436. Solving the World’s Toughest Problems, the Ethics of AI, and the Rise of Generative Science (James Joaquin)

436. Solving the World's Toughest Problems, the Ethics of AI, and the Rise of Generative Science (James Joaquin)

James Joaquin of Obvious Ventures joins Nick to discuss Solving the World’s Toughest Problems, the Ethics of AI, and the Rise of Generative Science. In this episode we cover:

  • Growth of Funds and Measuring Alignment Between Investors and Founders
  • Investing in Tech Companies with Positive Impact
  • Generative AI for Scientific Breakthroughs and Renewable Energy
  • AI’s Potential to Transform Healthcare, Life Expectancy, and Scientific Research
  • Climate Tech Investment Potential and the Role of Venture Capital in Driving Sustainable Economic Growth
  • AI Ethics, Regulation, and Cybercrime Risks

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Transcribed with AI:

James Joaquin joins us today from San Francisco, California. Co-founder and Managing Director of Obvious Ventures, a multi stage venture fund investing in startups focused on Sustainable Systems, Healthy Living, and People Power. James has invested in companies including Inceptive,Incredible Health, Beyond Meat, Gusto, Miyoko’s Creamery, Olly, and Welly. Prior to Obvious, he held positions as CEO of Ofoto, Xoom, and Xmarks. James, welcome to the show!
Thank you for having me excited to be here.
It’s a huge pleasure. I’ve heard a lot about the firm. This is the first time we’ve chatted, but I’m very excited about the talk today. Can you start off by walking us through your back backstory in in your path to becoming a VC? Absolutely.
I want to say hello to all of your listeners. Thank you for having me on. Quick story on me is that I spent a couple of decades as a founder before becoming a VC. So I started my first startup while studying computer science in college. So have a little bit of a nerd background. That company was acquired by Apple. That’s what brought me to Silicon Valley. I spent six years at Apple. And then this thing called the internet was invented. You may have heard of it. I thought it was pretty interesting left Apple and started building in internet startups. when.com the first web based calendar was acquired by AOL. Oh photo, one of the early online photo services was acquired by Kodak and I ran it for Kodak for three years. And then I got recruited by Sequoia and then he a to run a global payments company in their portfolio called Zoom with an X X o m. And that Zoom helps foreign born immigrants send money back to their families. And we took a lot of market share away from Western Union and grew that business all the way to a successful IPO on the NASDAQ. So that was my entrepreneurial arc, Nick. And after zoom, I joined a venture firm crossed over to venture capital. I’ve been about 18 years in venture. And for the last 10 years, I’ve been building obvious ventures.
Very good. And what led you to start obvious?
Well, it’s a fun origin story. Because I’m old friends with a legendary Silicon Valley entrepreneur named Evan Williams have created blogger and then Twitter and then medium. And whenever was first kind of working on medium. I was in a conversation with him about starting a new kind of venture fund ever and I both believed that venture was not investing enough in solutions to the world’s toughest problems. These problems like the climate crisis, chronic disease income inequality. In 2013, we just didn’t see Sandhill Road investing there. They were just doing enterprise software, ad tech cybersecurity and maybe some disappearing photo apps. And that was it. And so we said we should start our own purpose built fund to do this, this new kind of investing, and we teamed up with a third co founder named V Scholl, the seashell V shall doesn’t come from the tech world. He actually spent 10 years with Yvonne Shannara building the sustainable apparel company, Patagonia, Nick, I’m guessing you own at least one Patagonia item in your closet, probably a vest with a logo on it something like that. No comment. But but that company is a Northstar company for me. And for AV in terms of a purpose driven business, the way Patagonia has been built. And V Shaw was working on starting a fund with a similar thesis to us. So we decided to join forces. And the three of us cofounded obvious, we chose the name obvious because it’s been sort of a good luck charm forever. The first chapter of obvious turned into Twitter. And the second chapter of obvious was called obvious corporation that turned into medium. And so we said why don’t we put the suffix ventures and create obvious ventures because we love to say, all great ideas are obvious in hindsight. Well, yeah, good. And that’s, you know, that’s those are the three, the three of us that started this and I just wanted to tell you the why, which is, again, we had a contrarian view to mainstream venture at the time. We believe that these companies building solutions to things like the climate crisis could actually outperform they could deliver spectacular financial returns and deliver social and environmental benefits. So we started the company around that shared belief. We coined the term world positive venture capital to describe what we think is a new kind of startup and a new movement within investing. And for the for these world positive solutions.
