Sheel Mohnot: How I Got Married in the Metaverse; Founder vs Product vs Market | E1035

Narrator 0:00 ... camera.

Sheel Mohnot 0:00 What about Zume, the pizza company? (laughs)

Harry Stebbings 0:02 Ah.

Sheel Mohnot 0:02 Like literally from day one. So, okay, on that company, I met a f- a guy who invested in that company early, or relatively early. And it was a data-driven VC. And I was like, "What data do you have for this company?" And he was like, "We have all this data on like number of shares on Facebook of this video about them." And I was like, "Why the fuck would you invest off of a, a share is on, Facebook share is on a pizza company?" Like people were sharing this video about th- about this pizza company on Zume, 'cause it's like a robotic pizza company, and they used it as input to invest. And I was like, "That's crazy."

Harry Stebbings 0:39 And then they told SoftBank about that one and they heard you're investing, they didn't even hear the shares, they're like, "Done." (fingers snapping) Boom. (instrumental music) Sheel, I am so excited for this. We get to do this in person, baby.

Sheel Mohnot 0:48 It's amazing, I'm stoked.

Harry Stebbings 0:49 I mean, listen, you are so much better looking in person.

Sheel Mohnot 0:52 (laughs)

Harry Stebbings 0:53 Uh, (laughs) but first I wanna start with a little bit on you, and for those that missed our first show. So how did you make the foray into venture in a very succinct two to three minutes?

Sheel Mohnot 1:01 Yeah, sure. So I, uh, I had always wanted to be in business. Like it's in my blood. Uh, for those Indian people you could... I'm a, I'm a Rajasthani.

Harry Stebbings 1:11 (laughs)

Sheel Mohnot 1:11 And, uh, I didn't know what to do. Uh, but I, I always was tinkering with ideas as a kid. Always had a bunch of small businesses. Then I went into the corporate world. I was a management consultant. Then a buddy of mine was leaving to start a company, FinTech company, payments company, and I joined him. And then we sold that company in 2012. Then I ended up starting, uh, a company that we sold in 2015. And then at that point I thought, "Hey, I've really loved what I've seen on the other side of the table." Like I've loved what I've seen from VCs interacting just when I was fundraising. And m- aren't they the smart ones? Is sort of what I was thinking. And of course now I know better. (laughs)

Harry Stebbings 1:53 (laughs)

Sheel Mohnot 1:53 Like now it's the other side of the table, it's the founders that are the smart ones. Um, but it's possibly just like anyone across the table from me is smarter than me. So-

Harry Stebbings 2:01 (laughs)

Sheel Mohnot 2:01 ... that's, that's just how it works.

Harry Stebbings 2:02 I don't think that's true at all, but I do think maybe changed so much as investors.

Harry Stebbings 2:07 And I'd love to hear, if you could go back and call yourself the night before your first day as a VC and say, "You should know this going in." What would you say to yourself on that call?

Sheel Mohnot 2:18 I would say like, "No one knows what they're doing." (laughs) And so-

Harry Stebbings 2:22 Do you believe that?

Sheel Mohnot 2:24 I do.

Harry Stebbings 2:25 Really?

Sheel Mohnot 2:25 I feel like the more I've gotten into it, the more I've learned there's no right way to do it.

Harry Stebbings 2:30 Right.

Sheel Mohnot 2:30 Right? Like you, there are so many different strategies that can be successful. People can be c- people can be very prescriptive and say, "This is the only way to do it." Or, "This is the only way to do it." And y- you can have that, you see that in so many different arguments. You have that in like we were talking about the remote work argument. So you can say, "The only way to do it is five days a week in-person. And if you don't do that, you can't be successful." But there are clearly succ- companies that are successful that are remote.

Harry Stebbings 2:55 Mm-hmm.

Sheel Mohnot 2:56 And now it is actually my preference that companies are in-person, but I can't mandate it. I don't mandate it, because I think we've seen too many success stories that aren't all in-person.

Harry Stebbings 3:07 I, I totally agree with you. I just, I don't know, I sit down with your Bill Gurlays of the world, or your Pat Grady at Sequoia.

Sheel Mohnot 3:13 Yep.

Harry Stebbings 3:14 And you're just like, "They really fucking know what they're doing."

Sheel Mohnot 3:16 They do.

Harry Stebbings 3:17 And so I'm just like-

Sheel Mohnot 3:18 Fu-

Harry Stebbings 3:18 Do you know what I mean? And so I just, I've kind of pushed back on that, 'cause I think it's an easy trope to be like, "Oh, no one knows what they're doing and it makes us feel better." But no, they do. And actually that's often why they continuously have the best returns.

Sheel Mohnot 3:30 So, uh, hey, I'll push back on that. So with Bill Gurley in particular, let's say-

Harry Stebbings 3:34 Mm-hmm.

Sheel Mohnot 3:34 ... uh, I, Pat I haven't spent much time with recently, but so, um, with Bill, I was talking to another one of his partners about their meetings. And they were talk- they actually had been talking about something I tweeted, and he said they had a rigorous internal debate about the right way to, about what was correct, and they don't know. Like they couldn't come to a conclusion about the right, about what was right. And I think it's like there are ways that you can invest, but actually knowing what to invest in or what a mode is, I think people are still figuring it out.

Sheel Mohnot 4:07 And even if you look at the greats, they have a bunch of misses and they have a bunch of companies that you say like, "Why did you do that?" It didn't, didn't make sense in hindsight.

Harry Stebbings 4:15 I, I totally get you. You mentioned, uh, oh, I mentioned Bill Gurley from Benchmark there, and Benchmark are kind of famed for their discipline on fund size.

Sheel Mohnot 4:22 Totally.

Harry Stebbings 4:23 Now you said before that fund sizes should get smaller.

Sheel Mohnot 4:27 Yeah. I think...

Harry Stebbings 4:30 Go.

Sheel Mohnot 4:30 So I think we are operating in a crazy prisoner's dilemma situation where everybody... there's a bunch of capital that wants to go into venture still-

Harry Stebbings 4:40 True.

Sheel Mohnot 4:40 ... and if you increase fund sizes, f- the industry as a whole needs to return a lot more than it probably will.

Harry Stebbings 4:47 True.

Sheel Mohnot 4:47 And so if everybody reduced fund sizes, then we would, uh, probably be operating at a different level. We would be, uh, investing at lower valuations-

Harry Stebbings 4:58 Mm-hmm.

Sheel Mohnot 4:58 ... and it would probably be better for everyone. Instead, we've got this continual upward march of fund sizes, and when you have a bigger fund size, you become relatively agnostic about the price you pay.

Harry Stebbings 5:09 So if we just like break that down before we kinda move further in that argument, do you think that actually LPs are still in market? Uh, uh, you hear continuously about funds that are struggling to raise, whether it's the large, you know, $20 billion PE firms, or actually it's the much smaller micro firms. Across the spectrum people are saying LPs have wi- withdrawn or are retreating in the last year.

Sheel Mohnot 5:27 Yeah. Uh, I think there are LPs that have withdrawn quite a bit, but then you see everybody's in Saudi Arabia right now, right? (laughs)

Harry Stebbings 5:37 (laughs) I wanna start, I wanna start a startup that does like shuttle service to Saudi Arabia from the Valley.

Sheel Mohnot 5:41 It's insane.

Harry Stebbings 5:42 Yeah. My favorite thing is actually the hypocrisy, I'm gonna get in so much trouble for this-

Sheel Mohnot 5:45 Totally.

Harry Stebbings 5:45 ... the hypocrisy of, "Oh, we would never take money from there." First fucking recession comes, they are there.

Sheel Mohnot 5:51 Totally. I have no strong viewpoint about it, like about whether it's, whether you should take money from there or not. We, we, we haven't, but, uh-... I think it is very hypocritical that all these folks who were anti-Saudi money are now over there just praising everything.

Harry Stebbings 6:09 Totally. So we have that on like the LP side, agreed. We do have funds that are starting to reflect what you say. Like Founders Funds-

Sheel Mohnot 6:18 Founders Fund.

Harry Stebbings 6:18 ...

Sheel Mohnot 6:18 halved theirs. Yeah, exactly.

Harry Stebbings 6:20 Like, do you think we'll see more?

Sheel Mohnot 6:21 I think we'll see more. I think we have to. I think for the f- for the founders-

Harry Stebbings 6:25 Why, why, why would managers do it? If you think for them, it's a loss of fees. Like, i- it's not in their interest.

Sheel Mohnot 6:32 Well, i- it depends. If you're, if you're fully returns focused, it could be in your interest.

Harry Stebbings 6:36 Could be.

Sheel Mohnot 6:37 And I think a lot of the large funds have gotten so large that they're really more management fee focused than they are-

Harry Stebbings 6:45 Mm-hmm.

Sheel Mohnot 6:45 ... returns focused. But I think for the returns focused funds, and like if you talk to Founders Fund, that, that's what they say was the reason they did it. They felt like 1.8 was too big, they wanted to go to 900 because they wanted to stay focused on returns, and they felt like that was a better size.

Harry Stebbings 7:00 Do you think we'll see funds give back funds?

Sheel Mohnot 7:04 I don't know. I don't think so.

Harry Stebbings 7:05 Yeah.

Sheel Mohnot 7:06 Um, I know that that's happened in the past. I don't just, I just don't see it happening this cycle. And probably if it were to happen, it would have already happened.

Harry Stebbings 7:13 I agree with you totally. Can I ask how big's the latest BTV fund?

Sheel Mohnot 7:16 So we're $150 million seed fund and a $75 million opportunity fund.

Harry Stebbings 7:20 I was with an LP last night, and they said that when you do outcome scenario planning on $150 million seed fund, but I actually did $125 million, and they were like, "Way too big, way too big." Uh, how did you feel about your fund sizing on that?

Sheel Mohnot 7:33 Yeah. So we, we went from 75 to 150.

Harry Stebbings 7:36 Yeah.

Sheel Mohnot 7:37 Um, I think for us it was more about like how many checks do we want to write? What's the size of those checks? And what's our follow-on strategy?

Harry Stebbings 7:45 Yeah.

Sheel Mohnot 7:45 Now, we raised over a year ago, and part of it that I think, part of the reason we increased was in fund one pretty much every one of our companies raised a follow-on round quickly after we invested.

Harry Stebbings 8:01 Hm.

Sheel Mohnot 8:02 And we were almost forced to do that follow-on round. If you lead the seed round and somebody good is following on, you kind of have to follow on.

Harry Stebbings 8:09 Yeah.

Sheel Mohnot 8:10 And so our first check to follow-on strategy was totally out of whack because we didn't have enough data, but you have a great fund leading the next round at a huge markup.

Harry Stebbings 8:20 Do you have to? Can you not do the strategy of, "Hey, you know what? We lead and then we're totally aligned to you and want the best for you, but we don't actually ride anything beyond our first check"?

Sheel Mohnot 8:30 You could do that. I think for a fund like ours, it doesn't really make sense where we're... I think for a lead investor, it doesn't really make sense because what ends up happening is some companies need more capital, and y- and like not the ones that are killing it. The ones that are killing it are able to raise easily, but there are other companies that are doing well but need a little bit more capital, and you have to put more money into them. And you know, they're doing well, but not well enough to raise the next round.

Harry Stebbings 8:55 Yeah.

Sheel Mohnot 8:56 And we've had companies like that that ended up being super successful. Um, actually, one, one of the companies recently, we, we led a seed and then we put a little bit more money in, like six months ago, and then they just raised at 100 million valuation from Andreessen.

Harry Stebbings 9:13 Mm-hmm.

Sheel Mohnot 9:14 And we're really fortunate that we put that (laughs) a little bit more money in. Um, and I think if you don't do the follow-ons, like if, if your strategy is just to do one check-

Harry Stebbings 9:25 Yeah.

Sheel Mohnot 9:26 ... but you have to do some follow-ons, then you end up, um, not following on into your best companies. You end up following on when you have to, which can be your worst companies.

