Semil Shah: Lessons Learned Scaling from a $1M to a $50M Fund | 20VC #951

Harry Stebbings 0:00 Semil, this is going to be the best podcast you've ever done. You've done a few with me, you've done a few with other people-

Semil Shah 0:06 Yeah.

Harry Stebbings 0:06 ... so this is going to be the best. Now, we've started before with, like, how you got into venture, so for any, you know, anyone that hasn't listened to that, fuck it, they can listen to the last episodes. I want to go-

Semil Shah 0:15 Exactly.

Harry Stebbings 0:15 ... deep with you, my friend. We're going to go with we're all a function of our histories, and so we're all running towards something and we're running away from something. What are you running away from first, and then what are you running towards?

Semil Shah 0:28 In a professional context, what I'm running from is just the fear of not being able to participate in the way I want to in the ecosystem. And so there was, you know, way, way before we met, there was like a long period of time where I would, you know, even confide in my wife and say like, "Hey, I don't, I don't know if we'll live in the Bay Area and, and make it here." You know? So I think over those, you know, 10 plus years also, I've had lots of industry friends, you know, the Bay Area's transit, but like move, move out of the Bay A- Bay Area would I say, like involuntarily. Um, and a lot of personal friends, especially through COVID and then the fires, move. Um, and I do love living in California. I feel like it's the only place I can live, um, and do what I want to do in the way that I want to do it. You know?

Harry Stebbings 1:21 When did you start to believe that that would be possible and that you would be able to do it?

Semil Shah 1:26 Kinda like 2015, 2016, um, but, but there was probably like a two to three year period where I just wasn't sure, and then you see other people drop off. Again, people drop off voluntarily, right, um, but it's when y- when you have people who, who leave involuntarily, um, and you start to see that and it builds up, it, it sort of, you sort- I sort of run away from that.

Harry Stebbings 1:52 I totally get you. And so that's-

Semil Shah 1:54 Yeah.

Harry Stebbings 1:54 ... what you're running away from. What are you running towards, my friend?

Semil Shah 1:57 I think, um, you know, someone that you and I have talked about is like, someo- someone like Roger Ehrenberg where, where you're, you can try to become the investor of record in an important company and an important partner to a founder early, and then you show up on the S1, you know, and people are surprised. I think that's what you're running towards is like a lot of us as investors for the most part, we can't do what entrepreneurs do. We choose not to do what entrepreneurs do. And so, um, we have the best job in the world, and so to get a chance to be close to one, you know, to sort of steal a line from the Reagan speech, and touch the face of God is a, an amazing opportunity, you know?

Harry Stebbings 2:42 I totally agree. My favorite is the Roosevelt, um, you know, the man in the arena quote is one of the best, I think.

Semil Shah 2:47 Sure.

Harry Stebbings 2:47 Ehrenberg the man scares me shitless. (laughs)

Semil Shah 2:51 Yes. (laughs) Yes.

Harry Stebbings 2:52 But one of the best. One of the best by far.

Semil Shah 2:55 (laughs)

Harry Stebbings 2:55 Um, now I want to dive straight in today. I spoke to some ma- uh, some, many mutual friends, um, which was great fun.

Semil Shah 3:02 Mm-hmm.

Harry Stebbings 3:02 And I want to start with the firm itself being Haystack, and Hunter Walk obviously from Homebrew, he asked,

Harry Stebbings 3:07 "How do you decide what each fund size for Haystack will be?" Let's start there.

Semil Shah 3:13 Well, remember, um, the, the first four, I was never able to reach the target of what we wanted to raise, so they were always underwhelming in that sense. Or, or what's the opposite of not oversubscribed? Uh, (laughs) y- no, what's the opposite of oversubscribed?

Harry Stebbings 3:28 Under-participated. (laughs)

Semil Shah 3:29 Under-subscribed. (laughs) And so for the last two, they were, they were just marked at 50, and so to answer Hunter's question, I thought of 50 in the first f- the first $50 million fund as like enabling us to get to a 10% position in pre-seed seed rounds. And then in COVID, I felt like a lot of LPs were gonna support us regardless of what we d- were doing, and fund five at that $50 million stake was working. So, I just thought let's not complicate things. Let's literally use the same documents, the same size. It's a rinse and repeat strategy. Um, and, and, you know, I clearly communicated that to everyone because the model was working. Um, and so I just took the path of least resistance there rather than introducing, um, more variability. We probably could have raised a lot more, but I just felt like hey, it's an easier pitch to go back to people when they can't meet you or can't meet the portfolio. Um, our next funds, by the way, will, will modestly grow, but I still think, you know, for what we do, it's got to be under $100 million,

Semil Shah 4:35 so.

Harry Stebbings 4:35 Pre-seed rounds have gone. I never see a round that's less than three on 15. Do you agree or d- uh, what d- do you, do you see something different?

Semil Shah 4:45 Um, I think there are classes around. I mean, this gets into this like a black hole of like what is a round and what do you call it where I've, I've sort of given up. I think that, um, o- one thing we can talk about is these pre-seed rounds where they're, you know, traditionally four or five, $8 million cap rounds where people are raising under a million. I think over the last 10 years, just simply because of inflation, those have all doubled, you know?

Harry Stebbings 5:10 Yeah.

Semil Shah 5:11 Um, so, so to your point the three on 15 does feel like a median entry point, and then if you want to do the math and you want to, you want to own 10% of everything and have 25 names, you quickly get above with reserves over $100 million fund, right?

Harry Stebbings 5:26 Yeah.

Semil Shah 5:27 Um, I've tried to keep it under $100 million for, for a variety of reasons. One is we don't want to make a promise to LPs and founders that we have to own 10 plus percent of every company, um, or, or lead every deal. Um, and then also just the, the, the percentage that we would hold at exit, if we're lucky enough to be part of an exit, it may not be meaningful enough if the fund is over $100 million.

Harry Stebbings 5:54 I, I totally get you. So if we think about a $50 million funds, what's the average ownership in those funds?

Semil Shah 6:00 We've been able to get close to 7% initial entry ownership in the last two funds, um, and it's been going up. I would say it's like a slow march. What I call it is, like, we slowly creep up the cap table. Um, but one of the things I'm, I'm really proud of with Haystack is if you look at... if you look at the activity, um, o- of all the deals over, over ten years, I would say there's like a tight clustering between eight and 15 million dollars as the entry point, and the rounds being, you know, three million dollars or less. So to your point, Harry, I think that is kind of like a sweet spot median deal for like a good founding team. I think the problem comes in, is like how much evidence is there on the three and 15? I think we went through this period where, um, a lot of entrepreneurs were getting credit for having done nothing yet and getting three and 15 to start. The problem is now the gap to get the 10 million dollar check is so wide, so what's the right entry point at seed? And I would argue that's changing to, like, teams that already have a product in market, where there's some de-risking there where you can bridge a gap from the seed to A.

Harry Stebbings 7:06 I was analyzing the portfolio that I... (laughs) Again, part of the schedule. Uh, I was analyzing the portfolio that I have the other day, and it was like-

Semil Shah 7:14 Yeah.

Harry Stebbings 7:14 ... I looked at seeds and I looked at those that haven't really worked, and all of those that haven't really worked have often been head of product at Twitter, head of product at Twitch, head of product at amazing company. The hottest of hot seed rounds with Andreessen's, Sequoia, ??? , you name it. And they all just kind of moved really slowly. They were very competitive, five on 25 rounds.

Semil Shah 7:38 Mm-hmm.

Harry Stebbings 7:39 And none of them really went anywhere. Have you found the same with that profile of deal?

Semil Shah 7:45 We avoid a lot of those, to be honest, because one is... But by the way, the logic for doing them for these big funds is applicable, like it makes sense to me, but I think for a fund like ours, which is small and constrained, we, we don't get to take those type of shots. Like we maybe say we do three or four of those if we have a relationship per fund, but we- we're not able to do that as a matter of just normal business. Um, I think what, what you're saying we can unpack a lot, which is are those hot seed rounds necessarily indicators of entrepreneurial value creation? Pro- probably not. Um, are, are they best suited to, like, understand what's at the cutting edge of product development or infrastructure? Probably. Um, but I think it goes back to this, like, more, more, um, more philosophical question, which is are talented people also entrepreneurial? And I, I don't believe that. I believe there's tons of talented people who are not entrepreneurial, and there are a bunch of entrepreneurial people who don't have the requisite talent. And so really what we're trying to do in terms of the m- meaning not we, just all of us should be trying to do, is trying to find that overlap of who has the talent plus the entrepreneurial ability. Um, I'm sure you've seen in some of these rounds, Harry, where, where we've been a part of it too, there isn't... Because the rounds are so competitive and people are fawning over them and people believe that they're gonna create the next big thing, there's sometimes lack of urgency, there's lack of direction, there's lack of

Semil Shah 9:22 passion.

Harry Stebbings 9:23 I agree with all of those. Sorry, I'm diving 'cause I'm just too into it. I agree-

Semil Shah 9:25 Yeah.

Harry Stebbings 9:26 ... with all those things, but the trouble is when you have the head of product at your Twitters or your big companies, when they talk about product, they do just talk with such gravitas and experience and wisdom compared to a first-time founder or any kind of less domain experienced founder, where you're just like, "Holy shit. Back up the truck on these people." Um, so my question to you is, and it's, it's such a shit journalist question, but how do you try and identify the overlap of talent and entrepreneurialism? 'Cause I think that's-

Semil Shah 9:55 Mm-hmm.

Harry Stebbings 9:55 ... where I struggle. I see talent-

Semil Shah 9:57 Yeah.

Harry Stebbings 9:57 ... and that's kind of enough.

