How do you know if a company is actually building momentum, or just looking polished on the surface?
In this episode of Not Another CEO Podcast, David sits down with Jeff Morris Jr., Founder and General Partner at Chapter One, to break down what truly matters at the earliest stages of building a company. Jeff invests at pre-seed and seed, where ambiguity is high, data is limited, and speed of learning is often the only real signal. Before becoming an investor, Jeff was an early product leader at Tinder, helping scale the product to hundreds of millions of users, an experience that deeply shapes how he evaluates founders today.
Jeff shares how he thinks about product velocity, founder self-awareness, team dynamics, and why the individual partner matters far more than the firm logo. This conversation is a masterclass for CEOs building from zero to one and choosing who they want in the trenches with them.
Takeaways:
Product Velocity Matters: Jeff emphasizes the importance of product velocity, especially in the early stages of a startup. He explains that founders need to run numerous experiments to achieve product-market fit, often partnering with technical leaders to accelerate this process.
Building the Right Team: According to Jeff, a strong indication of a founder’s potential is their ability to attract a talented team. He believes that successful founders often draw in colleagues from their previous ventures, creating a “band” that’s been together through various challenges.
The Sales Dilemma: Founders with technical expertise often lack strong sales skills. Jeff looks for self-awareness in founders, assessing if they can identify their weaknesses and augment them with the right partners or co-founders.
The Importance of Early Impressions: First impressions are crucial in the VC world. Jeff and David both agree that initial meetings often determine whether an investor leans in. Founders should craft a compelling story and use the first few minutes to capture interest.
Aligning with the Right Investor: For Jeff, investing is akin to a decade-long partnership. He advises founders to seek investors who align with their vision and are genuinely interested in their success, rather than just providing capital.
Preparation and Self-Awareness: Founders need to be brutally honest about their strengths and weaknesses. Jeff advises preparing thoroughly before meeting investors and leveraging one’s unique strengths while addressing weaknesses to form a complete leadership package.
Quote of the Show:
“We talk a lot about product velocity being the most critical metric we look for.” - Jeff Morris Jr.
Links:
Website: https://chapterone.com/
Ways to Tune In:
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Spotify:
Apple Podcasts:
Transistor: https://podcast.notanotherceo.com/
#NotAnotherCEO #BusinessSuccess #ChapterOne
Chapters:
00:00 Intro
01:10 Key Metrics for Early-Stage Investments
02:37 Assessing Founders and Teams
07:51 The Importance of Self-Awareness in Founders
10:38 The Founder-Investor Relationship
14:34 Navigating the Venture Capital Landscape
19:12 The Dynamics of Fundraising
27:36 The Current Investment Climate
41:44 Jeff Morris, Jr.’s Journey to Venture Capital
44:39 Outro
Transcript:
Jeff: [00:00:00] The market size question I think is the biggest thing as a founder, you need. You know, within like the bounds of what’s realistic, be able to articulate what like how big can this company get if things go well.
David: Today’s guest is Jeff Morris, Jr. The founder and general partner of Chapter one. is one of the most forward thinking investors in the world of consumer crypto and ai. Before starting chapter one, he was the VP of product, one of the earliest product leaders at Tinder, where he helped scale the company to hundreds [00:01:00] of millions of users. At Chapter One, Jeff has built an impressive portfolio that includes companies like Super Base, mercury Superhuman, and many more. firm is known for blending deep product expertise, expertise with high conviction, early stage investing. Please welcome Jeff Morris, Jr.
Jeff: Great to be here. I want that to be like my intro, uh, music on every single call I do.
David: Thank you. Um, First question, right outta the gate. What is the one thing, the one thing that you look for in companies and founders that you invest in?
Jeff: Yeah, we talk a lot about product velocity being the most critical metric we look for, and the insight there is we generally invest at the pre-seed and seed stages. And from our point of view, the iterations and number of experiments you need to run to find product market fit. Is pretty intense. Like you have to, you know, say you raise a couple million dollars, maybe you have, you know, like [00:02:00] three or four really big swings at finding product market fit before you go and raise a, bigger round.
So we think the best way to do that’s to partner with really talented, mostly technical leaders, so people who have design product engineering backgrounds to help them. Get there faster. And I think the amount of companies we’ve seen who come, and pitch us with it’s basically an insight, like a hypothesis on a set of experiments they wanna run, and then.
It takes them, you know, six months, 12 months to, really figure things out. we just see that happen over and over again. So we encourage our founders to, um, not seek perfection in the early days and to, to, you know, get a product out there, uh, and are really trying to figure out what, what’s working and then, um, uh, hopefully find product market fit.
