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

[00:00] 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 under promise and over deliver. So we would like to help. We just don't want to like proclaim we're going to make your company great. I'm really excited to be sitting down today with David Tisch of Box Group. David, thank you for making the time to do this. Jack, I'm thrilled to be here. [00:30] 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. 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. [01:00] start with the way that you think about [01:02] your model, how it works, the way you invest in companies and just like the shape of Box Group? Yeah, I think first off, like 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, [01:21] and then there's being later and being 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 into in terms of what they're looking for so i don't believe i work in the same industry as most of those people i think it's series a and b there's still

[01:51] it, the art is [01:53] 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 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 i'm a dart you're a dart thrower i think that at seed it's messy and i think you [02:23] 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 going to 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 bit [02:52] 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 [03:01] we like happily live at forever. And we're not going to evolve. We're not going to change. What do you think people are misunderstanding when they think that this model [03:11] Like people got it wrong, obviously, because 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. I think I think there's two parts to your question. One is like, why don't people stay here? Yeah. 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.

[03:41] to return more capital to make more money at its core. And then you like, on the other side of it, you don't, [03:47] You're not as important. [03:49] in a [03:50] true sense of that word, right? You're not sitting on a board. You don't like take credit for the company's success. You're just a seed investor. And I think 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, [04:07] 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 box group 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 [04:35] five, seven, 15 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 that that person goes out and creates, it's like amazing. And to watch that from the day one, to me, is very different than watching it from year two. Why have you chosen to keep it in the sort of collaborative, sort of smaller medium check version instead of leading? Because obviously, [05:05] 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.

[05:13] 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 going to 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 [05:37] Like... [05:38] win or die model. And [05:42] if at the core of what you want to do is help people achieve their dreams and invest in the best companies the last thing that you have to 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 [06:12] Box Group 15 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 why we've never changed the model is that still the core goal is invest in the best companies. 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. [06:42] 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.

[06:56] So I do think [06:58] It's important 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. [07:28] 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 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. [07:43] 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. [08:13] 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. One of the things I think about on this that I that maybe plays to this is let's say you met 100 companies and you had to the next day or that same day stack rank those 100 to the best your best possible guess of which one's going to be the most valuable to whatever. Then you're going to decide to cut off whether it's at 97 or at 93 or

[08:43] Like, you know, that's the bar where you're going to invest. One of the things I often think about is I actually don't know with my trusting my own judgment on the ones that I. [08:52] said yes to versus the ones I liked a lot but just didn't. I'm like, I'm not convinced that I can pick between those baskets. You just kind of do stuff at some point. But I don't think most VCs at the [09:02] Series A and earlier stage can pick between the top 25 the next two like yeah So that's my question basically is like where do you think that you can't I don't I don't think that? [09:12] 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 you see that i if if that was the case everybody would be [09:42] is people invest in a bunch of companies, [09:45] 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. 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 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 going to be things that you had immense conviction in going in.

[10:15] that were really excited about one, three, five years in, that just don't end up working, or they don't end right from a return standpoint. 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. [10:32] 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 it's also funny i mean like not to not to like hype you up but like as i'm thinking about this a couple of the companies that you're invested in [11:02] 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 the bar you have to find people that you [11:32] And you hear the word people get talked about in our industry and back people, back founders. But that at the seat is actually the core of the job is to find people that you are excited to see what they're building, the future of their world. And this can apply to any space. So this isn't a market driven decision. This is a person driven decision.

[12:02] 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 story like Clay, we were fortunate enough to meet Kareem Farris. [12:18] 15 14 years ago uh i invested in his first company and nicholais 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 and they're not 10 years or they're longer right and when you're backing somebody right out of [12:48] When you talk about 15 years, 15 years ago for a college student is they were five. Right. 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. [13:18] journey and we are constantly changing who we are as box group 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 see 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 i feel like this is probably one of the biggest

