Turpentine VC

The art and science of venture. @TurpentineMedia

[Turpentine @TurpentineMedia]

Founders: be a pattern-breaker.

@justinkan sold his first company on eBay, which caught then attention of @m2jr:

"I was like, ‘who does that?’ These are the kinds of guys that win because they're pattern breakers. They engage in behaviors and activitie that conventional people wouldn't normally engage in."

@bchesky pitched Mike when @Airbnb was a room full of cereal boxes (Obama O's and Cap'n McCain's).

"Looking back on it, that was much more of a feature than a bug. Because it showed that he was willing to do unconventional things to get unconventional results. And so that's a lot of what I look for. When I'm talking to founders or prospective founders, I'm trying to understand, what are the types of things that they're wildly interested in just for their own sake?"

[Jason Scharf @Jason_A_Scharf]

Wonderful interview with @m2jr by @eriktorenberg on @TurpentineVC.

A few moments that stood out to me.

“Don’t be the best be the only + force a choice not a comparison” Agreed, which is why I hate the Silicon Hills, Silicon Beach, Silicon XYZ monikers

“The need to identify and filter plausibly good ideas that are really bad ideas” Great insight and vital muscle to build.

“Innovation isn’t random. Founders who are great have a determined idea of the future and pursue it with reckless abandon”. Still absorbing this as a determined founder alone isn’t enough, but are they biggest catalyst? I need to keep thinking about this.

[Turpentine @TurpentineMedia]

Excited to announce our companion newsletter to Turpentine VC with @eriktorenberg: get the top three insights from each episode straight to your inbox each week.

Check out our first post with @m2jr here: https://t.co/Wc71Yev79b where we cover:

1) why upstarts must force a choice, not a comparison
2) why Mike looks for pattern breakers to invest in
3) how discipline and patience are a form of arbitrage, with a sneak peek of next week's guest.. @infoarbitrage

[Podcast Notes 🗒️ @podcastnotes]

Ever wondered why some firms are great for a few years, while others thrive for multiple decades?

• Culture matters: a solid culture is the cornerstone of lasting success. When smart investors and a strong culture come together, the potential for long-term greatness skyrockets.

• Leadership transition: smooth leadership handovers are vital. Firms that maintain the original culture during transitions tend to shine. Look at Sequoia's 20-20 rule: 20 years with the founding team, 20 years with successors.

• Change and core values: adapting to new leaders while keeping core values intact fuels sustained success. Flexibility with change preserves what matters most.

By @bhorowitz, from @TurpentineVC with @eriktorenberg

FULL NOTES: https://t.co/PJ49ZgdpMu

[Erik Torenberg @eriktorenberg]

Excited to announce our latest show from @turpentinemedia with @jaltma interviewing other CEOs/COOs who’ve scaled amazing companies.

This show is all about how the world’s best operators answer that challenge of scaling high growth startups (and scaling themselves). How do they make tradeoffs? How do you hire executives successfully? What do you do when you realize there needs to be a change? How do you think about adding new product lines or new functions? What are the lessons they’ve learned, sometimes the hard way?

Coming up on the first season of this new show, we talk to incredible CEOs and COOs who have done this painstaking work to scale, including @stripe’s @chughesjohnson, @Atlassian’s @jaysimons, @Segment’s @reinpk, @FrontHQ’s @collinmathilde, @AppliedInt’s @qasar and Peter Ludwig, and more.

Link here: https://t.co/XRdVGyhCvE

[stepan @SimkinStepan]

Great interview with @lessin on @TurpentineVC.

Feels like Solana is still a contrarian bet today, though likely not for much longer.

[Shimon @sir]

“The best companies needed the least help. I will debate anyone on that till the day I die. We now have enough data for me to feel like that's pretty conclusive. Having said that, it's not that you still don't help. The way I think about it is be helpful in crux moments. There are moments in a company trajectory, in history that are crux moments other than that, don't get in the way of really good founders. If you talk to the best founders, they'll say that their investors are annoying. They're constantly in the way, I hate the board, et cetera. I find weak founders actually try to involve investors more.“

@chadbyers on @TurpentineVC

Full transcript and summary:

https://t.co/V8M9BgRaAA

[Turpentine @TurpentineMedia]

.@lessin on yesterday's episode of Turpentine VC, explaining why the so-called "factory system" of venture capital is over.

"I think for the last 10 years, you and I have been part of what I call a factory system of venture capital that came together.

Seed investors put ideas up. Seed investors said, "oh, we're the first line of production. We'll put in money, we'll tinker with it. We'll help you refine the business model and package it to pass it to the Series A people."

