Seed Investing at Scale | David Tisch, Managing Partner at BoxGroup | Ep. 10

1. 0:00 – 0:27

   Intro

   1. DTDavid Tisch0:00

      We don't want to be your best investor, we want to be your favorite investor. And favorite investor means you like us because we talk to you like humans, and we don't mislead you. We ideally underpromise and overdeliver, so we would like to help. We just don't wanna, like, proclaim we're gonna make your company great. [upbeat music]

   2. JAJack Altman0:20

      I'm really excited to be sitting down today with David Tisch of BoxGroup. David, thank you for making the time to do this with me.

   3. DTDavid Tisch0:24

      Jack, I'm thrilled to be here.

   4. JAJack Altman0:26

      The thing I want to start

2. 0:27 – 8:23

   Scaling a collaborative fund

   1. JAJack Altman0:27

      with is that BoxGroup has sort of, like, defied a certain conventional wisdom, which is that VC funds, the general life cycle is you kind of start small, you're collaborative, you do seed, and then the way that you scale is you do bigger checks, you own more, higher concentration, you go later stage, and that's the typical model. In most cases, that's right, um, that's the arc that most have followed. But you haven't, and you've been really successful basically scaling up this thing that everybody thinks you can't scale up. And so I want to start with the way that you think about your model, how it works, the way you invest in companies, and just, like, the shape of BoxGroup.

   2. DTDavid Tisch1:06

      Yeah. I, I think first off, like, the, the word venture capital captures so many different types of businesses. So to me, there's, like, three stages of VC: there's seed, there's A and a little bit of series B, and then there's B and later. And B and later is a finance job, for the most part, that involves needing to win, but it is just plowing capital into things that are working and helping them scale. There is more of a financial orientation to the work that gets done there, and the people that do that work have a different lens inter- in terms of what they're looking for. So I don't believe I work in the same industry as most of those people.

   3. JAJack Altman1:48

      Mm-hmm.

   4. DTDavid Tisch1:49

      I think at series A and B, there's still an art to it. The art is getting in front of companies, convincing the company to pick you, and helping form the, the shape of whatever that, uh, narrative is going forward to get them to that, uh, capital point.

   5. JAJack Altman2:05

      There's, like, this quip that, like, everybody in venture who invests a stage later than me is like a spreadsheet jockey, and everybody who invests earlier than me is, like, throwing darts. It's like that.

   6. DTDavid Tisch2:13

      I'm a dart thrower.

   7. JAJack Altman2:14

      You're a dart thrower.

   8. DTDavid Tisch2:15

      I think that at seed, it's messy, and I think you have to appreciate how messy your job is. And I think to your, to your question, most people don't want to stay in that mess. That's not the passion. That's not the easiest place to play, right? It is easier to have a concentrated portfolio in the sense of if you're gonna do two to three deals a year, you get to have a different filter for how you go about your job. I don't think it's easy in the sense of winning great deals, but I think it's an easier model to marry yourself to for a career. It's a, a bit more stable. I think seed is just a mess, and I think it's a happy mess for me. I love doing this. This is a place that we, like, happily live at forever. Uh, and we're not going to evolve. We're not going to change.

   9. JAJack Altman3:07

      What do you think people are misunderstanding when they think that this model... Like, people got it wrong, obviously, 'cause you did scale it, but, like, what did people misunderstand when they're like, "This doesn't"-- like, "In order to do a big fund successfully, you have to get out of, you know, collaborative seed," basically?

   10. DTDavid Tisch3:22

       I think, I think there's two parts to your question. One is, like, why don't people stay here?

   11. JAJack Altman3:26

       Yeah.

   12. DTDavid Tisch3:27

       And then two is, like, why did you stay here? So I think the reason people don't stay here is it's hard to scale AUM, and AUM is the thing that allows a venture firm to scale. It gives you more money in a fee stream, it gives you more scale to return more capital to make more money at its core. And then you, like, on the other side of it, you don't... You're not as important in, in a true sense of that word, right? You're not sitting on a board, you don't, like, take credit for the company's-

   13. JAJack Altman3:56

       Yeah

   14. DTDavid Tisch3:56

       ... success. Uh, you're just a seed investor. And I think the, to your point, like, we like to look at the later-stage investors as spreadsheet jockeys. I think people like to look at seed investors and write them off as, like, random. Um, and I think that there's some tension in that, um, dismissal of what happens at seed. To me, what we do at BoxGroup is we meet people at the beginning of their dream, and we give them some money to help them achieve their dream. And there's, like, a romanticism to what I just said that is the art of why I love this, is you meet literally a person who has an idea, and then five, seven, fifteen years later, that idea is important, and it's an important part of the world, it's an important part of an industry. And that narrative, that impact, uh, that that person goes out and creates, it's c- it's, like, amazing, and to watch that from the day one, to me, is very different than watching it from year two.

   15. JAJack Altman4:57

       Why have you chosen to keep it in the sort of like collaborative, sort of small or medium check version instead of leading? 'Cause obviously, if you wanted to, you could be doing that. Like, you have access to the founders, the capital, you've got a great team, but you've chosen structurally to not play it that way.

   16. DTDavid Tisch5:13

       I think what's most important is investing in the best companies, and if you have a business model that you are putting in front of the desire to invest in the best companies, you're gonna have a conflict between those two things. So what does that mean? If I need to own a certain percentage of a company to invest, then it's pick me or the other firm that needs that percentage, and it's a, like, win or die model. And if at the core of what you wanna do is help people achieve their dreams and invest in the best companies, the last thing that you have to-- uh, the thing you have to deprioritize is your, like, need of ownership and your need of model. So it's, it's formulated, like, the collaborative seed model is built off of the idea that we want to invest in the best companies, and if you just start there, and you never remove that goal-... the rest sort of forms around it. And I don't think when, when I started BoxGroup fifteen years ago, we understood that this was the goal, this was how to scale, this was realistic. I think it was formed around, we want to have the ability to invest in the best companies, and that's never changed. And so, um, why we've never changed the model is that's still the, the core goal, is invest in the best companies.

