Haystack's Semil Shah on the broken unicorn factory, emerging fund manager traps, and 12 years of seed investing

like a hundred friends tell me that they love this podcast. That's amazing to hear. Yeah, I'm so glad I'm so glad that we're we're breaking through. We've been spamming the timeline, spamming everything on X.

We've learned uh that slop is the future and uh and and volume wins, pace wins, speed kills, and we've been trying to do all of the above. Also, in a in a previous life, you know, I used to work in the podcast industry, and I love the medium. This is way before it really took off. Yeah.

Um and uh I I I love media and I love TV shows and I always felt like um there should be like a live tech VC segment. Um you know, so I just pulling crazy idea to do a live daily show for just for technology, but it's been a lot of fun. It's been working out. Um I'd love to start.

Did you ever look at Cheddar back in the day? Yeah, we actually talked to the CEO earlier this week. Uh I was I was familiar with it. Um where they took that business was uh much more I mean they actually wound up owning ratemyprofessor. com. That was interesting. They also owned uh TVs on college campuses.

And I do think we have a bunch of college uh students in the audience but uh definitely we have focused more on you know insider baseball in Silicon Valley and and stuff that's not quite as uh general audience. Um, but who knows where it goes. You know, this is still an early project.

It's evolved a few times and uh, you know, we'll see. Anything's possible. I love it. Well, thank you again. Yeah. Well, I I actually would love to start with uh your experience in the podcasting industry and and and what you were doing and kind of what lessons you learned just because I'm curious. Uh, yeah.

Just real briefly, it was kind of in the 2012 134 time frame. And the uh entrepreneur at the time who was a repeat entrepreneur who's a a technologist and a mentor of mine from Stamford and was on the faculty had this idea of like a personalized audio.

So if you you know I don't want to date myself here but imagine you 10 years ago or so you open Pandora on your phone and you're going in the car. Um what would what would the AM version of Pandora be? That was kind of the vision.

And so we really spent a lot of time curating the initial set of of things that would come onto the platform. You know, the big categories for commute were news, um, spirituality or philosophy, comedy was probably the biggest one on the nighttime uh, drive. And then it was like giving the person the opportunity to skip.

So now if you're in a Spotify playlist, for example, we just take for granted that we can just skip to the next song or in Instagram, we can flip to the next reel. But users didn't really have that amount of control back then. But ultimately the cost of acquisition at that time, you know, was really really difficult.

And um there wasn't as much podcast content. It was mostly um kind of radio or TV content being ported over. You know, this is pre Joe Rogan and all that kind of stuff. So eventually it was acquired by Apple primarily for the technology of streaming the ability to stream from server across different um telecom networks.

Interesting. Um I'd love to know uh your kind of venture origin story. Uh one fun question is like what was the deal that you where you caught the venture bug? What were some of the early deals that stuck out to you as uh hey maybe I want to turn this into a real career?

Well, um, it it really started because I was working as a consultant for a lot of different firms.

I was working in industry and I was writing a lot online and doing lots of media stuff just for fun and a lot of people who happen to be investors and LPs Reddit and I thought, "Oh, I'd be, you know, I was helping a lot of friends raise capital.

I thought, of course, one of these funds that is employing me as a consultant will give me a job. " Uh, that did not work out. And so, Haytock was born literally out of uh, desperation of having nothing else to do.

And so it started with a $1 million fund and in the first eight months wrote uh seed checks into InstaKart Envoy Door Dash and Hashi Corp. Wow. Banger after banger after banger after banger. We love to hear it. Congratulations.

And um I knew in the first the first two funds which took about three years I I knew that I would enjoy it because I had been around it a lot and so it was a lot of fun. Mh. I I did not realize how much I would love it. Um and then the other the other component I always call it luck and love.

Like Mike Maples has a great line which is like you got to get hit by the lucky truck, you know, and um I got hit by the lucky truck a bunch in the first three years. It's amazing. It was um it was very fortunate, you know, but it was um it was a different era.

Like I could never raise as much as I wanted to for for funds and I would have to beg, borrow, and steal to make um sort of ends meet at home. Uh you know, so for a long time. Yeah. I imagine you're eating fuagra on the $1 million uh fee structure. Yeah. It's 200k over 10 years. Over 10 years. Pretty brutal.

I didn't take any fees really in the first three funds. Um and uh yeah, that's great. Uh are you surprised uh today when you see managers without much of a track? I mean, you know, you listed off a few of the companies that you invested in the first fund.

