Chad Byers, Susa Ventures

Welcome to Origins, a podcast about the money behind the money. This podcast is created by Notation, a first Czech venture capital firm based in Brooklyn, New York. We invest in amazing technical teams on day zero. If you're starting a new company and want to get in touch, you can find us on Twitter Notation Capital or email us at hellootation BC the title sponsor for this season of Origins is Carta. This season is also supported by Silicon Valley bank and Cooley llp. Carta simplifies how startups and investors manage equity, track cap tables and get valuations. They also offer fund administration where you can see real time data in the Carta platform and work with their team of experienced fund accountants. We've been happy customers with Carta for a few years now and we're thrilled to have them as our title sponsor. Go to Carta.com notation to get 10% off. Terms and conditions apply. Silicon Valley bank is the bank of the world's most innovative companies and their investors with a dedicated practice for emerging managers. They've been friends and partners to Notation since the beginning. To learn more about SBB's services, visit sbb.com Cooley LLP is the global law firm for tech, life sciences and other high growth industries. It's the world's most active venture capital law firm in forming funds and completing investments. We've worked with Cooley since the beginning of Notation. They've helped us form both Notation funds. We recommend them to all the startups we work with and many of our VC peers as well. Learn more about the firm and check out its dedicated site for startups and investors@cooleygo.com Chad Byers is a co founder and GP at SUSE Ventures, a seed stage fund based in San Francisco. SUSE has been fortunate to partner with the likes of Robinhood, Flexport, Andela and New Front Insurance. Outside of the office, he geeks out on recreational sports, music and video games. What's up?

Stoked for this?

Welcome Chad. I'm really excited to do this with you.

Yeah, this is awesome.

In addition to being a VC that we respect at west, you're also a friend. You're also a very small but important LP in Notation.

Yeah, I was wondering if we're going to do full disclosure, which is very exciting.

I think we do full disclosure. That's smart. A good place to start. Just tell us a little bit about yourself, your background, where you grew up, all that good stuff before venture.

First of all, thanks for having me. This is the best way to spend a Friday geeking out on VC. Yeah. So I was born in San Francisco in 1987, was raised in the city till I was six. Had an older brother, Blake, who was two years older than me. San Francisco was awesome. I remember going to California Academy of Sciences whenever my parents could take me. I love the outdoor stuff. And so when I was seven, my parents moved us down to the South Bay. So we grew up near Stanford University near Paloto, and pretty much had the most idyllic, you know, childhood ever.

Right.

We were playing outside a ton and then obviously, like, I think like most kids, my brother and my first kind of foray into tech was video games. So.

Yep.

Sega Genesis came out 1988. So I remember when we were super young, we were playing that and then there was actually a failed system called 3Do that came out, didn't make it. That one started in 91.

Okay.

And actually, funny story, it was the founder of ea, Trip Hawkins, who had left EA and he was going to start this console company called Video, and they made some pretty sick games, but ended up failing. So Blake and I played. My brother and I played a ton of video games growing up, and it was. It was an awesome childhood.

I don't remember that one. I did play my dad's Atari.

That was. That was even before Sega Genesis.

Yeah, yeah, yeah. That was like. I think.

Yeah.

One of the OG consoles.

Yeah.

I played Sega Genes. Sonic the Hedgehog. Right.

Yeah.

Yeah. Okay. So you got into tech through video games. Yep. You grew up in a tech family.

Yep.

Right. Your dad, as far as I know, was one of the co founders of Kleiner Perkins.

Yep. The. The backstory there is my dad, Brooke, grew up in Georgia, you know, classic tech epicenter in the 60s.

Right.

Just kidding. Ended up going to Georgia Tech doing Double E, and then really didn't love the south, so moved out to. To California for gsb.

Okay. He went to business school. Yeah.

And had some summer jobs. I remember one story, he's like, working down in LA in between his business school years. He goes, he's working at this, like, manufacturer of airline parts. For some reason, he's like, double EME stuff. Right. End of the summer, the guy's like, my dad's like, I'm really interested in coming back next year. And his manager looks at him, he's like, don't. Don't come back.

It's good.

Manager, terrible.

It's good advice.

So needless to say, after he graduated, he was trying to figure out what to do and just like, you know, luckiest thing ever. And he always Brings up how luck is important in life. Meet some of the people that are the early days of venture in the Bay Area. This is early 70s. Most these people had spun out of the semiconductor businesses. So people like Arthur Rock and then obviously the other founding partners of Kleiner gave him a shot. He was.

Who were the original founders of Kleiner.

So Kleiner, Perkins and Cockfield got it. So he was.

Okay.

He was the four, and they'd already started the firm.

Right.

So he was the fourth person, although he was still junior. Okay. And they ended up just when. When he made partner, saying, hey, we'll, you know, we'll add the B. Had the B. And that's funny because they've actually gone back to just kp.

I know. I was actually just thinking about the cv.

What the. No, I mean, he actually didn't. He's like, it is what it is. I don't care.

Right. Did your mom work in technology?

So they met through work. She was a headhunter with if anyone knows my mom. And we can definitely talk to my mom. She's an entrepreneur, badass in her own right. Um, she was doing headhunting. She's probably the most personal person I know. She's probably the most convincing person I know. And, and. And on anything. Um, and so, you know, I. I think she was probably incredible at that back in the day. But they met through work originally and

then through like, basically, like recruiting, maybe portfolio companies, stuff like that.

