Peter Wagner: 27 Years of Investing Lessons of Picking Founders, Price Discipline & Reserve | E1123

1. 0:00 – 0:19

   Intro

   1. PWPeter Wagner0:00

      The very best founders that I work with, the most talented, most capable, most sought after, are also the ones where, you know, we have the highest bandwidth engagement. You need to have just some glaring deficiency in, in the current, (laughs) in the current approaches. And so you almost need to find, you know, founders that are, like, just pissed off.

2. 0:19 – 3:11

   Intro & VC Entry

   1. HSHarry Stebbings0:19

      Peter, this is such a joy to do. I've heard so many great things from many different members on your team and founders that you've worked with. So thank you so much for joining me today.

   2. PWPeter Wagner0:27

      Yeah. Thanks for having me. I'm a, I'm a big fan of your work, big fan of the show. It's, uh, it's great to be here.

   3. HSHarry Stebbings0:32

      That's very, very kind of you. I would love to start with a little bit of scene setting, though. Uh, you joined venture, um, a w- a while (laughs) ago, in July '96. Um, how did you get the job at Accel? Can you just take me to that and how you got into venture there?

   4. PWPeter Wagner0:49

      It was kind of an accident. I was trying to get a job in a startup and I inadvertently became a venture capitalist. Um, but I, I was a product manager at a company called Silicon Graphics, which was a high-flyer in the early '90s. We were doing 3D graphics and digital media. And, uh, I'd been there about four years (clears throat) and it- you know, the reason I'd gone there was to try and get the base of experience that could make me, you know, somewhat valuable (laughs) in a startup. So I was starting to talk to some startup opportunities, and got to know a few of the venture backers in the course of that.

   5. HSHarry Stebbings1:20

      Mm-hmm.

   6. PWPeter Wagner1:21

      And it turned out that none of those startups were quite right for me. But, uh, some of the venture people said, you know, "Hey, may- maybe you might wanna come and, and work with us for a while." And I, I thought that might be a decent, uh, position to, you know, identify a better startup opportunity. So, uh, so I ended up joining Accel. Um, I took a pay cut (laughs) to do it, uh, and I thought of it as like ... And, and I wasn't making a lot of money at SGI, so that, that kind of tells you how, how the industry worked then. But, um, I thought I might be there for, like, 18 months and, you know, it's been a little longer than that. (laughs)

   7. HSHarry Stebbings1:55

      At what point did you realize it was what you wanted to do?

   8. PWPeter Wagner1:58

      Pretty quickly, actually. I was pretty lucky too, Harry. Like, if you remember, you know, those days, you know, joining in '96 and, and working in the late '90s, I mean, the internet boom was on, you know, the Netscape IPO had happened. Uh, and, uh, a lot of things, you know, were happening that n- no one had really seen (laughs) before. And so it was, it was really fertile ground. It was really fun. Um, you know, I got very lucky with, you know, a number of my early investments.

   9. HSHarry Stebbings2:25

      How important do you think it is to have hits early on in your investing career?

   10. PWPeter Wagner2:29

       You know, it's a double-edged sword, right? So it, it can be very good in terms of building, uh, some credibility and some reputation, and that certainly was the case, you know, for me. And so it, it brought, you know, made me sort of more relevant and interesting to, to founders. On the other hand, you know, maybe I skipped over some of the important lessons (laughs) that one needs to learn early in one's career. And, and, uh, of course, it, you know, it's not that those lessons weren't there, I just ended up learning them in, you know, the, the post-dot-com bust, uh, downturn when, you know, all the cracks were revealed. (laughs) And, uh, it might have been, might have been better to, to have, uh, some experience with some of those things upfront. But, you know, you, you

3. 3:11 – 6:06

   Fear, Greed & AI

   1. PWPeter Wagner3:11

      play the cards you're dealt.

   2. HSHarry Stebbings3:12

      Can I ask you one, which is like, you know, you've seen so many different macro environments that, mentioning kind of obviously the years before the dot-com. You know, I looked at this last few years in the craziness, and I was like, "I get it for younger people. This is kind of all we've experienced." But when I look at some of the large firms that we saw deploying such crazy amounts at such crazy prices, and I looked at their partners and I was like, "You shouldn't have done this. You've seen this before. Like, you, you know how this game works." How do you think about actually every situation being fresh or actually learning from the past, I'm just intrigued, given the many different exposures from macro, how it happened again?

   3. PWPeter Wagner3:53

      You wanna learn from the past, but you don't wanna overlearn from the past. I think one, one of the behaviors in venture w- you know, which you just, you know, noted is that, um, y- you know, there's this kind of safety in the herd thing, and, and a, a belief, uh, within, you know, firms and, and partners, and not incorrect, that if they're making the same mistake that everyone else in the industry is making, they probably won't be punished for it, because, you know, the capital has to go somewhere. And, uh, you know, so the real dangerous thing is to make the unusual mistake that no one else made. (laughs)

   4. HSHarry Stebbings4:23

      Mm-hmm.

   5. PWPeter Wagner4:23

      Uh, and so, you know, this is, um, it's one of the things that kind of drags down returns in the industry, it's one of the things that makes it a very cyclical business. Uh, it's, uh, you know, and it's- it's just a behavior that's been there kind of forever. You know, the- 'cause, you know, the flip side of, um, of sort of, sort of maintaining discipline is sometimes, um, you know, missing out on a, on a huge, um, sort of acceleration. And I certainly saw that when, you know, like, back to the late '90s, you know, there were people, uh, good venture capitalists that were like, "You know what? You know, these valuations are just too high. I'm not investing in these internet companies, you know. It- it just doesn't make sense." And, you know, they kind of missed out on a pretty transformative phase. So, you know, there's this ba- this horse race between fear and greed, as, uh, as an old professor of mine used to say, and, uh, it, it continues to play out.

   6. HSHarry Stebbings5:11

      Can I ask, how do you, how do you think about that today with AI? I'm just too intr- I, I know we had a schedule and I'm just, like, freewheeling here. But, like, we had Roger Aronberg on the show the other day, and he's like, "You know what? If I was still investing, there's no way I'd be doing pure AI. It's just too frothy." But then you also have to understand that it could be the next supercycle, in which case you can't miss it. How do we balance that-

   7. PWPeter Wagner5:31

      Yeah.

   8. HSHarry Stebbings5:31

      ... in your mind?

   9. PWPeter Wagner5:32

      Yeah. Well, I mean, I think it is the next supercycle, so, so you can't miss it. But then the, the question is, okay, how to participate? And so just, you know, there's lots of ways, uh, to invest in that tran- you know, that AI-first transformation of business. It ... Where we haven't been investing is the super capital-intensive, uh, very, very high-priced, uh, you know, sort of LLM development shops or, uh, or other, you know, o- other sorts of similar projects. And it's not to say that those aren't important technologies and companies, and it's not to say that people won't make money there, but it's just not the strategy that we've

4. 6:06 – 9:38

   Relationships & Assets

   1. PWPeter Wagner6:06

      chosen.

   2. HSHarry Stebbings6:06

      How do you think of the Founders Fund? Ah, fuck it. We can't predict. Let's just plow into OpenAI.

   3. PWPeter Wagner6:12

      You know, so to sort of back up the truck on- on- on your winners thing is, um, I think it- it- that's a strategy that works, I think, for an asset gatherer. You know, so there's-

   4. HSHarry Stebbings6:22

      Mm-hmm.

