Mamoon Hamid: AI - Where Value Accrues, Startups vs Incumbents & Scaling Laws | E1217

I love products that create markets. Slack created a market. Figma created a market. They get to create the playing field. They play on the playing field and they win the game. We've invested in a lot of application layer companies. We took actually the top 20 jobs in the US and who makes the most? And it's doctors, it's lawyers, and it's developers. How do we help supercharge these people who are highly scarce, highly skilled, and we're not producing enough of them?

Ready to go? Mamoon Hamid, I am so excited for this, man. I can't believe it. You just reminded me of Saastr 9 years ago. It was our first show. Thank you so much for joining me today.

Thank you so much, Harry, for having me. It's so great to be here.

Listen, I wanted to start— I started an LP update the other day that I did with it is the most exciting time to be in venture. It's also the hardest time to be in venture. Would you agree with that statement? High level.

It is the most exciting time to be alive. It is— we're in the midst of a supercycle like none we've seen before, uh, the AI supercycle, as you know. And it reminds me of the time when I first came to Silicon Valley in 1997. I was 19 years old, and it was all just roses all around me. It was the rise of the internet. And this time feels much like it multiplied by 10. And that obviously puts us in an interesting spot as venture investors who get to invest into this cycle, this sort of massive tidal wave of change that's coming. And yeah, the world's not going to be the same anymore.

It's not. The thing that's seismically different for me when I look at the two and I don't mean to age you, I was 4 in that kind of period. We didn't have the incumbent spending $100 billion on frontier models. Larry Ellison said the other day it's going to be $100 billion to enter the frontier model race. And you're looking at that going, Christ, that is a different level of incumbent spend than we've ever seen before. How do we think about that as it is a fundamentally different edition?

Yeah, we have some very strong incumbents: Google, Microsoft, Amazon, Meta, Oracle, who can all spend hundreds of billions on these front-end models. So you're absolutely right, and Larry's absolutely right, of course.

Does that make it harder for us as venture investors with the rise of corporate investors who maybe have different motives or different incentive structures? Does that make it harder for us?

It doesn't, because I think the opportunity is still in front of us. I think the— we can talk a lot more about AI, but just there are so many things to build on top of this infrastructure, all these frontier models that is going to create so many trillions of value over the next decade.

It's a really, I hate kind of broad and generous questions. Yeah. 'Cause they're generally for crap interviewers, but you know, as I said, I've done 2,700, so hopefully I have some skills. But when you think about kind of the AI landscape today, how do you think about where the most value will accrue and you want to concentrate most of your time and capital?

We just talked about how everyone's overinvesting right now into this cycle. And because none of us can miss, whether it's the large incumbents or us as venture investors backing companies. And so your question is like, where do we invest as venture investors? And I can tell you, we're— we've invested in a lot of application layer companies that are solving very specific pain points. And the way we've looked at it, pretty simply is if you think about— we took actually the top 20 jobs in the US and who makes the most. Simple. And it's doctors, it's lawyers, and it's developers. How do we help supercharge these people who are highly scarce, highly skilled, and we're not producing enough of them? So you try to build software, AI, that helps them do their job better. And, uh, so we backed companies that help doctors, lawyers, and developers with copilots. So Harvey, Ambience, and Codium.

I completely understand that rationale. My question to you when I look at those is fantastic. Trouble is there's 10 alternatives going after every category.

Yeah.

How do you think about differentiation in this world when there are 10 transcribers, note-taking apps for doctors?

Yeah, I think it's like any other space, any other traditional linear software space, I call them. It's about teams that will out-hustle and will outwork and have— in this case, actually, the technology really does matter. The quality of the output of their models really does matter. The tuning of what they've done to the frontier models does matter. You can't have a medical transcriber that's 87% good.

Okay?

It has to be close to like 99% good. And that actually requires real technical depth and adeptness. And I would say all 3 of these examples I cited are started by founders who are extremely technical. And they've been at it. This is not just like some tourist AI engineer. It is like sort of deep ML experts who've been doing this before they started these companies and paired up with a very— a domain expert co-founder. Who understood the market that they're going after.

It's really interesting. You said that it's very much like investing of old, really backing incredible teams in the right markets, building incredible products. So many people said, listen, Mamoon Hamid is one of the greatest investors of the last decade. When we look at some of the picks from Rippling to Figma, the list goes on. It's insane. Is AI investing different to traditional SaaS investing?

It's no different than anything else in venture capital. Our job is to invest in early-stage companies that make history and are generational in nature. And our job is to recognize the trends and the tectonic shifts in technology and then invest in the right people and the right markets at the right time. And right now, I would say the, the entropy in the system is really high. It's crazy out there. It is like things are changing left and right. And that makes, I think, the job really fun. I just would say that It's the same as it was 25 years ago.

It's fun. It's also challenging from a pricing perspective. I saw 3 companies, Mamoon Hamid Hamid, last week that raised over $750 million pre-product.

Mm-hmm.

How do you think about navigating the pricing environment when there is such fervor pitch excitement for these companies?

Great question, Harry. And I think we all sort of fall victim to those every once in a while, but that can't be the core part of the business. That can be the one, like, that got away and you have to get into this pre-product company because the founder is so exceptional. That can be, you know, 1 out of the 20 deals you do this year. It can't be every single one of them. Because as you know, Hari, you know, we have to get our ownership at the early stages where you're investing $5 to $10 million for 15 to 20% for the math to work for our funds. And it can't be done if you're investing $25 million at $750 post out of an early-stage fund.

My question is then, how do you think about breaking the rules and letting the one that got away not become the norm?

I think I heard from someone many years ago, you know, 20% of the strategy should be to not be on strategy. And in some ways we have what we call like a YOLO bucket in our funds, and where you just have this extreme conviction around the the founder and the company where you're sort of willing to break the rules. And like I said, it's by exception.

Have we ever seen revenue scaling like this either? I'm brought up in the days of like 18 months to $10 million ARR was amazing. This was like the gold standard. And now, I mean, we're in 11x, which is insane revenue scaling. And you're seeing this across the board. How do you think about determining sugar high revenues unsustainable but very fast versus sustainable value creating.

