I've invested a lot in AI. So, yeah, I love your quote about AI and how you'd have done it differently if you hadn't joined Coastal Venture before I joined KV. I joined KV literally two years ago, basically this week. I had invested in zero AI companies before. Since then, in the last two years, I'd say it's about 70% of my investments are AI. And had I not rejoined KV, I think I would either have missed the whole wave and been completely irrelevant or been reckless.
Keith and Venode, I'm incredibly excited. I got to do this with each of you individually last year. First thing I wanted to do coming into the new year was ask the two of you to come on together. So, thanks for doing it.
Obviously, I follow both of you a lot, you know, sort of on online and watching a lot of podcasts you've done and just knowing you over time. And I've never seen you together in this kind of format. And so I was really excited to set this up. One of the first things I want to get into is like how the two of you work together because I think like it's rare that you have two people who are both super individually accomplished at a venture firm working side by side. You've done it for many years now and you're obviously very different people, but there's like a lot in common. Like I see you as this like Venn diagram with a lot, you know, in the middle, but you also have your own styles. So, I guess just to start like what's the like texture of your day-to-day working relationship like? Like how do you guys operate together? How do you communicate with each other? Like what does it look like just like all the time?
Sure. Well, we first started working together when Venode joined the board of Square. So, and you know, I learned a lot of things from Slide. Well, we worked together at Slide, but that was more intermediated through Max and I would hear about these meetings with Venode and all these ideas and these grand theories about how we should rearrange the business, but it wasn't like hands-on. I actually worked with another one of our partners, David, at Slide, very directly. He told me my first revenue model was terrible. And so David's a little bit of an acquired taste.
Yeah. He's like, 'This revenue plan is very mediocre.' Was the exact quote. Which turned out to be right. Um, but in any event, while he was on the board of Square, he taught me a lot of things including the most important precept of the team you build is the company you build. So when I was considering being a VC, it was a very natural fit because a lot of the contributions that Venode had at Square resonated with me and I could see the style of KV and how that translated through my brain and that I felt like it would be a really good pairing.
What was it like for you? So like, you know, when you starting to work with Keith, like could you tell immediately that stylistically it was like what you like? Like how did you know?
For me, it's really one thing. It's first principles thinking. If you can do first principles thinking, it's easy to know where you agree and where you disagree that it isn't this hand-wavy thing. A, B, and C. Then we can debate those three factors. And it's worked out very smoothly. It's seldom we grossly disagree. We'll even come down to if X were true, then this is a good decision or a bad decision.
Which is incredibly helpful. Like there's one specific investment I remember last summer where I couldn't actually decide what to do. It was close to the line. Wasn't quite sure. And then Venode said the key attributes of the founder that really matter for this are one, two, three and then our junior colleague John Chu and I were like well on those three dimensions this founder is a AAA. So it made the decision really easy because he was able to isolate the key variables for that particular company.
Yeah. Do you guys like get into like strong debates over ideas or have you mind-melded so hard at this point that you don't even need to as often or because it's hard for me to imagine either of you shying away from a very like you're obviously both going to say whatever you think all of the time but I think that helps the direct style which you've talked about for years.
I've always said I prefer hypocritical brutal honesty to hypocritical politeness.
I can't imagine you dancing around a topic with each other.
No. And it doesn't matter whether it's internally in a debate or on Twitter, you know, it doesn't matter. Being very direct saves a lot of hassle. And once you have that culture, nobody's guessing at what you're thinking. And that's worked really well within the partnership. Nobody's ever guessing what you think or why you think that.
And then externally, I think one of the reasons why we pair well with really ambitious founders is they appreciate clear communication. Succinct and direct communication they process extraordinarily well.
On you two working together like if you had to sort of like guess like I don't know like the pie chart of the time that you guys are spending talking to each other how much of it is about existing investments, new companies, operating the firm, anything personal?
So nobody ever discusses operating the firm very much. Ventures... you know, there's almost no, I would guess it's far less than 5%.
Is that because it's so clear how it works or because it's like...
Maybe around if you include hiring like then there's an allocation to assessment.
Yeah, we'll call that separate people. Yeah. Out of curiosity, is that because you think that it's like it's already so clear there's nothing left to discuss or is it just so much relatively less important than the work of investing itself?
