Chirag Chotalia is with me today.  Chirag is a partner at Threshold Ventures, formerly known as DFJ. Chirag is well known to the LA venture community because prior to DFJ, he was leading investments out of the Pritzker group in great companies like The Dollar Shave Club, Casper, The Honest Company, and many more. Chirag, thank you for coming on the pod with me today. 

Absolutely, excited to be here!

Great. Well, why don't we start with the basics of Threshold and how it all came together. 

Absolutely. So Threshold, as you mentioned, was formerly DFJ. We effectively spun out of DFJ in 2018, and so think of it as sort of a rebrand and refresh of the core of DFJ.

DFJ has been around for about 35 years.  DFJ was founded in the mid-1980s and so we had the benefit of taking the best of what had worked for a legacy firm that had been around for 35 years, but also the opportunity to re-examine what we wanted to take with us, and what we wanted to do differently. You know, as you're well aware, venture has changed and evolved so much in the last 40 years since DFJ started. 

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Well, I am curious with the fresh eyes and thinking about what ventures should be, what were some of those things that you wanted to take and also sort of tactically, what did you want to build? 

So we've always been focused at the early stage, which is, I'd say in contrast to a lot of firms that have become large platforms. And so, um, that's something that we wanted to take with us, which was a focused strategy exclusively on the early stage. We don't desire to be growth investors, right. You know, we think growth is a very different exercise than the early stage.

And so that sort of focus remains, which is focused probably in series A, we'll occasionally make the investments occasionally make series B investments.

Well, let me ask one question there, which is, you said not like sort of the platform or life cycle investors who do everything see-through growth, but how much of a platform do you feel like you need to build to do what you want to do at the early stage? 

You mean, so when I use the word platform, I meant more around, multistage, not necessarily around like, you know, talent marketing, other sorts of functional expertise that you might have. That's still is really important though. A lot of the value that we deliver, we feel like it's through the individual relationship with a board member that a founder has and the access to the broader team. So, you know, what we like to say is when you take Thresholds Capital, you know, you're getting your lead board partner, but you're also getting the expertise and the other partners on the table. And actually, that's, that's an interesting transition to the second piece, which is, you know, one of the other principles that we, strongly believe in and that we observed a sort of during our time at DFJ is that five to seven people, we feel like, is the optimal group to have from a decision-making perspective. 

if you're, if you're significantly below that and you don't get the benefit of cognitive diversity and you can really fall into group think, but when you get above that, decision-making often suffers because you have issues around, you know, people not feeling fully engaged.

It's hard to have trust in a group that's larger than that. And so I think a lot of sort of studies on sociology show that five to seven people is kind of the optimal group around decisions. in building into the scene and that's another tenant of threshold, which is we don't aspire to have more, we aspire to have five to seven partners, but never really more than that.

And never really substantially below that. you know, today we have four, we are really excited to be bringing on, actually right before this, I just made an offer to have a phenomenal principal candidate. Well, one of the important things for us is to grow from within. So So we often, um, but if you think about the four people around the table, I'm happy to talk about sort of backgrounds of people and, um, sort of key areas of expertise, but all four of us were homegrown at the forum.

And so that's another sort of critical part of how we think about threshold, which is the opportunity to bring on the next generation and to be really deliberate about how we think about from building a Gerrish of succession, because we've seen firms that we really admire do that exceptionally well.

We've also seen many other firms in venture that have. With Stewart sort of that, you know, that that sort of changes around generation. So that's some, that's some color around sort of the transition from DFJ to flush and the kinds of things that we, um, you know, that we care about, but we want to retain, but also some of the things that we think about maybe a little bit, yeah. 

 and there's a lot of interesting stuff in there. So five to seven, I didn't know. That was where you think the sweet spot is. how much consensus do you aim to have in that five to seven person decision-making team?

So typically the way that, the way that we operate is, um, if there are four partners right now, so it's, myself Mo Islam, Emily Melton, and Josh Stein. And, the way that we work is you, you need one other partner to get a deal done, having a consensus model where four people are shaking your heads and serve four strongly opinionated people shaking their heads.

I, you know, I, I think the fear there is, it leads to, you make the safe bets, right. That everyone feels comfortable with. But if you're the only one out of the four, you can't get one of your other partners, you know, that's not ideal either. Um, and so the, where we've come out is effective. You can't be on an island completely by herself, but you don't need all three.

You need one other partner to say, Hey, maybe I don't fully get it to the degree that you got it, but I still support your ability to, to do the deal.

  That's interesting. and do you think a lot of funds operate that way? What have you seen, you know, when you've seen other decision-making?   

Look, I think you meet, one venture firm, you button one venture firm. I mean, it is one of the, one of the amazing things about our industry is that it's still in the early stages. It's still a kind of a cottage industry, right? So there have been huge pushes cores maturity, I would say in the last couple of years around, you know, what we're seeing at the late stages in particular and the types of capital that are coming into the market.

I mean, I just wrote an article this morning. For the first time, this year, there's more, non-traditional capital spending venture than traditional capital, which is very, very interesting. Um, but, but I'm 

I'm getting a lot of beeping in the background. 

you know what, why don't I there's, there's a garbage truck that, or sort of a construction truck that's here.

