Roundtable #5 with Jack Altman, Auren Hoffman, Jason Lemkin, Harry Stebbings | E1077

1. 0:00 – 2:15

   Intro

   1. HSHarry Stebbings0:00

      Does investing make you a worse operator? (machine whirring)

   2. JLJason Lemkin0:02

      I think it does when-

   3. AHAuren Hoffman0:04

      Almost everything in running a company has changed over the last seven years. If you sold your company 10 years ago, you don't know anything about how customer success works, (graphics popping) how new types of sales work. Having somebody who's a little bit more current, that co-founder that you can't hire, can be really appealing. (screen whooshes)

   4. JLJason Lemkin0:19

      There's many things those of us who've been around for a long time don't like about VCs, (graphics popping) sweating the wrong things. Founder-led funds today are gonna sweat some of the things as much as a traditional investor would be, whose job (graphics popping) is on the line. And I think that's appealing for founders. (screen whooshes)

   5. HSHarry Stebbings0:33

      A lot of founders give much tougher love, or whatever you wanna call it, than I've seen investors do. When I look back at the people who really did me justice in the long term, they told me stuff that sucked (graphics popping) to hear on a particular day, but was good over the long term. So Jason, what is our bet for today?

   6. JLJason Lemkin0:49

      The bet is... (logo thudding)

   7. HSHarry Stebbings0:52

      I am so excited for this. I've wanted to do this one for quite a while. So we're gonna start off with some intros, quick 30 seconds each. Let's do Jack, Oren, and Jason. Jack, starting with you, who are you? Tell me the two hats. (clicks tongue) Uh, I'm Jack. My founder hat is that I started Lattice in 2015, which is an HR software company. We built a bunch of different products, performance management, employee engagement, compensation, et cetera. Uh, we also now have an HRIS, and so we've kind of built this multi-product company over the years, um, and that's what I spend the majority of my time on. And then over the last four years, I've also become an active early-stage investor, so that's the other one. Orin, over to you.

   8. AHAuren Hoffman1:33

      Sure. Orin Hoffman, CEO of SafeGraph. We're a very boring data company. We sell data on physical places. And then my other hat on the side is, uh, help run Flex Capital. We're a series A, series B, uh, venture capital firm.

   9. HSHarry Stebbings1:46

      Mr. Lemkin?

   10. JLJason Lemkin1:47

       I'm Jason Lemkin. I run a community and a blog called SaaStr. Uh, and I've been investing for just, just over 10 years now, from a variety of vehicles.

   11. HSHarry Stebbings1:58

       Okay, so we're gonna dive straight in and just try and understand, like, any product which, you know, capital is in some ways, we need to have a reason to exist. Why do founders want other founders as their lead? Let's start with that, and I'm just gonna throw it out into the open and anyone can grab

2. 2:15 – 13:14

   Founder Dynamics

   1. HSHarry Stebbings2:15

      it. Maybe not necessarily lead, but I think at least one of the reasons that founders like to have other founders as investors in general is that it's a good source of tactical advice, um, and general support from somebody who's done the thing that they're doing, and it's relevant. Like, it's not, like, 10 years out of date, which often becomes the case for VCs. My view is actually that I think there's a lot of value to having both active founders and full-time investors, 'cause I think they just provide sort of different perspectives, types of support, vantage points. So I don't encourage founders ever to not have, like, full-time investors involved, but I think both are good. But I think the reasons people want founders are due to just the active hands-on advice that you get from someone who's done what you're doing and is still currently doing it.

   2. AHAuren Hoffman3:01

      Yeah, almost everything in running a company has changed over the last seven years. Yeah. So if you sold your company 10 years ago, you don't know anything about how customer success works, how new types of sales works, how product-led growth works, how even, like, all the recruiting stack works. You're really just out of date. Maybe on the very, very big things you're still current, 'cause those things are timeless and they don't change, but all the medium and small things have changed dramatically. You didn't even, like, use Slack 10 years ago. So it just, everything has changed so much, and just now having somebody who's a little bit more current as kind of that co-founder that you can't hire can be really appealing.

   3. HSHarry Stebbings3:37

      We also have work-from-home and entitled millennials, don't we, Jason?

   4. AHAuren Hoffman3:40

      (laughs)

   5. JLJason Lemkin3:41

      For, for what it's worth, just one thought I would... I thought about this question, why do founders want founder-led funds? And I've co-invested with, with Oren and Jack, and worked with both, and recommended them both. Um, but I thought a little bit about it, um, and I, I think there's actually... I think it's actually about brand. Um, and I thought about my whole life as an entrepreneur. When I started in the old, old days, there were only two brands in venture I knew of. There was Sequoia and Kleiner, right? And, uh, you had to take a discount for both of them, right? You'd go out and you'd get your term sheet from somebody else, and then Kleiner would insist on a 20% discount. Uh, and that's the way the world worked. There were a couple of brands. And there's more brands now. And Andreessen and YC changed the notion of brand. But I actually think as, as founders have gotten more sophisticated and the markets have gotten bigger, these are brands. These are brands. And founder... Like, f- f- especially first-time founders, but also second-time founders, we don't have time, and brands are a proxy for quality, right? So it's like, you know, I don't know that much about Altman Capital. Like, I know a little bit from the website, but I kinda know... I know Jack from all the things he does, and I know... And so it's a brand, I think, and I think that's actually why founders are attracted to it. I, I think the operational experience is only, is only part of it.

   6. HSHarry Stebbings4:51

      Okay, so I'm deliberately gonna push back despite being in favor of everything you say.

   7. JLJason Lemkin4:55

      Yeah.

