Can You Still Win in Venture Without a $1BN Fund? Menlo’s Venky Ganesan on the New Rules of VC

1. 0:00 – 1:15

   Intro

   1. VGVenky Ganesan0:00

      At this point in Menlo's history, right, we are going for broke. We are going for the grand slam home run. We want to see everything. We want to win everything. Full stop.

   2. HSHarry Stebbings0:08

      In this discussion with Venky, we discuss the craziness that's happening in venture, pricing, when to pay up, when not to, how to think about market sizing, how to think about when to sell, how to think about being collaborative in rounds. This and so much more in a true nerd venture fest that is this episode.

   3. VGVenky Ganesan0:24

      It is a very disorienting, confusing time. Each seed investment is an option bet. You're buying an option to see if it's an outlier. If there's an opportunity to make money on an investment, we should do it. The rest of this is all noise. There's no way for venture to be successful in today's era without the mag seven participating in everything you're doing. There's no limit to what a person can do as long as you don't care who gets the credit.

   4. HSHarry Stebbings0:46

      Ready to go? [upbeat music] Venky, dude, I am so excited to do this. I am such a fan of your tweets. Who would ever call them blowhard, right? That's a terrible commentary on it, and I was so looking forward to this, so thank you so much for doing it in person.

   5. VGVenky Ganesan1:10

      Oh, I love this. Thank you so much, and I cannot wait to see if I pass your test.

2. 1:15 – 4:21

   Venky’s 90% Loss That Changed His Investing

   1. HSHarry Stebbings1:15

      Oh, dude, you'll pass my test. Now, I want to use this as a, a real learning discussion for me because I wanna build a firm like Menlo, and I wanna learn from the wisdom that you've had now seeing multiple different cycles. You just told me a story that I, I loved, and it was from, you know, two decades ago, holding a certain stock. Can you tell me that story and your takeaway?

   2. VGVenky Ganesan1:35

      Yeah, so little bit of a past. Um, previously I was at a firm called Globespan Capital Partners, and we happened to be investors in a company called AVNX, which is... Nobody knows about this company. AVNX. I remember the stock symbol even now. Because I was an associate, did not have carry the fund. AVNX was a big winner. Goes public. They gave the, they gave the associates a chance to own shares of the IPO, so I bought some shares of the IPO. I remember putting the princely sum of $5,000. And at one point, AVNX got up to 200,000. It was such a big portion of my portfolio. And my wife, who's much smarter than me, she was my fiancée then, we were getting married, she said, "Hey, why don't you sell some so that we can have something for a down payment for the house?" And I was like, "No, no, no. AVNX is gonna go up. Optical components is a critical part of the internet bubble. It's gonna go h- We're gonna make a million dollars on it." And you know how the story ends, right? It drops 90%, and I think I sell it for around 8 to $9,000. So I call it the most important lesson I learned from a 90% loss, which is at some point you should take some chips off the table.

   3. HSHarry Stebbings2:43

      I'm not sure what to take from that because I know I remember having Jake Sapra on from Emergence, and when he broke down Emergence's returns, basically you just saw this one meteoric outlier that returned 90 to 90-

   4. VGVenky Ganesan2:57

      Viva.

   5. HSHarry Stebbings2:58

      Well, Viva, yes, but it was actually Salesforce.

   6. VGVenky Ganesan3:00

      Wow.

   7. HSHarry Stebbings3:01

      Um, and if they had have held it longer and longer, obviously it would've been even more meteoric. And so I guess my question is what should we take from that? Because we also see the dangers of selling too early.

   8. VGVenky Ganesan3:13

      Agreed. I, I think a lot of it, a lot of this advice depends on the context of who you are as a person and what your balance sheet is. At this point in Menlo's history, right, we are going for broke. We are going for the grand slam home run because we have had home runs before. We have a history of putting it on the table. As a 24-year-old with very little in your bank account, when you have that kind of, uh, for me, AVNX game-changing money, it just makes economic sense to take some off the table. And so I do think, like, the advice is there's no one-size-fits-all for these things.

   9. HSHarry Stebbings3:50

      Did you say you're going for broke? I, I, I love that. Like, all hands to the pump. We are going for this. Does anything change with that mindset internally? Like, is it more aggression? Is it more willingness to pay up? Is it more willingness to have less ownership? Uh, what changes with that?

   10. VGVenky Ganesan4:07

       We mean is we are going to fight and try to be in the defining AI companies of our era. We want to see everything. We want to win everything. Full stop.

3. 4:21 – 5:28

   Venky On Whether Venture Capital Is Broken

   1. HSHarry Stebbings4:21

      [laughs] So I wanna start with a concern, which is I don't know what business we're in anymore. Um, venture's not venture anymore. I have my team come to me and say, "Hey, we can't find anything under 100 million." And I said, "Wow, that's a lot of... That's a high price for a pre-seed or a seed round." And they said, "No, no, no, Harry, that's the size of the round." Venky, this is not venture. What am I to do in this world, and can you invest without a billion-dollar fund?

   2. VGVenky Ganesan4:49

      Venture has changed. Um, but I also think that you can't take a snapshot in time and draw... You know, a dot is not a line. And right now, you're right. Every AI company wants to raise, you know, hundreds of millions of dollars, and [laughs] I'm surprised they only said 100 million because there are some ones who, there are some new labs who wanna raise billions of dollars, right?

   3. HSHarry Stebbings5:12

      Yeah.

   4. VGVenky Ganesan5:12

      They all have arguments for it. Um, and it is a very disorienting, confusing time. I, I will admit that. But I also think, like, these things change quickly. So, so you, you don't wanna necessarily draw your long-term strategy with a snapshot

4. 5:28 – 6:59

   Should You Keep Playing When The Market Is Crazy?

   1. VGVenky Ganesan5:28

      in time.

   2. HSHarry Stebbings5:29

      These things change quickly. So do you play the game on the field, as Bill Gurley says? Or do you call timeout and say, "You know what? I learned from 2021. You know what I wish I'd done in 2021? Less."

   3. VGVenky Ganesan5:43

      This is a really hard conundrum for professional investors.

   4. HSHarry Stebbings5:48

      Mm.

   5. VGVenky Ganesan5:48

      You know, you're referring to my tweets, right? The Chuck Prince quote is, "When the music is playing, you gotta dance." And as a professional investor, the danger of not dancing is that you do not know when this ends. Like, I'll give you a story. Like, there were a bunch of really smart venture firms doing the dot Com boom that got in in '93, '94, made money, and decided to step out of the game in '96, '97. And when they stepped out of the game, they missed out on '97, '98, '99, and the LPs were like, "What happened? Like, we asked you. We invested in you because you're gonna be at the cutting edge. You stepped out." And they stepped back in 2000 on the peak, right? So timing markets is really, really hard. So I, I, I think you have to play the game. But I think you can play the game differently. You can choose to be more selective and you can hopefully think about portfolio composition and position sizing as a way of mitigating what happens in the cycle turns.

   6. HSHarry Stebbings6:51

      Portfolio composition and position sizing, what do we do with both of those in a market then like this? How do we change them?

5. 6:59 – 7:55

   The New Rules Of Venture Investing

   1. VGVenky Ganesan7:00

      I, I, I think you have to think about the venture portfolio as a bunch of options, right? Each seed investment is, is an option bet. Uh, you're, you're buying an option to see if it's an outlier. And, and so you wanna have enough of those so you can make sure you have an outlier. And then when there are true quantitative evidence based on revenue, on quantifiable metrics that there's gonna be an outlier, then you position size up. So to me, like you have to think about, okay, what is my fund size? How do I i- have enough at bats, to use a baseball analogy for a cricket guy?

   2. HSHarry Stebbings7:40

      Mm-hmm.

   3. VGVenky Ganesan7:41

      And make sure that you have enough at bats, and then you only position size up on the things that are already proven.

   4. HSHarry Stebbings7:51

      Totally get that. Do you think seed still really ex-

6. 7:55 – 9:19

   Is Seed Investing Still Possible?

   1. HSHarry Stebbings7:55

      exists today?

   2. VGVenky Ganesan7:56

      If you wanna go into the core AI world with the Neo Labs, I think seed is hard.

   3. HSHarry Stebbings8:02

      But even like AI application like companies, they're raising 10 to 20. Like the old three to five days, which was still quite large seeds and that's gone.

   4. VGVenky Ganesan8:11

      Honestly, I think, I think there are two things that impact seed investing today is one is the size of the round, and then you have this other sort of externality, which is these large funds, maybe including us, somewhat being indifferent to seed valuations because they're using that as an option check to size up.

   5. HSHarry Stebbings8:27

      Because you, you are, aren't you? I didn't mean that to put you on the spot, but...

   6. VGVenky Ganesan8:32

      Yes. I mean, we, we are trying to buy ourselves a seat at the table and the cost of buying that seat at the table, we are somewhat indifferent to at the seed stage because our real goal is to size up and invest in them if they become outliers.

   7. HSHarry Stebbings8:45

      Totally get that. Thank you for making my life harder in that respect. Uh, but I, I-

   8. VGVenky Ganesan8:49

      You should just invest in our funds. [laughs]

   9. HSHarry Stebbings8:52

      [laughs]

   10. VGVenky Ganesan8:52

       And then it'd be fine.

