[00:00:00] Logan: Mike, thanks for doing this.
[00:01:19] Mike: great to be here.
[00:01:20] Logan: So you were early in investing in artificial intelligence. I assume it was an outgrowth of a lot of the data investments you were doing, but I think your first one was Aurora self driving company. And then maybe a derivative of that was scale AI. Now you've invested in things like cohere.
And what did you see in AI in the early days that kind of, you said, Hey, this is going to be the next frontier. This is something I want to lean into.
[00:01:44] Mike: Truth be told, the story is a little more serendipitous than that. And I went to, uh, Ted, in fact, Satish, I think was there with me, um, like back in, I want to say 13, 14, and, uh, this guy called Chris Urmson, who is now the CEO of Aurora back then.
He was the CTO of the self driving venture at Google. It was called Chauffeur. Now it's Waymo. He gave a talk about self driving. And I, you know, I was mesmerized by this idea. I was like, this is incredibly cool. And I didn't really comprehend AI particularly well at that point, but I thought, well, you know, how is it that a vehicle can drive itself?
So. you know, dug into that a little bit and found out that underneath it was this deep learning AI kind of concept. And, you know, I sort of just got curious about it and, uh, started to educate myself more on it. And I also basically started stalking Chris Hermsen for the next two years until, uh, in 16, when he left Google and ended up, uh, starting Aurora and we did the Series A there.
Um, but that was really the genesis of it.
[00:02:49] Mike: And I think what kind of sparked my interest, and I think that's still genuinely true today, which is, um, if you look at software programming in general, It's, it's a representation of, of human logic, right? It's sort of how we codify in some thread of logic that we want to follow.
But that's not exactly how the human brain actually works. And what actually fascinated me was that AI was the, the closest thing that we could manufacture that looked. And smelled like, it was not, and it's even today, it's not really, I think a lot of people that draw the analogies don't quite understand how different they actually are, but it was the closest thing to comprehending how human minds work.
And that's why I got fascinated by it. And then obviously that I like to align what I'm interested in and what I invest in. And so then the investment sort of followed that thread of interest that I had.
[00:03:46] Logan: How do you go about going down and figuring, besides stalking Chris, and I'm sure following him around to different conferences and stuff, how do you go about unpeeling that?
Like you're curious about something, and then what do you do next to figure out if there's a there there?
[00:04:01] Mike: Uh, well, in that particular field, um, it was, it's very academically influenced. And so there it was really about following the academic threads. So if you kind of go through the history of AI, right, there was, uh, uh, there's a lot of work that happened at CMU originally and, uh, Carnegie Mellon University in robotics and deep learning, et cetera.
Jeff Hinton, who is largely credited today for being kind of the father of some of the modern AI concepts, was at CMU. He left and went to University of Toronto. A bunch of his students ended up permeating through, uh, Berkeley, some through MIT, some through Stanford, et cetera, et cetera. So it was, it was about kind of following that map of the leading academic thinkers in the area that sort of gave, gave me a little bit of a, of a roadmap.
Um, and oftentimes I actually, uh, used Chris Urmson who was highly respected because he was actually an associate professor at the, at CMU before he went to Google. And his co founder, Drew Bagnell, who is still a professor at CMU, they sort of led me down the path because they had the credibility to kind of introduce me to some of these folks.
And I, I think that really was able to kind of broaden my view around it. Generally, I think that's always a healthy approach to say like, who are the domain experts in this field? And let's get to know them, right? If you're a database person, you want to know Stonebreaker because he's the guy in databases.
And you sort of follow that thread of like, who are the knowledgeable people? And that gives you a map of the market. One
[00:05:34] Logan: You Or one of the few investors, I think, still active today who lived through the Internet, uh, lived through the mobile shift, lived through artificial intelligence.
I read a quote.
[00:05:46] Mike: I was in middle school, to be clear.
[00:05:47] Logan: Yeah, exactly. When you were, when you were 12 and you were paying attention to their Cisco, I employed a lot of young people there. The child labor laws were a little different, but, uh, I think something you said in 2015 and 16, uh, comparing artificial intelligence to the, to the Internet, uh, which I think today.
People draw that analogy all the time, but at the time, that was a little, uh, uh, a field from what people were talking about. What did you see in AI that reminded you of, of some of the shifts that happened in the Internet?
[00:06:16] Mike: the internet? I think, uh, the, the core concept of these important shifts that happen, whether it's mobility like with the iPhone or AI today, or the internet of early years, uh, social media when it started first came out is that they end up kind of being these enablers or I don't love the word platforms, but they end up being platforms where people can.
Take them and, um, realize new ideas off that base, right? So if you think about the early internet, you know, in the early days, it was mostly about emails or message boards or something like that. Then really the breakthrough was the web, um, uh, the browser and the, and the web server. That allowed people to start thinking about commerce and films and, and marketing and advertising and, and, and, and, and I think it's that ability to take something that basically opens up a horizon of activities that then a subsequent group of people can be, can pursue.
And in that context, I think the internet and AI have. A lot of interesting similarities for good and for bad, because if you think about, you know, I joined Cisco back in 94 and really the rise of Cisco coincided with the building of the internet, right? They were the infrastructure for the internet.
Cisco became an important company. It was, it was, and is worth a lot of money. You know, you could argue similar things about open AI, uh, um, but the, a lot of the interesting stuff happens on top of that. And, um, it's very hard to estimate in the moment exactly when those exciting things happen. And which ones are actually good and which ones are bad.
Cause, uh, you know, if, if you think about some of the things in the late nineties that we imagined the internet would offer us, they were correct. They just didn't happen in the timeframe that we thought they would. And therefore you have a little bit of a financial bubble that happens around it. Cause we all think like web van is going to happen next year.
And it doesn't, Instacart happens 15 years later. Yeah, I think the ideas happen when they happen is a little harder to judge, which brings about these sort of like bubble like behaviors because, you know, essentially venture capitalists and investors in the technology business, we're all optimists like that.
That's why we do the job that we do.
[00:08:42] Mike: We think stuff is going to happen. And that optimism leads us to sometimes. Uh, correctly, incorrectly predicting when they will happen and we lose money on that. But in some cases we're right and we make a lot of money doing it. And that's, I think, some of the similarities that you're seeing in the AI world today where we're envisioning the incredible things that will happen on top of AI, but we're not really sure about the timing.
We're making the bets anyway, and for right on the timing, we'll, you know, we'll be very successful investors. And if not, we'll lose some money.
[00:09:15] Logan: is your belief. Then if something feels like an inevitability, like artificial intelligence in some ways, then our job as venture capitalists is to actually lean into the hype.
Cycle and not worry too much about valuations within reason because if it works, it could be the Cisco's or the Amazon's or the Google's, uh, or open AI today, and if it doesn't, you just lose your money. Or do you need to be pragmatic about the valuation and the price still knowing that there's something of a mania going on
[00:09:50] Mike: Yeah, I mean, in this sense, I, I, I think you have to be optimistic, but I think you have to be careful when the valuations get very large. I mean, look, um, I, I think AI is super cool. I am not in the camp that says this is the coolest thing we've ever. Done. And if you kind of reflect that back on market caps of companies, there are a small number of companies that are worth more than a trillion dollars.
There's a slightly larger number of companies that are worth hundreds of millions, uh, Cisco, et cetera. Um, there are more companies worth 50 and more companies worth five or 10 billion. But if you're going in and investing as a venture capitalist with a reasonable probability of failure into something that's worth 20 billion, what are my chances of making 10X on that bet, especially with downstream dilution and option pools, not super high.
You know, there's one company every five years or one company. And what are the chances this is it? It's pretty low. And so my view is at the lower valuation ranges, 50, 100, 200, even 500, you know, 10X is a 5 billion company. There's a reasonable number of those. And so you're like, you know, statistically speaking, I have decent odds at making this one work. But. You know, you go to the roulette table and you just bet on one number. The chances are you're not gonna, you're not going to get it. And I think that, uh, while I think it's smart for venture capitalists to lean in, it's smart for us to have a portfolio. In AI, because we don't know which one's right, and, uh, it's smart to be moderated on the investment, the entry point of that investment, uh, in order to, to sort of accommodate a reasonable failure rate.
[00:11:38] Logan: Do you think having lived through those, those platform shifts, internet and mobile, and I guess now AI, do you, do you think that makes you better equipped to have the prepared mindedness and some of the, uh, historical precedents of how some of these things have played out or does that lend itself to some level of cynicism and there's, there's going to be more.
Optimists out there that will see things differently and say, no, this time's different.
[00:12:10] Mike: Um, well, I think the first thing it helps you is to identify the real waves and the not so real waves like, you know, I've been a skeptic and I was quite a skeptical about the whole crypto wave. Um, so didn't really do any investing in that area.
[00:12:24] Logan: Were there specific things that you saw? I mean, I was as well, but I'm curious.
[00:12:28] Mike: I mean, it's, it's because when we call it a platform, what we were saying is it enables you to do a lot of things that you couldn't do before, right? That's kind of the point of it. I, I never figured out other than speculating on rising crypto prices. I didn't understand what it is that you could do that you couldn't do before.
Arguably with Bitcoin, you know, maybe there's, if you live in Argentina, it's a good deal to have some of those, but it's not enabling, right? It is a currency in and of itself. So the identification. Is helpful. So you, you see these waves and you go like, okay, this is, this is going to be important. So just a recognition when you recognize is trying to get in early before the prices go sky high, that's super relevant.
Um, and then sort of. Understand, trying to understand how to capture value around that, uh, platform shift that's happening. I think right now when you hear a lot of venture capitalists talk, they're talking about, you know, is this a, just a wrapper on, on, uh, OpenAI or on Cohere or on Claude or something like that?
Or is there a real company here? Being able to identify the difference between just a wrapper and an actual app. Those are the sorts of things that I think help you, that I can take lessons from the internet era, like email never really was a great business. But a website that does commerce was, even though technically you're saying, well, how hard is this?
You're just moving bits from one place to another, but there was value there. So being able to identify where there is more than just a wrapper. Is I think one of the skill sets that carries over from generation to generation of, of waves.
[00:14:05] Logan: Is there a distinction or a question you'll ask that are between a wrapper on one side and a net new application that could create equity value on the other?
[00:14:17] Mike: Uh, well, it, specific to the AI world, a lot of times I, I, I try to comprehend how much does this particular app embrace details of the use case? of what the user is doing with the app, right? It, and how much of it requires knowledge of a specific domain. Now it could be, that domain could be human resources.
It could be, uh, marketing or sales. It could be the automotive industry. There's a lot of domains. But most oftentimes, Uh, SAS applications have to capture the essence of that, that user's workflow, and ideally in many cases is it, it occupies the workflow of more than just one person. It's not like a, just a single player productivity tool.
[00:15:04] Logan: But,
[00:15:05] Mike: Things that make things more than wrapper are many people use it and they, they benefit from the network effects of using it together. Uh, there's specific embedded knowledge of the workflow of the user in that sector. Um, there is, uh, uh, a intelligent usage of multiple types of underlying capabilities of the model.