[13:45] 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. [13:59] 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 gross investors can do. It's hard to invest in things that you truly think are bad ideas. Will you do it? [14:13] If you think someone's great and you're like this idea is not going to work. But they have to be like the greatest. Yeah. Right. So like on the scale of great to greatest, they like if it's a idea where you're like, I don't want to invest in this idea. Yeah. 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 all tingly and you're like, oh, my God, I can't believe I'm in front of this. Can you get that over Zoom or do you need to be in person? You can get that over Zoom. Yeah. You can get that over Zoom really quickly too. Like what makes that happen? [14:43] package, right? It's like [14:45] IQ and EQ 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? [14:57] a group of people and a group of people is a hundred people a thousand people you think about the scale tech companies say there are tens of thousands of people that work there and you're meeting somebody when it's just one right and you're trying to figure out can this person lead a thousand people 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

[15:27] 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 [15:57] Like, does it create something of importance and importance in consumer, importance in enterprise, importance in developer tools, importance in health care, finance, 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 10 million people using your product, it probably isn't that important. You need to think in, like, insane numbers. [16:27] 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, [16:48] Partners or as they call them now design partners. Do you have anything to say about design partners? There's a term I think it's a nice repurposing of like early customers and it's a door. It's like it's softer. It's nice It feels like a forward deployed engineer or something like that way I've got all this whole basket of nice new terms there but design partners my favorite and I like for they're both they're good but like analyzing a founder in that context is to me the the the core of seed investing like great person working on something that

[17:18] If it works is interesting. Okay. So that's like the core thing to be good at. You've got a team of eight or nine people. [17:27] Everybody's out meeting a lot of companies. Do you think this craft is teachable? Do you think this is like a teachable taste or is this just you got to hire for it and then let people exercise? Like if this is like the thing that boxing needs to be good at, is this hired for or is this taught? [17:41] hired for. We need to just have great people at our organization. And I feel fortunate. I have, you know, a group of great partners that we've worked together for a long time. You know, Greg, Nimi, Adam, Claire, Adina, and I've all worked together for a long time. And I think there's a consistency in a team that can build trust that you work together better over time. And I think [18:11] that seed a lot of the time, it's a very small team, and there's a lot of inconsistency and [18:16] 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 Box Group is we've all worked together for a long time and we really like working with each other. 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? Because 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 want to lose

[18:46] We're all wrong way more than we're right. Yeah. 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 either one of those is fine. You just have to accept risk because that's the core of the stage that you're playing at. [19:16] 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 going to go win. And you're probably not. 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 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 [19:41] that it's always okay and that's i think the the key you have to make the right choices and so [19:48] 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. Can you osmosis learn it? Can somebody sit with you, see your taste and learn it? Or is it not like that? 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,

[20:18] 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 going to form your taste. 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 Box Group as we grow [20:48] whose taste we believe can scale and is worth us betting on. And so one of the things that we do at Box Group is everybody at Box Group 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 [21:18] where VC to me gets weird is when you have team-based consensus 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 really love this deal, but I'm not sure I can get it through the firm. [21:39] 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. 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 there's like.

[22:00] political reasons, there's like job 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 foundation of this conversation is like, why are we the same? It's because I don't want any of that to creep into Box Group. I want at the end of the day, Box Group to be pure, aligned with founders. We want to meet people, give them money and try to [22:30] Can you talk a little bit about the... [22:33] the approach, like the art of being collaborative, because I think this is something a lot of investors want to do. [22:40] 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. [22:49] 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 got to you got to 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? [23:10] to do it well. Like if you start with the first principle of our job is to help [23:14] people achieve their dream it's not to make us the most important factor in that and so uh it's just [23:21] 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 going to 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 constantly playing in different spaces. And so our view was, why not

[23:47] 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, is get more money. So it's our responsibility from a help founder standpoint to know where that money lives and to help them achieve getting that money. And have great relationships with them. Well, that's what it takes to help them, right? We have to build great relationships with the follow-on funding. And then what you have seen over the past 15 years [24:17] 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. So now you're collaborating simultaneously in the seed with somebody who's also following capital. Yeah. And so 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, [24:47] us and them. I think you can build authentic relationships in this industry. So 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 going to hand companies to the rest of the market. And hopefully they're

[25:17] appreciative and kind to us when we need that. And so I think there's a belief that, um, [25:24] Mm-hmm. [25:25] Great companies get built by great founders who are going to need capital at all different stages. And our job is to help them get that capital. It's funny because 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's like you can't just do this overnight. Like a new emerging manager who wants to become a large collaborative seed investor is going to need 10 or 20 years to build the depth here. [25:55] 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, 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 the 15 years that Box [26:25] said, but the style of how we've built our portfolio is the same. And [26:31] The style of relationship that we build with founders is the exact same as it was 15 years ago. I mean, I don't see why you couldn't keep scaling it as long as you had enough people, as long as you could scale your team. I don't see why you couldn't keep. I mean, it's 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. I think YC is totally underappreciated and I think gets criticized because people feel threatened by it.