   8. HSHarry Stebbings4:55

      Yeah, I agree with you guys.

   9. JLJason Lemkin4:56

      I don't think it's a, I don't think it's a negative. I just think it's more... I think... And I think this is why for LPs, and this is maybe going to some of the stuff Orin's written, that's why I think it's a good bet for LPs, 'cause it's not just the operational experiences, that it's an orthogonal brand.

   10. HSHarry Stebbings5:08

       I get you, but we've had founders invest as angels for years. Why do we need funds? Why do they need to leverage institutional funds? And why do they need to be a bigger part of rounds?

   11. JLJason Lemkin5:18

       They... Uh, maybe they don't, but I th- but these guys are pretty good investors. Listen, I, I think Orin's written a lot about it, and Jack can challenge it, but it may be as simple as... I mean, Orin, you've been in angel investing for what, since your teens?

   12. HSHarry Stebbings5:28

       (laughs)

   13. JLJason Lemkin5:28

       I mean, uh, you've been at, you've been on cap tables I've invested on since I started. How long have you been doing some pretty good investing, 15 years?

   14. AHAuren Hoffman5:35

       Yeah, thereabout, yeah.

   15. JLJason Lemkin5:36

       One thing that changed the last four or five years is LPs wanted to put more and more money into angels and micro funds that performed. When I raised my fund in 2016, you can... People thought it was crazy. Like, "Oh, my God, this guy raised a $70 million fund. It's nuts." Like, "A guy like this should only be able to raise 15 to 20." Just fast-forward, like, a couple years to Flex, right, and, like, the world changed. It went from crazy to commonplace in, like, a couple years.

   16. JAJack Altman6:02

       But Harry, to your point, I don't th- I think it's a good question and I don't think, I don't think it's necessary. I think it just works. I do think that when people invest more, they naturally end up being closer to the companies. So, I think if somebody does half of your seed round versus if they are a small angel, you will generally get more time. But it's not proportionate and to your point, like, when I think of a lot of my small angel checks that wrote, you know, a 50K check into Lattice, the pound for pound help to dollars there was crazy, because people still help a lot. Would they have helped a little bit more if they did 500 instead of 50? Maybe, but not ten times more. So, I- I think I accept the premise of the question, is I don't think it's necessary.

   17. HSHarry Stebbings6:48

       I- I think a really interesting question that I often ask myself is, you know, I work with a lot of angels who are founders and they're brutal to the founders.

   18. JAJack Altman6:57

       (laughs)

   19. HSHarry Stebbings6:57

       I mean, we live in this, like, founder-friendly VC world. The founders come in and say, "Jason, that's shit. Why did you do that? You're a moron." Like, "That was stupid." And so my question to you... And, you know, bluntly, they do it out of tough love and they're very helpful. I don't mean that cruelly. But it's not that empathetic (laughs) . Are founder-led investors and funds as founder friendly or empathetic as people think?

   20. AHAuren Hoffman7:21

       Well, most good founders have low EQ. So, they generally would not do that.

   21. JAJack Altman7:26

       Is that right? Is that... Do you think that's right, they have low- most good founders have low EQ?

   22. AHAuren Hoffman7:29

       I think so, yeah. Um, I- I don't think EQ is one of the highest things on the list.

   23. JAJack Altman7:34

       (laughs)

   24. AHAuren Hoffman7:35

       Um, and they're going to- th- they are gonna kind of tell it like it is. And every VC today is founder friendly, right? The lo- it's pretty rare nowadays for a founder to get fired, whereas, like, in the '80s and '90s, that was commonplace for a founder to get fired. But there is a big difference. Most founder CEOs are very undercompensated. Like, the go-forward comp for a founder CEO today, once, let's say you're- you're there for over four years, your go-forward comp is probably 5X lower than if they hired an outside CEO. And that's really just patented unfair. And a traditional VC is never gonna go to the founder and be like, "Hey, you should get a higher... You know, we should give you some more options," and stuff like that. So, there are some, like, nice things about having, uh, these, like, dual-threat CEOs on your cap table.

   25. HSHarry Stebbings8:21

       Can I be blunt? Should we go back to a time when more founders were fired?

   26. JAJack Altman8:26

       If you look across, like, a lot of data of companies that have gone the full distance, it seems to me that the- the very, very best companies tend to be founder led forever. However, that doesn't mean that that's what should happen with the merely excellent companies. There's a big difference between a $10 billion company and a $300 billion company. I think there are another set of companies that are not the earth-shattering, product-market fit companies where there does become a stage later in the company's life where professional CEOs can be really effective and it does become a different game than what was started early. But I feel that in the early days of a company, the replacement move is more likely to fail than succeed, nine times out of ten, before the company's got a certain amount of, like, stability to it.

   27. AHAuren Hoffman9:25

       The founder's really important in that zero-to-one moment, and to become a $100 billion company, there's often, like, 10 zero-to-one moments along the way that are really, really important. It's not just, like, one from the beginning and then you just ride it. So, if you look at all these companies, like Facebook or whatever, there's so many reinventions over the years. Even a great CEO, it's really hard for that person to have the moral authority to pivot the whole company or to transform the whole company, say, "This is the mobile moment," et cetera. They're just not gonna have that ability to do... They can steward a company, they can do an incredible job of going that one end, but they- they have a lot of trouble going that zero-to-one side.

   28. JAJack Altman10:03

       You know, Harry, I just re-ran the numbers on SaaStr. It's 88%. 88% of SaaS companies that have IPO'd have the founder as CEO at IPO.

   29. HSHarry Stebbings10:12

       Wow.

