Uncapped #53 | Trae and Delian from Founders Fund

[00:00] It is less important to be exactly true than it is to be directionally true because it's really hard to shift the overton window. Most people are like they try to like sort of moderate their approach to something. Because of that, they're not directionally pulling hard enough to shift any strategy. Whereas I think Peter is just like, I'm going to get like super, I'm going to dig in my heels on this. Just to move the window a little bit. And that tiny adjustment that ends up being made is really powerful.

[00:30] Well, very excited for this. What a crew we have here. Delian, you excited to be here? Oh, yeah. Yeah. I've been looking forward to this for a while. In the lines, then. 100%. It's going to be hard. Oh, sorry. Tiger Den. The Tiger Den. Yeah. Can we run that back? [00:46] There was a lot of discombobulated commentary there. We're going to try to. We're going to try to have a serious conversation. That's going to be this whole two hours. I got to do this with Trey, and that was amazing.

We wanted to bring it all together. My first question [01:00] We're going to start in a really positive place. We really respect what you guys have done and what you do as a firm. I hope that's the same. But Ev, you've worked at both. You've talked a bunch about what makes Benchmark unique. I've obviously gotten to hear a lot about that from you. But I'd be curious for you to talk about what you loved about Founders Funds. [01:15] Maybe compare it a little bit to like what's different from other places, maybe benchmark, but I'd just be curious for you to start here.

I think when people that aren't in the investing business think about what investors do and like what the day to day or like what an investment committee looks like within a venture firm or any investing firm. I think they have this this idea in their head that like, you know, the team comes together. They've done a bunch of research. [01:45] like intellectually perfect decision about that investment, given all the information that they've gathered. And that's just like not how basically any firm actually operates. There's so many other, you know, politics or organizational structures and incentives that like push you away from this like truth seeking place.

And so I think that the really unique thing about Founders Fund that when I came in, I thought was just so amazing and unique was like not only that it was like a [02:15] truth-seeking and, like, really putting, like, truth-seeking on a pedestal above, like, [02:20] you know, the hierarchy of who's a GP and who's not a GP or any of these other things. But then also there was like even like organizational incentives and structures in place to like keep that the same, basically no matter who is, you know, in the halls of Founders Fund.

So the one that I've mentioned before is this like 1%, you know, like the 1% mechanism or provision or whatever it's called, which is for any investment that you do at Founders Fund, [02:50] for the people that worked on the investment to basically angel invest up to 1% of the total dollar amount. And it's not just like some workplace benefit. The entire idea of that mechanism is to basically measure the conviction of the partners or the investors that are sponsoring a given investment. You guys will do that? Yeah. Like if somebody doesn't want to do it, is that like a thing?

No, I think it's really important to be mindful to liquidity constraints, [03:20] very different personal financial situations. So it's not super prescriptive, but it is like a useful tuning because you don't have to do the full 1%. You can split it up between different parties that work on the deal or you can say like, hey, I have five grand or whatever that I want to put towards this. It's not a signal of lack of conviction. It's just like. [03:40] based on liquidity. I think it's more helpful, like on an individual comparative basis.

Like if you're known for doing lots of 1% and on this one you're choosing not to, people will ask, but it's like, if you typically don't and then don't, that's not necessarily a signal. Are there any other like incentive aligning mechanisms like this that you guys have gone? Or what would you, I guess, what would you to ascribe? Obviously you've been at Founders Fund much longer than I was. What would you ascribe? And do you agree that like the thing about true seeking kind of being like the highest calling of the team and like, what do you ascribe that to?

[04:10] There's organizational things that lead to it. You know, when I first joined Founders Fund, as you guys know, like I didn't have any interest in venture capital. I just ended up there because Peter basically told me that I was going to do it. And I, [04:22] wasn't clear that I had an option. I love that. That's the best kind of recruiting process. [04:28] And so I when I showed up, I kind of didn't know what I was doing. And I had this like hypothesis that venture capital was going to be more like what you said.

It's like this diligence exercise. And you meet with hundreds of companies a year and, you know, you do like a deep process on each of them. And the hard part is making the literal investment decision. It's like not what it is at [04:52] that are raising at any given point, 99% of them are [04:56] Obviously, no. [04:57] knowably bad within a second. And so really it's about access and finding the super high conviction things that you want to pour your energy into. And I think that's like really what makes Founders Fund unique is that we're just very internally honest about that.

And if you're not personally [05:17] super high conviction. I really want to do this deal. I'm going to fight for it. I'm going to be willing to argue. I'm going to be willing to put my reputation on the line disagreeing with Peter. If you're not willing to do that, you're just never going to get a deal done. [05:29] And so... [05:30] That's really all it is at the end of the day. Yeah, I spent a little bit of time early in my venture career at KV. And one of the things that I find very uniquely different between the two models is at FF, so much more of what we do, and I'd have to look at it on like a [05:44] dollars basis or deal count basis.

But there's so much more that I feel like, like sort of rises from below, if that makes sense, where it's like individual team members that have like, you know, sort of really strong conviction and then are steadily presenting that case to other colleagues and working their way up. And then, you know, at FF still every check above meaningful size requires Peter's approval, but it's almost always like that person steadily, you know, sort of gaining conviction and convincing others. And then eventually presenting that case to Peter much more so than like top down Peter saying like, we need to go invest into, you know, [06:14] It creates some like truth seeking by default because there's such high like activation barrier of Peter's got many things going on.

Trey's got many things going on. And so if you're going to take up their time, especially because like venture is not the only thing that they do, you're going to want to have a really compelling case as to why versus other places where the GPs are really full time only investing GPs. I find that they also like are the ones leading a lot of the investments sort of themselves, which I feel like that's like less the case at FF. [06:44] interesting. Like I feel like one of the things I've noticed here that Evan and I have talked about is that like, because there's sort of like nothing at benchmark to fight for, like everybody's equal, you're never going to get, you know, a promotion, you're never going to get a raise.