[27:01] earliest stage is one of the most amazing things. It's like unreal. It's a magical machine. Hundreds and hundreds of companies every year. But it's predicated on seeing them, right? So what YC, 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 application pool of thousands of fascinating opportunities. And then their amazing opinions. [27:31] taste right and so you take this huge funnel and you filter way down it's not that they're accepting a high acceptance rate they're picking like an amazing batch and they're doing it over and over and and now there's obviously enough brand signal that a good economic deal for yc is also a genuinely good deal for the founder and the founders go in knowing how to be great within the confines of the [28:01] So I like YC to me is a generational firm inside of it looks different than everybody else. Right. And it succeeded better than everybody that they competed with a long time ago. And I give them a ton of credit for just like out executing and staying consistent. Right. And if you look at YC today, other than scale, it's sort of the exact same thing. It started. Well, I actually I talked to Gary about this on the podcast, which was basically it was a certain way when it got started.

[28:31] then you know sam which was all really good but sam came in and there was a lot of new stuff and now it's gone back to basics but at a much grander scale and it's actually kind of a great evolution that's happened but the core of like the the essence of the accelerator product really didn't change even when sam he was trying new things and i think trying new things is important yeah and it helped grow the whole thing absolutely but i i think the core of why the core was the same thing and i think gary's yeah i was in yc while all the other stuff was happening and it [29:01] the same, I think, as it is now. 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? [29:23] 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 so i think it really comes down to like what [29:38] is the company. I think VCs, in order to build their business, need to take credit for investing in companies, not for building companies, but to make themselves feel good and to make themselves feel deeper. I think you attach yourself to the best companies that you've invested in and try to identify, buy the transitive property of investing into those companies.

[30:08] I did this, my companies, our companies. I find that weird and possessed. - I find it extremely frustrating, yeah. [30:14] The 50th employee at a great company is probably going to be way more impactful than like your second best. The thing I my mental model of like an unbelievable board member is like. [30:28] basically maybe they're as important as like one of the [30:32] you know like a not top exec but like a good exec at the later stages like that's my mental model yeah 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 help companies get access to things and access to things can be money access to things can be customer introductions design partners employees employees yes and within each of those there's nuance right it's either opening the door or [31:02] through a relationship. So I think scaling... [31:05] 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 company builder person. And there's like maybe five. And so to me, as you scale your company, the less VCs you have telling you what to do and the more operators [31:35] with that are a stage or three ahead of you that can help you

[31:39] get advice as to how to continue to scale, I think the better. And so 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. Is this related to why you don't do like platform teams and have? Our job is to help the company. Like I am I am the person that [32:09] group is built. [32:10] of investors and we have a back office team to like help run the fund but you could hire recruiters or other people 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 [32:40] company successful and i think when you have all this posturing of all the help you can do you're you're going to distract a founder and if you go 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 going to 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 [33:09] from a series of investors everybody has the exact same pitch we're going to give you money we're going to take equity the best pitch is like we're going to give you more money and take less equity so that's a a really big factor yeah 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

[33:36] To me, what I would like people to pick Box Group 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 under promise and over deliver. So we would like to help. [34:06] great. It's not how it works. I think in some cases, I think this is actually even more favorable than the truth. Like I think. [34:14] involvement in the wrong ways can be so actively damaging. Like strategy advice from investors is so risky and can be so damaging. 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. Yes, you're screwed. Right. [34:44] To me, sometimes external insights or external course correction, if you're looking for it, or you trust the source of it, [34:53] can maybe be helpful but if all you're getting is like inbound ideas like think the founder wakes up and goes to sleep thinking about their thing [35:03] constantly. The investor is eight seconds during the day. We're like, oh, I have an idea. I'm going to, I came up with a great idea. I saw a competitor. I'm going to send you a TechCrunch article. I'm going to share my idea with this person who's obsessed with something. And the person's going to feel like my investor's doubting me. Now maybe you have to listen to them. And how do I pretend to care? How do I pretend to like interact with that advice, but knowing that I am living and breathing this and that person has a diversified portfolio of other things that they are thinking