So maybe there is a vision thing or a, or this kind of language model for this, a small model for that, a big model for that, that type of thing, um, seems to me the key to finding what is not a wrapper and an actual application.
[00:15:43] Logan: As I think about maybe the Internet versus mobile and I'm going to make these numbers up and maybe you'll disagree, but, uh, Internet, I think. 90 percent maybe 80 percent of the value that got created by the Internet were net new companies that got created. Be it Amazon, Google or whatever, we can go down the laundry list of names.
Um, there's still Microsoft's and you know, things that that ported over some of that value mobile. It felt like the vast majority of the equity value that was ultimately created was captured by. Apple and Google in large part. And then there was Instagram and Uber and, you know, a bunch of others as well.
Do you think that the. Equity value within AI is going to be captured by a lot of the incumbents with the existing data, and there'll be a handful of those, uh, that, that create new value. Like, how much do you think it's closer to the internet, where maybe it'll be a ton of net new equity value created by startups versus mobile, that a lot of it gets captured by existing vendors?
I
[00:16:46] Mike: well, I think in that sense, if you compare the internet generation to, uh, the, the, the current AI theme. I, my suspicion is it'll be a little bit different and, and, and that the current competitors in AI are quite competent, you know, uh, Google, Microsoft, Amazon, Apple are companies that are still on it, uh, they're, they haven't sort of lost the plot as was the case maybe at the beginning of the internet.
So A, it's likely that they're going to capture a big chunk of the value. Uh, second is the point you mentioned, which is they have a very interesting data advantage. Um, and, uh, you know, whether it's good or bad data is a good question, but they certainly have the wherewithal to, to, to capture that advantage.
And the third is the capital intensity that AI requires. And that's also a slightly different theme than the internet didn't require. It required capital for telcos to build out infrastructure, but. Nowhere near dimensionally what we're seeing here. So there's a capital mode, um, there's a data mode, and there's just a competence mode that incumbents have.
So my guess is in the end game, if you just added up the dollars, dollars will flow to incumbents in the AI world more so than elsewhere. However, you know, as a, as a venture capitalist, you know, we benefit the Zero to a hundred billion journey more than we benefit from the a hundred billion to trillion
[00:18:15] Logan: journey. Yeah.
[00:18:16] Mike: And so I believe that there will be enough interesting companies that look like, you know, Uber or Insta or, you know, whatever the case may be that benefit from the existence of that mobile platform and will create ample opportunity for upside for venture capitalists. So there's, there's a lot there.
There's another words, even if they're not the biggest allocation of dollars. There's so many dollars that I think our industry will do well out of it. I
[00:18:42] Logan: I heard you say at some point large language models will be commoditized, and so it's all going to be about the data that you train it on.
Um, I guess one, do you, do you remember saying that or the context around
[00:18:55] Mike: was probably wrong,
[00:18:56] Logan: Yeah. Okay. Uh, can you elaborate on that point or how you sort of think about the value that might go to large language models and the data and all of that?
[00:19:05] Mike: Yeah, well, I think it's a nuanced thing actually. And, you know, none of us have a crystal ball. We're learning every day, but broadly I would segment in two ways.
Models, if you really distill it out from a hundred thousand feet, perform better based on two things. One is how large they are. And two is how much good data they have to train on. Those are the two big axes. Um,
[00:19:30] Logan: large
[00:19:30] Mike: models cost a lot of money. Having lots of good data costs a lot of money. Um, And so at least if, if I were to give you my snapshot of my crystal ball today, I would say is you're likely to have two or three, uh, sustained leaders in the large language model space, particularly as applied to consumer applications.
It's likely to be open AI, likely to be Google. Um, you know, there might be a third in there, who knows. But that's, and that will largely serve the more consumer universe. And even if you look at OPI's revenue, the vast majority of us is all of us paying 20 a month to them. There's that part. I think that there are a lot of, uh, functions that will, uh, go basically use AI to enable sort of enterprise applications.
And that's gonna be a bit of a different dynamic because those enterprise applications, if I go back to the point I was making earlier, will have a lot of domain specific knowledge and data. That will allow even a smaller model, which is cheaper to serve, cheaper to train, et cetera, et cetera, to actually perform, uh, important functions in the enterprise.
So I think you're going to see a. a divergence in the market between the consumer side of the market and the enterprise side of the market. Now on the enterprise side of the market, the interesting risk is like, is there some commoditization going to happen because you have a lot of open source models that are out there.
Um, and that's a, maybe there's a, there's that possibility that the open source models will tend to drive the price points down and commoditize the enterprise side of this. I think there's still some. It's not all self evident because there are some rough edges to the open source models that don't make them incredibly enterprise friendly at this point in time.
So we'll have to see how that plays out. But broadly, I see kind of that segmentation. I think given the capital required, it's hard to imagine that, I mean, I think there's going to be significant price wars between OpenAI, Google, and whoever else, because You know, for, if you're Google, this is truly existential, right?
It's absolutely existential to win this market. They will throw everything at this. And so I think what you're going to see is some amount of price war, i. e. commoditization, but around a small number of players, not a complete disappearance of value because everything is free.
[00:21:51] Logan: Hmm, makes sense.
[00:21:53] Logan: Um, the, I guess one of the things that's, uh, atopic de jour, uh, it seems like these days is AI regulation, the existential threats around ai.
Do you have any. Thoughts on what role should the government play? What role should private sector play? Any opinions about about that stuff that seems to be playing out daily right now?
[00:22:15] Mike: Uh, yeah, I mean, it's a complicated subject. I have not historically seen our government and these days as functional as our government is, uh, be able to create regulation that keeps up with the velocity of technology.
Uh, I agree with some of the first principles that are being laid out right now, that it shouldn't be discriminatory and, you know, it shouldn't do these bad things. Uh, in general, what I actually believe more is that when you look at the people that are providing the leading edge models and capital and so forth, they are ultimately Pretty responsible companies, you know, Microsoft is a responsible guy.
I don't like everything that they do, but broadly the responsible company. So is Google, uh, and, and I, I are more and more inspired by the fact that the cutting edge is being done by responsible companies. Uh, versus there's some wonderful regulation that's, that, that created that safety harness around it.
I will say that, you know, there is risk in the open source universe because if I'm a bad guy and I want to build a nuclear weapon and I have a really good open source model, I can probably sort that out. There isn't an obvious regulation that I can think of that would be effective to say, let's stop that, right?
And I just think that we're going to have to. Move along the journey and, and hope that the right actors have, uh, do the right things to make sure that technology is used in the right way. Um, eventual regulation, no issues with at all. I just don't think it's, it's going to happen in the timeframe that the technology is moving at.
[00:23:55] Logan: Uh, over the course of your career, you've made investments in everything from hard for hardcore infrastructure. We talked about Aurora scale. Uh, you've also done some consumer investing blue bottle. You're investor in Sonos as well. Is that right? Um, what's it? What's the through line across these investments?
What's a Mike Volpe, uh, investment
[00:24:13] Mike: uh,
[00:24:13] Logan: in an entrepreneur that gets you excited
[00:24:15] Mike: It's really just completely random.
[00:24:17] Logan: right? Yeah,
[00:24:17] Mike: no, no, no, I mean, I've always thought like, uh, you know, as a professional, you know, you kind of look at, you look at your balance sheet, like, what are my assets? What are my liabilities? And for me, at least, I think I have two assets. One is I'm very curious about technology.
And so figuring out investments that tickle my curiosity, whether it's data infrastructure or it's AI or whatever, um, I pursue it. So that's one thread. And then, you know, the other one is I have a network of people that I love working with and I've have over the, over the years. And I lean in on that asset when I know I have a special person that I'm working with.
So if you take like a Sonos, the founder of Sonos who led us to making that investment was a guy named John McFarlane, who I'd gotten to meet back in my Cisco days. He's founded a company called Software. com, went public, very successful. And he called me up and said, you know, you should look at this and was completely off the roadmap.
We weren't going to do music stuff and hardware, but it was John. Or, you know, Blue Bottle Coffee, which is this entrepreneur named Brian Meehan, brilliant entrepreneur. Uh, I met him, he was my neighbor in London. I met him, I thought this guy's super smart. He called me up one day and said, do you want to put money in a blue bottle of coffee?
And I was like, well, anything Brian does, we'll do. So it's sort of like the two threads are amazing people that I've gotten the chance to meet in life. Um, another one would be Wealthfront and Andy Ratcliffe, who, who I've gotten to meet. And then the other one is stuff that tickles my technological curiosity.
Those are the two threads. What's
[00:25:56] Logan: are mental underwriting framework or decisioning process for, for getting to the point of saying yes.
So you instinctive in the way that you sort of know when you first meet it, or are you peeling back the layers over and over again and really yearning and agonizing about getting to a yes.
[00:26:13] Mike: Um, yeah, listen, I like to use an analogy when I talk about this one. You know, I'm not much of a surfer, but it's a surfing analogy. I think there's three things that you have to convince yourself that you have, right? The surfer needs a wave, a board, and he or she who surfs. So there's the person, the board, and the wave. The wave is, you kind of want to look at a landscape. And see something that's actually changing in your favor at the right time, right? Um, you know, if you look at quantum computing, interesting, interesting theme, not happening right now. There's no wave, right? AI clearly big wave. So first identify that there's a wave coming.
Usually the wave is an externality, meaning you don't control it. You can, only thing you can do as a company is to time getting on the wave at the right time, but you're not making the wave. That's one. The second thing is the board, which I think of it as the product or the technology of the company. And do you have the correct instrument for that wave?
at that point in time, right? And, and again, this is like the correct instrument means you need to have good technology, but the, it has technology is defined as good to the extent that it solves the problem it's trying to solve. And so that's the instrument. And the last one, which is ultimately probably the most important is, is the surfer themselves who has to be able to figure out that I need to take this board and put it on this wave at this time, and then navigate the weirdness of that wave.
Cause that wave has. Competitors in it. It has early adopter customers, late adopter customers. It has macro climates. People don't want to spend money, do want to spend money. What you try to look for is a great entrepreneur who knows how to use technology to take advantage of a wave that's coming their way.
Right. And if you have all those three. Then you have a winning investment. If you have only two, you need to think hard about it. Um, in general of the three, my biggest bias is almost always the founder of the entrepreneur. Cause I think entrepreneurs are good at identifying waves. They're good at identifying which technology you need to use to tackle it. Um, and so they find their, their moment in time, but you see a lot of fantastic entrepreneurs who like are just, you know, sitting out there on board with no wave. So, so, you know, you gotta, you gotta think through that. That's probably the most important element, but ideally you want all three.
[00:28:35] Logan: When you're actually going about like, um, diligencing a deal, uh, how, how, how does index do it?
Do you guys pair up and have two people prosecuted? Are you sort of on your own hunting? Do you have a junior person helping you? Like, how does that kind of work?