   5. PWPeter Wagner6:22

      ... sort of two business models in venture. You know, you can be in the assets under management game, or you can be in the re- the generate best possible returns game. Uh, and, you know, if I'm an asset gatherer, I need places to put assets that deliver, quote, "good enough returns." You know, if I'm a return generator, you know, then I- I'm- I'm actually looking to really maximize multiple uninvested capital, and I'm not, um, just sort of deploying at scale. Anytime you meet an investor that talks about the amount of capital they deploy per year, right, you know you're talking to (laughs) you know, an asset gatherer. And so, you know, we- this comes up for us a lot. I mean, you know, when- w- you know, our- in our best companies, you know, they're- they may be doing large, high-priced later-stage rounds. How do we participate as, you know, one of the initiating investors, one of the really early investors? Is it, you know, are these things on model or off model for us? And, you know, generally, we- we don't attempt to, um, drag down, uh, the returns or- or- or get too far off strategy by playing super heavy in- in those types of financings, and- and would prefer to, you know, preserve the capital for, you know, that next early-stage company.

   6. HSHarry Stebbings7:30

      There's so many things for me to unpack here. Uh, do you think that actually boutique providers can play in a world of asset accumulators, though? In the way that we see Andreessen move so fast and so aggressively down, as we have seen, I know, over the years, the large players, but they really do, and the prices are so fricking high. I'm a seed player. I'm a m- uh, a returns-driven investor too. They ruin a lot of rounds because the prices that they pay and the capital they put to work in pre-seed, pre-product companies. Can boutiques and asset accumulators play together?

   7. PWPeter Wagner8:02

      Yeah. It's- it's a great question, Harry, right? Um, I mean, it's like one of the (laughs) existential questions.

   8. HSHarry Stebbings8:08

      (laughs)

   9. PWPeter Wagner8:08

      And, uh, you know, uh, it's- I think they can, uh, and- and we do it all the time. And, you know, there- there is- there is a risk here, uh, and so there's certainly lots of otherwise good opportunities that have been polluted or dragged down, uh, by, you know, whatever SoftBank showing up and- and, uh, you know, or- or- or m- any other number of people that- that we can- that we can name. But it- but it just means, like, if you're the focused player, if you're, you know, in our case, the early-stage investor and the long-term company builder, you- you know, you gotta find that- that model that's sort of harmonious to, you know, what I sort of, uh, sometimes call the aircraft carriers, (laughs) which are these kind of multi-product line, multi-geography, multi-strategy capital deployment, you know, operations. Uh, and, you know, so how do you leverage that force to your benefit and not- not be run over by it? And so I think, you know, in our case, um, many of the- the sort of very scaled-up capital deployers, you know, th- they sort of recognize the quality of the early-stage work that- that we're doing, uh, I mean, and in many ways, uh, you know, a company where Wing has been very hands-on in working with the founders to build the foundation the right way, that's a very attractive place, (laughs) uh, to, uh, to invest if you're someone with a lot of capital under management, so.

   10. HSHarry Stebbings9:18

       And it's like, can you honestly advise founders that if they have a 10 on 50 from an a- aircraft carrier, that they should take your three on 15 instead?

   11. PWPeter Wagner9:28

       Well, I don't know. Sometimes I might not advise that, and I might just say, "Okay, (laughs) we're gonna- we're gonna do the 10 on 50 too," you know, 'cause then-

   12. HSHarry Stebbings9:36

       (laughs)

   13. PWPeter Wagner9:36

       ... in some cases that- that might- that

5. 9:38 – 14:21

   VC Landscape & Accel

   1. PWPeter Wagner9:38

      might be the answer, but you sort of have to be- you have to be selective.

   2. HSHarry Stebbings9:41

      You mentioned there about, you know, multi-stage players appreciating the- the craftsmanship of seed, maybe, and the value that one brings at seed. Putting it out there, I don't think the best founders need help from VCs. Um, Founders Fund would agree with me, or I agree with them, whichever one we wanna take. (laughs) Um, do the best founders need their VCs?

   3. PWPeter Wagner10:03

      Absolutely. Yeah. I mean, but, you know, they might not, you know, the- the- it doesn't mean that they can't accomplish great things on their own, but they can accomplish more, greater things with- with a good business partner. I think it depends on the investor to, you know, to- frankly, to- to a large degree. Um, it also depends on the founder. The very best founders that I work with, uh, the most talented, most capable, most sought after, are also the ones where, you know, we have the highest bandwidth engagement, um, sort of, I think, get to the- the root of issues and come up with better answers together, you know, most frequently. And so, you know, I think there is a high correlation, (laughs) you know, between the- the caliber of the founder and also their ability to get the most out of the- out of the relationships they have with their investors and- and- and their board members.

   4. HSHarry Stebbings10:50

      You mentioned, you know, working with some of the best. Some of those, uh, entrepreneurs that you worked with were during your time with Accel, you know, close to, I think, 15 years, 14 years and whatever months it was. I'd just love to unpack some lessons from that because it went from a bluntly s- smaller firm, um, in, you know, singular locations to a global player and an aircraft carrier in many respects. (laughs) My question to you is, what are one or two of the big lessons that you took from your time in Accel, having been there so early and seeing so much?

   5. PWPeter Wagner11:18

      Yeah. So when- so when I joined Accel, I mean, we were- we were very focused, um, thematically on this also, a pretty small team. I mean, there were the founders, Jim Swartz and Arthur Patterson. Jim Breyer was there. Um, you know, there was a healthcare team that would soon be spun off. There was, like, one other associate that had gotten there a year ahead of me, and I mean, and that was it, (laughs) you know? But the team, the- the firm had very big ambitions and- and was not willing to sort of place itself second- second to anyone, and- and so certainly aspired to the- to the top ranks of the industry. And I think that ambition ended up being, uh, you know, a pretty important ingredient, uh, you know, in terms of the- the things that the firm did really well that- that have allowed it to be as successful as it is today, um, you know, one was, um, developing next-generation venture capital investors. The firm, for, you know, combination of reasons we can talk about, was just exceptional at identifying, um, superb talent and then developing it.... uh, within, you know, within the firm. Uh, and if you, if you look back, I mean, there's just a very long list of people, both still in the firm and also people, you know, alumni that have left, uh, that have really made an impact on the industry, have led, you know, really important, uh, high-performing firms or, or, or founded their own. Um, and I think it's, it's a, it's quite an unusual track record in terms of talent development, and we've t- you know, we've sort of attempted to apply that, you know, here within Wing as well.

   6. HSHarry Stebbings12:40

      What do they do to develop talent so well, do you think? What specifically about Accel makes them good at talent development?

   7. PWPeter Wagner12:46

      Yeah. I mean, I think it's this, um, interesting combination of giving, um... Well, you bring the right raw material in first, okay? (laughs) And then, and then you give that person, um, both enough rope to hang themselves so that they're, you know, feeling tremendous accountability, you know, what, uh, what we call the sleepless night factor, uh, but also guardrails, uh, that protect them from making, you know, really egregious, uh, you know, blunders, right? So this combination of guardrails and enough rope to hang yourself is sort of the magic of it, and it, and it ex- it accelerates learning tremendously. And it, and it's done in sort of a non-hierarchical fashion too. So we were aspiring to the flat partnership, which means even, you know, the most junior people, the brand new associate like me, you know, sort of had an equal voice and, you know, even though, okay, yeah, there (laughs) there, there was people with a lot more experience, but you sort of felt like, you know, you were a, you know, you were a peer, even if s- even if mainly some of that was optical, and y- and you were forced to behave like that and, and approach decision-making in that manner. So, you know, so you weren't carrying someone's bag for three years or, you know, doing support work. Uh, you know, you were sort of on the stage, but you also had a lot of backup. So, I think that... Th- those are some of the key ingredients.

   8. HSHarry Stebbings14:01

      What's the sleepless night factor? Sorry, I haven't heard this before.

