Logan: This idea that price doesn't matter, that it's binary, it's just wildly flawed and lazy thinking. I think it's just dead wrong. Welcome to the Logan Bartlett show. On this episode, what you're going to hear is a conversation I have with Jeremy Levine. Now, Jeremy is a general partner at Bessemer, where he started his career over 20 years ago.
Jeremy's one of the icons in the industry, having invested in companies like Pinterest, LinkedIn, Shopify. He and I go very, very deep into the evolution of the industry since he's joined, how Bessemer came to be the firm that it is today, and how it's What Jeremy looks for in different investments, as well as his role in mentoring the future generation of venture capitalists.
There's a lot of talk about FOMO. I've convinced myself that I have JOMO. The joy of it. I love to know I didn't spend and waste a lot of time on something that I almost certainly wasn't going to do. The goal is to find a company, which is a donut company. The donut company is a company where you go once a month or once a quarter, eat the donuts and you go home.
Because if they need your help, That means they're missing something and you don't want to invest in a company that's missing something. I really enjoyed this conversation with someone that I've long looked up to. You'll hear that discussion here.
Logan: So we were talking before why I do this and, uh, I, I, have kind of an answer and I don't have a great one. One, it's given me exposure to people I wouldn't have met otherwise, which is awesome, and I've gotten to be friends with some of the people. It's, it's funny. You walk away every time from this, not every time, but a lot of the times being like, that's. That's my guy, like, or woman or whatever, like we walk away, we spend a lot of time talking about a bunch of different stuff. So you walk away feeling like you're really close to the person and then very rarely do you like keep in touch after, but I have had a few people that I have gotten to be close with that are of an echelon that I just wouldn't have had exposure to in my, my day to day, which is, which is interesting.
The other one is like an interesting backstory of when it started. was 21 and it started in 2021 because people could be everywhere, uh, because they were behind a zoom screen. And so suddenly time and space wasn't as much of a consideration to differentiate yourself in venture. And you said stuff about like, Hey, if you're a young BC. To stand out, you need to go [00:02:00] fish in ponds that other people aren't fishing in, right? And, and as a B2B, you know, uh, Series B investor, like there's a lot of people fishing in that pond. And sure, sure, I could go hunt for other ponds, but I also was like, I should try to find something. If anyone can be anywhere behind a screen, I should find something just to make my name a bit more resonant in some ways.
And I didn't have any other ideas. That's kind of the short version of like, I went through the things and it's not like I can go back in time and be a real like operator, like I can't go back and be a CRO, you know, snowflake or something. And I can't go intervene, uh, uh, invent the like browser and I can't go invest in Shopify or Yelp or LinkedIn or whatever.
And so I was kind of like, well, what can I do? Do, and this is the only idea and I've enjoyed it. There's a weird itch. I don't know if you see this at all, but like there's an itch of fulfillment. Our job has such long feedback loops. Uh, and it just takes a long time to get any validation of like success.
And so you need to enjoy the inputs and the little wins along the way. This has very short feedback loops and short gratification. And I kind of control it far more than I control. You make an investment and
Jeremy: It's out of your
Logan: It's out of your control. Like sure you, you can guide and support. And that that's the most, at least I find probably the most fulfilling part of the job is actually working with the companies, but from an equity value creation standpoint, That decision was probably the most important component of it.
I don't know if you agree with that.
Jeremy: percent picking 0. 01 percent helping
Logan: I think that's probably right. Especially at my stage, right? When you're early, I think you can maybe make a case that the percentage could be even higher. I don't know, but
Jeremy: my, I've been fond of saying this. So I think if you ask most investors how they spend their time, they do any kind of venture capital, they'll say about half their time evaluating new investment opportunities and half the time with their portfolio. And when you reach a sort of steady state, which is you're adding to your portfolio and you're subtracting from your [00:04:00] portfolio at about equal numbers.
And you're subtracting both because. You have some successes and they exit or you have failures and they shut down the steady state and depending on who you are and how you think about it is, you know, between 10 and 20 companies, 20 is like incredibly busy, 10, maybe a little capacity, but even at the low end, 10 companies, that means in the course of a month, assuming you're not working the weekends, there's 22 business days.
23 business days, half of them, you're looking at new investments. That means 12 business days for 10 companies, which means at most, you're basically spending one day on each company per month. And so my, my logic is if you, as an investor can move the needle for a company run by an entrepreneur and a team where they're working probably six or seven days a week and probably eight or 10 or 12 or 14 hours a day.
And in your one day of the month, you can actually move the needle. Then they must suck.
Logan: there's
Jeremy: that how it's run by?
Logan: The one thing that I don't know how to quantify, and at least I would pitch this to an entrepreneur, and I'd be interested if you think this is bullshit, or in your opinion, if you've seen this, there are, there are a handful of moments that matter in a company's journey. And it's, you're right.
It's not every day. It's not every month. It might not even be every half year, year, two years, but there's a handful of those decision points. And if you can Just help the entrepreneur see a round a corner in some way, or provide that incremental counsel, uh, to help make the best decision. it's it's a very ethereal, like kind of bullshitty.
Oh, well, you know, it's the way you would pitch it if you don't have any quantifiable thing you would do. So I
understand the of it all. You have to earn it right to be at the table and have the influence at that moment in time as well. But. That's at least how I sleep at night
with all the time
spent on this.
I don't
know
Jeremy: no, I, for sure, but I actually think, um, [00:06:00] your impact as an investor on an entrepreneur and his or her company is much more likely to be heavily negative than heavily positive. And so I, you know, I talk about the, um, the Hippocratic Oath, which I actually understand like, People have misquoted Hippocrates and what he actually said is different, but most people interpret it as like, you know, first do no harm, which is what the doctors are supposed to do.
You're proud of
Logan: a doctor.
So you grew up with
this Yeah
Jeremy: Um, and most VCs don't do that. They, they want to have impact, but it turns out that oftentimes the impact can be negative. Um, but yeah, sure. Once in a while, if you happen to know, The right thing to say or do at the right moment, it can be, um, you know, wildly impactful, but that's not, that's not, that's not why I do it.
Or I don't think that that shouldn't be your motivation as an investor, your motivation to be mostly get out of the way. And if you, if you've heard me do, um, uh, have discussions about, you know, what I look for, I'm, I'm very fond of calling it describing the donut company. Have you heard my donut company metaphor?
Logan: I think for people that though
Jeremy: you know, the, um, the goal is to find a company, which is a donut company. The donut company is a company where you go once a month or once a quarter, however often you, you meet to
Jeremy: have a board meeting or a strategy discussion or what have you. And you show up and you eat the donuts and you go home and that's your job because they don't need any of your help and they may not even want any of your help, but more importantly, they don't need your help because if they need your help, that means they're missing something and you don't want to invest in a company that's And I think, um, one of the, there's a, Age old debate, it's actually not age old, it's probably a 15 year old debate.
About who makes for better a venture investor, a former operator, or a career investor. And up until 15 or 20 years ago, almost all venture investors were just investors. There weren't many former operators or if they had worked in a real company before it was typically a really short stint and they spent most of their career as an investor and, uh, and actually I credit Mark Andreessen and Ben Horowitz,
Logan: think it's 100 percent
them That's what I was going to say It's like
there's actually, we can, we can denote when it started.
Jeremy: And so, so having both [00:08:00] been
Jeremy: successful entrepreneur operators in their career, um, they made a big deal of, of how great it is. And I think one of the disadvantages of a former operator is that. As an operator, I think your mentality is often, how can I, how can I help or fix or improve this company? And people tend to be attracted to situations where they can have an impact.
Um, but the fact that your impact is needed should be a negative signal in and of itself. Um, and that what you really want to look for is a company that doesn't need necessarily want, or, or certainly need. And if you're an investor who doesn't know how to operate anything, it's very hard to fall victim to that problem because you have no instinct on
Logan: Well other thing is you've also seen a single version of events and most likely success. If you've been hired in as the VC former CEO. And so. Um, I worry a little bit about a desire to overly form fit the success you've had and take the wrong lessons of maybe just the product market fit was really good and it wasn't that you compensated salespeople this way or like, you know, it was, this was how your design team was organized and it's like you've had one success and so it leads to this.
false hindsight, uh, revisionist history of like what actually led to that success. And so you can speak very declaratively. Uh, I find this with independent board members at times, they speak very declaratively about like, no, this is the way to do this thing. And like, yes, maybe yes, maybe no. You know, what's funny about, uh, the, the, the Ben Horowitz, Mark Andreessen thing is like, it was such a great branding thing out of the gate.
And they hired Lars Dahlgaard and, you know, a bunch of, you know, big CEOs and they're like, we're only ever going to have founder CEOs as our partnership. And people forget this. And, uh, Now, like obviously that changed, but it was so good for such a period of time and it really shaped the narrative of like, Oh gosh, well, I'm, I'm never going to be a CEO.
And so how do I go back in time and have the credibility of being a CEO? So
Jeremy: So I, so I've had conversations with a number of founders [00:10:00] about, you know, how do you, how do you think about, or choose your, your venture investor? And, and one of the many frameworks I offer is that, you know, in some sense, particularly for a series A or series B investment round, You're, you're getting an investing partner and you're also getting a board member typically.
And if you want to think about it in really crass terms, as an entrepreneur, you're selling a board seat effectively in exchange for an investment. And, um, and you can't, you can't take it back. Like once you've sold it, you're giving
Jeremy: the right, not necessarily to a person, but it is effectively a person, but to a firm to fill that board seat.
And they're probably going to keep the person who was responsible for the investment in the first place. And that As a founder, you want to have people on your board who are, I think, pure investors who think very differently than you do as an operator and a builder of a business. You also want to have experienced operators on your board.
But my argument, which I've convinced myself is a compelling argument, you know, entrepreneurs can decide for themselves, is that If you're going to, if you're going to have an operator on your board, operators are generally like good ones are used to sort of telling people what to do and getting buy in, but like ultimately like the buck stops with the CEO and if you have a former CEO on your board, their default mentality is to be like, this is the way to do it.
You want that person on your board, but in a board seat that you control so that if you don't like what they're saying anymore, you can say, you know what, I don't want to listen to you anymore. I'm going to replace you. But if you sold them their seat, you can't just replace them. And so my, my logic is you want an investor in an investor seat and an operator and an operator seat.
And if you're going to sell one, I'd rather sell it to an investor than to an operator.
Logan: when you're a hammer everything looks like a nail. And so I'm glad we both as career
investors sort of landed on
the same narratives of like, you know, this is at least it allows us to go to bed every night and think about it. That I will say one of the interesting things about that, that I've seen.
Former CEOs in particular, maybe struggle with in the job of moving to venture is back to the earlier point of why I even do this at all is you're used. I I'm, I'm pretty used to, I was at an investment banking. You [00:12:00] were in consulting. I went into venture, like I'm kind of used to soft diplomacy and like advice giving and all of that as like the, Hey, there's some good things, some bad things.
Here's the trade offs. Like, here's what I would recommend. But you go. Make the decision yourself. And I'm very used to that role of like the, Hey, I don't wield any power of decisioning at all. And it's, it's a hard transition, especially coalescing around a partnership, which is an interesting organization.
In a bunch of different ways and however you structure it, even if you do a budget and you get autonomous decision making and all that stuff, as I go, I know you guys will do, it still is like a, you an interesting organization. It looks probably at times, not this dysfunctional, but like there's elements of a, the Senate or the house of representatives, like there's a bunch of different personalities and you build consensus on stuff.
And. Even if you have the autonomy to go to side, it's still like a, a very different organization than a company. Right? And so I think that's always an interesting adjustment for
people
Jeremy: You're trying to, trying to drive outcomes through influence and persuasion, as opposed to dictate. Um, and it is, that's a very different
Logan: A lot of carrots, not a lot
of
sticks. Although, um, well, I, I appreciate your, as a, uh, self professed introvert. Willingness to do this. I was, I was told that podcasts are good form factors for you. Cause you like longer, uh, unstructured conversations more than, uh, some of the other, I don't know, tweeting or, or whatever else you could do.
So I appreciate you doing this, but that's actually a point I wanted to jump off from. Um, so you've been doing this a long time. You've had a bunch of successes, companies like Shopify, among a bunch of others. Um, and I've. Heard you say you practice craft in a very different way than your partner, Byron Dieter, who's been super successful.
My friend, Brian Feinstein, uh, also works at Bessemer, people that I'm sure we both look up to. We've referenced some earlier, but, uh, from prior [00:14:00] generations, like John Doerr or Doug Leone or whoever it is. Um, as you think about the number of people you've been exposed to internally at Bessemer, externally through boards, people that have grown up in Bessemer and gone externally, is there a through line that exists that allows people to succeed in the industry when some people can be introverts and extroverts and people just practice it in a bunch of different ways?
Jeremy: um, I don't know that there is actually, um,
Logan: Does that just mean it's random?
Jeremy: yeah, I mean, I think people, you have to, it's, it's really hard and it's, it's a job that moves in slow motion. You, we were talking about this earlier. You, you get feedback
Jeremy: in really small bits and pieces of really long periods of time. And, uh, and so to do that, you have to really love it in order to tolerate all the negative elements of long feedback cycles, tons of uncertainty.
Yeah. Lots of self doubt. Um, and so I think maybe that's the common thread, people who tend to do it and do it well and do it over a long period of time, tend to love it. But you know, I, one of our, are now, um, retired partners at Bessemer who was in the venture business for 30 plus years. And then he taught, taught basically venture capital and private equity at Harvard business school for a decade is this guy named Felda Hardiman.
And, and Felda had this great one liner he had many great one liners, but one in particular as it relates to this topic is he said, everything is great about venture capital. Except for the other venture capitalists and, uh, and, and, you know, there are, there is like the prototypical venture capital who, you know, you know, wields, wield capital and decision making authority.
And it's a little bit obnoxious or maybe a lot obnoxious with the big ego. Um, and, uh, And, and that's definitely true. And I've definitely come across, um, my fair share of those people. But I think what's neat about being a venture capitalist is one, you get exposure up close and personal to so many others, not even in a contrived situation like this, but actually in the course of your work, being on a board together or jockeying to invest in a company [00:16:00] or welcoming a new investor to your company, and that's kind of neat.
But, and in, in, in that you also get to then see so many different ways of doing it. Um, and that was the other thing Felva taught me. Um, You know, there are so many ways of doing venture capital and you have to figure out what works for you. Um, and one of the tricky things in a mentor mentee relationship is that the mentee tends to start mimicking or emulating the mentor, even if the mentor style may be really ill suited for the mentee.
Um, and part of the, the fun or the thrill of it is try, try to figure out like what, what's your thing. What's a shtick, maybe a sort of a kooky way of describing it, but. But you know, what's your special ingredient or what's your, your, your, your go to maneuver, or how are you compelling on what dimension?
And you might be terrible relative to an alternative investor on a certain set of dimensions, but you might be fantastic for a particular entrepreneur at that time. And part of what I think is so fascinating and challenging about it is, is the path of discovering like, okay, what, what's, what's, what's your role going to be?
And why is that compelling to this other person?
Logan: Yeah
there's something about like authenticity to who you are. The job is too long and there's too many different, there's too much surface area of like moving between things to do any. Fake version of yourself or try to be performative for too long across too many ways. And so whatever like is authentic, you can lean into it, right?
lean into an authentic version of myself. I think about you went to Duke and coach K was there for a long, long time. And I, one of my good buddies is a big, Uh, whatever the, um, Duke donor basketball group is. And so he'll, we'll go down every year for a game. And, um, we went down a couple of years ago.
It was coach K's last season and we had great
Logan: seats and we're sitting, you know, whatever, right, right behind him. And, uh, he's playing Georgia Tech and Josh Pastner is the coach of Georgia Tech. And the Georgia Tech kid drained a three and held it up in the air and sort of like gave a little shimmy and showboated after.
And coach K lost his shit [00:18:00] so much so that at the time out, he went over and finger in the face was like lecturing the Georgia Tech kid and Passner comes over Georgia Tech's coach and I'm like, Oh my God, he's going to like go after coach K and we're going to see this whole thing. No, he went after the kid on his team and was apologizing to coach K and he's like, I'm so sorry.
I'm so sorry about this, blah, blah, blah. And I was sitting there thinking, and I was like, if, if. I think backed on it when John Shire, who grew up under Coach K got the job and I was like if Shire over extrapolates the lessons he learned from Coach K
to Duke
it's going to be a disaster because you can't be a 35 year old kid from Chicago who like played at Duke and you can't go over and lecture the kid on the other team and so it's interesting like the lessons you can't You learn from mentors.
You can't take all of them. Like the next coach K will look nothing like coach K. It's just like, can't do that. And next Nick Saban will look nothing like Nick Saban. Next Jeremy Levine or the people you learned underneath, like. Probably won't look exactly like you. They'll internalize little bits of it along the way, but it's an interesting, yeah.
Jeremy: Yeah. Well, I'm, I'm, I'm tempted to go down this coach K path. I've never, I've never shared my thoughts on coach K
Logan: I would love hear Christian Leitner
in college
Jeremy: No, he was not my roommate. Um,
Logan: a
funny room that's a funny room, you guys are contemporaries though?
Jeremy: he, well, I was a, I was a freshman when he was a
Logan: Okay so
Jeremy: no, but, but I, I
Logan: sorry to
dissuade uh
Jeremy: worked for the Chronicle, which is the student newspaper at Duke.
