#1251 Avlok Kohli | AngelList CEO on How To Build A Startup

What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. The following episode is a conversation with Avlok Kohli, the CEO of AngelList. This conversation was recorded as part of Build Summit, where 700 founders came together in New York City a few weeks ago to talk about the tactical ways to build a company, scale, and ultimately exit. In this conversation, Avlok and I talk about the culture of shipping speed at AngelList, what the current fundraising environment is like, how cap tables are usually wrong, how you can think about treasury management today in a world world where banks continue to be under stress, what hiring is like in the current environment, how AngelList is expanding into private equity, and a number of different industry trends related to artificial intelligence, Bitcoin and cryptocurrencies, and many others. I always enjoy talking to Avlok, and this conversation was no different. So here is my conversation with Avlok Kohli.

Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

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So Avlok Kohli is, uh, the CEO of AngelList. Many of you have probably heard of AngelList before. Before. You all help companies in a variety of different ways, but I thought a great place to start is rather than how you all help other companies, talk about AngelList itself. One of the things I've noticed from the outside is how fast you guys ship product, and it seems like there's almost rogue employees internally who kind of see a problem, go write some code, and like on the way out the door they're like, hey, by the way, this is getting published, right? Talk about where's that culture of shipping fast and kind of just a bias for action from?

Yeah, and can everyone hear me? Yeah, we're good. Um, yeah, it's funny you say rogue employees. I mean, the number of debates that we have internally is quite high. I would say the culture of shipping just comes from a pure founder mentality. I mean, the entire existence of AngelList is to make sure that we're here to serve the founder, and that bleeds into everything we do, all the products we pursue, the way we build teams. And at the very beginning, or at the top of it, it starts with engineers and designers at the top of the totem pole. So culturally, they're at the very top. And then when we think about resourcing projects, products, it's typically a very small team with a single leader that's typically an engineer or a designer. So it's actually pretty rare that it's a product manager. We do have that, there are exceptions, but typically it's an engineer or designer that leads. And then it's just an insane sense of urgency, just a push, push, push, because when you think about a technology company, the entire purpose of it is to grow and to serve your mission. And typically your first product, if you're Google, will become massive and you can just basically continue to scale off of that. But for most companies, they'll build one product, but then they have to be a multi-product company. And the thing about being a multi-product company is you can't skip steps. Just because one product reaches scale, doesn't mean that the second product, the third product that you build is going to naturally reach scale. So you're going to have a 0 to 1 moment multiple times in a company. And so the only way to do that is to make sure you have a team that's tightly aligned, that understands how to launch new products, also how to just take failure. Right. It's not that every product we launch succeeds, but you can't skip steps. So for us, we have a sole focus on being a multi-product company and making sure that we're taking enough at-bats to build an enduring company.

Now, one of the key themes across many businesses— so Amazon, Jeff Bezos would say, "Never have a meeting where two pizzas can't cover it." If you read the book The Outsiders, they talk a lot about decentralization and kind of pushing decision-making as far down in the organization as possible. Hearing you talk about the setup of AngelList, how do you make sure that you continue to create a culture of speed? So there's a bias of action in kind of shipping, and you're doing that by pushing some decision-making down. But what about motivating employees, especially when we have remote work now, we have, you know, kind of all of these things that could serve as distractions? How do you keep people kind of on edge and really wanting to build these products?

Yeah, honestly, it just starts top-down in terms of applying a strong sense of urgency and making sure that folks understand that, look, if you're going to naturally default to next week, 2 weeks from now, why not tomorrow? Why not the day after that. I really pulled that from Frank Slootman, and actually now I'm also reading Elon's biography. So if you all haven't picked it up, definitely pick it up. You'll, put it this way, my sense of urgency is gonna increase after reading that biography. But it starts at the top. You have to set the pace, you have to set the tempo, and then you have to expect folks are gonna rise to that tempo. And then you have to have other folks in the company that are going to be the culture carriers. They're going to call out when we're not being as fast as we could be. It's interesting you bring up the remote and in-person. I think it's really hard to do this remote. You have to have folks coming in person. I don't know if 5 days a week is going to be the new norm or 2 days a week. It really depends on the company. But for AngelList, we are coming back in the office and we are there because you have to build that person collaboration. Or if you are already remote, one of the things that could be useful is just fly somewhere, just jam on a product launch, and just don't fucking leave the place until it's out there. So again, it starts at the top. You gotta set the tempo, you gotta bring people together, and you just gotta push, push, push, push. And it will be uncomfortable because it's the default for most people, and the default for any group of humans is slowness. It's, yeah, let's take another few weeks to get it right, get it perfect. But in reality, you just have to push hard and you have to treat urgency as a core principle in the company.

I want to talk about some tactical things that startups face as problems. In some of these cases, you guys have built products because you saw the problem in the market and said, hey, we need to go solve this for founders. One of them, which is somewhat nuanced but actually is a huge, almost pandemic in startups, is that cap tables are almost always wrong.

Yeah.

And talk a little bit about why the cap tables are wrong and then how you guys thought about we can just solve this with software and kind of provide a solution.

