Mitchell Green, Founder @ Lead Edge Capital: Why Traditional VC is Broken

I think investing in AI infrastructure today is like investing in websites in 1997 the incumbents usually win it's customer distribution the idea of a single person AI company I think is like comical at best I think the Venture industry was about to be in for a rude awakening and then AI showed up people didn't learn a damn thing from 20 and 21 it's like shocking ready to go [Music] Mitchell I'm so excited for this when Nigel Morris messages me and says hey you've got to spend time with my friend Mitchell I'm like you know what

Michael uh you know what uh this is going to be a fun one so thank you so much for joining me absolutely thanks for having me on Nigel's a legend so he is a legend uh it always makes me feel very lazy though uh so athletic he's also the hardest working man and uh you know I was like oh how you know I joke to him The first time I met him I'm like well how's retirement and then he show me his Outlook calendar and I'm like I think you work more now than you did

when you ran Capital One but in by the way never ever go on a bicycle ride with him I would never before we dive into lead Edge there was Tiger and there was besser before yeah when you think about your takeaways from those experiences that shaped how you operate and run lead Edge today what are the one or two that Really shape how you think about lead Edge what I would tell you is my time at besser was very like formative for why in everything we do here at lead Edge so what a bit of

context when I joined besser B this is 2005 besser is this legendary early stage Venture fund that is very Shark Tank esque and what I mean by that is every year you know a thousand entrepreneurs would walk in the door and at the time they had five partners and it was very like shark Tankes and they were wondering why by Insight was call finding these $15 million Revenue companies growing fast that had never raised money and they were like personal friends with the guys that ran you know Jeff and Deon and the guys an insight

and all that Insight was doing was replicating what Summit and ta did which was hire 22 to 24 year old Knuckleheads which my now partner Brian and I were and pound the phones calling companies all day long and you realize If the company calls you back the company sucks it's the CEO you talk to every two days for a month and you know and you know how you know what a good company is over two years talk to 10,000 bad companies and so when we got there a week into the job they're like okay next

Monday you're going to come and present your best companies and we got there we're like oh we found this great company it's 2 million Revenue it's going to be the Next Google they're like no it's not this company sucks find this companies that meet like 10 million of Revenue and then the next week you'd find a company that meets 12 million of Revenue but grows 10% a year and they're like no no find us companies that grow 50 for them was like 50% a year and then you find a company but it has it's 20

million of Revenue grows 40% a year but you know has 30% gross margins and they're like no no find us business with like 70% Gross margins and they had five and they over like a period of a six week time eight week time built these like five criteria and they basically said on Mondays when we do our pipeline meetings we want you to never bring a company that meets less than three criteria if it meets five you better already have the med set up the next meeting and start the pipeline meeting with I spoke to

company ABC it meets X number of criteria here's what it does and so it Just like was a very rigid framework in a world where like you can call companies all day long and it's like an unlimited Universe like stay like very rigid and so and we took that framework we expanded it to six now it's the lead Edge 8 and that defines everything we do I love that in terms of how it defines everything you do and I love the framework structure I had an AAL on from spar recently and he said that bluntly

this form of spreadsheet investing Respectfully and I hope you don't mind me calling it spreadsheet investing totally fine okay is uh outdated in a world of AI and in the Next Generation and that a kind of Banker Le approach will not work in the next generation is that fair and how do you think about that because I am concerned that that is the case look we speak to 10,000 companies a year we have a team of 20 18 to 22 year olds sorry 20 to 2 we haven't gone pre-ol yet so you're like 20 22

to 24 year olds that are speaking to 10,000 CS a year if I say I need to meet all eight of these criteria it's about a 1% yield which is you know call 10,000 companies a 100 meet all eight criteria and to do five to seven deals a year that's like too small of a pond deficient like you you wouldn't end up doing anything so what we find is if you say I need to meet five or more of these criteria it's just objective like you're 23 years old was The company four million of Revenue

or 18 million of Revenue you find about 10% and this is after taking to probably 70,000 companies over the last decade it's about a 10% yield you get five or more criteria we do diligence that's gets you 10,000 to a th000 you do diligence on 150 to 175 of them how do you go from a th000 to 150 to 175 most aren't looking to do anything because you're calling them they're not calling you and by the way the good ones don't Call you back the good ones you call every two days for a month that

150 to 175 leads you to do five to seven deals a year in terms of the AI response and so like we find the companies 70% of the stuff we invest in the guys at spark have never looked at they've never heard of um and and why because they they're investing mainly in the coasts less than 10% of our companies are in the Bay Area not because we don't like Bay Area Entre entrepreneurs we love Bay are Entrepreneurs they can to build some of the biggest companies in the planet Earth I just think it's very

hard to make money at making you know know at 100 times revenues invest in and so like also if you look at our companies less than 10% are in the Bay Area 70% of the time we're the First Institutional Investor now ai and going to disrupt all this stuff so when deep seek was announced which I find quite funny that a lot of people That invest in the infrastructure of AI didn't even know about it uh because you it's like and by the way I think it's the I think investing in AI infrastructure today is

like investing in websites in 1997 you and I could have taken $50 million but Sun microsystem servers and built a website today for 10 pounds a month we can build a website that's 50 times better than that same thing's going to happen prices are going to plummet but the stock market actually Acted pretty rationally that day what happened Nvidia stock fell the software stocks went up so why do I mention that we're investors in a company in Toronto that we own the business called gravity world's most boring company it makes budget planning software for small

local governments if you are the water district of Aon if you are the Poo elto Police Department you need to post a budget online it helps you plan the budget post it online it's a nicely it's A roughly around a $10 million business grows very nicely had never raised Capital before we came in had never had a salesperson we came in brought our new CEO brought on a cro partnered with a guy who had built a $200 million govtech business my point is here on the AI stuff they have I don't know 10 software Engineers

12 they can use companies like cursor co-pilot to help their 10 Engineers become like 30 or 40 engineers and you're going to see this at Salesforce you're going to see this at work day the incumbents usually win you know since the iPhone came out in 2007 200 whatever six whatever it was there's only been three companies built that did not exist before that were a hundred billion doll companies bite dance pinoo and Uber who won Facebook Google Microsoft like incumbency wins the it's customer distribution the idea of a single person AI company I I think

is like comical at best just why unpack That because everyone is saying hey we're going to have billion dollar companies with one person it's like these software companies are not like as you know like you you you run an awesome Venture fund like a lot of the software stuff isn't that it's not like that complicated this is not like Rocket Science Tech that people are solving it's sales it's distribution GTM it's regulations it's go to market exactly it's that kind of stuff and you know if If I had a dollar for every time somebody had

said to me like oh Microsoft's just going to do this like I would have never invested in any software companies and nor would anybody else have but the great thing is is it's like people ask us they're like well you must run out of companies to call every every Monday morning New companies come in that I we've never heard of that that you know this is like software you know when Josh Krishner Said it 10 years ago that software was hitting the world I was like I just kind of like this sounds crazy but he's

right like it's changing every sector and every industry and I believe like I could be totally wrong but that when you look at like technological Trends over the last 50 years people always overestimate it over the near term and they always underestimate it in the long term AI is going to completely revolutionize the world over the next 10 To 20 years but it's not going to be because we create a new call center software company there's going to be some type of company that AI is enabling that nobody else could do something before and that

changes it and it's going to be guys like you or Benchmark or Sequoia that find that thing um at the very early stage and my guess is it is not just some infrastructure software company that like world knows about right now I Completely agree with you I just want to take it in turn because you mentioned gravity this company you said like 10 million a I'm just intrigued because it's a very different world to the one I actually inhabit hly like what does that deal look like in terms of price so we uh we are

able to buy businesses so we are able to buy bootstrap companies at you know I think we bought the business for like $50 million or something like that We own the company look we bought the business for $50 million by the way it grows like 50 60% a year now by the way it will never be an IPO in a million years it will never be an IPO um we want to build a business so I'll give you an example we just sold the company and I don't want to talk about Returns on here at