Well, first we have a lot more fun investing than managing. And the firm doesn't take much management. Uh, honestly, other than comp once a year, there really isn't a lot and hiring that we talked about.
There isn't much in terms of I can't remember when we had a strong policy disagreement. It's also you know at the end of the day Venode is energized by investing in the future through technology and founders and I'm energized by pairing with people who want to change the world which is roughly similar and so the management part is a distraction to some extent from those two core activities which are exciting. We spend almost no time with LPs.
I mean I have to edit that.
I'm just kidding. I look I don't mind I spend less time with LPs than almost any other senior partner and I think that generally true of all the senior partners at Coastal.
Well you're at a place where you know you probably don't need to spend that much.
And frankly entrepreneurs are a lot of fun to work with.
Yeah. So are you spending most of your time talking about new companies, existing companies? Is that basically all of it?
Actually both. I mean we take the current portfolio very seriously. Every single Monday meeting starts with the current portfolio before we ever talk about a new opportunity.
Because we're in the build the company business. You know, sort of that's what we focus on is we're an investor. We're going to be a partner for 10, 20 years. How do we help the company achieve its highest ambition, highest potential? And so we start literally intentionally that way with the portfolio before looking elsewhere. So the funny thing is in 40 years that I've done venture capital, I've not once called myself a venture capitalist or an investor. Always say I'm a venture assistant to entrepreneurs trying to build companies. And that's what our website is focused on and that's what we talk about mostly internally. How do we help a company change its trajectory if the potential exists to change it?
How different do you see today like the sort of ethos of like new young investors versus like when you were getting started because like right now it is such like a thing to...
You know, the young and old doesn't matter as much. What matters is have you built companies and earned the right to advise an entrepreneur. I think most people who advise entrepreneurs haven't earned the right to advise an entrepreneur. Almost all the senior partners in our firm have earned the right by helping build a company, being inside a company, having empathy for the founder. So I think that's a pretty distinctive feature of how we think of our role. A lot of firms just want to be nice to founders and it hurts the founder because you know it's like I say it's like saying yes to your kids all the time. No matter what they want, they know you love them, but you're trying to get them to be the best they can be. That includes pushing them to be the best they can be. And I think we both agree our business is much more about helping the entrepreneur build a successful company than about investing.
I'm newer to this obviously, but it seems like there was some moment in time where like the dominant marketing strategy for VC firms flipped towards just like extreme founder friendly, whatever that means. I don't know if it was 10 years ago or 15, something like that though. You guys probably experienced this going through being on one side of it and then the other. I kind of always lived in that world, but like was there like a moment or like a period of a few years where it just like became the strategy for some reason for VCs to just go full...
You know, our goal has always been what's good for the company, not what sounds good or what will get us more referrals for the founder next time they need to refer. So I think this hypocritical politeness which is pervasive in our business is really bad for founders. And when a founder selects for that, they're generally a weak founder. Strong founders almost always select for the best feedback they can get and also know how to say no thank you. I disagree with you. I think that's a really, really important character. One of my favorites is this, some founders I don't know the names, the two founders did something called Founders Choice, VCSeed.org or .com, some survey of founders. And what I love is they wanted to avoid the hypocritical politeness so they said only the VCs that you've worked with can vote on the VC firm and you can't say we have these three investors they're all great, they force them to rate them head-to-head like a chess Elo rating. And I'm very proud we've sort of at the top of that list among 400 VC firms in hundreds and hundreds of wards. I think it's the most important survey for me to know that in retrospect our founders prefer us.
And we prefer backing the same founders again and again. Like our LP decks always have a huge component of how many repeat founders have come back to us to work with us.
Keith, I'm actually really curious because like obviously Founders Fund is an amazing firm as well as Coastal and the ethos is the same in the sense of like we want to do what's right for the company, but I think like the pathway to get there is like the opposite in some way.
I think the goal of finding bold ambitious founders and companies is very similar. I think the way we actually practice what we do is very different. Our craft is to be the partner in building the company. Like I look at my role as being the consiglieri to the founder and like sometimes the consiglieri tells you that's a bad idea and sometimes they tell you that's a great idea that they help the principal and they're not confused about who's the CEO and who's the consiglieri. That's how I think of my role. Founders Fund thinks their role is to provide the capital and get out of the way and if you have an idea where they might be helpful, please call and we'll do everything we can to try to help. Proactive versus reactive.