Yeah, it's super interesting, actually. So if you think about cap tables about a decade ago, cap tables were all managed in spreadsheets, right? And you would effectively update the cap table every financing round, like the lawyers would manage it. And the big innovation back then was, okay, let's take it from spreadsheets and let's move it online. But since then, there's been zero innovation in cap tables. And the issues that we saw with cap tables was that you would have cap tables that would just be completely wrong. So what happens is between a financing round and the next financing round, a bunch of agreements are made. You hire employees, you may bring on advisors, and then when it's recorded recorded in the cap table, it departs from the underlying legal docs. And when it departs from the underlying legal docs, it's now a— it's just a thing that lawyers do in the next financing round called tie-ups. You just tie everything out. I mean, AngelList went through it ourselves recently, where it was last year, tied out our legal docs to the cap table, make sure everything's updated. But the root of the problem is that cap tables are just hard to use. You talk to any founder today, none of them use it. Even the most experienced founders do not touch it. I have a close friend who's, I think, a third-time founder, pretty sophisticated. Just like, I literally can't touch cap table software because I'm worried I'm going to mess something up. So what does he do? Pays for the subscription and pays for a lawyer who goes and manages it. And so the root issue that we saw was people, founders can't use the cap table as what we think of as currency, right? You think about cash, you raise cash, you pay people in cash. And they can do great work. But when it comes to equity, it's really hard to use equity in the same way. Now, to be clear, I'm not saying go out and give equity to everyone, right? But it's an irreversible decision. You want to manage your cap table well. But if you can make it easy to manage the cap table, like almost as simple as setting a Venmo transaction so the founder can use it, they meet, they meet someone who can help them with a customer introduction, to meet someone who can help them with a hire. They should be able to just send that equity and know that it's correct and everything is perfect. And that's actually, if you look at the set of innovations we've had around cap tables, RUVs, we've had EquityBlocks, even we just launched a copilot in cap table so you can actually talk to it and you can say, hey, grant X amount of equity to this person and everything is managed perfectly. It's coming from that place of put it back in the hands of founders. Two of AngelList's executive hires actually came from me pinpointing someone who I thought can help with that hire, I gave them equity and they made amazing referrals. And they actually, one of them became our CFO, the other one became our head of design and head of marketing. That actually changed the trajectory of the company. So again, I think a really great equity cap table solution can give a superpower to the founders, and it just doesn't exist today. It's just completely broken.

Let's talk fundraising. Um, obviously AngelList is known for helping companies fundraise. A lot of investors also look for access to startups via AngelList. Um, talk what you're seeing in the environment today, given that interest rates are high, you know, tech funding is slowed. Um, but then also how maybe people are using the product differently. RUVs, maybe you can explain what that is, and, and kind of are you seeing smaller checks and people rounding up rounds, or institutional investors still coming in? Just talk a little bit what you're seeing.

Yeah, so when it comes to fundraising, every time I talk to a founder I try to anchor them back in 2019 and 2020, not 2021 and 2022. So when you actually just have amnesia for the past couple of years and you just anchor back on 2019 and 2020, what you'll see is that pre-seed to— so pre-seed median valuation and pre-seed median valuation today, so 2019 to today, actually is up. Same thing with seed, it's up. Series A is like slightly down. Slightly up, and Series B is flat, and Series C is flat. And so, and for context, we see this across, uh, 20,000 funds and syndicates and 13,000 startups. So we are pretty much, uh, have a very, very broad view of the market at this point. And so from a fundraising perspective, it actually is, uh, you know, when you anchor it back on 2019-2020, it's fairly healthy. Yes, deal count is down, it is harder, but again Humans just anchor on like the highest possible thing. And then now we're like, oh no, fundraising is down completely. It's actually a pretty healthy market out there in terms of what we're seeing around how rounds are getting done. I would say at the earliest stages, pre-seed and seed, there are the party rounds, right? They're coming together. We are seeing more, more leads relative to the past, but there's still a pretty healthy set of activity around like a bunch of investors coming in. No single lead for precedency. Series A, Series B, Series C has always been you should get an anchor and go from there just because the dollars are much larger. So we're not really seeing any departure in that behavior. We are seeing actually one thing I will add, we are seeing, I would say, at the later stages, again, this is a reflection of, I would say, 2021, 2022, where companies that are starting to hit that brick wall, for those companies, we are seeing additional terms coming in around like additional, you know, 2x, 3x liquidation preference, pay-to-plays. So that is happening, but that's healthy. That's, that's a very unique moment for startups that raised then and they are now basically trying to deal with that situation. But in general, if you're starting off today, like the fundraising market's fairly healthy.

One of the things I've seen, some of its rolling funds, some of its RUVs, some of its founders have just been at this now kind of through through a zero-interest rate environment over the last decade or so, and people have gotten liquidity, more founders are saying, "Hey, I'm gonna run my business, but I also wanna become an angel investor." And so they're starting to invest. What are you either seeing there, or what is some of the advice that you would give to founders that are focused 99.9% of their time on their company, but they also want to begin to invest and kind of dabble in that side of the market?

Yeah, this is a heavy debate typically. So I would say what we're seeing is, For anyone who's post-product market fit and they end up raising a small fund and deploying it, it's actually similar to them investing their personal capital anyways. They typically do pretty well, mainly because when you're post-product market fit as a founder, you also just have deal flow that comes in naturally. I think if you're pre-product market fit and you don't have a brand, it is tougher. You kind of have to focus on your company. You have to focus on building your company because when you're pre-product market fit, The only thing that matters is get to product-market fit and nothing else matters. So typically we see folks that are post-product-market-fit founders raising a fund because it's just an extension of their personal investing anyways, and that does do pretty well. And every now and then we'll see someone who was a founder, they exit, and now they decide to go into investing full-time. The one thing about rolling funds that does make it interesting is rolling funds Just for context, it's something AngelList invented in 2019, 2020, and it basically reduces the friction for fundraising into a venture fund. So a typical venture fund, for context, someone will say, okay, great, I want to go invest in startups. Let's say I want to raise $10 million. I'm going to now go out and fundraise. You find an anchor and then you fill up the rest of the fund and then you start investing. Then every 2 years, which is typically a deployment period or 3 years, you then have to go raise another fund, start from scratch. Rolling funds basically took that and said, what if you could make the fundraising a subscription? So it just keeps flowing forward. So you can invest every quarter or every year and the subscription just renews just like your Netflix subscription. So you can invest $100K, $500K a year, but it just renews instantly. So it actually reduces the friction for someone coming into your fund. And because of that, that ends up being actually a really good product for founders that want to have a fund because they don't need to worry about the additional fundraising and the fund will just continue growing and they can just continue deploying it. So we do naturally see founders gravitating to that product. Like I'm personally on it as well. I rolled my personal investing into it. And then you'll see folks who are looking for the more anchor investors do the traditional venture fund. Now, the one thing just to anchor back on, like why AngelList does all of this, We originally started, again, like I mentioned, to serve the founder, and we exist to accelerate the rate of innovation in the world and believe startups, founders are really a driving force in that. And what we did was we actually focused on, at the beginning, the earliest stage of fundraising, pre-seed and seed, and we built a product that effectively allowed a lot more people to get into venture, raise capital, deploy capital. So pre-seed founders, seed founders can actually have additional investors to raise from because at the earliest stages, it's more of an art than a science. You need someone to believe in you, to write that first check, so that you can get going. And AngelList basically created the market because we reduced the cost, got more people in. So any fund less than $50 million basically fits that bucket, investing in pre-seed and seed stage. And so, you know, for us, it's a positive benefit to the ecosystem where founders have a lot more investors to raise from.

