Venture Capitalist, James Currier: Mastering Network Effects to Scale Your Startup | E102

Wow, this show is going to be incredible.

So, buckle up, and I'm sure you're going to enjoy it.

But before we get started, I want to ask you for a favor.

See, it's really, really important for me to help millions of people elevate their career, fast-track to leadership, land dream rules, jump to entrepreneurship, or create portfolio careers.

And this podcast is all about enabling this for millions of people to see a map of what it actually takes for big leaders to reach success.

So, subscribe and download so you never miss it.

Plus, it really, really helps me continue to bring amazing guests.

Okay, so let's dive in.

A lot of people are considering entrepreneurship because they want status, not because they're actually entrepreneurship.

James Courier is a five-time founder, an angel investor in DoorDash, Live, Petron, and a founding partner of NFX, one of the most active venture capital in the U.S.

focused on seed and pre-seed startups.

I was really an entrepreneur from the time I was born.

When I was six, I started selling worms and then I was selling seeds and then I was selling shellfish and then I started a t-shirt company and I started a boxer short company and I started 18 companies before I was 18.

I was struggling between the fear of having no money and the fear of living a boring life.

Don't become an entrepreneur if one, you haven't been an entrepreneur since you were six or 12 and it's just part of your DNA.

Or you have an idea in your head that you can't not do.

What do you think makes a really good founder?

And if somebody's like debating, should I be an entrepreneur, should I not be, what would you tell them?

Here's my advice to your crowd.

I am so excited about this episode because I've been following James Courier for a while now.

So James Courier is a five-time founder, an angel investor in DoorDash, Lift, Petron, and a founding partner of NFX.

NFX stands for Network Effects, one of the most active venture capital in the U.S.

focused on seed and pre-seed startups.

James, I'm really excited about this conversation.

Thank you for having me.

Let's take you back in time.

Let's rewind.

You studied in Princeton and Harvard, and I'm sure a lot of people in that area took the traditional path, consulting, finance, all the accolades.

Why did you decide to be an entrepreneur?

In a way, I didn't decide.

When I was six, I started selling worms and then I was selling seeds and then I was selling shellfish and then I started a t-shirt company and I started a boxer short company and I started 18 companies before I was 18.

It was a way of making money.

My dad was an entrepreneur.

My mom was a music teacher.

We lived out in New Hampshire.

If I wanted money, I needed to start businesses.

And so.

I did that.

And then when I was in college, I started the loft agency and I took a year off and started a company and then went back and finished up at Princeton and whatnot.

So I was really an entrepreneur from the time I was born.

I grew up in a place where you had to be an entrepreneur, sort of in rural New Hampshire.

And so it was chosen for me.

What was sad was that at Princeton, they didn't have anyone to slap me in the face and say, dude, you're an entrepreneur.

Get out to California.

Get out to San Francisco where the entrepreneurs are.

It took me 10 years.

from graduating from college to actually getting out here and realizing, ah, these are my people.

This is where I was supposed to be the whole time.

And I just hadn't known.

And so right after school, I went into the normal path.

I applied for an associate position at GTE, which was now part of Verizon.

It was a 180,000 person company with a big headquarters in Stanford, Connecticut.

And I traveled up there with my little coat and tie on the train and got a job.

And they gave me six different jobs over.

three years.

So I learned all about the corporation and all the people.

And then I was just like, this is not for me.

And a friend of mine had reminded me that my dream had been to go to Asia.

So he called me up one day.

He had just gotten back.

And I was like, I went to my boss.

I'm like, I got to go to Asia.

So I sailed.

I took a sailboat and I sailed to Tahiti.

And then I flew on to

Asia.

And I got a job at Star TV because they had, anyway, they were doing technology and media and whatnot.

Then I got fired from there and I went to Beijing and I was studying Mandarin.

And then I got misdiagnosed with a heart disease and sent home.

Wait, wait, wait, wait, wait.

How old are you at this point?

24.

Wow.

Okay.

So first of all, are you afraid at any point or are you just eating the dream?

I think what was happening was this might be interesting to your audience, which is I was struggling between the fear of having no money

and the fear of living a boring life.

And I was grinding up toward the realization that I was more scared of living a boring life than I was of not having any money or anything to eat.

That's incredible.

And that's exactly our audience, by the way.

Every single listener here is right now getting a ha moment.

That's the thing.

I felt like I want to live an amazing life and I'm willing to die for that.

So when I got back to Boston, I went and took a job at a venture capital firm.

And then I learned all about venture capital and how that all works.

I was smiling and dialing, trying to sell money for battery ventures.

And then they came to my room and said, here's your recommendation to Harvard Business School, go to Harvard Business School.

They had all been to Harvard Business School.

So I applied and I got in because they said I should and I had done all the things.

And then I got in and I went to that.

But that again wasn't quite the thing.

