E86: Inside Mischief VC's Evolution with Zach Perret and Lauren Farleigh

Speaker A: Uh,

Speaker B: welcome back to Turpentine vc, the podcast where we discuss the art and science of building successful venture firms VC to VC. In today's episode, I speak with M. Mischief VCs Lauren Farley and Zach Perret, who discuss how they've leveraged their founder experiences to build a differentiated VC firm. Zach is the co founder and current CEO of Plaid, and Lauren was the founder of Dote Shopping. Up ahead, you'll hear their approach to sourcing deals, supporting founders and unique firm infrastructure. Please enjoy. Before we get to today's episode, please note this information is for general educational purposes only and is not a recommendation to buy, hold or sell any investment or financial product. Turpentine is an acquisition of A16Z Holdings, LLC and is not a bank, investment advisor or broker dealer. This podcast includes paid promotional advertisements and individuals and companies featured or advertised during this podcast are not endorsing Ah Ah Capital or any of its affiliates, including but not limited to a 16Z perennial management LP. Similarly, turpentine is not endorsing affiliates, individuals or any entities featured on this podcast. All investments involve risk, including the possible loss of capital. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. Before making decisions with legal, tax or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Turpentine does not guarantee its accuracy. Now let's get started.

Speaker A: Lauren, Zach, welcome to Turpentine vc. Thanks for coming on.

Speaker C: Thanks for having us.

Speaker D: Thanks for having us.

Speaker A: So, Lauren, so for those who are unfamiliar with, with, with Mischief, why don't you give a brief background. You, you have a 30 million fund. One, you're now an 80 million fund. Two. Why don't you tell the story of how Mischief M came together?

Speaker C: Yeah, for sure. Well, Zach and I had known each other for a very long time. We worked together right out of college. I went and, and started a company. Obviously. Zach started Plaid. I think, you know, while I started my company, I, uh, uh, realized that kind of the, the best people on the cap table were really other founders, you know, folks who had done kind of that zero to one journey and I think, you know, wanted to pay that forward. Started angel investing in 2017. Really enjoyed it. I think Zach started angel investing around the same time. We worked on a lot of deals together and I think, you know, pretty quickly realized that more than just paying it forward, there was really a, uh, market opportunity to sort of institutionalize what we were doing. Still a relative rarity. I would say in venture and particularly I think at the earliest stages to find investors who you know, have that zero to one, like true finding, product, market fit experience. And so that was really the spirit with which we sort uh, of launched fund one in 2021 and now, yeah, have scaled it to fund two, have added two more partners, both of who embodied that sort of ethos that you know, really drove us to start it in the first place.

Speaker D: The story I like to tell about the early days of Plaid is, you know, uh, I started the company, I think it was 23 when I started the company, had an amazing co founder, also like equally inexperienced as me. I'd worked a year at Bain. I thought I knew everything about the world. It turns out I knew basically nothing about the world. And we were fortunate to have these two really early angel investors who had founded like big companies and were also just like they were, they were in it for the grind. Like they loved the building of companies and were willing to take our call on pretty much anything. They worked at a completely different industry than us. They had no idea about, uh, financial services. But I could call them to say like, hey, you know, I'm struggling with this hire decision or I need to fire this person or I have this crazy situation with a partner and just the level of input that they gave was, was transformational to the company. And you know, the, the inspiration for Mischief is we wanted to build the same thing it, it, it takes. You know, oftentimes it's just one call at a critical inflection point with someone that's been there before or they can lend, lend the right ear, they can give you the right advice to meaningfully change the trajectory of the company. And it's not to say we're only there for those moments, but um, really having someone that has been in the room where it happens to actually call when you are, when you find yourself in a very similar room, um, that was the, that was the inspiration for, for, for starting the firm.

Speaker A: Lauren, why don't you share more about what you guys invest in or how founders should think about Mischief in the market?

Speaker C: Yeah, I mean I think you know what we invest in at a high level, we're a generalist fund. So we'll do anything that's software. We don't do anything that's capital intensive or holds inventory, but sort of within that bucket, we'll look at everything. We're really more founder driven and talent driven than we are sort of thesis or sector focused. We do pre seed, seed leading round. So Check size is generally between 1 and 4 million. And yeah, I think like the unique advantage is exactly what zone Zach said, our building experience. And I think that manifests in one sort of the way that we're able to help companies post investment and you know, be the bat phone is as we call it internally when something, you know, comes up and hopefully be able to, you know, ask the right questions and you know, offer advice if it's helpful. And I think second too, just the founder empathy that we're able to have allows us to have a, uh, relationship that, you know, I think if you asked our founders hopefully feels really different than other VCs. I think we all know that like even in the best case scenario it's a rocky, bumpy ride, it's not going to be perfect all the time. And so, you know, you can really treat us as a thought partner.

Speaker A: And one thing we were saying offline is that you guys are not doing a ton of capital intensive businesses. You know, we're in an era where, where companies are raising a ton of money for AI companies or American dynamism companies. What do you talk about how you think about capital discipline or what kinds of businesses might not be perfect fits for mischief?

