154. NEA’s Investment Process & The Key Ingredients for Startup Success (Ben Narasin)

The Full Ratchet Ben Narasin

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Ben Narasin of NEA joins Nick to discuss how NEA makes decisions, why he joined the firm and the key traits he looks for in founders. In this episode, we cover:

  • Why he made the move to NEA
  • His Investment focus
  • the role of Venture Partner at NEA
  • the investment process the firm… and if decisions are made by committee
  • Ben’s Evaluation Process
  • the key factor that every successful founder possesses
  • The common red flags that pop up and cause him to say no to strong startups
  • Why he believes his job is to say no
  • How he assess opportunities with 100 reasons to say yes and one reason to say no
  • Ben’s evolving approach toward weighing risk factors in startups
  • how the tech and investing industry has changed over the past decade
  • how AUM is driving a bifurcation in venture
  • finally we get Ben’s response to the recent Techcrunch article highlighting the crash in early-stage VC funding


Guest Links:

Transcribed with AI:

welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran, and this is the full ratchet

Welcome back to TFR for a great interview with one of the best minds in seed stage venture capital. Ben Nelson from any age joins us to unpack his approach toward assessing startup investments. Ben has a long and successful track record investing at the earliest stages before the term seed even existed. His performance is best in class and he’s seen his early bets go on to large and frequent exits. In this interview we discuss why he made the move to NEA his investment focus, the role of venture partner at NEA the investment process at the firm and if decisions are made by committee, Ben’s personal evaluation process, the key factor that every successful founder possesses the common red flags that pop up and cause him to say no to strong opportunities. Why he believes his job is to say no, how he assesses opportunities when there’s 100 good reasons to say yes, and one reason to say no. Ben’s evolving approach toward weighing risk factors in startups. How the tech and investing industry has changed over the past decade. How AUM is driving bifurcation in venture. And finally we get Ben’s response to the recent TechCrunch article highlighting the crash in early stage VC funding. If I had to pick my top five favorite interviews, this would be one of them. If you’re passionate about what winning looks like at the early stage, I think you’ll enjoy it. Here’s the interview with Ben garrison.

Then Nourison joins us today from Menlo Park. Ben is a 25 year entrepreneur and 10. Plus your early stage investor, then previously served as GP at Kansas ventures and led seed investing for triple point capital. More recently, he joined NEA as venture partner. We’ll talk a bit more about that in the interview. And Ben has made seed investments in drop cam lending clubs Zenefits and over 80 other startups. Ben, thanks for joining me.

Hey, thanks for having me.

So is that number right at startups?

Little bit more? Yeah, it’s been about 10 years, I’ve done most of it at the seed stage over time, but it was sort of 90% seed 10% coming in for the first time that series A get some of these companies sort of raise their series A before their eyes to see. Okay,

so that’s that’s about eight investments a year, then if you’ve been doing this for 10 years. Does that sound about right? Yeah,

that’s what it used to be. I mean, that’s changed now pretty dramatically. You know, for the first eight of the 10 years, my focus was almost entirely seed. But for the last two years, it has been more as a traditional VC focusing on series A and beyond, although I still do seed investing. And in that capacity, you know, it’s normal course, is going to be one investment a year. Going forward, I think it’d be sort of in one series A or beyond, I can certainly go much later. It’s one of the wonderful things about the naa platform, and then up, you know, zero to two seed deals as well, I could still do them, I think it’s just going to have to be even that much more restrictive in terms of quality and opportunity set.

Got it. So take us through the backstory a little bit here. So you’re at Canvas ventures and triple point. More recently, I think it was October that you joined NEA take us through that, you know that background and kind of why you made the moves at various times.

Sure. So as you mentioned, I was an entrepreneur for 25 years, I started off when I was a kid doing different businesses and ended up in the end businesses most relevant was a company called fashion mall.com. I started in 1993. So one of the very first ecommerce companies, we quickly went from trying to do ecommerce, which was incredibly difficult back then, for a lot of reasons to being a portal. And I’ve been told we invented the concept of cost per click, and around 94, which was a very useful metaphor, took that company public and 99. And I had actually never raised venture. So from there, when the company was doing we had a profitable business pre IPO. With IPO capital, we started investing, then the whole world blew up, the bubble burst, we still had a lot of that capital, so it was able to take company private and get everybody their capital back in a very successful outcome. So from there, I moved west. And when I got out here, I’ve been here about 14 years. I started to notice this big gap between seed or between Angel and venture, this is now called Z back then it wasn’t really a term. You know, if you sort of think back in time if you were paying attention to the market back then Angel Investing was usually done by groups would get together in these sort of semi formal aggregations every quarter or so it was very long process for the entrepreneur. And it usually ended up netting a very small amount of money. At the same time venture had gotten a lot bigger because the successful companies in the bubble had sort of gotten a lot of LP interest and attention. And that pushed up the size of funds. And with this increase in the size of funds, you ended up with larger investments, not more of them. So the firm’s did get bigger, but by and large, they were just putting bigger checks. So you had this big gap in the middle gaps now called Seed. Nobody had a name for it back then I started doing that. And the way I did it was first with triple point, I joined them to run their equity practice. And that was effectively seed investing did that for eight years, had a nice run, we’ve got to co invest my own capital. So you know, I personally invested in Lending Club right at the beginning, lots of other great companies, which you mentioned many of and that sort of netted out to about $5 billion with the IPO outcomes, another two and a half billion private outcomes. And from there, I started looking at okay, maybe I raise a free standing fund or something else. But in the end got recruited in two different firms were talking to me and I went to Canvas, which is a boutique shop, and spent two years there as a general partner before leaving and then joining NEA, which I’ve now been at for just a little shy of three months. Anyways, a phenomenal group, I had done more deals with NEA as a seed investor, where I either included them in a seed round, or they brought me in in the seed round. And where I had brought them deals that had gone past seed, and we’re ready for series A or even Series B. And we just ended up in more companies together than pretty much any other firm really had the right DNA for how I think about the world. And I just I couldn’t be happier to be there. It’s a phenomenal, phenomenal group of people. Good

for you. And can you tell us more about your investment focus? So you mentioned some of your stage focus, but you know, do you have sector or tech focus areas?