Yeah. And my mom was living in San Francisco. My dad was living in Mill Valley. And my dad wanted to date her and asked her out. And she said, I'll only date you if you move out of Mill Valley back to San Francisco. And he's like, it looks like I'm doing that. And that was the start of that.

So at what point did you realize, like, at what point as a kid were you, like, did the idea of, like, Silicon Valley and tech startups and like, financing those companies, like, when did that become, like, something that you could understand? And were you interested in it?

Yeah. It's so funny. Cause I think only in retrospect do you realize how much exposure we had. But as a kid, your world is like your town. Like, you're not aware of what's going on in the rest of the world. Right. And so it's almost until we got older that you have that appreciation for how lucky you were that you were in a place where all this was happening and you were exposed to all this at such a young age. Like, it's just an extreme Baby luck. Right. Like, you just happened to be born where you were.

Right.

So I think it was later on in life. But what I always think about is how my brother and I were just obsessed with starting companies and just making money any way we could when we were little. And I think back, and it's like. It's not like they pushed us to do that. So I don't know if it was innate or it was just nurture or just around it, but, like, from literally, like, four years old on, you know, I was collecting tickets to my brother's shitty play that he put on in our house and, like, charging parents to watch the show. And then later, we were cutting mistletoe out of the trees and Woodside and selling those at Roberts for, like, you know, I think it was like, 1 for $5, 2 for 8, 3 for 10, or whatever. It was, like.

Right.

No matter. And paper routes, you know, whatever it was, we were just obsessed with. Like, you could. If you created something that a market or a person needed, you could charge them for that. And so, you know, I guess the short answer to your question is I think it took time for us to really have the perspective to appreciate that, but I think the exposure was kind of probably constant.

Right, right, right. And just so folks know, like, at my understanding is, like, back then, and maybe. Actually you probably, maybe didn't even know this at the time, but now it's like, through historical lens, Kleiner was like the firm at one point. Right. Like, through the. Basically, certainly through the 80s and 90s. Is that right? Like, it was like Kleiner Sequoia. Like, there weren't. It wasn't like it is today. There were not that many venture capital firms. Correct. Yeah. And they were kind of like one of the top of the top firms.

Again, having grown up in a house with a dad working at the firm, we had no clue.

Right, right.

Other than the fact that we knew we were very lucky and grew up very comfortably and like, obviously had a ton of privilege growing up, and we were. We recognized that. But, like, you know, your dad comes home and he's.

Dad, yeah.

Like, you're. You're riding right around his back playing what we call Dino Riders as a kid. Like, that's my lasting memory. It's not like Kleiner's investment in Amazon. And I think it's twofold. Right. Like, one, there was less firms doing it. There's just way, way less firms.

Yeah.

And then two is, you know, they were in a bunch of companies that were foundational, like, either Full platform shifts or like the foundational companies of the Internet. And so, yeah, they had an incredible run.

Yep. So you went to. You left for college.

Yep. So went to Colorado for.

Okay.

Went to Boulder, you know, primarily just wanted to ski.

Yep.

Uh, couple that with environmental science. I was like obsessed with environmental stuff. I love being outdoors. I literally had classes where we'd like go into the mountains of Colorado and catch squirrels and like tag their ears and try to measure how many squirrels per acre there were. And the classes were ridiculous, but they were so awesome. Um, so yeah, Colorado for four years and then moved back to SF. This is 2009, so obviously economy crashed. But weirdly enough, clean tech, which was like the intersection of technology and like my passion for environmental stuff. There was actually a lot going on in cleantech at the time. Tons of solar companies. There were fuel cell companies, there were biofuel companies. There was actually a lot of types of solar. There was residential, commercial. There was these big ones that use mirrors to collect. I think it's called solar thermal. There's a ton going on. And ended up finding a job in that world, which is actually getting a ton of funding at the time when,

at what point did you consider being an investor? Like, I feel like, you know, many folks look at their. I mean, I did, right? And you're like, either I definitely want to do that or I want to go as far away from that as humanly possible.

Oh, when your parents do something. Yeah, yeah.

And. And so like, I'm not sure if you had that moment, but. Or that same thinking, but was there a moment where you're like, okay, actually, yeah, what, what got you interested in the investing piece?

So look, I know my parents can listen. Kudos to my parents on this one. They never pushed us through investing ever.

Right.

If anything, they just said, do whatever you hell you want to do in life. Like, it's your life. You got one. Figure out what your passion is and go do that, you know, to an extreme state. Like my mom, to her credit, when I graduated college, she's like, go be a ski bum for a year. Like, you'll never be able to get this year of 22 year old back. Go move to some mountain town and like be a ski bum. And I didn't list her. I was like, I need to start my care. Terrible, terrible decision. Totally should have done that.

I also got actually similar advice and I never did it. I always regretted it.

Yeah. It's like, why was I so eager to start a career when I had 70 years to do it.

Yeah.

So, yeah, they pushed us to do whatever we wanted. I think the reality is if you have a parent or a friend or a mentor or an uncle or aunt or whoever that does something that they love, and you see that love and passion for it, then I think naturally it's going to be interesting to you. Right. And that could be. Whether it's business or it could be music or it could be whatever. But you see someone love something and it looks awesome. I mean, every time I go to a musical and I see an epic singer, like, I want to be a singer. Right. Like, this is natural human behavior.

Yeah.

And so I think I always knew, like, investing would be something that I might like, you know, maybe. Maybe. Maybe it's a genetic thing. I don't know. But ended up obviously getting into it, like, earlier than I thought I was going to. And we can talk about what that journey was like.