And James, which fund are you on and what’s been the progression of growth in funds.
So over the last 10 years, we’ve raised four flagship funds, we’re currently investing out of obvious ventures four, we also raise to opportunity funds, which are kind of like later stage a follow on funds. Across those six funds, we now have over 1.1 billion of assets under management. Our fourth Fund is a $360 million fund size. And we focus on series seed and series A so we’re an early stage investor, we typically lead or CO lead, our initial checks are anywhere from a million dollars to $15 million in terms of how we how we show up for early stage rounds. And what
has been the biggest change or evolution at obvious since founding since your founding date. 2010 I believe in today 2024.
Well, our first fund was 123456789. We like to make math jokes with our font sizes. And so going from $123 million fund to a $360 million dollar fund, it’s given us a lot more muscle. So if I look back at our first fund, we didn’t really have a big enough chequebook to lead series A rounds, we were investing in great companies, but we weren’t getting great venture ownership, because I think our cheque sizes were smaller. And that’s why I think in partnership with our limited partners, we were able to judiciously increase our funds sizes over the last 10 years. And I think we’ve also gotten more courage over the last 10 years, we were maybe cautious with our first fund. Because we didn’t want to screw up, Nick, you know, we wanted to prove this world positive idea. It was a contrarian idea. 10 years ago, people thought we were crazy. Investing in plant based meat and lab grown diamonds and electric air taxis. They think we’re less crazy. Now because we’ve had six public offerings. We’ve had 16, great m&a exits across the portfolio. And that’s given us more courage and conviction to write bigger checks to lead bigger rounds. So
James, you’ve indicated sort of this world positive ethos at the venture firm, you’ve kind of talked about some of the sectors and segments you’re investing in, is there a specific way that you define or measure the degree to which you are world positive?
It’s a great question, Nick. I mean, we’ve done a lot of work on exactly this question. And in 2017, I published an article called The World positive term sheet that got a lot of attention, where we said, hey, venture term sheets only cover economics and control, let’s add a third section where we actually write down the purpose and values of the company where the founders talk about how they’re going to approach sustainability in their supply chain, how they’re gonna approach diversity on their management team and their board. And those are not legally binding things, but they’re about alignment, getting this alignment between investors and founders. More recently, I published an update to that called the ESG term sheet. And it talks about essentially a world positive scorecard that we build for each investment internally, where we try to quantitatively capture the intention of an early stage startup around nine different areas that we put a numeric score on, we have three in the area of sustainability in the environment, we have three different factors in the area of sort of social benefits, whether that’s improving human health or improving financial security and safety nets. And then we have three around governance around things like team and board diversity, shareholder stakeholder inclusion, things like that. And the reason I say it’s tricky is that a two person startup with a keynote presentation at the seed stage, Nick, there’s nothing to measure, there’s no, there’s no greenhouse gas emissions to measure yet. So we have to actually think about the intention, and where we think this company’s going. And we try to at least capture our hope and our intent of what’s the positive impact going to be for that company? And what are the potential risks as well?
