"We're in an Era of Agent-to-Agent War." Index Ventures on AI & Cybersecurity

1. 0:00 – 0:54

   Shardul Shah, Partner at Index Ventures

   1. SSShardul Shah0:00

      Wiz was, like, the fastest-growing company. It was the largest tech M&A of all time.

   2. MOMolly O'Shea0:04

      Index has an AUM around 17 billion. That's what was last reported by Bloomberg. You had an 11X DPI on Index's 2012 fund, compared with an industry average of 1.5X.

   3. SSShardul Shah0:16

      We're no longer an underdog. The industry of venture is industrializing, and it's something very different over the last five years than the prior 25. We are in an era of agent-to-agent war, but we're transforming our business with AI, for sure.

   4. MOMolly O'Shea0:30

      What is Flapping Airplanes?

   5. SSShardul Shah0:31

      It's the greatest army of under-23-year-olds. Sensational, the technology that they've built, and I'm pretty confident they're going to break some world records in the next couple months.

   6. MOMolly O'Shea0:42

      Of what?

   7. SSShardul Shah0:42

      You'll have to wait and see.

2. 0:54 – 4:00

   How venture has changed in the last 5 years

   1. MOMolly O'Shea0:55

      Shardul, welcome to Sourcery.

   2. SSShardul Shah0:57

      Thanks very much for having me.

   3. MOMolly O'Shea0:58

      Well, thank you for having me here in the Index Ventures New York office. We just got back from your SF office last week, which also was beautiful. I know you've got a lot of travertine around here, some nice interior design, like, all the good stuff. We talked to a couple of your portfolio companies. June from Simile, who was... Like, I was not ex- That was a crazy conversation. I was-- I thought I was getting... And for people who haven't watched it yet, I'm gonna totally bait you, but, like, I thought I was b- having my brain, my brain read the entire time.

   4. SSShardul Shah1:30

      It's-

   5. MOMolly O'Shea1:30

      My mind read.

   6. SSShardul Shah1:30

      It, it was actually happening. Yes.

   7. MOMolly O'Shea1:32

      Yeah. Yeah. I mean, he did, he said he did a simulation on me beforehand, so he, like, predicted the whole thing. And then we also talked to Parag from Parallel, and what I think will be really interesting to talk to you about today is the history and the evolution of Index and where it meets today in this era of AI wacky craziness. One thing that Parag mentioned was, like, we were so used to triple-triple double-doubles back then and what he expected when he was at Twitter and back in, like, you know, historic tech days, but now he's expecting 1000X. The measurement of the venture world and startups has completely changed with the proliferation of AI, so I wanna go through that. But yeah, I mean, I guess to start, so Index has an AUM around 17 billion. That's what was last reported by Bloomberg. So I'd love to get your perspective. You joined the firm back in 2008. So give us the state of Index Ventures.

   8. SSShardul Shah2:29

      So I started at Index as an intern in 2004.

   9. MOMolly O'Shea2:32

      Oh my God.

   10. SSShardul Shah2:32

       I don't think that really counts, although I'm really proud of it.

   11. MOMolly O'Shea2:35

       It does count.

   12. SSShardul Shah2:35

       Um, but I came back in 2008. When we started Index 30 years ago, it was three people. A- and today we're 93. So I spend more time thinking and sweating and, uh, dreaming about our people than our AUM. I, I think it's actually the most important, um, metric. And I think how we've, you know, changed, uh, and un- how we've not changed is super interesting. And, and I think part of respecting where we came from shouldn't limit where we need to go. And so although I, I like that you picked up on the travertine, um, uh, I think you've also noticed a bunch of the other, uh, tastes. Um-

   13. MOMolly O'Shea3:15

       Like pumpkins?

   14. SSShardul Shah3:16

       Uh, there are pumpkins. Uh, there's eclectic music, there's eclectic literature. Uh, the linen, uh, i- in this room is also fantastic. A- and that I think has been true for Index from the beginning to today. There's an enormous attention to taste. When you think and talk about measurement, um, I think it's super interesting, right? The industry, um, of venture is industrializing. Um, and it's something very different over the last five years than the prior 25. And I think in that phase of industrialization, so many people are thinking about, uh, patterns or numbers and measurement and scale that, uh, it, it kind of, um, creates more distinction around how focused Index is on

3. 4:00 – 5:35

   Index's biggest investments

   1. SSShardul Shah4:00

      taste.

   2. MOMolly O'Shea4:00

      So let's go into your portfolio a bit. You have some pretty big-name hits, like you were an investor in Wiz. I named a couple of the other companies today, but what are some of the ref- like, reputable or I guess, like, what are some of the companies that you've been most proud to back?

   3. SSShardul Shah4:17

      I would start by saying what I'm most proud of is, is the n- number of different partners at Index that have contributed to success. Usually in venture, there's the power law that leads to concentration, not only in terms of returns, but concentration of returns amongst very few partners. And so it's at the, it's at the root of why succession, um, is really difficult in the venture industry. But you often have, like, a couple of star partners at big-name firms. What's amazing about Index is Jan, Marton, Danny, Sahir, Nina, Hannah, myself all have association with terrific investments, and that's just the current generation. If I think about prior generations, each of Neil, Giuseppe, Mike, Dom, Bernard contributed to outlier outcomes, and that's really unusual and rare, and I think at the heart of what we're most proud of.