   17. JAJack Altman6:33

       I think also what it's connected to probably is when you invest smaller checks, obviously, the other part of the equation is you get to do a lot more of them, and that increases your odds that you hit these, like, mega outliers. And I think, like, you know, everybody talks about, you know, the power law, but it's just still, like, shocking when you see how power law-y it is. And so I guess probably embedded in this is you do more companies, you're more likely to hit the ends of the power law.

   18. DTDavid Tisch6:57

       So I, I do think it's important to, to appreciate that going into an investment, and at seed specifically, the majority of decisions you make as an investor will be wrong. On the other side of that, if you look at the stats, most startups will fail. Most venture-backed startups will fail. And there's a founder and a failure at the end of that, that is not to be written off as just another number. There's somebody's dream and somebody's emotion and life that has, has failed, and they need to restart, and what's awesome about today's ecosystem is those people typically get a second, third chance, and I think historically, uh, they did it. And so I think we're in a better part where you can take risk as a founder, fail, and have another opportunity. But as a VC, the idea that you can go in in a concentrated model and be like, "These are the three things that I found that are going to work," and be right, is just unrealistic. And so our model is not built around, let's have as many shots on goal, if you will, as possible. It's built around, let's find the best set of companies in a given year, in a given month, in a given week, and if it crosses a bar, say yes. And it's this model of investing in a lot of companies is predicated on seeing a lot of great companies. So if we don't see enough exciting things in a given moment, we're not going to say yes enough.

3. 8:23 – 11:29

   Stack ranking portfolios

   1. JAJack Altman8:23

      One of the things I think about on this, that I've, um... That maybe plays to this, is let's say you met a hundred companies, and you had to, the next day s- or that same day, stack rank those hundred to the best, your best possible guess of which one's gonna be the most valuable to whatever. Then you're gonna decide to cut off, whether it's at ninety-seven, or at ninety-three, or eighty-one, like, you know, that's the bar where you're gonna invest. One of the things I often think about is, I actually don't know, with my, my- trusting my own judgment on the ones that I said yes to versus the ones that I liked a lot but just didn't, I'm like, I'm not convinced that I can pick between those baskets. You just kinda do stuff at some point.

   2. DTDavid Tisch9:00

      But I don't think most VCs at the Series A and earlier stage can pick between the top twenty-five, the next to, like, each-

   3. JAJack Altman9:07

      Yeah

   4. DTDavid Tisch9:08

      ... each quartile.

   5. JAJack Altman9:08

      So that's my question, basically, is, like, where do you think that you can-

   6. DTDavid Tisch9:10

      I don't, I don't think that anybody can stack rank their portfolio properly early in a, in a life cycle of a company. And I don't think there's, like, somebody who magically can see through, um, the challenges of scaling a company to get that right. I, I, like, it's a egotistical statement to claim that, like, you know the winner from the second that-

   7. JAJack Altman9:34

      Yeah

   8. DTDavid Tisch9:34

      ... you see that.

   9. JAJack Altman9:35

      I-

   10. DTDavid Tisch9:35

       If, if that was the case, everybody would be incredibly concentrated and make limited bets. But what happens in venture is people invest in a bunch of companies. We invest in more than other people, but everybody invests in a basket of companies, and then they go out and talk about the ones that work.

   11. JAJack Altman9:53

       Yeah.

   12. DTDavid Tisch9:53

       And they never talk about the ones that don't work, and then they take credit for the ones that work and say how great they are. And that just isn't the, the behind-the-scenes process of building a venture firm, and it's not the behind-the-scenes process of making investments in venture. You're going to be wrong a lot, and there's gonna be things that you had immense conviction in going in. There's gonna be companies that you were really excited about one, three, five years in that just don't end up working or they don't end right from a, from a return standpoint.

   13. JAJack Altman10:25

       Mm-hmm.

   14. DTDavid Tisch10:26

       And those get swept under the rug, and instead, it's like, "Here, look at this new shiny object that I want you to focus on today." And that attaches to the timeline in this industry, right? So if you fund something seven years ago, nobody remembers that. They're, like, able to refocus on the thing you funded yesterday, because today, AI matters, and seven years ago, it didn't. So the thing you did seven years ago gets erased, and instead you can be like, "Look, I have a new thing, AI."

   15. JAJack Altman10:51

       It's also funny, I mean, like, not to, not to, like, hype you up, but like, uh, as I'm thinking about this, a couple of the companies that you're invested in that are doing great now, if you had to try to stack rank them, like, a year into investing in, like, Clay or Cursor, which are obviously really good now, but, like, for different reasons, it was like... There was, like, a pivot with Cursor, and Clay took a long time, and then they found it. And so it's like, not only do the good ones, you know, sometimes, like you said, it's a great company, but it doesn't end in a certain way, happens in the reverse probably just as often. So the conclusion then, I guess, that you get to is, you just have to do- you have to say yes past a bar, which then the obvious question is, like, what's

4. 11:29 – 17:29

   Investing at seed

   1. JAJack Altman11:29

      the bar?

   2. DTDavid Tisch11:29

      You have to find people that you are excited to invest in, and that's it. And, and you hear the word "people" get talked about in our industry, and back people, back founders, but that at the seed is actually the core of, of the job, is to find people that you are excited to see what they're building, the future of, of their world. And this can, uh-... apply to any space. So this isn't a market-driven decision, this is a person-driven decision. And I think when you get to Series A and when you get to Series B, a lot of that framework is removed and replaced with market frameworks and traction and revenue, and all these other things. But at seed, it's people. And when you look at a, a story like Clay, um, we were fortunate enough to meet Kareem, uh, fifteen, fourteen years ago. Uh, I invested in his first company, and Nikolais. We were fortunate to back their second company in Clay, and it's a seven-year overnight success that is just at the beginning of their journey. And I think outside of venture, a seven-year period is in, like, uh, the end of a fund life in private equity, or it's, like, way past that. And so to appreciate these timelines is insane-

   3. JAJack Altman12:43

      And they're not ten years, they're mu- they're longer than that.