[35:33] interests like hobbies, because that's on brand. I think that's just it's not helpful. And so my I believe our job is to align with a founder and do what they ask us to do and don't do much more than that. And it doesn't mean that we aren't great at helping companies do certain things. Box Group is great at helping companies raise money, because it's the only thing that every company we invest in needs to do. And I think that that is something that as a founder, you do need to [36:03] be great at, but it's a foreign disconnected thing to operating. And so if we can make the external fundraising process easier and we could help you learn how to be great at it, that's a real needle that we can move. But the operations, what you are working on, your idea, how to execute your idea, if we know more than you, [36:24] we shouldn't invest in your company. Yeah. And if you come in, we want to feel like you have an idea. You see the world differently. You have a 10, 15, 30 year vision. And we're like, here, go, go get them. It could be kind of a hard thing to sell, because what's interesting about it is I've watched box help with this. And it's like, you know, it's like really impressive, honestly, where because you have all these connections, people trust the brand, they trust the team. You're able to I've seen you [36:54] ridiculous processes in parallel for people. But I would guess it's the type of thing that is hard to sell a founder on. [37:01] in a process sometimes totally but i think the sale is hard because i i think everybody else is selling um they're over promising and

[37:12] eventually under deliver. The problem actually, as I'm thinking out loud about it, is I think about, let's say, no names, but like a multi-stage at Seed. [37:21] If I think about them in your Series A, [37:24] all they can for the most part unless they themselves do the next round kind of all they can do is hurt i mean directionally speaking they either did the round themselves or they look i think signaling is the fakest word uh there's just no they're like so if a great multi-stage firm funds your seed round yeah and another great multi-stage firm is interested in your a what they're probably not doing is calling the one that did your seat are you going to do the a2 [37:54] with the founder, potentially give an offer before the other multi-stage firm can react. So it creates this like preemption that happens. And I think in this market specifically, the speed of C to A, A to B, B to C is so fast that there's not this signaling risk. The only time signaling plays out is in a sort of bottom half of a portfolio. So if you are struggling and your existing investors aren't stepping up to help you [38:24] external signal that is very real. But at the top part of the market, signaling just isn't relevant. Well, I directionally agree. And I don't feel very strong about signaling one way or another, because I think there's a lot of benefits from the great firm. But just to talk it out, like, I think there's clearly in the case where it's like, amazing firm A does, you know, your A or C or whatever, the next amazing firm B comes and does the next one, and they're trying to swipe it from under them, obviously, in those cases. Yeah.

[38:50] I'm wondering if there are some medium cases where, you know, like we were talking about earlier, like a Series A, it's not always yet super obvious that a company is working or not. And there's probably medium cases where something's going to be very good and, you know, it's not quite gotten it landed yet. I think signaling has a positive effect in that if you have a great brand attached to your company, the probability of you raising the next round is higher. [39:20] is secondary to that great brand being involved in your company. So if a top three to five VC, not a top 25, because there aren't 25 great brands. No, but Sequoia does it. It's probably always good because the- If Sequoia does your A, the probability of getting a B is way higher than if not Sequoia did. I agree. And so that's signaling to me in a positive way. Yeah. Basically the countervailing help of the fact that they invested at all, [39:50] asset class where brand matters. And brand is a real thing. Actually, it's like one of the most helpful things VCs do. It's like in the top three or something. And brand matters with recruiting, brand matters with customers, brand matters with like a external thing, customer hire, partnership, believing in your longevity. Because if a great brand is attached to the company, the probability of it staying alive, which is the key to all startups is default alive,

