180. The Self-Made Engineer, Angel, and Venture Capitalist (Cyan Banister)

180. The Self-Made Engineer, Angel, and Venture Capitalist (Cyan Banister)

Cyan Banister of Founders Fund joins Nick to discuss the Self-Made Engineer, Angel, and Venture Capitalist. In this episode, we cover:

  • Background and path to venture?
  • Where along the way did you meet Scott? Did you guys every consider raising your own fund?
  • How early-stage do you invest at Founder’s Fund?
  • How do you work with founders post-investment?
  • Have you funded founders with non-traditional backgrounds like yourself?
  • How has the approach changed from your time as an angel to now as a VC ?
  • Do you have any good stories or learnings from Naval Ravikant?
  • Talk about sourcing and how you identified a large number of unicorns very early-on.
  • A quote of your’s: “The most promising companies tend to share a few characteristics: They are not popular. They are difficult to assess. They have technology risk, but not insurmountable technology risk. If they succeed, their technology will be extraordinarily valuable. We have no idea what these companies might look like, only that they probably will share these characteristics. Entrepreneurs often know better than we do what might be enormously valuable in the future.” — It’s a very humble approach and one that resonates with me and many others. Can you elaborate on the thesis and characteristics of founders that are the best fit for Founders Fund?
  • What’s your take on VCs that ‘top-grade’ CEOs of their portfolio companies, on average, within three years of investment?
  • What’s your take on contrarian vs. conformist investing… first, how do you even determine what is contrarian and then what’s your take on how each ties to performance?

Guest Links:

Key Takeaways:

  1. Cyan shares her incredible journey and how she persevered through homelessness to land her first job and start her first small business, to ultimately establish herself in the Venture community and achieve all of her current success.
  2. As an angel investor, Cyan was able to build her network and discover opportunities with companies like Uber, Thumbtack and PokemonGo by consistently attending and speaking on panels at conferences like Disrupt among others.
  3. Through working with Angel List, Cyan was approached by Founders Fund and jumped on board without hesitation. Cyan states that although she could have made more money investing by herself, joining Founders Fund allows her to pick the brains of 11 very talented investors, learn the full spectrum of investing and she also gained an understanding of how consensus investing works. 
  4. At Founders Fund, Cyan is an early stage investor, going as early as investing in very talented people who might not necessarily know their product, but show immense potential. She likes to sit between that early stage and Series A. 
  5. Cyan shares her “hands off” support approach with founders. She keeps a line of communication open at all times but takes a step back to allow her founders to come to her with their needs rather than bombarding them. 
  6. The idea of being “judicious with your magic bullets” when working with founders or other firms. Cyan elaborates on this idea of being selective and only referring partners that she is confident are a good match for her founders, rather than leaving that determination up to them while sifting through numerous resumes. 
  7. Cyan believes that every form of investing is impact investing. Companies like Postmates, Lyft, Uber and Door Dash she views as impact investments being that they are expanding the potential for individuals to gain flexibility in their work lives. 
  8. Because of her nontraditional path to investing, Cyan looks for investment opportunities in companies that are dedicated to giving back or helping people in need. For example, a company that helped the homeless find employment opportunities by financing their dentures.
  9. How her approach has changed from her time as an angel investor, to now thinking about the dynamics of her partnership and not only assessing potential investments from her perspective but also the perspective of her partners.
  10. Important characteristics that Cyan looks for in early stage startups include, defensibility, an edge they may have over the competition, how good at fundraising they are and they’re growth potential in the next 6 months to a year, among others. 
  11. At Founder’s Fund they are strongly against “founder topgrading.” They do everything possible to make certain the founder is at the helm of the company by helping them maintain a position of power to avoid the possibility of them being removed. 
  12. Cyan shares her experiences working at Angel List with Naval and how his experimental and mentoring approach allowed her the freedom to throw their first conference and launch the Angel List Radio Show. 

Transcribed with AI:

0:03
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

0:22
Welcome back to TFR today the self taught engineer entrepreneur and one of the top angels of the past decade Cyan Banister joins us. So I became the second female partner at Founders Fund when she joined in 2016 as she made the leap from Angel to Vc. On today’s show, we cover her path from poverty to tech, the inspiration that helped her realize her potential, how the Dream Team of angel investors Scott and Sian Bannister came together, why they didn’t raise their own fund in the hesitation of joining others. Her experience at AngelList with folks like navall and Michael Dougherty, we talk about Founders Fund and why their approach is grounded in humility. We discuss the prevalence of startup founders that are replaced by VCs with new CEOs. And we finish up with science candid thoughts on founders investing and how to provide value instead of extracting it. Sign is a brilliant self assured and honest venture capitalist. There are a few like her and it was a real pleasure interviewing her. I hope you enjoy it.

1:31
sigh in bed Bannister joins us today from San Francisco Zion his partner at Founders Fund. Founders Fund is a San Francisco based venture capital firm investing in companies building revolutionary technologies with investments in Paypal, Airbnb, Facebook, Palantir, and SpaceX, among others. Prior to Founders Fund, Sian was an early angel investor in Uber Postmates, affirm and Niantic the creator of pokemons go, a self taught engineer and entrepreneur scientists held a number of technical leadership positions throughout her career, along with her husband, Scott, she was TechCrunch, Angel of the year in 2016. Simon, welcome to the program.

2:10
Glad to be here. Thank you.

2:11
So science, you know, you have a really interesting story and background that led you to where you’re at today. Feel free to start wherever you think makes the most sense. But can you tell us a bit about your life experience and how that led to where you’re at now?