   4. DTDavid Tisch12:44

      Right. And when you're backing somebody right out of college who's twenty-two, and you talk about fifteen years, fifteen years ago for a, a college student is, they were five?

   5. JAJack Altman12:53

      Right.

   6. DTDavid Tisch12:54

      These are, like, insane timelines, and they're very hard to articulate and have people appreciate from the outside, but that's what this job is. And so this job is being patient for a long period of time. And so back to your original question, like, why are we the same today as we are? Is because I think if we're constantly changing who we are, we misalign with founders. If they are signing up for a fifteen-year journey or a ten-year journey, and we are constantly changing who we are as BoxGroup, suddenly, by the time they have another question for us or they're doing something different, we're running a different business. And if we're writing huge checks, Series B, and we previously did Seed, like, we've decoupled that relationship. And so to me, the promise that we make to founders is, "We will always be doing this, and we will continue to support you from the position that we're in today."

   7. JAJack Altman13:43

      I feel like this is probably one of the biggest differences between seed and growth investing, which is that, like, to be good at seed, you have to genuinely just traffic in people and not markets. And I think this is, like, really hard for later-stage investors to do. And it's like, I think that's easy to say, but then I think, like, to actually invest in a person who you think is great but working on something that you think is a really bad idea and to write that check anyway, is just not something I think growth investors can do.

   8. DTDavid Tisch14:08

      It's hard, it's hard to invest in things that you truly think are bad ideas.

   9. JAJack Altman14:11

      Will you do it?

   10. DTDavid Tisch14:13

       Uh-

   11. JAJack Altman14:13

       If you think someone's great and you're like, "This idea is not gonna work," but-

   12. DTDavid Tisch14:16

       But they have to be, like, the greatest.

   13. JAJack Altman14:17

       Yeah.

   14. DTDavid Tisch14:17

       Right? So, like, on the scale of great to greatest, they... Like, if it's an idea where you're like, "I don't wanna invest in this idea"-

   15. JAJack Altman14:24

       Yeah

   16. DTDavid Tisch14:24

       ... that person has to just be so obviously like that. You have, like, three, five, seven meetings a year where you get, like, butterflies, and, and all tingly, and you're like: "Oh, my God, I can't believe I'm in front of this person."

   17. JAJack Altman14:36

       Can you get that over Zoom, or do you need to be in person to get that?

   18. DTDavid Tisch14:38

       You can get that over Zoom.

   19. JAJack Altman14:39

       Yeah.

   20. DTDavid Tisch14:39

       You can get that over Zoom really quickly, too. Like-

   21. JAJack Altman14:41

       What makes it happen?

   22. DTDavid Tisch14:42

       The, the package, right? It's, like, c- IQ and EQ and, and all the things that encompass those two words. To me, you're backing somebody... Like, what we do is, we meet somebody and we think, "Can this person lead a group of people?" And a group of people is a hundred people, a thousand people. You think about the scaled tech companies today, there are tens of thousands of people that work there.

   23. JAJack Altman15:04

       Mm-hmm.

   24. DTDavid Tisch15:05

       And you're meeting somebody when it's just one, two people.

   25. JAJack Altman15:07

       Right, and you're trying to figure out, can this person lead a thousand people?

   26. DTDavid Tisch15:10

       And that's a really hard... Like, most people can't. And, and it's not just a thousand people. Like, can you attract and lead a thousand amazing people? Like, if you think about the talent wars that go on, you're competing for people who are outlier great at each discipline within a company. And the founder needs to be able to recruit, inspire, and retain all of those people year after year, and then grow the organization. And you meet somebody on Zoom, and you're like: Can you lead a thousand people? And that's a really hard framework, but that's what we go in trying to imagine. And so it's, one is, can you lead people? Two is, is the thing you're going after important? Like, if everything you say is right, does this matter? Like, does it create something of importance? And importance in consumer, importance in enterprise, importance in, uh, developer tools, importance in healthcare, finance, uh, bio, are so different in terms of trying to understand, like, the scale of impact that you need to make, right? In consumer, if you're important and you have ten million people using your product, it probably isn't that important. You need to think in, like, insane numbers. So can you get hundreds of millions of people to care about what you're doing? Whereas in enterprise, it's, can you... Like, is your AOV in B2B sales big enough for this to matter, or in bottoms-up sales, can you get wide enough adoption? And then in healthcare, can you get partnerships? Or in fintech, can you break through, like, enormous walls to get into working with, like, partners, or as they call them now, design partners.

   27. JAJack Altman16:52

       Do you have anything to say about design partners as a term?

   28. DTDavid Tisch16:54

       I think it's a nice repurposing of, like, uh, early customers, and it, it's ador- it's like, it's softer.

   29. JAJack Altman17:00

       It's nice.

   30. DTDavid Tisch17:00

       It feels lovely.
5. 17:29 – 22:30

   Hiring for taste

   1. JAJack Altman17:29

      Do you think this craft is teachable? Do you think this is, like, a teachable taste, or is this just, you've got to hire for it and then let people exer- Like, if this is, like, the thing that Box needs to be good at, is this hired for or is this taught?

   2. DTDavid Tisch17:41

      Hired for. Um, we need to just have great people at our organization, and I feel fortunate. I've, uh, you know, a group of great partners, uh, that have... We've worked together for a long time. Um, you know, Greg, Nimmy, Adam, uh, Claire, Adena, uh, and I have all worked together for a long time. And I think there's a consistency in a team that can build trust, that, um, you work together better over time. And I think there's the other, like, back to where we started this question, what happens at Seed a lot of the time, it's a very small team, and there's a lot of inconsistency and-... transitions within the team. People come, people leave, and I think that also can force people to build a different style firm. I think what's amazing about BoxGroup is we've all worked together for a long time, and we really like working with each other.

