512. Is SpaceX Over or Undervalued, Why Consensus Kills, How Chewy Beat Amazon, and the GameStop Saga from a Board Member (Larry Cheng)

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Speaker B: Welcome to the podcast about venture capital where investors and founders alike can learn how VCs make decisions and reach conv. Your host is Nick Moran and this is the Full ratchet.

Speaker A: Larry Chang joins us today from Boston. He is the co founder and managing partner of Volition Capital, a growth equity firm currently investing out of a $675 million fund. Before volition, Larry led investments at Fidelity Ventures and began his venture career at Bessemer. He was the first investor in Chewy and has invested in companies including US Mobile, Rounds and Global Trans. Larry, welcome to the show.

Speaker B: Great to be here, Nick.

Speaker A: So I'd love to start off and talk about some public companies. Let's uh, do it. You know, we've got some interesting public news on the forefront, so we'll put a pin in that for a second. But you, uh, were the first investor in Chewy, correct? And you know what I'm curious about is what made you believe that they could build a standalone e commerce winner in the pet category when so many categories, you know, had been or would be sort of subsumed by Amazon and ebay.

Speaker B: You know, Amazon is the everything store. And what I saw in the pet market was a large segment, uh, that was moving online but the customer wasn't um, going to be taken care of well in a, in a superstore and an everything store. And what Chewy had done was focus their experience and um, their merchandising, their pricing, their fulfillment, everything around wowing the pet food customer, um, which is something that Amazon couldn't do. So it was the classic sort of a specialty, super tailored experience against the generic experience. And the pet category in and of itself is, ah, it's an emotional category. People really care about their pets and the humanization of pets was expanding. Um, so we thought Chewy had a great chance to win in the category. Their customer retention was like phenomenal, uh, like Amazon prime level retention, um, um, and we saw the math on the business was working so we thought they had a shot. I'd be lying though if I said I wasn't worried because when I was in due diligence on the company, I was getting Amazon boxes that were advertising their pet food store called Wag at the time. And I thought, am I freaking insane that I'm investing in this company and Amazon's advertising for their own pet food store like they. But it worked out well.

Speaker A: How do you, how do you overcome those hiccups, right, late in a deal? You've written about this a bit, but there's like a psychology thing going on here, right? If, like the financial situation, personal financial situation is difficult.

Speaker B: Yes.

Speaker A: If the markets get rocked and drop substantially, if you get bad news about a portfolio company, if colleagues, you know, start talking about the downsides of an investment, you know, there's all these factors that can creep up late in a diligence process. How do you, how do you kind of, you know, use sort of, um, selective memory or, you know, compartmentalize these things and still push forward, you know, with confidence?

Speaker B: Um, you know, every good investment, there should be someone saying something negative. There should be an alternative perspective. And so I think I'm used to that at this point. Is that you're now looking to hit the finish line of investment and hope everyone around you is cheering you, saying, this is fantastic, please do this investment. That is not the case. That's usually a recipe for just saying you've missed something in due diligence. Um, and so the question is, for any great investment, and this took me years to learn, there are going to be very, very good reasons to pass at the time of the investment. Um, because you could have passed on any number of companies. Think about the one that was on Public SpaceX. They're probably a thousand reasons to pass on that at every round. Um, and so you have to become accustomed to that and understand, like, what is the true exceptionality of this business? Is that exceptionality in my head or is that real and demonstrated in some way, and will that carry them through some of the risks that might be, uh, in any business? And, um, so it's sort of having that true north mentality around. Exceptionalities, ah, are what carries a great investment, not the absence of flaws.

Speaker A: Love it. Do you think an E Commerce specialty player like a Chui can be built in this AI driven era we find ourselves in?

Speaker B: Um, I don't think Chewy could be built right now, to be honest. We invested in Chewy in 2013 and it's a public company today. But, um, we held that business for five years before we sold it. Um, and, um, we kind of, uh, snuck up on Amazon. I remember, uh, seeing market research reports saying that the percentage of online spending in pet food was a certain amount and that amount was less than the revenues of Chewy. And so we um, we snuck up on the entire market, uh, we sn snuck up on the, the big box retailers, uh, and we built a differentiated offering. I, I think it'd be hard to do that today. Um, uh, that being said, if I were to counter that we invested a ton in customer service and there still are verticals where I think the leading players could do a better job in service. And that's what Shoei did was just exceptional service. Um, and I think those opportunities can still exist. But we might not be as under ah the radar today if we tried it again.