David: How do you assess that? Product velocity. I, I actually, I’m pretty open [00:03:00] about it. Like I don’t think I’m very good at that. Really early, like the, the pre-product market fit. Once it’s got product market fit, I feel really good scaling and operating. But in that pre-product market fit, how do you feel that when you’re first meeting with a founder, CEO, how do you feel that, that they have, that the ability for that product velocity that you’re talking about?
Jeff: Yeah, I think we have the benefit of. Being former product people, engineers, data scientists. So in our careers we’ve interviewed, we’ve kind of, you know, like well over a thousand candidates for these types of roles. So the, you know, I think a lot of, a lot of the same questions we would ask when we were interviewing people.
And, um, you know, you can ask so many specific questions around, um, how someone manages a roadmap, how they. Prioritize and sequence anything they’re building. And then, um, you know, luckily we live in a digital age, digital age where there’s so [00:04:00] many ways through online research to figure out how people have shipped things in the past.
Like, um, you know, going to, to things like GitHub, um, seeing what they’re doing on online. Are they. Actively sharing a lot of their research or findings on things like Twitter, substack. Um, and then can these people really, are they within a network or have they built a, a network of people who really want to build with them?
So a lot of the,
David: Hmm.
Jeff: You know, a lot of the best founders we’ve worked with have, you know, it’s like this, like crew of people that they’ve worked with over the course of their career. And so it’s almost like a. I like to like have, uh, uh, like music’s always a really good analogy for tech, but it’s like the band is, is, has been together for a long time, right?
They’ve, maybe they’ve worked at a company together on the same, you know, team within the, the, the company or they’ve had a startup that’s either [00:05:00] worked or failed before. But, um, that, that relationship I think creates a, uh, a shortcut to. Again, product philosophy where if you’ve worked with somebody over the course of many years, you can, um, build things much faster.
David: And yet when you say that actually that that’s a in, I have noticed that the founders that I wanna work with, invest in or work with or advise a lot of those people, they have. wanting to come work for, for them, with them. Like they, they, they’re drawing that team, whether from their former company that they started or maybe they were head of sales somewhere and engineering person wants to come work for them.
Like that draw a, it’s, I don’t think I’ve actually had that conversation yet on this podcast with an investor and it got me, it’s getting me thinking of like, that’s a really good indication. That this is someone, because if they don’t have anyone that wants to come work with them and they’ve been at a [00:06:00] couple companies and in a couple jobs, that’s a little bit make me nervous.
Jeff: Yeah, I think, uh, like the most famous example is obviously Elon and like the cult of Elon. Um, and these people, everyone always talks about how Elon runs like 10 companies. Well, he has people who have followed him through his career to, those companies. And so he has basically these like lieutenants who are able to execute his vision at a high level.
But the. Yeah, the best founders, like if you go to any company and ask what, like who are the top engineers? And, like people wanna work for those types of people. And they’ve, when you spin out of an open AI or something similar, you normally see, these clusters of people building companies together for, you know, many, many years.
And so, I think it’s like the first test, right? It’s like, can you raise money and can you [00:07:00] hire a world-class team? And if you can’t raise money, obviously you can’t hire the team. But these are both, both I think like signals that a founder can sell a vision, communicate a story, and will attract both people and capital over, you know, many, many years.
David: Hmm. Um, another thing you said in there was you like these technical product minded types of founders. Again, that’s obviously your roots and what you’re, you know, what you’re passionate about. How do you deal with and, and, um. maybe you don’t, because maybe it’s different kind of companies, but how do you deal with the fact that many of those people traditionally, um, I don’t want to too much or, or generalize too much, but they don’t have the sales skills per se. Um, usually, you know, usually that engineering person, if they’re the genius engineer product person, they don’t usually have those, those sales skills, like how do you think about that? Is, is your view on that? Well, we’re gonna, they’re gonna build a great [00:08:00] product and they’ll be able to hire someone to run sales.
Is it that they have to have a co-founder who’s got that side of the brain? Like, how do you think about that?
Jeff: Yeah, I think the biggest thing we look for is just. Self-awareness. And do they, if there’s a founder who’s a technical genius, genius and can’t sell, like do they have the, um, ability to augment that gap and do they recognize that weakness? Right. Um. Normally on the founding team. So it’s not like, you know, go hire a VP of sales in, you know, two years post product market fit.
I do think increasingly the types of founders who are able to win and really be successful are great at both. And so, um, you’ll still have a VP of sales who comes in and. Does enterprise deals, but the, this all started to kind of hopping around like when [00:09:00] product like growth and, um, like the whole PLG motion became a thing, most founders, how to teach themselves how to market in a more bottoms up way, which normally involved, um, a combination of like online marketing.