Yeah, as you think about positive impacts, and sort of scenario planning in the future, I recognise you don’t have a crystal ball. But sometimes, you know, folks will have an effort toward energy or climate or, you know, a lot of different segments and there are unintended consequences. Right? You knock down two barriers in one segment, you’ve created, you know, five issues and another. So how do you think about unintended consequences? How do you avoid robbing Peter to pay Paul and you know, investing in a tech a tech company that on the surface seems like a universal a universally positive effort. But there could be unforeseen, problematic consequences.
Well, I have a two part answer for you. Number one, we have one of our philosophies at the firm is progress, not perfection. So we think it’s too easy to get caught up in, you know, sort of a perfection mindset of like, we can’t invest in this human health company, because they’re emitting greenhouse gases and they’re carbon negative. Well, we think we have to make progress. And not every company is going to be perfect on all fronts, right? So we take that mindset to our investing. And we also try to be realistic and write down what are the potential unintended consequences of a new technology, especially exponential technologies, think about synthetic biology, artificial intelligence, robotics, these are growing at an exponential rate, they have huge positive potential for society. But there are also negative things. There’s a dual use dilemma where a bad actor could take AI and use it in a very negative way. We’re seeing that with cybercrime already with generative AI. So we we try to capture that we try to ask the question on the boards that we sit on, what could possibly go wrong? And we encourage our founders to actually build red teams and explore what are the edge cases of how this could be used in a very negative way. And that can help inform how we could at least build safeguards and try to prevent some of those negative uses.
Do you do have a way that you diligence or assess a founders sort of moral compass and where they stand on ethics? Or is it kind of gut in human relationship?
It is absolutely part of our diligence process. We want to understand, you know, not just the technical acumen of our founders, but their moral compass. And, you know, how do they feel about what they’re building and how it might move humanity forward? It’s more of an art than a science. I can’t give you a seven step plan for how we do that. But we certainly spend time on that. And it’s part of our deal memos. It’s part of our thought process. Wonderful.
James, you mentioned generative AI, as you’re thinking about future applications of Gen AI, what do you believe will have the most transformative impact on the human race? Easy question. I know,
my favourite question. I’m excited that you asked because I think for your audience, they may find this interesting and contrarian, but we’re seeing most VCs chasing new enterprise and productivity applications of generative AI. I mean, many, many papers have been written and words have been spoken on podcasts about this. And obvious we’re focused on something different. And we call it generative science. It’s an idea that we can build large science models instead of training AI on the the text and video of the internet. What if we back entrepreneurs that are building modern AI that’s trained on chemistry, physics, biology, geology, these areas of science that have very, very complex large search spaces. Modern AI transformer based AI is actually the perfect technology to explore those large search spaces, and to output or predict scientific breakthroughs that humans couldn’t get to on their own. We think we’re going to be able to solve the unsolvable right things like nuclear fusion, scalable renewable energy, cures for disease cures for cancer, we actually are backing teams that are building generative science AI companies to do exactly that. Amazing.
Can you talk about some more specific use cases from your investments?
Yeah, let me share three breakthroughs were searching for and two of them we’ve we’ve we’ve already placed bets. So three examples I like to use are imagine Jen sai being able to help humans build cheap, scalable renewable energy, carbon neutral or carbon negative energy. And we need this more than ever because our energy grid in the United States is is seeing unprecedented new demand from three things from electric vehicle charging, from Bitcoin mining, and from date new data centres to power generative AI. Yep, those three things are pulling so many electrons that we have to scale new renewable sources. We think Gen sai can help deliver that. Number two breakthrough cures for disease and mental illness. The scientific method has been largely unchanged for 100 years in terms of a PHD with a lab code in a pipette, researching one idea at a time to try to find a new small molecule A new protein therapy, a new mRNA vaccine. That process is very slow and tedious. And we think it’s it’s being flipped upside down with the idea of Gen sai of of science AI actually doing that work to find those optimal cures and small molecules and protein therapies. And then the third kind of solution I’d love to see in the world is a 10x improvement in battery energy, storage density. You know, we don’t have a Moore’s Law for batteries. We haven’t seen lithium ion double every two years in terms of energy density and power to weight ratio. And we need new breakthroughs in battery chemistry so that we can electrify aviation, for example, there are a whole bunch of fronts, where we want to decarbonize the global economy, but we need much better batteries to do it.