Speaker A: It feels like on the surface there's a lot of nuance to this but it feels like on the surface E commerce and marketplaces are more durable than pure SaaS in this environment.

Speaker B: Um, depends. I think that's general. It's kind of funny because uh, two years ago you would never have said that. And um, I do think there are certain categories of software that should not be brushed with the software as dead stroke and SaaS apocalypse and all of that, um, that are deeply entrenched into their tech stacks of their customers. They're deeply entrenched in the data moat and the data elements of their customers and, and their customers might not be your Silicon Valley startup that's on the bleeding edge and they will have the first right of refusal if you will on um, the AI spend of their customers. And if they can't win it, that's their fault. Shame on them. Um, there are other software companies that are lighter workflow that I think are more easily displaceable in an area of agentic coding. Um, and those I'd be more concerned about but there's a mix. I would say um, E commerce is a hard business. I'm not going to lie. It's not easy to build Chewy. So I wouldn't say if you launch an E commerce store and you're somehow immune, you still have to fight Amazon. You have to fight um, all the retailers. It's not an easy business. Marketplaces, um, if you can get to scale, can have more moats and E commerce businesses. So I'd probably put those two in different categories as well.

Speaker A: Got it. So another public company that I'd like to chat about is gamestyle. You happen to sit on the board. Most people listening remember Gamestop from the meme stock days. Um, but a lot has happened since the company's built up billions of cash. They started buying Bitcoin for its treasury and then this spring made a real surprise move, uh, roughly $56 billion bid, uh, to buy ebay company, uh, several times the market cap of GameStop. Um, eBay's board turned it down. You uh, were part of the board that put that offer forward. What did you all see in that combination that made it worth pursuing?

Speaker B: Well, I'll make general comments if that's okay. On this topic. I think Ryan Cohen, not the founder but the CEO of the business and chair, is the best spokesman for GameStop's plans. Um, and uh, we have a significant balance sheet today. Um, and we want to do some transformative actions, um, with that balance sheet. The GameStop business is, is now quite profitable. It's a very strong business, particularly in compared to when we first started getting involved with the business and when Ryan first invested in the business. And so, um, it's a completely different ball game today. Um, and so you're seeing uh, a very strong foundational business with a very strong balance sheet. Um, that's open to transformative ideas and obviously this is one of them.

Speaker A: You know something that strikes me is GameStop has become pretty multifaceted, right? It's still a retailer but it's also one of the larger corporate holders of Bitcoin. It's now, you know, considering acquisitions. Um, how does one think about the best use of you know, balance sheet or the next dollar, uh, when it comes to, you know, a business like this and the trade offs involved, um,

Speaker B: I mean it all comes down to one of the fundamental tenants or roles of a leader, especially a CEO is capital allocation. Um, and the question is always like, where can you optimize return on every dollar that you have to spend, Whether that's issuing a dividend, investing in your own business, um, Google invested uh, in SpaceX and um, those types of things. There's different ways to optimize a balance sheet. Um, and I think that's what we're doing is basically thinking open mindedly about capital allocation and everything's on the table. I will say it, ah, as a board and as a leadership team, um, we're patient, um, and we are now looking to do things that are incremental. Um, so I think it was um, is it Charlie Munger who said that like great investors they have opposite attributes paired together, which is you are both incredibly patient and incredibly decisive at the same time. And um, hopefully um, we can embody that.

Speaker A: And were you on the board during that sort of historic run up and situation?

Speaker B: Thankfully I joined the board right after that.

Speaker A: I see.

Speaker B: Um, so I was watching that from a bit of a distance. Um, but uh, that was quite a wild ride when uh, I think GameStop was breaking Internet brokerages everywhere and the markets were not working.