And I was a sports reporter and my, in my sophomore year. So the year after Ladner had left Cherokee parks, you may not
Logan: No of course I see him in the New York subway sometimes. Yeah yeah he lives here he's like, I mean, he's a very tall, tatted up, like, you know, funny character. I've also seen him at Duke games before, he's like, still a pretty big
fan
Jeremy: He's a big guy. He's hard to miss. But he, but, um, I, I interviewed him as a reporter at the beginning of his second season, which was the first season where Leitner was gone. And uh, and, and basically Leitner was like a, a hard ass, like he drove everybody. Um, and, uh, and Cherokee Parks described him as an ass.[00:20:00]
Um, and so that was the big pullout quote in my story at times he was an ass, um, which I thought maybe would annoy him a little bit, but he's like, yeah, it's true. And like, everyone knows it's
Logan: You thought it would annoy Cherokee or Laytoner?
Jeremy: Um, well I later, I'm sure it wasn't reading the Chronicle, but, uh, but
Logan: was
on Team USA or whatever at that point
Jeremy: I will tell you my, my, um, you shared a Coach K story.
And so. Um, he's remarkably successful and, uh, and, uh, and over such a long period of time, which is hard to do in any industry or career. And I have enormous respect for it, but, um, but I lost a ton of respect for him, um, during my junior year. Was it my junior year? Yeah. My junior year. So he did this amazing thing every year.
Um, and your, your story reminds me of, because in my, my interpretation for your story about him, sort of. Lecturing this, this young player on the other team. It's like, it was just inappropriate. Like, like he shouldn't have done
Logan: I
was uncomfortable the whole
Jeremy: yeah, and his, his own emotion got the best of him. And I have another version of that, um, which is probably even worse.
Um, and so he did this amazing thing, which is super generous, multiple amazing and generous things. Um, one is the front, the middle two seats in the front row of the press table was reserved for the student newspaper, which is like pretty amazing. And so you'd be sitting there covering a basketball game.
Next to somebody with an even better seat who was working for the New York Times or the USA Today or the Washington Post. And that was really cool. And then he did this other really cool thing for the student section of the news, the sports section of the newspaper, which is he invited us to like a multi hour conference in a conference room in Cameron Indoor Stadium, where his office was to interview him.
Like it was like a pre season interview on like, what are the things he's thinking about and worrying about? And like hours of like just us asking us questions. And this is back, this is in the early nineties. And so as a reporter, you had a tape recorder and you might remember these things, the tape recorder, the tiny little cassettes, um, you know, no digital
Logan: Alone I think, uh, they Still every
time you
watch it yeah
Jeremy: Exactly. And so finally, um, we sort of getting to the end of it and he's like, okay, is everybody finished? No more questions. Like turn off your tape recorders. And so [00:22:00] everybody around the table, there's probably 15 or 16 reporters. Like we dutifully like go and turn off the tape recorders. You can hear them go click.
Um, except for one senior who was on the far end of the table who pretended to turn off his tape recorder and didn't actually turn off his tape recorder. And then for the next five or 10 minutes, Shashefsky just started screaming at us. Um, and, uh, basically the editorial department of the student newspaper ran a political cartoon, which was Shashefsky, um, he had just signed the A 10 million contract with Nike, where he would get the money, but the players would wear Nike, which was like fairly typical of the way these deals worked in the nineties.
And, um, and so the political cartoon was wildly tasteless. Oh, I accept that. Um, I had nothing to do with it, although I was supportive of it. Um, and it depicted a limousine driving by with a man's hand leaning out the back of the wind, the window of the backseat of the limousine, dangling a pair of Nikes and the likeness of Krzyzewski was wearing essentially like A bra and panties essentially dressed as a prostitute leaning against a lamppost.
And, um, he did not like this cartoon, but he didn't bother as like a leader figure and, and essentially like an, almost like an in parent in Prentice. What is it in local Prentice? Like figure for all of us. Um, he didn't bother to figure out like, well, who made that cartoon? Whose decision? He just assumed newspaper people like, and so, and so he just started screaming at us, like incredibly loudly, incredibly vigorously.
I am no fucking whore. And he said it over and over again. And so this, this senior
Logan: has the tape
Jeremy: it, has it on tape. And so for the rest of the entire year, back in the Chronicle offices, we had this phone system. And you could pick up the phone and press the button and it would like broadcast whatever you say over all the phones in the offices.
And like over and over again, I just hear in my head, it's like permanently etched. Mike Krzyzewski's voice saying, I am no fucking whore. I have no, over and over and over again.
Logan: That's so funny
Jeremy: anyway, I thought that was wildly inappropriate scolding. Um, and by the way, it's just like [00:24:00] inappropriate on so many levels, but, um, but I, I think in some ways, maybe to give him the benefit of the doubt, like people who are so driven and so competitive, if, if you sort of reveal that you're even a little bit against them, you sort of become this, this enemy and, and the emotion, um, just bubbles up and through and, and he couldn't control it.
Logan: It's, it's, it's an interesting, I mean, this is not what I expected, uh, us to, to analyze happy to go down this rabbit hole. I was talking about this last night and one of the things in Venture, to bring it back to, to that, people generally, it's, everyone sort of talks about like it's a get rich slow business, it's sort of like one of the adages of it.
And I found that there's, there's kind of two groups of people, broadly speaking, that I've looked up to in the industry and in broad strokes, it's sort of people that like maybe started on the immediacy of the internet, uh, bubble kind of through the bubble and there's like a point of, um, like, uh, you know, appreciation for limited partners.
And there's a point of like, Uh, uh, consciousness of dollars and all that, like if you started in 01, 02, 03, 04, you saw like a lot of bleak times through that. Uh, and then there's the, then there's people that have come later and only saw like 20 years or whatever, 15 years of a, of a bull market and all of that.
And it's, it's interesting how, um, I've seen, uh the two different paths of how people kind of live their lives and how that actually influences, you know, them and their style of both working with LPs, working with portfolio companies, how they travel, like the people that some people are still private plane like it's super accommodating, easy to do.
Some people are still back coach Southwest flight, no matter what the income is. And so I always find it's interesting that like, um, in this job, so many people are practicing at different ways. And then so many people like live their [00:26:00] life in different ways. And I think it's, uh, we were going to talk about like the office space thing at one point, but like what your office space says about you and what you wear and all of that stuff, like these are all sort of reflections of how you want to treat you, how you want to be viewed.
And so. The Coach K thing, I guess, probably not a lot of people were speaking truth to power to him in post Leitner in 1992, all of that. So I, it's a, uh, it's an interesting position for a student to be doing that, but it does have some parallels to like how people grow up in this industry. I'm curious your thoughts on,
Jeremy: Yeah. Um, I mean, I, I struggle with it all the time, both because, um, you have multiple audiences, um, as a, as a venture investor in particular, you've got your peers at other firms, your colleagues internally, your LPs and the entrepreneurs in which you've invested or in which, or in whom you might hope to
Logan: and the, the, the peer, there's the peers within the firms and then there's the people that are looking
to
you and modeling their behavior after
Jeremy: that's right. Um, and, uh, and it's also, you And then, and so that's complicated cause there's lots and you can't be, you have to be kind of the same person most of the time you can adapt a little bit to your audience, but you can't adapt wildly or it doesn't come across genuine or you're sort of quickly discovered as, um, multi faced,
Logan: Yeah And authentic
Jeremy: Uh, and then it's all, it's all complicated by the fact that if you're, you know, it's, it's, uh, it's, it's the money business. Um, and. If you, if
Jeremy: you do well and get lucky, it, it just like, it's wildly rewarding to the point of like, it makes no sense. Like no, no human needs to be, needs to earn the kind of money you can earn.
If you have a giant success as an entrepreneur or a venture capitalist. Um, and
Logan: bad
entrepreneurs are scraping by bad VCs. You do it long enough. You're still doing okay. Right. is,
is
Jeremy: yeah, I [00:28:00] guess that's probably true. I mean, it depends how generous your partners are.
Logan: and fun size and all
Jeremy: Um, any, and you generally have to have done something to become a VC at a fund that's big enough where you can, you know, kind of.
Logan: But the feedback loops are so long that like you can, you can, mediocrity can hide for a
while
Jeremy: that's true. You, I think that is true. And, and relative to,
Logan: mediocrity
Jeremy: relative to a per capita GDP of 000 in America, you're getting rich, even as a mediocre venture capitalist, you're, you're not, you know, if you're really good and, and really lucky, you can get generational wealth, whereas if you're mediocre, you're not, you're not getting generational wealth in, in BC, but, but you're right.
Compared to the, the average work in America, it seems wildly unfair and it is wildly unfair. It doesn't make a whole lot of sense. Um, but, uh, but anyway, money complicates things. Money complicates things in all elements
Logan: Money
and
power
And for the most
part, VC. You generally stay away from too much power, I would say. I mean, you, you wield with a little bit, like if, for, for what people make for the most part in, in America, let's say we just took dollar for dollar, like the jobs, the, the amount of responsibility and headcount that you would have to manage, uh, for the most part, like.
The people that make 50 million in public markets generally, like public market leaders managing companies that generally have tens, if not hundreds of thousands of people, like in private markets. And I, we, we probably both take solace and at least hedge funds in private equity firms are even more, uh, uh, on the curve here, but like.
people that manage teams of three or five and, and hedge funds and, uh, and do far better than that. So it is this interesting thing that like it's, it's money, it's not power and money and power can exist together in other places, I think far
more
Jeremy: Yeah, no, I think that's right. And, um, and yeah, I mean, uh, wealth generation is all about leveraging. Capital and, uh, and as someone who's running a multi thousand person organization, [00:30:00] you're essentially leveraging a fair amount of capital, but it can be a really small organization. But if your job is as an investor, you're also leveraging capital.
Um, it's a weird, it's a weird
Logan: It's weird job. Did you appreciate when you were getting into it? Like how much of, uh, you were like a fish in water a little bit and you're like, Oh, well I found my way. I bounced around a couple of jobs. You did McKinsey for a little while, did a company for a little while, did LBOs for a little while, and then you found your way to VC and you're like, this seems good.
Did you realize like that there was. There, did you know what you were getting into when you started initially or
Jeremy: I really didn't. I mean, I, I was always fascinated with investing. And so, um, my, my first job was at McKinsey and, uh, that was sort of like my business education. I studied computer science in college and then I realized quickly, like I wanted to, I missed. In computer science or in a lot of science, in an academic environment, you're doing a, an assignment or a project and you can get to like the right answer.
And, uh, that appealed to me a lot. And, uh, and with, with business and consulting, it's hard to know what the right answer is. It's hard to measure the quality of the answer. And so I really wanted to do investing and that ended up being my, my second job. And I thought about lots of different kinds of investing.
The best job I could get happened to be in what we now call private equity, but back then was leveraged by out investing. Um, and it appealed to me. Um, cause I like thinking about the, it's like a game, um, and I, I like games a lot and, and investing or making money is a game that's very easy to measure the results of and that was somehow satisfying, um, to me.
I'm, I mean, I like money, I have no problem with money, but like I wasn't focused on making money per se, I was more focused on playing a game where it's very easy to measure the outcomes and keep score in some ways. Um, but the domain at the time, there was no such thing as software private equity or technology private equity.
We invested in metal bending businesses, specialty chemical businesses. These are sort of old industrial businesses and the domain just wasn't [00:32:00] that interesting to me. Um, and so I left and I was actually on my way to business school. Um, and then I had this free summer in between my job and business school and I took a job at a startup and, um, and that was just like wildly eyeopening because my first two jobs were in these sort of elite.
kind of companies, like very small, incredibly talented people who, you know, came from like the most selective, um, accomplished academic environments and so forth, and, um, and now all of a sudden I was in a, Company where there was an entrepreneur who like figured out how to create three pennies out of two pennies.
Um, and it was much more kind of bare knuckle, brass tacks tactics on like, how do we create something here? Um, and, uh, and it quickly became a bigger company with more people, not cause it was necessarily successful, but it was, it, it raised money successfully.
Logan: 2000 or 99
or
Jeremy: summer, 1999 is when I started.
Um, and, uh, and I had a really interesting skill set. At the time, because I understood computer science and the, and software, we were making software, but I had some business sense and, and understood kind of what investors did having had two years in consulting and two, you know, a whopping two years in investing.
Um, but I realized really quickly, like I did not like it. Um, and I did, I did it for a full two years, but like there are all these people involved. And, um, and, and, you know, one person was like, You know, my, my kid is sick and someone else is like, I don't like this job anymore, or my career prospects. And it was like, there's so much time spent on helping people deal with their problems.
And that was not fun for me. Um, I like being able to sit in front of a machine and, and tell the machine what to do and get the output. Like that was much more, um, rewarding to me. Um, and also when you work inside of a company, if you're really good at something, you work on a very specific problem and you can become really expert at it, but you're really, really focused.
And it's very easy to lose sight of the big picture. And I'm much more of a big picture person. Um, and so I wanted to go back [00:34:00] and do something in investing again. But having tasted software and technology, I'm like, I need to be in this domain. And so my fourth job was at Bessemer doing venture capital.
Logan: Well
you were going to go to
Stanford GSB
and
Jeremy: I never, I never made it.
And by the way, I, I, I,
Logan: you deferred and then
Jeremy: I didn't defer. I told them a week before I was supposed to show up for classes that I would like to defer. And they said, you can't do that now.
Logan: they deferred you,
uh the next go round
Jeremy: they, they said to me, but look, in a year you'll be even more, um, experienced. So just apply again. And then I fell for it and says, okay. And then I applied again a year later and they're like, no. And so in hindsight, it was obvious, but I was whatever, 25 years old and I didn't realize that, uh, I was burning a bridge at the time, but
Logan: so what was the connection to Bessemer? How'd you get actually get looped in?
Jeremy: I, um, I just started, I mean, this was a tough period.
This is, um, May of 2001. I guess that's when I started. So it was probably February or March of 2001. Um, it was not a pretty world. The economy had been
Jeremy: contracting, the internet bubble had burst. Um, the telecom business was still going well, but it was about to burst just a bunch of months later. And, uh, and so I was looking for a job.
And so I must've sent emails to a hundred people, um, in all various parts of the investment business. And, um, And I, I basically got three people to take me seriously. Um, at the time there was this hugely sharp distinction between a quote unquote, pre MBA and a post MBA. And I would, had I gone to business school, I would have been graduating like right then.
And so my comparison set were people who were post MBAs, but I was tagged by many of these firms and people as a pre MBA, cause I didn't actually have the degree. Which was super frustrating because I was like, I'm just as experienced. In fact, I have more experience because I have, in fact, 50 percent more work experience than, than they do.
I was effectively six years out of [00:36:00] college. Um, but nonetheless, that was hugely limiting at the time. The industry was very structured and rigorous. Like you fit into this bucket or that bucket. Um, but the term I worked at before business school offered me to come back, um, and I think they thought of it as, it was a value buy cause they could kind of get me on a pre MBA basis, even though
Logan: This was the the LBO
firm
Jeremy: for me.
I didn't really want to do that, but I needed a job. I mean, um, and so, uh, and then there was a, a venture firm that. Um, it no longer exists. Um, that, uh, that offered me a job in California.
Logan: was the name
Jeremy: Um, at the time it was called Charter Growth Capital. I think it ultimately became, or it was the, it, it evolved into Focus
Logan: Yeah
Jeremy: And, and they were more willing to accept the fact, like maybe it would be a career as opposed to just a two year job. Um, but I didn't really want to move to California. Had I wanted to move to California, I probably would have gone to Stanford. That was part of why I didn't go to Stanford too. And then, um, Bessemer historically, or not historically, um, in recent years at that point had an office in Menlo park and an office in Wellesley hills outside of Austin and no investing office in New York a couple of years before hired a former Bessemer backed entrepreneur to start a New York office.
Um, that wasn't actually the design. The design was for him to move to Boston and join the Boston office, but he refused. And they sort of let him open up an office originally at his house in Maranek, New York. And then eventually he opened up an office in Larchmont, New York. Um, and as someone who had lived in Manhattan for the, my first six years out of college, I didn't know where Larchmont, New York was except to take a Metro North train to get there.
Logan: It's 45 minutes
to an hour. Probably
you
Jeremy: It's a closed suburb, but, uh, but nonetheless, anyway. And so, and that was like, I was offered a sort of a two year dead end job working
Logan: why Bessemer was in large amount for, for
all that
time It's
basically one entrepreneur just lived there and, uh, built around
it
Jeremy: So his, so his name is Bob Goodman and Bob [00:38:00] convinced this other partner, Rob Stavis, who had a very successful career as an arbitrage trader on wall street and had retired, um, at, you know, something like the ripe old age of 39 and, and Bob and Rob knew each other. They both lived in and around Larchmont and Mimarinac and Bob convinced Rob on a part time basis to come look at venture deals and they had run into each other as almost angel investors.
Um, and so Rob agreed on a part time basis to start working at Bessemer. And Bob's idea was if he can convince Rob to hire an associate who would be working full time, that'll like suck Rob in more because he'll have responsibility for this person. So I was that person. Um, I was working for a part time partner in Larchmont while living in, in Manhattan.
That was
Logan: was there any conditional, like, Hey, we're doing this for two years or like, do you, how
did
Jeremy: Yeah, it was, it was, it was, it wasn't a hard definition, but Every person who had done the job up until then did it for two
Logan: Yeah Yeah
and then
Jeremy: And so it was, and, and, and I've told this story to others, but my, you know, my, my dad's a doctor, my mom's a teacher. I'm now in my fourth job, six years after college, like they did one job effectively for their entire careers.
And, uh, and I was also making less money than I did in my second job after college. Um, and it had been defined as two years, which means I was going to be onto my fifth job when I was eight years out of college. And they were both concerned, like, what, what is wrong
Logan: little they you?
were just Gen Z before it was, uh it was, uh, this is now in vogue again. You were there I, um, it's interesting. There, there's a lot of people, I guess, and part of this is timing, but a lot of the people I actually, uh, look up to, uh, and have learned from, um, in some ways, either by, you know, observing or by being, being closer to all sort of started in a similar vintage of time.