Harry Stebbings 9:35 I think follow-on is actually just an inherently hard strategy because it assumes that you can essentially predict your winners so much sooner than I think you actually can. I think me and you both been in this long enough-

Sheel Mohnot 9:44 Totally.

Harry Stebbings 9:44 ... where actually my winners are ones which I would not have put as winners for us.

Sheel Mohnot 9:48 Totally, yeah.

Harry Stebbings 9:48 And my winners are definitely not winners.

Sheel Mohnot 9:51 So I think that's true, but you do know your losers.

Harry Stebbings 9:56 True.

Sheel Mohnot 9:57 So I know companies that I don't want to invest more into because, you know, the founder doesn't have a sense of urgency or like doesn't-

Harry Stebbings 10:03 But actually, the losers are the same as the slow burners that go nowhere to a naught .5X to a 1X, if we're being honest.

Sheel Mohnot 10:10 Yeah. I would say there are companies that I've had where I just know like there's very little chance I'm gonna put more capital into it.

Harry Stebbings 10:21 Do you tell them then?

Sheel Mohnot 10:23 No, I think it's like-

Harry Stebbings 10:24 'Cause it's hard. You don't wanna like burst the bubble of confidence and, "Hey, by the way, you're struggling and I'm not gonna give you any more money." "Oh, thanks, Sheel."

Sheel Mohnot 10:31 No, (laughs) I wouldn't... So, no, it's not, it's not necessarily that. Sometimes it's like the market hasn't developed the way we thought it was developing.

Harry Stebbings 10:37 Yeah.

Sheel Mohnot 10:38 And there's an opportunity to pivot, and sometimes they take that opportunity and sometimes it works. But if they don't do that, then there's little chance that I think the market is gonna develop the way we thought it originally was. So for example, um, we invested in a company in Southeast Asia that was, that we were betting on the fintech market in Southeast Asia getting much bigger in a way that hasn't really developed. So then we have to think about, okay, unless they pivot into serving a different type of customer, we can't sup- continue to support them.

Harry Stebbings 11:08 Yeah,

Harry Stebbings 11:09 I totally get you. You mentioned Southeast Asia there. We both (clears throat) did forays into emerging markets.

Sheel Mohnot 11:14 Yeah.

Harry Stebbings 11:14 Uh, y- we've spoken a little bit before on email actually before this about kind of the death of fintech. I think first is like the death of emerging markets. In a macro downturn, everyone fucking pulls back.

Sheel Mohnot 11:24 Totally.

Harry Stebbings 11:24 More than ever before. Is emerging markets investing pretty dead?

Sheel Mohnot 11:29 It's struggling for sure. I think, um... And the more emerging you go, the tougher it gets.

Harry Stebbings 11:36 Yeah.

Sheel Mohnot 11:36 So in a low interest rate environment, money's free and you're like searching for like more risk and you go to emerging markets. And a lot of people invested in a lot of places that they'd never been, didn't know much about. And I think now people are coming way closer to home. Um, but I still think there's opportunities in emerging markets and we, we still continue to invest in emerging markets. But probably less the like really far out markets.

Harry Stebbings 11:59 What's the really far out, just so I understand that?

Sheel Mohnot 12:02 So I think, like, I think people have invested a lot in, like, Pakistan, Bangladesh, um, parts of Africa. I think they will continue to. Like, the- there are still good companies in these markets and the great companies will continue to raise money. But I think what had happened was, you know, there are a handful of great companies and what had happened was a lot of people who had never invested in these markets before started investing. And then instead of just putting money into the- the handful of great companies, like, the 100 companies after them that weren't that great also raised money.

Harry Stebbings 12:35 Sure. But even the handful of great companies, if you do not have a liquidity mechanism to get cash out, even if it works, go to Pakistan, go to Bangladesh, where are you gonna go public?

Sheel Mohnot 12:45 Totally.

Harry Stebbings 12:45 Are you gonna come to the Nasdaq? I don't think so.

Sheel Mohnot 12:48 Yeah. I think, first of all, I think it can happen. It's tough. Like, but for a truly great company, there's always gonna be an option.

Harry Stebbings 12:54 Is there an example of that?

Sheel Mohnot 12:55 I mean, in Africa, we've had liquidity. We've had companies that went public. And-

Harry Stebbings 12:59 On the Nasdaq or... ?

Sheel Mohnot 13:01 Yeah, I- I think, I think we've had companies that went public on the Nasdaq, yeah, from Africa. Um, and- and you could always, you could always have made that claim about LATAM, like, and then we had companies, we have Nubank, super successful company. So y- you could have made these claims about different markets that ended up maturing and building a robust market. Now, what happened that, uh, I think was totally shitty in 2021 was you weren't getting an appropriate discount.

Harry Stebbings 13:30 Yeah.

Sheel Mohnot 13:30 So if, if it's gonna be a really tough path, but you have an exceptional founder, there's gonna be a path to liquidity at some point. But you have to get in at the right price to account for that. So-

Harry Stebbings 13:44 And we were paying prices that were akin to developed markets.

Sheel Mohnot 13:47 Yeah. People started paying, like, seed rounds at $20 million valuations and in, in a market that's gonna be a really tough path to get to a billion dollar plus exit. And that, I think, was a shame.

Harry Stebbings 14:02 Uh, you said there about kind of Nubank, that's kind of it. There's dLocal which is like a-

Sheel Mohnot 14:08 dLo- yeah.

Harry Stebbings 14:08 ... $7 billion company.

Sheel Mohnot 14:10 Well, now, it's probably a lot lower after that, that, there was a short-seller report. I think it's like a few billion now.

Harry Stebbings 14:15 Okay. You know, we had Sabre on the show, so, you know (laughs) -

Sheel Mohnot 14:19 (laughs)

Harry Stebbings 14:19 ... maybe I wanted to be nice, but, um, you know, the- wherever they are, like, you know, Sabre's fantastic. Sabre, I still love you. Um-

Sheel Mohnot 14:26 But no, you've had o- you've had others, MercadoLibre, and a bunch o'-

Harry Stebbings 14:28 MercadoLibre's a great one.

Sheel Mohnot 14:29 Yeah.

Harry Stebbings 14:29 But like, but there's like two or three.

Sheel Mohnot 14:31 Yeah, there aren't that many.

Harry Stebbings 14:32 Like, to build a firm on the back of that, for sure, would be horrible, like, a tough sell.

Sheel Mohnot 14:37 Totally.

Harry Stebbings 14:37 Like, for you, when you and Jacob sit down, do you guys go, "Shit, we're gonna have a lot of hungry mouths to feed in emerging markets"?

Sheel Mohnot 14:43 Yeah, I think there, there is some of that and we've definitely... I think we're probably more focused on the US-

Harry Stebbings 14:49 Yeah.

Sheel Mohnot 14:50 ... now than we were two years ago-

Harry Stebbings 14:51 Yeah.

Sheel Mohnot 14:51 ... like a lot of folks.

Harry Stebbings 14:52 I get you totally. Uh, so more focused on the US now than-

Sheel Mohnot 14:55 Or, or, or i- s- US and, like, non-emerging markets, so like Israel, yeah.

Harry Stebbings 15:00 You mentioned four companies in London. I was bl- bluntly a little bit surprised by it, as many as four.

Sheel Mohnot 15:05 Yeah.

Harry Stebbings 15:05 How do you guys think about Europe?

Sheel Mohnot 15:07 Um, I think, so some of the companies we've invested in here are actually not serving the local market.

Harry Stebbings 15:13 Oh.

Sheel Mohnot 15:13 So, um, one of them is a, is a company that sells into banks globally. Uh, one of them actually sells primarily in India. Um, and then we have a couple that, actually none serve just the, the local market.

Harry Stebbings 15:28 Okay. Are you impressed by Europe? I think s- they, you know, bluntly, we've seen this, uh, massive attraction to Europe and zero interest rate from the US.

Sheel Mohnot 15:36 Yeah.

Harry Stebbings 15:36 And now most have retrenched. Lightspeed are here, GC are here and Sequoia are here-

Sheel Mohnot 15:41 Sequoia, yeah.

Harry Stebbings 15:41 ... 'cause they all opened offices here.

Sheel Mohnot 15:42 Yeah.

Harry Stebbings 15:43 But the rest, who did the pit stop tours and all.

Sheel Mohnot 15:46 Yeah. I think, I think there are great founders here. I think the ecosystem has developed. I think, like, for a while there wasn't the ecosystem around it and, like, now you've had a lot of folks actually move from the States here.

Harry Stebbings 15:58 Yeah.

Sheel Mohnot 15:59 And there are good companies getting built here and so I'm still excited about it. I think there are a lot of companies... The companies that I'm most excited about are building here but for a global market.

Harry Stebbings 16:10 I feel like you're holding back on something, Sheel.

Sheel Mohnot 16:12 No.

Harry Stebbings 16:13 No?

Sheel Mohnot 16:13 I think, I just think, like, I haven't done anything that was purely serving the local market.

Harry Stebbings 16:18 I get you. I get you. Uh, I, I had a guest on recently actually and they said that Europe's the hardest market because it's big enough to keep you busy for a couple of years, but not busy enough or big enough where you have to go big from day one.

Sheel Mohnot 16:30 Yeah. So that-

Harry Stebbings 16:31 Which is really interesting.

Sheel Mohnot 16:32 ... that's, it's, it's so true and that's why I've invested in companies that are global from day one.

Harry Stebbings 16:35 Yeah. No, I totally get you. Okay, so, uh, we mentioned geography there, obviously BTV has a, a big fintech focus. It's not AI, is it?

Sheel Mohnot 16:43 (laughs)

Harry Stebbings 16:44 I mean, let's just, let's just be honest. Um-

Sheel Mohnot 16:47 Everybody should. Everybody just pivot to AI now.

Harry Stebbings 16:48 O- uh, why not? Or AR. I feel this is happening.

Sheel Mohnot 16:51 Yeah, yeah.

Harry Stebbings 16:51 Um, 'cause-

Sheel Mohnot 16:52 Starting last week, everyone's pivoting to AR.

Harry Stebbings 16:53 My favorite

Harry Stebbings 16:54 is the way we shit on these companies like, "Oh, you know, Facebook's over halfway. And Google are so over." Google with AR are so far behind. They're, they're, who are these guys? Release Bard, everyone's like, "I knew they were coming."

Sheel Mohnot 17:03 It's like... (laughs) Yeah.

Harry Stebbings 17:03 "I knew they were coming."

Sheel Mohnot 17:04 So (laughs) .

Harry Stebbings 17:04 But same with Apple and AI, it's like what are Apple innovating on?

Sheel Mohnot 17:07 Yeah.

Harry Stebbings 17:07 They do it, it's like AR. Um-

Sheel Mohnot 17:09 Yeah.

Harry Stebbings 17:09 ... question for you though, like, how do you think about, f- bluntly, the negativity towards fintech today-

Sheel Mohnot 17:17 Yeah.

Harry Stebbings 17:17 ... and respond to that?

Sheel Mohnot 17:18 Yeah, sure. So I, I'd say, like, stepping back, I started investing in fintech exclusively beginning of 2016. And I think, like, what drew me to it then was it's a huge part of the economy. It's like financial service is 20% of global GDP and it's a digital thing, like, it's numbers, it's money, and so it should merge with technology. Like, just from a macro perspective, that all makes sense to me. And from 2016 to 2021, there was this, like, crazy upward slope of trajectory of fintech companies. And if I'm being honest, like, 2020 and 2021 were just, like, overhyped. And that upward trajectory, like that chart of e-commerce, like, it went up and then it went like crazy hockey stick, and then it went down, but it's still continuing on that same trajectory. So-... I don't think FinTech's dead. I think we're just back to where we were a few years ago.

Harry Stebbings 18:13 Is it better for you now because there's much less competition?

