Gokul Rajaram on the 8 Moats Companies Need & Why Dropouts are "AI Maxing" the World

I call it the 8 modes: data mode, workflow mode, regulatory mode, distribution mode.

We're on number 5. I'm loving this.

Ecosystem mode, network mode, physical infrastructure, and the 8th one, I would say, scale mode. I think anything 4 or more, you're pretty damn secure.

I'm thrilled to welcome one of the best operators turned investors of the last 2 decades, Gokul Rajaram.

You cannot be a single product company. Vertical products, you've got to really own full stack. It's harder otherwise to be a $10+ billion company. What's the biggest mess?

Is it Vanta?

Most recently, Quince, but to be honest, even bigger miss than that in some ways. It's not a miss in terms of investing. Is that—

ready to go? Gokul, I've wanted to do this for years. And you have— I mean, you've coyly played hard to get, let's put it mildly, after my continuous WhatsApp messages. But thank you so much for joining me today, man.

It's my pleasure to be here, my friend. Thank you again.

Now, I wanted to start with how some of your prior companies that you've worked at have shaped your investing mind specifically. And I wanted to start with Google. When you reflect on your time with Google, how did that shape your mindset for the types of companies that you like today?

I think the best way to think about my— the Google experience is Google taught me that ultimately the best companies have a remarkable product at their core. Google was a remarkable product. Google was definitely a philosophy of build it remarkably and they will come. GTM was not Google's specialty, but what Google was really good at was building amazing products. Sometimes the go-to-market worked, sometimes it didn't work. So, but at the core was a remarkable product. So I think I ultimately, my core investing thesis is that if there is not a remarkable product, all the go-to-marketing, Distribution in the world will not save you. So I look for what the remarkability is in the core product or value proposition of the company. Is it 10x, 100x better than the alternative? I'll tell you a story at Google. When I joined in 2003, there was a project going on called Caribou internally. I was like, what the hell is this? This was web email which gave 1 gigabyte free storage. And back then Yahoo Mail offered 10 megabytes of storage. So it was 100x. I thought it was truly, I was like, there's no way it's possible. And turns out it was. And it was released on, if you remember, April 1st, 2003. 2003, and that people thought it was an April Fool's joke. But that was Google literally taking something that was unbelievable and making it reality. And so that's, that's the kind of products I like. Something remarkable, something unique, something powerful.

I like it. It reminds me of actually Neil Maser, who talks about kind of jaw-dropping customer experience as one of his kind of core monikers for thinking about companies and investments. Next we have Facebook. How did Facebook impact the types of companies that you like?

What is interesting is that even if you have a remarkable product, you still need distribution. Facebook taught me the power of distribution. Mark, I think, is— Mark Zuckerberg is probably the best, I would say, distribution genius in the world. He would look at a product and say, this is how this product is not going to work. It taught me the power of multiplayer products in particular. I think Most software products are single player. And as soon as you make them multiplayer, there is a uniqueness in switching, distribution, et cetera, that comes about. Facebook, by nature, you can't use it if you only have one person on Facebook. And so when I saw Figma, the power of Figma I felt was it was not just that a person could use it, but it was much easier to share with other people in your company. And I think the best PLG software companies are those that you can use, multiple people can use, and it increases defensibility. The power of distribution and multiplayer products.

What about Square? Square was an amazing journey. What did you learn from Square that you've taken to your investing?

The power of a multi-product portfolio. I think at Square, when I joined, we were a single product company, payments and payments only. Uh, when I left, we had, I think, 11 products each doing more than $50 million in revenue. And one of the interesting metrics was we went— our key North Star metric went to median number of products used by a seller, by a merchant. Turns out that the more products that a merchant uses, the more attentive they are, the more sticky they get. So this is the other thesis I have. I mean, this is obviously very clear now. You have to have— you cannot be a single product company. You've got to make sure, and most importantly, your product number 2 needs to emanate very naturally. It can't be like this completely separate product. It has to be very adjacent product number 1. For Square, it was a product called Square Capital, which was basically a cash advance product that really came from the fact that Square controlled the payment flows and knew exactly the merchant's credit history and could underwrite based on basically money going in and out. And it was a beautiful product. And the interesting thing about having a multiproduct portfolio is that not every product needs to generate profit. I think there is a— people always like, oh, it's not making money. Square Capital didn't make much money, but it was very good for retention. Some products are good for making money, profit, they're part of the profit pool, and some are good for retention. Companies need to be very clear which are the profit pool products and which are the retentive products. If you confuse the two, your teams don't know and they build for the wrong outcomes. But the power of a multi-product portfolio and being able to have products with different goals, retention versus profits.

I love that in terms of it doesn't need to be profitable. I also just see so many investors today being relatively inelastic in terms of their mindset on margin, whereas like, oh, 'Oh, the margins are shit.' And it's like, I didn't, you know, go into our next company, DoorDash.

Negative gross margins for the first, like, first year, I think. Uh, negative gross margins, dude.

I don't think DoorDash had great gross margins for the first few years either. I think— I don't think Deliveroo did, who obviously DoorDash acquired. And so it's just funny that we kind of repeat the same mental cycles of, 'Oh, the margins are shit.' And it's like, yeah, so were the best companies' margins. Spotify didn't have great margins for a very long time, and their margin increase has been amazing, actually. Dude, DoorDash What is the lesson from DoorDash?

It was the most operational of all 4 companies. I thought I was a good operator. When I got to DoorDash, I really realized what operations means. And so a lot of my philosophies around how to truly operate in a hard, hard, in hard mode have been shaped by it. It really was the apotheosis or the epitome of, I think, how product and operations can work together in the physical world. So how it shaped my, my investing philosophy is The kinds of people that came out of DoorDash, I just think they are excellent and I try to get them. It's really around hiring, it's around talent, it's around taking really hard problems and solving them. I'll never forget when COVID hit, as you know, most restaurants were shut down for the first couple of weeks. DoorDash had to make a very hard call around what to do, how to get these restaurants open. And ultimately we decided to not take any revenue share from these restaurants for a month. Even though we were a private company, we had some amount of cash on the balance sheet, and that really hurt. It was the right thing to do in the long term, but it was extremely painful in the short term.

You spoke about kind of the skill of operators to work both in a physical and in a software-based environment there with DoorDash. Even with Project Europe, which we chatted about before, we're seeing all of our hardware companies be so freaking popular right now because everyone's just terrified that bluntly Anthropic's going to eat their lunch as we keep seeing with Anthropic doing security and security stocks plunge. I want to talk about the SaaSpocalypse because my job with this show is to learn from people much smarter than me, and I'm lucky to do that here. Is the volatility that we're seeing justified or are we in a manic hype oversell environment with emotional volatility?

Well, as all of our software portfolios are deep red, all of us have some software stocks. The reality is the public market has decided that since code is becoming free at the low end and becoming much easier to generate and create at the high end, the market decided that every software company is going to zero. I think this is 100% overreaction because not all software companies are created equal. We can talk about what the differences are. I actually I have spent the last few days thinking about the different— not even last few months. This is the— I mean, both you and I think about this a lot. What are the characteristics of a durable software company? And I think there is a few that we can talk about. But yeah, I think it's absolutely— I think everything has been painted with the same brush at this point. It is absolutely an overreaction.

You're going to leave me with a cliffhanger, Gokul Rajaram. You're like, there's some very durable characteristics. We can talk about them if we want. I would love it if we could talk about them. Can you please help me understand?

