The Twenty Minute VCWill Quist: Why 95% of Venture Capital is Not Really “Venture Capital” | 20VC #924
EVERY SPOKEN WORD
135 min read · 27,308 words- 0:00 – 6:48
Will's Background
- HSHarry Stebbings
(beeping) Three, two, one, zero. You have now arrived at your destination. Will, I am so excited for this. I've heard so many good things from Cara, from Sammo, from Kany, and I finally found someone who's as nerdily interested in venture as me. So thank you so much for joining me today.
- WQWill Quist
I mean, it's a good intro. Every time I listen or every time I see your tweets, I'm like, "Honestly, I think Harry's the only other one who wants to go as deep and study this as much as I g-, as much as I end up doing."
- HSHarry Stebbings
I, I think it's why I was single for all of my teenage years, to be honest.
- WQWill Quist
(laughs)
- HSHarry Stebbings
But, um, it's true. Um, but I wanna start with you, Will. So talk to me, how did you make your way into the world of venture, and then how did you come to, you know, join Sam and the team at Slow?
- WQWill Quist
Yeah, it's ... I'll just tell it to you. I don't know how to describe my journey. Um, so I'm actually sixth generation Bay Area. It's sixth generation peninsula, growing up, growing up around the Stanford campus. So there's like a depth in history that would make it seem more obvious, but to me it was a very out of left field turn. I, I, I grew up riding my bike down Sand Hill Road to go play water polo at Stanford. So like-
- HSHarry Stebbings
(laughs)
- WQWill Quist
... there's a, there's a, but there's a sense of growing up like a fish and not knowing what the water is. Right? I had very, I mean, very little awareness beyond the IPO market, 'cause my dad was an investment banker and was pretty focused on being a water polo player. Um, I, I like to tell everybody that I majored in water polo at Berkeley and minored in political science.
- HSHarry Stebbings
(laughs)
- WQWill Quist
Um, uh, while I was at school, so I, I also sw- I swam and played water polo at Cal, had very little time. Ended up with an internship, like the only thing flexible I could do outside of that during summers was help out the incubator there. So I got ... M- my first real ... What's funny is growing up in Woodside and riding down Sand Hill Road, my first real taste of startups came when I moved to Berkeley. Um, it was just kind of a flexible resource for startups that were getting small grants out of Haas Business School competitions. Um, and quickly fell in love with it. A- and swore, coming from a family who'd only been on the finance side, swore I would never, that I was gonna be an operator. And I just loved it. That first summer, I did everything from figure out how to print business cards, when those were a thing, that were more stock than we could pay for, to sitting, to talking about software design, product development, w- and, and where to go with the limited resources. So, I really fell in love with it then. Um, left Berkeley, became a professional water polo player, actually. I lived in Hungary for a year. As a-
- HSHarry Stebbings
I did not know that.
- WQWill Quist
Yeah. (laughs)
- HSHarry Stebbings
Love that. Okay-
- WQWill Quist
I put in a season.
- HSHarry Stebbings
... so you're a professional water polo player in Hungary, living the dream.
- WQWill Quist
Yeah. Yeah, I mean, it was wild, man. I was, I was ... And I wasn't in Budapest. Like, I was out in the beautiful countryside and no one spoke English. It was ... That's a whole ... That could be a podcast itself.
- HSHarry Stebbings
(laughs)
- WQWill Quist
Um, when I came home, it was time to figure out what to do, and I got hooked up with ... Do you know ... Have you ever heard of what ... The, the, the Red Herring? Have you ever heard of the Red Herring?
- HSHarry Stebbings
No. What is that?
- WQWill Quist
Oh, man. You're not quite nerdy enough. Um ...
- HSHarry Stebbings
Tell me more.
- WQWill Quist
So, the, the Red Herring was the TechCrunch of the '90s, but it was a printed magazine. It was like the go-to media resource for venture, for startups, right, throughout the '90s. And then obviously in the dot-com boom, it became a huge thing. Um, so this is like '04, '05. I sat down with the founder of Red Herring. He was going, "Hey, things are ... Media brands are transitioning online in a collaborative fashion." He, he had a really good thesis actually of like kind of what TechCrunch became. And he said, "Hey, so I'm gonna launch something. Why don't you come do it with me for a year?" And so I, like I said, just got home from Hungary. I said, "That sounds great. I wanna find a company eventually. I'll navigate. I'll spend a year with you." And, uh, the key during that ... And so it was total startup, total hustler, all kinds of jobs building this media brand. But the thing that I got tasked with that resonated the most is he'd, he'd promised the top 100 company list back when that was like still a novel, very novel thing. And so I, um, I ended up being heavily involved with there being thousands of submissions, having to review probably a thousand companies. I met with 4 or 500 companies in person over six months. I was this 24-year-old kid with no technical background in his first job, in a room with KPMG auditor, all these people who kind of sponsored it to get it. And I, I just fell in love with hearing the story, right? Having to make a decision, putting it on a list, and ending up, uh, having to narrow it down to the top 100, publish it, and then write up the top 10. It was awesome. And I, I was ... In that process, I was like, "Oh, I get it now. This is a, this is amazing." Um, and it was really cool. We, we ... I mean, in that group, I, I think the ... We called out Pandora as the top company, so we met with Tim and team when it was Savage Beast Technologies. Mellanox, which was a really innovative semiconductor. It was really cool. So a- after that, I was like, "Yeah, I wanna go, I wanna go pick companies, put money behind it, and be involved in this." Um, fr- so from there I go, "How do you get in if you're not technical through the finance angle?" Ended up with a lower, I mean, n- none ... A bulge bracket tier two investment banking job. I mean, the key catalyst was going to industry ventures. So when I was interviewing out of banking, I ended up with a bunch of ... Talking to a bunch of traditional venture funds. I wasn't really a fit, as we discussed, given my background. (laughs) And found these three partners who had gotten together and were convinced the private markets had changed forever in venture. This was, again, this was a debate in '06, '07, where companies stay private longer, but the public markets open up, and they said, "It's changed. It's gonna create all kinds of problems, needs for capital that don't exist. They're on the secondary market, later stage market for LPs." Raised $100 million fund, and it was me and, uh, Joey from Allbirds, who was a good friend of mine from college, we were the first two associates. And, uh-
- HSHarry Stebbings
I didn't know, I didn't know Joey was there.
- WQWill Quist
Yeah, that's how I got there. Joey called me. He's like, "What are these, these guys are talking to me." And we, I was like, "This is g-" I, I, I loved it. I knew it was changed forever. I wasn't sure what ha- what happened with the firm. Long story short, I jumped on there. We grew that to a couple billion of AUM. Literally did every ... And it was, ended up being the best thing that could've happened in my career, where I, I saw ... There was no deal we could reject, no sector, no deal too big or small I looked at.... hundreds of companies and hundreds of LP partnerships. And it was like a crash course in understanding the realities of venture, um, with a lot of seniority because we were building. So by the time I got to my early 30s, I had a track record, I had a lot of contacts, I'd built, I'd raised up money from LPs, and so I said, "I think I can do this on my own. If I don't do it now, I'm never gonna do it." And just as I was setting out to do that, the slow guys who were close friends of mine were taking what they'd done with their personal capital and wanted to launch a long-term venture fund with outside capital. And so I- I was a- I would say I knew what they didn't, and they knew what I did, and it was a perfect match.
- HSHarry Stebbings
It's a perfect union. You mentioned that there kind of the- the confluence of a couple of different things, you know, the public and private, and kind of what, uh, industry foresaw in terms of where we were going as an industry. I- I don't normally start with, um, what the fuck is
- 6:48 – 9:18
WTF is Venture Capital?
- HSHarry Stebbings
venture capital (laughs) as you know when you listen to the show. But I think this is a really good place for us to start, because you've said before 95% of venture capital isn't actually venture capital. Provocative statement, tick. Um, why?
- WQWill Quist
Listen, I think the classical definition, I- I think there's, like, New Coke and Coke Classic. Maybe we can talk... We- we have new venture and venture classic.
- HSHarry Stebbings
Yes.
