the only people who can like move
00:33:25 - 00:33:27 your share price is like a very small
00:33:27 - 00:33:29 group of institutionals and then retail investors.
00:33:29 - 00:33:30 Yeah, that's right.
00:33:30 - 00:33:32 So like you're kind of like there's only four
00:33:32 - 00:33:34 really big institutionals and like if you don't have,
00:33:34 - 00:33:36 have like if one of them's like oh we
00:33:36 - 00:33:38 can't, you know, because of this issue.
00:33:38 - 00:33:39 If BlackRock and Vanguard can't put
00:33:39 - 00:33:41 money into you, then you're. Exactly.
00:33:41 - 00:33:44 So it is like a, it's weird how
00:33:44 - 00:33:47 like the markets have like concentrated power. Yeah.
00:33:47 - 00:33:48 And there's, but there's all these rules about
00:33:48 - 00:33:51 when you can become an S P500 company.
00:33:51 - 00:33:54 And one of them is, is what Roz just said about
00:33:54 - 00:33:56 if, if you have super voting shares nowadays they want, they
00:33:56 - 00:33:59 grandfathered in of course, all the great ones that are already
00:33:59 - 00:34:02 in there but if you're a new one then they, they
00:34:02 - 00:34:04 have all these issues and stuff like that.
00:34:04 - 00:34:05 And, and once you, you know, if you get
00:34:05 - 00:34:07 in the S&P 500, you get all these extra
00:34:07 - 00:34:10 benefits and your share price goes up, et cetera.
00:34:10 - 00:34:11 That's interesting.
00:34:11 - 00:34:12 I didn't realize that was like actually part
00:34:12 - 00:34:14 of the rules that they had grandfathered. Yeah.
00:34:14 - 00:34:16 Now of course I'm sure they'll make exceptions if
00:34:16 - 00:34:18 you're a great company or something like that.
00:34:18 - 00:34:21 So yeah, they'll change the rule.
00:34:21 - 00:34:26 Zorin, you, you also run a VC firm and I guess
00:34:26 - 00:34:28 you do it in a similar way to I do.
00:34:28 - 00:34:31 So in terms of like you're a full time
00:34:31 - 00:34:34 operator with a VC fund on the side.
00:34:34 - 00:34:37 So maybe describe kind of your arrangement with Flex
00:34:37 - 00:34:40 Capital and how you kind of came about it.
00:34:40 - 00:34:45 Yeah, Flex Capital mostly what we do is seed stage VC.
00:34:45 - 00:34:49 So we do seed, pre seed, usually three 300 to 500k
00:34:49 - 00:34:53 checks in companies and then you know, maybe once a quarter
00:34:53 - 00:34:56 or so we'll, we'll do something late stage just to keep
00:34:56 - 00:34:59 it fun, to keep it interesting as well.
00:34:59 - 00:35:02 So we do, we're fairly active, we do about a deal a week
00:35:02 - 00:35:05 right now and our goal is to do even more than that.
00:35:05 - 00:35:07 So our goal is to get to about two
00:35:07 - 00:35:10 deals a week, maybe 25 a quarter or so.
00:35:10 - 00:35:12 So to, and our goal is to be like the
00:35:12 - 00:35:16 most active seed and pre seed fund in the world. Wow.
00:35:16 - 00:35:19 Why, why be that active, you know, part.
00:35:19 - 00:35:21 I think if you're really successful fund, I think the
00:35:21 - 00:35:25 most important thing is to be in like, let's say
00:35:25 - 00:35:27 you're, you have a three year life cycle of fund.
00:35:27 - 00:35:28 The most important thing is to be in those
00:35:28 - 00:35:31 20 companies over those three years that really matters.
00:35:31 - 00:35:34 So I would have wanted to be in the pre seed of Mercury,
00:35:34 - 00:35:36 I would want to be in the pre seed of Lift, right?
00:35:36 - 00:35:38 Those would be the ones that really, really
00:35:38 - 00:35:43 change the move the needle for your fund.
00:35:43 - 00:35:44 And if you can get into one of those
00:35:44 - 00:35:47 20, you're probably gonna have a pretty good fund.
