Neil Sequeira

Welcome to the Puck, Venture Capital and Beyond, a show that examines the changing landscape of our world. We'll have candid conversations with VCs, entrepreneurs, and thought leaders grappling with our current challenges and providing solutions to key problems we face as a nation. I'm Jim Behr, Managing Partner of Behr, Negron, and Troff and the President of CMBG Advisors. This podcast brings change makers to the table to discover the inner workings behind their decision making strategies and ultimately how they got to where they are today. I think it would be fair to say that liquidity will not be as liquid as it has been over the last few years.

What it means is when you see a slowing pace like that, entrepreneurs have to focus on a few things. Focus on your mission and what you are trying to build. On this episode of the Puck, I have a chance to talk with long term investor Neil Sequeira, founder and managing director at DeFi, an early stage venture fund focused on emerging high potential investments. Neil talks about his commitment to playing a long game in the startup world, sharing the ups and downs at the beginning of his career that informs his investment strategy as we head into a more challenging economic environment. I'm excited, Neil Ciccarra, to be here with you as the founder of Defy.

We're gonna have a great conversation about Defy and where you started out with your career, where you've done a lot of interesting things that have led to this moment. But as a foreshadow of what's to come, I know we're gonna get into this has been an amazing time for VC investors, and you've ridden this wave, and you're gonna tell us about the exciting things you're doing. The question is, do we prepare for a little bit of a speed bump? And when we talked a few weeks ago, we didn't know all this stuff was gonna be going on in Europe, but I wanna welcome you today. We're excited to have you here, Neil.

And so in terms of your story with starting Defy, give us a little bit about your background and what led you to this moment. Sure. Thanks for having me on, Jim. I really appreciate it. I was fortunate to be the son of immigrants.

I grew up in the Silicon Valley, and that is really how this all started. And after living in, you know, Chicago, DC, New York, and Boston doing well banking, well consulting, I got into venture capital about twenty two years ago. So it's been a few years now. After more than two decades, I joined a venture capital firm called CMGI during the true bubble and immediately had to start selling companies instead of investing or buying companies in 2000 when the bubble burst. Luckily, I sold one to AOL and was asked to join the AOL Ventures team and got to know them.

So I got to know corporate venture capital for a couple of years. Eventually, it became Time Warner Investments. Went to Time Warner with the idea that I'd wanna do more traditional private venture capital investing eventually. And in 2004, joined a couple of, great folks, Joel and David, the founders of General Catalyst and and a few other awesome partners. As the firm was quite small.

Firm was, you know, really on its second institutional fund, and the idea was that a new brand could be built in venture via, really hustling for your entrepreneurs, working hard, helping with everything from board work, first customers, hiring your team, and that early stage really stuck with me and was, you know, some of the best investments in its generation were came out of GC during that period. I was lucky to be there for almost twelve years. The first six and a half were in Boston where the firm was founded, and then I came out to the Bay Area with another associate actually and opened up the California office. My partner, Hemant, came out a little bit after, and then we were able to hire Steve Harrod. And the team kind of got to work in 2010 on an entrepreneurial drive to build the firm and continue to execute on the vision of helping entrepreneurs.

And that has gone incredibly well. Now looking back from the firm's founding twenty years ago and when I joined fourteen, I think most recent fund they just announced last week is over $5,000,000,000. Wow. So the firm has obviously evolved, and I was fortunate to learn so much there and be a part of such a success story. You invested in startups, and yet you are a startup in the sense that you left a real large company, so to speak, and went out and and started DeFi.

You wanna tell us a little bit about how that was and where you are today? Yeah. Absolutely. Now a little over almost six years ago, I was able to found Defy really based on the idea that as firms were getting larger and larger, they were able to still provide a lot of value to entrepreneurs, but maybe a little bit different than what that early stage kind of c plus, small series a, really contributed. The reason for that is that the dollars you invest at that earliest stage are usually, in our case, between 3 and $10,000,000 for a first check.

Somebody has often gotten some friends and family money, raised a few dollars, but they've just really had had their founding team, maybe got a product out the door. Sure. And that is a lot of hard work. For me, it's the most fun, Jim. That's when I get most excited.

