Oren Zeev: 50% of Funds Will Go Out of Business & Why GPs Shouldn't Tell LPs Their Strategy

I think this notion that only growth matters is a very dangerous one, and I've seen this movie many times. We humans are not truth seekers. We are self-validation machines.

Meaning that today, we have one of the most prominent solo capitalists in venture, Oren Zeev, who now manages over $1 billion.

1. Why Oren Zeev Takes $0 in Management Fees

In every one of my funds, I'm the biggest LP, every single one. By the way, I pay myself 0. I don't see anything that's very unusual. I don't know any VC in the world that has 0 income from management fees.

So I tell LPs, “I only have 1 rule,” and that rule is that I have no rules. Listen, AI is the biggest change ever in the history of humanity. It changes everything, and whenever there's change, there's opportunity to make things better and to build a huge amount of value.

Ready to go. Oren, it is so good to have you back on the show, dude. It's been several years since we last did this, so thank you so much for joining me, man.

Yeah, no, it's my pleasure. As you know, I was skeptical that I would be able to bring anything new to this conversation. You insisted.

I insisted because, last time we actually did a show, I don't think I was a very good interviewer. Call it a lack of humility, but I hope that I've improved as an interviewer. I think now is quite a hard time to be investing. Again, I'm going to use the next hour as an advice session for me as an investor, because I think I have a lot to learn from you.

2. Why the Best Investments Always Look "Wrong" at the Start

Now is a weird time because a lot is uncertain. When we look at picking investments, that is our job. That's what we're paid to do in a lot of ways. Why do so many of the best outcomes look wrong or weird at the time we invest?

Look, I think if they look weird and they look wrong, then probably there aren't going to be 15, 20, or 100 other startups doing it. So you're probably going to have 2 or 3 years without real competition, and you have a chance of really building something—a real moat.

Now, if you're wrong, it's not going to help you. But if you happen to be right, then these are some of the greatest outcomes. Again, this is really some level of contrarian plus being right. Those are the ingredients, typically, of great outcomes.

I get you. The challenge that we have today is that the level of competition has changed so much. When we first met you 10 years ago, there were always 1 or 2 competitors. Now, for every company I meet, there are legitimately 8 to 10 at a minimum.

What do we do when the level of competition has increased to the extent that it has?

I try to avoid it, to be honest. I'm in the Peter Thiel camp, I guess. I don't like to go in where everyone else goes and have 10 or 20 competitors from the get-go, because I think the chances of building a market leader are smaller. I really want every investment to become a market leader, and the more competition there is early on, the smaller the chance.

Every now and then, I find myself in such a situation. Okay, but I don't like it. So I just try to avoid it, and I try to do things. To me, if everyone is doing something, it's a reason not to do it, not a reason to do it.

3. The AI Tsunami: How to Spot Beneficiaries vs Victims

Has what you look for changed in the last 24 months, at the dawn of the wave of AI that we're looking at today?

Not so much, surprisingly, because I think the fundamentals are the same fundamentals. Yeah, we have, of course, a tsunami wave that changes everything, which I think creates a lot of opportunities, because basically every single industry and business is going through change. Whenever there's change, there's opportunity, and there's a lot of value being created, a lot of value being destroyed, and a lot of value being shifted.

The 1 thing you could maybe argue has changed—I don't know if it's 24 months or 36 months—is that, with every investment, I have to ask myself, “Is this company a likely beneficiary of AI or not?”

If the answer is that they're a victim of AI, obviously it's an easy answer. But even if the answer is neutral, then the answer is probably still no. So I just have to ask this question, which is a question I wouldn't have asked 4 years ago. 4 years ago, I would look at an opportunity and I wouldn't ask myself, “Is this a beneficiary of AI?” But in the past 3 years, absolutely, I have to ask this question.

If we were to reflect that back on 1 of your best investments and 1 of your most concentrated positions, which obviously went public—Navan—would you say that Navan is a beneficiary of AI?

100%. I'm not sure that the public market yet sees it that way, based on the valuation. This is my theory: In general, the market feels or believes that some or many of the software companies—the incumbents—are going to get disrupted by AI, and I think the market is right about that.

I think that the market is not yet at the point where it can discern between the ones that are going to be negatively impacted and the ones that are going to be positively impacted. So I think that most software companies are getting somewhat of a discount because of that justified fear. As you know, SaaS multiples, for example, are lower than they've been in the past 10–12 years.

But I think over time what's going to happen is that, for some companies, the suspicion is going to materialize, and in hindsight, even with a discount, they're going to look very expensive today. For others, they're going to be beneficiaries.

Specifically with Navan, which is a company I know well, I'm 100% convinced that there's a 0% chance that we get disrupted by AI, and there's a 100% chance that we're huge beneficiaries of AI. I can go into details, but I feel very, very strongly about it.

Can you—I can't get into details in terms of numbers, obviously—but just from a qualitative perspective?

4. The Death of Incumbents? Why Most AI Predictions Are Wrong

I think that—I'll give 2 examples. Gross margins: 3 years ago, before AI, our gross margins were around 50%. That was all the cost of support, and now, in the past 3 years, we've invested a lot, and we're doing more and more with AI.

Ultimately, I believe that, if not all, almost all the support is going to be done by AI. Already, I think that—I don't want to say a number that's not accurate because of the sensitivity, but it's dramatically better already. This is public information. I just don't have it in front of me, and it continues to improve.

This is the easy part. The second part, which is even more exciting, is to think about what you can do with AI in terms of the customer experience. Again, I'm not sure what I'm supposed to say and what I'm not supposed to say, so I want to leave it to the company because I don't want to trip on some SEC rule or something.

The even more exciting thing is how it dramatically improves the customer experience on multiple levels. Back to the first thing: Why am I not worried about being disrupted? I think that if you have a piece of software that's fairly simple, then, yeah, someone can write it quickly, maybe price it lower, maybe even have better functionality, and have much faster velocity. Those companies are at risk.

But the more operationally complex a business is—and I'm not talking about Navan, I'm talking generally, although I think Navan falls within this framework—the more it's about distribution, the more it's about integration with sources and with other pieces of software or content, in the case of Navan, or parts of the ecosystem, the more it's in a regulated environment where there are a lot of licenses and stuff, the harder it's going to be.

