Rob Biederman of Asymmetric joins Nate to discuss The Surprising Challenge in Launching a Venture Fund, Analyzing AI Horizontally Versus Vertically, and Why Most Companies Are Overstaffed. In this episode we cover:
The difference between a Founder VC and a Non-Founder VC
What are the areas that are getting the team excited
Vertical vs Horizontal Solutions
Building in Use Cases that expand Customer Value with Minimal Cost
How to Evaluate Horizontal Business Software Companies
Overstaffing and Underinvestment
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.
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Transcribed with AI: 0:13 Rob Biederman joins us today from New York. Rob is the managing partner of Asymmetric Capital Partners, an early stage venture firm focused on enterprise software and AI. Prior to founding Asymmetric, Rob co-founded and scaled Catalant Technologies through Series E and raised money from investors such as Greylock, General Catalyst and Salesforce Ventures along the way. Rob, welcome to the show! 0:36 Good to be here. 0:38 You know, it’d be great if you could share more about your background, as you have a more interesting path and most to becoming an investor given that you’re a founder for nearly 10 years. Can you first tell us the founding story behind Katelyn and more about the business? 0:50 Of course, yeah. So I certainly have an unusual background for a VC. Now. I think if you talk to 30 VCs, everyone would tell you, they have an unusual background, I think all that proves is that every VC has an unusual path. It’s not like private equity job where you start to do two years of investment banking, and then an interview full time for VC. I actually started my career at Goldman, and then moved up to work in Boston, at Bain Capital had a just absolutely fantastic time at Bain, wonderful people working on really good companies, and they actually sponsored me for business school, and I was supposed to go back, and really had no intention of doing anything else in my life. Other than working with Bain Capital, it was just such a wonderful place. And then as a result of a class project we had during first year, my couple of Section mates and I started a business called hourly nerd. And the original idea was that we would connect small businesses to MBA students to do kind of basic financial and consulting help, that business took off reasonably quickly. And by the end of business school, I was faced with kind of a difficult choice of go back to Bain Capital or keep working on a business that was then called our only nerve. I think, the way I thought about it was, you know, private equity would be there. And if I went back to work, if I can do to work in the company, and it failed, within a year, I probably could have gone back to private equity. But I thought it’d be really fun experience. I think Bain Capital was really thoughtful about, you know, thinking that regardless what happened with the company, I’d be a more interesting investor over the long run from having been a CEO and co founder. So ran the company for eight years. What would Katelyn technologies does today’s it helps leading enterprises in the Fortune 50 and fortune 100, Pfizer, Procter and Gamble GE other companies like that, with with really their most important business challenges, and it’s certainly not a consulting firm, it’s more of a disruptive labor marketplace. And I think what we found, since 2020, is a lot of the historical you know, difficulty in being able to sell an enterprise on using a piece of flexible talent completely melted with the future of work, which, which was kind of forced on America in March of 2020. And so when we started having the exact same conversations we’ve been having, for, in some cases, eight years with some of these companies, they said, Well, now that everybody’s remote, we’re, you know, we’re ready to use you. And that was a really, really good thing for the company. I got to the point at year eight, where I wanted to transition to a chairman role and get back to investing. And so at that point, my co founder with whom I’ve been co CEO for eight years, took over CEO, I became chairman, and set off down the road on a symmetric, 3:16 you know, I’m always curious what prompts founders to either go start another business and leave their current company or join the other side of the table? So when you’re at Catalin, did you feel like you just reached the ceiling? Have you learned everything you want to learn or you felt like you took it from zero to one and you wanted to make the move? What ultimately was the impetus there after eight years, to want to move on to do something next 3:41 year, I think, really, my long term goal has always been to get back to investing. I love being a CEO, I absolutely love the people there, you know, business these days is kind of in the 100 million top line range and felt like we very much had kind of a mission accomplished for the first phase of the company, the first eight years. And I started making a bunch of angel investments on the side to try it out and see if that was interesting to me. I invested in a company called Gong, which has obviously done really well, which was one of our most important vendors and Katelyn and realized that I love the process of trying to disrupt things, but I wanted to be able to do it in a kind of more leveraged scale. So you know, not for nothing symmetric. Now. We have similar companies, I probably 50 or 60, personal angel investments that I did before, or are in companies that aren’t inside a symmetric mandate. And it’s really fun to be able to work with founders in different businesses. You know, yesterday, I’ve probably talked to three or four of our CEOs on completely different industries. And that’s a really special experience. And I think after eight years of selling the exact same product, I wanted to kind of be able to hop around to different different potential companies. 