Demystifying Venture Capital - Chip Hazard - Flybridge - Episode #67

Hello, everyone. Today's episode is a special one. It's the first episode of a new version of the podcast called Investors Unfiltered. I'll be interviewing investors, angels, VCs and PE investors. My goal is to demystify the other side of the table by having investors share information that'll help founders and CEOs when it comes to fundraising, investor management, and more broadly, just understanding what's going through the investors minds and how they see their role in this ecosystem. I hope you enjoy the first episode of Not Another CEO Investors Unfiltered.

Welcome to Not Another CEO Podcast. I'm your host, David Politis. Every week we talk to inspiring leaders and get the true stories, the ups and downs, the lessons learned, and come away with actionable advice for our own journeys.

Today's guest has been in venture capital for more than three decades. Chip Hazard is the general partner and co founder of Flybridge. Before Fibridge, he was a partner at Greylock. Over the course of his career, he's invested hundreds of millions of dollars in more than 70 companies. Chip has backed some of the biggest names in infrastructure, software, AI and B2B SaaS including MongoDB, Firebase, Stackdriver, and Nasuni. I've known Chip for more than a decade. Flybridge was one of the first investors at Better Cloud and he is the rare combination of low ego, high IQ and a true passion for technology. And maybe even more importantly, for helping founders build. Please welcome Chip Hazard.

Hey, David, thanks for. Thanks for having me. It's a pleasure to see you behind the screen and microphone. After seeing you behind the screen and microphone and in action at BetterCloud, I went into the SWAG archive and pulled an old Better Cloud shirt.

Oh my God. I don't even have that shirt anymore. So thank you for doing that and thank you. You're my first guest on the VC version of this podcast, so thank you very much for doing this.

The podcast is going straight downhill when you're talking to VCs, but we'll. We'll do our best today. Thank you.

All right, first question I'm going to ask every vc. What is the one thing that you look for in founders and companies you invest in? Just the one thing.

Yeah, the one. The one thing's hard. Passion is probably if you give me one thing, I'll give you passion. We think about sort of looking at founders with sort of two frameworks in our mind. One is what we call the minimal viable founder, which is sort of a combination of domain expertise and obsession. As it Intersects with you know, sort of high degree of self belief and understanding that they can really go make something happen in the world. And someone who sort of thinks unconventionally. And so if you, if you have two of those, if you have a lot of domain expertise and a lot of agency, you might be a great CEO, but maybe not a great founder. And so that unconventional thinking sort of puts you into the realm of a great founder. We also spend a lot of time thinking about sort of non resume things when we, when we're sitting down with founders, it's, you know, what's the evidence of perseverance and grit in their background? What have they done that that you know, shows that they can ride the roller coaster ride of being a founder? Know, do they have demonstrated ability to, to work hard? Obviously work hard comes a lot from passion. If you're working on something you believe in, it doesn't feel like hard work. Do they work at a very high clock rate? You know, startups are all about speed. Startups wait on speed. They don't have anything else other than the ability to execute fast. So that's super important. If you put those things together, you tend to find people whose enthusiasm is infectious. And, and that infectious enthusiasm helps them get those first customers, helps them raise money, helps them make the critical hires, bring on important partnerships. And so that we call that sort of Pied Piper capabilities. And again, if you add all that together, you also tend to hear a lot of founders say, oh, I got lucky. And luck is not something that just happens. Luck is something that's a mindset and it become, comes from your open mindedness, it comes from your ability to put yourself out there and that's where connections happen. That may seem like luck, but it's actually luck that you've created yourself.

How, how do you assess that in a pitch? You know, you meet a founder and they come in, they pull up a deck and they start pitching. Like how do you assess those, those things?

Yeah, some of the things obviously the, the passion and expertise come out in a pitch but a lot of them that those are non pitch things. And so, so our typical process, if we have a.

A pitch we like, you know that classic 30 minute, get to know each other, tell me what you're working on, tell me what you're building pitch and I really like it. The next step for me is like let's sit down together as a person, get to know you, get to know what makes you tick. That one on one, no slides up.

Sort of session, if you will, is, is the way you try to start to tease apart some of those things that may not come across immediately in a, in a more formal pitch setting, if you will.

How, how long do you think it is between meeting someone, that first meeting and kind of getting the feeling, not saying I am going to invest, but getting that feeling, like gut feel, kind of like when I'm interviewing someone to hire them, you know, you kind of get that gut feel. Like, how long does that take for you to get that?

