Ben Narasin (What makes a smart venture investor and how to find one?)

Download full episode here

• 00:01:45 The genesis of Ben's career as an entrepreneur and venture investor
• 00:18:57 Are valuations too high for seed stage Venture Capital rounds right now?
• 00:28:40 What are Ben's best investments right now and what investments is Ben looking for?
• 00:34:53 Is there a better way for entrepreneurs to match with a VC? What should they look for?
• 00:44:59 How ben honed his skill at instant 'lie detection'?
• 01:04:28 Can science fiction be an investment guide? What are Ben's favorite science fiction books?
• 01:14:22 Will AI be a huge investment theme? Or is just a hype?
• 01:27:22 Will we go to Mars? Is it a good idea?
• 01:40:12 Is our inbuilt pioneering spirit rational? Will it pay off?

You may watch this episode on Youtube - #73 Ben Narasin (What makes a smart venture investor and how to find one).

Ben Narasin is a Venture Partner at NEA and early-stage investor and former entrepreneur. Ben loves hearing your investment video pitch for his upcoming seed fund at Pitch Ben.

Welcome to the Judgment Call Podcast, a podcast where I bring together some of the most curious minds on the planet. Risk takers, adventurers, travelers, investors, entrepreneurs and simply mindbogglers. To find all episodes of this show, simply go to Spotify, iTunes or YouTube or go to our website judgmentcallpodcast.com. If you like this show, please consider leaving a review on iTunes or subscribe to us on YouTube. This episode of the Judgment Call Podcast is sponsored by Mighty Travels Premium. Full disclosure, this is my business. We do at Mighty Travels Premium is to find the airfare deals that you really want. Thousands of subscribers have saved up to 95% in the airfare. Those include $150 round trip tickets to Hawaii for many cities in the US or $600 life let tickets in business class from the US to Asia or $100 business class life let tickets from Africa round trip all the way to Asia. In case you didn't know, about half the world is open for business again and accepts travelers. Most of those countries are in South America, Africa and Eastern Europe. To try out Mighty Travels Premium, go to mightytravels.com slash MTP or if that's too many letters for you, simply go to MTP, the number four and the letter U dot com to sign up for your 30 day free trial. I think of it quite bluntly as my paying it forward. Like people help me when I was an entrepreneur and I want to help other entrepreneurs and the vast majority of those entrepreneurs, I'm not going to be able to help through providing capital to. So if something I help them think about changes their trajectory or makes them helps them make a better decision, great. And the only way you get doing that, the only way you get to really adding value is through candor. Smoke and bullshit doesn't help. I'm telling people, I'm just hollowness. So I try to always speak from my own experience and it would be very surprising to me if you asked me something I wasn't willing to answer. If you did, I'd say I'm not going to answer that. But that's that man. That old question. I want to welcome you to the Judge McCall podcast formally. Thanks for doing this. Thanks for coming out. I really appreciate it. Oh, excited. Seems like a fun one. Yeah, I hope we can make it fun today as well. So you went and that's really interesting. You studied entrepreneurship, very few people actually do study it. They kind of create an accidental Korean entrepreneurship later on. So you're not an accidental or you were not an accidental entrepreneur. And you did this for quite some time and then ventured over to the dark side. You became a venture capitalist. Maybe you can illuminate your career a little bit for us. Sure. You know, I was an entrepreneur. I started out as an entrepreneur at the age of 12. So it's interesting. You always learn what your parents went through as a parent and I've learned my kids don't want to listen to me about what their future should hold until later. Well, my dad was always very supportive of my entrepreneurial career. He loaned me $50 to buy a dealers table at a Comic Con and I brought home $1,500 in a paper lunch bag because I hadn't thought ahead to how I would store the money. And he became very supportive and he went to a continuing education program at Babson and he came back and said, I found the perfect school for you. But of course, being a teenage boy, I was like, you don't know what you're talking about. You're a dumb old adult. But eventually I realized he was right and I went there. And so yes, I did study entrepreneurship, but I was already an entrepreneur for probably close to a decade at that point. And since it's all I loved and all I wanted to do, it made sense for me to pursue that from an educational standpoint because one of the great things about Babson is it gives you credit for running a business, building a business plan. So I looked at it as I can do what I'm already doing and get college credit for it and learn more. Now, it was interesting to me when I see a lot of my colleagues in school where they sort of said, hey, I wanted to come here to learn to be an entrepreneur because I always felt like, well, can you learn? Aren't you sort of born that way? We all have proclivities and areas that we're going to thrive in. For me, entrepreneurship was all I ever cared about. I've never interested in any sports or anything like that. It was just business, business, business. Anyway, so entrepreneur for 25 years started my first business as I said when I was 12 ran businesses all through high school and college. And then when I left, when I finished college, when I graduated, I started a menswear company making shirts like this. And that did very well. That is what I later learned would be called a lifestyle business, high quality cash flow, good margins, but it was never going to change the world. And then in 93, I'd been a long term computer user. My dad worked at IBM. I got one of the first laptops ever made. It was huge and heavy and metal. I used to go with my dad into his office and play games on mainframes. And then the web came along. So I'd been an internet user pre web, but when the web came along, I thought, wow, this is going to change the world. And I want my part of it. So I launched a business. I sort of gave up my profitable lifestyle business, took everything I had from that business and plowed it into a web business. It was one of the first ecommerce companies in the world. And very quickly became a portal. I've been told we're embedding cost per click in 94. I don't know if that's true. And that business, I bootstrapped for the most part for about, well, I started in the end of 93 and I took it public in 99. So that was that period of time. Now, I never raised venture capital. So when the world blew up and the bubble burst, I was still in control. And I was able to take that company private. And that was a great outcome for everybody involved at the time. So I'm proud of where we ended up there. We were one of the very rare, I mean, there was a tiny number of those companies that turned into huge businesses, you know, the eBay's and the Amazon's and those are great, right? And then there was a massive amount. If you think about it, iceberg, right at the tippy tip tip for the Amazon's and eBay's under the water, all the companies just disappeared and turned to zero. And then in the in between the tip and the water line are these tiny little sliver of companies like ours were able to do well by our investors. So now fast forward, that was in New York, I moved west, spent a couple of years in Incline Village, which is a phenomenal place, really enjoyed it. But the schools weren't what we wanted for our kids. So we were looking around for schools and we settled on the Bay Area. When I got here, San Francisco area, I really became enamored of the culture of entrepreneurship that was here. It's just, you know, it runs through everything. And at the time, there was this big, I