What questions reveal if a VC is focused on upside or risk?

How does one company took 20 years to become a $2.2 billion New York Stock Exchange successful exit? >> I think last time I checked it was north of 3.5 billion. We are in territory where do we keep funding it or do we fold? >> So you're saying a founder should be pitching VCs in a good mindset and if they doubt, try to come back when the situation is a little bit different. >> If you don't do that, you may think that your a is smells like ice cream. >> What would be the questions that a founder should ask to determine how they should manage their pitch? >> The biggest mistake in VC is not to make a error of commission, is making an error of >> Everyone, welcome back to 100 million dollar exits. Today I'm excited to have Aram Attar with us, kind of former French version of Shark Tank guest or I should say judge for five seasons plus a VC and founder himself. He's the founder of the VC Factory. He's done over 50 deals himself ranging from a million to 1.6 billion and has advised over 50 founder or 50 VCs to be able to build their own VC funds and and grow and helps LPs decide on which emerging fund managers to to back. Aram, welcome to the show. >> Thank you so much Jason. >> So you have a very impressive track record but I really want to talk about one one deal in particular to get things started. There was a deal that you had the opportunity to invest in back in 2008 when obviously markets were not great and I would tell us about basically how that company took 20 years to become a $2.2 billion New York Stock Exchange successful exit. >> So by the time I got involved in 2008, the company had been founded for four years. So in 2004, this gentleman came to Mexico, not a Mexican person and thought, you know, I'm going to do this great company kind of copy what was done before and elsewhere and in five years I'll be out. And that's the first thing I want to say to your audience is when you build a lot of big company, it takes much longer than you think. So, he thought he'd be there for 5 years, took him 20 years. And I was there for probably the most critical years where the first money was gone, the first two rounds money were gone. And now we're in territory where do we keep funding it or do we fold? >> And so, what's that like, you know, that that happens to a lot of VCs. I work with a lot of VCs that are like, you know, are we throwing good money after bad? How does a VC make that decision? >> So, there are two ways to to do it and we'll talk maybe later about mindset, but that's really has to do with mindset. The wrong way is treating the money that's gone in as something that you can salvage, right? Whereas it's a sunk cost, obviously. And so, the wrong way of doing it and thankfully on that deal we didn't do it. We did it on other deals where we lost our shirt, but on on this one we didn't do it. The good way of doing it is look at the new money as a new investment. If I didn't have any money in, would I be comfortable investing now at this point in this company? Never think of the money that you put in before because you have all these things kicking in, loss aversion, escalation of commitment. There's a it's a probably a hotbed of cognitive biases. That's why I call this decision the bridge financing, I call it the most difficult decision in VC. >> And so, in that psychology of like a VC having to look at, all right, we're 20 million in and basically just erasing the memory of that fact and then being able to judge it on a net new investment. Um but it's still on like the same criteria as the same fund. Like how how do you you do you draw from the same fund? Like what what's kind of the thought process there? >> So, in this case it's the same fund because I used to work for a family office and it was investment an evergreen vehicle. But uh to generalize, I think even if you have several funds, it's good to have different people looking at it. In our case, what we did is part of the deal team changed, part of the board changed, and the investment committee was made of people who are not invested in that company. So, you have a fresh pair of eyes. Uh if you uh maybe you're going to beep this because of YouTube, but uh Marc Andreessen said uh if you don't do that, you may think that your uh smells like ice cream. That's him, not me. I don't know if you know this quote. And he's super right because that's exactly what happens. >> And so, walk us through the decision criteria. Like that company had already burned through a bunch of money. You were having a look at is this a you know, sunk cost fallacy mistake, or is this actually a good opportunity? What was kind of the decision that you know, what was that company doing that ultimately justified the net new investment at that time? >> In hindsight, what helped us was to be very, very promiscuous with them. We had the a monthly reporting that we did ourselves on them. You know, it's a hard discount store operation. They had hundreds of stores. And uh the idea for that is that you will bleed cash until the sum of your stores uh make money and you can start uh financing that operation. So, what helped us in hindsight is to be present, to be on it. Every year, we used to go to Mexico for 2 weeks and audit all the stores and meet everyone and so on. So, I think uh a lesson I can draw for all my fellow VCs out there is uh don't wait until the company runs out of cash to make the decision because you're it's it's too late. You're making decision under pressure, under stress. So, the more you know about it as you go along, and that's what many good VCs tell you to do, uh the better it helps. >> And so, you made the investment. Um which you know, how how much was it at that time back in uh >> So, I'm not sure how public it is because it's a public company, really say a lot, but let me tell you what. The third round, I did the third and fourth round because because spoiler alert, we also had to do a fourth round even though we thought the third one would be the last. And the third one was more than all the money that were had been put in the company that far. So it's in the dozens of millions, right? So it's they had put let's say X in two rounds and we put X plus in the third round and then we put 2X in the fourth