VC Fundamentals Part 2: Investment Decision Making
01:07:39 Share

Welcome, Limited Partners, to our second VC Fundamentals miniseries episode. As you'll recall, the first one was on sourcing. This one is on investment decisions, specifically initial investment decisions. Then we'll go in the future through company building, portfolio management, fundraising, and firm management. We've also sort of

retconned a few other episodes into our VC Fundamentals series, our interviews on consumer investing and enterprise investing with Sarah Tavel and Chetan Putugunta from Benchmark. I think we found a

Nice little groove here. We might have a few other old episodes we could retcon in here. Yeah, particularly the diligence one is probably a reasonable. That'll come up on this episode for sure. So this episode is not necessarily about the craft of investing and investment decision making. We talked about that obviously a lot on the main show and elsewhere on the LP show. Like what should you invest in and when and why? Today is about the how. What

We don't talk about as much, I don't think, is the mechanics of how all this stuff happens behind the scenes. And actually, despite all the like VC content out there and the blogosphere, is that even a word anymore? Anymore? I think people say VC Twitter now. VC Twitter, right. I think this is pretty hard to find information like

How do decisions mechanically actually get made at VC firms, initial investment decisions, and what are all the dynamics behind them? So that is our goal today. If you're deciding like, hey, is this episode for me? Our goal in doing this is, I guess, several fold, but I'll give sort of two sides. One is...

If you want to become a VC, it's great to become versed in this stuff. So you have the language to use as you think about potentially breaking into the industry or starting your own firm or anything like that. But I think probably more relevant for more listeners and the net higher societal good is really just about understanding how the

thought process and world works. If you're a founder of a company or if you are engaging with a venture capitalist on anything to understand basically what's their job. That's really the through line, I think, of all these VC Fundamentals episodes. I said it before, I'll say it again. Know yourself, know your enemy, know your situation. Sun Tzu.

I was trying to avoid using the word enemy, but you said it. We'll get into it. All right. So let's start. Last episode, we talked about sourcing. Sourcing was all about, you know, you're a VC, newly minted or otherwise, and you, you know, top of funnel. Like you can only invest your universe of things you can invest in are only things that you, companies you see. Today, what happens after you find something, you see something, you decide this is interesting. What happens after that?

The real answer is a whole lot of random stuff that very much depends on the process, very much depends on the firm or the investor. We're going to talk about all of it today. So the first piece is diligence. We did a whole episode on diligence, but this is more like you'll hear VCs kind of refer to this as digging in. I'm digging in on this company. I'm doing work. Amy?

They immediately start Googling. Exactly. So what is that? All the words that you used. Right. That is probably the first step is either they are Googling themselves or if it's an older senior VC, they're probably assigning an associate to Google you, Google your competitors, Google the market, Google your customers, all of those sorts of things. And what they're really trying to understand is

First is what you're really trying to understand is just the nature of the market. Who are the customers and the users? How big is the market? Who are the competitors out there? Who are the substitutes? We just did our LP book club with Hamilton Helmer and he talked about, I don't think this was in the book, Seven Powers, the three S's. This is the significant of the S. Why is what this company is doing significant and how significant? Yeah.

What were Hamilton's other two S's? They were, let's say around down here, uh, superiority. That's the benefit significance. How is this meaningful? How big is it? And then sustainability. That's the barrier to power. And the significance in this aspect is,

This is where they're sort of deciding, is this something that is going to generate venture returns at all before I even get into business model? Like, is there going to be a billion dollar company that solves this need for someone? Yeah. Whether that's this particular company or something else. So that's like the what here. But here's what's really interesting. And all this, we're going to try and talk about different stages of investing, like early stage, seed stage versus growth stage or later.

especially at the early stage, but this is going to be a theme everywhere. Like this seems pretty straightforward. You're doing some Google searches. You're talking to people in the space. You're getting smart. It seems pretty straightforward, but it's really, really easy to get this wrong and to look really stupid later. And how and why is that? It's because what matters, especially at the early stage when you're making investments is not the market size and dynamics today, right?

What matters are the market size and dynamics tomorrow.

And this is where really a lot of the art comes in. And people talk about timing in terms of investing. It's actually a specific tomorrow. Tomorrow, five years, 10 years from now of this market taking off, that's way too early to make an adventure investment right now. The company is going to be dead and not be able to survive by the time the market adopts the takeoff moment phrase. And Hamilton's wording arrives. You want at the early stage to be investing in a company like

a tick before the takeoff phase. And that's hard. In the Peter Thiel parlance from zero to one, you want to be investing when the founder knows a secret and you, the investor, agree that that secret is indicative of a much larger trend that's about to happen. Yeah. Keyword there being about to happen. And this is really hard because it's so easy to get

get diluted, not necessarily intentionally or fraudulently, but get diluted one way or the other into thinking that like, eh, the, you know, the famous Paul Graham, uh, phrase that a lot of things that become significant look like toys. This is just a toy. This isn't a significant market or this isn't a significant problem like Twitch, right? Like video game streaming, like who's going to watch that? It looks like a toy. Well, turns out video games were in online video games were about to blow up.

And here's what makes that hard is most things that look like a toy are a toy. So it is both like a necessary precondition that it needs to sort of look like a toy, especially if you're going for like a low end disruption type investment. But also that if it looks like a toy, it just probably might be. And it's equally easy to get fooled on the outside.

Other end of the spectrum of like, you know, I think about and I was guilty of this to several years ago, VR adoption, you know, everybody thought, oh, now is this is 2015 2016. Everybody thought VR were right. This is where a tick before the takeoff phase of the market. This is going to happen.

Well, it didn't happen. And so then you were too early making those investments. Now actually may be a really good time to be making those investments. They're out of favor. There's a major catalyst for adoption with coronavirus and shelter in place. We'll see. But point being, we're not here to talk about VR, but this is this is actually very easy to get the mechanics right, but very hard to get the answers right here.

Right. So if you're a founder, know that all of this is swirling in the investor's head. If they've sort of taken the bait, they're excited enough to dig in on your company, and then they're trying to think about, okay, what's the road look like from here to figure out if I should invest and then to actually get it over the line at my partnership to make this investment. Yep. At least on the kind of market dimension. Now let's talk about

diligence or digging in on the you dimension if you're an entrepreneur, on the entrepreneur and the founding team dimension. So founder or entrepreneur diligence from a VC's perspective, this is also one where the mechanics are pretty easy, but the art is pretty difficult. So the mechanics of this are...