The technology—okay, someone can develop the technology, but technology is 5% of it. You have so many other things: data. Data is so important, especially in the age of AI. Who has the most data? The incumbents.

So the bottom line is, I think this notion that all the incumbents are going to die—this notion that's being promoted by some people whose main motivation is to make provocative statements and get attention as thought leaders—I don't buy it. I think that, yes, some companies are going to be unable to adapt, both for objective reasons like the ones that I mentioned and for execution reasons.

Some companies are just going to be faster, more adaptive, and crisper in adapting. Of course, if you continue to do nothing different, you're going to die, but that's always been true.

Specifically with AI, I have 0 concern, and I think that, in general, companies that are not easy to disrupt—as long as they don't fall asleep at the wheel and as long as they navigate and adapt—are going to be huge beneficiaries of AI.

I have so many things to unpack there. The first thing I want to unpack is that you mentioned Navan has invested, obviously, in support. Support is a space where everyone is like, “Duh, AI is going to replace a huge amount of labor.” It's the most perfect solution for AI.

That would be a consensus company or market to invest in, with huge amounts of competition.

Does that mean you don't like it? Because that's the opposite of what you said you like.

5. Why Chasing Hyper-Growth is a "Disaster Waiting to Happen"

Yeah. A new company that's solving the support problem—one of them is going to be successful, but there are thousands that are not. So I'm not at the very early stages. I don't trust my intuition enough to know which one of the thousand is going to be successful.

6. Quick-Fire Round

You know, something I'm really struggling with is growth rates. What I mean by that is, I'm meeting companies today, and I'm looking at them, and they're going from $1 million to $5 million in revenue. Before, or when we met, that was great; that was impressive. Now, it's just not enough to get the great big funds interested at the B or the C. And I know that, actually, I'm not going to get a good next round on the back of that growth. How do you think about the changing expectations on company growth rates, and does that impact your investing?

Yeah. To be honest, I don't buy that either. Call me old-school, but I don't buy that because the math doesn't change. If you have a company that can double every year for the next 5 years, it's going to be 32x what it is today, because 2 to the 5th power was 32 before AI and after AI. That has not changed.

So the real question is: Is it sustainable growth, and is it healthy growth? Maybe a company grew from $1 million to $5 million, but it's not necessarily healthy growth. The economics aren't very impressive, and I think that next year they're not going to be growing much. In that case, it's not going to be enough to grow from $1 million to $5 million, but if the company grew from $1 million to $5 million and it looks like next year is going to be $20 million or $15 million, and the economics are healthy, absolutely, it's a great company that I want to be invested in.

And I think there is danger in dismissing companies. I actually have a company right now that's raising, and the company is growing at 100%. It's at $20 million ARR today, growing to $40 million ARR, with very healthy economics this year, and I think they should also double the following year. One investor said, “Oh, you know, we're going to have a challenge with a growth rate of 100%.” I have a lot of respect for this investor personally. I'm not going to mention him. I have a lot of love for him, but I think he's dead wrong on this one.

Why do you think he's wrong? Because I think he's right.

Okay, so we'll see. I think he's wrong because this company can—again, it's not as if—look, if this company had competitors at the same level growing at 3x and they were growing at 2x, yes, then he would be right. But they have the market to themselves. They're leading the market; they're growing 2x.

I prefer a company that's growing 2x with very healthy economics to a company that's growing 3x with unhealthy economics. And as long as I believe that the market is large enough to continue to sustain this kind of growth for the next few years, I'd back this company all day long. So, yeah, I don't think that AI changes mathematics. Compounding is the same before AI and after AI.

7. Is the Future of Venture Boutique or Mega Fund: Does the Middle Die?

When you look at the opportunity cost that large growth funds have today, when they're investing large amounts of money into the following rounds of our companies, they can be in a Cursor that goes to $1 billion faster than ever. They can be in a Harvey that hits $200 million within 2 years. And I'm in businesses like you are, dude, so we're on the same side here. But I'm looking at it going, I get it: opportunity-cost-adjusted, they want to be in Harvey and Cursor, not ours.

No, I don't buy it. Sorry. I don't think so. I will tell you, even in this day and age, there aren't many $20 million companies that are doubling with very healthy economics. It's just not so many of them.

The other thing is, I think this notion that only growth matters is a very dangerous one. I've seen this movie many, many times, because when you only look at growth, it drives companies to do things that are unsustainable and unhealthy. For example, these circular deals: I'll buy your product for $1 million, and you buy my product for $1 million. It's a win-win, right? Because we both now have another $1 million of revenue, and, yes, we also have another $1 million of cost, but that doesn't matter because nobody looks at it. So you realize that no value was created in this theoretical transaction, but a perceived value was created.

You're starting to see this, and I'm not even getting to fraud. This is really still within a gray area. You see other manifestations of that, too—things that are clearly not sustainable. Now, in some cases, companies will somehow be able to, despite that, maybe succeed, but in others, it's going to implode at some point.

So are you telling companies that you're on the board of: Don't listen to the hype? Don't believe the bullshit on podcasts about growth rates needing to be crazy. Build healthy businesses today.

Look, I think growth is super important, and there are some—but, yes, in general, yes: grow healthy. Now, there are some rare situations where you have no choice, because if you have competitors that are also growing very fast, you don't have the luxury of saying, “No, I'm going to grow healthy.” You just have to play the game and hope for the best.

Uber versus Lyft would be a good example 10 years ago—or 15, whatever, 15 years ago. You didn't have the choice of, “Oh, let's build it slow and make it healthy.” You had to go as crazy as possible, whatever the margins were, and ultimately, in the case of Uber, come out on top.

But, again, I look for businesses where this is not the dynamic. When you have the choice between growing fast in a sustainable manner versus just going crazy and optimizing just for topline, ignoring everything else, I think the latter is a disaster waiting to happen.

Do you ever worry that having a focus on margin and good economics too early hinders the upside opportunity for the companies that you're in? If you look at DoorDash, shitty margins for years. If you look at OpenAI or Anthropic, actually shitty early margins. Do you worry that you focus too early on margin optimization?

