Mike Maples: Three Frameworks to Evaluate Startups and Founders | E1242

1. 0:00 – 0:57

   Intro

   1. MMMike Maples0:00

      To me, in all investing, there's two. One is you gotta get paid for the risk you take, and the other is always play offense with your money. You have to play the game that's on the field, but you don't have to play the way everybody else plays. Ultimately, if you're not finding inefficiencies in the game, you ought to be asking yourself, "What am I doing? What am I in this for?"

   2. HSHarry Stebbings0:18

      Ready to go? (instrumental music plays) Mike, I cannot believe that we finally got to do this in person.

   3. MMMike Maples0:34

      Yeah.

   4. HSHarry Stebbings0:34

      Because you've known me for nine years.

   5. MMMike Maples0:37

      That's right. Yeah.

   6. HSHarry Stebbings0:38

      Thank you so much for joining me this evening.

   7. MMMike Maples0:40

      I've- I've known you since probably before you got a lot of downloads. (laughs)

   8. HSHarry Stebbings0:43

      Oh, my God. But literally, you, I think you and my mother were probably the- the first few. (laughs)

   9. MMMike Maples0:47

      (laughs)

   10. HSHarry Stebbings0:48

       But I want to start with the seed ecosystem today because D- I, you know, I'm in it now. It feels harder than ever, and I just want to start with the statement

2. 0:57 – 5:39

   Is a Sub-$100M Seed Fund Viable Today?

   1. HSHarry Stebbings0:57

      of do you think you can have a seed fund that's under $100 million today?

   2. MMMike Maples1:02

      Well, I think that you can as long as you're way less than $100 million, so I think that you can do investments of less than $100K. And we've talked about this before, right? I mean, I imagine now with your m- major fund, Harry, you know, you probably don't let angels come in for much more than $100K, right? Like-

   3. HSHarry Stebbings1:22

      No way. Not a chance.

   4. MMMike Maples1:23

      Right. Like, if- if you say, "Hey, I'm doing $750K funds, and I'm..." Or- Or $750K rounds, and I'm a, a, I'm an angel, and, "Harry, let's go do deals together," you might say, "Hey, that's great. Good for you. I'll see you out there." But are you gonna do that person any favors? Probably not.

   5. HSHarry Stebbings1:39

      No. No, because with the $500K that someone needs from a, you know, smaller fund, I could get five amazing angels in for $100K each.

   6. MMMike Maples1:46

      Yeah. But- But I suppose if- if you're investing less than $100K... Let's say Tim Ferriss comes to you and says, "I'm willing to do $100K" in some project that could benefit from his brand and publicity, probably.

   7. HSHarry Stebbings1:59

      100%. Of course.

   8. MMMike Maples2:00

      Yes. And so if you, if you say, "Hey, I'm- I'm doing $100K checks," I think that could work. But- But that's a fund size of probably $10 million, right? That's not $100.

   9. HSHarry Stebbings2:11

      Why is your fund 150 when it was 70, 80?

   10. MMMike Maples2:14

       It's a long story, but- but basically, to me, your fund size is your strategy, and I guess I'm kind of famous for saying that for a long time. I don't know if I've ever really expressed why that is, so here's why. The power law is real, and so people don't realize that Pareto is not just 80/20. It's a curve. It's a continuous curve. So 80% comes from 20%, but it's also true that 4% yields 64% because 80% squared is 64% and 20% squared is 4%. And so when you have a fund... Let's- Let's just use ballpark figures. Let's say you have 25 investments in a fund. Your best investment is gonna have to return 64% of all returns, that one deal. So if you want a five X fund, you know, that one investment by itself needs to return, you know, 64% of five times the fund in profit. And so that's why your fund size is your strategy. Your fund size is basically... It's kind of like if you're a pole vaulter. It's the height of the bar that you set that you promise to jump over, and if you don't jump over that fun, that- that- that height, you have a bad fund.

   11. HSHarry Stebbings3:32

       Did you ever feel like your fund size was not aligned to your strategy?

   12. MMMike Maples3:35

       I never really did. I... You know, it's weird. We were better... We're better at $150 million than we were at 75. But- But that was really... I don't think that was really due to fund size. So, like, if you trace our history, our- our first couple of funds were just awesome, and- and we just hit, tapped into the zeitgeist and hit the market at an exact right time. You know, I was r- making a video this morning for Josh Koppelman's 20th anniversary and- and I just marvel at the fact... We used to hang out at Ilford, Ohio and just marvel at the fact that nobody realized what a great business opportunity this was. We're like, "Are we just stupid? Are we just, you know, having delusions? Because nobody seems to think this is a good idea, and this just seems like one of the opportunities of the century just right here." And every time I would see something, I'd show it to Josh, and every time he saw something, he s- showed it to me because neither of us had any money. And so, like, we were just seeing all these things. Well, fast-forward a few years, I'm on 22 boards, and, um, I just- I just didn't have the sharpness of mind. You know, when your- when your phone's blowing up all the time, and there's... If you're on 22 boards, it's blowing up all the time. There's always something totally screwed up. You're not as awake to the possibility of what Pinterest could be when you get pitched by Pinterest, right? And so, you know, our- our- our next two funds at about 75 weren't as good, and I remember at the time, um, having some angst about it, so we flew out to Yale Because the Yale Endowment is one of our LPs, and went to Dave Swenson and said, "Hey, look, I'm gonna have regrets, um, if I don't tell you. Here's the mistakes I think we're making and what we're gonna do about it." And part of it was sort of g- getting our fund size to s- to an amount where we thought that we could really execute our model well, but we made some changes. You know, we- we changed the way we did follow-on investing. We had a dedicated partner, Iris Choi, do follow-ons, and that's all. And she's accountable for follow-on returns, which more- more seed funds should do.

3. 5:39 – 11:13

   Why Lose Asymmetric Information When Picking Winners?

   1. MMMike Maples5:39

   2. HSHarry Stebbings5:39

      I don't understand that, if I'm totally honest, because the point of the follow-on... So we don't do follow-ons at all. Uh, if you look at the data, bluntly, we grossly overestimate our ability to pick our winners, um-

   3. MMMike Maples5:49

      Yeah.

   4. HSHarry Stebbings5:50

      ... but the point is you have asymmetric information, and you should be able to pick better because you know the company better. So why-

   5. MMMike Maples5:55

      Mm-hmm.

   6. HSHarry Stebbings5:55

      ... would you lose that asymmetric information?

   7. MMMike Maples5:57

      Pro rata rights are a right, and so the- the high-order bit, to me... In all investing, there's two, right? One is you gotta get paid for the risk you take, and the other is always play offense with your money. And if you're a seed fund...In theory, your first checks, you're playing offense with your money. If you're not, you've got no business. You d- You're just not in business, right? But there's the occasional situation where, you know, you own shares in a great company, Applied Intuition, Figma, Twitter, um, Okta, one of these, and, and sometimes you just kinda know, right? And yes, the prices get bid up, but they're, great firms are coming in. You have a choice to decide whether you wanna e- exercise that right. And keep in mind, it's a right that you have that nobody else has. And so, to me, that would be an example playing offense with your money.

   8. HSHarry Stebbings6:47

      The hard thing is when the rounds are priced as they're priced and your fund sizes are still small, exercising that right can be several million dollars.

   9. MMMike Maples6:55

      Correct. So the, so, the, the, what I, what I came to believe was that the first question you gotta answer is, "Do I wanna do follow-ons at all?" You know, you can have it be zero. That's one option. But, but you're giving something up when you do that. You're giving up a right that's worth something. So then the other, the other way to look at it would be to say, "I think it's probably higher than zero." And so then the question is just how much higher? And so we settled on 70% upfront, 30% in reserves. And, uh, but, you know, Iris is accountable for that 30%. And so, Ann and I can't strong arm her into trying to, you know, protect some investment that's not working. She's like, "Look, Maples, you know, you guys are holding me accountable for returns on this basket of money."

   10. HSHarry Stebbings7:44

       But do you not think there's so much context that's lost? So like, you know, you could look at the numbers, you could look at the data, but actually, I know the founder better than anyone. I know the speed of contract-

   11. MMMike Maples7:54

       Yeah.

   12. HSHarry Stebbings7:54

       ... progression. I know all of these nuances which aren't in the data that Iris doesn't know.

   13. MMMike Maples7:59

       Well, Iris knows, right? She's part of Floodgate, and she, she gets to know the founders, and she looks at every investment that we make as if it were her pipeline. And so some of these, like Applied Intuition, she actually bought super pro rata. She found ways to get, uh, more ownership, uh, than our initial first check because she's like, "Look," uh, a- at the time, she was like, "I think this is the best company in, in Fund 6, and we should own as much as we can." But, but here's the, here's the thing, right? Um, most seed funds would say, "Hey, um, I know more about this company than the market knows. Uh, that's why I'm gonna give this company money even though it can't raise." And in those cases, I, I used to say, "You know, I think you know things that aren't so" (laughs) , right? So what, what I would fi- I give the market, writ large, a lot of credit for knowing what a good Series A deal is. You're talking about firms like Benchmark and Sequoia and General Catalyst and a16z, and if none of them want to invest in a given company in our portfolio, uh, I'm like, "Okay, who, who's more likely to be right about the progress of that company?" Uh, having said that, if they decide they really do wanna invest aggressively, that's a pretty strong signal too, because they're picking not just from the companies we invested in, but from every seed investor. And so they're judging that to be among the very best outcomes of all seed investments. And in those cases, I think you gotta at least look at, "Do I wanna exercise my pro rata right?" You, you can't just blindly follow Sequoia and Benchmark and folks like that. But if they're saying, "Hey, I think this is one of the best projects in the private landscape right now," having the right to invest in that is worth something.

