The great hits and misses of venture capital with Brendan Wales of

The below is a full (unedited), machine-generated transcript of a Youtube session / podcasting episode I recorded with Brendan Wales of in Q3 2020. You can view the video/listen to the podcast on YoutubeApple PodcastStitcher or wherever you get your podcasts.


Erasmus Elsner 0:07 
What’s up everybody, and welcome to another episode of Sand Hill Road where I talk to successful startup founders in their investors. But the companies that they built an invest in. And the goal like always is to give you a sense of what it’s like to be in their shoes, to understand how their business tick, how they got to where they are today, and to learn from their many successes and mistakes along the way. And today, I’m super excited to be joined by Brandon Wales from Thank you for having me. At, Brandon invests in consumer internet and enterprise software companies. He is co lead the firm’s investments in companies such as segment, acorns shipped house called pro and most recently, air bed. So Brandon has been really fortunate to be part of a number of rocket ships during his tenure at But like many VCs, he’s also had his misses. And earlier this year, Brandon published his really legendary medium post, where he detailed how he and his team passed on the series A of a company, you might have heard of TikTok, or, as it was known at the time.

And while other venture firms in the past such as Bessemer, have published their anti-portfolio (the companies that they’ve passed on), Brandon has taken it to the next level here, given us really full blown detail on his decision making process on TikTok, and in this session of this really unique opportunity to double click on his thought process at the time. And to understand how passing on Tiktok has really shaped him as a venture investor. But I would say let’s hear from Brandon himself. And let’s jump right in.


All right, welcome, everybody to another episode of Sand Hill Road. I’m joined today by Brandon whales from So welcome, Brandon, you ready? Take it from the top. I am thank you for having me. Wonderful. So before we dig in, let me go back to your roots. And let’s start with your first job. During college, you ran a golf shop for many people who have this perception of venture a couple of golf buddies might be the perfect place to start with venture.

Brendan Wales 2:21 
Yeah, yeah, for sure. So I grew up a golfer competitive golfer, went to the University of Georgia and a logical place for me to try to work was, of course, the University golf shop. And look, I mean, it’s a great as a college kid, right? You free golf, and you get to be around the thing you’re most passionate about, which is important. You know, the thing I learned the most is, you know, hiring for people that are excited to come to work every day, and provide that incredible customer experience to those who come to the golf course. And golf is a very competitive business, there’s a lot of options out there. And if they come to the course, and they don’t have that, that great experience, there’s no reason for them to come back. So that’s the number one thing in the golf business. And I think about that today, as a venture capitalist, there’s a lot of competition. Every single interaction we have with an entrepreneur needs to be absolutely perfect from the way we schedule our meetings to how we follow up every single bit of the way. So, you know, it’s definitely had an impression on me.

Erasmus Elsner 3:19 
And then next steps after you graduated.

Brendan Wales 3:22 
Let’s see, I studied finance and graduated 2009. So it was probably the worst time in a long time. If you’re looking for a job. Unfortunately, I did get a job. And it was for a large financial service business called Sunlife Financial, it’s basically Canada publicly traded fortune 500. And it was in sales. And you know, I was I was living in Atlanta, I was working this sales job. And it was great. I mean, I learned how to kind of run a sales process, how to prospect all the good stuff. And then there’s a lot of benefit from working in a large company. But at the same time, I had always been in love with entrepreneurship and starting businesses. Actually, while I was at Georgia at the University of Georgia, I had tried to start a location based technology company. That was in 2008. And then in 2009, when I was working at sunlife, I actually built a website called starving freelancers, which was a marketplace for booking photographers and videographers. And no one was doing it at the time. And I built it with a friend of mine from high school. We built this beautiful app. And then we we realized, wait a second, how do you actually build the business from here? How do you get the supply? How do you get the demand? I didn’t know anything. And in Atlanta at the time, it was very little consumer internet expertise, right. And so I said to myself, well, how do I, how do I get that if I want to be an entrepreneur one day, I was like, I got to go to the valley. And so for about two weeks, I just went on to crunchbase. And I looked for companies that had raised the series A financings and I found this business called ZOZI, which had built a marketplace for booking outdoor activities, and I cold emailed the CEO. And then two weeks later, I was living in San Francisco as the 10th, employee of a venture backed startup called ZOZI.

Erasmus Elsner 4:49 
Wow, what an incredible turn of events. What was it like to be at ZOZI. They just raised their series A. In a perfect world, you would have companies increasing their headcount incremental, but often hiring follows straight after the raise. So you were probably part of a cohort of new hires. What was it like?

