Sarah Guo: On Her New $101M Fund; How AI Impacts Inequality; AI Startups vs Incumbents | E1007

1. 0:00 – 0:55

   Intro

   1. SGSarah Guo0:00

      If you can do code generation, you can do malicious code generation, right? And just like other nation states and hackers are going to use every other tool out there, if they write code, they're going to write code with AI tooling. (instrumental music)

   2. HSHarry Stebbings0:15

      Sarah, I am so excited for this. We just looked beforehand, it was the 25th January 2017 when we last did the first show. So thank you so much for joining me, Sar, after, uh, an incredible six years.

   3. SGSarah Guo0:28

      Yeah, thanks for having me, Harry. Um, you were 20, which is amazing, and, uh, the episode was Why Conversational Will Be The Next Big Thing, which was, I think, like, a shade early.

   4. HSHarry Stebbings0:39

      Uh, s- slightly a shade early. The importance of market timing has never been more prescient. But, uh, the most exciting thing is you've started a new fund recently with Conviction. And so I want to start on this. I obviously spoke to many friends and mutual friends before, um, and many of them said that I had to start

2. 0:55 – 3:02

   Why Sarah Left Greylock

   1. HSHarry Stebbings0:55

      on this. So why did you decide to leave Greylock first?

   2. SGSarah Guo0:58

      Yeah. Greylock is like this, um... I mean, we have many mutual friends there, some of my dearest. It's a seven-year-old platform with extraordinary history and people, and, like, I played for the team for 10 years, right? So amazing place, super grateful for the opportunity, like, lots of mentors there, Aneel Bhusri, Ashim Channa, Reid Hoffman, David Zih, Jerry Chen. I love the people. I really wanted to focus on early-stage investing. Zero to one's just magic, right? Uh, and I, I wanted to be an entrepreneur again. You can't rationalize that, right? It's a great job being a GP at a big VC firm. It's crazy to leave. But I wanted to operate differently. I had a few ideas for how a small team could do venture, um, how to, how you could change the founder experience, and, and the biggest thing was believing that AI is a breaking change.

   3. HSHarry Stebbings1:42

      It is a great fucking job being a GP. This is what I've learned, like, starting a fund. You don't have to do any of the shit behind the scenes. Like, being a fund manager and being, like, a GP are very different things. Has there been anything surprising for you making the switch from GP at the hailed fund to being fund manager and founder?

   4. SGSarah Guo2:02

      Yeah, uh, I mean, like, I, you know, have a lot more existential dread than I used to.

   5. HSHarry Stebbings2:07

      (laughs)

   6. SGSarah Guo2:07

      (laughs) So that's one thing. But as you said, like, also, you know, a fund is a business like any other, right? Like, I run Rippling Payroll now. Like, we have an office, like these sort of administration and, um, you know, we have two sets of customers, entrepreneurs and LPs. Uh, you think about strategy for your business. You do recruiting. We were just talking about that. Uh, and so, like, there is, you know, I did recruiting at Greylock too, but it's not, it's not a job, right?

   7. HSHarry Stebbings2:32

      Yeah, I always used to look at GPs at big funds and was like, "Oh, why didn't you start your own?" And now I have my own, I'm like, "I get it, I get it." (laughs)

   8. SGSarah Guo2:40

      (laughs)

   9. HSHarry Stebbings2:40

      You should stay and expel.

   10. SGSarah Guo2:40

       But it's so much fun.

   11. HSHarry Stebbings2:42

       Y- yeah, it is so much fun. I agree with you. Um, they told me that running a media company and a fund at the same time would be a good idea. They lied. Um, but, uh... (laughs)

   12. SGSarah Guo2:51

       No one told you that, Harry. You're the only person who's like, "Yes, that's fine, I have 40,000 hours in a week."

   13. HSHarry Stebbings2:56

       Yeah, no, you're right actually. (laughs) That was me. Um, I, but I wanna... Okay, so we mentioned Conviction there. We mentioned kind of the AI focus.

3. 3:02 – 3:51

   Conviction’s Thesis

   1. HSHarry Stebbings3:02

      What's the thesis with Conviction, and why did you decide to kind of bet the farm on this single thesis?

   2. SGSarah Guo3:08

      So AI is the biggest value creation opportunity in our lifetimes. Like, I'm, I'm quite confident that we're gonna have 10 and 20-person teams building billion-dollar businesses. And if we at Conviction can be central in this community, and it's not, like, a blip on the radar, it's decades of change and we deeply understand it and become best in the world at identifying, you know, great companies and partnering with the founders building those companies. Like, I think it's an important opportunity.

   3. HSHarry Stebbings3:35

      I mean, I think that's a very compelling stance. Uh, and, uh, you said how's, like, the style changed. It's changed 'cause I used to, like, stick to schedule. Now I don't. I'm really worried about wealth inequality. I think there's never been more.

   4. SGSarah Guo3:46

      Yeah.

   5. HSHarry Stebbings3:46

      And when we think about, like, teams of 10 and 20 building these billion-dollar companies, I agree with

4. 3:51 – 5:08

   AI & Wealth Inequality

   1. HSHarry Stebbings3:51

      you totally. I'm just worried that we're gonna see the centralization of wealth with the evolution of AI, and becoming more and more prominent in technology and society. Do you agree, and am I right to be worried?

   2. SGSarah Guo4:02

      I do agree with you, right? I think that's a contro- uh, maybe people don't wanna say that out loud. But I, I would agree with you and then also say, um, uh, technology, it drives abundance, right? Um, if that's anything from agricultural revolution, industrial revolution, computing, like, I think we will produce more. And the question is, like, do we want more if it is going to begin by being, um, distributed very unequally? Uh, my answer is yes. Like, you give people these technologies and rarely are people... do they say take it away, like, "I'm gonna stop using it," right? I think the productivity benefit is incredible, that's possible. And that doesn't mean, like, we as a society and on, on the policy side and in a very democratic way need to address that distribution. But I, I think, like, it doesn't mean to me, like, don't make progress.