Why don't I, should I just take like 30 seconds to move to a different side of the 

I think so. Cause it's pretty, it's a little annoying. If I were listening, I'd be like, gosh, it sounds like a garbage truck in that pod or we can 

wait. We can also, oh, okay. I was going to say we could wait if it's just a garbage truck, it'll go away. 

no, I'm just gonna move to another rib. So let me see.

Sorry about that. 

This is, I think this is about as good as it's going to get out, unfortunately, because 

I to put a sound machine on as well, but you might still hear a faint,

that's okay. Yeah. 

we have a construction being done next door. So it's sort of this.

Let me. Um, I think we can just roll with it, you know, it's, it's like, it is sort of painful to listen to someone with a garbage, you know, but I think that it's pretty faint in this room. Um, so I wasn't uninterested in what you were saying about non-traditional sources of capital 

or so, um, maybe if you start the 

sentence 

to, I don't want to get off 

on a tangent because I tend to do that. But, 

um, the, 

Well, I, my whole podcast is about tangents. I think they're all interesting. Um, so feel free to finish that point. If you were, 

I interrupted it wasn't. It was interesting. 

Sorry. 

I forgot where 

You were, you were saying, I just read an article about, uh, sources of capital being from non-traditional sources. 

I think non vendors.

What are you saying? Something like 

Yeah. But there was a question before that, and that's what led me to that anyways. But, um, 

I think we were talking about the threshold. We were talking about the 5%, um, we're talking about. Oh, uh decision-making and how, um, you know, how deals get done at threshold. Um, and then I think. 

Yeah. 

Maybe Francis. Maybe to sort of finish on the rational pieces.

So in terms of what we do, Do you have to, it was really a generalist fund at its peak. We had 13 investment partners on the table, um, and we kind of did a little bit of everything. Everyone. One thing that we've really tried to be much more deliberate about over the last couple of years.

Thinking through, sectors that we think are particularly exciting, and that have right tail winds, where there's an overlap and alignment of interests, um, and, um, and industries that we think are exciting. And so where we've come to is about, um, and, and this has really been a transition over the last fun.

Going forward about 40% of what we do will be sort of enterprise software broadly defined. So everything from infrastructure dev ops to horizontal and vertical SAS, SAS, some SMB focused in addition to other things that are assigned to be on our buys, another 40% will be in the category that we're sort of broadly calling all this.

And the cornerstone of that is healthcare. But even within healthcare, there's been sort of this really interesting evolution where care is now being decoupled from large institutions care used to be delivered largely. You know, large institutional settings, but there's a huge trend around the consumerization of the enterprise media, consumers, where they are in their healthcare journeys.

And so we're spending a lot of time there, but about 40 bucks. You know, our investments going forward will be at the intersection of sort of consumer healthcare, some still traditional healthcare, but a lot of intersections. And then 20% opportunistic. We don't want to make sure that we always have the opportunity to read that we meet great founders that have really interesting ideas or maybe founders of, even back before that did something in enterprise, Oregon.

We're not trying something different. We want to make sure that we get the latitude to continue to support those founders. and so it's a little bit more focused than we've had historically, or maybe a better way of thinking about it is it's really an explicit articulation of what we were doing anyways or in the last one 

or two. 

Got it. I have a follow-up question. I'm just going to pause for one second. It's it's um, is this is the noise machine maybe? 

I'm sorry, I'm doing one more sound check. 

Did you 

Do you want 

me to turn that 

off?

try turning that. off? Maybe. I'm sorry. There's it's I'm getting my editor is gonna throw me back some stuff. So let me just see if that's 

better.

Let's try that. I might turn the fan off. It was a fan of the bathroom though. Maybe block. 

Maybe, I don't know whether it was at her. 

hang 

on. Let me off. 

I'm so sorry to be so picky. 

No, no, I'm, I'm so sorry. I 

mean, we will. Yeah, but excellence 

instructions. 

So 

what do 

Okay. I think, I think the answer is going to be much better. I don't know whether it was okay. Um, okay. So with those different focus areas and the four of you.

does it matter if I'm a founder? Do I need to know who to come talk to? Like, do you 

guys have attribution that matters? How does that work? 

Yeah, we all were really cheap oriented. so I think there's, you know, 

all team, team-oriented other firms that are very attributional oriented. I'd say we're somewhat in the middle, but moving even more towards that team orientation. you know, if you're doing something in consumer wellness, it probably makes sense to come to me or Emily, if you're doing something and, infrastructure dev ops, you know, you should call Josh Rameau.

but the reality of the matter is it doesn't really matter what you come to. Well, quickly you hand off. So, um, you know, I'd say multiple times a week, I'm handing off a deal to somebody else where I think that they're more qualified to. Delete it. And then you also want to really give the founders the choice.

So it's not uncommon that, if you were a founder building a company at the intersection of consumer and wellness, maybe the call came in Emily, maybe that, you know, it could have been me, but I would, as an immediate next step, pull it, I'm only right.

Emily would pull me in. You know, I have a consumer background. Emily has more of a traditional health care background, and then we leave it up to the founder really to say, Hey, look, y'all, you've had the opportunity to interact with both of us. You know, we both have thick skin. Who do you actually, you, who are you more excited about working with?

Or if it's both, we'll figure out a way to do that where maybe one of us takes the official board seat, but the other one commits to observing. And so it's a really flexible model. That's meant to meet the founders where they are as opposed to imposing a way of working onto the.