Sheel Mohnot 18:16 I think so, yeah. I think there's less competition, which ... So less competition for capital, but also less competition for companies. So in 2020, 2021, every company we funded, there were five companies just like it, also with great founders, with great investors. And so what ended up happening is a bunch of capital went into these companies, and five companies serving the same customer set, that's a lot of competitive pressure and nobody makes money, because you're all price competitive and, and you're all serving the same, same customer set that now is comparing against others. Um, I think now we're in a much better place, and the people that, that incremental founder that was building in FinTech because it was cool is now building a gen AI tool, and that's great. And I think I still feel-

Harry Stebbings 19:06 Do you mind the founders that hop from trend to trend?

Sheel Mohnot 19:09 I don't ... No, I don't mind it actually. Like, I think, like, gen AI is super exciting, and if you're super excited about it, build for it. Like, there's no reason you s- I should say ... I should be prescriptive about what you can and can't build. Like, it's really exciting.

Harry Stebbings 19:25 On, on the venture side there, you know, when we think about, like, next 10 years of venture, how do we think it changes? We mentioned Andreessen earlier, we mentioned Benchmark. How do we think about, like, what venture looks like in the longer term, and who the winners and who the losers are?

Sheel Mohnot 19:38 Yeah. Well, right now it seems like we have these, like, super big funds.

Harry Stebbings 19:41 Yeah.

Sheel Mohnot 19:42 Right? We talked about Andreessen,

Sheel Mohnot 19:44 General Catalyst, all these other guys. And I think those guys seem to be in the AUM accumulation game.

Harry Stebbings 19:51 Yeah.

Sheel Mohnot 19:51 And I think it's tough. It's like, it's a tough business to have, like ... Like, if you, if you think about these huge funds, just getting returns on these huge funds is really tough.

Harry Stebbings 20:02 Yeah.

Sheel Mohnot 20:03 You're really only shooting for $10 billion plus outcomes.

Harry Stebbings 20:07 100%, and even then it's not enough.

Sheel Mohnot 20:09 And then I don't know how many of those there are gonna be.

Harry Stebbings 20:11 But if you actually project that, you know, your NEAs as well at three billion, you have a $10 billion outcome and you have 10%, uh, uh, uh, which is pretty good, 10%.

Sheel Mohnot 20:19 Pretty good, but it doesn't return your fund.

Harry Stebbings 20:21 So ... Th- No, it's a third.

Sheel Mohnot 20:22 Yeah. And I don't know how many $10 billion outcomes are gonna be. Like, if we're honest, like, in 2021, it looked like there were a ton of them, and now those companies aren't looking so hot. So I don't know how often there's gonna be a $10 billion outcome.

Harry Stebbings 20:36 So what happens with those funds?

Sheel Mohnot 20:38 I think it's tough. I think, I think they have to shrink if they wanna be returns focused.

Harry Stebbings 20:43 Do they? Or actually, do they just move into a different class of LP? 'Cause now they've moved away from your family offices, your-

Sheel Mohnot 20:49 Totally.

Harry Stebbings 20:49 Even university endowments. It's like, you know, bluntly, the biggest of the biggest sovereign wealth funds-

Sheel Mohnot 20:54 Yes.

Harry Stebbings 20:54 ... who drop a billion in.

Sheel Mohnot 20:56 Totally. And yeah, but, like, those guys also at some point want returns.

Harry Stebbings 21:01 Wh- What ... Uh, okay. Have you spoken to those LPs? Because you know what? They don't actually care.

Sheel Mohnot 21:05 That's, that's probably true too. Yeah.

Harry Stebbings 21:07 They didn't ... And it's, like, such a small drop in their bucket.

Sheel Mohnot 21:10 It's true.

Harry Stebbings 21:10 They're like, "You know what?"

Sheel Mohnot 21:11 Or I mean-

Harry Stebbings 21:11 "We're an Andreessen, tick the box on venture, move on to where we really make money."

Sheel Mohnot 21:16 Yeah. Yeah, maybe that's true. I mean, they dropped (laughs) 45 billion on the Vision Fund.

Harry Stebbings 21:20 Yeah.

Sheel Mohnot 21:21 Which is insane. (laughs)

Harry Stebbings 21:21 And it's still pretty small for them.

Sheel Mohnot 21:23 Still very small, right? (laughs)

Harry Stebbings 21:26 Yeah. So I'm not a ... Okay, so we have-

Sheel Mohnot 21:28 So o- one thing I'll say is, like, when we started, Jake and I said, "We don't wanna be in the asset accumulation game." Like, we wanna be returns focused. So f- in that sty- in that vein, we actually don't pay ourselves as much as we could. We, um, we actually don't even take full management fees. We have-

Harry Stebbings 21:47 Well, let ... Sorry, can I just re- What do you mean you don't pay- take full management fees?

Sheel Mohnot 21:50 So, um, you know, now we have 300 million AUM. We could take 2%, which is six million, to run our business. We actually take a much smaller amount and, and return it to LPs.

Harry Stebbings 22:00 Why?

Sheel Mohnot 22:01 Um, we just wanted to be returns focused, and the more money we have to invest, the better-

Harry Stebbings 22:07 But ... And so I would argue, uh, and I'm being deliberately divisive here-

Sheel Mohnot 22:10 Yeah.

Harry Stebbings 22:10 ... but I would argue that's short-sighted because you can invest in your firm at a much more efficient rate that will deliver outsized returns with that $6 million, if you only-

Sheel Mohnot 22:20 So we think we're investing as much as we want. We- we like the lean team. We have seven people. And we think we're doing everything we want, so we don't need ... Uh, and, like, the reality is, most other managers, it's not actually investing in their firms. It's like, if we wanted to, we could take a $2 million salary each and have ... That's four million bucks, then we still have two million to invest, right? I- in, in building the firm. And that's actually a lot of money. Um, so instead, we're not ... Like, we don't wanna be fat and lazy, is, is basically what, what it comes down to.

Harry Stebbings 22:54 I think a lot also spend money on, like, VC value-add services, which then they can use and sell to get subsequent LPs.

Sheel Mohnot 23:00 Sure.

Harry Stebbings 23:00 We have talent managers, we have-

Sheel Mohnot 23:01 Oh, we do.

Harry Stebbings 23:02 ... community directors, we have, uh-

Sheel Mohnot 23:03 We have a talent manager.

Harry Stebbings 23:04 Okay, interesting.

Sheel Mohnot 23:04 And he just helps our companies with hiring.

Harry Stebbings 23:06 Okay. W- Wait, do you believe that these venture value-add platforms actually add any value?

Sheel Mohnot 23:12 I'll say, definitively, that when-

Harry Stebbings 23:15 They do not. (laughs)

Sheel Mohnot 23:16 No, no, no, I'll say definitively is that, um ... So w- we recently won a hotly competitive deal, and one of the things that, that they told us about why they chose us was so many people spoke highly of our responsiveness and catering to their needs. And a big part of it was actually, like, we've landed several high-quality candidates into our portfolio. And they were like, "This is the hardest thing, and these guys have helped us with the hardest thing that we have to do, find talent."

Harry Stebbings 23:45 That's so interesting.

Sheel Mohnot 23:47 But generally, I've heard the same thing where people say, like, "It's all bullshit."

Harry Stebbings 23:51 "It's all bullshit." And, like, actually, like, so I ... I'm sure your talent person's amazing, but it's so different hiring a head of a developer relations versus a CMO for a consumer brand. I think actually it makes much more sense in your world where you're working-

Sheel Mohnot 24:03 For FinTech.

Harry Stebbings 24:03 ... in a very thin sliver. Like, the actual hire spectrum is much smaller-

Sheel Mohnot 24:08 Yeah.

Harry Stebbings 24:08 ... than e-commerce fulfillment and then, like, deep infrastructure FinTech.

Sheel Mohnot 24:12 Totally. Well, so Yoni, our Head of Talent, like, he's been recruiting-... FinTech people exclusively for the past nine years. And so, like, this is what he does. And he recruited, uh, at NerdWallet, he, he did, like, every end of the spectrum. He recruited every different type of person. And so, he could do the same in our portfolio, and has done.

Harry Stebbings 24:33 What do you think are the biggest misconceptions about venture?

Sheel Mohnot 24:36 Oh, man. I think there's, I think a lot of people think it's, like, a very easy, cushy job. But I think especially when you're starting out, it can be very tough. And I think there's a big divergence among managers. Like,

Sheel Mohnot 24:50 it can be an easy, cushy job at some of these big funds, but I think, like, for the manager that's just starting out, it can be tough. And you, you can be investing more into it and not getting paid for quite a while before you end up-

Harry Stebbings 25:03 Oh my God, I'm s- I remember with our first fund, uh, it was Stride, uh, whatever the fundraising process was, but it was a significant, you know, 12 months or whatever it was.

Sheel Mohnot 25:12 Yeah.

Harry Stebbings 25:12 Um, of course you have no salary. Like, it's a very luxurious position. I was very lucky it was a media company. But not many people can just go a year without salary.

Sheel Mohnot 25:19 Totally.

Harry Stebbings 25:20 And then (fingers snapping) fuck, GP commit.

Sheel Mohnot 25:22 Yeah, exactly. (laughs)

Harry Stebbings 25:22 Everyone's like, "You GP's," you're like, "Fucking hell, have you seen how much I'm putting into this?" (laughs)

Sheel Mohnot 25:26 Totally, exactly. (laughs)

Harry Stebbings 25:27 I'm getting debt on my fucking- (laughs)

Sheel Mohnot 25:29 Exactly. (laughs)

Harry Stebbings 25:29 Unbelievable. Uh, did you, talk to me, on the first fund, did you have an anchor?

Sheel Mohnot 25:34 No, we had no anchor. So, so there was fund zero, my $15 million fund.

Harry Stebbings 25:37 Yep.

Sheel Mohnot 25:37 Then fund one, 75. And we had no anchor in the $75 million fund.

Harry Stebbings 25:41 How did you go about that, man? Was it friends and family first? Was it institutions first?

Sheel Mohnot 25:46 Yeah. So, um, so our first, uh, our first close was mainly

Sheel Mohnot 25:52 friends, like people who knew us in the FinTech ecosystem who were willing to back us just because they'd seen us in the ecosystem. And, and then we had one institution with Sundana.

Harry Stebbings 26:01 What does that get you to? Like, the friends and family still there-

Sheel Mohnot 26:04 Yeah. So it got us to 18 million.

Harry Stebbings 26:06 18 million.

Sheel Mohnot 26:07 And it's no family. We have no families giving money. (laughs)

Harry Stebbings 26:09 Give you $10. (laughs)

Sheel Mohnot 26:11 Yeah. (laughs)

Harry Stebbings 26:11 Mine gave me an invoice, but, uh ... (laughs)

Sheel Mohnot 26:13 Yeah, exactly. (laughs)

Harry Stebbings 26:14 "You called me, uh, it's $28."

Sheel Mohnot 26:16 Yeah, exactly. (laughs)

Harry Stebbings 26:17 Um, so it took you to 18. That's good.

Sheel Mohnot 26:20 It was good.

Harry Stebbings 26:20 But it's not near enough, 70 million.

Sheel Mohnot 26:22 It's not near enough. So, but we hit Sundana in the first, in the first close, which was wonderful.

Harry Stebbings 26:26 Okay.

Sheel Mohnot 26:26 And then, uh-

Harry Stebbings 26:27 Do they help a lot, having an institution like them, or-

Sheel Mohnot 26:30 I think it gave some credibility.

Harry Stebbings 26:31 Yeah.

Sheel Mohnot 26:31 I think, like, also just having a first close gave a lot of credibility, like-

Harry Stebbings 26:35 Mm-hmm.

Sheel Mohnot 26:35 And we'd done our first investment. Um, so, like, we were investing and we'd had a first close.

Harry Stebbings 26:42 How big did you do for the first close?

Sheel Mohnot 26:44 18.

Harry Stebbings 26:45 Oh, you did 18? That is a really, like, early first close if you ask me.

