 Trying to get back to the basics of great products power comes from sharing information. I try to convince people to slow down Before we go to the episode here's a quick word from our sponsor cap chase Imagine that you could get access to the revenues you will generate in the next 12 months already today. What would it mean for you? Cap Chase helps fast-growing recurring revenue companies finance growth without taking on debt or dilution Whether you want to invest in growth or R&D cap chase turns your predictable revenue into growth capital today Cap Chase's help founders unlock hundreds of millions in financing to fuel their growth and on average extend their runway by 8 months and Spared upwards of 16% dilution So go see how insanely easy it is by clicking the link in the show notes or go to cap chase comm slash slush to learn more Thanks, let's go to the episode Hello, hello everyone. Welcome back to the soaked by slush podcast. My name is William from the app Alan and next to me Almost as usual is a crowd. Yeah, that's right. That's all not always, but here I am most of the time Hi viewers and William. Hi, and today our guest is Scott Sandell from any a great to have you on the show. Welcome Thanks so much guys great to be here Great to have you as said and we usually give the floor to our guests right away We we give them the chance to to describe who they are and what they do. So same goes for you as well well, thanks, um As you said, I'm Scott Sandell and the managing partner of any a the third managing partner in our over 40-year history I started out as an associate in 1996 became the managing partner a few years ago And I've invested in lots of wonderful companies over the years and of course many that didn't work But I view venture capital as an incredible privilege It's the privilege to invest other people's capital in someone's dreams and to actively help them make those dreams come true So I feel super lucky every day. I get out of bed in the morning Uh, can you introduce any a also a little bit? What is the if you can call it an overarching vision if there is one and also you I read somewhere that you There's a there's a there's this intent of keeping any a alive for at least a hundred years. How do you build a company company with that kind of? Stamina if that's the right word Well, it's it's sort of interesting, but we had three founders Dick Kramlich Frank Bonsol and Chuck Newhall and it turns out They they had studied the venture capital business, which was you know in its very early stages back in the 70s But nevertheless had roots that went back much much farther than that mostly through family offices And Chuck Newhall in particular was a real student of venture capital because his father grew up in the business working for Benrock one of the really really early firms anyway They noticed that venture firms never seem to last longer than one generation of partners And so they set out to create something that would last much much longer than any of them Which obviously we have already But their vision was a firm that would last a hundred years and in order to do that They did a lot of things differently than everybody else and one of them was they didn't put their name on the door You'll notice most of the early venture firms have somebody's name on the door and a new enterprise associates has nobody's name on the door Exactly yeah, but how hard is that to do because often when looking at venture capital or private equity? You might be pretty much Screwed after one bad fund so it's pretty ruthless you might have a good good run with a few two three funds Even but then you have one bad year and you might lose lose the trust of investors So how hard is it it only tied to performance or are there some other? Important metrics to look after as well Well, it's it's interesting I think there are a number of things you can do when you're starting a venture capital firm that give you better odds of success Most limited partners will give you a couple of funds to see if you can perform and the you know The facts are that most people's first fund is successful They get into the business because they have a clear idea about something they want to invest in they have deal flow They have all these wonderful things and the first fund is very small So it's easy for you know one or two deals to make the fund everything looks great And the limited partners don't get to see that result for a while. So it's usually the third fund That's hard to raise if you're not already demonstrating performance, but having said all that You know one of the things that NEA's founders saw was that scale would matter So they realized the advantages of scale into your question One of the advantages of scale is that you get you get to have a size where One or two partners don't matter what matters is the strength of the whole team and that's really helpful especially if you're trying to build a multi-generational firm because you know the reason most of these Small firms don't go past one generation as they have one or two superstar investors Who don't recruit more superstar investors and it just flames out If you have a really large firm you have the opportunity to have you know, lots of people trying their hand at this craft And if you you know take mentorship seriously and you're disciplined about it You have a better than average chance of of continuing to the next generation of investors They mentioned you joined the company in 96 before that you were a product manager at Microsoft if I'm not Mistaken so how was that transition from the operational size decide to investing? Well, you know, it's interesting The the operating world is in some ways You know a great background for getting into venture capital you understand what the entrepreneurs are trying to do I was in a startup before Microsoft and before business school cat software Which was an early FinTech company ended up going public on the Nasdaq So I had some reasonable