370. Why 8VC’s Incubation Model Works, the Most Unique Culture in Venture Capital, and Investing at the Intersection of PE and VC (Drew Oetting)

Drew Oetting of 8VC joins Nick to discuss Why 8VC’s Incubation Model Works, the Most Unique Culture in Venture Capital, and Investing at the Intersection of PE and VC. In this episode we cover:

Why Iteration is a Key Founder Quality
The Incumbent Venture Capital Mindset
How to Marry Entrepreneurship and Investing
And Much More!

Guest Links:

The host of The Full Ratchet is Nick Moran, General Partner of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.

To learn more about New Stack Ventures by visiting our Website and LinkedIn and be sure to follow us on Twitter.

Want to keep up to date with The Full Ratchet? Subscribe to our podcast and follow us on LinkedIn and Twitter.

Are you a founder looking for your next investor? Visit our free tool VC-Rank and we’ll send a list of potential investors right to your inbox!

Transcribed with AI:

Nate: Drew Oetting joins us today from Austin TX. Drew is a founding partner of 8VC, a venture firm that has invested in companies such as Anduril, Asana, Blend, Oscar, and many others. In addition to investing at 8VC, drew is also a serial founder, having co-founded both Affinity and Resilience. Drew, welcome to the show!
Drew: you for having me.
Nate: You bet.
Nate: So can you walk us through your background and your path to venture?
Drew: Yeah. Well, I guess we share one thing in common, which is we’re both originally from Iowa which is a small but very proud crew of us in venture. So I grew up in, in Iowa and I was obsessed with two things. Really from a young age. I was obsessed with golf and I was obsessed with investing.
Drew: And so when I thought about what i, where I wanted to go for college I had read this book, barbarians at the Gate, which was the story of Henry Gravis and George Roberts and KKR, and really the LBO sort of private equity emergence as a big asset class. And they had attended this College, Claremont Men’s College now called Claremont McKenna College in California. And I got a recruiting letter from their golf coach. and so I knew what it was, even though it’s a really small school and I’m coming from Iowa to go there.
Drew: And so, that’s how I ended up at Claremont. When I was there, I studied math and econ and I was always focused on investing and I didn’t really know what investing was. I thought it was sort of like day trading or private equity or hedge funds. But then over time I had a set of experiences which kind of really led me to an interest in the entrepreneurial side of investing and being involved in startups and tech companies.
Drew: One was, I had a scholarship from a group called Cascade, which is the family office of Bill and Melinda Gates. A lot of Claremont people went there and worked there. And so I was very fortunate to have a scholarship through them and worked with them and see venture capital and private equity. And then I also did the, sort of the exact opposite where I lived in Mongolia and with a friend of mine, a guy named Miles Bird, who also works in venture now and saw this crazy entrepreneurial guy who built this holding company, but he talked like an investor, but he also talked like an entrepreneur, and it was like crazy wild west stuff.
Drew: So it was very entrepreneurial. I was like, wow, we would love to kind of marry the two of these things. I don’t really want to stay in Mongolia necessarily, but I do like the entrepreneurial aspects of it. So I was, I knew I needed to get to kind of Palo Alto, which was the center of gravity for that world.
Drew: The only job I could really get was investment banking. And so I went to work for Moelis in their Palo Alto office. I was a terrible investment banking analyst, but I was very grateful that I got that job. And the people I worked with there were amazing. But I basically started trying to recruit into startups or venture capital.
Drew: Like immediately. I was very fortunate to get introduced to my current long-term business partner named Joe Lonsdale. I got introduced to him through a friend of mine from Claremont Mckenna College, who were, I owe a lot to for that. So that’s how I got into it really as a chief of staff. So, and it was when Joe was CEO of Adavar, so it wasn’t even really yet that venture capital or investing, but we kind of knew that’s what we were gonna focus on. And so I don’t think it’s a super traditional path in, but I actually don’t think very many paths in venture are that traditional these days.
Nate: Yeah. Yeah, very true. so I guess what ultimately led to the founding of 8VC, you met Joe’s, also one of, you know, your partners there. You guys founded the firm together. What led to the founding of 8VC and would also be curious to hear the thesis behind the firm.
Drew: Yeah, so the founding 8VC, it’s kind of like multiple foundings. When I went to go work for Joseph’s chief of staff, he was already underway building a venture capital firm called Formation Eight that he was building with two former partners of ours that he had known. And so my, the first two funds that we did were at Formation eight.
Drew: And the thesis of Formation Eight one part of it is very similar to what we do today which is investing in early stage companies focused on really the role of computation as it sort of infects many different industries. And we can talk more about, that’s a very high level thing, but we’ll talk more about that later.
Drew: But the other part of Formation Eight’s thesis was that we were gonna help these companies go to market in Asia broadly. So we had business development offices there and it was very interesting thesis. It worked in certain cases, but the reality was there, it’s actually a lot harder for a series A or series B company to do business in Asia, like most can’t even do business to the United States. So, we just decided that for thematic reasons, but also just because I think we had different kind of views of the way we wanted to build a company that we would kind of go our separate ways. So after two funds of formation eight we we kind of broke apart the partnership and it actually led to a bunch of different firms being founded.