2:26
Sure, yeah. So I am a high school dropout. I managed to make it through. I mean, I think it was the 10th grade of high school. I don’t have a college education at all. And this was something that I was very private about for a long time, partially just because of in our industry, there’s a heavy bias towards MIT, Stanford, Georgia Tech, and Harvard Business School. And so I always just sort of felt like my experience. And the path that I took was a little bit more shameful. And, you know, it wasn’t until I started talking to people that I realized, like how unique of a path that really was, and that I should actually be proud of it. And it’s worth telling, actually. And so, when I was 15 years old, I was homeless, and how I became homeless is, to me a little bit less interesting than kind of how I got off the streets. Part of it was, you know, you’re in the situation where you don’t really have a lot of choices, you have to figure out day by day, how to survive, you’ve got to figure out how you’re going to eat, how you’re going to bathe, where you’re going to sleep, and what that day’s activities are going to be, you can’t really think about tomorrow or a week from now or a year from now. And I most certainly never, ever, ever thought I’d be a venture capitalist. So that was like the furthest from my mind. For me, I would have been happy to land a job at Subway sandwiches or Jack in the Box, or anywhere where I could just make a living in some way. And when I was on the streets, that was very difficult to do because it’s hard to be clean. It’s hard to schedule around a job when you have to make all these other things happen in your life. It’s just very difficult to do so a lot of the things that I did to make money when I was on the streets, were selling jewelry, you know, collecting books that people gave away and reselling them to bookstores or clothing donations and going to Buffalo Exchange and selling them to Buffalo Exchange selling art, poetry, you know, you name it, I tried everything to try to make some money and some days that I made $1 And sometimes I made $20 But you know, that’s what often mean the difference between having a hamburger or you know, my favorite thing in the world was a Vietnamese rice bowl with vegetables. So to me, that was decadence. And I eventually, with the help of, you know, an amazing person in my life, there was a woman named Karen Brayton, she really helped me and she was my boyfriend at the time, his mother, and she agreed to take me in for a period of time. And she started mentoring me and started, you know, basically teaching me really important concepts like, you know, looking people in the eye, when they talk to you, you know, she charged me rent, I had to figure out how to pay rent, you know, I got my first job, working at a mall working at a fried fish place. And then I started to have a purpose. From that point on, you know, I was able to make enough money to go and live on my own, which was fantastic, because you know, not having to worry about where you’re going to eat or take a shower became less of an issue. But then it became sort of paycheck to paycheck problems, which a lot of people in America face in in the world, you know, trying to figure out, can I afford groceries? Can I buy socks? So I made minimum wage. And that’s when I started dreaming. For the first time in my life, though, I don’t think that before that I had any dreams. And I started thinking about why don’t I start a business? Like why don’t I? You know, before this, I had sold jewelry and art and poetry and things like that. What if I made T shirts, and so I started silk screening T shirts and selling T shirts that were like punk rock band T shirts, and made a living that way some extra income, was having a job having my first paycheck. Having my first small business that got me hooked on the concept of capitalism. I think before these moments in my life, I thought of capitalism as being this evil thing. You know, that that’s basically what was in the music that I listened to. It’s what my friends talked about, you know, it, it was the root of all evil. Sure, you know, the reason why the reason why I didn’t have anything on my friends didn’t have anything was because of those dirty capitalists.

7:13
Some Rage Against the Machine today, and it was certainly anti capitalist. Oh,

