Why Backing Young Investors Matters with Barry Eggers

Hi everyone, we're back. And, you know, that tech, it happens, right? You're an investor in tech, Barry. I'm sure you've seen this before. So do you want to add any— I gave you a little Lightspeed Venture Partners background, but maybe before I ask the first question, do you want to add to your background now that tech is working?

I was— I'm a fourth-generation Californian. Born and raised here, and I sort of ended up in tech because I wanted to stay in Silicon Valley. And that seemed like the obvious thing to do. I did not— I went to business school, but I did not take the venture capital class because I never thought I'd be a venture capitalist. And here I am 26 years later. So go figure.

Do you think there was a venture capital class back then? I mean, it was kind of a cottage profession. And even now, let's be Yeah, it was a way different industry back then.

It was more like an apprenticeship industry and very small, and people did business over lunch, and you didn't have social media or anything about venture. So it was very different, and it was about 1/20th the scale.

Yeah, I mean, maybe even in terms of dollars or deal, I mean, all of the above, right?

I remember our first fund was $110 million, and we thought that was big. 110.

That, I mean, let's be honest, even today that's a small, but it's a big fund for a small fund, right? Because I think that the trend is in micro VCs. All right, so let's go, let's fly, let's go all the way back to those early days, right? And, and, and say like, what originally inspired you to create a VC firm, right? You went to business school. What, what was your original inspiration?

Yeah, it's funny, you know, we were in a VC firm in the late '90s, and if you remember the late '90s, it was great. It was a great bubble. It was perhaps even a better bubble than we just had, but everything seemed to work. We were taking companies public that had no revenue. I started doing venture capital. I thought, this is really easy. Little did I know it would get a lot harder, but You know, the reason that we broke off and started Lightspeed, we were in a different firm. There were 5 of us running that firm and we sort of argued over a little bit on sort of the hierarchy of how we wanted to manage the firm. And one of our partners wanted more hierarchy in managing the firm between the 5 of us. I've always felt like it should be an equal flat firm because I think that aligns objectives more and you have better performance when the senior partners are all equal in economics. That is, we're working as a team because we all wanna win together. We're not trying to focus on our own, you know, selves. So that's one of the reasons why we started our own firm. The second was, if you remember after 2000, in late '90s, I mean, I was in a firm called Weisbeck Gruer Venture Partners and we were a second or third tier firm, just to be clear. We had good performance, we had a 6x fund, but there were probably 25 or 30 funds that were doing Series As ahead of us. And we would have to find our way into good Series Bs and Cs. There were no Cs back then. And we did and we found our way into some of those notable companies. But there were a lot of people ahead of us on Series A's, which I think are the best, it's the best real estate in venture capital, right? We call 'em seeds now, but it's the high risk, high return, most, you know, best part of the cap table. So after 2000, a lot of those firms went away. They either had generational transitions, which didn't work, or they called in rich, or they just, you know, went away. And so I looked, or we looked around in 2003 and maybe 5 of those firms were still left. You probably know who the 5 are. And we said, wow, we could actually now start a firm and really focus on being an early-stage player. So, you know, we started Lightspeed and we said, let's focus on enterprise. The four founders were enterprise investors. Let's go early. And so that's what we did, knowing that the early-stage platform is really the most, I think, the most important and valuable real estate in venture capital.

Okay, I have a lot of questions for you, and we have lots of questions from the audience too. So we'll do about half of it sort of structured questions for me, half from the audience. But I want to talk about this most valuable real estate in venture for one second. So I'll double-click on a few things that you said. The generational transition, we'll talk about quite a bit. So, so talk to me how you view the real estate in venture, right? Because at that point you were later and you said earlier is better. You can now see it is kind of in the middle still, right? You can go even earlier. So what's your view on venture real estate?

I mean, now we're, now we're full stack. We do all, all stages, but it really starts with the early stage, right? What you want to do is you want to get in early with a position on the board, some good ownership, um, and in those best companies, that's how you make the best returns, right, is from those early stage bets. Um, And for a firm like ours, when you have other funds that now can follow on investment for Series B, C, you know, and later, it's those early-stage bets that you have sort of ball control in that are important to your portfolio because it allows you to continue to put, you know, more money in your best companies. And that's what venture capital is all about, is finding those great companies as early as possible and then putting as much money into them as possible, right? And we all know you may have a portfolio of 20, 30, you know, for us 50 companies, but usually it's 3 or 4 that make a fund work. And you want to find those 3 or 4 as early as possible, um, and then, you know, put as much money into them. We found— I mean, we seeded Snap in 2012 and we ended up making it— for $500,000, we ended up making a 2,250x on it. So And that more than returned the fund. So again, it's just getting in early. So you solo GPs who are doing, you know, pre-seed and seed, right on, you're in the best place.

