906: Tech Startups and Raising Money With Dan Levine  ## Metadata - Author: [[Syntax - Tasty Web Development Treats]] - Full Title: 906: Tech Startups and Raising Money With Dan Levine - Category: #podcasts - URL: https://share.snipd.com/episode/05caa66a-0605-4e43-b8bc-2af17c7fe5c0 ## Document Notes ## Highlights - **Dan Levine's Career Journey** - Dan Levine shared his journey from math student to software engineer to VC at Excel. - He highlighted investments in companies like Vercel, Sentry, and Dropbox as personal experiences. Transcript: Wes Bos Yeah. Dan Levine So my name's Dan. I work at a place called Excel, which has been around for 42 years. And my background before this was I was actually pretty interested in math. And that's what I did most of my undergrad in and then got into software engineering because I worked at this one place. They're like, you're really good at math, but like, you have to do something with it. So you need to learn the right software. So that's how I got into programming. And then the next summer, I did a bunch of web development stuff back in the summer of 08. Is that right? Yeah, the summer of 08 and then I got my first job ever as like an engineer working on Crunchbase which was owned by TechCrunch at the time and then started a company called Chartio that Did database analytics and went through iCombinator then Excel then Dropbox then Excel and in Excel we're a venture firm you know so exactly like you said I mean I always tell people We try and find great people and back them. And we invest primarily at the Seed and Series A. That's where I spend my time. Excel is a pretty big firm, and we invest at a bunch of different stages. But we're most notable for things like – actually, my favorite first investor of ours that I remember is we were the first investors in Macromedia, the creators of Flash back in the day. Yeah, really? Oh, wow. I did miniature golf in seventh and eighth grade during whatever class, but shockwave golf. It was like Lifesavers branded. I don't know if you guys remember this. Scott Tolinski Oh, I do. Yeah. Oh, yeah. Dan Levine I was like, why is this Lifesavers branded? It was very unclear to me. So that was an Excel investment in the 90s. And then more recently in the 2000s, we were the first investors in series of investors in Facebook. We're the first investors in Atlassian. We're investors in Linear. We were in Dropbox, Slack. And then I personally have had the total privilege of getting to work with the teams at Scale, Vercel, Century, Mox, and a bunch of wonderful companies. ([Time 0:00:59](https://share.snipd.com/snip/18e8cb83-6812-43e4-9eef-b6701a392928)) - **How Developers Can Raise Money** - Developers should email investors with links to their projects to raise funds. - Getting introductions from trusted contacts or applying to accelerators like Y Combinator helps raise money. Transcript: Wes Bos What do you do as a developer? How do you go out and raise money? What does that even look like? Dan Levine It's really hard. It shouldn't be that hard. That's always a bummer. I think the first thing is, and I should say this, and I think every investor should, email me. I'm Dan at Excel. I respond to all the emails I get as best I can. I do my best. Probably mention that you listened to it on Syntax, and that's how you heard it. So I think investors are typically, they actually respond to inbound quite a bit, because again, we would like to invest. And one of the cool things about this industry is a lot of the great investments feel like they come out of nowhere. They feel like they're often from people who are younger than you would want to entrust with millions of dollars or from backgrounds that are more irregular than other investment roles. Yeah. We're not like the local bank trying to help out the local restaurant or some capital intensive business that needs to buy like a machine, which is wonderful, by the way. You know, our job is to find, generally speaking, like small teams, maybe one person, two people teams, who are building software. And I love software. It's made my entire life. But it's quite intangible. So you kind of have to believe it can come from everywhere. I was actually just talking with Guillermo from Vercel. He first started working on Mood Tools as a teenager in Argentina. And David from Century was in the middle of America working on WoW stuff, like World of Warcraft add-ons and tools. So Armin, you know, the creator of Flask was working on like PHP for him. So investors, good investors know that. And as a result, they take quite seriously people who ping them, especially if those people are builders and are like, here's a link to a thing I built, you know, or here's like a high fidelity Mockup even of how I'm thinking about the world. So the first is ping people. The second thing would be, you know, if you know somebody who knows an investor, it always helps. You know, a lot of the companies that I work with are people I've known for a couple of years. It doesn't mean you can't ping me out of nowhere, but like, you might have to get to know me a little bit because it raises my confidence that I like think you're a good founder and could Be great. I don't make that many investment. But the second way is you can bootstrap that confidence by having somebody who knows me say incredible things about you. I think that goes a long way. And then lastly, I work in Excel, and those are the two first things that I recommend, those first two ideas. But the other thing you can do is there's wonderful things like Y Combinator out there where they have a more strict application process. And I went through YC, we back lots of YC companies and it's not for everyone to be clear, but I think it's for a lot of people. And one of the advantages is you can kind of think of them as like having productized this process in a way that is built for this constituency, this audience. You know, I think a long time ago, venture capitalists probably wildly underestimated builders, much to their detriment to venture capitalists. Then things like YC came along and it was like, Drew from Dropbox, who just built a tool on the bus to the Chinatown bus between New York and Boston, I think, because the original Dropbox Story is like, it works. You guys have seen the original Dropbox post on Acro News, I'm sure, where everyone's like, this is just arson, I can do this myself. But it turns out, no, you're a great company. So, you know, I think there are places like that where you can apply and get more of a transactional feedback approach. ([Time 0:05:08](https://share.snipd.com/snip/208fa640-3a67-4a8b-9937-b597cab72ec5)) - **What Investors Look For** - Founders don’t need business plans but must have a strong team with good culture and hard work ethic. - Investors look for large market potential and a clear initial product-market wedge. Transcript: Wes Bos Do they have to have like a business plan in place or is it just a conversation? And on that, how much money should somebody like that be raising for their initial seed? Dan Levine This is why I'm a bad interviewer. I'm going to give you the answer I would give you, which is going to get maybe a little weird. So feel free to raise a hand and be like, you're going too deep. So they come to me and should they have a business plan you asked? I personally think almost certainly not. I'll tell you the criteria I think about when I invest in a company at any stage really. I say two and a half things and the half is