And usually what you'll do first is either you as the person, the investor within the venture firm or other people at your firm will know some people who've worked with these founders before or second degree connected somehow. You'll just reach out to them and be like, hey, thanks.

So-and-so, was she great? Is a good common question. That'll be sort of your first round. And then maybe you'll also dig up some other people deeper in the founder's past who've worked with them or know them in some dimension. And then you get on the phone with them or you text with them and you'll hear what they have to say. And I'll never forget something. I remember Elad Gills talked about this a lot. He's a great angel investor that when you first start out in VC, you're

you kind of tend to take those answers at face value. And then he said that like he found that he would do some of these references or people he'd worked with and knew would start companies. And they were just like mediocre employees at previous companies he'd worked at. And he'd pass on them because they're not that great, not that strong, whatever. But then they build these great companies. And so he started thinking about it and realized that like actually the traits that make a really good employee are,

are not necessarily the traits of a person that makes a good founder. Yeah, and of course it depends, which is going to be the frustrating theme of this episode. Like anything else, like...

If they were a kick-ass VP, there's many examples of a kick-ass VP at some company leaving and then becoming a kick-ass founder and CEO of another company. Yes. And so, but there are also many counter examples, right? Right. Judgment kind of comes into play here, but your point is the right one to take, which is use this as data, not as religion. Yeah. This is overly simplistic, but, uh,

I tend to think if what you hear from people is like, oh, so-and-so was a great employee, really got stuff done. One of my most trusted lieutenants, I could give her or him anything and she would just go get it done. That sounds really good. And it may be good. That person may be a good founder. Yeah.

but may not be another thing. And I've heard this before. These are pulled from my own experience, a quote of, uh, about somebody of, well, someone so super smart, honestly, wasn't that great. An employee though worked for me, you know, some projects that, uh, that he really cared about, knocked it out of the park. Other, but it was just really clear when he didn't care about things and like, couldn't motivate him to get anything done.

Hmm. Sounds like a great founder, actually. Yeah, exactly. Like maybe not somebody you'd want to hire, but that actually sounds like a really great founder. All right. As long as there's founder market fit there and they're working on the right thing that is their splinter in their mind, they can't shake, then yeah, that is exactly the right kind of reference you want. Ben, I think you had a couple of good questions in here, but you mentioned founder market fit. We'll come back to that in a sec.

Yeah. So my two favorite questions are, first of all, front of sheet references are almost worthless. So if anybody ever gives you like, hey, you know, you should really talk to so-and-so. They were my old boss or whatever. Like, great. Do the call. Ask your questions. But like, take it with much more of a grain of salt than someone that you were able to network to and...

has more of a relationship potentially with you than the person that you're reference checking. And this is important for entrepreneurs too. Some firms, some investors definitely will ask you for references during a fundraise process. A lot won't though. Just because they don't ask you doesn't mean they're not doing them. You should be paranoid and assume that they are being done behind your back.

Yeah. And obviously, like if you're an investor here, like use good judgment. So if somebody is thinking about starting a company, but it's very early and they just took a meeting with you, but actually they work at this other company, you don't like call their boss. Right. Yeah. That's a no-no. But you might call their previous boss at their previous company. Yeah. Be sensitive if people are currently employed. But my two favorite questions are, if you're talking to someone, ask them directly. If you could start a company and pick only one person that you've ever worked with to be your co-founder,

would so-and-so be this person? And it doesn't give you a perfect indicator because, you know, it might be the wrong fit with that person. It might be duplicative skill sets, whatever. But forcing that sort of like

hey, I have one bullet to use here. And frequently people make one investment per year. You know, if you have a five person partnership and you're investing in about five companies per year out of your fund or leading five deals, you know, it kind of works out that you might do one, maybe two investments per year. This is like, hey, I'm about to do the thing that I do once a year. Like, should I spend it on this company? My takeaway has been giving that question a ton of gravitas. Is this the one very best person that you would start a company with? Yeah.

brings a lot of clarity in the answers. I hope you ask the absolute follow-up that any investor should ask to that question. That's such a good question, which is whether that person is the person that they would choose or not. Who is the next person that you would start a company with? And then you go call that person. This is back to our sourcing episode. Hey, you ever think about starting a company? Yeah.

The second question is just ask it instead of as a co-founder, but as an investor, you say, hey, if you could invest $25,000 of your own money in a startup founded by any one person in the world that you've worked with, would this be the one? You could even ask it more directly, which is like, are you interested in investing in this company? The round size is about $25,000 per angel. Would you put money in?

Yeah. Which is a deeply uncomfortable question, especially when you leave it in silence there and it forces a lot of honesty. This will come back up in a minute with customer and market diligence, but people will say lots of things, but their behavior is reflected most truly in their financial decisions. Okay. Yeah. There's 25K available. Would you put money in? That is a great way to get a very direct answer out of somebody.

Yeah. I mean, if you want to, you can even dress it up more like, hey, we're leaning in. I think we would probably do it if you would co-invest with us for about $25K. Would that be interesting for you? Make it, hey, you're making our decision. And even if that's not totally, I mean, that's ultimately not going to be true. It gets to the truth. Yep. Totally.

We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple.

Yeah, Vanta is the perfect example of the quote that we talk about all the time here on Acquired. Jeff Bezos, his idea that a company should only focus on what actually makes your beer taste better, i.e. spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers.

It plays a major role in enabling revenue because customers and partners demand it, but yet it adds zero flavor to your actual product. Vanta takes care of all of it for you. No more spreadsheets, no fragmented tools, no manual reviews to cobble together your security and compliance requirements. It is one single software pane of glass.

that connects to all of your services via APIs and eliminates countless hours of work for your organization. There are now AI capabilities to make this even more powerful, and they even integrate with over 300 external tools. Plus, they let customers build private integrations with their internal systems.

And perhaps most importantly, your security reviews are now real-time instead of static, so you can monitor and share with your customers and partners to give them added confidence. So whether you're a startup or a large enterprise and your company is ready to automate compliance and streamline security reviews like

Like Vanta's 7,000 customers around the globe. And go back to making your beer taste better. Head on over to vanta.com slash acquired and just tell them that Ben and David sent you. And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired.

So Ben, you mentioned earlier founder market fit. And I think that's the other key dimension of kind of looking at the team as an investor, which is especially the early stages. There's lots of smart people out there. There's lots of good business ideas.