all but I'll tell like weid there was a company called safe send that makes um it's like a verticalized version of DocuSign for tax returns um there's a Bunch of reasons DocuSign is not very good at it it also is like the tax organizer that people get that like you know did you get married this year did you have kids did you move and all the sort of things when we invested when we bought we bought about 60% of the company in 2021 my my partner nime did the deal and my partner Brian um that

business we met through cold calling it was based in ant Arbor Michigan it was a bootstrap Business that had never raised Capital had been around for six or seven years and it was covid enabled and what do I mean by that well it turns out before Co a bunch of people like used to literally go to their accountants office and like sign their tax returns sounds totally insane um but after Co like you couldn't do during Co you couldn't do that so it was all electronic but then it turned out it stayed Co enabled unlike

a virtual events company like a hoopen Where like people during Co couldn't go to it couldn't go to events they went to Virtual events it turns out that people like to go to Vegas and drink beer and get away from their husbands and wives and children and so like everything went back to Vegas in these events you'd never have gotten a docu sign and said oh I'm sorry please send me a paper copy it's like the reverse so this thing was cool so we invested in that business it was about 13 of ARR it was

growing about 50 60% % a year it was a controlled deal so we were buying 60% of the company and we bought 60% for about 90 of equity and 20 of debt so what is that I don't know $1 130 $140 million valuation in three and a half years we built the business to about 47 million of Revenue and you know very nicely profitable and we sold it the Thompson writers um you know for a great return um was publicly announced uh what it was and um that was a Business that if you had read

our investment memo in in the word IPO would not have come up in the thing we were like listen we'll grow it from 13 14 million to 60 70 80 million and we'll sell it to a mid-market private Equity Fund because it's got 90 plus per gross dollar retention or we'll sell it to a strategic um if that deal so we paid you know I don't know 130 140 for it middle of 21 Insanity right had that deal been backed by benchmark like VRI or F Peter Fenton one of those guys back to Benchmark doing

a minority deal based in Silicon Valley it would have been $500 million yeah and so like let's go find stuff we don't have to play the same game let's go find the boring stuff that's not going to be the next there's zero% chance it's the next snowflake it's the next data dog let's go find stuff that we can just build like you know invest with their 10 to20 million Revenue software businesses and exit Them when they 60 to 80 million software businesses like if I talk to the immediate response would be that yours aren't gener

generational defining Founders 100% correct me fanton V would be like no we have to B Founders who reshape categories like true true Visionary innovators and here you're talking about a control deal where you're bringing in a team which is amazing but a very different scenario that's totally fine like I I don't have To like we have these eight criteria some of them are like generational companies like look we've been you know late last year we were buying bite dance we're paying five times earnings for it it grows like 25 30% a year that's probably a

generation I mean it's already a gigantic company but like it's just do you meet the framework of what we do we own a business called exagrid that was started in 2002 we own about a third of the company it last raised Money 15 years ago we bought out Leman Brothers It's a$ 165 $170 million Revenue business that competes with HP and Dell and like storage devices it's a 70% gross margin business it did 26 million of Eid last year we bought it for we bought our stake at a $130 million valuation like great I'm going

to build it into a $250 million Revenue business doing 70 of iida and I'm going to sell it for 10 times iida and make four times my money like no it is not Generational game defining but it is Tech investing making really good return making like you know good returns so I really worried because we're seeing the shake out now I'm getting old you said that I think you said I was 32 I'm 28 Mitchell just to clarify that no I met the guy from spark oh thank God I was like Jesus I'm not that

but uh I'm really worried because we're seeing this generation of SAS companies now that's raised a lot of money but actually They're not profitable growth is in the mid teens now yearly like this is you know 10 to 20% growth uh and revenues are 50 to 200 million they are not big enough for PE Living Dead what happens like teach me yeah fundamental problem that happened we saw this by the way at besser when we were at besser Co companies back then uh you would basically exit a company through an IPO or a strategic those

are like the two options on how you could get out of A company and if the te didn't show up and if you got it like 50 60 70 mli revenue and stopped growing you well then what the heck do I do so and in 2010 2008 time frame the midmarket private Equity firms like nautic Partners gtcr Charles bank they would buy industrial companies manufacturing companies services companies some bought consumer some bought Healthcare none bought software and that was just as Like the vistas Tomas uh Francisco were like just starting to start fast forward today

now have these big software proiv firms have gotten very big and you also have mid-market private Equity Funds that where by the way these portfolios they still buy industrial companies manufacturing companies their portfolios grow at like GDP plus too right so if I bring up a company grow 15% a year like they think that that's like that's like really fast for them and now it's not 100% but 50 60% of these midmarket private Equity firms also buy software companies like they have a sleeve to do software so now if you like look at all of

our exits a third of our exits have actually come from come to private equity in those companies by the way I've got some in our portfolio don't worry we did some we did some real stupid stuff in 2022 2020 and 21 as everybody else did as well no no no exactly none um you'll have companies That have 130 million of Revenue that have 18% growth they don't burn that much money but they have $130 million of cash like these companies effectively went public when in 2015 17 when companies went public they'd raise 100 to 300

million okay forget the Ubers and Facebooks stuff like that but most compan raise 100 to 300 million bucks in 20121 they would go raise 100 to $300 million these companies completed IPOs you have to get them to I mean like we we've just like drilled in a couple of our companies that have we have this it's like you have to get to rule of 40 because that's the only way you're getting out a strategic's not going to just come and buy you you're this company's never going to go public you need to get it to

rule Au 40 to try to either to sell it to a private Equity Fund like and by the way I'm sorry the last round was $3 billion you're 120 Million of Revenue growing 18% a year if we can get it to rule of 40 you might be worth five times Reven this like and again you can try to Pivot and pivot all you want there are so many VCS that just like to like waste their time on on company boards we do not understand it we're just like listen yes we have a prep so we

would get our 1X but if you told me today I could take a 7x just to get out of it I would happily cut you I I would happily do it there are hundreds Of these companies out there the problem with the IPO Market the IPO Market is actually totally fine if you look at IPO performance of companies they've actually done pretty well versus opening day prices at reddits look at some these other things the issue is like the good companies the grafana labs the data bricks like they have so much money they have so

much cash they don't the stripes they don't need to go public and you have this whole other sector company They can't go public I'm going to make a contrarian statement I do not think in five years the majority of companies that could go public will go public I I think being public will be a unfortunate consequence of scale and that's really bad for the Venture Capital industry and LPS if we don't have a very developed or mature secondaries Market correct that is like very um in the do you think guys like Don Valentine or Mike

meritz or this John door they would be like Putting guns to these Founders heads today and being like you need to go public don't be afraid of the 27y old HBA Harvard Business School analyst you'll be fine um we actually think it makes companies better I I get both sides of the TR how does it make them better you know John John cson said the other day listen if you are a public company or if you're a CEO and you think that having an analyst at Goldman saying oh you need to improve your margins is