[00:28:48] Mike: Yeah, generally we have a team effort. Uh, usually have a, uh, we, uh, a partner and a secondary partner that are working on it together. And we have a, a team, uh, of, uh, younger folks on the team that help us out.
So it's usually a, you know, team, three or four folks that are working on. Any particular transaction?
[00:29:08] Logan: I heard you say that 80% of your investments are ones you'll, with good confidence, you'll make money, which, uh, allows you to do 20%, which are the, the moonshots and who knows.
And, uh, h how, how do you sort of think about like what the, the, the 80% is versus the 20%? Is that something you actually articulate internally? Like, Hey, this is one of my 20% or
[00:29:26] Mike: It's not, yeah, no, I think my partners know about it. ? Yeah. But, you know, for example, I've had, uh, good success in my career investing in a lot of open source data infrastructure companies, you know, uh, Hortonworks, Cloudera, um, uh, uh, Elastic, uh, Confluent, uh, uh, ClickHouse now, Cockroach Labs, Kong, et cetera.
[00:29:49] Logan: So
[00:29:49] Mike: I sort of, you know, I'm a student of how the mechanics of how that works, how you turn it into a business. And I feel like, okay, that's middle of the fairway for me. I know. how this business works. I know what to look for. I know how they monetize. And, um, you know, for me, they've produced, you know, five to 15 billion outcomes as, as market cap companies.
And sort of, that's kind of what I think of as my 80%, like stay in the lane. If I produce that output for my partners, which, you know, generates returns for them, generates return for the LPs. Occasionally, they're going to let me do some crazy shit, which is like, you know, self driving cars or robotics or early investments in AI.
And so I think as a, as an investor, I like to have a little bit of that balance. Um, um, and that I think gives me a platform to do crazy things. And sometimes those crazy things, they work out or even derivatives of those work out, right? Cause Aurora has been a good investment for us. Uh, as a public company, we've, you know, we've made some money on it, but I made that the scale investment because of Aurora and scales turn to turn out to be a fantastic return for us.
So, you know, the crazy things sometimes lead to good stuff later.
[00:31:25] Logan: I'm curious, actually, because you bring it up in scale, I was going to ask this later, but, uh, what did you, Alex was 19, 20, 20, when you invested in him, like, what did you, what did you uniquely see in him? Uh, I've sat down and done a podcast with him and he's obviously a. fantastically intelligent sort of cerebral individual but Investing in a 20 year old is uh is a risk in and of itself.
I guess what did you see in him at that time?
[00:31:53] Mike: I mean, first of all, as far as Alex, you know, I can wax poetically about what an amazing entrepreneur he is.
You know, everything you want out of an entrepreneur. He's twitchy, restless. He's incredibly smart. He's super commercial. He works his ass off. He's a great networker. He sees technology before it arrives, he, you know, he adjusts and shifts the, I mean, so many good qualities.
[00:32:15] Logan: those things that you intuitively knew at 20 years old or are those now that he's 26 whatever?
[00:32:22] Mike: No, and actually I think that's the interesting part of your question, which is that, um, when you invest in a 45 year old, You more or less have the final product that, that is what that person is going to be. When you invest in a 20 year old, it's not a finished product. It's got rough edges. You're not sure about this.
You're not. And, and I think, uh, what you have to do as a VC is to sort of squint and ask yourself, This person looks like this at 20. What will they look like at 25 or 30? Can you extrapolate the, the, the trajectory of this individual? And it's, it's, it's really hard because humans change enormously between age 20 and age 30.
Like, you know, it's, it's a, it's a life defining decade for us. We find our motivation, our ambitions, our aspirations. We face our first challenges as an adult. And so the extrapolation is inaccurate at best, but you try your best to see what this person is going to turn into. And I think honestly, being a parent of somewhat older children is helpful in that assessment.
Because, you know, I've seen my own kids like evolve and change and become different kinds of people. So I think that's, uh, an art form. I don't always get it right, but I think oftentimes when I read briefing memos from VCs, it always says, this is what the entrepreneur is. And it never talks about what is the entrepreneur going to be in five years. And I think that that's a bit of an art form. And if you look at the greatest returns in our business, you know, whether it's an Amazon or a Facebook or whatever, oftentimes you see the leader. evolving a lot as a leader in time. And, uh, it's funny how we don't actually pay attention to it. We just look at it very
[00:34:12] Logan: Yeah. I, I guess it's hard to, uh, it's much easier to take that snapshot than it is to try to project the person in some ways, I guess I, I think the projection can lead to. Maybe some level of false precision. I've always found that the in between when you write it, write a check and then you sort of go quiet for four weeks or whatever after, and then you go to your first board meeting and the entrepreneur has been through a bunch of fundraise conversations and how much they've changed by the time your last conversation with them to your first board meeting or whatever with them is usually a pretty good sign of like the slope of the line and how quickly they're going to grow.
So yeah, I guess that's one of the things of. Getting to know entrepreneurs over long periods of time and getting them to see them evolve as they, as you have those
[00:34:55] Mike: Yeah, yeah. And, you know, there's also. You know, there's always this kind of question about where is the value that an entrepreneur, that a VC brings to the table, right?
And it is true that, you know, a lot of what we do is just invest. Like that's, that's our, our primary act, but I think when you're investing in a 45 year old leading or a group of established founders, you are more along for the ride when you're investing in a 20 year, 20 year old, I've experienced this firsthand with Alex or George Sevilka at Hebea and so forth is.
You are shaping who they become also,
[00:35:34] Logan: And
[00:35:36] Mike: I find that absolutely fascinating. It's a, it's just a, it's a absolute privileged position to take these incredible people who have so much talent and to be able to sort of unlock aspects of them. Mostly they're growing on their own, make no mistake, but you can clearly feel your influence much more.
Then what you can do, you know, you give a nice piece of advice to a 45 year old, but they are who they are
[00:35:58] Logan: You, um, started full time investing, uh, in 2009, you went over to index, but then you were, you were investing in the nineties at Cisco when you were 12 years old, going through that, uh, that, that stretch.
If you could go back in time, maybe to when you started at index, um. What's something you know now that you wish you could have told yourself then, uh, about investing, about working with
[00:36:23] Mike: I mean, So much.
Uh, first of all, I, I think, you know, it, it takes a while to become a decent venture capitalist. It's, it's not a profession that you can write down and explain. I mean, I'm sure you know this, but there's, it's very experiential. I think it's very, uh, uh, it's artisanal in, in its nature. You got to understand a lot of different details and how things come together.
Um, probably most of. My professional career prior to, uh, going to work for Index, uh, was operational in nature. I had done some investing,
[00:37:00] Logan: Uh, and
[00:37:03] Mike: I think the probably the first thing I would tell myself back then is, uh, actually let go of some of those operational first principles. Cause, uh, I think operators tend to think too much in the first person.
Uh, when they look at a company, they, you know, you psychologically are like, if I had this product and this market, I could lead this company to win. Big problem is it's not you, it's, it's another person that's doing it. And so you have to kind of, uh, let go a little bit of your sense of analytical structure of how, how does this market structure?
What is the competitive nature of it? Can I do due diligence on the technology and embrace more of the. Uh, the understanding of the person, of the founders and, and their ability to execute against that idea and that technology. So that was probably, I was more focused on markets, on competitive dynamics, on technology and less focused on the people.
And over the last 15 years that I've done this, I've learned that it's more about the people. And a lot less about the technology, where I mean, the technology is important and so on and so forth. So that's probably the, the, the biggest shift I would say, um, that, that I've tried to internalize. And then, you know, the other thing is this is a pattern recognition job.
And so it is about seeing an opportunity and saying, can I, do I have any other situations where this pattern has repeated and I can perform, you know, I can sort of follow that trend. And that's true both in terms of the business opportunity, but also the individual founder. And the founders are hugely diverse.
There's all sorts, but there are patterns, right? And so can I see a pattern in this person? Um, and, uh, those are probably things that I didn't really understand super well when I got to the job day one.
[00:38:55] Logan: In talking to a few folks at index, um, more than one said that you were the best mentor they've, they've ever had in their careers. Um, as
[00:39:07] Mike: not have had very
[00:39:07] Logan: yeah, yeah, yeah, well, it's a limited number of people, I guess they were working with and,
[00:39:11] Mike: Yeah, I do. We do pay their
[00:39:12] Logan: yeah, exactly, exactly, yeah, yeah, yeah, yeah. I don't have to, I'll tell you the names after they were maybe looking for a pay bump.
So
[00:39:20] Mike: uh,
[00:39:21] Logan: When you think about developing young venture capitalists or helping them learn this artisanal craft that comes with experience and all the sort of some of the things that you've learned over the course of the last 15 or 25 years or however you want to score it, um, How do you think about nurturing those people and helping them find their own lane?
Because what's true of Mike Volpe, what's true of Doug Leone and Peter Fenton and Mike Moritz and all these people that are iconic names in the industry is going to be slightly different, right? We're all sort of throwing different pitches. We're doing things slightly differently. But how do you help pull out the best of the people that you're working with?
[00:39:59] Mike: I mean, there's a lot of things, but I'd highlight two, which is.
[00:40:04] Logan: first.
[00:40:06] Mike: in the venture capital business, you have a lot of very hardworking, very intelligent, talented people. This is, this is a very high density of that type of profile.
[00:40:17] Mike: Uh, that type of profile is best managed or best mentored by giving them a lot of free space and allowing them to take risk, right?
The core thing is jump into the deep end of the pool. And, and I think that, um, the best people. shine the most in that circumstance. And, you know, the venture capital is populated by a lot of smart people. The, the, the ones that have performed very, very well are few and far between. Uh, but all of those, you just wanted to throw them into the deep end of the pool.
What does that translate to? It's like pick a sector. Um, and you go invest in that sector and let me know how I can help.
[00:41:00] Mike: So take like, you know, one of my amazing partners at, uh, at Index, Shardul Shah. He came, he, he joined us and the U. S. team is the first person we hired on the U. S. team back in like 2011.
And uh, we didn't really have a person covering security. And I was like, okay, Shardul, take security, it's yours. Go build a network, figure out what to do. Do your investments. I'm here to help. I'm here to open doors if I need to. But really, it's about giving them the freedom and the flexibility, and most importantly, the self confidence that they can tackle whatever problem is faced in front of them.
That's one dimension.
[00:41:35] Mike: The other thing that I try to do is not give people answers, but give people frameworks to figure out their own answer. So you ask me, I have this problem. Should I invest in this company? I'm not going to tell you whether you should invest in the company. I will give you a way to think about whether you should invest in this company.
And then you sort, your You are in the details, you know the people better, you've studied the market better, whatever. You have all the data, I'm going to give you a framework, like the one I just gave you about the surfboard. Um, and hand you that framework and say, you figure it out and I'm going to back you up.
And, by the way, look. As a VC, maybe you're better than I am, but I don't think I get half the time right. And so you bet you better get used to like letting people make mistakes. I mean, everybody I made, I've made so many. And as a venture capitalist, it's sort of like, uh, it completely comes with the territory.