Well, as you know, my company, of course, DFJ, led our series a and we met on dress first and, uh, we, and we were given the.

choice and we ended up with Emily on our board, not we liked Andreas. We just had a really good rapport with Emily and she was amazing to work with. So, great. And. And what about associates?

Sorry. One more tactical question on how you're set up. Like, do you all have associates that you particularly work with? Um, do a lot of founders. I mean, a lot of our founders, we send them to the associates at the funds because they're a little bit 

more responsive. How do you think about that?

Yeah, I mean, it's an interesting debate and back to the right, what's the role of a non-partner relative to a partner. we've come down on the side of, we think it's really important for a couple of reasons. One, um, from a generational succession perspective, if you think about, all four of us around the table, we all joined.

is non GPS. And so, the firm has a legacy of mentoring, working closely with people, um, and promoting from within. And so it's really important just from a, from structural perspective that we have junior talent. Um, the other is optimism, and sort of keeping a fresh perspective where, you know, when you have a group that's been working together for many, many years, things can get a little stale, right?

We all enjoy working with each other, but I kind of know exactly now when a deal comes in, how my other partners are going to react to it. I know what their pot buttons are, but it's really great when you have somebody else that's new to the mix and that sort of shakes things up a little bit, right? It can introduce new ways of thinking.

It sort of prevents group thing from happening. And it creates a sense, I think, of optimism and a fresh sort of new ideas. that particularly younger folks just tend to have. Right.  And then the third is around, expertise where, you know, the markets that we're interested in venture maybe a decade ago, are not necessarily the ones who are interesting today.

And so making sure that we have people that have sort of that, that freshness of, of sector focus as well, I think is important. 

Hm. 

So anyways, I'd say, I'd say those are kind of the three reasons that we are strong proponents of having junior folks at the table. Um, you know, we typically hire associates, um, you know, that have maybe done a two year program elsewhere.

Maybe they have a little bit of operating experience as well. Um, but we also bring in principals. So th the, the, you know, there, there are multiple sort of entry points in, um, and we try to make sure that we at any given point have an organization. Uh, reflects, you know, the, having people have to sort of the Ryan 

mumbles 

That's great. I hadn't totally realized all four of you had come in as non GP. 

that's all 

Wow. 

Josh joined in 2004, 

I believe.  Emily joined as her first job out of college. So she joined as an analyst. She went to Tim Draper to ask for advice and got a job offer. Um, as you know, as, as happens, many times Mo joined as an associate at hydro discipline.

That's so cool. And not something that I think you hear all the time and you are one of a small number of LA-based series a investors.

So tell me, you know, what is a fair way series a nowadays? Like, do you still have someone raising $8 million on a 30 pre or is, is it a totally different world now? 

I think things look dramatically different. and the semantics of rounds really brought, if anything, where I see series and is getting done, founder with a deck and an idea. If it's a repeat founder, maybe it's straight this series Ang.  I think there used to be this traditional, you need to be at a million or 2 million of ARR to raise your series a that's no longer the case.

I just want a company and raise a series a 350,000 ARR. now the interesting thing there is, there was a lot of them I mentioned out of the gate, and it doesn't take, you know, particular genius to draw the line or the, see that company. If it keeps executing on the current path, we'll quickly get to that million.

And so I think, you know, in this market, candidly, Preemption is really important for the best deals. The best deals are not wanting the best companies. The best founders are not wanting full processes. They're often getting preempted and the preemption often happens when you can draw the line two, maybe that million or 2 million of error, but so not quite there yet versus the burden of proof, maybe three or four years ago, and being much more on the founder to already be there, to get the funding.

 And how do you think about how threshold is going to get coverage, to see all the great deals that you want to see? Like, what are 

your, how do you guys talk about that and think about it. 

Yeah. We're, we're not necessarily a coverage based model. We often find actually that. Yeah, well, one of the things that one of my first, I like to say is that adventures on an activity contest. I think they're going to be a lot of comfort that people take in taking a lot of meetings and in quote, unquote, having a high percentage, I think it's much more important for us to say, what are the highest quality sources.

One of the markets that we're the most excited about now, let's make sure that we're doing a really good job of covering those people, whether it's angels or operators that tend to focus on enterprise or wellness. and so even if we don't have a high percentage of water market coverage, where you have a high percent of drug coverage in those markets, so we care a lot about

That's good. 

I think that, that helps me say no to meetings. 

obviously say no, right? I mean, the other thing that. 

One of the things that I think about is like given our fund size, we don't have to be all things to all people. We just have to be excellent at the things we choose to do. And we have the luxury, candidly of being able to choose what those things are because we've stayed committed to a fun size that allows us to invest in roughly twenty-five companies every two to two and a half years.

And so if you think about that cadence. One investment a month, you know, maybe even a little bit less than that. It's eight to 10 companies a year. And so we can, you know, we can, we can be really selective. We can have a high bar. We're not trying to be an index bond. Unlike, I'd say a lot of the later stage sources of capital they're, you know, doing a deal a day or a deal a week.

It's just a very different, it's very different.

I hadn't thought of them as index funds. 

I think of them as quality adjusted investment. you know, if I had to like articulate the game that tiger was playing, and I think they're doing a great job of it. It's you know, to some degree filter, right? Because I do think they have good sharistics going in.