Drew: It led to iFLY, which is , Chen, it led to Eclipse , LiRo, Susan and Seth and those guys. And a few others. But 8VC is sort of what you know, Joe and myself. And then a few other people that had been sort of advising us at 8VC went on to do, and we kind of took over the administration of all the Formation Eight funds and built 8VC up.
Drew: And so 8VC was, it was originally Formation Eight. That was 2012. We started that. And then the refactoring into from Formation Eight and 8VC kind of happened in, in 2016. So the first 8VC funds are 2016 vantages. But we view Formation Eight funds, which are 2012 and 2014 as you know, are just as much ours as the other ones.
Nate: I see.
Nate: What were the fundamental differences between you and the other partners that eventually broke away to do their own things? And the reason to provide some context why I asked that is because you’re pretty unique at 8VC and we’ll get into some of those areas today. But I’m curious because it must be philosophical in nature, to some extent, and I’d be curious to just hear you speak to some of those differences and then we’ll get into what you guys are doing and why it’s so interesting in a moment.
Drew: So I think first was just the thematic thing I alluded to, which was that a big part of the infrastructure Formation Eight was oriented around helping companies go to market in Asia. and when that was slower to develop what, you know, we had all these ambitious, talented people on the ground there, and what they started focusing on was doing investments.
Drew: So all of a sudden we had already deviated from the mandate. And I don’t mean that in a critical way necessarily, but it’s just the way things happened. You have talented people on the ground. There’s not business development opportunities, they’re gonna start looking at deals. So all of a sudden we were shifting and sort of implicitly becoming almost like an international fund where we had originally been trying to invest in Silicon Valley based companies, which largely were driven by you know, Joe’s network, right?
Drew: So Joe had been an intern at PayPal, cofounded Palantir, and ran it. Really built the engineering team there and sort of the organization there for many years, and then left and then started at apar. He had a really strong network of people that, you know, were leaving those companies, or he had met through those companies that were starting, you know, many of the companies that we talked about today. And the, and that’s what we wanted to focus on. We also wanted to focus early stage seed series a building companies from scratch where we felt we had the biggest comparative advantage, not doing later stage deals, which many times that’s what had access to over there. .
Drew: So I think thematically, that was the first one. I think secondly was kind of the ambition and culture that we wanted to build. And again, this is, I think culture is a strategic question, which means there’s not really a right answer, right?
Drew: You have to choose one that works for you But we were all in like, we ran it like a startup. It was highly iterative, chaotic, but you know, a hundred hours a week, everyone obsessed with it.
Drew: Everyone’s social life completely merged with business. And we were super transparent, like, you know, to a sort of alarming degree and also focused on specialization within the team as opposed to you know, having a bunch of people who are all supposed to be, you know, good at every aspect of venture, right.
Drew: We ran it like a company where some people were gonna be world class at sourcing, some people were gonna be world class at diligence, some people were gonna be world class at helping portfolio companies. People were world class at making the intellectual decision about is this a good investment or not.
Drew: And because we, that, that was relatively radical relative to sort of the incumbent venture capital mindset. And so there was a lot of inherent conflict in that because we didn’t think about deals as belonging to an individual partner or not. We thought about them as being a, you know, the team working on something, right?
Drew: Like you might tackle a product build or something. And so, you know, the culture, the incentive structures, all that stuff was not necessarily, you know, it wasn’t what we wanted. We were pulling in a direction that other folks maybe didn’t want as much. And so, you know, ultimately it just became pretty clear we needed to kind of separate out.
Drew: And I’d say like, I’d give everyone credit this, I mean, I’d give Joe, Brian and Jim all credit for this because most venture funds wouldn’t have done that. Most venture funds that had a successful first fund got their second fund raised. You know, we had 44800000 first fund, 50000000 second fund like that that was a lot of money back in 2012, 2014. Most people would’ve just like kept going for like 10 or 15 years and like slowly grown to hate each other. , Because it’s like a huge deal to, to break apart a firm that’s done that, right? And so you give them a ton of credit, having the courage to do it, all of them.
Drew: I also give our limited partners a huge amount of credit, right? They were able to see that this was ultimately what was gonna be best for them, but not just like fall back on heuristics. Like, okay, like you never back a partnership that breaks up. Or some of ’em said, Hey listen, we’re gonna take a fund off and see how it goes.
Drew: I totally get that, but I’d say 90, 95% of the limited partner base was unbelievably constructive as it relates to that. and so we were really lucky to have that. It’s not, I don’t take it for granted, even to this day that we were given that opportunity and it allowed us to learn a lot about what we didn’t wanna build and what we wanna build, and then apply it immediately.
Drew: When we kind of refactor to 8VC.
Nate: I mean, you guys are as much entrepreneurs as you are investors. I think people know this and I said it in the introduction, but you co-founded Affinity and Resilience. I mean, two companies alone that would merit a successful career. But I, You’re one of the few firms that has had success with the incubation model and being able to launch these companies out of a venture firm.