   9. PWPeter Wagner14:05

      Yeah. Well, the sleep... Well, this is where you're sweating some investment, either a decision you're about to make about a new investment or, uh, you know, some problem at an existing portfolio company, and you feel such intense personal accountability that you're literally losing sleep over it. And, and to this day

6. 14:21 – 21:21

   Stress & Patterns

   1. PWPeter Wagner14:21

      (laughs) , I lose sleep over this stuff. Um, and that, you know... And in many ways brings out, you know, the essence of the business, uh, you know, like, like we, we live, especially in early stage, we live in a world filled with uncertainty, um, and, you know, trying to, trying to peer through it and make consequential decisions about capital and people and, uh, stuff that matters, but doing this, you know, in, uh, in this zone of uncertainty is a really, really difficult thing to do. And so you kinda... You have to sweat it, you know? (laughs) In order to, in order to, uh, in order to get good at it. Now, the... So that kind of individual accountability is super important, but group responsibility and support is also, you know, very important too. So, uh... And so kind of the, the tension between, you know, individual accountability and group responsibility, getting that right, uh, I think is, um, is part of the magic.

   2. HSHarry Stebbings15:10

      Well, talking of sweating it, what did Accel not do that with the benefit of hindsight you would have done or would have done differently?

   3. PWPeter Wagner15:18

      Well, you know, in st- I mean, s- really starting in, like, 2000, we, um, began to, uh, extend the product line, if you will. Uh, and so we went from b- doing, you know, kinda early-stage investing almost exclusively on, in B2B and actually specifically called out enterprise software and communications, right? That was the go- the strategy that, that we saw in '96. And in 2000, you know, we launched Accel London, uh, and Kevin Comolli came on, and he did a tremendous job, uh, in, in building that, uh, in building that team and made it into, you know, a, a leader which you're very familiar with. And, um, and that was really just the beginning. (laughs) And, you know, what came later, of course, were other geographic extensions in China and India, stage extensions with the launch of the growth funds, uh, which, you know, of course have been, have been incredibly successful. Sector expansions, you know, we, uh, developed a, a, a big, uh, consumer practice, you know, which hadn't really been there before. Uh, and, and, and so what I think, uh... Amidst all the success of that, I think what we underestimated sort of the impact of scale and complexity. And, you know, and so we had, we had sort of built the firm around focus, now we were intentionally moving away from, you know, that kind of single-threaded strategy, and what would the consequences be? And it, it turned out, at least, you know, in my opinion, um, that it's difficult to have all these different strategies cohabitate (laughs) uh, in, under one roof. They have different methodologies. You have to build the teams differently. Um, you know, the investment decisions are made, you know, with, with, with very different, um, criteria, and it's just... It's not a layup, um, getting that right. And, and this is why, you know, s- I think early-stage firms that just sort of add an opportunity fund I think are maybe getting into some, you know, some things that they maybe don't fully understand 'cause, you know, nothing, nothing comes for free, you know? If you're gonna, if you're gonna do later-stage investing, growth-stage investing, even in your own companies, you gotta think about it like a growth investor, you've gotta, you know, develop those people, that mindset, those skills. And, uh, you know, we've chosen not to do it here at Wing, you know, 'cause we, you know, we're sort of more on the, the, the side of focus in terms of how we think we're gonna compete. Um, and, um, yeah. So, I think, you know, that ended up being kind of a big deal.

   4. HSHarry Stebbings17:33

      So would you have not done it?

   5. PWPeter Wagner17:35

      I don't think so bec- I mean, 'cause it's hard to argue, you know, uh, with, uh, with the success that the firm has had, so I think that was a... If that's what you want to do, right? You know, then, you know, there's a strategy there. But, you know, every... Strategies are, involve choices, you know? And so, okay, if you're, if you're gonna go that road, you know, there are benefits and there are consequences.

   6. HSHarry Stebbings17:55

      You've mentioned the specialization within Wing and, you know, the sector expertise that you've built both in the team and over time. I think it leads me to a question that I often struggle with, which is, you know, pattern recognition, often, uh, valid and important in identifying amazing companies and founders, sometimes important to disregard. How do you see pattern recognition as a benefit or as a drawback when investing today?

   7. PWPeter Wagner18:20

      Pattern recognition, I-... is a very useful tool, and it's, uh, you know, it's important but you can't be a prisoner of it. The anomaly is the pattern sometimes. (laughs) You know, like, you're, you're looking for the special company, you know, a, a lot of times the pattern you're looking for is, uh, is the pattern that can allow that special-ness, uh, uh, to express. So, so it's, um, I guess there's a question of which pattern. (laughs) Uh, you know, one, one might be looking for-

   8. HSHarry Stebbings18:48

      If we were to dig on the anomaly as the pattern, what would be some examples of that, and what is that pattern that we find?

   9. PWPeter Wagner18:55

      In B2B technology, uh, which is where we focus, deep understanding (laughs) of the, of, of what you're, uh, on the part of the founders, uh, of, of what they're attempting to, to disrupt is actually really important. But you need to have also, you know, that, that deep understanding which is re- really informed by just some glaring deficiency in, in the current, (laughs) in the current approaches. And so you almost need to find, uh, f- you know, founders that are, like, just pissed off, uh, about, you know, the way (laughs) that, you know, they've been forced to do something or their companies were pursuing something and it, and they almost just, like, can't look away. It's become, like, this personal animating factor. Um, it, it's not all that often that, you know, you have a, a total outsider show up in a sector and it's like, "I'm gonna, I'm gonna completely change this" within B2B. I mean, I think in, you know, some of the consumer sectors I can think of some pretty good examples. But, like, the best entrepreneurs that I've worked with, you know, they had really, you know, they, they were world's experts, uh, but they also had that, that personal motivation. Like, if I think of the Snowflake guys, you know, uh, you know, Benoit and Thierry, the two principal founders, they had worked in the belly of the beast for, like, decades, uh, over at Oracle, um, you know, sort of kept under lock and key (laughs) you know, in the, in the, in the, in the, in the architecture groups, uh, and they just kinda got fed up with how they were being forced to do things. And they saw the power of the cloud, and they realized they were not going to be able to execute on what they thought was possible within Oracle, so they're just like, "You know what? Maybe this'll fail completely, but we're outta here (laughs) and we're, and we're gonna take a run at it." And, and I think that's just, that's just a fabulous, that's a fabulous archetype. You know, so when I met those guys in the, in the course of our s- our seed investment in Snowflake, you know, that was one of the things that really, really got me excited about working with them. Remember, these are, like, middle-aged French guys, right? You know, they had, they run out of essential casting (laughs) uh, for sort of fashionable founders and, and then they talk about that, you know, themselves, like, "Who would bet on us?"

   10. HSHarry Stebbings20:59

       Okay, so we, we prefer insiders to our product over the outsider mindset. Can I ask, we, we, uh, on the product side and on the market side we have market creation, or like new category creation, or we have optimization, innovating but in a well-known product category in an existing market, making something better, not new necessarily. Um, how do you think about the preference when

7. 21:21 – 26:57

   Market Innovation & Timing

   1. HSHarry Stebbings21:21

      it comes to market creation versus kind of product innovation and product improvement?