Yeah.

How did you, um.

I. What was. You know. Or maybe you were doing it, like, on the side a little bit or something. Yeah. How did that. How did that start?

So. So people told me to go get, like, operating experience. Like, regardless of what you want to do, go get operating. This idea of, like, go get operating space, go get operating experience. And we could definitely talk about that, because I have sensitive now believe that that is bullshit.

Yeah. And it feels even like that advice has maybe changed. I hope so a little bit in recent years. Cause I was always intrigued with the venture business, but I too, was at a startup for a while, and the prevailing. I feel like the prevailing advice through 2009, 2010, 2011, was like, you needed to be an operator and a founder to be a good investor. And that was maybe popularized by Andreessen some years.

But, yeah, totally.

That's what you did. I mean.

Yeah, that's what I did.

You went. You worked at.

So. So I worked this company for four years. I mean, by all accounts, is an incredible experience. Like, it went from a relatively small company, 2 million revenue, 250 million revenue, like 50 people, to 400 people, ended up ipoing. Like, it was a great experience.

That is.

But in retrospect, like, my belief is if you want to. If you figure out what you want to do in life, which is hard, and you have to get lucky to find out what you want to do early in life. Like, you should keep trying stuff until you find what you actually really like. But my belief is, like, if you kind of know what you want to like, or you think you want to know, just go do that. Right. It's like a weird analogy maybe to use. Like, sports would be like, if you wanted to be a professional baseball player, it's like, oh, go be a manager of baseball teams first and then maybe you could go play. It's like, just go do the thing you think you want to do. So when I, after that first company moved to New York City, I was working for a company out here, which great company, but the space didn't interest me that much. I mostly picked it because of who was running it. I was inspired by them. And that. That's a whole nother narrative where I think managers are actually almost more important than a lot of other things in terms of your progression in a career. But started doing angel investing, like, really, really small checks when I was in New York. No idea what I was doing. Like, obviously, you know, had a leg up, having been raised around it. But his experience didn't necessarily translate down to like doing seed checks in like today's world. And, you know, he does biotech and I was looking at tech stuff and so this is like 2012 New York. There wasn't. I mean, there was stuff going on, but, like, it definitely wasn't like it is today. And so you were probably doing the same stuff when you were at Bay Works and stuff. I was going to, like, we met, I think around, yeah, techstars demo days. I didn't know how to source deals. So, like, David Tisch was running at the time. He was incredibly helpful. I was like, showing up to disrupts. Like there was all these big events here who, you know, probably in retrospect were dilutive in terms of the value, but I would go anyway. And looking at that early portfolio, I mean, it's pretty, pretty shitty. Yeah, I don't have time. At Bay Words learned a ton, mostly about process and how to even like, look and evaluate a company and what makes a good founder. I think you're just building that pattern recognition that takes time. But that's. Yeah, that's how kind of slowly creeped into it.

What were some of the, like, not. Not don't. You don't need to mention a company. But like, what were some of, like, the biggest, like, noob mistakes that you probably, like, wouldn't make today?

I think my biggest learning, if I look back, I've been at SUSE for six years and then I did two years of angel investing before suse. So over those eight years, I think the single biggest thing that's changed in my way, I invest is I used to believe there I Should try to quantify investing into a checklist or into like checking boxes. Right. It has to have all these things to make an investment. And I've now realized that like that is a terrible way to invest, especially at seed. And so back then I was, I didn't know what I was doing. So obviously as someone who's entering something and you know, someone who likes to solve problems and think creatively, like you try to come up with a framework, like I'll build a framework around investing and then I'll iterate on that framework over time, all these different levers and try to whatever Alex and I by

the way, have created about five of

the last year, go back to my old notebook, thrown everyone away, published all of them.

Yeah.

And now I think my realization is like the best early stage companies that I think of all of our successes we've had as angels. My team collectively and at suse, the. The team or the company had like one or two incredibly special things about them that overly made up for the boxes that weren't checked at the time that like quote unquote gave them like the superpowers, whatever. And we can talk about what some of those are, but that to me has been the greatest learning. And so some of those early angel bets at the time they seemed reasonable, but the reality is like there just wasn't anything truly about them and they just kind of struggled. Right. There wasn't any big breakouts. And as you know, and we can talk about like venture truly is driven by the outliers. You hear that before you go into the business, but it never really sets in until you look at your own portfolio and your own numbers and you're like, holy shit. It really is driven by the outliers.

Right, Right. And like most, most of it just

doesn't, doesn't move the needle.

Yeah.

Yeah. Now all those companies are important in their own right, et cetera. But like for a purely financial, crude looking standpoint at venture.

Yeah.

We could talk about, you know, happy to walk through some of the numbers of like how stark that can be.

Yeah. So you, you did some angel investing just basically solo. Right. For the first couple years. And I think we met around that time and you were like building relationships in the, in the community. I guess. You were in New York too?

Yeah, so I was living here 2012 to 2015.

Right.

Like drove. I, like when I left that company in sf.

So I mean most of your investments were here. Like how did you. Yeah, how did you think about that from a. Like you obviously Grew up in the Valley.