It's basically a on Hamilton Helmer's 7 parts, but it's slightly different. I call it the 8 moats. The first moat is data moat, which we all talk about, but it truly has to be proprietary. It has to be data that nobody else has access to. I think Spotify is a good example. If you look at their, the Discover product, it uses a decade of listening behavior across hundreds of billions of people. You can't create that listening, that Discover product easily. Second is the workflow moat, which a lot of people argue it's a weak moat. I agree by itself it's a weak moat, but the deeper you are embedded in the company running their operations, moving their money, the deeper the workflow moat. —just by itself, I don't think it's enough in perpetuity. But the deeper your embedding is, for example, NetSuite is an ERP that runs your business. They have a much, much deeper moat than, say, Zendesk, which is a lighter workflow moat. So that is a moat. You can say it's 1. Maybe Zendesk is 0.5, NetSuite is a 1. Third one is regulatory moat. So licenses, capital require multi-year procurement contracts. Coinbase, where I'm on the board, is a great example. They have MTLs, money transmission licenses, state by state. They raise with the FINCEN, all of those things. It makes it impossible for a company to use anybody else than Coinbase to custody their crypto because of that reason. Fourth moat is a distribution moat where you have proprietary exclusive distribution. Intuit is a great example. Anybody who wants to build an accounting system, think about Intuit. I remember when I started a company, it was after Google. I basically tried to use this company called Xero, X-E-R-O, and I was like, let's use Xero. It's like the new— it had just started. It seems like a cooler interface. My accountant said, no, I'm sorry. I don't use Xero. You shut it down. I had to cancel Xero and go to QuickBooks. What a great distribution mode. You've trained a network of CPAs to only run QuickBooks. I don't know if they have a commission or what they get, but that's a proprietary distribution channel that these guys have. Very hard to displace them. Ecosystem mode. If you have a platform or ecosystem where many third parties have built on and rely on, you have a moat. Shopify is a great example. You can wipe code and e-commerce hosting platform, no problem, but Can you wipe code the hundreds of thousands of developers and third parties who built all these applications on Shopify? Every Shopify merchant I know uses like at least 5 or 6 other third-party apps. That's a huge part of the Shopify ecosystem. That's a moat. Sixth one is a network moat. That's classic DoorDash. I think DoorDash has many other moats, but AI can wipe code the ability to access restaurants, but it can't wipe code liquidity, courier density, reputation, history, all of those things. So marketplace density. Is a network effect, which is structural. Seventh one is the thing you mentioned, physical infrastructure, right? Atoms. Wherever you have atoms, it makes for a moat that's hard to displace. You can't— again, I think humanoid robots will maybe at some point start taking, but it's probably a few years away. And the eighth one, I would say scale moat. If by virtue of your scale, your costs are so low that it's hard to replicate. I think Amazon is a great example. TSMC in semiconductors, scale moat. So those are the 8 modes, basically: data, workflow, regulatory, distribution, ecosystem, network, physical, and scale. And so what you do, I think any one of these modes is not enough, but what you want to do is you want to take a company and score it across them. Maybe assign 1 point to each mode they have. And I think anything 4 or more, you're pretty damn secure. But if you have a 2 or 3, it's a weak mode. And if you have 1 or less, you probably need to really build some more modes or you need to do something to make up for it. If you have zero, you're screwed, basically.

I'm just doing a thought exercise. So we have Atlassian and we have Monday. They're both down kind of 75%. I've had both their CEOs on the show. If you look at them and you put them across this 8 kind of rules, you would probably say that Atlassian is being massively oversold and that Monday as awful as it sounds, is maybe being rightly priced in this environment.

I agree with that. I think Atlassian has, you could argue they have proprietary data. Now they need to use that data to build products. They have unique proprietary data on all the code out there because it's being checked in. There's a lot of stuff they have which they need to use for better. They have a workflow mode. They don't have a regulatory mode. I don't know about distribution mode. Need to think over. They have something there. Ecosystem mode. I think there's a lot of third-party things that are built around them, so they at least have a score of 3 here. Uh, they have a network mode. You could— do they have a network mode? No, I don't think they're not a network effects company the way you think about it. They don't have a physical moat and they don't have a scale mode, so they have a score of 3. Monday probably has a score of 1. I think they have a workflow moat. I'm not sure if they have the other modes. So you're right, Monday in theory has a much weaker, um, score, I guess, than Atlassian on this.

This is so unfair of me. How would you think about Klaviyo or Klaviyo in this way? Like when you look at bluntly the ability for public companies to build good agent products, it would seem very obvious that Shopify will bluntly build Klaviyo now in the need to reaccelerate. How would they rate?

I don't think Shopify will build it. Shopify is an investor and Shopify I think has decided, at least in my opinion, that this is— Shopify has these things called missions and I think they've decided this is not part of their mission to build this product. So I don't think the risk is Shopify. It is that it has become easier to build Klaviyo now than it was a year ago. So it's easy to build Klaviyo. They do have— I haven't talked about brand. I think brand is no longer a strong mode. I explicitly excluded brand. I don't know how strong Shopify's promotion of Klaviyo is. I think a lot of it depends on whether the proprietary distribution they get from Shopify is how strong and tight it is. If Shopify is actually going to promote them as a, you know, when you search for messaging or communications, if they are just like, you know, Google has a moat with Apple. When you use Apple, you basically Apple products, you get Google search engine. If Klaviyo is a preferred product and they have a relationship that makes that work, I think it's very hard to displace them. It's hard to at least displace that part of their business.

Dude, you just throw a grenade in and like, don't expect me to pick up on that. I think brand mode is not so relevant anymore. I just actually had Lena Werner, who's the head of growth at Lovable, on our 20 Growth Show, and she said that actually brand is the most important thing as you commoditize technology and it's easier and easier to create. How people resonate with a brand is the most important. Why do you think brand mode is not as important?

Businesses are much more rational. In thinking about it, less irrational, I think. And the alternatives are going to be much stronger. I think on the consumer side, consumers are much more like dollars and— there is dollars and cents, but there is a natural inclination to just trust brands. I think on the business side, it is going to get weaker. I think I actually disagree a little bit because switching costs are so much lower. One of Hamilton Helmer's 7 powers is switching costs. I think switching costs is less going to go to Essentially zero, because over the next 1 or 2 years, ability to port data, your data as a business or consumer from any ecosystem to another ecosystem is going to be very easy. And then people are going to be able to replicate almost pixel by pixel the experience you have with one product in a different product. So you'll have clones popping up left, right and center and data portability is going to be easy. In that case, what is that brand really? It's like in professional sports. You know, you kind of cheer for— do you cheer for the player or the team when they switch teams?

I need your help because the one that I continuously oscillate on is Salesforce. When you say about data portability being increasingly easy, we had Seb from Klarna on the show. He said agents would make data migration from systems of record increasingly easy so they wouldn't have the lock-in that we think, or, you know, reduce the switching costs. But then I look at your, you know, 8 factors and I'm like, well, they have workflow, they have distribution, they have ecosystem, They have scale.

Well, they don't have scale. Their scale means that it is cheaper for them to produce. I think they have a score of 3 because that's the thing. Software earlier was a scale game where because you had produced a lot of software, it was cheaper for you to produce a lot of software. Guess what? Now everybody can produce software as cheaply as anybody else. If they had their own data centers, like the— I think hyperscalers are the ones that basically are able to say confidently that they have scale, or people in the physical world. A pure software company can't get that scale more. But yes, they are very similar Atlassian where they have a score of 3, I would say.

So do you think Salesforce and systems of record like Salesforce are inherently attractive or less attractive given the data portability increasing?

They are more attractive than most companies, most software companies, but if they don't build, um, agentic workflows and commoditize a complement by giving, by figuring out where the profit pool is, I think they have to figure out is the profit pool in the data, profit pool in the data. Or the workflows. If in the workflows, they need to make data storage free and basically change pricing to an outcome-based model based on workflows. If they feel the profit pool is in the data, then they need to give away these workflows for free. And so they need to really commoditize all the agentic companies that you and I know that are trying to build on top of them and charge for that. They need to build better products using their data and make it free. And I think that's the way that a NetSuite or a Salesforce or a system of record needs to operate. They have to commoditize their complement. They can't just wait around for other people to build on top of them.

We're seeing buybacks like, like never before for your Workdays and your Salesforces of the world. Is that truly indicative, do you think, of like internal company confidence, or do you think it's a necessity to externally show the world that we are confident? It's both.

They are confident internally, but they need a signal to show that they're confident. I think the founder buyback is the most, the strongest signal. It's not just a company. but also the founder.

Did you see ServiceNow CEO's $3 million buyback? And then they saw that his garage of, you know, classic cars was like 3 times as much. I was just like, oh, that's a bad comms move.