As I said, in some spaces and areas, yes. It's more important to win market share; it's more important to win the market, and you don't have the luxury of focusing on margins too early. You have to make the assumption that you'll take care of margins once you win.

But most businesses are not like that. Certainly not all businesses are like that, and in businesses where you have the option, again, don't focus on margins too early. I still think that growth is more important, so I agree with you that focusing too early on margins absolutely can hinder the opportunity. But at some point, you do want to focus on it again if you can afford it. And that point really depends on the business and the competitive environment. I don't think there's one solution or one answer for all.

8. The Biggest Mistakes From 2021 and Investing Lessons From It?

My biggest mistakes have always been when I think that I'm smarter than the market.

Okay, yeah. I turned down Deel at the seed round because I was like, “Payroll? Really? Paychex, ADP—come on. This is ridiculous.” It was with this kid, Alex Bouaziz, who's now a friend. He won't mind that. Really, do you give a shit about the market, given the stage where we invest? How do you think about that?

I also made mistakes thinking I was smarter than the market, but my biggest wins were when I thought I was smarter than the market. It's much more about the winners than about the losers.

So, no, I actually try to suppress the signal of social proof and what other people think, if not ignore it altogether, and really invest based on my own conviction. Sometimes I'm going to be right and sometimes I'm going to be wrong, and it's more important to be right about these things because, as you know, if we lose something, we only lose 1x our money; if we win, it could be 100x our money.

It's absolutely true. What you don't want to do is continuously put money into a loser, and you want to reduce that time cost. When you've done that, what did you get wrong?

First of all, I don't often get these double-downs wrong, because I really believe I have enough intellectual honesty to look at things and not be biased because I'm already in. Maybe because I'm originally an engineer, or whatever, even when I was in my previous life as a VC, compared to the other partners, I had a partner who never saw a follow-on he didn't like. He always found a reason to justify his previous decisions.

I think one of the strengths of being a good decision-maker is actually changing your mind when there's new information. There's a quote I like from Annie Duke's book, Thinking in Bets. It goes something like—I'm going to butcher it—but it says, “We humans are not truth-seekers; we are self-validation machines.”

Meaning that most people, when they have an opinion, whatever information arrives in their mind is proof that they were right, right? I don't think this is a good mindset for a good venture investor. I think you want to have enough intellectual honesty to change your mind based on the new information.

But I'll give you an example, because I'm not foolproof. Of course, just like I make mistakes in new investments, I also make mistakes in follow-ons. I'll give you an example of a company that was in the proptech space and seemed to be on fire. It went from a $2 million run rate to $30 million the year after I invested, and the projection was to go from $30 million to $100 million. Everything looked great.

So I doubled down, and I thought I probably got a discount to what the founder would have gotten from the market, but the timing was just before the big rise in interest rates in late 2021 or 2022—I forget exactly what it was. So what did I get wrong? First of all, I understood that the business depended on interest rates to some degree. I even stress-tested it, and I actually did assume that interest rates would go up fast.

I had the worst-case scenario, and I ran the model and concluded that the business was going to be resilient enough and was going to survive it. In hindsight, I overestimated the resilience of the business, and I underestimated the speed. What I modeled as the worst-case scenario was actually not as bad as the real scenario that happened. The rise in interest rates was too fast, and the company could not survive it, so I lost.

And by the way, this is an example. It happens. We’re still in the risk business.

What do you take away from that as a lesson?

I actually don’t take away much. I’ll tell you why. I think some of the bets are not going to work. I think it’s a mistake to judge a decision by the outcome.

It’s like when you play poker—and again, I’m quoting from that book. I’m not a big poker player, but when you play poker, you can make the right decision and the odds are in your favor, but the cards that came out—you lost the pot. It doesn’t mean that your decisions were wrong. Over time, if you make the right decisions, you’re going to win. But in any individual case, luck has a huge role to play. You can also learn the wrong lesson.

Yeah, I took a bet. In this case, it was wrong. In hindsight, I wasn’t aggressive enough in my stress-testing. But does that mean that I should be overly conservative next time? Not necessarily, because I could have been right. In other cases, I was right. So I just have to be comfortable with losing money, including big pots, every now and then.

Can I be blunt, Oren? You have massive balls when you look at your concentration into Navan, which is now a public company, and it’s been incredible to see all that they’ve built. But at times it looked hairy. For example, when travel stopped, as a travel company, do you feel the pressure in those moments?

Actually, in the case of Navan, I never felt pressure. COVID was a big one, by the way. Even before COVID, in 2018 or 2019, we had an existential crisis when Delta Air Lines decided that they hated us. You cannot really succeed as a travel company when 1 of the 3 major airlines in the US is not willing to work with you. Luckily, we did solve it, but it was not obvious that we’d be able to solve it.

Then COVID happened, but with COVID, I had complete trust in Ariel’s leadership. I had no doubt, because some people were saying, “After COVID, people are going to just stop traveling for business and just do everything over Zoom.” I never believed it. So I had no doubt that at some point COVID would be behind us.

I always say that Ariel was such a CEO that, as an investor, I could sleep well at night knowing that he and the leadership were doing everything. They did a lot, actually, not just on the cost side. They reacted so fast, and they adjusted the costs. They were the first company to let people go, and they got so much shit for it because they fired people over Zoom, as if there was any other way they could have. They still got a lot of shit from the press, but who cares?

They changed product priorities—for example, changing pricing models, pricing messaging, and prioritizing features that were more relevant in an environment like COVID. They did so many things in very quick, bold actions.

But at the end of the day, I think relative to other people, it’s easy for me to let go, I find. So if I have a company where maybe the founders are not doing the right things, and they’re not reacting to a crisis in the way that I think they should, I don’t get too worked up about it. At the end of the day, I’m letting go emotionally. I’m still going to show up to board meetings and try to be helpful and positive, but emotionally, I’m letting go. I’m going to at least try not to manifest frustration and angst.

LPs often have capital concentration limits. For those who don’t know, that’s a set amount of capital, percentage-wise, of a fund that can be in one company. What capital concentration limit do you find uncomfortable?

I’d say 20% is my limit of a fund in one company. I think industry standard is probably 10%; I’m at 20%.

