A Chat with Semil Shah, Founding General Partner of Haystack

Some real talk

Semil Shah has been a prolific writer for a decade. He has done a lot of interviews over the years. He is one of the few practitioner-writers who can consistently capture the zeitgeist of what’s going on in the startup and venture world through his writing! We won’t cover the getting-to-know-Semil questions in our chat here. I just want to be real, not popular!

Sar : We will start with the easy questions. What have been your strongest held beliefs about Silicon Valley broadly and venture specifically over the past decade that you think was challenged the most in 2020?

Semil : There are so many, so perhaps the most useful thing here is to mention one that rises to the top (for me) on each.

With respect to the Bay Area (which includes Silicon Valley), one of my strongly held beliefs is that this local ecosystem is nearly impossible to replicate anywhere. There are countless posts and Tweetstorms as to why, but I think it boils down to the intergenerational culture in the area whereby folks are conditioned to accept delayed rewards, to invest in the ground around them, and to pay it forward. Those attributes are really hard to find anywhere else in the world. I do see bits of this happening in NYC. I’m sure there are initial vibes like this in other places, but it really takes generations upon generations to build it into the culture. Over the decade, and specifically in 2020, yes that was a belief that was challenged intensely. California and the Bay Area had very strict lockdowns. That created all sorts of tension, and has shined a light on local governance, policies, education, etc. in a way that’s pretty alarming. Then, the 2020 fires. We had very close friends who just “tapped out,” to borrow a UFC term, of the Bay Area. Despite all of those natural and manmade obstacles, I still believe the Bay Area is a very unique (and flawed) place in this regard, but that was really challenged for me over the past 12–18 months.

With respect to venture capital, when I started out I thought “venture didn’t scale” and, like many others, didn’t see how funds could scale into the billions of dollars per vehicle and really drive a return without being in one of the very few massive companies, like Facebook. This is a more traditional viewpoint, and that was certainly challenged since 2015 and really in 2020 — the truth verifiably now is that the size of the end markets for cloud software are significantly bigger than even the biggest bulls believed them to be. So, because cloud software can be anywhere, and because the entire world is coming online, and because of accelerants like globalization or the specific responses to the pandemic, the terminal value of an investment position can be orders of magnitude larger than what most traditionalists (like my old self) thought.

Sar : There is a lot of talk about how the biggest companies are now thinking about going back to offices. How are the biggest VC firms thinking about it? For the longest time, Sand Hill firms have prided themselves on “home turf” advantage.

Semil : The short answer here is, we don’t know yet. Generally, I think the top VC firms will be the last group of companies in the Bay Area that “blow the conch” to call their employees back to in-person meetings. For many of the top firms, they don’t exactly know where their senior partners are during a given week right now — and for sure the non-partners. During the last 18 months or so, many of these funds have also recorded historic returns on exits and IPOs. There are always folks who are in the Bay Area because they felt they needed to be, and now that’s been relaxed for a bit. So, when you put this all together, I would predict the following: A number of senior partners will not return to their funds, either because they want to live in a different place, or they’re post-economic, or whatever. The majority will be back to in-person meetings in the Bay Area by January, if not sooner. We will also likely see deals begin online (via Zoom) and perhaps close more in person, either in the Bay Area or with the partner hopping on a plane. We see a bit of that now. And while companies can be built anywhere, I don’t see the Bay Area stopping its parade despite how poorly managed it’s been as an area/state. So that home turf advantage for information flow and dealmaking will be there.

Sar : There’s a lot of chatter about how the current pace & valuations are justified because markets are bigger than ever and the search for yields. Are we risking overcapitalizing an entire generation of companies for striking gold a few times?

Semil : I don’t know if we should worry about this. CEOs and founders have free agency to operate in the manner they choose. Many of them could go public earlier, but they choose not to quite often. Is that good, or bad? I don’t know. For Snap, it was good! For others, maybe not as good? Ultimately, it’s the founders and CEO who call the shots, and it’s a free market, and the capital sources (LPs) who bankroll these growth and pre-IPO funds keep the funds flowing, so why not?

Sar : That’s fair. You earned respect in Silicon Valley with your writing in the early 2010s. Everyone wanted to talk to you but no one wanted to offer you a sweet gig. How much do you think the reason for that was your industry shunning people that don’t fit a particular mold? I always giggle when your peers go “well I just fell into venture” or “I had a very non traditional path to venture” without any irony on podcasts.

Semil : I’ll give you a three-part answer. The first part will be about my experience, and my reflection on it; the second will cover the reality of how the very best VC franchises are run and constructed; and the third, I’ll pontificate about the future.