Yeah, I think there are buybacks and there are buybacks with a capital B. You want the capital B one. You want a CEO of a large company to do a $20, $50 million buyback to show confidence.

I completely agree. We've seen, we've mentioned Monday. We see companies like Notion, like Amplitude. Mixing publics and privates, but kind of growth-stage companies and even privates, um, do bolt-on strategies. Hey, our core product with a bolt-on of AI. How do we determine bolt-on AI strategies that work versus bolt-on AI that doesn't?

I think the bolt-on AI, it's an interesting thing. The bolt-on AI strategy by itself has a real ceiling, but I think the companies where the bolt-on really works are the ones that reframe what the product does, not just add the capability. So I think you, you know, for example, if you just add AI search as there's one thing, you just add AI search or you build search as an experience with new UX primitives. I think one is just an upgrade. The other is doing completely something completely different. So I feel you got to— so Notion, for example, I think very highly of them. I think Notion is adding AI. You mentioned they're adding a lot of AI agents. And I'm hoping that the way they've added it, I've actually played around with the product. I think it's pretty good, but the AI agents need to now get better based on how the user interact with it, and they need to tune the model for their customer base. Most bolt-on players are not doing it. They're simply using a GPT or Anthropic model, and they're basically just adding a thin layer. You have to rebuild the entire experience end to end. And I think by you do that by identifying something where AI doesn't just improve the margin, it changes the experience and the economics. Document processing was a good example. I think Altan recently, you know, you couldn't actually extract structured information from unstructured documents till about 6 or 9 months ago. Now you can reliably read dense legal contracts. So your experience around documents needs to be fundamentally different. If you're just getting someone to upload a document in the flow, you need to instantly like give them immediate insights from the document while they're uploading it versus like the same document upload thing. That's crazy because now you should be able to infer any document that enters what the hell is going on instantly. So you need to reevaluate every single interaction and say what has changed. That's, that's the biggest difference in product development today. You know, model capabilities are improving every 6 months because if you have too long a product roadmap, you're going around a program and the model comes and just blows it out of the water. So you've got to really understand what the capabilities are of each new generation. And make sure you can't have too long a roadmap because your roadmap is going to be blown out by the next, next model iteration.

Speaking of being blown out by the next model iteration, how do you as an investor— educate me— how do you ascertain safety from model intrusion versus in the way of models and you will be eaten with the next update?

If you have some of the other ones that you're physical and so on, it becomes easier. If you're a pure software companies, Which of those apply to you? I think fintech is a good one. I think we used to— fintech goes through these cycles. I think fintech, especially Marathon, we invest a lot in fintech. We actually think, oh my God, fintech is one of the best. If you're moving money, you're generally in a good place. So anything touches money, we feel there's a very strong moat there, much more defensible. And so data and workflow moats are the two things you're really hanging your hat on as a software investor, because if you're not doing fintech, And then I think at early stage, it's too hard to know what a distribution moat is unless they have some hack. And these hacks never really stand the test of time. Ecosystem, too early to say. Network effects, too early to say. So really physical infrastructure, they don't have any. Software company scale, they don't have any. So it's really about, okay, go deep into what is the data asset you're creating? Does it get better with time? Do I believe it gets better with time? Are you building your own model over time? Are you fine-tuning a model and improving it? Over time? And then how deeply are you truly embedded in the workflow? How deeply are you just a lightweight thing that the underlying system of record could create, or are you building? So these are the two things that you have to hang your hat on: a data asset that gets better with every interaction, and then a workflow. It's hard, man. I think pure software companies are hard. I think application software companies are— you've got to really believe that the founders can ship with great velocity to basically build that, um, and see proof of that compounding.

I got in trouble in the partnership the other day. I'm quite grumpy, generally speaking. Um, but no, no, yeah, I know my Twitter is getting grumpier and grumpier. I know. Uh, anyway, um, but you know, I've met like, you know, support agents, you know, voice agents for auto manufacturers, for dentists, for chiropractors, for the— and I'm like, guys, This is like OpenAI, ElevenLabs for, and then all of these different verticals. Would you say, Harry, no, no, no, you're wrong. They're building verticalized data over time. They're able to fine-tune their own. They are deeply embedded in workflows. They might have distributionary, like, yeah, the kind of like dentist cool agent is a little bit plaster on top of a wound.

I do think these are viable businesses. I don't think they're going to be big businesses. I think as soon as you do vertical, I don't think you can do a, a one function within a vertical. I think what you want to see there is the ambition and ability to truly own the full stack, build the whole product for the vertical. ServiceTitan, for example, is a canonical example. It went public last year. Great outcome. It's still a sub-$10 billion company or something like that. and they own like 30. They have, if you look at their S-1, they have 32 different products. And even after selling 32 different products and really being, at least in the US, for any service, like field services company, they are the canonical company. They still are a $10 billion company.

And I think, you know what's astonishing when you compare that to a Robinhood is Robinhood has 13 product lines now doing over $100 million in revenue.

13. Coinbase has 12 doing $100 million in revenue. Exactly. You're a horizontal product, you're serving a broad base. I think vertical products, you've got to really own full stack. I think it's harder otherwise to be a $10+ billion company.

I'm going for spice. In a world of 2026, can we as venture investors do vertical SaaS given the fund sizes that we have?

I think you can. Maybe the mega funds might say, look, it might not be $100 billion outcome, but I think if you're a $200, $300, $400 million fund, you can absolutely create a $10 billion company. Because remember, one of the big changes is that vertical SaaS does take over labor. And so vertical software, right, it's no longer SaaS, it's basically software as a service, but it is services. So you're going after the services spend. So one of the interesting things, as you know, is that verticals mostly, especially if you're selling to small businesses, they spend some amount of tooling, but they spend a tremendous amount on both BPO as well as on human capital, human labor. So you need to basically target those two spends. And I think if you do that and you're committed to building the whole product, you can absolutely.

You very kindly said before the show that you like the show that we do with Jason and Rory. It's very humbling when I do the show for 10 years and then I find out that it's actually much more popular when I actually bring other people on to do it instead of me. Always good for the ego. But Rory always says to me with AI, very simple. We need to see the transition of spend from software budgets to human labor budgets. And if we do, the TAM obviously opens up immensely. That's right. Do you think we will realistically see that and maybe are seeing it already, or do you think we will actually remain in software budgets as we have been in some categories?

No, we are seeing that. We are seeing that. I think the first one, most businesses don't want to lay off people. So the way we are seeing it, the first thing that's happening is businesses are outsourcing to third-party BPOs, many of them in India, Philippines, etc. That spend is the easiest to cut because now you can offer the same service, higher quality, faster, and 20-30% cheaper. The second thing they do is when somebody leaves, they don't replace that person. And the third thing they do is layoffs. So I think layoffs is still maybe a little bit of while away, but you're seeing absolutely BPO spend. All the call center companies that you mentioned, all the next generation AI, AI customer service companies, they're going after BPO budgets. I was shocked when I was doing work in this space how many different verticals, doctors' offices, et cetera, use call centers outside the US. They already have budget clearly allocated and there's a better service. So, so I think it's BPO spend first, don't replace the person second, and then potentially think about laying off.

Do you know Goldman Sachs and Barclays, both financial institutions, both have over 30,000 people in India? I didn't know 30,000.

I thought there was like a few thousand.

I don't know, 30,000. Isn't that nuts? I was so shocked when I heard about that. I want to understand, but two different types of company profiles and what happens to them. We've got private companies, um, and I don't want to pick on them, but it is helpful to give examples. I'm sorry, they're my friends as well, so I can kind of do it and they'll love me, hopefully, regardless. Um, but like, you know, your Sneaks, amazing security business that's got great customers who love it, but it was valued at $7 billion and it's now $300 million ARR growing 15%. What happens to that cohort, which is a great business and serving great customers, but 15% growth, $300 million ARR, and you've got a very high price. What happens to that private cohort?