Again, this was the normal track.

This was safety.

This was the fear that I grew up with of not having enough to eat.

And by the time I was done with HBS, I felt like I had turned over enough rocks.

I knew that I could always get a job for $60,000 somewhere because I had this HPS degree.

And then I had to decide, do I go back into venture capital or do I become a startup founder?

And And this guy named Mike Zach at CRV, Charles River Ventures, he said to me, I'm listening to you here at dinner.

It's our sixth meeting.

We're ready to make you an offer, but I can see that you need to be an entrepreneur and you need to go do that.

You'll be a better venture capitalist later once you've done that.

And he was the one who finally slapped me in the face and said, dude, you're an entrepreneur.

I was 31 at the time.

And so that's when I started my first startup.

And then we almost went out of business twice.

Wait, wait, wait.

So let's go there.

Let's go there.

So he gives you this like aha moment.

And you're you're saying, okay, maybe this is what I need to do.

But between that and actually knowing what to start is a very different story.

Right.

So here's the thing.

Here's my advice to your crowd is don't become an entrepreneur.

If one, you haven't been an entrepreneur since you were six or 12 and it's just part of your DNA or you have an idea in your head that you can't not do.

And both things were true for me at that time.

I had been a little entrepreneur since I was six

and I had an idea I could not do it.

I couldn't sleep.

I was so excited about it.

I was having visions about it.

It filled my soul.

And so I had to do it.

And Mike Zach thankfully saw that and he said to me, you need to go do this.

And I'll tap into that.

And I want the listeners to listen in because don't go there just because you think it's easier than finding a job.

Go there because it's a passion.

Entrepreneurship, as far as I'm concerned, James, correct me if I'm wrong.

It's always going to be hard.

But if it's your passion, it's going to be the thing that you have to do.

That's exactly right.

Especially if you're going to raise venture capital, which most companies shouldn't.

But if you are, it's a prison.

You have to exit that company and give the investors their money back.

You're just in the prison.

You've got a sentence until you exit.

It's a different kind of prison.

Yeah.

Yeah.

But it's very tough.

And there are many, many nights where you're just not sleeping and you're totally suffering.

And you have to remind yourself, I chose this.

And my wife would remind me and I would remind me.

And it was still very, very hard that, look, I chose this.

I chose this.

I chose it because it's very painful.

So let's go there for a second, James, because I agree with you, Othadmus, and with Leap Academy, I decided not to raise capital and not to have the prison.

But I still want to go there for a second.

So you have this idea.

It's keeping you up at night.

You're like, oh my God, is that tickle that you need to start?

So you know that you need to create it.

The basic idea was that the internet was going to be about us and our friends, not about Nicole kidman and tom cruise because all the other media technologies were for one to many radio one broadcast 100 000 listeners television same thing magazine same thing the internet was the first media technology that was many to many and so i realized it's going to be about us we're going to consume media about us that's brilliant and that's really early on that was like 98 99 yeah so you had this idea you're jumping all in you decide that you're going despite fear, despite money, despite it all.

Was there fear?

Like, am I crazy?

No, I had been at a venture firm, so I had seen how you fund these things, and I had seen many people take this leap and live this life, and I had interviewed hundreds and hundreds of founders who were living this life.

So for me, I was already acclimated to the cold water.

Okay.

Okay, but then the dot com brought very, very cold water.

How did you do was the 2000s?

We were 80% lucky and 20% good.

The 80% luck was that we raised our Series A round one week before the crash.

Actually, excuse me, during the crash.

The crash started on a Monday.

We got the money on a Friday afternoon that same week.

The venture capitalist actually sent the check.

And so we were very, very lucky.

And so by the time we could even gear up to spend any of the money, it was very clear what had already happened.

So we didn't overspend.

So we were able to extend long enough to survive.

But the 20% where we were good was that we iterated really quickly.

We were one of the first companies to do A-B testing.

And we took ourselves off salary for about six months leading up to the financing.

So we had 13 people, and I think seven of us were on salary, and six of us were off.

And we were working 12 hours a day, and iterating, and iterating, and testing, and trying, and breaking old paradigms, and throwing out old stuff until finally something hit enough.

And the other part that we were good at was I talked to 43 venture capitalists before we got funded.

And remember, these are all my friends.

These are people I had known for years working in the industry.

And they all said no to me.

And I want to go there, James, for a second, because I think one of the things that I hear very, very often is like, but I tried.

And what they mean is that they went to seven and they got rejection.

I'm like, yeah, I mean, look at my spreadsheet for the podcast.

Do you know how

many thousands said no initially until I got, you know, a few big names?

Like, that is it.

That's right.

And I think for people who have succeeded at school and for people who've succeeded in large corporations or succeeded in government or succeeded in the military, it's hard to imagine how many at-bats you need to get one hit, how many ideas you need to have before you have one good idea.

