Sandy Kory：一位痴迷创始人的投资人，押注 BillionToOne、BaseTen 与 Palantir

I hadn't been everywhere in the world, but it did seem like Silicon Valley had an amazing density of talent. It was like, “This might be the smartest, most ambitious group of people in the world.”

Did you know what Palantir was doing?

A bit, but they couldn't even describe it. Their business was kind of a mess.

Yeah, I remember having coffee with them in 2008 and explaining the definition of revenue to them. No one there knew the definition of revenue. Ironically, it didn't matter to the business—they were making great progress. I was like, “You know, revenue has a specific technical meaning. Somewhere in the universe, you should know this.”

You've been early to an incredible number of companies, to the point where it's definitely not luck.

Most of the conversations with investors focus on that.

So you're not asking about the product at all?

No. Ninety percent of the conversation is about the things you've done before the startup.

There's a lot of contrarian stuff that you're saying.

Sometimes founders are really annoyed by it. They want to show me the slides. I'm like, “Everyone looks at the slides. Send me the slides afterward. I want to look at that.”

I think there's more alpha the earlier you go, and I think there's more room for legitimately different approaches.

Sandy, thank you for joining me today. This is the first in-person podcast for the Delphi show, and you're the first guest. I'm so excited.

I'm honored. Thank you.

Yeah, for sure. My colleague Ross introduced me to you, and he said, “You have to talk to this VC. He's brilliant.” I said, “Okay.” I emailed you, and you were gracious with your time. We spoke, and I thought, “Damn, I've got to get a podcast episode with him.” So thank you for being here.

Maybe I'll give a brief introduction. You're a VC and the founder of Horizon, a pre-seed and seed-stage venture fund. You've been early to an incredible number of companies, to the point where it's definitely not luck. That's what we were joking about before. You've been early to BillionToOne, Palantir, Canva, Facetune, SeedInvest, and just a laundry list of companies. I'm really happy to have you here. Why don't you give us a bit of your background and tell us about yourself?

1. Missionaries vs. Mercenaries

Thanks again for having me. I guess my background—where do we begin? I graduated from Stanford 25 years ago, and that's when I first got exposed to venture capital. I was really fascinated with technology and entrepreneurship. I didn't really take to programming, and venture capital seemed like this thing the gods of Mount Olympus were doing. I figured I'd never get a shot or get called up.

It definitely made an impression on me. Even going back to when I was a kid, I loved numbers and statistics—baseball cards and things like that. Then I learned a little bit about investing in the stock market when I was 10 or 12 years old, and I thought all that stuff was fascinating. When I was in Palo Alto, it was amazing to see what technology entrepreneurship could do and to see the role of venture capital. But that was totally not open to me.

I decided to try to go out and make money. No one could stop me from angel investing, so I kind of stumbled into investment banking. I didn't really want to do Wall Street or anything like that, but there was a startup boutique M&A firm in the Bay Area that I joined. They had found a niche advising bootstrapped technology companies on mergers and acquisitions.

The job ended up being very sales-heavy, which was funny because I never really thought of myself as a salesperson. But I did pretty well and made enough money to fund my angel-investing hobby. I worked for a few boutique M&A firms in the Bay Area.

In 2009, I made an angel investment in Palantir. In 2010, I got let go from my position and kind of had no choice but to start my own M&A firm. I launched it with my partner Mike, who's also my partner in the venture fund. It was a little slow going in the beginning. I had to raid my 401(k) to pay rent, but by 2012 it was a good cash-flow business, and it really funded my angel-investing habit.

That's a long gap, though—2 years of no real income.

Yeah, it's funny. I've taken a lot of personal financial risk. I wouldn't advise people to do that, but I always felt comfortable. I always felt like I could make money.

When I was investing in Palantir, it was, I don't know, half of my net worth at the time. It was a lot, but I kind of thought about it—it was just a silly rationalization. I thought about it like NPV. I thought, “I'm going to make money if I need to,” so I didn't mind putting significant dollars into Palantir.

We were getting the M&A firm off the ground, and it was pretty lean, but I felt like I'd be able to make money. I also had this fascination with investing and this crazy, competitive drive that I kind of pressed a little bit. I was thinking, “I'm going to see if I can make myself into a great venture investor. No one's going to hire me? Fine.”

It's what you always wanted to do.

I'm just going to try to do this and see if I can figure it out.

It's like when I was a kid. I taught myself how to ride a bike. We had a driveway with a hill, and there were bushes at the bottom. I would go to the top of the hill, get on the bike, and just plow through the bushes. I had a high pain tolerance, and I didn't mind taking a few risks. I probably got some brain damage from that.

Could we linger there for a minute? There are a lot of core elements in a short amount of time. Investing in Palantir, getting let go, and starting a company are all really big decisions. Did that happen within a month or within a year?

Probably within 15 or 16 months.

Throughout this episode, I'm going to try to draw out how you look at founders. When we talked before the show, it sounded to me like the diligence you did on Palantir and the decision you made were one of your initial forays into refining your founder lens. It was the start of it. Walk us through how you became so convicted that you were willing to put half of your money into Palantir at that time.

It was an unusual situation. I had this deep interest in angel investing and venture capital, but it was also a wealth-management decision. It was the worst of the financial crisis—March or April 2009. Banks were failing, and in hindsight it was the bottom of the stock market. You could have put money in the stock market, or you could have bought real estate in San Francisco, and you would have done well.

But I was really unsure what to do with the dollars I had in my bank account. I had done a graduate program at Stanford, and I became good friends with Shawn Sankaran, who's now the CTO of Palantir. We happened to have a bunch of classes together and worked out together. He was just amazing.

I was in a pretty big graduate program. If we could have voted on who was most likely to succeed, it would have been Sham Madoff. He was just amazing. He went to another startup after university for a few years, but then he joined Palantir in 2007 as employee number 13.

I remember him raving to me about how talented these people were. He talked about Joe Lonsdale and Stephen Cohen, one of the founders. It was like your buddy was friends with LeBron James and saying, “These guys are so good at basketball.” I thought, “What?” It kind of blew my mind.

A couple of years later, I had the chance to invest in a bridge round. Sham joined in 2007, and I wasn't even thinking about angel investing in Palantir at that time. But in March 2009, or whatever it was, Sham pinged me and said, “Hey, we're doing a little bridge round.” They didn't need the money, but the world might be ending, and I think Peter Thiel was still quite parochial about everything.

He's at it again, moving to Argentina.

2. The Palantir Investment Story

Yes, he's usually right. So they let cats and dogs in, like me, and I made that investment.

From the outside, looking at your story, it sounds like you had somebody you ranked really highly, and that person came to you and said, “I rank all of these people highly.”

Yeah, it was a statistical inference. What were the chances that these people weren't the most ridiculously talented people in Silicon Valley? At the very least, they had to be one of the most talented groups. They were also incredibly dedicated and had this incredible mission.

I hadn't been everywhere in the world, but it did seem like Silicon Valley had an amazing density of talent. It was like, “This might be the smartest, most ambitious group of people in the world,” and the financial crisis was crazy.

I don't know if all my new listeners understand how bad the financial crisis was, but it was terrible.

It was crazy, yeah. It really was crazy.

I don't know how to describe it. The world was literally failing. Everyone thought it was over, and you're over here writing checks.

Yeah.

Well, it's crazy. It turned out that was the bottom. Did you know what Palantir was doing? Were you bullish on it?

A little bit, but they couldn't even describe it.

[laughter]

Their business was kind of a mess. I remember I was friends with Joe Lonsdale, who's just amazing. I remember having coffee with him in 2008 and explaining to him the definition of revenue. No one there knew the definition of revenue. I remember that those things didn't matter to the business. They were making great progress.

I was like, “Revenue has a specific technical meaning. Someone in the company should know this.” They've always done interesting, creative contracting arrangements. It worked out, right?

I take a lot from that. Knowing GAAP financials—if you're going public, someone should know. But much more important is talent density and ambition. They pretty much never raised money from top-tier VCs. Founders Fund turned out to be a top-tier VC, but the Tier 1s at the time all thought Palantir was a consulting business.

Almost 20 years ago.

And selling to the government. What a shitty business. No one wants to sell to the government. It's consulting. What kind of business is that?

They were radically contrarian in so many different ways. I wouldn't say every single way was value-creating, but the culture of extreme first-principles thinking and true mission orientation is something that's easy to pretend. They really had that. They really thought they were doing important things.

They couldn't really explain the business model that well. They could kind of explain it because they were still working it out.

How long did it take for you to make the decision? Your buddy from college texts you, emails you, and you get the pitch.

Yeah.

What was the turnaround time?

I think I said something like, “Is there any information you can share?” I'm pretty sure Joe sent this long email. I'm pretty sure he was sharing it with other people. It was a pretty quick decision.

We're going to revisit this founder lens throughout the episode. This is a great foundation. But my last question on the Palantir side: Why do you think your friend knew you would be receptive to angel investing? Why did he reach out to you? You weren't running a fund at the time. The M&A business hadn't started yet. You were still at your job. How did he know that you were somebody who would understand this and pull the trigger?

