Oren Zeev: How I Raised $1 BILLION in 12 Months | 20VC #888

1. 0:00 – 5:38

   Origins into Venture

   1. HSHarry Stebbings0:00

      (reversing beeps) Three, two, one, zero. You have now arrived at your destination. Oren, this is such a joy for me to do. As we chatted about before, third time guest. This is, uh, very, very rare. But there's always so many things that I bluntly learn from our conversations, so thank you so much for joining me today.

   2. OZOren Zeev0:21

      My pleasure, yeah.

   3. HSHarry Stebbings0:24

      I would love to start, Oren, for those that missed our prior episodes, uh, first off, like one to two minutes, how did you make your way into the world of venture before we dive in?

   4. OZOren Zeev0:33

      So I started as a EE engineer, started as a research fellow at, um... and then I was just staff member at IBM. Got a business degree, got back to Israel. I, I didn't say, I was born and raised in Israel. It was 1994 and the whole venture industry literally started overnight and the whole industry was 10 people. And I was lucky enough to be hired by, uh, to, uh, to be hired by, uh, Apex who wanted to open, uh, operations in Israel, one of two people. That's how I got into venture. I spent 12 years in... with Apex, the first seven years in Israel, and then they asked me to move t- to the US and strengthen the, uh, US operation, which I did. I moved to the Silicon Valley 20 years ago, 2002, and I, uh, for about five years I was heading their tech practice and then, and then I retired and, or got fired, and then I really started the, uh, you know, the interesting, uh, part of my career which is the, you know, go- doing it my way on my own.

   5. HSHarry Stebbings1:34

      I totally get you and what a journey it has been doing it your way on your own. And I mean this question respectfully, Oren, but you're a little bit more seasoned than me, you've seen a few more crashes than me. When we look at where we are today, what's different and what's the same about the current crash? I'm fascinated given, you know, you've seen 2008, you've seen the dot-com, how's this different? How's it the same?

   6. OZOren Zeev1:57

      Well, it's very different from the dot-com which was like really nuclear because back then it's not just the valuations collapsed, it... and really collapsed, not 50%, 95%. But it's also that the businesses collapsed. There was no business, you know. You could be selling to a certain segment, you know, of the market and overnight all your customers basically go out of business, for example. So, um, that was something that I think is one in a hundred years hopefully. I, I, I hope I never see anything like that again. 2008 was, uh, not as, m- nuclear and b- big in terms of, uh, the tech, uh, industry. It was maybe bigger if you look at the overall maybe effect, uh, because it wasn't specific to tech. Unlike 2001, it was specific to tech. 2008 was much more general. So in many aspects the worst, but in tech it was not, uh, it was not as bad. Uh, but still, e- there was a lot of real pain. I think that today valuations were cut by 50% in the public markets, uh, on average, but most of the businesses are still f- going very strong. You know, most of my companies we don't see necessarily any weakening of demand. And, uh, some companies decide to grow a little bit slower because they wanna maybe reserve a little bit more cash, uh, but the fundamentals are there, the fundamental demands... If that, if, if there was a healthy business before it's a healthy business now. So, I don't equate, uh, the current crisis to those two big ones.

   7. HSHarry Stebbings3:32

      Oren, when, when it was, uh, the dot-com you were pretty early in your career then. We have many people pretty early in their career seeing this for the first time. How would you advise them in terms of managing their investor psychology and how did you manage yours early in your career seeing 95% drops?

   8. OZOren Zeev3:51

      How would I advise? First of all, I think every crisis is different. So I think, oh, I, you know, I was in that... Just like every war is different, so you know, you say, "Oh, I was in this war, therefore..." You know, it never works. Uh, and, um, so I don't think there is, you know, necessarily, um, like, uh, like a recipe, um, from previous crises. But, um, personally I can tell you that every single deal that I did in 1999 tanked, was a bad deal in, uh, every single deal. Like really, 0% success. And really what helped me back then is not to be overly obsessed with the mistakes that I'd made and just basically start over, you know? And, uh, you know, I moved here in 2002, you know, the first deal that I did off the bat was, uh, was Audible which was a big success, so, uh, you know, it's not about saving the, uh... You know, don't over obsess about saving, uh, it, would be my advice. You know, if something's not working, something's not working, just not... you know. By the way, it's, it's a good advice regardless of crisis, you know. If something's not working, something's not working, no need to, uh, overly ob- obsess about it and, uh, and, and make the life of the, uh, uh, founder miserable more than it has to be, and, uh, you know, just, just be positive, help if you can but don't... not obsess and, uh, and just focus on the future.

   9. HSHarry Stebbings5:22

      I, I, I love that and I totally agree in, in both the good times and bad, that mentality. I do wanna start, and we're gonna kind of deconstruct, uh, a load of different elements, um, a little bit kind of borrowing from the article in The Information which I loved.

   10. OZOren Zeev5:35

       (laughs)

   11. HSHarry Stebbings5:35

       But if we start with the cadence of deployment,

2. 5:38 – 18:00

   Deployment Pace

   1. HSHarry Stebbings5:38

      um, this was a striking one. Um, you know, raising a $500 million fund less than a year post the last one, it's pretty unprecedented, Oren. I mean, the deals are fucking fantastic, but it is fast. How do you answer the question on speed of deployment?

   2. OZOren Zeev5:54

      First of all, it's even faster than you think because in two thou- in 2021 I raised three funds, uh, total, total about a billion.... and then now I'm raising another 500 million. Um, and I, and I, and I don't keep reserves so I, you know, invest it, you know, invest it all. Um, (clicks tongue) you know, I don't try to manage the pace at all. So I, um, y- you know, I just try to do great deals when I see them, and if I don't see them, I don't want to do them. So I don't wanna miss a great opportunity just because I've invested a lot of money in the past (laughs) three months. Uh, and likewise, you know, if I ... It's theoretical because it hasn't happened, but let's assume that I can't sign a good deal, deal for a year. Uh, I wouldn't want to do an in- in, like, make an investment just because I haven't done one in a long time. So I just don't not ... And I tell p- uh, LPs if they ... if an LP asks, at this point they don't ask, but, you know, if they do ask, I just tell them, you know, I just don't try to manage the pace, you know? It's totally opportune- uh, opportunity driven.