So it could be. You know, like the founder’s just really, um, a force of nature on things like Twitter or, um, or they’re able to build enough community, like a big enough community where the community can do that for them. And so,
David: Hmm.
Jeff: Like super base is a great example where Paul isn’t, um, is like very much a technical founder, but he was able to through, um, you know, things like being a part of yc, like really knowing how to, how to speak to developers through things like Hacker is initially, um.
Uh, [00:10:00] how to build enough community where people want to host hundreds of meetups a year and throughout the world that super base doesn’t, um, have to, to scale themselves. Like these are all things that people who build software, I think, know how to create leverage. And, um, if you can figure out, you know, distribution channels that you can, that compound over time where you can actually.
Build enough traction to get to the point where you need to hire a VP of sales, that works too. But, um, I tend to be like really drawn to technical leaders. They don’t need to be able to, to sell, but they have, um, enough of a voice and vision for what they wanna do, that that just comes naturally to them.
‘cause they share about that, you know, they share that journey online in a, uh, in a really compelling way.
David: Um, how long between meeting a foun, you know, you come in, first time you’re meeting a [00:11:00] founder, how long between that and feeling like you want to invest? Now, obviously you’re not gonna invest, you know, but, but when’s that first thing go off in your head? Like, I, I like this person. I wanna lean in.
Jeff: I think the lean in moment happens always. Really quickly on the first call, I know you had Hil on here who’s a, a buddy, um, from footwork and he had said like, the first five minutes of every call is so critical. I actually agree. I think our, our brains maybe because of like short form video or, um, our attention spans are very short.
You have. A couple minutes to tell your story, get people really excited. So there’s like a, a, you know, like traditional storytelling. You need a hook, right? You need a hook that gets, um, people to pay attention. Then I think it is easy though. You can get really excited on a first call and then get off the call and you have a full calendar and, um, you can wake up the next day and, and.[00:12:00]
Come back to reality because most, most great founders are really like, they’re, they have that like it factor where they’re, you know, able to create, um, a sense of, of inevitability where like, this is gonna happen. I’m the one who’s gonna build this. And, um, they have that like charisma and force of nature personality.
And so there are, there are moments where those first five minutes go really well, and then you kind of, you know. Peel back different layers of the company and, and things start to, to kind of become less interesting. Um, I would say that it’s true like any sales process and fundraising really is sales as, as you know, you have to qualify your investors.
And there are times when I meet a great founder, he is building a really interesting company and it doesn’t align with my thesis or what I’m personally. Excited about. So like the, [00:13:00] the past on that investment’s actually like pretty straightforward. It’s like, hey, this actually isn’t something, it might, this is a great idea.
You’re a great founder, but this isn’t just something, it’s not something that I’m passionate about working on together. Right. Um, and so I’ve started to really value that as my careers progress is, um, viewing the founder investor relationship as a, as a partnership. And then. Um, wanting to, like, wanting to only lean in when I can see myself intellectually and, um, uh, like really wanting to spend time on a problem because these things, you know, like the founder investor relationship that, um, ship lost now longer than ever.
It’s like a 10. At least 10 years when things go well. Um, and so if you think about 10 years, that’s a, a long time to, to wanna work on something.
David: Yeah, I think that that is a, [00:14:00] that statement right there is, I don’t that we spend enough time talking about. That length of time. That length of time, I mean a decade of anyone’s life, of their career. I mean, it’s such a big portion. mean, a quarter of, you know, 20% of whatever you’re gonna spend your career on and. As much as it is for the founder. And of course they only have one company and you have multiple, but you only get so many slots, like so many bets. And I think that that may not be fully understood by the founder of like, yeah, they hated my idea, or they think or they’re stupid. They don’t get what versus no, it’s just this particular person in their career is gonna spend, you know, 10 years with you on the journey and, and they really only want to do that for stuff that they can get really excited about.
Jeff: Yeah, and I think it comes back to just the, like the idea of a partnership, right? And so if you, there are plenty of VCs who will [00:15:00] give a founder capital and you’ll never hear from ‘em again. And I actually think we over we’re overly critical of those investors because like for some founders, that’s actually not a bad setup.
You have. Investor who basically just says, go build your company. Um, and so just, but as you kind of like become more of a lead investor, co-lead investor, um, I think founders are partnering with you to, to help them in some way build the company. And so it’s, um, I think on both sides, this is why I have a hard time investing in like, you know, 48 hour.