That is— so wait, 2,230? You know, you could take one of those 2s off, the first or the second, and it would still be a fabulous return.

And this is, you know, this is the beauty of venture capital, right? I always tell people, You can only lose one time your money, right? But you can make— you can make a 10x, a 20x, a 50x, 100x, right? Or more. And that pays for all the times that you lose your money. So don't forget to take the risks, right?

That's a beautiful statement. You can only lose one time your money, but you can easily make 10— well, in your case, 2,000. That's right.

Especially if you have, you know, you don't have any outsized investments. If you have 50 investments and they're all similar sizes, losing one time your money on a deal or multiple deals isn't a big deal as long as you have the 10Xs and 20Xs that make up for it.

Yeah. So, I mean, I mean, I want to drill into a lot of things. Yeah, but I'll sort of stay to the agenda, so I'll try and cherry-pick, if you will, some of the most— you talked about generational transitions as a, as a modus of failure in the 2000 era. But it's happening all the time. It's happening right now, right? Because a lot of the people that entered the venture industry in the 2000s are getting into that generational transition. And so a lot of these firms have failed. Right. And so what makes Lightspeed different? Right. Why are you not having that problem?

And I will say that we're still going through a generational transition. It takes time. It feels like we're navigating it well, but most firms fail on the generational transition. I look at a firm that has done a great job of generational transition, Sequoia Capital, right?

We had Roloff on a couple months ago.

They've done a great job over 40 years of generational transition. So I actually looked at the firms that had done a good job of generational transitions. And I found that there's 3 common points that made it a good generational transition. The first one is you gotta have consistent, strong, fun performance throughout it all, right? You can't just live off your name. You gotta keep the fun performance high. That goes without saying, but a lot of people forget about that one.

Number 2— So are there ones in generational transition that haven't had fun performance and that's why you think it's— it's hurt them.

Yeah, I mean, I mean, we can all come up with those names. Go back to the late '90s and the firms that were the best firms, those 25 firms, only 5 really remain from now. So those other 20, um, have gone through some of those transitions. Now let's talk about the other things you need. So you need strong performance. You, you need to—

sorry, you're, you're, you're a venture capitalist, you're busy.

Ah, someone's calling. Uh, the second thing is you, you have to hire great young people, and you have to pay them and give them responsibility— that is, responsibility to lead deals, you know— well before you're ready to do that. You have to sort of take a chance with young, good young people and give them a chance to grow and see what they can become. That's number 2. And number 3 element is the old partners can't hang on too long. And that happens a lot. And I'm trying to live by that rule and not hang on too long. But you don't want the old guys hanging on too long, especially as you get into new technologies like generative AI and all that kind of stuff. That's not stuff I understand well, but our young people really do. So you gotta keep that cycling fresh in a firm. And that's what people like Sequoia and others have done very well. And we're trying to follow that model.

Okay, so returns, young talent, empowering them, right? And then 3 is, you know, you retire, retiring, if that will be. So I want to go on the number 2 for a second because that's, I mean, like, you know, giving someone checkbook rights before they're ready is a little scary, right? I mean, I don't— so, so, so, like, how do you— how do you— like, are you like— do you put— you say like, someone check their work, or you're just like, you know, write the check? Like, what, what do you— what's—

what's— when I started in venture, there was an old saying. I want to say John Doerr said it. Um, he said that, you know, young VCs all need to crash an F-14 to learn how to do VC, right? Meaning you got to lose $20, $30 million before you learn how to do VC. Um, wow, you know, so, so, so, you know, and young people that are coming into our industry, they all, they all want to put their name on a deal. Um, so you got to sort of figure out when you can do that. Now you do that with the help of a senior partner, and you may shadow them a bit, but you got to let them write some checks to see how, how they're doing. Every VC has a J-curve, you know, our funds have J-curves, but also individually we all have J-curves. That is, we don't just start making money from our first deal. I mean, some people do, but usually you lose more money in the beginning of your career and then you learn how to make money and you get out of that J-curve. Some J-curves are longer than others, right? So you have to be patient. And sometimes you may have a young investor that's in a sector that goes in and out of favor or out of favor, and you gotta be patient for when it comes back in favor. And so I would say be patient with young investors, give 'em a chance. It's real important. You know, we don't, we don't mentor young investors like we used to at the scale we operate as an industry. It's really hard to do, but you've got to take care with your young people and give them a chance to grow and learn and make mistakes.

Crash an F-16 to learn how to invest.

I mean, we just got to crash that F-14. I think now it's like crashing something bigger than that. It's almost like You know? Yeah, right.

