First Funders

FIFU 11 - Arian Ghashghai
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[00:00:00] Welcome to the First Funders Podcast. Today we have Arian Ghashghai, the founder and GP of EarthlingVC. And before we get into the podcast, I wanted to tee up something new we have this week.

Welcome, Dan Hightower, a new co-host!
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Shaherose: We have a guest co host coming in, a friend of mine, Dan Hightower. And I'd love for Dan to introduce himself.

Dan Hightower: Sure. Happy to I'm Dan. I build product at AngelList. Before that I started a couple of companies, sold one of them and started angel investing after that first one. So happy to be here.

Shaherose: So with that, what's really fun about this podcast is all three of us know each other from something similar. In [00:01:00] 2020, 2021, a friend of mine who was running a very active syndicate on AngelList, was looking to get help and invited me to join a crew of people.

And Dan was already on this founding crew of something called The DVC. And over the years of doing that, Arian joined. And so I know that I haven't had the chance to do an investment with Arian, but I have with Dan. But it's kind of fun to have people together who've been on group calls together looking at deals.

So with that's a bit about how Arian and I knowand the time that I met you, you were thinking about your next steps. You were at Meta investing on the side and I went off and had a baby and then I came back and you're like, dude, I have a fund.

Arian Ghashghai: Yeah.

Shaherose: And we've kept in touch And I absolutely love what you're doing. Really taking that brave feat to just say, Hey, I'm going to launch a fund, like in the most interesting of times, both economically and from a technology standpoint.

And so with that, I'd love for you to introduce yourself and maybe talk about how you also got [00:02:00] into investing.

How Arian got into investing: Meta, friends, and gummies
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Arian Ghashghai: Yeah. So, just sort of taking off the top of that, I think kind of working back from the front briefly and, I think I'll just try to do it fast so we can just double click on whatever's interesting. But so currently now, yeah, small solo GP pre seed fund investing. I describe it as a bunch of things.

I mean, I generally call it like the next paradigm of digital tech, but like concretely, we're like focusing on VR, AI, and robotics and all those things intersect because my belief bottoms up from Shaherose, as you mentioned earlier. I worked at Oculus before as an AI engineer. Kind of had a built a very bottoms up thesis of that's kind of the backbone of the future of computing and so that's where investing now and it's been a lot of fun,

so in terms of like how got there. So for me, I think the origin is I. dropped out of college and started a company. And so did that for two years, company failed, went back. of course, through being a founder you get exposed a little bit to the whole VC world and that side of the table, how things work.

And I think one of the takeaways I had from my post mortem on that company [00:03:00] failing was like, I hate being a founder actually, but I like startups. Like I like, the missionary aspect, , you can influence the world, ? And from learning what investors do, I felt like they do what I'm, I think I'm better at, but because one of the failings I think I would, the company was. I sucked at being very vertical. Like I was always like, what's the new framework? What's going on? Right. Like, like really looking at things at a very high level.

And so I just felt like, maybe I want to try this investor thing. Cause I think that's a lot of what they do is, kind of looking at markets more broadly and things that are going on and making bets within that kind of going in and out again. Right. I just felt that was more like my style.

So, fast forward, I ended up at Facebook. You get disposable income all of a sudden to just YOLO at startups, right? So Started doing it right there because I always kind of knew I wanted to do it and you know So I did a couple of deals at the beginning like let me see if I actually like this I get my thesis is right And I freaking ended up loving it.

[00:04:00] And like first couple of businesses that I invested like spent a lot of time was like very involved And you can obviously dive into those because I think they might be It might be unexpected given what I've talked about so far and like what I'm obviously doing today with the fund and all that, my professional background.

But yeah, I just loved it and just decided, you know, wanted to do it a little bit more seriously. And, then a sequence of things happened to, running syndicates, joining DVC, like you mentioned, and then ultimately feeling like I kind of have to do a fund to kind of keep going.

And so it was more of just like a natural progression of, I like doing this and I just want to keep doing it and it's just like you constantly have to like up the game, right? And you kind of end up here.

Shaherose: How did you just, you're like, I just started investing. Sounds like, Easy, right? But like, were you writing personal checks? How big were they? How were you sourcing your deals? I mean, you were at Meta. First of all, love, love the thinking, right? Hey, I'm at Meta. I have disposable income. Let me see if this is even what I want to do.

