Homebrew’s Hunter Walk & Satya Patel: Why $100M is Not Enough to Execute a Seed Strategy | 20VC #972

1. 0:00 – 15:00

   Hunter, Hunter, can you,…

   1. HSHarry Stebbings0:00

      Hunter, Hunter, can you, can you put your arms down? Sorry. It's rubbing against your shirt. (laughs)

   2. HWHunter Walk0:04

      Oh, sorry. Sorry. I'm posing. I'm, I'm flexing. I'm li- I'm flexing verbally and physically on you, Harry.

   3. HSHarry Stebbings0:09

      Hey, ladies. (instrumental music) . I am so excited for this. Hunter, Sacha, it's been six and seven years. As we just discussed, Sacha was first. Uh, but first, thank you both so much for joining me again today.

   4. HWHunter Walk0:21

      Thanks so much. I, I think the-

   5. SPSatya (Sachi) Patel0:22

      So happy to be here.

   6. HWHunter Walk0:23

      ... I think the real anniversary, Sacha, is this 10 years since we started pitching? The first fund? Did we start pitching this week 10 years ago?

   7. SPSatya (Sachi) Patel0:30

      That's right. January of 2013. Yeah.

   8. HSHarry Stebbings0:35

      Oh my word. Well, there we go. 10 years. I mean, what an incredible milestone. But I want to start with a little bit, uh, of context. Um, and so tell me, when was that, "We're gonna do this"? You know there's that moment in a partnership when it's like, "Should we take the jump? Should we..." When was that moment of, "Fuck it. Let's take the jump and let's do this together"? And either one of you can lead on this one.

   9. SPSatya (Sachi) Patel0:58

      Summer of 2012, Hunter and I were getting together for one of our normal breakfasts, and that's when we first started talking about doing something together. We had no idea what shape it was going to take. But I'd say the decision to work together really happened Thanksgiving of 2012, after Hunter asked his mom whether it was a good idea to work with me or not. Uh, and she signed off, and the rest is history.

   10. HSHarry Stebbings1:20

       Did you have any reservations when you made the decision?

   11. SPSatya (Sachi) Patel1:24

       By the time we got to the decision, I don't think we had any reservations. We spent so much time, even though we had had a decade of a relationship together, focused on making sure we had a shared definition of success, clarity around how we wanted to spend our time, an understanding of each other's strengths and weaknesses, that by the time we got to the decision point, uh, it was easy. And it's been easy ever since.

   12. HWHunter Walk1:47

       Yeah, I think the only question on my mind was, you know, as Sacha mentioned, we had known each other for a decade before. We always thought we were gonna do something together. But at the moment at which we finally had that blank piece of paper, right? So I was leaving, uh, Google, he had left Twitter. Um, if we hadn't come together at that time, neither one of us was thinking about venture. That was probably just the biggest gut check. Like, Sacha, who had probably was gonna start a company or, you know, sort of join another one in a, in a, in a product leadership role, you know, my question to him was, "Are you really sure, you know, you're done operating? Or is this gonna always be kind of a little bit of an itch that you wish you had one more swing, you know, at being on the org chart as opposed to the cap table?" And for me, it was just... I, I kind of thought I was done, you know, doing. I thought I was gonna be helping. Um, but I didn't know what that meant, and I, um... What I had to ask my mom was whether she thought it was better for me to take a year and just kind of polymath, right? Like write, advise, angel invest, and sort of see if that was sort of a divining rod, you know, uh, that would show me a true north to what I wanted to do next. Or if I could preempt that a little bit by joining, you know, a close friend and former colleague to do something that felt very right in the moment, but would sacrifice that sort of, you know, value of the journey.

   13. HSHarry Stebbings3:04

       Hunter, my mother still sends me a weather update in the morning and tells me to wear a jumper. And so, uh, have no fear. Uh, I'm heavily reliant on her-

   14. HWHunter Walk3:11

       (laughs) .

   15. HSHarry Stebbings3:11

       ... as well, with her advice. Can I say, we, we see a lot of partnerships form today. And I think, you know, bluntly, one of the biggest reasons, you know, funds don't work is 'cause partnerships break down. For people coming together in that very early stage, are there any core questions that you would say they should align on first, before engaging on the partnership? You said there about a shared def- definition of success. Is there anything else where you think they should align before engaging in the full partnership?

   16. SPSatya (Sachi) Patel3:39

       Yeah, uh, we, we talked about that shared vision, but I think just as important is understanding what gives energy and saps energy for each person, so that within the context of the day-to-day, there's clarity around what role each person will play and, uh, what they're willing and unwilling to do, and the other person being comfortable with that. So, I think we spent a lot of time, uh, thinking about that, and I think that's important to talk about whether you're a founder starting a company or a GP starting a fund. Right? Because there are so many aspects of managing and building a fund that, uh, not everybody is either well-suited to or excited about. I'm sure you appreciate this at this point, Harry. Um, the other thing, I think, was clarity around, um, what makes for a Homebrew investment, right? Um, and so I think it's important for GPs to have an understanding around, you know, some fundamental joint view of, these are the types of things that we want to look for in companies that we support. Right? 'Cause I think, uh, a lot of arguments can happen, uh, a lot of partnerships can break up because the types of things that they gravitate towards are so disparate or so unrelated to each other that in small partnerships, the partners can't jointly, uh, be helpful to those companies or get excited about those companies, and then it becomes finger-pointing and, you know, allocation of credit and those kinds of things. And, you know, we, we've never had any of those kinds of issues, because, uh, we don't do deal attribution. Every decision is made by consensus, um, and we both work with every company in, in some, you know, type of way. So, um, I think that's pretty fundamental.

   17. HSHarry Stebbings5:25

       I have this discussion with my partner now, though, on the fund, Kieran, who does pre-seed investing for me, and I always say to him, "I will never block you doing a deal. If you wanna do a deal and I don't wanna do it, you can do it, because I don't wanna lose the outliers." Were you not concerned that actually you would lose the outliers with the consensus decision-making that you both had to love it?

   18. HWHunter Walk5:43

       So, you know, Sacha came from, you know... Or had previous larger fund experience, where he had exposure to what happens in sort of voting dynamics, structure, consensus, non-consensus, in a large room. And I, I almost certainly think that if there were three or more of us, consensus would be, you know, a foolish goal. Uh, wouldn't serve us or the founders well.I think, though, and this is something we, you know, continue to, or have interrogated over time, like, do we need a silver bullet? Do we need this? Do we need that? When we look at the benefit of consensus, um, we think it does a few things. First, it, um, from the get-go, unites us against an entrepreneur, you know, against an opportunity. And it's never, the consensus is never, "Um, well, you like this and I like you, so why don't we do it?" We can have different degrees of certainty, different degrees of enthusiasm, see it in slightly different ways. But we both have to be, you know, sort of above the yes threshold. The next thing it does, I think, is it unifies and solidifies the relationship between the founders. It's not Satya wanted to do this deal and Hunter was skeptical. It's, "You're taking money from Homebrew. You're not taking money from a GP at the f- at the firm." We look back and we've struggled over 10 years to find an occasion where lack of c- You know, if there was lack of consensus, it meant we didn't do the deal, and I don't think we have any, you know, quote unquote outliers, um, that were, you know, false negatives, uh, because, you know, one of us loved it and one of us didn't. Our regrets, you know, our false negatives tend to either be misses, we didn't see the deal at all, uh, in a two phased approach where maybe one of us would look at it first and then decide to bring it forward to the other partner or not. You know, not bringing forward something that had promise. Um, and I guess, you know, lost deals, you know, which isn't, isn't a false negative. It's l- just something you, you wish you could've done. Um, and so we've always focused on how do we get better at those? If we see more of the great opportunities, if we do a better job collaboratively figuring out whether we are the right fit for that founder and they're the right fit for us, and if once we have intent, you know, we can approach 100% win rate as best we can, the impact of improvements across those three far outweigh sort of the question about, in our mind, consensus versus non-consensus.