There are two outcomes for these companies. All of us have those companies in, in our portfolio. A bunch of them are going to become zombie companies and they're going to try to add AI features as a last resort, not succeed and be sold to PE. The problem is even that might not be a good outcome now because PE itself is struggling to digest the companies they bought a couple of years ago and the prices have reset. They do have good assets. I think they might— I am seeing in some verticals there are companies merging with each other. I think we'll see if that happens just to create more scale, but it'll be interesting. But hopefully the better outcome that many of them go to is with strong leadership, you basically can burn the bridges and create a completely new AI-native product. I think you had the Intercom person, Intercom CEO, right? Finn, great example. Podium, another great example. Both of them with their new products have grown to 100+ million in a couple of years. Basically just burned the bridges. This is legacy software. I think the more you fixate on how do we fix the business, the less you're going to focus on how do we create a new business. So you've got to create a new business from scratch. You have customers, you almost got to say, I'm going to be ruthless about migrating the customers from the current business to the new product. Even if it's lower price, it's a right thing to do. And you've got to have a sunk cost, you've got to abandon sunk cost fallacy.

Help me on Podium. The $100 million agent revenue. Okay. It triples, $300 million, and then it triples again, $900 million. If the price today is $5 billion that I'm paying, I'm paying for 2 years of treble treble ahead of time for that asset, for that's what it would be priced in public markets. For this business to work, we need the multiples in public to be way more than they are now, do we not?

I think you need to assume that they will take over, uh, huge parts of the service budget in the businesses and that they will not just be a billion-dollar company. I believe that they'll be a multi-billion-dollar company because earlier I think they were limited to one part of the stack and they were, they were on top of a bunch of systems. Now, They're taking over the entire software stack. And that's the thing I like about— you want founders who are ambitious enough to go after the entire stack, not just the earlier piece of the stack they were in. And you want to be the only product that the company uses, and you want to replace as much of the digital labor as you can possible. That's the ambition. So what you want to say is, what's your market size here? How much in all your customers, how many people that are— do they have that are doing digital work? And do you have the ability to replace all of that payroll over time and all of the other things they're doing and take a part of the payments transaction revenue? And if you think that's a big enough opportunity, that's when you invest.

Do we see the total death of seat pricing, my friend? I hear you completely in terms of that movement into services. Does seat pricing die and we actually have consumption-based pricing as the primary pricing mechanism?

Seat pricing doesn't die. You know why? If you look at ChatGPT Enterprise, ChatGPT Enterprise is priced based on, uh, based on seats because seats provide predictability for enterprise buyers, uh, but they don't drive expansion revenue by themselves. So you basically have to bundle a lot more into each seat. So ChatGPT, OpenAI sells seats based on different tiers where they have different functionality. I think Figma sells 3 different types of seats. So you're going to see different kinds of seats. Now the big challenge is CPI pricing, which you alluded to, is it breaks when the product's core value is not about access, but it's about something doing the work on your behalf. So at that point, charging per user doesn't make sense because user isn't the constraint anymore, it's the work output. So at that point you've got to go to outcome-based pricing. So for example, if I'm something like Harvey, I don't know how Harvey prices, I bet that they price based purely on how many contracts they process versus how many people are using it. For example, even if 100 people are using it and they process zero contracts, in theory they should get zero. So I think you have two kinds of products. You have access products and you have work products. Access products is basically seat-based. Like I think ChatGPT Enterprise is a good example. And then work products like Harvey are probably more outcome-based and not seat-based.

You mentioned Harvey there. We are seeing increasing competition within certain categories. If I think about, you know, law, it's Harvey and Lagoa. If I think about customer support, Sierra and Decagon, and there are dominant funded players. How do you think about the ability for firms to kingmake? Is kingmaking complete bullshit? Is it not? I'm just intrigued to get your thoughts on that.

Kingmaking is a thing. I think it is a thing you see earlier and earlier companies are getting these rounds that are valuing them at valuations which really are eye-opening. That said, I think it won't work unless the company executes on the promise. I think other firms can take it as a signal and decide to pile on or not. But ultimately the company has to execute on the vision. If it doesn't, then it's just a bad bet. So yes, it is there. But it by itself, just because you king make doesn't mean they are the king. They still have to execute and justify it. If not, then I think the reality is everyone's playing different games, right? You and I know being venture capitalists now that somebody with a $10 billion fund is playing a fundamentally different game than somebody with a $400 million fund. And if you try to play the same game they are, you're going to lose. You've got to play the game that you're best equipped to play. Benchmark plays a different game than than, say, Andreessen Horowitz. But both of them play different games, and both of them do well at their game.

We mentioned Podium earlier and going to $100 million with their agent-first product. The growth is incredible, and the growth across this cohort of companies is— dude, we were doing this 8 years ago when, you know, you went from 1 to 10 at Slack, and it was like, holy shit, that's amazing. Now it's like 1 to 10 is still great, but there's quite a few who've done 1 to 10. How does your mindset change around growth expectations for the companies that you invest in is a world of triple, triple, double, double dead.

It's not dead, but it no longer elicits the jaw-dropping awe that it used to a few years ago. As you said, I mean, the 1 to 10 is becoming more and more common and those numbers would basically get you, I mean, Laubel could probably go public with that kind of trajectory. Now the bigger question for me is durability. And it's not even quality, it's durability. Because like you and I discussed, margins can improve over time and will improve over time. So it's not about margins, it's about is this revenue durable? And so retention is basically very important for me to understand. Are people using it as— I think we saw in the first wave of AI, we saw many ChatGPT, like there was a company called Jasper, not to pick on them, but they went from 1 to 40 and then they came back from 40 to 10 or something like that, maybe 1 to 100 and 100 to 40 within very quick timeframes. So there's a lot of tire kickers out there, especially in prosumer products, who test the product and then move on to something else. So what you want to look under the hood, beyond, behind all these numbers, is two things which I think are the fundamental indicators of business quality: customer retention or gross retention, and then net revenue retention. Basically, if those two, I think, are the biggest indicators of quality, I would always take a company that's just, just, I should say just, it's crazy, doing a triple, triple, double, double, with excellent growth and excellent net revenue retention than a company that's growing 10x in a year with really bad customer retention and less than 100% or less than 90% net revenue retention.

How do we think about ceilings on those markets? And I'm specifically thinking about one that haunts me, which is Granola. I was one of the first investors to meet Chris, and clearly Granola has crushed it and is an amazing product, but customer retention sky high, revenue retention sky high. Honestly, if Anthropic or OpenAI did an enterprise product that's note-taking and it's connected to all of the different suite of products that they have, I think that heavily threatens the market size that Granola is able to expand into, into large enterprise. How do you think about the worthiness of those retention numbers if there are alternative factors like that that could impact it?

Yeah, I think you want to keep, you want to basically weigh the retention in the light of what they have encountered. You're absolutely right. I think you want to see, just like you want to weigh the growth of a company in light of, have you gone through any seismic events? If they've not gone through any seismic events, you've got to then take it with a grain of salt. What competitive threats have you faced? Has a single competitor come out? Have you been able to ward off that? Has your retention stayed strong in light of that? I do think some of these products like Granola, et cetera, have We'll see if they are the case, but they are these unique products that really open up non-consumption markets, which means that I would never have actually bought a note-taker before, a separate note-taker outside of Zoom or something, because Zoom comes with its own note-taker. Gmail comes with a note-taker. But Groove is so powerful that it basically got me to consume a separate note-taking product. And it's probably true for many of us. And I think that just changed the market opportunity for them. I think Uber and so on are great examples where it just sort of non-consumption markets.

Also do gamma. You've got Google Slides.

Exactly. Great. The very good parallel. Non-consumption market. You would never assume, why would you ever buy a PowerPoint thing or a presentation thing separately? It's a non-consumption market, a zero market, but the product is so good, so remarkable that it gets people to buy it separately as a separate SKU. Part to them, more part. I think we need more of these standalone remarkable products. Intuit is a great example. As you know, Microsoft tried to crush Intuit again and again and again back in the '80s and '90s with bundling everything into Office, but Intuit TurboTax survived and thrived.

Okay, but does that go against what you said earlier about the need to be multi-product? You know, what you've done with Gamma is you've taken Slides out of Google's G Suite and made it on steroids, amazing, very deep, feature-rich in a way that they need to be multi-product.