Yeah, I’ve sort of distilled it down to simply I want to find entrepreneurs that make me say, wow, you know, there’s, there’s some categories I don’t focus on. But for the most part, you’d call me a generalist. Yeah, I think that, you know, I’ve done consumer, I’ve done enterprise I’ve done, marketplaces, I’ve done FinTech and fintech has been a very successful and meaningful part of my business marketplaces have as well, but you think about things like drop cam, that’s a consumer focused hardware company. And that wouldn’t necessarily fit in any of those pieces they just talked about. So it is really about finding awesome entrepreneurs that have a vision that’s going to be world changing in some way. And sometimes world changing can have material impact on the planet financially, and or at least those entrepreneurs and their backers, financially. And on, you know, something that really technical, and sometimes it can have an impact beyond that. But, you know, I like to find entrepreneurs that have some life mission to do something that can just be truly exciting. And that’s my search, I’m constantly out there looking for those entrepreneurs, where you sit down with them, and their story just really, really, really excites you. There’s some places I probably won’t dwell. I don’t I have one investment in med tech, which is Omata. Health, personally. But NEA has a very vibrant med tech practice. So I wouldn’t be the guy that would chase down a med tech opportunity. But if I found a phenomenal entrepreneur there, I’d absolutely want to make sure we got in front of it. You know, I’m very, very focused on being a good ecosystem players, I always have been, when I was a seed investor, I know those 80 plus companies, more than half raised series A from tier one firms. And in almost every instance, I was helping Now, that doesn’t mean that I was materially involved the whole way through. But it generally means that either I was an introducer, to one of the bidders, or I was helping through in terms of just helping them think through the consequences of some of the questions. But it was primarily around just making sure they got the right people. And that’s always been my belief of a very important part of both what was important for me is somebody helping an entrepreneur, but also incredibly important to an entrepreneur, it’s not enough to get a great firm, you really need to get the right partner, the right partner for you. And, you know, I had some painful times as an entrepreneur when I chose the wrong investors, when I chose somebody that I was enamored of the brand of the organization, but I didn’t spend enough time figuring out the person. And I very much want my entrepreneurs not to have to live through that. So historically, it was, here’s the three people I think you should meet at three of the top 15 firms today. It’s, hey, there’s great, great, great people in the organization I have around me, let me make sure the right people are paying attention to you.

Interesting, so I want to talk more about how you sort of dive in with entrepreneurs and how you evaluate but before that, so you’re a venture partner at NEA and you know this term means different things at different firms. You know, we’ve got ers we’ve got Venture Partners, what is what does it mean for your role at at NEA Yeah,

it is interesting. It means different things for different firms. And it means different things even inside of firms. So it’s a fascinating structure, it’s really a way to give, I don’t know, appropriate gravitas and ability to an individual that might come in from a slightly different angle than somebody else would. So in my case, I’m treated just like any other partner, I go out, I’m, you know, all the time, this is a full time thing. And I mentioned that because in some cases as an example, so we could recruit a venture partner. And the reason they want to be Venture Partners, so they had the flexibility to do other things. That’s not part of my interest. This is a full time absolute committed effort to go out and find great entrepreneurs for the firm, I can lead my rounds, I can do things just like anybody else in that role, I’m always going to look for somebody to be alongside of me, which is what I would do anyway. And beyond that, there’s really not much different than anybody else. I’m working alongside. Having said that, in our own organization, we have venture partners who are more akin to operating partners, or are explicitly there to be of aid to entrepreneurs in some very specific role and would be across a broad array of companies. I know that some venture firms, I have venture partners that are sort of there for a specific type of project and they’re for a specific amount of time. Also, I will tell them how to invest quite frequently, the term venture partner means something different on the way in and on the way out. You know, when often someone will leave a firm for a reason. They might retain a venture partner title as they go forward, but not really have an active day to day they wouldn’t have the ability to invest other new fun, they’re more of a feeder, and pretty a passive one at that. So it is a funky title, because it does mean different things in different places in my world, it just as a different, you know, additional word on my card, and nothing else is any different.

How does the the deal process work at NEA? So let’s say you find you source a deal, you’ve built a relationship with the founders, you get conviction, let’s say around that deal? Is it you know, something that you’re proposing it through various levels of the firm? Is there a deal board and investment board that you present it to? Is it a consensus decision? How does that work? So

there’s a lot in that question we can unpack, it’s, it’s pretty common across the firm’s I’ve seen how these things work. I’ll talk about how it works here. But it does seem to parallel out, you know, in the firms I’ve worked with, before, it has has been the case, you know, generally I’ll sort of take a step back and, and go through how I would always explain to an entrepreneur, the most likely path they would follow in a firm, because it’s certainly true in ours is it isn’t so many, you know, my attitude has always been look, you find the partner that falls in love what you’re doing, you spend the time with them, right? If they get far enough along where they care about this, and they want to do the deal, what they’re probably going to do is reach out to another partner or another small group of people in the organization and bring them in and get them involved too, because they want them to meet them, they want someone else’s eyes on this. If that goes well, and this is in the normal course of a deal that isn’t so like just rocket ship hot that everyone just has to jump up and down really fast and run, although it’s the same process, it’s just happening quicker. So those people get excited, there’s probably a series of questions. And I would call it sort of almost diligence light work that goes on. And from there, if they’re continuing to be committed, they’re going to bring you in to present to the partnership. And that presentation, the partnership is normally where that partner is going to get the feedback of the broader firm, and make their final decision about whether or not they’re going to give you a term sheet. Now, I have been involved a group before once where that wasn’t necessarily the case. And it was it was certainly surprising to me. Because I think when you bring an entrepreneur in to a Monday meeting, you know, you you almost owe them the duty of giving them an answer one way or the other after that. And it’s a habit of, I’ve come across a lot of, I’ve just put it this way, I’ve had a lot of entrepreneurs say to me, Hey, I presented the Partnership on Monday, it’s been a week and a half. I haven’t heard anything, what do I do? And my answer is, Well, you already got a pass, you just don’t know it. But go ahead and think the person one more time and, and say, you know, I assume you’re not gonna get there, but please let me know that I’m right. So I like the one of the things I really really love about NEA is this group of smart, hardworking, honest ethical people that I can learn from and that I can grow with, and that I can get different eyes on and attention so I’ll probably, you know, it can be as simple as I’m gonna get one more person to look at something with me or I can build a group around it. What I’ve noticed and again, remember I’m only three months in is people tend to build deal teams. I almost think of it like if you ever used to watch Mission Impossible TV show when you’re a kid versus the movies. You know, they start off with all these folders and they pick the best of the best for whatever they need. You know they need the the driver and they need the face makeup guy and they need all this stuff. That’s what I think about it’s like who in the group could be additive to this process. for both parties, because it’s not just helping me think about things better, it’s about who are the resources I want this entrepreneur to get attached to over time, because they can stay involved and be of aid. So, you know, pretty much follows that path, one person gets excited, they bring more in, they do some work, bring them into the partnership, give them an answer, like,