4:45 Yeah, have more variety. Yeah. So what motivated you to start asymmetric though, you could have gone and joined another firm. You could have gone back to Bain for why go on your own and start your own firm. 4:56 I certainly considered all those things. I think it was a conversation with The gentleman who’s on the board of Catalin, who is now the anchor investor at asymmetric where, you know, I told him I was thinking about going to a different firm, or maybe going back to Bain Capital, and I think he is feeling probably was that after eight years of being a CEO, I still had kind of an entrepreneurial spark and wanted to be able to kind of disrupt the market. And I think when he and I analyzed the early stage market producing on the East Coast, we felt like there was kind of a market gap for a firm that’s extremely focused on working with its founders in a very benign and productive way. And then a lot of the very, very successful firms that were 50 100 $200 million funds 10 or 20 years ago, had now grown to two to four to 10 billion, which was fantastic for them. But I think certainly when we were looking at the market in fall 2020, in early 2001, there was definitely a gap in really hands on co working early stage venture capital on the East Coast. 5:54 I’m curious how you pitch the differentiation, your initial LP base, which we’ll get to in a moment, but I guess to complete the overview of asymmetric while we’re on while we’re on the topic, what is the thesis that you’ve adopted, at least for the first fund here, 6:09 for sure. So first one is $105 million fund, we do early stage b2b software, we have six of us spread across Boston, New York and San Francisco. And I think the way that we approach founders is very much that we will be your partner in growing, this is not a, we’re gonna write a check and chat with you every 92 or 93 days, this is a we are whenever you want. And there’s some founders that don’t, you know, are able to run the companies on their own and don’t need that much help from us. But when people call us we will respond with kind of overwhelming force and be in Google Documents and being PowerPoints and be helping them actually make decisions at the company. So I think it’s in some ways, kind of the best of a very kind of supportive, non negative private equity plus kind of a little bit of consulting applied to the traditional early stage mental model. And I think the reality is, I was an early stage startup founder, and I had no idea what I was doing. And I think for a lot of our founders, who might be world class technologists, having somebody on my team or me who works with them on, you know, how quickly should I be spending capital? Or do we think this is an attractive customer segment? Or how much should I pay this new hire? 7:16 How has the transition been from being a founder to now being a VC or an emerging manager? 7:22 I’d say by and large has been good. I think one thing that a couple of people who had made that transition slide for me it was there would be times when I was really sad, that kind of the ball wasn’t in my hands, I think we’ve been able to back just an unbelievable group of CEOs. And so I think, honestly, I’m happier the ball is in their hands in mind most of the time, you know, it’s a different thing. So, you know, in cabling, obviously, my co founder and I were way more than a mile deep, but really an inch wide in that one business. And I think a good VC is a mile wide and 10 inches deep. And there’s a lot of folks in the industry that are mile wide and one inch deep, and I think can be dangerous. For whatever reason, founders tend to have VCs and their investors on a bit of a pedestal, some of it’s that, you know, it’s quite a prestigious thing to be a venture capitalist, and part of it is, you know, you’re probably going to be trying to get your next round of funding from them or people they know. And I think one of the biggest problems we have in the industry, as well as people kind of helicopter in once a quarter and kind of flip the table a little bit and give founders a bunch of advice, probably a lot of it’s good. A lot of it’s lacking in this specific context. And so what we try to do is only an issue, we know the power of our words, with our portfolio companies, we only issue an opinion when we think it’s actually grounded in data and business logic. And it’s something that we’ve actually kind of done the work to validate. 8:36 Yeah. Where do you stand on investors offering advice that haven’t been founders before? I mean, this is a polarizing topic for some people at least, do you feel that all investors should have been founders in a prior life? Or where do you stand on that? That topic? 