Rob Go of NextView Ventures joins Nick to discuss Reflections From 10 Years at NextView, Dogma vs Discipline, the Importance of Effective Post Money, and Market Sizing Pitfalls. In this episode we cover:
You started the firm 10 years ago. First and foremost many are calling this a key moment in history for VC. Round sizes are ballooning, valuations are climbing as well, Seed investors are feeling squeezed from both sides as A investors move earlier and new entrants expand their presence and check size, and now we have some of the top, notable investors leaving the industry seemingly at the same time. What do you make of all of this and is VC fundamentally changing under our feet? What are other biggest industry shifts that have changed the way you operate at NextView? Most LPs are focused on their fund managers’ ownership percentage at entry. Explain what effective post-money at exit is and why that has become a north star from next view? Takeaway #3: There is a Goldilocks zone between too much dogma and lack of discipline. Can you give us an example or two of strategies that were difficult to let go of or move on from? You have a reputation as being impatient. Your favorite saying internally is “anything worth doing is worth doing fast”… yet this is a pretty long cycle business and it takes time for a portfolio to mature and drive returns. What were the key learnings with regards to returns and metrics? How do you know if you’re winning if the metrics are a bit of a red herring? Are there any alternative metrics or signals you look for to quantitatively gauge performance? You cited the biggest observable misses for most VC’s and it’s related to market size — what’s been your observation here and where are investors missing? You next point is a bit controversial. You suggest that founders and investors should make each other a bit uncomfortable — why? Does this ever prevent you from winning deals? Being a bit adversarial and maybe challenging too much? What’s your opinion on competition after a decade of investing? How about at the VC level — how do you think about the competitive set of investors and how to maintain and edge in sourcing and winning the best deals? Your partner Lee likes to say, “fundraising isn’t about convincing skeptics, it’s a search for true believers”. Do you have any advice for founders w/regards to fundraising?
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Transcribed with AI: 0:18 Rob Go joins us today from Boston. Rob is co-founder and partner at NextView Ventures and a longtime friend of the show. We last featured Rob back in 2014 — On Episode 21, it’s crazy to think it’s been seven years. And Rob also recently penned an article 10 Reflections After 10 Years of NextView, so a decade for the firm. Congratulations on that. And welcome back to the show. 0:43 Thank you, it. Some days, it feels like just yesterday, some days, it feels like it’s been 25 years, we’ll be back on they really appreciate it, 0:51 you’ve probably got 25 years of mileage at the speed that you guys operate. So I’ll give you credit for that. Can you give us a you know, a brief refresher on the firm and the focus and sort of your path? 1:03 Yeah, so next fuse a seed focused venture capital fund offices in New York and Boston, we invest across the country, our current fund is $100 million dollar Seed Fund, but we make fewer investments on a per partner basis than almost any other seed fund in the country. So you know, as a firm, we’ll do about 10 investments, that 10 core investments a year with four partners, so it’s not very many. So everyone really, really counts. We believe in being high conviction hands on investors, and being deeply involved with the companies that we work with, especially in the first couple years of their life. And you know, the other thing I’d add is that we’re a thematic Fund, which is a little wacky, we have this theme called the everyday economy. And in a nutshell, it means we think about where large populations spend all their time, money and energy. And we want to invest in software businesses that we think will be important than those areas. So things like food, housing, health, parenting, aging, and areas like that about 60 percents, consumer, 40 percents b2b and all of its kind of 1:59 very good. How do you define see these days? 2:02 That’s a good question. We do the full spectrum. So everything from concept stage to you know, early traction, so most of the rounds that we’re a part of are anywhere from a couple 100,000 to 4 million, and everything in between, 2:17 again, and the the accelerator, I remember you launched an accelerator I think it was last year is is that something you’re continuing with? 2:24 Yeah, that’s something we’re continuing to do. So you know, when I mentioned a couple $100,000 investment, those are the accelerator investments. And, you know, we started a cup in at the height of COVID. Actually. And basically, what we predicted was with this whole virtual way of operating a lot of funds would focus on like existing networks, like founders, they already know, refers, they already know because it’s hard to build conviction about founders remotely. And so we said, let’s force yourselves to do the opposite. Let’s create like more of an open casting call develop like an investment product and methodology that allowed us to bring in, you know, a pretty broad, a broader group of entrepreneurs that we work with. So we’re really proud that, you know, we’ve made 10 accelerator investments, more than half have CEOs are either women or people of color, we’ve had a number of those that have gone on to raise institutional seed rounds, we’ve had one that went on to raise a series A led by Founders Fund. So you know, it’s off to a good start. But you know, so that’s something that we think we’d like to continue to do for a bunch of different reasons. 