Phin Barnes: The Services Model of Venture Capital is Broken, The Best Founders Do Need Help | E1067

1. 0:00 – 6:30

   Why Phin Left First Round Capital

   1. PBPhin Barnes0:00

      Every great founder needs help. They just don't need it from VCs. (instrumental music resounds)

   2. HSHarry Stebbings0:05

      Finn, it has been five years. So many great things have happened since our last show. But first, thank you so much for joining me today.

   3. PBPhin Barnes0:12

      Yeah, of course. No, I'm really happy to be here. It's always wonderful to talk to you, whether we're on the show or on WhatsApp. Uh, you know, it's always great to, to hear your voice or, or read your words.

   4. HSHarry Stebbings0:21

      Man, I so appreciate our relationship. It's one of the great joys of doing this show for me, building friendships like we have. And so, huge thanks for that. But I want to start with some context. So, talk to me first, why did you leave First Round? And before you said to me about a co-founding moment and the pursuit of it. Can you talk to me about those two elements?

   5. PBPhin Barnes0:38

      Yeah, sure. Leaving First Round was a, a really, really hard decision. I think, you know, you, you find your greatest opportunities when you leave the best job you ever had (laughs) . Um, and, and I think that's, that's definitely the case here. It was a wonderful, obviously, brand, very successful, wonderful people. But for me, there was always this question, um, sort of eating at me around, uh, was, was this it, right? Was, was this all there was in my venture career? And was there more in, in the opportunity to build something of my own and find a way to do that, and continue to push myself and continue to engage, uh, with, with the edges of what I was capable of, uh, by, by trying my own thing? And, and so admittedly with some probably COVID-induced naval-gazing, um, you know, in, in 2020 was looking at the market and feeling, uh, the work I was doing and where I wanted to go, and felt like it was a now or never moment. And I had, uh, had some conversations with, with Josh and other partners, and we figured out a, a path to navigate that, that was sort of, um, I think, appropriate and acceptable to everyone. Not the happiest of moments, because any time you, you know, these are deep friendships and, and people that you, you care for and trust. And in that recognition that you want to go try something else, um, I think I, I underestimated the sense maybe that that somehow meant that what I was doing wasn't good enough. Um, and that was not at all what, what I was saying. And those relationships are, are, are strong and, and, you know, it's been, it's been some time, and, and, you know, those are, you know, Josh is an investor in the fund and so forth. But navigating that was, was a challenge, but I think it was the sometimes, uh, doing the hard thing is, is a thing you have to do. And, and I felt like I did that and did it with integrity.

   6. HSHarry Stebbings2:24

      Where do you think the need to have your own thing comes from? A lot of... Some people don't have it. Mine, for instance, mine comes from running away from constraints, I hate people telling me what I can and can't do, and also a desire to be appreciated and recognized for myself, not for someone else-

   7. PBPhin Barnes2:40

      Mm-hmm.

   8. HSHarry Stebbings2:40

      ... which is probably insecure of me. (laughs) But those are my two reasons why I, I had to do my own. Have you ever analyzed why you had to do your own?

   9. PBPhin Barnes2:49

      There's a question that eats at me about what am I capable of? Like, how far can you go? What, what can you accomplish? When you attempt to answer that question inside the context of an existing institution, the answers are not easy, but more obvious. You know, you could, you could become a managing partner at the firm. Well, I did that. You could deliver an epic fund. And I think, as a team, we had done some of that. You could partner with unbelievable companies, and as an individual and as a team, we did that. You could change the industry in some way with the review or dorm room fund or AngelTrack, and we did that. I had done those things, and I think, you know, the, the question that was eating at me was, was there more and what could that be? And it felt like the only container to find out, the only, the only place where that answer, uh, existed was in, in trying to find my own, my own thing and, and crafting my own approach. And then I was unbelievably lucky in, (laughs) in finding someone who had taken that step years before and who was very aligned, uh, with me. And so we came together, uh, to shape the general partnership, um, in a, in a, in a really, uh, I think organic, but also powerful way.

   10. HSHarry Stebbings4:19

       We're gonna get to the partnership. I do just have to ask. (laughs)

   11. PBPhin Barnes4:23

       (clears throat)

   12. HSHarry Stebbings4:23

       This schedule has, uh, gone to the wayside pretty quickly. You said, "How much further can you go?" I ask the same of myself. The truth is, to me... Gosh, I'm gonna get in trouble for this. You can always go further alone without another half, without kids, when it is just you at your desk meeting founders, focusing, focusing, fo- You can do so much more. It is a young person's game of grind and hours-

   13. PBPhin Barnes4:50

       Mm-hmm.

   14. HSHarry Stebbings4:51

       ... is what I've come to realize. But that scares me.

   15. PBPhin Barnes4:54

       I think hard work is a huge piece of seeing how far you can go. But I think a piece of my answer, anyway, and everybody's different, is how, how far can you go with your life, your whole life, not just one aspect? Everything has to integrate. Like work-life balance, I think, is not the right model. Like, I think you want a life that you're proud of. I think you want work that you're proud of, that weaves into your dinner conversations with your family, that you have time to, to make and then serve and then eat. Maybe you ask your daughter to clean up because you need to go and get back online and do a Zoom or, or email. But I think integrating your life and seeing how far you can go as a parent, as a spouse, as a friend, as a venture capitalist, I think all of those things, they weave together, and, and it becomes, when you have your own firm, uh, and you have, you know, it becomes a piece of that, that life, I think, in a, in a much more meaningful way for me. It is true, young person game. It is true, you gotta grind, and, and there are, you know, hours and hours and hours. But I also think there's thought that occurs when you're on your run, and there's, there's work that gets done when you're, you know...... off to, to come home or going to watch a child play a sport. And, and so I think you can, you can integrate those things and, and create the life that you want.

   16. HSHarry Stebbings6:23

       Did I run for long enough? I have enough thoughts. (laughs)

   17. PBPhin Barnes6:26

       (laughs)

   18. HSHarry Stebbings6:26

       Um, but, uh, I do have to ask, I think this is a really interesting

2. 6:30 – 8:25

   Advice for Young VCs

   1. HSHarry Stebbings6:30

      one, which is, if you could call yourself up when you were leaving Penn and just about to join First Round, and you could give yourself a piece of advice on entering the venture world, what would you tell yourself knowing all that you know now?

   2. PBPhin Barnes6:43

      I think there's something in being, being very intentional about what you're doing and, and appropriately putting in context the decisions that you're making. Don't set yourself a goal of, you know, being a partner in five years, because you probably have very little control over that. But be very intentional about the day-to-day work that you're doing and making sure that that is both excellent in terms of quality and helping you build towards the experience that you hope to achieve. And I think too many people, and, and I probably was guilty of this as well, you come into venture and everybody kind of says, you know, uh, "Good luck. Go find the next Uber," right? And, and doesn't really tell you how to do that. There's, you know, ev-... it's an art, not a science, everyone practices it differently. But I think you can be intentional about the technical aspects of the job. So I think you can be a student of interviewing, because venture investing starts with an interview with a founder. And you're sitting down with someone and you're interviewing them to learn their ground truth, what they're going after, the way they see the market, um, and that's an art that can be practiced. It's also well-documented. People do it as, as podcasters, they do it as journalists, they do it, um, you know, as members of law enforcement. (laughs) They, you know, there's many, many ways to interview. Um, and then the other aspect is coaching, which is also documented and can be practiced. I think you can be very intentional about the technical aspects of the job. You can focus on how to get better at those things day by day, and then you can hold onto the belief that that will be the path to your aspirations.

   3. HSHarry Stebbings8:23

      Dude, I've go- I've got to go double-click

3. 8:25 – 12:22

   Founder Detection Tips

   1. HSHarry Stebbings8:25

      on that. You said there about kind of the interviewing there and the art of it. One of the references I did on you said that you are Warren Buffett for founder detection, for really understanding the true qualities of a founder in front of you.

   2. PBPhin Barnes8:38

      Mm-hmm.

   3. HSHarry Stebbings8:38

      How have the questions that you ask changed? Are there commonalities to those questions to determine the true quality of a founder sitting across the table from you?

   4. PBPhin Barnes8:48

      I think I've come to believe that your priorities and the way you express those priorities and explain them is probably the, the most important thing to understand when you think about partnering with a founder. I like to ask people, uh, "What, what's the most important thing, what's the best thing that happened at your company this week?" And in the answer to that question, you have an understanding of what are they excited about? What do they think will drive the business forward? Do they set up the situation as something that happened to them and they were a victim and they overcame it? Or did they set it up as, uh, a challenge that they understood like a puzzle and they navigated? There are many, many, uh, ways that your priorities and the way you frame the challenges that you have to overcome, um, are telling in terms of how you'll lead a company. And I think that if you can ask questions that get at somebody's priorities and their motivations and their operating style, then you learn a tremendous amount about them as a founder. You can start to guess and make an educated guess as to how they will handle the complexity that is certainly coming, the uncertainty that is certainly coming, uh, whe- as they, as they lead their business.

