245. Backing from Bezos, Zuckerberg, and Gates; Lessons from Reid Hoffman; and Building a Network-centric Venture Firm (Ben Casnocha)

Ben Casnocha of Village Global joins Nick to discuss Backing from Bezos, Zuckerberg, and Gates; Lessons from Reid Hoffman; and Building a Network-centric Venture Firm. In this episode, we cover:

– How have things changed for the firm since the pandemic broke?
– You’ve raised from some very big names in tech — Zuckerberg, Hoffman, Gates, Bezos, Greene, Blakely and many more.  How exactly did the formation of Village and fundraise from these notable tech leaders come together?
– Village has a unique approach to sourcing…  Tell us about the scout network?
– What’s the decision-making process, architecture when doing deals at this pace and volume?
– Many firms talk about their founder networks and Slack Groups.  But often if you ask founders, the density and connectivity of those networks are lacking.  What is it about your broad founder community that succeeds where others don’t?
– Worked with Reid Hoffman for two years… what were some of the key lessons from that experience w/ Reid?
– YC is in full swing right now… many investors I’ve chatted with this week are a bit dizzy with the number of companies they’re meeting with.  Do you invest in companies coming out of YC?
– What do you think the future holds for accelerators like YC?
– How do you determine when to make an exception on a deal?  We all have rules, check-size, valuation range, etc… how  do you know when to go off-thesis?
– What are your thoughts on the future of Valley-based investing vs. investing outside the Valley?
– Thoughts on all these large, multi-stage firms investing at seed and pre-seed?
– Capital Supply and concentration is at new levels in the Bay Area… especially for seed investors.  While it’s reasonable that more great companies will be built with the tools and opportunities available, this all won’t end well.  I’ve seen pricing spike and aggressive tactics changing from investors to get access to deal.  What are you observing and how do you think it plays out?

Transcribed with AI

Intro 0:02
welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is the full ratchet.

Nick Moran 0:17
Ben Casnocha joins us today from Berkeley. Ben is co founder and partner at Village global. Prior to village Ben founded and scaled several ventures and even spent a couple years as Chief of Staff for Reed Hoffman at LinkedIn. He’s an investor in companies including wagestream for thought and dark store amongst many others. And Ben is also co author of best selling books, the alliance in the startup of you, Ben, welcome to the show. Nick, thanks for having me. Of course, it’s great to finally have a chance to connect and for the audience’s sake, can you kind of walk through your backstory in your path to venture

Ben Casnocha 0:51
sure I grew up in the Bay Area and had been an entrepreneur my whole life. Really from before I could spell the word entrepreneur, I’ve always been that creating thing starting begs wanting to create businesses. In the sixth grade, I actually took a computer class at school, where the teacher forced us to memorize Apple computers think different television advertisement. So if you remember the ad from the the late 1980s, early 1990s, the people who are crazy enough to think they can change the world are the ones who do, I was forced to memorize that and recite that back to him word for word with perfection when I was 12 years old. And so that sort of think different mentality was sort of deep within me from a young age. But as I got older, I actually developed another passion, which is writing. And so my career to date has been going back and forth between entrepreneurship, which I love because of your ability to, like change the world and have huge impact. And writing, which I love, because it’s very intellectually stimulating. And you could explore a wide range of topics, even if it doesn’t, doesn’t always have a ton of impact on the world. So entrepreneurship and sort of thought work and writing work have been my two passions. And it only recently, the last three or four years have I devoted myself to becoming an investor and CO founding village global?

Nick Moran 2:06
You know, on the writing side, I’ve always been curious, you know, how does it work when you’re collaborating, you know, as co authors with with multiple folks, right, you wrote the alliance with Reid, and also with Chris, a old friend of the show, you know, how does that work? Is it you know, sending stuff back and forth? Is it splitting up chapters? How do you collaborate as co author on a on a book like that? Yeah,

Ben Casnocha 2:29
there are many different types of collaborations when it comes to books and articles. You know, there’s everything from a ghostwriter who’s not named or acknowledged, and the, you know, fabulously famous CEO or politician or something like that. And with that collaboration tends to work of the the famous person orally recites their thoughts and the ghostwriter types it all up. And then there’s all the way to the other side of the spectrum, which is a genuine collaboration where people are writing different sections and smoothing out incredibly unified voice and brainstorming very, very collectively and collaboratively. And that’s how it worked with with reading being started with you and then read Chris him in the Alliance, very collaborative. But, of course, as the junior authors relative to read, that we benefited a great deal from his experiences, his stories, his lessons, and I usually in those cases took the first pass at actually drafting the words but the the ideation process, and then certainly the editing process was very collaborative. Very