7:17
yeah. All my music at the time was so you know, a lot of the angsty punk rock, you know, industrial music was very anti capitalist. So I started to think about it in a very different way. And I started to think about the music I was listening to in a very different way. And so I started the great music purge of the time, I started listening to techno music. And I was like, I’m not going to listen to music with lyrics anymore. I’m not going to identify with what other people are trying to tell me is right and wrong. And I’m going to try to figure out who I am. And that was actually a really pivotal point in my life, I got rid of all my band T shirts. I started not advertising for for anyone on my body. And I started going to just really interesting political meetups that I found to try to figure out what politics were even all about, because I didn’t have that luxury before it even really think about any of that either. You know, I just I really started getting into just again, thinking about the future. And it was around this time that I met a gentleman by the name of Chris Collins, who probably is the single most important turning point person in my life. I saw him walking by one day, and he was wearing an item of clothing that I had made and sold. And it was my first time seeing a customer of mine walking around on the streets. Wow. So I stopped him. And I was like, Hey, I made that. And he was like, he’s like, Oh, cool. And he sat down, started talking to me, told me that his mom had a sign shop, and I should come over and hang out with him and his mom, and I didn’t end up doing it. Because I don’t know, there’s something about the situation was just maybe a little too intense for me. And I didn’t hang out with Chris. But what happened was, it was several months later, I saw him at a coffee shop that I hung out a lot at. And he was sitting there and he was in front of this laptop and the glow was on his face. And I was kind of like a mosquito or a moth to a flame. You know, I just like came over there. And I was like, what is that? And I recognized him and I was like, Oh, you’re that guy that bought my stuff? He’s like, Yeah, you never called me and I was like, oh, let’s hang out right now. So we hung out. And we’ve been hanging out ever since he’s still to this day, one of my best friends in the world. And we see each other weekly. We talk on WhatsApp, he’s one of the best human beings you could ever know. And he is the person that I credit for getting into technology, because he saw that I was capable. He’s one of these people that sees things that everyone’s capable and he’s very inspiring. Schmidle and he’s really positive. And so he told me that, you know, you can code you can be a system and you could be anything you want to be. And this is the first time that anyone had ever said these things to me. Wow. You know, and I never had anybody telling me I could be anything. You know, most people thought that no offense sorry, this is blunt, but most people thought I’d be dead, or found in a dumpster somewhere. By the time I was 22, probably pretty sobering thought. But nobody ever said like, you’re, you’re smart, and you’re capable of a lot until Chris. So I started hanging out with him. And through him, I met extraordinary friends who are also still friends to this day. And I started developing a better friendship circle. And I don’t want to disparage the friends that I had, because they were good friends. But they were friends that were not pursuing their passions. They were not entrepreneurial, they were not into technology. They also didn’t appreciate capitalism, we kind of outgrew each other. And so I found where I belonged. And I belonged with this group of computer engineer hacker types that really showed me the ropes and helped me to eventually get my first technology job. From there, I taught myself how to code, how to be a sysadmin, and a network engineer. And there was another person who changed my life. His name’s Lee Burton, who gave me my very first sysadmin job, again, he sent me on a trajectory that was like a rocket ship. From that point forward. You know, from there, I came to Silicon Valley, I went from making like 12 $14 an hour to making, you know, 65 $70,000, which I would have never dreamed was even possible. I worked with a bunch of different startups, I worked with a bunch of different internet service providers. And eventually, I landed myself at a company called Iron port. At this point, I was established as a sysadmin, I had managed engineering teams, I had some tech background and experience. And if I was a senior manager, so far cry from the girl on the street, searching for a bagel and some cream cheese. And I had my very first exit, which was, again, profoundly life changing. So this equity that I had in this company, because I remember trading more equity rather than salary. So every time you know, I would get a promotion, and they would ask to give me more salary, I would ask for more equity. And I’m really glad I did. So, you know, I ended up with just an incredible liquidity event. And at that point, I had started dating my now husband, Scott banister, maybe it’s a little scandalous in this day and age, but he was the founder of iron port, you know, but we didn’t, I was not a his direct report. And we didn’t work together. You know, he, I asked him what I should be doing with the money that I made. And he said, Well, you could go the stock market route, you could buy property, or you could do exactly what I do, which is you go and put it into high risk startups. And I was like, What are you talking about? He’s like Angel investing. So I’ve never heard of angel investing before. And this is another one of those Chris Collins moments, like my husband basically said, like, look, you’re smart enough. And you are an early adopter of just about just everything like you were on Twitter, early, you found out about Facebook early here on Instagram early, you know, all of these technologies long before I do, or some of my friends do. And these are companies that I want to invest in. So why don’t we team up together, and I’ll show you the ropes. And you couldn’t ask for a better mentor than my husband. At that point. He had already had a decade of experience. He’s going on over 20 years now of investing experience. Wow. I mean, the guy can like any sort of term sheet, any sort of anything like he maybe I shouldn’t say this. He doesn’t have to seek legal counsel just put it that way. He can, he can do it all himself. So he quickly identified my husband’s very, I wouldn’t say shy, he’s very antisocial. And he’s an introvert. A lot of the deals that he would get were in network. And so like, they were people from x PE Powell X iron port X link exchange, and not really outside of that, you know, unless Max Levchin, or somebody would email him and just say, Hey, I’ve got this friend who’s doing this thing. And it’s really interesting. He never really went outside of that sphere. He started to tap out all of those opportunities, because you can only do so much of that. And eventually everybody’s employed and has started companies and you have to wait another seven years, right? So he said, Why don’t you go to disrupt and all of these dinners and these events and just see what you find? You know, and so we developed this Whole thing where I was out being the public face of what we jokingly call banister capital, which is not a venture firm, it’s just him and I. It’s just I called it banister capital because it got me into events. It’s funny, because if you’re an angel investor, you don’t get invited to a lot of things. But as soon as you put the word capital at the end, it’s legit. It’s true. And suddenly, like I was on panels, I didn’t have any speaking gigs until I put capital at the end of my, my name. And then suddenly, I started getting all these speaking gigs, it was really funny.