Sheel Mohnot 26:48 It's an early first close. Now, part of the reason we did the first close is we had a company that we had to invest in. We had committed to this company in, like, September. We said, "We're gonna lead your seed round," but we actually didn't have a fund at that point. (laughs) And so-

Harry Stebbings 27:03 Holy shit.

Sheel Mohnot 27:03 ... we had to close (laughs) as soon as possible so we could fund that company. And I bel- I think you, um, it's, the company was Unit, a banking as a service company.

Harry Stebbings 27:10 Yeah, Itai.

Sheel Mohnot 27:11 Itai.

Harry Stebbings 27:11 Yeah, Itai. I told you that.

Sheel Mohnot 27:11 Yeah, exact- Yeah.

Harry Stebbings 27:12 Fuck, you did that?

Sheel Mohnot 27:13 Yeah, so, and it was amazing because that company has been super successful. Like, they're, you know, I think the winner in this banking as a service space.

Harry Stebbings 27:20 Dude, can you imagine not having done-

Sheel Mohnot 27:22 I know. (laughs)

Harry Stebbings 27:22 ... that first fund? Oh, God. They are such a good company, and I really like Itai.

Sheel Mohnot 27:26 Yeah, he's amazing.

Harry Stebbings 27:27 Yeah. Okay, so you close on 17, 18 there. Was that right in hindsight? Would you advise managers just close as soon as-

Sheel Mohnot 27:33 Just close as soon as possible. Like, then they, then LPs can take you seriously because you have a fund and you're investing.

Harry Stebbings 27:39 But, true, but then, like, how much was that first check into Unit? Because, like, if you close on 10 and you wanna do 75, if you committed to lead a seed round with one or one and a half, you're putting 15% of what you've raised out the door in the first go.

Sheel Mohnot 27:51 Yeah. Uh, no, we, I think we did a first call of like 10%.

Harry Stebbings 27:54 Yeah.

Sheel Mohnot 27:55 Um, which is a lot, but it was also fine. And then, and then once you cl- once you do a first capital call of 10%, we were able to get a line of credit. So then you can, you can take more on the line of credit.

Harry Stebbings 28:06 Totally get you. Okay, so you do, the first close on s- 1718.

Sheel Mohnot 28:09 Yeah.

Harry Stebbings 28:10 Uh, what happens then?

Sheel Mohnot 28:12 So then, we were like, we were feeling pretty good. Um, it was December of 2019.

Harry Stebbings 28:18 Yep.

Sheel Mohnot 28:19 And so we were like, "All right, we're gonna do, we're gonna do a second close," we decided March of 2020.

Harry Stebbings 28:25 Okay.

Sheel Mohnot 28:26 So we went out and we felt like we had a bunch of folks committed. Um, we did one road trip. We went out to the East Coast, from San Francisco, Jake and I went out. And this was, like, the second week of March 2020. And so we, when we flew out there, things were fine. And then, like, all of a sudden everyone canceled all the meetings. COVID started, the NBA shut down. Like, everything happened, and it was basically a totally wasted trip. (laughs) And we came back on a completely empty flight.

Harry Stebbings 28:55 (laughs)

Sheel Mohnot 28:55 Like, there were 10 people on a flight that would hold 200 people. Um, so it was a totally wild time. And this close that we were supposed to do in March, everyone who had already committed, including people who'd signed, backed out.

Harry Stebbings 29:09 (groans)

Sheel Mohnot 29:09 So we were like, "Shit, we don't have a fund," or, "We don't have the fund that we wanted." So we said-

Harry Stebbings 29:13 Were you pissed off?

Sheel Mohnot 29:15 No, you can totally understand why. Like, the world is melting, the world is falling apart, the stock market is going strictly downwards. Like, people, I don't, I don't mind that people were like, "I can't invest in your fund. I don't know how much money I have, I don't know what's going on in the world." Totally get it.

Harry Stebbings 29:31 So what do you do then? You get back and you're like, "Shit."

Sheel Mohnot 29:34 Like, "Shit." So we're like, "Okay," we were shooting for, at that point we were shooting for a $60 million fund. We said, "You know what?" We s- we sent a letter to LPs saying, "You know what? We're gonna go for like 30 to 40." (laughs) And we said, we said all these things that in hindsight were, were wrong, which is we thought, we thought valuations were gonna come down. Which, you know, at the time it seemed like that was gonna happen. Of course, actually the opposite happened. Um, and so we said, "We're gonna do a smaller fund." And then what happened was May, you know, interest rates go down, money printer goes brrr.

Harry Stebbings 30:08 (laughs)

Sheel Mohnot 30:08 And everyone came back. And even folks that had said no to us came back and said, "Hey, actually, like, we were looking at the managers that we spoke to. We'd like to talk to you again." And several of the folks that said no to us actually came back and came into the fund. And we ended up with a pretty institutional fund.

Harry Stebbings 30:27 Did it get easier? Everyone was always like, "Oh, when you get to halfway, you, you know, people really get around the table."

Sheel Mohnot 30:32 It did get easier.

Harry Stebbings 30:33 It did? At what point did it get-

Sheel Mohnot 30:34 And so our target was 60. We ended up going to 75, and even at the 75, we had to push people down from what they wanted to invest.

Harry Stebbings 30:42 When did it get easier? Was there a tipping point?

Sheel Mohnot 30:44 (clicks tongue) I think it, I think it was when we were, like, over half.

Harry Stebbings 30:47 Yeah.

Sheel Mohnot 30:47 And we got a few of these institutions in.

Harry Stebbings 30:51 Do you find names helped?

Sheel Mohnot 30:53 I think names probably helped some of them.

Harry Stebbings 30:55 Mm-hmm.

Sheel Mohnot 30:55 And we had, we have, I think, several of the, of, like, very good, uh, fund of funds th- that are invested in us, and we have, like, a university endowment and, and, and others, and I think all of that helps.

Harry Stebbings 31:06 What was the single best LP meeting?

Sheel Mohnot 31:09 So I would say for fund two, now fund two we raised in December 2021, the whole process only took a month. Um, for fund two, we had a bunch of folks who knew us by reputation already. They'd seen our portfolio. They'd talked to other managers about us. They'd talked, they knew companies in our portfolio well. Like, they'd tried to invest in them or whatever. And so there were folks who were literally just checking the box by talking to us, and in a 20-minute meeting, they were willing to commit large sums of money, so, like, double-digit millions, because they knew us. Like, there's, and I, I get where they're coming from. Like, they know us by reputation. They've spoken to other managers who sit on boards with us or whatever. Like, what more do you need? You know the, you know the portfolio. It's on our website.

Harry Stebbings 31:52 100%. Was there one meeting, though, where you were like, "That was a great, great meeting"?

Sheel Mohnot 31:57 (clicks tongue) I think I've had good, great meetings with, like, other, other folks who also invest. So there are funds that have a fund of funds strategy and a direct strategy.

Harry Stebbings 32:08 Yeah.

Sheel Mohnot 32:09 And some of those folks just, like, knew our portfolio so well, and they were able to speak to our portfolio. And I was like, "Man, these guys have done their homework." They-

Harry Stebbings 32:19 But I think, like, you know, when I think about mine, like, I think Beezer at Sapphire. When you-

Sheel Mohnot 32:22 Oh, she's awesome.

Harry Stebbings 32:22 Wh- when, but when you think about someone who truly gets the intricacies of our business to a very granular level, and it's not high level, "Talk to me about how you think about fintech," like my shit questions.

Sheel Mohnot 32:32 (laughs)

Harry Stebbings 32:32 But, like, you know, it's really in-depth, and she lives and breathes your business. Like, she would be one for me. I met her years before I did even 20 VC funds. But, like, was there one that really stood out?

Sheel Mohnot 32:43 Yeah. So she's an LP in our fund as well, and it was clear, like, so we'd met her for fund one. I think it wasn't a fit for her then. And then it was clear by fund two, like, we invited her to our LP meeting, and, and her team came. And it was clear they were super interested, and, like, they had a few questions, but they knew us.

Harry Stebbings 33:02 Yeah.

Sheel Mohnot 33:03 And I think, I think for some folks, it just takes time. And I think part of what we talked about was it got easier as time went on and as we, as we'd closed half the fund. But part of it is also just literally time. Like, they met us, and then it took six months of getting to know us, and, like, they'd heard about us from their other managers and other LPs. Like, the LPs have a network where they talk all the time, going to the same conferences, et cetera.

Harry Stebbings 33:25 How did you instill a sense of urgency in the fundraise, where it was a case of really committing to a close date and getting LPs to move in unison?

Sheel Mohnot 33:33 Yeah. So in fund one, we tried to do it, and frankly, it didn't work. (laughs)

Harry Stebbings 33:38 It's hard. It's hard.

Sheel Mohnot 33:38 Yeah. (laughs) It was really hard.

Harry Stebbings 33:40 But also, you know, it's really hard, 'cause you don't want to force them to a no-

Sheel Mohnot 33:43 Yeah.

Harry Stebbings 33:43 ...but by, "Hey, next week." But you also don't want to say a month where it looks like you've got too much time, and then they don't move to it.

Sheel Mohnot 33:49 Yeah. Um, so there's no, there's no easy way. I think you give them a date, and then odds are there are gonna be like, (laughs) "Okay, like, I know that date doesn't matter, because if I want to invest, I'm gonna be able to invest." And so that's what happened in fund one. It took a while. So it took us about a year from start to finish. And fund two was very different, because there really was, like, much more demand than, for our fund, than we had space. So it really was, we told our LPs, our existing LPs, fund one LPs, "Commit to us by this date," and, um, they, all of them came back and committed by that date. And we were actually kinda surprised, because we-

Harry Stebbings 34:34 By them sizing up?

Sheel Mohnot 34:35 Yeah. We didn't know that that was gonna happen. And it actually caught us by surprise, and kind of, like, screwed us up a little bit in some ways.

Harry Stebbings 34:45 How so?

Sheel Mohnot 34:46 We had intended on running a process, and like, and we'd spoken to a bunch of LPs, and actually told these LPs, like, "You have plenty of time." Like, and you know, for some LPs, like university endowments, it just takes time. It takes a few months. Like, they have a different IC process. And we told them, like, "Yeah, we're meeting now, but don't worry, we're gonna raise in Q1, and, you know, you can commit to us by March." And then what ended up happening was we closed everything in December. Um, and we, we did it all pretty quickly. I think part of it was, you know, frankly, December 2021 was a good time to raise a fund. (laughs)

Harry Stebbings 35:24 Yup.

Sheel Mohnot 35:24 And, uh, so we ended up closing pretty quickly. And some of these folks that we actually would really like to have in our fund, some, like, university endowments that we have a great relationship with, and, and we just, like, we told them that they had more time than they did. (laughs) So that didn't really work out.

Harry Stebbings 35:42 How would you advise managers on capital concentration on a per LP basis?

Sheel Mohnot 35:47 So we, all of our LPs are 10% or less of our fund. And it makes us feel good now in a market where if any one LP doesn't come into our next fund, 'cause, you know, circumstances changed, it doesn't r- it's fine for us. We have other folks who want to fill those gaps.

Harry Stebbings 36:04 Totally with you there. In terms of, like, rel-

Sheel Mohnot 36:07 Now, that being said, like, if somebody had come in and said, "I wanna do 40% of your fund," then, you know, in fund one, I probably would've said yes. Like, we needed the capital. In fund two, we could be more choosy, and we actually pushed folks down to the 10%. So some folks had wanted to do larger checks, and we pushed them down.

Harry Stebbings 36:29 Do you have an LPAC?

Sheel Mohnot 36:30 We do, yeah.

Harry Stebbings 36:31 Who, who's on the LPAC?

Sheel Mohnot 36:32 Um, there's, we have five, five of our, like, biggest investors. They're, they're one family office, and then the others are fund-of-funds. And, um, I would say we don't use it that much. We use it for, like, conflicts or we launched this accelerator recently, The Mint-

Harry Stebbings 36:52 Uh-huh.

Sheel Mohnot 36:52 ... and, uh, when we launched the accelerator, we said, "Hey, we should get their approval." And so we, we talked to them about it.