I think that's when my team gets most excited. And so fortunate to be able to start that first fund with a team that came out of GC, a partner who joined us from Kleiner Perkins, and we raised a $151,000,000 first fund. Fast forward two years later, we raised a $262,000,000 fund, and we're actively investing out of that. Our team is now five investment partners, and we've kind of grown from an early stage start up into being, I think, uniquely positioned in the market in that we fill a bit of a hole where some of the firms have gotten quite large. That's not as much of their focus on their business models.

So we still like to do the dirty work. We like to get in there and add as much value as we can, and we've seen that help as companies, you know, have raised some seed. They really need this first board member, first person to price a deal. And then the people who follow us are usually excellent firms in the world, the the Greylocks, the GCs, the XLs, the Sequoias of the world, and entrepreneurs are off to the races at that point. You've written a lot of checks, and presumably, people are still asking you for checks.

What are you seeing out there in terms of valuations? Do you seem a little bit of a storm coming? I mean, as you said, you started this twenty two years ago. So that means if my numbers are right, you live through o one and you live through o eight. Does this feel like something's about to change here?

What's your thoughts on that? Great question. Yeah. Having a little bit of pattern recognition can be helpful. And to your point, between 2000 and 2002, the Nasdaq fell from 5,000 to roughly twelve ten.

And so that was over a two year period. That is a huge drop. And then in 2008 to 2000 and roughly, I wanna say 2009. 2007 to 2009, it fell from twenty eight ten down to twelve ninety three. Those were huge 50, and in one case, 70% drops in the market.

What you have seen, Jim, is that, you know, significant majority of the Nasdaq is down 40% from its highs already this year. And I think while that doesn't necessarily affect us as much in the early stage because we invest over life cycles, it does definitely impact the folks who come significantly after us because their time horizon to actually getting companies public probably increases. And their time horizon to see, you know, whether these companies can continue to raise capital that aggressive takes can continue. For us, you know, we've seen it. We've lived through a couple of downturns.

Honestly, if you started in venture in the last eleven years, you haven't seen a downturn. And I think the early signal would say that, at least from a Nasdaq perspective, we got a little ahead of ourselves, and some of the economic models didn't make a lot of sense. It feels in some ways, that we're at a pretty moderate, understandable level after coming down this much. But, you know, it does impact what I think entrepreneurs should expect on the go forward. I think as you appropriately point out, the Nasdaq is kind of an indicator overall of what's going on psychologically and financially in the tech space, so to speak.

But you're on the ground. Right? Your company's many, many do not go public. A lot get bought. But at the end of the day, we've been chasing pretty high valuations, and a lot of these people are whether or not they're in their first round, second round, third round.

Do you see liquidity tightening up at all over the next eighteen months? I think it would be fair to say that liquidity will not be as liquid as it has been over the last few years. Right. Absolutely. We will see a tightening over that period of time.

What it means is when you see a slowing pace like that, entrepreneurs have to focus on a few things. Focus on your mission and what you were trying to build. There has been a fair amount of entrepreneurs who are just focused on raising that next amount of capital, and you really need to focus on what are you trying to accomplish? What are you trying to build? Give yourself the runway to build a company, not just to make the next investor happy, but to meet the expectations what you and your team want.

I know that sounds simple, but when there's been this flywheel of capital, it's up to entrepreneurs to find the business that they wanna build and giving yourself the time to do it. The Ukraine. Right? You don't see those things coming. And as you see that, hey.

This might take a little longer than I had expected. That's really important to think about. Finally, getting to know your investors early and building a relationship for the future. It has been very commonplace, and there's a lot of funny VC stories over the last six months to a year, where you'll get a phone call from an entrepreneur who wants to meet or a friend will introduce you, and the first thing out of their mouths is they already have three term sheets. Assuming that will decrease a little bit, as an entrepreneur, if you can get out in front of it and start meeting people early and building that relationship, it'll really help you when the capital is needed.