And so because a lot of that stuff is stripped out, it leaves there to be sort of nothing other than just try to make good investments and try to help your teammates make good investments. Versus I think at a lot of big firms that gets like harder because there are other competing [07:14] have avoided a bunch of that through a lot of these sort of mechanisms that we're talking about. Like, you know, there's the 1% thing. There's the fact that like a lot of senior people are like crazy busy. But I also feel like you guys have a cultural thing where there seems to be something to it.

Like I think, you know, Ev's talked about how like, you know, to founders from partnering, people can like get pretty heated over ideas or even maybe at each other. But like somehow at the end, like everybody still like really likes and cares about each other, which I think is like [07:44] collegiality that I think is much more common where people like everyone's very polite, very polite. And then after the meeting, they're like, look at that idiot. Like, I can't believe he thought that. I just think the EQ of the team isn't high enough to be able to operate in that way.

We just got a little sprinkle of it. And so as a result, we have everybody just says what they think and moves on. Yeah, because I just don't think people are tuned to even understand how the things they say have like an emotional impact on a super high EQ person not work particularly well at Founders Fund. Either that or they'd be like really good [08:14] one or the other i'm not really sure it could go either way they'd never know yeah they'd never know yeah exactly actually can i ask what is like peter's interpersonal sort of what's the experience because i think he like um like i could imagine you sort of saying this in either direction but he clearly is deeply attuned to people in some important way is this thing you're describing about eq is that related to him is it different from him because obviously you know when [08:44] like a lot of the DNA is going to go through it.

But like, there's much of this kind of come from, [08:49] One of the things that he said to me very early on, we were talking about having kids and what we wanted for our kids and stuff. And we were talking about intellect as being one of these things that you, as a parent, think about wanting for your kid. And... [09:05] He said something to the... [09:07] like along the lines of, I think like 130 is like roughly the right IQ because anything over 130, there are too many tradeoffs. And I think that's like sort of you're like, you're not hiring people for their EQ or lack thereof.

You're hiring people to have really high IQ. [09:25] that are able to hold their own in these debates. And the reality is, it's like, when you do that, [09:29] there are trade-offs right and so we're kind of experiencing the result of those trade-offs for any time too smart for your own good yeah or maybe it's exactly for everyone's good uh because we don't have these like weird harbored politics and animosity yeah at least i don't feel i've never felt even before the pod told me that he can't stand you but other than that i think it's all everyone likes it of all people i think delia and i are very cool with one another so i think like peter um deeply understands people but like from like an intellectual framework level

[09:59] at like quickly understanding where is somebody biased? Where do they have blind spots? Like, you know, what are they good at? What are they not good at? In terms of like how his words will have like XYZ emotional impact, like, you know, Trey said. Yeah, I think that, you know, sort of poor rat. But I think when it comes to like deciding on whether or not to make an investment, it's actually much better to understand, I think, somebody's intellectual capabilities versus the like emotional impact side of it. And I think also right now is probably amongst the best [10:25] Cultural states, it's been in the time that at least I've been there, but then even from the history that I've heard, and I think there's a variety of reasons as to why that is, but definitely one of them is if you look at the median tenure of somebody on the team, it's probably something on the order of seven or eight years, which is...

[10:43] I think reasonably high relative to most use of venture firms, you know, amongst a spread of, you know, called 12 people that are there. Has the culture gone through like ups and downs? I mean, you've been there a long time. Oh, for sure. Yeah. And do you think it matters? Like maybe ask more accurately, what do you think the impact is of like good and bad cultures at various points in time? Cause obviously you can make a great investment in the context of a terrible culture and vice versa. Primarily it's like, can you retain, you know, [11:05] the people that you have that are doing a good job.

I think that's, like, ultimately the thing. Because you're right, like, you can have... [11:11] You know, Bridgewater as like an example, like great performance, but I think it's a really hard place to work for a long period of time. You know, that's sort of the tradeoff that you're making at some of these funds. It's usually not like a systemic problem. It's usually like they're individuals inside of these funds. [11:28] systems that tend to sort of like [11:31] buck against what [11:33] the general expectation is from the team for like what they signed up for, if that makes sense.

And then when they feel like there's been some sort of violation, things get [11:41] you know, they get dicey. When I first came into Founders Fund, it was definitely like people were kind of [11:47] in their offices. [11:48] staying very quiet, staying away from each other. And, you know, I was walking through the halls trying to give people high fives and they were like, what's going on right now? This is really weird. But then like things got really collegial and, you know, it, yeah, it kind of goes in ways depending on how people are vibing, how we're like adding to the team, whether or not we're like exiting rapidly when people aren't working out and just being like really honest with ourselves about [12:15] what we want.

[12:16] in the long run. [12:17] Yeah, I was just thinking as you were saying that, like, you obviously worked really closely with Keith for a long time. And then you didn't. And I'm actually interested to hear, we've never talked about this, but like, what are your reflections on like, you had this like, sort of like apprentice relationship for I don't know what it was, five, seven years? Yeah, five and a half years, six years. Yeah, you're kind of like. [12:35] doing your own now you know with him going back to closely has that been like seamless and smooth like do you reflect on that all a lot because i think it's like um it was like an uncommonly sort of tight apprenticeship model you don't see it all the time yeah i mean obviously like single biggest influence i've ever had on like you know sort of my career and i think that'll be the probably the case for the rest of my life because it's just like there's nothing that compares to those like early period where it was like he was the only person that i basically like you know sort of worked with for like a really extended period of time versus now you know like trey and

[13:05] not spending 12 hours a day, you know, with Trey, even like when we're most, you know, sort of collaborative. There's always this like talking point that I give to founders or investors, which is within an operating company, there are actually like a like decent set of constraints that you have to, you know, sort of live by, which is like, you have to like serve your customers, you have to like fundraise, you have to actually hire talent, etc. And so if you were to like examine the cultures of Anderle and Varda as an example, there's for sure differences.