   5. HSHarry Stebbings10:00

      You know, one that I love to ask is how did you first make money?

   6. PBPhin Barnes10:03

      Mm-hmm.

   7. HSHarry Stebbings10:03

      I find very, very rarely do truly great entrepreneurs first make money with a business when they're 23 or 24, or with a job-

   8. PBPhin Barnes10:11

      (coughs)

   9. HSHarry Stebbings10:11

      ... at McKinsey or Bain. They always did something when they were a kid.

   10. PBPhin Barnes10:14

       (clears throat)

   11. HSHarry Stebbings10:14

       It could have been anything. Cookies, b- building websites, you name it, but it was something.

   12. PBPhin Barnes10:20

       No, that's right, that's right. But I think you have to also understand the, the way they set that up. So for me, I mowed lawns. When I was in junior high school, I, you know, I mowed lawns. I had a, a mower and I would walk around the neighborhood and I would offer to mow people's lawns. But then I realized that people wouldn't be home. I'm out, you know, knocking on the door, they're not there. I started offering people, you know, a certain number of lawn mowings per month for a certain amount.

   13. HSHarry Stebbings10:47

       (laughs)

   14. PBPhin Barnes10:48

       And I would ask them how, you know, "When, when the grass gets to a certain length, do you wanna cut or do you wanna cut twice a month? How do you wanna do that?" And so within my neighborhood, I had this really nice subscription revenue business where pretty much every house, you know, told me they wanted their lawn mowed somewhere between one and three times a month. And, and so then I was able to walk around the neighborhood when I had time and make sure I got to, you know, to my route and, and mow the lawns. And I didn't have to knock on the door, they didn't have to be home. In fact, they'd probably rather they weren't home, you know? And, and the reason I did that is I found that my friends wanted to play basketball on Saturdays and Sundays, which is typically when I had time to mow, and I didn't, you know... But also when people were away, they were doing their own things on the weekend, so I needed to find a way to be able to mow the lawns during the week. And the only way to do that was to come home from school and mow lawns without people's permission.

   15. HSHarry Stebbings11:36

       (laughs) I absolutely love that.

   16. PBPhin Barnes11:39

       (laughs)

   17. HSHarry Stebbings11:39

       Uh, see, that's what I want to hear. The thing that worries me more is that more VCs have better entrepreneurial stories, I find-

   18. PBPhin Barnes11:46

       (laughs)

   19. HSHarry Stebbings11:46

       ... than founders. (laughs)

   20. PBPhin Barnes11:47

       I don't know about that.

   21. HSHarry Stebbings11:47

       Which is worrying to me.

   22. PBPhin Barnes11:49

       Well...

   23. HSHarry Stebbings11:49

       It is the, it is the old, it is the old Charlie Munger, "Show me the incentive, I'll show you the outcome."

   24. PBPhin Barnes11:54

       (laughs) Yeah.

   25. HSHarry Stebbings11:54

       That's why everyone's in fucking venture. (laughs)

   26. PBPhin Barnes11:56

       (laughs) Yeah. We o- we peak too soon in terms-

   27. HSHarry Stebbings11:58

       (laughs)

   28. PBPhin Barnes11:59

       ... of entrepreneurship. We're like, "That's, that's the best that you did," right? (laughs)

   29. HSHarry Stebbings12:01

       Uh, I mean, totally. Listen, uh, I have to ask, you mentioned that, you know, about the ceiling that one hits. And you said, you know, invest in the next Uber, do great as a partnership-

   30. PBPhin Barnes12:12

       (laughs)
4. 12:22 – 17:56

   Biggest Takeaways from First Round Capital

   1. HSHarry Stebbings12:22

      you were to do, say, one to two takeaways that really impacted your mindset from the 11 years at First Round, what would they be?

   2. PBPhin Barnes12:29

      I think the first is one that actually I, I learned.... before, in, in my work at And1, the basketball company, that then I applied to my decision to join First Round. Um, but it was also Josh's insight at First Round, which is, there's tremendous power in being able to focus on a niche. And if you can know your customer better than your competition, and you can craft your product to deliver against that customer's needs in a more salient way than your competition, then you will win. The challenge with niche is that, at some point people look around and they think, "Oh, now we're ready to expand. Now we're ready to go beyond the niche." And they forget that what made them so successful in the niche is the thing they have to walk away from to try to expand. So at And1, we would talk about running shoes, trainers. We would talk about lifestyle shoes and, and clothing, kids licenses and so forth. And the focus on those things eroded the quality of, of the brand we had built in, in basketball and the, the core understanding of bringing together hip-hop and hoops and, and making that mainstream. And I think when you look at what First Round did in seed, it's very much the beginning of that journey. It's, it's you own a niche. You focus entirely on a founder at a certain stage, and you work in a certain way. And I think at The General Partnership, we're also trying to do that with founders who want to build their companies in a very specific way. And, and I think that's a niche that we can, that we can try to own.

   3. HSHarry Stebbings14:02

      I'm asking a really unfair question here. I totally agree with you in terms of owning that niche. But then combining that with your statement earlier of how much further can you go, if you own the seed niche, like First Round did-

   4. PBPhin Barnes14:13

      Mm-hmm.

   5. HSHarry Stebbings14:14

      ... there's a chance you could own the second round. (laughs) You could own the series A as well. Many tried and raised opportunity funds, series A funds. How do you-

   6. PBPhin Barnes14:22

      How did that work out?

   7. HSHarry Stebbings14:24

      (laughs)

   8. PBPhin Barnes14:24

      How ... I mean, you know, I think, I think that there, there are folks who have been able to do that without eroding their brand and without eroding the service. But I think it's a very, very hard thing to do. If you define yourself as a delivering a service in a unique way for a unique stage of company and then you expand beyond that, the only way to do that is to say at that later stage, it's a, either it's a different product. We do seed and we do it this way, and then because of our brand and reputation at seed, we earn the right to be on cap tables at the later stage. That's just capital. And we're a commodity capital provider, and our value is that we won't be detrimental. You, you could take that approach or you could say it's a separate team, which the, the mega funds have, have sort of tried to do and said, "You know, we, we have a separate team that focuses in this, in this different way."

   9. HSHarry Stebbings15:16

      My, my personal favorite, Finn, "It's not a conflict, it's from a separate fund." (laughs)

   10. PBPhin Barnes15:19

       Oh, yeah. Exactly. Exactly. Yeah. Right, exactly. Or, or no, it's, it's really meaningful, the, the scout investment, because it's in the scout fund versus the, the seed fund, versus the growth fund, versus the mega fund. Yeah, I agree. To back to the original question, I think the lesson of focus is, is the core, is the core lesson, um, that I take away.

   11. HSHarry Stebbings15:39

       I've never actually spoken about this, but I think actually I lost my way with the content that we did about a year ago.

   12. PBPhin Barnes15:44

       Hmm.

   13. HSHarry Stebbings15:44

       I was overly focused on growth, bluntly, and I started doing things with different guests that weren't venture, and you'd have a pop star on the show, and it's like, "That's not what we're about, and that's not why people listen." It was a really important lesson for me in terms of going back to what makes us good and what makes us who we are, which is what I love, which is this, not, no offense, pop stars.

   14. PBPhin Barnes16:13

       I would push on that a little bit, because I think your, your push into 20 sales, 20 product, 20 growth, those are expansions that actually, uh, bolster the brand, right?

   15. HSHarry Stebbings16:26

       Totally.

   16. PBPhin Barnes16:26

       When you sort of say, "We have a certain style of interviewing that has to do with going very, very deep with experts in a space, so they share their knowledge with, with, with folks. Um, we're building community of those people. We've started with VC, but now we're gonna choose adjacencies and we're gonna take that same approach." My view, I'm, I'm not in your business, but my view of what you're doing is you've created a media property that has tremendous benefit for your venture fund, right?

   17. HSHarry Stebbings16:52

       100%.

   18. PBPhin Barnes16:53

       And, and so those two things are symbiotic from a product perspective, from a revenue perspective, from the value you can provide to your founders and so forth. So I think, I think the whole thing works together. I think as you start pushing into whether it's pop stars or, you know, the, the hedge fund managers and, and sort of, you know, becoming more of a financial, you know, invest like the best type, you know, financial program, I think you lose some of, some of that, uh, unique nature of, of what you're doing, and, and I don't know what I get when I come to, to listen to you. The reason I come is because I know what I'm gonna get, and I think the same for any, for anyone who's a customer, and I think founders are, are customers, and I think the, the way you craft and deliver product matters a lot.