Like, though, with a joint fighter, which I think is orders of magnitude more expensive, hopefully not like a B-1 bomber or something like that. So, okay, so, so I want to just stay on this for one more second because the personal J curve is a fascinating concept, right? And you said not everyone has it, but most people do. So you kind of know going in with some of these young investors, maybe they're going to make some mistakes, maybe their first deals won't be wins. Is there— is that a nail-biting moment for you when you're doing it? Like, do you ever have to pull the ripcord and be like, okay, this isn't working out?

Or— yeah, I mean, no, you have to be patient with young investors. They're going to lose some money and that's okay. And if you If you make them afraid to lose money, they won't take the risk you want them to take. 'Cause like I said, you only lose 1x your money, but I want a young investor to go find those 10x, those 20x, those 50x deals. And that's what you wanna train them to do is take that risk. You know? So—

And you don't want them to be afraid.

You have to be patient. Now, having said that, If there are investors that they come up and they're not team players or they're not working hard or they don't have all the intangibles you're looking for, then you might move on from them sooner. But I think if they're working hard, they're smart, they're networking, they're getting into quality deals, but they haven't produced yet, you gotta be patient.

Okay, sorry, I gotta go.

Or patient with me for sure. So you gotta be patient.

Double-click on one other thing you said. You said working hard. So a lot of people assume that venture capitalists don't work very hard. You know, everything that I've said does not indicate that. It doesn't mean they're not necessarily miners in a coal mine, but it's not an easy job, right? So I don't know, what are your thoughts on what is working hard in venture?

Well, I mean, it's, uh, venture is a hard job, um, and we're about to find out, um, for a lot of people that have been in the, you know, industry for less than 10 years, they're going to find out how hard it really is in this environment. But, um, you have to, you have to compete and you have to hustle. And when we think about the, you know, what we're looking for in young investors to bring them on to Lightspeed, of course you want sector expertise, you want, you know, all that kind of stuff. But what about the intangibles? So the intangibles— hustle, EQ, persistence, team orientation, work ethic, seeing the big picture, selling skills, resourcefulness, competitiveness, likability, drive, self-starter— all those things, you know, you know, contribute to someone being successful long-term in this industry. You know, you go through— the hardest thing I think for a lot of people in VC is if you've come from the operating you know, side. In the operating side, you get feedback almost weekly, right? Hey, you're doing a great job. Oh, this—

or invent metrics, right?

Yeah, yeah, metrics. In venture, you hardly get any feedback at all. And a lot of people, they get there and they just don't know how they're doing. So you got to try to help them give feedback, but also you got to train them to give themselves feedback. Um, and it's, it's a very hard adjustment from the operating world to venture.

Into you, by the way, the list of adjectives you just outlined is, is we need to write that. That could be a blog post in and of itself. Yeah, needed skills, hiring young venture capitalists.

I'll send it to you. I mean, people think that, oh, you're a venture capitalist because you went to Stanford or Harvard and you— well, I don't care about that. I want all the other stuff, right? I want to know you're going to compete in this industry. This is a very competitive industry. There's a lot of money out there.

Exactly. All right. Well, let's start going back to the agenda and I'll take us on tangents as we go. That was amazing. Keep the emojis coming, everybody. So I know you're interested in firm strategy. We had the debrief call about to prepare and organizational models. And, you know, I'd love to hear how you developed the strategy at Lightspeed and then how you translated that strategy into the organization.

Yeah, most people don't think about strategy in, uh, in venture. They think about, oh, I just need to go out and find great deals. Well, no, you actually have to articulate what your strategy is, and that strategy is going to evolve, by the way. So when I think about strategy, there's always 4 elements that typically describe a strategy. That is the stage, the sector, the geography, and, and more recently, the profile of founder. And so usually your strategy is a combination of those things. You would say, hey, we wanna be the best early stage firm in Kenya, right? That is a strategy. For Lightspeed, we started as, hey, we were gonna be an early stage enterprise firm in the US, right? That's where you start. Then the question is, okay, if that's your strategy, how do you know if you have product market fit? Because product market fit is the thing. And venture capital. You just don't get to put up a, a name and, and be successful. So the way I measure product-market fit is, can you compete for the best deals in your target market? So can you go to Kenya and compete for those best early-stage deals, right? That's product-market fit. The next question that you ask in terms of your strategy is, okay, if I can do that, is my TAM, my market opportunity, big enough? Are there enough dollars invested in deals in Kenya for me to put my fund to work in a way that produces great returns? And that's something you have to measure. And then the next step is, okay, my TAM's big enough. Is my competitive position defensible? That is, can I win the best deals? Not only do I see the best deals and compete for them, can I win the best deals on an ongoing basis, on a consistent basis, right? And competitors are going to come and go, and they're going to challenge you, and you've got to evolve. And then the last thing I look at is, okay, in that market, in Kenya, can I reach my target entrepreneurs in a, in a way that generates proprietary deal flow for me? And to me, those are sort of the 5 elements of what you're looking for in terms of a strategy. And by the way, that strategy is constantly evolving. Right? As you add new, new geographies and new stages and new things, it's evolving and you got to run through those 5 stages each time you do.