mostly because it just matters a lot less. The half is basically if you've been working on this for like 10 years and you've spent $100 million, and I don't like the first two things, I've probably messed something up. I'm on the take. You might be my drug dealer or something. So don't worry about the half so much. That's basically given time and money. Why haven't you accomplished more? The first two things overwhelming are the team. And I'm a venture capitalist. We love to hear ourselves talk. We love to be on podcasts. So we have something. So we're in the team, and we don't think we'll be replaced by AI, which I'm skeptical of. But so there's the team. And within the team, there's four things. The first piece is, do I like this person? You know, a lot of my job is hopefully I'm going to be working closely with them. I'm going to want them to succeed. And I also am going to be telling people, like, you should work for this person. And I think that's like a really sacred, important thing. I really want to like the person. You know, I'm not going to to get it right every time, but life's too short for me to invest in people I don't like. Yeah. So I like them. The second two things are, are you capable of hard work? And are you capable of intelligence? My overwhelming preference is you could be dumb and lazy, and it would go well. But I really like having the option just in case. It's like really useful just in case we need it. The last thing on the team is can you recruit other people? Typically, the greatest companies of all time require some, no matter how shallow the exponential curve is, some curve where you grow the team. It could be slowly, it could be small, but you're still growing the team. And it's not easy to grow a team. And you often can have unfair advantages there. So the team is the first piece, and those are the four dimensions. And then the market is the other big thing I look at. And I think about the market is two things. The first is, can this be really big? And I actually don't expect most founders to have any sense of it can be really big. I kind of think that's on me. You know, like I have to be able to tell some story. Like I have the luxury of a non-real job. I don't do everything all day. I'm not actually writing code or dealing with HR issues in my company. It's easy to have like vision. You know what I'm saying? It's easy to be like, I have ideas. So, you know, I hold myself liable for how big can this be and why. I think it's great if a founder can do it too, but it's not required. And the second thing, which I think is really valuable for your audience, and this is like a largely learned from something like Y Combinator, is I really care about your initial insertion Or wedge. I think the company that survives towards like the T1 or T2 moment had like a pretty good T0, right? And they iterate. That's like the reality of how companies kind of develop. And especially for people who build things, like the greatest thing you have is you can build it. So you don't have to have it done. It doesn't have to be perfect. It doesn't even have to have a lot of users. But I think having more resolution on your wedge, your initial insertion into the market, is really valuable. And it's something that I think builders tend to like. For their own purposes, like, do I want to commit my life to this? They, I think, like knowing what the wedge is. But it can be a really small, innocuous wedge. And that's okay. But I like to have a good wedge where you can learn a little bit about how they take feedback, how they think about the market, how they think about their first customers at a very loose Level. ([Time 0:08:43](https://share.snipd.com/snip/ff83f052-1b1b-4b87-bd60-7d867a31baac)) - **Funding Amounts Explained** - Typical seed rounds range from $1M to $4M with investors owning 10-15% equity. - Early smaller rounds under $1M come from friends, family, or angels and serve to get started. Transcript: Wes Bos Great. And how do you decide how much money you would need for your thing? Dan Levine So this is the weirder part of the answer that I foreshadow, which is, again, it's a marketplace. So in my, you know, seat in Silicon Valley, like, I think if you're just getting started, I think there's three high level types of rounds that are 95% of the finance that gets done. So the first one, which I'll put aside pretty quickly, because I think it's less relevant to this audience, is maybe you're a repeat founder, you're the builder of a very popular open Source project, you know the investors really well, that you were an executive company. Maybe in some of those rare instances, you could raise kind of what a traditional series A, and this is all changing, but you could raise maybe six to $15 million with just an idea. And that actually does happen. You know, our first investment in a company called Heptio, which was from the creators of Kubernetes, was that. And so there's a few. And you're like, well, you built Kubernetes. Wes Bos Yeah. You kind of know the people. You know they have a track record. That's right. Dan Levine And even amongst people you know in the track record, that's more rare for a variety of reasons. But it does happen. The second one, which is maybe like the second and third are the more common ones. One is what's now called a seed round. We would think about this as our check is something like $1 to $4 million. We're typically buying 10% to 15%. You won't have a board seat. We often use something called a YC safe that YC worked on and honestly consulted with us on, which is wonderful, but they get the lion's share of the credit. You kind of are like, that is a very typical round. So those companies, I think you still probably are like a relatively well-known founder. You've gotten pretty far with your initial prototype or your wedge. There's some variable that makes you a little bit cut above for just getting started with a project. And you can do that. And then the last thing that's becoming more common, and there's like inflation of these rounds. Like I always tell people when Excel started in 1983, we were a series A firm. And the reason we called them Series A's was, I swear to God, it was the first letter of the alphabet. And then somehow we kept screwing this up on our recursive process. The last thing is this pre-seed or friends and family. This would be like where your lead check might be less than a million dollars. And you're just trying to get going. Maybe you have some friends you worked with at a company. Maybe your friends literally and or family broadly are willing to believe in you because you believe in it so much. And on the one hand, it's a very scary thing to raise money from those people for a new idea, and you should be careful and take it seriously. But I don't think it could be this great opportunity for them. So those are the three different amounts. The second two, the seed, the $1 to $4 million from a lead investor versus $500K to a million or something for a lead investor, those are probably the two we see the most commonly. And it's really what the market will bear, which is the annoying part about it. And even worse, you kind of have to have a sense in advance of which one you want to go for. Because they're kind of like, they're kind of like both local maximas. And there's like a little bit of a challenge in between. But typically, when people talk to us at Excel, because we're a larger firm, and this is much to my chagrin, they think of us more at least in the