   19. HSHarry Stebbings17:36

       I mean, A, I really appreciate that, and B, I think that you're totally right. Uh, the pop stars were a real, uh, diversion away from the home court. People come because they want to hear about venture from venture insiders, and they want to understand what's going on in the world of venture. But you've said to me before something that's fascinating. (laughs) I agree with this, starting

5. 17:56 – 28:27

   Why the VC Model is Broken

   1. HSHarry Stebbings17:56

      on venture. Why do you think the business model for venture is broken in most cases, Finn?

   2. PBPhin Barnes18:01

      I started feeling this way in, in 2018, 2019. The venture as an industry has evolved tremendously, right? From, from the '70s when it started and you had folks like Don Valentine jumping into hot tubs with Nolan Bushnell and investing in Atari. These stories of a cottage industry with people who were maybe a little bit, a little bit crazy risk-seeking, but also brought with them deep domain expertise. Back then, it happened to be around distribution and sales, sort of go-to-market expertise for the most part. Partnering with technologists...... people who had crafted unbelievable products or deeply understood, uh, a new technology. Um, you know, chips, like Silicon Valley, is because (laughs) it was, it was hardware. And they would partner with folks who understood go to market and distribution. It was a one-to-one relationship, and together companies would emerge in that collaboration, right. Um, but the one-to-one relationship was the key, and that was a cottage industry. Like any financial sit- you know, arbitrage, it was eroded away as more and more people thought, "Oh, there's big returns in venture. I can, I can come down. I can take that risk." And so at some point, the venture firms realized that they had to differentiate, and it wasn't enough to be a smart person with expertise, but you needed to do more. And so you had this industrial revolution in venture capital, and you saw platform teams, and when Andreessen launched, that was when Greylock hired my now co-founder, Dan Portillo, because he was the best recruiter in Silicon Valley. He still is. They needed more than capital, so they brought him in to lead recruiting and talent for them in 2011, and he did amazing work, 2011 to 2018. And things kept scaling and platforms kept getting bigger, uh, but the challenge with, with the business model of venture in a world where you need to differentiate with product, and if you choose to do it that way... And, and some people, who I respect a tremendous amount, have chosen not to do it that way, you know, starting with benchmark and working your way down. But I think if you choose to offer more than a individual very senior partner who can work one-on-one with a founder in a high-context way and deliver tremendous value, then the fee and carry model doesn't work, because those services show up as a cost center on the statement, the cash flow statement of the VC firm itself. And so as a good business person, when you see a cost center, you try to do two things. One, you try to minimize that cost. And then two, you try to amortize it across as many customers as you can, and so the result of that work to optimize for the GP business model is you end up with increasingly junior people paying increasingly fractionalized attention to a founder's most critical needs. You see efforts to productize and scale services, and services don't scale, right? You can scale a product, but the way you scale a product is you make it more and more static, you make it more and more brittle, and you make sure that you're- it's more and more generic, and it can meet, uh, the marginal needs of many customers, but it doesn't meet the critical needs of any customer. And I think that that's- that is the problem with the business model today if you're trying to differentiate by providing service.

   3. HSHarry Stebbings21:24

      So, I, I think about a couple of things here. One, I think there's opacity between the cost centers th- that the LPC and that the GPs have.

   4. PBPhin Barnes21:33

      Hmm.

   5. HSHarry Stebbings21:33

      And what I mean by that is a lot of GPs I find, and I've found over the last few years, is that they leverage these extensive teams to justify the large fund size increases.

   6. PBPhin Barnes21:44

      Mm-hmm.

   7. HSHarry Stebbings21:44

      And although the teams are a cost center, the fees that they get with the massive increase in funds means that actually it's just a game of increasing fees, and the cost center doesn't increase nearly as much as the fee game does for them.

   8. PBPhin Barnes21:57

      Hmm.

   9. HSHarry Stebbings21:57

      But it's a good justification with LPs, number one, and then number-

   10. PBPhin Barnes22:01

       And, and when you say that, you mean, you mean to help- to, to have LPs not push back on the, the 2% fee on a billion when it used to be 2% on 200?

   11. HSHarry Stebbings22:09

       Absolutely. You say, "Well, listen, we have a go to market team, we have a sales team, we have a talent team."

   12. PBPhin Barnes22:15

       Yeah. Mm-hmm.

   13. HSHarry Stebbings22:16

       "We really have this unified force-"

   14. PBPhin Barnes22:18

       Right.

   15. HSHarry Stebbings22:18

       "... that it costs money to build these great companies, and there's 20 people there." LPs go, "Wow, that's, that's a lot of people. I can see that. If you want the best people as well, they cost too."

   16. PBPhin Barnes22:27

       Mm-hmm.

   17. HSHarry Stebbings22:27

       And so it justifies that fund size increase.

   18. PBPhin Barnes22:31

       Yeah, I- although I think the fund size increases were about investing bigger checks and more companies, moving faster, deploying more capital. Maybe some of the fee justification came from we built out this service team. Even- no matter how big your fund gets, I don't think you ever have the resource to meet the needs of your companies in, in a appropriate or impactful way. You know, so it used to be, "Please come meet with our go to market expert. They will spend time with you once a week for six months." Then it was, "Oh, you and a cohort of people are gonna come and meet with our go to market expert." And then now you're seeing the rise of programs. Everybody has a program, and they're, they're running people through programs in order to add value, and maybe it's an intense- an intense weekend with 100 of your, you know, most, most promising startups, right? I think that there's this constant erosion of value delivery any time you move away from one-to-one high context, from someone with deep domain expertise in that given area, and someone who's been in the trenches very recently. Like, the, the, the half-life of operating experiences is, is very, very short now. Things are changing very quickly, and so you need people who are doing this day in and day out, and who have tremendously deep experience, and, and they're able to deliver in a way that, that you can only do, um, you know, in a one-to-one fashion.

   19. HSHarry Stebbings23:59

       Finn, this is the thesis with the 20 sales, 20 product, 20 growth, which obviously we can leverage for 20 VC portfolio companies, but it's like the, the decay on operating experience. If you, you know, ra- managed teams pre-COVID, managed tech stacks pre-AI or pre-cloud often, as many VCs did-

   20. PBPhin Barnes24:16

       Mm-hmm.

   21. HSHarry Stebbings24:16

       ... it's a different world. (laughs)

   22. PBPhin Barnes24:18

       Right. Right.

   23. HSHarry Stebbings24:19

       Pre-cloud, pre-AI, and pre-COVID. I'm just gonna, like, push, and I hope it's okay. I always say talent teams are largely BS unless you really invest in them-

   24. PBPhin Barnes24:31

       Totally.

   25. HSHarry Stebbings24:31

       ... because the diversity of roles that people will come to you for means that essentially you just become a job description writer, because if you're hiring a CMO, it's totally different to a head of developer relations. A head of talent can't be expected (laughs) to hire such diverse roles.... am I right, or do you think I'm being unfair?

   26. PBPhin Barnes24:50

       I think you're completely right, which again speaks to the need for a one-to-one relationship versus a pooled resource. If you look at how the very best companies hire, someone's gonna go find a, a CMO or a, a VPE. The, the very best searches, the companies are at a scale where they probably have a head of talent or a head of people. They probably have a recruiting team. They assign that role to a single person who figures out how to understand the needs of the company, how to then go out, identify some candidates for context building with the hiring manager. They then build a pipeline. They set up an interview loop. They bring those people through. They guide them all the way through from, from evaluation to offer to close. They get them in the seat, and then they help them be successful. That, and one person will own that, whether that person is maybe an outsourced executive recruiter or someone internally on the team. And that is how the very best searches are done, is that there is a single person who owns that search, they collaborate with the hiring manager, and they run it end to end. The best searches are not, "Oh, you need an engineer? We know a lot of engineers. Here's a Google Sheet with a bunch of LinkedIn links. Good luck." That's not recruiting. And so at The GP, when we do recruiting, we do the first thing. We engage with the founder. We understand their needs. We have a, a person who maybe was the lead tech recruiter at Facebook for, you know, six years, or was part of building Stripe's, you know, engineering teams two through N come and sit with that founder and understand their roadmap and then understand how they're aligning that roadmap with their hiring needs, and then we go out and we build the, the context, we, we build the funnel, we bring those people through, and we manage that process end to end. And that accelerates that process, it increases the quality of it, and we can do that because our business model means that, that that work is a revenue center for the firm rather than a cost center, because we earn equity for doing that work, rather than paying for that at a fee as sort of some differentiating, um, you know, factor in terms of how we offer the service.

   27. HSHarry Stebbings26:52

       A couple of questions for you. Number one, amazing. How do you scale that though? I mean, it's like, you know, it's early in The GP's life cycle.

   28. PBPhin Barnes26:59

       Mm-hmm.

   29. HSHarry Stebbings26:59

       If we project out three to five years and there's 60 to 80 companies, say, I'm just taking a number there, how does that quality scale over time?