But the Venn diagram intersection of those two is actually more rare than you would think. Like, what's the reason why this team, no matter how smart and talented they are, is going to be successful at this thing?

This is also something where, you know, you can get fooled both ways. Like Elon Musk had never built rockets before, but he had this like maniacal obsession about that. That was literally he was going to drive him and his family to the brink of bankruptcy to do it.

Well, that's pretty good founder market fit. Likewise, there could be people who have been steeped their whole life in something, but they've just lost their passion for it. And so they're just doing a startup because it seems like the right thing to do. This is also hard to get to the bottom of. Yeah, I've been thinking a lot about founder market fit and what it sort of means. Because you're right, what I don't think it means is...

This person has done this thing before, so they will do it again because a lot has changed in the world since they previously did it. And what I do think it means is this person is incredibly passionate about this, such that when there's bad days in the company, of which there will be a lot.

the idea that they're running at can kind of get them through this. When there's changes in the industry that cause strife for the company, this person's motivated enough about the mission that they're on that they want to persevere through those industry changes. And also, you know, the last piece is, is this person well-suited for this business model? Like, if this thing is an enterprise sales type company, like, is there a CEO who sort of

understands that go-to-market motion is going to be good at interfacing with those customers. And obviously, there's ways to augment that, but there are sort of some...

non-starter type founder market fit things where it's just clear that if you're creating the next great social app then the person leading the company probably needs to be a product visionary and if you're just like a great enterprise salesperson it's probably actually not great founder market fit and so there's like obvious rules of thumb you can use but then once you get into the elon and rockets area you know we're very clearly not saying someone who has done this exact thing before yeah this

This also doesn't always work. There are, hopefully as is evident through this whole series, there are no hard and fast rules about anything in venture. A good like kind of test for this, especially at the early stages is if you kind of look at what the founding team has been doing by the time they're raising money, they've been crystallizing on an idea at least for a little while and gelling his team together and

what have they actually been doing? Are they working on the product? Are they getting an MVP out there? Are they like steeped in what's going on? Or are they thinking about choosing a name? Are they deciding what they want their culture to be? Are they creating a logo? One of those things makes me think... The window dressing around startups. Yeah, exactly. One of those things makes me think you're obsessed with the problem and you literally just can't keep

keep yourself from working on it, that's good. Another one of those things makes me think you just want to start a startup and that's usually not so good. Yeah, it's a good litmus test. Okay, so customer and user calls is kind of last real section that we'll talk about in this sort of digging in diligence process. This is

probably more less applicable at the seed stage because there usually is no product or users or customers yet although you can still be talking to potential users and customers and you should but what I always think about in this in this stage is a lesson I learned when I interned at Meritech my summer in business school Meritech's

fantastic, one of not the best growth stage venture firm out there. They did a lot of customer diligence calls when they were investing. And this would be series C, series D, series E, later state real companies, real revenue and real customer bases. They always talk about looking for the quote unquote Tableau 10 in a customer diligence call. And they had invested in a great company, Tableau. Rob Ward, who had led that investment at Meritech and is just a wonderful investor,

He would always say that when he did the Tableau customer diligence calls...

the people he talked to weren't just saying like, yeah, this is a really helpful product. It solves a problem for me. He was like, they were literally trying to come through the phone and beat me over the head and tell me that this was the best thing that they had ever used. It was so far ahead of the competition and I would be a complete fool not to invest in them. And he says, I've never really, at least as of 2013 when I was working with them, he'd never heard that again, but there was always what he was looking for.

It's a tall order. I will say like one thread you're probably thinking as we keep going through this is like each one of these things seem like a one out of 10 or one out of 100 chance of it being true. And when you sort of stack all these things on top of each other, like people know how to multiply, like you mostly pass. That's like mostly the business. Because sure, I mean...

you can get through without all of these things being perfect, but like most of them kind of have to be there. Otherwise it's a fatal flaw for the company. Yep. So now what's hard about customer diligence calls again at the growth stage, that's pretty straightforward. And at the stage that Meritech is investing, you'd better damn well be hearing those, you know, nines or tens or the product just isn't solving that much of a need for customers.

But at the early stages, you can get a lot of false positives and false negatives here. So, so many examples I can think of. You know, it's related to what we were talking to with market diligence of something may look like a toy or the product's not totally polished yet. Or there's some key feature that the team is about to ship that is going to make a difference. You really need to use your judgment and a little bit of imagination here and think

I always think the important thing to be listening for with early stage companies when you're talking to customers is not this particular solution that the company is providing to the customer, but what the problem is that the customer has. How deep is the problem? If the problem is deep, then the company and the product...

If they're smart, good entrepreneurs, they can root around and they can figure out the right solution to address a deep problem. If the problem's not that deep, even if they do that, it's just not going to be that significant. That's a great point. I hadn't thought about that.

Generally, the best way to do that is to try as much as possible to think about this is particularly for enterprise and for transactional companies to think about it in monetary terms. Like if you're an enterprise service, you know, how much revenue could you make with whatever category of thing this company is purporting to provide to you? Or conversely, how much revenue are you losing? You

You could also think about how much cost could you save. But I always think, you know, revenue is the big driver here. It's hard to build big companies saving costs.

You can do it, but there's asymmetric upside in revenue. So you can only reduce costs so much, but you can increase revenue infinitely. Yep. And then interestingly, this works with consumer transactional businesses too, and particularly marketplaces. I'll never forget pretty early in Rover's lifetime as a company, this would have been...

I don't know, a year and a half, two years in, maybe, maybe I'm getting the dates wrong, but we had a sitter on the platform that made over a hundred thousand dollars, was making it a run rate of over a hundred thousand dollars in, you know, fees. Like literally this was their livelihood. And that was such a key moment. And then when Rover went out to raise the next round, that was a big part of the fundraising story. This might've been the B.