They do a lot more from the outside, but it's really an index of just high quality, early stage and mid stage, tech companies. Um, and so they were taking a much more index based approach where I think the perspective is if we do a lot of these, you end up kind of rewarding. A little bit better than in the market because there's selection going in, but it's really, really you're betting on the technology market as opposed to on specific sectors or specific.

Hmm. Yeah. and then for you, what I talked about when I introduced you, I think I probably brought up some Pritzker companies, dollar shave club, Casper. those are much more street consumer, as opposed to consumer. wellness, healthcare  you know, how have you evolved? 

Yeah, that's a great question. I think, um, one of the things, when I first started in venture, a mentor of mine sat me down and said, by the way to be successful in this industry, you kind of have to reinvent yourself every three or four years. You can't get stilled, you can't get caught flat footed.

And I remember, you know, a lot of the stuff in the early on you're like, oh yeah, this has changed so much. What are you talking about? I'm like long do to see only where would it be considered writing? I can build my career. And first off he was right where I think DTC had a golden era, what, when I started in venture and I was, I was really fortunate.

It was, you know, more than I think skill where, my first operating experience in early stage was with Brian Lee. At the honest company, I was Brian's chiefs. And that was all based on, yeah, there's a large store that was based on a cold email, but really Brian thinking about, I mean, I, and I sort of, oh, I think a lot of hot markers have off to, to that'd be a formative experience, but I worked at the honest company then turned around and invested in the honest company.

It was one of my first investments in venture. And that then led me to investments in companies like dollar shave club, Casper and others. but as I saw that, that market evolve and I think that those companies did phenomenally well. But you also had a challenge around probably around customer acquisition and differentiation that really, I think, started emerging in call it 2016, 2017, where in the beginning there was the opportunity for, relatively healthy customer acquisition on platforms like Facebook, you know, Instagram.

Google, but over time, the pendulum sort of began to shift towards those platforms all the way from the B2C companies, where a lot of the customer lifetime value was being extracted upfront in the form of cat. and so I, spent a lot of 2017 to 2018 thinking about, you know, what have I learned through backing DTC companies around building brand around customer acquisition, around how to enhance customer lifetime value or not supply chain and logistics, but what are markets that have.

Maybe less distribution reliance on Google and Facebook, and also work through your modes and defensibility over time. And where that led me to was the intersection of consumer but also highly regulated, um, or regulated markets or markets where data, allows you to go over time from selling to just consumers, to going to maybe more enterprise buyers.

So in healthcare, for example, we've backed a number of companies where initially. The sales model is to go to a consumer and a buyer consumer. But over time, once you build your data sets, once you show outcomes, you're able to go to payers to be credibly and say, Hey, Mr. Payer, you know, we've now worked with a thousand consumers.

There's really clear outcomes data. There's really clear ROI. Why don't we partner with you on the distribution side to then distribute this to your, your membership base. You know, starting with a pilot and over time moving to, you know, away from just the per service to models and value based care.

So there's sort of a, if I had to summarize all of that, I think purely to see really interesting distribution challenges, thought a lot about those distribution challenges and thought about markets where you could start with consumer led distribution, but move to other forms of distribution over time.

and there would be modes of differentiation based on the data and the value of the data that you have. 

Yeah. And how do you get comfortable that accompany and how do you get comfortable that accompany is going to be able to make the leap from being a consumer company to selling to something like hospitals? 

Yeah. I mean, I think I said this to you before, which is, it's just such a jump sometimes. I mean, it's such a, you know, when you're evaluating a company, you're evaluating their ability, but say then to sell to consumers with the hope that they're going to figure out a very different go to market strategy.

And, and I think I struggle with some of those because I feel like the skills that are needed to sell the consumers is going to be very different than negotiating contracts with. Is it it's self-insured 

employers or something who might be the payers in those 

So would your employers or direct repair payer, or maybe it's like the hospital systems in the case 

of a 

couple of our companies, 

Okay. That's my point, which is selling to consumers versus selling hospitals is probably a very different skillset. um,

but I think that's what you're saying. You know, you think. You think that that's a bet worth

taking is cause then You have the, you have the proofs. 

You got to look for. 

I think, I think there it's having a conversation with the founder and making sure that they're not super imposing their own vision onto the company. I think it's one of the biggest risks that. Restful top. Right. Which is like, we all went to dream, but with, with the founder and sort of do that whiteboard, maybe even during the pitch right before, before we've thought before we've invested in the company.

And so I think one of the things that I try to be cognizant of is making sure that there's a collective vision around that. And if the founder doesn't have that skillset necessarily where they haven't sold to payers or self instrument player, hospital systems, that they have a plan to go get that talent.

Right. 

Hm. 

No gray hair better. Yeah. It is a gray hair veteran company industry. Right? I'm in healthcare. The more that I get into it, the more you realize that. And it is still highly relationship driven, and dominated by people that have been in the industry for a long time. And so the good news is a lot of those people that are, that have been senior in these organizations are trying to reinvent themselves later in their career, aligning themselves with more innovative companies.

And so the amount of the level of senior talent that we've been able to recruit out of maybe more traditional, you know, provider ecosystems to early stage companies has actually been really, um, really tremendous in the 

last 

couple of.  

and so what do you think about distribution today? You know, I think what you're saying is you wouldn't solely rely on consumer distribution, but there must be new channels or is it all just like, it's, it's just 

going to Google and Facebook. 