   3. JAJack Altman18:29

      You also need a lot of trust, I guess, in this model, because you need people to be completely unafraid of losing money in this model, and so how do you do that? 'Cause I think that could be one of the things where, especially as you have people who are newer to venture coming up, people don't wanna lose money. Then, you know, but, like, obviously-

   4. DTDavid Tisch18:44

      But we're all, we all live in- we, we're all wrong way more than we're right.

   5. JAJack Altman18:49

      Yeah.

   6. DTDavid Tisch18:49

      And so you just have to accept being wrong. And what's interesting is if you build a team of people who are great, and even on the founder side, if you're backing people who've almost never failed in their life, they are signing up for the probability of failing. And you, you either embrace it or you're afraid of it, and e- either one of those is fine. You just have to accept risk, because that, that's the core of the stage that you're playing at. If you are starting a company, you are taking on the biggest risk possible. You are saying, "I am better at something than everybody else in the world, and I'm gonna go win." And you're probably not. Like, on a probability numbers basis, you are probably not, but if you just believe that you can do it, you're taking on an enormous risk, and you go for it. And as a, as a seed investor, when you invest in a company, you have to accept that it probably won't work, and that's okay. It doesn't mean that it's always okay, and that's, I think, the, the key. You have to make the right choices, and so in the course of a career, or the course of an early career, you have to get better at that taste. So I don't think you can train for it. I don't think you can teach it.

   7. JAJack Altman19:58

      Can you osmosis learn it?

   8. DTDavid Tisch20:00

      Um-

   9. JAJack Altman20:00

      Can somebody sit with you, see your taste, and learn it?

   10. DTDavid Tisch20:03

       No, because-

   11. JAJack Altman20:03

       Or is it not like that?

   12. DTDavid Tisch20:03

       ... I think taste, I think taste is everywhere, right? Like, taste is the choices that you've made throughout your life, around the people you surround yourself with, the types of things that you're interested in, the types of music or movies or, like, restaurants or food you like. Like, taste is formed way wider than just within business models and venture, and I think that if you see enough reps in deals, if you see enough reps in life, you're gonna form your taste. And, and even when you build your team with somebody brand new to venture, you assume they're coming in with a bunch of formulations on what they like and don't like. And so I think our job at BoxGroup as we grow organizationally, is to find people whose taste we believe can scale and is, is, like, worth us betting on. And so one of the, one of the things that we do at BoxGroup is everybody at BoxGroup can make a decision. We don't have voting. We don't have a committee. We're not trying to do consensus investing, and what that means is the brand-new person at the firm, who's maybe never done venture before, can say yes to a deal. And the hope is, it's our job to bring on people to the team that we believe in. And I think where VC to me gets weird is when you have team-based consensus, uh, decisions or voting, there's an incentive structure that just breaks at some point inside of these big firms. And you hear about, within the big firms, somebody negging someone else's deal, or, "I, I really love this deal, but I'm not sure I can get it through the firm." That feels like you're removing the, the essence of the job, which is somebody believing in something, and that's not, like, all the variables that are at play when you get into the big firms and the processes to get a deal done.

   13. JAJack Altman21:53

       Yeah. I mean, like, I think once you get there, you're getting to a place where people are doing things for super non-economic reasons, and-

   14. DTDavid Tisch21:59

       And there's, like, political reasons. There's, like, job, uh, survival, and there's job promotion reasons at play, and the founders are never really exposed to the, like, details of what's going on behind the scenes. But to me, back to, like, again, the, the foundation of this conversation is, like, why are we the same? Is because I don't want any of that to creep into BoxGroup. I want, at the end of the day, BoxGroup to be pure, aligned with founders. We wanna meet people, give them money, and try to help them build their

6. 22:30 – 29:03

   The art of being collaborative

   1. DTDavid Tisch22:30

      dream.

   2. JAJack Altman22:30

      Can you talk a little bit about, like, the, uh, the approach, like, the art of being collaborative? Because I think this is something a lot of investors wanna do. I think, at this point in the market, a lot are definitely not collaborative, particularly... I can't think of other investors that are your size that are this collaborative. I, I don't know if there are examples. But you've been great at collaborating for, like, 15 years, which obviously helps translate into you seeing a ton of deals, which, you know, one of the things we didn't talk about is before you gotta f- you gotta find all these amazing people, but you still have to meet them, and so this is all kind of related. But, like, how do you think about being collaborative, and what's the mindset to do it well?

   3. DTDavid Tisch23:11

      Like, if you start with the first principle of our job is to help people achieve their dream, it's not to make us the most important factor in that. And so, uh, it's just looking at each individual deal and figuring out what does that founder need and trying to help them do that. And inevitably, if you're building something of scale and importance, you're gonna need more capital. And so we understood from the very beginning, even if we lead a pre-seed round, they're going to need follow-on capital. And within this ecosystem, everybody is, is constantly playing in different spaces, and so our view was, why not-... be great at helping people raise money. It's the only thing that everybody in our entire portfolio is going to need to do the same-

   4. JAJack Altman23:55

      Yep.

   5. DTDavid Tisch23:55

      -is get more money.

   6. JAJack Altman23:56

      Yep.

   7. DTDavid Tisch23:56

      So it's our responsibility from a help founder standpoint to know where that money lives and to help them achieve, uh, getting that money.

   8. JAJack Altman24:05

      And have great relationships with them.

   9. DTDavid Tisch24:06

      Well, that's what it-

   10. JAJack Altman24:07

       Yeah

   11. DTDavid Tisch24:07

       ... takes to help them, right?

   12. JAJack Altman24:08

       Yep.

   13. DTDavid Tisch24:08

       We have to build great relationships with the, the follow-on funding, and then what you have seen over the past fifteen years is all of that follow-on funding that used to live in different stages, comes all the way down to seed. And so at seed, you see firms that write Series A, B, C checks also lead seed deals.

   14. JAJack Altman24:25

       So now you're collaborating simultaneously in the seed with somebody who's also follow-on capital?

