为什么现在是买入上市软件公司的最佳时点

My guest today is Mitchell Green, the founder of Lead Edge Capital. When I think about Lead Edge, I think of this giant money machine that Mitchell and his 2 partners have designed over the last 15-plus years to make remarkably consistent investment returns for their clients. They have all sorts of unique aspects to the machine that they built, whether that's their collection of LPs, their 8-point criteria for how they select companies, the way they do cold calls, or the way they construct their portfolio.

This is just a totally different way of approaching markets. They're trying to hit singles and doubles and deliver very consistent returns. Mitchell says it's really important in life to be memorable. That's just a great, simple thing that you can do. I think you'll find, listening to Mitchell today talk about his entire machine and the firm that he's built, that he himself is extremely memorable. I hope you enjoy learning about his business.

1. The Hierarchy of BS

So, the first time that I heard about Lead Edge Capital was the very famous list of what companies report, starting with cash profits. If they don't have cash profits, then you go down this very funny list, a hierarchy of bullshit. The bottom one is the place that's voted the best place to work in New York City or something.

Absolutely.

Where did that list come from? Why did you put that together?

We've always found that the best way to communicate effectively with our audiences, which are entrepreneurs and our LPs, our clients, is to write a quarterly letter about a different topic. I started my career cold-calling companies, and that's the way we source deals. When you start your career talking to companies—I think Brian and I probably spoke to 10,000 companies—if you want to know what's a good company, just call 10,000 of them. You'll figure it out really quickly. It's pretty good pattern recognition.

Until our head of PR and communications came in a few years ago, we had actually never posted any of these things online. We joked that we sent this letter to some people in the VC community, one of whom was our buddy at Andreessen Horowitz, and they posted it online for us. We just thought it was a very simple way, in a world where people spout off total bullshit all the time and you see everything in decks, to distill it.

Talk to me about the 10,000 calls. What did you learn calling that many companies?

2. Lessons From 10,000 Cold Calls

You learn to be very disciplined, actually, and you learn that most things are just noise. You figure out what makes a Lead Edge company and then try to ignore everything else. You learn a lot about the responsiveness of people, and more responsive CEOs tend to be better CEOs.

I think another thing you learn that's really important for young people is that if you tell an entrepreneur you're going to do something, then actually do it. I think that's true in life. There are so many people that say they'll do things and just never do them. If you're known as a firm or a person that actually does what you say you're going to do, it goes a long way.

So, if you tell an entrepreneur, "Hey, I know somebody at Adobe. Do you want an introduction? It looks like it would help your business?" and he or she says, "I'd love to," then follow up with that. Do what you say you're going to do.

Can you describe what seems to me like—I would call it a machine—that is Lead Edge much more than most investment firms? A lot of great investors will tell you there's a lot of art, everything's different. Lead Edge feels to me like an unbelievably well-constructed machine to produce returns. I'd love you to, before we go into all the component aspects of the machine, describe the machine itself at a high level before I go on a tangent.

We run this place like it's a software company. My background was at Bessemer. I worked for somebody who was extremely disciplined and was building a cold-calling program. My other partner, Brian, worked at Bessemer. We were the first 2 cold callers. My other partner, Neema, worked at Insight. I think Insight—and I know you know Jeff Horing was on recently—was one of the best software investment, or technology investment, machines on the planet.

We've modeled ourselves on that. To build a good investment firm that stands the test of time, if you want to build the next TA Associates, General Atlantic, Bessemer, or Sequoia, you just have to be extremely rigorous.

Our number-one KPI that we run this place by is our gross dollar retention for LPs. We want 95% gross dollar retention, because the only way you can get that is, 1, to have good investment returns and great client service. How do you, through long periods of time and across people who will come and go, generate world-class returns? You need to have a process.

The process for us starts with 18 22- to 24-year-olds who talk to about 9,000 companies a year. Once you get those 9,000 companies, how do you figure out which ones to work on? You need this framework to guide these 18 people toward saying, "Well, this is going to be an interesting company."

In the investment business, we have 1 asset. It's time, and it's precious. How do you guide people to say no quickly? We built this framework that we really took from Bessemer. They helped build the Bessemer 5. We took the Bessemer 5 and turned it into Lead Edge 8, and it drives everything we do.

When we find the company, we're then super creative. We'll buy 10% to 80% of LPs out of a 20-year-old fund, buy employee secondary, or fund somebody's CV. We don't care. We'll do anything.

If I think about the 2 sides—the LPs and the companies that you invest in—I'll come back to the 8 criteria. The LP story that you have is also quite distinct and different. Can you describe that in a lot of detail?

Our LP base is all world-class execs and entrepreneurs. We do have some big institutions, but 95% of our capital is from these world-class execs and entrepreneurs. We use these LPs throughout the entire investment life cycle.

It literally starts with sourcing. If a company won't call us back, we'll email our LPs. Let's say it's an automotive software company. We'll have Rick Wagoner, the former CEO of GM and a longtime investor, send the CEO a note. If you're an automotive software CEO and the former CEO of General Motors calls you, you're way more likely to take an email than my knucklehead email when I'm a 22-year-old emailing you.

Then, for due diligence, we'll say, "Hey, you're a healthcare software company. You're $25 million in revenue. Maybe you say biotech or pharmaceutical software." It's like, "Oh, I see Pfizer's a customer. How big is it?" "Two million bucks." "Could it be bigger?" "Oh, it could be $10 million." We'll meet the former CEO.

Then I'll call up Ian Read and be like, "Hey, Ian, can you talk to this company? They'd love to talk to you. By the way, can you tell us what you think? And then, if it's super interesting, could you call Pfizer and back-channel it?"

Then you might say to the entrepreneur, "Hey, I don't see Biogen as a customer. Would you want to meet the former CEO?" So then you call up George and you're like, "Hey, George, I found this company. It meets 7 of our 8 criteria."

