Mike Maples：评估初创公司与创始人的3套框架 | E1242

Mike Maples Jr.

To me, in all investing, there are two things. One is that you have to get paid for the risk you take, and the other is to always play offense with your money. You have to play the game that's on the field, but you don't have to play the way everybody else plays. Ultimately, if you're not finding inefficiencies in the game, you ought to be asking yourself, “What am I doing? What am I in this for?”

Mike, I cannot believe that we finally get to do this in person. You've known me for 9 years.

Mike Maples Jr.

That's right. Thank you so much for having me. I've known you since probably before you got a lot of downloads.

1. Is a Sub-$100M Seed Fund Viable Today?

Oh, my God. Literally, you and my mother were probably among the first few. But I want to start with the seed ecosystem today because I'm in it now, and it feels harder than ever. I just want to start with the statement: Do you think you can have a seed fund that's under $100 million today?

2. Any Regrets on Passing Airbnb?

Well, I think that you can, as long as you're way less than $100 million. I think that you can do investments of less than $100,000. We've talked about this before, right? I imagine now, with your major fund, Harry, you probably don't let angels come in for much more than $100,000.

No way. Not a chance. If you say, “Hey, I'm doing $750,000 rounds, and I'm an angel, Harry. Let's go do deals together,” you might say, “Hey, that's great. Good for you. I'll see you out there.” But are you going to do that person any favors? Probably not.

No, but because with the $500,000 that someone needs from a smaller fund—

I get 5 amazing angels in for $100,000 each.

Yeah. But I suppose if you're investing less than $100,000, let's say Tim Ferris comes to you and says, “I'm willing to do $100,000 in some project that could benefit from my brand and publicity,” probably 100%.

So if you say, “Hey, I'm doing $100,000 checks,” I think that can work. But that's a fund size of probably $10 million, right? That's not $100 million.

Why is your fund $150 million when it was $70 million or $80 million?

It's a long story, but basically, to me, your fund size is your strategy. I guess I'm kind of famous for saying that for a long time, but I don't know if I've ever really expressed why that is. Here's why: The power law is real, and people don't realize that Pareto is not just 80/20. It's a curve; it's a continuous curve.

80% comes from 20%, but it's also true that 4% yields 64%, because 80% squared is 64% and 20% squared is 4%. When you have a fund—let's use ballpark figures and say you have 25 investments in a fund—your best investment is going to have to return 64% of all returns for that one deal.

If you want a 5x fund, you know that one investment by itself needs to return 64% of 5 times the fund in profit. That's why your fund size is your strategy. Your fund size is kind of like, if you're a pole-vaulter, the height of the bar that you set and promise to jump over. If you don't jump over that height, you have a bad fund.

Did you ever feel like your fund size was not aligned with your strategy?

I never really did. It's weird: We were better at $150 million than we were at $75 million, but I don't think that was really due to fund size.

If you trace our history, our first couple of funds were just awesome. We tapped into the zeitgeist and hit the market at exactly the right time. I was making a video this morning for Josh Kopelman's 20th anniversary, and I just marveled at the fact that we used to hang out at Il Fornaio and marvel at the fact that nobody realized what a great business opportunity this was.

We were like, “Are we just stupid? Are we having delusions? Because nobody seems to think this is a good idea, and this just seems like one of the opportunities of the century right here.” Every time I would see something, I'd show it to Josh, and every time he saw something, he'd show it to me, because neither of us had any money. We were just seeing all these things.

Fast-forward a few years: I'm on 22 boards, and I just didn't have the sharpness of mind. When your phone's blowing up all the time—and if you're on 22 boards, it's blowing up all the time—there's always something totally screwed up. You're not as awake to the possibility of what Pinterest could be when you're pitched by Pinterest, right?

Our next 2 funds at about $75 million weren't as good, and I remember having some angst about it. We flew out to Yale because the Yale endowment is one of our LPs. We went to likely David Swensen and said, “Hey, look, I'm going to have regrets if I don't tell you the mistakes I think we're making and what we're going to do about it.”

3. Why Lose Asymmetric Information When Picking Winners?

Part of it was getting our fund size to an amount where we thought we could really execute our model well. But we made some changes. We changed the way we did follow-on investing. We had a dedicated partner, Iris Choy, do follow-ons, and that's all she does. She's accountable for follow-on returns, which more seed funds should do.

I don't understand that, if I'm totally honest, because the point of the follow-on is that we don't do follow-ons at all. If you look at the data bluntly, we grossly overestimate our ability to pick our winners. But the point is that you have asymmetric information, and you should be able to pick better because you know the company better. Why would you lose that asymmetric information?

Pro rata rights are a right. To me, the high-order bits in all investing are two things. One is that you have to get paid for the risk you take, and the other is to always play offense with your money.

If you're a seed fund, in theory your first checks are playing offense with your money. If you're not, you've got no business being in business. But there's the occasional situation where you own shares in a great company—Applied Intuition, Figma, Twitter, Okta, one of these—and sometimes you just know, right?

The prices get bid up, but great firms are coming in. You have a choice to decide whether you want to exercise that right and keep in mind that it's a right you have that nobody else has. To me, that would be an example of playing offense with your money.

The hard thing is that when the rounds are priced and your fund sizes are still small, exercising that right can be several million dollars.

Correct.

4. How Psychology Shifts When You’re Profitable

What I came to believe was that the first question you have to answer is, “Do I want to do follow-ons at all?” You can have it be zero; that's one option. But you're giving something up when you do that. You're giving up a right that's worth something.

The other way to look at it would be to say, “I think it's probably higher than zero.” Then the question is just how much higher. We settled on 70% upfront and 30% in reserves, and Iris is accountable for that 30%.

I can't strong-arm her into trying to protect some investment that's not working. She's like, “Look, Maples, you guys are holding me accountable for returns on this basket of money, but do you not think there's so much context that's lost?”

You could look at the numbers and the data, but actually I know the founder better than anyone. I know the speed of contract progression. I know all of these nuances, which aren't in the data, that Iris doesn't know.

Well, Iris knows, right? She's part of Floodgate.

She is. She gets to know the founders, and she looks at every investment that we make as if it were her pipeline. In some cases, like Applied Intuition, she actually bought super pro rata. She found ways to get more ownership than our initial first check because she said, “At the time, I think this is the best company in Fund 6, and we should own as much as we can.”

But here's the thing: Most seed funds would say, “I know more about this company than the market knows. That's why I'm going to give this company money even though it can't raise.” I used to say, “I think you know things that aren't so.”

What I would do is give the market at large a lot of credit for knowing what a good Series A deal is. You're talking about firms like Benchmark, Sequoia, General Catalyst, and Andreessen Horowitz. If none of them want to invest in a given company in our portfolio, I'm like, “Okay, who's more likely to be right about the progress of that company?”