operating experience when I got in I would say the biggest difference between operating and venture capital Is the time frame, you know when you're an operator You're looking for results on a quarterly basis, maybe even a weekly basis You can see you know, you establish a set of objectives for the week you check off your list You feel good about it. You have a longer-term plan your longer-term plan might only be a year long Inventure capital you're trying to make decisions usually in a big hurry with limited amounts of information You're going to live with the results, you know for the entire length of the investment and the recent statistics As I'm sure you've seen are that the average company going public today goes public 12 years after it was founded So you're making decisions, especially if you're an early-stage investor that you're not going to really know the results of for a decade That mindset is very very different and often very difficult for operators to get their heads around another thing I found is, you know, I've worked with partners at NEA who were serious operators before they came to NEA And they tend to be, you know, very regimented planners, especially around how they spend their time They map out their schedule and they don't change it And You know, that's that's a luxury we don't have in venture capital Because we're responding usually, you know, we make investments We have a certain amount of activities that are scheduled, but when it comes to new investments You know, entrepreneurs call you when they decide they want to And if they have something of interest, you know, you drop what you're doing You know to chase it because it's an extremely competitive business There's no room for, you know, that I don't think there's this misunderstanding today where more and more people understand venture capital but For many years, I think the, you know, since I got in the business the common sort of uh perception was that Venture capitalists were these fat cats who sat around in their offices with a big fat checkbook Waiting for people to come in and could write a check for anything they felt like and Getting into deals was no big deal. Well, that might have been true in the 1960s or 70s But by the time, you know of the late 90s when I got in the business, it was just the opposite I mean, you know, so you you have control over your time as a venture capitalist But you oftentimes have to to change things around and that's very hard for operators operators don't think that way Yeah, that's super interesting Maybe one one other thing I could throw in sort of the obvious thing that people think about but I think for completeness of your question it's important which is that When you're a venture capitalist your job is not to run the companies In fact, you know, you're you're usually on the board But the management runs the company and that is a very very clear and hard line and you need to You know be very mindful of that as a director of these companies operators sometimes have a hard time with that because their instinct is to get hold of the wheel and make decisions and And so sometimes they they don't have the right sort of attitude toward the management team You said that in third person. Are you saying you you were having trouble with that a little bit? Oh, no, I I don't have any problem. Okay. Okay. I I I let go of that, you know 25 years ago. Okay. Well, that's good Yeah, exactly. And you've had obviously a very impressive list of investments Just to name a few you've invested in cloud fair and sales force, Coursera Robinhood, so there's a list of of really household name companies that most people know Um, this is a question that most venture capitalists in my experience hate But I'm going to ask it anyway And maybe you find a way to sidestep it but you have a favorite investment In your career thus far and and why would that be? Oh, that's a very dangerous question. I know, you know, I I only stand to offend someone. Um, I don't you know, I have favorites I don't have a favorite but You know, I've just been really fortunate to work with a lot of great people and Some of them built wonderful companies tableaus another one that comes to mind I love tableau from start to finish Cloudflare, how could I not be, you know thrilled with cloudflare? You know, there's all the ones you named are fabulous So I honestly don't have a favorite One of the things that's wonderful about the venture business is the variety of things you get to work on Bloom energy is another one. I love so yeah, there's a lot of them Do you have something that's maybe If we frame it a different way something that surprised you or turned out better than expected or went through I mean most companies go through hard times along the way But something, you know, that's been extremely memorable in terms of it Maybe then working out at the end of the day despite the odds being stacked against the company or something like that You know Um, there are a lot of those actually and to tell you the truth Those are the ones that you find the most fulfilling And the reason is simple because Usually, you know, you made a difference You did something to help the company at a time when things look bleak And you know that they might not have made it without whatever you did The company that first comes to mind honestly is a company no one's ever heard of anymore called Threeware And Threeware was a storage controller company that I waited into with a one million dollar check in about 1997 Went through four CEOs Recapitalized the company twice. I am quite sure it did not exist For all of that without my support. I know that for sure Um, and then, you know, the the the luck of it all was kind of a fun story Which is that and this is actually how leadership transact transitions often present themselves to a venture capitalist You know sitting on the board of one of their portfolio companies And that is that somebody in the management team comes to them