   4. MOMolly O'Shea5:10

      And so what are the names of Index's, like, hall of fame?

   5. SSShardul Shah5:14

      There's many. So if, if I think about, uh, what are, uh, what are our, some of our most important investments, Revolut, which is probably the largest technology company ever out of, uh, Europe, uh, Datadog, uh, Wiz, Adyen, Robinhood, Figma, ClickHouse, the li- Roblox. The, the list goes

4. 5:35 – 8:41

   What Index looks for when backing founders

   1. SSShardul Shah5:35

      on.

   2. MOMolly O'Shea5:35

      In terms of evaluating startups today, I wanna go back to this because I think it's really interesting, your point on venture being industrialized. Um, how you're evaluating companies today, I would assume, is completely different than ever before. Maybe it always comes back to the founder, but there are many things that go into that analysis. How has that changed, and what are you looking for that's different?

   3. SSShardul Shah6:01

      I think it is all about the people, particularly at early stage. Take Wiz as an example. Uh, when we invested, um, we invested on my birthday before there was a, a business plan, right? And so there wasn't a market, there wasn't a business model, there wasn't, um, metrics to analyze. It was all, literally all about the people. Now, I had an advantage because I served on Asaf, Roy, Ami, and Yinon's board 10 years prior, and, and so I knew them as human beings. I, I knew their flaws, I knew their idiosyncrasies, and I sti- still had belief in who they were. I think that's, uh, the craft that we've been really honing, which is how to really listen to entrepreneurs to, to find belief in them versus looking for phenotypes or specific attributes that we check a, a list of. Of course, entrepreneurs have to build durable businesses. And so, or particularly in markets like this where, um, abundance comes with exuberance, um, there's no doubt that sometimes entrepreneurs can confuse revenue with durable business models. And so there is an art to study-

   4. MOMolly O'Shea7:11

      Or they don't know how to define revenue. [laughs]

   5. SSShardul Shah7:13

      Or yeah, e- e- even more basic, right? Um, but I think there's a, an importance of the fundamentals of building a business, but it all starts with the people.

   6. MOMolly O'Shea7:23

      So let's get into that. What are the key traits that you're looking for in these founders? What are those indicators?

   7. SSShardul Shah7:27

      I, I really don't look... I, I don't have a, a starting point of these are the traits that I look for. I really try to listen to an entrepreneur. So I'm not listening for something. Uh, I'm not looking for a pattern. Um, I think patterns, um, uh... Like, I understand the utility of patterns, right? It supports industrialization. If I could define three patterns, then I could put thousands of entrepreneurs through a filter and make decisions, and I could play statistics at scale, right? For some people, that's, like, really fun and exciting. To me, that's not a craft. Now, I'm not saying it's a dark art, and it's, it's just intuition and a gut instinct that no one but us can appreciate, but the reality is we try to really listen to so- who someone is. Like, what, what are their defining moments in their life that determine their motivation and their grit and their ambition? And sometimes people evolve and change, right? Uh, just like you're thinking about how a, a podcast can generate a business that supports, you know, cash flow so that you can get back to the roots of, of family office. Like, sometimes the world opens up, uh, with more possibilities depending on the path you take. And so I think to be a real business partner to someone, it starts with listening versus pre-conceiving who they have to be in order to have

5. 8:41 – 9:17

   Will AI replace venture capital?

   1. SSShardul Shah8:41

      success.

   2. MOMolly O'Shea8:41

      I think Marc Andreessen historically once said that the only industry left once AI has taken over will be venture capital. [laughs]

   3. SSShardul Shah8:51

      Right? It sounds like mathematicians from... I, I know we don't wanna date this, but from a few weeks ago-

   4. MOMolly O'Shea8:56

      Yeah

   5. SSShardul Shah8:56

      ... when, um, OpenAI released 700-plus, uh, papers, and a number of mathematicians were concerned with the PhDs that they're working on. Like, the last field to be taken over is, of course, ours. Um, but I think there's an opportunity around relationships and taste and, and judgment that, uh, can persist and, and be durable, but we're transforming our business with

6. 9:17 – 11:35

   What’s durable when AI moves this fast?

   1. SSShardul Shah9:17

      AI for sure.

   2. MOMolly O'Shea9:17

      So you mentioned, and you guys have invested in a handful of these AI companies. It is, like, the time and place. You cannot ignore it. It is a major focus. I'm really curious. Of the conversations I've had, it seems like the behaviors of these companies were very early on. A lot of the behaviors of this, like, early inning is it's a high-testing environment, low retention. I don't know if you're seeing that. I don't know what the key kind of, um... If you can deduce any of this down to, all right, we're in this point in time, and this is what to expect, or here are the outliers, that's what they're doing. But it does seem like we're in a very low-retention, high-testing environment. I don't know if you're noticing that.