So if you focus on building a great product and mission and if you give yourself the runway to get to where you need to get to despite the unexpected, and finally getting to know your investors early enough so that when, you know, you need to call them, it's not just middle process, but when you know that they're people you wanna work with. So you mentioned that a lot of times you're seeing people that have three term sheets. Are we down to two term sheets yet, or are we still at that three term sheet level? I'd say for us, it's funny. We, as early stage, don't see that as often.

The round after us, I think we are still working through the system because they're maybe seeing two term sheets. Maybe they have one. It's a slight decrease over time, and then what happens is once you've worked through the snake of companies in that pipeline, you'll start to see that not be the case, where you're gonna need to spend that time to build a relationship with an investor. Term sheets will just fall from the sky as they have been. It would be shortsighted to not believe that is gonna happen.

It has been a really unique time for capital. There will be moves to the upside too. We'll get through a period, and people will get really excited about a sector, or they get really excited about an entrepreneur. Right? It just takes one company or one person, and that may be you as an entrepreneur out there, or it may not.

And you just gotta plan for the fact that a majority, you know, really need to take a longer term approach. When you're looking at the types of companies that are out there right now, there's gonna be winners and losers. Any thoughts about when you're looking at kinda where the puck is going, who is gonna benefit in this new reality, and who's gonna be stretched by it? I'd say there will and there has been a return to the fundamental economic models that make businesses work. So for one reason, probably excitement over the last few years is the models were working across the board.

I think if you look where the puck is going, you're gonna continue to see software and scaled companies with very high gross margins really differentiate themselves and continue to grow and continue to raise capital at the paces you've seen. One thing you can take a look at the Nasdaq and you could take a look at tech generally, or you could take a look at business models that were tech enabled services or service models that can sometimes take a little bit of a hit that do not have strong margins. Those are where you run into problems. And so, you know, I think if you were looking to where the puck's going, a return to not just looking at the revenue line or not just looking at, hey. You know, this company is making money, but they're not making a lot because the margins aren't very good.

I think that's gonna take a pause, and it's gonna be, hey. This company has 80% margins. We can continue to fund and continue to invest in it because as it wakes up the other players in the space, those margins will decrease slightly. It's much harder when you come to a tech enabled service or an enabled service model where you have much lower margins because if you don't keep feeding the beast and your margins compress, it's an unsustainable business. I think the ones you've seen get hit over this first kind of wave of more moderated valuations, like the word use of words, moderated valuations in the market definitely will be those.

And in terms of what you're seeing out there, are there in terms of industries popping up, new things that you're excited about? I know we've heard recently about some interesting things in fintech and big data, a lot of people in cryptocurrencies. What's floating your boat right now in terms of the next few years in terms of where you're positioning your investment dollars? Yeah. So for the last few years, we have invested.

I'll work off some of the things you mentioned in fintech, generally speaking, and really taking a different approach. The fintech companies we have invested in have really largely been ones that actually work for the benefit of the consumer instead of the benefit of financial institution, which has been taking advantage of consumers for a while. So we have one in Indonesia called Gajegesa that helps people take microloans with their employer without having to go elsewhere for loans. We have one here in The US called Grid that helps actually people get their tax return early. It's trying to flip kinda how people don't have to take credit card loans or high priced loans.

That's a really positive change that we see in consumer financial services. Another area tends to be blockchain generally, and we like picks and shovels. So we like things that will help people onboard more quickly because it's very hard to onboard whatever you wanna do. If you wanna be a company who wants to offer a blockchain type product or you wanna be a consumer who just wants to be, you know, more active in the space, it has been hard to onboard. We have one that is actually in the tax space.

So it helps folks who are doing millions of small trades actually account for those correctly, which isn't happening that widely today. And we have one in stealth that is taking a look at the collectibles market and how you can take your online and offline collectible and bring those together. So on blockchain, you know, we, again, like picks and shovels. The last area I'll mention is generally around healthy world, healthy living. When I was at GC, I was on the board of The Honest Company, which is based in LA and is a great company, founded by some good friends.