so tell us more about sort of your evaluation process, you’ve, you’ve done a lot of seed investing, you’ve done a, you’ve done some later stage, but tell us about how you sort of, you know, operate when you’re meeting an entrepreneur for the first time, you know, how you’re getting into the details of the business, and ultimately evaluating the opportunity.

So I’m probably on the, you know, if you think about venture investing, as a blend of art and science, and I would define science as more analytical focused on the numbers going through the granular bits of the Excel right from the beginning to what I’m gonna go with the art, which is more intuitive, I tend to start the process very heavily on the intuitive, you know, I need to get a connection or a reaction that’s almost visceral, to get excited. You know, I see well over 1000 companies a year and that’s not that I sit down in 1000 hour meetings, it’s that I sit down in a couple of 101 on one meetings, like, demo days, where you listen to pieces from the stage conferences, where you sort of somebody says, Can I pitch you I mean, just you know, is a stunning number of things you get to get exposed to, which is why this is so incredibly enjoyable. sometimes frustrating, you know, if you hear 700 pitches over the course of nine months, and none of them get you excited, that can get a little bit debilitating. But overall, you keep going and keep going, keep going until you find that thing that makes you really excited to have to now shift over a little bit to Okay, let’s move into a bit more of the science. So I want to get excited about the idea I want to get excited about the people, I want to have that first meeting get me interested enough, I used to say to entrepreneurs all the time, and I still do actually, I can’t get to yes, in one meeting, even when I was a seed investor putting in a small check, I can get to know in one meeting, and I try very hard to say no, in the first meeting, if it’s not a fit, so there’s no ambiguity. Or I can get to I want to spend more time with you, right. And when I was a seed investor, it was just literally, first meeting leads the second meeting, second meeting needs a third meeting. And if I made it through three meetings, 95% chance, I’m handing you a check, quite literally, because when I was a seed investor, I did close by check. I like to shake people’s hands, I like to give them a check. I like to raise a glass and toast it and celebrate, I just don’t think people, people don’t celebrate fundings anymore, which is a little sad, because, you know, I still remember to this day that when I took my company public, we didn’t ever get to do our closing dinner. And I just that bothers me a great deal, it was a major life event, we didn’t go out and do that celebratory thing. So anyway, that process is still similar, I’m going to do my first meeting, I’m probably going to there’s a 5050 chance I’m going to do another meeting either by myself or bring more people in. And then we’re going to start to dig in a bit, I’d like to go sort of visit the office camp out a little bit, spend some time get used to what’s going on. I think people underestimate how important this sort of quote unquote dating part of fundraising is leading up to the marriage. Because if we get into business together, we’re looking at if you’re pursuing the kind of dream, I want to believe in seven to 10 year journey, and that’s a long time to spend with somebody, and particularly somebody that is going to be around at the same time, you know, an active venture investor, as a board member, they’re available. They’re, you know, this is not a once a quarter, I see this person and that’s it. So I think that that relationship, the more you can understand about what it might look like for both parties, the better. And so my favorite thing in the world is just to sort of spend a chunk of time in the office as if I wasn’t there. I mean, it’s not realistic, that I’m not really good at procedures there. But you know, it’d be nice to try until there’s a bunch of questions. It’s just like, show me how this business works. Let me dig into the data. Let me just sort of experience what you experienced. Let’s go through the numbers. Let’s go through the process. Let’s go through sort of all the things that make this important. What are the KPIs you care about? And it’s not that I’m not so much the one that’s just sitting there purely digging through the spreadsheets, I want to understand, here’s an analogy I use with an entrepreneur once. He was raising his round, he came to me and he showed me his deck and he and he got to the numbers page, and he showed me the chart. Classically hockey stick like and he said, What do you think? I was like, I don’t know. He said, Is this is this good? I was like, Well, how would I know? You’re showing me a cake? You’re not showing me the recipe. So like until I take a bite out of it. How am I gonna know what it’s like you know, if you if you want, you could build a cake of sawdust and grass Apple, and then cover it with icing. That’s a terrible cake. But from the outside, it looks phenomenal. Show me the ingredients that the queue to get here. Show me the theory show me the reality like, what are your beliefs that lead you to these numbers? That’s what I want to see. I want understand how you think I understand how the business is already executing, well understand how you think it’ll change over time. And yes, sometimes you can distill that almost always to some sort of set of numbers, you know, in FinTech CAC is very important. LTV is very important. You know, your loss rates are very important, all kinds of stuff, but, but I’m more about the conversation. So I can also understand how you got those numbers where you think they’re going, what the trend can look like, and, and what’s influenced them and you over time. And all those things, by the way, come on, you know, usually a little bit later, although it’s not like I’m taking the first meeting and not asking you, where you revenue run rates are and things like that. I mean, you got to know sort of the nuts and bolts of the business.