Nick Moran 3:31
good. So Ben, tell us about the thesis at at village. Yes,

Ben Casnocha 3:36
the village global is a very different sort of venture for Edward are different by design. When we founded the firm three years ago, we wanted to create an entirely different sort of venture platform inspired by platforms like aI Combinator, AngelList, Sequoia scouts, some of these these more moderate efforts that we think are reinventing the way that venture is practiced. So village, we have three key components to our strategy. The first is that we raised $100 million, fund one, mostly from some of the most successful entrepreneurs in the world. So instead of the traditional LP path of raising money from random held by offices or pension funds, things like that funded funds, we said, we can really give an edge to our founders, if we can have some of the most successful founders ever as our backers. So we spent a year and raised money from people like Mark Zuckerberg, Bill Gates, Jeff Bezos, and about 15 Other people like that. We call them the luminaries. And so the first part of what Bill is is all about is sort of bridging the today’s titans of industry with the next wave of entrepreneurs who were who were backing with with the luminaries, Personal Capital via the fund that is not global. And then the second part of our strategy is we use a Sequoia scouts inspired approach to sourcing and selecting companies and so we have sort of a semi decentralized way of discovering entrepot numbers and then backing, backing them at the earliest possible stage by teaming with founders and professors and product executives and Angel investors of all sorts, who are our scouts, we call them network leaders. And that’s how we compose a lot of the portfolio. So it’s a very network oriented way to source. And the final third part of the strategy is inspired by Y Combinator, which is a very broad peer to peer founder community in the portfolio. So in our fund one we’ve invested in over 200 companies, which is not quite as insane as YC, I think they’re doing about 400 companies a year. We’ve done a few 100 over three years. So but it’s but on the spectrum of saying to insane, it’s definitely more insane. But we do that, because we really believe that founders can learn from each other, if they’re part of a robust scaled community. And so when you operate at scale, like we do, and like YC does, you can create these pockets of density, where founders at the same stage are tackling the same sort of challenges are experiencing the same sort of problems and work with each other and help each other and make investor interest to each other and do pitch practice with each other. And so, a peer to peer value prop becomes part of why you take money from village. And so those three components luminaries, as our LPS have scoured network to source and find companies, and then abroad founder community to add value to companies post investment, is what come together to make village really different.

Nick Moran 6:27
So an amazing piece there. So if you’re doing 70, investments ish per year, you know, what is the standard check size? Are these all precede seed businesses? Or, you know, what’s kind of the stage focus?

Ben Casnocha 6:40
Yeah, the portfolio construction looks at like as follows are, we target five, five to 7% ownership on the first check. So it’s all checks, usually $500,000 or less. So relatively small checks, we’re investing really early stages. So it could be day zero, you know, a guy and a gal in a garage with no idea coming up with their idea, we’re happy to back them at that point, I’m sure founder but all the way to a bonafide, you know, seed round raising at 10 post. Some of the companies we invest in, we actually put them through an accelerator experience, like Y Combinator, others are just more traditional seed stage investments. And so And remember most of these companies we’re finding through our scout network. And so we have all these different domain experts and folks focused on different sector areas, and geographies and so on. And so each of these scouts, again, we call them network leaders, is only doing, you know, a few deals a year. And so there’s sort of a local maximum and the way that we manage that those incentives and judgment, but it adds up and accumulates to, as you said, a pretty broad portfolio and a pretty high velocity.

Nick Moran 7:50
Right, right. I think we’re in two deals together now. And one is more took more of the accelerator path with you. And the other is just more of a traditional direct investment. Is there a decision making framework that routes startups into one or the other?

Ben Casnocha 8:06
Yeah, you know, it’s kind of like, how YC has talked about it over the years, which is it can be a fit for some companies, and it cannot be a fit for others. And there’s actually not a real difference in terms of the quality of the founders, it just depends on what they need and what stage they’re at. And so we find in our accelerator experience, if you’re a company based outside of Silicon Valley, and desirous of this, this network, and our ability to help you fundraise here, and you’re sort of at the formation stage, you’re a really good fit for our accelerator. If you’re, you know, based in the Valley have already raised a million or 2 million bucks, and you’re raising another 2 million bucks in the seed round, you’re less likely to do any sort of accelerator. So it sort of depends on stage and and what they need. Folks that comes to our accelerator, are especially keen on connectivity. So we always say we offer connections, not content, we’re not teaching anybody how to be an entrepreneur. I think this is one thing that’s changed over the last 15 years. And certainly when I started my first company, you know, there was not a there were not 8 million blog posts about how to do every facet of a startup, right? You really, it took a while to learn the craft of entrepreneurship today and 2020. If you can’t figure out some of the basics for how to get your startup going. If you haven’t read the lean startup and all these other canonical books, you know, you’ve you’ve got other problems. So we’re not going to teach somebody how to start a company, but we will help plugging them into customers or investors or talent pools to hire in ways that we think can be transformative for them.