Totally. That's exactly right. Very, very similar goals in betting on really bold ideas whether they're popular or not. Yeah. Whether they're on trend or not. They've done an incredible job of that and we like to think we do that also.
Yeah. It's almost like you can imagine the conversation would play out like you know on one side it's well we should back entrepreneurs that like don't need help and then the other side of the conversation would be like well yeah but even amazing people can still be helped.
Of course. Like I mean like even the best baseball players have ego or you know if they have shooting coaches even like they're very dedicated or fitness coaches like there's almost no profession where the best at what they do doesn't have an advisor, coach, mentor.
Yeah, look take somebody a really strong founder like Max Levchin. I've never been on the board, the company's gone public, we've distributed, great outcome, we are the first investor. To this day Max and I do quarterly phone calls because he wants my help and advice, second opinion or something he's thinking about or always looking for areas I'll prod him in to think harder like you're ignoring this or that.
I want to talk about like so what this clicking into the source of like great founders, great companies because obviously that's like the center of like the work. I posted this, you know, that I was going to have you guys on the podcast somebody said you know we want to hear about this but Keith you can't say the thing about comparative advantages and you know you're like but it's true and I think it is true but like I want to try to click in as closely as possible to like what makes a great founder and I think one of the things that stuck with me was you both have said that you guys are basically always aligned on like the read of the founder. You might disagree on a market or if this is some a business you want to be in, but like more or less you think the same thing about if a person is a great founder.
Very rarely is there significant divergence on the assessment of the founder. I can probably name two, three examples in like eight years.
Yeah. What specifics can you sort of like describe?
Well, I'll give you my formula and feel free to, you know, edit. So mine is one of two traits. Either I meet a founder and on some dimension they're the best I've ever met in my life. It can be different. They can be the smartest person. They can be the most tenacious person. They can be the best assessor of people. They can be the most strategic. They can just like oh my god top one basis point on some dimension. And because what I'm trying to do is when you're we do mostly first institutional capital. We want to be as bold and as early as possible. What I'm trying to find out is is there a non-zero chance that this person can change a vertical or the world like that's really it is one of those people or like at least 99% of humanity is not going to change and reinvent an entire you know industry let alone the world and so it's like is there some probability usually the people who succeed at that have some trait that just like oh my god your ears like perk. The other exception is they have a Venn diagram overlap of traits that you don't see in common so for example Max Levchin I've talked about this before, but literally when I met him in December 2000, Reed Hoffman came up to me and said, 'You're getting ready for your first one with Max.' Max is a first-rate technologist and a first-rate business mind. There's less than five people in all of Silicon Valley that are that. Reed was dead on. 25 years later, it's still true. There's less than five people and Max is one of them. And that's led to his trajectory. If I see these traits, Jack Dorsey, who we've both worked with, is actually pretty damn good design mind, pretty good technologist, and a very good business strategist. He has three, which is also why he's been very successful.
So, okay. So, you meet somebody that you trust, refers somebody, you're like great, I'm going to meet them. You're in the meeting with them for an hour. Are you trying to pull that out in that meeting? Is this work happening outside?
Usually, it usually if it's so strong, it usually shows up in three minutes. Like, literally, you meet someone who's the smartest person ever. You just feel this energy.
Aren't there some less obvious traits than like super smart though? Like grit or something like that.
Yes, there are. Exactly. But like so for example, one of my favorite gritty founders told me the story of when he was working at Uber, his team in this foreign country that he just joined like cuz he was a launcher was going to run a triathlon on Saturday and this is like Thursday and he's like I want to be part of this team like I want to fit in. I want to do it. I haven't trained at all. Didn't own a bike. So what did he do? He rented a city bike and ran the tri and did the whatever triathlon on a city bike.
That's what was so much grand like is like that's all you need to hear then. And then his co-founder like finished second in a spelling bee when he was in high school and passed out like due to like stress. So he didn't quit his senior year. He went back and tried to win it.
Like I was like there's a dimension there that you're like you don't hear very you know how. So to get some of these like ones that don't show up in a like a live meeting are you do you have certain like things that you're prodding towards like are you asking more about life than business like...