seed, the $1 to $4 million. ([Time 0:12:34](https://share.snipd.com/snip/f4c38135-b42c-45dc-a258-1ca11a5d7698)) - **Raise Funds With Competitive Market** - Founders should create a market by talking to multiple investors to foster competition. - Choose investors based on terms and fit, not just best price or no competition. Transcript: Wes Bos Yeah, typically. Dan Levine I mean, I always tell people, and this is something I learned having gone through YC and the deal on the other side, you know, investors are interestingly their own worst enemy frequently. I think it's a healthy thing as a founder to create a market, right? You really want to have multiple options. And there's actually a lot of good reasons for this. A lot of investors think they want you to have no market. And that can be nice if, like, you know what you want. But investors tend to take too much time and be slow. And I think in particular builders are kind of like, why is this person taking, there's, like, not much here to evaluate. What are we doing here? And so it works against the investors. Sometimes the investors do things like, oh, well, I can offer like really bad terms. And what I always tell people is, no, like these people probably know somebody else and they'll ask. And now you just look like a jerk. So you should, even as an investor, if you think you have a proprietary advantage, you really want to treat it like there's a liquid market and you have competition. And I think the best way to mimic that is a founder should do that. Now, I also think a founder should say, is there a person I prefer? Are there good enough terms? It stands to reason the best terms aren't always from the best investor, much less the best investor for your company. So you want to be mindful of that. And if everyone behaves accordingly, I think a good investor offering great terms can offer them first. And a founder can take them. And that's wonderful. I have no issues with that, but everyone should kind of be on best behavior. ([Time 0:15:49](https://share.snipd.com/snip/50cbd116-678b-412f-9e0f-8b244600f414)) - **VC Financing Advantages and Risks** - Venture capital is equity and usually has few rights; it avoids debt constraints. - It’s cheap on downside risk, expensive if the company succeeds wildly due to equity ownership. Transcript: Dan Levine You're too fast. Yeah. There's a lot of things that don't need VC. Like I do think one way to think about it is the good news about venture capital is compared to other forms of financing is it's equity. And we don't believe it or not, venture capitalists have very few rights. We mostly have what are called defensive rights, which is we kind of have the right to stop a company from the worst case scenarios doing things that would basically harm us unilaterally. So an example would be, you know, you can't necessarily, as the CEO of the company, like, pay yourself a massively exorbitant salary. Because we could give you $4 million and you could decide your salary should be $2 million a year. That was on my list of questions. Yeah. You know, you're lawyers and we would tell you, you should probably check with us and we should sign off. Because otherwise you create kind of some litigation risk for yourself. Another example would be, you can't necessarily issue yourself a ton of shares, right? You could issue a lot of new equity, which would dilute our shareholdings. And then you could give it to yourself or your friends or even your employees, which can be really well-intentioned. But we need to have a say to an extent and we should never have a say in a penalizing way. We should be reasonable about it. But we should have a say to make sure that it's not egregious for the most part and that there's a discussion about it. I mean, that's an agreement you make when you raise venture capital, right? The same is true for selling the company. We typically have the ability to stop a sale of the company. And again, this is usually a bad place to be. I've never exercised a block on selling a company. And I'm sure it could happen, though. And I've seen it through it's good. But you mostly just want to be in a situation where like the founder talks to you about that moment. But it's important. You are agreeing to this partnership where while we can't make you do anything, we can stop certain things and you should be careful. So in that sense, but what do we not have? We're not debt holders. I can't like, you can't breach covenants and I can't foreclose on your business, which is really valuable. But basically what I can do is become a passive investor over long periods of time for the most part. And that's much better than debt and better than other forms of finance that exist. And so in that sense, it's cheap to the downside. If things don't go as planned, it's very cheap. If things go really well, you sold equity. And that means we get a lot of the upside. And so it's very expensive if in hindsight, it's gone very well. ([Time 0:18:21](https://share.snipd.com/snip/a071878b-1c45-46d1-93d5-ff687994d56a)) - **When To Bootstrap Or Raise VC** - Many great software companies succeed by bootstrapping without external capital. - VC suits businesses that need to hire early and have high upfront operating costs like sales teams. Transcript: Dan Levine We can invest relatively small amounts of money and make prodigious sums because we own equity because we're so focused on the upside. So I think those are the two primers of our place in the financial world. And so if you're a founder who, for instance, you can build a software company that doesn't require outside capital, that's a great place to be. I mean, that was Atlassian. GitHub did this for a while. Braintree, Qualtrics is an incredible company. ServiceNow was started, was bootstrapped largely until they ever raised capital. And these companies built, one password, incredibly valuable companies and businesses without ever raising outside capital. I think everyone should at least strongly consider that, especially in software. But we would agree, sometimes in software, you need to hire a lot of people up front. There's a cost. Maybe you are more of a sales-driven business, an enterprise sales-driven business. And it tends to be the case where you hire salespeople, you start paying them, you have to ramp and train them, they sell, and then you get a paycheck for your customers. And so that tends to be, that has a working capital problem, which can be covered by venture capital. So there are a lot of businesses that I think don't necessarily need venture capital, but I think that's where the market bears, is there's enough businesses where it's worth it because Of the characteristics of the financing. Like honestly, and I, you know, different people have different views of this. I think if you create a liquid market, venture capital as an asset class doesn't perform that well, in my opinion. So it's not like venture capitalists broadly are getting some great deal, right? If they were, you see these massive outperformances of the asset class. So it's kind of a market clearing thing and i think some founders do bootstrap companies which is wonderful and that's a great thing and that should always exist and frankly i think there Should be more of that personally but i think you know there are some founders who then raise capital and maybe have some regrets on how much they've sold i you know i tend to feel like those Founders have done pretty well for themselves i get why that happens and