Nick Moran 9:36
You know, I imagine that you and Eric and Ann have pretty powerful networks. I mean, just just looking at the folks that you’re co writing books with but you know, how do you get the LPS together for a fun one that you were able to do? I mean, you mentioned some before Zuckerberg Hoffman gates, Bezos screen Blakely, I mean, amongst many As you have these luminaries as you, as you call them, you know, how do you get LPS of that stature into a fun one and actually contributing to the, you know, the network at Village global?

Ben Casnocha 10:13
I think our pitch to the LPS was twofold. So the first was all of these folks, even though they’re fabulously rich, they’re always looking to stay rich and get richer, or at least their family office folks have an agenda. And so there’s a sense in which, hey, this is a this is a fund that hopefully will produce an interest our returns and these folks and to invest in, you know, in this asset class. And so that’s the sort of a simple that’s a simple version of answer. I think the more nuanced and interesting version, the answer that’s unique to village and why we could we uniquely had success here is that we were we are executing a strategy that is more likely to produce interesting companies, technology founders out of this network made a traditional Seed Fund, right, where there’s one or two or three GPS, acting as Masters of the Universe, picking, you know, 1520 companies a year and are already last, they usually are having to specialize in just a couple of factors, right? Because no one person can know everything about everything. So that sort of fund is just less likely to produce an outlier company or a trend or an insight into something that could matter and care to someone like Jeff Bezos or or Diane Greene, for Bill Gates. And so our unique network strategy for actually running the fund is I think, was part of the appeal in terms of producing non economic value to these LPs. Yeah.

Nick Moran 11:46
Tell us more about the sourcing the approach to sourcing, you’ve got this Scout network, it sounds unique. You know, unpack that a bit for us.

Ben Casnocha 11:58
You know, Scout funds have been around now probably it’s almost been more than 10 years, I think since quiet started squid scouts, right. And, you know, originally sky launched Boy Scouts with a really bold, provocative thesis, which, you know, we have learned from it are inspired by so we didn’t come up with this idea. To be clear, I think I give credit to Sequoia because they had the insight that sometimes their own portfolio CEOs can have their finger on the pulse of what was hot and startup land better than the GPS at Sequoia. All right. I think famously, Jason Calacanis was one of the first coin scouts who was responsible for squeeze exposure to Uber at seed, I believe thumbtack was also a squire Scout investment. And I’ve had several Scout investments that have worked out well. So that at the time was very, it was very controversial, right, I thought, you know, Alfred Lin must be a much, much better investor than, you know, random young founder in the portfolio, who has never done an investment in his or her life. But the idea is that at the pre seed and seed stage, it’s as much about being in the right flow being connected to the right people and having the ability to make a people bet, right, a team that that explains, you know, seed stage investment success. And obviously, as you move later stage, more and more, it becomes about your ability to do analytic reasoning and quantitative interpretation of traction. So we really, we really learned from that Sequoia approach, but unlike in Sequoia where they use their Scout network, primarily, you know, it actually is now an independent fund backed by LPs and it’s money. So it itself is an economic vehicle, but you know, squat as a $9 billion Growth Fund, who knows how much money under management, the SSI checks are really feeders for later stage deal flow and my view at Village global our scouting network is this is what we do so so we’re making money, we’re trying to make money on these investments. And so we’re generally more selective than Sequoia is we work with fewer people. And those people commit larger amounts of capital into each investment. And so we will be both top down and bottoms up, and how we select scouts in our network. We’re tops down by looking first at where we have a luminary edge in market. So we do a lot of FinTech at Village because Abby Johnson, the CEO of fidelity is one of our luminary, LPs, or we’ve done we’ve done some in in, in digital health, because Anne Wojcicki, the CEO of 23andme, is one of our luminary, LPs. And so once we, once there’s a sector like that, that’s interesting, where we have an edge, we’ll go and find angels in those areas, empower them to put village money to work in their smartest friends. And then we’re also a little bit bottoms up, where if we just discover an amazing angel who’s in flow, we’ll look to team with them. Even if we weren’t necessarily seeking somebody and say cybersecurity. One, we came across somebody who had that background, who’s a senior executive CrowdStrike. We decided to work with him and now he is on the ground, invested in cybersecurity companies with us at the earliest stage.

Nick Moran 14:57
How many scouts do You guys currently have? Yeah,

Ben Casnocha 15:02
at any given time, we’ll have about 30 people on power.

Nick Moran 15:06
Got it? And then do you allocate capital to them? And do they have decision making authority? Or does does this get funneled into a process? Yeah, we

Ben Casnocha 15:15
we do allocations internally, but it’s all one vehicle. So this is not a this is not the age of sort of secret of LLCs, where there’s, there’s a hot second where that was sort of all the rage and the scout phenomenon in the last decade. So there’s all one vehicle, it’s all public. And all of the scouts who we team with, generally speaking, are writing their own personal check into a company. So the way it works is we always want them to have skin in the game. So they might if their standard cheque size is $5,000, or $25,000, or $100,000, or $500,000. And those are all real examples in our network, we ask them to continue to write those checks, and then bring village money and alongside them around. And they do have, once we’ve done the hard work of vetting them on the front end. And once we empower them, we’re strongly inclined to following their conviction, legally speaking, we of course, openly make the We the GPS make the investment decisions all comes out of the village Global Fund. But our idea is to actually embrace the expertise conviction that these network leaders have, rather than subject all these decisions to the sort of committee groupthink dynamic that we think can really jeopardize a lot of the contrarian thinking that needs to happen at seed stage, if you want to produce outlier returns.