Semil Shah 9:59 Yeah. A- again, this is just a very philosophical point, and I could be entirely wrong. And, you, you know, actually I just, I just... R- Roger, uh, invited me back to... We both went to University of Michigan, so he just recently, about a month ago, invited me back and interviewed me, which was kind of surreal 'cause I would think (laughs) I would be interviewing him, um, for like three hours, and we talked about this point. And, you know, we had a lot... We had like 200, 300 students from across the university come, a- and I said, you know, which was possibly like a politically incorrect way of saying this, but I, I just felt that, like, a, a lot of people that knock on our door with this, like, amazing product experience or amazing experience, um, you don't get the sense that they... Sometimes... Again, I'm not trying to cast all of them this way, that they really want it, that they're really hungry. And I also believe, again this is just personal, that like most people who have an entrepreneurial gene in their sort of hard coding have expressed that in some other way before they've knock on our doors. And so what you need to do is go-

Harry Stebbings 11:06 Yeah, I would say Brad G-

Semil Shah 11:07 Yeah.

Harry Stebbings 11:07 Brad Gerson on the show said the other day, "I ask everyone, 'How did you make money the first time?'"

Semil Shah 11:14 Yeah. And that's what I'm getting towards, where like we try to interview the person to get to know them and how they got here, and then you're, you're testing for, like, overcoming adversity. It doesn't need to be in business. Um, you know, enduring pain, um, you know, passion that they've devoted. There, there's 100 and... 100 things you could evaluate where you could say, "Okay, this person expressed some bit of hustle, um, some bit of grit, some bit of handling adversity." Again, it's not all that you need to get there, but it's... It feels like you need to feel a little bit of that as an investor, right? Because what, what you're doing is you're kind of trading off talent, sophistication, uh, artistic endeavors with, like, grit and hustle. And like, you can't just have 100 on one end and zero on the other or vice versa. There needs to be a bit of a blend.

Harry Stebbings 12:10 No, I get you. David Goggins said, you know, you want to back people who are uncivilized, uh, and the trouble is with your heads of products at Twitter, they're often quite civilized. (laughs) Um-

Semil Shah 12:19 Well, a lot of, a lot of people will say also now that, like, once you make it through to, like, certain organizations and you are in this PM role, you do have more of, like, a political job than you do-

Harry Stebbings 12:32 Uh-

Semil Shah 12:32 ... a breaking

Semil Shah 12:33 glass job.

Harry Stebbings 12:34 Totally. No, I, I completely agree. Politicization of leadership, I actually spoke to Bryan Armstrong about it the other day on the show. But I, I, I want to ask, um, that was like the, the seed, like, trend that I noticed. The Series A-

Semil Shah 12:45 Mm-hmm.

Harry Stebbings 12:46 ... trend that I noticed though was the hot As absolutely do correlate to hot Bs, weirdly. The hot Cs often don't. Hot As very commonly move to hot Bs. Is that what-

Semil Shah 12:58 Mm-hmm.

Harry Stebbings 12:58 ... you've seen as well?

Semil Shah 12:59 Hmm. Yes. I, I think overall, I think your observation is correct, and it's sort of logical wh- why that happens. Um, uh, I think there's a ton of capital that wants to follow the signal and validation of like a premium or competitive Series A. And, um, you know, that's been the case now for a number of years, maybe up until this year.

Harry Stebbings 13:23 Yeah, no, totally. Um, sorry, I'm, I'm gonna go back to the fund size before I just get completely distracted.

Semil Shah 13:28 Sure. No problem.

Harry Stebbings 13:29 Um, um, we, we mentioned, like, you could have raised more. I'm gonna-

Semil Shah 13:32 Mm-hmm.

Harry Stebbings 13:32 ... push your thinking here. You should raise more. 50 and 100, eh, uh, I mean, it, it is a difference, but it's not actually a huge, huge difference at this stage. It gives you more lines of diversification. I get if it's 50 versus 200 or 250, then we're talking about big bandwidth differences. But actually 50 to 100-

Semil Shah 13:54 Mm-hmm.

Harry Stebbings 13:54 ... I mean, it's still in the same ballpark.

Semil Shah 13:56 Yeah.

Harry Stebbings 13:56 Why have you resisted scaling AUM?

Semil Shah 13:58 I think it comes down to, like, ownership at exit, where I've done enough of these small funds on a small base that have been, you know, wildly successful and accretive. Um, and I just see how much dilution comes in, um, how long it takes, what the return profile is, and it le- it leads me to just think that we would need to start out, like, if we had 100, 150 million dollar fund, owning 15% of everything that we do. Um, now, th- there's a possibility where, Harry, your question is, is like right on, where you kind of say, "Okay, in this environment now, why don't you wait, do the three million dollar checks for the 15% ownership and do the small As and compete for those?" I think it also changes what you need to bring. You know, you have to lead every deal. Um, you have to bring a certain, you know, if you're competing for that entrepreneur, you have to bring a certain set of, like, things to the table. And I, I'm not sure I'm ready to make that promise versus like j- leading a few deals and then also... Like, what we tell entrepreneurs sometimes is we can sit in the driver's seat and lead the deal, we can sit in the passenger seat and be a co-lead or like the second biggest check, or we can be in the backseat as like the third check, but that's basically it. And so we don't do like party rounds and things like that. So I like that flexibility, and it enables us to, um, to play with the

Semil Shah 15:28 entrepreneurs we want to play with.

Harry Stebbings 15:30 What percent of deals do you lead, just average?

Semil Shah 15:34 I would say if you look over the last three years, um, we've maybe led, you know, 10 deals, 10-ish.

Harry Stebbings 15:42 Okay. So 10-ish deals. If I was competing against you, I would say to the founder-

Semil Shah 15:47 Mm-hmm.

Harry Stebbings 15:47 ... which we don't because, you know-

Semil Shah 15:49 (laughs)

Harry Stebbings 15:49 ... we're wonderful friends.

Semil Shah 15:50 Yeah.

Harry Stebbings 15:50 Um, we don't compete with anyone, S- Samil. That's our game, right?

Semil Shah 15:54 Mm-hmm.

Harry Stebbings 15:54 Um, I would say to the founder, "Samil is amazing. I love Samil, but look at these deals."

Semil Shah 15:59 Mm-hmm.

Harry Stebbings 15:59 "He can be a passenger, and so let me lead it and-

Semil Shah 16:02 (laughs)

Harry Stebbings 16:02 ... let's put him as the passenger." Would you worry that by being willing to do both, you put yourself in a position where you can be pushed to the passenger seat by anyone you're competing against?

Semil Shah 16:14 Um, not really, because I, I kind of have a Zen approach about it, which is our job is to teach the founders how to interact with investors and raise capital over successive rounds. And part of that should be to choose the best partners for you, you know? And so I, I kind of learned this from a Brad Feld interview where, um, you know, I think I asked him, or I can't remember what the situation was. I think it was like at a Connie event, uh, Connie Lewis's. And he just said, like, I mentioned some deal that they did that they lost maybe to True. Um, and he was like, "I thought it was great." He's like, "I'm friends with everyone at True, and the entrepreneur is really happy, so we're, we're fine with that." And I'm also fine with that.

Harry Stebbings 17:01 Why? Like, I, I, I d- I, I think this is like an im-

Semil Shah 17:05 (laughs)

Harry Stebbings 17:05 This is a game of intense competition. Like, I remember Peter Fenton telling me the best people are hyper competitive and hyper curious. I think whenever-

Semil Shah 17:12 Yeah, yeah, that's for sure.

Harry Stebbings 17:12 ... I lose a deal, whenever I lose money, I should be upset.

Semil Shah 17:17 Oh. Well, I mean, yeah. I mean, lo- losing... Yeah. I mean, you don't want to, but I think of it as like flipping it a little bit, which is if we try to lead everything, we would lower, I think, the quality of the portfolio that we're in.

Harry Stebbings 17:31 Mm-hmm.

Semil Shah 17:32 And so being able to be flexible, I think, suits my personality, so it fits me. Um, but then it also enables us to move around. So like right now, we, we've been tracking someone to do a deal. It's actually one of these three on fifteens that you mentioned pre-everything, but it's someone who's a known quantity in a really interesting sector. And so we actually had a friend who's just got a fund based in that sector, and so we sent it to them. And we told the entrepreneur, like, "We'll give you a term sheet if you want a term sheet from us, but we think you should talk to these three groups, because they're right in the wheelhouse of what you do." And the entrepreneur was super happy with that and is probably gonna work with one of them. So, I kind of feel like by being flexible, we get to work with who we want to work with. And, um, on the cases where we do lead, to come back to your original question, Harry, I think speed wins and conviction, so like we...... we will lead deals that we wanna lead, um, and we're just closing one now that I got. You know, we're technically leading, but someone else is putting in a bigger check, and we cut back a little bit to bring in a friend who really wanted to come in. So, like, I think of this as, like, we're always trying to co-invest with people that we know, and these are repeated games, and that, um, it's better over the long run to pick the entrepreneurs you want to work with and collaborate with those syndicates over time, rather than trying to box out your territory on each one. And I think, going back to your previous question of if I had 100, 150 million dollar fund, that whole collaboration layer of how we work would change, which would then set off a chain reaction of how the deal flow would change, and how we would have to operate with the companies would change. And, like, then you look back over 10 years, where there's, like, tons of DPI, tons of IPOs. Like, you know, on paper, Haystack looks like I can't believe it, you know? So you- you- would you risk all that magic of meeting entrepreneurs early in order to have more money? I feel like it's just better to raise the next fund and go

Semil Shah 19:31 for it again.

Harry Stebbings 19:33 I get you. My question is, how low will you go on ownership? This is one which I struggle with, honestly.

Semil Shah 19:38 Mm-hmm.

Harry Stebbings 19:38 'Cause there are amazing companies with amazing friends-

Semil Shah 19:40 (laughs)

Harry Stebbings 19:41 ... and it's like, "Fuck, 1.5%" is not very much. (laughs)

Semil Shah 19:45 Yeah, I know. I, I would say we, we stop around 5%. (laughs)

Harry Stebbings 19:51 Wow.

Semil Shah 19:52 So if you look, yeah, so if you look at ... Like, what we tell the entrepreneur is, like, "Look, we're trying to own 5 and 10% to start. We want to earn the right to maintain that over a few rounds, right? Um, and we'll never own more than you, as a founder, right?" So, um, we'll, we'll always give you advice that will- you will be voting on shares. And so that's kind of a non-threatening, I think, way of, of, sort of, um, coming at an entrepreneur.