Brendan Wales 5:06 
First off, I got unbelievably lucky, because I moved to San Francisco in 2010. And timing is really important. So I joined this business, I was the 10th employee, I was really the first kind of full time person only to do sales for the business. And my job was to call on small businesses and get them to be a part of our platform. And I mean, it was wild, we went from 10 to 65 employees and eight or nine months, and then raise a Series B, you know, because seven months after I had joined, I mean, it’s wild, everything breaks, you know, when you’re growing that quickly, you start figuring out who the right cultural fits are, what are the needs that you really, you know, have to tackle that you don’t really miss out on. And most of the time people over hire, which we did, and so there had to be layoffs. And we went through two rounds of that. And, you know, there, there’s constantly, people shifting between different roles, I ended up in a completely different role. And so it was sort of everything you’d want in and out and a job, although it didn’t become a unicorn. So that was the only thing that I missed out on. But I’ve got that that true startup experience that everyone hopes for.

Erasmus Elsner 6:13 
And then in 2012, you decided you had enough operator experience, and you decide to move into the investor role? How does the transition happen? Initially?

Brendan Wales 6:16 
Yeah, so you know, I moved to San Francisco, because I wanted to be an entrepreneur one day, and you know, I was 25, I was working at ZOZI had all this experience. And, you know, I ultimately wanted to scratch that itch and start a business. But you know, I didn’t have enough money to do it. And I was like, well, what’s the best way for me to save up some cash, and also learn the other side of the business, cuz I’m going to need to raise venture capital if I start a company. And I did the exact same thing I did to get my job at ZOZI. So I started cold emailing GPS or venture capital firms. And this was in the fall of 2011, I would send them a deck of companies that I like to congratulate them on a recent exit, and got a few interviews that way, and mess those up and didn’t do a great job. But I learned sort of what I needed to do. And then I found a job posting on the crunchbase job board for the ventures. They’re looking for an analyst, and I cold, emailed everybody on the team. And they actually the executive assistant, found my email, my cold email, then sent it to an associate, who then emailed me and said, Hey, you know, we should chat that actually went to my spam folder. I then randomly was in my spam folder, looking for something else saw that. And then 14 days later, I was employed at a venture. So it was a crazy, crazy kind of turn of events. It could be in a lot of different spaces right now.

Erasmus Elsner 7:39 
It’s also an exception to even have job postings. And I think given the heritage of events, there’s as a German corporate VC firm, they still feel like they should give everyone the chance. Let me double click exactly on this and let’s talk a little bit about the history of, came out of Bertelsmann, and is now really graduated to be a top seed series, a firm in in the US, maybe talk doctors a little bit about the history and what the firm is like today.

Brendan Wales 8:10 
Yeah, for sure. So the firm was started in 1998 by my partner’s Tom Gilman, Mateus Schilling. And then yon buttner and Wolfgang rose, who are a part of Bertelsmann before all of them worked there. And they helped build AOL Europe, which was eventually sold AOL Time Warner upon that transaction, Bertelsmann gave them money to start their first Fund, which was called Bertelsmann ventures. And so they started the firm in 1998. The first vintage was in 99, they raised a second vintage in 2000, and went through all of the challenges that come with that. And frankly, I mean, I couldn’t have gotten lucky or to join this group. You know, by the time I joined in 2001, they had gone through really two devastating recessions, and had managed continually to have incredible performance. And so you know, I joined a firm when I was 25, with two guys who were both 39 years old, who had been doing this their entire lives, were still incredibly motivated to build a big platform, which is needed for a younger person, right? If you’re not kind of expanding the pool of capital, if you’re not, you know, building different strategies is very hard for a young person. And so that’s why, you know, I’ve been able to rise with the group and grow with them, you know, as it relates to, you know, our strategy. At the end of the day, we’re looking to invest in businesses that build products that people love and enjoy. And the reason why those companies are growing really quickly, or have great sales and marketing efficiency is because of that affinity for the product, right. And so whether it’s a consumer internet business, or an open source software tool doesn’t matter, right? We spend a whole lot of time trying to understand why that demand is there. We’ve got a bunch of unique ways to do that for proprietary software to find those businesses as well as evaluate them. But at the end of the day, we’re looking for consumer demand and following that

Erasmus Elsner 9:54 
The fund that you’re currently investing out of, you raised 400 million together with it with the European funds. So 175 million for the European fund, I think, the 25 million for the for the US-dedicated fund. And I saw that you also have a Brazilian and Tokyo office. So the firm is really one of the few ones with a global footprint. Talk to us a little bit how that works in terms of team coordination, deal flow.