3:20 Very cool. Well, you started the firm 10 years ago, I think, a good place to start. You know, there’s there’s a lot of folks out there, whether it’s on phone calls, that I’m sure you’re doing or on Twitter, that are calling this like a, you know, a seminal moment for, for VC. We’ve got round sizes, ballooning, valuations, climbing as well, seed investors are feeling squeezed often from both sides, a investors moving earlier, new entrants coming in and expanding their presence and checks, as you know, from from the earliest stages. And now we’ve got some of the top, you know, most notable investors that are leaving the industry, seemingly seemingly at the same time, there was a few announcements this week. So you know, it Rob, what do you make of of all of this? And, you know, do you think VC is going through a fundamental shift? 4:10 Yeah, you know, I think there are a lot of different a few different things happening that aren’t all related. But you know, it leads to a pretty interesting canvas right now. So, on one hand, we’re continuing what has been like a pretty obvious evolution in the industry, where it just goes from being a cottage industry to a much more mature industry. And so, you know, what does that mean? It means that you’re gonna have, you know, either consolidation and like large platforms that are developed, or hyper specialization, and the folks who are in the middle kind of, you know, get competed away when we started the fund. We use this imagery of like beer, where you had this emergence of like these huge, huge mega brewers, and then you had these craft brewers. And over time, you’ve now had this proliferation of craft brewers and it becomes extremely hard to To distinguish themselves, and obviously that’s an industry where there’s like a little bit, it’s a little harder to truly specialize. So a lot of those same patterns are happening today. And that’s what you’re seeing. We’re in a, you know, 10 plus year, like mega bull market in tech. And so I think some of the effects you’re seeing is just the fact that like capitalism is working in capital is flowing into this market, this this market environment where there aren’t, there aren’t as many returns to be had and other avenues of investments. And so that’s why capitals here, and that’s what we’re dealing with. And then, you know, on the turnover of the leadership side, we had this internal debate, I think, you know, my partner, Lee actually said, a lot of it is just personal, right? Like, COVID is the time where a lot of people took a step back, they were already post economic. And they said to themselves, like, is this really what I want to do with my time and, you know, when outside of COVID, there’s just a lot of inertia and how people are living their lives. And because of COVID, these people who have been insanely successful just said, like, do I want to keep doing this? Or do I want to, like spend my energies and resources doing something else? And I think for some subset of people, the answer is let’s do something else. So I think in a way that’s sort of unrelated to the market environment, right? Like there’s a fair bit of speculation that like, Oh, you know, folks are just they think the markets too crazy. And they want to sit it out? I actually don’t think that’s the case. I think they’re just choosing not to focus on other things because of where they are in their lives. 6:22 Yeah, certainly, for many of us, I think, to be successful in this industry, it requires a lot of a lot of time, a lot of bandwidth, a lot of energy, people can only run so fast and so hard for so long, once they’ve had some success. It’s it’s their right to make a change. And, and we’ve seen this before, right? Bill Gurley announced was that probably year and a half ago, and I’m not sure how active he remains, but there’s a national turnover. 6:50 Yeah, I am surprised, though, you know, venture is one of these industries, where for probably for worse, you can hang on for a long time. You know, if one’s a founder of a firm or a senior partner, which, you know, the track record of fundraising is built upon, you know, that partner can hang on for 234 funds, probably, and, you know, still extract economics do a dealer to a year and like, kick back. Yeah, I give these these folks a lot of credit that they’re not doing that, right. So that’s, which I think we did see a lot of, you know, 10 years ago for some of these funds that, that had that, you know, a similar dynamic, but the founders are the senior partners, like would not let go of the reins. And that’s why a lot of new funds existed. And that’s usually the natural like evolution in the venture industry of like, fund spinning up new funds and those coming to prominence too. 7:36 Right, right. So So back to the article, Rob 10, reflections, any other big industries shifts that you’ve observed, you know, over this these past 10 years at NextView? 7:48 I made this point about what matters is effective post money exit, which maybe is getting a little into the weeds. So this isn’t a big industry shift. It’s more of a small one, right? Where, when I started, seriously, investors were super dogmatic around ownership targets, right? Like, we have to own 20%, we only do series A’s. Here’s what we do, blah, blah, blah. And seed investors actually were very undogmatic, right? Like, you had a lot of people were individuals who are sprinkling their own money, and it started working. And they said, Okay, let’s raise the fund. And then what you saw was in the last 10 years, seed has become like, way more mature. And now you have all these seed investors, everybody is trying to own 10 to 15%, for the same size check for the same kinds of rounds. And I’m like, man, things are like totally, like, totally repeating themselves again, and I always thought it I said two points in the post one is around like being dogmatic or not the other points about like effective post money and exit. I think people just like focus way too much on like entry valuation, entry ownership, they set all these arbitrary rules. And in the end, like, one, it’s not going to be dogmatic because markets change. And to, like, what matters is what you own an exit, not what you own up front. And there’s a few different ways to get to the ownership and exit. And I think that that matters a lot more than having arbitrary rules. But for whatever reason, as these industries have, like, mature there, you develop these arbitrary numbers that the whole industry seems to target. And I feel like that’s a little short sighted. 