Nick Moran 16:34
Is it a similar process as other venture firms? Do you come together, you know, Investment Committee or deal flow meetings, you know, once a week with the GPS and discuss the deals that are on the table and figure out, you know, which ones you you need to do more diligence on and which ones you’re going to make a decision or is, is the architecture of decision making kind of very different and decentralized? For

Ben Casnocha 16:57
deals that we do as GPS, because we do some direct investing as well. That’s certainly the way it works. We get together, talk about deals, etc. And then for deals that come through our scouting network or network leaders, you know, we’re though that conversation usually is about, who do we want a team with? Who do we want to partner with? Who has really high founder MPs? Who’s the first call for founders and there’s different areas? And do we want to keep up with one of these people. And then once we made the decision at team up, well, now we’ve empowered that person to go out and, and we’ve weaponized them with a village brand and with capital, and they’re off to the races. And so our our Monday morning meetings are a little unusual, because a little bit of the traditional deal review. And it’s a little bit of the, you know, frankly, more of a fun to funds type discussion around angels who we’re partnering with in our network.

Nick Moran 17:45
Very interesting. Let’s switch over to the the founder side, and the network side there. So, you know, I’ve done a bunch of this myself, sort of reconnaissance and research with my existing portfolio companies, you know, what works, what doesn’t, you hear about these many firms that have slack groups and founder networks on Slack. But often, if you ask founders about the effectiveness of those, and the density and the true connectivity of networks, often it’s kind of lacking. So you know, what is it about your approach to the founder community and the network there that, you know, succeed, succeed where others don’t?

Ben Casnocha 18:26
I think the first is scale matters, because it’s just sort of obvious if you if you have 200 people on a network versus 50 people on a network, the odds that you’re going to find somebody in that network who you can learn from, who you get along with you jive with or just hire, right? It’s a law of large numbers. And I think in particular, with respect to founders, and how they learn from each other, you know, founders tend to learn feminists like to hang out with people who are genuine peers, like, oh, you know, you’re trying to raise a Series A, and I’m trying to raise a series I, like, let’s let’s talk about our experiences. Let’s try to help each other I love to learn and love to also teach you right? So there’s a little bit of the true peer dynamic. Then there’s founders like to learn from people who are one or two steps ahead of that, like, I’m raising a Series A, and you just raised your series B, I want to learn from you. Right, so there’s sort of those are the peer there’s one or two steps ahead. And then there’s the the iconic, like inspirations like Wow, your your Mark Pincus you created Zynga is worth multiple billion dollars you inspire me or while you’re Diane Greene, you created VMware, that’s a huge inspiration. I don’t you know, I’m so far from having my my company go public that I’m not actually going to learn very much perhaps from from from mark or the hand in terms of what I’m experiencing right now. But it’s but I like having those people in the network. So the way we think about this is our luminaries serve as our luminary LPS serve as the sort of true north inspirations, and then there’ll be respect to the founder peer to peer learning. We’re always trying to gather folks and pay Are people up and matchmake them within our, within our vast network, right? We are now over 600 plus co founders in the network, because every company, you know, say has two or three co founders. So you add all that up and you say, who are people who are your genuine peers, but then we’ll also break people up and say, Okay, here’s some people who are one or two steps ahead of you, who you can learn from. And I think that’s, that’s key and most early stage funds, you know, it takes a decade for them to have the kind of scale that would allow them to slice and dice the network in this way to maximize your learning.

Nick Moran 20:33
How do you find yourself spending time and splitting time between let’s say, let’s, let’s move, you know, LP stuff, and your various writings and everything aside, but if you had to split it between, you know, vetting new new investments versus, you know, actively working with the existing portfolio, you know, how are you spending your time? Well,

Ben Casnocha 20:54
for us the village because the LP stuff is actually pretty integral to our strategy. And I do personally spend a lot of time on that, because one of the ways we help our companies is we engage these luminaries. So if we do an event with Bob Iger in LA, then the CEO of Disney or former CEO of Disney, that takes a lot of work to curate that group, make sure Bob’s ready make sure our founders are ready and pulling off that experience. And we do those sorts of events with our luminaries, you know, on on a roughly monthly basis. And so one of the ways we support companies, is by connecting them into the luminary network. So I spent a lot personally spent a lot of time on that. And then I think we, we do spend a lot of time talking to new founders and sourcing that’s relentless. I think the interesting question, and Nick, you’ve probably seen this too, is, you know, some of our best referrals come from our existing portfolio companies. And so it’s always a great tool for one when you can be supporting a company. And also they mentioned Hey, you know, my, my buddy from Cal Tech is is starting the company. And that turns into a sourcing opportunity. But as you know, I mean, on a day to day weekly basis, it’s it’s a total mishmash of stuff. I think the difference for villages, much of the sourcing activity that happens happens through this decentralized Scout network approach to that relieves us of having to spend as much time doing that as as a traditional GP would.