James, you know, on the on the energy point that you made, because of grid limitations, do you feel like these renewable energy solutions need to occur at the edge? In other words, not industrial size, solar or wind farms, but rather, you know, panels on residential homes or commercial buildings?
Nick my my partner Andrew Beebe is a longtime solar executive and an energy executive. He was the VP of distributed energy at NextEra. They own Florida Power and Light, he built a huge solar wind and storage portfolio for them. So he has a deep understanding of what we’re calling gridlock. There’s a grid congestion on the US energy grid, that’s going to be really hard to solve. And I think we’re going to need solutions in both places. So at obvious we’re certainly looking at distributed energy where you where you can actually have, you know, small energy generation at the edge. The extreme example of that is residential, solar right. And solar plus battery storage on homes in the United States is actually helping to stabilise the grid, because utilities can use those batteries to put energy back in at peak at peak times. We’re also investing in utility scale energy, and a recent investment we made is in a company called Zan, scar ZANSK. Our Zan scar is an AI first company, unbelievable technical team, they’ve trained an AI on geological data. And that AI is identifying optimal geothermal drilling sites for utility scale geothermal energy plants, we know that there’s more energy than we need under the Earth’s crust. 10 bits of the Earth’s heat could supply humanity’s energy needs for 2 million years, right? We just don’t know how to efficiently reach it. Chan, there’s been a lot of trial and error drilling for geothermal zand scars using AI to flip that upside down and actually built an AI that’s outperforming human geologists to go find that renewable energy.
Fascinating. Back on to sort of the healthcare topic, do you think we will see the end to many chronic diseases, things like cancer, diabetes, et cetera? Within the next, let’s say two decades? I’m just full of easy questions today.
Wow. Two decades, this is be a good long bet. Well, the end is a tough word, Nick, I would say we’re probably going to see an asymptote approaching the the end or a dramatic reduction in what we now know of are the big you know, the big killers of chronic diseases. We were investing in this space at obvious it’s it’s a category called Tech bio. My partner Rohan Ganesh leads our efforts here. And we recently invested in an AI first company called inceptive. And inceptive is building biological software to do exactly what you what’s in your question that the company was founded by Jakob user crit. He was one of the eight Google Brain researchers that wrote the attention is all you need paper that came out of Google Brain that really ushered in what I think of as modern AI of generative AI. And for his next act, Jakob decided to build an AI model trained not on text and images, but on biological information is starting with messenger RNA. And if you think about mRNA, we we know about it because we had two mRNA vaccines during the COVID pandemic. And we and we were lucky to have them but we also know that those vaccines were not the optimal vaccines for the for the COVID virus, they, for example, were not temperature stable. So a big big chunk of the world today still does not have a COVID vaccine because they don’t have cold chain transportation to To have a sub sub zero, you know, transportation of a vaccine inceptive is building a model that ultimately could output optimal mRNA for any viral target. So think about a platform that can make vaccines, think about how valuable that can be, both financially and the value to society if AI can bring us that, that’s another example of generative science that we’re excited about.
Amazing. You know, I just interviewed Alan Patricof, yesterday have a great crop primetime and primetime, yeah, Primetime partners. And it was kind of fascinating, you know, with these advances in health care, life expectancy, you know, reasonably is going to continue to expand population is going to expand, is that a consideration? You know, within your aperture and your thesis, you know, the number of, you know, folks that sort of this prime generation and expanding and how tech and science and medicine needs to evolve to support that group
100%, we see the largest bulge bracket of the US population being, you know, baby boomer plus Gen X, right, those generations are going to live a lot longer than they thought. And that doesn’t factor into the exponential improvement that we think we’re going to see in in again, treating and curing chronic disease. So that leads to a thesis of a whole set of products and services of what happens to the US economy when folks are living longer. And are they staying in the workplace longer or not, you know, what happens to jobs, what happens to our insurance models? What happens to our Medicare, Medicaid system of health care, and we are an early investor in a company called devoted health that is on a very bold mission to to basically build a better Medicare, Medicaid, insurance payer and provider to help care for Americans as they get older.