15:33
A little bit of a hack, a funny hack. But from this, you know, it worked. So we discovered Uber this way, we discovered thumbtack, Niantic PokemonGo, e shares, which became Carta. And this was all from going to these pitch competitions and going to networking events, and meeting people that are completely outside of our sphere, like we didn’t know, any of the Uber people, or anybody within any of those networks. So like, we were not part of the Google mafia. So it really paid off. And at some point, this was like 2007 2008, which was a really good vintage year for angel investing. There wasn’t a lot of competition. The problem after that was everybody started seeing how well some of these companies did like Airbnb, Uber, etc, Twitter, and everybody became a seed investor. So there was like, a ridiculous amount of seed capital being deployed. And I could argue that it’s still the case. And so it became harder and harder to search for those needles in the haystack, so to speak, and you’d go to demo days and sort of the signal was going down, you know, I’d walk away from them with less and less notes of companies I was interested in, in Scott was also getting fewer companies, and he was interested in so he said, you know, and the other thing is that the valuations were ridiculous. Yep. He said, Why don’t we just take a break for a while, you know, sit it out for a couple of years, and just see if the, if the market corrects itself, and we can always come back to this later, we’re fine. You know, I’m one of these people that really likes to work. And so I really couldn’t just sort of sit on my rear and do nothing. So I basically asked him like, Hey, do you mind if I go and work at a place like AngelList or something for a while? He said, Yeah, no worries, like, go do that. Because I know, you like being social, I know, you want to keep your network relevant, cuz that’s the other thing is, as you know, as an investor, you want to keep your network relevant. Yep. Otherwise, those opportunities just dry up. And then you have to go start over. And so I went to AngelList. For a while. That was great. You know, I love working with the ball. And that whole team was absolutely amazing. And what I did was I helped onboard angels like myself onto the platform by convincing them that it was a good idea to do so. Because I was actively syndicating deals on the platform for a period of time as well. And I guess this kind of sent this sort of international flair to the community that I was hireable. Because I think a lot of people didn’t think that I would ever want to work at a firm or with people, because we had our own thing going on for so long. So founders friend approached me and asked me if I wanted to join, and to be honest with you, like I don’t, I don’t think I would ever join another venture capital firm, if they’d asked me like, this is the only one because it’s always been my dream to work with Founders Fund in any capacity to be honest with you. Like, I probably wouldn’t come here. And I always joke about this and empty the trash. But no, I mean, I just have a lot of respect for the team, you know, to be able to spend time with them, and learn from the partners that I have here. It’s just incredible. I didn’t hesitate even though, one could argue that the economics really don’t make a lot of sense, if I’m so successful in Angel investing, because I can actually make a lot more money directly investing in companies myself. But the thing that I get out of this, I see a breadth of companies that I wouldn’t otherwise invest in. And I have the brains of 11 super talented, super smart, other people that I can talk to about anything from biotech to spacecraft sandwich delivery. And so these are things that, you know, I couldn’t do on my own, just with Scott, you know, we talked about it and he also thought it would be a really good opportunity for me to learn the full stack, if you will, of investing. Because as an angel investor, you toss VC deals, and you often don’t understand why they pass on them. You’re just like, what’s wrong with those people? How could they not see clearly that this is like the greatest deal on Earth? been, you know, many times? It’s like, what is wrong with them? Yep. But now that I’ve been on this side, I understand now like how consensus investing works and how Oh, how you have magic bullets with VCs and you, you should be very judicious about how you shoot them. And on what deals and what sort of benchmarks are looking for how, you know, the economics of a fund work, how the size of the fund matters, all sorts of things that just, I had no idea about. I have discovered in this process that I don’t like late stage investing, I guess it’s a good thing to learn. I really liked the beginning phase of a company where everybody is sort of bright eyed and naive. And they don’t know what they don’t know. You know, they’re out there trying different things, seeing what sticks. It’s fun. I like it ups is like series A Series B when it starts to get into all you’re looking at are spreadsheets. Yep. Yeah. You know, I just I lose interest. Yeah, I’ve sat on many, many series B meetings now. And, you know, when we go through the rundown afterwards, I just find myself my mind wandering, and I just couldn’t care less. It’s a good thing to realize, you know, I am not a late stage investor. I know it’s a long story. But that’s how I got here.

21:06
It’s amazing. I was just talking to a buddy of mine the other day, and he was he was calling me like spreadsheet guy or something like that. And I was like, buddy, you can’t, you know, misunderstand my job more. I don’t work with spreadsheets at all. People.

21:24
I hate spreadsheets.

21:27
So, you know, how early Are you able to go at Founders Fund? Can you do like, super early seed stuff precede stuff?

21:35
Yes, yes. So I just backed a company, where the founder, actually, they just as public, so I can’t talk about it. The founders, Roger Dickey, and he started Gigster. Before that, he started a company that was acquired by Zynga, that became Mafia Wars. He doesn’t even know what he’s gonna build yet. That’s how early it is. Wow. You know, I can write checks for really talented people that I think are gonna do really amazing things and know very little about what they’re going to do to series A is generally where I like to sit. And even though we are a large fund, we earmark about 2%, for early stage investing?

22:14
Well, that’s great, because the checks are smaller, too. So you probably do quite a few at the Oh, yeah,

22:19
you’re at least Yeah. As long as I can do my best to keep up with I mean, the hard part is servicing all of those founders. Right? Because at some point, it becomes kind of untenable, you have to either say I can’t offer you as much support as I would like, or pick and choose ones you want to work on. But you know, it could be I mean, we have hundreds of companies now in our early stage portfolio.

22:43
What is your your support? Approach? You know, how do you think about working with founders post investment,

22:51
I like to be pretty hands off. I’m not one of those meddling founders, or founders, investors apologize. Not a meddling founder, either. I’m not a meddling investor, I, I appreciate updates. In general, I wait until a founder reaches out to me with a very specific ask, where they say, you know, my life would be changed. If I could just meet this one person from Amazon, you know, I’ve tried everything reached out to this person, that person, I can’t meet this one person, can you help, or we’re having a really hard time hiring this one key engineering hire, that’s where I shine. And that’s where I like to help. Or a lot of times when I get called, it’s about things like HR related stuff, where someone’s dealing with a sensitive employee issue that they want help navigating, or a marketing issue, or PR, sometimes even PR crisis or just PR issue. You know, that’s how I like to do it. It’s just I’m available. And you message me when you need my health.

23:56
got it got it very similar to our firm not not to compare my firm to founders on by by any means, but but some some similarities there. So you said earlier that you try and be judicious with your magic bullets when working with other firms? Can you elaborate on that a bit? Kind of explain what that means?

