Kevin Hartz: "How I Lost Airbnb at Seed Because of an Exploding Term Sheet" | E1180

Nvidia becoming the most valuable company on the planet is just the precursor towards the bubble of all bubbles. If you look historically over the decades that if you just sit on all the companies you know and most will go to zero, your power law winners will be so massive they'll just dwarf everything else. I'm not in the practice of selling. I'm in the practice of finding and building companies and sitting on these things for life.

Ready to go, Kevin, I cannot believe that we have not done this in person before. First, it's wonderful to have you in London. Second, thank you so much for joining me today.

Thank you, Harry. It's wonderful to be here in London.

That is so kind of you. And as I said, I love doing this in person. It's so much nicer for me, dude. I think so much of who we are is shaped by our childhood. So I remember when my mother got our masks and it really was, it was hard, but it was very defining moment for me. When you think back to your childhood, what was a really defining moment for you? That sticks out in making you the person that you are, Harry.

You know, I always look for founders that have overcome some incredible obstacles or kind of moved mountains. And my childhood was fairly uneventful. I just had an idyllic childhood all the way through, you know, wonderful parents, and went on to Stanford University. I'd say I hit my kind of life sort of crisis or, or uncertainty post university.

What was that?

I would just say I had a crisis of, of how I wanted to have an impact on the world and very fortunately happened to be in the right place at the right time. And that is in Silicon Valley during this incredible first wave of technology innovation in the Internet boom. And so I was lucky.

Can I ask you a weird question? But did you think that you would be successful when you were young? Often people have sometimes inevitability of success. They knew that they would be successful.

Most people I talk to that are founders that have gone on always knew from the very beginning. And I would look up at my father, who is now a retired attorney, and I would say like, wow, how am I ever going to be do better than my dad? He's a partner at a law firm. Wow.

I love that. And it also goes against the like what you hear, which is like, I always knew I would be in this inevitability, which is almost quite hard for people listening because it's sometimes insurmountable. Do you know what I mean?

It is. And I think it wasn't a drive for Success, it was a drive for learning and really not to be bored. And that's why Silicon Valley. And Harry, when I say Silicon Valley, I'm no longer kind of referencing the geography. It's the wider technology ecosystem is just so intriguing, so intellectually stimulating to all of us. It's like why we really do this.

I think your childhood shape us, but so do the people around us. And I spoke to Julia before the show and she mentioned three people in particular who maybe shaped a lot of who you are and how you think just from the time that you spent with them. One of them was Peter Thiel. And as I wanna start on this, I'm a huge Peter Thiel fanbo. What are your biggest lessons from Peter and how did Peter impact your mindset?

Yeah, I'm a huge Peter Thiel fanboy. It's the things he says are indelible, like these. He'll say things that maybe don't register at the moment, but then later on you'll really understand what it meant. And he just is somebody that. He sees the world in a different manner. I would say that Peter, like a lot of people at Stanford, is incredibly brilliant. But it's also that he just views the world under a different lens. And with that lens he can kind of tease things apart and interpret things in a way, you know, that when you look at an object or you look at, you know, one of these tests of an inkblot, he'll see something very different from everyone else.

I spoke to Roloff last night, actually. We'll get to what he said, but I am interested. He's again another hero of mine as an investor.

South African Peter and Roloff, unbelievable.

What South Africa sports these days. What did you learn from Roloff?

Roloff was and is just always metered and always has sound advice. I. I don't mean to make him sound like a boring person or anything, but he is, you know, in the biggest crisis, when, you know, the ship is being thrown left and right, he is steadfast and calm and, you know, as Jeff Bezos said, is always is mostly right. So, you know, somebody of such good judgment and insights and so worldly, is absolutely somebody you want. In your back corner.

Absolutely is. The final one is Pierre Le Monde, who is an interesting one because it's a different profile to both Peter and Roloff.

Not South African, French, totally.

And also operator based.

Yes.

So Pierre, what was the lesson there?

Well, Pierre is all about excellence and you know, how do you up level to be the greatest company in business and operator that you can be. And he always had extremely high expectations of everyone around him and the companies that he's involved with and maybe to give an impression, because I think it's very applicable today. When he led the investment for Sequoia, it was Pierre and Roloff. Roloff was the junior partner, had just joined from PayPal and invested in Zoom. And when he led that investment, we started to have regular one on one meetings. And in the very first meeting I'll always remember, he said, kevin, I want you to go up to the whiteboard and I want you to write your direct reports down, but I want you to force rank them, you know, one to seven or how many was. And so I, I go and I write the seven names down and he picks up the, he picks up the marker, walks over to the whiteboard and he crosses out the seventh name and he says, fire that person. And it was shocked to me, but I do see what he was trying to get there. And that is that excellence has to abound in an organization. And it's, you know, it was no room for error and he was sending a very powerful message by doing that.

That is such a good lesson. And just the seventh, I mean, it's in the nicest way. Like, what about the sixth? They're not really good enough either.

They might have been crossed off later on, but we won't.

You know, it's funny, kind of speaking about kind of the talent assessment there, you know, Roloff, your wife, many other people, founders that you've backed said that Kevin's greatest trait is his ability to spot truly unique talent very, very early. This is from Roloff saying that you're the best in the world when it comes to this. How do you identify true talent from people who are just pretty good at selling?

You know, I'll say a few things. I like kind of head shrinking, you know, teams and CEOs. I like, like you asked, I like to learn about their background. I like to hear what hard obstacles they overcome. And so I got a little embarrassed when you asked me about my background because I probably would have never given myself a check for like growing up in an easy, waspy, white, middle class American town with, you know, no hard upbringing and a town full of lawyers and real estate people and doctors versus, you know, people like Max Levchin that, you know, escaped from Eastern Europe and, you know, Chernobyl.

Let's play a game. How did you first make money? Did you ever do anything when you were young in Terms of anything entrepreneurial.

Quite a bit. I did, you know, I always had like a little shtick going. And I wonder, you know, I do wonder where that came in in college, first one. Well, I mean, I would say I was always kind of like selling things on the side in, like my teens. But in college, I actually had a Facebook business, pre Internet. Oh, my God, that's old. It was called Faces in the Crowd and it was a picture book of students on campus. And, you know, we would get all the students photos and we would get advertising from, you know, all the local places and then we would sell the books. And I think I should probably go after Meta at this point now. Right Is the time.