Post-investment, we literally send emails to our LPs: "Hey, Toast is looking for introductions to these restaurants. Do you know anybody?" It turns out all these people invest in funds and never get asked for help.

That's how we do it and how we leverage them, but it's not actually why we did it. It would be a lot easier to have 20 giant institutions write you $50 million to $300 million checks versus me spending a huge amount of my time running around the world all the time, spending time with these people. If you want 95% retention, that's what you need to do, because they're your clients.

The reason we did it is because I knew that the returns in this sector, in the tech investing sector, flow to the top 10% of funds. They just do. It probably is the same in real estate. It probably is the same in industrial buyouts, but I knew in the venture world that it definitely flowed to that.

I had the pleasure of working for one of these firms, Bessemer Venture Partners. When I was starting Lead Edge, I thought, "Why in God's name is anybody going to take my money?" I teach them how to ski, but that isn't going to be very helpful.

But I said, "You know what? Had I been the global head of HR at Procter & Gamble, my partner had been the global head of HR at Microsoft, and the other one had been the head of HR at Nike, when I called Workday 80 times at Bessemer, they would have definitely, by the end, been like, 'I'll hire you as a salesperson. I'm not taking your guys' money.'"

Yeah.

If I had been a world-class HR exec, he would have engaged with me because he would have known that I could have introduced him to those companies. I have tons of other HR execs. I know these people.

In a world that's super crowded and undifferentiated—and I think it's exponentially more the case today than it was 15 years ago—it just differentiates us, and we do what we say we're going to do.

How many LPs do you have?

Probably 800.

3. Base Hits vs. Grand Slams

95% by number are these executives.

Yeah.

If you think about the level of returns versus the consistency of returns, how much does one matter versus the other for this 95% gross retention?

I think consistency is more important.

On a per-deal basis, we're trying to make a 2 to 5x in 3 to 7 years. That's like a 25% net IRR if you actually map it on a curve. Put it into a fund, we want to generate a 2 to 2.25x net with 20% net IRRs. Some of those deals aren't going to 5x; some of them might be 0.7x.

Our downsides have been very low. I think we've only lost all of our money in 1 deal ever, and that's because of the criteria we look for in a company, what our average company looks like, and the fact that very few of our companies have any debt on them. I'm trying to make a 2 to 2.25x net, which is more like a 2.5x gross.

However, if something is a really big investment in the fund—and we don't run funds with 100 or 150 companies in them; we run funds with about 20 investments—and we've made something a 7%, 10%, 12%, or 15% position, and that goes 8x, 10x, or 12x, that's how you can 3x net a fund.

And so, because you rarely lose money, does that mean you also almost never hit some giant grand slam?

Correct. Correct. We're like Cal Ripken. Doubles, doubles, and triples. We're not Sammy Sosa or Mark McGwire. It's all about hitting doubles and triples.

If you do that with very little leverage in the portfolio, 85% to 90% of our companies have recurring revenue. So, if you invest today and know what revenues will be in July, that's a pretty good way to invest. Fifty to 60% of our companies are profitable businesses.

You may get it wrong. You may back the wrong team, or you may overestimate the size of the market, but I think 70% of them are in the pref, so you may get your downside to 1x. Sometimes you need to recut the deal with the entrepreneur or the management team, so you're making slightly less than that. But if you can avoid zeros—in turn, turn those zeros into 0.8x or 0.1x—it massively helps return.

We'll sell. Probably a third of our exits have been secondaries. We will buy secondaries, and we will also sell. We constantly underwrite. We've been referred to as traders or hedge-fund guys, and we're like, “No, no, we're just trying to actually make money.” Because this company is about to be a living dead, and you're going to be in this thing for the next decade.

Maybe spend a minute, before we go through the correct buy criteria, talking about selling more. What is the process?

We have an investment committee. There's 3 of us: myself, Brian, and Amy. Then there's our sourcing funnel. We have a disposition committee. Same thing. We meet.

We think a lot of firms do a really good job on the buy. Very few firms do a very good job on the sell—knowing when to sell and dealing with pressure to sell. I would tell you that private equity funds tend to do a much better job on the sell than most venture-growth guys. Then, if you do invest in public equities, hedge funds and long-only funds can constantly buy and sell.

The 3 of us meet once or twice a month and walk through the portfolio and just talk about it. “Hey, there's a round going down in this company. Should we sell? How can we try to position this company for a sale over the next 12 months?” The fastest way to get fired at Lead Edge is to have a company and not tell us when there's a liquidity opportunity or when something's about to happen before it happens.

What does the holding period end up being on average?

Our average holds are 3.5 to 4 years, probably. Everybody gets all excited by our 2015, 2016, 2017, and 2018 returns. Our 2015 and 2018 returns look very good. But it's just multiple expansion, and we sold. That's it.

If you think you're going to make a 2x in 4 years and you make a 4x in 2 years, it's amazing what it does to net IRR, right? People forget the reverse happened in 2020 and 2021. Nobody likes their 2020 and 2021 funds.

I think the venture-growth ecosystem gets a bad rap, but this is going to be true of every alternative asset. Their 2020 and 2021 funds are going to be awful relative to earlier funds because people thought they were going to make a 4x in 2 years and are instead making a 1.6x in 8 years. That's going to have a huge impact on the industry.

What is the most interesting thing about the skill of selling and making the transaction happen? Presumably, it's easiest to sell in private markets when a lot of other people are really excited about buying. You can't just hit sell like in public markets.

Correct. Maybe in a bad, medium, or good outcome, there are different kinds of outcomes that you'd be selling into.

Are most of your sales into a situation where everyone else is excited and you're less excited?