Probably the biggest thing was that Shyam was doing me a favor. He thought I was a smart person who could understand opportunity. They had such incredible belief in the value of the company that I really think Shyam was coming from a place of, “Hey, you're a friend, and we've been good friends. We both did favors for each other.”

I did some consulting at the company, and even before that, I knew a bunch of people there. It was like, “Let's send this good guy. Let's let him in on this special opportunity.”

Sandy, I need better friends. I need this class of friends.

[laughter]

I'm very fortunate. I'm very fortunate.

So, you did the Palantir investment, got let go, and started doing M&A. How do you go from M&A to really refining this angel investing process? We're not at Horizon, your fund, yet. What happens between starting your M&A business and Horizon? What's in there?

It was kind of, “I want to have cash flow. I need to have cash flow to pay the rent.” That was the M&A business. I wasn't the most successful person in M&A, but we were pretty successful.

My partner Mike and I limited ourselves because we were intellectually honest. You have limitations in the industry when you're scrupulous about certain things that we were scrupulous about. But we did pretty well.

My sales pitch was that I was really good at understanding these tech businesses—these bootstrapper tech businesses. The funny thing about bootstrapper tech businesses is that the more profitable the business is, the less likely the founders are to know the numbers. If you have a 50% profit business, who cares what the EBITDA margin is, right?

Some outside VCs or bankers would look at that and be like, “Oh, God, what kind of founder is this guy? He doesn't even know what his EBITDA margin is.” But I realized, “Oh, no, no, no. This is a very good value. You don't—who cares?”

I really enjoyed being analytical about these bootstrapper tech businesses and trying to be helpful, give good advice, and so on. I had an investor mindset, so it wasn't, “I'm trying to invest in the next Palantir.” But I was turning my analytical investing mindset toward understanding tech businesses, understanding the 82 different ways founders can BS you, and figuring out some of those personas and archetypes.

Then, on the side, once I had some money, I was really interested in angel investing. That was my nights-and-weekends passion. I was kind of leading a double life. I was advising bootstrappers in places like Saskatchewan, Ontario, Texas, and Florida. That was the day job.

On nights and weekends, I was talking to YC startups, shaking the tree, reaching out, and trying to find interesting companies all over the place, including Australia and Africa. It was great.

A lot of times, the founders I would have coffee with on a Saturday in a seed round would hear that I was an M&A guy, and they'd say, “Oh, you want to sell me?” I'd say, “No, I'm not selling. I don't want to sell you.” It's hard, and no one believes me, but I'd say, “I don't know. Sorry, I threw the other hat on.”

Palantir—I don't want to sell Palantir. They would never hire me. They're never going to sell. Canva's never going to sell. I did end up giving a lot of free advice to struggling startups that I invested in, so that was fine. I tried to pay it forward.

The crazy thing, though, is that for most people, it's so hard to context-switch. You have to really focus on one thing, get those exponential returns—the five nines—work nights and weekends, and think about it in the shower. Here you are doing banking all—

So angel investing.

And the craziest thing I think about in your story is that this is such a deep and valuable skill set: banking, understanding the financials, and being able to structure sales. But now, as a VC, you don't have to use that anymore at all, which is crazy to me. Do you ever feel like, “Hey, maybe I want to dig into the numbers?”

Well, no. It is funny. When I was doing M&A, I would run into VCs in the context of M&A for their companies, and I realized most VCs don't know jack about M&A.

[laughter]

But it's because you don't need to know. I remember reading the story of how WhatsApp sold to Facebook. It was crazy. Zuckerberg had a meeting on a Friday, then they met on a Saturday, and Zuckerberg told his corp dev team, “We're going to pay $10 billion. Deal closes on Monday.”

Some VC is like, “Oh, I just learned a lot about M&A.” No, you didn't. This is a one-off unicorn. Great job, VC. Great job.

So I learned that, actually, M&A knowledge is interesting, and I can add value. We've had 2 portfolio companies in our Fund I that have sold with nice exits. In both cases, I was able to go above and beyond as a VC to help out, and I think founders appreciate that.

There's a little bit of benefit to the investors, but they're small exits. The big wins in the portfolio will be companies like Palantir and Canva, where I don't care about anything I know about M&A.

So, yeah, it’s funny. Context switching has always been kind of easy for me. I never took a programming course, even though I was interested in tech entrepreneurship. Maybe I’m ADHD, but I could never spend 12 hours locked in a room coding. For me, bouncing around from 5 minutes on this to 10 minutes on that—context switching was always a lot more natural.

I definitely have a touch of ADHD, and I think it’s such a valuable skill. You need to be able to jump around and go super deep. But maybe to linger on that, I feel like if you build up such a unique and deep skill set—like you did on the banking side—it’s very hard to mentally say, “I’m going to throw it all away.” Did you actively make that decision, or was it a shift over time? You were successful at M&A, wanted to do angel investing, and eventually went on to start the fund. But at some point, you have to say, “Hey, I’m going to get rid of what I’ve done forever.”

Yeah, it’s interesting. For a while, I was happy doing M&A and angel investing on the side, but deep down, I had a greater passion for investing. I thought about doing a fund for probably a few years before I did it. I had friends who had funds, and I saw that fundraising was a real slog. Emerging managers can generally trade sad stories, so I didn’t want to do that.

In my M&A business, I did a lot of selling. When I started out, I was doing a lot of cold calls, and it was fine, but for whatever reason, I thought that if I was ever going to try to do my own fund, I didn’t want to do a lot of selling. If I’m selling your business, I don’t mind pounding on doors if I believe that your business is viable. But I just didn’t want to be the guy pounding on doors saying, “Give me money.” Some people do that, but I didn’t want to do that. I wanted it to be kind of a downfield sale. It’s a different sales experience.

What happened was, in 2021—that was a great year—I thought, “I learned that great markets make us all think we’re smarter and better-looking than we really are.” So, I was very smart and very good-looking in 2021.

Over the years, I hadn’t brought people into some of the deals that I did. I brought a couple of people into Canva, for example—my business partner, my father, and a friend—and that worked out great. My business partner in M&A was working 100-hour weeks in M&A. I was working 100-hour weeks too, but a big chunk of that was angel investing. You want to align the incentives.

I want to make sure—yeah.

I started bringing people into the deals. A few of the ones I brought people into didn’t work out, but in others, it worked out. I brought people into BillionToOne, for example. There was a bridge round between the A and the B, and that was great.

I didn’t even do an SPV. I just put together a partnership. I was like, “Hey, guys, I’m not going to make any money on this, but I think this is a good deal.” It was kind of like what Cham did to me with Palantir. He didn’t say, “I’m going to do an SPV.” He was just trying to be friendly.

Then, in 2021, we did some SPVs. We had 2 SPVs with a client that had a bootstrapped technology company. It was kind of a special situation. We had high conviction, and 6 months later, we had returned 1.5–2x the capital, with still more to come.

So, 2021 was a great year. We had some exits, and I had made people money over the years through investing and M&A. I thought, in late 2021, “Now is the time—”

To do the fund.

To do the fund. Everyone I asked to invest in the fund was an M&A client. It was like, “Hey, you trust me, right? If I sell you a business, we have a high-trust relationship.”

It’s really hard to raise a fund and establish trust, because you don’t know if you’re right for a long time. I had this high-trust foundation, and my business partner helped a lot as well. I kind of cringe because I know fundraising can be such a grind for a lot of really good investors, but for us, Fund I really wasn’t a grind. It was pretty downhill.

I thought, “Okay, now is the time to do a venture fund.” Then I said I was just going to leave M&A behind. Initially, with my partner Mike, I was like, “Hey, I can help out on the side,” but he’s a self-sufficient guy and wasn’t going to need me. I said, “It’s his business.”

I left almost all of the cash flow. We had a little bit of a sharing arrangement for a couple of years, but I was at peace with saying, “I’m not going to take any of the M&A cash flow. I’m just going to live on investing, and we’ll see how that works out.” I was okay with it.

It’s just a wild arc, right? You were at Stanford, and this is something you always wanted to do, and it took, I don’t know, 15 years or—

Yeah, I mean, probably 20 years from then. There was this one class we took that was taught by VCs, and it was basically 20 years later.

For the listeners, it’s never too late.

Yeah, that’s right. Ray Kroc started McDonald’s when he was 54, right? I’m 46, so I’ve got 8 years to mess around before I really get started.

3. Finding BillionToOne Early

I want to do a couple more portfolio company examples, and then we can get into your founder lens, because I think these examples really demonstrate what you look for, how you found them, and things like that.

You were, I think, the earliest investor in BillionToOne at a $4 million valuation, which is just nuts because I think they’re at $4 billion now. That’s an insane return, in a good way. Let’s walk through BillionToOne a little bit. How did you find that founder? What did you think at the time? How did you end up pulling the trigger? Let’s linger here for a little bit.