And, you know, my partner, Brian, worked with this incredible woman, Kimberly Schenck, who Air Force Academy captain, NCAA volleyball, masters at the Air Force Academy, and then masters from MIT. Created a company called Novi that effectively allows the largest retailers in the world to understand all the companies in their supply chain and whether they are doing things properly, sustainably, healthy, good things that are good for people. And and that business has grown incredibly fast. We're very lucky to be a part of it. And so those are three of the areas that we remain excited about.

And if you think about where the puck's going, where we think if you continue to focus around consumer financial benefit services that benefit the consumer, blockchain where you have picks and shovels. And, you know, really just a general theme, people wanna work at companies that are focused on sustainability, healthier world, healthier living, and finding companies in and around those areas, that's where we get excited about. It's interesting when you talk about companies that are getting financing and that are growing, wanting to attract the best talent. You just make a point about how people are looking for sustainability and things that are good for the planet. You know, in the eighties and the nineties, there's a motivating factor that gets people to go out whether or not they're going into the Peace Corps or they're going into Wall Street and people wanna work for private equity firms.

There are certain hot industries. It sounds like you see a change in terms of the people coming out of schools today in terms of what types of investments in companies are exciting them. Spend a little time on that in terms of how you see that changing America. Yeah. It absolutely is changing.

America changing our workforce. I grew up in the eighties and college in the nineties and late nineties. You know, I did banking consulting and then went into private equity. Right? And, you know, there was a lot of motivation that maybe wasn't for all the right reasons.

Maybe it was for a little bit of prestige and a little bit of cash. Right? That's why people made a lot of those decisions. We're seeing material change in the employees who wanna join companies, especially when you think about the companies that are, you know, improving the world, making the world a better place. I think there's lots of factors in that.

One is the pandemic has caused less of a connection with your employer. So I hear this at some large Valley tech companies. People would come in, they'd have lunch, they'd sit around with their friends, and then the employer has a hard time making decisions about, like, who's tied in and who's not. There's, you know, also people looking at, hey. I can find a job.

Like, finding a job isn't the end all be all. I would also like to tell my kids and my family that I'm doing something great for the world. We've seen it in employee surveys that if you don't have some mission oriented with your business. So the mission can be pretty vast. There could be simple things like making sure you're giving back profit or making sure you're helping people in your community, but then more kind of ingrained in your company that is fundamentally changing the world.

It's the best way to hire right now. It is the way that people are excited to join your company. If you're out there for that next buck, you won't be able to find the right talent to take you to that next level. It's funny whether or not you hear things about global warming or, you know, you hear things about systemic racism and the different woke issues that today, when you're looking at how people are viewing the world, it sounds like instead of just saying, hey, I'm coming home with a nice check, which is great. There really is almost like this peer pressure that says, you know, what are you doing to make the planet a better place?

For sure. It's all their friends, and it's their social media. It's the things that they are trying to emphasize. Right? It, you know, might be a really nice transition, Jim, from the beginnings of Instagram and the beginnings of folks who, you know, wanted to emphasize their own personal brand.

Part of your brand now is absolutely tied to what else are you doing for the world. Are you making this better for people to live in if they're not part of the insider club? Are you helping people who don't have homes, don't have the things that you have? You know? And I think you've seen this in social generally.

It's one thing to just give people that insight about how good life is. In fact, I don't think people wanna hear it in some ways. They wanna know that you're doing things better and that you're doing things better for people, and that is a really positive change for sure. Yeah. You know, one of the things is, again, when you and I started doing this, I mean, there were more VCs up north, but there were, like, three in LA.

And when you look at what's happened in the last ten years in terms of the hundreds of VCs out there now, you have a lot of people that are younger than you and that have not gone through a shellacking. The interesting thing that I've seen is a guy who, as a restructuring professional helping people go through these difficult times, is it's amazing how when people are caught off guard, like, they're trying to make the world a better place, they're trying to go home and say to their partners, hey, you know, this is what I did today. When they have to go in and say, oh, by the way, I had to fire my office today. I had to fire my assistant. Oh, by the way, I can't pay my law firm.

