Max Altman & Ben Braverman chart Saga VC's maiden voyage with Mark Suster | E1948

When I met Ryan, I desperately wanted to get rich. I came from a middle-class background. I really wanted to make money. And Ryan just sort of embodies this. The way you get rich is by doing something really, really useful and ideally in a way that gives you scale and in a way that people value enough they're going to pay you for. But it starts with utility. Ryan is a pure force of nature. He gets energized by problems and by pain. But most people, when something's going wrong in their company, their tendency is to run away from it. Ryan runs towards it. I've never seen anything like it. It totally changed my own relationship with conflict and with dealing with stressful situations where it's just like, no, no, the winners are the people who are running towards the fire.

This Week in Startups is brought to you by Mercury. 90% of startups fail. Just 10 out of every 100 make it. Mercury exists to close that gap, helping companies succeed with banking and credit cards engineered for the startup journey. Join over 100,000 companies banking with Mercury at mercury.com. NetSuite, the number one cloud financial system, bringing accounting, financial management, inventory, and HR into one platform, giving you one source of truth. By popular demand, NetSuite has extended its one-of-a-kind flexible financing program for a few more weeks. Head to netsuite.com/twist. And Kuro Tech. Are you one of those companies that knows you need to be using AI, but you're not even sure where to start? Well, then you need Kuro Tech. They are AI experts, and they're offering TWIST listeners an AI strategy roadmap tailored to your business for $5,000. That's 50% off the normal cost just for telling them we sent you. Check out kurotech.com/twist and get $5,000 off.

Welcome back to This Week in Startups. I am not Jason Calacanis. I am his more charming friend, Mark Souster from Upfront Ventures. I'm really excited to host the show today. I have two guests plus me, but these two guests are two of the three founders of Saga Ventures, Max Altman, Ben Braverman, And Thompson Nguyen, welcome to the show.

Yeah, thank you so much for having us.

Thanks, Marc.

Saga Ventures, you announced a $125 million fund in what is a very difficult time to raise any fund. This is your maiden fund of Saga Ventures. Where does the name come from?

The truth is we were sort of shocked this name wasn't taken. Building these companies is a freaking journey. Not one great story, whether it's Apple, whether it's Tesla, Not one of them is clean and easy. And Jensen from Nvidia talks about how you have to know suffering. And maybe we're not that extreme or draconian, but we do recognize that building these things is a journey. And Saga just seemed to, hey, it's unbelievable. It's available from a trademark perspective and represents what we believe this to be about.

I mean, it is an interesting way to set it up when you think about entrepreneurship. So my colleagues were the people who initially funded Starbucks and also funded Costco. And both of those companies were on the doorstep of bankruptcy. And a lot of people don't know this, but like the most successful companies out there often really struggled. But you read about the end result and it seems like it was all a success. I suppose there's an analogy also with fundraising. How was it on the road fundraising in 2024? It's a pretty tough market. How did it go?

It was hard. People are telling us, it's like, oh, congratulations, you know, 7 to 8 months. Like, all in that, that's really fast.

It didn't feel fast when you're flying around like hat in hand begging people for money. I'm not going to lie. We definitely had to work for it. We had to go meet hundreds of people and fly around the whole country. It took some time.

It's interesting you say fly around the country. I always say to entrepreneurs, like when you raise money as an entrepreneur, you get to go to one city and meet 50 investors, when you're a VC, you have to go to 50 cities and meet one investor per city because a lot of times they're in Pittsburgh and St. Louis and Chicago and Houston, and you got to go see them. Was that your experience?

Yes. And, you know, when you're asking, you know, endowments, research institutions, you know, folks where, A, the money really matters, and B, where the level of seriousness is turned up pretty high, when you're asking them to give you 10 or $15 million to Steward, you know, you show up like, this is, this is not, this is not a transaction that's going to happen over the internet. I, I don't think.

And what did you learn about the process? I mean, it's kind of nice that you had to go through it because now as entrepreneurs come to ask you for money, you're going to have presumably some recent empathy. But what did you learn from the process?

Ben has been saying this a lot during our internal standups. He's like, I'm glad that it was hard. It's going to make you that much more conservative and thoughtful. If it's your own money, you're like, oh great, I'll write a 10K angel check or something like that. But if you're stewarding the capital of other people that you had to grind in order to have the right to get, you're going to say no even more often. I think you're going to be even tighter with how you deploy money.

Did you learn anything that you didn't expect, Ben? I know that you have a sales background, so some of this might have come natural to you.

No, I actually think a lot of what I loved and had learned about traditional sales in many ways tripped me up in the beginning here. Normally in a sales cycle, one of the first things you do is you qualify the customer. Are they in a buying cycle? Do they have budget? And in this case, the lines between are they in a buying cycle, do they have budget, they're so much more ephemeral and less clear than they are in a traditional SaaS or services sale where it's, you know, let's take Flexport for example. My customer was going to spend money on transportation by definition. That's what their job was. It was to procure transportation service. In capital allocation, these LPs very smartly, they don't have to allocate. They can sit in the S&P, they can go to buyout, they can go to private equity. There's no reason they have to put another incremental dollar into venture, especially when it hasn't returned any capital for the last 3 years. Yeah, it was fascinating.

I will say that I think the qualification process may be You were used to software, so you knew the questions to ask. But the qualification for any VCs listening is relatively straightforward, and I just want to give a playbook away to people. Number one, go talk to your peer group of like-sized funds that have raised. And so if it's a fund one, go talk to emerging managers, find out the best you can the pool of people they talk to. You will find names of people who are adding venture capital managers right now and writing checks and aren't, you have to put in a lot of desk-based research before you ever go out to market. One of the things you probably learned from sales, Ben, I, I don't wanna put words in your mouth, is the best leads that you ever talk to are referrals. And so if you go in cold to sell to a customer, your chances of success are pretty low. So if you get referred into somewhere, your success goes up. And the customer is leaning in when they meet you. And the same is true in venture capital. So I always tell people, talk to other VCs, have those VCs introduce you to LPs, make sure they're qualified, that they're really writing checks right now, because a lot of them, as you've articulated, are not. And that increases your hit rate when you go out there.