And it's just a benchmarking exercise.

And so for people who are saying, I'm not the right height, I'm not the right color, I'm not the right gender, I'm not the right nationality, therefore I'm not getting funded.

That's mostly bullshit.

Because the white guy from New England who went to Princeton and Harvard, who knew everybody in the industry, had everyone say no to him because it was not a consensus idea.

It was not an easily digestible idea.

And I had no traction yet.

And at that point, like you had so much conviction in the idea that you just continued, or was there like, what the heck am I doing?

No, I just continued.

I knew this was coming.

I knew I just had to figure it out.

And I just needed enough time to figure it out.

At that point, are you in a relationship or not yet?

I was.

I had a girlfriend at the time.

Okay.

And she's not slapping you and saying, James, get a job?

No, not at all.

Not at all.

She was fantastic.

I stopped sleeping on October 3rd and we raised money on April 9th, I think.

Something like that.

So on October 3rd, I woke up in a cold sweat realizing I didn't know what I was doing, that I was going to have to go off salary, that I was leading these 13 or 14 people into the abyss.

I hadn't learned nearly enough working at the venture from watching people do this.

I needed to know much more about product and all that stuff.

And so I just grinded.

And my girlfriend, who's now my wife, she couldn't care less about money.

She couldn't care less about technology.

And so for her, she just cared that I wasn't sleeping.

And she was like, well, you're happy not sleeping and being stressed all the time.

And that's you being happy.

Fine.

Which sometimes we do take it on the spouses for my poor husband, but I have to say, he has so much patience.

Okay, so at some point, you're starting to see these seeds of viral loops that are happening and you're starting to understand this network effect that thing that is happening can you explain a little more what just happened there's a difference between viral effects and network effects viral effects are to get new free users network effects are to have retention where the network effects create so much value in the product to people that they never want to leave and no competitor can get them to leave.

Okay, two totally different things.

And there's an article on nfx.com, which everybody should read: called Viral Effects Are Not Network Effects.

So, what was happening at this time was that we had a massive viral effect, meaning we sent out our latest iteration of the product to 400 people on an email.

And within eight days, 1 million people were trying to hit the website, and it crashed the website.

Luckily, it was a very clear signal.

Had it not been clear, that would have been harder.

A clear signal is a zero or a hundred.

But if you get like a 43 or 37, that's the worst.

Because if it's a zero, you just move on to the next experiment.

The maybes are the hardest.

Yes.

The maybe is the hardest.

And so luckily it was a big viral effect.

We started getting millions of people hitting the website.

Basically, we put up a dog test.

Which breed of dog are you?

Answer these 16 questions and we will give you this beautiful, cute little dog type with.

four paragraphs about who you are as a personality.

And this went crazy.

I think think in the end, we had 100 million people take that test.

So

it took us like four hours to make.

It was just like another experiment.

We just kept experimenting.

And then we were able to raise the money and we didn't understand network effects.

This was the big aha.

Network effects didn't come until 2004.

So this, we took off in February 2000, and then we didn't really understand network effects until 2004.

And that's a whole different story.

Right, because then you need to also monetize and make it sustainable, I assume.

Right, right.

So tell us about that because that's hard.

You need retention.

So we were building self-assessment tests.

So you had to put out a new self-assessment test every week.

And this is the business of fresh produce.

It's like being an e-commerce vendor or something like that.

Or your job.

You have to put out a new podcast.

This is what we call the business of fresh produce.

And it's a manufacturing line.

And it's a business, but it's a hard business.

But it was working for us because a lot of people were coming.

And so we could just put up ads.

You know, we got profitable for one month.

And then we moved out to San Francisco because I couldn't hire anyone in Boston.

We started this in Boston and we just couldn't hire anybody who knew anything about anything.

And so we had to move out here for hiring.

And so of the 14 people, 13 of them moved.

The 14th person who did not move is a woman named Mel Schneberger, who changed her name to her husband's name, Mel Robbins.

And she's now the number one female podcast in the world.

That's really cool.

Right?

She was the one who didn't move with us.

Anyway, she kept iterating too, and now she is where she is.

So she's fantastic.

And so we moved out to California.

We got an office and then the fresh produce kind of started running out.

There was no network effect.

There's no retention.

People would come.

They would enjoy.

They would send to their friends.

We would get new users and then everyone would kind of leave.

The internet only had 600 million people at the time.

We registered 150 million of them.

Incredible.

But they would only come and stay for one or two or three hours and then they would leave.

So then we're like, okay, let's build out a matchmaking site where at least people will come and stay for three, four, five months.

Okay, now let's build out a social network.

And there was no name social network for what we called it a member directory where people could see each other and comment and share and that kind of thing.

And then we built out an ad network, which was like a marketplace, which had a network effect.