But in the [13:35] relative to the distribution curve that you see in venture. Because in venture, there's effectively only like one rule, which is like IRR and make money. And then the rest is sort of like totally free form. And so if you were to compare the like benchmark versus FF cultures, my guess would be that you would see way more differences in that versus like XYZ to, you know, sort of top tier, you know, basically startups would actually be much more, you know, sort of similar. I do think that seeing Keek operate in these different environments, like very, you know, sort of closely with him.

I do think like my, you know, sort of net reflection on it, and I think you would agree with this, [14:05] his work style personality how he likes to do things actually just does fit into how kv's culture etc like operates a lot better than i think it did like at ff i'm not sure that would have been obvious without actually like literally doing what he did and in some ways like sampling the two and i do think also him coming over to ff helped fix some of the things that he wanted to get fixed at kv so i think actually like the whole process and outcome was like the best for everyone all around obviously now not working with him like day in day out is like an interesting experience

[14:35] you know trey and i went on this like super long walk um maybe like a week after it was you know sort of clear that's where you know sort of things were headed it had already steadily been happening over the prior year or two where i was doing more deep tech i was doing more you know sort of art of things which are very not the like keith fintech etc type of things the thing that made me comfortable with in some ways staying was actually looking back at the prior year of investments and realizing like of the people that like i worked with on like votes on a vo check the prior year was actually 80 percent trey and scott nolan and it was only like 20 keith and so i was like oh well [15:05] out of the wing already basically the other thing that's worth mentioning about this is that like um [15:10] Keith stylistically.

[15:12] is like a really good coach or mentor because he's very hands-on. He wants to do updates. He [15:24] the opposite of really Peter and myself. Like we're not like that at all. Like I think I'm a terrible. [15:31] Lead. [15:31] I'm a bad, I don't mean lead investor. I mean like board manager. Yeah. I'm like, I'm not, I'm not a good board member. I'm not a good manager. I'm not a good mentor. Um, I just like, I'm not wired. Are you sure that that means not a good board member?

Cause I think a lot of great board members are, I agree about the manager thing, but I think it depends on what you're looking for out of a board member. If you're looking for someone that's like going to get their hands dirty and like help you with things tactically, then it's probably, I'm probably not going to be very good at that. Um, if it's, you know, [15:59] Protect the... [16:00] the founder and be an advocate for the founder and stay out of the way and don't create unnecessary friction. Well, yeah, that I'm, I'm great at that.

I'm great at not creating additional friction. But I think that like, it's just like stylistically super different. Delian will reach out to me and be like, Hey, there's a company that I would like your read on, or there's a question that I have that's hyper tactical, but like, am I going to reach out to Delian and be like, let's review? [16:30] It's not me. And I think that maybe you got to the point where the thing that, [16:35] you legitimately got in droves from Keith was not something that [16:39] made sense in the long run.

I remember when I first started working with him, I would describe it as like, you get to like work with this person. It's like one of the greatest of all time. And he has this like knowledge tree through all the situations that he's been with the different business model, startups, founder conflict, like lawsuits, et cetera. In each situation that I get to like observe him in, I got to see like one branch of that tree. And then as you get to observe him over the course of six years, you kind of actually create the metal layer tree.

And it's like, ah, this is the tree of knowledge that like works for Keith. And I've definitely [17:09] equivalent it's probably like 60 70 it's probably like mostly overlap with keith and then my 30 is mostly just the like i like a little bit more of the like hardware-y like physics-y materials like those types of things but 70 of like how i get excited about a seed round how i operate with the founder afterwards like i definitely still largely take a little bit more of the key style like venture assistance role balance with like you know i'm deeply involved with varda so like i maybe can't quite do what sometimes keith does in terms of like depth of involvement with companies

[17:39] sort of Trey, Trey and Peter do. Yeah. Like what you said about, you know, Keith fits beautifully at KV. He's like a particularly distinct personality. So maybe you see it more sharply with him. But I think like we probably all are great in one environment and terrible in another. It's probably, you know, there's people who are being an amazing founder for one thing, horrific for the next. I think so much of like life is like getting yourself into the place that you're supposed to be in. If I was at a venture fund where there was like an expectation that I take a board seat on the deals that I lead, like I would quit.

[18:08] There's just no way. I couldn't do it. I don't like being on boards at all, even for companies that I started myself. [18:17] Even Monday partner meetings, if we had to do those, like if you told me that we had to sit through like four or six hours of us like taking. [18:25] pitches all together and then discussing them all together and discussing the portfolio every single week, I think the entire founders fund team would quit. Yeah. Do you not like the board member stuff because you think the board member theatrics or it's because you're like, I made the investment and you should figure it out and I don't want to be part of it.

Like, I've thought about this a lot. There are three things. Okay. The first reason I hate it is the board member theatrics. It's like people who it's exhausting, who believe that somehow they are better at running the company than the founder. And they like stand on a soapbox and try to convince everyone in the [18:55] You're in a board meeting and someone's there and you can tell that this is my Super Bowl. I'm about to show up. I'm about to show up. Exactly. Come on. And also, if you invested in the company, you should probably believe that the founders are the right people to run the company.

Otherwise, you shouldn't have invested. So that's the first thing. The second thing is information density is at an all-time low. A pitch meeting, in 30 or 45 minutes, I can do a full dump of everything that I believe that I need to know. And if I have follow-up questions, I can do that asynchronously or whatever. [19:25] Thank you. [19:26] I can't tell you how many times I'm sitting in a board meeting that's like scheduled, [19:29] for three hours. And it's like, dude, we could have done this in an email. [19:34] Like, just tell me what the numbers are.