And I had the same thinking. And I think some of us have sort of thought, Hey, [00:05:00] on the side, let me test this out. But in reality, when I talk to very fresh folks who haven't written their first check, they don't know where to start. So just for the audience, tell us how you actually got started.

Arian Ghashghai: Yeah. I mean this is it's a lot of serendipity, right? I think is the way it was for me, right? Because I knew like to be honest I think until I wrote the first check my general idea was I have to build a company at some point, sell it for 500 million dollars, and then you know, you do Shark Tank, right?

Like, it was kind of a bit of like what my idea was, right, at the time. But so the way it came about was, I mean, to make a very long story short, like I went to college at Georgetown and so a lot of my college friends and stuff went into, investment banking and private equity and that sort of thing.

And one of my friends who's actually he's a, ironically, like a VC at NEA now, but you know, he was just in PE at the time. I think he was actually still banking actually at the time. Like he was, definitely not in VC in any case. Had a friend that was doing basically private equity investment at Blackstone, I want to say in [00:06:00] CPG companies.

And so part of this guy's job, of course, was to go source all kinds of different companies. And there's one company he found that was totally for Blackstone, that he put personal money in because he kind of knew the founder somehow. I don't know. I don't remember the exact backstory. And so anyway, that went to my friend and then my friend came to me, right.

And it was also like, Hey, I know you're into the startup stuff. Cause we talked about it, like want to do this, right. It was basically this like CPG company. Yeah. They're doing like better for you gummies. They're doing really well, actually. Like, it's like probably one of my best investments to date.

It's like, and I was literally, my thought process was, I don't know anything about CPG. I don't know anything about this industry. And we were like the first check. This was like, he was trying to raise, I think a hundred grand, like a million dollars post or something really early deal. And so like, we were like 20 percent of that round, like me and my friend both ended up putting 10K in.

And again, I had no idea. The only thing that I was like, I tried to be analytical, but at the end I was like. This guy like made like a CPG company in Canada before it was really [00:07:00] successful, right? But he got screwed over somehow. So, but basically he knew how to do it. He was just like, I just need the money and I know how to do it.

And I got really convinced that I'm like, this guy's just a legend. Like I have no idea what the hell he's doing, but I just think he's going to figure it out. And I would say to date, like. It's still early in all of this and if we're any good at this or not, right? But like, definitely one of my lower concern investments.

It also happens to be my first one and probably the one I did with the most like primitive thought process ever. And I think that's a trend that I think I will come back to, like, I'm teeing this up for a point I probably want to make throughout this podcast that really just like find legendary people and just give them money basically, right.

It's really like, you don't have to overcomplicate it. But yeah, I mean, that's kind of the origin story. And then I went into that investment and I I was like the AI guy, . And so there are a few other investors in that company that, we're of course doing more private investing as well.

And so they were like, Oh, let's just send you like stuff that we see. And so you started, I started getting some [00:08:00] deals from some co investors in that company. And basically that's how it started to kind of spiral. But I think like in hindsight the point I would caution there is I definitely like spent a lot of time on that company when I invested because it was my first one.

It was the only thing that I was like, I don't know if this is going to come again. Right. And for me it was fun. Right. So I was like, I got pretty involved, like. This was during COVID even, like there was some CPG conference or something. The founder's Canadian, so the U. S. didn't let him in and like, I ended up going with another investor to like represent the company at like this thing and like pitching the company like at this like expo and stuff.

Right. So I got like pretty bold. And I think that was actually like foundationally at the beginning, which helped start the flywheel of like people sending me deals and. Having a reputational founders. Cause I think it's a referral business in the end of the day. Right. And like that, I think is an important thing to note when you start that, like, it doesn't really matter what you were doing before, but like, you have to kind of build your reputation as an investor.

And part of doing that is just like [00:09:00] genuinely being like, First of all, not being an asshole, I think it puts in the top 10%, but then really being prepared to do the work even as an investor, I think like kind of gets you further and starts to flywheel.

Invest in the top 1% of founders
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Shaherose: I love that. I love that a CPG deal kind of opened you up to AI deals. Like what an interesting bridge. I wouldn't have

expected that.

Arian Ghashghai: Yeah. It's, I mean, because to be honest, when I started doing it, right, like I have a very clear thesis now. And like, fortunately that started to, cause I think at some point to sort of jump a little bit forward, right. I started seeing more and more deals, right. I was like, I do want to shape my investing around the things where I know I'm very, like, good at, and it's also intellectually interesting to me because it's, things that I do and where my professional background is.