They can't just be a single product and go. They will need to have a second product. I'm sure of that. They will need to have a second product. Intuit has multiple products. Okay, but what's, what's Granola and Gamma's multi-product? I don't know why Gamma would not create a SIP, just like they've, they have taken their riff on PowerPoint. Why can't they have their own take on documents or slides the same way? I have to assume it's basically the different kinds of content that people create, or even websites. It's hard to see.

Um, both, both of them are in a wave of incredibly hot, attractive companies which have lower margins than we are used to in traditional SaaS mines. How has your mindset changed or stayed the same around margins? How should I think about margin assessment when looking at companies today?

Yeah, I think, uh, inference costs are dropping, so you automatically assume that margins in theory should go up. But I think it's not about margins in year 1 or 2. The more defensibility or leverage you have in some ways over your customers and what choices they have, the more pricing leverage you have. So I would rather see margins go up with price increases than cost decreases. A good example is PayPal. Roloff Botha was on our board at Square and he told us that PayPal back in the day, raised prices 5 times in 3 years because there's such stickiness. They knew their customers really couldn't do anything. And you see, I mean, Uber, I have to say, I don't know if they've raised price or not, but I know that they've basically changed the economics of how much they pay drivers over time so that their margins have just expanded continuously. And they've also raised prices in different ways. So I think 2 ways of increasing margins. So first of all, You and I both, we don't look at margins in year 1 and 2. I mean, it doesn't make sense even years 4 and 5. But you want to have on one side the ability to increase prices. On the second side, you want the ability to cost to get lower. I think that second thing is happening by nature. What you want to see is in addition, the ability to have such a good product and ideally multi-product, a story which makes switching really hard and you can raise prices.

Can I be blunt, dude? In the environment that we're in today, The two things that you said there, ability to increase prices and margins in years 3, 4, and 5. Dude, the world is changing so much. I have no idea about their margin structure in years 3, 4, and 5. It'd be poetry.

You don't look at margins. You look to see whether or not they have a product that is compelling enough. For example, I think obviously Disney Plus is a— Disney Plus for every year, I think they increase prices on me. Like they've gone from $20 to $30 to $40 or something like that. Amazon Prime is another one, but this takes many years. But you want the potential, you want to evaluate the potential. Do they have the potential? Do they have the ability to increase prices in the future?

My dear friend, if you have—

Margin is much less. It's not something I worry about. I think durability and defensibility is much more of a worry. I think good companies, if they're defensible, they will have the ability to increase margin. That's what I was saying actually.

Have you ever shopped in Chanel, Gokul Rajaram?

Uh, and I have gone into— I think they do have stores of mini stores. Yes, I've never shopped myself, but my wife has.

Yes, I buy my mother every year a Chanel handbag for Christmas and birthday. Do you know what they do every 6 months? Prices up 10% every 6 months.

10%, dude. 10% for the same product.

I, I used to buy a handbag and it was £500, now it's £10,000. Holy cow. My question is how do we— should invest in LVMH? Clearly, um, durable, defensible, 100+ years, right? 100%. And dude, in a world of increasing wealth inequality, actually awful statement, can you have good businesses selling to non-wealthy people? You've worked in fintech before. You— I think Robinhood is a good example.

I think you've got to have massive scale. I do think a— I'm an investor in a company called Atlas, which sells to billionaires. It's the opposite. It's a great business. It just— you need massive scaling. You need a wedge product that is almost cheap or free. I think Robinhood, you have to have free canonically in your thing. Robinhood obviously offered free stock trading for a long time, and that was their core pitch, and that allowed them to basically get a lot of people. You need to have something free or some hook that is really low cost that allows you to expand. But it is a harder business because you can't make the ARPU, or the average revenue per user, is low enough that you need millions, if not tens of millions or hundreds of millions of people. When you sell to very rich people or wealthy people or large enterprises, look at Palantir, which is the business equivalent of selling to wealthy people. They have, I think, what, less than 1,000 customers, maybe even less, and each customer pays them $20 million or $30 million or $100 million or billion. It's an easier business to— obviously it's a very hard business, but you can say I like those businesses. I mean, it's, uh, look at Viva. They said they went public with 4 customers. 4 customers.

Do you bother to do market sizing today given the transience of markets? As you said, there are some of the best companies make you pay for things you never thought you'd pay for. Do you bother to do market sizing?

I think non-consumption is the biggest challenge. But yes, you can't not do market sizing. I do bottoms up with a specific segment and I always know, I think any customer base that has more than 10,000 customers or a few thousand customers, you got to segment them. There'll be a few different segments. So you want to understand within each segment what the bottoms-up propensity to pay is, what's the problem you're trying to solve with them. And then you've got to talk to them to understand what the budget is. You got to do the work.

What's your biggest misread on market size and how did it shape Shopify?

I remember seeing Shopify at a billion and I was like, how many, how many ecommerce merchants out there really, or maybe even before, but in one of the early rounds, Tam felt really constrained. I think what I missed was that Shopify was not just selling ecommerce, it was basically allowing anybody to sell. So it basically changed any entrepreneur on the planet. Anybody who wants to sell something went. So it wasn't just existing ecommerce merchants. And that's what you want platforms to do. They literally make it possible for every person Every person would think of the possibility of selling or renting their home out or taking a ride, which they never would've thought before, or installing a— buying a new presentation app or a note-taking app. They're the biggest hits. They're also the biggest misses. If the bet doesn't play out, they're screwed. The bet plays out, they could be bigger than anything else. Google, non-consumption, many of them are non-consumption market. They're new behaviors that didn't exist before. That's in some ways what venture is all about. It's not about existing, it's about new behaviors. And betting on them. Facebook, non-consumption market. I mean, right? I mean, think of all of these iconic companies.

The thing that's amazing with Facebook is the ease for you to dismiss it for being the 52nd social network. I mean, we forget now that Friendster and MySpace and everything before it had been bluntly— there'd been so many.

And like, the biggest difference was identity. On Friendster and MySpace, you didn't know who the people were. They didn't have the real photo. They could come up with their thing. I remember when Facebook tried to go into Japan, Japanese cultural norms were that all the Japanese social networks back then were incognito. You couldn't, for some reason, maybe saving face or something, you could not share your real name or your photo. So everyone said, Facebook, you've got to adhere to Japanese cultural norms. You've got to change Facebook and make it similar. Mark said, absolutely not. Even if it takes us longer. And they succeeded. They succeeded.

How do you prevent prior wins or losses impacting future decision-making? My biggest mistake is I lose or make money in a market and it inherently makes me attracted or not attracted to it in a way that could subvert decision-making. How do you avoid this?

This is very hard. I think it's a mental thing where you've got to take every, every opportunity at first principles. We all struggle with it. I think the, I think the best venture capital— I, someone asked me what's the best venture capital bets. I talk about a paradoxical one. I think it's Mike Moritz betting on Instacart. Why? Because he lost $370 million on Webvan less than a decade ago. He burned it through. Same space, Apoorva comes to him, he bets on it. He bets on it after losing hundreds of millions of dollars. Now, it is not all Sequoia money, but the whole thing burned to the ground. And think about the first principles thinking needed and the courage needed to make that bet. I think it's brilliant.

You've got to laugh at being a Sequoia partner. You're going, dude, not this shit again. Come on, Mike.

Really? I'm so curious to see how he, like, just incredible.

You're like, we know you did Google and like, we love you, but come on, not food delivery again.

Online grocery shopping. Exactly.

Dude, market is one way we trip ourselves up. Oh, market's too small, market's too small. The other one that I always make mistakes on is price. How do you think about when you reflect on, you've done so many good deals, Are the best deals the most expensive in your experience? I think there are two ways.