Brendan Wales 10:20 
Yeah, for sure. So we have independent teams and funds in each of those regions. So here in San Francisco, Germany, which covers all of Europe, South Paulo, which is all Latin South South America, and then in Tokyo, in Japan, which covers are Tokyo and Beijing, which covers all of Asia, and we believe in local decision making. We think that, you know, the team in the US is gonna have a really hard time, you know, making a decision on on a German consumer internet business. And so we want to have experts in those regions, and for everybody to be managing those businesses by themselves. But we do manage a global growth fund here in San Francisco, and everybody on the team around the world is, is a part of that and helping to drive those investment opportunities. And so we sort of centralize that knowledge here, and then deploy capital in sort of Series B Series c opportunities with our growth fund, here in San Francisco.

Erasmus Elsner 11:08 
Very nice. Let’s talk about one of the great rocketships in your portfolio. You’ve been part of Segment. The Segment story, it’s a fascinating story. So I remember back I think it was even in 2015 already that I heard Peter Reinhart when he was still a few years out of Y Combinator on how they pivoted early on.

Peter Reinhart clip 11:27 
What did you apply to YC? With, we actually applied as a classroom lecture tool. So the idea was to give students this button to push to say “I’m confused”.

Erasmus Elsner 11:35 
To put the early version on GitHub and then productize that.

Peter Reinhart 11:40 
We have 100k left in the bank, what’s our final shot. And my co-founder, Ian is like, you know what, I think there’s a big business behind analytics.js, which is this routing library. And I was like, that is literally the worst idea I’ve ever heard.

Erasmus Elsner 11:53 has really been on this journey since the Seed round, I believe. And now the company has raised last round was 175 million round. In total, almost 300 million. How was it to witnessed such growth, it must have been an amazing experience.

Brendan Wales 12:09 
Yeah, it’s been great. Let’s see, you know, the business actually was sent to us by the CTO of one of our portfolio companies, this guy, Conrad Chu, who now works at EA ventures, he builds all of our technology in house. And he sent us in myself and Tom diesel Minh an email in 2013, and said, Hey, you know, you may want to check out, which is what it was kind of went by at the time. And he made an introduction to Peter, the CEO, and their four co-founders. And all it was was this open source piece of software called analytics, j s. And what it allows you to do was to pump data from basically one marketing tool to another with the flip of a switch. And so if you’re using kissmetrics, and you wanted to go use mixpanel, or any other analytics tool, you could just flip a switch, you didn’t have to retag anything, you know, it was instant. And we knew from our portfolio companies, how much of an issue this was. And at the time, it was really taken off. They had no they had they have a they had like 1000 installs, or users of analytics JS within like two or three months of it going live. And so, you know, we were introduced to Peter, we sat down with him, and we knew instantly that we wanted to invest. I mean, it was Peters, an exceptional entrepreneur and, and really had a good understanding of the problem in the market. And so I think we did you know, a few, they did have a couple enterprise customers, but not was one of them. And they were those folks were willing to talk to us. And then two days later, we issued a term sheet for a $2 million round on an a pre, we put an a million dollars in Kleiner Perkins put in a million dollars. And then from there, you know, the business started to scale really nicely. They went from zero to a million dollars in ARR in a year. And then they went from one to five, and then five to 20. And you know, from there onward. And so, you know, it’s been it’s always had great product market fit. It’s always been something that entrepreneurs have always wanted to use. And so it’s been, it’s been a great ride.

Erasmus Elsner 14:03 
You had a quick turnaround of two days. Fast forward a similar deal, would you would you expect it to be more competitive? Was it really the proprietary sourcing that gave you the edge here?

Brendan Wales 14:14 
I think it’s just generally our philosophy around investing and following demand. And I’d say we were really early on in understanding that developer tools and sort of light infrastructure, those businesses are at the end of the day are just like consumer internet businesses. There’s an individual within a company who makes the decision to use a product because it’s affordable. It’s open source. And we had a lot of learnings because we were the first investors in nginx, the world’s most popular web server, which was acquired by f5. Recently, we were the first investors in that business. And we had been in that company for about two years. And we realized, oh my gosh, if there’s all this demand for the product, you can layer on a ton of you know, different monetization components in order to scale the business. And so when Segment came in, and we knew that the market was really huge, and it was solving a really big problem, then, you know, it was instinctive We still act that way today, right? I mean, we are always, you know, moving within days, typically in verifying some data and then moving forward, whether it’s b2b or b2c.

Erasmus Elsner 15:01 
Given that you’re normally more consumer focused and Segment being highly technical team, but then on the other hand having a market in the marketing departments of consumer tech companies, would you say that this angle gave you an edge there?