noticed this very large gap between angel investing and venture investing. So I started an institutional seed fund in around 2007, one of the very first, and I seeded companies, you know, smart people with great ideas or relatively low cost of getting started. And, you know, as we used to say a million dollars was the new cost of failure, the new cost of proof, you know, it was enough to prove or disprove your thesis. And if you did prove your thesis, you go on and raise a series A. So over the course of about eight years, I funded about 80 companies, more than half of them raised series A's from tier one firms. I was often the source of introductions to various series A investors. I got to know like 325 VCs at the 15 top firms. I was running this practice, this equity practice inside of a venture debt shop. And they wanted those relationships. I wanted those relationships. So I would, you know, when I thought about when I came to Silicon Valley from East Coast, I didn't understand venture capital. A lot of the valuations seem wacky. The whole model of here's two guys at a PowerPoint and they get millions of dollars. I just didn't get that. So it took a while to learn it, right? I didn't come in drinking the Kool Aid. But what I realized is if I'm going to help my entrepreneurs, I need to understand the game. I need to understand what these people are looking for, what they want to fund, how they're willing to, I need to understand the details. Because like I remember the very first round I helped on like all these questions coming up and I didn't know the answers. So I really spent time interviewing all these VCs trying to understand their business so that I could help my entrepreneurs. So that when they were making decisions on their series A raise, it could be useful. Also, you know, I mentioned I took my company public. Well, I had a board of four people. Me, one guy trusted and two people that we just didn't get along. And, you know, that left some really material scars. And so I've always had an obsession with trying to help my entrepreneurs in any way I can to make the right choice on who their investor is. Because when you've got a board member, it's a long, long relationship. And it's a very important one. And I think sometimes entrepreneurs don't spend enough time on that. And I try to be encouraging and helping them understand how important it is. But I also wanted to know who the players were so I could potentially give them feedback in helping make choices on who they should have as an investor when they were fortunate enough to have multiple choices. Obviously, it's a rare group that gets there. But I was fortunate to have, you know, half my entrepreneurs get there. So that was very important to me. That's really fascinating. Yeah, you, you, you maintain something called pitch Ben. I don't know how old it is. But it seems like it's something that is extra curricular to where you work now at the venture fund. So I launched, originally, it was pitch Ben.com and somehow the name expired and somebody pirated it from me, or just reregistered it. They didn't do anything illegitimate. So it's pitch www.pitch.ben.com. And I set this up because I've always been concerned with, you know, whenever I speak publicly, people ask about, particularly internationally, people ask two things. One, they'll say, how do we get in front of venture capitalists? And usually the answer is, you know, try to find a reference in try to find somebody that knows them. And then at the end, they'll say, how do we get in touch with you? And I thought, well, I need to find a way to make sure anybody getting work can pitch me. And so I launched pitch Ben. It basically is set up to allow any entrepreneur anywhere in the world, pitch, Ben.com, to make a one minute video pitch to me. And I promise a one minute feedback response. Now, sometimes that response is, this is interesting. I'd like to learn more. Usually it is, here's some tips on pitching. You know, as an example, here's a pitch tip for anybody that wants to go to pitch dash Ben.com. It's important to be the 80% the 80% you would get. I would, I would assume you get, and that's what I get on LinkedIn, you get a lot of outsourcing software development businesses in India, Bulgaria that send you videos. No, I get legitimate founders that have new ideas. I don't get service providers and I don't get, you know, I don't get sort of the, the support businesses that you're referring to. But I do get an amazing array, which is what I wanted of people, you know, I got two for the norm, relatively old, call it like late 40s, early 50s, year old women from another country with a new business they were starting. I get people of every possible background, which is my whole point. Like, you know, I am now, Scott Sindel and Forrest Baskett, the head of NEA and one of the senior partners that recruited me in, have come to me and asked me, this is breaking news for you actually, because it's just become formal two nights ago, have asked me to raise a freestanding seed fund. It'll be an independent fund. I will be the GP. NEA will anchor it and will make lots of introductions. Well, my working title for that seed fund is purple octopus. Because when people talk about diversity and entrepreneurship, you know, I've always said, you know, it does not matter to me what you look like, where you came from, where you went to school, what I care about is smart, driven, talented with a great idea. Right. And I hope one day I'll fund a purple centian octopus from Venus to prove to the world that it doesn't matter what you look like. And this is the purpose of pitch.spend.com. Anybody can have that access. Now, I will tell you, look, I see well over a thousand pitches a year. And as a seed investor, I would fund seven to 10 a year as a venture investor, it's like zero to one. So the conversion ratio is always low. But if I can be helpful on, you know, like maybe helping them develop the pitch or think about something they missed out on or, or just give them my honest point of view from inside my head, what most people are not willing to do I have learned is tell you what they're thinking inside. They think X and then they sugarcoat it and deliver Y. My attitude is, I'm going to tell you X. It's what I think. It doesn't mean I'm right, but you will know what I am thinking. And that should help you form because it's not like I'm thinking things dramatically different from anybody else. The thing I always make fun of is, you know, like if you tell me you're doing a GPS located dog collar, hey, cool, I have we fostered 50 puppies in the last 18 months. I wouldn't mind having that, but I don't think it's a venture scale business because I don't think it gets big enough. I even created a, you know, like there's Moore's law. I've created what I think of as the Ben law very egotistically. Just try to help us understand whether they should be pitching venture capital. It works like this. Think about what your exit could be in your wildest dreams. You know, the goal that you have, you know, you spend all this time and energy and you get to what multiply that by 20%. If that 20% isn't at least half of the venture firm you're pitching, you shouldn't be pitching them because if your goal is to drive really hard and get to a hundred million dollar exit, well, 20% of that, the average ownership of a venture firm is $20 million. If it's a billion dollar fund, look, they're not going to say it this way, but nobody's going to care. So why end up with an investor that's got goals countered to yours? And things like that are often the case, you know, people pitch venture for every type of business, but venture isn't the right source of capital for every type of business. So when you look at the seats stage right now, most people will say there's a huge bubble right now. We already had a bubble coming up over the last couple of years. Now we have more accelerators that are joining in. We have all the crowdfunding coming in. So everyone seems to be ready to go in at