Did you do well in school and did you enjoy school?

I loved school. I loved learning. I. I had a ADHD and had to take such a broad variety of classes of every sorts.

Okay, so it's interesting you just said that you wouldn't have given yourself money, but, like, when you actually do the background test, which is exactly what I just did on you on founders, like you would smack bang in the middle of my. I'll give you a check. Why great entrepreneurs always start something early. No one starts something when they're 25 having come out of MIT or Stanford for the first time. Always your entrepreneurial flair early. In two, you either hate school or you love it. People that are okay tend to not be great. Really interesting. The binary is where you get great. And then also, like ADHD is another, you know as well as I do, clear sign of like, the best founders have it. Can I ask you a weird one? And you know, I had Aara from Service Titan on the show last night. I had Daniel from UiPath on the show couple of weeks ago, and they both said if they had got $5 million rounds in the early days, the business would not be what it is.

Yes.

And I worry that we have too much capital too early and that great businesses are being destroyed by too much capital too early. Do you fear the same?

We're vehemently in agreement. This is, you know, the challenge of our time. I feel there's like Boyle's law as applied to capital. So if you raise $1,000,000 round for your seed company, you'll spend it and build a company with that million. But if you raise 5 million or 10 million, you'll spend it just the same and get to the same milestones. And so, you know, it's kind of like the capital expands to feel like the bank account, but used in the same manner and we're kind of awash with capital. So this is a period where we have so much capital, so little hands on assistant in insights and then, you know, we don't need like the 80s or 90s to come back where venture capitalists would like strangle founders and throw CEOs out of office after you know, two quarters, but there's no checks and balances. And so even the best founders have a lot of trouble when you have so much capital and, and so little oversight that you, you know, kind of drift a little bit. You don't have the same kind of tight discipline that you have if every little penny counts.

Do you think VCs add value? And when you say about oversight and governance, I get you from the fraud perspective, but on the trust side I'm kind of like, listen, if I invest in you, I trust you. And I don't feel like that we need to be kind of the overbearing parent being like governance.

I'd explain it like on a spectrum and I'd put my two favorite peeps on each side. So I'd put Roloff and Sequ on one side of the spectrum, which is more hands on, providing services, providing oversight and insights and recruiting and everything else. And then founders fund and Peter on the other end of the spectrum. That's the belief that, look, if you're an Elon Musk or a Zuck, you just need the money and go at it and you'll figure it out. You don't need a outsourced PR team to help you with these things. You'll solve these. Given those two extremes, I actually lean more towards the Roelof Sequoia side because I've just seen that kind of help and oversight and having that kind of star chamber of great talent cut so many corners of mistakes that would be made.

I agree, but that's just the brand. And when you get Sequoia Invest, there are fantastic people who are like, great. This is a stamp of approval. I want to join a rocket ship. And Secor investing is a leading indicator of that in a lot of talent's mind. I don't think it's the talent teams behind it that make great teams for the companies. It's incredibly compelling founders who leverage the square brand.

The lead director however, does find does help that founder match with those areas of. I wouldn't call it weakness, but areas of go to market or growth, hacking or engineering or reliability just help to cut shortcuts. A lot of these areas that founders will make a few mistakes before they get right.

I would argue that very, very few great founding teams really truly stick together for a long period of time. I think Stripe and the Collisons is a great example of one that has done. But when you look at the majority of great stripe.

You mean the Collisons had a love triangle?

Surprise, Julian.

I had a love. Which it's only two points that a love stick.

But it's actually quite rare that they stick together. So I say actually it's inevitable that they break up. What I think is most important is the spikiness of the single best person, which is when you choose that one person could be Elon, could be Steve Jobs, could be, you name it. That the spikiness is so great.

That's fair.

It was interesting. I had Matt Clifford from ef. I know Matt. Yeah. And he said the single most important thing actually is not the combined skills of the founding team. It is the spikiest point of the Sing founder. That's our single biggest lesson from 10 years of EF.

That is a very keen observation.

When have you got talent wrong and what did you get wrong with it?

Sometimes talent is so raw that they run off a cliff or lack maturity and judgment fails. And a founder is kind of always right at the edge of, you know, I don't want to just say right and wrong, but like right on the bleeding edge of things going dramatically wrong or dramatically right.

Do you prefer serial entrepreneurs or first time founders? Because I always favor serial entrepreneurs, which is ironic given my age. But I'm like, you know, you make so many mistakes the first time around that you just avoid the next time. And you can save so many dollars and so many hours learning the second time. What's your preference on serial versus first time?

Well, I should be, you know, statistically focused on serial. And we back a lot of serial founders, you know, like Chad Hurley and you know, we've. However, I just have a soft spot for a first, first time founders. I, you know, I just. It's, you know, the teens, it's the Bill Gates and his teens or Mark Zuckerberg in his teens or you know, all those that the first time around that it's so spiky or they're really swinging hard. It's that age with the army sends the marines in and they're 18 year olds because they're fearless and they just really go for it. But it's also a period of creativity where I have to say I'm ageist. I'm ageist against myself, where it's almost the Nobel Prize winners have all been, I think, within a very constrained age range of creativity and insight and genius. Or the Beatles, you know, they broke up by the time they were 30 years old. And my goal is to kind of find the Beatles of the tech world, those great teams and individuals and talents, the Paul McCartneys and John Lennons.

Can I ask a weird one? Why did you do Airbnb? At the time it was not obvious. It's famed how many people passed. And it's a weird idea when you can view it in isolation and put it in context of the times, which is people would let other people stay in their homes and they don't know them. And that would be a business.