   3. HSHarry Stebbings6:54

      (laughs) So I was brought up with-

   4. OZOren Zeev6:56

      Deal with it. Is, is ... My a- my answer is deal with it, you know? That's my answer.

   5. HSHarry Stebbings7:00

      (laughs)

   6. OZOren Zeev7:00

      (laughs)

   7. HSHarry Stebbings7:01

      I mean, but I, I, I totally get that, and it is for some LPs and not for others. I was just brought up strategically on the temporal diversification-

   8. OZOren Zeev7:10

      Yeah.

   9. HSHarry Stebbings7:10

      ... is the way to build great portfolios.

   10. OZOren Zeev7:13

       Yeah.

   11. HSHarry Stebbings7:13

       Am I wrong? Was I sold a dream (laughs) that isn't true, Oren?

   12. OZOren Zeev7:18

       You know, I don't wanna say that y- you know ... Uh, yeah. You n- you know, yes, I think you're wrong. You know, at least I don't think the same way. Uh, uh, I, I had, you know, I think after my third fund, I had a, uh, an LP who joined in the third fund and four months later I tell him that, um, you know, "I'm raising off line four. I, I, I finished. I'm, I'm, I'm, uh, raising..." And he totally freaked out, and he started lecturing me on... He didn't call it, uh, what you call it. He called it, uh, vintage diversification, but I think it's the same thing, same idea.

   13. HSHarry Stebbings7:53

       Sure.

   14. OZOren Zeev7:53

       And he started to lecture me, you know, from all ... You know, uh, and, and I just, you know, it... Long story short, he's not a, he- he's not an, uh ... And he was not ... He's not an LP in four, and he's not been an LP ever since. He's not gonna be invited ever to be an LP in Z Ventures. You know, it's just ... Again, it's the same answer. (laughs) I, uh, you know, I just do good deals. I don't wanna think about portfolio construction and, uh, i- is vintage diversification and all that. By the way, I would say that in this case, uh, actually from the LP perspective, what do they care? If I, if I raise a fund every year, uh, and they just are in every fund, they do get the, uh ... You know, even if one fund is not what he called vintage diversified, they would be vintage diversified, i- if they care about it. I don't care about it, but if they do, (laughs) you know? They could just invest in every fund. But anyway, in this particular case, he was too ... I think he was too obsessed with this concept and because of that, he missed out on all the great funds that followed, uh, fund three.

   15. HSHarry Stebbings8:53

       Well, I mean, the reason they have a problem with it is, as you know, they have budgets and they have, you know, set allocations for z ventures, and when you come-

   16. OZOren Zeev9:00

       Yeah.

   17. HSHarry Stebbings9:00

       ... back after four months, you're fucking up their model (laughs) by then.

   18. OZOren Zeev9:04

       Yeah. So hence my answer before. Deal with it. But, you know, um, yeah.

   19. HSHarry Stebbings9:11

       (laughs) I, I, I totally get... Can I ... Ho- does the state of the market today impact that deployment pace? I, I, I have to be honest with you.

   20. OZOren Zeev9:17

       Yeah.

   21. HSHarry Stebbings9:17

       I am sitting here going, "You know what? Eight out of ten deals that we might have done, honestly, were a very diversified fund, unlike you actually, we're not fucking doing now. It has to be a nine and a half out of ten. And so the bar's just gone up for us." Has it changed your style of deployment?

   22. OZOren Zeev9:36

       (laughs) It hasn't changed, uh, uh, the way I make decisions. It hasn't changed anything for me, but I'm not immune from the market. I'm not in a, like, I'm not in a, in a different planet. And in my case, uh, by far most of the money is actually being invested in follow-ons, uh, into companies I'm al- I'm already invested in. And the pace of these follow-ons, um, has dramatically come down, because in 2021 everyone rushed to raise more and more capital because every few months you could double the valuation and people rushed. So, you know, that's the ... The pace of these follow-ons was v- it was very, very fast. Now, most companies, even the ones that are doing great, you know, most of them are flushed with cash. They, you know, they don't have any reason to, uh, hurry to the market. Why not build more value before they, uh, go back to the market? So, uh, uh ... So even if I continue to invest at the same pace from a new investment standpoint, that's only about 20% of the cash that I invest. 80% goes into, uh, uh, later stages of companies that I got in early and, uh, in those, I think these follow-on, uh, uh, rounds are, you know, much slower, fewer and far... much farther between. So yes, it's gonna ... I, I assume it's gonna impa- uh, I, I, I expect it to, to impact my, uh, uh, my pace, but not because of some strategic decision of mine to slow down or not because I'm trying to manage it. It's just that, that I expect the market forces to dictate it.

   23. HSHarry Stebbings11:18

       You know, my biggest misses have not been ones that I haven't done. Well, I mean, other than Riverside, but it, it's been one (laughs) where ... Fuck. Um, but it's been ones where I invested but I didn't double down because I thought the price was too high. It's too high. It's ridiculous.

   24. OZOren Zeev11:35

       Yeah. It's-

   25. HSHarry Stebbings11:35

       Now, you mentioned there they come back because they can, and you c- concentrate capital incredibly well, but my question to you is, how do you determine whether it's a stretch or a stretch too far on the price that they're asking and what you're willing to pay?

