Latest / The Learning Corner by Precursor / Episode #13: Rob Go, Zain Rizavi, New York Times

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Episode #13: Rob Go, Zain Rizavi, New York Times · The Learning Corner by Precursor

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Think it's also important to remember founders choose firms, but they also choose people.
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I tell people they go, there's so many venture firms out there.
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I go, that should tell you a lot about the level of satisfaction that founders have.
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The fact there are many firms tell me how frustrated many founders are about the choices
0:14
that are available, and they want more choice.
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It's the week of December 16th.
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Welcome to the Learning Corner, a Precursor Ventures podcast.
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Welcome to the Learning Corner by Precursor.
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I'm Mia Farnham, and I'm joined by our GPA and managing partner Charles Hudson, where we'll be
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talking through the articles and Goodreads that caught our team's attention over the past week.
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This is our final episode episode of the year and we're lucky enough to film it in person.
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Thanks to the Allegoord team who generously loaned us a conference room in New York City to
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fill that.
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Topic number 1, repeat founders and the risk of a false positive.
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While repeat founders certainly bring experience in pattern recognition, the article
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highlights some critical learning moments and inflection points that are oftentimes
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overlooked by repeat founders and the investors who back down.
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Experian's founders are typically always sought after in the venture ecosystem, but with the
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influx of capital into AI innovation, this group is being handed even more capital with
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higher valuations out of the gate in hopes that investors can gain a competitive edge and a
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quickly evolving landscape.
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The piece calls out an important dynamic, quote, money that is too easy to come by and is
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actually thrust upon you when you aren't looking for it, can lead to a trap of early
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false positives.
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What may seem like a high class problem can become a nightmare, as you find yourself stuck
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with an okay, but not great idea and the burden of a company that you aren't that excited about
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building.
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So I thought this piece was a really refreshing reminder that venture is still a game of
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evaluating opportunities, not just resumes.
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The repeat founder advantage is really real, but there's no shortcut in validating the
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actual business idea in the market.
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So Charles, as someone who evaluates repeat founders and first time founders all the time,
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how do you approach the risk of false positives and differentiate between founder risk and
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skill versus situational success?
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I'm really glad Rob wrote this article.
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I think one of the big themes in venture right now is just the over rotation towards either
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repeat founders or people who are super early and well known tech companies.
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I think we're kinda overdoing that theme right now.
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About 2 thirds of the founders we back at precursor are first time, which means a third
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of them are repeat.
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And a couple of things.
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I think one of the big things you get from repeat founders is at least they've gone
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through the startup journey once.
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They kinda know about incorporation.
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They have some point of view on people.
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Usually, the pace doesn't scare them.
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They skip a lot of the very obvious first time founder mistakes, and that's nice.
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Couple of things I've observed.
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One is the more successful the founder, I think the harder it is for people to say that Amber
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has no clothes when it's not working.
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I've had repeat founders in our portfolio.
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I've talked to it.
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I'm like, was anybody helping you?
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And the essential TLDR message I've gotten from them is, well, I'm a repeat founder.
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They assume I know what I'm doing.
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And I think sometimes people forget that a repeat founder is always a first time founder
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in the new company that they're starting.
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It could be the same people.
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It could be the same space, but it's a brand new company.
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It's a different market at a different time.
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And we have lots of repeat founders in our portfolio, and they need help too.
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But they need help on different things than the first time founders too.
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I also just think depending on the zone or the area, the person's biggest experience may or
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may not be a huge asset.
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We have one person who's built 3 companies in the exact same category.
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I think it's pretty helpful to have that context and to know the people in the ecosystem
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and to know the tech.
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We also have some people who've pivoted from b to c and then gone into b to b, and some of
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that translates and some of it really doesn't.
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So I understand the lure of the repeat offender.
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You tell yourself the story that this person learned a ton.
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They're not gonna need as much help.
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They're gonna be better because it's their second time, but the idea still has to be good,
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and the person has to be the right person for it.
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And I think some of this, occasionally, if you're not careful, can be, well, if this
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doesn't work out, at least I have a really clear narrative to tell people, which is, hey.
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It was a repeat founder or was employee number 2 from SpaceX.