So letting people feel like they should not fear making a mistake. If you went through. A rational process, using the right frameworks, you came up with the answer, you invested, the company didn't work out, it's fine. It's totally fine. Just go back at it. As long as you're using those frameworks. So you know, don't quibble with the decision of whether you did or did not do a right thing.
Just focus on the fact that you used the right mental frameworks to make the decision that you did.
[00:42:56] Logan: The mistakes you've made, are, are there, there are commonalities, uh, or through lines between them that you've, you've now learned a course, correct?
Maybe, maybe it was you invested too much in the board and not the wave or anything along those lines that you've looked back and you're like, I wouldn't have done that again. Cause we're always going to be wrong, right? Just statistically, but
[00:43:19] Mike: I, I think, look, um, Um, one of the most important things we understand we have to do as people is to understand our own weaknesses, right? What are my pitfalls? And in some ways, those are often the flip side of the coin of your greatest
[00:43:32] Logan: strength.
[00:43:33] Mike: So I said earlier, I love tech. My weakness as an investor is I fall in love with tech. And so, uh, you know, what I have to do oftentimes in the moment of like, should we do this? Should we not do this is pause and say. Am I doing this because I love the tech or am I doing this because we think we're going to make money at this? And the most frequent problem I've, I've, uh, mistake I've made in my career is just falling in love with the technology more than falling in love with the business and the people and all that good stuff.
So that's what I have to guard band myself against. Although that, that's just me. Every, every one of us has blind spots. And so the most important thing is just recognizing what's yours. And then, you know, uh, surrounding yourself with people or surrounding yourself with frameworks that, you know, prevent you from going off the rails, uh, given that blind spot.
[00:44:24] Logan: spot, is there an investment that stands out, uh, that you didn't make a, that's particularly, particularly painful and what was, I'm sure there is, we, we, we all have them.
I, I can think of a list of 5 of them or something, but that you, you, you tweak your mental model going forward saying, Hey, I was off on this and it's something I need to think about going forward.
[00:44:43] Mike: Yeah. I mean, uh, I'll cite one that, you know, gives kudos to Redpoint, which is, um, Snowflake. Um, I, you know, I, I, the first investor in Snowflake was Mike Spicer at Sutter Hill. Uh, credit to him. He was kind enough to show us and me the series B and then probably a number of subsequent rounds. And, um, you know, I sort of used market logic to convince myself it wasn't a good idea because it was like, well, you know, uh, Amazon has Redshift.
It's their fastest growing, most competitive product in the market. Um, this is a, uh, this is just an analytical database. There's lots of those. There's Netezza and Vertica and like, you know, Teradata and all these. And, uh, you know, technically speaking, it was more scalable. Um, on a cloud basis, but I sort of essentially used market logic to talk myself out of it. And, uh, what I didn't appreciate for one, Benoit and the founders there, which were, who were amazing. And then the ability that Mike had to bring in first Bog Muglia, who was a great leader. And then Mike and Frank Slootman, who was also another great leader, uh, to evolve the company. It just didn't enter my framework, uh, well.
And, um, so, you know. Those ones hurt.
[00:46:03] Logan: Yeah, no, you're, you're, you're, uh, when you're wrong on, uh, on things that you invest in, it goes to zero when you're, when you're wrong on things that work out, uh, they go very
[00:46:14] Mike: Well, you know, you can only lose your money
[00:46:16] Logan: you're going to lose it once. That's right. That's right.
[00:46:18] Logan: You said something that I, uh, found pretty profound and I'd like to read back to you and get you to elaborate on, but most companies and people define themselves and who they are in too narrow of a way. When you're getting started, it's important to focus, uh, but then over time, you need to redefine yourself more expansively.
Can you elaborate on that, that sentiment, either for companies or people?
[00:46:39] Mike: Yeah, I mean, that was sort of my big lesson at, uh, in my first adventure in a professional life at Cisco.
Um, you know, I joined the company when we were about a thousand employees, I think like something like that. And, you know, seven years later we had 50, 000 employees. And, um, uh, I think the company succeeded in many ways because it kept reinventing itself with additional chapters to, you know, first it was a router company, then it was a router and switch company, then it was an internetworking company, then it was like, you know, it kept reinventing its existence.
And in some ways, the phrase I often try to use is like, You know, we sort of define the sandbox of, of what it is that we are, and we try to excel within that sandbox. But then we ultimately just live in that sandbox and we forget that the whole point is to make the sandbox bigger. That lesson applied to Cisco, I think it really applies to people a lot.
Uh, especially capable people, many of them in our business and venture capital, but also. In other professional walks of life that define themselves as this is who I am. I am a programmer. I am a salesperson. I am a marketeer. Uh, I'm really good at Java. Um, and you sort of, you kind of in the moment feel good because you excel at this thing, which ultimately actually doesn't fully expose.
Who you are as a person, and so being able to sort of assess where you are and say, You know what? I'm going to make that sandbox bigger. I'm gonna try something different. Uh, I'm gonna try to expand my competence. Um, that allows us to really fulfill our full potential. Um, you know, I was not a software engineer, right?
I liked I programmed, but I was mechanical engineer. And if someone says like, well, how does a mechanical engineer understand anything about AI? Uh, you're probably right, but, but then, you know, if you just sit there and, you know, you read papers and you try it and you download the software and so on and so forth, and you redefine, you say, well, no, it turns out I'm not a mechanical engineer.
I can understand this other stuff and I can understand this other stuff over here. You gradually expand the sandbox. And I think that, you know, it's not such a blind process because if your sandbox is two by four and, uh, um, you sort of say, I'm going to go to 30 by 50 feet. Not so much, but you know, there's a gradual process associated, but it's really important for people to continue to grow.
I mean, another way to put it is this whole growth mindset mentality, but I kind of think of it as expand the domain in which you can act to allow yourself to learn new things and excel at more things.
[00:49:24] Logan: Hmm.
[00:49:26] Logan: Similarly, you said evolution has taught us that mistakes are bad, but that's not true, which is a weird thing, especially as a venture capitalist.
You need to be willing to make mistakes so that you can hit the ball far out of the park. But how do you think about that?
[00:49:44] Mike: look, I think of it as, I actually think the VC job is very statistically oriented job, right? At the end of the day, uh, much as a baseball player goes up to, to the plate and tries to hit, you're only going to, if you're really good, you're going to hit it. They're about 33 percent of the time. But if you don't swing, you're never going to hit it.
And so I do think that it is absolutely critical to embrace the idea that Mistakes are part of what you do. Like it's just, it's fine. And before even saying like, I learned from my mistakes, that's kind of obvious. It's just forgiving yourself for your mistakes. Like saying it's, it's fine. It's totally okay to make a mistake.
And if, if you're not, it's probably worse, right? If you make no mistakes at all. You're sitting in that small sandbox and just bunting every time the ball comes at you, right?
[00:50:34] Logan: Yeah. So,
[00:50:36] Mike: you know, making mistakes is about is comes with the territory when you expand it. And then obviously you try to learn from your mistakes, but some of your mistakes, the lessons you learn are pretty obvious.
They just show up and you're like, Oh God, I'm not doing that again. Um, uh, but I think the most important part, and I think particularly for very competent people, uh, You hate making mistakes, we hate making, making errors, and it's a very human, it's interesting because it's a human thing, right, like,
[00:51:07] Logan: um,
[00:51:09] Mike: uh, 10, 000 years ago, when I came out of my cave and I made, I did it at the wrong time, the lion ate me.
[00:51:16] Logan: You died.
[00:51:17] Mike: It was really bad to make that, to make a mistake. Mistakes translated into tragic endings. Today, professional mistakes, like, you know, people give us 3, 000 shots. And so. I think we overweight the, the idea of making a mistake in our, in our own mind. Um, it's a sort of psychological factor and I think the most important thing is just to let it go.
Like, all right, fine. Screwed it up. Let's move on. Try again.
[00:51:46] Logan: So there's a book called done deals. Those written in 1999 that I read when I got into the venture industry and I actually still had sitting on my bookshelf. Uh, and I went back and I, I remembered there was a chapter that you wrote, uh, about when you were at Cisco and Cisco's investing strategy.
Um, in there there was a comment that you made about, uh, getting credibility with entrepreneurs and there was two people you referenced that you said you can call them and ask about me and ask about Cisco and the two people were Don Valentine and John Doerr, two of the most prominent people in I think our industry's history.
Um, what do you remember about both of those people, their style, were there things that you internalized about, uh, interacting with them that you carry with you today? Yeah. Yeah.
[00:52:32] Mike: Yeah. I mean, the interesting thing about those people is they, in some ways, interestingly represent the venture capital business. You know, both are not active VCs now, but in their era, they were the Titans of our industry. And they were. Completely different human beings. You know, Don unfortunately has passed.
Don is still active doing a lot of really amazing philanthropic things. But Don was a guy that, you know, he would show up at the board meeting, he had a, he had his little sequoia notepad with a green pen, only green pen. And often times he wouldn't talk, he would just like write notes and hand them to you. Uh, and he commanded extraordinary presence. And, uh, he was the guy that you were completely afraid of. You know, saying something stupid. Now, he also had this uncanny ability to see a situation, a person, a thread of logic or whatever, and see flaws, chinks in their armor. And use that to go drill in and figure, and figure out what's really going on here.
John was enthusiasm, drive, contagious sort of ability. In some sense, he was an entrepreneur himself, that he sold you the vision. Both turned out to be very, very successful at, at, at what they do. And the lesson you take away from it is that there really isn't a mold for a succession, successful venture, venture capitalist.
You know, there's those two. There's, you know, Mike Moritz, who was a journalist. There's Peter, who is, I think, fourth generation VC or something, like he's sort of born and bred. At birth, he started writing checks to
[00:54:05] Logan: right, yeah.
[00:54:05] Mike: So you have this huge variance of how you, uh, undertake the task of being a venture capitalist.
And the big lesson from, from those two.
[00:54:16] Mike: Uh, was how, how you have to actually design your own approach as an investor in doing it in your own way. You can also inspire
[00:54:27] Logan: others.
[00:54:28] Mike: uh, both of the were very inspirational. Both of them also, I think for me, at least where. extraordinarily generous with their time.
And when you think about it in reverse, I was some kid that's 26, 27 years old or something going up to Don Valentine, one of the greats or Dora, one of the greats. And it'd be like, Hey, can I grab lunch with you? Sure. Come on in, talk anytime, anytime you want to come by for advice, come on in. And so, you know, you got to pass that down to the next generation.
And the way I think of it is like, you know, I, I've had some reasonable success being a venture capitalist. When some kid calls you up and say, Hey, can I grab lunch? Yes. Yes, absolutely. And then you can make your assessment as to whether that person is worthy of more time or less, but keep that door open as they did for me.
And hopefully I've done for others and hopefully many people will continue.
[00:55:19] Logan: There was a comment you made in that book about recommending buying the market leader instead of the lesser players, despite paying a higher price.