Speaker C: M. We are very, uh, disciplined and aware of how dilution will impact our returns, especially just given our strategy and fund size and everything else. And so, you know, just try to be really thoughtful about that, number one. And I think number two, you know, we as we're more talent driven and more founder driven than, than sector driven, I think we're pretty uniquely not afraid of, you know, sort of going our own way and investing in companies that are a little bit outside of the hype. You know, we certainly invest in a lot of AI companies, a lot of LLM companies, but you know, we try to just be first principle and invest in kind of solid fundamentals outside of, you know, what everybody's talking about and what prices are getting really high and kind of all of that which um, I think sort of leads to the strategy that works for us. There's so many strategies that can work in venture though.

Speaker A: Yeah, Zach, we were talking offline about how people driven your investing is and what sourcing looks like for you guys. Why don't you share more about that?

Speaker D: If you think about sourcing, I don't know in what I think is a somewhat differentiated way. When you look at funds, they have all sorts of sourcing models. They have people that are doing outbound, they have all sorts of stuff. Ours is hyper people driven. We're fortunate that each of the four GPs at Mischief has been in Silicon Valley working for 15, sometimes more years and that's generated a pretty massive network. And our thesis is we want to identify the best people that we know and follow them around when they're ready to start a company, sometimes with our encouragement, sometimes on their own volition. We want to, we want to lead the round, we want to be a part of it. And then, you know, we want to ask all of the amazing people that we know to introduce us to more and more amazing people. And so, you know, we have, we have a couple tools for this, but we do things like, like, if I do say so myself, we, we, we, we host epic dinners and we do these, we do a, it's a group of, call it 10, 12 people. It's a structured conversation. Like we're, we're really good on like the timing, get people in, get people out and you can go really deep in that period of time. And we do a ton of these and then we ask the people that we invited to one to tell us who to invite to the next. And you end up building the network through this process. And we do a couple of other odd things like companies send us monthly, uh, updates or quarterly updates. We thought we should send companies quarterly updates about what we do so you can see a mischief like Q1 update, Q2 update, Q3 update. We send them out to our companies and kind of tell them, hey, this is what we're thinking about. These are the resources we're thinking about providing to you. Like this is the way that we can help. And by the way, if you have any amazing founders, send them away. And so kind of this like very people driven approach, it's netted us a, uh, really lovely sourcing funnel and frankly it's way more fun for us.

Speaker A: Yeah, sending updates of your firm to your companies is pretty clever. I'm surprised more firms don't do that. That's a great way to, to be top of mind and sort of keep them in on the action.

Speaker D: We tend to think of operating the fund like we operate a company. So we came into this thinking about like, oh, we'll take a lot of the best elements of being a founder and apply it to the way that we actually run the fund. This was one that just really seemed obvious, like giving people an update on your progress, inviting them to be a part of it, asking for help when you need help. I don't know, it just felt natural.

Speaker A: Lauren, when you talk about the evolution from fund one to fund two, because going from 30 million to 80 million is a big jump in a bunch of different ways. Obviously, you know, it's. It's much more to fundraise for, but also it's. It's a different strategy. You went from participating to. To. So talk about what that transition was like and how you guys decided to make it, because some, like, box group, you know, stays as a firm that participates in perpetuity. Did you guys know you were going to transition eventually to leading or what did that look like?

Speaker C: Yeah, I think when we started the fund, you know, we always had kind of big ambitions, but I think, like good founders, we've thought about it as an evolution and, you know, seeking validation sort of along the way. And I think even that fund won. At a $30 million fund, our average check size was 200k, which was significantly higher than, um, any of our angel checks. So I think that fund was really about proving that, you know, we clearly had great access to founders. We were able to, you know, wedge a 20k angel check in, but that's not that hard, right? And I think with fund one, you know, it was like, okay, well, can we get a 200k check in? Can we deploy, you know, 30 million and not have to sacrifice at all in terms of, you know, quality of founder, quality of company, quality of deal, all of that? Um, and I think pretty quickly, you know, halfway, at least through fund one, we realized that, you know, that was going really well. We were able to get those checks in. We were really sort of transitioning from being known as angels in the ecosystem to being an actual fund, and started thinking about, you know, what that fund, too, could look like. And I think, of course, when you're growing your fund, you don't want to, you know, change your return profile. And so, you know, certainly thinking about, okay, can we start leading rounds? And most importantly, can we do that without having to, you know, change the bar in terms of the company that we're. We're investing in? And I think there was one moment where one of our best performing fund1 companies came to our holiday party. And after a few drinks, he was like, I wish you guys had led my round. And we all went home that night. We were like, because especially this company, we wish we had led that round. Wow. Like, we, We. We. We have to make the transition to leading, but it is a really different deal motion. Like, I think the types of deals we do now in Fund 2, where we're leading, same, same quality, uh, same, you know, type of company But a really different deal motion that we've had to, to kind of refine and get really sort of up the curb on. I mean, especially just when you meet those companies or when you meet those founders. And we do a lot, as Zach said, to sort of be top of mind and be sort of in front of those founders before they even know that they're a potential founder in some cases. So that's been really fun, honestly. It's been, you know, definitely a new motion, but it's been a blast.