   19. HSHarry Stebbings8:08

       Uh, deal attribution, you mentioned that, and then I promise to get to the schedule, but you managed deal attribution. I, I'm totally with you. I like not having deal attribution, but LPs do love it, and I know obviously you don't have LPs now and we're gonna get to that, but how did you get around that with LPs who were like, "No, no, we want partner attribution on deals"? And that's not always possible for a lot of funds. How do you think about that?

   20. HWHunter Walk8:27

       I think first, Harry, it started with actually LP selection. When we were raised in a f- We've, we've been institutional forever. Uh, we started with the idea, and we can talk about why, but we started with the idea that we wanted a small group of high quality investors who were committed to venture and hold us accountable to producing, you know, not just average returns, but returns as good as the great, you know, funds that they already had in their portfolio. The self-selecting group we ended up with, at the time, this is 2013, we got introduced to a bunch of institutional LPs by our friends at, you know, the first generation of seed funds. Um, Chris Sacca, Josh Koppelman, Michael Deering, that type of stuff. The LPs we ended up with were all LPs who were excited about equal partnerships. The ones who passed on us were ones that wanted a single key man. Like, this notion of, well, it's great to have multiple GPs, but at funds under $100 million, we really like to see one person in charge. Steve Anderson, Michael Deering, you know, Chris Sacca, you know, uh, Jeff Clavier, right? And so the people who I think were really concerned about deal attribution and one person st- you know, st- uh, uh, uh, you know, pilots the ship, that type of stuff, like, they didn't invest in us.

   21. HSHarry Stebbings9:35

       (laughs)

   22. HWHunter Walk9:35

       Like, the people who invested in us were ones who were perfectly happy to believe that, like, Homebrew was gonna be greater than the sum of its parts, and those parts were the two of us as, you know, equal GPs and co-founders. And so I- I think that sort of solved for it. Now, in actuality, you know, um, even though we don't do deal attribution and we don't, you know, submit information to the Midas List or so on and so forth, like, I was really proud when, you know, again, submitting no information, just going on, like, you know, whatever publicly available chatter or so on and so forth, like, Satya got named to, like, whatever the top 10, you know, seed investor list or this or that, right? And because, like, the companies and the boards he sat on, although they were consensus investments and then those I've- I've helped are, like, really impressive. And I think if we turned over data actually on, like, you know, which board Satya was on, like, he would've been at the top of that list. And so, you know, I think we- we don't do attribution. We believe the partnership is a, you know, success because we care about each other first and foremost, but I also don't think that, like, lack of attribution, you know, should lead to anonymity, should lead to, like, you know, lack of congratulations, and, like, I feel great, um, that Homebrew has succeeded and, and often that's because of my, you know, because of my partner. Attribution or no attribution.

   23. HSHarry Stebbings10:55

       Aw.

   24. SPSatya (Sachi) Patel10:55

       I don't want to say anything more. We can just end it right there. That's perfect.

   25. HSHarry Stebbings10:58

       No, I would just mi- I just might drop it. Leave it.

   26. SPSatya (Sachi) Patel11:00

       Right?

   27. HSHarry Stebbings11:00

       That's so sweet. Well, I mean, I spoke to, you know, one of the, the kind of solo GPs early innovators in the kind of the fund, a GP on their own, Jason Lamkin, a mutual friend of ours. And, um, on the theme of sweet, um, there's also a flip side. It's sometimes tough, like marriage. Uh, it's not always, uh, easy. Um, what were (laughs) I'm not married, so I have no idea. Uh, but (laughs) what were the toughest moments as long-term partners when you actually think back? Are there some that really stand out?

   28. SPSatya (Sachi) Patel11:28

       We've both been married for a long time, so ...

   29. HWHunter Walk11:31

       T- t- t- to one another and to- and to spouses. (laughs)

   30. SPSatya (Sachi) Patel11:34

       I mean, uh, honestly, like, we've had such a smooth partnership. The hardest part of our partnership was the decision to get going. Uh, once we made that decision because we spent all that time laying the foundation, there haven't been major arguments. I think the, the only things that we can think of that would be, you know, arguments are when one of us is on the board of a company and is pushing really hard to take a more of a hard line, uh, with a founder or a co-investor.... and the other person is saying that, "Hey, rein it in a little bit," uh-
2. 15:00 – 30:00

   Okay. …

   1. HWHunter Walk15:00

      And so-

   2. SPSatya (Sachi) Patel15:00

      Okay.

   3. HWHunter Walk15:00

      ... I just sort of feel like we've embraced this notion that, like, it, the two of us, you know, are Homebrew, and, and, like, Homebrew will grow and evolve, and I'm sure we're gonna talk about that evolution. Um, but that, like, it's a commitment to the two of us ahead of it as anything else. We also started with the idea of no succession plan, no growth. Like, we started in, in a, in a space where we had a lot of the same vision for what we were building, and I think a lot of those tensions are often what cause conflict, either because they weren't discussed early enough or because there's disagreement from the get-go and you figure, you know, success will solve all things, and that's not true.

   4. SPSatya (Sachi) Patel15:34

      Yeah. The, the other thing I'd say we're, we're cognizant of is that, you know, people and circumstances change, and so much like a marriage, like, we invest in making sure that the relationship remains healthy. We do a quarterly offsite with just the two of us, uh, every quarter, and, uh, part of that conversation is, "How happy are you?" Right? Like, uh, along a bunch of different dimensions. Satya, can I, can I just interrupt you and ask you, how long is that offsite? Do you set an agenda for it? Do you put a plan in place for it? I would love to understand so I can implement this.

   5. HWHunter Walk16:07

      We have our next one on Monday.

   6. SPSatya (Sachi) Patel16:08

      We, we, we do have an agenda.

   7. HWHunter Walk16:09

      (laughs)

   8. SPSatya (Sachi) Patel16:09

      Yeah. We, uh, we do have an agenda for it. There's no fixed time. We set aside most of a day, and sometimes it's two hours depending on the agenda and how things are going and what we want to talk about, and sometimes it rolls over into dinner. Um, so it really depends. But I think we're committed to making sure we have that conversation and talking about whatever's important to talk about during that quarter, uh, both looking backwards and looking forwards. Before we kind of discuss kind of looking forwards in the next generation of Homebrew, I do have to ask you, a lot of partnerships, I think, break down because of financials, actually, carry structures, salary structures. How important is equal salary and carry in a partnership like this? I think the thing that we're really proud of is every decision we've made has been consistent with the idea that it is a partnership that is oriented around the two of us being mutually successful and mutually happy. When you think about things that way, decisions around economics are easy. We've been an equal partnership from day one and have no- never changed that and never will, even as we're investing our own money. We have all, never done deal attribution, as we talked about. So, all those kinda tactical decisions end up being really easy when you're committed to the idea that Homebrew's the two of us, and two of us in equal partnership.