   2. PWPeter Wagner21:26

      Yeah. Well, I mean, I've done both, uh, you know, and have had both work pretty well. I think, I think there's, there's a sweet spot in there, Harry. You know, um, you know, 'cause certainly category creation is difficult. It can take a long time, and, and you can time it wrong. (laughs) You know, there's, you know, men- many times people have attempted to create a categories and they were right but early, you know, which amounted to being wrong. Um, and, and so, you know, finding, um, that opportunity which is close enough to something that people understand so it isn't just a complete lobotomy for the customer, right? You know, so that, so they have some grounding, but different enough so that it isn't just kind of an obvious next move by all the incumbents. You know, that's, that's kind of a sweet spot. Um, again, so maybe Snowflake's an example of that, right? People knew data warehousing, but, you know, the whole idea of doing this, uh, leveraging the power of the cloud was a really important transformational thing. So, you know, so we had these 20 million people (laughs) that were trained on SQL and the whole tool ecosystem that we could take advantage of, uh, but, uh, we also had, you know, an architecture and a set of capabilities that were gonna unlock value that was gonna be really hard for a Teradata or an Oracle, uh, to do. So, you know, so that's a good example of it's like, well, is that category creation or is that, you know, working in existing category? I mean, it, it's kind of both. I mean, I would contrast that with, um, another cloud data company that I worked very closely with called Pinecone, you know, where I led that seed investment back in 2020. You know, Pinecone in some ways is the Snowflake of AI, and they're the champions of, of, you know, vector data and, you know, all the, all the different capabilities I need to manage and, and take advantage of the vector representation of data, which happens to be the native language of, of AI. But when we were doing this, like, when I first met Ido Liberty in 2019, the founder, I mean, nobody was talking about that. Nobody, you know, nobody was, there, there was no, (laughs) there was no ChatGPT, uh, you know, LLMs were not on everyone's lips. And, and so that's a more kinda evangelical category creation mission, you know, for those first several years the company existed. Uh, you know, it was kind of s- you know, it was, it was very much an educational, uh, you know, uh, set of interactions with, with the customers which, you know, we were prepared to take on.

   3. HSHarry Stebbings23:42

      How do you think about market timing risk? It's something that I don't like to take. As you said, being, you know, wrong on timing, uh, i- is crucial. And you can be-

   4. PWPeter Wagner23:51

      Yeah.

   5. HSHarry Stebbings23:51

      ... right in your theory and wrong on timing and, you know, daft barter, no parsnips as we say in the UK. (laughs) And so how do you think about market timing risk?

   6. PWPeter Wagner24:00

      Well, I mean, and I guess you could say in, sometimes you have to get lucky. It's one of the risks that we talk about the most, uh, as early stage investors, um, and, you know, again, I think the, the thematic focus and sort of only working in domains that you understand really well is an advantage. Uh, you know, you have, um, I think better, better proximity to judge when, you know, when the architectural transition...... uh, is, is, is likely to occur. You have a lot of customer intimacy, so you can sort of sense the- the level of urgency or- or the amount of frustration, uh, with existing approaches. Um, and, uh, but it's- it's still easy to get wrong. I mean, I, you know, I- I get it wrong all the time.

   7. HSHarry Stebbings24:41

      Well, with that, how do you think about like market sizing? 'Cause you have so many investors that say, "You know, we just need massive markets." You have others that say, "Hey, we like niche insertion points that can expand." Uh, do you think we can accurately predict market sizing? How do you approach it when you evaluate new opportunities today?

   8. PWPeter Wagner24:58

      We always want the very tightly defined entry value proposition, right? So it's, you know, the ICP is clear, the pain that you're addressing is clear, the value proposition is clear, um, but that needs to lead to a very large market, right? Uh, and so how do I have the tightly defined wedge, but also the large addressable market? It's incredibly difficult for a startup to do a second thing, you know? So- so any- any sort of notion about, oh, well, I'll do this first thing and it's not that big an opportunity, but I'll be, then I'll be able to do this second thing, it's like, oh boy. You know, like, it's hard enough to do one thing. (laughs)

   9. HSHarry Stebbings25:37

      I had an LP meeting the other day and they said, "What do you not do?" And I said, "Multi-layered dependencies," which is exactly this. You see it often in fintech where people say, "And then if we layer on refinancing or mortgages," and it's like, it sounds like a very casual we layer on. That is not a easy thing to do, and I don't wanna bet the farm on a second that.

   10. PWPeter Wagner25:56

       Yeah, totally, totally. And- and so, so the, so that large market needs to be there and the contained wedge into it needs to be there. And then, and we'll pass on a lot of things (laughs) if they're missing, if they're missing one or the other. Uh, you know, I mean, I'm- I'm sort of still, I'm still recovering, you know, from a recent mistake where market size bit us, you know, and, or bit me and- and was, you know, we were betting on the, on the development of a new market. It just kind of be- became clear that it was never gonna become important to any (laughs) , that, to the, to the broader population of companies. It was sort of a small set that really cared, and then outside of that, not so much.

   11. HSHarry Stebbings26:34

       On that reflection, I- I'm so sorry to ask if it's, if it's painful, but I think often from the hard things you learn the most. And if you reflect on that, what did you learn? What did you not see? What, what, what are your reflections?

   12. PWPeter Wagner26:47

       So it- it was a trust and safety product, and it was gonna use AI to, uh, to support the trust and safety efforts, uh, of, you know, on, you know, businesses

8. 26:57 – 32:28

   Opportunities & Cynicism

   1. PWPeter Wagner26:57

      and brands online. This was thought like, okay, well this is gonna be an enhancement to, uh, customer experience. You know, it was starting out, it was like super important in verticals like gaming and dating, you know, but this was gonna end up mattering to everybody that was doing business online, right? That- that- that was the premise. Turned out not so, not (laughs) , actually no. Uh, you know, the- the willingness to spend was really actually concentrated and at- at least now, uh, in a, in a relatively small number of businesses. And I- I think the mistake was like I really wanted it to be true, like, and- and maybe, you know, because I would just love for the internet to be that kind of place, you know, with sort of better behaviors being reinforced and, you know, kind of bad behaviors being reduced. Like, like I don't know if you can see this poster behind me here, Harry. It says, "I want to believe," you know? (laughs)

   2. HSHarry Stebbings27:42

      Yeah.

   3. PWPeter Wagner27:43

      That's, I wanted to believe, uh, so much that I, maybe I, uh, allowed myself to, um, sort of over- overlook, overlook some gaps. Um, and you know...

   4. HSHarry Stebbings27:53

      How do you prevent getting, how do you prevent getting cynical over time, Peter? And I don't mean that rudely, but you've seen so much and often I speak to many investors who have been in the business for, you know, multiple decades, and they're cynical because they've seen so many failures and they've seen so many different things. How do you not be cynical in these cases?

   5. PWPeter Wagner28:11

      You know, I- I just, I think the founders keep me from being cynical. (laughs) Uh, you know, 'cause they're so, you know, fun to work with. Um, they look at things, you know, so differently and- and so just, you know, hanging out with founders all the time, which is kind of what I do, um, I- I think sort of is- is a pretty good antidote (laughs) to- to cynicism. At- at least for me it is.

   6. HSHarry Stebbings28:34

      I- I- I never like companies that are a net new line item for someone, and I think in the case of that, from the sounds of it, it was a net new line item for a buyer. How do you think about companies when it is a net new line item for a buyer and you're not replacing something, but you're already adding an additional cost?

   7. PWPeter Wagner28:52

      Yeah. Well, you better have line of sight on where that budget's gonna come from and who owns it. You know, net- net new is not usually ever really net new. I mean, it might, it might be a- a new line item, but, you know, hopefully you are, uh, you know, funding is available from things maybe that the customer no longer needs, uh, or sufficient gains that are gonna pay for it. And that can take a little, I mean, that's part of the friction, right? You know, when- when you're proposing something new is it take, it takes a little while for that to sort out. Um, you know, my, uh, my, another company I work with, uh, is, uh, Gong, right? Uh, pretty, uh, pretty successful sales technology company. And, you know, what Gong brought to market, that was a net new thing. Uh, and, uh, and- and it did constitute, you know, additional spend, but, you know, the gain from it was so clear and so obvious and- and- and, uh, and the pull, you know, once- once users got their hands on it was so strong that, you know, other budget was able to be, able to be reallocated, uh, you know, to fund, to fund that investment. And- and it became kind of a must have in the sales tool belt. So I mean, I love projects like that. I mean, I'd rather have been doing that in sales tech than, oh, here's a better CRM, you know, unplug Salesforce and plug in my CRM. You know, like, to me that's a fool's errand, you know? That's- that's not happening.

   8. HSHarry Stebbings30:13

      You know, you mentioned Gong, you mentioned Pinecone, you mentioned Snowflake. I- I think we also learn from, uh, mistakes that we make investing-wise. I'm just intrigued on like your biggest size-wise. What was your biggest size-wise and how did that change your mindset?