It can be everything in between. If a company goes public, it's just hit a 2 to 5x in 3 to 7 years, and then you sell.

And then the company goes public, you're at a 3.3x in 18 months or 24 months. You're like, that annihilates a 12% to 20% net IRR, right?

It's a great company, but we can't stand by our underwriting. What's the forward net return from here? We're like, “Well, yeah, we made a 3x in 18 months. That's like an IPO.”

In a secondary sale, it's about underwriting the forward IRR. Toast, which is one of our biggest investments, was something we put about 12% of Fund 3 into. We'd always get crap because Fund 3 was a $290 million fund, and we put about $36 million into it. Before the IPO, we had sold $180 million.

We think we'd make $350 million to $400 million in it total. People are like, “Why are you selling? You don't believe in us?” We're like, “No, no. All these other knuckleheads that invested alongside us, none of them put 12% of their fund in it. And, by the way, somebody is paying us a price in the secondary markets that we think is just lunacy.”

We sold in the secondary markets at around $40 or $50 in Toast. The stock today is around $30. We think it's cheap, but, by the way, we sold 6 years ago.

It's constantly underwriting forward IRR.

4. Pricing and the AI Exit Multiple Trap

Okay, now I get to talk about the 8 buying criteria. I don't know if you want to tick them off or give us some highlights. Give us some highlights.

There are 8 criteria. Are you $10 million-plus in revenue? Why? Do you have product-market fit? Are you growing? Because we don't invest in startups. Are you growing 25% a year? We generate returns through growth.

We don't use leverage. Do you have 70%-plus gross margins? Why? Because, at the end of the day, you trade on multiples for earnings. Revenue multiples are just shorthand math for what will be EBITDA multiples or earnings multiples when you don't grow that fast.

There's a reason that Facebook gives away food in the vending machines and Dell charges for Cokes. One has 80% gross margins and one has 15% gross margins, and we think that just drives earnings at the end of the day.

Are you recurring? It's a heck of a lot easier to invest when you know what revenues will be in July than when you only know what they are today. Are you capital-efficient? This metric has probably kept us out of the most trouble. It's our version of return on equity.

I think Warren Buffett would think we're idiots, but are your revenues today greater than your historical cash burn? What do I mean by that? Are you $20 million in revenue? Have you burned $80 million, like every other tech company cumulatively?

Yeah. Have you burned $80 million since inception, or have you burned $10 million since inception? We're looking for this one-to-one ratio. In a world where capital is a commodity, if you can build a business that's growing nicely while burning less than your revenues, you've got a pretty good business.

5. The Mount Rushmore of Investment Machines

Look, we don't invest in startups. If you invest in startups or $2 million-revenue companies, then obviously it's harder. Are you profitable at the bottom line? Do you have any customer concentration? I just don't want to wake up and find out 40% of my revenues disappeared because some customer didn't decide they wanted to work with you.

6. Software as a Game of Distribution

I want to talk about the price you're willing to pay for companies and how you would plot yourself on the risk-reward spectrum. So much of this sounds like a private equity strategy. But you mentioned Toast, and it's like—but Toast was—

Toast was $25 million of revenue, going 150% a year, and it was like we paid $500 million. It was like 10 times revenue. People are like, “That's crazy.” It's not when it went from $10 million to $25 million.

So we just try to build a forward model, and you're like, look, you could pay as high a price as you want. You just have to be right on your exits. You have to be right on your multiple. You know how people got in a bunch of trouble in 2020 and 2021, and I think how they're going to get in trouble today in all this AI stuff, is they just assume the exit multiple is 20 to 25 times. That's insanity, because when your maximum multiple collapses, you can pay 20 to 25 times revenues and, if you're right, like some of our companies have been, then it's fantastic. But you can also be wrong, like some of our companies have been, and you look like an idiot.

I think investing in OpenAI at $100 billion is a little insane personally. But I don't know—if it goes on to do $1 trillion of earnings, yeah, I was going to be very wrong. I should have invested.

There's almost a shorthand where, if this company grows and doesn't decelerate much for 18 months, am I in the money, and can I make a good, decent return for what I'm paying? And if the answer is, “Am I even in the money at 18 months or 24 months?” then you're paying way too high a price.

So right now, there's this seismic thing you can look at—the Constellation Software stock price is the perfect visual indicator of what's been going on, which is a ski slope: this intense skepticism in the market that boring, traditional, high-gross-margin software businesses are worth much at all.

But I'm curious how you process this moment, where I'm sure a lot of the companies you're looking at are software companies that have a lot of the components that make people fearful of similar kinds of companies in public markets.

Our belief, for right or wrong, is that the competitive advantage of a software company has never been about R&D. We're not building semiconductor chips. We're not building biotech and pharma companies. To build Chamber of Commerce software, you too could build this. My mother couldn't, but my brother could, no problem. At least, he's an engineer.

Look at Microsoft. If Microsoft took 500 people and gave them a month, each one of our companies could be out of business. But they just don't care about the Chamber of Commerce market. They don't care about the price-optimization market for manufacturing companies. They don't care about the tax-software market for a very specific niche product.

So the software companies are really about distribution, sales and marketing, customer success, and client services. We believe that it is the incumbent's game to lose in software today. There's a reason. I'll give you a couple of examples.

Workday has 98% or 99% gross dollar retention. It grows 10% to 15% a year. You might say, “Oh, it only grows 10% a year?” I'm sorry, it's $10 billion of revenue. It only took 20 years to get there, and it does $3 billion of free cash flow.

Exxon, a hospital system, Warburg Pincus, KKR, or Procter & Gamble probably spent 3 to 5 years implementing the software. If you think they're going to start building their own HR software, you're out of your mind. Now, the GUI and how you access it is going to be far different, but they already have the customer relationships. The only reason Workday was built is because Dave Duffield and Aneel Bhusri realized 20 years ago that Oracle and SAP had really crappy products. But Workday has thousands of engineers that are trying to build the product much better, and companies are going to use Workday versus Mitchell Green's cousin vibe-coding his way to build Workday.