Harry Stebbings 20:24 In, in Europe, that's an uncomfortable position, if I'm honest. 'Cause you have the leads, Accel, Index, Sequoia Europe, but, you know, some of the best known-

Semil Shah 20:34 Mm-hmm.

Harry Stebbings 20:34 ... and they always want 15 minimum, and then they have, normally, that 5% for angels. That- so y- you're very much in no man's land in that position. Do you find the same for you?

Semil Shah 20:47 No, 'cause I think, like, the US market, um, you, you know, there's so many seed funds, there's so many series A funds, there's so many top-tier funds. Our job isn't to invest when, um, Accel, Lightspeed, Greylock invest. Our, our job is to invest a round before that. Um, and, and-

Harry Stebbings 21:10 I, I, I get you. I'm, I'm used to being multi-stage move earlier and earlier-

Semil Shah 21:13 (laughs)

Harry Stebbings 21:13 ... while they're doing pre-seeds. (laughs)

Semil Shah 21:15 Yeah, I know. We talked about that, like, what was it, like four years ago, right? Where-

Harry Stebbings 21:19 Yeah.

Semil Shah 21:19 ... they are. But the reality, at the same time, is they're, they're more attracted to the people, um, more experienced people coming out of these big orgs, whereas most of what we do are first-time founders, maybe not, not as, like, startup pedigreed as those. Um, and, and also, like, these funds are really big and slow, so they're not gonna be able to, like, move and prosecute the things in the same way that they say on Twitter. Um-

Harry Stebbings 21:48 Do you find they are slow? I find because the check sizes are so small to them, they don't really give a shit-

Semil Shah 21:53 (laughs)

Harry Stebbings 21:53 ... and they do it in seconds.

Semil Shah 21:56 Hmm. I don't know. I mean, we, we have tons of examples of ones where they didn't move fast, you know?

Harry Stebbings 22:09 I, I get you. Can I ask- oh, I- you're got this from one of your teammates.

Harry Stebbings 22:13 They listened to our last shows and they said about, um, you saying three-year deployment cycle for the fund.

Semil Shah 22:18 Mm-hmm.

Harry Stebbings 22:19 Did you stick to the three-year deployment cycle, Samuel?

Semil Shah 22:21 Yeah. No, I-

Harry Stebbings 22:22 I'm just gonna tag along. Yeah. Let's dig into that.

Semil Shah 22:23 ... I knew you would ask that, and I was thinking about it. So what I kinda concluded over that time, and what I told our LPs, is that for the seed market, um, I felt like the thing we could promise is 24 to 30-month deployments and then doing, doing new, new funds. And I would say that since we last spoke, I would say it's closer to 24 than 30. But I didn't try to make a promise of 36. I didn't, I didn't think it was possible.

Harry Stebbings 22:57 Samuel, at 24, you're still 12 months longer than most managers in the last cycle, so don't worry.

Semil Shah 23:02 Well, that's-

Harry Stebbings 23:02 I congratulate you.

Semil Shah 23:03 That's, that's crazy to me. Like, I, I don't know how you go back to LPs unless you have a really deep relationship or history of returns when you deploy that fast in this environment.

Harry Stebbings 23:18 I think it's a challenge. Um, (laughs) I think it's a challenge for sure. Um, can I ask you, I mean, given that, a lot of people regret the speed of their investing there-

Semil Shah 23:26 Mm-hmm.

Harry Stebbings 23:26 ... as

Harry Stebbings 23:27 we said, doing it in 12 months for many.

Semil Shah 23:29 (laughs)

Harry Stebbings 23:29 What investing mistakes do you think you made over the last three years that you wish you hadn't have made?

Semil Shah 23:34 Yeah. I was thinking about this one. Um, I think in fund four, I always worry about, like, the, the carnage in that fund. And I knew there was gonna be turbulence because it was the first time was really going for ownership, and I knew in going for ownership, to our earlier part of the conversation, that th- there is a trade-off in, like, quality, you know, when you're trying to make a move on, on, on just getting into a round versus getting a certain percent of ownership. So I think we made a lot of errors of selection. Uh, me-

Harry Stebbings 24:09 Was it an-

Semil Shah 24:09 ... in that, in that fund.

Harry Stebbings 24:10 Was it an er-, was it an er- was it an error of selection being picking, or access being adverse selection? You just chose what you could get the ownership in?

Semil Shah 24:19 I think it's a mix in that fund, but I would say primarily, uh, I would say 20% adverse and 80% just, like, um, poor selection.

Harry Stebbings 24:31 Hmm.

Semil Shah 24:32 And, and then, you know, that really changed, that really course corrected in the next two funds, where I feel like, boom, it just hit, hit, hit, hit, hit again. Um, I remember an LP telling me a long, long time ago, like just when I was starting, that typically they'll, they stay with good managers for five funds and they assume that three of them will be so-so, maybe 2 to 3X funds, one of them will be a complete turd, and one of them will be spectacular. Um, and so I kind of knew going into that one that this was gonna be a change in motion. This is 2017 to 2019. Um, and so that's a fund I look back on as, like, where mistakes were concentrated.

Harry Stebbings 25:12 Where do you put that fund at in your head? Is that a 2X, a 3X?

Semil Shah 25:16 No. So the good thing about all of this is that we have, like, 5 to 10% positions in, in three or four, like, really amazing companies that all could be public actually, at some point. So there's a way, there's a ladder to get out of this, um, that's pretty exciting. But if I look back on it as, like, a player looking over the game film, that's the, that's a fund I look over and say, "Oh, I wish I had made this play different. I wish I had done this different."

Harry Stebbings 25:49 Do you give a shit about loss ratios, Samil?

Semil Shah 25:53 No. Um, I think at seed it's just par for the course, where, you know, that's going to happen as virtue of being in this position.

Harry Stebbings 26:04 Yeah. No, I totally agree. Is venture more a game of picking or more a game of access, do you think?

Semil Shah 26:11 Um, for the, for the early stage, I think it's both. Like, you, you need access to creative people and you need to select from the ones that come your way. I think it's really hard to generate that access in a repeatable way, um, and it's super hard to select. Um, so I, I think it's

Semil Shah 26:30 equal.

Harry Stebbings 26:31 Yeah. No, I, I, I totally get you. Um, I, I do want to ask, um, I spoke to many of our friends again before, and, uh, specifically it was Nakul who told me about the instrumental impact you had on his fundraise, uh, for Audacious. And so I want to kind of go through the life cycle of, like, raising a fund. And, you know, Nakul told me you introduced him to 50-plus LPs. Um, (laughs) I love that. He was like, "Most people did two or three. Samil gave me 50. Uh, I really owe him one."

Semil Shah 26:59 (laughs)

Harry Stebbings 26:59 Uh, and so my question to you is, what's your biggest advice to emerging managers on just finding new LPs? What works? What doesn't? 'Cause it is a game of discovery.

Semil Shah 27:10 I think the first thing is, like, people in the last three or four years, and I missed this wave, uh, you know, it's like I got married right when Tinder was taking off, and I got, you know, I, like, moved, like, bought two cars right when Uber was taking off and I didn't live in the city, so I just missed these waves. But, like, and I started my fund before AngelList. But I think in the last three years, with, like, the capital acceleration, um, you have, um, people who their first proof of con- their first debut fund or their second da- second funds are actually pretty big and they don't have investment experience. So, like, a lot of people didn't go through the proof of concept funds like I went through, and so then, then they, then they go knock on the door of Notre Dame or, um, you know, somebody else and you sort of wonder, like, well, why are you doing that? You know? So, so again, my advice may not really click with people because they've, they don't wanna go through that, but I think one is, like, on AngelList now, there's really no excuse not to have some kinda track record before you go talk to an institutional LP. Um-

Harry Stebbings 28:17 Well, tr- tr- well, track takes time, Samil. Like, you know, ed- the truth be told, like, you're not gonna know if you're a good investor for 10 years. So I could show you a nutload of great logos that I've built through AngelList and it doesn't really show much.

Semil Shah 28:31 I think that's fair. I think that it just becomes, like, a specific thing you can point to that you can have a richer conversation with. You could say, "Hey, look, for two years I made, you know, these 20 angel investments. Here's how much money I put in. Here's how much money other people gave me. Here's who followed on." It's just a richer conversation with an LP and a more substantive conversation than saying, you know, "Hey, I just wanna deploy 50 million bucks." Um, so, so that would be number one is, like, using AngelList. Again, for people who don't wanna wait and go, I would just say you have to have other GPs, like, vouch for you, um, you know? And, and the only way they voucher you is if they see you work, and if- the only way they see you work is if you're an executive in one of their companies or you're around the deal with them. So it was easy for me to, like, you know, you had mentioned Anand Iyer and Nakul Mandan and me making, like, a lot of impactful intros for them. That was easy to do 'cause I'd worked with them a lot. But it's hard for me to do that with

Semil Shah 29:36 someone I haven't worked with, you know what I mean?

Harry Stebbings 29:38 I, I totally, I totally agree. I, I think there's, like, there's also things like whenever an LP committed to my first funds, I'll be like, "Samil, thank you. Because you like it, who are three people with a similar mindset to you that you think would share your excitement for what I'm doing?" And then they, and then they commit to names.

Semil Shah 29:55 Sure.

Harry Stebbings 29:55 And once you commit to names, I'm gonna hound you for intros (laughs) to those names-

Semil Shah 29:59 Yeah.

Harry Stebbings 30:00 ... at one great flywheel.