Brendan Wales 15:22 
Yeah. And that was it was sent to us by you know, the CTO of a consumer internet business, he started a business called munchery. And so he knew the problem very well, right. And when it was sent to us, and so but all of our portfolio companies were having the same problem. And so that helps it helps you move forward, I’d say like, we, we don’t like to do investments in b2b if we don’t have a really good understanding of kind of that end user. Right. And so I’d say like, top down enterprise sales is not are like the perfect thing for us, like we really want to invest in in this sort of affinity towards those individual decision makers. And so we always will, we always love doing open source software, we still do. And we just think about it, like it’s a consumer internet business. And we’re looking at the cohorts, we’re looking at the morality, all that stuff.

Erasmus Elsner 16:01 
So let’s talk about consumer intimate. And let’s talk about one of the big misses in your career. And you publish this legendary post where you describe how you passed on music Holly’s now known as tic toc, a 10 million series A at 100 million valuation. And so it all started on Monday, July 6 2015, when Thomas sent you this email? Have we talked with

Brendan Wales 16:43 
Thomas sent me that email, I was actually on the East Coast visited July 4, and I was sitting in the airport and I got that email. And I was like, Okay, well, you know, if it’s growing really quickly, we want to talk to them and try to understand it before making any decisions. And at the same time, Dubsmash was also growing really quickly .I don’t know if you remember that business, I think it’s still doing very well actually pretty similar to musically, although there were concerns around music, IP rights. And so our concern initially was, is this just a utility where people create these videos, they layer on, you know, a popular song, and then they post it on Instagram and get a lot of likes. And then people see the TikTok logo on the bottom and then they go use TikTok, and then they repost it on Instagram, but none of that feedback, of likes and hard. So all that stuff was happening on Instagram now on tik tok, when you really want it on or musically at the time, right? And you just want it on your musically app. And that’s how you build a real consumer product. And so that was our initial concern. There were a bunch of like video sharing apps in 2012 when Justin Khan had one of them that was growing really fast. And so our concerns were they just, you know, they got that initial growth, it was just a utility, but they’d all build their own community. And so that was our initial concern of the business.

Erasmus Elsner 17:32 
You actually provided a print screen from App Annie where you identified this growth hike in I remember this German documentary with Matthias Schilling, where it was in in your San Francisco offices and going through like different App Annie charts, basically to identify who he wants to talk to. So you yourself, it is described on the website that you’re closely involved with the firm’s development and utilization of in house technology, to early metric based discovery. A number of VCs say they always want warm introductions, for Segment this was the classic case, but I always respected the way in which is also using this data-driven approach. Talk to us a little bit about how you use that on an everyday basis.

Brendan Wales 18:24 
So my partner Thomas, about 10 years ago, after investing for 12 years, he came to the conclusion that whenever he made companies, he wanted to get to the slide where he saw the chart going up into the right because that says you know how much consumer demand there is Will there be a b2b or b2c company? And so is it well, how can I find what’s on the internet, but it’s already out there, he calls it digital exhaust to show which of the companies around the world are growing the most quickly. And then I’ll go talk to them, he hired an engineer and he built the original product in 2010. And after kind of running on it, he then realized he need to resources to call those companies and I was that person, the first full time person to call base nothing. But besides on, on on data driven sourcing. And he had an incredible insight. And you know, it’s something I’m really focused on today with our younger folks, which is, if all you do every day is talk to the fast growing companies in the world, you start to understand really what it is that makes those things run if your bar every day is incredibly high. And it’s not just about, you know, me thinking that a sector is interesting or me thinking that a person could build a big company. It’s about No, this is working. And this is working incredibly well. And every company I speak with is doing great. And so it it then creates a bar that is remarkably high. And so you know, just as you’re sort of the average of the five people that you spend most of your time with, you know, I think like your investment performance is just you know, the average of the companies you speak with and so for me and for our team, like there is an incredibly high bar bar high bar for getting on the phone with a company we want to feel like it’s doing well already. We want to feel like we have a good understanding of the market, and we can act on it when we meet the business. And so, yeah, not every one of our companies is going to be sourced through technology. But in one way or the other, we’re prioritizing our prospects for follow up, we use technology to help make investment decisions, we’ve automated a lot of the cohorting and benchmarking that people do manually, all of that to help us have sort of a mental model of what the fastest growing companies in the world look like. And we think if we do that really well, with really tight systems and processes that we’re going to make, you know, great, seven day great new investments every year in the United States,

Erasmus Elsner 20:31 
Back to Yeah, so so you identified this opportunity, you reach out to the founder, and it’s still the right timing, he’s in the process of raising VA, you come back to him with a number of metric requests, and basically get a better understanding of the business. Talk to us a little bit about the metrics that you requested their daily installs daily users, what are these key metrics that you look for in a consumer social company?