And part of this, maybe it's just like. My age versus their age or stuff, but, uh, you did it, uh, [00:40:00] near Jaguar. Battery was my mentor and he did it. Uh, Rob Ward at Maritech has been a mentor to me. He did, I think Fenton started around the same time. My partner, Scott Rainey started around the same time. There's some like this post internet bubble thing, which should have been the like Valley.
Obviously it was a nice run up, uh, after that period, minus, you know, the, the, the little 08 pullback. And then what we've. experience recently, but there is some, uh, survivorship that, that has come from that, like vintage of people starting and
that
Jeremy: I think there's some, there's, I think survivorship is a good word for it. I think the other thing is that, um, I mean, this is only clear in hindsight, um, but one is if you're going to do something that tons of smart people are doing, it's going to be really competitive and it's hard to compete with really lots and lots of smart people.
And so in oh one. No one kind of wanted to do it. And so there's a lot less competition. So that was factor number one. Uh, and then factor number two is that, um, the internet bubble was a special thing and, uh, I've reflected on this a number of times
Jeremy: before, but. If you were in the venture business from 1996 to 2000, you made so much money, um, in such a short period of time, because of this unbelievable explosion that, um, you then sat there in 2001, looking forward at what appeared to be bleak prospects and the potential for growth.
Compensation was so dramatically smaller than what you'd already earned. A lot of the people who were actually good at it said, why am I doing this anymore? And so not only did you have very few people coming in because it didn't
Jeremy: look so attractive, but you also had all this incredible talent basically saying, we're going to hang it up.
And so it was this amazing time period where you could only be of, you could be of only average intelligence and be successful because the old timers who knew what they were doing were kind of leaving and you didn't have this massive influx of new people. Whereas I compare that to say 2019 when, you know, nobody was retiring from metric capital and there was this incredible influx of competition.
Um, and it's just, you know, competition is the most [00:42:00] destructive force in all of business, in any industry. And so go someplace where there isn't any and you're going to do much
Logan: it's
funny I've, I've reflected on this before, but my, my friends from like 2013, 14, when I like got into venture, uh, all for the most part, like my associate friends at other firms are leading. firms today, at least in part, like general partners at their, at their firm, uh, uh, Brian Feinstein among them.
And, uh, reflecting on it, it's actually not that I'm a good friend picker. It's, we were doing, we were all doing software in 2013,
2014
And it was like, I think back on like, I was a liberal arts school. Uh, major from like a no name boutique investment bank that I was just in the software industry and battery needed someone to do software.
And I was just so well versed in, I could talk about all the metrics, all the like analysis. I knew the history of like the database wars in the eighties. Uh, cause that was like a hack for me to sound smarter and more mature than I, than I was. And so I'd be like, Oh, I know this is like. I mean, PeopleSoft and, uh, obviously that, that hostile takeover with Ellison and all.
And they're like, how old is this person? It was like my little hack for it just happened to be software, right? It was like that, that was totally random. And it wasn't like I was software is eating the world and I need to be a part of it. It was like, that's what I got staffed on. And that's where I started, which is just like a funny serendipity of all this stuff.
And so when people ask, I'm sure you experienced the same thing, but people are like, can I pick your brain on my like career prospects? I'm like. Sure. Or how did you get to where you, and I'm like, yeah, let's talk about it. It's interesting. Don't take anything from it though. Like everything I did, maybe there's some like broad meta lesson of like, try to find something that's going to be more interesting tomorrow than it was today.
Uh, and get there before other people are, but like, there's no pattern matching from my specific experience that you can do. It's like, there was the randomness and serendipity in that moment in time, which is
interesting
Jeremy: I think that's, I think that's true, but also like you ha you, um, yeah. Like [00:44:00] as I reflect, like the, the, the big decisions that drove success, um, in my own career were these big macro decisions, like doing venture in 2001 or deciding to do internet in 2004, 2005. Um, Which, and by the way, those decisions were serendipitous.
They weren't like, I plotted out pros 16 options. And like, so, so, um, in that sense, like I share your point of
Jeremy: view on the other hand, um, I feel like I did iterate through a bunch of careers while constantly looking for one that I think I would enjoy more. And, and I think you can't. And maybe I'm just telling myself this as a story to make myself feel better about my own decisions, but I, I think you can't underestimate how much actually liking what you do matters because most jobs are hard and, and if you're going to be successful, it's, they're super competitive and they require intense effort and work and to maintain intense effort in something that you don't really like.
Um, is really hard, um, even maintaining intense effort and something you do like is hard. Um, but if you don't like it, there's virtually no chance. And so I think that, that
Logan: Then that's when, uh, Uh, that is the one thing I think when people are like, what, what differentiates you, uh, or like, why were you able to succeed in the industry as you rose? And I, I always am a little flippant about like, Oh, I was doing software investing at the right time. Right. But it was actually, I was a, a nerd for software and venture.
And I, that, it was kind of the, like, I could talk forever about history of venture firms and all this stuff. And like, I just, I don't know. I became weirdly obsessed with the industry and the first time I went to Sand Hill Road, I was like, Oh my God, this is what I've been reading about. Like, this is where it all happened.
And it was, I was such a door, I was 24 years old or 25 years old and I didn't know what venture was as a 22 year old. Right. I just kind of stumbled into it at 24, 25. And it was pre. Andreessen Horowitz had just started, but it wasn't [00:46:00] this big thing. And I just remember reading TechCrunch like a, like a nerd.
And so when, when, uh, our LPs will ask me at times about this and they'll be like, where's, like, how much time does this actually take? Does this take up or like, what is the ROI? Let's just talk about, you know, and it's a funny conversation to have. And yeah cause they're like, is this distracting from your day to day?
And I can generally explain how like the two things sort of dovetail in a lot of ways. But the other point is like. I do this nights and weekends, like 100%. I do this, you know, this will be, we'll sit here for a while and hang out and that'll be nice. But like all the preparation and stuff, that's stuff I just love doing anyway.
And so going back and listening to podcasts that you've done before, reading old blog posts or whatever. That is not something that you could force on someone like Hey you need to like that. That's like, I would do this in my free time anyway. I would do it for free. I would do it if I didn't get paid to do it quite literally.
I don't get paid to do any of this. Like this actually isn't really a part of the job, but if you, if you really love it, then it's really exciting to get up and work every day around it. Um, which I I'm curious on the parts of the job that you actually enjoy most. And you were talking earlier about like the.
99. 99 or whatever, uh, the versus the board thing, as you sort of think about the different components of the job. And I guess we could throw in, um, uh, mentorship potentially. Um, and also, uh, LP like presentation management, all that stuff. I'm not sure what other components you would think about it.
Networking and socialization. I get a feeling that's probably not the top of your list. Like, as you think about the parts of the job you find most fulfilling, is it, is it the board work? Is it the, The, uh, mentorship. Is it, uh, deciding and coming up with the actual yes or no decision? Uh, like in the, the adrenaline feel.
I don't know if you get, I get when making a decision at the end of the day. What part of that do you
Jeremy: Yeah.
No, the decision making, I mean, I think it's important, but it's, uh, it's stress inducing. And, and, uh, I lose sleep over it oftentimes leading into a decision. Like I find myself waking up in the [00:48:00] middle of the night thinking about, um, about these things in part, because like when you make the decision, you're stuck with it for years and
Logan: And people are like, Oh, it's like marriage. And I'm like, actually, no, like marriage has legal recourse to get out of it. I'm sure my wife wouldn't love me here, like professing that, but there's like a pretty
Logan: tried and true structure at which marriages dissolve. Uh, there's not really like venture capital partnerships.
Uh, one is a firm, but then two board seats, it's not an easy thing to get rid right Uh so you're really tied
in
Jeremy: I mean, I've, I'm happily married for 19 years and so I don't know divorce firsthand, but I've, I've heard about really messy divorces and I suspect trying to get out of an investment would be similarly messy, so maybe they're more similar than they are dissimilar. But, um, for me, I, it's very clear, like the, the thing that, um, I just love and it doesn't happen all that often.
And so it's a bit, um, Like now we all know, thanks to Facebook and these other social networks about dopamine and how it works on the brain. But for me, the, the dopamine hit comes when, when I'm in a meeting with a entrepreneur company and they, they tell me something that I never heard or understood before.
Um, and sometimes they realize they're sharing an insight and sometimes they don't even necessarily realize what an insight it is. Um, but like I live for that, uh, that is so fun, so exciting. And, and, uh, you know, it's sort of trite in the venture business to talk about how you, you'll meet with a hundred or 200 or 300 companies, um, for every one that you invest in.
Um, and, uh, in fact, I'm fond of telling, um, some of the, the young folks who are trying to get jobs at Bessemer, like if you think about that, that means, you If it's one out of 300 means 300 units of your time at work are spent doing something that's like taking out the garbage, like that is not glamorous.
We don't talk about that. We talk about all these wonderful companies that we get to be associated with, um, but the truth is most of the time is spent, um, with companies that aren't interesting and then, and then you have the awkward and unrewarding task of then telling them why you're not investing, which is, isn't fun either.
Um, but. [00:50:00] When you hear about, um, some idea or some insight, uh, or some opportunity that someone can exploit in a positive way and, and ideally also make the world more interesting or better, that's just really neat. Um, and I don't think there's any job on the planet where you get to see the volume of those kinds of things.
That you do in venture capital. And so that gets me really excited. And then of course, once you hear it, then you go into the stress mode about like, well, how am I going to convince this entrepreneur that I'm the right, or we are the right group to work with and how do I, now I have to negotiate a deal and all these other stressful elements of it.
But I think that that makes it worth worthwhile. And then what's really neat about it is that you get, while the feedback loops are long, you do, it's, it's a little bit like, um, in high school or in college, when you get an exam back with a grade. Um, you get this feedback on whether your choices are good or not.
And, uh, and what you thought was really insightful, you might find out six months to six years later, actually wasn't insightful. It was just wrong. And, uh, that's not very fun. Um, but sometimes, um, you get this feedback and it's, and it's like, you're right, and the best moments are when. You felt like it was an insight.
Other people are like, what are you doing? That seems so stupid. And then a few years later you're proven right. And that is, that's like magical.
Logan: that, that is a, I've had a few, not, not Pinterest, LinkedIn, Shopify types, but I've had, I've had a few of those that were like, uh, I actually think probably most of my most successful investments, if you call it that early in my career had been like a little, they certainly weren't hot, uh, when they were, when they were fundraising, there was like this little unique insight that.
I felt like I maybe had or we had on the team that was a little different than everyone else. And when you, when you're a little, when you're confident and there's a little like arrogance that you've realized something that like maybe other people haven't. [00:52:00] It's a really good feeling It's like, no, no, no, you'll see it.
I, I, I, I'm pretty confident you'll see it. Now there's the insecurities that come when it doesn't happen. And you know, all the psychological inputs of it, but on the investing style point, um, I think you're one of the few early stage VCs I've sat, I I've heard, um, talk about like price sensitivity. And Uh, for the most part, there's like this adage of like, Oh, they'll work or they won't.
And, uh, you know, there'll be big companies or not, but like price isn't going to be the determinant of success at mostly series A, which is what I think of, of you waking up every day thinking about. Um, How do you think about price as a, as a component of your
decisioning
Jeremy: Yeah. I think this idea that price doesn't matter and that it's binary is, is just wildly flawed and lazy thinking. I think it's just dead wrong. Um, and the map is undeniable. So if you have a fund. And it's a fantastic venture fund and it returns, say 5X, if you paid twice the price on all those deals, it would have returned two and a half X, which it's not bad, but that's not a great performing fund.
And so price has to matter. Um, now if your only choice is to invest in a company that ultimately accretes value a hundred folds. And, uh, or is going to create value a hundredfold and you wanted to invest at a price where it would have accreted 200 fold. Yes, it is a mistake with the benefit of hindsight to have said no, when you only would have made a hundred times return.
Um, but you don't know in advance, if you did, it'd be a really easy job and you only invest in the good ones, not the bad ones, which nobody, no matter how good, how good they are at this business has been able to do. So I think the idea that valuation doesn't matter is fundamentally wrong. And that's, um, and that in order to convince yourself.
That's the case. You have to travel like a single path through history and, and think about a single decision, but that's just not the way the
Jeremy: world works. Um, or that's not the way the venture world works, where we make a bunch of decisions, uh, and an [00:54:00] aggregate price actually absolutely matters. And so, um, How, like how you decide what is the right price to pay or what's too much.
Um, it's definitely arts and only again, with the benefit of hindsight, can you evaluate whether you made a good decision or a bad decision? Um, but I like to think about it as, as if I'm playing the game many dozens or hundreds of times, um, and that, uh, you're going to get a range of outcomes, uh, on any given company or across any portfolio.
And, uh, and the math is a math. Um, it, it absolutely matters. Um, and so I think there've been a few instances in which I chose not to invest in a company and it ended up being really successful and, uh, and obviously I regret those. Um, but I also, I take solace in the fact that I'll try to convince myself actually for the risk that you were being asked to take, you made the right decision, even though this one course through life that we took makes it look bad.
Um, and I have a bunch of
Logan: Oh yeah. I, I, it feels, it feels like we have the same psychological, uh, uh, you know, safety blankets or whatever on this stuff and it's hard to know. It was like, no, no, I wasn't wrong. I was right in my thinking. The world just proves the distribution. It was the bottom half of the distribution. I actually knew it was, you know, 10 percent chance of a hundred X 90 percent chance of something less than that.
And it happened to be in the 90%.
Right
Jeremy: But, but look, I'll, my, so my, my, my favorite story or example of this, which I think also maybe uses this for like how hard this job is. Um, so we had, we had backed, um, this, uh, pair of entrepreneurs named Mark and Vinit. Um, and they built this business called diapers. com and it was pretty constrained at the time.
It was 2007. No one in BC was doing e commerce and they built a successful e commerce company and ultimately they had Amazon and Walmart. In a bidding war, and they sold it to Amazon and everybody did really well. Uh, and then they went and worked at Amazon for a while. So they really understood e commerce even better from inside the belly of the beast.
And, um, and then Mark [00:56:00] approached me, um, this is Mark Lohr and he approached me and he said, Hey, I'm, I'm doing another company. This is a business called Jet. And, um, and I want to raise some money. I was like, great. Like. I'll invest 5 million, we'll get like a normal venture staking. He said, well, I'm raising 50 million at ADPRE.
I was like, well, Mark, you don't have anything yet. He's like, yeah, but it's a really good idea. And so, and Mark had made us a lot of money. And like, I have a ton of respect for Mark. I had then I still do now. Um, but I was trying to get my head around like 50 million for, at ADPRE for a company that doesn't even really exist yet.
Um, I said, well, tell me the idea. And he
Jeremy: described the idea and the idea was basically kind of like a Costco on the internet. And so we're not going to make any margin on any of the products we sell. We're going to have an incredible selection and incredibly cheap prices. And we're going to charge a membership fee and we're going to make all the profits on the membership fee, which is basically the Costco model.
Um, and, uh, I didn't think it would work. Um, and, uh, and, and I also said to him, I'm like, well, Mark, you don't need 50 million to figure that out. You could build that and test that with 5 Um, uh, which I think Mark acknowledged, but he said, I don't have to, because I can get 15 million. And basically he went around and raised all the money that came back.
It looked like I saved you a slug because you invested in my last company. And, and you want to invest. And I think it was maybe a 10 or 15 million piece in the round. Um, and ultimately a combination of like price that he was asking, the amount of money he was raising before he had built anything. And the fact that I just didn't believe that idea had merit on the internet.
I said, no. And, uh, and it turns out that, uh, if you fast forward, like, I guess the headline is like, I was wildly wrong in that he sold the company to Walmart for 3 billion and we would have made a very handsome multiple of our money had we invested. So definitively it was the wrong decision. On the other hand, The idea [00:58:00] didn't work.
He pivoted the idea to something else. Um, it became Jet. He did try to make money on the transactions. People wouldn't, there wasn't much tolerance to pay a subscription or membership fee. And by the way, even Jet wasn't really working. Um, and, uh, and many years before in the final days of the Amazon Walmart bidding war to buy, uh, Diapers.
com, we went back to Walmart and said, you need to beat a 500 million price. Or the answer is no. And Walmart at the time was advised by, I believe, JP Morgan as their banker. And they took the feedback and they basically said, we think you're bluffing and they wouldn't hit the price. And, um, and they were wrong.
It wasn't a bluff. And we signed a deal with Amazon. And after that I had voicemail messages on my office phone when that was a thing from the CEO of Walmart saying like, please don't sell the company to Amazon. Like we're serious, but it was too late. Like we signed a binding no shop with Amazon. So fast forward a bunch of years later, when Mark went to Walmart again, after last time they failed to buy his company and said, you need to pay 3 billion.
It was like a seven year setup because many years before, or whatever it was five years set up many years before. He went to them with a price and they said, that's a bluff and they refused to pay and they lost the deal. And so this time when he went to him with a price, um, and I don't, I wasn't inside Walmart, I don't know what they're thinking, but my guess is like, wow, last time he told us the price, it seemed really high.
We said no. And we lost. So this time he came to us with a price. It seems really high, but we're just going to do it. And so it was like 19 things were lined up. For this thing to work and the fundamental business, I don't think it was working, but it was still a great outcome. And it's like, you, you can, you can analyze the hell out of everything and be kind of right, but still be wrong.
And by the way, it works in reverse too, um, where you can have all the reasons why you did invest [01:00:00] and it should have made sense, but you know, some really bad string of luck went the other way. And so there's just so many random factors you have to be tolerant of.
Logan: jet. com, uh, story is always a fascinating, uh, one just to think about because all of those components of it. Were that it didn't like your, your investment thesis was actually right. And your considerations were rights. And yet you were very wrong because of all it took. They really wanted to hire Mark Laurie to run e commerce and, you know, what he was doing and it worked out and.