You know, these types of seeds like the seed of Airbnb, the seed of Pinterest, you know, at the time, even seed of, of PayPal, you know, were very non obvious. And in the case of Airbnb, you know, it was the passion. You know, we'd go over to, I think the loft was on Natoma or there was a street which Tehama maybe that, that Brian, Nate and Joe all lived together and they were building together and we'd go over and hang out with them and you know, they were just working nonstop and you know, and I think, I mean, I like to think about Airbnb as kind of distributed storage, but not for bits or images or sound or video. It's distributed storage for people. You can have a EMC big drive like on prem in your enterprise or you can have things distributed and it's far more efficient and cost effective and so on. And when you think about Airbnb, they built the kind of perfect, massive distributed hotel throughout the entire planet. And what a wonderful business. And what it was, what they conceived in that in those days in their loft is what is here today, a massive scale.

Can I ask, how big a check did you write into the seed round?

It was a fairly small check. Now granted, we made them an offer. I was angel investing and working on Eventbrite and I was angel investing with Keith Robois and Javed Karim and Javed is the co founder of YouTube. We just fell in love with those guys and made them an offer and Sequoia outdid us and got the lead. But they cut us in nicely because Brian, Nate and Joe seem to like us and Roloff as well.

Can I ask, do you concentrate capital on the way up and was it an obvious winner? From day one we were able to.

Put some amount of capital in the a that Reid Hoffman led, which thank you, Reid, for making some room there. But then from our perspective, it popped so fast to a billion valuation. At that time in 2011 or 12, it just seemed like, okay, it's run away from itself. So we never really had the chance to concentrate capital. And mostly because it was such an efficient business that just didn't require the rounds that other businesses like Facebook seemed to be raising quite a bit. And there was a lot of activity and a lot of secondary. In Airbnb, there was almost zero secondary.

Bummer. Bummer. Which depends which way you want. Yeah, it depends which way you want to do. Do you always hold? Do you ever sell? Like, my biggest mistakes the last year is, honestly, Kevin, were be real. Hopping a clubhouse. I could have sold in all of them and I didn't. Any big lessons for you on selling on the way up?

I just kind of feel that if you look historically over the decades, that if you just sit on all the companies and most will go to zero, your power law winners will be so massive they'll just dwarf everything else. I'm not in the practice of selling. I'm in the practice of finding and building companies and sitting on these things for life.

You mentioned the liquidity word there. And this is the thing that changes when you move from angel to venture fund. You know, you manage other people's money, often institutions money they have liquidity needs. And if it's your angel money, fuck it, let it ride. You know what, fine. But if it's fun money, sometimes you'll need to show liquidity for the next fund. Sometimes you'll have pressure from LPs to get liquidity back. There is a change in how one views liquidity. Sometimes, not always, but sometimes. I'm just fascinated. Kevin, why did you move from angel to vc?

I mean, I like a challenge. And sometimes venture people aren't so nice. You are, Harry. Don't get me wrong, I loved angel investing, but it's just time to graduate up to the big leagues. And that's kind of the story here. Probably not, but we'll have to prove to the world that we're worthy. So back to the Sequoia file side of things. Things is, I love how Sequoia says we're only as good as our next investment. And, you know, that's the mindset is you just can't say, oh, back in Airbnb and Pinterest. And what is that? Jason Calacanis loves to talk about his investment in Uber.

I mean, I'm amazed I didn't know he did Uber. That's such a surprise to me. Kevin. Well really, that's fascinating. I used to listen to him when I was running and every time like you know, been, I've be dying running and then I'd hear, you know, when I invested in Uber and I managed to like survive to laugh. Very funny. But you know, I respect him intensely for his duration. He taught me one thing that's very important in media. It's a simple game. You just have to survive longer than anyone else.

Oh my God, has he ever as.

He has done and it's just incredible. So like funny one there, he used.

To call me up for the reason I have to like throw him under the bus a little bit with the Uber, Uber stuff is he used to call me up at Eventbrite and scream at me like for, you know, he had a big rivalry with TechCrunch and when we would ticket things for TechCrunch he would get really angry and like just call me up and scream at me for doing that.

That's very funny. So when we think about A today, how big's the fundamental?

We're in our second fund. We're just starting to deploy it. We're a $300 million fund, 600 million total under management.

Okay, so with $300 million fund, where are we in the stack? We're pre seeding A, we are pre.

Seeding seed and then some B, you know, kind of this 70, 30, mostly seed. But then when we see a great B, we love getting involved.

Okay, so we're kind of this interesting barbell approach where we kind of skip the A. Yes, but then we precede seed and then B.

Yes.

How many seeds do we have?

How many do we in the entire. Dozens at this point. We launched about three years ago.

Do you do like market sizing analysis? Do you TAM outcome scenario planning? How do you think about that?

There's always this discussion and people say oh tam and tan, you know and like I think it's this like brute TAM analysis is maybe overdone. I'd focus more on the teams. You know, great teams always find their ways to kind of slingshot from a market, from the small market to the big market or it takes the small market to become a big, to get into a big market. So I think it's more of a qualitative assessment in most cases.

I've got to be blunt. I think seed market right now is not a good place to be investing. I find multi stage funds have become so aggressive at seed and provide a good product that actually it's a new enemy or competitor in many respects. We have incredible founders like the Collisons, like Dylan Field, like Daniel Gross, who are investing and creating a new class of competition. And then we have all the existing competition from traditional seed funds and pricing is as high as it's ever been.

Yeah.

Am I wrong?

That's terrible. Nobody should go into seed. I would just everyone should cease all operations investing in seed.

You joke, but like when 5 on 25 is the average, average entry, which it is for great companies or great founders spinning out, that's a hard business to be in.

Look, without a doubt we're out of that era where an active investment for certain traditional funds, they had to own at least 30% or they couldn't be actively involved. Those days are kind of long gone.

Do you have ownership targets?

We do. You know, we try to be. We target the double digits but you know, there's always the exception, as we all know. Like we would rather be with a smaller ownership with an extraordinary founder than, you know, high ownership with a company that goes nowhere.

That's interesting. Do you worry about accepting smaller checks where you're not leads in rounds? Because then you'll be known to accept that. We have this internal debate always of like, do we need to lead every round or not? Because if you don't, your competition will use it against you and say, Kevin's amazing, you should have him. But he does take smaller checks and so he doesn't.

Well put. That's, you know, and so maybe I'll put a personal check in or something like that. But the fund, you know, we've got a leader, co lead.