Yeah, all, all very smart. Yeah, 100%.

But of course, you were on Fund 1, and on Fund 1, I didn't know my ass from my elbow, so I had to learn it all from scratch. I want to talk a bit raison d'être, your reason to exist. I mean, there's a lot of emerging managers that have come in the last 5 years. When I read the announcement about you guys, when I first spoke with you about raising your fund, one of the things that stood out that was unique about you relative to almost any other firm that I've seen out there is the configuration of the 3 of you. Max, you come from a product background, graduated Duke with a computer science background. Ben, you actually ran sales at Flexport and you were CRO and you were at Flexport for, I think, almost 9 years. And then when you look at Thompson, Thompson has a data science background. And for Square, I guess now called Block, but Square Capital, he ran data science there and is a very technical guy with an applied math background. And it's a kind of a unique configuration. Was that luck and happenstance? Am I seeing it right? Do you agree with that?

Max sort of engineered the serendipity here, and I'll let him talk a little bit about, yeah, about how, how it happened.

No, I mean, I don't think it was just random and happenstance.

You need to give different founders are going to want different things.

We're in the business of selling money and the thing that might resonate well with one founder will be different with another. And I think you really pigeonhole yourself if you say we just do X for founders or we just do Y for founders. I was fortunate to be with people that are a lot better investors than me, and they're just like, we're pitching our LPs, hey, how do you win a deal? I'm like, well, we just ask the founder, how do we win this deal? What do you want from us? And as soon as you can unlock that, it's really different. You're like, how can we win the right to give you money, and they'll tell you. And sometimes it's helping with sales, sometimes it's helping with product, sometimes it's helping with technical hiring. It's going to be really different. So if you have like more arrows in your quiver to, to go win that deal, it's always a good thing.

Most startups have tight runways. We know that. And you got to keep your finances in order. And it's complicated, isn't it? You got all these tools, bill pay, invoicing, reimbursements. You got so many financial workflows you gotta stay on top of, and they're all connected to one thing, your bank account. But the tools aren't integrated. Luckily, Mercury solves this by powering all the workflows from your bank account. Having these workflows powered by banking is gonna let you get more accurate visibility into all the money moving around your account. For example, rather than monitoring all these different tools, you can just check in on your bank account and see a real-time view of every outgoing payment and every incoming invoice. And you really want to control how and when the money moves in and out of your business. Why would you send money to another platform to pay your bills? All that third-party processing, you can pay your bills the moment you need to inside of Mercury so you can maximize your cash flow and you're going to close your books faster. You can avoid all the manual data entry and you can minimize all the errors by just categorizing a bill the moment you pay it. All these details will sync with your accounting software. Easy peasy lemon squeezy. In the end, Mercury will simplify your workflows and make everything tight. It's going to give you more control. It's going to help you work faster than ever before. So apply in minutes, mercury.com, to join 200,000 ambitious startups that trust Mercury with their business. It's elegantly simple yet complex, and it's going to simplify all your finances so that you can get back to running your company.

Well, I think one of the things, and we'll come to both of your backgrounds, but Ben, let's start with you. One of the things that's unique about you, I always tell people, VCs tend to be pretty terrible at sales. They tend not to have sales skill sets on their roster. They tend not to be that great at marketing. So this is really unique for me to talk to you that you bring that to bear. What are you looking for and where do you think you can help with startups?

I've gotta be super careful that I do follow somewhat in the Founders Fund discipline that the best founders really don't need your help. Maybe they wanted it, to Max's point, at these key inflection moments in their trajectory. But for the most part, if I make it about me, if I'm like, oh man, I'm going to be so useful to this company, it's probably actually a very negative signal. And occasionally there are some founders like Ryan Peterson, who I served for the better part of a decade. There are some folks that you just meet and fall in love with, and you want to be a sounding board to them, but you're never really doing the work for them. In the case of what we look for, we tend to look for folks who are sort of living in two worlds, deeply technical and have some deep understanding of an arcane, although important part of the economy. So I actually met with a company today that is building back office automation, now using LLMs, for transportation companies, and it was a young person graduated from Cambridge, did a master's at Cambridge in computer science who had also learned an incredible amount about how freight forwarding and ocean transportation worked. I loved it. I was just like, oh, and by the way, the three founders lived together in a house together in San Francisco. It's like, okay, all of a sudden all the alarm bells for pattern recognition start going off and you get excited by, hey, there's not that many people on earth, just like Ryan Peterson in the same category 10 years ago. There's not that many people on Earth, or Parker Conrad with Rippling. Not that many people know HR like the back of their hand and also know Silicon Valley best practices and can build a world-class engineering team. Parker Conrad was that person, kind of sent from the heavens to do it. Yeah, these people who live in both worlds and impress you in both worlds.

Let's start with Ryan, because obviously Max worked directly with Parker, and I want a chance to ask Max about that. But let's start with Ryan. Like, Anything that you learned from him? I mean, he seems like an exceptional founder. What advice or what could you pass on from what you learned from him?