Semil Shah 30:01 I also, I also think, like, that's, that's the hustle part, but I think closing the deals are harder. So, like, what I, what I coach a lot of emerging managers on is like, okay, if you go meet an institutional LP, they're, they're predisposed to passing on your first fund primarily out of the fact of, like, they probably don't think you're gonna raise your first fund or deploy it well if you do. So they just wanna wait for the second one, um, to just make sure you've actually raised the first one, that you've stuck with it, that you like it, 'cause it is kind of a lot of busy work, as you know, painfully. Um, so it kind of logically makes sense that, like, a lot of the people, for example, I introduced Nakul to, I was like, "Think of them as a fund 2.... LP because they're probably just going to- they're- probably don't even think you're gonna raise your target for this fund, you know? Um-

Harry Stebbings 30:50 Eh, eh, eh. I d- I gi- you know I meet two new LPs every single week, even when I'm not raising, because I think if you ever meet them when you're raising for the first time, you've got no chance.

Semil Shah 31:01 Right. Right. And so I think a lot of people, you know, like, like you're doing, Harry, like, that is smart to do because I do think relationships matter. Um-

Harry Stebbings 31:11 Yeah.

Semil Shah 31:11 ... and then obviously the diligence, you know, you go through, I go through, is way more than what an entrepreneur (laughs) goes through. Uh, that's the other thing too of, like, you know, just having all of your ducks in a row, you know. Um, you have to have some kind of reputation where people call around and name-check you, right? Um, so-

Harry Stebbings 31:30 Do you have decks? Do you have- do you have blurbs? Do you have ... What do you have supporting material-wise?

Semil Shah 31:35 Yeah, you mentioned this in the ... Yeah, when we were- when we were preparing for this. I think all of that is, like, your mix of collateral that you're gonna use to- to convey messages to different people at different times. So, like, we- we- I've- I have, like, a one-pager for every new fund we raise, which is, like, on one page, everything you would want to know and link to that's, like, not super sensitive. Obviously, we have a deck and a data room, but now we're at a point where we just copy and paste a new data room into Dropbox and- and do all that. We try to reduce all the friction, you know? Um, tips.

Harry Stebbings 32:12 But, like, I- I actually advise founders often on not having a deck. I find decks are often used by institutional LPs as a reason to pass, and it creates these kind of preconceived notions in their head about-

Semil Shah 32:24 Well, I think-

Harry Stebbings 32:26 ... you or-

Semil Shah 32:26 Yeah, I don't know. I think would probably- probably have different advice for- just from my perspective. Uh, Harry, I- I think, like, a deck is something you just need to offer so that they keep a record of it, but really that shouldn't be the thing you pin

Semil Shah 32:42 your- your pitch on. Uh-

Harry Stebbings 32:44 What do you think are the biggest mistakes that GPs make in fundraisers?

Semil Shah 32:49 Uh, you alluded to some, right, which is just talking to people when they're raising, um, not- not really, like, having a richer conversation about what they're trying to do and why. Um, uh, again, like the decks or the presentation just show a lot of pontification or, like, a lot of things that don't really matter. Um, so I- I think people, um, mo- mo- most VCs or- or- or emerging managers especially are not good fundraisers because they don't- they don't really have a north star to- to where they're going and why. And it kind of makes sense 'cause it takes a while to develop that, um, but at the same time, it's not as inspiring for someone to let go of their dollars. (laughs) Um-

Harry Stebbings 33:35 Ah, I- I've done- I've done a lot of LP checks. The LP ... The v- GP ............................ Just shit. Like, why now? No one articulates, like, why specifically now is the right time. I think, you know, you much more than me, you were V1 OG compared to me, but, like, in the, like, solo capitalist, you know, with me with, like, Josh Buckley and Rocky Grims, like, this was the personalization of capital. There were strategic shifts in venture that led to this, I think. I clearly articulate why now. I see it a ton also which is, like, "Oh, I got into Pipe Series B, I got into, you know, Hopin Series B, name your company Series B, and now I'm doing a seed fund as a former operator." And it's a lack of correlation between prior track and where you want to go, and it seems very ... And then the advisor page, brilliant advisor page, get fucking rid of it. None of these advisor pages make any difference, like, ridiculous.

Semil Shah 34:28 I- I would say that, like, maybe- maybe to take your comment from earlier, uh, about not doing decks, I think that, like, if you're not getting name-checked by institutional LPs, and other people aren't talking about what you're doing, it's almost impossible to- to raise institutional capital, whether it's a $3 million check or $30 million check from an LP. So really that should be the first, uh, priority for an emerging manager, is how do I get in the chatter zone, uh, of these LPs? Um, and that's- that's different than just having a deck, right? So you could argue the deck is one of the least important things, right?

Harry Stebbings 35:10 Yeah.

Semil Shah 35:10 In the hierarchy of things you would need to do, right, which is, like, do good deals, like, help entrepreneurs and other investors in the ecosystem, have people talk about you as, like, a unique person or someone who's uniquely helpful or uniquely insightful. And then it's like, okay, they want to meet you, and then you could be like, "Oh, well, here's my little deck." And the ... Honestly, for, like, an emerging manager, the deck probably doesn't need to be more than five to ten slides.

Harry Stebbings 35:38 I've never done a deck. (laughs)

Semil Shah 35:41 Yeah.

Harry Stebbings 35:41 It's just-

Semil Shah 35:41 Well, I mean, again, your body of work is different, right? So your deck is all the 2,000 plus interviews-

Harry Stebbings 35:48 70 years of access to these. (laughs)

Semil Shah 35:49 ... you've done. Yeah. Yeah. And again, like, people wanted to support you, and they ... you were in that chatter zone, so you showed the ability to help, the ability to connect with people, the ability to get in the chatter zone, and so y- again, I don't think people can extrapolate from what you- you did.

Harry Stebbings 36:07 I, I get you. I was also lucky. I had track really pre-institutions, like you said there. Do you know what I mean? My first one was like 8 million. It was like your

Harry Stebbings 36:14 proof of concept fund, so-

Semil Shah 36:15 Yeah.

Harry Stebbings 36:16 ... I totally get you. Um, can I ask, the big challenge that I hear from a lot of GPs is, there's a lot of people around the hoop, but they're not quite getting in the hoop. How do you create urgency with LPs to get them to a conclusion? Do you have any tips on this?

Semil Shah 36:34 Um, I wouldn't say I'm- I'm great at this, so grain of salt. Um, I- I think, like, at a certain point in your career, and as an adult-... you have to just be willing to walk away and accept a no in different formats. And so one, one way we do it is we kind of just say, "Hey, you know, Julie Smith, LP, like, w- we're expecting, like, you know, hey, if we don't hear from you, you know, past this day, we're just going to assume that's, that's not a fit for you, that's okay." You know? Um, but it's not like waiting around the phone for someone to call. It's more like, "We're going to move in this direction." Um, most LPs have plenty of time to decide, and so you, you don't wait for a response. You just sort of move forward on your own timeline.

Harry Stebbings 37:30 I, I totally get you. Uh, a lot of people, kind of like a sales cycle, I guess, in enterprise sales, think that, you know, it might help to offer, uh, you know, preferential terms in terms of carry or in terms of fees.

Semil Shah 37:41 Mm-hmm.

Harry Stebbings 37:42 Have you ever done that? And how do you advise managers on preferential terms for first close, second close?

Semil Shah 37:48 Yeah. I think, I haven't done that, uh, ever, um, and, and not a lot of people have suggested that, so, um, it's not probably something I would advise people to do, um, only because it could set a weird precedent over time. That being said, I think to get off the ground, you know, sometimes people have to make deals, um, and so what I would just say is, like, think, think about it in the sense of, like, um, how, how do you survive and thrive? So the first point is, like, how do you survive and get off the ground, is like, you probably need to do what it takes to get the plane off the runway. Um, and so, like, I wouldn't sit here and say, "Do it this way, do it that way." It's just like, okay, if you don't take off and leave the runway, then we're not, we don't have anything to talk about. Once you're in the air and can stabilize, I would move away from preferential terms, you know? And so, like, basically, if you, if you're, if you're, if you're trying to offer preferential terms to get the jet off the runway and get some thrust, that's fine, but just don't have it be, um, successive in s- in future funds. Like, gate it to that one fund.

Harry Stebbings 39:02 Very tough to do. I totally agree. That's a challenge, 'cause you're right, it does set a precedent. Can I ask, what do you advise managers who say, "I've got a big check," but they do also want to buy part of the GP? How do you advise those managers where it's also a bit of a sale if the GP is part of it?

Semil Shah 39:19 Yeah. Um, it really depends on who that person is and what the timeline is. So like, let's say, um, you know, a really well-respected endowment foundation came to you, Harry, in 2018, and said, "We wanna put you in business with a $200 million fund, and we'll do 75 of it, and we'll introduce it everyone we know," if they take part of your carry as a GP, um, right, not the management company where, where the, the fee income goes through, right? Um, and you could say, "Well, normally I was gonna have, um, 20 points of carry, but now maybe I'll have 16," but to get the $200 million fund, that name, and all the network, you could say, "Yeah, for one fund, okay." Right? Now, the problems could be the other 125 million that come with the 75 may also want that same thing, and so you'd have to operationally tell them, "Hey, we're just doing this for th- for our anchor," right? And some other people may say, "Well, I don't like that," or, or whatever. Um, I think the problem comes in is when that's in perpetuity, right? Um, so, so again, I go back to my airplane analogy, which is to get off the ground, you may have to spend some, some, you know, the jet

Semil Shah 40:39 fuel is more expensive.

Harry Stebbings 40:41 Can I ask, what terms do you go out with, and how do you feel about kickers on funds?

Semil Shah 40:47 Kickers meaning the hurdles?

Harry Stebbings 40:49 Yeah. No, no, kickers meaning like, you know, um, on 4X funds we go to 25% carry, 5X plus we go to 30% carry.

Semil Shah 40:57 Yeah. So we haven't done those yet, although I'm thinking about that now. But I don't have a lot of experience with them.

Harry Stebbings 41:03 I'm not too, uh, so I, so I, I don't do them either. I, I always say like, "Listen, if we do, you know, a great 5X fund, 6X fund, we should all make a load of money. Let's not be greedy." Um, and I find institutions really appreciate that. Um, but more and more people do it, and they don't seem to get pushback.

Semil Shah 41:20 Yeah, it's, um, it's not a topic I know well, to be honest, um, I, I don't really know-

Harry Stebbings 41:26 What, so you go out, you go out with, d- you go out with two and 20?