   30. PBPhin Barnes27:08

       I think the first answer is we're not... our goal is not to scale. Our goal is to maximize quality of service delivery and impact on a smaller number of super high quality companies. We've looked at how the business can deliver that even as the portfolio scales, because you're right, that over time, that portfolio scales. Every engagement, we work with a founder, we partner with them to understand their needs. We have a written statement of work that we collaborate with them on. That statement of work describes what we will do, it describes the time that it'll take for us to do that, and then the amount of equity they will earn when we deliver success against that statement of work. And those statements of work tend to be somewhere between six and, you know, 15 months long. They work across recruiting, product and engineering, and go to market. The founders can pick and choose where they need the help, or if they don't need the help at all, we can just invest capital and they can come back to us at some point when they, when they want to engage. But when the statement of work is delivered, then that engagement is over, and if they want to engage, they want to continue with ongoing recruiting support, we need a new statement of work. And that's a new investment for us, and we evaluate that against every other investment that we could make with that same resource.
6. 28:27 – 30:52

   How VCs Help Founders

   1. HSHarry Stebbings28:27

      Lemkin and Sam Lessin on a round table show-

   2. PBPhin Barnes28:29

      Yeah.

   3. HSHarry Stebbings28:29

      ... recently.

   4. PBPhin Barnes28:30

      Yeah.

   5. HSHarry Stebbings28:30

      And they both said, "The best founders, they don't need you." If- Sam Lessin said, "If a founder says, 'I need you,' I'm like, 'Get out.' Not for me.'" Do you think that's fair, or do you think that's actually not the way it is in your perspective?

   6. PBPhin Barnes28:43

      I, I mean, I think, I think nothing against Sam, but they probably don't need him.

   7. HSHarry Stebbings28:48

      (laughs)

   8. PBPhin Barnes28:49

      Right? That, that's what he's saying, right?

   9. HSHarry Stebbings28:51

      Somewhat.

   10. PBPhin Barnes28:52

       Like if, you know, if, if someone, if someone says, "The best founders don't need help," what I hear them saying is, "The best founders don't need my help." And that's probably true in most cases when a VC says it. But I think that if you look at the best founders, they are constantly accessing the very best sources of advice, guidance, and hands-on support and help to build their companies, to achieve their goals, and get to their North Star as fast as they can and as high quality as they possibly can. Every single one. They all have a trusted group of people. They all have folks that they bring into their company who do unbelievable work. Um, e- every, every great founder has, has that support, and so every great founder needs help. They just don't need it from VCs.

   11. HSHarry Stebbings29:41

       I do actually agree with you there. Um, and yeah, again, it's why I did 20 Product, 20 Sales and 20 Growth. It was a realization that, that I'm unlikely to be able to help them, but I should be able to offer a catalog of amazing operators who can help them. But having that awareness that it's probably not me was central.

   12. PBPhin Barnes29:58

       I think that's right. I think that's right. And I would imagine, I would imagine that success, let's say 20, 20 Product, 20 Growth, 20 Sales are successful, your founders are accessing those people, they have a conversation, they get some advice, they find it to be impactful. They go back to that same person, they build a relationship, and before you know it, that person who you had on 20 Product is now an advisor for that founder compensated with equity.

   13. HSHarry Stebbings30:25

       I mean, actually we have, we have 20 Sales and 20 Growth funds, which we raise for them and they then invest in the fund.

   14. PBPhin Barnes30:32

       Sure. Uh, great. They earn the right, they earn the right onto a locked cap table with their expertise and their advice. They can capture the most valuable asset in the startup ecosystem, which is equity, um, in that company because of that, whether they do it through capital or advice, and I, I would imagine some of them will do both.

   15. HSHarry Stebbings30:49

       Okay, so I, I completely get you. I agree

7. 30:52 – 38:32

   How to Compete with Multi-Stage Funds

   1. HSHarry Stebbings30:52

      with you. The challenge that I have now is, yes-... better product from us, better service, better quality. But when Andreessen puts, and I'm not picking on Andreessen, but when a big multi-stage fund puts five on 25 or six on 40 on the table for a pre-seed or a seed round, I get it, Finn, you're great and I want to work with you, but three on 15 versus five or six on 30 or 40, my job is to capitalize my business and that can enable me to do X and Y. How do, how do we play in a world like that?

   2. PBPhin Barnes31:28

      There's a lot of belly-aching about the market's broken, the, the mega funds are coming down, um, and maybe, maybe I think differently about this because I had the, I was fortunate enough to have the experience of winning against those firms in the past...

   3. HSHarry Stebbings31:43

      Hmm.

   4. PBPhin Barnes31:44

      ... with lower prices and smaller rounds. And so when I hear people say that, I think you have a product problem. And if you can't convince a founder that partnering with you is what's best for their business, in the face of your competition, you, you need to do something different. And I, I hear people say, "Oh, it means I can't, I'm not gonna chase the, the best founders, I'm not gonna chase the hottest opportunities. I don't have a chance to win those things." And I think you're hamstringing yourself when you think that way. And I think that if you really believe in your product and you really believe what you're doing, you have to test that in, in competition with the very best funds, the largest funds. And they have a structural advantage, I agree. Their cost of capital is lower than yours, they can write a $5 million check and not think about it, and that's a larger percentage of, of my fund, of your fund. Makes it hard. But hard doesn't mean you can't win, and I think that you can find the founders that resonate with what you're doing, that recognize that the difference in dilution is something that they can make up for with progress, and the most experienced ones with the clearest vision will make that choice. And we've seen that so far with the GP, you know, we've made 19 early stage investments and, and of those, I would say, 14 or 15 have been competitive and often competitive with large funds. Even as a new fund, we're not the highest price. We're not, we're not pushing for the lowest price either, like, I, I don't wanna do that, but we're not winning on price. I think we're winning because we're offering something different.

   5. HSHarry Stebbings33:19

      Okay. Can I ask you, do you notice a commonality in the founders that do choose you over the multi-stage funds? What I see, as an example, is I see more mature second time founders choose me or my friends over multi-stage funds, with the awareness that the brand actually doesn't deliver the higher, the customer, the help needed, and there's more maturity. I find first-time founders more bluntly just, ah, succumb to the brand names.

   6. PBPhin Barnes33:51

      Yeah. We, we do, the, the general partnership product tends to appeal to more experienced founders. Folks who are a little deeper into their careers, they've either started a company before or they've worked in industry for longer so they've seen more. Maybe they've even done some angel investing, so they've, they've seen it from the inside. And they, they have a true appreciation for the value of what we can provide. And when I say value, it's not the, the value that we are creating for ourselves. It's the value to them in their business, right? They, they understand the importance of speed to quality. They understand how hard it is to hire an amazing person, and the, the critical nature of that DNA early in a company's life, and all of the opportunity that that can open up. Um, they understand what it means to have a world-class technology and product organization in the first year of operation, and what that means not just for their product, but also for their ability to recruit down the line, their ability to, to sign up customers earlier in the life of the company, to learn from the market much sooner because you can touch that market with something that they can appreciate and understand. So, the very best founders, uh, are, I think, for us, are those that they have the maturity to have that North Star, they have the maturity to understand their critical needs to get there, and they're willing to do whatever it takes to, sort of have those cheat codes along the way in order to, to make progress as, as quickly as they can.

   7. HSHarry Stebbings35:21

      Do you have to encourage founders to take your services? And what I mean by that is I speak to a lot of people with platforms, venture platforms, and they say, "Honestly, you'd be surprised by how few founders actually take us up on the services that we add."

   8. PBPhin Barnes35:35

      When Dan and I were designing the firm, one of the core things was that it would be an unbundled offering, because we trust the founders to know their critical needs, and we want them to be able to choose where we have a unique product that gives them a specific advantage over the rest of the market, and where we don't. So for example, if someone comes to us and they have their core team, five, six people, they're, they're starting to build product, they're sort of heads down on that, and they wanna recruit, you know, 20 engineers after they find product-market fit and raise their next round, like, we are not the recruiters for that. They should either use an outsource service or they should, we can help them hire the head of talent who will do that for them, but w- that's not what we do. The person that has three co-founders and a really strong sense of what they wanna build, and they want to engage with, you know, hands-on keyboard, you know, someone like, uh, Jonathan Wall, who was, he built Google Wallet, he then built his own company, Index, he sold it to Stripe, he led infrastructure at Stripe for their terminal product, and he deeply understands how to build, you know, early stage companies, infrastructure, et cetera for scale, and they want to engage with him to figure that out, and then engage with our recruiters to figure out how to sort of build that early team, numbers four, five, six. Like, we do that really, really well. Um, we also do a little bit later stage, so the series B company that has product-market fit, and that product-market fit is pulling the company apart.Right? They need that critical hire in sales. You're moving from founder-led sales to salesperson-led sales. What does that look like? And you need the VPE to come in and work with your CTO co-founder to make the trains run on time. Who is that person? How do you find them? Design hires, tremendously hard. You're shifting from the founder being the head of product and lead designer to having someone who's gonna be head of product, lead designer. And we can come in with rifle shot recruiting there, um, and be tremendously impactful. Um, a recent one, actually, it's interesting at that stage is integration of the large language models into existing business process. Very, very challenging. And our engineers have been doing that, um, putting these things into production for our companies, uh, over the past, you know, year plus. So they actually have more reps than most in this nascent industry. And so they're in demand, um, to do that. And so I think we, we unbundled it in, in a, a declaration of trust of the founders, and then they come to us with their needs and we figure out where we have a unique offering and, and where we don't. And in... of the 19 investments we've made, 15 of them have done services, four of them haven't. But of the four that haven't, two of them have already come back six, nine months into the, the partnership and asked to engage with the services team around specific challenges that they're facing or specific areas where they want to accelerate their business.