   9. HWHunter Walk17:27

      Look, Satya, I think that's all true, and, you know, furthermore, we built a structure where we're both comfortable playing, like, being long-term greedy, like, playing the long game of, hey, everything we're doing here is based on the notion that we're good at this. If we're good at this, we're gonna make money. If we're not, like, wh- who cares? I don't wanna spend 20 years not being good at something. I think, like, not that this is, you know, sort of, um, unspoken, because I think we've both talked about this, but, like, we also started this later in our careers, right? Like, we were both in our, you know, mid to late 30s, and I think it's, like, we both, um, we were both above a financial, you know, threshold, like, you know, it's like th- Uh, you know, Americans hate talking about money. Like, it sounds so uncouth. But, like, look, like, we're both, like, we both had, like, we both had, you know, we both had made millions of dollars, right? Like, and saved that, right? And so-... the idea that, and, and lived below our means, right? And so we didn't have to build towards a, "Well, look. I made this much last year. I need to make 2X of this because I've got three wives and four mortgages." Like, we were able to make some, um, deferrals (laughs) on, you know, optimizing for short-term economics because of our, you know, individual and collective successes. And we were starting at the same place in our lives with the same types of material go- goals, which was like, "We don't have to maximize for dollars. We wanna maximize for spending time together. We wanna maximize for the people we work with, and we think we've, have a model that if we do that well, everybody's also going to make a lot of money."

   10. HSHarry Stebbings18:55

       You spoke there about kind of the financials, and the personal financials, which we all kind of like shy away from. I mean, incredibly British of all of us. But how should founders and VCs then talk about personal money, do you think, to each other?

   11. HWHunter Walk19:08

       Well, I, look, I think at the, not surprisingly, you know, when we were, you know, executing for that first decade, our, you know, sort of seed lead investor model, like talking to founder, you know, we were this for, the first or second-largest, you know, shareholder for those first three to five years most of the time, and we had, like, lots of conversations with founders about, um, wanting to make sure that they were in a situation, um, that they could focus fully on the business. Um, sometimes that meant salary bumps. Sometimes that meant a little bit of early secondary. It didn't mean winning ahead of the business. It didn't mean taking advantage of hot markets to cash out ahead of your team or investors. But it did mean, like, going, you know, if you just raised, you know, tw- a $20 million A round but yet you're still living in a three-bedroom apartment, um, because you're, you know, student loan heavy, cash poor, well, let's figure out how to solve that problem for you so you can, like, move into a place that you can actually work out of (laughs) , you know, without worrying about whether your roommate is drunk and focus on your business. And like creating space to see, you know, Sacha talked about seeing each other as people and how important that was to our partnership. I mean, I think that's the same thing when it comes to founders. Um, trying to see them as people and understand that, like, if you're going to bat with this, you know, longstanding notion of, like, "Hey, you know, we all win at exit, and, you know, nobody should talk about economics ahead of that," like the very least, you're, you're missing opportunities to de-stress founders in a way that will increase the probability of a wonderful outcome. And at the worst, you know, you're exploiting (laughs) , you know, founders who have all their eggs in one basket, you know, while you're sitting on this, you know, portfolio and fee structure and, you know, preaching ramen profitable, you know, from the Yellowstone Club.

   12. SPSatya (Sachi) Patel20:54

       And, and that's, that's the key is, like, startups are hard enough, right? Like, if part of our job is to, like, help reduce the stress for a founder, and so if we can have the conversation around, like, "What's, you know, what's the minimum you need to make so you don't have to worry about your personal life?" Like, that's a conversation that we should be having, you know, at the beginning but then throughout, because life circumstances also change. And so to Hunter's point, you know, there's lots of conversations in today's world about secondary liquidity for founders. Um, and w- I think we're of the opinion, like, there's no hard and fast rules around this. Like, obscene amounts of liquidity is obscene, but, uh, small amounts of liquidity can really free up a founder to do their best work. And, uh, sometimes that might be at the series A, um, and sometimes it might be at the series D, but you've got to be really thoughtful and be willing to engage in the conversation with the founder to determine what's needed, and, and the founder has to be practical about what's realistic, um, and what makes sense in a moment in time.

   13. HSHarry Stebbings21:54

       Well, I mean, speaking of money, the truth is that so much of our industry is predicated on fees, um, and you guys decide, "No, I'm not gonna do this fee gathering. I'm not gonna make $20 million a year on fees like some of our wonderful friends at multi-stage funds." Um, a wonderful decision in many cases, by the way. Um, I, I just want to understand that, because when I saw this, I was like, "Holy shit. Like, wow, that's, that's amazing." So take me to this decision. Whose idea was it to do your own money, um, and say, "Thank you, LPs, but you know, we, we're gonna do our own money from here?" Whose idea was it, and how did that discussion go down, guys?

   14. HWHunter Walk22:34

       I'm gonna let Sacha describe it because he does things much more succinctly than I do, but I think what it's important to point out is that, like, fee minimization wasn't the goal. Like f- you know, right? Like, there's nothing wrong with fees, you know? The question was do you maximi- you know, is, is, is it something you're seeking to maximize for, and thus that makes a bunch of other decisions, or are you building a model that you think is at sort of the intersection of success and happiness and can live with some of the implications for what that means short term?

   15. SPSatya (Sachi) Patel23:01

       Fees were never part of the conversation, right? Like, when Hunter and I started Homebrew, again, we kind of talked about our long-term vision, and we always had this notion in our minds that maybe after 20 years, uh, we could become a family office and do things on our own, and, uh, the good fortune of the last decade and kind of our view of where the market was headed led us to decide to do that sooner. And-

   16. HWHunter Walk23:23

       Decided.

   17. SPSatya (Sachi) Patel23:24

       ... really it was just strategic decision. You know, our view was, and continues to be, that in today's market, at the seed stage in particular, um, $100 million fund is a bit of a tweener. Uh, you've either got to be larger to be able to write large checks and get the ownership that you need, uh, in order to, uh, win the best opportunities and deliver the types of returns that LPs expect-

   18. HSHarry Stebbings23:49

       Right.

   19. SPSatya (Sachi) Patel23:49

       ... or you've got to be smaller and give-

   20. HSHarry Stebbings23:50

       Or you don't.

   21. SPSatya (Sachi) Patel23:51

       ... yourself flexibility in terms of check size and ownership but have a small enough fund that doesn't require you to, uh, optimize all of those things, uh, with every single investment. And so we decided that getting larger was an option, and our LPs were gonna be supportive of that, but it required breaking from what Hunter and I had said at the beginning, which was, which was, "This is gonna be a two-person partnership."... uh, "It's gonna be that way forever and we don't want to build a firm and infrastructure and a services platform and all those kinds of things," which having $300 or $400 million in a fund would require. Uh, and it also puts you in a box from a strategy point, standpoint, because the larger your fund gets, the more disciplined you have to be about check size and ownership and stage and all those kinds of things. And so, we weren't interested in getting bigger, um, from a, from that strategic standpoint. And, you know, economics of management fees were never part of the conversation. Once we decided that smaller was the better option for us, then it became a question of, "Well, if it's smaller, isn't the ultimate flexibility to be investing our own money rather than third-party capital, and being able to experiment with different ways of investing, um, and doing that in a way that we feel is responsible, which means not playing with other people's money while we run a bunch of experiments, but playing with our own?"

