423. The Most Interesting Diligence Process You’ve Ever Heard, Why Founders Aren’t Risk Takers, and Reasoning Behind The Government Blocking More M&A Than Ever Before (Todd Klein)

423. The Most Interesting Diligence Process You’ve Ever Heard, Why Founders Aren’t Risk Takers, and Reasoning Behind The Government Blocking More M&A Than Ever Before (Todd Klein)

Todd Klein of Revolution Growth joins Nate to discuss The Most Interesting Diligence Process You’ve Ever Heard, Why Founders Aren’t Risk Takers, and Reasoning Behind The Government Blocking More M&A Than Ever Before. In this episode we cover:

  • Revolution Growth’s Investment Philosophy and Areas of Focus
  • The Current Regulatory Environment for Exits and M&A
  • Comparison of the Internet Paradigm Shift to AI and Identifying Sustainable Trends
  • Evaluating Founders and Distinguishing Those Who Want to Build Big Versus Control
  • Process for Identifying Trends and Immersing in Portfolio Companies

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Transcribed with AI:

Our guest today is Todd Klein, Partner at Revolution Growth. Todd’s venture career spans multiple decades first as a Managing Director at Kinetic Ventures, Founder and Managing Partner at Legend Ventures and most recently as a Partner on Revolution’s Growth team. Over Todd’s career, he has invested in Airbnb, Pinterest, and Cava to name just a few. In addition to investing, he is also an author of two books, Transformative Companies and Built for Change. Todd, welcome to the show.
Great to be here. Thank you. Yeah, of course. So I’d love to start by if you could just give us a one to two minute overview of how you found your way into venture and eventually what led to joining revolution. Sure, happy to do that. Yeah. So I joined revolution in 2017. But I really began my career in venture right after business school, I was of the generation where you could essentially do that without much operating experience or general skills of any kind, which should give you some indication of my age. But coming out of business school, I had previously spent time in investment banking, and found that that was not for me long term. But I did like the project oriented nature of venture. And I’ve gotten to work with a number of private equity and venture firms before business school, and really liked that aspect of it. I certainly liked getting close and getting to know entrepreneurs. In what year was at 97, you joined the industry. So I joined the industry in 94. Yeah, at a firm here in Washington, at the time was funny, had a graduating class of 800 people. And at that time, eight of us went directly into venture.
Now a very cataclysmic event occurred during the time I graduated, and the next graduating class, which was the IPO of Netscape, right, which was really the opening of the internet in people’s consciousness. And the following year, about half the class I think, tried to get into venture or into the entrepreneurial sector. But that’s what happened at that time. I feel like back then, venture wasn’t necessarily the the career path that was sexy to follow or get into. So from your perspective, what attracted you to venture after business school? Well, you’re absolutely right, that it wasn’t I mean, people were clamouring for either job at Goldman or McKinsey, those were the kind of the dream jobs for me, I haven’t been exposed to the entrepreneurial sector, and working with founders and kind of seeing the impact they were trying to have. That was just more interesting. You know, the people were I found, the more creative, I found the more engaged with trying to change the world. And that was kind of exciting. And I didn’t have a technical background. So I, you know, it wasn’t unlike yourself, right? I was not an engineer. I wasn’t trained, technically. And so I figured if I was going to participate in the federal sector, I would have to do it, you know, in more venture role. Well, we’re going to spend the majority of the time today talking about your career and your learnings. But for those that aren’t familiar with revolution, can you provide a brief introduction of the firm where you guys like to invest your investment philosophy? Absolutely. So revolution is a private equity and venture capital platform, headquartered in Washington, DC, and it was really created by Steve Case, and Ted leonsis, who were early creators of AOL back in the day, so almost singularly responsible for the consumer internet. And like all successful cashed out entrepreneurs, when they sold the business to Time Warner, they found a higher calling in the form of becoming venture capitalists and and started a firm really, it was kind of a multifamily office for a while. And then they decided to institutionalise what they were doing in the raise the first revolution Growth Fund in 2012. And subsequent to that, a variety of funds have been raised, separated and differentiated by stage. So we have revolution growth, where I sit, we have something called Revolution ventures. And then we have something called Rise of the rest, which is a seed stage venture activity designed to get venture capital to non traditional venture centres. So not the Bay Area, not Boston, not New York, but basically everywhere else. That’s been an effort Steve Case himself has been deeply, deeply passionate about. So we manage around two and a half billion dollars, roughly, of AUM. And then generally speaking, we are a generalist fund, I would say. But there’s one twist I would put on it that might be a little different. Being here in Washington, we have been exposed to the impact that policy can have for good and for ill on the startup community. And so we spent a lot of time building out a set of capabilities around policy. Now for most entrepreneurs, they don’t even think about it sometimes.