   26. OZOren Zeev11:53

       So first of all, I don't make a huge distinction b- I don't make a real distinction between a new deal and, uh, and a follow-on deal, because each deal should have, you know, standards on merit, I, you know, I believe. So, um, uh, you know, in general...... in general one, I don't think one should be overly price sensitive. Obviously, you know, you have to have some discipline. But the reality is that if you're dealing with companies that are growing at over 100% per year, and you believe it's sustainable, okay, even if you pay up, let's say by 50%, pay- pay more than you should by 50%, you know, it will catch up in the six months, right? So, uh, it's not a big deal, uh, to pay more for something that is... that you know, or you feel, or you believe that is, uh, um, is gonna continue to grow fast and, um, for many years to come, and has a great ou- you know, and is gonna have a great outcome. So, uh, so I- I guess I'm... Yeah. So I would rather make the mistake of paying a little bit more than... If I pay e- again, if I have confidence and conviction about the other metrics, I would rather make the mistakes of paying, uh, you know, 50% more than maybe I should have based on some comp analysis, uh, than, uh, miss out on the opportunity.

   27. HSHarry Stebbings13:20

       What happens when you lose faith in the entrepreneur? It sometimes happens.

   28. OZOren Zeev13:24

       Yeah.

   29. HSHarry Stebbings13:24

       What happens when you lose faith?

   30. OZOren Zeev13:27

       So first of all, I want to be as transparent as possible so that they're not surprised. And I... A- and by the way, it doesn't even matter if it's losing faith in the e- in the entrepreneur or just losing fa- faith in the business. It's not the same. I could still believe in the entrepreneur, but just the thing with this business, you know, I don't see it succeeding. And in that case, uh, it doesn't... Thankfully, it doesn't happen often, but it does happen. I'm just being transparent with the founder and I tell him, "Listen, I don't think we... I don't think we're going to be able to raise. I don't... I'm not going to carry this on my back. I'm not going to continue to, uh, uh, back. I don't think you should continue," e- you know, because, you know, because the founders are also investors. In fact, they invest something more valuable than money. You know, they invest their time, which is more valuable than money. Um, and, you know, I think when you're coming from, you know, a place of authenticity and- and- and- and- and- and candor, uh, at least in my experience, uh, founders react very well to it. You know, not from a... Not from a place of blame, you know, should have done this or should have done this. "You know, we tried. We- you gave it 110%, uh, sweat and tears," and whatever else Churchill said, and, um, and yet, and blood, I guess. "And, you know, it doesn't seem to be working, you know. Uh, not everything has to work." And, you know, there's no shame in it at all. I don't have to say it, but, you know, it- it- I- y- you know, I- you know, non-verbally it comes out. And, you know, in my experience, uh, you know, founders can... Most founders, uh, at least in my case, all of them that I can think of, are really mature about it. I just had this conversation a few weeks ago, and, you know, a company that... Actually, we thought... You know, I- I told him, "I'm going to support the company." By the way, I didn't lose faith in them, but, um, just I wasn't sure enough in the business. I told him, "Listen, I'm going to support the company, but I'm not going to lead it if nobody else does." And, uh, we were surprised that we didn't get the reaction that we expected. Uh, it was harsher than we thought. And, uh, you know, we decided to just try to sell it. Now we're trying to sell it and we'll see. But if we cannot sell it, then we'll shut it down, you know? And, um, you know, I believe that sometimes you can... You know, the analogy that I use sometimes is that, you know, uh, you probably know that, um, 50% of the, uh, healthcare costs in the... in- in the US are spent on the last two months of, uh, of life. Okay. It's crazy. And, uh... And that's... And- and- and the... and- and- and the... And nobody wins because, you know, I- I was never in this situation, but I'm sure that I would rather live two months less than, you know, live another two months and suffer. And, uh... And the analogy for the companies is, uh, if you decide to give up a month or two too late, the agony and the lack of dignity, um, and the pain is like 10 times. You know, when you s- when you decide to stop in time, you have enough time to do it in an organized fashion, to make sure everyone is taken care of, to maybe even have a chance to find soft landing for the employees. Uh, you run it a month too- too long, and then you owe money here and you owe money there. And- and this pe- this- this- the- the employees are livid with you and other people livid with you, and just not worth it. So I'm actually not a proponent of, uh, of, uh, you know, cap- you know, you know, making it or die trying. You know, I- I think it's okay, you know, to give up, you know, like a few weeks before. (laughs) You don't have to, uh, uh... You know, it's enough that you gave it 99.9% effort. You don't have to do the... or because the last .1% is... could be very, very painful. So anyway. So hopefully-
3. 18:00 – 24:45

   Ownership

   1. HSHarry Stebbings18:00

      the information article, which was, you know, they mentioned on ownership. I- I obviously interview tons of VCs, Oren, as you know, and many of them say to me, "Harry, ownership actually doesn't matter today, because outcomes are so much larger than they ever were."

   2. OZOren Zeev18:13

      Yeah. (laughs)

   3. HSHarry Stebbings18:13

      And so it doesn't matter.... how do you feel about that and the importance of ownership today?