9:18 Yeah. So to go deeper on that, what is the the effect of post money? What does that mean? And do you have just like a basic example of why that’s much more important than just ownership and entry? 9:31 Yeah, so I heard a story from another VC who has a large now a very large multistage fund. But however, many years ago, 10 plus years ago, there was a discussion at the firm and they looked at all of the investments they had made, they did seed series as seriously as his point of entry. And they looked at the exits, and they looked at their ownership at the time of exit. And they basically what they realized was, it didn’t matter what their entry stage was. Exit their effective post money was the same, around $50 million, which was kind of like a mind bending thing, right? Because they put money in that the seed where the entry price was super low. But the at the end, if they divided the amount of dollars that they invested by their ownership and exit, it gives you like, what the effective post money is, if you would just invested all of your money in at one price, like what was that price that you effectively invested that accounting for all you lose and follow on? Yeah, 10:27 so it accounts for, you know, when you when you invest in subsequent rounds, you’re you’re obviously buying at a higher price. Yep. And every time a new investor invests like there’s dilution, that happens, and so that that hurts you as well, right, you can basically do a seed investment, never write a follow on check. But if that company raises a ton of follow one dollars, it’s as though your price went up. And if a company doesn’t raise any follow on dollars, your price stays low. And so you know, there’s a lot of different ways to skin the cat and one company in our first fund, that this company triple left that was acquired for about 1.2 $1.3 billion by this stuff, this business raised $15 million of capital in over its life, and it was profitable for most of its journey. And that company will do better than I think most other investors, deca corn investments, because of how capital efficient it was, well, from a effective post money basis, right. And we have we have others where, you know, the the sticker price of the acquisition is great, but like the company raise tons of money, maybe we deployed money into late rounds at high prices. And like when you look at it, when it’s all said and done, we might be happy with the outcome. But it actually does not compare to you know, this other business that like Not a lot of people have heard of, to us was a great price. But like, you know, to Tech graduates like a ho hum closer to build 1 billion to $2 billion exit, but like, it moves the needle in a way that that is pretty substantial. 11:47 It’s amazing how I feel like the early years of the show, there was a lot of talk about capital efficiency and how important that is. And just in recent years, it just seems to have gone out the window, that I mean, just the assessment of how much money has been raised against how much progress seems to be so much less of a consideration now and it’s just all about the upside to it’s a bit concerning, but um, I would imagine the market will turn it at some point or, or rationalize. 12:14 Yep. But you know, I feel like it’s always been the case that like, the size of rounds was like this weird marker of, you know, success. I don’t understand why that is like, and actually find that even stranger from a recruiting standpoint, right? Like, there’s a lot of employees who say, Oh, I’m so excited about this company, like it’s a unicorn, I’m gonna join this unicorn. And I’m like, do you realize that that basically means that you’re like, getting, getting a smaller piece of the company and like a higher exercise price, because of the because of the fact that a unicorn like, That makes no sense to me. But for whatever reason, employees feel that way. And so companies feel like it’s worthwhile for them to promote it, because it attracts people to work for them. And it’s just like this weird circular argument that I just don’t understand. 12:58 More incentives than just financial, I guess. 13:01 I suppose. So. First, I you know, everybody likes the feeling of like, people knowing where you work. And having heard of the company, I suppose. 13:10 Rob, you mentioned the point around not being dogmatic. And in the post you you talked about this Goldilocks zone, you know, between too much dogma and lack of discipline for the venture firm, right? Do you have any examples of strategies that were difficult to let go of? or move on from next few? 13:29 Yeah, what one is, valuation is always a moving target. And so if you’re really stuck on like a valuation range, and dogmatic about it, you’ll like miss the market, right? Because the market is, especially in an environment like this, it’s always moving. And you’re always going to be like, kind of a step on so that that’s, that’s a general example. Another example, is around geography. So, you know, when we started, we were very, very focused on companies that were like, kind of in our backyard between New York and Boston. And we would say to ourselves, man, you know, if we see a West Coast company, something was really be wrong with it, because like, why would it come to us? I feel like, as we’ve matured, and we’ve gotten more confident in our ability to pick and diligence companies, and as the ability to build companies in like