B, probably the B was like, hey, here are people who are actually transitioning their livelihoods onto this platform. This is very powerful. Yeah, that's a great point. There's like an interesting meta thing there around like are in all of these gig economy things. Is it actually people doing gigs or is it actually the professionalization of the supply side, which I think has been an interesting knock on

on the sharing economy broadly is like this isn't gig work or gap time like people people are just taking jobs working for these companies but in this particular instance what you're illustrating is like they had solved a real problem for that supply side like that person was able to make it their job yep totally

Okay. So who is doing all of this quote unquote work in the investment process at the venture firm? Also a good question. Varies wildly by firm. Some firms, the partner or general partner, whoever is quote unquote leading the investment is doing all of this work themselves. Uh,

Some firms don't even have teams underneath those people. Sometimes those people are really doing not much work at all, and it's all being outsourced to an associate or principal, or maybe an associate and a principal, depending on how big and significant the deal is for the firm. I would say most firms, though, generally tend to take an investment team model. So there'll be a

A partner, a GP who is leading the deal and a principal or associate working with them. And the two of them usually do this together. So if you're an associate at a VC firm, most of the time you should expect to be doing a lot of this work alongside a partner.

Yeah. And at the more old school firms, this is usually structured in a way where there's always the same associate mapped to the same partner. It's sort of spot. There's sort of their sponsor. And a more common model recently has been sort of a bullpen of associates and principals that sort of work with different partners depending on their interest level and their expertise in a certain area. Yeah. I think this is one of the best parts of the

venture model. And this is where a lot of the apprenticeship model and knowledge gets transferred just through the active practicing of doing these things together. And frankly, this is the fun part. It's like a lot of work. But like this is when you really sort of develop a lot of your skills and pattern matching. And this is when you grow spidey senses about what the fatal flaw in a business is, such that you can hear it in a first meeting, because you've looked at a similar business

model in a different space before you understand where something fell down in their financial model, what made it harder for them. And if you've ever been a founder in a meeting where a VC somehow within like 10 minutes of you starting to talk about your company, like zeroed in on the hardest possible question to answer, like years and years and years of doing this is why. It's not because they're that smart. Yeah.

Maybe they are that smart. And you also don't have to bring it up in a way that shows like, oh, look how smart I am. But it does save everyone time if you can kind of get to that thing more quickly. Yeah. All of that is the work. Like I would categorize that as that is everything that happens between you or whatever partner you're working with at the VC decide we're interested in this.

up until the decision-making moment. So what is the decision-making moment? Let's talk about what a partnership is for a moment. And importantly, how it's different than what a company is. So a corporation has a CEO and ultimately the buck stops with them. And if they are not doing their job well, they get replaced by the board. Everyone knows how a company works. With a partnership, how on earth does a group of like...

five, six, seven, eight people make a decision. Who's the decider? How does that possibly happen? You can go through as many of these pitches and processes and separate meetings and preparing memos and everything as you possibly can, but who decides?

My wife, Jenny, used to have this analogy that was a joke, but like all jokes, there's a lot of truth in it. She would say that VC firms are like loose affiliations of warlords. And each warlord is an individual warlord, but they banded together to have more territory. And that I think is a much, at least closer to the truth of an investment partnership than a corporation. Yeah.

Totally. And, you know, if you trace back the very earliest partnerships were literally consolidating their back offices and bringing their individual Rolodexes to basically find synergy and consolidating and reducing costs. And over time, of course, this has turned into rather than a defensive, how do we save costs more of an offensive, like, how do we build a big brand together? How do we build an enduring institution?

But the original thing of partners who sort of all co-own a thing together and make decisions in a group format, that is still the remnant. Yeah, well, pre-Sequoia and pre-Kleiner Perkins, which started right around the same time, it mostly was people investing their own money. And so it was they were partnering together to invest their own money together in companies. You know, it was only...

with that sort of modern era that started in the mid-70s of raising money from limited partners who weren't making the decisions but were just providing the capital became commonplace. And this creates all sorts of frustrations. Like the fact that it's got those roots but has evolved into a professionalized job class. Like when people say things like, what does a career progression look like in my firm? If you were to ask that question in 1971, it would be like, what?

There's five of us here investing our money and we hired you to help. What do you mean career progression? And now it's like, well, I've joined this wonderful 80 person organization that has this brand and these benefits. And I expect to grow up here over the next 20 years. A whole team of operational folks that help our portfolio companies and all of this stuff. Right. I'm glad you brought that up because...

That is going to be a big theme, the fact that these are jobs now instead of principal capital that's going to come up at the end of the episode. Okay, so most firms, this decision-making crucible happens in a quote-unquote partner meeting, right?

which used to happen only on Mondays for some reason across the entire industry. It's still like by far the most common. Yeah, but I don't even know anymore. I think it's all over the place. Like so many firms now, some firms do multiple partner meetings a week. Some firms do ad hoc partner meetings. Some firms do partner meetings only by sector group or geography. It really depends. And I think if you're an entrepreneur...

raising money and going through the you're at the end you're at this point in the process the partner meeting cycle firms have generally realized they have to be so responsive and fast acting in these moments that they'll like the partner meetings happen in an ad hoc fashion especially over zoom now

Yep. Fair point. But regardless, almost always, this is where the decision gets made. Typically, what happens is the CEO of the company or the founding team altogether will present to the whole company.

firm, either just the general partners of the firm or more often, everybody who works at the firm in one sort of... It's almost like a gladiator style meeting with an audience. Some of these meetings, you can be an entrepreneur going up and

pitching your company in a very sort of scripted 30 to 45 minute pitch to 30 or 40 people that you've never, most of whom you've never met before. It's wild how many people can cram into these conference rooms for, you know, yeah. You have no idea who they are. You've never met them. And your whole interaction with the firm up into this point has been a very personal relationship building exercise with one or two or maybe a couple more people. And then all of a sudden you're put in front of the gauntlet.

And to stack the toughness on top of that, after this person gracefully introduces you to the firm and stands up and says a little thing about, we're really excited to have so-and-so in. This person being your deal lead. Yeah, or the deal lead, deal sponsor, the GP that you might work with, hopefully your potential future board member. They're usually the quietest.

Which is then like as an entrepreneur, you're like, wait, wait, this person has been the person I have the best relationship with here. But that person's job at this point is to give everyone else exposure to the opportunity and not monopolize the conversation with their own questions that theoretically they should have already asked all the way, probably even written down in a deal memo. Right.

Yeah. And there's lots of pontificating that happens from all sorts of comers in this meeting. As an aside, kind of switching over for a minute to the entrepreneur's perspective instead of the investor's perspective.

One thing I always say and tell people, especially now that I'm not currently at a affiliated with a venture firm per se, is you are in control. Like through the whole process, you are in control. But it can be so nerve wracking. You get up in front of this like you're literally like a bunch of gladiators facing it. You got to remember these people should be lucky to invest in you and don't let them control the meeting.