- WQWill Quist
Um, I- I fundamentally believe the point of venture capital, right, is to allow a founder to run an experiment against a hypothesis that is knowable, testable, right, where a true answer dramatically changes the enterprise value of the company. I- I- If you look over history, that's when it's performed the best. And- And that's really how it works. It- It... The scale of it, right, is using a little bit of money to do something that delivers a ton of value over a long period of term. There's a real equity efficiency. That's where the scale comes from. So, I kind of start from that being the definition of venture. Um, and I think when you start from there, you'll- you'll look and go, like, "Listen, that doesn't scale," so as we've scaled, it- it kind of inherently a lot of the capital doesn't fall within that bucket. Um-
- HSHarry Stebbings
It does, it does not. I mean, I just saw a tweet about Bird raising 800 million, now being worth 120 million. You look at Casper, obviously, kind of, you know, selling for not venture outcomes. And- And you see across industries that lack of capital efficiency. Is that what you mean when you say it's not venture capital?
- WQWill Quist
Yeah, I mean, I think it's... When we talk about it internally, it's a lot of the money out there isn't, A, seeking novelty, right? They're- They're- They're- They're seeking things they know how to model, they're looking for data they can extrapolate, things... You know, you know what I mean?
- HSHarry Stebbings
Yeah.
- WQWill Quist
Things that they can sink their teeth into that are actuals, not theories. So I think you kind of have to remove a lot of that from the venture capital bucket. And then- And then when you, um, and then when you layer in the equity efficiency side, I- I think it's when you're doing really equity inefficient things, that's hard too. So I think when you remove those two qualifiers, you kind of get to a place where a lot of the money... And- And you just... It got really big, right? And so, you get to a point where, yeah, 5% of the- the industry or the capital of the industry, I think, is really seeking out classic venture bets, and the rest of it is piling on into growth and... Which is a great strategy. I just, uh, uh, it... I think we- we bristle a little bit when you talk about a $200 million round at a $5 billion valuation being venture capital.
- HSHarry Stebbings
I- I totally agree with you. You said, and you said kind of it's- it's a good strategy.
- 9:18 – 10:20
Venture is Simple but Hard
- HSHarry Stebbings
You said before, um, we chatted before, and you said venture's simple but hard, I think was the statement you said. Why did you say that?
- WQWill Quist
Well, I think that formula I just laid out is venture, right? Going into what gets hard is thinking through the risks and rewards of any given experiment a company is gonna run, right, which is composed of a number of different levers trying to understand, and- and they're almost always contextual. Um, so it's as simple mental formula, I think, having the art and science and the discipline to run through it, to ask the right questions, how to have the context of how to weigh... I know we'll get into this later, or you wanted to get into this later, of like how do you weigh a really strong value prop in the product versus small market versus a founder without a background in the space? Like, that's- that's hard. The equation is simple, but, like, understanding how to balance those factors and when to make a bet is hard.
- HSHarry Stebbings
We're gonna get into that. I do just wanna stay on the top level-
- WQWill Quist
Yeah.
- HSHarry Stebbings
... which is like... And w- Actually, fuck it. Let's go to the
- 10:20 – 11:20
The Lack of Rebels in Venture
- HSHarry Stebbings
conversation that I had with you before this. And I was moaning that we don't have enough rebels in this industry. All those smart people coming out and wanting to get into venture, they just want to go to multi-stage funds. Like, why is that, fundamentally? Help me understand. Why do the- lack rebels, and why do they want to go to multi-stage funds?
- WQWill Quist
I mean, I think there's always been a lack of rebels, right? And so I, again, I think this is a proportionality question. We probably put out the same amount of rebels, but the amount of firms branding themselves as venture capitalists have grown so dramatically. So, that would probably be my first reaction is, like, there... Inherently, there aren't that many rebels in society. There aren't that many people who think left inste- instead of right. Um, and- and I think when you look at what folks scaling need, it- it- it makes sense that they would attract people that are less down the rebellious curve. Um, I mean, I've- I've been talking about for a while that all capital games
- 11:20 – 13:17
All Capital Games End Up Looking the Same
- WQWill Quist
end up looking the same.
- HSHarry Stebbings
What do you mean by-
- WQWill Quist
And-
- HSHarry Stebbings
Sorry, what do you mean by all capital games end up looking the same?
- WQWill Quist
So, I- I- I... It started as a it's all investment banking, was the first thing I would say, but I- I found parallels that go beyond that. Um, e- when I look at whether it's investment banking, mutual funds, hedge funds, private equity, and now venture, they've all followed a very similar curve, where early on in the- in the assets, class, lifestyle, or- or business model/lifestyle, it's really at subscale and it's volatile, right? And so you have this... There's no consensus way of how do you make money every year. Nobody knows, right? There's no formula yet (laughs) and/or- or perceived formula. And there's not enough scale where- where people, it's worth going zero sum, right? You need collaborators. Early on in venture, nobody had enough money. The reason that they were... Like, there were small partnerships who all collaborated and got along really well because, like, no single firm could raise enough money.... and it was still unclear exactly how the formula would play out, so you needed people. So there was a non-zero sum dynamic when it was sub-scale volatile and without a consensus path forward. I think what happens as soon as there is some consensus amongst the players, and there's enough scale to warrant z- zero sum type behavior, you kind of have the same things happen. And I, and I, and it, the organi... The... If you look at the other industries, they've kind of organized on the axis of, "Are you more zero sum or are you more a collaborator?" on the, on kind of the X-axis. And the Y-axis is, "Are you a generalist doing all the things all the time, or are you a specialist?" And as soon as you have that kind of consensus dynamic, you need to sprint to one of those strategies, and you need to build your organization and asset base accordingly. Right? And so what happens in those consensus games is you're looking for less rebels, and you're looking for people who fit the organization, right, and can run the playbook that you've laid out.
- HSHarry Stebbings
So if we think about-
- WQWill Quist
That, does that make sense?
- HSHarry Stebbings
It, it, it does
- 13:17 – 16:00
Does "New Venture" denigrate the returns of "Old Venture"?
- HSHarry Stebbings
make sense. I think my, my subsequent question then is, like, bluntly, do we see the denigration of returns in venture-
- WQWill Quist
Yeah.
- HSHarry Stebbings
... in a similar way?
- WQWill Quist
100%. But, but again, this is, like, in New Venture or Venture Classic? This, this is where the definition of the asset class matters.
- HSHarry Stebbings
Well, does New Venture not actually disable or disarm Old Venture or Venture Classic? Because actually you could say New Venture is CO2, Taiga, you name any of the New Venture, or actually, you know, any of the solo capitalists w- or any new model that we've seen over the last few years. That disarms or handicaps traditional venture, because in some cases, they will take some of the biggest winners, which will then deteriorate the returns of Venture Classic.
- WQWill Quist
I think there's a real incentive when you're operating at scale to not back novelty. Right? There, there's an increasing incentive, y- you don't want to conflict yourself out of categories, right, doing a $3 million seed check, even if the category's 50/50 and conflicting out of a $300 to $500 million AUM opportunity down the line is really hard to do. And, and being wrong, right, when you're in a competitive industry and you're trying to win deals, being wrong has a penalty. Being wrong and looking silly has a penalty. And so-
- HSHarry Stebbings
Do, do you think they... Sorry, I'm deliberately... This is what I wanted, 'cause I think me and you both have opinions. Do you really think they care? Like, number one conflicts. I mean, you know, bluntly, I think the only big multi-stage fund that does care and honor it really well is Sequoia. The rest are like, "Eh, option bets," especially at seed. Me and you both invest with multi-stage funds at seed. They do a lot. They're in competitors. They're option bets for them. And then, two, do they worry about them going wrong? Nah, they're seed. I say to them, "God, you put $20 million in." And they're like, "Yeah, but it's a $2 billion fund, Hari. Chill out."
- WQWill Quist
No, they don't worry about the loss of capital. Right? A- and, and I do think the conflict is real. When you screen for founders, going, "Hey, you're in, too," I, like... I, I, I think it only... All the players are getting so big, it only takes two at a table, right? And, and if Sequoia's got a better widget in that moment, y- you, you, you win if you're not conflicting, right? So, and, and, and I, and I always joke, like I've gone through this with some investment bankers with companies that have novel business models, right? How do you describe them to the street or novel stories? And they end up almost all saying the same thing because their game is relative, right? They don't want to be the one who comes in with underwriting advice that's novel and could be wrong. Like, it's the correct thing to say, "It could go poorly." Right? And so they all kind of say versions of what each other says because to win the next 10 deals, you don't want to be the one who did something that was intellectually correct but worked out poorly. And so I think you end up with the same dynamic inherently at really big,
- 16:00 – 17:12
How can seed managers compete with multi-stage firms?