But we still didn't understand what we were doing.

There was a moment.

we were running out of money again and we were 60 days away.

So the first time we literally got the money on a Friday, we would have missed payroll for the final seven people on Monday.

But we were 48 hours away from running out of money.

And then we were 60 days away later, and we saw another website that was non-competitive with us doing something.

And we just copied their feature onto our website.

And we made $88,000 in one month, which doubled the revenue of the business.

And we got profitable and we never looked back.

And then we were profitable every month.

for 36 months and we got up to about 32, 40 million in there.

And then Monster.com offered to buy us out and we sold to them.

For about 100 million, right?

For 110 million.

It was 90, but with the earn out, it ended up being 110 because we did really well after the acquisition.

And it was five years to the week since we started the company.

So we went through the downturn, came out the upturn, and then we sold at that time.

And so here's a story about network effects.

So we get to Monster, horribly run company.

Management doesn't know what they're doing.

This bureaucracy.

They have 600 people building the monster.com website, which we could do with three or four people.

Like it was a mess.

And I was like, why are they worth 7 billion buying me for 100 when our team is better, our products are better, et cetera?

And I was like, oh, they got a network effect back in 1997, 98, where the employers and the employees are all coming to their marketplace.

And so nobody can really leave.

And so nobody can really compete with them.

And that's why they're worth seven billion.

Is they had this network effect.

And that's 2004 is when I fell in love with network effects.

And I really started to understand: ah, if I'm going to do anything going forward, I got to have a network effect because I do not want to be in the fresh produce business.

Ooh, that is powerful because you're bringing this back to every single one of your ventures and now to NFX, which is really fascinating.

Right.

NFX is the name of our venture firm.

It stands for Network Effects.

Of course.

So after that, you, for some reason, not going on the beach and I don't know, and having fun, you decide to start more ventures.

First of all, why?

Because I never did it for the money.

And this is the big reason why 90% of the exits in technology come out of the Bay Area is because the culture here doesn't care about the money.

The culture here cares about ego, cares about impact, cares about changing the world, cares about basically being a graffiti artist.

Like you go out with a graffiti and you paint your tag.

And then as you go by on the subway, you see your tag on that wall.

We're graffiti artists out here.

And so once you do one graffiti art, you want to do more graffiti art.

Never thought of myself as a graffiti artist, but okay, I'll take that, James.

That is awesome.

So that mindset means that once you get money, what do you do with it?

You use it to build more things.

More stuff.

So tell me, so you found then Wonder Hill in 2008.

So what we did was we decided that at Tickle, we had built a testing business and a a matchmaking business and a social networking business and an ad tech business.

We had seven different PLs inside of Tickle as we were doing consumer stuff.

So we were like, let's just build that endemically into it.

Let's create an incubator.

Let's get 30, 40, 50 people in here.

We'll work on three or four products at the same time.

Most of them won't work.

That's okay.

We'll just iterate.

We will iterate faster and cheaper than anybody else towards successes.

And when something takes on, we'll jump on it.

And so, like, if you look at venture-backed companies at that time doing other consumer things, like where we were able to build things 10 times faster and 10 times cheaper.

We actually measured it.

Like how much venture capital did those six companies take?

How much did we spend?

So they would spend $6 million each.

We'd spend 600K, one-tenth.

And they would take four years to go through it.

We would take four months.

It was literally a one to 10 ratio in terms of figuring stuff out inside the incubator.

The problem was once you get a hit and something's working, the only person capable of running that business is you, because you're the one who came up with it.

You can't like install a CEO or code do it with someone, which is why incubator models don't work.

There's a soul to these things.

Now, it can work a little bit with spreadsheet businesses like HIMS and Rocket Internet, I think, has a Londa.

But in general, these incubators do not work unless they're spreadsheet businesses where anybody can run it.

Somebody from BCG can just...

buy traffic, sell traffic, that sort of thing.

But if the business has any amount of soul in it, the incubators don't work.

Okay.

And so we tried it for three years.

And during that time, we built 24 different products.

We ended up venture-backing three businesses, but I ended up being CEO of each one in turn.

So it wasn't really an incubator.

It was just a way of finding the next business that I was going to run.

And so that's what we did next.

And the first business that came out of that was a gaming company called Wonder Hill, which had started as something different.

And then it pivoted into gaming.

And then we merged that with Kabam, another gaming company.

And then we took the growth analytics engine from that and spun it into a a company called Iron Pearl.

And then PayPal bought that.

And then we started an enterprise HR software company for benefits called GIF.

And this was the biggest mistake of my career because I was really good at consumer stuff.

And I want to sort of cure American healthcare with basically bringing Facebook platform, but making it for health and then letting all the apps sit on top of it.

That was the idea.

It's still a good idea.

And still has to be.

It still makes sense, but why was it such a mistake?