In the age of AI, we have to think about what are we doing. We're not just providing software, we're providing labor. We're providing capabilities that enable people to do 10x the work or 5x the work. And it's helping like real labor costs either multiply your abilities as a developer or a doctor or bring costs down. So you're not just getting paid for seat-based pricing anymore. You're getting paid for labor. We're seeing right now is that you have seat-based pricing that was $30 a month, $40 a month, and now you're getting $300 a month, $400 a month, even $500 a month for the software. So simple math is that if you, you know, you go from, you know, from start to 1,000 seats, you know, which— and you got paid $30, you know, you're getting $30,000 a month. And if you're getting paid $300, you're getting $300,000 a month. And you're going very quickly from zero to, you know, $4 or $5 million of revenue.

We've seen companies like— we said about kind of replacing labor there. We've seen companies like Klarna say, you know, we're going to replace Salesforce and Workday in that specific case, and we're going to build it our own with, you know, our own AI tooling. To what extent do you think we'll see the next generation of companies build their own custom tooling and replace existing SaaS solutions?

Yeah, well, hats off to Klarna for undertaking this. I just remember the time when we built an internal CRM at Kleiner Perkins, and I think it sort of cost us many millions of dollars and then ongoing millions of dollars a year to just upkeep. And at some point we realized, like, There's a great tool called—

We could just get Affinity or something.

Exactly, we use Affinity. It's great, okay?

Seriously, it's like $3,000.

And you know, like, we had 4 engineers on it, like, working— Why?

Why?

Exactly, why? And now I think it's actually maybe slightly different. You know, I think it's like, that's too broad of a brush to paint with, is if you think of the people you'd hire for customer support as labor that you would spend money on. Now, how about you hire developers to, you know, do the labor work for you in the, in the form of AI? So I, I get the rationale perhaps that Sebastian has around doing that internally, but I also get like, there will be a company that's gonna do it really well for you and you'll have to pay for outcomes. Uh, and you'll have to pay for the number of tickets resolved by that, that software or that AI. The question is, are you not willing to pay that? In most cases, at the end of the day, you're like, "You know, I should just pay Stripe 2.5% rather than building it all myself." The question will be, well, how many companies will go down the path of Klarna? The other side of it is that right now we're in this area— you talked about sugar rush. We're in this era of doing a bunch of proof of concepts. You're just trying out all this cool stuff that's come into existence in the last 2 years and seeing, "What can I do with it?" And every CIO at every large company is spending real money doing POCs. And in many cases, you realize, like, you know, it's hard actually to build this custom thing inside. And this reminds me of like 25 years ago during the internet, everyone's spending a lot of money internally to do things on the internet. And then you hired all these consultants from Razorfish and Sapient and other companies that came in and tried to help you with the internet. And I think that same thing is happening right now. And, you know, History repeats itself.

What today do we do or not do that in 10 years' time we will look back and go, that's crazy. So some examples is you would never put your credit card on the internet, one. Two, you would never find your partner on the internet now.

Yeah, I think we will hopefully never talk to a customer support agent ever again. Like someone you call for the airlines, like, you know, help me with my flight, I need to upgrade it or I need to change my seat or can you cancel it because I can't go. You know, the bank, things of that ilk that you still sort of scratch your head, why am I still doing this? Right? And it will happen, you know, hopefully just like you provide a text message and it gets resolved on the backend and it's all being done by, you know, agents talking to agents and stuff like that happening. I hopefully think the world will not, will have a way better customer support experience.

Please hold. It's when you're waiting on like insurance lines and it's like, please hold. And like 30 minutes later it's like, put the phone down and you're like, what?

You know, I was on a call yesterday with one of my CEOs and he said, hey, can you hold on for a second? I said, sure. Got hold music from my CEO.

You got hold music?

From one of my CEOs.

Oh, his was a track just like that.

I was deeply offended.

I would be. Was it good?

It was terrible.

It wasn't like jazz music.

I wanted to hang up.

That is amazing. I love the balls though, to have the professionalization of like hold music. You know what I should do? I should do hold and it should come with 20 VC. Welcome to the show.

I don't do hold music.

That is absolutely amazing. Where do you think a lot of people are spending time today in the investing world that you don't understand or don't think they should be?

There's a lot of time being spent on a lot of the middle layer between the foundation models and the applications. And I think in the middle layers, middleware, things that allow you to use those models better, faster, cheaper, and build applications on top. So if you think the application at the top of the pyramid, the foundation model at the bottom of the pyramid, pyramid, in the middle you've got middle layer. There's a lot of new technologies emerging that allow you, for example, to capture vector databases or weights for fine-tuning of models inside of vector databases. Things of that ilk. And there's just a lot going on there. At the same time, some of the value seems fleeting in nature. And so I think in early innings when things are in such high degree of change, so the rate of change is so high, there is a lot of that investing that happens. And I feel like perhaps it's a little overinvested.

I do have to ask, you know, when we look at a lot of potential use cases, a lot could be subsumed by the foundational model companies if they are big enough. An example could be talking translators, you know, talking avatars that you could talk to in a friendly enough way. How do you, do you worry about application layer companies being potentially subsumed by foundation model layer if they are such a core competency?

I don't. It's, it's a bit like, uh, the hyperscalers thinking they can do everything and they've decided that that's a great business model is to own the electricity and the pipes and then just charge by the hour or the kilowatt-hour. And I think that's a pretty darn good business model for the hyperscalers that provide the models in OpenAI. And I was reminded by, you know, I was at OpenAI maybe a month ago and, you know, we're going through all these demos of cool products that are coming out like O1 and Strawberry and realized that they're positioning is we can't do everything. We're a 1,600-person company. We can't build the application layer stuff that you guys— we want you guys to build or your companies to build. And so I think that there's a great business to be had in LLMs and in providing the compute and the electricity. And there's a great business to be had by being very vertically focused around applications.

I mean this nicely. Is there really a great business to be had in the LLM layer when you look at the price dumping that's occurring right now? Relatively, and the commoditization that we're seeing occurring, you know, you get people like Sarah Tavel who we love, is like the fastest depreciating asset in history. Every week is like Anthropic's better than OpenAI. Now, yeah, OpenAI is better than Anthropic. And bluntly, the price dumps are real. Is it actually a good business?