and says Look, this is not working and the person who's running the company is going to run it into the ground unless you make a change Now, obviously you have to invest a lot of judgment in deciding what to do next But in this particular case Um A woman came to me. It was the vp of marketing and said that the current CEO was I think our third or fourth CEO Uh was not working out and she was going to leave the company And I said really well And and for me, I already knew there were issues So I knew what she was saying was sort of a final call to action And I said Okay, but if there was a different CEO Would you stay and if so, who would that be? And without missing a beat she said fey paraman And I said who's fey paraman. She said well fey paraman is my old boss at adapt deck. She's amazing. She walks on water I said great. Well, what is she doing now? And she said oh fey paraman is playing tennis She wants to be a semi professional tennis player. She retired after adapt deck And I said well really give me her phone number So she gave me her phone number. I called fey up. I said fey. I'd love to meet you for coffee She came over to my office and we got to know each other very pleasant conversation You know, she had no idea what my agenda was And uh at the end of it. I said, um, you know Barbara told me about this situation in in three where you know, is that a company you'd be interested in running? and she said Well scott, uh, not really. I mean, I'm really enjoying playing semi professional tennis I've gotten to be pretty good at it actually And so, you know, I'm sort of thinking to myself, you know, how am I going to turn this around? And I had this cheeky idea. I said well fey I'm just curious. I mean you strike me as somebody who really wants to be the best Do you think you're ever going to be the best tennis player out there? You know knowing that that wasn't likely in her early 40s And she looked at me and she knew she knew And sure enough, she became the next CEO of three where and turned it around in the most spectacular way Recruited all of her old teammates Within a month. We recapitalized the company. It's a wonderful story It went on to be very successful was ultimately acquired And nobody's ever heard of three where you know, but I know I made a difference in that one. No, it's fey happy Is fey happy. Yeah, she was very happy. Yeah, it sounds like it. Yeah, you know, obviously You know, she was having a lot more fun running three where than playing tennis Yeah, I think you nailed it with that question really did. Yeah. Yep This question I'm not sure how to ask this but but your way of approaching your decision of who to invest Did you look at your intuition about the founder product metrics just your approach? How do you begin to how would you begin to talk about that? Well, you know, it really depends on the stage of the company, you know, we invested in a Literally anything from a person who doesn't even have an idea. We incubate the company in the office to bring them in as an executive and residents, for example Not even knowing what kind of a company they might want to start You know, in that case, obviously it's it's about on the person 100% But you know, conversely Looking at a later stage investment. You of course are looking at a lot of metrics to distract to decide You know, how well that business is doing But I think your question was also a little bit more generic like just in general, you know What are you looking for and to me it starts with the people always Because you know, as I said before if you're not an operator, you're you're a venture capitalist You are 100 investing in the people and expecting them to lead the company and make all the important decisions Maybe they consult you for some of those decisions, but it's 100 the management team and the leadership and the founders. So Uh, so that's where you start, you know, you and what do I look for there? I look for people who have, you know, the right kind of values people who as we say at NEA we can live through We can live with Through thick or thin because there will always be thin You know, that's the simplest way to think about it. These people you want to be in the trenches with And then beyond that are they people who, you know, have demonstrated excellence in their lives to you know, They're capable of doing this very very hard thing Which is to start a new company and grow it into something extraordinary that takes a person who already You know has demonstrated excellence in their life And then, you know, lastly We're really looking for people who want to build a huge company We're not looking for people who just want to flip a company and make a few bucks And I'm not saying there's anything wrong with that. That's a perfectly decent life objective. It just isn't What we're looking for I'm curious to to know if this if there's something that's changed You have a lot of perspective already. You've seen a lot of founders and and been doing it for a while already. So Are these the same characteristics that, you know, is there something Different about entrepreneurs nowadays? Do you need to have? I don't know, not probably different values But different skill sets different metrics of excellence to be able to succeed in building a company nowadays as opposed to maybe in the pre IT Era at the end of the 90s Yeah I mean in general You know, we're looking for the same kinds of things we were looking for in the late 90s But I think there is one interesting difference and that is You know, there are many of the companies that we're investing in today are leveraging the internet for distribution You know, they're either consumer internet companies or maybe they're even open source software companies But fundamentally they have the power of the internet to get to the customer And that changes the game quite fundamentally in terms of the kind of company that you have to build In the old days, let's just take an enterprise software