   14. HSHarry Stebbings9:47

       So you don't think you should just blindly follow if you got a tier one?

   15. MMMike Maples9:50

       No, but, but that's closer to right than not. You know? Like, if, if I look at Fund 1, what was our top performer? It was Demand Force. Who followed me in Demand Force? Bill Gurley at Benchmark.

   16. HSHarry Stebbings10:00

       Mm-hmm.

   17. MMMike Maples10:00

       What was the second-best performer? Twitch. Who followed us in Twitch? Ethan at Bessemer. Okay, let's talk Fund 2. What was number one in Fund 2? It was Lyft. Who f- followed us? Uh, uh, Naveen at Mayfield Fund, uh, Founders Fund, a16z. Okay. What was the second-biggest winner? Okta. Who followed us... You know, we did that with a16z, then Sequoia came in. Graylock at Sequoia. And so one way to think about it is, your follow-on dollars might be best thought of as a subset of where the best firms follow, because we've had the best firms follow and the companies not do well. Virage sale, Sequoia aggressively followed, and it didn't, didn't do well. So one, one way I think about follow-on investing is, for a seed fund, it's closer to index investing than people think. And if you say, "Okay, I'm gonna index off of the very best funds," as you kinda point out, more often than not, if that's all you did, you'd, you'd have massively better follow-on returns than most f- Most firms, if, if the LPs knew, like if they, if they tracked what's the return on follow-on checks versus first checks, there'd be pitchforks and, like, revolts in the street it's so

4. 11:13 – 17:42

   Should Every Check Be a Potential Fund Returner?

   1. MMMike Maples11:13

      bad.

   2. HSHarry Stebbings11:13

      Do you agree with the ethos that every check has to be a fund returner?

   3. MMMike Maples11:17

      Um, ish. Here's the way I would phrase it. Um, our business is hard in seed, but not complicated. 5% of our checks need to be 100X cash on cash on the first check, and about 10 to 15% need to be 20X cash on cash on the first check. You achieve that, you're a 10X fund. And so, now the loss ratio is about the same between a 3X fund and a 10X plus fund. What matters is the magnitude of your big winners. But it kinda goes back to this Pareto idea. If your best company returns, say, 64% of your fund, the follow-on check in that company is gonna probably be a 20 bagger.

   4. HSHarry Stebbings12:02

      The hard thing with this assumption is that it's, it presumes that you know outcome scenario planning, and you never know how big your winners can be.

   5. MMMike Maples12:09

      You, you never know, but, but you can say, "We have a way to hold ourselves accountable."Ann and I, we're measured on what we call picking skill, which is what fraction of our first checks become 20 baggers or 100 baggers. Iris is measured on what fraction of follow-on dollars go in the best companies. And that's completely objective, right? You can just say, "Here's a stack ranking of the companies by their current, uh, value, um, and what percentage of our dollars are in those top companies." Uh, and so that- that made a big difference in our returns.

   6. HSHarry Stebbings12:47

      So do you do outcome scenario planning when you're investing?

   7. MMMike Maples12:50

      I'm not sure that... That- that sounds fancier than what we do. Uh-

   8. HSHarry Stebbings12:52

      Do you think, "Hey, there, how could this be a $5 billion company?" And work your way there?

   9. MMMike Maples12:57

      No. I say, I say, um, "For this to make 100X on the first check, what would have to be true?" So, it, l- l- the- the way I think of scenario planning on a first check is I say, "Okay, given that it's 85% likely it's not in the top 15%" You know, if I say, "Every investment is gonna be in the top 15%," it's just simply not true.

   10. HSHarry Stebbings13:18

       Sure.

   11. MMMike Maples13:18

       Right? It's not ground in reality. The better discussion to have is to say, "Look, given that it's 85% likely to not be in the 15 top percent, how big does it need to be if it is in the top 15%? And is there a world where that could happen? What does that world look like?" And so, um, and this is why, you know, there- there's all these, I believe, false debates about valuation. Everybody says, "Well, if the company's awesome, you can pay any price." And I'm like, "That's true to the extent that you can make 100X on the first check." And so I'm like, you know, that... To me, that's the high order bit. If we're gonna invest one to two million bucks, can we make 100X on the first check? Uh, and if, and if we're doing it at 40 post, like we did Applied Intuition, okay, they just raised it six billion.

   12. HSHarry Stebbings14:04

       The thing that I find-

   13. MMMike Maples14:05

       Right?

   14. HSHarry Stebbings14:05

       ... really worrying with that, though, is that that assumes that companies are gonna be $5 billion companies because there's a couple of in-bait assumptions here, which is that, bluntly, you're gonna get diluted probably quite a lot, say half, in a lot of cases at this point.

   15. MMMike Maples14:18

       Or more, yeah.

   16. HSHarry Stebbings14:19

       Or- or- or more. Uh, and so if we're doing that, it needs to be a $5 billion business.

   17. MMMike Maples14:24

       So we forecast that. But- but this is why price matters, right? So, you know, it's a lot easier-

   18. HSHarry Stebbings14:30

       'Cause our entry price is 25 now.

   19. MMMike Maples14:32

       I- i- i- in the case where that's your entry price, that's what the exit needs to be.

   20. HSHarry Stebbings14:36

       Yeah.

   21. MMMike Maples14:37

       Yep. And there's no escaping that. And people say, "Well, that was then, this is now." I'm like, "No, I've studied venture returns for the last 50 years and the physics of what a good fund looks like has not changed."

   22. HSHarry Stebbings14:48

       Do you just think then, venture is a less at- attractive investment category then?

   23. MMMike Maples14:53

       I don't think so. I just think that a lot of people have forgotten what the right goal is. And so, I- I sit there and I say, "Look, I need to make 100X on my first check. There has to be a way I can do that, if everything goes my way." And I'm not gonna get that by acting like an efficient market operator, right? So to the extent that seed investing is an efficient market, it's not gonna be a good business. And so you've got to find inefficiencies for it to be a good business. And then people say, "Well, what if, what if I can't find inefficiencies?" I'm like, "Okay, then you shouldn't be a seed investor." Because the idea is not to invest, as an active investor, in efficient markets, right? Like, if you're an active investor, you have to find inefficiencies in the market or you got no business investing.

   24. HSHarry Stebbings15:40

       I mean this with total respect. You sit in the middle of San Francisco in the heart of the seed market, in the most efficient market. Do... E- it was inefficiencies when you and Josh started, and it was those early days. Neither of us are in inefficient markets.

   25. MMMike Maples15:54

       Well, I- I- I think that the, the, the mistake that people make is to think of startups as a quote unquote "market." Now, I would grant you that, uh, more of the companies are fully priced today than they were when Josh and I got started. But to me, that's just part of the fun of it. That's part of the spirit of the game, is to see what other people aren't seeing, or at least try to do that, or maybe occasionally to get into something that not everybody can get into. But to me, that's the fun of it. It's- it's like solving a puzzle or a riddle. And, and, you know, there are so many startups. There will always be 30 or so every year that are great.

   26. HSHarry Stebbings16:30

       Will you do a much smaller check if you think it can still be a 100 bagger?

   27. MMMike Maples16:34

       I'm more likely to do that, yeah.

   28. HSHarry Stebbings16:36

       So you'll write... Okay, so you can get 100K in a super

   29. NANarrator16:39

       I'm-

   30. HSHarry Stebbings16:39

       ... whole company.
5. 17:42 – 23:43

   Mike’s View on Inception Rounds in AI?

   1. MMMike Maples17:42

   2. HSHarry Stebbings17:42

      How do you think about these inception rounds?

   3. NANarrator17:44

      Mm-hmm.

   4. HSHarry Stebbings17:45

      Add some goals from inception rounds, which is like the $10 million starting round. I mean, we see many, not... Especially in AI, they're much more than that. How do you think about them?

   5. MMMike Maples17:53

      Can it make 100X on the first check?

   6. HSHarry Stebbings17:56

      Will you do these rounds?

   7. MMMike Maples17:58

      If I think it can make 100X on the... If it was Cas or Eunice, I would. But I'm like, "Okay," so, like, this will happen sometimes. Some of our younger folks will come to me and say, "Hey, look, here's a round that's done at 10 at 40 post," and we did Applied Intuition at 10 at 40 post. Then I say, "Okay. Is the founder Cas or Eunice?"And, uh, because I think Kasser is one of the best founders I've ever worked with. And so they're like, "Well, I don't know if he's, Kasser good." And I'm like, "Okay. He's not worth 40 post." And so, you know, 40 post was like a real stretch for us. And, and we're like, "This company's gonna have to be worth north of $5 billion, at least, for that bet to have been justified." Um, because here's the other thing, Harry, is let's say that I, I thought, "Okay, I can't make 100X but I can make 20, and he's that good," there's an opportunity cost. Right? My fund, I only get 40 shots on goal. And if I take one shot that I don't believe has any chance of being 100X, now I have 39 shots on goal. And I have one fewer way to make 100X. And so I just have to, like if I'm gonna raise $150 million, I need to know what game I'm playing and I need to be honest about it and, and play that game with integrity or else, you know, different fund size.