I ordered wonder. com. I don't know if you've done a, you're, you're on the West side of New York. You can probably do it as well. I ordered it last night for dinner. So now Marcus is back at it again, uh, with the ghost kitchens and all that stuff. So we'll see how that ends up going. But one, one of the ones that you did decide to do, uh, was LinkedIn.
And, and that was a, I think overpay. By all the common definitions that existed in, uh, the venture capital industry at the time. So much so that the other investors zeroed out, which is generally for people that aren't familiar. Uh, you, you try to look somewhat to other people that are on the cap table that are going to the board meetings some indication on their sentiment around the business.
And. It's usually not a great sign if they're saying, Hey, we're going to put 0 into this round. That, that, that generally means they're on the inside. They've seen all the board decks. And they think you're crazy, which is what happened in LinkedIn. So I'm curious that that obviously worked out, uh, and it was expensive by all definition of venture capital.
How, what was the mental framework or the model that got you there on that one?
Jeremy: Well, uh, so, so Reed Hoffman, who was the founder, he was the person I was dealing with. Um, he was still the CEO at the time. And, um, and he, he's very clever, um, and obviously very [01:02:00] talented and, uh, and we struck a deal. Um, and so this is going to get kind of get into weenie venture math for a minute, but, you know, typically when you agree to an investment, you agree on evaluation and there's a pre money evaluation and a post money evaluation and, um, And I was sensitive to how much ownership we were getting in the business.
And I didn't know how much money the REITs existing investors would invest in the company. And, um, and so he happily steered me toward let's just agree on what the post money valuation is going to be.
Logan: Which is generally actually, uh, all I'll lean there more because I guess again, this is nerdy venture math, but if you, if you fix on the post, then. Your ownership is fixed in the business and then they can raise as much as they want if they decide to raise, you know, 10 million or a hundred million, right?
Your ownership is going to be the same in it. Now generally people try to set some bounds of like, you know, between 30 and 50 or whatever it is, so that at least you have a range for what it's going to come in
at but
Jeremy: Well, so, so, um, so, but as a result of that structure, the more money that would get invested in the round meant the lower the valuation was going to go. Cause the, the pre money plus the amount you invest
Logan: what was the post
time
Jeremy: It was two, uh, two 50 posts. We, we,
Logan: posts So 250 posts. raising 50. You're giving up 20 percent of the company to 50 post raising 25. You're giving up 10 percent of the company in that
Jeremy: correct. But, but also, um, and so we, I think we invested 12 and a half million dollars in the round. So we were buying 5 percent of the company. And so if no one else were to invest, uh, the deal would have been 237. 5 pre 250 posts, but if. The insiders invested their pro rata, which was to do about half the round.
It would have been a 25 million round, which would have meant it would have been a 225 million pre money. So it would have been, uh, whatever that is a five or 7 percent drop in valuation if they invest it. And by the way, from our perspective, from my perspective, If I was gonna own 5% of the company, you'd much rather own [01:04:00] 5% of a company that has $25 million of fresh cash than 5% of a company that has 12 and a half million dollars of fresh cash.
So I was heavily motivated to see the insiders invest as much as they possibly could. And so I had phone calls with both of them, essentially laying out my case. Who
Logan: was Greylock and
Jeremy: was, uh, Greylock and Sequoia. And, uh, and I was laying out my case all but begging them to like, please invest because it was just gonna make my deal that I, I had agreed to with Reed better.
Um, and they both came back at zero, which I suspect. Reed knew was gonna happen ahead of time, which is why he agreed to fix the post money. And so he was a step ahead of me. Of course, in the end, like that was a $250 million valuation. The co, that was in 2006, the company went public and then Microsoft bought it for 20 something billion dollars.
So effective like a hundred x
Logan: that's 20 something I
think it's like 27
or it's like high twenties. It's not like we're rounding
Jeremy: Yes. And there was, there was some dilution, there was another round later, and then there, there was an IPO round, but it would've been something on the order of,
Logan: I
think it would have been a good
investment
They should have participated in that
Jeremy: but I'll tell you like, so the, and had I. I was blissfully ignorant of what the insiders were going to do. So it's probably helpful because I didn't have to get up the courage.
And then once I found out they weren't going to invest, I was kind of committed. I mean, I could have backed out, but it would have been, it would have been awkward. But I learned a lesson. And the lesson I learned was that, um, sometimes interestingly, when you're an insider, you know, less about a company than when you're an outsider, because when you're an insider, you tend to get lazy.
And you tend to absorb all the information that you're given by the management team in the form of board decks and, and other, uh, content discussions. And you don't really do any independent diligence anymore. Cause you feel like you're getting all the information from the source. You don't need to.
Logan: And you're, and you're committed often to like, Hey, I'm in it. And so I can go do a bunch of external diligence calls, which you probably should do before a new round is coming together in general, I would recommend it, but like your ownership isn't going to change that much, uh, in that next round, if you participate three or [01:06:00] five or whatever it.
could for
Jeremy: Although, although I mean, that is true, although, you know, they each could have invested what are five or 10 million for a hundred X. Like I think they would have done the work and they should, but, but I think the, the, the point is that you're just, when you're outside, you feel like you have to do More work.
And oftentimes that more work leads you to insider information that you don't necessarily have when you're on the inside. And so you can actually understand a company better if you're, if you're diligent and on the inside, that's the best situation. But if you're lazy is maybe too harsh of a word, but if you're content to just get what you get from management compared to someone who isn't getting unfiltered access to management, but they're getting something from management.
Like I was engaged with Rita and his team to understand what they had to say, but I also did on my outside homework. You can actually have a sharper perspective. And so I think it's like that has stuck with me. That was, that was in 2006. So it's a long time ago. Um, and so both because now when I see investors approach company that I've already invested in and they do all this outside in homework and talk to tons of customers or partners or so forth, um, I often want to get access to their information,
Logan: for
it every time. And it's, it's always helpful one to know how they position like, Oh, interesting. So they do that, you know, that's, that's, uh, or, or, Oh, they use Bain clearly or McKinsey based on this font formula, depending on the firm. But, uh, but, uh, yeah, it's, it's always informative to go through and do that.
I actually give you guys a lot of credit. I mean, this is again, we're, we're nerdy on a venture stuff, but I remember when I was at battery, we invested in service Titan and. One of the rounds you guys zeroed out and it was like, nope, market did the math doesn't work next round came in and did like Super super pirata or like maybe tried to co lead or something It was like actually we redid the work We thought about it with layering on payments or whatever.
It was our conclusion is the exact opposite and we're willing to pay 2X the price nine months later or something for it. So I, I actually like this honesty of [01:08:00] thinking and iterating on it. I've seen it manifest. It's announced over sounds, whatever. I don't know what it's actually going to be worth, but yeah it seems like a lot, uh, it seems like eight, 10 plus billion dollars, uh, I think is probably a pretty good, Reasonable estimate for it.
Um, so I give you guys credit for like that, that thoughtfulness and perspective around stuff. Um, what, what is the commonality of deals that you actually get excited about then? Like, what, what are the things, I mean, that insight point we talked about earlier. And so obviously it seems like that's probably one of the things that moves the needle, but like,
Jeremy: Yeah, I mean, honestly, it's all over the map and maybe even getting back to the, my, my, my mark lawyer story from before, like I am, um, you know, some people, um, call it like the, do you bet on the jockey, do you bet on the horse? If you've heard that metaphor
Logan: of
Jeremy: um, and, and I am like very clearly a horse better, not a jockey better had I been a jockey better, I would have bet on Mark again and I would have done really well.
And so maybe, maybe it's smarter to be a jockey better. Um, but, um, but I love thinking about. Businesses, business models, industry dynamics, how something will evolve. Um, and, uh, and oftentimes the, the insider, the, the spark that I'll hear about that gets me excited about a business is one that I can anticipate how that will lead to a, you know, a permanent, or at least nothing's permanent in this world, but a semi permanent advantage.
And like, I love thinking that through. And, um, and my general view is a, a mediocre, uh, Builder with a phenomenal idea or insight is much more likely to do well than a phenomenal builder with a really mediocre insight. Of course, that's wrong when the phenomenal builder realizes the idea is mediocre and then shifts to something else and does something fantastic.
But I think that's actually really rare and much harder to do. Um, and that I would rather get lucky, not because the great entrepreneur pivots to a better idea. I'd rather get lucky because. The entrepreneur who I had a hard time [01:10:00] assessing, who has a great idea, turns out to be a phenomenal entrepreneur.
And so in almost all the investments that have worked out really well for me, um, that
Jeremy: happened and that at the time the entrepreneur. I mean, obviously they're smart and hardworking and so forth, but it's really hard to know when someone who's running a 15 person company, whether they're actually going to be good at running a 15, 000 person company, there's only one way to test that, which is to see them get there.
Um, but when that happens, it's, it's really magical.
Logan: there is this, uh, there is this element of, and I, I, I think once upon a time I was probably a hundred zero on product market versus team. Uh, I was just like, Hey, when, what's the, there's the saying when a great team meets a good market or a bad market, like the bad market wins or something. Right. Uh, and I also think it's probably a component of stage investing for, for me.
I mean, you, you have some interesting examples and I think about, uh, uh, Toby Lukey, who you've been fortunate enough to work with for a long time at Shopify or Jeremy Stoppelman at Yelp or some of these iconic names that people look up to now, but Shopify went public at what valuation, like 800 million or 1.
2 billion
or
Jeremy: About a
Logan: a a
Jeremy: maybe, between one and two,
Logan: and two. And like Toby started it as like, I forget the backstory, but it was like a snowboarding, like offshoot thing. So he could sell snowboards or, and I, he's a, he's a very
understated
guy in general with like a quiet intensity. But the, the Toby Lukey of today was not the perception people had of Toby Lukey when you originally invested or Jeremy Sopelman today, the perception wasn't what they have today.
There's kind of this like. Yeah, I guess it's hindsight bias on entrepreneurs and what they ultimately come to. I'm curious how you watching those people develop into what, uh, they, they have become both as people, but then also perception, I guess, how much of it is there the [01:12:00] same people that they were then, and it's just, they happen to succeed.
And so people treat them differently with much more. Canonical reverence versus they've, they've evolved in a meaningful way.
Jeremy: I think a little, a little bit of both. I mean, they're, um, Well, on them first, you know, they're a lot, you know, money and power change people. Um, and so when you're a founder of a 15 person or 50 person startup, you probably don't have much money or power. And when all of a sudden that company is thousands of people worth billions or a hundred billion dollars, you have a lot of money and a lot of power.
Logan: a lot friendlier internally as a general partner than I was in as an associate. It's
amazing Everyone laughs at my
jokes It's like way better Yeah
Jeremy: but, uh, and so I think you, for both Jeremy and Toby, what's remarkable is despite enormous success, like they've stayed true to a few really important things, like they're both. Really self aware. Um, and they both understand their strengths and their weaknesses. They, as a result, they end up spending their time and their focus on the things that they're really good at enjoy and find other people who are really talented in the places or the areas that they either don't want to do or aren't very good at doing, um, whereas other people who are.
More likely corrupted by power and success think they're just good at everything. And then they start spending their time in areas that they're not very good at. And in many cases don't even like to do. And that's sort of the beginning of the end. They're much more likely to, to flame out or decide it's not for them or just start to face failure because when you do something that you're not good at and don't like to do, you're much more likely to fail.
And so there's a thread of, in both of them, that's clearly the same, but at the same time, like, you know, I was joking with Toby. He's, um, I mean, he's, he's a German immigrant to Canada. Um, but I think of him as Canadian because he spent most of his adult life in Canada. And, um, and you know, there's, there's this, um, Americans are a little bit more harsh and, and, uh, and aggressive and Canadians are a little bit more nice.
Um, and so in many [01:14:00] ways that, you know, there's sort of this sort of, uh, it's not real cause I think actually both are great companies and both can win, but there's sort of the Shopify e commerce and Amazon e commerce and Amazon is known as this cutthroat company and Shopify is known as this much nicer company.
And so I was, as Toby's. Business crew, I was trying to get him to think about how he could take advantage of some of the heft of Shopify and Shopify as a distribution channel. And so I encouraged him to read this book called Cable Cowboys.
Logan: Great book
Jeremy: you, so it's the, it's the John Malone story
Logan: Yeah
Jeremy: and the metaphor is that John Malone owned a cable company.
And all these TV channels, cable networks wanted to have distribution on his, on his wire to people's homes. And so in order to get access to the homes and, and, and have him carry these networks, he insisted on owning a piece of the cable company, uh, the networks. And so he ended up building this other business, which 10, 15, 20, 25 percent stakes in all these cable networks.
Um, which he got for free, essentially, you know, in exchange for letting these cable companies have access to the households that he had wired. And And, uh, and the metaphor for Shopify is you have all these merchants now who use your software and all these other software companies want to sell their software to the same merchants.
And so, and Shopify has this app store. And so my argument was instead of just letting everybody have access to all your merchants, maybe you should be getting equity stakes in some of these companies. And I was trying to say like, that's probably not for you, Toby or Shopify, but at least understand how someone else in a similar position capitalized on it to make.
Um, his business even better. And, uh, and so Toby read the book and, um, and he got back and was like, I didn't really like the book very much. Um, but I met him. I'm like, what do you mean you met him? He's like, yeah, I just, I called John Malone and you know, I met him for lunch. I'm like, that's not fair. Like. I read the book.
I'm like, that's kind of cool. You read the book and you're like, you go talk to the guy. Like, you know, that, and so, um, that is not something that Toby in 2010 could have done, but Toby in 2020, like no problem.
Logan: That's [01:16:00] impressive. Yeah. Balone. Uh, also, if you want to know why we suffer through the Dolan fandom, uh, or Dolan ownership of the Knicks, you, uh, you get a flavor of that in Cable Cowboys with, uh, with Dolan's father, uh, in building out all, all his stuff, it's, um, Yeah, that's interesting, uh, with, with power and reverence and money and in all of that, there's, there's definitely that level of influence.
I've actually found one of the interesting, it's an ancillary sort of derivative thing, but like there's this adage of backing repeat entrepreneurs, uh, or concept of it. And there's elements of it that are, it's really great. And I've, I've been fortunate enough to work with some before when they've been really successful and they have like other options of not grinding on a startup.
It's pretty attractive just to, if you could go be the, uh whatever, go, go on the beach or be an independent board member or whatever. I, I think about Brett Taylor now as like, he's on Shopify's board. He's chairman of OpenAI. He was former CEO of, uh, of, uh, Salesforce, Salesforce, and he's like out doing another company and like another company is such a grind.
And I, I, I think Brett's a very special individual from everything I've been able to tell. And so I don't mean to speak of him individually, but I'm like, gosh, if I could just go hang out and go to Shopify's board meetings and then go to open AI's board meetings and be like the CEO of like one of the biggest software companies in the world, like all that seems pretty versus hooking up the wifi in like the office building or like figuring out where the.
You know, what our HR benefits policies are going to be, or like recruiting the incremental engineer to come on board. It's an interesting thing of once you've had success, there's a ton of elements of it. Once you've had it, you get tons of advantages. And I think maybe the AI world, because of the capital intensity in some ways, is going to be different.
Your ability to raise money is something of a. Uh, a strategic advantage, uh, and a big component of your
Logan: ability to drive outcomes. I don't know, but I think about that example of like, [01:18:00] if you have alternative paths of doing things, do you really want to do a startup versus Toby's alternative path was probably to keep grinding on this to make it work or go back to the, uh, snowboard store or
something
Jeremy: Yeah. He didn't, he didn't, he's, he's talked about it a lot. He didn't, he didn't really like working for other people. And so if you don't like working for other people and I don't, I
Logan: It's a career limiter
Jeremy: yeah, I don't, I don't think he has a college degree. So if you're not college educated and don't like working for other people, like what else can you do besides
Logan: pot committed at that point use a uh, I guess a poker term there. Um,
TLBS 100: Hey, this is Logan interjecting here for a second, uh, for about three minutes, we lost some of Jeremy's audio. So we've done our best to recover it, but you're about to hear three minutes of recovered audio. That doesn't sound nearly as clean as the rest of the episode from Jeremy, who bothers you feel free to skip ahead.
If not, power through, it's only three minutes and it's good content that you'll hear regardless.
Logan: I heard you say you've, you've had three good ideas, uh, ever in investing. I'm curious what those are. I think I, I think I can maybe guess, I assume they mean the broad themes by which you've, you've picked to make investments, but I'm curious what the three good ideas
are
Jeremy: So, so, um, so we tend to focus at best on roadmaps and roadmap is like a collection of hypotheses that suggest there'll be opportunities for little companies to become big companies, um, because of some new technology or demographic shift or, or, or some, some catalysts. And, uh, and so the first, um, and if you pick the roadmap, right.
You, there's a lot of leeway in picking mediocre companies and still being successful. You get the roadmap wrong. It doesn't really matter what company you pick. It's not going to work. Um, at least that's our, that's our theory
Logan: theory.
I think it's right
I mean, it's honestly, uh, Eric Fisher, I used an analogy on this of like, The best boat in the world or best sailboat in the world doesn't move without wind. It's like if you're in a bad market, but a little dinghy can fly if it's really blowing outside. And so I think that's an interesting analogy. I'm gonna start co opting it as my own.
Not, not enough people listen to all the [01:20:00] episodes. I can just be like, yeah, yeah, I had this great idea. Jeremy, this is what I call it.
Jeremy: But that is what you gotta do, by the way, you hear a great idea from somebody, then you refine it
Logan: That's actually that's actually one of the jokes is I'm like, uh, I started my career. I had like one, I had no good ideas and I. Said something stupid and I got corrected on it and then I had one. And so then I would go around and saying one, and now I'm up to about 20. And so that means four board meetings a year.