The beautiful thing about just the GPUs getting better and the infrastructure just layer, just being more performant, models getting better, sure, they're getting— the models are getting bigger too at the same time. So there's— let's maybe like draw the difference between— there's all the folks who are providing— there's GPUs, there's people providing data centers, there's people who've now built LLMs on top of, uh, all this compute infrastructure that's there. Uh, so what's a— clearly NVIDIA is a great business. Uh, hyperscalers are investing today for the future, and I think ultimately the margins, just like if you look at 20 years later of AWS, how great of a business that is. That standalone basis would be a top 4 enterprise software company, right? Same with Google Cloud. So that's a great business over time. And then you look at the LLMs. So if you're just providing tokens or if you're selling tokens, is that a great business? And right now, given the public profile of OpenAI and the financials that we've all seen today, it's not a great business. But, you know, I think they're smart enough to figure out how they can get to a gross margin that will allow them to be a highly profitable business over time.

Do you think the scaling laws will continue?

Yeah. So just the rough math is that in the last 18 months, the price of a token has gone down by 200x. But that's just like the super early innings, right? We're talking about the first— 2 years ago we didn't have ChatGPT. And today we have so many different applications that are utilizing this technology. So will it go down 200x over the next 2 years? I don't know, but it will probably go down by 10x or 20x. And then do we expect to see 10x better models or 20x better models? That'd be pretty insane, right? Like, what do you— don't you think that a 20x better model is going to be pretty insane for all of us?

David Khan at Sequoia wrote this article, The $600 Billion AI Question, kind of pointing out the chasm, as you know, between, you know, bluntly, the costs and the CapEx and then the revenues that are incredibly lagging from, you know, AI companies and essentially being the $600 billion question of it.

Yeah.

Do you share his concern with that, or do you have a different view?

I'd say, uh, if I look at the— do you know what the world's GDP is?

No.

It's about $100 trillion, and of that, about 50 to 60% is in labor. Uh, technology is roughly like 15% of it, and over the next decade If we grow at the more traditional GDP growth rates, it'll be anywhere from $125 to $130. What if technology grows from 15% to 20%? That's like $25 trillion in technology companies and up from, say, $15 trillion today. So $10 trillion of annual spend will get created for technology companies over the next decade. When you think about, you know, $200 billion spent on CapEx or $600 billion spent, I think the question's really like the $200 billion should result in $600 billion of revenue. I think the revenue will be there for, because again, we're not just tackling software, linear software as I call it, we're tackling like labor and labor shortages and things that humans can do, but it's the worst part of their job or We don't have enough people who can do the job. Again, I go back to the example of doctors. We're not producing enough doctors. We're not producing enough developers. We're not producing enough lawyers. It's those types of jobs where we're going to see the immediate, more near-term impact.

Listen, when we spoke before, you said to me that, you know, the nature of the landscape is changing so fast and it's kind of all the same but different in terms of the venture landscape. In terms of the venture landscape, what's the same then?

The same is, hey, we're in the business of backing incredible founders who are perseverating on a problem set that may be a hair-on-fire problem for lots of folks, and they're building, and they're building the right product at the right time. And that's the same. We're in the business of finding those people who are doing that job and trying to build a business, and hopefully we can help them a little bit. In building their business.

So what's different?

What's different is that there is more capital in our industry than ever before, uh, and that capital at times thinks that everything will be a Decacorn, and, uh, you're overfunding some companies.

Maybe they deserve it because they're the far and away leaders, but at the same time, there's another, you know, half a dozen, dozen competitors that get funded When we look at the venture landscape, you have like, in my mind, boutiques, USV benchmark boutique, and you have like capital accumulators, which is Tiger, Coatue, Andreessen, General Catalyst, Lightspeed, Sequoia. Now, respectfully, and I say this with total— where does Kleiner sit in that? Because you kind of sat in the middle in my mind. How do you think about that?

We are primarily early-stage focused. We have a an $800 million fund for that. And then we have a $1.2 billion growth fund. And we, this team of 7 folks, invests out of both of those funds. I would characterize us as boutique because we're kind of a small team that believes in the craft of venture capital. It's, we think it's a business that doesn't scale, actually. And so we're not scaling through people, but we have the scale of capital because our growth fund, even half of the dollars are allocated towards— not allocated, but half those dollars are invested in our best companies from our early-stage funds. So it doesn't require us to have a large team, so to say, because we're already involved with some of these companies like Rippling and Gleam and Figma that we're doubling down into out of our growth fund.

What have been your biggest lessons? I suck at doing reserves. I think it's a very hard thing to get good at. Please give me your wisdom. What have been your biggest lessons in how to do reserves management and concentration of capital well?

Yeah, so reserves is one. It's like when you have an early-stage fund, and we typically invest in about 35 companies per fund. And so, so do you— how much do you reserve for each one of those investments? Uh, it typically— we, we try to invest about, and we've looked at the math, uh, more than half in that first check. So let's say you're doing Over the life of the company, you're investing $25 million in that early-stage company, but you're starting out with a $15 million check. And then you're reserving another $10 for the Series B and beyond. And I would say it's generally worked out pretty well. Like, you know, we're now—

So you're 60% initial, 40% for subsequent 2 rounds?

Yep.

Mm-hmm.

That's a rough, rough math. And then we move dollars around. You know, some— a company may get acquired early, or a company might shut down, and we'll rejigger those dollars around. It's not a— it's an art and a science.

When you don't do it, how do you communicate that to founders?

Well, if you're not giving someone— well, I think because we're on the board and there's so much signaling involved in us doing, let's say, nothing, we generally do something. And I think that's allowed us to get away with like doing a small amount in a follow-on round. In many cases, if it's a really attractive round where folks want as much as possible and we're doing a little bit less than parata, Everyone's happy. But if it's the, we need the money, and you're not going to invest in this round. And while these days there's pay-to-play, so if you don't invest, you get wiped out. Okay, so don't want that. So there are different scenarios here.

Have you ever had a pay-to-play turnaround? I said this the other day to an investor, and they said, okay, I bet you if you never participate, you will do better off.

Yeah.

You have? Wow, that's good to hear. That's pretty sure.

Companies, uh, that are one week away from cash out become public companies.

Wow. Yeah. Can you say?

Yeah, sure. Box.

Really?

Yes.

Wow.

There's a time before the show, there's a— there was a point in time where we had to do 3 bridges at Box back in 2008-9.