   15. DTDavid Tisch24:29

       Yeah, and so it- I just-- again, when you're not building something that is directly competitive with anybody, you start building this network of relationships, and those relationships compound over time. And as long as you aren't bothering people constantly with, like, "Pick us, not them," it's instead, "Pick us and them," I think you can build authentic relationships in this industry. So I, I don't think it means that we accept being bullied. I don't think it accepts us getting crammed down in every round. I think what we have to do is build currency of our own that we bring to the market, such that the market appreciates the things that we find, the deals that we participate in before the market, and in return, we're gonna hand companies to the rest of the market, and hopefully, they're appreciative and kind to us, uh, when we need that. And so I think there's a belief that, um, great companies get built by great founders who are gonna need capital at all different stages, and our job is to, uh, help them get that capital.

   16. JAJack Altman25:35

       It's funny 'cause there's, like, no secret here. It's just, like, the only way to do this is to be in the game for years and years and years. It seem- like, you can't just do this overnight. Like, s- a new emerging manager who wants to become a large collaborative seed investor is gonna need ten or twenty years to build the depth here.

   17. DTDavid Tisch25:52

       I just think the way we've built our model is by being authentic to it and not forcing it, and so it's evolved into being able to talk about it in an easier way than, I think, actually executing it. And so I think there's a, uh... Like, being consistent at anything is harder than trying new things, to me. It's like, you have to stay disciplined, and we've done the exact same style of investing for, uh, the fifteen years that BoxGroup has been around. There have been nuanced changes in it. We've scaled, as you, uh, said, but the style of how we've built our portfolio, uh, is the same, and the, the style of relationship that we build with founders is the exact same as it was fifteen years ago.

   18. JAJack Altman26:38

       I mean, I don't see why you couldn't keep scaling it as long as you had enough peop- as long as you could scale your team, I don't see why you couldn't keep... I mean, like, YC has obviously proven that you can go unbelievably far with this. I don't know why you couldn't be three times bigger or something.

   19. DTDavid Tisch26:50

       I think YC is totally underappreciated, and I think gets criticized, uh, because people feel threatened by it, but I think how they've proven scale at the earliest stage is one of the most amazing things.

   20. JAJack Altman27:03

       It's, like, unreal.

   21. DTDavid Tisch27:04

       It's, it's a, it's a magical machine.

   22. JAJack Altman27:06

       Hundreds and hundreds of companies every year.

   23. DTDavid Tisch27:08

       But it's predicated on seeing them, right? So what YC... What, what people don't talk about is why YC works is the top of their funnel. The application pool and the pool that they're recruiting to join YC is so strong. So they're able to see, like, a, a application pool of thousands of fascinating opportunities, and then-

   24. JAJack Altman27:30

       And then they-

   25. DTDavid Tisch27:30

       -they're amazing at picking.

   26. JAJack Altman27:31

       And good taste.

   27. DTDavid Tisch27:31

       Right.

   28. JAJack Altman27:32

       Yes.

   29. DTDavid Tisch27:32

       And so you take this huge funnel-

   30. JAJack Altman27:33

       Yeah, it's crazy
7. 29:03 – 41:38

   VC help is overrated

   1. JAJack Altman29:03

      You talked about helping companies and how, like, one of the things that you do is, like, you know, help access to capital, and it's horizontal, everybody needs it. In general, I would love to hear the way you think about, like, VCs helping. You've had some, like, funny quips over time about, like, you know, it's all ridiculous. I know you have more nuanced thoughts than that. Can you talk about, like, is VC help overrated? Like, is there, are there things that you want to be doing? Like, I've seen the way Box works with companies, so I don't think... I think you guys do help companies a lot. But, like, I'd love to hear your commentary just on, like, how important is the actual helping?

   2. DTDavid Tisch29:35

      So I think it really comes down to, like, what is the company? I think VCs, in order to, like, build their business, need to take credit for investing in companies.... not for building companies, but, like, to make themselves feel good and to make themselves feel deeper, um, I think you attach yourself to the best companies that you've invested in, and try to identify, you know, by, ah, the transit- transitive property of investing, ah, into those companies.

   3. JAJack Altman30:06

      They're so good, I'm so good.

   4. DTDavid Tisch30:08

      Yeah. I did this. M- my companies, our companies. I find that weird and possessed.

   5. JAJack Altman30:12

      I find it extremely frustrating, yeah.

   6. DTDavid Tisch30:14

      Like, the 50th employee at a great company is probably going to be way more impactful than, like, your second-best investor.

   7. JAJack Altman30:23

      The thing I've... W- my, my mental model of, like, an unbelievable board member is, like, basically, maybe they're as important as, like, one of the, you know, like, a not top exec, but, like, a, a good exec at the later stages. Like, that's my mental model.

   8. DTDavid Tisch30:37

      Later stages.

   9. JAJack Altman30:37

      Yeah.

   10. DTDavid Tisch30:38

       Right, so at later stages, when a company is working, you can make a series of introductions, which is the main job of, of a VC at scale, is to, like-

   11. JAJack Altman30:47

       Network access

   12. DTDavid Tisch30:47

       ... help companies get access to things, and access to things can be money, access to things can be customer introductions, design partners-

   13. JAJack Altman30:54

       Employees.

   14. DTDavid Tisch30:54

       Um, employees, yes. And within each of those, there's nuance, right? It's either opening the door or helping to, to close the deal through a relationship. So I think scaling a network of relationships is the most important way to add value at scale. I think there's a very narrow handful of VCs that are actually able to, like, help operationally, and I think everybody fancies themselves as that, like-

   15. JAJack Altman31:22

       Company builder

   16. DTDavid Tisch31:23

       ... person.

   17. JAJack Altman31:24

       Yeah.

   18. DTDavid Tisch31:24

       [chuckles] And there's, like, maybe five. And so, ah, to me, as you scale your company, the less VCs you have telling you what to do, and the more operators you're able to surround yourself with, that are a stage or three ahead of you, that can help you get advice as to how to continue to scale, ah, I think the better. And so, um, I, I don't believe that VCs are magical company builders. I don't think that VCs are able to magically make companies great. I think instead, VCs make a great investment, and take credit for it.