- WQWill Quist
massive firms.
- HSHarry Stebbings
Can I ask, how do you think we as seed managers compete against the new firms and the multi-stage firms coming in as aggressively as they are now to seed, especially with the migration away from growth? When their price sensitivity is so low and they're willing to pay fif- five on 50, I've seen multiple times, and I'm shooting it at 20, (laughs) which is still high.
- WQWill Quist
I mean, I think the question is, are you trying to... The capital gain I described is like you want to play the consensus game. You want to go down the path of competing for deal. Like, you believe the consensus game of a certain kind of entrepreneur, in a certain kind of product category, in a certain kind of market is where returns are gonna be generated.
- HSHarry Stebbings
I believe there's a higher likelihood of that happening, yes.
- WQWill Quist
Well, so, so th- that's the first place as a manager that you need to step off of. I think we, we're in the bucket...
- HSHarry Stebbings
(laughs)
- WQWill Quist
No, truthfully. And, and like you need to stop. Like, I think we would say, we concede the consensus game at the earliest stages. We, we, we think our job is to go a click out further on a belief system than other people. And, and I think that's-
- HSHarry Stebbings
But-
- WQWill Quist
... that's, that's a lot of the point of Venture Classic, right, is to go out, go out for defensible reasons to yourself a click farther out the
- 17:12 – 18:30
A Click Further Out from Consensus
- WQWill Quist
believability curve.
- HSHarry Stebbings
Okay, so let's talk about then a click further out. If we're a click further out, how does our questioning change? You said before that for the most part investors ask the same questions across asset classes. Does the questioning and underwriting process change when being a click further out from consensus?
- WQWill Quist
100%. Um, yeah, I mean, I, I don't know. So I've got, like Charlie Munger is one of my religious figures, um, or on my, on my Mount Rushmore. Um, and I don't remember, it was some point during COVID, I think, I kind of hit a moment of reflection. I think, I think universal principles are universal. You know what I mean? When you find truth, it carries across the spectrum. And so I was like, "I wonder if, like all the reading I've done about him and his processes, I wonder if I can find a similar vein to how I think the best VCs think," right? 'Cause if you can tie those two together on the spectrum, you probably have found some, like, universal principles of investing. And I will take heat for this, 'cause this is not complete, but I, I kind of landed on the fact that...... to, to figure out enterprise value, which is all, what we're all trying to bet on what the enterpri- like, the enterprise value over X period of a company's gonna be, right? And how we should price it today. Like, that's, that's
- 18:30 – 25:22
Five Levers that Determine the Value an Enterprise
- WQWill Quist
the job. There's, like, five levers that, in my mind, that go into, into that. Um, you're smiling. (laughs)
- HSHarry Stebbings
I, I'm, I'm ready. I'm just wondering whether-
- WQWill Quist
No.
- HSHarry Stebbings
... I take notes or not. (laughs)
- WQWill Quist
Yeah, yeah. No, the, the, e- so, so in my mind there is, is the arc of history bending this company's way? You know what I mean? Like, for the next five-
- HSHarry Stebbings
Mm-hmm.
- WQWill Quist
... 10 years, do I believe the world will work in such a way that dramatically benefits this company?
- HSHarry Stebbings
Yeah.
- WQWill Quist
That's whether you're a buyout fund, you're... Right? That's the durability of the cash flows.
- HSHarry Stebbings
Yeah.
- WQWill Quist
Then you get into the product or the set of products a company creates and understanding the absolute value proposition they're proposing, right? And then the proposition relative to the competitive industry. Then you, then there's a question on market, and I know, I know you have follow-ups on this, and then this is, like, a, maybe w- a more debatable topic. I think a lot of TAM analyses, like, starts off on the wrong foot. I, I like to ask, and I think the question you wanna have about marketizing is, most products are built to solve a problem. Most problems are solved, but inefficiently. And so the question I have is, like, how much was spent on the problem last year? Or if you're tackling an opportunity or selling consumer goods, how much did consumers spend last year, right? Like, let's look backwards and figure out how much was spent, and then we can get into levers of, like, why do we believe in the market growth, right? What do you have to believe that this market grows at 0%, 5%, 300%?
- HSHarry Stebbings
Yeah.
- WQWill Quist
Ab-
- HSHarry Stebbings
Sorry, I'm gonna dive in there.
- WQWill Quist
Okay.
- HSHarry Stebbings
That excludes market, um, creation. So for anyone creating a new market where there is no spend, there is no consumer behavior, you will not get to a conclusion if you take that for less.
- WQWill Quist
Yes, you will. The answer is zero.
- HSHarry Stebbings
Well, precisely, but then you would say-
- WQWill Quist
Okay.
- HSHarry Stebbings
... no to the deal.
- WQWill Quist
No, well, you don't have to say no to the deal. We haven't gotten to whether we're saying yes or no yet. We're, we're getting to the questions you ask.
- HSHarry Stebbings
Oh, right. Sorry, sorry. Okay.
- WQWill Quist
Right? So, so-
- HSHarry Stebbings
Well, I don't know.
- WQWill Quist
So, you can go, you, you, you, you, you... But that's a p- that's an important, right? That, to, to fast-forward, like, that becomes an interesting discount you apply, and if you discount a deal too much, right? If you get the theoretical enterprise value, these will tell you how to discount it and you get to a point where you're like, "I can't put a price on this." Um, the next question becomes defensibility. I think as soon as you begin talking about a product, there's only a few ways people have ever created defensibility. Um, and it, and I know it all erodes. There's no sure thing moats. But there are higher walls than others, right? Around network effects, intellectual property, regula- regulatory arms, et cetera. And so, you need to ask yourself, like, how... I- if they're creating a novel product, right, in the arc of history with a lot of value and more than competitors in a category I like, like, why will they defend their market share over time? And then that all comes to- together in, what's the business model, right? Like, what, what's the business model? What's the likely business model? What's the equity efficiency of that business model? What, what kind of capital is it gonna take to produce what kinda cash flows over what period? And so, those are, those are the questions that I, I think ch- I mean, I, I think those are at the root of what Charlie Munger asked himself and what Blackstone ask themselves, and absolutely what Sequoia and Benchmark implicitly or explicitly are asking themselves as they wade into, "How can I price this and do I do this?"
- HSHarry Stebbings
So, I totally get you. But then are you not asking the same questions that every other asset class asks its?
- WQWill Quist
You ask the same questions, right? The, the nuance is what answers make you most comfortable in pricing it over the rest of the market.
- HSHarry Stebbings
Okay.
- WQWill Quist
So when you think about it, there's really four, try to think, four states of answers to any of these questions. There is statistically relevant, longitudinal, first-party data from the company.
- HSHarry Stebbings
Mm-hmm.
- 25:22 – 28:46
Market vs. Founder
- HSHarry Stebbings
many different ways. The, the-
- WQWill Quist
I, I know.
- HSHarry Stebbings
Look, I, I fucked up. I lost money recently because, um, I invested in a company, and the founder was world-class, fantastic founder, but in a market that hell or high water, you could not make money, and then the business was no longer able to exist.
- WQWill Quist
Okay.
- HSHarry Stebbings
And I learnt actually market wins. (laughs) Whatever anyone says, it's not, it's not primary about founder actually. It, it's just not. If you put anyone in a market that's completely impossible, you can't win, is what I took away. Uh, my question to you is, how do you think about the primary nature of the market over the founder, and how do you assess that? And would you agree with me from what I just said?
- WQWill Quist
What I would agree with is on any one of those levers, you can get an answer that shuts the whole thing down.
- HSHarry Stebbings
(laughs) We- we are going in the biggest option tree discussion ever. (laughs) It's-
- WQWill Quist
Well, I, but this, this is why venture is simple but complex. Like, I don't have a pithy one-word answer for you.
- HSHarry Stebbings
How do you feel when I say that? Are you like, "No, wrong"?
- WQWill Quist
Um, my immediate reaction is I think you failed to create a product that has such easily identifiable value proposition, right? That you under- that customers in a segment understood why you were giving them a dollar and charging them less than a dollar. You're giving them a dollar value and charging them less.