   3. SSShardul Shah10:00

      It's a super interesting framework. Um, there is a question of, um, what is durable? And I think the challenge to that question is the world is moving so fast. When model capabilities, right, um, are emerging every, from every year to every six months to every few months, the world is completely changing. And so what could have been retentive yesterday may not be retentive tomorrow. And so the, the, the evolution is changing in terms of assessment of durable business models as a function of the market environment. So what doesn't change? Um, we look for entrepreneurs that are really adaptable. Um, uh, an example of, uh, what I, what I listen for in entrepreneurs is duality. I, I, I look for people who can hold duality with comfort. Um, an example of this is to be very imaginative, um, like left br- brain creative as you were, right? Or I should say as your parents were, and you're born in this, like, creative household, yet have, like, detail orientation and operational excellence. When people have, like, a left brain, right brain together in one, it's really rare, um, and very profound and, and powerful. It enables, uh, adaptability. And so when you can feel someone's duality, at least for me, it can inspire belief. That makes them more resilient to a market environment that's changing very rapidly and identifying the market or the business model or the product that might be more retentive and valuable to a, a- an end customer, whoever

7. 11:35 – 15:12

   Why Index doesn't worry about valuations

   1. SSShardul Shah11:35

      that is.

   2. MOMolly O'Shea11:35

      How do you think about price sensitivity and valuations?

   3. SSShardul Shah11:39

      I don't.

   4. MOMolly O'Shea11:40

      You don't? [laughs]

   5. SSShardul Shah11:40

      No, not really. I think... Look, I'm a University of Chicago economist, a- and so, uh, or econ- econ student. I shouldn't say I'm an economist. I believe in supply and demand, like Economics 101. Uh, today the private markets are still relatively small in terms of total, um, capital and assets in the world. It's w- it's one direction. There's only going to be more flow of capital into private markets. Um, although I do believe there will be more, um, outcomes that are bigger on average and higher in terms of amplitude, um, it's still a finite set. And so you're gonna have more capital chasing relatively few outcomes. That means prices should go up. Um, that's number one. Number two, it's perfectly rational to have irrational behavior in markets, in, in highly competitive markets. So prices are high, fact. Prices will get higher. That's a fact. Um, the question is, are you partnering with the b- with the best entrepreneurs? Um, it's not meant to be a truism. Um, uh, but we found at Index one of our sins of omission is being cute on price. And, um, whether it's a GitHub or a variety of other mistakes that we've made, when we've been cute on price, we haven't exposed ourselves to the best outcomes.

   6. MOMolly O'Shea13:03

      Say more about that.

   7. SSShardul Shah13:04

      Sure. When we're kind of 25% off on price, it doesn't matter, right? Like-

   8. MOMolly O'Shea13:09

      Really?

   9. SSShardul Shah13:10

      Yeah, absolutely. I think when we're 2X off on price, right, then the question is, like, what does someone else believe that we do not? And that's a really interesting opportunity for inspection. But it's not losing on price, it's not winning on price, it's, it's a sense of belief in what the opportunity for a company is. But when you're within, like, 25%, the, the answer is you should go for it.

   10. MOMolly O'Shea13:32

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8. 15:12 – 16:33

   "We're no longer an underdog"

   1. MOMolly O'Shea15:12

      learn more. So Index sits in the bucket of mega funds. You guys are very large. As a fund that is also a bit under the radar, you know, you guys don't do many interviews. Like, the brand is, is, like, high quality, but it's, it's kinda quiet. Um, how do you think about competition? How are you competing with the likes of these highly marketed funds?

   2. SSShardul Shah15:35

      Yeah. Well, thank you. I hope you're gonna help us with that. [laughs]

   3. MOMolly O'Shea15:38

      [laughs]

   4. SSShardul Shah15:39

      The heart of Index is humble. We really put the emphasis on our founders. They deserve the spotlight. Um, that results in a bit of discomfort with, uh, putting the spotlight on ourselves. And in the past, you know, 30 years ago when we were just getting started as a firm focused on Europe, a market that was underappreciated by, um, great investors on the West Coast, we had an underdog mentality. Um, I think in light of the returns that we've generated and the relationships we've forged with great entrepreneurs, we're no longer an underdog. Um, but we need to grow out of the discomfort of, of playing that, uh, role. And so, um, we've got more to do, um, in our own way, uh, that's authentic. It's not at all guided by competition and how they do or don't participate. Um, I think the, the, the core of it is to be authentic to ourselves.

9. 16:33 – 17:22

   The hardest part of winning deals

   1. MOMolly O'Shea16:33

      If it's not price, what is the hardest part of winning deals in this crazy market right now?

   2. SSShardul Shah16:39

      I think it's always conviction. Can you find belief in an entrepreneur? Uh, for me, um, part of that is related to the connection that I feel. Um, again, at Index we're an equal partnership, so there's very little ego. There's very little credit on who led what investment, which is why, again, we're so proud of having so many different partners participate i, in our outcomes. It's about finding who's gonna have the most connection with an entrepreneur to find belief to drive the investment. I'm really idiosyncratic. Not everyone connects with me, uh, nor do I connect with everyone, and so finding that connection is the hardest part. Once we have it, um, we move fast, we move aggressively at the appropriate price, and,

10. 17:22 – 18:25

    Inside Index's investment committee

    1. SSShardul Shah17:22

       and we can win.

    2. MOMolly O'Shea17:22

       What's a typical partner meeting like?

    3. SSShardul Shah17:24

       Hmm. I don't-

    4. MOMolly O'Shea17:25

       Do you have them?