You would think that that kind of portfolio would would get you a you know, if you had that today, it would probably get you a $500 million, you know, fund two type of thing.

Are are you uh when you talk to man you know uh uh uh upcoming managers today and they're they're sort of complaining about sort of the challenges of of raising money yet they're still raising you know 50 plus million dollar funds.

Do you I'm assuming you don't have a ton of I mean you have empathy but you're also well it's a it's a very astute question you're asking especially since we don't really know each other because that that is that is a very astute question for two reasons.

one one is that the the rational answer to your question is that it kind of makes sense because you know back when I started people didn't really know how big Uber could be or Palunteer could be. It was like well I'll just wait to see what happens.

I mean a lot of VCs just passed on Palunteer for rounds and rounds and rounds and rounds and Uber was like you know just kind of blew people's mind of how fast it grew.

Um, so now I think a lot of LPs and a lot of people around the world are like, "Hey, the tech startup ecosystem is a place where I need to have some money at play because you know people who come on your show like I mean Ki I have a great story about Ki by the way. So we we got to jam that in.

But yeah, people like Ki are like coming here from you know Europe and like doing amazing things and like you find one Kari in a career you know or in a portfolio it's amazing. So I kind of understand that more LP dollars are coming here.

America is a more attractive the American entrepreneurial ecosystem is an attractive place to park some money and put it in the ground. It totally makes sense. And when your choices are billion dollar plus funds charging you 30% carry and and they're going in a little bit later.

It's kind of like well okay do I you know which burning building do I want to fall off of? You know, now the the more micro answer and why I thought that was an question is that a lot of people come to me and ask for advice or help with LP intros or how to like design their fund or do stuff.

And I've learned, you know, from like I had amazing access to people and that cannot be short changed. Like I was very lucky to have access to like incredible incredible BC people, you know, BC creators and fund creators that you would all know by name. I had direct access to them and still do.

So I try to pay it forward by helping with LP intros and doing all that stuff.

But occasionally I do get that, oh my god, like you know I need to raise a fund of this size to pay myself and I always come back with who who says you need a who's who owes you a salary to deploy the money and and that's really the line I always come back to which is it's a little bit unfair because you could have a really qualified person who doesn't have access to capital and part of the game of a VC is to aggregate capital for the entrepreneur that's part of the game.

Yeah. So if if you have a unfair capital relationship or an asymmetric relationship where you can aggregate capital all of a sudden you're in the game but then you have to access the founders. So it's that you got to aggregate supply on both sides high quality supply on both sides.

Um but this idea that like the fund should start paying you is a luxury in my mind and um of course if you have access willing to pay the fees like you can get paid. Yeah. isn't today though.

I feel like L from from my understanding if you go to LPS and you're trying to raise a small fund let's say 10 20 million bucks and you say I'm not going to have any any fees or or maybe a very small admin fee to cover the costs isn't that given that they're just so used to paying fees everywhere is that even like a selling point or does that send the wrong message to That's a fair that's a fair question.

I think that LPs are happy to have their GPS if they want to work with them pay them in some fees.

I think the point is that when you're starting and you're trying to hit a target or you're spending a year or two trying to fund raise, the idea that like you're owed a salary philosophically to me is kind of bankrupt and and that like you can you can say you're going to do that, but at the same time um it is a market and LPs vote with their feet and sometimes they make smart decisions and sometimes they don't.

Yeah. Um, but yeah, I would say that somebody going into market with that $30 million fund should have a budget for how they want to pay themselves, but also like um sometimes you have to cut deals when you start.

Um, like you know, a lot of people who want to raise an $und00 million fund, maybe the market only gives them six or eight, you know, and it's like that's where you should start, but a lot of people don't want to start there.

And it's it's a little bit unfortunate because Angelist which kind of came up when I was coming up created a whole new pathway for me too like that's available to you now you know and so a lot of people do use it but I think a lot of people want to aggregate more and more capital before the market's ready for it.

What angelist products were you leveraging most aggressively on the come up? Oh yeah we've heard a lot of this could be its own this could be its own pod deep dive pod. Break it down. I mean I went uh I mean first of all the all gen genius uh you know and really was helpful to me.