Do you think we can go back to an environment of cooperation? It feels much more, more sharp elbowed.

It's much more sharp elbowed. But maybe it's reverting to the mean. Because, you know, I think in, you know, in times past, in 80s, 90s and so on, you had these high ownership percentages but greater mortality rates and just the extraordinary outcomes that we've had over the last couple decades of trillion dollar business now. So the stakes are very, very high. But it does feel like a period of less cooperation and there needs to be specific reason why funds would work together.

One kind of aspect that's an interesting aspect is like operators who are also investors. Do you think it makes you more empathetic? Because I invest with a lot of amazing founders and they are hard on founders, much harder than VCs are because they're almost kind of in the chair. They're like don't give me that bullshit excuse for missing your revenue numbers. I miss mine too. Like quit whimpering. And I'm like oh, I wouldn't say.

Well I mean, you know a lot of venture investors are sociopathic. So that's part of the explanation. But I kid sort of. But what would I say about that? Empathetic, you know, look what we've seen. I want to say that operators are the best. And there used to be a vibe in the Valley that said oh you got to be an operator to be an investor, a venture investor. You've had a walk in the shoes and that's changed. And you see a lot of you see a journalist become one one of the greatest venture investor. Michael Moritz slash Harry Stebbings.

Thank you so much.

And then what else have we seen? You know, we've seen people just go Bill Gurley come from what was banking, you know, side of things. Jeremy Levine from Bessemer was always in venture, he never operated. And he's just been an extraordinary investor over the years.

It's an interesting one of like what is the most successful entrance point and is that just because of historical pathways? That's what it was. I think of like Roger Aronberg at IA Ventures. Probably one of the best actually in terms of DPI at scale. I don't even know Roger. Banker, girly Banker, banker. Mary Meeker banker. Don't know what Fred Wilson was before.

What was Fred Wilson?

I have no idea.

He's extraordinary.

He's extraordinarily good. I totally get you and I agree with you. Talk to me about the B side. That's an interesting one. How do you think about reserve allocations? Is that reserves on the precedes and the seeds?

No, the Bs are separate. These are new investments. For example, we led a bee about nine months ago, 10 months ago in a company called WOP that is serving the country of creator economy. And that is just a hyper fast growth business.

How big a check do you write for that then? Not for that necessarily but like the bees. If you're leading a bee, 10 to 20, 10 to 20. Do you have a big enough fund? If we say the average then is 15 and you need 10 to 15. You're at 175 to 200 on bees.

Your math is. I was told there would be no math on 20 B.C. but you know, perhaps, but I guess it's a world class problem to have to be constrained on capital. I've always found that it's hard to find good places to get capital to work. And when you find it, you just go for it and you'll find a way to get more capital there. So it just feels like the capital trickles out because you've got to be very patient and patient and patient and wait and wait for those great companies.

Are you finding B a better place to be right now? People often talk about like, B is dead and C is dead.

Oh, God. G is far from I. I mean, all the time that, you know, especially 18 months ago when it was crickets, like, what a great time to have been to be investing in, in that area. I mean, it's been actually great. And, and so whenever somebody tells you that an area is dead, make sure you heavily, like, canvas that area and go after it hard because there's great stuff happening there.

Have you found your mindset change on companies that you like moving from angel to vc? And what I mean by that is like, you know, you don't always need the massive outcome when you're an angel, for example, like a billion dollar company, if you get in early enough, great, fantastic, awesome. But when you're a vc. Yeah, but actually that might not even return the fund. And sometimes the mindset really changes. Were there any core changes in what you found attractive and an investment changed between being an angel and a vc?

I think I've just been lucky to have always been around people that have extremely high standards, aspirations for far beyond just returning a fund. And I just kind of turn off. It's great if somebody wants to build a nice sized business and have a good cash flow and operate things. But we're looking for those extraordinary outsized outcomes.

Do you think you can predict them? When you look at Bessemer's memos, ProCool was a $300 million company, it's now 10 billion. Snap was a 500 million dollar company. Shopify went public at 700 and I think they sold it all at 2. Your biggest winners, you always underestimate the size of. If I told you airbnb is the size that it is today, you'd be. I never expected that.

Well, certainly. I think that the Internet space just expanded beyond our wildest notions. So these markets, I think about remittance, where Zoom went public in 2013 and PayPal acquired it in 2015, but that market expanded so dramatically, you know, since then. It's that kind of vote or that reaffirmation that, you know, maybe you should stay independent because you can just keep compounding and compounding in the market.

Yeah, it's funny when you look at venture, there's the sourcing, there's selecting, servicing kind of three core pillars, pre investment, kind of pre selling that make a great venture investor. If I were to ask you what are you best at and what are you worst at? Where would you rank the 3?

I'm lousy at selling. You know, I just like, I can only be kind of sincere in what I offer. You know, I'm, I might be a little irked when I see somebody like overselling or BSing a lot or trying to find ways to kind of win a deal. I don't think you should win a deal. I think you should earn, you know, the right to, to work with a founder for many, many years.

Are they not the same?

No, they're very different.

How are they different?

Well, I see a kind of slick used car salesman kind of mentality, which is almost like a pool. The founder, get them to sign, dupe the founder into signing versus really what's best for their business and so on. And, and that's what I maybe offer. Sincerely. Sourcing is just a factor of. Look, as I spend more time in the Valley and have a lot of great relationships of founders or other investors or so on, the network is very, very broad. Yeah, selection. What can I say about that? It's always a sin of omission. You always think about the ones that, that you let through or didn't, you know, didn't pursue.

What one did you not pursue that you think of most. And what is your subsequent reflection on that?

Oh, so many. I mean, you know, we could do a whole show on that. I mean, let me start.

What's the first one that comes to mind?

Well, I think of when I was stepping down as CEO of Zoom. Keith and Roelof held a lunch for me in the city in San Francisco. What was the name of that place? And Keith was talking about this YouTube thing. I was just kind of burnt out of like, you know, it was like a, it was a very bittersweet, shitty time to be stepping out of Zoom. And I'm just like video on the online. That's so stupid. You know, like what. And Chad was a graphic designer. How would Chad know how to, you know, so just completely missed that YouTube thing. Thing, for example.