    5. SSShardul Shah17:26

       We, we do have partner meetings. Uh, I think you're referring to investment committees, but-

    6. MOMolly O'Shea17:30

       Yeah

    7. SSShardul Shah17:31

       ... uh, we have, uh, partner meetings as well. What entrepreneurs should expect is, um, they, uh, present to our group for 30 to 45 minutes, and then we deliberate for 30 to 45 minutes, and we make a decision. Those tend to be conversational. Um, they're highly engaging. Um, we're, we're, um, trying to create an environment that demonstrates to an entrepreneur the intimacy and the relationship they'll have with our entire group. Um, we manage those committees, um, to have high quality but fast decision-making. And so for smaller investments, we might have a smaller quorum. For larger investments, we might have a larger quorum. For example, for a million-dollar investment that we'd make, it might be three people. For a, a $100 million-plus investment, it might be six-plus people. Um, a- and the objective is, again, to create the best experience for the, for

11. 18:25 – 21:13

    The founder who proved his investor wrong

    1. SSShardul Shah18:25

       the entrepreneur.

    2. MOMolly O'Shea18:25

       What are the biggest challenges that most of your portfolio companies are facing right now? Is it compute? Is it marketing? Is it- Just testing? Is it getting their product out? What are they facing the most?

    3. SSShardul Shah18:38

       If you don't mind, just to go back to your prior question, there's another stakeholder that I just wanna highlight. Um, because some folks that, that listen may wanna join Index, um, uh, and be mentored as an investor in, in their careers. And so we also think about how to create a learning environment for individuals. Um, that's actually pretty tricky when you're trying to create intimacy for a founder. And so not everyone at Index gets to participate in a investment committee, but we make great effort to pre-brief, pro- post-brief, and collect perspectives for the ent- entire group. And that spirit of mentorship w- we can come back to is, is again, um, part and parcel of why we've had so much participation as in- investors and outcomes. Your question, uh, that I evaded. I apologize.

    4. MOMolly O'Shea19:22

       [laughs]

    5. SSShardul Shah19:23

       Could you repeat?

    6. MOMolly O'Shea19:23

       The, the biggest- What are the biggest challenges or the biggest problems that you're seeing founders face in your portfolio right now? Is it, you know, meeting the expectations of this high-growth period? Is it compute? Is it access to that? Is it whether or not they wanna decide to become a Neo cloud or a coding agent or a personal agent and become like Instinct? Like, what do you find as the biggest problems that they're facing right now in this market?

    7. SSShardul Shah19:50

       Yeah. I, I think it's expressing oneself. So I'll give you an example. Um, Karan, uh, at Cartesia. Um, Cartesia's building a, a voice AI business. Um, I joined Karan's board about a year, year and a half ago, and initially I gave him conventional wisdom, which is, like, do very few things and do them with excellence. Then I got to know Karan, and, uh, Karan is an explorer. Like, he's an, he's an adventurer, and the way for him to express himself is to explore and adventure. And so initially I told him, "You shouldn't run this part of your business. In fact, you should shut it down. It's successful, but, like, burn the boats and focus on this." He ignored me. Um, actually, I think my perspective, like, lit a fire in inside, inside him. He got upset with me and wanted to prove me wrong, and he was completely right. And so f- in some ways it was really easy with Karan to disagree, to give him perspective, but then have total belief in him to support any decision that he wanted to make. And I think when, um, entrepreneurs get supported and seen for who they are, um, all of the other things take care of themselves, whether it's compute, for example, where to focus their business, who to hire when and where, um, or how to scale with what level of aggression into a, a crowded or difficult or confusing

12. 21:13 – 22:59

    The lessons behind saying no and thinking bigger

    1. SSShardul Shah21:13

       market.

    2. MOMolly O'Shea21:13

       So over 30 years, I can imagine that Index has seen a few things, and the place where founders, people, entrepreneurs looking to build businesses learn the most is through mistakes and these really challenging moments. What have been some of those defining ones that you've seen that are really good lessons over and over again?

    3. SSShardul Shah21:41

       The- One of the hardest challenges you encounter is when do you say no? Um, this can show up in small places and big places, but learning to say no, um, i- is an incredible lesson. It- The first blog I ever wrote -- I know y- you say we've been under the cover and we haven't written anything. The first blog I wrote was, it was titled, I think, roughly, "Learning to Say No", and it was pointed at Asaf, Roy, Yinon, Ami when they were running a company called Adallom. Years later, uh, they did say no once to an acquisition offer from Google. They didn't say no the second time. They knew exactly where I stood. But l- that two-word, [laughs] two-letter word created an enormous amount of value for themselves and for shareholders. So learning to say no, I, I, I think is, um, incredibly important. Number two, at, at Index, uh, for, again, investors that may wanna join us, we systematically underestimate the size and magnitude of category-defining companies. Um, that's really challenging. Um, and to continue to dream, um, uh, to believe in entrepreneurs sometimes more than they believe in themselves can unlock, uh, the ability to double down in businesses over time and, and grow, uh, influence and ownership.

13. 22:59 – 26:10

    The next wave of AI founders

    1. MOMolly O'Shea22:59

       A lot of people obviously know about Anthropic. That's one of your portfolio companies. Everyone knows about these huge trillion-dollar companies that are, like, really crushing it. But there is a next wave of AI that it might be humming around on X or in, you know, the news, but I wanna hear from you, like, what makes this new wave of AI investments, and what are you guys, like, working on? What's your thesis there?