   19. JAJack Altman31:59

       Is this related to why you don't do, like, platform teams, and have-

   20. DTDavid Tisch32:03

       Our job is to help the company. Like, I am, I am the person that should provide the service. BoxGroup is built of investors, and we have a back, ah, office team to, like, help run the fund.

   21. JAJack Altman32:16

       But you could hire recruiters or other people on staff.

   22. DTDavid Tisch32:19

       It's our job. My job is to build the relationship with the founder, and to help do anything that the founder asks, in real time. So if a founder asks for something, we should try to do it, and we should be able to do it, or very quickly say, "We can't do that." Because the worst thing you can do is distract the founder from what they need to go do to make their company successful, and I think when you have all this posturing of all the help you can do, you're, you're gonna distract a founder. And if you go and look at second, third-time founders, they don't want distractions from the outside. They know what to do, and so I think it's the first-time founders that typically get tricked by the hand-waving, "Here's all the value we're gonna provide." And I think on the way in, and why this, this is confusing, is on the way into a pitch. When you're a founder and you have options to pick from a, a series of investors, everybody has the exact same pitch. "We're gonna give you money, we're gonna take equity." The best pitch is like, "We're gonna give you more money and take less equity," so that's a, a really big factor.

   23. JAJack Altman33:21

       Yep.

   24. DTDavid Tisch33:21

       And then after that, the differentiation is, "Pick me, I am great," or, "Pick us, here's all the things we can do for you." And at the end of the day, like, the differentiation of all the things we can do for you is not very real. So to me, what I would like people to pick BoxGroup for is they want to work with us. They like us, they hear great things about us, they talk to founders we worked with before, who like us. We don't want to be your best investor, we want to be your favorite investor, and favorite investor means you like us because we talk to you like humans, and we don't mislead you. We ideally underpromise and overdeliver. So we would like to help, we just don't wanna, like, proclaim, "We're gonna make your company great." It's not how it works.

   25. JAJack Altman34:08

       I think in some cases, I think this is actually even more favorable than the truth. Like, I think involvement in the wrong ways can be so actively damaging. Like, strategy advice from investors is so risky, and can be so damaging.

   26. DTDavid Tisch34:24

       It's not only, like, wrong and damaging, it rattles a founder's mind to lose confidence. You, again, are back to this, like, core thing of you're taking risk to do something impossible, and the second that you get input from the outside that isn't helpful to your, like, focus and your mission-

   27. JAJack Altman34:42

       Yes

   28. DTDavid Tisch34:42

       ... you're screwed.

   29. JAJack Altman34:43

       Right.

   30. DTDavid Tisch34:43

       And so to me, sometimes external insights or external course correction-
8. 41:38 – 48:11

   Why VCs pass on companies

   1. DTDavid Tisch41:38

      easier.

   2. JAJack Altman41:38

      I wanna ask you about why you think-... VCs pass in, like, i- in, like, erroneous ways. Like, obviously, um, you've seen, like, a ton of deals, probably as many as anyone at Seed. What do you think are some of the, like, wrong mindsets, or sort of like, bad frameworks, or just, like, wrong mentalities, let's say, that make people pass in companies?

   3. DTDavid Tisch41:59

      Well, I, I think, like, when you ask a VC for why they are passing, and you get a series of reasons, I typically think that is, ah, very lovely soundbites to make you feel better. I think at the, like, end of the day, somebody is passing because it didn't cross the bar. It wasn't good enough. What isn't good enough? Most of the time, the team, and the, the, the VC, the- and the VC feels that this team is not good enough for us to invest. Alongside of that, it's the market, the idea isn't exciting enough for us to invest. So if you are working on something that isn't exciting in a market, or isn't exciting as an idea, and you're not the, oh my God, best team ever, that combination is, is going to be a no. If you are working on something that is obviously really interesting, and obviously a fascinating market, and someone says, "No, it's, it's just team," and like, there's not much more to it... But nobody's gonna send an email being like, "I met you. You're not good-

   4. JAJack Altman43:02

      I mean, you probably not-

   5. DTDavid Tisch43:02

      ... You're not good enough."

   6. JAJack Altman43:03

      You never say that.

   7. DTDavid Tisch43:04

      You can't say that. It's not, it's not like... Nobody wants to hear that, and it's not sort of the job to, to, like, be mean to somebody for the sake of being mean, but it's also like-

   8. JAJack Altman43:16

      But that creates a weird issue, which is then you wanna help and give useful feedback, but you have to say some other thing.

   9. DTDavid Tisch43:22

      We just- we try to be honest and like, "This isn't for us," and that's not... It, and it doesn't mean that we're right. We are mostly wrong in most decisions we make. If we say yes, most of the things we say yes to will not work. And if we say no, a lot of the things that we say no to will work. And like, you have to accept-

   10. JAJack Altman43:40

       That's the important thing, and people misread teams all the time, too.

   11. DTDavid Tisch43:42

       Yeah, we, we continually, fifteen years in, misread teams, and I wish we didn't. I would love to never, like, miss a team, but we do. And in a market that's moving fast, sometimes you have thirty minutes to meet a team, and sometimes you have, like, three months to meet a team. And sometimes seeing a team too early is one of the easiest ways to misread a team. Because seeing something early and then seeing something a little bit later, you're like, "Ah, I already made up my mind early, this wasn't good enough," mistake.

   12. JAJack Altman44:14

       Yep.

   13. DTDavid Tisch44:15

       And so I would love to not misread people. I would... Like, that's the- my paranoia is, like, the person that I met yesterday is great, and I didn't see that.

   14. JAJack Altman44:24

       Yeah.

   15. DTDavid Tisch44:25

       But I, I, like... I mean, I think the, the common reasons that people say no are, like, we misunderstood the market, we didn't s- like, the, the idea that anything is too early for a seed investor, I think is another fake answer. Nothing is too early. The market sometimes decides it's ready or not ready.