7. Creative Deal Structuring

On the flip side, why did Coupa get built? The reason it was able to be built is that SAP bought Ariba and just left it for dead. So they built this big business, took it public, and now it's been sold to Thoma Bravo.

What I actually worry about is Thoma Bravo or any of these big private equity funds putting a bunch of debt on it. It's not growing that fast anymore. If they're putting a bunch of debt on it, then they brag. They're like, “Oh, yeah, we can drive all our companies to Rule of 50 businesses.” Do they end up cutting a bunch of people in R&D, sales and marketing, and product that they should have kept—people that, if you were being run by an entrepreneur with no leverage, you would have kept? Now I worry that a bunch of these private-equity-owned assets that are overlevered are ripe for disruption versus independent software companies that are focused on growth and trying to innovate.

I like to remind people that, if you look at e-commerce, everybody in 1999 and 2000 thought every big-box retailer was going out of business. But if you look at the 50 largest e-commerce companies in the United States, yes, Amazon is number 1. Do you know who 2 through 10 are? Walmart, Home Depot, Lowe's, Macy's, and Target. Saks is a crappy company, but its online business is actually pretty good. Neiman Marcus, same thing. A lot of the incumbents will win.

Now, Montgomery Ward, Kmart, and Sears were busted for either being overlevered or not innovating. So for us, that's what we're constantly thinking about.

Does that mean that right now feels like an especially opportune time for your style because entry multiples are low?

I think the best risk-adjusted returns right now are in public software names. By the way, Warren Buffett says buy when everybody is fearful and sell when everybody's super excited. People hate software.

When we bought a bunch of ByteDance stock 2 years ago, everybody hated China. Alibaba's doubled off its lows, doesn't grow, and trades at 15 times earnings.

If you think about CVs—the very specialist-type buys that you'll do—can you explain an example of one of those?

We like to use the house analogy. You walk down the street, go into an apartment building, and you're like, “My apartment needs to have these 6 things.” You can go in the front door and lead the primary round and put money in the balance sheet. Or you can buy the whole business. You can go in the side door and buy out an early investor or early employee, but maybe that's not available.

So we'll go through the basement window with a pickaxe and buy a derivative. If you run a business and this company owns 30% of your business, and I go to the class that is an investor in the company's fund, and they're half the LPs, and I literally buy that out, you own 30% of your company, and I just bought 15% of your company. It's the same thing I'm saying. It's just a derivative.

Do you have as much control? No. Do you have as much insight? No. But you trade off price for access.

8. The Framework for Focus

We made a big investment in Zoom. We couldn't go in the front door. The company didn't need money. We sure as heck weren't buying the entire business. You couldn't buy secondary—there was secondary to buy, but you couldn't buy it because Sequoia would roll over you. They're smart. They're not dumb. They're like, “Why would we let these knuckleheads in?” So we'll take the stock and make 2 or 3 times our money.

The company took a long time to get funded and wasn't backed by Sequoia on day 1. It was backed by a bunch of random Chinese people and Chinese funds. So there was secondary to buy, but you couldn't because they were oversubscribed.

So we're like, “Huh. Why don't we go to this fund that has stock and whose LPs have been in this thing for 10 years? Maybe their LPs want to sell, and we can do it one of 2 ways. We'll just buy your position in the fund, and we'll know exactly how much Zoom we have through it. Or why don't we just create a new vehicle? Any LP that wants to sell, we'll step into their shoes.”

If you own 2% of Zoom and half the LPs want to sell, and I then step into those shoes, I now own 1% of Zoom. If I say to you, “Listen, we get to vote them like we own them. Do you still hold it?” If you sell it, and the company gets an M&A offer and you get to vote, you have to call us. On day 181 of the IPO, after lockup, you have to give us the stock. We just bought the position.

In a world where LPs and GPs are desperate for liquidity, that part of our business is absolutely booming. That part of our business is headed by Tim Beamer, who's one of my operating partners and was actually at Notre Dame with me as well.

If I think about the dollars deployed, I don't know. Last year, over the next year, how much of it is direct capital on a balance sheet, secondaries, or something creative like what you just described?

70% is creative on our balance sheet. 70% is special sits or secondary. And, by the way, we will evaluate in an IC a public position, a control buyout, a minority deal, or a special sit. It could be 4 different things in 1 week, and literally, we just all have to underwrite to the same return.

But today, the opportunity is that we are a market drawdown away from it exploding in value, or exploding in stuff to do. So, the hard part, it seems like, is finding a company that has 6 of the 8 criteria that you can also buy at a multiple that you're excited about for the forward return.

What percent of companies—of the 9,000 or whatever—meet all 8 criteria?

By the way, there's no correlation that an 8-criteria deal outperforms a 5-criteria deal.

What about 4 or 3?

We've never looked at it, because what we try to do is, if you say it must meet 8 criteria, 9,000 companies becomes 90. To do 5 to 7 deals a year, it just doesn't work.

9. The Art of the Investigative Cold Call

For us, what we say is it must meet 5. That's about a 10% yield. We're trying to get to 900 to 1,000 companies that we can then actually do work on. So, you have 900 companies that meet 5 of our criteria. You do due diligence on about 150 to 175 to do 5 to 7 deals a year.

You're like, "Well, I want more." I'd love to, but we're cold-calling entrepreneurs. They're like, "Oh, I'm sorry. I want to sell my business tomorrow." It's like, "Oh, you just happened to call me on this day." No, the sales cycles can be a decade.