I can't pay my accounting firm. The stress that it creates for people is almost unbearable. I wonder if you don't wanna panic people. Right? And people have burns and they have creditors.

But in an environment of ever increasing valuations where people don't even know what a down round is, And in a world where you've got a burn and it's x months, but it's based on the fact that you're raising all this money, how do you prepare people for the fact that they need to at least be aware that if we hit a speed bump, you don't just sell your company in fifteen minutes. When the term sheets dry up, what do you do to kind of maintain that cash reserve and be able to orderly change course? The reality is that what entrepreneurs have been doing more recently is really spending and overcapitalizing the company for that next round of financing. And I think you do have to explain that given the turbulence or given some of the changes in a particular market, don't get panicked. I actually think you used a great word there.

It's never a time to get panicked, but rather, you're gonna have to make changes to the business to moderate through those periods of time. Think very long term. That is probably the number one thing we tell our entrepreneurs is think really long term. It might mean you don't grow as fast for a small period of time. Everybody wants you to grow.

Everyone wants you to be the next great company. But think long term and think about what that means from your kind of capital and balance sheet perspective. The next thing we actually tell them, and this is funny because I remember doing this in o eight, and then we did it again when second quarter of twenty twenty hit. We actually sent a note about treating your employees fairly and treating them well. That has really paid dividends.

A lot of our companies were a little stressed in in the second quarter of twenty twenty. We did a call and just said, look. In some cases, if you do have to make changes to your business because it's a direct hit for COVID at the time, that's okay. Do it in an open and honest way with where those changes have to come. And we found such appreciation from employees who understood.

I mean, most people understood. And then for your team who's there, re up their options, give them more to be kind of less fearful, so when they go home, they feel good, and everyone kinda wins in that scenario. Right? And so, you know, we actually are big believers that that comes back and pays dividends. The last thing we've historically told them to do is if you have the opportunity to have levers in your business that you can pull one way or another quickly so, for instance, if you need to sublease your real estate, very important one.

Right? Those are great levers to have because then you can, Jim, you will not be able to sell the business in fifteen days. But if you can start thinking about lining up people who might want your real estate or lining up people who might want some other assets in the company that might be valuable so that if you do have to make those decisions, you can make them. We're big believers. That just gives you ample flexibility to make good decisions for your employees and for you and for your investors.

With the rent moratoriums in California, at least in the most part ending from commercial perspective, I have to believe you had some portfolio companies that were deferring rent or thinking about do they get out of their lease or otherwise. Where do you see that in the last few months? Has there been any sea change there? Early on in 2020, a fair amount probably in the fall by the fall of twenty twenty, a fair amount of our companies were working remotely and had decreased their rental footprint by a lot. And that has paid dividends because they've been able to invest in people and invest in kind of being able to hire people more remotely.

That is a fundamental change in the portfolio, and I don't see it going back. The second one, there just will be some companies that will have smaller headquarters and be more distributed. I think the second thing that we've seen and encouraged is if you do have a lot of space and you haven't needed it for one reason or another, finding subleasers who usually pay less than what you're paying, obviously, will help you as you make those decisions. Actually, I have a fun story. What doesn't sound fun, but trust me, it was.

I was invested in a company called, Vitru. The CEO is a good friend and one of the motivations for starting this firm. And we were rolling along in o seven, o eight, and we had a tower in Atlanta. We had an entire floor of a tower in Atlanta, and we had to make big changes. And, again, he did it in a very honest way with the employees because it was the end of o eight financial crisis, impossible to raise capital.

And Reggie talked to employees and had to make some headcount, and I'm still friends with a lot of the people who we cut, actually. And then he looked at the employee base spread out over this little area. He had a brainwave. He's like, I want everybody to move to this one corner so we're all together, and it it went from 80 people to 22. That 22, not only the incredible people, but they joined together, worked really hard, built that company back up to 200 people, and we sold it for significant outcome to Oracle probably three years later.

And he was able to sublease half that space, so they were able to use that capital to invest in the business. And he said one of the best changes was being close together again. Right? And I think that's one positive if you do end up decreasing your space. You know, hey.