   11. HSHarry Stebbings8:54

       Uh, that's very funny. Uh, ni- nicely transitioned that. I give you credit for that one. You said, like, so you place these bets, so to speak. Completely agree. And then when you see discernible traction or revenue numbers, usage, whatever that is, then you can double down. Completely agree with that logic. We're seeing strange numbers like, you know, contracted annual revenue that's not

7. 9:19 – 11:20

   Can AI Revenue Metrics Be Trusted?

   1. HSHarry Stebbings9:19

      actually annual revenue and it's kind of not live. You're seeing revenue run rate that's kind of extrapolated out from the best day in history and then we times that by 365 days. There's a murkiness to this revenue that we've never seen before that makes me feel quite icky in a lot of cases. Do you share that, and how would you advise me and what do internal discussions look like around that?

   2. VGVenky Ganesan9:40

      If any metric is measured by an investor and they put a lot of weight on it, it's gonna be gamed. And, and that's just the nature. Maybe they should coin a law for it. And there are two elements that are going on. One, uh, I'm, I'm blanking. I don't know if it's Keynes or another famous economist who's calling, coined the term bezel. When, when, when there's a boom, the bezel is high, which means like it's, it's a notion that the embezzlement of, of things will be. So not just m- people are gonna pick metrics, people are also gonna have some interesting accounting techniques. Which by the way, will happen every cycle and this is probably happening at this cycle, so we're gonna find out in the next few years exactly the accounting creativity of some of our founders and, and the metrics being gamed by some of the people, right? Um, one good example of it in, during the SaaS wave was a, a lot of investors put a lot of weight on net revenue retention.

   3. HSHarry Stebbings10:37

      Mm.

   4. VGVenky Ganesan10:38

      And so one of the ways to game net revenue retention is that you could get $100 PO, but better get a $10 PO and get a $50 PO a week later because your net revenue retention if you just got a $100 PO was, you know, 100%. But if you got the $10 PO and the $50 PO, it's 400-- it's now, you know, 500% and the net revenue retention looks much better. So once a metric is measured, it can be gamed, and that happens. And, and so to me, a lot of this comes down to are the founders really focused on building a business? Are they focused on terminal value or are they focused on markups? And I think you wanna find founders and investors who are focused on terminal value.

8. 11:20 – 12:47

   Does “King Making” Really Work?

   1. HSHarry Stebbings11:20

      Do you believe in king making? I know that sounds like a strange question. King making the theory that, uh, multiple successive and quick rounds led by strong investors can really help increase the chances of a company being successful.

   2. VGVenky Ganesan11:34

      See, to me, that is a great example of Soros's reflexivity, right? What I mean by that is you have a company that does well, right? And because it does well and the revenue is growing really fast, it has a quick markup. And because of that quick markup, it gets more capital, it gets, it gets to come on Harry's show, and then it gets more notoriety that allows it to get more human capital along to the financial capital and grows faster, and that's another markup, right? Now, these are- Good things as long as the revenue is happening and the core business is building. But someone, a copycat can look at that and say, "Oh, the secret is to have a markup." And a copycat investor might look and say, "If it's marked up, it's gonna be marked up again." And then reflexivity kicks in, and then everybody starts acting that way. And this explains how market cycles work until it stops. And, and one thing we know from Soros is that all reflexivity will eventually stop. We just don't know how and when. And, but until it stops, a lot of people can look very smart playing it.

9. 12:47 – 14:11

   What Could Finally Crack The Market?

   1. HSHarry Stebbings12:47

      We don't know how and when, but we can play the game of predicting how and when. If you were to predict how, what is the first signs of this cracking?

   2. VGVenky Ganesan12:58

      I think usually the first sign comes with some major debt default. And generally, equity is never the reason why these things crack, because equity, you, you write it down, you just take the loss. Debt, on the other hand, people have this expectation they're gonna pay, get paid back. And so most of the cycles I know, it breaks because people lever themselves. And so if you, if you see what happened with, um, Leopold and current investor, right. Right? But when you have 4X leverage, it doesn't matter if you're right. You have to also get the timing correct.

   3. HSHarry Stebbings13:41

      Missed his risk management class at high school, didn't he? [laughs]

   4. VGVenky Ganesan13:44

      [laughs]

   5. HSHarry Stebbings13:44

      Poor old Leopold, um, when the music's going. Um, so yes, I completely get you there. How do you feel about, like, the multiple tranche rounds so quickly? I, I'm, I'm meeting founders very often where they're like, "Oh, well, we're doing a round this week at 100, but then we'll be opening up the second turn of it at later next week at 200 because we've got so much demand." This just gives me shivers, and I feel like, like, yeah, um, kind of we buy any gold or we buy

10. 14:11 – 19:17

    Innovators, Imitators And Idiots

    1. HSHarry Stebbings14:11

       any car.

    2. VGVenky Ganesan14:12

       I feel like in every cycle you get the innovators, then you get the imitators, and then you eventually get the idiots. And I think the innovation of the tranche financing was the notion that I can get, um, build with me money, where the, these are investors are gonna come build with me, and then use that build with me money at a lower valuation to get just money [laughs] at, at higher valuation, and then eventually transition to just pure dumb money. And I think that's the logic of this, right? And so I don't need... Like money, all money's not the same. I will bring in some investors who are gonna actually build a company with me, and then I'll also bring in some capital along, and then eventually I'll bring in some very low cost of capital. And I think that was the intention. But again, like everything else, now people, everyone's doing it, and it's not tied to the quality of the company anymore. It's just, it's become a, another technique for people to do. So I find, like, these things start initially with some... The core of the idea is actually a good one. Okay, I want to actually raise capital, but I want to distinguish between capital that adds value and capital doesn't add value.

    3. HSHarry Stebbings15:24

       Will you do it as a firm if you'll come in in the latter tranche?

    4. VGVenky Ganesan15:28

       Absolutely depends on the situation. We have been on e- both sides of this situation, and I think if the company is interesting, the founders are special, absolutely. We would do it.

    5. HSHarry Stebbings15:38

       Re- really?

    6. VGVenky Ganesan15:39

       Yeah. Why... I mean, at the end of the day, I never care about what other people invest, what they do. I'm, I'm looking at this round and say-

    7. HSHarry Stebbings15:45

       Are you not hurt by the fact that they are saying you're legitimately less valuable than Peter Fenton, who we're letting in at half the price?

    8. VGVenky Ganesan15:52

       Peter's amazing. I think the biggest thing I've learned over time is you never want to let your ego come in the way. My one lead ego is to make money for my investors. So if I can make money for my investors, who the hell cares?

    9. HSHarry Stebbings16:06

       Have you let your ego ever get in the way? I have done.

    10. VGVenky Ganesan16:08

        100%.

    11. HSHarry Stebbings16:10

        What happened?

    12. VGVenky Ganesan16:11

        I, I think you get caught in ways of around negotiating for valuation or being in a syndicate or sometimes you're offered the opportunity where you think you're offered a small piece and you're like, "Well, I'm too big for that piece." I think in this business you have to have a high degree of humility because every week I get hit, I get punched in my face by things I don't know. And I think the biggest mistakes are when we get too caught in our ego. Look, the reality is simple. We raise money from institutional investors with one and one new goal, which is to return more of them back. If there's an opportunity to make money on an investment, we should do it. The rest of this is all noise. And I think too often because venture capital tends to be dominated by personalities, people get caught in this. You know, you probably don't know m- a lot of people at Goldman, right? Everybody can say David Solomon, who's the CEO. But the idea is Goldman makes a ton of money, and those people just go do their job. And I think too often venture capital, we end up, because there's so many personalities and people, it becomes more about who and our ego as opposed to just do the job.

    13. HSHarry Stebbings17:21

        I think that's, uh, forced by the fact that we are fighting for constrained supply, though. If you're looking at, say, Goldman's public team, you can buy Nvidia, I can buy Nvidia, they can buy Nvidia. It is a free market. Here we are both competing for Matt at Legora, and our check, if he takes yours, he won't take mine because there's one lead check. And so we have to have personality. We have to sell ourselves because there is a constrained supply, no?

    14. VGVenky Ganesan17:50

        Yes. What you say is absolutely true, which is that you have to have these two dualities and manage them. One is you have to have a personality. You have to be able to project a sense of differentiation, right? Because, because why does someone choose Harry and not me? It's because they like Harry.

    15. HSHarry Stebbings18:07

        And good looks and charm.

    16. VGVenky Ganesan18:08

        Clearly.

    17. HSHarry Stebbings18:09

        Yeah.

    18. VGVenky Ganesan18:09

        I see that in person even more so. Um, but I think if you get caught in that- And you get so immersed in it and then you lose a sense of what the core purpose is, right? The core purpose of having that personality and charm is to make money for your investors. That's why it is, right? And if there's a time for you to make money for your investors where you have to let your ego take a backseat, you should do it. And that, that's the right thing to do. Now, I'm not saying it's easy to do. I'm not saying I've done it, but it's the right thing to do. It, it's kind of like I know I gotta eat right and exercise. I know that. I don't do it often, but I know it's the right thing to do.