Yeah. Yeah. When I left the company in sf, I realized I needed to leave this place. I've been here forever and if I don't now, I'll never leave. So I just packed my car up and drove to New York City, skied my way across country for a month, moved here. Didn't really know anyone, so really had no context for the city. Was very intimidated by it. It's the best thing in the world. Obviously now I now know that. But yeah, I didn't know anyone and I didn't know what I was doing on the angel side. So, like, most of the companies were here, but I had no strategy. I didn't intentionally think, like, oh, should I build a distributed portfolio? And like, should it be over multiple years? I didn't think about any of that. It was just like, meet companies and like put super small checks in interesting ones and see what I can learn.

I wonder if we had any co investments from that era.

Maybe the cap tables I remember back then were like two institutional firms and then like 75 random names. You've never heard.

Yeah, that's right. Well, that was also the. There was a lot of the like party round.

Yeah. I mean, I think if you were raising a company in New York in 2012, 13, you just scrounged together capital where you could, and it was a bunch of people writing like 5 and 10k checks and then like a couple of the early institutions here who are now big, you know, well known. But yeah, it wasn't, it's not that long ago that it felt more nascent here.

So how did you go from angel to suse?

I met the team that became the founding team at suse, which was Leo, Seth and Eva, kind of through a securitious route of friends, work friends, social friends, whatever. And we were all different ages, different stages in our careers, but, like thinking about the same thing, which was we were all doing angel investing. We were all thinking about that every minute of the day. Like, I was truly obsessed with thinking about startups, companies, the whole process of investing, what I was learning, cap tables, all the documents, all the terms, and

you were all just basically informally collaborating. You were friends.

We were like an informal syndicate of angels who would look at deals, talk about them, and then the people that liked to invest and the people that didn't, didn't have to. And then eventually.

Great way to learn together.

Yeah. And then eventually. And I would recommend that to anyone. I think being an angel today in a lot of ways is easier in that there's so many ways to learn. I mean, you have FRC's Angel Track and you have AngelList syndicates that can put leverage behind your capital and there's a lot more online material around it. And it's also harder today because there's just so many companies and so many people doing it. But that's what we did. And I think getting a group together is a really powerful way because the reality is everyone has a blind spot and you can augment that with other people. So we look at stuff together and we all were very different people and eventually had this conversation of, hey, this is actually really fun. Everyone's like, I kind of want to do this full time. Maybe we should all leave and start suse. Look, in retrospect, it was a terrible idea. We had known each other for a relatively very short amount of time.

Were you all here in New York?

No, we were in three cities in the U.S. we didn't spend that much facetime together. I was in New York, my partner Leo was in SF and even Seth were in la. So we were a distributed team that didn't know each other that well that didn't have an investing track record together really that were trying to raise a fund first fund. Terrible, terrible decision.

But you raised.

It took us 11 months to raise 25.

So that's. I mean you got there.

I remember our CRM was 50 institutional meetings. We had 50, 50 no's so we didn't land a single institution.

Okay.

And it was just a. We ended up with 74 investors. Yeah.

So it was like the startups you were investing in.

Yeah. Long list of known and unknown names. Great. So everyone was tapping their friends of friends and friends. And I think the one thing, a couple things we did that to any new manager thinking about starting a fund I would recommend is one we started investing right after we raised a little bit of money. So we close on that capital and just start putting it to work because then we could build a portfolio where like the next LPs could actually look at a track record. They could say, hey, these companies fit the thesis these folks are saying they're going to go invest in. Fits the type of companies, the valuation ranges, the ownership percentages, like it makes your strategy real. And that was huge.

Yeah, there's a huge difference between pitching the story or having a pitch deck and then actually being able to like

point to points and. And also, you know, kudos to all of our first fund investors. I think at the time, you know, looking back on, in retrospect, like that. That was a pretty tough thing to back a group of people that kind of knew each other, didn't have a track record. And it was a first.

Had a little bit of angel track record. Maybe not realized, but yeah.

Yeah. Our partner Seth, definitely had the longest. I mean, he had some. Some real companies because he started going to YC in 2009. But the rest of us, it was pretty early. And as we know, like, it takes a while to know if companies are good. So we definitely, most of us hadn't been investing long enough to know if any of these companies were really good yet.

It probably benefited you because you didn't know either way.

Yeah. Good data can run a good story.

I'm curious how you each augmented each other. So you didn't know each other that long, but I mean, you're still working with Seth and Leo. I think Eva has moved on. She runs Fika.

She runs Fika.

Great fun.

Yeah.

And so she's doing well. What? What? Yeah. How did you augment each other? I'm curious. Just you personally, like, where. Where do you think often your blind spots are? What's your superpower? And how does that compare to your other partners?

Yeah, it. I'll start with a funny quote. So Fred from Horsely, to his credit, when we were raising our first fund,

I remember this is Horsey Bridge, Horsley Bridge.

Amazing. Yeah. Funded funds LP and based in San Francisco and almost all the big top good funds. I remember getting an intro to him, and this was kind of like the highest profile LP intro I'd gotten at the time. And he responds to the email, and I think he'd be okay with me saying this. Straight up. He goes, the answer is no, but I'll meet with you anyway to hear your story. And so I deeply respected that because it was passed.

It was passed.

It was passed before meeting. Before meeting because of the things that I just said, which, like, were an incredibly risky investment. Um, and it felt amazing because so many LPs actually dragged us through this long process. Institutions only to pass for reasons they knew at the start they'd pass for. Like, oh. Cause you guys are in different cities. We're like. But you knew that meeting won, right? Like super weird.

Right?

Um, and now sitting on the other side of the table having to pass on entrepreneurs, I often see other VC pass emails with total bullshit too.