   9. HSHarry Stebbings38:19

      Finn, are you more or less excited about seed today than you have been in prior years?

   10. PBPhin Barnes38:25

       The market obviously went through a peak and a valley. (laughs) Um, and we, we watched that occur. Uh, and I think... But I think the-

   11. HSHarry Stebbings38:31

       But I- did, did it go

8. 38:32 – 40:01

   The State of Seed and Series A Today

   1. HSHarry Stebbings38:32

      through a valley? I, I, I think that seed has been immune to any macro cycle. You've seen the migration of large multi-stage funds move earlier. The prices remain really just as high. It's the only place that's remained untouchable.

   2. PBPhin Barnes38:44

      Hmm. Untouchable until they need to raise their next round.

   3. HSHarry Stebbings38:48

      Tr- totally true. (laughs)

   4. PBPhin Barnes38:48

      Right? And so I think that's the valley I was, that's the valley I was referring to.

   5. HSHarry Stebbings38:52

      Uh, a- agreed.

   6. PBPhin Barnes38:53

      Yeah.

   7. HSHarry Stebbings38:53

      But then like A is the place to be.

   8. PBPhin Barnes38:56

      Yeah. Maybe. Although I think, I think that with seed, um, knowing that it's, that it's more competitive, knowing the, the capital at the next round is harder to come by, I think that just raises the bar on how much of a standout you need to be as a founder and as a company. And I think that it elevates that, uh, that urgency around execution and delivery. And so I think for, for us, I tend to be more excited, um, because I think we can give people that advantage in some ways. And, and I feel like the, the early stage and particularly very early with, with a lot of what's happening in the market is, is actually pretty interesting if you can avoi- I mean, I think if you start chasing people up the ladder, five on 50, um, you know, you know, 10 on, 10 on 40, we see these rounds and, you know, I think there's, there's also something with raising too much capital at a certain, certain point where it doesn't make sense for the company. And I think there's adverse effects, um, in terms of the culture at the business if you raise too much. I'm excited about seed and, and finding the companies that will be building durable businesses, um, you know, over the next couple years.

   9. HSHarry Stebbings40:00

      Speaking of finding

9. 40:01 – 48:03

   Founders vs Markets vs Traction vs Timing

   1. HSHarry Stebbings40:01

      the companies, I, I love this question. I got asked it a while ago by a, a pension fund LP, and I stole it from them 'cause it was freaking great. But it was, there's founders, there's markets, there's traction, and there's market timing. If you were to rank them one through four, one being most important, four being least important to you in your investment decision-making process, how would you rank them? Founder, market itself, traction, and the market timing?

   2. PBPhin Barnes40:31

      I think founders are first. And, and the reason I say that is because the ability of a founder to surprise and to shock you with the way they view a market, the opportunity that they identify that no one else has seen, the ability to execute against that, like that is why I do this, is to meet those people. And so if I can't align my business model, my returns with the thing that brings me joy in th- in the work, I, I struggle. And so I, I have to start with founders because of that. And then second, I think, I think there's something... I- if you're investing at a stage where traction can exist, I think, I think that early, it doesn't have to be at scale, but that passion or engagement of a user base is something that is, is often overlooked because like the end is too small. You have hundreds of people that are, that are spending hours or, or revisiting this thing on a daily basis versus tens of thousands. Um, but I think those early signals should not be ignored. But I think when you're investing before there's a product, like often, you know, our, our, what we call formation stage is sort of that true seed, you know, pre-seed seed, not like the $7 million seed when you've already raised two and you have a product in market, et cetera. I think then it's about the, the market timing and, and what I mean by that market timing versus market is the, the ability to get that early traction. What, what is it that says now's the time that you're gonna be able to find those first 10, 100, 1,000, 10,000 users, um, you're gonna be able to sell in, there's a problem that exists that you can solve? Um, what is it about the, the market timing that suggests that you can get that early traction? I don't know if it was Peter Fenton or somebody else, kind of like you, you earn the right to make $10 million in ARR by making $1 million in ARR, and once you make 10, then you earn the right to make 100, and once you make 100, you can make a billion. I mean, it's sort of this, this idea, and I think for early stage investors, it matters much less that there's a billion dollar opportunity in a market. There's a TAM that, you know, you can back your way into that suggests that there's, you know, tens of billions to be captured and you can rationalize to a billion in ARR. And it's much more important that the person can earn a dollar and only spend, you know, 25 cents to do so.

   3. HSHarry Stebbings42:52

      Can I push your thinking here? We've co-invested-

   4. PBPhin Barnes42:55

      Sure.

   5. HSHarry Stebbings42:55

      ... before or I've invested after you, which is an important addition, by the way. (laughs)

   6. PBPhin Barnes42:59

      (laughs)

   7. HSHarry Stebbings42:59

      Th- th- there are not enough VCs make that addition. They're like, "We co-investors." I know, I invested in the public markets and you did the pre-seed. (laughs) But, uh, I, I, I have to ask, we co-invested before and it was in emerging economies or emerging markets.

   8. PBPhin Barnes43:14

      Mm-hmm.

   9. HSHarry Stebbings43:15

      And what I learned and my takeaway from that was no matter how good the entrepreneur is...Fuck it. Sorry. If the market is so challenged, which emerging markets are right now, there are great businesses in emerging markets which will never raise, because all US cash is gone (laughs) for-

   10. PBPhin Barnes43:34

       Mm-hmm.

   11. HSHarry Stebbings43:34

       ... anywhere in the majority of emerging markets. You're fucked.

   12. PBPhin Barnes43:38

       Yep.

   13. HSHarry Stebbings43:38

       And so actually market for me is number one above founder. Founders can surprise you. It doesn't matter if your market's destroyed.

   14. PBPhin Barnes43:47

       So what you're talking about with emerging market is market structure and, uh, all of the friction that comes from a, uh, less either regulated or mature developed market. I think, I think that's accurate. When I think of market, I think is, is Uber about owning the black car market, the taxi cab market or the auto market? Or the delivery of all things and transportation market? I think when you get stuck thinking through that and working through the 100 reasons why owning the black car market isn't worth it, then you miss that Travis would figure out UberX. And I think in that wha- when I say market timing is this is a team, Garrett and Travis, they are going to earn a dollar letting me press a button and take a black car somewhere in San Francisco. Ivan at Notion is going to figure out how to create a digital tool that is as elegant as a blank piece of paper and a pen, so that you can create online. And in doing so is going to create value. There's no, there's no market there. Uh, it's not a note-taking tool. If you, if you, if you convince yourself it's a note-taking tool, then you're not interested in that because Evernote wasn't great. And, you know, you go down the list, right? I think that, um, when you sort of say, "There's a vision here and then there's the ability, this market timing means people want this tool to enable them to express their creativity in some way." They want to do these different things. Then you allow that founder, back to sort of choosing founders, to, to guide that company, you know, within that opportunity set.

   15. HSHarry Stebbings45:33

       Do you think the founder... I oscillate on this one. Do you think the founder needs to know what that next chapter is? Does Travis, when he starts Uber, need to know that it's going to go beyond, you know, ex- chauffeurs in an explicit way? I often feel that, you know, you just have to be playing the game to turn over the next card. So many of the things that I've done, I had no strategy to do until I saw the opportunity. You know, you-

   16. PBPhin Barnes46:02

       Right.

   17. HSHarry Stebbings46:02

       ... have to be playing the game to see the next play.

   18. PBPhin Barnes46:05

       Yeah.

   19. HSHarry Stebbings46:05

       Do you see what I mean?