Harry Stebbings 36:58 Why did you launch an accelerator? This seems like the worst time to do an accelerator, respectfully.

Sheel Mohnot 37:02 I think it's the best time to do an accelerator. So, okay-

Harry Stebbings 37:05 But you've seen the unbundling of accelerators with YC. You know, I think like a year ago everyone was like, "Oh, YC is losing power." And then kind of Gary Tan came back and said "Fuck you" to everyone.

Sheel Mohnot 37:14 Yeah.

Harry Stebbings 37:14 Um, and then also

Harry Stebbings 37:16 kind of got a little bit moody on social.

Sheel Mohnot 37:17 (laughs)

Harry Stebbings 37:18 Uh, he told me, "Have fun staying poor."

Sheel Mohnot 37:21 Yeah (laughs) .

Harry Stebbings 37:22 Uh, I responded, "I'm in Belgravia." (laughs)

Sheel Mohnot 37:26 (laughs)

Harry Stebbings 37:26 Uh... (laughs)

Sheel Mohnot 37:26 (laughs)

Harry Stebbings 37:26 But, uh, you do you.

Sheel Mohnot 37:27 (laughs)

Harry Stebbings 37:28 Um, but, like, you know, when we saw this unbundling, you've got your NEO of the world with, um, Ali Partovi.

Sheel Mohnot 37:34 Yeah.

Harry Stebbings 37:34 And then you've just got a lot of, you know, obviously Josh, uh, did Hypo with, from Product Hunt, and you've seen a lot of them. Why was now a good time?

Sheel Mohnot 37:40 Yeah. So number one, so I ran an accelerator from 2016 to 2018.

Harry Stebbings 37:45 Yeah.

Sheel Mohnot 37:45 And that fund has incredible performance.

Harry Stebbings 37:48 Mm-hmm.

Sheel Mohnot 37:49 And, uh, I think more important than that, founders told me, founders that we backed back then in the accelerator, said, "Hey, my friends are starting a company. What's the closest thing to what we had?" Which was in person, super hands-on, so we had experts in growth, marketing, recruiting, available to them. And the answer was, "There's nothing like it." YC is a totally different beast. YC is great, like they have great, great companies, but it's really built for scale. And it, and some of our portfolio companies that went through YC said they didn't really get the support in fintech that they needed. They have, like, a generalist, um, mentor who doesn't know anything about fintech. And so they would be asking these questions and they had no idea what to do. Um, so we felt like, oh, there's an opportunity here. Like, once again, people are asking for a fintech solution and we can give them that.

Harry Stebbings 38:42 Okay, and so you decide to give them that. What do the next steps look like? How, how do you fund an accelerator or an incubator?

Sheel Mohnot 38:48 Yeah. So ours is, we'll probably have about 10 companies in this. We're, we're thinking six to 10. And we're investing a half million in every company. So it's actually, for a fund like ours, it's not that much money.

Harry Stebbings 38:59 No, it's a gr- but, like, you actually have to fund the incubator, like, the holding company behind it, which is-

Sheel Mohnot 39:03 It's not a holding company. In our case, it's just a carve out of the fund into a separate vehicle.

Harry Stebbings 39:09 Do you not have to pay the mentors, uh, the-

Sheel Mohnot 39:11 We do. We pay it all out of, out of our management fees. So really what's happening-

Harry Stebbings 39:15 That's a lot, isn't it, though?

Sheel Mohnot 39:15 It's a lot. So really what's happening is it's a great deal for LPs because we are getting a better deal on the investments because we're taking money out of our management fees and paying for new space and mentors and all this other stuff.

Harry Stebbings 39:29 But, like, can you run that for less than a million and a half dollars a year?

Sheel Mohnot 39:32 Yeah, you can.

Harry Stebbings 39:33 You can?

Sheel Mohnot 39:33 We're doing a lot of it ourselves, and I think we've got great mentors that we're, we're really excited about, and we can, we can do it all for less than a million.

Harry Stebbings 39:40 What's the hardest thing about doing an incubator?

Sheel Mohnot 39:43 It takes a lot of time. Just, there's a lot of, like, operational setup, and then the way to make it successful, and I think the reason why people liked it so much when we did it in '16 to '18, was it just takes a lot of your time. You need to be fully committed, like 24 hours, to this group of people. We have all these companies flying into San Francisco. JC is our guy who's running it, JC o- on our, on our team. Uh, and, and Lauren. And, like, they're gonna be fully committed to making sure these guys have a great experience. And it, it's from everything from, like, being a social guide to San Francisco to, um, you know, finding the best mentors for a particular company and, like, you have a need, I'm gonna go out and search for somebody who can help you with that need. And I think just by being fully committed is how you have success.

Harry Stebbings 40:30 I totally get... Can I ask, is there an adverse selection case here, which is like, you get a better deal, 500 K for each company.

Sheel Mohnot 40:35 Yeah.

Harry Stebbings 40:36 The best companies are raising at 15s, 20, when they're spin-outs from great companies. Or actually, just generally, they're raising at 15s, 20, I find.

Sheel Mohnot 40:43 Yeah. So I'll tell you, in 2016 to 2018 I did it, five cohorts. I was investing at a two and a half million dollar valuation then.

Harry Stebbings 40:50 Oh my God.

Sheel Mohnot 40:51 And I have-

Harry Stebbings 40:53 500 K gets you 20%.

Sheel Mohnot 40:56 Uh, yeah, no (laughs) , but we, we... And we're doing 500 K for 10% in our, in our company.

Harry Stebbings 41:00 Sure, sure, but I'm saying just in that time-

Sheel Mohnot 41:02 Yeah, y- yeah, exactly.

Harry Stebbings 41:02 ... like, that is nuts.

Sheel Mohnot 41:03 And, um, in every... We have five companies that are more than 70X on each, in each, in, of the f- so we did five cohorts of s- of six to 10 companies, and out of all those, so say it's like 40 companies in total, we have five companies that are delivering more than 70X return.

Harry Stebbings 41:25 (exhales) Are they DPI?

Sheel Mohnot 41:28 Uh, we have DPI. We, we have returned the full fund.

Harry Stebbings 41:31 Can I... How do you think about DPI? Again, I've spent some time with, um, different LPs over the last few days, and they're like, any manager who had the chance to ha- return DPI and didn't over the last few years, you're in trouble.

Sheel Mohnot 41:43 I think that's right. I think you had to see the market and say, "We should sell here."

Sheel Mohnot 41:49 So we did in some cases. Now, of course, we didn't sell nearly enough.

Harry Stebbings 41:53 (laughs)

Sheel Mohnot 41:53 (laughs) Like, we, we should have-

Harry Stebbings 41:54 Yeah.

Sheel Mohnot 41:55 ... we should have sold more and we had opportunities to and we didn't.

Harry Stebbings 41:57 But you did sell?

Sheel Mohnot 41:58 We did sell, yeah. Um-

Harry Stebbings 41:59 How do you advise on selling in terms of take it 30% off the table and, you know, just protect your initial position but ride the upside, take majority off, take all off? What, what are your thoughts?

Sheel Mohnot 42:10 I generally think... I- in one case, we sold our entire position to a, a later stage investor. Um, but that's unusual for us. I think generally speaking, we'd like to just ease our position. And if you can, if you can, um, return an entire fund, there's something about having 1X DPI that's quite nice.

Harry Stebbings 42:27 Yeah.

Sheel Mohnot 42:28 So, like, if you can get to a point where you can return 1X DPI and still have upside in a company, that's great.

Harry Stebbings 42:34 Yeah.

Sheel Mohnot 42:34 Ideally, like, if you're still excited about the company, then f-... you know, you wanna keep half of your capital, or half of, half of your equity still in the company.

Harry Stebbings 42:42 What would you say is your single biggest investing mistake? A lot of people will say, like, not taking cash off when they really could have done

Narrator 42:48 (laughs)

Harry Stebbings 42:49 ... last year was theirs. What would you s- mine was before I entered emerging markets, honestly. (laughs)

Sheel Mohnot 42:53 Yeah. For me, it was not taking enough cash out. So, like, I had the opportunity to take a lot, like I could have returned multiples on the fund, and I didn't, and-

Harry Stebbings 43:04 And why did you not?

Sheel Mohnot 43:06 So, um, there's one, one company I'm thinking of that could have returned multiples on the fund, um, and in between when I had started an, uh, started to discuss taking money off the table, um, and when we had finally, like, the documents, it took, like, a few months. And during that time, this company grew so much and they were like, "You know what? I wouldn't sell at that price." They told me, they were like, "We'll, we'll get this through for you, but I wouldn't sell at that price given how much we've, we've increased in value." And they were like, "We'll probably do another round in the next couple of months. You might wanna wait." So, I talked to the founders and they were like, "You might wanna ma- wait, we might be worth double what you're selling at." And so I did that, and then of course, they never, (laughs) they never were able to. The mar- this is, you know, beginning of 2022, the market started tanking, and they were never able to get that round done that they thought would be a double.

Harry Stebbings 44:04 Do you find it difficult? It's quite a tough conversation. "Hey, I love you, I love you, I love you. I wanna sell my whole position in your company."

Sheel Mohnot 44:10 Yeah. I actually didn't find it, we haven't found it difficult-

Harry Stebbings 44:13 Mm-hmm.

Sheel Mohnot 44:14 ... um, in the selling. We, well, we said, like, "We wanna, we wanna start, you know, we're at, we're at a point where, like, we've invested for so many years in this company, we wanna start reducing our position." And founders get it. It's not a big deal. Especially back then when there was way too much demand for every round of the company.

Harry Stebbings 44:33 What is, okay, so that's your mistake. Whe- when you look back over the last 24 months, what's the biggest mistake you've seen other ambassadors make in the industry?

Sheel Mohnot 44:40 Well, I think, I mean, obviously the same, and maybe, maybe going too deep into emerging markets, like you said. But other stuff, I think people can get too excited about an idea and invest behind the wrong founder,

Sheel Mohnot 44:53 just in that idea. And in our case, let's say, um, banking as a service, we talked about Unit.

Harry Stebbings 44:59 Mm-hmm.

Sheel Mohnot 45:00 So Unit's a banking as a service company. If you wanna, uh, create a ch- a, a debit card product within your company, you can work with Unit. So, like, if you're Toast, um, which is a, uh, point of sale system-

Harry Stebbings 45:13 Oh.

Sheel Mohnot 45:13 ... for restaurants, and you want to add more and more products, so you, they've added a payroll product, they can add a bank account product. And, um, if you are the operating system for that restaurant owner, you might wanna also be where they bank. And Unit offers you that opportunity. So, Unit is a company in the space, um, I think widely considered to be a very strong company. A lot of folks looked at that company and said, "We love this company." But they couldn't invest, and they ended up investing in another company in the same space, and that was just a mistake. Like, invest in the, in the best company, not in number two or number three. And a lot of those haven't, have shaken out to not, not work out that well.

Harry Stebbings 45:56 Founder, product, market. How do you weigh them up?

Sheel Mohnot 46:00 So, we invest at the, at super early stages. It's all about the founder. And you disagree?

Harry Stebbings 46:07 I think it depends where you invest. But, like, I think, I was explaining actually the other day to someone, I said, "Listen, it's

Harry Stebbings 46:13 very much like surfing. You need a great surfer, for sure. But if they go in the middle of the night to the beach, (laughs) they ain't surfing. Or if they go perfect midday, perfect, nice wind, wrong beach, they ain't surfing either." You need market timing, you need the right beach.

Sheel Mohnot 46:27 Yeah, but if you invest in the surfer, if you get behind that surfer, they can switch.

Harry Stebbings 46:31 Mm, they rarely do.

Sheel Mohnot 46:33 No.

Harry Stebbings 46:33 No, they rarely do.

Sheel Mohnot 46:34 So listen-

Harry Stebbings 46:34 And then, and then, and then-

Sheel Mohnot 46:35 ... three of, three of my top five companies were pivots.