So I think there, there are, you know, Tech-Talk, uh, was a channel, um, you know, there's other sort of social modalities that are merged. I think the challenge though, is that the. I have a finite window, I think, where you have some arbitrage, um, and where you player and a mass followings and, and sort of leverage those platforms.

Cost-effectively, but it's sort of a law of economics, right? Where at some points in time, demand converges, um, and particularly in the U S where we have such a dominant, um, set of platforms, um, you know, they are, they are really do opoly. These are oligopolies where they have tremendous amounts of pricing power, and is any individual player in Adidas.

He lands. It's really hard to, you know, exert power against, uh, a structure that's inherently oligopoly stick, or even well mystic in terms of, you know, getting acquire and consumer 

eyeballs. 

The other challenge is like any platform that gets big it's acquired. Right. And so, um, it's, it's just hard.

Yeah. Um, and how do you think about regulation? Like, so you said you, you, you see sort of this mote aspect that you're looking for, but is regulation really a part of that necessarily? Or is it really because It's having a moat

around distribution? 

Okay. So now you're looking for some sort of distribution mode and selling into a regulated industry might be one such mote and selling into a regulated industry might be one such mode 

It's really having a motor on distribution, but also understanding kind of the regulatory frameworks that you have to operate in, um, to be successful. So I'll give you, I'll give you a specific example. I'm an investor in a company called loft. Lofty diem effectively allows the middle-class families to live affordably by hosting an onsite Airbnb.

it's typically an in-law or an EDU. So, protocol example would be, a family that just had a young child. They want to live in a single family home, but they, their budget for rent is call it three or $4,000. Um, in the cities that Lakim operates in Seattle, Denver, Atlanta, you can't afford a single family home anymore for three or $4,000.

Middle-class families have largely been priced out of that category. And so they have to move into condos where they can have a backyard. They don't necessarily have the space. So Joakim allows these folks that have been priced out of neighborhoods to move back. In exchange for hosting and onsite Airbnb and our economic model is basically we collect rent from the renters.

We collect, uh, Airbnb revenue and we're able to effectively make a profit based on having those two revenue streams while subsidizing the rent for that middle-class county. the interesting thing is, there was a bunch of work that went into under the regulatory side. Okay.

Historically regulator, city governments, politicians don't like Airbnb, right? They price that middle class family out, but for lock-in was really important to work with the regulators early on when the rights will be written to make sure that Lafayette wouldn't be sort of blessed by the model because it isn't really inherently aligned with the regulators you're looking for, which is the opportunity for these families to stay in those neighborhoods.

Um, and so, you know, loft games had been on the right side of even helping write some of that regulation. It's things like that. You know, Airbnb being allowed, even if you're a renter or not a homeowner, because there was a little bit of discrimination that was happening in some cities where, um, an owner could Airbnb out their house, but a mentor was not allowed to that's, that's kind of unfair.

Right. And so making sure, you know, things like that, you're on the right side of, and that's where regular regulations and effectively serve as a, um, they're, you know, as effectively a form of defensibility, um, or, um, you know, Alignment where, um, you know, we we'd be on sort of the 

right side of that. 

Got it. And, you know, in Lafayette's case, how much traction 

did they have? How did you meet. 

So I met them through, um, an angel investor or a friend of mine who said, you know, I know you're really like zany prop tech ideas. Um, here's one for you. Um, this was back in 2016, the business model was a little bit different at that point. Um, they will provide them. Uh, down payment support for a home purchasing.

So the initial insight was, um, middle-class again, families are being priced out of the single family home buying market because they don't have enough money for a down payment as housing prices escalate. And as discretionary income has been squeezed, you just don't have the ability to mass the amount that you need, the 20% or 25% to buy the home.

And so the idea was homeowner gets some down payment support. For an exchange for Airbnb revenue on the home after they move in. Um, the thing that really caught my attention was one that sort of innovative nature of the model, but two. The founder of  had done tremendous amounts of work on the regulatory with the regulators.

So in this case, Fannie and Freddie, um, and with banks, so their initial banking partners,  where they were able to get a variance that was exclusive to the company for, I think, 18 or 24 months to effectively have the equity that loftier was providing count as a source of down payment. Because it's a highly regular water runs, you know?

And so when you get a down payment, when you're applying for a mortgage, you have a represent, these funds are yours and that you haven't levered your down payment, right? You can't lever your leverage for a mortgage. And so off you haven't really need to be clear about not being a leverage, but about being a non-recourse form of equity in exchange for, uh, Airbnb, future earnings.

And so I, you know, It's really rare that you meet a founder. That's able to navigate the hallways of Fannie and Freddie, um, as a 20 something founder, to get a variance and to get exclusivity on that variance for a long period of time before others could, could effectively 

enter. 

Um, isn't our job. Interesting. It's he's learned so much about all of these things. Um, so on a deal like that, or just like, um, a series, a. You're, you know, you'll talk about price obviously is a big component. You know, how much money they're raising and what valuation, you know, do you often in the series a do a lot of other parts of the term sheet?

Like, are you cleaning up, you know, cap tables 

or are there other things that come up a lot?

Go for it. Unfortunately are. I mean, are there, there are. 

Couple of things that we see, um, you know, there they're are prevalent. One will be the safes or the rise of the saves, where if people have raised and piled saves on sale, often they don't know, unfortunately how much dilution they've already incurred, but because there was a compounding effect.

