Chris Paik: How I Raised $400M; Substack's Broken Business Model; Music on TikTok vs IG | E1011

1. 0:00 – 1:12

   Intro

   1. CPChris Paik0:00

      ... you're surfing a wave. Half the battle is making sure you're in the water when the wave comes, right? That is really important because, like, if you see the wave coming, you're still on the beach, there's, there's no way that you're gonna get out there in time to be able to surf it. I think that goes into the importance of timing. The other thing is, no surfer really can make waves. You don't have the power to change the actual tide. And so, I think that great founders are incredible at putting themselves in the position to surf waves, but I don't think anybody can make waves themselves. You can just surf them.

   2. HSHarry Stebbings0:44

      Chris, I am so excited for this. I love the frameworks that you wrote. I heard so many great things from Josh, from Jared, from many others. So thank you so much for joining me today, Chris.

   3. CPChris Paik0:54

      Thank you for having me. It's, uh, uh, it's a pleasure to be here.

   4. HSHarry Stebbings0:58

      Now, we're gonna have a great discussion today. I always love a little bit of background, a little bit of context setting. So how did you make your way into the world of venture first? And let's start there.

   5. CPChris Paik1:07

      Yeah. Uh, I wish I could say it was, uh, in- intentional

2. 1:12 – 7:49

   Who is Chris Paik?

   1. CPChris Paik1:12

      and not accidental, but (laughs) it was more accidental. Um, truth be told, I didn't even know that venture capital was a thing when I was, uh, growing up or in college. Um, I actually maybe thought it was... I, I probably as a kind of bleeding heart liberal college student lumped it in and maligned it with all the finance of like, oh, the like, this isn't that actually interesting. Um, it wasn't until I graduated, um... I graduated, I didn't have a job, I wasn't sure what I wanted to do. Um, I stumbled basically backwards into, like, the tech meetup scene in New York. I remember going to a meetup at Shake Shack back when there was just one Shake Shack, and it was like a couple dozen people, it's this meetup called Hackers and Founders. And I just became enamored by the idea of, uh, a tech ecosystem in, uh, in the non-, in that's not Silicon Valley. I, I grew up in Burlingame, uh, which is like halfway in between San Francisco and Palo Alto on the peninsula.

   2. HSHarry Stebbings2:25

      (laughs) Yeah, you've got-

   3. CPChris Paik2:26

      So I grew up in kind of-

   4. HSHarry Stebbings2:26

      ... Alana's there. It's one of my favorite brunch spots. (laughs)

   5. CPChris Paik2:29

      (laughs) It's, it's an amazing, amazing place to grow up. I feel like the, the cops in Burlingame have pretty easy jobs. Um, for me-

   6. HSHarry Stebbings2:40

      Right.

   7. CPChris Paik2:40

      ... for better or for worse, I'm a hipster with all, like, the insufferable qualities associated with it. And the idea of a tech pla- like, a tech epicenter that wasn't too on the nose was really interesting. And I think in retrospect, in hindsight, I just got very lucky that rising tide lifts all boats, and, you know, New York and other cities, um, anywhere that wasn't Silicon Valley also benefited greatly from globalization, internet, and Zoom, and inter- you know, digital communication. Um, but to answer your question succinctly, um, I knew Josh Kushner from college. Um, we were classmates. He was a year above me. And, uh, uh, ver- you know, as I was getting my feet wet in the trying to figure out what was up from down in tech, I was reaching out to all my friends who were in, in tech, tech adjacent, and they're like, "Hey, have you caught up with Josh recently? He's, um, he's like starting a venture capital firm and angel investing." "No." So he and I caught up and I obviously had lo- very low switching cost at the time not doing anything. And I asked him if he wanted help. And, and very graciously started working together. And that was my introduction to venture. I... Thrive Capital at the time, it was a $10 million fund. Um, I'd like to think that I got a startup experience, but it just happened to be a venture capital firm, um, because we really went from zero to, you know, you name it, uh, in a ve- very rich, very short period of time.

   8. HSHarry Stebbings4:28

      Can I ask, you, y- you guys really scaled the firm so incredibly, um, why did you decide to leave Thrive to found Pace? What was that catalyst moment?

   9. CPChris Paik4:38

      Yeah. Uh, I would say it's a confluence of a, a, a handful of things. First, I mean, Thrive, rightfully so, is gonna be Josh's life's work. I, I think he... It's amazing to see what he has built with it, and I somewhat selfishly was interested in, you know, what, what is gonna be my, you know, hopefully my and other people's professional life's work. And so I think that was a, a large input. Um, there are other smaller inputs, like I really like early stage investing, and as we grew in fund size at Thrive, it felt like I wasn't sure if I could write the kind of sized checks that would make sense for those larger fund sizes. Mostly, I think I- I was curious, I was interested in understanding what would be my long term professional life's work.

   10. HSHarry Stebbings5:33

       Okay. So we understand that this is a professional life's work. We want to take lessons from that incredible experience with Thrive to this new endeavor being Pace. What do you think are one or two things that you really took from your experience building and scaling Thrive with Josh and co. that really impacted how you build Pace?

   11. CPChris Paik5:52

       Yes. Um, I think the... (sighs) One of the things that Thrive ha- does really, really, really well, um, in my opinion, maybe even better than anyone else in the industry, is...It leans into people's potential, uh, regardless of their age, regardless of their credentials. Um, you know, when I reflect on the kind of responsibility that I was able to have at Thrive with, (laughs) with no justification, um, I... You know, the first board I ever sat on was Twitch. I was 25 or 26. I had no business doing that, uh, sort of like tr- from a traditional sense. And I think in an industry where firms, w- a lot of venture capital firms, understandably compensate on the basis of, like, performance rather than potential, and, uh, you know, people, junior investi- you know, j- junior investors in venture are kind of constantly struggling and fighting for the ability to lead deals and spread their wings and, you know, try their hand at investing, I think one of the things that we did really well at Thrive, uh, and mostly Josh, is identify people who are young, hungry, and ambitious, and just, like, really lean into them, and not, not need to rely on a sort of check the box, casting call situation where this person has XYZ credentials.

   12. HSHarry Stebbings7:42

       How do you do that with reliability? I do the same, but bluntly, often I miss. They're not as good as I thought, they're

3. 7:49 – 9:38

   How to Hire the Best

   1. HSHarry Stebbings7:49

      not as smart as I thought, they're not as ambitious as I thought. You've done it with reliability. How have you been able to pick those people reliably?

   2. CPChris Paik7:57

      My short answer is, honestly, it was mostly Josh, uh, at Thrive, and so I would defer all of, like, that special sauce to him. I think if I were to try to distill it down a little bit, it's evaluating people from a first principles approach of how high quality is their thought, do they have all of the raw frameworks, um, or raw materials to build frameworks of think, uh, of, of thought and, and how to think, um, and not over-index on pedigree. Um, just because somebody went to X, Y, and Z, or said A, B, and C, or did a, you know, whatever, doesn't mean that they... doesn't really have an indication of where they're going to go. And then, also, like, you're, you're not gonna get everything right. It, it, it's, it's, it's, you're not gonna get it right every single time. And so accepting that, you know, I, I, I feel like in startups, right, like senior hires, at best, is a coin toss of whether or not it works out, and that's okay. Um, fortunately, we live in a world of survivor bias, so, like, (laughs) things that work out work out, and things that don't work out (laughs) nobody remembers.

   3. HSHarry Stebbings9:20

      I mean, I, the thing I love with venture is you can get 99 wrong, and if there's only one right and it's right enough, then we're all in good shape. So I, I totally agree with you-

   4. CPChris Paik9:28

      Yes.

   5. HSHarry Stebbings9:28

      ... there. Listen, I want to talk about Pace-

   6. CPChris Paik9:30

      Yeah.