And it sure feels like they're in control because you're in their office. It's all of them there. They literally carve out time on their calendar for this to happen multiple times per week in the exact same way. And so it feels like, okay, cool. I guess I'll just slot into the thing that they do. I mean, we're going to talk a lot about this, but investing in the earliest stages is about non-consensus bets. And so like your job is to not be like everyone else and say why you are very different than all the previous startups. Such a good point.

Flipping back to the behind the scenes investor perspective here, decision making, one thing we should have said, typically before the meeting happens, either a couple days before, more often at like

midnight the night before, the deal team will send an investment memo to the rest of the firm to get them up to speed on this investment consideration that they're going to make in this partner meeting, typically tomorrow or five hours from then. That memo is some form of distillation of all the findings in the diligence doing work section that we were talking about before

As well as kind of a recommendation of like the recommendation is always we should do the deal because if you didn't want to do the deal, why are you bringing it in front of? But it frequently has a recommended terms or structure as well. Right. Or we think this is really interesting. Here's some questions we have, etc. These are key things that like we want the whole group's opinion on from the partner meeting. And this form back in the old school days, this used to be a Word doc that would get mailed around or a PDF document.

These days, you know, it could just be an email, could be a Google Sheet. The earlier it is in someone's career as an associate or principal, the more likely it is to be like a perfectly filled in template that the firm uses. And the opposite side of that spectrum is like a,

a not well-formed email that has like a few really compelling points about why this person or this opportunity is top-notch. You know, I've even seen it be the case that someone says after they already commit, after a VC already commits and says, we're in, to say, hey, can you obviously send me your deck and then send me a few more pieces of information that I'll need for creating the memo. Yeah, this runs the gamut. So why does this happen? Why do junior VCs typically end up writing a

beautifully crafted, well-formatted memo with brilliant thoughts and incisive questions in it. The right things bolded, the right things italicized. And senior people maybe send an email because the reality is like, this doesn't really matter. This is a check the box kind of thing. Oh, I'll push back on that. Yes, you should. And in some firms it does. It really depends on the partnership.

but in a in a typical bigger firm everybody's got their own stuff that they're focusing on it doesn't matter because people by and large aren't gonna read it or if they are gonna read it they're gonna skim it they're not gonna read this beautifully crafted 10 page memo in great detail the more important is like the email here's why this is compelling here's why we're bringing them in pay attention tomorrow okay i have two thoughts

One is it's the same reason why board decks matter. They matter less for the board and more for the entrepreneur to clarify their thinking. So it's for the deal team to really zero in on what is the crux of this investment? What are the key things that could make this company enormous versus what are the biggest risks? If it fails, why is it going to fail? And that if it fails, why is a common part of the investment memo.

It can have plenty of bullet points in there and the deal can still get across the table. The second thing I'll say is training. Like the reason why those senior partner emails can be a few sentences is because they've done this so many times that they know what the important parts are and Absinthe actually does

doing this and going through the machinations, like you don't, you don't develop that, that spider sense. Yeah. Here's another good point to related to that. It's not just training, but it's also this concept of juice. How much juice does the deal lead have in the firm? If you're a senior partner, maybe a founder of the firm in a big firm, who's really going to tell you, no, you know, you can buy juice. I mean, you influence, right?

You could phrase this as you can get away with doing less, but you could also just be like, you can focus on other things. Whereas if you are a younger, more junior partner, maybe this is one of the first couple investments you're leading, you're really going to have to build your case internally with all the senior partners about why they should let you do this. Yeah.

Yep. And advice for junior folks at VC firms out there, a very common way that something gets over the line, which actually is very similar to big companies, is you have the meeting individually five times before the meeting. Oh my God. It took me years to learn this. But so, let's underscore this again. You're a junior VC. Nobody's going to tell you this when you come in, or at least nobody did for me. You can't just write the memo and

hit send, go through the partner meeting, make some nice points and then expect everybody to support you. Have the first time that the vast majority of the partners meet the person be in the partner meeting. No, you need to be doing some Barack Obama style community organizing and like, you know, coalition coalition building well before the decision point happens. If you want to get this done.

Obviously, with all the usual caveats that every firm is different. But if you find yourself as a associate or principal in a large firm with these types of dynamics, you would do well to remember that for your first few deals.

And generally, if you're a principal, you've figured this out. Yep. Totally. Also interesting for an entrepreneur, as you're sizing up the person across the table from you when you're pitching them and deciding, huh, do I want to spend a whole crap ton of time going through diligence and then potentially ending up with them as an investment partner? Like, do I think they've figured this out? Like, do I think that they actually can get something over the line in their firm? Yeah. Or is this a waste of my time? Absolutely. That is...

Such a good point, because this will take a lot of your time as an entrepreneur. Before we continue, people often ask me, what does the process look like from here after the very first meeting? And it's tough. Like the right answer is sometimes we will have one more meeting and it will be the partner meeting. And there's other times that is...

Middle of the road is probably two or three meetings before the partner meeting where I just continue to bring in more and more and more people at each one. Other times, even a very senior partner will say, I'm going to have you meet with every single one of my partners before we do a meeting together. And like you could have like six, seven meetings. And if you get that many meetings in, it's probably pretty likely to happen. It can be a long process, but it's almost like you shouldn't dread that process because

because the deeper you get in it, the more likely it is to tip. I think, yes, that's actually true. What's really interesting, we'll talk about this in a sec, is all of this is wholly dependent on the deal dynamics, supply and demand. Every market is supply and demand. And if the more people who are interested and the more competition there is for a deal, the faster it will move. And the more likelihood it is that you will get yeses from everyone versus...

when there's less competition, then there's no reason then VCs can take as long as they want and they can have seven meetings. Then they can still say at the end of it, you know, we're not ready yet. Why don't we talk again in three months? Whereas if it's either now or never, then they're going to have to make a decision. Such a freaking art.

And the lesson that me, uh, from an entrepreneur perspective, NVCs to when you're raising money for a firm, which we'll talk about fundraising later in this series is it's a numbers game. Your job is to fill the top of the funnel with as many people as you can, even way more people than you think you should. Yeah.

So the partner pitch by the entrepreneur has ended. These poor folks are shepherded out of the room, often unceremoniously or just booted out of the Zoom room. And then a discussion happens. So what happens next? This definitely varies hugely by firm. Some firms do an actual vote.