Why? What was not working?

The market sucked. Nobody wanted to invest in a cloud storage business that would get eaten up alive by a Google or a Microsoft.

So I mean this respectfully.

Yeah.

Warren Buffett, Charlie Munger always say, you know, Mr. Market, don't try and be smarter than the market.

Yeah.

When the market is giving you signal like that, why do you do it? And how do you get comfortable doing that when the market's giving you such—

Harry, you and I, we're in the risk business, my friend. Right?

Yeah.

Yeah. So you believe in the people. It's— it goes back to like, these are incredible people. Aaron Levy, Dylan Smith, incredible founders, like legendary to me. Okay. And, uh, it was just a dislocation in the market where the market did not understand how to— well, one, it was just afraid. It was a global financial crisis and nobody wanted to invest in anything because back to your point of reserves, everyone was trying to save money for their own companies. In the same vein, we had to take our reserves and put it in the box because, you know, and we weren't investing in new companies at the time. And that happens in, in every sort of cycle, down cycle like this. And I think we all know, like, some of the best investments come out of that cycle. And so we got to invest more dollars in the box at a $25 million valuation. Like, every incremental dollar or, you know, $2-3 million in bridge that was being done was done at that valuation.

To what extent do you worry about founder dilution? The case with Aaron is quite famous.

Exactly.

And he's quite open about it.

Yeah. Yeah.

Like, to what extent do you worry about that as an investor? I have this today and I'm like, oh yeah, it's low.

First of all, I've many times apologized about it. Aaron's a good friend. And so we should have given you a lot more at the time because there was so much dilution that Aaron had to take because of these the bridge after the bridge.

I mean, I'm not setting up a JustGiving page for him yet.

He's doing fine. He's doing fine. I think that's— Aaron has done a great PSA for founders with his equity stake at the IPO, where I think we as investors, board members, have done a way better job making sure that our founders get re-upped, especially when they dip below a certain threshold.

What are the biggest reasons breakout companies plateau in your mind? You've seen some absolute monsters, and you mentioned that Box struggled in those times. What are the reasons why breakouts plateau?

They don't innovate anymore, or not fast enough. They are what big companies become, which is, you know, you're trying to protect your turf and you're not disrupting yourself enough and someone else comes in to disrupt you and starts taking away revenue from you.

You mentioned Box there. Box obviously IPOs. A liquidity event is always welcomed by LPs and investors. How do you think about when's the right time to sell? It's the age-old thing. You look at all of, you know, Bessemer's memos. You always underestimate the size of your winners. How do you think about when to sell?

I wish there was a bit more selling happening right now or opportunities to sell. As you know, the M&A markets have been pretty, pretty slow recently. So, but to answer your question, Harry, there's a local maxima that I think about sometimes about with companies where this is sort of the local maximum in terms of perceived value by the market for a company. And that's a great time to sell. And so now you have to figure out when is the local maximum for a company. And I would say it's like, it's sort of the markets are riding high, but it's also like where people believe that this company is the leader. But there's questions around whether there's a standalone company we built and it's way better off being acquired by a strategic who can do even better things with the company. But that is, again, doesn't happen as much anymore.

Have you done well selling?

There's one particular example that I think ended up working out pretty well. This is, uh, When Yammer got acquired by Microsoft, it was a $1.2 billion acquisition. At the time, it felt like, "Man, we've got so much ahead of us. Yammer can become the next Slack." Fortunately for us, Yammer got acquired, and a year later, we had a chance to invest in Slack. So it almost was like you had a great outcome, and then you weren't conflicted out of investing in the future Slack, which was obviously Slack.

Also, you don't have the challenge when it's acquired of like, do I hold, do I distribute, do I not? And that awful choice— it's almost easier when the choice is removed, you know what I mean?

Yeah, yeah. In this— in that case, you know, when you get just cash, you just distribute the cash and you move on. And, you know, generally speaking, I would say even when companies go public, for us, uh, we've been pretty good about distributing stock to our LPs.

It's tough when you think Shopify went public at $700 million though. Yeah. It's one where either way you're going to get criticized.

Yeah, yeah. And I would say just, Harry, like again, you know, we have a lot of friends in the industry. In almost all scenarios, when you're returning 10x the fund on a great outcome, or 5x plus, let's say, of a fund through, you know, a legendary company, Your LPs are happy. You're happy. You wish you would have held on and, you know, generated another, you know, few multiples on that fund. But I think you have an option of holding it. The LPs do, as do you as a GP. You can hold on to your Google stock forever, as John Doerr has done over the last 25 years. And that's a great choice you have.

What has been your best-performing investment on a pure multiples basis?

Probably Slack, I would say, you know, even at the $250 post, that's, you know, with all the dilution over time, and if you take the $27 billion or some other number, that's obviously a great multiple. Figma, you know, the initial investment was done at about $100 post. Multiple-wise, that's, you know, Rippling was also in the sort of $250 post when we did it and, you know, currently valued. There's one investment I remember doing early days of USVP where we did it at, I think, $10 post, and it was a $3 million check for like 30% of the company. And that company, about a year and a half ago, the founder CEO, Steve Flagg, still a friend, amazing guy, they sold it to Siemens for $700 million. And that ended up being, you know, that's a 70x. Crazy multiple, right? Some ridiculous multiple. But you know, when you hold on to something for 15 years, guess what the IRR on that investment was? If you took, if you still owned, let's say, 25% of that company at $700 million, so like $100-something, $170 million. $3 million becomes $170 million or something like that.

Or—

wow, that's a great multiple. Uh, but the IRR over 15 years looked more like— I think it was like 15%. So, wow, we're in the multiple business still at the end of the day, but, uh, IRRs, you know, do take a hit when you hold on to something for 15 years.

But liquidity is tough, and liquidity is tough because M&A is not what it used to be. Mamoon Hamid, are M&A markets dead?

They've been slow, man. Yeah, slow. I think a lot of the big companies are just gun-shy. I hear this all the time. Just like not ready, you know, just too much going on in the regulatory, you know.

Why would you bother if you're them?

Exactly. You're like, why create headaches? We already have like multiple legal things that we're pursuing and we don't need yet another thing we're questioned about or used as an example in this other thing. So yeah, why bother? They would love to buy. So the question is, are there a next tier of companies that will buy? And, you know, we thought obviously with Adobe Figma, Adobe is that next tier. And even that, as you know, you know, the story's been told.