   7. HSHarry Stebbings9:30

      ... a- and I wanna start just setting the foundations. Why did you choose the name Pace?

   8. CPChris Paik9:35

      Pace, aside from the fact that it was (laughs) available,

4. 9:38 – 23:23

   Deep Dive on Pace Capital

   1. CPChris Paik9:38

      um, there are a handful of things that really resonated about the word. I would say there are two, two, two distinct things. One is Pace is not, um, necessarily a fetishization of speed. Uh, it is a h- a very intentional rate of resource expenditure to achieve a distinct goal, right? You have to plan. It's like, "Okay, what is... where are we trying to go? What do we have at hand? How do we get there?" Um, so it's more about the intentionality behind it, rather than just, like, raw speed. Sometimes you have to go slow to go fast and vice versa. The other thing that we really liked about it is if you ever watch a, like, com- competitive race, Tour de France, marathon, you'll have the people that are winning the race, right, out in front. Um, and if the camera zooms out at all, there's either, like, you know, in the Tour de France you have, like, the pace car or there's a runner right next to the, the lead person that's the pacesetter. And those people are really, really, really important to helping keep the people running the race in the right mindset. But those people are not running the race. They are strictly on the sidelines. Their job is to make sure that when the environment changes, when things happen spur of the moment, that the people that are competing are staying focused and keeping their heads in the game. And we think that that, in many ways, is the role of, like, ought to be the role of venture investor where, yes, we're not running the race. The founders are running the race, and... but what we can do is help them stay focused even when, you know, shit hits the fan.

   2. HSHarry Stebbings11:35

      I love that in terms of the pacemaker, and you're absolutely right in terms of that analogy. Uh, the most important thing is the partnership behind any fund. Uh, you chose an equal partnership, which is a very deliberate decision. Why did you choose an equal partnership, and why was that the right decision for you?

   3. CPChris Paik11:52

      Sure. Um, I'll say a few things. One, I, I think I read eBoys pretty early on in my career. This, that, eBoys is like the edutainment chronicling of the foundation, like, founding of Benchmark, and I think that was the first time that the concept of an equal partnership, like, wormed its way into my brain, so I think I had a, like, an academic appreciation for it. (clears throat) And then, I got married and that was the first time that I've ever been, like, legally equal to somebody, and it's awesome. It's amazi- (laughs) it's so great. It's so incredible, everything from, yes, like, non-zero-sum framework, um, but the construct both in practice and philosophically, it resonated just so much with me in practice that I felt like... I don't think it's too selfish or too high of a bar to want this in a professional context, the same way that I have in a personal context. And so, um, Pace is an equal partnership for, I would say, two primary reasons. One is, you know, I'm, I'm sure you've heard the line, "Show me the incentives, I'll show you the outcome." (clears throat)

   4. HSHarry Stebbings13:08

      Sure.

   5. CPChris Paik13:08

      How do you get people... How do you incentivize people to do their best work? How do you get people to act like owners? This phrase, like, "You act like an owner" i- is so important in, in making people, kind of ex- exhibiting the right behavior. Uh, what better way to actually make people feel like owners than actually make them owners and, and, and make them equal? There's a lot of space, I, I mean, like, the distance between a 51/49 split is way more than 2%. Like, (laughs) it might as well be like 80%. We think a lot about designing the system and designing the incentives that encourage and elicit the, the, the desired behavior. The other thing that I think is really interesting about the equal partnership model is, it's really attractive, uh, from a recruiting and retin- uh, recruiting and retaining great talent.

   6. HSHarry Stebbings14:08

      Hmm.

   7. CPChris Paik14:09

      So, in a world where the vast majority of firms are hierarchically structured and, you know, we talk, going back to firms be- compensating on the basis of performance, not potential, and really long feedback loops where, you know, if you have an Olympic athlete and the day before they win gold, they know they're great, they know they're phenomenal, they are fully confident that they can win gold. And then the day after they win gold, all of a sudden, the entire world's like, "Oh my God, you're so great." I, I think in a world where the feedback loops are similarly super, super, super long, there are a lot of people out there that know they're great, know they're gold medalists, but maybe aren't seen by the, by where they are at or the rest of the world as gold medalists. And we think that an equal partnership structure is really, really, really attractive, uh, and a great weapon in recruiting those, those kinds of people, um, particularly before they're acknowledged as gold medalists. And then from a retention perspective, I don't think there is a... There's a construct out there that is, uh, better suited to retain, properly retain incentivized great talent.

   8. HSHarry Stebbings15:25

      I mean, well done on getting the marriage quote in that you, you've got brownie points forever from your wife now for that one.

   9. CPChris Paik15:30

      (laughs)

   10. HSHarry Stebbings15:31

       Uh, but, uh, I, I do wanna ask, you also chose a very deliberate decision not to have portfolio added support, which in this world of venture value add in services, again, goes against the grain quite in a way. Uh, why did you decide not to have the portfolio added support services model of venture? Why was that?

   11. CPChris Paik15:50

       So, I think it can best be summed up, uh, maybe with a, a line of like, "You can't pay someone else to go to your kid's soccer games for you."

   12. HSHarry Stebbings15:58

       (laughs)

   13. CPChris Paik16:01

       (laughs) And like, and maybe that's too, like, uh, too paternalistic of a view, but when we... When a, when a founder chooses to work with us and we kind of shake hands, the implicit social contr- the, the, the, the implicit contract is that we show up, like they are... The person that they're talking to that they want to join their board is the person th- is, is gonna be spending time with them. That means we're not just, like, tagging somebody in and sending, you know, "Hey," like, we, we sign up to, to help this company out and then all of a sudden, they're interfacing with somebody that they never met before. I forget who said it, but, um, or, or was first suggested, but there's this sort of, like, litmus test which is, in a venture capital firm, there are things that are meant to scale the GP, like the investor, and those are sort of questionable, um, because really, they're not necessarily, uh, directly helping the companies, they're helping the investor primarily, not really helping the companies. We think that venture isn't an asset that is meant to scale. It's, uh, pretty hands-on, you roll up your sleeves, you, you know-

   14. HSHarry Stebbings17:21

       Sure.

   15. CPChris Paik17:21

       ... you choose a handful of relationships and companies and, um, (clicks tongue) uh, we believe in a fewer, deeper relationship approach. And on the back of that, I, I think it makes more sense for us to fully commit to every company that we invest in rather than try to build out an apparatus that makes it easier for us to, you know, deploy more capital.

   16. HSHarry Stebbings17:46

       Well, you, m- you say fewer, deeper there, it really correlates to the type of model that you go for in terms of portfolio construction.

   17. CPChris Paik17:52

       Yeah.

   18. HSHarry Stebbings17:52

       So, I do just wanna dig in on that before we move into frameworks, which is just, how big's the fund and how do you think about average check size, ownership requirement, number of companies in the portfolio? Just to give us a perspective on that.

   19. CPChris Paik18:04

       Yep, yep. Um, so we're, we're... We just started investing out of our second fund, um, fund one was 150, fund two is 250. You know, portfolio construction, we believe in more of a concentrated approach. You want...... you know, high teens, low 20s companies in the, in a portfolio for a more concentrated model. And in order for that to work, you need to own a lot of the companies that you invest in. Um, we target 20% ownership when we invest in a company. Uh, obviously (laughs) that's, you don't-

   20. HSHarry Stebbings18:40

       Kri- Chris, do you get that?

   21. CPChris Paik18:41

       ... do that a hun- y-

   22. HSHarry Stebbings18:41

       I mean, do you get that? 'Cause I target Mila Kunis as my girlfriend and I'm still single.

   23. CPChris Paik18:46

       (laughs)

   24. HSHarry Stebbings18:46

       Okay? So, like, my question is, when do you get 20%? Like, honestly, I never see that.