Nick Moran 22:16
Is Bob back in there at Disney now. I thought I heard they’re pulling back. But

Ben Casnocha 22:22
Bob is a very active chairman of Disney and is currently in the bubble. The NBA bubble right now because he basically brokered the, that whole move to Florida Disneyland complex. Yeah. So he and he and he and the commissioner of the NBA are very close. And so that was that’s been his special project. And it’s it’s no small project and ESPN as a huge part of Disney. And there’s a lot riding on the success of these professional sports experiments during COVID. Yeah,

Nick Moran 22:49
for listeners out there his book ride of a lifetime, I think it’s called one of the best books I read in 2019.

Ben Casnocha 22:56
Well, and I’ll tell you, Nick, Bob, is of all the luminaries who we’ve been fortunate enough to do events with half of all village. He’s certainly been the most humble man when we did when we when we did an event with him, he showed up 10 minutes early and asked, Can I help set up? Wow. I was just like, just stunned at his accessibility, his genuine curiosity. And it’s always inspiring to me when someone is at the top of their game, but they still have a relentless desire to learn from people were younger, way less successful. And that’s what Bob demonstrated when he interacted with our founders. Well,

Nick Moran 23:33
I’m sure you’ve seen the full spectrum of tech. And how humble they are. But so you know, one of your friends, of course, colleagues, Reed Hoffman, we mentioned him before you worked with him for a couple years directly. And what were what were some of the, I don’t know the key lessons or key things that you picked up in your experience with Reed.

Ben Casnocha 23:56
I wrote an essay which which we can link to called 10,000 hours with Reed Hoffman on which I reflected on on the on the few years that I spent with him first writing the book, I then sort of set up an org for him at LinkedIn and Greylock that worked on a variety of his sort of priority projects, the reads, reads and extraordinary human, I think the the primary thing to know about read is he’s this incredible blend of heart and head. So he’s got a huge heart and incredible emotional intelligence, and is off the charts smart from an IQ perspective. And that one two punch, especially in the tech industry, is very rare. You know, a couple of concrete things I learned from read, you know, one is that Reid has this remarkable ability when he interacts with a complex human who’s flawed, which means by the way, all of us, we’re all flawed in some way. He is unbelievably skilled at not letting that darkness crowd out the light. You will always find what’s redeeming about someone who always find the best part of someone and cherish that and celebrate that and I just There’s so many people who he had in his life who I saw others have no tolerance for it right that someone would have a really bad flaw, like they talk too much, or they’d be unbelievably arrogant or they’d be incredibly insecure about something or they would have some moral family and in their life, and reduce was able to segue to separate that out and say, you made a mistake, or you have a weakness, or you’re not perfect, but here’s what’s awesome about you, and I’m gonna love you for that quality. And I always found that just incredibly powerful. And the second lesson I will share is, you know, when I started the job, and my title was was Chief of Staff, what what that title means these days, we get, that’s a whole separate conversation. But you know, he told me, Ben, I want you to move quickly, I want you to make decisions very quickly. And this means you’re going to make mistakes. And you will have foot faults, because that’s what happens when you move quickly. But I value speed. And so if you’re not, if you’re not messing up, at least, you know, 10 to 20% of the time, you’re not moving quickly enough. And to say that at the outset of a relationship at the outset, like on the first day of the job. It’s just incredibly empowering, because I think most people tend to, not most people, some people tend to incline towards perfection tend to incline to trying to please their boss. And so they assume mistakes, right? They’re terrified of making a mistake, to be told that mistakes are okay and even to to name specify the percentage of mistakes that are okay, you know, 10 to 20% was incredibly liberating. And indeed, I did make mistakes, but I hope I was able to move quickly. Nonetheless, it

Nick Moran 26:38
amazes me, somebody of Reed’s stature and status and success, how much he hustles and how fast he moves and how prolific he is across so many different areas, whether it be building investing, writing, podcasting, even, you know, the guys, I mean, he’s a, he’s a great, I don’t even know him, but he’s a great sort of role model in a way for how you never stop, you know, out working. Everyone else he,

Ben Casnocha 27:09
he made his work ethic is is is remarkable. I’m, I’m quite a bit younger than him, but had a hard time keeping up with him in at seven days a week, you know, he’s booked 8am to 5pm, seven days, you know, and Saturdays days a week, you know, all day, Saturday, all day, Sunday meetings at his house. I mean, it was stunning. I go over from three to 430 on a Saturday, he’s been doing meetings since 8am. And it was going all night, you know, so it’s just a relentless work ethic. But it’s a work ethic. That’s, that’s motivated, I think, by a genuine desire to improve the world and make the world a better place. And to sort of reflect a moral sensibility or even a spiritual worldview that I think is is really deep, really profound. And, you know, ultimately, something I agree with. And so I think we’re all better off because of his relentlessness at propagating his ideas.