Semil Shah 41:30 I just, I follow a lot of, honestly, what USV does, and like try to learn. I think they're the best pound-for-pound fund in the world, um, both operationally and in every way. And so I think Fred has been on the record of just saying like, they just, you know, do a standard two and 20 on every fund.

Harry Stebbings 41:51 Yeah.

Semil Shah 41:51 Um, so I haven't, I haven't really seen the need to deviate from that.

Harry Stebbings 41:57 Can I ask, when you look at your fundraising journey in, in hindsight, and with the many years of wisdom that you have now, Samael-

Semil Shah 42:03 Mm-hmm.

Harry Stebbings 42:04 ... um, what's the biggest mistakes that you've made?

Semil Shah 42:06 I think there are two, and one was a minor little warning that I caught early, and one was like a major, like, um, a major shift in my own psychology. Um, so-

Harry Stebbings 42:24 Anything, my friend.

Semil Shah 42:25 Yeah, so the minor one is, I remember that like, uh, not to out this person, but I would say like, a major leader of like a major successful fund who spent a lot of time with me, who's been on your show, uh, who introduced me, they only have 24 LPs, and they're all endowments and foundations. And introduced me personally to the head of this one huge university.

Harry Stebbings 42:54 (laughs)

Semil Shah 42:55 And I thought, "Holy cow," like, um... This is for the fund four that was supposed to be about 30 million. It ended up being like 22. I thought, "Oh my God, I've never gotten an introduction like this. I've already had three funds." They do smaller funds. Um, I had met this person before and I knew that their, the, this GP's annual meeting is every year, uh, in Q1 at The Rosewood, okay? So I have all this stuff on my calendar 'cause I know when these meetings happen. And I sent her an email. I was literally across the street at a meeting and I was like, "Hey, I know you're across the street. Um, we, we'd great to get together while you're here." And like in five minutes she wrote back, "Sorry, really busy. Sent from my iPad." (laughs) And, um, that was sort of like a warning of like, you know, you could have really good track record, like an amazing introduction, um, you've already met this person, they've already done small funds, and this person like literally doesn't give a shit. (laughs) Right?

Harry Stebbings 44:11 I find that-

Semil Shah 44:12 Um-

Harry Stebbings 44:12 Sorry, I find that, just listening to that, I find that very rare. And I, amazing track, met them before, blah, blah, blah. The thing that I find really gets it, and I was ve- I got introduced the other day by an OG of OGs to one of their biggest.

Semil Shah 44:25 Mm-hmm.

Harry Stebbings 44:25 They're basically done and in. J- so I'm surprised that with the great intro she was still like that.

Semil Shah 44:32 Yeah. Yeah. Um, and that's okay.

Harry Stebbings 44:35 Which, which is a crap, which is a crap LP. Psh, psh, done. Uh-

Semil Shah 44:38 I think she, you know, I appreciate the response and I appreciate the brevity, you know, but for me it was more of a warning.

Harry Stebbings 44:47 (laughs)

Semil Shah 44:47 Now, now, the, the, the bigger mistake-

Harry Stebbings 44:49 What d'you, what d'you take, wha- wha- wha- sorry, what d'you, what d'you take away from that though? That like, fuck, it doesn't matter?

Semil Shah 44:54 You know, luckily that happened because it was in January, they host their annual meeting in January, and I had just started that campaign in January, so I felt like I got this omen early, right? Whereas like I was probably in my head thinking like, "Oh yeah, like I'll meet her on this trip," you know? And so it went kind of 180 real quickly, um, where I was like, "Okay, this will be difficult." (laughs)

Harry Stebbings 45:18 (laughs)

Semil Shah 45:19 Um, so I felt like, I felt like it was kind of a gift, um, in terms of the timing. Uh, the bigger mistake is like thinking naively that, um, all LPs will like want to see, once they've committed to you, um, want to see you succeed and want to just be along for the ride if you, if you, um, like stay true to what you said you're gonna do. And, um, it's interesting because like I've, I've had to like, I, if fire is the wrong word, I don't think of it that way, but like I've, I've blocked two LPs from investing in, in future funds. And I think both of the behavior in, in what they did and how they did it, I just felt like, "Hey, I don't work like that." You know?

Harry Stebbings 46:15 Ca- can I ask wha- wha- what-

Semil Shah 46:16 And I think a lot of wh- oh. Yeah.

Harry Stebbings 46:18 What di- what di- what did they do?

Semil Shah 46:21 One person like asked for a phone call and like asked like before we were raising the next fund for all these terms, and like I remember I was like driving along the Embarcadero and I was like, "Hey, like sounds like you really w- want all this stuff now. I'm happy to talk about it when we raise Fund 5." And he was like, "We won't even be in it unless we get all this stuff now." I was like, "Okay." And then I just thought about it and then I talked to the colleagues and they were like, "Yeah, he doesn't change his mind. Like he just went rogue and he wants all these things." And I just thought like, "Hey, I just don't work like that," you know? Um.

Harry Stebbings 47:04 Yeah, that's s-

Semil Shah 47:04 And so I think-

Harry Stebbings 47:05 ... great.

Semil Shah 47:06 Yeah, this would, this would be an LP that like a lot of people (laughs) would like love to have on their cap table. Um, but I just feel like, um, again, like e- these things are gifts, right? Because then you end up cherishing and valuing more of the LPs who, who treat you well, and this is not, this is not indicative of, of most LPs. I'm just saying that like, I, I guess the point I'm trying to make here is that like once people get the funds and go in, you just think that everyone's gonna support you. And people have very, p- people can have very different motives or like ways of revealing information or like asking for things. And, um, a mistake I think that I made was like not, not being open-minded to that. So that was more of a surprise,

Semil Shah 47:52 you know? Um-

Harry Stebbings 47:54 I, I, I get you, I get you totally. That is, uh-

Semil Shah 47:57 Yeah.

Harry Stebbings 47:57 ... that's re- have you found that LPs generally do three fund commitments? They say they do. I'm obviously on my, my first institutional fund, my second one now-

Semil Shah 48:05 Yeah.

Harry Stebbings 48:05 ... this year, but like do they do three?

Semil Shah 48:08 Well, I think this could be fodder for episode number five in a couple years. I don't know. (laughs)

Harry Stebbings 48:13 (laughs)

Semil Shah 48:14 Um... I-

Harry Stebbings 48:15 Have you ha- have you had LP churn?

Semil Shah 48:19 No. I mean, these two we let go of, um, really for behavioral-

Harry Stebbings 48:24 Yeah.

Semil Shah 48:25 ... uh, reasons. Uh, so but-

Harry Stebbings 48:28 Now-

Semil Shah 48:28 ... m- everyone else has been super great. But, but I think, I think everybody in our position should expect churn moving forward for a variety of reasons. (laughs) Um, so churn is coming.

Harry Stebbings 48:41 And one more, oh, okay, talk to me about that. Why is churn coming and then also for emerging managers like today-

Semil Shah 48:48 Mm-hmm. Mm-hmm.

Harry Stebbings 48:48 ... moving to today, why is it gonna be harder to raise?

Semil Shah 48:52 Churn is coming because I think most, one, most GPs don't understand how different LP business models work to begin with, but right now the liquidity profiles...... of these endowments, foundations, family offices, et cetera, could be wildly idiosyncratic. So, certain endowments and foundations could have gotten really liquid in '19, 2021. Um, certainly th- a number of them haven't gotten liquid and they don't know where their portfolios sit. So, I think it's gonna end up becoming, like, two kind of opposing forces clashing. I think you'll see a lot of, um, institutional capital, uh, constrict out of conservatism and, like, a lack of visibility into, like, what they own that's already in the ground. Right? Because, um, they haven't been able to see it. But then on the same side, you'll also see a realization that, um, a lot of their capital in these larger funds will be stranded capital, um, that they may not see a return on.

Harry Stebbings 49:57 Stranded capital is what capital? How do you define that?

Semil Shah 50:02 Um, meaning, like, it's either stuck in a portfolio company that doesn't have product market fit, or it's stuck in a fund that will deploy it, but, like, the fund size may be so large that it's impossible to get

Semil Shah 50:14 over the hurdle. Um-

Harry Stebbings 50:16 I totally get you.

Semil Shah 50:17 Yeah.

Harry Stebbings 50:17 You know, you know, one of the b- one, one of the things that concerns me is the misalignment of incentives within the LP landscape, whereby they say, "Hey, we'll do Andreessen and we'll take a agreed lower multiple, because we won't get fired for doing Andreessen, but we will get fired for putting $10 million into Haystack if Sam Mill suddenly goes off the plot."

Semil Shah 50:40 Right.

Harry Stebbings 50:40 That worries me.

Semil Shah 50:42 I don't think... That hasn't been my experience. I think most people have barbelled, and so the people who get caught are the people in the middle. Um, now that was what I would say a year ago. I think right now, most LPs I've talked to feel like the bigger, bigger funds that they're in, they're more worried about those positions because of the market contraction. Um, whereas I think for, for you, for example, you're on, you're on fund two now, right?

Harry Stebbings 51:12 Uh, yeah, fund two and three. We raise two at a time early in, in series A and B.

Semil Shah 51:17 Right. So when you go out for your third vintage, right, in a year or two, I don't know what your timeline is, assuming your funds are similar size, you're gonna be more in demand because these LPs now are now shifting toward, they're downshifting to the smaller vehicles because they realize that they would rather incinerate $10 million with you than $100 million in a larger fund.

Harry Stebbings 51:42 I agree. I think we're also, and people forget this though, we're seeing this whole new generation of LPs. We see it in Europe with a huge amount of European corporates, with huge balance sheets, wanting to enter venture, realizing bluntly the lack of innovation they have within their incumbent structures.

Semil Shah 51:57 Mm-hmm.

Harry Stebbings 51:57 And then also, a, a more controversial one, but with, you know, commodity prices changing the way they have done, I've seen a massive rise in Middle Eastern interest from Saudi, QA, Qatar, with bluntly-

Semil Shah 52:09 Yeah.