round a couple of years later. >> And for context for the audience, this is essentially like a Lidl or like a a discount retailer that was expanding across Mexico. So not your traditional tech you know, startup, but you know, took 20 years and ultimately got to you know, 2.2 billion dollar public exit which is >> And I think last time I checked it was north of 3.5 billion. So it's it's going actually really >> Yeah, unlike most of the you know, kind of IPOs that fall off a cliff. >> Yeah, it went up and down, but I know I still have a little bit of carrying that. So so I'm looking at it every now and then and last time I checked was over 3.5. So it's not a tech company, but it's grown like really like a growth company. >> And so for the audience's knowledge, like you help now today, you help DCs focus on making the hard decision on what to invest in and you help them kind of have the right mindset for making investment decisions. And for context, I'd love for you to try to talk about what that actually means and then I want to talk about how you've applied those examples in some of the deals that you've been involved in. >> Yeah, unfortunately, I wasn't that good that I didn't know about those principles when I was an investor and it's also reflecting on my mistake as investor and then listening to dozen that maybe 20 investors who are the best in the world on how they make decisions and I came up with this framework. It's called mindset based investing and basically it's trying to bring behavioral science, behavioral psychology inside VC and it's very simple, three steps. Delay your intuition. Uh which probably includes also not thinking it's a god-given ability. Delay your intuition, collect more data and when you make the decision, try and understand if you are trying to win or to not lose. What's your motivation? Are you trying to to minimize loss or are you trying to maximize gain? >> So those are in my mind as a founder, like those are two wildly different mindsets. Like preserve, you know, preservation versus, you know, bet the farm. Um how do you how do you like quantify that? How do you help VCs and investors kind of really unpack those two different mindsets and is is one right and one wrong or or vice versa? >> On your first question, it relies on the behavior of founders. So the astute VCs and if you listen to Brad Feld, Fred Wilson, Peter Fenton, Bill Gurley, they do it. Masayoshi Son, they do that, right? You look how founders behave, you ask them questions like what have you learned? And then you get two answers. We get one kind of answers which is the founder only focuses on what went right and if it went wrong it's not their fault, it's somebody else's fault. And then the other kind of founders and I'm sure maybe it rings a rings a bell. The other kind of founders, they'll tell you, you know what? I made all those mistakes. This is what I learned and finally I found the path to success and I tried everything until I got there and I don't care about my ego. I'm going to knock at every door. I'm going to try and turn every rock until it works. >> So I'm taking the latter as the better answer? >> So I think, you know, I don't have a definite answer cuz this is research in progress and we don't have the samples to do that yet. But my my instinct at this point is you have to have one of those, the promotion focus founders, the one to focus on on the gains, but the teams I've seen anecdotally win have both they have also in the team someone who's more looking at preserving a security because maybe it's not right to bet the house at every decision, right? Maybe there are a few decisions where you're going to bet the house, but if you're only a team of promotion founders, maybe you're going to bet the house once too many. >> Hm. That's interesting to look at it. So again, going back to teams, not a solo founder, having, you know, two or three founders at the team on the team to have those different contributing, you know, mindsets to to find the right balance. >> And and they And sorry to interrupt, they have to trust each other. They have to really That's That's the thing. It's not someone who's trying to convince everyone else that he's or she's right. They have to trust each other. And that's something that I think VCs are really good at. When we have founders pitch together, you see it right away. There's a little signal. Someone One of the founders who puts his hand in front of the other one or interrupts them or doesn't respect them. These are all the low signals that good VCs are trained to read. >> So I want to unpack that a little bit more. Like as a, you know, our audience is, you know, heavily on the founder side, and I want to kind of help them understand the psychology of the investor uh and what that investor's observing that could blow up the opportunity. So this is really important like these these subtle cues. Like, you know, when someone's like clenching their teeth while their partner's talking or, you know, kind of just what steps up in the meeting and be like, "No, like we you know, like kind of interrupts." Like there's definitely inherent lack of trust in those things. What are some other examples that VCs kind of go, "Hm, not a not a good sign." when it comes to that psychology? >> Yeah, so as you said, I I actually I was a coach on that French Shark Tank program, not the judges in Fortune 30, so I wasn't investing my money. I was a coach, but I was coaching them to that. So I'll tell you more examples. One is that you tend to repeat exactly what the other person said. And you're not adding anything, but you think you're saying it better because you probably believe that they're not saying it right. Okay? That's another one. Whereas in great teams, they supplement each other. They would say something to go further, or they would just say nothing and you move to to something else. Um so these are all these these subtle cues. The You shouldn't read too much into it either because sometimes they are stressed out, right? So maybe if they're clenching their fists or whatever, maybe it's just stress. But you could see the just the looks and uh you know, the physicality of it um it's it's quite telling. And I always say this is a great at these two things, reading teams and reading business