Yeah, I mean that gut feel is, is that first pitch, right? It's that first session, you know, sometime in the first 15 to 30 minutes. Like, oh, I could totally imagine working with this person for the next 10 years. I, I'm excited about this space. I share their excitement for this market opportunity. They seem like a great person to be pursuing that and building that. You, you pick that up really fast and then, and then the subsequent sessions are, you know, testing your instinct, if you will. You know, I had that, I had that immediate reaction. You know, as I dig in, do I get more enthusiastic? And that's obviously a good sign. As I dig in, do I get less enthusiastic? Obviously that's not a good sign. But the finest point in our funnel, if you will, is the step from the first meeting to, hey, we really want to dig in here and we really want to spend time together.

And with Flybridge. Can you just talk maybe stage wise, where are you as investors? Because I think that also matters to this discussion, for sure.

And I always think, you know, one of the things about venture capital is it's not a monolith, for sure. And it varies based on sector and stage and geography and other things. We, from a firm perspective are 100% focused on pre seed and seed investing. It's probably 30% pre seed, 70% seed investing. We're 100% focused on AI and we're largely investing on the, on the east Coast. We have offices in Boston, New York. At the early, early stages. This tends to be a local business. And so the majority of our portfolio will be in those two geographies.

But you've seen, so you've seen companies obviously at all the different stages. Do you think as a later. And you've done later stage and investing, you know, not all the way to the end, but like you've done later stage investing do those things, you look for change based on the stage, for sure.

So in the early stage you're, you know, you talk to venture capitalists, it's always kind of boring. What are we looking for? We're looking for great founders going up for big markets with unique solutions. Right. And, and so in the, in the early days as a founder, you're pitching, you're pitching the dream, you're pitching yourself, you're pitching your view on this market, you're pitching a, you're strategy to go attack that market, how you're going to, you know, take one hill that's going to lead to another hill. And, and, but there's not a lot of data behind that. And, and so that's precede and seed investing. It's all about people and opportunity and unique viewpoints on that opportunity. You know, as you go to series A, a little bit early B's I always characterize those are sort of, you've got the dreamer side, you still have to pitch that vision and the big opportunity that you're going after and you're still pitching yourself. But you're also, you're starting to have metrics. I have evidence of product market fit. I, I can see usage and engagement across my customer base. I probably have some revenue that's starting to grow. And so that's sort of the series A pitch. And then obviously as you go B, C, D, later rounds, those tend to be much more focused on the metrics and so the metrics become a little bit more important. You've got a larger team and so you're pitching the team for sure and you're pitching the market opportunity for sure. But like what's the growth rate and what's my CAC and LTV and how do I think about customer engagement and our customers expanding in the SaaS world? Are you starting to see significant net dollar retention growth and all those kind of metrics that matter in analyzing the business. And so the weighting in the beginning is all team vision, market opportunity and then it shifts a little bit to, to the metrics that matter, if you will. But, but that said, you know, I'm on, I'm on the board of a company called MongoDB, which is a publicly held, you know, database software company. And if you go to their investor days, one of the first two or three things that Dave will talk about is it's the largest market in the software industry. You know, they're in $100 billion market as an example. And so, so even a later stage public company is still talking about market opportunity. But you need to back that up with business model and metrics and all those kind of things.

I, I, it's interesting because when I talk to founders that are raising pre seed Seed. I always say, you know, they have these slides and it's like, here's my pricing and packaging and here's my like seven year model. I'm like no one. I think most investors at that stage know that these things are not going to occur. And it is about the team, about your background. Why do you care about this space? And it's an interesting.

I don't know, I, I feel sometimes like the, the pitching doesn't match the stage.

Yeah, no, I think that's right. You're trying to, you're trying to force a, a set of sort of classic financial analytical discipline onto a story that, that, that can't have that by definition because of the stage you're at. Yeah. My favorite question in the, in a first meeting of the founder is like, why'd you start this? And you know, what was the journey that led you to wake up on some day and say I'm going to step onto this train and start this company? Because I, I just felt like I had to. And that's where you again, you get a sense for the domain expertise, you get a sense for the passion for that opportunity. And, and so that's important. You know, I haven't opened up a spreadsheet in analyzing a precede or seed stage investment and, and ever. And, and, and the model matters in the sense that it shows like if someone has numbers, like it shows ambition. You know, if, if, if the, if they say hey, I'm trying to build a many hundred million dollar business over time that obviously shows ambition, that's great. But I'm not in there in the spreadsheet saying oh you know, you know what's going to happen in the next five years and, and building some kind of model around that.

For me, I think venture, I think, I mean you've been in venture 30 years. Like has it always been the hits business that it kind of is, you know, where the one or two or three deals out of a fund return the fund is that, is that always.