Ryan is a pure force of nature. He gets energized by problems and by pain. Most people, when something's going wrong in their company, their tendency is to run away from it. Ryan runs towards it. I've never seen anything like it. It totally changed my own relationship with with conflict and with dealing with stressful situations where it's just like, no, no, the winners are the people who are running towards the fire. When I met Ryan, I desperately wanted to get rich. I came from a middle-class background. I really wanted to make money. And Ryan just sort of embodies this. The way you get rich is by doing something really, really useful and ideally in a way that gives you scale and in a way that people value enough, they're going to pay you for. But it starts with utility. And I was like, in my youth, I thought you could just jump to the rewards. And no, no, utility comes first. And then if you provide enough utility to enough people, Maybe you make some money. So that was really the key lesson I learned from Ryan. But no, and bias towards action, Ryan would rather make 10 mistakes and correct them all 24 hours later than experience a moment of stasis. And when you think of what a company is, it's just this constant iterative experiment. And Ryan was just completely fearless in running that experiment and being at the center of that experiment now for the better part of a decade.

I always say, for me, the biggest telltale sign of whether a company's gonna be successful is a sense of urgency. When you have a sense of urgency and you complete things at superhuman time, even when you make mistakes, at least in a startup world, in my experience, is always better than the people who take time to make things perfect in the startup sense. Max, you came from a different background. You had a product background and you worked at Zenefits, if I have that correct. And you must have worked with Parker Conrad. So tell me Tell me about your journey there.

Parker was my boss at two different companies, first Zenefits and then, crazily enough, at Rippling again.

How big was Zenefits when you arrived?

8 people.

Okay. So you were there from almost ground floor.

Yeah. There were 8 of us in a little office in the Mission. Parker is, and I know his ego's been inflated a lot recently, but he is the best guy at product and sales. That I've ever worked for or really learned from. Parker had an interesting knack of on calls with customers to be like, hey, let's do a customer discovery call. What do they need so we can figure out what we're building next? And we get off the call together. And then I remember one time he was just like, I know they said that they actually wanted X and Y. That's not what they want. They want Z. They've never even seen Z before. So we're going to go build Z and I promise you this is actually what they want. And that's how he's built a lot of this stuff. It's like he will talk to customers, but he kind of listens to them and says, yeah, yeah, yeah, I know you said you want this, I got it. I understand your pain points. And then ships out a product that they didn't even maybe knew that they wanted. So that was really impressive on the product side.

What attracted you to work at Zenefits in the first place? I could see if they had raised $100 million and had 300 people, you know? No, I had offers at a few spots to be the first product manager.

Multiple companies since 2013 now. And he was just like, look, this is why we're going to be a $50 billion company. This is this crazy thing. We're giving away this product for free and we're going to make $450 a year per seat. He was just like, we're going to win. Everyone in the entire country needs this and I'm the guy and we're the company to give it to them. And he just had this mindset of nothing is going to stop me until I get there.

So I often talk about this as being like an X factor of founders. Like you don't really know why you should join them and it sounds like it's kind of a weird idea, like benefits and why would I want to go work at that company when there's all this exciting other stuff going on? But you get a sense that this person is destined for greatness and you should join their journey. And I look for that in founders.

He's still doing it now.

I mean, he kind of got, you know, like pushed off the horse a little bit in my opinion.

And he's just like, nope, I'm going to do this all over again.

And then My target was $50 billion company and I'm still going. I maybe got derailed a little bit, but he's not stopping.

What was it like day in, day out working with Parker? I imagine pretty intense.

It's intense. He has a high bar and I'm watching it for people that aren't even me. Sales loses a deal. He's like, what the hell? Why did we lose this? Or a customer churns immediately. What the hell? Why did we lose this?

What can we learn?

How do we get them back? It's all gas, no brakes.

But to be really good, you can't lose that sale. You can't turn that customer. You can't screw up that product launch. And I think that's kind of what it takes to be good.

I think that's what a lot of people who are not in our industry don't understand is it takes a certain intensity. It takes a certain drive, ambition. You know, I think you described it, Ben, as a force of nature. It's a certain force of nature. And that kind of individual is often not warm and cuddly, and often it's what takes to get past the nos that you hear from everybody and get to yeses. So that's been my experience too.

The example that I know we've talked about before, and it's maybe commonplace in some smaller VC mindset, that it's like if you're a professional athlete and you're missing a lot of free throws, your team's not like, oh, hey, you tried your best, like, you know, do better next time. It's like, what the hell are you doing? Go practice and get better. And you can't do that otherwise you're out. And I think it's the same thing in startups. Yeah.

The best example is if you watch 30 for 30 and you watch Michael Jordan and you watch how intense he was with his teammates if they weren't at their top quality and he was just a first-class asshole, but he's also the best player who's ever played.

You can't have a CEO that's like, oh, no worries that this customer churned. You tried your best to keep them. Okay, great. Like, this is not— your company's gonna be out of business pretty soon.

You can, you can be like that, but you can't be like that and be a super high-growth, top-of-the-industry, most successful company. Yeah, it takes a bit extra.

The less your business spends on operations, multiple systems, and on delivering your product and service, the more margin you have, the more money you keep, right? You want to get fit in this new era here in Silicon Valley and in tech broadly. But with higher expenses on materials, employees, distribution, and borrowing, of course, everything is costing more. So to reduce costs and headaches, smart businesses are graduating to NetSuite by Oracle. NetSuite is the number one cloud financial system bringing accounting, financial management, inventory, and HR into one platform, giving you one source of truth. With NetSuite, you're gonna reduce your IT costs because NetSuite lives in the cloud and it can be accessed from anywhere. This means you cut the cost of maintaining multiple systems with one unified business management suite, and you improve efficiency by bringing all your major business processes into one platform, slashing manual tasks and time-consuming errors. Over 37,000 companies have already made the move, so do the math to see how you'll profit with NetSuite. So here's your call to action. By popular demand, NetSuite has extended its one-of-a-kind flexible finance program for a few more weeks. Head to netsuite.com/twist. That's netsuite.com/twist.