Let's talk about the change maybe in strategy that startups have had over the last 18-24 months. Growth at all costs. Now maybe there's even been an over-rotation to like, "Hey, I have to have cash," right? I gotta get some sort of cash flow and not grow at all costs. That then lends more of itself to private equity. I know you guys have done some expansion into private equity. Just talk about like, where's the balance between spending venture dollars to grow versus trying to operate your business to actually drive cash?

Yeah. The way I think about this and the way we think about it internally is you have your core business and especially in this environment, if you're not operating towards getting to breakeven and being default alive, like strong recommendation, do that. There are exceptions, of course, if you're growing 200%, 300%, 400% breakneck pace and you think it will continue to grow in this environment, go for it. Generally, you want to operate so that you're default alive. Now, as your core business continues to grow and you make new product bets, the way that we approach it is all the product bets are very tightly constrained. It's a small team and we're watching how that particular product is growing. And then based off of that, we actually move from a phase of like 0 to 1, which is— you can think of it as best as like, okay, this is an early-stage startup and then we move it to went to end, that's what we call it internally, which is great. This is ready for scale and now we can drive more dollars to it. So we actually have that discipline in the company. Every quarter we have an offsite where we've basically broken the entire company down by OpEx, who are the people, what products are they actually working on. So you can just literally think of a spreadsheet, names of everyone in the company as a row, and then we have products that we're working on as columns, and then we have people that are allocated to each one.. And then we're able to understand, okay, how much have we spent in this particular product line? And then what's the momentum they have? What's the progress they've made? And then we're able to assess and go, okay, do we want to continue investing here or not? And to be clear, it's not always a scientific calculation of like, nope, this much burn, they haven't hit this revenue. It's a little bit more— again, it goes back to early-stage investing, it's more art than science., but at least gives us the natural constraints to understand how are we spending our dollars, where do we need to invest more versus less, and it also gives everyone in the company a common framework for how we make decisions.

Now, when you think about metrics inside of the business, how do you actually put this into practice, right? You kind of have new products and there's things that you're probably trying to figure out. You've got old products that you know work and have had product-market fit. What is the process for identifying what metrics you're gonna use for these new products, and then how do you track them? Is this an hourly process, a daily, a weekly? Just talk a little bit as to measuring, we're launching something new, is it working?

Yeah, I would say a 0 to 1 product, and this is the case for any startup that's just launching a product, what you're really looking for is product market fit, and typically product market fit, the best way to measure it is just do people love it? Honestly, does even one person love your product? 2 people love it to 5 people love it. Most of the time, no one loves it. You know, you're essentially fighting apathy. And so for us, that's what we look at. We're just asking, hey, do people love this product? Like what we've built, do they love it? Are we seeing signs of, let's just call it engagement? It really, it's a function of the product, but that you can definitely measure some metric that's some sign of engagement where people are just pulling it out of you. And if there's one thing I could somehow, and maybe with Neuralink we will be able to, just explain to founders what product-market fit feels like, because most people think they have product-market fit, but they don't. Product-market fit just feels like the product's getting pulled out of you that you just, you can't hang on. There's just so many things that are breaking because customers are banging down the door. When we launched Rolling Funds, we literally had people pinging my friends on LinkedIn to try and get access to rolling funds. It was absolutely just insane. It was just overflowing with demand. And so that's what we look for with these zero-to-one products. It's more around engagement, like customer love and all of that. Then for something that starts to scale, now it looks a little bit more like a traditional focus of revenue. It looks like, what does the pipeline health look like? So if it's more of an enterprise-y product, then what does top of the funnel pipeline look like? What does close rates look like? So 1 to N, it's a little bit more systematic and you can effectively look at other metrics. You can benchmark yourself against other companies, but 0 to 1 is just, does anyone love it?

Let's talk talent and hiring. I know you guys had a talent part of the business. You spun that out into a separate company. But you're obviously hiring yourselves. What are you seeing there in terms of compensation packages that you're having to put together that maybe 2019, 2021, and today? And then also the quality of the talent. You know, when markets draw down, sometimes people want to run into the fire. Other people say, hey, I'm going to go back and take my job at Facebook or Google and, you know, just chill for 2 or 3 years and take the easy life. What are you seeing there?

Yeah, we've, um, I would say what we're seeing there is, um, folks who are interested in working at startups, they're, they're definitely starting to take the jumps. We're not actually seeing too much of a drag there. I will say, though, that the, the general rate of turnover has slowed down relative to 2021, 2022. So what this means is folks are generally staying put. But you also have a positive selection bias of people who want to go take a chance on a startup or at least a startup or jumping ship. But some of that could just be the overhang of Lyft Prep, right, on their company. Some of it could be like, "Hey, there's no better time. May as well just do it now." But we are generally, broadly speaking, we're seeing people stay put, but then you have positive selection bias of folks who do want to jump into startups, they are making that jump. I would say in terms of our recruiting at AngelList, it's actually really, really strong. And we also look to hire ex-founders. And we're seeing that being pretty healthy. And some of it's just because, again, we're kind of going through this cycle where a lot of companies are— starts are shutting down and folks are getting back out in the market. So from that perspective, it's actually pretty great.

I've heard Naval, I've heard Nivi, I've heard you, I've heard other executives that AngelList has continued to say, we hire ex-founders. Describe a little as to like, why is that such an important part of where you guys go look for talent? And then once they're inside the organization, What benefits do you see from that?