So in a lot of places where we're working, a lot of people here in some are launching first funds in countries, first funds in regions, first funds in markets. So they hit a lot of the different things you brought up. But maybe not TAM, right? So, right, because if you're the first fund, let's say in Mongolia, which we helped launch, and we're working on one in Namibia and a variety of other places around the world, like that, you can— you definitely will get the best deals, right? You're one-on-one, you get— it's somewhat defensible, right? And they can probably reach the entrepreneurs because they're the only one, right? But then the question is TAM. How do you How do you think about TAM? Do you look at the other exits that have happened? How do you conceive that?

Yeah, I mean, there's a bunch of different ways to talk about TAM. And then related to that is your market share within the TAM. Right. Right. Again, these are all concepts that we typically apply to companies, but not to venture capital firms. And, you know, my assertion is you got to apply it to a venture capital firm also. So TAM, I think the easiest way to measure TAM is to say, okay, We're talking about early-stage deals in Kenya. How much, how many VC dollars are being invested in Kenya, right, on a yearly basis? And if I'm looking at maybe a 2 or probably 3-year investment period, let's multiply those numbers by 3. And, you know, is that enough for me to put my fund to work? Maybe my fund's $20 million, $50 million, $100 million in that market and generate very good returns. And so The easiest way is to look at the total dollars invested into a market. And then you wanna actually look at market share over time, but we can talk about that later.

Interesting. And then to some extent, right? 'Cause VC dollars need other VC dollars because the companies need the money. Is that the principle essentially?

Yeah. That's okay, right?

'Cause you don't wanna have a peer, you fund them and then no money comes in, they kind of die without, okay, that's interesting.

I mean, you never have that much market share, right? You're always in a market— you want to be in a market with a number of competitors, right, funding companies, because that's what, you know, when you have enough VCs around you in a market, let's say it's early stage in Kenya, right, you want to have enough VCs so there's enough entrepreneurs that say, I want to start a company in Kenya, and then you get the entrepreneurs going. It's all a cycle, right? So you don't, you don't ever really want to have too much market share. You just want to have enough to drive great performance in your funds.

So what lessons— so we talked about strategy, right? And that's fascinating. And what lessons have you learned about strategy and tips and tricks that you can recommend to new managers coming or emerging managers in the field?

Yeah, I mean, I think there's a couple of things that are really interesting in today's world, and the market is constantly evolving. So your strategy has to evolve, right? Um, and the strategy can evolve by adding stages and sectors, uh, or type of entrepreneur, um, or state, you know. So you should evolve your strategy. The other thing that's, I think, most important, uh, for people who are starting venture firms or in venture firms today is that the best time to increase your market share is during uncertain times. All right, the last 5 years going back to the end of 2022 wasn't a great time to increase your market share because what does everyone do? They put their foot on the pedal, right? And they, they invest as much money as fast as they can, and they put it, you know, it's all that stuff, and mostly momentum investing. And you don't gain market share. You gain market share in times like this when people are really uncertain where to put money. Now everyone knows that everyone's putting money into generative AI, but where else? Where else are they putting in? What's— and what subsectors of generative AI are they putting it in? So, you know, times like this is when you want to become an expert in some subsectors and get early to those markets. And if you can get early to those markets, right, you can gain market share on your competitors. For us, examples are we went to China really early I think Sequoia was there, maybe Accel was there. We went to India very early. Bessemer was there and maybe Sequoia was there. There's a common theme. Sequoia is there, right? They're there early. So we got there early and those both became really important platforms with us. You know, we were in Israel starting in the 1990s and it's become a great platform for us. We're later to Europe, but now we're building that out. But again, this is why you want to move with conviction into markets early. That's the only way you make money in venture. You don't make money in venture when you're investing alongside the herd.

So, okay, so on— we're in uncertain times. Is that safe to say?

I would say it's uncertain times. I sit in the partner meeting with my partners and we're not, you know, everyone's not sure where this market's going. But I always say this is great. This is actually— Lightspeed was built during uncertain times. This is This is the best time for us.

Right, and a lot of people say that it's not only that, well, you've just said it's the best time to grow market share, but a lot of people also say it's a great time to invest. Let's take an uncertain time tangent for a moment and talk to me about like, what are you doing in these uncertain times at Lightspeed? What do you think other firms should be doing above and beyond what you just said, which is look at markets and see if you can grow your market share, but what are, What are some other tips, tricks, and thoughts about how to navigate this period of time? Because it's a great time to invest, hard time to raise money from LPs, blah, blah, blah, right?