    19. HSHarry Stebbings18:45

        Yeah, but gym Khan is so good. [laughs]

    20. VGVenky Ganesan18:49

        [laughs]

    21. HSHarry Stebbings18:49

        Some things in life are worth it, like butter chicken. Um-

    22. VGVenky Ganesan18:52

        I'm a dishum, but, uh-

    23. HSHarry Stebbings18:53

        Oh, you are. Oh, well done. Well, don't, don't worry. I, I like a dishum too. It's fine. Um, we said about price kind of, hey, we're a little bit less, um, focused on it when it's early. There comes a time when it does matter. With the greatest of respect-

    24. VGVenky Ganesan19:09

        Oh, say it. Say it, man

    25. HSHarry Stebbings19:10

        ... well, Menlo, Menlo kind of pay up. Um-

    26. VGVenky Ganesan19:13

        And, and for all you entrepreneurs out there, we definitely pay up, so

11. 19:17 – 20:24

    Venky On When It’s Worth Paying Up

    1. VGVenky Ganesan19:17

       definitely call us.

    2. HSHarry Stebbings19:18

       Yeah, you, you do, and every time I'm like, " [blows lips] Menlo paying up." And you prove me right. [laughs] Like, you, you, you're right, and I'm proved wrong when I'm like, "God, they're not disciplined on price." And so I guess I'm g- questioning, like, do we just need to completely reshape how we think about terms and market sizing?

    3. VGVenky Ganesan19:40

       Let's think about when people pay up. People just sometimes pay up to be able to win the deal, right? But I think some- sometimes people pay up because they're able to see a bigger TAM than the other investor, right? And, and I think in those cases, you're not actually paying a higher market price. You're ac- uh, able to see that the opportunity is bigger, and therefore, you're willing to see that possibility. Now, sometimes you're gonna be right, sometimes you're gonna be wrong. So to me, I don't necessarily think it's just price. Now, now sometimes you don't see the TAM, you're just trying to win the deal, and you're, you're, that's what the price it takes, and you're just a clear price taker, and that happens too. The, the problem is venture is an asymmetric game. You can lose the dol- dollars you invest, but you can make 10X if you're right.

12. 20:24 – 23:13

    Venky’s Most Expensive Missed Investment

    1. VGVenky Ganesan20:24

       And that asymmetry means that the sins of omissions are way higher than the sins of commissions. What do I mean by this? You only see the deals we do, right? You don't see the deals we pass. But the most expensive mistakes venture capitalists make are the deals they passed, not the deals they did.

    2. HSHarry Stebbings20:44

       When you say that, what's the most memorable pass that haunts you? What is it?

    3. VGVenky Ganesan20:51

       My most memorable pass was that I was a young board member at a company called Plaxo, which had an incredible board. Mike Moritz, Ram Shriram, um, Tim Koogle from Yahoo, uh, and little unknown me, and, and Sean Parker, and, uh, Todd Masonis and, was a founder, and Cameron Dren. Um, Sean had some challenges on that board and was asked to leave that board, and he was going, he, uh, because I was the only person within 10 years [laughs] of his age in that group, I w- he was telling me he was going to Boston and he was gonna work with this college dropout, and he's like, "You should be, get involved." And I'm like, "Uh, Sean, uh, you just got voted out of this board, and I, I, I have no idea what I'm doing," and I, I didn't even take that meeting. And, you know, I had, probably had the opportunity to write a, you know, $50,000 check into that round. And those are, those seed rounds were different. They were million-dollar seed rounds.

    4. HSHarry Stebbings21:58

       That's a tough one.

    5. VGVenky Ganesan21:59

       Yeah.

    6. HSHarry Stebbings22:00

       Um, what was Sean like back then?

    7. VGVenky Ganesan22:02

       The way he described Plaxo, his vision actually worked out. He understood virality, network effects in a way. His thought process around what happened in Napster. You know, so, so my rule of thumb is I'm always looking for people who are incredibly good at communicating very complex concepts in a simple manner and, and just have insight, and Sean just had insight around human behavior and complex concepts and could boil it down in a simple way. He was a very good communicator.

    8. HSHarry Stebbings22:38

       What a character. [laughs]

    9. VGVenky Ganesan22:41

       He gets to have Justin Timberlake play him, so it must be all right.

    10. HSHarry Stebbings22:43

        I mean, it's a pretty cool one. Uh, drops a the.

    11. VGVenky Ganesan22:46

        Yeah. [laughs]

    12. HSHarry Stebbings22:46

        Love, love it. Um, and we actually did that. We were the 20 Minute VC.

    13. VGVenky Ganesan22:50

        Okay, there you go.

    14. HSHarry Stebbings22:50

        Now it's just 20 VC. Yeah, yeah, yeah. Thanks, dude. Um, I was talking to Amy beforehand, speaking of kind of the founders you backed there.

    15. VGVenky Ganesan22:56

        Amazing partner of mine.

    16. HSHarry Stebbings22:57

        Amazing partner of yours. And she said that you care a lot about understanding what brought founders together. And hearing about, you talking about Sean there made me think of this. Why do you care about what brings founders together, and are there any patterns or signals that excite you?

13. 23:13 – 25:09

    What Makes A Great Founding Team?

    1. VGVenky Ganesan23:13

       The company you build is the team you build, right? The, the... And, and so h- so much of the DNA of a company is set by its founding team, and so what brought them together, why they thought in a world of 6 billion people they should be the people to do this, how they think about each other's strengths and weaknesses, I think these things all, sort of like Minority m- Report, they're like a precog that tells you around how they're gonna make decisions, how they're gonna build the rest of their team. So I think it gives you a clue about who are these people, and ultimately, I think a company's culture and DNA are gonna be shaped by the founders.

    2. HSHarry Stebbings23:52

       You can ask one question that you find most revealing of a founder quality. Doug Leone's, to me, was the one I remember most, and he always says, "What's your worst reference?"

    3. VGVenky Ganesan24:02

       So, you know, that's a great question. I generally ask your five best friends, right? And imagine they're in a room, and if I had to ask them three words to describe you, what would they, what would that be? That's the question I normally ask people, right? I'll tell you, I, I listened to Mike Moritz on the interview, and he asked a question, and his favorite question is, "If you could go back in your life and change one thing, what would that be?" I think that, that, that's a pretty interesting question. The reason why I like to ask how your friends describe you is I, I think you're more likely... If I were to ask you what do you think about yourself, it's harder. But when you think about your friends, you can sort of externalize it, and then that gives you a clue about how the people around you think about you. And it also tells you your self-awareness. Because usually after I do that I also do references, and I'm, I'm gonna try to see if the references match someone's self-awareness, right? It's actually okay to have... If, if, if you know your weaknesses, then you have a much better chance of managing them. It's the people who are blind to their weaknesses that usually have challenges.

14. 25:09 – 28:25

    Venky On Whether Ownership Still Matters

    1. HSHarry Stebbings25:09

       Don't worry, my weaknesses are revealed in the comments section of every interview.

    2. VGVenky Ganesan25:12

       [laughs]

    3. HSHarry Stebbings25:12

       So I, I see them glaringly. Um, you know, one thing that's been, I think, uniform across the industry is we've seen ownerships go down. Even the hailed Benchmark now take less than 10%, and, uh, obviously-

    4. VGVenky Ganesan25:23

       I thought, I thought they said 20, 20% or bust.

    5. HSHarry Stebbings25:26

       Ah. May- maybe, maybe let's stick to that message. I love the Benchmark guys, so that... Absolutely. But does ownership matter as much anymore?

    6. VGVenky Ganesan25:35

       Of course it does. Ownership always matters, but I think you have to think of that relative to the opportunity, right? What, what I mean by that is, yeah, would I love to have 20% of a company? Sure. But I'd rather take 2% of a trillion-dollar company than, than 20% of a $100 million company, right?

    7. HSHarry Stebbings25:54

       So you'll do deals now for 2%, 3%?

    8. VGVenky Ganesan25:57

       Well, we do. Anthropic we own less than 2%, so. Um, my, my point is that I think when you think about ownership, you can't think of that in isolation.

    9. HSHarry Stebbings26:07

       But I think you're either in the ownership game or you're in the money movement game.

    10. VGVenky Ganesan26:10

        I disagree a little bit. I, I think when you're getting your option bet, you want to have ownership, because when it's not clear. So let, let's say you know it's an outlier. If it's an outlier company, then you are in the capital invested game. Prior to it being an outlier company, you have to be in the ownership game. Your best situation is you are in the ownership game in an outlier company, and then because outli- then you b- go into the money movement game. You know what I mean saying? So, so like-

    11. HSHarry Stebbings26:39

        No, I thought you, you... The, the ownership doesn't matter pre it being an outlier 'cause you're there for the information. When it does become known, it becomes a money concentration game.

    12. VGVenky Ganesan26:48

        You wanna have enough ownership, though. I mean, you look at a Higgsfield. B- my partner Amy, she killed it. She... We got 15% of the company for a $5 million check. You had Alex on, on your, on your podcast. Incredible entrepreneur, incredible business, right? So in that case, we got the ownership, and then we also had the opportunity to then size up.

    13. HSHarry Stebbings27:11

        Did you?

    14. VGVenky Ganesan27:12

        Yeah. We've invested.

    15. HSHarry Stebbings27:13

        Do you get my rationale, though, for actually it doesn't matter if you have ownership in the first place. What you're buying is the information to size up.