You've got me for five years. If I say one, every board meeting, and then I either need to add more or I'm going to be out, we're going to start back over again with the same 20. And so, uh, when I say so, I'll call a call, like an entrepreneur. I work up, I'm like. is one of my 20, I promise you, this is a good thing.
Like, this is not an opinion, this is like really advice you should take. And, uh, and so one of the 20 things I, uh, maybe I'll add to it after this episode,
but
Jeremy: like that. But it's the, when I think about the process of building and belting a roadmap, that is what it is. You, you create an idea and then you go to people who are expert in that domain. And you share the idea with them. And if they agree with it wildly, then you know, you're onto something. If they don't, they'll tell you where they think you're wrong.
And then you incorporate that into your idea and keep doing that over and over again with more people. Until you have real confidence that the idea has merit or
Jeremy: maybe there's nothing there. Um, is that is very much the discovery process that, that we tend to go through, but back to your question, like what, what are your ideas?
The first one was that you could build a business on the internet where all the content was created by the users. Um, and, uh, and that's obvious now the time no one had really done it. And a few people were trying. And, uh, and there was huge questions like, well, content's created by the users. Like, how are you gonna make any money off of that?
Cause you need the users to create the contents and you can't charge them. And if it's user generated content, it's sort of low quality. And so you can't have ads next to that. And like, how is it gonna work? Um, and it just turns out that that idea was dead right. But in 2004, 2005 and
Jeremy: 2006, very few people shared that.
And these were consumer companies. And so, um, I [01:22:00] benefited, we benefited enormously, both because the idea was right. It led to Yelp and LinkedIn and Fandom and actually quite a bit later Pinterest, but no one else is doing it. In fact, everyone else is still responding to the dot bomb implosion of all these dot com consumer companies. And, uh, and therefore they didn't want to touch any of this stuff. And so my favorite example is Jeremy Sopelman. He was a member of the PayPal mafia, which is a huge thing today. Even then in 2004, 2005, people knew about the, the PayPal mafia. And he was the, I think he ran engineering. Um, like he had a pretty senior role there despite being a very young person.
Um, and so he had access to every venture capitalist in Silicon Valley. And I think he went up and down Sand Hill road and he mostly got funny looks from folks and then some random. 20 something who was living at the time in either Boston or New York, that was me, called him out of the blue or emailed him and said, like, I think you have an interesting business.
He's like, well, no one else does like, who are you? Um, and so being one of few people who like an idea is infinitely more valuable than being one of many people like an idea. Um, and then by the end of 2006. Lots of other people were noticing the success of some of these companies. And all of a sudden there's tons of venture capital pouring into this
Jeremy: little category.
And that's more or less when I said, I'm done, I stopped, but then the companies in which I already invested had this massive benefit from lots of cheap capital who came in after us. And so like, it's another way of winning, if you will, or another advantage you get. Um, so that was the first idea. The second idea that, and that turned out pretty well, the second idea, um, that worked out pretty well was then by 2007.
I actually took a little bit of a left turn before I got onto it, but I was really, I got really interested in advertising on the internet. Um, and I looked at lots of online ad companies and ultimately couldn't get comfortable that there was durable value. Um, and there was a lot of sketchiness in the [01:24:00] online ad networks and online ad world at that time.
Um, but I noticed the customers of the online ad networks were these e commerce businesses. And I started looking at e commerce businesses and many of them had no venture capital. And this light bulb went off and it's like, well, if you're spending money on ads and you never raised venture capital, you must be making money because how else are you coming up with a budget to spend the money on the ads in the first place?
And so we started talking to a bunch of these companies, um, and realizing like, Hey, maybe this is a thing. And, uh, the only true pure play e commerce company that we ended up investing in was diapers. com, but it was a successful investment. It also gave us enough insight into e commerce that when Shopify came along, which is a software company, not an e commerce company per se, it was easier to understand it.
Um, and so that, and so that, that second idea, it didn't lead to a lot of investments. Um, but it was, it was a very profitable
Logan: it worked out
Jeremy: And then the third idea was, um, was driven by one of our analysts. Now, one of my partners, Brian, who you know, um, and as an analyst, he found this company called MindBody, uh, and MindBody was a software company selling software to yoga studios.
And it was a pretty small company, but it was trucking along with, with modest growth that had been around for almost 10 years actually at the time. And, um, most venture capitalists said that's too small. If there are 50, 000 yoga studios in America and you sell a hundred dollars subscription per month to each one, that's a 5 million a month, 60 million revenue
Jeremy: business.
Like why bother? That's not even venture worthy. Um, and the two insights. That Rick Solmeier, the CEO had, which we benefited from greatly. Um, and we believed in her one, like yoga studios are very close to Pilates studios are very close to fitness or gyms or, and, and actually you can get [01:26:00] as far away as hair salons with almost the same software.
Um, and so it turns out the market was quite a bit bigger than yoga. And then the second thing, which has had a profound impact on the software industry, which I think Rick might've been the first software entrepreneur to do, is he started to layer in payments. And when you do payment processing, instead of just charging the a hundred dollar a month subscription, you can make a multiple of that in terms of your cut of the credit card processing fees.
And, uh, and I think he fundamentally changed the credit card processing business. Um, and so that idea of vertical SaaS plus credit card processing came from that investment. And, um, and we would share internally updates on like how much great progress MindBody was making. Um, MindBody did payments before Shopify did.
Shopify's business, I think at this point, the majority of the business is actually from payment processing. Um, and I think that insight came in part because we saw what was happening at MindBody. And we're saying to the Shopify team, like you can do this too. And
Jeremy: by the way, it is like an improved experience for your merchant customers, if they don't have to go figure out payment processing.
And I think since then we've made 50 investments in
Logan: Titan from that as well. There's a number of others. The
Jeremy: Toast,
Logan: toast
Jeremy: Procore. I mean, it goes on and on. Um, so anyway, so it, it, it, it's essentially, and I wouldn't say they were my ideas, I, I, I helped, To capitalize on them or help push them. But, um, but I think it's another example of venture as a slow motion business.
I've been doing it now for 23 years. And if you have three ideas that are really great in 23 years, that means it's like every six or seven years. Um, and that requires enormous patience because when you don't have a compelling idea, that's somewhat differentiated. Your chance of generating great returns, I think is much, much lower.
And so half the battle is just being patient and, you know, reading and exploring and waiting around long enough for the next great idea to come. And you don't feel compelled to act, to be productive in the meantime, [01:28:00] which is likely to lead to a bunch of very mediocre investments.
Logan: The, um, The mistakes you've made, uh, or that you reflect on not the, not the jet. com type mistakes, but like the, the blind spots that maybe you had early in your career, uh, or the blind spots that maybe you even still have today, are there things that, um, you've either course corrected on, uh, in particular, like as a, as frameworks or insights or ways you approach investments, or things that, you know, you need to augment, augment.
Yourself with a partnership that can benefit you, uh, to, to be able to do the job as well as you do.
Jeremy: Uh, yeah, it's, I think, um, yes, for sure. I think for me, the most, the most, uh, obvious or stark one is that, um, I got I got used to doing venture the only way I could do it in the first bunch of years of my career. And the only way I could do it in the first bunch of my years of my career, having had no like shining success in my previous careers or in my venture career was to go find entrepreneurs and companies that would take capital from me, either because no one else wanted to give them any, or because they wanted to work with somebody who was.
Really hungry, um, really on top of the details, willing to kind of work, but wasn't going to have any sage advice for them because I had never been part of building anything significant before. And so that led me to have to be more deeply contrarian or just like go further off the beaten path out of necessity.
Um, and. I also realized, or I internalized maybe subconsciously this idea that something that is quote unquote hot is just a giant waste of time because there'll be 19 other investors all over it. My chance of being the most attractive investing partner for those entrepreneurs was extremely low, if not, you know, [01:30:00] zero.
And if you do show up and quote unquote win, you've had to outbid and pay the highest price, which can often turn a really great investment opportunity into a, uh, a lousy one or, or mediocre one. Um, and so I just, I kind of programmed myself like, um, and in fact, I laugh because we talked earlier about like, you know, the sort of style differences between different people and, um, you know, I have an ego.
It's not a, I think I keep it in check. I have, you know, some sense of, of competitiveness, but I have, um, some colleagues who are like incredibly competitive. And when they see something that other people want to do it, you can see it in their face that competitive juices get going and they just want to run toward it and win.
They want to win the deal. Um, and my reaction is like, this is going to suck. This is a beauty contest. I hate entering beauty contests. I'm not that beautiful. Um, I don't want to do this. And it's just so interesting to see such a dramatically, literally a diametrically opposite natural response. From two people in the same business, even in the same firm and reacting to it.
Um, and so, uh, that said I've, you know, fast forward now that was, you know, 15 years ago, 20 years ago now, having been associated with some companies that have been successful, um, um, I have a shot, maybe not a great shot, but a shot at competing for more competitive things. Um, even though my initial reaction is like, I don't want to do that.
I want to go someplace where like no one else is hanging out. Um, and, uh, and I have some colleagues who get very frustrated by that because their view is like, Hey, you're one of the people around here. Who's like been successful. Like you need to help us win those opportunities. And, uh, whereas my, my gut reaction is like, I don't want to play
Logan: Don't want to spend the time And funny funny My biggest competitive juice is to see the opportunity because there's a finite number of deals that. Most of the things are pre qualified in some way by the time I'll do series B and C, and so there's some, uh, point of clearance, uh, [01:32:00] that they've gotten to a level of materiality, either because of prior fundraising or the amount of revenue they get to, even if it's bootstrapped or whatever, whatever the right consideration is.
And I feel the competitiveness just to make sure we evaluate it. Uh, and it is, there's, there's a handful of firms internally, uh, that, and it's not even firms, it's like people that if they do an investment that we didn't just get a clear look at it's, it's totally, I don't feel a need to win it necessarily, but I want a really informed opinion on why we didn't decide to do it.
And so, uh, our, our, our, our team, if they hear about a deal getting done, they're like, they know to call, like not put it over Slack or they'll call me. And it's like, someone in my family died. They're like, you're going to need to be sitting
down for this Like
uh, they, yeah, they, they got one by us. And I, that's where I will like, cause at the end of the day, we need the at bats, especially at the, you know, whatever the early growth, whatever we could define ourselves as stage.
And so it's just being there and we don't need to win. I'm fine. We will lose our fair. There's a lot of good firms out there, but it's like being there
Jeremy: It's funny. Cause so I, and maybe this is just a, I don't know. Uh, a mental model of self preservation. But you know, there's a lot of talk about, um, FOMO, um, the fear of missing out and that, you know, you're clearly missing out if you don't see it. Um, and I've convinced myself that I have, I have, I have JOMO, like the joy of miss like I, I love to know I didn't spend and waste a lot of time on something that I almost certainly wasn't going to do.
Um, and it's almost like a point of pride. I think that's. That's probably a little bit disingenuous and I'm, I'm, I'm saving myself from the having to acknowledge that like, I wasn't invited to the dance at all, let alone, you know, got to dance with the most attractive mate. Um, but, uh, but also there's something to it.
Like you can spend a lot of time chasing things, um, with very little to show for it. And it's super frustrating.
Logan: It's very fun. And like, listen, if you, uh, there, there are a number of great firms that are going all out at all times on [01:34:00] specific investments. And so your hit rate, you need to opt into the right. Races, if you want to run the race and I, I found myself increasingly just like if the resonance isn't there with the entrepreneur or X, Y, Z, one of the things I'll talk to our team about internally is like, why would they pick to work with us?
What is the insight we have? What is the track record of success we've had? What is the relationships we have? What, like, is there some reason, cause there's so many good firms out there. Once upon a time, we could come up with the 10 firms that like, otherwise would be doing the investment. Now it's, there's hundreds.
And so it's like, if we can't explain why it's us in some very clear, articulate way, then we're the suckers at the poker table or whatever the right analogy is. It's like, there better be some reason that it's uniquely us. Cause there's infinite amounts of capital that's out there. Um, one of the things I think, uh, is, Uh, Azra Shinger, I'd love to talk about kind of, we've, we've touched on different points of it along the way, but Bessemer, you've been there your whole venture career, 23 years now, uh, as a firm, it's been around for a while.
I mean,
Jeremy: A hundred and ten years.
Logan: what
was the evolution, I guess, what was the evolution through Carnegie? Uh, or whatever the
uh
U
S steel No What
Jeremy: Yeah, it was Carnegie, if you want to say it correctly, but, uh, Carnegie
Logan: they
teach you when you come in as like and it says
Jeremy: No, I think I learned that the hard way. I think I was telling entrepreneur about it and they're like, that's not how you say the name. Like, oh, thank you for correcting Um, yeah.
Logan: That's a Bessemer
Jeremy: exactly. Um, no, but so, so Carnegie, Phipps and Frick were three Scottish immigrants, um, or their families were all Scottish immigrant immigrant families to the U S and, uh, and Carnegie started Carnegie steel and Phipps and Frick were like his number two and number three, um, employer executive.
And they, JP Morgan bought all the steel companies. He created the first monopoly, which is U S steel. And he bought Carnegie [01:36:00] steel for cash and what was basically like a leveraged buyout. And Carnegie got 1907, which is a lot of money today, but in 1907, it's like an ungodly sum of money. And um, and I think Phipps got 50 million.
Um, and, uh, and he gave a bunch of it to each of his four children and then he put a bunch of it
Jeremy: in what is effectively a trust. And uh, and he was really forward thinking and he, he did a couple of things. One is. He started investing that capital himself in other, what he called high risk, high growth opportunities.
And he was really good at it and he invested in international paper and Ingersoll Rand and W. R. Grace. These were all startups in the early 1900s. And then he hired non family members, outsiders, to both invest the money. And to, um, to serve as like a board of directors for this family investment company.
And his theory was that if we keep this money together, um, even though eventually I'll have many descendants and today he has hundreds of descendants. We keep it together well, as a, as an investment group, we'll have the advantage of scale to go to access things that if we split the money into like all the individual descendants, they would have much smaller bits and they wouldn't have the same scale and that has served them extremely well.
And so they've, as, as a, as a family, um, have generated returns that are on par with any of these top university endowments who are generally viewed to be the most sophisticated and successful institutional investors. Um, and it's now been going on for a hundred plus years.
Logan: So
it was that Bessemer trust
Jeremy: So that was actually Bessemer securities, which still exists.
And by the way, I should mention Bessemer was a fourth Scottish guy. He invented the Bessemer process, which if
Logan: middle or something Yeah
Jeremy: you learned that was a way of making steel in high volumes, very cost effectively.
Logan: So he didn't name it after himself, which,
Jeremy: well, poor Bessemer died before anyone could actually build what he designed on paper.
And then Carnegie, Phipps and Frick built it and they, they got rich. Um, but anyway, so
Logan: as an
homage
to
Jeremy: The effective, the true [01:38:00] entrepreneur, the inventor, he, um, Phipps named his family entities Bessemer. And there are quite a few of them today. So initially it was Bessemer Securities, which still exists. You can think of that as a family office.
And then, um, uh, Bessemer Trust, um, is sort of like a competitor to Goldman Sachs, private manage, private wealth group or city bank, private bank. Um, and it's, uh, essentially a private bank and, uh, that's owned by Bessemer Securities actually. Yeah. Exactly. Um, and then Bessemer Venture Partners was the high risk, high growth department of Bessemer Securities.
And eventually over the decades, I think around the seventies or eighties, when the focus shifted from manufacturing technologies, um, to information technology, the then employees of the high risk, high growth department sort of spun out to have a separately named group called Bessemer Venture Partners.
But all the money still came from the one LP, which is the Phipps family or Bessemer Securities. But they did a really smart thing, which is they said, Hey, as long as we're investing in these companies, you, the employees of Bessemer Venture Partners, you also need to invest your money in the companies because we can't read all your memos and understand and second guess all your decisions.
So we'll just say yes, as long as you're putting up a bunch of money each time.
Logan: Principal agent problem.
Jeremy: And they solved it really simply, which is like make the agent into a principle and then you don't have to worry about it. Um, and so that has continued on more or less to this day. And, uh, While we've grown quite a bit and, uh, and we have other, uh, limited partners as well.
They continue to be our largest. It's a super close relationship and we continue to invest a lot of our own money in all the investments, which is not only good for the fifth round, but, but everybody else that keeps us well aligned.
Logan: So, uh, the decision to 15, 16 years ago, you guys went to outside capital, uh, beyond that, was that just a scale consideration and diversification of the
LP
Jeremy: it was, it was a little bit scale. Actually, it was really prompted by our desire to start investing in [01:40:00] India. And so we 2003. Um. And it, it's kind of a random story, but we, we had lots of our portfolio companies starting to ask us about how they can access what at the time was a much lower cost technical labor force in India.
And many of our startups are pretty small companies and they viewed us as a bigger institution though, but by headcount, we're really not. Um, and they asked us for help. Um, can we help them understand like how to tap this source of labor in, in India? Uh, we also explored China at the same time. And, uh, and we ended up investing in a whole bunch of companies in India from probably 2003 to 2007.
And, uh, and we wanted to do more and more of it. And at some point, um, in our discussions with, with, um, with RLP, they said, look, we love what you're doing. You're going to start to stretch our family's willingness to extend our balance sheet, particularly to one emerging economy country. And so if you want to keep doing this.
Um, and keep scaling it up and it wasn't huge scale, then maybe you should bring on outside investors. So they kind of pushed us a little bit to do it. Um, and,
Jeremy: uh, and we did. And so our first fund with non, uh, with non BVP employees and non, you know, um, FIPS entities was, um, was in 2007 and, uh, and at the time, um, we essentially raising what was a fund focused on India.