Um but essentially there were a couple of like uh public products and couple of offbook products. The the public products were that um you could do these kind of like software click and subscribe SPVS. Yep.

you know, um where if you could aggregate from your following or people who were following you and say, "Okay, I have over capacity in a deal. Um you know, uh there I've got a 50k allocation in a series A that I did a seed in and I I don't even have the money, right? " Um you could do that and then set the carry.

You could even do little things like portion out the carry based on, you know, people who are helping you on the deal or other people you want to uh give a little gravy to.

Then it turned into like um these rolling funds or angelist funds which are very popular you know 181 19 20 21 and are kind of industry standard today and then the uh I hope Naval doesn't mind but like the offbook thing he he did me a solid for because I had known him for a long time and he he is just incredibly helpful and savvy but he had raised a private pool of capital and an SMA from a I can't really disclose who but let's just say a large sovereign that wanted to basically pump a lot of money into the ecosystem and he picked four, you know, early managers uh to kind of whitelist and he chose me and told them just do whatever he does.

Uh when you're uh I'm curious, how long should someone wait to get hit by the lucky bus before they before they should, you know, hang up the cleats?

cuz I I really do feel like in in my personal experience if you're in venture seriously and you don't get a true banger in the first five years like this the your your job just becomes infinitely more difficult in every conversation you have from LPs to entrepreneurs to other managers that you might be co-investing with.

But I'm curious how uh if you've seen examples where like you know year eight they finally you know get the banger. This is um this is a very very good question. I mean I I should be back on this pod at some point because you guys asking like the right awesome detailed questions.

It kind of depends I think your to answer your question based on what fund you're at and what stage you're investing in. Um so let's say you're at a larger fund and you're doing kind of like a classic series A where you're joining a board or you're putting 78 million plus in a deal. Maybe you're doing B's at 2025.

um you you can only do in a in a high quality sense maybe two to four of those per year. Mhm. And everyone that's your partner or who's around you or the bigger heads in the in the fund.

They'll ask you to report on your portfolio on a monthly quarterly basis and they'll have a sense of an underlying like what's happening there sort of like a few times a year. They're now obviously the boards are going to be using AI sorry the funds are going to be using AI to like track the board.

So it's not just about the relationship with that investor but like sometimes the investor in the old days could say everything's going fine but underneath the hood it's on fire.

Uh they'll have more of a record of what's happening and so generally the people who are running the funds will watch and see like what are the underlying metrics who's going to follow your deals right as a proxy for quality. And so all those things are under a microscope.

I think when you're a seed investor like like myself where you're in that early part of the ecosystem where you're not investing $7 million per deal, but it might be 200k, 500k, a million dollars, you can take a lot more shots on gold and people suspect that some of those things are not going to work and you only need a couple to work, right?

So you have more ch you have more surface area to get hit by the lucky truck early. The trade-off is that you don't own as much as you would if you did a rifle shot later. But yes, I think five years is actually too long.

And um there's a couple heruristics here like it used to be in venture when you would join like a really good fund.

They would they would hand you a later stage deal that already had a board in place and already had some momentum underneath it so you could learn the ropes and have like a good kind of chip uh to put on the mantle to start.

Um, but if you think back, I don't know if you have come across Matt Kohler, but Matt Kohler was a GP at at Benchmark for 12 years. And this guy's hit rate at series A was incredible. Um, and even he doesn't even get credit for certain deals that he sourced, but he just doesn't care, you know.

But, you know, very few people are going to have that rifle shot selection. Yeah. That Matt did. Um, you know, someone today who I would mention would be like Mimoon at KP. I mean, you look at the guy's track record, it's absolutely insane to pick off the money round. Uh, how common is it for you?

Because I I'm I'm assuming you're LP in in a ton of different funds at this point. How often do you see like a $50 million fund these days that's fully deployed in a lot of winners but just not, you know, kind of a dud of a fund just because of concentration issues, pricing, etc.?

Well, I I do lots of small investments and friends and like other people to support them when they're starting funds. So, it's relatively small. the the funds are relatively small and when the funds are a little bit bigger, those managers have already had experience around um portfolio construction. Yeah.

So so so you can get away with kind of shittier um portfolio construction when it's a smaller fund because you're just really chasing the alpha in that.

Um but I would say the the broader point I would make here is that the idea of portfolio construction and the math around it, it's it's no more complicated than basic algebra. Yeah. Um, and I would say I probably spent a lot of time trying to learn it and around a lot of other investors to deeply understand it.