models. >> Are they though? Is every VC great at telling those cues cuz obviously not every deal works out. And statistically speaking, it's all about power laws. Only like 5-10% of the companies actually materialize anything in a VC. So I guess what separates a great VC from a not so great VC? >> Yeah, I think the great VCs are aware of the founder psychology. So they see those cues. And they're aware of their own psychology. Meaning for example, if you hear when you hear people like even Garry Tan or Brad Feld talk about their investment. Brad Feld for example talks about Fitbit. And he recognizes he said the first time I met with the founder, actually it was on a on a call. I had something else on my mind. I I didn't like his affect. I thought he was not enthusiastic. And then over so I passed and then 6 months later these two angels that I know insisted I talked to him again. This time I was in my house in Alaska. It was a video call. I was relaxed. I had learned about Fitbit a little more. And now I understand that, you know, James Park, that's how he speaks. It's not that he's not enthusiastic, he's not charismatic. That's how he speaks. So the great VCs, they are vulnerable with that. Masache San, same thing. All these people, I think what makes great VCs is the psychology. They're aware of their own psychology as well that they have these cognitive biases that they have to to mitigate. >> So, you're saying you know, founders should be pitching VCs in a good mindset and if they doubt, maybe try to come back, you know, when when the the situation's a little bit different. >> Yeah, exactly. You It's not something you control, but you could also try and as a founder, I'm not sure there's that much you can do, but you have to be able to read the cues on the VC, of course, as well to maybe For example, founders, a mistake they make is they speak all the time and that's that's a nightmare. I mean, they they they they should let the VCs talk in the beginning. They should listen more than they speak in those meetings, but they're always pitching. Always be pitching. That's killing that's killing the the vibe and the dynamics. So, yeah. >> 100%. That's one of my I actually have a whole video dedicated on like how to manage your investor call because uh when it comes to these calls, I like to deal with founders all the time on this. They're like, "We're awesome. We do this. We're We do that. And And we do this. And then we do this. And then we do this." And it's like kind of that and then syndrome where they keep adding and adding and adding without actually asking if the investor cares about that particular topic and and not even knowing what the investor invest in and getting to know them and um so, I my advice to founders in a situation to be curious what else you can add to it is just you you spend the first 10 minutes listening about the VC, what they care about, what they're doing. You obviously your pleasantries of being human and you know, being able to build a relationship, but also like what do you look for? Yeah, what do you not look for? What's meaningful to you? What's your check size? Are we even in the ballpark? And then taking that information and you know, answering questions as opposed to like pitching. >> Yes, it's it's surprising how few founders have uh salesmanship because this is basic sales is listen to the person, take the information as you said. Also, these people, they have ego, right? Many VCs, they have ego, and they like when you ask questions that you're interested uh a lot more than that, except maybe another thing, the great ones, they actually seem not to have that much ego, the great ones. Like, there's this video with Peter Fenton where he says, "If you have a big ego, the problem is after 10 10 years of being successful, the new founders, they don't know you. They don't know you've done uh Twitter and Uber or whatever. So, you have to be on the ground making the calls yourself, explaining who you are. So, if you if you let your ego go on on your way, your deal flow dies uh little uh by little. >> And so, when it comes to the All right, so, what kind of impact like that first meeting, like, you know, allowing founders to open up to allow the VC to talk a quite a bit cuz it's just a tomorrow meaningful experience. But, I want to start talking about more about this this mindset research that you have uh have done. And what's kind of been the You also do this on emerging fund managers uh not just, you know, founders and VCs. So, again, walk us through why you do this research, and then maybe tell us about one of the reports that you guys have done. >> I do that because the biggest mistake in VC is not to make an an an error of commission, is not investing in a deal that doesn't go, is making an error of omission, is that you are seeing Airbnb, Uber, Open AI before everyone else. And because of all these things in your head, these cognitive biases, you pass, right? It's the famous anti-portfolio from Bessemer, right? And so, that's the reason why I'm doing this, because the mistake is not due to a technical fault or to not understanding the founders um you know, their qualities, is really in your head. And the success is the same thing. And the way I realized that is it came to me. I I didn't set out to do that. I was listening for thousands of hours on before every VC had a podcast on on how VCs make decisions, and it came to me that they as I said before all these great VCs talk about psychology. And I thought, okay, so what is it that is helping them make those outlier per- in- investments time and again? It's not being lucky once like I was. It's 20-30 people in VC over two decades have been able to do repeatedly outlier performance. So there's something to them and that's the answer. For me it's the mindset. >> Got you. And with the research, like what are some of the findings that you have that would be helpful to kind of share with the audience? >> So the finding the main finding is that it seems that the common point commonalities, let's say, it seems that the commonality of those what I call the power law masters, the best VCs who make those repeatedly big deals and bets seem to have some common traits, personality traits. It's not about what they've done before. It's not