the early stage. And I'm curious about your fundraising targets for your new fund. And it seems to be a relatively small and limited amount of investments but very high valuations. And then nobody wants to invest in the mid stage. And then obviously everyone is very happy about the IPOs and aspect deals if they can get that one. Do you think that's true? And are you worried about the competition with the new fund? Oh, I'm always worried. I mean, there are so many people out there raising soul GP funds. There are so many seed funds. But I mean, the thing I feel good about is I've got about a 13 year track record and I would argue it's quite good. So I'm not out there pitching some vague idea. You know, like when I say to entrepreneurs, specifics are your friend, generalities are your enemy. Well, I'm my first page of my deck is going to be my return so far, right? To your GP fund and a 5x fund, you decide whether that interests you, right? And if you don't, well, wow, I mean, I was just talking to a buddy of mine that told me that a 3x fund according to Cambridge is top 5%. All of my funds are over that right now. All of my personal investment funds. So what is an IRR to 3x in 10, probably 10 years? What IRR is that? You know, it's funny. It's a really good question because I don't compute IRR. And the reason for that is as follows. When I first started investing, I decided that I would be willing to put a certain percentage of my net worth at risk. Because my belief then and now is that the opportunity to venture always represents the opportunity to also lose all your money. And so I said, how much of my net worth am I willing to lose? And that's what I took and I put it aside. And I would only invest that money and then I would recycle it, but I wouldn't put new money in the box. And because of that, I was far more obsessed with them in multiples than I was with my IRR because net, net, if I put a dollar in a box, I'm more interested in getting $10 out or $11 out or $12 out than six, then I am in getting $1.82 a year or whatever. So I'm sure the IRRs are great because you can't have 14X. So the 14X was my first vintage, which would have been 2008, 2009 and 10. So yeah, 10 years to 14X, I don't know, whatever that works out to on the IRR basis. But It sounds pretty high. I mean, 10 years, 14X is enormous. Say again? 10 years and 14X is enormous. That's a wonderful return. Yeah, I'm happy. I mean, one of the reasons I love doing it, you know, I love doing it for working with the entrepreneurs, but it's not a charitable effort. You know, I'm doing it because it will increase my net worth and make money. But I only make money when I get to fund phenomenal entrepreneurs building awesome businesses that ultimately get to liquidity. Now the world you asked about sort of where the seed valuations are in the mid stage. I'll give you an example of something interesting. So, you know, having been doing this now for whatever 13, 14 years, I've had some, I've had a lot of interesting learnings. And one, I was involved in a company where I was in their very first institutional round. It was, they raised almost a billion dollars in total. The last round was a unicorn round, you know, a big number. And I had the opportunity to sell into that round and I chose not to. I never sold into rounds historically. And then they got bought for a little bit less than that round, but still, you know, billion dollars number. And I looked at my returns. I was one of the first investors in, you know, tens of millions of valuation, maybe $20 million valuation, they exited for close to 50, I'm sorry, for close to a billion. So, you know, the naive person would say, oh, you put in at 20 and they exited it a billion, it must be a 50X. I made 12X on my first investment in that company. And on a blended basis, because I reupt, I made 6X. Now, I have another company where the entrepreneur came to me during the round and asked if I would please sell. Now, I had certain question marks about where things were going and their trajectory had changed and they pivoted a little bit. And I said, all right, if it's important to you, I'm comfortable with that. I made the same return, multiple wise, but it only took a year. So, it's your question of IRR. My IRR, when I sell for, call it 6X in a year, is a lot better than when I sell for 6X in 12 years. So, I've become a little more open minded to the fact that there are more forms of liquidity out there right now and sometimes you can take advantage of it. Because I'm raising a new fund and I want to have a material GP commit, I just accepted an external offer to sell shares in a company that I'm still a believer in for 40X, what I paid for a year and a half ago. I mean, some of the valuations right now are just getting enormous. Now, I would say that since the beginning of time, people have complained about valuations being too high. When I started out in seed, I remember VC complaining to me about, oh, these seed investors, man, your price in this out of the game, I had to pay $8 million pre for a series A. Like today, that would be a dream. It just seems to go in one direction. Now, part of that is because technology is taking over everything that legacy organizations used to do and the total market is getting bigger. When I was taking my company public, the top 10 companies in the world were major industrial companies. I was sitting at breakfast with a guy that was the CEO of AIG until the day before I sat down with him. He reminded me that during my era, when I took my company public in 1999, when he was running AIG, he was one of the top five most valuable companies in the world, along with Exxon. Well, now, if you look at the top five most valuable companies in the world, they're all tech companies. The outcomes are getting bigger. You got to go backwards, begin with the end in mind. If the possibility is a future trillion dollar company, well, that's where all this stuff feeds. You have lots of new sources of capital and they're willing to chase smaller returns on an absolute basis. It's a wild time, but we've had this debate forever. The opportunities are great. The thing I love about seed is while it is more expensive than it used to be, since all the other rounds are so much more expensive too, it's fine. Remember, I just said 18 months ago, by the way, that company that I'm making 40X on, I paid the highest most nosebleed price I think I've ever paid for a seed deal. And yet, I'm 40X to the better right now. Something has really changed. I remember going IPO for like 5 billion, market cap, that was already pretty decent. It wasn't like the big deal of the year, but it was decent. You were not going home crying. Now you actually, a lot of companies going IPO, maybe throw an aspect deal for 10 billion minimum, but very often 50 billion. And we saw, I think it was Airbnb, 100 billion Coinbase hit the same land park. Those are, you know, by 10, maybe 20X different than the IPOs only 10 years ago. So that's this massive change, right? That obviously we should see the same reflected in seed rounds. Yeah, well, it all trickles down. Because if you think about venture, and when I say venture, the way I do seed, I think of as institutional venture capital. Not everybody does it that way. But, you know, if you want to understand venture, you have to look to the public markets. Because when people are trying to figure out, they're thinking about like, we pay forward, whether I'm doing a seed deal or an A or a B, I am paying forward for the fair market value of that company at that moment in time. But I have to think about what it can be worth over time and what the exit will look like in my returns will be like because of that. So I overpaid today. I mean, overpaid, you know, it's like, this is a new analogy. I'm going to test it out. I haven't thought it through yet. But imagine you're buying a plant, you know, an oak tree. Well, if you have to pay double the going rate for the seed or the sapling, but you know that you've got a real shot at