By the way, from the LP perspective, diversification at the level of the GP makes no sense because they have multiple GPs. So the diversification gives nothing to LPs. Maybe the GP feels better, but of course, I think it’s a mistake. I’d rather be concentrated in the best deals I can find, because then when you have a winner, it really makes a difference.

LPs have said to me before about you—forgive me for this, dude—“He deploys too fast. We love him. He’s smart. He’s great. Too fast. Like 12 months, sometimes less.”

I know. I know.

Temporal diversification is important. You need to bake different vintages in. Are they wrong, or do you just respectfully not give a shit because you don’t need to?

It’s probably the latter. I’m going to do my thing, and if it works for them, fine. If not, they can opt themselves out. Some of them have, and it’s fine. Good people opted out, and it’s fine. I’m not going to do things differently.

By the way, I’m not investing fast because I want to invest fast. I’m just seeing opportunities I want to do. Sometimes, looking back, if I look at 2021, I would say I invested too fast. I wish I didn’t.

Look, to answer your question, yeah, it makes their life a little bit more difficult because it’s hard for them. And the thing is, it’s not just the speed; it’s also the fact that I’m not consistent. So I make it harder for them to plan, because they’re not sure, when they put the money in, if it’s going to be good for 1 year or 2 years or 9 months. So it makes their sizing decision more difficult.

I get it. I get it. But this is something that, if you ask me, of all the things that I do that LPs might like less, I would say this is it. But honestly, I don’t want to not invest in a company when I think it’s compelling just because I just made another investment.

What makes you say that in 2021 you invested too fast, and what are your lessons from that?

Well, I think in general in 2021, pretty much every deal that I did—I should say most, actually, because these are quality companies—but in every single deal, I probably paid 3 or 4 times what I should have, because that was the market. Because of that, I’m now in Fund 11, but there’s 1 fund that’s going to be okay. By the way, it’s not going to lose money, but it’s not going to be great—the one that really invested at the peak of the market, because honestly, there was no other way to invest.

Luckily, I invested in good companies for the most part, and some of them, despite overpaying, are still going to be great winners. But if, in every single deal, you pay 3 or 4 times what you should, then even if you have great winners—even if a fund otherwise would have been, I don’t know, a 5x—it’s going to be 1.5x, right? Or whatever.

9. The Great VC Shakeout: Why 50% of Funds Will Slowly Die

So, yeah, I got carried away, too, like everyone else, by the way. The thing is, I don’t believe in my ability, or anyone else’s, to be honest, to time the market. I think that in any given market, you want to do the best deals that you can, and some vintages are going to be better than others.

Now, I don’t think that for LPs it should matter, because again, the idea is not that they invest in 1 fund and that’s it. The idea is that the LPs are in it for the long run. I’m not interested in LPs who just want to come into 1 fund. So they’re going to get the vintage diversification, just not specifically within 1 fund but across the funds, if that makes any sense.

Yeah. You’re saying because you do such quick successive funds, they’re going to get vintage diversification.

Yeah. Maybe 1 fund did not have vintage diversification, and everything was invested from that fund at the peak of the market. So probably that fund is not going to be great, but my typical LP would have been in 3 or 4 funds before that and 3 or 4 funds after that. So they’ll have a series of 6 or 7 funds, and 1 of them is going to be okay and not great—not the end of the world.

The other thing is, it’s not just that I invest fast. I think that, as you know, each fund was larger than the previous one, and I think at some point I overdid it.

I think, again, I reacted to the market. There were a lot of rounds. They were frequent and they were big, and I think I have 2 bubble-sized funds. One of them is going to be okay. The other one is actually going to be good despite that.

I had 2 funds that were over $500 million from 2021 and 2022, but my 2024 fund already cut it by about half, which I think is a better size and more conducive to great returns.

So we're like $250 million?

I have a fund that's $250 million, and I have a fund that I'm in the midst of, so I had the first close. I don't know yet what it's going to be. Fund 10 is about $250 million, and fund 11, I don't know, but I actually want it to be less than $250 million.

When we look at that decision, I think managers are faced with a decision today: You either need to be really freaking big, à la Andreessen, General Catalyst, or Lightspeed—a wall of money—or you need to be a real craftsman and boutique. Do you agree that you have to be one or the other, that that is the future of venture, and that the messy middle will be painfully suffering?

I agree with it 90%. I think you have to have something special. I think that being middle of the road—you want to be differentiated. So I think that naturally there is a bifurcation.

Either you are one of these platforms, like Andreessen, Sequoia, or maybe Lightspeed, that are bringing a lot to the table and can do things that smaller VCs cannot, including myself, or you're going in the opposite direction, toward solo GPs, for example, where you have other advantages. I have other advantages. I'm not trying to be better than Andreessen in Andreessen's game. If it's going to be Andreessen's game, they're going to win and beat me every time.

No, I offer something different. I'm faster than anyone else, for example. There are other things. There's a personal connection, and there are a lot of other things that founders find extremely compelling with a solo GP. I go for companies or founders for whom this is what they want. That's differentiation, or you have something else that differentiates you.

Generally speaking, if you are a traditional 5- or 6-person partnership without anything very, very, very unique and special, any differential that you bring to the table, then yes, I think you are in trouble. It's almost like the worst of both worlds: On one hand, you're not as agile, and it's not the personal connection. It still feels like a corporate to the founder.

On the other hand, you're not Sequoia, so you're not going to get the very best deals. Yes, I think you don't want to be caught in the middle, unless you position yourself as an amazing brand or you're just an amazing expert in some area.

Do you think a lot of funds will go out of business in the next few years, be unable to raise, and slowly die?

Yes. I think we're seeing it already. It's much harder to raise in the last couple of years. First of all, there's less money going to venture, but not only that: A larger percentage of it is going to the platforms.

If you're not a platform, then it's much harder for you to raise. I would say that at least 50% of the funds today, and maybe more, either cannot raise or at least are not sure that they can raise. They're trying to stall and not test the market, and I think many of them are not going to be able to raise.

Do you think LPs have an uncomfortable awakening coming, with 90% of the unicorns that they have marked as unicorns in their books not being unicorns? That is quite a difference.

First of all, it depends on how the GP reports things, because there's huge latitude in how we can report things. How do you report things? I try to report things conservatively, at what they're actually worth.