Speaker A: So wild, so wild. But now you can come from a position of strength and potentially do a lot more. So the other company I wanted to touch on here Larry, is SpaceX. They just went public. Uh, are they worth 1.75 trillion?

Speaker B: I didn't even look today. It's over two, right?

Speaker A: Is it, is it over two now?

Speaker B: I mean it closed over two on Friday, um, but um, uh, not by any traditional measure is it worth 2 trillion right now? Um, you're in Google and Amazon territory overnight. Uh, with that type of market cap, um, and notwithstanding the potential in the business, I think um, Bill Ackman actually framed it sort of well in my mind which is that SpaceX is kind of like a venture bet. Right now you have probably the most mature business is the Starlink business. Um, and they're looking to have a sort of a global communications platform in the celestial sphere. Um, and then a very high growth business is their compute and data center business which they've signed recent deals with Anthropic and Google that are massive in size. Um, ironically the space travel satellite rocket business is like, that's the emerging business. And um, all of it feeds on itself. But when you add it all together there's a long way to go and there's risk in all of them, uh, to sort of warrant the current market cap. That being said, it's Elon Musk, um, and if he hits on them in a meaningful way, you know there's a, there's some folks who think it would be undervalued at this level, but that would take, you know, a while to come. So I would never bet against Elon Musk, but um, um, but there's, there's a lot more that needs to come to make it all worth it.

Speaker A: I see, I see. Um, what, what part of SpaceX, SpaceX's business do you think will drive the most value value in the future? You mentioned a couple of them. Some are nascent.

Speaker B: I mean the near term cash flow driver will be obviously their Starlink business. But I don't know that that's the um, I don't know that that's a long term value creator. Um, when it comes to moving compute into space, moving um, I mean Elon even talks about harnessing the power of the sun to have lower cost energy. If supply chains can move into space and they are the corridor to make that happen. Um, like this is before we're even talking about colonizing Mars. Um, those could be massive. Um, but they're much more speculative in nature. Uh, and, um, so Starlink is the early meat on the bones on this one.

Speaker A: Got it. So AI infra, deep tech space, all amongst kind of the hottest categories at the moment. Is software dead?

Speaker B: Oh, no, uh, software is not dead. Um, um, I will say this. When Opus launched and the software is dead nomenclature emerged and it happened quickly. The markets corrected, um, and the markets and everyone kind of jumped on that notion. Um, and then the market sort of improved a little bit for software in the last six weeks or so. And then now people are saying software is not dead. Um, and I think it's too easy to jump on either side of that bandwagon. There is real risk and there's real opportunity for software. Um, the good news about software for software companies today is if you're sitting in that position where you, you are entrenched, uh, there's going to be a substantial amount of AI demand and spend coming from your customers, and you're sitting there as an established vendor that's already tied into the ecosystem of that company that's going to drive growth. So it's not surprising to me at all that you're seeing, um, some existing software companies actually have higher new revenue, higher new bookings, those types of things in this era. Um, but there's also this thing coming up the back, which is anything you build can be replicated and it's getting easier. Um, even with the Mythos launch that happened last week, that lasted for like 48 hours, uh, Fable 5, that was even a step function improvement in terms of agentec, uh, engineering. Um, and so I think both are happening. The opportunity is bigger for those software companies that are entrenched, but the risks are coming as well. And you got to see both sides of that coin.

Speaker A: Why do you think they pulled Fable so quickly? Do you think it was the security breaches? Do you think it was generalized AI fear and too many voices in the government's ears about that? Like, what do you think were the core reasons?

Speaker B: Um, my guess is it was related to security concerns. Um, and I mean, I'm reading what you're reading, so that's above my pay grade. But, um, uh, there's an interesting question about regulatory Dynamics around, um, LLMs and so forth that this is raising. But, um, my guess of that would have to be the precipitator.

Speaker A: Were you surprised that it was Amazon

Speaker B: that You know, I can't say when it first came out that I think, oh yeah, that must be Amazon. I did not think that. Um, but in some respects that's not entirely surprising either.

Speaker A: Why do you think?