00:35:47 - 00:35:49 If you can get into two of those 20,
00:35:49 - 00:35:51 you're gonna have like an absolutely amazing fund.
00:35:51 - 00:35:52 If you can get to three of those
00:35:52 - 00:35:54 20, you're gonna have a generational fund.
00:35:55 - 00:35:58 And so the worst thing you could
00:35:58 - 00:36:01 do is not see those 20, right?
00:36:01 - 00:36:04 And then of course the second worst thing you can do is
00:36:04 - 00:36:06 you could see them and not be smart enough to invest.
00:36:06 - 00:36:07 And then the third thing is you could
00:36:07 - 00:36:09 be smart enough to invest and then they
00:36:09 - 00:36:10 not, they don't want to take your money.
00:36:11 - 00:36:14 So you, you, if you, if your checks are too
00:36:14 - 00:36:16 big, they might not want to take your money.
00:36:16 - 00:36:17 So if you want to put like two million
00:36:17 - 00:36:19 dollars into their two and a half million dollar
00:36:19 - 00:36:21 seed, they might not want to take your money.
00:36:21 - 00:36:23 So there's only a certain amount of dollars you
00:36:23 - 00:36:25 could probably put in and you just need a
00:36:25 - 00:36:27 certain amount of activity to go dead. Again.
00:36:27 - 00:36:28 That's our philosophy.
00:36:28 - 00:36:30 It's very weird, it's very different.
00:36:30 - 00:36:32 It's extremely operational.
00:36:32 - 00:36:36 And because it's so operational, 99% of VCs
00:36:36 - 00:36:37 would never don't want to compete with us
00:36:37 - 00:36:40 because it's just so much work. I mean it's.
00:36:40 - 00:36:41 Yours is a little more extreme, but
00:36:41 - 00:36:45 it's similar to the, our strategy.
00:36:45 - 00:36:47 I've talked to institutional LPs and
00:36:47 - 00:36:48 they don't like their strategy.
00:36:49 - 00:36:52 They want every single deal to like,
00:36:52 - 00:36:54 they want an audit for the fund.
00:36:54 - 00:36:55 And it's very hard to have audited
00:36:55 - 00:36:57 fund when you have like more than
00:36:57 - 00:37:01 100 companies and they want concentration.
00:37:01 - 00:37:03 So is it like you just don't have institutions?
00:37:05 - 00:37:07 Well, we mostly have individuals.
00:37:07 - 00:37:09 Part of the reason we have so many individuals.
00:37:09 - 00:37:12 This is also tax advantage because we're usually QSBs.
00:37:13 - 00:37:15 And so it's a massively tax advantage saying
00:37:15 - 00:37:19 where an institution doesn't care about QSBS and
00:37:19 - 00:37:20 that could juice your returns like an extra
00:37:20 - 00:37:24 50% or something depending on what happens.
00:37:24 - 00:37:25 So there's a lot of reasons why it
00:37:25 - 00:37:27 makes sense for an individual to be that.
00:37:27 - 00:37:31 But I would just argue a little bit with the premise.
00:37:31 - 00:37:32 I think most of these
00:37:32 - 00:37:34 institutions do want that diversity.
00:37:34 - 00:37:37 They just want it across 10 different funds.
00:37:37 - 00:37:39 So they're actually in 10 funds.
00:37:39 - 00:37:40 They don't want those funds to
00:37:40 - 00:37:41 invest in the same thing.
00:37:41 - 00:37:42 So they're essentially doing that today.
00:37:42 - 00:37:44 They're in 10 different seed funds.
00:37:44 - 00:37:46 So they're essentially doing that strategy.
00:37:46 - 00:37:49 As an lp, you could of course just do
00:37:49 - 00:37:53 it in one and do the same thing.
00:37:53 - 00:37:55 Yeah, that's really interesting.
00:37:55 - 00:37:56 And then how many people are working on
00:37:56 - 00:37:58 finding these deals and like making these decisions?
00:37:58 - 00:37:59 A lot.
00:37:59 - 00:38:00 It's a ton of work.