Been, that's pretty much always been the case. I think it's gotten to be even more of a hits business over time. I think the, the degree of, of right that you're seeing in today's market and you certainly have over maybe the last, you know, 15 years. Like when you're right, you're really right. You know, our, our, our cost basis that MongoDB example is, is a dollar a share. The stock's currently at you know, 300 and something. And so when you're right, you're right, you know, 100x, you're right at 300x, you're right. 500x,000x. And so that is a, is a clearly what drives the hits nature of the business. And I think founders need to understand when they're talking to venture capitalists that is the mindset. And so it's not, you know, can this be a good return, you know, can I see, you know, a safer three times versus a higher risk one. But it has an opportunity to be 100XL. As a venture capitalist I'll always take the ladder. So founders I think need to understand that, that if they're pitching a venture capitalist, if they're raising venture capital, the sort of quid pro quo is like I'm trying to build a company that's going to be very significant in size. We're going after very big markets, we have significant ambition and we're going to try to do that over many, many years together. And, and if that's, that's sort of the contract if you will, between a, a founder and a venture capitalist, I.

I think that that is the mistake I made early on where even though I believed Better Cloud could be a big company, it was all around Google. And I talk to founders about this all the time. Like I remember going in, I tell people this story when I went to pitch Sequoia on Sandhill Road, first time on Sandhill Road, I was so excited and I went and I went into Doug Leone, you know, in the main conference room of Sequoia and I walked in and I started pitching him. He didn't even let me sit down. He's like, just pitch standing up. And I started pitching him and he five minutes he's like, this is not going to be like a billion dollar company. It's just not, it's not big enough, you know. And I left so dejected. I, I, I remember and I was like, and then it was over time that I was like, okay, I, I have to pitch this much bigger vision which is SaaS management and all of that. And, and actually, you know.

Now reflecting, I don't blame him for, for the pitch that I gave. I kind of don't, you know, it, it took, it took like a kind of unique view to look at the business at that time, like, oh, we'll fund this. But I get the, so that's why I tell founders is like no one wants to back. Even if the company's 50 million of revenue and really profitable, it's not going to make the VCs like the money that they, that they need. I think it's hard to understand, especially as a first time founder. I think that's like really hard to understand.

Yeah, no, I think that's really right. That's right. I, you know, that said, I think the, the part that you figured out how to do at Better Cloud and, and I think good founders do is there was nothing wrong inherently with the, I'm going to focus on the Google ecosystem, I'm going to dominate that. The analogy I always use is I like founders who sort of, you know, they, they think I'll use two different analogies, but they can like play out a chessboard and, and my end goal is to win the game, but I need to take the move in the following way. Or the other analogy is like I think about walking up the stairs and so to get to the top of the staircase I have to get up the first three stairs. And so for you, the Google focus or the first three stairs. All right, then once I'm there, now here's the next landing and I can go up those stairs and then I can go up the next stairs. And so if you are really thoughtful as a founder, you can sort of demonstrate an ability to be exquisitely focused. So I know what my initial customer looks like, I know how I'm going to go get them, I know what my value proposition is for those. And if I'm successful there, that's going to lead me to do, you know, more. And, and here are some ideas on what more can be. And if I keep playing out that more game, that's what's going to end up building a really, really big business. And, and is the sequence going to be the same? Of course not. You know, you may go deeper in one ecosystem before you broaden into another ecosystem. But ultimately all enduring companies, you know, they have multiple products, they have multiple distribution channels. You have to play that out. And one of the key things obviously is that as a board member and advisor to founders is, is how do you think about expanding and building that enduring business? Because if you go multi product too early, you're unfocused. If you go multi distribution channel too early, you might be unfocused. But if you ride the single product, single distribution channel too long, you're going to stall. And if you stall, obviously, then it's really hard. So those are the different things that we try to, we try to think about. We try to coach founders through as they're, as they're building and growing a business.

So one, so let's transition, you know, you've now made an investment in the company and it's early stage and you're working with this founder. How do you like to work with the founder? Is it in the board meetings every quarter that you have or every other month or whatever you do, the board meetings? Or is it one on one, like, how do you prefer to engage with the founders you have now invested in?

Yeah, I think in the, in the super early stages, like the, the, the formal board meetings aren't necessarily going to be super exciting. The, and so I tend to, in the very, very earliest of stages, three people and an idea, you know, three people, a little product, little customer momentum. We're, we're having sort of either bi weekly or, or monthly calls.

To sort of what are the key issues? What are the new developments? What do you want me to be aware of? What are you wrestling with? How can I help? You know, what introductions are you looking for? You know, that's sort of the cadence of, of those meetings that then tends to segue into, you know, a more regular, you know, probably not every month. You tend to go to every other month or five times a year of formal meetings. And then I tell my founders, like, like, well, we may have these, these regularly scheduled meetings. You know, call me on any issue is sort of my value proposition. And sometimes that's small. It's like, hey, you know, I'm.