Speaker B: Um, just because there's a battle royal happening amongst different players. Um, and oh gosh, there's new acronyms emerging that replace the faang acronym of the players in AI, but some of them are not suitable for work. But um, Amazon, uh, Anthropic and others being in the mix of that, um, they're all going to be pressure testing each other along the way and I suspect that this won't be the last time.

Speaker A: Should we anticipate significant job losses with

Speaker B: the development of AI, the battle Royal on this topic as well? Um, uh, I think probably the initial reaction was, and this was anthropic led in many respects and others that uh, there's going to be massive job losses in the very near term. Um, that's proving out to be somewhat overstated right now. Um, then you have this whole other side which is saying hey, in every single innovation cycle we thought we were going to lose jobs and we didn't. So this is going to be another one of those. And I think that's a little bit overstated as well. Um, I think what's mitigating job reductions for a lot of companies is their adoption of AI is actually quite metered. Not every company ah, is a Silicon Valley startup with no compliance and no rules, no heritage in their tech stack, nothing. And what you're seeing out there is um, very metered, methodical, slow adoption. Um, and one of two things will happen. Either those companies will eventually figure out the right AI tech stack for their business and there better be some reduction in jobs because you're going to have increasing token spend, um, or those companies will be obviated by other companies that were more AI native out of the gates and can move faster and produce more quickly. And so I actually think there will be pretty meaningful job losses. Um, but the timing will be interesting probably given the way the world works when everyone has declared there will not be AI job losses. See, because all of all this data, that's probably when it will happen because at that point in time the stack will have been built.

Speaker A: Interesting. Yeah. How do you think about, you've talked a couple times now about large entrenched players and their ecosystems and how they can leverage AI to their advantage. And users are pretty sticky. How do you think about sort of innovators dilemma in this context? Uh, pricing models are Changing, you know, we're moving from seat based to, you know, usage based or tokens or outcome. You know, in some cases, if it's a services model. Um, and Benioff has talked about this a bit. You know, he's trying to migrate salesforce from cpace to, to uh, more of a metered plan. Uh, but with it comes risk. Right, because you're cannibalizing a lot of your own business, not to mention the cost side eats into your margins because you've got compute. So how do you think about the large entrenched players and their benefits, but also some of the things working against them from uh, a cash cow and cannibalization standpoint.

Speaker B: Um, it's one of the things that I'm really trying to assess, uh, particularly now in any company that we're investing in, which is softer, which is what is the culture inside this company as it relates to AI. Everyone in my world is going to come in and have a pitch deck that says something about AI, but what's for real. Um, and we know even from the companies that we work with that there is a range. Um, there are some people that are like burn the boats. We have to go here, we have to reinvent. Um, and there's no stone unturned in this journey and we're going to do it right now. That is one segment and then there's another segment at the other end which is like AI is basically slidewear and nothing has changed inside and there's everything in between. Um, and uh, boy, I do think there are some larger, particularly tech companies that are more into this, into the first range. Um, the Silicon Valley startup companies are existing and have been living in that range. But there's a lot of companies that are sitting in a culturally sort of, um, paralyzed space. Um, and it's very hard to move on from how you know how to do, how you've been doing things, uh, as a company, as a person and so forth. Um, and if that reinvention does not happen, um, you might not feel it right now, but you as a company or you as a person will lose your relevance and value in the economy that is coming. Um, because the capacity of what you can do with AI is accelerating, which means the delta in value with someone who knows how to use it versus you is going to expand. Uh, and that's on a personal level and a corporate level.

Speaker A: Before we move on from sort of the jobs question, what do you think about young folks though coming out of university? How do you think this impacts them Because I just know from personal experience, like I'm spending all weekend using agents to automate a bunch of the workflows at the firm that typically an analyst would help me with.