   8. HSHarry Stebbings19:12

      Do you feel that it's got much harder over time?

   9. MMMike Maples19:14

      Oh, yeah.

   10. HSHarry Stebbings19:14

       Yeah?

   11. MMMike Maples19:15

       But I think we've gotten better and smarter too. So, you know, I, I think it's gotten more competitive. I think that, that it, um ... There, there's a few things that give you a real advantage today that didn't matter as much then. I think today, having a temperament advantage makes a big difference.

   12. HSHarry Stebbings19:33

       What do you mean a temperament advantage?

   13. MMMike Maples19:35

       So like in 2021, we're seeing all these projects and they're, you know, th- they're raising money at 30 and 35 and 40. And Ann and I are just looking at each other like, "We don't have to do that." Um, and you know, poor ... Some of the young associates and principals are like, "We haven't done any deals this year." I'm like, "That's okay. You know, we haven't found any that meet our conditions." And, um, I think that Ann and I have done this long enough to be like, "Okay, we don't have anything we need to prove to each other and we don't need to, you know, have points on the board this quarter or this month, this year." You know, Silicon Valley will make more and we'll just, we'll be there. And so, um, I, I, I spend a lot of time, as does Ann, thinking about what's our circle of competence? What are the situations where we've made money historically? And what are the situations where we think we're well set up to make money in the future? And we need to see projects that meet those conditions.

   14. HSHarry Stebbings20:31

       So do you agree with Gurley that you play the game on the field or not?

   15. MMMike Maples20:35

       You, you have to play the game that's on the field.

   16. HSHarry Stebbings20:37

       But what if the field is not your conditions?

   17. MMMike Maples20:39

       Well, if the field's not your conditions, you just have to be more discerning. So you know, Buffett, Buffett said it well once. "Investing is like a game where there's no called strikes."

   18. HSHarry Stebbings20:50

       Hmm.

   19. MMMike Maples20:51

       And so you just let pitch over pitch go by. Everybody says, "Swing, you bum. Everybody else is swinging." And you say, "No, I don't have to swing. I don't, like I don't see my pitch. I'm just gonna wait until a meatball comes over the plate and just swing at it with all my might. And if one doesn't come, well, I'll wait. Some will someday." And this is a great way to think about pacing, because i- in 2009, everybody was in the fetal position. And Ann and I were seeing deal after deal where we're like, "This totally meets our criteria. This is awesome." A- Ann funded Lyft at five and a half million post money.

   20. HSHarry Stebbings21:26

       How big was the cheque?

   21. MMMike Maples21:27

       Uh, she wrote 750K.

   22. HSHarry Stebbings21:29

       Wow.

   23. MMMike Maples21:29

       Uh, so she did pretty well on that, right?

   24. HSHarry Stebbings21:31

       Yeah.

   25. MMMike Maples21:31

       She made like, um, I don't know, 250X maybe, um, on th- on that investment. So, um, so that was good. But we were, we were in an environment where people were afraid to invest. People thought the world was gonna come to an end. But because we were like, "Okay, this is the type of project that we think is attractive, when we see one of those, we're, we don't care what the market's doing. We're gonna, we're gonna say yes to those." Similarly, in 2021, I only made one investment the whole year, uh, this company, uh, Hadrian. Uh, and why is that? Well, I just didn't find any companies that met my criteria. And so one thing that's interesting about having a circle of competence, and I actually learned this from Buffett and Munger, is if you know what your circle of competence is, if everything's systematically overpriced, you do fewer deals, because fewer deals meet your conditions. If everything's systematically underpriced, you do more deals. But that's the situation you wanna be in.

   26. HSHarry Stebbings22:29

       How do you think about when playing the game on the field is just fundamentally a new game? And what I mean by that is, you know, when you look at AI today, the prices are nuts. The fervor, the excitement is nuts. But if this is the next generation of technology, as everyone is told, and this is the most exciting time in 30, 40, 50 years-

   27. MMMike Maples22:46

       Yeah.

   28. HSHarry Stebbings22:46

       ... Benioff says the most exciting time in his career.

   29. MMMike Maples22:49

       You have to play the game that's on the field, but you don't have to play the way everybody else plays. Right? And ultimately, if you're not finding inefficiencies in the game, you oughta be asking yourself, "What am I doing? What am I in this for?" That's what we're paid to do. We're paid to find opportunities that are gonna make money. Uh, nobody's interested in indexing the broader overpriced seed market. Right? Like, that's not a good business. And so you've got to find, uh, attractive opportunities. For us, a lot of that in the AI r- arena has been some of these enterprise, you know, so Applied Intuition was one. A more recent one was, um, you know, Cicero, which is, uh, another one that's doing really well. But we had a, a very specific set of conditions for w- what kinds of AI investments we would do and not do.

   30. HSHarry Stebbings23:37

       Were they crazy priced?
6. 23:43 – 27:12

   On Mike’s Best Deals

   1. MMMike Maples23:43

      post.

   2. HSHarry Stebbings23:43

      When you look at your-

   3. MMMike Maples23:44

      Yeah.

   4. HSHarry Stebbings23:44

      ... best deals, have they been the most expensive?

   5. MMMike Maples23:47

      No. Actually, uh, the reverse is true, but I don't know if that would still be the case.

   6. HSHarry Stebbings23:53

      Were they hot?

   7. MMMike Maples23:54

      Only, um ... Well, Applied was hot. K- Kasser would have raised money from anybody he pitched with that idea. Uh, he was that good and his idea was that good. He was that well-prepared. So he pitched two firms, got term sheets from both, decided to work with Mark. Mark joined the board. Um, and I, and I kind of said, "Okay."... probably the series B round is a little bit de-risked here, and so I should probably put in as much as I can get in, uh, on the round, and so that's what we did. And then immediately, as soon as our check cleared, Iris was trying to buy more.

   8. HSHarry Stebbings24:30

      Have you ever done a deal where you've bought common, not prefs? We're seeing more and more-

   9. MMMike Maples24:34

      Yeah.

   10. HSHarry Stebbings24:35

       ... of this.

   11. MMMike Maples24:35

       I've done that, yeah.

   12. HSHarry Stebbings24:36

       Talk to me about that.

   13. MMMike Maples24:38

       And then the other thing I've done is I've, uh, I've, I've been in a situation where the founder wanted me to do something with them, and, and I said, "I'd like to work with you too, but the price is too high." And, and this is one of the things about convertible notes, is I could say to that person, "Look, you know, you can issue a convertible note any price you want." You can, y- you know, if you're raising at 20, you can sell me half of it, um, at 20 and half of them at five. And they might, they might say, "Well, other people may not like that very much." I'm like, "I understand that." But, like, you could, you, you can decide, right? Um, but I'm not gonna pay, I'm not gonna pay that price that everybody else is paying. And so, you know, you learn quickly whether they value your involvement in a differential way or not. And, and, you know, if they don't, it doesn't hurt my feelings. I'm not gonna pay the price, but it doesn't hurt my feelings.

   14. HSHarry Stebbings25:28

       On the commons and prefs, so you would buy commons? Because we had Nick Charles on from Notation, he was like, "We think you should be more aligned, you should buy common." I really like Nick, but I think that's bullshit.

   15. MMMike Maples25:38

       I would ... if, if it made a difference meaningfully in my ownership, early, I'd do it.

   16. HSHarry Stebbings25:46

       Is the difference in winning and losing the deal?

   17. MMMike Maples25:49

       It, it's not so much that. It would be, maybe I can say to the founder, "Hey, look, um, this is a way for us to have some type of a joint gain. I, I know you need to get the price you want to get, and there are reasons that you want to get that, but maybe we can get some type of a blended price if I buy preferred plus common." And then I, I own more, I'm taking more risk. But if I believe in the company ... um, I've never made money or lost money based on common or preferred.

   18. HSHarry Stebbings26:18

       Hmm.

   19. MMMike Maples26:19

       Ever. In the ones that worked. And so I, I, um, yeah.

   20. HSHarry Stebbings26:22

       Will you do uncapped notes?

   21. MMMike Maples26:24

       Um, only in very rare cases.

   22. HSHarry Stebbings26:27

       Have there been any?

   23. MMMike Maples26:28

       We would have done one for Applied, because, like, right after the series A, we wanted to own more. And, and so there are times when doing an uncapped note works to your favor if you say, "I have so much conviction that, um, I'll, I'll pay a, a discount to whatever the next price is. I don't care." Because, you know, otherwise, why is the founder gonna give you any kind of preferential treatment when the round comes together? You, you got ... if you believe in the company, you got to position yourself for the next round.

   24. HSHarry Stebbings26:57

       Have you ever done a Chris Sacca and done a nom nom? Uh, I call it the-

   25. MMMike Maples27:01

       What's that?