about, you know, have they have they been operators, entrepreneurs, and so on. It's not that. Uh Chamath Palihapitiya has a video where he talks about they are commercially minded. It is not even that. It's just the way they see the world, right? So they are tend to be optimistic. They have low loss aversion. So they focus on gain much more than loss. Vinod Khosla, when he says, "I don't mind a 90% probability of failure if the 10% probability of success changes the world or makes a huge deal." So that's the mindset. What can go right, right? Uh Alfred Lin uh at at Sequoia and so on. So they have these uh personality traits that they seem to share. And that's the the research I'm doing is is to try and find that and link it to a research in psychology with the psychology theory that's proven for 30 years uh and and try and see how these two can help us understand who are who has the potential to become a great VC in the future. >> And so it's one thing, okay, so I hear it all the time like VCs say they have this mindset like, you know, what's possible. We want to back the best. We want to back the you know, the the winners of the winners. But when founders go in and they pitch, obviously founders have egos. They think they're one of those people. Um how does a founder communicate effectively to a to that you know, kind of uh positive outlook VC um that you know, how do they trigger that emotion or that response from a VC in a meeting? >> I'm not sure they can trigger a response to a VC who's prevention focused. 95% of VCs in my you know, it's a number or they're going to ask you in that first meeting as you know, who else is looking at the deal. It's herd mentality. They're looking at not being the first one to do that that and so on. So, I don't think the founder in that case the founder should just say, hey you know what? Thanks so much. I'll call you again because that person will not be the lead investor obviously because for a lead investor you need someone who's makes decision based on first principles and doesn't care what everyone is is looking at and that you know, in the phrase that everyone is saying now is pre-consensus before everyone else before it becomes consensus hopefully in two years. So, I don't think you can change it. But what you can do is try and listen as a founder to the questions a VC has is asking you. Are they trying to ask how big it can get or are they trying to see how they're going to lose money? >> So, how like what would be the questions that a founder should ask to kind of determine how they should manage their pitch? Should they be you know, cuz if it's a you know, what could work investor like what should they how how do they infer that type investor and what should they say? >> So, I think what they should make clear is their insights, the vision. Why do I why me, right? What I in the words of Ben Horowitz, what do you know that nobody else knows, right? And this is a great example I don't know if you heard it where he talks about Brian Chesky and Airbnb and he explains the vision of Airbnb and if you want we can talk about that. So I think that's something that's going to lure a promotion focused founder a VC sorry because they are going to look at how big it can get based on that vision. If you heard Travis uh uh Travis Kalanick uh yeah sorry Travis Kalanick. I was doing something about him earlier so let me start again. If you if you've heard Travis Kalanick talk about his second business he's not talking about hey you know what we're going to make uh dark kitchens cloud kitchens uh in a 100 km from here. He's saying in 100 years everyone is going to the price of food is going to be so low that nobody else will cook. You have robots making the food and it get delivered to your to your door. You may not believe the vision but if you do and if you are a promotion focused uh VC you will try and and instead of asking what's the unit economics what's this what's that you're talking about what can go right. How big can it get? What do you need? This is you know if you look at Sequoia they're the poster children of that uh kind of uh way of asking questions. >> Hm. That's an interesting way to to think about it and then for those kind of preservation focused uh VCs that are more about not losing how does a founder kind of prepare themselves for those meetings? >> So they should be prepared to cut it short nicely at some point. No because these may be great VCs once the the run has momentum but they're not going to be your VC now to lead it right? Because they're asking questions again about who else is looking at it what's unit economics and and you know I love unit economics and profitability and all this is nothing wrong about that but they tend to ask all those kind of questions so answer as much as you can you want you have time for uh just say thank you so much and we'll call you again when there's more momentum because that's probably what they're waiting anyway. They are they're probably not going to pass. They're going to keep the option open until you have some traction. >> Do you think a VC could be both? Uh depending on what they're what deal they're evaluating. >> I think they can be both over time. In the So, I know people I know VCs who have done crazy bets on companies that are now now valued billions of dollars and I have to say they used to be very promotion focused in the beginning and now that there's something to lose they tend to be like "Ooh, let's not bet the house too much. It's worth $5 million my carry and so on." So, I've I've known some VCs and there are some public public cases of that. Uh Brad and Levy at WeWork for example, who when the numbers become big tend to be more focused on risk than they used to. >> Uh that's interesting cuz I I definitely felt that at least when I get pitched for investments, I've had both where I'm like I can clearly see how big this can be and I want to get involved and like help and support and then on the flip side I'm like tell me your unit economics. >> >> You know, like tell me the numbers and you know, like all right, well, there's some potential here, but it's not going to be like the billion dollar, you know, outcome. Um So, you know, it's good to hear. And so, I guess walk us through you know, some of the deals