Speaker B: Um, yeah, so I actually think the young people might be in a better spot than the older people in some respects. I, um, mean we are seeing uh, kids who are coming out that are truly AI native. Like they, their, their whole educational path, especially in the coming years, will, will have an AI wrapper in the middle of all of it. And um. And you know what? It's, there is this, there is this element that's underappreciated when it comes to adopting AI, which I think the emerging set wrestles with less, which is how to think creatively about what can be done. Sometimes there is this limitation in our own minds which is we can't even conceive of it. So we don't try it and we don't try it. Then it doesn't factor into our systemic view of what can be done. Um, not exclusive to young people. So just to be clear, um, but that creativity can exist more in people who've grown up natively with it. Um, um. But I will say this. What also matters really importantly in AI utility is context. Um, and what younger folks don't have is context. They don't have the, the seasoning, the experience, the knowledge. Um, and so if you can marry someone who has like the burn the boat AI all in native mentality with a ton of context and experience and wisdom, like that is a great marriage. Um, and um, you know, like hold onto that with all you got.

Speaker A: Yeah. I was thinking, you know, as I'm doing terminal and clog code work this weekend, I'm thinking, you know, in another world I might have wanted a young person that's more savvy with these tools. Like if I hadn't been a developer myself.

Speaker B: Yeah.

Speaker A: And I'm not, I'm not writing a bunch of code, but you know, it's in the terminal, it's a little different. Right. And I, I would think, you know, I bet in another context, had I never been a developer, I would just want a human copilot alongside me where I could give them the requirements and they could kind of run all these cycles themselves.

Speaker B: It's kind of funny, they often say use AI so you can up level to a higher level role, um, and have AI do kind of your mundane work. Um, I am at a higher level role. So ironically what I feel myself doing is like the last two weekends I'm Actually doing engineering work, product management work, product design, QA of the stuff that I'm building. And I think it's comical that I'm, I'm doing all this stuff on various things that I'm building, um, uh, because it's so easy and it's so fast and so I think it may work in both directions.

Speaker A: That's so funny. So as you think about Volition's thesis, where you're going in the future, uh, not just like a sector or stage or check size, but what other axes of investment are interesting to you, whether in the AI context or not, what theses or themes really jump out as areas that you think are going to enjoy growth in the coming five to 10 years.

Speaker B: I mean, what's interesting is we're at the early innings of another super cycle and it's so much fun at the beginning because if you think about the transition to ah.com, cloud, mobile, uh, and so now we have AI, which might be dwarf all of them. Um, the early innings are where you have very big market opportunities. Let's be clear, like this is bigger right now than the 20th year of the SaaS cycle. Right at the end of the cycle you're like battling over smaller markets. Um, but it's almost like the world is your oyster. If you look at every single industry and you say they're all going to be transformed by AI, if you look at every single horizontal function in the enterprise, those will be transformed by AI. If you look at every single consumer service and experience, uh, those will be reinvented with AI and you can almost think about every hardware category and think about for many of them there will be an AI layer on top of that. And so what you're looking at is it's all about durability and market opportunity. Um, and uh, I almost ask simpler questions today, which is, will this be an important company in five or 10 years and will it be a durable business to get there? Um, because everything is in the state of being transformed and that's what makes so much value creation possible when these types of cycles happen.

Speaker A: Are you still managing expenses with outdated apps and spreadsheets? If so, it's time for Ramp, the leading US spend management platform covering corporate cards, travel, AP and more. All built to save time and extend Runway. We use Ramp at TFR and it's been a game changer. As our preferred partner, they're offering listeners $150 just to take a, uh, demo. No need to sign up. Head to ramp.com partners TFR to claim your $150 before the offer expires. Now back to the interview. So, Larry, you've. You've written about these two different investor mindsets. You know, the first that prioritizes the absence of flaws. The second that prioritizes the presence of exceptionality. I think, you know, if you're an investor, you're always trying to do the second. But, you know, you may be disqualifying certain opportunities because of the first. Um, so my question for you is, my first question is, what, what flaws do you feel like are acceptable? Uh, you know, that many might consider disqualifying.

Speaker B: Um, I. This is a terrible answer. Um, I, uh. Almost every flaw could be acceptable in the right situation. Perhaps the one unacceptable flaw is a lack of integrity in the founder. But from a business perspective, um, listen, if you wanted to invest in Uber in the early days, you would have had to accept negative gross margins. Okay? Usually that is bad. Negative gross margins might be a flaw that would scare 90% of investors. Well, that would have cut off something like that. I mean, Chewy's gross margins when we invested were 9%. That was almost unacceptable to the world of growth equity when you can invest in 90% gross margin software businesses. Um, we've had businesses where, um, the flaw might have been that there were lots of failures in this business model in the past, and therefore the capital markets are scared of it. That's an acceptable flaw. There are flaws like geographic risk and so forth. But, um, business model, you're uncomfortable. That could be another flaw. But, um, those flaws can all be managed. Not in a compounding way. You don't want all of these together. Um, um, but if there's something truly exceptional on the flip side, um, absent founder integrity.