And so I feel like that's something I, like, started tailoring once I started putting a lot of reps in on just a lot of, like, random assortment of deals, right? Where I was like, okay, I know where I want to spend my time and where I'm going to be good, and , I think what the intuition of that was, like, I have a lot [00:10:00] better idea of now than at the time, right?

Because at the time I was like, oh, like, I work in VR, I should invest in VR companies, right? Like, I think now if you look at it from the perspective of, like, how to win at doing this, like, I think the means might be true, but, like, the ends of what you're actually trying to achieve is different.

If, It sounds a bit nebulous. So basically the way I put it is the thing that I've realized through doing this and like, this is also like true with the CPG company. I think one reason that's actually worked out well for me is because I happened to coincidentally stumble upon a guy that's just like probably top 1 percent talent in that industry, right?

Like, I don't know how many people you could have backed at the time. that had this much experience and this much chip on their shoulder at the same time to start a business in that space. Right. So I got lucky with that, but I think that's one of the reasons that's worked out now kind of going forward and saying, well, I invest in VR companies and, generally VR adjacent stuff.

Like, sure, I can sit there and say, I know a lot about it. I can have good conversations with the founders. I can win deals because I'm like one of the few operators in that space that actually [00:11:00] invests and any sort of institutional level. But I think The real reason that actually works. And this is something that I think about more and more.

is, I think as an investor, your job is to invest in like 1 percent founder talent. I think you should think of it this way, that my job is to repeatedly invest in like the top 1 percent talent of founders and have a repeatable process for that or angle for that, that I can do that.

And they kind of allocate my resources in a way that it would return well in the Monte Carlo experiment, like whatever it is that you're trying to do. So, that part obviously with the fun, that Monte Carlo part is just like portfolio construction, right? Like that's, you plug in variables, like okay, this, the simulation brings, gives me a 5x or 3x, whatever, it's reasonably plausible.

On the other side, it's like, okay, how do you access 1 percent talent all the time? And so for me, I think I realized that, it was just like, okay, my angle to just accessing those people is if I invested in VR. Like that's just where I'm going to meet really smart people. And so that's actually what it ends up being is like, [00:12:00] It becomes less about, , the feel to some extent, but more about, like, what is just the process that I create for me to funnel in the top people and have access to them, right?

And so, I think now that happens to be VR, right? And I think, , that's always something that subconsciously a lot of investors are doing. But I think particularly over the last year, it's become more obvious to me that's actually what the end game is. And so there's things I think to be honest about, right.

And it's why you see a lot of good fun ones that start small and pre seed they crush it. They go five times bigger, they go to seed. They can't win anymore because it's not a formula that they have as a fun tax, as top 1 percent talent, . Et cetera. So like, I think that's really what everything ends up just kind of boiling down to.

I know we, I kind of like completely. One off on a tangent there. But, you

Shaherose: We love tangents. We love rabbit holes.

Um, Maybe a quick follow on is like you said, you, you did a whole bunch of investing before sort of converging on the area that you've converged

on. What were your check sizes? Do they remain at the 10k level and how many before you're like, [00:13:00] okay, this is a space I'm going to focus on?

Treat your angel investing fund as a portfolio
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Arian Ghashghai: one of the regrets that I definitely have and I think for anybody watching this, that is starting is like really thinking of your own personal angel investing as a fund portfolio. And I think you've been in the same terms like, obviously, like you're not literally dealing with the same thing, but like, I think the same principles apply in terms of like how you're building your portfolio, which means like If you're going to invest, commit to the idea of, you know, you want to invest in at least like, let's say you invest in pre-seed probably at least 25, 30, if not more companies than that, right?

Like otherwise the probabilistic chances that you return money is small. You probably want to be consistent with your check size. Like to be honest, I didn't do that, right? So, I put 10k maybe in the first couple of deals that I did that I wanted to do more, but I was like, well, I can't put like 10k into like 20 companies at once.

Right. So, let me write like a 5k check into this one. Like probably not the best idea. So it kind of was all over the place for me personally, but that's also like I came at this from like, I'm [00:14:00] like building the plane as I'm flying it. Like, I never even thought about let me Google stuff or like that, like even looking at stuff like this.