Going to increase the discipline within your company then you clearly do not have a great company look there there's two sides of it I um look nobody says You by the way have to be a public company Chanel tetek uh you know Amway there are big private company Coke Industries you do not have to be a public company but I do think if you take Venture Capital money from people you should be very clear on look I think the stripe guy I don't know him but the Stripe guys I think very early on were saying

like we don't want to be a public company so like if you invest in us just know that we bar will let be public I think if you're very open and honest with the investors I think that's totally fine um where I do think being look there are two different ways I obviously the quarterly guide the quarterly Cadence of public companies is a little bit nonsense nonsensical um however I think if you go ask a lot of Like Mark Mark Benny off or like you know the Google guy did being a public company make them

more disciplined did it like make them like prioritize one thing over another thing they probably would say like but it was a necessary evil they had investors that wanted liquidity that they needed that they needed to to get out um we we I do think I do think like a company like Zoom went public because they're you know it's a very profitable business growing fast They went public because PRI public companies they compete with were constantly like well Zoom it's a tiny business like why do you want you know like they use it as a

negative where you can be like okay go look at our balance sheet um but like I do think the quarterly Cadence is a little bit ridiculous but there are some companies also just don't care care as much about it and they their stocks are going to be more volatile and like we have no Problem with companies that go public and want to have dual class listed stock I've got one in transfer wise over here do you think that private Market investors Venture investers are advantageously positioned because of asymmetric information and historical information to manage the

book once it goes public in other words is rolloff in the Evergreen fund the right structure or do you think it should be handed over to LPS and they are as well positioned So I believe it deps depends what you tell your LPS your mandate is I believe most private Market investors are very good company Pickers but they're not but like good company and good investment are two very fundamentally different things because of valuation and when public company you can know on off if you are a early stage investor when your company goes public you

should get off the board and sell the company because I suspect that's What you've told most of your investors that you do you spend all your time picking small companies grow them into to big companies when they go public just get off and call it a day look we are Relentless in our focus of trying to make like two to 5x in three to seven years and when we do it just like move on to the next company no again our business is not try like the early stage Venture business is a lot of like

trying to get hund bers and but you're going to Have a bunch of zeros result that's just not our business and like we just feel like if you can cut the downside scenarios of the zeros you can generate like really good returns like look people have always credited us with like very high like dpis and it's just a Relentless focus on selling like I know this when I sell I'll always either sell too early or too late I've never like I've never have I regretted selling to Early yes I've never regret like too late like

I I just think pigs get slaughtered at the end of the day I'm so enjoying this so relentless focus on selling what have been your lessons from a Relentless focus on selling and what does that really mean relent so our fol we have a disposition committee at lead and we meet like what is a disposition we look at the portfolio and we say like hey how's the company doing by the way what's an investment committee Investment committee is you you an you and you know talk about companies that you want to invest in you like

analyze should I invest in this company well a disposition committee is the exact same thing just in Reverse I'm already an investor in this company how should we think about getting out of the company oh there's secondary can we find secondary is there an early investor that might want to buy more of our stake is there a crossover hedge fund that Would want to buy our stake why might we want to sell because the company we think the market size could be too small we've lost confidence in the we've lost confidence in the management team

there could be a whole re reasons but it's like we think there's a lot of really good funds that are really good at investing we think there's a lot of people that are not very good at selling um by the way I might blame LPS for this just as much as GPS like the LPS have to Like hold the GPS accountable it's one of my longtime LPS refers to some PE like some VCS as pigs at the trough it's like well like I ate the food I like spend all the money now give me Morey

give me more money to spend again and like they couldn't give you the third or fourth time if you haven't given a lot of the money back from the first or second time there's just a lot of like I think a lot of people in this industry are very complacent all of AA GPS need To do a better job getting money back to LPS and figuring out how to do it so you said there about disposition committee and then I want to talk about like venture's place in a money manager book because it's going to

be too interesting um you said there about disposition committee I'm often told that companies are bought they're not sold do you agree and how do you reflect on that bought not sold the sentiment you have to well in order to get look I've sold lot I've Had lots of returns generating by selling the companies by putting them up for an auction and selling the companies um it is a there are a lot of things a lot of companies don't do that they probably should do you it's very hard to get bought if you're compe if

you're strategics don't know who you are so we encourage all of our Founders to get to know the biggest strategics in the space get to know the private Equity Funds that you know could eventually buy you Like you know by the way you know if you think you're going to do 50 million of revenues this year up from 30 tell them you're going to do 40 and then beat the number uh and it's just building relationships and Partnerships with people we mentioned there about kind of duration you said like 2 to 7x and three to

five years we're trying to make two to five x's in 3 to seven years which basically blends to a 20% net IR curve okay totally makes sense the thing that I hear there is duration so I'm a money manager at a big endowment pension fund and I'm going okay with that duration if we compare that to now a 15-year what it will be duration for an early stage Venture firm I can compound my money with you three times over almost yeah and get that say Blended say three 3x yeah or I can go to a

early stage Venture fund which is now probably outsized in terms of just actual size foot fund and maybe get a 3 Ice Mich I've seen the data there is not many 3x FS by the way we met oh totally agree with you by the way we met some we met some endowments like a couple years ago that said oh you know your lead EDS your fund returns aren't good enough all your funds aren't 3x net funds I only invest in 3x net funds and we turned we we left the meeting and we said to ourselves

should we go hire that guy immediately like should we hire him to run our money because like we want Please tell me where all these like 3x net funds are all run it's a complete fallacy and so my but my point is if I can compound my money with you three times over and get that say 3x Blended versus a hopeful 3x in a venture fund over a 15-year period and this my point the duration is so long how does venture earn its place in a lot I think I think it's very hard I think

there's too many Venture funds I think what my advice to guys and gals they go start Venture Funds it start early stage Venture funds um and and have you ever interviewed or do you know Fab grinda course I've interviewed him twice I really like so fa has been an LP of ours for 15 years he's a very good friend those guys have figured out the game it's like invest in the Ceder a and sell a bunch in the B or C that is a fantastic game to play and you can make a ton of money

doing it and you generate DPI back to your investors you still get to ride your winners and Like you see you're provide you're providing both like the 15year duration thing is totally true and like it should scare more it's actually shocking that like that the number of venture funds over the last like five or seven years has actually increased given that the exits are getting longer not shorter what what I believe like emerging managers and people starting Venture funds need to do is take advantage of the secondary wind of the secondary Markets and the fact

that these growth funds have gotten so big or the crossover hedge funds that want to get it or the public funds that want to get into private investing and start selling off Stakes do the seed do the A and sell some in the B or C but you you're not selling the whole position just like start to return money back to people I get you but then I also think oh oh oh because I just had a GP on from emergence and he basically outlined the Different fund returns they had had they sold or not

sold positions and bluntly they sold their Salesforce position at IPO and had they not they would have made another I'm butchering it but 20 to 30 billion yeah in gains bassima sold their Shopify position at IPO lost billions my point being there with your mention of F and selling at the BC sure but actually if Venture is a power law game that's true yeah yeah so like I take it but by the Way you got to stay in business and so I think the faster a venture fund can get to a if you could get

a venture fund that could get to a 1x faster than other funds that fund could probably grow assets quite a bit and I I'm also talking towards emerging managers as well who like need to stay in business and you know need to raise funds two three four and you know are not people like B that have been in business 80 years um and by the way for every Shopify go ask him about you know 1999 in 2000 or like how many billions of dollars were were lost in 20 2021 by not Distributing positions you said

about stupid stuff in 2122 we did obviously everybody did what was your most stupid and what do you learn from it our stupidest our stupidest mistakes were just like overpaying for a couple companies assuming the exit multiple was going to be like higher than it actually is like you know and look I credit at my Partner Nee you know who's been with me since the beginning with really in like 2018 or 19 we really started to shift our our business away from Silicon Valley based companies and needing to say every company needed dipo it was

go find these gravities go find this safe sand go find you know what caused that cuz I go through your fun ones dude and it's like your alib Babas your Spotify your Uber fantastic companies but all ventur yeah yeah yeah what caused it uh It was caused by the fact that we looked around and said there's no possible way that every one of these companies can grow to be as big as they are like you just the the law of compounding when you're investing over a billion or two billion dollars of Revenue or sorry a

billion or two billion valuation it's just like harder it's just like the law the law of large numbers and we also just looked and we're like who's got money mid-market private Equity Funds And there's hundreds of them and we were like none of these guys used to buy software companies they're now starting to buy software companies so now we have like a fertile ground and if you think about a lot of these midmarket PR funds their portfolios grow 7% a year 6% a year top line revenue growth industrial companies manufacturing companies now they have sleeves

to buy software companies how wait a second for us we'll go buy a company that's 40 with you know 30 million of Revenue 10 20 million of Revenue growing 40% a year let's grow it let's you know two to two and a half 3x the revenues and then it'll be growing like 15% a year that's like fast for and we can we can run an auction we can sell the business and we'll get 20 people that bid for it so this is my point actually those companies growing mid- teens with 50 to 100 million in