Sure. If I look at the most successful investments I’ve had, there’s not one way that I meet founders. It’s a bunch of different ways, for better or for worse.

In that case, Y Combinator briefly had a program called the YC Fellowship. It basically didn’t involve investing, but at the time, some people were complaining that YC was demanding too much traction. YC was kind of like, “We’re going to make a minor league. You can be in a YC Fellowship without traction. We’re not going to give you anything.”

Earlier in the process.

Yeah. I think they thought it could be a feeder to YC. They canceled it after about a year for whatever reason.

TechCrunch had an article about the YC Fellowship featuring 6 companies. I looked at the 6 companies and reached out to 3 of them that looked interesting. One of them was BillionToOne.

I had a thought that wasn’t an original idea, but the intersection of software and biology seemed interesting. A couple of years earlier, I had talked to Benchling. I took too long to pull the trigger, and then the round closed, but I knew it was an exciting company. So that was interesting to me.

I reached out to the founders, and they were happy to meet for coffee in San Francisco. At the time, there were 3 founders. One subsequently left, but they were all brilliant. They were all just about to finish their PhDs. I think all 3 of them were PhD students at Stanford; one went to Princeton for undergrad, and one went to Rice.

They were brilliant, and there was this kind of kinetic energy. They were raw, and no one would say they were good fundraisers, but they were very honest. Ironically, I slept through biology in 9th grade, so I didn’t know anything about what they were doing. But I have curiosity, and I like to ask questions and listen.

I asked them really basic questions, and I was impressed by how they explained everything they were doing. I find that’s a nice signal of a great founder. Being really smart helps, but there are some people who are really smart and just can’t explain things for whatever reason. I think that can be a real negative because, if you’re doing something highly technical, you need to be able to build a business.

Especially in healthcare, you need to be able to communicate effectively with people at many different levels of background knowledge and so on.

That really made a big impression on me. They were really good at explaining this incredibly technical concept, and I felt like I got it and understood. They were clearly not bullshitters. They were just not people who were going to be bullshitting.

I was still thinking, “Okay, well, these mousetraps are doing this, and this could be a better mousetrap.” These guys were really brilliant and super energetic. It was a pre-seed investment, but I wrote a small check—small for me at the time—and then I helped them informally over the next month while they were raising money. I really liked the way they were interacting, so I doubled that small check.

Then, a year later, they raised a little more money at a $4 million valuation. They said, “Hey, we’re going to take a little bit of money at this valuation. We like you. Would you like to invest?” So I doubled down. These were small numbers, but BillionToOne was the company I wrote the most checks in over time. In hindsight, I wish they had been bigger checks, but all in, it was the company I put the most money into as an angel. That’s nice.

Not to spend too much time just on a metric, but you were in before a $4 million valuation. At the $4 million valuation, they raised money at the same valuation a year later—just a small round. They probably raised $300,000 in that first tranche, and then another $300,000 a year later.

I want to go back to that meeting. You’re at this meeting, you meet these 3 founders, you’re not deep in biotech, but you found them yourself and you’re interested. They’re really intellectually honest with you, and they’re explaining things well. I’m trying to figure out how you got the conviction then. What exactly impressed you?

I can give you a few more details. I’ll also say that it’s tempting to be overly optimistic about it, because I made other investments in 2016 that I was also excited about. This was the best one.

They were high achievers, and subsequently I learned a lot more. I met people who went to school with these guys in undergrad and heard some funny stories. I just thought, “Okay, the CEO was the top scorer in Turkey’s science exam while he was in high school.” I don’t think I asked him about that when I first met him, but I heard it subsequently.

His father had a medical clinic in the small city where he grew up in Turkey. They had this story that, for what they were doing, they needed some blood samples, and he basically smuggled some blood samples from the lab—from his dad’s practice—into the US, in a coat or suitcase or something like that.

That’s pretty James Bond-ish.

It’s not the most criminal thing, but these were very rule-following people. I could get a sense that there was this dedication and determination. There was off-the-charts intelligence, dedication, determination, and what seemed to be really interesting insights into a market opportunity and the technology.

The 3 founders were all very knowledgeable about biochemistry and the science, but they were also very versatile. Sometimes you’ll find someone who’s a PhD in biology who doesn’t really know much about programming. I really liked the fact that all 3 of them seemed extremely versatile in terms of what they could do.

You mentioned briefly that 1 founder ended up leaving. Did that change your thesis or initial read, or did that happen later?

Not really. With BillionToOne, honestly, I’ve invested in some great companies, but I’ve never had a company that, every single time, has overachieved.

Investor updates are a topic that comes up with founders and VCs. Some founders do them monthly, and some don’t do them at all. Billy Dunn has always done them quarterly. They’ve done them very professionally in terms of the style and cadence, but they always overachieve.

In the beginning, when I first invested, they thought the market opportunity was going to be in India and East Asia. They thought regulation in the US was going to be harder, so their initial plan was to target beta thalassemia. It’s a genetic disease that’s relatively common in Asia and less common here.

They thought they would be targeting that market. One of the founders was Indian and had relationships in India with hospitals and the government. What happened is that, maybe 6 months into the company, they realized they could actually go into the US early, and that was a better market.

The third founder, who was going to be the guy in India, I think he wanted to go back to India, so he left. They were always super transparent about everything, so there were no questions about integrity or anything like that. It was actually a function of the opportunity being even greater: “The US? Great. Better market? Great. Overachieving? Great.”

I kind of glossed over this a little bit, but what is BillionToOne doing? What were they doing when you invested? Was it the same story originally on the product side? Just explain it a little more for the listener.

They’re public, and right now they’re about $100 million in revenue a quarter—a $400 million revenue run rate, roughly—with 100% growth. They’re actually quite profitable, which is very unusual for a diagnostics company.

Maybe 90% of their revenue is what they call NIPT, or noninvasive prenatal testing. Basically, these are blood tests for pregnant women. The cool science is that, in the past, to do a blood test to see whether the fetus has a risk for a genetic disease, you needed the mother’s blood and the father’s blood. If the mother has a gene and the father has a gene, that’s probably a risk for certain genes.

What actually happens is that there’s fetal DNA in the mother’s blood, so they can take the mother’s blood and test for fetal genetic risks. That’s called NIPT, and it’s basically a blood test for pregnant women.

The other 10% of their revenue is growing faster and is probably the bigger commercial opportunity. That’s in the oncology, or cancer, market, and it’s called liquid biopsy. It’s kind of the same science: looking for a needle in a haystack. BillionToOne is looking for 1 in a billion.

After cancer treatment, often you have to wait to see if it’s going to come back. You take a little bit of tissue and do a biopsy. The idea with a liquid biopsy is that, after you have treatment for cancer and the cancer is in remission, you take a blood test to see if there are any lingering pieces of cancer. There’s going to be mutant DNA from the cancer.

Basically, their technology is a chemical microscope. It’s not a microscope; it’s chemistry. But they effectively have the most powerful microscope, period. They can look at things with single-molecule resolution to detect these tiny bits of mutant DNA.

With a mother—I’m being facetious—the fetus has different DNA, so you’re looking for that DNA. In cancer, sadly, it also has mutant DNA.

It sounds like a needle in a haystack, because you’re getting the baby’s DNA from the mother. Then it’s another needle in a haystack, because you’re looking for abnormalities in the baby.

Yeah. The key to their approach is that the traditional approaches are basically using chemistry but amplifying it. You have a little bit of blood, so you try to magnify it—not with a magnifying glass, but effectively. When you do that, and if you think about intense magnification, you get noise.

If you took a penny and put it in a microscope and blew it up, it becomes blurry; it's noisy, right? What they basically do is have a really unique, proprietary way of putting a little bit of DNA fragments that they know into the sample, and then they blow it up to 1 million times the resolution. Because they know what to expect based on spiking the sample, they can basically take the noise out. So they can blow up something to 1 million× resolution chemically and see it with perfect resolution.

That's so cool.

It's pretty amazing.

Yeah.

It would sound so scientific back then, and it worked out.

I want to round out these 2 examples and figure out what your founder lens is. Most VCs will look at the project, they'll look at the TAM, they'll look at what's hot this quarter, what's on YC's list. They'll look at all these different factors to figure out where they think they should be investing—

4. Sandy's Founder Evaluation Framework

And probably losing money.

You have a very different approach, being hyper-focused on the founders, right? Your story with Palantir, your story with BillionToOne, signifies that. But it's not random. You've refined this focus, figured it out, and now it's something a lot of VCs talk about: "We're hyper-founder-focused." But it feels like you've been doing this the longest.

I don't know where to start with this question, but when did you make the overt decision, "I want to hyper-focus on the founder"? Or is it something that you grew into? Let's just talk about those.

Sure. Well, okay. In undergrad, I majored in psychology, so I probably had an interest in psychology before then. That's not exactly founder-focused, but I probably had more of a predilection for that direction. I'm not a CS major, so I'm not hacking on the project.