00:38:00 - 00:38:01 I mean it's, it's how big is the
00:38:01 - 00:38:05 team and, and it's, it's five full time.
00:38:05 - 00:38:08 And then me and Todd Satchardati part time. Oh, wow.
00:38:08 - 00:38:11 And then we have like massive amount of tech and we use
00:38:11 - 00:38:13 AI and we use all the other things that you can imagine
00:38:13 - 00:38:16 a company that would want to do to go do that.
00:38:16 - 00:38:17 It is so much.
00:38:17 - 00:38:21 What's the highest leverage tech people piece to this?
00:38:21 - 00:38:24 I mean, doing crawling is really important.
00:38:24 - 00:38:28 Like what are you calling, you know, outbound crawling?
00:38:28 - 00:38:29 LinkedIn doing outbound.
00:38:29 - 00:38:31 You know, someone, some stripe engineer
00:38:31 - 00:38:33 changes their profile to stealth company.
00:38:33 - 00:38:36 Like we want to reach out to them within a week.
00:38:37 - 00:38:39 So you have all these different types of things.
00:38:39 - 00:38:41 We have a whole sales team at Mercury that also
00:38:41 - 00:38:43 reaches out to that stripe engineer to get the team.
00:38:44 - 00:38:46 I wonder how many people get hit up these stripes.
00:38:46 - 00:38:47 We should just combine.
00:38:47 - 00:38:50 Yeah, we should, we should combine our efforts.
00:38:50 - 00:38:54 Yeah, I mean, you have a lot of data,
00:38:54 - 00:38:56 so we should combine our efforts with, with Mercury
00:38:56 - 00:38:58 and get your inside data too, to invest. Got it.
00:38:58 - 00:39:00 So you, you're actually like, you know, you're not
00:39:00 - 00:39:02 just sitting back and waiting for these companies to
00:39:02 - 00:39:04 kind of hit you up or get an intro.
00:39:04 - 00:39:05 You're, you're out there searching for
00:39:05 - 00:39:07 them and trying to get them.
00:39:07 - 00:39:09 We are massively out there looking because you
00:39:09 - 00:39:11 want to find, you don't want to just
00:39:11 - 00:39:13 find like the YC company that's out there.
00:39:13 - 00:39:15 You got to find everybody.
00:39:15 - 00:39:17 Some of those 20 will be OIC for sure.
00:39:17 - 00:39:19 Some of those 20 will be in your
00:39:19 - 00:39:22 network, you know, but, but you want to
00:39:22 - 00:39:25 uncover every single rock that's out there.
00:39:25 - 00:39:28 And the great thing is VCS hate it.
00:39:28 - 00:39:30 They would never, they never want to compete with that.
00:39:30 - 00:39:33 It is so, it's so operational, it's not that strategic.
00:39:34 - 00:39:37 And so you're, you're, you're not competing with like
00:39:37 - 00:39:38 these other super smart people even if you're doing
00:39:38 - 00:39:41 two deals a week, if you're putting smaller checks,
00:39:41 - 00:39:43 actually the AUM is not huge. Right.
00:39:43 - 00:39:46 Like you couldn't do a billion dollar fund doing this.
00:39:46 - 00:39:48 Yeah, you could do our
00:39:48 - 00:39:51 next phone, probably 250 million. So.
00:39:51 - 00:39:51 Yeah, yeah, you're right.
00:39:51 - 00:39:54 I mean you want to scale up over time. So. Right.
00:39:54 - 00:39:55 You could, you could.
00:39:55 - 00:39:57 If you do 100 deals a year, new deals a
00:39:57 - 00:40:00 year, and you're putting 4 or 500k, that's 40 or
00:40:00 - 00:40:02 50 million new a year, then you scale up over
00:40:02 - 00:40:06 time with a, you know, pro rata, super pro rata.
00:40:06 - 00:40:07 If you're adding value, of course you want
00:40:07 - 00:40:09 to add value over time to these companies.
00:40:09 - 00:40:10 So yeah, there's a lot of different
00:40:10 - 00:40:11 things that you have to do there.