You know, thinking about, you know, what should we be using for our cap table management software? And like, oh, I can tell you that. And sometimes it's, you know, medium. It's like, hey, I'm negotiating a comp package for an employee. What are you seeing in the market? And other times it's sort of existential. It's, you know, it's not working. And why is it not working? And what are the issues and how do we get underneath that? And so I am very much in the pull mode. Like I'm available. I've obviously been doing this for over 30 years. I've seen a lot. Call me on any question that's on your mind. If you wake up in the middle of the night, call me.

And that's the best way to sort of get value out of me as a board member. And then obviously as a board member. My role is to be a structure for accountability. I think we all do better when we're having to, to hold ourselves accountable. CEOs are holding their teams accountable and the, and someone holds the, the CEO accountable. But it's also, it's really perspective. It's it's, what are we seeing in the market? What have we seen over the years? The things that have worked in similar situations, not worked in similar situations. What are the introductions that we can be making? What are the key customers you're going after? What are the key employees you're trying to hire? What are the insights we, we see? Because we'll again have outside perspective. And sometimes you can be a little close to the.

So the grindstone is the founder and so pulling the lens back. And so that's what I encourage the founders to do that where I'm on the boards. And if the board meeting feels like it's creating work for the company, that's not the point. Something's gone wrong. If the board meeting is creating work, the board meeting should be an opportunity to align on strategy, make sure the team's all pulling on the same end of the rope, understand what's working, what's not working, and, and, and, and that's just the mechanism that it gets reported rather than, you know, something that's created bespoke for the, for the board.

One of the, I remember we, we worked so hard on this board deck. I remember so well and we showed up to one of the board meetings and I think all the board members said, wow, this is a really beautiful deck. How long did it take you? And I said, well it took us like weeks of work, you know. And they said, well that's really bad, you know. And I remember afterwards saying to Bart, man, this the cfo. I said that sucks. We just spent all this time to make it look good and you know, work through all this stuff. And, and it was, it was one of those. I, these are like those moments that I stick in my brain where you're like, okay, I need to, you need to report the information, there's governance and all of that. But, but taking all the time and all the team's time and everything to, to make this beautiful deck is, is, really, is, is not the purpose of, of the board meeting.

Yeah, no, I, I, what I tell people, you know, and this is true, I think for sort of early stage to mid stage companies is, is the point of the board meeting is to take an opportunity to sort of step back, like, hey, what have been the key developments in the business? You know, what are we doing? How are we doing?

And making sure that, and you can again use that internally for, for a lot of our companies they'll do the all hands or the internal meeting right after the board meeting. He's like, hey, we should celebrate these wins. We're doing amazing on these fronts. These are, these are the, the great new developments. What are the big issues and what am I wrestling with? What's working, what's not working.

How do we brainstorm around those? How can the board help? And, and, and that could be specific introductions or specific insights. And then are there, are there any big surprises like, like those are the four things I say to CEO like think about that in advance of the board meeting and that really informs the deck. I think the other thing for first time founders is there's this line that you want to walk. I see first time founders sometimes get hung up is like, oh, I'm doing what my board tells me that's 100% wrong. And the other end of the spectrum is screw the board. I'm just going to go do what I want. And what you want to be doing is largely, it's 80% telling the board, here's my game plan, here's my strategy, here's what I'm working on that you know, for things that aren't working as well. Do you have thoughts, perspectives, insights? You know, what am I missing? Is a way to communicate that I'm in charge, I'm running the company, I know what I'm doing. But also to make sure you leave room for, you know, different perspectives or different insights that might be helpful as you're, as you're, as you're building the business.

Do you think that I find that I speak to a number of first time founders who say what you just said, which is kind of, I don't need the, I'm not going to listen to the board. I don't, you know, something to that effect or this is my company or I don't want the accountability, I don't want the oversight. I don't know if this is true or not. In my 20 something years of working. It feels like that's become more prevalent recently because everyone has to be founder friendly. And the YC thing and the like, it feels like it's kind of trended more, at least from when I started my career to now. Is that me just seeing it more being older or is that like, is that true?

I think that's definitely true. And, and I'm not saying you need to get that from me or from your venture capitalists, but the idea that, that it's, it is 100 your company as the founder true statement. But the idea that there's not perspectives in the marketplace that can make you better, you know, the, you know, Even Tom Brady has a coach analogy. Like, like get a coach, get an advisor, network, you know, get someone. Because, because you can't, as a founder, know everything. And you should be always looking for outside perspectives and advice and guidance. And if you can get that in a good venture capitalist, that's great. If you don't have that in, in your venture capitalist, get it somewhere else. But, but you shouldn't just say, oh, I'm gonna, you know, do the hero effort because I think the hero effort is going to lead you to missed opportunities and get the perspectives that are going to help you build the business. And ultimately my interpretation of founder friendly is.