Yeah, I mean, I mentioned this earlier, right? The, um, yeah, you need culture carriers. Uh, so if you're going to serve founders, like overall as a mission for the company, and you're going to build products very quickly, you need founders who understand that you can move quickly, right? Um, because if you've worked at a larger organization, uh, where there's a bunch of process bloat and it takes longer to get something out the door and you only hire from from there, then you bring people into your organization that think that's how products get built. But that's not how products get built. That's actually how products go to die. And so founders, when you bring them in, they can inject that source of energy into the company because they do understand that you can move really fucking fast, right? You don't need to wait like weeks, months at all. You know, when my second company was bought by Square, So I'd spent about 2.5 years on the acquisition term at Square, and when we came in, we actually had to take what we built and relaunch it within the product there, and it was pretty clear that within the broader process, it was gonna take months. And so what we did, I was just like, fuck it, let's just go to one of the top floors, no one was there, locked ourselves in a conference room, so every day, whoever was working on the project just came up, went there,, and we just got it done in a couple of weeks and launched the thing. And so again, you just have, you need founder energy and founder mentality to break through the process, break through any other drag so that you can just focus on shipping great product and focusing on what matters. And the reason founders are very good at this is because if you've started a company, you've had to go through a range of things. You've got to raise money, you got to build the initial product, you got to motivate the team, you have to launch, you have to listen to feedback. And because you've gone through that range, you just have a broader experience to pull from. And so for us, we just find that very valuable.

Talk about the engineering talent. Obviously now with this move to remote, you're talking about people being in person. I think the argument for remote is that you can get talent anywhere in the world, right? And you can do cheaper, better, etc. Is that true in terms of what you guys are seeing? And how do you think about the balance between— you talked earlier about people in person and kind of the culture. Versus an amazing engineer somewhere else in the world and the ability to work with them? How do you net out?

Yeah, I feel I'm going to get canceled for this one.

So— Don't worry, me too.

Okay. So I think if you're hiring a very senior engineer, I think it can work remotely, but I'm talking the senior engineer or designer is like a savant, right? We actually have someone like that that's worked at Ageless. Actually, even before the pandemic in 2019. And he's just a savant. Like, I mean, just everything he builds is pure art, is super fast, very independent. But I think for most people, and especially someone just coming out of school, they crave being in person. They have to learn from others. And what we're actually seeing, actually going back to recruiting, is that people who are just coming out of school, and especially the ambitious ones, the ones who want want to become founders are saying, I'm actually rejecting offers where the company is remote. I want to be in person. We actually had this happen in our own pipeline too. It's like, hey, if this was like a while ago before we sort of reverted back to coming back in office, it's like, hey, if you guys need to be remote, it's not going to be a fit. And so again, if you want to hire the best young talent, you have to be in person. It's just very, very hard for them to learn by diagnosis. So that's one piece. I think the second piece is you're just able to communicate a lot more when you're in person. And so when you're in the early stages of building a product and you pre-product market fit, there's just a lot of information. You're not optimizing for efficiency, you're actually optimizing for creativity. And when you optimize for creativity, you have to be in person. You're typically jamming through different ideas, you're building something you're launching it. But then when you're remote, especially time zones, like if your time zones are so far apart, guess what? You have some idea today, you send it out, now you wait for, I don't know, 24 hours until someone responds back. Well, you just lost your flow. Your flow is gone. Or if you have to wait to schedule a Zoom meeting and hop on the Zoom meeting, it again, it just breaks the entire flow. So what we just found is when folks are in person, and you can optimize for that creative flow, you just get a lot more creative ideas out of it. Now it is a little bit tougher as you scale. For example, AngelList has, we have 3 offices, San Francisco, New York, and Seattle. But then what I just do is going, I just say, look, we're going to solve some hard problem, fuck it. Fly out here later this week or next week and we're all meeting in person and we're not leaving the room until we solve this problem and we build this thing. And so that's the way you also solve for it, is just fly people out, get this shit done in person, because you can't solve hard problems, in my view, remotely.

So I want to talk about frontier technologies or opportunity and ambition. One of the benefits of the position that you have is you got a hard day job where you got to go build the product and head out of the company, but you also get to talk to some of the best founders in the world, right? And so you're seeing a lot of where talent is flowing, where's capital flowing, but also what's working and what's not working. Yeah, there's a number of different sectors that I think people are very interested in. So there's kind of Bitcoin, cryptocurrency, artificial intelligence, space, the whole renaissance in energy. You know, these are things that are not kind of your traditional B2B SaaS type business. What are you seeing that is actually working? And then maybe are there areas where you're like, yeah, I know a lot of people are talking about that, but it's probably more, you know, kind of smoke than actual fire?

Yeah, I mean, it's always really tough to get to the smoke and actual fire like early on, right? Because again, it's part of the zero to one. You're, you're trying to build something and you don't quite know where the world's going. I think I'll kind of talk— I'll start with the AI piece because AI is actually not really a category on its own. It's actually seeping into everything, every single industry. I think on the AI side, the one thing we are seeing is that you have companies that are starting, founders that are starting and then actually pivoting pretty quickly because the underlying infrastructure is just changing really, really fast. So when your underlying infrastructure is changing fast, you don't know where the world is gonna settle in. And so we are seeing founders pivoting a lot more because what they thought could be a great business, uh, now just got commoditized or just got folded into OpenAI. Like maybe an OpenAI release, you know, OpenAI released a new feature and all of a sudden it's commoditized. So I think generally we're seeing a lot of, call it change just within AI and like all of the companies are building up in and around it. We, I would say by funding, just by dollars overall, of course, a lot of dollars just by nature goes to some of the, you know, maybe one call it space tech just because it needs a lot more dollars. We are seeing a lot of dollars go there, but not seeing as much interest from founders, like relatively speaking, right? Relatively speaking, if you're a founder that's starting a new company, you're probably going to start a new company in something that's more software-based because you just, you're getting going. You don't quite know enough about space technology. You don't know enough about maybe even sometimes crypto, right? Because in crypto, right?

So on this, this is interesting, right? If you look at Elon, maybe the quintessential example, like he kind of got a single or a double and then he went for the home run, right? We've seen this over and over again in history. How important is it to almost like kind of get your legs under you, get some confidence of like, okay, you know, I know how to build a business. And then go for the really hard thing versus, I don't know if it was Palmer Luckey, right? Like he kind of went for it right out of the gate and it was this weird thing and everyone was like, you know, he's putting a box on his face, is it gonna work? Like how do you think about those two strategies of if you're 22, 25 years old, do you just go for the big thing or do the odds tell you, no, go build something, make it work, get some money, and then go try for the big thing?