    2. SSShardul Shah23:25

       We have a lot of domain expertise within Index, whether, um, Jan in fintech or Marton in, uh, marketplaces, uh, myself in infrastructure security, Nina in robotics, Danny in consumer. Th- there's, there's a lot of domain expertise, and so I can appreciate why you might ask about what's our thesis and thematic approach, but it's actually all about the people. And so wh- when I think about, uh, a more recent wave of entrepreneurs, um, we weren't targeting 26-and-under founders when we decided to invest in Flapping airplanes or, uh, Ben and Asher at Flapping Airplanes, and Aiden, excuse me, or June, uh, Michael, and, and Percy at Simile, or Moritz Stefan, uh, at Hone, um, or Karan at Cartesia. Like, we, we, we don't have a 26-and-under screen. But when all roads pointed to Ben as one of the m- most special entrepreneurs of his generation, we wanted to invest before w- we knew what he was working on, and in fact, before he knew what he was working on. Um, and as a consequence, you, you actually see a, a variety of different themes. You talked about, like, mind reading, uh-

    3. MOMolly O'Shea24:42

       Yeah

    4. SSShardul Shah24:42

       ... with, with June.

    5. MOMolly O'Shea24:43

       [laughs]

    6. SSShardul Shah24:44

       I love science fiction, right? And so simulation is super fun to think about as a core pillar in most science fiction. But I, I wasn't going into a meeting with June thinking about, "I wanna invest in a simulation company." Like, I saw him, I understood him, I felt him, and wanted to get behind him no matter what he was doing. Prague at, at Parallel, again, he did not know the business he was creating, but we had belief in him that went beyond his celebrity, um, which is, I think, one of the reasons, um, he, uh, asked me to join the board at the seed stage because I didn't invest in him because of his celebrity. I invested in, in him because of my view of his character and his competence. There isn't really a, a thematic, um, overlay. We, we don't think in terms of, uh, a coverage. Um, we don't think about these statistical measures. What, what we really aim for is, are we the largest and most influential entrepreneur in category-defining companies? To do that, we try to get involved as early as possible. Sometimes we make mistakes. We don't connect with the entrepreneur. Then we try to get involved as quickly as, as we can. The idea of domain expertise, the idea of diverse perspectives gives us an apparatus to make those, uh, catch-ups as quickly as possible, and then we have great, uh, diversity of funds from a seed fund to venture fund and a growth fund to then execute on the strategy.

14. 26:10 – 26:47

    Inside Flapping Airplanes

    1. MOMolly O'Shea26:10

       What is Flapping Airplanes?

    2. SSShardul Shah26:11

       Well, you should definitely talk to Ben, Asher, and Aiden. It's the greatest army of, uh, under 23-year-olds who are building a vertically integrated business. It's sensational, um, the technology that they've built. It's astounding the level of interest they have from some of the key players i- in the industry, and I'm pretty confident they're going to break some world records, uh, in the next couple months.

    3. MOMolly O'Shea26:41

       Of what?

    4. SSShardul Shah26:41

       You'll have to, you'll have to wait and see.

    5. MOMolly O'Shea26:44

       No hints?

    6. SSShardul Shah26:44

       No hints.

    7. MOMolly O'Shea26:45

       Just some world records.

    8. SSShardul Shah26:46

       Just, uh, just

15. 26:47 – 30:56

    Did Wiz sell too early?

    1. SSShardul Shah26:47

       a big world record.

    2. MOMolly O'Shea26:48

       Oh. Cool. All right. [laughs] I'll be on the lookout. Anybody else breaking records? [laughs]

    3. SSShardul Shah26:54

       Um, y- you know, there, there have been, um... Like, records are meant to be broken, right? Wiz was, like, the fastest-growing company. It was the largest, uh, tech M&A of all time, and then the next year, it, it was, uh, supplanted. In my ZIP code of enterprise, uh, uh, I'd never seen a company, um, until the last six months, um, sell multimillion-dollar contracts. We're talking 5 to $15 million contracts per year within the first year of commercialization. So records are constantly being broken, but Flapping is, is working on something really significant.

    4. MOMolly O'Shea27:28

       Damn. By the way, I interviewed Gili Ronen-

    5. SSShardul Shah27:32

       Yeah

    6. MOMolly O'Shea27:33

       ... uh, at the start of the year, and he looks back and thinks that Wiz sold too early. They were sold at a... They could've been valued a little bit more. He thinks it was a, you know... They got a good deal.

    7. SSShardul Shah27:48

       Yeah. Gili, Gili's, uh... You know, Gili is, uh, a friend. Um, he and I served on the board of Odelum together, uh, and then served-- We both joined the board at the seed round o- of Wiz. We took really different approaches, uh, to that in- in- investment from start to, to finish. I think we're both super proud of what they accomplished in the period of time, but we have so much belief in the entrepreneurs, um, that, uh, that it's very convenient to say that they sold early. But the, the truth is I think both he and I believe it. I think public market security companies are, are p- are approaching, like, a trillion dollars of, of value. Again, I think that's in one direction. Uh, the category is s- is resilient. It's permanent. It's why we've been focused on it for, for over a decade. But who the players are I think will evolve. As one example, um, uh, Seven AI, which is a company we invested in together with Ashim, uh, at, at Greylock, I think has one of the largest opportunities in secure to rewrite the foundations, um, and take on multiple different players, uh, and converge budgets as a, as a type of solution, and that could not have been possible five, five, 10 years ago.

    8. MOMolly O'Shea29:00

       You think it's better to have a singular product and offering rather than multiple things changing all the time?