- HSHarry Stebbings
Yeah, but it doesn't matter. That doesn't matter. What matters-
- WQWill Quist
It does. That's, that's all that matters.
- HSHarry Stebbings
No, it doesn't.
- WQWill Quist
All that matters... Yes?
- HSHarry Stebbings
No, it doesn't, 'cause you're forgetting macro, and you're forgetting political. You can have a currency devaluation in LatAm that fucks you in a way (laughs) that your business is completely unsustainable. You can have a political regime where there's-
- WQWill Quist
Yeah, but that, but that means... But that, I think we're saying the same thing, right? Like, I think, sure, are there some black swan things that can wipe out every investment? The answer is yes. Like, could you have, could you have understood long-term capital management getting blown up by the ruble was gonna have an effect on fintech services businesses? No, but like, it did.
- HSHarry Stebbings
Yeah.
- WQWill Quist
So there's black swans. I, my point... Like, one of the things I've gotten really addicted to recently is like the point of the industry, uh, and, of investing in general is that somebody can manufacture out of thin air value, right? In excess of what it costs them to produce. And the more you can quantify that and make it causal, like if, if I'm, if I'm like, "Hey, Harry, here's a dollar, I'm gonna charge you 90 cents," right?
- HSHarry Stebbings
I'll take it.
- WQWill Quist
You're gonna, you're gonna line up, I'm gonna have no sales and marketing costs. I'm gonna be able to price that right at the line, right? And if it costs me five cents to produce that whole thing, I got an 80, I got 85 cents of mar- Like, that's magic. And so I do think why venture is simple but complex is like I do think it's a big option tree, right? But I, I think at a root of a lot of problems are products that, at a minimum, have qualitative value propositions that are correlating with a lot of other factors in life, and that makes them really hard to sell. So my first reaction is like, I wonder where the product the founder wanted to build fit on the value proposition dynamic, absolute and relative. But there are some markets that I think, at a minimum, are really capital efficient, inefficient to go after, and not worth it. And no matter how charismatic the founder is, they're swimming upstream hard.
- HSHarry Stebbings
I totally agree with you. Uh, another lesson. Um, uh, we mentioned risk earlier, and, you know, it's all kind of part of the decision-making
- 28:46 – 29:56
How do you think about the Risk Matrix?
- HSHarry Stebbings
process. How do you think about kind of the risk matrix? Uh, Kenny, in particular, told me to ask you this one. But how do you think about the risk matrix and the framework with which you apply risk to each investment decision?
- WQWill Quist
So back to the couple que- the, the, the five questions I just laid out. I mean, it's honestly this... What I do is I go through any problem they're proba- they're, they're thinking about solving, or especially what they're gonna go tackle on the money I'm investing, and try to think about how many of those, how many of the... Do I love their answers, right? And then how many of the answers, most importantly, are theoretical versus rooted in some first or third-party data? I- like, one of the things that's just logical to me is being novel, having a novel theory and being correct, having one of them in your life is a low odds proposition. There just aren't that many. Having two isn't linear, i- i- isn't linear risk or the odds of being right on two vectors, is, is exponentially lower. And I think that there's a point at which you're backing too many theoreticals, and you can't put a price on it, and it's NPV negative, and it's not worth the risk.
- 29:56 – 31:34
Does having one novel idea increase likelihood of having a second?
- HSHarry Stebbings
Do you know... Sorry, I'm, I'm just intrigued. If you think about, um, a situation where you have a theory, a novel theory that is true and correct. You scale a company very successfully. In the scaling of that successful company, you see the challenges of people management, culture management, uh, treasury management, whatever this could be. And you see it in a novel way. Does actually... I'm just intrigued, I don't know the answer here. Does it not increase the odds of you having a second novel idea through having the very rare experience that very few people have of the success of the first novel idea? And that's where-
- WQWill Quist
I think it absolutely... You know.And, all right, again, this is getting deeper. I absolutely think it, I think you can have, you could have ideas and experiences such that you do increase the odds of being... Uh, i- i- and there's a win- there's a winner's edge to life, right? And I think that, that you can absolutely by being correct on a first- o- on some novel but right proposition, you begin to understand how to approach and view the world, right? And, and understand which of those kinds of propositions are more likely to be correct or not. You're operating off better information, both that you're getting from the world as well as you've had in firsthand experience. So I, I absolutely think... And I think you can spot a lot of it in advance. I think you can spot where a success is. And so, I, I actually... Those five questions, I like to think about them as columns-
- HSHarry Stebbings
Okay.
- WQWill Quist
... when I'm thinking about a company and go... Great companies have multiple of those columns that you need to think through and, a, a lot of times having success on one of the columns actually gives you leg up for doing something, right? For, for the second as being more true.
- 31:34 – 32:32
Does being one clic away from consensus mean a higher loss rate?
- WQWill Quist
- HSHarry Stebbings
I to- I totally agree, and I see that. C- w- with like the... I, I kind of constantly go back to the idea of like consensus versus one click away. Given that, from a portfolio standpoint, I do also think a lot about portfolio construction and building like anti-fragile portfolios. Is your loss rate not higher given it's one click away and it's less consensus, it's less down the fairway?
- WQWill Quist
Yeah. I mean-
- HSHarry Stebbings
Okay.
- WQWill Quist
... I think everyone's loss rates are really hard to understand over the last three years, given the amount of speculation and capital, candidly. But yeah, your loss rates should be higher.
- HSHarry Stebbings
Okay, so your loss rates are higher, so we need more lines in the portfolio? How do we think about kind of right levels of diversity?
- WQWill Quist
No, you don't need more lines in the portfolio. You need more aggregate optionality. So you can either get that by taking really things that if they are correct, right? Are... Can be massive economic wins, right? That's like one way to offset it and, and the other is a
- 32:32 – 33:40
How to Price Companies when there's Less Consensus
- WQWill Quist
more indexed portfolio.
- HSHarry Stebbings
Given they are less consensus and they are more novel, how do they differ on a pricing, pricing-wise over the last few years when you look at like average entry price for you? Is that significantly different from consensus price deals?
- WQWill Quist
I mean, this is like one of the interesting things, it should be, right? If it, if it follows, if I'm, if I'm intelligently taking more risks than Sequoia, right? Because they wanted... They... Or name brand f- Name brand firms have gotten really good because they've set their business models up. They, they really look for like one theoretical or actually like they, they want most of the questions to have really great answers and then they find the one theoretical or anecdata- anecdotal data point and make a bet on it. Um, so y- yeah, you should get paid more for m- taking on more risk. I, I think the market, that wasn't always the case. I think you have a bunch of people for a bunch of different reasons with differing knowledge bases on the game and, and setup structures that created a lot of noise around that.
- HSHarry Stebbings
Speaking of kind of the noise created around that. A lot of that, you know, we saw with, you know, a lot of like hedge funds and, uh, larger kind of public funds
- 33:40 – 36:05
What will Venture look like in 3-5 years?
- HSHarry Stebbings
coming out earlier. Um, and it just really changed the game in a lot of ways. When you look out at venture over the next like three to five years, how do you think it looks then? I get a lot of LPs ask me this and I want to hear your thoughts before sharing mine 'cause then I can, you know, share your wisdom. (laughs)
- WQWill Quist
I mean, again, I think you'll find in general, I mean, now, I'm, I... I'm gonna move the pros- I mean, I'm gonna... Ch- Talk business as friends, like you'll find capital gains, they all end up looking alike. Like I, I just don't think... So on the consensus new venture scale, right, w- you could look to... It's instructive to look at what's happened in investment banking and private equity and hedge fund land. Like I think that's very instructive about where new venture is going, right? I think the pie gets bigger, but unfortunately it subsists less people. Goldman and Morgan are much more profitable than a lot of other investment banks. And so I think you'll see... You'll see firms that have picked a quadrant and set up their organization and strategy work really well and the ones who are early and dedicated to that are gonna do wonderfully in the, in the new venture game. Um, I think people who have been slow to react to that changing reality, um, are gonna have a harder time, and then I think you're gonna have a handful of people who pick to play a, a more classic non-consensus game, right? And some portion of them will do well and some portion will fail to be non-consensus and be right, but I think there's a large middle that I think will need to find a home or struggle to find edge and alpha in the market. And it, everything in venture is always captured by when there's a massive shift, right? When you, when you have a shift like the internet or mobile, it's, it creates so much margin for everyone that like all bets are off for a little while and everyone can continue to play.