James, I’m curious structurally, with your funds that obvious? Is it one pool you invest out of? Or do you carve out separate funds that have either sector orientation or different risk return profile? Based on what you’re investing in?
Nick, we are old school, we are one fund one team. We think that having everybody focused on building a diverse venture portfolio that can Drive strong returns for our LPs. You know, if you’re a student of history, I think one fund one team is the way to do that. We keep our funds sizes, you know, sub 500 million, so we can squint and say any early stage investment has the potential to return the fund. And that’s been our strategy from day one. We haven’t changed that model. That’s our plan for the foreseeable future.
You know, I haven’t heard anyone talk about science and scientists the way that you all do it obvious. I’m curious if you think the future scientists and PhDs will need to be trained and educated in a completely different way. Yea, or nay? And is our academic system, preparing scientists of the future appropriately for the tool set that will be available to them going forward?
That’s a really fun question. You know, I have two college aged children. And this is like a dinner table conversation of, you know, what should they major in? What what are the jobs of the future what what skills will be valuable for the next 100 years? Something that we believe at obvious is that, you know, future science teams need to be interdisciplinary. And we’ve already seen this, I mean, when we backed recursion, pharma now called just called recursion, the leader in AI for drug discovery, the founding team was a mix of molecular biology, postdocs, and computer science, postdocs. And that intersection of computation and biology is what is, you know, ushering in this whole new category of tech bio, I think we’re going to see that in other science domains as well, that you’re going to have these interdisciplinary teams. And you know, maybe at the university level, we’re going to see more cross training in future degree programmes where, you know, if you’re studying geology, you need to also learn AI. If you’re studying chemistry, you also need to learn AI. And so I think things are going to start to melt a little bit more, but I think it’s mostly going to be specialists that come together with interdisciplinary team members.
You know, I know a lot of venture capitalists don’t want to take real r&d risk. They may take some market risks, they may take some execution risk. I’m curious how you think about that, the role it plays in underwriting and especially how you consider that when you have to double down or triple down on an investment at let’s say a year or B, before the sciences, maybe proven, you know, it’s still r&d phase stuff.
Yeah, I mean, those two letters research and development are two very different letters. So I mean, for us it obvious we typically do not take what I call lab bench risk. So if this isn’t researching a new technology that’s completely unproven. It’s probably better suited for University Grants and you know, kind of, you know, non dilutive capital from government grants at the research level, that’s typically not ready for venture. But when you have a technology that’s proven, you know, let’s go back to the machine learning days of AI. You know, we certainly saw a lot of companies that were taking a proven new approach to big data and machine learning, and then applying them to new markets, or new use cases, that’s really the D. That’s the development in r&d. And I think that’s where early stage venture can really play an important role
of it. So you know, we’ve had the Kozol guys on the show, we’ve had a lot of people that are passionate about climate, most will remind us that the primary goal of venture is alpha, alpha first, you know, net benefits. Second, I’m curious, your take, you know, will this finally be the generation of green tech or climate tech companies that achieve mass success and actually drive? You know, meaningful 10x Plus venture returns? Why or why not?