I think you just need to follow whatever unique insight, unique viewpoint you have of the world. World, because ultimately, like any company you build, any product you build, you're imprinting some view you have of the world, some opinion of how the world should exist. And that's what you're doing, and you're building a product around that. And so if you have a view of the world that goes directly into something around space or something around cars even, go do it, right? So I don't think there's any, like, recipe for start here, then go here, then go here. But ultimately it comes down to like, do you have enough experience to have the unique viewpoint or not? And if you do, go for it. Because again, I would say the fundraising market is actually quite healthy for taking those types of big shots. But again, it comes from like, what's your unique view? And are you drawing from some pool of experience or are you starting from scratch? And I always love the idea of the concept of the idea maze. I think Balaji first talked about it, and then it was posted up on A16z blog. And the idea maze is basically, if you look at any founder who started a successful company and you trace that, you trace their interest in the company back, they've been thinking about it for a long time. They've been sitting in that idea maze for a long time, connecting all the dots. And by the time they start the company and they go to scale, to scale the company, it's like 4 years in anyways. So that's another interesting concept. So it all comes down to that, like how long have you been thinking about it? Do you have a unique insight, a unique viewpoint on the world?

Now, one of the key themes I see over and over again is many of the biggest companies in the world start out as science projects or almost a joke. And so Google, obviously they want to sell for a million bucks. They were just like, ah, this is a cool paper, like let's get it, you know, let's take our million dollars, go buy a nice car and leave. Uber, literally Travis didn't even run the company at first. Like, he was kind of like, oh, this would be cool to get, you know, a baller thing where I press a button, the car shows up. Even if you look at Varda, Deleon basically tweeted and was like, oh, interest rates are low, I should just go raise a bunch of free money and then like try to go manufacture things in space. And then he was kind of like, oh, I might fuck around and find out how this works, right? And built a company that's now worth hundreds of millions of dollars. And so how do you think about the intentionality of like, I am starting a company, let me go do customer research and really kind of understand what the problem is versus some of these really large companies, people kind of back their way into it and it almost starts out as like a toy or a joke.

Yeah. I see more of like the toy or a joke as in you're experimenting, you put something out there, and then if it works, you can build a company around it. It's actually something I picked up from Naval a few years ago where when you think about early-stage companies, it's actually about a small team. A founder, maybe the founding team, sitting, crafting, creating something, and then they're in their lab, and then they put it out in the world, and they're like, "Hey, do you like this?" And then most of the time, the world's just like, "No, I don't give a shit. Go back." And then you go back, you crawl back in, and you're like, "Okay, back to work again," and you're crafting, and then you come back out, and you're like, "Hey, do you like this?" Yeah, I think Notion famously, I think Notion, the product that worked, I think was like version 2 or version 3, which was Slack, which came out a full rebuild. Again, kind of similar concept. So when you look at that across all of these different companies, you'll actually see a period in time where they're just sitting there just crafting a product they think could work in the world, and then they're putting it out there. And so I think a lot of the times it comes from the founders not knowing, because you don't know. You actually, you can't know ahead of time whether is going to work, and you can only know when you actually put it out in the world and people are saying, "Yep, I love it," and then they pull it out of you. And then when they pull it out of you, then the question is, can this be a big company? Like, can this growth sustain? Or maybe like, what if it tapers out? And, but that's actually an easier question to answer than like the early stage of like, will this work? You just don't know. So same thing, you know, go back to Uber. Who knows? Like, I mean, it was just a black car service. Like, how could you have predicted that? Yep. You can actually bring the cost down. You can bring— you actually literally bring a lot more people into the supply side of the market to start driving their cars. So I would actually say more often than not, it's, it's, it's not perfectly planned. You can't quite predict it.

Take that same idea now, bring it inside of a company like AngelList.

Yeah.

You all don't have the good fortune of hiding, right? I think a lot about, you know, use Bitcoin as an example. Like, probably some of its success was just like no one's paying attention. And so it could kind of flourish without critiques and critics and all this kind of stuff. If AngelList does anything, if you guys breathe on the internet, somebody notices and there's an article written.

Yeah.

How do you test ideas? How do you know this is worth potential, a hit to the brand or, you know, kind of failure being in public? Public and taking these ideas, like it almost has to start as a toy or, you know, something that you're playing with, but you're doing it inside this company where you don't get credit for, hey, we're just, you know, we're in the arena testing things, if you will.

Yeah. I just tweet I'm in the arena. So, um, I honestly, I don't care. Like I actually, uh, I, and I say that in the most positive way possible. I don't care in the sense that, um, when you, so, okay. If you actually study, uh, if you study history of entrepreneurship and you actually study the greats who built companies from like hundreds of years ago, like I'm talking, uh, uh, the Polaroid founder, talking about, um, you know, talking about even like Bill Gates building Microsoft. Like if you start studying all of these founders, you'll notice that there's just so much tinkering that happened. There's so much experimentation that happens and there will be false starts. But when you look at it through the, uh, you know, when you look at across time, it just doesn't matter. These are all like little blips. So even if AngelList launches something and it doesn't work, it's a blip. Yeah, maybe there's an article written, maybe there's some opinion piece or some blog post, but it honestly just doesn't matter because all we're really here to do is just build an enduring company. And building an enduring company takes a lot of at-bats, takes a lot of experimentation. And I think the second you start looking at what others are saying about you, you're not building what customers actually want from you. And the only thing that matters is what customers want from you, not what others are saying about you, because who cares? Now, of course, it doesn't mean that we're making a lot of egregious decisions, because AngelList, we are in a regulated space, and we have actually, we're kind of sitting across different pieces regulation because we are not just under the venture exemption. We're also— we have an RIA. And so we do, we do have to be careful about that. But generally, we lean more towards taking more at-bats, more experiments, and not really caring about what others think.

Let's talk about capital allocation. You know, when you have multiple bets kind of going on at the same time, some are mature, some are not mature. How do you think about, one, the new bets? Is there a dollar amount? Is there headcount? How do you say, hey, these are the resources we're basically willing to lose over whether this works or not? And then how do you think about feeding the machine, the thing that's already working? Is there a framework or is it a case-by-case decision?