Well, I think the thing that you are seeing is actually like incredibly high-priced companies.

Yeah.

I'm not going to name names because they are are too high priced, but they are actually acquiring much smaller companies in only stock deals. And you know, I've had quite a few deals that way. You know, I'm getting like shares at $10 billion in this company. I'm like, well, it's worth 2. And that is the kind of acquisition currency that they're going for. And they're small enough that regulatory-wise they're not getting any done.

That's the only thing I'm seeing. Yeah, you're right. Yeah, there are big private companies looking to buy small private companies.

Yeah.

That's happening. And I think small, that was never part of the playbook.

What would change the M&A market today?

You know, it's easy to say, like, you know, regulatory environment, like the people running these organizations.

Yeah. Is it— I mean, being blunt, is it like, hey, Lina Khan gets replaced and then we get right back?

I don't think so. I don't think a lot of us put a lot of the blame on Lina Khan. Poor Lina Khan. Because, you know, in our own experience, that's not— that was not the issue for Adobe Figma. It wasn't Lina or the FTC. There were other issues. So I think it's broadly speaking. I mean, this is here in the UK. There's a CMA that was really involved there.

IPO markets are also, like, bluntly not easy. Uh, Cerebras— I think I'm pronouncing it right—

but yeah, I think Cerebras.

Cerebras, there we go. Uh, we edit. Uh, but you know, filed recently, but that's kind of been it recently. Are you concerned by IPO markets being closed?

Yeah, I think everyone's just waiting until after the election. You know, I think we all thought there's a window of, like, 8 weeks before the election or this year to go out, or at least file and then go out later in the year. And just not a lot of activity. I do think that we're going to have a good year next year. You do? I do.

I think we need to see one of the big ones go out for it to open. It needs to be a Databricks, a Stripe. Yeah, a Starlink. You're not going to make it on Cerebras.

I'm really hopeful. I think next year will be a good year for IPOs.

You mentioned the $100 million Figma round, for example, or the $100 million— I think it was $100 million price, wasn't it? Yeah. I spoke to quite a few of our mutual friends and they said, you got to ask him about this. Respectfully to Dylan and team, this was pre any revenue scaling, really. This was pre any real inflection point in the company. Cash had been in before, you know, Greylock were in already, Index were in already. He saw something that no one else in the market saw. This was like a real pick. What did you see that no one else saw in this round and why did you?

Yeah, I think credit goes first and foremost to Dylan and Evan who'd built an incredible product. It was just, it took a while to build. We've heard sort of famously the story around like WebGL advancing and Finally, by 2017, Figma had a product that could work multiplayer inside the browser as a design tool. And that just wasn't the case in '15, '16. It just didn't have the latency for people— like, designers are very high-end in terms of their needs for product, naturally, right? And so lucky for us that we got to see the company when the product started to work and actually in the metrics for the product, even though the numbers, number of users was small, the amount of use, the— you look at something like, you know, Daomao or look at an L28, you just saw that designers were using the product 15, 16, 17, 18 days out of a month. So effectively every workday a designer was going in and collaborating inside of Figma or using it to design inside of Figma. And so you saw early indications that the product that was just— had just launched and it was just in, you know, a few hundred K revenue, it was working. And, uh, yeah, lucky for us that we, we got to catch it before it, uh, went into hyperscale.

Can I ask, what did you get wrong in your assumptions on Figma?

I guess I have to share my memo with you, uh, because I would love that. Yeah, I know, I'll share it with you, uh, and Actually, it was sometimes it's eerie how right you can get it in terms of talking about the adjacencies to product people. So designers to then marketers and to engineers, not just the growth in designers driving the number of seats that you could sell at Figma, but also adjacent seats doing sort of the math behind what was potentially possible in terms of Figma's TAM, which one would've said, well, it's just like the Envision TAM or the Sketch TAM, which is like not that exciting. So again, not trying to give myself or our team too much credit here, but sometimes you can play this out in diligence or play this out in your head around building a real prepared mind around an investment. And in the case of Figma, I think, you know, sometimes you get it right.

Do you like competitive markets? You mentioned Envision, you mentioned Sketch. Yeah. Envision was bigger than Sketch. Quite a while, actually.

Both Sketch and InVision were way bigger than Figma for a while.

And like a lot of investors were like, this market's competitive and kind of—

Yeah.

Do you like competitive markets and say, yes, it's competitive because that's where there's enterprise value? Or do you actually prefer my mindset, which is I don't want to be one of 10 going after this?

Yeah, I don't mind competitive markets, but at the same time, I love products that create markets. Slack created a market. In some ways, Figma created a market. There wasn't a notion of collaborative design software.

Glean creates a market.

Glean created enterprise search. So I love companies that create markets because I think they get to create the playing field, they play on the playing field, and they win the game. And that's a beautiful thing.

I spoke to Owen, another one of your founders, before, who I love. Intercom's a great story, but He said that you definitely have a type. You have— it's young and it's not where you're going. It's product-oriented. Okay. And he said it's very much deeper than that though. Unpack that with him. So when you think about your founder type, yeah, I know we say we don't have one and we, you know, everything, but probably not true.

Yeah.

What is your founder type?

Yeah, I think what Owen is alluding to is one of the founder types that I love. And that first one is the first-time founder hyper-obsessed about building a product in a sort of newish market where it's not obvious and the market doesn't necessarily exist. And that would— I'd put Owen from Intercom in that bucket. I'd put Dylan from Figma in the bucket. I'd put Mathilde from Front in that bucket. And so, so it's that bucket. It's like, and that's, I think, Mathilde, Owen's alluding to young product-centric founder. And the other bucket for me is like actually the repeat founder who has maybe even had an okay outcome or even a pretty good outcome and is doing it again. And I would put Stewart Butterfield from Slack in that bucket. I would put Parker from Rippling in that bucket. You know, he was a repeat founder, as you know. So there's the first-time founder going into a market that they're hyper-obsessed about. They're building a beautiful product, like taste is on, the level of grind and grit is there. And then there's a second-time founder who wants to just, you know, surpass anything they've done before.