It sort of like, leave me alone, I’m doing fine without you sort of thing. But the reality is, most businesses, whether it’s formal or informal, experience, a certain amount of regulation, whether it’s at the national level, state level, local level. And so we built build out a whole series of resources to deal with that. So we have folks who are in a group we call revolution, government analytics. And they are folks that run up and down the hill, and talk to the folks in the agencies and at the state level to understand what’s going on. And then we have something called a policy network, which has about a dozen or so firms in various verticals, that help us think through opportunities refer deals to us, and ultimately, are there to support the portfolio company when, when things are happening. And the final point I would make on this would be that unfortunately, one of the things we’ve observed is that for many incumbents, it’s actually more economical to invest in a really good lobbyist than it is in innovation. And so emerging businesses need to confront that and they need to deal with that. So we tried to build some resources around around those things, in order to to address them. I feel like policies, especially top of mine, right now for venture capitalists, given the exit environment, and what we’re seeing so many m&a deals are being killed due to antitrust concerns. Does the work that resolution does on the policy end, does it also overlap with the exits as well? Or I guess, can you speak to the exit environment? And how that overlaps with the policy efforts that you guys have at the firm? Yeah, it’s a great question. First of all, on the policy side, when even before we go into an investment, we’re obviously like, like many people, as you will know, thinking about ultimately, where might we exit, and having some visibility into the temperature here in Washington, and how accommodating or non accommodating the various folks might be, say, at the FTC or other places, helps us think through? What are the what’s the environment in which a successful exit might occur? What’s the environment in which it might be impeded? For some reason? You know, there was a period of time that toward the beginning of my career, from the standpoint of a regulators were anything that was not expressly forbidden was permitted. And I would say the pendulum has shifted to where anything that’s not expressly permitted is forbidden? And you have to ask, right, you have to ask first. And so having some sense of what that looks like, is really important, particularly if your buyer is non domestic, right? You really have to understand what the geopolitical aspects of that are. And so we try to think through those, and we help our portfolio company think through those as well. So have you guys decided to ultimately pass on an investment due to what you think the exit landscape might be, specifically as it relates to policy? So for example, you love the team, the business of growing, you think there’s an opportunity there to drive venture returns? But as you’re digging into the policy side, you uncover some findings that might make exit, challenging, at least at that moment in time? Have you found yourself in one of those positions? And how do you navigate those situations? Another great question, I don’t know that we have found anything where we felt like, hey, whatever expectations or desires we may have around an exit are going to be so potentially challenged that it could, it could damage, you know, the overall investment opportunity, we’re more likely honestly, to find scenarios where our perspective of the development of a market may be slower to develop than, than a particular company. Or we might say that, you know, the universe of potential buyers may be smaller than they suggested. So therefore, the exit, you know, the robust exit environment would be potentially curtailed, in which case that will influence how we think about valuation going in. So it, you know, all of those factors will come into play. But, you know, I can’t say the answer your questions, I can’t think of anything that we specifically said, you know, you’re never getting out of this thing. Because the m&a market is too narrow. But, you know, there are things where we It has influenced the way we thought about valuation. Got it? What about your thoughts on policy moving forward, as it pertains to the exit landscape? Do you think right now that most things are cyclical, right, like you talked about maybe a decade, 1015 years ago, it was anything that wasn’t permitted is fair game. And now today, it’s shifted to be the reverse where it almost seems like a 180 degree orthogonal shift. Moving forward, what do you see on the horizon for policy and how that connects to the exit environment for a lot of startups that are seeking liquidity? So I would maybe there are two categories to answer that question. The first is, if you’re potentially exiting to one of the major tech platforms, and the reality is they’re under so much scrutiny, right? We talked about the Magnificent Seven. Magnificent Seven is an interesting rubric to think about the s&p 500 and all the rest. But the reality is when you have entities like that, that garner so much attention and the economic