   20. PBPhin Barnes46:05

       I've ex- I've experienced... Yeah, I do. No, it's a great question. I've experienced both. I've experienced both. Um, I think that in the first case, whether it's Travis needing to know that there's UberX or it's Ivan needing to know that there's going to be, you know, integrations with Segment and other things, and it's going to become the, the central data, you know, sort of knowledge repository for a company, I don't, I don't think so. I think they need to be passionate about the core product they're building, but they need to know that they want and will find more than just that. They need to understand that this is the, the foundation of something that then there will be another act. I've also had the experience with multiple founders where in the first conversation you sit down with them and they understand their business in three acts and they lay it out and then they go after that. And I think there, for me as an investor, so Rick at Persona was this way, I think Saadi at Aiven is this way and, you know, Saadi at Aiven is, okay, it's a HELOC-backed credit card, yeah, that's interesting, but what is it really? What it really is, is moving unsecured consumer credit and the associated interest rates to asset-backed lending and those associated interest rates and doing that in a way that is efficient and where you can identify customers and offer them a lower interest rate with the same underwriting and risk of default, um, because it's asset-backed and then be able to shift a huge piece of, of the lending market. Mm-hmm. Um, and he sort of laid out, "Well, first we do this origination model and we understand how to digitally acquire customers for, for home equity lines of credit, then we offer that in a credit card form, then we move to auto," and so forth and so on. You sort of build out this big company. And so I think you can have both. Um, but the key thing is in both cases, the founders know there's more, they know they want more than the core thing they're doing and they also have a deep appreciation for getting the first act right.

   21. HSHarry Stebbings47:59

       I totally agree with you in terms of getting the first act right. I think,

10. 48:03 – 49:55

    Mistakes in Founder Detection

    1. HSHarry Stebbings48:03

       I think, you know, when it comes to founder deception, everyone also makes mistakes. The question that I have is, when you review the mistakes that you've made, what did you not see that later became true or what did you see that actually wasn't there?

    2. PBPhin Barnes48:17

       Hmm.

    3. HSHarry Stebbings48:17

       How often I'm... You know, if I reflect on my own as an example, I fall for the brilliant salesperson, the one who is incredibly smooth and articulate and can present that three chapters-

    4. PBPhin Barnes48:28

       Mm-hmm.

    5. HSHarry Stebbings48:28

       ... but their operational execution ability is not as good as actually their sales ability.

    6. PBPhin Barnes48:34

       That's right.

    7. HSHarry Stebbings48:34

       And then they falter. What would you say your founder detection errors have been?

    8. PBPhin Barnes48:38

       I think my, my biggest errors have been... I, I'm a believer that spikes is what matters. So someone's strongest talent is the thing that you should be focused on. But I think that there are things, like the example you just gave, the salesperson who can lay out the three acts, but operationally they can't execute sort of to get on stage in the first place, right? That, that's the, that's the challenge. And I think in that case, the quality of that founder, the value they will create is a multiplication problem, not an addition problem. And so if you have a zero anywhere in a multiplication problem, the value is zero. And I think that my mistakes with founders have been missing the consequences of a weakness and, and see- and being overwhelmed with the strength of a spike, they won't even be able to apply that spike because...... they, they lack something else that will, that will mitigate that, that strength. I think that's, that's been the, the, the weakness. I think I haven't been overwhelmed with someone where I, I misperceive their, their strengths as much as I think, um, sort of misunderstanding the impact of a, of a potential weakness.

    9. HSHarry Stebbings49:41

       You mentioned some of the big wins there that the first round have had. I think you learn a lot from the hits, and you learn a lot from the misses. I really hope you've had some misses, 'cause fuck me, I have done. Um-

    10. PBPhin Barnes49:51

        Yes. (laughs)

    11. HSHarry Stebbings49:53

        (laughs) Uh, but my question is, on

11. 49:55 – 57:35

    Phin’s Biggest Hits

    1. HSHarry Stebbings49:55

       the biggest hit, what would you say your biggest hit is? And when you, like, reflect and do a post-mortem, how did it change how you invest?

    2. PBPhin Barnes50:03

       When I started investing, I, I was a, I was a product person, you know, I built sneakers and video games. My early investments, if I look at them, they were products that I thought should exist, and, and I have a... from being a product person, you, you build up a, a sort of schizophrenia where you can take on the personality of the customer and, and have empathy and understand their priorities and needs, and, and then you could imagine a product that would meet those needs and would resonate. And I think I did a lot of that. BankSimple, um, you know, Birchbox, even Blue Apron I think were, were those things. And the work I did with Notion I think was, was really foundational in understanding the product is a piece of what you're doing, but that understanding the, the ways that that product drives distribution, the power of software platforms versus just an application, and the sense of a product that can, uh, evolve with... can grow with the user, and, and deepen that attachment over time, and sort of lock in, I guess you would call it. Um, I learned, I learned many of those things from, from Ivan, um, Akshay, watching them, watching them build that business, uh, helping them recruit people to, to join that business, and seeing it, seeing it scale. I think the, the lessons of, uh, Notion, uh, sort of informed, uh, things like Persona, um, getting excited about, you know, some of the things that we've done, you know, through the GP, whether that's Aven or, or Finx or, um, or Promise on the, on the later side. You know, on the, on the earlier side, when we look at sort of the things that we're drawn to, I think, you know, software only, um, you know, some infrastructure, security, developer tools, I think leaning into things that become system of record for an important, uh, job to be done. I think that, that lesson kind of came through to me in, in that, in that first understanding of why, why Notion was so special.

    3. HSHarry Stebbings52:02

       Can you help me on something, Finn, which is, I'm bad when it comes to what I kind of call continuous thoughts, which is essentially when you have a hit in a certain area, you think that area is just continuously a great area to be in. It might be, but it also might be a great founder, a special market timing, a special distribution strategy. Likewise, you lose money in an area, and you go, "You can't make money there, it's shit." Neither are right. There's always nuance, and you have to bring plasticity to every new deal. How do you bring plasticity with big losses and big wins?

    4. PBPhin Barnes52:40

       I think it's very important, um, to, to view every company, to the extent you can, as its own thing. Every startup is original and unique by nature because it is a startup. There are certainly lessons that flow across, there's similarities. You know, god knows we heard so many pitches that were the Uber of X, right? People trying to play on that, on that exact thing you're talking about. Um, but I, I think that the, the challenge with rules, they can distort your vision, and you have to decide, (clears throat) you know, same as partners, (laughs) you know, any, anytime you talk to anyone about investment, anytime you apply a rule that is not, you know, is, is from one company to another, you're distorting your vision, and you just have to decide, is that corrective or is it blurring? And are you wearing... you know, are you seeing more clearly or are you, or are you missing something? And so I, I think that the, um, the thing to do is to ask yourself, "Why, why would this rule not apply?" Right? "Why, why is this inappropriate in this case?" So ModCloth was a, uh, fashion company, they were e-commerce fashion, um, and there was a belief that the reason that company was working when it was working is that the, the founder was deep in the vintage clothing space and deeply understood it, she was a buyer, she got all those things. And so the first time we met Warby Parker, those guys didn't have design sense. You know, they... Dave dresses pretty well now, but he didn't then. And like, there was no, there was no, like, style person on that team. But the truth is, the, the glasses had to look good, but that wasn't the point, right? What they had figured out was something entirely different around supply chain and go to market and, and sort of this D2C motion. Um, and so evaluating their team against the need for someone who had worked at Luxottica in, in design was the wrong, the wrong thing to do. And, and so I think when you have a big win, it's very easy to say, "I wanna see something else that, like, that looks like this." So I want, I want a founder like Ivan who comes out of design and is quirky in some ways and a genius in most ways and, and is just product obsessed and wants to build tools, and that's the way to build systems of record for, you know, for every company, um, or for every facet of, of business. But then you realize that that worked for him in a very particular way, and that there's no other company that's built like that, and that most other tools or, or systems of record are, are created by, you know, people with different mindsets and, and other ways of thinking. The airlift one we were just talking about, painful. Um, you know, there's the emerging market stuff and there's other things, but I think the idea of... you know, like, like I would look at that one and say, "What, what were the positives?"... like, what, what part of that decision was actually accurate, right? Rather than, you know, okay, maybe the overriding lesson is all emerging markets are no good, and you just don't invest in emerging markets. And that's a fine lesson, that's fine. And you accept that maybe you'll miss Careem and other things, right? You, you just accept that. Um, but I think there's probably-

    5. HSHarry Stebbings55:52

       But, but if you actually, you... I'm, I'm being deliberately harsh. I'm actually gonna get in trouble for this. But if you actually go like, "Yeah, you missed Careem," but, like, actually Careem was grossly overpaid for.

    6. PBPhin Barnes56:02

       Yeah, sure.

    7. HSHarry Stebbings56:03

       And, um-

    8. PBPhin Barnes56:03

       Maybe it was. No, maybe it was. Yeah. And I think, and I think-

    9. HSHarry Stebbings56:06

       And, um, and, uh, and you... and then you can look at actually the whole, like, basket of, you know, Getir-

    10. PBPhin Barnes56:10

        Mm-hmm.