Maybe there's a couple people in the conference room, and there's a couple people doing that, and you could then work remote on other days. That story always reminds me about, like, that connection and, you know, sometimes people love to overbuild, and it's nice when there's reasons not to necessarily do that. The distributed piece, which I've mentioned first, whereas real estate might have been 15% of your cost structure most of your companies, I bet our average now is down somewhere between 810%. So big a big change. Right.

And you don't see it going back again? I think that there's a reason to invest in real estate. I'm not personally, but I I get why there's investment to do that. But do I think it goes back to where it was? I'm pretty sure we're not going back to where it was.

And I think that most companies in our sectors will continue to have some type of remote hybrid workforce. I never thought, even in our business, that we would do this much hybrid, but we do. There's a lot of reasons for it, but there are some businesses that does not work. And sometimes you just have to be somewhere in a physical location, but I think we'll, for the near term, have this as part of us for a long time. As you're building your portfolio and you're you're looking at markets and stuff like that, how active are you in Southern California?

We're really quite active in Southern California. The reason is over the last twenty years, I've made a number of investments there. I'm actually going to our friends at Upfront's conference tomorrow. And we've always found Southern California to be just a great place to invest for a couple of reasons. One is you have the media side, which used to be the whole business or a big part of that business for a long time in that area.

And then you've had these tech companies pop up like Snapchat and others that now there's companies getting founded based there, which is a big meaningful thing. You had Google come in and open the offices. You know, you always had the media piece. But now with new tech companies, that's great. Second, there's incredible entrepreneurs who wanna live in Southern California.

So Brian Lee is one of our Defy sages, and, you know, he started LegalZoom in Southern California. He started The Honest Company with Jessica in Southern California. He started ShoeDazzle in Southern California, and he started a great c venture firm there as well. Those are the type of people that really help with that ecosystem. It also is, like, the largest port in The US.

It had direct flights everywhere, and the weather is outstanding. Right? So, you know, the reason we really like Southern California is it it is also reasonably easy for us to get there. It is one area that has historically not seen it quite as much venture, but as you mentioned, now there's an ecosystem and there's more firms and there's more entrepreneurs. And that is really how any strong market, whether it be Seattle, New York, or Austin, that's how any good market really starts to bubble up.

You get a few good companies, you get some great entrepreneurs, you get some capital. And LA is definitely in an upswing in all of those categories. In o seven and o '8, I was running a small law firm at the time, and there were several boutique firms that were doing venture and otherwise expanding. Some people saw the storm coming and were able to creatively deal with it, and some didn't. A lot ended up going out of business and so forth.

And now, law firm presence in LA is bigger than it ever was. Just like the VC presence is bigger than it ever was. In terms of a market where they're over their skis a little, will there be a bigger shake out in Southern California, do you think? I mean, have you seen more craziness here? Is it pretty evenly distributed around the country?

How's Southern California gonna fear if we get a bump? The craziness has been pretty aggressive in most parts of the country. In markets like LA and Seattle, for instance, where Right. You had historically not seen the craziness, they definitely both have felt it. And, you know, where you can see it, Jim, is real estate prices and other underlying assets.

Right? And so, you know, I think it's probably fair to say that as there is market compression generally that you'll see a significant slowdown. I have been so surprised, which sounds crazy because, like, you know, I was in the service business, like, thirty years ago. We've had deals where people just can't take the work. That's, I think, maybe good in some ways and that maybe some of the firms we use haven't expanded too much and that they just can't take on the work.

We usually recommend, like we have a great fund formation lawyer. If we recommend somebody, we usually clear it with them before we recommend because they're so busy. Those examples might be that some folks are keeping it constrained, but, Jim, like any downturn or somebody let it get a little out of control and they expand it too quickly with a lot of whether it be on the service side, lawyers and accountants, or whether it be in the venture side, raising too much money or hiring too aggressively. Those are usually early victims in challenging markets. I would say one difference this time is in o seven through o nine and then o o through o two, the Bay Area really saw a big brunt of the hit, especially in o o through o two, where you had some big firms go out, like law firms not succeed, and you had some others.