What's the reflection on that?

The reflection is very clearly your mindset is always be positive and open minded. Like you might, you know, let's say, you know something terrible, you're having the worst day of your life and you meet a founder. Like you still have to believe and you, you still have to have that, you know, that view and really, really listen because that, that mindset, if it's off you, you know, this little casual interaction becomes something really crazy.

It's the thing I love most about this business, actually, which is unlike any other job, I think, in the world. One single meeting can change the life of you, your family for many generations. I say to the whole team, you can never be off with the founder, ever. It's so true and it's so important. I think people forget that. Are you honest with feedback to founders?

No. Totally dishonest. It sucks.

But seriously, sometimes it is the founder that is the problem. And you're like, honestly, I just don't believe in you. I don't think it's right to send an email back saying, I don't believe in you. I'm probably wrong. Who am I to say that you're not good enough? So I shouldn't be honest.

But there's always good things to say to that. You could say, why don't you look for some complementary expertise? Maybe you should bring on board a co founder that can do this, this and this. But. But once you start explaining too much, they have something to do with it just goes back and forth and back and forth and time is short.

So what do you do?

I just unfortunately have to be very curt. I always remember seeing Michael Moritz speak, give a talk about Google in the early 2000s and there were all these founders there and you. He puts his phone up to his face and pretends to talk and then walks out of the building and so nobody would bother him. And that's like splitting the ocean to get away from that.

I totally get you and agree. How do you feel about exploding term sheets? I see them quite a lot nowadays.

Little known secret is Keith Javid and I gave an exploding term sheet to Airbnb and Paul Graham said no bueno and teed off on us. And so, you know, it was nice that we, it worked out. We got cut into that round. But you don't forget things like that. You just do not forget that. I don't think I've ever told that story.

Were you nervous when he said no bueno?

I think he posted on it. He didn't call us out. You know, he chided us privately, but he didn't call us out publicly. He called out the practice of doing it. And you know, you kind of understand.

As well explaining term sheets have a horrible signaling name. Like they just sound. But actually if someone's going to literally go around and say, hey, Kevin Hartz has given it to me at 25. Does anyone want to do it at 30? Obviously that's not great. There is a reason for it.

There is a reason for it. But you would hope that you found a partner that's not going to shop it. And maybe if they're going to shop it, then it maybe wasn't meant to be.

But they're always going to shop it. They're running a process. And you could argue that's their job, to run a process to get the highest price. Yeah, but like, that's my point. I don't want to be in a process.

Yeah, well, look, the, the issue is, is that you put a term sheet out and it like explodes on Friday at 5pm But I sent it back at 5:15.

Did I miss the deal?

But does that mean that at 5:15 you no longer want to invest? No, the investor will always be there. I think it's fair for founders to go out and assess the market and more importantly, assess the partner. And so we just have to unentangle ourselves. There's bad behavior on both sides. There's the obnoxious shopping, like, okay, just, just give us the term sheet and I promise we're going to get this done. I just need a couple days. And then you find out that they went and shopped it like crazy. But to the flip side, a fund can lock a founder down and that founder just hasn't done their work or hasn't been able to do the work to speak to other investors and find out how others could be of help. And so.

So how do you lock founders down? Kevin, this is something. Again, the show is very successful now because I think I'm very open with my struggles. I struggle in locking founders down.

Well, we can't lock them down. Kind of like, you know, that sounds like Silence of the Landcuffs don't work. Yeah, it sounds like Hannibal Lecter.

Those pink fluffy handcuffs don't work.

Yes. Like, it has to be a very voluntary, you know, like we just have to use honey, not vinegar or what's a good British expense? I bet there's a very trait.

Oh, there's some express peanut butter. How quickly do you know when a deal's working and when it's not working?

There's a certain percentage, like there's some that, you know, very early on, you know, you know, is going to be a struggle and then others that wander in the woods that take a long, long, long, long time, and people almost forget about them or you got investors telling these founders to return the money and they stick with it. The most important thing is just patience. And certainly you want them to maintain a sense of urgency, but you just have to see patience because you just see time and time again time as the thing to solve the problems and to get into orbit. And then there's the ones that just work. From day one, what have been your.

Top three value drivers?

You've got Airbnb1, Airbnb Pinterest, Bitcoin. And I was in Wyoming drinking whiskey with Wences Casaris in October of 2011, and he started talking about this bitcoin stuff and what else? Uber.

How much did you put into Bitcoin then?

A good amount. Investors never give you exact answers and you want exact numbers, but investors always skirt around it. I always have a soft spot. It was like a relatively mediocre return because of all the capital. But PayPal going public was one of my first investments from a multiple perspective.

What was that?

Not that. Not that great.

I'd have to look at it at.

28, maybe 20ish or so.

Okay.

You know, but you would think if I'd held it longer, because what happened is that ebay acquired it, and then ebay had a run in the early 2000s.

What's your biggest zero? And what did you learn from that?

It was like a kind of. Turned out to be a kind of classic Sequoia investment that I did with Ruloff was in a company called TokBox. T O K B O X. And it was early live streaming.

No.

Oh, yes. He was there. He was there. Which he went on to go to him.

Kevin. I am a student of this business.

My God. Yeah. Wow. I actually recruited him for that because I knew Jack Abraham, who started Milo. That's so funny. Wow. You just blew my mind that you came up with that.

I'm like, the most useless encyclopedic knowledge of this business.

No, that's far from useless. Like, that's incredibly important to know the lineage of these things.

History is very important.

Yes.

Okay, so Talkbox.

So Talkbox was, you know, live video before kind of FaceTime and all this sort of stuff. And we, you know, like Roloff got involved and led the series A Keith Javit and I had seeded it. Very actively involved in it. You know, just kind of everything that could go wrong went wrong. Scaling issues, market fit. And we even had Tony Bates join, who was, you know, he had joined the board of YouTube, like, after Roloff had. And so we were Kind of like getting that group back together and it just wouldn't take. Now the interesting thing is that, you know, Sequoia found and you know, helped it park with. I think it was Spanish telecom acquired it for like 70 million. So we got like a, you know, a small return, like a 2x or something, but just not worth the. The time and the pain and the broken glass of. Of that. And then it's, you know, the hard part is, is that, you know, it was at that time when Sean Parker was doing something with video. What was the name of that? Oh, and it was.