Max and the capital at stake is so high, and the influence on the public is so dramatic, then you are just going to draw scrutiny if that’s your if that’s your exit opportunity, right. And so you have to think about, you know, if you’re a platform business trying to exit to one of those, by definition, you’re just asking to be reviewed and scrutinise it at a level that’s beyond something else. Now, for things that don’t have that degree of attention in the public consciousness. What I would say is, you have plenty of opportunity to make your case if you start making your case early. Right, so you asked me, What do I think this sort of landscape holds? A lot of it is a function of how you address and educate those who are, you know, in a position to influence your ability to exit, how far in advance, you educate them on the market, because many of these markets, frankly, they’re emerging. And the folks in Washington are trying to get up to speed, many of them don’t understand how they operate. You’ve seen a tonne of dialogue about AI and things like that, where you have plenty of sophisticated people in Washington, but many of the folks who are ultimately responsible for making these laws or some of these agency decisions, they don’t live this world every day. And if you have not educated them as to where risks are, where the risk to consumer is, where the risk competition is, and so forth. It’s just going to be harder. And he’s you know, so I would say that, rather than necessarily saying there’s going to be more or less, the way in which you engage will be directly affected by the degree to which you engage and how early you engage with potential policymakers. What do you think driving this change in mindset among regulators? Is it looking in the past and saying, Hey, Mehta, we allowed the acquisition of Instagram and WhatsApp and inadvertently, we created a monopoly. And if we could go back and redo that maybe we wouldn’t have approved those acquisitions, or what do you think is driving this transformational shift in the mindset of regulators stepping in and saying, we’re not going to let Adobe acquire figma, or some of these other recent m&a deals that have been killed? I think, to a certain degree, there’s a an amount of a breakout of second guessing on some of some of the deals, but more of it is there’s a, you know, there’s potential political benefit to someone’s career by standing up to big tech and some of the behaviour you see looks like that. And I don’t mean to give you an entirely cynical answer, because some of it is indeed, you know, genuine concern about consumer say, but frankly, you know, it doesn’t cost a policymaker much to stand up and stop this. And in fact, it’s a way to get a lot of attention and attention in this economy is very valuable to them. And so there is that awareness. So some of it is, again, you know, I might get in trouble with my colleagues, but some of it is political theatre. Again, think about how much attention The Magnificent Seven, for example, get, if you are the person that’s up against the bulwark, stopping them from taking over the world, you almost look heroic doing it. And it doesn’t cost you very much. In fact, it’s probably a pretty good way to fundraise. So there is some of that game being played. Now. I will say to your to your earlier comment, some of the things that have happened, people do regret. Right. And there’s a concern, you know, there was the the Disney acquisition of fox that was, you know, fought and fought. And we now look at it and say, Well, geez, if the whole world is going to streaming, is that company even at scale, you could ask the question. So again, these things go through phases. Yeah. The last thing I want to ask about from your experience prior to moving on, is because your career spans the.com bubble, you started in the mid early 90s. How would you compare the current climate and what we’re seeing today, versus what the industry experienced back in the early 2000s, as a fallout from the.com? Sure. Well, as you were pointing out earlier, back then it was more of a cottage industry, right, it had nowhere near the scale that it has today. And so there were certain similarities. One was when the.com bubble burst, people had invested very aggressively behind a new paradigm that was taking longer to develop than in fact, they thought it might, right. So that was the nature of the burst there. Now, eventually, it caught up. There’s a certain amount of that now, in certain sectors that got very, very hot AI is a very hot sector, it’s likely to cool off, alright, the FinTech sector, tremendous amount of investment in that sector, it’s cooled off, so you can sort of go down, and what we’re seeing is maybe a more sector by sector, deflating, if you will, but from an overall standpoint, it’s not uncommon for something like this to happen in many ways. It’s more similar than it is different than the net prior time. Have you thought about the paradigm shift with the internet versus that of AI? Like, are there what stands out is perhaps being the most different and or the most similar to relative to that paradigm shift? So you know,