So first, about me, when I think back to those moments of rejection, it is devastating. It honestly feels like yesterday. No one cares about someone getting rejected to work at a VC firm, but it’s the mounting rejections, compounding like bad credit card debt. However, as I’ve slithered my way through the inside of many firms, and with a greater appreciation of how the business actually works, I don’t believe those firms made a “mistake” not hiring me. In fact, with hindsight, I think they made the right decision. Eventually in my career, I was flooded with big time offers, but during that period of rejection, the harsh truth is I didn’t offer anything unique, differentiated, or of value. Sure, I was putting my written work out in public, and I knew lots of founders, but that’s not good enough to make the cut. Eventually, over those first 2–3 years, I was able to demonstrate that I could forge relationships with founders, that I could articulate judgment about the opportunity (and the people), that I was comfortable with being public and wrong, and that I could persuade others to give me a chance. Once this became more evident after three years, the offers came in.

Zooming out, when we think about the very top VC franchises, many folks assume that if you just hired there as a junior person or with a cold email, you can work your way up the chain. That is not realistic. The overwhelming majority of the most senior and powerful decision-makers in their respective funds earned that power through by a variety of means, which are hard to attain in the first place — they are mega-successful founders; or they’re former product leaders at cutting edge companies with an active network of recruits and angel investments; or they’ve been poached as up-and-coming investors who broke out from other funds, already coming in the door with institutional investment experience. Sure, a small handful of the top brass at firms have been mostly career VCs, but that is changing rapidly and is generally not the normal path.

Finally, a quick story — one of the top Fund of Funds (pools of capital which allocate funds into private equity on behalf of endowments, foundations, and pensions, etc.) cited, in no particular order, the following people as being in the Top 5 younger GPs aged 30 or so, based on unrealized track record — Chetan Puttagunta, Miles Grimshaw, Nikhil Basu Trivedi, Shardul Shah, Vas Natarajan. If you glance at their profiles, most of them have been investors for most of their professional lives, perhaps busting the “operator-to-VC” myth today. That said, if we fast-forward to 2030, who would make the list? We don’t know, which makes it fun to pontificate — will the list consist of women, or underrepresented minorities, or former founders or operators? It will be fun to see!

Sar : You very much have the “do you want to complain or do you want to win?” mindset and that is why I respect your views.

That being said, every other month, I see lots of people joining the venture world with far less demonstrable aptitude than what you had. What they do have is they were in the right networks and went to the right schools. This is not even a matter of opinion. There’s ample stats out there that support it and a cursory look at top 20 firms’ team page would show it.

Are we really saying that 2012 Semil was far less qualified than all the 22–25 years old banking and consulting people getting hired by top tier firms? I do not understand what about short stints at Goldman and McKinsey along with Stanford or Harvard Business School make people more qualified than people who know how to hustle, write prolifically out of natural curiosity and have a knack for building reputations.

Semil : I do believe age is a factor. For “recent college graduates” who are around 22 or maybe 24–25 after a few years at McKinsey (haha!), top firms do still look here as filters for the type of talent they want. So I was in my early 30s at the time without any experience in finance nor in technology. Now, you’re asking about “qualifications,” and those are subjective. What I’ll say is, it depends on the role — if a firm is looking for people to source deals, or to help conduct research or due diligence, or to help win deals and position the firm to win — it’s very rare for one person to have all of this. Most firms for entry level roles or new hires put them out there to conduct DD, do internal research, and maybe occasionally source. That’s why the McKinsey style profile resonates. The senior partners are the dealmakers. And those dealmakers would much rather get to know someone over a long period of time and have them separate from the pack and overpay them than to keep a pool of qualified candidates warm.

Sar : Do you think 2012–2013 Semil would have many more options for joining established firms today?

Semil : No, I do not.

People in our industry like to complain about how many new funds are being created, especially small micro, rolling, or syndicate funds. It certainly creates a metric tonne of noise, mostly on Twitter and Clubhouse. The reality is everything associated with “startups” has dramatically increased and permeated society — end markets are larger, more industries are transforming, there are more platforms for builders to build things without seeking permission, and the capital required to build software products has fallen dramatically. So even though it feels like there is a lot of investor-related noise in our ecosystem, it still isn’t enough to meet the demand of all the new startups with hopes and dreams of world domination.