Harry Stebbings 46:37 Well, great, but there's a lot of investments in there. Like, the company set that we're looking at, it's, like, many.

Sheel Mohnot 46:43 Yeah.

Harry Stebbings 46:43 And I think absolutely they can. They also need long enough runway to pivot within that. Quite often I see it where it's, like, actually they realize the pivot and then it gets that, "We've got six months left, we're pivoting now."

Sheel Mohnot 46:53 Yeah, so you, you have to, y- you have, it has to happen early. So if you invest super early at pre-seed-

Harry Stebbings 46:59 Yeah.

Sheel Mohnot 46:59 ... I think it makes sense to invest in the best founders, in going after a market space that you like.

Harry Stebbings 47:03 100%. I'm with you there, totally. I think it's when it's, like, actually at the A/B-

Sheel Mohnot 47:07 Oh, at the A it doesn't make any sense at all.

Harry Stebbings 47:09 Yeah.

Sheel Mohnot 47:09 At the A, there has to be a big market-

Harry Stebbings 47:10 Yeah.

Sheel Mohnot 47:11 ... that you're going after. Yeah.

Harry Stebbings 47:11 I, I would much rather do more-

Sheel Mohnot 47:13 But I'm, I'm a, I'm a pre-seed/seed investor, right? So-

Harry Stebbings 47:15 I'm also just, like, so few people get to product/market fit. Like, when you actually determine true product/market fit, don't try and get cute on founder assessment. Do you know what I mean?

Sheel Mohnot 47:25 Yeah.

Harry Stebbings 47:26 It's really fucking hard.

Sheel Mohnot 47:27 Yeah.

Harry Stebbings 47:27 If they've got there, you're probably underestimating them.

Sheel Mohnot 47:30 It's true, I think, but I think that's once you get to product/market fit.

Harry Stebbings 47:34 Totally.

Sheel Mohnot 47:34 And we, we're almost exclusively investing before then.

Harry Stebbings 47:37 I had a guest on the show the other day and they said there's an inverse correlation between a founder's ability to sell, sell the vision-

Sheel Mohnot 47:44 Yeah.

Harry Stebbings 47:44 ... sell to customers, whatever, and then their-

Sheel Mohnot 47:48 To build.

Harry Stebbings 47:48 ... ability to operate and build.

Sheel Mohnot 47:50 Yeah. I don't think that's exactly true, I think there are founders who can do both. But many of our top ones, like, it was a, they had a competitor that was raising more and more money than they were. And then, in the end, that competitor tanked and our, like, build guy who, like, never was a great fundraiser ended up doing well.

Harry Stebbings 48:10 Yeah. I don't think you see that often, actually.

Sheel Mohnot 48:12 One thing about this, like, founder versus market. There's a Warren Buffett quote that everybody likes to, to, to reference which is, you know, "When a, when a great founder meets a bad market, the market wins," and, uh, so on. So he says that, but one of my favorite stories is, do you know Mrs.

Sheel Mohnot 48:30 B?

Harry Stebbings 48:30 Yeah.

Sheel Mohnot 48:31 Rose Blumkin?

Harry Stebbings 48:32 Yeah.

Sheel Mohnot 48:33 So, there was this woman who came over from Belarus-

Harry Stebbings 48:38 And this is one that doesn't speak a word of English.

Sheel Mohnot 48:39 ... didn't even speak Eng- doesn't speak English-

Harry Stebbings 48:40 Yeah, yeah.

Sheel Mohnot 48:40 ... when she comes over. She starts a, uh, a furniture store in Nebraska.... Omaha. Originally in their basement, then it grows and grows and grows. And, uh, she's just like incred- She didn't even go to school. She never even went to kindergarten. And, but she's just got such a mind for business that she continues to grow this thing incredibly. He eventually buys it in like 1983 for like, he buys 90% of it for like 60 million bucks or something. It was actually the largest acquisition that Berkshire had made at that point. And, um-

Harry Stebbings 49:13 Did she not die like two years after?

Sheel Mohnot 49:15 No.

Harry Stebbings 49:16 Uh, she gave up or something? I remember he made a joke like-

Sheel Mohnot 49:18 Okay. So what happens-

Harry Stebbings 49:19 ... never. (laughs)

Sheel Mohnot 49:19 So what happens is her kids end up kind of pushing her out of the business. She's 95 years old at this point.

Harry Stebbings 49:26 Oh, fair enough. Yeah.

Sheel Mohnot 49:27 So they're like, "Hey, we..." And, and actually what's really funny is they had an issue. She, they pushed her out of the business in part because they were fighting over the control of the carpet department. She said, "I never wanna let go of the carpet department. That's gonna be my thing still." And they were like, "No, you should, you should get out of here." And they pushed her out, her kids. And then what she does is six months later she opens a place across the street from them, literally a furniture store competing with them across the street. It's a spite store basically. (laughs) It's called Mis- Mrs. B's Furniture Clearance Market or something like that, across the street from the Nebraska Furniture Mart. And then eventually Warren Buffett has to buy that o- that one too. (laughs)

Harry Stebbings 50:07 Mm-hmm.

Sheel Mohnot 50:07 And then he, he puts a clause in there that there's, he puts a non-compete clause in there that she at, whatever, 96 years old is not gonna compete with him again. (laughs)

Harry Stebbings 50:17 And so your point is her as a founder-

Sheel Mohnot 50:18 And what he said about her was, he said, "I would back her in anything she did. Any business she wanted to go into, she would be successful." And so it ha- it's actually a counter, like it's a great founder. She would be successful at anything she did.

Harry Stebbings 50:31 Have you ever had... Well, have you ever had a really not good founder win?

Sheel Mohnot 50:37 Yes. Um, but it was an interim win. It was like a too early win. And I think-

Harry Stebbings 50:43 What does that mean? Like they sell for 50 million style, which is a great outcome.

Sheel Mohnot 50:47 Can be a good outcome. Um, I've seen in my angel portfolio a founder that I thought was just okay, ended up getting to an exit, and I think if they'd continued on the business, it wouldn't have been that successful. And that happens all the time. Like you have companies that, uh, are successful up to a certain point. The, the worst company gets an acquisition.

Harry Stebbings 51:07 (coughs)

Sheel Mohnot 51:07 The better company sticks around and then they go public and then totally tank. It's happened many times in the past few years.

Harry Stebbings 51:13 Yeah, no, I, I totally get you. What are the biggest reasons for you why great founders fail?

Sheel Mohnot 51:19 I think failing to find... First of all, like you can fail to find product market fit even if you're a great founder.

Harry Stebbings 51:23 Yeah.

Sheel Mohnot 51:24 And you can get stuck behind your idea, not pivot early enough.

Harry Stebbings 51:27 Yeah.

Sheel Mohnot 51:28 I think you have to come to a point, and this is actually where f- where VCs

Sheel Mohnot 51:32 I think actually can be very value add is say, "Hey, I think we should think about a different business." And like come to make a plan. So actually I have this going on with one of my portfolio companies now. We have a plan and if we don't get to that plan in the next two months, we're gonna think about a different company. We're gonna pivot. We have years of runway, but the current thing it's working a little bit. There's signs that it's working, but we worry that even if it's working, it's not gonna get to a huge business. So like we're, we're gonna test this out for a few months and we're staying close on it as investors. And if it doesn't work, we're gonna pivot.

Harry Stebbings 52:11 Do you worry about the length of runway some companies have? I have some companies and they're like-

Sheel Mohnot 52:14 Yeah.

Harry Stebbings 52:14 ... they've got like 60 months.

Sheel Mohnot 52:16 Yeah.

Harry Stebbings 52:16 And it's like-

Sheel Mohnot 52:17 We do. We, yeah, yeah.

Harry Stebbings 52:18 ... the honest urgency is, is not... And I don't blame them at all, but like do you worry about that and what happens to them?

Sheel Mohnot 52:23 I think great founders... So I think bad founders raise a ton of money and spend it. Great founders raise a ton of money and still have the same sense of urgency, still are on the same roadmap as if they'd raised a much smaller round.

Harry Stebbings 52:35 So I say always on Twitter, and this leads to so much hate and it's probably why Andreessen hate me, uh- (laughs)

Sheel Mohnot 52:41 (laughs) I didn't know that.

Harry Stebbings 52:42 Yeah, whatever. Um, but like, you know, five on 25 I think has destroyed much of the seed industry.

Sheel Mohnot 52:47 Totally.

Harry Stebbings 52:48 But everyone goes, "Well, if you get great founders, they'll raise five on 25 and spend like they have two." And I'm like,-

Sheel Mohnot 52:55 It's so rare.

Harry Stebbings 52:55 ... "Lovely idea."

Sheel Mohnot 52:56 It's-

Harry Stebbings 52:56 I love it. Yeah, you're right, and if you do that, then I promise you're right.

Sheel Mohnot 53:00 Yeah.

Harry Stebbings 53:01 Maybe seen it once.

Sheel Mohnot 53:02 It's actually almost impossible because what happens is if you ra- raise five, the expectations people have for salaries are different than if you raise two.

Harry Stebbings 53:11 100%.

Sheel Mohnot 53:11 So there's, it's basically impossible to have the same mentality as if you raise two.

Harry Stebbings 53:15 Absolutely.

Sheel Mohnot 53:16 And I think... I agree with you completely. The five on 25, like raising big rounds makes people, like makes people cushy, and you end up attracting people with salaries that like actually th- they could have gone into a big company and actually they, they belong at a big company.

Harry Stebbings 53:30 Yeah. They do not belong in your startup scrappy.

Sheel Mohnot 53:31 They do not belong at a hard scrat- hardworking, scrappy startup.

Harry Stebbings 53:35 (laughs)

Sheel Mohnot 53:35 And so I completely agree with you.

Harry Stebbings 53:37 Okay, good. Do we see them continue or do they go back? You know, we always see multi-stage come in and out of seed.

Sheel Mohnot 53:44 Yeah.

Harry Stebbings 53:44 Are they here to stay?

Sheel Mohnot 53:46 I think a lot of the multi-stage stuff is quite dumb. Like a lot of these folks have invested, you know, they're, they're giving like million dollar checks to kind of a lot of folks.

Harry Stebbings 53:56 Yeah.

Sheel Mohnot 53:56 And, and letting their junior team invest million

Sheel Mohnot 53:59 dollar checks in anyone.

Harry Stebbings 53:59 It's a learning check.

Sheel Mohnot 54:00 It's a learning check. But what happens, and I've already seen this, is my portfolio company that is working is raising a series A or series B. They don't want to talk to that investor because that investor i- invested a million dollars in their competitor. That competitor is almost dead anyway, but they're like, "Fuck them. I'm not gonna talk to that guy. They invested a million dollars in my competitor." And so they missed the opportunity to invest $100 million in a great company that is winning the category because they invested a million dollars in their competitor. And so I just don't think it makes sense for a multi-stage fund to do it. Especially in a category where like there are multiple competitors, why would you invest i- when you know that like you might have invested in the wrong one and that prevent you from investing in the good one?

Harry Stebbings 54:49 I, I, I totally agree with you. When you think about the multi-stage strategies coming to seed, who do you think has done it the best?

Sheel Mohnot 54:57 I can't think of any multi-stage fund that I feel like has done a great job at seed.

Harry Stebbings 55:01 I always think founders fund are pretty good at seed, actually.

Sheel Mohnot 55:04 I think I don't know their portfolio well enough-

Harry Stebbings 55:06 Mm-hmm.

Sheel Mohnot 55:06 ... in fintech to say that. They, they do a lot of seeds and-

Harry Stebbings 55:09 Yeah.

Sheel Mohnot 55:09 ... and they have had good success. Um, you know, I think, uh, my friends at Excel have done a pretty good job as well. I, I think-

Harry Stebbings 55:17 Dan Levine is good at seed.

Sheel Mohnot 55:19 Yeah. There's a bunch of folks who are good at seed. I think it's more individual-based.

Harry Stebbings 55:23 Yeah.