   22. HSHarry Stebbings25:11

       Okay. Question for you. So you decide that, um, and then you have the next question of, like, resource allocation. Do you then say, "Okay, we're gonna put 25 million..." say, um, just taking like, you know, 20%, 25% carry, same thing in terms of like the invested capital that will go back to you. Do you take 20 million of your own money and say, "Great. This is our budget and that's the same as a $100 million fund"? How did you do resource allocation on the initial budget?

   23. HWHunter Walk25:37

       Yeah. So here's the way that we thought of it. Like Sacha said, we sort of had this notion, what we, the choice that we made last year was something that we sort of had in this glass case that originally was gonna say like break glass in 2030, right? Like, so we had thought about this. And all we really did was break glass, you know, eight years earlier. We'll see if it was premature or not. And as Sacha talked about a little bit, you know, one of the reasons for doing that was trying to think about what, you know, fund size, and did we wanna get bigger, which was always a non-goal. When we then did sort of the bottom's up question of like, "Well, okay, how do we budget for this?" we sort of decided that, you know, nominally let's assume the same investment cadence, 10 to 12 investments a year, whereas before maybe we had an ownership, uh, goal of 10 to 15% and thus an average check size of, you know, one and a half, you know, million dollars or whatever, and, and held reserves, that, you know, we wouldn't necessarily have an ownership target, we wouldn't necessarily hold reserves. "Where do we think we fit in nicely on a cap table, you know, at a seed A or B that we wanna work at? Um, well, let's just nominally say that, you know, our check size is gonna be between a 100K and 500K."

   24. HSHarry Stebbings26:42

       Right.

   25. HWHunter Walk26:42

       And indeed, in 10 of the 11 investments we made in 2022, it was within that range. "And so let's do the math. What's 10 to 12 investments a year times a hundred, tu- 500K, no reserve model, and let's budget that for the first two years. So let's think about how much we wanna take from our savings that allows us, you know, combined to, you know, make 20 to 24 investments over a period of 24 months that are, um, likely to be between a 100K and 500K." And what, to be ho- I mean, look, this is all rarefied air, so when I say, "To be honest, it, quote-unquote 'that's not that much money,'" obviously it's a, it's, you know, a luxury to be able to do it, a privilege to be able to do it. But when we sort of told some people this, they assumed that like we were billionaires putting aside a $100 million, you know, to invest in startups. And like, that's not the case. Like, um, the idea and hope is that by year three of this model, um, we're not pulling from savings. We are taking carry from, you know, the continued carry from years one through ten, Homebrew 1 through 3, and put, and that is funding years three through seven of Homebrew forever. And by year eight, that magical 2030 that originally was when we were gonna start this, um, hopefully we're recycling proceeds from, you know, 2022, 2023, right? So if you look at it and say, "What sort of capital do you need to get started in this model?" It's not replacing the next decade of otherwise institutionally led, you know, funds and h- and nine figures of capital. It was basically like, you know, "Are we risk-seeking enough to take two years worth of investment capital from our bank accounts and put it back into the market?" And we looked at each other and we said, you know, "Yes."

   26. HSHarry Stebbings28:26

       (laughs)

   27. HWHunter Walk28:26

       "So let's do it."

   28. HSHarry Stebbings28:27

       Can, can I ask you, you said they're about 100 to 500. Does that not put you in a little bit of an uncomfortable position? Because you're not leading rounds and you're not an angel, and so say we have now, as we often do, many of the multi-stage funds come early, and I'm just doing a hypothetical scenario here. It's a three million seed round, Accel want to do 2.4, 2.5 of the three million seed round, and then they've saved the rest for angels. They're not gonna let you come in and take 500K or even 400K and replace all of the angels. And because you're not leading, you don't have full control of the round. So does it not put you in an uncom-

   29. HWHunter Walk29:02

       Oh, oh, Harry, you're thinking like such a fund manager, because I said "100 to 500K" and you're immediately thinking that means we go and wanna take the 500K. We're happy to take the 100K, 150K, 200K. I think in, in all 11, in 10 of the 11 investments that we made last year, we were offered more allocation than we took, because what we care about is really sort of working with great founders and great co-investors. And, um, with a large fund standpoint, actually it's flipped. Um, the, you know, uh, larger funds who before really could only work with us when they were following on the seed companies that we had, you know, we had led, now are actually quite excited to, you know, get us involved earlier, because, you know, the idea of getting our, you know, getting our help, stewardship, collaboration, and not having to place 10 to 15% of the company with us, only having to place, you know, 1% of the company with us, is, is a boon. Um, the place that we've seen actually, um, decreased deal flow are from other seed

3. 30:00 – 45:00

   (laughs) …

   1. HWHunter Walk30:00

      stage funds writing similar sized checks to us now.

   2. HSHarry Stebbings30:02

      (laughs)

   3. HWHunter Walk30:03

      Because before, those folks, and, and the people who we are close with, I mean, you know, I mean, this, this is a safe space, Har- Harry, right? We can name names. Like, we work just as much with Founder Collective and Box Group and these folks who, you know, we've always been very close with. But some of the people who we also like, but, you know, uh, who would approach us on almost any deal that they were, that they were doing, uh-... we fell off their radar because their goal is to place a lead, right? If they place a lead, the round gets done, and they protect their allocation. And there's a bunch of 100 to 500K people wanting to get into these deals who need to find a lead. So, we've seen a dramatic increase in deal flow from the multi-stage funds and from some of our former, you know, competitor friends, who we would just always joke, like, "We're never gonna invest together 'cause we both want 10 to 50%." And we've seen a decrease in deal flow from, you know, sort of people who are writing similar-sized checks, not because-

   4. HSHarry Stebbings30:53

      Han-Ando-

   5. HWHunter Walk30:54

      ... they think we're competitive-

   6. HSHarry Stebbings30:55

      ... can you put your arms down? Sorry, it's rubbing against your shirt (laughs) .

   7. HWHunter Walk30:57

      Oh, sorry.

   8. HSHarry Stebbings30:58

      Sorry.

   9. HWHunter Walk30:59

      I'm posing. I'm, I'm flexing. I'm li- I'm flexing-

   10. HSHarry Stebbings31:01

       Hey, ladies.

   11. HWHunter Walk31:01

       ... verbally and physically on you, Harry.

   12. HSHarry Stebbings31:02

       Calm ... Uh-

   13. HWHunter Walk31:05

       Um, uh, the, uh, th- but the, um ... But if we've seen, if we've seen sort of decreased deal flow anywhere, um, it's actually in sort of the things we look more similar to now. And I don't think it's competitive. Like, I don't, I mean, I don't know. I don't feel competitive, you know. But I think it's just more pragmatic. It's like they have, you know, they have a goal to get, to, to find, to find leads. And what's funny for us is it's flipped a little bit, because we can still be first person to commit to a round, and we can form an institutional round, you know, around us in a second, right? So like, we still have the relationships and credibility that if you're trying to raise $4 million, and we only wanna do 250, given our new model, you know, we can find you that other, you know, 3.75 million, you know, within a week.

   14. SPSatya (Sachi) Patel31:41

       It's important, the flexibility that we have in not having a fund now is that we don't have to think of every investment as having the potential to return the fund, right? Every investment just has to be a good return. And that means that if a founder wants to work with us, and we want to work with that founder, we can fit into the cap table in whatever way makes sense, given the construct of that round. All of that said, like, we're also big believers that you're a buyer or you're a seller. So, when we wanna buy, we wanna buy as much as makes sense and is available to us. Um, and so, you know, we, uh, can be greedy, but we're only greedy, uh, when the founder and the other investors want us to be.