    16. VGVenky Ganesan27:21

        I, I get that. And I, I, I... If, if you're asking me: Is it better to be in the company regardless of ownership or not be in the company? Yeah, it's better to be in the company. But it's even better to be in the company with ownership because now you actually have gotten your ownership that's gonna, is gonna drive real returns. Because the problem is once it's an outlier, everybody knows about it. There is the... It's no longer a selection game. It's just, okay, can you get access, and can you... It's a position sizing game. There's no alpha there. And then that's the true... In the AI greatest hits, everybody knows these companies.

    17. HSHarry Stebbings27:56

        How much of your fund will you put in a single company?

    18. VGVenky Ganesan28:00

        I don't think we would put more than 20% of-

    19. HSHarry Stebbings28:04

        Have you gone up to 20% before?

    20. VGVenky Ganesan28:06

        Uh, we have hit 20% on one company.

    21. HSHarry Stebbings28:08

        Whoa. What company?

    22. VGVenky Ganesan28:10

        Anthropic. [laughs]

    23. HSHarry Stebbings28:12

        [laughs] I mean, uh-

    24. VGVenky Ganesan28:13

        But it is-

    25. HSHarry Stebbings28:14

        I'll pare it out. Yeah, yeah, yeah.

    26. VGVenky Ganesan28:15

        It's gotta, it's gotta be an exception, right?

    27. HSHarry Stebbings28:16

        Yeah.

    28. VGVenky Ganesan28:17

        Um, generally-

    29. HSHarry Stebbings28:18

        Bet that was a hard conversation. [laughs] Like, "We 10X'd this year. We 10X'd last year."

    30. VGVenky Ganesan28:23

        [laughs]
15. 28:25 – 29:57

    When Should You Size Up An Investment?

    1. HSHarry Stebbings28:25

       it." [laughs]

    2. VGVenky Ganesan28:26

       But I, I do feel that you have to think about the question of ownership and concentration as when. What I mean is that where was the company when... What information do you have? How much conviction can you have as an outlier company? Because the, the thing about position sizing is you wanna position sizes when the data is there. And if you position size it ahead of the data, then you're taking a lot more risk. So the question is not did you put 20% of the fund of a company in one check at the beginning of the fund, or did you ladder up to 20% on the basis of new data. Obviously it's much better to ladder up on the basis of new data. And then I, I think in an era where venture capitalists are gonna have ownership come down, right? I mean, I wish we could get 10%. Even 10% is hard, right? Now your way you're gonna win is you're gonna ke- establish a position and then size up as a company does well so that you have sized it commensurate to the outlier opportunity.

    3. HSHarry Stebbings29:26

       Totally get you and get that. And everyone says, "But ownership doesn't matter so much because outcome sizes are so much larger than they've ever been." And, and they are. That is a valid answer. My question is: Are they on the whole? Like, do we just have a breadth of companies that will be much larger, or is it really just a handful of Anthropics and SpaceX? And cursor on the small end at 60 billion, which is still enormous and amazing. But is that a good enough justification for ownerships going down?

16. 29:57 – 33:21

    The Problem With Only Betting On Home Runs

    1. VGVenky Ganesan29:57

       I think the problem comes down to your portfolio composition, right? If, if you are in one of those outliers, I think you can survive with low ownership. But what happens if you are not in these big outliers? Then the... Because what i- essentially you're, you're playing a game, to use, uh, baseball analogies, you're playing a game where there's only grand slam home runs or strikeouts. There's no singles, doubles, or triples, right? In cricket terms, it's like it's only scoring sixes and not having ones and twos. And the problem with that is that if you don't score the six- And you don't have the ones and twos, that's gonna be a tough fund. And so part of getting ownership is giving some insurance for you that if you missed out on the outlier, the sort of mid-size outcomes can still move the needle for you.

    2. HSHarry Stebbings30:46

       But will you do singles and doubles?

    3. VGVenky Ganesan30:48

       No. The goal-- You, you never-- The goal is always to score home runs, right? But sometimes you strike out. And, and so if you strike out all the time, that's gonna be a tough fund. So the idea is that you wanna at least say, "Okay, I went for the home run, and I got a triple."

    4. HSHarry Stebbings31:03

       But I just don't think founders are aware, and I say this, and people always get at me, and I, I think they kind of miss the point, 'cause I say it like lovingly for awareness for founders, that the game has changed and that, you know, going from one to four million and then four to eight million and then eight to 16 and then Venky, in five years' time, we're gonna hit 30. That's an amazing achievement. But it is just not enough to get venture excited today. Do you agree with that?

    5. VGVenky Ganesan31:32

       Yes, I agree with that. Again, snapshot in time because you're seeing companies like-

    6. HSHarry Stebbings31:39

       But do you think venture will ever go back to being excited about that?

    7. VGVenky Ganesan31:42

       Well, if you're not-- They're not excited about it today because they're seeing companies go from one to 10 to 50 to 100, so they're getting to 100 in three years, or in some cases, they're going from-

    8. HSHarry Stebbings31:51

       Mm

    9. VGVenky Ganesan31:51

       ... zero to one billion in 18 months, right?

    10. HSHarry Stebbings31:53

        Yeah.

    11. VGVenky Ganesan31:53

        So when you see those kind of companies, of course you wanna do those, n-not the ones. But that's because we are a moment in time where there's certain trends allowing you to do it. I don't think this continues f-forever. And so, so I think this is where I, I think you have to take the long, long horizon look at this, right? The, there were companies who grew, they grew fast, but there's a combination of things that make these companies grow fast today that may or may not continue.

    12. HSHarry Stebbings32:22

        Totally get that. When they grow as fast as they are, the rounds come thick and fast, and the prices are high.

    13. VGVenky Ganesan32:28

        Yeah. I mean, and you look at Instinct. God bless. I wish we were in the... You know, they've gone from, I don't know, 250 million to 10 billion in 10 weeks.

    14. HSHarry Stebbings32:36

        Would you have done that round at 10 billion?

    15. VGVenky Ganesan32:38

        Smart people have done it. Um, we are in town, which we love and we think very highly of, and we're excited about that. I think that there's something going on there. There's a true phenomena. Um, what I don't know is to understand their data and what it costs for them to keep growing their user base and how does the Muse launch affect their growth.

    16. HSHarry Stebbings33:02

        Can I ask you, everyone kind of goes into a lot of investing now with the idea that there's downside protection. I mean, Noah's incredible. It's in a very strategic space with the incumbents. Worst case, one and a half billion liq pref. It's a no-brainer for Microsoft to do it as an addendum to a co-pilot or f-

17. 33:21 – 35:41

    Is “Downside Protection” A Dangerous Mindset?

    1. HSHarry Stebbings33:21

       Apple to do it. Jesus, Apple, please do it. Do us all a favor and save us from Siri. Um, do you think that downside protection, "Ah, don't worry, the incumbents will buy it," is okay to have or quite a dangerous mindset to have?

    2. VGVenky Ganesan33:36

       I think you can easily rationalize a lot of things if you take that mindset. And, and the problem is that, again, you threw out this billion and a half number casually because we are in this environment where, you know, AMD is buying a company for eight and a half billion. Nvidia bought Hugging Face for 14 billion. You know, Stripe bought Open Router allegedly for around eight billion, you know.

    3. HSHarry Stebbings33:59

       Allegedly. Allegedly.

    4. VGVenky Ganesan34:01

       Allegedly.

    5. HSHarry Stebbings34:01

       Yeah.

    6. VGVenky Ganesan34:01

       Uh, b- And I think we have to go and say these are, a point in time where companies are doing it. It may not be that way. And so today it feels like a billion and a half is, "Oh, no big deal. If I'm right, it's gonna be worth 100, 200 billion. If I'm wrong, someone's gonna pick it up for three, four billion." By the way, that's what you're referring to my tweets. I wrote this thing about if you go back and look at during the dot-com era, you know, Nortel bought Kairos for three and a half billion. Lucent bought Chromadys for four and a half billion. These were companies with no product, no revenue, just teams, and they bought it with their stock. And so it felt very similar. In fact, I believe, um, Jeff Yang from Redpoint, legendary investor, had this quote in the Internet Standard, which is a magazine that's no longer in existence anymore, where he said, "You know, there's no, um, there's no risk in venture capital. If the company's successful, it'll be sold for billions. If not, it'll be bought for the preference stack." And, you know, it didn't quite work out that way on the other end of the cycle after, after, you know, March 2000. So y- I, I, I go with trepidation, but I just wouldn't take the mindset, "Oh, some large strategic is gonna buy my company for preference, for the preferential stack." Because they don't care about the investors, right? They care about the found- Why, why would they do that? Why wouldn't they just hire the founders for the same package?

    7. HSHarry Stebbings35:31

       Well, in a lot of cases, they kind of are in these structured deals-

    8. VGVenky Ganesan35:34

       Right

    9. HSHarry Stebbings35:34

       ... let's be honest. And screwing the investors.

    10. VGVenky Ganesan35:36

        So you've seen that, and, and you, you can't take that, th-there's no reason for them to take care of the

18. 35:41 – 38:39

    Are Investors Facing A New Era Of Dilution?

    1. VGVenky Ganesan35:41

       cap table.

    2. HSHarry Stebbings35:41

       Do you think about the dilutive nature of businesses today? And what I mean by that is just like we are suffering more and more dilution as an investor class than ever before, and it's a better time than ever to be an employee given the levels of stock-based compensation, SBC for people. Um, do you, do you worry about that, think about that? Should I worry about that and think about that?