And again, having been there a little earlier, the introduction of the internet had a number of key elements to it. First, there was the whole infrastructure build out, there was a whole wave of photonics companies, wireless companies and routing companies, that was an entire wave of activity, that infrastructure, and that was really, you know, the first massive wave of it, then you had the applications built upon it. And those had a totally different character, they were more software oriented, all the marketplaces and so forth, that we all know about. And then now we’re talking about this sort of two way communication on the internet. AI has elements of that, where there is, quote, unquote, infrastructure being in the being built into the compute aspects of it and other another components. But what’s different now is people are much more focused on what the applications are, how is it applied, how is value captured quickly, right versus back in the old days, I mean, you could just, you could throw a stick and hit a router company and make four times your money, that’s, you know, you know, maybe painting with colours that are too bright, but that was, to a certain degree, what it was like, because you were just building the infrastructure from scratch, it was like at the beginning of building the electricity grid, right, you know, if you if you could deliver electricity, and you could build the wires, and you have the right of ways you want, right. And this is not quite like that. We were talking about this internally in it strikes me as it’s the first paradigm shift that’s primarily software to software, versus having significant infrastructure that is physical. So even with mobile, right, the mobile phones, even with cloud software, the back end being servers that weren’t local in an office, but they’re actually at a remote server farm. And that is, you know, the physical layer that had to be built that enabled cloud software. So it’s interesting comparing and contrasting. The first shift that really doesn’t has infrastructure, sure, but it’s not to the same extent that we saw with internet to your point or some of these other paradigm shifts that are more recent. Yeah. So then you’re looking for where the intersection points where value is created. Right? So if you think of a company like Uber, right, Uber was intersection of three phenomena, its payments, its social, and geolocation. Right. So payments, social geolocation, without one of those Uber is not a business, right. But if all three of them are available, at the same time, you have an entirely new paradigm. I think what people are searching for in AI is what are those intersection points? Right? If as you say, you’re correct, there’s elements of software. Well, what can you apply them to? What are other intersection points where there’s development? Where value can be created for new businesses? Have you come across any of those intersection points? Like as we’re focused, we’re we’re focused is in the applied area of applied AI. So we have two things in healthcare. We’re just enormous quantities of data are being crunched to create personalised medicine. But that’s the first. And I think, you know, that’s raw compute power, combined with technology that is able to test and extract value and identify anomalies. That’s one, that’s one area. We’ve looked in tech, we’ve looked in supply chain, we think those are other areas, that where the combination of data and the ability to execute and and use geolocation, for example, with AI will have value. But it’s early. I mean, it feels early to us. Yeah, yeah, it absolutely is. I mean, this is, I feel like what all the rages right now in the investment community is figuring out where durable value is going to accrue over time. And the arguments between is the model layer going to be commoditized? And are the, you know, is the value, they’re going to be marginal? Or is it largely going to accrue to the application layer? So yeah, it’ll be interesting to see the way that this plays out. And we’re, we’re already on topic of one of the areas I was curious to dive into today with you because your investments are not the typical b2b software. And I feel like over time, most investors retreat to investing in b2b software that you’ve invested in Airbnb, Pinterest, but also retail concepts like kava and I wanted to perhaps traverse your learnings and map it against the investment process from Trend identification, which we’ve been speaking about a bit, but all the way to how you diligently startup so maybe the best place to start is when you identify a trend, such as AI or a paradigm shift such as AI, what is that next layer down for you to say okay, supply chain logistics might be interesting life sciences and precision medicine, drug identification or discovery might be interesting. Talk us through the process of recognising a paradigm shift and then identifying where the sustainable trends are going to be over time that are going to create durable
All value for startups to exploit and build large companies? Well, to a certain degree, we have it slightly easier than you do. Because you guys go earlier, our focus is applied technology, right tech, you know, tech enabled, whatever that is. And so when what, you know, let’s say we identify a trend that consumers want healthier food, you could invest in a, you know, a vegan restaurant, you could invest in supplements or whatever. But you have to really understand, from the consumers point of view, what are they what are they trying to achieve, it isn’t just that they want to eat healthier, the other thing that they’re dealing with is trying to get some of their time back. Right, the most precious thing that people have, as consumers is this tension between, say, taking the time to cook a really healthy, delicious, nutritious meal, and the fact that they’ve got to drop the kids here, and they’re yoga classes at this time, or they have other, you know, family obligations, whatever they are economic obligations. And so, you know, we really rely in those situations on on the behaviour of the consumer, what is the consumer telling us? What is it that they’re kind of going out of their way to do to, you know, use, you