In the old world, traditional VC firms would hire associates on payroll to dial for dealflow. Those were proprietary networks around the Bay Area and other ecosystems, when the industry felt more like a cottage industry. Fast-forward to today, being an analyst or associate at a big fund is good for exposure, some salary, an expense card, but otherwise it’s largely just a waste of time. Now those would-be associates can put their own capital (or on behalf of a syndicate or rolling fund) to work and reap the benefits of being closest to the deal flow. This has disintermediated many firms, more than they’d care to admit. Out of this commotion, new institutional firms will form — look at incredible franchise platforms today like Forerunner, or Initialized, and Amplify, just to name a few — they’ve risen from modest seed funds into ones that can actually compete for contested Series A rounds with the bigger, established funds. Not all newer investors will reach these heights — some will get a junior partner or GP gig based on their track record; some will build their funds up but stay small (like me); some will just fade away.

All of this is to say, would the “2012–13 Me” have gotten that junior partner gig at a major firm today, in 2021? I don’t think so. I would have been competing with the likes of some recent post-MBA types currently at top firms. I am thinking of two friends who are more than 10 years younger than me, already versed in VC after joining, already had some deal-making experience before business school, and right now, they’re able to cut through the red tape at their own firms and put their names on real deals. We don’t know for sure, but I am not sure I could have been able to pull this off. I can now, but not the “me” back then.

Sar : By the way, I do not think that venture firms owe anyone any job. They are entitled to tapping into their homogeneous networks to hire. What many of us take contention with is the lack of honesty. There are countless blog posts from well known people with these stereotypical trajectories on how to break into venture. They advise nothing they themselves did. What I respect about Wall Street bankers is they do not pretend they don’t have lazy and archaic ideas of “target schools” in how they hire. They own their elitiscism. I like that! Anyhow, let’s move on to yet another controversial topic!

Not too long ago I tweeted that venture is a trap for young people and that either you are lucky enough to get a big break at the right time at a very limited set of top tier firms early on in your early to mid twenties or you are bouncing between second & third tier firms for years hitting a ceiling. That sparked our conversation about career trajectories and very similar backgrounds of rainmakers at established firms today. Can you share your perspective on those topics?

Semil : Yes, I remember immediately DMing you on Twitter about this. Your insight was so on point. I feel strongly about the following statements — if you are young and able and interested in startups, technology, and venture capital, spending time at the right venture capital firm for you can be incredibly rewarding, up to a certain point. After two years, if you don’t love venture capital, getting into the muck of how the fund is run, fund management, and fighting your way to get to be more active in deals, it is just a colossal waste of time because after a while, any skills you’ve obtained before joining a venture capital firm will essentially atrophy into flab. The cost of this atrophy is compounded by age — wasting years 23 & 24 inside that big firm is an order of magnitude less costly than ages 29, 30, and 31.

If you just look at the evidence today, for example the 5 top GPs by track record who are at or around 30 years old, it is informative — those folks started very early in venture, they loved it, they fought their way into leading deals, and grabbed the GP mantle. That has to be the mentality when entering a firm — up, or out. But the trap is hanging around too long as life passes you by.

Sar : As a VC, you are meeting and exchanging emails with dozens of people every week. You are constantly being introduced to new people. I understand the pressure to expand your surface area. An occupational hazard is being transactional with most people! That dynamic often transfers to how firms hire. You want to keep meeting young interesting people and be non committal to reserve optionality. I have experienced this myself. Any thoughts?

Semil : Look, the reality is no leading venture capital firm has a “good process” for finding, recruiting, and handling those who want a job at their firms. The firms themselves are stretched very thin, so this slips. These firms are literally flooded with overt overtures and subtle pings or nudges about considering a specific person to hire. They’re lobbied, pitched, and campaigned to no end. This doesn’t excuse the behavior you’re describing, but hopefully explains it. As I’ve seen and helped many people enter different sized venture capital firms at different levels, I’ll share what I see is a pattern that emerges in a successful “intro to hire” situation. First, there is a senior champion internally with the firm who wants to push the hire through. Second, there is a strong external champion who will put his/her reputation behind the candidate. Third, the timing aligns. But, it can take years to get to know a firm, and for that firm to be “in the mood” to bring someone onboard.

What your alluding to specifically is — “Hey, this firm was never gonna hire me (as Sar). So, why didn’t they just say that upfront?” My best answer here would be a mix of the following — most of these people feel bad just saying that, because they know how crushing that can feel to the recipient; many of these folks likely liked you a lot but may not even know the first thing about how someone gets hired in their firm at all; and it can be draining for investors who get lobbied all the time for a gig when they really may just want to talk about other topics, or companies, or such. It can be an unseen weight around the conversation. I know from my 2010–13 experience, and the way you framed it, I am 110% sure just my persistence and presence when I met some of these folks felt too much like I wanted something. The pretense can feel thick, heavy.