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What was I supposed to do?
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They answered that you're supposed to find people who are successful.
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The article closes with some recommendations for repeat founders in the market, suggesting
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things like continuing to monitor burn, keeping a high bar for product market fit, seeking out
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investors who are willing to go along with the journey.
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And lastly, kind of what you just said, being able to pull the plug early.
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I feel like these are also the same things that you would recommend to first time founders.
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So I was curious what are the differences that you might give from a recommendation point?
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When you're a repeat founder, people have expectations for you that differ.
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Different.
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People like, oh, this is so and so.
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You did this other company, and they were successful.
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And people's expectations for you can be this way that I see repeat founders have.
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So you have to do something that was bigger and better than the last thing you did, even if
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your last company was a public company.
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Like Heavy.
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Savvy, how do I top that?
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And the idea I have has to sound big right away.
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And I think more than I say about being a first time founder is nobody puts those expectations
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on you in most cases.
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It's like, do your best and, like, whatever you can do.
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And so I found founders sometimes when it comes to idea selection with a repeat, they pick
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things that are impossibly large.
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I'm gonna redefine real estate.
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I'm like, well, real estate's a good gigantic category, but what are you gonna actually
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build?
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I'm gonna try to do everything.
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And because they get more resources and because people put fear bumpers around them, the burn
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usually gets higher.
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The team gets bigger.
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They take a bigger swing, and I'm just like, that's you can't there are no shortcuts.
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This article says, you have to find the idea, validate it, build it, scale it.
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And so we've become quite empathetic to VP founders and the pressure that the ecosystem
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puts on them.
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Is it the founder's responsibility to look inward and think, like, is this actually the
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market I wanna make another splash in, or is it the investors?
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I think in a perfect world, there's a conversation that goes on between both parties.
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Like, hey.
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Is this working?
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I do know investors who are afraid to criticize the key founders or even suggest that maybe
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it's not working.
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The dynamic completely switches.
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Yeah.
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They have they have all the power.
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And also, we're just in a world where there's so much capital.
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People are getting thrown money, including by us sometimes, before they've really figured out
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what it is that they wanna do.
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And in that dynamic, if someone's like, here's $10,000,000, you figure it out.
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You're like, well, I don't know what I'm doing.
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They're like, I don't care.
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Here's $10,000,000 for you to figure it out.
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That's a lot of pressure and, you know, you know, I've I've seen people who've gotten
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$2,000,000 in and said, I don't have an idea.
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I'm like, give the other 8 back.
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It used to be normal to just fold.
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K.
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We tried.
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We don't have another good idea.
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Rather than doing some wild pivot, we're gonna give you the money back, and we're gonna go off
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with 5 new idea.
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We might come back to you with a new idea, but we're not gonna just burn down the rest of the
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cash in search of something interesting to do.
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The next article comes from indiscreet musings titled invest first, investigate later.
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The article references legendary public markets investors, Dan Drunkenmiller, famously followed
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conviction as opposed to an extensive deep diligence run to buy a large stake in NVIDIA
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prior to the zeitgeist of Chachubbt and AI.
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The prioritization of how opportunism allowed him to make significant gains before others
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could, knowing that if a broader sentiment had changed, his phone could always sell.
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The article goes on to highlight this clear divergence between private and public
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investing.
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Quote, once a venture capitalist commits, there's no selling out of a position if the
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thesis unravels.
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The capital is effectively locked for the duration, amplifying the consequences of rushed
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decisions driven by speculative mania rather than substantiated insight.
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This article is such a sharp reminder of how fundamentally different venture and public
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markets are.
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In public markets, you can make quick trades, reassess daily, and cut your losses.
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In venture, with the exception of the secondaries conversation which we've had,
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you're making decade long bets.
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For AI specifically, it's clear that there's tremendous value here.
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We just can't say specifically where from both a scale and durability perspective.
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So I was curious to know what resonated the most with you on this essay.
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I've told a bunch of people the core of this argument, which is that in venture, you're long
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until the company goes public or goes out of business.
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You're sort of stuck with these assets.
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I was like, they're secondaries, mate, but you can only sell the good stuff.