These like hot rounds where things happen really quickly because one, I think the founders are often doing themselves a disservice where they don’t, you know, get to know the investor they’re partnering with. And then we don’t get to spend time with the founding team to, to have a good idea of like, Hey, [00:16:00] are we gonna really love working together?
And, um, can we build like enough rapport and, and trust and a streamlined. Period of time. It’s hard to do if it’s just, you know, 30 minutes on a Zoom call. So,
David: Hmm.
Jeff: But you see that happen a lot. Like, you know, I see that happen quite a bit where it’s a,
David: Really?
Jeff: Maybe not 30 minutes, but you know, like, uh. A two hour, two hours in total of, of, of meeting with somebody.
Is that enough time or, um, like would you rather, especially for your lead investor or co-leads, like, I think it’s really important to get to know them where they’re in their careers, like what their priorities are. Are they like playing, playing long-term games or short-term games? Um, because there’s a lot of incentives in the venture industry that create.
Different dynamics which can impact the the founder.
David: Hmm. I don’t know that a lot of [00:17:00] founders know to ask, ask those questions or even what questions to ask. You know, like, I, I think, um, because you’re right, I mean, I, I’ve seen companies be orphaned, you know, by. By investors who were at the end of their career or at the beginning of their career, and that they weren’t gonna stay at that firm for a long time.
I mean, I’ve seen that and it can create all kinds of challenges, but I don’t even know if founders know to ask those que, especially
Jeff: Yeah,
I think it’s kind of hard to ask ‘cause you’re like, you know, trying to,
David: Yeah, exactly.
Jeff: You’re trying to close an investment and, and build a relationship and you’re like, Hey, like, like how are you doing your career? Um. There are ways to figure it out. Like, you know, are you working at the partner who’s been at a firm for, you know, five years?
Have they have any, any, any of their investments worked? Um, are they like, you know, I talked about this, actually, I wrote a, a Twitter thread, but it was called VC [00:18:00] Musical Chairs, and the basic idea was that. Venture partnerships are often less stable than the companies themselves. Um, so if you’re partnering with a, a venture firm and you have that investor on your board or someone who’s leading the investment, they’re now at a, a, like, increasingly more, more, uh, more common.
They’re, they’re leaving the firm in the first couple years after the investment. So then you’ve mentioned like the orphan company idea. That’s a tough place to be in as a, as a founder. And so I think we, you know, we encourage people to partner with firms and investors at those firms who they can rely upon to be at those firms for, you know, many, many years.
And, and that’s, it’s tough to, it’s tough to do, but I think it actually, it works in favor of some of the emerging firms where it’s like, Hey, um. [00:19:00] Jeff or Hil, like who founded their firms, probably aren’t gonna leave their firms anytime soon. So, so you can kind of rely on on that. And then if you get to like a, you know, like a GP at a multi, multi-stage firm who’s really been there for a long time and has tenured, um, I think they have enough experience where you can ask them these types of questions and they’re not gonna take it personally.
David: Yeah. When, when you, when you start working with companies, um. Again, you, just to say it again, you’re very early pre-seed, seed, you know, these product technology companies. How do you, specifically you, like, how do you get involved with those companies? are you, like in it with them, in the weeds?
Are you talking to them once a month, once a quarter? Like how, do you, what does that look like, that engagement?
Jeff: Yeah, we like to be, very responsive to what the [00:20:00] founding team needs and what their working style is. So, initially it’s pretty front loaded where we’ll have, you know, likely bi-weekly meetings where we’re talking about product strategy, hiring, go to market, and trying to figure out how we can accelerate any of those areas.
The Reality is when founders end up raising a series A or a series B, they kind of grow up and I like to think of them, their worlds like expand quite a bit. So if you think of like the seed investors being, that first relationship, I, think you, can graduate the biweekly or even monthly cadence where it becomes you know, you’re more going to your board for big.
Those, like really big questions. We’ll sit on boards sometimes, but it’s not something we, require. And so I think our [00:21:00] job is to get founders to traction and to help them fundraise and then once they end up doing that, we’re totally cool with them needing less of our time and spending less time with those companies.
Because the last thing you want is a VC who’s. Distracting you and taking away time or, the worst thing you can have is a VC who’s telling you what to build and they don’t have any idea. they don’t know your company very well. And so you can get really bad advice across product, go to market like, and that happens often too.
So, but I think, I think the best VCs are very responsive to the. Companies and what they need. And you have almost like this spidey sense of, of when to lean in and help, um, in both periods of, uh, you know, of success, but also when companies are struggling and then when to, you know, lean out and let them [00:22:00] do their thing and build.