remote areas and support companies, from a distance has improved, we’ve kind of just moved on from being a very geographic focus investor. But that was pretty hard to do, right? Because, you know, to some degree, our LPs bought us for a geographic focus. And so like, we had an LP meeting where he basically like laid out like, this is going to be less of an issue, or less of a focus area. And I remember Actually, I really appreciate this one of my LPs came to us and he was like, you know, we give you guys a lot of credit, we bought x, and you just told us that you’re actually not going to deliver on X. But you were honest about it. You explain why and like we trust the guys that that’s great. But, you know, that was hard to let go of because it’s not just like, it’s hard enough to change your own behavior. It’s even harder when You have these other parties that have expectations of you and you have to move away from. So that was tough 15:06 100% 100%, especially if you are deploying during the fundraising period with LPs, and you’re off strategy, that can be a bit of a hard one to spend. 15:20 Yeah, it is actually have another I’ve another example. Um, so we were, we make a small number of angel sized investments into companies where for whatever reason, the profile, the round, like, doesn’t really fit our core. And it’s a very small portion of the fund. It’s not that many investments. But in some cases, we’re like, we just got to be in business with these founders. And we think it’s worthwhile, we really did not do that in the beginning of our fund. And you know, if you look at Founder Collective, Homebrew, like some of our pure funds, like, they all did it. And there’s a very particular experience that I had, where we got a call from an entrepreneur portfolio, and he said, Hey, guys, I’m going to make an angel investment to this company, it’s coming out of YC. They’re raising like a late seed, really exciting. This is the only angel investment I’ve ever made, you guys should take a look. And it’s, by the way, it’s called cruise automation. And it’s a self driving car business technology. And we didn’t even take a meeting. Because we said to ourselves, well, alright, YC prices are already high, this is going to be a late seed. So it’s probably going to be like 20, something pre which at the time was really expensive. It’s not expensive. Now, it’s a speculative tech, and there’s probably only like, 500k in so we’re not going to get anywhere near our ownership, forget it, we’re not going to take a meeting. And I look back on that. And I say, because it didn’t fit the rubric, we should at least hear the pitch. You know, we probably want a piece of that business one way or the other, even if it’s if it’s too small to like, quote, unquote, move the needle. And three, like who knows, maybe all their assumptions were wrong. And the fact that we didn’t even take a meeting, we didn’t even chase it was like a real problem. And so part of why we do we created this ability to do these smaller Angel sized investments was so that it just like forced us to always chase and, you know, even if, even if then it’s like it doesn’t fit we have we can only make an interesting investment. You know, going through the motions and trying to like meet extraordinary founders doing sure nary things is like what we’re designed to do. And so that was really big for us to shift the way we approach the 17:27 delicate balance. Always, Rob, you have a reputation for being impatient. Your favorite saying internally is anything worth doing is worth doing fast, which I love. Yet, you know, we’re operating in a pretty long cycle business, and it takes time for a portfolio to mature and drive returns. What were some of the key learnings with regards to returns and metrics? 17:51 Man, so I’m so shocked at how many late bloomers we’ve had in our first portfolio, it is just like, mind bending for me. And basically I actually think the bigger takeaway is nobody really knows like what’s going to happen in this industry. Like there was a say again, back to dogma when I got into the business there’s just this popular saying that like lemons ripen early, I also remember a discussion with somebody at a you know, top to seed fund. And he said we looked at the data and all of our best companies basically came out of the gate fast like the time from seed to series A was much shorter than like the the weird cohorts of companies and so that was in my mind. And in our portfolio, that’s just not the case. Like we’ve had multiple companies that had to pull off like miraculous fundraises in year five. And we thought to ourselves, man, we might this might be a zero, you know, better buckle up, buckle your seatbelt and you know, Brace for impact. And are these companies are not thriving. So you know, maybe part of it is like the market environment we’re in. But to some degree, like, that’s kind of the point of venture right is like you invest in extraordinary founders and exciting markets. And you sort of hope you get the timing right. And in some cases, it works out really well. So you know, the everything worth doing is worth doing fast is an operating principle I have for how I as an individual work in a company, how I think about like rapid iteration, rapid experimentation, but I actually think strategy is best viewed with like, a longer time horizon. 19:28 Yeah, I think the two of us are CO and early co investors in hologram that was a company that you know, quietly built a monster that people didn’t realize what was going on under the hood until they kind of came out of that that stealth phase and close to you know, 60 plus million dollar round led by tiger. 