Sometimes it's just the partner's vote. Sometimes it's the whole firm votes. It could be open voting where everybody announces their vote. I particularly like blind voting where some version of either digitally or physically, you sort of write your vote one through 10 of how excited you are about the investment on a piece of paper. Everybody does that at once. You don't influence each other.

then flip it over and then you explain your vote. That's one way to do it. There are also firms out there that don't vote at all. It's just qualitative feedback. It's the deal leads decision. Those tend to be smaller type of partnerships that operate that way. And we should say too, like there's every different way to vote on this. Like there's some firms that require unanimous

agreement. There's some firms that require a majority. There's some firms that have a pound the table, which is, look, if the deal lead is pounding the table and saying, like, I'm staking my whole reputation on this thing and we're going for it, then we're going for it. There's some firms that operate in a veto framework where you get a certain number of vetoes per year or per fund and, you know, anybody can veto a deal and then it's dead. And so...

Usually, this is not public, how this decision-making process happens. It's considered sort of a proprietary part of the firm. Some firms will use it as sort of a competitive edge to show transparency and say, this is how we make decisions at the firm and tell entrepreneurs that. But

You really don't know exactly how the decision gets made. Yeah. And also, usually there are multiple dynamics going on. If somebody tells you how they make decisions, there's a good chance that actually how things are, you know, really, really decided behind the scenes aren't quite that. So you should always be...

skeptical. And as, you know, working at a venture firm too, like it can be hard and take a long time to suss this out, even working within the firm of like, what are the real power dynamics? How do decisions get made? So usually the outcome of all of this

this discussion is typically if the firm wants to invest, usually these days, I think a verbal offer that same day, often that same hour to the entrepreneurs of the terms at which the firm would be willing to invest. Sometimes it's a written term sheet, but I think a lot of terms these days like to go the verbal offer route to try and suss out who else is interested, what other terms are coming in before they formalize it with a written offer. So,

Yeah. And a verbal offer often won't be specific. Hey, we really want to do this. We're thinking something like this. We're thinking, you know, we do five to six of a million of a $10 million round at a 30 to 35 post or whatever, something like that. Those would be bad terms. In any of these cases, it's a little silly for a super early stage company, let's call it a seed round, since the vast majority of the deals get done at pretty similar terms set by the market.

And also depending on how the round shapes up and how many people are interested. Another thing that happens almost all the time is the amount of capital raised changes. So I think it's more common that the capital raise will go up versus necessarily the amount of the company that you're selling going down. So the valuation will go up, but the capital amount raised will go up too. At

at least these days. So like, that's kind of the end of the formal internal decision-making process for a firm.

But that is just the point at which the battle plan meets the enemy. Right. And there's a certain amount of latitude given to the deal lead to say, hey, okay, we're supportive. These are the terms that, you know, feel right now go win within some parameters. And those parameters can be, these are the terms come back to us if it's any different or like we're not doing it. Or that could be, we trust you implicitly. Like,

go get the best deal and you know, whatever the terms are, they are. And it ranges from everything in between depending on the partnership. Totally. But I will say it's very, very rare having seen lots of deals get done in my day now. It's very rare that the deal gets done with the terms that are initially proposed by the VC firm. And most of the time that is because of competition, real or perceived. But I think what's super important to keep in mind and

and very, very hard. But both as an investor and as an entrepreneur is psychology and behavioral economics play enormous roles in everything that happens after this. And like we mentioned earlier, ultimately, the incentive of a venture firm, no matter how nice the people are, they're well intentioned, they are great, whatever their, their incentive is, is

for, and if you're an adventure investor, your incentive is for the entrepreneurs you're talking to, to be talking to as few people as possible and have as few options, except you as possible. We talked about in sourcing, you know, the quote unquote proprietary deal flow. Why is proprietary deal flow? Great. This is why proprietary deal flow is great. As an entrepreneur, you want the opposite. You want to be talking to as many people and have as low a supply of dollars available in your round as possible. Yeah.

I will say I have seen a handful of deals where this just doesn't exist at all. Where you have trusted relationship between general partner and between company founder and CEO and maybe worked together before. In both cases, I'm thinking of entrepreneur just says, I want to work with you. I trust you to give me fair terms. I don't want to go run this whole roadshow. If you feel good about what I'm working on, then fine.

Let's figure something out relatively quickly here. And you basically can just like skip all of this, but that typically requires a preexisting relationship. Exactly. Requires a high degree of trust, either in a preexisting relationship or in a belief and understanding that the person on the other side of the table is playing the long game here. Because why would you as a, as a venture investor, why would you not?

not take advantage of that. You would not take advantage of that if you believe that your reputation and what that entrepreneur is going to say about you, especially when that entrepreneur finds out what market is for rounds like they're doing, how they're going to feel and what they're going to say. If you believe that that is more important than this particular deal, then you're incentivized to give market-ish terms. But I think an important point to say here for both sides too is...

don't discount like this is a transaction that's happening and there is a market for startup equity. Um,

relationships are very, very important. But why are these relationships being built on both sides? It's because both sides want an edge on the market. So as an entrepreneur, especially if you're a first time entrepreneur, your head can start swimming as you go through a process of like, all these people, they seem so great. They seem like I would really love to be in a relationship with them. But you also want to keep in mind what their incentives are.

There's so many different things to optimize for. One very reasonable one is someone who has been in this racket long enough that they're just sick and tired of the BS and that they want to cut out the crap as much as you do. And, um,

That can both be marketing speak or it can be the truth. Both can be true. Yeah. Even in the same person. Like what's a specific takeaway from this is that I don't know if you have been, I have never seen an investor walk away from terms that they've offered because the entrepreneur wants to negotiate. And I think it can be a little intimidating sometimes, especially for first time entrepreneurs of I've received this offer from a firm and

Oh, I don't know. Especially if I don't have that many offers, I'm worried about losing this particular offer. If somebody wants to do something and they want to do it bad enough that they're staking their internal reputation within the firm to stick their neck out and say, I'm going to lead this deal. You saying, oh, I have some ass. So like, here's how I would like to change this, you know, negotiate on price or whatever a little bit.

they're not going to walk. You might not be able to get what you want, but nobody's going to walk just by virtue of you saying, I want to negotiate. I mean, that's true within limits. Like certainly VCs have walked away when an entrepreneur comes back and says, I have a term sheet for triple the valuation. I do want to work with you though. Can I negotiate up? And you're like, uh, this is a completely different thing that I prepared my partners for. Right. This is where it's a, it's a delicate dance. The point I was making was, um, you have to be respectful of the other side.