Speaker A: I see, I see. What do you think are some of the standout qualities of a great investor?

Speaker B: Sorry, stand out qualities of a great founder. Investor.

Speaker A: Investor. Not founder.

Speaker B: Investor.

Speaker A: Oh, yeah.

Speaker B: Oh, investor. Okay. Gosh, you know, I've thought about this and, um, I think Peter Thiel said something along these lines which I very much agree with, which is the capacity, uh, to look stupid for a long period of time until hopefully you're right. That's the quality of a great investor. Um, if you think about it, to have a disproportionate outcome, you probably need two things to be true. You probably need to have an original perspective, because if you don't, then it's a commodity perspective. So you need to see something that others don't see. And by original, that literally means no one Else in the room sees you, has your perspective, which is hard to do, or no one else in your market or your asset class. Uh, and the other quality is to pair with originality is you need to be willing to be contrarian. Meaning if you told everyone in the room your original perspective, not only would they not have it, they would think it's stupid. Uh, and that is the reaction. And then you need to be able to persist in that space until your thesis plays out to be correct. And the reality is most people are not wired that way. And if you're not wired that way as an investor, then what you're going to end up do is investing in things that are unoriginal, that are non contrarian. And that is not how you generate disproportionate returns. And the reality is, if you are original and contrarian, um, a couple things could happen. One is you could be completely wrong and everyone who thought you were stupid is correct. Uh, and that makes it hard to come back and be original contrarian again. Um, or you could be right. Um, and not to overemphasize something like SpaceX, but if Elon Musk sat in a room of investors 20 years ago and said, listen, I want to colonize Mars, that would have been original and contrarian. Um, if someone said, um, uh, 20 years ago that a primary mode of transportation will be you getting into the vehicle driven by a stranger, um, that would have been original and contrarian.

Speaker A: Or sleeping in their home.

Speaker B: Or sleeping in their home. And so you need to be able to sit in that space where the world doubts you, if not even mocks you, um, uh, and persist through it. That's what a good investor can do.

Speaker A: And that also implies you are going to suffer some zeros and maybe a number of them along the way. How does one keep the contrarian original confidence, you know, as companies are failing left and right. And you're saying, well that's, that's the intent, you know. Yeah, like you should have some companies going to zero. The loss ratio should, should exist.

Speaker B: You know, in my world of growth equity, which is different than venture, we, we hate to lose money, I hate to lose money. Um, you know, venture capital loses money about 70% of the time. Um, in my world of growth equity, it's probably about 20, 25% of the time. Um, and um, so it's not to say that you're contrarian, um, therefore you throw out all risks. But there are risks that I think are more perceived than actual. As an example, um, I mentioned, uh, investors are often scared of companies that have failed predecessor business models. Like in Chewy's case, um, it was uh, what, uh, was the sock puppet company pets.com?

Speaker A: oh yeah, pets.

Speaker B: So pets.com was the biggest failure in the dot com bust. And they had that stock puppet ad and everyone's like that. Who, when we reconcile.com bus that was the pinnacle of stupidity. Um, well it's 13 years later when we invest in Chewy. And so that would still feel contrarian because you're staring at the failure. But is it really like the world has changed, there are a lot more Internet users, et cetera, et cetera. And so sometimes the hardest risks to get over are actually perceived ones, not like actual fundamental flaws in the business model. So I, it's not like in our mentality that we throw risks out the door, but you have to weight them appropriately.

Speaker A: It's tricky, right? Because I think the deal we made, we've done 55 some odd deals. But the deal we made that I took the most heat for from my peers was M A, uh, defense tech deal in 2018. And everyone's just like, this is not venture. And now it's become like the hottest company in the portfolio that's scaling the fastest and et cetera. And so sometimes these cycles just have to come around and you kind of have to uh, deal with the heat until it does.