    3. VGVenky Ganesan36:01

       For sure. I mean, we look at whatever we invest in at the seed round, and we assume by the time we sell or exit the company, if we own 10%, we would have 3.5% to 4%. We expect 60% dilution from the point of our first check, right? And that's a combination of dilution from financing, but it's a dilution from option pool expansions.

    4. HSHarry Stebbings36:28

       [sighs]

    5. VGVenky Ganesan36:29

       And so you have to like to really think of yourself as whatever ownership you bought in your first check, it'll only be 50% by then, at the end.

    6. HSHarry Stebbings36:36

       The interesting thing is that it's very common in a lot of companies we're seeing today. And then the other interesting thing is companies are sometimes scaling so fast, a la OpenRouter, Alex, a friend of both of ours, where they actually don't take that much dilution because they scale so fast, so quickly, and so efficiently, where actually you suffer almost much less dilution. So it's almost a tale of two dilution worlds. Do you know what I mean?

    7. VGVenky Ganesan36:58

       Yeah. It, it's a, it's a function of time.

    8. HSHarry Stebbings37:00

       Yeah.

    9. VGVenky Ganesan37:00

       So, so the way to think about it is that, um, I, and I don't think we spend enough time in venture capital thinking about that. We should say, what is the time horizon you're gonna hold the company? Because the time horizon will determine your dilution, right? So part of the reason when you are in situations that your dilution's less is they have quick exits. They grew their value fastly, they have quick exits. And th- that's a double win. When your time horizon is long, the two hits, your, your IRR gets hit and your dilution, you're gonna have meaningful dilution.

    10. HSHarry Stebbings37:32

        Did you think of that when investing, which is just like what really is the ramp? Uh, there's like kind of businesses like in the ERP space where they're like, "Ah, but the revenue's such high quality, Harry. I get you, it's not as fast as your Higgsfield or your Ligora, but it's so high quality." And I'm like, "Yeah, yeah. But fuck, it's slow." Am I wrong to think that?

    11. VGVenky Ganesan37:55

        No. I, I think the velocity of the business is very important for venture capitalists, right? And, and the velocity will determine a, a bunch of things, right? Because the other reason why your dilution goes down is like if you have a fast uptick in valuation, the amount of ownership you gotta give for your next set of recruit or next set of human capital is a lot lower, right? So you, you are a $200 million company and you're giving, you know, 2% of the company to hire a senior exec, like that's pretty meaningful. You quickly become a $2 billion company, you don't need to give... You're gonna give RSUs and you give the same person $20 million, right? Which is 0.1%. Or no,

19. 38:39 – 41:58

    Why IRR Matters More Than Ever

    1. VGVenky Ganesan38:39

       it's 1%.

    2. HSHarry Stebbings38:40

       DPI or IRR?

    3. VGVenky Ganesan38:43

       Um, both. Maybe you can. I, I, I do think actually that you can't have IRR without DPI. I think what you're trying to ask is, "Hey, will you settle for a larger DPI over a longer horizon, or do you want quicker DPI, uh, with a faster IRR?" I think the reality of venture when I joined, this is now dating myself 28 years ago, people didn't focus on IRR. People were like focused on like cash on cash return because IRR took care of itself. I think in today's venture, the, the game has changed. You have to focus on IRR. You know why? Because there's no way for venture to be successful in today's era without the Mag Seven participating in everything you're doing. Every, every venture company is writing a tax to Nvidia in some way, shape, or form, writing the tax to a hyperscaler in some way, shape, or form, and possibly writing a tax to the foundational model in some way, tax or form. So if you're gonna be successful, right, you're gonna be writing a tax to all of them. All of them are available in the public markets, or they will be soon in the public markets, for someone to invest in a no fee, no carry index fund. And so you have to think about your IRR as I've gotta beat that with 1,000 basis points to, to justify anyone giving you capital in the private markets.

    4. HSHarry Stebbings40:04

       You mentioned Town. I had JD on the show. Really like him.

    5. VGVenky Ganesan40:07

       Yeah.

    6. HSHarry Stebbings40:07

       I've known him since the, the plant days. I'm pissed off about that one because he started the company when he left. And I remember talking to him about it when he started, and he was doing something in some terrible space. No offense. Uh, he'll agree with me. And then he obviously pivoted.

    7. VGVenky Ganesan40:20

       He attacks things. They were doing something in half.

    8. HSHarry Stebbings40:22

       Yeah. Venky, I'm too old for this shit. [laughs]

    9. VGVenky Ganesan40:26

       [laughs] You are. If you're too old, what am I? I'm ancient.

    10. HSHarry Stebbings40:29

        Venky. You're, you're a spring chicken. Um, uh, and for anyone watching, they'll see that you look much younger than me. Um, but my question to you is we obviously know what happened with the Town Round in terms of competitive nature and dynamics there. I don't want to go into that. What I want to go into is actually does competition matter for VCs to invest against now? It seems like Andreessen has, you know, three companies all doing the same thing, and many big platforms do. Does it matter being in many players in the same space anymore?

    11. VGVenky Ganesan40:56

        I mean, this is a personal preference, right? I think, I think culturally for Matt, Sean, and I, you know, we like to be committed to the entrepreneur. And n- the situation has got to be specific, right? Look, if we take a board seat and we write a big check, then we want to be... If it's like if you invest in the seed round and you have a small check, you're a passive investor, that's a different issue, right? But when we, when we make a commitment to the entrepreneur, we want that to feel like a two-way commitment, right? We expect them to put the interests of their shareholders and commit to it, and we as shareholders need to commit to them that we're gonna... And that's why we didn't invest in OpenAI, right? We, we only stayed with Anthropic. There's no shade. Again, venture is changing in a way that multiple people are doing different things. I think you just have to figure out what is authentic to us and our values and live by those. And I think for us, when we m- make a big commitment to the founder, we think of as a two-way street. They commit to

20. 41:58 – 48:24

    Are Faster Investment Cycles A Warning Sign?

    1. VGVenky Ganesan41:58

       us, we commit to them.

    2. HSHarry Stebbings41:59

       One thing that we see a lot today is the compression and deployment timelines. In other words, people investing much faster.

    3. VGVenky Ganesan42:04

       Mm.

    4. HSHarry Stebbings42:04

       All the LPs that I speak to are just saying, "God, Harry. Jesus. Everyone is coming back to market so much quicker. They're bigger." Is that okay or is that a sign of peak bubble?

    5. VGVenky Ganesan42:16

       Yeah, you know, it's very interesting. LPs want smaller funds, and then they want you to not come back quicker. The, the problem is like one of those can't be true. Like if, if the opportunity we have is real and this AI is a b- the biggest economic platform shift of our lifetime, and you want smaller funds, they're gonna come back quicker. Now, there are also large funds who are coming back quicker, so that, that's a different issue. But I, I, I think that in the time we are in is one in which you're seeing companies grow so fast, and they need cap- and, and they need capital to grow. Like, this is not a situation where you can grow without capital. This is not Google. Google, if you go back, probably raised less than 50 million in the private markets. You can't do that today in AI. You need compute, you need to scale. So, so to me, because you're seeing them grow so fast, they, the capital needs are growing and, and, and if, if a venture firm doesn't provide it, they're gonna get it from their competitor.

    6. HSHarry Stebbings43:12

       So actually, if managers are deploying a fund in 18 months, LPs should forgive them?

    7. VGVenky Ganesan43:16

       I think the LPs should ask questions and say, and say, "How... Have you thought about it? How are you managing it? What's gonna happen if it, things go..." Vintage diversification does matter, right? It does matter. And, and people have to be conscious about that. I mean, when I look at Menlo's history, the one fund that wasn't successful at Menlo's history, I mean, I mean, you know, 50-year history, we only had one fund that's not returned capital, which is Menlo Eight, which was invested in a 10-month period between 2000 and 2001. Yeah, that did not, was not quite the outcome we wanted.

    8. HSHarry Stebbings43:51

       Menlo Eight?

    9. VGVenky Ganesan43:52

       Menlo Eight. But I, I bring that up because I do think time diversification matters. Now, by the way, Menlo Seven was one of the best funds in Menlo history. And, um-

    10. HSHarry Stebbings44:00

        Yeah, but do you remember Excel 2005, which is pre the Facebook fund?

    11. VGVenky Ganesan44:04

        Right.

    12. HSHarry Stebbings44:04

        And they had massive LP churn 'cause they went and did, like, a load of clean tech and bio, and it was not good. And then Facebook fund.

    13. VGVenky Ganesan44:11

        So, so, so, so to me, I, I just bring it up as like, look, as GPs, we take... You've gotta take the fiduciary duty you have to your LPs very seriously, and you gotta balance that decision. What I do know is that you can't have, like, it's not, you can't just have dogmatic rules. You have to play the game on the field. And then you gotta communicate what you're doing i- in a transparent way to your LPs and tell them what's happening. And some LPs are gonna be like, "Okay, I agree with you. I'm, I wanna play it." And some people are not, and you gotta respect that. But the point is that you might have no choice to play the game this way.