   26. HSHarry Stebbings27:01

       ... the nom nom, which is when you go to Twitter employees and you just eat up, eat up, eat up everyone's, like, you know, early stock.

   27. MMMike Maples27:08

       I've never done that, no.

   28. HSHarry Stebbings27:10

       (laughs)

   29. MMMike Maples27:10

       I was tempted to at times, but I never

7. 27:12 – 29:50

   Deciding the Right Time to Sell

   1. MMMike Maples27:12

      did.

   2. HSHarry Stebbings27:12

      Y- you said there about kind of Ann's, uh, incredible investment, 750 into Lyft, um, and whatever that was, a 250X. You got to sell for that to be a 250X, respectfully, Mike. 'Cause I don't know what Lyft's market cap is today, but it wouldn't have been a 250X if you sold today.

   3. MMMike Maples27:28

      Yeah.

   4. HSHarry Stebbings27:28

      How do you know when's the right time to sell?

   5. MMMike Maples27:30

      Yeah, so I, I think that there's a couple of things. And by the way, this is something we haven't really talked about yet that is good for seed. So, um, let's imagine it's 2015 and, uh, Lyft's stock at the time wa- in the private markets was about $25 bucks a share. It was worth more than it is today, by a meaningful amount. At the beginning of the year, we said, "You know, we need to sell some of this. Because we're behind a billion-and-a-half dollar preference stack. We're in this thing at a five-and-a-half million dollar post my evaluation. We're competing against Travis Kalanick, who's a freaking maniac, who I respect a lot, but I'm like, you know, he's not a fun guy to compete with. Um, and this thing is gonna impact our fund, right? We are way in the money on this thing."

   6. HSHarry Stebbings28:16

      Right.

   7. MMMike Maples28:16

      And so, uh, Ann had a Post-It note on her monitor that said "IQ test," and we put it on in January that year. And the IQ test was, "I need to find a way to sell some of our Lyft stock this year." So, she ended up selling, um, a fair chunk of it. I don't think half of our stake, but a, but a fair amount in, uh, 2015. So, one thing I think that a lot of seed funds-

   8. HSHarry Stebbings28:38

      What price?

   9. MMMike Maples28:39

      25 bucks a share. Let's say 45 billion, something like that.

   10. HSHarry Stebbings28:44

       Gotcha, okay.

   11. MMMike Maples28:44

       Yeah. So, um, but it was, you know, it was, um, it was really good. Like, the highest it ever got was like 75.

   12. HSHarry Stebbings28:50

       That returns the fund straight away, no?

   13. MMMike Maples28:51

       Yeah. Oh, yeah. So, so we were like, "Okay, we need to sell enough to return all the fund too." So, she did, and, and so one thing that I think a lot of seed funds don't get is there's two ways to make money. One is on entry pricing inefficiency, but the other is to arbitrage exit price inefficiency. And like, so like with Lyft, A16Z was in Lyft. They couldn't have done that, because the, the problem is, A, it would have sent a signal, and B, selling couple hundred million bucks or whatever, it doesn't matter to A16Z. It doesn't affect their fund enough. And so one of the things that seed funds can do is they can start to say, "Hey, is the, is the market about to value this thing as if it executes perfectly for all the next five years?" Because the capital markets are such that there's so much money that a lot of these companies, no matter how exciting they are, are gonna get fully valued as if they're perfect for

8. 29:50 – 32:38

   Is Asset Pricing Efficient Amid AI Hype?

   1. MMMike Maples29:50

      a very long time.

   2. HSHarry Stebbings29:51

      Do you think there's exit price inefficiency today given the incredible excitement around AI?

   3. MMMike Maples29:56

      So, that's the thing, right? Like, this is the other thing I've found, is that when the times you should be selling into some of those rounds, everybody wants a share of the company. So, like, the, the, what, what I learned was that it's actually a win-win for the founder because you say to the founder ... You, you can't just do it on the fly. You can't be transactional. But if you say to the founder, "Hey, look, let's be realistic here.""You're better off in the fullness of time if certain players are in your cap table and not a seed fund. You know, Fidelity or, you know, folks like that. So, what do you say we get strategic about it? How about we p- put ourselves in a position where we can get somebody like that in when you raise your next round if it clears a certain threshold?" And what- what usually ends up happening at- at first they're like, "Hmm, I don't know." But- but what ends up happening in reality is by the time the round comes together, the founder is coming to you saying, "Dude, you got to do me a solid. You said you were gonna sell. I need you to sell more." Because everybody becomes pigs. Everybody wants in. Nobody pays attention, uh, to... Uh, so i- ironically, the- the- the times that it's easiest to sell, in these really up rounds, is probably the time you should think seriously about it when you're a seed fund. And you don't wanna... I call it, um ... Uh, Iris came up with a term for it actually, we call it an initial liquidity event. So it's, um, it's an event that has the same impact on fund economics as an IPO. So it can't be just, you know, 10 million here, 15 million there. It's gotta be something where it has the same impact on your fund as if the company went public.

   4. HSHarry Stebbings31:30

      The- the counter to that, if we were kind of just jousting intellectually would be, you know, Bryan Singerman often has talked to me before about the value of the next double, and actually a company going from two to six billion is much easier than having another four billion in enterprise value gain in the rest of the portfolio-

   5. MMMike Maples31:48

      Yeah.

   6. HSHarry Stebbings31:48

      And actually it can happen quite quickly.

   7. MMMike Maples31:49

      Yeah.

   8. HSHarry Stebbings31:49

      And if you look at Bessemer selling all of their Shopify stake at whatever it was, two to three-

   9. MMMike Maples31:54

      Yeah.

   10. HSHarry Stebbings31:54

       That was probably the worst financial decision ever. They will say the same, I'm not...

   11. MMMike Maples31:59

       Yeah. Uh, and- and, you know, there... You never... You never make a trade that you don't somewhat regret. Uh, I mean, unless you just sell at the top, right? But like-

   12. HSHarry Stebbings32:09

       But you crushed it with Lyft, Mike (laughs) .

   13. MMMike Maples32:12

       Yeah, but you know, Lyft- Lyft traded up to like 75 and- and, you know, when- when it- when it went public and the lockup, uh, I mean, we- we got out at like 75. And so we would have done even better, but it- it was still the right decision. It was still the right risk-adjusted decision, right? Like, because once you're i- once your fund's in the carry and you're in the money and it's like you've still got that upside, and so that's the-

9. 32:38 – 36:56

   How Psychology Shifts When You’re Profitable

   1. MMMike Maples32:38

      the- the... So first of all-

   2. HSHarry Stebbings32:39

      Does your, does your psychology change when you're in the money?

   3. MMMike Maples32:42

      I think it does a little bit. Um, but- but I think that- that the other thing is it's like you- you get into these situations where the variance in the potential outcomes is so great. So I agree with Bryan Singerman in- in a- in one- one sense, which is some of these things can ride a lot farther and higher than you think. I agree with that. The issue though is that sometimes b- both can be true, right? You can- you can be in a situation where you're 100 times in the money in five years and no matter how good the company is, it's- it's just- it's just valued to absolute perfection, right? And- and so in those cases, I look at it like, even if the Bryan Singerman outcome happens and it doubles again or even quadruples again, just have enough stock so that, you know, you're gonna benefit from that upside too. But I do- I just think that when you're... 100-baggers are pretty rare, right? I keep track of them. I, so I have a list. I can show you on my laptop, right? 100-baggers in the last 20 years.

   4. HSHarry Stebbings33:49

      How many have you got?

   5. MMMike Maples33:50

      Um, there's about, um, there's a little over 100 that are exited and there's a little over 100 non-exited that I track. Most of them I don't track because I don't think they're real.

   6. HSHarry Stebbings34:00

      How many 100-baggers have you got?

   7. MMMike Maples34:02

      I've only got like three or four.

   8. HSHarry Stebbings34:04

      Okay.

   9. MMMike Maples34:04

      So, um, so yeah. So Twitter would have been, uh, Twitter was a little over 300X. Um, Anne gets all the credit for Lyft. That was l- like about two- 205X. Um, uh, what else? Uh, Applied. Applied is probably, uh, eh- encroaching on 100X in the first check. Um, Twitch got close, but not quite there. It got to 94X. Um, and there's a few others that I think have a shot.

   10. HSHarry Stebbings34:34

       Would you start to sell Applied when it gets to 100?

   11. MMMike Maples34:37

       Yeah. But here's the key. You gotta do it in a way where you're not just being selfish about it. You wanna do it in a way that, uh... Uh, in fact, we did sell some Applied and- and... But we did it in a way where it was in full cooperation with Kasser, right? I was like, "I'm not gonna do this behind your back, or I'm not gonna do this against your good wishes. A- And so is there a way we can make this a win for you?" That's the discussion we need to be having. But you can't have that discussion the day the round closes, right? You gotta- you gotta be like, "Hey, here's how I'm seeing things. Am I making sense?" You know, Kasser is a grown up, right? He's like, "Hey, I get it. I understand you got a business to run. So do I."

   12. HSHarry Stebbings35:17

       100%. And the best founders generally do understand that.