The most friendly thing I can do for a founder is help them build an amazing business that's worth tens of billions of dollars that's still here 15 years from now.

And so founder friendly doesn't mean whistle past the graveyard and don't point out things that are not working. It means we're trying to build an amazing business together and one that we're all going to be proud of and one that's going to create a lot of value and have a huge impact on the market we're trying to serve. That's the founder friendly thing to be doing.

Do you think that you are. I have spoken with VCs like at an event two weeks ago, I spoke with the investor who said they feel uncomfortable telling founders.

What they're seeing wrong with the business or challenge them in the board meeting or even outside because they feel it's a high flying company. They feel like when they come out to raise again, they want to do their super pro rata, they're not going to be seen as friendly to the founder or they've not had that much experience operating themselves. They don't feel comfortable saying do you feel that way now? Did you feel that way before? Because I've now heard that from a couple of investors actually in the last six months and I'm just curious if that's something you have experienced yourself.

Yeah, no, I definitely, I've definitely both experienced when I was early in my career and also seen, you know, across others. And, and so the, again the, the point is I'm not going to call a CEO out in a board meeting like that. That's not productive. But if I see something that like feels like it's not working and the CEO is maybe missing that it's not working, you know, then we'll have a one on one on that and be like, hey, you know, you know, here's my observation. I Don't think this is working. And if it comes from a place of trust and high bandwidth communications and an understanding of what we're trying to do, is what I said earlier, which is we're collectively trying to build an amazing company together, I think that tends to fall on very open ears. I mean the, the, the, the best CEOs I've seen, you know, they come in and, and the first slide is like how they're doing and it's like green, green, green, green. Everything's great, it's up and to the right and all the metrics are awesome. And the next page is Here are the 10 things that aren't working.

And that's like the unique thing about the best leaders is they're never satisfied. And so if you were pointing out to someone like, I know it's green and I am so excited about what we're doing, but gosh, it seems like we're maybe missing the boat in a certain area.

You know, they probably know that and, and therefore you can then corroborate around that and like, you know, you know, are CACs too high in a certain segment of the market or our head of Europe's not really working out even though, you know, everything's great? You know, those are the kind of questions that.

Will, will lead to getting ahead of problems before they become big problems.

You, so you've been on the board, I don't know how many many companies into dozens of companies. Um, and you've served on the board with a bunch of other VCs of all types. Is there. How. What is your opinion on the importance of board dynamics?

Yeah, no, I think that the board dynamics are critically important. The. So, so, you know, for, for all the goodness I just was articulating, like I've seen from really bad board members.

And, and you know, there's, there's some, there's the, there's sort of the no ops who are, you know, they just kind of come in and they haven't read the materials and they're just taking up a seat. So that, so that's sort of fine. You have the people who are like, point out the little knit, you know, like, oh, that, you know, you've got a typo on page 32 that, that's not going to be very helpful.

And then more importantly, there's the ones who can be, who can be destructive. They're, they're really focused on, you know, I don't know, internal issues with their fund or looking for a markup because they're Going fundraising and that may not be in the best interest of the company. And so, so you're trying to find people who are aligned, engaged, experienced. You know, I always tell founders like fewer board members are better than more. Yeah, I, I've, I've lived that talk. I've stepped off of boards when, when there's a new round and you know, an investor is, is, is dead set on having a board seat. I'm like, you can have my board seat. The company will be better.

To have fewer people in the room. You want to have a highly engaged, highly experienced, fewer people in the room. Independent voices that aren't just venture capitalists. Like that's how you put together a really good board.

I feel like, you know, just from what I know of you and broadly Flybridge, but I think you kind of pick your moments to have the conversations to make the statements. And some, some board members just like to hear themselves speak literally. I think some actually just like to hear their voice and it feels like you guys, I don't know if it's a cultural thing because I've not been, you know, I don't know how it is with Jeff and like I've been in the boards room, but that's what I understand. Is that something you look for like when you were bringing this group together, is it just some dynamic that's natural?

I, you know, yeah, I think it's the, one of my CEOs that, that we recently exited successfully.

He's.

You said you didn't, you didn't talk the most, but when you did, everybody listened. And, and that's the, that's the model we shoot for.