- HSHarry Stebbings
The other hard thing is it takes a while to die in venture. I agree with you in terms of the middle there, but a lot of the middle d- I've, you know... We see in the news, they get new funds 'cause they've got, you know, lagging data from eight years when they had, you know, an IPO that's just come through in the last years or whatever.
- WQWill Quist
I, I think that's gonna ex- I, I think this period because the, the ze- the, the first ti- this is the first time we're really seeing a zero sum type behavior in people that can absorb LP dollars in such mass that I thi-... I, I don't disagree with you, like I've had, probably had the same comment for a long time, but like I think we're now in a different area, a different era. Um-
- HSHarry Stebbings
Why do,
- 36:05 – 37:42
The Problem with LP Incentives
- HSHarry Stebbings
why do LPs do... I, so I have a, like an, uh... One of my biggest things that I'd like to change about th- the world of venture is LP incentives, mostly it's salary and bonus. If that's the case, you would absolutely give money to... You name your large multi-stage fund with accredited brand even though you know it's a 1.6 to 1.8X. You would do that every day over a potential 5 to 10X with Slow because you are not gonna get fired here and you have no incentive on upside.... thank you, I would like- I take this choice. Versus could get fired and zero incentive on upside too. Like, that's what I'd most like to change. Why do you think LPs keep funding them? At, you know, at six billion, you can't return 3X.
- WQWill Quist
I, I don't think they expect that. I mean, you asked, you asked, we didn't get on, like, I think all capital games are the same. Like, I think when you get to consensus like that, right, people are comfortable a- and there's a playbook and people understand. And again, I think a lot of what Tiger did was really rational. Like, yet returns at scale start looking very similar. I think we get to a place on a $6 billion fund expecting 30% to 40% net IRRs isn't reasonable, and I don't think LPs are doing that. I think they're looking going, say, "Hey, we can say we have venture exposure or exposure to tech equities," right? "And 15% to 17% net on a $300 million commitment is meaningful."
- HSHarry Stebbings
I get that. Okay, so it's changing expectations on LP fronts. I, I have to ask 'cause you-
- WQWill Quist
I just think, I think they're sensitive to the quantum of capital they're able to move.
- HSHarry Stebbings
That always-
- WQWill Quist
When it comes to IR- IRR, not... Right? I think they, th-
- 37:42 – 39:29
Most Disturbing Trend in Venture
- WQWill Quist
that's more the, the math they're doing.
- HSHarry Stebbings
What do you find the most disturbing trend in venture right now, Will? What worries you most? You sit with Samil, got a nice bourbon, what are you going, "Oh, Samil, fuck."
- WQWill Quist
I, I'm more, I'm more optimistic than that. Um, I, I had a hard time... The transition to competing to win deals versus underwriting, right? There, there became a real premium on, A, this is something everyone likes and so I better set up my widget to go compete for that deal, versus, I've got three bullets to shoot. Right? I mean, the, the way... There's a hunting analogy I love which wa- which was, for a long time, venture was about... Are hunting analogies okay, or are those gonna be not land at all?
- HSHarry Stebbings
Oh, no, totally land, yeah, hey.
- WQWill Quist
All right, so for years, it was about elk hunting, right? Y- you had, you had expensive bullets, you'd go on a long walk through the woods, you'd learn over the years how to get signs of an elk that had been here, you'd be really patient, you'd lay there, you'd call them, one would come. You'd make sure you had a clear shot so you didn't waste a bullet, and if you got it, you took down a lot of meat-
- HSHarry Stebbings
Yeah.
- WQWill Quist
... and you were fed for the year. There, for a host of reasons we discussed, that, as bullets became cheaper, y- the incentive became shoot at anything that moves because you'll get another bullet, so even if you get a squirrel, it's okay, right? And then, it became such a relative game that everybody was hunting in packs and just trying ta be the fir- be in position to be the first to shoot at the thing moving. Does that all make sense or sound crazy?
- HSHarry Stebbings
No, it totally makes sense. Um-
- WQWill Quist
And so I think that's, that's the trend. I, I, like, I, I think it done successfully on a low capital base,
- 39:29 – 40:56
Is Venture more or less collaborative than ever?
- WQWill Quist
it's elk hunting.
- HSHarry Stebbings
I to- I totally get you. Do you think venture is... You said about kind of the movement to packs there. Do you think venture is more or less collaborative than ever? 'Cause I find-
- WQWill Quist
New venture is, new venture is less collaborative than ever, and the incentive structure is to be less collaborative.
- HSHarry Stebbings
Te- uh, why do you say that?
- WQWill Quist
Because once there is a game plan, like, you just wanna do all of it.
- HSHarry Stebbings
Okay, and so do you-
- WQWill Quist
When, when, when you have, when you have... At the upper ends, when you have all the money and all the products and all the strategies in all the sectors, you don't really have a need to offlay risk or... Right? The risk doesn't seem that high that you need to offlay it with another partnership and you don't run out of money at, at taking to its extreme, so I, I... There's no real incentive for collaboration.
- HSHarry Stebbings
Venture classic, is it more collaborative or less?
- WQWill Quist
Yeah, abs- absolutely, because you're dealing in lower quantums of, quantums of overall money and higher risk pools.
- HSHarry Stebbings
Do you think so b- because of that, you need more ownership? Higher risk pools mean you need more ownership unless you're going for the spray and pray.
- WQWill Quist
Yeah, I mean, that, that, that, that becomes are you gonna put 10 vets in the fund or are you gonna put 50 in the seed fund? Right? And I, and I... You can make a case for both.
- HSHarry Stebbings
Which do you go for?
- WQWill Quist
I mean, at Slowe, we're in the... I think we've learned, we've learned a lot and respect what Josh has built at First Round a lot, so we're, we're in the, there's enough risk in these things, in the upside of winning 'em is dramatic enough, that we wanna be collaborators.
- 40:56 – 42:45
Price Sensitivity
- WQWill Quist
- HSHarry Stebbings
I, listen, I, I totally agree with you there. Can I ask, on, on the price sensitivity, it's one where I've made the biggest mistakes often. How do you reflect on your own price sensitivity stage?
- WQWill Quist
I mean-
- HSHarry Stebbings
Especially-
- WQWill Quist
It's so hard. Everyone... It, it's all mistakes. Right?
- HSHarry Stebbings
What do you mean by mistakes?
- WQWill Quist
'Cause when it wins, you don't look at your pricing and be like, "Oh, I really nailed it on pricing."
- HSHarry Stebbings
(laughs)
- WQWill Quist
Right? And the only time pricing really screws you up is when you stay disciplined and miss a dramatic winner.
- HSHarry Stebbings
True.
- WQWill Quist
So-
- HSHarry Stebbings
I sometimes, I've, I've had wins before though where I go, "Oh, great, but I did get in at 60." (laughs) And it's like, you know, it's a billion and you're like, "No."
- WQWill Quist
Well, I mean, I, I, I think, like, maybe I'm not operating on, like, the right magnitude scale. Yeah, I mean, an early sta- I mean, what's one of the biggest mistakes you can make as an early manager, right? It's, like, you put two million bucks to work at the s- at, at, at a seed price. Know- n- don't know what the stage is, right? You put three million bucks to work for 10% own- or for 15% ownership in something super risky, and then you put 100 grand into something at 150 post that's less risky. Right? Like, that, that's more of a portfolio management mistake. Like, what I would say to you is maybe you got price wrong, but what you really got wrong was allocation.
- HSHarry Stebbings
Yeah. Yes. Yes, but it didn't fit into the portfolio management strategy of then, like, concentrated bets and stage, and so it was, uh, it was misall- i- i- this is where there's like, you know, this is what I love-
- WQWill Quist
Yeah, I mean-
- HSHarry Stebbings
... about venture though, there's so many levers. Do you know what I mean?
- WQWill Quist
And, and so you see, keep seeing we go down all these option trees, it's like-... yeah, you're balancing a lot of s- every time you're looking at a hand of blackjack, you're doing a lot of mental calculus trying to figure out how to balance everything going on, which is really
- 42:45 – 44:40
Will's Biggest Hit
- WQWill Quist
wild.