   30. JAJack Altman10:12

       Now it's declining. The folks like the Brian Halligans, like, after 20 years folks do get tired. That's a different issue (laughs) .
3. 13:14 – 23:09

   Operational Experience and Investment Acumen

   1. HSHarry Stebbings13:14

      make one a better investor, do we think?

   2. JLJason Lemkin13:16

      I haven't seen the data in a while. O- Oren's pretty good with data. Um, I remember a few years ago, I forget whose analysis was, there was no advantage, like to being, uh, uh, operators were no better than professional. That may not include pre-seed, right, or other things. Um, but it, it wasn't... When I wrote this up a few years ago that, whatever data source I looked, it, I think founders preferred it. It didn't necessarily benefit the LPs, apples to oranges. Like, the CEO that worked at Benchmark, may- maybe Benchmark's the wrong example, that worked at wherever, didn't perform better than the person that had the Harvard MBA, right? But the world, the world's different and founders have more choice today, right? They can make their own choices, right or wrong.

   3. HSHarry Stebbings13:52

      Guys, how do you think operating makes you see companies invest in a better way? And, and when I say operating, I don't mean like just operating at the same time.

   4. JLJason Lemkin14:03

      Well, if you're oper- like, often you're investing in companies that, like, are your vendors that you're using or you've used the product, like you've played with the product-

   5. JAJack Altman14:12

      That's the cheat code. That's the cheat code, right?

   6. JLJason Lemkin14:13

      And you're like, yeah. You're like, "This product's amazing." Like, you just see it and you've used it and you're like, "This is incredible." And then you, like, call up the CEO. You don't even know who the person is. You're like, "Hey, I'm, I'm your client. I'm using your product." And they're like, oh, they love to... They start talking to you, you start geeking out about the product and then kind of one thing leads to another and you end up investing. So that's like a great solution. Like, you fall in love with the product first before, like, the company ever gets a chance to pitch you.

   7. JAJack Altman14:37

      Yeah, I plus one that. I think, um... And actually I was gonna say the same thing. I think there are, like, puts and takes for both operators and full-time VCs, and I don't know what shakes out to be more of an advantage. I guess Jason has data that neither outweighs the other. But on the operator side, that's a big one, like your own vendors. I think another big one is that you end up spending a lot of time with people who are building and execs and ICs who use tools and you hear about their problems. And so you are steeped in customers just by your, the nature of your work all the time. Like, for example, right now I have a good sense for what the execs of each function at most software companies, I have a good general sense for what are their top few software solutions that they care about just because I'm, like, living in it. And so that does build a slightly more prepared mind for if you see a finance tool that does this thing that you know is not on the radar, you, you know, you have some better sort of intuition maybe for, is this gonna matter? Could it matter, could it grow into some adjacency that matters? So I think just being steeped in the realities of markets, at least, you know, I'm speaking about like B2B SaaS. I think this is useless for like consumer or hardware or other things. Um, but I think it helps on those.

   8. JLJason Lemkin15:53

      I wonder if it helps you, going to that point, Jack, wh- when I think back I, my, I was five for five in my first venture investments, right? Not perfect, but five for five. And I really did just invest in the problems I had as a founder. But it's not that simple because I see founders making the dumbest angel investments of all time, okay?

   9. HSHarry Stebbings16:08

      (laughs)

   10. JLJason Lemkin16:08

       They're like, "Oh, this would be cool if I did this video meets Riverside Audio," and it's, it's moronic. But what, what, what I realized I could see was where spaces were changing because I was so deep in them. So I could see where the call center was changing 'cause I had so many headaches. I could see where search for Talkdesk and search for Algolia and even things that seem simple like CRM for Pipedrive or with Greenhouse that Jack knows where I was pre-revenue and then SalesLoft, which I remember everyone laughed at when I was involved with SalesLoft pre-revenue. But I could see how my sales team was changing, even though these all seemed like tired categories. Like, all of these were actually tired categories that no one at the fund I worked with supported because, for, for logical reasons. They've all been done before and I, I don't get it. So that's something an operator will get is see how these things are in motion, right, that I think, um, for early stage can be very, if you're good, it can be very, uh, uh, advantageous.

   11. HSHarry Stebbings17:02

       I think the most helpful heuristic though, Jason, is one that you say quite often, which is like, "I measure every CEO against myself." Like, are they better than I was? And if they're better than I was and I did 100 million

   12. NANarrator17:12

       th-

   13. HSHarry Stebbings17:12

       ... like he did, shit, then they're gonna pass the bar of quality. Do you see what I mean? It gives you that benchmark which you wouldn't have if you weren't an operator.

   14. JLJason Lemkin17:21

       That's the superpower that everyone on this, uh, uh, uh, on, on this podcast has, which is everyone knows who's better than them, right? That is one superpower that successful founders have, that, that money investors, when I say they had, they don't even know what it means.

   15. HSHarry Stebbings17:35

       Yeah.

   16. JLJason Lemkin17:36

       I mean, look, I mean, Oren, who's better than... You're pretty good. Who's better than you? Who have you interviewed on your DAS that's better than you? Who's better than you? Keith Raboy.

   17. JAJack Altman17:44

       Okay, yeah.

   18. JLJason Lemkin17:45

       Significantly better than you.

   19. JAJack Altman17:45

       Who else is better? There are a lot of people who are better than you.

   20. HSHarry Stebbings17:49

       (laughs)

   21. JAJack Altman17:49

       (laughs)

   22. HSHarry Stebbings17:49

       I agree with you.

   23. NANarrator17:50

       Please go.