   25. CPChris Paik18:53

       (sighs) I would say we, we've been successful at hitting our ownership target in 70% of the companies we invested in. Rubrics are meant to kind of be broken. Um, and it's funny, in venture, I feel like everyone says, "Oh, like, my best performing companies, I own the least of," or, "My best performing companies, I pay the highest price for." Um, yes, and if you have a really high bar of conviction, necessarily the highest conviction things that you get comfort with are the ones that you break the most number of rules on, so the ones that you pay the highest price for, you own the least of, but that doesn't mean there aren't inputs into it, right? It's not like, okay, well, if you pay a really high price for a company, like high price companies are good, or low ownership is good. Um, it's really like, you shoot for the stars and even if you miss, you know, you land on the moon. Um, I don't think anybody will exceed anything in their, like, highest expectations, and so that is our cont- that, that, that's our framework of approach. You establish your rules to know what your exceptions are, um, but we, it's, it's not just kind of lip service. We actually do really focus on it.

   26. HSHarry Stebbings20:02

       My question to you is, you said that c- say th- let's say we go for 20 companies. You have 10 each between you and Jordan.

   27. CPChris Paik20:08

       Mm-hmm.

   28. HSHarry Stebbings20:08

       That is a lot of companies now you're on Fund II to be managing and on top of if you're in the low, like, high touch game without any services.

   29. CPChris Paik20:16

       Yes.

   30. HSHarry Stebbings20:16

       Is that truly scalable? You think about it, if you add another 20 companies, you'll soon be at 20 each with board seats. Like, is that scalable?
5. 23:23 – 27:54

   DEBATE: “Invest in companies that cannot be described in a single sentence.”

   1. CPChris Paik23:23

      When you want to, uh, engender word of mouth or in a sales pitch or an elevator pitch, you have to be able to develop a very succinct description with hooks about the core, or at least one of the core value propositions of what the company does and what it builds. But in totality, if everything that a company is doing and building can really be s- accurately described in a single sentence, it's probably too one-dimensional. Um, it's probably not ambitious enough. It probably isn't doing enough. I think the other thing that I really take issue with is venture has... Zooming out, um, I had a blog when I first started in venture, um, probably still out there, um, but when I first started working in venture, I wrote, I wrote-... started a blog. I wrote a bunch of posts, and then I stopped blogging because I thought to myself, "Who am I to blog? This is insane. Like, I don't have anything actually worth contributing." And, and even worse, I'm paranoid at the idea that I could put something out there and it would influence somebody to make the wrong decision. So I, I, I very much ascribe to the kind of Hippocratic Oath, "First, do no harm." Uh, and I think a lot of investors can do a lot of harm. One of the things that I take issue with in the venture world is, I think a lot of people put a lot of thoughts out there, taken as gospel, and there's this kind of fetishization of, you know, distill down what you're building, make it punchy. You know, your, your slide deck should be 12. You know, your pitch deck should be 12 slides. And I think that makes it easier for us as investors to process a lot of information when we're like, "Hey, entrepreneurs, you should put your business in a box and so we can check them all off." But I think that also leads people... I fear that that leads people to over-rotate and, in the idea generation phase, create things that are too simplistic. Um, something is, you know... I'm, I'm sure you remember anytime a company is successful, it spawns a countless number of X-for-Ys-

   2. HSHarry Stebbings25:57

      Sure.

   3. CPChris Paik25:57

      ... where it's like, "Okay. Uber's really successful, so I'm gonna start Uber for..." I need to think of an example that doesn't, like, crochet their existing company.

   4. HSHarry Stebbings26:09

      Babysitters, car washes, fishing instructors-

   5. CPChris Paik26:10

      Right, exactly.

   6. HSHarry Stebbings26:11

      ... piano teachers.

   7. CPChris Paik26:12

      (laughs) And I think one of the challenges is, um, (clears throat) it's easy to describe successful companies when all is said and done in a single sentence. That is clear because they have established the category and developed the vernacular to be able to describe what it is that they did that was so hard for them to describe in the beginning, right? Airbnb, it's, it's ei-... Airbnb is easy to describe in a single sentence retroactively. Okay, right? Like, they, they pioneer the sharing economy, um, (clears throat) but if you were to describe Airbnb in the beginning and try to explain how it affects real estate prices in markets because it changes the calculus of economic return on home ownership, like, that would be impossible to describe in a single sentence. And I fear that the kind of focus on, you know, pithiness dampens the imaginative scope of founders.

   8. HSHarry Stebbings27:29

      I, I totally get that, especially when you say there about how category creation and dominance leads to consumer understanding, where, as you said, Airbnb, everyone knows now, sharing. Okay, I'm gonna kinda borrow from someone else and pay a toll for that usage. I totally get you there, and I think that's, that's super interesting. It makes me think of something that your partner said. Your partner, Jordan, said, "You're world-class when it comes to isolating

6. 27:54 – 34:47

   Atomic Value Swaps

   1. HSHarry Stebbings27:54

      companies and businesses down to their core atomic value swaps." Now, this sounds incredibly intelligent. What does he mean by this?

   2. CPChris Paik28:03

      Uh, it prob- uh, it probably sounds more heady than it actually is. It's, it's really, like, the essential value exchange between a company or product and counterparty, the, uh, other... whoever is on the other side. So for example, let's say you, you walk into a convenience store and you buy a candy bar. You buy a candy bar for a dollar. That atomic value swap is you are exchanging a dollar in, for a candy bar, which is presumably giving you $1 or more of value, and that's a sustainable swap. That's an ex- a sustainable value exchange. And so when you apply that to interactions at a company or product level, that's what I'm... that, that's what the, the concept of an att- atomic value swap is. It's like, how do you describe what is being offered, the perception of value of what is being offered, and then how fairly compensated the party is that's offering the value for the value that's being delivered? (clears throat) Um, let me think of a, a good example. So, um, one of the challenges with, um... one of the challenges that has, like, historically plagued online dating, for example, is, uh, how do you appropriately price helping somebody find their life's partner? Like, there's, there's virtually no amount of compensation. Like if, if you actually find your life partner on a online platform, there's no way that that platform is being appropriately compensated for the value that is delivered to you. That's crazy. On the, on the flip side of that, there are a lot of marketplaces that perfectly price the value that they deliver. So most marketplaces actually perfectly price the value that they deliver.

   3. HSHarry Stebbings29:59

      Let's, let, let's let you just dig in on that. So they perfectly price it. Okay, Instacart for you versus for a low income worker, respectfully. Uh, the price and value ratio are actually misaligned. The time that you save in store is 30 minutes. To you, that could be $1,000, that value capture retrieval. To the low income worker, it's probably $6. So actually, there isn't a perfection of pricing because the value is subjective to consumer, no?

   4. CPChris Paik30:33

      Um, so Instacart isn't a marketplace. Um, I don't think an- I don't think Instacart is, like, as defined as marketplaces have a, like, fungible supply a- or fungible demand, and then, like, commoditized supply. Um, so it's, it's a little different. I understand what you're trying to say. Um, bring me back to, like, the... I- I will say, like, the genius behind Instacart and DoorDash and other companies like that is that they perfectly price discriminate laziness and the value of, like, a leisure hour. Generally speaking, um, people are a little bit more price sensitive when it comes to, um, utilitarian things. You know, if you're, you're buying two apples and one apple is a dollar fifty and one apple is 25 cents, and you, you think they're the same, pro- probably you're gonna buy the 25-cent apple. But if, uh... You know, what's the value of time? Like, I can, I can assign any amount of, you know, any dollar value to time, or making memories, or... Um, and so I would say DoorDash is really... DoorDash and Instacart are really good at price discriminating, uh, people's leisure hours and how they choose to spend it, because, um, laziness is this insidiously self-justifiable thing where it's like, okay, well, it's really priceless because I'm saving myself time. Um-

   5. HSHarry Stebbings32:05

      I, I...