I've now realized after many years of doing this, at seed and A, price almost doesn't matter if you're right about the company. So I think you just invest at whatever the price is. I, for example, I invested in the seed round of FAIR at, back in the day, this is about 8, 9 years ago, $20 million, which is very expensive for a seed round at that time. It was the highest priced YC deal at that point. I think it's been 100 or 200x for me. I think you invest in a company which is great, you have conviction, you invest. Now, I think the B, I think B+, that's when price starts destroying returns. I think by then you've got real revenue, real traction. You can pick a generally good company and still get crushed. For example, one of my friends invested in this security company at basically at, when they had $100 million in revenue, he invested in them at at $4 billion. I think they've gotten to $500 million in revenue, but guess what? They're still at $4 billion. And so basically they will not make 1x the capital they invested. And so that's a challenge, I think. But guess what? Even in WeWork, Benchmark made money. Benchmark made money at WeWork because they invested early enough. So I think at sub-$100 million, maybe that's an arbitrary number, you can, if the company is good, you'll make money regardless.

You mentioned WeWork, that we'll get to selling, because I used it in any— as an example in a show we did with Miles Clements from Accel. Um, but I just want to touch on like the A market there, and you saying about pricing kind of where it matters, where it doesn't. I'm with you 100%, but we're seeing 100x ARR for $3 million revenue companies, and they're being priced at $300-400 million in this new environment. How do you advise me as a Series A lead investor to operate in a market where A's are not 10 to 20 now on 100 to 150, they're actually 300 to 500 and 30 to 50 million rounds?

I don't think an A, A investor can do— there are two kinds of deals that A investors have to do. One is, I think, where there is less legibility on the company, where you're betting on there is some early product market fit, there's not 3 million revenue, there's half a million revenue and that's like you said, when you get it basically for 50 or sub-100 million, a million or so. But then as soon as it gets to 3 or 4, maybe you can do a couple of deals like that, but I don't think you can build a Series A fund doing deals at 3 or 400 million because it's not going to be enough ownership. Some of these are going to fail, et cetera. But most deals, I think you've got to have double-digit ownership. You've got to invest slightly earlier. It's a tough, it's a tough game, but you got to be patient. I think the good news is, like I said, I think it's concentration is your friend in some ways. It's why it can be your friend because then you don't feel that you've got to do 10 deals a year. You can do 4 deals a year and do 15 companies in the portfolio.

Dude, you've got $250 million in the fund. You've got $200 million when you actually look at investable cash. If you don't have any reserves, you've got say $10, $20 million Series A checks. If you're wanting to get ownership double digits that we all say that we want. Is that enough? I'm not being cynical, I'm asking for my own advice. Is that enough?

You have to have reserves. We have 35% reserves, so you have to have a mix of—

No, Gokul, come on, we need a bigger fund. This doesn't work.

You've got to have a mix of seed and incubation bets and a mix of Series A bets. So the incubation bets are bets you take on Founders who are basically the best in the world at what they've done. A good example, I think, was invested in a company, this was before Marathon, but with my Marathon partners who were part of the Marathon, they led the round with Vinod, Vinod Khosla and Mickey Malkad-Ribbett and a company called Lead Bank, which was my colleague Jackie Reese's.

Yeah, I interviewed her. She's amazing.

What a beast. Yeah, so that was his inception round at like some crazy value. I mean, very strong valuation, not a crazy valuation, but a strong valuation because Jackie was Jackie and she had built the bank at Square. She built this bank again. So you want somebody in an industry where they know the inner workings of better than anybody else in the world. And you say you back those people and that's a much, much better risk reward there. So you want to do a few of those in addition to— you want to do a few incubation seed in addition to, in addition to Series A. I think you're doing that right in some ways. I think you got to mix it up as an early stage fund. I think every firm, I think every early stage firm, I think you've got to have an access to founders and they're your first call when they go to start a company. And then you meet founders, you don't know them before, you're kind of betting on traction and so on. You've got to have a mix of both kinds.

Do you buy the proprietary founder access? Again, this is where I get grumpy as fuck, but I've done 3,000 shows, dude. You know, at some point you have to get cranky. Like, every venture investor sells the proprietary founder access.

What is proprietary is your ability to add value. And I think founders, you basically have to, I think, build. If you're just capital and assuming founders will come to you, You're not going to win. But what you have to offer them is something. What you offer them is something very different and unique. What I offer them is something very different and unique. We all have, I think you've got to hone as investors, what is it that we are offering? Is it counsel? Yes, that's free. Is it distribution? You offer incredible distribution. Is it a network of customers that you can get them access to? Is it like talent hiring? What is it that you can do?

Do the best founders need you? Keith Rabois always says the best founders do not need a venture investor's help. You've worked with the best. How do you feel?

They may not need it. I don't know. I think I generally agree with Keith that on the margins, investors don't add value and the value they add gets less and less as the company grows. But I do think there are a few points where a few things you can do on the margin, for example, Helping them choose between this candidate or that when they're hiring, helping them think about go-to-market that could make a difference between the company being a mediocre exit or an outcome or being a generational company. You don't need to do everything for them, but just those one or two things that you can help on, on the margins can hopefully be the difference.

What would be your advice to LPs when they are consistently sold by GPs like me and you proprietary founder access. Oh, I have the best network. I'm a super smart fintech expert, so I know it better than anyone. What would you advise them on manager selection when everyone says proprietary founder access?

Very simple. Go and talk to the founders. Go and talk to the founders and see why they chose, especially the earliest stage founders, uh, go to the seed founders that they invested in and the inception stage founders and ask them, What was different? Why did you choose them? What other options did you have? And I think you've got to use the data to basically— you can't just rely on everybody. You're right, most VC pitches look the same. What you want to do is dig one level deeper and talk to the founders themselves and understand for each of the last 5 companies that they invested in, why did this founder pick this firm?

Can I push back on the model that you have and just pretend that we're a hypothetical partner? Okay, you have 35% reserves. Why is that optimal over just having more lines in the portfolio? When you hear about the 100x, 200x multiple on FAAC, I'm like, focus on ownership, have more, increase diversification, and take away the reserves. Why do you think there are two ways of operating?

I'll give you an example. Uh, Trade Desk, where I'm on the board, had two seed investors, uh, IA Ventures, Roger Ellenberg, who's absolutely a GOAT. and then Founder Collective, again, good firm, both of them. So they have two completely different philosophies. Founder Collective only does first checks. They never do any pro rata afterwards, period. Roger, on the other hand, doubles down again and again and again. So Trade Desk raised, I think, 2 or 3 rounds of financing. That's it. And went public very early. It was very hard for them to raise financing. So the multiple that Founder Collective generated was incredible because they only invested at the seed round and they got it at $5 billion or something like that, or even more. I think they held for longer. Well, Roger generated a huge dollar return even though his multiple was different. So there are two philosophies. I do think if you look at my philosophy is more, if you look at Founders Fund, which I think is one of the best performing funds, a huge part of their success is basically doubling down on the companies that matter. And I think the unsung hero of Founder Fund is a guy called Napoleon Taa, who leads the growth practice. And Napoleon basically is the one who decides which of the companies should we double down on. And I think if you double down properly, it changes the complexion of the fund because you have much more insight. I would argue that if you work closely with these founders, you have much more insight into these companies and how they're going to do and even how they think about the future opportunity because you've thought about it with them. Than a random company you meet. Now, there is a balance there. You don't want to be over-concentrated, but I would argue that if you have X number of bets, shoot, I'm in. And you've worked with the founder and you think highly of them. That's why each founder's fund fund is named after the company that makes it. In colloquial terms, there's the Anduril Fund, there's a SpaceX Fund, et cetera. Why? Because that one company is the one that makes it. And that's the reality, Hari. I mean, literally, you have one company, most likely one or two companies that will drive most of the returns of any given fund. The question is, do you just want to have the initial stake? Do you want to increase your probability of finding the initial company? Or do you feel like you— there is an explore-exploit thing, right? Where do you stop exploring and when do you stop exploiting? So different people have different points of view there.

My fund one could have been— which you're an LP in, and I'm very grateful to you for supporting me when I was 18, 19. Um, but it could have been at one point the Hopin fund. It could have been the Clubhouse fund. Um, and it turns out that it will most likely be the Linear fund. I think, I think Linear is a great business and we were very early there. But my point being with the transitions in name, it wasn't obvious. And so my question to you is, with preemptive rounds coming so fast, how accurate do you think you can be? In predicting the winners? Because it definitely wasn't obvious to me.