Tell me what your struggles are. Yeah. Answer a couple of questions. Let's get out of here. And you think about how expensive that three hour meeting is. They had their whole exec team there. Yeah. It's crazy how low the information density is. And then the third reason is that I don't actually think that I'm adding a lot of value. [19:52] And I don't like being in situations where I don't feel like I'm adding a lot of value. And so when I sit through this thing where I like sponge up a bunch of information, maybe I like interject one or two things.

It's like this is not only a waste of my time. It was a waste of everyone else's time to have me like sit here and pretend that I'm going to know the right things for you to do in all these moments. OK, so you don't want to do it. But do you think venture should have people who do want to do it and are engaged and do the whole board member thing? Or do you think the whole constructs wrong? [20:22] you need to have governance. Like there should be a board that serves a function.

I think, I think, [20:28] These boards are pulled together way earlier than they should be. Like a Series A company should not have a board. It's just really stupid. You know, what are you reporting on? Oh, we like... [20:38] built additional features into our product. It's like, who cares, dude? It's like, I don't... I just don't imagine a Series A board meeting and they're like, yeah, we had a great month. I don't give a shit, man. I really don't care. It's exhausting. There's almost a perfect correlation between the funds or people that think you should have a board at a C or a Series A and the type of people you don't want on your board long-term.

Okay. I think the core thing at FF is for a decent chunk, especially with the venture team, we're constantly comparing it against just [21:08] going to go work on our own companies. And so I just think the way we view venture is very different, where it's like, [21:13] we are working on this because we're supposed to choosing to not work on the company. And so this better be very high value relative to somebody who's doing it full time. That is like, well, I need to figure out some way of making myself feel valuable in this world.

And so board member theatrics is one way of feeling good about it. Well, then you both have boards at Varda and at Anderol. Do you feel like you've been able to take these things that you really don't like about boards? And like, like, would you, how would you grade, not to put you on the spot, but how would you like grade the work that you've done to make the boardroom at Varda and Anderol? Massively condense information density. [21:43] Number one thing is that there's no such thing as a useful three hour board meeting.

It's like 90 minutes tops. [21:50] only run through the most important stuff online. [21:54] Obviously, you can have additional materials that people want to dig in more deeply async, but keep it really, really tight. At Andruil, one other thing is that... [22:04] There are only three board members, me, Palmer and Brian, and we've controlled that. We don't want to have seven investors as board members because it just increases friction in a way that isn't actually useful for the company. From the third point on like my ability to add value, I feel differently because what Deleon said, which is that this is also like sort of my full time job.

[22:34] a co-founder of the business. My biggest point of feedback to most companies is just on the information density side. It is crazy to schedule a two hour board meeting or a three hour or a four hour board meeting. I mean, like if you can't do this in 60 to 90 minutes for an early stage company, like what are we even doing? It's just absolutely out of control. Trey's actually on like the sort of part of board. So he can maybe sort of grade how sort of we do independent of my assessment of it.

I do think early on we did a pretty decent job of keeping it sort of very [23:04] and now in the later stages there's almost sort of like i think of it as like three sections of the board meeting where because we have sort of completely different customer sets from our dow business and our pharma business we typically end up doing like a dow update and it's like basically just for trey like no because it's like i mean look at c he's like one of the best dow people of all time and definitely way better than anybody else on the board by like many orders of magnitude and then even then we just did our last one yesterday and i'm sure trey like midway through is just like we were asking like do you know this customer group do you know this and trey's like [23:30] Nope, completely different than like where Andrel works and does, et cetera.

I can give like, you know, high level guidance, but like you guys are the ones that know this is kind of what I imagine was going through, you know, sort of the back. I also did the whole thing in 30 minutes. Yeah, it was 30 minutes. So we like, you know, ran through it, you know, sort of quickly. And then on pharma, we do find it incredibly valuable. Some of our external board rumors, including, you know, Samir from KV, where they're on any particular deal, pharma asset, et cetera. There's just so many dynamics that it's like actually honestly hard to have all of that internal expertise.

[24:00] like you know deeply valuable and then like third section is like ops finance etc there it's like yeah it's where at our current stage of amount of capital raised deployment etc it is helpful to have like some external governance on like even down to just like founder comp executive comp and just like you know you know getting external perspectives this is another area where i would say benchmark and founder's fund are like pretty opposite where you guys are like it's um you know as much of the work as possible is on building it's like in some ways the investing is like we'll do as much of it [24:30] employees versus that benchmark everything is designed so that there's literally nothing else to do but invest and like that's sort of like the goal almost it's like benchmark wants there to be nothing for the partners to do but make investments and work with those companies you want it actually to be very hard to make investments and you want there to be lots of things that compete for your attention that aren't investments there are better things like yeah exactly yeah it's sort of like being professional at anything it's like if you're a professional baseball player you're going to [24:55] hit a lot in the batting cage, you're going to take a lot of ground balls because that's what you're being paid to do.

It's like you have to do it. And so if you're a professional investor, you're going to feel like I have to be doing deals all the time. Now, the challenge is having discipline around that because sometimes the right decision is [25:10] not so that's right and so by the way one good way to implement that is by saying if you want to make an investment you have to be on the board for the next you know 10 years i mean i would never make an investment i'm just about you're gonna pay 1,000 x multiple on revenue and you're gonna be on the board for 10 years thousand hours of board meters delia you said something recently

[25:40] should almost be like an exhaust or you see it almost as like a side hobby or like an exhaust of what you already do in your operating day-to-day job at Varda. And I do think that there's like, even as like a mental framing, I was trying to frame that for myself. And it's like, in some ways, like, you know, depending on like the stage of investing that you're doing, like you could see your job as like, I'm a researcher and I am a networker with this group of people, whether it's like, let's say you're in cybersecurity, like cybersecurity experts or whatever.