   13. MMMike Maples35:19

       They do, especially if you don't surprise them and you're just not greedy and transactional about it, like, yeah.

   14. HSHarry Stebbings35:23

       Or do it behind their backs.

   15. MMMike Maples35:24

       Yeah.

   16. HSHarry Stebbings35:25

       That's...

   17. MMMike Maples35:25

       And- and if you say to them, if you say to the founder, "Hey, look, can we agree that all things being equal, this would be a good investor to have in your cap table after the next round, and this is a good way for you to get him without getting crazy massive dilution, what do you- what do you say we try to engineer those circumstances?"

   18. HSHarry Stebbings35:42

       How does your psychology change when you're in the money?

   19. MMMike Maples35:45

       Hopefully not much. You know, I think that- that sometimes, uh, you know, the- the place where I would also agree with Bryan Singerman would be sometimes you get in the money and you lose sight of the fact that you can get a lot more than the money.

   20. HSHarry Stebbings35:57

       I think more you see this side of you can be more in the money and you lose downside. I always think that-

   21. MMMike Maples36:02

       Maybe.

   22. HSHarry Stebbings36:02

       ... uh, you know, very close to the guys at Sequoia and- and the team there. I think the reason they're so successful is because bluntly they've done so well, they're not fearful of downside. They just see what it could be, and it almost enables them to have this enlarged perception or-... kind of vision.

   23. MMMike Maples36:20

       Yeah. You know, I think that kind of goes back to the first principles, right? You can make money on the buy, and you can make money on the sell. And what most people don't understand is that the seed funds are actually better positioned to make money on the sell than anybody, bet- better positioned than the multi-stage by a wide margin. And that requires, though, for the seed manager to be much more sophisticated than most are being. Most are just like, "Should I sell? Should I not sell?" Y- what you want to do is have an opinion, right? You, and you want it to be grounded in facts. Why do I collect information on hundred-baggers? Because I'm like a train spotter. I'm like, you know, Britain, right? You have those train

10. 36:56 – 37:55

    Structured Salary Liquidity or Case-by-Case

    1. MMMike Maples36:56

       spotters.

    2. HSHarry Stebbings36:56

       Do you, do you-

    3. MMMike Maples36:57

       I study them.

    4. HSHarry Stebbings36:57

       ... like the structure to the selling? So we have Avi from Entre on, and he's like, "I sell a third," uh, I'm gonna butcher it, but, "A third in a growth round, a third pre-IPO, and a third post-IPO." There's a real structure to it. Do you like that kind of structure, or do you think it's a case by case?

    5. MMMike Maples37:12

       I think it's case by case. I think, I think you should say to yourself, "Okay," um, "there was a time when we were sober," and we kind of said, "If, if the following things happen, we might be sellers." And that's happening now. So do we still feel that way?

    6. HSHarry Stebbings37:26

       Wh- what was the least sober decision you made?

    7. MMMike Maples37:28

       Most of my mistakes have been, in our early funds, we followed on in too many rounds in the companies that weren't gonna make the difference.

    8. HSHarry Stebbings37:37

       What was the least sober decision?

    9. MMMike Maples37:38

       Our biggest failures are so not related to that. Our biggest failures have been failures of imagination. You know, it's like when I passed on Airbnb, or, um, you know, what, what's another one we passed on, we, we would have done really well? Um, Datadog, um,

11. 37:55 – 40:37

    Any Regrets on Passing Airbnb?

    1. MMMike Maples37:55

       we would have done really well.

    2. HSHarry Stebbings37:55

       Do you blame yourself for passing on Airbnb though? And my reasoning around that is like, it was a nuts idea. He wasn't from a blue chip company. It wasn't a straight down the fairway deal at the time. It was crackering. You had to see some real...

    3. MMMike Maples38:08

       Well, so the way I look at it is, I need to understand what I didn't see, and I, and I need to be really tough-minded about that. I, it, that's not about beating myself up. It's just saying, is there a frame- set of frameworks that we embrace today that would have caused us to say yes? But we do that not just with Airbnb. We do it with all the hundred-baggers, right? So we did, uh, we did, we do these hundred-bagger deep dives. We did one on Marqeta. We did one on Zoom. We did one-

    4. HSHarry Stebbings38:38

       What do you learn from them?

    5. MMMike Maples38:40

       You learn a bunch of really important things. Um, so we, one, one of the things we track is, okay, if you'd said yes at the seed round, uh, what kind of a multiple would you have made? How soon would you have made it? What kind of dilution would you have seen? Then you say, "Okay, here's our frameworks." One of our frameworks is, did they have an insight? One of our frameworks is, did it harness an inflection? One framework is founder future fit. Were, were any of-

    6. HSHarry Stebbings39:06

       W- what is founder future fit? I've never-

    7. MMMike Maples39:07

       Oh, yeah. So, like, I'll give you an example. So like Zoom. Zoom we didn't see, but started out as this consumer everyman conferencing thing called Sasbee. And that's when you would have had to invest in the seed round. So, like, did it really harness an inflection? Hard to argue. Did he have a fundamental insight? Hard to argue, right? In fact, he just... His, his initial vision for the product was just wrong. But like Eric had been at, at Cisco as part of Webex for 10 years. He'd been thinking about video conferencing all the time. So his founder future fit was actually quite good. So like what I... Founder future fit is, um, it comes from William Gibson. He says, "The future is already here, it's just not evenly distributed." And what he means by that is that great- Well, he doesn't mean this, but like great startup ideas don't come from trying to think of a startup. They come from a founder who's living in the future and who notices what's missing in the future and builds what's missing in the future. And, you know, it reminds me of, um, Isaac Newton, right? Fellow Brit of yours. Um, he was supposedly at a party, asked, "When the apple fell on your head, why is it that you all of a sudden had this insight about gravity?" And Newton said, "It's because I was thinking about it all the time."

    8. HSHarry Stebbings40:27

       Mm-hmm.

    9. MMMike Maples40:27

       And so the founders have founder future fit, are... Th- they're like obsessed train spotters in a rabbit hole thinking about this stuff all the time.

12. 40:37 – 45:34

    How Mike Identifies Hidden Insights?

    1. MMMike Maples40:37

    2. HSHarry Stebbings40:37

       Do you know what I find really hard is... I- I've learned from you so much over the years, so many things, literally. But you literally shape something I do every day, which is, I always ask, "What's your insight development? How do you see the world in a way that's different to other people seeing it?" The challenge that I have, Mike, is that so few can articulate it well-

    3. MMMike Maples40:54

       Yeah.

    4. HSHarry Stebbings40:54

       ... in any way. And so even if they have it, I worry that I'm missing it-

    5. MMMike Maples40:59

       Yeah.

    6. HSHarry Stebbings40:59

       ... because they can't articulate it.

    7. MMMike Maples41:00

       It's, it's really hard, right? There's, there's... I think there's a few... Apart from just, do you think the founder's great, right? There's a few signals that are interesting, right? One, one is, does it harness inflection, right? And that's like, Lyft harnessed the iPhone 4S, had a GPS chip in it. So that happens outside of the startup. The second thing we look for is, um, what do you know about the future that's non-consensus and right? And then the third is founder future fit. One of the things that I've learned in looking at these hundred-bagger studies is some of these things become clearer later. And, uh, and you have to figure out what's the real signal at the time you have to decide. And so you want to get a time capsule of that startup. You wanna know, what was the founder like at the time? What was the pitch deck like at the time? What was knowable about it at the time? And quite often I've found, in doing these, that founder future fit is the best signal. It's, it's the, it's the most discernible, uh, way to figure out if the founder's likely to figure this out or not.

    8. HSHarry Stebbings42:00

       And just so I get it, is, is the background of the founder commensurate to what we believe successful founders in this space will have?

    9. MMMike Maples42:07

       Yeah. So like I, I look at it like almost every great startup is pursuing a future that's meant to be. And there is usually one team that's ideally suited to that future. So I'll give you a couple examples. So like Okta.So, I meet Todd McKinnon, and he's- with Todd and Freddie. And he says, "I've been at Salesforce for all this time. All the early adopters of the cloud used Salesforce, and now they're using other cloud apps. And there's gonna be identity management problems for cloud apps, and I'm going to build a system. And I'm the VP of engineering at Salesforce. These customers trust me. I know what their problems are." And I'm like, okay.

    10. HSHarry Stebbings42:47

        It's a good pitch.

    11. MMMike Maples42:48

        Pretty damn good pitch, right?

    12. HSHarry Stebbings42:49

        Yeah, yeah, yeah, um, compelling.

    13. MMMike Maples42:50

        And I'm like, okay, if anybody can do it, he can do it.

    14. HSHarry Stebbings42:53

        And if anyone knows, he knows.

    15. MMMike Maples42:55

        If anybody knows, he knows. So, what was true about Todd, first of all, he was living in the future with those customers. And when you live in the future with those customers and you're intrinsically motivated by that future, you're more likely to understand what you should build, number one. Number two, you're more likely to attract early believers because you're more credible. And so I look for founders who are living in a valid future, are intrinsically motivated by the future they're pursuing, uh, are more likely to notice specifically what to build, and are more likely to convince people to believe that they've built the right thing. And, and if, if that team is present, I say, "Is this team the most likely team in the world to make this future real the quickest?" Yeah.