24:14
Yeah, I mean, if I had a short stint in my life as a recruiter along this path, the story I was telling you, I was a recruiter for, I don’t know, eight months or so. And how I differentiated myself as a recruiter from all the other recruiters out there was I said, when I send you an email, you’re going to want to read it. And I’m not going to send you anyone that you’re not going to want to hire. You may only get one email from me a year, but it’s going to be one of the best engineers you’ve ever talked to in your life. People loved it, because they were just like, wow, like that’s so much better than having to sift through 50 resumes of garbage. It’s not that the people are poor or garbage, but the resumes are not good. They’re not a good match. How about that? I basically tell them like this one. resume I’m going to send you is going to be the one you want to look at. So I’m very similar when it comes to the companies that I want to send to other people, I want to have high signals so that when people see me end up in their inbox are like, this is going to be interesting, I want to look at this, and I should probably meet this founder, I tried to do my homework ahead of time to try to figure out which partner is the right partner for the company, I find that a lot of founders don’t necessarily always figure that out. And then most importantly, like what their fund size is, and whether or not this would even be a match for them. Because a lot of people have their own. Like, we have to have our 16% ownership, or they have their various different rules, like won’t participate with other funds, you know, so there’s, why am I sending it to them. So you got to do all that research in advance. And I’m very careful about doing that. And I think if I ever were to become a founder or angel investor, again, being armed with that information, I think, would make me more successful.

26:01
How do you build a relationship with, you know, the various folks in the network that may become really good partners down the road, we think about this a lot at the firm and kind of our ace in the hole is, we really need a, you know, a series B. So and so this series B firm, that’s such a great specialist, and, you know, advanced robotics and industrial applications, right? So our ace in the hole is we’ve got the podcast, so we can, you know, reach out to that person and hopefully schedule an interview, and then treat that as kind of the first connection point and building relationship. And we’ve been able to build a lot of relationships that way. But if you know, you know, if you’re this isn’t an organic process, but if you make an investment in a company, and then they get to a certain stage where there’s a set of, you know, partner investors that that would be great for them. Are you reaching out to those folks cold? Or do you try and build a relationship first, before you make a referral on behalf of a founder?

26:59
It’s a little bit of both, you know, there’s some people who’ve been here at our firm since the inception for 10 years. And so they have a deeper Rolodex and history than I have. Right. And so you can also lean on that and just say, okay, like, Can you pass this along to this person? And here’s why, you know, otherwise, you know, I have asked around for my partners, and I say, who at this firm, would be the best person for this company. This happened recently with seed stage company. And I was wondering who at Greylock would be the right person, it turned out was John Lilly, John Lilly just stepped out to become a venture partner. So it wasn’t a fit for him for that reason. But, you know, that’s, that’s how we kind of work around it. I think that building relationships, because we’re generalists here, we wouldn’t have enough time to build enough deep relationships for all of the sectors that we cover. Right? So because we’re not, we don’t have a sectorial focus. If we did, it would make a lot of sense for us to just go after just the people in those various sectors and have really deep relationships with them.

28:08
To back up a little bit, did you and Scott ever think about starting a fund managing money on behalf of others?

28:14
We’ve talked about it, we don’t like the idea of having LPs.

28:26
I just did a final closed on my first fund. And it’s, it’s it’s a new ballgame now.

28:31
Yeah. I mean, I think we’ve been approached several times. And I love LPs. I really do. It’s more about the overhead. You know, we can invest at a fun level. Personally, I’m not sure what we gain by having the overhead of investing other people’s money. It seems like an unnecessary burden. I think the only thing that we would consider is like one LP, that’s one of the things we’ve talked about. So like if we can find just one amazing partner, and we’re only talking to one person, and that would be a

29:04
sign Did you? Or have you had an experience yet, funding maybe a founder from a non traditional background, or maybe a company that has a mission dedicated to you know, something like folks living in poverty or providing, you know, access to upward mobility, or everyone comes on their show and says they have kind of a non traditional path of venture, but you take the cake. So I’m curious if there’s an element of that, that now manifests in, in your work at Founders Fund?

29:37
Yeah, so I think every form of investing is impact investing. So I have a lot of people who talk about impact investing and things like that. And I think, you know, a company like Postmates has an impact. There are people who now have flexibility in their work lives who ride, do ride sharing for Lyft or Uber or two deliver for Postmates or DoorDash. I think those investments are powerful. And a lot of people don’t look at them as impact investments, but I view them as such. And so I think that I’ve experimented with a few investments. I’m always curious if there’s a way to make a profitable company that does really interesting things for underserved communities. A good example of this was a founder named Rose broom, who’s amazing, by the way, and she started a company called hand up, the margins, I think, were just too thin to work with, because she rightfully, you know, gave a majority of the proceeds that were raised on the site to homeless people. And basically, the premise of the company was that it was a Patreon of sorts for homeless people, you could run into a homeless person, and they could give you their ID on hand up and tell you that they were crowdfunding for say dentures, or you could just go on hand up and then search for various different causes that you wanted to support. And you knew that none of these were, quote unquote, scams of any sort, because she would go through various agencies that were overseeing the disbursement of the money, and then you would see the end result and photographs, which was really rewarding. So one of the things I like to do was going back teeth for people, because kind of like what I was talking about when I was homeless, you can’t get a job if you smell bad, and you’re not washed. But it turns out, you really can’t get a job. If you have missing teeth. It’s the first thing that people look at as your smile. And when you talk, that became something that I love to do is backing people with their dentures, I was very proud to invest in that company, because she, she could have gone the nonprofit, she ended up becoming a nonprofit. But she really took a hard run at it for a couple of years as a for profit entity, raising venture capital. And so I do look for those opportunities. Because I do think that at some point, somebody’s going to figure out one of these types of companies and make it work. I couldn’t