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There has to be actually someone who wants to acquire that security on the other side of that
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trade or no hidden habits.
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And I think this is a fundamental difference about venture, and there have been some cycles
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where I've said, well, we're not gonna go along that category until we figure out how it works.
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Because if you make a bunch of bets and a bunch of investment upfront and we're wrong, we're
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stuck with those companies.
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And if I think about when I started meeting companies in web 3, I was like, this doesn't
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really coops you for me.
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I understand the world they're describing.
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I still understand how we get there from where we are and, like, who wants to live in that
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world other than the companies creating technology.
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So we didn't do a lot of investing, and there were some things that really took off and ran
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up.
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And we weren't a part of those companies.
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And on the way up, I was, oof, dude, you make a mistake.
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And then when things cooled, I'm like, I'm glad we're not holding a basket of those companies.
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And I think about this a lot in 2 dimensions.
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1 is, you know, we have a confidence policy where we've tried really hard to never invest
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in 2 companies.
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And so I'm like, alright.
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Before we make this investment, by saying yes to the investment, we're foreclosing the
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opportunity to add any other company that does this.
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And was that okay?
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In a world where we could trade a bit, but we'll buy this one.
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And if we find something better, we'll sell the one we have, and we'll buy the better one.
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And I think trading and investing are 2 different disciplines.
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And I I've always said, like, these long hold periods in venture are a feature in the bug.
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Done right, it causes you to stop and think, is this company building something that's gonna
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have value in 10 years?
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Or is it building something that's consequential for a moment?
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And I I've talked to some people who are, I would say, playing Aon more like a trade than
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an investment.
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They've told me, this is where all the action is.
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We don't know what's gonna happen, but we're gonna buy a basket of companies with a belief
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that some combination of this basket is gonna work well enough to make the basket valuable.
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And, okay, but what if you're wrong?
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What if you're wrong on the macro direction?
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What if you're wrong timing?
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What if you just pick the wrong basket?
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But in the trade, when the trade has momentum behind it, it can continue to go up for a
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really long.
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And we'll see it was from Nvidia and then some other things.
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And so I think what this a lot, whenever we sit out of a hot theme or a hot sector, I was like,
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wow, watch all of the money and momentum that's piling into that category.
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And are we making a mistake by not chasing it?
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And in most cases, we won't find out for a couple of years.
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More of a personal question for you, but do you ever grow envious as maybe a strong re buy of
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the fact that public markets can trade after wins have turned and jump in and out of
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investments so quickly.
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I would say instead of entity, I have admiration for people who have a good sense for
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when to get out of something that's working.
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In venture, I think we learned in 2021.
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We're not as good at the trading part of the business, I e selling out of companies that are
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working on the secondary market as probably we should be.
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I wouldn't say that every firm was better that we didn't do as well as I would have liked.
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Then maybe realize, like, wow.
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It it takes a certain discipline to know, hey.
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This trade has performed really well for me.
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At this point, I'm gonna get out because the probability that this trade is gonna continue
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or something has changed in the narrative.
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And sometimes you're just like, the vibes have changed about this company, and so we're gonna
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ship.
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And I really admire people who can consistently do that because it's not part of my job.
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And, frankly, we have some companies in our portfolio that weren't doing well for long
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stretches of time.
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And because we were forced to remain in them, we supported those founders.
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We worked with them, and they turned it around.
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Whereas if it had been a trade, it would be like, this trade's not working.
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Don't stop.
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The skill set just feels completely different than what venture is set up to do, specifically
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early stage venture where you do diligence on a company that has no financial, no background.
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You have invented trading in in video, which has years long worth of progress.
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Our last featured article of the year is from the New York Times called what is venture
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capital N Way, which walked through the origin and growth stories for Benchmark and
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Andreessen, 2 titans in the industry that continue to sit on completely different ends of
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the venture marketing and approach spectrum.
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Benchmark represents the traditional model of VC, smaller, focused funds with leader teams.
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Andreessen embodies more of the VC empire, larger funds, broader public private
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marketplace, extensive support services, and aggressive stealing.
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From 2,009 to 2023, we've gone from 232,000,000,000 in AUM across venture to around
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1.2 trillion.