that oak tree growing all the way up into the sky, jacking the beanstalk style and getting you to the Giants Castle, you know, it doesn't matter. Now, I do think VCs often use that as an excuse. You know, it's like, Hey, if it's Facebook, it doesn't matter what we pay today. So generally, I am concerned with being logical about valuations, but I'm not sure it's, I actually think being too logical about valuations has hurt me, you know, where I don't know if you really can be logical with these valuations. And it's not like it's like a public market where this maybe gets a little dev a PE ratio. There's certain historical factors you can attach yourself to. I don't know if there is really something to be logical about, which I find really odd. How much do you think is this driven by FOMO? Are VCs crazy about FOMO right now? It's just emotional decision because we see all these excerpts right now. What's happening that's really being exaggerated in a FOMO way is that you're losing the time to do the work. But this has also been true for a long time. Because there's so many new sources of capital, rounds are happening at ridiculously crazy rates. Two things are happening. One, things are just going so fast that you have to make a decision quick. And secondly, you know, some entrepreneurs are just getting preempted. You know, if you want to get into the very best things, you probably can't wait around for the entrepreneur to go out and raise. You have to just go in almost blind. I have a company I know where I was interested in talking about doing another round. I'd already invested them once and, you know, they were sort of hewing and hawing and they didn't want to do something. But then somebody preempted them and just dropped a term sheet on them. Now, the smart people will find other ways outside of a direct conversation with the company to do their research. They'll talk to customers, you know, they'll dig into the product. But man, I have a company I seeded, a second time founder. I funded them once before and I funded them again and he's a great source of deal flow as well. And he just told me, hey, we got preempted and they're pre revenue. So VCs are going out just just so that we get the terms right. So VCs are going out and unsolicited, basically send you a message on LinkedIn and say, here's a term sheet. Do you agree with that? Do you want to want to raise? Well, I don't think that way. I think they are at least getting your email address. And let's face it, smart entrepreneurs are always trying to maintain relationships with VCs. That just doesn't mean they're so like, here's what will often happen, you know, you'll have a person in your firm that's working on it. It's really intrigued by company acts. Like I get this outreach all the time, you know, because I was so prolific as a seed investor and I have a very broad network, I'll get a note, hey, I saw that you're connected to so and so, what's your relationship is? Oh, I funded his or her last company or, oh, I, you know, I saw their seed pitch or whatever. It's okay, well, we're really interested in learning more. Can you connect us? Well, sure, I'm always happy to connect people. But sometimes when I reach out to the entrepreneur for the double opt in, they're like, yeah, we're not taking meetings. We're too busy. Now, I have mixed feelings about that, but it is what it is. And I tell them investor and that gets them even more excited. Oh my God, we got to figure this out. So then they go do all their work. And in some rare cases, you know, it bubbles up to a partner meeting discussion where in essence, you as the investor are making the case for why you should make an investment, you're like almost pitching as if you were the entrepreneur for the investment you want to make into that business and then giving them that term sheet. Now, I think it's probably a little more likely with later stage and sort of the, you know, like there are plenty of companies because of the path to IPO and the path to, I mean, there's a lot more ways to liquidity, right? So SPACs are creating an interesting path for people, direct listings, etc. You know, when someone's thinking, there's different ways to think about this. When I think about it as venture, venture to me is when you're going in early, hopefully there's company building involved or you being helpful to the entrepreneur in whatever way you can. But it's a private company and you're getting there at the beginning and you're going through the whole process to get to the end. But there's also that middle ground where what I think of as the middle ground right now is a lot of the early stuff has been taken care of those high risk early investments, the seed, super high risk, the series A logical risk, right? That's happened. And now the company's starting to track. And now you're thinking to yourself, okay, what does it look like from here? We've seen it here, we've seen it here, and we've seen it here. Is the next step here or is the next step here? And if you think it's a pre IPO opportunity, and by the way, pre IPO is a pretty broad term, right? Then there are both. And remember that a lot of the investors that have moved into the market over the last five or six years are people that are crossover, they buy in the IPO and they weren't getting the shares they wanted. So for them, getting a bigger allocation of a share that they would have bought on the IPO anyway, and go with the IPO bump as their return can be exciting to them. There's, you know, I'll give you a random example, we didn't do anything here, but when we sat down as a group, like everybody during COVID talked about a lot of things, what's the future going to look like, and what opportunities do we miss out on that we should think about going back to, and you know, blah, blah, blah. And my number one pick was Discord. Now, I think at the time, Discord ended up doing around like a billion and a half. And I think now they're talking, I mean, they shut down their discussions with Microsoft as I understand it, but they were talking about a $10 billion exit. When I think about Discord, I think about their total population of audience, and the fact that, you know, my youngest son is an avid user, and it's basically his version of a social network, and like, where does this go from here, and how material is over time, and et cetera, et cetera, et cetera. And I can see a path to a material public company, which is where it looks like they're going. And so, you know, if I think, to your point, on bigger IPOs, if I think that billion and a half valuation is what they are now, even though maybe it's twice what's logical, I don't know, I'm not going to make an opinion on that. And I can see a path to a 10 or $15 billion outcome. Okay. Hey, you know, call it 10x ahead of me. That's fine. I do think in true venture, almost irrespective of stage, at least C, day, and B, you know, 10x is the floor. The bigger the check, obviously, the more flexible you become, you know, if you're putting in a billion dollars and expecting a 10x, that's a little bit different. But I think there's a misconception in a lot of people's mind that venture is a 10x game. Well, you know, everybody would like to have a 10x fund, but those are super rare. And a 10x target to me is way too small, you know. Yeah, you sound extremely energetic. I really like this positive energy you've got. A lot of people don't really necessarily share this. Let's put it this way. When you look at your current investments at the once that you are pursuing, especially with a new fund, what are things that stand out? What's kind of your best horse in the stable right now? And which horses do you want to bring in? So I, you know, it took me a long time to get to a point where I can clear people will often say something along the lines of what do you focus on? Now, there are lots of different types of investors. There are thesis based investors that focus on a category or a thesis in a general way about what the world's going to look like. I