I think the quote you had was the right way to frame the question is not how much you're paying for an equivalent asset, but rather how much. How better can the market leader perform when combined with the asset of the larger company is, is that something you think about today in investing, paying a premium for the market leader rather than going in for, for the number two at a lesser price?
[00:55:49] Mike: Absolutely. I, I think that, that, that is, uh, you know, we live in an industry where the leader gets 70, 80% of the
[00:55:56] Logan: Yeah.
[00:55:57] Mike: I think the concept of the cheer and cheap and cheerful, number two.
It doesn't work in our business. And you know, we've, at Index, we've seen the same thing where we invested in a number two player and it just, you know, occasionally you get a decent return, but by and large, you know, investing in the number one player, I think in that context, I was speaking more about M& A.
And I still that, I think that is absolutely true where like, if you're gonna, if you're gonna buy somebody to integrate them into your company as today, it's much more difficult because there's a lot of regulatory issues and so forth, a hundred percent pay more. What people forget is that, you know, you're, you're sitting there saying, uh, company A market leader, uh, 200 million valuation.
Company B second place in the market, 50 million valuation. In one case. I own, uh, 15 percent of the company, in that case, I own 20 percent of the company for a little less money. Five years later, they go public. You will make or lose more of that in intraday trading in the stock price. So you're, you're fixated on complete, if you really believe that the thing is going to be public, or if you really believe that this particular acquisition will transform your business in some way.
You're completely crazy to think that plus or minus 20 or 30 percent of the price makes any difference when you invest or when you buy in the company, it's, you're focusing on super micro instead of like the big picture of what's going to happen over a time or longer time horizon. Yeah.
[00:57:28] Logan: And that's even, uh, from a M and a, or, or a return standpoint. And then there's the. Benefits of the reference ability of being in the market leader as well, which is very beneficial to at least our job, right? Being in the number one versus the number two,
[00:57:47] Mike: sure. I mean, I'll give you a concrete example. I, you know, I, I was fortunate enough to enter this business with a little bit of a brand and a reputation when I entered it,
[00:57:56] Logan: But
[00:57:56] Mike: that wasn't to say that I was going to be any good at investing.
One of my first investments that I did with Satish with pure storage, right? Pure storage and, uh, we, I, I want to say we did the series maybe C or D in the company at a pretty high valuation, uh, like 500 million valuation. I forget how much money we put into it. So I wouldn't say this was like a premium, whatever, but, uh, you know, fast forward.
I think pure storage today is worth, I don't know, 15 billion, something in, in the, in, in that neighborhood. So clearly a, a perfectly, a perfectly good investment. And then you start to build a brand with, you know, Frank Slootman's on the board, Anil Bhusri is on the board, Satish, Spicer. You know, you've got this really great group of people that are like, Hey, that guy Volpe, he's all right.
He knows, he knows what he's doing. He invested in this. And then people like, ah, pure stories, this, that, and then that opens the door for the next thing, which I think was Hortonworks with Fenton. And that opens the door to the next thing and the next thing. And so, you know, playing with the wind as you're getting started, uh, somehow being associated with the winner.
And, and of course, it's not just making the investment. You got to. work hard after that for the company. Um, but that sort of, you know, gives you the platform to do a little bit better and a little bit better.
[00:59:17] Logan: So shifting gears a little bit, you were born in Italy and then grew up in Japan. How does someone born in Italy growing up in Japan end up in California in the middle of the internet bubble?
[00:59:30] Mike: Uh, well, uh, it's kind of serendipity.
Um, my, I was born in Milan, Italy. My dad worked for a local bank. Um, when I was, uh, six, uh, my dad was, my mom and dad were kind of the adventurous type, and so Uh, the bank offered them, uh, uh, expat job transfer to Tokyo. They took it. Um, I started first grade in Tokyo. Uh, And I had this kind of an eclectic life of going to an American school in, in, in a society that was totally different.
Um, made some really interesting friends along the way. Cause a lot of the other kids that I went to school with were sort of like me, you know, kids of executives at IBM, kids, diplomats, kids, whatnot. And then, you know, I, I liked science and math. And so, you know, because the education was in English, when I, when I got to, uh, apply, applying to college, sort of going to America was sort of the obvious thing.
And then, um, I, I applied to a variety of American universities. Um, several of them were in Boston and one was in California. And I visited in February, and so truth be told, the weather, you know, I drove down Palm Drive and I was like, wow, this is nice.
[01:00:44] Logan: is different. Yeah, yeah, that's good.
[01:00:46] Mike: So, so, you know, that led me to, to, to, to the Bay Area.
And uh, I think after a few years, even as an undergrad, I started to recognize, wow, there's like something very, very special. happening in the field that I love in this area, and you know, obviously it's became infectious after that.
[01:01:04] Logan: Did, uh, going from, from Italy, first grade to Japan, is that right? Do you think that has helped you in being able to resonate with different people and get along in different environments?
[01:01:17] Mike: Yeah, a hundred percent. I mean, the probably the biggest takeaway lesson is, uh, adaptability. Which is being able to, uh, change yourself a little bit to adjust to the environment. But, uh, I think the less obvious one is being able to see things from another person's perspective. You know, where I find it, it's most useful is in negotiations. You know, when you're, oftentimes you're negotiating, it's a term sheet, it's a M& A transaction, whatever. Um, the thing that I find most useful is I look at the problem from the other person's perspective, and I try to. Orient where we're going to fulfill what's important to them, which is oftentimes not exactly what's important to you, or in some cases I want them to get, to get them to see the world a little more the way I see it.
So how do I change their prism a little, but the ability to see things from another person's perspective. Obviously being thrown from, and by the way, Japan and Italy, there are no two countries with more diametrically different cultures, like it's crazy how different they are. But you sort of have to adjust to that and see things from the other person's perspective and that's been, you know, a good life
[01:02:33] Logan: lesson. Would you walk into an Italian home and then walk out to a Japanese culture? Is that sort of the, so you're flipping contexts
[01:02:41] Mike: It was pretty, it was a three way context flip because my school, largely, I'd say my high school experience was comparable to any American kid's. But I had friends in the neighborhood, I spoke Japanese, I still speak Japanese, I had Japanese friends that were local neighborhood kids.
And, and then at home it was, you know, pasta and osabuko, right?
[01:02:59] Logan: Yeah, yeah. But
[01:03:03] Mike: Yeah, yeah. But you know, honestly, it's one of those strange things, I think this is the beauty of youth, like, Didn't really think much of it. It was only when I got to America that people were like, wow, that's really unusual.
I was
[01:03:13] Logan: Yeah, you're fish and water the whole time. I, you know, it's like, you don't really appreciate it. Yeah. So, so, so you graduated Sanford in 94?
[01:03:22] Mike: Uh, no, I finished my undergrad in, uh, 88. I stayed an extra year, got a master's degree in 89.
[01:03:27] Logan: 89.
[01:03:29] Mike: Then I went back for my MBA and I finished that in
[01:03:31] Logan: 98. Okay, got it. So that was, that was your business school. Fortuitous timing to be graduating at 94. I assume that was, internet was starting to take off. Had Netscape been started then?
[01:03:46] Mike: Netscape had started, they released the, uh, Netscape Navigator, which was the browser in, I want to say, February of 94.
[01:03:56] Logan: Okay. So, so right around then, and you think this is the big thing. This is what you want to be a part of. And you apply to Netscape and Mark and Ben say, no, thank you. Is that how did
[01:04:09] Mike: Ben, Ben was not that senior
[01:04:11] Logan: okay. So Mark.
[01:04:12] Mike: yeah, no. What actually happened was, um, I, I, I was an engineer. I was a mechanical engineer at Hewlett Packard, uh, before business school. Uh, when I got into business school, I had all these smart bankers and consultants are like, oh, that's the way to go. So I got a job in, in management consulting over the summer.
Didn't like it at all. I was like, no, I'm going back to tech. Um, and, uh. I was organizing a conference and we, uh, a friend of mine, uh, Greg Sands, who's actually got his own venture firm now, was like, Hey, rather than doing all these posters, I think we should make this thing called a website. And I was like, Hmm, a website.
And he goes like, yeah, there's this thing called a web browser. And, you know, you can go check out the Louvre and all these things, and we should make one of those. And we'll advertise the conference there, and we had email, so we like, we'll just get people's emails and that'll be, we'll make a little, you know, an Excel spreadsheet.
Like, okay, well it's, you know, how hard is this, making a website thing? And so, little HTML and whipped up a website, and then we got The, the conference was completely oversubscribed and people from all over the world showed up for this conference and we, I was like hallelujah, wow, this thing is like, this web thing is super cool.
And so my friend Sans had a job offer to go to Netscape. He had, he was like ahead of me in terms of figuring it out. So I called Sans and I'm like, yeah, you think they'll, you know, do you think there might be one more job there? And he actually talked to the guys like, now look, you know, MBA with a mechanical engineering degree, you're utterly useless,
[01:05:43] Logan: Yeah, yeah.
[01:05:44] Mike: no thank you.
Um, so then that's when I sort of took a step back and said, okay, well, uh, how is an internet made and what are the pieces in there? And I figured out that the internet's made out of routers and there's one company that makes all the routers. And uh, so I, I cold called the CEO, uh, of Cisco who happened to be a Stanford grad also.
And he was. Again, kind enough to open his door to me, and that led to a job.
[01:06:08] Logan: a job. My name's John Morgan.
[01:06:12] Mike: He's the predecessor to John Chambers, who was largely my boss during, during my tenure at Cisco. But Morgridge was the CEO. He's sort of this, uh, this man from Wisconsin who now lives in New Hampshire.
He's kind of a grumpy, uh, you know, a simple man, uh, but, uh, amazing mentor for me when I was young. And, uh, yeah, he found my, he found me, uh, interesting enough to give me a job.
[01:06:35] Logan: So, so you were there for a while and basically ran M and a bought, I think over 100 companies invested in 250 plus, um, is there something that you learned about M and a, that would be broadly applicable to an entrepreneur to be thinking about, even if they, everyone's aspirations are to go public and build a 20 billion company, but as, uh, that's the logical landing spot for.
The vast, vast, vast majority of companies. Is there anything that you experienced or saw that is worth imparting to an entrepreneur listening? I
[01:07:11] Mike: would say that, um, M& A is, is something that makes sense at times, uh, in particular when you are at a distribution disadvantage to an incumbent and in roughly the same field. It's something that's worthy of thinking about because the incumbent tends to have a lot of staying power and will fight you for a long, long period of time, especially if they're a large company.
So in the case of Cisco, if you were making a moderately competitive product, you could sell the company, hopefully get a reasonably good position in, in, in the, in the company and sort of continue to grow with it. And, uh, at the same time, not have to fight the fight forever. Now, not every entrepreneur faces that situation.
Not everybody's got like a giant incumbent that they have to deal with. So it's a, you know, it's case by case. The other thing would be, if you're going to sell your company, sell it to someplace where you're excited to go. Um, you know, thankfully, at the time, Cisco was growing by leaps and bounds. It was growing 200 percent year on year.