What founder profile don't you like? So I can give you—

Yeah, I don't like the— We looked at the landscape and we discovered that this is a great place to build a business. Like, we did a whole market mapping exercise and the TAM is going to be X billion dollars. And, you know, we've got, yeah, it is that sort of like the top-down approach to building a company versus the bottoms-up approach to building a company.

Are you okay paying a premium for the experience? We see a lot of, yeah. I'm doing a seed now, Mamoon Hamid Hamid. I so appreciate you being an LP in my funds. The price is slightly up. It's like a $40 million for a pre-seed, pre-product, pre-anything.

Yeah.

The founders are unbelievable from one of the best companies in the world and exceptional and paying a premium for experience.

Right.

You're always happy to do that.

Yeah. So, I mean, I'll just give hard numbers. When we backed Arvind and Glean. Yeah. We did it as a co-led it with Lightspeed at $35 post. And Arvind is a G. You know, he started Rubrik. He's like one of the, you know, Google Fellow type of person.

How much did he raise?

He raised a lot. He was like $15 million at $35 post. So gave up a lot of the company in that round.

At $35 post?

Yeah. Yeah. And because—

That's not crazy for someone of Arvind's profile, actually.

It's not— I don't think it's high.

Yeah.

I think, but in today's environment, that would be like, oh, it needs to be 200 posts.

So would you do that at 200 posts?

Probably not.

Yeah. That's the whole thing.

So I think it's not that I'm trying to get a deal. I think I'm trying to work with people who see the world the way I see it, and they're willing to be partners together and creating a bigger pie for all of us. And they're not so short-term oriented around like, "Well, I need to have this crazy pricing." Or another example is Syed Ali at Aleph. You know, I think we did that also at like 35 posts. And Syed had come off of a company just sold for $6 billion. Do you think he could have raised at a higher price? Probably, but he's just not— this feels fair. It feels right. And so I'm sure a lot of people listening here are thinking, wow, like, You really jammed him. Or no, these are adults making decisions together around what the right pricing of a company should be at that stage.

A lot of times founders are told, listen, your job is to raise as much money as possible at the highest price.

Yeah.

Agree or disagree?

I disagree. At that Series A, seed, it's about the people you're surrounding yourself with.

I agree totally. I also think bluntly it can damage you incredibly for the next round. When you don't actually scale into it and suddenly you have to do a bridge or whatever it is, it makes it so so much harder when you've got a hugely high watermark that you have to fill.

I agree, totally.

I totally agree with you there. Do you think you should always be raising?

For the CEO, founder CEO, CEO, your job is to make sure your company never runs out of money. If you have $300 million sitting on your balance sheet, I'm not sure you should be raising at all. And, uh, so, so if you're well capitalized, heads down, go build. Generally, I would say you get the markets wrong.

Yeah. Can a great founder overcome a bad market?

Yeah, hard. Bad markets, the structure of industries where margins are compressed and customers are bad, life's just too hard that way.

So will you back a really great founder if they're in a shit market?

Probably not.

Really?

Yeah.

That's interesting.

Yeah.

Because like, for me, it's like I'm pre-seed and seed, generally speaking. We use Series A as well, but like generally pre-seed and seed. I'm like, you know what? Great founders find their way to great markets. And if they're truly great, honestly, they'll pivot, they'll change, they'll make their way.

Yeah. I mean, I think one could have said that about, like, you would have— maybe you would have missed the seat at Uber because what— probably not so great economics early on, right? Customer acquisition and, like, trying to pay the drivers, etc.

So was Slack an obvious home run when you did it?

None of these are obvious home runs when you do them, right? And no, it wasn't. It was $500K of ARR at the time. And it had—

What price did you do that?

$250 million post.

You did it at 500x ARR?

Yeah. Yeah. And I think we weren't thinking in those terms. Why?

Was it usage patterns again?

Yeah. Yeah. I think there were enough— at that time there were 10,000 or so users. Like a third of them were using the product every day for multiple hours a day. You're like, okay, well, this is— we all need something like Slack, and you can scale this by 1,000x because there are lots of companies that look like this, that use it like this today.

Do you think that's the wrong mindset to approach it with? A lot of investors do approach it on a revenue multiple basis. Is that wrong?

For early-stage companies, yeah. It's—

yeah, you can't take a $500K ARR or a million, but when you're paying $250, it's kind of like a— Some of the CEO.

But if you've seen engagement data on a product that you think can apply to, you know, 10,000, 100,000 companies, then—

The entire workforce.

Yeah, then why not? Yeah, I think it's really a mistake to look at revenue multiples at like half a million, a million.

What do you think is nuts that VCs do today that they shouldn't do?

There's just a big echo chamber, and a lot of people live in the echo chamber. Where folks think that's information, and information is knowledge, and knowledge is arbitrage. But when everyone has the same knowledge, then it's no longer arbitrage.

Do you think everyone does have the same knowledge? A lot of big firms say, "We've built out these amazing data platforms, and that's why we're operating off this proprietary information." Do you buy that?

I think it's mostly BS. Yeah. I think many have tried and failed at using the data the very data-oriented approach to investing in startups when at the end of the day it's about the founders and—

and founders wanting to work with you.

Exactly, exactly.

So yeah, no, I think, uh, that's what I tell a lot of LPs though, which is like, you know, I remember speaking to an LP actually about you, um, and I was like, the thing that you've got to understand with Mamoon Hamid Hamid is like everyone in the valley, respectfully, probably sees the same deals, but you have to be aspirational capital to the best founders in the world where they say, yeah, I've got 12 term sheets but I want that one. And that's the only thing that matters. It doesn't matter that you saw it, means shit. Do you know what I mean?

Oh, 100%. It's, it's about— and how do you position yourself in terms of us so that the founders are choosing us? It's based on reputation of our body of work, our firm's body of work, what the firm represents, uh, what we can offer them. Once we get involved, or even before we're involved, uh, what are people saying about you? What's the, you know, the, you know, the folks who you worked with before have to say about working with you?

How do you think about decision-making? I— one of the things I think is crazy is voting structures in venture firms. I get asked this by a lot of LPs, which is like, what is your voting structure? And they kind of seem quite upset when I say, well, there's only 4 of us, and so anyone can write a check. And I believe that the best deals are often consensus and right. So we don't have like 4 out of 10 or 6 out of 10. They look quite upset with me when I say this. I think that's nuts.