[40:20] YC is a great brand. There are a series of great brands within venture that matter. But you're right. And YC is a good brand. It leads to you get a better seed round. It leads to you having higher likelihood to run more experiments and all the rest of it. And it actually leads to success. And it's not like... [40:33] it's not an exclusive so if you don't have a great brand it doesn't mean you won't succeed it is just this is one more thing it's more friction right it means that if you are a unknown entity coming from outside of the great brands attached to your company you have to show more and i think that that is hard for founders to appreciate is why did this company raise around [41:03] there's like unfair leverage in reputation and brand that get attached to the narrative. And I think it's underrated, especially today to like create a narrative for your company that builds momentum and momentum does not equate to success. It equates to permission and permission is like, you are a challenger. And if you are a challenger, the bigger gap that you can have between progress [41:33] valuable. It gives you the ability to fulfill the promise easier. I want to ask you about why you think [41:41] VCs pass in like in like erroneous ways. Like obviously, 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? Well, I think like when you ask a VC for why they are passing and you get a series

[42:11] Think at the 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. [42:21] 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... [42:42] 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 you never say that 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 [43:11] like be mean to somebody for the sake of being mean but it's also like but that creates a weird issue which is then you want to help and give useful feedback but you have to say some other thing we just we try to be honest and like this isn't for us and that's not [43:27] 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. That's the important thing. And people misread teams all the time, too.

[43:57] 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, like, oh, I already made up my mind early. This wasn't good enough mistake. 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. Yeah. [44:25] But I like... [44:26] I mean, I think that the common reasons that, [44:30] people say no or like we misunderstood the market we didn't 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 yeah 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 [45:00] 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. 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

[45:30] and ask again, unless you're multi-stage. [45:33] Yeah, then you could just wait for the next round and the next round and the next round. Yeah, which actually, I mean, this is a tangent, but there's... [45:39] 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're kind of incentivized to just like wait, [45:48] and pay up for the for sure winner and almost the better the market is in some ways the more you want to do that and you're seeing firms that used to be very disciplined about not doing that doing that more consistently now of just chasing something that they missed yeah at a series c or a d when traditionally they would never fund anything past series a yeah and the hopeful logic for that i guess is that things will be bigger than ever ever and most big ever still gonna have trillion [46:18] billion company. I saw a stat, right? It's like the 99th percentile exit today is 20 billion plus. Which that seems crazy to me. I saw that too. And I was like, is that real? That's a big number. That's a huge number. Right. But 99 is also a big number, right? 95 is less big than 99. I did math. I don't know if I agree with you, but it's probably right. But it used to be a billion, right? A billion was like a big enough outcome. And if it's now 20x that

[46:48] at the public markets, and I think this gets underappreciated in venture too, is the compounding at the end is so much more important than the compounding at the beginning. It is way harder to get to zero to a billion dollars or zero to 10. It's so much harder than like 20 to 30. Right. There's 10 more billion dollars of value created. Correct. And for a VC that invested early, that turn. Those 10 extra billion are worth just as much as that first extremely hard billion. [47:18] We did math. But the end and like holding on to see the compounding, right? If you invested in, you know, Shopify as a VC, it went public at a billion dollar valuation. Today, Shopify is a $120 billion company. It's crazy. In the public markets, it compounded 119. Correct. That's crazy. That's a big X. Yeah. And that's like the X you dream of as an early stage VC. That can happen in [47:48] Thank you. [47:48] a lot over 10x as a public company. The compounding at the end in this market has shown that the winners can be way bigger than we had ever assumed as an early stage VC. So your hope in your career is that you are able to invest at the earliest stage in one of these incredible outlier companies. And then after that, you have a series of other really great companies. You started Box like 15 years ago and you were in New York. And I guess you kind of must have started around the same

[48:18] And so 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 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 started in New York. You've got a certain New York DNA about you. Yeah. [48:47] in a good way. And I think that probably propagates through the mindset of the of the firm. But what is being in New York meant for you? And how do you think good impacts you? [49:17] historically as a New York based fund, and I think Thrive is probably similar, the majority of our investments and the majority of our dollars have continually been in the Bay Area. 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 underappreciate the value of building companies in New York, but it would be cutting off like the head. I would guess you don't even invest in New York at a much higher rate than anybody else. [49:47] You were 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 want to live in New York, that want to build in New York, are people that have like incredible ambition and tenacity and are not taking, to me, the easiest way. I think everything in New York is hard and harsh. And so you are fighting like friction every step of the way.