Speaker A: And, and, and how, how, how do you do that? Is it that you're getting introductions to people who may start companies in the future? Is it that you're sort of, you know, because you guys worked at great companies, you're just tracking who's good, who's likely to maybe start something or what does that look like?

Speaker C: Do we reveal our secrets, Zach, or.

Speaker D: No. I mean, look, the, the answer, the answer is all the above. Like it's, I don't know. I don't think there's a, uh, there's not a, there's not a specific secret on this, like, you know, being genuinely like interested in people, spending time with people, being in the network, you know, doing the things that we do. So like the emails, the updates, the dinners, the um, the WhatsApp groups that we create with people. Um, ah, like, you know, putting this all together. Like, you know, we do spend a lot of time with people before they founded companies and we do spend a lot of time in kind of like odd company situations. So actually like two of our investments were spin outs of another company. Both of them, like we were extremely operationally involved in actually generating the spin out. So you know, we, we, we'd known in, in, in one case we'd known the entrepreneur before. In another case we'd actually known the parent company before. And you uh, know, the spin outs were messy and they were hard and they were strange. And I, I frankly don't think unless we'd done, you know, a pretty meaningful amount of operating work before, unless we'd done like M and A in the past, we would have known how to do this. I think it's odd for a seed fund of our size to be willing to step in, in those, in those situations. And then both of these companies by the way, are going to be like amazing outcomes. And so, you know, it's, I think it's, it's yes, the people driven portion of it, but it's also willing to like get in and do work well before you make the investment to help like the company exist. Um, and frankly it's, it's really fun for us to get to get into those weeds.

Speaker C: Yeah, I mean obviously the best marketing you can do for your next deal is delivering on your promise to founders. And I think, you know, especially how we like to engage. We often are meeting the team around, you know, the founder that we backed and that's where the next generation of founders comes from. As, as everybody knows. And we really try to take kind of that long term view and you know, we're probably not, we're definitely not the loudest on, on Twitter in terms of you know, VC voices out there,

Speaker D: but do we even have a Twitter account?

Speaker C: We do, but it's like, it's pretty, it's pretty silent. But I think because of the sourcing funnel of you know, almost all of our deals come from other mischief founders or people that we've worked with in the past. Really, it can, it can work for us.

Speaker A: So yeah, to, to that point do you, it's like if you were uh, these are, you know, not perfect metaphors but maybe you guys are playing more of a ground game than like an air game. If you're not, you know, sort of big on, on, on, on, on social media. Obviously you guys are doing, you know, some great press coming on, on, on the show and others. But how do you think about like does a firm need to have a strong uh, air game as well or can. Is a, is a great ground game getting great, you know, returns great, uh, results for founders and being in great deals, kind of what really matters. How do you think about that to the marketing of a firm?

Speaker D: I think it's hard to say in general. I mean there are so many incredibly successful venture firms. I mean and each has totally different strategies. You think of Benchmark, where they have a website which doesn't say anything and then you think of another firm that has a website that says everything and you know, so it's clear that a lot of, a lot of strategies can be successful. We do appreciate studying other venture firms but when, when we think about what works for us, we try to take a ah, first principles mindset like what is the thing that we're the best at? What are the places that we can have, you know, hugely positive impacts, you know, leveraging the networks that we have, leveraging the operating experience that we have, being really true to that and then ensuring that the people that need to know about it do know about it. You know, the, the joke that we make sometimes is, you know, call your VC at 4pm on a, on a, on a Friday in the summer. And are they going to answer you? Are they going to get on a call with you that night? Are they going to be talking to you 11:00pm that night? And then like you look at our operating experience, you know, that's, that's when problems happen, right? You know, Problems don't happen 9 to 5 Monday through Thursday, entrepreneurs are up late at night thinking about the things that are like, driving them insane. And like, oftentimes like that 11pm call, that's actually what makes all the difference. And so for us, like that's what we're doing, that's how we're thinking. Like, that's when we're awake, that's when we're talking to people. And so if we just continue to be true to that, you know, I think that that that builds the right style of, of, of reputation and relationship with the people that, that, that need to know about us.

Speaker C: My take is like, I mean, it's great to have both a good air game and a good ground game, but you have to have a good ground game, right? Like over time, if you don't have a good ground game, it's going to be hard to have a good air game in the end. So I think, uh, to the first principal's point, that's definitely the most important thing.

Speaker A: Yeah, you have to have a great product. If you don't have a great product, you can't market it. And if you have a good product, sometimes you can market itself if it's that great.

Speaker C: Hey.

Speaker B: We'll continue our interview in a moment

Speaker A: after a word from our sponsors.