    9. SSShardul Shah29:04

       Depends on the customer, right? I, I think some customers... Again, we used to talk about it like you don't get fired for using IBM. Some folks feel more safe and secure as a Microsoft shop, right? I think there will be an audience that feels more safe and secure as a Palo Alto Networks shop. Um, personally, would I, would I prefer a parachute with, like, loose-stitched fabric together or one clean sheet, um, that has the latest and greatest material science, uh, at play? Like, to me, the choice is clear, but, you know, different folks have different tastes.

    10. MOMolly O'Shea29:40

        Damn, Shardul. [laughs] Oh my God. I'm glad we got onto the topic of cybersecurity. This is, this is really good. [laughs] How good is AI at real professional work? Mercor's AI Productivity Index, or APEX, tracks it with every major frontier model release. Built with partners like Harvey and Cognition, see where the frontier actually stands at mercor.com/apex. Today's episode is sponsored by VC-X by Fundrise, the public ticker for private tech, allowing investors of all sizes to invest in venture capital. Learn more at GetVCX.com. Public is a multi-asset investing platform where you can automate your investing with AI agents. Create your own custom agent with a simple prompt. Agents can monitor markets, execute trading strategies, and manage your cash across stocks, bonds, options, crypto, and more. Wanna buy at market close and sell the next day's open? Just tell your agent. Automate your investing at public.com.

    11. MOMolly O'Shea30:40

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16. 30:56 – 33:55

    How much money do startups really need?

    1. MOMolly O'Shea30:56

       So as we talk about the new investments and the portfolio build-out in this AI era, we didn't ask about numbers. I know I asked about valuations, but what are the kinds of checks that you guys are writing across stages?

    2. SSShardul Shah31:07

       Yeah, it can be as little as 1 over $100 million. Um, there's nothing particularly, um, unique or different about the size of capital. Um, uh, the decision-making is fast. What we think most about is what are the needs of cus- uh, of companies to appropriately capitalize and attack a market opportunity.

    3. MOMolly O'Shea31:28

       I mean, let's break that down further because there are companies that are very compute-intensive, and they need lots of money to cover GPUs or whatever kinda compute that they want. So how do you demark that? How do you separate that type of company versus something that'll need a smaller check?

    4. SSShardul Shah31:42

       We have both in our seed funds. We have both in our venture funds. We have both in our, our growth funds. We don't have a strict demarcation.

    5. MOMolly O'Shea31:49

       I think, like, the point being, like, that I'm trying to get at is, like, for new companies that are being created today, how do you, like, right-size or meet with the founders to be like, "Hey, like, you probably don't need $200 million to start. You don't need to, like, buy all these GPUs. Maybe you can rent some. Maybe you can do all this other stuff," versus, like... I think for a while, like, people were just going after large checks because they think they needed to aggregate or, like, consume so much.

    6. SSShardul Shah32:18

       Let's try to separate two parts of it. One is, like, um, a healthy conversation as a business partner, right? And there's different styles. Like, you can be prescriptive, which is, "You don't need. You should do," which is an approach often people take as investors. A- and they have the credibility and skill to do that because they may have operated a company before. My style, which is not for everyone, is a l- probably a little bit more S- Socratic, right? Like, "Why do you think you need all that money?" Like, "What are you gonna do with that?" Like, um, "What's your motivation to?" And maybe that's the right answer, or maybe it's not. But I try to help someone kinda get to the best, uh, judgment call and decision for their business w- without a personal agenda, right? It, it's really what's in the best service of, of, of a company. Separately, I, I think there's something super interesting that's happening right now that I found completely counterintuitive, again, as a, like, a U Chicago economist, which is the higher the price and the more capital raised, the more likely an entrepreneur is to recruit talent. And the reason it's counterintuitive to me is it defies basic arithmetic. Like, if I were an employee, I'd prefer, um, shares at a lower stock option price because I'd have a lower tax bill, and I'd have more upside. But what's happening in the world today i- is, like, a luxury product effect where a higher price implies scarcity, and so there's actually more demand, which drives conversions. And this is a phenomenon that I'm not totally comfortable with because, again, it's not, you know, fulfilling basic arithmetic, but that I'm learning to accept and recognize and coach entrepreneurs in a slightly different

17. 33:55 – 35:43

    Concentration vs diversification

    1. SSShardul Shah33:55

       way.

    2. MOMolly O'Shea33:55

       I see. Um, maybe this is a trick question, but what is the largest check that you guys can write without risking or hurting the fund performance?

    3. SSShardul Shah34:05

       I think about our firm performance, again, as a function of being the largest, most impactful investor to category-defining companies. If we make a small investment and we do not deliver on being the most impactful in- uh, investor, long term, we're eroding our performance. So it's not a function of the dollar size of the investment. It's a, a function of h- how we follow through on an investment. In other words, for us it, it's, uh, we, we will not play a statistical game of, you know, creating 1,000 $2 million checks in order to risk mitigate against and have, like, diversity in the portfolio. We won't be- have the skill or will to follow through on each of those tiny checks with, like, real, um, advice, impact, activity, engagement with founders to influence their businesses. The inversion of your question is super interesting, which is, like, how large of an investment we c- can we possibly make? And I think it's, like, an in vogue question today, uh, because certain investors have done so well with concentration. I, I think concentration can kinda cut both ways. Like, it can feel great when, like, the market is up and to the right, but if the market, um, changes, and eventually it will, um, concentration can really hurt. And so I think when we look at the statistics of our business, um, uh, we still have, like, 30 to 35 investments in a venture portfolio, so there's reasonable diversification, and we're not taking risk on a single position. Because we invest out of multiple funds over time, like with Wiz, we invested over $250 million over time. Like, so there isn't a constraint on dollar size, um, i- in, into a company.