Yeah.

Um, so anyway, met with Fred passed, but we got to know each other. They ended up coming in our second fund and being our anchor. And they've been our anchor in our third fund as well. And they've been fantastic partners. But I'll never forget one of the quotes they say when they committed to our second fund. Like, look, we are so excited to anchor this fund and become LPs. But to be honest, you guys are a strange group of people. And I think what he meant by that is like they said that when

they committed to investing.

The three, like Seth, Leo and I are very different individuals. I always say my partner Leo loves three things in the world. He loves his feral cats that that don't allow him to pet them. Very strange. His wife, who he deeply adores and she's incredible. And venture capital. Like, those are the three things that his passion is life. Like, he's really heavy on Twitter. He's incredible at it. His online presence and blogging. And that's kind of where he excels. Is that. And he's an engineer. Background extremely first principles, deeply rooted in logic over values, traction and where the business is today. And just does this make sense more so than the person? I'm a little bit in between. I definitely kind of value where the company is today, the traction of the business. All those things that go into evaluating the current company. But I also heavily, heavily weight team. I think team is extremely important. I think one of the greatest gifts I got from my mom was like a generally good ability to read people and get along with people. Kind of be a chameleon. One of my strengths is can kind of get along with any type of person, whether it's a salesperson, kind of engineering, whatever, can try to get along with them. Which I think is actually an underappreciated aspect of venture capital today. In a market where there's so much capital like winning a deal. And we can talk about the kind of the three pillars of winning a deal, in my opinion. But one of them is just do you get along with the entrepreneur and how do you make them feel in every touch point with them? And then my partner Seth over indexes almost 90% on founder and totally kind of discounts where the business is today. Like you're doing 200 million in arrival. He doesn't really give a shit. Because if you, if he thinks you're not an entrepreneur that can like take this thing to 100 million, then the way venture math works is like, that's not a bet we should take. And so between the three of us, I just think we're pretty well balanced across all those. And so when a company comes in, we can index across all those different factors. In a way that, you know, we've actually looked back at all the investments we've made. We rank every investment with the time we make a decision. We use the Google Interview voting ranking system.

How does that work?

So it's a, it's a one to four.

Okay.

Four means you have a framework after all. Yeah, well, no, this is the voting to do a deal.

Okay.

Not checking boxes about a company.

Okay, got it.

And actually it's interesting if you look

at all of you, every time you make a decision, you guys each vote.

Every time a company comes to a partner meeting.

Yeah.

We log votes.

Okay.

So we have a large data set beyond just our own portfolio, which is any company that's ever made a partner meeting. And what's interesting is like the collective vote as a team is a far better indicator of success than any of our individual scores. Like, the collective team makes far better decisions than any individual, which is.

Is that right? So when you look back at, at the, at like some of your biggest successes, like everyone loved it. Yeah.

There is, it is more statistically significant that the team's average vote is better indicator of success in a company than any individual. And so like we would be. We are more successful than any of us would be individually, which is like an interesting dynamic amongst. When you try to build a team. I mean, that is the goal. And we finally have the data that actually supports that.

How does the voting work?

So it's one to four ranking. Four is I am for this and I would fight strongly for it. Three is I'm for it, but I wouldn't fight strongly. Two is I'm against it, but I wouldn't fight against it. And one is I'm blocking. And so.

And if someone doesn't want, it's like not, not going to happen.

You that you literally can unanimously. You can block a deal.

Yeah.

The other two could be a four. And you.

And you do this blind everyone.

Yeah. You can't see other people's votes. You do it blind. You do it after the partner meeting and after a long debate amongst the firm about the company. So you get the ability to talk your points, have that open dialogue about the business and then we vote.

And the scheme, is there like a threshold or something?

Yeah, the scheme is you have to have one person that's a four or close to a four. So you have to have someone fighting. Yeah, you have to have at least one other person supporting. So that could be a 3 or a 4. And then you can't have the third person be a 1. So you can come up with 4, 4, 4. You can have 4, 3, 2. You can have 4, 3,. Right.

But not 4, 2, 1.

Exactly.

Or not 4 2, 2.

Even 441 or 4, 3, 1. You can.

How many more combinations are there?

There's a lot. The interesting. I mean, there's. There's one broken part about the process, which is in venture voting, A1 is very dangerous because as famously said in venture.

Right.

You can make 100 extra money and you can only lose 1x. So blocking a company that becomes successful, man, that. That's.

Has anyone ever done that at suse?

I can't. I can't reveal that.

Okay, so. Okay, so. So the first fund you did get raised, it's $25 million. It's. It's the four of you. You had all been angels. So beyond just. I mean, you had a little bit of experience trying to find investments and. But how did you. It's probably the first time you've ever been thinking about, like, a portfolio, like, portfolio construction. Like, how do you build a portfolio of companies together? Like, where did that learning start happening?

Yeah.

Or was there a very specific strategy up front and you just executed it?

I think building that first pitch deck is where you start to realize, wow, I need a portfolio strategy. I need to think about a reserve strategy. How many companies. Companies is the right number? What should our check size be relative to the average seed round today? What does that mean for our ability to get into good, competitive deals? We hadn't thought through really any of that until we were like, how do you raise a venture fund? Oh, you have to make a deck. How do you make a deck? What are the components of a deck? And that's where we leaned upon, like, we were lucky that we had known folks in the market who had raised funds. We definitely got, you know, learned from people who had done it before.

Yeah.