there could be some buyer's remorse but um mostly it's been okay and so i i think it's kind of an economic clearing Act and it works out pretty well. ([Time 0:20:36](https://share.snipd.com/snip/85e3631b-d173-4abd-b8ee-1f2bcd51c97d)) - **VC’s Subtle Impact On Companies** - Venture capital induces subtle pressures making firms sometimes lose steady customer focus. - Availability of capital can weaken the feedback loop founders have with customers. Transcript: Dan Levine And I don't think many people where it goes well have regrets. Even people where it doesn't go well, they probably have fewer regrets than they maybe realized at that time versus the debt provider or something. Yeah. Scott Tolinski I mean, you hear the cliche often that like, oh, this company had to pivot or they had to drastically alter their business in a negative way because they took venture capital. Now they're beholden to that. How much influence is there really? And I guess, do multiple investors then complicate that anymore? ([Time 0:22:40](https://share.snipd.com/snip/cda18e75-d2a7-4b98-a3ab-7a25bb5cfa89)) - **Investor Influence Is Usually Subtle** - Most investors don’t dictate company decisions but offer advice and support. - Good founders should be independent decision makers, with investors providing gentle guidance only. Transcript: Dan Levine A good question. I mean, I think one of the reasons founders are such an interesting group of people is it's like a crazy thing to do. I mean, you guys did this, right? It feels insane to kind of start working on this project and try and monetize and spend less time on more obvious ways you can make money. And to keep doing that is quite intense. I think when you raise venture capital, I think most people know the deal they're walking into. But it doesn't mean you won't change your mind later. So that's one thing. The other thing is that I think all things are challenging. Venture capital probably corrupts incidentally. And I don't mean that in some evil way. It's kind of like, it's kind of like you're the average of your friends from like what you care about and whatever you're, you're like, are you well read or not? Well, if your friends are a smart group of friends, you might do more of it. If your friends are JavaScript developers, you probably spend more time in JavaScript. If you're venture capitalists and venture backed companies, you might all of a sudden raise your view of what you need to do. And I do think venture capitalists often can put too much pressure on companies at the worst moments. You know, starting a company is kind of an emotional roller coaster. I think venture capitalists could do a lot to be more empathetic. I mean, there's a huge crisis there. But for the most part, venture firms don't make companies do things. Now, they can in certain circumstances, particularly older circumstances. If you have enough investment that you've raised from outsiders, they can, if the group of investors agrees on something, cause problems. But no, I think it's usually more subtle reasons that venture capital causes problems for companies. So I mean, I'll give you two examples that are like, or three, I'll give you three examples, two that are very funny and personal and people can check because these are public with me. And then I'll give you a more generic example. So famously, Century changed its license, right? And this is a thing people know about. And Hacker News and the change of license, which originally was to the BSL, I think, they said the investors made them do it. And I replied on the Hacker News comment. I was like, I think I'm the relevant investor. And I wasn't even consulted on the change. And by the way, I think that's wonderful. I probably would have disagreed. David and I have talked about this a lot. But it's his company. It's the people who run Century. They're running the company. And my job is to support them. I'm not some expert on license changing or the community management stuff. That I think is relevant there. And when I invest in a company, it's because I believe in them. It's because I, it's like one of the most important things. And my job is to help and be supportive, but it's not really to tell them what to do. So that was one good example. The second one that's funnier and lighter weight was when Zite rebranded to Vercel. Yeah. Hackard is coming here. And somebody was like, they did it because the Excel, their investor Excel made them do it. And I was like, no way. I was like, yeah. You know, for totally different reasons, there's a rebrand. And again, even then, like we did the rebrand and Guillermo was running it by me. And he was like, what do you think? It's like, what do you think? It doesn't matter what I think. Like, you know, I think it's a privilege that hopefully I earn the right that founders ask me for advice and they may or may not take it, but it's a privilege. It's not a right, in my opinion, and that's not how our investments are structured. But more suddenly, I'll give you examples of things that happen with venture capital that are subtle and complicated and might be the fault of venture capital. And they all stem from the same thing, which is intrinsically at some level, software companies are remarkably efficient businesses. Scott Tolinski Yeah. Dan Levine It's kind of a baffling thing that like a SaaS company, you can expect it to have like 80% margins where people pay you annually upfront. I mean, this is a wild business model. We've never seen anything quite like it in the world. It's better than drilling for oil. Anything you think is a good business, this is basically better. And so interestingly, when you raise venture capital, you're basically saying there's an upfront investment that we want to make to try and over long periods of time, make that compound At a faster rate. That's kind of the implicit agreement you're making. But there's a lot of places you can invest that are very inefficient. It turns out it's hard to invest millions of dollars appropriately in building a business, right? It's really hard. I'm sure you guys have thought about in the early days of Syntax before the acquisition, like, okay, what would we invest in for it to grow faster? And you obviously were right a lot, but I'm sure there are things you tried that didn't work out. And that's totally normal. So venture capital-backed companies can make more investments in parallel, and that's the point. But oftentimes, they don't hold themselves accountable to those investments enough. And because they don't have to, right? Like a bootstrap founder kind of has to, there's no choice. And sometimes that stress can be too much. You might want to have some buffer, but you can imagine if you have too much buffer, then you might like kind of a little bit lose what I call the fitness function, like the feedback cycle With your customers. Scott Tolinski Yeah. Dan Levine And so that's like the subtle, nefarious way that I think venture capital really hurts companies. That's not usually what you hear people complain about. People usually complain about more aggressive versions that were a little more obvious. But I actually think in general, bad investing on the margin because you can is where venture capital really causes distortions and problems, right? And it's easier to lose sight of, like, your customers and your audience, your community, when you have more cushion. But I'd also say, and you guys have done this, like, it's scary to be bootstrapped sometimes. It's hard. It's