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Speaker A: Um, say more about the, the transition from a fundraising perspective. What was it like going from, from 30 to 80?

Speaker D: I mean, Lauren, you can tell the story about the second fundraise. I will just briefly say the first fundraise, like we, it was, it was too easy. Like it was banana simple. I think we called, I think we called four funds. I think we took three, three checks. I think that took us three weeks to get to terms.

Speaker C: No deck.

Speaker D: No deck. Yeah, it's just like super fast. Uh, it's just like it was on the back of an angel track record and we were effectively writing angel plus, plus size, uh, checks. Um, and so it was very straightforward. Um, fund two was less straightforward. Lauren, you should talk about that. You did all the legwork there.

Speaker C: I think the ease of the Fund one fundraise, uh, ended up being a weakness because we hadn't developed that muscle, that motion. And then when Fund 2 came, you know, the market was obviously completely different. We were more than doubling fund size. So it was, it was certainly, you know, something that we had to, to work a little bit harder at. Yeah, I mean, I think it's been really interesting learning what that motion is like, especially compared to raising money for a company. There's things that are really similar. Right? Like you make a deck. In the second case, we made a deck. You know, you think about your value proposition, what your Unique advantage is sort of all of that. But for a fund the process is so much more elongated. It's a, ah, landscape of potential capital providers that is infinitely more complex. You know, I think when I raised for example my Series A, it was like I went to kind of the eight usual suspects on Sandhill Road who did consumer deals and it was all done in four weeks. So yeah, I think this was very different in that way and more opaque and kind of harder to figure out. But we ended up in a really good spot and I think more importantly developed sort of that, that motion and, and understand, you know, sort of how to do a uh, fund, fundraise and that'll really help us going forward.

Speaker A: And was your pitch something to the effect of, hey, we're, we're proven entrepreneurs, we have a proven track record. We, you know, we're in great companies, they say great things about us, back us.

Speaker D: Yeah, yeah. You want to come fundraise with us? Like you've got a doubt. It's pretty straightforward.

Speaker C: Yeah, for sure. Yeah. I mean, I think, you know, none of us have professional investing backgrounds and I think that at first, in our first sort of few meetings we uh, sort of took for granted, I would say, uh, that LPs would understand sort of the unique access and unique, I think, ability to win with founders sort of in competitive situations or just really high quality sort of deals. And I think we really had to learn how to tell that story in a way that LPs could really, you know, understand, wrap their mind around why this was special. And now I'm like, of course that makes sense. They're not on the ground the way that we're all on the ground and kind of understand the difference between, you know, somebody who, you know, like Zach, having Zach on the cap table. This is how we really think about being fund managers, which wasn't, you know, something that, especially in fund one, we had really given a lot of sort of reps to and is obviously a very important part of institutional investing to that point.

Speaker A: I think you guys have figured out something that uh, others could figure out too in the sense of like if you're an iconic founder or a founder of an iconic company, like, like Zach is with Plaid. You could probably raise a bunch of money to invest as well. You probably have great access and you, and, and you know, because founders want you and they're capable and you probably raise a bunch. And you know, founders like angel investing and, and, but often they're, they're busy and so they could also find an One, they could raise money. Two, they could find an amazing team or find amazing partners who would recognize one, just want to work with them, recognize that they have an arbitrage in terms of, you know, getting on the cap table as Lauren was describing, but also an arbitrage in raising capital. And so I feel like there should be more types of duos or, or teams that involve sort of, you know, founders who are busy running these iconic companies who could get leverage from, from a team that's full time investing.