Well, Nick, to push back on your question. I mean, Haven’t we already seen some mass success? I mean, we have a whole generation of solar and wind companies that that include successful public offerings. We have Tesla, who, you know, has demonstrated a greater revenue multiple the market cap than any other automotive company in human history. So I think we have already some examples of of climate tech or renewable value creation. But that said, I think the best is yet to come. And, you know, I’d love your view on this as well. But it obvious we think we spent the last 20 years digitising the global economy, you know, the whole tech industry writ large, and we’re going to spend the next 20 years decarbonizing it, that the the issue of the climate crisis is just too large to ignore. And as temperatures rise, nation states, large public companies, individuals, everyone is going to need to take action, we’re going to have to decarbonize, we’re probably going to have to pull carbon out of the atmosphere. And there’s a whole new venture investment category in direct air capture, just trying to figure out ways to reduce the amount of co2 and methane that’s sitting in our atmosphere.
Yeah, you know, I hate to say it, I’m an optimist when it comes to capitalism. And I’m a bit of a sceptic, when it comes to climate tech, because you’ve, you’ve cited some really good cases of successes. I haven’t seen many venture funds purely focused on that segment, that have been top decile funds. Yeah. So you know, and maybe we will see that, that in the future, right. We’re trying to skate to where the pucks going, not where it’s been. But yeah, I don’t know. I mean, do you think that sustainability and sustainable ecosystems will work in a capitalist economy?
Well, can a capitalist economy work without a livable habitat for humans? Fair enough? I start with that first principles question. But there’s a time horizon question in that. So I don’t know the time horizon of when it gets so bad, that we have to fix it. You know, when does the US put a price on carbon and tax people that are emitting carbon hasn’t happened? We don’t think it’s we don’t think it’s happening in the near future. But we think Europe is ahead of us on that front. And so we are seeing other nation states do that. And so I don’t know the timing. But I do know, if you take a long term view, we have to transition our economy to be a sustainable economy. If we want capitalism to work, because we’re going to if we want our species to live, we’re gonna have to do it.
In your opinion, what is the biggest threat to human progress? James?
Well, I struggle with the word progress. And your question, Nick, you know, because progress for one set of humans could actually mean setbacks for others. It’s a very nuanced word. But if if I reframe it as what do I think are like the biggest existential threats to humanity? Okay. Honestly, my I think, you know, nuclear weapons is still our number one existential threat, nuclear proliferation. We have a land war in Europe happening right now with with a nuclear power. That’s just a real threat. But a close second, for me is the climate crisis. I think. All the work we’re doing as an industry in AI has the potential to accelerate that climate crisis because of the energy demands of, of all these modern GPUs and all these new data centres. So I think the the technological progress we’ve delivered comes at a at a price. And it’s an area we think of that’s an investable thesis around things like new renewable energy to solve that. So we’re working on it, but those are my top two existential threats.
I don’t know if you’ve seen dune two yet. But Mr. Shell May was not shy about using the word.
Let’s see exactly, yeah, that was a discomforting metaphor for what I hope we don’t see in our lifetime and here on planet Earth. Agreed.
So so back to AI just a bit. James, what are your thoughts on ethics and regulation related to AI?
is a hot topic. You know, last year, we published my team and I published a piece called AI ethics. It’s sort of an ethics checklist. It’s a pneumonic, where the E stands for explainability. You know, the S stands for sustainability. And it’s something that we just we work with our founders on making sure that for AI companies we’re involved with that we we try to do our best to build the technology ethically, and in a way that’s human centred. I think in terms of regulation, it’s a really unclear fuzzy space right now. I was fortunate to be invited to a roundtable with Gina Raimondo, who’s our US Secretary of Commerce, President Biden has tasked her with writing the the AI guidelines for the US. We know that that the EU has already published some preliminary regulation, there’s a lot of lobbying going on, there’s a lot of efforts by us AI companies to self regulate. And I honestly don’t have a crystal ball as to where we’ll land. But I do think that generative AI is the most important invention that humanity has made. And that’s because it’s an invention that can invent, it can actually output new new science, new inventions. And that’s a very, very powerful tool. It’s our most powerful tool. And it has a dual use dilemma, it could be weaponized in the wrong hands. And so I think it’s correct and thoughtful for our government to think about what regulations or safeguards do they need to put in place to make sure that AI hardware and software AI technology from US companies isn’t used in the wrong hands by by the wrong actors.