   24. JLJason Lemkin17:50

       (laughs) Who's, who's, in, in, in the HR space, who's better than you, Jack, who's better than you as a, as a CEO, who's bet- oh, founder, better founder, maybe not better CEO, who's a better founder?

   25. JAJack Altman17:58

       I don't know who's better, but there's a lot that are really good. I mean, like-

   26. JLJason Lemkin18:01

       Okay.

   27. JAJack Altman18:02

       ... um, Parker from Rippling is really good.

   28. JLJason Lemkin18:04

       Yeah.

   29. HSHarry Stebbings18:04

       Yep.

   30. JAJack Altman18:04

       Um, the Deel founder, the Gusto founders, like there's a lot-
4. 23:09 – 34:12

   Venture Capital and Investor Roles

   1. JAJack Altman23:09

      from junior people and then obviously, you know, you see platform teams which we could debate how valuable they are, but there's other stuff like that too. But I would, I would just add that there is at least value to the other format too and lots of good examples where people have been very successful in the full stacky approach.

   2. HSHarry Stebbings23:24

      I totally agree with you. I- I- I sat down with, um, one of the best investors, uh, the last 20, 25 years and I said, "How do you feel about the changing nature of venture?" And he said, "What the fuck are you talking about?" And I said, "What?" And he said, "There's two to three great entrepreneurs a year. You need to invest in one of them. It's simple but hard. Lunch is on you." (laughs) And I went-

   3. JLJason Lemkin23:44

      Yeah. But you know what's changed, Harry? It's a good... I- I don't think that's changed, but that's why I've thought a lot about Oren's point. If you're gonna be early stage, there's so many startups today.

   4. AHAuren Hoffman23:53

      And you know, it's funny. When I started investing ten years ago, and I remember when Slack and Zoom took off, I was like, "I didn't see them. I'm a horrible investor," right? Even though they actually were like SaaStr community fans, right? Um, I felt like an idiot today. I never feel that way because there's too many star- Like you could never, I could never open up a Tech Crunch or Strictly VC and feel like an idiot for not hearing something because it's, it's ... If you want to see every- those one or two, I actually think it helps to see ten times more startups than it did five or six years ago. Ten times. You don't have to if your top of the funnel is perfect, like if you can get everyone in, but it's just such a big world. How do you do it as one person?

   5. JAJack Altman24:31

      Which is a great point because like, yeah, you know, I hear both of those things. Uh, hopefully I've heard more than two to three, but let's say there's ten, you know, or fifteen is I think, you know, maybe. But like there's some small number of companies that are gonna matter in any given year that are, if you're not in one of them, it's venture so power law that you just like have to hit a good company each fund for the fund to work. But there's so many companies. And so then I think this would now be countering my point.

   6. AHAuren Hoffman24:55

      (laughs)

   7. JAJack Altman24:55

      How does an individual see nearly enough of the, of the landscape to get one of those shots somewhere in their inbox, you know?

   8. HSHarry Stebbings25:07

      I think it's specialization and brand dominance, I think would be one, which is like you go, "I'm gonna do early stage pre-seed and seed SaaS, and I'm gonna have a massive fucking brand." And actually just to increase the appagio-

   9. AHAuren Hoffman25:19

      But that will increase your deal. Then you'll have more, lots of deal flow to deal with.

   10. HSHarry Stebbings25:22

       Yeah, absolutely. But your opportunity to get into one of those ten expands. Now you have to pick, but you're not gonna miss the chance to see them, like-

   11. AHAuren Hoffman25:32

       But if you're, if you're a dual-threat CEO, you cannot meet with all of them. Um, you will not, not, not take that first meeting. You'll, you need somebody to help you vet these things out there, um, because you have a, you have another job. Uh, and, and so you can really only meet with the ones that you think are super special. And that could be, again, the products that you've used that you love, or you know, somebody that you, that you know and you trust has said, "I- I really love this company. You should dive in."

   12. HSHarry Stebbings25:58

       Well, does investing make you a worse operator? Like I suck at split brain by having too many hats.

   13. AHAuren Hoffman26:04

       (laughs)

   14. HSHarry Stebbings26:04

       I'm being serious. I, I suck at it. Like shit, if you're thinking about investing when you should be operating or if you're thinking about operating when you should be investing, like does investing, just starting on that, does investing make you a worse operator?

   15. JAJack Altman26:15

       I have a strong view on this. Uh-

   16. AHAuren Hoffman26:17

       Go ahead.

   17. JAJack Altman26:18

       I think it does when time constraints are the dominant force. And for that reason, I think early stage founders spending real-time investing is, uh, it's just too expensive. And so when, like there are definitely things to be learned from your investing that poured over to operating, but in the early days of a company, and by early days I'm not saying like a year, I'm saying like several years until you get a company set up that can tolerate you being away for a month or something like that. I think until you're at those phases, generally speaking, it's so expensive to be putting any sort of blockers on your time that I think the costs are really hard to make up for. My experience with it was that once we got to a certain size, I found that incremental hours on Lattice were not that valuable past a certain number of reasonable hours, past let's say 50 hours. At some point it just doesn't, more hours doesn't do you good the way it does in an early stage company. And at that point, I think there is a lot to learn from companies. You learn from the founders, you learn from other markets, you learn new business models, you learn about the venture ecosystem. You just, you do pick up valuable stuff. But to me it's, doesn't work when the trade-off on time is too onerous.

   18. AHAuren Hoffman27:41

       I, I would say, I would say really anytime a CEO is not spending on their company, it's bad for the business. Um, but that's true if you're dating. It's true if you're being a spouse, if you're parenting kids, if you're working out, if you're spending time with friends.