that you you've kind of experienced in your um lifetime in the kind of the VC world that would be worth kind of sharing that kind of apply some of these principles. >> So, uh as an investor for example, actually where the the places where I met these unfortunately are some of the reason why I did miss great deals. So, I remember really well four deals in a row that I brought to committee 10 years ago. And you know, these investment committees if you've seen the movie uh 12 Angry Men, it's exactly the dynamics. I mean, some people come in with uh they already have an opinion on your 50-page deck that they haven't read. Some people are swayed because their boss, if you have a boss in the team, is saying something and so on. So, unfortunately, the way that it worked for me was mostly that we they passed on my deals because I needed That's another thing is you can't have rely on unanimity vote, even majority vote, if you want to do outlier deals. You have to rely on maybe what we call the champion rule. We can talk about that. So, in my experience, I've missed those deals. Of course, they said no to deals where we would have lost money as well, but we don't care about those because those are bread and butter in the industry. So, and so and so that's why whereas in that deal we talked about in the beginning, BBB, where, you know, I was not the lead partner. I had just joined the the company company's board. I recognized that the way my lead partner was thinking about it, I thought was was great. He was always talking to me about the sacrilege of the founder that he's never going to get it go let it go that, you know, we could go and sell it to Walmart right now, but, you know, who cares about 100 million more when we can sell it for a billion dollars in 6 years. So, this is the kind of you know, thoughts and talks that that I had that were interesting. >> Real quick, if you're a founder doing over 5 million in revenue and want to know what the best 100 million-dollar plus founders are doing to fuel their growth, then make sure to subscribe for our 100 million-dollar exits newsletter. Get the playbooks that are proven on how to fund, grow, and sell your business. I'll even give you a curated list of investors that want to invest in your business. It's totally free. All you have to do is click that link down below. Subscribe. Do it now. I promise it's worth it. You won't regret it. You got nothing to lose. Go ahead. Subscribe now. Back to the show. >> When it comes to let's let's go back to this 12 Angry Men example. There's a lot of founders. I hear this all the time. I just I feel so bad for them because they come like, "Man, I had such a great meeting. The VC loves me. They want to invest. They're great." I was like, "Yeah, did it go through IC?" And they're like, "What's IC?" >> >> So, can I give uh the audience some context of what the investment committee is, what goes on in those meetings, and and kind of how those play out? >> So, the investment committee is the only client VCs have internally, which is a meeting of all the partners who votes on whether we will spend more time and money on that deal. So, usually you have a few of those before you get to the end investment, depends on the firm. So, basically you as a founder you think if the person in front of you is super positive, it's great, but that person first over time every Monday is going to pitch your company, your progress, and so on. That's why it's important to report progress. And then they would formally think, "Okay, you know what? I have conviction now. I'm going to put a 10-page uh 20-page memo, whatever it is, and I bring it to the other partners." And the other partners, what's happening in the room? Some of them they want the capital of the fund to be invested in their deals, right? Some of them have been on a bad streak. They lost money on three deals. So, if you if now one of those is you on your deal team, maybe you're not going to have the clout you want as an investor to get it passed. Others, on the contrary, they're going to be on the winning streak, so maybe they're going to be listened more. Some people have double votes. Some people, you know, maybe um they they don't really like you as a partner. Maybe you're too young, and so on. So, a lot of things happen that frankly don't have a lot to do with the company itself. In my experience, and that's the subject of my third report that I'll publish next year, the best ICs IC rules for early-stage VC is what I I call the champion rule, which is you which what, you know, uh Benchmark have, what Kleiner Perkins have, and Cost LaVenture, all these people. You as the partner on the deal team, you come in and you take the the advice of everyone, but at the end you decide. And if you're wrong, too bad for you, and you lose money, and you take the responsibility, but you can make the decision against the advice of the other partners. And if you don't have that, you're not going to make an outperformer because in the words of the Kleiner Perkins manager, "Truly disruptive ideas create natural skepticism." >> But so many VCs do not do that, from my understanding. They do more of kind of like herd mindset or like, you know, unanimous consensus. Um I guess that could be Yeah, like for going back to what we're talking about earlier, questions founders should be asking is like, "How does I How does your investment committee make decisions?" So that you can mentally prepare yourself as a founder of what you're up against. >> Yeah. So, questions you need to ask. One, what's the decision process? Oh, you You know what, we're going to talk about it on Monday and then finally we do this and that. So, what's the the process itself? Who makes the decisions, obviously. And then you try and talk to other founders who got the money from that VC and try and and understand because they now have the VCs on the board, so maybe they know they know a bit more who has more influence. Try and look on the partner who is talking to you, how successful they have been, how long they've been there for. You know what's their kind of position in the firm and so on. All these things matter a lot. >> Yeah, I completely agree, and it's just so many founders just focus on pitching. And they don't realize that like, "We're so