Nate: Many have tried most fail, most don’t do it well. What sets you guys apart? Like, why are you able to orchestrate this model in A way where you’re able to find success and would be curious to hear how it. How it’s so integral to 8VC and then again what sets your approach apart with that model?
Drew: Yeah. Well, I mean, I think, listen, it’s been highly iterative, so I think the first part is like I will give Joe. A huge amount of credit for his overall strength in iteration. And that sounds like a funny thing, but it’s unbelievable. I mean, the pain tolerance that he has, you know, for iterating ideas, you know, late into the night on a Sunday on nuanced little things, right?
Drew: Like what exactly the, you know, EIR model should look like for the ni whatever. Like, it’s incredible. And I think it’s, I think that is, like, Joe’s incredibly smart. Everyone knows he’s super smart and he’s chess champion, blah, blah, blah, all this stuff. I mean, that’s great, but I know a lot of smart people. It’s unbelievable. His tolerance for pain. And I mean that, not in a, bad way, but just, a lot of people are willing to tolerate pain when they’re in their twenties and they’re broke and they wanna be successful. Right.
Drew: But he has the same, if not more pain tolerance today than he did when I first met him at least. And it’s really remarkable. And that inspires, I think our organization, listen, it also means that we embrace chaos because if you just iterate stuff constantly, like there’s a lot of false starts. And I think that can be frustrating.
Drew: There’s definitely people in our organization in the world who maybe you’re better at like, setting out an initial plan than me and Joe would be because our strategy, like we fall back to iteration. But I think that’s like iteration is something I definitely look for in founders and I think that’s what’s been, you know, that’s enabled us to build a build program almost like an internal company. Right. That has been, you know, I think relatively successful. We started, the other thing is we had evidence before we really [00:13:20] launched it, so.
Drew: You know, there are five or six companies that we think are, were basically the evidence that we used to justify build Affinity is one you mentioned you know, Quali is another one where you know, Nate Baker was an intern with me and Joe, he was an associate for us. And then he all he was, all he could ever talk about was title insurance.
Drew: And then he, you know, basically went and built a title insurance software company which is now like, you know, 30 plus percent of the market. And there’s other examples. Maria was Joe’s chief of staff at Kojo. Anthony Goen was Joe’s chief of staff started Hearth. And so there were people leaving and starting companies or sort of incubating them inside of Formation Eight but there was no mechanism to invest in them.
Drew: Like with Affinity, we couldn’t even invest in Affinity from Formation Eight cuz it was like a considered a conflict. So we had to like raise an SPV for it or raise money from other people for it. So there was all these like early chaos. And then obviously there was Joe’s track record with Palantir here and Addepar and OpenGov and other businesses.
Drew: So when we got 8VC set up, we said, where do we wanna grow this firm from here? And you know, we looked at all the same thing. People look at, should we do a big growth fund? Should we do a hedge fund? Should we do a credit fund, whatever. And we thought, well, like it seems like we’re really good at this, at like creating, like attracting talent, harnessing it, helping people start companies like we’re not running them but we’re helping that, we’re helping ’em overcome inertia, right?
Drew: We’re helping them with that early iteration. And we seem to, the only thing is like, it just gave us energy. It was like we created passion and it connected us to the team that was starting to grow, right? It was not just like me and Joe and Alex and Jake and Kimmy’s sitting around anymore. And then we had like other people, we had to keep motivated and excited and so, we iterated in a relatively, I think, you know, conservative way based off data to this idea of launching built.
Drew: And then when we did it, you know, we did it bit, we went, we figured out the incentive structure that was correct cuz we knew that we needed to be able to basically incentivize our whole team with equity directly in these companies if we wanted to really proliferate it. And that’s rare cause a lot of firms I think, haven’t they maybe own a lot through their fund, but they don’t actually incentivize their young people who in many cases are doing a lot of the work.
Drew: Because and while the partners at the firm are incentivized through the carry, no individual deal really will move the needle you know, on even if someone has millions of dollars at work, just if you look at the way the math works out. So we needed to be able to set that incentive.
Drew: And then the last thing was figuring out. how much we could credibly take to and still attract world class talent. And that again, it was an iterative thing. And we were, you know, we made some mistakes. We owned too much, made some mistakes, probably didn’t own enough, but we kind of settled on a place where we can get very strong founders who maybe started, you know, multi a hundred million dollar companies or ran big public companies to actually come join us because we look like a junior co-founder on the cap table.
Drew: So it’s not nothing, but it’s not like we’re trying to take 50, 60, 70% or something. And then we also, you know, we’ll finance these businesses to de-risk them a bit. And so overall we think founders get made. They probably break even or actually get ahead based off the dilution we prevent on subsequent rounds.
Drew: So it’s been a, it’s been a huge, and then the last thing I’ll say is, We’ve worked a ton on iterating to how do you balance the tension between a build organization and an investing organization? Because even though BUILD is awesome, super passion, whatever, it’s only 25% what we do, the other 75% is investing in companies.