   19. JAJack Altman27:52

       Best not to have children if possible. (laughs)

   20. HSHarry Stebbings27:53

       Yeah. As, as a CEO. Yeah.

   21. AHAuren Hoffman27:55

       If you're enjoying hobbies, if you're playing golf, like literally anything you do is bad for your business. It's all a trade-off. And of course everyone does some of those things, right? So everyone has a hobby. For some people it might be investing, for some people it might be playing golf, for another person it's like kite surfing or something like that. So everyone is doing these different things. Like we are human, we're not just a robot. You have other interests and you have to kind of scratch those itch. And, but it's really just important is like are you keeping the main thing the main thing? Um, and if so, if being the CEO is the main thing, are you keeping that the main thing? Is that the core thing? Is that the thing that you're gonna drop everything and go do when that's the most important? That, that's, that's the key thing to being a CEO.

   22. HSHarry Stebbings28:34

       This is the problem that I have. I'm sorry. I'm again being cynical, but like when you raise that external money for a fund, you are taking on immense responsibility and it's an immense privilege to manage other people's money. I agree with you, the CEO is the, yeah, the main thing is the main thing. So if there's a fire and it's going to shit in your company, you got to go fix that. Well hang on a minute, you've just taken a load of institutional cash and raised that institutional fund. What, what are you gonna do with that? Because I gave you money for the fund. What are you putting their money ahead of my money? Huh? No.

   23. AHAuren Hoffman29:08

       I think it's actually almost the opposite. So I think for the, for the LPs in the fund, um, it is actually ... They're, they're generally not happy when, when someone in the fund is like also a CEO, but they should be because that fund's gonna end up doing so much better. You're gonna get into better deals, et cetera. But the VCs in the CEO's company, if the CEOs have a fund, then they shouldn't be as happy. And they're usually plenty happy if you go like do a fund on the side. So they should be really swapping places.

   24. HSHarry Stebbings29:36

       If you have a LP in a V-, in a fund that is founder led with the found- with the GP who's a CEO and their business is going to shit and they're spending no time on the fund drawing fees and they're working on their business, I'd be pissed as an LP.

   25. AHAuren Hoffman29:53

       Absolutely. If the returns aren't good, you should be.

   26. JLJason Lemkin29:55

       You know, it's an interesting, it is an interesting topic, right? And if you read these LPAC agreements, uh, which it's worth reading. I didn't read th- the ones that I signed the first time. That was an error.

   27. AHAuren Hoffman30:04

       (laughs)

   28. HSHarry Stebbings30:04

       (laughs)

   29. JLJason Lemkin30:04

       But, um, if you read them, there are a lot of provisions and, and I'm sure everyone on this, in this podcast had to add an exception to the boilerplate that says, "Everything you do will be for the fund," okay? Yeah. I had to have it back in my first one in 2016. It created discussions, right? I'm like, "I've already got this community. I'm already running it. Like, all they care about is returns. And if they see it as an edge, right, then it's, it's a tax." And I think, uh, LPs are on both sides. On the other hand, like, th- the last thing an LP wants to do, Harry, you've done this. I think we're almost at the 3,000th 20VC, aren't we? On 27 something?

   30. AHAuren Hoffman30:38

       Yeah, yeah, yeah. Yeah.
5. 34:12 – 36:14

   LPs and Investment Innovation

   1. HSHarry Stebbings34:12

      venture in China. Well, that's migrating south.

   2. JLJason Lemkin34:13

      Oh, they're talking, I was on a conversation yesterday on that. (laughs) Yeah.

   3. HSHarry Stebbings34:17

      Yeah. Then-

   4. JLJason Lemkin34:17

      That's over. (laughs)

   5. AHAuren Hoffman34:18

      (laughs)

   6. HSHarry Stebbings34:18

      Yeah. That, that's over and that dollar-

   7. JLJason Lemkin34:20

      That's over.

   8. HSHarry Stebbings34:20

      Those, those dollars aren't going back into PE or credit or public markets, they're going back into venture.

   9. JLJason Lemkin34:25

      Yeah.

   10. HSHarry Stebbings34:25

       But just venture in the US largely or Europe. And so there's that, you've got the rise of, you know, UAE on mass, which they have been for years, but even more so now than ever before. Um, I, I don't, I think everyone's actually overly pessimistic on this.

   11. JLJason Lemkin34:40

       I hope you're right. (laughs)

   12. HSHarry Stebbings34:43

       (laughs) That, that is my view. That I ran over. Sorry guys.

   13. JLJason Lemkin34:46

       (laughs)

   14. HSHarry Stebbings34:46

       Um, uh, in terms of like LP comms, actually, sorry, fa- I think a, a really interesting one also is like team comms and one I worry about. How do you guys talk about it to your teams? 'Cause they're in it for the company and then you've got this money maker on the side. How do you broach that one?

   15. JAJack Altman35:04

       I have never also been one to ask our employees not to do other work. A lot of our employees are also angel investors, sit on other boards, and I think that's great for them. And maybe this is partially to Orin's point that like people are, you know, a constellation of activities and I think that like there's a lot of ways to spend your time. And I don't think that Lattice should be something that demands 90% of somebody's waking hours. Maybe it's partially because I believe that exposure to other companies makes people stronger operators. But it's always been in our culture that people have had other activities and that as long as w-... they're doing the full job that's on their plate, that, that's something that we, like, are proud of.