- HSHarry Stebbings
Well, what's been your biggest hit so far? Um, and what did you learn from it?
- WQWill Quist
That's a great question. I can only think of the, eh, my issue is I can only think of the things that I was, like, really in the weeds on right now, and all of those are seed stage and not cranking. Um, I mean, the one I loved the most, is that fair? Like, I mean, uh, I was lucky in industry to be able to be invested in a bunch of the, Alibaba and Twitter, but those were buying stock later and being right. Like, I, I, which was fantastic, right? Um, I, so I was lucky enough, there's a company called LiveRamp that Oren Hoffman founded that-
- HSHarry Stebbings
Yeah.
- WQWill Quist
... I was lucky enough to lead the series B. And this was at a time when ad tech related products were kind of written off, right, as, as hard to differentiate, hard to find novelty, hard to find defensibility, um, and really dug in with Oren to understand the business and the potential and we, we led the round and very quickly was at, I forget, 10 or, 10 or 12 X, um, within two years on acquisition. And then within, it, it ended up swallowing the public business that it went into. Um, it now is publicly traded at a couple billion dollar market cap. And-
- HSHarry Stebbings
So, so what did you learn from that?
- WQWill Quist
Well, the, the learning was to sift through all the, like, really, not come to sweeping conclusions, right, to sift through the business and think through the problem they were proposing solving and how they were thinking about building a scalable unit to deliver value to their customers, right? They, they had come up with a really novel way to... Uh, so I think that was, like, the very tactical learning I took with me is to, like, really think through those, get to the customer, who pays, the defensibility dynamics, um-
- HSHarry Stebbings
Well, that, that's, that
- 44:40 – 45:50
Venture Investors the Laziest
- HSHarry Stebbings
for me is the fundamental differentiation in venture though, which is, like, the truth is I think venture investors are some of the laziest people on earth.
- WQWill Quist
(laughs)
- HSHarry Stebbings
Where they go, "Ugh, ad tech, terrible. Awful business to be in." And they don't sift through the data. They don't look for the beauty in the broken. Which I'm sure there was broken elements of any business. But they don't spend the time to go three layers deeper and actually see whatever beauty there is within that business. It's like, "Ugh, healthcare, done. Ugh, ad tech, done."
- WQWill Quist
Yeah. No, I, I, I guess the way I would say it is, and again, this is tooting my own horn, but not, or, like, hitting on the same framework we've discussed. Is like, I don't think enough investors think of themselves, or enough venture investors think of themselves as an investor first and then venture sec. I don't think they, they... A lot of people think venture is some art that is unrelated to what a great public equity manager does. And I think when you invert it, right, you think, "What am I looking for? What are the characteristics? What are the questions I'm asking?" It'll take you into much more interesting places consistently, um, and, and, and give you a framework to double click, dig in, and, and process things, um, I, I think more consistently,
- 45:50 – 46:47
Will's Biggest Miss
- WQWill Quist
yeah, and bring some objectivity to the subjectivity.
- HSHarry Stebbings
What's the biggest miss, and what did you learn from that?
- WQWill Quist
Maybe there's a lot I miss. I mean, I've been dealing with this company for a while.
- HSHarry Stebbings
(laughs) Is it, it's really embarrassing, what is it?
- WQWill Quist
The, uh, we were, we were, we were very price sensitive on Deel. Like, and that was a bad idea.
- HSHarry Stebbings
On Deel like D-E-E-L?
- WQWill Quist
Yeah.
- HSHarry Stebbings
Yeah. So it was like, every round Alex came to me. And I thought he was amazing-
- WQWill Quist
Well, we were, we were, we were, we were negotiating to be the lead of the seed. And ha- uh, uh, literally were, like, this far apart and decided that was too far apart.
- HSHarry Stebbings
So what did you learn?
- WQWill Quist
So that was a bummer.
- HSHarry Stebbings
What did you learn?
- WQWill Quist
It's hard to have a, it's, it... I mean, this is the hard takeaway about price, right? Which is, like, it matters till it doesn't. So I don't know that I have a good (laughs) core learning that you can take and extrapolate and use over and over and over again.
- 46:47 – 50:16
Internal Mindsets over Goal Orientation
- WQWill Quist
- HSHarry Stebbings
I think one thing that I learned from one of my failures, which was an interesting one recently, was that internal mindsets around goal orientation are s- much slower to change than strategic decisions to change them. And what I mean by that is, we, as a company, need to optimize for capital efficiency on a per basket basis. Changing to that mindset from growth, growth, growth is impossible overnight. When you have 100 people, there is a significant time lag between strategic decision made and employee mindset and how they focus and prioritize. It does not happen overnight. It's six months.
- WQWill Quist
Absolutely.
- HSHarry Stebbings
I didn't anticipate that.
- WQWill Quist
Well, uh, the way, uh, what the, the lens I use the most that's the most helpful to me as, like, a career finance stock picker person who hasn't worked in one of these large orgs and understands it's a major blind spot of mine is to try to figure out what part of the organization is in special forces mode and what part's an infantry.
- HSHarry Stebbings
What do you mean by that? That's fascinating.
- WQWill Quist
Founders are special forces. Founders are, are, operate with lots of subjectivity, and, and I, and I like to think go in and you kinda go, "Yeah, you know, I've got a set, set of tools, a, an objective, no real path to it." Like, it's al-... I always go, you, you send the seals in when you're like, "Go secure that town. Jump out of an airplane with a couple different weapons and a plan you come up with yourself and call us when it's secure," right? But what, and they do an unbelievably effective job at it, more so than you could do with a thousand people put against it, right? The, the, the cost of that output is dramatically different. Once you've, once you've secured that objective, building fences and putting supply lines in and thinking about troop movements and how many Humvees you're gonna need, that's a totally different skillset set than special forces. Does that make sense?
- HSHarry Stebbings
It totally does.
- WQWill Quist
'Cause with special forces, they're like, "Yeah, tell me the, like, loosely the thing to do, and I'll call you when I'm done. And I'll get it done well."
- HSHarry Stebbings
... and so you need to understand that when investing in a company, in terms of what parts are which. Help me take that one second.
- WQWill Quist
Well, I think when you're, when you're running a co- I mean, when you're running a company, I, I think one of the things I talk to founders about is, like, you need to understand any given objective in the company, where it stands on, on kind of... I always say zero to one. The first time you do, something needs to be done by the leader of the SEAL team. Doing it the next 10 times, the SEAL team needs to manage it, right? It's special forces managing special forces. But doing it time number 11 through 100 is when you wanna bring the infantry in. You want bring, you wanna bring people who love, embrace, and have a depth in process, repetition, right? Refining, refining the standard deviations of outcomes in any given entity, et cetera. Um, (clicks tongue) and so I think it's a really great awareness for where you are in a skill set, all right? Do you have both skill sets? Do you love one skill set over the other? And then where are you as a company in terms of, of that repetition, and what do you need to bring in?
- HSHarry Stebbings
(laughs) Sorry, I was reminiscing on my own, like, mistakes in life, (laughs) um, when I was listening to you there, and I, I, I just... I'm using this as, like, tot- You know with the show, I just use it for, like, advice. Another fuck-up I had was I fucked up on, like, se- like, selling secondaries and when to get out. Last year, I had a chance to get out on a load of different options, well, you know, investments, um, and I didn't. I always believe the, "Hold onto your winners, hold onto your winners." I should have sold. Um, (laughs) uh, I really should have
- 50:16 – 52:55
When to Sell in the Secondary Markets
- HSHarry Stebbings
sold. Um, uh, how do you think about secondaries? When's the right time to sell, and how would you advise me, Will?
- WQWill Quist
Yeah, this is... And I gotta give my partner Sam credit on this one. I mean, I think, I think we're all learning the- I mean, literally anyone who's gotten skin in the game in the last 10 years is, like, learning the same lesson you are, which is you jumped in it a couple years after people. Um, this is prob- Uh, this might be one of the more controversial things. I, I, I'm not sure it's ever healthy to be in hold mode. I don't think you should ever mentally be holding, because, one, selling is really hard. Selling is emotionally hard, it's intellectually hard, and it's structurally hard in illiquid assets. Um, so being in hold and then reacting is wildly difficult.