Having said that, if they decide they really do want to invest aggressively, that's a pretty strong signal too, because they're picking not just from the companies we invested in, but from every seed investor. They're judging that to be among the very best outcomes of all seed investments.

In those cases, I think you have to at least look at whether you want to exercise your pro rata right. You can't just blindly follow Sequoia and Benchmark and folks like that, but if they're saying, “I think this is one of the best projects in the private landscape right now,” having the right to invest in that is worth something.

Do you not think you should just blindly follow if you've got a Tier 1?

No, but that's closer to right than not. If I look at Fund 1, what was our top performer? It was likely Demandforce. Who followed me into likely Demandforce? Bill Gurley at Benchmark.

What was the second-best performer? Twitch. Who followed us into Twitch? Ethan [surname unclear].

Okay, let's talk Fund 2. What was number one in Fund 2? It was Lyft. Who followed us? Navin Chaddha at Mayfield, Founders Fund, and Andreessen Horowitz.

What was the second-biggest winner? Okta. Who followed? We did that with Andreessen Horowitz, then Sequoia came in—Greylock and Sequoia.

One way to think about it is that your follow-on dollars might be best thought of as a subset of where the best firms follow. We've had the best firms follow and the companies not do well. VarageSale, Sequoia aggressively followed, and it didn't do well.

One way I think about follow-on investing is that, for a seed fund, it's closer to index investing than people think. If you say, “I'm going to index off the very best funds,” as you point out, more often than not, if that's all you did, you'd have massively better follow-on returns than most firms.

If the LPs knew—if they tracked the return on follow-on checks versus first checks—there'd be pitchforks and revolts in the street. It's so bad.

5. Should Every Check Be a Potential Fund Returner?

Do you agree with the ethos that every check has to be a fund return, roughly speaking?

Here's the way I would phrase it: Our business is hard in seed, but not complicated. 5% of our checks need to be 100x cash-on-cash on the first check, and about 10% to 15% need to be 20x cash-on-cash on the first check. If you achieve that, you're a 10x fund.

The loss ratio is about the same between a 3x fund and a 10x-plus fund. What matters is the magnitude of your big winners. It goes back to this Pareto idea: If your best company returns, say, 64% of your fund, the follow-on check in that company is probably going to be a 20-bagger.

The hard thing with this assumption is that it presumes outcome scenario planning, and you never know how big your winners can be.

You never know.

But you can say, “We have a way to hold ourselves accountable.” Iris and I are measured on what we call picking skill, which is what fraction of our first checks become 20-baggers or 100-baggers.

Iris is measured on what fraction of follow-on dollars go into the best companies. That's completely objective. You can say, “Here's a stack ranking of the companies by their current value, and what percentage of our dollars are in those top companies?” That made a big difference in our returns.

Do you do outcome scenario planning when you're investing?

I'm not sure. That sounds fancier than what we do.

Do you think, “How could this be a $5 billion company?” and work your way there?

No. I say, “For this to make 100x on the first check, what would have to be true?”

The way I think of scenario planning on a first check is, given that it's 85% likely that it's not in the top 15%—if I say every investment is going to be in the top 15%, it's simply not true; it's not grounded in reality—the better discussion is, “Given that it's 85% likely not to be in the top 15%, how big does it need to be if it is in the top 15%? Is there a world where that could happen? What does that world look like?”

This is why there are all these, I believe, false debates about valuation. Everybody says, “If the company's awesome, you can pay any price.” That's true to the extent that you can make 100x on the first check.

To me, that's the high-order bit. If we're going to invest $1 million to $2 million, can we make 100x on the first check? If we're doing it at $40 million post-money, like we did with Applied Intuition, and they just raised at a $6 billion valuation, the thing I find really worrying is that assumes companies are going to be $5 billion companies.

There are a couple of innate assumptions here. Bluntly, you're going to get diluted probably quite a lot—say half in a lot of cases at this point, or more.

Yeah, or more.

If we're doing that, it needs to be a $5 billion business. But this is why price matters. Our entry price is $25 million. In the case where that's your entry price, that's what the exit needs to be.

Yeah.

There's no escaping that. People say, “That was then; this is now.” I'm like, “No, I've studied venture returns for the last 50 years, and the physics of what a good fund looks like has not changed.”

Do you just think, then, venture is a less attractive investment category?

I don't think so. I just think that a lot of people have forgotten what the right goal is. I sit there and say, “Look, I need to make 100x on my first check. There has to be a way I can do that if everything goes my way.”

I'm not going to get that by acting like an efficient-market operator. To the extent that seed investing is an efficient market, it's not going to be a good business. You have to find inefficiencies for it to be a good business.

Then people say, “What if I can't find inefficiencies?” I'm like, “Okay, then you shouldn't be a seed investor.” The idea is not to invest as an active investor in efficient markets. If you're an active investor, you have to find inefficiencies in the market, or you have no business investing.

I mean this with total respect: You sit in the middle of San Francisco, in the heart of the seed market, in the most efficient market. Were there inefficiencies when you and Josh started?

Neither of us were in an efficient market. I think the mistake people make is to think of startups as a quote-unquote market.

I would grant you that more of the companies are fully priced today than they were when Josh and I got started. But to me, that's just part of the fun. That's part of the spirit of the game: to see what other people aren't seeing, or at least to try to do that, or maybe occasionally to get into something that not everybody can get into.

To me, that's the fun of it. It's like solving a puzzle or a riddle. There are so many startups that there will always be 30 or so every year that are great.

Will you do a much smaller check if you think it can still be a 100-bagger?

I'm more likely to do that.

So you're saying, if you can get $100,000 into a super-hot company—

I'm unlikely to do that. I need to think that it could move the needle on the fund. Probably about as low as I would go is $500,000.

Have you lost great companies because of that?

That's a great question. I can't think of a single time. It's been our biggest mistake. We could have done ElevenLabs, which is a $3 billion company and probably the best company coming out of Europe now.

Yeah.

We could have done it at $25 million. Would it have been a 100-bagger?

Now, 150x.

Okay, you should have done it then.

Yeah, yeah, yeah.

We could have done a $250,000 check.

You should have done that deal.

But I look at it like that's why you have partners. They're like children: You just blame them.

Our business is hard but not complicated: 100-baggers on the first check 5% of the time. To do that, you have to pick opportunities that can be big enough if they work, but you also have to care somewhat about the price.

6. Mike’s View on Inception Rounds in AI?

How do you think about these inception rounds? Inception rounds are like the $1 million starting round. We see many of them, especially in AI, that are much more than that. How do you think about them?