Right, right. Somebody asked me recently, you know, what are you looking for in teams, when you make an investment? And if I had to sum it up, in one word, I said, authenticity. So you know, how intimate of a connection does this team have with what they’re going after? I’m curious, do you look for teams that are really closely tied to what they’re going after? Or are not? I

think it varies. There’s often been a prejudice in Silicon Valley that outsiders are the ones that should disrupt inside businesses. And sometimes that can be true, but it comes with the danger that you really are learning everything from scratch. Now, in fairness, every entrepreneurial endeavor I ever did was new to me. And I had to learn it from scratch. So I’m certainly not scared by that. I also was always a single founder. So I’m not scared by that either. Both of those things have been successful for me as an entrepreneur, and in people I have funded, but you look at the overall mix. As an example, there’s a company I funded, called transfix, which is this awesome marketplace for freight for 18. Wheeled trucking, right? Yep, long haul truck loads. They also have a SAS component, where it’s almost like AWS for running your own system of trucks. So a lot of people on trucks, they’ll basically manage that for them as well. That business has a phenomenal team of two that founded it. Drew, came out of the trucking brokerage industry, he was actually born into a family that did that when they brought him home. They brought him home to a business that they had renamed after him, his co partner, as co founder, Jonathan, hardcore tech, right, he had come out of Gilt Groupe, where he had done a lot of very material work on the tech side, and he leads that tech team. And he is incredibly rigorous in the quality that he demands. And his hiring is exceptional. And so the blend of the person that understands the industry that they have wanted to see disrupted for so long, and the technical talent to help him do it is perfect. But you’ve also got somebody that’s young enough, and that has been watching this industry, and has seen where the challenges are and wants to fix them. So to me, that’s an awesome, awesome combination. The flip side, like think back to the beginning of Zenefits, Parker just went out and wanted to understand the world as it would change under the coming Obamacare. And he discovered this little reality, which was the brokers that were embedded in the sale of insurance into company, were mandated by law to be paid a certain amount. And he realized that represented a huge opportunity, and built a software product to give away so that he could get access as a lead gen mechanism to the ability to be the broker of record on those deals. Now, he didn’t have any experience in that space at all. So I know he discovered an opportunity, and he figured out a way to build into it. And for quite some time, that was the fastest growing SaaS company of all time. So there’s different ways people can come at it, I think, to your point of authenticity being the thing you believe you have to have. The one thing I think I absolutely have to have a belief in in an entrepreneur is tenacity. Because being an entrepreneur is so incredibly hard. Now I’m assuming a lot of things. I’m assuming that I’ve got a really smart, focused, intelligent, you know, entrepreneur, that’s going after something. I’m not assuming I’m sort of funding a lump. But with all the other stuff lining up the thing that I can’t lack of belief in is that tenacity, that ability to fight through, because it will get hard, it will get really really hard. And anybody that’s not been an entrepreneur before will massively underestimate what that means. And anybody that has been an entrepreneur before will conveniently forget how hard it got sometimes I think of it like, I don’t know, this is unfair, because I’ve never gone through it myself, although I’ve been through it alongside my wife, which is a tiny like 1% of what she went through. But childbirth for a woman, you know, I have to believe that if any woman truly remembered with vivid detail, the amount of pain it took to bring that first child into the world, it’d be unlikely that they would ever have a second. And yet we all end up, we’re not all, many of us, I have three children, you know, all of a sudden, all that disappears, the wonder of that connection with the baby, all the pain is forgotten. And the next time, you’re more than happy to go and do it again. So entrepreneurs can be like that, we can have all kinds of pain. The he or she of the entrepreneur, in this case, can look back and primarily remember the glory and not remember the slog, and started again, but first time entrepreneurs are facing, there’s a, someone said to me once you need a certain amount of naivete. Ignorance is your friend. When you don’t know how painful and hard it’s gonna be, it’s much more likely you’re going to try it. And when you face that reality, when you stare in the valley of death, when you have those issues that are just incredibly painful, and it’s an incredibly lonely thing. You’ve got to be able to push through, and that’s something inside of you. That’s not the market, that’s nothing else that’s the person either chooses to keep going, or they don’t. And if they don’t, there’s not a lot of hope. Yeah,

I couldn’t agree more I mean, tenacity to it’s a prerequisite. I mean, this is probably the most challenging area to be in, and some of the most challenging problems and the majority, even the good ones fail. But yeah, just connecting those two points with authenticity and tenacity. Even in the case of, you know, Zenefits, I’m not always looking for founders that have a, you know, deep history in a sector, for instance, but if they really understand the problem they’re going after, and if the story resonates in a really authentic way, it can be interesting. So, you know, I want to hear more about sort of during your process, red flags. So let’s say you’ve, you’ve met with the founder, you’ve done a meeting, and over the course of the next couple of meetings, you lose conviction. Are there some common reasons or common red flags that that seemed to happen with some frequency that cause you to lose some conviction in the team or the founders? Sure. And