    16. HSHarry Stebbings43:41

        Does that exclude first-time founders who've not done anything before?

    17. MMMike Maples43:44

        Uh, no, because like, uh, um, let's take one. Uh, Marc Andreessen, right? He was at the University of Illinois. Uh, he'd never run a business before. He was in a supercomputer lab, and, um, at the time, the internet had just been made legal for business. So it could only be used in universities and academia. And Marc is trying to make, um, a collaboration software, uh, for a team of researchers. And so he starts tinkering with the early technologies of World Wide Web, and he creates a browser. But was Marc going after a market for browsers? Heck no. Right? Like, Marc didn't, Marc didn't know what markets were at the time, right? He was just trying to build what was missing about the internet. He was, he was trying to make the internet immediately more useful for him and his team. So, why is that important? Well, Marc was living in a time machine. It turns out that he was using machines similar to the machines everybody would have soon. He was on a network similar to the kind of networks everybody would be on soon. And he was using the type of web protocols everybody would be using soon. And so his knowledge about that, that domain knowledge of the future, was more important than any businessperson's knowledge of improving the present. Everybody thought AT&T was gonna build the digital highway or that, you know, Time Warner or, or, um, Microsoft Network or AOL or maybe the government should build the digital superhighway. Everybody just assumed it would be a top-down extension of what is. And nobody assumed that some kid making minimum wage as a programmer in a supercomputer lab would have the better answer. It wa- it wasn't gonna be tops-down. It was gonna be a messy bottoms-up web of stuff, and that was the paradigm. That was the winning paradigm. Marc's advantage was not borne of his experience in business. It was borne of his experience with the

13. 45:34 – 49:21

    Biggest Weakness in Analyzing Founders

    1. MMMike Maples45:34

       future.

    2. HSHarry Stebbings45:34

       Where is your biggest weakness in how you analyze founders today?

    3. MMMike Maples45:38

       My biggest weakness has always been that, um, I'm, I'm too optimistic about whether people can pull it off. And, and you know, it's just, exceptionalism is so rare, and so few people are truly great. And so few people just have the, the willpower and the grit.

    4. HSHarry Stebbings45:54

       Will you invest in people if you don't like them?

    5. MMMike Maples45:57

       Oh, yeah. Yeah, I ... Y- that has nothing to do with it.

    6. HSHarry Stebbings45:59

       (laughs)

    7. MMMike Maples46:00

       Um, yeah. You know, I think that, that there is an aspect of great founders quite often where they're disagreeable. Because when you think about it as a, a, a breakthrough startup is a provocative act. It's a disagreement with the present. And the more of a breakthrough it is, the more disagreeable it is. And so quite often, these founders are disagreeable people because the present will fight back, and it won't fight back fair.

    8. HSHarry Stebbings46:25

       What do you do when you lose faith in a founder? When you invest in a company and they don't turn out to be what you thought?

    9. MMMike Maples46:31

       I have this saying, uh, uh, "Detach with love." So I'm like, "Hey, you know, it seems like I'm not able to help much here. Uh, if that changes, let me know. But I'm not gonna, I'm not just gonna sit here and tell you that you're not doing a good job and that we disagree about everything." And so that's okay. It's nothing personal, you know? And, and if you change your mind and I can be helpful, let me know.

    10. HSHarry Stebbings46:54

        Do you find that the messy middle is where the most value often lies? I've found that, you know, the winners very clearly from the offset actually are in the messy middle because the ones that really break out, Clubhouse, Hopin, BeReal, it's unsustainable. And then the losers are very clear.

    11. MMMike Maples47:14

        But you can't affect it that much regardless. I've never worked with a company that got product-market fit that wasn't wildly successful. And so that's kind of the only thing in the early days. Um-

    12. HSHarry Stebbings47:25

        I, I, I, I didn't get that. I've heard you say that before.

    13. MMMike Maples47:28

        Yeah.

    14. HSHarry Stebbings47:28

        I, I, maybe you're just brilliant and I'm shit, which is very possible, but I have several companies with product-market fit which are not successful. We, we mentioned them. Clubhouse, I got product-

    15. MMMike Maples47:38

        I don't think they had product-market fit.

    16. HSHarry Stebbings47:40

        Really?

    17. MMMike Maples47:40

        No.

    18. HSHarry Stebbings47:41

        I mean, they have millions of users engaging-

    19. MMMike Maples47:43

        Nah.

    20. HSHarry Stebbings47:43

        ... daily, um, for hours at a time. I mean, I, I would say that was product-market fit.

    21. MMMike Maples47:48

        Do they still?

    22. HSHarry Stebbings47:49

        Absolutely not.

    23. MMMike Maples47:51

        So they didn't. They just had a temporary ... They were like a solar flare.

    24. HSHarry Stebbings47:53

        Well, so then how do you, what sustainably defined product-market fit?

    25. MMMike Maples47:56

        You know, it's funny. I was talking to, uh, uh, Baiju Bhatt last week, you know, one of the co-founders of Robinhood.

    26. HSHarry Stebbings48:02

        I like him, yeah.

    27. MMMike Maples48:03

        Love that guy. And, and we were talking about product-market fit, and he goes, "When we got it at Robinhood, I was like, 'Oh, that's what product-market fit looks like.'"

    28. HSHarry Stebbings48:12

        I just think it's like stages. It's like a chapter in a book, and you have to continuously own the next product-market fit-

    29. MMMike Maples48:17

        Yeah.

    30. HSHarry Stebbings48:17

        ... chapter.
14. 49:21 – 51:56

    Are Growth Investors Misjudging the Efficiency of Capital?

    1. MMMike Maples49:21

    2. HSHarry Stebbings49:21

       One of my biggest concerns right now is that we are seeing a, a generation of growth ambassadors, or funds that were Series A who've now raised billions and billions, who assume that the efficiency of dollars is the same regardless of company stage or how much they have raised.

    3. MMMike Maples49:37

       Right.

    4. HSHarry Stebbings49:37

       And so they go, "Fuck it, we need to deploy 50, 75, 100 million. Sod it, let's put it in this company that's doing really well. I know we're paying well ahead of time. I know we're paying two years out. But we can still see a 3X if we pay three billion from here. So, sod it."

    5. MMMike Maples49:54

       Yeah.

    6. HSHarry Stebbings49:54

       But when you drop 100 million into a company, suddenly they do 10 other things, they ha-

    7. MMMike Maples49:59

       Right.

    8. HSHarry Stebbings49:59

       And that 10 billion exit massively reduces in likelihood because they're now-

    9. MMMike Maples50:02

       Right.

    10. HSHarry Stebbings50:03

        ... way less

    11. MMMike Maples50:03

        And this is why I really appreciate some of these founders that I've worked with who've done a good job, you know, like Kasser. I mean, he has enough money to do whatever the heck he wants. But in fairness to the CEOs of those companies, a lot of them never had any influences around them that said, "Hey, you're about to raise a bunch of money. That's cool, but like, let's not you and I be breathing our own fumes. We don't have product-market fit yet." We, we don't have an objective way to say, "Yes, check the box, we have product-market fit." And so if we're not careful, we're gonna...

    12. HSHarry Stebbings50:36

        Or even if we do have product-market fit, taking in $150 million-

    13. MMMike Maples50:41

        Right.

    14. HSHarry Stebbings50:41

        ... you gotta find a way to use that.

    15. MMMike Maples50:42

        Yeah. But what usually happens that's even worse is these companies raise a lot of money before they have legitimate product-market fit, and they hire ahead of achieving it, and now all of a sudden they're doing a bunch of wacky nonsense that's not contributing to product-market fit, and they just become culturally broken, right? They just, they just end up never developing any muscle memory for what an attractive customer is, how you should find one, what, you know, which ones to avoid, you know, what features are gonna be added to the strategy, which ones won't, all that.

    16. HSHarry Stebbings51:13

        What ha- what happens to the generation of companies that have raised these $100 million plus rounds at billion-dollar plus prices, but they didn't really have product-market fit? What happens to them?

    17. MMMike Maples51:22

        Um, I think most of them won't clear their preference stack.

    18. HSHarry Stebbings51:24

        And GPs just keep... But they've got five years of runway, seven years of runway. So they just kinda keep going and GPs are just telling LPs, "It's fine, it's fine." Then, then-

    19. MMMike Maples51:33

        The, the, the problem is there's an element of this where everybody in the game has an incentive to keep, keep the plate spinning.

    20. HSHarry Stebbings51:39

        Yeah.

    21. MMMike Maples51:39

        Right? Um, but you know, like, it goes back to the first thing we were talking about. My business is hard, your business is hard, but it's not complicated. 100 bagger on the first check, and it's like, if we get one or two or three of those in a fund, we're gonna be

15. 51:56 – 54:39

    Is Success Possible Without Product-Market Fit?

    1. MMMike Maples51:56

       successful. Like-

    2. HSHarry Stebbings51:57

       Have you ever had a company without product-market fit be successful?

    3. MMMike Maples52:00

       Yeah.

    4. HSHarry Stebbings52:01

       What, what one comes to mind?