   3. HSHarry Stebbings4:54

      No, I totally agree, and I think you're already seeing kind of the consumerization where so many people rely on ChatGPT and the interface there, that actually, as you said, they'd be very upset if you took it away. Thing that worries me though is, like, regulatory bodies. Again, uh, diving (laughs) straight in,

5. 5:08 – 6:43

   AI Regulation

   1. HSHarry Stebbings5:08

      l- I don't think we've never seen such a big chasm between regulatory body knowledge and, like, the actual technology itself. This worries me that they're not in a position to actually regulate with the main knowledge. Do you share my concern?

   2. SGSarah Guo5:22

      Yeah, I, I think it is a concern. I don't think it is structurally different than other areas of technology, right? So if you have the internet, you have cybersecurity issues.

   3. HSHarry Stebbings5:32

      Mm-hmm.

   4. SGSarah Guo5:32

      Um, and so I've been a long time cybersecurity investor, I've engaged with, like, you know, um, national security bodies on policymaking in this area. Uh, and I'm spending time in DC, um, two weeks from now, um, on, uh, thinking about AI risk as well. A- and so I think that the thing that is different today may be the, um, speed of change, right? Like, I don't think we have decades to adjust to these capabilities in society. And so I think it's incumbent on, um, anybody...... producing the technology, enabling the technology to go, like, partner with policymakers and, um, the rest of society and, like, do that education, as you said. And, like, we gotta build a new muscle here. I think it's important.

   5. HSHarry Stebbings6:21

      I totally agree in terms of building that new muscle and kind of partnering with them. In terms of the, kind of the, the fund thesis, I, I, I kind of think back to, like, when we had the iPhone come out, um, or when, you know, Kleiner did the Climate Change Fund, I think it was, um, or the Green Energy Fund, or whatever that fund was, which-

   6. SGSarah Guo6:37

      Oh my gosh, yeah. Hope it's not that one.

   7. HSHarry Stebbings6:38

      We all know how that ended. I'm not saying this will go the same, Sarah. You're brilliant. I think the world of you.

6. 6:43 – 23:00

   Investing in AI

   1. HSHarry Stebbings6:43

      Uh, but my point is, like, I view this as, like, an enabling technology, which everything will be built on top of. I had Nevan founder Ariel on, and like, you know, TripActions! is what Nevan is now using. Everyone is, like, sitting on top of it. Why have a vertically centric AI fund?

   2. SGSarah Guo6:58

      You're asking me to, like, give away the kind of hidden secret of the fund, right? So, so here it is though. If, um, if, uh... uh, like all this is execution anyway. Like, if we at Conviction are right in the long term and this is the most important technology change of the decade, and we're good at selection and execution, and we invest in these outsized number of important tech companies, again, it, it just means that they will be the most important companies, period. Right? And so, like, yes, like, you're right. Like, I think it's eventually just a horizontal software fund. But right now, I think it's also useful for us to be specialists, right? Like, the AI community is actually quite limited in size. And so, like, if we are focused on that, we can invest in the community because applied research matters in a way that has never before. Right? I think your average venture capitalist does not spend a lot of time in computer science research. And then, like, you do a lot of community building. Like, we can be a matchmaker for teams, a sorting hat for people who want to get into AI startups. Um, there are strategic relationships that are very specific to A- AI, right? People need model access, data, GPUs, design partners. Um, and then I think there's, like, a new set of understanding and tribal knowledge, because it's a very, it's a very technical and dynamic field. Like, we're rethinking a lot of user experience in a way that hasn't been true in two decades. And I think founders, um, in this field in particular, they want... I think they should want investors who know something about these strategic issues for them. We're talking about, like, safety and alignment even, right? And so I think, like, in the near term, it's more specialized.

   3. HSHarry Stebbings8:39

      Do VCs really have a clue? Now, I'm very transparent. I do not, and I meet with founders and I say, "I do not, but I think this is a fucking hard journey. And there's lots of different aspects of building a company beyond the pure technology stack. I can help with them in these ways, and I'm here for you in these ways. And I'm not gonna pretend that I'm something else." And that seems to resonate quite well. My point being, do you think most VCs actually get it or is it kind of BS?

   4. SGSarah Guo9:09

      Hmm. I think, like, there are different ways to be valuable as an investor.

   5. HSHarry Stebbings9:13

      Mm-hmm.

   6. SGSarah Guo9:13

      And then, like, different levels of authenticity in the community.

   7. HSHarry Stebbings9:17

      Mm-hmm.

   8. SGSarah Guo9:17

      Right? Um, so I think there's a lot of genuine and justified enthusiasm as well as a lot of, like, FOMO and pretention, right? But broadly, no, there's not a lot of deep understanding yet. This is a technical and dynamic field, and the research is intersecting with the real world at a pace like I've never before encountered in more than a decade of investing. Um, so, like, and then you could ask the question, like, is that a good idea? Right? Um, and again, different ways to be successful, right? If you're choosing... if you're choosing people and founder quality, like, maybe you could still do really well even against this type of investment. Um, but, you know, buying access to investments without some level of understanding sounds perilous.

   9. HSHarry Stebbings9:58

      I, I, I totally agree with you. Um, can I ask, we've seen so many of these, uh, investors and so much of the VC class go absolutely freaking nuts for obviously AI. Um, they just c- like, n- I haven't seen them before in a long time. They really, you know, it just, uh, reminds me that boom time-

   10. SGSarah Guo10:15

       We never learn. (laughs)

   11. HSHarry Stebbings10:16

       No, we never learn. Boom time is not over, baby. Um, my question to you is, like, actually knowing the space, what do you make of the current craziness within AI funding circles?

   12. SGSarah Guo10:27

       Yeah. So I think the craziness in a small number of instances gets, like, very amplified-

   13. HSHarry Stebbings10:34

       Uh-huh.

   14. SGSarah Guo10:34

       ... by the media, right? And so, um, yes, there is enthusiasm and less sensitivity to pricing in a certain style of AI company than others in this macro. But, like, maybe five companies have come out of the gate raising a huge amount of money. Um, and, like, that's not what, that's not what most fun- founders understand, right? But it's those five companies that the story gets repeatedly told.

   15. HSHarry Stebbings11:00

       I totally get you. But like Character.AI, like, okay, you know, you know Josh Buckley, I know Josh Buckley, we speak every night. I'm like to him, "Dude, I don't get it. Can you help me?" Um, and, you know, he provides some very intellectual advice and thoughts.