8:53 I think I’m just always confused when there are VCs, you don’t need everybody at the firm, right? You know, our firm has on our investment team, we have two folks that were operators and two that have always been investors. I think the key thing is that people have kind of operational hands on business experience. And I think the candid realities, you don’t really get that in consulting or investment banking, you, you maybe do get in private equity. But there’s something unique and different about being a founder. And we even see in the boardrooms that we’re in were sort of me the founder and an anon. Prior operator. There’s a there’s a delta and I think achievability was one of the biggest sources of frustration, I think, for some founders is the the board member who swoops in and says, Oh, why can’t you just raise price on this calendar segment? Or why can’t you just fire all these people? Or why can’t the product be done next week? I think the practical reality of running a company is things are usually a little more difficult than they appear. There’s a tendency if you’ve only been an investor or banker consultant or done something else. It’s very easy to pull off when in reality I think it’s actually most of the time actually pretty hard to pull off. So I think we have Yeah, we will start with empathy for our founders. 10:03 Where do you think, founder, or investors that have been founders in the past have the greatest edge over their peers that have only been investors? Because there are a number of different areas. I mean, you talked about empathy. There’s the advice and the strategic guidance, there’s also just managing the personal life, right? Like, there’s ups and downs, a lot of things that don’t even make it into the boardroom, that someone who’s been in those shoes can relate to. So if you were to distill it down to here’s where I think the number one advantages, what, what would the number one advantage be, if you can only choose one, 10:38 for sure, in the course of every company, there are ups and downs, and there’s virtually no company I’ve ever heard of, it’s just the linear process and path. I think the biggest delta between a founder VC and a non founder, Vc is when something goes wrong. I think founders turned VCs tend to be very fact based and very, let’s do the work to analyze the situation get to the correct answer. And I think my belief is that non founder VCs tend to be very sort of finger pointing or blame oriented, and sort of a, you must fix this orientation that it’s probably way more belongs way more in kind of a control private equity or public companies situation, I think the reality of a company with less than one or less than five or $10 million, or revenues, that things are going to go wrong. And the way to solve them is by doing fact based investigation with no blame. And I think if you if you’re a founder, that is probably your orientation, because you’ve been in that seat when something’s gone, you know, large customers churn, the products failed. You know, the runway is coming up a little sooner than you expected. And I think the ability to remain dispassionate and empathic and supportive in those moments is a big competitive advantage for former founders. 11:49 Yeah. So now being a founder for the second time, I mean, technically, you are a founder, again, in venture is just a different sector, and you’re selling a different product. What has been more difficult, and what has been easier than you thought, when you were first starting the firm? 12:08 Yeah, you know, somebody told me when I was starting out, you’re gonna have no trouble raising money and hiring a team is gonna be impossible. And I said, I think that that you have that totally wrong, I think fundraising is going to be impossible, especially for first time fund with no track record, but I could hire a team in three weeks. And they were completely correct, I was wrong, I was totally wrong, took us, you know, a little less than a quarter or maybe two months to raise the fund. And it took us almost two years to hire the team. I think the difference there is, obviously money is a commodity, you know, you don’t obviously don’t want to take it from certain bad state actors, foreign government, state actors, but you know, we’re lucky to have an unbelievable LP base. But I think when you’re chasing a commodity, it’s one thing but people are almost the exact opposite of a commodity. And especially in a really small, firm context, where we really only together all together in person five or six times a year, you almost have to take this unbelievably handcrafted artisanal approach to recruiting teammates and making sure that not only are they a great person on their own, but also that they’re going to be a fit with the rest of the team. And that was the that was that was a really big challenge. And I think the venture capital market is pretty efficient. So I met with a lot of fantastic people in SF, and virtually all of them were very well taken care of by their existing firms. And if you work at an unbelievable place, the risk reward of leaving for kind of a startup venture firm probably isn’t necessarily there. 13:33 So what were your learnings that you took away from your hiring process over the course of a year or two? You building the team to six? I mean, if you’re an emerging manager, or if you’re speaking to an emerging manager today, what advice would you give them? 13:46 The reality is, given how hard it is to hire from somebody currently working in venture, which is, of course, where everybody first looks, in the end, all five folks I hired and never worked in venture before, we had a mix of operators and a handful of cases and folks with really good hands on investing experience, but nobody in the firm had ever written a venture capital check. And I The bet was basically, I’m going to solve for better people that are kind of all around athletes. And we’ll try to we’re going to learn how to do venture together, versus probably solid for