As with so many things in VC, I believe Union Square Ventures has the cleanest model for this. At the GP level, partners are only invited into the partnership once they’ve collaborated with the firm before — consider Albert was an executive in the portfolio and an active angel investor prior to joining USV, or Andy was an investor with Betaworks and frequent co-investor. Next, partners join as “half partners” in terms of economics to run through one fund cycle, and then join as a full partner with those economics. They don’t seem to promote from within. They do, however, have an active analyst program, where recent college graduates and younger professionals can apply online in a competitive process and work at the firm for 2–3 years. Those analysts are not promised anything from Day 1, so the engagement is clean.

You may ask why I know all of this? Well, for many years, I pressed Albert, Andy, and Fred hard to bring me in. Looking back, that was a ridiculous plan — but I listen to my gut and I didn’t want to not try. So, I really tried. The bad news is I learned about their model instead; the good news is that, I think, I hope, they respected my overtures and engagement. It’s a very unique fund and there’s so much to learn from them. Perhaps there is a lesson in this, too — for you recently, or me back then, perhaps the real morsel isn’t the job we sought, but that if we view them as learning experiences, we may pick up secrets from others that we can apply later in our career. Because I spent so much time with a handful of firms, I didn’t pick up any offers, but I picked up lots of secrets that I try to mold into Haystack today.

Sar : I appreciate you giving us an insider look at how hiring works at these big firms. Yes what you described is an explanation, not a justification for behaving badly and wasting someone’s time. The power dynamics and demand outstripping supply obviously enable VCs to do this while still tweeting about how their portfolio companies should approach hiring. I am onboard with you on learning from these experiences and playing the long game.

Semil : Being casual and aloof if one thing — outright misleading young folks to the point where they really think an offer could be coming is straight-up bad behavior and should be called out by the persons who were subjected to that. There are enough social media channels and enough investment firms where I think a short and unemotional tweet about Firm X or Y or Z is fair game. It doesn’t need a Medium post, but that type of behavior is also important for founders to know, as well. Alongside this, folks need to also take care in playing the victim card. In the business world, deals get strung along. People manipulate others for leverage. It’s not ethical, but it happens. People — like you and me — need to learn to drive toward an outcome, to drive toward a decision, to not wait around for others to give us something, but rather for us to grab what we want.

Sar : Switching gears, what are some views that multiple seasoned investors share with you privately that they wouldn’t be comfortable saying publicly? What are some views you strongly believe in and that you get the most pushback on?

Semil : If I were to distill the most frequently-raised topics in private chats among VCs, I’d cite two things: First, many individual investors are watching closely what other investors are doing, what check sizes they’re cutting, their ownership, their winners, and so forth. They can be jealous of other colleagues’ portfolios, or shake their head at deals they passed on but others did, or be genuinely happy for other investors they like and respect, and so forth. The stakes are so big for making sure you have a fair share of winning companies that this information becomes valuable currency. Second, especially among the most successful investors, they stew over their bad misses and barely discuss their wins. This is a type of psychological trait among investors. They fear repeating the miss, to the point where they replay it in their mind, crowding out other signals, even winning ones. They’re trying to get better in this manner. On Twitter, you can just see this person promoting their portfolio, but that could be what their firm or founders ask them to do — but inside, they’re watching their competition and they’re trying to not to make too many mistakes of omission.

I hold a few viewpoints strongly on venture capital fund sizes. I can be overly philosophical about this, perhaps to my detriment. I believe most funds scale their assets too fast, don’t get enough ownership in companies based on their fund size, and can’t generate real returns with bigger funds. Now, of course, there are 100s of counter-examples. But it’s one thing if firms like Accel or Redpoint are able to find $10B+ winners across multiple funds — a fund like Haystack, I mean, who knows? So I’ve personally resisted raising bigger funds, even though people have thrown hundreds of millions of dollars at me, because I think this invites more problems and changes the dynamic of how I operate. I’d have to probably hire a bigger team; I’d have to try for more ownership when it’s really hard to get ownership these days; I’d need to be in $10B+ companies, not just boring unicorns; and I’d be competing against investment platforms that have built up a compounding advantage. Maybe I’m making the wrong decision, but I do sleep at night and I never feel any pressure to deploy capital, and this frees up my brain to focus on the entrepreneurial opportunities in front of me.

Sar : I want to talk about the value of brands in your business. There’s two extreme ends of the spectrum. On one end, there are people who do not have their own standalone reputations but the institutional brand lends them credibility. We see this with people in their early twenties getting hired by top firms. On the other end, the individual brands overshadow the institutional brands for some people. Why do some investors pump up their own brand or act a certain way when it’s the firm’s brand that props them up?