Yeah. So I mean, we raised our funds, so we're not focusing a lot right now on LPs. I mean, we always are talking to LPs, but we just raised a bunch of money last year. So we're talking about investing now. First of all, number one, we don't— we're not market timers, so we don't want to go in and out of the market when the market's hot or cold or whatever. And in fact, you know, when the market's really hot, you should probably invest less, but you don't. And when the market's cold, you want to pull back. It's just the opposite of what Warren Buffett taught us, right? So these are, I think these vintages, 2023, 2024, if the prices continue to adjust, will be really good venture vintages. So stay in the market, keep investing. Number 2 is, you know, you got to get to markets early. You know, you can't just say, I'm going to invest in generative AI, and because I'm doing that, I'm going to have great performance. You better find some subsectors that you can get to before your competitors and get in some of the early best companies, right? That's the only way you win. Now, the way you do that internally is you gotta tell the team, you know, to your partners, educate each other. You know, go out and some of you become experts and then bring that back and educate all of us so we can win as a team, right? And we can learn from each other. And that's, you know, We don't have any superstars at Lightspeed. We never have, and that's not our MO. Our MO has always been teamwork and educating each other. And I would say in today's market, you really want to have teamwork and build that conviction in certain areas and get there first.

Okay, so that's— I want to double-click on the education, getting in early.

Yeah.

Well, you know, there's a lot you're saying. I mean, there's so many things I'm taking notes and, you know, probably I'll use this for myself. But I mean, you're saying a lot of invaluable things that are just— I don't want to skip over just because we have an agenda, right? So, so this educating yourself, do you go in with a thesis like, hey, I think this subsector is going to be really cool? Or is this just like curiosity leading the cat kind of thing? Like, oh, this is interesting. And you see what you can find that's early. How do you—

Yeah, when we have a large group of partners, so we think about a sector or subsector the same way you might think about a company. When we invest in a company, what do we do? We put some money in and then we try to reduce the risk all along the way as we put more money in. Right? So we think about a sector that way too. We want to invest in a company in a sector. Pick a sector, um, quantum computing for instance, right? Or any sector that's sort of new and emerging. You pick a company, you invest in that company, and you start to learn as fast as you can about the sector. And you're either going to figure out that, hey, this sector's going to work, or it's not going to work. And if it's going to work then you wanna invest in more companies in that sector. Again, this is, you're reducing the risk of that sector by learning about what's happening in that sector. And then you're putting more money to work over time if things are happening in a good way. And that's how we sort of built out most of our enterprise practice. And we continue to do that today. But I think it's a great way to think about building out your portfolio.

Oh crap, time is flying by. I'm loving this and I didn't even realize.

All right.

So one of the ways to learn the sector is placing a bet on a company and then using the companies as the investment in the company as a means of learning. All right. Let's switch.

Yeah, we call that a learning investment because again, you can only lose one time on your money.

So yeah, no, that's a— even so, do you call it a learning investment, by the way?

We call it a thesis investment or something like that. Yeah.

That's awesome. All right, let me move on to team. So, you know, you talked a lot about team already. What team, you know, thing. So keep to— I have a lot of questions for you on team. So hiring is incredibly hard and there's a lot of training involved. How do you— how have you hired, onboarded, and managed people at Lightspeed?

Yeah, I mean, hiring, you go back to those intangibles. I mean, I look for some basic stuff, but I also want those intangibles. In people. Um, and, and you have to use a little bit of EQ as to, you don't want this person on your team, are they— how are they going to work? So you do that. Now, onboarding— I think onboarding is a misnomer in VC. I'm not sure we onboard very well. It's sort of like, here's your desk, get to work. It used to onboard a lot better. And so, you know, we spent some time trying to onboard. What does that mean? You know, helping someone really understand the industry or sectors we're working in, help them generate some interest and specialization in certain sectors. Have them shadow you at board meetings so they can understand what goes on in a board meeting. How do you handle difficult situations? And you gotta, you gotta take that, you know, that mentorship really, it's very important for young people coming in because sometimes we just drop them off and say, hey, go, go make deals, go do deals. And invariably they'll fail if you do that. So you gotta take them under your wing your wing and you got to help them onboard and then train them. And when there's a teachable moment, don't lose that teachable moment. Make sure they understand what they're learning in that moment. Because again, a lot of VC is about pattern recognition, is about not making the same mistake twice and learning. And you want them to learn from others, not necessarily learn from their own mistakes, even though they will crash that F-14. Yeah.