It's about staying in touch with entrepreneurs, because we're not the only ones calling them. There are great firms like Summit, TA, Insight, Bessemer, or Battery. And they're great firms. So, ask the entrepreneur, "How do you need help?" Try to tease information out of them. "Oh, you sell into the consumer space. You want to meet the former CEO of Colgate-Palmolive?" You're doing that to try to build a relationship with somebody.

So, if 5-criteria companies don't outperform 8-criteria companies, doesn't that imply the criteria aren't predictive? So then why have the criteria?

Because you need to set a framework for what to focus on and what not to focus on. That's it. It's just getting to a small—

Not predictive necessarily?

Not predictive, but it's getting us to a small enough pool. It's like knowing your strike zone. My partner, who's a big baseball fanatic, uses a baseball analogy. Ted Williams knew, in the hitting zone, exactly where to swing and what his probabilities were of swinging at the ball.

Yes, you can hit a ball 2 inches above home plate, and it could be a grand slam, and you could have hit the ball the farthest you've ever hit it. But if you do that over an entire career, your entire career won't be very long. And so, it just enables us to know what pitches to swing at.

Our biggest mistakes have honestly been not swinging at the pitches when they were in our strike zone. I think that's what we've learned over the last 15 years: to get more comfortable and, when it's in our strike zone, swing at it.

How do you train these young people to be able to get all this information, to know whether or not it's an 8-point score or whatever, out of an entrepreneur? What is the art of getting someone on the phone and then actually getting them to tell you the information that you need?

It's incredible what people will tell you on the phone. People are like, "Listen, you just call people and they talk?" People love to talk. It's investigative journalism with sales.

We tend to hire people that are former athletes. Getting a C or a D on a test is not your biggest failure. Dropping the ball at the Rose Bowl or not making the Olympic team—that's failure. So, you're looking for people that are insanely persistent and really inquisitive.

Then it's just, "Hey, I'm Patrick. At 10:00 a.m. your time, we're doing work on the restaurant point-of-sale system space. I read a bunch of articles that sound like you're kicking butt. Oh, by the way, I just talked to Square and Clover and seven other companies. We'd love to talk to you on the phone."

"And, by the way, I'm sure you're getting bombarded by other people. But we're different than a lot of firms. A lot of our capital comes from world-class execs. One of our LPs is the former CEO of Wendy's. We'd be happy to let you talk to them if you want to meet these people."

"Huh. Sure, love to chat."

We used to cold-call people. When Brian and I and Nima were doing this, you literally cold-called people, and you felt like the person who called you at 6:00 p.m. 20 years ago, and you slammed the phone down on them. Today, it's like, "Oh, come on. You guys get to send emails to people. Give me a break."

We actually tried to do it. I've encouraged some of the analysts to start calling people. The biggest issue is that it's hard to get people's cell phone numbers versus work phones. Once you get the person on the phone, you just have to show knowledge.

That's where, by the way, AI is incredible. You give every analyst and associate the power of knowledge, and you can sound super smart. You won't get everything. It's like, "Hey, I saw on LinkedIn you have 80 employees. So, what do you do—$10 million in revenue? $15 million in revenue? Oh, and I see your employee cost growing 80% a year. What are you growing, like 150%?"

"Yeah, I'm not that fast."

"More like—yeah. Oh, what, like 100%?"

"Yeah, around there."

If you think about this machine, we've got this very unique LP base. We do 9,000 calls, 5 to 7 investments per year. We just raised our seventh fund. It was $3.5 billion.

Okay. So, a $3.5 billion fund, 2 to 2.5x net MOICs to your investors. So that's kind of the machine. Where do you feel the most tempted to go tinker on the machine for the next decade? How do you hope the machine improves? Continuing to, as the firm gets bigger, how do you build a culture of teaching people to still be creative and scrappy hustlers?

It's the most important thing. How do we get creative and do CVs? We were doing CVs when nobody wanted to do CVs. We didn't know they were called CVs. We just thought it was paying somebody a profit share. It's continuing to innovate on that.

10. Culture of Hustle

What's really interesting is the secondary markets now for some of these names are so liquid. So, you almost don't even have to underwrite to this thing going public. It's like, can it just get big enough with enough escape velocity where I can then sell out?

If you think about all the investments you've made in the last 5 years or something, how often are you personally excited about the company and its product?

Frankly, this is what drives me nuts about a lot of people in the venture capital ecosystem. They think they're actually changing the world, which they are, but they should tell everybody about it, and they're like doing God's greatest gift to mankind. We don't think that.

We love helping entrepreneurs. That is actually what gets me excited and gets us up in the morning. I think everybody at Lead Edge is helping an entrepreneur try to bend the curve, make that customer intro, and help find that great CFO, the audit chair, or whatever.

We love making customer intros. That's what gets us the most excited. And I think we are still actually just scratching the surface at how we can leverage our LPs.

How often do you control the business?

We are in a control position about a third of the time.

And when that's the case, how different is that?

11. The Annual One-on-One Process

It hopefully should be no different at all, but there's less knuckleheads around the table. There's less people around the table, and what's really interesting is that when you have a lot of different people around the table, you can have a lot of different competing interests. So, it's about building consensus.

You get people that are in a 1x cost position. That's why all these 2020 and 2021 companies haven't sold. There are these late-stage guys that are like, "Oh, just get me out. I own the pref. I'll make a 1x today, or I'll make a 1x in a decade."

But we don't go into companies and say, "We're replacing the entire management." That's not what we do. When we invest in a business and when we exit, something like 75% of the time, the person who was running the business when we invested is still involved in the company.

They may not be running it, but we back people who just want to build awesome businesses and great companies. It's like, "Listen, if I'm not the right CEO, then make me the chairman of the board, or make me the chief customer officer, or make me the chief product officer, or whatever." That's what's really important.