Those new LPs rightly said to us, look, we don't want to just invest in your India stuff. We want to invest in all your stuff. So we ended up with, with, with two funds, one that was, um, mostly India focused that we get a little bit of the stuff we did outside of India and the other, which was mostly outside of India that we get a little bit of the India exposure.
And that's how we started. And then eventually we merged the two and we eliminated that complexity. And then, um, because no good decision isn't revisited at least 50 times, we More [01:42:00] recently, we actually said, you know what, instead of us allocating the capital to India versus the rest of the world, we'll let our LPs decide.
And so we actually split it back out again, and now there's a. An India fund and a, and a non India fund.
Logan: it's just some LPs, uh, last week, the week before, but I guess you guys had a nice event there
recently A
of them went
over there They I don't know. Did you go?
Jeremy: I wasn't there, but yeah, I heard,
Logan: I heard it
Jeremy: heard, about it. I saw, I saw all the, all the pictures in the
Logan: it like it was
Jeremy: it's, it's actually really, you know, we, we, we've been investing in India since 2003. Um, the first eight or nine years, we did things in India that were very different from what we've done outside of India.
In particular, we were investing in, we could almost think of it as companies that you could imagine investing in, in America in 1950. Um, and we thought to some extent the Indian economy, In 2003 or 2005 was kind of like where the US economy was in 1950. And this was like a brokerage firm, power plants, um, much more basic industry, if you will.
Um, and, uh, and the truth is we weren't that good at it. Um, and by 2010 we kind of realized it and coincidentally the Indian tech economy had matured to the point where like, actually we can do in India the same things we're doing outside of India. And so we really changed it, but. Um, and we've been in some really nice companies in India that we're quite proud of, particularly in consumer internet and now increasingly in software, uh, the Indian venture market hasn't been nearly as rich with exits as the U S venture market.
And so it's been trying and we've been super patient. And I think this event we had was almost a little bit of a celebration because it felt like the patients had paid off and, and we, we sold the stake of one of our India companies Uh, at a really successful game. We had another one that went public.
And so it was a little bit of like, thank goodness
Logan: maybe we should
Jeremy: we all collectively had the patience to do it and the team in India was patient with us. Um, and, uh, and it worked and it's, it's hard to maintain a small partnership across 14 time zones. [01:44:00] Um, and so it has not
Logan: 14
time zones And you guys have 22, 23 partners, is that right?
Jeremy: Uh, we do two of whom are in India. Um, and the rest are spread amongst Israel, London, and in various parts of the
Logan: How you think about like, obviously there's the geo component of it, which, uh, the China tensions, I think we've seen, um, a bunch of implications for different venture firms and trying to figure out how to unwind or disentangle some of the stuff as geopolitical, Climate has, has, uh, has kind of ratcheted up there, but, um, you guys have, um, have changed or evolved and added things even outside of geo, right?
Uh, now you have a dedicated growth fund as well with people leading that. Um, talk to Brian for a long time about, uh, because battery has. Had success in buyouts in there, in that model. And he would always pepper me with questions about like, well, so how do you think about this? How do you think about that?
And all that, which, uh, now actually has its own batter, uh, Bessemer
Forge is that right
So its own fund dedicated to it. And so how do you think about the, um, commonalities and through lines, I guess, that exists between. Uh, Bessemer, the entity, and then these discrete strategies that may be underpinned.
Geo, I get, especially if you're doing tech related stuff, but stages and
strategies
Jeremy: so it's, um, thanks for the question. It's, it's actually super natural and it evolved in a very organic way. And that is we would, and so we started off with a single fund that was focused on venture capital. And over time we realized like, Hey, when you invest early in a company and that company grows and starts to be successful, oftentimes that company will want more capital to get much higher prices.
Um, and it's fundamentally a different assessment of risk and return. And we would do that once in a while out of our fund. Um, and we realized that actually having people who [01:46:00] think just about that risk return trade off, um, as a specialty might be better than all of us sometimes thinking about early and sometimes thinking about late, though we do that too.
And I think there's, there's some element of being a general athlete or general investor that, that matters,
Logan: and the sheer market knowledge that exists between the Series A company doing well and the company you have better information, uh if have people looking at later stage
stuff
Jeremy: And, and actually technically we don't, we don't have a growth fund per se, we call it BVP century and, um, it's meant to write much bigger checks most of the time in companies that we've already invested in and in any event, we'll never invest, uh, never say never. But typically speaking, when we invest from our BVP century fund, we're also investing from our quote unquote, original venture fund at the same time.
And so you could think of it almost as an, an overage fund rather than a growth fund. Um, And, uh, and it just, it, we had a bunch of companies that we loved and some outside investor was coming in and offering to invest 50, a hundred million dollars in those companies. And, and we said to ourselves after a while, like, why are we waiting for someone else to write these really great checks in our great companies?
We should do it ourselves. Then that kind of led to. And, and, and so it started off as when you back an entrepreneur, what are all the ways in which you can service him or her with capital, sometimes it's early, sometimes middle, sometimes it's late. Let's make sure we can do that and we can do that relatively efficiently.
So that's how we ended up with Century and then the BVP forge, which is essentially a software buyout fund. It came from the same thinking, which is that we're, we talked to. Lots of entrepreneurs, um, every day. And, um, and oftentimes we might talk to an entrepreneur who has a, let's say a 500, 000 revenue software company, for example, and it's interesting, but it's not quite ready for a venture investment and it's not really a fit.
And so we agree to keep in touch and we might talk to that company again, a year later or two years later, three years later, the next thing you know, a bunch of [01:48:00] time has passed and now it's a 10 million revenue software company. And it's growing at 20 percent a year, and it's not likely to ever grow at 80 percent a year.
And so it's just not really a venture investment anymore. However, those are entrepreneurs too. Um, they may not be a prototypical Silicon Valley entrepreneur that's building something that's trying to compound at really rapid rates, but oftentimes it has other really interesting attributes, like it's really capital efficient, haven't burned much cash.
And they might at that point want liquidity and they might say, you know, I'd love to find a partner who can help me take it from 10 to 25 million of revenue over the next. Five or 10 years. And I'd love to sell half the company because I've been working really hard at this for a long time. And, uh, and I'd like to diversify a little bit.
And so, uh, if you think about it, like, uh, uh, like a funnel process, we were sort of dropping those leads on the floor and just saying, Hey, that's not for us. And, uh,
Logan: I think of one example at which, uh, my former employer actually bought one of those businesses that was like, not a venture business. and it, it's been a, I think a really nice outcome. It just required a different pricing and capitalization and structure around to be a venture business.
And actually it was like, you know, more of a mid growth kind of software buyout
Jeremy: Yeah. There, there's, so, there's lots of great cons. There's lots of software companies with very different profiles. And so, and, and we've been very active in software. And so that was the idea. We, we wanted to have something to offer to those entrepreneurs and, and we actually did an analysis and, and we're not, we're not investing $500 million the way that a, uh, silver Lake or A TPG might.
Um, these are generally companies that might be 10 or 20 or $30 million in revenue, and we might be writing a. 50 or 70 or a 90 million check. Um, and we did an analysis of all the other, I'll call it middle market software buyout firms. Many of whom have names that you wouldn't recognize. They're not household names the way [01:50:00] Silverlake is or the way Sequoia is.
Um, but nonetheless, they've generated really nice returns and we did an analysis and we looked at every company they had done a software buyout with over like a 15 year period. And, um, and it turns out that we at Bessemer had talked to half of those companies on average, three or four years before they did a buyout.
And we're like, wow, like that's crazy. Um, we have access to these entrepreneurs and we're kind of telling them to go away cause they no longer fit our profile. That's silly. Um, and, uh, particularly cause we already have the relationship. And so, and, you know, so we, we launched, it was, it was originally Brian Feinstein's initiative and, but we, we knew it was, you had to have a different mindset.
A different team. And so, um, there's a lot of collaboration, but as a totally separate team, our BVP Forge team, we sit in the same offices. I happen to be based here in New York and there's a bunch of people on the Forge team in New York. There's a bunch in California. Um, and, uh, and there's quite a bit of collaboration and sometimes it's not clear at the first instance, whether an entrepreneur and his or her company is actually a fit for a venture round or a Forge partnership, and we have ways of, of working that out.
But, um, but I'd say we, we, we launched the initiative at this point, it's probably three, three years ago. And, uh, and they've made, I think their first three or four investments, um, and it seems great so far. It's, it's like another
Logan: a great asset class.
TLBS 100: guys, this is Rashad. I work with Logan on the show and I wanted to take a quick break to tell you about red points, other podcasts, unsupervised learning, unsupervised learning is our AI podcast where we interview guests from companies like perplexity, open AI, Adobe.
and many others about the topical things that are happening in the very, very rapidly developing landscape of AI. So if you're interested in going deeper, uh, check out the link in this description for our YouTube channel, but also wherever you get your podcasts. So the show.
Logan: [01:52:00] The, uh, the commonalities, the information, uh, uh, symmetry that exists across different stages and sectors, I think is super advantageous. Uh, and so. And it's a really good financial product for limited partners. I'm sure as you guys ran the analysis and all of that, there's, there's I guess, as you become a bigger firm with, with different strategies and all of that, there's all complications.
Uh, I think that, that, uh, I'm sure you guys have. Thought about in it, uh, but it's a, but it's an interesting, uh, yeah, it's certainly an interesting product. Um, I, I guess one of the things I wanted to talk about was retaining talent and developing talent. Uh, I think you all, uh, have done a great job of developing talent from a homegrown basis, yourself included.
But I think all of the senior most leaders I kind of think about at the firm have mostly grown up. Within Bessemer, um,
although you're
Jeremy: Two thirds, one third.
Logan: third. Okay. So, so a fair, fair number have grown up within Bessemer. Um, and then also there's a number of people that have been successful outside of Bessemer's four walls
Logan: after they, um, have been trained by Bessemer.
And it's interesting in, in hearing you talk about it, I feel that, um, there could be a point of, uh, that like that, that could be a sensitive pain point of like, Oh, these people have gone on to other firms and had successes, but I don't sense that, uh, from you. You're actually proud. The firm seems to be very proud of seeding the industry with other talented people, I guess.
Maybe focusing on those two things separately, but maybe do the latter point first, training the industry. A lot of your IP might walk out the door. Uh, how do you think about that and the point of pride versus the point of like consternation?
Jeremy: I mean, it's, uh, well, first I'll say that it, this dates back a long time. And so, um, TA associates, which itself is like a 30 or 40 old firm. [01:54:00] It essentially spun out in some respect from Bessemer Venture
Logan: Oh I didn't know that That's funny
Jeremy: uh, same for Advent International,
Logan: They were both venture firms too, once upon a time. they've uh, if you go read old venture history books, back to me being a venture nerd, like they were very, know, growth capital as defined by venture, not growth equity and private equity, which they've gotten
into
Jeremy: Yeah. As it got bigger, they, they, they shifted more toward private equity, but, but they, they
Logan: much more scalable business that private
Jeremy: indeed it is. Um, but yeah, they, they came out of Bessemer. So, so it's not new. Um, and, uh, and I think our general view is. Uh, It's a small industry and, um, and having lots of friends in the industry, um, particularly when you have like a close working relationship is, is to your advantage.
And so, um, yeah, it's maybe a little bit painful when someone really talented has your whole playbook and is now playing for a different team. Um, but at the same time, most venture capital deals end up with multiple investors over time. And, uh, and so I think if you have more friends than fewer, it probably will work out to your advantage.
Um, I also think that, um, we found over the years that many of our best investments in each fund have come from someone who's newer to the industry. Not necessarily someone who's, who's been doing it for a really long time. And so it, I think it's a huge, I don't know, strategic advantage, competitive advantage asset to be attractive to new people who want to be in the industry.
Whether that's, um, people like are fresh out of college analyst class. And we typically hire three or four really young folks every year, or whether it's, it's folks like, um, Adam Fisher, when he joined us from other venture capital firm or Dalakia, who started in venture capital, um, after having been a career operator, um, you know, Um, so if you have a really attractive platform that really talented people want to join, you're much more likely to then also discover the [01:56:00] next great venture investment.
And so in order to have a platform that lots of really talented people want to join as investors, you have to have either a clear path for them to build a career in your firm or a clear path for them to use your form as a springboard to go somewhere else. And ideally both. Um, and so I think you're, you know, you're only as good as your last deal as a individual and as a firm, but the chance of your last deal being really compelling goes up substantially if lots of really great people wanna work there.
And, and so I, I kind of view it as the minute that you aren't attractive for the most talented people who want to enter the business because you've either stopped hiring them or you've stopped helping them grow. It's the beginning of the end and a venture firm probably has like a 10 year tail towards death where it isn't still bringing on new talents and, and, um, and having kind of young or new people with fresh ideas and you can kind of milk it for a while, but eventually it runs apart.
And there are examples of venture firms who are at the top of the game who are not anymore because they, they sort of suffer from this
Logan: We've seen fair number in the last like five years of, of that. And I think we're going to see a bunch more in the next five. There's a. In Kill Bill, there's like the, I forget what the five point exploding heart technique or something, which is you're dead, but you don't know it. And it's only until you start walking or something, you take some steps that you realize that you're actually a dead.
I, uh, yeah, I think about that with some venture firms,
um
um, on the retaining talent side of the house. Uh, I guess you guys, you know, Have a nice systemized program. It feels like for people ramping up within the organization. So how does that work? Like at what point do people start leading their own investments?
What guardrails are in place? What, uh, autonomy is given.
Jeremy: So it's, yeah, so it's, it's, it's relatively structured, but also, um, uh, but also [01:58:00] varies based on the market and the environment and, and, um, you know, what, what's happening within the firm and so forth. So as I like to say to any young person thinking about joining BASMR or frankly, any firm in the venture industry.
If you're not willing to accept the fact that luck is going to play a major factor in your career, don't do it. Um, and so, um, cause a lot of people are like, well, I want to know what the rules are and I want to know that it's sort of like a fair set of rules and I'm like, it isn't fair and it's not, it's not that it's unfair by design.
It's just like luck happens. And so for some people it could happen in two years and some people can happen in 15 years. And like, you might be even the fifth, the 15 year slow burner might be even more talented than the person who got there in two years, but, uh, that's just the way the cookie crumbles or the ball bounces or whatever metaphor you want to use.
Um, so we try to create as much of a even playing field and fair set of circumstances as we can, but. In a really heady period in a massively expanding market, like from 2014 to 2017, it was easier to demonstrate talent and judgment than it has been in 2023, when the pace of new investments was much slower and the market's not expanding.
It might even be contracting. And so even you, you made some great decisions. It's hard for that to show up in the numbers. So that, that you got to accept that. Um, and we think a lot about that because we want it to be. We want everyone to feel like they have a fair shot, even if they have to accept that the timelines might vary dramatically, um, like mileage may vary or something like that is the advertisement skill on these electric cars.
But we basically have a program where you, you can enter as an analyst or enter as an associate. Analysts are typically right out of college or maybe a year or two out of college. Um, and analysts work all in New York in a sort of a central pool, if you will. And they end up joining teams on an ad hoc basis with other more senior professionals all over the world.
Um, and then associates are for the most part, one on one mentees with partners. Um, our analyst program is a two year structured [02:00:00] program, but most analysts go on to do something else. Um, some stay at Bessemer and become associates. And then the associate program is this apprenticeship or, or more natural mentorship.
Um, and the idea is you, you learn by watching and by doing, and over time you do less watching and more doing, but at the beginning you're doing more, more watching and less doing. Um, and we have a sort of like a hierarchical organizational structure, which is mostly meant to just confer more authority and judgment as you grow.
Um, but eventually you become a general partner and, and that in our mind is like where there's like a bright red line. And until you're a partner, you're supporting somebody else's decisions. And then once you're a partner, it's your neck on the line. And we, we talk a lot about that. You know, we, we don't think it's, we think venture capital is a team sport more the way tennis or swimming is a team sport and less the way basketball is a team sport.
Um, and so, you know, in, in tennis or swimming. You as an individual are, are, are earning a certain score or track record or, you know, point, um, or ribbon. Um, whereas on a basketball team, everyone's the same and like some people may score more points and others may get more rebounds, but the team either wins or loses together.
Whereas in swimming, you could win your race and your team can still lose and you care about your teammates and you want them to win. But in some instances, you're even swimming against your own teammates. And we think we're a little closer to a swim team than a basketball team. Um, and that we keep track of how everybody does individually.
And we actually record decisions individually because we think it's hard enough that you got to wait four or five or six or seven years to get feedback. If at the end of six or seven years, you don't even know if it was your decision or someone else's decision, then you're like, you're waiting like 20 years before you get the
Logan: So the, the, at a practical level, how that works, is that the voting, uh, decision on like a one to 10 basis that I've heard you talk about, or is that,
Jeremy: No, it's different. It's different. So, so when we, when we make an investment, we, we [02:02:00] literally write down who made it. And
Logan: And
is that a single name,
Jeremy: so let's say it's a 10 million investment. It's really simple when it's one partner, and then with that, their, their name is, is written in the book,
Logan: but it needs to be a partner that's named gets written down.
Jeremy: only, only a general part
Logan: Yeah Got it
Jeremy: Um, if it's two people. They can split it, but they have to decide at the time
Logan: this split
Jeremy: the split is. And so if it's 10 million, like I might be like, I'm responsible for eight and you're responsible for two. And that's written
Logan: And this rolls up into a budget that the fund is then a derivative of, is that roughly?
Jeremy: sort of, it's more, it's more that, um, we, we use tools like a budget, which is, it's, and it's, it's a loosely, um, it's a loosely on budgets. It's not, it's not like you need to go make this much, you need to go invest this many dollars. We
Jeremy: don't do that. It's more like. You really can't invest more than this many dollars over the next year or two or three without seeking special permission.