19:48 Hmm, yeah, you know, it’s funny, actually, in a couple of these examples. hologram being a good one. For the most part. The founders did exactly what they said they were gonna do it It just took longer, which is actually very counterintuitive, I would have thought that there’d be a lot more instances of like, you know, the popular story is like, Oh, we were doing this one weird gaming thing. And then we pivoted, and then we created this, like, we’ve virtualized this tool that we’re using internally. And now it’s slop, right? Like it’s like hard pivot. What’s interesting is how a number of these were like, the founders were just a touch early, they kept grinding, they had conviction, they capitalized themselves properly. So the expectations weren’t crazy. And then at some point, like everything started coming together. So that’s been surprising to me. And but we probably don’t have enough data to see if that was just like, a couple lucky instances, or if that’s more common than not, you know, as you think about current funds, and early stage TVPI, IRR. You know, are there alternative metrics or signals that you look for? that can give you some proxy, quantitative proxy for performance, some things take longer to bake, and may not show up in that super hyped rounds that go every six months? And you know, you’ve got the 5x multiples, if if some of these take longer? You know, are there any other signals that you guys are measuring? 21:05 Yeah, so I feel like you probably want to talk to some LPs on that, because they just have more data to draw from, we had one of our LPs who made made this point A number of years ago, and he said that his group had done an analysis of correlation between core tiles in the first five years of the life of a fund and like ultimate core tiles at at the end of the fund. And there was a very, there was almost no correlation. So in other words, if you were a top quartile fund, in year four, the that did not necessarily suggest you were going to be a top quartile fund in year 12. Right. And similarly, if you were a third quartile fund, you were just as likely to kind of bounce back and become a top quartile fund. I haven’t seen the underlying data on that. But that’s always stuck with me, because I think it helps in both ways, right? One is, if things are off to a slow start, you kind of believe like, there’s still a chance and things are off to a hot start, it forces you to be a little humble and know that like things can go the other way. But no, I don’t really know. I don’t know, what are the other good early indicators, right? Because, you know, I think I guess, as a manager, you know, if you have a lot of, you know, shots on goal that seem interesting, and you own enough of those companies for it to matter. But I kind of feel like, hopefully every fund manager feels that there’s, you know, a few years into the fund like they have enough. Like, there’s a reason why you have a scope on strategy you do. So I’m not I’m not really sure what the answer is that 22:31 have you changed portfolio construction at all. 22:34 The biggest change is, we used to think that we could concentrate really early. And I think that that’s actually kind of hard to do. You know, when I was when we, when I started in venture, the saying was like the Series B is the sucker round, because prices are too high. But the proof wasn’t really there yet, right? I think today, like the series A and the early series, bees are kind of stuck around. And so if you were to have like an ideal strategy, I think the best risk reward tends to be like, at the seed, or a little bit after the series A, but most seed funds, once they start on some trait, they think to themselves, like, Alright, we’re gonna concentrate in the series A, because that’s when we have like, you know, all of our pro rata rights, and we’re still really involved with the business, maybe the Series B, but it’s like, I think in a lot of ways, it’s too early. So in our more recent funds, we’ve gone heavier upfront, and we’ve gone heavy later, at prices that seem like maybe a little bit uncomfortably high. But we’ve remains to be seen, like how those play out. But I feel like we’ve been rewarded so far, and we feel pretty good about the risk reward of those investments. 23:48 Rob, you cited, one of the bigger observable misses for many VC’s is is related to market size. You know, what’s what, what was the observation here? And where do you think investors are missing when they’re assessing market size on prospective investments? 24:04 Yeah, you know, the biggest issue is, so there’s two potential pitfalls on market size. And I would argue that usually like it’s, you know, the objection is not big enough, is usually the number one, if not the number two, is the number two, if not the number one reason why VC’s pass number one or two is also like team. And, you know, it makes sense, like most of our funds are pretty big, and it’s an outlier business. And so you want to believe that every single investment has a potential to return multiples of the fund. And in order to do that the underlying market that these businesses are in need to be big. So that’s the reason why markets matter. Or market size matters. The two pitfalls are one, not being able to anticipate how a market is going to grow, which I think is pretty well understood a lot of blog posts and that the what I mentioned my post is actually it’s a different, probably like more insidious mistake, which is like, not defining the market properly. And the example I use Is DraftKings, which was a very heartbreaking investment or not investment for me. Because Jason the CEO was I was his ta in college. And I remember in college being like, he was a very precocious kid, and but he was super smart. And I mean, it’s not a lot of people that you remember, right? Like, right? Yeah, like tons of kids. And so he’s one of the few that I remembered. And remember when he came in for the pictures, like you might not remember, but in college, like, Oh, no, I remember you. Anyway, so when we talked about DraftKings, we said like, Okay, well, how big is the fantasy sports market? And then what percentage of people like play fantasy sports for money and want to do