   4. OZOren Zeev18:20

      No, I never focused on ownership per se, you know, and, and that was the focus of the information, not of mine. You know, I, I really... (laughs) I, I, I wasn't, you know, they were just very, very, very focused, and I, you know, to the point of obsession with that point, and they really, really focused on that point. Uh, if I'd written the story, I would have focused on other things. Um, I don't think ownership, uh, to me is... uh, it was never, uh, uh, uh, important per se. I know I, uh, if I thought that, you know, a 1% ownership in a company can, you know, m- move the needle, um, then I would do it, you know? Um, so to me, the question is, is a success... in case of success is it gonna move the needle or not? If it's not gonna move the needle in case of a success, then, then, then one shouldn't do it regardless of the ownership, and vice versa. There is some correlation, but I, I, I... it's, uh... so I'll give you an example. Uh, I had an opportunity when Uber Freight, uh, spun out of Uber, I had an, a very unique opportunity to get ownership, and the ownership that I... to buy ownership from, uh, actually from the, uh, from Anton Landowski, the guy who, uh, allegedly, or not allegedly actually because it was already litigated, uh, stole the technology from Google. And, um, and it was 3% of the company, and I was very happy to do it. And, and now I probably own less than 2% of the company 'cause I got diluted sense, and I'm still very happy to have done it because I think it's gonna be double digits in billions outcome, uh, when it goes public. Um, so yeah, I don't have any hard and fast rules. I think it's silly that VCs have these hard and fast rules. In fact, this is one of the fallacies of the industry is CVCs that would fight... they have... in, in their mind, there is like, a number. Let's say it's 20%. And they would fight, fight like crazy about the difference between 19 and 20%, but they don't, they don't care if it's 20% or 25%. Uh, why? You know, the difference between 19 and 20 is exactly the same difference as between 20 and 21. What's so special about whatever threshold you decided? The answer is, because they operate in, you know, some kind of a partnership, organization, organization have rules that don't always make sense because they have to have rules, and that organization decided that the threshold is 20%, so for that individual partner, if it's less than 20%, it's gonna be an uphill, uh, to approve it. And if it's gonna be more than 20, and, and more than 20%, it's not gonna get special credit. So, you know, so he or she, you know, they don't care about the over 20%, but they have to have the 20% so that they don't get, uh, you know, uh, uh, hard questions from their partners when they try to prove it. So, I don't have that problem.

   5. HSHarry Stebbings21:06

      You know another problem I think partnerships bring? I think they bring assholes to board meetings. And let me explain that. When a company's not doing well, you, Oren, become an asshole at the board if you have a big partnership because you, you're feeling the insecurity and the weight of your partners behind you saying, "Oren, that's a crap deal, that's a crap deal." Whereas for me and you, we have no partnership putting pressure on us if a company is struggling. We can operate in isolation and in pure thought, whereas they can't. I'm interested, that I see daily. For you, where do you see partnership models creating challenges furthermore?

   6. OZOren Zeev21:45

      First of all, your, to your point 100%, and in fact, uh, I was. I can compare myself because I was 12% in partnership and, and, and definitely, it's not that I was particularly an asshole before that, but there's no question that I was, uh, more of an asshole then than I am now, okay? Um, I don't think I was, but more than, more than now, for sure, so 100%. Um, and the more insecure the partner is, you know, the worse it is. No question about it. Um, where else? Look, for example, uh, if you need to... if you know, you know, you need to approve a deal. You, uh, you know, being a partner, or actually being a VC, you know, it's true for you and me as well, uh, you always, like, it- it's always like a triage exercise because every day, you see a bunch of opportunities, and every day, you need to decide which ones you're gonna focus on, okay? If you are the decision maker, you're gonna focus on the ones that excite you the most. If you're a partner in a partnership, you're gonna focus on the ones that you think you have a reasonable chance to, to approve, okay? Even if they're not necessarily the ones that, you know, uh, uh... so it's easier, for example, to, um, uh... everyone knows that, uh, or everyone believes that, um, the real, you know, uh, the real, the really great outcomes had some, some element of contrarian, uh, thinking, uh, in them. But let me ask you this. You know, my, my point is that it's so much easier to be a contrarian when you're operating on your own and you don't need to convince anyone. Uh, but if, you know, a- a- as a partner in a partnership, I'm looking for less friction, not more. So if something is controversial, you know, I- you know, it's gonna be much tougher for me to decide to focus and dedicate my next two, three weeks to try to, um, you know, you know, push uphill some, uh, some deal as opposed to, uh, something that looks very safe in terms of the ability to approve it because it's a hot space, you know, everything checks all the boxes. It may not be a great deal, but it checks all the boxes that people could ask. So, that's another example where I think that, you know, a partnership can drive things more towards, uh, uh, mediocrity as opposed to, uh, uh, exceptionalism.

   7. HSHarry Stebbings24:08

      You said the element of ownership there in terms of the requirement to have 20% was kind of an, uh, kind of BS element of venture models-

   8. OZOren Zeev24:15

      Yep.

   9. HSHarry Stebbings24:15

      ... in particular. Are there any other kind of BS elements of venture models that you find interesting that it's good to shine a light on?

   10. OZOren Zeev24:24

       ... yeah, I'll give you another one. Uh, but I don't want to give all my secrets. Well, you know, but I'll give you, uh, another one.

   11. HSHarry Stebbings24:30

       It's just me and you, Oren. Don't worry.

   12. OZOren Zeev24:31

       The whole concept of, um ... Well, actually, we already covered a few, like vintage diversification and, uh ... (laughs) But, um, uh, you know, general diversification I think is a way, uh, um ... I, I think by and large,

4. 24:45 – 33:50

   Diversification

   1. OZOren Zeev24:45

      uh, funds, uh, over, uh, in, too diversified and LPs are too diversified in terms of their own, um, uh, the number of e- of their GP relationships. But let me give you another one. The concept of protecting your ownership, okay? Let's assume that I own 17.3% in a company, and now there is a deal and it's really important for me, for the typical VC, really important to protect their ownership, meaning to keep it at 17.3. In my end, my question is, what's so sacred about thir- 17.3%? I just made up this number, totally arbitrarily. Uh, if I love the deal, why wouldn't I try to push it and, uh, and get to 20% or 25%? And if I'm not sure it's a great, you know, opportunity, why wouldn't I, why would I care so much if I get diluted a little bit? Why, why would I care so much about putting enough dollars to keep the 17.3 versus, say, are these dollars really better invested here versus any other opportunity, um, uh, that I can put this money in, new or full-on, doesn't matter?

   2. HSHarry Stebbings25:53

      Mm-hmm.

   3. OZOren Zeev25:53

      So I think that's another, uh, idea that, to me it's never about protecting the ownership. You know, if I, if I put m- money in the company, again, i- i- i- it doesn't matter if it's a follow-on of an, uh, o- or new, it's because I want to put money in the, uh ... I want to put new money, not because I put something in the past and I want to protect some arbitrary number.

   4. HSHarry Stebbings26:11

      So I think pro ross is BS. I think you should either be in and try and increase to 20 or 25-

   5. OZOren Zeev26:16

      Yeah.