With early-stage venture, I think one thing that's fascinating is that there are different approaches that are successful. There are some super-founder-focused people who are successful, but there are also people who are super market-focused. There's, you know, some astrology. But I think there are persistently successful people who have different approaches.

At later stages, I think it converges. If you're a growth-stage investor or a pre-IPO investor, you're all kind of doing the same thing. There are a few little things that are different, but—

The story's working. Yeah.

It's legible, right?

But at the earliest stage, I think there's more alpha for what I want to do, as early as possible. My ambition—this is a very flattering comparison—is a little bit like BillionToOne: looking for the needle in the haystack, right? It's extremely hard to see. What BillionToOne is doing is very valuable because it's so freaking hard.

The early stage is ridiculously inefficient.

What's that?

The early stage is ridiculously inefficient.

Efficient. I mean, it's getting more efficient. There are some founders at the idea stage who are consensus-obvious founders, and maybe I would invest in those. I think that's a little less interesting. I wouldn't say they're guaranteed success; I'm just saying that if Elon Musk is doing some startup today, lots of people would say, "I should definitely invest," right?

Maybe from a pure alpha perspective, you should do that, but I think intellectually that's not so interesting.

There will be another Elon Musk.

Yeah, probably not.

Hopefully, yeah, probably not.

I don't know.

Something maybe remotely close.

Yeah.

Yeah, it's fascinating. So, yeah—

I think there's more alpha the earlier stage you go, and I think there is more room for legitimately different approaches. I potentially have a lane to be super-founder-focused. I'm not the only one, but I think I have a set of experiences, some theories, and a track record that gives me conviction that I can do this properly.

I haven't always been this way. As an angel investor, I experimented with a lot of different approaches. I definitely, at times, would be focused on traction. I'd think, "You're raising at a $5 million valuation and you've got $500,000 in revenue? Count me in. I don't care."

You can say, "This founder has $500,000 of revenue, and they haven't raised anything. They must be pretty good."

It's validated.

Yeah. You're not ignoring the founder quality, but you can look at other signals more closely. You can say, "Traction." Or you can just say, "Market." You might think, "Oh my God, this founder has this insight into this market opportunity. No one has made tablet-based sales automation software for pharmaceutical sales reps. No one's done that before. That's a good idea. We founded Veeva."

[Laughter]

Good idea. That was a good market. Salesforce was getting inbound inquiries from pharma companies with sales reps, and they wanted software on tablets, on iPads, in 2007 or something like that. Salesforce didn't want to make software for tablets, and they were like, "Let's have a platform."

Veeva had some pharma links, and one thing led to another. That company—if you had just been market-focused, you probably would have done Veeva, and you would have done great. I'm not saying there weren't great founders. There was a market opportunity there.

But for you, you've figured out that hyper-focusing on the founders is the correct path for you. This is the lane you want to be in, and it's clearly working. It's clearly something that will continue to work unless someone backs into what you're looking for from this episode and pitches you. Are you ever worried about that?

Yeah, maybe I should be. I'm more worried about AI. You can outdo this with some AI, so that to me seems like, "Okay, I'm a good chess player, but AI is going to be better than me one day"—or it is better than me.

The way I talk to founders in the first conversation is that I try to go pretty deep on their backgrounds. It's kind of interesting: you talk to a founder who's been working on a startup for 2 months. It could even be a year or 2, and I think most conversations with investors focus on that. They ask, "Tell me about the idea. Tell me about the business model. Tell me what you did in the past."

You're not asking about the product at all.

No, I mean, 90% of the conversation is going to be about the things you've done before the startup.

Okay, that's extremely different from what most VCs do.

Sometimes founders are really annoyed by it. They want to show me the slides. I'm like, "Sorry. I'm sure everyone looks at the slides. I'm sure they're nice, but I don't really care that much. Send me the slides afterward. Sure, I want to look at that."

I do care. A founder might have some impressive achievements and characteristics, but then, in talking about the business they've been working on for a month, if it doesn't make any sense, I might pass. I can think of examples where I passed, and then they pivoted into a better idea and they're doing great.

The analysis of their life before the startup or before the idea was, "Oh, this is a good founder," but then I'm like, "That's a stupid idea. I'm not going to invest." Then they pivoted. I think there's a lot more signal in the life before the startup.

The thing that I struggle with—and I agree with your approach—is that when hearing about founder stories, if they're a founder, they most likely had a pretty hard upbringing, right? They fought, they got ahead, they've done these things, they've been successful, they haven't been successful. How do you gauge the relative hardness of their life and then their outcome?

Yeah, okay. I think the founder-trauma thing is a little overdone.

I totally agree.

Now, I want to tread lightly because we all have different experiences. It's ironic: take any person on the planet, and there will be, "What's the worst thing that happened to them?" There are some people where the things that they've been through are unimaginably bad.

There are other people where, compared to that, it's like nothing, but it was still the worst thing that happened to them, and it was traumatic at the time. So I really want to be respectful, but from my understanding, there are some great founders—say, Mark Zuckerberg or Bill Gates—who came from good families and had pretty good upbringings. I don't know exactly, but I think there's also Larry Page. So I'm not sure the trauma thing is actually that useful.

I think everything is relative, right? I do think you need to look for absolute signs of outliers. It can be in different ways, and I think it is a fun challenge. If you're a basketball scout, you're like, “Well, that person is 7'5". Okay, that's clearly an outlier.” But I'm more interested in things that are less legible.

One of our portfolio companies is a smart glasses company. The founder, I think, is probably 29 now. Google Glass came out when he was in high school, and that changed his life; he was obsessed with AR. He went to Georgia Tech, and after investing, I met someone who had actually gone to school with him. They were in the same engineering lab, and he said, “Yeah, he's obsessed. He was always wearing his Google Glass.”

He's a chill fellow. He dropped out, started a company in this space, raised a little bit of money, but didn't have success. This is his second company. Tom Suarez is a great founder. His personality is very different from some other founders, but in his case, to me, the signal is this obsession with this technology and this product.

He's also a polymath. He's self-taught, so he can write software backward and forward. He can talk about waveguides and optics. Making that type of piece of technology requires extreme depth in lots of areas.

I don't have depth in any of those areas, but I think I'm pretty good at picking up on someone who really is legitimate across these areas. I often get reinforcement by talking to other people who are world-class experts, and they'll say, “Yeah, Tom does this stuff.” I'm not discounting the trauma. It's horrible to have to go through anything. It's just always been hard for me to figure out the relative trauma versus another founder, because everybody, as you said, has been through something terrible, right? So it's hard.

If you had to pick the things that you look for, it sounds like you're looking for obsession. It sounds like you're looking for people who were previously self-starters, had hints of success—or failure, it sounds like, is fine with you too—historically. It sounds like you look for founders who can explain technical things to a broad crowd.

Those obviously aren't all the main things, but what would you say are the main things? Is it just, “I want to go really deep on your life, figure out if you're an outlier,” and that's the lens?

Well, I guess it's signs of extreme potential. Unlike basketball, where there are only a few things—you're tall, you can jump really high, or you're Steph Curry and you can shoot like an X-Man—there are lots of ways this can express, but it's just a sign of extreme talent in an area or two. Then it's an absence of negatives, and that's important.

There are founders where I detect bullshitting, a lack of intellectual honesty, or being overly commercial. I might get things wrong, by the way. No one firm is going to get everything. I also really care about missionary over mercenary.

Missionary over mercenary. Okay.

Yeah, that's something where my perspective has evolved.

So you would take the Anthropic founders over the founders who moved to Meta.

Yeah.

I see.

Totally. You might say, “Obviously, missionary over mercenary.” Look what Anthropic has done to OpenAI. It's crazy. A year or 2 ago, no one would have been on it—well, maybe just a few people would have been—but I would say that a lot of VCs don't care about that.

There are cases—and I don't want to pick on too many people—but I would say there are companies like Uber or Facebook that I don't think were that mission-driven. Maybe they would say things, but they were super competitive, really smart, and wanted to win. That's all good as capitalism, but not mission-oriented.

Is the missionary an output from the founders' obsession? They're so obsessed that they want to build this—would you say?

Yeah, I think so. They think there's something good about what they're doing. I think that attracts talent. So talent density and talent magnetism are really important.

It might be the most important thing, frankly. If I make an investment and, 2 years later, you've got a crystal ball and you're going to tell me one thing about what's going on in the company, tell me something about talent gravity. Tell me the caliber of the engineer who just joined.

It's crazy, because that goes back to where we started with Palantir.

Yeah, yeah. If you can get Shawn Sanker to run your company, you're killing it.

How do you—this is all subjective by definition. You're doing your due diligence, talking to these founders: Are they obsessed? Are they 7 out of 10 obsessed? Can they overcome these things? Can they attract talent? This is all a scale.

Do you ever find yourself on the edge of that scale, or are all of these things investors are looking for blowing you away across the spectrum? I'm trying to get a sense of where you make the decision along a subjective scale of a founder.