Brendan Wales 20:58 
So you know, the list I shared is, you know, exhaustive, there’s, like, you know, 20, things I was asking for the number one thing I look for in a consumer app is time spent in app and sessions per day, per per daily active user, for a teenager, it’s probably five to eight hours a day on their phone, you know, they’re going to spend two hours on Instagram an hour on on TikTok, now, you know, an hour on messenger. And the question is, how much of that can you get? Right? And if you can’t get their mind share, like you’re never going to, and so you need to have a pretty good understanding of, you know, what is the benchmark? Is this an app where people use it for 30 seconds a day, or is an app that they can use it for, you know, 40 minutes a day, that was the primary thing that we were focused on. Now, the problem at the time was that, you know, although we could get the benchmarking data from app, Annie, you know, there was this, the sample size for musically was pretty small. And so the time spent nap was was pretty low at the time, maybe a 10th of the big social apps. So that was something we were we were wrestling with, you know, this thing didn’t have the session frequency or, or time that we typically look for, but at the same time, it had the fastest was the fast growing app in the world, adding 350,000 installs a day. And there’s there’s value there, the growth is first and then second, like what are the what how much debt? How much time? Can you really get from a person’s day, like, I don’t want to invest in an app where you know, people just go in to, you know, check the weather, that’s not going to be valuable enough, right?

Erasmus Elsner 22:16 
Yeah, remember the the founder talking about how he thought about building it. And he had this Machiavellian notion of of that he wants to create a new country. And when you create a new country, you need to have new citizens, basically join that country, and you need them to really want to stay there and spend their time there. And he thought, really like the Art of War style, about how to get people engaged, and basically get them to stay there.

Past clip from founder 22:44 
In the early stage. building a community from scratch is like, you just discovered a new land. You give it you give it a name. America, and you want to build an economy, you want to build population, and you want people from Europe, to migrate to your to your country, right? And Instagram is Europe, Facebook is Europe, how can you do it? You know, economy in Europe is already very developed. And your country, there is no population, you know, there is not so many things going on, there is no economy, how can you attract those people to come in? The problem with Europe is the social class is already stabilized. For the average citizen, they have almost zero opportunity to go up in the social class, right. So now you have a new land. A very important thing is in the beginning, you have to build a centralized economy. Meaning that from wealth distribution point of view, you make sure majority of the wealth is distributed to a small percentage of people to make sure this people get rich, first, okay. And then these people became role model for other people living in Europe. And they see, this is a normal guy, and he just went to America and he became super rich, I can do the same. Right. And then lots of people came to your country. As you grow population, you grow economy.

Erasmus Elsner 24:34 
So after some negotiations, you ended up passing on something that that I assume still haunts you to this day. Maybe not. Maybe it’s it’s just left the right scar tissue on you to not miss out on the next one. Talk to us also a little bit how, how you think about this? I mean,

Brendan Wales 24:54 
Yeah, for sure. So, you know, I it’s disappointing. The company was over a billion dollars, so it’s not like they would have returned to the fund. Because, you know, we were getting at 100 at 100 million posts, potentially. But you know, now it is a part of bytedance. And it became TikTok. So it’s, you know, it would have been nice to be a part of that and claim that we, you know, we helped grow it, you know, what we had done? After we had done this pretty thorough analysis around engagement. The one thing we were really concerned about was, is this something you’d because it’s grown so fast? Is there enough stickiness? Was it a slow burn into becoming something really big, like a Facebook or Snapchat had? Or is this something that just pops up to the top and drops back down? You’ve seen that in trivia games and other things that had reached the top we were investors in a trivia game that done this. And so our thought was, you know, is there enough at the ground in order to sustain the business? Is there enough content or whatever, in order to get people to come back. And so what we did is we ran an analysis of every single app that had ever grown as quickly as, as musically had none of them ever continued to stay, you know, within the top 10. Were were basically all of the enterprise value accrues within social network and social networking and messaging. And so that was a pretty important factor, we thought that, you know, it was probably unlikely for them to maintain their position at the top. And so we passed, it was big mistake. And as I highlighted in this blog post, you know, we’re looking for the greatest outliers in the planet, comparing something to the past is really not the right way to think about things. And so, you know, when we are looking at consumer internet opportunities, we really tried to, we take the learnings from the past from a product perspective, and maybe some KPIs, but we really try to focus in on sort of, what is the thing that people love about this? Is it a big enough market? And then make the decision? We’re not going to like overanalyze, because that’s what we did in that circumstance. Yeah, for sure.