[50:17] of companies that make sense to build in New York. If you're building in fintech, if you're building in fashion or in ad tech, there's like a center to the... [50:26] 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 want to live in new york and you take slightly hard mode which is awesome right 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 [50:47] depth of talent. It's not more talent. There are still great people in many different geographies. There are just more of it here. And to underappreciate that, I just think is a mistake. I think we have, as you said, Greg is out here. We are committed to being a firm that is in both coasts. And I think we equally will invest in other ecosystems. I think you can build a great [51:17] in every location. I don't think your hometown of St. Louis is capable of having like a hundred great tech companies. You don't know that. I do, but it's probably capable of one, right? Or two or five. Yeah. 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, you know, can you get to a thousand people in almost every city? Probably. Can you get to a hundred?

[51:47] And I think that's 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. I feel like you adopted a certain like West Coast tech bias where I've seen some other New York's. [52:05] you know, HQ 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 is it? [52:24] Look, I think in New York, to me, the pedestaled firm is Union Square Ventures. I think they were probably the most underappreciated, best VC. Like ever. Yeah, and the returns are like absurd. They don't get enough credit because they don't look for the same style of credit that the big multistage firms that are named 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. Can you say a little more about it? [52:54] They're the opposite of the multi-stage firm. They don't have FOMO. They operate... They couldn't care less whether people are looking at it. Correct. They find the things they like, and they lean in so hard to them, and they got their first thesis perfectly right. And then their next set of theses were good enough... What was first, networks? It was just networks, right? The world... Then they got crypto. Crypto. [53:16] They had crypto, they had a, there was nuance after, but within the core of all the theses is this concept of network, which is this like catch all, but it's correct. And they just, at the end of the day, like why is a VC great? They fund great companies. And I think USV has funded great companies. Early with lots of ownership and small funds. It's crazy. Constantly. And so I, with like talking about VC in New York without pedestaling them, I think is, you know, just not fair.

[53:46] just discounted the idea that geography matters. I think geography matters for like, where do you want to live? And like, where do you want to build your life? And I think that allows you to get into a framework of being comfortable with the things outside of work, so you can be great at work. And so I don't want to live in San Francisco. You can live here. But I don't want to live here. I want to live in New York. I love New York. And [54:16] about funding people in San Francisco. I think we have an appreciation that like we fund software. The majority of software businesses historically were started in the Bay Area and you can't just eliminate that. And so back to like not chopping off the head from Box Group One, which was 2010 through 13, the majority of companies in that fund were in the Bay Area. And we saw companies that we [54:46] moved to the bay area started to scale here um and i think that is just a natural tendency to find the depth the talent that you need to scale a company final question i have this is it well we can keep going but i know you got to go to your next thing you're very important to do we cancel it we keep going in a lot of ways you're i would say slightly like laissez-faire in your opinions about a lot of parts of [55:08] 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 whatever.

[55:17] what we talked about earlier that like it's like pretty unknowable what's going to 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 [55:47] 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 [55:53] that you do hold on to pretty closely. 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 my partners, I feel privileged to get to work with them, but they are much better than you. I agree. 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 [56:22] job and my job is to like, [56:27] get convince them to work with me and make everybody happy i think box group is a place where we all [56:35] 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 um that's like step one is

[56:51] happiness, but more importantly, it's like be great at the job. And I think that that's why we're happy as 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, or if it's Nimi, Adam, Claire, Adina on our team, and then we have 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 want to do this [57:21] is you have to shoot [57:23] for huge, ambitious investments. And so it's not that we're out thinking the market, it's that, or have some magical theses on certain markets, is 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, 10,000 great people? Because when you get [57:53] or one, you've funded something important and big. And big is the only way that the math in venture works. And... [58:01] 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 200 million dollars these are [58:10] life-changing outcomes for humans. Like 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,

[58:40] 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. [58:52] 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 a hundred billion dollar outcome, but they saved, they like won and they made enough money and they had enough success [59:22] fully changed 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? It's an incredible answer. David, thanks for doing this with me. Thanks for having me. Real treat. [59:52] Bye.