    14. HSHarry Stebbings44:48

        Did you ever scale out of an LP class? And what I mean by that is, you know, the funds now are reasonably sized. They're not egregiously sized. You know, you're not David George asking for the US Treasury, but you're $3 billion. It's a lot of money. For some LPs, they're like, "Pff, it's a lot." D- was there a time when you scaled out of endowments, say, and suddenly you had to be pension fund invested?

    15. VGVenky Ganesan45:15

        We've historically, our anchor tenant has historically been the Washington State Investment Board, which is the public sector pension fund of the state of Washington, from SLP, by the way. Highly recommend them to anybody. They've been our anchor tenant since 1981, so we have never had a reason to scale out because public sector pension funds have been a part. It, it's a little bit of a cultural dynamic. I think the founders of Menlo came from very humble beginnings. Um, Dubose grew up in a house with no running water or, or toilets. Um, I think John was orphaned very early. He was a scholarship student at MIT. And so they loved the idea of working for public sector employees because that felt like working for their parents and less, these people look more like their parents than their children.

    16. HSHarry Stebbings46:01

        So there wasn't a fund where LPs went, "Oh, Venky, you're getting pretty big now. I, I think you're just scaling out of our, our sweet spot."

    17. VGVenky Ganesan46:09

        No, that wasn't the case, but we had, we raised the first billion-dollar fund in venture capital. Menlo raised Menlo Nine, which was raised in 2001. It was a $1.5 billion fund. And Menlo 10, which was raised in 2004, was a $1.2 billion fund. Those funds did not perform as well as we would have liked, and many LPs did leave us.

    18. HSHarry Stebbings46:32

        You manage a lot of the LP conversations today, correct?

    19. VGVenky Ganesan46:35

        I, I do. Matt and I do a lot of them, yes.

    20. HSHarry Stebbings46:38

        What do you hear from them? As I said, I hear deployment time is down in terms of how m- people investing much faster, and the funds are just getting bigger. And then I also just see mimicry, which is like, I'm calling this out because it's compliment to her. And I, I, I never shit down on people, uh [laughs] other than your piece. [laughs]

    21. VGVenky Ganesan46:59

        [laughs] That's okay. I mean-

    22. HSHarry Stebbings47:00

        But every LP just wants Sarah Guo's fund.

    23. VGVenky Ganesan47:02

        Yeah.

    24. HSHarry Stebbings47:02

        And I completely agree Sarah Guo is incredible, and you should want her fund, great, but, like, just this complete herd mentality.

    25. VGVenky Ganesan47:09

        And Sarah and Mike are amazing and-

    26. HSHarry Stebbings47:10

        Amazing

    27. VGVenky Ganesan47:11

        ... no, no question about that. Um, you know, I spend a lot of time with them, with LPs, and I think first of all, a lot of them have two complaints. One, they're like, "Enough TV over PI. I need to get some DPI." So I think if you deliver DPI, I think you're already in the [laughs] in the right side of the table. And I think it's easier to come back to them to ask for more capital when you deliver DPI, right? So that's one. Um, second, I don't think people can afford not to be in the AI economy, and I'll tell you why. Most of them have much bigger private equity portfolios than they have venture portfolios. Like in many cases, 3 to 4X exposure to private equity. A lot of private equity over the last few years have been, been software, and those positions are directly impacted by AI. So if you want to hedge against your private equity portfolio, you gotta be in, in the AI economy. And so that's the, that's the piece that, that forces them to come back. So if you are someone who has given people DPI, and you can credibly make the case that you are gonna be a play in the AI economy, I think you can raise

21. 48:24 – 51:41

    Venky On When To Take Chips Off The Table

    1. VGVenky Ganesan48:24

       money from LPs.

    2. HSHarry Stebbings48:25

       You gotta have given DPI. We see companies scale faster than ever. As we've said, we see prices that are very high. How do you think about the internal conversation of, "Whoa, X company is now valued at 10 billion. Can we take some chips off the table?" What does that discussion look like, and any lessons on how to sell successfully?

    3. VGVenky Ganesan48:46

       I think you have to Step back and look at any situation in which you have a 30, 40, 50X return on your dollar and ask yourself, "Should I take some off the table?" And I think the right time to do that is when the entrepreneur is thinking about taking some right off the table. And I think if you were to work in conjunction with them-

    4. HSHarry Stebbings49:12

       What if it's not material? I'm, I'm, you, fuck this, I'm using this as a consulting lesson. You can invoice me later. I have a company where we are like 40X up.

    5. VGVenky Ganesan49:20

       Yeah.

    6. HSHarry Stebbings49:20

       And like, "Wow, wow, fantastic." You sh- you've got 100K in there. Return four million back to $100 million fund that it's in.

    7. VGVenky Ganesan49:27

       I, I, I don't think it's a, it's, it's a size issue. It's just to me, like, look, lock in the gains, right? You, you... They were, they were think- if you go back to the SaaS portfolio in 2021, there were valuations done, uh, at, let's say pretty high prices. If people had taken 10, 15% off the table, even if it's small, it locks in, allows you to go long. The other thing I, I, I tell entrepreneurs is that just like when you take some chips off the table, you're more likely to go long, so are we, right? Because we, we, we, we can now afford to go long with you, and so it aligns. And so to me-

    8. HSHarry Stebbings50:04

       Will you ever sell all of your position?

    9. VGVenky Ganesan50:07

       I generally no. Not, not unless the company's being sold. Not interested. I think that's a different situation. I mean, the only time I think it's like if you do not have a relationship with the founder and you, like, that's, that's different. But if you, as long as you are and you're in, you're gonna ride, we, we ride and die with our founders.

    10. HSHarry Stebbings50:25

        Jason Lemkin says on the show, "Whenever a founder leaves, like I ride it to zero. When a founder's gone, zero, zero, zero." Do you find that to be the same when the founder leaves? You're like, "We're supportive of course, and we're still here," but like mentally you're like, "That's a zero."

    11. VGVenky Ganesan50:42

        My friend and your friend, Nikesh Arora, would disagree with you and say he goes on founder mode. I mean, uh, look, there are people like Nikesh, Jeetu Patel at Cisco, they go on founder mode as, as an exec. And I think like it's sort of an insult to people like that when you say, "Oh, the founder leaves." Like, look at the situation. Who, who replaced them? Founder mode is a mode of working. It's not, it's not tied to anyone personally. I think anyone can be a founder in terms of the founder, working in a founder mode, and I think some people do. And they, I mean, Frank Slootman, look at Frank joined Data Domain, um, Snowflake, ServiceNow. In each of those places, he acted like a founder. He didn't act like an exec.

    12. HSHarry Stebbings51:25

        By the way, Nikesh, please don't kill me. I love you more than ever, and I've always loved you, and it was Venky that said it. It wasn't me that said it. Don't-

    13. VGVenky Ganesan51:32

        [laughs]

    14. HSHarry Stebbings51:32

        It was, I'll give you Venky's address later. [laughs] I'm gonna go get a brick through my window.

    15. VGVenky Ganesan51:39

        You're definitely here for Nikesh. [laughs]

    16. HSHarry Stebbings51:40

        I'm terrified of

22. 51:41 – 54:11

    Are We About To See A Wave Of M&A?

    1. HSHarry Stebbings51:41

       Nikesh. Are you kidding me? Uh, [laughs] um, so yes, um, that's very funny. Um, can I ask you then, we see so many sales now. It's like, you know, Fe Fe sells for 8.2 billion. It's like, it's amazing. A phenomenal exit. Well done to everyone involved. Yesterday's news. I mean, OpenRoader is so yesterday's news we've all forgotten about it. And I don't mean this glibly or any... I know that sounds so child of this ecosystem, which I'm not, sadly. Um, are we just gonna see a load more exits now?

    2. VGVenky Ganesan52:14

       Yeah. I, I think you're going to see because I think there's competitive pressure. There is also this notion that we have a regulatory regime that will let you do M&As, right? There's been a backlog of M&As that didn't hap- that was supposed to happen, didn't happen because we had a different regulatory regime. There's this notion that this is may not continue forever, so one, you have a window of time. You also have competitive pressures, right? When, when, when AMD buys a, a mo- w- r- real world model, does Nvidia need to do something? Do other people need to react? And so I think, um, every acquisition forces a bunch of competitive dynamics we have to consider. So I, and then, and then people have equity prices, right? AMD is now a trillion dollar company. You know, eight and a half billion dollars is still, I think, less than .1% of the company, right? So, so, so you can do stuff because of this combination of things, and then the notion that, you know, anything that lets you catch up in the AI wave is very high. Like is, did Meta do a good job paying up for scale? I think they would say yeah. If you look at the market cap add of Muse to Meta, maybe that 15 billion seems cheap now.

    3. HSHarry Stebbings53:30

       I'm also like so happy for Zuck. It feels like he's kind of almost got like a co-founder in Alex Wang who he can delegate some of the shit to. Do you know what I mean?

    4. VGVenky Ganesan53:39

       Um, I mean, Zuck is a great capital allocator. You, you, you, you go back and look at the history of his capital allocation has been phenomenal.

    5. HSHarry Stebbings53:46

       Best, best of CEOs.

    6. VGVenky Ganesan53:47

       He bought Instagram for a billion dollars, right? He has executed, and I would say like-

    7. HSHarry Stebbings53:54

       He bought Navo for 400 million, which allowed him to see everything that went.

    8. VGVenky Ganesan53:58

       Yeah.