Nick Moran 28:04
You know, while we’re talking about speed, and and pace. I’ve had a number of conversations this week with investors that are meeting with the YC group, and it’s in full swing, you know, I think Demo Day is coming up in a week or two. And, you know, many investors are just at a dizzying pace, you know, the number of companies that they’re meeting with YC brings out quite a few in the cohorts these days. Do you guys invest in companies that are coming out of an accelerator program like YC,

Ben Casnocha 28:35
we have we’ve been we’ve invested at the seed stage, and some companies that have gone through yc. And we’re pleased with those investments. We also have had companies that go through our own accelerator and have chosen ours over yc. And then they’re also been co folks that have chosen YC over us at the accelerator stage. So we view ourselves sometimes competitive with yc. When there’s a formation stage founder, exploring the accelerator option, our terms are identical to yc. So we’ll invest 150 K for 7% ownership now YC, just lowered it to 120 5k. So we’ll see if we match them on that. But they’re basically identical terms. So sometimes we compete. But if it’s a great company that’s gone through yc. And they’re coming out, we will certainly look at that that sort of investment. I think that the challenge for yc is they’re at unbelievable scale, right? We’re long past the days of, you know, PG and Jessica and your house did and Brian Chesky, Patrick Collison and Alexis Ohanian in small groups of 10 to 12 companies, right. That those are sort of the OG days. It’d be that where there’s a lot of intimacy and camaraderie. I think, if you talk to YC founders today, it’s a very different experience, right? It’s when you’re when you’re in a batch of two venture companies, and there’s dozens and dozens and dozens companies from all around the world. I think the question is, is it still as profound an experience can you get as much value out of it? And I think what’s happened a little bit is yc has become A credential, right? It’s like, I got into Harvard, and didn’t go to a single class that graduated with a degree. Maybe I’ve captured 75 80% of the value of Harvard. Right? I didn’t go to single class, but I’m still getting credential value. So I think that credential dynamic is what’s happening with yc. I think that’s how it’s certainly good for them. And it can be a good deal for founders. But I think that’s the that’s the question that will, we’ll see play out in the coming years.

Nick Moran 30:26
Yeah, lots of differing opinions on the accelerator model. And you guys, of course, have one as well. What do you think the future holds for accelerators like YC, or even yourself?

Ben Casnocha 30:38
I think get smart people disagree. And and we’re always excited to iterate and learn and adapt our offering to the market to meet the needs of founders. I think the bear case on accelerators is that when one YC was founded as the initial cohort or whatever, 15 years ago, there was, it was a much different seed stage financing ecosystem, right? They’re not, they’re not AngelList syndicates, they’re not 600 Micro VCs running around with small funds, there are not a gazillion angels, there are no Scout funds, it was much harder to raise money. And so so you could argue that as the ecosystem has become more, more crowded with different financing options, the need to go to a TechStars, a YC, or village global network catalyst is is much less. I think the bull case is that despite all that, extraordinary founders are still voting with their feet, that they get value out of a supercharged experience that happens over you know, a few months where there’s a real intensity of focus both from the farm helping you and from your peers in the same cohort. And that that is valuable. And we see this we had some extraordinary companies come through our accelerator, the most recent mentors that have raised meaningful, large seed rounds, and top tier Silicon Valley firms afterwards YC companies are still on average, you know, quite strong. And so I think, I think the the bear case on accelerators, even if that’s true, I think that will that will play out over five to 10 years, I don’t think there’ll be a meaningful shift in the accelerator landscape, at least for the next two to three years.

Nick Moran 32:12
What vintage was your fund? In? Do you measure, you know, the success of the accelerator companies, you know, versus the others? You know, do you look at both of those?