   16. SGSarah Guo11:17

       (laughs)

   17. HSHarry Stebbings11:17

       Like, is that crazy or is that, like, justified?

   18. SGSarah Guo11:21

       So I would say, uh, Noam is... I just had Noam Shazeer on, like, my podcast with Elad, um, and it's called No Priors. And, um, Noam is brilliant. And the engagement data on Character is, like, uh, really special, right? So, you know, pricing is determined by, like, market participants and... L- like, y- you know, the, the broader response would be, I think that a vanishingly small number of AI companies can spend $100 million upfront well. And, like, constraint is, is the name of the game in startups, right? It, like, breeds discipline and creativity. But there, like, the, the other side of it is once companies have... There are AI companies with, like, really extraordinary traction right now. And so, like, I think we should recognize that.

   19. HSHarry Stebbings12:08

       I totally agree with you in terms of recognizing that. I would love your advice. You know, I, I, I've met quite a few founders who say, you know, bluntly, "To build what we want to build, we need to raise much larger sums than traditionally were raised at pre-seed or seed rounds. And so we're raising 50 or 75 or even 100."

   20. SGSarah Guo12:23

       Mm-hmm.

   21. HSHarry Stebbings12:24

       Is that true, that AI companies are much more capital-intensive in the early days? If so, what is the spending on? Can you help me understand that, Sarah? Genuinely.

   22. SGSarah Guo12:34

       Yeah. So we're meeting some of the same people that-

   23. HSHarry Stebbings12:36

       Yeah.

   24. SGSarah Guo12:36

       ... have this point of view, right? Uh, but I think very rarely is, like, zero shotting it, being like, "I'm going to..." So the thing that is really expensive, um, I mean, there are many things that can be expensive, but one of the things that is really expensive is I want to train a model from scratch that is very large, and it's gonna take me, um, you know, low tens of people, probably 20 or 30 people that know how to do this type of research. And, um, you know, 10,000-plus GPUs and X number of months. That is very expensive, right?

   25. HSHarry Stebbings13:10

       Yeah.

   26. SGSarah Guo13:10

       Um, like my personal point of view is there's a, less than 10 instances I can think of where that is gonna make sense for companies. The vast majority of companies are going to figure actually how to apply these models, um, that other people have built that are offered by APIs or in the open source, or fine-tune them or, or like build some other part of the stack. And so I've honestly seen a lot of smart founders, like begin with this premise, especially people who come from a research background, and then think through it and adjust course dramatically on like how to sequence into understanding whether or not they even need that, right? Because like I think a much bigger question than like, "Can you train a large model?" is like, "Does anybody want it," right? Like, is it going to be useful? And like you could answer some of those questions up front.

   27. HSHarry Stebbings13:58

       Can I ask, is your fund size big enough? When you look at some of the rounds, like (snaps fingers) grain down. Sorry. Maybe that, that should be one for off record. But like, you-

   28. SGSarah Guo14:06

       No. No, ask. Yeah.

   29. HSHarry Stebbings14:08

       Like yeah. Like if you have a $200 million fund and you're doing like seed and AI, uh, for diversification levels you want 30 at seed. Uh, that's like $5 million checks done, with fees you're done, and that's $5 million check. Like, and you don't have 200. (laughs) Like-

   30. SGSarah Guo14:28

       Yeah.
7. 23:00 – 26:11

   Can AI startups compete with the incumbents?

   1. SGSarah Guo23:00

   2. HSHarry Stebbings23:00

      How do you think about the startup versus incumbent? I love Alex Rampell's, uh, quote which is, you know, the question is will the incumbent-acquired distribution before the... Well, sorry. Will the incumbent-acquired innovation before the startup-acquired distribution? I always think of that one. But it's, it's a question of, like, who's best placed and what challenges do each face? How do you think about that when comparing startup versus incumbent?

   3. SGSarah Guo23:24

      Yeah. This is, uh, actually, like, maybe a very discouraging answer, but I believe in, like, intellectual honesty. Like classically, the only real advantage startups have is speed, right? And, and so I, I don't think this is that different than the traditional battles. I think that speed actually might matter more than ever when the environment seems to be moving at warp speed, right? Like, what's the quote? Some, you know, some decades nothing happens and some years a decade happens, right? I feel like that is happening right now. And it's hard to make a large organization move at that speed. On the, on the incumbent advantage side, there's a lot of...... much ado has been made about this idea of, like, a data moat. I'm sure you've heard this term. But, but honestly, there's a lot of data out there and entrepreneurs are incredibly creative about collecting it and increasingly about generating it. And so I, I think it's fun to talk about the structural advantages, but I, I guess I'm still mostly looking for, like, like, really special founders and people who are, like, execution oriented with unique ideas. And I, I don't think it's like, "Oh, the incumbents are gonna win this one," or, "The startups are gonna win this one."

   4. HSHarry Stebbings24:33

      When we look at the incumbent set, Microsoft are often hailed as kind of the one who's embraced it most tactically, strategically, and efficiently with their partnership with OpenAI and the investment there. Do you agree that they're the one who's navigated the transition best?

   5. SGSarah Guo24:46

      I mean, how could you not, right? I think Satya has done an amazing job making a- making... Satya and Kevin Scott, um, have done an amazing job championing, like, really believing in this set of technologies, taking a bunch of bets, OpenAI and otherwise, using it as an opportunity to, like, try to leverage themselves into other markets that really matter, like search. We'll, we'll see, we'll see what happens, but I, I think it would- you'd be hard-pressed to say that, like, Google or Amazon or Apple is, like, leading the field here.

   6. HSHarry Stebbings25:20

      Who do you think is in the worst place from their adoption stance?

   7. SGSarah Guo25:25

      Uh, I mean, these are all, like, incredibly structurally advantaged companies. I think that Amazon and Apple will have to make more investments over time in these technologies than... Like, they don't have, um, labs doing cutting edge work when, like, they have the skill to support them.

   8. HSHarry Stebbings25:44

      You said about kind of speed of execution there. I, I totally agree with you in terms of the importance of it. The thing that I also think though is, like, grossly misunderstood is the importance of the pick. I see great founders work on just shit ideas, and I don't mean that disparagingly, but it's like, it's, we, we know that restaurant analytics is not a good idea. Like, it's just not. It's r- and if it does work, it's gonna be so much harder than anything else you brilliant entrepreneur could do. Um,

8. 26:11 – 28:45

   Idea Generation

   1. HSHarry Stebbings26:11

      I want to talk about idea generation. How do you advise startup founders on choosing ideas when the world is moving, as you said, at warp speed faster than ever before?