Can it make 100x on the first check? If I think it could make 100x, I would.

Sometimes this happens: Some of our younger people will come to me and say, “Here's a round that's being done at $10 million at $40 million post-money. We did Applied Intuition at $10 million at $40 million post-money.”

I say, “Okay, is the founder Caster Unice?” I think Caster is one of the best founders I've ever worked with. They're like, “I don't know if he's as good as Caster.” I'm like, “Okay, it's not worth $40 million post-money.”

$40 million post-money was a real stretch for us. We thought the company would have to be worth north of $5 billion at least for that bet to have been justified.

Here's the other thing, Harry: Let's say I thought, “I can't make 100x, but I can make 20x, and he's that good.” There's an opportunity cost. My fund only gets 40 shots on goal. If I take one shot that I don't believe has any chance of being 100x, now I have 39 shots on goal, and I have one fewer way to make 100x.

If I'm going to raise a $150 million fund, I need to know what game I'm playing. I need to be honest about it and play that game with integrity, or else I need a different fund size.

Do you feel that it's got much harder over time?

Oh, yeah. But I think we've gotten better and smarter too. It's gotten more competitive, and there are a few things that give you a real advantage today that didn't matter as much then.

I think today, having a temperament advantage makes a big difference.

What do you mean by a temperament advantage?

In 2021, we were seeing all these projects raising money at $30 million, $35 million, and $40 million. Ann and I were just looking at each other saying, “We don't have to do that.”

Some of the young associates and principals were like, “We haven't done any deals this year.” I'm like, “That's okay. We haven't found any that meet our conditions.”

Ann and I have done this long enough to say, “We don't have anything to prove to each other. We don't need to have points on the board this quarter, this month, or this year. Silicon Valley will move on, and we'll be there.”

I spent a lot of time as a team thinking about our circle of competence: What are the situations where we've made money historically, and what are the situations where we think we're well set up to make money in the future? We need to see projects that meet those conditions.

Did you agree with Bill Gurley that you play the game on the field, or not?

You have to play the game that's on the field, but what if the field doesn't fit your conditions?

What if the field doesn't fit your conditions?

Then you just have to be more discerning. Buffett said it well once: Investing is like a game where there are no called strikes. You let pitch after pitch go by, and everybody says, “Swing, you bum. Everybody else is swinging.”

You just say, “No, I don't have to swing. I don't see my pitch. I'm going to wait until a meatball comes over the plate and swing at it with all my might.” If one doesn't come, I'll wait. Some will, someday.

This is a great way to think about pacing. In 2009, everybody was in the fetal position, and Ann and I were seeing deal after deal where we thought, “This totally meets our criteria. This is awesome.”

Ann funded Lyft at a $5.5 million post-money valuation.

How big was the check?

She wrote $750,000.

She did pretty well on that, right?

She made about 250x, maybe, on that investment. We were in an environment where people were afraid to invest. People thought the world was going to come to an end.

But because we were saying, “This is the type of project that we think is attractive,” when we saw one of those, we didn't care what the market was doing. We were going to say yes to those.

Similarly, in 2021, I made only 1 investment the whole year: this company, Hadrian.

Why is that?

I just didn't find any companies that met my criteria. One thing that's interesting about having a circle of competence—and I learned this from Buffett and Munger—is that if you know what your circle of competence is, and everything is systematically overpriced, you do fewer deals because fewer deals meet your conditions.

If everything's systematically underpriced, you do more deals. That's the situation you want to be in.

How do you think about when playing the game on the field is fundamentally a new game? What I mean by that is, when you look at AI today, the prices are nuts and the excitement is nuts. But if this is the next generation of technology, as everyone is told, and this is the most exciting time in 30, 40, or 50 years—likely Benedict Evans says it's the most exciting time in his career—you have to play the game that's on the field.

But you don't have to play the way everybody else plays. Ultimately, if you're not finding inefficiencies in the game, you ought to be asking yourself, “What am I doing? What am I in this for?”

That's what we're paid to do. We're paid to find opportunities that are going to make money. Nobody's interested in indexing the broader overpriced seed market. That's not a good business.

You have to find attractive opportunities. For us, a lot of that in the AI arena has been enterprise. Applied Intuition was one. A more recent one was Cicero, which is another one that's doing really well.

We had a very specific set of conditions for what kinds of AI investments we would do and not do.

Were they crazy priced?

No. Applied was expensive. It was $40 million post-money.

7. On Mike’s Best Deals

When you look at your best deals, have they been the most expensive?

No, actually, the reverse is true. I don't know if that would still be the case.

Were they hot only?

Applied was hot. Caster would have raised money from anybody he pitched with that idea. He was that good, and his idea was that good. He was that well prepared.

He pitched 2 firms, got term sheets from both, and decided to work with Mark Cuban. Mark joined the board. I said, “The Series B round is probably a little bit de-risked, so I should probably put in as much as I can get in on the round.” That's what we did.

Immediately after our check cleared, Iris was trying to buy more.

Have you ever done a deal where you bought common, not preferred? We're seeing more and more of this.

I've done that. Nate Charnas told me about that. The other thing I've done is been in a situation where the founder wanted me to do something with them, and I said, “I'd like to work with you too, but the price is too high.”

This is one of the things about convertible notes. I could say to that person, “You can issue a convertible note at any price you want. If you're raising at $20 million, you can sell me half of it at $20 million and half of it at $5 million.”

They might say, “Other people may not like that very much.” I'm like, “I understand that, but you can decide. I'm not going to pay the price that everybody else is paying.”

You learn quickly whether they value your involvement in a differential way or not. If they don't, it doesn't hurt my feelings. I'm not going to pay the price, but it doesn't hurt my feelings.

On the common and preferred, you would buy common? We had Nate Charnas from Notation on, and he said, “We think you should be more aligned. You should buy common.”

I really like Nate, but I think that's bullshit. I would if it made a meaningful difference in my ownership early. If it were the difference between winning and losing the deal, I would do it.

It's not so much that it would be. Maybe I can say to the founder, “This is a way for us to have some kind of joint gain. I know you need to get the price you want to get, and there are reasons you want to get that. Maybe we can get some kind of blended price if I buy preferred plus common.”

I own more, I'm taking more risk, but if I believe in the company, I've never made money or lost money based on common or preferred in the ones that worked.

Will you do uncapped notes?

Only in very rare cases. I would have done one for Applied because, right after the Series A, we wanted to own more.

There are times when doing an uncapped note works in your favor. You can say, “I have so much conviction that I'll pay a discount to whatever the next price is. I don't care.”

Otherwise, why is the founder going to give you any kind of preferential treatment when the round comes together? If you believe in the company, you have to position yourself for the next round.