David: Yeah, I think, I think, um, it’s interesting when you talk about the stages. It definitely, again, I, the reason I’m doing this podcast is because I feel like I didn’t all of these things going through the journey, and I didn’t un, I didn’t understand that I could ask those questions to investors as I was going through the journey.
I didn’t understand that the stages, I mean, you understand, of course they’re different, but you don’t really fully get kind of the relationship. With that pre-seed investor is not really the relationship you’re gonna have with the A, the B, you know, the, the late stage growth investor. Like, those, those changes evolve.
You know, those, those relationships evolve and, um, I think it, it all goes back to what I’m hearing and what I, what I want people to hear when they’re listening to this is like, you have to think about what is it that you want, what is it that you’re looking for, what’s gonna help you be successful? And then going and, and finding that because. Different investors are, like you said, we don’t take, we [00:23:00] can take board seats, but we don’t need to take board seats. Some people need to take board seats, some people, you know. And so it’s, it’s understanding all those dynamics, um, you because you’re getting into a marriage. I mean,
Jeff: Yeah.
David: You’re, you’re getting into a marriage in many ways.
Jeff: the first time I felt this way, we raised our second fund in 2021 and the
fund was like two x oversubscribed. And so it was the first time in my life where I had like, I felt like a, uh, how a founder must feel when you have,
when you’re. Trying to, pick different partners based on what can actually help you succeed as a firm rather than just picking them because you need capital.
Um, and it was really, it was a really interesting process, but the, you’re trying to build a roster of people and a team of people who can help you win, right? And so, um. Everybody can have a different reason. Like there might be someone who’s just, Hey, that firm has, you know, [00:24:00] a really big fund.
Therefore, they can help you sustain through different market cycles, and so they’re like the, capital partner. Then you have like the, you know, day-to-day in the weeds, somebody who wants to help you be your first phone call on things. Aren’t going well like that, like high trust partner. You have those people and then you, you know, so you, can kind of like think about your cap table as almost being like an extension of your team and being really specific with what you need.
And again, it comes down to self-awareness. So if you’re the founder who doesn’t know how to sell, but you’re technically great, maybe you wanna partner with a VC who. Brings a, sales background to the table, like you’re trying to figure this out. I think it starts though with being like brutally self-aware with yourself as to how, uh, like where your, you know, where those gaps are and where those weaknesses are, so you can then, you [00:25:00] know, like really make sure that you fill those gaps with, with your partners.
David: And there’s something else you said there that I wanna, um, I’ve been thinking a lot about this recently is that it’s not just which firm. Because there’s a lot of big brand name firms with not such good investor, like, or, not, not good, but let’s just say not a good fit for whatever that company is looking for.
So it’s really, the firm matters. I kind of more and more believe the firm matters, especially if you want them to be your financial
partner in the Multi-stage and everything else. But the partner really, the partner is really. Who matters the most? I mean, that’s how I feel like that’s, that’s how I think about, it’s like I could work with a great firm and have a terrible partner.
Um, And when you’re thinking about the composition of the board, it’s not the firms that are around the table. It’s, it’s not the firm that you’re gonna call, it’s the partner and it’s that partner. Are they gonna, are they someone who’s gonna stand up for you [00:26:00] and back you in the tough times? Like it comes down to the partner, I think, more than it does the firm.
Jeff: Definitely. Yeah. I, I like to joke that like, um, venture firms often look like, like real estate companies. Like you have like an email address, a logo, a website, and then you have people, right? And so like, what does picking a brand name firm matter mostly for market signal. so it can make your life easier with.
fundraising and recruiting. but the real, like, the real thing that matters is the person who you’re partnering with because they’re the person who is gonna go back to their IC and give updates. and they’re the person who’s going to be your first phone call. And so. I’ve actually, I’ve, never thought about how it must feel though.
If you get like a, a tier one term sheet from the partner in the firm who, who you actually don’t wanna work with.
and so, [00:27:00] ‘cause it’s, I’ve actually seen this happen where it’s like, Hey, I wanna take your term sheet, but I really wanna work with this partner. And if you have enough leverage that can happen.
It’s a little awkward, obviously, but, um, yeah, I think, I think end of the day, like I’d probably choose. The lesser known firm, not the, they can’t be like a totally unknown firm, but I would optimize for, for people in 99% of situations. Um, they’re probably three or four firms where you could say, Hey, just take them because like, know,
Sequoia, uh, I don’t know.
Benchmark or like what, whatever, like there’s, a few of those firms where it’s like, hey, um, you should take that seriously for, um, you know, because of the brand, but it falls off pretty quickly after that.