I think this ties very closely to the conversation we just had, and I want to honor your point on authenticity, you know, you, you want to believe somebody’s in this for the right reasons, meaning they’re, they’re legitimately in this for whatever they’re putting forward as their goal, that they are authentically committed to the thing they’re putting forward versus, here, this term that came up while back, watch for openers where it’s more of a game and a story. And sometimes you’ll go through that first session, and it’ll all be exciting. And the next time you’ll sort of start to feel like, Huh, I wonder if this is just a, it’s just a game. not that common. But it happens. There’s a few organizations out there that are masterful at teaching their entrepreneurs how to game the system, that almost think of the entrepreneur investor relationship as one that is more adversarial than than it actually is. Because I think it should be very cooperative. I’m not saying every investor is that way. But you know, the, the problem is, sometimes you have, you have a victim issue where an entrepreneur that had a bad investor and a bad relationship and a bad outcome can then take forward that bitterness and those messages, as if it’s a little bit of the blind man, the elephant, right? There’s lots of different types of VCs. And if you’re the person that grabbed onto the leg and the leg was the bad experience, and then your things didn’t go well, but then you end up in a position to teach other entrepreneurs while you’re going to teach them pretty bad lessons. And that sort of negativity and acrimony structure between entrepreneur and investor is a dangerous lesson to teach because it shouldn’t be true. And it usually isn’t. So, anyway, I’m just mentioning that because these people and organizations will sort of have the program the playbook to teach their entrepreneurs. They’re like, this is basically the way you’re gonna get these people’s attention, you know, you’re gonna hook them with this hockey stick, even if the hockey stick is really meaningless, and on and on and on, you know, all these little bits. So, you know, maybe the word slick comes up, you know, if someone’s too package to slick, am I getting the real story? There’s, there’s one demo day I go to, and there’s many, so you can’t really necessarily infer which one this is. I’ll just leave it unnamed. And when I find an entrepreneur that I want to spend time with, and I want to learn about, I always expect it’s going to take me two or three times as long as anyplace else, because I’m gonna have to strip off all these layers of paint to get to the real entrepreneur underneath. And, you know, they’re just they’re so packaged. And so I’ve got My own methods for that, and I’ve done a handful investments and entrepreneurs out of that group. But it’s definitely a lot more work. And so you got to get under it. To find that person, you got to find the real person, what are they about really want to do, you know, again, I go back to seven to 10 year journey, I want to help you with your vision, if I don’t truly understand what you want to do, then we’re gonna end up in a really weird place. You know, it’s sort of the classic conversation around or here’s another, that we don’t know if it’s a red flag, because that portrays is negative, but I’ll call it a disconnect. Every entrepreneur has their own set of dreams. And they may or may not share those dreams with other people. And it’s really about what they need to achieve, to consider themselves a success. And to bring this to fruition, right. So everybody has been taught? Well, you got to tell people, it’s a billion dollar opportunity. You know, VCs don’t like opportunities, or at least a billion dollars. Okay, fine, whatever. But what if it doesn’t need to be a billion, billion dollar opportunity? What if for you to succeed $100 million outcome with you owning still. So you’ve only done two rounds, maybe even half that company is far more than you need to consider yourself successful, and you’re more than happy to take it? Well, if that’s the reality, you don’t want to take money from VCs. And you also a VC doesn’t want to be in a situation where they think they’re helping you build towards his multibillion dollar dream, that one day you show up very much wanting to take this offer for $100 million, you create all kinds of trauma and conflict. So when I say it’s not really a red flag so much, it’s a disconnect, I do want to understand what you need to achieve, because you’re not going to be benefited by reaching the end of the rainbow and not being allowed to step off of it to grab the pot of gold. Because you told me it was a billion dollar outcome you wanted. And you’re now asking me for permission to take $100 million outcome. That’s not a healthy place. And I very much want to avoid that. And now I want to avoid it. I want to help entrepreneurs understand to the extent I can even when I’m not an investor fit for them. How careful should be about the people they choose to, to bring into their business, so that they are not robbed of that opportunity. Because you know, both sides have to be honest and fair with each other about what they want to achieve. Otherwise, there’s just a lot of risk. So that sometimes comes up. And then lastly, sometimes it’s, I’ll go back to tenacity, do I really believe I continue to believe this person has the drive the spirit to get there. Some version of that I can’t even put it all into perfect words. It’s just, you know, I have a partner, I love it, Nea who I worked with, over the last 10 years. And I brought him a business once in a category that I didn’t, I wasn’t coaching him. But the opportunity sounded phenomenal. Team was super smart. I loved everything about it. And we met with him. And he really liked it. And he spent more time and later I went back and I said you know, you’re probably the smartest investor I know, from sort of pure brainpower, just absolute IQ points. But this is a category I don’t even think you understand, you know, is a chemistry based business. And I said, he said, Well, that’s fair, I have a surface level understanding of I don’t have a deep knowledge, as well. How do you get comfortable in this when you don’t have the science background to look at it? Other than bringing other people in? And he said, I just like to spend more and more time with the entrepreneurs, and I like to get more and more comfortable each time I do. I liked the progression. And I thought that was a great point. You know, it is I guess it flows part to the art part to the gut. But when each meeting, you continue to be comfortable and get more so and get more excited versus trending the other way. Because I don’t think any of us really know all the reasons why something makes us excited, or makes us unhappy. We can identify some of them. But the better we get at sort of sensing that, you know, ultimately, you end up in a place from a whole multitude of reasons I used to say to entrepreneurs, it takes 100 things to get to yes. Takes One thing to get to know. And sometimes that one thing is obvious, and sometimes it’s not. But you know, that’s what we’re paid for. Ultimately, right? We’re we’re supposed to be applying everything we’ve ever learned to making better decisions to try to choose the opportunities to pursue with the money we’ve been entrusted with by our LPs. And, and a lot of times, you just got to trust your gut. I think actually, it’s the hardest and most important thing any VC needs to develop is the ability to trust their gut, as long as their guts coming from the right source.

Those can be some of the tough ones. When you have 100 reasons to say yes. And you’ve got one reason to say no. Right? And the one reason comes up late in the press process. I’ve got one of those right now. And it’s been a real challenge, because I have every reason to say yes, there was so much positivity, it was moving in the right direction. We got very far in the conversation. And now I’ve got one decent reason to say no. And it’s eaten me up.