And obviously, the LPs taught us a lot. Like, when you go through that many LP pitches, you realize what they care about. Yeah.

And you realize what's broken.

I frankly love fundraising. Some people don't. I love it because you get to talk to all these really smart people, and they usually do other parts of the financial sector, but then just private equity and venture capitals. You get to hear about how smart people think about the whole finance system and specifically talking about venture. They're breaking down how they think about portfolio construction or their biases. I mean, we share an lp and Tana Capital are fantastic. They obviously overweight ownership. They believe you should have big Ownership at early stage. Their thinking has totally changed our thinking in. In a good way. Right. You shouldn't always listen to all the opinions, but you can take all the data that everybody has, then formulate what works for you. I think the one thing we've realized is there's no right way or wrong way to build a venture fund. Just build what works for you. Right. And that's from platform teams to boutique firms and whatever. So.

Yeah. What was that strategy for suseone? What did it end up being? I'm curious, like what was in the deck and then what did it actually end up being? Yeah, I bet those were probably a little different.

We were actually pretty good at sticking to plan. So after all those discussions, one of the big realizations we had was small funds tend to outperform. Kind of point one. Point two is if you can scale your check size in the market with your brand, you're going to get into disproportionately a higher number of companies you want to. Right. Than you wouldn't. Right. And the simple example there is if you're writing a check that's way above your brand in the market, you're going to want to get all these deals but like there's not going to be room. There's other funds of bigger brands taking that check size that you wanted. And so we felt very strongly that start small, 25 of 4 people was. Yeah, we were probably the only $25 million fund in the US with 4 GPS. And you do the math, right? 2% management fees. We're spitting off 500k in total income. That's after everything, salaries, whatever. So we decided 250k. At the time, seed rounds were kind of like a million and a half. The market has changed a ton today. Obviously we thought we could get 250k into deals. We couldn't write a bigger check than that. No one knew who we were. We had no brand. And so that's where we're going to start. And actually in our first pitch deck, we actually had the 10 year vision for SUSE, which was fund one, fund two, fund three. And the idea was to go 25 to 50 to 75. Like very methodical, very linear. We're going to scale our check size uniformly amongst that and we were going to scale our ownership percentages amongst that. We're going to scale the number of deals we led from 20% to 40%, 60%. We had this very kind of like logical path of growth that I think LPs really loved because a lot of people that saw success with early fund, they would jump to a much, much larger fund and they would have adverse selection in the market. And so we had this slide that kind of laid out that growth plan. And actually what's funny is we've deviated slightly from it in terms of our last fund was slightly bigger than 75, but we stuck pretty close to it. And we almost hit our ownership targets. Exactly. We almost hit our percentage deals. We led. Exactly. The only thing we changed was in our fund one, we had a reserve ratio for every dollar we invested up front. We invested $2 in the back end. The only change we've made is we've gone to a one to one model.

Yeah.

So more dollars early dollar cost average earlier. So you truly look more like a seed fund.

Yep.

I think one of our criticisms of seed funds that are too large is you end up having so much reserves that you actually look more like a series A fund on the paper or B fund or a B fund in some cases on where you're putting the actual dollars to work. So that's the only change we made. And that's like kudos to some of our LPs, horseleens and non others who helped us think through that aspect. Right. But that's really the only.

It's actually amazing that you've.

That's the only change we made pretty much executed,

obviously. And you couldn't have really. So how has the market played into that? Because the market's changed a lot. But it sounds like you guys, it hasn't really affected too much of what you do.

The market has changed a lot. But we believe that that discipline, which frankly it does take discipline to do these things. I mean, I think in a lot of ways what made like the FRCs and the baselines and some of these other kind of perennial early stage funds successful is their discipline on a stage, their discipline on not growing too fast. Right. And that is what has enabled them to be successful in my opinion. The market's changed a ton. I mean that's the only deviation we did from our plan against due to a market change was this latest fund. Instead of 75, which was our third fund, we did 90 for the early stage fund. And the only reason we did that is seed rounds have increased so much that our original plan of writing 750k checks in our third fund, it wasn't going to be a material enough part of the rounds today, which are three to four or two and a half to four, that we had to write a one point or 1.25 to even be in the conversation for lead or co. Lead.

Right.

So that was the really the only change we've made to the existing market.

From a firm perspective. Like how have you evolved SUSE from fund one to fund two? I mean beyond just check size and number of companies and stuff like that, how do you think about. Curious how you're thinking about how you built a. The actual firm has evolved.

Yeah, it's a great question. So because you don't have a big

platform team and no, you know, it's still you, Leo, Seth as the partners.

Yep. Yep.

Maybe have a couple other folks working there but it's. It's a small team.

Yeah. I think we had, we've had, we have conversations constantly about what type of firm do you want to be.

Right.