And that is a cultural thing. It's, it's again, the CEO's in charge, the CEO's running the company. We're there to support them and help them build a great business and that, and, and it's really identifying, you know, the most important issues. And on the most important issues we will speak up and we will dig in.

But otherwise we're not there to pontificate or, you know, that's not what you need. And so, so it's just trying to, trying to identify the, those most important moments. I, you know, I'll steal something from Sequoia. My, my friend Roloff at Sequoia uses the term Crucible moment and he's 100% right. You know, we've, we've talked about it. He did a whole podcast on the crucible moments at, @mongodb. They're like over a 10 year period of time, there was maybe eight or 10 decisions that really, really mattered. And, and so I think the perspective that a good venture capitalist can be, can bring is a. Is this one of those moments?

Because if it is, let's put all of our time and energy and attention to really getting the answer right. And if it's not, let's make a decision, move on and fix it if it's wrong. And, and so that identification of like, is this a really important decision or an important decision or, or a decision that we just need to make and move and move forward is, is obviously an important judgment call that I think, I think CEOs and founders are making all the time. But a, but a good board can help you, A good set of advisors can help you sort of understand where something is on that spectrum.

The repetitions that you have across so many companies. It's, it's actually something I'm realizing now. The last couple of years as I've been working with a bunch of companies, meeting a bunch of companies versus just having my own company. You do realize how valuable just seeing reps, right? Like you're seeing eight companies at a time, or 10 or 15 or across your whole portfolio, dozens.

Right, right.

And those reps give you a unique perspective that even the best founder, they're so into their own company, they can't even, they can't see that. And then in your case, you also have it over a period of a long period of time. So it's like now and over a long period of time, so many reps. I don't think I appreciated that. I'm not sure I appreciated that until even the last couple of years myself.

Yeah, no, I think that's, I think that's 100%.

What, what is something that founders don't, maybe that you think they misunderstand about VCs.

Yeah, we, we talked about one which is, which is sort of the, the VC mindset is again, we're trying to build something really big. We're going after big markets. We want to have a lot of ambition.

Success is defined, you know, not as three or four times your money, but as 30 to 300 or more times your money. So, so I think that's probably a big.

It'S not a misconception, but understanding that because it, it sort of impacts should I even raise venture capital?

And, and, and, and, and am I aligned with my venture capitalists? I think the other probably big misconception is the sense that somehow we're not on the same page. And again, there's enough experience in the marketplace of venture capitalists who are not on the same page that I understand why that's out there. But your job as a founder is to identify providers of capital and advice who are going to be 100% aligned and on, on the same page and, and share your goal for how big of a company you're building, what kind of company you're trying to build, how you're going to go about building it. And, and so, so finding that alignment is incredibly important. If you do find that alignment, then the, then the perception that, oh, venture capitals are somehow motivated by something else is. It goes out the window. It's like we are 100 motivated by the same things that are motivating you.

That's great advice. I. One of the best episodes I did on the podcast so far is with Sean Henry from Stored. It's a company in Atlanta. And he told me that he got to a point where he realized because of exactly this, he started asking potential investors who want, who were giving him term sheets to write their vision for the company. After he had done all the meetings with them and they were ready to give him the term sheet, he said, I'd like to know your vision for the company. Because he had one investor who had like a completely, literally, completely different vision, and he didn't realize to get aligned like that up front. I thought that was, I never thought to actually ask the investor to write their vision or tell me their vision, but it's such good advice because exactly what you just said.

Yeah, no, I think that's 100% right. And the, and, and I, I have not seen that, but I would encourage that, I would encourage all founders to, you know, obviously, if you're in a situation where, where you have multiple choices, like do your, you know, do the reference calls, it's 100% expected and I think encouraged by good venture capitalists. So, so I, I, I think that part's right. The, and just as a concrete example, like in the development platform world, which is where I spend a fair amount of time, you know, you could have a strategy A, which would be like, I'm going for adoption, adoption, adoption and engagement. Engagement, engagement. And I'm not as concerned about revenue. And strategy B could be like, no, we need to go out and get a lot of revenue early. Two very different strategies, right? And an investor may be like, I love this market opportunity. I love the product you built. You know, they could say all the right things, but if they think B, and you want to do a, you know, it's going to be a fundamental difference in terms of what are the key hires and how am I deploying capital. And, and that's where you run into conflict. So having a very clearly articulated strategy and understanding of that and making sure that is aligned with the type of investor you're working with is super important.

That I feel like is maybe I'm wrong. We feel like it's even more important in today's world when I've seen some of these AI companies that are running on gross margin of 0 or 4% gross margin but growing 5, 5 trillion percent a year. Right. And you know, but have 50% churn. But, and, and you kind of look at that and you're. I can understand why an investor could be attracted to that and I could also understand why an investor would not be attracted. But to your point, it almost doesn't matter as long as there's alignment that this is the correct strategy.