   9. PWPeter Wagner30:27

      (laughs) You know, um, Harry, like my- my biggest miss is also one of my biggest wins.Um, so... (laughs) So- so, like, you know, we- we were seed investors in Snowflake and then, you know, and series A investors, and we were, you know, positioning, uh, ourselves to lead this series B (laughs) , and had, you know, sort of a lot of conversations and I think, you know, a lot of agreement with the founders around a 10 million dollar series B, wing one. That was a good size for wing one, you know, which is a ver- pretty small fund. And then, you know, but we- we underestimated how rapidly the venture market was moving in terms of the size of financings, and that, you know, 10 million dollar financing suddenly wanted to be a 20, and, you know, the lead check went from six to 12, and we felt like we couldn't do that, you know, within little wing one, so we passed. What a dumb move. Biggest... (laughs) You know, in retrospect, right? You know, this was our company that we were already working in and- and- and because of the size of the financing, we still loved the company, right? You know, but because... literally because of the size of the financing relative to the size of our fund, you know, we- we didn't step forward, uh, you know, into that, and it's, I think... you know, far as an opportunity cost, obviously it's not a- a loss in- in- in sense of lost capital, but as an opportunity cost, probably the biggest- biggest opportunity cost I've ever been involved in. And, uh, yeah, you know, so that's- that's back to this thing we were talking about earlier about being the... you know, the- the focused player in- in- in a- in a scaling industry with, you know, large pools of capital sloshing around, and... I mean, this- this definitely informed (laughs) informed my point of view a bit.

   10. HSHarry Stebbings32:06

       Why not do it? Why not just resize? 'Cause I understand in terms of proportion of capital, you have to be cognizant of percent of fund size and how concentrated you are. But why not just resize, given your existing knowledge of the company?

   11. PWPeter Wagner32:20

       Resize what, like the fund?

   12. HSHarry Stebbings32:22

       No, resize the check. You know, I... you said it went from like six to 12. I'm saying, why not invest just

9. 32:28 – 40:39

   Investment & Risks

   1. HSHarry Stebbings32:28

      three or six? Why do nothing? Like...

   2. PWPeter Wagner32:30

      Oh. Well, we didn't really have that opportunity, you know? 'Cause there was...

   3. HSHarry Stebbings32:33

      Oh, you had to do 12?

   4. PWPeter Wagner32:34

      Yeah. No. There was, there was a, an opportunity for a lead investor, and then the existing investors, you know, were not backing off their pro rata, so it was either you're gonna do 12 or just play your pro rata and w- you know, with... that's... which is what we ended up doing. Um, but, you know, obviously in retrospect, I wish we'd invested the 12, and, you know, the firm that did invest the 12, I think it's like the best investment in their history, you know, the series B at Snowflake (laughs) . And so- and so that's- that was a big lesson learned.

   5. HSHarry Stebbings33:00

      Uh, one thing I get, to be fair on you. You're right. Like, when you look back with rationale, 10% of the fund would be highly concentrated in the early life of a fund. It's understandable, really.

   6. PWPeter Wagner33:12

      Still painful. Uh, but, you know, it's okay. I mean, we can laugh about it 'cause obviously it's... you know, it was- it was a great company. I think in terms of, like, actual losses, you know, like- like, okay, sure, it's fun to talk about, you know, a success and pretend it's a loss. But like, (laughs) in terms of actual losses, um (laughs) , here's, uh...

   7. HSHarry Stebbings33:29

      I j- I just work too hard, Peter. That's my weakness (laughs) .

   8. PWPeter Wagner33:32

      Yeah. Yeah, my standards are too high (laughs) . One of my very first deals, like in my first year in the business, um, you know, I- I- I was spending a lot of time on the broadband, uh, build-out, and, you know, networking technology, and I invested in, like this, uh, competitive local exchange carrier, a CLEC, that was gonna build out, uh, national DSL network, because, you know, it just wasn't happening fast enough and there was so much demand for it. And this ended up being a huge win. The company went public. It was worth, you know, quite a few billion dollars and- and I was like, "Wow, that was... that's great. Let's do some more of those." And what I didn't really realize, it was sort of like it was an unnatural moment in time that companies like that could be built on venture capital. Uh, you know, like, we were doing high-yield debt offerings, you know, out of a startup, you know, to- to build out, you know, this broadband network, and- and, uh, and that... you know, uh, s- to quote one of- one of my favorite co-investors, "That works until it doesn't." And, you know, so, you know, I went and invested (laughs) in like two or three other of these next generation, uh, communication service providers that were ledge-... you know, deploying broadband and voice over IP and all these cool new technologies, optical networks. And, uh, and we were doing high-yield offerings, and, you know, and then- and then 9/11 happened. Access to capital, you know, kind of went to zero for those sorts of things. And, you know, and it- and it- and it... there were some big losses that- that piled up there. I- I had one company where we had invested pretty substantially. It had Goldman Sachs and Morgan Stanley co-leading the IPO, which they never did even then, you know? So they were signed up as co-managing, um, you know, underwriters. Nine months later, company was out of business.

   9. HSHarry Stebbings35:15

      (laughs)

   10. PWPeter Wagner35:17

       So... And, uh, it- it had just... That's how fast access to capital flipped, and- and for a business like that, if you don't have access to capital, you- you know, you don't have a business, so...

   11. HSHarry Stebbings35:25

       Is there a lesson or takeaway from that, then?

   12. PWPeter Wagner35:28

       Yeah, there is, which is like some s- you know, some businesses r- m- might be good businesses but really aren't venture-appropriate. Uh, and, uh, and so I- I think that's kind of what I took away from this. There's lot... you know, there was lots of, um, opportunity to build, you know, big, um, network operations type companies, and, you know, look at the build-out of the cellular industry, for example (laughs) , or, you know, the, uh, the- and... but there's also a capital intensity, uh, and a sort of financial engineering, um, elements to that that make it very, uh, very difficult to think you're gonna do that, uh, out of venture capital, which is really built more around a lot of IP, lot of team tenacity and unique perception, and, you know, more- more moderate amounts of capital. And so I... you know, I applied that lesson in other sectors later, you know (laughs) , steering clear of, you know, certain super capital-intensive clean tech projects.

   13. HSHarry Stebbings36:23

       This is my question, though, which is now, you have defense and military, you've got climate, you've got battery and energy. You've got a- a lot of, like, very real, physical, heavy capitally-intensive categories that venture investors are plowing into like never before. Or maybe you'll say that, you know, history rhymes. But...... are they making the same mistake, do you think?

   14. PWPeter Wagner36:45

       Yes.

   15. HSHarry Stebbings36:47

       (laughs)

   16. PWPeter Wagner36:48

       (laughs) And, uh, you know, and you can get away with it sometimes just like I got away with it with that early deal. If you can find, you know, other people's money, uh, on advantageous terms to sort of fund you through, uh, you know, the valley of death there. Uh, you know, like, I mean, there's famous, you know, big important companies like Tesla, you know, that wouldn't be what they are today if there w- if, you know, if there wasn't sort of certain miracle financings that occurred at just, at just the right time, you know?

   17. HSHarry Stebbings37:16

       Mm-hmm.

   18. PWPeter Wagner37:16

       And, uh, and so then people s- you know, see those, um, co- sort of hero experiments and they think, "Well, let's do another one of those," uh, maybe not appreciating ki- the singularity of s- you know, the, the, the unique circumstances that, that actually allowed some of those situations to prosper.

   19. HSHarry Stebbings37:32

       I think the nuance of every situation is often forgotten, and then we try and extrapolate so many commonalities, but there are so many intricate little things that lead to certain events happening, and, um, I, I completely agree with you. You spoke earlier about kind of being a, a, a prisoner in some mental confines. Um, I think it was when we were talking about market sizing and, and then also, um, pattern recognition. You know, I had Peter Fanson on the show, uh, yeah, who I guess you worked with at Excel, did you, for a period?