I think our belief is sticking to the original plan is a really strong position. So don't get chased in too many directions. There's a constant conversation amongst I think all funds which is the debate of the first round versus the benchmark, the platform versus the boutique investing firm with just partners. I think we've erred more on the boutique investing firm with just partners. So spending more of our time just investing, working with entrepreneurs. But I don't want to discount the value of platform and services because when done well, which I actually think not that many firms do well, but when you do it well, it's incredibly powerful. And so the way the real inside baseball for our firm, we put all these ideas on the whiteboard of what we think we wanted to offer our portfolio in terms of services and stuff and we tried to identify what are ones where we think they are high value but also not commoditized already. And I think the short story is we have some of those in the works right now, not fully announced yet, but over this fund and next fund we'll start rolling those out. As a simple example I think and we just talked about this right before we turned the mics on which was I think venture firms have done a credible job at content. Incredible job on like Twitter stuff. Incredible job. Even podcasts becoming more popular. I think like video media, like really rich storytelling using video actually isn't that well done in a world where like that is the predominant storytelling medium and probably the richest storytelling medium. If you think about what's happening on YouTube or even some of the short form video about TikTok et cetera. I'm not saying like every should go be on TikTok because I don't know if that's the right platform or maybe it is opportunity. But like that's an example of one where, you know, we just tested out with one of our companies called Stored in Atlanta that we collaborated on a video just to tell the story of that company and it was awesome. They're using it in their marketing collateral. We'll publish it soon. And that was like a super fun project. So that's kind of how we're thinking about it. More boutique and then looking for areas that we think like not that many people are doing it. That could be really powerful for the portfolio.

What do you think of this market today?

Yeah, I mean it's toasty.

It's crazy, right? Like how do you so even, you know, given your guys experience, you guys have been investing for, you know, I don't know, seven to 10 years now. You're not a first time fund anymore. You have what sounds like amazing institutional LPs and hopefully you're going to do this a long time. Like, but there are so many firms. Yeah, there are just so many. I mean we, we think about this a lot. Like how do you, yeah, how do you, how do you think about the market today and winning and does, and maybe it doesn't matter. Like, does it, does it matter that, you know, you only win one out of every five deals? I'm not just making that number up. I'm sure you win every deal.

I appreciate it.

Like, like how. What do you think that means for venture?

So we, we talked about.

You win a deal. By the way, told me you were going to.

Yeah, yeah, we'll talk about that. So first, first question. First. We, our opinions like you can do two things about a hot market, overhyped market, a lot of firm market, whatever. You can either like be bummed about it and talk about how much it sucks all the time or whatever, or you can just be like, this is kind of good in that like if we are in business, like SUSE exists because we believe entrepreneurship is the lifeblood of progress broadly defined in the world. And entrepreneurship is not just like someone starting a company. It's like it could be an employee in a company, like taking risk and building something inside it could be a social entrepreneur, it could be whatever. Right. We broadly believe entrepreneurship is powerful. And the reality is entrepreneurship is people taking risks to improve something in the world. Right. And a lot of those things need capital. And so I kind of, you know, I. And we take the optimistic view that venture is crowded right now because there's a shitload of opportunity. Venture specifically, if you look about macroeconomics has become this like you know, return generation engine. Sure there the average performance of venture funds suck but like there's no question that technology is becoming more mainstream. It's driving more of the returns in the macro economy. I think it's partially because we've been built on the successes in the previous kind of shoulders of giants in the past that technology is now infiltrating every part of the entire economy. I think one of the things I believe that I'm not sure everybody does is I don't think this is a cyclical thing. I think this is the new norm. I actually don't think this is going

away as in just venture has and will continue to grow as an asset class period. Yeah, look if anything it could, it could welcome a lot more capital.

Look over time project the next 10, 15 years out there's going to be times when we're going to invest less capital per year than the year before. Tourism be minor dips and peaks but the average trend line in my opinion is going to be up. And I think that's good. Like test more ideas in the world, build more things. Some stuff's going to work, most stuff won't. But the only way to actually build like game changing companies, whether it be in enterprise software, health care or whatever is going to be to trial these things. And so our opinions like we, we are excited by that. I think it makes our job more fun. There's more things to look at. I don't know. We try to take the optimist view of it. Now your question around how do you win a deal is a good one as coming out of that because the reality is like as an individual, that's the macro. As the individual fund it is harder.

Yeah, there's no, there's no question, there's very, it seems like well maybe if you go back to the Kleiner days of old, like they would find some founder off the beaten path, everyone would come or everyone would come to them and, and, and, and there weren't that many folks to compete with and they would give them a term sheet and you know, they could price it.

However business plans were shipped to them.

Right.

In packages. Right, right. And you would kind of read it and evaluate.

Right. And then set the terms however you please.

Yeah, totally, totally.

So, so now I mean it seems, I imagine it's very rare for a founder to walk into SUSE and that's the only firm that they're chatting with.

So there's almost that actually happened to us last week Someone knocked on their door. We opened and we said, hey, can we help you? We didn't know who they were. And they're like, oh, hey, are you guys a venture capital fund?

Yeah.

We're like, yeah. And they're like, well, I want to pitch you my business.

Right. We should have done the deal.

And we're like, that's amazing. You just showed up. That's pretty epic. We told him to send, like, at the time. We didn't. Yeah. We were like, can you please email. Just email chatventures with your thing. I was like, this. Pretty awesome. It felt great. It's very rare. It's only happened once. Yeah.

So there's other venture firms, so. Yeah. So how do you. What? You know, how do you. How do you win other than. Other than maybe price? Price is one way to win. Right, Right.

So I think there's the three most important things from. From a winning standpoint. So winning, I take winning as you've already seen the deal, and every deal we see at seed, now that we consider good is competitive. I'm not sure we've seen a company in the last year that we've competed on that we were the only term sheet. So in that world, how do you win? I think there's boils down to three things. One is speed. In our opinion, if you are not making a decision from first meeting to term sheet in a week or under a week, you're screwed.

Wow.

Okay, so you have to figure out all your internal processes and does that mean.

Right. Does that mean that every partner at SUSE has. I mean, in theory, if everybody's voting, you all have to meet.