   2. SGSarah Guo26:20

      I think that looking for ideas, um... I get, like, a lot of people ask me, like, "What ideas do you have?" And I'm like, "I'm happy to go on a tangent of like all the things that we think are really good markets to go after." But, um, uh, the f- like, if you generically cast about for ideas, you're gonna get a generic idea, right? It's not something that you, like, particularly understand. And so I believe in this idea of, um, uh... and it applies more to B2B than consumer, right? But this idea of, like, having high resolution customer conversations. And so if it's solving a problem for yourself or just, like, really going and looking for problems instead, or even open research questions that you, like, think are attached to an interesting market... I'll give you one example. So, the world is built on 3D models, from, everything from entertainment to the physical world around us. Uh, it is an open research question as to whether or not you can generate 3D models that are usable in these use cases. But, it's like, ugh, there's no market risk, it's highly valuable, it's just can we do it, right? And so, so I think there's a bunch of different ways you can look for problems that become less generic where you could come out of it and be like, "I understand something as a founder. I have a hunch that, like, it's unlikely that every other person that wants to be an entrepreneur is gonna have." And I think getting to that level of, like, depth of understanding and confidence, more founders would be better served by, as you said, spending more time picking and, like, feeling confidence in their depth of understanding before they, like, start going down the path preemptively.

   3. HSHarry Stebbings27:50

      (laughs)

   4. SGSarah Guo27:50

      But it's uncomfortable, right? It's very scary to be in this, like, exploratory phase, and I think you, you know, the, the real, um, the real trigger for forward progress is, like, actual contact with customer, right? Um, not the like, "Oh," like, "I have this high level idea." Like, is that interesting? It... You know, cus- if you're smart and charismatic, like, "Harry, I like you." "Yeah, that's interesting." Right? That's very different from having a conversation, like, "Do you have this problem? How do you rank this problem? This is my proposal. Can we follow up next week?" And they're gonna be like, "Uh, I have shit to do next week," right? Like, "This is actually not that important to me. I was just being nice to you, Harry." And, like, you need-

   5. HSHarry Stebbings28:30

      (laughs)

   6. SGSarah Guo28:30

      ... you need that resolution of feedback to have confidence, right? Um-

   7. HSHarry Stebbings28:34

      I, I, I s- I sent a founder an email the other day and I said like, "If, if you could, I would pay 50K a month for this." It was the video clip generation, like... Which, by the way, I get so many, there are so many.

9. 28:45 – 30:58

   Founder vs Market

   1. HSHarry Stebbings28:45

      Um, my question to you is, like, we all say, "It's all about the founder. It's all about the founder." Sarah, honestly, I have turned down companies before because there is an amazing founder but it's in ed tech, which just hell or high water, the churn is a complete bitch.

   2. SGSarah Guo29:00

      (laughs)

   3. HSHarry Stebbings29:00

      And Duolingo is the leader, but it's still not a hugely valuable company. Or whatever, you're selling to the NHS in the UK, which is a horrible market.

   4. SGSarah Guo29:10

      (laughs)

   5. HSHarry Stebbings29:10

      For you, is it about founder or is it market, or like... I'm asking the harder one here. (laughs)

   6. SGSarah Guo29:15

      Yeah. Um, I'm a founder first investor, right? And I think, like-

   7. HSHarry Stebbings29:20

      Even if it's a really horrible market?

   8. SGSarah Guo29:22

      N- uh, so the question is like, um... who is it? Like, one of the, one of the great VC firms has this phrase, uh, actually an individual obviously, but it's, you know, "Great founder meets bad market, market wins." Right? And I think that's a very common point of view. Um, the, the slight nuance I'd put on it is, like, is there anything they could navigate to and do they understand something that I don't that makes the market better, right? Because these things are not static, they have their structural problems, right? If it's a... if distribution is really hard and, like, it's a slow moving industry and it's got low margins, like, that customer is hard to sell to, right?

   9. HSHarry Stebbings30:02

      Mm-hmm.

   10. SGSarah Guo30:02

       But if you have this idea about how to unlock distribution and it makes sense to me and you recognize all these problems with the industry and, like, you're just a force of nature that's gonna break through, like...... maybe that will work anyway. Um, and so I don't, uh, I guess my, my view is y- you don't just turn away from all problems because, like, the space has traditionally been hard, but it should, like, it should educate you as to, like, does the founder recognize that and can they navigate out? Are they doing something to uniquely break through?

   11. HSHarry Stebbings30:32

       Sarah, I, I think we learn most from our, like, mistakes. One of my biggest mistake was investing, um, in emerging markets. Um, I, I looked at companies on paper and purely evaluated them on the paper business, and I didn't anticipate politics, weather, and a lot of things that actually can be very harmful to a company, but didn't factor into my model of the world.

   12. SGSarah Guo30:55

       Mm-hmm.

   13. HSHarry Stebbings30:56

       That was my lesson and my mistake.

10. 30:58 – 32:49

    Sarah’s Biggest Investing Mistake

    1. HSHarry Stebbings30:58

       What was your biggest investing mistake and how did it impact your mindset do you think?

    2. SGSarah Guo31:02

       I mean, this is actually probably where one of the investments I regret not making, and there are, you know, the anti-portfolio's pretty significant here, um, but one of, one of the investments I, like, actually multiple investments I regret not making, so, um, Benchling, Rippling at the A, right? Like, these are investments you make because of the founder, right? Sajee and Parker are, like, really special people. And, um, I think, like, the recognition of, uh, collaboration in life sciences has not traditionally been, like, an amazing SaaS market. It hasn't been much of a market at all. Um, and so, like, you know, can you get confidence on something that's changing in the market, uh, and, like, can a founder change the market? Like, I believe this is possible now, right? With Parker, like, transparently, you know, um, there are risks around somebody who, like, built a company before which ended controversially in terms of his path there. And, like, I was, um, you know, I, I think the world of Parker Conrad. I think he's an exceptional entrepreneur. And, like, my orientation towards, like, really pushing to take all sorts of risk if the founders are really special is, you know, much stronger than it is, than it was five years ago.