   6. CPChris Paik32:05

      But going back to, sorry, going back to the idea of the atomic value swap, maybe I can think of a, a better example that isolates what, like, what it is. Um, let's take Twitter. What is Twitter's atomic value swap for a user? Twitter's promise to a user is distribution. You show up to Twitter with ideas, content, you contribute your content to Twitter, and in exchange, Twitter offers you a meritocratic environment that can reward your contributions with engagement and distribution. It doesn't offer you anything else. Notably, it doesn't offer you any economic reward for your contribution. It just promises to compensate you in distribution of your thought. That's different from a platform like YouTube. YouTube actually compensates you economically with o- or for the content you contribute to it. So, those are two different value propositions. Um, the other thing is y- y- you can, you can view that very diametrically opposite to something like a Substack, where Substack very explicitly, people are creating content with the idea of monetizing it, not necessarily just for distribution. Um, most social networks, or the one, the... Most companies that we understand as social networks do that. They incentivize the incremental contribution of content with the promise of distribution, with no, no expectation of economic return in exchange. And as a result, they incentivize and attract the incremental marginal content creator, because as the network grows, the prospect of attaining distribution within that network increases. On a consumption side, you know, the consumption atomic value swap is easier to isolate. It's like I a- I want to be entertained, I want... You know, I'm willing to spend this iota of time in exchange for this unit of entertainment or knowledge or whatever. Um, I would say like, lean back and lean forward consumptions are slightly different. Um, but in general-

   7. HSHarry Stebbings34:42

      You know, I've had many people on here talk about us moving away from the social graph

7. 34:47 – 36:43

   Social Graphs vs Interest Graphs

   1. HSHarry Stebbings34:47

      and moving towards content discovery engines. Social graphs, actually, we were wrong. They don't signal what we want to see in terms of content, and algorithms do a much better job. Do you agree that we've left the era of social graphs and actually they don't hold value, and that we have moved to content discovery engines and ML recommendations for content?

   2. CPChris Paik35:09

      Probably. I think about it a lot through the lens of, how do you solve the merchandising problem with infinitely long tails of supply and demand? And you can approach it with these, like, rough heuristic cuts that are chunkier. And the social graph is... The social graph works and worked because of the idea that who people select for in their social graph is a proxy for their interest. And so in some ways, you're using somebody's social graph as spark notes for the integral, the f- the, the fully, like, you know, minute integral of all of their interests. And that's... That's a cut at it, but if you were to, like, zoom in at a minute level, it's probably not capturing the full fidelity of that person's interests. And so it was at one point good, uh, but when there is something that gives us a higher fidelity view of the, kind of, primary information then becomes no longer as relevant.

   3. HSHarry Stebbings36:28

      Uh, you mentioned laziness earlier. I- I- I loved something in the frameworks, which I always think back to when I'm investing in consumers today, uh, and it's the seven deadly sins. You said the seven deadly sins are actually the seven core motivators.

8. 36:43 – 45:05

   The 7 Deadly Core Motivators

   1. HSHarry Stebbings36:43

      What are the seven deadly sins, just to get a framework, and how do they apply to the world of consumer, for anyone thinking that we've taken a very dodgy religious turn?

   2. CPChris Paik36:51

      (laughs) Sure. Um, uh, the seven deadly sin- I mean, th- this isn't new. It's been, uh, I feel like it's not an original thought and a lot of people have, like, much smarter than me have also said it. Um, seven deadly sins are pride, envy, lust, gluttony, greed, sloth, and... I always forget the seventh one. Um, wrath. Interestingly enough, these have not changed over millennia, right? (laughs) These have withstood the test of time, so we're talking about survivor bias, the seven deadly sins, proven. Darwinistically proven. And the reason why I call them the seven core motivators, I actually think maybe the seven deadly sins have been, have been poorly branded, um-

   3. HSHarry Stebbings37:43

      (laughs)

   4. CPChris Paik37:43

      ... I actually think-

   5. HSHarry Stebbings37:44

      Right.

   6. CPChris Paik37:44

      ... the seven deadly sins are really core motivators. They describe why people do things. And I would go far, as far to say that, like, honestly, they're the only reasons why people do things. I think it's possible to distill down any individual behavior that anyone takes and bucket it into one or more of the seven deadly sins. Even, like, you know, people say, "Hey, but, like, what about, like, nonprofit work or altruism or, you know, some of these more virtuous things?" I kind of subscribe to the Kantian school of thought that altruism or, you know, when we do things that are perceived as virtuous by society, in many ways it's things to serve our own ego. It's things to fuel our own sense of pride and create a form of ourselves that we think more favorably about. And so, uh, it's really, you know... I think another way you can describe it, perhaps less third rail-y, is the seven deadly sins are ways to describe self-motivation.

   7. HSHarry Stebbings38:52

      Mm-hmm.

   8. CPChris Paik38:52

      And at the end of the day, I think most people, all people, are inherently self-motivated.

   9. HSHarry Stebbings38:58

      So when we think about that and we think about the ways to motivate people, how does that fit into your thesis around consumer investing, what you like to see, what drives consumer behavior, and what you look for in enticing consumer investment? Just, uh, what- what's the tie back to investing?

   10. CPChris Paik39:15

       This is, like, probably contentious, um, but one of my frameworks is, I think that the, like, virtuousness of a company is inversely related to its enterprise value. So let me first say that we have to all agree that we are investing within this framework of capitalism, right? Of, like, enter- capturable enterprise value and shareholders and, you know... When we think about enterprise value creation, I think it's easy to be susceptible to, like, these things that appeal to our own sense of ego, of, like, doing good in the world, um. But the problem is, there are these things called nonprofits that are designed not to create enterprise value that do incredible work, incredible work. And there is a part within capitalism as construct for great work to be done by actors inside of it. And so, I would argue that nonprofits are maybe the perfect example of that inverse correlation between enterprise value or capturable enterprise value and virtue created and done by an organization. And so a litmus test or framework that I have is, you know, the more that a company leans on or touts or suggests that it is doing good in the world, um, virtuousness in the world, that's great marketing, but when the rubber hits the road and, like, translates into enterprise value creation, not as advantaged.

   11. HSHarry Stebbings40:52

       Sorry, help me understand why. Because the opportunity cost of that, like, virtue value creation then detracts from the enterprise value creation? Like... Do you know what I mean? I'm, I'm just thinking back to-

   12. CPChris Paik41:03

       Yeah.

   13. HSHarry Stebbings41:03

       ... like, Benioff's, like, "Hey, you can do good and make a lot of money," in the same vein, and so I'm just trying to compare this.

   14. CPChris Paik41:13

       Yes. So I, I think you c- ... So, what is this not saying? I'm not saying that companies that are successful can't do good. That's not what I'm saying. I am saying that, um, there is this inverse relationship that, uh, particularly under capitalism where... Well, let me take a step back. I think one of the, one of the things that I wanna d- define is, I think society perceives virtue as when somebody is not acting economically, right? Like, if I were to, for example, give away money, giving away money, that's something that is not economically rational. No person... Like, homo economicus would not give away money, but society would view that as virtuous and would say like, "Oh, what a good person." Um, so if you kind of describe virtue as an individual or a company acting kind of not rationally, economically, or not doing something that homo economicus would do, then, like, you... It, it's... The logical conclusion is that there, that behavior does not lead to structurally better enterprise value creation. Um, it can be effective in marketing, it can be effective in recruiting.... but at, like, a, from a core business model perspective where you distill down the atomic value swap of a company, there isn't a ton of room. There is p- perhaps no room to internalize virtue into that core atomic value swap as a company.

   15. HSHarry Stebbings43:12

       So when we think about this atomic value swap and we kind of apply it to those kind of seven deadly sins or seven core motivators, and just to retrofit it to the real world so we get it, you obviously worked on Twitch at, at Thrive. It was one of your great investments. Uh, Wally, I want to understand, how would you bucket that in terms of where it sits in the seven deadly sins or seven great motivators, and how would you retrofit Twitch to that model?