Drew: So how do you balance the staffing? How do you balance the the attention, the cultural value of those things? And again it’s a constant iteration, but it’s one that we, it’s one that we really leaned into really, you know, I think Joe’s sort of vision for what it could be. And we feel really happy and fortunate that we focused on that over the last, you know, four years or so versus chasing stuff that maybe we would’ve been just a commodity provider in the market.
Nate: Yeah. Yeah. I have so many follow up questions to that. I mean, you talked about some of the learning lessons.
Nate: I’m sure everyone’s curious how it actually works. Like are you incubating the ideas and going out and finding the entrepreneurs, or do you have junior staff internally that have ideas and they promote it up to the more senior leaders of the firm and say, Hey, I have this idea and I wanna launch it under 8VC?
Nate: Or is it a combination of both? I’d be curious to walk through like how this happens from the inception of the idea to the actual. This is the staff that we’re gonna run with, and here’s their incentive structure to maximize the probability of success.
Drew: Yeah, it’s a great question and there is not one answer, although there are probably two or three distinct answers. So the first thing I’d say is like the we operate. At 8VC with like a one one team, one dream model. And that applies on the investing side and it applies on the build side. So the ideation happens mostly via the investing team.
Drew: The same way that we would talk about themes in a space or whatever. I’m sure most venture funds have some forum with which they talk about where the world is going. Not about specific deals, but more thematically. So at 8VC we, we obviously do that too. We can manifest those views both through finding investments, but we can also manifest them through building companies.
Drew: So it gives us this other sort of vehicle to harness the intellectual capital park firm. It also gives us another vehicle to harness the human capital bar firm because like a lot of, at a lot of firms, the young people maybe wanna be entrepreneurs that are working there. At 8VC you can have an entrepreneurial journey.
Drew: In fact, you can have multiple entrepreneurial journey. Without leaving. You can still leave, right? If, but it because there’s an ability to both have that journey and have, you know, significant economics in that company. And stay if you think maybe you actually aren’t the best CEO or COO or whatever, maybe you recruit your friend to do it and you go on the board and you’re super involved, but you stay because maybe your skillset actually is not being a ceo.
Drew: Maybe it’s actually in helping overcome the inertia. So while we don’t necessarily want to block anyone from go, you know, any of our principals or associates or even partners from going to start and run a company, we do want there to be a real sort of alternative to doing that because in many cases there is a better person to be the actual full-time ceo.
Drew: And so. , the ideas largely originate from the investing side and or from other things we’ve observed in the market. It’s not always the case though. Sometimes people, especially technical folks, will bring us an area, maybe it’s a technical area or maybe it’s even a sort of a rough sketch of a business and say, Hey, like I wanna start this with you all.
Drew: I need help building the company, bringing all the unfair advantage to that business so that it can launch much faster. Maybe I even want, can you help me find a CEO for this? I wanna be the CTO of it. And so in those cases, maybe they brought more of an idea. We also have EIRs that are always at APC.
Drew: And again, some of those folks will start with as broader, you know, we’ll find ’em. They’re really good at product engineering. You know, they come in and they say I wanna do something in healthcare or logistics. And we’re like, this is a real example by the way. A company called Baton was started this way and Andrew and Nate came and we are really great product and engineering people we knew through, they’ve been in another portfolio company.
Drew: Their CEO had referred ’em to us and they started with that, brought a thesis and we spent months narrowing down, going through all of the different parts of healthcare and then being like, ah, I don’t know, this is, and then my partner Jake Medwell, runs our logistics investing, took ’em through logistics and they were like, okay, this is for us.
Drew: They started Baton, they built it up, just sold it to writer. And now they’re the CTOs of Ryder, which is one of the largest logistics companies in the United States. And that was like literally from the, okay, we’ll take 30% of GDP and start there. Others start much more targeted. Where an EIR comes in, we just launched a something called Saronic which is a, a sort of a NextGen maritime defense company. And Dino the CEO and co-founder, he had been a Navy Seal for a long time and he’d been at Vista Equity in, in, you know, in Austin. And so we got to know him. He really wanted to start a company. He came in with like three or four different defense tech guy.
Drew: He was, knew he was gonna do defense obviously, is where his unfair advantage was. He had two or three sort of high level ideas where that he had some insight were gonna be important, and then we ran those through lon launched it. So EIR sometimes come in with, you know, a varying set of ideas, roughness, and then we just kind of run ’em through a process to harden it up. And so the EIR ideas, I’d say are a little bit more externally motivated. But many of the ideas come from the investing team. And then what we do is we harden the idea and then we recruit aggressively against it.
Nate: How does the decision making work to green light and incubation versus green lighting and investment, is it similar people, similar stakeholders involved, or what are the discrepancies between the two internally?
Drew: That’s a great question. The build does not exist inside of the investing process. and what I mean by that is, as anyone in venture knows, there’re a well-oiled investing team, has some structure as it relates to deal comes in deals, staffed deals, run through diligence deals, decided on, moved on, right?
Drew: I mean, if you’re processing thousands of deals a year, which most, you know, legit firms are, you gotta do that. You especially gotta do that also cuz you wanna be competitive in the market, you gotta move fast. So there is a bit of a formulaic approach to managing a investing pipeline. We don’t manage a build pipeline in that way.