32:02
agree more. How do you think your approach has changed from your time as an angel to now you know, as a VC for Founders Fund, you know, you look at opportunities differently or, you know, make investment decisions differently, or? Absolutely, yeah. So can you talk more about how that’s changed? Yeah,

32:20
so I used to think about if I make this investment, do I think it will 2030 40x on a 50k 100k check right? Now, I have to think about when it’s time for this company to raise their series A or B, what is my confidence level and their ability to convince the rest of my partners that we would write them a $5 million check. Also, what is my confidence level that they could be worth, you know, let’s just say $250 million. So not even a billion, just 250 million. These are things that I didn’t really think about as much as an angel investor, I just looked at the probability of A anywhere from a 10x and above. And now I have to think about sort of the dynamics of my partnership, which is super different. And there’s some deals that I see that I’m just like, this is really interesting. As an angel investor, I would totally invest in this. But once they reached a certain maturity level, as a business, I don’t think that I could convince anybody else here to participate, I think it’d be really hard. And so in those cases, I don’t invest. Is

33:27
it a business characteristic? Or are there certain things that kind of separate those really compelling, interesting high upside Angel decisions from the ones that you might be uncertain about their ability to get that sort of competence level from your partners as

33:42
well, we have a really strong monopoly thesis here. defensibility, and your moat is one of the number one things we look for and the early stages that’s almost sometimes near impossible to suss out. And so I have to try to figure out what sort of edge they have, like, is it a team? Is it IP? Is it brand, it’s most likely not a brand at that early stage? What is it that some uniquely special about them that I think is going to get them over the finish line later on? So I start arguing with my future self, if that makes any sense? Yeah, sure. So I started thinking about, okay, also, how good of a fundraiser is this person? Will they grow in the next six months to a year? Like do I think they will mature even in that regard, and become better fundraisers? Because sometimes people aren’t good at it, and then they become better and better? And then the other thing is, do I think that they will meet all the milestones that they’re spelling out for me with the capital that they’re raising? There’s a lot of things that I think about, and I try to pretend that I’m Bryan Singer Minh, or Peter Thiel, or any of my partners, and I’m just like, would this make it past them? And if I come back and say the answer’s no, then I don’t think that I should be doing it.

34:52
I love it. I mean, just on our team, you know, before we make a decision, one of the questions that I asked our folks is Could we put this founder in front of a VC at take your pick Sequoia XL benchmark Founders Fund today, and the only thing that would be missing is traction? That’s a question that we ask ourselves before we make a decision before we give a yes. We’ve been very lucky in our short four year career, but all of our companies have raised multiple up rounds and you know, have gone on to to extra more value, but doesn’t mean we’re going to have outsized outcomes. I think, you know, that’s still to be determined. But if we don’t have the confidence to recommend these folks, to people in our network that invest in Series A, it’s just not worth doing.

35:41
For us. Yeah, yeah, I really wish that I, I mean, if you’re an angel investor listening to this, then that is something I think is a great takeaway, because as an angel investor, I never that thought did not cross my mind. I know it doesn’t cross my husband’s mind, either. Like we never had a discussion about like, how, how good is this person at fundraising? What happened was we’d figure it out the hard way, they would go out to fundraise, and then they could it. I think that’s definitely something I will always ask myself in the future. What’s

36:10
your take on this phenomena of founder top grading, for lack of a better description? So there’s all these, there’s a prevalent number of VCs out there that end up removing their CEOs from portfolio companies, I think the average is within three years of investment. It’s much more frequent than I think advertised. Where do you guys stand on this at Founders Fund? You know, what do you think of the folks that invest in the company first with the idea that the CEO is going to have to be replaced in short order,

36:41
we are strongly strongly against it. And that could make us not a good partner for some other firms. And so it’s something that they should think about when introducing companies to us as well, we do everything in our power to make sure that the founder is at the helm of the company, or has a very important role at the company for as long as they want to be there. We’ve ran across this before. And then what happens is we vote as a bloc with the founder. And so sometimes we are added to boards, specifically so that we can give control back to the founders. So they’re in a more powerful situations where they can avoid being removed. You know, there are certain circumstances in which we would remove a founder like if they were participating in criminal activity, something like that would cause us to do something. But even if the founders performance is not great, we wouldn’t remove them. We don’t think it’s right to do so. And at that point, we would think that it was a sunk cost. And we should have done a better job.

37:42
You mentioned before that you had this time at AngelList, where you were working for, effectively a startup but a startup, you know, involved in democratization of capital and empowering people to you know, start the syndicates and fund around early stage companies. That’s how we got our start. We built a syndicate that eventually turned into a venture fund. But I’m wondering if you have any good stories or learnings from navall? Or nivi? Oh, sure. To the people that I feel I owe a huge debt of gratitude to and I love when folks come on the show and can talk about their experience with with either of them. Yeah,