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The bigger is better strategy argues that tech disruption requires more capital to tackle
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society's largest problems.
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The drawback of this could be overinflated at valuations, bloated firms, and diminished
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returns, all things we've talked about.
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Supporters of staying small, it's very clear that the firm only makes money when its
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companies make money.
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Drawbacks are that it's sometimes harder to compete on price if there's less wiggle room
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there for deals with the hotter companies.
12:15
Last week on the podcast, you hinted at recalling what it was like when Andreessen hit
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the scene and kind of shook up what it was like to be a VC.
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I'm actually curious to know what was the sentiment coming from the founder's
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perspective.
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If you remember that at the moment, because Andreessen came to the market trying to be a
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better partner to founders than traditional investors were before.
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Boy, it's a big question.
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I remember when they made their big splash, people were like, well, we don't do this in the
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venture.
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Like, it's a quiet industry.
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You don't make a big splash.
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I think these two firms culturally are so different.
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You just go to their website.
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I mean, the benchmark website.
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Not really website.
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And, you know, benchmark probably has I know how many people they have.
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Not a lot.
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And Andreessen has hundreds of employees.
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And I think Andreessen hit the market, I think, with this view that this is a a business model
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that hasn't been disrupted.
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So we're going to enter the business as a disruptor.
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We're going to do a bunch of things that other people haven't done, and we're gonna do them
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because we think it will create a better product.
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You know, people have all kinds of healings about that firm.
13:16
People I know there only really care about one thing, which is how do we make the best product
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that will attract the very best founders and the planet to wanna take our money?
13:24
They're intensely competitive, just like all of those timeshare firms are.
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And so I don't think it was disruption for disruption's sake.
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You know, there was no real talk of I mean, Sequoia's obviously had recruiting people, but
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there was no talk of platform at scale until they came in and said, look at all of these
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people over here working on a rehab.
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Do you want the 30 people we have in m and a and relationships and b b?
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Do you want these 30 people working for you around the clock, which is that possible?
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Or do you want this, like, one really sagacious partner, Rolodex, Or do you want this, like,
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one really sagacious partner, rolodex and time?
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And, like, it was just a different product.
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And I think, for me, the big question is in most corners of finance, the trend is towards
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agglomeration and big if you look at PE, PE have kinda dominated by gigantic firms.
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And then you have Potova Bravos, and you had your business.
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You have specialist players who are also much bigger than they used to be.
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But the trend in most finance businesses is that capital concentrates at a few large firms,
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but also performance becomes more stable but lower.
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I've talked to a lot of LPs who are large LPs in these big funds.
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I think most small fund managers misunderstand the role of those positions in those LPs.
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It's you are not comparing the expected return of a $50,000,000 seed fund with the expected
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return of a $5,000,000,000 venture fund.
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They played different roles in their portfolio, and the returns expectations are different.
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Yeah.
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I think this is like a perfect article to, like, encapsulate all the things I've been,
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like, stressing.
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And I don't think we can reverse this big firm trend because we have I think Carter just put
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out a chart with something like 45% of the capital this year.
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It was raised by 2 less than 2,000 firms.
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Index, General Catalyst, Lightspeed, Andreessen, Excel.
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These firms, in my opinion, are not going to voluntarily get smaller.
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And the only way they will get smaller is because their performance goes down to the
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point where LPs decide they don't wanna support them, And there is not a line of people out the
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door waiting to take those thoughts.
15:16
So my sense is the conditions that would have to be true for that to happen are incredibly
15:21
unlikely to happen unless there is a macro rotation out of adventure on the perfect.
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If all the LPs say we're packing up our bags while we're going home, then maybe, but still I
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think those will be the last firms that they quit.
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And so I think for most people who are not one of those 10 to 12 really large firms, the
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question is, is this a phase?
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In which case, those firms will realize, oh, we're too big.
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We're not nimble.
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We can't make decisions.
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We're missing out on good deals.
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We're too big.
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We have to change our fund size.
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And if it's just the phase, you probably shouldn't change the way you operate.
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Is this a permanent shift where, hey, this is the new reality?
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And if you don't adapt to it, you put your head in the sand.