No, I actually don't do the sort of Daniel Gross style thing where tell me about your history and your sibling and you know that it does work you know for the people it definitely does. Tell me about your company and like why are you doing this company and it just it just shows up somewhere there's just a spark they can't help themselves.
Have you tried the Doug Leone thing and it just like didn't work for you or you just tried it the mechanical it's like when you assess people's interviewed executive candidates for you know 30, 40 years for companies...
There's a mechanical way of assessing doing the interview where you go you know experience by experience like why did you leave, your accomplishments, what was the biggest challenge, what are people going to say about you and then there's different ways when you interview people that's a little bit more free form. I'm definitely in the free form version of interviewing.
Do you do a founder similar to that or is it a whole different thing for a founder?
Um, you know, every situation is different. I want to add a couple of other things to what Keith said. I think the most important thing is exceptionality in some dimension whether they're going to be a good CEO or not. But related to that is two things in the areas where they're not good. Perfectly good to back a founder if they don't know an area. Often it's a professor or something. That's where venture assistance comes in that I was talking about where we can help them be a complete founder. But also the thing I want to emphasize is to me what's key is the learning rate of the founder. How open-minded they are to new ideas and how good they are at rejecting bad ideas. So I said too many founders just take every idea and try and execute. If a person listens to me all the time, I'll almost never invest with them. I know they're not critically examining. I often take positions I don't believe in just to test how the founder's thinking about something. I have a document I put out. It's public document on how to do an interview. It is not it is very much like it's free form, but it's everybody knows what answers to give in an interview. So, how do you get past that? I have an internal document I give to only our founders on how to interpret the answers they get.
If I put them out publicly, then every candidate would understand how I'm interpreting. So, I can't put that publicly. But the first half I made it public like here's how I assess somebody. So, I have a pretty clear style and it's usually about putting people in a situation they haven't been in. It's not soft. Tell me about your life history because people know how to storytell. And the best storytellers may not be the best candidates. So you have to get past the obvious answers like I did this in that company or I opposed that in retrospect.
I think it's very nuanced. So that's a great example and ties back to the team you build is the company you build not the plan you make because the right team will evolve the plan to the right thing and your initial plan is seldom the right plan but if you can help pick the right team in a new context which is you're trying to do something bold and different that's a pretty critical part of it. So both part of what we can do to help a founder and why most people are not qualified to even interview candidates. I've seen such bad specs for what a company needs. Most of the time they're wrong on what a company needs to hire.
Well, you have a great example in marketing specifically where you talk a lot about like the zero to end marketing versus like I don't know if you want to amplify that.
For example, most startups are trying to create a brand. If you've been marketing at Cisco, you know nothing about creating a brand. You know how to incrementally sustain a brand. That's a very different skill set.
I was going to say something even worse than that, but yeah.
You know how to like make this quarter's number look a certain way. For saying if you're at Cisco more than 10 years, you're not qualified for a real job in the entrepreneurial world.
Yeah. We don't specifically Yeah. It's hard. They're just so different.
Trying to figure out like what's the dimension that leads to success for what the startup needs and then how do you find that trait or that proven ability and make sure there's a Venn diagram overlap there which is diagnosis and then it's like a...
SaaS. And you know this is the kind of place where venture firms are pretty different. We'll agree if somebody can advise somebody on marketing but if you look at a spec a board will put out it'll be cookie cutter their ex-business to get somebody from X related businesses. It's just a terrible idea.
It's actually a source of a lot of like management mistakes which is like it has to like look good on LinkedIn for the board and that's a disaster thing ever.
And it's really hard if you're like a young founder to like stand up to that.
This is this good adviser board member sometimes just giving the founder confidence.
Permission to trust their own gut.
You're not wrong. Just saying that when they're getting a lot of pressure from somewhere else like especially the first time founder just saying like no you're probably more likely right actually and then all their instincts kick in and they have enough confidence to just say no.
Outside of this idea of like exceptionalism and like finding this dimension of special like you know basically what you're saying is like if somebody's like B+ at everything that's not a good investment for you.
Usually an A+ incomplete. I like the term incomplete.