   20. PWPeter Wagner38:01

       Yeah.

   21. HSHarry Stebbings38:01

       Yeah.

   22. PWPeter Wagner38:02

       Peter, Peter and I were partners for six or seven years. I, I have tremendous respect for Peter. Um, you know, the day he, the day he told me he was, uh, leaving us and, and going to Benchmark was, uh, one of the most discouraging days of my career. (laughs)

   23. HSHarry Stebbings38:16

       (laughs)

   24. PWPeter Wagner38:17

       Really, uh, really missed working with him.

   25. HSHarry Stebbings38:18

       Yeah. Uh, I think he's just exceptional. But he, he said on the show, "Price is a mental trap." I'm intrigued from your many years investing, how do you reflect on your own sensitivity and relationship to price and when to pay up versus when not to?

   26. PWPeter Wagner38:34

       I think Peter's talking about that, you know, through the lens of, of, of an early stage investing, um, 'cause certainly if, if you were talking to a growth investor, they would not say that. You know? (laughs)

   27. HSHarry Stebbings38:45

       (laughs)

   28. PWPeter Wagner38:45

       Like, like price matters a lot (laughs) y- when you're doing growth stage investing, and ask any of the people that were piling, you know, large sums into, into companies in, in 2021 and, and early '22 how they, how they feel about price right now and, and, you know, so pri- price really matters in, but, but in, in those stages, but, uh, in early stage, right, is, is, uh, there are some ways you can be over- overly obsessed with price, and it, it's not to say that it doesn't matter, but, I mean, I'll give you two examples or two ways that I think about it. Like, one, and this is kind of obvious, like, a low price is never a reason to do, (laughs) to make an investment, um, right? So there's no, no, (laughs) no price, uh, you know, th- that, that will, uh, that is sufficient justification for, for something that is, you know, otherwise flawed. Uh, so that, I mi- I mean, I think some people call that a value trap. Then what about the flip side though? And, and what I f- what I've found, um, is when I'm getting really nervous about a price getting too high, um, often actually what, what that also is, it's an indication that maybe my conviction is lacking, and I don't, I don't have sufficient conviction around this investment. And so queasiness about price is actually a symptom that my conviction is, is thin. And that's like, you know, for me anyway, that's an important voice to listen to 'cause, you know, uh, it's, uh, it, it, it may not... I might not actually be h- you know, price may not be the, you know, the main thing that I'm worried about, but it's, but it's revealing this other thing, uh, you know, that, that I need to pay attention to, so.

   29. HSHarry Stebbings40:17

       I had a conversation with one of my partners today and they said, "Uh, y- you need to be more open-minded, Harry." And I said, "Why?" (laughs) Well, you're fired. Um. (laughs) Uh, but I said, "Why?" And they said, "Because, like, I bring a five on 25 to you, and you're just like, 'Nope.'" You don't care. You don't care. And I'm like, "Yeah. I, I... S- five on 25 and we need to make

10. 40:39 – 49:53

    Ownership & Cycles

    1. HSHarry Stebbings40:39

       a decision by the end of the week is not a deal that I ever wanna do."

    2. PWPeter Wagner40:42

       Well, the, the second part-

    3. HSHarry Stebbings40:43

       Am I wrong? Or is it wrong?

    4. PWPeter Wagner40:43

       ... the second part, I totally agree with. (laughs)

    5. HSHarry Stebbings40:46

       (laughs)

    6. PWPeter Wagner40:46

       You know, which is make, make a, you know-

    7. HSHarry Stebbings40:49

       (laughs)

    8. PWPeter Wagner40:49

       ... n- no, no ability to actually, you know, really understand what you're getting into, that, that's a no-fly zone, I agree. (laughs) .

    9. HSHarry Stebbings40:56

       So, so I totally agree. I would, of course, do a five on 25 if there is the ability to build a relationship, there's an existing relationship, many different things, but the time-compressed, "Hey," (hands clapping) "and it's gotta be very quick." You're with me, right? Like, I'm not being unreasonable. I'm actually asking your advice here.

    10. PWPeter Wagner41:13

        No, no, I, I totally agree, and we, you know, we pass on things because of time compression all the time.

    11. HSHarry Stebbings41:18

        How much do you regret it?

    12. PWPeter Wagner41:20

        Less frequently than you might think. (laughs)

    13. HSHarry Stebbings41:23

        (laughs)

    14. PWPeter Wagner41:23

        You know, 'cause, um, so there-

    15. HSHarry Stebbings41:25

        Wow.

    16. PWPeter Wagner41:25

        (laughs) Like if I, uh, if I just try and think of the times where it's like, "Oh, boy, yeah, we saw that deal but we had no time to make a decision so we passed and it ended up being intergalactic," it doesn't come up that much. Um, there's plenty of things we don't see and there's stuff that's outside of our s- you know, scope that, you know, we just don't, you know, don't work on at all, but, um, you know, it j- the, the whole, the stampeded, uh, process, I think, and, you know, I don't, I, I just don't think the best companies (laughs) are built that way, you know? But, I mean, founders need to take their time too (laughs) in understanding, you know, who they're getting in business with. This is, this is a long-term (laughs) li- life decision, and I, I think the best founders do that. Like, like when, when I met... I met Ido Luberty, uh, you know, the founder of Pinecone, in 2019. He hadn't, uh, he hadn't left, uh, AWS yet. It was, like, early 2019. Uh, we didn't... I ended up leading that seed financing in the fall of 2020. Like, that's how (laughs) long that went on, uh, and, uh, and, and that was, and that was necessary, you know, both maybe I'm dense and took me awhile to get it, uh, but also, you know, Ido, uh, was also very, you know, very persistent and I just, you know, came to know what he was all about and, and, and develop such, uh, sort of high regard for, for him and what he was doing. But it, you know, it took some time, um, you know, to get there, and then in the end, you know, you might say, "Oh, boy, Peter, you overpaid for that seed project." Like, we, you know, we invested, uh, $7 million at 35 post, right?... like, oh, 35 posts for a company with, like, no revenue and no customers and blah, blah, blah. No, that's what we did, but, (clears throat) you know, I had conviction at that point, (laughs) around some important things. And I think in, in retrospect, you know, we're glad we did it. And, you know, is that, is that a Fentonian case where, you know, we avoided the, the mental trap of price? May- maybe. Maybe.

    17. HSHarry Stebbings43:16

        What was Bankone's latest price?

    18. PWPeter Wagner43:17

        Yeah. It's, you know, it's measured in the billions.

    19. HSHarry Stebbings43:20

        There you go. That works. Uh, (laughs) -

    20. PWPeter Wagner43:22

        (laughs)

    21. HSHarry Stebbings43:22

        ... yeah. K- k- pri- price is, pri- price is one thing. People often think price and ownership are one. Th- they're not. Like, ownership is, is very different still. How do you think about ownership and the right levels? I, I, you know, I, I tweeted something this morning, and then, you know, a founder, Dan Siroka, came back and said, "Oh, I never let a round be over 10% dilution." And I said, "Well, that's, that's very challenging 'cause you've just excluded a bunch of great investors from ever investing in your company because the max that gets eight with two from existings." So, uh, it's a challenge. Um, how do you think about ownership and what's enough for you?

    22. PWPeter Wagner43:57

        Yeah, (clears throat) this is a great question, Harry. You know, so when I, when I got into the, into the business, you know, there was the 20% rule. Like, "Oh, we need to-"

    23. HSHarry Stebbings44:04

        Yeah.

    24. PWPeter Wagner44:04

        "... own 20%." (laughs) You know?

    25. HSHarry Stebbings44:06

        I miss those days, Peter.