awesome. Why is it Is it Well, you're awesome compared to the other thousand other awesome deals that they're looking at, so you got to have that some more inside information >> think these are the founders who go on to be the most successful? Mhm. Say it again. What you You said so many founders, you know, they think the VC loves me cuz they're pitching. Do you find that those founders who lack little bit of empathy but also don't know the the the strings, do you feel do you in your experience they're the ones who are the most successful? >> I think it's like a it's one of those things at least the stats that I understand in my personal experience is 50/50. You have the very sophisticated empathetic uh kind of wise founders that kind of just know what they're doing and will build a great company. Uh that have yeah, extensive experience and then you have these kind of wild cards that you don't really know if they got it if they are the one, but they have certain kind of polarizing personalities that you know, could win but also could lose. And it's hard to it Well, it's hard to get access to the latter the you know, the former founder, you know, cuz they already have networks or access and they're not doing necessarily broad pitching or anything like that. Whereas like the the wild card who's maybe earlier in their career uh who is very mission-focused and will just blindly tell their narrative with that not really give a crap about what other people think or what they want. Um >> >> those do work out as well, too, but I think you know, from there's a I would say the lion's share of that party of the kind of the wild cards in my experience don't work out. >> Yeah, unless they get someone like you guys help them because and they're smart enough to listen because that's also something I feel for founders because they if you listen to everyone, you're not an entrepreneur cuz obviously everyone's going to tell you you're not going to make it. But you know, the best entrepreneurs I feel they know who to learn for from and maybe hopefully the ones who are the wild cards, they're wise enough to listen to your advice cuz you're more experienced than them. And then they can correct course and become successful. >> I think it's it it's a little bit more than that. And like what I look for in in founders is when people give advice, myself included, it's usually delivered on incomplete information. And what I look for in from founders is the fact that they go to like three, four people, hear their stories, hear kind of what that advice, you know, means to them, and then they they take that advice and they chart their own path on that advice. Like that's how I've operated my entire career. Uh that's how I see a lot of successful founders. They kind of like Okay, that's an interesting point. I'm not going to go just do what you said to do. I'm going to talk to three other people, hear what they have to say, and then I'm going to kind of meander my own, you know, path that takes in all these different pieces that kind of complete this complete the narrative as opposed to, you know, again, like if you had a 30-minute call with an investor or, you know, hour-long call, there's no feasible way that the party on the other side giving advice has full context. And if you had full context, you would be change your advice. That happens to me all the time. I meet a founder and I'm like, "Okay, this is very interesting. Generally, I'm thinking you go this way." But when I actually unlock all the data, all the material, I'm like, "Whoa. No, don't do that at all. Like go this way." And so, I I think it's important for for founders to take that into consideration and be more open as a founder. Like sharing more raw data cuz like no one can help you if they don't know what's going on. Cuz it's most founders like, "We're awesome. We're great. We're going to grow. Everything's perfect." >> And they're like, "I know everything." Would you say that you're comfortable with dissent as a founder? Because the reason I'm asking is that's another mistake people do is you're in a board and they have only people with the same opinion and they are not really or if there's a dissenting opinion, they want that you know, they're a bit worried that there's a debate. Whereas I think like you, I think as a founder, you should have people on the board who don't agree, respectfully don't agree, but disagree, so that you can have all the different opinions and you have to be okay with dissent. >> I have completely agree. I feel if everyone's a yes man to the founder, the the company won't win. Uh and I often am in the in the voice of dissent or and/or the share of the alternative opinion for the sake of the exercise. Because without the thought exercise of what could happen uh both for the upside and the downside then that discussion doesn't happen and it causes some friction, but it's friction worth having, especially when nothing's at risk in the moment. Like sometimes you things have already happened and you have to make fast decisions and it's more of like, well, we don't have the luxury of debating the 30 different options. But you know, you have to clearly go right. But when it's um you have a little bit of time like you you see the fork in the road uh you know, from like a mile out and you're like, okay, I'm going to have to make a decision at some point. So, collect the data, collect the information, get opinions, get insights, take the you know, get the devil's advocate uh opinion just to make sure you you're not going to get up to the fork in the road and it's all going to look rosy and then oh that there's a brick wall right when you get started and you're like, oh, I didn't see that coming. Now what? Do I turn back? You know, so I I think it's very important for founders to have that um those conversations as early as possible. The only way they truly can happen is with honest you know sharing of what's going on uh with the business. I feel so many founders just don't share and those that don't share don't succeed. Um when they're honest and open about the problems, the good and the bad um with trusted parties or people that could potentially help, they often get the data and the feedback they need to to win. >> But so you see we go back to the prevention