I want to go back to the culture thing—the Lead Edge culture, I mean. What have you learned about culture in the many years now that you've been doing this, especially given that this is the thing that you want to keep nurturing?

I didn't think I appreciated how much culture comes from the top. So, follow-ups: send handwritten thank-you notes.

I’ve sent handwritten thank-you notes to everybody I meet—almost everybody I meet, like every entrepreneur, every company. Guess who also does now? The 22-year-old analyst. And by the way, we track it and report on it. If you just treat people the way you want to be treated, that just flows.

We’ve built a culture of treating LPs the way you yourself want to be treated. People appreciate that, and it comes from the top. The intellectual honesty comes from my partner Nima. A lot of the creativity comes from my partner Brian. Now, of course, as you get to be 85–90 people at a firm, we’ve built a real training program, which is the result of a lot of work Nima and Brian and our COO, Suzy, have done, along with that team and the recruiting team.

I used to have weekly IC meetings until 3 or 4 years ago. Why? Because the IC was every one of us. We talk every day. It’s just about building processes in place.

Can you talk about this crazy one-on-one thing you do with every employee?

I got the idea from Tom Barrack at Excel KKR. He’s built a true machine at Excel KKR. I asked him, “What’s something I should do? What do you think is something you do that really helps the firm?” He said, “Interview everybody once a year.”

12. Playing to Strengths

So we sit down and start with a survey. Then you sit down with every employee.

You personally do?

I personally do. I sit down with every other partner, every VP, every associate, the accounting person on the back end, every receptionist, and ask, “What do you like about your job?”

First, give me everything you do: green, red, yellow. Green, you love; red, you hate. And by the way, let’s figure out what you hate and why. If there are things you hate, let’s figure out other people who may be able to do them, or how we can make your job easier. That’s the first bucket.

The second bucket is, if you were me, running Lead Edge, what would you change? Third, what’s something we can do to make your job easier? What you learn is incredible. You get a bunch of really good ideas every year.

It actually drives my 2 partners nuts because sometimes I’m like, “That’s amazing. Do it.” Then they’re like, “Come on, we need to build consensus.” I’m like, “No, we don’t need to build consensus on some of these things.”

Is there anything else that you do in the culture that you feel carries that much freight?

Being the good person is just not that hard, frankly. In a world that’s insanely competitive, if being the nice guy gets you the call back and being the helpful person gets you the call back, then do it all day long.

Another really important thing about running this place is that I can’t be the bottleneck. I can’t know every LP. If you’re a 25-year-old or 23-year-old associate here and you have to go to Seattle next weekend for a wedding, then I’ll pay for your trip if you stay on Monday and go meet a bunch of LPs.

But you’re 23 years old. Ninety-nine percent of firms on this planet wouldn’t put 23-year-olds in front of LPs. I’m like, “If you’re smart enough to work here, you’re smart enough to meet this LP. I don’t care.” People love that. The 23-year-old associates love it, which helps us get great people, but the LP loves it, too.

They’ll be like, “Oh, my son is your age. Would you mind talking to him?” Or, “Hey, you went to Notre Dame. My son plays lacrosse, and he’s thinking of going there. Would you talk to him?” And I’ll be like, “Oh, well, actually, no. Talk to my partner Tim, because he played Notre Dame lacrosse.”

You just build really real relationships with people.

If you think about the average month for you, and the major slices of the pie are time with LPs and time with companies, I’m so curious. It’s actually kind of hard to guess. Maybe there are different buckets than those 3: LPs, companies, and internal. What does yours look like?

Mine’s, by the way, very different from Brian’s, and this is by design. It ebbs and flows a little bit with fundraising, obviously. I probably spend 60% of my time with LPs.

Wow.

Now, again, that could be getting somebody to help a company, too, or coordinating with the team of people with us: “Hey, let’s figure out a way to get into Exxon.”

I would say a third of my time—25–30% of my time—is investing-related, which could be reading memos or helping people win deals. That’s frankly how I want to help. If we lose a deal because I didn’t meet the company, I might say that I can help us win, but we’ve got to at least put our best foot forward.

Probably 15–20% is operational. The operational stuff is coming down because we hired one of our partners, Suzy, who lives in Greenwich and used to be an investment partner. A few years ago, she became our COO. So that’s my time.

Nima probably spends 90% of his time investing and 10% of his time on everything else, which is what you should do. He’s kind of running the IC. Our partner Brian probably spends 60% of his time investing and probably 20% on LPs and 20% on operations.

Each of the 3 of us, if you were to meet us, it would be very clear to people who spend time with Brian, Nima, and me that we play to our strengths.

And weaknesses. You mentioned Tom Baruch as someone that you’ve learned from.

Yeah.

If you had to create a Rushmore of other investment machines that you most respect, who is the Rushmore?

Insight, TA, and probably Accel-KKR. I think Deven Parekh, Jeff Horing, Teddie Wardi, and Jeff Lieberman at Insight have just built a factory.

13. Fears and Excitement Around AI

Do you know how you know what a good software company is? Just talk to them. They probably talk to 30,000 companies a year. It’s an absolute factory. It’s process. I think they’re amazing at it.

TA is one that pioneered cold calling. Insight has obviously stayed true to itself. In 2001, I would guess Insight’s growth rate in its portfolio and today are actually pretty similar. TA’s has definitely come down. They’re more private equity-like.

It’s just discipline and process. I get the sense that TA is very good at selling.

They do.

And then Accel-KKR has built an incredible value-creation team that I think actually adds a lot of value. I think there’s a lot of talk about value creation—they don’t do much—but I get the sense that these guys are very good at actually helping companies and trying to move the needle.

What have we missed about what makes the machine tick that you think is really important?

I would have said that the 3 of us who run the machine are all very, very different, and we play to our strengths. I don’t think that should be underestimated. I think that’s what makes the machine.