that? And we’re like, yeah, it’s not that big. Right? It turns out the way to think about this is like, how big is the like, gambling market? And of the people who like to gamble, what percentage like sports. So it’s like big market and 100%. Right. So like, it was just a different way of defining what the opportunity was here. And we just missed it. There were a lot of reasons to not invest in DraftKings. But market size was definitely not one of them. Wow, what a bummer. I remember after being the TA and recognizing some talent. Yeah. 26:11 Yeah, no, those guys were there, their extraordinary team. And what’s been nice is that, you know, Jason, Jason lives. He’s in Boston. And, you know, we, they’ve been very kind. But even though we’re not investors, like, over the years, he’s been very kind. And, you know, he’s spoken to a bunch of events. And we’re still very friendly. We’ve shared a bunch of angel investment, and he shared a lot of angel investments with us. And so I’m glad we’ve been able to maintain the relationship, but would have loved to be an investor. Yeah, I’m 26:36 not sure what the timing was on that. But recently, we had Emily Paxhia of Poseidon on the show, and she has a cannabis focus fund. And we were talking about when she raised the first fund, you know, there were a lot of LPs that had serious reservations. And I even remember, shoot, when I started the show, you know, gambling, you know, it was considered one of those vice investments like, do you really want to stick one of those in the in the fund, even if it has a lot of upside, because there’s gonna be some LPs that are calling you up. And so I think that has abated some with regards to gambling, but at the time that he was going off for a seed round, it could have been a seen as a, you know, a potential flag. 27:16 Yeah, well, you know, at the time, the whole idea of skill based gaming was, which which their original like, product was, the, it was, it was a little bit more, you know, clear cut that that was gonna be okay. But like, they did face a lot of regulatory hurdles along the way. Yep. And, you know, it that was, that was definitely a scary, a scary risk. And I know, he told me like it, I think he had a very difficult Series B fundraise, and that was a lot of folks got to the finish line, and then realize that they had some sort of restriction or, you know, some clause with their LP is that either prohibited it or, you know, required that they got approval, and it’s like, who really wants to get approval from their LP to make investment and so I think that was a tricky. 28:03 So while we’re talking controversial issues, your your next point was controversial, or maybe is a bit controversial, you suggest that founders and investors should make each other a bit uncomfortable, why 28:18 I think it’s very easy as an investor to say, Oh, you know, I just want to work with people that I like, really get along with, you hear a lot of people say the word coachable a lot, which I actually, like, despise that word, as from an investor to entrepreneur standpoint, and my realization was, one, there’s a lot of different people out there, most founders are like, a little crazy and a little out of control. And if I limit the universe of founders, to just people that I feel like, I jive with, like, that narrows the universe, like way too much and so, you know, I feel like I’m at my best and founders are that I work with tend to perform best when I go into a meeting with them. And I feel like a little bit prepared to like spar, because you know, I don’t know what’s coming and I know that they’re, they have high expectations of me and I better be prepared and all that. And founders are going to come at me with like crazy ideas, crazy ambitious goals or, or initiatives. And I have to like, I’m thinking myself, man, I need a real rein this person in as opposed to, like, push them to like, be more aggressive, right? So that’s kind of my perspective, from an investor standpoint. I think from a founder standpoint, you want an investor that or you want an investor that is effective, that means they show up they do the work, they tell you like it is and you know, they deliver what they say they’re gonna do. There’s a lot of investors out there who are super nice and super friendly, but like they don’t really push you in a helpful direction. Or even worse, there’s a lot of investors who are like in massive sales mode before they invest. And so you think, Oh, I’m gonna pick this person there. It’s so nice, they’re so supportive. And then like once or investor, they either like totally disappear, they become a completely different person. And so I always tell founders, like, it doesn’t matter whether you like this person, like, does this person seem insanely effective. And when you talk to their references, did those references say this person is really effective? Because that’s what you want. You don’t want like a nice guy or gal who can like sell their way into your company because you can’t get rid of them. If it turns out that they’re not very good. 30:25 Is there any fear that being a bit adversarial pre investment will preclude you from winning a deal? 30:31 So I’m not I’m not trying to be adversarial? And you know, me, I’m a pretty I’m a pretty nice guy, I think. But I think I have rarely met a founder who, right after an investment closes, said, Oh, I chose an investor I didn’t really like, right? Because the investor just said yes to their baby. So of course, I like that, right. But really, I think the most productive investor is the one that like, knows all the words challenged you on the hardest topics, and still got there and build conviction. Like that’s really what you want. But to get there might not be as smooth and easy of a path, compared to the investor who is like, super friendly, didn’t even know what he or she didn’t know, you know, didn’t ask tough questions. And then later, once they’re already investor, like, realize there’s all these problems or all these challenges, and isn’t like mentally prepared to deal with them. 31:24 It almost seems like the best founders, when you ask them the tough questions, they love that you’re so interested, and you’re getting into all the nuances, and you’ve asked direct and hard questions that it’s like the respect builds, you know, as you’re as you’re doing the vetting. 