18. 35:43 – 37:13

    Why venture fund cycles are getting shorter

    1. MOMolly O'Shea35:43

       Has the fundraising size or cycle increased in this environment? How has that changed? I ask this because you-

    2. SSShardul Shah35:50

       Yeah

    3. MOMolly O'Shea35:50

       ... brought up a really good point. We had a conversation with Brian Singerman, who was a longtime GP at Founders Fund, and they focused a lot on concentration-

    4. SSShardul Shah36:00

       Yeah

    5. MOMolly O'Shea36:00

       ... to the point where they would bet all the money on, you know, a handful of companies. [chuckles] It worked out really well. And they were like, "All right. If we run out of the fund, we'll just raise another one." And they just kept on doing that, and it worked out phenomenally for them. But I'm curious for your, for your stance. Um, what do, how do you think about that? And then how do you think about the cycles and fundraising in this market?

    6. SSShardul Shah36:23

       I mean, our LPs, our limited partners, are such an important stakeholder i, in our business. Um, we never take them for granted. And, um, our belief is they're r- purely rational individuals, um, that will invest in great fund performance. And so, um, we, we try to take that responsibility, um, very seriously. Um, over the last 12 months The number of investments, the dollars per investments across the industry have grown. And so pacing, uh, for everyone has accelerated. And I think what used to be like a two-and-a-half year cycle, just in the last 12 months, has probably compressed a bit. Will it return to the normal fund cycle? Probably. But we don't think about optimizing on, um, time duration. We like diversity of exposure to different vintages.

19. 37:13 – 39:41

    The changing IPO and M&A environment

    1. MOMolly O'Shea37:13

       So as we talk about fund cycles and the evolution of venture capital in this market, how has the exit environment changed? I know we're in kind of an interesting period for IPOs. We're waiting on [laughs] some very large ones. This year was supposed to be the year of, like, mega returns, and some of them are [laughs] getting delayed a bit. But also M&A has changed. Like, you know, the floodgates of M&A have opened up, and more people are becoming acquisitive. Even smaller companies are being acquisitive. So how has the exit environment changed?

    2. SSShardul Shah37:42

       We think really carefully about, uh, DPI, and, uh, we also talk about not getting high on your own supply, right? So making sure we deliver returns to our limited partners is, is really important. The two drivers of that are IPOs and M&A. IPOs is exactly as you said. Folks are waiting for the, the window to open or close in-

    3. MOMolly O'Shea38:04

       [laughs]

    4. SSShardul Shah38:04

       ... a given period of time. Um-

    5. MOMolly O'Shea38:06

       Which I've learned from the New York Stock Exchange, they're our media partner, you can never time. [laughs]

    6. SSShardul Shah38:09

       You can, you can't ti- you cannot time it. But when you're in the right place at the right time, you have to have the courage to take advantage. Um, so the IPO window's out of our control. Um, M&A, uh, has, has really accelerated. Um, again, we saw Wiz, we saw Cursor, we saw World Labs. Catalyst is really active, um, in, in supporting transactions. So not only are public companies incumbents buying privates, but we're also seeing private-to-private, uh, mergers and transactions of a variety of different scale and magnitude. So the M&A environment i- is, is really healthy. The hardest part i- is when an entrepreneur has belief in themselves, and they've got a really interesting offer in front of them. What do they do? Do they stay independent, or do they sell? And the interesting thing is, like, most entrepreneurs, when you first meet them, will tell, will tell you, "I'm on a mission. I'm never gonna sell," right? It's deeper, uh, and it's much more nuanced. A- and that's where, if you are kind of the most influential investor, um, you can make an enormous impact on shareholder value in a judgment call where there is no truth.

    7. MOMolly O'Shea39:15

       I heard you on a podcast before talk about you sold at the IPO price, and then it, like, skyrocketed, and your investors were calling you up, your LPs, and then it plummeted, and then no one called you.

    8. SSShardul Shah39:27

       It was not my LPs. They, they were my partners.

    9. MOMolly O'Shea39:30

       Oh, okay. [laughs]

    10. SSShardul Shah39:31

        [laughs] My, my partners called when we l- it looked like we left money on the table. They didn't thank me when the stock price plummeted.

    11. MOMolly O'Shea39:39

        Oh, God. [laughs] I can only imagine.

20. 39:41 – 41:25

    What 3 decades of returns look like

    1. MOMolly O'Shea39:41

       I know, like, I asked you, like, what do you guys look for in a fund? And then, like, you, you didn't... Y- you then brought up DPI in this answer. But, uh, Bloomberg had reported your fund performance. I don't know what is or not, like, the most current, but as of January 2026, you had an 11X DPI on Index's 2012 fund compared with an industry average of 1.5X. So that's pretty crazy. And then a 5.1X DPI on Index's $780 million growth fund that was raised in 2015, also reported in January. What other numbers can you tell us?