Harry Stebbings 52:09 ... oil prices three, 400% higher.

Semil Shah 52:13 Yeah, I think that there's lots of, I mean, I think what you're saying here is, it's true, there's lots of capital that's hungry to go into venture, and I think the question is how do those people decide where to put it or how do you as a GP go grab it? Um, I think historically the case has been that the endowments and foundations who have been in venture capital for the longest period of time are your stickiest partners.

Harry Stebbings 52:39 Yeah.

Semil Shah 52:39 Um, that being said, for, for you, for me, for a lot of those people, they haven't even lived through a recession. Right? You have to be, like, well over 40, 50 years old to have actually lived through a recession as an adult. Right? All the, all the dips that we've had have been pretty mild, um, or pretty narrow in terms of, uh, their duration. So, so I think-

Harry Stebbings 53:07 Is that-

Semil Shah 53:07 ... like... You know?

Harry Stebbings 53:08 S- Samuel, who struggles in this environment moving forward? Which is the cohort that struggles, which is the cohort that thrives?

Semil Shah 53:17 I mean, it, it'll probably sound cliche, but on the founder side, it's like product oriented, capital efficient, commercially minded found-

Harry Stebbings 53:26 Now on the fun side, on the, on the fun side.

Semil Shah 53:29 On the fun side, I think people who can pair, um, the, the magic of meeting entrepreneurs early and getting the ownership early, with the firepower of putting, um, wood behind, like, enough wood behind the arrows at work.

Harry Stebbings 53:49 Yeah.

Semil Shah 53:49 And so it's probably these funds that are in the billion to four billion range, so to speak, um, where, where they'll have a lot of firepower if they have that magic. I also think you'll see a lot of $100 to $200 million seed funds start to fill that seed series A gap, um, more pro- in a more pronounced way. And so there'll obviously be winners in that. Like, if you think about initialized in the last decade, there's probably one starting now that, that'll have a rise like that now. Thrive started in the last decade, you know.

Harry Stebbings 54:26 Yeah.

Semil Shah 54:26 So I think th- I think there are opportunities for these folks to go make deals and,

Semil Shah 54:31 you know, put it on the line.

Harry Stebbings 54:33 I, I think, I, I, I think the winners will be Chanel and it'll be Walmart. Chanel, it's a very boutique product-

Semil Shah 54:41 Mm-hmm.

Harry Stebbings 54:41 ... for a very specific customer base. It makes you feel a certain way and you either opt in or opt out. And that is your USV, it's your benchmark, it's even-

Semil Shah 54:50 Mm-hmm.

Harry Stebbings 54:50 ... your ribbon in terms of the specificity of the product.

Semil Shah 54:52 Mm-hmm.

Harry Stebbings 54:53 And then I think that Walmart is Sequoia, Andreessen, dare I say it, Taiga, uh, DST walls of cash, which are relatively infinite and car- carry you lifecycle. I think the ones where I'm like, "Eesh," is when you're 700 to 1.5, no brand or middle tier brand, lots of partners, bloated decision-making structures. There, I think, you have the real pain.

Semil Shah 55:23 Yeah, I think it just, um... I guess the reason maybe I would have a slightly different perspective here is that I think so much of this can pin on one deal. So like, you probably had Duveaux on, right? And he-

Harry Stebbings 55:34 Yeah, yeah.

Semil Shah 55:34 ... had famously talked about, um, you know, getting off the Excel train in the pre-Facebook fund. You know, they were going through a lot of hard times. Or Peter Fenton was giving-

Harry Stebbings 55:44 Oh.

Semil Shah 55:44 ... interviews about this. So I think it just takes one deal t- to completely change the trajectory of some of these funds, and so I always keep that in mind. Right? Um, uh, that like, it's- it's- it's too hard to predict what's going to happen. We can predict in a fundraising sense what will happen, but then like, the deals, end of deal, what are, what's going to work. Um, like if you think about a round, you know, that's happening now, this company Replit, right?

Harry Stebbings 56:11 (smacks lips) Yeah.

Semil Shah 56:11 Um, very u- unique, exciting company, um, a lot of people are talking about it. I don't think a lot of people have thought about the seed or, you know, Andreessen did the A, it was like a four million dollar seed, A check, whatever you want to call it. Um, it only was started four or five years ago, in terms of the, sorry, the- the investment going in. So I think that some of this can change over time, you know? What if that becomes-

Harry Stebbings 56:37 Now, h- how much are they... How much are they raising?

Semil Shah 56:41 Oh, I have no idea. But it's just such a unique company that people are talking about. Um, you know, I'm not close to it, I'm just saying it's- it's a, it's an interesting company. Right? And like, what if you're the Series B investor in that company in a no-name billion dollar fund, it could totally change the trajectory of your franchise.

Harry Stebbings 57:01 Oh, listen, I'm pinging, I'm writing a note now to ping Amjad to see- see what we can do. (laughs)

Semil Shah 57:07 Yeah.

Harry Stebbings 57:07 For personal money, that sounds like a good place, and I'm hoping it's repriced given where we are in the market. So, uh... (laughs)

Semil Shah 57:13 Yeah.

Harry Stebbings 57:13 Absolutely savage. Um, I-

Semil Shah 57:14 I- I'm only, I'm only calling that out to just illustrate that, um, we can pontificate about who will have fundraising success or pain with, I think, some good precision.

Harry Stebbings 57:26 Yeah.

Semil Shah 57:26 I think it's impossible to know who can catch a tiger by the tail.

Harry Stebbings 57:31 I agree with that. I agree with that. I think also the interesting thing is lagging. Like, track is a lagging indicator. And I mean this nicely, but you look at maybe older firm brands like Mayfield, where you may look and think a slightly more challenged brand for a firm, and not a hot brand. But actually, Lyft, HashiCorp, Tonal, they're gonna be sharing some pretty great distributions. Um...

Semil Shah 57:55 Oh. Yeah. I-

Harry Stebbings 57:55 That- that'll-

Semil Shah 57:56 We have, um... We know a couple of LPs who have been long-time Mayfield investors who are extremely happy, uh, you know, with the performance.

Harry Stebbings 58:03 Yeah. There's my book, Bril- Brilliant Returns. Yeah. Brilliant Returns. And so you also have that, which is like, the 10-year lag on the numbers, which will give you another 10 years moving forward in forward indicators. So, totally agree.

Semil Shah 58:16 Looking, um... Look at Crosslink. I mean, no one, no one really talks about Crosslink. I don't even know if you've had an investor from Crosslink on- on 20 Minute VC, but they ended up owning like, over 20% of Chime, uh, you know, through like, a pretty modest deal, 'cause no one was looking at it.

Harry Stebbings 58:36 Wow. I did not know that. No, they did one, I think they did it with FirstMark. I can't remember. But no, I haven't had anyone from Crosslink on the show, but fuck. 20% of Chime. Well- well done. Retirement

Harry Stebbings 58:46 is coming-

Semil Shah 58:46 (laughs)

Harry Stebbings 58:46 ... quiet quitting for you. Um, (laughs) uh, tell me, world of LPs. You know, GPs, you know, fucked up a lot over the last few years, as we said.

Semil Shah 58:54 Mm-hmm. Mm-hmm.

Harry Stebbings 58:55 You know, increased, um, increased cadence of deployment. Where did LPs make mistakes, Emil?

Semil Shah 59:00 Uh, everyone in the ecosystem has committed sins. Uh, we can talk about what those main sins are. I think on the LP side, the sin was, um, going along with fund size escalation and, (clears throat) and allowing and enabling those firms to allocate within those funds. So, um, I believe like, in having separate vehicles for- for separate, um, separate activities, because that's the best governor. And so I think when you have the blind pool of capital going all over the place, it really puts a burden on the management of that firm to allocate it properly, and I think it's really hard to do. So I think that's the biggest sin, um, (clears throat) that LPs have committed, yeah.

Harry Stebbings 59:55 But what c- As I'm just being devil's advocate here, let's pretend we're on a partnership together. What can we do? Y- we want to continue being in this franchise. We're either in or we're out. If we're out, that's tough for the relationship. And so I- I- I get you, but I don't see what can be done to remedy it, in a very buoyant environment.

Semil Shah 1:00:15 Right. I- I agree, and it's easier to say that today than, you know, a year or two ago. Um, I think what I've heard from LPs is like, some of them picked a few to go stay on the train, and a number of them last year dropped off. So, a number of endowments foundations, fund-of-funds who were longtime investors in like, top tier funds that have gone really, really big have, for a variety of reasons, just said, "Hey, we're great. Thank you for all the returns. Thank you for the partnership. It's time to move earlier, you know, for us." And so I think that like, I'm not saying that LPs should have abandoned all those, but I think they probably stand on too many trains than they should have.

Harry Stebbings 1:00:58 I find that they often actually have adverse selection because of rigidity of bucket allocation. And what I mean by that is like, "We need a Series A fund in New York. That's what we're missing." And so they find a Series A fund in New York, in that quarter, that is raising at that time.

Semil Shah 1:01:16 Mm-hmm.

Harry Stebbings 1:01:16 And it's crap. Maybe you should have just allocated to the best managers that you see. Um, and I find that kind of bucket thinking really-

Semil Shah 1:01:24 Yeah.

Harry Stebbings 1:01:24 ... a big problem often.

Semil Shah 1:01:26 Yeah. You know, it's funny when you mention it that way 'cause I, I know what you're talking about and I've never heard it put that way. Uh-

Harry Stebbings 1:01:33 Oh, I have. Often.

Semil Shah 1:01:34 Yeah. I, I think that like, um, may- maybe the canonical example of this is the sector focus ones, right? Is like, "Hey, I want ... I wanna play this sector 'cause I think it's gonna work out that way." Um, I think-

Harry Stebbings 1:01:49 Yeah.