You know, Seattle always had Microsoft and Amazon, and LA always had the entertainment business. And for Wild Defense to kind of manage that, as you get more invested in these other markets that have seen a little bit more inflation, that will tend to hit the market, I think, a little bit harder. You remind me back to I think it was 2000, for instance. It was before I was doing restructuring, and I was really mostly doing VC deals. And I remember working with firms like Wilson Sonsini up north, and literally for, like, a series a or b round, there was a litigator on the deal.

You had an exodus to .coms, like, third year corporate lawyers were becoming g c's of these companies because they want to get rich and get stock. That's right. And then you had so much deal momentum and flows. There just weren't enough bodies to literally do the deals. It sounds like you're calling and making sure they have the capacity, but it doesn't sound like it's gotten that crazy where they're literally throwing litigators at it.

It hasn't for us gotten quite that crazy. You remember, I think it was Brobeck. Right? Like, grew really big up there and then Mhmm. I don't think it exists.

Is that correct? I don't think they exist anymore. That's correct. It hasn't felt like it's gotten quite to that level. I would say we were more than happy now to use firms that aren't in the Valley, which is a little new for a lot of Valley firms for, if no, rather reason than the cost and the impact on our companies.

So we have when companies are going through processes or sometimes we're almost forced to use ones outside. So maybe, Jim, to your point, hasn't gotten quite to that craziness. People who are my age have seen this happen a couple times and a little bit more moderation seems to be the case. Yeah. And I wonder also, you know, back in 2000, there were converts that would lead to an a round and there was seed financing.

And that required a little legal work, but not a ton of legal work. You've got now companies. I got a call for a company shutting down, and they're like, look, we thought we were gonna get our b round taken care of. We weren't able to. They were asking me, well, what do we need to do to be able to start an assignment for the benefit creditors and shut it down?

And I said, well, you need board approval and you need shareholder approval. And she said, oh, well, that's not a problem. I control with our lead investor, you know, and then I've got my safe agreements, my safe investors. Well, in most cases, have no voting rights or issues. Well, you know, for those companies that got funded with, for instance, like, with safe, I mean, you really don't need much legal work to get those kind of deals done.

Yeah. No. And safes became a little unsafe for a while. There's actually, I think a tech contractor go about that. But, yeah, I mean, depending on how your, you know, controls are on the board, etcetera, you would know this better than me, Jim, but it's still usually helpful to get people's approval, generally, just to keep things totally clean.

Absolutely. And, you know, we always encourage just like we want transparency with employees and treating people right, you wanna treat everyone, whether, you know, it'd be service providers or investors the right way. It's not always possible. We understand that, but we try our best. You know, I think if you wanna do this for a long time, like you and I have been lucky to do, then people will remember.

And, you know, we'll go through in their cycle, and they'll be in cycle back on the good side, and that'll be something to look forward to. Yeah. Look. I completely agree with you. And the thing I'm trying to do is to get the message out there because I think you just touched on something.

VCs care about doing things the right way. They wanna make sure, obviously, that their employees are treated well. The lenders are treated well. The vendors are treated well. You've been through this before.

Relationships are incredibly important. You know, you got young CEOs that haven't necessarily gone through this. They're not typically expected to ask to be taken out of the game, so to speak. And there's this natural tension of, we wanna kind of treat everybody in a humane fashion, and the CEOs are saying, yeah, but, you know, we're gonna get that term sheet. We're gonna get that money in the bank.

And the answer is, okay, but wait a second. If we have to pivot and we have to shut down, can we do it in a humane manner that's not gonna be embarrassing to people? And getting people to be aware of the fact that put on your seat belt, hopefully, you won't need it, have your earthquake kit ready, because at the end of the day, how we treat people is extremely important. Absolutely. Memories are long and life is long.