Semil : This is one of my pet peeves and I’m sure it irks founders to no end. Here’s the situation — someone with a marginal track record is at a Top 10 fund, and instead of engaging the founder around his or her business, or instead of sharing ideas on Twitter, this person instead tries to “big man” (or “big woman”) the founder, or tries to act authoritative on social media. It’s a dumb look, and founders (and others investors) notice and talk. I can only explain “why” this happens — so much of venture is about sales, so the people who do this are trying to sell themselves in some way, often ineffectively. These folks will always be there — it’s not just inside venture firms. They’re in banks, they’re at pools of capital, they’re inside big tech companies, too. And the reality of the person inside a venture firm who does this to irk others, he or she is only judged over one potential grand slam investment. There’s a lot of talk online about a firm’s NPS, but the reality is that most firms can’t manage these interactions to perfection, especially in gray areas. So, at the end of the day, I think it’s up to founders to decide what they want to pay attention to — one day it could be a pompous VC, and the next week it could be a pompous BD person inside a key customer, or a pompous staff member. They’re all around, and inside VC firms too. Instead of getting aggravated with them — and they are aggravating! — I think the meta move is to identify them quickly and move on.

The VC marketing and boasting you’re referring to is definitely eye-rolling material. Remember, VCs are narrow-casting to specific audiences when they speak publicly - to founders, to those who feed them deals, to their colleagues, to their enemies, to the press, and their current or future LPs. And, in most cases, it works, so they’re rewarded for it. But yeah, a lot of people are not going to like it.

Sar : The industry operates more or less the way it did in the 80s. It took a global pandemic to realize taking pitches on a video call and wiring the money is an option! It also feels like the rise of alternative paths to startup investing outside of the venture firms is driven a lot more by macro environment than by industry-led changes outside of a few forces like AngelList. Why do you think that is?

Semil : Lots of misnomers on this topic.

First, there has been real innovation in the venture industry. Look no further than newer investment platforms like Y Combinator or First Round Capital, which leverage software significantly more than their older counterparts. Or, consider AngelList, which unleashed software-driven syndicates as SPVs and today rolling funds with full back office administration. Or, the emergence of sector-focused funds like Ribbit, which have picked the right wave at the right time.

Second, many successful firms could reply to your question with, “So what?” Consider a firm like IA Ventures, widely considered to be the best pure-play seed fund, or a firm like Meritech, a growth fund with a tremendous track record of picking winners at their inflection point. I don’t want to speak for IA or Meritech, but I don’t think they’ve tried to innovate the venture capital model or firm operations — they just make great, sound investments, they construct the portfolio properly, they pick good deals, and they treat founders well.

Sar : YC and First Round were founded a very long time ago. I’m referring to the very slow pace of innovation in how the business is conducted.

Semil : Quick example would be Initalized — they’re building software internally (like YC) to help them manage deal flow and their portfolio. Or look at Sahil Lavingia, who is building a “progress tracker” for founders to know where they stand. Put this way, I’m surprised more firms haven’t built their own custom software. That’s a valid critique.

Sar : Speaking of changes in venture, what are the consequences of having so many individuals being able to write small checks and often lead rounds on how the industry is organized?

Semil : You allude to the rise of Solo Capitalists as well, people like Elad Gil who have the ability to lead rounds themselves. My two cents here is that this happens because you can have an experienced investor with a real track record (like Gil), who is connected to pools of capital, and who most importantly has earned the access from founders who are in-demand who can quickly aggregate that capital into a round, with more favorable economics back to the capital source. The risk with solo capitalists is that they may not get the pricing right — then again, getting the pricing slightly wrong on a $1–2B valuation when the company can turn into a $50B company may not be the kiss of death. The other end of this spectrum are the crossover funds who started with public roots and have slowly marched into privates and, then, into earlier stages. Most observers will wonder why they see Tiger Global leading a seed deal in Latin America — the reality is the firm has been incredibly successful in publics, and then privates, and now has the data and nimbleness to meet founders early and buy ownership. People like Gil or savvy groups like Tiger can and will give undifferentiated growth funds a run for their money, and with the end markets being so massive, especially after the pandemic lockdowns, the potential upside is so large it will likely cover any craters.

Sar : A lot of SV insiders lament how there’s “too much capital”. Who gets to decide what the optimal level of capital in the ecosystem is?? Are we in a new normal?

Semil : It’s a free market! Buying shares of promising technology companies is one of the greatest investment areas today. Fred Wilson famously says the only place he knows (maybe outside of crypto) where you can 100x your investment is in early-stage startups or leading the growth round of Zoom. Now with ZIRP and the digital acceleration triggered by the lockdowns, it’s pushed everyone earlier. There’s no point in lamenting how much capital is in the ecosystem though. It’s just wasted energy. Instead, limited partners and fund managers need to think about what game they want to play given the game being played on the field. I know many LPs who do lament this, only to see spectacular returns from the past decade; I know some VCs we both love on Twitter keep banging this drum, but it’s all hot air.