Erasmus Elsner 26:35 
One really notorious funding round of this summer was clubhouse, which had very similar terms, I think it was again, million, also 100 million post founders took out, I think, a million in secondary and secondary clubhouse. So as far as I understand how to add about 600 or 1000 users, and private better, given the experience you had with musicali, how do you think about something like clubhouse?

Brendan Wales 27:00 
You know, it’s really more about sort of the portfolio construction at the end of the day, right? And how we think about it is, let’s say you’re gonna construct a portfolio of 30 Companies, I think the simple, most simple way to think about it is you need every single one of those opportunities to have the ability to return the fund, you know, either one times or multiple times over. And if you do that, and you construct a portfolio where you have 30 real shots at that, right, so that doesn’t mean, it means you can’t take any investment in any shots where you’re worried about the TAM, right? And so you need things that can really be, you know, an asymmetric upside, right. And so first of all clubhouse checks that box and so at 100 million posts, the question is, can a big social networking app be worth 20 $30? billion? The questions? Yes, absolutely. It could be much bigger, right. And so for those investors that didn’t take a look at clubhouse, for those investors are thinking, Okay, we found something where people are madly in love, they’re spending a huge amount of time, it appears that content creators want to spend time in there as well. If you can get the content creators, it’s clear that you kind of bring in other participants. Well, you know, what is the market size for people listening to audio content and engaging with with content creators? Well, it’s enormous, right? It’s absolutely massive. And so, to me, it’s a good investment, and the price doesn’t really matter that much. And then you look at meritech investment in Facebook at you know, four or 500 million, you know, that thing has been incredible for them.

Erasmus Elsner 28:24 
And so it was the right thing. For those that were surprised to see Andreessen Horowitz lead this round, given that they’ve been in the past been extremely bullish on voice on on how underpriced voice has been, especially like podcasting. Yeah, but obviously, they’ve written a large check. It reminds me of the GitHub round where everybody was like, Wow, now you really have to, you have to bring that one home. I’m sure it’s going to be a lot of work, but definitely an interesting financing round. Yeah. So let’s move on to another great post of yours, which which was a bit more technical. So we all know that in venture you really have to optimize for the upside and that you have a few fond returners in the end, and most of them return 1x or 30%, or ride offs. And you created this great chart of, of the archetypes of early portfolio performance where you have think seven types, there’s this flat return of capital. There’s the early loss, there’s the early markup, what have been your learnings in terms of dedicating your bandwidth? Do you focus on the ones with a steady growth, the early losses where you try to recover them? On the early stage side, you can get into this rabbit hole of trying to recover your losers. How do you think about that?

Brendan Wales 29:36 
Look, we were always talking to the companies, right? Like we are partnering with these entrepreneurs at this series A whether it’s going well or It’s going great. I speak to them the same amount of time, right? I’d say the ones that are doing really well. You know, sometimes it can require more work. Most of the time. They’re not they’re sort of going there. They’re building a new there’s more work around like fundraising and all that stuff. But you know, yeah, time gets spent on things that aren’t going well when you have to restructure you know, clean up the capital. And all that good stuff. But what the one thing that I have learned and why I wanted to write that post is, you know, now having been doing this for eight and a half years, and having joined a fund about six months in, you start to see how the fund performance, you know, is getting impacted by the individual Movers. And what I do know, is that, you know, this fund or 2011 Fund, which is doing really great, you know, to have like the top five drivers in 2014, three years in, they’re not going to drive anything, you know, for that fund, right. And then there were two companies that were, you know, completely, they were going to go out of business that pivoted, that are going to be massive drivers for the fund. Right. And so you never want to give up on any one of these companies. And you also can’t expect for things that are going really well for them to continue to go well, there’s going to be this shifting, right. And it’s also important around internally, right, like, what is that communication, like around individual performance, you know, portfolio performance, it’s not about like, who made that investment, because everyone knows that these things change a lot. There’s a lot of variables. And so it comes back down to Okay, like this is a patient business, there’s going to be a lot of movement and shaking and the things that maybe you didn’t expect into becoming the biggest drivers for the fund.

Erasmus Elsner 31:10 
And so one thing that’s often been criticized is that for the earlier managers, I mean, is now an established firm, but for the earlier up and coming venture fund managers, oftentimes what you see at the Seed stage, is that they really back those companies basically pattern-match companies that are in an attractive vertical, where they feel okay, they can get to an early next round and early markup. Because obviously, if you’re establishing a new firm, you really want to get this early markup. How do you feel about this? Do you feel like being part of, you have more patience?