Speaker B: You know, in all of our, we've all worked at different firms, the partners here. And pretty much without fail, when we look back at our very, the very best investments of our predecessor firms and you go back to the uh, decision making at the time of that investment, um, those were the most controversial deals that turned out to be the best. Uh, and um, in my early days in the business when I was at Battery Ventures, Akamai Technologies became the biggest venture backed hit of that era. Um, and that's located here in Cambridge, which is a content delivery network. And that was a deal that three or four partners passed on internally at battery and the fourth or fifth one actually did the deal. And these types of stories abound in and what you realize is your investment decision making process. It absolutely has to account for dissension in the investment team decision making. Um, otherwise you're going to regress to the mean or people won't say what they really think. So you have to manage the cultural dynamics about that.

Speaker A: I mean, does that suggest that democratic decision making on investment committees is not something you would advise?

Speaker B: Um, I wouldn't advise unanimous decision making. I wouldn't Even necessarily advise majority decision making. There's sort of the champions model and the consensus model and there's been a lot of studying about this. Um, and um, what consensus driven decision making does in investment committee is first of all it actually doesn't open up conversation, it limits it. Like people don't want to block your deal because you might block their deal type of thing. And so it becomes very political. Um, and what the champions business decision, uh, making model does is yes there are risks and yes your investment committee will point them out, but the champion may see the exceptionality in taking account of the risks. Um, but the exceptionality might ultimately carry the day. But again if you're in this majority decision making model are unanimous, then you could just focus on all the risks till the cows come home. And um, you may miss on some of the best ones. And uh, that's what we have seen in some of both MIT and HBS research on the topic.

Speaker A: What risks do you love leaning into and which ones do you not like taking?

Speaker B: Um, I like uh, what I call perceived risks. Um, and we talked about this earlier but listen, I would love for a business model that's perfect, like high margins, high recurrence, very diversified customer base, tons of upsell, great value. I love all of that. Um, but um, you may not get all of that. But where I feel like I have a bit of a DNA, ah, advantage is just when there's a perceived risk that everyone thinks like that's not possible or that's stupid or that's failed before or that's an uninteresting sector or that's not the type of customer we'd want. That's where I feel comfortable. A good business, um, a good fundamental business with some perceived flaw around it is a beautiful thing in my mind.

Speaker A: What would you say is your competitive advantage at volition?

Speaker B: Um, it is sitting in this area of willing to do deals that others might not. The growth equity industry as a whole is pretty homogeneous in its thinking. Um, it's why the industry has um, centered around software for so long. Um, most growth equity firms, a majority of them are pure play software with good reason, which is the software business model is phenomenal and has been phenomenal. You have high recurrence, you're paid up front, you have super high margins, you're mission critical. That's a beautiful thing. Um, but I've leaned more towards transactional Internet businesses, more mass market, more consumer. Um, and in that space you have to think a little bit differently. And sitting in the discomfort of thinking Differently than others, sitting in the discomfort of not having consensus. Sitting, um, in that area of perhaps even people thinking uh, this deal is stupid or whatever. That's my comfort zone, uh, where I get quite honestly nervous is when everyone loves it. The only thing that means to me is that we have missed something in due diligence because uh, uh, these are all young companies and there have to be some flaws around it.

Speaker A: So does that suggest you're doing investments in atoms as well as bits, as they say?

Speaker B: Um, tell me more what you mean by that.

Speaker A: Well, I mean like hard businesses, physical AI, robotics, you know, not just uh, AI software.

Speaker B: We do, we have a mix of hardware and software. Um, but what's interestingly is I've spent most of my time in sort of scalable Internet business models where no one thought the website was the barrier to entry. So the idea that you would have a barrier to entry that is not in the technology platform itself is kind of a world that I've lived in. So we're used to network effects being a barrier to entry. We're used to data modes being a barrier, um, distribution partners, brand community, um, et cetera. Those can all be barriers. And they have been for some uh, of the Internet businesses um, we've invested in. And now those are elements that you'd want to see in a software business as well. And so, um, so I think it's almost like um, the world's emerging in some respects.