David: Yeah. What, what do you think people, founders do not [00:28:00] understand or misunderstand about being an investor?
Jeff: Yeah, I think, um. I think the biggest thing is like the investor has their own set of priorities that, um, I’ve mentioned like the, the term sheet, like the, the re like the rejection on the investment can happen for dozens of different reasons and so that have very little to do with what you’re building.
And so I think the biggest thing is that investors have, um. Very specific interests. They have team dynamics that influence everything they do every single day. And so, um, and then, you know, I, I think on the whole, there’s a lot of like anti VC rhetoric on Twitter. And there are like any industry people who are just terrible at their job and, [00:29:00] um.
You know, like negative parts of the ecosystem. But I think the vast majority of VCs want to be actually like a positive influence on the companies they invest in and are wake up and trying to be, you know, like great at their job. Um, and so, yeah, I, I think, I think, um, I think it’s important to know that, that.
Do your diligence, make sure that you’re not setting up to partner with a total asshole. But, um, most, most VCs like really do want to help and, um, and, and, and are on the side of the company. Otherwise, why would they be partnering with you?
David: Yeah. Um,
Jeff: I.
David: The, the part about things going on at the firm. That people don’t, you know, uh uh, you get a rejection. I’ve had this happen. I, I literally did a pitch one time where I got all the way to the partner meeting and I was told like, you’re gonna go in there. [00:30:00] It’s all set up. You know, I went in prepared, I was feeling good, did my pitch, and I walked out and one particular partner who was not the partner I was gonna work with was drilling me, drilling me with questions. Questions I had never actually been asked in all my fundraising, and they were just drilling me. And I walked out of the room and the partner who had brought me in, who told me it was all ready to go, calls me, says, we can’t do the deal. Because he did a deal with another company 10 years ago that actually had a similar business model, and they lost everything in that deal.
And basically, therefore they’re not gonna, we’re we as a group cannot do it. And I thought it was bullshit. I, I literally, and I saw the guy years later, he was no longer at the firm and he’s like, no, Dave. That was like, really? that guy vetoed it and said, we will not do this. And he was one of the gps and you know, and you don’t really, first of all, you don’t a lot of times get that feedback, but then, you know, to your point, has nothing to do with, you know.
Was it a good idea? I mean, I think generally, yes. Was it a good idea for that [00:31:00] firm because of that guy’s experience 10 years prior? No. You know.
Jeff: Yeah, I, I think this is what, as you’re going through a fundraise, it’s like the impossible internal dynamics of a venture firm that you as a founder probably can’t figure out. Um, and so, but if you’re working with a non-G during the diligence period, there is a, a real risk that you get to that final partner meeting
David: Hmm.
Jeff: And.
Those partners haven’t been brought along for the ride on the early conversations and just quickly becomes a a no. Um, and so I think the, where things can become, I think like easier for the founder would be if that junior partner has like a GP somewhere in those earlier conversations that helps kind of like.
David: Kind of a sponsor, um, [00:32:00] like,
Jeff: Y
Y Yeah. Just because you get to IC and it, um, it’s not as much of a junior investor pitching the IC situation. Like those partners have all, in some way been a part of the, um, diligence period previously. Um, that’s hard. Again, I’m like giving advice, but I realize it’s hard as a founder to say like, Hey, you know, principal or vp, like.
Can I meet a GP before you take this ee?
David: Right.
Jeff: But they’re just things to look for so you can plan your fundraise. So if you’re thinking in your head, Hey, we’re almost done fundraising, but you haven’t met a single gp, then um, you’re probably further away than you think from getting that. Yes.
David: Um, so, you know, before you mentioned about, uh, the 48 hour kind of deals getting done, and I, I have seen some, you know, I, I don’t, I’m not obviously an investor, a professional investor, but I have seen some of those. Do you, um. [00:33:00] Is that unique to this time? Like, is that unique to this market that we’re in right now and the, the how hot it is and maybe a bubble, maybe not, you know, depending on who you ask, but like, is that where that is or is that always been the case?
Like in your career as you’ve, as you’ve been an investor? Like, is this always the case? You know,
Jeff: Yeah, I started investing in 20 16 17. Really seriously. And I would say this has always been the case. Like there’s a cohort of companies that gets really hot and it creates enough of a, uh, competitive dynamic where rounds happen quickly. And, um, the one difference today is the. Round sizes and dollar amounts being deployed into those rounds is far greater than previous cycles.