- HSHarry Stebbings
Uh-huh.
- WQWill Quist
And so I've, we've kind of adopted this mindset of, like, I think you either are a buyer... Now, you may not have the capital or the right cost of capital, but I, I think you either see signals that tell you you would continue to accumulate, or you should mentally be thinking about selling. And that doesn't mean you sell tomorrow. That doesn't mean you sell three years from now. But you begin to build a mental framework of, "Hey, I've gone past the point where I'm comfortable adding," right? "What would it take? How would I get out? What would my logic be?" And so, again, I'm always looking for things you can do over a thousand hands of blackjack, and so that's become a really interesting way for me to, like, take action consistently, um, knowing that... I mean, I think the other thing you can do is, like, at a certain point of fund return, right, you just sell secondaries, which is a great heuristic. It's served a lot of early-stage investors really well, though I do think you may cut off the tail on some things that were obvious holds or things you would have still been in. You know what I mean? If you go through this lens of, is the business generating answers that say this is gonna continue to compound, or, or has price gotten ahead of itself?
- HSHarry Stebbings
So, I totally am with you on the, like, hold is, like, a weak position to be in. Um, I, I, I kind of align it to, like, pro rata, which is, I think pro rata's really lazy. I'm either, like, fucking aggressive to put money into Will's company, or I'm not. Uh, but I think that, uh, like, each of you-
- WQWill Quist
I, I think that meant- I, I think starting from that mental position is, like, a really helpful way to start thinking about secondaries, and liquidity, et cetera. Uh, it won't, uh, it's like, again, I don't have magic bullets. I'm just intelligent enough to know I don't have all the answers and there's lots of nuances, so I have a hard time with one-size-fits-all. But, like, that's been s- that's been a key learning of mine in the last year that's been really fun to backtest. Um, and it, and it,
- 52:55 – 55:57
How do you think about reserves?
- WQWill Quist
it changes how you view things.
- HSHarry Stebbings
How do you think about reserves? I think reserves are gonna be very different moving forwards. Before, if we didn't take out reserves, no one gave a shit. There was so much money, it was like, oh, you'd almost fight for your reserves. Like, now I think we're gonna see a completely different environment around reserves, uh, how future investors see us putting in reserves. How do you think about that today, especially moving forward?
- WQWill Quist
(sighs) Um, I mean, I understand the two camps who are like, "Put low-cost-basis things in there, keep your absolute valuation low, add up the number of call options, don't do reserves." I, I, I totally, I understand that logic. I also think if you can get disciplined about your underwriting, right, you may, I think you, you increase the overall capital you can return, and so I-
- HSHarry Stebbings
Well, there's the opportunity cost on that capital, though. This is what I have, which is like, yes. I had this the other day, which is like, "Yes, I've got a great company, but I'm going in again at a 300."
- WQWill Quist
Yeah, but this goes down to what's your opportunity cost, right? If you have, if you have limited partners, right, who are suppor- This goes to your cost of a bullet, right, back to cost of a bullet.
- HSHarry Stebbings
Sure.
- WQWill Quist
If you're somebody that's confident in your cost in a bullet, right, then you'll, you'll use it in attractive situations, even though it may be in 10x and not 100x, right?
- HSHarry Stebbings
Sure.
- WQWill Quist
And understand, and understand that. Um, so I think that's one lens to bring to it, is, how expensive is this bullet? Which is very manager, GP-specific, it's fund-specific, it's firm-specific, that, that answer. Um, and I do think you can get disproportionately good at underwriting. Like, I think in companies that are really important and high-quality... Now, the question is, how good can you be at being honest with yourself in looking for those? You're almost always better off accumulating stock in those companies over the first eight years of their life-... than you are in any diversified venture portfolio. Right? So like I, I would just pause it that those are the two extremes and I think it comes down to your own opportunity cost of capital, and what skill set you think you've refined the most. I mean, this is something we've talked about, and like one of the reasons I initially got involved in Slow back to I, I, I was good at things they weren't. I'd spent my life at B, C, D, right, at, at that kind of later stage, and so it was this interesting lens to have somebody who was more comfortable underwriting that st- that st- that stage of asset in an early stage partnership.
- HSHarry Stebbings
Tough question. What firm do you admire the most?
- WQWill Quist
Sequoia. Not even a tough question.
- HSHarry Stebbings
Why?
- WQWill Quist
I, I think it's one of the most run- well-run businesses. I, I think it's a top two or three investment management firm in the world, and one of the most well-run businesses that, that I can see. I think they do ... I think they've ... I mean, back to like my, my, my, my five questions on enterprise value, like is arc of history in their favor? Absolutely. It, it, and it, and it always has been. Will the world work in a way that's advantageous to them going forward? Yeah, I, I think absolutely.
- HSHarry Stebbings
Do you agree? So I, I, I'm totally with you. I, I would've said the same. It's annoying 'cause I often agree, and
- 55:57 – 58:15
Is success in Venture cyclical?
- HSHarry Stebbings
now I try and be more different. Um, uh, but, um, I, I agree, but I-
- WQWill Quist
(laughs)
- HSHarry Stebbings
... I always think, like, success in venture's cyclical. Do you agree with that? It's like, you know, great firm gets great company, which leads to more great entrepreneurs wanting great company. It's this self-fulfilling flywheel, I often think. And I said that to Doug Leony when he was on the show, and brilliantly humbly he was like, "Huh, I would love that to happen, but people don't just go, 'Oh, Doug, here you go, take my unicorn future company.'" Yeah, it's a fight.
- WQWill Quist
Yeah. No, no, I, and, and that's what I really adm- I, I, I don't think it's, I don't think that's what's made them special. And, and I th- I think they're, they're extremely ... So I got really lucky. Don Valentine was a contemporary of my grandfather's, and was a friend of his, and early on, um, I got to spend, like I, I, my grandfather passed away when I was young. It's a longer story, but, um, I asked my dad, I said, "Do you think when I join an industry," I was just getting a no name firm, right, coming out of the left field, and, and he spent some ... I, I got lucky to get a couple one-on-one sessions with Don Valentine back in the day. And it was clear from that get-go that they looked at it, they looked at this as a product and a business, right, that they came at, to this, uh, that this wasn't a purely subjective, artistic endeavor that was kind of up to your ability to read tarot cards, right? Like, he understood from, I think, I think, if not the get-go very early on, that this was a business that you needed to ask those questions that we talked about earlier of yourself, come up with answers that are theories are real, and, and execute on them. And so I think they've had that DNA from the get-go to really think about is the arc of history in our favor? Do we need to create new product sets, right, that create absolute and relative value? Do we have a sense of what the market size is gonna be? What are we betting on? Have we thought about how we continue to defend ourselves, right, and how does that come... I, I ... implicitly or explicitly I think, I think they take that level of, uh, uh, uh, uh, or that view of their business and they do a great job of continuing to innovate, add S curves, right, back to great companies that continue to add a column to their business very intelligently or revisit a prior column and realize that the defensibility may be going away and they need to add to it. So, I, I, I, I don't think that's who we'd wanna be. Like I don't think we have the DNA to aspire to be that, but when you go who do you admire and who do you learn from the most, if you're not saying Sequoia, I,
- 58:15 – 1:00:15
What does the future hold for Slow Ventures?
- WQWill Quist
I'd have a long debate over a beer.
- HSHarry Stebbings
I, uh, uh, listen, I totally agree. I think you're (laughs) insane if you don't. Um, question, final one, I promise, and then the quick fire. What do you want to be? Like often people ask me, like, "Harry, you know, at 20, VC, you got many directions. Where do you want it to be?" I know my answer. What, where do you want Slow and you to be?