I know that the government heavily leans on the big tech companies are they also, you know, our regulators also looking to VCs, like yourself, and more of that early stage community for guidance on how to legislate? Yeah.
I mean, props to Gina right, she put a roundtable together, and she actually invited, you know, a diverse set of investors to the table. And I think that the scenario we don’t want is we don’t want the US government just talking to the Magnificent Seven. We don’t, you know, for let’s add open AI to that group. But we don’t want just Microsoft, Google and Vidya and open AI determining the regulatory landscape, right, that could create a situation of regulatory capture, where they influence the government to write regs that startups can’t comply with that would cut off innovation.
This relates my comment earlier about capitalism. It’s tricky. Yeah, it’s tricky.
So, you know, my input to Gino was make sure you talk to companies big and small. Make sure you talk to the startups. Make sure you talk to the companies that are working on open source approaches to AI. Get a diverse set of inputs before you write a regulatory framework.
What do you think is the biggest legitimate concern that investors in in frankly, citizens should prepare against with regard to AI?
I think the biggest issue for citizens is cybercrime. And we’re already seeing it neck and it’s gonna get 100 times worse, the capability to fool you with deep fake audio with deep fake video with you know, if your email is hacked, and AI could train for months just reading your email to know such a detailed level about you and your business and your colleagues that when it strikes to try to fish your account number it could do it in an unbelievably precise way. So I think cybercrime is a real threat, the you know, citizens are going to need new tools to protect their attack surfaces. I think whoever builds an AI to fight cybercrime AI is that’s going to be very world positive and that’s going to be a very valuable company.
James, we’ve seen a lot of Prominent success stories in venture we’ve also seen a lot of firms and funds that have vastly outperformed the s&p 500. What do you think most VC firms get wrong?
Wow. Well, look, venture is very hard. It’s a very humbling business. And I think we all make mistakes. I know I certainly have made mistakes and venture and I think a lot of my venture colleagues have. So it’s tough to opine on what, you know, everybody gets wrong. But I’ll pick one thing that is maybe a common mistake that I have seen. And hopefully this is useful for younger managers. And that’s the pace of deployment of your venture fund. Nick, you’ve, you’ve interviewed a lot of VCs, I don’t know if this comes up. But when you know, when a firm raises a fund, there’s a question of, how long does it take to deploy that fun to get to what we call full deployment where the portfolio is built, you still have reserves to keep investing, but you’re not going to make new investments out of that fund. And that’s what limited partners think of as pace of deployment. And I’ve seen a lot of funds that do that, too, in my opinion too quickly, where they deploy their fund in 12 months. And, you know, we have an old school point of view it obvious, we really pay attention to pace, and we are typically on a three year deployment pace. So it takes us three to three and a half years to build our portfolio for a given fund. And the reason I believe that’s valuable to all managers is that there’s time diversity in venture venture moves in cycles, just like any other industry. And if you deploy too quickly, you may end up concentrated in one time cycle. That is not a good return cycle. Yep. So spreading over multiple years means you might be there might be better companies in a certain year. Founders is a weird cycle of when great founders are starting new things. There may be a new tech breakthrough, like open AI and chat GPT, that it becomes a platform for innovation. And if you deploy too quickly, then maybe you miss that you won’t have that alpha in your portfolio. Same thing with valuations and pricing, they move in these cycles. And so there’s real value to time diversity and venture.
Very wise advice. James, five years from now, do you think is more likely we’ll have 10x? The VC firms are 1/10, the VC firms of today?