Yeah, I mean, the framework, I lightly mentioned it earlier, which is we'll generally have a good idea of what products people are working on, whether it's a core business or a new product. And then anything that's a new product, like a 0 to 1, We'll effectively treat it as a pre-seed company and we'll say, "All right, you generally have this much in allocation, this much capital to go with, and there's a product lead." There's a product lead where we actually frame it as, "Look, this is your startup and here are the team members you have." And you can also say you don't want this person to work with you and that's okay because you want to keep a very tight team. And then we'll actually see the progress they're making across multiple quarters or even sometimes mid-quarter, we'll just do a check-in on it. And so we're pretty tightly scoped based off of that. And then for the core business, it really depends on the stage and it depends on the scale of the business. And we really think about it as, will more capital accelerate it or not? And more often than not, more capital does not accelerate, right? I think one of the things that got lost in 2021 and 2022, the beginning part of 2022, is this assumption that, hey, raise more capital, you can go faster. But in reality, most companies cannot go faster when you raise more capital. There are exceptions, like if you're in the— I've spent a lot of time in the logistics space where you do need more capital. You have to launch multiple cities. You literally have to pay out for every city you launch. But for a vast majority of companies, like software companies, you don't need more capital to scale, or at least that is not the— that's not what's on critical path. So it's actually very rare that more capital means you grow faster. So you have to kind of break down in the core business, is more capital the issue, or is there some other issue that's preventing you from scaling? And so, or can you actually just take the cash that's coming off, you know, getting generated from the company and invest that and then keep the money you raise separately? So that's the way we think about it on the core business side, it's like, is capital really the issue or not? And in general, we actually lean towards not burning cash for the sake of it. I mean, that sounds obvious, but, you know, I think a lot of people just literally just like, hey, the next round is around the corner. We don't think that way. And in fact, if you take a look at AngelList's history before the round that we raised in the beginning of last year, we hadn't raised capital in, I don't know, 4 or 5 years. It was just a long time. So we haven't actually, like, for being actually, for being the platform for a lot of venture funds, you know, we have a pretty large percent of the market for venture funds. We don't raise a lot of cash. We haven't gone back out to the market often at all.

You let me invest, so I appreciate you. Thank you. Another part of capital allocation is protecting the cash you do have and treasury management. I think that a lot of tech startups really just have the idea of like, I put it in the bank and I'm good. In the crypto world, I think they over the last couple of years realized like, that's not good, right? Like there could be some problems. And they actually were the ones who avoided kind of the bank run the fastest because they're like, I've seen this playbook before. Yeah, but the people who hadn't had that experience, Silicon Valley Bank, Signature, these different organizations, First Republic, etc., how do you all think about it now? And you guys have built some products here that kind of help people with treasury management. So like, what are either best practices or what are you guys doing to kind of think about the cash you do have on the balance sheet?

Yeah, yeah. It's funny because before SVB, everyone's like, just keep it at SVB and that's perfect. Wasn't in my bingo cards that that was going to happen. The way that we do treasury management is, and this would recommend for all startups, is you typically want to take the cash you have and you want to make sure that you're putting it in a place where it either is in US Treasury bills or you actually have it across multiple banks, or you have it in one of the big, big, big banks. The problem with one of the big, big, big banks is they just don't want to work with you, right? I mean, a JP Morgan or Bank of America, well, some of their UI is just terrible, but in general, they don't typically like working with small, early-stage startups. So, what I would recommend is actually putting your money into a banking solution where the money actually gets spread out across multiple banks. So you actually have 100% FDIC insurance and take anything you want to earn yield and just put in US Treasuries. So typically have, you know, 3 months, 6 months of runway that's in, in a bank account so you can just pay the bills, make sure everything is running smoothly, and then take the rest and you put in US Treasuries. What AngelList does, like what we do ourselves, is we actually have it, we actually have it spread across some of the big banks banks, and then we have money that goes into a sweep account that goes into US Treasuries.

One of the topics that founders have to face when they go from a very early-stage company to some degree of success— this could be they raise a Series A or Series B, it could be product-market fit, whatever kind of milestone that brings up the conversation— is CEO compensation. And it's always this weird thing where every time I've had the conversation, whether I'm on the board or I'm just an investor, the CEO is like, hey, I'm used to thinking of the compensation decisions for everyone else. Yeah, I want the company to succeed. I know we're trying to keep costs down, but also like I have a family or I want to live my life or, you know, whatever. How have you both at AngelList but also in other places seen CEOs kind of navigate this correctly? And are there any best practices that you think other founders should take away?

Yeah, it's, it's a tough one. I would say it depends by stage. Right, if you're pre-seed, seed, you could theoretically try and get, you know, some market comps and try and set it that way. But in reality, at pre-seed and seed, you're just looking to preserve as much cash as possible, right? You're getting paid handsomely in equity as a founder, and what you want— it's actually in your incentive to keep your burn for the company as low as possible and also keep your personal burn as low as possible. And so my advice for pre-seed and C founders is take as little as you need because you actually want the company to have as low burn as possible because you need to make progress to get to the next stage and the next stage after that. I think once you get past Series A, again, a little bit post product market fit, Series A, Series B, Series C, then it's actually more of a science. There is a lot of comp data out there. So the way that AngelList does it, we have a comp committee. Of course, if it's I'm discussing my pay, then I have to recuse myself. But we have a comp committee. There's one, you know, a couple of folks on there that are also sitting on other boards, and they have a lot of this data. So it is actually more of a science as you get to later and later stage. And I would actually look to the VC as well as someone external, someone who's actually an independent sitting on comp committees, and maybe a public company, and you can have you can have someone else to lean on. So that's the way I would do it for Series A, Series B, Series C.

So another piece of this, again, which is kind of like a tough conversation, I think, for both the founder and also the investors is secondaries for the founder. And on one hand, founders have 99.9% of their net worth tied up in a company, especially if it's their first one that's really successful. And I think from an investor standpoint, they don't want the founder to be worried and stressed out about they shouldn't be stressed out about.

Yeah.

On the other hand, the greatest, you know, kind of risk is the founder takes a multi-million dollar secondary, even if it's a small percentage of their ownership, and then they've got a Ferrari and, you know, they kind of get distracted.

Yeah.