    9. HSHarry Stebbings53:58

       So smart.

    10. VGVenky Ganesan53:59

        So, so to me, like if you look at the history of, um, like I think they're incredible technologists, but I think there are very few people I think who are incredible technologists and good capital allocators. Zuck is right up there.

23. 54:11 – 55:24

    The Most Important Skill For Founders At Scale

    1. HSHarry Stebbings54:11

       If you could choose one skill for a founder at scale between capital allocation or product visionary, what would you choose?

    2. VGVenky Ganesan54:17

       At scale? Um, I would s- I would choose capital allocation. Because by the way, capital allocation by itself also captures product visionary because you, you're allocating the capital to the things that matter. So in some ways, you know, you, it, it... Part of the dynamics of deciding on capital allocation is which product direction you need to go. But the other way is not true. There are some people who can be great product visionaries, but who might not think about where, h- what is gonna be the return on that capital.

    3. HSHarry Stebbings54:44

       Evan Snap. Love the dude.

    4. VGVenky Ganesan54:46

       Yeah.

    5. HSHarry Stebbings54:46

       Love the dude. I mean, like free candy every year. SBC through the roof. You a shareholder of Snap?

    6. VGVenky Ganesan54:52

       Uh, we are not a shareholder of Snap, but look, look, E- Evan's a product genius. There's no question about that.

    7. HSHarry Stebbings54:57

       Genius.

    8. VGVenky Ganesan54:57

       Right? And his vision for Snapchat and what it executed-

    9. HSHarry Stebbings55:01

       Stories

    10. VGVenky Ganesan55:03

        It'd be fair to say you have not been rewarded being a shareholder of Snap, at least for the last seven, eight years.

    11. HSHarry Stebbings55:09

        Not been rewarded?

    12. VGVenky Ganesan55:10

        I was trying to be polite here. [laughs]

    13. HSHarry Stebbings55:11

        That's like giving Titanic an 8 out of 10 in the holiday review book, like [laughs]

    14. VGVenky Ganesan55:17

        [laughs]

    15. HSHarry Stebbings55:17

        That's incredible.

    16. VGVenky Ganesan55:18

        I've not, not been rewarded. [laughs]

    17. HSHarry Stebbings55:19

        Not been rewarded. Oh, blowhard. [laughs]

    18. VGVenky Ganesan55:23

        [laughs]

24. 55:24 – 56:34

    Does Money Change People?

    1. HSHarry Stebbings55:24

       Um, yeah, no, that, that's, um, that's a good way to put it. Okay. Um, that's really interesting. Uh, are you worried by how much money is being made by people? Like, which... I'm seeing sales reps at OpenAI walk out with 30, 40 million bucks.

    2. VGVenky Ganesan55:37

       You know, here, here's the thing. Um, I always believe this. Money doesn't change people, but it reveals them. So, so what do I mean by that? Is money and power, people think changes people? No, it only reveals them. What it means, like, if you were an asshole before, when you have money and power, you reveal that. And so, so what I have found is that the people who are really motivated, they're gonna be motivated whe- whether, um, even if they have lots of money. And the people who are not motivated, who are acting it, when the money shows up, they will opt out. And so to me, it, it do- it won't change for the A players. Because for the A players, it, it's... Money is just a way of keeping score. But what they love is the game.

    3. HSHarry Stebbings56:23

       So you're not worried about house prices in the Bay and the inflation that we're gonna see with, um, uh, IPOs from SpaceX, Anthropic, OpenAI. That worries

25. 56:34 – 59:40

    Why Are Bay Area Housing Costs So High?

    1. HSHarry Stebbings56:34

       you or n-

    2. VGVenky Ganesan56:34

       Of course it does. I mean, it, it, it changes the character of the place. But the real issue we have, and this is an issue in California, hopefully not in London, is a question of supply. It's not a question of demand. Like, at the end of the day, we have tremendously re- increased the cost of, and the process of building a house. There's no supply coming in, so any uptick in demand results in prices going up. The way to address that is not to worry about the demand, but to increase the supply of housing stock. And we just do not have the collective willpower and this... For a progressive state, there's more NIMBYism in California than I expected, and the NIMBYism prevents you from building more housing stock.

    3. HSHarry Stebbings57:15

       I saw a que- a tweet where you said something. You responded to Brian Armstrong. I, I do my work. I still-

    4. VGVenky Ganesan57:23

       Okay, all right. That's dangerous.

    5. HSHarry Stebbings57:24

       Yeah, it is dangerous, but I'm, I, I'm joining you on this side if this is where you're going. Um, and you said, like, "I, I appreciate your leadership, like, through the woke times."

    6. VGVenky Ganesan57:35

       I mean, I think, I think what I particularly appreciated about Brian is that he laid out his principles of what he believed, and he told people, "Hey, if you really want to engage in political activism, then Coinbase is not the place for you, because we do not want to have, um, political dialogue here. And if you, if that's important for you, you should go and find a place in which you can do it." I think that takes courage to say, um, and I think... But it's being true to what he wanted to do. And to me, I think that's most, that's the most important, is try to be authentic to who you are, and I think I appreciated him being authentic when... I think it came at a cost, right? There were definitely... He was castigated in, in the press and maybe on Twitter. B- and he had people leave. But I think he ultimately said, "We want people who are authentic to Coinbase values articulated by me, the founder."

    7. HSHarry Stebbings58:26

       Have you ever been inauthentic to your-

    8. VGVenky Ganesan58:28

       I think there are times when, you know, you say certain things to founders because you want them to like you or you want to win a deal that I think may not be truly authentic. What I'll tell you is that I have dealt with my own insecurities and feeling like an imposter, and I've gotten c- more comfortable in my skin now, where I just feel like I just don't do it. And if it, if it means I have to say something inauthentic to me to win the deal, I'd rather not win it. And, and, but it's e- that's easy to say because I'm sort of at the point in my life I like... You know, that win doesn't matter. Of course, I like to win, but it's not gonna change my life. So, so I always say it, it's very different when you're a 25-year-old and you're trying to build your c- career. You do whatever it takes to win. And so in some way, morality is sort of a privilege of the people who already succeeded. It's easy to be moral now when you already have the things you have. The question is, will I be a moral person if I were to go back 20 years ago and start there? That's the real test, and I don't think I lived u- to that test as much as I would like.

    9. HSHarry Stebbings59:37

       Are you a better investor now you're richer?

26. 59:40 – 1:02:43

    Does Being Rich Make You A Better Investor?

    1. VGVenky Ganesan59:40

       Yes. Um, you're not afraid as much. You're not afraid of failure. You're willing to go all in [laughs] and, and, and, and go, you know, go to the hilt. And so I, I, I, just think you can go for broke more easily, right? It, it, it, it's sort of like, think about it on a poker table. The guy with the big amount of chips has so much leverage to win, right? They, they can see more cards and there's... And so ironically, and this is why I think, you know, like, the way our capitalism system is set up, the rich are gonna get richer because they just have more opportunities, uh, to be the bully at the poker table.

    2. HSHarry Stebbings1:00:18

       Does that mean that emerging market man- not emerging market, but emerging managers are just in the old static Anderson game? Like, I don't see... And forgive me for this, but I don't like binaries, but a fucking media, so you kind of have to do binaries. It depends, doesn't sell. Um, I... 30 to $100 million funds are just the worst place to be.

    3. VGVenky Ganesan1:00:38

       Yes, they are today. Again, snapshot in time today, that's a tough place to be because you're playing a poker table where people have such high chip stacks and-

    4. HSHarry Stebbings1:00:47

       I think they were five years ago, dude, in all honesty.

    5. VGVenky Ganesan1:00:50

       Um, I, I think what happens is if you are lucky enough, right? And I don't know if this is true, but it... I'm sure if you were to go and look at the cap table, there was some small investor who wrote a check. Oh, Anjana wrote a check into Anthropic. Now, maybe he didn't have a fund then, but, like, you wrote a check, you, you... A 30 to $50 million check. You wrote a check into the Anthropic round. Not the $4 billion round we did, but, like, much earlier You're doing fine

    6. HSHarry Stebbings1:01:13

       Yeah, but he was an angel not competing for rounds. And so what I'm saying is the $30 to $100 million funds where they need to move like a million, 2 million, 3 million, it's kind of a pain to fit them into rounds. No. Aren't you putting in 100K or 200K a show?

    7. VGVenky Ganesan1:01:27

       I mean, I would... Yes, I'm, I'm just-- Your principle is right, but I'm just trying to think about counting. I try to be intellectually honest, right? Think about conviction. How, how did Sarah and how big was Sarah's fund? I wanna say 200.

    8. HSHarry Stebbings1:01:39

       First round was, yeah.

    9. VGVenky Ganesan1:01:42

       So, so $200 million fund, and she found a way to be in some of the most interesting companies early. So, you know, can be done.

    10. HSHarry Stebbings1:01:50

        And then you've got Dave Tisch, I think would be a really good example actually as well, with Box Group.

    11. VGVenky Ganesan1:01:54

        Yeah.

    12. HSHarry Stebbings1:01:54

        Like it goes against the portfolio construction that all LPs love, which is high ownership, concentrated portfolio.