Revenue there is an iset for them there is they just need to Pivot the business and Realize they're not building the next data dogs and snowflakes and they need to get them to rule Au 40 and the most important thing getting to rule Au 40 is high gross margins if you have high gross margins and you have 90 plus perc gross dollar retention it's shame I mean you can let the private Equity F you can try to sell it when you're losing money Break Even or what some of these growth Equity firms and Venture funds

should do is do it themselves like it's not that Complicated like it's like look you have high retention rates now if you have low retention like good luck um you know if you have 70 75 80% gross retention it's much harder but if you have a 90 95% gross dollar retention business yeah like make the hard decisions you know and get the thing to profitable turn it into rule 40 so you said hey one of the mistakes was we paid up for things a little bit too much how do you determine between a stretch on

price and a mistake That we stretch too far we build a five-year model the model is wrong we try to put a reasonable exit multiple on it and then just is that valuable to do and what I mean by that respectfully is like exit multiples vary so much over different durations if we look back at 2021 22 the multiple would have been so much higher versus today so much lower I don't know what I think you need to use like some reasonable I think for software again Revenue multip of software companies are just Shand fre

e like it's not at the end of the day I think you should assume if you have a f if you build a software company and you're in it you know and it's growing you should assume an exit if it's growing 15 to 25 15 to 30% a year and that should trade somewhere between four to seven times revenues like yes like we so we tend to like I think our bands that we tend to assume most exits At are like four to eight times Vues like maybe sometimes 10 times at the absolute highest if

it's like growing 30 40% a Year by the way like I credit the guys at iconic like a huge amount because of look they were underwriting deals in 15 16 17 I think it like they they thought they'd exit St 10 to 12 times revenues and they they so they bought the best assets and you know they maybe paid 20% higher to get access to the best assets and then multiples went To like 20 to 30 times the best way by the way to four extra money is two extra revenue and two extra multiple by

the way the reverse happens too so you know that's what's happening to all the stuff in 2021 vintage funds like multiples got cut in half uh for people and so like you know if you twox your revenues and half your multiple that's called a 1x what is the stupid stuff that we are doing today that not many people are talking About we1 paying 100 times revenues for companies we don't we like to ask ourselves when we look at businesses if I invest today and I grow it for 18 months and I assume like it's still

growing fast am I like kind of in the money or do I need to grow for four or five years until I even get in the money like if you if you're growing like I think in toast for instance it was like when we invested in I think it was in seven no 16 15 16 time 17 time frame it was like 25 Revenue growing 250% year like what would that that would be a billion dollar plus exit that would be a billion billion a half dollar multiple today valuations today we paid 20 times revenues

it it was like $500 million valuation like that's pretty expensive then we think about we're like okay in a year from now we're in it probably 10 we're in it it like 10 times okay like for that growth rate that's like say it's pretty Reasonable like I think I encourage people to ask like okay I pay this price today in in 12 months am I in it still at like 80 times revenues or 50 times revenues the price is being paid are totally insane I also think a not enough investors I've had numerous entrepreneurs tell

me oh I don't look at gross dollar retention net the only thing that matters and it's like oh really okay um that's like a I think more investors need to focus on like Gross dollar retention why so okay if you've got a business that ends at that ended 2024 at 10 million of Revenue and you say I have you know and I've got you know 90% I've got 50 and I've got 200% gross dollar retention so like okay my my 10 became 20 all two existing customers but you only have 50% gross dollar attention you

actually lost half your customers and you had yes you had a few that really liked it but that means A huge amount of it were like experimental now the pro when you're a really small company Mo a difference between 90% gross to retention and 50% isn't that much because it's not that much of the pond to fill up or the bucket to fill up but when you get like 100 200 300 million Revenue like that's it results in it's like a huge it's a huge hole in the bottom of the bucket which just then leads

to you know sales marketing Efficiency it's just awful when your burn rates are much are higher not enough people and like we look at a lot of these AI software tons of these AI software companies and like the gross dollar retention rates are just like really really low it's actually like shocking pretty much all of them are there yeah not every one of them like not every lovable got 85% which is pretty good better than chat GPT but again it's Not it's not 90 growth by the way we have a business in our portfolio by

the way it will not change the world it makes cardiac monitoring software it like it is a very small Market it has 99% gross dollar attention like it just means that you can run the business very Capital efficiently o over time because you don't have to keep spending money on more and more sales and marketing how do you think about that kind of capital Efficiency in future dilution element when investing you know as we said earlier Uber and your alib Babas these are incredibly cash consumptive businesses and now e fund businesses which are incredibly cash

efficient lean machines yeah so Alibaba was very cash efficient actually when we invested was a billion dollars of profit actually there may be less shares of Alibaba I credit josi and the team at Alibaba has actually like done like the amount of Stock-based comp delution for a lot of public companies is totally crazy most people in including ourselves over the last 15 years massively underestimated the amount of stock based comp dilution and you know dilution that we all took um you know Uber Uber was was totally insane um we tend to you know over the

last few years we've dramatically increased the amount of like d we assume you know 20 30% dilution and if you're investing earlier it could be a lot more Than that um we have this like what we call Capital efficiency it's like you know Warren buff would laugh at us CU it sounds kind of stupid but it works are your revenues today greater than your historical cash burn cumulatively not raised if you've raised 80 but only burned 20 and you have a $40 million Revenue business like that's a great that's a great business um but we're

looking for like a one to one Ratio or better we just think it speaks to uh so Many just quality qualities of the business like we were lucky to be investors in bench Lan we're still we're still investors um which you know was a when we invested Benchmark I did the early rounds Thrive was an early investor when we in when it was like 13 of ARR growing you know well north of 100% a year that must have been expensive it was I think it was expensive it was like I want to say in The

low threes it was expensive however the company had only burned like $10 million it had burned very little capital and why because it had like amazing gross dollar retention rates and like and the CEO was just like he thought a lot about like you know I know when it got to 20 million and had not burned 20 to get there um it it it just they just value the value of a dollar you now have a lot of entrepreneurs that just like like to light my Amire by the Way I'm not saying some of them

will build amazing businesses by the way we have definitely missed businesses that were not Capital efficient it's just like it wasn't for us what business most sticks out to you with that in mind that we missed snowflake like massive I mean when we looked at snowflake it had like horrible gross margins like again it was we looked at it at $500 million and like we were completely wrong like just like 100% wrong how many businesses actually Though have that perfect profile that fits yours when you look at as we said your Ubers your uh door

Dash door dashes we looked we looked at it in in past so like it's fine again we're going to miss stuff it's it's fine but again we have a framework well a thousand 100 out of 10,000 companies will meet all eight criteria um now a lot of those hundreds valuations would be totally insane if you can even get in them or if they even want to take Money out of 10,000 companies 10% will meet five or more criteria now with respect we live in such an interesting asset class because it is one where the supply

chooses the demand in other words the company chooses the source of capital in a lot of cases and my question to you then is okay we find one that meets all the criteria they then have to choose you if they meet all the criteria they probably have a lot of options with Absol respect Mitchell You're not a romantic around company Creation in the way that a lot of Silicon Valley VCS are or the way other investa the founders resonate with the kind of financial Founders want so our pitch is very simple and it's the reason

that you know a huge number of our Founders have have invested in our funds post exit um the founder of Duo like responded and then dm' me after I tweeted about having you on being like amazing amazing now I'm in LP it's even More amazing it was cool to see so it's like what do we do why is that so when we started lead Edge my partner nimi and I because Brian hadn't even joined yet sat around and we're like why say we take our two Knuckleheads money like why are they going to take our

money and we were like well if we were the global head of HR of if I had been the global head of HR at Pepsi and Nim you had been the global head of HR at Microsoft or Dell pick a company we could probably Cold call HR software companies to be like hey let us invest in your business and we'll introduce you to a bunch of like Global HR execs and that'd be like pretty probably pretty believable right we're like we don't have that we had never know been the global head of HR of anything

or the you know we had never done anything except like cold coin analysts so we thought like well how are we going to get in the companies and and we thought let's make our competitive Advantage be our LPS so let's raise money so like you know let's raise money from World Class execs and entrepreneur and so like if you look on our website 80 90% of our LPS get permission to be listed on our website and these are people who run and of built some of the world's largest companies these are people like the former