Have you ever done a Chris Sacca and done a nom-nom? I call it the nom-nom, when you go to Twitter employees and just eat up, eat up, eat up.

8. Deciding the Right Time to Sell

I've never done that. I was tempted at times, but I never did.

You said there about Ann's incredible investment of $750,000 into Lyft, and whatever that was—a 250x. You have to sell for that to be a 250x, respectfully, Mike, because I don't know what Lyft's market cap is today. It wouldn't have been a 250x if you sold today.

How do you know when's the right time to sell?

There are a couple of things. By the way, this is something we haven't really talked about yet that is good for seed.

Let's imagine it's 2015, and Lyft stock at the time, in the private markets, was about $25 a share. It was worth more than it is today by a meaningful amount. At the beginning of the year, we said, “We need to sell some of this because we're behind a $1.5 billion preference stack.”

We're in this thing at a $5.5 million post-money valuation. We're competing against likely Travis Kalanick, who's a freaking maniac and whom I respect a lot, but he's not a fun guy to compete with.

This thing is going to impact our fund. We are way in the money on this thing. Ann had a Post-it note on her monitor that said “IQ test.” We put it on in January that year. The IQ test was, “I need to find a way to sell some of our Lyft stock this year.”

She ended up selling a fair chunk of it. I don't think half of our stake, but a fair amount, in 2015.

At what price?

$25 a share, let's say—$4 billion to $5 billion, something like that.

That was pretty good.

It was really good. The highest it ever got was straight away.

Yeah.

We were like, “Okay, we need to sell enough to return all of the fund.” So she did.

One thing that I think a lot of seed funds don't get is that there are 2 ways to make money. One is through entry-pricing inefficiency, but the other is to arbitrage exit-price inefficiency.

With Lyft, Andreessen Horowitz was in Lyft, and they couldn't have done that. It would have sent a signal. Selling a couple of hundred million dollars or whatever doesn't matter to Andreessen Horowitz. It doesn't affect their fund enough.

9. Is Asset Pricing Efficient Amid AI Hype?

One of the things that seed funds can do is start to say, “Is the market about to value this thing as if it executes perfectly for all the next 5 years?” The capital markets are such that there's so much money that a lot of these companies, no matter how exciting they are, are going to get fully valued as if they're perfect for a very long time.

Do you think that's exit-price inefficiency today, given the incredible excitement around AI?

That's the thing. The times when you should be selling into some of those rounds are the times when everybody wants a share of the company.

What I learned was that it's actually a win-win for the founder. You can't just do it on the fly; you can't be transactional. But if you say to the founder, “Let's be realistic here. You're better off in the fullness of time if certain players are in your cap table and not a seed fund—Fidelity or folks like that. What do you say we get strategic about it?”

You put yourselves in a position where you can get somebody like that in when the company raises its next round, if it clears a certain threshold.

Usually, at first, they're like, “I don't know.” But by the time the round comes together, the founder is coming to you saying, “Dude, you've got to do me a solid. You said you were going to sell. I need you to sell more.”

Everybody becomes a pig. Everybody wants in. Nobody pays attention. Ironically, the times when it's easiest to sell in these really hot rounds is probably the time you should think seriously about it when you're a seed fund.

You don't want to—Iris came up with a term for it, actually. We call it an initial liquidity event. It's an event that has the same impact on fund economics as an IPO. It can't be just $10 million here and $15 million there. It's got to be something where it has the same impact on your fund as if the company went public.

The counter to that, if we were jousting into Lyft, would be that Brian Singerman has often talked to me before about the value of the next double. A company going from $2 billion to $6 billion is much easier than having another $4 billion in enterprise value gained in the rest of the portfolio.

If you look at Bessemer selling all of its Shopify stake at whatever it was—$2 billion to $3 billion—that was probably the worst financial decision ever.

They'll say the same thing. I'm not saying it was, but you never make a trade that you don't somewhat regret unless you sell at the top.

Lyft traded up to about $75 when it went public. When the lockup expired, we got out at about $75. We would have done even better, but it was still the right decision. It was still the right risk-adjusted decision.

Once your fund is in the carry and you're in the money, there's still that upside. The question is—

Does your psychology change when you're in the money?

I think it does a little bit. But you get into these situations where the variance in the potential outcomes is so great.

I agree with Brian Singerman in one sense: Some of these things can ride a lot farther and higher than you think. I agree with that. The issue is that sometimes both can be true.

You can be in a situation where you're 100x in the money in 5 years, and no matter how good the company is, it's valued to absolute perfection. In those cases, I look at it like, even if the Brian Singerman outcome happens and it doubles again or quadruples again, just have enough stock so that you're going to benefit from that upside too.

But 100-baggers are pretty rare. I keep track of them. I have a list I can show you on my laptop: 100-baggers from the last 20 years.

How many have you got?

There are a little over 100 that have exited and a little over 100 non-exited that I track. I don't track most of them because I don't think they're real.

How many 100-baggers have you got?

I've only got about 3 or 4.

Okay.

Twitter would have been a little over 300x. Lyft gets all the credit for that—it was about 205x. What else? Applied Intuition is probably encroaching on 100x on the first check.

Twitch got close, but not quite there. It got to 94x. There are a few others that I think have a shot.

Would you start to sell Applied Intuition when it gets to 100x?

Here's the key: You have to do it in a way where you're not just being selfish about it. You want to do it in a way where—in fact, we did sell some Applied, but we did it in full cooperation with Caster.

I wasn't going to do it behind his back or against his wishes. I said, “Is there a way we can make this a win for you?” That's the discussion we need to be having. But you can't have that discussion the day the round closes. You have to say, “Here's how I'm seeing things. Am I making sense?”

Caster is a grown-up. He's like, “I get it. I understand. You've got a business to run, and so do I.”

100%. The best founders generally do understand. They do, especially if you don't surprise them and you're not greedy and transactional about it.

We'll do it behind their backs.

Yeah.

If you say to the founder, “Can we agree that, all things being equal, this would be a good investor to have in your cap table after the next round? This is a good way for you to get them without getting massive dilution. What do you say we try to engineer those circumstances?”

How does your psychology change when you're in the money?

Hopefully not much. Sometimes, the place where I would agree with Brian Singerman is that you get in the money and lose sight of the fact that you can get a lot more in the money.

I think more that you see the side of how you can be more in the money and you lose the downside. I'm always thinking about how you can be more in the money and lose the downside.

I'm very close to the guys at likely Susa and the team there. I think the reason they're so successful is because, bluntly, they've done so well that they're not fearful of downside. They just see what it could be, and it enables them to have this enlarged perception or vision.

I think that goes back to the first principles. You can make money on the buy, and you can make money on the sell. What most people don't understand is that seed funds are actually better positioned to make money on the sale than anybody—better positioned than multistage funds by a wide margin.