Brendan Wales 31:48 
Yeah, yeah, no, I gotcha. So yeah, how do we sort of think about things that get marked up quickly? Yeah, yeah, I mean, it happens all the time. I don’t, you know, I don’t like annoyed them a winner, it’s great that it, you know, they get marked up quickly. You know, if it’s from Sequoia for the, it’s from somebody else, I, I don’t really, I don’t really care that much. I mean, I it could be nice, it could be helpful a little bit in recruiting. But at the same time, I’d rather invest more, right, if it’s doing if the company is doing well, I’d rather invest more with our growth fund, and continue to support and back that entrepreneur, we have an independent thought on that business and the market, whether somebody comes in and throws you know, an incredible price on it, I don’t think it changes our perspective, or excitement. And, you know, even things that maybe aren’t going as well as planned. You know, the thesis is still there, you know, we’re going to learn from that. And maybe the company’s not operating as well as we had thought, but we don’t think of them as losses initially, early on, because we’ve seen things pivot, right and change their directory, and then the things that get marked up, doesn’t mean they’re going to be worth $5 billion, one day, it just means they’ve got a markup, and they got more cash on the balance sheet. That’s really all right, it’s really the law. Right? You know, can this business really become an institution and, you know, eight to 10 years.

Erasmus Elsner 32:57 
And the next section, I want to take a little deep dive into your weekly Top of the Week Seed companies. And this is really an interesting read, for everyone interested in understanding how professional investor thinks about deal flow, you always have these categories there, you start with the EA growth index, then you go into the product, you look at different investors, raised business model comparables, then there’s the X Factor is this basically, you rearranging your thought process every week taking notes? How do we have to think about this schemata of yours,

Brendan Wales 33:33 
You know, I do this alongside my, my colleague, Nicholas, it’s a fair amount of work, but it’s work that we need to do anyways, right? To me, as a series investor, I want to know every single seed stage company, without a doubt, there’s no reason why I shouldn’t. And there’s obviously a lengthy list that ends up populating the five companies that I highlight every week, but there’s no reason why I shouldn’t know them all. And so we spend the time and look at every single one of them and create this list of five companies that we should take a look at. But where this actually stemmed from was about last year, in the summer, I, you know, I said, I, you know, really want to work on just publishing things online. And you know, one of the challenging things with creating content is it requires a significant amount of creativity, especially if it’s long form, it takes a ton of time, when you get busy, you end up not doing it. And to me, I didn’t want to start something where I felt like it wouldn’t scale and wouldn’t, wouldn’t stick. And so the person that I think creates content, the best online, really, in this market is Alex Clayton ameritech, who does s one breakdowns. And I saw, I was reading his content. And I’m like, this is genius. Like he has to do this work anyways. He just he takes the information from the last one, and makes it into a digestible format. And he publishes the content and he gets tons of views by doing that. And so I said, Well, what is this something that I need to do anyways? That I can just then publish it online and it’s beneficial for me, right? Because I can share my thoughts. I can engage with those entrepreneurs, I can track them and then you know, maybe what One of those companies a year I invest in, it’s well worth the time. And so it’s worked out great. I think we’ve done, you know, 50 of those posts in over the last year, we never miss a week and beyond pleased with how it’s how it’s worked out an incredible run.

Erasmus Elsner 35:13 
And I know as a content creator myself how difficult it is to carve out part of your job and basically say, this is something I’m going to put out in the world. But I love this. So let me double click a little bit on this EPA growth index, and then also on what are x factors for you?

Brendan Wales 35:30 
Yeah. So the Ava growth index is a composite of a bunch of growth signals that we have internally, and it allows us to, it’s kind of like the primary KPI for prioritizing investment opportunities for us. And so, you know, for us, we think about the world as there’s an infinite amount of companies for us to potentially invest in. And so how do you shrink that down to a digestible group of companies and then prioritize from there. And so when I’m looking at all the seed companies, one thing that I really care about is obviously, what kind of how much traction do they already have. And then Eva growth index is built around the things that we look for in consumer internet and kind of self serve SAS businesses, or open source software businesses. And so it’s built around that. And what it’s looking for is how is it How is an application doing in relation to its peers over a period of time, you know, so if an app starts at a certain time period, I was doing again, everybody started and I’m period. And it’s basically it does a really good job of presenting exponential growth. And that’s actually what each change in color, and that chart is actually a 10x in growth in relation to its peers. And so I think it’s helpful to show to people, whether people know exactly what it is or not, it shows that there’s a lot of traction. And so when I think about the x factors, it’s changed a little bit. Over time, you know, I’m all we’re very much business model junkies here, we’re always looking for things with incredible defensibility. And in high margin, but you can kind of get too focused on that I do love, obviously, organic growth and Eva index is important. But the team, the team really is the X Factor at that stage. And so what I love to do is to look at, you know, who the founding team is, and when they’ve worked together, and in that specific category. That’s amazing, right? Like, that’s exactly what you want to you want to talk to those people, regardless of their traction. And this is like, we’re not even like, I’m not gonna even talk. I’m not gonna blog about companies that are tackling big markets. And then it’s also nice for those macro tailwinds. Just like a big trend, like men online mental health is a big trend. And you know, that’s an X Factor. It’s important to have that timing, you know, for the startup like that. And so those are the things we really focus on.