And it was still probably the hardest topic for me to like grock or or you know, years. Yeah.

for for me to gro and I think that's why a lot of LPs like to fund people who come out of these bigger funds because you're served that every week when when people are doing partner meetings and portfolio reviews and the people running these funds know it. So it's very hard to learn from scratch. Totally.

Uh I want to follow up on a talk we had with uh Sam Lesson yesterday. He was saying that the unicorn factory is broken.

And it sounded a little bit like he was complaining that just like the big funds, you know, the crossovers have squeezed the growth investors, the growth investors mess up, all the early stage markets because they're just like, h $10 million series A, it doesn't really matter.

And then the series A investors mess up, the seed markets and the seed markets mess up, the angel investors. Uh, how real is that dynamic? Are you feeling pressure? Are you optimistic? Uh, what's your takeaway on the broken unicorn factor? I got to watch the Sam episode. That guy is full of full of amazing thoughts.

He's a hot takesman. He is a hot takesman. Very artful. Um I think Sam's exactly right. Uh you know, everyone is on everyone else's long, you know. Um and so yeah, it's definitely a concern.

I still feel at the end of the day and maybe this sounds like polyiana but like the game is can you meet great entrepreneurs every week, every month and you're not bogged down by other BS that your partners throw on you or that you go to stupid conferences. Like we all have like a ton of time every week. Mhm.

And we should all be meeting awesome founders as much as we can and like can you connect with them? Can you get to know them? Can you take a bet on them? And I still think you can because a lot of investors have ADHD and they go to stupid conferences and they go to stupid meetings.

And so that's my kind of view is that like you're not going to catch everybody. uh there's no way to meet everybody, but like there's plenty of people here that you can take a bet on. Um and you can get paid, you know, if you're only chasing hot deals and everything's priced at perfection. We all know where that goes.

Um so the other thing I will say is I've been seed investing, you know, in this part of the market for 12 years now.

And every single year, with the exception of like a few six-month periods of like COVID or dislocation or something, um, every year people complain there's too many smart people starting companies, there's too much money in the early stage market and the round sizes and the valuations are too high.

Y I hear that every single year. Y, so I just don't know when that's going to stop. Like maybe a meteor will hit the earth. I don't know. No, I I I got to Silicon Valley in 2012 and and uh I got a big sitdown speech. we are in a bubble and it was like yeah we were for another decade. Yeah.

I I mean one of the things that makes me so uh bullish on America is just we spend every single day talking to bright entrepreneurs and at a macro level it's obvious that there's bubbles in different you know kind of sectors and industries right people say oh manufacturing isn't investable and then you talk to an entrepreneur who's like de spent six years developing like a proprietary method for manufacturing metal and you're like yeah you're going to sell billions of dollars of of of this product.

Uh I want to ask you about two archetypes of new fund managers. Uh and I'm and I want to get u maybe the advice that you kind of like give them as they think about raising.

So the first one is the uh angel investor who sort of casually uh lucked into maybe uh investing in a bunch of winners uh while they weren't taking investing seriously. And I think this is fairly common.

and somebody's like working at a great company or they're a founder and they just happen to invest in let's say they invest in 15 companies. couple of them end up being unicorns and uh they uh decide they want to become a fund manager.

Uh and then the second archetype is somebody who's at a big fund uh gets hit by the lucky bus maybe uh but doesn't really realize uh the kind of dynamic in which enabled that investment which might have been the funds brand or it might have just you know a variety of factors.

So, I'm I'm curious how you talk to those types of managers, both both of which believe that they deserve a $50 million seed fund and deserve they should be, you know, able to kind of like win deals and and they very possibly can. Um, but uh it's not necessarily a walk in the park.

The for the angel archetype, I mean, let's not forget like Eli Gil was like a super angel and then turned into like his own growth fund as a brand.

I mean it still amazes me to see like the entrepreneurs you know when they create their Coachella banners for their huge fundraisers and horitz okay that's pretty awesome it's awesome uh so you know he was born from that I think that like the the pattern going back to your question is um you know hey you you've been doing this as a founder or stuff I would think about a couple things one is like when you have a founder especially a founder who's like or operator who's like very very connected and just kind of angel investing for fun.

a sophisticated LP.

Now he the the pro the problem is here to do a 20 $50 million fund that person could just call his or her friends you know but let's say if you're going to like a sophisticated family office or institutional investor or fund of funds and all these managing merging programs or managing man emerging manager programs are popping up um that LP knows that they're trading off access that this person may have that's unique for that portfolio construction and discipline of building in the basket.