    5. MMMike Maples52:02

       Um, you know, we, we had one that was struggling and we were about out of money, um, it was, um, uh, Cotweet. And, so this is kind of a funny story, actually. So, um, talk about in, in, uh, the US football, right? Um, we have the, I have this expression, I call it a forward fumble. So, um, so Steve Anderson of Baseline is talking to this company Cotweet, and, um, and he's like, "Hey, you know, what do you think the, the valuation ought to be?" And I said, "I don't know, man. They don't have a lot of traction. Um, I, I don't think I would do much more than 3 million pre if I was you." So Steve comes back and, uh, says, "They accepted our offer." And I was like, "What do you, what do you mean our, our offer? I thought you were just looking for my just insight about just what the price ought to be. I didn't say I was offering anything." And he goes, he's like, "Come on, dude, you know, like, you can't, you can't leave me hanging now because, you know, uh, Jesse's like, we're both in this thing." And so I'm thinking, "Shit," you know? And I, and it's like, I really like Steve a lot, and I think he's really s- really a great guy, brilliant. And I, and I was, I was like, "I'm kind of interested in it, I guess, and I don't know, and I need to think about this. At least the price is pretty good." So we do this thing together.

    6. HSHarry Stebbings53:22

       How big was the check?

    7. MMMike Maples53:23

       You know, I probably put in a few hundred thousand bucks and, and Steve put in more. So now it's, it's, uh, not, not that much later and, uh, Cotweet's pretty much out of money. And Steve's like, "Hey, we kinda got this problem, we're almost out of money." And I'm thinking to myself, "Damn it, you know, I can't believe I let him talk me into this. This is the dumbest... I'm never gonna make this mistake again." And then next thing I know, Steve says, "Hey, well, it looks like ExactTarget is gonna buy this company." And, um, at the time, I've never heard of ExactTarget. And, uh, they're gonna buy them for stock. And I'm thinking to myself, "Great, the last thing I... At least we're not out of business." But now I have ExactTarget stock that I've never heard of, some company in Minneapolis. So, so, uh, ExactTarget buys them. And then ExactTarget goes public. And, and I'm like, "Wow, they're going public." And I'm like, "How soon can I sell?" Right? Because I know nothing about ExactTarget. Well, before the lockup expires, Salesforce decides to buy ExactTarget. So we end up making 23 times our money.It was like, it was like when you fumble the football, it just bounces end over end up the field, just keeps going and going and going. And every time we're like, "Oh, man, I wish I could get out of this," we couldn't, and it just kept

16. 54:39 – 1:00:06

    2024 Review

    1. MMMike Maples54:39

       going.

    2. HSHarry Stebbings54:39

       I love that. Um, so listen, I want to do 2024 in review.

    3. MMMike Maples54:43

       Okay.

    4. HSHarry Stebbings54:43

       So, I'm gonna say, uh, a couple of different statements and you're gonna give me your thoughts. What was the company of the year in 2024?

    5. MMMike Maples54:50

       SpaceX. So, I, I just think, you know, they are starting to blast a lot of rockets into outer space. And I mean, what they have done is just so incredible, and I don't have to squint too hard to see a world where they're the most valuable company in the world. I mean, because if you're the most important dominant company in outer space, that's a big deal. And like, you look at like North Carolina, you know, has this hurricane and th- w- w- we've, we've passed some, what was it, $40 billion build broadband better bullshit bill, that nobody's built any broadband connections I'm aware of. And everybody's like, "Elon, can you help?" Puts his satellites above and like, you know, kind of makes it free. You know, he helped th- with Ukraine, you know, it's like...

    6. HSHarry Stebbings55:38

       Do you worry about the power that one man has? He controls the digital town hall now. With Trump, he just, uh, controls the physical town hall.

    7. MMMike Maples55:44

       Well, well, that's a different question. But, but like if you're asking me company of the year, it's SpaceX in my view, right? And, and, and so like, I'm like, you know, if, if, if people are saying, "Look, the, the problem with SpaceX is they're too powerful and, you know, that they dominate the skies and all that stuff," um, to me, that, that kind of underscores the, the year they had. But, but also just like the impact that they have, right? Just their ability to just provide broadband arbitrarily anywhere, anywhere in the world. And, and by the way, it's not gonna be just broadband. They're gonna be able to launch payloads of all kinds of things. You know, Baiju Bhatt's new company, uh, he's trying to have these satellites that have these solar panels that beam lasers down to earth, you know, for energy anywhere at these base stations. And so who's gonna put those things up into outer space is gonna be SpaceX, you know, putting the payload out there. And so, you know, you get to a world where SpaceX becomes a platform dominant supplier for outer space, and I think that's pretty, pretty impressive.

    8. HSHarry Stebbings56:47

       What do you think was the fund of the year?

    9. MMMike Maples56:49

       I'm gonna, I'm gonna go with 20VC.

    10. HSHarry Stebbings56:51

        (laughs)

    11. MMMike Maples56:52

        So I mean, dude, $400 million fundraise, fist bump for the win, man. I mean-

    12. HSHarry Stebbings56:58

        That's very, very kind of you.

    13. MMMike Maples56:59

        I mean, you're just barely not even a kid.

    14. HSHarry Stebbings57:01

        (laughs) Yeah, I know.

    15. MMMike Maples57:01

        And, uh, you know, and y- and you're doing this in Europe and I mean, 400 million bucks in Europe, uh, I mean, that's something. You should be proud of what you did.

    16. HSHarry Stebbings57:10

        I remember when we met in the battery years ago-

    17. MMMike Maples57:13

        Yeah.

    18. HSHarry Stebbings57:13

        ... I was desperate for you to give me a job, like (laughs) I was so desperate.

    19. MMMike Maples57:16

        (laughs)

    20. HSHarry Stebbings57:18

        I was like, "Come on."

    21. MMMike Maples57:18

        Well, if you would've come to America, I would've done it. Yeah.

    22. HSHarry Stebbings57:20

        That's very, very kind of you.

    23. MMMike Maples57:22

        It, it, but it's, it's interesting. I, I don't know if, if you feel this, but, um, some situations I've had when things worked my way, you, you didn't always let yourself be fully aware of it at the time. Right? You didn't, you didn't, um, you didn't stop and say, "Hot damn, that was something." Like, you know, "I really did something there." And, you know, maybe you're not doing that when it comes to this $400 million fund, but you, but like, if, give yourself some time to come up for air and be like, "Hot damn, I did that."

    24. HSHarry Stebbings57:56

        I feel a desperate, um, responsibility.

    25. MMMike Maples58:00

        Yeah.

    26. HSHarry Stebbings58:01

        Like it's a huge, huge amount of money, which I'm very grateful and-

    27. MMMike Maples58:04

        Yeah.

    28. HSHarry Stebbings58:04

        ... y- appreciative of, but like, the work starts now.

    29. MMMike Maples58:07

        Yeah. But also, it was legendary.

    30. HSHarry Stebbings58:10

        (laughs)
17. 1:00:06 – 1:08:54

    Predictions for 2025

    1. MMMike Maples1:00:06

    2. HSHarry Stebbings1:00:06

       Um, okay. Predictions for 2025, what will we see?

    3. MMMike Maples1:00:10

       I continue to be intrigued by what could happen with Bitcoin. Uh, so, so, um, I, I look at it slightly diff- so when I think about the way venture capital has thought about crypto, most of the really smartest people I know have been focused on Ethereum and Solana.And I look at Bitcoin, and it just feels to me like it's the thing hidden in plain sight. And it feels to me like, uh, there's a world where, uh, Bitcoin becomes, uh, more valuable than gold and then some, and where, uh, there's an entire financial ecosystem and rails around it. And if that happens, uh, I think Bitcoin's got a lot of room to run, but I think that there would be a lot of startups, uh, that could create, um, an ecosystem around it that would be interesting.

    4. HSHarry Stebbings1:01:00

       I asked Reid Hoffman this morning, "2025, end of year, what is the price of Bitcoin?"

    5. MMMike Maples1:01:05

       Huh. What'd he say?

    6. HSHarry Stebbings1:01:06

       I'll wait for you to answer and then I'll tell you what he said.

    7. MMMike Maples1:01:08

       End of the year or the highest point in the year?

    8. HSHarry Stebbings1:01:10

       End of the year.

    9. MMMike Maples1:01:12

       End of the year. I'm gonna, I'm gonna guess that it gets, uh, to, um, 130.

    10. HSHarry Stebbings1:01:18

        He went with 200.

    11. MMMike Maples1:01:19

        Okay.

    12. HSHarry Stebbings1:01:20

        What happens with Doge? Success or not a success?

    13. MMMike Maples1:01:23

        To me, success would be, it changes the cultural norms of what's acceptable from an accountability standpoint. Like, I don't think that Elon is gonna be able to do what he did with, say, Twitter, and fire a bunch of people and, you know, change all the rules and-

    14. HSHarry Stebbings1:01:40

        Bring in a sink.

    15. MMMike Maples1:01:41

        Yeah, and br- he might be able to do that, uh-

    16. HSHarry Stebbings1:01:43

        Am I the only one who saw the picture of him bringing in a sink in going, "God, we were thin."