don't do that. I am very focused on the entrepreneur. And the way I have gotten comfortable answering the question is I look for entrepreneurs that make me say, wow, I always say I need five things to make an investment. People, people, people, a great idea and a huge market if it works. But it's the entrepreneur that shows me that vision. It's the entrepreneur that shows me either something I have or have not thought about or a new way to think about it that makes me say, wow, you know, I've funded everything from, I mean, geez, I've got fintech and marketplaces and insurance tech and, you know, on and on and on. I mean, today, I'll meet another alternative food company. And I don't know if that'll be something that will make me say, wow or not. But I need to believe in just a, you know, I used to say I need to see at least a billion dollar opportunity. Then I started to say I need billions. Now what I realized is in the world that we live in, I need uncapped upside because, you know, we can only do so many deals as humans. And I tend, it's funny, I was, I was, I was looking to a company about doing around. It didn't look like it would come together, but they said I could put in a lot less, a small amount and I could be involved. And I was excited about that. But I talked to a really senior guy about this and he's like, Ben, I know how much work you're willing to do for your entrepreneurs. It's sort of a, they call you drop everything. You're willing to do that for this tiny investment? Like, think about it. And I realized he was right. Like, like it or not, you know, I often say to entrepreneurs, you wake up every morning with two wasting resources, your money and your time. And you go to bed at night with less of each until you break through on the profitability side, you're never going to wake up with more time. I have to feel the same way. Like, I only have so much time to give, I need to choose carefully people that I want to work with that I can hopefully have some impact with, but also that can have truly uncapped upsides, because otherwise, you know, it's just, if you've only got six bullets to shoot, you want to shoot them all. At a big, big beast. How do you determine this too? Because when an entrepreneur gives you a pitch, it's relatively easy to say, well, a consumer in the world could sign up for this, right? This is a typical eCommerce business pitch. And you go to the next step, say you just talked about alternative food. Everyone could use this. We could make a deal with McDonald's or Chipotle. And it could be in everyone's mouth tomorrow. Like there's always unlimited upside. How do you determine this is a company where I see this is going to happen? Or this is something I would rather pass on? It has to make sense. I mean, there has to be logic. You can't have food in everybody's mouths tomorrow because you have to have production. You have to have a competitive advantage. You have to have pricing. I'll give you an example. Sometimes people will say, well, it's a trillion dollar market. I love trillion dollar markets. And all we have to do is get 1%. Okay, that's not a valid argument. If I personally could sell a toilet to just 1% of the population of China, I would be wildly wealthy. Now let's talk about the unlimited number of reasons why I will not be able to sell toilets to 1% of the population of China. I don't know how to make toilets. I have no access to China. There are already toilets in China. There are competitors. I don't even speak Chinese, right? So, you know, coulda woulda shoulda ahead of time. Like I need to. So one entrepreneur and I were talking to an investor and when he left, I asked him for his view and he said he couldn't fund it. And I was like, why? And he said he doesn't have an unfair competitive advantage. I thought, well, that's unfair. And he said, yeah, but I still need it. You know, there's got to be a rational approach. It still has to make sense. I guess I'm more in some ways of a fan of bottom up than I'm of top down. But in fairness, like I funded a company called Transfix, awesome company, digital marketplace for full truckload shipping. And trucking in the United States alone is like a $660 billion market. And it was virtually untouched by technology, like the land that time forgot with the dinosaurs, you know, and they had a really smart model, great software. The founding team was spot on. One person that came out of the trucking industry, one person that came out of technology, like that made a lot of sense. I had seen multiple other startups that were trying to attack the trucking space, but I couldn't get comfortable. That's why I go back to five things, people, people, people, a great idea and a huge market if it works. What I don't want to do is fund super smart people so they can pivot later to something else, even though I don't like their idea today. I've tried that once or twice. It's generally not worked out for me. So I want both the people and the idea that I believe in. Yeah, that seems to be a thing for me. I need a phenomenal CEO for it because I know it's a phenomenal business opportunity. The great idea is the huge market, but I need the person to run it because I'm not willing to go back to that life. I was an entrepreneur for a long, long time. And, you know, I'm not willing to do 18 hour days for six days a week anymore. It's just, in fairness, I did 18 hour days for three days a week for a founder once when he asked me to, but, you know, let's face it, that's an anomaly. They don't ever ask and be, you know, how often is that going to happen when they do? Well, you wrote about that. I think that's really honest and really intriguing. The role of the VC, the partner in your marriage, so to speak, for the next 10 years, you choose as an entrepreneur. And a lot of entrepreneurs don't put a lot of effort into making sure there's a good connection, as you put it earlier. And there is, and I've experienced that myself, there is a lot of potential resentment from your board and the entrepreneur. When you give entrepreneurs that advice, how do you make it more easy for them to choose the right investors? Because let's face it, we only talk to someone as a potential investor, maybe for an hour or two, maybe five hours, maybe 10 hours before a deal is closed. How do you know if you click with that person on a long term basis? There's a couple of things. I mean, first, I think human beings are pretty good about sensing whether they click with somebody. I'll tell you a bad example of this. When I was running my company, right before we signed our underwriters letter, we'd been talking quite some time to a potential investor to come in alongside of the IPO effort. And we really did not click. But I felt it was important to raise their money. So I brought in somebody else from my organization that did click with them, and that helped. And we ended up closing the round. But I was the one that had to live with that person on the board. And guess what? I was right. We didn't click then, and we didn't click later, and it made my life miserable. Now, I think respect is more important than it's not that you have to, you don't have to want to go out for beers with this person. But you have to respect and trust them. That's critical. One trick I tell entrepreneurs is, well, firstly, everybody says you should diligence your investors, but very few entrepreneurs do it. So the trick I give them is ask them for references, ask them for portfolio companies, obviously call all of them. Obviously ask all those entrepreneurs for other entrepreneurs they know the person has worked with. But here's the trick I use. Get the list off of the investor's website of all the companies they've invested in, and then do the Google search around the same investor and match it up and look for the companies that are missing, right? Call the companies that they didn't put on their profile and find out how it went with them. Because that's probably where we're going to find out where things went awry. Now, it's not