so stressful. And you're competing with companies with all this capital and stuff. And you're like, oh, God, like, if I just had a little cushion, I have to make a difference. And it does. That was Century. You know, when I invested in Century, it didn't need capital. But David and Chris and I, we felt like you guys could do a great job with more capital on some kind of what we felt was straightforward stuff. And thankfully, we were right. But like, you know, that goes wrong sometimes. So that's a good example where I think venture capital was helpful. But it's not a panacea. It's not perfect in every instance. But the subtle ones are the harder ones. The venture capitalists may just do it. Typically what happens there is venture capitalists might offer advice. I think many venture capitalists, I give a lot of disclaimers before I offer my advice. I always tell people, my favorite thing I tell people is, if I had such good ideas with such high confidence, I'd start companies myself, you know, and I would make way more money. Like I kind of acknowledge that I don't have high confidence in my advice. Right. Yeah. But as a result, it's also it's lonelier for a founder. I think sometimes when you're a founder and you're stressed out, it's difficult. You kind of want to have somebody else tell you what to do so that it's less lonely and it's not all on you. And, you know, I think my view of the world is double-edged, double-edged, two-sided, which is I think founders are the most important thing. I think they get to make the decisions. But I also think in some sense, and I feel bad about this, like I make it more stressful. It's not because I'm not doing anything actively. It's just that I'm... ([Time 0:23:13](https://share.snipd.com/snip/dc2ee908-8731-4df5-a730-0dfa99396e84)) - **How Investors Support Startups** - Investor involvement varies by company; early help with hiring, confidence, and introductions is common. - Strong founder-investor trust builds valuable support during company growth phases. Transcript: Wes Bos That was what I was going to next is like like how involved it actually is like obviously you bring money to the table there's there's probably a lot of connections that you can introduce People as well um but like like what does it look like if someone were to raise money how is there weekly calls or whatever you're obviously not working in the business and and often people Come to you for advice. You just said like, sometimes you'll have a bit of buffer room. Dan Levine It's really different. It's very bespoke. Different founders need different things. I mean, if I use just, I'll just use Century Scale and Vercel with some examples. So Century was the first investment I led at Excel. I don't know. I think I helped with a little bit of early hiring, but honestly, David and Chris already knew a bunch of the great early people, you know, Armin and like their folks that they knew well And hired. So I didn't have to help too much there. I think maybe the most valuable thing I, I don't know, we should ask David, he would be a good response. But I mostly like encouraged him to believe in himself more. And I think the mistakes I made with Century were sometimes not encouraging him enough to be a true believer. And I think there were moments where I could have done better there. But you kind of helped with the early team, a little bit on hiring, maybe some customer instructions. But Sentry, I probably did. God, I should really ask David this, because Sentry, I feel like I don't have a great answer for. I probably didn't do that much beyond the capital early on. And then over time, there was this, I think early on, it was like really helping them believe in their vision for investing in particular in product engineering, the brand, and being Themselves. And then I probably went through a period where I feel like I did less well. I don't think I ever discouraged them from doing that. But I think there were other voices around the table who wanted to try different things. And I probably could have done more to counterbalance that and encourage David and the team to be more authentic. So I think about that as like a regret I have. For scale, which was my next investment where I took a board seat, you know, the first engineer there, Nate Herman, who's amazing. I knew a little bit from Dropbox. We had mutual friends and I referred him to the company. The first business leader there, a guy named Matt Park, who's incredible, who became the COO at scale and ran all the operations for the business, was a really good friend who I, like, Convinced to move back from New York where his wife was doing her residency one year early to come back to the Bay Area and join this really small company. I helped them with some customer instructions and helped them close some sales. And I even would test out the tool and play around with it. So Scale, I did quite a bit in the early days. But again, it pales in comparison to the founders who do way more. I can't stress enough. Like I don't want people to walk away from this thinking I do a lot. I think I do a very small amount and mostly I try not to screw things up. But you like slowly granting these things your reputation and like who you are and that becomes more impactful. And then with Vercel, I think a lot of it was just being like a person to build, like building a relationship with Guillermo. And I pride myself on this for good and bad. Like I'm willing to, if people ask me for my advice, I always tell them you don't have to take it, but I, I push back. If I, if I disagree, I disagree. You know, I can't really be fired so much in my job, which is a crazy thing. I take it really seriously. But it also means it's easier for an investor and a board member than almost anyone else to try to be honest. It's not that fun, by the way. I don't think all the founders I work with always appreciate it, but I am just trying my best on behalf of the company. So I take that seriously. And I think over time, if you do well, you really build a trust and relationship that can be really valuable in critical times. So I think that was a big part of it. And then, you know, Vercel went through this period of, again, a lot of it is like belief, like Next.js had been going for a couple of years before I invested and Zyte was going, but they Were kind of two separate things-ish. One was like Docker, Lambda, and then there was Zyte, and then there was Next.js. You know, people were doing pretty simple stuff with Next.js, but I think I helped give Guillermo the confidence to make the call to be like, we're going to become more and more of the Next.js company and we'll do static hosting and then grow. So it was really his vision and everything he did. But I actually think I helped give him the confidence to do that. And then the same thing, hiring and stuff. Like even now with Vercel, they just hired a wonderful COO, Gene DeWitt, who'd worked at Stripe and Google before then. And I have to know Gene personally and can help. And their previous CRO, Tomer, who's now at Cursor, is an old friend of mine. And I got to be able to be helpful there. And so yeah, you help on hiring and stuff. But it does change. When I was younger, it was more sweat equity, like helping and grinding and being positive and trying my best and believing in it before others did. And now I probably have the luxury, although it makes me feel more useless, of a little more closing executive candidates and convincing people like, is a