   15. HWHunter Walk32:22

       Uh, he's cleaning up my statement, uh, saying that we've taken less than offered-

   16. SPSatya (Sachi) Patel32:25

       (laughs)

   17. HWHunter Walk32:25

       ... because he wants to be able to take it all in the future.

   18. SPSatya (Sachi) Patel32:27

       (laughs)

   19. HWHunter Walk32:27

       The one thing that ... And now I'll clean up his statement, just to say, um, it's important that the way that we're thinking about outcomes is still venture scale, right? So, it's not like, "Oh, well, hey, because this is all our money," you know, instead of needing a 20X, you know, to get, you know, 5X net, 4X net into our pocket, we can just hit a bunch of 3X and 4Xs, and that'll be wonderful. I don't think there's such a thing as, like, de-risked seed. Like, you should be betting on companies that in a success scenario can be wildly, wildly successful and wi- worth a t- you know, incredible amount of capital, and want, you know, to own a percentage of those. Um, so, you know, to your questions around, like, deal selection, I think we've maintained the same bar. Um, we've probably narrowed the top of funnel a little bit. Before, you could imagine that, you know, when you're thinking about a portfolio, 30-company is a fund that some things that you're kind of like not that interested in, but come to you via trusted source, and like pattern match founders, you're like, "Well, I'm not passionate about this, but we should at least take a meeting," right? Because I could see, you know, low-code ... Uh, and look, this is great businesses. They're just not things we're in- as into. Like, low-code mark- you know, marketing automation for enterprise CMOs, like, you know, started by an ex-whatever person, you'd be like, "Oh, you know, I could see that as part of a, you know, part of a portfolio," and that's likely to ra- raise an A, so on and so forth. Now, if we look at each other, we're like, "Are we familiar with this market? Are we passionate about it?" You know, and we're excited by the founders and co-investors. If like all of those don't check off, like let somebody else do the deal. Like, we're not, we don't need to construct a, you know, portfolio anymore. We just, we just wanna invest in people that we wanna get up every day with, and you know, go to work on behalf of.

   20. HSHarry Stebbings34:03

       Sorry, this is like, you know, landing on Mars. I'm 3,000 shows in with, you know, VCs and, you know, and hands (laughs) .

   21. HWHunter Walk34:10

       Harry, when we told, when we told our LPs that we were thinking about this model, they said two things. One, "This is very consistent with what you've told us, despite our disappointment." And two, "You have to give me a few minutes to think about this and decide what questions I'm gonna ask you." Because the questions that I usually ... You know, what fund managers usually tell me, this was, you know, 20, 2020, 2021, was like, "I'm used to everybody coming back and saying, 'We want to get bigger and invest faster.'" And I have my set of questions to say, "Why do you think that's a good idea?" Like, "Are you, you know, d- are you really sort of getting too big for your strategy?" Like, "Can you get ... Is that the right model for outsized returns? What's your capacity?" Like, when you say, "We wanna get smaller and maybe not use your capital," like, I don't have a standard set of questions to ask you as a (laughs) as an LP.

   22. HSHarry Stebbings34:51

       It, it, it's not even, it's not even like a founder collective, like, "We're staying disciplined." It's like, "We're, actually, we just, we just don't need it at all." I think it's just like, "What?" But I'm, I'm just like, I'm, I'm confused. So, do you not, like, do you become less price sensitive with this shift?

   23. HWHunter Walk35:06

       Yeah. So, we become what, what I think is we become pr- price agnostic as it comes and, and terms agnostic, when you think about, "How much do we own?" Right?

   24. HSHarry Stebbings35:17

       Yeah.

   25. HWHunter Walk35:17

       Like, we're, we're not doing that math. We don't change our m- model, our discipline, our thinking on the question about the way this company is being financed. Is that, um, a help or a hindrance to its ability to get a future financing done to create upside for shareholders, so on and so forth, right? So, it's still an oppor-... It's, you know, both, both in a absolute terms and then an opportunity cost terms, where are we gonna invest? It's not that, you know, "Oh yeah, hey, we, now we do uncap notes, or we do seeds at, you know, 100 million pre or whatever, because who cares? It's our money, not somebody else's." We care a lot about, maybe we care, you know, we care more in these cases about who the lead investor is in the, who the lead investor is in the rounds we're joining, because it's not us. Right? We used to not care who the other investors were. We're like, "We're gonna help you, and we'll get other people great around us." Now, we actually care about quality, you know, of the lead investor. We care about whether somebody is pricing themselves fr- to perfection. You know, we care about, um, whether they're adding new pockets around the table versus just drawing down the last check, you know, from, uh, you know, investors already on the, on the cap table. Um, and, and, you know, and then we write the check. So-... yes, we are less price-sensitive in a computational manner, but not less price-sensitive in a strategic one.

   26. HSHarry Stebbings36:36

       I have to ask. Everyone feels the pressure to deploy when you have institutional money. I speak to many friends that, you know, multi-stage funds and they're like, "Fuck, Harry. We've got these big-ass funds, how are we going to spend them this year? No flow. I've, I've got nothing now, Harry. Do you have anything?" I'm like, "I got nothing." Um, uh, and they're, everyone feels the pressure to deploy. Did you feel the depression to deploy honestly when you had Homebrew? And, like do you, is that very different now?

   27. HWHunter Walk37:01

       I, I, I never felt, felt like we had the, felt the pressure to deploy, but I feel like one of the reasons we made the switch early was we were questioning the, we were questioning the looking forward strategy of raising a large fund, and potentially even larger fund, without confidence that our, um, that we wanted to execute the same strategy for the next three, five, seven, 10 years, right? So it was going to be tail wagging the dog a little bit. We knew we could be successful doing it. We didn't know if we could be happy doing it. I think that's important to point out. It wasn't so much that like raising $200, $300 million, you know, like some of our peers, and going to market in a model where we brought on another GP, we expanded our team, we brought on another platform person. Like, I actually think we could, you know, hit, exceed our benchmarks and be perfectly fine in market. I think it would have forced more and more time and energy and choices that would have sacrificed happiness for success. We would have spent more time on internal operations, hiring and managing a team, rather than with one another and with founders. We would have, um, I think whether people want to admit it or not, you're, you know, as, you know, I think, uh, what, I think, you know, people attribute this to, to Mike Maples, Affiliated, and it's 100% true, like your fund size is your strategy, right?

   28. HSHarry Stebbings38:19

       Mm-hmm.

   29. HWHunter Walk38:19

       And so, whether it's implicit or explicitly, you start looking through this question of, "Well, I got a return on the fund. I do the math. What does an outcome look like?" It means you, you start increasing your ownership target to the point of where you can no longer be collaborative and/or you grow impatient, or you're looking for the next write-up rather than patience on, how do we build this company and help it become the best version of what it's going to be? And I think if those are your true norths, if you're like, "If we do all those things well, we are going to have companies that we're so proud to be associated with, and make a lot of money," then you do a different type of math on like, you know, what a quote-unquote "fund model" looks like. Then if you, you know, just take a, you look at the market around you and say, "How much does it take to lead a seed round? How many of those deals are we going to do? You know, how, what sort of reserve structure? Okay, we need $300 million." And let me tell you, LPs, it's not just fund managers are greedy. Like LPs are complicit in this. Like we love our LPs. We've always had a small group of institutional LPs, and we used to joke with them, like after, you know when, especially when the first fund started to become a really high performer, and we sort of held to our model in fund two, and everybody was congratulating us for like being so disciplined. Like when we'd go to fundraise, they'd want to double their, you know, like, you know, super pro rata in the next fund. I'd be like, "Well, you just complimented us on being disciplined. How do we, how do we give you double pro rata and stay disciplined?" Like, you know, every, there, there is a pile on to what works mentality that sometimes then you, you know, (laughs) you get what you didn't want, (laughs) which was like too big a fund to deliver the types of returns matched against the capabilities and preferences of the GPs, and the markets, in the market stage and strategy they're executing in.