It's tricky, and I've evolved. In the first 5 years when I was actively angel investing, I did rankings. I would rank founders, the market, this and that. But I would look at the data afterward, and it was noisy. There's probably someone who can do a quantitative system, maybe using LLMs. So it's a good question.

Peter Thiel has a line: If you like something half as much, you don't write a check half as big; you don't invest. There is something like gut instinct. I hate some cliches that I think are pseudo-scientific, like “gut” or “art and science.” To me, the science isn't that good. My science isn't that good.

I do think that when I reflect upon it, I have other mental heuristics. There's another great investor, Jason Lemkin from SaaStr. I've heard him say that, because he was a successful founder—he wasn't, I guess, the best founder ever, but he was very successful—he wants to invest in CEOs who are better than him. I like that. That won't work for me; I was kind of a CEO of a little company.

One thing I think about is that some people are super market-focused. Here's a founder who has an interesting market insight. In my experience, I've invested in some of those companies over the years, but what's going to happen is that in the next 6 months or year, there are going to be 4 other funded startups. Sequoia is going to back one, Kleiner is going to back one, and Andreessen is going to back one.

My heuristic is, taking a founder like Jim Belosic of Send Grid Send, “Okay, the competition is coming. It's coming. Am I going to be confident? How am I going to feel?” I've had companies where I invested, and then some of those came to market, and I'm like, “Oh boy, I'm worried.”

But then I've had others, and building the one is like this, where it's like, “Oh, 100 competitors came to the market. Oh, this is going to be fun.”

If I were an investor in SpaceX or Elon’s companies, I’d probably feel the same way.

But that’s a good heuristic, though. The idea is, if you meet a founder and you know that they’re going to be successful, there will be new entrants because this is clearly a big idea.

They have a high-quality market or an earned insight. If they have that, it’s definitely something that you want. You want someone with a quality earned insight.

But I think you also have to think to yourself, “Okay, guess what? There are going to be a bunch of funded competitors.” If it’s as good an insight as you think, a really badass person like Sean Sanker is going to join or start a company. How are you going to feel about that?

And the question you ask yourself is: if this happens, is the founder we’re investing in able to beat—

I feel like it’s inevitable that it’s going to happen. If it doesn’t happen, it means the market wasn’t there. Interesting.

And these founders have to beat those probably more well-funded versions of themselves.

Probably. So they have to be great at execution. What does that mean? I guess, really, the founder lens—this is what it’s all about.

Ozan from BillionToOne is a maniac at execution. He’s got a great team and founders who are smarter than him. But, I mean, whether it’s him or the people at Ramp, those guys are insanely good at execution. I’m not an early investor or anything like that, but they’re insanely good at execution.

If I were an early investor in Ramp, I remember people were talking about Brex and Ramp, and I was just eating popcorn, like, “Smart people. Let’s see what happens.” I guess if I were a Ramp investor, I’d like to think I’d remember—

5. Hiring, Talent Density & Red Flags

Yeah, bring it on. Bring it on. We’re going to be on top in the end.

Maybe, to round out your founder lens, is there a project where you were really close to pulling the trigger, where it checked a couple of boxes for you, and you ultimately didn’t make the investment for some reason? I’m trying to get a sense of where your max is. I know where you’d pull the trigger; I don’t know where you wouldn’t pull the trigger.

Yeah. Okay. I would say the ones that come to mind are when there seems to be a quality insight and some traction as well. The traction I particularly like is when customers are coming to you. You don’t have to work that hard to get the customers.

So there’s some traction, a nice insight, and you see a market opportunity. But then it comes down to the founder: are they going to recruit great people? What I see a lot is that I’m just not convinced they’re going to recruit great people. They’re not going to try to recruit Sean. They’re not going to try to recruit amazing people.

By the way, I don’t really want to give advice to anyone. I guess it’s like the Founders Fund: let’s have founders who don’t really need advice. But of course, I’m happy to give advice. I’m happy to do whatever I can for founders 24/7.

But I don’t want to have a debate with a founder about hiring philosophy. What I would say is that YC is just like, “Hire your smart friends.” There are 500 YC companies; that’s probably going to work for a few. But I want a founder who’s going to try to hire the best people they can.

It might be their friends. If you went to MIT and you were doing math camp when you were a kid, okay. But so, you judge that based on your read of their skill set?

Hiring is something where you might be great at a lot of things, but I think a failure mode for a lot of startups is hiring. There are a lot of successful startups in the sense that they have an A, B, or C, but they slow down. They don’t scale.

You’ll hear different stories for why companies slow down and don’t work, but I would say the biggest thing is hiring quality. It could be related to hiring too fast. It’s theoretically possible to go from 20 people to 60 people in a year, keep a really high bar in hiring, and keep a strong mission orientation, but it’s unlikely. I’ve just seen that it’s really hard to maintain.

Now, look, if I’m a pre-seed investor and you went from 20 to 60, not everyone is an A+, it’s still probably a pretty good investment. But at seed stage, you’ve got a founder and 2 engineers, and I’m asking who’s on your team or who you’re going to hire next. I’m thinking, “Are you really trying to get the best people on the planet?”

It’s hard. You don’t have 24 hours to do recruiting. But that’s it. That’s a big signal for me. I’ll check off a lot of things, but then I’m just not convinced you’re really going to push hard on hiring the best people you can.

Okay, that is really interesting. So if you’re on the fence, this is the one area you’d fall back on to make your decision, you’d say?

Yeah.

Okay, that is really interesting. Maybe I want to circle back to one question I missed. On your founder due diligence, I’m curious how long it takes you to get comfortable. Is it the first call, and everything after that is validation and checking for red flags? Do you want to talk to mom, dad, best friend? I’m just trying to get a sense of that.

I don’t put much stock in references. I really don’t.

I will do some references sometimes. The most recent investment I made—I think you know the company—I did some references, and they were good, but of course they were good.

If there was a cheat on that one, it’s that I talked to the founder a couple of times before their fundraising. Then, a couple of months later, I talked to him again. So that was a cheat; I got extra signal there.

I really liked the founder a lot. If he had said in the first conversation, “Oh, we’re raising a round. It’s going to close next week,” would I have invested? I’d like to think I would have, but I couldn’t really tell you. That’s the case-by-case thing.

There are definitely some great VCs who are like, “Oh, I can tell what I need in 10 minutes.” I think people can do that.

Masayoshi Son does that in 10 minutes. He just blows billions of dollars.

Yeah, and I would say that’s pseudoscience. I don’t want to do that.

You can definitely get big negative signals in 10 minutes and know this isn’t good. You can get big positive signals, but I do want to reserve judgment to a certain extent.

I like founders. I screen the founders I talk to somewhat, so I’m talking to great people. Honestly, I kind of fall in love with a founder every day.

Before you get to know them, though.

Yeah, but then I have to reel myself in, knowing, “Okay, but as an angel investor, it’s kind of easier because you can do that, and some of those will probably do well.” But as a venture fund, I have a really high bar.

Then I have to, unfortunately, say no a lot. Some of those people say no to me, by the way. But my question is—

On the velocity of the conversation: you’re talking to a founder. Are you continually impressed and more excited, or as you dig, do you get more questions, and that leads to more conversations? I’m trying to figure out where you make the decision to talk to a founder where it’s like, “I clearly understand that this founder fits my founder lens.” Could it happen in an hour? Does it take 10 hours? I’m just trying to get a sense of that.

I’d say it’s probably anywhere from 20 minutes to an hour to get a good read. I do think there are some people who can get a really quick read, but I also think a lot of founders are coached to do what you said before—to just say the things they think you want to hear.

But they’re not coached on telling their life story.

They’re not. That’s right. That’s right. So I think it takes a little bit of time to unpack that.

It would be easier if I only invested in people who had the most dramatic childhoods ever—

[laughter]

Right?

You probably do okay.

Maybe there’s room for all sorts of esoteric funds. I think someone should have a fund to invest in identical twins.

I think identical twins can be really good founders. There’s two of you. I’m not identical, so I feel like I’m the wrong guy. But yeah, there are all sorts of good ideas.

I had a pretty good childhood. So I think the VC who’s going to own the “I only invest in people with super tragic childhoods” fund probably should have a super tragic childhood. So that’s not me.

One other question I had was that you mentioned the absence of red flags, which I thought was interesting. When you meet these exceptional founders who dug themselves out of caves and have done spectacular things, I feel like most of the time they push the limit a little bit, ethically or morally, somewhere. They went too far and reined it back in.

They have this general sense of overachievement, and sometimes that goes the wrong way, but they still could become incredible founders. To a VC, though, that would look like a red flag. What is a red flag to you?

Well, I would also say I think I’m going to miss a few of those. I think I’m going to be a little harsh on that. But if you told me that when you were 13 you were stealing cars, honestly, that’s not a red flag. It could be part of something, but I’m not that judgmental.

As long as you’re still not stealing cars.