CEO of Charles Schwab the former you know the former CEO of Kimberly Clark the former CEO of Colgate pomal and we go to companies and Say the following if you invest with us we'll give you access to our LPS who have built run and advised some of the world's largest companies so hey you are a software company that sells into the Pharma biospace you sell R&D software well hey would you want to meet the former CEO fizer would you want to meet the former CEO Biogen and we by the way we introduce them during our

diligence process they act as our own version of Mackenzie that helps that's How we get into deals and that's why keep like us great sounds great respectfully that is a model though now that's used by a lot you I I have um I don't know $5 billion Founders in our funds uh that less kind of traditional company much more software Le Founders but like and I use that as a weapon so to speak to win I would say Founders are like yeah that's great but by the way index have that too and definitely seoa do

and all the great firms have this Kind of Armory or kind of Weaponry of great great entrepreneurs who invested with them to what extent is that differentiating a lot of hers aren't entrepreneurs they're Executives at like plain boring vanilla software companies or sorry non-software companies um we just constantly leverage them we make you know we can track introductions we track every intro um everybody says they help very few people do I think there's a reason that like you know 80 plus Portfolio company EXA former former and current portfolio company exacts who we've backed are investors

in our funds so like I don't know everybody says they help some people probably do more than others we just do what we say we're going to do it's just not that hard dude I love it you said about tracking Ines that you had a very viral um tweet and I can't remember who did I think it was um pit dassy shill Monet who kind of tweeted your like criteria around how Companies do reporting hierarchy of [ __ ] yeah how CEOs lie to us yeah but we'll go into how CEOs lie to us but

one of the ones where when funds like you know fudging numbers they track intros what so like we are um we believe so like we can give there's a reason that Doug song Who Sold this company for2 and a half billion dollars put money with his fund because we drove tons of intros there's a reason that VC is that some of the biggest Venture funds on the planet are longtime investors with us they've seen us in action do it uh I don't know why more funds that like say they have these incredible networks don't help

people more like I have no idea why like I mean I I have a feeling a lot of funds scale it's scale and also a lot of people are just like a lot so a lot of our LPS are exacts who are plus or minus 5 years away from retirement 10 years you know they've been retired for the last five Years or they're about to retire in the next five to 10 years and they want to help like a huge amount of our LPS are not from Silicon Valley and so we find them a company

and we get them involved early on in the process I mean it's how we it's How We Do diligence and so if like you are a payments company like we invested in transfer wise over here we very early on in before we invested said like listen would you want to talk to the former CFO of PayPal would you want To talk to you know the former president of Isa and any good entrepreneur is going to be like yeah those sounds like interesting people and then we called them and ask them hey what' you think how

do you manage that from an infrastructure perspective because that sounds amazing but it's difficult it's a lot work yeah it's difficult to so look every intro we make I wish I could tell you that it's automatically logged no we BCC an assistant and it gets logged in Salesforce it's a highly customized version of Salesforce that you know we've built spent millions of dollars on customizing over the last you know 15 years do you have heads of network and network managers and Community managers we do not um what we have is uh every person if you've

worked at lead Ed if you work at lead Edge like every person on the investment team has access to all the LPS and by the way to be clear if you're an associate who's worked here For two years and or a year and a half and you're going to Seattle for a wedding and you say hey I want to stay on Monday we be like wonderful you should meet like these four LPS we'll pay for your plane ticket like we encourage everybody that works at the firm to get to know our LPS spend time with

them educate them on what's going on in the portfolio versus if I was like a vice president I'll pick on index but I could pick any fir on the planet if I Was a vice president at index and I was flying to Seattle to meet a company I would go meet the company I'd go meet maybe another Prospect company and then I'd fly home I wouldn't be spending you know six hours meeting four other individuals and like who are LPS and who are LPS in index it's just it's not their model it's like these funds

are PR primarily backed by the largest endowments and Pension funds in the world and our model is like we're going To be 95% backed by individuals and we're going to treat those individuals like gold and so we're going to communicate with them and yeah quite a lot of VCS today say that Founders are our customers LPS are not our customers well um I I I would I would tell you that we have two customers Founders but more importantly LPS because if you do not have LPS you do not have a business I 100% agree I

think I think I think it's really arrogant to suggest they are Not your customer I I think there's two customers as you said Founders and LPS but I'm astonished by this unwillingness to recognize them as customers that we have to provide a great product for so like we run our business trying to figure out how do we have 97% how do we keep up 97% gross dollar retention not net gross with LPS so like if you think that what do you do so we Comm communicate with them we do lots of events with them we

do quarterly calls We walk people through the portfolio we tell people how things are doing look some companies are going to be doing well one quarter some companies are going to be doing bad one quarter but again when you grow 30% a quarter on average like some are going to be doing well some are going doing bad but just like the lack of transparency in this industry to LPS is shocking to what extent do you think your reoperate is determined by your engagement Community Uh communication versus performance it's both by the way without good performance

you can have none of it but I can tell you that people here's the thing though people want the nice guy the good guy the person who communicates to win so like if if you have a bad vintage or twoo bad vintage funds they're more likely I think to stay with you 100% And that Line's not dots again um you said that they like you know they won't come back without the Performance wrong they do they we've seen by way there are there are I'm not going to like talk about there is a very well-known

very large private Equity Fund that would TP historically would raise their it's not in software would rais their funds and literally be like delps you have three weeks to get your docks in take it or leave it these are the terms we're not changing anything they then had a bad fund vage they've been in the market for three and a half Years the fund they just closed is like a fraction of the size of their fund before and I asked them LPS what's the problem he's like you know exactly what the problem is they're jerks

but it's like it's if just you're LPS like they give you the money like without you they're paying you like it's I don't know I I get you but we've seen a lot of fund like returns or performance numbers uh leaked in recent months um I'm not going to name the funds because I don't Want to blly pick them out and their numbers have been poor to be blunt um Mid teens irss at best at best uh for early stage funds and they have scaled AUM and had a excess Supply of LP cash is performance

even relevant that's why LPS are to blame them too for a lot of this like we I have I have many LPs come in this office and say hey harry I have 500 million a year where do I go and I say well we go to these tier ones but you Can only get 20 in each and so there's 100 and then they have 400 left and they go so see I've got to put 75 in X multi-stage Farm I just have to it's my budget so what I would be and like the smartest ones

I find are actually like listen if the if the opportunity is not there let's go figure out where else to put it like it's not like I have to put a billion dollars in Venture every year maybe maybe billion dollars in Venture is too big like I should I should be Doing small small I think look I I think like there's a guy um Eric cush At Mercer who runs research there who took a bet on us very early on before fun three people like laugh actually our First Institutional Investor in fun two was University

of Virginia and like we literally started the meeting with like you're not going to invest with us like why would you invest with us Knuckleheads like you know we don't have a brand we have nothing and a lot of the Investment Consultants really uh are very brand name focused it's like again you don't get fired hire you don't get fired hire on IBM hire in McKenzie I credit this guy Eric C Bush was like taken a flyer on us very early and he's done it with a bunch of other young managers and and he's it's

is this all about the people like and he and he like digs into okay I'm in your fund three why' you exit these things in fund one like how do you think about it how do You think about returns how do you think about treating LPS talk to a bunch of like you know uh talks to a bunch of like portfolio companies like how do you actually add value we tell LPS Prospect LPS by the way everybody tells you they help companies wonderful let me go introduce you to 10 companies in our portfolio call them

as many people as you want and ask them if we value do you what I actually just do I just put Screenshots in in decks of like introductions to amazing people between them and you see the response it's like tangible value great easy totally get that but respectfully when you look at someone like Andre they have proven that brand is more important than performance at scale we'll see let's see over the next 20 years let's see over the next decade what happens um but you're right by the way they're far Richard than I am so

uh does that does that make you Change your perspective on the importance of brand or you just go [ __ ] that we stay in our lane and do that we stay in our lane so I have a huge amount of respect there's this amazing um is your e sorry I mean this so nicy is your ego a little bit hurt because your performance is here nope but people don't uh no but I respect the firm probably one of the best returning funds in like the tech Investments there's a couple of them one of them

is uh Spectrum Equity incredible investors they've kept two to$ and half billion funds Forever by the way Benchmark funds smaller now Benchmark has had like what's incredible about Benchmark is it's like he had gen one gen two now you have gen 3 and they still continue to put up really good numbers they've they've kept it small Josh coppelman at first round has continued to stay small Mike and an at Floodgate have continued to stay small but like like I The Firm That I think has generated the best returns in the tech investing world the last