Yeah, that is a painful and I, all I can offer is I think there’s when I look backwards over this last 10 years, there are times when my gut told me to say no, and I didn’t. And I regret it. I was right. In every instance, I can remember. I know that because I lost my money. I lost it for reasons that might not have been obvious. But then I was like, oh, yeah, I always remember that mistake. Yeah, yep. And maybe there was one where I thought I should say no, and I didn’t say no. I said, Yes, I made money. And maybe I blocked that out of my mind. But I can remember, you know, I’ve learned I’ve had, I think less than 10% of my invested capital has been lost. So it’s not a big population of companies. And I can certainly remember, you know, three or four of them where something said me to say no, and yet I still stuck with Yes. The places though, where I did say no. And I regretted that we’re not sort of Oh, my gut screaming out to say no, it’s that I found one thing that scared me off, were sort of the point you made. Everything made sense to me, but there was a risk factor I wasn’t willing to tolerate. And I look back on that, you know, and that’s the place where I think I should have, and I still need to evolve. Because, you know, it took about three years as a seed investor before had any of my companies fail. And that seemed to me to be odd. You know, I’m investing in PowerPoint slides into companies that have you know, are raising a year’s worth of money. And yet, three years later, nobody has died, then the first one did. And so I started to worry that I was being too picky. And I wanted to loosen up and, and I loosened up in the wrong way. So when I think about this a lot, and when I look back, it’s like, I think the right way to quote unquote, loosen up, at least for me, was not to be put off just because there’s that one specific risk that gets in the way. Because if everything else lines up, well, risk is what we are once again paid to take. So taking rational risk in return for ridiculous returns, is what we’re paid to do. And that’s where I sort of want to make sure I’m getting better where I don’t, where it doesn’t line up in everything. It’s almost like it only takes one thing to say no, but I think those one things need to be a certain type of thing. You know, if 99 Things are right, and the one thing is wrong is that? Well, I’ll give you the exact example without naming the company, like everything about what they’re doing is a FinTech business. But as I did more and more diligence, I realized that there was a way that the suppliers of the thing that would be loaned against could game the system, so they didn’t have any skin in the game. And that worried me and I said, you know, that presents an opportunity for fraud. I think that can be very destructive, I think that would be an absolute, that would wipe out the company if they had a fraud hit during their seed round. So I didn’t find it. Less than a year later, something like six months later, I spent more time with the onshore because I stayed in touch, and they were killing it. And of course, I did fund it, and I paid 10 times what I would have paid, if I’d funded them the first time, brutal. So it reminds two things, you know, one, the risks that you take as a very, very, very early stage investor, are always going to be there. And if you spend enough time, you’re going to find lots and lots and lots of risks that scare you off, you got to be able to decide whether that risk is the reason you don’t do the deal, or whether it’s just the nature of the deal you’re getting into. And you should be willing to bear that risk. And you will sometimes have it worked out sometimes not. The second thing is being very early, you’re paid pretty well, in terms of multiple. And so you can afford to have in that case, if I’d made that decision eight times to do it and sort of not do it. I’m way ahead. Since I paid 10 times as much. Sure. Yeah. So, you know, I could have had seven companies fail one succeed. And I’m still in to that one company for a less expensive position for the same exact ownership than I would have been the other way. So it’s, but you know, we always question ourselves, I think I don’t know that there’s anybody out there that’s so confident, they’re absolutely concerned that they are you know, they’re absolutely convinced that they’re right. And I think there’s people that act that way, but that is usually just a layer of paint again, we all question ourselves in our how long we’ve been doing something because no one can predict the future. If we could, we wouldn’t be talking I’d be sitting in a basement trading options, right? Like I could make an unlimited amount of money if I could only be that accurate. Not gonna happen. And we’re not always right. And we know it because we funded things that didn’t work out really what we’re gonna be great and It requires luck, entrepreneurs have to get lucky. Lucky is the combination of working hard and having opportunity smack you in the face. Lucky is doing the right thing too early, but surviving long enough to be there, when it’s the right time, timing is critical. So you can’t control for that. And you just got to make the best decision, you can and believe that on a probability weighted basis, you’re doing it correctly. To the extent that’s possible, and you will know over time from the outcomes that come from it.

So what has been the biggest change in your approach over the past decade? You know, you’ve seen cycles come and go. And you’ve seen different tech companies come and go, you know, what has been the most significant sort of evolution or revolution in your investment approach? And also, you know, what have you? What have you seen for the industry? How has the early stage investing process and or cast the characters change? For