So, um, that’s where you start to, to scratch your head and say like, you know, is this a bubble? Is this [00:34:00] not? Um, I think it’s, I think it’s just funds are bigger now. Capital can be used as a, um, you know, almost a weapon to win around. And so people come in with much, there’s always like one, uh, firm who’s crazier than the others, right?
And, um, and so in every financing round, like it’s hot. Like there’s one firm that for whatever reason they have, like they have to win the steel, and then that becomes the. The round size right. That, that, that the, that everything gets anchored on. So,
David: What’s funny about this is I feel like in the two years ago or whatever it was when everything with AI and people like, we’re just gonna have one human being and a thousand agents, people won’t need to raise any money. There’s not gonna be VCs anymore. Everyone’s gonna boo. I mean, this is what I mean.
There was,
Jeff: yeah.
David: Kind of talk track that was, that I was hearing people we’re not, never bootstrap everything. Now AI does all the work and all the employees, and now the rounds are [00:35:00] bigger they were before. So it’s like I, I don’t know. I mean, it does feel like there’s just, there’s so much capital that it’s looking for, for a home, at least in what I see in like, you see companies where it’s like, yeah, will the company be worth 10 billion when they’re doing a hundred million of a RR?
Uh, probably not, but. We can add that logo to our website and we can talk about the fact that we’re in the hottest AI company in the blah space. And you know, and I, I did not appreciate that actually as a founder. I definitely, only now that I’ve taken a step back and kind of observe from afar when I’m not in the weeds on my own business, do you start to understand that there are other dynamics back?
It’s back to what you said before, dynamics, you cannot. Understand. Like you cannot literally comprehend why would they be doing that round at that price, like, and if you’re a competitor of one of those companies and you see that, you’re like, that’s it, we’re going outta business. They just raised, you know, and you’re like, they must be crushing it.
And then you find out they’re [00:36:00] only doing two X revenue, but they raise a 10 x valuation. You’re like, what the, like that feels like that dyna. And maybe it is more right this minute because of how fast everyone’s trying to deploy the capital.
Jeff: Yeah, I think there’s a general. If you’re missing out, that’s not, um, it’s more so like the categories now are becoming more obvious, and if you don’t have as a venture firm
David: Hmm.
Jeff: Exposure to one of the winners within those categories, you’re feeling like you missed out. Um, and so there’s a lot of, I think like venture firms trying to.
Find deals so they can say they didn’t miss this current cycle. I think it’s obviously not the best way to invest, but, um, so when you see like the 10th legal AI startup being funded or what, whatever it is, um, a lot of it comes down to like people needing exposure to key [00:37:00] categories, um, that they maybe haven’t had exposure to, but the, yeah, I think, I think the, uh.
I, I, I wanna make sure the listeners on this, uh, who people listen to this. I know not every founder is, uh, this isn’t your reality, right? Like, this isn’t, um.
David: For 99%, it’s not
Jeff: And so, so it’s like fun to, it’s fun to like riff on the craziness. But I also know there’s, um, a large number of founders who are building great companies.
Maybe they’re not the a, the vertical AI company. And I actually think right now those funders are having a, a pretty tough time in some situations. And so, um, I don’t want people listening to this. Podcast to be discouraged. If you’re not one of those companies, it doesn’t mean your company sucks. Like it’s, you know, it’s just, this is like the stage of the, the cycle we’re in where people want very [00:38:00] specific exposure to, primarily to ai.
And that’s creating a lot of, you know, I think like disadvantages for people who aren’t building those companies.
David: Mm-hmm. Yeah, I, I’m, I’ve talked to some founders with really good companies, really efficient, go to market, really nice growth, and they can’t raise because they’re not AI first. And, and they’ve told me, like, I literally, every meeting I go into, the person asks me, what’s the AI. Story and they say, oh, I use it internally for this and this and this, but our customers in this particular industry don’t even really want it in the product yet.
They’re not even adopting basic SaaS yet. So like, and the investors? Nope. Like if it doesn’t have that ai. You know, story, if it’s not so, I, I think actually you are, there’s many, I mean, you know, that, that’s the majority I think, that are dealing with, with that. Um, and, and I, I, I have this feeling like today, the, the, like literally the moment we’re in right now. [00:39:00] It also, it also, um, is a moment that plays to the strengths of the most. The founders that are the hypest
Jeff: Yeah.
David: In a bad way, but like the ones who can tell that huge story. This is literally gonna change the world. They may never get there, but the ones who can tell that story with a straight face, those people are the ones getting rewarded at this moment. Now the other founder who’s like in there and, and operating and paranoid that everything’s gonna go to shit. And you know, that person today, it’s not really the best market for that person, but when the market crashes, whenever that may be, then that person starts to thrive in the hypey one. You know, it’s like, it’s this interesting dynamic.