And so there is some clean up there around making sure that, that the safe math has been done correctly, but that people also understand kind of what that devolution looks like. And to the degree that it's gotten really upside down, you know, work on the founder, equity, incentives where we've had cases where coming into the series, a, you know, founders would either raised so much.

Or they've worked with accelerators or incubators that have taken so much equity that it's unclear if the founder would have the right amount of equity to be longterm incentivized. and so there's cleanup there 

that 

happens as well. 

And what, what do you think are sort of, I know there's no hard and fast rule, but sort of what threshold are you looking for for the founders to have versus the 

previous 

investors?

Yeah. I mean, again, no hard and fast rule, but I would, you know, at the series that you want to see, I think the current. Owning at least 30% of the business. and the investors only no more than 70% post series a and if it's not that I think you kind of have, you're going to have a pretty substantial downstream problem

Um, and so will you, will you have to sort of, uh, like what are sort of common techniques then for 

cleaning? 

expanding the option for right. And regress. Take some of that to founders based on milestones. Right. I don't think that you ever want to do a, going to be interview rarely that you'd want to do sort of a straight rent back to align for sort of the sins of the past. But I think figuring out if it, well, what, what w what do we need to have, you're doing it in collaboration with the tire investors?

So it doesn't feel like just to grab, and setting it up such that there's milestones where, you know, you're, re-upping the founder,  based on sort of business milestones, the whole sheet, and then making sure that the pool is large enough for her, um, future team members and 

executives. 

Yeah. Yeah. Interesting. can I pick on Casper? I don't know. Casper is when you were involved with very early, right? I mean, Casper seems like just an amazing story. I'm sure there are bumps. Like we, can you share, you know, was it always up until the right. Can you share any

interesting stories from Casper? 

Yeah. Caspo was not always been the right. I mean, I think that, they came out of the gate really strong, but then one of my pirate ones, there were a bunch of ankle binders there. you know, you had, you now have a landscape that has more than a hundred mattress companies that are actually in store.

And so I think what Casper had was an incredible team, first mover advantage, great economics that allowed the team to reinvest quickly in growth, because it sort of, if you think about sort of the LTV CAC math on that business, it's a time zero payback, where you've got to have two, because you know, there wasn't that much repeated at least initially or not, there weren't a bunch of new products.

Cross ops all of these. Initially you capture back all of your acquisition economics, that margin, so you can reinvest that into growth. And so there was this real virtuous cycle at the beginning. Um, but I think there were a couple of challenges with that business. Right? One was the ankle biter problem.

You know, a hundred others emerging. And then two, there was some non-competitive behavior on the part of other players in that ecosystem where a lot of the consumer traffic is being driven by review sites. And we got a couple of competitors that effectively bought those review sites in a way that the review side didn't even disclose.

And so consumers felt like they were. Going to the a third party that was being really objective about it. you know, providing recommendations when in fact these recommendations were funded by some of our competitors. and so I think to the, to the management team's credit, they worked through those issues.

they also did a phenomenal job of expanding the categories. The vision for Casper was never a mattress company. It was always a brand for sleep. And so if you think about Casper today, it offers a full suite sleep products. In addition to the mattress, you have pillows, you have DBAs and blanket. But also some more innovative sort of technology driven products around sleep aids.

Um, and obviously, you know, the company went public, a couple of years ago. Um, so, um, I would say it was not enough of the right journey. There were definitely bumps in the road, um, namely around competition round on competitive behavior from others. Um, but I think that the team's credit they've done a really good job of category expansion and of continuing that momentum through, you know, 

becoming. 

Yeah. I mean, do you have any advice generally on review sites? I just, I had never been through it until Yelp became this thing that man, I, we, we struggled

so hard with y'all, but shift. 

Yeah. What was your, what was your experience? Just, just people leaving 

bad 

reviews or 

Um, like people live like extraction is like, I'm going to leave a bad review unless you give me a thousand dollars. 

yeah. 

Like, 

what

Yeah. 

was time?

I don't have, I don't have a good answer to that. 

Um, it, it certainly feels, um, 

you know, and also y'all pass pretty strict Dodge terms and conditions where you, as a company, can't drive with use to them, right. They have to be unsolicited or non solicited reviews. And so there are companies like podium that I think have done a good job of being like the, uh, the layer in between a Yelp and, um, and the companies.

And I think. It doesn't have the same terms and conditions. So there are definitely platforms or sites where you can go to, and maybe that's changed, but it, at least my understanding of a couple of years ago was you couldn't push reviews to Yelp, but you could start with pushing on the Google and other platforms.

And so obviously, you know, and making sure that, um, one that you were, we actually are fundamentally delivering the right consumer experience. Right. Cause you, at some point, if you're not, the reviews will catch up to you, but then also making sure that you provide, um, you know, mechanisms for. Advocates to share their, their, uh, their, their sort of happiness with the products through companies like podiums, that that helped do that.

Yeah. So you've had this interesting view of venture, it really three different places, right? Cause he Pritzker DFJ threshold. what is changing? You said it's important to stay fresh. What is changing? How do you

think things will continue to change? 

So it's usually before I. Started in venture capital. I was in private equity. And so I have this interesting ones where I've seen kind of one asset class mature, or when I started in private equity, I would say. I'm not a sports person, so I'm probably butchering this analogy, but, private equity is probably in the seven bidding.