Ben Casnocha 32:23
Yeah, we do we are? Well, we are fun one we are first close was in the summer of 2017. So we’re about three years into that that fun one investment period. We do look at between seed and accelerator to date, there’s not actually a super, super meaningful difference. In other words, it’s not it’s I think the risk with accelerators historically, from an LP perspective is adverse selection, like there’s a ton of shady accelerators out there, where it’s it’s basically low quality founders who can’t raise from anyone else and have gone through an accelerator that that businesses are a bad business to be in. But if you can maintain a really high bar, and thus select for people who are really high quality, but just as valued at things that accelerator can offer, it’s it can be the case that you won’t be able to tell a difference between a founder that raise their first seed round at 5 million posts versus the founder that can accelerate around a 2 million posts. And so far to build global that’s been the case, it’s not maybe that will change, Nick, as we know this, this take years for the data to play out. But so far, it’s not obvious that there’s a meaningful difference in returns between the two, the two products. You know,

Nick Moran 33:32
this is this next question. It’s something that we face a lot as a venture firm, but I’d be curious to get your take, then, you know, how do you determine when to make an exception? On a deal? Right. So there, there are clearly deals that are on thesis, they might be a fit for the accelerator, they might be a fit for the traditional investment. But you know, sometimes there’s things that are off thesis that, that, you know, land in your inbox or your lap, and they might be off check size or off valuation range, you know, how do you ever go off thesis and how do you determine when, when to do that? You

Ben Casnocha 34:11
know, I actually asked this question to Mike hirshland at resolute metrics. I’m not sure if you’ve had him on the show neck, he’s a he’s a he’s a you know, they’re on their fun five fantastic Seed Fund in Boston and San Francisco resolute, highly recommend them to any founders listening. But I think the world of Mike and I’ve learned a lot from him and a lot of different things. The last couple of years, I actually asked Mike this question, because it’s something that we wrestle with. And you know, I have a theory we all have theories and frameworks, but part of what I love about the venture business is the ability to learn from other GPS is why I envy your your position, your neck, being able to ask all these questions to folks on the podcast. You know, Mike had a framework that was interesting. She said in every fund, they do they, they they they give themselves a couple of exceptions. So that sort of a fine FSA, we’re gonna invest in now. 18 companies out of this fun 16 of them are going to be You know, on spec in terms of within our price range, ownership, Target, etc. And two of them will just be completely outside of that. And so they before they before they’re actually in the trenches, they give themselves permission to break the rules a certain number of times. And I think that can be very, I think, what I loved about that it was very liberating, because otherwise, there’s this kind of paranoia. There’s a sense in which, Hey, we should make exceptions sometimes, right? That venture is a business of exceptions. But then there’s also this paranoia that we have GPS. But wait, is every deal becoming an exception? Like, how is this gonna break our, our funding model? Or, you know, how’s this gonna affect returns? And so, I like the I liked Mike’s idea. And we certainly do something similar a village, which is we have a fun model, we have ownership targets, we have, you know, price guidelines, we do break those rules from time to time, and we’re just relentlessly tracking how often are breaking the rules? And, you know, I internally, what we say is, if if more than 30% of our deals are not, you know, in our, quote, ruleset, we can’t, we can’t, with a straight face claim that we have a rule set right now, every deal is become an exception, because it has to be below a threshold. And so we monitor the data closely to track that on a monthly or quarterly basis.

Nick Moran 36:16
Yeah, it’s funny, because the tagline we use to describe our firm new stack at the moment moment is investing in the exceptions. I’m gonna have to clarify to the LPS that that that doesn’t apply to portfolio construction. Yeah,

Ben Casnocha 36:29
you have you have you have strict rules were related to accept? Yes,

Nick Moran 36:33
exactly. You know, what are your thoughts been on the future of investing, you know, in the valley in the Bay Area versus outside of it?

Ben Casnocha 36:43
It’s a certainly hot topic right now. Because, you know, as as groups like Facebook, and Salesforce, and others here in the Bay Area, declare increasing work from home policies or extend their work on bosses. There’s, as San Francisco city government continues to, you know, fumble every every policy decision on his lap, there’s a there’s a sense in which, right now, more than ever, in my lifetime of living and working here in the valley, people are like, maybe this is the end of Silicon Valley. I think my prediction is that the valley decreases in relative importance over time, like, there’s no doubt in my mind that 20 years from now, Silicon Valley will be relatively less important to the world of entrepreneurship and venture capital than it is today. The question is, is it 20 years? Or is it five years, and how much less relevant? So it will certainly be a little less relevant 20 years now, there are some people who believe that the future of investing in the valley is going to be demonstrably worse, in three to five years, like this is just the whole Exodus like, now’s the moment, this is a catalytic event, people are leaving, because a pandemic, they’re never coming back, etc. I’m not that bearish, I think it’s actually funny, because I see, I have a friend who’s moving to or saying there wants to move to Montana, and is trying to convince a whole bunch of people to move out there with them and set up a little black community in Montana. And I was thinking, that’s called a big city. Like, the thing about remote work is, if the remote work revolution is leading to people picking up and moving to other big cities and aggregating talent in that area. Well, that just means that the center of gravity is shifting from one city to another, and that can have impact on the valley. But that’s a that’s a different sort of conversation than the valleys over cities are over to remote work everywhere. Everything’s gonna be global. And I’m pretty bearish, that I think cities and urbanization is a trend that’s been happening for the last 150 years, it will continue a pace. And I think the valley in the Bay Area is going to remain for another 20 years are really a vital part of the ecosystem. I don’t think there’ll be another ecosystem that rises to its stature, but not because they won’t be arise. It’s just that the talent and capital is going to be distributed more evenly. I don’t think we’re going to see, I don’t think this we’re gonna have another Mecca. I just think there’ll be, you know, 10 really vibrant startup ecosystems in America rather than one or two.