You have to be like that. The only way to achieve speed today is to develop internal processes that are extremely efficient and be hyper sensitive to how you spend your time and. And kind of annoyingly sensitive to what is the highest ROI this next hour. Right. So when I say to my partners, hey, cancel your next meeting, I need you to come in and meet this company they trust. Based on what I've done at the firm over the last six years, that that is a good decision and we will do that. So I think speed is enormous. Enormous.

Do you all have to meet with the founder at the same time? Like partner meeting style? Or you guys can you each meet separately and then you vote separately?

We literally do whatever we can to make it work. So sometimes it's separate, sometimes it's all together. We prefer it all together because you can hear other people's questions and we think that's a better Founder experience. But if it literally doesn't work, then we do it separately. And I think that's the one area where newish funds, I still consider us newish, can out compete the incumbents because I think most incumbent firms get a little bit slow. So I think speed is huge. Two is I'm the biggest proponent of your brand is what your existing founders will say about you. That is, in my opinion, that is the only brand of a venture capital firm. When you ask what is the brand of a Sequoia, it's no other words come to mind than oh, they're the folks that backed PayPal and Amazon and Google and whoever. Actually not Amazon, But Google and PayPal, whoever. Right. That is like the brand of a venture firm. That is what you can, you want to get to a point where your portfolio is so well known it becomes your brand. Right?

Yeah.

So yeah, we over index on introducing every new founder that we want to invest into as many portfolio founders as humanly possible. And we offer them, say please do as many blind references as you possibly can because that is the only way where rubber hits the road. Like that's all the work you did day in and day out. Doesn't matter what you say as a gp, like you can't fake that part. So I think that's point two.

And you'll just say, hey, look, you can go find all the companies on our website. Just call, just call, email.

You pick the companies. Here's three, I think that are in your space, that are in your space or your geography that are particularly interesting for you to talk to. But literally pick anyone and we'll introduce you. Because that's the only way that like in my opinion, I tell every single founder like you should do that for every single one of the funds that wants invest in you. That's the best way to get to know a fund.

Yeah, I do like that, that, that approach a lot. I think, I think actually David Tisch

I think does that and they're, they're incredible. So the portfolio speaks highly, right?

Yeah. Because if you're, if you're recommending the companies. So I mean you can recommend, I think like you said, like, like if there's specific founders that are relevant to that founder or, or sometimes I even like, if there's a company that could actually be like a, a customer, they do a reference call, but also they maybe like walk out with a customer too. Yeah, those are pretty good. It's huge.

But you picking the companies is the same time when an entrepreneur like she or he says, hey, talk to these three other companies and you get on the phone.

Or customers. Or customers.

No, that's what I mean, they're customers. And it's like, oh, how do you know the founder? Oh, it's my sister.

Yeah.

And you're like, oh, that's a helpful data point. It's not as helpful. Yeah, so, yeah, we think of the same way.

And what.

So those are the, those are the two. And then the third for us is. The third for us is how you make someone feel. And so we talk about this internally. It's literally in all of our pitch decks. Like what we want, we call the SUSE experience. We are big, big believers in how you make an entrepreneur feel in the process of getting to know your firm. And this goes beyond the questions you ask, but this is like the interpersonal stuff. This is like how you treat them. This is how quickly you respond. This is how you're on time to the meeting. This is how much you prepared for the meeting. Like every single one of these little things that leads a founder with a founder experience that we think is invaluable to winning a company. And in our opinion, and we've polled our founders on this, they say like that level of experience they had, like the emotional thing is a huge indicator of who they end up picking. And so we've spent a ton of time internally, like drafting what is the full touch point, what does every interaction look like. A simple example of this is right after we meet. Maybe I'm revealing things I shouldn't from a competitive dynamic. But like right when we're introduced to a company, we send them this, like really well designed one pager, which is our portfolio. Exactly. Our process that they'll be going through with us end to end, the things we care about, what our thesis is, how we think about the world and companies. Like, that's just a simple example, but like draw that out.

Right.

So those are the three SV angel

used to do that back in the day.

They're good. They used to send like a blurb.

Yeah.

Now Kevin still does it. As an angel.

I know about like the whole firm and who they are and I always liked that SUSE, 4, 5, 6, 7, 8, 9, 10.

Yep.

Well, I guess you mapped out the first three.

Yep.

Right in the original deck. Now you're on the third. So like, what do the next three look like?

This is the plan. The plan is more of the same. We think seed funds can't exponentially keep growing. So we are going to actually slow down the pace of growth on fund size to the next fund. We are a $90 million early stage fund this time. I think the next fund could reasonably just be 100. I think once you get too much capital. We talked about some of the things that the difficulties there. The one thing we launched, the last fund which is new for us, is our First Opportunity fund and that is allows us to invest in our big winners. In the past we've done SPVs in like the Robinhood and Flex ports in the portfolio and so this allows us have a dedicated vehicle to go do those. I could see us doubling down on supporting our companies well past the ABC infinitely. Like we think if you get lucky enough to partner and with a really, really good company, just put as much capital as you possibly can in. And so I think we'll stay extremely focused our entry point at seed and then raise pools of capital, allow us to back the very best companies in the world for as long as we possibly can back them.

Amen. Thank you man. I really appreciate it.

Thanks for having me.

Thought it was great and yeah, a lot to aspire to actually. I'm definitely gonna go make that rating system.

I appreciate you having me. This is awesome.

Thanks man.

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