Drew: There are many ideas that exist in sort of various degrees of limbo that may get worked on when someone finds ’em interesting, they may get worked on when, you know, maybe an EIR comes in, we run ’em through some ideas, but then there’s also ideas that just like speed up and move fast. And to some extent, the signal that we use about the seriousness of an idea is like the natural pull or lack of pull that it experiences.
Drew: We can always get better at making that process purely meritocratic, right? That’s what we’re always driving to do, as opposed to just the person who’s the loudest or the person or, you know, Joe likes the idea or, you know, and some, sometimes that actually causes the other thing and people say, oh, you know, they’re gonna try to poke holes in it.
Drew: Like, it’s just, it’s this like very much like sort of town square type approach to vetting these ideas.
Drew: And the where it enters into the investing realm is when. It’s becoming a deal, right? When it’s gonna be a company, almost certainly. and we’re deciding is this a company that we are going to fund or not?
Drew: We don’t like having folks who come to an idea that with us that we don’t like. It has happened. But we try to not have that happen. We want to fund people that have been working on these ideas. When it’s an EIR situation, obviously if it’s not and it’s us IDing through an idea, then we just won’t sort of staff the recruiting part of it.
Drew: But it’s a dance because we want to vet the idea with the talent market. It’s one of the most important things. So I want to go recruit a potential founder or, you know, advisor or even just talk to other potential investors or partners on the company.
Drew: And at the same time, I have to be sort of keeping the broader investing team aware that I’m creating seriousness around that deal. And then obviously the terms and everything like that look a lot more like a traditional investing process, but the coordination is more of a dance than it is, you know, a sort of mechanistic process. And it’s a, so it’s a great question because you want the rigor of the deal team approach looking at an idea, but you also need to be able to have the sort of creative exuberance when you’re launching a company, especially if you wanna recruit.
Drew: Alright? No one wants to hear like all the reasons why something’s not gonna work if you’re trying to convince someone to leave here, you know, pushy job and come work, you know, on, on a startup. So a lot of that comes through. It’s a lot of the reasons that we don’t think it scales. Like we don’t think we could do like 50 build companies a year because so much of it is [00:26:40] the.
Drew: Sort of relatively inefficient intellectual exchange between the investing organization and then the subset of the investing organization that’s working on that particular build. And so it’s one of the reasons why we always have a senior partner or someone who, I mean, or frankly someone who’s proving themselves to be a partner at the firm who is running point on a build.
Drew: It’s never like, okay, yeah, like just, you know, some associates work on it in the corner. We’ve tried that. It just doesn’t work cuz someone has to be making noise that this thing is either good or bad.
Drew: And the reality is like a lot of people who haven’t been at 8VC as long may not feel comfortable doing that.
Drew: Or, you know, worse this be an organizational problem is that they’re not being listened to. And so what we make sure as part of Bill that there’s some partner who understands that dance, who is point on it. And and that’s the only way you can kind of, kind of do it.
Nate: Interesting.
Nate: I, you know, I wasn’t intending on asking this, but this question has come to mind as I’m hearing you talk through the build model. How does your recruiting differ for 8VC versus that of a traditional venture? Well, if at all, maybe it doesn’t, but I’m curious because it is so operationally oriented, it feels like half founder, half investor not just with yourselves as the partnership, but also the junior folks.
Nate: Like you’re trying to empower them. You’re getting them hopefully ramped up to run point on some of these build deals. And I’m sure if you’re trying to scale that, even though it’s inherently in scalable, like you’re talking about, you have to have the people beneath you that you have trust and their operational ability.
Nate: So I’m curious if there’s anything different that you guys are trying to tease out when you’re hiring an investor, junior person.
Drew: Yeah, I mean, I think the biggest thing we’re looking for is the right entrepreneurial energy, because I think there are. while operational, like skill and interest is a part of the sort of launch motion at Build, it’s more about entrepreneurial and creative energy. Because after six months, 12 months, whatever the best build companies have fully replaced anyone at 8VC as it relates to an operational or day-to-day function.
Drew: Beyond like the things that a normal investor might be engaged on. Now we may be more involved, right? Like, we might be doing two or three times a week, you know, BD type sessions or, strategic sessions if that’s what they want. Or recruiting, you know, we might be interviewing every founding engineer, right?
Drew: Or probably there’s me not interviewing them, but just like trying to convince them to, to come join. And maybe with a. Normal series a company, they might only ask us to do that, you know, a fraction of the time or something.
Drew: But it’s that, like, it’s that handoff period, that six to 12 months where you are between an operator and an investor, an entrepreneur. And I would think of, the way I think about it is it’s an energy thing. It’s Like you want people who are excited about the idea of like, oh yeah, we, like, we gotta put together like some vaporware because you know, maybe this company will like join as a design partner, so let’s like do it all weekend.