lesser athletes with pre existing venture experience, think the venture market is pretty, pretty efficient. And if you’re at a if your firm was blown up or had their final fun, that’s one thing, but I think most people in the venture market are in the market. There’s usually kind of a good reason behind that. 14:32 Yeah. Did you find any particular roles or previous titles, I guess anywhere where these potential candidates might be lurking that you’d recommend being a starting place to find them? 14:46 Yeah, we did kind of the same thing in every interview, which was just talking about what represents a good company. And I think there’s their superficial kind of crossover growth equity, late stage versions of that which is kind of negative net churn and really good sales efficiency. But that’s stuff you can learn in kind of a college econ classroom. Yeah, I think the people that I wanted to hire and we did were people who like, really understood the root cause business of why the root cause reason for why businesses grow. There are lots of companies that surf waves for a while when they’re when their space is really hot. And then when their space is less hot, they don’t do well. And I think the companies that are truly sustainable, purely b2b software have a very clean story of this is the thing that we’re going to do for you, this is how much you’re going to pay. And this is going to be the resulting outcome. And I think sometimes people get lost in a little bit of all the math and the founder charisma and the market size and never get back to the does the product generate value in excess of how much it costs. And that’s obviously that doesn’t apply in consumer people buying shoes and bags for all kinds of reasons. But if you’re if you’re buying or selling software services, there’s always that it kind of always comes back to that value and profit equation. 16:02 What was the best answer that you received to that question? Through your one to two years of doing interviews? Yeah. Was there any answer that stood out for sure? 16:10 When I when I interviewed and it’s really funny now in light of everything that’s happened with GPT? Four, but I asked my now the gentleman who’s my partner that question and he said, Google search. And I think his belief was Google searches kind of a in some sense, and maybe just changes with Google searches, a business that just has such an overwhelming data and scale advantage for the n plus one user. And you’ve seen, obviously, a bunch of people have started search engines, some of them really powerful big companies, some of them, you know, independent startups, and people have really struggled to disrupt the market share that Google Search has of the overall search engine market. And it’s the kind of business where you, of course, there changes the advertising model, one of which we’re very much focused on one of our portfolio companies, but it’s the kind of business that just has tremendous staying power, because their data asset is just so much better than everybody else. And I think they also have this to clear cost advantage, even if it were the case, reasonably soon, that sort of a AI base alternative to Google were equally delightful to the consumer. And I think it has a little bit of way to go for that the cost that it faces in order to execute on that search is significantly higher than Google. So I think Google searches can be a business that for better or worse going to be around for a long time and doing really well. 17:26 Yeah, I mean, a lot of people have talked about generative AI and its implications in Google search. But you know, they have such an advantage. So much data accumulated a lot of their proprietary that it is going to be difficult to truly compete there. When you think about generative AI and AI more broadly, as it applies to the enterprise. What are some of the areas that are getting you and the team excited today? 17:50 Yeah, we have two companies that I think are really, really at the forefront of that I think our philosophy or thesis on this is that AI is not a panacea, where it will tell you the answer. Yet, in men, what it can do in the short term, which is so interesting. And so how far we’ve gone, we’ve seen it to portfolio companies that work really well, which is help you sift through a tremendous amount of complicated data to figure out where you should be spending your time, I can, I can kind of substantiate that with two specific instances. One of them is a company called evolution IQ. And they work with insurance claims adjusters to sift through mountains of workers compensation claims, the AI doesn’t tell you, hey, this claim should be approved this claim should be rejected, what it does is helps the adjusters who are completely overwhelmed and busy figure out where they should be able to spend their time. And that can massively change the outcomes. And yeah, Q fits pretty much in the category of companies where they charge a certain amount, the customer or the customer realizes benefits greatly in excess of that it’s reasonably easy to install. And I think once you’re working with them, it’s kind of a no brainer to continue doing it. We similarly have a company in the medical billing AI space, and they have the same story of you know, they will go into the customer or tell them, you know, this is, you know, here’s how much you currently make this type of claim from private insurers, this is what you’d like, would you’d actually like to make, and we can help you close that gap. And AI helps them focus on the right claims to really invest in. I think there’s huge amount of applications for that, particularly probably in medical technology where the experience of doctors from, you know, the beginning of the profession has been very much rules and judgment based. So you go to medical school, you learn a bunch of heuristics to apply in patient diagnosis situations. I think for the first time, we have the ability to actually abstract from that at a high level and understand which of these things is actually working in, you know, put some data into whether this is the correct diagnosis. 