   16. CPChris Paik43:36

       Sure. Um, I would say Twitch, Twitch is in the bucket of a lot of other user-generated content networks, where on the consumption side, it's entertainment, right? They're, it's like some form of sloth and envy and pride. Um, on the content creation side, it's some form of pride and greed. And I don't think that, like, describing it that way is actually bad. I think that, again, I think the seven deadly sins suffer from a branding problem. Um, but like most user-generated content networks, uh, it is incentivizing content creation by offering distribution and also economic return, because Twitch, like YouTube, pays their content creators. Now, on consumption side, it's just competing the same way that YouTube and Twitch, um, YouTube and Twitter and TikTok and Instagram, Snapchat, all compete for entertainment.

   17. HSHarry Stebbings44:39

       Totally get you. Can I ask you, you said before about new content kind of, uh, UGC platforms, that new content and UGC platforms essentially, uh, en- enfranchise or encourage a previously disenfranchised creator. What did you mean by this? And how do you think about that when investing today?

   18. CPChris Paik45:00

       I'm not sure where you can find it, but, uh, the founder of Musical.ly, that became

9. 45:05 – 48:32

   Why Music is So Important to TikTok

   1. CPChris Paik45:05

      TikTok, had this amazing talk. Um, I feel like it's, like, oft-cited and then not discoverable online. I think the current state of the world is the Darwinistic output of really efficient, like, like, the Darwinistic output of the efficient market. So one of the things I ask is, what are the, what are the very good reasons things are exactly the way that they are? Because everyone, every single actor is constantly trying to extract maximum value from the existing set of, like, how things are, and so if you are trying to create structurally new value, one, I think the best way an- has proven in the success of user-generated content networks is to, you have to, you have to empower a previously disenfranchised set of creators, so people that were structurally disadvantaged. Let's look at, um, TikTok. If you look at the most popular content creator on TikTok, um, I think it may not be, may no- may no longer be the case, but definitely was for a very long time, Charli D'Amelio. Charli D'Amelio is a, uh, she made her- a name for herself creating dance content, and dance as a f- as a form of media was structurally challenged in Instagram and Snapchat because audio, music, which is so core to the content consumption experience, was never an endemic part of either of those platforms. And so when you look at TikTok, when you look at Musical.ly, audio is structurally a part of the atomic forms of content, and when you include music, all of a sudden, dance is elevated from this thing that, like, maybe, maybe you enjoyed but then, like, you had to opt in to turn the sound on and, like... It, it is elevated from being this kind of second-class citizen on Instagram that, like, val- like, you know, rewards aesthetics or Snapchat which, like, doesn't really have as built-up distribution mechanisms to being a first-class citizen of content on a platform like Musical.ly. And so, you know, thing, you know, phrases like, jokes like, "Oh, I'm sure you have a face for radio," uh, it kind of suggests that maybe people that aren't, you know, good-looking enough to be successful on TV because of the challenges of, like, what we reward as society can be enfranchised in a format that actually doesn't need them to be good-looking.

   2. HSHarry Stebbings48:02

      Chris, is that a subtle suggestion that I'm doing the right medium?

   3. CPChris Paik48:05

      (laughs)

   4. HSHarry Stebbings48:05

      If so, uh, I, I appreciate it, and you and my mother are thoroughly aligned. Um, thank you. Uh, no, I, I, I totally agree with you there in terms of the, uh, encouragement or inspiration to a previously disenfranchised group. I think there's another important fact which is the market timing itself though and being right on market timing. How do you feel about the importance of why now? A lot of people are like, "Well, great founders, they can, they can kind of

10. 48:32 – 57:02

    The Importance of Market Timing

    1. HSHarry Stebbings48:32

       win it into existence." How do you feel about why now?

    2. CPChris Paik48:36

       I think the best analogy I can come up with for success in startups and great founders is you're surfing a wave, and half the battle is making sure you're in the water when the wave comes, right? That is really important because, like, if you see the wave coming and you're still on the beach, there's, there's no way that you're gonna get out there in time to be able to surf it. And so I think that-... goes into the importance of timing. But, uh, the other thing is, no surfer really can make waves. You don't have the power to change the actual tide. And so, I think that great founders are incredible at putting themselves in the position to surf waves, and then also are able to navigate and surf waves very, very, very well. They're great at recruiting, they're great at raising money, they're great at, you know, managing. But I don't think anybody can make waves themselves. You can just surf them, and you can ... Maybe you're really good at identifying them.

    3. HSHarry Stebbings49:48

       Chris, can I ask you? I used to be in the camp of, "It's all about the founder. It's all about the founder." Now, honestly, I- I'm not at all. I'm actually ... I would much rather a really, really great market, um, and I take a much more market-centric approach, because I've seen how difficult it can be when you're great in a shit market. How do you feel about market versus founder centrality, honestly?

    4. CPChris Paik50:12

       I- I think I probably tend to agree with you. I- I- I tend to agree with that sentiment more. And I'll- I'll sort of, uh ... There are a couple of adages. One is, I feel like it's Warren Buff- ... Warren Buffet has this line of, "I like investing in businesses that can be run by a ham sandwich." Um-

    5. HSHarry Stebbings50:26

       (laughs)

    6. CPChris Paik50:26

       ... which suggests the durability of businesses themselves. Businesses get up and running, uh, if businesses are at scale, like, there's a lot of momentum and inertia in, in companies, and particularly if they have moats and they're taking advantage of moats. Sometimes companies can just be successful, period, and it doesn't even matter, like, who's running them. Um, the other thing, the other kind of cut of it that may be elucidating is, if you have, like, the world's greatest founder and you put them in a market that doesn't have any demand, right? Where it's like, okay, uh, you know, I don't know, with some, like ... You know, you- you ask the world's greatest founder to, like, make-

    7. HSHarry Stebbings51:10

       Tra- travel in COVID. There we go. Travel in a pandemic.

    8. CPChris Paik51:14

       (laughs) Sure, something that's, like, impossible, structurally impossible. It doesn't matter how good they are, they're just not going to be able to create something that the entirety of capitalism, the entirety of, like, the Darwinistic state of the current economy is structurally against. It's just, like, that's too heavy of a lift. Conversely, you can have markets, you know, s- ... Uh, we're going back to the wave analogy, you could just be, like, accidentally in an area, and then you get taken because it's that powerful. Um, you reflect on the dot-com boom or ... You know, there are plenty of people who created a lot of value, whether or not it's enduring i- i- i- ... There's maybe a debate about whether or not, you know, certain, certain value creation is enduring, but, like, definitely it created a lot of value and it was almost certainly beta. You know, I- I think there's, like, this ... One, one of the questions I like to ask people is, like, "Would you rather invest in an A-plus business with a, you know, B-plus operating team, or a B-plus business and an A-plus operating team?" And I think people's answer to that will often indicate their stage preference, honestly. I think most people who invest really, really, really, really early might skew to the team answer, and then people that are a little bit later will probably in- ... Will probably favor the business. And then people that answer really, really, really later, um, where businesses com- ... Like, you know, companies are competing in, like, very crowded markets, may rotate back to the team answer. But, like, I tend to agree. I think that markets are significantly more in, uh ... Uh, markets are a huge, huge, huge input into outcomes, particularly in venture.

    9. HSHarry Stebbings53:26

       Can I ask you? We mentioned there about being in the sea or being in the ocean for that wave coming. There's still an element of timing. You gotta have your board ready, you gotta be ready to jump on it. How do you think about market timing risks? Many people said that you see very ahead of the curve into the future. By doing so, you're taking a lot of market timing risks. Transparingly, Chris, I don't like market timing risks. I want a product where if we put it in market, I know we got demand. So, how do you feel about market timing risk?