I guess one of the things I hadn't really thought about before today's call, if I look at Thompson, he worked at Square. He must have worked, I'm guessing, with Jackie and with Jack, Jackie Reese and with Jack Dorsey. You guys work collectively with Ryan and Parker. You've seen what great looks like. So I guess that must give you a little bit of a compass for, like, you know, I always say the advantage that you have in Silicon Valley sometimes is not that you're necessarily a better engineer than someone from Milwaukee. You know, that person from Milwaukee might be just as smart and maybe smarter, but when you were at salesforce.com or Oracle, Google, Facebook, and you've seen the top of the industry and you've seen what success looks like, you have a different set of skills and attributes. You guys have seen that, so you probably know better what you're looking for.

The only thing that scares me a little bit is biasing too much on the recency of working with these folks later in their careers where at this point in history, whether it's Parker, whether it's Ryan, I mean, these folks are polished, right? These are folks who are ready to run public companies, who in all ways have practiced the art of being a great leader at scale. And not every 23-year-old we meet with is going to have already gone on that journey. And so I feel like sometimes I'm almost overly critical of folks and I have to look back and go, oh no, much earlier, the Ryan I met who was working in a one-room office with his giant bulldog on Flexport, he was less polished than Ryan Peterson today. And it's not fair for me to comp a young founder against the model of Ryan I have now. It's fair to go, okay, Let's use the mental time machine. Let's go back to 2011.

What was— How big was Flexport when you got there?

I met Ryan pre-YC, so I met Ryan at Dubose Park in San Francisco and he was wearing a YC hoodie that had been his brother's YC hoodie. His brother David, who's another genius, had gone through with BuildZoom the batch before, and I just fell in love with the guy. To your point around these personalities, I was just captivated by everything Ryan represented. So I was, I was, you know, sort of his— I don't want to say lackey, but I was, I was following Ryan around like a puppy for probably a year before he finally acquiesced and hired me.

So, and it, so it sounds like it's the same for Parker. If I take Ryan and you zoom into the early days of working with them, what attributes could you say you observed there? Or if you want to answer it differently, what different attributes are you looking for in founders? When you're looking to back him going forward?

For me, it's like a boundless well of energy. If you look at Ryan's history, the guy speaks 5 languages. He did a year in Brazil when he was a sophomore in high school. He lived in mainland China for 2.5 years. He rode a bicycle from China to Vietnam. This is a person who, for whatever reason, whether it's God, whether it's the universe, whatever you believe in, the cord is plugged straight in.

Yeah.

And there's just like, okay, like there's, if you can really do this much in a day, even if it's imperfect, you know, you're going to get so much further than the average person.

One thing that we look for in founders a lot related to this is basically it's a bad financial decision to join a startup. And I mean that even if it hits it out of the park, it's probably a bad financial decision.

Your expected value with your stock grant As the 40th or 50th employee at a startup, even if it's a $3 billion company, you're better off working at Google. Just like, you know, with Google, top ops are really nice. You don't work that much. Like it's a bad decision. So you have to make someone make a bad decision or make a bad financial decision, what they think is a good decision. So you have to just be so compelling as a founder to convince that 50th person, whether it's an engineer or a support person or an account manager, to join your company.

I think that's something that Parker did really well, was he just would be so magnetic to get everyone to want to join Zenefits. And then if you look at Rippling, half of that employee base is ex-Zenefits people. So he'd done it again. And that's something we really ask ourselves. Ben Thompson and I are like, is this person going to be able to hire their 30th employee? How are they going to get someone to not go work at a giant company and get paid, you know, a really nice salary instead.

The way I would characterize that, that's when I say X factor, that's what I'm talking about. It's like the ability to persuade people to do unreasonable things because it's not just employees shouldn't join you, but customers probably shouldn't bet on you because you haven't built enough software and you probably in the early days don't have enough financing to guarantee you're going to be around. Journalists shouldn't write about you because they're probably going to end up looking stupid for saying, you know, something good about you. Partners shouldn't partner with you. Employees shouldn't join you. But you get a sense that this is someone destined for greatness. And for me, that's X factor. The other thing I would say about employees is I don't think it's a bad decision to join. And of course, I know you don't think that either.

It's a bad financial decision. It's not a bad decision.

I don't think so either. But let me explain, because I think when I explain, I think you'll agree with me. I look at it, I once wrote a blog post called, is it time to earn or time to learn? And there are times in your career where the time is to go for the money. And there are times in your career where the best thing to do is to be situated alongside someone like Parker, alongside someone, you know, like Ryan, alongside someone like Jack Dorsey. And being in a startup, it gives you two things. It gives you access to greatness that you can learn from, and it gives you a peer group of people to then go do your next business. So my analogy is it's similar to an MBA, like very different, but an MBA is paying money so that in the future, hopefully you're going to earn more.

Yeah, that's exactly right. And I guess I slightly take it back with what I say now is like the long-term compounding of your earnings potential by being at a startup for 6 years, you're going to be way better off.

I think the point you were making is right though, which is like, Economically, you're probably going to learn more than you're going to earn in that scenario. Sorry, Ben, you were going to add.

No, just the food at the Google cafeteria is so good. Legitimately, like, it's excellent. They, they really—

my wife worked at Google in, when was it, 2005, when it not only was excellent, but they used to let you take home dinner. So she would not just have lunch, but every night she would go get steak or chicken or fish. And I had a startup, so I had nothing. And she would just bring me home dinner every night. Those were the gravy train days. What are you looking for in terms of sectors? Are there certain things you'll fund or won't fund?