19:54 Yeah, both of those solutions strike me as quite vertical or at least right now. optionality to go vertical and more of those workflows be embedded in other workflows of those stakeholders. How do you think about areas that are not interesting, whether it’s a pure horizontal play across email marketing or sales? Like there’s almost as access of horizontal versus vertical? And I’m curious, as you think about the generative AI solutions are more horizontal? Where do those fall on your spectrum of interests level? 20:28 Yeah, I mean, we recently went into a stealth company and kind of the AI sales proxy prospecting space, I think that’s another process having having witnessed a cattleman, with a very large sales team, just areas, it’s so inefficient, and so ripe for speeding up the part of AI that I think is less interesting to us, and very specifically mean less interesting to us, because we are, you know, b2b software investors is anything kind of related to content generation and content creation, I think, when people read, you know, you see all these, hey, this post was written with generative AI, and they’re all superficially fine, we actually read them, it’s kind of a pretty boring, perfunctory style of writing that I think is not particularly interesting. And I think if we go, I would be sad. If we go in a direction where most of the content of the world is written by AI, because I think you end up with something that sort of seems like a foreign language, IKEA instruction manual, where technically all the correct words are there, and very often they’re in the right order. But it lacks flair. I think the point of the written word is to communicate ideas or entertain. And I’m not sure that something written without human judgment can be really all that entertaining or informative. 21:41 Yeah. How do you think about the defensibility of these solutions that are building on top of these API’s? I think the biggest knock that I’ve heard right about in have chatted about with other investors is a lot of these horizontal solutions are wrappers on top of one of these large language model API’s. I’m curious, how does that factor into your guys’s valuations? How do you think about moats over time? Or do you feel that it might just be discounting the execution of a team of what it takes to actually hit distribution? 22:13 Surely the right question to ask I think it’s very much a case by case I think there are certain applications that you can build on top of like large language models by API that truly at a local level, ingest and transform, and improve the data and work with it in a really interesting way. And companies like that are really interesting to us. I think companies that are sort of just a translation layer between human text interface or voice interface. And right at the top, the LLM are actually not that interesting. I think a lot of money’s gonna be lost in AI personal assistance, where I haven’t yet figured out what really the barrier to entry or the ability there isn’t, it always comes back to is there anything happening locally, that uniquely makes the n plus one user experience way better than the end user experience of the product, the user before them? And I think I’ve yet to see in the majority of kind of interesting, but not massively transformational way locally, applications that that’s probably not the case. 23:18 Yeah. You know, we’ve largely been talking around the application layer, what if we took a step down into the next layer, the model, the models themselves? Have you seen any emerging companies that are building new models? Do you have a viewpoint on where you think that layer, the stack is headed? I mean, there’s a lot of players, but they’re all building like fairly generalized models. And there’s hypotheses that some companies will build very specific tailored models for specific use cases, whether it’s healthcare, et cetera. I’m curious if you guys have built a thesis on that layer of the stack and how you view that layer? 23:58 Yeah, look, I think we’d be loath to make a primary investment as a firm. I’m not saying we won’t, but I think we’d be more cautious to invest in the base model. Because that I don’t think that that’s a winner take all market, but I think there’s going to be three to five to six winners there. And there may be one that’s very specific to a bunch of different verticals. My instinct is there’s going to be a fair amount of luck required to correctly pick the right winner there. One company we know well, because our sister fund is invested in is called Gan gy and I don’t know exactly how to pronounce it. I think that’s pretty close. And it has an auditable model. And that’s one area where I think for certain you’re really going to build into business use cases and be making really serious decisions. I think it’s a little hard to not have your base model be auditable? Because it just makes sense. I don’t know how overtime you construct a product if everything you’re getting from the LLM is blackbox it would seem to be very hard to have any kind of local control or QA around that, when, you know, you have very little real realistic control at all over the outputs the model. 