Right? And so the way you treat folks all through your journey is absolutely critical to how also your own happiness is gonna be as you talk to people and work with people today in the future. I think most of us have a pretty strong moral compass, and I think you should always pay attention to it and make sure that you're doing what's important and what's right by all the people who made you successful along the way. When you talk to companies now, when you talk to friends and lawyers and VCs and everything else, I talked to a VC about six months ago about this, and we're talking about what's on people's mind. And it was kind of like, again, sustainability and what you were saying, what are you doing to make the planet better?

And there really was a focus on that we were investing in enough companies that really had that story. Are people asking other questions right now? I mean, are people at all concerned about what's going on with the Fed talking about raising rates, for instance, in March and with what's going on in The Ukraine and stuff like that? Is there any interest in thinking about preparing for a rainy day? Honestly, I think that so we'll start with the one that happened last week.

Anybody who has exposure to those areas is thinking about it right now, and has been hopefully thinking about it for the last few weeks. That it's gonna be volatile for a while. That's hard to argue that that's not gonna be volatile. So if you have exposure, trading partners, teams, there's plenty of people with teams who are there. You've seen them LinkedIn and others.

That, I think, is absolutely right now. The Fed and some of the larger macroeconomic questions, we have not seen as much of. And I think one reason is the market generally bakes in those things. And so the market, I think, people are always looking at. And funny thing about my job being kind of on the series a early c plus is that we really don't look at the market.

So I'll give you the example that I think the people who give us capital find most interesting. We've been around for six years, so that'd be 24 quarters. Our highest investment quarter ever was the second quarter of twenty twenty. We deployed almost 20% of fund two in that quarter. Wow.

And, again, it is a 100% because we've seen this happen before, and then we felt like the fundamentals of the market were okay. We were just going through this real shock in the system. And you wanna invest when there's a shock in the system. That's actually when you want to do that. And, you know, I don't invest in commodities.

It's funny. A friend just asked me to look at, hey. Do you think oil at a 100? Does that make sense? Right.

For the last ten years, it's traded between a range really from moment it went down to 30, but around 50 to 70. And then if you looked in 1979 and 2008, it got up to, like, a 160 or something. Generally speaking, it trades in this other range that is not as vast as people think it is. There are these spikes and drops, and the spike in o eight came right back down. Right?

It was a quick spike in 2008. You think you take a little bit of that pattern recognition of what has happened in the past, and you make good long term decisions. Our long term decisions are truly long term. Our companies usually stay private between five and seven years. Over the last two years, that hasn't happened.

We had a couple of IPOs we want in process right now. So that has been quicker, if you will. But if you have a five to seven year horizon, and then you're thinking about going public or liquidating or having m and a, as you mentioned, between seven and twelve years, you know, do the math. If we invested something today, it is not gonna be liquid for quite some time, but that is how you see 10 x plus type of investments, right, which is what we're always shooting for. So easy to answer the part on, I think, any type of geographic, you know, uncertainty like we have right now is absolutely putting the brakes on things for people as they think about it.

Larger macro fed changes, the market bakes in, so it doesn't change our market quite as much. And then if you're early stage, you end up going long and thinking longer term and, you know, that has worked. As long as you think that way, it has worked. I hope it continues to work. You never know.

Maybe it did in the seventies as well, but it does today. So, you know, we continue to think that doing the hard work for entrepreneurs and setting the price, sitting on their board, trying to help them hire, trying to make them think through the issues that you and I just talked about. Thinking through those things is where they'll always be kind of a differentiated approach because we try to bring them a first customer. We try to bring them great people to help them build their businesses and relationships and networks. And, you know, we're just big believers that's how you build for the long term.

And Right. You're always thinking about the long term. Some of these short term blips, while scary as they're happening, work out in the end. No. That's great.

Well, Neil, look. I thoroughly, thoroughly enjoyed this, and it's gonna be an interesting few months. I enjoyed it as well. I'd look forward to keeping in touch, and thank you so much. Really appreciate it.

Okay, Neil. Have a wonderful, wonderful day. Thanks, Jim. The Puck Venture Capital Beyond is produced by CMEG Advisors. If you enjoyed the conversation and haven't subscribed yet to the show, you can find us on iTunes, Apple Podcasts, and SoundCloud.

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