Fundamentals matter. Are investors connected to interesting networks of creators and startup founders? Can they meet and work with their fair share of the best ones in their networks? Can those investors write a big enough check relative to their fund size to get the ownership they need? Can those investors maintain or increase their ownership in their best companies? Can they drive a return for their limited partners? It takes a few years for that to shake out. Folks who are skeptical can hold back their capital and/or adjust their fund size or strategy. Limited partners can stop investing in certain funds. Those funds can be more disciplined in what they invest in. 2021 feels like a mega “Risk On” world, where the only downside is not taking a big swing in something interesting.

Sar : What do you think are the characteristics of the structural winners and losers?

Semil : I have absolutely no clue. I have no idea about the future or what traits matter. Like the Joker says in The Dark Knight, “I’m just a dog chasing cars — I wouldn’t know what to do if I caught one.”

Sar : I want to talk about memes and how they play a role. You have written about information triangulation before : “Early-stage investing is significantly more random than many folks would like to believe…Whatever those investors end up picking, they all likely use some form of subconscious echolocation (I’m guessing) to prioritize what to pay attention to in an endless stream of early-stage deal flow.” How can companies make best use of this dynamic?

Semil : It is 110% true that in order to get the real attention of a big VC firm, one either needs to have an incredible team, traction or likely both — or, for that VC firm to “hear” about product X or Y from different, non-overlapping sources. This is a type of signal they use to triangulate and see through the clouds, like instruments in an airline cockpit. I refer to this as “surround sound” or “echolocation.” For founders, the best way to leverage this is to have customers and users sing your praises for you. Seeding this activity is OK, too — perhaps a worthy endeavor in the fight for attention.

Sar : Every few months, a trend or idea becomes the topic du jour. For instance, software for finance teams was one of them last fall. Once a prominent firm writes about it, multiple firms follow in the next month or so. My sense is not associating yourself with an interesting set of ideas when you know your competitors have publicly could hurt deal flow. What’s your read of this meme driven cycle?

Semil : I am not sure I have a great answer here. I’ll tell you what I see. Seed, where I play, is a bit different. Most larger VC firms want to catch a company at an inflection point. Identifying and getting into a company that’s working is more important than paying $60M pre or $120M pre money. So when these new trends bubble up — social audio, non-fungible tokens, freemium productivity apps hijacking GSuite Apps, etc etc. — they want to see the deal and often place a bet. You’re right that some of the top firms can drive the agenda here either by tweeting or blogging about a space, and/or making a “statement investment” in a specific company. All the big top VC firms intensely track what their “peer” firms are doing, or so they like to think, and when these funds are bigger, it’s easier for both conviction and FOMO to kick into gear.

Sar : Speaking of signals, I want to talk about how people accumulate social and financial capital. A big determinative factor is being associated with the right companies. It doesn’t matter how intentional and hard working you might be, there will always be people who threw a few darts blindly and hit a jackpot as an investor or operator and that perceived success begets more success. Thoughts on how to get better at navigating it and confronting this reality?

Semil : Reputation is one thing, financial success is another. Sometimes people have both, sometimes they just attain one, many attain none. Reputation is often earned by association and/or what people say when you’re not in the room — someone’s “brand.” Financial success can be truly random. I have a good friend who was a senior leader at a startup that became a HUGE public company, and then he became a VC where his partner led the Series B in a HUGE public company, and he got hit by the lucky truck not once, but twice. But he doesn’t really have a “reputation” among others, other than his friends love him because he’s a great person. So, some of this is luck. There was no way to know these things would happen. Some of it is access, that he had access to these opportunities, but he earned that access and had multiple offers each time. And he chose those two opportunities out of many. Ultimately, I’m not sure it’s something one can proactively prepare to navigate around. However, confronting the reality is more interesting — there are going to be lots of hard-working, brilliant people with stellar reputations who don’t hit financial success in the way this person did, and that can be really frustrating. I don’t know if I have any wisdom here other than to pick people who you love working with and helping others, and giving yourself many chances to get lucky.

Sar : My grandfather used to tell me there will always be someone less competent, much younger or far dumber who will have ten times more financial success than you do and that’s just life so suck it up!

Semil : Since you brought up your grandfather, I feel that! I mean, today, it seems like lots of people expect that if they put in the right “inputs,” they’ll get the “outputs” they feel they deserve. It doesn’t work like that, and it never will. The zen approach here may be to just follow the path — a path of following a technology, or trying to solve a problem, or building things with friends, etc. — and let the outputs fall where they may.