   16. HSHarry Stebbings35:49

       What about doing a... Sorry, I'm (laughs) ... It's really late, I'm just going for it, fuck it. Jason's like, "Harry, stop." (laughs) Uh, but, like, what, what happened to going above and beyond? Let's say I'm in sales. I can get more leads, I can do more outreach. Let's say I'm in marketing. I can do more copy, more ads. I can test more channels. Like, I go home and work at my desk late into the night. And actually, if

6. 36:14 – 42:39

   Side Projects and Team Dynamics

   1. HSHarry Stebbings36:14

      I were in sales or marketing or any of these functions, if I didn't have those extra things, Jack, I'd have much more output for you.

   2. JAJack Altman36:22

      I just, I think I see it differently than... And I don't know if you're just putting up... Uh, you must just be putting up an argument because, like, the rest of them-

   3. JLJason Lemkin36:27

      Well, I sort of believe it, but, yeah.

   4. HSHarry Stebbings36:28

      (sighs)

   5. JAJack Altman36:29

      Because you also do two things. Um, so you must just be making things up.

   6. JLJason Lemkin36:32

      No, I also see this, I also (laughs) see this, uh, uh, it, it is, it i- uh, I mean, keep going with your answer, but, uh, I don't think it's a hypothetical.

   7. JAJack Altman36:39

      I think there's a lot to be considered here. I think you might be right that on some level, at least for some period of time, you can get more out of somebody if they are burning the candle on both ends for your company. That's probably true. What I've also seen, though, is things like employee retention for long periods of time is extremely valuable. And so, a company that retains employees for five years instead of one and a half on average, those employees are gonna be so valuable in years three, four, five. And so, things that a company can do to retain people for longer outperforms incremental work hours, you know, in most cases, in my view. I also just don't think that, like, the only optimization function of a company is to squeeze every last bit of productivity out of everybody, and maybe that's where I'm, like, alone there, but I don't think that's the only consideration here. And so, that's also where you just choose what kinda company do you wanna build, and do you wanna build a company where people can have other components to their life, and that's something that we've always wanted at Lattice.

   8. HSHarry Stebbings37:40

      Well, I think there's extre- sorry, I'm... there's extremes. I'm not, like, you know, pushing them to a desk at midnight, but actually, when you go home and it's eight o'clock and your partner's, you know, reading the paper, you could be reading the latest, um, demand gen techniques or the latest ABM techniques-

   9. JAJack Altman37:57

      (laughs)

   10. HSHarry Stebbings37:57

       ... out of, kind of, passion. You- I'm not, like, forcing you at your desk, but you're doing things around the job that make you better.

   11. JAJack Altman38:03

       Would you have a problem with people who work with you having another activity?

   12. HSHarry Stebbings38:09

       Yeah. Yeah, I would, actually.

   13. JAJack Altman38:11

       So that, so that's... I think maybe that's the differe- even though you have two, you say, "I have two," but you don't?

   14. HSHarry Stebbings38:17

       They're aligned. They're exactly aligned. We leverage media to be a better investor. Like, they are directly aligned. If one-

   15. JAJack Altman38:23

       What if they made that argument?

   16. HSHarry Stebbings38:26

       In terms of?

   17. JAJack Altman38:28

       If they, if they were like, "We do two things that are highly aligned."

   18. HSHarry Stebbings38:31

       I b- I'm happy to listen. I don't think there are, but I'm happy to listen. If you're like, "Hey, um, I'm joining a, I don't know, w- video editing society, and they want me to be a chairman," sure, show me the ways that it makes you a better video editor. Yeah, I get that. Or say, like, sales teams, "Hey, I wanna join the board of, I don't know, Sales Loft," I'm just saying, "I'll find the latest sales tactics and techniques." Cool, I'd say that's aligned to your job. That makes sense. Totally.

   19. AHAuren Hoffman38:57

       I, I would say, Harry, that the, that the people I've worked with who have been the most impactful people, m- it is extremely higher cor- highly correlated that they also put in the most hours.

   20. JLJason Lemkin39:10

       That's what I was gonna ask you. (laughs)

   21. AHAuren Hoffman39:11

       But I'm not sure if there's, if it's cor- which way the correlation goes. Maybe because they got so inspired, and they had so much fun they put in the hours, and that made them a better... You know, it's, it's not necessarily 'cause they put in the hours that they were the better employee, necessarily. It could just be 'cause they, they love what they're doing, or some, for, for some reason I was able to s- inspire Jane, but I wasn't able to inspire Tom. It's, it's very hard to know how, how it goes, but I do think it's probably good for their car- if you're a 24-year-old, you know, putting in, l- b- you know, working, uh, uh, uh more hours is probably going to accelerate your career, um, than if you're not. Now, the other flip side I would say is that, if you can get a good 40 out of somebody a week, that's amazing.

   22. JAJack Altman39:59

       (laughs)

   23. AHAuren Hoffman39:59

       Like, most companies are not getting anywhere close to 40.

   24. JAJack Altman40:02

       (laughs) .

   25. AHAuren Hoffman40:03

       Um, so now, for some people, they have to work 60 to get the 40. For some people, for an experienced person, they can work 40 and get 40. Um, so it really depends on the... But, but a lot of companies, like, you're lucky if you're getting 20.

   26. HSHarry Stebbings40:17

       Why are we not getting 40? Like, why are we lucky to get 20?

   27. AHAuren Hoffman40:20

       Because they're on- doing other things, and they're on Instagram, and they're not, they're not as engaged. And th- th- either they're not inspired by their company, or there could be a lot of reasons, uh, why. But they're just not engaged. They're doing other stuff. They're, um, or they've got other things in their life that they're doing.

   28. JLJason Lemkin40:35

       I think everyone used to work 20, it's just you had to commute, and get your coffee, and go to meetings in the office. And now that we didn't do that, we only work, we just do the 20.