   6. HSHarry Stebbings26:17

      ... or be out and have that hard conversation, but be very clear-

   7. OZOren Zeev26:20

      Yeah.

   8. HSHarry Stebbings26:20

      ... about it. I think it's, it's lame-

   9. OZOren Zeev26:21

      Or, you know, or, or in the middle. Or, you know, you don't, you don't, you don't want to hurt the company, sometimes you would put maybe more than you would otherwise want to put, but you, but you don't want to hurt the company, you don't want to ... So you know, you know, I'm not saying it's that black and white. You have to be all, you know. Because to me, the first rule is really to, uh, uh, you know, to, to, to, to put the, the company's, um, interest, um, and the founder's, uh, uh, uh, front and center. But, but yes. Okay, continue. I kind of cut you off.

   10. HSHarry Stebbings26:48

       No, no. I, I, I'm, I'm intrigued that you, you said about kind of people being too diversified.

   11. OZOren Zeev26:52

       Yeah.

   12. HSHarry Stebbings26:53

       And that did make my ears prick up, because I, I had this chat with Chalfen. You must be a very good picker, which you clearly are. So I mean, you've proven it in data. But it goes against the data, Oren. Like, nine or 10 companies in a portfolio is not diversified enough. And it is for you because you're a very good picker. But I don't think many people are very ... I don't think I'm a good pick- ... I don't think I could do nine or 10 companies.

   13. OZOren Zeev27:18

       Fair enough. I, I do think that the number of, uh ... Of course, it's not an absolute number. I think that the higher the probability of success of the underlying, of each individual underlying, uh, investment is, the less diversification you need. If you, if you believe that every deal that you do has 50% chance of being a big winner, then you don't need more than seven or eight. You know, you probably don't need more than five. Uh, if you believe that probability is only 10%, then of course you need a higher number. So I, I, I, I ... That I grant. Uh, I concede this point. I would say that on the LP side, I think they're way over-diversifi- uh, -fied, because most of them have 20, 30, 40 relationships. That's crazy, because each of their underlying investments or funds is also very diversified, is not very likely to lose money. Um, so each ... You know, a fund is not, is, is 100 times less risky than an individual investment. So, why would they need 20, 30, 40, uh, you know, relationships? It's, it's, it's stupid. They don't.

   14. HSHarry Stebbings28:30

       Do you know what I think the biggest, most broken thing about LP worlds today is? It's the incentive structures for LPs. I'm speaking to a lot of them who are investing in the biggest brand names, and we don't need to name them, and they have the most egregious terms. And I'm going, "What you need to return in terms of enterprise value to get the same that you would elsewhere with these terms is ludicrous." And they go, "It doesn't matter, Harry. We don't, we don't need to make the money on it. I just get credit for being in this brand name, and then I can use that brand name to get into other firms." And I don't have-

   15. OZOren Zeev29:03

       I ...

   16. NANarrator29:03

       (laughs)

   17. HSHarry Stebbings29:03

       And I don't have carry anyway, Harry. I get a bonus and I get a salary.

   18. OZOren Zeev29:07

       Yeah.

   19. HSHarry Stebbings29:07

       Pure sell."

   20. OZOren Zeev29:08

       100%. 100%.

   21. HSHarry Stebbings29:10

       Is there anything else you'd like to change?

   22. OZOren Zeev29:10

       By the way, especially, especially true for the fund of funds, because they also use ... It's because they also need to use the brand names to raise money-

   23. HSHarry Stebbings29:19

       Mm-hmm.

   24. OZOren Zeev29:20

       ... uh, for their, for their funds. 100%.

   25. HSHarry Stebbings29:23

       Is there anything else you'd like to change about LP world?

   26. OZOren Zeev29:25

       By the way, that's great news for the brand. (laughs) That's great-

   27. HSHarry Stebbings29:27

       (laughs)

   28. OZOren Zeev29:27

       ... news for the big platforms with the big brand names, you know? Uh ...

   29. HSHarry Stebbings29:31

       Oh, it's, it's genius. The question is, can you elevate yourself and your brand into the hailed territory, which like Paradigm have done, Katie Horne has done. That's kind of it.

   30. OZOren Zeev29:45

       Yeah.
5. 33:50 – 40:44

   Price Sensitivity

   1. HSHarry Stebbings33:50

      them before, you know, you have a chance to. And founders often want that. How do you so effectively buy up over rounds and do it time and time again?