Yeah.

How do you feel about voting structures in decision-making?

Yeah, I don't believe in voting structures for early-stage venture capital. I think you have to have— allow every partner to put themselves on the line, uh, with their conviction that they've built up over years sometimes. Weeks sometimes. But you have to give into the conviction of the person wanting to lead. And so the way we work is that, you know, because we sit around the table, we literally get to see each other's body language, how someone goes from excitement to less excitement when one of our partners like, you know, Ilya asked me a question about why I'm so excited about a company. And then he asked another question and I just go, "Well, that's a good question that I don't have a good answer for." And so maybe my excitement wanes, and then I come back a few days later when we see each other again. It's like, you know what, like we talked about that and, you know, I've— I'm sort of leaning out on the opportunity. And so I think that's also the magic of being around the same table in the same room. Uh, you get to really test each other's conviction.

So you don't have a vote? Yeah, you don't have a vote there.

We have a discussion, but there's no vote.

If I disagree with you and I say, Mamoon Hamid Hamid, I don't think we should do this deal.

Yeah.

I do not see the market. I don't see the upside. The entry price is too high.

I think if you wanted to veto me, you could veto me.

Wow.

But it hasn't happened.

No one's ever vetoed?

No.

Why do deals get crushed mostly?

I'd say it's when questions get asked, good questions around the market, or is this a fleeting cycle of adoption for this sort of product or This is going to be gnarly dogfight because there are too many competitors. Or this is the wrong time. It's not— the risk-reward isn't great for this round. And that's when your excitement tends to wane.

Do you do outcome scenario planning?

We used to and haven't done it more recently. Used to do like, what is the probability of this company being a zero, a $500 million exit, a $250 million exit? A billion-dollar exit and a $10 billion exit, you do the percentages, it's such false precision.

I always do 25, 25, 25. Thank you so much.

It's such false precision that I think it feels like busywork, actually.

Who's the best picker in the team?

Josh is a very precise picker. I would say that Ilya and I, we're almost always on the same page. We're like too similar, actually.

Is that too dangerous, actually? Because you can almost encourage each other.

It's actually great because if I meet someone and then I say, you know, "Elliott, come over." You know, like I'll see him in the hallway. "Can you meet this person for like 5 or 10 minutes?" And he did that to me recently, actually. And he'll come in and he's like, "Oh yeah, I see the same thing you do." So we are in some ways quite similar, which is awesome. Yeah, I think we may miss some of the same things then too because of it. But I think it's a good lock to get, like especially when we're trying to build conviction or at least like quickly get to, am I seeing the same thing you're seeing?

What was the most contentious deal that you did?

You know, actually Figma was quite contentious.

Really?

Yeah, it was. Yeah, because to your point around like half a million of ARR at 110, 115 posts, whatever it was at the time, it was really like the same thing. There's InVision, there's Sketch. This company's been around for 5 years. It's not obvious to us. Yeah, it was not you know, a fight, but it was not— it was contentious that there was a lot of questions around the investment.

You had a fund that— I can't remember the exact vintage— and it was a fast deployment. It was like 12 or 18 months. Yeah. It was a time when everyone was deploying fast, but it was fast. How do you think about deployment pace? Is it a play the game on the field, or do you take a much more structured, disciplined view towards it?

I think the view is, hey, we'd love to deploy over a 2.5 to 3-year period of time. And so when we got to KP, I came in 2017. A bunch of the team joined in 2018. So Bucky, Ilya, Annie joined that year. Josh joined the same week I did. So, so there's a period of time in 2019. So we just raised our first fund as a team together where we deployed that fund like within like 15 months. And I think it was just—

Was that not the Rippling Fund?

It was Rippling, Glean, a bunch of other stuff in there. That is great. It's— we just were a new team that didn't have board seats. We had a fund ready to deploy, and so we deployed it fairly quickly in, I would say, mostly Series A, like real ownership Series As, sort of the core of the business. And so I think if I look at that fund, I think it'll be an amazing fund, actually.

Unbelievable.

Right? And so you could have said like, well, wait a second, you guys didn't do time diversify. It was shit. If you would have deployed over a 2.5-year period, you would have missed high valuation environment into a lower and yada yada. And so I would say that that would be the counterpoint to fast deployment. Like, no, you can actually work.

Very dear mutual friend of both of ours is Kush. Kush and Thrive think that bluntly everyone has the plasticity to move between stages, or in their firm. Yeah, I don't think everyone, but like their investors do. I think that is just really hard to do.

Yeah.

Do you agree? Which side do you take?

I think generally speaking though, it's hard to have the neuroplasticity to one day think about, you know, 10 years ahead and a new infrastructure company that's building on a new open-source framework, and the next day think about like pre-IPO stage, you know, consumer company. And so while we all have one meeting, one pipeline meeting, one investment team meeting for both early stage in venture, all of us do venture investing, and a few of us will do more of that select investing. So because we don't want to burden everyone to bring neuroplasticity to the job every day.

You said about kind of, you know, putting your name on the line and really believing. When have you put your name on the line most and been wrong?

You know, I've just gone through my first sort of bigger loss in terms of capital loss. And for a while, the company just shut down. A company called Vitaly and the founder Jason Brown, who I've known for 15 years.

I had him on the show.

Yeah. And how much did you lose? $30 million or so. And that's multiples of the largest loss prior to that. So, you know, I don't wear this badge of honor of like losing a lot. I mean, there's a whole thing in venture, like you need to lose like so many million dollars before you made it kind of thing. And I think there's a lot more precision one can apply even at the early stage to not put more money in to lose more, because our job is to invest $5, $10, $15 up front. And if you lose $5 on a seed check, all good. That's your job.

Is there anything you learned from Tally on that?

That lending businesses are really hard. Consumer lending is very hard.

Did you do reserves there?

Yes.

And that was where it went wrong.

Well, the first check was, you know, back to the 60/40. It was like 60/40. But there's more along the way that went in because, you know, they raised subsequent up rounds from great investors. The round after us, Angela at Andreessen Horowitz did it. It was a great, great round, great time for the company. And then it did one in 2022 with One of our seed investors, Sui, led the growth round because things were going really well. And then consumer lending just turned. This is when interest rates went up from, you know, 0% to 5%. And that really made that business really difficult.