00:40:11 - 00:40:12 How can you add that much
00:40:12 - 00:40:15 value to 100 companies a year?
00:40:15 - 00:40:17 You, you've gotta, you gotta, you
00:40:17 - 00:40:19 gotta build products to do that.
00:40:19 - 00:40:21 So it's hard to just do it
00:40:21 - 00:40:23 in, in a more bespoke way though.
00:40:23 - 00:40:25 You can by the way, just like, you
00:40:25 - 00:40:27 know, we help a lot of our founders
00:40:27 - 00:40:30 get more compensation in a very bespoke way.
00:40:30 - 00:40:31 So we're, we're probably the only
00:40:31 - 00:40:33 VC that believes in that.
00:40:33 - 00:40:35 So, so it's just like, it's just like
00:40:35 - 00:40:37 a playbook that we do to help once
00:40:37 - 00:40:38 our founders hit their four year mark.
00:40:38 - 00:40:39 I mean one thing you can do because
00:40:39 - 00:40:41 you have enough of a network is just
00:40:41 - 00:40:42 connecting the founders with each other.
00:40:42 - 00:40:44 And having a peer group would actually be powerful.
00:40:44 - 00:40:46 Yeah, we do all those types of
00:40:46 - 00:40:48 things as really important, help them.
00:40:48 - 00:40:49 We have a whole product to help them raise
00:40:49 - 00:40:52 their Series A, which is, you know, great product
00:40:52 - 00:40:54 and it's, it's something and that's one of the
00:40:54 - 00:40:56 ways we judge ourselves because we're so early.
00:40:56 - 00:40:58 So you need these short term markers.
00:40:58 - 00:41:00 So what percentage of them are raising Series
00:41:00 - 00:41:03 A at A up round and et cetera. Interesting.
00:41:03 - 00:41:06 And how, how does your kind of CVZ product work?
00:41:06 - 00:41:08 Like you make, you have like a database of VCs
00:41:08 - 00:41:10 and you make introductions and that kind of thing.
00:41:10 - 00:41:12 Yeah, we, we have a very, very deep database
00:41:12 - 00:41:14 of VCs and then we have a whole way
00:41:14 - 00:41:16 of like making the introduction and then we, we,
00:41:16 - 00:41:20 we have a whole different, we playbooks that the,
00:41:20 - 00:41:23 that the entrepreneur and founders can choose from.
00:41:23 - 00:41:25 And sometimes it's a very bespoke playbook.
00:41:25 - 00:41:26 I just want to go to one vc.
00:41:26 - 00:41:27 We just had one of them do that.
00:41:27 - 00:41:30 They went to, they went to Andreessen, they went to,
00:41:30 - 00:41:33 they had a very, very her friend Alex Rampel.
00:41:33 - 00:41:34 They went to him.
00:41:34 - 00:41:36 They got just to one. They got.
00:41:36 - 00:41:38 They got a term sheet that they wanted.
00:41:38 - 00:41:41 We helped them just like slightly optimize that term sheet
00:41:41 - 00:41:43 and get a little bit higher, but they just want.
00:41:43 - 00:41:45 And then. And then we closed it. That was it.
00:41:45 - 00:41:48 So that was one way of doing it. There's also.
00:41:48 - 00:41:51 There's also like the scorched earth way of doing it.
00:41:51 - 00:41:52 Right.
00:41:52 - 00:41:54 And there's many, many ways in between.
00:41:54 - 00:41:55 So you try to pick.
00:41:55 - 00:41:56 We give them, okay, here's four
00:41:56 - 00:41:58 good playbooks that we've seen run.
00:41:58 - 00:42:00 They're different, and we can help
00:42:00 - 00:42:01 you with any of these four.
00:42:01 - 00:42:02 You pick the playbook, but let's
00:42:02 - 00:42:05 run one of these playbook. Actually. Let's run the.
00:42:05 - 00:42:05 And there's a whole.
00:42:05 - 00:42:07 There's 30 steps in each.
00:42:07 - 00:42:09 Let's run the playbook there.