What I always tell LPs is that whether or not you can believe numbers from a VC GP is less dependent on the methodology that they use, because with any methodology you can inflate things or whatever. It's more a function of the personality or the character, but even more so, the motivation.

Let's take Sequoia, for example. They know that they can raise any time, right? So they have zero motivation to inflate numbers. They have all the motivation in the world to show things as conservatively as possible, because they get no benefit from inflating numbers.

However, if you're a fund that's more middle of the road and you're not sure how easy it's going to be to raise, you're going to find any excuse to keep the prices up, to look good on paper. So I think, as an LP, you should ask yourself: The more secure the GP that you speak with is, the less likely they are to inflate numbers.

It's easy to inflate numbers, and the accountants are not good guardrails from that perspective. Even if they challenge valuations, they always challenge the wrong things. There's a complete lack of understanding, because how would they know what companies can be worth? It's not necessarily in the numbers what companies are worth.

I think there's huge latitude, which means that there's a huge challenge for LPs to tell whether the paper values are real or not. There are only 2 ways. One is impractical, which is to really study every single underlying position. That's impractical. The other one is to rely on who they believe and who they don't.

That is based on their experience, their personality, and also the motivation of the GP. They should ask themselves, how motivated is the GP to inflate numbers versus being conservative?

You mentioned the first close in fundraising. Is the attitude and mindset of what LPs want different today than what it was in prior years?

First of all, in general, they've had little liquidity. By the way, that might change in 2026 in a big way, because there are a host of huge, unprecedented-size IPOs in the works now—companies like SpaceX, Stripe, Databricks, and others.

There could be a tsunami of liquidity in 2026 and 2027, and that would reshuffle the cards again. Who knows how it will affect things? But right now, there's been a drought of liquidity for most LPs for a long time—4 or 5 years.

Add to that the fact that, as I just said, TVPIs cannot be accepted at face value. You have to ask yourself whether they're real. Because of that, I think there's too much focus, understandably, on DPI. People hardly talked about it 3 years ago, and now some LPs say, “It's just DPI. It's just DPI. We don't believe anything.”

That's also an approach. When you see something that's difficult to understand, one approach can be, “Okay, I just discount it. I don't know, and I treat everyone the same. I just don't believe anyone and only look at DPI.” That's an approach. I don't think it's the right approach, but it could be an approach.

So yes, from that perspective, I do see a change. Number 1, they have less liquidity, and they're very focused on DPI—more than 2 or 3 years ago. By the way, Harry, I do think it's a cycle. I think it will change again. I don't think this will last forever, but right now there is this focus.

The lack of liquidity, in large part, is down to the extension of private markets—platforms that are able to have the supply side of cash to fund them for longer. That means that we either have to hold them for longer, or we can sell secondaries.

How do you think about proactively selling secondaries and managing the book pre-going public?

I understand why others do it. I don't. Again, the reason is motivation. First of all, in any given moment, anything that I want to sell, I won't be able to. Everything that I can sell, I don't want to sell.

The things that I can sell are the best positions, and I want to keep them. You cannot assume that the buyers are stupid. They're only going to buy things that they think they can double or triple within the next 2 or 3 years. Now, if it can double or triple in the next 2 or 3 years, I'd rather keep it, right?

So, almost by definition, to sell anything that's possible to sell, you have to give a significant discount to the buyer; otherwise, they're not going to do it. They're not stupid either. So why do people do it? I think people do it if they need it for the fundraising.

We sold something earlier this year and said we knew it would double or triple in a couple of years for sure.

Yeah.

But, dude, there was inherent risk baked into that. There was a lot of execution risk that was dependent on that. Then there'd be a lockup on the IPO. If I'm thinking about IRR for our investor, fuck it. They'd rather have a 3x back now than a 4.5x back in 2 to 3 years' time, dependent on a successful IPO and then a good—

But let me go with the numbers, because I do still remember my 2nd-grade math. You said 3x versus 4.5x. That means that you only believed 1.5x over the next 3 years, with a lot of risk.

Yeah. So, if this is what you believe, you should have sold. Absolutely. But in general, of course, there are some positions where I can justify a sale. In general, I think that if I know that I need to raise, and if I know that in order to raise I need to show more DPI, then I can understand why a manager would be willing to give up upside in order to show DPI today and help them raise the money. I never felt that I needed to do it.

I always think, first of all, I'm the biggest LP in every one of my funds. I'm the biggest LP—every single one. I'm about 13% to 14%, and I don't have any LP that is more than 10% in any given fund. So, in every single fund, I'm the biggest LP.

On top of it, I have 30% carry. So, really, I'm 40-something percent of the economics. Of course, I think as an LP, and I'm trying to maximize the long-term value, I don't want to shortchange myself as an LP. I believe, by the way, in radical alignment with LPs, and this is why I set it up so I pay myself zero. I don't see anything, which is very unusual. I don't know any VC in the world, as far as I know, that has zero income from management fees. Zero.

So, you don't take a management fee at all?

First of all, I take a low management fee, but I reinvest 100% of it in the fund. I don't have any expenses because I don't have people, and I don't pay myself anything. So, I see zero before the investors see their money back. I don't see anything from LPs before they get 100% of the money back.

Even the way the management-fee waiver and reinvestment works is that, technically, despite being an LP, I don't actually get paid until the LPs have gotten 100% of the money back. That's how it's set up. So, this is radical alignment. I don't see a shekel, a dollar, before they see the money back. Because of that, I'm really, really clearly incentivized to optimize for the LPs.

But remember what I said at the beginning of the call: substance versus appearance. I'm 100% substance, 0% appearance.

What do you think are the biggest misalignments between GPs and LPs today in venture?

Look, especially in the larger funds, the compensation that the GP gets from the management fee, especially if you account for the time value of money, is typically greater than the upside. Let's say you have $10 billion and you charge 2%. The minute you close the fund, you already made $2 billion because it's 2% over 10 years—that's 20%. You already made $2 billion, which, by the way, you're going to see over the next 10 years, but starting today.

The carry you'll start seeing maybe in 7 or 8 years, because it takes time to return these funds. So, even if you double the fund and you get another, let's say, 20%, you get another $2 billion. But you're only seeing this $2 billion in 8 years. If you take into account the discount rate, you're seeing more from the management fees than from the carry.