Incomplete A+ is really a really good formulation. The rate of growth is hard to tell in your first meeting. That is one of the hardest things because you have one dot, you know geometry is like infinite number of lines to one dot.
What do you do about that?
So you need to go if you know someone over time like reality is so the easiest let me interrupt with my favorite example for YC founders. The most important question I can ask the partner who's working with the company is how much have they learned in the last three months. Three months is enough to tell if they have a high learning rate or not.
Totally. So I guess in a fast-moving process all you can do is basically try to get a data point from the past.
Yeah. And then once in a while you can try to get data points from external people but most people you know have the wrong prism. They don't unless you ask the question perfectly and unless you can really retrain their eyes it doesn't help. But you know there's other ways like to say imagine you were in this business that you're not familiar with. How would you go about learning X or Y?
Yeah. Even see how they would start putting them out of context.
Yeah. And having them think through very easy to tell. One of my favorite questions is it doesn't matter whether they're doing a startup or not. Let's say they're candidate for a marketing job. If I gave you a seed amount of funding to investigate three ideas, which three would you pick? How would you go about evaluating them over the next 6 months?
It's a pretty simple test. You can tell a lot about a person how they just based on how they answer that question.
Yeah, that's good. Are there any things that a founder can't be completely deficient in?
How do you figure that one out?
Mostly through references. Even on that point, a lot of people that seem not so friendly are actually very ethical and like I've noticed that a lot of the like highly disagreeable, you know, intense founders actually have a very strong moral compass.
Yes, that is absolutely true because they believe in their principles.
And it like is the source of both.
Well, you've seen this in the valley. We were talking about this earlier. People have changed their political affiliation at a whim, not stayed with what they really believe in.
Yep. We're definitely coming back to politics in a little bit. I have a lot there. Is there anything around like ability to like recruit?
Anything around like ability to recruit is a very important dimension. Can you envision this person? It sounds like they got to hire thousand people at some point. Yeah. But can they hire the first 10 is like really critical because those people are going to replicate themselves. You know, Patrick Collison talks about this at length, like your first 10 are going to multiply by 10.
Because you could imagine somebody who's really exceptional in some dimension, but you just don't think they could recruit well, right? But then the question is, can they parlay whatever unique assets they have into convincing people to work with them? And sometimes they can actually, even if they're very uneven, it's like, oh my god, like they can still or you can help them. You can help them communicate like why is this ambition worth chasing? What kind of people do you want? But their energy or their special secret sauce like comes through. Like let's say I set you up to interview with one of these great founders. I think you would pick up on this person's kind of unique even if you couldn't articulate the exact reason.
Yeah. You just come out feeling that way.
You come out feeling like wow that was interesting at a minimum that was interesting.
Yeah. I mean one of the things I often think about is like somebody who is good at selling anybody is kind of on some level good at selling everybody around. Like it's the same person who can convince candidates and investors and customers and kind of all of it. Like it all kind of does bundle together.
Yeah, you definitely have to be able to tell a story, right? Like at the end of the day, you have to convince people like you haven't proven almost anything usually in the beginning, right? And you've got to convince people to come along on the journey with you. Those are investors, early beta, alpha customers, employees. You have to retain your employees in a hot market. Like you're doing some version of that constantly.
When you look back at like a bunch of like the greatest investments over the last, let's say, 15 years to go back like an Airbnb or you know, whatever. There's like a bunch of companies that were like not hot early and like everybody passed. Is that still the case, do you think? Or do you think that it has become more like has the consensus become more accurate or is it still the case that like it's random signal?
I don't think it's random at all. By the way, go ahead.
I mean, for example, like let's talk about like Airbnb. To me, it was obvious. 3 minutes into Brian's monologue, I was like, 'This is the coolest thing since YouTube.' Literally told him this. Told him exactly why. It was so obvious. I needed to meet him.
Yeah. And I didn't like the Arab bed and breakfast name that they was using at the time. So I kept deferring the meeting which was a very costly decision for me. Yeah. But at the end of the day, if you met Brian for 3 minutes, there was no way of missing this. This team was very special. And he was able to convey a couple three key things he said in the 3 minutes that I was like, 'Oh my god, this is really, really amazing.'
But you saw it, but most people didn't.