30 4 years is and it's become more a buyout fund but they used to do tons of minority as ta Associates um and they look it's gotten gigantic uh huge funds but the dpis that they put up are just like incredible but Spectrum what do you think they do that makes them so good they have a countless they have a count they're Relentless in thinking about how to get liquidity to LPS so a lot of Stuff they do in the buyout world now is like they'll do minority sales they'll invest in a company two years

later you know sell 30% of the company to somebody else get their bait back so they sitting not already a 1x like they're just they're just like relentless focus on liquidity um I think some look some of these multi not even multistrap fund like multi you know these giant platform funds the Andre uh of the world there's just so Many people at these firms I have no interest in having like hundreds of employees like you know we have 80 employees and that's plenty do you think Venture V dougle only said on the show to me

that we've moved from a boutique high margin uh Community to a commoditized low margin industry 100% agree with them do you think that is reversible like is the platformization now Venture it is matured to this asset class is it reversible cuz the hard Thing also for me is the cost of capital is so different so I lost a deal recently to one of these large mon I did three on 15 handshake was the founder it was pre-product pre-revenue pre everything but amazing founder and he called me up next he said I would never walk out

on a handshake but I got offered eight on 100 and it's uncapped yeah um look these bad returns will do it uh over time but it's going to take a long time like bad I think the Venture industry was about to be in for a rude awakening and then AI showed up into I always say AI was the oxy content that we needed yes I think that's a for a lot of these Venture funds I think that's true again I've talked to a lot of like Legends in this indust like I love to talk to

people that have been in this industry longer than I've been alive uh or investing like we're adults in like the 90s uh or the 80s this what's going on in AI looks very similar To the internet bubble or like you know and it's like people didn't learn a damn thing from 20 and 21 it's like shuing uh and I don't and look I just by way let's not even talk crypto because that's a whole another specifically what should we have learned entry price matters a lot don't overc capitalize companies Bingo yeah entry Place matters don't

over capitalize companies like the amount of stock delution really really matters You know like if you run a fund where you need IPOs you better invest in Founders that want IPO their companies uh or have a good plan how you're going to get a lot of secondary out of it um it's it's entry Place matters entry Place matters a ton these companies are not all snowflake in Facebooks like they're not Mo the vast majority of companies like I put on one hand the amount of people that are capable of backing companies like Googles and Facebooks

of the world and doing it more than once like it's it's a really really really small it's sure as heck isn't me um it's like the Doug Leon of the world and there just aren't many of them I love Doug oh it's just like like we need more Doug Leon and Don Valentine's and like you know and people that are just like and LPS that are like very direct and outspoken people like Peter Dolan at McKenna used to be at Harvard and like if you would we have we have hundreds of Thousands of listeners and

and several thousand LPS yeah if you to advise them something on investing managers today can be anything what would you say I believe a great question that people don't ask they should ask any manager who is around who's been around 10 plus years hey in September of 21 September 30th of 21 how much unlocked stock did you have in your port and let's say September that was like the hylight of the insanity in the last you know Teck Runup how much unlocked public stock did you have in your portfolio and the next question is why

didn't you distribute to lpce and by a lot of funds can distribute stock too and like you could have kept the stock so like why didn't you hold some people will be like well I was on the board well shouldn't you I mean like isn't your goal just to return like returns to LPS isn't that like the whole job of the business but I don't know that would be a shocking amount of People that have a lot of unlock that did not return did not did not return money um look it's I also think it's

like LPS should spend more time talking to to companies of portfolios that failed like actually talk to the ones that didn't go well or like were the onex's to find out what is the person really like to work with like the ones that work really well that's those are the easy ones but it's like what actually like tell me the Stuff that didn't work and like how did you how was the how was the partner on the deal like how did they respond how did they deal with adversary how did they like deal with you

like hey those are the things I like to focus on you said hey if I get the chance take a 7x back on an underperformer [ __ ] it I'll take it all day all day long all day long how do you feel about the transactional nature of where time is spent your Fred Wilson's of the world Who is an incredible investor incredible incredible he'd be in the he'd be in that five of course completely agree but he always says like reputations are made in the bad companies and then you also have the realization that

I have a limited amount of time and I have to manage a portfolio and invest in new companies is it possible to bluntly cut your losers elegantly to conate on your wit it's a lot easier for me to do it than it is for Fred because he was there When it was it was nothing and I I came in as was a bigger company and so but again there I think are some VCS that are like worldclass VCS that cut their losers and I think there some of or like cut like there are there are

firms that are known there are firms that are known to if if you're a CEO and you don't perform you probably won't be the CEO but I think if you're just the founder coming in you should just be well I have like I have no problem I tell all my Employees if I'm not the right person to run lead Edge like throw me out like that's fine or put me on the side you you come and run the business you mentioned bite dance earlier we had the head of privates from Bailey gford actually in yesterday

who were big in bite dance um there is a lot of public concern in the US or excitement e which other side you sit on that Tik Tok will be shut down um or kind of divested um you've said before you're not worried About that so when we underwrote bite dance we assumed the US business is worth zero uh bite dance North America is a you know single digit percentage of Revenue um we assumed it would be shut down and it's not profitable in the United States then we saw actually what happened when they shut

it down for a day and both sides of the aisle came running up with their you know bag saying oh please please keep it open Please keep it open please keep it open I we just want something to happen either shut the thing down for good or spin it off or do something I suspect it's not done by April 5th or whatever the date is they'll probably push it out again I'm not saying I don't know um I think there's four or five people in the world that know what's going to happen um and well

time will tell but again it's like just the uncertainty I do think this though that the Chinese Government actually really likes bite dance um it's a truly Global business Alibaba is not a truly Global business uh 10 cent is not really a TR truly Global business Nike is a truly Global business Microsoft John Deere are Global businesses what I mean by that is you can go into I don't know 140 countries around the world and buy Nike shoes probably go into 100 countries in all the world and and buy a John Deere tractor China's always

wanted to build a Truly Global business this is that first truly Global business like if you if you think they're just going to like let other you know I think like they're very proud of what they built and it's a huge business I think they're going to be one of the foremost AI companies on on the planet over the next decade what makes you say it'll be one of the most former AI companies I mean they just the amount of tech I mean there's a reason when the amount of AI they have already embedded In

the product uh I mean in India when they were kicked out several years ago nobody's really able to build a competitor in India I mean Facebook's trying you know by the way you know who hates bite dance right Mark Zuckerberg and by the way so would I to be clear I would be if I was running Snapchat or Instagram or Facebook I would be all over like politicians in in in in Washington being like this is horrible this is all propaganda this is like you Got to get these guys out of here it's the biggest

threat to these companies um it's it's absolutely incredible with these what these the Chinese have built the Chinese are like I mean know like if you look at all these stats like number of phds and science spend and all these things like it is a it is an incredible country that is like they're not worried about what happens next quarter or next year they think in 50e blocks do you think we as the West underestimate China's ability in AI 100% I just have seen how hard people in China work at some of these tech companies