Or multiple, given what we said earlier. Okay, I want— I'll come back to— we've got lots of questions coming in that are great. So I want to get through some big picture items quickly with you. Let's talk about limited partners, right? First of all, as a VC, you raise money from limited partners. It's not easy. I guess my question to you, because you built a seminal firm, Does it ever get easier?

Yeah, I mean, it does get easier. It does get easier. Although—

Is it ever easy?

Yeah. I mean, I think, you know, again, we're on our— I don't know what fund we're on, but it's 8, 9, 10, whatever it is. It's starting to get a little easier, but it can get hard again, too. You know, I always felt like the harder a fund was to raise, the better the performance of that fund. And that is because a lot of times a fund is hard to raise because the environment's not that great, it's uncertain times, and LPs are sort of pulling back. But that's the best time to be investing. In our 2012 fund, um, which was a really hard fund to raise, and we had a very good fund right before that, it was a 3x fund, and the 2012 fund was hard to raise, and we had a couple LPs pull out because they didn't think big funds could perform and there was a lot of uncertainty. And it's a 6x+ fund, right? I mean, and one of the— Snap was one in the deal, was in the fund, and a bunch of other things. And again, it was hard to raise. And so don't, don't get concerned if your fund is really hard to raise, especially in these times. These are going to be good vintages.

That's interesting. So quality of fund you found is inversely correlated That could also be because your work, you found this thesis idea that's interesting, but no one understands yet. So, you're going in and it's hard to raise, but it could be a great thesis area and really not—

I mean, what do you look for in a great investing environment? You look for prices that are coming down because we're supposed to buy low and sell high. That's how it works, right? And you're looking for a lot of opportunities to invest in disruptive technologies. And now we're seeing we have a fair amount of disruptive technologies to invest in right now. So the environment is actually pretty good right now, but LPs are pulling back, right? There's less funds are getting raised and smaller funds. And so there you go. It's a hard environment to raise a fund, but I think it's be a great environment to invest the fund.

Right. And you know, those—

all you VCs, all you people starting firms out there, hang in there. It's going to pay off.

So, and, and what are some of— you, you've had limited partners for a long time now. What are some tips? You, you talked about managing them and not treating them like a source of capital but treating them differently. Can you talk to us a little bit about—

I mean, a lot of people think of entrepreneurs as our customers, and yeah, they are. We, we are there to serve our entrepreneurs, but LPs are our customers too, right? They give us money to invest and we're supposed to invest it and give them more money back. And so just like a software company or any company treats their customers, treat your customers like gold, right? They're very important to you. And when they churn, it's really expensive to replace them. So I've got some long, great long-term friendships with my LPs that I've worked with I always, you know, the thing about LPs is they don't like surprises, right? So don't give them surprises. So if they get surprises, 'cause they're reporting back to their groups, right, about what's going on with Lightspeed or whatever the fund is. And if they get surprised, they don't look good and sometimes they can lose their job. So the formula that I've always used with LPs is, You tell them what you're going to do, you do it, and then you tell them what you did. And you be very predictable, consistent, and transparent with them. You tell them which companies are having a tough time. You tell them what companies you think are gonna be breakout companies, but you're very transparent with them. And over time you build this level of trust that when you have to go through a difficult period or this or that, they're with you. right? And this is one of those times, by the way, that we should be nurturing our LPs and those relationships. So be transparent, no surprises.

That's awesome. I'll ask one more LP question.

Yeah.

And a final question and then turn it over to the audience. So what things do you do for your LPs? Like, do you do dinners? Do you do annual events? Like, how do you keep them engaged in the firm? Like, what are some of the—

And I think the best thing to give LPs is consistently good performance on funds and transparency. That's the number one thing. You know, we're not really into a lot of expensive events and stuff like that with LPs, although I would say that our annual meeting is starting to get a little bit more fun over time. But, you know, with LPs, you got to engage them. And so they're all, you know, if they're coming in town, sit down with them and walk them through what's happening with the firm and always have an update that you can give them. You have your annual meeting, I would suggest also doing a 6-month checkup in between the annual meeting where you sort of give them an update. And then there's the day-to-day things where, you know, they're coming in, you know, to the Silicon Valley or whatever, meet them. Or if you're traveling and you're in their area, make a point of going to see them. Right. Again, the more you can communicate with them, the better. And these are, you know, these are like customers. You don't want them to churn. You wouldn't sell a customer a piece of software and not talk to them for a year. Right.

It's a bad idea. Exactly.

All right.

You know, I want to just talk because, you know, you have expertise and we're going to have to do another because this is so good and we have tons of questions too. So not a lot of time.

Yeah. Yeah.

When managing the fund, you've got management fees, you've got fund expenses, all this stuff. How do you think about that? How do you think— Do you work off a budget? How do you manage a firm to be as enduring as Lightspeed?