   30. SPSatya (Sachi) Patel39:54

       I'm just going to come back and answer your question here. Like we... (laughs)
4. 45:00 – 1:00:00

   One of, one of…

   1. HWHunter Walk45:00

      know, in select opportunities, you know, we, we back up the truck, so to speak, you know? And put, you know, seven and eight figures of, you know, blended our capital and other people's capital into the companies that we think, um, you know, could use it at the, you know, BC and D level.

   2. SPSatya (Sachi) Patel45:15

      One of, one of the experiments we're running, Harry, is kind of the, the testing the thinking around can capital and council be separated over the course of time, right? And so, one of the things we're trying to evaluate is, in some cases when we do a smaller check, can we still have the influence and add the value that a lead investor might have in a situation and earn the right not just to do pro rata, but potentially do super or pro rata or even lead the next financing? Right? And so, that's an experiment that, uh, we're running...

   3. HWHunter Walk45:50

      And do, you wanna, and do we want to.

   4. SPSatya (Sachi) Patel45:52

      Yeah.

   5. HWHunter Walk45:52

      Like... (laughs)

   6. HSHarry Stebbings45:53

      (...)

   7. SPSatya (Sachi) Patel46:06

      N- uh, uh, I mean, listen.

   8. HWHunter Walk46:07

      Oh, that s- that sounds so complicated.

   9. SPSatya (Sachi) Patel46:09

      Yeah.

   10. HWHunter Walk46:09

       I'm thinking more it's just like-

   11. SPSatya (Sachi) Patel46:11

       Us spending our time.

   12. HWHunter Walk46:12

       ... when we can af- wh- Yeah, it's our time, the whole, you know, it's our time in whatever we bring to bear, you know, y- you know, normally, which can be incentivized, non-incentivized, direct on the cap table, indirect through us, whatever. But, you know, it just the notion of, you know, then we have access to, you know, 50, you know, five to $50 million checks, you know, when we wanna deploy them, and are those SPVs or is that from another pooled vehicle? Um, you know, I don't know. We, we are very cautious. We, we wanna, we wanna be in business, even though it doesn't sound like it. (laughs) We wanna be in business with our LPs in some way, because we actually really enjoy working with them. We're in business with them, you know, to the tune of several hundred million dollars, you know, in Homebrew Funds One through Three. We're in business with many of them through Screendoor Partners, a fund of funds that we helped start with, um, some of our peers and your friends, uh, Charles Hudson, Kirsten Green, Aileen Lee, so on and so forth, that backs, um, emerging managers from, um, you know, underrepresented segments, that the first vehicle there is in, what is it? Like a $90 million, 85 million fund. We've deployed half of it, we backed 11. So, we h- we have LP relationships that transcend Homebrew. And so, like, maybe there's, you know, continued interesting ways to bring, you know, bring capital to bear when we think the opportunity and the relationship, um, deserves it, rather than pre-raising the capital and then saying, "We're gonna figure out where to put it."

   13. SPSatya (Sachi) Patel47:35

       A- as an example, I think we've done a handful of SPVs now, but we did two last year, uh, which led the series E and Series D rounds for two of our later stage companies, uh, by virtue of having built that relationship and taking advantage of the market dislocation, where we just thought there was a better opportunity than the market recognized. Um, and so-

   14. HWHunter Walk47:57

       Harry, we have one of, one of our favorite companies, uh, is, is in two of our core funds, one of our overage funds, and an SPV. Like, it sort of reminds me of, uh, when you bet a number, you know, straight up, and then, you know, the two and fours on roulette, and it, and it hits, and you're like, the, the stack of chips that comes back to you is larger than you understood because you know you're in it three, four different ways. So we are unafraid when we see something that we think is spectacular to figure out how to support them, you know, through multiple vehicles. Um, we just, you know, believe that that comes from...... a relationship and, and mutual trust and confidence, uh, that you're gonna make money, uh, together. It doesn't come from pre-raising it, believing that all things go up and to this, you know, up and to the right, that, you know, mid to late stage SPVs are risk-free. And, and by the way, when we do an SPV, at least historically, such can k- k- I guess, subject to change, we've historically priced them very attractively because the idea is like, we wanna make money with our friends, and we're already doing this work anyway, so why should we get paid, you know, sort of optimal, you know, carry and fees like, for just placing a check into a company we're in business with anyway? So like, we've been very, very relationship-focused, long-term greedy, and I think that works when you believe you're good at what you do, (laughs) um, as opposed to, um, you know, needing to get paid first.

   15. SPSatya (Sachi) Patel49:24

       Over the last decade, there's like some fundamental things about this business that people have forgotten. Uh, first is like, it's a relationship-driven business. It's not a transactional business. And being long-term greedy and good long-term partners, uh, makes a difference in your performance over time. And then the second, I think is that, it pays to be non-consensus and right. Everyone was focused on being part of, uh, every company that seemed like it had momentum because everybody else was investing in it. And that looked great because the bull market ran longer than it did. But in markets that change, like that's not a strategy that's going to generate outsized returns. It's a, it, it de- uh, you know.

   16. HWHunter Walk50:08

       Harry, I'm sure, I'm sure we're LPs and I'm sure, I'm sure Harry and I are LPs in some of the same funds. That right now, when you see some of these like, you know, uh, Helium unicorns deflate, we get the same four notes from the same four funds through, you know, through the AngelList, whatever rolling funds, all, all writing down their, you know, their exposure at the same time. Because there's a bunch of strategies of like, we share deal flow, we pilot the same deals, and then we show it to the same, you know, leads to market up. And it feels great, you know, when, you know, everything is ba, ba, ba, ba, ba. And then, do you know-

   17. HSHarry Stebbings50:40

       But do you know what you-

   18. HWHunter Walk50:41

       It doesn't always work.

   19. SPSatya (Sachi) Patel50:42

       No, because (laughs) that would make me happy. What I'm seeing is that no one's marking their books down-

   20. HWHunter Walk50:48

       (laughs)

   21. SPSatya (Sachi) Patel50:48

       ... and they're keeping them all at the incredibly inflated prices and claiming that that's still how it is.

   22. HWHunter Walk50:54

       (laughs)

   23. SPSatya (Sachi) Patel50:54

       Uh, uh, you, you don't have to change your markdowns. Like now, you just markdown to yourself, I take it.