That requires the seed manager to be much more sophisticated than most are being. Most are just asking, “Should I sell? Should I not sell?” What you want to do is have an opinion, and you want it to be grounded in the facts.

10. Structured Salary Liquidity or Case-by-Case

Why do I collect information on the 100-baggers? Because I'm like a train spotter. In Britain, you have those train spotters.

There's structure to the selling. We had Avi from Entrée on, and he's like, “I sell a third in a growth round, a third pre-IPO, and a third post-IPO.” I'm going to butcher it, but there's a real structure to it. Do you like that kind of structure, or do you think it's a case by case?

I think it's case by case. You should say to yourself, “There was a time when we were sober and said, ‘If the following things happen, we might be sellers,’ and that's happening now.”

The least sober decisions I've made were in our early funds. We followed on in too many rounds in companies that weren't going to make the difference.

What was the least sober decision?

Our biggest failures are not related to that. Our biggest failures have been failures of imagination. When I passed on Airbnb or another one we passed on, Datadog, we would have done really well.

Do you blame yourself for passing on Airbnb? My reasoning around that is that it was a nuts idea. The founder wasn't from a blue-chip company. It wasn't a straight-down-the-fairway deal at the time. It was crazy, and you had to see some real—

The way I look at it is that I need to understand what I didn't see, and I need to be really tough-minded about that. It's not about beating myself up. It's saying, “Is there a set of frameworks that we embrace today that would have caused us to say yes?”

We do that not just with Airbnb; we do it with all the 100-baggers. We do these 100-bagger deep dives. We did one on Marquetta, one on Zoom, and one on—

What do you learn from them?

You learn a bunch of really important things. We track things like: If you'd said yes at the seed round, what kind of a multiple would you have made? How soon would you have made it? What kind of dilution would you have seen?

Then you say, “Here are our frameworks.” One of our frameworks is, “Did they have an insight?” Another is, “Did it harness an inflection?” One framework is founder–future fit.

Future fit?

Yeah. I'll give you an example. With Zoom, we didn't see it, but it started as this consumer, everyman conferencing thing called likely SaaSbee. That's when you would have had to invest in the seed round.

Did it really harness an inflection? It's hard to argue that it didn't. Did he have a fundamental insight? It's hard to argue that he did. In fact, his initial vision for the product was just wrong.

But likely Eric Yuan had been at Cisco as part of WebEx for 10 years. He'd been thinking about video conferencing all the time, so his founder–future fit was actually quite good.

Founder–future fit comes from William Gibson. He says, “The future is already here; it's just not evenly distributed.” What he means by that—or what I think he means by that—is that great startup ideas don't come from trying to think of a startup. They come from a founder who's living in the future, notices what's missing in the future, and builds what's missing in the future.

It reminds me of Isaac Newton, a fellow Brit of yours. He was supposedly at a party and was asked, “When the apple fell on your head, why did you suddenly have this insight about gravity?” Newton said it was because he was thinking about it all the time.

Founders with founder–future fit are obsessed train spotters in a rabbit hole, thinking about this stuff all the time.

11. How Mike Identifies Hidden Insights?

Do you know what I find really hard? I've learned so much from you over the years—so many things, literally. You shaped something I do every day, which is that I always ask, “What's your insight? How do you see the world in a way that's different from how other people see it?”

The challenge I have, Mike, is that so few people can articulate it well in any way. Even if they have it, I worry that I'm missing it because they can't articulate it.

It's really hard. There are a few signals that are interesting, apart from just asking whether you think the founder is great.

One is, “Does it harness an inflection?” Lyft harnessed the iPhone 4S, which had a GPS chip in it. That happens outside of the startup.

The second thing we look for is, “What do you know about the future that's non-consensus and right?” The third is founder–future fit.

One of the things I learned in looking at these 100-bagger studies is that some of these things become clearer later. You have to figure out what the real signal was at the time. You have to decide.

You want to get a time capsule of that startup. You want to know what the founder was like at the time, what the pitch deck was like at the time, and what was knowable about it at the time.

Quite often, I find in doing these that founder–future fit is the best signal. It's the most discernible way to figure out if the founder is likely to figure this out or not.

Just so I get it: Is it whether the background of the founder is commensurate with what we believe successful founders in this space will have?

I look at it like almost every great startup is pursuing a future that's meant to be, and there's usually 1 team that's ideally suited to that future.

Take Okta. I meet Todd McKinnon, and he says, “I've been at Salesforce all this time. All the early adopters of the cloud use Salesforce, and now they're using other cloud apps. There are going to be identity-management problems for cloud apps. I'm going to build a system, and I'm the vice president of engineering at Salesforce. These customers trust me. I know their problems.”

12. Predictions for 2025

I'm like, “Okay, it's a good pitch. It's a pretty damn good pitch.” If anybody can do it, he can do it. If anyone knows, he knows.

What was true about Todd? First of all, he was living in the future with those customers. When you live in the future with those customers and are intrinsically motivated by that future, you're more likely to understand what you should build.

Second, you're more likely to attract early believers because you're more credible. I look for founders who are living in a valid future, are intrinsically motivated by the future they're pursuing, are more likely to notice specifically what to build, and are more likely to convince people that they've built the right thing.

If that team is present, I ask, “Is this team the most likely team in the world to make this future real the quickest?”

Does that exclude first-time founders who've not done anything before?

No. Take likely Marc Andreessen. He was at the University of Illinois and had never run a business before. He was in a supercomputer lab.

At the time, the internet had just been made legal for business. It could only be used at universities and in academia. Marc was trying to make collaboration software for a team of researchers. He started tinkering with the early technologies—the World Wide Web—and created a browser.

But was Marc going after a market for browsers? Heck, no. Marc didn't know what markets were at the time. He was just trying to build what was missing about the internet. He was trying to make the internet immediately more useful for him and his team.

Why is that important? Marc was living in a time machine. It turned out that he was using machines similar to the machines everybody would soon have. He was on a network similar to the kind of networks everybody would soon be on, and he was using the type of web protocols everybody would soon be using.

His knowledge about that domain—the future—was more important than any businessperson's knowledge of improving the present.

Everybody thought AT&T, Time Warner, Microsoft Network, AOL, or maybe the government should build the digital superhighway. Everybody assumed it would be a top-down extension of what existed.

Nobody assumed that some kid making minimum wage as a programmer in a supercomputer lab would have the better answer. It wasn't going to be top-down; it was going to be a messy, bottom-up web of stuff. That was the paradigm. That was the winning paradigm.

Marc's advantage wasn't born of his experience in business. It was born of his experience with the future.