38:19
so I didn’t work with Nivi that much. He was not in the office very much. So the only time I ever worked really, with Nivi was if my role kind of clashed with marketing, because he ran marketing for AngelList. So I mostly work with the ball. The ball is just this. I don’t know. He’s kind of like the spirit animal. Do like, is so zen and calm. And wise. So heaven also heaven love. Yeah. I mean, if you can spend an hour with that guy, you walk away, like so much smarter. He’s like one of probably my favorite people. I love a lot of people that I work with there. But he was definitely one of my favorite people to work with. You know, I think that the vol was willing to experiment in really crazy ways with his startup, when I joined, there was no management, you were either a salesperson or an engineer. So I was a salesperson. And then if you wanted to build anything, or you had an idea, you had to go and pitch an engineer and convince them to build the thing with you. The idea there was that a lot of organizations are driven by these product managers, or basically product people are salespeople. And they go and tell the engineers what to build. And he flipped it on its head and said, No, the engineers here decide what we built. That was very different. It caused you to be really scrappy, it’s kind of skunkworks. So like if you couldn’t get engineering resources, you either had to figure out how to code yourself, and make whatever it is you wanted to make. Or you had to cobble together interesting cloud resources and stuff like that to try to like make whatever experiment go that you wanted to run. But the cool thing that evolved would do is just give you complete autonomy to do. So he would say, as long as you’re a driven person, and you’re working towards the same set of goals that we have as a company on a quarterly basis, and we reach these goals, you can kind of work on whatever you want to work off. I love that, you know, because I’m definitely a person who is self driven. And I’m entrepreneurial. I felt like I was running my own little business. I just got to do what I wanted to do. And nobody stopped me. And that was really, really fantastic.

40:30
It’s very, it’s like a startup within a startup. Yes, yes.

40:33
Since then, I think they’ve adopted more traditional management techniques, I think they’ve migrated more towards I think Kevin laws is now running AngelList. I could be wrong about that. But I think he is. And then Michael Dougherty, who’s also a good friend of mine, he’s great is running a lot of the the day to day there, too. And he was the engineer I worked with the most while I was there. And so it’s really fantastic to see him in a leadership position. But you know, I had so much fun there, there was never a dull moment, I’ll just put it that way. The ball would come in, and he’d pull you aside, and he would just sprinkle some Zen magic around you. And then you just felt really calm and more enlightened than then you just go back to your what you’re doing. Wow.

41:21
You know, would you talk with him about angel investing? And, yeah, heuristics or, yeah,

41:28
he loves to talk about investing. You know, I would talk to him about some of the stuff that I was working on, he would tell me a little bit about what he was working on. The other cool thing about the office is it’s opened up to angel investors. So if you’re an angel investor, and you syndicate deals on the platform, you can just stop by they’re really cool about it. I found him to be very approachable, and and very cool. I love it. Even let me put, I put a conference together. I was like, hey, I want to throw a conference. Angeles. I’ve never thrown a conference before. And he’s like, go for it. I did. And it was fantastic. And he had a really good time. With Tyler Willis. I started the radio show. Oh, yeah. And AngelList radio. So that was another one of my projects while I was there. Yeah. No, Tyler. Well, yeah. And that will happen from Tyler and I were at YC Demo Day. And I thought his voice was spectacular. And I was like, hey, what? I’ve been thinking about doing a podcast for AngelList. Like, how would you like to be the host? Host like you have an amazing voice.

42:26
I can’t believe that you are behind that. That’s amazing. Yeah. When I saw that first come out, I’m

42:32
gonna be honest, it was, you know, frog in my throat scary moment. It’s like, oh, big guys on the block coming into the, you know, the angel VC podcast segment. But it was cool. It was really cool. Yeah,

42:44
so the music, my friend did the music intro for the whole segment. And then we went and rented a really cool podcast studio where we, you know, we went and worked out of, you know, he did most of the hard work, the interviewing and sourcing a lot of the guests. I did I sourced like, maybe, kinda like for the guests, but he, he did most of the heavy lifting. But he does have a tremendous ability to talk to people and pull them out and has a great voice. I thought he was an excellent host.

43:11
Yeah, he’s amazing. We’ve We’ve interacted a couple of times at conferences and on a on a few phone calls over the years. And he runs a great syndicate as well as everything else he does.

43:21
Yeah. But it’s funny types of things that you can do at AngelList. Right? Like, you’re just like, I want to start podcasts are like, great, go for it. Have fun,

43:31
yet. So funny enough, I have to tell you this, I don’t want to steer the conversation away. But so I’m raising a fund. And this guy named Richard frailing, who’s amazing, who no longer works, that angel list, but was there for some time, he reaches out to me, he says, Nick, you know, I hear you’re raising a fund. And we’ve been doing angel funds for a while, but we’re gonna do venture fund back office at AngelList. And so we’d love to work with you on it. And I said, Cool. You know, let’s hop on a call. So I get on a call with him, we start talking through details. And I’m like, great. So if you have a venture fund product, so you’ll have management fees, and he was like, oh, no, we don’t have that yet. So okay. How about capital calls? can you accommodate that own? No, we’re gonna have to, we’re gonna have to build that. And I said, management fee recycling. Do you have that? No, no, we don’t have that. So Richard, and I ended up working on this for like, probably five months together. And it was fun. It was a really fun sort of experience. But he just, you know, worked with the tech team, clearly, but they got it done. And so my full fund formation in administration is all hosted on AngelList. It’s amazing.

44:36
Isn’t it amazing? Like I just backed. So one of my friends nev runs his funds through there, too. It’s called shrug capital. And he did fund one through there. And he just did fun, too. I had the same question because he’s doing capital calls. And when you go through the funding, it asks you for the whole amount up front. And so I was like, What am I supposed to do? And it’s like I’m supposed to commit to a certain amount So I ended up just basically kind of hacking it and saying that I’m putting out a smaller amount as my quote unquote capital call. And then at some point, I’m assuming that they’ll just ask for more is a bit of a hack, but you’ll get there, they always do. So that’s the other thing is that stuff is a little bit rocky to start off with. But they eventually get to a point where it’s just it’s it’s ironclad.