    3. HSHarry Stebbings32:30

       Yeah. No, listen, I agree. I had Parker on when he was, uh, not reserved in terms of the exit from Zenefit, so don't worry. That was a very graceful, uh, departure. Um, no, I, I, I totally get you. I, I do have to ask you, a lot of people, we spoke about kind of founder versus market, um, and it Andy Radcliffe, I think it was, who said that great founder, bad

11. 32:49 – 33:55

    Startup Defensibility

    1. HSHarry Stebbings32:49

       market. My, my question is, a lot of other investors obsolete on, like, defensibility, and I hear so many give the excuse of, "Oh, I don't think it's very defensible." Um, how do you feel about startup defensibility, Sarah? Let me (laughs) dangle that one out.

    2. SGSarah Guo33:02

       Yeah, it doesn't exist, right? Like, quite literally you're starting with nothing. And so I think that it is a, um, like, I think investors are wrong to look for it. What you are investing in is, um, trajectory, right? And the ability for founders to navigate a market and a thesis, right? And so you might believe that a team doesn't have a thesis on defensibility. You might believe that a team is incapable of coming up with a thesis on defensibility if, you know, somebody is very early. You might as an investor not have one yourself yet, right? You're like, "Oh, I just don't know how the market really turns out." Um, but I, I think many of these cases, like these, um, how a market turns out is actually quite unknowable. Um, and y- if you are looking for defensibility at the seed, like, there's no company yet. This is a mistake.

    3. HSHarry Stebbings33:52

       I do wanna ask, in terms of, like, the next generation of

12. 33:55 – 37:42

    Multi-Stage Firms vs Boutique Firms

    1. HSHarry Stebbings33:55

       venture, you know, we've got kind of two very bifurcated worlds, which is your-

    2. SGSarah Guo34:00

       Mm-hmm.

    3. HSHarry Stebbings34:00

       ... multi-stage large firms and then your boutique, smaller firms, often vertically focused. How do you think about the next 10 years of venture? Is one a cool winner? Does it stay as bifurcated as this? Does one move into another? How do you think about those kind of evolutionary trends?

    4. SGSarah Guo34:16

       Well, there has been, I guess, like, this drift that you describe of scale of firm and then bifurcation. Um, structure and incentives determine strategy, right? So if you have a big multi-stage fund and big fees, there's more of an incentive to hire people and get coverage. Um, and investing a few billion dollars or tens of billions of dollars at, at a ti- like, at, with a few million dollars at a time is not easy. You either do less work on the judgment and company building side, or you hire more people, or you hire, or you, you invest more dollars at once. Like, there's, there's only so many vectors of attack, right? To me, fundamentally, I think it's, like, very hard for a $5 billion fund to have skin in the game on a $5 million investment, right? Um, versus think about investing 50 at a time.

    5. HSHarry Stebbings34:59

       How do you advise founders, then, when they, uh, the early stage when they have a large, large multi-stage fund, and I'm not naming names genuinely, but, like, a large, large multi-stage fund and they have a smaller boutique firm, what do you advise them?

    6. SGSarah Guo35:11

       I advise them to, like, get educated about how these firms work and what the incentives are and then, like, make a decision about the type of, um, help they want at this stage in the company. And people are gonna make different decisions, but, you know, thinking, like, I think people should be, like, both tactical and long-term oriented, right? The tactical is like, who's gonna move the needle for me over the next 18 months? And then long-term oriented, like, who do I trust and want to be around, and, um, you know, how, how should I, like, sequence the base of supporters I have over the long term? And I don't, like, there are real advantages to VC scale, right? Like, I've experienced it. You, we know all of these people. Um, coverage, reach, et cetera. But returns in most firms are dominated by a few good investors, even when the partner group might be 10 or more. And the complexity of interpersonal dynamics and decision-making in groups is, like, not well understood by founders, right? And so I think there's, there's real risks to good...... investment decision-making in big groups. Group think, seniority overriding, like, positioning and politics. And, and to be clear, again, not every firm, but it's, it's sort of a structural risk that happens. When I don't know how to solve a problem, I tend to make it simpler. Smaller firm, fewer people, only do what matters. It's also, like, much simpler for the founder to understand. And, um, that's not... I think there's, like, education to be done, like, either by investors, hopefully in a, like, an authentic and, um, like, good faith way, or just by founders themselves. Like, and to do references, right? I'm shocked that maybe one in five founders, like, does investor references.

    7. HSHarry Stebbings36:44

       How can founders educate themselves, do you think? 'Cause like when you say about the politics and the interpersonal dynamics, we both know the game. We both know there's some really interesting, um, interpersonal relationships within different funds. Um, but like, we know that 'cause we're steeped in this, day in, day out. How do founders get educated? Like, if you're listening to this going like, "Okay, I got a term sheet from two firms," how do I get educated, Sarah?

    8. SGSarah Guo37:09

       Talk to founders that work with those funds, right? So the simplest thing is to do references. I think the other thing is like, as soon as you have people who know the ecosystem who are on your side at the early stage, like, you're so much better prepared. Um, and so I think, like, the real question is, like, getting educated at the very beginning, right? With a seed or series A. You know, not trying to necessarily navigate it from first principles, but going and getting information from people who play in the ecosystem.

    9. HSHarry Stebbings37:40

       The final one before we do a quick fire,

13. 37:42 – 41:11

    The Death of the Generalist VC

    1. HSHarry Stebbings37:42

       but, um, I'm, I'm too interested. Hunter Walk said that we've seen, kind of, the death of the generalist seed VC. Do you think he's right in terms of saying that and being that binary? Or, do you think actually we'll still very much continue to see seed-stage specialists that are horizonic- horizontal and broad?