know, someplace like Cabo eat someplace like kava versus someplace else, right, they have to make a decision to walk past someone else’s store to go into yours. And they need to start doing that regularly. So we look at a trend like say, healthy eating, or the application of AI or the need for personalised medicine. And the the folks who who have the real problem to either deliver that, or to consume it, we spend a lot of time with them. And we try to understand what are the breakpoints you know, that they’re that they’re looking for in order for them to stop doing whatever it is they’re doing, and do something new? So it’s very hands on? So are you saying that you actually go out and you pull users, you talk to users, whether it’s, you know, your average working mom living in Pennsylvania, and then maybe, conversely, someone living on the West Coast, you actually talk to these people to understand what’s driving their decisions and their day to day life for themselves and their family? If that’s the kind of information in the granularity we want, we will absolutely do that. I mean, I can tell you, you know, again, you may decide whether you want to use this, but I tell you a story from the early days of my career, when we were looking in the alternative energy space. And we had spent a lot of time trying to get people to buy photovoltaics and wind power and such. And this was this was early on. And, and we were really, and we had a utility partners who were trying to do this, and, and, and it was really a struggle. And so I asked our firm to commission a survey, it was a single question survey. All right, here was the question. All other things being equal? How much more would you be willing to pay if you knew your power is derived from renewable sources? Okay. That was it. That was the only question folks were asked. Now, today, the answer might be a little higher. But back then take a guess at what people said 4%? That was the max. Right? So maybe it’s six or seven or 8%. Today, but it’s not much more. So when, when we are asking people to make a choice like that. We’re asking them to self tax, basically. And so for us to understand, under what circumstances would they really be willing to do that? We have to go ask them, we have to spend time with them, we have to understand what’s driving those choices. So if we have to go and do surveys and ask people directly, we’ll do it. But often, by the time something is at the growth stage, we can there’s there’s some cohort that we can access that is, is behaving in a way that’s that we can maybe extrapolate from, how important is the founder and your analysis here? And you mentioned something earlier, prior to the show that I found interesting, where you said, you don’t think founders are risk takers. And the reason where this question is coming from is that common, I found very interesting, and the way that the fact the founder might be integral or not to your process. So in general, maybe first question, I’m curious if you could elaborate on that comment. Why you don’t think founders are big risk takers, and to how important is the founder when you’re making your investment decisions? Sure. So the first part of that the reason I feel that, that the common perception that founders are these wild risk takers is that in my experience with founders, they will often do a lot of the kind of work you’re describing before they’re prepared to commit to go do something, right. Whether it is either they are so motivated by a personal experience, they’ve been touched by it. So in their mind is absolutely indisputable that there’s an opportunity there, or they they’re so familiar with an area they’re a domain expert, or you know, they have a set of relationships where they there’s talent
magnetism and so forth around it, that, that, that their, their, their level of certitude is very, very high. So we, as outsiders might say, That’s risky. But in their mind, it’s not at all right. In many cases, most of the founders, if you talk to them, they’re not going to tell you, Hey, I think this is a wild idea, maybe it’ll work, maybe it won’t, that is not their posture. And, and so this notion that they are risk takers, that’s maybe to the outside worlds, it’s unfamiliar with this particular individual’s life experience or what they what they know about a market. But generally speaking, you know, they’re pretty, they’re, they’re pretty risk averse in a lot of cases. And, you know, they’ll put people around them that, you know, that reduce the chance of failure, all those sorts of things. So that’s, to me a more valuable paradigm. And with respect to how essential founders are, they’re completely essential, you know, we, to perhaps a fault are known as a very founder, friendly firm. But, you know, the history of this firm, was created by founders. So Steve and Ted were founders of AOL. And, you know, the idea of pulling founder energy out of a company is something that we do with tremendous trepidation, and try to avoid at all costs if we can. So no, that’s their culture carriers, their, you know, everything about what typically attracts us to an opportunity, right? Now, that doesn’t mean you need to, you know, let them run free. They need buttressing, they need specialists around them, and so forth, and support. And some of them that are really, sponges at coaching are, you know, tend to be the best founders. And so So, you know, we, even though we are at the growth stage, and theoretically, a lot of things are figured out at this point, you know, we’re very founder