And then the [26:10] talked about earlier that you guys met yesterday this week that we just led the seed round on that I think is like a like perfect example of this where it's just like I over the past couple years have just gotten deeply frustrated watching like cognitions and you know cursors inside of the world completely transform how like a back-end software engineer at like a ramp or a meta or you know name your favorite software company you know significantly improve their productivity and then you just look at the sets of tools that we like use internally at Varta for our firmware [26:40] I was building robots and it's like, there's effectively no change.

Like the software is like slightly updated, but there's no improvement in productivity. And so I just started spending a ton of time looking at all the tools in that category. Some are now later stage companies in our portfolio, like nominal, I think is one of these that was like an early, you know, sort of example of this. But the one that you guys either sort of met this week was this example of like, I was just so frustrated that there's this like very rote manual work that our junior mechanical engineers do that felt like the classic type of thing that I should clearly be able to not just like slightly improve the workflow on, but just completely remove.

[27:10] And was like, I'd probably met at that point, maybe like 15 different companies that were like in this phase, frustrated by all of them. I met like the 16th one. And I was like, great, this is the one. Like, it's just the best founder, the best product, the best idea. And I was like, I want to invest. And it's like, I partially like doing it because I like doing the early stage, you know, get 10%, like, you know, start to be a little bit of like that founder coach. But then I also specifically like it because it like solves a problem at work.

Or another one that we like did together way back in the day that is just one that solves [27:40] in the day. And it was not because we had some deep hypothesis on mattress markets or anything like that. You're just like, I'm so hot in the middle of the night. I'm just so hot in the fucking middle of the night. And I'm just like, I don't want this to happen anymore. And this is a good product. And I remember at the time, we were like, we have no idea if this is going to be a good business.

But it is a really good product. And typically over time, good products turn into good businesses. My memory is that I actually was [28:02] I was crapping all over this deal. I was like, guys, this is so dumb. Why are we investing in a mattress company? And I think it was Keith that actually said, like, just try it. And I slept on it for one night, and I was like, let's really go. Let's invest in this company. But, yeah, I think that's totally true. On the, like, being a professional investor side of things, like, [28:23] you know, [28:24] I think if you look at different vintages, like 2022, you could argue that actually like the best investors were the investors that stopped investing.

How do you deal with that if like you've tuned your whole system for like building a track record by making good deals? I think there's a couple. One is because I was actually just looking. So we we had a fund that I wasn't here, obviously. But there was a fund that was that had 2022 included in it. I don't think it's like it's hard to be excited about much of what happened in 2022. [28:54] And then it also has 2023 and 2024 in it. And so one answer to this is you're consistent through vintages.

You have some time diversification per fund. And like, you know, you hope that the 2022 also includes the 2023. And so like you get through some of it that way. This is Brian Singerman used to always say that venture is not a macro. [29:12] Asset class is a micro asset class. As long as you're in the right companies, it doesn't really matter. But like, [29:19] If you just look at the data around the 2022 vintage or the window around that, it's massively underperforming. That's right. Other advantages. I think there's like some truth to that.

And then there's also some risk. There is. There is risk to it. But it's also like unless you're Peter Thiel, I think trying to call the market moment is also very risky. And like you look at like let's take like public market index investors, people who just buy and hold the S&P destroy people who try to like time it almost almost every time. Right. Yeah. [29:49] small number of investors that you guys might have on your team, I think you can mess it up in a big way. Because I think there were a lot of people who were like, ah, 2017, this is a bad time.

We're at the top. Don't invest for the next few years. And then you miss some good companies. Or 2023, 2024, you still don't have your foot back on the gas. You can miss it. So I guess my counter to that would just be that most people can't call the macro very easily. And if you can't call the macro very easily, and then you miss the good vintages, you have to focus on the micro. You miss it all. If you can't call the macro, you're [30:19] there's at least... [30:20] Enough data.

[30:21] that you should be able to like remember that. [30:24] prior cycles which it doesn't seem like we have the ability to do at all memory is so short like 2022 is not that long and like man we can't do that again you know maybe if this happens in 20 years our kids won't remember like 34 months ago you know it's crazy well core investing memory of mine was actually an off-site at your house trey and this was peak in 2021 the crazy thing was like [30:54] about to pop. Like one, that we were in a bubble and then two, that it was definitively about to pop.

And the conclusion that we came out of that offsite actually was to Peter wanted us to go to the beach for a year and do a sabbatical. But the conclusion was, let us... [31:07] invest in our very best companies. We made two investments. I won't say them in case that's weird, but we did two investments and both of them have been actually even vintage adjusted really, really good. And so I think that like to the micro versus macro point, like the winner of 2021 was the worst possible time to make an investment.

[31:25] probably in like the last 15 or 20 years in venture. And I think if you still get the micro, right? Like maybe you would have made more money if you would have done those investments in the summer of 2022, because you still probably could have done them. But they're still really good investments. I mean, this is the nature of Peter is that like, [31:40] no matter how annoyed you are with him, he's always right. On some timeline, he's always right. I can't tell you how many times I've been like, oh, this is so ridiculous.

He's getting so emotional about this thing that I don't understand why he's so charged about it. And then 12 months later, I'll look back and I'll be like, shit, wow. I can't believe how well he nailed that. But I think it's really dangerous to try to do this if you don't have... [32:07] Someone like that. Yeah, if you're not Peter. I couldn't do that. There's no way I can. I think almost nobody can do that. Yeah. And I think there's, like, something really unique about him as well, where he understands that...

[32:17] you it is it is less important to be exactly true than it is to be directionally true because it's really hard to shift the overton window and so like most people are like they try to [32:27] sort of moderate their approach to something. And they... [32:32] Because of that, they're not directionally pulling [32:34] hard enough to shift any strategy. Whereas I think Peter is just like, I'm going to get like super, I'm going to dig in my heels on this. Just to move the window a little bit. And that tiny adjustment that ends up being made is, [32:51] is really powerful.