45:20
Yep. Yep. Full circle back to the ironclad. Yeah. And they do they do have the upfront or the capital call structure spun up. So sure, if you email them, they could get that worked out. But Oh, good. If we could cover any topic here on the program, what topic he thinks should be addressed? And who would you like to hear speak about it?

45:40
Oh, wow, anybody?

45:42
Yeah, any topic. I mean, it’s, you know, it’s tech venture investing.

45:47
I mean, some of the things I’d like to hear about are pretty controversial. I’m kind of curious about diversity, and whether or not it is our place as venture capitalists to demand it from a portfolio company. I think diversity is good. And you definitely should have it. And I’m a big believer that you should hire people from all over the world, all different backgrounds. But at the same time, I think that we talk a lot about power dynamics. And one of the things I’ve been worried about is, is it an abuse of a power dynamic? I’ve seen a lot of investors asking their portfolio companies basically to say that they would only work with firms that have a female partner. And I’m not sure that that’s actually a good thing to ask. So I don’t know which person would be the right person to address this. But I think it’s something we should talk about, which is, I think it is good to have female partners at funds. But I don’t think any female partner at a fund wants to be a statistic, right? We want to be here on our own merit. And so I don’t, I don’t know this a complicated issue in which I don’t know if you want to touch it or not. But it’s definitely something I’ve been thinking about. It’s one of the reasons why I didn’t join the the all raise movement is I didn’t feel comfortable asking my founders to insist on that. It’s

47:16
an interesting question. Is it the role of the VC to insist on that? Right? Right. We

47:21
were in the position where we’re providing them precious capital. And I really feel like, even though the outcome may be good, is it an abuse of power? Yeah,

47:30
there’s a lot of issues with that requiring, you know, women partners at the firm issues with that, we see all these these men in the industry that have been accused of horrible things against women that, you know, then go and hire a female partner at their firm and say, it’s not that not for the novelty of it, but then, you know, everyone’s responding that, you know, it was just a reaction to what happens. So there’s all sorts of wacky responses and and think

47:59
about how horrible that is for her.

48:00
Exactly. Right. That instead of just being Yeah, I think

48:07
that, while it’s admirable, I don’t, I don’t have met a female partner yet, who’s excited to be sort of a checkbox, if you will, right? I don’t know. We definitely It definitely changes things. Like for example, because Lauren and I are here at Founders Fund, we look at more CPG and direct to consumer products than I think the team would have been comfortable looking at before. Lauren called many amazing opportunities early on, that the team kind of turned their nose up at because they were just like, we don’t we don’t understand why anybody would want to buy glossier, like, What are you talking about? Rent the Runway, like, why are people renting dresses, you know, there’s like, all these things that she brought up, and she was dead on about all of them. And I think now she’s taken very seriously. Because all of the when we look at like the person whose portfolio that we are jealous of we look at Kirsten Green from for runner, and how she’s nailed so many of these that we got so wrong that so many people got wrong. Is it because she’s female? Perhaps. But you know, that definitely. When you’re looking at products that you understand that you use, maybe you have an edge over a male counterpart? I’m not sure. But we we have seen an uptick in our interest, because I think there’s two of us, but I think that I definitely would, I mean, we we’ve CrunchBase just released a thing the other day, it was a diversity statistic. And we ranked number two, far as number of deals done, and we were like, 25% of the deals we’ve done, have female founders. And that’s not because we’re like trying to do that because that’s very goes very against what we believe in. It’s because these founders happen to be female and they happen to figure it out that we’re a good partner for them. And they walk through our door and they happen to have amazing companies. And that’s how it work for us anyway. So I don’t think they’re all here because they’re that number that statistic exists because I’m here.

50:08
It’s interesting sign. Is there an investor in particular that you look to for inspiration or maybe an investor that’s that you feel like has influenced you most? Oh,

50:19
yes. I really like Marc Andreessen. Kirsten green. Keith Raboy is definitely one of my favorites. Paul Graham braved the hot. Yeah. Rice. Great. I love her. I just hit

50:31
him on the on the show a couple months ago. Hunter walk just great as well. Yeah.

50:36
Oh, her name is escaping me right now. But I love her. She’s like one of the top syndicate leaders on AngelList. And I should know her name. Genoa ventures. Genuine. Yeah. Jenny rook. Yeah, yeah. She’s an unsung hero. Like she’s one of the best or is really, and nobody’s heard of her? Not really. I mean, she’s so good. You get to hear her speak. I mean, if you can get her on the show like she is. Legitimately amazing in

51:04
a backer syndicate and reach out tonight. Yeah, awesome. Sign. What’s the best way for listeners to connect with you?

51:11
Twitter, on Twitter. I’m at scientists. Cyan T is T and KanCare. Yep. That photograph is funny because it a friend of mine. And I did that. And it’s us trying to recreate what the future look like in the 80s.

51:30
I get it now. With that. There’s like some sort of like metal sunglass visors sort of thing. Yeah.

51:36
Yeah. So that’s what we were supposed to be living in today.

51:41
Love it. Love it. All right. Well, Twitter it is well sign this has been. This has been so much fun. I I really appreciate you know, the candid responses and just being yourself and being so approachable and spending your time with us today.

51:54
Absolutely. And thanks for having me on. I really appreciate the opportunity.

52:03
That we’ll wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us