I think that for many funds, they really want to do well enough to be able to raise the next fund. Their whole thinking is, “What do we need to do to raise the next fund?” If it means selling something early to show DPI, then, of course, they'll do it. Again, in some cases, it can lead to other things. So, this is one set of misalignment.

The other set of misalignment is actually not between the LP as an entity—sorry, the GP as an entity—and the LPs, but within the individual GPs. The larger the partnership is, the more the individuals—not just the GPs, but also the younger partners—are first and foremost managing their careers.

If there's a conflict between what is good for the individual manager and the long-term, maybe, value of the fund, guess what? I'll give you an example. If a partner is in a partnership, especially a large partnership with some politics and all that, they're much more interested in their investment succeeding than anything else because that's their career.

Remember the partner I mentioned who never saw a follow-on deal? That's part of it, because they have zero incentive to admit failure. They have all the incentive in the world to convince their partners to put more money into this company, roll the dice again, and who knows? Maybe it's going to succeed. Even if not, they bought some time personally.

I think the larger the partnership is, the more there is not 100% alignment between the individual partners. Just like in a company, the guy in sales can have a different motivation than the guy in product or the guy in marketing. In my case, it's just me, so there's 100% alignment. I'm also the biggest LP, so for the LPs, there's zero conflict in my mind.

Can I ask you? I think one area that's very challenging as we look at the market today is also pricing. I look at Series A today, dude, and I think it's the worst place to be investing. I'd love your thoughts on this. You have 200x ARR, 150x ARR. There's very little company progression from the seed round, but there's a very steep price increase. It's a very competitive stage. How do you advise me and others to navigate this seemingly very bad entry point today?

So, first of all, I agree, but with a few comments. First of all, scratch the word “today.” It's always been the case. It's always been the case, even 30 years ago, that someone invests in a seed round—basically, founders with an idea—and it's priced low. Then, a year and a half later, they have 20 people, they have an office, maybe they have a few small customers. They really haven't proven anything, but the perception is, “Oh, now it's a company, and we made so much progress. Now we have a product, now we have this.” They really didn't prove anything, and all of a sudden they jump in value. There's nothing new under the sun. This has always been the case, and it's something to be worried about always as an investor. That's the first comment, or observation.

The second comment is, I agree with you; just watch that you don't get too confused by the name of the round. Calling it a Series A is just a name. You can call it Seed 1, you can call it whatever you want. People use it as a shortcut: you say “A” and they say, “Oh, I know what you mean.” Actually, no, because we can both call something a round and it would be very, very different things. I wouldn't get caught up in whether it's called A, B, seed, or whatever.

Generally speaking, when I look at the second round after the first round, I want to make sure that the progress I'm seeing is really substantial in terms of reducing risk, as opposed to the looks of it, the optics of it. If the progress is, “Oh, yeah, now we have a product, and we have a few logos,” but they haven't really made a commitment and they haven't renewed yet, then you really don't have a signal.

The tough question for an investor investing at this stage, whether it's me or you, is: are the indications that I'm seeing a real signal of product-market fit, or are they just noise? Because if it's not a real signal of product-market fit yet, then nothing has really changed since the seed. If anything, maybe the opposite. The very fact that after a year or two they don't have signs of product-market fit may mean that it should be worth less than what it was worth at the seed, because at the seed you had the option value that maybe within a year or two you would have it.

So, I think that's the thing. It's not about whether you call it an A or not. It's about really exercising judgment as to whether this really represents product-market fit or not.

What do you think of the rise of very proactive, preemptive rounds, where you have a company raise and then a month later ICONIQ or any of the big platforms come in and shove another $50 million in, and very little has changed again? It's still on $3 million of ARR. Do preemptive rounds work more often or less often in your experience?

I think my advice to founders—and it's an advice that's harder to follow, actually, because I cannot fault a founder for taking $50 million at a high valuation if they're being offered that. I often tell them, and some of the more mature ones are able to follow it: take the money, but continue to behave as if you didn't.

Don't spend money just because you have it. Companies can be overfunded, and it can lead to a loss of focus. If the founder is mature enough and strong enough to take the money, put it in the bank, but spend it based on the signals that they get from the market, as opposed to the pressure that they're getting in the boardroom, I think they should take the money because it would be stupid not to.

But again, it’s easier said than done, often. Jason Lamin is a dear friend of mine, a very famous SaaS ambassador on Twitter. He says, “Founders today, they don’t want to hear your thoughts. They don’t want to hear your opinions. At best, they’ll say thank you and ignore you, and at worst, they’ll say, ‘God, what a dick,’ and say bad things about you for giving the advice.”

Do you agree with that perspective that founder sentiment has changed toward investor advice?

I’m not feeling it personally. I feel that the founders that I back—the only reason they speak to me and ask my advice is because they want to hear my advice. I’ll tell you why: I never force my advice, so for them, I’m a safe environment. It’s like going to a psychotherapist, because they don’t need to convince me. The other thing is, they don’t need to convince me because I’m going to support them even if I think they’re wrong.

When you feel as a founder that you need to convince someone, then you’re not so much in a receptive mode. You’re trying to think, “How do I overcome this objection and that objection?” When I have a conversation with a founder about something, and the founders know before we even start the conversation that no matter what I think, I’m going to support what they want to do, it disarms them. Then they’re much more in receptive mode, because otherwise, why even talk to me unless they really want to hear what I say? So, I’m not personally feeling it.

I think it also depends on the way you deliver the advice. There’s a famous book about raising children, and I think the title is “How to Talk So Kids Will Listen & Listen So Kids Will Talk.” I love the name of the title, because when you listen—whether it’s children, whether it’s your children or founders—if you’re being judgmental, you’re accusing, you’re not patient, and you think you know better, then of course they’re going to be less receptive to listening to your advice.

By the way, I don’t know Lemkin at all, so I don’t want to sound like I’m bad-mouthing him, and I’ve only heard good things. So it’s not personal. But in general, I do think that, as an investor, you want to be mindful of how you give the advice, and if you come from a point of know-it-all, then I think that most founders would not react well to it.