13. Biggest Weakness in Analyzing Founders

Where is your biggest weakness in how you analyze founders today?

My biggest weakness has always been that I'm too optimistic about whether people can pull it off. Exceptionalism is so rare. So few people are truly great, and so few people have the willpower and grit.

Will you invest in people if you don't like them?

Yeah. It has nothing to do with it.

There is an aspect of great founders quite often where they're disagreeable because, when you think about it, a breakthrough startup is a provocative act. It's a disagreement with the present. The more of a breakthrough it is, the more disagreeable it is.

Quite often, these founders are disagreeable people because the present will fight back, and it won't fight back fairly.

What do you do when you lose faith in a founder? When you invest in a company and they don't turn out to be what you thought?

I have this saying: “Detach with love.” I'm like, “Hey, it seems like I'm not able to help much here. If that changes, let me know.”

I'm not going to sit there and tell you that you're not doing a good job and that we disagree about everything. That's okay. It's nothing personal. If you change your mind and I can be helpful, let me know.

Do you find that the messy middle is where the most value often lies? I found that the winners are very clear from the outset. They're actually in the messy middle because the ones that really break out—Clubhouse, Hopin, BeReal—are unsustainable. The losers are very clear, but you can't affect them that much regardless.

I've never worked with a company that got product-market fit that wasn't wildly successful. That's kind of the only thing in the early days.

I don't get that. I've heard you say that before.

Maybe you're just brilliant and I'm shit, which is very possible, but I have several companies with product-market fit that are not successful. We mentioned Clubhouse.

I don't think they had product-market fit, really. They had millions of users engaging daily for hours at a time. I would say that was product-market fit.

Do they still?

Absolutely not.

So they didn't. They just had a temporary solar flare.

How do you define sustainable product-market fit?

It's funny. I was talking to a Robinhood co-founder last week. I like him. I love that guy. We were talking about product-market fit, and he said, “When we got it at Robinhood, I was like, ‘Oh, that's what product-market fit looks like.’”

I think it's like stages. It's like a chapter in a book, and you have to continuously own the next product-market-fit chapter.

But, going back to what I think you were getting at, can I help the founder get product-market fit? Not that much, in my opinion. There are some things I can do. Part of what I can do is addition by subtraction.

I can remind them that no matter what everybody's saying, that's the thing. Vince Lombardi used to say, “Winning isn't everything; it's the only thing.” Product-market fit isn't everything; it's the only thing. Get product-market fit. Eliminate distractions. Ask what I can do to help.

Last time we talked, you said this is the bottleneck between us getting strong product-market fit and today. Is that still the case? How can I be helpful there?

14. Are Growth Investors Misjudging the Efficiency of Capital?

The other thing is that being a founder is not a fun job. If you're doing it for real, it's almost like being an artist. Sometimes it's almost more of a curse than a blessing. It's almost like you have to do it because you're called to do it, but it's a hard job. It's a shitty job.

One of my biggest concerns right now is that we're seeing a generation of growth investors, or funds that work at Series A, who've now raised billions and billions and assume that the efficiency of dollars is the same regardless of company stage or how much they have raised.

They say, “Fuck it, we need to deploy $50 million, $75 million, or $100 million. We saw it doing really well. Let's put it in this company. I know we're paying well ahead of time. I know we're paying 2 years out, but we can still see a 3x if we pay $3 billion from here.”

But when you drop $100 million into a company, suddenly they do 10 other things. They do those 10 other things, and the $10 billion exit massively reduces in likelihood because they're now way less focused.

This is why I really appreciate some of these founders I've worked with who've done a good job. Caster has enough money to do whatever the heck he wants.

But, in fairness to the CEOs of those companies, a lot of them never had any influences around them that said, “Hey, you're about to raise a bunch of money. That's cool, but let's not breathe our own fumes. We don't have product-market fit yet. We don't have an objective way to say, ‘Yes, check the box—we have product-market fit.’”

If we're not careful, even if we do have product-market fit, taking in $150 million means you have to find a way to use that.

What usually happens, and it's even worse, is that these companies raise a lot of money before they have legitimate product-market fit. They hire ahead of achieving it, and suddenly they're doing a bunch of wacky nonsense that's not contributing to product-market fit. They just become culturally broken.

They never develop muscle memory for what an attractive customer is, how you should find one, which ones to avoid, what features should be added to the strategy, and which ones shouldn't.

What happens to the generation of companies that have raised these $100 million-plus rounds at billion-dollar-plus prices, where they didn't really have product-market fit?

I think most of them won't clear their preference stack, and the GPs just keep going. But they've got 5 years of runway, 7 years of runway, so they just keep going without a GPS and keep telling LPs, “It's fine. It's fine.”

The problem is that there's an element of this where everybody in the game has an incentive to keep the plate spinning.

But it goes back to the first thing we were talking about. My business is hard, your business is hard, but it's not complicated. A 100-bagger on the first check. If we get 1, 2, or 3 of those in a fund, we're going to be successful.

15. Is Success Possible Without Product-Market Fit?

Have you ever had a company without product-market fit be successful?

One that comes to mind is CoTweet.

This is kind of a funny story. In American football, we have the expression “a forward fumble.” Steve Anderson at Baseline was talking to this company, CoTweet. He asked, “What do you think the valuation ought to be?”

I said, “I don't know, man. They don't have a lot of traction. I don't think I would do much more than $3 million pre-money if I were you.”

Steve came back and said, “They accepted our offer.”

I was like, “What do you mean, our offer? I thought you were just looking for my insight about what the price ought to be. I didn't say I was offering anything.”

He said, “Come on, dude. You can't leave me hanging now. Jesse and I are both in this thing.”

I was thinking, “Shit.” I couldn't believe I let him talk me into this. This was the dumbest decision. I thought, “I'm never going to make this mistake again.” Then I thought, “I kind of like it, I guess. I need to think about this. At least the price is pretty good.”

How big was the check?

I probably put in a few hundred thousand dollars, and Steve put in more.

Not much later, CoTweet was pretty much out of money. Steve said, “We kind of have a problem. We're almost out of money.”

I was thinking to myself, “Damn it. I can't believe I let him talk me into this. This is the dumbest. I'm never going to make this mistake again.”

Then Steve said, “It looks like ExactTarget is going to buy this company.”

At the time, I'd never heard of ExactTarget. They were going to buy it for stock, and I was thinking, “Great. At least we're not out of business, but now I have ExactTarget stock. I've never heard of this company in Indianapolis.”

ExactTarget bought them, and then ExactTarget went public. I was like, “Wow, they're going public. How soon can I sell?” because I knew nothing about ExactTarget.

Before the lockup expired, Salesforce decided to buy ExactTarget. We ended up making 23x our money. It was like when you fumble the football: It just bounces end over end up the field and keeps going and going and going.