How have you changed most significantly as an investor over time?

I think obviously there's more experience, but I actually try not to let that weigh me down because I think a job is to stay open-minded and have naivete and dream the dream. I think too many scars aren't necessarily a good thing for, for, for like being open-minded and thinking about what the next Figma or Rippling will be.

Where do you most need to improve as an investor?

You know, I think I'm a dreamer and I want to just believe in the people that I back.

I heard this. I heard that you are such a dreamer that sometimes you believe for too long.

Yeah.

And you should cut things before.

Yeah.

How do you think about knowing when is the right time to cut the belief and actually We've had enough time.

I agree, I agree. That, uh, that is fair criticism that I need to— but I think that's just part of the package. That is who I am. I believe in the people and I want to be on that journey with them.

Do you believe in VC value-add, Mamoon Hamid Hamid? Vinod Khosla famously said, you know, 90% of VCs actually just try and fund you.

Yeah, I don't disagree with Vinod that there's destruction of value that happens with the wrong advice, but I think if With the right advice and the right help, we can help supercharge your companies.

What makes the— I'm not asking for the name, but what makes the worst board the worst board?

I think it's where, uh, it's actually like, to me, it starts with how a CEO runs a board.

How do the best CEOs run a board?

They start off with a high-level overview of how the company is doing, and then they give a chance for their leaders, their very capable leaders, to go dive in deep and share and be asked questions, and there's a fair bit of cheerleading, but a fair bit of like asking the hard questions. And I like board meetings where there's one or two things that are talked about in detail, meaning like you go deep dive into one or two things, because at any given point in time in a company's juncture, that moment in time, one or two things that really matter that can— we can help change trajectory on. And so if we're talking about 7 different things that matter, we're probably missing the point. And so I love board meetings where that's sort of the structure.

2 more questions, and I'll do a quick flight. Do you mind super dilutive businesses like your DoorDash of the world? Like, your Uber— I know Uber's and DoorDash, different cash profiles intensely, but still, do you mind them personally?

Yeah, I, I'm— those are not my kind of businesses. I like more capital efficiency, uh, but I can get behind them.

What would you like Planet to look like in 10 years? When I hear you there, it feels like actually there is scope for you to go into the capital accumulator bucket.

Yeah. Do you want that? No, I don't. I don't think we want that at all. I think we love where we are today. We really do. And I don't try to— I'm not BSing you. You're a longtime friend. And I believe in venture, early-stage venture being a beautiful asset class, especially if you can follow the power law and be in the few companies that matter. and then you can invest in the very few companies that really matter out of your select fund and then call it a day.

I want to move into a quickfire. So what do you believe that most around you disbelieve?

Venture is an easy job. It's glamorous. It's all of that except glamorous.

My favorite is the amount of friends I have who are operators who are like, this isn't what it said on the tin.

This is so fucking hard. Totally.

And you're like, yeah, it's— Yeah, I totally agree with you there. What's the most memorable first founder meeting you've had?

It has to be Aaron Levie, uh, when I first met him.

Why?

He brought along with him a wonderful person, Karen Page, because he thought he had to bring on an executive or bring an executive to the first meeting. Uh, and it was just— he was like hyper nervous, I felt, coming to a VC firm office like in a coat and shirt. And, uh, but I could tell from that meeting that he had thought about the problem of cloud storage in more than— and this is 2007, so like cloud storage was not a thing— more than anyone else. And so for me, it was like an instant, I need to invest in this founder, like right away. But it was also just memorable from the other things that were going around.

Do public market revenue multiples need to reflate for venture to be a sustainable business? You mentioned Box there.

Yeah, Box, like whatever it is, a billion in revenue.

$4.5 billion in revenue, but it's like—

$4.5 billion market cap.

Yeah.

Yeah, I think, you know, growth and profitability, rule of 40.

So to my point, do we need to see the reflation for venture to be sustainable or not?

I think just getting back to sort of normal historical levels would be good enough.

Which venture investor do you most respect and learn from outside of Kleiner?

One of my favorite investors is Matt Kohler from Benchmark, who I actually—

In London.

Got to see him yesterday, and I wish he and I were on more boards together.

You can be CEO for a day, Mamoon Hamid, of any company. Which company are you CEO of?

Easy. OpenAI.

Really?

I just want to see what's going on. I just want to see how far AGI really is.

What concerns you most in the world?

Geopolitics, polarization, even in our own countries. Here we talked about the UK. We talked about the US a little bit before we got going. Yeah, there's too much of an us versus them, whether it's in our own countries or competing with other countries.

Yeah, this is so unfair of me, but fuck it, I've got you. I can— you can invest in a seed firm, a Series A firm, and a growth firm purely on multiples basis. Who do you invest in?

Seed firm, you. Series A firm, us. And growth firm, us.

I was like, he's going to give me a new one here. Come on, hit me. I can tell you mine.

You tell me yours first.

Well, I mean, like one on the seed, I'd do Gili Ronan at Cyberstarts in Israel.

Okay.

If you want a pure seed play.

Okay.

Unbelievable. A, it would either be Kleiner or it would either be Benchmark because of the smaller fund size. And then growth, it would have to be either Pat or Kush.

I totally agree.

Penultimate one. What do you know now that you wish you'd known when you joined USVP 19 years ago?

Yeah, just that venture is a grind.

Do you still love it as much as you did?

Absolutely. I mean, how could you not love living in this, like, supercycle of AI, man? Like, we will not see this sort of, like, at the ground floor level value creation in our lifetimes ever again.

Final one. What question are you never asked that you think you should be asked more?

Religion and politics are, like, the taboos, obviously. And so the question is How does faith impact the way you work?

How does faith impact the way you work?

It's everything. It starts, it's the beginning of your day, it's the end of your day, and everything in between is how do you, how does your faith inform how you treat people? How do you treat this earth? Like, how do you show up in a meeting with someone? And it's around, you know, how much humility do you bring, empathy, care, love for each other? For the planet, you know, just like it's, it's sort of like deeply embedded in you. And it's at a board meeting, you know, everything.

My deep faith lies in liquidity. That's the most capitalist way to finish the conversation. Mamoon Hamid Hamid, I've loved doing this. Thank you so much for joining me. And this has been so special.

Amazing. Thank you so much, Harry.