Because I heard you say that before.

Take me there for a second.

Because healthcare does not want to be cured.

The American healthcare system is so frozen.

So broken.

It's so locked in bad behavior.

Everyone in the system is behaving badly.

The doctors are behaving badly.

They don't really care about patient health.

They care about revenue.

The patients are behaving badly.

They just overconsume healthcare all the time, particularly as we age in the United States, like entertainment.

Oh my God, that's so funny.

The insurance companies, they just increase their prices all the time.

They're just rapacious.

They're not actually trying to lower costs or improve.

They say they are, but they're not.

They don't behave that way.

The pharma companies are just, the people at the pharma companies work from 10 a.m.

to 2 p.m.

They just use their IP to just milk money out of the system.

They're unbelievably profitable.

Nobody is behaving well.

And it's hard to get anybody to try to behave well.

And the only way you can help.

is make someone more money, not save costs, not improve care.

The only thing that the system responds to is making making more money.

And we were trying to improve care and reduce costs, and the system does not want that.

Nobody wants that.

So take me there for a second, James, because you have tried for a while.

Like you did basically put your head down and try to make it work.

In the end, I did hire a person who knew the healthcare sector because it took me about seven or eight years to understand a bunch about the healthcare sector.

It is very deep.

It is very complicated.

There's a whole set of new terminology you got to work on.

And so I just didn't know what I was doing.

I came in naive.

And the healthcare system just spits up naive people like me.

And I had already had three successes, but I was not naive about how you finance things or how you hire people or how you build good product, but I was naive about how the healthcare system worked.

And we weren't getting bashed around.

We were just getting ignored.

Nobody cared.

So for the first three years, we were just ignored.

It was very hard to fundraise.

And it was very hard to get pilots.

So we ground it out, we ground it out, and we actually built the product.

And then suddenly one person liked it, and then three, and then 10.

And we were then on the stage, and we were the hot thing for about six to eight months.

And I was like, My god, we waited them out, it took three and a half years, but we are the hot thing.

Everyone's talking about this new hub strategy.

Every self-insured employer needs to bring on one of these big pieces of software that we've built to manage all of their employees' healthcare.

And this is awesome.

And then, in the end, what happened was we had nine salespeople, and we had all this pipeline.

And

the consultants who consult to the self-insured employers in the United States, there's three of them, Towers Watson, Aon Hewitt, and Mercer.

One of them had even invested four and a half million dollars in us.

One of the people in their organization told other software companies, this is what's selling.

This is what everyone wants.

You should sell this.

Here's Jif's deck.

Because if you have the same product JIF does, then I can make money by running RFPs against all four of you.

But if JIF is the only source of this, then I don't make any money because they just buy you.

And so for those people in those organizations to make their living, they needed to create competition and create fear and uncertainty and doubt in their customers' mind so that they would continue to need the consultant.

And if the hub strategy had gotten implemented, no one would have needed Towers Watson because all the data would have been right there.

They could have added something or removed an app at a click of a button.

No contracts needed.

It would all have just been electronic.

All the data would have been there.

We would have de-siloed the information.

Everyone would know what we were working.

And so to protect their business, they ultimately ensured that the hub strategy has not been implemented.

And the four companies that then raised between $150 and $300 million each to compete with us and then started giving out the same deck, none of those have done very well.

Because the system itself is resisting improving.

It resists change because it reduces costs.

It improves quality of care, and nobody wants that.

If you're feeling stuck, underpaid, or unappreciated, or you're simply ready to take your career and life to the next level, I have the perfect solution for you.

We have a program that helps you fast track and leap your reputation and career, become the best version of yourself, get the dream role you'll deserve, move up to leadership, jump to entrepreneurship, or even build a portfolio career.

This program helps hundreds a year and it will help you gain the income, influence, and impact that that will transform the second part of your life.

Watch our free training today at leapacademy.com slash free hyphen training.

The link is in the show notes.

Now back to the show.

And I'm sure the fact that you had to go through the various ventures, you know, in this one, like I'm sure that just makes you understand founders at a whole different level.

I mean, you did sell this out, but you do look at it as a huge, I think, waste of time.

We raised 68 million and sold it for 144 to a public company.

And it was a massive waste of time when I could have been doing something much better with my time to make the world a better place or put more graffiti on the wall.

So when you sell GIF, does it make you decide, you know, I'm done?

Or, I mean, again, the graffiti thing just makes you now decide to start NFX because I feel like that should also be traumatic to some extent.

Like

I can't do this.

It was traumatic.

And I had put in millions of dollars myself to get jif going that's how we survived the first three years and so when we sold for 144 i barely got back what i had put in and you know i had spent months not sleeping over jif as well so a lot of heartbreak no reward a lot of risk and no impact on the american healthcare system either so a lose lose lose so this is all taking place around 2016, 17.