And if you get to join that and, and ride the wave, absolutely. A lot of times I think entrepreneurs just kind of think of it as. Oh, you know, I'm done. I'm just selling out. I'm going to go there, waste my time for two years and then go away again. And know, in truth, I think it's, if I were an entrepreneur, I would not necessarily try to maximize value of how much money am I getting from NA, but am I going to the right kind of company where I'll actually not waste two years of my life vesting, but I'll actually do something productive and meaningful.
And you've sort of seen that, you know, um, when Facebook bought, uh, Instagram, Kevin Systrom was there for a long time. He didn't just sort of say like, Oh, great. That was a billion dollars. Thank you very much. Goodbye. He became an integral part of the company. And I think he enjoyed his ride at Facebook just much before as afterwards.
And I think that that's a, he probably could have sold Instagram to somebody else for more money. But I think in the end, both financially and personally, that became a much more. Uh, uh, fruitful endeavor.
[01:09:20] Logan: Yeah. Is there something that companies do to, uh, or, or should do to set M& A up for success on the acquirer side that you've, you've kind of seen play out or that you would recommend?
[01:09:33] Mike: mean, we, you know, when I was at Cisco, just during the period that I managed that part of the organization, I think we bought 75 companies and as was the case as a VC, made every mistake in the book, like screwed all of them up. But some of them, it turned out to be meaningful.
I think the most important thing that I've often talked about is that companies are not made to be bought and companies are not created to be acquirors. It's a very unnatural process. And when you do unnatural things as an organization or as a person, you tend to make a lot of mistakes when you do those.
And so if you, if acquisitions are going to be a core part of your strategy. Make sure that you have processes built around it, you hire people that know what they're doing around it, that you think of the end to end process of both evaluating, acquiring, integrating, and then measuring the success of that.
Accept the fact that you're going to make mistakes, just like for us VCs, you're going to make mistakes. But the good ones really work out, and the bad ones Uh, so understand that you can't just buy one and hope it's going to work, but you have to build business processes around it. And in the end, in all candor, I think, you know, Cisco probably won't necessarily say this in their public media, but my guess is their success rate on acquisitions was probably comparable to what we would expect as a success rate as VCs.
They're sort of doing VC at a slightly larger scale, but imagine being a VC and only doing one deal a year or one deal every two years. Would you get good at it? Not really, you just got to do it more. And most companies that acquire don't think of it that way. They're just like, Oh, we found this very strategic thing.
We're doing a one off. Well, chances are, you're probably not going to get good at it doing
[01:11:18] Logan: Uh, you were a CEO for two years, um, was there anything, I'm sure there's things you wish you did differently, but did you, in retrospect, wish you had gone and been a CEO or founder earlier in the journey? Or was that the right time for you to try it out?
[01:11:37] Mike: Uh, okay. So I should have done it sooner. Um, it was hard for me to leave Cisco because it was home. You know, I'd grown up as a person in that process. I, uh, you know, I still, some of the people that I worked with there, you know, Jay Shreelal, Tony Bates, Charlie Giancarlo, these are people that are still my close, close friends.
You know, it. I became a person during that period of time. So it was very hard for me to go like, okay, I'm out of here.
[01:12:11] Logan: Probably means
[01:12:11] Mike: Probably means I overstayed my welcome there. And also I think in the latter years from, from about 2001 until 2007, when I left, the company was relatively static at 50, 60, 000 employees.
So. You don't even notice, but your mindset becomes big company. Like you start to think big company. And the values of like what makes a big company good and a small company good are, are very, very different.
[01:12:38] Logan: right?
[01:12:39] Mike: Um, and so I think when I became a CEO, the first mistake is that my mindset, you know, and things like velocity of decision making was very big company. And I didn't appreciate how much I needed to unwind the last five, six years of experience that I had had. To be a better leader of a small company. You know, it's in big companies, there's a heavier cost when you change your mind on things. If I say like, okay, I had like five, 6, 000 people working for me at Cisco.
And I was like, okay, well, we're going to take like 500 of them and have them go do this. You just like, you know, blew up 500 people's lives in a startup. It's like, you know, we're gonna take three of you guys and you go do that. And it's like, tomorrow morning we wake up and it's like, oh, that was a bad decision.
Let's come back and do this. And that's like, no foul, no harm. It's, it's a total two way door in decision making. Whereas big company decision making is more of a one way door. It's not, it is reversible, but, but it's pretty painful. And so you become cautious, right? You do what I call, you play a little more defense than you play offense.
And I think I stepped into the CEO role with too much defense in my mind and not enough offense in my mind. So that was probably a, a big, and I think had I done it earlier when Cisco was still in its growth mode. I think my mindset would have been in a little different phase that was more aligned with what you needed to do in a small entrepreneurial company.
[01:14:06] Logan: Did that experience benefit you more as a board member, investor, or neither?
[01:14:10] Mike: The, my startup at Juiced? Uh, probably the best two years of learning I've ever had in my life, honestly. Um,
[01:14:19] Logan: it,
[01:14:20] Mike: You know, more than my time at Cisco, I felt personal ownership of the decisions that were made and the, the weight of them.
Um, you know, things had gone so well for me, both personally and for the company at Cisco that I felt a little bit invincible maybe, and I got my ass kicked. Uh, so that was good.
[01:14:42] Mike: Um, recognizing what one's good at, what, what, what bad at. I was, you know, I worked with Ruloff and Danny. Ruloff at Sequoia, Danny at Index were my board members.
Both were amazing, learned a lot from them and that the, the, uh, I admired and respected Danny so much that that actually led me to deciding to join him as a partner at that point.
[01:15:03] Mike: So yeah, I learned a lot about board members. I learned a lot about board members when the company is not executing at the way you, uh, you want it to.
Um, so yeah, great, really great learning years. I, you know, the company didn't really make much money. We, I think it was sold for. Uh, some return to capital to the founders, to the investors, but it wasn't great, but still for me, probably the two best years of learning.
[01:15:29] Logan: So, so 2009 ish, you leave, uh, and you mentioned Danny Reimer, uh, from index, was he based in Europe at the time?
[01:15:38] Mike: He was,
[01:15:38] Logan: So he was in Europe and then Roloff was at Sequoia. There was a period of time in which you were. EIR at Sequoia?
[01:15:44] Mike: Yeah, I spent time with Sequoia before I joined, uh, the startup though.
[01:15:47] Logan: Oh, before. Okay. Okay, so we're going back in time. So, so Index was a European founded and headquartered firm. What drew you, it sounds like Danny was a part, uh, important part of it, but what drew you to, Hey, I want to
[01:16:00] Mike: Well, I think the first big decision I was 42 at the time was, uh, should I be a venture capitalist or not? Because it wasn't that obvious. Um, uh, my wife said something really thoughtful at the time. So like, well, of all the professional years that you had, when did you have most fun?
And I was like, oh, in the early days of Cisco, when I was doing M& A investing, she's like, well, pro tip.
[01:16:23] Logan: good advice.
[01:16:24] Mike: Yeah. Listen to yourself. So, uh, I think that the first decision was to do venture capital. Um, and then. You know, Index provided a fascinating, you know, pseudo entrepreneurial opportunity, which is that it was a very well recognized and good firm in Europe.
It had a lot of resources, you know, raising money as a solo GP or a small GP was, uh, very hard to imagine at the time. And so having the backing of a very established firm in Europe to go launch, uh, uh, what became Index in the U. S. Was a very unique, it's sort of like I get all the capital in the world to go exercise an entrepreneurial activity to try to launch a firm, um, in the U.
S. And that was, uh, that was a very exciting opportunity. And on top of which it was going to be both Danny and I, we both moved to the U. S. to, or he moved to Silicon Valley to, to, to do this. And I was like, get to work with a great guy that I respect a lot. Got the backing of a firm that's very serious and committed to this, and I get to do something that's reasonably entrepreneurial, which is to build a firm, and, uh, the, sort of a trifecta.
[01:17:28] Logan: How does, uh.
[01:17:30] Logan: Index view the world from an investment perspective. Like, are there certain types of deals that you, you think about? These are index deals or the types of things we want to be in
[01:17:41] Mike: Yeah, I mean, I, I think it, uh, uh, the philosophy that I was talking about earlier, uh, is consistent within Index. We're, We are a very, uh, entrepreneur centric investor.
So we sort of have to fall in love with the entrepreneur to invest. We are less of a, uh, market segmentation investor, you know, so market segmentation investors are like, there's four sectors, four stages. We've got to have one in each one of these. That's not really us. Um, so as a result, our, our better success stories are almost always aligning ourselves with, uh, founders that have done amazing things.
We don't incubate, uh, we don't, uh, we don't have a EIR program per se. Um, it's really more about identifying these people, um, and investing in them. And we have a growth fund. Uh, the. purpose of the growth fund is to follow up on the ones that we missed last time,
[01:18:35] Logan: Yes.
[01:18:36] Mike: or double down on the ones that we like the most.
So, uh, but it's, it is unique in that sense also, because we don't, uh, a lot of firms that organize differently, but in our case, there's only one team, there's no growth team and venture team. And so it's the same group of people following the same great entrepreneurs and. Either investing the first amount of capital or, you know, catching up later
[01:18:56] Logan: Uh, because you referenced, uh, I heard you say you don't believe in incubation as a core strategy, or it's not a core strategy of yours that you guys pursue. Why is that the case? Well, um,
[01:19:12] Mike: I think in order for a great entrepreneur to build a business. It, it, it has to be their idea, right? It has to be, they came up with the concept and they have the skillset and the aspiration to build it into a business.
I, I, you know, incubation as defined often feels more like transplanting. So like I start something, it's my idea and I'm going to convince you that it's a great idea to become the CEO of this company. And I'm not saying that never works, but I think more organic growth. If you look at all the great companies that have been built, they've all built that way, right?
Amazon, Facebook, Apple, Google, you know, you're on down the list almost always. It's the people that started it, that had the vision, that carried it forward, it was their baby and all that. So I think, it's not to say that incubations won't succeed, but I don't view it as a scalable, viable strategy. And I think for venture capital, it's much better to try to find.
The great entrepreneur who's going to lead you and follow that.
[01:20:18] Logan: thread.
[01:20:20] Logan: How do you think about the role of a, uh, the individual? So, so Mike at, uh, the, the first part of the email address versus index. com, like, how do you think about the, the
[01:20:33] Mike: relationship
[01:20:34] Logan: between those two and the brand that an individual might carry versus the brand that the institution may, may carry?
[01:20:41] Mike: Well, in the venture business, it's an intricate and complex thing. Uh, what we've tried to do at Index over the last 15 years is to build the brand of the firm to give a platform for our younger investors to be successful. I mean, and we always tried to not make it about Mike or Danny or Jan or Neil or anybody else and really make it about Index and have a succession plan.
that aligns with that philosophy. So the idea is build the institution. The institution serves as a platform for individuals to excel. Um, you know, the world doesn't love that message. I'd say the world tends to like the superhero. Right? The superhero of the moment, the number one on the Midas list and so forth.