That's right.

To get to the end result.

Yeah, no, that's exactly right. Like when we launched MongoDB Atlas, which is the cloud database, I don't know, gross margins were very low and, but there was alignment around the board that this was a critical initiative for the business. We weren't focused on gross margins, we were focused on building that business. And we knew with scale gross margins would get better. And, and, and, and so there was, you know, all the investors were aligned, all the board members were aligned and we went out and built a, you know, billion dollar plus business that now has good gross margins.

But Dave didn't have to walk into every board meeting and be asked why is the gross margin. That's right. Terrible.

And, and so, so that's, that' get an aligned set of investors and advisers and supporters of your business. And, and, and again in the AI world, you know, it be very rational to say I have a point of view that token cost is going through the floor. And so today my 5% gross margin business will be 15 and 3 months and 50 in you know, 12 to 18 months. That could be a reasonable strategy. And, and I think that is the playbook a lot of, a lot of AI companies are running. And, and I think that at a high level makes sense. The churn part's harder because that gets into real revenue. And I think the, you know, one of the broader, I think lesson that I see founders sometimes mistake is the really understanding sort of the quality of revenue and the repeatability of revenue is very important. And so in the enterprise environment, you know, you could have one customer who loves you, but they may not be representative of the whole market. And so is that truly sign of product market fit?

Because they could be a bluebird or it could be some unique situation. And so that's one example. Companies with high degrees of churn that may not be real in terms of the engagement might have a bunch of people kicking the tires and trying it out. And so understanding the dynamics of revenue and how well are we really doing? Even if the top line may look.

Attractive, that feels like, I mean, again, for me, we're kind of going off on a little bit of a tangent, but it's been very top of mind for me recently because I. When you look at all the coding assistants as an example, I mean, how many there are, I don't even dozens of them. And when you actually get into companies and you talk to enterprises, you find out that they have six coding assistants. Seven, eight. They haven't made a decision. So there's eight coding assistants who all have revenue from the same customer.

Right.

Only one is probably going to be left standing. Not tomorrow, but at some point there'll be one, maybe two, but there's not going to be eight of the same thing.

This is totally a tangent. But anyway, that particular market, I think there's an open question, does it end up bifurcating in around the type of development you're doing? So could maintenance a different set of requirements than, oh, interesting. Net new application development, which might be different from feature development on the existing applications. You could imagine actually that that market's big enough and differentiated enough that there may actually be more, more than just one player. I don't think it's gonna be a winner take all market.

But. But nonetheless, there's still a lot of companies in that category that are saying they're doing great and they may be, but they, they may be not doing as well as they think.

Right.

What You've seen a lot of different. You've seen businesses built in different cities, different geographies, remote, you know, but you said you focus really on the East Coast. But you've seen Boston through kind of a heyday, you know, and you've seen New York through this. You know, it's amazing what's happened here in the last 15 years. Do you think there's a difference.

In personality of the companies or the founders or the types of businesses by geography? Is there, you know, is there something that when you see a Boston company, you know it's going to be like this. Or a New York company is. Do you, do you see that I.

I always hesitate to, to stereotype because obviously for every, every, every description, there's going to be many, many exceptions. The, I think the unique thing about Silicon Valley is the degree of ambition. And, and so, you know, we, we were investors in a company in Silicon Valley and, and, and it was sold and the, the founders made a, a what anyone in the world would think about as a lot of money.

And, and their friends were like, oh, I'm sorry it didn't work out. And, and so the, the, the, the degree of ambition that you see in the Valley of like, how good is good, how big is big? I think is, is something that's very cultural there.

And, and you actually see that in New York. It's one of the things we're really excited about in New York is, you know, simplistically, I always, my simple analogy is it's a little bit related to housing prices. Like if you want to live in a really nice house in New York, you need a lot of money. And if you want to make a lot of money as a founder, you better build something really big. And so, so I think there's a ton of ambition in New York. It's the, you know, it's the biggest, best city in the world according to all New Yorkers. And so, so I like that. I think Bostonians have suffered sometimes in the past for not having that degree of ambition. There are so many exceptions to this. Obviously HubSpot and Wayfair and a bunch of great companies in Boston that have, that have been built. So this is why I don't like to stereotype, but Bostonians tend to be a little bit more reserved and a little bit more tech focused. Whereas I think there's more swagger, if you will, in New York in the Bay Area.

What, what is in all the 30 years, what's your biggest regret?

So many.

What's the biggest miss Right.