And podcasts like this where, you learn a little bit about how to get started, or like what Hustle Fund is doing, right, with like the Angels. I didn't do any of that, I was just like, I'm just gonna make it up as I go, right. So it wasn't really until I joined this, like, On Deck Angels program that I actually kind of started thinking about things in more even on a personal level, like institutional terms, and like, really being a bit more professional about it.

But like definitely advice I give to anybody is like think of it that way, like what can you realistically commit to for it to make financial sense for you? And then work backwards, right? Because you can invest 10k checks, you can invest 25k checks, you can invest 2k checks, right? It's just like, I think you just want to be consistent with what your strategy is.

Which again, I didn't do and I think that's something that I regret that to some extent is biting me in the ass a little bit now, but you live and you learn that way, I guess.

Shaherose: For sure.

Dan Hightower: Yeah, thiss is a step back. And it's a, good question to ask because here you are, [00:15:00] Oculus engineer, now GPing. The question is kind of simple, but I'm really interested to hear what you have to say. It's, why this and not Oculus 2. 0 or something along those

Arian Ghashghai: So you're saying like, like basically like why like do VC versus like, hey, I have like a background when I'm like a build a company or something like that?

Dan Hightower: Yeah, like the purpose behind all of

Arian Ghashghai: it

Yeah. Well, I think it's funny because I would say that this has been like. In my, like, when talking to LPs and fundraising, it's been like a very big question that I've gotten, right?

Because my trade, obviously, I work within, like, Meta Reality Labs and worked on, like, the ARVR stuff, like, kind of product wise. But, like, my trade is, like, I'm an AI engineer, actually, right? So I built models there uh, like, AI Infra and all this stuff. And so, of course, when I started raising the fund is, like, was right when, really, this, like, AI hype bubbled.

So really, a lot of people ask me, we're like, you could easily start a company, raise like 5 million bucks, right? Like versus like raising a fund right now, which is like way harder [00:16:00] than raising that for a company right now. It's like, and you have a great background. So why wouldn't you just do that?

And I said, because I tried doing a company once and I hated it, right? It's like, I explicitly don't want to do it. Granted I'm starting a different kind of company now. Right. But I like the operations of this better and it's just what I want to do it. Right. And so that's kind of like the very like shallow answer to it is just like, I just enjoyed my time more doing this than I did when I tried being a founder.

I think the other thing is like I, even like, why did I end up at Oculus and do AI and all this stuff in the first place? Right. I think like that's sort of where it starts. And so I, like, I actually learned. Let's start dabbling in, well, back then they called it machine learning. Now they call it AI.

It's tomato, tomato. Right.

Marker
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Arian Ghashghai: When I was building the startup that I mentioned, and I had to build like, a ranking algorithm and stuff for it. And it was used to start playing with models. And anyway, I was like, I had this moment where I was like, I think that this technology will be pretty transformative.

you know, This was like 2014 or something. Right. So it was still like fairly primitive to what you have. Now but I [00:17:00] can see where this is going and I want to learn it because like, frankly, I'm actually scared shitless of what this could become. And to some extent, like you're starting to see that rear its head a little bit now.

With VR, I had like a similar thing. So I actually went, I got hired by Facebook to work on integrity systems, right? So because my background is actually natural language and that's what I got hired for. But I tried the Oculus headset like the first week I was in the office there and I was like, actually I want to work on this.

Like I had a similar sort of like aha moment where I'm like, I think this is going to change the way we compute. Again, it's so very rough. It's so very primitive when you can start to see where, like, this is going. Right. And I want to be part of that. There was some practical considerations to that as well in terms of like hedging and taking some asymmetric bet within a corporate career, but that was like what I was very motivated by and so the kind of theme with this was always like, I'm pretty convinced that we're on this precipice of like transformative technology and I want to play a role in that.

So that part was always very clear. I know I don't want to be a founder, but on the flip side I'm also [00:18:00] like, for me personally, I don't want to sound Like sanctifying myself in any sort of way. Right? Because it's really not the point. you know, Like particularly when you guys pre-seed really early, like there's to some extent, like you are a bit of a signal for saying like a company.

should exist and this is a good thing and we should back this and not. So you're almost like a bit of a judge to some extent or a bit of a gatekeeper. And like, particularly cause I think like with the stuff that I'm investing in, actually there's a lot of downside risk if done poorly. To me, it actually feels a bit missionary to be responsible with like driving kind of that technological progress for it.