What have you seen there that's worked, or kind of if you were sitting on the board or an investor in a company, you would kind of guide the founder to think about?

Yeah, um, I, I kind of anchor back to 2018, 2019 and what the norm was then. And I would say the norm then was if you're getting to Series A, Series B, it was not common practice, but it was fine for a founder to take a couple million off the table. And the incentives are actually very much aligned with the investors and the shareholders because by doing that, you actually take a little bit of that pressure off the table for the founder. And again, everyone's situation is different. It depends on if the founder has already had liquidity in the past, so there's things doesn't matter, or if they haven't and, you know, they've been spending 5 years, 6 years on it and they have specific personal financial needs. So it's really an honest conversation that has to happen, but generally, you know, taking a couple million off the table to relieve some of that pressure does align you with all the shareholders and the investors because it means you're gonna be more likely to go for the big home run, the big grand slam, versus looking to sell the company. And, you know, once you get to that post-product-market-fit moment and the company's scaling, and if it's a healthy company, you will get acquisition offers. It will be tempting. It's like, oh wow, it's life-changing money for the founder. And interestingly enough, I would say the incentives do skew. When you have a— when you actually get bought, that— when your company gets bought and it's not a massive outcome, the incentives are skewed because of the founder, it's life-changing money, but for the investor, it doesn't matter because the way venture works is when you invest in a portfolio of companies, you're hoping for 1 or 2 or 3 of them to become massive companies, grand slams, and a company that ends up 2x-ing, 3x-ing, 4x-ing, it's a rounding error. It doesn't matter. And it was actually one of the most perplexing things for me as a founder, but now that I'm running AngelList, I fully understand it. It was like, oh, why Why do investors not care about the 2x or 3x? It's like, oh right, it literally is a rounding error. It doesn't even matter. It's in the venture math. It's not where all the returns are made.

Describe this a little bit more, 'cause I think people who have experience investing will understand it, but from an investor standpoint, maybe just describe like, what is the investor thinking in that scenario as to why 2 to 3x doesn't matter?

Yeah, so the way to think about it is, when you go to raise a venture fund, So every investor is typically not investing their personal capital until they're— unless they're angel investing, but by and large you should assume they're actually investing other people's capital. So when you start a venture fund, you go raise from other people, just like a founder. A founder raises from investors, and a VC raises from their own investors. And what they do is they raise this capital, and they have a specific strategy, and they're going to invest in, let's say, 20 companies or 25 companies. Now it's in the venture math that By investing in the 20 or 25 companies, probably 2, maybe 3 if you're good, are gonna be massive, like, you know, massive home runs. And the rest of them will kind of be like a 1x or will just be a complete write-off. Because again, you're investing in early-stage companies. The survival rate of companies, of venture-backed companies, is like 2.5% or 2%. And then of those, the ones that actually become endurable return companies, like large sustainable companies, is like 0.1%. So when you do— that is literally the venture math. So when you take that back into a venture fund and you look at a portfolio of, let's say, 20 companies, when only 2 or 3 companies are the ones that are going to be massive fund returners and actually return a lot of capital, that's where the investor actually makes what's called their carry, which is they get a profit off of— or they get a cut of the profits off the venture fund. So the incentives are aligned with the companies that will be grand slams. It's not aligned with companies that will be the 1x or 2x or 3x. But for the founder, if you own 40%, 50%, 60%, and the outcome is $30 million, $40 million, that's pretty good. That is life-changing money. So again, going back to the question earlier of, does it make sense for founders to take a secondary? I would say yes, within reason. And this was some part of the practice in 2018, 2019, because it'll allow them to go for the grand slam. It'll allow them to relieve that pressure so that when there is an acquisition offer, they're just more likely to say, "Hey, not a right fit.

I think this company can be, can continue to scale." Now, as part of building these companies and kind of talking about taking secondaries, paying yourself, etc., there's some things that you can do at the beginning of the company to set yourself up as a founder. Some people in this room, it's going to be too late, right? They kind of already messed it up. But there's things like QSBS, etc. Like, if you were to go back and start a company today, what are like the 1 or 2 big decisions that you would really try to get right so that if the company ended up being a big success, you would be thankful you did that at the start of the setup of the company?

Yeah, I think one of the biggest decisions is actually the distribution of equity amongst the founders. So I would really ask, do you need equal co-founders or do you need a late co-founder? And the reason I frame it this way is because typically companies, venture-backed companies, and really every company is authoritative, right? You have a single leader, a single CEO who's going to lead the company, and a lot of, like, a lot of the success and failure of the company is going to ride on that one person. And you should really ask, like, can you start the company yourself and you basically get more equity if you're gonna be the CEO of the company? And then are you looking to bring in a late co-founder? And it's not to say that the distribution of equity needs to be like 95%, 5%, but I think generally making sure that out the gate you set the right stage in terms of allocation solves for a lot of the potential founder breakup issues that come up in the future. Because if you're equal co-founders, but one person is actually taking on a lot of the leadership risk that— and if there are decisions that need to be made, decisions don't get made by consensus in startups at all. It has to be authoritative. It has to be a singular person that's accountable to it. And if you have an equal co-founder relationship, it can cause a lot of tension. So I think that's one of the most important things. Now I would say structurally, there are things that you can optimize for sure. Every startup qualifies for what's called QSBS. QSBS basically means for any, you know, for any— if you have a liquidity event for any outcome that reaches up to $10 million, it's basically tax-free at the federal level, I believe. I can't remember if California has that or not. And you qualify for QSBS. You could do some other optimizations. I think some of them may— some of the loopholes may be closed now. There's the— like, you take some of the equity and you put it into, like, different trusts, right? And then you can do QSBS on, like, every single one. As a founder, you could do it, but I just don't know if it's worth the trouble. I would just focus on just getting to product-market fit. There are other things you could do, like founder-preferred stock, though I think in this market it'll be a little bit harder. Some of these things get renegotiated out anyways in later rounds. So my advice actually is the number one thing is the equity split between the founders. And look, if you really want want to be equal co-founders, go for it. But generally, I think having a step down in equity based off the second founder, third founder works well because then you can actually, it can be clear who's actually running the business.