    10. CPChris Paik53:57

        I agree. I think timing ... Like, being too early is just as bad as being too late. In many ways, it's kind of like rock-paper-scissors, where you kinda have to be just one step ahead. If (laughs) you're multiple steps ahead, you lose. Um, if you go out to surf at midnight, you're toast, right? (laughs)

    11. HSHarry Stebbings54:22

        (laughs)

    12. CPChris Paik54:22

        So, eh, I completely agree that market timing is really important, um-

    13. HSHarry Stebbings54:29

        But you take that risk much more than me. You see ahead-

    14. CPChris Paik54:33

        (laughs) .

    15. HSHarry Stebbings54:33

        ... of the curve and you take it much more than I will do. So, how do you think about your relationship to market timing? 'Cause you do take it.

    16. CPChris Paik54:39

        Yeah. So, if we're, if we're using the surfing analogy, I think it's possible to zoom into, like ... If you go out at 5:00 AM instead of 6:00 AM, like, maybe you're taking incremental market timing risk. But that's, it ... We're, we're talking about ... It's still in the realm of timing the market properly.

    17. HSHarry Stebbings55:06

        Uh-huh.

    18. CPChris Paik55:06

        Not-... completely disregarding some of the factors that you don't have control over. It's not being hubristic and saying, "Okay, I can go out at 9:00 or 10:00 PM" and like, "I'm gonna make these waves," and like, "I'm gonna surf them." Um, (laughs) I also recognize I'm taking this surfing analogy way farther considering that like, I've never surfed and so maybe everything that I'm saying is completely wrong. (laughs)

    19. HSHarry Stebbings55:30

        This is an advert for Billabong. Thank you for listening.

    20. CPChris Paik55:33

        Exactly. Um, but I would say, the closer you are to the change, truly, the less it feels like market timing risk. Because I would describe waves as the process of a truth going from a truth being spread from very, very, very small consensus to global consensus. So, what, what do I mean by that? Um, let's take, um, I don't know, what are, what are some macro trends? Mobile, cloud computing, maybe AI. The vast majority of the world wo- woke up to AI in, what, November when ChatGPT was released. So many smart people have been working on AI for years prior to that. And so, like, one could have argued that, like, there's, like, market timing risk if you were in AI in October of last year. Um, but the vast majority of people that have been spending time in this space understand that that is just not the case. It ju- it hasn't been, it hasn't become consensus yet. But it is inevitable that it will be.

    21. HSHarry Stebbings56:57

        You said something before, uh, any company that is pure execution risk

11. 57:02 – 1:04:28

    DEBATE: Was there a market risk for Tesla?

    1. HSHarry Stebbings57:02

       without any market risk is not a suitable venture investment. Now, I saw this and I thought, "No, that's so wrong." I tweeted it because I thought it sounded smart. But like if you look at Tesla, yeah, which is like, you know, greener, like, movement, greener transport, a nicer car at affordable-ish cost, there's no market risk there. There's no, if you produce a car like this, there will be sufficient demand. There's only execution risk on ability to build, ability to produce at scale within cost and budget. S- so, uh, he- help me understand this one, any company needs that market risk to be a suitable venture investment.

    2. CPChris Paik57:44

       Well, first, I would contest the idea that Tesla had no market risk. Um, I-

    3. HSHarry Stebbings57:49

       How? Te- tell me. I'm happy to be wrong. How?

    4. CPChris Paik57:53

       Sure, so I think there are many different ways to look at Tesla. I think, um... Well, let's, let's kind of u- you like take different cuts of it.

    5. HSHarry Stebbings58:02

       (clears throat)

    6. CPChris Paik58:03

       What if Teslas were a million dollars each? Would it be as successful as it is today?

    7. HSHarry Stebbings58:09

       Of course not. No. Ten is, you know, uh, a tenth.

    8. CPChris Paik58:14

       What if Teslas had 10-mile radius? Like, a e- a battery w- only had 10 miles of, of, of range.

    9. HSHarry Stebbings58:22

       Sure. But our, but our hypothesis is if we can provide a car that is sustainable, green energy, and is sufficient for the majority of the population at an affordable price, then there will be sufficient demand and there is no market risk.

    10. CPChris Paik58:36

        I think that's, um, that's huge market risk. Right? It's like, that's not proven. It's, certainly if you were to walk into the office of any, like, big auto exec, they'd be like, "No, that's crazy." Oil, you know, you have structural infrastructure, gas stations every half mile. You know, you have all of this, all of these things that advantage internal combustion cars. And so, electrici- like people have all these... I o- I would say there's, there's tremendous market risk creating Tesla. Like there wasn't, um... It was impossible to say that there would be millions, tens, hundreds of millions, billions of dollars of demand from consumers for electric vehicles.

    11. HSHarry Stebbings59:30

        I- I'm really sorry, dude. I don't get you. It's good for the planet, it's cheaper than fuel, it'll look great.

    12. CPChris Paik59:38

        It, it-

    13. HSHarry Stebbings59:38

        Boom.

    14. CPChris Paik59:39

        Uh, I would say, um, there are, there are pl- there are plenty of places where it's not cheaper than fuel. There are plenty of places where it's not cheaper than fuel. Like, if you are, if you exist in a place that is off-grid, it is, and, and particularly like a decade ago, two decades ago, electricity was more expensive. There are places where electricity is more expensive to deliver, especially per, uh, unit of energy than fuel. Like in a post-economic first world country, yes, electricity is a- and like we have economies of scale production, we can get something that's cheaper than fuel. But-

    15. HSHarry Stebbings1:00:33

        (laughs)

    16. CPChris Paik1:00:34

        (laughs)

    17. HSHarry Stebbings1:00:34

        Seriously, I'm not planning on supplying Teslas to Lesotho in Africa.

    18. CPChris Paik1:00:39

        (laughs)

    19. HSHarry Stebbings1:00:39

        Okay? Of course we're fucking pr- giving them to the UK and to France and Germany and the US. Like, of course we're fu- uh, that's where we're going.

    20. CPChris Paik1:00:49

        Yeah. I, so just, I, I, I don't see how you could view Tesla as not having market risk. You are like introducing a product that doesn't have structurally validated demand. And the hypothesis even like, even that, even the use of the word hypothesis suggests that there is market risk.

    21. HSHarry Stebbings1:01:16

        Well, I think everything has a hypothesis before you introduce it to market. When I- when I have a jumbo company, I have a hypothesis that they will wear green and orange jumpers, uh, frequently enough that they will see the atomic value in it and buy it from me. I- I don't know.

    22. CPChris Paik1:01:34

        Uh, I- I think there are.

    23. HSHarry Stebbings1:01:35

        It was transacted on it. Everything is a hypothesis until there is a concrete, uh, transaction.

    24. CPChris Paik1:01:42

        Yes and no. Um, I would say there are s- there are plenty... I think in venture we're so primed to think that way. The vast majority of the world, the vast majority of the economic, like, transactions that happen in the world are happening in things that don't have a lot of market risk or wouldn't have market risk bringing in comp- like, for- for a new entrant. So for example, (clears throat) let's say I wanna make ball bearings. There's no market risk in making (laughs) ball bearings. There's entirely validated demand. That doesn't mean that there isn't money to be made in making ball bearings, particularly if I have an advantage, a cost advantage, in making ball bearings cheaper, or faster, or better than other people. But, like, the demand for ball bearings is and will be constant. That is, like... that's not changing. The demand is very well-understood.

    25. HSHarry Stebbings1:02:48

        I- I have no idea what a ball bearing is, but in the UK I think it might be something different to what you call it.