16. 2024 Review

Every time we thought, “I wish I could get out of this,” we couldn't, and it just kept going.

I love that.

Let's do 2024 in review. I'm going to say a couple of different statements, and you're going to give me your thoughts. What was the company of the year in 2024?

SpaceX. I just think they are starting to blast a lot of rockets into outer space, and what they have done is incredible. I don't have to squint too hard to see a world where they're the most valuable company in the world.

If you're the most important, dominant company in outer space, that's a big deal. You look at North Carolina, which had this hurricane, and we've passed this $40 billion broadband bill. Nobody's built any broadband connections that I'm aware of, and everybody's saying, “Elon, can you help?”

He puts his satellites above and makes it free. He helped with Ukraine. It's incredible.

Do you worry about the power that 1 man has? He controls the digital town hall now with Trump, and he controls the physical town hall.

That's a different question. But if you're asking me for the company of the year, it's SpaceX, in my view.

If people are saying, “The problem with SpaceX is that they're too powerful, and they dominate the skies,” to me, that underscores the year they had. It also underscores the impact they have: their ability to provide broadband arbitrarily anywhere in the world.

By the way, it's not going to be just broadband. They're going to be able to launch payloads of all kinds of things. likely Baiju Bhatt's new company is trying to have satellites with solar panels that beam lasers down to Earth for energy anywhere at these base stations.

Who's going to put those things into outer space? It's going to be SpaceX, putting the payload out there. You get to a world where SpaceX becomes a platform-dominant supplier for outer space, and I think that's pretty impressive.

What do you think was the fund of the year?

I'm going to go with 20VC. I mean, dude, a $400 million fundraise. Fist bump for the win, man. You're barely not even a kid, and you're doing this in Europe. $400 million in Europe is something you should be proud of.

I remember when we met at Battery Ventures. I was desperate for you to give me a job. I was so desperate.

If you'd come to America, I would have done it.

That's very kind of you.

It's interesting. I don't know if you feel this, but in some situations I've had when things work my way, you don't always let yourself be fully aware of it at the time. You don't stop and say, “Hot damn, that was something. I really did something there.”

Maybe you're not doing that with this $400 million fund, but give yourself some time to come up for air and say, “Hot damn, I did that.”

I feel a desperate responsibility. It's a huge amount of money, which I'm very grateful and appreciative of, but the question is, “What does it do now?”

But what you did was legendary. You still have a lot to do, but every now and then it's good to come up for air and take it in.

I really appreciate that. From you, that means the world to me.

Okay, founder of the year?

Elon.

Investor of the year?

I'd say, as an homage, Charlie Munger. I think the world is really going to miss him. Of all the investors, I'd say Charlie Munger and likely Howard Marks have influenced my view of how to be a good all-around investor more than anybody.

How has [likely Howard Marks] most influenced you?

His memos for Oaktree Capital are insane. A lot of the ideas in Pattern Breakers were a realization that startups are all about being non-consensus and right, but in a much more massively disruptive way.

He looks at it through the lens of second-level thinking and knowing something that the market doesn't know when you make an investment so that you can outperform.

What startup capitalism is about is refusing the premise of the current rules, showing up out of nowhere, and changing the subject. The only way you can do that is to be non-consensus and right. You can only make a radical difference by being radically different.

M&A or exit of the year?

I don't think I have as good an answer for that. I'll go with Loom.

$975 million. It's a lot.

That's pretty good.

Good timing.

I think they definitely optimized their outcome. Pretty solid.

Predictions for 2025. What will we see?

I continue to be intrigued by what could happen with Bitcoin.

When I think about the way venture capital has thought about crypto, most of the smartest people I know have been focused on Ethereum and likely Solana. I look at Bitcoin and it feels like the thing hidden in plain sight.

It feels to me like there's a world where Bitcoin becomes more valuable than gold and then some, and where there's an entire financial ecosystem and set of rails around it. If that happens, I think Bitcoin has a lot of room to run.

I also think there would be a lot of startups that could create an ecosystem around it that would be interesting.

I asked Reed Hoffman this morning: At the end of 2025, what is the price of Bitcoin?

At the end of the year or the highest point in the year?

The end of the year.

I'm going to guess that it gets to $130,000.

He went with $200,000.

What happens with DOGE? Success or not a success?

To me, success would mean that it changes the cultural norms of what's acceptable from an accountability standpoint.

I don't think Elon is going to be able to do what he did with Twitter—fire a bunch of people, change all the rules, and bring in a sink.

Yeah, he might be able to do that. For anyone who saw the picture of him bringing in a sink, God, let that sink in.

Let that sink in.

Here's what I think is happening. It's not just DOGE. What Joe Lonsdale is doing with his project, Cicero, is really good.

One of the problems we have with government in the United States is that you'll have a government entity that has a bunch of money, produces terrible results that are only getting worse, and keeps hoovering up more money.

At some point, we need to get to a place where we can say, “If we put money into something, we should have a goal. If the entity achieves the goal, it gets more money, and if it doesn't achieve the goal, it gets less money.”

Can we agree that that's true, Republican or Democrat? Can we agree that we should at least try to see what the goal is and hold people accountable for achieving those goals?

You'd be surprised. Imagine the crappiest company you ever saw, where everybody is dissing it all the time. Now imagine that company, and the worse it does, the more money it gets. The worst departments in the company get the most money because they say, “The problem is that we're underinvesting in us.”

That's what so much of the government is like today.

It's not just DOGE in terms of the federal government. What Elon is doing, what Vivek Ramaswamy is doing, and what Lonsdale is doing are important too, because Lonsdale is trying to take it to the local level.

What we need—you aren't going to be able to solve this stuff overnight—is to create a culture and a set of mechanisms for accountability, and for a natural way for things to recede when they're not effective.

If you could create a permanent change on that front, that would really be a big deal.

What damaging element of venture needs to recede right now?

There's just too much money. But I don't think it's ever getting worse.

I think it might be. I speak to so many LPs—new sovereign wealth funds, new pension funds, and new endowment funds—that have sub-3% exposure to venture today and want to take it to 10% to 15%.

The thing that I think most people don't have a handle on yet is that exits are cyclical too. Throughout my career, there have been these 15-year windows where close to half of the exit profits are made in an 18-month to 2-year window.

likely Horsley Bridge is brilliant in its analysis of the asset class. They found that venture is a very challenging asset class, but brilliant when you take advantage of very constrained liquidity windows. That is where you're able to have—

That is the business. Every 15 years or so, you get this window of about 18 months to 2 years. If you want to do really well, the secret is to have a bunch of very good companies in flight when that happens.