   16. JAJack Altman44:45

       Yeah.

   17. DTDavid Tisch44:45

       And it's not ready for funding if everybody says no, or it's totally ready for funding if everybody says yes, or one person says yes. And I think the word too early, uh, is, is hard to use. You just wanna see more because you don't understand the team enough, you don't understand their capabilities enough. And so too early is typically like, "I would love to see more," but the market can counter that overnight.

   18. JAJack Altman45:11

       Yeah.

   19. DTDavid Tisch45:11

       So if you're like: I wanna see more, but then they get three term sheets, suddenly you don't get to see more. And so the choice that a VC, to me, typically has to make consistently is, you get to say yes, or you get to say no. And that's- there's not really a gray area anymore of, like, "I would like to wait three months, and then please come back to me, uh, and, and ask again."

   20. JAJack Altman45:31

       Unless you're multi-stage.

   21. DTDavid Tisch45:33

       Yeah, then you can just wait for the next round, and the next round, and the next round.

   22. JAJack Altman45:36

       Yeah, which actually... I mean, this is a tangent, but there's a lot of incentive to do that, especially as these firms are growing. Conflict risk is, like, a bigger and bigger problem, and so you, you're kind of incentivized to just, like, wait and pay up for the for sure winner. And almost the better the market is, in some ways, the more you wanna do that.

   23. DTDavid Tisch45:54

       And you're seeing firms that used to be very disciplined about not doing that, doing that, uh, more consistently now, of just chasing something that they missed-

   24. JAJack Altman46:02

       Yeah

   25. DTDavid Tisch46:02

       ... at a Series C or a D, when traditionally they would never fund anything past Series A.

   26. JAJack Altman46:08

       Yeah, and the hopeful logic for that, I guess, is that things will be bigger than ever.

   27. DTDavid Tisch46:11

       Ever.

   28. JAJack Altman46:12

       And so-

   29. DTDavid Tisch46:12

       The most big ever

   30. JAJack Altman46:13

       ... still gonna have trillion-dollar companies all over the place.
9. 48:11 – 55:02

   Building a brand in NYC

   1. DTDavid Tisch48:11

      great companies.

   2. JAJack Altman48:12

      You started Box like fifteen years ago, and you were in New York, and I guess you kind of must have started around the same time as Thrive. And so you, you two, I would say, are, like, the New York firms, at least sort of... I guess I graduated a little bit right after that, and those are kind of the two firms I think that really m- made it in this latest generation that are New York-based. And I'm curious to hear about the way you think about being there versus here. Obviously, one of your partners, my very close friend Greg, is here, and so you have a huge footprint here. But you're, you know, started in New York, you've got a certain New York DNA about you, um, in a good way, and I think that probably propagates through the mindset of the, of the firm. But what has being in New York meant for you, and how do you think it impacts you?

   3. DTDavid Tisch48:57

      I think there's, like, our firm being in New York, and I think there's, like, the geography of where companies get started, and I don't think they're very related. Like, we are in New York 'cause that's where we live, and that's where we wanna live, and that's where we're from, and that's where we wanna make our lives. I think it's important to not underestimate the value of the Bay Area for our industry, and historically, as a New York-based fund, and I think Thrive is probably, uh, similar, um, the majority of our investments and the majority of our dollars have continually been in the Bay Area.

   4. JAJack Altman49:28

      Yeah.

   5. DTDavid Tisch49:28

      So I think you... Like, the mistake would be to be, like, a New York firm that only invests in New York. It's not to, uh, underappreciate the value of building companies in New York, but it's- would be, uh, cutting off, like, the head.

   6. JAJack Altman49:42

      I would guess you don't even invest in New York at a much higher rate than anybody else.

   7. DTDavid Tisch49:45

      I think if you don't invest in the Bay Area, you are cutting off the majority of value creation historically in this industry, and it is not, like, a neg to New York. New York, to me, is a place that people go to win, and I think the DNA of people that wanna live in New York, that wanna build in New York, are people that have, like, incredible ambition and tenacity and are not taking, uh, to me, the easiest way. I think everything in New York is hard and harsh.

   8. JAJack Altman50:13

      Yeah.

   9. DTDavid Tisch50:13

      And so you are fighting, like, friction every step of the way. And there are certain types of companies that make sense to build in New York. If you're building in fintech, if you're building in, in fashion or in ad tech, there's, like, a center to the, the world you're building, and that is in New York. But if you're building developer tools, or you're building consumer tech, and you're doing it in New York, you're doing that because you wanna live in New York-

   10. JAJack Altman50:35

       And you pick slightly hard mode for your company.

   11. DTDavid Tisch50:36

       Which is awesome, right?

   12. JAJack Altman50:37

       Yeah.

   13. DTDavid Tisch50:37

       But now we're in a era of AI, and I think the, the center of our universe has fully shifted back to San Francisco, uh, where there is more depth of talent. It's not more talent. There are still great people in many different geographies.

   14. JAJack Altman50:53

       There are just a lot more people.

   15. DTDavid Tisch50:54

       There are just more, more of it here, and to underappreciate that, I just think is a mistake. I think we have, as you said, uh, Greg is out here. We are committed to being a firm that is in both, uh, coasts, and I think we, uh, equally will invest in other ecosystems. I think you can build a great company everywhere, but I think you can only build a certain amount of great companies in every location. I don't think, uh, your hometown of St. Louis is capable of having, like, a hundred great tech companies.

   16. JAJack Altman51:25

       You don't know that.

   17. DTDavid Tisch51:25

       I do, but it's probably capable of one, right? Or two, or five.

   18. JAJack Altman51:30

       Yeah.

   19. DTDavid Tisch51:30

       And I think depth is the thing that you're looking at in ecosystems and in cities to appreciate, and it's not just depth of starting, it's depth of scale. So, uh, you know, can you get to 1,000 people in almost every city? Probably. Can you get to 100? Definitely. Can you get to 10,000? In very few, and I think that's the, the lens that I would look at sort of scaling with. And I think you see great companies today open up secondary offices quicker than you did historically.