    2. SGSarah Guo38:00

       Yeah. So, just like for your listeners, Hunter's argument goes something like this. Tech is bigger, networks are too large to own, technical innovation matters more, hard to be a generalist, right? And so like, you know, I think we're aligned with this, in that we're absolutely focused on being the best possible partner to AI-enabled companies. But, uh, so like, we are leaning into this as our advantage. But as... I mean, we've been talking about, it's a very execution, uh, oriented, very personal games. And, and like, and there are many different ways to be good as an investor at an individual level. Like, you have talked to thousands of investors now, um, many of which are great in different ways, right? And so I... Like, when I think about some of my friends, um, or the early-stage investors that I, like, really respect, like, some are more specialized. Like, Eric Visher is exceptionally good at enterprise infrastructure and tends not to do things he doesn't understand. That's great discipline. Um, but others, like, you know, Jim Goetz has stretched from Palo Alto Networks to WhatsApp, right? So like, empirically, there are different ways to be good at this, including more generalist ways or even, um, uh, like, you know, my friend Elad, right? I learned a lot from him. But he seems, like, quite versant and to have good access across a broad range of technologies. Uh, and so I think, you know, uh, I... The claims, I tend to be skeptical of conclusive statements about VC strategy. It's a, it's a dynamic market.

    3. HSHarry Stebbings39:26

       What have you learned from doing the podcast with Elad?

    4. SGSarah Guo39:29

       Uh, wow. That, uh, like media is a business. You know, our original thought was like, "Oh, like, we'll talk to our friends that are, like, doing interesting things in AI, and it'd be fun to do a low-effort content project together."

    5. HSHarry Stebbings39:43

       (laughs)

    6. SGSarah Guo39:43

       And like, it has been fun, but like, you would know, like, you know, one of the hardest working people I've ever met. But it's, there's no such thing as anything that is like, a high-quality, low-effort project, right? So like, duh. (laughs)

    7. HSHarry Stebbings39:58

       Yeah. It do- doesn't exist. But you can do fewer... And, and the hard thing is actually in the beginning, you need to do more. This is what people forget. Like, you know, we did three a week when we started. I mean, we do three a week now because like, like, the advertising revenue. (laughs) But, um, like, it, it's really important to get those numbers out in the beginning. I remember, you know, Sarah, when we started, you know, the importance of reviews. Um, that you really want to get reviews out, because it will pump you up in the organic download charts because it'll put you higher and higher in the rankings, and you're noteworthy, featured. I remember going with three friends to a football stadium and having 500 Diet Coke cans strapped in, like, drinks rucksacks. And saying, "We'll give you a free Diet Coke if you'll give us your phone for a review." And we spent like... Like, they're 50p each, so like, $250. And we got 500 reviews. We were like number two behind the BBC in the UK.

    8. SGSarah Guo40:52

       Amazing. Yeah.

    9. HSHarry Stebbings40:54

       (laughs) Uh-

    10. SGSarah Guo40:54

        Oh, my God. What a distribution hack.

    11. HSHarry Stebbings40:56

        I mean, I don't think anyone's ever done it again. Um, and I wouldn't recommend anyone do it. It was brutal. But, um, crucial. Uh, so yes, it is a business. But I love yours. Uh, and so, uh (laughs) , it's, uh, awesome work there. I want to do a quickfire round. So we're gonna start

14. 41:11 – 42:04

    Will the economy improve by the end of 2023?

    1. HSHarry Stebbings41:11

       with, will we be in a better or a worse place by the end of 2023, Sarah?

    2. SGSarah Guo41:16

       Assuming you're talking about the macro, like, it's... You know, I think most of the pain is yet to come. We'll still be ugly.

    3. HSHarry Stebbings41:22

       Really? How so?

    4. SGSarah Guo41:24

       Uh, I think we're gonna go through a digestion period of, um, companies that, uh, raised... Uh, like, the, the... There was a multiyear experiment of the fat startup and companies over-capitalizing, and they still have that capital. But they don't have... Like, a lot of companies, they don't have the efficiency to, like, yet create a really, like, durable business. And so... I, I mean, this is very myopically focused on, like, tech startups, and it's like how... you know, worse place there. Uh-... I, I think that will be gloomy for a while.

    5. HSHarry Stebbings42:00

       What trend do you see that others are not seeing, do you think?

15. 42:04 – 44:10

    AI Software vs Services

    1. HSHarry Stebbings42:04

    2. SGSarah Guo42:04

       It may be, um, it may not be very well-understood that, uh, a significant part of the opportunity for AI is services, not software markets. Right? So as a, as a, uh, software investor traditionally, you're like, "Okay, here's the stack." Right? "There's chips and, um, cloud infra and developer tools and observability and security and applications, and then, like, all the consumer stuff." (laughs) Uh, but, uh, y- you know, I- I think it's a, I think it's a miss to be like, "That's the opportunity for AI," because we're doing more work that is today labor. Right? And as you said, that opens, like, real questions in terms of, um, you know, labor displacement, distribution of wealth, but that is the opportunity from a productivity perspective too, like both enablement, um, and, and, like, uh, replacement.

    3. HSHarry Stebbings43:00

       Sorry, help me understand. What is the opportunity there for us as investors then?

    4. SGSarah Guo43:04

       It's easier with an explicit example, right?

    5. HSHarry Stebbings43:06

       Yeah.

    6. SGSarah Guo43:06

       The legal profession today is a services market. It's not a software market, right?

    7. HSHarry Stebbings43:12

       Mm-hmm.

    8. SGSarah Guo43:12

       And if we do some of the low-level work in legal services, it's a bigger pie than, like, software sold to legal firms today.

    9. HSHarry Stebbings43:22

       Yes. I totally agree. Okay, that makes total sense. Very nicely done with the analogy. Um, I'm fascinated. How much did the domain name conviction.com cost?

    10. SGSarah Guo43:32

        Yeah. I'd, I'd say I have a good domain broker and the fee base on a $100 million fund is minuscule, so not that much. (laughs)

    11. HSHarry Stebbings43:41

        (laughs) You can buy, in other words, long, one multi-stage firm. Which one do you buy and which one do you long?

    12. SGSarah Guo43:50

        Uh, I don't understand.

    13. HSHarry Stebbings43:55

        So- so sorry. You can buy on- that was my fault. Um, this is the joys of, uh, you know, being brilliantly, um, sleep-deprived. (laughs)

    14. SGSarah Guo44:04

        Me too, man. Yeah.

    15. HSHarry Stebbings44:06

        Uh, uh, and I don't have kids. What the fuck? Um, I don't know how you do it.