   2. OZOren Zeev34:00

      The first principle is always, always, always follow what the founders want to do. I never apply any pressure, not even, not even... I never even ask. I'm never even saying, "Oh, do me a favor. It's gonna, really gonna help me if you let me put more..." Because I don't want to put... 'cause even this I call pressure, you know. I, I don't wanna, I wanna, I don't wanna guilt trip them or anything like that and would never say, "You know, I supported you when you were in it and now... " Never, ever, you know. So it has to be something that the founders want to do. And, uh, the other thing I would never do is I would never do it to other funds. You know, if the company went... I'll never use other funds as stalking horses. So I would never, um, let the company, uh, you know... kind of plan for the company to talk to others to set the price and then they'll come in and do it myself. So, um, uh, so w- whenever a founder goes out, th- they're, you know... Uh, uh, they have to be sincere about, uh, about it. They should not talk to people just to, uh... Um, it... You know, at the end of the day... First of all, at the end of the day, the only effective way to increase ownership is to preempt and lead the round. If you sit and wait for someone else to lead it, then, at best, you're going to get to a pro round. Okay? Now, the only way to lead a round is to offer something to the founders that is better for them than the alternatives. Um, because I don't want them to do it unless they think it's better for them than the alternatives. Now, better doesn't necessarily have to be high valuation, you know, because it's a package. It's the process, the speed, the ease of it, uh, you know, whatever it is. Uh, and typically, there are, um... You know, typically there are three situations. One is the normal situation. They go and they, and they do a round, they talk to a few partners, uh, a few VCs. They choose one, they go with them, and then, and then I typically don't get to increase my ownership. Um, the other two scenarios where I do get to, uh, uh, increase my ownership by leading a round are... there are really two, two kinds. One is that for whatever reason, they don't feel like doing a round right now when they need... Uh, and they come to me. Either I, either I initiate or they initiate it, say... And then, uh, either we can agree on something that would... is gonna be good enough for them to just prefer not to do a round, to just do it for me and-... um, and then I primed around the 21 sites. That, uh, is something that could happen. By the way, just happened with Riverside, for example, a few months ago. Um, and the other scenario is that they do go to the market, and the market is less excited about the company than they and frankly I thought. And yet I think that for whatever reason, I feel that in this particular case, I'm smaller than the market. I don't always think I'm smaller than the market, but sometimes I do in a particular case. And, uh, it happened to me twice, uh, with Tipalti, for example, that the company went and talked to investors and we didn't get the best reaction, and I stepped in and said, "Forget it, I'll do it." It happened to me with HomeLight, for example. Um, in th- in these particular cases, I felt very... I had very strong conviction. I felt very strongly that, um, despite the market reaction, I think I know better. Okay, this is the other, the oth- the other option. But obviously it's not always the case. Sometimes the company will talk to other people, the, the, the, the, the market reaction would not be good, and I wouldn't think that I'm smaller (laughs) than the market. That, that, that's also, uh, uh, uh, possible, but basically that's, uh... Now, it's easier to do for me than for a partner in a partnership because, you know, in a partnership it's much easier for a partner to sit back, let someone else price it, get the validation from the outside that they did, uh, that they made a good investment before and now someone else comes and, you know, uh, and prices it at two X, three X, whatever, than to try to convince their partners either before or after the company talk to the market that they know better than the market and they think it's worth two or three X what they paid a year before, you know, would be much harder. So what would the typical partner do in a typical partnership? You know, choose the, choose the path of, uh, least resistance and less friction. I would have... you know, that, that's what I would have done. So, um...

   3. HSHarry Stebbings38:37

      I, I think it's one of the biggest misalignments between like GPs and LPs, which is, you know, bluntly, you look like a hero if you get an upround from Sequoia at four X in less than a year.

   4. OZOren Zeev38:47

      Yeah.

   5. HSHarry Stebbings38:47

      Why, why increase ownership when you can use that-

   6. OZOren Zeev38:49

      Yeah.

   7. HSHarry Stebbings38:50

      ... to raise the new fund off the back of it, rather than increase ownership? I mean-

   8. OZOren Zeev38:53

      Yeah.

   9. HSHarry Stebbings38:53

      ... I understand, but I think it's-

   10. OZOren Zeev38:55

       But, you know, but I had the luxury, and I, you know, I had the privilege, which, you know, obviously I, I earned it, uh, that I don't care how I look to, uh, I don't care how I look to LPs because I would look amazing anyway. And, uh, you know, and I don't care if, uh, uh, Sequoia or someone else comes in or not. Uh, I mean, it's nice, I like them, they're a good firm, great firm, uh, but, um, uh, I don't think it's a necessary or sufficient condition for, uh, for success. And, um, I, I don't care about the optics, you know, of vis- vis- vis- the LPs, you know, it's, uh... Also, don't feel the pressure to show DPI, for example, for the same reason. 'Cause I don't care abou- I don't care about the optics, how I look, you know, vis- vis- the LPs because if an, if an LP doesn't see it, you know, good, you know, good riddance. Who cares, you know? I, uh... So I have this luxury that I can ignore this, uh, you know, signal because it's a fal- it's, it's not a, it's the false signal. I, you know, I don't wanna take the signal into account. I want to make the best decisions irrespective of how it looks to LPs.

   11. HSHarry Stebbings39:57

       Do you ever sell secondaries?

   12. OZOren Zeev39:59

       I'm sorry?

   13. HSHarry Stebbings40:00

       Do you ever sell secondaries? Speaking of DPI. Do you ever sell, get out early if you think, hey, I can take a little bit off the table? How do you think about that?

   14. OZOren Zeev40:11

       No, you know, I'll tell you how I think about that. I think that I have a very, very special rule which is almost always true, which is, the ones that you want to sell, you can't, and the one that you can sell, you don't want to sell.

   15. HSHarry Stebbings40:25

       (laughs) I, I, I totally, uh, agree. I think that's probably it, yeah.

   16. OZOren Zeev40:28

       So yeah, you know, of course, there are some companies that if I could, I would have, I would have been happy to sell. But typically I can't, you know? (laughs)

   17. HSHarry Stebbings40:39

       (laughs)

   18. OZOren Zeev40:39

       Um, and the ones that I can, 'cause I get offers all the time, all the time in my inbox, "Would you

6. 40:44 – 47:55

   Biggest Miss

   1. OZOren Zeev40:44

      sell this? Would you sell that?" Those are the ones that I want to sell, so...

   2. HSHarry Stebbings40:47

      (laughs) Okay, well, so you, you mentioned Riverside there. Um, kinda, speaking of, uh, uh, Riverside, obviously it's like one of my biggest misses, um, moron that I am, um, what are your bigger, what would you say is your biggest miss and how did it impact your mindset?