promotion focus because many people who have been successful all their lives and who become entrepreneurs, they've been reinforced since childhood not to make mistakes. And now they become entrepreneurs and maybe the only way you learn is making mistakes. And they are they don't feel like telling their VCs these are all the mistakes I've done and by the way I think I don't have a solution but A or B what do you think and then you become with C, right? And I think that's that's a prevention focus thing is they they don't share why maybe because they feel it would look bad maybe but I think there's this fear of failure at at the root of all that. Um And so what I want to kind of transition to now because we we talked a good amount about kind of this perspective is kind of the flip side. So we're talking about VCs evaluating founders. But what about LPs evaluating VCs? And that's something you've done some research on when it comes to how does an LP decide if an emerging fund manager is any good with no track record? So like how do how do you think about that process? What's some of the research you've uncovered there? >> Exactly and you nailed it is what I call the emerging VC conundrum is if you have a first one even the first two because of the feedback loop as an LP you don't have track record which by the way we can talk about it is not a great way to choose even fund six seven right because there's there is no persistence in the data. But so what do you do, right? And I went and listened we spent with my team I have a team of three researchers hundreds of hours two three people from you know leading leading LPs. And we found six criteria that they use. And then we found that if you want to excel at those six criteria, you have to be a promotion-focused investor. Isn't it crazy? Like, so for example, let me give you uh an example is one that's going to resonate for you because founders have the same issue. You're a GP, you're going to launch your first fund, and you come to me and say, "Aram, I have a $100 million fund." Just like you when you have a founder who says, "Hey Jason, I'm on I've been around for 6 months, and I want to raise $100 million." Same problem. Why $100 million? And VCs they tell you all the wrong reasons. Because I want to pay myself, and for your audience, the way VCs get paid is 2% management fee annually on on the amount. So, $100 million is $2 million, so you can get a salary out of that. And then or you know, because they it looks good and so on. Um the experienced LPs, they hate that usually, because what they recognize is this is not the fund, the first one, where you make your money. This is just to prove you can do the job. So, raise $5 million, $10 million. Uh Biz Clarkston from Sapphire Ventures has this this thing which he says, "Your fund size is not what's going to decide whether you raise the money or not." So, do the first one, show us that you can deploy capital, show us what are the companies you invest in, and then uh raise the second fund, which is going to be bigger. If you five, maybe now now you 25. You still not going to make money on that one. And then raise the third one, hopefully it's 50, 75. And then one day, that's why emerging managers are fund one to four, right? You've been doing that for 10 years, you're still emerging. Because now you have a 250 million fund that you can make money on and and finally invest. So, that's that's one The way they do it is just like us. They they listen to what the founders ask them. They ask them the sorry, the GPs, the the first-time GPs ask them, "Fund size is one." There's other uh criteria we can talk about. >> And so I understand like the start small, but also that limits what the strategy can be. Because if you are emerging fund managers, I went through this process. I looked at starting a a venture fund before I did an investment bank. And what deterred me was this was the path that I thought I would have to take. It's like, "Oh, I have to go raise 5, 10 million bucks, which is going to be just as hard as raising 100 million." You know, it's just not it's not easy getting people to part with their money, especially with a blind fund. You know, a blind pool where it's like, "I'm going to make 20 bets and you don't know what they are. So, trust me blind." Um And so, I I decided to go the other business that makes money as opposed to, you know, ask for money. And um Yeah, and also just like the fee fund structure, all that kind of stuff. If you have a $10 million fund, you have 200k to run a fund on. And like, your administration is 50k. So, you have 150k, and then you need some support, that's another 50k. And then you have 100k just to operate, and let alone pay yourself. Um which, you know, at least most VCs, in some cases, had some success before, so they're not the first fund isn't to make money. Um it's to, you know, establish a career or whatever, but um when it comes to the attributes of of these people, uh like, "Hey, I'm I get pitched emerging fund managers all the time, and it's not necessarily what I want to allocate capital towards, but as an LP that is focused, I'm trying to find and build these 10, 20, 30-year relationships, um how does it stand out? Like, okay, there's a hundred of them pitching me as an LP, what what should I look for? >> The short answer is it's exactly with 99% is the same as VCs allocating to founders. The same thing is what you like in a first-time GP. You want someone who has traction. So, what does it mean? For us, it doesn't mean you talk to all the LPs, it means you've talked to startups, you have term sheets. For example, the last fund I invested in, uh he was the manager was already talking to a lot of startups, whereas I talked to 80 emerging managers in the last 6 months, 90% of them they're only talking to LPs. They're not talking to startups. Whereas you know, it's just like a founder who's talking to VCs and not talking to clients. Same thing. So the the way that those experienced LP chooses, they like people first-time first-time fund manager who are active, are on the ground, can show that they are they have some kind of unfair advantage. Don't like the terms, but that's what they use in terms of sourcing. Really understand portfolio construction. They understand all the VC