Venture firms lend founders power before they build their own

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 30:33

   So number one, there's the intimate reason for it and then a sort of macro reason for it. Intimate reason for it is just like you're going to have this incredible – as the founder, you're going to have this incredibly intimate experience, you know, very close trust relationship with whoever you're working with. And it's like, you know, can you reference them? You know, do they have a history and track record of the kinds of behavior that you need and the kinds of insight, you know, that you need?

2. 30:55

   And it's just like it's very hard to do that. It's very easy for an existing firm that has a long track record of success to prove that. It's very hard if you don't. So that's like the close-in reason. But then the other reason, it goes back to the way the world is changing, is we always believe the thing that you want from your venture firm is power. So the thing as a startup that you want is you want them to, like, fill in all the missing pieces that you don't yet have when you're starting a company that you need to succeed.

3. 31:18

   and so you need power and so you need power it means like you need the ability to be able to like actually go meet customers and have them take you seriously uh you need the ability to go get publicity and like you know major you know channels you know used to be media now it's podcasts um and be able to like get taken seriously you need to be able to be taken seriously by recruits right because there's thousands of startups recruiting for engineers what makes yours stand out i sometimes describe it as venture firm is providing a bridge loan of a brand until you have your own brand that's big or bigger you know for your own space than the VC. You're borrowing your VC's brand. Exactly. And that has been very effective for a long time.

4. 31:50

   And that was how we looked at it when we were founders. That's why you did media from the beginning. Yeah. Oh, that's one of the reasons. It's one of the reasons. Yes. But a very, very, very powerful one. Yeah. A very, very major one. Yeah. And then, by the way, also need ability to raise downstream money, right? You're going to have to need to raise money again. So they either need a lot of money or they need to be connected to a lot of money.

5. 32:06

   Yeah, exactly. Right, exactly. And so you just- Better if they just have it. Yeah. It's like being full stack. Well, then by the way, now you're getting, also like, again, you think like tools companies just never got into like, for example, politics, right? Or just, let's just say global affairs, global events. Like what's happening with, you know, like what's happening with, how do you navigate the world, right?

6. 32:25

   How do you navigate Washington? You know, when the regulators show up and they want to kill you, like how do you navigate that? or you're like it's again in some you know giant fight with the eu or like so so the especially these full stack companies they're they're they're getting involved in like very complicated macro political geopolitical situations like much more early and they have to like in some cases they have to like escalate up to like you know senior government officials heads of state um you know major heads of sovereign wealth funds they need to get to you know the ceos of major companies you know how do you get to the ceos you know you're you're a new ai you're a new ai company and you're trying to redefine you know visual production for movies how do you get to the studio heads yeah right the studio heads just don't have time to meet with a thousand startups

7. 33:01

   so where are they going to meet with you right so so basically it's it's projection of power um and this has been one of our one of our theories how we built our firm is you optimize for maximum amount of power in order to be able to give the startups access to it right both the startups that already in your portfolio and but also the startups that don't even exist yet right and and again and this goes to why the scale thing matters so much it's just like all right there's just there's a scale aspect of power there's a big difference between being able to get to everybody who matters and not. Why is it rare for people to be able to accumulate power even if they were, like, let's say everybody was trying to do it. It's not like everybody could do it. What's the cause of the rarity to be able to build enough power in that sense? It starts with

8. 33:38

   you have to want to. And so we met with all the GPs of all the top firms, basically, when we were starting out because we wanted to, you know, see who we could be friends with. And it worked very well in some cases and not well in other cases. But one of them told us this is a GP at a top firm in 2009 and he said yeah the venture business is like going to the uh sushi boat restaurant all right and so the sushi boat restaurant it's a sushi restaurant where they've got the boats right it's got like a they've got like a water like a conveyor belt conveyor right and the little sushi boat comes like a watch them and there's a tuna roll and there's a you know shrimp roll and there's this or that and you and he said basically you just sit on sandhill road and you're like we're gonna crush these guys and the startups are gonna come in and he said you know if you miss one it

9. 34:15

   doesn't matter because there's another sushi boat coming up right behind it and he's just like you just sit and watch the sushi go and every once in a while you reach into the end of the thing and you pluck out a piece of sushi and we walked out and saying like what the hell that's funny like in what industry is 2009 or 2009 yeah like that was a very common this again is the mid this was the mid-sized venture one of the reasons when when i when i came like look in 1994 i mean it might have kind of been like that it was it was when i came to silicon valley 1994 i had never heard the term venture capital i didn't even know the thing existed and then as my business partner jim clark explained it to me and i was like there are guys like they're just sitting there waiting to give you money but you see this and you're like this is going to get eaten alive of course

10. 34:50

    this is absurd like the minute anybody takes this seriously it's all going to change right and so it was this very clubby cartel you know basically kind of thing and again it was fine as long as the ambitions of the industry were constrained and then but then again look the the the tools companies they didn't need all the power they didn't they needed some of the power right but they didn't need all the power you know they weren't dealing with like governments right or you know these sort of big macro issues um you know at least you know in the early years well okay so here's another thing that's happened is just the world is globalized like so startups 30 years ago you would spend your first decade just in the u.s and then you would start to think about europe and global expansion and and now you just you have to think about being a global company

11. 35:25

    up front because you're gonna if you don't like you're other people are gonna do it yeah right um and so you just you have to chin up like as an entrepreneur like the expectations are much higher