I agree with you and as a result I get concerned do you get concerned by their ability to infiltrate our societies and provide amazing products but the I think both countries should learn to get along China and us collaborating together more is better for the global world than less there's lots of things like both countries can do together to make both Countries a better place Peter at baord taught me actually the strength of the core B dance business in China I know it's a global business as you said that but the core business in China

monster monster and by the way it's a huge e-commerce business there too unbelievable but we all think like oh Tik Tok shutting down in the US it's over it's terrible and not really at all actually my question to you though is if it is more domestic focused I just don't Understand where liquidity comes from it is not going to list in the US clearly Hong Kong Hong Kong Hong Kong for sure like by the way 10 cents listed in Hong Kong it's gigantic U Hong Kong 100% And that's feasible I'm na even oh 100% yeah

yeah but T's a huge company um you can list you know like there's giant Asian businesses listed on the Hong Kong shock exchange it's very liquid um you could you could have a trillion dollar like by the way I I don't know what Facebook Stock is Val market cap is yesterday but I think it's like A5 to7 trillion dollar company this is the same size business in terms of earnings grows faster I mean like Alibaba and 10cent don't really grow that fast I mean they're like five seven eight% Growers what do they Trade It 13

15 times earnings like you do the math like this this is a very very big company I like to we like to buy stuff when no one else likes to buy things like when the world hates something it Um one of my longtime LPS does that not go against your statement though of uh the best Founders are not the ones calling you back that's fair um that is a fair statement I just think that if you not always right like but you know because I struggle with that statement too because I have so many great

entrepreneurs in here from the fanss of uipath and the found of clavio and like go on and on and on Toby at Shopify he gives me dude like 50 VCS were like nope Nope nope nope nope nope nope and actually it is the opposite they were cooling they were cooling yeah look for every for every Toby at Shopify there's a 100,000 Founders that are like uh um they aren't going to make it um but like it's incredible what he what he built yeah can I ask final one for you do a quick fire what's your

favorite deal you've done many deals what's your like that's my favorite and and what did you learn from that I mean Duo was a really Interesting I mean it depends on like like favorite deal is buying like LPS out of a 20- year old fund buying something to like get four times earning I mean find something like get four times earnings um you know like you buy fund positions 100% so like this you do strip sales let me explain so um the company I'm gonna get to is this company called work human that's where we're

going to go with it um there's this there's a table in front of us right Let's say this table is a company if I buy 10% of this table or 60% of this table it's the same table right if you own the table but the chair you're sitting on and if you're the fund and you own the table and theair you're sitting out and owns half your owns half your fund and I buy the chair I just bought 25% of the table so like we just view it as like buying it to a wrapper so

we we describe investing in companies is we have these like very specific Criteria then we take this completely flexible approach we'll buy 10% of your we we'll go through the front door it will s up like like a house you're walking down the street you see a three criteria house walk by it see a four criteria house walk buy it get to a six criteria house knock on the front door you can go in the front door and you can buy you can around in a minority deal you can go on the front door and

buy the entire business well what's say like They don't want to raise Capital you can go in the side door and buy out like an early investor or an early employee in the form of secondary again it's still the same house but let's say like that doesn't work let's say like you can't buy secondary so for whole Hoster re it could be roers it could be there's no sellers whatever well let's go through the basement window with a pickaxe and let's find a derivative let's fund somebody's co-investment vehicle let Let's find some 20-year-old fund where

90% of the nav is in like one company um so this so This example um this company workum is an awesome business up in Boston it's been around 20 plus years it's insanely profitable and noes not it doesn't grow 50% a year it's a giant stable business I'm going to totally get dates wrong but like it came out of like a two we met the company there was nothing to do there was no like um the company didn't Need primary Capital it was super profitable there was no secondary to buy so we found an old

fund that was 17 years old and we tender and we went to the part Founders and said look the fund you must have like a bunch of LPS that went out you've been in it 16 years right I mean we bought it at like the position at like five times earnings and we've gotten 90% of our money back through dividends in the company and you're like well how'd you do that the LPS were in the fund for like 15 years they just like want it out so there are these unique opportunities I find in business

where it's this Arbitrage on timing correct and that is the most special time ever when you have a manager who desperately needs liquidity to get a fund raise and they know that it is in opportune to sell but they need to to get that next fund correct and for you your duration is different correct and so we were like in in a world where LPS and GPS are looking for liquidity fishing in the pond of old funds like 20y old funds people are like well what's your discount to nav like nav is irrelevant what's fair

market value if like nav is really cheap I'll give you I might pay you 100% over nav but I can't do that because then the lp would think oh you know more than I do so I'll pay a discount to nav still um do you worry that everyone is doing that now I it shocks me that more people don't do this There's not that many people doing it the secondary funds they do gauge like a lot of a lot of people are going after the multi asset stuff so you'll buy you know an LP that's

selling 30 positions and 30 Old funds and there's 200 underlying companies or 500 underlying companies in it we're looking for the stuff where there's like one underlying company and like it's an old fund 90% of nav is in one company and like we just write off the other stuff basically I Just like look at it got you so you buy the basket discard the 10% you correct exactly got you uh have you ever been surprised on the 10% yes we got back 50% of our money on a 10% in this fund and work human yes

it was uh it was some like chips company that literally were like the cash balance on the balance sheet is like almost as big as their valuation for the entire company like this doesn't make much sense like I don't know I don't know if this thing Does whatever maybe maybe it'll get something back yeah we got 50% of our money back wow I love that uh listen I want to do a quick fight I've so enjoyed this conversation uh okay so let's start with where are we what do you believe that most around you disbelieve

uh I believe uh and we talk I believe that like DPI is the most important thing and marks are completely for suckers you can buy and hold one public stock for 10 years Microsoft Why the pricing pressure the pricing power they have is just absolutely incredible you don't worry that there's no upside left given how rich you price they it is look it is expensive but like it's just an incredible business with amazing price mod I think they have an in so like you asked me who I thought was the best CEO I saw on

that list I think Sai Sati is an absolutely incredible CEO it's a giant business there are companies in like a downturn If we could get a 30% draw down like I would buy snowflake or buy uh data dog and put it in you know put it in a drawer and let let those compound for 10 plus years um I mean Amazon you can put in that bucket too just a lot of them are fairly Rich St what's the hierarchy of BS that companies report oh uh like favorite place to work if like on the second

page of your like presentation if you're like oh you know we're the greatest place to work um oh you know in This region but a lot of it comes down to like they'll be like oh my revenues are this you look at the chart you start doing all the analysis and you're like actually that was your total contract value uh that's a that's a pretty good one too like there's a lot of ways to fudge gross profit numbers uh and through cogs and all that kind of stuff what have you changed your mind on in

the last 12 months I was probably even more more skeptical about AI oh Self-driving cars actually self-driving cars uh I went for a rides in them incredible now it's going to take a long time to get out there now 10 years ago like you know I said like people always underestimate Tech over the long term but they overestimate it always in the near term everybody was talking self- driving cars 10 years ago the experience that I had in LA and like San Francisco and self-driving car is absolutely incredible now we didn't [ __ ] on

people In this show but we can praise them and so if you were to choose one seed firm one series a and one growth to put your money into his an LP which firm would you choose if I had to be like a traditional growth okay like Spectrum would be the growth fund but that's a lot of your audience is not that type of growth that's more like bootstrap growth traditional growth um either iconic or maritech like the returns of iconic are freaking amazing iconic or maritech Series a um those two groups between CED and

a it would be like Benchmark or besser you don't worry if Fun Size is too large if you need if you need to own a large fund and write a $500 million plus check like I think baser is as good as any of the other big funds like I think the guys at index are amazing investors too I problem with a lot of these funds is you got to buy the basket like best actually just has one fund which I highly respect I mean I guess They now have a buyout fund but like and an

India fund but like you always have to buy the baset you want to do excel you you totally agree what can sorry oh go ahead no no please Oh I thought you were going to ask me like the short micro strategy is totally insane why I mean use I mean like I'm very not bearish on crypto but like I think it it reminds me a little bit of the Tulip craze um that you can't actually use crypto to go buy Like when you could if I could go buy a Tesla with crypto it be amazing

if I could go to Amazon and use Bitcoin it'd be incredible but like you can't right now now again I think it's probably just so volatile people can't like the currencies the idea like from what I understand micro strategy effectively issuing debt to buy to go in the market and buy more to go to buy more like crypto and they just keep doing it but if that reverses eventually got paid on The debt I it just sounds like a house of cards to me well the B yeah but again I'm not an expert on the

company I have I don't know but like if that it just seems to me like some of these like crypto businesses are a little skeptical do you have any crypto Investments I do not no I do not have any crypto Investments uh We've looked at stuff around the like like we looked at chain analysis years and years ago probably should have done it um like the picks And shovels type stuff look should have done coinbase like years and years ago but way I I should have bought Bitcoin too I never have like I mean clearly