You've got to be thesis-driven first and foremost. I think what we are is we think about what is the thesis. In other words, you've got to have a good sense of who the other companies are and players in the space. And you've got to understand why this company is better than every other company. What— on what dimensions is it better? And is that the dimension— is that durable enough over a venture timeframe, which is 7 to 10 years, or even, you know, maybe 10 to 12 years now? You've got to do work, you've got to be thoughtful and patient. Remember what being concentrated does, it gives you more time. It gives you more time to meet companies, it gives you more time to think, it gives you more time to be helpful to companies, but you don't feel the pressure to deploy on a monthly basis. If you look at a 30-portfolio fund over 3 years, which is the initial deployment period, you're basically almost investing one company a month. That's incredible. I almost feel there's pressure on the folks who do 30 to 40 to do basically one company as a partnership per month. And if you're doing Green Oaks, I think if you were to ask me who's one of my favorite, Neil, you mentioned Neil was on the show. There's 7 funds have basically what, 65 companies overall, or 6 funds have 65 companies, 11 companies per fund.

He's an absolute beast. He's got 10 companies that have returned over $2 billion. Pretty incredible. The shit thing about my life, Gokul, is I hang out with these people and I just leave feeling like a total loser. You know, just like you leave Mickey Malkin and you're just like, yep, no, I didn't do the Robin Hood round. Yeah, I mean, just—

I think you've gotten better with every one of those interviews. I've seen just your style and just your investing. Who do you learn from? Entrepreneurs, most people in the arena. I think for me, since I'm so— and our firm is so trend-driven and we really care about what is the thesis, what's the market— the best way is I think you can talk to investors, but they're always one click away. You've got to talk to people who are in the trenches building products. You've got to understand what's changing in their lives, how they're thinking about the customer. And so I think you've got to Today's world, you've got to stay close to the model companies, for example. So I have people that I meet with at each of the model companies to understand what's coming down the pike, how they're thinking about the world, et cetera. Because like you said, you've got to also understand, we always use a joke, this joke, like this was 10 years ago. If you're a startup which is directly in Google's roadmap, like directly, you should not be building it because Google is very good when something is directly in roadmap, they're like a tank, they'll just roll over you. Roll. Even slowly, slowly, but doesn't matter. They were implacable. They would roll. But if you're even 10 degrees to the side, it's very hard for them to like move like that. So you're generally safe because it's just not— they're just rolling in one direction. I think you just want to know what direction the, the turrets or the guns are pointed at for each of these models. I mean, there's one part of these is what the labs are going to do. The second part is what a customer is going to do and what customer behaviors there are. And so you want to to— I think you do learn from entrepreneurs a little bit to better understand who are the companies, but then you want to go and talk to the companies themselves and you want to understand. You talk to 3 or 4 companies in the same space, you very quickly— I think I'll never forget, I think people who met Tony at DoorDash and many of the other folks who are fundraising at the same time, they always felt Tony had a deeper understanding of the same market than others globally. And so you basically want to meet. That's why I think my biggest regret is— one of my biggest regrets is actually passing on Vanta because I met Christina, but I had already committed. I was like, this person is going to win the market, but I had already committed to another company in the space. And sadly enough, I believe in once you invest in a company as an angel, I didn't have the time to scan the landscape and meet with all the companies in the space. And that's what I do now. I have time. So Vanta will be definitely part of my anti-portfolio. I think it's part of yours too, if I remember correctly.

Oh, don't. Elad sent me and he was like, dude, this is amazing. This is amazing. Every time Elad sent me something and said it's amazing, just fucking do it. Do not think you're smarter is my takeaway there. There are other people when they do it, just like, do think you're smarter. I will leave them out of it, but there's some friends where I'm like, you've consistently sent Get me this, it is shit. Anyway, we mentioned WeWork earlier. I use WeWork as an example with Miles Clements about selling. I'd love to hear your thoughts on how do you think about when to sell? Obviously we have investors, you have LP stake. They care about DPI today more than ever. How do you think about liquidity and when's the right time to take chips off the table?

As an angel, I used to hold till IPO. So Figma had many liquidity opportunities during the years, but I kept holding it for 13 years. Until it went public. I think at the IPO, it was actually priced very nicely. Unfortunately, after the IPO, it has been more challenging price-wise. But I think as a fund investor, it becomes interesting. I think there are two situations. One of the things I think most early-stage firms get wrong is they just focus on MOIC. They don't focus on IRR. MOIC is multiple of invested capital. I think IRR matters a lot, as you know. An LP told us about a firm that gave them a 7x MOIC over 20 years, and that was a teen's IRR. That is like, okay, there's something crazy here. That is a venture firm. You've got to look at go-forward IRR and your projection. If your go-forward IRR at every liquidity opportunity is lower than what you are basically promising your LPs or what you think your fund should have, I think you should sell. I think you have an obligation to LPs to at least sell. I like Fred Wilson's strategy around selling, which is sell a third, hold a third, and trade a third. This is when the asset is completely liquid. But in this case, I think you want to sell at least part of it, especially if the asset is a company that'll return a chunk of your fund. So if it's going to return 20%, 30%, 40% of your fund, I think you owe it to your LPs to sell a piece of it, especially if the go-forward IRR is not compelling.

On top of that, you then have the whole period after the IPO where you have, you know, obviously your stock.

Exactly. And you don't have— exactly. And that's another uncertainty. So I do think the secondary markets have been one of the best or most interesting developments over the last few years. And so now all these great companies have pretty liquid secondary markets where you can sell, sell shares. Obviously there's ROFO and so on the company has. I do think there are these hyper liquid periods in the market and now is one of them. So I do think one should be very careful and thoughtful about what the go forward IRR is for any asset one owns and really think carefully about whether one should sell or not.

Can I ask you, when you look back at the Angel portfolio, What was the biggest regret?

Pattern matching too much. I think a good example is Quince recently raised $10 billion. I saw Quince 4 years ago when it was at a $100 million valuation and I was like, a D2C company. D2C companies are kind of on the downswing. How good can this company be? What do you— so I literally just dismissed it. I didn't even look deeper into the company. And I think Yeah, I think I—

so what's the takeaway from that then?

The takeaway is that you can't just take an industry and say it's good or bad. Within every industry, within every category, there are great companies and there are mediocre companies, and you've got to understand each company's remarkability and differentiation. Quince, for example, had an incredible 35 to 40% repeat purchase rate, which was like higher retention than most consumer apps. And so I should have paid more attention to that versus dismissing it. It was literally in the blurb and I was like, okay, you know, so what, how big can this get? They were, and so that's everything non-consumption.

Well, what I didn't like, and respectfully, when you said about kind of your trend style of investing is actually some of the biggest misses I also have is when there's an amazing founder that's clearly amazing but operating in a bad space and they pivot 3 months later into a good space. but I turn them down when they're in a bad space and I'm like, I don't care what they're building. I don't care what trend it is. Gokul, you're amazing. If you're selling pillows, I'm in.

If you're a seed investor, if you're a pure seed investor, I think you have to do that. I think that's what YC does, right? I think that's actually the right way to do pure seed investing. First Round Capital, I think, is one of the best seed firms. Guess how many companies they have in their each fund? 80 companies. Why? Because you've got to take 80 bets, which means that some of them— and YC, of course, best seed investor of all time, or pre-seed. I mean, you've got to take hundreds of bets because most companies will pivot. But I think as a concentrated portfolio, you've got to basically understand the business and you've got to bet on both the business and the founder. Unless again, the founder is an N of 1 founder in a space. I think there are two categories of— actually, there are three categories of founders. In some ways, there are repeat founders who know a space exceptionally well, who've done it before. You're betting on them again and again to do it. Security is a great example. Security is full of repeat founders. They know the market, they know the history, they know the customers, all of that. But then there are consumer companies. Consumer internet is full of first-time extraordinary founders. Mark Zuckerberg, Larry Page, all of these are are just first-time founders. So those are two archetypes. The third archetype that has come up is AI labs researchers. And so I think that one is a more interesting bag where you have, of course, Dario and the OpenAI folks, but then you have a bunch of other labs that came up and ultimately didn't turn out to be anything. So you want to, for these kinds of folks, you as a seed investor, you just want to blindly write a check into them. A brilliant young person who's done something extraordinary, a repeat founder, or maybe an A-lab researcher.