00:42:09 - 00:42:10 So they pick the one that they think is best
00:42:10 - 00:42:13 for their company, best for their personality, and then we
00:42:13 - 00:42:15 help them kind of optimize it from there.
00:42:15 - 00:42:17 By the way, we're over you overrun a
00:42:17 - 00:42:19 little bit or should we wrap up? Sure, yeah.
00:42:19 - 00:42:22 Raj, normally I always have a meeting, but
00:42:22 - 00:42:24 because of paternity leave, I have nothing today.
00:42:24 - 00:42:26 It's all clear.
00:42:27 - 00:42:28 That's super interesting.
00:42:29 - 00:42:31 When you generally advise people, do you
00:42:31 - 00:42:33 think, like, one playbook works particularly well?
00:42:33 - 00:42:35 Like, is it like, this is the best playbook?
00:42:35 - 00:42:36 I don't think so.
00:42:36 - 00:42:39 And I think it does depend on the founder personality.
00:42:39 - 00:42:41 And I also think where they are with their company.
00:42:41 - 00:42:42 And sometimes they're doing something very,
00:42:42 - 00:42:45 very, very niche, like they're doing
00:42:45 - 00:42:47 a deep tech thing or something.
00:42:47 - 00:42:48 So there's really only a.
00:42:48 - 00:42:50 Of investors that really want.
00:42:50 - 00:42:51 So, okay, how do we.
00:42:51 - 00:42:52 And sometimes it might be okay, let's
00:42:52 - 00:42:54 think about this ahead of time.
00:42:54 - 00:42:56 We want to raise in six months. Or let's.
00:42:56 - 00:42:57 Let's start to think about the right
00:42:57 - 00:43:00 strategy now, what we need to do.
00:43:00 - 00:43:01 But one thing I think is almost always a
00:43:01 - 00:43:04 bad strategy is meeting with VCs before you raise.
00:43:05 - 00:43:07 Almost always that's bad.
00:43:07 - 00:43:08 Like that idea of building
00:43:08 - 00:43:10 the relationship with the VCs.
00:43:10 - 00:43:12 I think it's almost always a bad idea.
00:43:13 - 00:43:14 And, and I think it's.
00:43:14 - 00:43:17 It's cause it's because of human nature.
00:43:17 - 00:43:21 If you right now ran into like the mother of your
00:43:21 - 00:43:25 best friend when you were 12 years old, she will think
00:43:25 - 00:43:28 you are the exact same person you are when you're 12.
00:43:28 - 00:43:30 She hasn't seen you since then. Right.
00:43:30 - 00:43:33 And she'll remember your Star wars figurines
00:43:33 - 00:43:35 that you liked and all this other. And she'll have.
00:43:35 - 00:43:38 No, she just can't won't she with her own kid,
00:43:38 - 00:43:41 she will understand that that person grew and changed and
00:43:41 - 00:43:44 everything over time because she, she's seen that.
00:43:44 - 00:43:45 She sees that person all the time.
00:43:45 - 00:43:47 If you meet with a VC once every
00:43:47 - 00:43:50 six, if they're the best, if you're, if
00:43:50 - 00:43:51 they're your best friend, it's one thing.
00:43:51 - 00:43:53 And you're constantly playing tennis with
00:43:53 - 00:43:54 them every week, it's one.
00:43:54 - 00:43:56 But if you, if you only meet with them once
00:43:56 - 00:44:00 or twice in a year, they, their complete understanding of
00:44:00 - 00:44:03 you is the first time they met you, and they
00:44:03 - 00:44:06 cannot get that conception out of their mind.
00:44:07 - 00:44:10 Maybe a very evolved human will be, but you can't
00:44:10 - 00:44:12 assume that the average VC is an evolved human.
00:44:12 - 00:44:14 I kind of disagree with that.
00:44:14 - 00:44:16 At least, least the way I have
00:44:16 - 00:44:19 always done it is I will.
00:44:19 - 00:44:20 I have my.
00:44:20 - 00:44:22 Every time I do a round or whatever, I then
00:44:22 - 00:44:25 go like, okay, here's the six people that I liked
00:44:25 - 00:44:27 the most but I didn't include in that round, and
00:44:27 - 00:44:30 I will meet them every 9ish months.