Because to some extent, like I'm not, obviously not the only one, I'm not And I shouldn't be, but like I have some say in and some vote in like, what technology should exist? Like what should we have? Right? Like, and again, I don't wanna say like I'm the bastion of virtue or anything like that, but you know, I'm trying to be responsible and that to me is very exciting.

Right? And like, to some extent, like, sure you can do that as a founder, but it's like breadth [00:19:00] versus depth, right? And for me, like breadth has always kind of been more interesting than depth in that sense. And so that's what, at least for the time, I feel like very comfortable.

And like, this is what I really want to do and spend my time on. And to me, it's very fulfilling beyond just the, oh, you make money and, hope to return your fund 5X and whatever, right. But really like, really at a very deep level actually enjoy the outcomes of what I'm doing.

Dan Hightower: Well, I mean, hopefully it all aligns, right? The stars align in, purposeful uh, approaches to how you spend your time and responsibility all align and create outcomes.

Arian Ghashghai: feels like a magnus opus to me in many ways. That's what I always kind of describe it as. It's like, okay, like everything I've kind of done in my professional careers affected like many, even small things, right? Like I think manifest in like being a GP. I mentioned a lot of stuff, even like smaller trends in my life that I've learned about myself that I just like to do, right?

Like, like I've always enjoyed like. Mentorship stuff right you know I was always like a TA it was a TA in college I like tutored kids in high school So I was really enjoyed [00:20:00] that kind of thing and you know we're kind of like Mentoring supporting people figuring out what they want to do like I coached like my when I was in college I coached my high school basketball team like the assistant coach and stuff I always liked doing stuff like that like I did it not because I was like I need money or something but because I just like doing that sort of thing and like uh I sort of think that the investor founder relationship is like very similar in that sense where like, you're kind of just like a support system to some extent, a lot of time to founders.

And so I like that, right? Like funnest job for me actually, it's just the portfolio stuff. Like, talking to my like founders I've invested in and, a lot of times you just need to give them space to vent and just say whatever they want to say. And, being a founder is hard, right?

so I like, that stuff, you know, for me, it's not work. Like people always ask me like, well, so how much time do you allocate to portfolio? I'm like, I don't know. I just text with founders all the time. Like, it's just not, it's not really, I don't even consider it work. Like I'd be sitting at home eating dinner and I'm just like texting founders, right?

All of the like, they're like friends to me. Right. So, so that's like another, just like small detail of the job [00:21:00] that like. It's a big part of it, but an important part of it, but for me, it's just natural. I like to do it,

On realizing deep tech was going to change everything
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Dan Hightower: and hopefully, you know, where you spend your time is lucrative as well. So like, if I had to ask you a related question what's your best investment so far? Like returns wise, the hard question.

Arian Ghashghai: Yeah no. I know. So I was going to say, cause I saw that in the notes, that I was really like a lot of the things I'm like, yeah, I kind of know how to, what to say here. Like, this is one where I was like,

Dan Hightower: And I realized I asked you a tough one cause you're a pre seed.

Arian Ghashghai: Yeah. I mean, so, so like, because there are two ways to put it, right. It's saying I'm still too early in this to actually have, I have like a 250 X exit where I can say that was a great investor. I am not there yet. Right. I think, but so the way that I, I think I break it down is that I think as time goes on, I start to develop a bucket of like where I think the floor is just increasingly higher of where that company is going to go.

Like Like, of course you can always have black swan events to kill a company. Right. So like kind of that aside, but in terms of like, This is an increasingly healthy company where like, what would the [00:22:00] exit? You can start to project reasonably out of that. It's just, the floor that is what is like higher and higher Like I don't know yet, but i'm like supremely confident that I will be very happy once they exit at some point.

One, ironically, is that CPG company that I mentioned. Like, I'm convinced that company's going to make me a millionaire, like for sure. So which is kind of funny because it's not what I invest in at all right now, but like, I'm probably going to be really well off that deal, at least such as my assumption.

There's another one Shapes XR where I joke with the founder always that like, it's like a basic 3d Figma. I always joke with the founders, like, you're paying for my lake house in Lugano, right, but um, I think that one also, just like, get a combination of, like, I think that company is doing really well, it's going to do really well, like, my personal, like, skin in the game on it is quite big.