   29. AHAuren Hoffman40:44

       (laughs)

   30. JLJason Lemkin40:45

       I, you, uh, you'll hear I'm kidding, but I actually are- I, I think people-
7. 42:39 – 44:47

   Retention and Company Culture

   1. JLJason Lemkin42:39

      didn't it? Why are they leaving, Oren?

   2. JAJack Altman42:42

      I, I, I mean, I think that-

   3. JLJason Lemkin42:43

      (laughs)

   4. JAJack Altman42:43

      ... the more you're winning, the more likely it is that people will stay and that they'll stay longer. But that is, that's only one variable and there's lots of other variables why people stay and why they leave. And, and also depends on the types of people you recruit. A lot of times, like the companies that are winning recruit these incredibly founder-oriented people and those people leave to go start companies.

   5. JLJason Lemkin43:05

      For sure.

   6. JAJack Altman43:05

      And so you can't keep that person for that long.

   7. JLJason Lemkin43:08

      Right.

   8. JAJack Altman43:08

      Um, and so there's lots of different types of people out there that you need at different stages. And there's lots of different reasons, but just 'cause everyone's leaving, like in, in Facebook's case where so many of the first 25 people left early, doesn't mean that's a bad company. It turned out to be amazing company. Just 'cause everyone's staying doesn't mean it's a good company. Like, there's lots of other factors that go into it. I think that's just one of many. I'm gonna try and bring it back. Is there a limit to how much, like founder-led funds scale? Will we see billion-dollar funds or is there a cap to how large they can be?

   9. JLJason Lemkin43:37

      I think if it's just a solo GP, whether it's founder-led or not, um, if it's a solo GP, there, there are c- It, it is... I think in the end some of these things are team sports and it's hard to build a real enduring company as a one-person company. And that's true if you're running a SaaS company. There's, there are a lot of these amazing SaaS companies that have like 20 million ARR and have one employee. You look at them, you're like, "Whoa, these are incredible." Right? But it's hard to get like to a billion ARR with one employee. Um, and I think the same thing is true with, with, with, with venture. And venture is just like, is incredibly competitive. It's way more competitive than any type of SaaS business that's out there. Um, it's one of the most compet- You're, you're basically selling a commodity, you're selling money. And eventually you are going to need to build some sort of team if you want to scale it.

   10. JAJack Altman44:25

       But what, but do you? 'Cause all, all you need to do is actually just go later. Go to series D and you can deploy $100 million checks and actually that same is probably possible. You could raise a billion-dollar fund, 10 $100 million checks.

   11. JLJason Lemkin44:39

       Yeah. I mean, yeah, but I think if you're successfully deploying 100 billion, uh, $100 billion checks, just the amount of diligence that you

8. 44:47 – 57:16

   Scaling and Fund Management

   1. JLJason Lemkin44:47

      need to do on a company and just the amount of work. You know, if you think of like an in- Insight, um, which is one of the more successful late-stage, like they have like a 20-person team evaluate a deal. They don't just have like one person do the whole thing. It's a, it's a, it's a huge, huge deal. It's very, very, very, uh, hard to go, if you're gonna do it right. It's easy to deploy 100, 100 bil- $100 million. That's the simple part. The hard part is actually making consistent return.

   2. JAJack Altman45:13

      Yeah.

   3. JLJason Lemkin45:13

      I think the question is, what can a, can a founder-led fund compete with Sequoia? Let me flip it around. And maybe you need a billion dollars to do that, right? At some level. Um, and I think we don't know yet. I think we don't... I mean, I would ask, I'll ask the team. I think we don't know yet. I think there's reasons it could be, right? I think right now it sounds a little silly to say as successful as the investors on this may be that you could directly compete with Sequoia. Like, directly compete with Sequoia.

   4. JAJack Altman45:37

      Well, like, doesn't it depend on the founder? Like I, I, again, I'm not, I'm not going to draw on anyone, but if you think about like Ryan Peterson doing Ryan Peterson Capital. I think that probably could, I mean, you know, definitely Sam Altman Capital could. Um, oh, sorry, forgetting that. Like, whatever, big, big, like, yeah, I think you could, no, Jason?

   5. JLJason Lemkin45:57

      There might be. Well, Oren's point, which I mi- Which, I mean, Oren's much smarter than me, I might have missed, is there is a crossover point where it's an... where you would need a huge team, right? So maybe it breaks for any traditional founder-led fund, right? Because if you need 20 or 40 or 50 people that, that might be, that might be a management burden (laughs) unless-

   6. JAJack Altman46:17

      Yeah.

   7. JLJason Lemkin46:17

      ... you're, unless you're the figurehead, right? Unless you're the figurehead, right? I brought up a few examples like Girish from Freshworks, right? Um, and Jody Bonsal with Unusual Ventures. I mean, they manage a lot of money, but are those founder-led funds or are they sort of founder-topped or founder-flagshipped funds? And there actually is a pretty big difference, right? Um, getting, getting a call here or two with someone once a year is not the same as being the partner on the deal, is it?

   8. JAJack Altman46:42

      No. I agree.

   9. JLJason Lemkin46:42

      I mean, there's advantages to that too. Those are good funds, but it's different, right?

   10. JAJack Altman46:47

       So we have a CEO, a full-time CEO at Flex Capital. Um, and that is why I, I, I think that is... I don't think we would've been nearly as successful if, if it was like I was the CEO.

   11. JLJason Lemkin46:59

       Is there anything that I haven't discussed that you think we should discuss, guys? Is there anything that I've left off the table?