    17. MMMike Maples1:01:46

        Oh yeah, it was awesome. Let that s- let yeah, let that-

    18. HSHarry Stebbings1:01:48

        (laughs)

    19. MMMike Maples1:01:48

        Yeah, let that sink in. Um, so, so but here's what, here's what I think is happening. And by the way, it's not just Doge, but like, I think for example, what, uh, Lonsdale, Joe Lonsdale is doing with his project Cicero is really good. The, the one of the problems that we have with government in the US is, it's like, um, you'll have a government entity that has a bunch of money that produces terrible results that are only getting worse, and they keep hoovering up more money. And at some point, we need to get to a place where we can say, "Can we agree that if we put money into something, we should have a goal? And that if the c- if the, if the entity achieves the goal, it gets more money, and if it doesn't achieve the goal, it gets less money? Can we agree that that's true, Republican, Democrat, whatever? Can we agree? Can we agree that we should even at least try to see what the goal is, uh, and hold people accountable for making those goals?" Now, you'd be surprised. Like, imagine like the crappiest company you ever saw and everybody's like dissin' on it all the time. Now, imagine that company, and the worse it does, the more money it gets. And the worst departments in the company get the most money because they say, "Well, the problem is that we're underperforming because you guys are underinvesting in us." That's what like so much of the government is like today. And so it's not just Doge in terms of the federal government, what Elon's doing, what Vivek Ramaswamy's doing. What Lonsdale's doing is important too because he's trying to take it to the local level, and the, what we need ... Like, you're not gonna be able to solve this stuff overnight, but what you wanna create is a culture and a set of mechanisms for accountability and for a natural way for things to recede when they're not effective. And if you could create a, a, a permanent change on that front, that, that would really be a big deal, I think.

    20. HSHarry Stebbings1:03:44

        What damaging element of venture needs to recede?

    21. MMMike Maples1:03:47

        Right now, there's just too much money, um, but, but I don't, I don't, I don't think it's ever gonna recede enough-

    22. HSHarry Stebbings1:03:55

        Do you not think it's getting worse?

    23. MMMike Maples1:03:57

        I, I think it might be.

    24. HSHarry Stebbings1:03:58

        Yeah, I speak to so many LPs, new sovereign wealth funds, new pension funds, new endowment funds, who have sub 3% exposure to venture today who wanna take it to 10 to 15.

    25. MMMike Maples1:04:08

        The thing that I think that most people don't have a handle on yet is, exits are cyclical too. And so throughout my career, you have these 15-year windows where close to half of the exit profits are made like in an 18-month to two-year window.

    26. HSHarry Stebbings1:04:24

        Horsey Bridge are brilliant in terms of their analysis on exit markets, and they found that really venture's a very challenging asset class-

    27. MMMike Maples1:04:30

        Yeah.

    28. HSHarry Stebbings1:04:30

        ... but brilliant when you take advantage of very constrained liquidity windows.

    29. MMMike Maples1:04:35

        That's right.

    30. HSHarry Stebbings1:04:36

        That is where you are able to have-
18. 1:08:54 – 1:15:18

    Quick-Fire Round

    1. MMMike Maples1:08:54

    2. HSHarry Stebbings1:08:54

       Mike-

    3. MMMike Maples1:08:54

       Yeah.

    4. HSHarry Stebbings1:08:54

       ... I can talk to you all day.

    5. MMMike Maples1:08:55

       Okay. Yeah.

    6. HSHarry Stebbings1:08:55

       So I wanna do a quick fire. I say a short statement, you give me your immediate thoughts. What do you believe that most around you disbelieve?

    7. MMMike Maples1:09:01

       I believe that more people should pay attention to the, the core tenets of Christianity, and I believe that, um... And I, and I don't mean that in a religious way. Uh, I mean it in a philosophical way. So, there were, there were some things that Christianity, uh, introduced to the world that were important. One is this idea of the forward notion of time, rather than cyclical time. Uh, the other thing that Christianity introduced was human rights, uh, as an inalienable right. Uh, the other thing that it introduced is this idea of unconditional love, which is a little bit harder to explain in a sound bite but it's, um, it's, it's sort of this idea that real love doesn't have conditions and, um, and I think that those ideas, um, are really important, uh, for sort of-

    8. HSHarry Stebbings1:09:57

       Do, do you believe that real love doesn't have conditions?

    9. MMMike Maples1:10:00

       I do, yeah.

    10. HSHarry Stebbings1:10:02

        But if you don't set the boundaries to your love, then someone will...

    11. MMMike Maples1:10:05

        Yeah. So boundaries are different from conditions. So like, a condition would be I get my feelings hurt somehow, so I say something intentionally mean to hurt, hurt you back. Well, if you buy into the premise of unconditional love, you'd say, "It would be irrational for me to ever do that because I love this person. Why would I, why would I intentionally wanna harm that person?" If they say something bad to me, I can say, "Hey, look, something's clearly gone wrong with this conversation. We need to have this conversation some other way 'cause this, this, this isn't working for us." But like, unconditional love is a really powerful way to think about stuff because it, it causes you to realize that if you love somebody, that you, you always want what's best for them. That doesn't mean you always agree with them, that doesn't mean you always put up with their crap, but it means that you sincerely want what's best for them, no matter what they do, and that you try to show up in the world in a way that that's true. And one of the things that I really like about the teachings of Jesus was, um, he basically said, uh, that, uh... How do I describe it? When you, when you step back, that's really true about everybody, that you should try to be that way about everybody. That doesn't mean... If somebody's hostile to you and you gotta defend yourself, you defend yourself, but you do it through the lens of saying, "I regret the fact that I have to harm you because you've made a choice that gives me no alternative." Uh, but what you try to avoid is calling them names and, you know, all this other stuff. And so, so I, I think that that is a really profound idea, um, and, and not enough people have internalized that idea and how powerful philosophically that was. But like, everything around us in the Western world, much of it came from, um, Christianity. And by that, I don't mean the Jesus as a religious figure, but Jesus as more like a philosopher king.

    12. HSHarry Stebbings1:12:06

        I saw a picture of your father, and he was a very early Microsoft employee, I think, wasn't he?

    13. MMMike Maples1:12:11

        Yeah.

    14. HSHarry Stebbings1:12:11

        What was your biggest lesson from your father?

    15. MMMike Maples1:12:13

        Um, that's another good one. Um, it was, um...

    16. HSHarry Stebbings1:12:17

        They're wonderful pictures.

    17. MMMike Maples1:12:18

        Do your best. So what my dad helped me realize... So, you know, and, um... Well, another Brit, uh, Adam Smith, uh, did you ever read The Wealth of Nations?

    18. HSHarry Stebbings1:12:29

        Yeah.

    19. MMMike Maples1:12:30

        Yeah, it's pretty good, right?

    20. HSHarry Stebbings1:12:31

        Fantastic.

    21. MMMike Maples1:12:31

        Pretty legit. And so one of the things that he talks about in The Wealth of Nations is this principle of comparative advantage. I think most people have the wrong idea about competition. So like, if I... If you think about it-You have your strand of DNA, I have mine. Nobody in human history has ever had the same DNA as anybody else, ever. And so that means every single one of us is like a node on a network, completely unique, which means that everybody in the world, everybody, I don't care who it is, has some set of comparative advantages. And so the, the, the failure mode that a lot of people get into is they try to be the best. But what I learned from my dad is that what you want to do is do your best, because there's only one you, and you can't be better than your best. So, like for example, you know, I think Peter Thiel is really smart. But I'm never gonna be better at seed investing than Peter Thiel by trying to study, you know, Strauss and, like, uh, Goethe, and, like, Nietzsche, and, like, all these historical economic sort of trends and macro stuff. Like, that's just, like, he's gonna beat me at that game. But if it's like who's the better philosopher king about seed, and, like, what makes greatness in a seed round and what makes greatness in a startup, I think I can win that game against anybody, right? And so, like, what I, what I learned from my dad was that you as a person have intrinsic motivation. You as a person can provide something that the world wants, that values, that you can get paid to do. And part of your, part of honoring the limited time you have in this life is to figure out how to show up every day to honor the gift of your time by being your best, by doing the best you can do. Uh-

    22. HSHarry Stebbings1:14:23

        Final one, and I, it, it's a, it's a hard one, but I find it quite revealing. What about the way that your parents brought you up did you deliberately decide to do differently in the way that you bring your children up?

    23. MMMike Maples1:14:34

        The one thing that, uh, that I think would have been good would have been, and I, I still need to do better about it, but just to get outside more and do more sports and stuff like that. My dad was, um, very cerebral, into computers, and everything we talked about was computers or the computer business and programming and stuff. We didn't, uh, I mean, we played baseball and stuff and hung out together outside, but we weren't... He was not, like, into sports, you know? And so, um, that's something that, uh, I'd like to do a better job of over time, is to kind of promote that a little bit more.

    24. HSHarry Stebbings1:15:10

        Mike, I, I could always chat to you all day. It's such-

    25. MMMike Maples1:15:13

        Yeah.

    26. HSHarry Stebbings1:15:13

        ... a joy to have you here. Thank you so much for doing this.

    27. MMMike Maples1:15:16

        Thanks for having me, Harry. Thanks for putting up with me.

Episode duration: 1:15:28