16. 44:10 – 46:15

    Buy or Sell: Multi-Stage & Boutique Firms

    1. HSHarry Stebbings44:10

       Um, so you can buy one multi-stage firm and one seed firm, so one boutique and one multi. Which ones do you buy?

    2. SGSarah Guo44:18

       I mean, this is, this is simple, right? You still buy, you bu- you buy Sequoia, uh, as the big dog incumbent that's executed really well and has, um, a really impressive culture over time. Uh, and I don't need to buy, uh, a seed fund. I buy my fund.

    3. HSHarry Stebbings44:34

       You very strategically kept it all in the family. That was very, very political. (laughs) Um, good. Well played, Sarah. You know what? I'm not gonna push you. Uh, we're gonna go for a short now. You can short-

    4. SGSarah Guo44:46

       I have too many friends in venture, Harry.

    5. HSHarry Stebbings44:48

       No, no-

    6. SGSarah Guo44:48

       Like, people are not gonna-

    7. HSHarry Stebbings44:49

       ... you're not, you're not, you're not, you're not-

    8. SGSarah Guo44:50

       Yeah.

    9. HSHarry Stebbings44:50

       ... you're not getting out of the... You can get out of the buy or the short. You can't get out of both. But when you're short-

    10. SGSarah Guo44:55

        Yeah.

    11. HSHarry Stebbings44:55

        ... multi-stage boutique. Go.

    12. SGSarah Guo44:57

        I think that it will be a hard time for subscale seed-stage funds without a differentiated strategy to persist.

    13. HSHarry Stebbings45:07

        Mm-hmm.

    14. SGSarah Guo45:07

        Um, I think, like, it was not hard to raise $10 to $50 million for a couple years and it just will become more, because LPs are going to become more careful given, given the turn in the cycle. Short on a multi-stage fund, I think early in growth investing is more different than it appears. And so I think there are firms that, like, you know, tried the early stage investing route with, like, a blanket-based approach, uh, and, like, I don't know if that's gonna turn out super well for Tiger.

    15. HSHarry Stebbings45:47

        Yep. No, I get it. Thank you. That was perfect. Um, what are you concerned about-

    16. SGSarah Guo45:52

        You just made me an enemy, man. I don't, I just... ugh. (laughs)

    17. HSHarry Stebbings45:55

        No, no, no. Don't worry. They, they don't listen. They, they hate podcasts and media, and just life in general.

    18. SGSarah Guo46:00

        (laughs) Good.

    19. HSHarry Stebbings46:00

        Um, what are you concerned by that others are not spending time on?

    20. SGSarah Guo46:05

        There are near-term abuses of AI that I think others are being thoughtful about, but, like, I think we need to address-

    21. HSHarry Stebbings46:12

        Wh- if there was an- what are n- what are near-term abuses of AI set to happen now?

    22. SGSarah Guo46:14

        Yeah. So, so,

17. 46:15 – 46:56

    Dangers of AI Code Generation

    1. SGSarah Guo46:15

       um, if you can do code generation, you can do malicious code generation. Right? And just like, um, uh, n- other nation-states and hackers are going to use every other tool out there, if they write code, they're going to write code with AI tooling today. And, like, doing that at scale is dangerous. Right? This is not that AGI safety is not important and interesting. It's just that there are today issues that are unaddressed and I think people should, like, um... I think we need to have more of a conversation around it and invest in defenses.

    2. HSHarry Stebbings46:51

       Yep. No, I, I think that's a great answer. What did you believe in investing that you no longer believe?

18. 46:56 – 48:14

    Sarah’s New Mindset for Investing

    1. HSHarry Stebbings46:56

    2. SGSarah Guo46:56

       I am more... Like, not in a, hopefully not in a sloppy way, but I am increasingly convinced that, like, it's not knowable what the outcomes are from com- for companies, like, at the very beginning. And, and, and specifically, like, how markets play out is unknowable, because th- like, there are actors with agency determining how the market is structured, right? So you or I could tell each other an intellectual, like, narrative that holds together about, like, why structural advantage in some specific market, like, belongs to an incumbent or a startup or, or whatever, but it's just a convincing story. Right? Like, what really matters is the actors that are playing. And so I- I'm, like, much more comfortable without knowing exactly how things are gonna play out now, uh, or have been taught that.

    3. HSHarry Stebbings47:43

       So I think this is why reserves are complete bullshit. Like, when you look at reserves, it-... basically rests on the assumption that you know which are the winners within an 18-month time period, which I just, I, I don't think you do. If I were to bet all my winners, many of them have gone to losers very quickly, many of the winners have been slow burners for a long time. You know, you're very good friends with Dylan Field at Figma. Well, Figma was not an obvious overnight success. Nowhere near-

    4. SGSarah Guo48:09

       No, it took three or four years to, like, even, you know, show strong signal.

19. 48:14 – 49:05

    Reserve Management

    1. SGSarah Guo48:14

       (laughs)

    2. HSHarry Stebbings48:14

       Yeah, exactly. Like, do you have reserves, and do you believe that actually reserves is efficient deployment of capital?

    3. SGSarah Guo48:20

       So part of being a really early stage fund is not really, right? Like, we are going to invest in the early rounds of a company, and we're gonna leave money on the table in the later rounds. And it's an explicit decision, but what it means, i- it's like very focusing, right? Like, we make the bets we make, but then we're aligned with the entrepreneur, and we're not gonna grow our ownership from there, but we're also not gonna be distracted by this question of, like, you know, like, "How do we be constantly underwriting our own portfolio?" You know, a- as you, as you described, like, you're not the... Y- you may be one of the only people who admit it, but no multi-stage firm is, like, perfect at underwriting their own portfolio. It's surprising that they're not better, actually.

20. 49:05 – 50:42

    The World of LPs

    1. SGSarah Guo49:05

    2. HSHarry Stebbings49:05

       Tell, tell me, what would you most like to change about the world of LPs? You navigated the LP market with Conviction. I can start, I can say, like, I think GP commits are complete bullshit, and that most GPs actually then fund it through the fees, which then reduces their ability to invest in their own firms, but it ticks the box for LPs that, "Oh, they've got a 3% GP commit." Well, well done. I'm using your dollars now to fund my GP commit. It makes zero sense.