   12. JAJack Altman47:05

       I'll throw out one thought. I'd like to hear Oren and Jack's thought. I was thinking when I was listening to them. I think one advantage to taking money from a founder-led fund, uh, and I ob- observe this with both of them, especially Jack though, is that to, to raise the kind of funds that these guys do, you have to have s- a certain measure of success as a founder. And so I just don't know that founder, founder-led funds today are, are gonna sweat some of the things as much as a traditional investor would be whose job is on the line in a different way. Um, their neck's on the line. Um, I was just o- o- on with the CEO today at a, one of my most successful companies, but one of a mega big billion-dollar fund, like the, the, the partner who doesn't run the place isn't sure he can do his pro rata. He isn't sure he has the juice at the fund. And like, this is a no-brainer. I just don't think Oren or Jack are gonna sweat it if growth slows a little bit at their portfolio company. They may help, right? But they're, I don't think they're gonna throw their shoe at the monitor at the board meeting. I think that's appealing for, for founders, right? I do think that's appealing.

   13. HSHarry Stebbings48:04

       You're saying, they almost care l- I think you said it before. Like, you want, you said before, Jason, you want almost investors that care less, or they don't need it, I think.

   14. JLJason Lemkin48:10

       No, I think they care just as much. It's just nice to know ... We all, that one of the, there's many things those of us who've been around for a long time don't like about VCs, right? There's many things. But it's sweating the wrong things, right? Being overly dramatic about small things. Worrying about, oh, you know, we said in October we would do 6.8% and we came in at 6.6 and someone gets mad. And I just don't think that Jack and Oren, uh, even if you run out of money, I, I just don't think they're gonna sweat it the exact same way. Um, even though they have t- in a sense you have to 'cause you're running traditional funds, right? The, the economics are the same, the goals are the same, but I just don't think that the, the downs are as dramatic. Challenge me though. May- maybe, maybe you do throw your shoes at the monitor but, I don't think the downs are as dramatic.

   15. JAJack Altman48:52

       I think my not shoe throwing at the monitor is, uh, more a matter of my just, um, my constitution, uh-

   16. JLJason Lemkin48:59

       (laughs)

   17. JAJack Altman48:59

       ... as much as anything which is maybe just like, that I, I've actually got in-

   18. JLJason Lemkin49:01

       But your job doesn't end if one of your investments fails. Your life doesn't end. Your career doesn't end.

   19. JAJack Altman49:06

       Yeah, but I mean, I still, I still think I treat the, the work of it very pre- you know, it's hard to know because I haven't done it only, but it, the outcomes that matter diff- different, you know, they, they still are very important to me. But maybe, maybe there is like, a different sensibility of like, I'm not gonna get ... but it's hard for me to say because I'm like, a bad example for this 'cause I just like, don't get upset enough in general. Like, even in Lattice context, it's just like, not in my DNA. So, that might just be like, a me-specific thing. 'Cause to the point earlier, to Oren's point, there are a lot of founders I've seen like, be pretty tough on other founders and get pretty upset when something's not going the way that they would do it. So, th- it might be case by case, but I don't know.

   20. AHAuren Hoffman49:48

       One thing that maybe, maybe Jason where I think you might be more correct is the, is like, when you're negotiating with a dual-threat CEO. Let's say you're negotiating a term sheet or you're negotiating like, the actual docs, the series B docs, or something like that. Most of the terms don't matter. And sometimes when you're negotiating with like, a more traditional venture capitalist, they get hung up on these things that like, have, will have no outcome to their return. Like, there is no scenario where, especially in a s- you know, especially when the world is power law driven. Like, there's no scenario that these, any of these things will really ever matter to them. But they get so hung up on some of these things, and I think sometimes a, a, a f- founder-led, uh, uh, VC is going to be more, um, accommodating not, not on the things that matter, like things like valuation, you know, all these other things that actually really do matter. But on, on the, on just like, the random stuff that nobody, you know, will never actually change the outcome.

   21. HSHarry Stebbings50:48

       I think quite a lot of people are pissed off that fou- in some cases, founder-led firms have dropped the ball on b- not dropped the ball, but then, "Hey, hey, we don't need board seats." And in some cases, there hasn't been governance where governance should have happened. And that's been because of relaxing of what we need, is what some people would criticize.

   22. JLJason Lemkin51:06

       For founder-led funds or just for life in general in 2021? Or, or overly sliced cap tables?

   23. HSHarry Stebbings51:13

       Well, I mean specifically more for like, solo GPs because you can't take board seats and have that governance level.

   24. JLJason Lemkin51:19

       Why can't you?

   25. HSHarry Stebbings51:19

       Across ... why? Because if you're a solo GP and you're trying for-

   26. JLJason Lemkin51:22

       I'm on a bunch of boards.

   27. HSHarry Stebbings51:23

       But you're a much more concentrated portfolio, Jason.

   28. JLJason Lemkin51:25

       Well, that's true.

   29. HSHarry Stebbings51:26

       You are like, seven to ten per portfolio. I mean, I mean yours is like, so narrow, which is great. You're a great picker. But like, most are 25, so.

   30. JLJason Lemkin51:35

       But I don't think, you think founder-led funds are worse on governance? It is a m- a micr- an interesting niche topic. I'm just not sure it's true. If we define founder-led funds broadly, maybe not include this team, I definitely believe less diligence is done. There's more chip shooting, going to Oren's point. There's more pattern matching. There's less checking, checking on stuff, right? Maybe there's more fraud at the e- at the edge. But I doubt there's less, uh, oversight. But maybe. May- maybe there is.

Episode duration: 57:16