I wouldn’t react well to an LP who would start telling me things, even if they’re right, by the way. I remember an LP of mine who, 2 years ago, was very critical of the size of my fund and really pushed me to do a much smaller fund. I didn’t like the way they delivered it, and basically, I wasn’t willing to listen to them, even though in hindsight I think they were right. At the time, I wasn’t willing to listen to it. In fact, I told him, “Listen, there’s a very easy way you can help me make it a smaller fund: just don’t be in the next fund.”

To my surprise, I was sure that I had lost that LP, but they stayed with me. Today, we have a great relationship. But even I was not listening to advice which, in hindsight, was the correct advice. So I think the delivery is also important.

10. Why VCs Should Never Tell Their LPs What They Are Doing?

How have your thoughts on ownership changed over time? The reason I ask this is because we could have invested in ElevenLabs at the seed round, and we would have gotten 1%. We could have invested in Granola at the C round, and we would have gotten 1%.

But we do what we tell LPs, Oren, which is we lead rounds, we take double-digit ownership, and we are your concentrated investor.

Yeah.

Well, how have your thoughts around ownership changed, and why?

First, they haven’t changed, and that’s exactly why I don’t tell LPs anything in terms of what I’m going to do. If I tell an LP something, I would feel too committed to that specific strategy, which I may have thought was the right strategy, but then there’s a situation that requires being flexible.

I tell LPs I only have one rule, and that rule is that I have no rules. That’s it. So I think it all depends on the circumstance, and in some cases I would do things that maybe an hour before the meeting I didn’t think I would do.

I’ll give an example, which is still an ongoing company. I don’t know how it’s going to end, but there’s this AI company called “the cart.” Have you heard of it?

Yeah.

I met them a little over 2 years ago. I met them over Zoom, and when we met, it was just the 2 founders. They didn’t really have an idea, but they were exceptional. They told me, “Yeah, we already have $3 million committed. We’re going to close on it in the next 24 hours from a bunch of really good angels.”

I asked them, “Okay, if I wanted to invest, what can you do?” They said, “What we can do is cut them back 50% and give you $1.5 million of the $3 million.” By the way, it was going to be an uncapped SAFE. I normally don’t do SAFEs at all, but in this case I said, “You know what? I’ll do it, but I need it to be capped,” and we capped it.

That was lucky because otherwise—at least for the investors, it was lucky—the next round was already at a very high valuation. I ended up with 5%, which is way less than my normal ownership, for $1.5 million. I assumed that I’d be able to increase it later. It never happened.

The reason it never happened is because they became profitable very, very quickly, so they didn’t need more money. They only took Sequoia money because they wanted Sequoia, and they later took Benchmark money again because they wanted Benchmark. I was able to maintain my ownership, but I was never able to increase it.

So I deviated from my rules. Again, I don’t have rules, you know. I don’t have minimum ownership; I don’t have rules. At that point, it made sense to want to do it, and I’m glad I did.

It helps not telling LPs, “I’m going to do this, I’m going to do that,” because then you don’t have to later explain why you didn’t do what you told them.

Does having Sequoia on your cap table move the needle for a company, do you find?

I think it depends on the situation and the partner. They’re a great firm, and I’ve partnered with Alfred Lin in one deal. In the case of Decart, it’s Sean Maguire. I think they’re great, and I think there is a chance that it will make a difference, but it depends on the situation. It doesn’t have to make the difference.

Can I ask a weird one? Hunter and Satya at Homebrew have been incredibly successful, as have you, and decided not to raise more money from LPs, manage their own money, and be way more collaborative because they don’t manage other people’s money and just invest their own.

You could do the same. I’ve done the same before. Between Apax and doing what I do now, I’ve done what they’re doing now for 8 years with my own money.

Why? Why do you not go back to it? You could be more collaborative. You don’t have to have LP management. You don’t have to fundraise. Why do you do what you do now?

Why would I want to be more collaborative?

Because you can get into more deals.

I don’t want to get into more deals. I want to be the main player. I don’t necessarily want to get into more deals. The ones that I do, I want to make matter, and I want them to be as meaningful as possible—to be the player, the main backer, one of the main backers, at least.

How many companies do you want in a fund?

In the early funds, it was less, but now it’s more like 15. There’s a lot of crossover between the funds. I’m now in Fund 11, and I only have 40 companies. So, if it was exclusive, it would be 4 companies per fund, but it’s not, because you see the same names in different funds.

Can we do a quick-fire? I’m going to give you a series of short statements.

That’s scary.

Okay.

No, no, you didn’t give me any.

Okay. What do people not know or see about having money that they should know and see?

I think most—now, this goes outside the world of venture, right? I find that there’s an increasing level of hating the successful, hating the rich. I see it on Twitter. I think in Europe it’s even worse, but it’s come to America, unfortunately.

Many people unfortunately generally believe that rich people are evil, or that you cannot become rich without taking advantage of other people, et cetera. The reality is that rich people are as evil and as good as anyone else. Most rich people that I know are actually looking for ways they can leverage their success to make the world a better place.

But you have politicians who are trying to come up with all sorts of suggestions about how to basically hurt successful people for being successful. Of course, they’re not going to get cooperation from them because they feel that it will make them more popular among people who assume that if someone is rich, it’s because they did something bad.

I think this is more about politics than about business, but one of the strengths of America is that it has always believed in merit and success. I'm not a fan of the woke movement that's dragging, or trying to drag, America in the other direction. I didn't mean to be political, actually.

Yeah. Yeah. Are you concerned by the labor displacement theories of AI?

I'm excited because I'm going to make a lot of money, but I'm also nervous because I don't know what's going to happen.

I feel exactly the same as you. Look, I think it's the most powerful transition or force, maybe, in history. Just like any powerful force, there are very good reasons to be excited and very good reasons to be worried. I'm pretty sure that we're going to be proven right on both sides. Our worries are going to be proven right, and our excitement is going to be proven right also.

Do you think a lot of people, respectfully—and I mean this so respectfully—with your wisdom and years of experience, say, “Oh, Harry, it always looks like this. It always takes longer than you think. It always takes—”?

Yeah.

And part of me goes, “I get that, and I respect your experience and wisdom.” And part of me goes, “This feels a bit different.”