- WQWill Quist
That's a great question. Um-
- HSHarry Stebbings
Do you wanna do multi-stage? Do you wanna do multi-
- WQWill Quist
No, I mean, my answer, and, and, uh, and I don't, I don't speak for my partners, 'cause we're con- I mean, we're the same where every, we sit down and revisit who we are, who do we wanna be, where do we go in the world. I mean, I think early on I think we would've said multi-stage. I think the amount of human capital and what it means on a daily basis to be a competitive multi-stage firm is not what we do, it's not our strength, it's not our DNA. Um-
- HSHarry Stebbings
It's also a different life. I think this is what people-
- WQWill Quist
... well a 100, 100%, right? It, it's ... and again, capital gains look the same. Like, you need to be the same way in certain bankers or private equities get on a plane at a whim because you need to go deal with it, right? Like, there's certain realities to running that model really well. Um, I've thought it's really interesting if you can marry being a very good venture classic craftsman, right, if you can sit and consistently think through non-consensus intelligent bets, right, that, that, that are risk adjusted in your favor, and then have an element of being a collaborator, right, going into the consensus game as a generalist collaborator, right, someone that i- in that function brings value not only to the companies itself, but also the other venture funds and general partners in the world, and it's not a perfect analog, but I, I, I often look to Allen & Co as someone who's done that really well, um, where when they're involved, they actually play a unique role even when, when another bank is at the table. And so, I've always been really intellectually curious to see if you could bring that model to bear in venture, where you marry a, a, a classic venture practice with a generalist collaborator model.
- HSHarry Stebbings
Will, we're
- 1:00:15 – 1:00:31
Will's Favourite Book
- HSHarry Stebbings
gonna do a quick fire round, otherwise I could talk to you all day. We should do this with like, you know, tequila next time. Um, tell me, what's your favorite book and why, Will?
- WQWill Quist
Professionally it's The Success Equation by Mike Mahmooshian. Not a, no, har- no, no full stop, everyone in venture should read it. It's
- 1:00:31 – 1:01:10
Most Underrated Angel Investor
- WQWill Quist
... it, it, it changed how I operate day-to-day.
- HSHarry Stebbings
Who's the most underrated angel in the ecosystem and why?
- WQWill Quist
Mark Goines.
- HSHarry Stebbings
Why?
- WQWill Quist
He ... Mark ... uh, uh, to me, I never worked with Bill Campbell. I mean, a- and, and he der- he, so Mark was at Intuit back in the day, was a VC for a while, and now-... kind of plays the independent advisory role for founders, especially in FinTech, and he's just an amazing mix of he understands the investor lens, the investor ecosystem. He understands organizational challenges. He under- has founder empathy, and he's got very independent, tactical, logical advice
- 1:01:10 – 1:02:00
What will happen to Tiger Global?
- WQWill Quist
across the spectrum of, of what a founder might encounter.
- HSHarry Stebbings
What happens to Tiger from here?
- WQWill Quist
That's a very loaded question. Um, I think they retrench, probably at slightly smaller scale on the private side. Uh, the public book, I don't know. There aren't a lot of firm- not a lot of public books that have recovered from being down that far, um, but they're kind of an unprecedented institution in general. I think a lot of what they believed was right. I think they probably were putting out maybe too much capital or had, had too loose a filter. But this idea that companies very quickly become growth stage, right, where you can take the data and model it, and b- and once you, once you kind of feel comfortable about the de- standard deviation of outcomes, build a portfolio around it, I think is correct. And so I, I think it's probably a smaller quantum of capital,
- 1:02:00 – 1:02:43
What would you most like to change about the world of startups?
- WQWill Quist
at least on an annual basis, but that the overall hypothesis was largely correct.
- HSHarry Stebbings
What would you most like to change about the world of startups, Will?
- WQWill Quist
I, I wish founders slowed down before they ran out the door and really understood why, why they were, where do they have, uh, unfair insights in the world? What's their theory on building a product with value? What's the right capitalization path? That's probably the biggest thing. Like, I'm not... Venture to me, as I've made clear, is a very specific product. And, and I think a lot of folks seek it that don't necessarily need it or are not a fit for it. And so I wish there was just more of a universal understanding of what calls for venture and what doesn't. I think that would
- 1:02:43 – 1:04:31
What have you most recently changed your mind on?
- WQWill Quist
save a lot of, uh, time and heartbreak for all parties.
- HSHarry Stebbings
P- penultimate one. What have you recently changed your mind on?
- WQWill Quist
That's a great question. I've gotten really fascinated by branding.
- HSHarry Stebbings
Really?
- WQWill Quist
I think, like, yeah. It's a-
- HSHarry Stebbings
You should apply it to yourself, Will. (laughs)
- WQWill Quist
I should. Well, I, this, okay, so applying it to myself is interesting, right? Which is I, we went through a period, at least in my venture career, where everyone spent too much money on branding too early.
- HSHarry Stebbings
Yeah.
- WQWill Quist
Right? There was, there was, "Hey, we're gonna, Seed Round, we're gonna take $350,000 and go work with someone on brand, brand identity, and a brand plan." So the hard pivot away from that was like, "Don't brand. SEM," right? "If you're gonna spend marketing dollars, have it be performance oriented. Lots of stuff metrics." And I, and which, which made total sense to me. I think we've over-rotated. So I, I'm very, I've changed my mind that branding is more important than I thought it was. And I'm-
- HSHarry Stebbings
For co- for companies or for funds?
- WQWill Quist
For companies, sorry. I mean, for, for any company, and a fund is a company.
- HSHarry Stebbings
All right, great.
- WQWill Quist
And I've gotten really fascinated, though, about the right time to lean into branding, um, and it's, uh, I've changed my mind that it's really important. I've started sending more founders to meet with branding specialists, but I'm trying to really understand. I think there can be a magical moment, and it's different for each company. For me, it has a lot to do with value proposition, 'cause I think that's the core atomic unit of any great company, and I think there's a point at which you have enough case studies, you verified that you actually create a lot of value in the market, and continuing to go through performance marketing, which has diminishing returns, is probably not the highest operating leverage way versus getting brand and brand awareness, right? And going for more subjective,
- 1:04:31 – 1:04:58
Do VCs do branding well today?
- WQWill Quist
soft ROI spend. I don't have an answer, but I've changed my mind, and I'm fascinated by it.
- HSHarry Stebbings
Do you think VCs do branding well today?
- WQWill Quist
I think new, successful, new venture, absolutely. They're great at it.
- HSHarry Stebbings
Who would you say is great at it?
- WQWill Quist
I mean, anyone outperforming, I mean, I think Sequoia does great, Andreessen does great, Benchmark in their own way does great, Founders Fund does great. Like, they've all made really
- 1:04:58 – 1:07:04
Will's most recent publicly announced investment
- WQWill Quist
great, I think, intentional branding choices.
- HSHarry Stebbings
A final one for you, my friend. What was the most recent publicly announced investment, and why did you say yes and get so excited?
- WQWill Quist
That's so hard. Oh, well, can it be a follow-on? We haven't done many new investments lately.
- HSHarry Stebbings
Whatever it is. When was capital out the door?
- WQWill Quist
Um, the most, well, one got announced yesterday, which is Fair Square Medicare.
- HSHarry Stebbings
Okay.
- WQWill Quist
Um, and we, we got excited for a couple reasons. One, it was a founder who was just executing, right? It, it's been a space, so he's starting a, an, a Medicare brokerage with the idea that you can bring much more transparency and a more, more 2022 buying experience and take a ton of market share in that, in that way, in a high operating leverage way and outside of a traditional call center brokerage. And he was just, so, yes, logically, is, is my mom gonna buy Medicare different than my grandmother did? Absolutely. That, that hadn't been mixed up, and there were a few startups that went after it, Chapter and some others, and, and Daniel was just executing. So we continued to pour money in. He just announced a round from Lyn at Define, uh, Lyn and Chirag at Define. What was really interesting to me is I, I, in digital care, I think the way you're going to bri- Everyone's gonna have a digital care platform, every demographic, where you, you deal with a lot of your health issues there and then you bridge that with the offline world. I think the way to get there with seniors is to start, what's the most common problem they all have? Making sure they transition to the right and br- right Medicare plan. And so what got me to a yes was a, was a, a guy delivering value, executing in the markets, who had several S-curves that I thought were pretty logical ahead of him.
- HSHarry Stebbings
Well, listen, this conversation has taken many twists and turns. Uh, I would love to go for a drink. I think we'd have much more fun with a tequila in hand.
- WQWill Quist
I, yeah, I'm...
- HSHarry Stebbings
You, you are a star for putting up with my, uh, wayward turns, but thank you so much for doing this, man.
- WQWill Quist
Yeah, man. This was really fun. Like I said, eh, eh, coming on your show teaches you a lot about what you think.
- HSHarry Stebbings
(laughs)
Episode duration: 1:08:44
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