    2. SSShardul Shah40:18

       I, I believe you. [laughs]

    3. MOMolly O'Shea40:19

       [laughs]

    4. SSShardul Shah40:20

       You know, uh, people think I'm, uh, very analytical because I am cerebral. Um, but the minute I invest in a company, I don't remember how much we've invested-

    5. MOMolly O'Shea40:31

       Oh, my God. [laughs]

    6. SSShardul Shah40:31

       ... or what our ownership is. And, and I know it sounds like total bullshit, but it's actually true. I can't, I don't remember because I don't care. It's all about creating the relationship. Number two, I wouldn't confuse outcomes with the judgment calls that go into our partnership deciding if we're gonna invest, if we're gonna double down into a company, how we're gonna influence an, an entrepreneur. Outcomes can be a function of how, um, effervescent the, the market is, right? A- and so, um, we're super proud of, of our returns. Um, more than, uh, a single venture fund or a single growth fund, the consistency of top decile performance over three decades i- is something we are really proud of, um, and it sets, uh, it sets a really high standard of what we need to do for the next, um, 30 years. So I don't have any other numbers for you.

    7. MOMolly O'Shea41:21

       [laughs]

    8. SSShardul Shah41:21

       Um, but, uh, you know, I'm hard at work to create more.

    9. MOMolly O'Shea41:24

       I love that. That's

21. 41:25 – 44:18

    The person behind Shardul's biggest decisions

    1. MOMolly O'Shea41:25

       great. Because you're not into the data stuff, I think this question might be good for you. It's a performance question-

    2. SSShardul Shah41:31

       Let's go

    3. MOMolly O'Shea41:31

       ... but it has nothing to do with data or insights or numbers or whatever.

    4. SSShardul Shah41:34

       Better. Thank you.

    5. MOMolly O'Shea41:34

       So one of our biggest partners is Brex, and they're all about spending smarter, moving faster, performance. And I take this in a personal bent. So I think performance for individuals is a matter of, you know, who you spend your most time with. It could be, like, you know, uh, someone you grew up with. It could be a mentor. It could be, uh, like, I don't know, a professor. It could be a book, you know? I don't know. But I do believe a core part of individuals' performance and, uh, motivation over time is really who you surround yourself with, and I'm curious who those people or person could be for you.

    6. SSShardul Shah42:08

       Yeah. The person I spend the most time with, um, who also happens to be, um, inspiring and a mentor of my, of mine is my wife. The amazing thing about, uh, Poonam is... Well, she's known me my entire life. Like, we grew up together. Um, we went to middle school and high school. We went... I took her to homecoming. Uh, we dated. She broke up with me on Valentine's Day.

    7. MOMolly O'Shea42:30

       Oh.

    8. SSShardul Shah42:31

       Uh, but now we're married. We're very happy.

    9. MOMolly O'Shea42:33

       [laughs]

    10. SSShardul Shah42:33

        We've got two kids. She knows me better than I know myself. When I go home and pitch her an idea, uh, she doesn't listen to the content or the substance. She just listens to how I feel, and she knows exactly when I'm high conviction and when I'm not, and that, uh, is the shadow investment committee of, of Index.

    11. MOMolly O'Shea42:52

        That's amazing. Wow. Does she have carry?

    12. SSShardul Shah42:55

        [laughs] Well, we are, we're married, and she owns everything. I-

    13. MOMolly O'Shea42:59

        [laughs] Awesome. Okay. Well, as we close out, um, this was really awesome. Thank you so much for taking the time, Shardul. I know we're probably at time, and you need to go to your SF office now [laughs] and speak with everyone. Is there anything you're looking forward to in the next 12 months?

    14. SSShardul Shah43:15

        Oh, you're the best. Thank you. I do look forward to actually going on a walk f- with you.

    15. MOMolly O'Shea43:19

        [laughs] I know.

    16. SSShardul Shah43:19

        That was the plan.

    17. MOMolly O'Shea43:20

        By the way, yeah, for context, Shardul thought we were going for a walk, and I was like, "Little do you know, there's three cameras set up here, and-

    18. SSShardul Shah43:26

        Yeah

    19. MOMolly O'Shea43:26

        ... you're gonna be interviewed." [laughs]

    20. SSShardul Shah43:27

        Yeah. So I look forward to actually hanging out.

    21. MOMolly O'Shea43:29

        Okay.

    22. SSShardul Shah43:29

        I look forward to you checking out our London office, um, which has as much taste and attention to porosity of stone as, as, as this one does. But I, I'm really looking forward to, um, our team, um, what they accomplish, what they learn from mistakes that we make, um, how we come together as a cohesive group to make judgment calls, um, um, all in support of, of entrepreneurs. So I'm super excited about the next, uh, couple decades, actually.

    23. MOMolly O'Shea43:55

        Awesome. This was so much fun.

    24. SSShardul Shah43:56

        Thank you, Molly.

    25. MOMolly O'Shea43:56

        Thank you so much.

    26. SSShardul Shah43:57

        Yeah.

    27. MOMolly O'Shea43:58

        Hey, it's Molly. If you enjoy our interviews, check out our newsletter, Sourcery.vc, where we deliver a once-a-week top deals and tech headlines email, and also go deeper on our podcast interviews. Subscribe to Sourcery today. And don't forget to subscribe to the podcast on YouTube, Spotify, Apple, or wherever you listen. Link in description to sign up.

Episode duration: 44:21