So you have to contort the world a little bit to make that happen. I think in that context, like Sequoia is a really good role model because they've gone through several generational changes. And I always find that, you know, we obviously in our business, we compete. Any person I compete with Sequoia is tough to compete with.
Why? Because they have a Sequoia brand. So in some sense, we admire and respect what they've done and we've attempted to do the same thing at Index.
[01:21:55] Logan: But inevitably,
[01:21:57] Mike: You do have to think about your personal brand and, and, and in some ways try to grow it in parallel, uh, with the firm brand, uh, because entrepreneurs know they, it's a reality that they think about the individual.
And I think. Not everybody thinks about how to build their individual brand and how to evolve it over time. But I think as a venture capitalist, it's important to do that. And you build your brand in a lot of different ways, right? Some people blog and some people tweet.
[01:22:23] Logan: Listen, you're talking to a guy with a podcast named after himself. So, uh, yeah, yeah. You're, you're preaching to the choir here. Yeah, no, it's an, it's an
[01:22:30] Mike: that brand building
[01:22:31] Logan: yeah, I don't know. I, we'll see if anyone listens to this, but, uh, no, it's an interesting thing because, um, the two do kind of feed on themselves.
It would be much better if you could swap out. Anyone's name before the at sign of the email address and have that carry the equal weight. But it, it, it, it's hard, it's hard to just get the, the brand itself to continue to rise absent the players that are on the
[01:22:57] Mike: Yeah. But you know what I'll tell you is that I think you have different responsibilities at a different stage in your career. You know, if you're 27 years old or 30 years old and you're trying to build your rep, forget the company. But like your job is to build your brand. My job, I have a reasonable brand in the industry.
It's not my job to enhance that anymore. It's to, it's to enhance the index brand and help all those people around me. Because let's not forget, I'm GP, but I'm also a significant LP in the, in, in index. And I, I want them to be very successful going after, you know, going to the future. So I think you change your responsibilities through your career.
Then once you have that platform, then you use it to elevate others.
[01:23:38] Logan: Hmm.
Interesting.
[01:23:39] Logan: Um, how do you approach your role as a, as a board member, and what is the impact you hoped you make OOO on on a board when you join it? First,
[01:23:49] Mike: First, I found it to be probably one of the funnest things as a venture capitalist is to do a good job as a board member. Uh, almost to my mind where like the investing part is a little bit incidental and then the real job starts, right?
Um, I think it's important to recognize a, the balance in the relationship that you have with the leaders of the company. In some models, you are subservient to them, right? They are amazing and I'm here to help. What can I do for you? Like, let me know if I can help. Uh, another modality is I know better than you and I'm going to tell you what you've got to do. I think both of those are failure modes as a board member. The, the board member relationship that I like is a. Peer and a friend relationship where if you're my CEO. And, uh, in front of everybody else, I'm always going to support you. I'm, I'm behind you, but it is also my job to put a mirror in front of you and say, Hey, Logan, this isn't working.
Like what, what you're, the words you're saying to me don't reflect the reality of the rest of the world. And, you know, this is sort of the optimist's pitfall. Every CEO has to be an optimist. Otherwise they're not going to do that job, especially in venture. And they often see the world a little bit through a rose colored lens, but it is my job as a board member to hold the mirror and say, this is what it actually looks like good and bad.
[01:25:22] Logan: Right?
[01:25:23] Mike: And, um, I'm not going to play games with you. It's going to be transparent. I'm going to tell you you're doing great when you're doing great. But when I'm telling you it's not working, it's not that that's not because I don't support you, but I want you to get better. And you're not going to get better if I don't give you that feedback.
So it is that. It's sort of like what a good friend should do to another good friend is sort of the way I think about the relationship and board membership is, is the board meetings are the least important thing about a board membership. It's, it's, it's about the phone calls and the meetings and the coffees and the text messages and the whatever else that happens in between that creates the foundation.
And if you get to a board meeting and you're surprised or you have to have a giant debate, well, you probably weren't doing your job right. How
[01:26:07] Logan: How do you establish that? Do you set up regular one on ones with the CEOs?
Is it just something that happens on an ad hoc basis that you're constantly thinking of them and communicating as things come up or how does that
[01:26:18] Mike: work? Uh, no, I do, I, I have regular meetings set up. I do, uh, a regular meeting every two weeks. And then obviously a lot of stuff in between. That's a little more ad hoc.
[01:26:29] Logan: um,
[01:26:30] Mike: In the beginning, you might even do it like once a week to just establish the relationship. I try to also, uh, not rely just on the calls.
Uh, or the zooms, but to see the, see them in person, uh, go to dinner with them, have a glass of wine. So well with Alex, that would have been illegal,
[01:26:47] Logan: Yeah.
[01:26:49] Mike: um, but you know,
[01:26:50] Logan: You got him a fake ID and that helped. Yeah.
[01:26:52] Mike: sort of, uh, create the foundation for transparency to occur.
[01:26:58] Logan: Any surprising experiences from investments that have changed your perspective on how companies should, should be run maybe from 2009 when you first got into this industry to, to today?
[01:27:13] Mike: I don't know that this was like a revelation, but it became more self evident to me in time is. Uh, just make sure that the main thing is the main thing, like at the end of the day, a business is about, uh, you know, making a great product and, and selling a lot of it or, or distributing a lot of it.
Um, there's a lot of other stuff that goes around that, but those are the two main things. And, and obviously, you know, having the capital to execute against that,
[01:27:43] Logan: But,
[01:27:43] Mike: you know, Simplify it down to the essentials, what matters and don't, you know, oftentimes I go to board meetings and people talk about all sorts of stuff.
And I try to sort of say, no, you know what, there's only two things. And I often do this, I do my pre read and on the board deck that they sent out, I'll, I'll write down, I'm like, there's two things that I'm going to talk about today. All I'm going to do is about, you tell a CEO 15 things, they won't remember one of them.
But if there's like, you know, today we're going to talk about churn rate and, uh, next generation product. Those are the only two things that, that matter. Everything else, people might have opinions. They might say good things or bad things, but I'm going to concentrate on just those two main things.
Because I want the CEO to walk away and we're going to meet again in three months as a board. And I've thought about like these two things.
[01:28:31] Logan: matter.
[01:28:32] Mike: And then to follow up, like two weeks later, he's down and say, Hey, last time we talked about churn, what do you, what do you think? What, what have you done differently in the last couple of weeks about to address that issue?
So, uh, rather than 30 small number, critical things that are fundamental to the business's success and the rest of the stuff, you know, who you're going to hire for VP of HR, whatever, it doesn't matter, like pick somebody and hire them. It's
[01:28:54] Logan: okay. Yeah. Interesting. Uh, you were on the board of Opsware for how long?
[01:29:00] Mike: I think it was like three, four years until they got bought by HP.
[01:29:04] Logan: HP. Uh, what did you learn from watching, I guess, Ben Horowitz operate and also being on the board with, with Mark Andreesen through that time? I
[01:29:13] Mike: time? I mean, first of all, it was the most amazing board.
[01:29:17] Logan: Who else was on the board with you?
[01:29:19] Mike: Mike
[01:29:20] Logan: Ovitz. Okay.
[01:29:20] Mike: the legendary Bill Campbell. Uh, Mike Homer, who was, uh, VP Marketing at Etscape.
He's also sadly passed. Uh, Andy Ratcliffe, Mark, Ben, me. Um, Gordy Davidson was the general counsel. Um, so,
[01:29:35] Logan: it's a lot of heavy
[01:29:36] Mike: yeah, yeah, well, let's just say I was careful what I said. I was very
[01:29:42] Logan: things you wrote down, you
[01:29:44] Mike: was like two things and maybe I'll say one. Um, But, um, I mean, probably the most amazing thing is how much Ben and Mark have matured and evolved over the last, you know, I think it's probably 20 plus years now that we're talking.
Um, Ben was a, you know, first time CEO. Uh, Mark was.
[01:30:05] Logan: Wunderkind. Um,
[01:30:08] Mike: they made a lot of interesting decisions. Uh, they were, it was a tough competition with the folks at Blade Logic that were also eventually acquired. Um, I was ultimately struck by their pragmatism. You know, they, they, they paint the picture of being visionary, but if you think about the story of, of, of Opsware, um.
You know, first of all, they sold off their hosting business to EDS.
[01:30:38] Logan: While public.
[01:30:39] Mike: yeah, so like a complete transformation of the business. And then ultimately when they got a decent offer from HP, it was like, boom, we're out of here. Why did they do that? Because it was tough going.
[01:30:52] Logan: right?
[01:30:53] Mike: And, uh, so, you know, while you have these, you know, visionary people, which arguably they were in fact super visionary because the concept of the company is what today is called AWS, right?
That's what, that's what the company was supposed to be. That concept didn't work. because of the timing. So they basically took the software that was the control system of AWS and turned that and made it into Opsware. But when it came down to the key decisions, they were like, Oh, you know, it's just black and white.
We're not, we're not going to be a very successful company. We can sell it. And smartly they got out. So interesting balance between sort of, you know, the concept we talked about earlier where they had a vision, but they were off on timing. And they pragmatically turned that and, you know, made lemons, lemonade out of lemons and sold it to HP.
[01:31:41] Logan: It's pretty wild, I, I, I don't know how many people appreciate this today, but just the fact that you had Opsware with those groups and then you had BladeLogic with David Cherry and Mark Cranny and John McMahon and all those guys, it's just such a accumulation of talent battling it out in a single industry going after one another.
It's pretty, uh, pretty wild that there was those many people in that together.
[01:32:02] Mike: Yeah, and you know, I think at the time there were just less startups and there was more concentration of talent. I mean, it's pretty extraordinary constant. And by the way that, you know, the Opsra team, you know, Eric Vishria was a member there.
Sharmila Mulligan was a member there. There's some pretty amazing folks on, on that team.
[01:32:19] Logan: Yeah.
[01:32:20] Logan: Um, you're on the board of Ferrari.
[01:32:22] Mike: Yes, I am.
[01:32:23] Logan: What have you learned from being a board member of, Ferrari's been around for how long? 150 years?
[01:32:30] Mike: No, I think it's like 75.
[01:32:32] Logan: a long time. Uh, what have you learned from being on that board that, uh, either perspective or attitude or something that you think Silicon Valley companies should, should port over?
[01:32:44] Mike: I don't, well, I mean, actually I'll answer the question slightly differently, which is I have observed something which that company and others do incredibly well.
I don't know if it ports to Silicon Valley, but it's an interesting concept. You know, Ferrari is a car company. They make 13, 14, 000 cars a year. They sell them at 70 percent gross margin, 65, 70 percent gross margin, which is absurd in the car business, like completely insane. They have a two year wait list if you want to buy a car.
Now, if you were to take the nuts and bolts of a Ferrari and say, like, let's put that up against a Lamborghini and an Aston Martin, I mean, yeah, the Ferrari is better, but it's maybe 10 percent better, 5 percent better, depending on how you measure it.