Drew: You know? And that people are excited by that. And some people aren’t excited by that. And in fact, some really good investors are not excited by that Like, some of my friends who, you know, you’re great venture capitalists or maybe they’re maybe great public markets investors or private investors are like, have no interest in like iterating on some like pipe dream, you know, they wanna like focus on doing deals.
Drew: So there, because there is an, there is a cost to spending your time in that way. If you think about it on a purely rational basis. So you need people who it gives energy to. And that’s the biggest thing we look for. We, most of our folks have joined us either right out of undergrad or out of grad school.
Drew: Or they’ve joined us from an operating role. And, but a few have joined, you know, from banking or hedge funds or whatever. What we’re looking for is that entrepreneurial energy. Are they gonna be excited? Are they excited? And feel like, oh my gosh, this is incredible, the fact I get to investing and help launch companies.
Drew: Even, and the other thing is like, even just respect for that, even if they never really want to do that, or maybe they only wanna do it once a decade, that’s totally okay. The investing business at 8VC is very important and we need people who are focused on that. . We need people who respect the bill part though, and don’t resent it or view it as a waste of time.
Drew: Or, you know, when they hear about me it running into red, you know, into dead ends for two years trying to do some project. Right. And they don’t think what the f is he doing? Right? Like, I want him being like cheering from the maybe they’re telling me I’m stupid. That’s okay. Like the feedback, but there’s no resents about it.
Drew: It’s like maybe they’re like, Hey Drew, you know, you’ve been trying to like convince Optimum to build a company with you for, you know, a year and a half and you keep flying to Minnesota. Maybe it’s not gonna happen. Right? , that’s good feedback. That’s true by the way. Although I still wanna build a company with ’em.
Drew: But like the respect for the process is like basically I think ubiquitous at 8VC and it permeates everything. It doesn’t just permeate thees, it permeates the finance department, the, you know, the legal department, the ops group, all the EAs understand what build is, understand how it’s different. Like, you know, it’s, it really is like a foundational pillar of that.
Drew: So that’s probably the only thing that we look for that’s a little different. Usually we want a specific technical skillset, we will bring that in more through like an EIR or the other thing we do is bring in like exec in residences who have a domain expertise or a technical expertise that is related to a build area. And even then, like even better is to bring them into the specific company cuz now you’re resourcing the company and it’s also a harder sell. So again, it validates the idea.
Nate: Mm-hmm. One of the things that I respect about what you guys do is you’re building technologies that are actually driving society forward, whether it’s life sciences, some of these other deeper tech areas that most VCs typically avoid for a variety of reasons. But it’s reminiscent as of late to an article or a letter that Hemant Taneja wrote to his LPs.
Nate: I don’t know if you’ve read the letter, but if not essentially it’s about how venture as a whole has been doing society a disservice, and that few dollars are back in the technologies that are gonna solve the real problems that we’re currently facing in society today. And
Nate: I’m curious from your perspective, if we’ve reached a point of incrementalism in tech and if you attribute this to venture and how you think through our role as venture capitalists to um, back technology that’s truly going to benefit society.
Drew: Yeah. I mean, I think Hemant is amazing by the way. My next comment is not to say that I think he’s wrong. It’s that I think venture capital is both a bit like it’s a bit high on itself and also a bit overly critical, and they’re sort of related in this way, which is like venture capital, regardless of whether you’re funding like some random app or you’re funding like defense tech or you’re defending, you know, next gen energy or whatever, you’re funding someone’s dream, right?
Drew: And so, and American society is built on the idea that you can dream and that the idea that if you work really hard and you to some extent convince other people that you know you’re able to sort of galvanize, gather resources that you can achieve your dream. And that by you achieving your dream, other people achieve their dream.
Drew: That’s really the hack of, because the rest of the world that does, that’s not necessarily the case to varying degrees. It’s that dreamer mentality and taking the dream and making it real and society celebrating that has driven this unprecedented prosperity. And so whether you’re funding relatively trivial dreams on a, in a sort of a societal or humanity scale, or whether you’re funding, higher level dreams like deep tech or rockets or something like that, you’re still funding individual dreams.
Drew: And those are still unbelievably important for the people who work there and the people who are, who have that dream. So, whether it’s your calling to back these. , you know, more trivial things. I don’t mean trivial in a bad way, I just mean that they’re not like at societal level importance or you wanna focus on those problems.
Drew: I think we should take solace in the idea that by and large venture capital is highly aligned with what I think at least is the most powerful concept that we’ve really seen in the last, you know, since the founding of America, which is this idea that you can dream, you can, and that you can achieve it.
Drew: And even if you can’t achieve it, you had the opportunity to achieve it. I also think that VCs have now occupied a much larger part of sort of the social conversation, despite us being still a tiny fraction, the amount of capital deployed on this stuff. So we have focused a lot on funding what people might sort of commonly view as being, you know, these sort of higher order things.
Drew: Defense, you know, biotechnology. Systems for the government, systems for, you know, large industries. And we couldn’t do that if there weren’t other people down the line who were willing to fund these more capital intensive projects. So, you know, Hemant is building a asset management firm, like he, him and a handful of others are building the next Blackstones, and I think Hemant will do it.