51/49 or like 70/30 when you talk about not having equal, like how egregious is too egregious and does it actually matter? Or is it more of just literally you're the authoritative decision maker and someone else is kind of like, the second, you know, authority decision maker.

It could be that, but sometimes, you know, it goes back to, you just take a look at the incentives, right? Personally, again, this is just my opinion, I would say more like 70/30, 60/40, than like 49/51. 49/51 just looks cute, right? It's like kind of a cute thing to do, but 60/40, 70/30 can work. And then I'd say if you actually have a late co-founder, meaning they join later on, they're taking a lot less risk, then it could be like 10%, 15%, and you're 85%, 90%. And that actually does work pretty well. Like, I've started a company where I brought in like co-founder, was awesome. Sometimes it can work if you bring on a key hire later on, right? The company's been around for a year. I'm close with one company, you know, it's been operating for a year and a half, brought in a CRO, gave that person I think 5%, which is very healthy and ended up being game-changing for the company. So again, every situation's different, but generally I'm seeing the step down in equity works pretty well.

One other thing I want to talk about is technology companies are usually pretty good at building products. They're almost always horrible at sales and marketing, and there's like this big difference. One of the things when I worked at Facebook that was always so funny to me is like, there's no customer service number.

Yeah.

And when you first get there, you're like, hey, should we have a customer service? No, we shouldn't. Here's kind of the logic why, and then it makes sense. Talk a little bit as to like how much of it is just like the product should sell itself, and as you said, you know, people are like literally finding your LinkedIn connections, like begging for the product, versus being able to really go out there, explain to people what does this do, have a sales team, and kind of build what I think most people would consider a more traditional type of company.

Yeah, I don't think of it as like an either/or. I think it all starts with a great product. So, you know, forced to choose where you allocate your dollars, we allocated towards product versus allocating it towards sales and marketing. And you'll sometimes, I mean, you can basically look at the income statement of any company and basically tell like, hey, are they a product-led company or are they a sales and marketing-led company? And typically sales and marketing-led companies, a lot more of the dollars go into sales and marketing, S&M, versus R&D, like the design, engineering, product. So generally, my take is that you want to be a product-led company because by being a product-led company, you can actually focus on real innovation. One of the things that we think about at AngelList is we don't want to build a better version of the past. Most products are just building a better version of the past, and the reason that's a problem is when you're building a better version of the past, you're building a commodity product. And when you build a commodity product, it goes back to like you fighting apathy, right? No one cares. They're like, well, why don't I just use this thing that's already there? It's good enough. And hearing that from a customer is like, oh, this other thing I use is good enough, is the worst. And so you want to focus on building something that's insanely great, that is just so much better than the past, right? Imagine the, uh, depends on how old folks are here, but first time you pick up an iPhone from going from a BlackBerry, right? Just absolutely insane. It's just insanely better. Uh, first time you rode a Tesla relative to to any other car. It's just insanely better. And so the only way you do that is be having a ruthless focus on building a great product. Now for sales and marketing, I will say that depending on the type of product you're building and selling, if you're selling to enterprises and your size of the contract is $25,000, $30,000, $50,000, or requires coordination across multiple teams, personally I've never seen that work pure product-led growth, I think that's when you do need a sales team. And you do, because again, you have to talk to a human. Once you get past $25K in average contract value, there's approval processes that happen internally. They have to justify it. So that's what we see. So going back to what you mentioned with rolling funds, our, like, for majority of the history of AngelList, we had like one salesperson and we had no marketing team. Like, it was just pure product-led growth. As we entered and entered larger fund sizes, all of a sudden now we do have a sales motion because the ACV goes up, the average contract value goes up, and you need more of a, you know, a kind of tackling motion to make sure that we're getting in front of the right people and then we're selling the product there. But it still starts with having a great product to get in the door. But then when you sell larger ACVs, you just need a sales team.

My last question for you is, um, ambition and the importance of it for startups and kind of, um, you know, it's Friday night, it's 2 o'clock in the morning, this shit sucks, I'm eating glass, I've been doing it for, you know, 6, 6 years, 6 months, whatever it is. How important is the ambition and the motivation to kind of keep people going?

Oh, I mean, it's everything. I mean, it's fucking everything. Like, it's— look, it's It's not easy at all. My first startup, you know, we, with my co-founder at the time, I think we built like 20 companies or 20 products before we actually even landed on something that raised money. And it was just like soul-sucking. And then we finally built something and then we figured out how to scale it. And then we didn't have product-market fit. We got distribution, but we didn't have any product-market fit. And then I ran that thing for another 2.5 years and it was soul-sucking. And, you know, coming out of it, you're just like, "Nope, gotta keep going." And it just came from a sense of, "No, I actually, I'm viewing this as a stepping stone. I'm viewing this as something that I'm learning from so I can go build something even better." And then that led to the second company that actually ended up getting acquired in like, you know, very quickly, like 6 months, which then was a complete step function change. So what I'm trying to say here is that startups are a step function. Function change. It will never, ever, ever, ever feel linear, ever. It's always a step function change. You start off with you're building a product, you're crafting in the lab, and then you're putting out in the world, and then people swat it most of the time. You're like, ah crap, you gotta go back, right? You're back, it feels like you're back to zero because you are, you know, in a way, but in some ways you've already learned something and now you can iterate to the next thing. So it's not linear, and you'll do another tryout, another tryout, and you'll You share it with the world, and then when people like it and they pull it out of you, you've just made a step function change. So the way to think about startups is it's all about step function change, and the ambition is what gives you the motivation to keep going. And, you know, I mean, I've been, I've been in San Francisco, the Bay Area, and Silicon Valley since 2008, so I've seen multiple cycles now. I've seen friends, you know, actually go from failure after failure to building large companies. Companies, and I'll tell you every single time it looked bleak, it looked like everything was just shit, and then it was just that one insight, that one iteration that just changed everything. And it just, like, it's really just a massive step function change up, and then you just go from there. I think we're like, you know, launching a rocket. That's all it is. And you just gotta keep that ambition. You're launching a rocket and you just keep going at it. You know, how many failures did Elon have? 3. Yeah, there you go. Um, just think about it like that.

Thank you so much for doing this. I really appreciate it. Everyone, Angela CEO, Avlok Kohli.