    11. HSHarry Stebbings56:10

        ... GoPuff, you name it. I mean, these are sh- low-margin, bluntly p- tough businesses, and the opportunity cost of capital is real. You know, GoPuff is now raising... not GoPuff, Getir's raising it, you know, 25% of their last round. Maybe they're just not good businesses to be in.

    12. PBPhin Barnes56:28

        Yeah. And, and so I think the analysis though, the, the, the work you owe yourself is to try to find the positive or the, the thing you got right in the mistake. And it could be that there's not, that the lesson actually is don't invest in emerging markets, don't invest in these oper-

    13. HSHarry Stebbings56:46

        Low margin.

    14. PBPhin Barnes56:46

        ... you know, logistically heavy, like, low-margin businesses. Like, that, that's a great lesson, and one that you could stick to, and, and probably would be a benefit to the portfolio overall, because I do think that there is a reason that most large venture outcomes are software only, and, and, you know, sort of the, there's something powerful in high margin, you know, (laughs) zero, zero marginal cost, uh, growth businesses.

    15. HSHarry Stebbings57:11

        I say to my mother on walks on Sunday, two things. I say, "Margins matter," number one.

    16. PBPhin Barnes57:16

        Mm-hmm. Mm-hmm.

    17. HSHarry Stebbings57:16

        And I say, "The opportunity cost of capital is real," which is like-

    18. PBPhin Barnes57:20

        Yeah, yeah.

    19. HSHarry Stebbings57:20

        ... even if you can make money selling software to restaurants, it's so fricking hard, that actually there are easier places with higher upside to put that money.

    20. PBPhin Barnes57:32

        You will have a limited number of companies in your portfolio,

12. 57:35 – 1:01:36

    The General Partnership Model

    1. PBPhin Barnes57:35

       and I think one of the things I'm happiest about with, with the general partnership model is it's not a coverage model. Like, we are very intentional about building a more concentrated portfolio. We want to put... we need to find 30 amazing early stage companies. We don't need to be in every amazing early stage company.

    2. HSHarry Stebbings57:57

       30 is quite a lot though, if you actually think about it. Over a three-year period, you're doing 10 a year.

    3. PBPhin Barnes58:02

       Mm-hmm.

    4. HSHarry Stebbings58:02

       How many investing partners are there?

    5. PBPhin Barnes58:03

       So we have D- Dan and I, and then we have Ben on our team. Um, but the key with us is that, you know, the whole team is involved in the process of investing, from sourcing, to picking, winning, supporting, the whole thing. Everyone on our team plays a role, and they play a role, um, by bringing their expertise to, to that. So, uh, if we look at our, uh, top of funnel, right? You look at the, kind of the sources, 50% of the things we see are sourced by the team, because they are very senior, they have incredible networks, people trust them. And when their friends are starting companies, they come to them and they say, "I'm thinking of starting a company. Who should I talk to?" And they understand what we look for, they understand the types of companies that are interesting, and they surface those things, um, you know, to us as a team, and then they're involved along the way. So if we say... one of the things that we think about with a founder is, how will they build their team? As we think about crafting a statement of work and deciding that we could partner with someone, we engage the, a member of the talent team to talk with that founder around their needs, how they think about sequencing, and how they think about success and recruiting. On the engineering side, we do the same thing. We deeply understand the way people are approaching their, their technology, what they're building, um, and in a way that I think goes, goes well beyond what I've done in the past. You know, we sit with an engineer in a meeting with a technical founder and have a conversation about the business, about the product they're building, and about how they're building it. And for me, the ability to be immersed in that conversation and to learn the language that the founder is speaking in that context, is, is unbelievable. It's like, if you wanna learn Spanish, you would also learn to surf and do that in Costa Rica, right? You wouldn't take a Berlitz class or, you know, you know, put, put something in, uh, in your headphones and listen to it. Um-

    6. HSHarry Stebbings1:00:00

       I think I'd just get Jessica Alba to teach me, if that works.

    7. PBPhin Barnes1:00:02

       Yeah, there... yeah, exactly. Well, you live-

    8. HSHarry Stebbings1:00:03

       (laughs) You can keep Costa Rica. (laughs)

    9. PBPhin Barnes1:00:05

       You have that advantage. Um, but I think, but I think the traditional process of understanding what a founder is doing technically is, as a VC that's not technical, you sit in that room, you do your best to understand, you reach out to someone who is technical, you provide some bastardized description of what that founder is doing. That person is probably polite to you and sort of pretends they understand, but then says, "Well, maybe just connect me with them and I'll talk to him and I'll get you my feedback."

    10. HSHarry Stebbings1:00:31

        (laughs)

    11. PBPhin Barnes1:00:31

        Then they do that, and then the feedback comes back and it's again, a game of telephone, and then you're making a decision because, you know, some engineer that you know said it's either good or bad, right? Whereas what we get to do is sit in the room with the founder, the, the engineer is asking questions, not to evaluate what they're doing, but to understand it, to know whether we can help, and to understand it, to know where the holes might be and where the challenges are. And do the challenges that we identify align with the challenges the founder is seeing? And in doing that, it's just a much deeper process. Um, and I think we, we involve the team in that. And then obviously on the support side, um, you know, that's, that's, uh, something that we're doing with the team. We... you know, advice is free, as it should be, and so if somebody wants to understand how to build a recruiting pipeline, they can spend an hour with one of our team members. If they want to understand how to think about approaching an enterprise for sales, they could spend an hour with our go-to-market team. But I think when, when you cross over into us actually doing the work, um, it's very clear, and I think then we have that statement of work, and then we deliver a, a key deliverable for that company, um, y- you know, in a pretty unique way.

    12. HSHarry Stebbings1:01:34

        Can I ask a bit of a totally random

13. 1:01:36 – 1:06:24

    What does “happiness” mean to you?

    1. HSHarry Stebbings1:01:36

       weird one, but I was on this long run today and, and I was listening to this motivational speech as I do on long runs, and they said that like, very few people truly understand what happiness is to them.I, I know it's weird, dude, but I, I just really like you and I'm just really intrigued to hear your thoughts on this. And I'm so loving this. What is happiness to you?

    2. PBPhin Barnes1:01:54

       I think of it in a couple ways. So, I, I can imagine moments in life that would define happiness, so holding your child for the first time, your wedding night, your 20th anniversary of that wedding. For me, one, and this is, this is strange, but you'll like this. For me, a moment that I know I'll be happy and I'll know I've lived a good life is if on my deathbed, I'm looking up at my current wife and daughter and they're smiling at me and everything's okay. That's success. And that means that they have been supported by me in the right ways, it means I have lived with integrity, I've honored them and, and they're there for me at the very end, you know? And that's whatever it is, 60, 70 years from now hopefully. But day-to-day, I think happiness comes from the ability to have impact on individuals that you respect, and, and I think sometimes it comes back to you. So I, I got an email this morning where I was, I was sort of sitting here thinking about, "What am I gonna say to Harry?" And, you know, and I get an email. And, and a friend, a friend wrote me and said he was at a wedding with another friend, the, a mutual friend of ours, and he, he has a seven-month-old child. And he was telling this mutual friend, "You know, I, I feel so fulfilled and joyful. Like, I feel a joy that I've never felt before." And, and our mutual friend said to him, "You know, I talked to Finn when I had my first child, and he told me, you know, everyone talks to you about, oh, you can't... your life isn't your own anymore, and like, you can't go out and you don't get to see your friends and, you know, all these things. You can't work as much as you want," and all this. And he said that what I told him when he told me that was that, "Yeah, you have a child and it's, it's way less happiness, way more joy." Like, that's, that's what it is. You, you have less happiness moment to moment, you have more joy in these moments that are just beyond. You're holding a child, there's, there's something about that. Um, and, and so-

    3. HSHarry Stebbings1:03:52

       And so just, just so I understand, what does less happiness and more joy mean? I'm, I'm...

    4. PBPhin Barnes1:03:56

       Happiness being the freedom to do what you want, happiness being, you know, you're, you're out with, with friends, you, you go for a run when you feel like it, these things, versus, you know, changing, what do you call them, nappies?

    5. HSHarry Stebbings1:04:07

       Yeah.