Yeah, exactly. If you’re being honest about it, right? It’s more about how you—so I calibrate based on age.

There’s kind of a thing these days about, “Oh, I invested in the youngest founders,” and I’ve definitely met some incredibly good, compelling founders who were 16, 18, or 19. I would do that, and you kind of calibrate. Obviously, if you’re investing, someone has to have a certain amount of maturity, but if you’re a 19-year-old, I’m going to evaluate things a little differently than if you’re 29.

I think it’s kind of case by case, but for me—maybe I over-index on this—I care a lot about your intellectual honesty. Will you tell me just the straight truth of what happened to you, what you think happened to you when you were younger?

Fast-forward with founders I’ve invested in: as an angel investor, I invested in over 100 companies, and so I’ve kind of seen it all. I had at least one that was fraudulent. So I’ve seen a lot, and I just want to have founders who are going to be honest with me about the company.

I think it’s also just—maybe just zoom out—it is really hard for a lot of founders to be so radically honest at that age because even a 19-year-old kid really hasn’t experienced the world. Coming to a successful VC like you, they want to put on a good face. They want to be impressive. They want to tell the story the way they pitched their mom and dad and other people. It’s hard to find that.

It’s hard to find. So I probably would miss a few good founders by being a little harsh there, but I also think I would calibrate. Another way to think about it is back to talent magnetism, right? If a 19-year-old has an incredible co-founder who’s 18 or 28, that’s a signal. Have they gotten other people on board? That’s a signal.

If they tell me about the 2 people who joined them on the team, I can kind of gauge there, and I’m like, “Oh, wow, those sound like really impressive people. They trusted this person.” So maybe they’re a 19-year-old who’s a little bit performative—that’s what YC tells them. I can get comfortable with different styles.

I just think I want, fast-forward a year later, someone who’s going to be honest with me about what’s working. They can be confident, but I also want someone who’s open to saying, “Okay, this thing isn’t working out,” right? That gets back to learning. The best founders—and, going back to the Ougazones [?] and Nishant Shankars [?]—they’re learning machines.

People who are bullshitting other people and bullshitting themselves just get in the way of learning.

Yeah, it also just creates so many issues. I think if you’re transparently open, have no ego, and are authentic—not in a mean way, because I think that’s stupid—the radical-transparency thing, I get it, but I think it’s screwy. If you lean on the side of more transparency and more information, everybody around you can make way better decisions.

I’ve always felt that way within Delphi, too. It just always makes sense. Is your partner Mike not at Horizon full-time, or—

Right. So he’s full-time in M&A. I mean, he works like a maniac. On the fund, we kind of tag-team on fundraising, and then he handles most of finance and legal.

The reason I ask is because for me, I have my partners Jan, Aneel, and Jose. They could tell me, “This is dumb. You’re being stupid. Back it up. This doesn’t make sense.” Or, “I spoke with the founder. I didn’t get the read you got.” Things like that.

For you, cowboy, right? You’re a single guy.

I had an associate working with me for maybe half of the fund’s history, and she was good and super smart. I valued her perspective.

We would definitely be open to hiring another person. I’m not actively looking for a partner, but intellectually, anyone who’s great and can add value—I would be open to that. We’re not going to have 10 people join the firm, but I would be open to it. Working in a small company, the chemistry is really important, and so it’s tricky.

I’m wondering, how do you keep your bar so high? Who do you intellectually spar with on this stuff?

Myself.

Okay.

I mean, I am definitely a very harsh critic of myself.

But how do you do that?

I could be better at being a harsh critic of myself. But yeah, I’m constantly thinking about—just thinking about decisions I’ve made and the process I have for making decisions.

I love what I do. I loved sports when I was a kid, and if you had told me when I was a kid that I could have been the GM of some pro sports team, that probably would have seemed like the perfect job, assuming I couldn’t make the NBA—which, when I was 18, I wouldn’t have conceded that just yet.

But if you’re the GM of a sports team and you love sports, you’re probably always thinking about who’s got a better jump shot or who’s got a better fastball. So I’m always thinking about the founders. I’m always trying to think about the data, the signals, and ways to get better at what I do.

Where do you do this thinking? Is this a beach walk or run? Is this grilling the founders call after call?

I try not to bug founders. Sometimes I’ll hear VCs talking about, “Oh, yeah, I talk to these founders all the time,” and I’m like, “I don’t know if they really want that.”

[laughter] They have a company to build.

Yeah, but no, I love talking to all the founders that I work with. In the shower, in the gym, I’m always thinking about this stuff.

I guess I begged the question earlier. Somebody listening to this could reverse-engineer the story, come to you, and make up a story that’s credible enough based on what you’re looking for. How do you tell if they’re faking it?

Intellectual honesty is interesting, but if you’re not a bio expert, the biotech people could lie to you. You know what I mean?

Well, I think I’m pretty good at detecting inconsistencies in a story and in the way someone is communicating. I think I’m pretty good at detecting when someone is exaggerating their knowledge, exaggerating about something that happened, or just lying.

That’s one thing, but even if they’re not lying, people often exaggerate and things like that. So I think I’m pretty good at that. I don’t have any hesitation about asking the dumb questions.

I guess I’ve never lacked for intellectual confidence, so I don’t mind letting them stew in it. I don’t mind talking to some super-smart person and asking a dumb question.

If there are a few things that I’m really good at in my job, I think one of them is that I’m very—like, you could have someone tell me about quantum mechanics and have someone who’s bullshitting and someone who’s not.

And so I think I’d be pretty good at picking out the one who’s being intellectually honest.

That gives them the opportunity to explain these technical things to you in a way that you want to understand, and you can tell if they can share it with the world.

Yeah, but I think they want to do that. If you’re a founder, you want to tell the story. Everyone likes talking about themselves, and you kind of think it’s fun to explain to someone who may be smart but doesn’t know anything about the thing. Hopefully, you view it as a bit of a challenge, and I’m a pretty good listener.

I think that’s a good signal. If someone is like, “Oh my God, I don’t want to talk to this idiot. He doesn’t know anything,” I think that’s a bad signal for a founder. I might miss a few founders. There are probably 1 or 2 founders who are going to be successful like that, but the billion-dollar founders, I don’t think they left thinking, “God, that guy was stupid.” I think they’re like, “Oh, yeah, well, he seemed like a nice guy.”

6. AI, Investing & The Future

I spoke with one of your portfolio company founders, Zane. I didn’t speak with him; I just emailed him before this episode. He mentioned that you’re a generalist, but you’re able to get up to speed so quickly.

I want to parlay this question into the future and where we’re going with AI and technology. It seems like it’s going to be a lot harder to get up to speed on AI than it has been on historical sectors. It’s extremely difficult to understand all the intricacies of this entire supply chain—what’s going on, what’s different, the models, the data, the infrastructure, everything.

Do you feel that your process for getting up to speed with these founders will be different going forward? Do you think it’s going to be hard mode moving forward? Do you think it changes? What do you think?

Well, I’m biased because I hope it doesn’t change much. So I don’t think it’ll change much. I definitely want to use technology and AI as much as I can. I think some people are precious when they say, “Well, AI is going to automate this part of the job, but it’s not going to automate this part of the job—and that’s what I do. That’s so special.” I don’t want to be precious like that. AI can automate everything, so I want to be open-minded about that.

I think there’s a great Jeff Bezos quote, or someone’s quote from 10 or 20 years ago. Someone asks him about the future: “What’s going to happen in the future?” He says, “Actually, what I like to think about is what’s going to stay the same.” He says, “In the future, everything’s going to change, except people are going to want low prices, big selection, and fast shipping. As long as we focus on that, we’re going to be okay.”

I think what’s going to stay the same is these certain types of founders—these exceptional, outlier, brilliant, determined, resourceful, mission-oriented, intellectually honest founders. I just think they’re going to be very successful in creating a champion in the future.

My algorithm is that I’m not going to catch every founder. There are going to be some hypey founders who have huge exits who aren’t for me, and some of my founders aren’t going to work out. I’ll miss some that I’ll regret, but I think this formula for finding founders is going to work. I’m not 100% sure that I’m going to be able to execute on it. I think I will, but I’m very confident that this formula will work as long as capitalism runs reasonably well.

Yes, so let me get this. AI is in such a dynamic period right now, and some people think that the Terminator is just around the corner. Assuming a few things around capitalism and free markets, you mentioned what won’t change. It seems highly unlikely that mass human founder psychology will change in 10 years or something. I feel like you’re probably fine.

Yeah, even if companies have 1,000 agents for every human, I think the founders who are most successful are going to be pretty similar. I think the Steve Jobses, the Elon Musks, the Sham Sankar, and the Melanie Perkinses—I think these are the types of people who, if you have a portfolio full of 10, 20, or 30 of these startups, are going to make a great portfolio in 5 or 10 years, even if the world is really different in some ways.

One other personal, daily question I have for you is that I force-feed the book Essentialism to everyone at Delphi. It’s about managing your time and focusing on the one thing you could be really successful at. I’ve always found myself personally insanely unsuccessful when I have to manage 4 or 5 different things, context-switching, and things like that.