company for example in the old days You had to figure out how to build a sales force. These people typically Went to visit customers in person. Maybe even wearing suits. You guys remember those things and you know, it was a long sales process Yeah, how about that? So do I I haven't worn one in a while, but we all yeah, we remember those days, right? And And the sales process itself was so fundamentally different, you know, we had to Imagine how we were even going to identify the right customer now You start a company with my favorite business model, which is free And you put something of great value out on the internet. You make it free and people You know respond People who are smart enough to know the value of whatever it is you're offering Start adopting it. They start talking about it. They promote it to their friends And the kinds of go-to-market motions and skill sets that you have to have are really different One byproduct of that But I think it's an important one is that you can build a much bigger company with many fewer people And different kinds of people and so I think the leadership challenges are actually significantly different because in the old days You had to be able to scale your organization more or less in proportion to the growth of revenue You know people and revenue moved up together Now you can have revenue move up much faster than people and I think that's a different leadership challenge Yeah, I think if you showed some of some of the best companies revenue per headcount Today to a company, you know from the early 1900s, they wouldn't believe it. So so that's definitely No, william. That's exactly right. I mean, we actually think the physics of starting businesses are different What do I mean by that the atomic units of building a business are different You can look at any part of a business today Just look at software development software development You know developers are five times as productive as they were a couple decades ago. Does that mean they're five times smarter? Did they study better things at school? No, that's not what that means at all It means that there are libraries of code that you can leverage to build something So you're assembling things from piece parts that already exist and stitching stuff together and adding something on top And the the combined effort is five times more productive You look at as we just talked about distribution You know the economics of distribution are wildly different on the internet than they were You know 15 well 25 years ago anyway So so, you know customer support self-serve customers help themselves If you put up the right materials on your website, all this stuff is Is completely different than it was before the internet exactly Yeah, and not to go down this side route, but it seems like there's Since everything is being democratized in terms of the the things you mentioned with with open source and and with distribution channels And with the internet it seems there is a narrower skill set that you can differentiate yourself with as opposed to maybe 50 years ago and that also means probably there's going to be more competition in in terms of being There's also more opportunity, of course, but it's it's interesting So in that sense, it's probably a bit different being an entrepreneur today than it was back in the days Well, I think that's right. And even since covet started, you know with fully distributed companies Of course open source companies been distributed for a long time, but now we're seeing you know companies that View being fully distributed as a huge hiring, you know advantage and they're able to tap it into talent You know all over the place in a more comprehensive way than they would have thought possible before And those companies are are finding, you know much better retention and much Much better success in recruiting than the companies are kind of stuck in Trying to get everyone back to the office in one location. At least that's my observation across our portfolio Exactly. Yeah, do you have any Recent investments any recent companies that have you has made you, you know, really genuinely excited about investing I don't know if you we probably have been Excited about investing all the time but something that's really like sparked the inspiration and reminded you of why you why you do this As she said, you're lucky to get out of bed every morning. But is there something like special How much time do you have? Yeah, of course But since you guys are in in Helsinki, I can't help but think of a company a little bit farther south of you Inkit in Germany, which um, you know, we just invested in a couple of months ago fantastic company and what excites me about it is that Uh, first of all, this is an idea I had 25 years ago when the internet first burst on the scene, which is to publish books on the internet Why would you publish books in paper and then put them on the internet or have someone read them? I have you know take Books published in a traditional way have someone read them and you know on audible or something Why not just publish them to begin with on the internet? And that's what Inkit does Um, and they take it a step farther, which is that they leverage the readership on the internet and their own artificial intelligence To improve the the books and the stories themselves Which is really really amazing and the and the metrics are incredible the company's growing like 50 percent month over month You guys should check it out. Yeah, we'll we'll definitely do. Yes, uh Because um The same same vein. I mean, I guess if you're an investor You have to have some sort of I guess generalists idea of what's going on in the world What what excites you about like what industry industry vertical company types or technology? Is there a complete open general question? What what excites you out there? What do you see going on? Well, you know Isaac as you as you said opportunity favors the prepared mind So you always have to be thinking