Also, the personalities of the founders that kind of thrive during different periods. Does, does that res, it’s the first time I’m kind of saying that out loud. Does that kind of.
Jeff: Yeah, I think the market size question is. Probably the biggest thing that VCs today are [00:40:00] looking for, and again, you can go back to the reason being the fund sizes are just so big now, and so, you know, we, we used to, as an industry look for like billion dollar outcomes now. It’s like, okay, I want a 10 billion outcome.
I want a $100 billion coming. Um, you know, you can even like stretch that to, I want, you know, something in the trillions, like, I want the next SpaceX or open AI and um, or whatever it might be. So, um, the market size question I think is the biggest thing. As a founder, you need You know, within like the.
bounds Of what’s realistic? Be able to articulate what, like how big can this company get if things go well and will as a seed investor be rewarded for the risk? We’re taking that early on because, um, fund sizes are just so big. It is, it is For someone like our, our firm, like [00:41:00] we’re, you know, our firms are sub $100 million, so we can still have a.
Great outcome with a a $1 billion, $2 billion exit. Which by the way, if you build a billion dollar company, like, holy crap, that’s amazing. Uh, uh, but for some reason, like the, that today isn’t seen as being like a huge outcome, if I’m just being totally honest.
David: Yeah. Yeah. It’s, it’s, I, I know exactly, I mean, This is the, this is the, and this is what I, I’ve been trying to tell founders like that our fundraising, I’m like, you have to tell that story. You have to tell the story that someone can squint and see that it’s a $10 billion company. Like if you don’t tell that story. It’s not that you can’t raise money, but it’s not gonna be from a traditional vc, you know, because that’s not the person looking for that return. You know? And, and just the statistics work out where they
Jeff: Yeah.
David: Um, and, um, outta curiosity, like, so you [00:42:00] were. I mean, you were in a company, you’re an operator, saw huge growth.
Like why, why did you become an investor? Like what, what drew you to this being the rest of your, I mean, I assume the rest of your career now, you know, it’s like, what, what, what, what, what drove you to this, to this place?
Jeff: Yeah, I think I had the benefit of being an investor while I was operating, so I had a. Uh, I was a scout for Index Ventures and fell in love with investing. Like the, you know, I have like, um, I love thinking about 10 different problems in a given day. And when you’re an operator, obviously, like you have many problems, but it’s usually within the same kind of general space.
Like you’re building a, a vertical AI company or a dating company or whatever it is, and you’re just, um, so I love the. Kind of the, the horizontal nature of venture as you see the world, um, [00:43:00] in, you know, short snippets, um, in really exciting ways where you’re meeting a founder who’s, you know, building a company in a space you’ve never dreamed over imaginative.
And you get to, to hear from them and, and hear their stories and, um. I also like, frankly, there’s, that’s like the, uh, soft reason. I, I also ran, I ran revenue at Tinder, um, which was a amazing job. Job. Like we, we became a top grossing app in the world. Um, and I think I became like a capitalist, um, in some way where I just like, I love, um.
I love winning. I love like the feeling of doing that through growth and revenue and I, I saw myself as being a great partner to help founders do that. And so there’s a, um, I’ve always, like my career’s been. I learned really [00:44:00] early on, if you don’t have a scoreboard in your job, it’s really hard to be great at your job and to have others recognize that you’re great.
And so I think, um, whether it’s working on a revenue team, working on a growth team, um, or investing like the scoreboard to me is really clear. And that comes back to, you know, can I deliver amongst my peers at the. Best returns of any seed fund. And if it’s not the best, it better be, um, amongst the best.
And if you, so I like that challenge too, which is, um, it’s funny. We’ll pitch like LPs and they’ll ask me like, my motivations and it almost feels like, uh, uh, something you can’t talk about. But like, uh, I, I like, we wanna have the top performing funds, otherwise I wouldn’t be doing this. So, um, there’s a part of this too there.
I just really love investing and, um, helping. Build big companies.
David: Love it. Um, Jeff. Thank you very much for doing this with me. [00:45:00] I really enjoyed this conversation. I think that for founders, there’s a lot in here in this conversation that as people are thinking about who to target, first of all. And then when you’re pitching how to pitch and then knowing what’s going on behind the scenes, like there was a lot in here that is, I, I really believe is useful for people as they’re going through a fundraise process.
So thank you for being so transparent and open and, and sharing and, um, thank you for doing this. for those listening, I hope you enjoyed. If you did, please share this out with your networks. Um, and we’ll see you for the next episode of not another CEO podcast.
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