31:40 Yeah, I think so what some founders, which I understand, you just want to get the round done. Right. And yeah, and I think there’s a different moment in time for that, like, in a way the brilliance of Tigers strategy, is realizing that like, after a certain point, you don’t need a value added investor, you just want an easy investor. And I think that that’s, that’s smart. Like, I don’t think that’s what most people probably want at the cedar series A but, you know, maybe later it is, I would argue that YC probably takes the opposite point of view, which is like, all you want at the seed isn’t easy investor, and it’s at the series A is when you want somebody who’s who’s, you know, really paying attention. But until then, like, Why waste your time, right. So, you know, it’s just different, different points of view on that. 32:24 It was funny, we, we made an offer to a company based in Texas, and subsequently, they got into YC. And this is fairly recent. And all of a sudden, the discussion changed substantially. And the founding team was, all of a sudden in San Francisco, you know, for a month straight. And I mean, it felt like we were negotiating with YC, not the company. Based on the terms, there’s, there’s such a force, I really think the most, the most significant firms founded in the last 15 years are entries in Horowitz and YC. Like in completely different ways, they they’ve just totally reshaped the industry and cats up to both of them for for doing it and a huge amount of admiration for for both of them. 33:15 It’s pretty amazing. We even maintain like an active Watch List of companies that, you know, there’s some hair, they need some development or some team, you know, and I checked in with my lead Deal Guy about three weeks ago and said, you know, what’s, what’s the latest on the active watchlist? He said, Oh, all of them got into yc. I was like, You gotta be kidding. All five? Good, I guess, you know, great for them. So and we’ll keep watching. Hey, Rob, you know, after, after all this time investing, what’s your opinion on on competition? And how founders think about competition? 33:47 You know, I just don’t know the answer. That’s one of the things I said, it’s very easy to say, the conventional wisdom is more like, well, focus in what you’re doing. Don’t worry about competition. And somebody else made this interesting point. They’re like, you know, while that’s true, I have found that the very strongest founders know their competitors intimately well, and they have a very strong point of view on what they’re doing right what they’re doing wrong and what they think they’re going to do down the road and you know, whether or not it that drives their strategy, they’re certainly hyper aware. I one of the things I said is, if I if you told me I could no longer be a venture capitalist, what would I do? I would probably devote a year or two trying to get like HBS or Sloan or somebody to let me create a course on competition and do a bunch of like head to head cases right? Like I would love to do like a BlueApron versus Plated and HelloFresh right? Because I feel like that is a market for like a Casper case would be similar, right? Like in those cases would be like, man, effectively, I think those companies just like blew each other’s brains out and you know, it’s not like they’re Wasn’t a market opportunity, but the way they approached the their their respective businesses I think ended up like shrinking the pie for everybody. So that’s that comp that’s that case, right? And, you know, there’s a bunch of other scenarios where like, you know, I don’t know the story, right? Like, I don’t know why one business succeed, and with another one fail, even though one had a head start at very good, competent founders and seem to be well capitalized or not, like, I’d love to know. And I’d love to know how much the CEOs worried about each other? Or did they just do their own thing? It’s, it’s, it’d be so fascinating. 35:36 I feel like I got to put you on the spot, you know, how about at the VC level? You know, how do you think about competitive set of investors in your space, and how to maintain your edge when it comes to sourcing and winning the best deals? 35:48 Yeah, we are in a hyper competitive industry, and we cooperate great with with a lot of the funds we work with, and I have a high degree of respect for a lot of other other funds. But like, it’s competitive, right? Like we are, in a way we’re selling a commodity and its capital. And, you know, I’d say a big part of the value is, is is just that is just the capital. So I think about it a lot. You know, I think it pains me when we do things that seem similar to all of our competitors. And it makes me happy when we do things that are completely different, even if we’re right or wrong, I don’t know. But I feel happy to do things that are different in terms of how to distinguish ourselves, or I feel like firms are. There’s a wonderful founder, Dimitri, at modern Treasury, who is He’s a good friend of the firm, he was actually an intern with us when he was in business school. And he has a benchmark as an investor. And, you know, I, and he said something to me recently, that was actually not dissimilar from other folks who had benchmark as an investor, which is like, you know, there’s a lot of these firms that have like all these platforms support, but in the end, like, who really delivers its benchmark, which is very tough driven, it’s most of the work is done by the partner who’s on point. And for whatever, you know, use case you want to use the venture firm for like, that person tends to be way more effective than like, an army of, you know, functional specialists. So I don’t know. So what does that mean, right? Like, does that mean that you, you shouldn’t build out these resources and build a really expensive platform? I don’t really know. But I think it means that you kind of you need to know, you need to know your customers and deliver on stuff that’s practically useful. Don’t worry, don’t focus too much on the window dressing, which is what I think a lot of firms end up doing. 