Nick Moran 39:02
Well, it’s not altogether uncommon for people to overreact, especially in a crisis, right? I feel on Twitter, every other tweet I’m reading is, you know, what other cities? If you’re moving out of San Francisco, what cities would you consider, you know, for building a tech company? And it’s, it’s, yeah, as much as I’m a huge proponent of the non coastal startups and the startups in the middle of the country and outside of the key centers of influence. You know, I, I think I have to be realistic with the fact that the Bay Area is here to stay New York City is here to stay even if those those areas are suffering at the current moment. They may lose some density, but they’re not going to lose the majority of it.

Ben Casnocha 39:47
Yeah, well, but I think generally like I’m I’m bullish on your strategy, Nick, and I think the I think your strategy will only become more important over time like I think yes, the SF In New York will remain important for years to come. But the idea that other ecosystems are going to rise is I think very true. And that’s only going to accelerate because the COVID, etc. You know, my, my close mentor Brad Feld just wrote a new version of the startup communities book, which I’m, I’m mentioned in the in the foreword because or in the preface, or whatever it’s called, because I wrote a piece, you know, over a decade ago for American Enterprise Institute on how Boulder is becoming a startup ecosystem. And I think there are lots of these sort of Boulder experiments being run right now in America and around the world. And so we certainly believe that that village, you know, half our portfolios in the valley, but half the half the portfolio’s outside the valley. And so, we do a lot of investing around the country and even around the world. And we expect to do more of that, you know, hands on and those global,

Nick Moran 40:48
then what resource Have you found particularly valuable that you’d recommend the listeners?

Ben Casnocha 40:54
I love reading books. I’ve been reviewing books on my blog for the last, you know, 1012 years. So there’s plenty of book recommendations on my blog, I find I’m a little biased because I’ve written books, but you know, the amount of thought energy that goes into a book is just so much higher than what what authors put into tweets and magazine articles and blog posts. And so you should be very very selective in the books you read, be very choosy, never read a John Collison was told me this, like if he if he’s, you know, 20% through a book and he’s not enjoying it, he puts it down right away because he doesn’t want to. He doesn’t want to associate reading with being bored. He always wants to have it. He has a very high bar, what books really, I think it’s brilliant Tyler Cowen has a similar strategy. Abandoned books you don’t like so abandon books, you’re not enjoying maintain a high bar. But if you can find the right book on whatever topic, it could be fiction, I’ve been reading a lot of fiction recently. You’re you’re getting someone’s best ideas, you’re getting their best work, their most focused output. So generally speaking, I think books are actually underrated. In a world in which there are million tweets and blog posts to read.

Nick Moran 41:55
You have some of the best book recommendations, I tell you what if you started some sort of investor book club, please send?

Ben Casnocha 42:02
Well, I’d say my old friend Ryan Holiday has this newsletter that he sends out with book recommendations. And that thing has sort of gone viral where like, every week, he sends out book recommendations, and it’s like, 10s of 1000s of people on that list. So yeah, I do think there seems to be an appetite for for recommendations there. It

Nick Moran 42:19
is, like the Oprah of the tech community. Ben, what do you know, you need to get better at?

Ben Casnocha 42:27
Gosh, within the realm of investing in, I would like to commit to memory, more key metrics and examples from successful businesses. So I would like to have memorized and the whole notion of like, what’s valuable, actually had memorize versus be able to look up as an interesting side topic that I’m thinking about. But I would like to memorize, you know, for 50 to 100 of the most successful tech businesses in the last 2030 years, you know, what valuations? Do they raise their rounds, what the revenue looks like, at different stages, you know, what are the two or three lessons to take for each company? I just feel like when I think about some of the people I admire most in this industry, often it’s because they’ve been doing it for 30 to 40 years, and they’re at the very end of their career. But what they know top of mind by heart that relate to metrics and numbers of success cases is very impressive. And I would like to develop that ability.

Nick Moran 43:19
And finally, Ben, what’s the best way for listeners to connect with you?

Ben Casnocha 43:23
You can go onto my website, casnocha.com, you can subscribe to my email list. And I haven’t sent an email out in literally 10 years, I have like 10,000 subscribers sign with an email, but maybe someday soon, I’ll send you an email. Otherwise, I have a blog that I write, and you can find me on Twitter at Ben Carson. Well,

Nick Moran 43:39
Ben, it’s a true pleasure to be a co investor with yum. I’m glad that Eric linked us up. And, you know, thanks so much for spending the time today. Nick, it’s

Ben Casnocha 43:48
an honor. Thanks for having me on.

Nick Moran 43:54
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 accomplishment 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