Semil Shah 1:01:49 ... in some cases it makes sense for early stage because you're filtering more at early, um, but I tend to believe, and again, this could be ... th- this could be, um, not true in the future, but I feel like if you look at the big, big important companies and outcomes in technology, like, when they go public, they have like three or four venture capital firms that we recognize on the cap table, and I don't think that's an accident.

Harry Stebbings 1:02:15 No, I, I, I def-

Semil Shah 1:02:17 I think that they're... Yeah. I think that there are a set of funds, maybe like 50 to 75 VC funds that, in partnership with other funds and entrepreneurs, know how to guide a company towards a big outcome or a public offering. Um, and so I would just say, like, to the bucketed approach, like, unless it's really early and bespoke, it probably doesn't really make sense because you would assume, like, the best investors will catch the best things at C, A, or B, right? That's the flypaper that you're buying.

Harry Stebbings 1:02:49 The other truth is I think there's a utility value to board members that resembles a barbell, which is like Fenton Gurley at the A, um, you know, Alfred Lin at the A, Rodolphe Boser at the A, amazing pat- great at the A, great, and then your pre-IPO people who are amazing for setting you up for getting on the public markets.

Semil Shah 1:03:10 (laughs)

Harry Stebbings 1:03:10 I find actually the middle, eh. I'd rather have amazing operators who are functional leads at the best companies in the world than having, like, a series C or D investor-

Semil Shah 1:03:23 No.

Harry Stebbings 1:03:23 ... that doesn't really-

Semil Shah 1:03:24 But remember, if you're an LP, if you're an LP and thinking about this bucketed approach, one is you're p- ... You know, most LPs don't live in the Bay Area or New York. They're-

Harry Stebbings 1:03:32 Yeah.

Semil Shah 1:03:33 They're not in the market, they're not talking to founders, they're not talking to VCs all the time, and they just have to map it out. And so mo- most of them have to present a strategy or a map of how they cover what they wanna cover. So it, it kinda makes sense why they do that. It doesn't make sense to you and I because we know all the people. (laughs) Um-

Harry Stebbings 1:03:54 And that is why they listen to 20VC and that's why

Harry Stebbings 1:03:57 I have a job-

Semil Shah 1:03:57 (laughs)

Harry Stebbings 1:03:58 ... and get paid so much money. Fantastic. Thank you, guys. Um, I do wanna ask, uh, eh, eh, Samuel, I'm starting, um, Shah Endowment Fund now, um, and you're in charge. Um-

Semil Shah 1:04:09 (laughs)

Harry Stebbings 1:04:09 How do you run the venture allocations for Shah Endowment?

Semil Shah 1:04:15 I'd, I'd probably do it the way you alluded to earlier, which is I would, if I were an LP, like, not living in the Bay Area or New York, I'd probably go spend a month in each location, meaning, like, get an apartment or Airbnb for an entire month, hang out with lots of people after hours, name check lots of people, and place money with the people that the network told me were the most interesting. Now, that's for early, right? Um, and then I would, I would probably have ... I would probably recruit somebody who has d- VC deal experience to help go do directs on top of it, um, and to stay close to the winning, graduating companies, um, and then I would, I would probably try to get into using my network, like five to ten franchises where I feel like, um, you know, you wanna be part of their ecosystems.

Harry Stebbings 1:05:20 Yeah. It's interesting. I, I, I don't think you can get access to the best. I have so many that are like, "Oh, I wanna put in a ten million check into Sequoia," and I'm like, "Well, you, uh, we might be able to some ... I might be able to help you with Sequoia if you can write 250 in 24 hours. Then you might get a chance and it'll be split across all the different funds."

Semil Shah 1:05:39 Yeah.

Harry Stebbings 1:05:39 Otherwise, good luck. Um, but I'm like-

Semil Shah 1:05:42 100%.

Harry Stebbings 1:05:42 ... "You know what? There are amazing s- there are amazing people though in a load of big franchises who are sitting on carry that's just been halved, if not more, in pretty tough partnerships with politics." I would say-

Semil Shah 1:05:54 Mm-hmm.

Harry Stebbings 1:05:54 ... "Hey, you are a rockstar. Let's put an anchor in the ground. I'm gonna anchor you. I'm gonna put 30 of your 100 million fund. Let's go do this and build a franchise." I'd do that with five people and put people in business. I think that's a much better one. And then on top of that, I'd get young, hungry hustlers-

Semil Shah 1:06:12 Mm-hmm.

Harry Stebbings 1:06:12 ... not like, uh, VC direct people, to just, like, go, go get drunk honestly (laughs) with the g- with the GPs and team members of these funds to know exactly what is happening. I find there's this complete wrong, like, LP conception that the bigger your check size, the closer you are to the direct deals. It's not that at all. I'm sure you and me are the same. It's just if you have a great relationship with them and if you respect

Harry Stebbings 1:06:36 and like them, you show them the deals. Do you know what I mean?

Semil Shah 1:06:39 Yes. Yes. I, I agree. Um, one thing I think we should talk about before we wrap up too is, like when I mentioned-

Harry Stebbings 1:06:45 Yeah.

Semil Shah 1:06:45 ... we all committed sins, right? Okay. What are the ... We talked about the sins that LPs committed. What are the sins VC committed? I think the biggest one, um, in addition to, like, fund size escalation, you know, for, for fee grab and AUM, is this, um, bringing down, like, lowering the threshold for having each financing be an actual, true checkpoint for an entrepreneur. Um, and so, you know, a lot of people just deployed capital and, like, speculative, like, uh, speculative real estate, and it's just stranded in these companies now. Um, you know, I'm sure you've seen this too. There's probably multiple, multiple companies with, like, over $50 million of cash with no product-market fit.... that's just wild.

Harry Stebbings 1:07:35 Oh, yeah.

Semil Shah 1:07:35 You know?

Harry Stebbings 1:07:36 Oh, no, no, it, it is.

Semil Shah 1:07:37 That's wild.

Harry Stebbings 1:07:37 But I'm seeing, but I'm seeing now, I've seen four this month where the series Bs are saying, "Hey, preemptively we fucked up, but give us our cash back. And we'll give you a million each. So you'll get a million secondary, good luck on your way, uh, but give us our money back."

Semil Shah 1:07:55 I mean, that should happen more. Um, I think a lot of traditional VCs are, are loathe to do that for reputational reasons. I would just say from the founder's side, you know, their ti- their, their ti- their cost of time right now i- is probably pretty great. So, like, we may start to see that and then, you know, what are the f- what are the original sins of the founders, you know, committed here, is I think that, like, a lot of them, a lot of them didn't have their own discipline about, like, creating the checkpoint and milestones for themselves. And they didn't get into a habit of, like, bringing certain investors along for the journey or keeping them updated. Like, you know, we have a few entrepreneurs over the years who really want to get better at their updates and metrics and, like, really tune that every month, and we have some where they just don't think it's important and don't think it's important to bring us along for the ride in terms of the story, and then they don't realize it's really hard to socialize it with other people if we're not part of the story. Um, so I think that, that

Semil Shah 1:09:02 is like a sin that will come home to roost for a lot of founders where, um, y- you know, they just-

Harry Stebbings 1:09:07 What, what happens now? Do these companies just g- slow die?

Semil Shah 1:09:12 I think it's kind of Darwinian, honestly, is like if you can't... As a GP, this applies to GPs or, or founders, right? And this is how you get over the sins or you learn from the sins. If you can't respect the dollars that you've taken and you can't give those people a transparent brief view into what you're doing and allow them to guide you in a polite way, then you're probably not set out for the journey. Um, and I think we've had a lot of people who, o- on both funds and as founders of companies or hopeful founders of companies, uh, do that, you know, take the money without really thinking about how do I respect the investment that someone made in me. Um, and that manifests in a lot of different ways. Reporting is one way. Um... Uh, yeah.

Harry Stebbings 1:10:10 How many of your companies, percentage-wise, give you company updates?

Semil Shah 1:10:15 I would say the overwhelming majority, but we talk about that in the, um, in the diligence investment process, and then we, we actively try to get them on a cadence, like early part of the month, first of the month thing, because then that triggers a conversation for the month, right?

Harry Stebbings 1:10:33 Yep. I-

Semil Shah 1:10:33 Um, but some people, frankly, it's, it's impossible to get them to do it and, um, again, it's okay. It's not, like, required, but then it's hard for us to advocate for you if we're not in the know.

Harry Stebbings 1:10:48 I, I, listen, I, I totally get you and I agree. I think if you don't send the updates then you're halved in terms of recommitments for next round, so totally with you. I'm just surprised. I'd probably get 50%.

Semil Shah 1:10:57 But, but again, I'm not trying to make a point about just the commitment. It's more just that's an example of, like, not respecting the money, right? And so I think the sin that, just to put a finer point on it, the sin that c- certain GPs have made or certain founders have made that I think will cost them now in this new environment is, like, if, if you didn't respect where the money came from and, like, treat it, like, as, as some sort of light partnership, it's going to be really hard to advance. And that's why I think it's sort of Darwinian, which is, like, the new environment now calls for not only capital efficiency, product led growth, you know, um, hustle, integrity, grit, all of that. I think it also calls for this as well.

Harry Stebbings 1:11:44 We want you to grow faster than ever and spend less than ever. Very simple rule.

Semil Shah 1:11:49 (laughs)

Harry Stebbings 1:11:50 Rule of business from the VC. (laughs) I totally agree. Uh, listen, I, I could speak to you all day, Samuel, so I'm going to move into a quick fire round before I completely kill 20 minutes.

Semil Shah 1:11:59 Sure.

Harry Stebbings 1:11:59 We should, we should just rename it like 80 Minute VC. It's ridiculous these days.

Semil Shah 1:12:03 No, it's great. I, I love the conversation. Yeah. Go for it.

Harry Stebbings 1:12:06 Oh man, I love it.

Harry Stebbings 1:12:07 I always love it with you. Um, uh, quick fire round. So, okay, let's start. We've done this many times. What's the new favorite book and why? Any that you've read recently and loved.