the industry has changed a lot? Let me come back to the industry, though, I think the thing that’s probably changed the most for me, is, is more just an evolution of thought. I think my bar has continued to go up. I think in the beginning, you know, there’s this natural desire for people to find a way to do something. It’s like when I meet, when I used to, during that first 10 years, I got to know over 300 VCs, it’s sort of the top 15 firms, because that was both important to me and my effort to be the guy that helped manage printers meet the right people, and important to the firm I was working with. And I’d meet whenever somebody new started one of those firms, I’d sit down with him over breakfast or lunch, and we’d stay in touch. And, you know, I’d always find out that they’d all learn some of the same lessons. And one of the lessons that almost every young VC learns, at some point is hey, I just figured out job is my job is to say no. And that’s a big statement. Because what it really boils down to is when you start out, you think you probably should find the reason to say yes, and you absolutely should not. But it is a bit of human nature, you know, when you’re starting this out, and you’re hearing people’s great ideas, and they’re fascinated by them, and they really want to do them and they’re committed, they’re energetic, and you think to yourself, Man, you know, what if this, what if that but your job isn’t to figure out why to say yes, say yes, your job is to figure out if you need to say no. And you say no, so consistently, that when you find that thing that you cannot say no to that’s the one you say yes to, that’s the level of passion and commitment you need to have. So part of that for me was, you would naturally gravitate towards things like well, you know, it could always be an outcome like this, or it could always be an outcome like that, or it could always get bought or blah, blah, blah, well, I’ve realized that we only have so much time, I can only do so many investments. And since I want to be involved, that investment number is not large. It’s not another 80 companies in the next 10 years. And even when I was doing eight companies a year, my rule was, I have to see you once a quarter, you can see me as many times as you want. So I was it’s not like I’m talking to these entrepreneurs every week, but I was sitting down with them physically, every single quarter, and often more. So that level of activity, while it became harder, with something I was very committed to it’s, I was born entrepreneur, I’m gonna die much more, I’m just living vicariously through other entrepreneurs every day. So what I came to realize is, I can’t afford to put that valuable asset of time. Whereas which is the way that I can apply my intellect, whatever I have to give, you know, part of that is, if I can help my entrepreneurs not make the mistakes I made awesome, because I made plenty. And if you can not suffer pain that I suffered, that’s all the better. And if there are things I did well, I can help you do better. That’s good, too. Right? I just raised the bar over time, pretty quickly. And in the beginning, it was one where I set it at, I want to only invest in companies I believe can be quote unquote, venture scale, and venture scale. To me it was a company that would be fundable in series A after I had seeded it by a tier one firm. And I spent time with a bunch of tier one firms and a bunch of partners and realized that this definition was where people came to that sort of the billion dollar and beyond outcome or as one particularly arrogant VC said to me once from a firm that I do not work for. He said, Ben, you know, people in this community sometimes brag about their 10 x’s. Some of you brag about their 100 x’s, and his quote was we don’t give an ass about those. We want the 1,000x and we’ve had four of them. Wow. And it was a pretty stunning comment. And I remember thinking, wow, that’s a very, very high bar. I also thought the guy was a flaming jerk. But I came to realize later how true that is. is to truly get the kind of ridiculous and amazing returns and impact that venture wants to be able to create power law is absolute here. And that huge outcome is the one that delivers everything for the entire fund. And it usually is one company that delivers everything for the entire fund. And so you’ve got to believe, when you look at any one company, that if you’re gonna invest in it, it has the ability to be the one that doesn’t just return the fund, but returns it in a multiple. And that’s a big thing to do, particularly when you’ve got a big fund. So I’d say I have consistently evolved, I no longer think a billion dollar outcome is big enough, I think it’s sort of like the minimum bar, and it’s probably too low. Wow. And I know that makes it hard. But I’m not, I’ve evolved to not even think about it as $1 amount. I love that we have inside of NDA that I very much adopted, which is unbounded upside. Because it’s a better way of explaining what I’ve been trying to explain for a long time. I don’t want to see any limits. I want to see businesses where if they work, I’m not worrying about defining it as a billion dollar outcome or a 500 billion outcome or a $5 billion outcome. It’s there’s no reason this business should have to stop. It just doesn’t have limits on it. And so I have continued to push forward to try to find that. Exactly. But amazingly, we as venture fund a whole lot of stuff that has a whole lot of different possibilities. Because they’re not that many of these, I mean, you’re just talking about single digit units a year at best. That’s fair. Now, on the ecosystem side, there’s been just an enormous amount of change over the last 12 years. When I started out, there was no such thing as seed. Now, there’s probably 536 active seed funds and another 536 being raised. There’s pre seed, I even heard somebody pitched me on pre incubation as a fun. You know, it sort of what does that even mean evolved into all these? I know, I don’t even know. I think it’s like, Hey, you, too, are thinking about dating? Why don’t we give you some money for that date? I mean, it’s like, what’s, what is that? I don’t even know. But it’s I guess, finding entrepreneurs before they go apply to some incubator is a very odd one. It doesn’t matter, people will find their place to play. Maybe it’s the first 50,000 instead of the first 500,000. But then you’ve got seed rounds, having raised up in size dramatically, you know, when I was doing this, in the beginning, I was actually saving money on intramurals yesterday. And we were remembering the good old days when he raised, he raised a half a million dollars. And that was a pretty normal seed round, a million dollars was a full size seed round. And if you were asking for a million and a half, you are coming as extremely arrogant. And there’s going to be something truly amazing about what you’re doing. And now a million is the low end. And you could do six, you could do 13 In some cases. So seed has truly taken over a lot of the series a territory, series A has truly become Series B for the most part. And you have this fragmentation in in funding sources. You also saw a lot of other things happen. So just to go through it and lightning speed. seed starts out as a couple of players. I mean, I was out there doing it. Obviously Josh Koppelman, Mike Nichols came out and started doing it, then it starts to build and build and build and people start to notice it. So then every venture firm jumps in and says, Hey, we gotta do see, we don’t want to miss out. But then that doesn’t work out the way they think. So they run away, and they don’t do seed anymore. And they come right back in, and they do it better. So, you know, now it’s reached a reasonable equilibrium, at least for the venture firms to figure out how to handle see, but those seed investors that have done well, with some exceptions, because they’ve raised so much money are now crossing over into Series A. So it’s not just that seed is the new series A is that seed investors themselves are bidding for series A’s. They’re not in our pre empting their own series A’s are keeping serious eyes out of the market, and are trumping other investors term sheets for the series A’s that they have in their portfolio. Sure. And there’s an investment that’s not the case that remain ecosystem players, but that creates a level of challenge because, you know, if you’re, you can be my colleague or you can be my competitor, right? But it’s sort of hard to be both.

Well, when incentives are structured for AUM, then, you know, firms want to get bigger if they have some success.

Yeah, you know, if you look at sort of firms going bigger there’s a one of my buddies recently so he really feels like venture itself is going in that same path. You know, it’s gonna be a tale of two cities was where I’d put it, because you have firms obviously, any is very large, firm. And there is a logical case For having larger and larger, it’s within certain ranges and limits. But then you also have firms that stay very dedicated to being small, where you’ve got Sequoia and benchmark or two classic examples where they’re sort of $400 million, and they keep it there. Now they create other funds, or it can be the India fund or the China Fund or the growth fund or blah, blah, blah. But there’s, there’s a argument to be made, that you end up in a tale of two. So you got what I’m almost going to stick with the concept of boutique, you’ve got sort of Sequoia benchmark, small, concentrated, highly focused firms that raise every call it two years, three years, whatever their cycle is. And then you got larger, where you can be multistage and you can, you can basically not have to because NEA is never has always been a single fund. It’s not like there’s an opportunity fund or a growth fund, right? It is one fund made up of a lot of people doing different things. So when you go downstream, though, to seed, you can only be so big. I mean, you’re just you can’t have enough people and enough deals to deploy more than a certain amount. Yeah, in seed stage companies, which is where you should have the competitive advantage and where you have the brand where you’re going to make all your multiples, in my opinion. But you can certainly double down your own company. So lo and behold, opportunity funds, you know, SPVs Yep. And so you do the seed, but when it works, you then do another round and the A and he’s shoving a bunch of money in the B and, you know, like you said, when assets under management are what matters. And they matter to the people because of the fees they get. They’re going to try to grow them. But I’d rather have the carry, I’d always rather have the carry than the fees. And

with you on that. You know, I was reading through this article on TechCrunch about sort of this crash and VC funding, particularly at the early stages. What are your thoughts on why the early stage volume of deals is so far down?