25:08 Yeah. You know, the other aspect of AI that I’m curious to pick your brain on is how has it impacted the way that you’ve been devising your portfolio, a lot of investors have been ensuring that their companies have runway for the next 12 to 24 months. And now, there’s a lot of investors that are going back to their portfolio and ensuring that they’re brace for the impact that AI is going to have potentially on their business. And I’m curious if you guys have been seeing on your own portfolio, or how you’ve been advising asymmetric portfolio founders there. 25:43 Yeah, look, I think there’s a lot of opportunities in businesses that we helped start or invested in that were found in 2018 2019 20.1. Were building some sort of large language model, and would have probably been excessively expensive and too complicated. But there were interesting use cases that make the product more valuable to the customer that we can build in. And, you know, One really good example of that is we have a cybersecurity company, and creates reams and reams of data every day, based on, you know, potential penetrations and other things that are happening. And our belief, I think, is that pretty easy to API use cases like that can really expand our customer value with very little incremental cost. And it can be things like, voluminous data is generated, how do we actually pull actionable insights from that data? And if the answer to that three, four or five years ago was probably something pretty brutal on the customer success account management field, if we can do that automatically, and have that built into the product, and that’s really compelling. So I think there’s a businesses that have been really rigorous in designing their data structure are probably going to be disproportionately benefited. And businesses that have been slipshod about that, or businesses that are not really data businesses are going to relatively struggle. One thing that I’ve always observed that was interesting, which was definitely part of the founding asset for this firm, is that the reality is the moat in SAS, particularly horizontal, it’s just not that interesting. So if you look at kind of the history of HRIS, or applicant tracking, or ERP, or CRM, basically any kind of alphabet soup, horizontal vertical software, there’s a product replacement cycle that goes happens with almost complete regularity every four to seven to eight years. And obviously, Salesforce has been one company that seemingly hacked that curve a little bit and has been robust and successful for a lot longer. But I think the reason that happens is you’re seeing it with products like zoom right now, where, you know, there’s a really annoying incumbent that has this really hard to use that, that is way over featured and too expensive for the marginal user. And then somebody says, Okay, I’m gonna build a really slimmed down interesting new version of this with just the bare minimum features, and it’s gonna be very Apple style, user experience. And everybody switches to that. Except Then one day, GE and Goldman Sachs show up and say, if we’re going to use you, we need this security thing. And this feature has to work differently, you face a really hard decision as a founder at that point, because if somebody’s offering you a 250,000 seat deal, and you have, you know, 180,000 paying users outside of that, pretty hard to turn down. And then you always have it, you have a board meeting where you say, you know, if we’re gonna be serious about serving the enterprise, we have to do all these things anyway. So who knows, we’ll do it now. And getting back to that customer and that customer, you know, that they’re going to disproportionately throw their weight around. But hey, it’s really, really interesting to bag the big enterprise deal, because those tend to contribute a lot of the profitability. And so you start building out your product to appease your large enterprise customers, and you add features and functionality and security and all these kinds of weird integrations. And then before you know it, the product doesn’t work that well. And somebody brings out a new, easy slimmed down thing. And they probably can benefit from four to six years later technology and they take 100% market share. And then GE and Goldman Sachs call them cycle repeats, you realize with essentially everything other than Salesforce that there’s always a there’s kind of a flavor of the week, horizontal software, but it’s rarely very consistent. I think one of the most impressive things about Microsoft Office, which is obviously you know, in which we’re on as a company we actually have to Katelyn as well, is that for the majority of the market, they have so much legacy commitment to the Office Suite. And so many business users are so up the curve on how Excel and PowerPoint work that that’s that’s probably actually a pretty good moat for a while. And yet, if you looked at if you look at millennials are probably more likely Gen Z’s fewer Gen Z’s make the choice probably most of them would want to be on G Suite. 29:42 Yeah. So as an early stage investor, how do you evaluate those horizontal business SaaS applications? If one they have they’re part of this natural cycle where they’ll likely be rip and replaced eight to 10 years down the road? How do you think about Making those bets at the earliest stages. 