Sar : Switching gears, what remains unsaid or misunderstood about the narrative around diversity in your business? Is there some broader under-discussed story here or is this just like people leaving big companies to start new companies together?

Semil : It’s a problem, but I think there’s a deep desire to address it — most who are doing things about it don’t want to thump their chest about it on social media versus just showing the result, which takes time. I am sure the very top firms have been trying to recruit senior talent that’s either female, diverse in an underrepresented way, for GP roles. The reality is that many of these folks who fit the bill that are recruited by these VC firms reject the offer — they can make more money and wield more power as a product leader at a big tech company. I’m biased, but I’d invite someone to look over the investment team page for Lightspeed, where I’m a venture partner.

Sar : What’s your take on the increasingly louder complaining about the Bay Area? The Clubhouse chat between a few techies & SF DA crystallized this in our zeitgeist.

Semil : The chatter about the Bay Area’s problems, at large, are distinct from what’s happening in San Francisco today. It’s no surprise to anyone that the Bay Area overall is not run that well — the system of governance that’s set up around it makes it so hard. For San Francisco, I think it’s a very expensive city, there are really difficult, highly-visible issues, and people don’t seem to be very satisfied or inspired by the direction it’s heading in. Stepping back, I do wonder how much any elected leader in the city could do — there is so much bureaucracy built up, it just spirals out of control. I feel bad for the city but I think sadly it is going to go through some painful readjustment.

Sar : Speaking of Clubhouse, any thoughts on how the big companies are responding?

Semil : It used to be a code violation for U.S. startups and large companies to clone new products. Remember when Zuck and Facebook were ridiculed for trying to copy elements of Snap? Today, it’s a copycat culture war all around. Twitter, LinkedIn, Slack — you name it — they see a new behavior emerge, and they put a product team on it. Overall, I like the level of competition. It feels healthy. And also comical.

Sar : Let’s do a couple questions we crowdsourced on Twitter now before wrapping up with the Miami question. How do you think about dealflow and getting into competitive rounds?

Semil : This wasn’t intentional, but 99% of the flow just comes through people I know — founders we’ve backed, friends in the industry, LPs, other VCs, you name it. There is no pattern other than it is social. Deal flow is everywhere. What’s in shorter supply is the judgment to sort through the flow quickly, to connect with founders in a real way and persuade them to work with you (especially since most are mostly dilution sensitive at the end of the day), and to put yourself in a position to win an allocation. I also don’t try to chase hot rounds. Instead, I try to find people early who could transform into “cool kids” later on, but at the moment of investment, they are not “cool kids.” Some seed rounds are competitive and obviously good investments, but many other seed rounds (where the company eventually goes on to success) are weird, funky, and not competitive.

Sar : Have you evolved your thinking on warm introductions?

Semil : This is not meant to be an edict for others, it is very personal to me. So much of how I invest is about the person. So where the introduction comes from matters a lot to form that new relationship. I also think it points to how others connect in the real world. You can’t just send a cold email to Walmart. Maybe some guy on Twitter did once and it worked and he tweeted about, but that’s not the real world. The real world is that you have to slither, fight, or meander your way into Walmart. The behaviors around fundraising — how one gets an introduction; how one presents a slide deck; how one talks about recruiting, etc; these are all proxies for investors to extrapolate how the founder will behave in other business situations.

Sar : I agree with your points. How do we counterbalance the reasonable need to filter with making sure we are also giving a shot to “out-of-network” founders?

Semil : I disagree with this narrative. There are lots of unknown, un-networked people who come to the Bay Area and hustle their way to meet folks. I see it all the time. And they get some funding here and there. Or, someone in the middle of nowhere builds something and gets discovered. Is it 100% fair across the board — no. It’s kind of tiring to hear folks complain about this as this is the most incredible funding environment ever in the history of startups. No one needs permission to build a prototype. No one is being stopped from consulting or doing another job and building the dream on the side.

Sar : To play devil advocate, if what you are saying is true beyond anecdotes in your circles, why are the funding statistics so skewed in favor of a few groups? I recently read this great piece that talked about it.

Semil : I agree with this specific framing you present. I can only guess. Pre-lockdown, moving to the Bay Area is financially costly. I think that’s changed now. Socially, it can be daunting, as it’s more segregated than outsiders may realize. I also wonder if folks these days are as willing to “go west” without a job, without any friends, and just throw themselves into the fire. It’s risky. I firmly believe that anyone who comes here, gets involved, has a learning mindset, and helps others will find a path for them that works. I have seen this, I have lived this. I believe it. But there’s risk involved, and sacrifice.