like sometimes investors don't have to make very hard, appropriate decisions which entrepreneurs don't like. That does happen. But if you see a pattern, you know, I don't know many people like this, but I know one or two people that are just miserable board members. And man, I don't know how anybody could diligence them and come out the other side wanting to take their money. But I just think they just don't do the work. You know, you've got to do the work. And then secondarily, just like the investor wants to do, you need to spend as much time with this person as you can, because that's very important. Yes, the first pitch is only an hour, but it's not like pitch, here's money, it's pitch, another meeting, another meeting, another meeting, diligence, like all that stuff, like treat it seriously, you know, like, this is the romance of the leading up to the marriage for both of you. And you've got to figure out how that's going to work. Now, another thing I also mentioned to entrepreneurs is don't be worried about whether they're like you, right? You don't really necessarily need anybody that's like you. If you want you buy a mirror and a tape recorder, right? You want different points of view. You want value that you're not thinking about. If you're a hardcore engineer and you've got that stuff buttoned up, maybe you want a sales and marketing guy. If you're a sales and marketing guy, maybe you want a CTO type, right? Like get what was the comment somebody made? It's more about culture ad than it is about culture fit. Same thing is true about diversity on boards, right? Diversity takes many forms and intellectual diversity is incredibly important. So, you know, if you just get everybody that's just like you, well, I guess if they're you 10 years from now, sure, you can skip some learnings. But generally speaking, I think you're much better off getting something that's very different. Think of it like concentric circles. You know, I've invested in businesses where I knew nothing about the business in the beginning. Obviously, I had to learn a lot more going in. And sometimes that gave me a very creative point of view that they never thought of. Now, there are categories that I'm so entirely ignorant of, I won't pursue. Sports is an example. I've never had any interest in any sport. I did make one investment in a sports company. That was a mistake. I can I talked myself into the fact that it was more of a betting thing and blah, blah, blah. But, you know, I was so ignorant of the category that I didn't even know the people they were up against. So, you know, and part of that can be cured by diligence. But it isn't, you know, obviously you want people that can help you, but help can cover a lot of ground. You know, I think the problem is about sales like help me think about how to build out the sales or sure, that's great. That's exactly the stuff I like to work on. I think the problem is when when we go out, and most of us, and you might be quite different in that perspective, we the people that we know how to judge them to know how to judge in a good way that we kind of see how they take. And we do this with people that we know where we know their characters, someone who's very different from us, say it could be an introvert or an extrovert, or it could be people who have very different artistic traits and some who have greater accounting more at established workflows. It's very difficult for us to figure out if these people, besides an emotional basis, right? Trust, right? Trust isn't about your right brain and I'm left brain, you're artistic, and I'm scientific. Trust and respect. I'll give you a different angle. So I was, I brought a seed deal in to a VC that I really liked because he's the smartest guy I know. And it was a business back in the clean tech bubble in the chemical space. They took sludge in one side of the machine, and out the other side came energy, plastic pellets and compost, like 2% waste. So you took 100% garbage and turned it into 98% useful. Phenomenal. But I know nothing about chemistry. Anyway, he's super, super smart. So I took this company in and after they left, I said, what do you think? And he was really excited. And I said, you know, we'll call him Bob, that's known as William Bob. You know, I think you're the smartest VC I know in terms of just pure intellectual horsepower, but do you actually know anything about chemistry? No, I don't. I said, wow, how are you going to diligence this? He said, you know what I like to do? I like to spend more and more time with the entrepreneur. And each time I want to be happier about the way they answer the questions I have, ask them. Same thing, you know, like, ask a bunch of questions. Ask, for example, here's a, like everybody, I will not maybe not everybody, when you interview people, I'm a huge believer, specifics over generalities. Well, I've had a great success in doing XYZ. Great. Tell me a story of a specific example of that, like learn through the experiences they've had and the ones they're willing to share. Because, you know, people are proud of what they've done and they should talk about the things they're proud of. And then you can infer from that. I was just talking to a lawyer before this. And he was like, Oh, I have a lot of experience in your category that you're asking for. And I was like, great, well, what do you think about this possibility? He said, well, I'd have to do a lot more research. I was like, Oh, so you have a lot of experience, but you need to do a lot more research to answer the basic question. You know, I don't think it's surprised to you that I'm not seriously considering him as a lawyer for the case I'm looking at. So, you know, the more time you can get the better. And if it's going to turn into a deal, they're more than likely perfectly happy. Nobody likes the fact that they're so rushed. You know, they want more time, they want to learn, they want to learn about you. Nobody wants, well, that maybe not nobody, but very few people want to be in a situation when they have to change out of founder. That is just nuclear. And, you know, it's not enjoyable. And there's just, I don't think there's anything good about it. But sometimes there's no choice. I get that. And sometimes founders don't want to scale or can't scale into a role. We'd rather have somebody else run the company. I get all that, right? But, you know, like, you have to have some understanding. And the more time you can spend, the better an understanding can have. It's one of the limits, I think, of Zoom. And we can get to know each other a little bit. But, you know, in the last deal I worked on, for a material round, I said, look, I'll drive and visit you in LA. And he said, no, I'm going to be in San Francisco. And we had an outdoor dinner during COVID, appropriately spaced. But that was super important to me because this is somebody that, you know, I'm going to have to spend potentially, I used to say to entrepreneurs, it's a seven to 10 year journey. Now it can be 12 to 15. Companies are staying, or it can be seven. The thing, it's this interesting dichotomy. Companies are staying private longer and longer and longer because they can raise so much money privately at above and beyond IPO levels, right? You can raise a billion dollars, three billion dollars privately at huge valuations. But at the same time, other forms of liquidity, you know, whether that's a SPAC or whether that's even just secondary sales, you know, secondary sales aren't something I'm particularly concerned about. But I am intrigued by the fact that, you know, when you're a very early stage investor, you know, it's likely you're not going to be on the board long term. And, you know, so if your companies do really well and you're not active, and then, you know, the big three billion dollar valuation deal comes around, they want to buy your shares, the entrepreneur wants you to do it. You know, one of the things I think a lot of entrepreneurs probably don't understand until they're in it, is that in a really