Yeah, if you look at all of our histories, it's primarily B2B. The only crypto investment that any of us have done of any note is, you know, obviously Max is a big shareholder in Worldcoin from, from one of the prior vehicles. So probably realistically not a lot of crypto going, going in this fund. Consumer, we all have a pretty specific thesis around consumer, which is it's getting harder and harder unless you have a distribution edge. So friends of ours who work with a lot of celebrities, makes tons of sense. They're going to dominate consumer. They should continue to dominate consumer. For us, we're kind of down the middle B2B. And I think when someone's like, what's a SAGA company? The archetypal SAGA company is going to be, it's the kind of company that founder who has a foot in the old world and a foot in the new world's going to build. Whether generally legacy industry, giant existing market, incumbents exist and are making lots of money and generally aren't well loved, you know, building in those kinds of categories are going to tend to be where we're going to focus.

Okay, everybody, it's your boy J Cal here, and I've talked a lot on This Week in Startups about how the smartest startups are shifting their engineering firepower to Latin America to boost their efficiency. It just makes sense. You just think about how many amazing developers there are in Latin America, and they're on the same time zone. And of course, you're going you're going to save money. The cost of living is completely different and the salary structures are different. So this is where Curotec comes in. C-U-R-O-T-E-C, Curotec. When you partner with their team, they get you up and running quickly and they give you the ultimate flexibility to scale up or down as you need to. Curotec takes the headache out of things like payroll and compliance and they just connect you with the best talent out there. They are trusted by industry-leading innovators like Automattic, the makers of WordPress, and Comcast. Find out why at curotec.com/twist. Stop waiting and be proactive about hiring the right people. Head over to curatec.com/twist, C-U-R-O-T-E-C.com/twist, and get ready to boost your team's productivity with an elite Latin American engineering team at a fraction of the cost of a US developer. And you'll get 20% off your first month. How generous. Thanks to the team at Curatec.

When I think about unique advantages that you have, Max, if I focus on you for a second, it's not just that you got to work with Parker and you got to work in product management and see what great looks like, but then when you decided to be an investor, it seems like you may have seen some pretty interesting deals from pretty early on. Maybe you could talk a little bit about that.

Yeah, so, so my foray into venture was 2016 for the first time.

And yeah, a lot of it was a pretty fortunate position. My brother Jack, Sam, and I were all living together in the Mission and investing in companies, and this was a small world. And I think unbeknownst to me at the time, I was in the even smaller world than I had realized. It's just you don't know what you don't know. So yeah, it's like the first fund, we were in a lot of good things, whether it's from Reddit to Rippling to Opendoor, like Superhuman and Boom. It's just like, yeah, very fortunate position. But the first 3 months in a job, I'm able to see what it's like of like, well, these are the founders that you're going to be interacting with and this is the bar and this is how you win a deal and this is how you allocation the good company.

And yeah, it was a pretty awesome experience to just be like, wait, I already went to jump into looking at tier 1 deals. 2 weeks into the job, but definitely gave me a huge jumpstart into this.

Yeah, I guess not everyone starts with their brother running Y Combinator and having that kind of access. Other brother, a successful entrepreneur. So that helped. You know, I always tell new VCs that when you start to see deals, if you see 7 deals, you're going to like 3 or 4 of them. If you see 70 deals, you're going to like 3 or 4 of them. And if you see 700 deals, you're going to like 7 of them. So be careful not to do the first 7 deals that you see. The contrary happened to you, which is super interesting. You saw again, that's twice in a row you saw what great looked like from the start.

Yeah, I think it's exactly that. And then maybe over time I tried to sort of, like you said, expand, grow the pool, like, you know, and be like, let's look at more companies. And the ROI actually wasn't really there.

Was there any common thread behind the people that you were backing in 2016, 2017, or was it just a unique moment in time that you had access to these amazing founders?

I think it was a smaller landscape then. Like I said, I'm sure 2008, 2009 were smaller, but even 2016, 2017, there just were less players. Everyone sort of knew each other. It was easier then than it is now.

And Ben, have you had a background in investing? I know you've been an operator for a long time, but maybe you could talk to that.

Yes, but I've been just taking unguarded layups. So most of my investing to date has been angel investing where Flexport, we were blessed with an unbelievable cap table and a lot of those firms when they were leading around and it was a business that kind of looked or smelled a little like Flexport where it was, was in a legacy category, they're going to build a big sales org, whatever it was where they thought I might be useful to the founder, these folks were generous in inviting me in. That's playing the video game turned down, not even on easy mode, that's turned down on the mode where you can't even really get killed. If you're just doing Founders Fund deals over and over again, frankly, I feel grateful for having gotten to do it. And I met amazing founders. I just spoke at Spike from Newfront's annual kickoff with his team. I'm super grateful I got to do that. What we're doing now is so different than what I was doing that I feel like I'm totally relearning the game. When you switched from being a founder to being a VC, I'm sure you were humble enough to go, okay, I've got to go empty cup. Whatever I learned as a founder, I can't just run the same playbook here. I'm trying to do that same thing right now.

I didn't write a check for one year. For one year, I just didn't feel like I knew what was calibrated and what was a great deal. Now it happened to be 2007, 2008. And so the world was kind of melting back then and no one was sure there was going to be venture capital. But still, I, I took my time for sure. Talking about this, this is another thing that I find fascinating about the three of you is you must all three have had just tremendous access to the world's top venture capital firms. Like, because all of the companies you worked at were backed by great VCs. I know even in the case of Thompson, he worked as an EIR at Kleiner Perkins. He worked closely with Ilya Fushman. I think Ilya backed his startup. You know, I work closely with Ilya. I, I think Mamoon and Ilya are two of the top people in our industry right now. Having worked with VCs, what positive attributes have you noticed from venture capitalists you've worked with that you want to model and build as part of your culture?

You have to stay accessible. You can't be in an ivory tower. Look, a lot of these best investors are, they're very well-respected people.