And now it's like in the night, there's not the night that he's the last one. Right. So product was firmly in the ninth and it is a completely professionalized asset class. Now there are mega players like the KKRs and Blackstone's, but then also room for separate specialists that have emotion. and the same thing is happening in venture capital, right?

Where I think that larger and larger platform. Represent a higher percentage of overall AUM. and so I think, right now, if this strikes me as there's two ways to make money in venture, right. It's either play the management fee game where you are trying to amass AUM or be really good, um, and play sort of the Cara game.

Um, I think the game that you guys are playing it's again, but we're playing, which is, we can't rely on, are you on to pay our bills? we have to deliver returns to investors. Right. And so, and then underneath. How do you do that? Right. And for us, and I think for you guys as well, focus matters, right?

And And so there's, I think in growth strategy, my understanding is a separate overlay, energy around half of them. Really, our strategy is largely separate room isn't described really Alicia's over time, continue to focus more and more. And that's probably been the biggest evolution. If I think about the change from Pritzker to that DFJ to the.

in a highly competitive market where there's a bunch of new entrants that need to define yourself and the need to sort of stick to your meeting to focus is greater today than it ever 

has been 

in Metro. 

Hmm. Yeah. Um, I want to ask some follow up question there, but I'm not sure what it is. Um, um, anything else about threshold that I should really be heading around your culture? The, you know, what, what else you've seen make funds not work are sort of running this strategy? Um, or what has

made 

funds really work extremely well?

and any other learnings of what works or what does not work. 

Yeah. I mean, look, I think, I think it's harder to kill a venture firms. Right. You know, firms tend to stick around for a long time. It's a one time. It typically is personnel issues where, people not necessarily done a great job of thinking through human capital strategy, or how to recruit, and retain the best talent.

it is fundamentally at the end of the day and people business, You have to have the right people on your team. and so when I think about the firms that have died, it's a largely been around the inability to do that. the challenge in venture is that, I often think of a lot of venture capitalists.

reluctant managers of people, but I think it's asset class matures. That's actually, it's actually unacceptable to it, to sort of, proceed in that manner going forward because inherent in the maturity of the asset class, there is a need to think about it. as, uh, building a firm, not just as individuals that are deploying capital.

and so I think you'll continue to, we we've been, um, we've been really fortunate in that we recruited a phenomenal CFO that plays some of that role. Um, you know, we have a woman, Heidi Ryzen, who's a legend in Silicon valley. Um, and as a board partner and provide some of that, some of our partners in narratives spend time on, um, working with our, our team through that.

And then a couple of us individually also. Pride ourselves on thinking through that, but that's a really important, critical piece in addition to just the business of 

doing deals, 

Interesting. 

I had Scotland net, um, on the show and he was saying, we call it apprenticeship business. And yet we have, we provide no, no, 

apprenticeship, you know, no, no mentors. 

that's all right. I mean, I it's it's we're we're, as I mentioned, uh, you know, Ritz was tall. Um, we, we made an offer to a principal candidate that we're really excited about, and I think we're describing their hurt. Look, 10 years ago, 20 years ago, when you joined DFJ, it was like, here's your laptop go make money.

Right? That was, that was sort of the attitude. And. No, that's just, that's clearly not the way to be successful in today's highly. No, it works. It worked in that market because it was industry. Um, and so there was so much low-hanging fruit. It was like shooting fish in a barrel in some degree. Right? Like if you, if you couldn't drive great returns during the golden era of venture capital, or there was so much accessible turn effectively, like you were probably just not very good at the job.

Right. But today, even if you're really well-intentioned and really good at this. Membership is more critical than it ever has been. Right? Figuring out how to get people, ad bats, how to leverage your network and transferred onto more junior people so that they are, um, set up for success is even more important than ever has been.

And so it's something that we take really seriously, um, 

in 

that threshold. 

Do you make a distinction at like how much distinction is there between role, the role of an associate, a principal, a 

partner, and a 

managing partner.

there are sort of textbook, distinctions, but our culture tends to be very flat. So everyone attends a partner meeting everyone's involved in the conversations around companies, not just, you know, at other firms, I've heard that the partners or, you know, junior folks only get to a pint of it's their deal.

Um, we've created a really flat culture around that. So there are things that. You know, fiduciary in, um, in manner or they're highly confidential things like anything to ruin some public company transaction or anything that relates to, um, you know, our own personnel, um, and sort of the decide decision to promote or how to compensate that are done in a more tightly held group.

But otherwise it tends to be a pretty flat structure where everyone, you know, on the deal-making side, everyone's kind of involved with some other way, doing it really exciting for junior people. I think more access, more access and more reps that are affirming than many 

other firms. 

Yeah. Do you think you'll be a 

VC forever? 

I think so. Yeah. In some capacity, you know, I, I think one of the coolest things about, venture is that it's really not. And then your career path. And so there are a lot of people that sort of weave in and out of the industry where they'll do venture for a while, but they'll operate for awhile.

We'll come back to venture, then there'd be something. I really love what I do. I really love the opportunity to work with really diverse set of founders. Um, and, um, and so I, I just feel blessed and fortunate to have, you know, I think was one of the world's best jobs. And so, I dunno, maybe maybe 10 years from now, something else will come up and sort of, you know, maybe, maybe there's an operating stint in my future, but I think at least as I'm sitting here today, I can't imagine doing 

anything house. 