Yeah, but I'm saying it's not random. Like or like you saw OpenAI, like some company we all know. The key investment decision literally like if you read our memo which he sent to the LPs because it was so much of an outlier at the time was this outside Google and DeepMind specifically this was the only critical density of research grade people that could possibly pull off AI that was the investment hypothesis. Given all the other stuff like non it was a nonprofit, you know there was no product plan, no revenue plan, just this AI capability. It's the only time in the history 20-year history of Coastal Ventures. We sent an apology letter to our LPs when we made the investment because it was twice the largest investment we'd ever initial investment we'd ever made. We sent an apology letter. I know it makes no sense, but we're doing it anyway, not asking for permission. It's really that letter is now part of our fundraising deck.
And then here's a good example too of Reddit Grove. Like it did help a lot that David, me and Venode all knew Sam for a long time for a sustained period of time. So you could see certain lines there and the critical density of talent that he assembled plus certain traits about Sam specifically led to that investment.
Do you think that as time has gone on and like more people are in tech and there's more founders and more investors, do you think that there's any increasing not from, you know, people who can really see it, but from the average, you know, reception to investors? Do you think that the consensus hot deal is becoming any more or less likely over time? You know, I'm kind...
You think it's still the case that like these hot seeds are no better than the non-consensus seeds?
Personal opinion I agree totally because we're talking about like Rocket Lab was one of the best investments anywhere. No. No. I mean I don't think they would have raised money from anybody like well it's worth 40 billion now but we bought third of the company for $5 million.
And because nobody wanted to invest in space.
Commonwealth Fusion probably.
Or Commonwealth Fusion for fusion or even OpenAI. Right? It wasn't a we were the only venture investor in 2018 that committed because it didn't make sense. I think at the seed level consensus hot bets are generally around people not around the idea.
Yeah. It's like you know if you have two people who left you know pick your super hot current you know two people leave Cursor you know if like an engineer and a designer leave Cursor tomorrow like what's that going to go at a lot? But a seed investment around let's say undiscovered people. Yeah. I think the consensus ones aren't going to outperform the outliers at all.
Maybe just talking about like themes that you guys are interested in. I know that you're mostly focused on people, but you know, you also care a lot about markets and technologies. Maybe to like start with AI and we can go outside of AI. So obviously AI is like in the midst of playing out. I don't know what inning it's in, but it's one of the early ones probably. you know, like I think there have been like a lot of changes to like what you know, the labs say that they're focused on and maybe like the types of companies that are getting funded is adjusting a little bit. If you sort of like just like kind of track every 6 months or so, I'm curious what you guys see as the lay of the land for like outside the labs where you think most of the opportunity lives, what you're most interested in, what you think is going to be like a big deal in the next year or two.
It's that's such a broad surface.
I think I was counting there's 30-some startups in our portfolio that are building an AI worker of some sort. An AI oncologist, an AI mental health therapist, an AI chip designer, an AI structural engineer. As many professions there as there are there's that many opportunities basically to fully do the work.
Do the work. Yeah. So one things we decided a couple of years ago probably three years ago we wouldn't do a lot of co-pilots. Co-pilot had just come out and we said co-pilots humans get in the way. Let's just do the work. So we love really people doing the work as opposed to helping a human do the work. Now there's exceptions to that but mostly that's true.
Mhm. Um that's a big category. So we haven't invested in any competitor to OpenAI obviously and we should come back and talk about it. We are fiercely loyal to our companies. Uh we can talk about loyalty.
Well, OpenAI, I think I was the very first one when Sam got fired to come out and say we'll fund Sam for whatever he wants to do next.
Yeah. Is the loyalty does that stem from sort of like a business decision or idea or is it stem from just like a this is how it ought to be like a more ethics kind of thing.
This is how it should be. It's about ethics and if I disagree with entrepreneur then my job is to sit down tell them why and agree that we agree or disagree.
Before taking the right position publicly. Yeah. If we believe on the principles, like for the point, if you have principles and you believe you're on the right side, then we're willing to use our brand capital, audience to help.
Yeah. But along those lines, the AI question you were asking, we've invested a bunch in. Are there other approaches than transformer models that make sense? And we probably have four or five different efforts that are, they don't have to replace transformer models, but they're different because I think the big labs are doing transformer models really well and then doing some other things.
So what else do you think is promising?