exciting round, there's more demand for the shares than there are supply. The entrepreneur doesn't want to get diluted, the new owner, the new buyer wants to own a certain minimum amount. And so because of that, when you have these huge rounds, there's a lot of demand for shares and that can come from lots and lots of places. So there are reasons it can still be seven years or less. But for the most part, I look at it as, I want to be in this business all the way through. And I'm assuming it'll take 10 to 12 to maybe even 15 years these days. I really like your approach. And I think this is a very time tested method of basically asking this infinite regressive why questions. And you come to that point where you feel that person makes it easy because they have an easy time. They're not just making it up. Obviously, there's people who can just make it up and they can fake it. But do you usually come to that point where you feel like, well, that sounds easy to them. So it must be easy. So I trust them at that point. I think this is a very wonderful time tested way to really ask the most difficult questions. And that's why you really, because there are people that will fake it. But when you ask for the specifics and you ask for the stories, you can understand more about where they traveled and then you can reference them. I think there are people that will talk a good game. But there's this, I used to, I moved here from the East Coast, as I mentioned, and there are this subset of people that drove me crazy. I call them the California ever smileers. Everything's good, always good. No matter what you are, oh, it's great. And it's like, wow. So you're the one human being on the planet that has no challenges in your life. Huh? That's impossible. So which of those things are you lying to me about? But it's like, sometimes people get like, occasionally entrepreneurs do this too, they get caught up in trying to look smart. And so it's buzzword this and buzzword that and generalities. And worst of all, when they sort of take hearsay and try to, and this is, you know, I say often that there are three forms, there are three sources of advice. There's experience that is hardworn and should be respected and valued, although you do have to think about whether it's still current. There's opinion. So experience valuable opinion, questionable, you need to understand where it comes from. You know, if you ask me for my opinion on European soccer teams, man, I don't care what I say, I have no basis for any of it. So you should discount it out entirely. I've maybe heard of two teams and I know nothing about them. And then the last source is hearsay, where someone overheard something or they read something and then they act like that's a story they know about. That's just plain dangerous. So you really need to drill into where these answers are coming from. And that's where stories help. You know, well, remember when Snapchat sold them, you know, blah, blah, blah, you're like, Oh, you were involved in that? Well, no, but I heard about it from who? A board member. Oh, okay. I heard about it. Where tech crunch, like, good to know. I'm glad you could read that. That's amazing. Knowing the source is golden. This is because that forms exactly this distinction. But most people don't really store the source, right? And I noticed this with myself. I think I know something and I maybe know something, right? I don't know where it came from. Did it come from Twitter? Did I learn this 20 years ago? Did I did someone tell me that privately? Sometimes don't really know the source. Sometimes I've memorized the source, but sometimes I read something. Drill for a little more information, you know, and people sometimes say to me, like, the worst thing in the world is when you get introduced to somebody by somebody, and then they're like, how do you know Bob? And it's like, huh, it's a good question. Because one, I've got meetings all day. So you're one of eight. Two, I don't remember who introduced you to me. And three, I'm not sure if I know where I know Bob from. Like, now let me rack my brain to remember where I know Bob from. But that's different than how do you know read? And I'm like, Oh, I, you know, you can calibrate, but does that even help you as an entrepreneur? Do you care if the person that referred to you and I are best buddies, or just somebody I knew and was willing to take an introduction from pretty casually? But yes, I agree. It's fair. But you know, it's like, when, when you're interviewing an employee applicant, and they're telling you about how they were responsible for the launch of a, I don't know, League of Legends, they're gonna be good if you ask for a story about that process and who they worked with. And if it's like, well, you know, it's mainly John's job, but I was in the cubicle next door and he would always ask me for advice. Okay, that's a little different than, well, I built a team of 75 people and blah, blah, blah. Like, you never get perfect because people are trying to put on their best face, whether they're pitching as an entrepreneur or whether they're pitching as a VC. But I do think to your point, the eternal why, or just, just more questions and more learnings. And part of this, and part of this, by the way, is also a lot of times the answers don't even matter. But the way they're answered or the thought, I'll give you an interesting story here. I always try to use stories because they are specific to an experience. So when I was running fashionable.com, we didn't raise venture, but I did fly to California once to meet one VC, because he was on the board of Macy's. And he was really knowledgeable about our category. And I pitched my heart out, razzle, dazzle, every comment he had, I had a response to every question he had, I had a response to everything he said I was wrong about, I showed him why I was right. I flew back, I asked the guy that introduced me, Hey, is he going to invest? Now, why? He said, you're too smart. I was like, well, then he obviously should invest. Of course, I'm smart. I was very proud that I was very young. Took my company public when I was like 33. So, you know, a little bit of arrogance involved in that. But what I later realized as an investor is, it wasn't that I was too smart. It was, I was absolutely unwilling to hear his point of view, because I treated it like a tennis game. If he hit me a ball, I had to hit it back even harder. That's not what this is about, right? You don't have to be right. But the dialogue is important. I will tell you that there are multiple questions when I used to bring seed deals to VCs, they would ask me. And one of the more common ones, which I almost laugh at is, is he or she coachable? And I almost laugh because it's like, you know, if an entrepreneur is really awesome, they're going to do it the way they're going to do it. Now, that doesn't mean you can't help them, because they will ask questions and they will listen to you where you're valuable to them and there is trust. But, you know, coachable, what does that mean? And what it really means I've realized is nobody wants to share hard worn experiences and give advice, which they're confident in and be ignored. No one wants to watch an entrepreneur floor it towards a cliff and not be able to help them understand they're driving a car and not a plane, right? I've only had this happen once, but man, was it distressing. You know, entrepreneur is just accelerating towards oblivion. And I spent 58 minutes telling stories of my own failings, of where I didn't understand that there was a cliff, where I didn't understand that cars can't fly, where I didn't understand that when you drive off a cliff, everybody dies. No interest. And in the end, I said, and I remember this because it was quite distinct. I said, you know, I have never said no to an entrepreneur, but I got to tell you, you can't do this. You're going to kill the company and here's why and here's how it's going to happen. And he said, Ben, I really appreciate your input. You've always