37:45 Interesting. Rob, your partner Lee likes to say that fundraising isn’t about convincing skeptics. It’s a search for true believers. Do you have any advice for founders with regards to fundraising? 37:57 Yes, I do. I 100% of Google at least says so you know, practically, what does it mean? I think it means you go broad. Most fundraise. Most founders, when they fundraise. They say, Okay, let me make my dream list. And I’m going to narrow it down. And I’m probably going to start with my favorite or second favorite person first. And I always say like, it’s the exact opposite. You definitely don’t want to pitch your favorite investor first, like you will get better at pitching the more you do it. So like, take a couple practice swings, you want to have like a lead list of at least 30 funds, if not more, and you want to just be pretty ruthless about winnowing down the funnel, right? So you’re not going to spend a huge amount of time with every single fun, but you can touch a lot, and then figure out like, okay, where do I want to spend my time because you’re looking for a true believer? Like, you’re not looking for a firm that is asking tons of questions, because they’re skeptical about our fundamental premise like that is not a good use of time. It is like, find somebody who already believes in the core premise and is just trying to get comfortable with some of the others surrounding material. 38:59 Rob, if we could interview anyone here on the show, who do you think we should feature? And what topic would you like to hear them speak about? 39:06 So this is not a famous person. But I think it’d be really interesting to your guests. There’s a book that we give every entrepreneur that that becomes part of the next portfolio called Who, by a guy named the guy named Jeff Smart. And the book is basically a method for hiring, you know, talks through like, how do you how do you phrase questions in a way that you get to the truth? How do you do reference checks in a way that is most effective. And the really fascinating thing is the underlying research that this person did that led to the book and now like this, I know human capital consulting firm, was actually evaluating venture capitalists in how they made decisions about teams. Interesting. And essentially what he saw he think he followed a bunch of Expedition capitalists and basically what he saw was the most popular methodology was They’re like, let me have an unstructured conversation with this founder and then decide like, Are they good or bad? Right? Like, that’s what 99% of venture capitalists do most of the time, if not like the lead investor, that’s what happens in the partner meeting, right? Like partner meeting happens, you have one guy there or gal who listens to one pitch, and then says that this person’s weak, we shouldn’t do this deal. Right? Basically, what he found is that’s the most common way that VC’s evaluate talent, and it is by far the most, the most inaccurate way. And so he had, he’s had all this other data, these other types of approaches, and there’s clearly better ways to do it. And so that was sort of the the root of this book. It turns out, you know, venture capitalists are not a very big market. And we generally think we’re always right. So we’re not good at buying, like self help books like that. And so he ended up writing a book more broadly around, like, How do you do? How do you approach hiring? And how do you make decisions about people, which I think is awesome. 40:53 Amazing. I’ve always thought that there were parallels in talent recruitment, and in, you know, evaluating teams, super compelling. I’ll definitely get him on the show. 41:03 Yeah, if he can get I mean, I’ve never heard him speak. I’ve never met him. I talked about this book all the time. And I think he works with a lot. I mean, his firm works with a lot of like big PE firms, when they’re doing like, hiring a new CEO for an existing business, and they kind of run their process, but it’s a great way I really recommend it. 41:22 Rob, what do you know, you need to get better at? 41:25 it gets back to my lack of patience. I need to get better at not following Not, not not paying attention to the noise and trying to go deeper into a few subjects that matter. Because I’m smart enough to know that if I’m not deep in something, if I don’t understand something, I shouldn’t pursue it. But I’m not smart enough many times to pick the thing that I need to understand and invest the time and energy to do it. So a good example of that is crypto and blockchain investing. Like, I just don’t understand it. And so I have a hard time making investments in it. But I really should have gotten deeper sooner. And so that’s something we’re working on, but like, a lot of lot of last time. 42:11 And finally, Rob, what’s the best way for listeners to connect with you and follow along with NextView? 42:16 Yeah, so I’m at Rob, go on Twitter. And I’m pretty active there. And you know, my wife makes fun of me, but I do a lot of stuff there. And so I think that’s the best way to connect. 42:30 Awesome. Well, Rob, it’s been a great pleasure, you know, from the very beginning of the show back in 2014. To now. It’s great to reconnect and hear the debrief on the last 10 years. Thanks so much for sharing it. 42:42 Thank you. Thanks for having me. I really appreciate it.
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