I know, exactly.

The one where people would put their private. It was a different airtime.

Airtime.

Airtime.

Plato is another one of his.

Yeah, yeah, but airtime. And what was the one where people would live video? And it was this Russian kid and it was. It kind of blew up. It was like the earliest live video stream.

What Trivia hq?

Not that was actually. I was at Founders Fund when we in Cyan.

That was big.

That was awesome.

That was big.

Big.

I remember people used to leave work.

Yeah.

In the UK to be there for Trivia hq.

Yeah. Somebody should bring that back.

I'm with you.

I think there was a tragic ending, you know.

I know. I think there's a real incubator business to be done in. Looking at historic successes that went wrong for reasons that could be mitigated completely. Yeah. Do you want to co found that incubator? I'll put $10 million in if you want to do it.

Let's do it. I'll match yours. Yeah.

It's not a bad idea.

Okay. We've got.

You actually have product market fit around ideas. Like the idea of like time dense concentrated events is super cool.

I mean if you brought HQ trivia back, it would also be this like nostalgic vibe.

But I think the other thing that people forget is just how hard it is to get attention today. I always say this to the team, but I say the only thing more competitive than the computer economy is the attention economy. And actually people don't think enough about how do I get macro headlines. And actually if you bring back HQ Trivia and you and I would put $10 million in each to bring back an incubator that brought back retro hits. You would get in some of the biggest publications, you would get to a big number of users pretty quickly.

What else would we bring back? I want to bring back Hot or not.

Listen, I think Be Real was a fantastic product innovation. There you go. That just fucked it with not doing Enough video man. Yep. And so there is quite a lot that you could actually bring back very efficiently, quite cheaply.

What would you not bring back?

Oh, that's a really good question.

Yeah.

You know, another one that I would bring back, it was a massive cash cow in London. Mad bid. Do you remember mad bid?

No.

You would buy a laptop for about ten pounds.

Oh my God.

You're like, how do I buy a MacBook? Yeah, for £10 to bid you have to put down a pound. And so to basically bid 100 times, you have to put down 100 pounds. And so for a MacBook Air that sells for 10 pounds, it's actually, gosh, what is that? $10,000. So for a $2,000 laptop, they made five times that in bids. Amazing.

Let's bring it back.

Yeah, it was the gamified version of like ebay in a really cool way. So yes, I would do that.

I'd bring back Friendster.

Oh, why?

No, I wouldn't. Too difficult.

It'd be a friggin nightmare. Do you think about market timing when you invest?

Yeah, of course. Human nature is to look at things that are working now and think like, oh, let's build something. You see all of a sudden everything kind of pop up being mimetically duplicative of something that's doing really, really well. And the response is no, look, three, five, seven years ahead, not now or not what's working now in starting something. So that is a big issue, is not looking far enough ahead.

I agree. You mentioned kind of top box and the time that went in and it's like a 2x. There's often a question of where to spend your time in venture and people say, ah, spend your time with your winners, that's what drives you value. But then Fred Wilson says, well, loses where you build your reputation. How do you think about that time allocation on an outcome basis with the.

Portfolio, it's the companies that are performing are the most. You just have so much happening and need so much assistance that that's like, I think naturally where you spend your time and it should be with the companies winning. I do have a soft spot for all founders, so know, you know, we're there and that's why, you know, I don't sleep as much. You know.

If I feel like they're not working hard, I will turn and then I'm not very nice.

You know, I think that's, that's just it. If you're giving somebody that wants to do it is a lifestyle investment, they shouldn't be Doing it with other people's money, just as.

Is it wrong to ask for your money back as an investor?

It kind of depends on the level, I guess. I'm again focused on more of the big outcomes and the things that aren't going to work aren't going to work. It's the Power Law winners that are going to really drive the returns.

Is there a Power Law winner that you thought would be a Power Law winner that didn't turn into a Power Law winner?

I think the jury's still out. There's still a lot of value there in OpenSea. Was a seed investor in OpenSea and during the boom of 2122, it was valued at 13 and a half billion.

Why would you not sell some then, given doing the seed there, Kevin?

Yeah, I often think a lot about that and my mindset was honestly, when you see that fast level of growth, you're thinking about what the GMV is going to be over the coming quarters. And you don't think of it, it as dropping dramatically. You think of it as continuing to head up at a rapid pace.

But it does, I mean this nicely and pushing back. It doesn't matter, dude, you get in at seed. That is an astronomical return that you should at least take some off the table. No. And would you have taken some off the table if you'd done it with the fund at seed?

Well, I guess I should say yes because it only behooves me to answer yes. And there is $13 billion round with KT. Yeah. Was extremely tight. They wanted more stock and so the secondary was there and available so there was a chance to sell. But you would say the same thing about the $10 billion round that Facebook did with Microsoft. And should people have sold that? No.

But if you did the seed, honestly, just pause. Of course you shouldn't have done from a quant, pure quantitative like assessment. But if you did the seed and you had the chance to sell 25 of your holding and return a huge number, 300, 400x and ride 75%, I don't think many people regret that much. Selling the 25.

Yeah, I think it depends on what you're doing. Your goals and outcomes are like, you know, there's something to letting it ride. Like in the case of, you know, Facebook, which is now worth what, seven or 800?

Yeah.

Harry, you're 26. You know, you should be just compounding like your, your winners just like keep them growing and growing.

Do you wish you'd taken more risk when you were younger, Kevin? It's very kind of you to mention. Mentioned a compounding nature and my age.

Yeah, absolutely.

You do?

Yeah. I mean, what, did you not take.

Risk on that you wish you had?

I mean, it's always around an investment or working with a team. I mean, talk to Peter. At the time he was putting the team together for PayPal and I had invested in PayPal and I'm like, why would I join PayPal? You know, like, I'm already an investor and I already have shares, you know, but the answer is go all in. And then when, the day that acquisition of PayPal by eBay was announced, Peter had resigned. And I met him up at the Sun Duck restaurant up on Sandhill Road. And he said, kevin, I'm working on this business and we're taking kind of the fraud algorithms from PayPal that kind of find these associations between disparities nodes, and we're going to use this to catch terrorists. And do you want to get involved? And I said, peter, you're a libertarian. Why would you want something so invasive of one's privacy? And that was the wrong response. Shouldn't have done that. I should have joined Palantir.