Speaker A: Maybe a few wrap up questions here. Uh, Larry, you've sat on a number of boards, both public and private. If you were giving advice to a founder on structuring the board, effectively managing a board, how would you distill that down? Um, from your experience?

Speaker B: Um, oh, that's a great question. Um, I think you want to have a range of opinions, a range of expertise in a narrow box. So uh, I think boards become less effective the bigger they get. Uh, and so in the private company world you want to stay under even 5 becomes the larger size, but 7 is large in the public company world. It can expand well beyond that and then it becomes a bureaucracy, not an actual governing, active governing body. Uh, and I think you want a range of perspective within that. Um, but probably most importantly is that body needs to be able to speak truth into the leadership of the team. And um, it can't be a passive sort of rubber stamp, um, type of body that you need to be able to have people who will tell you as the CEO, um, I disagree with you, Um, I think this is your blind spot. Um, and good CEOs should actually do the inverse, which is ask the question of the board, like, what am I missing? Where are my blind spots? And so, um, you want that in your board. And then perhaps most importantly is you want your board to be owners and operate as owners. There's a lot of boards that are set up these days where, um, they're just not aligned with their shareholders. Um, and um, they never purchased the stock of the company that they're on the board of. They're granted stock, but they don't purchase it. Um, uh, on all the boards that I'm involved with. Ah, uh, in the private world, we've invested in the company. That's the only reason I'm on the board is because we are owners. Um, but you get into other areas where the board are not owners of the business in the truest sense. Um, and that's a misalignment in my view as well.

Speaker A: Larry, if we could feature anyone here on the show, who do you think we should interview and what would you like to hear them speak about?

Speaker B: Um, you know, it almost goes back to who would you want to have lunch with? And I'm sorry if this is a commodity answer, but, um, uh, I would love to hear from Warren Buffett or Elon Musk. Like, that crew would be certainly quite interesting. Um, in the world of business and investments, um, um, it's their truly exceptional talents at what they do. So if lunch with either of those goes up for auction on ebay, let me know.

Speaker A: Larry, uh, give me in the audience one book, article or video that you would recommend.

Speaker B: Oh boy. One book, article or video? Um, you know, the Dale Carnegie book, um, how to Win Friends and Influence People, um, is a classic and I always pay attention to classics that still are on the bestseller list 50 years after they were written. Um, and, uh, that book is about, um. It is, it's well titled, I guess because it's self explanatory. But there are some classic principles in that that I still apply today. And um, it's not a hard read, so I recommend that book.

Speaker A: Larry, do you have any habits or behaviors that are a secret weapon?

Speaker B: Maybe it's the meta habit or the meta layer, which is, um, I think the superpower that is above all other superpowers, um, is consistency. Ah. And it's very hard to maximize any superpower if you're not consistent with it. So over time I've sort of appreciated the compounding benefit of doing, um, even something small consistently. Right. Like if you even read 10 minutes a day or 15 minutes a day like that will compound over time. If you uh, eat healthier in a slightly different way and you do that consistently, uh, that will compound over time. And so, uh, but if you're inconsistent, it kind of doesn't matter how talented you are, that's going to get in your way. And so, um, I think consistency is the superpower that I hope to have and I think is the enabler of everything else.

Speaker A: And then finally here, Larry, what's the best way for listeners to connect with you and follow along with Volition?

Speaker B: Oh, um, I'm on x@ah, LarryVC and then I'm also on LinkedIn, uh, at just uh, my name Larry Chang. C H E N G um, and obviously the volition website, volitioncapital.com, all right,

Speaker A: he is Larry Chang and the firm is Volition Capital. Larry, thanks so much for the time today. This was great.

Speaker B: Thanks so much, Nick. Take care.

Speaker A: All right, that'll wrap up today's interview. If you enjoyed the episode or a previous one, let the guest know about it, share your thoughts on social or shoot them an email. Let them know what particularly resonated with you. I can't tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that's a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently. Thanks so much for listening, Sam.

Speaker B: Mhm.