Everyone is trying to come and get money from them in the whole country. And you can't just say, oh, hey, my EA will schedule a meeting with you in 2 months and you can drive all the way out to this person's house. It's like, no, the people that are doing this, Even if they've been doing it for 20 years, they're still out meeting founders. They're responding on text, they're responding to emails themselves. So I just don't think you can put a wall between yourself and the founders just to have it be able to access you.

There's this trope that venture is sort of a retirement gig, and it may have been in the prior cycles when the game was easier. Someone told me recently there was 150 GPs in 2004, and now there's 3,000, and there's certainly not 20 times as many good companies. So certainly, you know, it's a much harder discipline to win in now. But the folks that are still winning, like there's a famous story that's making the rounds right now about Vinod Khosla being at a YC Demo Day where people didn't realize it was Vinod and there were no chairs left. And here was this guy sitting on the floor, just diligently taking notes on every company, like one of the most successful humans ever to walk this earth. Sitting on the floor at a demo day, that's what you're up against. Bill Trenchard's another example of there are some of the folks at First Round who have stepped back. Bill is still— Every deal we send to Bill that looks interesting, he takes himself. There's a level of engagement from people, even people who've had bigger wins than certainly either of us have ever had in our careers. That's what you're up against in this new world. There's no more of this, oh, It's an easy way to get returns. Like 80% of venture funds are sub-1x.

Yeah. When you describe like the force of nature that Ryan is, when I hear you describe Parker, the best VCs are exactly the same. I know I said this to someone, I think, you know, Vinod's in his 70s, right? And, you know, they've just done a tremendous job. I love working with them. I emailed Vinod on a weekend a few weekends ago and I got a response back saying he was on vacation, and then I got a text message 10 minutes later. And he's that kind of guy.

I think that's what Ben and I saw too. I mean, we saw this 2 weeks ago. We were wrapping up our clothes. Ben was like, asked Alfred Lin for a favor. He responded immediately and did it. I asked Keith for something. Can you help me out? He texted me back within 10 minutes.

Yes.

And that's the people that are making a lot of money. That's what they're still doing.

Heath is so responsive. He's phenomenal. Yeah, it's really good. So yeah, I guess you need that kind of hustle. You guys are not in the Bay Area. Thompson is. Thompson's in the Bay Area, but you guys are in New York and Austin respectively. Tell me a little bit about what you think about those markets. Will you be funding in those markets? Why are you in those markets? Does that give you an advantage or a disadvantage? Maybe Ben, we start with you and then we'll go over to Max.

We expect that 90% of the companies we invest in will be in San Francisco, in New York, and New York in that order. 10% will be everywhere else. The network density in these places is still so real. Probably the biggest change in the market in the last 5 or 10 years, like since I started really investing regularly, has been that New York is a much more real force than it was before. I don't know if you can give Ramp all the credit or Thrive or— USV's obviously been here a long time doing the Lord's work, but something changed here in New York where the founders are building to the same quality of San Francisco. The volume just still is 5x in San Francisco. So we're going to spend the majority of our time in these two cities.

And so you've got New York covered. Max, you're in Austin.

I'm in Austin. I got here 2 years ago, I looked back deals I've done in the last 4 years. About 10% of them are in Austin, but that's the giant drop-off. I think Ben's right. 85, 90% of the things will be in San Francisco and New York. Austin's the third biggest market, but it's a third biggest market for us. I think San Francisco and New York will be dominant. Austin as a tech hub. Do we want to go into this?

Sure.

Yeah, let's go. Let's go.

It's a good place for tech. It's never going to be a tech mecca. And I think that's sort of by design. That's not like a bug. There's a lot of cool stuff going on here. There's a lot of very impressive, smart people. In San Francisco, people work until 8 or 9 or 10 PM, and in Austin, people do that if they need to. But right after this podcast, I'm going to a founder's pickleball league. It's championship tonight. It's literally happening as we speak. I'm going to jump in, I think, for the quarterfinals. It's going on right now. In half an hour, hopefully we've advanced to the quarterfinals that I'm in. It's all really impressive people, founders of awesome businesses that are not just tech, real estate people, people that are in finance, people that have built great things, and they are impressive people. There is a little bit more of a work-life balance in Austin than there is in San Francisco and New York, where if you want people to come together at 5 or 6 PM on a Wednesday in Austin, you can do that. In San Francisco, it's like, forget about it. Someone's like, fun. Like, I'm not going to have fun at 6:00 PM. I need to be working on my company. So that does make it a little bit harder here to invest.

Do you have observations about San Francisco as we sit here in May 2024? Because during COVID it was a ghost town and everybody was staying at home. And I think that kind of drive and energy got zapped for maybe 18 to 24 months. I noticed a tremendous change when AI started taking off a little bit more. Do you have any observations about what you're seeing in San Francisco now?

I lived there for 7 years. Like everyone else, I have a love-hate relationship with San Francisco. It definitely has some downsides to it, but San Francisco, of course, has the most ambitious, educated builder mindset people, group of people in the world. I think it's the entire world.

So it's not surprising at all when there's an opportunity to build something really cool. If someone's like that, they're going to move to San Francisco.

You could knock and say, well, people there don't have fun. People don't do other things. They don't socialize. And the flip side of that is, yeah, because they are just building really cool things all the time and they're hustling and they want to make a ton of money and they want to build a great company. So that's what they're doing instead of having fun. There's nothing wrong with that. It's a great place to be investing capital.

And in sort of a weird perverse way, like a lot of the problems we had in San Francisco scaling Flexport during the boom, as I will refer to 2014 through COVID, you know, there was no office space in the whole city above 25,000 square feet available. We literally, we were on a list. We were fighting with Google, Apple, and Facebook on every office. You know, the prices for everything were outrageous. Startups really being bled dry by that era, both in terms of the competition on employee compensation, the cost to build the offices, everything was bad in terms of building profitable companies. And now rents are down for the employees, rents are way down for the companies. You sort of have this opening where potentially you're going to have a lot of great companies that can flourish and have a lower fixed cost base than maybe some of these companies like Flexport that were built during the boom. It could actually be an amazing setup for growth in SF just because of how poorly the city's been managed.