Can anyone do a deal?

Can anyone do a deal? If somebody says with absolute conviction, I want to do this and I'll put my life on the line for this, you know, then absolutely.

I think it's really important. I got asked by an LP this morning talking about your voting structure. And I think voting structure is a complete.

Like, seriously, like, well, don't tell your LPs that.

Oh, no, I do, because I always present them the outcome scenario, which is, you know, if you're actually strategic, you always vote a 6 out of 10. Because if it's Uber, I would say yeah. And if it's a terrible company, I was a weak. Yes, it was basically a five. It was weak. So it brings politics to a new level into a partnership that just doesn't need to be there. If I've hired you as my partner and I've given you equal or really meaningful carry, and I dedicate years of my life to working with you, if you really want to do a deal, why the fuck would I not let you?

Yeah, yeah, I thought that. I admire Founders Fund for how individually driven it is around conviction of a single partner.

Did you have any big lessons from being there?

Oh, endless.

What are the biggest that you took with you?

I think it's such a great form of venture that they practice. It is very conviction driven. So. And it's. And it is like, it is the emanation of the power law. It was, you know, it was Peter and Brian Singerman, Napoleon that took. What did they take? I think they sold Spotify at the $8 billion price, pissed off. What's his name?

Daniel.

Daniel Ek. And rolled it all into Airbnb at the two and a half billion. And so they'd like just doubly. Doubly went into things. And so that kind of going all in is very important. And when you look back at a fund, you just don't want something that's just kind of like blah, a little bit of mushy of everything and doesn't have its big power law winners. You just boil funds down to the SpaceX fund and the Facebook fund and the Airbnb fund and so on and so on.

I remember Brian Singerman telling me, the enemy of great venture returns is capital concentration limits on a per company basis.

That's so Brian.

Yeah. You should be 30% in on your big winner. We were on Airbnb. We were on Bitcoin or whatever that was. Always remember that.

I did push them at their AGM around the Airbnb deal. So I give myself a little credit because I'm a venture capitalist. You're supposed to give yourself credit for all these things. It probably wasn't.

You basically found it.

Faces in the crowd. That was mine. But yeah, I remember really saying, like, you guys need to look at this company. But all that is patting on the back. Brian's so interesting because he would just. When I was like ready to go with the company, he'd just say, kevin, you really, really, really believe this will be the one, you know, he just like shakes you, you know, and it used to agitate me a tiny bit, but I appreciate that now.

Do you ever tell founders when you don't believe anymore, when things are not going well, do you just quiet quit, or do you say, you know, kevin, I'm sorry.

Well, a roll off ism, which is always think of is when things are going really poorly. That's when you're supportive and nurturing and not hammering, believe it or not. And when things are going great, then you dig in and like hit them hard. So that was a roll off ism. That's been so key.

Do you think that's helpful?

It's incredibly helpful.

Really.

I know for a fact.

So you think when it's not going well, like, oh, it's okay, and you're supportive and that's nice. It's better than actually, hey, we need to fucking turn this around we can do this. But this is. And that you're much more tough. Sometimes tough love is needed.

Tough love is needed when it's doing extraordinarily well. Like when things are going terribly wrong and there are the, you know, butterflies and stomach, you know, is like seized up and teammates are quitting and somebody's hacked the site or whatever else. You know, all these things like really being a solid, productive voice of calmness and support is extraordinary help. Extraordinarily helpful.

That's interesting.

Try it.

I disagree.

Okay.

I think, I think, I think it's about like understanding what the person needs in the moment. Some people do need that. Absolutely. In its unbelief. Believable. But some people don't resonate with that. And actually they need like for me when it's really hard and I've had some times, Kevin, you know, it was my mom giving me a kick up the ass and saying you gotta wake up tomorrow and be a big boy.

Yeah.

And like stop moaning, get on with this. Okay. But so it's like, it's so individual led.

I find I have to be careful not to put too much pressure on my girls to, you know, in this, in this age of so much intensity in the Bay Area and college. Oh absolutely.

Yeah.

My 16 year old was. We found she had a very severe eating disorder at in end of December. We caught it luckily because it was fairly early on because of her annual exam and so we saw the significant drop in weight. She's a dancer. She has something called sibo stomach intestinal issues. That kind of been another driver of having her limiter food. She was straight a, straight A student. She was under a lot of pressure dancing 20 plus hours a week and she just stopped eating. And she's ended up in the hospital now three times. You know, it's this multifactorial illness that is so prevalent for this times that we're not aware of that comes from social media and dance and all these other pressures and it's culminated in this, this terrible illness. So I'm very cognizant of the pressures we put on our kids.

I didn't talk about this too much, but I was bulimic when I was young. It's. It's the most hard, I think addictional problem to deal with. Hard thing with food. You can't just stop eating. You can't stop your interaction with food.

I understand in bulimia there is a also some gratification posts or some endorphins.

Or a hundred percent.

And in the Reciprocism for the eating disorders is off the charts. So like everything else, it seems like if you have cancer, diabetes, you know, there's so many different treatments and scientifically focused treatments, but in eating disorders there's nothing. And so these kids just go over and over and back, you know, in this circular motion. And I'm, I'm like in shock of how barbaric the treatments are for, for the. They're just non existent. There's something called family based therapy, which is you sit down, eat with your child meal after meal after meal. And it's agonizing because it's, it's like having a phobia and having to, you know, if you're scared of spiders, to be in front of spiders all day.

The hardest thing is, is they have to be the ones to initiate the change.

Yes.

Was it your daughter that did that?