15:54
Putting your hand in the sand and not wanting to be true won't stop it from happening.
15:57
Or is it really something different?
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I think this question of how big can a firm get and still be called a venture firm is a really
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interesting question.
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I don't have the answer.
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Like, my sense is the benchmark people aren't gonna change what they do because they believe
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it works.
16:10
The end reason people and the big firms aren't gonna change what they do because they believe
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it works.
16:14
And, you know, my poly and a hopeful view is that there is room for both for one simple
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reason, which is venture funds only exist because founders choose them.
16:22
Yeah.
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And if founders had monotonic preferences and said, we only want these big platform firms,
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then only those funds would survive.
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If founders said, we only want the 1 on 1 bespoke boutique experience of dealing with a
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smaller fund, then only those firms would survive.
16:37
I think the reason there's a world in which all of these people can win is that it really comes
16:42
down to the preferences of founders.
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If founders don't have uniform preferences, there's room for multiple models to win.
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And I think it's also important to remember founders choose firms, but they also choose
16:52
people.
16:53
A really successful VC I talked to you one time.
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I said, hey.
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How would your firm stop being on top?
16:58
They've been or we'll be the most successful venture firm in the history of our industry.
17:02
Versus that it's simple.
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If we can't convince the very best investors of every generation that this is the best platform
17:08
to be, I we will lose the tower.
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And if we can't convince founders that they should take our money over everybody else's, we
17:13
will lose.
17:14
He's like, those two things are very simple to say.
17:16
They're incredibly difficult to do across leadership transitions through generations.
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And I was like, yeah, it's one of those, like, simple but not easy answers.
17:24
I tell people all the time.
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They go, there's so many venture firms out there.
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I go, that should tell you a lot about the level of satisfaction that founders have of
17:30
current product.
17:31
Yeah.
17:31
If the founders were thrilled with their experiences with the VPs, a very small handful
17:36
of VPs would do all of the deals, and there'd be nothing left.
17:39
The fact there are many funds tell me how frustrated many founders are with the choices
17:43
that are available, and they want more choice.
17:46
Well, the bonus topic, since it is the final episode of the year, and even though we've only
17:49
done this since the end of September, we've been able to release, like, 13 episodes, talk
17:54
about 35 plus different articles and dead reads from across the ecosystem.
17:58
Carol's looking at from 24, what been, you know, the biggest learning moment that you've
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had?
18:03
This is very ironic.
18:04
I think I had sometimes forgotten the importance of, like, just getting started.
18:08
And I think about our little podcast, and it just like we just had a conversation at Coffee,
18:12
and we're like, we should do this.
18:13
And I think it's very easy sometimes to overstate things.
18:17
And as I tell a lot of the founders in our portfolio, sometimes the most important thing
18:20
to do is to just take the first step.
18:22
Do the first thing.
18:23
Do whatever the thing is that's in front of you, and the next right thing to do will reveal
18:28
itself to you.
18:28
I've told you something like, well, how'd you come up with the ideas?
18:30
Like, no.
18:31
No.
18:31
We were already reading all these articles.
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So we started talking about them, and, like, the other things revealed themselves.
18:36
I think if we'd sat down and tried to plan this out, we'd probably still be planning it.
18:40
Yeah.
18:40
And I think about the pre seed workshop we did.
18:43
It was the same thing.
18:43
I kinda told Ashton, I wanna do this.
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And they, like, enforced time pressure meant we just had to make a lot of decisions quickly.
18:51
And it's something I preach to our founders.
18:53
And this experience for me is a dedicated reminder of, like, the importance of just
18:56
getting started thinking the first step.
18:57
Yeah.
18:57
And you can overthink at any stage just because you're feeling like you're overthinking it or
19:01
you're not thinking hard enough about it doesn't mean that you don't have the ability to
19:05
do it.
19:05
Take the first step.
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Every theme of 20 24.
19:07
Absolutely.
19:08
We are out of time.
19:09
Thank you, Charles Thank you.
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For launching off learning more with us.
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Thank you to our subscribers and our listeners for jumping in.
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We're so excited for the year ahead, and we can't wait to tune in with you all next year in
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2025.
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Thank you.
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Thank you.