Drew: And he’s an incredible entrepreneur as it relates to building an asset management business. I’ve learned a ton from talking to him and the way he thinks, I have huge respect for him. So he may be able to take some of these projects and fund them through the life cycle, but the only way to do that is to have a credit fund, to have a, maybe a private equity fund, to have a hedge fund, to have a huge growth fund, to have these things.
Drew: Right. So is he a venture capitalist anymore? I think he thinks like a venture capitalist. I think the first principles that he has, Come from venture and from sort of entrepreneurialism, but the firm he’s building in order to con to, you know, to have a chance at maybe funding the full life cycle of some of these really capital intensive, big projects looks more like a sort of a multi-strategy firm.
Drew: And so I think if you’re a series a venture capital investor, the idea that you are going to only fund massively capital intensive projects, but you’re gonna like not have any partnerships or strategy or really knowledge of the way that private equity and, you know, credit and infrastructure financing and stuff works is kind of a, it’s kind of a pipe trend.
Drew: So what I’d say is, in general I think venture capital is great for society, even if it does, even if it doesn’t generate returns, it’s good for society, honestly. But it’s even better because it does, when done well, it generate great returns for people. And then I think these big projects are gonna require venture capitalists.
Drew: Who either have a much larger aperture of what they’re willing to sort of do or partner with other firms who know how to finance companies for real scale because they are very capital intensive.
Nate: Yeah. I mean, you touched on something that I think is also interesting and something we’ve noticed, which is there’s this crossover between venture capital and private equity today. The two almost seem to be blending together to some extent, at least in the financing of some businesses out there.
Nate: I’m curious, as you think about the evolution of venture in this asset class, I mean, you talked about General Catalyst being the next Blackstone.
Nate: Where do you think venture is headed? Do you think there is this emerging gray area between venture and private equity that is going to be more predominant five, 10 years from now than it is today?
Drew: Yeah, I mean, I think that basically there’s been like two big iterations of like scale capital within venture capital, right? First was SoftBank. SoftBank took the approach of like, okay, we’re gonna King make in a few industries, basically take these companies that are, you know, somewhat undifferentiated, but have built big scale and then we’re gonna give enough capital that like no one can compete.
Drew: And a relatively founder complicated relationship with founders. Right?
Drew: Then you had Tiger and, you know, a lot of the hedge funds which realized like they were ba I mean, I think Tiger did an incredibly good job of making the capital formation process for startups easy. I don’t think it could have happened without Zoom. But they like embraced the concept of early stage venture capital, which is this idea of like catering to the [00:40:00] founder. and then they just like scaled it up dramatically and tried to obfuscate all the like, complexity for the founder. You know, top bank would be like, oh, you need to come fly and see, you know, Masa in Japan.
Drew: Oh, actually he’s not in Japan, he’s in South Korea. Okay, here, come here, meet him in his golf simulator at two in the morning. Okay. You know, 10 seconds of a meeting and okay, here’s, you know, like this crazy dance. Which maybe was good because it actually made it hard to raise lots of money but I don’t think it was like, I don’t think it was all that substantive, tired of the exact opposite, right? It’s like you could, you know, Scott Lifer’s like the hardest working guy I’ve ever seen takes Zoom calls like all day, every day meeting with a founders. and so they really changed the paradigm. I think both were very focused on accelerating sort of companies that have already gotten into scale.
Drew: And I think that was a little bit of the issue. It’s like there’s only so many companies that get to scale and build a machine that can just ingest. Cash. And that’s the only problem Most of these companies have other issues and some of it is just ability to get to scale, like takes time. This is where I think private equity and venture capital will have the sort of the third sort of wave of scaled venture capital where people will say, okay, like what we did with Resilience, wanting to get a by manufacturing company off the ground fast.
Drew: Started it in, you know, sort of April, may of 2020. We wanted to get it fast cause we wanted to take advantage of a lot of the temporary sort of tailwinds that were there. And if you want to do Biomanufacturing, you need biomanufacturing facilities. So you got two choices. You can either build them from scratch, takes a long time and it’s very expensive or you can acquire them.
Drew: And so we decided to acquire them and so we started Resilience like a pretty traditional, but you know, a little bit larger scale build. But the immediate action afterwards was to find facilities to purchase so that we could have a network that actually could produce revenue and deal with customers immediately, and then iterate on top of an existing infrastructure.
Drew: That is what I think will probably be the next wave of scaled. You know, venture capital is partnering innovative entrepreneurial people who have an, like a, you know, a true like risk-taking mindset, a long-term capital structure, and then marrying it with
Drew: the sophisticated m and a capabilities of private equity where there are a lot of assets in the world right now, which could be a lot more valuable if they were part of a broader sort of a broader vision or ambition.
Drew: And so at least that’s where we think we’re starting to see some opportunities and, , it may be wrong, but we’re exploring it.
Nate: Drew, if we could feature anyone on the show, who should we interview and what topic would you like to hear them speak about?
Drew: I think that if you want to hear about true early stage venture capital from a truly independent source, I always think Charlie Songhurst is one of the sort of most interesting and insightful angel and really angel investors. He’s been investing his own capital for a long time.