   3. OZOren Zeev41:05

      Well, I have, I had my share of huge misses, um, at Apex, not because of myself, but because my partners wouldn't do... wouldn't, wouldn't let me in and, and, and, and arguably the biggest one, I'm not, I cannot be 100% sure that I would have got it because, you know, it was very early in the process and it was killed, you know, super early, but, but, but, uh, $500 million round, valuation round of Facebook, um, you know, I, I, I was connected with the company, not yet with Mark, but I was connected with, uh, the right person and, uh... but before I even asked to meet Mark, I wanted to make sure that I'm not wasting their time and I brought it to the partnership and it was, of course, dead on arrival. In fact, uh, I think Jonathan was on that call as well, um, and it wasn't because of him. (laughs)

   4. HSHarry Stebbings41:59

      (laughs)

   5. OZOren Zeev42:00

      Um, uh, a bigger miss- a bigger miss, in my mind at least, uh, was again at Apex where, uh, Audible, which I did, uh, I bought 40% of in 2003 and, uh, took it public 2000, the company went public again for the second time in 2004 and it looked great and then, and then the price corrected and it was clear to me that it was temporary and I had the chance to take it private at 300 million pre, or, or, or not pre, you know, 300 million to take it private and I convinced the, the founder, I convinced Don Katz to do it, and then I could not convince my partners.... Audible today, I, and instead, you know, a, a year later, we sold to Amazon for more or less the same price, um, because I couldn't do it myself, the state private transaction. Uh, uh, this would have been by far the biggest win of Apex ever. Um, today, I believe that Audible would probably be worth 50, 100 billion, um, and yes, being part of Amazon maybe help, but not, but, but they, but, but Audible's being run independently at Amazon, you know, really independently. You know, you go into their office, you don't see any, any, uh, hint that it's part of Amazon. And, uh, so it would have been... I don't... I, I can't say that it would have been exactly the same, but it would have been an amazing outcome anyway. Uh, the conclusion from these two incidences, especially from the second one, was that I never want to have partners again. Okay? So that was, that was my takeaway. Uh, that I don't want to have partners that I, you know, I want to own my own mistakes and own... I don't want to suffer from other people's mistakes.

   6. HSHarry Stebbings43:38

      Or, Oren, what if you fucked up? Like, I don't have the excuse of no, no, no.

   7. OZOren Zeev43:42

      No, no, no, no, no. So I started with this. Uh, but of course-

   8. HSHarry Stebbings43:44

      Oh.

   9. OZOren Zeev43:44

      ... I fuck up as well. So give an example. I don't know how, uh, well-known it would be to people, but, um, there's a company called Dlocal.

   10. HSHarry Stebbings43:52

       Oh, yeah. Yeah. Okay.

   11. OZOren Zeev43:53

       Uh, out of Uruguay in payments, and the founder is a very close friend of mine from, from IBM, okay? 30 years, uh, back. He's Ur- from Uruguay, but he also lived for ten years in Israel and we worked together in the same, uh, you know, uh, uh, next room, you know, uh, uh, uh, adjacent rooms at, uh, at IBM Research, and then we went to INSA together. So we're very close friends, we've stayed together, and, you know, from the very early days, I was tracking it and he wanted me to invest in, and, uh, uh, every time there was another reason that... At some point, I was very close to, uh, to investing. It was clear to me that it was a good deal, and the reason I didn't feel it was the right deal for ZE Ventures was that, uh, he and his partners, uh, and his partner, sorry, his, uh, co-founder, really, it was clear, you know, they didn't have this Silicon Valley and Israeli mentality, "Oh, we're gonna build this." And it was really, you know, it was really very clear that the minute they can, uh, get rid of it, they'll get rid of it like a hot potato. So I said, "You know what? I'm investing..." And I knew it was a great investment and it was a great business, but my risk was, my fear was that six months later, they sell it and I only make 3X. That was my risk, that I only make 2 or 3X. And because of that, I said, "You know what? I'm gonna put, you know, I'm gonna put money personally, like a small amount, uh, but for ZE Ventures, I don't think it's the right, uh, company." Anyway, three years later, the company... I mean, they would have sold, but they just didn't get a chance, and three years later, they took it public, and the company at some point was 20 billion in market cap. Now it's five, but actually, uh, but I actually make, made more than 100X on my, uh, more than 100X on my, uh, personal investment. But obviously, I could have got 50... I could have had 15% of that company. I could, I should have, could have and should have. Uh, instead, I let... You know, other people did it later at higher prices than I could have got it, so that was... Uh, c- and, and this is a teachable moment for me because next time, if the risk is that I only make 2 or 3X quickly, not after five years, then I should have done it, and I'll tell you why. Because I totally forgot that I could recycle the money. So in the unfortunate, quote unquote, event that they would have sold and I would have only made two or three times the money after six months, I would just invested it again. I didn't have to bri- to pay, you know, I didn't have to distribute it back to LPs, and that was the piece that I missed because I was thinking, "Yeah, I don't want to reduce my average."

   12. HSHarry Stebbings46:24

       Yeah.

   13. OZOren Zeev46:24

       And I don't... That was, so that was a big miss, I think, uh, 'cause I made a mistake for the wrong reason. Sometimes, you know, you look back and say, "Yeah, I should have invested," but in hindsight, I should have invested, but, uh, who, you know... It doesn't mean necessarily that I could have known, uh, but this one, I could have known. The- this one bothers me more than others.

   14. HSHarry Stebbings46:44

       The final one before we do a quick fire, what do you know now, Oren, that you wish you'd known when you started investing and started a venture with Apex over 20 years ago?

   15. OZOren Zeev46:55

       That, you know, that it's all about being the best alternative for the founders. The founders are the customers, not the LPs, and the customer's always right. And we work for the founders, and I think that in hindsight, in Ap- at Apex, we're not very founder-friendly. I, myself, got myself into situations of tension with founders that, in hindsight, were totally unnecessary and counterproductive and, um, and, uh, uh, it's all about being the best alternative, be- having an advantage in winning deals and the advantage is that the founders prefer you, and they prefer you because of what you could, because what y- because of what you do for them and how you treat them and all that. So it took me years to, to, to, to, uh, to, to really understand that.

   16. HSHarry Stebbings47:51

       Uh, I, uh, I totally agree with you. Uh, my,

7. 47:55 – 1:01:21

   Oren Zeev: AMA

   1. HSHarry Stebbings47:55

      uh, my favorite, Oren, which is the quick fire round so I say a short statement, you give me your immediate thoughts. Does that sound okay?