I come up with this all the time with Andrel, with our executive team, where like, [32:57] everyone wants to be reasonable. And I feel like I'm constantly coming in over the top being completely unreasonable. And I think it's just like... Not actually wanting the outcome that you're saying. Right. It's just a learned behavior from Peter. It's like, I'm going to say something that [33:11] Even if I don't believe that we should do exactly what I'm saying, I'm just trying to pull people out of their – [33:19] you know, unintentional stasis that they've kind of locked themselves into.

The quote that I remember from that offsite was basically Peter saying something along the lines of like, I know that you guys are going to want to deploy. Like there's going to be people that on this team that want to make investments right now because like the category is so hot. Everybody thinks everything is best. Bubble's about to pop. And so the rule is only like, you know, go figure out what are like the two, three best companies. We'll invest at that or like whatever the market clearing price is and like bubble will pop.

[33:49] everything else, the best ones will make it out through the other side. And so one of those investments was the $9 billion post, you know, ramp round. Nine months later, the company did a down round at $6 billion basically in valuation. And so in theory, that like, you know, late 21, early to investment, like, looked bad. At least now, obviously, at like a $40 billion valuation. And so even the IRR with the like, you know, down and up still made sense. And so I think it was Peter sort of pushing this like, you guys are going to deploy.

I can't stop you. Even if I wanted to like stop you guys from fully doing it, it's not going to happen. So therefore, at least just do the very best ones. [34:18] And then stop. And then we didn't kind of feel good because it was like, yeah, we made two really big investments. And we're like, OK, like, you know, we can stop now. Is there any like rising discomfort in Founders Fund at this current moment that's like 2021? Or is that not the tone? I think it's probably different across different people.

I am very uncomfortable. I am not enjoying this moment at all. Maybe some other people are. Why aren't you enjoying it? I feel like we're getting back to this point where the... [34:44] prices are untethered from reality and it like reminds me a lot of 2021 i mean you're also um you're in obviously there's ai but i know you spend a lot of your time in hard tech which is now probably just as hot as ai it seems like totally yeah if not hotter in some ways i feel like there's almost been a bit of a reset particularly on like vertical ai sass where people are like oh crap like the the labs are kind of gonna do a bunch of this stuff uh so maybe there's even been a bit of a reset but there hasn't been any form of a reset on on hard tech [35:14] And I think, you know, Founders Fund for [35:18] over a decade has had this

[35:20] sort of founders fund science concept of, you know, we wanted flying cars and instead we got 140 characters. And we've probably been more active than anyone in investing in these hard tech companies. And did they work out? They did not. They did not work out. Well, but you got, I mean, you got the ones that mattered. Yeah, we got, we got the ones that mattered, but it's, [35:38] If you think about where most of those gains came from, it was actually PayPal Mafia. It wasn't like a thesis that turned into Great Returns.

It was a network that turned into Great Returns. Yeah, it's funny because most people in your position would obviously say, oh, well, our thesis played out. And yeah, we had some losers, but we had Androil and SpaceX. And so it was basically right. But you're saying that actually the thesis didn't really serve us and we would have made those investments anyway. And I think they were actually hard to make decisions. [36:02] even with the thesis. We're not for Luke Nosek basically putting his career on the line. I don't know that Founders Sun would have done the early SpaceX investments.

When I pitched the Founders Sun team on Anderil, they were basically like, who's running this company? It's not you, and it's not Palmer. So you need to come up with a better solution. So these things weren't even obvious, even when they were direct network. And so I think [36:28] I think the thesis side of this, like, we're just way more careful around it now than we were historically, where it's like, it's not sufficient to have a really strong technical founder. You have to have somebody that's equally good on the business side.

Otherwise, it's just not going to work. And what we're seeing a lot of today, whether it's like hard tech or defense tech or manufacturing, industrial automation, whatever it is, is that there's a lot of people with great ideas [36:58] But – [36:59] significantly accelerated rounds for the commercial progress. And the belief, I guess, is that like, well, if the product works, the company will just obviously work. And I don't think that's actually obvious at all that the company will work. I admit, I like don't mind the current moment as much, but I think a part of it is like, I probably 50, 60% of the investments that I do are these like, you know, sub 30 post rounds.

And it's like sometimes some hot founder from some XYZ thing spin out comes and says, I have offers at 7,500 posts. And I'm like, [37:28] great. That's just like not the business that I'm in. And like, you're welcome to go raise that. It's I think I mostly ignore it. And then I feel like the current like, you know, not to speak on behalf of the entire firm, but I feel like maybe if I were to give the like, what is the closest that we have to like the 2022, you know, sort of take it's that there are a set of generational companies that we are involved in, you know, opening I, Anthropik, SpaceX, Andrel, et cetera, that are all now at this point, largely priced in slash so late stage, slash all IPOing soon.

And it's like not very obvious what that next cohort of companies is that could even accept [37:58] sort of right now. And so I think that's probably the biggest question is like we've had a pretty wild deployment rate over the last three, four years in terms of especially some of our growth checks. [38:08] Maybe not as possible over the next three or four years if there aren't logos like that. We're sort of with Dellium making these investments that... [38:15] under a $30 million valuation. He has to spend a lot of time at preschools, finding young founders who are willing to accept such low valuations for their seed rounds.

Is that why you're not allowed within 50 yards of school? I'm always wondering why that was the case. We're on this segment by your PR team. Yeah, exactly. [38:35] It's a little bit on the line for me. It's not even close to the line. The idea of like a $30 million seed round valuation is like, oh, wow, that's... [38:43] That's cute. That's reasonable. It's reasonable. It's like three X what reasonable would have been 10 years ago. It was so recent that that was unreasonable. Like it's five years ago. People are like, whoa, what do you see companies think they're raising at 25?

Who do they think they are? Like I did a six mil post seed round like, you know, two months ago. Six post? Yeah, six posts. Yeah. I think the thing that the founders are missing in this equation is that like the economics is [39:08] At these different prices. At the early stages. Shift significantly. And so like. [39:13] There's so much money in venture. [39:14] There are all these new funds that are setting up. It's like way too aspirational. There's way too much money in the system. When they forget them, new funds, it's really just the mega platforms are consolidating $40 billion or whatever.