00:44:30 - 00:44:33 I think the key is to not pitch them when you
00:44:33 - 00:44:35 meet them, which is actually hard as a founder, because it's
00:44:35 - 00:44:37 very tempting when you meet a VC to pitch, but the
00:44:37 - 00:44:41 key is actually just meet them and don't pitch. Sure.
00:44:41 - 00:44:42 You talk about, oh, this is
00:44:42 - 00:44:44 what we're seeing, this is exciting.
00:44:44 - 00:44:45 Hey, what do you see?
00:44:45 - 00:44:46 And you make it actual
00:44:46 - 00:44:49 relationships, relationship building and conversational.
00:44:49 - 00:44:52 And don't make it a pitch because then what happens
00:44:52 - 00:44:54 is like, two years later, when you're ready to raise,
00:44:55 - 00:44:58 you can go straight in and talk to that person
00:44:58 - 00:45:01 and say, hey, here's the real pitch.
00:45:01 - 00:45:03 I want a term sheet next week.
00:45:03 - 00:45:05 And like, at least I have found.
00:45:05 - 00:45:07 And maybe other people seem much better at it, but, like, if
00:45:07 - 00:45:10 this is the first time I've ever met with a vc and
00:45:10 - 00:45:12 I'm like, I need a term sheet in three days.
00:45:12 - 00:45:15 I have never successfully pulled that off. Sure.
00:45:15 - 00:45:17 Yeah, well, that is much harder.
00:45:17 - 00:45:19 But if I've met them like three, four times
00:45:19 - 00:45:21 and like, I've, you know, I've kept them at
00:45:21 - 00:45:23 a high level and they like, kept them keen.
00:45:23 - 00:45:24 And then I'm like, okay, I need
00:45:24 - 00:45:25 a term sheet in three days.
00:45:25 - 00:45:27 They're like, okay, God, like, I know him, Art.
00:45:27 - 00:45:29 Like, I'd be, I'd be crazy to miss out on this.
00:45:29 - 00:45:31 Like, but, but you have to be
00:45:31 - 00:45:33 very careful not to pitch them before.
00:45:33 - 00:45:35 And I would say when the real pitch comes,
00:45:35 - 00:45:37 you want to have at least six months, maybe
00:45:37 - 00:45:40 nine months distance from when you've met them.
00:45:40 - 00:45:41 So you don't want them.
00:45:41 - 00:45:42 Like, you don't want to recently met them.
00:45:42 - 00:45:44 If you've met them recently, then I agree
00:45:44 - 00:45:45 that they have this like judgment in their
00:45:45 - 00:45:47 head where they're like, like, oh, like I
00:45:47 - 00:45:50 just met Immad I wasn't that interested.
00:45:50 - 00:45:52 And like, am I really gonna like invest now?
00:45:52 - 00:45:54 Whereas if it's been six to nine months, they're like,
00:45:54 - 00:45:56 oh God, like, oh, we caught up ages ago.
00:45:56 - 00:45:57 And like, what's he up to? Oh, shit.
00:45:57 - 00:45:59 I need to make like come up with the term sheet.
00:45:59 - 00:46:01 Like you can get that kind of going,
00:46:01 - 00:46:03 but I find that like almost every round
00:46:03 - 00:46:05 of mercury has been done like this.
00:46:05 - 00:46:06 It's been people that I've met
00:46:06 - 00:46:10 over like several years sometimes.
00:46:10 - 00:46:12 Like, actually Alex Rampel read led arc half, I
00:46:12 - 00:46:14 guess precede, but it was like 6 million.
00:46:14 - 00:46:16 And basically I met him.
00:46:16 - 00:46:18 I, you know, I quit the company that we'd
00:46:18 - 00:46:20 sold to and I met him in like January.
00:46:20 - 00:46:23 I met him again in April and then,
00:46:23 - 00:46:25 and it was really like high level.
00:46:25 - 00:46:27 I was like, how the hell do you like, go buy a bank?
00:46:27 - 00:46:29 Or like, yeah, what do you know about this?