   24. HWHunter Walk51:00

       (laughs) Well, look, I'll tell you what, like it's a struggle even on the old stuff, because like we, we think there's three sets of books, right? There's kind of, um, your accounting docs. Like how are you reporting this stuff, you know, to your LPs, so and so forth. There's, um, your, you know, sort of sensitivity model, like, you know, for reserves and so on and so forth. Like, is there upside here? Is there ... And then there's what have you actually, you know, returned, right? Like, um, you know, are, are you, you know ... How, how real or not real are these numbers, right? Like, uh, and so we've, in the former, we've always sort of said like, we don't mark things up or down unless there's like a new financing or a radical change in a particular company's, um, trajectory that deserves it. But we get pressure not from our LPs, but from our auditors to be like, "Well, the public markets are down." Like, all these numbers are arbitrary. Like, if I could tell you perfectly what any of these companies are worth today, like, you know, I'd do that as a business, right? And so, our strategy and our LPs are fine with it over the last year or so has been, from a reporting standpoint, you know, uh, use financings to mark up or down from a sensitivity analysis, like yeah, some of these things are probably, quote unquote, "have to grow into their evaluation," so on and so forth. So let's, you know, let's talk about what the fund looks like if, you know, these were worth 20% less, 50% less, so and so forth. And how does that influence our buying or selling behavior, you know? And then let's manage over time, which I think we did very successfully in fund one. We still have, uh, quite a bit, uh, of upside, but we managed to take, you know, sort of money off the table at opportune times, both through early exits and M&A, which we're lucky and then some, you know, sort of secondary transactions, you know, to be well above the, you know, benchmark returns for 2013 to 2015 vintage funds, not in spreadsheets-

   25. HSHarry Stebbings52:54

       Grow into their valuations, Hunter. (laughs) Come on, gimme a break. I've-

   26. SPSatya (Sachi) Patel52:59

       Nobody care, nobody really-

   27. HWHunter Walk53:01

       Everybody's, everybody else's portfolio, everybody else's portfolio is a bunch of zombies. My companies just have to grow into their valuations.

   28. HSHarry Stebbings53:08

       I mean, I've got one that was valued 500K ARO and it was valued at 700 million, and I was like, wow, 1,000X.

   29. HWHunter Walk53:15

       It just needs to get to 100 million ARR. (laughs)

   30. HSHarry Stebbings53:17

       Easy. Um, you mentioned there about kind of actually returning cash to investors. I can't remember who said this to me, but they said, you have to ask them 'cause they've returned a lot of cash. Um, how do you think about when's the right time to sell in those secondary o- a- transactions that you did? Not when it's like M&A where, you know, you obviously have to, but how do you advise managers and how do you think about when's the right time to sell?
5. 1:00:00 – 1:13:23

   I think it'll get…

   1. HSHarry Stebbings1:00:00

   2. HWHunter Walk1:00:00

      I think it'll get worse for series A through D companies that can't remain, you know, sort of like default investible. I thought, you know, David Sacks wrote a very smart blog post, um, last summer, or last spring, at a point at which some of the common wisdom was like, "For every company, make sure you have three years of cash," and so forth. And, and like, I don't think those are uniformly smart recommendations to make for venture-backed companies that are relying upon, uh, uh, a next financing. What you have to prove is that you have an, you know, insight and opportunity in a market that's large enough to where if you do your job, build your product, get to market, and exploit that opportunity, you're gonna create enterprise value that's worth, um, a new investor coming into your company.Um, it's true that the dynamics around that equation have changed, reverted to the norm, maybe even, you know, a little bit pessimistic right now. But that means continuing to execute against a plan, smart growth, not growth at any cost, but smart growth. And I think we have too many companies that, um, have been encumbered by, um, capital, uh, out of product market fit and don't know how to find product market fit, too many companies where their culture and their attitude-

   3. HSHarry Stebbings1:01:17

      W- w- w- wh- wha- h- w- wait. Go. Let me finish. Let me finish, Harry. (laughs)

   4. HWHunter Walk1:01:20

      ... too many companies that are encumbered, um, by a culture, um, and an employee base that doesn't know how to deal with, you know, this is gonna be tough and you're not gonna get rich overnight, and too many investors who, uh, don't wanna do the work, don't want to, uh, reconcile these companies because it would destroy their paper evaluations as opposed to let's reset them and give them a chance to succeed, take our lumps and see what we have, or let's have a tough combination, a tough conversation about, "This isn't going anywhere. You may have $50 million in the bank, but what are we gonna do with it?" Um, and so I think for most of those companies, layoffs are going to turn into, um, silent disappearance, uh, low value, uh, acqui-hires or, uh, noisy, um, collapses. I think for new entrepreneurs, it's a great time to build companies. You just need to, you know, sort of figure out that, you know, what you're building, why, and the juice is worth the squeeze. And I actually think there's a number of companies that are, you know, sort of in the public market, um, uh, you know, trajectory, that it's not a question so much about k-... you know, are they ab-... gonna be able to go public? It's they're waiting for an opportunity to make sure that they have not just the balance sheet and the P&L, but, you know, a predictability so that once they are public they don't get punished by the ups and downs, um, you know, of, uh, underper-... uh, potential underperformance. You know, we have a few that I think could have been public, you know, already, but have decided, you know, for various reasons to hold off. And I think when they become public, they'll be even stronger companies.

   5. HSHarry Stebbings1:02:57

      Jason Lemkin said, "If our employees join companies, unicorn companies, in 2021 or 2022, they will make nothing from their equity." Do you agree?

   6. SPSatya (Sachi) Patel1:03:06

      I think that's definitely true for a lot of unicorn companies. But that's the difference between companies that raise money on momentum and hype and companies that raise momen- t- m- money on, uh, fundamentals. Right? Like, there are too many companies last year when the market turned who said, "Oh, we just gotta buy ourselves some time. And when the market comes back, we'll be able to raise money again." And what you're seeing is that time's run out. Right? This is the year where th- they bought time by... last year they bought time by doing layoffs and slowing down spend. And this year they're realizing that the market's not coming back to what it was, and they actually have to demonstrate real business value, and those companies are not going to be at-... uh, able to attract capital, and they're gonna go away. Um, and that's, you know, earlier stage companies and later stage companies. Um, and then you've got that with... compounded by the fact that there's this VC overhang that everyone's talking about. But the reality is, like, everyone's got shit in their portfolios, so they're gonna do their one or two investments a year, and ev- every fund with this overhang is gonna be focused on the same small set of companies. And so those companies, uh, are going to be able to, you know, attract capital, uh, at prices that may seem like the market's turned around potentially. Um, but the vast majority of companies are in for a world of hurt.

   7. HWHunter Walk1:04:27

      Yeah. If I was an employee, Harry, if I was an employee at one of those companies, I would... the question I'd be asking isn't... you know, it's sort of the decision tree is like, do I think this company is gonna succeed or fail? Like, if you think this company's gonna fail, you know, that... yep. R- regardless of stage, you need to make some decisions about are you learning, you know, so on and so forth. The question is, is this... if this company succeeds to some extent, i-... am I gonna participate in that success or is it being structured in a way where the investors and the founders are the only ones who are likely to see any of the gains? And if you're an employee who believes that, you know, your hard work is not going to be recognized because of choices that your cap table and your founders have made, that's where, you know (laughs) , you should have some tough questions for your manager, for your founders, for your board, um, and make decisions not out of, you know, sort of loyalty and hope, but out of pragmatism. Because I'm a big believer in teams... team should win, um, when founders and investors win. It's the happiest moment in my existence as an investor when I see a promising company cross a threshold where I believe that it's gonna change the lives for a lot of the team members, not just for us and the founders. And I'm hoping that one of the success metrics for Homebrew is the value created post public exit. Right? Like, I want us to be part of companies where it's not that we sold at exactly the right time and the retail investors lost and we won, or even that we've held on to the share, you know, this now multi-stage public private market crossover, like, where we hold on to shares so long that we've exploited, you know, all the gains. Like, I hope we're part of companies where, like, we got our bag, and then that company grew 10X from there over the, you know, 10, 20, 30, 40 years once it was public. Like, I wanna die with, you know, public company logos on my casket that, you know, endured, weren't just, you know, somebody else's goodwill write-off, you know, and I got paid.