Speaker D: Yeah, perhaps. I think, you know, we're really fortunate in the way that the model has worked out and it's been something where it's been a huge win win for kind of all of us in a lot of senses like speaking personally. Spending time with companies at the earliest stage keeps me fresh, it keeps me learning. I get to spend time with companies that are just thinking about the newest craziest ideas, be it in fintech maybe or oftentimes in fields that um, are adjacent or have good mental models or AI for example, keeps me on the cutting edge of what should plaid be doing with AI. So staying really close to the early stage I think is really helpful for me. But I also don't have time to, I certainly don't have time to lead a deal. I don't have time to even do the level of angel investing that I had been doing before. So in kind of like 2017, 2018, 2019, I've been doing a ton of angel investing. And the upside of angel investing is you get to yes, talk to a lot of companies. The downside of angel investing is that those founders then call you when they're in their worst possible situation and they don't always have other people to call and you don't have a lot of infrastructure that you've built around it. And so you get these weird calls, ah, at, at crazy hours and like sometimes a lot of them will stack up. And so I was just like I was feeling fatigue from the angel portfolio despite the fact that yes, all of the companies that I angel invested like uh, I hope will do incredibly well. And I wanted to be supportive of. There was just a lot of fatigue from, from, from, from doing that personally. And so the concept of partnering up with someone, I mean Lauren, we've known each other basically since we, we graduated college. Nate and Dustin, our uh, other two gps I've known for, you know, I think the shortest is eight years. Um, like all amazing, amazing operators. Dustin basically co founded Cash App and he was a customer of ours for a really long time. So I spent a ton of time with him. Nate was like, this product guru who I tried to hire to Plaid for, like, six years, and he never ended up joining Plaid. And through that we became friends and he taught me all about product, and it was amazing. And so having kind of this group of four of us has created the right level of, like, availability. And also speaking selfishly, insulation for me, wherein, you know, if it's a thing that anyone else can help with, which these are all amazing GPs in their own right, then they do help with it. And if it happens to be something that I've seen before, then I can dive in and be really helpful on it. So, like, one of the examples, I was talking to a company this past week. They have, like, three of their big customers, a really early stage company, three of their big customers are all trying to acquire them at the same time. They don't want to sell the business. They want to, like, somehow make all three customers happy and, like, move on and, uh, keep going really fast. And, you know, I haven't been in that exact situation, but I've been in similar situations before. And so that's one where I can jump in and help and then contrast that with, you know, someone else says, hey, I need to hire a head of product. Great. Like, there are other gps that can. They can jump in and help figure out how to hire a head of product. And if I have something unique, I'll add it, but the infrastructure and the collaboration works really well. And then just again, selfishly, like, I don't do, like, I don't have much time to spend on it. So I don't do a lot of, like, the fundraising first meetings. I don't do a lot of the funds and the fund admin. So, um, I'm very thankful to the, to the other partners for, for doing that part for me.

Speaker A: Lauren, how do you think about best leveraging Zach or, or even just the concept of, you know, someone who's part time but is able to, you know, add a lot of leverage?

Speaker C: Yeah. Yeah. I mean, I, I think it definitely has worked really well, in part because I think of the, the relationship that all of us really have had with each other for, for a while, and there's just so much trust. But yeah, I mean, I think we, we think about just getting the most out of the hours that we get from Zach. We think about, okay, sourcing, winning in special cases of enablement where, you know, the rest of us, you know, maybe haven't seen what, what he's seen and just try to keep it really focused. Like you said, like the fund admin stuff, you know, some of the fundraising, like we'll bring him in kind of at the end, but in terms of kind of the day to day there, that's, that's not the best use of his time. So we just try to be really, I think, thoughtful and strategic. But to your point, I wouldn't, I wouldn't be surprised if we don't see more funds like this in the future. And I think we're already starting to sort of see that. You know, I think if you think about as the asset class has matured, more dollars have flown in. Like the capital raising part is hard and important. But I think it all comes back to do you actually have an advantage with founders and with companies? And I think this model clearly does or, you know, that's our perspective. And so, you know, I think we'll, we'll see more funds in the future that looks like ours. And I really think that like in the next, you know, 10 to 15 years when people are talking about, you know, how Seed has evolved or how early stages evolved, I think this will be, you know, one of the headline stories is, you know, folks who have actually been kind of in the founding seat starting funds and you know, sort of upsetting the, the incumbents.

Speaker A: Zach, why don't you say more about the transition from angel to institutional as, as others potentially consider the trade offs,

Speaker D: the shift to an institutional model. I mean, we actually debated it quite a lot. The initial conversation that, that Lauren and I had was should we just, hey, put our, put our own money together and the two of us just do it completely ourselves and you know, Lauren can help us more of the logistics and be more or less full time on it and then we can kind of just do it without any external institutions. The, the, the real thought for us though was we wanted to be able to scale it up a little bit. We wanted to be able to do bigger checks and we wanted to be able to have deeper relationships with the entrepreneurs. So that's why we ended up doing the first fund. And that's actually why we ended up shifting to the, the, the, the lead investing. It wasn't only because we saw the opportunity in the market, it was also because we loved the depth which, with, with which we could go with founders. And so I'm, um, I couldn't be happier about where the fund has landed, but it was definitely kind of an, an evolutionary process to go through the steps. It, it tends to work Very, very well for us. I think our journey was a unique one and little by little we found improvement by improvement and we've ended uh up where we are today.

Speaker A: Say more about the firm construction. I'm curious how you guys thought about companies per portfolio follow on strategy. And just to uh, give a little anecdote, when I was at Village Global, our first fund originally the majority of our portfolio construction was geared towards follow on but then we went through sort of 2021 where companies were getting marked up faster than the progress was, was, was sort of demonstrating and we ended up shifting a majority towards first checks I think almost like and uh, towards towards first checks. How have you guys thought about first check versus follow?

Speaker C: Yeah, it's evolved a bit over time. So in fund one it was no, no reserve strategy essentially. I mean we, we do recycling, we've done recycling for some follow on opportunities but really focused on kind of first check and I think that was sort of where we were at at the time. And even Fund 2 is primarily a first check strategy. We have a uh, small pocket for kind of follow ons and we are very aggressive about recycling, probably more aggressive than almost any other fund out there. But yeah, I think you know we feel like our unique access is really at the earliest stages and you know that's where we see when we do our fund modeling it's, it's hard to do follow ons that aren't dilutive to return returns at least in our opinion. And I think you know in, in the spirit of sort of delivering a unique uh, value proposition both to LPs who often can't get as much early stages exposure as they want especially in kind of the current landscape. You know I think have, have really focused on kind of first first checks as, as our primary, as where all the, the primary capital is going.