Sheel Mohnot 55:23 I think the folks that have done the spray and pray approach is very bad.

Harry Stebbings 55:27 Yeah.

Sheel Mohnot 55:27 And people go in and out of it. So like Andreessen did a lot of it early on in Andreessen Horowitz's, uh, tenure as, as a fund, and then they stopped doing it, and then they started doing it again. And I would guess they stopped doing it now.

Harry Stebbings 55:38 Yeah. I don't think they will, but (laughs) we, we can have a debate on that one. I, I, uh, we've seen also like large, large seed funds, like I think True Ventures' seed fund was 700 million.

Sheel Mohnot 55:48 Yeah.

Harry Stebbings 55:49 Maybe split across some, but that was all-

Sheel Mohnot 55:50 It's, I think it's half and half. I think it's like-

Harry Stebbings 55:52 But it's still like 400, 500. The initialized-

Sheel Mohnot 55:54 It's huge.

Harry Stebbings 55:54 ... is 500.

Sheel Mohnot 55:55 Yeah, I think these are too big.

Harry Stebbings 55:56 I'm not throwing any shade on it. Are they too big?

Sheel Mohnot 55:58 I think they're too big. I think, um, well, they're, they're both doing what I would call series As as well. Like, they are writing $10 million checks.

Harry Stebbings 56:07 Okay.

Sheel Mohnot 56:08 So, and I don't think of that as a seed round.

Harry Stebbings 56:10 No, totally.

Sheel Mohnot 56:11 Um, but I think it's too big. And I think, to our point, like as you get bigger, you're more open to doing these five on 25 deals that actually aren't good for the founders either.

Harry Stebbings 56:21 To- sure.

Sheel Mohnot 56:22 And you're like, "Oh yeah, it doesn't matter to me." And as, as your fund size increases-

Harry Stebbings 56:27 And actually, I need to put the dollars out the door.

Sheel Mohnot 56:28 And you can put the dollars out the door. Yeah, exactly.

Harry Stebbings 56:30 Yeah. D- what do you wanna do with BTV? Do you wanna move into the A?

Sheel Mohnot 56:34 No, I think we're happy where we are. We wanted... We love the early stage and that's why the accelerator actually helped us go even earlier. And we love being, just being there for founders at the early stages.

Harry Stebbings 56:44 And you don't feel a lack of growth? 'Cause like venture's a tough one actually, because y- humans want to feel like they're progressing and growing.

Sheel Mohnot 56:50 Yeah. And we grew fun-

Harry Stebbings 56:51 And as an adventure, you've gotta be very patient.

Sheel Mohnot 56:53 Totally. So we, we grew, like my fund zero was 15 million, then we went to 75 and now we're 225 total. But we don't wanna grow from here. Like-

Harry Stebbings 57:01 And you're comfortable with that? 'Cause that's that human ego anti- that anti-human ego. Like, you're just gonna stay there. Which can be the right decision.

Sheel Mohnot 57:08 No, the, the ego... Where I wanna grow is I wanna have really fucking good returns.

Harry Stebbings 57:12 But that takes a long time.

Sheel Mohnot 57:13 And it's actually the opposite. Like if I have a bigger fund, I'm not gonna have as good returns, probably.

Harry Stebbings 57:16 I get you. But then you have to be patient for-

Sheel Mohnot 57:17 You have to be patient.

Harry Stebbings 57:18 Yeah.

Sheel Mohnot 57:18 Which I think we're in a luxurious place where we can be patient.

Harry Stebbings 57:23 Yeah. What are the biggest, like sources of tension between VCs and founders?

Sheel Mohnot 57:29 I think a lot of VCs, I've seen it in some of our portfolio companies, like a lot of VCs are very prescriptive on how to do things.

Harry Stebbings 57:36 Yeah.

Sheel Mohnot 57:36 And, um, we try to not be that. We try to be

Sheel Mohnot 57:40 just like the founder's friend and, uh, supportive but not too prescriptive. Um, I think you can get into a mistake being too prescriptive. Uh, and, and sort of telling founders what to do rather than like recommending what to do. Um, and I've seen that even from like good investors that I've been alongside on the board, I've had founders like call me after a board meeting saying like, "Hey, what the fuck was that?" Like, "I'm doing everything I was supposed to do. Why is this VC telling me what to do?"

Harry Stebbings 58:12 Do you find boards very helpful?

Sheel Mohnot 58:15 No. Um, I think I wanna be supportive to a founder in there when they need me. And that can happen in a board relationship, but usually that's not where, that's not what happens in a board. And so I'm meeting with the founder every week or every couple weeks anyway, and the board is a totally different beast. It's like structured. I think a board can be helpful for the founders to sit back and reflect on their business once a quarter, and it's very effective for that. And then of course there's like governance things that need to happen, but-

Harry Stebbings 58:51 Who's the single best board member you've sat on a board with?

Sheel Mohnot 58:55 I think there, there are a bunch. Like I have, um, I have a board with, um, Jeff Horng, the founder of Insight, and like, he doesn't speak that much, but when he does it's like, oh, he's, he's absolutely right. And like I can look back a couple times about what he said, he was like absolutely right. I think, uh, we, we had... One of my other companies, we had, um, David Lowy, who was CMO of Google.

Harry Stebbings 59:21 Yeah.

Sheel Mohnot 59:21 And, uh, same thing. Didn't speak that much, but when he did, he was absolutely right (laughs) . He had a story about Google and it was really good. Um, so tho- those folks, I think these like wise, wise folks who have a lot of experience. So I, I think their experience is right and I think a lot of, you know, like young- younger guys can discount that experience, but like, it's really valuable and the same shit happens time and time again. And you realize that like them having seen it over the past 20 years is incredibly valuable.

Harry Stebbings 59:54 We- we were talking earlier about kind of the weight that we place on, you know, age of founders.

Sheel Mohnot 59:58 Yeah.

Harry Stebbings 59:58 I totally agree with you. Like, I think a lot of the shit is very repeatable.

Sheel Mohnot 1:00:02 Totally.

Harry Stebbings 1:00:02 We mentioned tension between founders and VCs. Final one. What about tension between LPs and GPs?

Sheel Mohnot 1:00:09 Oh, yeah. Um, I think a lot of GPs went a little crazy in the last... in 2021. And, uh, LPs were probably unhappy about that. I think if you do what you say

Sheel Mohnot 1:00:23 you're gonna do, LPs are happy. And I think we do what we say we're gonna do, we talk to our LPs on a regular basis.

Harry Stebbings 1:00:31 Most GPs didn't.

Sheel Mohnot 1:00:32 Yeah. I think a lot of GPs got out of their zone.

Harry Stebbings 1:00:34 Yeah.

Sheel Mohnot 1:00:35 And I think that was a mistake.

Harry Stebbings 1:00:36 Mm-hmm.

Sheel Mohnot 1:00:37 Um-

Harry Stebbings 1:00:39 So the, the cool misalignment there is actually the incentive mechanism of deployment schedules. Uh, in managers' cases, it makes sense to deploy more, raise more, get more fees.

Sheel Mohnot 1:00:48 Totally.

Harry Stebbings 1:00:48 But for LPs, that is misaligned.

Sheel Mohnot 1:00:51 Yeah. So you... I mean, a lot of folks had these one-year funds or I- I even heard of some sub-one-year funds.

Harry Stebbings 1:00:56 Sure.

Sheel Mohnot 1:00:56 ... and coming back to market, and that's not what LPs want.

Harry Stebbings 1:00:59 But I spoke to one manager recently and they raised... Th- they'll be on fund five within six years.

Sheel Mohnot 1:01:04 Crazy, right?

Harry Stebbings 1:01:05 Yeah. And they're like, "Yeah." But normally, you know, it's like, oh, by the third fund, that's when the rubber hits the road, like seven, eight years in. I've got five to six funds in in that time. So I'm doubled on AUM before they actually know. So they have to underwrite me for the five, six without knowing.

Sheel Mohnot 1:01:22 Yeah.

Harry Stebbings 1:01:22 Not three to you, Harry.

Sheel Mohnot 1:01:24 I think, um-

Harry Stebbings 1:01:25 Which made me really, like, ick.

Sheel Mohnot 1:01:27 Yeah, it's ick. Like, I'm in this business to have good returns.

Harry Stebbings 1:01:31 (laughs)

Sheel Mohnot 1:01:32 I'm investing a bunch of my net worth into these funds too. And so-

Harry Stebbings 1:01:35 So I think the GP commit's actually an area of misalignment, not alignment, in the way that a lot of them will be like, "Hey, we need 3%."

Sheel Mohnot 1:01:42 Yeah.

Harry Stebbings 1:01:42 And you're like, "Well, shit, my fund's 140 million."

Sheel Mohnot 1:01:45 Totally.

Harry Stebbings 1:01:45 "I have not been working for years and years."

Sheel Mohnot 1:01:47 Yeah.

Harry Stebbings 1:01:47 "This is like 4 million plus."

Sheel Mohnot 1:01:50 Yeah.

Harry Stebbings 1:01:50 "Oh my God, like, I'm gonna have to borrow and beg and steal to..." (laughs) Not literally, but do you know what I mean? That's-

Sheel Mohnot 1:01:56 Totally.

Harry Stebbings 1:01:57 ... not good.

Sheel Mohnot 1:01:57 And I'll tell you what can happen if the GP commit is too high. You can be financially strapped and you can say, "Oh, I'm gonna sell my position in this company in the series B because I need to return that capital to myself."

Harry Stebbings 1:02:11 Sure.

Sheel Mohnot 1:02:12 And that can be a misalignment. Or you can-

Harry Stebbings 1:02:14 Because you're missing out on the upside.

Sheel Mohnot 1:02:15 Or you take it, or you take it out of fees, which then is not invested into the firm where it should be.

Harry Stebbings 1:02:18 Totally.

Sheel Mohnot 1:02:19 It's like a shit show. And then also just bluntly, uh, neither of, like, the above... Like, we want diversity and, you know, a amazing ecosystem. Well, good luck. Like-

Harry Stebbings 1:02:28 Yeah. So I, I think that's true, but I think, like, the way things are, like, a couple percent, one to 2%... Like, if you can't do it, uh, I think it's probably fine, but I, I, I think... I actually don't think we need, like... We don't need, like, 100 new managers or, or thousands of new managers every year like we had.

Sheel Mohnot 1:02:48 Do you think we'll see way less now?

Harry Stebbings 1:02:50 Yeah.

Sheel Mohnot 1:02:51 Yeah.

Harry Stebbings 1:02:51 It's just so hard to raise a fund now. And you have wonderful people- I'm still seeing a lot raised though.

Sheel Mohnot 1:02:55 I, I'm seeing it too.

Harry Stebbings 1:02:56 Well, not, well, not raised, but coming-

Sheel Mohnot 1:02:58 Trying to raise.

Harry Stebbings 1:02:58 ... to me, telling me they're raising.

Sheel Mohnot 1:02:59 Same. I'm seeing... Actually I haven't seen much of a slowdown there.

Harry Stebbings 1:03:02 Not even at all.

Sheel Mohnot 1:03:03 And-

Harry Stebbings 1:03:04 A lot of operators are doing the three to five million fund, which I'm not against at all. I think they should do it.

Sheel Mohnot 1:03:08 It's just a really hard business.

Harry Stebbings 1:03:10 Yeah.

Sheel Mohnot 1:03:10 If you're running a tiny fund, it's really hard, and I don't, I don't think many of these folks are gonna continue on. Like, their fund two, fund threes are gonna be really tough.

Harry Stebbings 1:03:21 Oh my God, yeah, 'cause, uh, I mean, it's all GPs who run it, GPs and founders.

Sheel Mohnot 1:03:25 Yeah.

Harry Stebbings 1:03:25 Final one, I promise. Um, what do you think of, like, founders who have funds on the side?