One very controversial thing about San Francisco is—

So let's talk about—

The fact of the city, for better or worse, is set up where it feels like one of the most wealth-inequal cities in the country is you see very quickly which side of the tracks you're going to be on. There are billionaires living next to homeless people and there's no other cities like that in the country. So if you're in a more equal city and you don't do great, it's like, well, it's fine. If you're in San Francisco, this city's not going to lift you up and help you. And this is where you can be if you make a lot of money. So I think that pushes people, frankly, that just work really hard there.

I want to talk for a minute about the thing that everyone is funding these days, and that's AI. There's both a blessing and a curse of AI. AI should lead to a lot more productivity. A lot more automation, a whole new spending cycle. But AI itself is very expensive for companies to build, both in terms of talent, in terms of training and building models. I'm guessing, Max, you know a few people who know something about AI. What insights do you have about funding AI companies? How will that determine what you guys look at?

I think if you're looking to invest in really core things like an OpenAI, obviously, or an Anthropic or whatever. I kind of think that the ship has sailed a little bit on that. We get pitched companies like, hey, to get started, we need $100 million to fund our compute. So that's a huge issue. How do I do that? My answer is some teams really can. That's happening in the last year or two. But for the most part, you probably can't. The financial moat and the compute moat has gotten too big now. So we're really looking at companies that are utilizing AI rather than are AI companies. I think the things that we've had in the past are like they're using it to leverage how they build their business and they're not trying to market themselves as an AI company.

Are there important elements to how AI will determine the companies that are built or the products or how your end customers will use the product that will inform your investments, or you're just going to take the best entrepreneurs that you're meeting?

The best entrepreneurs have figured out how to leverage AI and not reinvent their business, but just sort of superpower it. Like an example, I get a good company that Jack and I invested in called Durable.co, actually in Vancouver. You know, so we'll go sometimes in Canada as well too. They're helping people with physical storefronts help get their business online, whether it's website marketing collateral, just run their online business. Let's say you are just a mom-and-pop physical hardware store. They have an AI-powered website builder. You could be like Mark's Laundromat in LA and it can pop up something pretty cool for you. People love that shit. People thought it was so cool and it's really powerful. Because everyone's like, well, wait, I can make my own website now and I don't even have to have any graphic design background. I can just type in a few things. I don't think of that as an AI company, but they're definitely having a tool that was for getting digital or web storefronts for physical hardware businesses and they use the AI to do it. And I think that's the kind of company that we like.

I think what a lot of people don't think about is just how many industry-specific uses for machine learning or AI. There are some of the stuff, but before there was OpenAI, some of the stuff that we were funding in machine learning was like for healthcare insurance companies to evaluate healthcare providers, and they were building machine learning rules engines on the healthcare that was being provided to look at things like value-based care. We had another company that was doing machine learning, looking at consumer lending and looking for patterns in how to underwrite thin-file credit consumers. We had another company looking at call center data and probabilistically determining the success of your sales and marketing campaigns based on billions of records that humans couldn't evaluate. I have another company that was looking at babies and how baby development was going to see whether they were sleeping or had mobility problems. And all of that was training on AI models. That was not like the LLMs that we talk about today. So I just think the use cases are pretty vast. I don't know if that kind of stuff appeals to you, like the industrial use cases.

Absolutely.

Yeah.

Probably the investment that I did personally that is performing the best in terms of like last 6 months is AI for industrial quality systems. And they are saving some of these manufacturers absolutely insane sums of money. Like in the case of one engine program, I think it was saying like $50 or $60 million a year savings in a category that you would have no idea that AI would even make a dent. So yeah, super interesting.

And at the stage that you're investing at, you guys, I assume, are mostly seed stage.

Yeah, we want to stay away from trying to lead Series As as much as possible. We want to play games that we can win, and the Series A is a knife fight. And we think there's still space to be competitive co-leading a seed round.

So you will either lead or co-lead. Do you care if it's lead or co-lead?

Not really. I mean, our focus, especially because this is a first fund with the three of us working together, we just want to be in great assets and build relationships with the best folks. That's sort of how you build the foundation for the next 4 or 5 of these to work. You can't be overly ownership-focused before you frankly earn the right. Or there's just terrible adverse selection, we think.

Yeah. And a lot of that came into how we kind of did our fund size, frankly, which is we want to have enough ownership that we can get good returns, but we're not going to be out here saying we need 18% every time because then you can't collaborate with other great funds and you kind of become a lone wolf hunting by yourself and start making enemies. So we backed into our fund size based off that. Hey, if we have 8% and someone else has 8%, That's great. We can't have 2% of a company, but we don't need to have 15 or 17%.

It is interesting when you start a fund, if you're at the $125 million range, if you're at 50, if you're at 75, it's really easy to get included in great deals because your needs and demands are not as much. When you get to 300 million, 400 million, 500 million, you really have a need for ownership and it becomes harder to play at the same round, you end up having to play more serial than parallel.

The bigger your fund gets, unless you become like a multi-stage, just, hey, we'll be collaborative checkwriter, the harder it is to work with other people. Like we didn't set out to raise a $400 million fund partially for that reason too.

Ben, you referenced Founders Fund and that maybe being a little bit of an inspiration amongst others. Does that mean you don't plan to take board seats or do you plan to take board seats?