And so that person I would advise to say like two things to watch out for is how are you going to get smart on the portfolio construction and and build a model that works and kind of stick to it. You can you can deviate from it a little bit, but you want to show consistency, right?

Because as you build up your track record, literally when we raise funds, you know, we're we may or may not be in the middle of that right now. um they take your whole bank ledger like every dollar that comes in from an LP and every dollar that's wired to a company it's just in an Excel spreadsheet. Yeah.

And so everything is recorded. Mhm. And so you know you go too wild by a second or third fund when an LP is really looking at you they may say like love to see this smoothed out a little bit.

You know, the other thing is just what I say network atrophy, which happens to everybody, which is like if you're not constantly replenishing your networks. Y um not everybody are the Cisonson brothers.

Um I mean the big the big thing the big thing the big red flag for me on the angel side is you know as an angel I have 50 plus companies that I've put various checks in.

uh both of my uh you know true banger unicorns I would not I got 25k into if I tried to do 50k they would have said sorry like you know we have a bunch of people in the round access but not that much access yeah I had access and I was intelligent enough to just give the founder money but and and so and and and so if I if I were to go out and raise a fund I it wouldn't be authentic to say like oh Yeah, that point.

I would have, you know, been co-leading the round or whatever. Just you're you're talking about like the what happens with check size escalation. So, like I'll give you a couple of things to noodle on. So, for me, I had no choice but to crawl, walk, run.

So, I was incrementally increasing my check sizes in the same kind of round. So, the same rounds I was doing 12 years ago, we're doing today. Mh. Now, most people will just say, "Oh, I can go a little bit more.

" I tend to think if you talk to other seed investors that kind of line is around somewhere between when you're asking for 250 to 500k starts to get tight. Yeah.

So, so you could have an aggre, you know, one one model is you could have an aggressive angel who gets that right away and starts firing the million dollars instead of 25 and they still have a hot hand, they still have a good network. They still have good judgment and nose. Like that can work.

Um the problem is like you're gonna you're probably going to light a lot of money on fire too because the deals are moving too fast and they don't have like that deal judgment going.

But the the broader point you're making is a very good one which is around like what check size can you really write in the competition set. Yeah. In the one in the companies that matter. This is fantastic. We definitely do have to have you back on. Uh we could talk for another five hours.

I got to ask one more question. Uh, can you can how how uh how do you think uh X is today in comparison to uh the good old days of Twitter? I think you were one of the first people I ever followed on on tech Twitter. Same here. I didn't get I got on like somewhat late. I was in college. But mean fiveletter username.

It's no four-letter username like um I'll see new people follow me and like usually it's just bots or people with like a you know an animated uh the anime profile pictures there's alpha in those some of those folks are really great AI engineers but like recently a bunch of people have like followed me and I'll look at like recent followers and they'll be like Barack Obama that's awesome what's so funny yeah if Elon if you're listening I love X I love Twitter I've been on it for I don't know over 15 years.

I just want Tweet Deck back. Interesting. Because I think Tweet Deck being removed has disrupted my flow and I've never I haven't been able to like find my footing again. But I think the content on there is great. It's just it's harder to find. Yeah. Right now.

And I tend to get the best tweets in my social chats in my in my group chats. Yeah. And to me that's a sign that like um the interface is too much. Yeah, we talked about this with Eric Torenberg a little bit that a lot of the alpha has shifted to these big group chats and there is a little bit of that that's lost.

I mean Twitter originally was like the global group chat for the world and for tech and you had NFL Twitter and all the different Twitters. Uh there's still a little bit of that and we're bringing it back with the show.

I think Elon and them can make more money by going back to Tweet Deck, redesigning it, and then in each stream, you can have different ads just at top. It's like such low hanging fruit. Yeah. Yep. Well, this is awesome. Thank you for coming on. Let's see. You guys, man. Take care. Cheers.

Uh let's bring in Dan from Chain Guard. Um announcing uh a pretty pretty meaty mediumsized round. I think it's just in the couple hundred million. By the way, did our uh our 3:00 meeting get moved to Oh, did it get moved to 2:30? So, we got even less time. Wow. Okay.

Well, we might have to re uh reconfigure some of the agenda cuz a big meeting just got moved up and it's all the way across town in LA traffic on a Friday. We are going to be in trouble. Uh we will