[01:33:26] Logan: But
[01:33:26] Mike: the, the distance in terms of like Ferrari is a 65 billion market cap company.
They sell about the same number of vehicles as their competitors, but way more valuable and way more desirable. Like what's going on, right? Like actual technical differentiation, very modest, better, but modest. Value to the consumer, gigantic.
[01:33:46] Logan: right?
[01:33:47] Mike: And what they've been able to construct over the last 50, 60 years.
is the brand. They have an extraordinary brand.
[01:33:55] Logan: right?
[01:33:57] Mike: People want to associate with it because owning one or being associated with one defines who you are. It's this hugely desirable, uh, huge, hugely wanted thing to have be associated with that brand. It means things. Culturally and societally and so forth. And you see that in other sectors as well.
Hermes is another very, very good example of it. That concept of brand building, obviously for those brands took tens of years. And sometimes I wonder, like, is there a way to translate that concept of brand into the world that we live in? Right. Loosely speaking, big companies generally do, because I usually, when I use a Google product, even if it sucks, I go, well, it's, you know, it's Google, it's, you know, it's okay.
Uh, Apple sort of has established that. But I sometimes wonder, like, is there a way of sort of turbocharging brand or finding a way where, uh, you, you, you know, tech, capable tech companies can reconstruct that somehow,
[01:34:55] Logan: Um,
[01:34:56] Mike: of creating sort of that desirability, you know, we've tried at Sonos, yes and no, I'd say people kind of go like, it's a good technical product, but you know, is it aspirational, probably got some work to do there, but I think that's probably the concept that I've taken away the, the most, um, about that company.
Yeah. I also have, you know, this is sort of learning that I've done as a board member. They are extraordinary developing their internal talent pool, like, because in Italy, if you're a smart kid, that's the company you want to go work for, right? There is no better company to work for than that one. But so they get this extraordinary talent pool.
Like I, I get a chance, I love doing this, but I was like, can I have a lunch with your top 20 engineers? These brilliant kids, like, you know, out of the best universities in Italy or whatever. Uh, best grades, super smart, mathematics majors, this, that, whatever. And they groomed them and largely the company, the CEO was hired from the outside, but largely the company's all people that they've developed over time. And um, you know, in a world where a lot of what we say is like, Oh, you got to hire, hire, hire, hire, their ability to kind of develop that talent is, is quite unique and
[01:36:03] Logan: interesting. Is there a, a Is there an example or something you can speak to of them being very purposeful in their brand, like a manifestation of it that might not be obvious just from the outside?
Like, are they purposely limiting the 13, 000 cars a year just to make sure it maintains that exclusivity or is there anything that's just particularly
[01:36:26] Mike: particularly There's a lot of things that I would call like brand management. Which, which they, uh, they do quite well. It's like, you can't use our logo here. You can't use our logo there.
This person shouldn't be seen. Like if they, if they, if they have some, you know, gangster that's got their photo with a Ferrari on Instagram, they ask him to take it down. Like they do a lot of policing stuff. But I, I think, uh, the, the, the sort of the more interesting pit bit is the idea of scarcity, which you brought up.
Um, they. Administer scarcity and, uh, any salesperson that's hopefully listening to this podcast will resonate with this, but selling is a process of introducing scarcity in however way you can to the buyer, the buyer will pay more, will desire more an object, which is scarce.
[01:37:14] Logan: Scarcity
[01:37:15] Mike: be introduced in a lot of different ways.
It could be limiting the number of cars. It could be limiting your time. It could be limiting the amount of emotion that you convey. to another person, right? Because when, when you and I are negotiating, what you actually kind of want is my positive emotion towards you. And if I restrict that, I create scarcity, which you actually desire more.
[01:37:39] Logan: So
[01:37:40] Mike: the, the idea of administering scarcity in whatever unit your accounting, whether it's cars, it's emotion, it's time, uh, it's availability of something, that ability to administer it is the thing that creates, uh, that, that brand value ultimately. And even as an executive or as a venture capitalist, you know, a mistake a lot of people make is to be too present, right?
To be too available. You actually want to restrict that a little bit because what you want is that trade off that you want something I have, and I'm only going to give you a little bit of it.
[01:38:16] Logan: I'm sure you get asked by young people in their careers, uh, can I pick your brain or any career advice you have, any lesson or insight that you would impart to people that are early in their careers, either things you did right, things you wish you had done, just, just general advice to people that are trying to climb the ladder or trying to, to be the next Mike Fulpe.
[01:38:43] Mike: Well, I don't know. I don't wish that upon
[01:38:44] Logan: Yeah, I don't know. I
[01:38:46] Mike: Um, uh, I would say, uh, In a, in a number of dimensions, I would, uh, delineate first of all, the different functions that exist in our industry, because this podcast is going to be mostly tech people. So I'd say, first of all, in tech, figure out whether you want to be an investor or whether you're going to be an operator.
You can always change your mind later, but stick with that to start with and try to get good at it. Like, don't just give it like, Oh, I'm going to be an operator for two years and then I may be a VC. Well, you're not going to be a very good operator if you do it for two years, right? So like, you know, dedicate energy and time to being good at it.
There isn't one thing that's better than the other,
[01:39:23] Logan: but
[01:39:24] Mike: way you got to love it and not just think that you're checking a box. So pursue it and it's totally fine to be a VC from the get go. Just pursue it with passion because you love it. Rather than like, uh, I'm going to do it for a while so I can find a job, you know, to stop thinking about something as a interim step, distasteful, but must be done in order for me to do the next thing.
[01:39:45] Logan: thing. It's impossible to commit to doing that. Like as a weighing station to get to the next row. I couldn't do it. Some people are maybe able to do it.
[01:39:52] Mike: A lot of people are, but it's not successful. It's not fruitful in the end. Yeah, it's, it's a, uh, it's a hard thing to do. Um, So, that, that would be probably the most important thing.
The, the other thing is just be cognizant of what you're good at and what you're bad at. And I actually think best path to success is to put yourself in a position where your best strengths allowed, are most expressed. And your weaknesses are mitigated by other factors. Every one of us has strengths and weaknesses of what we do well, what we do poorly.
You know, if you run fast, run for a living, if you're good at math, take a job where math is good. You know, so just like, and, but you have to be very cold with yourself and say, what am I good at? And what am I actually not good at? And then position yourself to do the thing that allows you to express your, your greatest strengths. And, um, there's so many ways to succeed in life and then success oftentimes here, we measure it by money. Um, but I don't, you know, there's a lot of other ways where you can achieve success that generates happiness and so forth. But it's usually for people to align what you're doing with what you're good at, um, and being thoughtful about knowing what you're good at and what you're bad at.
I think that's probably the thing that I would try to impart the most on a younger person that's trying to be successful in business.
[01:41:29] Logan: business.
[01:41:30] Logan: So one thing we didn't talk about, uh, Uh, is state of the industry today.
Uh, I don't know if you have any thoughts on, on that, but, uh, there's a lot of capital out there right now. Uh, which I feel like has been a refrain always, but in particular, it feels like there's a lot of capital out there right now. Do you have any, uh, any opinions on how this stuff's going to play out?
You live through the, the 99, 2000, 2001 cycle. Uh, any thoughts on where we are right now?
[01:41:58] Mike: I'll tell you what I think I tell our younger folks at Index, right? Which is. Now is a really tricky time to be a VC. It's really hard. Um, the first is that we went through this period, 10 very, very plus, very positive years, could invest in a lot of different sectors, right?
You could like consumer, fintech, do crypto, you could do AI, you could do data infrastructure, you could do SAS, like lots of successful areas. So people could like move around and try different things and find areas where they had passion and were well adapted. Today, one sector is hot. Just one. So kind of a pain in the ass because like, you know, everybody's doing the same thing. Second is you've got a portfolio that's sick. Like everybody's portfolio is struggling right now. It's just a tough time for companies, right? So you're getting no positive reinforcement from your portfolio. You know, you just spent six years of your life in, you know, figuring out FinTech and there's nothing in FinTech to do.
So now you've got to pivot over to AI and then the AI's bubble. So the valuations are crazy and your older partners are telling you like, are you nuts? Why would we pay 500 million for a thing with 1 million in revenue? That's that's sort of like what you're faced with today. And and so I think it's really hard.
Uh, Oh, and I think there's one more factor, which is by and large, as a venture capitalist, you progress in your invest in your career by investing. That's what you would do. And so if you don't invest much, which in truth, people's investments outside of like some very big dollars in AI, it's slow, actually still pretty slow.
So people are worried about career progression and, you know, uh, it's the state of the industry in the transition that we're going through. We're still kind of hung over from the euphoria period where things were better than they normally were. And now things are actually worse than they normally are.
And you sort of have to just kind of as an individual investor, try to power through it and saying like, you know what, I know this is hard, I'm just gonna, I'm gonna put my head down, keep looking at stuff, keep saying no when it doesn't make sense, trying a few things where they do make sense, but just try to keep doing my job every day, just keep doing it and ignore the like, Are things moving?
Has this person like pivoted over this? And you know, you know, have I met the latest AI thing? You know, just do your thing. And then eventually the fog will clear and we'll get back to a reasonable state of being, you know, interest rates will help. I think when things go down in the two, 3 percent range, you know, companies will be valued more and then people will get excited again and capital flow in the right direction and so on and so forth.
The, the other thing that I would say is. I think there's two skills that are very relevant to a venture capitalist. One is, uh, velocity, like move fast. Very important. The other one is good judgment. Like you, and you sort of balance the two, right? Sometimes there's periods of time where velocity matters more than judgment.
Like being fast is what matters more than being capable of assessing a situation. I think what we're entering now is a phase where Judgment is more important than velocity. And the challenge with young venture capitalists, maybe you feel that way too, is that you've been trained on speed for 10 years.
It was like, go find the entrepreneur, get in there first. You know, first term sheet, boom, boom, boom, fast, fast, fast, right? And now you don't get rewarded for fast. You get rewarded for wise. And I think it's a period of time where as an investor, you have to switch your mindset to like, what's the play that makes that is advantageous in this time?
And how do I get good at that play, right? And I, I think that that's what the state of the industry resembles. I think in the end game, there's a lot of interesting strategies that are being played out. And firms will diverge in their strategy. You've sort of got the everything funds managing 15 billion plus dollars.
You've got Middle Eastern money showing up and so forth.
[01:45:45] Logan: People are buying hospitals.
[01:45:47] Mike: Yeah. But the. The craft of what we talked about earlier, of the relationship with the founder, of the ability to develop stuff early on and seeing the development of people, that's not changed. That's still there. And so, if that's the game you want to play, which is more what I would characterize as a classical venture game, there is absolutely room and space.
You just have to be patient
[01:46:08] Logan: it
[01:46:08] Mike: it because it's a complicated time.
[01:46:10] Logan: Cool. Mike, thank you for doing this. This is
[01:46:13] Mike: it.