been valuable to me. I'm going to take that feedback back to the team, but we've already done it. And I was like, ouch. And six months later, it went exactly as predicted. Now, I'm not happy it went as predicted. I would rather he proved me wrong because I lost money. Go ahead and prove me wrong and make me money. I don't need to be right and lose money, but wow, that was just heart wrenchingly painful. Like I'm watching the guy destroy the company, but he can't hear the words. Ben, your industry is full of lies and truth and truthisms and, you know, big egos involved that kind of change that fine balance between I accept what you're saying, but I want to be stubborn because I want to be seen as the hero, so to speak. And you seem to be like having developed a wonderful algorithm for lie detection. When you go back, what do you think are the top five lies of entrepreneurs that you would put all the way on the top? I don't know if I've got a great algorithm for lie detection or not. The thing that I guess, well, I think about my strength and weakness here. I am entirely trusting until you prove me wrong. And then I will never forget that. And I will go to great links to correct it. Like I still have, and my wife's always like, you've got to give these things up. There's a guy that screwed me in high school. I still remember it, right? I'm like, I will say that I'm like an evil elephant and never forget and I never forgive. But until you prove me wrong, I trust you because I'm totally transparent. I just sort of expected of other people. But I think what is, it's just a, I mean, you develop a gut sense for people. I've got a very low tolerance for bullshit for, you know, hand waving. That's another great term I picked up in venture, hand waving, all this BS. It's like, that's why I'm so focused on getting to the specifics. The specifics helped me understand things. One of my entrepreneurs came to me once. He was getting ready to raise around. And he said, here's my revenue chart. And it was a classic hockey stick. And he said, how does it look? What do you think? I was like, well, I can't tell. I mean, let's go through the formulas. Let's go through the numbers underneath. He's like, no, no, no, I mean, just in general, how does it look? I'm like, all right, that's like saying to me, here's a cake. Is it delicious? Well, let me give you two cakes. One is made of butter and sugar and flour and wonderful frosting. The other is sawdust and cement covered in icing. They look exactly the same from the outside. I need to understand the recipe. And perhaps my obsession with the recipe and the details helps me get to that because, you know, the more layers you shave away, the more paint you sand off, the more detail you get, it's hard to blatantly lie. There was maybe my bullshit detector is higher for a couple of reasons, though. You know, I did live in New York City for 13 years now. I was always afraid of getting scammed. So I had a super sensitive nose for anybody like that I'm worried about. We did have a company. I did see a company in one of my roles at a firm where the company pitched us and it was too good to be believed. And I had used their product. I was very unhappy with it. And I kept asking these questions. I kept asking these questions. And I couldn't get an answer that satisfied me, but I also couldn't get anything that proved anything. A year later, we found out they were cooking the books. And as we were leaving, one of the other partners said to me, wow, you're the only guy that knew that was the case. I was like, look, I didn't know what was wrong. I just really felt like something was. And part of that probably, I guess, well, it comes from the New Yorker in me. You know, it's not that I don't trust people. It's just that when something smells off, I start to pay a lot of attention. And there's like bells going off. But in terms of the top, I mean, look, it's, it's not that I think entrepreneurs lie. It's that's relatively rare. I think they exaggerate. And it's, look, I always say to my entrepreneurs, we, everybody expects you to exaggerate. So just give them the most positive truth you can. Don't undersell yourself by any means, but make sure it is legitimate. So, you know, I will tell you one of the funniest manipulations I ever saw was somebody said their ARR was X. Let's say their ARR was, I'll make up a number, $100 million. And I looked at the prior month sales and it was, say, $5 million. I was like, well, if your prior month sales were $5 million, that's an ARR of 60, has the business increased that much in the last week? You know, it was a week after the close of the month. He's like, well, we computed ARR by taking our best day over the last 60 days and multiplying it by 365. That's like, that's not how you figure out ARR. I mean, it's an interesting argument. But wow, I mean, talk about giving yourself the best possible version of the truth, so to speak. Or when people call it ARR, when it's not ARR at all, because it's not recurring, it's not annualized, it's just your revenue. And that's fine. Your revenue run rate might be X. I sold $10,000 with the widgets yesterday. Okay, fine. Yes, you can multiply that out and have a run rate, but it's a widget. It's not a SaaS contract, it's not ARR. So, people tend to manipulate the language a lot of the time. Everybody has AI and big data in their business and proprietary algorithms. I remember once, this was years ago, when people had just started to talk about data, and they said, well, back then, it was just, we have a proprietary algorithm. And they were saying how they had the proprietary algorithm. Like, can you explain that algorithm to me? And they said, well, blah, blah, blah, you know, and basically, blah, blah, blah was if X equals Y, then Z. And I was like, you know, I don't actually know the dictionary definition of an algorithm, but I don't think one plus one equals two is an algorithm. I think it's a simple formula. And here's the other thing I would say, if my 14 year old son can compute it, it's not a proprietary algorithm. So, you know, I think that people always put, and these days, people are throwing all kinds of, they've been for years now throwing blockchain into mini conversations, which I don't think is particularly useful. And, you know, people want to understand you and they want to understand your unfair competitive advantage and how you're going to win and how you're going to build an enormous business and your drive and your passion and all of that. So, you know, I do think people will often over, it's not they oversell it, but let's face it, you know, you're not going to get up. Here's something I will try to explain to entrepreneurs a lot. I cannot say yes in one meeting. I can say no in one meeting. And if you're not a fit for me, I want to tell you in that meeting so you don't waste your time in the future, because that's actually very valuable to an entrepreneur crossing me off a list. If I'm not a funder is something that I learned the hard way is really valuable. Because otherwise, how much time are you going to waste following up with me when I'm not going to fund you anyway? Like that's not useful. Spend that time somewhere else. Your job is not to convert the naysayers. Your job is to find the zealots that love and believe in what you're doing. But if I don't say no, my only other answer is not yes, it's I want to spend more time with you. And so, you know, like you've got to get the critical information out there early, you got to get the hook in the mouth, but then you're going to be building a relationship and a set of discussions. And if you're pitching a VC, the way I put it for my own, for NEA, where I'm currently employed, is one goes to some, goes to many, goes to all. That's the normal course. I see it. If I get excited, I bring somebody else in to look at it with me. If we both like it, we build a bigger team, and then eventually you have to present to the partnership. That's pretty typical, I think, for venture. Although sometime