    6. PBPhin Barnes1:04:07

       Uh, you know, uh, being up in the middle of the night and, and so forth. But even, even when you're unhappy because you're up in the middle of the night and you have a big meeting the next day and you need to get sleep and the baby's crying, there's a moment when the baby stops crying. And the fact that you were there holding her when that happened is joy. And it's different. You're still unhappy that you're awake (laughs) -

    7. HSHarry Stebbings1:04:29

       (laughs)

    8. PBPhin Barnes1:04:29

       ... but there's, there's joy there. Um, and, and so anyway, but for me, those moments when people say things like that to me, like, that makes me happy. Like I, I went to... Dormont Fund had a 10-year anniversary, and I went. And there was hundreds of people there, it's an amazing community. Molly's done phenomenal job building it out. It's now independent, spun out on its own. But when I was there, I was talking to people, some of whom I met 10 years ago, nine, eight, seven, five, four... like, I met them across this time. And they, I met them at a time in their life when they were in college, they were figuring out their future, they were graduating. And no fewer than 75 people said to me, "Hey, you, you probably don't remember you said this, but you said this thing, and it changed the way I thought about the job to take, the timing of, you know, leaving one and joining another, the, the way to navigate, you know, some negotiation or some hard time in my, in my, you know, professional career, some of them in my personal life." And it was so gratifying to me to know that those little moments that make me happy, giving my thoughts, helping someone work through a challenge, really listening, like truly listening to them, and then helping them discover that answer that's always inside them, the right answer. It's always there, just have to help bring it out. And getting very, very good at doing that. Do it for founders around strategy, do it for friends around personal situations, but just getting very good at listening and bringing out that person's best answer to whatever challenge they're facing, and then supporting them in, in going after that. That brings me happiness, and it leads to a moment of people saying thanks and reflecting on that, which is joyful.

    9. HSHarry Stebbings1:06:15

       I like that. I also really like the distinction between joy and happiness. I find it often quite difficult to separate the two. Um, listen, my friend, I could talk

14. 1:06:24 – 1:15:57

    Quick-Fire Round

    1. HSHarry Stebbings1:06:24

       to you all day. Can we do a quickfire round?

    2. PBPhin Barnes1:06:26

       Absolutely.

    3. HSHarry Stebbings1:06:27

       So let me just... I'm sorry, I'm supposed to be meeting my mother (laughs) . She'll kill me.

    4. PBPhin Barnes1:06:33

       (laughs)

    5. HSHarry Stebbings1:06:33

       Um, and I'm like, "You know what? I'd better message before I've done it where my..." You know what? Fuck it, I should just let her wait. She was not happy. She was very upset. Uh, are you ready to do a quickfire, my friend?

    6. PBPhin Barnes1:06:44

       Yeah, absolutely.

    7. HSHarry Stebbings1:06:45

       Um, tell me, co-founding moment with Dan. Talk to me about that.

    8. PBPhin Barnes1:06:50

       As I was talking about the venture capital business model being broken, Dan was the person who had the courage to do something about it in 2018. And he stepped away from Greylock, you know, storied firm, and he started a business called Sweat Equity Ventures that offered service in exchange for equity. He believed that you could unbundle venture capital from venture services, and he convinced Reid Hoffman to invest in the company. He went out and did the work, he earned equity in amazing companies. That equity is now the portfolio that Reid was the sole LP in. And along the way, I, I had so much respect for that. We, we overlapped on a couple boards, and in those board meetings, the founder would move from telling the board what they thought to saying some version of, "Well, Dan says..." and then he would say the answer. And just the impact that he could have on those companies and on those founders was just unbelievable. And so I, I had always wanted to find a way to work with him. And so when I left, uh, First Round, I announced publicly I was ready to build again, and Dan was like the second person to reach out, he's the Michael Jordan of recruiting.... and he started talking to me about how he could add capital to his model, not about how I could join him in the business. And through that conversation over 14 months, it was amazing because we could just be totally transparent with each other about our goals, our vision for what venture capital should be, the way we wanted to practice. And it turned out that those were, those were completely aligned, and we were able to build a firm, raise a fund that, uh, supported his service for equity model, but also added the capital that the, the founders needed to build their businesses.

    9. HSHarry Stebbings1:08:23

       What is the day-to-day routine? I heard I had to ask this one.

    10. PBPhin Barnes1:08:27

        I don't always stick to it, right? Uh, there's not always... You know, you, you have your aspiration and then you have your actual life. So that's, that was a caveat with that. But I try to get up early, try to do some reading, try to exercise. I, I then will make breakfast and sit with my daughter. I drive her to school, drop her off. We have great conversations on the way, although she's, she's in seventh grade now, so she wants to... We're carpooling a little bit, and now she wants to take the bus. Well, I'm afraid I'm gonna lose (laughs) , I'm gonna lose, uh, those morning conversations. It was a nice morning conversation with her. Work, um, you know, till, till, you know, 4:00 or 5:00, depends. Pick her up from school if I can, take her to sports if I can. Spend time on, uh, family, you know, dinner, uh, and, and then go back to work, and then try to get six, seven hours of sleep and, and do it again. Um, there's obviously times where you have to do, you know, you're doing dinners, I think, uh, a night out, uh, two nights out a week for, for work is appropriate. I have a date night every week with my wife. We have date night. I think that's critical. You asked about parenting. I have so much (laughs) . So much changes when you have a child, but the biggest thing that changes is the person that you love most in the world, now there's a third person in the room. And each of you loves that person maybe more than you love (laughs) each other, and you have to make space for your adult relationship to continue, um, when, when you have the, the child on the way. But, but the daily routine, um, kind of keeps me, keeps me balanced on, on those values.

    11. HSHarry Stebbings1:09:49

        Does the sex stop? (laughs)

    12. PBPhin Barnes1:09:53

        Definitely not. Definitely not.

    13. HSHarry Stebbings1:09:54

        I'm kidding. You don't need to answer that one. Uh, th- the joys of editing. I do want to ask, though, you know, you, you mentioned your beautiful relationship with your daughter there. Uh, taking the question we asked earlier about venture, if you could call yourself up the night before your wife gave birth-

    14. PBPhin Barnes1:10:08

        Hmm.

    15. HSHarry Stebbings1:10:08

        ... what would you advise yourself knowing all that you do now?

    16. PBPhin Barnes1:10:13

        Yeah, I think, um, there's a consistency in prioritizing your family that, that really matters. And, and I think that the, the reason it matters is because what children need is they need something to push on and they need to know they're safe in doing that. And so I think you... Consistency creates those boundaries, and you set them appropriately, and I think you can, you can make it a practice to truly listen to your child, truly listen, and then give them whatever it is you think they need, which is very different than what they asked for. But give them what you think they need. And if you do that consistently and to the best of your ability, I think you'd be a fantastic parent.

    17. HSHarry Stebbings1:11:01

        (laughs) A CPO I had on the show the other day said that children are like users. You listen to their problems and then you can provide them their solutions. (laughs)

    18. PBPhin Barnes1:11:09

        (laughs) Yeah. I think, yeah, the distinction between what they ask for and what they need is, is very important.

    19. HSHarry Stebbings1:11:14

        A- absolutely. Uh, what would you most like to change about the world of venture?

    20. PBPhin Barnes1:11:18

        I mean, I think there's been this, this push to scale, and I think it's, it's eroded the product of venture broadly. Um, and I think that the craft approach, whether you're doing that the way, you know, Chris and Jordan are doing it at Pace, where they do it, or you're doing it the way we're doing it, where, in exchange for equity, we deliver a, a very senior person who works in, you know, one-to-one relationship. But I would love to see a return to the one-to-one relationships that build the best companies.

    21. HSHarry Stebbings1:11:48

        Tell me, which less well-known firm do you most respect?

    22. PBPhin Barnes1:11:53

        Hmm. So many. I mean, I just mentioned Pace. I think they're... Chris and Jordan are wonderful. I think what Dave Fontanet is doing with HF0 is, is pretty fascinating. These houses, he brings people in, residential program, um, but his... he's got a real nose for talent and he's doing some amazing things there. I think Meritech doesn't get talked about enough. Max and Alex, I mean, they, they're just unbelievable in their thinking, and I think, um, so much respect for their focus and, and what they do. And then, you know, my friend Molly at Dorm Room Fund I think is, is, uh, is doing amazing work with that community. And I think if you look at the alumni from Dorm Room Fund and where they've gone on, uh, you can, you can sort of see the quality of the people that she's engaged with and, and, and how that community is, is continuing to form.

    23. HSHarry Stebbings1:12:33

        You can have dinner with one person dead or alive.

    24. PBPhin Barnes1:12:36

        (laughs)

    25. HSHarry Stebbings1:12:36

        Who's that person and why?

    26. PBPhin Barnes1:12:38

        Oh, this is easy. Uh, can I have two people?

    27. HSHarry Stebbings1:12:40

        Sure.

    28. PBPhin Barnes1:12:41

        Uh, Bill Bowerman and Phil Knight.

    29. HSHarry Stebbings1:12:43

        Huh. Why?

    30. PBPhin Barnes1:12:45

        Yeah. Founders of Nike, what they built, their partnership, the way they understood each other's strengths, weaknesses, how they worked together, and ultimately what they created is just stunning. My long-term professional goal would be to be on the Nike board.

Episode duration: 1:15:57