focused, what would you say is your biggest learning or change in the way that you’ve evaluated a founder since for joining in starting your venture career in the mid 90s? If we’re talking about the from the earliest days, there’s a there’s a professor called Noam Wasserman who used to be at HBS. And then USC, and I don’t we’re not sure where he is right now. But he wrote a book about the entrepreneurs dilemma. And what he what he talked about was this difference between rich versus King. So when you are getting to know a founder, what, what you sometimes discover is, they really want to be rich, and I don’t mean just rich, economical, I mean, they want to build a big enterprise, right? And what’s driving them is to just have this big impact. Similarly, you sometimes find founders who just want to be king, they just want to run their own show. Now, both of them present exactly the same, because most of the founders that we know, can’t work for anybody else. Okay, right there. That’s part of the reason they started their company. But one of the most important things that I’ve learned to your question over this time is to distinguish between whether somebody just wants to run their own thing, and they’re prepared for it to not grow or be small, or to hire people who are maybe more loyal than they are talented in their functional area, versus those that really want to create something big and impactful. And, at the beginning, certainly a beginning of my career, I couldn’t tell the difference. And I think I’m better at that now. What have you learned about how to tease that out? And founders, it comes out in a bunch of different ways about understanding and assessing first of all, the team around them, you know, what, what it is that is valued there? Is it loyalty? Is it unique experience? How much voice does the team around this person get, you know, how, what is the give and take in a human interaction between them? Often, you know, founders who are really good, will hire weak where they are strong. And you have to pay real close attention to stuff like that. Because, you know, founders are always trying to save money. So they Well, I’m, you know, I’m really good at finance. So I’m gonna hire a weaker finance person, and I’ll get good people who are around coding and do marketing do other things. You know, that’s a control thing, right? That that is that is a, it’s a way to save money, but it’s also a way to control your environment. And part of what you learn is that, you know, in these startups, you really can’t control a lot, right? You can control the quality and the talent around you. And, you know, give them space to do their thing. Or you can curtail it. And one of the things I think we’ve observed for those who really want to build big and important companies, they don’t care about what they what they control on the person and they want as much leverage from the team around them as possible. And you can see that in the way you interact. I mean, you have you have early stage investments, you deal with founders, right? I’m sure you see a variety of behaviours in some of your more successful founders.
and those who have struggled? Yeah, we do. We definitely do. One of I mean, one of the things that we benchmark a lot against is what drives the founder, their, you know, their grittiness, but also how big they want to take it to your point, right? Like we we asked him variety of questions, and a lot of time with them. Oftentimes, we don’t have the luxury of a team built out around them. But we are definitely getting at the infancy of, of some of these characteristics that show themselves precede or company formation, versus when they, you know, they’re ready to raise that growth round at Series B Series C. Yeah. You know, I was also curious, from your perspective, do you find that the founders that really want to build a big business? Are they generally more open minded? Or are they more difficult to work with? Because the reason I asked this question is, I feel like this is a hotly debated topic. I’ve heard both. And from your perspective, do you find that the founders that are really on a mission, they’re hell bent on building something big? Are they more challenging to work with? Or are they very open minded, and their attitude is, I really don’t care how we get there, as long as we get there, what I have found is the stronger ones that really want to build something big, are extremely difficult to deal with, in very specific areas, right? There are certain things that are just non negotiable, negotiable for them for their vision, and what where they think value is created. And then on everything else, they want all the help they can get, right. And so you could describe them in certain circumstances and uncertain topics is extraordinarily unreasonable, and a total pain in the neck to deal with. But the ones that I found most successful, you know, there’s a limited corridor of what that is. And they’re and they have dug in. And there’s good reasons the way they feel the way they do. And one should probably take that very seriously. But in other areas where they know they aren’t expert, they’re like sponges, they want as much help and support and guidance as they could possibly take. That’s the distinction. So when when we’ve run into trouble, we’ve certainly run into folks who think they know every position, and they you know, they can they can play quarterback and receiver, and safety and linebacker. And that’s usually when it’s just a personality thing. And that’s a control dynamic, as