A lot of these big multistage funds are going to run into a problem. They raised money on exits predicated by 2020 to 2022 exits, and there's a lot of evidence that those exits aren't going to happen. There's going to be a long period of time before we ever see that again.

Things have a way of correcting. I think the multistage funds will, over time, feel pressure to rationalize their fund sizes. They'll say they'll do it slowly and deliberately.

I do juxtapose that with the thought that 15 years ago it was insane to have a $150 million seed fund. Now it's like, “Obviously, how could you not have a seed fund over $100 million?”

Before, there wasn't even a trillion-dollar company.

Mike, are you serious? Well, now we have 5 or 6.

The other thing that's happened is that a lot of people have forgotten what a seed round even is. Now you have seed rounds that are $4 million or $5 million.

To me, the purpose of a seed round is that you have an insight about the future and a massive risk that you're hoping to take out. The ideal seed round is one that provides slightly more than the minimum viable amount of money and time to take out that risk.

That's because it's the riskiest time in the company, and it's also the most expensive time to use capital. You never get more diluted than you do in the seed round.

What founders should do with their seed round is say, “I've got an insight about the future that's non-consensus. I need to prove that I'm right.” Once you've proved that you're right, you've taken the single biggest risk factor out of the business. You've done the most value-added thing you can possibly do to the company, and you'll raise money at a much higher price.

I agree, but I disagree. You proved that you're right, but then you need to scale into enterprise. Then you need to prove that you're right again. Then you need to—

Here's the problem: What happens more often is that people raise $4 million and just go do a bunch of stuff. Now they don't have a clear line of sight.

What you want to be able to say is, “I need to establish that my insight is true.” If I establish that my insight is true, I've done more than any single thing I can do to take risk out of this. That's the best thing I can do to enhance value creation.

If that means they raise a lot of money after that, fine. That's a different discussion. Then the question becomes, “What is the value-creation strategy for Series A?”

What's happening now is that people are raising $4 million because that's what it takes to dilute 20%. That's just stupid. It's not a good way to get started, and it hurts the founders even more than it hurts the VCs.

The one thing you never get back as a founder is your time. If you raise $4 million, you're 3 years in, you're doing seed extensions, and you've hired a bunch of people. You're much better off if the insight was wrong knowing that within a year.

But then raising more money gives you more time to tinker and iterate. I look at Klaviyo, UiPath, ServiceTitan, and some of the biggest companies.

Most of those didn't raise a lot of money before product-market fit.

They didn't at all, but if they had, they would have had more comfort.

I asked every single founder.

Good.

Every single founder said, “They've got my back.”

Constraints are powerful in the early days. Constraints are what allow you to understand the true laws of physics for your company.

If you operate in the early days without constraints in terms of time, profit, and finding desperate customers, you'll be a worse business. You'll just be a worse startup. It is true.

17. Quick-Fire Round

Mike, I can talk to you all day. I want to do a quick one. I'll say a short statement, and you give me your immediate thoughts.

What do you believe that most people around you disbelieve?

I believe that more people should pay attention to the core tenets of Christianity. I don't mean that in a religious way; I mean it in a philosophical way.

There were some things that Christianity introduced to the world that were important. One is this idea of the forward arrow of time rather than cyclical time. Another is human rights as an inalienable right. Another is the idea of unconditional love, which is a little bit harder to explain in a sound bite.

I think those ideas are really important.

Do you believe that real love doesn't have conditions?

I do.

But if you don't set boundaries to your love, someone will.

Boundaries are different from conditions. A condition would be that my feelings get hurt, so I say something intentionally mean to hurt you back.

If you buy into the premise of unconditional love, you'd say it would be irrational for me to do that because I love this person. Why would I intentionally want to harm that person?

If they say something bad to me, I can say, “Something's clearly going wrong with this conversation. We need to have this conversation some other way because this isn't working for us.”

Unconditional love is a powerful way to think about things because it causes you to realize that if you love somebody, you always want what's best for them. That doesn't mean you always agree with them, and it doesn't mean you always put up with their crap. It means that you sincerely want what's best for them no matter what they do, and you try to show up in the world in a way that's true.

One of the things I really like about the teachings of Jesus is that he basically said that, when you step back, this is really true about everybody. You should try to be that way about everybody.

That doesn't mean that if somebody's hostile to you and you have to defend yourself, you don't defend yourself. You defend yourself. But you do it through the lens of saying, “I regret that I have to harm you because you've made a choice that gives me no alternative.”

What you try to avoid is calling them names and doing all this other stuff. I think that's a really profound idea, and not enough people have internalized how powerful that idea was philosophically.

Everything around us in the Western world, much of it came from Christianity. By that I don't mean Jesus as a religious figure, but Jesus as more of a philosopher king.

I saw a picture of your father, and he was a very early Microsoft employee, wasn't he? What was your biggest lesson from your father?

That's another good one. It was, “Do your best.”

What my dad helped me realize—Adam Smith, in The Wealth of Nations, talks about the principle of comparative advantage. Did you ever read The Wealth of Nations?

Yeah.

It's pretty good, right?

Fantastic. Pretty legit.

One thing he talks about in The Wealth of Nations is comparative advantage. I think most people have the wrong idea about competition.

You have your strand of DNA, and I have mine. Nobody in human history has ever had the same DNA as anybody else. That means every single one of us is a node on a network, completely unique.

Everybody in the world, I don't care who it is, has some set of comparative advantages. The failure mode a lot of people get into is that they try to be the best.

What I learned from my dad is that you want to do your best because there's only one you, and you can't be better than your best.

For example, I think likely Peter Thiel is really smart, but I'm never going to be better at seed investing than Peter Thiel by trying to study Strauss, Girard, and all these historical economic trends and macro stuff. He's going to beat me at that game.

But if it's about who's the better philosopher king of seed, what makes greatness in a seed round, and what makes greatness in a startup, I think I can win that game against anybody.

What I learned from my dad is that, as a person, you have intrinsic motivation. You can provide something that the world wants and values, and that you can get paid to do.

Part of honoring the limited time you have in this life is figuring out how to show up every day to honor the gift of your time by being your best and doing the best you can do.

The final one. It's a hard one, but I find it quite revealing. What about the way your parents brought you up did you deliberately decide to do differently in the way you bring your children up?

One thing that would have been good—and I still need to do better about it—is to get outside more and do more sports.

My dad was very cerebral. He was into computers, and everything we talked about was computers, the computer business, programming, and stuff. We played baseball and hung out together outside, but he wasn't really into sports.

That's something I'd like to do a better job of over time: promoting that a little bit more.

Mike, I could always chat with you all day. It's such a joy to have you here. Thank you so much for doing this.

Thanks for having me, Harry. Thanks for putting up with me.