I could have made a fortune what concerns you most in the world today two things um income inequality and that the fact that you know where I grew up in Michigan I think the vast like I worked in a factory in high school um I think a lot of those people today are like basically way worse off relative to what Wealthy people were you know 25 years ago and like the one it's if it's the 0.1% or the 1% has just like broken off in this printing of money has just cause like it's going to

cause Mass it's like massive income dispersion I agree but what happens MIT it's that causes revolutions to be clear um but the thing that I actually worry about more near term that's solvable is social media for teenagers it's absolutely horrible um we need by I am a bite dance investor to be Clear bite dance in the vast majority of their Market is highly regulated like kids in China go on B go on Tik Tok to read about like science experiments and math projects um you know in the states I assure you that's not happening or

in England um social the media companies are regulated there's a reason like the BBC or the Discovery Channel or NBC can't say a lot of the things that get said on social media they're highly regulated they're like regulated by the Governments you get massive fines um social media companies need to be held accountable for the content there's there's a law I'm just forget should should we B Australia baned it from the 16s should we ban it yes I think we should I think it needs to be way highly regul by the way um um suicide

rates depression rates like all this bullying all these different uh metrics you look at are going one way up and to the right it is like the social media is the Demise of society penultimate one when have you questioned yourself most as an investor I think we questioned our existence in 20 and 21 as like we were just getting annihilated on prices we question ourselves now and like are we totally wrong on AI and we just don't get it it's like are there going to be one person companies way sooner than we think are all

of our software companies going to be completely disrupted and all of them go away and like I don't know Like I'm taking a stand that it's they're not but like I I guess I could be totally wrong I mean I think you a good in any investor who says they know the answer to something that's the best way way to fail and like we just you know you got to stay intellectually curious and my favor my favorite is the thesis that we say about every investor has a thesis and what the [ __ ] are

we professors like I didn't know about you I've never had a thesis I don't have any Thesis by the way my thesis is just meet six or eight criteria that I I literally um the amount of the amount of P the amount of pontification in in in the world especially on Twitter by people that are like in the investment business people should spend less tweeting more investing time ah see what you don't understand though is that brand is a hack it's a hack to get LPS it's a hack to get great Founders so yes I

totally agree with you on the pontification so Uh I thing I love about our business too is like yours is six out of the eight mine is is are they generational defining founder yeah by the way and both work way there two different ways to invest which is awesome though yeah yeah one one's not a right way or a wrun way here's what I believe what you tell your LPS just make sure you stick to it and do it that's actually the best advice I can give for any emerging fund manager it's like look Define

what You're going to do and do exactly that and don't go out of don't go don't Don't Stray From it at all will the tourists get washed out of the ventry cases 100% they will when I don't know it might be like a slow uh you know it might be like a slow hole in the canoe but eventually yes they will yes 100% final one for you I like to finish on like optimism positivity when you look forward the next 10 years what are you most optimistic positive excited about the World like humans are just

like very resilient people that like adapt change and the fact that every I mean I'm glad I became a software investor and not an energy investor like just because like energy is like I don't know it's been like a dying industry for the last 15 years and but energy has never been hter now it's gotter now but like it goes in waves and I just like the amount of innovation that's happening and just like change like I get to invest I get To meet really interesting Founders some of them are going to change the world

some of them are going to sell budget planning software the afteron police department that's fine but like they're building cool companies like look I am an I I was when I went to Wharton business school I was um I was involved in like the entrepreneur conference and we'd always bring in people that like built software companies built consumer companies I was like why don't we go get Like Steve Cohen or like the guys who like built giant money management firms like Steve Cohen is an entrepreneur like he started with a very small business started by

himself and now runs like one of the biggest hedge funds on the Planet K same thing I mean like they're like incredible entrepreneurs and like the ability I get to spend my day meeting cool entrepreneurs it's just like it's not a job it's like an amazing thing to do you know I hate the term operator and The way we use it because it's implies that anyone else who's not like an operator what you don't operate yeah exactly look I've got 80 employees so yeah yeah actually the best advice I ever got um and something I

try to do every year at lead Edge was from the um I got it from the founder of excel KKR which is a very good fund um and he said you should interview all your employees from admin to your other partners and basically ask him for Feedback just be like hey if you were running the place what would you do differently you know like tell me everything you do in your job green red or yellow and so it's like okay well I actually don't care what you do green I care what you do red because

I want to get rid of those things and like the I've been doing that for three or four years and the feedback you get is just like incredible what have you most changed on the back of those so uh lots Of things but I would say the biggest thing we've we did is as we started to call more and more non-silicon Valley based companies our our you know 1820 Associates you know 22 24 year olds were like dude in Chicago nobody knows who we are and Indianapolis nobody knows who you are we need to like

get the brand out there so we hired this amazing head of PR commoms Michaela um and who had helped build TUS Ventures for Bradley who by built a pretty good brand over Like a couple years and we're like hey Michaela how do we get entrepreneurs in Madison Wisconsin to like know who we are so like we've got we've got 10 plus we've got 15 years of quarterly letters about like the hierarchy of [ __ ] that by the way other Venture funds take viral book A book we literally have a 400 it makes a good

door stop good kindling in the winter for a fire um but it's really good so that content we want to start to release to the public like We joke it's like it's very funny that Partners at Andre and Horowitz who we're friends with or Partners at Benchmark or Partners at you know first round have made the hierarchy of BS letter are kind of famous like we didn't actually make it famous we just gave it to other people who distributed it like we should distribute our own content and so like she's like we have 10 years

of amazing letters like this 15 years let's start to like put those out there you know Like you know go on CNBC like go on Bloomberg and look you know entrepreneurs if you're on TV that you're you're now smart um but again it's just we tend to like be a pretty like direct firm and like actually another thing that we pride ourselves on is fast nose and I don't think enough people do tell an entrepreneur if it's not a fit tell them very quickly don't waste people's time like people by i' say it's LPS if

we're not a fit for an LP please tell me there's no reason for me to meet you two or three times and give you a bunch of data I highly respect you have a call with somebody and they're like you know what like what you do Mitchell you guys just aren a fit for us no problem like we we we we at lead Edge to all our analysts and Associates and principles and VPS like drive down the fact that hey you talk to a company like they've prepped for the Medan they've done a bunch of

work tell Them it's just not a fit like don't drag it out a month don't drag it out two weeks do you give them the reasoning why 100% we do yes and you don't worry that they'll argue back don't care it's just like like some people argue back and by the way we uh this is this is amazing we uh we passed on an analyst candidate I mean I wasn't involved in it at all heem emailed me and said hi I'm on like the Harvard you know varsity team of this and this you know they

know we like Athletes my rejection uh box is is full I reject your rejection he got another interview so like he act I was like this letter is just like incredible he actually like most people get rejected and like 99.9% of people get rejected and you never hear from him again this guy was like no I reject your rejection here's the reasons why I think I'd be really good here are some interesting companies that I think are interested They like he this guy sounds pretty damn good like why do we pass on him they're like

oh well we were we're kind of full for the year and no get him back in like let's meet this guy the thing I understanding with people who want to get interventure is actually it's quite easy if you just give the premium version of yourself if I send you three companies every quarter that are aligned to lead edges model and the companies that you like and I can see that on your Website and I do that for three quarters say nine months come in here come and talk to us 100% 100% like yeah that's impressive

yes 100% yes listen Mitchell I've loved doing this thank you so much for joining me and you've been a fantastic guest thank you amazing dude appreciate it