Erasmus Elsner 37:37 
So let me pick one example from this week’s post of yours, which Nacelle, which is a headless ecommerce platform. And so for the listeners out there, headless web apps, basically means that you decouple the front-end from the back-end, they’ve raised the Seed for 4.8 million, the Seed was led by index and Accomplice. Talk a little bit about that specific company. And why pick that one for this week?

Brendan Wales 38:03 
This headless CMS is for Shopify stores. And I know designing really slick interfaces for Shopify stores is a big problem. It’s not easy to do. And so to have a framework where you can get a developer to build or really kind of a web developer to build a beautiful application quickly, and as a result, driving the shops performance through, you know, better conversion rates. There’s just a huge market opportunity there. And as I mentioned, there’s major macro tailwind because you have ecommerce growth, largely driven by COVID e more than before, and no one’s done this either. So it’s like, you know, you couple that with no one’s done it big market and credible investors. It’s like a kind of a slam dunk. That’s when I got highlighted. I wish I had spoken to them. I’m not happy we didn’t before the series, the seed round, and so hopefully we can track them for the series. Yeah,

Erasmus Elsner 38:51 
I read that the founder actually had a, like a boutique, Shopify advisory business as well. We basically had customers with exactly this problem, and then he could basically productize his advisory knowledge. So to wrap up the session, let me ask you about a recent public investment Airvet, which is a telehealth veterinary clinic on TechCrunch there was a really cute picture of a dog you participated in the 14 million series A, which was just announced obviously, has huge COVID tailwinds.

Brendan Wales 39:25 
It’s really from all the prior work from over the years and the companies you’ve met with and trying to figure out what are the models that really make sense. And so you know, err bet is a mobile app where you can with the push of a button, talk to a veterinarian on video or audio usually within 10 to 20 seconds and you can talk to both your own veterinarian if they’re on the platform or another one and it works 24 seven all around the United States. And you know, a lot of people are spending too much money going to emergency bed. clinics because they don’t know what’s going on with their bet. And they fear that, you know, there might be something really bad. And so they go there and they get charged three or $400, when in reality most of the problems aren’t aren’t major issue that someone to talk to you and get feedback from. And so, you know, the market opportunity is is fantastic. But the reason why we like this business actually is that air bed itself doesn’t do the customer acquisition, the customer acquisition is driven by the veterinarians, they bring their customers on, and those customers can access their bet, right or anybody else that their bets on available. And so and, and the reason why we like that model, actually is we looked at a company called, do x y dot m e, about a year ago, which had built video collaboration software for doctors and a HIPAA compliant manner. We really liked the business, we didn’t invest we should have, we caught up with them in March or April, and we heard the numbers and we’re blown away. I mean, this company is absolutely massive. And we realize that’s really the model. Like we don’t want to invest in a single app that’s doing all the customer acquisition, we want a network of people doing the customer acquisition. And so and then about two weeks later, our associate jaja, popped up air that to us, and we moved really fast. We talked to them on a Friday afternoon, did a bunch of work over the weekend, had them present on a Monday, I committed to them later that afternoon. And you know, one thing led to another and it worked out where we could, you know, get really meaningful allocation in the round and closed, you know, two weeks ago and are happy to be doing it alongside canvas. And Rebecca from Canvas, she actually has a farm and so she’s really close to the red category. So we’re really excited. I’m also a dog owner, so it’s something near and dear to my heart, but it’s a huge market read. I have a miniature golden dude.

Erasmus Elsner 41:43 
Oh, wonderful. Brendan, thank you so much for taking all this time out of your day. Where can people find out more about you and keep keep up to date with what you’re doing?

Brendan Wales 41:53 
Yeah, the best way to keep up with me is on medium so at Brandon Wales is the best place to find me publish every every week with the top seed companies to track as well as sort of random posts on just learnings from over the years doing this job. So please do follow me and happy to also chat anytime.

Erasmus Elsner 42:09 
If you reach out via email I can only recommend his his writings. And thank you so much for tuning in this week. Thanks. Thank you for having me.