Yeah, I mean, we work off an annual budget and let's talk about early in the funds life 'cause now we've got so many fees under management that we have a lot of fees and we can do a lot of things with it. But early on we bootstrapped, right? We didn't, as the founders, we didn't pay ourselves a big salary. We're making a lot less than our peers, but we're investing in the firm. And you have to invest to grow the firm. And so every time we went to China or India or Israel and built out teams there, it took an investment, right? And we had to, you know, use less money in the US to do that. But the investments eventually pay off. And so, you know, I like to think of the venture capital firm, it's like company, right? It's like, it's a growth company. And so where are you gonna make those investments? How do you measure what the return is on those investments? Right? And how do you follow through on that?

That's awesome. All right, so, uh, let's go through now audience questions. We have a lot. So Didem's asking, what is, uh, prompting the trend behind all the new micro VCs, right? You're seeing lots and lots of them pop up. What do you think's behind it?

Well, I think, um, you know, the micro VC trend is, um, is driven by a lot of things. One is venture capital is no longer just happening in Silicon Valley, it's happening all the world. And I think that's a very good thing, by the way, for our industry. And then you're seeing people that a lot of times they're founders or they're former entrepreneurs or VCs, and they're able to, you know, build a small fund or a big fund in some of these regions, and they have proprietary deal flow, they have great networks. And so, you know, I mentioned the example of early-stage fund in Kenya, right? There are funds growing up in Kenya and they're going to do very well over time because there's lots of entrepreneurs now coming there. So that's what's driving it. It's bad for big funds like ours, by the way, because you don't want to lose sight of those— again, those— that early stage real estate is really, really important. So we do— we like to partner with a lot of, uh, seed funds and early stage funds and, and try to invest alongside them. Um, but that's what's driving it. It's great for our industry. Everyone can be an entrepreneur anywhere. Anywhere. And now we almost have VCs anywhere. And hopefully we can develop, you know, these ecosystems all over the world.

Well, that's hopefully what we're helping to do.

So I know you guys are doing a great job and driving that. So thank you.

Well, thank you. So Alex asked, given your emphasis on getting in early, what about getting in super early, like the dorm room fund? And the ability to capture. I mean, so maybe how early is too early, or what are your thoughts on getting in?

I like being in early. I mean, like I talked about Snapchat. Snapchat I learned about from my daughter. She was a, you know, sophomore in high school and she was on it, and she was one of the first 10,000 users. And so we got in very, very early. It, um, it was at about 4 pre. The price was 4 pre. Um, so we bought over 10% for $500K. That's— we like doing that. And again, the early-stage stuff, you only lose your money 1x, right? You can only lose your money 1x. So you might as well have a lot of these really smart investments across different sectors, right?

You got some hammering going on.

You got construction going on. Yeah.

Yeah, it happens. So Ari's asking, what firm comes to mind that has over 70% hit ratio? At the pre-seed stage and has been returning the fund over 3 market cycles while transitioning GPs. So I guess he's like, which one of the— which firms have done what you talked about in the beginning well?

Yeah, Sequoia is the one that comes to mind. I mean, Benchmark's been a good firm for a long time. They haven't totally turned over their generational, but they've done some transitioning. And they've kept it small. I know Excel has gone through some stuff and transitioned their generations. It's really hard to do. And again, so there's not a lot of people who have done it right, but the firms that are in the market today in global and full-stack generally have done a pretty good job navigating. There's a lot of firms that were strong firms when I was starting out that haven't done that for whatever reason.

Um, okay, Austin's asking, uh, the two questions which I think are great. How did you decide to promote someone to a partner, and what are the top three drivers of retention for partners?

Well, I mean, so yeah, um, we call everyone a partner. The question I think is, you know, when do you decide everyone— you don't have associates or Yeah, we just call everyone a partner because sometimes entrepreneurs will say, well, you're not a partner, I don't want to talk to you. And we want anyone to be able to talk to an entrepreneur. So a lot of firms do that now. It's just a title, right? The question is, when do you let someone do a deal? And I think we look at, you know, the kind of stuff they're sourcing, right? How's their network? Are they sourcing good deals? If they're shadowing us in boards, you know, are they sort of learning? About that. And then again, like I said, you have to give people a chance to invest probably earlier than you might. And we do that. In terms of retention, you take good care of your people, right? I mean, I care about all the people at Lightspeed. I know them personally, I know their families. I have a lot of sessions with them on their careers and how they're trending, what they can do. You know, you don't want to just leave them off on a desk and tell them to do their job. This is, you know, you win as a team. And if you're a team, you act like a team, right? And it's a family.

That's awesome. So there's a Q&A section too, if you want to add a question into Q&A, but we have a bunch more. Okay, so Tara has a question on the startup side. We want to get some startup questions. We did good staying on the venture side for a lot, but as a VC, what advice do you give early founders or startups to get funding?