   8. SPSatya (Sachi) Patel1:06:18

      I also think that later... uh, Harry, over the last decade, like, we go... we moved into a world where people joined startups because they thought they were gonna get rich. Right? And, like, I think that what people should be thinking about is, like, you join a startup because you enjoy the experience, you l-... you meet great people, you learn something, and that hopefully you get compensated fairly. But the idea that, like, getting rich was table stakes when joining a startup is something that, uh... I know we sound like grumpy old men. Like, uh, was a delusion because of the broader environment over the last 10 years.

   9. HWHunter Walk1:06:56

      Or maybe the scale. I mean, it's not just the frequency, how easy it is, but also the scale. Like, you know, what it means to, you know, have access to millions of dollars, you know, quickly, versus like, "Oh man, my salary is 200K and I can make another 200K when this company..." You know, like for my stock. Like, wow, you know, how liberating is that in your 20s to be able to put that in the bank and then make decisions that, you know, don't have to optimize for making your student loan payments or so on and so forth. Like, you know, we're sort of... It's the byproduct of the bull market where you kind of have your perception, um, reshaped by outliers, right? And it's not that those things aren't possible or not obtainable, it's just they're called outliers for a reason. You know, it's like when founders are like, "Well, I want the Jack Dorsey deal." You know, like I'm like, "You don't... Sorry, you're not..." You know, you don't... Go found Twitter and then you'll get the Square deal. You know, type of thing.

   10. HSHarry Stebbings1:07:49

       Uh, I would tell those entitled people to start a podcast. It's much more lucrative.

   11. HWHunter Walk1:07:53

       (laughs)

   12. HSHarry Stebbings1:07:53

       (laughs) Uh, final one, I promise. You talked about like the entitled like, you know, investors who... young investors who maybe don't wanna do the work. My, my problem is... And I'm being very open in a way that I shouldn't be and I'll probably get killed for this. There's one company I'm in that's not very good and it's got far too much money and no product market fit and I said, "Hey, it's okay. Give the cash back. You've tried your best. 70 cents on the dollar. It's fine. You know what? Everyone goes home with their, you know, respect and pride intact. It's okay." And I went to the other investors, more senior, more mature, and they all went, "Oh, Harry, no. It's a bad look. We don't wanna get money back from founders. Oof, oof." And it was just like, they all made a fuck ton and it was kind of quiet quitting and they didn't wanna look bad and there was too much of a protection of their own NPS. So I'll push back on that and be like, "Hey, respectfully..." You, you know, for the people who are more senior GPs who have made a lot of money, they don't wanna rock the boat. And I'm sitting here going, "Fuck, I don't have any support."

   13. HWHunter Walk1:08:57

       Yeah. That... I will... You know, situat- not knowing the specific situation, but I generally fall in your camp, which is like-

   14. HSHarry Stebbings1:09:03

       Yeah.

   15. HWHunter Walk1:09:03

       ... there's an opportunity cost to everybody's time and capital and the idea that, you know, um, some notion of an upside that doesn't exist, you know, let's, let's not... Let, let... We have to raise our next fund, you know, on this paper mark so let's not speak truth to founders. Or, you know, let's not let the founders off the hook, like, you know, because, you know, of our ego, our credibility, our reputation. I think those are... You know, neither one of those is the job of an investor, right? Like-

   16. SPSatya (Sachi) Patel1:09:32

       I'm gonna take the other side of this, uh, because my view would be, like... VC, as VCs we're in the business of losing money, right? Like, the, there's a reason that the power law is a thing, and if you still believe that the founders are smart enough to try to figure something out, even if it's a pivot, then you let it ride and you see if they can make it happen. If you think like it's a-

   17. HWHunter Walk1:09:55

       Yeah.

   18. SPSatya (Sachi) Patel1:09:55

       ... path to zero, um, and everyone agrees on that, then there's a different conversation. But I think-

   19. HWHunter Walk1:10:02

       That's what I got the sense though. That's what I got the sense Harry was, was intimating, that this isn't a question about, "Well, but we really believe... But let's go back down to a small core team and try again." Or, "We really believe this and, like, they're still gonna grow two and a half X, not 4X." You know, but like... And it's not like I want that money back to redeploy, it's sort of like the, "Let's have a real conversation about what's going on here," and, you know, um, "Are we gonna spend that..." You know, spend that $40 million to create a multiple of an enterprise value? Or are we just, you know, kicking cans down the road because we don't wanna ask these questions?

   20. HSHarry Stebbings1:10:30

       Yeah, and burning more and more money every day with something that we know is actually not gonna work.

   21. HWHunter Walk1:10:34

       When you have a lot of capital, you end up... You're trying to use money to solve problems that money not... shouldn't be solved for. Money doesn't buy you product market fit, money doesn't solve for upside down economics, and money doesn't solve for not being able to hire, right? Like, yes, in the short term it's like, you know, sugar. You know, you'll, you'll, you'll feel a burst of energy but, you know, it's not sustainable. And so for me, some of the biggest challenges we've had in the portfolio, just in terms of spending time and resetting them, have been the, have been the promising companies that got funded ahead of product market fit or ahead of, um, you know, sort of knowing what they would do with the capital. And even with patient investors, even with investors who, you know, exert no pressure, it changes the mindset of the founders. It creates pressure from within the company. The clock starts. You know, you start, you start spending it. And so in some ways, I think part of our portfolio that's really gonna benefit from the slowdown are the early product market fit c-... you know, companies that now have some capital in the bank but don't have to... aren't getting the crossover investors pitching them on taking another round just because, you know, it's, you know, it's available to them at great terms and, you know, don't have to, um, have the notion of, "Well, if they... You know, if they don't raise, uh, an up round 12 months from now, they're not gonna be on the unicorn list." You know, type of stuff. Like, I'm so happy to have a reset for those folks because we can actually focus on product building and team building, not on, not on fundraising and hope that, you know, the capital makes everything else work.

   22. HSHarry Stebbings1:12:05

       Final, final one, I promise. Does money make you happy? I would say that it's removed so much pressure and stress from your relationship, that it's given you the foundations of a truly beautiful relationship, which is great. But, you know, I've been in partnerships before where you both need cash and it puts strain and pressure on every day. Um, does money make you happy?

   23. HWHunter Walk1:12:26

       For me it's been a step function. I grew up downwardly mobile. I started out like zero through 10 upper middle class and then, then middle class from there, so I got to see what it was like to sort of be around things I wanted but not be able to have them. So- and the... So the chance to, through my experience at, at Google and, you know, um, what we've been able to do at Homebrew so far, my chance to get to a point of stability where I know I'll be okay, um, like, I can pay for my daughter's school, I can, you know, pay my mortgage, all that type of stuff and, you know, um, has relieved a lot of stress and allowed me to focus on, um, what also makes me happy. There's probably a next bump up where, like, I-Look, I'm the, I'm the, I'm the strange VC who only owns one house. Um, like, there's another bump up where like, oh, hey, you know, getting a pied-à-terre in New York would make me happy. That's where I'm from. Like, I'd love my daughter to have a set of keys there, you know, that type of thing. And fortunately, I think we're on the path, like, to that. But, um, I wouldn't-

Episode duration: 1:22:05