    26. CPChris Paik1:02:53

        (laughs)

    27. HSHarry Stebbings1:02:53

        So, uh, (laughs) um, but I- I do, I do get you. And I... yeah. I... yeah. We sit on different sides of the fence on this one. Uh, but it's okay. It's good to have a difference of opinion, my friend. I'm learning this. A- a question for you, though. It's, like, so many investors, and so many founders get really pissed off when it's like, "Oh, he turned me down because of market size." They're not- they're not, you know, they don't see the size of the market. Uh, how do you think about market sizing risk?

    28. CPChris Paik1:03:24

        Sorry, going, just going back to, like, market risk versus execution risk for a sec.

    29. HSHarry Stebbings1:03:28

        Huh.

    30. CPChris Paik1:03:28

        (clears throat) You're wearing a polo shirt.
12. 1:04:28 – 1:11:19

    What kinds of companies are “venture backable”?

    1. CPChris Paik1:04:28

       conflation of, like, venture-backable with creating value. There are plenty of companies out there that can create value, can create a lot of value, that aren't suitable as venture investments.

    2. HSHarry Stebbings1:04:41

       So is Warby Parker a venture investment? Is Allbirds a venture investment? Is Hims? These companies where, like, Viagra, glasses, shoes... fantastic products. But that would fit your thes- your thinking.

    3. CPChris Paik1:04:54

       I would say the vast majority of direct-to-consumer brands, not suitable venture investments. There are some companies, like, you could argue that something like a Hims was surfing a regulatory change, where telemedicine was empowering a category of, like, cons- like, demand expansion. That's maybe a more acceptable rationale for a suitable venture investment. But Allbird-, like, I don't want to pick on Allbirds, but, like, what's Allbirds' market cap today?

    4. HSHarry Stebbings1:05:31

       I think it's about 250 million. I mean, let's check it out.

    5. CPChris Paik1:05:34

       It might be... yeah, it might be high.

    6. HSHarry Stebbings1:05:34

       I- I've done it in real time. They've raised 200 million, uh, and I'm wo- I- I'm wearing Allbi- oh, shit. Uh, it's 179 million. (clicks tongue) Yeah.

    7. CPChris Paik1:05:48

       I mean-

    8. HSHarry Stebbings1:05:48

       179.

    9. CPChris Paik1:05:50

       Yeah. It- it just... I (clears throat) would say the vast majority... and, and that's the one successful company in maybe hundreds of companies that have tried to do the same. I'm not saying that, like, those companies can't create value, particularly if you look at the wealthiest person in the world on the back of consumer goods, like LVMH. I am making the argument that venture capital is not the right capital instrument for the gr- the growth of those companies. Even if you were to look at, like, Blue Ribbon Sports, Nike, they're... like, debt... like, these are great thin- these are great capital instruments to help these companies grow, and you don't need the pressure and cost of capital associated with venture capital to help them grow.

    10. HSHarry Stebbings1:06:47

        I get you, but, okay, but on the flip side, I've seen this firsthand with my brother's business. You know, he runs a more traditional business that would not be venture-backable in ways, and you're like, "Debt," and I'm like, "Debt," and he's like, "Yeah, but debt providers are not willing to take on risk profiles when we don't have cash flows going back five years, when there's uncertain, uh, value on expansion into the US, when there is a level of uncertainty that..." You know, Nike saying, "Hey, we're gonna expand beyond trainers to apparel," the banks go, "Well, you don't have five years of financials, and you're a fucking trainer company. No, we're not gonna be..." And so it's like, the debt, the financial instruments that aren't venture capital don't suit the product. And so venture retrofits itself to that, I think.

    11. CPChris Paik1:07:31

        I think there's a lot...I think this is increasingly happening. (clears throat) With the glut of venture capital and dollars chasing returns, I think that venture capital p- perhaps intentionally, maybe unintentionally, subsidizes business building of companies that should never have been venture capital targets.

    12. HSHarry Stebbings1:07:58

        I don't disagree with you. But like-

    13. CPChris Paik1:08:00

        Venture capital as an industry is not responsible for the zero to one of value creation everywhere. Like, venture capital is not responsible for putting a sandwich shop in business in, like, small town XYZ. That's not, like, that's not why (laughs) it-

    14. HSHarry Stebbings1:08:22

        If, if you come, if you come to London now, you'll see Blank Street Coffee all over London. And my mom's like, "What is that?" I'm like, "You know Starbucks? It's like that, but 30% cheaper." She's like, "Oh, that doesn't sound like a good business." I'm like, "Yeah, it's not." (laughs)

    15. CPChris Paik1:08:36

        Well, I guess, like, let's take the opposite of, like, where does the line stop?

    16. HSHarry Stebbings1:08:40

        I don't know. I agree with you, but I, I'm... This one, we totally agreed. I don't think direct to consumer has worked at all. I had the founder of ButcherBox on the show recently, and ButcherBox does 600 million in revenue, very high quality revenue, the leading brand and category in the space. If you project out to a three, four years time, they'll be at a billion, enterprise value of three to 4 billion. That is the one that's done it, like, the all-time leader. To me, that really shows a space, which, uh, as an, as an asset class, is, is not a venture asset class.

    17. CPChris Paik1:09:16

        Did ButcherBox raise venture capital?

    18. HSHarry Stebbings1:09:19

        Never.

    19. CPChris Paik1:09:21

        There, there's, there's also something where, like, if you think about what venture can help create that would never be possible bootstrapped, it's companies that are not revenue generative in the beginning. Like, there, there are plenty of companies that just actually dig a J-curve, where, like, there's some hole of development or product building that needs to reach some point of scale, and then it can come out the other side and create money. And, or div- like, be fairly compensated in value exchange for what it's putting out there. If you're in the business of, like, making widgets and selling widgets, like ButcherBox or other companies, you have the luxury of revenue from day one. And so, like, you, like, your g- that's... You don't structurally have a J-curve in your business building. Maybe you have a self-imposed J-curve because you're leaning into growth, and then you are growing unprofitably, and you are, you know, you're investing in OpEx, and that's gonna create future scalability, and then your margin profile changes in the future. But there are plenty of companies out there that have revenue from day one, don't need venture capital. Can it make them grow faster? Sure. But is it existential to their existence? No.

    20. HSHarry Stebbings1:10:43

        So that, so that's the line, then. Where it is existential to their existence, that is the line where then venture capital is the right financing model, we think.

    21. CPChris Paik1:10:52

        I think that is almost certainly... Like, if the company literally could not exist without venture capital, that probably is the area where venture capital is a suitable... I'm, like, spitballing this in real time. That's probably a good criteria to suggest that it is within the realm of venture capital.

    22. HSHarry Stebbings1:11:13

        Do you believe in defensibility? Everyone talks about defensibility. Investors like to see defensibility. I think it's

13. 1:11:19 – 1:14:01

    Is “Defensibility” BS?

    1. HSHarry Stebbings1:11:19

       largely bullshit from day one. I think it's built over time in process with customers, with team. Do you agree, or do you think defensibility can be very present on day one?

    2. CPChris Paik1:11:30

       I think the recipe for defensibility can be very present on day one.

    3. HSHarry Stebbings1:11:34

       What does that mean?

    4. CPChris Paik1:11:36

       So, uh, if you were to look at the system design behind companies that ultimately developed moats at scale, it's not something that, like, happens magically overnight once the company's up and running. It's, like, embedded in the core product from day one. And so I think it's possible to evaluate a company early and see the future potential of defensibility in the form of a moat. I don't think people accidentally end up with moats and defensibility.

    5. HSHarry Stebbings1:12:12

       Huh. You think they're deliberate about it?

    6. CPChris Paik1:12:16

       Yes. You have t-... I don't think, I don't think anybody oopses their way into a moat.

    7. HSHarry Stebbings1:12:24

       I did. (laughs)

    8. CPChris Paik1:12:27

       (laughs)

    9. HSHarry Stebbings1:12:27

       But I did, like, I do ten references before every show that we do, and we've now done 2,000 shows, and now I have 20,000 references. It's an incredible data moat on a generation of venture investors. I never intended to do it at all. I just did it to ask better questions.