Where I'm like, that one will probably do me quite well. So they're like, I would say they're like a couple in that bucket where I'm like, I've seen it enough now where I feel supremely confident. Then there are [00:23:00] ones where I'm like, I think they could be slow burners, but they're really well for me.

But again, it's a little bit more 50 50. Then there's some where I'm like, I don't, I have no clue, like they're moving, but I have no clue where this is going. And then the ones where I'm like, I don't think these are basically like, I think so that's kind of like as much as I like, like categorize it,

Shaherose: I love that, when you think about the ones that you are most excited about, what is it about maybe one or two of them? I don't want to ask you to make generalizations. but you could if you see a common trend in them or just what are the things that stand out about any of them in particular?

And if you're comfortable naming them, please go

Arian Ghashghai: Yeah.

I definitely have a group of, Founders that I've invested in where like I do know what the common trend is, right? I think the ones that I'm all the most confident about go back to what I said before they're They're all completely different people. They have different backgrounds, right?

There's just really like profile wise There's not really anything in common with these people actually ironically Most of them are not like [00:24:00] hyper credentialed either, right? Where you think like the cliche, like X Stanford, X, this big name, whatever, high growth company, right? All these kinds of like stereotypical archetypes that you think of, of like, high potential founders.

But the one thing they all have in common is that they're like, I invest in extraordinary founders doing important things.

It's really like, it's like really just what I try to condense it down to. So important things are like, they're thematically doing something I care about, right? Or that I think is important, which is usually somehow defined in like whatever your thesis is. The extraordinary people part, I've kind of condensed down to like four things.

I'll gloss over that for now. But like, basically I just walk away from having talked to this founder a couple of times. He's been like, I don't know if the way they're doing it is right. Like I like what the space that they're working on. I don't know if the approach is necessarily the right one.

Like, I don't know if. I have a lot of questions about the implementation, but that founder is gonna run through a brick wall to get it to work. Like, that's the only thing I know. Like freaking capable people, right? Like driven, capable people. And again, I have like a [00:25:00] rubric of how to try to gauge this nowadays, but that's really what it comes down to.

Like there are definitely investments that I've made. Like one founder, I'm a big fan of, like he's Emmanuel at, Scenario, it's like like an AI gaming assets company. I was one of the early investors there and, you know, I had like a a thing with him where like his premise was, Hey, media is going to 3D. fits kind of my thesis, right? For people to do that, it needs to be democratized. So, like we need to think of something democratized, like 3D asset creation for consumers. I was like, I kind of agree with that too. And so they kind of went down like a photo scanning route and stuff, and like you can play with these assets, and so I was like, I don't know if that's the right approach, but this guy's freaking great, so I just wanna like, I care about the problem, and he's great, let me give him money.

Anyway, fast forward, long story short, the company almost dies, I mean, like runs out of money, the scanning thing is not working. This is why I say invest in good people. Like I've seen some [00:26:00] of the situation before. I've had it in some other companies where they get to this point and the founders just roll over.

I think like they give up, right? And then just, they call it a day. This guy was like, fuck it. Like this was like October, I think two years ago, the 2022. And he's sitting there and goes like, I want to make money by Thanksgiving. Like, that's the thing. I don't know how I'm going to do it.

And so he kind of like disappears and he comes back with this, like, we're changing it. It worked. AIs, this stuff all came now. This is a better way to solve this problem, right? We're going to do it. Anyway, long story short, fast forward, like, they raised like, like a 50 million post last year. They raised like 10 million bucks in the Series A, and they did really well for all intents and purposes, right?

And so that's 1000 percent on that founder, right? Like , 99 percent of founders were probably given up on the position that he was in, right? This big team, high burn, I have no money, nobody wants to fund me, I don't know what to do. Right there it just said, let's just shut it down. He's like, no, I'm gonna figure it out.

And he did. And again, it goes back to like, I invested in him because I thought he'd be a legend, basically. And like, kind of, he's proving [00:27:00] that, right. And so like, you see data points like that. And it's just like, that's the commonality I see with a lot of the founders that I really like, where I just think that somehow, somewhere they're going to drive an outcome.