And remember that this is a relationship you're entering into and negotiating good faith coming back with like a sledgehammer like that is going to get somebody to walk. But just the virtue of negotiating itself, if anything, you know, VCs, while they may grumble at the moment, they're going to want you to negotiate because they're also thinking about how are you going to do when you raise your next round? And I'm on your side of the table. Are you going to be a good negotiator on my behalf? Yeah, exactly. Exactly.

Plenty of times it happens that an investor will invest in a great company on shitty terms, but almost never will it happen that an investor decides that they should invest in a shitty company because there are great terms. And that is a funny fallacy for anybody who's getting into this for the first time. They are like, gosh, I don't know. It's like a two pre. You're like, yeah, I know.

It's important to recognize that people are willing to flex on price once they've decided it's a great company. But rarely does someone flex on thinking something is a great company because the price is so good. Yeah, particularly at the early stage. As you get more into growth stage, then price does become a lot more important. For sure. Because the upside potential is massively capped. Totally. I have a great close friend from...

business school, who's a great growth investor at a big firm now. And I'll always remember talking with him about this shortly after we graduated and, you know, I was doing early stage investing, he was doing growth and his firm does both early and growth. And, and he said, you know, it's sort of frustrating in some of these investment decision discussions with our partnership because the partnership is early and growth folks altogether. The early people, the only question they ask is, do you have conviction in this company?

That makes sense at the early stage. But once you get to the growth stage and you're talking about hundreds of millions or billions of dollars of valuation, it's actually a different question you need to ask. Do you have conviction in this company at this price? And that is a slightly different question to ask, which brings up, you know, ultimately...

When you're in the seat as an investor, you're leading a deal through the partnership, through this crucible, especially if you're relatively junior. You're kind of balancing three things, I think. You're balancing your conviction in the company. And that sort of translates to will this company be successful and successful at a scale, at a significance that will matter?

to me and to my career and to this firm. You're balancing that versus the price of the company, which while it matters less at the early stages, it does still matter. Like you were saying, Ben, if an entrepreneur comes back and says, I really like you, but I want triple the valuation. And then the valuation matters a lot more these days at the early stage than it used to, because early stage can mean such a wide range. Like,

seed rounds used to get done at three and four million dollar valuations and maybe if it were crazy like a five million dollar valuation and now seed rounds get done anywhere from a four or five to like a forty sometimes even higher and let me underscore why that's really really important because when you go from like a four to a forty then

the multiple you can get is literally 10 times less. Like your cost basis has gone up 10 X. And so whatever the company's eventual outcome was going to be, if you were going to get, you know, maybe that home run 50 X, well now you're only getting a five X. So like it is way different. Yeah. Well, that is certainly, certainly true and important, but actually I think Calacanis made this point either on the main show or the, I think it might've been the LP show he did with us.

The bigger issue, we'll get into this when we talk about portfolio construction and VC fundamentals. The bigger issue is as valuation goes up, if you're trying to get ownership in these companies, your check size goes up. That doesn't matter if you're a billion dollar multi-stage fund at the seed stage. But if you're a early seed and A or seed stage fund, and instead of writing a $1.2 million check, you're writing a $3.4 million check or $3.6 million check,

That means you just use three slots, three investment slots in your portfolio on this one company. So that's two fewer companies you get to invest in, in this fund or for you as an individual, you know, in this year or in this, you know, set of years. And that has real opportunity cost.

not only for the direct opportunity cost of I can't invest in those two companies, but it affects your portfolio construction, where if you are already squeezing it pretty thin and saying, we're going to do 20 companies out of this fund or 25 companies out of this fund, and you do this two, three, four times, suddenly you're only doing 10, 12, 14 companies, and you're not diversified enough, especially for this very early stage, in order to maximize your chances of having one fund return.

Those are the two obvious things that you're balancing, you know, conviction and price, you know, I guess otherwise phrased as risk and return, price being risk and return being, you know, your conviction or potential return.

There actually, though, I think is a really, really important third dimension that you're balancing as you're navigating this process as an investor within a firm. And that's your reputation. Not only your reputation and the firm's reputation externally with entrepreneurs, with other firms, with co-investors, etc.,

But like brass tacks, your reputation as an individual within your firm, because the farther you stick your neck out, the more, uh, I think what it didn't Santi say on our zoom episode that, uh, when he was leading the zoom investment and he was still a pretty young VC at emergence at that time, it was the largest check they'd ever written. And, you know, the partners took him aside and they said, Hey Santi, like we're supportive of this deal, but just so you know, you're risking your career on this. Like that's heavy. Yeah.

Yeah. This doesn't work out. You're not doing any more deals here. Right. So we're going to come back to this in one sec. The question then, this is kind of the goal of our Fundamentals of VC series is to expose the what, the how, but let's talk about what this means, right? So like you're an investor, what do you do? How do you manage this very stressful process? I've been through it a lot. You've been through it a lot, Ben. What do you do here? Yeah.

at the end of the day, it related to what we were just saying, like the two questions you have to ask yourself, if you're going to advocate for an investment is one, is this objectively a good investment at this price and structure at which we can invest in this company? And then the second is, is what is the impact that making this investment will have on my career? And sometimes those answers are aligned and sometimes they're not. So let's take an example. We'll stick with, you know, you're a

newly minted, let's say principal at a VC firm, and you've just gotten your first kind of check writing privileges, you're doing your first, you know, within your first five investments, you know, what are you really, really trying to do at the end of the day? You

you're trying to be a good investor or you wouldn't, you know, I've gotten to this point, you know, sort of mid-stage in your career and still be loving wanting to do this, but you're also trying to get promoted and you're also really trying not to get fired. So how do you get promoted? Right? Like certainly a big win, you know, you, you invest in zoom, uh, early, like that's going to get you promoted for sure, but that's accompanied by a big risk to like a

Another strategy would be to get quick wins and several of them with lower risk. And so what are quick wins going to be for you? They're going to be companies that are going to raise another round relatively quickly, that you're going to get marked up on, that you're going to look good, and that your co-investors who are going to come in are going to be very well-respected co-investors. Either you're coming in alongside or coming in after you.

that's going to make you look really good. So Ben, you mentioned, you know, right non-consensus bets versus right consensus bets. You can maybe start to see here that

there is an incentive for anyone who wants to be promoted to make right consensus bets. Right. And actually pretty strong incentive not to make non-consensus bets. So of course, what we're referring to here is the classic. I think it was Howard Marks who...

coined this analogy and then Andy Ratcliffe popularized it, but it may have been the other way around. You know, if you think about investing as a two by two matrix of, uh, you can either make investments and be right about the investment, or you can be wrong about the investment. If you're wrong, you're just not going to make any money like full stop. But,

But you actually have to be more than right to make real money, real outsize above market returns in investing. You need to be right and non-consensus. Because if you're right in consensus, the market's going to be right there with you. And you're going to earn a relatively market return relative to the whole venture market. But if you're able to do something that others aren't and it's right, that's when you really make big returns. Yeah.