about what you're looking for what's going to come next as I said a minute ago I've been looking for Inkit for 25 years literally. So, you know, you have all these theses in your head I mean some of the big ones today that you just can't ignore fintech is amazing, right? We have an incredible fintech portfolio and it just seems it seems like an industry that's right for disruption and digitalization You know, we're early investors in robin hood and plaid divi pay And a bunch of other ones so uh, and then if you if you add crypto in a sort of the latest phenomena of fintech You know the the sky is sort of the limit there. So that's one I mean You you can't have a conversation like this without thinking of artificial intelligence Which I think we're still in the relatively early innings of but nevertheless Already we can see how powerful it is We have and and in terms as an investor. We're looking really at everything from You know the infrastructure required to support artificial intelligence and machine learning think of companies like data bricks Which we were fortunate to be early in and a whole host of others All the way up to the applications of it, which Today are still relatively constrained, but I think over time will be more and more powerful Yeah, no, it's you know, I by the way, I should confess that You know, I grew up as a member of our tech team, but I'd be remiss if I didn't talk about what's going on in health care Um, including the application of information technology to health care, you know for drug discovery for efficiency all kinds of things Uh, not to mention delivery, you know digital platforms for delivery Yeah, I think it's a super exciting time to to both probably invest but also Be an entrepreneur and and there's so much much opportunity out there At the moment and so much stuff that needs to be disrupted And maybe also for the first time it's possible to to disrupt looking at ai for instance now it's uh I mean, we've been playing around with the gpt tree a little bit here in Finland as well and like just it's just Yeah, it's pretty perfect perplexing Actually and and give it another five years and I think you know all all stuff like that will Will be pretty interesting, so Yeah Um, but if you look at the change that's happening now, it's probably it's very fast and the pace Is growing all the time, but how much How much has the tech world changed since you started maybe you started at microsoft, so How different Is everything now there's been quite a few big disruptions on the way still I mean, it's bigger right everything has another zero or two attached to it Um, but in most ways, it's you know fundamentally much of it is still the same And I think people who haven't been in the business that long think you know Every time something happens that seems new to them, you know The people have been around a little bit longer can remember that this has happened before Um, you know, we're in the middle of a wonderful cycle You know, obviously since the global financial crisis everything's been going up and to the right Um, and people think you know the venture capital business moving so fast. It's so competitive There's so much money deals are getting done at amazing valuations and so on and so forth feels exactly like the 1990s to me the late 90s In that sense, I think there are vast differences And this is a much better time because the fundamentals of the companies are much better But just in terms of the industry dynamics, it's not that different I suppose finally speaking on innovation, uh, the vc model Invent in the 70s We've seen some innovation within that model in the past past few years What are your thoughts on the On the sort of the need or the the opportunities to innovate as an investor on that old Old model quote unquote old model Not that old. Yeah Well, I think the first thing to note is that you don't get to survive for 40 years without Constantly innovating in terms of the the model that you employ and and certainly our founders did that and we continue to do that We're always looking to make things better Um, you know, we've been one of the biggest for a long time We were we were really big before it was fashionable to be big and people thought for the longest time our limited partners said You know, you can't make you just can't have good returns that are better than the little funds if you're a big fund And that's been disproven um So, you know, what you get when you're big is you get Consistency and diversification and some other wonderful things that the littler funds don't have We've also been really long term oriented from the very beginning You know, most funds have been 10 year funds We started with 12 year funds extendable for three years at our option and we've never closed a fund down in less than 15 years So we have a very long term orientation that has served us really well I mean fundamentally, you know, you can't build really big companies overnight Just look at you know, they they sort of burst on the scene overnight usually but You know the antecedents and the history usually go back for quite a ways And since we're interested in in helping entrepreneurs build really large independent enduring companies We've been structured to support that, you know, over a long period of time for from the beginning I think more generally, you know, what what has really happened the last 20 years is an enormous shift I think it started really for regulatory reasons You know after the global financial crisis But the the number of IPOs has has basically until the last two years fallen precipitously And and the number of private companies has has fallen by 50% in the last 20 years You know fewer companies going public but also Public companies going private thanks to the private equity business. So, you know, a lot of Value has shifted to the private markets and that's where most of the growth is So I think what you're going to see in the next 20 years are a lot of different