We had decided in 2010 that we were going to do a network effect venture firm.

And the model for that was an accelerator.

The more companies you have in the class, the more alumni you have, the more leads you have, the more your brand gets out there, people are loyal to it, blah, blah, blah firms don't have network effects, but accelerators do.

So we started as an accelerator in 2015 and did it for two and a half years.

And in 2017, we decided that we weren't going to continue with that model, but we were just going to become a venture firm.

We invest an average of $3 million for an average of 18% of a company.

We're very hands-on.

We try to help them if they want.

If they want to leave us alone, then we are also completely leaving you alone.

But we have been in your shoes multiple times.

And so that's what we're doing with NFX.

And we've made over 200 investments now and going very well.

One of the biggest seed funds in the world.

I think us in first round are probably the biggest and it's going very well.

But it's the sense of the PTSD of being a player.

It's much better being a coach when you're my age and you have all this PTSD.

You got to move from being a player to being, I'm like Steve Kerr.

I want to be like Steve Kerr, who played for the Bulls and won championships, but now he's winning championships, coaching the Gulls.

First of all, how did you meet Gigi, by the way, Gigi Levy?

I was living in Switzerland for a year and a half, having an adventure year with my kids and my wife.

And I was looking for companies in Switzerland to coach, and I couldn't find any.

And so I decided to go to Israel looking for some because we knew that Israel was just this awesome place to find startups.

And I emailed four people and I said, who should I meet with when I go to Israel?

And all four listed Gigi Levyweiss on their lists.

I emailed Gigi and the guy's got three kids and he's the biggest investor.

He's everywhere.

He's like, I can meet with you at 9 p.m.

on a Wednesday night.

I have an hour-long slot.

I was like, that would be fantastic.

I'll take it.

So I meet him on a Wednesday night at 9 p.m.

And we're still sitting there talking at three in the morning.

Oh, my God.

And we sat there for six hours.

And we talked about Ender's game and about Star Wars and about all the things you're not supposed to talk about, like religion and politics and money and all the things that, you know, no one, you're not allowed to talk about.

And he and I just talked about all those things.

We had the best time.

Well, you know that Israelis don't have these walls of things that you can't talk about.

You know that, right?

Maybe.

Some have the walls, but not Gigi, with me at least.

And so we just got to be good friends.

And then he and my co-founder for all of my companies, a guy named Stan Chadnofsky, who's here in the Bay Area, he had also met Gigi like a year earlier at some event in England or something.

And so when Gigi came to the Bay Area to have dinner with us, he's like, hey, I want to dinner with you guys.

Stanley had been looking for a third person to start this NFX thing with.

And Gigi came to dinner and he said, I don't know, Stanley had talked to, I don't know, 60 people.

and said no to everybody.

We just couldn't find the right vibe.

We couldn't find the right soul, the right spirit.

I mean, it's almost like marriage, that's not easy to find.

He said, Well, if you guys are still going to do this NFX thing, I would do it with you.

And so, Stan and I just glanced at each other like, Let's do it.

And we thought we would love to have a foot in Israel, but it was mostly about spirit and soul, it was about karma.

And this is around what 2016, 17.

This is 2000 and this is December 2014.

14.

Okay, wow.

And then we started up in June of 2015.

So you're starting NFX.

I mean, starting a VC fund is even harder than, I think, a startup to raise the capital.

We had a bunch of capital ourselves, right?

Because we had all built and sold businesses successfully.

A lot of businesses.

A lot of businesses.

So we had plenty of capital ourselves to use.

And, you know, it's better to use your own and screw yourself than to screw somebody else while you're learning.

And then we had a bunch of venture firms who wanted our deal flow.

And so they put in a little bit of money money into our fund as well.

Greylock, CRV, Shasta, and Mayfield, great funds, great guys.

And they had known us for years and invested in our companies and been successful and whatnot and supported us in this.

But, you know, again, it was the vibe.

It's like, do you trust the person?

Do you love the person?

Do you believe in the person?

And we just got that community together and then we got going.

And then when we went out to raise a bigger venture fund of the first fund was $150 million, Pete Flint had joined us.

And Pete had built and sold Trulia for $3.5 billion.

And so between the three of us, we had built and sold 10 companies worth over 10 billion.

And that's twice as much as Horowitz and Andreessen when they started that fund.

So the fundraising wasn't too difficult.

That's incredible.

But let me ask you something.

And I'm curious what you're going to say.

I mean, clearly NFX has done really well and you have some really amazing companies under your belt.

But one of the things that I'm curious about.

being an operator or even a CEO of a company is very different than gauging if will be good for investment.

And I almost feel like sometimes it's almost opposite because we tend to be very optimistic, at least I am.

So I suck at investment.

Like I just invest with others because I'm too optimistic and I love the founders and I just want to say yes to everybody.