Nick, I’m going to take the middle and I’m going to say we’re going to have one half the number of VC firms that we have today. You can’t do that. But that’s still good. Door number three. Look, I think we saw a tsunami of LP capital few years ago coming into venture. And that just that that was fertiliser for a whole bunch of first time funds. And they were first time funds at a in a vintage of very, very high valuations before the market corrected. I don’t think that the majority of those funds are going to raise a second fund, just based on on probably the numbers that they’ll be posting. And so that’s going to lead to a contraction of the number of funds. And that’s probably a good thing for our ecosystem. You know, in any system, too much money leads to undisciplined behaviour. And we saw some of that a few years ago. And so I think a little bit of contraction will be good for the system.
Do you think crypto becomes large enough in the future that it sort of warrants its own asset class, its own structures, its own dynamics, or does it kind of remain as a niche part of venture?
It’s a great question. I am bearish. I’m in the bear camp in terms of crypto I do think blockchain as a technology is really valuable. And there are there are use cases where having a trustless blockchain database is, you know, absolutely breakthrough technology. And we’re going to see that technology continue to get better and more efficient and faster. But I think that’s different than cryptocurrencies. And so the world of cryptocurrencies has been, you know, mostly about speculation and casinos, and the government has been slow to move, but the Sleeping Bear has woken up. And we’re seeing I think, a lot of government regulation showing up. And that’s going to really, I think, slow down the inflows of capital into that space.
Interesting. James, if we could feature anyone here on the show, who do you think we should interview and what topic would you like to hear them speak about?
Nick, I think you should bring back Beazer Clarkson from sapphire ventures. It’s been many years since you’ve had her on the show. And I think she’s both entertaining and articulate about the LP point of view. and it’s very rare actually to get LPS that are willing to talk publicly and talk to the press, but it’s so valuable for all of us, as GPs to understand that LP point of view. So I’d love to hear from her. Awesome.
James, what book article or video would you recommend to listeners?
I have a book recommendation for your listeners. It’s a book that just came out last month. It’s called cultures of growth by Mary Murphy. Okay, Mary’s Stanford professor, she worked closely with Carol Dweck, who wrote the famous book mindset. And that book introduced this concept of growth mindset. I referenced this when I was when I was, you know, singing the praises of eemaan. To you. what Mary has done is detailed research and storytelling around how you can apply a growth mindset to a team and an organisation. It’s really, really useful foundational work, I think it’s a must read for any founder.
Is it possible to build growth mindset amongst the group that maybe doesn’t have it going in? 100%?
I think it’s about how a team you know, what a team incentivizes, right? Are you a culture of genius, we’re only the only the smartest people speak and everyone else is disincentivized to share an idea? Or do you celebrate all ideas? Do you encourage debate? Do you reflect on failure and see what you can learn what we you know what you’ve learned from that failure? Or do you sweep it under the rug and only talk about success? So they’re, they’re very tactical things that Mary, you know, outlines in this book that I think for an early stage startup can help set the DNA and the culture of your company to be a culture of growth. Love that
love that? James? Do you have any habits, tactics or techniques that are a secret weapon?
Well, my secret weapon is my Chief of Staff. I know, you know, not every, not every founder can can afford this luxury. But I have a chief of staff who manages my inbox. And that has been life changing for me, you know, doing four hours of email a day, I found was working off of a whole bunch of other people’s to do lists, because it’s mostly other people asking, you know, things, things of me. And by having a chief of staff that manages my inbox, it frees up my time to meet with founders, to support portfolio companies and to think creatively and have some of that whitespace thinking time.
Wonderful. And then finally, here, James, what’s the best way for listeners to connect with you and follow along with obvious
please follow me and DM me on LinkedIn and Twitter. I do still call it Twitter. I’m at James Joaquin, and you can on either of those platforms, I’m active and you can message me on LinkedIn or Twitter.
He is James Joaquin, the firm is obvious ventures James, not only impressive, but I think really inspiring for us all what you’ve done with obvious and thanks for joining us and sharing a bit about
it. You bet. Let’s all go build some world positive solutions together.
Let’s do it. Thank you, sir.
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