innovations That happen within the private markets as opposed to just looking at the public markets as the sort of final destination for companies Yeah One maybe an objective observer looking at the venture capital business model. This is not necessarily my My personal opinion, but if you looked at the the business model Someone might maybe say that it's a bit a bit wasteful in a way Uh in in the sense that Your funds are usually um contingent on a few big breaks a few few companies being fund returners um And then you end up also investing in quite a lot of businesses that will fail looking at the statistics Do you think there's a need Or even a way to to solve for this and to create something that would Be quote-unquote less wasteful. I don't know if it's a wastefulness Is the right word, but maybe you you catch what I'm I'm talking about Well, William, I would challenge the assumption, right? I mean if you look if you look at venture capital Venture capital invests an incredibly small percentage of the gdp if you just look at the united states It's less than half a percent of gdp over the last 50 years has created something like 20 of the economy And more than 10 percent of private job creation all met new jobs basically come from venture backed startups or small companies in america So I would say this is the most efficient capital deployed by a screaming wide margin So why is that true? Well, it's true because we're able to invest Small amounts of capital which have a very high chance of failing But if they succeed, you know They they grow to be really significant creators of value And what you say is absolutely true by the way that most of the returns come from a small percentage of the dollars that That's true. Not just at any a It's true across the industry and it's true not just for the last decade is true for the last five decades So it is it is an unfortunate byproduct of our business model that not everything succeeds But that's because we take a lot of risk and very few Organizations in the world are prepared to take the kind of risk that ventricapolis take to enable entrepreneurs to do Very risky things which when they work change the world they change the way we live work and play Which is what we're aiming to do at any age. Yeah, exactly And there's like no other mechanisms at the moment that enable entrepreneurs to take that That big big risks that venture capital or capital does so I think in in terms of market structure It has also in itself. It has a it's a very very relevant relevant place No doubt which is I mean We think of is that as the goose that keeps laying golden eggs And we we hope that it doesn't get disrupted by regulations or other things. It's working very well Yeah Is there maybe to to round off There's a lot of talk now in in basically all of investing also looking at You know institutional investors and and really big funds There's a lot of talk about the allocation of capital and and Allocating the capital for good Maybe for esg purposes and trying to influence You know the solving of the biggest problems In the world. Is this something you can or are factoring in into your model? Is it something that that's good for for the model or is it is there a risk that you You end up deviating too far from just a demand driven Model and and trying just to find the best entrepreneurs with the best ideas Well, we actually think that the mission driven companies have a better chance of success Then the companies that don't seem to have some clear purpose Um, you know the the reasons are pretty obvious. They attract better people those people are not necessarily just motivated by making money So they you know, they'll stick around when things aren't going well Which is always going to be the case somewhere on the journey to success and you know We have a whole bunch of companies that that fit with that You know back to your point about esg as soon as we're finished I'll be going to a good leap board meeting and you know if you're not familiar with good leap Um, you know, they they finance about 40 percent of residential solar installations in the united states today You know, they're trying to bend the arc on climate change and doing an amazing job of it And they fundamentally they create an asset class Which is very attractive for investors Uh, not because you know, it's making the world better But because the return characteristics are better the default rate on the loans is lower um So I I think you can you can actually do good and do well in in the world we're living in and I think that you know the The private sector is more likely to make a big difference Then I'd love for the public sector to make a difference is a lot of obvious things to do and hopefully they're making Uh progress on that but uh, I think the big gains More like more than likely come from the private sector. Yeah, no for sure I still remember when the schoolbook said that the only that there's no way for you can't you're not allowed to make money Well doing good. There's like no, it's not it's not a good Mix and I remember reading that and thinking that Okay, well, that's an interesting take Seems like, you know Incentivizing smart people to do good things is probably a good idea overall. So yeah No, no doubt Yeah, that's what gets us out of bed every day in here And I'm quite sure it's why a lot of people have come to work at our firm and stay, you know for much of their careers Exactly Well, I mean scott. It's been a pleasure. Thanks so much for joining and for sharing your your thoughts Well, it's great to be with you guys. I'm I'm sorry. I won't be at slush this year But I look forward to coming another year. I've been there a few times. It's a wonderful event And uh, hope you guys Enjoy yourselves and and have a great success Thanks. Yeah, I look forward to having you here here again And thanks to all the listeners and viewers. See you in the the next episode. Take care until then. Bye. Bye. Take care. Bye. Bye