What you've exposed is a flaw in the way this ecosystem has evolved. Okay, so let's take a few things to be fact. One, venture returns are power law distributed almost every case. There is not a firm who has 3 to 4x'd by generating 3 to 4x in every single one of their investments. I mean, sure, growth stage, but not early stage.

So if we take that to be truth, then what you have to be doing is every single one of your bets has to be able to return the fund. And so you shouldn't be writing a check unless you think that it can 30, 40, 50, 100x. And so if you're acting purely in the best interest of your investors...

that's the thing to optimize for. What you just pointed out, David, is that personally, you have another incentive and that's to get these quick markups. Right. So actually, for a lot of people, I think in the industry, and I don't say this to criticize, it just kind of is what it is, but I think it's important to know if you're going into this industry or you're already in it or you're an entrepreneur,

a lot of the incentives for people are to make right consensus bets. And there's also, you know, there's consensus versus the industry. Do other VCs want to invest? Will they get markups? Will respected people want to invest? There's also consensus within your firm, right? Like if you're going against your firm. Right. What's a deal I know I can get across the table versus no one here is going to go for this. Right. Nobody's going to go for this. I'm going to spend all my political capital making this investment because I really believe that it's going to be non-consensus and right.

Well, let's, you know, I'm channeling some Charlie Munger, you know, behavioral finance musings here. How's that going to play out? Let's say you are right and you make, you know, good money on that investment.

Well, you'll probably won't get fired. You maybe even get promoted. If you make investments that are consensus within your firm, everybody's supporting you doing it and they don't work out, you're probably not going to get fired. You're going to get a bunch of second chances. Hey, those were good bets. Those were good bets you made there. You know, you just, the market went against you or there's the wrong timing or whatever. Right. You ran the right process. And just because the results weren't right, you should be rewarded for running the right process. Yep.

But now let's think about the bottom quadrant of the two by two matrix. You made a non-consensus wrong bet. So you stuck your neck out and you were wrong. That's going to be real tough. That's going to be real tough. Yeah. You said we should go hard into ICOs. Well, and people may be right in the long run, but I think a good place to kind of, I thought of maybe to wrap a whole bow around this and something I've been thinking about a lot, still learning on my journey is-

What's the lens to really think about this? I think it comes back in many cases to your time horizon. And that's a big element to be aware of as an investor of what is your time horizon for success on a given investment that you're making?

If you're trying to get promoted and get the markups and get the external validation that you're going to need to advance your career, like we were just talking about, your time horizon is pretty short. You want to be moving up in your career every 18 to 36 months. That means you need a bunch of companies that are showing this performance within that timeframe. If you're willing, though, for whatever reason, to extend your time horizon out farther, as an aside, we should say, too, it's not just...

individual investors that these dynamics apply to, it's firms too. New and younger firms, they almost face the same dynamics with their limited partners. They're trying to prove themselves with their initial funds and then raise subsequent funds. But anyway, if you're willing to extend your time horizon longer, then you can have more patience with these non-consensus bets that might take longer to play out

Maybe not even because of fundamentals of the company themselves, but if it's non-consensus and other VCs aren't going to be hot to finance them like ICOs, I am sure there are some ICOs out there that are great companies that are going to be fundamentally strong, good investments that will have come out from the past few years. But there's going to be a winter that you're going to have to live through as an investor in those over the next couple of years where nobody else is willing to finance them.

in some ways, I don't want to just point out like, here's how effed up this whole thing is. Because I don't think that's why we're doing this. I think much like every LP episode, these are the incentives at play. It naturally guides the water to flow in the direction that it flows because there are rocks in certain places. And so...

All you can do is be aware of them, mitigate the things you don't want to happen by designing different incentives. If you're starting a firm or if you're choosing what firm to raise from and knowing what their incentives are, it just helps you understand better on your journey for the things that you're trying to optimize for.

Certainly for entrepreneurs, but yeah, I think especially for investors too, like the more aware you are of these dynamics, the more you're just going to be able to better manage your own psychology and hopefully your decision making in this process too. Like, I think it's really important. I wish, I so wish when I was a young investor that I had understood that

these dynamics because then I would have been able to better say, okay, which companies and why am I really gonna put my weight behind? And maybe it's okay to do certain kinds of companies now. And then maybe later it's okay and better to then do certain other types of companies. Like your career is long, you know, as long as you feel you're acting in the best interest of your investors. Of course. Of course. All right, David, should we, should we bring this one home? Well, let's,

Do it. I think a major takeaway here for me and anyone who's sort of scratching their head here saying, okay, like what did I really glean from this episode? I think the biggest one is every firm is different.

Second one is just try and get as much transparency as you can. And if you're going through the process pitching a firm, I mean, you shouldn't be aggressive about how many more meetings will it take, both because that person may not be able to tell you because they're still formulating in their head, like, what's the best way if I believe in this to get it over the line? But then also, if the question is more like, what's the way that your firm makes decisions? Like, it may not be something that they're able to really talk about.

And so I think that there's a general awareness that we're trying to bring to the wide variety of ways that this gets done, a way that we're sort of encouraging you to sort of ask for information, but be aware of the stuff that sometimes can't be shared or that, frankly, the person you're talking with may not fully understand themselves. And in general, we're just trying to bring some more transparency to what is a pretty opaque process here, I think, as usual on the LP show. Yeah, totally. Yeah.

Well, on the next episode of VC Fundamentals, we're going to shift gears entirely. Today's episode was super behind the scenes baseball of venture firms. We're talking about company building. What happens after you write the check? Well, more accurately, after you write the check, but before you write the next check. All right, LPs. Thanks as always for joining us and we'll see you next time. We'll see you next time.