And the series A people are like, "cool, we'll tinker with it and help you hit the right metrics and go after the right things and put capital in, then package it for the series B people." It's just this factory line, and the end of the line is supposed to be valuable public companies.

It's not that you won't have valuable public companies generated in history. You obviously will, but the idea that you could just package and push things down a line, whether it was direct to consumer companies, or more recent AI companies...like there's a model you can follow that's gonna predictably produce $1 to $10 billion self-similar enough companies and you could just produce those at at non artisanal scale. That's kind of what fell apart.

So now you see the biggest companies are even bigger and most of the things that were the packaged IPOs have kind of been shitty. And so the whole factory line is now backed up. The public market for this stuff doesn't work. Which means the Series D investors overpaid, which means you literally like had a halt button on the factory line. And so I think it was pretty obvious 18 months ago that the factory line was gonna grind to a halt.

As the seed tinkerers who are packaging things, they hand to the series A people in a self-similar way where they can easily buy them and then do their part, their step of production—it was pretty clear that like we just had to chill out while they worked through all the inventory that was rotting on the line effectively.

We have a big backup problem. The problem I now see candidly is I just don't see how the line turns back on. I'm really unclear as to how the factory restarts, like ever. I'm not worried about that as a seed investor.

Like I don't think it's that big a deal. I think these things used to be more artisanal, and there are interesting businesses to build, and interesting things to invest in. I'm very pro all that.

Even we at @slow got really in our heads in that, we want to bet on great founders and big ideas... but if we're being honest and look at our portfolio, there's a lot of things we did where, well, we like the option value...we know how to package this. We know who's gonna buy it. And we get the markup and we kind of go from there.

I don't think those have been our biggest winners candidly. But I think we even fell into the trap of being part of the system, and I think we're kind of getting pushed back out to be real investors and real venture capitalists and not packages on a factory line.

You know, all of the deals I'm most proud of and we've made the most money on, they were all things that were pretty non-consensus in weird industries. Where we had a thesis that other people didn't. And you do need your crazy thesis to eventually become mainstream enough for someone else to want to finance the thing.

The stuff we've done that fit more into the good clubby stuff. It's not bad, but it's not the real wins. And so I think the future of VC is going back to like really pushing investors and founders to think about what are the really interesting opportunities? They're not gonna be the ones that necessarily fit into an easy YC batch.

And then I go a step further: I do think the other thing that will change is, seed capital is not something you burn to then raise Series A capital.

I think now it's gotta be like, take the money, build a business that works. Once the business is working, think about how to scale it up, scale it faster, make sure that capital is always an option, not a required path in the market."

[Turpentine @TurpentineMedia]

This week @mamoonha and @ilyaf of @kleinerperkins joined @eriktorenberg on Turpentine VC to make the case for the craftsman approach to venture capital, and it's a must-listen.

Our top takeaways:

1. KP holds firm in their belief in the craft approach to VC, which isn’t too dissimilar from the approach 30 - 40 years ago.

Of course they employ new tools and software that allows them to be better stewards of the capital they manage, but the craft of investing is still at the center of everything they do. Kleiner may never have more than 7 partners: less is more, and one team, one dream.

And it all comes from the question of: “how do we make really good decisions?” That means all being based in the Bay Area, having in-person team meetings every Monday, and having those discussions as a team sitting around a table.

2. The team at Kleiner uses “majors and minors” to cover new waves or emerging domains with a small team.

Because of their team size, it’s difficult for KP to spin up specialization. So they fall back on having partners with great fundamentals (majors), with the ability to shirt into emergent domains (minors).

The minors allow partners to shift into the new trends bubbling up, like crypto, AI, and more. Mamoon and Ilya view their job as making sure they know what the new thing is, and being intentional and deliberate with their decisions to either lean deeper into it, because they believe that’s where real history-making companies will get built, or pass, because they think it’s a fad.

3. The process KP uses to determine how well they’re doing compared to other competing firms.

Every Monday, they look at the prior week of Seed, Series A’s, and Series B’s that got done by their peer set. And they ask the following question for each company: “Did we see this one? Or did we not see it?”

Then over the course of a quarter, they aggregate that to assess what’s happening on the ground and whether or not they’re seeing what they think are interesting companies in every company they look at.

It’s a way of assessing whether or not Kleiner is truly the first, second or third call, or how relevant the firm is to the top companies that are getting funded today. While the ultimate truth to them is the eventual outcomes and win rate, this is a great top-of-funnel leading indicator.

Links to the full podcast are in thread. Thank you to @cartainc, @synaptic_data, and @PestoTech for supporting the show!