    10. CPChris Paik1:12:46

        Did you oops your way into a moat? I don't think... I don't think you did. I think you were very intentional about the way in which you approached your craft and the content you create, and that led to a structural advantage, whether it's brand or distribution. And, uh, I would argue that, like, it was very, very intentional. Uh, maybe, like, it may be like... Uh... What is the way to phrase it? It may be nice to think about it as effortless competency, but I think you're being appropriately rewarded for a ton of hard work.

    11. HSHarry Stebbings1:13:36

        Thank you. I appreciate that. K- Chris, we've, we've gone off schedule, but I've loved this. Are there other elements where you're like, "That's just, it's just wrong the way we do it in venture"? It could be the type of companies we fund. It could be our theory around defensibility. It could be the importance of whatever we

    12. CPChris Paik1:13:52

        Hmm.

    13. HSHarry Stebbings1:13:52

        ... are there other elements where you're like, "Ugh, so wrong that way"?

    14. CPChris Paik1:13:55

        Huh. One of the things that I've, like, thought a lot about, and, like, the reason why I

14. 1:14:01 – 1:39:13

    Venture Capital’s Biggest Problems Today

    1. CPChris Paik1:14:01

       kind of am trying to create some theoretical approach to businesses with the frameworks document, is I think that venture writ large encourages any and all forms of entrepreneurship, right? It's the dominant strategy to be good f- like, to be best for venture capital. Venture capital as an industry benefits when the most number of people are trying the most number of things, because as a business, venture kind of picks the winners and invests in them. And so the more number of shots on goal, the better. But I also believe that there are just some kinds of businesses that just won't work. And I know we're in the business of exceptions, and that is 100% true, but that doesn't mean that everything is correct to be tried. Does that make sense?

    2. HSHarry Stebbings1:15:04

       It does. It does. And so does this go back to what we said about kind of investing in the J-curve, where you have to have that, otherwise it's fundamentally impossible to scale? Or is there an alternate meaning?

    3. CPChris Paik1:15:16

       I- it dovetails with that. I think a lot about, you know, so, so going back to, like, let's take the, the kind of Hippocratic Oath, first do no harm. Like, think about how many founders are misguided to start companies because they look to the current ecosystem of venture funding and use those inputs, use those data points as inputs into companies to start.

    4. HSHarry Stebbings1:15:43

       I get you-

    5. CPChris Paik1:15:43

       You know what I mean?

    6. HSHarry Stebbings1:15:44

       ... but I also don't. It's like people who are like, you know, a lot of the stuff that I will put out is directionally right for 90% of people. I don't mean that arrogantly but, uh, uh, just is. And then for 10%, 100% it does not make sense and you should discard it, and you know what? Let's just be an adult. Let's understand that for 90% it is right, and for 10% don't listen to me, don't hate me, just be an adult. And when you have something where it doesn't align to some venture advice that you hear, don't hate on it, just be an adult, or you know what? Great, you know, Daniel Ek at Spotify, an incredible founder of our generation would have been told on all social platforms, on all, like, discussion panels, "This doesn't work. The record labels will never do it." But the great founders plow on and persist and do it. I think we're, you're almost kind of putting cr- like, blame on people for being... Not blame, that's unfair, but like, you know, like, uh, foun- great founders don't listen.

    7. CPChris Paik1:16:43

       Great founders don't listen, and also our survivor bias of entrepreneurship isolates and rewards and, you know, creates narrative storytelling around people that, like, didn't listen, but what I, I guess what I'm saying is, like, there are structure... In many, in, in many cases there are, are, are very strong structural reasons why companies could exist when they existed. For example, let's take mobile... Let's take mobile social networks, right? Or mobile us- user, like user-generated content networks.

    8. HSHarry Stebbings1:17:29

       Yeah.

    9. CPChris Paik1:17:30

       There's a very clear reason why the order of founding went from Twitter first to Instagram to Snapchat to TikTok, and it is because mobile as infrastructure and bandwidth in its earliest stages supported the lowest packet size-

    10. HSHarry Stebbings1:17:54

        Fair.

    11. CPChris Paik1:17:54

        ... text. And then next, compressed images, Instagram, and then images and short-form video, and then video and audio. There's a very clear reason why it had to happen that way. And so, like, TikTok couldn't have been started before Twitter. And so, like, I think venture understandably heavily incentivizes everyone to try everything all the time. And it's good for venture. But I am increasingly interested in trying to apply greater frameworks of approach and theory onto business evaluation, because I do think that if we can increase the efficacy with which we guide entrepreneurship writ large, just think about the returns that could happen. If we reduce the heat loss of entrepreneurship, even though venture capitalized business is structurally advantaged for, like, maximum shots on goal regardless of heat loss, if we could reduce the heat loss of entrepreneurship, that'd be amazing.

    12. HSHarry Stebbings1:19:11

        Do you not think the venture capital product is just pretty broken? And I know we're going broad now, but, like, you know, the alignment with LPs is largely not there. You see that with a lot of the bu- fundraisers that we've seen over the last few years, you know, bluntly the fee to carry model makes it incredibly profitable as a business to the point where you can make NBA player salaries as a GP with large funds. There is this huge misalignment there. There's a huge misalignment in LPs who don't get carry in any of their vehicles, who are optimizing for not getting fired.... that structurally, the industry is fraught with breakages in my mind.

    13. CPChris Paik1:19:48

        Yes, I agree. Uh, it's one of those situations like, show me the incentives, I'll show you the outcome.

    14. HSHarry Stebbings1:19:53

        Exactly.

    15. CPChris Paik1:19:55

        I couldn't agree more.

    16. HSHarry Stebbings1:19:57

        How do we cha- how do we ch- uh, what do you think about...

    17. CPChris Paik1:19:58

        It has to be regulation, right? It has to be regulation. Regulation is probably the only answer.

    18. HSHarry Stebbings1:20:05

        Sure.

    19. CPChris Paik1:20:05

        Um, for one, I think it's kind of crazy that whether it's like venture, hedge funds, or private equity, that there are people who can co-mingle their labor value with capital value, right? Or like, the carried interest-

    20. HSHarry Stebbings1:20:22

        What do you- what, what, sorry, what do you mean by co-mingling labor value with capital value?

    21. CPChris Paik1:20:26

        People that deploy capital as their job are compensated for their labor value in deploying that capital as capital. N- NBA players, right? NBA players are, they create value, it is their, like, labor value. They are taxed at income tax levels. They don't get to enjoy capital gains taxes in the value that they're creating. What's crazy is that deploying capital as their job, if they're successful, a to- like, the vast majority of their returns are taxed as capital gains, not labor.

    22. HSHarry Stebbings1:21:11

        I'm not liking where-

    23. CPChris Paik1:21:12

        That's crazy.

    24. HSHarry Stebbings1:21:12

        I'm not liking where this is going.

    25. CPChris Paik1:21:13

        (laughs)

    26. HSHarry Stebbings1:21:14

        This is not... Bah, delib-

    27. CPChris Paik1:21:15

        That's crazy. That's so brok- that's so broken. That's like, and I think, so if I were to think about the system design, the system design of society-

    28. HSHarry Stebbings1:21:24

        Uh-huh.

    29. CPChris Paik1:21:25

        ... if you were to look at the current state of the financial world, venture capital, private equity, hedge funds, as a brain drain, that is this massive sucking noise on smart, ambitious people, because they've realized that, "Oh, this is a dominant strategy in this version of capitalism and in this regulatory environment," you probably should tax carried interest like income tax. That would right, that would, like, break that structurally different incentive mechanism, and then it would diffuse talent elsewhere.

    30. HSHarry Stebbings1:22:06

        Would it? Do you think, do you, I'm, I'm genuinely intrigued. Would it-

Episode duration: 1:47:36