I’m curious how you manage your time. Are Mondays for sourcing and Tuesday and Wednesday for founder calls? How do you manage your time, and how has that evolved over time?

It’s honestly stayed pretty similar for as long as I’ve been a professional. When I was a student, it was a little different. Since I’ve been a professional, I’ve had a digital calendar to look at. When I was a student, I didn’t have that. I forget how I tracked things. I don’t know what the hell I did.

There are some people who want to have meetings back to back to back. Some of them are amazing VCs. I talked to a VC the other day who said he talks to 10 founders a day, and I thought, “That’s not what I want.” Then there are people at big companies where I think a lot of it is just a bunch of meetings, and then they’ve got meetings.

I want to have a certain amount of programmed space and things to do, but I also want some free time. I’m also extremely eager to be productive. My wife says I shouldn’t use the microwave as much as I do, but I use the microwave for things. I’ll put something in the microwave for 40 seconds, and then I think, “I’ve got 40 seconds. What should I do?”

What should I do?

Tie my shoes. Take my vitamins.

I’ve always been like that. I’m definitely a big optimizer. But sometimes it feels like there are people who will drive an hour to save a nickel. There are people who will spend 8 hours productivity-hacking. What have you done?

How much time have you actually saved?

I have a few systems. I write things down, and I have a task list.

But you’re not getting back to every single inbound? Are you an inbox-zero kind of guy?

I’m an inbox-zero kind of guy.

Yeah.

But my inbox is—so I have a task list, and the emails in my inbox are another manifestation of a task list. I don’t have inbox zero. I usually strive to have Inbox 3, and those are 3 important things.

Okay. I always like to figure out how people spend their time because it works for you.

Yeah. There’s the guy—

What’s his name? He’s a famous productivity guru, and most of these people, I don’t think, are useful. He’s the Getting Things Done guy. What’s his name again?

I don’t remember his name.

Yeah, he has some good rules. Someone was telling me about his rules one time, and I thought, “Those are rules that I follow.” Things like writing things down so you can have clearer working memory.

Maybe to close the conversation here, I want to talk through this, and I’ll allow all of it your way. You can take it any way you’d like. What’s the biggest setback in building Horizon? Maybe it’s a personal story. Maybe it’s a founder you really rated highly who didn’t work out. I’m just curious what the setback for you is.

I don’t know how personal you want to get, but I would say that I haven’t had any significant setback in Horizon. It’s like the person whose childhood was pretty good. I’ve been a full-time VC since 2022, and I haven’t had any significant setbacks. There have been a few, but what were the moments when I was most bothered?

There was one time when I really wanted to get into a deal and I couldn’t.

Yeah. That was, in the big scheme of things, all right. I've had some good luck, maybe; hopefully, I've had good strategy and good execution. I could go back to other professional and personal avenues and give you some sob stories about setbacks, but I feel like I'm pretty resilient.

I would say, yeah, I'm sure I will have greater setbacks as a VC. I'm going to do this for a long time, and it's inevitable, but I'm fortunate right now to say that I haven't had any.

I don't think people randomly don't have setbacks, though. It sounds like you must be working so hard that you get to a point where you don't, because at some point it just becomes chance. You will have a setback or something, unless you're really—

I mean, the big setbacks, I think, in VC are fundraising. Fundraising can be a setback, but we haven't had a real struggle fundraising. There have been a few people who said no, but overall, it's worked out pretty well. It has never been a constraint, and I'm not trying to raise the biggest fund, by the way. I'm kind of modest, and it's another story about what I want.

I don't want to spend a lot of time fundraising. I've never wanted to spend more than 10% of my time fundraising. Another setback is companies having failures. We definitely had some companies not succeed. Probably the most painful thing is when you have a company that you think is worth a lot, and then it falls on hard times. I'm sure that will happen in the venture fund; it hasn't yet.

I think we are investing in founders who are very resilient and who are not bullshitters, so I think our businesses are less likely to get markups. As an angel investor, I had a few. I mean, it's kind of like—

You feel good, but it's not real. It's like a paper worth—

Yeah, where you thought you had something that was a 20x, and then it's not worth anything. I've definitely had that happen as an investor, and it's painful. It has happened a couple of times, and you realize it's kind of part of the deal.

Hopefully, I have a pretty good strategy. I'm pretty resilient. I've got my partner, Mike, doing some of the things that maybe other VCs don't like to do. That's another thing: I get to spend time—

There are a few things that are a little annoying. I always follow up with founders; I never lose founders. Maybe it's happened to me, but it was an accident, and I'm sorry if you're doing it. I cannot believe it's so common that VCs don't follow up with founders. It bothers me, so I write a short note to every founder, and I really like doing that.

Yeah, but it's part of the job. It's respectful.

AI's not doing it. There are some parts of the job that aren't perfect, but generally, I think I have a great job. It's kind of insane.

Kyle Samani, who's a giant in our industry, has always said that he gives a founder a reason because they gave him their time—something along those lines.

I always give a reason as well. It's a real inside-baseball thing. Some people don't do that because sometimes you'll get a founder who wants to debate you over email, and—

That is annoying.

7. The SendCutSend Story

But I get it. People care a lot, so I appreciate it. These founders that I get to talk with are amazing. It's kind of ridiculous that this is my job. I get to spend time with these people.

I want to close out with one more fun portfolio story to round out our conversation, and maybe bring back the lessons you've shared into another story. Canva or SendCutSend—which one should we take?

SendCutSend is a really fun one, and it's recent. We started the fund in 2022, but I was the first investor in the company in 2021, when they raised a seed round. We did an SPV.

What does SendCutSend do, though?

It's a vertically integrated manufacturing company. It's really democratizing manufacturing. Traditionally, if you were a tinkerer building something in the garage, or even in a company, and you wanted to get one custom part made, you'd go to a local job shop or local manufacturing company, and they'd be like, “One? No. You need to order 1,000.”

Like a piece of metal—a fabrication company.

Yeah, like using lasers, bending metal, and cutting metal. Jim, the founder, was super passionate about these projects. He had a successful software business that he bootstrapped, and that's how I got to know him originally. But he was more into building cars in his garage, and he was really frustrated by dealing with these manufacturers who never wanted to make him 2 parts or 1 part.

At first, he thought, “Okay, their technology is bad. I'll make software for them.” They were like, “No, leave me alone.” So then he said, “Fine, I'll just do this myself.” His story is that he wanted to put a bunch of money into these really high-end machines, and he had to justify it to his wife, who is his co-founder. He was like, “I'll make a business out of this, and I can use this fancy equipment.”

Basically, he was going to put up a website and let anyone order 1 part. It was a real textbook disruptive innovation. It feels like 3D printing, but for metals. Most of the startups historically in this space make a 3D printer. They make a machine, and that has been a terrible business. It sounds cool, but there's never enough demand.

People have made these incredible machines, but they never get the demand. SendCutSend doesn't make machines. They're always using top-of-the-line, expensive machines from companies like Amada, a Japanese company that's a big supplier. If you have a 3D-printing company, or you're one of these manufacturing startups that wants to build a machine, SendCutSend would be happy to be your customer.

SendCutSend's customers are tinkerers working on a project in their garage on the weekend. During the week, what do they do? They work for Tesla, SpaceX, or Anduril. When we invested in 2021, 80% of the business was small and midsize businesses and tinkerers, while 20% was more industrial and larger companies. It's flipped now.

There's been a huge wave of reindustrialization, defense tech, and robotics, and everyone uses SendCutSend. It's kind of like AWS. In 2010, AWS was the only shop in town for what it did, and every startup used AWS and loved it. AWS never spent a cent on marketing. SendCutSend is like that for all these hardware startups and companies.

They've probably spent a few dollars on marketing, but it's all inbound. All the companies in the space have historically struggled to get demand, and SendCutSend has this genius strategy of making an incredibly awesome product and then having people come to them.

It's really interesting. It feels like, if American manufacturing and hardware tinkering take off because software commoditizes AI, they're going to have a lot of clients around the world who want to mess with robotics, drones, and all types of stuff.

Yeah. Their biggest competition would probably be China, where often you can get a part for cheaper if you're willing to wait 2 or 3 weeks. But if you want 1 or 2 parts, you often want them fast. There's also a ton of this stuff where you're not allowed to get a part from China or whatever.

SendCutSend has an amazing business, and Jim is an amazing guy.

How did you find the founder? What was the—

The company is based in Reno, Nevada. I met Jim through my M&A business because I was advising him on his software business. He didn't transact, but I got to know him, spent time with him, and built up a high-trust relationship with him.

In hindsight, it was funny. I remember when we went to Reno and were hanging out with him, and he was talking about these crazy things he was building. That was when he was the most animated. The software business was nice, but what he was really passionate about was these crazy projects. Everyone in the office was like, “Oh yeah, Jim's got this crazy, expensive machine in his garage.”