Semil Shah 1:12:15 So it's an article, but it's about (clears throat) one of the famous game creators on The New Yorker, um, from Nintendo, and it talks about, um, how he grew up in the woods in Japan and, like, saw all these amazing natural, um, you know, things in the wild and that ended up becoming the, um, the landscape in which he painted on for his video games. And I thought that was really interesting because so much of, like, people playing on computers like us or, you know, working online, we forget about that, and, like, s- so many people are, are gamers. And I, I love gaming as well, uh, more, more casual gaming, but

Semil Shah 1:12:55 it's just interesting that this guy's whole inspiration came from being outside.

Harry Stebbings 1:13:00 What worries you most about the venture landscape today?

Semil Shah 1:13:03 The thing that worries me the most is the portfolio of risks that are around us in addition to, like, the lower money supply. Like I saw Scott Menard who's the Guggenheim CEO, CIO said that, like, this is the lowest M2 since the Depression, so there's less cash around and mor- much more risk around. And so it feels like we're just in the early innings of this, like, administration of pain or, like, the game hasn't even really started, so it feels like it'll be quite prolonged.

Harry Stebbings 1:13:37 How mu- how much did you cut your book back to your LPs in the remarks?

Semil Shah 1:13:42 ... uh, we're doing that right now, so I would say we're, we're doing that, like, literally in Q3 for the Q3 report, Harry, where we have ... As virtue of our LPA, we obviously have to have a professional third-party audit, so we're doing that audit, uh, with the firm and remarking the portfolio, like, now. So it's like, I'm ... If we had talked two weeks later, I probably could give you, like, a firmer answer, but likely-

Harry Stebbings 1:14:10 How much do you think, how much do you think they should be remarked? 20%? 30%? 50%? 70%?

Semil Shah 1:14:16 You know, I spent a lot of time talking to a variety of LPs and GPs about this. There is no consensus on this. Um, I think I would just bucket it, which is, like, at seed and early, where, like, you don't really know yet, even if you have a great series B that you've seeded, um, where it is. You do have to pick some methodology and stick with a number, uh, and- and go, but I don't think I could say this is the right number or not. That being said, let's say you're a growth fund, like Meritech, where your entry ... You know, they're a great fund. Everything they're investing in has product-market fit. They're larger checks. They probably need to comp everything they have against public comps to go company by company, and so I think it just really depends what your portfolio mix is like.

Harry Stebbings 1:15:02 (laughs) You know, you have a career in politics, my friend. (laughs)

Semil Shah 1:15:06 (laughs) No, no, but I mean, it's not ... I'm not trying to give a political answer. It's just, like, I don't know what it is. Like, is it 25%? Is it 50%? Is it 80%? Um-

Harry Stebbings 1:15:17 50. I think it's 50. You gotta- you gotta cool-

Semil Shah 1:15:20 I think if you and I were, like, in the bar and we would say, "Oh, you have a 3X fund, Simeon. What is it now?" I'd probably say, "It's one-and-a-half X fund," you know?

Semil Shah 1:15:31 I don't think that that's, um, out of bounds.

Harry Stebbings 1:15:36 Who's the most underrated angel in the ecosystem do you think?

Semil Shah 1:15:40 Underrated?

Harry Stebbings 1:15:42 Or unknown. It could just be that they're not so well-known. So like, I love Kyle Parish at, um, Figma, head of sales at Figma. I love Guy Podjarny, the- the founder of Snyk. Uh, amazing work, both of them as angels.

Semil Shah 1:15:54 Huh. I think of like a ... Maybe you know him. Charlie Songhurst?

Harry Stebbings 1:16:01 (laughs) Yeah. Love Charlie.

Semil Shah 1:16:03 I think he, uh, he has an amazing ability to find interesting entrepreneurs and- and connect with them very quickly.

Harry Stebbings 1:16:15 I- I agree. I also think Charlie invests in 500 or 800 or 1,000 entrepreneurs, and so-

Semil Shah 1:16:22 Yes.

Harry Stebbings 1:16:22 ... diversification makes picking easier.

Semil Shah 1:16:25 Yes, yes.

Harry Stebbings 1:16:26 (laughs)

Semil Shah 1:16:26 But he is a true angel that way. Has he been on your show?

Harry Stebbings 1:16:30 No. I love Charlie daily.

Semil Shah 1:16:32 There you go.

Harry Stebbings 1:16:32 I would love to have him on. I would love to have him on the show. He's always, like, very coy and shy about it, but I'd love to make it happen. So he will listen to this and he should come on this show.

Semil Shah 1:16:41 Oh. And then, and then this is more of a, um, you know... He was a close friend for many years, but I think Scott Belsky, if I were an early-stage founder.

Harry Stebbings 1:16:49 Oh, I love Belsky.

Semil Shah 1:16:50 Yeah. That would be, that would be my top pick.

Harry Stebbings 1:16:55 Love Belsky. And Fidel actually. Tony

Harry Stebbings 1:16:57 Fidel is fantastic.

Semil Shah 1:16:59 Oh, yeah, I don't know what's his name.

Harry Stebbings 1:16:59 Um, such a man. Oh, he's amazing. Uh, what's been the single hardest moment of the Haystack journey, my friend?

Semil Shah 1:17:06 I think the first four fundraises were really hard because it just were continuous. Like, I think in those first four, I only took like six months off, um, and I was too naive to know, like, the AngelList syndicates weren't up. Um, there wasn't this rush of people, and it was the only o- real option I really had, so that's probably been the toughest part, where, you know, finally in Fund 5 got over that hurdle.

Harry Stebbings 1:17:34 Did you doubt that you'd be able to do it every fund?

Semil Shah 1:17:39 Oh, I still think that way. Like, I- I still am paranoid about, uh,

Semil Shah 1:17:44 being able to raise capital and deploy it well, yeah, every day, yeah.

Harry Stebbings 1:17:49 What's, what's been your single biggest returner?

Semil Shah 1:17:51 Is HashiCorp, um, where, you know, we- we invested in the first round, and it was just a huge win.

Harry Stebbings 1:18:02 That was a 50K check?

Semil Shah 1:18:05 25.

Harry Stebbings 1:18:07 25K?

Semil Shah 1:18:07 Yeah.

Harry Stebbings 1:18:07 What did that turn into?

Semil Shah 1:18:10 Well, we distributed the shares right at lockup and, you know, that's when the market crashed, but I also felt like we weren't trying to juice our numbers at that point, so ... Um, let me see if I can do the math. I think it was like, like the 25K turned into something like 30, 35 million bucks.

Harry Stebbings 1:18:31 Whoa! How big was the fund?

Semil Shah 1:18:34 A million.

Harry Stebbings 1:18:38 (laughs) Whoa. What? That is insane.

Semil Shah 1:18:42 Yeah, that fund had, um, Instacart, DoorDash, HashiCorp, um, and it still has two billion-dollar companies that are still growing in there, so it's crazy. I mean, I think that's what I tell people when-

Harry Stebbings 1:18:58 Wh- wh- what do you think that fund would be more- Like, what does that fund mark at, do you think?

Semil Shah 1:19:04 It- it's like close to somewhere between 30 and 40-something. Again, like no one cares because the base is super small and you get lucky, right? Um, and then as the fund sizes get bigger, the, the multiples will go down, right? Unless you hit something. But again, like it's n- I- I think it's like going back to the, to the jet fuel comment. Like, that was a jet fuel to get off the runway, right? Um, but in a way, like the people I talk to today, they don't really care about that today. It's like, "What are you gonna do tomorrow?"

Semil Shah 1:19:35 (laughs) Um-

Harry Stebbings 1:19:35 (laughs) Like, I get it. It's still, it's still fun to hear. Um, tell me, my friend, what was the biggest miss and how did it change your mindset?

Semil Shah 1:19:43 The biggest miss was OpenSea where, um, you know, I'd helped...... I, I had known Nick Timano for a long time. Like Nakul and Anand, I helped him raise some of his fund and introduce him to tons of LPs, 'cause I thought Nick was doing a fabulous job. And, you know, anyone who's met Nick knows he's like, this isn't like, uh, he's the opposite of a tourist in crypto.

Harry Stebbings 1:20:07 Yeah.

Semil Shah 1:20:07 So he would send, you know, 'cause we were so helpful, he would send all the deals he was doing to us, and he sent us OpenSea three times.

Harry Stebbings 1:20:16 (laughs)

Semil Shah 1:20:16 Um, now I don't know if OpenSea will end up... Uh, who knows what it'll be, right? But for a period of time, you know, I had spent time with Devin, I had looked at the numbers, I didn't understand. I just thought it was about gaming. We didn't talk about NFTs earlier, and it was just sitting right in front of me, like, "Why is this working?" I think, I think the last round I looked at was like a 28 post extension.

Harry Stebbings 1:20:39 (sighs)

Semil Shah 1:20:39 Um, and because I didn't understand it, I just let it go rather than just looking at what was working. Um-

Harry Stebbings 1:20:47 I think we can over, I think we can overthink things. Sometimes you don't need to understand it.

Semil Shah 1:20:52 Yeah.

Harry Stebbings 1:20:52 Just go where it's working. Like, are customers using it and loving?

Semil Shah 1:20:56 Yeah, and of, of course, this was during my Fund4 vintage, right, which was littered with mistakes. So there were ma- mistakes of commission that I mentioned, and this was a mistake of omission.

Harry Stebbings 1:21:06 I don't have any sympathy for you after hearing about HashiCorp. Uh, I, there, there is zero sympathy. That is, uh, yeah, well done.

Semil Shah 1:21:13 You know what's funny though, is like athletes on the field, I end up, and I'm sure you do too, we end up thinking more about that, um, than HashiCorp.

Harry Stebbings 1:21:27 100%. I think we should. Uh, yeah, no, I mean, I lost money earlier this year for the first time and I told one of my LPs and I was like, "It, it, it should hurt." And it, it really does. If it ever becomes okay to lose money or to miss something, you need to wise up.

Semil Shah 1:21:44 Again, yeah, that goes back to my

Semil Shah 1:21:46 respect for the dollar, right?

Harry Stebbings 1:21:48 Yeah, totally. Penultimate one, my friend.