30:03 But the reality is we do less of it. We, in most of our software plays are in vertical software, I think vertical has different surely has different challenges largely around market size. I think when you’re purpose building for a certain type of customer, something that can eliminate phone calls, unlimited faxes, eliminate emails, or can help you improve your supply chain, or whatever it is, those those situations tend to have a little more resiliency. Because if you’ve already built Flexport, you know who’s going to come and build the next one. When we go into horizontal, we’re always asking what’s the mode here. And we’ve probably only made one or two horizontal software investments. And I think in both cases, we were able to tell ourselves a story of why the n plus one user had a better experience, and why somebody would be loath to follow along behind. I think Slack has been a pretty good example of business, this has been reasonably resilient now for 10 years, obviously, they have a pretty easy competitive set, because Google has never really tried very hard and real time chat for a handful of reasons. And I think Microsoft suite has its own problems. And I don’t think there’s too many people who are delighted that they use teams, there’s just people that are forced to use it by their company, we always ask ourselves in the horizontal space, why would not one of those three companies build it out? Why is this not adjacent to workday? Slack, Salesforce, and if you actually look at almost all of the things that are robust across whatever job you have to do, you have to do this thing. You find that there’s a category killer company there that probably Sequoia Andreessen is back. 31:31 Do you think vertical software companies face a similar challenge? They’ll be on a longer time horizon? Maybe it’s 12 to 15? Yeah, I 31:40 think that’s exactly right. missed expectations in vertical software tend to go through, you start a vertical software company, it has a decent amount of success, maybe raised some money, maybe Bootstrap, you sell to VISTA, Thoma Bravo, GTCR, those are really thoughtful guys, they realize that market size is not that big into the way to get home is probably through running the company really well, which means kind of maximizing revenue and minimizing costs, they get the company to 40 $50 million of EBIT, da, they sell it to the next private equity firm up the chain with a slightly bigger fund size. Those folks rerun the increased revenue decrease cost cycle, and now we’re probably t plus 15, from the company’s founding, so kind of five to seven years independent, two to five under the first sponsor, two to five under the second sponsor. And then where I think people come in with easily horizontal gets disrupted by easy to use, I think vertical gets disrupted by advanced new features and functionality. And I think, you know, people tend to once they stop investing in the product roadmap, but I certainly, you know, I think intuitively, when a firm has a good thing going with the deal and is generating lots of free cash flow, there’s a tendency to, you know, relatively under optimize new feature development. 32:55 You know, you told me something interesting, before the interview, you said that most companies are over staffed by as much as three to 5x. I’m curious if this was derived from your experience as a founder, or what led you to this belief? 33:07 Yeah, I think it Katelyn, we were always pretty thoughtful about headcount. But I think the reality is almost taking the exact inverse of what I just said, most companies probably way over invest in science projects and way under invest in their current product. And I know, dozens of friends that over the last 10 years, we’re working at Fang stocks, Fang stock companies, working on kind of what would platforms stability look like in 2050? Or should we be in this entirely different industry? And I think those are the kinds of projects and those kinds of job roles that get greenlit when the cost of money is close to zero. I think the reality is, so many of those companies had crazy growth expectations, really fantastic free cash flow, and very little investor focus on profitability. When you sum all that up, it becomes a pretty toxic cocktail of continue to over invest in really, really, right tail science experiments. And so when you actually look at the parts of, say, Google that make money, it’s not very many parts of it. And the people who work on those things are a fraction of the people who work on those things. Yeah. I don’t know what the exact number is. But I suspect Google’s free cash flow wouldn’t change a bit for five years. If you massively decreased the headcount and sort of really leaned into optimizing search, ad search and display ads, YouTube, ads within Gmail, a handful of other things. Now, obviously, you don’t want to take r&d down to zero because they think that’s the almost certain path to oblivion within five to 10 years, but it’s really the case that when when money has no price, people tend to way over invest in adventures. 