Speaker D: First checks are more fun.

Speaker C: Yeah, first checks are more fun totally.

Speaker A: And how about in terms of ownership, where have you guys landed there? And are you sort of. Some people say hey we're not doing anything above this valuation. Some say hey we'll do. You know we're evaluation open but we have to see 100x potential. Where do you guys sort of net out there?

Speaker D: Philosophically we have a deal box and Lauren can walk through it but we also, we want to always be looking at the outliers. We want to always be looking at the unique opportunities. You know we, we, we do seed and uh, pre seed but then every now and then we'll look at a series A and you know the bar is higher and the bar is different. But there are very unique cases in which, in which it makes a ton of sense. Again going, going back to where we started. It's incredibly people driven. And so if we find an amazing founder, we want to find a way to partner with them, whether in the, the early stage, whether a little bit later. You know, even if we're not able to invest, we still want to be their friend, we still want to be helping them. And so we kind of start with the people and then, and then work back to the opportunity. Lauren, do you want to go through the, the, the deal blocks more specifically?

Speaker C: Yeah, I mean early ah, stage like you know, pre seed seed, maybe some earlier Series A's we'll look at. But I think, I mean what Zach said is exactly right. I think we have a uh, box and you know, we know sort of where the market is pricing deals in those stages. But as we always say, you know, rules are not meant to be broken but meant to at least be evaluated should there be a unique situation. And I think, you know, our job is to figure out when there's opportunity, uh, to potentially, you know, go outside of that. And so, you know, but yeah, I mean I think that's sort of the art of especially early stage investing is knowing kind of when to break your own rules and deal box. But we, but I think, you know, we have sort of a framework in place so that it's harder to do that and we're not just, you know, willy nilly, you know, getting outside of that.

Speaker A: So we've talked about fund one, we've talked about fund two. How do you guys think about the future for mischief? Because a lot of firms who've demonstrated success like you guys have, have their option of, you know, some say, hey, we're going to stay at this 80 to 100 like you know, founder, collective or first round, a bit bigger, stay in the sort of seed game. Others say, you know, okay, we're going to go to a, but we're going to stay, you know, reasonably small like uh, a USV or benchmark, going to stay disciplined. It's sort of 400 or wherever they're at now. And then some say, you know what we want to go, we want to go big like a 16Z or general catalyst or thrive and be able to play at every stage and be able to have the, a fee base that can justify, you know, having a big and meaningful team. And they're just kind of, you know, they have different cost of capital, they're kind of Playing somewhat of a different game when you guys think about the future. You know, obviously you're you know, taking it step by step like you mentioned Lauren. But how do you think about which you might prefer to be?

Speaker C: Yeah, I mean I think like you said, I think we're taking it step by step. I mean right now we have four GPs on an $80 million fund. There's a lot of solo GPs on an $80m fund. I think we feel, you know, definitely capital constrained which isn't a bad thing right now just given the amount of GP sort of per dollar we have to allocate. So I think you know, we'll uh, almost certainly grow a bit. I think our, our back to the first principles thing. We never want to be in a situation where we have too much capital and we don't know where we're going to put it. You know, we don't want to be doing a ton of outbound or you uh, know just over our skis in that way. And I think you'll see us stay really true to sort of what we think we can responsibly invest or invest with sort of the return profile that you know, our LPs want to see and you know, most importantly what we want to see. But I do think that means growing a bit just because I think we you know, we want to be able to offer this product to more founders and we you know, certainly have, I think the capacity to do so.

Speaker D: We're right now in a very capital constrained environment where we specifically the fund where we're like, we're walking away from way too many deals that we really should be doing. So I think growing a bit makes sense. But like we, we love the space. You know, we, we, we, we, we, we love the, the model of getting to know people a lot. We love you uh, know the, the, the stage of company that we get to invest in. I, frankly I, I love the size of our team. Maybe, maybe we'll grow the team a little bit but it'd be really hard pressed for us to do it so you know, growing the capital base. Yeah, a bit. But staying, staying fairly true to where we came from.

Speaker A: Yeah, it is interesting. I have, I had a, A, a friend who, his strategy is co investing with other multist. I guess he himself has somewhat become a multi stage firm. But it's interesting because his sort of take was that if you look at a lot of the great seed deals over the last 20 years, a lot of them were actually done by multi stage firms or firms that become multi stage since and obviously founder collective, first round or other firms have done amazingly well and first rounded Uber and stuff like that. So there's a lot of counter examples. But it is, I'm curious how you think about sort of multi stage either, either for yourselves or just the uh, phenomenon of. Because multi stage because sort of the uh, trade off is sort of signaling risk. Do you have time to focus on it, you know, stuff like that. But then there's also, they can be less sort of valuation sensitive, they can put more capital and they, you know, have more resources to sort of pitch themselves to entrepreneurs. How do you think about that?