    3. SGSarah Guo49:28

       I am very lucky with my LP base, right? It's, like, very long-term oriented people, and, um, people I've known for a long time, and then, like, my founder, (laughs) founder CEO friends. So I'm grateful. Um, but broadly, the LP landscape, it was educational. Like, even though I've been talking to, you know, my prior firm's LPs for a long time, um, it's still very educational to raise money. If you are a platform like a Greylock or Sequoia, like, there's not a lot of raising happening.

    4. HSHarry Stebbings49:53

       Did you get any exposure to LPs? 'Cause most firms kind of shield you from it to prevent people leaving who are brilliant like you (laughs) and then having a ready-made network. D- I know many who don't.

    5. SGSarah Guo50:04

       Um, I, uh, I, I think Greylock is a very small place, right?

    6. HSHarry Stebbings50:09

       Mm-hmm.

    7. SGSarah Guo50:09

       Um, with a very tight relationship with its LPs, and so, um, you know, very happy to get to know a really high quality group of people. Uh, um, but, but the LP landscape overall is very clubby, right? I'm sure you experience this. Much like venture, a lot of investors, um, they lack individual conviction. They simply follow bigger brands, and so more independent thinking would be good. I think it'd be, you know, I think it's just, it'd, it'd be good for the ecosystem.

    8. HSHarry Stebbings50:40

       I, listen, I, I, I do agree with you there.

21. 50:42 – 52:03

    Will Trump win in 2024?

    1. HSHarry Stebbings50:42

       Um, tell me, will Trump win the election?

    2. SGSarah Guo50:46

       I mean, I think he's as likely to be in prison, right?

    3. HSHarry Stebbings50:49

       Do you think so? I, 'cause I've had, like, so many people on the show recently... I'm, I'm British, so I'm sitting far, far away.

    4. SGSarah Guo50:54

       (laughs) Yeah.

    5. HSHarry Stebbings50:54

       But, like, so many people on the show come on and say, "Mm, I think Trump's gonna come and win."

    6. SGSarah Guo50:59

       Yeah. Yeah, uh-

    7. HSHarry Stebbings51:01

       So who's, so who's next pre-... Is, is Biden president again?

    8. SGSarah Guo51:06

       I don't know. I think, uh, um, you're probably right that I've been insufficiently pessimistic about this type of thing in the past, but...

    9. HSHarry Stebbings51:15

       Mm-hmm.

    10. SGSarah Guo51:16

        It's just, I mean, he's l- facing senten- criminal sentences now, right? So. (laughs)

    11. HSHarry Stebbings51:21

        (laughs) Uh, tell me, who's your favorite-

    12. SGSarah Guo51:23

        I'm sure this is really amusing for the Brits. (laughs)

    13. HSHarry Stebbings51:25

        I mean, uh, uh, relatively so, I have to admit. We did have a prime minister, we had three prime ministers in the space of 45 days, so I, I don't think we're one to throw stones. Um, w-

    14. SGSarah Guo51:34

        Oh yeah, yeah.

    15. HSHarry Stebbings51:35

        ... who-

    16. SGSarah Guo51:35

        I guess you guys had a, a, uh, you know, dark but amusing situation as well. (laughs)

    17. HSHarry Stebbings51:39

        W- we, we did. Uh, but we're past that now, and we have Rishi, so we're all fine. (laughs)

    18. SGSarah Guo51:44

        (laughs)

    19. HSHarry Stebbings51:44

        Uh, (laughs) uh, who's your favorite angel to work with, Sarah, and why them?

    20. SGSarah Guo51:47

        It's been great to, like, have a smaller fund and just be collaborative. Um, um, you know, I- I've been doing a bunch of work with Elad. I think he's a very independent thinker, it's something I value, his good taste. He's a positive sum person. I'm learning from him.

    21. HSHarry Stebbings52:02

        Final

22. 52:03 – 54:29

    What does success look like for Conviction?

    1. HSHarry Stebbings52:03

       one, what does success look like for you with Conviction? This was actually one that Pat suggested I ask you. (laughs) Like, 20 years out, what do you want people to say about Conviction? What do you want to have achieved? I think about it a lot and I'm intrigued to hear yours.

    2. SGSarah Guo52:17

       Yeah. Uh, yeah, brutal. Um, so this is a scary thing to say out loud because like, uh, like with any entrepreneur, like, the goals are... Big goals are always arrogant sounding, right? But, y- you know, with, with the fund, um, I think the first is, like, it's a fund. The measure of performance is returns, right? And you can define that in different ways. Um, but for me, like, I define it on a multiple basis, not an absolute dollar basis, otherwise, like, I should've raised a larger fund. Uh, and, like, you know, let's put best in class venture multiples on the board, right? I think that's the first thing. I think the second, we started talking a little bit about relevance, right? It's possible to make money without being relevant-

    3. HSHarry Stebbings53:00

       Mm-hmm.

    4. SGSarah Guo53:00

       ... and, like, we intend to do both, right? We want to be part of very important companies, so we have to pick well. Um, uh, my name's not on the door, right? Like, I want to build a partnership, and so the question is, like, can we, can we build a, a very small partnership that, you know, plays better as a team, like makes better decisions, has better access as a team? Um, very simple to say, very hard to do. Um, and I think the last is, like, you know, are we beloved by entrepreneurs? I think if those, like, if those couple things are true, and we're in, you know, a set of the... if we're beloved by a set of the most important entrepreneurs of the next generation, like, then I'll be happy, right? Um, and if I'm not productive, like, my partners can kick me out and I can retire. Great.

    5. HSHarry Stebbings53:50

       I (laughs) , well, listen, Sarah-

    6. SGSarah Guo53:51

       And, and, like, you know, there is a, there is a broader, like, there is a broader, um, n- like, m- mission, if you're technically curious, which is, like, can we nudge use of AI in the world along, and can we nudge it to be, like, productive and aligned and helpful? Um, and, like, I think we can.

    7. HSHarry Stebbings54:12

       Uh, I cannot believe it's been six years since our last show. I hope it's not six years since our, our next show that we do.

    8. SGSarah Guo54:17

       (laughs)

    9. HSHarry Stebbings54:17

       Um, I've loved having you on. Thank you for putting up with my prying questions. I was much less prying in the first show. I think you were like, "What? What?" Evolved, um, but you've been a star, so thank you so much.

Episode duration: 54:29