   2. OZOren Zeev48:00

      Oh, (laughs) I don't know. Oh, let's see.

   3. HSHarry Stebbings48:03

      Let, let's h- start with, um... Okay, what's been your favorite piece of reading over the last few months, year? Could be book, could be blog, could be magazine, you name it.

   4. OZOren Zeev48:16

      Wow. Um, maybe it's perverse, but I really, really enjoyed listening to Bad Blood-

   5. HSHarry Stebbings48:26

      (laughs)

   6. OZOren Zeev48:26

      ... uh, about fairness.

   7. HSHarry Stebbings48:29

      Love it. Uh, yeah. No, I, I, I totally-

   8. OZOren Zeev48:32

      I know it's not very deep. I know it's very shallow. I know, I know. I didn't come prepared. I should have, uh-

   9. HSHarry Stebbings48:37

      Oh, don't worry. I, I-

   10. OZOren Zeev48:37

       ... I should have come prepared with something more, uh, that would make me look, uh, less shallow, but sorry, that's what, that's what came into my mind.

   11. HSHarry Stebbings48:43

       ... my, my friend. Honesty is everything.

   12. OZOren Zeev48:45

       (laughs)

   13. HSHarry Stebbings48:45

       Uh, tell me, what have you recently changed your mind on?

   14. OZOren Zeev48:50

       What have I recently changed my mind on? You know, I have a company that I mentally, um, an old investment, I mentally wrote it off. Um, I, you know, I'm done. Y- you know, it doesn't have any effect, it's an old fund, it doesn't have any impact, so very easy to walk away from. And they, uh, somehow survived COVID and in the last three or four months I'm starting to see, after years, starting to see some signs that I interpret as, "Boy, maybe they're onto something." And, um, so I changed my mind. And they came to their investors, uh, with the idea that, uh, they need a few more months so they, maybe we can somehow, uh, find between everyone $2 million and buy them a few more months. And that I l- that I don't like, because either you play to win or you don't play. You don't play not to lose. And then I surprised them and I told them, "You know what? I'll do it. But forget all this 'Everyone chips in and somehow we find $2 million.' Forget that. Uh, I'll put $4 million myself. I don't care what the others are gonna do. And let's, you know, let's play, you know, let's play to win." In their case, $4 million is gonna ... well, it's not gonna end at $4 million, because when people saw me put $4 million, it's gonna end up as $8 million, and it's actually gonna give them an opportunity to actually play to win as opposed to just survive for another, you know, few more months. So, uh ...

   15. HSHarry Stebbings50:21

       Oh, Oren's putting in 4 million? "Oh, can we do this? Can we, can we come in now?" How amazing the impact. Um, I, I love th-

   16. OZOren Zeev50:28

       And it's a very small fund, by the way. Obviously this, this is a very small amount for me today, but it's coming out of a very small fund from the very beginning, so that's why the $4 million is not such a ri- ridiculous number as it may sound, so ...

   17. HSHarry Stebbings50:39

       I, I love that. I think it's, um ... I, I hate the bridge to nowheres, as you said there-

   18. OZOren Zeev50:44

       Yeah.

   19. HSHarry Stebbings50:44

       ... which is-

   20. OZOren Zeev50:44

       Exactly.

   21. HSHarry Stebbings50:45

       Um, tell me, what's your biggest advice for first-time fund managers today?

   22. OZOren Zeev50:54

       Oh, my big- ... The biggest and first advice is what I said before, that the customers are the founders, not the LPs. Because ... And I'll tell you why. You know, if you have access to the best founders, you'll also get the LPs. If you have access to LP money, it doesn't ... the founders don't care about it, you know?

   23. HSHarry Stebbings51:13

       Mm-hmm.

   24. OZOren Zeev51:13

       You, you know? It's not gonna give you an edge, you know? They don't care who the LPs are and, uh, and, uh, uh, so i- ... So the, the objective is to be the most attractive to founders because in turn that will give you an edge, in turn that would give you performance, in turn that would, you know, get you, uh, money from LPs. And not the other way around.

   25. HSHarry Stebbings51:33

       Who, who do you look up to and learn from in venture, Oren? Like, you know, for me, Chow fun is like my papa.

   26. OZOren Zeev51:41

       This one ... (sighs) You know, I don't know that there is any individual at this point that's, uh ... And, and frankly I don't know that there ... I, I, I, I, I don't know that there is necessarily an individual that, like, generally I, you know, I would ... But there are many people that I think very, you know, highly of. They did things that I couldn't have done. It's a different game. I, I, you know, I, I couldn't have built, uh, in a Jason Horwitz, uh, so I think it's admirable that, what th- these guys have built. And, and, and for sure, uh, for example, I did learn, uh, just to pick one person, Ben Horwitz, I did, you know, I did learn things from, um, his book. More, more the operational side, which is something that he's much stronger than I am, um, um, about, so maybe that's an example.

   27. HSHarry Stebbings52:31

       What's the most memorable first founder meeting you've ever had, Oren? (laughs)

   28. OZOren Zeev52:44

       (laughs) The most memorable first, uh ...

   29. HSHarry Stebbings52:49

       That's a brilliant laugh. (laughs)

   30. OZOren Zeev52:51

       Oh. No, no. I'm trying to ... I'm, I'm really trying to, uh ... Maybe I would say, um ... You know, you tend to remember more the, the first meetings that turn into great outcomes, like the first meeting with Audible, the first meeting with House, the first meeting with, uh ... You know, I w- I w- I would say probably I tend to remember those, uh, not because something specific necessarily, uh, uh, but because, you know, there was magic, there was, you know, there were, uh, uh, uh, uh ... In all these cases, like, immediately, immediately, uh, uh, like, within 24 hours I made a decision. In the case of Audible, you know, I still needed a few, you know, some time to, um, uh, because I needed to get it approved, 'cause I was still at Apex. But with the others, it really l- within 24, less than 24 hours.

Episode duration: 1:01:21