Speaker C: I mean as you said there's, there's advantages. You know, I think especially you know, we see sometimes first, first time founders or you know, less experienced founders, really want and potentially really need that brand for kind of recruiting, etc. But I think that, you know, as Zach said, like it's really important to us that the founders that we invest in get our attention, get our care, you know, that we deliver on that promise every single time. And I think that we're able to do that just because of the model. I mean it's just a totally different strategy than, than what multi stage has to offer. And you know, founder, I do think the signaling risk is very real. So I think that that's definitely something that early stage founders should, should think about. But you know it's always, always a trade off.

Speaker A: When you talk more about where you see the asset class going in general, are we sort of bullish on more, more capital coming in or do we think it's going to be more constrained environment, more, more broadly? Some people also say hey, is, is the, is the asset class going to just bifurcate even further or barbell even further? Whether the aggregators just keep on getting bigger and bigger and, and then there's this kind of like specialization on the, on the earlier stage. But it's kind of like caught in the middle, you know, firms caught in the middle or maybe in a tough spot. Sort of the 500 million to 2 billion, you know, versus the sort of, you know, 8 to 10. And on the one side and then the sort of, you know, 50, 100, 150, um, on the other. How do you think about this?

Speaker D: I'm, um, not sure I'm going to have like a specific prediction on where all this is going to go. One of the things I'll say is when we're looking at a lot of companies these days, the capital requirements are far less than they Used to be, you know, we've always said this in venture. You know, had I started Plaid, I started Plaid in 2000. Had we started Plaid in, you know, 2002, the capital that we would have been required to like buy our own servers and rack them and run our data center and like, that would have been way higher. So, uh, the cost of starting companies has gone down. Now you're seeing, you know, 15 person companies with $20 million of revenue because they're, they're building these new AI tools that are growing incredibly quickly. They're, they're using AI to get a lot of leverage in their cost base. And so I think it's entirely possible that, you know, the cost to build a company is going to come way, way, way down. I think what that means is like the rounds in which the companies need money are going to be very different than the rounds in which the companies are just willing to sell a little bit. So there's a round in which you got to really build a thing, you need the capital to get off the ground, you got to uh, uh, pay your AWS bills, pay your OpenAI bills, so on and so forth. And those are the rounds that we focus on. Those are the rounds that uh, the early stage will continue to focus on. And then I think there will always be a lot of late stage capital at that point. If these companies are profitable or they don't need the capital necessarily to scale operations in the same way, then those are much more financial driven transactions. And I think the type of person that's going to end up on either side of that divide are very different. I think you'll see more operators probably at the early stage. Clearly you do see more operators acting as angels at the early stage. And at the later stage it's much more of a financial investor. So I think the firms themselves may well bifurcate even further.

Speaker A: That's well articulated. Something you hinted at a little bit earlier as you were mentioning. You've built some infrastructure at the firm, slash, you know, plan on building more and you guys take your first principles approach at this. What does that look like for you guys? Or besides the gps, how are you thinking about where is the best place to allocate dollars? Right. Some people are like, oh, we need that, we should focus on talent. Or other people are like, oh, we should focus on, you know, marketing the firm. Other people like, oh, we should focus on helping our founders get customers and building a market development team. How are you thinking about where, where is the best place to, to allocate dollars.

Speaker D: So the short answer is it's a very active conversation right now. I'm not going to pre announce anything yet. What I will say is we probably orient less towards marketing of the firm, as you can tell, based on my surprise that we had a Twitter handle. But we do place a, uh, high value on building the things that our companies need. Where we actually think of it tends to be a little bit differently. So it's like what are the repeatable issues that companies have that we can build a kind of product for that helps them kind of like unstick themselves? So like how to recruit? Like I've done a, uh, zillion trainings on how to recruit within plaid. You know, I spent a lot of my time on recruiting. I love recruiting. I think it's one of the most valuable things that founder can do. Um, I also built a training that I can now go through all the mischief companies with. So, you know, you're thinking about making your first hire. Like how do you actually run a good recruiting process? Like, how do you keep a candidate warm? How do you do sourcing? And so it's like, how do we, how do we productize these kind of like elements of early stage company building, turn it into something that we can kind of knowledge transfer fairly quickly? And then sure, yeah, of course we're, we're, we're, we're a sounding board if you have questions on it. But be it recruiting or, or thinking about complex deal structures or setting up your first sales team, so on and so forth, like we try to build these like little modules, whether they're mass trainings or they're just one off calls or, or, or they're like docs that we've written, so on and so forth that can kind of help people get through these things. Uh, like building a product that has product market fit is insanely complex. Like I don't think I can teach anyone how to do that. Uh, it's certainly not in a repeatable, predictable way. Building a recruiting team, building a sales engine, like all of those things. Like yeah, they're complex and hard, but like those are the things that actually, you know, you can learn the skills fairly easily. And so we try to think about, you know, what are the things where we can help our founders jump meaningfully ahead by kind of getting out of like, by not trying to reinvent the wheel. And like, you should put all of your effort into inventing your product. But you know, recruiting is not uh, an easy problem. Um, but there are a lot of people that have done it effectively and we can, we can help teach them that.