00:46:29 - 00:46:30 Like, it was very much like a,
00:46:30 - 00:46:32 I wasn't pitching him at all.
00:46:32 - 00:46:33 I was very much like company.
00:46:33 - 00:46:35 And then in August when we were finally raising, I
00:46:35 - 00:46:37 was like, hey, you know, I was like, I don't
00:46:37 - 00:46:39 expect you to fund this, but here's the pitch.
00:46:39 - 00:46:40 Like, what do you think?
00:46:40 - 00:46:41 And he was like, okay, come back
00:46:41 - 00:46:43 in two days to a partner's meeting.
00:46:43 - 00:46:44 And I was like, okay.
00:46:44 - 00:46:46 And then it got done, like literally four days after.
00:46:46 - 00:46:49 Yeah, I mean, you might be, I mean, again,
00:46:49 - 00:46:51 the beauty is there's so many different flavors of.
00:46:51 - 00:46:53 And there's so many different ways to be successful.
00:46:53 - 00:46:56 I think it also depends on, on you as a person.
00:46:56 - 00:46:59 Like, I, I personally don't want to take a VC I
00:46:59 - 00:47:02 haven't met for several years or some time period because I,
00:47:02 - 00:47:03 I don't know what they're going to be like.
00:47:03 - 00:47:06 Like, I want, I, I want to know who they
00:47:06 - 00:47:08 are and I don't want to be stuck for 10
00:47:08 - 00:47:12 years with someone who I, I like completely disagree with
00:47:12 - 00:47:14 the way they think about the world.
00:47:14 - 00:47:16 But it's very hard if you're going to talk to
00:47:16 - 00:47:18 them and get a term sheet and then try to
00:47:18 - 00:47:20 sign it to actually understand what they're like.
00:47:20 - 00:47:25 My biggest VC gripe on a term sheet is that
00:47:25 - 00:47:30 almost every VC, like 99% of term sheets that are
00:47:30 - 00:47:35 out there ask the startups to cover their legal fees.
00:47:37 - 00:47:39 This makes absolutely no sense.
00:47:40 - 00:47:43 I think it's bad for, it's really bad for the
00:47:43 - 00:47:46 startup taking the, taking the term sheet and it's also
00:47:46 - 00:47:50 secretly really bad for the LPs in the fun.
00:47:51 - 00:47:54 So I think they're screwing over the startups
00:47:54 - 00:47:56 that they're, that they're messing in by asking.
00:47:56 - 00:48:00 And often it's really big numbers around like 60, $70,000
00:48:00 - 00:48:03 sometimes, sometimes even more than that to, to pay for
00:48:03 - 00:48:05 these legal fees in a later stage round.
00:48:05 - 00:48:08 I've seen like more than $100,000 in
00:48:08 - 00:48:10 these term sheets that are out there.
00:48:10 - 00:48:11 So they're making these startups pay
00:48:11 - 00:48:12 for this, their legal fees.
00:48:12 - 00:48:14 Like these guys are, sometimes,
00:48:14 - 00:48:15 these guys are billionaires.
00:48:15 - 00:48:17 They're asking a startup to pay for the legal fee.
00:48:17 - 00:48:18 Right?
00:48:18 - 00:48:20 And, and then, and then separately, it's like a,
00:48:20 - 00:48:23 it's a really hidden fee to the lp.
00:48:23 - 00:48:25 They could charge that to the fund.
00:48:26 - 00:48:27 They could, they could charge
00:48:27 - 00:48:28 it to the management company.
00:48:28 - 00:48:30 They could also just charge it to the fund.
00:48:30 - 00:48:31 If they charge it to the fund, they
00:48:31 - 00:48:33 have to disclose it to the LP.
00:48:33 - 00:48:36 LPs may ask them about it. Hey, why aren't you paying it
00:48:36 - 00:48:37 out of the management company?
00:48:37 - 00:48:38 Why are you charging it to the fund?
00:48:38 - 00:48:40 But because they make the startups pay for it.
00:48:40 - 00:48:44 It's this hidden fee that goes to the LPs as well.