   20. JAJack Altman51:59

       I feel like you adopted a certain, like, West Coast tech bias, where I've seen some other New York's, you know, HQ'd investors think more like New York investors. And I think it's great, actually, and I think both you and Thrive have, like, a smidge, in a very healthy, valuable way, of the New York mindset. But did you intentionally cultivate that, or do you think that this difference isn't so real, or do you just... Yeah, what, what is it?

   21. DTDavid Tisch52:23

       I just- I- look, I, I think in, in New York, to me, the, the pedestaled firm is Union Square Ventures. I think they were, uh, probably the most underappreciated, um, best VC-

   22. JAJack Altman52:35

       Like, ever

   23. DTDavid Tisch52:36

       ... firm. Like, yeah, nobody-

   24. JAJack Altman52:36

       And their returns are, like, absurd.

   25. DTDavid Tisch52:37

       They don't get enough credit because they don't look for the same style of credit that the big multi-stage firms, uh, that are, are name brands have built. I think they are just excellent at what they do, and they do it, and they do it over and over and over.

   26. JAJack Altman52:52

       Can you say a little more about, like-

   27. DTDavid Tisch52:53

       They're, they're like... They're, they're the opposite of the multi-stage firm. They don't have FOMO. They operate-

   28. JAJack Altman52:59

       They couldn't care less whether people are looking.

   29. DTDavid Tisch53:00

       Correct. They, like, find the things they like, and they lean in so hard to them, and they got their first thesis, like, perfectly right, and then their next set of theses were good enough.

   30. JAJack Altman53:11

       What was first, networks?
10. 55:02 – 59:54

    North Stars in early-stage investing

    1. JAJack Altman55:02

       In a lot of ways, you're... I would say slightly like laissez-faire in your opinions about a lot of parts of venture and tech. Meaning, like, I've seen you talk about how, like, the market price is the market price, and, like, don't whine, it just is what it is, and, like, stop talking about it. Or what we talked about earlier, that, like, it's, like, pretty unknowable what's gonna be good early, so just, like, you need a big basket. Or, like, don't try to big brain a market, like, you are not very likely to understand it. So there's a lot of that, and I think in general, that's been, like, a superpower for you. But I guess my, my last question is, like, what are the one or two things that you do hold as, like, strong north stars? Because, you know, even though, like, the, the front is sometimes like, "Oh, it's all unknowable," like, you do, I know, believe certain things to have built what you've built, and so, like, what are those? What are the couple or the one north star for you that you do hold on to pretty closely?

    2. DTDavid Tisch55:55

       I think the most important thing is to build a team that you have implicit trust and belief, and probably assume is way better than you. So when I look at, uh, my partners, um, I feel privileged to get to work with them, but equal-

    3. JAJack Altman56:10

       They are much better than you, actually.

    4. DTDavid Tisch56:11

       I agree.

    5. JAJack Altman56:12

       The more I think about it.

    6. DTDavid Tisch56:12

       Um, but, but equally excited that, like, they are going to make great decisions that I never could have made, because they are amazing at this job, and my job is to, like, get-- convince them to work with me and make everybody happy. I think BoxGroup is a place where we all, like, want to work with each other, and I think that that in venture is incredibly rare. Like, there are not very many firms where at the core, people do actually enjoy each other.

    7. JAJack Altman56:47

       Yeah, and you guys do it, yeah.

    8. DTDavid Tisch56:48

       Um, that's like step one, is like, happiness, but more importantly, it's, like, be great at the job, and I think that that's why we're happy, is we all look at each other and believe that that person is individually great at what they do. And so if that's Greg, your best friend-

    9. JAJack Altman57:06

       Best friend.

    10. DTDavid Tisch57:06

        -or if it's, uh, Nimmy, Adam, Claire, Adena on our team, and then we have a, a group of people that are earlier in their career that are growing. Our hope is that we all like each other, we all enjoy each other, we all wanna do this together. And I think the other thing is, you have to shoot for huge, ambitious investments. And so it's not that we're outthinking the market, it's that... or, or have some magical theses on certain markets. It's that you have to understand, can this get big? And big is so big, it's irrational. Again, back to, like, you're meeting a person, and can that person hire, inspire, and manage a thousand great people, ten thousand great people? Because when you get to ten thousand from, from two or four or one, you've funded something important and big. And big is the only way that the math in venture works. And what's cool, you see a founder start, you see a founder build, and you see a founder sell for a hundred million dollars, for two hundred million dollars. These are life-changing outcomes for humans. Like, the, the people that started those companies are changing their lives. And in venture, those things get written off sometimes as, like, not important, and I don't think that's fair. It is incredibly important to the people behind those companies for what it did for their life, for their family's life, for their, like, ambition. It achieved it. At the same time, the venture math doesn't get driven by those outcomes, and that's a real decoupling of, like, VCs talking in these crazy numbers, and the founders behind them having life-changing outcomes at different scale. You have to, like, on one hand, deeply appreciate the outcome of success at any scale, because that changes somebody's life. And I do find our job, when you align with somebody's dream, if they've achieved it, is incredibly, like, emotionally meaningful. The amount of friends that I've made through investing in their company, and they had an outcome that wasn't the hundred billion dollar outcome, but they saved- they, they, like, won, and they made enough money, and they had enough success to fully change their lives, like, that's the, like, heart of this business, is to see people's lives changed. I think at the exact same time, to build a great venture firm, you have to get lucky and find that, that huge outcome. So I think going in, the thing we hold to is, like, can you squint and see this being one of the most important companies in the world, or in a more realistic way, in the industry that they're going after?

    11. JAJack Altman59:48

        It's an incredible answer. David, thanks for doing this with me.

    12. DTDavid Tisch59:50

        Thanks for having me.

    13. JAJack Altman59:51

        Real treat. [upbeat music]

Episode duration: 59:55