She. We don't know if she's still ready. She has to. You're exactly right. It's like there is a. The thrill or the notion of being thin and being a certain way and not wanting, you know, to change. And that's how she's. We've ended up in the hospital three times and we hope now she's making that right move and that she wants to get better and understands. She had to withdraw from school. She is finishing her semester online through online school, which is a godsend. It's incredible. It's like the Oxford tutorial method online. But she is. Yeah, I mean, yeah, you do have to want it. But I could never imagine like an American kid. Like my sophomore year in high school was great years, like so much fun, close friendships and I don't never knew anyone even withdrawing from our high school before for any kind of medical condition. And then for her to go through this is just agonizing.

I remember with my mother, my mother's an alcoholic too. And it was the hardest thing because for a good few years I just had to watch the person I love more than anything suffer. And there's nothing that you can do that is really hard.

Yeah, I think there, there are many more treatments that should be applied.

You.

Know, that should be more prevalent. I don't know whether it's tms, if you've heard of transmigra stimulation, if I said that correctly, Trans magnetic stimulation. Different ways to kind of provoke the area of the brain and Correct. Whether it's an eating disorder or alcoholism or addiction pathways or so on.

But before we do a quick fight, two of my biggest concerns is actually like eating Disorders. I think young eating disorders in men is one that's really not talked about as well. Especially for boys. It's even more of a kind of. And then just like depression and loneliness. The whole thing is. Kevin, like, our job is to invest in amazing products that hopefully make the world better, have great impact. I think I can't find businesses in that calm or headspace of the world which makes mental wellness health. They're not great businesses. And is this our job?

Well, we hope that there's going to be therapeutics. I mean, the challenge of this era, of our era is neurological issues. Like. And Peter always tends to be three steps ahead of us on all of this. He's been after this area for a while. But as we beat back cancers, as we beat back heart diseases, disease, which unequivocally has happened, Alzheimer's, Lewy body dementia, you know, all these mental illnesses, bipolar, like, these are the kind of prominent illnesses of our time, and there need to be therapeutics developed for it. And so, yeah, this should be, you know, a kind of. There should be a. Just as. I think it was Richard Nixon in, like, the 70s said, let's go after cancer. You know, we need to go after these neurological disorders that are becoming so prevalent in our society.

I totally agree. I could talk to you all day, Kevin. I love the way I haven't really looked at this schedule. I spent hours supposedly doing it, but. Okay, so I want to do a quick fire. So I say a statement. You give me your immediate thoughts. Does that sound okay?

Yes.

So what have you changed your mind on Monday? Most in the last 12 months?

The rapid ascension of the defense segment. Like how it's gone from zero to 60, certainly palantir, then Enduro, but now how the world has dramatically changed and how unprepared the United States is.

What VC do you most respect and learn from?

You know who I spent some time with when they were getting their first fund going was a great group called VY Capital.

Yeah. Alexander Tomas.

Yeah. John Herring and Alexander Tomas. Like, their. Their style and pace and patience and wisdom is. Is extraordinary.

I completely agree with you. And actually very much aligned to your thinking on upside maximization. Like, truly focus on the mega outcomes.

So.

I totally agree.

I'm in a lot of funds. And holy Moses, that fun one is in fuego.

What's the biggest advice to someone entering angel investing, Kevin?

Just rope off some money you want to lose because, you know, you. You got to look at. You've got to, like, take a lot of swings at bat. I think you know Vinod has like a corollary to this that you've got to like burn through like 40 million in venture before you really know what you're doing. And you know angel is, is you just got to start learning in pattern recognizing. You do that by taking risk.

I totally agree with you. I'd also say write the same size check every deal. Everyone thinks different conviction levels. I'll write 100k check and I'll write a 25. You're not that smart at pre seed. Just write 50k checks every time. Super important. Which VC would you most like to swap portfolios with?

Y Combinator continues to have this ideal venture model as much as in every class that comes around. Like the whole valley says, oh, now they've really jumped the shark. They're no good anymore. But like year after year after year they just keep producing these incredible companies.

With Gary coming back as well, they destroyed again. So I totally agree with you there.

I passed on Gary when he was working on Posterous.

I mean it wasn't a great outcome.

No.

So you're fine.

I just thought I'd throw that out there. It's a weird flex. Well, he might have earned billions in. When I passed on Posterous.

That is absolutely amazing.

And he's helping San Francisco though he's doing unbelievably.

I mean this guy is incredible.

Yeah, he's having his day.

Yeah, yeah, no, absolutely. Tell me why is now a good time to be a founder?

Now we are blessed with the capital gods. Like this is an incredible period. Like don't get me wrong and I haven't, I'm going to say like I have strong conviction that we're in the early years of the biggest bubble. And I say bubble because we're in this world of capitalism. The signs that I see like Nvidia becoming, is it now the most valuable company?

Yeah, it is.

Nvidia becoming the most valuable company on the planet is just the precursor towards the bubble of all bubbles of the AI bubble. So there's going to be so much made and created and of course there's going to be so much foolishness to come. But then you also have these compounding kind of add on bubbles of crypto and fintech and this worldwide economy and tech economy that's emerging new areas of clean energy. We just got involved in an industrial biotech company called General Biologics. So there's so many different platforms to build off. I always look for platforms to invest like the why now question is Sam created in the beginning, the Transformers came and Sam created ChatGPT and there was plentiful. The fastest growing company came out of that. And that tells you that the platform is here and build apps on top. And we're going to have, have so many different opportunities around this.

And so will Venture numbers be better or worse moving forwards? More capital, but more platforms, more breakthrough technologies.

They'll be much better than that, you know, than that 21, 22 kind of catastrophe that, that we just saw of. Oh my God, that, that was horrible. So yes, I want, I, I want to say Venture returns will absolutely be better because if you index against that, that's not too hard to compete against.

Did you fuck up in 21 or 22?

Oh yeah. Who didn't?

Final one for you, Kevin. What question are you now? You've done many interviews over the years. You've been asked so many questions by so many different brilliant people. What question are you never asked that you should be asked?

Everyone always answers insincerely about what their weakness is. But what is your mental illness? Is it depression, anxiety, Bipolar, addiction? And to be honest about it, Kevin.

Listen, dude, I so appreciate you. You've always been so kind to me and so supportive when I was very, very young and I just really appreciate you. So thank you for doing this.

You're still very, very young.

Less young than I was. But you're a.

You're younger than Harry Styles, right? That's crazy.