Years later, he started this business and reached out to me. I was the only finance person he trusted because he couldn't stand VCs.

He reached out to me. Such a cool story. He founded the business originally on his own with, like, $1,000. When I talked to him, they had some traction. He’s an amazing guy, but he doesn’t have a lot of finance or accounting experience, so he couldn’t really tell you the gross margins or anything about it except the revenue and the growth.

It was clearly self-funding, so clearly the gross margins weren’t software gross margins. But the thing was working, and customers loved it. I was really fortunate there, but it was the summer of 2021, when everything was SaaS, and I was a little nervous about the profitability of SaaS. I was thinking about other things to do as an angel.

Jim wanted to raise this round, and I was really excited to do the fund. I guess, in hindsight, we invested $1.5 million in an SPV. In hindsight, we could have just done that, but I said to him, “I want to raise venture capital.” I was like, “I’m an angel investor, not a VC, but let me see if I can help you.”

I reached out to people in my network and found a really good guy, a great VC at MHS Capital, Mark Zuckerberg. They led the round with a $2.5 million check, and then we did a $1.5 million SPV. That was the summer of 2021. The next year, the fund invested.

Down often. What’s that? You double down very often.

I do. A lot of people don’t do that. With BillionToOne, maybe that’s because we’re all functions of our own experience. With BillionToOne, I quintupled or whatever—how do you say 12? Yeah, the 12-tuple—and that worked, right? I’ve definitely had some double-downs that didn’t work in my angel portfolio, even in the fund. But with SendCutSend, let’s double down on that.

Can I ask you one question, too, just to narrow in on your founder lens? This is somebody you dealt with who came to you because he wanted M&A work. It’s not somebody who came to you to pitch his business, so it wasn’t like you were trying to figure out his psychology or his background. He was coming to you, and you were just trying to size up his business for a sale or something like that.

It’s a very different model from the founder archetype. I pursued Jim initially because he had a bootstrapped software business. I got to know him that way and built a high-trust relationship with him, but I wasn’t at all thinking about investing. I was thinking, “You have a software business. How much is it worth? Can I help?”

His business was very profitable, and sometimes you’ll have businesses that are very profitable, but it doesn’t make sense to sell them because you can’t get a high multiple. If you have good cash flow and you can only get 3 or 4 times cash flow, you probably shouldn’t sell it. I think one reason he liked me was that most transaction people would say, “You should sell. You should do a deal.” But I said, “I don’t think you should. You’ve got a really nice business. I don’t think you’re going to get a big multiple for it. If these things change, maybe.”

I think he appreciated that. I spent a lot of time with him, but ultimately, the advice was that we didn’t think he should do anything.

But no, no, that—you built the trust.

Yeah. Years later, he reached out to me about the business. By the time he talked to me about it, I was like, “Jim, I love you, but I don’t know what the hell you’re talking about.” Manufacturing? It was a little bit of a coincidence, but it can’t be a pure coincidence. It’s like BillionToOne.

I’m literally like, “Look, I got good grades in high school, but I slept through biology.” My high school achievements were—I was not an Olympic champion. These days, all the founders are gold medalists, this and that. I was the Olympic champion of getting good grades and knowing nothing. That was my championship. That was my optimization function in high school.

With manufacturing, I never wanted to touch a power tool in my life. He was telling me about this manufacturing business, and it was really hard to understand it, but it seemed like it was working. This was early 2021. It was basically like, “Okay, tell you what. Let’s talk again in 6 months if things are going well.”

I wasn’t thinking, “I’m going to sell the business.” I was just saying, “This is a friend. I’d like to help him. Maybe I’ll invest. Not sure.” Six months later, it was a little bit like the recent investment where I said I talked to the founder and then 2 months later, “This thing is working.”

Jim is a great guy. He’s an outsider, kind of—you know, Nevada—not a guy who wants to hang out and do any sort of networking. He’s just a really good guy, a family guy.

He did a round recently, right?

Yeah, that’s the fun part. Back then, in 2021, no one wanted to invest in this business. It wasn’t like he chose; he just couldn’t get an investor. We invested, and it wasn’t immediately clear that this was going to be a fund-returning type of investment, but over a little bit of time, I got pretty confident.

Just like I was with BillionToOne, between the Series A and B, I brought people in. It wasn’t a super fancy company, but I was like Shawn Marchet with Palantir. No one in 2009 thought Palantir was a sure thing, but he had that conviction, so I had that conviction in BillionToOne when I brought people in. I got that conviction inside SendCutSend, right?

No one else really cared about manufacturing in 2022. Then Andreessen started to talk about American dynamism and this and that. Earlier in the year, Jim decided he wanted to raise money.

It’s kind of a funny story because there was a journalist who was doing a story on him who was pretty well networked. Jim mentioned that he was interested in raising capital, and the journalist said, “You should talk to my friend Patrick Collison.” Jim said, “Okay.”

He got introduced to Patrick Collison, and they had a conversation. Jim was telling him about the business, and at the beginning of the conversation, Jim said, “I’m thinking about raising money at a $1 billion valuation.” This was the first conversation he’d had with an investor.

At the end of the hour-long conversation, Patrick said, “Well, if you’re raising money at a $1 billion valuation, count me in for $10 million.” Then he said, “Can I introduce you to a few of my friends?” He introduced Jim to his friends at Sequoia and to Matt Huang from Paradigm, who you probably know well.

And Matt is a legend.

He’s a legend, right? He’s a good crypto guy, more than a manufacturing guy. I guess they’re all buddies, and Jim ended up talking to a few of their VCs. It’s just ironic: no one wants to dance with you, and then everyone wants to dance with you.

Matt from Paradigm had, I don’t know if it was a deal toy, but it was a big metal piece of engraving with the— I don’t know if it was SendCutSend or something else in there.

Yeah, yeah.

The one last question I have, just to double down here, is that this was a huge win and an incredible company, but it was outside of how you found the last bunch. With the last bunch, you found these people, asked your questions, looked for obsession, and looked for all these things. SendCutSend was totally different. It was somebody you worked with, and you probably didn’t care if he was obsessed or not because of the M&A work, but it turned into something big.

Was the process different when you decided to invest in SendCutSend? You didn’t have to do the normal due diligence you would on a new founder, I guess.

Yeah, there was some traction there. What I would say is that if you’re looking at a category that’s totally out of fashion and a founder who lacks most of the prestige credentials that most VCs care about, you might get an opportunity to use traction as part of your assessment. Ultimately, what you’re looking for is execution, right? That’s what it’s all about.

Jim’s execution was just amazing. What they were doing was amazing.

It was cool to have this organic inbound, man. It was small numbers, but I wish I could say that I looked at Jim's business plan and looked into his eyes, and it was like, “Yeah.”

But it’s just cool, though, because during your relationship with him on the M&A side, he wasn’t trying to sell you. You probably got to know the real Jim. Do you think you know him more deeply than any other founder?

Yeah, probably. I mean, there are a few other founders I’ve known for similar amounts of time. There are a few other founders in our fund where maybe I invested in their last company, or I just knew them. But with Jim, it’s a really special relationship.

It gets back to just pinching myself. It’s really great that I get to do this for a living. I was the first believer. It was one thing to be the first believer in the 19-year-old, brilliant MIT whiz kid, and good for you if you’re the first believer, right?

But I find it lucky that I can be the first believer in a company. There’s definitely some luck involved, and hopefully some skill. The really fun part for me is that I’m super competitive. I’m not one who wants to pound my chest when I have something good happen, but inside it feels really good because everyone wants to dance with SendCutSend now.

I’m not doing the hard work, by the way. It’s all credit to the company, the founders, and the team. But I helped a little bit, and it’s so much fun when I can talk to any defense tech startup or any hardware startup and mention SendCutSend.

Is that SendCutSend?

Oh, it’s great.

That is cool. It lowers the bar. It just makes it easier.

Yeah.

Do you have any advice for a founder who this is resonating with, who wants to get in touch with you? Or is it more that you want to find them?

8. Advice for Founders & Closing Thoughts

Yeah, I’m open to people reaching out. I usually respond to people who—okay, so if you send me a message that isn’t AI-generated, there’s a high likelihood I’ll respond, but I wouldn’t guarantee it. If I talk to you, I will 100% follow up with you.

These days, I get a lot of AI-generated emails, and I don’t respond to those. But if someone wants to reach out to me, I’ve written so many cold emails, and I’m actually—this is another thing that I’m not that good at, among too many things—but how do you write a short email that demonstrates that it’s not AI, that it’s a little personalized and a little thoughtful?

It needs to show that you’ve spent more than 5 minutes on it, or maybe you can do it in 2 minutes. If you can do that, please reach out or shoot me a message on LinkedIn. You can find my email, too. I’m definitely open to anyone who wants to reach out.

Sandy, I really appreciate you joining me. I don’t meet many VCs with this many wins, with a story this unique, who are this focused on the founders. I’m really excited to see what you back next. Thank you.

Thank you very much.