Yeah, I would say, you know, I mean, venture has always been about, you know, the milestones, the money you take at what valuation based on the milestones you have. And if you're finding that it's difficult to get funding today, it may either be that the valuation is too high or you haven't reached ample milestones, right? And, or maybe a combination. And I think, um, I tell a lot of founders, if you can continue to bootstrap, um, don't take VC money for a while, right? Get, get your company to a point where you can actually get a higher valuation from VCs and give up less of the company to them, right? Um, this is all about when you take the capital, and, and obviously the early-stage capital is the most expensive for you as an entrepreneur. So try to get it as far along as you can. At some point, you're gonna want the capital because you have to grow and invest. And if you don't, your competitors will, and they'll beat you to market.

That's a very good point. Let's do one other one on the startup. Then there's a great one from Gilberto. We got a few minutes left, and I have a closing question for you. So like Azu's asking, in today's highly competitive landscape, startups need a clear differentiation to succeed. Barry, what specific aspects of unique value proposition impressed you about startups that you've invested in? And maybe you could generalize it, right?

Yeah, I mean, boy, that's like the golden question, right, of investing in venture capital. You know, um, it's funny, sometimes you don't really— sometimes it's hard to really tell what your winners are, right? You don't really know them when you invest in them. You think they could be a winner, but you really don't know for 2 or 3 years what your winners are. Sometimes you don't know your losers for longer than that. And so I can't really say up front that I knew this was going to be a winner because— but there's a, there's a set of common characteristics, you know, great founders, that are, you know, are going to get through anything and they're not going to be denied. I love, I love founders that are that way. Number 2, they're serving a market that looks like it can grow to be really big, right? And they're early on in that market. Again, you never make money in venture when you're with the herd. You got to be up front. And then they're evolving their product with the market as they sort of see. Product to me is sometimes the most, the least important of all the aspects because the product always evolves over time. Some people call it a pivot. That's, you know, I just call it the evolution of the product with the market. And when you're finding, trying to find product-market fit, right, there's a lot of different iterations of that. But great teams and great markets to me are the most important part.

Right, and the product will adapt. That's awesome.

The product adapts, right?

Keep the emojis coming. All right, so I think we'll do one last audience question, then I've got a closing question for you. Yeah. So Gilberto's asking, in those times that were hard to raise, what did you say that convinced LPs to come in? Because we're in the time right now. Help, help them, Barry. They need the— I mean, I think your point of the countercyclicality of things is a great one. You can say that, but anything that you used or would recommend using that work?

Yeah, I mean, I think it's just continuing to say, hey man, this is, this is our plan, this is our strategy, this is how we're going to execute. Maybe here's some examples of how we've executed in the past to give you confidence that we're going to pull this off. We're adding new team members, we're building, you know, we're investing in the team, we're not taking big salaries, um, we're gonna put your money to work in a great way. And, and, um, you just got to keep saying that, right? And we, we were fortunate because we had track records from the 1990s at our previous firm where we could point to that. Um, so we had some advantage, but you know, you just got to be really honest with, with LPs and tell them, this is my plan. And if they don't like your plan, they probably shouldn't be an investor. But if they like your plan, your strategy, and how you're executing, then you want them, and they'll be long-term investors.

All right, so final question for you, and we hit the mark. And so thank you so much, by the way. But if you—

by the way, one other, one other thing though, maybe one other trick is if you can get an early LP to move, see if that LP will actually be an advocate for you with other LPs and have them, you know, selectively call up, you know, as a reference on you to some of their other LPs. Because LPs sometimes can be a little bit like penguins on the side of ice, right? That one falls in the water, then the others jump in. So if you can get a really good LP to start, and see if that LP will advocate for you.

Okay. So if you— my final question, if you were to start a venture capital firm today, what advice would you give yourself? Because you've been through this whole journey.

It's hard. It's going to be a lot harder than you think it is going to be. It's going to be a lot more rewarding than you think it will be. Surround yourself with great people, pick great co-founders, invest in great people. And remember, you don't make money investing with the herd. You gotta find a way to get to markets early and getting companies in— new companies and sectors early. And if you do that, um, you know, you're going to succeed. And then manage your LPs like customers. They're the relationships. Treat them like important relationships, as they are, and customers. And I think if you do all that stuff, you're starting to stack the deck in your favor for success.

Wow, this was amazing, Barry. So we're gonna— John's gonna come on. Thank you. Say, if everyone wants to give applause and hearts, now would be the time to do it. This was fantastic.

I like the emoji with the dark glasses. Those were great. If you got some of those— Thank you everybody for taking the time to join us today.

This was amazing.

That was awesome, Barry. Thank you so much.