So James, how do you bridge that gap and learn to be a really good solid investors?

It's the daily constant battle between negativity and positivity.

So I originally never wanted to be a venture capitalist because I worked at battery ventures and battery is a negative investing firm, which is why I think their returns are the highest and most consistent of almost any venture firm in the world.

They will only invest when they can't not invest.

They will only invest when they've gone down all the risks and checked them all off.

And there's no reason not to exist.

Oh, fuck.

We have to, excuse my language.

Oh, crap.

We have to, you know, we have to invest.

We don't have any excuses not to.

And that's just a very negative process.

And it makes you very negative as a person.

And that's not a great way to live.

On the opposite end of the spectrum, you have firms like Benchmark, where they're constantly thinking, how big could this be?

How could this be massive?

How could we look at our optimism and see what's going here?

And I hadn't realized that there was that type of more optimistic investing.

And that's why I never wanted to be a VC.

But now we are bringing that sort of optimistic, almost naive approach to the investing, which doesn't work very well at Series B, but it kind of has to work at pre-seed and seed where we operate because there's not much to go on.

There's not much data.

And you have to think about what can go right.

Because in the end what matters to the venture capital fund and what matters to your life and your ability to paint graffiti on the wall is the big outcomes like i will be associated with my poshmark investment and with my door dash investment and my lift investment because

big You won't associate with my Rap Leaf investment, even though I made 35 times on that, or maybe you'll associate it with my Goodreads investment, or not really with my Flickr investment, because they weren't massive.

And so in the end, this is a power law business, as everybody says, but you have to understand you're really looking for the big outcomes.

So at seed, you have to just be optimistic and you have to be realistic.

You have to have looked at hundreds of thousands of plans.

You have to have invested in hundreds of companies and failed with most of them.

You had to have a few successes where you see the patterns of success.

And then you try to...

throw that all in and not get too negative all day long and not too cynical and keep swinging and just keep swinging our first fund at 37 investments second funded 55 third fund at about 80.

so we're taking a lot of swings per fund looking for the three or four that are going to be worth two four five billion dollars and that's where we make our returns that's where we have the most fun in terms of returns but in the end um that's how you balance that negativity and positivity thank you for sharing that because i think that's the piece that is always interesting for me to see.

But then when there's ups and downs for founders, I feel like one of the big things that investors are looking at is: yes, you want the big thing, but you also want to know that the first time there's a dip and that near-death experience, they're not just going to give up.

Is there a way to ask?

Is there a way to see if they're going to just give up?

No, we were just talking about this last week.

It's one of the more difficult judgments to make about a founder.

Are they smart?

Are they fast?

These are easier things to

figure out in interviews.

Are they ambitious?

And we have a list of 48 attributes we're looking for.

And most of them are easy to, not easy, but you can figure it out in three or four or five meetings and looking at their track record and seeing how they respond to emails and seeing how the people around them behave and et cetera.

There's lots of tip-offs.

But this issue about will they sell out when someone offers them 80 million bucks for their company, which matters not to our venture fund.

Even at 400 million, it's really not that interesting.

If you exit for 400 million, it's fine for our venture fund, but it's not going to really move the needle.

You've got to get to 2 billion for it to move.

It's a crazy business model.

I mean, the venture capital model is kind of crazy.

That's why I say most businesses shouldn't raise venture capital because most businesses don't have a shot to be two to four, $10 billion company.

But this is one of the hardest things to suss out.

And what I will tell you is that one of the big things you can suss out is geography.

So if someone is in San Francisco and they get offered $400 million,

the guy they were sitting next to at the soccer game sold his company for $2 billion or just raised at $4 billion.

For $400 seems like a loss.

If that person is in Toronto, they're going to be the king of Toronto for the next 20 years.

And so someone's willingness to keep going and their craziness to keep going is influenced by how crazy the people around them are.

And Europeans are really reasonable people.

And most people are really reasonable.

It's the crazy ones that are kind of out here, which is why most of the big exits are in the Bay Area and increasingly why they're in Israel.

Because there's enough crazy people in Israel that are now there.

So the people who are trying to decide if they're crazy or not can be influenced toward the crazy end of the spectrum, which is what we as venture capitalists want, and which I think is the most fun in the end.

I definitely heard some of the criteria that is important for you guys and NFX.

I would love for my listeners to also hear.

I know speed and ambition are really big ones, but I would love the listeners to hear a little bit, what do you think makes a really good founder?

And if somebody's like debating, should I be an entrepreneur?

Should I not be?

What would you tell them?

If you have a question, you shouldn't be.

That's a good answer.

If there's a question, if you're worried about it or wondering about it, you know, just live your life.

Just take your job, enjoy your days.

Like most entrepreneurs are not going to affect the world.

And if you're working in a big company, you will not affect the world.

That's fine.