    13. VGVenky Ganesan1:02:01

        And, and so I, I think there, there's always people who figure out how to play agency odds, right? And so, but they are the best of the best. And, and so you don't wanna extrapolate. But in general, those are tough places to be unless you're exceptional. And, and I think, I think like I was reading a tweet between, um, S-Sarah and Patrick Grady, and Patrick Grady, like she was like, Sarah was telling LPs, like, "My strategy is I'm just gonna work harder." And that's probably the truth, right? The truth is everybody wants to have some magic strategy that you're gonna do that nobody else is gonna do. There's no magic strategy. Everybody, everybody in the venture industry is smart. You have to out-hustle and have grit to make through, and Sarah definitely has

27. 1:02:43 – 1:06:44

    Is Private Equity Facing An AI Reckoning?

    1. VGVenky Ganesan1:02:43

       that.

    2. HSHarry Stebbings1:02:43

       Final one before we do a quick fire. Um, we mentioned PE being challenged in a lot of ways by a lot of AI companies. Um, we're seeing, you know, the hands, the keys being handed back at companies like Medallia. You're seeing plenty, a lot of struggling companies in a lot of these PE providers' books. Is PE pretty structurally fucked?

    3. VGVenky Ganesan1:03:07

       Look, th-they're smart guys, um, and they know how to figure out and operate these companies, right? They also have majority control. Uh, I, I think in some ways I would say the venture-backed companies that, SaaS companies where the people paid high multiples, the Add Tables and Mirrors, uh, yeah, I think, and they got spooned, as I say. [laughs] And I, I think those are in a tougher situation, right? I think, I think, don't get me wrong, I think venture, PE is a challenge too, but the reason why I say the venture-backed companies are in even tougher situation, at least with PE you have a majority owner who controls the company, who can do things. You have a lot of zombie SaaS companies where nobody owns enough to be able to do anything. Nobody cares. And so how do you actually land that ship? At least with PE, they can do some stuff to it. Now, landing that ship is gonna be hard for everybody, but I, I think, I think in that class of 2021 SaaS companies, the best outcome is getting spooned, which really means getting your capital back, and the worst outcome is gonna be zero.

    4. HSHarry Stebbings1:04:14

       Good old bending spoons. European. Just, just gonna put it out there. Uh, so the quick fire is a combination of mine and Joff-

    5. VGVenky Ganesan1:04:21

       Okay

    6. HSHarry Stebbings1:04:22

       ... on your team.

    7. VGVenky Ganesan1:04:22

       Joff?

    8. HSHarry Stebbings1:04:23

       Yeah, yeah. He came back with some bangers.

    9. VGVenky Ganesan1:04:25

       My partner.

    10. HSHarry Stebbings1:04:26

        Why do you love pocket squares?

    11. VGVenky Ganesan1:04:29

        When I was growing up, I didn't care about how I dressed, and I did not take any effort into it until I had this one conversation with my dad when he said, "Listen, when you dress, you're not dressing for yourself, you're dressing for others. You're showing them that this is an important meeting, that you're expressing the importance of what you're doing to them." And so to me, I, I, and I know my partners make fun of this, I dress up for partner meetings because it's like, it's a self message to me about the people I'm meeting are very important and what I'm gonna do is important. I need to take that very seriously. A pocket square-

    12. HSHarry Stebbings1:05:07

        And now I feel guilty. Oh, Christ.

    13. VGVenky Ganesan1:05:09

        [laughs]

    14. HSHarry Stebbings1:05:09

        Wait a minute. Here we go. Joff teed me up for that one, didn't he? Gosh. Um, I like that. It's really nice. Um, yeah, I, yeah. Fuck. Good. Well done. I should probably think about that more. Um, you can invest in one seed fund and one growth fund that's not Menlo.

    15. VGVenky Ganesan1:05:28

        That's good.

    16. HSHarry Stebbings1:05:29

        Which fund do you invest in?

    17. VGVenky Ganesan1:05:30

        I have tremendous respect for the Bessemer folks. Uh, I, I was a co-founder with Byron and I've known David Kahan, and, and I think, um, they are super disciplined, so if I could invest outside of Menlo, I would invest in Bessemer.

    18. HSHarry Stebbings1:05:43

        That's for the growth fund.

    19. VGVenky Ganesan1:05:44

        Yeah.

    20. HSHarry Stebbings1:05:44

        What about the seed fund?

    21. VGVenky Ganesan1:05:46

        Y-you know, so I'm looking for people who are gonna be in interesting AI companies. There's this group of guys called E14 out of MIT, and I find them to be in interesting AI companies, and they seem to really understand the MIT ecosystem, so.

    22. HSHarry Stebbings1:06:06

        Who, when you hear you're competing against them, are you like, "Oh, fuck"?

    23. VGVenky Ganesan1:06:12

        I think of more people than firms, but I, I would say Benchmark, super hard to beat.

    24. HSHarry Stebbings1:06:18

        Are Benchmark harder to beat than Sequoia?

    25. VGVenky Ganesan1:06:21

        I think so. Um, I mean, I, I, I... Obviously they're both great firms, but like Benchmark I think is super hard to beat. And whatever they do, combination of, uh, Eric, Chaitan and Awerick and Jack, um, they are just, they are just a beast.

    26. HSHarry Stebbings1:06:38

        What would be your single biggest piece of advice to an LP allocating into venture in this time?

28. 1:06:44 – 1:11:04

    Venky’s Advice To Venture LPs

    1. VGVenky Ganesan1:06:44

       Look at the windshield, not the rearview mirror. The results and financial performance are rearview mirror calculations, and they're good about telling you what they did in the past. They don't tell you how some firm's gonna do. The things like result-- Performance is a lagging indicator, and it's actually a five to seven-year lagging indicator. So my advice would be call a bunch of entrepreneurs All successful AI companies and ask them who are the partners they respect, and my email didn't take the money. And if the firm you're talking to doesn't have a few of those partners in the mix, then that's your, that's your windshield

    2. HSHarry Stebbings1:07:30

       How do you stop your team getting arrogant? You guys have got the winning hand.

    3. VGVenky Ganesan1:07:34

       You're only as good as your last investment, right? And, and, and so to me, like you have to go into the mindset. I, I always say like, doesn't matter if you're the lion or the antelope in the savanna. You wake up in the morning, if you're the lion, if you don't run, you don't eat. If you're the antelope, you don't run, you don't live. So you just had to run. And, and, uh, I feel like you have to think about the most important meeting is the next one. The most important investment is the next one. The most important board meeting's the next one. And if you don't spend time in the present thinking about it, I, I think you lose this game.

    4. HSHarry Stebbings1:08:17

       What's the secret to marriage when you scale wealth over time together?

    5. VGVenky Ganesan1:08:23

       Oh, wow. Um, well, you gotta marry someone better than you, which I did. Thank you. Thank you. That's... Thank... And, and you gotta convince her to stay with you or him, whatever your preference might be. Finding a life partner who inspires you to be the best version of yourself and supports you to be that is, I think, uh, critical. And if you can do that for each other, I, I think that'll... Because I, I, I think at the core of, uh, long-term marriage is, I think real respect, right? It's love and real respect, but I think respect is super important. And, and, and, and that comes from inspiring each other to be the best version of you can be.

    6. HSHarry Stebbings1:09:04

       What's the best advice you've ever been given? You mentioned Mr. Steve Sloan and his father-in-law. His father-in-law is one of my closest friends. Um, and he once said to me, "You're never wrong to do the right thing, but the right thing is very often the hard thing."

    7. VGVenky Ganesan1:09:19

       Yeah. I think the best advice I've gotten have really centered around sort of being around people. Like, uh, like I think, um, I think that Ronald Reagan has a quote that, um, Tom Reilly, who's a CEO of Trigger told me once said that, "There's no limit to what a person can do as long as you don't care who gets the credit." And I have felt when I was early in my career, I was very focused on getting credit. I really... Like, "Am I gonna get credit?" It's, it's, it's... And then I have let go of that and focused on just doing what's right and not worrying about if I'm gonna get credit. Uh, that's actually been pretty freeing, and I think that's made me a better teammate.

    8. HSHarry Stebbings1:10:10

       I love that. I don't think there's a better way to end it on that. Your humility is astonishing. It's, it's really just like, one, you're very calming. I almost feel like you should be like on Headspace or Calm, one. And two, it's just a wonderful humility [laughs] that I rarely see in a venture investor. [laughs] But thank you so much for doing this, Venky.

    9. VGVenky Ganesan1:10:31

       Well, you, you have too many successful people on your show.

    10. HSHarry Stebbings1:10:32

        I, I-

    11. VGVenky Ganesan1:10:33

        I try to lower the bar for you, right?

    12. HSHarry Stebbings1:10:34

        I s- I've so enjoyed this. Thank you for doing it. And it-- You see shows like this why it's so much better in person. You can't have this virtually. So thank you for doing it.

    13. VGVenky Ganesan1:10:43

        Thank you, Harry, and thank you for... And look, I have to say, um, my colleague Claire was coming with me and she said, uh, "I watch Harry all the time. He has become my favorite show." Especially the one you do with Rory and Jason. And this, and she said, "Uh, this has trumped the All In podcast-

    14. HSHarry Stebbings1:11:00

        [laughs]

    15. VGVenky Ganesan1:11:00

        ... as, as my number one show." So I have to say, uh, you're getting fans all over the place.

Episode duration: 1:11:14