Will you do a Frontier model, uh, a Neo Lab, uh, Periodic Labs, uh, uh, ineffable, where they're clearly fucking amazing people, pedigreed to the hills, but the price is in the billions? Not possible.

I don't think with our fund it's possible. I think the ownership is Literally the first round for these companies is, like you said, $1 billion. So I think it's just too high. The risk reward is just not worth it.

Are you seeing the mega funds cannibalize the business model of our Series A?

They're playing a different game. I think smart founders are— look, I think very highly of the mega funds. They've basically gone and they deploy $15 million checks almost as an option and a lead generation for the next round. And their strategy is obviously to have an index at the A of every single good A company and then double down on the ones that truly matter and triple down and quadruple down and do SPVs in them and do specialized funds in them and so on. And I think it works. It works for LPs in some way. It's a different asset class than the funds that the early stage funds. But it's different. I think smart founders, good founders have started to look beyond just the fact that they can get $10 million very quickly from a mega fund and say, what am I getting here? We see many examples actually in mega funds of partners leaving the fund and the companies orphaned within the mega fund because their partner has left and now they don't have a single person to advocate for them in any way, shape, or form, and they're adrift. And anybody who— so repeat founders, actually what is interesting is repeat founders are most likely to essentially know and see behind just the glitz of a mega fund in some ways, because many of them have gone through, especially the ones that have started a company in the last 5 or 6 years. We have many stories where the mid-level partner at a mega fund has left who was their partner, and then they're like, okay, shit, I basically don't have and advocated in the fund. And I now am left with a person who I don't know and they don't know me, and they're joining the board, my board. And that's a tough one.

You've seen Niko Bonatsos, you've seen Max Gazour, you've seen Arafian Mohammed, you've seen— are we just seeing the start of this continuing wave and there will be a huge amount more spinouts, or do you think we're going to see that curtail?

I think we are going to see more spinouts. I do think there is a limit, but I do think you're going you're going to see these mega funds train again more waves of investors. And these investors are going to realize that being a mid-level partner at a mega fund is not all it's cracked up to be. So they're going to spin out and go back to the way of doing things that venture used to be 20, 30 years ago, which is a small group of partners building deep relationships with entrepreneurs.

Listen, dude, I want to do a quickfire. So what have you changed your mind on in the last 12 months.

I used to think pure remote would, uh, would scale for early-stage companies if you had the right culture, but I don't think that anymore. I think you've got to be in person at least a few days a week.

What, what made you change your mind there?

I think just seeing a few companies where literally the companies died because the founders were unable to agree. They had everything going, but the founders were just not in the same place, and they were just not able to move fast enough and agree and align on the strategy and change things. So iteration speed just suffers massively if you're remote. It doesn't need to be 5 days a week, but at least 3 days a week.

Biggest advice to a young person leaving university today?

I know it feels exciting to start a company. Everyone's doing a startup. AI is the new wave. But my strong advice is to first get 2 to 3 years of work experience at a company, at a good company. You won't regret it. You'll learn a lot. Both the experience and the network of people will be invaluable for you. So just 2 or 3 years. Don't be impatient. Life is long. Work, get some work experience before starting a company.

You've got to answer an unfair one. You've got to invest in 3 different types of funds: a seed fund, a Series A fund, and a growth fund. Which 3 are you choosing? And they can't be mine.

First Round Capital, First Round Capital, and Benchmark, where I've been an LP in both, and then Green Oaks. First Round would be the seed, Benchmark would be the Series A, and Green Oaks would be the, would be the growth.

Well, that wasn't a hard one, was it? You thought about that. Most people are like, oh, I can't do it.

LPs asked us this question. They basically said, I don't know whether they were asking us for, they literally asked us, okay, what's this? So I've actually answered this question LP before. Dude, that's fantastic.

What has been the hardest decision that you've made in your career? You've left amazing companies.

What's been the hardest decision? Leaving Google. Leaving Google. I think there was a saying, you leave Google only once. So leaving Google to start a company, I was on a pretty incredible trajectory there. I was learning a lot, really enjoying it. It was really tough to leave Google. I don't regret it, but it was very, very hard to leave Google.

Who's the best CEO you've ever worked with?

All four of them. Larry, Mark, Jack, and Tony. And now Brian Armstrong, Bill and Ben at Pinterest. It's a hard one. I think all four of them are different superpowers. I would say the best technical CEO, Larry Page, the best growth-centric CEO, Mark Zuckerberg, the best design-centric CEO, Jack Dorsey, and the best physical world operational CEO, the most likely to be Jeff Bezos next, Tony Hsieh.

I'll take that. That's a good one. What's the biggest miss? We've said Vanta.

Is it Vanta? Quince. Quince, man. Most recently Quince. But to be honest, even bigger miss than that in some ways. It's not a miss in terms of investing. It's I couldn't predict that Facebook could be a $2 trillion company. When our company was going to be acquired by Facebook, I was arguing with the core dev team at Facebook and we were arguing over the terminal value of Facebook and we had to put China into the mix saying, basically entering China will get us to $40 billion in market cap. And we were arguing whether it was $20 billion or $40 billion in several years from then. This was in like 2010 and turns out in less than 10 years, 11 years, it was a trillion dollar company. So when these things work, they work in a scale that is unimaginable. And even at Google, I remember very well after the IPO, I was there doing the IPO and we were sitting around with a bunch of PMs and we were saying, man, the company's valued at $30 billion. It's too expensive, too expensive. And so you just, these things compound and it's just incredible to see these things become trillion-dollar companies. So Facebook and Google in some ways the biggest misses in terms of not being able to predict that they were going to be multi-trillion-dollar companies.

Which angel investment is the highest multiple?

Figma. What was the multiple? Uh, 5 of it, between 500 and 1,000x at the time of IPO, but it has sadly gone down since then.

Oh, 500 to 1,000x. Jesus Christ. Um, tell me, final one: what most excites you about the next 10 years? I like to be optimistic. I think we have too much pessimism. What do you like I'm really freaking pumped about this.

The most ambitious entrepreneurs are finally tackling the hardest problems. I feel there is the ambition with AI especially has unlocked is just incredible. So the ambition of entrepreneurs tackling the hardest problem facing humanity and society is just absolutely incredible. How can you not be optimistic when you have Elon going? I mean, I think we have now these entrepreneurs who are role models are not just, you know, building these, you know, small companies, but they're truly taking on humanity problems. So the answer to Peter Thiel's question of, we were looking for flying cars and we got 140-line, you know, what, 140-word, uh, uh, 140-character apps, I think has been— finally, I think we're coming— it's coming into focus.

I've got to ask one more, but you said about Peter Thiel there, obviously has the Thiel Fellowship and a preference for young ambitious founders. We're seeing this mass massive movement towards very, very young founders. We mentioned Makur earlier, who are brilliant. Are you in line with the shift to the earliest, youngest founders? And how do you feel about that shift to super young founders?

I think I actually am a huge fan of it. I feel even in companies, I feel some of the companies that are not hiring young people, they're making a huge mistake because young people are more AI maxed, as you could call, like looks maxing, AI maxing. Than anybody else. In fact, I think the younger people are adopting tools better and they just live and breathe differently than others. So I'm a huge fan. I've actually invested in more dropouts as an angel now over the last few months than I have invested in the rest of the last 15 years I've been investing. So I don't think it's the right thing, to be honest, for many of them to be dropping out and starting. I do think they could benefit socially, emotionally, etc. But some of them are just exceptional. I don't think all of them are, but I do think this crop is going to produce some incredible founders.

Gokul, dude, I so appreciate you. I've got so many notes. I had to go on different sides. Um, this has been fantastic. So thank you so much for being so amazing, dude.

My pleasure, my friend. Look forward to doing stuff together.