Most of us won't affect the world.

There's just a few people who will.

So just just enjoy your personality and enjoy your family and enjoy your community and don't stress about it.

Look, what happened was in 1994, before we had the browser, entrepreneurship was not high status.

The people who would come into battery and pitch us, they had maxed out 16 credit cards.

They had a mortgage and they were already doing 3 million of revenue.

And they were hoping for 2 million of investment for us and we could buy like 30% of the company.

They had dandruff on their jacket.

They had bad glasses.

They had like a $90 suit on.

These were autistic people, mostly.

These were people who couldn't work anywhere else.

They were being driven into being entrepreneurs.

They were very awkward, most of them.

That is not the case anymore because being an entrepreneur became high status.

It became the cool thing to do.

Right.

And so a lot of people are considering entrepreneurship because they want status, not because they're actually entrepreneurs.

They want to be successful entrepreneurs.

And you can't be naive about this because we look at 10,000 companies a year.

We invest in 20,

25.

So a tiny fraction, 0.2%.

So we reject 99.8%.

Now, let's say we invest in 20 good ones.

Of those, how many will be successful?

Maybe two.

So only two of 10,000 will be successful.

Now, of those 10,000, did we miss?

some of the others probably so let's call it there's a total of 50 we invested in 20 the best 20, but actually the total best was 50.

So let's call it four or five successes out of 10,000.

That's the numbers.

The chances are really, really slim.

So if you're doing it, it's something you kind of have to be doing.

The success of it can't matter into the equation.

It's the doing of it that is the reward.

The reason the Bay Area keeps winning is because we don't really care about the money.

We care about the process.

And if you have to do it.

at this point.

I don't see myself doing anything else.

Like, I just love what we're doing.

Like, it's just incredible to see people change our lives.

But it was a gun in my head.

I'm probably not going to be an employee again.

But I think it needs to come not because you can't be employed, but it has to come from this passion that this is what you want to create.

Yeah.

So first of all, I love what you guys are doing.

I love NFX.

Huge fan.

And if you look at what would be some advice that you wish somebody told you way back when they could have.

The advice I'll give to your listeners is not self-promotional.

It's actually what I think would be helpful to them, which is to go to nfx.com and read the content there.

It's the second or third most popular VC website in the world after Andreessen Horowitz.

And they've just got 600 people and we've only got nine.

So we're batting above our weight here.

The articles there are

really evergreen, thoughtful.

It's like getting a startup entrepreneur business degree.

I wish someone had told me about Technology Windows.

So there's an article on the website called Technology Windows.

And also you should read Venture Capital 3.0, which lays out what has happened over the last 50 years with Venture Capital and like where we are and how the whole ecosystem works with the startup industrial complex and all that stuff.

Just so that you understand the waters that you're swimming in as an entrepreneur.

But the technology windows way of looking at the world is something I wish I had known 20 years ago.

And they haven't taught this at HPS or at GSP, and hopefully, they'll start soon.

I'm trying to teach it on campus, on both those campuses now.

But these technology windows open.

And like I said, we we were 80% lucky and 20% good.

It's probably 90% timing and 10% effort.

And everyone says, oh, it's sweat.

It's not the idea.

I'm like, actually, I disagree.

It's actually the idea at the right time is kind of everything.

And so what you'll see is people being really great venture capitalists for like a decade, and then they stop being a great venture.

How is that?

Well, because they were investing in a particular type of company when that technology window was open.

And now that it's closed, they don't have a network in the new technology window and they can't get into the best deals.

And so it's time for them to retire.

So becoming a great venture capitalist, and you were saying I'm a horrible investor.

I'm like, no, you're not a horrible investor.

You just haven't picked a sector at the right time with the technology window.

But once you start to be able to read these technology windows, you'll be able to place yourself in the flow of energy.

And then you'll just get more lucky than not.

And if you just stay in the game, you eventually get lucky.

And everyone says, wow, you're a genius.

You're so smart.

You're so talented.

And as the great Sar Gurr from CR-V said, he said, the most important decision I ever made was just living in the Bay Area.

Like everything else.

He said, because when I came to the Bay Area in 2003, like all the energy was moving here.

I was just like floating on it.

Moving with it.

And then he led the seed round in DoorDash and, you know,

returns and how he's running the firm and he's just so humble.

And he's like, ah, I'm just here.

Great, great guy.

I love it.

Technology Windows.

I'll definitely take it out.

James, thank you for everything you guys do.

Totally enjoyed this conversation.

My pleasure.

Thanks for having me on.

I hope you enjoyed this as much as I did.

If you did, please share it with friends.

Now, also, if you're feeling stuck or simply want more from your own career, watch this 30-minute free training at leapacademy.com training.

That's leapacademy.com/slash training.

See you in the next episode of the Leap Academy with Zilan and Golanche.