great company. ([Time 0:30:22](https://share.snipd.com/snip/b5e25301-078b-4b0a-8e89-f0012a977b24)) - **Investor Feedback And Founder Autonomy** - Investors provide honest, consistent feedback on company health without being overly directive. - Founders usually know best; investors add value by rotating problems or providing small stimulus. Transcript: Dan Levine It's first of all, it's really hard to tell when it's not going well. I know that sounds like a weird thing to say, but I'm like a big student of the history of technology companies. And like, you know, Airbnb famously had a difficult couple of years. And, you know, again, like the, I think Vercel is an incredible company, but the early on period of Zeit, like it took longer than what people think of. Even like Cursor, which is everyone's darling now, was a CAD tool for a while and then kind of pivoted. Oh, really? Figma took a while to do well. Airtable took a while to do well. Notion, I think they have a famous blog post where they describe going to Kyoto and coding in their underwear or something. I can't remember where it was. So I think companies frequently take longer than people think. So I'm like very patient. And the founders of Mux, John, one of the founders of Mux, he basically, I guess he described me to somebody else as Dan really believes in exponential curves and compounding. And like, that's like the only thing he believes. But the hard part about them is they're very shallow sometimes, right? They look really shallow for a while. But if it's like, if it starts to work, it really works. So the first is I really believe in that. And I try to be honest, but also supportive and make sure people know that. I'm also, to this point, honest. Just like I think a company is always trying to seek out what's really going on with this fitness function with its customers, I think you as an investor, you want to, again, you want to Be like a trusted source of feedback. People don't have to take your feedback, but you want to have a small set of beliefs and be consistent about them. And so I don't tend to tell my companies, I can tell them it might go well soon, but I don't tell them it's going really well when it's not going really well. And in fact, this is like I mentioned, you want to be supportive in downtimes. My'm, I'm my feedback when I was at Dropbox from like, you know, my HR performance reviews. And even now I think I'm really bad at celebrating the upside. I just take this very long view of building companies and building things. And it actually worked well with my job, but I would do it anyways. And so, but the downside of that is like a company, it's just getting started. They have a great year. And like, I, I sometimes lack a pulse and I, you know, I have to get better. I have to be like, you know, cheering for you. It's a big deal. It's really hard. And I'm worse at that. But so when it's going bad, like, or badly, I think I'm pretty upfront. I'm like, you know, I think we probably would have expected at some level to go better, or, you know, you're starting to run low on money and we have to start thinking about what we need To do if we're going to run out of capital. I try and keep it tangible. But I think most companies that I work with, even if they're not going well, they would say, you know, he's pretty supportive and he's pretty positive. And, you know, we kind of get to an honest place about how the company is going. And this is really important. And from then on, especially, I've been very privileged. Like, I have some companies that are doing extremely well. The companies where they're doing less well, like, I want the best thing for Excel and my investors, and I want the best thing for the investors of the company. And obviously, one of the largest investors in the company is the founder. So I think I do a pretty good job of being like, I'm trying to give you honest feedback that's best for you. And I think for the most part, it's interesting. I think in the cases where it's not going as well as having a dream, I think those founders probably feel that I'm very honest and supportive with them for the most part. And I think the key is I just want to preserve that honesty. But there's not, you mentioned like firm pushes. Founders are really smart. I think one of the big mistakes that investors make, and I'm sure I've made, is they can be kind of unintentionally or intentionally infantilizing. It's a crazy thing to start a company. It's an incredible thing to like build software that lots of people use. Like it's really hard. If I don't think you're smart enough to do this like largely on your own, I really should probably not be investing in you, right? I'm investing millions of dollars. And if I do, should never forget that I thought you were worth it. You know, you're really talented. You can do it. So my job isn't to tell you what to do. My job might be, you know, you're you're in the thick of it. And I can provide like I kind of rotate the problem a little bit. But I'm like very heartened. I think founders, I really think like the world of founders, they're like the, I think there are in many ways that the sun that our world revolves around. ([Time 0:35:08](https://share.snipd.com/snip/a4b967f0-9bf2-4431-ba1d-932ebc9c08d0)) - **Typical VC Equity Stakes** - Seed investors usually own 10-15% of a company; Series A ownership ranges 10-20%. - Owning too much equity creates complications and reduces fundraising flexibility. Transcript: Wes Bos They're thinking. Going back to the, like the money part, what piece of a company do you typically get for it? Let's say you put up $5 million for a company. What percentage of, or how does it even work? Dan Levine It's a great question. And this is one of those weird things. So I mentioned at the seed stage, we typically do $1 to $4 million. And we at Excel try and buy 10% to 15%. And I probably, at this point in my career, would like to own like 12.5% to 50%. And one reason I don't typically own more is some of those companies that I work with at the seed stage will go on to raise capital from other people, and they might raise enough capital That, and I haven't taken a board seat, that if we own 25% of the seed stage, then we might be the largest shareholder, and that creates like a marginally complicated dynamic for a variety Of kind of like reasons I won't go into unless you guys really wanted it. And so I think that's the appropriate amount for a seed stage investor to own, a lead seed investor that owns 10% to 15% or so. At the Series A, it used to be the case that you could get into the mid-20s. Nowadays, more and more, it's anything from 10% to maybe 25% or 10% to 20% more realistically is a typical Series A dilution, I would think. And I might be wrong on this. I hadn't looked at the official stats, but that's kind of my gut sense. And then I think there's a cap on how much ownership you eventually want in a business. If we own so much of a business, a couple of things are true. The first is if the business needs capital, they're kind of stuck coming to us, but you probably as a business want flexibility. It's a good thing for the company to be able to go to new investors and existing investors, right? So we don't need to own too much in that sense. And then also someday, this is a luxury problem, if we go public or something like that, having heavy concentration of ownership in a business can be a little complicated. So the upper bound of ownership in a company in traditional VC is