I think we will occasionally take board seats, but very infrequently, particularly as, you know, for on this first fund where we are investing very early. For the most part, the best founders don't want you to join the board at that stage. You know, they, they'd rather wait for Series A, do a formal Series A priced round, have someone from a multi-stage firm join the board. That seems to be what the market has decided the best founders are going to do. Occasionally, if we do something where it's a longtime friend of ours, or if we work with someone for a few months on building something and semi-incubate it or incubate it, there may be exceptions. But I think for us at this stage, probably an anti-signal if we need to join the board.

Mark, I think of us as our job is we're the elementary school teachers. Our job is to get them right when they're growing up, Help them do whatever we can to get the Series A from that tier 1 lead that they want, have them join the board, and then check our egos at the door. And then we're the second fiddle. It's not like bye forever, but it's, we have to be like, yeah, someone else is now the adult in the room and someone else is on the board and we are the number 2. And that's okay. If we can do that, we've done our job amazingly.

I think some of the best seed stage funds through the last 15 years, Founder Collective or First Round Capital, people like that, they've been incredible at both getting access to super early stage, maybe younger founders, and then shepherding them to the best A-round investors. And in part, they have the relationship with the A-round investors. So, you know, if Founder Collective or First Round did their seed deal, you're looking at a deal that's already been qualified by somebody you trust and respect. And if Bill or Josh is calling you, if, you know, the guys over at Founder Collective, Eric's calling you, Mike is calling you, you're, you're more likely to take the meeting. So I think what people outside the industry don't understand is what a closed industry it is. When I get called by people who invested before me that I've known for 10 or 15 years, and there's a lot of trust there, I'm way more likely to take the meeting and to come leaning in for sure. So I think that's somewhere where you guys will stand out a bit. We should, we should talk about Thompson before we wrap because he's not here. He doesn't get to defend himself.

Thompson's the smartest one of the three of us by far.

What is he? What is he add to your team? Yeah, he was an applied math guy. I, I read that he was at Berkeley and Cambridge and he did data science and he seems a pretty smart guy. Like how is he going to fit into the mix?

Thompson's the best. We've seen it a few times recently where founders were willing to take money from Thompson over the most prestigious firms in the world because he is just one of those people who will be endlessly patient and useful on day zero. Before you have anything, when you're just a guy or gal who's wrapping up a PhD at MIT, you've never built a business, you know YC is what you're supposed to do if you have an idea, He will spend that 6 months with you going from really smart person to polished enough to getting into YC, and people just love him. He was born to do this. His parents were founding engineers at Qualcomm. They immigrated here from Vietnam. Pretty remarkable story to come to the United States to be a part of the founding of Qualcomm. Both of his parents hold all these patents for Qualcomm. He never thought he was going to be in tech. For him, rebellion was being a mathematician because his parents were in tech. And then at some point, I think he was a third of the way through his PhD at Cambridge and he realized, oh my gosh, I can't spend the rest of my life just thinking. I want to build stuff. And his third grade best friend was Kevin Mahaffey from Lookout. And at that point, Lookout was a good startup, but it wasn't a multi-billion dollar outcome yet. He called Kevin and said, hey, I want to come home, left Cambridge, went to work for Kevin. That was a success. He worked for Sean Parker at Causes, and then his big win was he built a company called Frame Data. And you were sort of referencing how magnetic some of these founders, and in this case, Jack, can be. Thompson had no reason to sell Frame Data. He had just raised a Series A. Gary led it. This is obviously before Gary took over YC. Gary led the Series A, very hot, very prestigious. Unbelievably good team. As soon as Jack made a list of— he basically wanted to learn more about machine learning. He somehow got Thompson's name, called them into the Square offices. Within 2 days, they had an acquisition offer that Thompson just couldn't turn down. He was like, yeah, the opportunity to go work for Jack is special enough. I will exit this company. And then good timing, when the acquisition happened, the Square stock price was in the dumps. And then let's give Thompson all the credit, They built Square Capital, they built all this great stuff, stock price absolutely soared, made the acquisition totally rational for everybody involved. Mary Meeker was on the board at Square. She brought Thompson into Kleiner, and this is on Thompson's first day, it turned out Mary was leaving and forming Bond. So Thompson got to be a fly on the wall through that transition from Kleiner 17 to Kleiner 18. Kleiner then backed his next company, He sold that one about a year ago. Not as great of an outcome as the first one, but returned all the investor capital. Everybody was pretty happy. It was a cool business, just rising interest rates and an SMB neobank didn't mix. Yeah, as Max said, he is one of the smartest people I've ever met.

I think this is probably a good place to wrap, but I want to give you a chance to tell people how to get in touch with you. Are you guys active a lot on Twitter? How should people reach out to you?

You got to fax us.

Putting out content, fax, faxes. I think we really should be retro. Let's put up barriers to see who's innovative enough to get around it.

I kind of would respect that if you made it a little bit harder. But yeah, we're super active. We're super active investing now.

We have historically not been big Twitter people, but Ben is pushing me to be that. And Mark, you can push me to be too.

I'm happy to.

I love engaging on Twitter now. Yeah, we're all available with our office.

Your Twitter handle, Max, is?

It's just Max Altman. 5,000 followers as of this morning.

Really blew up.

Well, I'm hoping that you will all follow Max Altman. Ben, what is your Twitter handle?

I am @Braveman, and I'm less likely to be retweeted by Sam Altman, but still very nice guy. A lot of fine qualities.

And I am @Msuster. On Twitter, and I work for Upfront Ventures. I noticed you didn't say you were going to do a lot of deals in Los Angeles, but I just want to put a plug in for the great city of L.A. There's a lot of great founders here, a lot of great energy here, and I hope to be your collaborator when you decide to do deals in L.A.

Yeah, we would love that. Yeah. Thank you so much for having us. Like, obviously your reputation precedes you. It's really, really cool to spend some time.

I appreciate it. It's been great, and good luck in pickleball today. Thank you. All right, take care.