We literally negotiate carry economics for the 3 of us in 10 minutes. There are firms you hear about that get into month-long fights—2-month-long fights—over carry. We all highly respect each other and know what we’re each really good at. I think that’s honest.

There’s also a focus on intellectual honesty that I think a lot of firms just don’t have. Our investment committee is the 3 of us, but then everybody who’s basically VP-level enough gets to come. If you sit in the room and listen to Brian and Nima and me talk about a deal, you would think the 3 of us hate each other. Or you might think we’re Israeli.

If you listen to an Israeli board from the outside, you’re like, “These people all hate each other. How do they work?” No, no, that’s just how they talk. Right after we have the IC, we’re buddies. It’s like, no, let’s debate the merits of this deal.

Can you riff a little bit more on all the ways that you’re excited and fearful about AI—both in the investment process at Lead Edge, for running the Lead Edge business, and for the companies that you invest in?

Yeah. I’m most fearful of what I don’t know. AI is going to change the world, and it’s going to do it in ways that nobody can think about, just like the internet did. I mean, in 1999 and 2000, when we sat here, we wouldn’t have mentioned social media. Today, it’s $3 trillion of value. I’m most fearful when it comes to companies and processes for that.

What are we missing? What am I most excited about for us? In the long term, AI will create the biggest productivity gain of the last 75–100 years. I don't know if it'll be like electricity, but it'll be pretty damn close. That's really exciting.

People shouldn't get too excited about, “Oh, we're going to go build the next piece of Workday, or we're going to go build better call-center software.” You're going to see industries that we're not even thinking about, or even thinking about what's going to be possible, and it's going to happen. That's really exciting. It's going to be the age of entrepreneurism, and people are going to build awesome businesses.

What I worry about, whether it's internally at Lead Edge or outside at our portfolio companies, is whether we have the right people in place so that we don't get disrupted. You constantly want to—I joke that you want to hire a bunch of young people. People worry that young people aren't going to find jobs. No, young people are the ones who are going to figure out AI more than the 60-year-old or 55-year-old.

We take all of our portfolio companies and say, “Okay, what's your AI-readiness score?” Then it's, “This company's really high. This company's pretty low. We should connect those entrepreneurs together to figure out what they're doing.”

What goes into that score?

What's your data look like? Is it structured in a way that you're going to be able to leverage AI? Are you iterating? How many new AI products have you come out with? What's your AI revenue on new products? How many more product releases are you able to release?

It's not, “Did your engineering comp stay flat or go down?” I, for one, strongly believe that if your budget in 2024 for 2026 was to have 150 software engineers, you should still have 150 software engineers, because those software engineers can be exponentially more productive. They can then create more products that your sales team can go sell.

Who do you compete with?

We would bid against Insight, FTV, JMI, Battery, Bessemer, and Lightspeed when they do bootstrapped-ish type stuff. Sometimes we compete against Meritech and IVP. But you can buy rocket-ship companies in Silicon Valley that are freaking awesome. I was not going to pay 100 times revenue for them.

That's the problem right now: there's too much money. Matt Cohler said it best: They backed these giant internet companies when distribution was loose and capital was tight. The reverse happened. Capital is everywhere, but 4 companies control distribution. So good luck going to build a giant internet company. Right now there's just too much money chasing, at least in Silicon Valley, too few great teams.

Expand on that. Decompose and expand on that a little bit. I guess the question is your view on the state of markets and technology markets in general.

14. Ski Racing

Overhyped, over-frothed, and I believe this AI CapEx bubble will end badly. In a way, I just think people are—it's like the telecom bubble all over again. It will be very interesting if Apple may have been the really smart one in all this at the end of the day.

We've seen them, but I think people are just going to overspend. I'm convinced that people investing in all these AI companies—all these VCs—have to portray the view that software is going to be dead, because they have to justify how much money they're going to spend.

If you start to run these assumptions on how much money is going into these companies, what that means for how much earnings you have to drive, and what that means for how much power you need to generate, it just doesn't work. Where are the nuclear power plants coming up? This doesn't work.

But that presents the opportunity. That's when you're going to buy it. That's when you're going to buy these companies.

The counterargument would be that, in telecom, it was all dark fiber, and in AI, it's all burning GPUs. Yes, the CapEx is crazy, but everything still feels mega-undersupplied. I'm curious how you think about when the opportunities will present themselves for an investor like you.

Look, my fundamental belief is that the models will commoditize. Companies like Google, Facebook, Amazon, and Apple have a competitive cost advantage. Companies like Amazon, Microsoft, and Google have more data to train a model than these new model companies will ever have.

Then, by the way, there are all these Chinese models and European models. A bunch of these things cost a fraction of the cost to run, and you can run them locally. Especially if you're a company outside the U.S., why would you pay that amount for OpenAI tokens or Anthropic tokens when you can just run DeepSeek or one of these other 10 models?

I think we worry most about model commoditization. I have no clue when this will stop. It will probably go longer than people think. In 1999 and 2000, people also thought we were in a bubble. They think we're in a bubble now, and it will just stop.

Is it one of these monster IPOs happening that then just doesn't go like people think it does? I think this Anthropic round was kind of like an IPO. We're trying to hit doubles and triples. A lot of these companies, we struggle with whether they're going to be 200Xs, 100Xs, or zeros. That's a struggle for us.

What kind of company in the AI center of the heat map—I know you're probably not investing in any of them because of the multiples or whatever—what kinds of companies are the most interesting to you?

I think some of the stuff being done in infrastructure software is fascinating. Actually, agents appear to consume more resources than people. Some of these consumption-based models are really interesting.