probably in the 30s somewhere. ([Time 0:39:20](https://share.snipd.com/snip/72b0d302-b25c-4c02-9784-c156d4377ea2)) - **VC Exit Strategies Overview** - The typical exit for VCs is either acquisition or IPO, with strategic buyers valuing assets higher. - Investors focus on building great businesses and rely on market conditions for exit timing. Transcript: Wes Bos It just- What's the exit strategy for these companies? Is it just to make money? Is it to be acquired? Is it to go public? Dan Levine So one of the things I think my partners would probably vouch for is, it sounds weird to say this, I think if you do our job really well, honestly, the money really takes care of itself. So that really is how I think about it. But tactically, in hindsight, the two ways that you get liquidity, or two high-level ways are an M&A and a merger and acquisition. So you get bought or the company goes public. Within the M&A process, I mean, first of all, there's different types of IPOs selling different amounts. And some public companies have more trading volume than others or more public or more liquid seller. But in the M&A world, you're either selling to what's called like a strategic acquirer. And this is somebody who typically like, you know, this is usually like a Microsoft or Google or a Facebook meta is where they're paying more money than others might pay because they've Used strategic value in the asset they're buying. It might be an adjacency to them. It could be vertical integration. It could be a new category that they can cross sell. So that's typical M&A. And then there's also M&A by private equity-owned businesses where private equity firms have bought up companies and they've rolled them together already. And they can also be acquirers of companies. And that's becoming more common. But are both still acquisitions that's that is the end goal I mean I'm always very sober about this like we represent a bunch of wonderful people who give us money and so we do have a commitment To them to get liquidity on a certain timeline I think the venture capital investment timeline is one of the longer investment timelines like in the world but it's still not forever I mean Berkshire Hathaway owns businesses longer than we do right I, and certain family businesses and family whatever are longer shareholders than venture firms, but that's the Range. And the right outcome, though, is the one that makes the most sense for the company. You know, this is a good example of like, we do care about the appropriate liquidity at the appropriate time. I think a way investors can make a lot of mistakes is over-rotating towards like, we have to IPO or we have to be sold. Especially in being sold, somebody has to want to buy it. So that's not true. And the same issue with the IPO market, by the way. The IPO market right now is a little more idiosyncratic in some sense than it's been over the last 20, 30, 40 years. So it's a little different, which makes things maybe a little more challenging. I'm optimistic that'll change. But those are the two large outcomes. I don't think about it too much. I think about building a great business. And then I will say, and this is important, if I think there's a great business, and in the M&A market, you have to have a buyer. You can try to sell and work on a process for that, but it's hard to sell a whole large company for billions of dollars. There's very few buyers for that, but there are some. Going public at large scale tends to be a little easier because there's many, many investors, basically. And so I think if a company intrinsically can go public and should go public, then I do think it's my job to encourage that on behalf of not just Excel, but also all the other shareholders. I think for employees, ex-employees and things like that, that's kind of the agreement everyone came to when they joined the company and took options and stuff. So I think it's funny. My job is Excel. Obviously, I represent Excel, but I do. I'm on the board of these companies, and I think it's important that I try and be mindful of all the shareholders. People, they have gotten equity, and they value it, hopefully, because they believe it will someday be worth something. ([Time 0:41:13](https://share.snipd.com/snip/864e9735-de57-4059-b11a-01c1c6edae80)) - **Acqui-Hires Often Don’t Repay Investors** - In acqui-hire deals, investors often don’t recover money; founders typically prioritize team employment. - Founders may ask acquirers to pay investors but acquirers prefer simply hiring the team. Transcript: Wes Bos What's happening there? Do you get your money back in that case? Not always. I'd say not most of the time. I mean, it's interesting. Dan Levine A typical acquirer, they don't really care about giving investors their money back, right? Especially in an aqua hire situation, their alternative is just to hire the people. And the partners could just go join. So as an investor, the rest of the cap table doesn't have a whole lot of... They just walk away from the business. They can just walk away and then take a jump. So that's always one downside. I do think, you know, I think many founders, and it depends how you think about this, but they feel an obligation. They say, we've raised money. We want to try and get you money back. So we'd like to do it. And I've been on both sides of these kinds of transactions. I think it's like a great thing to do. I really appreciate it. I don't demand it really at all. I basically ask nicely, if possible. If I'm the investor, I say, it'd be great. We believe in you. We'd love to work with you again on that stuff. But we would love it if you could try. I have some good stories about that, but maybe I haven't checked if I can share them. Then the other side where we're the buyer, a lot of times my companies come to me and say, we'd like to acquire this company, but we do want to, the founders come to them and say, the founder Of the target company says, we'd like to get some money for our cap table. And then the company, this is a good example, how to make the decisions. The company will come to the board and say, we'd like to give some compensation to the company, to the investors. And I typically say two things. The first thing I say is, we don't really care about that. But then I say, but if you really want to do it, it's fine, as long as it's within reason. And then one of the funnier things that happens is every once in a while we do that, then the investors are like, we're not going to do the deal. And then the next thing I say to the company, that's the acquirer, the company I work with is then just hire them. I don't understand. Like this was like a nice, like it's all like subtle. You're trying to figure out the right balance of being kind to those people and not. And I love when founders of companies selling to one of my businesses want to return capital to their investors. I think that's wonderful. I really do appreciate that. I think it's a nice thing to do. I think it's good for the world. And I think the same is true of their employees and all that stuff. But there's some balance there, right? Of like, what's going on? And it's not the job of the acquiring company to be like, the business isn't going particularly well. It's also not on them to say we have to pay for your business that isn't going well. ([Time 0:44:40](https://share.snipd.com/snip/f3e55bc9-57bc-466c-8d82-27af2d01d332)) - **Dan's AI Industry Perspective** - AI will increase productivity but has nonlinear effects and can