00:48:44 - 00:48:45 So I think it's, it screws over
00:48:45 - 00:48:48 the startups, it screws over the LPs. It's bad.
00:48:48 - 00:48:53 I think, I think VC should eliminate these. These.
00:48:53 - 00:48:54 I agree with you.
00:48:54 - 00:48:56 And I remember the first time I was hit
00:48:56 - 00:48:58 with it, I was like, are you kidding me?
00:48:58 - 00:48:59 Like, why is the set there?
00:48:59 - 00:49:00 But it's also like kind
00:49:00 - 00:49:02 of a smallish percentage, right?
00:49:02 - 00:49:03 Like it's 3 million round.
00:49:03 - 00:49:04 Maybe it's 50k.
00:49:04 - 00:49:06 Like it's, does it really matter?
00:49:06 - 00:49:09 Yeah, I, it, I mean, it doesn't matter.
00:49:09 - 00:49:11 I mean one, one point doesn't usually
00:49:11 - 00:49:14 matter sometimes, but it, it's usually, it's
00:49:14 - 00:49:15 sometimes more than a percent.
00:49:16 - 00:49:18 I mean it's a, it's a, it's a, it's a,
00:49:18 - 00:49:21 it's a, it's a fairly, it's a, a fairly large.
00:49:21 - 00:49:21 But you're right.
00:49:21 - 00:49:23 And if it's so small, why
00:49:23 - 00:49:24 don't they just pay themselves?
00:49:25 - 00:49:27 Yeah, I mean they could, they could afford it.
00:49:27 - 00:49:29 The key is to negotiate pretty hard to
00:49:29 - 00:49:31 get a really large cap on it.
00:49:31 - 00:49:33 Like really small cap. I mean.
00:49:33 - 00:49:36 Yeah, yeah, because I, I think a lot of the time it's,
00:49:36 - 00:49:38 it's not worth as a founder trying to get, remove it.
00:49:38 - 00:49:40 If that's a VC's policy.
00:49:41 - 00:49:44 But the smaller the cap because lawyers were.
00:49:44 - 00:49:45 What's the.
00:49:45 - 00:49:47 There's some like term for it.
00:49:47 - 00:49:49 But lawyers will fill whatever time you give them.
00:49:49 - 00:49:50 Like if you're like 100k cap,
00:49:50 - 00:49:53 they will charge you 99.9k.
00:49:53 - 00:49:56 So lower the cap the quicker the round gets done.
00:49:56 - 00:49:59 Actually like if they charge you 100k, they're going to
00:49:59 - 00:50:01 take an extra two weeks to get the round done.
00:50:01 - 00:50:04 Whereas it's like, like lawyers are amazing.
00:50:04 - 00:50:06 It's like literally they always come in at the cap and
00:50:06 - 00:50:08 they always come in at the deadline, but no earlier.
00:50:08 - 00:50:11 Getting, getting a round done is 10 days
00:50:11 - 00:50:14 plus one day for every $2,000 you spend.
00:50:14 - 00:50:15 Legal fees, basically.
00:50:16 - 00:50:17 Yeah, that's hilarious.
00:50:18 - 00:50:19 Definitely like that.
00:50:19 - 00:50:21 Yeah, it really bothered me as well.
00:50:21 - 00:50:24 Like, I think it's one of many kind of
00:50:24 - 00:50:27 like legacy VC standards that don't make sense today.
00:50:27 - 00:50:28 Today I'll go even further.
00:50:28 - 00:50:30 Like I'm actually against the whole concept
00:50:30 - 00:50:34 of preferred shares and like, oh wow.
00:50:34 - 00:50:36 So I actually think VC should be buying common
00:50:36 - 00:50:40 in, you know, in a, in a portfolio companies.
00:50:40 - 00:50:42 Even in like a seed company.
00:50:42 - 00:50:43 Yeah, I mean especially in a seed company.
00:50:43 - 00:50:46 I would say, you know, like the argument goes like, you
00:50:46 - 00:50:49 know, you give someone a million dollars, the company is worth
00:50:49 - 00:50:51 10 million, they could shut if, if it wasn't.
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