No, I've had a lot of misses. The I, when I started out, I started out way more analytical than, than dreaming, if you will, if those are your two ends of the spectrum. And so I analyze my way out of some good investments because the key to being a good venture investor is there's always 100 reasons to say no. It's like, what are the 1, 2, 3 reasons to say yes? And so as a founder, if you're fundraising, by the way, one of the keys is like, what are the three reasons you're giving someone to say yes and. Objection. Handling yes. You'll have to answer about competition and model and all these kind of questions, but it's really about leaving people over and over again with the reasons they want to say yes.

And, and I think I, I've evolved significantly as an investor from probably more analytical to much more about how big can this be, what are the opportunities, what are the, what are the wins at the back of this particular opportunity. And, and I think for early stage investing that's, that's critically important. I obviously wish I had maybe, maybe did that faster and better. You know, you can always, you can always be faster and better and.

You know that. So that's, that's probably the number one piece of advice for young venture capitalists that may be listening to this is finding that balance between, you know, the skeptical optimist is the term I use.

And I think that's, that's critically important for people.

And any, any deals that you missed out?

No, I just mentioned one earlier. I missed out on HubSpot and I saw it too early. Brian was in MIT and he was building a company to help people build websites. And I was like, that sounds very uninteresting. And what I failed to see was that he and Dharmesh were just a world class team and I focused too much on what they were at that point in time as opposed to what they could become. And, and he went away and morphed the business into obviously something that was quite different. But I had already said no. And in other situations like at MongoDB, we said no to the first round there. Dwight was someone we had backed at DoubleClick, I knew him quite well. And they were pitching a broad cloud platform. And I said that's going to be really hard to do as a startup in 20, late 2007.

And you know, both ahead of the market and a really big expensive build. And he came back to me, you know, six months later and said, Chip, you were right. You know, we decided, but this database thing we built is really generating a lot of enthusiasm in the market. And that was when we ended up investing. And so, so you can, you can miss and come back.

But you need to, you need to do so when you have like a clear point of view on, you know, why you're saying no and, and give that founder the reason to come back.

You, you have like when I see you talking about AI when I was at the flybridge founder event, I think last year or the year before, and you were talking about AI and you're talking about just investing and every time we talk you have like a passion for what you do. That is so strong. What, what is it that got you? Like, why did you become an investor originally and how do you still have so much fashion today? 30 PL yeah, I think every great.

Investor is super curious. And so the reason I became a venture capitalist instead of doing something else is I just love learning about new things. I love learning about innovation, love learning about where thinking about what the world's going to look like in 10 years. And so if you have that sort of deep level of intellectual curiosity, and it's probably married with a little bit of professional add where you like more variety than less. My first investment was a company two years in. The founder asked me to come on and be president and that company went on to go public and then ultimately was sold. And the person who essentially took the job became the CEO of the company that eventually acquired it, which is a company called adp. Very big business. And that was a crossroads for me because I was like, I don't think I'd be a very good operator because I love the day in, day out of every day is different. Always learning the huge amount of curiosity. And so part of what gets me excited about AI is that this is the single biggest trend in technical sort of platform shift, for lack of better word, that I'm ever going to invest behind. And I started investing in the web era and so it's bigger than that by 10x100x, I don't know, some significant margin. So that's super exciting. And then the other part is more the emotional part, which is the, you know, if we can have an impact and we do our job right, we help founders build better businesses. And so that, you know, seeing, you know, Margaret be from five people who invested to 5,000 and no revenue to more than 2 billion in revenue, that's just like super satisfying. And did I play a big part in that? No, I played a teeny part of that, but did I play some part? Yes.

Yeah.

And that's on an emotional level. Very satisfying to see our companies grow up, see our founders grow up, see them realize the dreams that they're setting out to accomplish and knowing that we had some small part in helping that happen.

Chip, thank you very much for doing this with me. Thank you for supporting me throughout all the years. And I think this is exactly, I mean, for the first one of these, I couldn't have asked for anything better because this is, this is gold for, for founders, especially first time founders, to hear what's happening in the mindset on the other side of the table. I don't think people talk about this stuff enough openly. And, and so thank you for doing this.

Yeah, no, always happy to spend time with you as you know. And, and more importantly, I love what you're doing with the with the podcast. And I remember the 65 page Google Doc that you wrote that would have kicked all this off. Your degree of introspection and willingness to share with all your experiences is incredibly valuable. So love what you're doing.

Thank you Chip everyone. I hope you enjoyed this. And if you did, please share this out with your networks. And thank you again. That's a wrap for this week's episode of Not Another CEO Podcast. Thanks for joining. For show notes and more, please Visit not another CEOPodcast.com we'll see you next week.