cause quality concerns. - AI markets face high churn, brand-driven preference, and uncertain long-term margins unlike SaaS. Transcript: Wes Bos Obviously, AI space is absolutely wild right now. You know, you cursors worth $9 billion and Windsurf is getting acquired for $3 billion. What's your thought on the space right now? Is it really worth all this money or are people getting all hyped up? It's hard to tell. I have a lot of unsatisfying academic answers. Dan Levine So what I'm saying is that, so first of all, people, I think at a high level over long periods of time, I think AI is likely to lead to increases in productivity for people. But I think it's like very nonlinear. And I actually think there's a lot of like, you know, asleep at the wheel problems. I mean, I always joke like Century gets to experience some of this. There's probably lower quality code going into code bases at a higher velocity, right? So, you know, you have to be monitoring what's going on a little bit, and it's not as naively obvious as people think. But I do long-term believe the world will get more productive because of things like AI. If for no other reason, like I'm a huge believer in software. People ask what I invest, and I say software and networks, and what I mean is like literally the stuff that allows us to control chips that are approaching the limits of physics. Like chip technology blows my mind, And networking technology blows my mind. We can transmit information around the globe almost instantly. That's mind-blowing. So those are the two things that I really invest in. And some categories don't make use of that for one reason or another. One example is there are some businesses that are just more physical. It's like, really, the business is like, it's real estate. So like, I bought land, and the land is still like, that doesn't need to be software that so much to like improve what I'm holding or whatever, there's certain types of real estate commitment. But some, though, are limited by, by like, human reasoning. There's certain categories that I think humanity gets in the way of it maybe being approaching software. Basically, if you imagine software like this vortex that's been sucking everything in. And so I think AI will bring certain categories that right now are bottlenecked on human reasoning or more human reasoning than we have in the state of the art into software, actually. So that's how I tend to think about it. So I'm very bullish on overall. In the short term, I think the interesting things going on are, so one, the thing that's most surprising to me, as an investor, is the proclivity of people to pay for AI tools. So I would proffer and I'm not, this is not meant to be negative about anything. I think there's a lot of wonderful tools. I would say the frontier models have are more and more similar in terms of their capabilities and quality. But on the consumer side, I think ChatGPT has a very large lead from a revenue traction perspective. And for a satisfying way of thinking about that, that's unsatisfying to some, but I think it's realistic, it's like, why do people prefer Coca-Cola above other sugar waters? It's a brand. And I love, I'm a huge fan of Stripe. I really am. And I don't think it's strictly a commodity. But Stripe is an incredible business that has lots of component parts coming together to form something greater than the whole. But it's also an incredible brand that people love. And that's a lot of the value of it. And they should never forget it. So, but Coca-Cola being an obvious brand. So, I think ChatGPT has some brand value. And that's worth something even if there isn't necessarily sustainable differentiation, right? It's just like, why do you like that? Why do you like Coke? Because it's Coke. That self-referential nature can be sometimes annoying, but realistic. So the revenue and footprint of these companies is actually high and they grow very fast. So that's good. Two downsides, I would say. The first is in line with this brand differentiation, people seem to switch between the providers more often than they do other consumer services or developer tools. You can't just switch between Sentry and our competitors. There's a whole install process for now. Maybe someday with AI that'll change. But in a lot of the cases of these tools, you can, and people do. So there's more churn, there's more movement. And you would think, so the demand is a good thing. The excess demand is a good thing. The ability for people to move around makes that revenue a little bit less valuable. And then the last thing that I think is really interesting that we're still not yet at is, I mentioned software has these like 80 plus percent margins in SaaS. And there's not a good reason why, like you could argue it should be competed away, but it is the current thing and it's kind of settled there and it's great. In AI, people presume there'll be high margins, but there's not an obvious reason why that's the case. And right now, at least frequently in these categories, the margin structure is much lower. And if the margin ends up being endemically lower, then the equity value multiple you'd apply to revenue should be lower. So I'll give you my favorite example of this. And I think this is going to work out for everyone. But one use case is like automating tier three, like customer support. Like you might outsource things to a faraway country where you have lower cost of labor, but the support quality is lower. I would say it's very likely that that gets taken over by AI. And I think we already see something happening. And importantly, like all of the quality scores for some parts of that are going up. Not tier one, not like I'm calling my bank, it's an emergency. I want somebody in my time zone right now who speaks my language natively. That I don't necessarily know will be automated in the short term, long term maybe. But I do think that tier three, you know, far away, whatever, will get automated. A lot of people naively say they'll automate that. And then all this labor cost that you save, the customer will get half of it and the supplier of AI would get half of it. And then we can have like a 99% gross margin business with tons of revenue. And I'm like, but what if somebody competes with you and offers a lower price? So it's a good example where I actually think that business will clear at some margin. I don't think it'll be 99%. I think that's crazy. And I think it's much more variable than people think. So I think, again, the demand side looks surprisingly good, I would say, although demand can be flighty. There's a lot of churn and commodity-like behavior switching between models. And then also the margin structure is, I think, higher risk than in prior categories. And so those things lead me to believe, over a long period of time, I'm still optimistic. But in the short to medium term, I think it will be challenging. And for some nuanced reasons. Because I do think a lot of them, I think venture capitalists broadly are quite bad at their job, many of them. Because there's just a few small ones who are quite good to make lots of money. And then most of them are quite bad. And I think they are, we're looking for an excuse to invest in a cool thing. And so that unfortunately combined with these other variables means I'm willing to just believe the gross margin will get to normal software. You know, or I'm willing to overlook the churn. ([Time 0:47:01](https://share.snipd.com/snip/0e524a3c-5996-4895-9c53-aa76598e6acc))