Sar : Which well known investors and funds are still underrated? Which firms are past their prime? Which new funds would you invest in and why?

Semil : I will just pick one for each to keep things brief. For underrated, I’d say Ribbit — all insiders and LPs know, but I am not sure the broader ecosystem realizes how successful they’ve been across funds. For funds past their prime, there’s nothing to be gained from throwing shade at one person, but the reality is there are many funds who aren’t relevant, but it takes a decade for these brands to fizzle. For funds I’d invest in, I can share which newer managers I’ve known for a while and spend real time with — Ryan Hoover, Andre Charoo, Jeff Morris, Alexia Tsotsis, Nakul Mandan, and a large number of crypto funds (entirely different topic). I’ve known all these people for many, many years. And they ask great questions. It’s not like I have infinite wisdom here, but I can help folks save some time or act as a mirror, and much of what I pass on I’ve learned from Mike Maples, who was generous to spend lots of time with me.

Sar : Do you have any insights on what has made Ribbit so successful?

Semil : I don’t know Ribbit well, so I’m not sure I can give a detailed answer here. I guess they’ve picked a huge sector (fintech) that will create more global economic value than even social networking has, and they hit it at the exact right time — kind of like how USV spotted and won crypto so early.

Sar : Del Johnson wants to know why did you block him when he asked you about racial justice issues in early 2020?

Semil : I don’t know Del personally and only recognize him by his Twitter handle/avatar. I have no personal beef with him, I do not know him. I also block LOTS of people on Twitter. If I remember correctly, the manner in which Del raised that issue (which is a serious issue) led me to believe it was a more loaded question than honest inquiry, and Twitter isn’t the place for me for me to have a conversation about such a nuanced and charged topic. And it struck me as a pattern for how he tweets in general. He has a right to tweet at me about whatever topic, and I have a right to not want to engage there on that topic and block him. So that’s why. He and anyone is always welcome to send me an email and ask a specific question in good faith, and I’m happy to do my best to answer it.

Sar : As we ramp up vaccination and get closer to some normalcy, is there anything that worries you about the transition?

Semil : Most people in tech/VC have not only had a smooth transition in work during the pandemic, they’ve seen their fortunes rise. And most likely haven’t encountered people in real life, because of social distancing, who have seen their local businesses evaporate. And so at some point, when people start interacting again in real life, there’s going to be a huge disparity among folks in our industry versus others, and I do worry that because of our physical isolation from others during a bull run, folks will not immediately take stock of how others around them may be hurting or struggling.

Sar : If you were younger, would you have strongly considered moving to Miami?

Semil : You know, this never crossed my mind in 2020 ;-) I have a broader answer — yes, for sure I’d be in a place like Miami or Austin, but more realistically I’d be “climate hopping” and living out of a big backpack. In a different life, if I was 24 right now, I’d be hopping between NYC, Bay Area, LA, Austin/Miami, maybe a sprinkle of Seattle. Why would I want an apartment with roommates and a kitchen and splitting the cost on furniture? When I was 24, there was no Uber, Airbnb, Doordash, Venmo, etc. I’d be 100% mobile, because once your kids get to age 3–4 or thereabouts, life gets anchored around school, and that anchor is real. So maybe after climate hopping, I’d be back in the Bay Area or LA, somewhere.

Sar : Would you pick Miami strictly through the lens of being an early stage investor? Any thoughts on the narrative around Miami turning into a tech hub?

Semil : I haven’t been there so I can’t say for sure. “Tech hub” is a strong word, but I don’t see why it can’t have the same “build culture” as a place like Berlin, or Vancouver, or pick another city. The future is unwritten, and Florida is a very business-friendly state, so I think it’s a great new option for folks who want that. For me personally, Miami is not currently realistic. If I were younger, single, no kids and an early stage investor, I’d definitely spend more time outside of the Bay Area, but only after I felt my network and deal sources were locked in. That only happened as my family settled down, too.

Sar : Let’s end with a hot take on SF tech people departing for Miami.

Semil : You can’t quit Miami, Sar! I think it’s all fair game. Lots of investors privately don’t like it, or they just wish the folks who moved would say it’s because of taxes — but I think it’s more than just that. I don’t fault people who want to exit from San Francisco entirely but also not settle in the Bay Area. I guess my hot take is — there are no rules, no morals. If they are happy there, that’s great! And I don’t think other people should judge or stand on a pedestal. Finally, I think this particular exodus could be seen as a gift to the Bay Area and SF — it focused attention on why some choose to opt out, and that may be a useful warning for all of us in the Bay Area to pay attention to.

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