math of yes, it makes sense to have reserves. No, it doesn't make sense. I'm going to have 25 companies. That's my average ticket. I'm not going to follow on this. This is my fund size and so on. So they understand that perfectly. Just like a founder who understands your dilution and so on. Uh and of course team team experience and cohesion. There's a GP to the thesis fit. The GP is invest for example the GP invested in 15 years experience in climate tech. He's not launching an AI company. He's launching a climate tech fund. Climate tech and AI, but he's really strong on climate tech. So it's the same thing. Team experience. What have they done as an investor maybe as an angel investor before? What's kind of track record proxy track record do they have? What's the investment thesis? What's the deal sourcing and access? Portfolio construction and then the terms and need to be aligned like you know, it's not a 4% management fees, 2% is not 30% carry, it's 20%. So that's what they look at really. And and frankly it's not frankly is that if you read the report I have 60 page report on that. What I found was if you want to excel on those six criteria, you have to be a promotion focused investor. >> And you've trained over 50 VCs on how to basically be LP ready as emerging fund managers. Um what would be your kind of one piece of advice? I was just probably dozens, but like what would be like one kind of key takeaway for any emerging fund managers or aspiring aspiring fund managers that are listening right now? What what be that one thing that you would highly advise for them to consider? >> I would advise them to talk to people who've been in their shoes not 10 years ago, but two to three years ago. And who can tell them like I talked to Jeremy Tan for example in Singapore is a top 10% fund now fund two going to fund three. And he told me my biggest mistake was fund size. I went for 100 million. I ended up raising 30. I felt like a failure. And if I had gone for 30, I would have deployed capital faster. I would have raised my second fund better and so on. So you go and talk to people who've done it two or three years before you especially in this market and you learn a lot. >> And I think that's something that often people don't do is just have conversations about what they're up against. Uh I think that's something I've felt in myself for for years on many different you know past ventures is just like not having a conversation. Uh about like and not so much saying here's what I'm going to do, but more so like what did you do? And you know what do you what do you regret? What would you do differently? Like a word >> Why do you think you didn't do it? It was you were you too busy or you didn't want to ask people for favors or >> I think in my early career it was like I just thought I had to figure it out. I was naive and just thought like oh this makes sense. And then I get into it and I'm like I have no idea what I'm doing. >> >> Um and so you know now it's about having a network having relationships having conversations and I I I think what's beautiful in today's world at least you know especially in the US is you can start if you're you can be you know obviously if you're a student it's very easy, but it like you even if you're a student of the craft meaning like you can be 40 and starting a fund or 50 or whatever. You're effectively a student of the craft. Um that should be enough to kind of warrant at least some conversations with people that are a couple years ahead to kind of like pay back. You know, kind of pay forward, kind of like, you know, give it uh give you advice, you know, share their stories, especially if you're just asking for a story. Um and I honestly think there's a you know, proliferation of just content on like podcasts like this, like where you just get so much valuable feedback from, you know, just listening to other people's stories, but use that as the seed to start a conversation where you reach out to the guests and like actually dive deeper into some of those topics. So, that's something I wish I would have done more of, you know, all throughout my career and all the time. I try to do more of it now. That's why I do the podcast is to have deeper conversations um that I wish I would have had when I was younger cuz the sooner you learn uh from other people, the faster you can grow. >> And I feel I feel also nobody can blame you for you said, you know, how did you figure it out because overconfidence is a crucial element in entrepreneurship. Because everyone thinks it's not possible and usually founders, I don't know if it was your case, they don't see the risk like everyone else. They say, "But of course I can do it. What what's the problem with that?" And if you don't have that overconfidence, you can't do it. But the problem, the dark side of it is what you said is that you some people are not open to asking around and trying to learn from others. >> Well, um it's been absolutely amazing having you on this podcast sharing your insights. Uh for viewers who want to understand more about your reports that you put together on psychology and the mindset of investing, um where can they learn more? >> They learn more on the vcfactory.com. >> Perfect. We'll make sure to include those in the show notes and uh any parting words that you want to kind of share with our audience in regards to the investment mindset? >> So, thank you first of all, Jason, for the invitation because I feel that this is a topic that we need to hear more about. I'm not the only one carrying the message because once you try and explain with uh concrete examples, then people start listening and I think they it make them even if does it doesn't make them maybe more successful founders or research is going to make them better people. >> I completely agree. Well, appreciate you coming on, sharing your insights, sharing your research, and uh looking forward for our audience to to digest it and hopefully get some key takeaways. >> If you were inspired by today's episode, then go ahead, watch this next episode. Promise it's worth it. And if you really enjoyed this last episode and you want to connect with the guest I had on today, leave a comment down below telling me why you would like an intro to this guest and I'll make it happen.