opposed to a growth dynamic. So, so shifting away from the founder, one of the other things that you mentioned, part of the show that I found very interesting was during your process, how you immerse yourself within the company that you’re evaluating prior to making an investment decision, can you expand on where this part of the process came from for you, and why you feel it’s so important? Sure, it certainly mostly came from, you know, at the beginning part of my career being a very narrow minded and limited and not very impactful board member. And, and not wanting to continue to behave that way. And so, yeah, for every investment we do, that I’ve do that I try and plunge, you know, both feet into, I try and figure out sort of what, where the secret sauce of a business is, and and do something immersive that exposes me to it to understand how that works. Right. So one of the investments that I did earlier in my career was somebody called Anonymous content, which is a movie and TV production company. And they manage the careers of the top 700 or so writers and directors in Hollywood. And the core of that business is the written word, right, the first thing that goes on a page, before any of the directors we all know and love, see it and make a great movie out of it or, you know, before they hire a cinematographer. And understanding how they evaluated, I was trying to really get at that, and I was really struggling. So one fine day, one of my partners said, Well, you know, you ought to write your communication to them in the form of a screenplay. So like, that’s actually a pretty good idea. So I downloaded Final Draft software. And I wrote out basically a movie pitch. And I pitched it to these, like really intense producers Academy Award winning producers, and got their feedback. But what I learned in that process was how they really were evaluating it, where the commercial potential was where, you know, what, what could get an actor interested? What would make a director excited, like all of that stuff, and there’s no way that I would have understood that. But for having done that pitch, right, there just was no way to understand it. So you learn about kind of both what some of the secret sauce is and how it works, because these are all about human dynamics. And you also kind of learn what the non negotiables are like, what line Won’t we cross, we’re never going to do a movie like this, because it’s against our values. So So that’s one example. You know, we did something similar before we did the cost of investment. I asked the CEO, I said, Listen, I want to work at the busiest restaurant on the busiest day, busiest shift. Okay, so at the time I made that request, that was Dupont Circle here nearby lunch on a Thursday. And that was the fastest six hours of my life. I mean, you just
crushed it, just trying to stay keep up with everything. But I learned a lot about where the friction points are, how how the business actually operates, and where the front line can get disconnected from the service centre and the board. And so so for me, it’s an essential part of understanding kind of what some of these trade offs are that are being made by management every day that we hear about at board meetings, but may or may not have any insight into interesting thought, if we could feature anyone on the show, who should we interview? And what topic would you like to hear them speak about? I would say one idea for you is, there’s a book that has just come out called the startup lottery. Have you heard of it? No, I haven’t. So a friend of mine here in Washington wrote a book called The startup lottery. And unlike every other book about startups, that’s written for entrepreneurs. This is written for the entire class of people who are deciding whether or not they should join a startup. And what the risks and trade offs are, and what the analysis are in the guy who wrote it. This friend named Gus Bessel, himself was both an investor in founder of and a very successful CFO of a startup enterprise that they exited. So he, you know, maybe you don’t want to do this, because he reveals all the venture capital secrets about how the cap table really works, if you’re a junior employee, and what decisions are being made for you versus ones that you would, perhaps prefer to make by yourself. But it is a fascinating walk through, you know, not just what it’s like for the founder, but for the entire class of folks who are deciding whether or not a startup is for them. It’s really, really interesting. It feels like an audience hasn’t really been spoken to in that way. So Exactly, exactly. And it’s very specific, and it’s very approachable. And, and you would love Gus, he’s a very approachable person. Okay, we’ll add him to the list. And then Todd, last, what is the best way for listeners to connect with you and revolution? So the best way to reach me is by email todd.klein@revolution.com. And I’m happy to go through that channel. And revolution. Same way, you know, you just get if you knew if you if there’s somebody else you’d rather work with at revolution than me, just send me the message and I’ll pass it along. I’m happy to do it. You’re not gonna afford it to trash. Okay. No, that’s not where it goes. Well, Todd, thanks again, for doing this. Really appreciate the time. This has been a real treat. No, I really appreciate it. enjoyed the conversation. And thank you for the very thoughtful questions.
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, a compliment 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