100% early stage venture is the best job there is. Uh, do you have any thoughts on being a good board member or just the role of the board? 

Yeah, no, I mean, early stage ventures, so fun. any other great stories? Did we like, were there any other companies that, that you think, you know, we 

really ought 

to talk about.

Um, it's a good question. I'm trying to think of what your, what your audience would find the most interesting, because there are so many companies that we can talk about. Um,

Yeah. Or just, um, uh, let's see, you know, other lessons learned, like, even just like working with early in your career, working as a chief of staff to Brian Lee was, I'm trying to think if there was a question there, um, you being in that operating role and how that's affected your, your vendor lens.

Yeah, I don't know. My question is exactly. 

Yeah. I mean, there are so many ways to go there. I, I 

think operating teaches you more founder, apathy, you kind of know where the rubber meets the road and like what, you know, you don't come into a board meeting and saga islands change the pricing strategy. Right. You sort of have an appreciation for what it actually means to change the pricing strategy because you were the one that had to go do that before.

You understand kind of how it interconnects with other parts of the business and how disruptive it can be. So I think it's very easy to go to board meetings and Alpine when you've never w when you haven't been part of the rubber meets the road portion of that, uh, of that implementation. And I think operating just gives you empathy, both for the founder and how hard it is to be a founder, but also for the kinds of advice you provide.

And also for knowing how many degrees of latitude there are any business, right. Where it's really hard to like move the ship around dramatically every quarter. You know, versus having some fundamental thesis about the market and then changing, you know, small tactics over 

time. 

I also don't know how much the, the, the role of the board member really is to opine on those things. I'm curious what you think, because 

you're just not that close to the business. 

That's right. I mean, I think if you're ever, um, if you ever feel like you're operating the business or making decisions up the micro level or pushing the decisions to the micro level, like you're in trouble, right? I mean, that's, that's the business clearly gone off the rails at that point. Um, I think, um, when I think about the role as a board member is going to board meetings and really listening and figuring out what are the two or three things that are the most important short-term and long-term, and focusing all of your discussion and commentary on those two or three.

It's not the, oh, I heard about, you know, so-and-so's wife who did this, and this could be interesting. And let me do that. You can do all of that outside of a board meeting, right? There's certainly informed, you know, there's many informal communication channels, but I think a board meeting is really the best board meetings I've found are where you have like two or three big meaty topics.

Maybe one of them is short term in nature, or one's medium term one's long term. And you spend all of your time having a high plot and discussion on 

those 

things. 

I love that. I actually think I heard someone say like, look, if you ask the board what our lunch policies should be, they will all give you their opinions. But your job is to say, what are the two things I need to focus on and just stay 

focused on asking around those two things. 

Yeah, I think there's power. I mean, they're definitely board members that I work with that talk a lot and then there's others, rarely talk. And I often find that the rarely. have higher quality, you know, that like that, as long as those are, you know, and presumably, you know, both sides of insightful.

Like I found recently some of my authors that I've spoken to really appreciate the more, reticent, but focused board member, or as opposed to 

the verbal diarrhea 

board men. 

Yeah, I've got an opinion on everything. Um, personal questions now. So did you say you're not a big 

sports person? What, do you do? Do you run? What do you 

Yeah, I'm more of like a, like, uh, what do you call it? Like a fitness person. So I, um, I do berries. I run, I like going on hikes and walks and, um, there's just like enjoying what California has to offer, uh, in the outdoors. Um, but I never was a big organ. I was never a big organized sports.

Uh, what's the, the question it has for sports, but it's the same question. I'm like, what's going on in your head when you're, doing fitness? Like what do you, 

what do you 

like bar bootcamp or something? What, what are you 

So I, I love berries 

because it is this all immersive, you know, for people like you and me that are always thinking and cerebral and her husband. Barry's kind of pushes you out of your head and into your body. And it's because they've designed every element of experienced, it's sort of reflect that. So you walk into the room, the lighting is a very specific kind of lighting.

It's dark. It's sort of you, it was phenomenal. Music. Music is sort of, they have a great sound systems. The music is overpowering in some ways I actually have to put your plugs in now because I getting all of it. I don't want that. 150 decibel sound in my ears all the time. But, um, uh, but it, it just, it, it forces you to get out of your head and into your body because you're so immersed in sort of that sensory overload environment.

Um, and I, and I,

So it was more, yeah, it's more focused on 

your, your muscles, your breathing, your body.

sorry, we're really aware of 

what your body's doing. You have because the velocity of movement is also so high or it's like one moment you were doing jump squats. The next moment. Doing curls. And then you have to like do some weird move and you have to be paying attention. And so you just, you, you can't both in about the board meeting or the company or the person that you able to have a tough conversation when it gets there requires you to 

be 

fallen, present. 

 📍 Yeah, no, I, like that. I need, I need all of that. I can get my life, um, but actually doing a podcast, it forced me to really focus on

the person I'm talking to, which I really enjoy. 

Yeah, it's kind of, I, you know, one of the things that I aspire to do more of is meditation, but in a far away barriers is kind of as close to meditation that I've found in terms of at least your mind being clear, um, focused on the present moment, as opposed to on the 

future past. 

Yeah, totally. Um, well, sure. I am going to let you go off with the rest of your day. I appreciate that. You're still, um, focused on 

LA and I appreciate all your insights today. 

Maybe this was a pleasure. 

Thanks 

so much. 

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