Drew: He’s got one of the most sort of, I think, validated data sets that proves that he knows what he is doing in kind of a incredibly top tier way across all different types of companies. And I think he’s a voice which is probably under heard and listened to, at least from a public perspective. But privately, he’s one of the most respected annual investors in the world.
Nate: Do you think remote work is here to say?
Drew: I think remote work is a total scam. I think basically remote work makes it super easy to say that you hired, met your hiring goals and that, you know, you have this big team and it’s like the most 2021 type of thing ever. I think it’s by exception that it’s that you get all the benefits that people talk about.
Drew: Like Nvision has been remote only for a long time. They like probably know how to run a remote company. I bet it’s really hard. I bet they have like lots of internal metrics and processes and like, think a lot about that. If your company was remote first, or remote only because there was a pandemic and you grew like with hundreds of people.
Drew: I think as you’re a founder you gotta ask yourself like, do I have any fucking idea what I’m doing or did I just have to do this because, there was a pandemic and now I don’t have to do it. And you need to really think about whether you’ve built a company that is fundamentally designed to operate remote or not.
Drew: Because I just don’t see any, I don’t see metrics, I don’t see systems, I don’t see anything that would suggest, you know, other than by exception that folks actually know what’s going on with their remote only companies.
Nate: Will you invest in a remote only company?
let’s put it this way, if you wanna build a remote company now and you wanna do it from the beginning, remote only, I actually don’t mind that as much because again, I think you can build the company with remote being the talent model that you have.
Drew: And I think a smart founder would then build systems around it. I think if you’re just accidentally remote, because. , you hired people all over the place. You don’t know where anyone lives, you know, whatever. I think either you need to like take a private equity approach to your own business and imagine like, okay, Vista just bought me.
Are they gonna run this business like I’m running it today or are they gonna like institute a lot of changes? And so I think it’s less around like people who are starting business from scratch today who maybe actually learned a bunch about how remote work works and more about companies that scaled via remote.
Drew: And that’s where I think, you know, people need to really and take advantage of the fact that 2023 is like, you can be a lot more prescriptive with, you know, your talent and say, okay, we wanna stay remote. People wanna stay remote in exchange for that. You gotta do X, Y, Z, right? We need, we’re gonna institute performance-based systems.
Drew: We’re gonna do something and actually enforce it. Because I think if you’re not doing that, there are so, I mean, there’s so many examples of, and I’ve read these Reddit forums about people who work like multiple jobs. It’s crazy. Like engineers working like four or five jobs. Like, okay, listen, good for them.
Drew: By the way, like, I respect the hustle. I’m not necessarily criticizing them for if, but I’m criticizing the performance management system that enables someone to make $300,000 a year at five different jobs. Like clearly you couldn’t do that if you were working in person. So there’s something that has to give, and I think it is right now, but a lot of it is around performance management. And if I don’t see processes that align with remote work, then I’m just skeptical of it.
Nate: Yeah, well, there’s something else that to be said for just building camaraderie of being in person and having serendipitous conversations around the engineering problem that’s coming up, or the last call that you just had with a customer where you weren’t sure to handle this rebuttal. And not everything should require A 30 minute zoom conversation to talk about important topics. Right. So I think a lot of that gets missed.
Nate: It’ll be interesting over time to see benchmark data performance between remote only companies and those that have significant in-person presence. So we’ll see but I do agree. Drew, what do you know that you need to get better at?
Drew: Oh man. A ton, tons of stuff. I think I constantly need to get better time management. I mean, it’s the most important thing in the world because it’s the scarcest resource and it’s probably the least analyzed thing. It’s especially the least analyzed kind of as you, ironically, as your time becomes more your own to manage.
Drew: I think most people think about it less and as you are you know, as sort of the way you invest your time, hopefully has more opportunity cost. I think you naturally think about it less because you know, you assume you’re good at it or you assume that you know that you have a natural inflation to it or you just sort of say, well I’m just gonna do it this way cuz I’m in charge or whatever.
Drew: And that’s what I think about the most is like how to better manage my time, how to better get input on the way I’m managing it is another thing that I really respect about Joe is that he, you know, still asks for like feedback on his calendar for me every week and he’s very open with the organization about like, where should I spend my time?
Drew: How should I do things differently? And that’s something I think just lifelong I need to get better at?
Nate: Yeah. And Drew last, what is the best way for listeners to connect with you?
Drew: Best way to connect me, I guess, would be send me an email drew 8VC.com. I don’t have big social media presence. I think I have a Twitter, which maybe has like a hundred followers. They can find me there if they want. And then if there’s people are interested in anything about 8VC, we built out a great website.
Drew: I think it’s great, at least has a lot of content on it that I know is great. Our head of design, Luke Bugbee, who’s amazing, has built out. So if there’s questions about the concepts or the thesis or anything like that, I’d encourage people to check that out.
Nate: Awesome. Well, it’s always great talking to a fellow Iowan.
Drew: Thanks so much for having me.

Transcribed by https://otter.ai

You might also like