Sheel Mohnot 1:03:31 I think some people have done it well, but I think, I think there are founders who have funds on the side who, like, lead deals, and that is crazy to me. If you think about... Like, especially now, when we have a bunch of companies that are struggling, we

Sheel Mohnot 1:03:44 had the SVB crisis. Like, you need to be there for your founders, and if you're there for your founders, you're not there for your company. And that is a problem. So I think founders with fund- with, like, investing checks on the side occasionally is fine, or, or if it's strategic, it's fine. But I think there are founders who are, like, leading rounds, and I think that's bonkers. If you think about, like, we have a company going through some shit right now, and I'm there for them any day- anytime of the day or night. And if I was running my own company and this wasn't all I was doing, like, I wouldn't be able to do that. And I don't, I don't know how you square that. Like, how can you, how can you be operating a fund and running a company? What do you think?

Harry Stebbings 1:04:30 Uh, so I totally get you. I think that Jack Altman's done it incredibly well.

Sheel Mohnot 1:04:34 Yeah.

Harry Stebbings 1:04:34 And I don't know how this guy does it. He's go- a father, he runs Lattice. I mean, so he does it. I mean-

Sheel Mohnot 1:04:41 But he doesn't lead rounds. He's running checks into round-

Harry Stebbings 1:04:43 He does now. He does now.

Sheel Mohnot 1:04:43 And he's... What? He does?

Harry Stebbings 1:04:44 He, he does now.

Sheel Mohnot 1:04:45 Oh, okay. I didn't know.

Harry Stebbings 1:04:45 He does now. I, for me, and again, I, I think the biggest challenge that I just struggle to get over, and I'm not throwing shade, but I struggle to get over it, which is, like, when you take external capital, that is an incredible responsibility.

Sheel Mohnot 1:04:58 Totally.

Harry Stebbings 1:04:58 And when you take external capital for a second thing on top of something that you've already raised s- significant millions towards-

Sheel Mohnot 1:05:05 Totally.

Harry Stebbings 1:05:05 ... for the first one, if I'm in the first one, I'm like, "That is disrespectful to my money." Like, "I gave you money-"

Sheel Mohnot 1:05:11 Yeah.

Harry Stebbings 1:05:11 "... to do this," and that's like, like... I'm thrilled to do it, but, like, do what you said you were gonna do.

Sheel Mohnot 1:05:17 Totally. Yeah.

Narrator 1:05:19 That's true.

Harry Stebbings 1:05:19 And so I don't have a problem with founders angel investing.

Sheel Mohnot 1:05:21 No, I don't at all.

Harry Stebbings 1:05:22 You want to do rock and roll.

Sheel Mohnot 1:05:23 Yeah.

Harry Stebbings 1:05:23 But when you're raising-

Sheel Mohnot 1:05:25 And, and then, uh, uh, oh, another thing is, like, a lot of folks do it-

Harry Stebbings 1:05:28 LP management, by the way.

Sheel Mohnot 1:05:29 What?

Harry Stebbings 1:05:29 LP management, like-

Sheel Mohnot 1:05:29 Yeah.

Harry Stebbings 1:05:29 ... suddenly you have 50 LPs in your single fund.

Sheel Mohnot 1:05:31 I just think about how, like, I am doing this job, like, round the clock, and I just can't imagine having another full time job.

Harry Stebbings 1:05:39 I totally agree. Um, fi- final, final one. Uh, your wedding was, like-

Sheel Mohnot 1:05:44 (laughs)

Harry Stebbings 1:05:45 It was in the metaverse?

Sheel Mohnot 1:05:47 Yeah. (laughs)

Harry Stebbings 1:05:48 Like... (laughs)

Sheel Mohnot 1:05:49 So-

Harry Stebbings 1:05:50 D- how did that come...

Sheel Mohnot 1:05:51 (laughs) Okay. So it was in the Taco Bell metaverse. It was an Indian wedding in this Taco Bell in the metaverse. And you're like, "Why the fuck would you do that?"

Sheel Mohnot 1:06:00 And, uh, I... Credit to my wife, Amrita, because she went along with all this crazy shit. You know, you know me, I say yes to a lot of stupid stuff, and this was just another one in a long line of those examples. And, uh, in this case, Taco Bell had a contest about getting married in the Taco Bell metaverse. And I'm a fan of Taco Bell, people on my Twitter know that. So when they came out with this, a lot of folks tagged me, and they were like, "Shiel, this is for you." They saw that I'd just gotten engaged and they were like, "This is perfect for you, you should do it." And so I was with my wife, my now wife, driving, uh, on a road trip, and I mentioned to her, I was like, "Hey, look at this," just, like, casually like, "Hey, look at this. Wouldn't it be fun?" And to my surprise, she said, "Yeah, all right, let's make the video. It'd be fun. It'd be, like, a fun exercise." So we, we took 20 minutes and thought about what we would say and we stopped and recorded it. We actually only did two... We only recorded it twice. We didn't, we didn't think that much about it because we just thought it's a fun thing to do, but we're probably not gonna actually submit it, and if we submit it, we're not gonna win, and if we win, we're not gonna do it. So...... you know, what happens. We get back from the trip and I, I'm just like, "Let me just submit it." Whatever. And then we get notified by Taco Bell that we've won. And then we kind of pushed back and said, "Hey, like, I don't know if this is for us. We don't wanna (laughs) get married in this Taco Bell metaverse." And then they were like, "Hey, just get on a Zoom call with us." So we got on a Zoom call with them and they convince us. They say, "It's gonna be your wedding. We're gonna do whatever you want. Um, it can be Indian. We'll design it for you. And you're gonna be part of the Taco Bell family." They said, "You're gonna be part of the Taco Bell family," and I was like, "That's what I've always wanted." So, uh, we eventually did it and it was really fun. It was in February. Um, it was-

Harry Stebbings 1:07:46 What does it mean? So you sit in a room on Zoom?

Sheel Mohnot 1:07:48 Yeah. (laughs) So you're sitting in a room with, with... Some of our friends were there too. And we're on camera and there's this metaverse, it's in Decentraland. Um, it was actually really cool. For a while I was pretty skeptical about it. I've never spent any time in the metaverse.

Harry Stebbings 1:08:03 Mm.

Sheel Mohnot 1:08:04 I'm not, like, a metaverse guy. But it was actually really, really cool. I rode in on an elephant. People from around the world were, were there. My family in India was attending. They have their avatars. It was actually really cool. It sounds really stupid. Actually, the day of, I was thinking, "This is cool."

Harry Stebbings 1:08:20 And you say your vows through it?

Sheel Mohnot 1:08:21 Said our vows through it. Did everything. It was a legal wedding. We, we, we (laughs) were legally married in this metaverse.

Harry Stebbings 1:08:25 Was it quite emotional?

Sheel Mohnot 1:08:27 It was very emotional, yeah.

Harry Stebbings 1:08:28 Yeah.

Sheel Mohnot 1:08:28 It was fun.

Harry Stebbings 1:08:29 Did your wi- did your wife like it?

Sheel Mohnot 1:08:30 Yeah, she loved it.

Harry Stebbings 1:08:31 Do you get, like, Taco Bell credits?

Sheel Mohnot 1:08:33 We do. (laughs) We do. We have a lot of Taco Bell credits.

Harry Stebbings 1:08:35 How many credits do you get?

Sheel Mohnot 1:08:36 I don't know. I, they gave us, they gave me 500 bucks for my birthday, um, on, in Taco Bell credits. Which, actually, Taco Bell gets you pretty far. They also paid for our honeymoon, 25K, which is pretty nice.

Harry Stebbings 1:08:46 Uh-huh.

Sheel Mohnot 1:08:47 Um, and they've been, they've been great.

Harry Stebbings 1:08:50 What was your favorite thing from Taco Bell? Like, we've just had Taco Bell, like, land in the UK.

Sheel Mohnot 1:08:54 Oh, yeah.

Harry Stebbings 1:08:54 I've never been.

Sheel Mohnot 1:08:54 Mexican pizza, big fan.

Harry Stebbings 1:08:56 Mexican pizza?

Sheel Mohnot 1:08:57 It's amazing, yeah. You'll love it.

Harry Stebbings 1:08:58 This is a pizza-

Sheel Mohnot 1:08:59 Mexican food in the UK sucks, I have to say.

Harry Stebbings 1:09:01 Oh, terrible. We don't have it anywhere.

Sheel Mohnot 1:09:02 Yeah.

Harry Stebbings 1:09:02 Have it anywhere. We've got La Bodega Negra-

Sheel Mohnot 1:09:04 Yeah.

Harry Stebbings 1:09:05 ... which is, like, nicer, higher end. We've got Oaxaca on the lower end.

Sheel Mohnot 1:09:07 Oh, yeah. Yeah, yeah, yeah.

Harry Stebbings 1:09:08 It's shit.

Sheel Mohnot 1:09:09 It's shit.

Harry Stebbings 1:09:09 No, I always wanted to do it.

Sheel Mohnot 1:09:10 Taco Bell, Taco Bell's great.

Harry Stebbings 1:09:11 Me and my girlfriend bonded because we both wanted to open a Mexican restaurant.

Sheel Mohnot 1:09:13 Oh, amazing. It would do well.

Harry Stebbings 1:09:15 And neither of us have done it.

Sheel Mohnot 1:09:16 Yeah. But anyway, this, it's not our only wedding. We have, we're actually, we're, we both are married and are still planning multiple more weddings. (laughs)

Harry Stebbings 1:09:24 (laughs)

Sheel Mohnot 1:09:24 Me and the same woman, to be clear. Uh, so, (laughs) so- (laughs)

Harry Stebbings 1:09:28 Nice.

Sheel Mohnot 1:09:28 So we did this Taco Bell one, we did an India rec-, we did an India reception. We're doing Cleveland, where I, where she's from, Pittsburgh, where I'm from, and then a big one in Mexico City that's, that'll be our friends

Narrator 1:09:38 ???

Harry Stebbings 1:09:38 I mean, that is amazing. I saw this and I was like, "What the fuck has he got into now?"

Sheel Mohnot 1:09:41 It's crazy, yeah. But it's fun.

Harry Stebbings 1:09:43 Um, listen, I wanna do a quick fire round. So I say a short statement and you give me your immediate thoughts, okay? What one seed firm other than BTV would you invest in?

Sheel Mohnot 1:09:51 Um, I think, I think the best ones have now retired and are only, they're investing their own money.

Harry Stebbings 1:09:56 Mm-hmm.

Sheel Mohnot 1:09:56 So that's Homebrew and IA.

Harry Stebbings 1:09:59 Mm. I definitely agree with you there.

Harry Stebbings 1:10:01 And Founders Collective as well are very, very good.

Sheel Mohnot 1:10:02 Oh, yeah, super good.

Harry Stebbings 1:10:03 Yep. Uh, what Series A firm would you most invest in?

Sheel Mohnot 1:10:07 I can think of so many good ones. Our, our, um, we've invested a lot with Accel.

Harry Stebbings 1:10:11 Mm-hmm.

Sheel Mohnot 1:10:11 And I, I think they, they do a really good job. Um, oh, but I guess, like, you know, in the spirit of keeping fund size small, it hard to beat, hard, hard to beat Benchmark.

Harry Stebbings 1:10:20 I, I, I have to say I'd choose Benchmark at the A.

Sheel Mohnot 1:10:22 Yeah.

Harry Stebbings 1:10:22 You can do a multi-stage firm now. We're going kind of growth/multi-stage. Who would you go for?

Sheel Mohnot 1:10:27 Yeah. Um, again, I worry about this fund size increase. So, because Founders Fund shrunk their fund size, I'm gonna go with Founders Fund.

Harry Stebbings 1:10:36 It's not a bad shout. GreenOtis, I really like.

Sheel Mohnot 1:10:39 Yeah.

Harry Stebbings 1:10:39 I really like Addition.

Sheel Mohnot 1:10:41 Yeah. All good.

Harry Stebbings 1:10:42 Really like Ribbit.

Sheel Mohnot 1:10:43 Good folks. Yeah, they're all good.

Harry Stebbings 1:10:45 It's tough,