Yeah, even that. Yeah. [39:28] because those terms are shifting, it's like – [39:31] the deals that you could do, [39:33] 10, 15 years ago that led to these. They're gone. They're gone. They're totally gone. And so like, then the question is like, can you actually over a venture cycle, like a venture fund cycle, can you actually beat the S&P 500 with this new unit economic? Even if you are hitting the monopoly players? I don't know. It seems like it's way harder than it has been. I think it is way harder than it has been.

I mean, I think it seems like you'd expect across the industry multiples to compress, but the power is still super strong, obviously. One thing we've noticed is like in our latest venture fund that we kicked off maybe like [40:03] entry price right now, I think is something like 700 million in valuation. And if you compare it to the prior five, those would probably be on average because we do some mid-stage rounds in there, but it would probably be like 80 to 100 million, you know, in like, you know, entry point average price probably speaks to the fact that like even seed rounds that we're doing are so high that then when you add in some of the mid-stage things that are also high.

We don't talk about this much. What's your current comfort with the [40:25] temperature and venture and funding and everything like that. Yeah, I'm also deeply, deeply uncomfortable. I think that the similarity is 2021 that I draw is that in 2021, there was this just like unanimous sense because 2021 people were like investors were making a lot of money. Like there was a lot of things that were IPOing. Everyone was getting like a great cohort in 2020, 2019, 2020 and 2021. [40:48] of really big IPOs that gave everyone kind of like a big taste of liquidity at the same time that everyone was getting markups very, very quickly and very, very like high markups very rapidly.

And there just started to become this sense where you'd have a company that would be at, say, like 100 of ARR and it would get priced at $10 billion. So you'd have this like 100x multiple on it. And the investor would be like, well, but like, obviously it's going to go like 100 to 300 and 300 to 700 and then 700 to 1.4. And that's going to be worth 30 billion. And I'll make a 3x [41:18] in four years or whatever. It was just like a sense of inevitability without really digging deep into like, one, just the immense difficulty and the base rates of how many companies that are at 100 of ARR that ever make it to 1.4%.

[41:32] billion of ARR in that arbitrary example. But there was a lot of situations that looked like that where everyone was like, well, of course, it's here and the trend's good, so it's going to be there. And it's like, well, wow, if it does get there, it's a 3X from where you're investing in. And two, in history, the amount of people that have gone from here, there's 5% of all companies. And so you're over-underwriting relative to historical norms by 20X. Not to mention all the dilution along the way. And you're not incorporating dilution.

And so you only have these situations when people are [42:02] of money. And I also, I think this duality is the key to a bubble where it will also, like these last three years, unquestionably is going to be the period where venture capitalists have made the most amount of money in history. Anderol, SpaceX, OpenAI, and Anthropic, they're going to produce the most amount of returns that we've ever seen, probably by two orders of magnitude of any batch of companies. But then when you... [42:24] strip out those four companies or five or six companies, then like you start one playing with house money and two, you start assuming that everything's going to like be daisies and roses because of the success that has been baked in other parts of the market.

And so it's just that feeling like I'm feeling investors have that feeling of inevitability where it's like, yeah, I'm going to invest at 5 billion, but it's going to be 15 billion in two years. And then we're going to IPO or we're going to sell it at that price. And it's like, oh, it's just, we've forgotten [42:54] from the 100 million ARR line, one of the things that I've noticed in my 12 years doing this is that there's this weird glass ceiling between 20 and 30 million where a reasonably managed...

[43:07] enterprise SaaS company is going to get to 20 or 30 million in revenue. But then getting through that glass ceiling is super freaking hard. Yeah. The percent that make it from 20 to 100 is a huge drop off. Huge drop off. And so I think that [43:22] Early on in my time in venture, I would meet with these companies that are like, yeah, in three years, they've gone from zero to 15 million at ARR. And it's like, oh, that's really good. That's a really good trajectory. We should like dig in.

And now I'm just like, I don't know. I mean. Well, it's tough because the way VCs are underwriting is forcing founders. [43:37] at one to five million of ARR to tell a story that we're going two to 30 to 150. And like, you see that all the time. And then it forces people to build companies in weird ways. Like, it's all kind of distorting. I think what's different about this cycle relative to 21 is that in 2021, you still had not even the best companies. [43:55] were able to beat the original Google early years of revenue growth.

And then Anthropic in this cycle is literally the first company that since Google has actually shown an even steeper curve. And then I think that feeds into the both of like, hey, you're playing with house money. There's so much liquidity coming. But then also... [44:11] assuming that like anybody else will be able to now match that same you know sort of revenue trajectory and there's things like you know even in our portfolio cognition is obviously on like a sort of wild you know growth rate and then i think it just goes down the stack where people assume even the seed stage one millionaire our thing is going to be able to follow that but it goofs up a lot of businesses that could raise at you know a quarter of the valuation that they're raising up but because the market's where it is it's like well i rather than just saying i'm going to go from one to four to eleven whatever which you know there there is a way to venture finance that [44:41] respond to the pitch at a seed or a Series A or Series B, kind of where you're focusing, where the founder is super confident.

[44:49] that they're going to go from, [44:51] one to 10 to 100 to 500 over the course of like three years the running joke is that it doesn't matter um what market you're in or what company you're running the running joke we've had is at the end of your plan for any company under five million of ARR this year is 30 it's always 30 it's always 30 it's just like you see a deck and it's like we're at four it's like are you gonna go to 30 they're like yeah how'd you know it's crazy we have like yeah nine of them in a row there's like a little bit of like don't hate the player hate the game

[45:18] in there as well, where it's like, you know, you have like Hamat on a podcast being like, if my partners bring me something that's growing 3X, I tell them, don't bring it to me. Like the new, the new bar is 10X. That's not nothing against Hamat. That's like sort of where the market is. It's obviously investors are, it's a game of opportunity costs, not absolutes. Like you're trying to do the best thing in any given year, not something that just meets some bar. And so there's some, some of that where it's like, well, you know, part of being a good founder is [45:48] Well, but I think you do have to mix that with like, like a, like a large amount of, like you have to be genuine as well.