And we use that guide people. And that's particularly important when you're early in doing it, because you're like trying to figure out, well, how much do I invest here? And then it also it's guardrails. And so, um, among our group of partners, there are some people who are like, like I was in 2004, like I had zero track record and no one knew, including me, if I was going to be any good at it.
And so it doesn't make sense for that. New I'll call unproven partner to have as much access to capital as someone who's generated billions in gains. And so we use the budget to sort of slow some people down and speed other people up. In some instances, we're trying to slow down somebody who's really proven because we, we know they're just too busy and someone who's unproven, but you can start to see the promise.
We'll use it as a tool to sort of push them to, to kind of take advantage of the insight they have and go a little faster. Um, but, uh, but, but yeah, I think, I think the budgeting is not such a critical part of the, the, the equation. I think the really critical part is the idea that we're recording who's making which [02:04:00] decision.
Um, because it allows us, there's, there's a. A challenge that happens in many venture capital firms, which is that there are senior people and the junior people, and when something goes really well, um, all of a sudden no one can
Jeremy: remember who did it. Uh, sorry. When something goes poorly, no one can remember who did it.
When something goes well, like ama amazingly a senior person gets super involved and like tries to take credit for it, even though they might have had very little to do with it early on.
Logan: It's
actually amazing how, uh, memories, memories are like a fascinating thing. And, uh, I've been in many rooms where I've had one version of events and like remembered it crystal clearly. I think, especially when you're coming up in your career, you're much more attuned to like the nuances and then have someone look me in the straight face and be like, this is how it played out.
And I'm like, I, I swear it wasn't. And so I actually started to. Codify at a personal level, like my thoughts into a PDF, just so it serves as a, cause you have the deal memos and I understand you guys do particularly honest deal memos, uh, and as much as you're framing, as much as I want to believe I, in any memo, I put my name behind, it's like the most honest version of events, it's still going to be five pages or something.
And. I won't have allocated the appropriate number of words to just the one sentence version of the way I feel about it, right? It's like, I wrote this long, loquacious thing about this or that, and you know, here's the different risks and probability weighting them and all that, but it's like, It's kind of a structure and I go back to your, I had heard that you hate memo templates, which is an interesting thing because I, uh, I feel like I can almost write in one sentence what I think at a time and then PDF it and be like, all right, well that I can't go back and change the PDF.
It is what it is at this point. But, uh, I'm interested on, uh, your investment memo framework, I guess, or why you hate the templatized version of investment memos.
Jeremy: Yeah. Well, so I, so I think, um, people, [02:06:00] when, when you're filling out a template, you don't, you're not thinking. Um, and, uh, and if you're given a
Jeremy: template, suddenly the task at hand is to complete the template and what I think you want, the mentality you want to embrace when you're trying to make an investment decision is like, what decision do I want to make?
And what is the most important thing? And if your template is standard, it will always accentuate the same things for every company. But for some companies, like the most important thing is the technology. And for other companies, the most important thing is the product And so the problem with the template is it weights all these things the same way for every investment, but what you wanted to do is you want to say, like, what actually matters here and what is the story that I'm telling myself and my colleagues, or I need to believe for this to be a great investment.
And so if you start with a blank piece of paper, the likelihood that you're going to write the right story is much higher than if you're filling out a template. Um, and so, uh, that said, like I know. When, when we go to write these things, we almost always grab a recent investment memo off the shelf that we think is doing for a company that we think is doing reasonably well.
And we open that up and we just start. Rewriting in those same sections because it's like a structure for our thinking. Um, I think that's okay, but, um, but maybe it's not okay for the opening. And so like the way I typically approach it is I'm like, all right, the opening has to be, you know, the summary, which is typically between a half of a page and a, and a page, or maybe a page and a half long, like you got to start with nothing there.
Um, you can't take an old memo and say like, Such and such is a software company based in Akron, Ohio, cross it out, you know, Kalamazoo, Michigan, and, you know, has X million of revenue. Um, cause that's not the story. That's just regurgitating facts.
Logan: You do kind of need a, uh, there there's some element of like. Lengua Franca within an [02:08:00] organization, especially if you guys are going to do voting as well, which is an interesting concept of, I guess, all the partners weigh in right on a scale of one to
10 on what
they think about the potential investment.
And so if I only give you, uh, you know, six sentences of my stream of consciousness, thought of it, I'm sure everyone would look at me and be like, I need more info. Like, this is not enough information for me to give you a vote. I guess it's fine on the decisioning side. In some ways, if I. own the decision and I, I'm sure you guys have checks and balances, that there actually needs to be a certain amount of information dissemination that exists internally.
Um, but yeah, it probably makes it hard to vote if, if there isn't some, uh, materiality to the memo and some amount data you're sharing with your
partners
Jeremy: but also I'll say like, I think when you hear a vote, when someone hears a vote, they think like you're trying to get. You're trying to win the vote or you're trying to get it approved. Um, and, uh, and I think in, in a lot of, in a lot of investment firms, like that is what the vote is for, like is he getting approved and,
Jeremy: and actually, technically speaking, um, if the votes you get in our partnership are so bad, it's possible that it could trigger the thing that actually causes the investment proposal to get rejected.
Logan: Is it still five and a half?
Jeremy: So, yeah, we wrote on a scale of one to 10 and the average has to be five and a half in order for it to be approved. But in 23 years, I can only remember one time that a vote actually didn't get
Logan: was it a bad investment
Jeremy: uh, yes, it was not, it was, yeah, it was not Google.
Logan: Yeah yeah
Jeremy: uh, so now that we make lots of other mistakes, um, but,
Logan: But the purpose of that isn't. I mean, is it, is it to codify, uh, where people sat in their thought process at the time for historical, uh, like know the
Jeremy: that's a set that's secondary. So that's, that's valuable, but for, on a secondary basis. Um, and, and on that theme, it like, it keeps you honest and it forces us to have some recording of, of, of what you thought. So when you look back, you can't remember loving something. I'm like, wait a minute, I voted at six.
Maybe I didn't love it so much. So it [02:10:00] keeps you honest. The primary purpose though, is that, um, as, as the, as the lead partner on a given investment, what I want is I want as much help from my partners in making the decision, because I am held primarily to account for that decision, good or bad. I get the credit if it goes well, and I get the blame if it goes poorly.
And when I accept and embrace that idea, I want, like, if you have an idea as one of my partners that might help me make a better decision, I want to hear that. And so the primary purpose of the vote is, is like, I'm asking you for feedback. Like I'm telling you, this is something I want to do here. The pros cons risks, whatever that I articulate in a memo or, and or early.
And now I'm asking you to tell me what you think. And so some people are really good, uh, in real time, sharing a thought or an insight about a memo they read or a presentation they just saw, which is really helpful to me in making the decision. Other people aren't that good telling me what they really think.
So by forcing them to distill their opinion into a number, I get some information. And like, if they say they're voting a 10 I'm like, it's really clear. Like they could have stood up, jump up on the table and told me, this is amazing. I love it. I love it. Or they can just say, I vote a 10. And other people who might be a little reticent, particularly if I'm a younger partner voting on a more senior partner's investment, it might be hard for me to tell them, like, I think that market sucks, or I think that entrepreneur is a crook or what, like, those would be hard things for me to tell, but I can vote a six in a spreadsheet and I can communicate something very clearly.
And then it's the onus is on the sponsoring partner to look at those votes and to say like, Hey, like I saw you voted a six, like, tell me more.
Logan: there qualitative, uh, information that goes along with it? the doc it's
Jeremy: only oral. Yeah. Just the number. Here's the number. Um, yeah.
Logan: weighting on, like everyone has the same
Jeremy: same boat. Yeah.
Logan: got it got it Interesting
And so it serves as a, as a check and balance of where [02:12:00] the sentiment of the organization is and how it's been presented.
Have you found it to be broadly indicative of success uh, that the things that tend to trend higher are the, or is it variance barbell that like, Hey, the people that love the stuff and hate the stuff tend to be the best investments.
Yeah
Jeremy: So the, many of the best investments actually had very weak votes. It's not a good, and, and, and I'll, I'll give you an example on a reason why I think. Um, If, well, the simple fact is if everyone inside Bessemer as a partner loves something and is voting it an eight or nine, tens are quite rare.
That probably means that if all the partners at Redpoint or Battery or Sequoia or Benchmark were looking at it, they'd also be voting eights or nines. There's no, there's no contrarian element to it. Like everyone loves it. And if that's the case. It means almost certainly it was hotly competitive. And if we're the ones who win it, we almost certainly had to pay a pretty aggressive price and it's hard for the best deals to be the ones that you had to like really stretch for.
Sometimes it works out, but, but it's hard. Whereas. If a bunch of partners internal to Bessemer have a real concern about something, that means that other firms, a bunch of partners probably had a real concern, which might've dissuaded someone from bringing it into that partnership in the first place as a deal that they should pursue or an investment they should pursue.
Um, and so almost by definition, it's less competitive. Um, and my favorite example is Skype. And so when, when Rob Stavis proposed that we invest in Skype, he, he said that he had to sign an NDA, um, in which he promised not to tell anybody. Where he met with the founders, because they were essentially on the lamb from the record industry in the United States.
Cause they had
Logan: cause back in the day yeah
Jeremy: And so people were like, what? Like we're investing in fugitives? Like, this is
Logan: a
little old Skype was the original Zoom. And, uh, basically,
and uh and
Kazaa was, uh, people are probably more familiar with Napster, but, uh, it was sort of the original [02:14:00] file sharing, uh, or it was a more peer to peer centric, they got around it
Jeremy: Napster that couldn't be shut
Logan: yeah it was kind of, kind of like a more distributed Napster blockchain if you will.
Uh, uh, yeah, because
back in the day
uh, so they, they were, They were, uh, successful in this entity, but it was, um, you know, dubiously legal, I would say, at least in the U S
so
Jeremy: think eventually they had judgments entered into them, entered against them in us court because they were facilitating the pirating of music. I don't remember the
Logan: but they took their technology and, or some of the peer to peer elements of it became Skype.
Jeremy: exactly. And, and by the way, and so that investment, which got a bunch of six and seven, I even got a five vote. I don't remember the details. Like, I think that generated like 150 times return in 18 months. Um, and so, uh, Yeah, it's, it's, so it's not, we appreciate that it's not a means of deciding what to do.
There are fail safes. If everyone hates something and is voting in a two, like it will actually get rejected, but that doesn't really happen. Mostly it's a, it is a language to communicate in a highly quantitative way. What you think of something so that your partner who's making the decision really on behalf of everybody knows who to follow up with and, and, you know, where the concerns really exist so that he or she can hopefully make a better
Logan: How'd you guys land on one to 10?
Jeremy: It was there before I arrived. So I'm not sure. I'm not sure.
Logan: one of the things that we've, uh, uh, at different points in time, maybe we debated the voting structure and we don't really have one right now. Uh, at least our early stage team does. Our growth team doesn't. Uh, but like doing one to four because it forces you to get off
middle and
you know, like a six versus a four versus seven versus an eight and all that.
But I, uh, all these things are more artisanal than they are, uh, you know,
scientific I
would
Jeremy: And, and, and yeah, we, we, we've experimented with some of these things too. And we have, we have, we have a different system where everybody in the, in the partnership can vote, not just the partner's vote, which is also more just a way of conveying information. But the truth is it's. When you force someone into something that's so binary, [02:16:00] um, you're taking away from them the ability to articulate that like, it actually isn't binary.
Like in real life, it's hard. Like, and so it's a lot of times you're not sure. And if you deny someone the opportunity to tell you that they're not sure you're, you're losing something, you're forcing them into something that isn't what they really think. Um, and so there are pros and cons of all
Logan: Yeah One of the refrains I've heard about the, from, from, um, I mean, I, I think people have been saying this probably for a decade, um, is, That venture is going to go the way of the private equity industry and, or the investment banking industry or whatever the right analogy is. A lot of industries end up in this mode where there's some form of aggregation and asset accumulation in the private equity case that sort of barbells out.
The, uh, industry where you end up with boutiques on one side and they can be big and successful boutiques, but boutiques nonetheless,
Logan: and then on the other end, you end up with maybe asset managers or big conglomerates or whatever it is, um, It was a particular refrain in 2021, I think people felt like it was an inevitability we were on.
I hear it a little less now, but I'm curious your take having been a student of this, uh, industry and lived it for a while
Jeremy: So I actually, I think it's probably right. But, um, But what is it exactly? And so I think in the private equity industry, there are a handful of firms that are gigantic Blackstone, Carlisle, TPG, um, Apollo. Um, but there are hundreds, maybe thousands of private equity firms. And so, yeah, there is a, there's somewhat of a concentration of assets, but actually I'm not even sure on a percentage basis, if it's actually all that concentrated.
They may be on average, a hundred times larger than some of the smaller
Logan: And there's probably a normal distribution within private equity of firm size, I would
guess
Jeremy: for sure.
Logan: venture. I think when people are talking about it, they're, they seem to be referring to a hollowing out of the middle, I think, maybe not.
Jeremy: Fair enough. Well, so if I actually, so I don't think there will [02:18:00] be, um, I don't think there'll be hollowing out of the middle. Um, I actually don't. Um, I think, I think there will be some firms that build more institutional company like, uh, existences, just like some large private equity folks have done. And I think there'll be lots of firms that maintain much smaller partnership like instances.
Um, I, I, I think my guess is, and I've never looked at the data, it's probably hard to come by, but. There's probably not a lot of correlation in private equity between the size of asset base and returns. And like what investors really want is a combination of the two. If you're an LP, you want to have amazing returns with scale.
So someone who can generate 50 X my money, but I can only write a 20, 000 check doesn't do me very good. And, you know, writing a 500 million check in a firm that generates a modest return isn't great either. And so there is like a, a sweet middle. And, and my guess is in private equity, there's still a pretty good diversity of, of where the returns come from.
I think the venture industry is much smaller. Um, and, uh, and I think brand probably matters a bunch more in part, because in a private equity transaction. Um, it's a purely I win, you lose, um, you have no ongoing relationship or very little of an ongoing relationship once you've sold your company, whereas in the venture business, you're selling a small minority.
And so you really
Logan: yeah the person moving into your, uh, as a roommate versus the person buying your house. You less the home buyer than you do the opposite. Yeah, there is this element of like all logos look the same on a website, right? And so like, You get a lot of brand benefit from just the number you get to hide the, uh, all investments click here and that's below, but then you get to show your good ones up top.
So I, um, and you get a lot more PR and known entity and all that stuff at scale. But, um, there's, there's kind of this other part of it, which I think you've, uh, you guys have done well, and you've articulated is like. People ultimately, successful people for the most [02:20:00] part, don't love being employees. They like being owners.
They like being leaders of stuff. And um, yeah, different people like management or whatever. That, that stuff of it. But there is that element as well that I've been reflecting on more and more is like, The path to the partnership, the lead, if, if, if the person, if the firm's named after the person, or there's a CEO on top or whatever it is, um, you know, one person will secede them.
Uh, but like a lot of other people won't, and some people might be comfortable with that and they get to do their business and deal with it as, as maybe. But I'm curious how you think about that. And if that, maybe more talented people will stay in sort of smaller, you know, organizations because of that fact.
Jeremy: I, I think it's huge. Um, I mean, there's probably some element of self selection also. Um, you know, the, the person who goes to work at a venture firm that's got one or two people's name on it. Um, it's just different from the kind of person who goes to a venture firm where the people who are quote unquote in charge, um, either didn't start or don't have their name on it.
It's just, it's just, it's a different proposition. It's fundamentally different proposition. I think in our case, like none of us at Bessemer want to work for anybody else. Um, that is very, very true. At the same time, I'll tell you, it's interesting. Um, not wanting to work for someone else is different than wanting
Jeremy: to make all the decisions.
Um, our, our structure, as we've talked about already, is like very clear from an investment perspective, the decisions are highly distributed among the partners, um, and, and the, the people aren't yet partners are apprentices, but the hope of one day crossing that judgment threshold where they too are bestowed with the, the privilege and responsibility and scariness of having to make decisions and write checks also.
Um, so the investment decisions are very clear. It doesn't funnel up into a small number of people or a group of owners or a CEO or anything like that. [02:22:00] Um, for non investment decisions, um, it, it, it's more concentrated and it's essentially, um, there are partners who have proven track records and results and their partners who have not.
And as you prove more, you get more responsibility and authority on the non investing part of our business. But what's interesting is that some people. Most people who become career investors, they don't want to be a CEO or a manager. They want to invest. Um,
Logan: have they been trained at, uh, those of the job. Like actually in some ways, maybe, maybe even the opposite because they've been so doggedly pursuing opportunities. They probably maybe haven't been a great mentor to people internally, or maybe they haven't thought about firm operations or investor relations or whatever it is that exists outside of it.
So it might even be the, the inverse of,
Jeremy: absolutely. I think that's probably right. But, but so, but at the same time, if you, if you yield all the decision making in the non investment areas, it can feel like you're working for somebody else. And so we, we are, we try to create this magic of once, once you, once you've proven yourself as an investor.
You have the ability and authority to weigh into anything you want, but we have really talented professionals who are great at these different functions. And, you know, we have a 200 person organization, so you have to have an HR function and we have lots of funds and financials, like you have to have a finance function with a CFO and, and, and so on and so forth.
We have lots of complicated legal issues that we deal with. We have a general counsel and a legal function. Um, but And so for the most part, the people who are successful and thrive at Bessemer have the ability, if they want to, to get involved in Wayne and all these other non investing activities, but they don't because they never wanted to.
And so the, I think the magic balance is making someone [02:24:00] feel like, and actually have the ability, um, on certain things and at certain times. Um, but not, but, but also give them the confidence, like it's going okay. Like you don't need to do this. You can just focus on investing, which is where most people want to focus.