Yeah, I did. I came across, I tweeted it out. And I don’t tweet out a lot of stuff. And I totally agree. What’s happened is you have Well, there’s two things, there’s both there’s the entrepreneur side, and there’s the sources of capital side, you basically seen in many of the early stages seed a excetera, that there is not a smaller amount of capital, but there is a significantly smaller amount of deals. And this comes down to fewer deals being raised at larger sizes. And a part of this is the result of the fact that what used to be a million dollar seed deal can now be for you can’t quadruple the size. And I’m not sure what the I can’t remember I did see the actual number of the average seed deal has gone up. But I think it’s 3x something like that. So that alone moves up the amount. But when you’re doing that, you’re going to be choosier, fewer people are going to get that level of funding commitment, etc, etc. The flip side, though, is I think you’re seeing the beginning of something that’s going to continue across those seed funds. Remember that when I started out, there weren’t none. Actually, I guess Josh Kaufman started first round. A week before I joined, it was pretty, pretty close to the same time, I’m not going to take credit for being the first guy to see. But certainly, there was a tiny, tiny handful, I would be very surprised if you can count all of us on more than one hand, I think it was a single hand with a pupil. Wow. But now you got a stunning amount. I know from my own experience, I remember I was you know, there’s a bunch of different firms that had been talking to me over time, and I was talking to them about sort of what the thinking was. And they said, Well, you know, we’ve met with a whole lot of the seed guys, we’ve met with them all. And by that I mean seed guys that would be willing to take a job with a venture firm because I had this unique role where I was running the seed practice for another organization. And even though I had the right to call an investment on capital, it wasn’t like I was sitting on my own fund so you know, you raise a fund it’s not that realistic that you’re gonna go go off somewhere else. But depending on your situation, I guess maybe it could be in more cases I thought and their bottom line point was while they really liked what I had been able to achieve in terms of returns and everything else I had done in the organization they looked at all these other folks and could not find people that had been able to demonstrate that didn’t not they were not able to find these people that had built good names for themselves that had actually delivered return there’s actually delivered exciting companies except maybe in a press way so there’s a saying a buddy of mine said wants to meet I love when you go out to raise a fund your first fund is based on quote unquote good looks. This looks like a guy or gal that could do this. Their background seems right they got a good methodology. They got a good network. They’re gonna put some money in they look good. Fun number two is looks good so far. Looks like your stuff is going fine. You’ve gotten into some deals your markups are sort of starting to happen. Looks good so far. Fine. We’ll give you some more money for put into it all seems good. Fun three, show me the money. And I think that’s where people are right now. I think a lot of these young funds are in Show Me the Money time and I don’t think A lot of them are able to do it, which means they’re going to end up being zombie funds or not going to survive. Interesting. So that also puts pressure because when you’re not, you know, as it works, you raise the money, you deploy the money, when you’ve deployed 70% of it, you gotta raise more money to do it again, when you can’t raise more money, it’s not like that remaining 30% miraculously spreads its wings and flies and becomes more money. And you can’t do that many deals. So I think it’s a combination of things are happening on both sides. And that is going to mean fewer, higher quality, larger deals being done for the foreseeable future. We’re not even gonna start talking about sort of the soft banks of the world, because that just, that just shows you that can happen all the way through the ecosystem. Ben,

if we can feature any topic or guest here on the program, What topic do you think should be addressed? And who would you like to hear speak about it?

Well, I have a selfish desire to see decision making topics focused on so as an example, if I could have one group of people to ask questions, to understand how to become a better investor. It would be not around the topic of investing, it’d be around the topic of making decisions as a group. Because whether that’s entrepreneurs in the executive team, or in my case, partners in a venture firm, having smart people that are highly achieved, make better decisions together, I think needs constant thought. So my answer would be just purely for Ben Harrison, I’d love to hear the people in the Supreme Court. The judges talk about how they spend their lives together with aggressively different views, remain focused on creating the best possible outcomes, make better decisions, and stay friendly. You know, you know, to have sort of the extreme conservative and the extreme liberal talking about how they navigate that retain the integrity of their views, while still having vigorous, intelligent, useful debate. Barring that, you know, Dolly, go from Bridgewater is now out there talking about good decision making quite a bit. So he’s always good target. He seems to like to get the word spread.

Those are good. Those are good. And then finally, here, Ben, what’s the best way for listeners to connect with you?

So I’m pretty good about I’m on Twitter at the Nourison. But I’m not. I’m not sure I ever direct respond to anything. But I would say there’s, there’s what’s a good safe way? I’m okay with people emailing me. They can use my be Nourison BNA, Ra si n at any a.com If people have an idea, the only caveat I’ll put to that, you know, having now given my email out openly to the entire world if they want it is I am more than happy to hear from somebody by email. Having said that, that does not mean there will be a reply. I will read it. But if it’s not a fit, I’m not going to send 100 No, thank you. I’m just not going to respond. For the ones that are of interest. I certainly will. So happy to receive the email. I’m not committing to necessarily responding to the email. Well,

Ben, this was a lot of fun. I’m glad that Vic Pascucci was able to link us up and look forward to connecting next time I’m out in the bay. Great.

And I think we’re gonna do one more thing I’ll tell you about which one is live, I’ll reach out and you can amend it. I’m actually creating an app so people can pitch me in one minute in video. And then they will get guaranteed a one minute response. In video. It will not be, you know, quick, we’ll have a backlog, one would hope. But that way someone can give an elevator pitch and get an elevator response and know exactly what at least one VC is thinking and where they might want to focus on in terms of things either for their pitcher for their business. So I love it. When that’s ready. I’ll get it to you can add it to this.

What are you? What are you going to call it?

The markup was just called Pitch Bend. Just got to figure out where to connect it in. Okay, so maybe that’s what it’ll be called. Maybe it’ll be called Pitch Bend.

All right. We’ll go ahead and add that to the interview then. Well, thanks again, Ben. Appreciate the time. I I appreciate your patience, too. And going a little over here and look forward to connecting again soon.

All right. Thanks to you for all the time and this is a lot of fun. I look forward to hearing it.

All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot them an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently thanks so much for listening

Good day