Speaker C: We also try to ask them, you know, what, what would be valuable. We do surveys every six months of our, every six months for our founders where we ask, you know, where, where could we be helpful and try to, you know, think about where we deploy dollars against that?

Speaker A: That makes sense. Does that give us a little bit of a preview? What are the most common mistakes you see founders make in recruiting? Or where could a little bit of time with you guys change something that the founders are doing? About, like, what's low hanging fruit?

Speaker D: Yeah, uh, let's take recruiting specifically. It's not that founders are making mistakes. It's oftentimes that they just have a lot of either indecision or fear doing it themselves. I'm a big believer in cold sourcing. I think if you ask almost any engineer in Silicon Valley, sometime between the, like 2014 and 2020, you have an email in your inbox for me saying like, hi, I'm Zach, founder of Plaid, and like, I'd love to have you come join, join the company. So I'm a big fan of doing that, But a lot of people have a lot of discomfort sending an email, putting themselves out there, like, kind of like making that push. So it's like, how do we get people through, through the discomfort and into a place where they feel like, all right, well, now I know the tools, the things that I need to do in order to recruit, or like, how do you refine your company pitch? Like, every recruiting call I do, the first three minutes are the same. Whether, even if you've worked at the company before and I'm recruiting you as a boomerang, I'm still going to give you the pitch. Um, and the pitch evolves little by little, year by year. But how do we hone that pitch? How do you get comfortable saying the same thing? At this point, I could probably just record myself and just play it on these calls. So there are some of these basics that if, if you just kind of do them, it'll make everything way more efficient. You know, finding the way that, like finding the right culture fit for talent. I can't, I can't teach anyone that like you, you got, you got to figure that out yourself. But you, uh, know, putting yourself out there, like having your pitch honed, like knowing how to make an offer, like we do things like help with offer letter templates or, or comp ranges or things like that, like you're trying to make an offer, like, we'll help you figure out the comp for that person. That kind of stuff is all fairly straightforward.

Speaker A: Keith Verboy has a line that he says something like if you're not firing anybody you've hired, you're not hiring enough or you're not hiring fast enough. It should be, it's almost like investing where you're taking risks on people and not everyone's going to work out. How would you react to that?

Speaker D: I mean I think philosophically in a company you should do as good a job as possible. Hiring ideally you, you filter out the people that aren't coming to fit on the way in the door. But you do have to take risks and your filter process is not perfect. So you end up hiring people that don't work out for one reason or another. And you do have to fire them. Hopefully you can do that in a nice way and you can do it fairly quickly and in a way that has, has, has, you know, a respectable outcome for everyone. But that's, that's just a, that's a part of company building. You don't know, no one ever bats a hundred. Um, um, and like oftentimes ah, roles change. So you know someone who is amazing in one role, that role you just don't need anymore. You put them in a new role, it turns out they don't work there. So you know, this happens a lot I'd say in early stage companies the bigger hiring mistakes that we find are people over hire. So you know we, we, we talk with a lot of founders about like wanting to hire like a head of sales really early. And that is right in a few cases. But in most cases it's actually better for the founder to figure out how to be the head of sales and kind of like to build. I think of it like the battleship. So if the founder is the battleship, you have a battle group around them. You build all the other pieces that help you sell. So maybe you have an SDR that's helping you, maybe you have a biz ops person that's helping you with it. And so sometimes we find that these founders will overhire and then the other big filter is people don't filter as much for culture fit and they're in such a rush to hire and they don't think about is this person going to be great to sip aside for 16 hours a day, six days a week, seven days a week and you know, then it doesn't work early. But you know, I think every company has to make some of these mistakes themselves. You know, in as much as from, from the mistress perspective. We'd love to help and like, we'd love to have these companies make as few mistakes as possible. The reality is you got to, you got to learn to take your lumps and kind of get through it and come out of it stronger. So, you know, everyone will have these issues.

Speaker A: Yeah, that's well said, Lauren. Zach, this has been a great conversation for people who want to learn more about mischief. Where can you point them?

Speaker D: Mischief VC is our website or you can email us. It's the first name@chief VC.

Speaker A: Awesome. Zach, Lauren, thanks so much for coming on the podcast. It's been great.

Speaker C: Yeah, thanks, Eric.

Speaker D: Thank you for having us.

Speaker B: Turpentine VC is a podcast from Turpentine, the network behind Moment of Zen and Econ102. If you liked the episode, please leave a review in the Apple Store or rate us on Spotify.

Speaker D: Spotify.