Um, and it's really hard to get that right.
Logan: it's
it's, really hard to get it right. And there's a few things, uh, I forget if this is before we started recording or, or, uh, in this conversation, but like, I, I websites and office spaces outside of people, like they're the only things that are in the investments you make, which we've talked about and all firms sort of litigate.
Investments first and foremost, hopefully people as a derivative of investments as well. And then there's these two other things that are very reflective of who you are. And it's, it's websites and office spaces. I found her like the third rail topics that it's just, it's a funny one. Cause it, it's hard to get a group of people to agree on anything.
And I found that everyone thinks they can have, they like deserve to have an opinion about it. Right. It's like everyone is qualified because they've been in an office and they've seen a website before. And it's such a weird reflection of your culture and what you stand for and, you know, what people go into every day and so it's, those are the ones that I found are hard.
I'm curious. I mean, as you guys think about that, is there, does that get. Just litigated among the the inner group those specifically but I mean more meta like we don't need to actually go into office spaces But more meta those considerations
Jeremy: Yeah. I, so, so those are really good examples because like everyone does them, but I, it's a, it's a much longer list and I'll just off the top of my head. It's like, do you hold your annual meeting for your LPs at the New York public library, which we did. We're at a casino, it's one of our competitors to like, that says very different things about you and your image and who you are as a firm.
Um, do you, do you create like a clear and defined promotion path or do you not?
Logan: do you break
the rules [02:26:00] our titles very important and like you give bunch of
Jeremy: Everybody's a partner or, or nobody's a partner. Yeah.
Logan: you are you? Do, do you give people different carry amounts based on you know, their, their trajectory and how badly you want to keep them? Or do you keep everything
standardized
Jeremy: So, so, so it's hard that there's just, there's tons of those things and getting. Getting to consensus is not easy and, uh, and you can spend a lot of time, like, you know, um, when the, um, when the, when the, when the little girls club of Menlo park wants a sponsorship for their basketball team, like, do you, do you write the 5, 000 check or not?
Like the, the number of ridiculously small things that you can litigate as a partnership, um, or in general, like what, you know, are we, are we using. Our firm resources do philanthropy or do we keep philanthropy entirely out of the firm? And the firm is the business and you do a person like it goes on and on.
Logan: you have a podcast that you sit down with ostensibly competitive firms or do you not have a podcast? Yeah. So there's a lot of these.
Jeremy: Yeah. There. And so, um, but look, I mean, I think it's, uh, you know, some people are more interested
Logan: Is it is that there's the inner circle group and these things sort of can get litigated and, and decided within a, you know, you guys have brand considerations and culture considerations and so you sort of stick to the,
Jeremy: in, in, in, in the long run, it becomes like you have to trust each other's judgments, not just on investing, but in other areas.
Logan: Cause not having a CEO sounds great until these decisions, like there's not a clear mechanism by which to make them,
right
Jeremy: yeah. And, and actually, you know, we, we have, we have a few secret weapons. One of them is, has the name Sandy. She's our COO. Yeah. And, and, and if there were, if, if there's ever the closest thing we have to a CEO is Sandy, um, what an interesting way to describe her role is like, she's responsible for everything other than investing.
Um, and with an investment firm, I'd argue that the investing is the most important thing, but it doesn't function, doesn't work unless everything else is taken care of and taken care of well. And because to the extent that [02:28:00] all these other things that we've been randomly, um, highlighting aren't being done well.
The investors start to get concerned and agitated and distracted to go spend their time on those things. And that's when the whole thing falls apart. And so there has to be high levels of trust in both directions. And by the way, over time, even in the 20 years since I've been a Bessemer. It's evolved dramatically where at the beginning, um, the, what I'll call the infrastructure of the firm was really thin.
Um, and, uh, and now we've, we've, we've taken an entirely different approach. It's like, we want the best people in the world in each of these functions. Like we, we harp on our portfolio companies to, you know, don't get a mediocre CFO, get an amazing
Logan: Do as I say
Jeremy: Well, and finally we have an amazing CFO and get like a, like, you know, when a company gets to a hundred people and it doesn't have a head of HR, you know, As a venture capitalist or a board member, like what is going on here?
Like you need someone to have a head of HR. We were almost 200 people before we had a head of HR. And so we're finally growing up as a company, taking some of the medicine that we have been prescribing to our portfolio companies, and it makes an incredible difference. When you have really talented professionals in charge of functions and passionate about those functions, not investors who are doing it part time on the side, cause someone has to do it, it makes
Logan: 5 percent of their time. That's like the 10th thing on their list. So uh in preparation for this, I went back and listened to a bunch of different stuff you've talked about, uh, on different podcasts and all that. And, uh, one of the, uh, one of the things I, I, I heard was in the early days, it seemed like you enjoyed the icy element of the job and, uh, and, um, by the time You did a great episode with Kent and Brian on At Best Like The Best, sort of talking about Bessemer and some of the stuff we hit here, but, um, uh, but some other stuff as well.
Uh, you were talking about Sarah Tavel, who's now a partner at Benchmark, um, and a nice note, she publicly posted a blog post as saying that, um, how much it meant to you to be or meant to her to be mentored by you and all the kind things you did along the way. And so I guess. My question for you is, uh, [02:30:00] did I, did I catch maybe a change in this and you've,
Logan: you've learned to enjoy mentorship and maybe management of people more, or is it the mentorship part you've always liked and the management part you maybe like less so?
Jeremy: I have two thoughts on this topic. Um, uh, one is in the, a lot of people are saying like, why do like, what motivates you to still do this job? Like once you've done something successfully and, um, and, and, you know, can't believe you've made a bunch of money, like you don't need to work to make a paycheck anymore.
Like, why do you do it? And, um, and there's two reasons and eventually I'll come back to your question directly. First is because just because you had success during a period of time or with one insight Doesn't mean you're actually any good. It might mean you're just purely lucky, but if you can have success two times, you're much more likely to actually be good than if you had success one time.
And if you can have success three times, then you're way more likely than if you had one time or even two times and
Logan: There's thing the way, when people talk about like, Oh, Venture's a slugging percentage game, and like how far the ball goes out of the park is Well, you know, um, the people that, uh, hit, make contact with the ball generally hit home runs as well, you know? there's, there's some element of like, consistently doing it is, uh, is an element of being good at it as well.
Jeremy: but I also, like, I'm, I'm, I'm a bit of a student of the investing industry overall. And I think a lot of people who are. Um, who are revered from the outside as great investors actually only had one amazing insight in their career. It typically happens early in their career. They generate super normal returns, and then they spend the rest of their career reverting to the mean.
Um, and they thought they were good and their investors thought they were good, but actually they had one good idea.
Logan: internet And
clean
Jeremy: exactly. Um, and so, so to me, it's a huge challenge to say like, can you do it again? That, that motivates me. And then the second is that the job changes. It fundamentally changes once you've had a little bit of success.
Because your, your whole persona changes instead of being a bit of an upstart yourself and having to look off the beaten [02:32:00] path and, and barely being involved in the advice giving business. Um, all of a sudden people come to you all the time for advice and, um, and you can look in the mainstream and like all these things change.
And one of the changes that's been incredibly rewarding for me is, is like, I went from the only challenge was, can I find interesting companies? That turned out to be successful and invest in them. And that was it. It was a really simple, and by the way, if it had been any more complicated than that, I almost certainly would have gotten tripped up and confused, but I can say really focused on just that.
In the second half of my career at Bessemer, I've continued to try to do that, but also teach other people how to do it and actually teaching someone else how they can be successful, which will overlap with what I do, but also be very distinct is a totally different challenge and it's really intellectually interesting to me.
Um, and so that has been a huge motivator, which I didn't have in the very beginning of my career. Um, I only got it as I started to, uh, work with or apprentice other investors on the sort of individual contributor versus manager thing. I think that's like a, that's like a little bit of misdirection. So what I mean by that is that Sarah Tauble, who's the first person I really worked with and, um, And Rafi, Rafi Syed, who's now a partner at Bow Capital and Talia Goldberg, who's now a partner at Bessemer and, and Jenny Gao, who's actually decided to go work for Joe Biden or Talia Goldberg.
These are all, I'm sorry, Alexander Sukin, who I'm now working with. These are people who are so talented. They don't need any management. They're just wildly self directed. And so I, it's still largely an individual contributor game. It's just like, we're doing it as two peas in a pod. I'm not, and like everything I see as it relates to a potential investment, they also see, and now I have like a partner who I'm talking to and I want to hear his or her ideas just as much as I want to form my own ideas.
And so it still feels like an individual contributor game. It's just two people playing together as opposed to when I go to the, the whole partnership. [02:34:00] Now, like I have all this information that they don't have and I'm trying to convey it to them. Like that's not true with Alex, who I work with on a day to day basis.
She knows everything I know, and we're talking about all the details. And so that's a different kind of collaboration. So that part, um, is wildly rewarding. And when you find someone who thinks about things differently and bring something to bear, you're like excited to see what they think and test your own reaction to a given situation.
Um, and so that. I still think of it as an individual game. It's just, it's like an individual game played by two people together, not a firm of five 30 people.
Logan: self starterness of, of it is the only, I mean, if you can't look at a blank calendar and figure out what to do with it, this job is going to be very hard and most people can't, like, that's actually a very unnatural thing to create work for yourself and just go out and be like, I'm going to just do things with very ambiguous, long feedback cycles and no, Validation if I'm making progress and so, you know, having someone, I guess it's a good point.
The management of self starters is actually far less than you think. Um, In terms of pulling things out of, I, I assume Sarah was very different, um, stylistically in the early days of how she operated than, than you did and, um, uh, Talia or, or whoever of the examples you've, you've, you've given, um, are there things that you try to pull out that are unique? To them, like, are you helping them on, on being themselves and how to layer that on top of winning investment opportunities and all that stuff and sort of pulling that out? Or is it more focused on the decisioning process and like helping them refine their mental models? And then I guess if, as we talk about the latter, how do you not form fit? Your own frameworks and thoughts on them and sort of let them have the independence.
Jeremy: Yeah. So, so, um, that's a really good, it's a [02:36:00] really good question because they, they are very distinct activities. One is, can you, can you demonstrate to someone how you approach a problem and how you try to pick it apart and, and help them build the skill and the confidence that they can do the same?
Using some of the same techniques and maybe using some of their own intuition. Um, but ultimately like reaching good judgment, I think, um, you can take a different path to get there, but good judgment is good judgment. Um, there's a totally distinct part of the job, which is. Um, what is your persona going to be?
How do you build a relationship with the entrepreneur of the company? How do you become a desired partner? Um, and that's totally separate and that's much more, you have to customize it to yourself, um, and, and your person. Um, and maybe there's a third part about it, about the job, which is like, how do I go find companies in the first place?
Um, and I think that can also be highly individualized to your taste and your style and what interests you. So I think as I try to self assess my own ability to be a mentor, I think I'm pretty good at demonstrating and helping someone build confidence in their judgment. Cause that's kind of the, it, maybe it's the hardest and most important part, but it's the easiest thing cause it's the same for everybody.
And what I'm frankly still learning is like, how do you teach someone else how to be the best version of themselves? Um, and, uh, and that requires honestly a little bit more independence. And so.
Logan: to parenting in some ways, or like you want to pull out the, the, the best qualities of, of the person you're working with rather than impart the knowledge that you have to them. And it's, it's an interesting distinction where I remember, um, watching people, um, like, like, uh, uh, Rob Ward, Ameritech and Neeraj Agrawal, who I've referenced.
Um, And like the style they would bring to board meetings and they just had such gravitas and like, they spoke and everyone listened and I was like, I can't do like, no, one's going to listen. You know, I can't copy that. I, I, that's not what I have. And then I, uh, went into my first [02:38:00] meeting meeting with a board meeting with Eric Fisher from benchmark and he was just like all hell and spit fire and like a ton of energy.
And, uh, like knew the ins and outs of the business really well and was super passionate. I was like, okay, so I can copy that. Like that is someone I can look up to stylistically and port over some of those things. And so it's interesting. You do need to find your own style and throw your own pitches or whatever on that point.
Jeremy: Yeah, and, and, and part of our, our sort of working in pairs thing is great up until a point, but then at some point you have to, you have to separate and you can come back and collaborate and talk about what you did and what you saw and what you thought, but if you don't separate, you're sort of stuck. Um, and if, if you're the junior person, you're stuck in the shadow of the more senior person, who's just naturally going to get more attention from an entrepreneur.
But when you're on your own or that more experienced person isn't in the room, you have a much better chance to be yourself. And so then it becomes like, how, how quickly do you separate? And then once you start separating, how much do you do independently versus come back together again? And, and, uh, honestly, I'm still learning.
Logan: an interesting thing. I, I, I joke. It was like, uh, when I started out, it's, it's kind of like being a standup comedian and going to an open mic and you, you bomb and you're like, okay. Not doing that one again. And then you're like, you get up there and you test out some more material and you're like, okay, well now I have a few good bits I can go to and working with an entrepreneur, I can do this, I can do that, and then you're just building your library up of, of stuff that you you know, can resonate or the pitches you'll throw or whatever it is with a, with an entrepreneur, which is, yeah, it takes, it just takes practice, it takes reps and, um, I, I guess this might be a boring one and we can cut it if, uh, if so, but, uh, I assume you're not, the AI is like a big meta trend and you've lived through internet, mobile, cloud, and all of that.
Logan: Um, are you spending, it's so frothy right now. I assume based on everything you said, you're probably not spending, uh, a ton of time singularly focused on it. Although I know some of your companies, uh, are in and around that world. Yeah. I'm figuring
Jeremy: I'm trying to [02:40:00] figure it out. Um, I mean, I'm spending a fair amount of time on it and it's injecting its way into most of the companies that I'm meeting as prospective partnerships and almost every one of the companies in which we've invested. Um, but, uh, you know, I formed a point of view at some point.
Or maybe put it this way, the consumer internet emerged in 1996. I didn't really start investing in it until 2004 and that was a okay. It was plenty early on. And so I, I suspect the compression of time will be significant, uh, in, in AI land relative to the emergence of these large language models and generative AI and, and when it may be too late to be investing.
But at the same time, um, it's just really hard to have confidence in exactly how this is going to evolve. And if you don't have a really good framework. Then you're destined to make a lot of mistakes. I think as a firm, we're comfortable knowing we're going to make a bunch of mistakes. You know, if you didn't invest in internet in 96, 97, 98, you, you missed Amazon, you missed eBay, Google didn't come along until 1999.
And so I think you want to be there, but you also have to appreciate like, we're all going to be so much smarter about where the value is and what's going to be commoditized. And I think, I think it was Eric on, on your podcast who said something to the effect of LLMs are like the fastest depreciating asset in human history.
Like that stuck with me. That's a great line, which I will use. Thank you, Eric.
Logan: don't even need to credit them, by the way.
Jeremy: he probably stole it from someone else and we didn't get it from, but, uh, if not, he can send me an email about that. Exactly.
Logan: I, um, uh, I guess last one is a personal gripe.
Logan: Um, why don't, why don't your companies announce that they do rounds? It's really hard for downstream investors to track portfolio companies when you're discouraging them from announcing fundraising.
Jeremy: So I've had this, I've had this debate with many founders and basically,
Logan: the founders. It's not the, it's not later stage investors that are annoyed with you. It's founders that want the publicity.
Jeremy: no, no. And so I say it's the founder's [02:42:00] choice. And so I gave him the pros and cons. So the pro of announcing is feels good to your ego. Your mom can call you about it and say, like, I have read about you and blah, blah, blah magazine or blah, blah, online posts. Yeah. And you start to get enormous amounts of inbound attention from other investors, all of which feels good.
Logan: And, and talent potentially, or customer or whatever. I mean, there's some element of validation that comes with that.
At least, so I tell myself.
Jeremy: And so, but so those three things, the ones I mentioned, not the one you mentioned, I think are actually more negative than positive. Um, and the one that I actually believe is really valuable is, is talent. Um, you start to get interest from, from talent that you might always have a hard time getting to.
Um, uh, the cons are that you're revealing to the entire world, That you had enough of an insight. That you can convince someone with money to give it to you, which motivates every other entrepreneur to at least say for a moment, if they're even remotely interested in your domain, let me go check to take a look at a closer look at that to see if there's something there that I should be doing or I should be copying and the likelihood of you having funded competitors goes up by like 10 X.
Um, and so in my mind, the downsides dramatically outweigh the upsides in part, because you can get most of the benefit. On the talent side from selectively telling people at the right moment that you did this financing. It doesn't help your top of funnel talent acquisition, but most companies at the early stages aren't, they don't need massive tops of funnel anyway, and so, um, but that becomes the tension.
And so most of the companies that I've been involved with when they announced it. They announce it because they want access to better top of funnel and recruiting. And that's the primary reason, um, or at least that's how they justify it. And then they get some of those ego benefits as well. But in my mind, the longer you can hold off because you don't need that juicing of the talent funnel, the better off you are, because you've gotten to build more before other people know what you're doing.
Fair
Logan: uh, any of the [02:44:00] companies you're on the board of, if they, if they listen to this, hopefully they will. And I will adhere to your rule of no funding announcement. Uh, so long as they come to me, I I'm going to have a harder time going to them, uh, without knowing what they are, but it's so long as they come to me, I will continue the principle of, uh, of no funding announcements, but thank you for doing
this.
Jeremy: Thanks for having me. It's been a pleasure.
Logan: This is fun. Thank you for listening to this discussion with Jeremy Levine general partner at Bessemer If you liked this episode would really appreciate if you shared with anyone else that you think might find it interesting We're always looking to grow our subscribers So also if you could subscribe on whatever platform you're listening to it on we'd really appreciate it We look forward to seeing you next week on the next episode of the Logan Bartlett show.
Have a good weekend