By dumb luck, we were very early investors in ClickHouse, which is a database company. We were early investors in Grafana Labs, an infrastructure company that competes with Datadog. Datadog's growing like 29%, high 20s, 30% a year at scale. These are still the types of companies that I think we find super interesting. I find them fascinating.

I really struggle with valuations, but the growth rates are ones we've never seen, with very good economics. You see how much money a company like ClickHouse has raised; what they've burned is very little compared to what you might otherwise think.

What do you think is the most surprising thing about you? You have a good sense of who you are from how you operate—persistence, enthusiasm, energy, process. What do you think, if I spent 10 hours with you, I would be most surprised about?

15. Advice for Starting a Firm

Probably how driven I am and how much I truly love what I do. I put my heart and soul into everything I do, whether it's racing cars, which I race competitively, being a nationally ranked ski racer, or how I run Lead Edge. I probably sleep 5 hours a night, 4 hours a night. It's because I love what I do.

I'm insanely competitive, and I think that if you spent 10 hours, you'd be like, “Oh my God, this guy is the most persistent, competitive person I've ever met.”

Were you born that way?

Yeah, I think I was born that way.

Was it enhanced through formative early experience?

Ski racing—skiing, growing up as a kid, ski racing, 100%.

Can you make that tangible for us? What was it like? What was the process? I'm not a skier.

Do these things and you'll get better. Do these things on video on a GS course, constantly analyze the video, do these things on the next run, and change this. You fell? Get up and go do it 10 more times.

I grew up on a ski hill that was 500 feet. Lindsey Vonn is one of the best skiers in the world; she grew up skiing on 500-foot Buck Hill in Minnesota and doing laps from 4:00 p.m. to 10:00 p.m. at night—just repetitive. Mikaela Shiffrin, who's one of the best female skiers in the world, has limited time on snow.

When you get off the chairlift, everything is a drill. Just constantly be trying to improve. I think that's Lead Edge, and what you would find in me is constantly trying to improve.

What would surprise me the most, actually, if you had to say, “Huh, you started the firm 15, 20 years ago,” is that I think I've been able to recruit, maintain, motivate, and build a really good team. I've been very good at picking really good partners that treat other people really well, and that feeds on itself.

Is there anything else from skiing—I'm not a skier—that you find visceral and helpful as an analogy for how to do things elsewhere, other than reps and practice?

When I asked the guy Scott Booth, who ran Eastern, why he hired me, he said to me—and this was early '08—“Because when things get scary, you're going to want to buy.”

16. The Kindest Thing

I didn't know what he meant. He was like, “You go down a hill at 80 miles an hour. This isn't scary. This is nothing. You can make a decision going down the hill at 80 miles an hour: what to do, what not to do, how not to fall—and fall, whatever.”

When the fall of ’08 happened, I was like, “This isn’t scary. What’s buy?” It’s eventually going to go up. Ski racing helped me really understand a very fine line in risk-adjusted and risk-return behavior.

I just think being an athlete—whether you play basketball, hockey, or golf—gives you a work ethic. If you’re trying to find young people who have a drive, there are athletes who have incredible athleticism but also an incredible work ethic, like Michael Jordan. Those are the best of the best. Then you have people like Steve Kerr, who are not very good athletically but had a work ethic like Michael Jordan. They can be good.

But then you have wasted talent, like the Dennis Rodmans of the world, where they were amazing athletes but didn’t have a drive. I think the same can apply to investing.

Why did you choose to start the firm? You were quite young when you did it. How could you translate that experience into advice for someone listening who is thinking about starting a fund, to help them decide whether or not they should do it?

Just go do it. If you want to be an entrepreneur, my partner Brian is like, “The reason you started a firm is because nobody was going to hire your ass.” I’ve always wanted to be an entrepreneur and be really, really successful. It’s always driven me. I always wanted to be solely focused on it.

If you want to generate generational wealth or build something, you need to be an entrepreneur. If we build Blackstone, everybody who’s here will make an insane amount of money, because it was 90 people. One of my partners, Zach, is very young. He’s like 30 years old, and he’s a partner because he joined here and took a bet when the firm was tiny.

I just encourage people: if you want to do it your own way, there’s no better time than now. What are you waiting for? I actually think it’s easier to leave when you’re 27, 25, or 30 than when you’re 45 and have 3 kids. I had nothing to lose. If it failed, I was just going to go work—I guess I’d work for somebody.

Once you’ve made lots of money, do you still care?

100%.

Why?

I keep score every day because it’s a score. It’s a score because I want to win. People like Ken Griffin and Steve Cohen are mentors and LPs of ours. Those guys have built incredible things. It’s incredible how hard those people work.

Again, maybe these are N-of-1 people, but if you look at some of these tech entrepreneurs—Elon Musk, Alex Karp from Palantir, Matthew Prince from Cloudflare, or George Kurtz from CrowdStrike—these people are incredibly driven, hardworking people who live and breathe what they do.

People keep score, but it’s not work for me. This is fun. I travel constantly to meet companies, LPs, entrepreneurs, and bankers. People are like, “Your schedule…” Tell people my schedule and they cry. I’m like, “No, it’s not work. It’s fun.”

It’s pretty amazing what you’ve built—a very unique model, incredibly fun. I loved having you walk us through it all. I had so much fun doing this.

When I do these interviews, I ask everyone the same closing question: What’s the kindest thing that anyone’s ever done for you?

Pete Willmott, who has passed away, was the former CEO of FedEx. He was a Williams alum. I started a company in college, and he was the first person who ever believed in me. I was 18 or 19 years old, and he became an investor with us. The company completely failed.

He helped me when I was trying to get my first jobs, and when I got my job at Bessemer, he was my reference. He basically told the person they were insane if they didn’t hire me because I was the most persistent person he’d ever met.

I learned so much today about building something unique. Thanks so much for your time.

Cool. Thanks so much for having me on.