34:49 Do you think that’s true? Even at the early stages, call it series A Series B companies are overstaffed, or is this solely relegated to you know your fortune 500 Are companies your large tech companies that are in Fang? Where do you think the line is that the problem becomes? Yeah, especially Sally. And 35:08 we, I think we’ve yet to meet a founder that’s under investing in technology, early stage founder that’s under investing. It’s a delicate dance. Because as an early stage founder, there’s this kind of persistent Fog of War, which is a concept we talk a lot about in the class that I help with at HBS, where the data you’re getting on the market is almost always pretty incomplete. The data you’re getting on your own business is pretty incomplete. And so you have to make these inner period decisions that all have implications down the road, about how much to invest in go to market and how much to invest in product. And development. I think it’s been pretty rare that we’ve seen a founder or we say, oh, my gosh, we need to 5x or 10x, the number of engineers and actually the root cause for that I sent a tweet yesterday on this, they get pretty good pickup, which is that smaller teams are more effective than larger teams. And I think, of course of my career, I’ve seen increasing headcount and increasing burn, usually results in less getting done more, not less per dollar, but just aggregate less, I think there’s a thing people don’t internalize enough is that each incremental person you’re at at your company has a huge cost outside of the cat, which is that you have to find something for them to do you have to manage them, you have to make sure that they’re happy. And you obviously want to offer a great employment experience. And when you have, you know, you don’t need 22 kids on the soccer team running after the ball, you actually probably would be way better off with three or four kids running after the soccer ball, and maybe even one or two. And concentrating, you know, however many arm slices and Gatorade you’re giving to the 22 instead of giving it instead of giving that to two or three really, really high caliber people. And those coordination failures are real, I had a really, really starting conversation this weekend with a woman that had been a leader on a very successful product that was not very much loved by her broader conglomerate. So it’s a fang stock. And the CEO of the company was quite unenthused, about the part of the business she worked. And as a result, it was super resource constrained. And she attributed that small part of the business’s success, not in spite of the resource constraints, but because of the resource constraints they did so well, because corporate would never give them any headcount. And so they had to be really scrappy, they had to focus. I actually, in some ways, love working with our founders when they’re feeling a little resource constrained, because I think that’s when you face the hard choices on trade offs. When you can Greenlight every project, and the founders focused on five to seven things, it virtually never works out. The most important feedback I’ve ever got, was from Pat Grady at Sequoia is probably one of the best venture investors in the world. He said, and I don’t think this is too controversial. You know, small companies rarely do more than one thing. Well, or they rarely do one thing well, and they virtually never do two things. Well, and I think at the time, we’re talking about a company that was trying to do two things well, and his belief was essentially, focus on one and your chance of succeeding. It’s not, it’s not diversifying. It’s not like you having we’re focusing on two things, gives you two shots on goal, it actually just sort of ensures that both shots don’t succeed. 38:04 Yeah, constraints breed creativity. 38:06 Totally. And I think they breed a focus that you wouldn’t otherwise get. 38:10 Rob, if we could feature anyone on the show, who should we interview? And what topic would you like to hear him speak about? 38:16 It’s a great question. I do you find that these founder turn VC conversation is really interesting. And there’s a guy named Lars Albright, who’s started and exited many companies, he’s going through the same process that I’m going through with the only delta being that he doesn’t run his firm. And so I think, you know, a lot of what’s fun for me about this experience is building and running a startup, it’s a firm, and he’s having the experience of, you know, having been a really successful bunch of times now, reintegrating into a group of people where, you know, he’s joining an existing firm that has really, really good market potential, and is really going well. And I think he’s also has had multiple startup opportunities, all of them succeed. And so I think he’s a really smart guy to. 39:00 And Rob, what is the best way for listeners to connect with you or a symmetric, 39:06 either Twitter or through a website, I think we are var for sort of taking inbound pitches is really high. But the flip side to that is if we sort of take your pitch, that means that there’s a nonzero chance we’ll invest, I think a lot of other VC firms will sort of default to take the pitch and then say afterwards that we don’t really do this. And so whenever we get a pitch, that’s kind of off strategy or off stage, we just kind of turn it down and finance could do the same. It’s not a good use of the founders time. 39:31 Awesome. Well, thanks so much for joining us. We love to have you we’re looking forward to having you on again in the future when a symmetric is on fun two or fun three, and this has been a true pleasure. 39:42 My pleasure. Absolutely. Thanks for having me on. You bet. 39:46 All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot them an email, let them know what particularly resonated with You I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same accomplishment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently thanks so much for listening Transcribed by https://otter.ai