Yeah.

Which side are you on?

Yours.

No.

Yeah.

Good.

Wait, yours? But I hope I'm right. I very much hope to be proven wrong on the concern side.

Which is the most memorable first founder meeting that you've had?

Okay, I'll give you one. I have a relatively recent investment from a year and a half ago called Sensia, which I think is on fire. It's going to do great. I love the founder. She's a force of nature.

I'm cheating a little bit because it's not the first meeting; it was the second meeting. I met her a year earlier, and it was the same company. It already had revenues even then, and I found it interesting, but not interesting enough. I had a lot of concerns, and a year later I almost didn't take the meeting. She told me she was in town and asked if we could have coffee, and when I met her, within 5 minutes I realized, number 1, that all my concerns from a year ago were addressed with flying colors, and, number 2, that she was a different person.

She felt so confident. It felt real; it wasn't fake confidence. It was real because I had also seen her when she was less confident. So, within 5 minutes, the whole conversation changed. Within 24 hours, she had, by the way, a couple of term sheets from big brand names, and I took the deal.

11. How I Missed Investing in Facebook and Lessons Learned

What's your biggest miss, and how do you reflect on that? I mentioned Deel for me.

Yeah, you know, I don't have too many, which means that I'm not seeing a lot of the great ones. To be honest, it's not a good thing. I'm not proud of it. I didn't see Deel, by the way. I love Alex from Deel. I really didn't see it.

I don't know that I saw anything that turned out to be super great that I didn't do. But again, this is not a positive; this is a negative, because it means that I didn't see things that maybe I should have seen.

I do have misses from the Apax days where I saw something that I wanted to do, but I knew that there was no way I could get it approved, including Facebook, by the way, in the very early days. I saw it, I could have done it, and I brought it to the partnership. It was dead on arrival.

The one that I know I could have done is Audible. I made the investment in Audible; it was my first big home run, and then it went public. We sold not all the shares, but enough to make it a home run. Then the stock price dipped, and it was obvious to me that it was temporary.

I wanted to basically take it private, and I could have, because the founder was totally on board—he didn't like being public—but I could not get it approved. Because the founder had already decided that he didn't want to be public anymore, we ended up selling it to Amazon. Now it's a huge, humongous company, and it would have been an amazing deal if we had taken it private.

That's less of a miss of mine because I tried. I'm sure I do have things that I missed, but not one of the really great names—not OpenAI or Anthropic, or any of the other ones.

Wiz is an interesting story because, when I heard that he was leaving Microsoft, I didn't even know he was starting a company. I asked someone to make an introduction. I guess he checked with him and connected us, but he used the wrong email address—he used the Microsoft email address, which Assaf wasn't checking. So I tried 2 or 3 times, didn't get an answer, and moved on.

Now, 2 years later, when I met him for the first time, I asked him why he didn't respond to me, and then we worked it out. We went back, and it turned out that, on one hand, he still had this email—otherwise it would have bounced—and, on the other hand, he wasn't checking it.

To be honest with myself, I don't think I would have gotten the deal anyway, because he had an amazing cyber investor from his previous company who also led it. I think you know him, Gilly, and it was his deal. He's not much of a collaborator either, just like me, so I don't think I would have gotten into the deal anyway.

By the way, this is one consistent fallacy within VC: VCs think that just because they saw a deal, they necessarily would have been able to do it. With all due respect to the anti-portfolio, it doesn't make sense that the same deal appears in 20 different anti-portfolios, because it's not as if all 20 could have done it.

No, mine I could have done. Actually, I've got 3 $10 billion companies now.

Yeah.

Where I legitimately could have.

No. By the way, it's easier when you write a small check, because you have the value that you have. Why would people not let you win, right? It's harder when you have to be the winner and exclude everyone else. So, yes, I agree: you could have done it.

By the way, Riverside too. It's not $10 billion yet, but it will be, I believe.

Dude, you sent it to me, and I was like, “Dude, you're an idiot. Zoom is going to continue.” What are we on now? Oh, Riverside.

Yeah.

Exactly.

That's just—keep sending things, or next time I won't ask. Okay. You mentioned Micky earlier. Which investor do you most respect and admire, and why?

Micky is definitely one of the people I super respect. He's not the only one, but he's one that I super respect, not just as an investor, but also as a human being and as a person.

What do you take from your relationship with him? For me, he taught me, “You've never won or lost. You're only ever ahead or behind.” I always remember that.

I have to think about it. I've been in this business longer than he has. Actually, when he started, he also came to consult with me, so it's less of a mentorship relationship.

What I respect so much about him is that he's so authentic and speaks his mind. I think he has his own way of doing things. I have mine, which is different, but I actually think it's harder the way he does it, because it's one thing to do things your own way when you're one person. It's another to be a leader of a group, which he is.

He's a much better leader than I ever will be or aspire even to be. I think he's just a great person.

Tell me, final one: what are you most optimistic about? I always like to end on a theme of positivity. We mentioned being concerned about labor displacement. What are you most excited for or happy about?

AI is the biggest change ever in the history of humanity. I believe so—certainly in the history of technology. It changes everything, and whenever there's change, there's an opportunity to make things better and to build a huge amount of value.

We're placed at the very best time in history to be an investor. I'm in the Bay Area, with the best ability to make these investments and be part of these things. I'm super bullish. I've never had so many companies that are crushing it and building market leaders in my portfolio that I'm super excited about.

Almost every vertical has an opportunity to reinvent itself with AI, so I'm super bullish. The fact that I'm bullish personally about my investments, about potential investments, or even about the VC industry in general doesn't mean that I'm not worried about the political side of things, with political unrest because people get disenfranchised and things like that.

I think it's very risky to humanity. As I said, it goes together. If something is powerful, then it's going to be very exciting and scary at the same time. If something is weak and not powerful, it's not going to be scary, and it's not going to be exciting. It goes hand in hand.

Oren, you've been a friend to me for many years. I said it at the beginning, and I so appreciate it. It's so funny—I don't know why. Ten years ago, I was 19, and I really had nothing, and you were so kind to me then. You've been so kind to me since. I really appreciate the friendship. Thank you for being so amazing, dude.

Thank you.