And you have to ideally have like worked out the idea maze in order to like show a path to actually doing that. Like it can't all be bluster. Yeah. And I think also like we're, you know, our model is that we're going to work closely with them for a long time for, you know, that's just. [46:07] what it is. And so I think, you know, it'd be very frustrating for us to work with somebody who's like, my plan is 10 to 100, but I've got no plan beyond how I'm going to manage that.

And I don't know what team I need to hire. I haven't thought about what team I need to hire. I haven't thought about what that product service area looks like. I haven't thought about what if you're going to sort of take the role of I'm going to work with this person and then they're going to say that [46:26] in order for that to be an enjoyable plan, [46:29] as you work with them on it, you'd want to, you want to believe that they're going to think about, okay, like I know actually what's going to go into it and it's going to be really hard.

This is sort of Peter's quad chart from zero to one around indefinite optimism versus definite optimism. If you're going to be optimistic, you should at least have a plan. Yes. It's too frustrating otherwise. Yeah. I feel like you would probably be more allergic to any version of, of that tray. I just remember a, you know, there, there was like some company we were meeting back in the day and, um, they're like, I'll be coming from a dinner with Mark Andreessen. [46:59] You just like email back. You're like, don't do that.

You're like, that's that's not a game that we should be playing. Oh, the competitive game of like, look at me. Yeah. It's like all of my connections. Yeah. It's like, well, like, oh, you guys better move quick because like afterwards I have like a dinner with with this famous person. And you're like, this is just founder to founder feedback. Don't do that. [47:17] Sounds like right. I don't remember doing that, but it sounds like something I would say that the [47:23] The thing that I feel is so triggering to me about these crazy plans is not the optimism.

I believe that they should have the ambition. It's the... [47:36] willful, [47:37] like, [47:38] like, removal from all historical examples. And it's an easy time to be like, things are different now. The rules are changed. You know, you can have billion-dollar companies with four-person teams. And, like, you can kind of, I think, convince yourself that just because the rules have changed that there's no rules at all anymore. Well, you can kind of do that with software, but with hardware, it's like, you have to, like, make real things. And, like, this idea that you can, like, 100x production in a 12-month period, it's just like...

[48:07] I'm sorry. You literally can't. I'm just going to say that. Okay. Can we talk about, I want to go to a hardware topic. Before we all sat down, we were talking about chips and I've spent some time with some like public market investors recently, but you know, everybody knows that like people love semis right now. People don't like software. They like semis. We obviously have like, you know, huge compute shortages. We have the situation with, you know, Taiwan and China. We've got America sort of like without its own [48:37] there's a lot of startups working in [48:39] chips and semis in various ways.

But I would just be curious to like, hear your sort of like, lay of the land of the situation, like where we are kind of like, as like a tech industry, you know, maybe then we can get into like, you know, country positioning and sort of some of the broader things, maybe that connects to Android and whatever. But maybe just starting with chips as a point in time, like, what's the lay of the land? What are people, you know, excited about? Like, what are we missing? I think the biggest challenge is just around fabrication.

It's like, there's a [49:09] chips or making more leading edge chips or, you know, whatever it is for memory or for inference. Like there's all of these different things that people are working on. And that's great. I'm glad that we're doing that. But at the end of the day, like these chips are all coming from the same place, like they're being made. Um, and yeah, [49:27] for decades. [49:28] The United States was the really only player in semiconductor manufacturing. That was actually where Silicon Valley came from. And we've completely lost our way with this.

Almost entirely happens outside of the United States to the extent that we were doing anything in the United States over the last decade. [49:44] couple of decades. It's not leading edge anymore. It's some of the more mass scale, like automotive chip fab and things like that, or low scale kind of research and development fabs. And we haven't really figured out how to [50:01] reshore the leading edge fabrication. And obviously, this is what the Chips Act was intended to do. It doesn't seem like there's a whole lot of traction coming out of the money that was spent there.

The government has made this big bet on Intel taking an equity position in the company to try to get them to the point where they can be not only a manufacturer of their own chips, but also as a merchant supplier of chips to other people. Their yield rates are [50:31] can to level that up and has the TerraFab project that he's working on with Elon now as well. So it's sort of our best bet, but [50:38] Not. [50:40] at all certain that it's going to work. The other companies that have leading edge processes like TSMC and Samsung have been getting attention from the government to try to get them to build domestic fabs in the United States.

But the incentive structure for those is totally wrecked. It's not clear why they would build any of these fabs. It's not clear that the talent even exists to do it domestically anyway. So I feel like... [51:04] our focus has just been sort of wrong. It's been on the ease. I will say this, and I actually mean it, [51:10] We're focusing on the easy part, design, which I'm not saying is easy on an... [51:15] absolute basis. I'm saying on a relative basis, we're focusing on the easy part. And there's a lot of money to be made there.

But if we don't fix the hard part, none of this is actually going to work. There's not even like an optimistic plan right now. Like I think if you were to just look at all the chess pieces today and how they're playing for the next five years, [51:31] There's nothing that would indicate it would be any different five years from now. [51:34] At least when you had, in 2015, we lost access to space because we shut down Space Shuttle, and we were dependent on the Soyuz for taking people up to space.

At least Elon is trying. There's a path to something where those will be brought back. 2020, we have it. If you were to analyze what everyone is doing today and say, in 2030, whatever, is there going to be leading-edge fabs in the United States at scale? It's like, no, there's not even anything that anybody's working on that would lead towards that today.