    26. PWPeter Wagner44:06

        And I'm, and I remember thinking-

    27. HSHarry Stebbings44:08

        (laughs)

    28. PWPeter Wagner44:08

        ... like, in one of my early partner meetings, you know, I heard that and I'm like, "Why?" Like, "What?" You know, "Wh- where'd that come from? Why 20?" You know, "What is, why not..." Well, you know, that's a number. Okay. What, what about some other numbers? Aren't we just sort of... Isn't it about, like, how much gain you make and the return on capital and, you know, all this?" And, and I think it was just sort of an artifact of, you know, size of outcomes and size of funds at a certain moment in time, all right? And so kind of, and I, and I think, you know, 20% ownership, you know, with some dilution later on, you know, what constituted a good outcome at the time would sort of return a fund or maybe, you know, twice return a fund and, and, you know. And so the math sort of hung together. It was the relationship between all those things. All those things have obviously changed now, right? Fund sizes are different, outcome sizes are different, you know. So there's no, no real reason the 20% rule should make any sense. But I think that the logic that... Especially if you're devoting real time to a project, which is what we do, right, as an early-stage lead investor, and not just time in the first couple years, but (laughs) well, through the whole life of the company, uh, you know, it needs to be, uh, y- you know, there, there's only so many times you can take a shot like that, right? And so, so the result to the impact on fund returns needs to be of a scale, uh, that, you know, that it merits that given, you know, the power law distributions and the statistics about, you know, how often, uh, a, a particular, uh, investment is gonna work. And so, um, you know, so it still, it still argues for, you know, pretty s- maybe not 20%, but, you know, pretty substantial ownership if, if, uh, you know, you're expecting really significant, time-intensive contributions from that investor. And I think, I think one of the reasons why, you know, some other, y- you know, maybe the founder that you quoted, um, you know, was able to sort of do business that way is there's been so many new entrants, uh, that have pounded into, pounded into venture that, you know, maybe aren't devo- you know, devoting that kinda company-building craftsmanship to their projects. And they're, and they're really, you know, they're pursuing a, a, a spray-and-pray strategy or a capital deployment strategy. And, you know, they think the name of the game is access and, and having, you know, a hundred portfolio companies is no big deal 'cause they're not really spending any time (laughs) with any of them. And, and so that- that's the type of investor that you'll get, uh, in, i- with that type of a model.

    29. HSHarry Stebbings46:28

        Peter, Aaron Bikes out on the show the other day. Listen, with the massive increase in capital supply that we see into venture, you will fundamentally just have worse returns. Um, I- I think to your point there, you know, the movement away from 20 to probably closer to 12 to 13, you compound that with dilution and fund sizes increasing, I'm not optimistic about the future of venture returns. Uh, I'm with Roger in that one. Are we being too n- negative, and do you disagree?

    30. PWPeter Wagner46:57

        Um, it's a cyclical business. Uh, and so I think there are moments in the cycle when returns suffer and the factors that you described are, are, are part of the reason that there, there are other reasons. But every time somebody pronounces the death of, you know, of venture, (laughs) you know, then something changes and, you know, "Oh, boy."
11. 49:53 – 53:20

    Liquidity & Investor Insight

    1. HSHarry Stebbings49:53

       getting out at the right time?

    2. PWPeter Wagner49:55

       Um, I'm pretty bad at this, Harry. Uh, so th-

    3. HSHarry Stebbings49:58

       (laughs) So am I. So, it's okay. (laughs)

    4. PWPeter Wagner50:01

       There's- there's oth- (laughs) there's others that are way better. And this is true person- you know, personally. Like, I- I tend to hold the public stocks of portfolio companies that have gone, you know, done IPOs, and I just have ridden many of them (laughs) straight into the ground. You know, sometimes it works out well, you know, though, and I- and I think that more than makes up for it. I st- I still hold a lot of our Facebook, um, investment, you know, back from, um, uh, you know, the Excel days. Uh, I've never sold a share of Snowflake and, you know, I'm optimistic that that'll turn out to be a good decision, so, you know. But there's- (laughs) there's counterexamples too. Um, you know, uh, you don't control the environment, you know. You- you have to just sort of recognize it and- and- and act appropriately. Um, I try and really listen closely to the management teams, you know, 'cause- 'cause they are so much closer to the action, and, you know, if you're talking about should you sell a private company or not, their recommendations need to be really, uh, discerned and- and- and- and closely understood. And- and I, you know... So, I- and I've made the mistake of- of kind of not doing that, um, you know, well enough in- in the past. Uh, I mean, there's an example in my mind right now where there was a team that was recommending a sale. It was a little surprising, you know, that they were doing it, you know. They- they even had a buyer on the line and the board didn't even know this was going on, so we're like, "What are you guys doing?" You know, "This business is going great." And, you know, and, uh, and they weren't very articulate. I think they were a little embarrassed, uh, you know, that they'd been running this kind of rogue CorpDev operation. And so- so we didn't- we didn't sell the company, and it ended up... And it was only like a- six months later that I fully understood the situation and was like, "Oh, they were right." You know, we... And if only I had been a little, uh, you know, sort of more sensi- sensitive in instrument (laughs) in trying to understand where they were coming from. You know, you wanna pressure test, but- but at the end of the day, you gotta pay close attention, uh, to what's coming out.

    5. HSHarry Stebbings51:52

       The show's gotten more and more successful because I ask questions that I'm just too interested by. I asked Roger Ehrenberg when he mentioned some of his successes, but a question that I think to a lot, which is, you know, you mentioned holding Facebook stock there. You know, Excel was a phenomenally successful period for you in terms of, you know, wealth generation. Do richer investors make better investors because they are not so scared?

    6. PWPeter Wagner52:16

       Yeah, I don't know, and I mean, and you could ask the same question about founders, um, you know, th- which this is like the argument for secondary sales, and it's, you know, it's a, uh, very closely related point. I kinda think no. Uh (laughs) . I th- you know, I l- I think hunger- hunger is important for everybody. Uh, some people stay hungry even if they have substantial personal balance sheets, you know, and they ha- they have these other things motivating them besides just finances, other things they're trying to achieve or just their- their personalities are wired a certain way. Um, but, uh, yeah, no, I don't... I, you know, I- I kind- I guess I kinda go the other way on that one. (laughs)

    7. HSHarry Stebbings52:51

       (laughs) Listen, Peter, I wanna move into a quick fire, so I say a short statement, you give me your immediate thoughts. Does that sound okay?

    8. PWPeter Wagner52:59

       Sure.

    9. HSHarry Stebbings52:59

       Okay, so let's start with, what have you changed your mind on most in the last 12 months?

    10. PWPeter Wagner53:04

        Uh, the impo- (laughs) the importance of marketing in venture capital. (laughs)

    11. HSHarry Stebbings53:09

        Huh.

    12. PWPeter Wagner53:09

        You know?

    13. HSHarry Stebbings53:09

        Wha- how- how so?

    14. PWPeter Wagner53:10

        Well, the industry has scaled to the point where, um, you know, just things like word of mouth and- and direct personal touch, uh, you know, are insufficient

12. 53:20 – 1:03:30

    Quick-Fire Round

    1. PWPeter Wagner53:20

       (laughs) to reach the market, and even though I happen to prefer working that way, uh, but I just have to get over myself a little bit (laughs) stuff, man.

    2. HSHarry Stebbings53:28

       Tell me, what's the biggest or best investment advice you've received that sticks with you most?

    3. PWPeter Wagner53:34

       Jim Swartz and Arthur Patterson, you know, told me, like, "Look, pick an area that you think is interesting and make yourself the world's, like, leading authority within it, and don't worry about what's going on elsewhere and- and chase after other stuff. Good things will happen elsewhere, but if you've sort of, you know... If you do this, it'll- it'll- it'll work out."

    4. HSHarry Stebbings53:54

       (exhales sharply) Bold. (exhales sharply)

    5. PWPeter Wagner53:58

       I think that we, y-

    6. HSHarry Stebbings53:58

       Bold, right? 'Cause if you're not-

    7. PWPeter Wagner53:59

       You know, and so that- that's why I'm- I'm always talking about focus, and, you know, they- they used a term called the prepared mind, which was how they were describing being the world's leading authority, (laughs) you know, in- in your area, and it's wor- you know, it's worked for us.

    8. HSHarry Stebbings54:12

       It's- it's- it's hard though, 'cause you- you have to be... Uh, it's a trait of many great investors, but you have to be willing to be lonely for long, long periods of time, you know. You could be a young person there in a large firm and say, "I'm gonna focus on Web3," and, you know, Web3 is in its winter period now, and may come back, may not come back, I'm not making assertions.

    9. PWPeter Wagner54:29

       (laughs)

    10. HSHarry Stebbings54:29

        But if you had focused (exhales sharply) and others around you had done enterprise or AI, you are in, you know, the bottom half of the firm. It's tough. It's a risky strategy.

    11. PWPeter Wagner54:42

        I mean, part of that is you also have to be willing to call a spade a spade, and sometimes you may have been, yeah, you know, uh, mining a particular vein for years and you just have to say, "You know what?" (laughs) Like, "No más. (laughs) This- this isn't panning out." Like I've- I devoted a substantial amount of my time (laughs) to clean tech at one point, uh, you know, just because... And this was in, like, 2006, 2007, 2008, and it was 'cause, you know, no one else at the firm was spending any time on it, you know, it sort of felt like it was an exposure point, uh, and I was like, "Okay, look, I'll-... I'll do s- I'll do this at least with a fraction of my time for a while, and ended up, by, you know, I think that, you know, my biggest contribution was keeping us out of those deals. (laughs)

    12. HSHarry Stebbings55:24

        (laughs)

    13. NANarrator55:25

        (laughs)

    14. PWPeter Wagner55:27

        Is, uh...

    15. HSHarry Stebbings55:27

        Oh, that's brilliant. Um, tell me, uh, what's the biggest mistake you see young and emerging VCs make?

    16. PWPeter Wagner55:32

        I think over-reliance on quantitative metrics in investment decision-making. Um, so the whole... And in, in early stage. Uh, so the, I think, the dependence upon this sort of suite of metrics as indicators of, of what, you know, uh, whether you should invest or not, you know, is, it, it has its place, but, like, if it's over-applied early on, you're mi- you're missing a lot.

    17. HSHarry Stebbings55:56

        Right. Okay, so it's a crutch because they lack the courage of their convictions. Me asking you, how do you create an environment where young people don't lack the courage of conviction?

    18. PWPeter Wagner56:09

        Yeah. Um, well, I mean, it gets back to that enough rope to hang yourself, but also some guardrails to, you know, keep you from (laughs) losing confidence. Uh, and so, you know, pushing, pushing that accountability, but also that group support, you know, sort of in tandem is part of it. You know, but I mean when you're doing, you know, like, the metrics are great, but, I mean, you know, you need strategic analysis, you need judgment. You know, you need, you know, a lot of other things that won't show up on the spreadsheet. And, you know, you gotta develop those skills too if you wanna be a good investor. And so, you know, kind of making, uh, make, making, making sure that that is part of, part of the program (laughs) , uh, is, is important.

    19. HSHarry Stebbings56:48

        Hit me, my friend. What's the piece of advice you hear most often given that you think is BS?

    20. PWPeter Wagner56:54

        Uh, that venture is a scale game. Like, I, I think it, uh, actually kind of runs quite the opposite, that excessive scale, you know, gets in the way of excellence. So, you know, you can be, you can be too small too, you know, don't get me wrong. And scale, scale has its benefits, but I think it's a self-serving argument, you know, that sort of scale trumps all. I, I just don't buy it.

    21. HSHarry Stebbings57:14

        Wa- was it tough doing Wing? Because, like, at Excel, you have a fundraising machine. I mean, at best, you rock up and say, "Hi, and thank you." Uh, and then with Wing, it's like, you actually have to fundraise 'cause it's your fund and you're founding a firm. Was that tough? Just to make the transition?

    22. PWPeter Wagner57:31

        There's a lot of demand for unadulterated early-stage venture capital, you know, being practiced by experienced people with a track record. Um, and a lot of the very best people with those track records, you know, are, are within aircraft carriers now, and the LPs are somewhat frustrated by, you know, "Okay, maybe I, I get to put a dollar in the early-stage strategy, and I got nine other dollars, you know, going across all these other strategies." And so, so when you show up with a pureplay early-stage strategy with, you know, people that know what they're doing, like, there's, there's a fair amount of investor interest in that. And that was certainly our experience in, in raising Wing one and, and all the, all the subsequent Wing funds. So, I, I think we've had a very, a very positive experience, and, and we're very fortunate, um, in, in that regard. But it is... I think it has to do with the, you said, the nature of the product, if you will, and, and product-market fit.

    23. HSHarry Stebbings58:21

        No, I, I, I totally get you there. What's the biggest mistake you see first-time founders make?

    24. PWPeter Wagner58:26

        I think choosing expedience over, you know, the hard things that, that actually contribute to long-term value. You know, there, there's sort of quick fixes and, and sort of feel-good measures that can take the edge off whatever, uh, is bothering you, uh, at a moment in time. But those chickens come home to roost. Uh, so th- this might manifest itself in, you know, in a hiring decision, you know, where you opt for good enough instead of holding out for great. Uh, this might manifest itself in fundraising, where you sort of take, you know, ready, friendly capital instead of partners that, you know, can really help you. Uh, and, you know, eventually, the, those accumulation of, of expediences, um, compromise a company.

    25. HSHarry Stebbings59:06

        That's a great one. Um, I, I'm big fan of that one, Peter. Well done. Um, f- penultimate one. Uh, zero interest run- rate environment brought some poor investor behavior. What d'you think was the biggest sin of the zero interest rate environment period?

    26. PWPeter Wagner59:21

        I think, um, large amounts of capital finding its way into the hands of, uh, of, of the wrong hands, um, uh, in t- in terms of the people that would be managing it and investing it. And so, I think you had-

    27. HSHarry Stebbings59:34

        Wha- what, sorry, what i- what is... Not, not... And we're not asking you to name names, don't worry, but, like, what is the wrong hands? Like, people who are inexperienced, ill-equipped, not knowledgeable? What denotes wrong hands?

    28. PWPeter Wagner59:46

        I think all the above, you know. I mean, and just sort of don't understand, you know, what it, what it means to, you know, build, build a company and to be a steward of other people's capital. I mean, I'll give you a name, Soft- you know, like SoftBank. You know, like, why did that ever make any sense, and, and who was that (laughs) , you know, who was that good for? Uh, you know, I don't, I didn't... You know, I think, uh, there was a fair amount of damage being done, um, you know, by large amounts of capital being thrown around indiscriminately, you know, sort of damaging the very properties it was investing in, uh, and, um, distorting industry behavior. And again, not, and not just from that one entity, but, you know, others, others that we, that we can mention. So I thi- I think the distortions-

    29. HSHarry Stebbings1:00:29

        Do you know why they're doing it today? You know, some of the rounds I see happening for hot AI companies are ludicrous. And they're from the same players that bluntly made the same mistakes last time. And I'm worried it's happening again from these large aircraft carriers.

    30. PWPeter Wagner1:00:46

        Well, it's the AUM model, right? I mean, so if you're managing large amounts of money, you have to, you have to deploy it. Uh, and if everyone's doing it, you won't be punished, uh, y- you won't be punished for a mistake that everyone is making, um, so is, is, I think (laughs) , part of, part of wha- part of what drives industry behavior.

Episode duration: 1:03:30