Is there just kind of this like force of nature like, I call them extraordinary founders again. They're like, there's actually four points I have for that,

Shaherose: Yeah, please share. Like, what are those four things? So

The four measures of an extraordinary founder
---

Arian Ghashghai: there, yeah, so this is, I actually wrote about this on Substack. I can like actually link that to you because like, you know, someone wants to go look at it. But the four things are I look for like speed of iteration. So are they like, Really fast at kind of going from A to B and whatever they're doing.

Right. Which is typically why I actually also like to track founders a lot. Like a lot of times I'll meet a founder and like I'm like, I'm not a hundred percent sure and then I track what they're doing over two months, which is why I think like founders, if you're watching this, like always ask investors that don't tell you hard.

No. Like if you put them on updates because it could be very. Good way to get people back in, you know, maybe [00:28:00] watch them for two months or so. And I'd be like, holy crap They did a lot in two months. I'm like, that's good. The second thing is Resourcefulness, right? So they actually do a lot like so that speed of iteration is basically the measured by like how much money like just human capital they're throwing at it.

And so teams that are typically pretty scrappy So they can do a lot with little pretty good bull flag that not only are they just very capable But when the going gets tough, they're gonna figure out how to keep moving the company for it Which I think is an important thing because inevitably every company is gonna go through this trusty despair, right?

and so, you want teams that we have like a good inference that they know how to deal with that. The third thing and this is one that I Start to value a lot depending on what like verticals I'm looking at, but they have some sort of like unique insight or like quote unquote secret or access point about the industry that they're working in.

So that could be, they're like super veterans in that space and they just have [00:29:00] like distribution points that nobody else has. Right. Or like they're so deep in some technology that they just understand some truth about. a sector that nobody else does, right? Like, so you try to gauge, like, is there some like unique kind of non consensus point that they have about this problem space?

Then the fourth point, it kind of dovetails a little bit into that last point, but they have some sort of proven commitment to that particular problem space that they're working in, right? So, That would like validate itself a lot of ways. Again, they spend a lot of time in it. They have some sort of like, Success Story in it, right there, just have some sort of thing that makes you believe that like, this is where they want to solve a problem, again, because I think this is important, because for me, again, I'm looking at founder to problem fit a lot, like, not, I don't care about the means so much, but like, like, take me, for example, like, I'm probably good at investing in VR, but I'm probably pretty bad if I'm an LP, right, at investing in, AI driven B2B SaaS or something.

I don't know. Like it's not going to be my thing. Right. [00:30:00] So, the same as true. I think the same is often true for founders. For me, I know there's some people that will disagree with me on that and they've done well, so it's wrong or right answer, but that's just my personal face. so, you know, you want to be sure that they're not going to jump around because, you know, I've, definitely like anecdotally had stories of a lot of founders that um, they would be like, I call them like tourist founders, right?

They're in crypto when it's hot and they pivot to AI when it's hot. And then they pivot to, I guess, defense tech is now the new hot thing, right? They're going to be defense tech founders. Not a big fan of that personally. you know, I like, people again that, know something really well and are just like well positioned to succeed in that.

And so that's kind of a big point as well, like the commitment piece.

Shaherose: I love the four things that you look for. And I think the unique insight has to come from having spent time in whatever industry they're showing up in. So the tourists will be kind of squeezed

Arian Ghashghai: You know what, actually it's one thing I've even found that insight can come a lot from is just from the first two points of being very quick and just being very resourceful because you start a company, maybe [00:31:00] you don't know that much, right? But you just do so much in so little time that you just learned something, particularly in the frontier industry that nobody else knows.

And you're just ahead of other people. Like I've made investments like for where I'm like, wow they've, they've really tried a lot of things and just learn things that nobody else knows. So there are different ways to do it.

It's not just, you're in an industry for 20 years at some high level, like, I think there are a lot of ways to get there, but really from, Quick iteration took a lot of time, but you know, you typically actually find that then like a lot of people that spend too much time in the industry, they're really bad on like the speed of iteration and resourcefulness, right.

And

so just, you know, it's especially like big tech people, right. Like, and I say that as somebody coming from big tech, like if I see like meta on a logo, people are always like, Oh, you want to back like next minute . I'm I'm like, they don't know what resourcefulness and speed of iteration is, so

Lessons from the worst investment: Don't fall in love with your expertise
---

Shaherose: Not anymore. Not anymore. I mean, maybe in the first few generations of Meta, but I agree.

Let's Let's change the energy to lessons learned from the worst [00:32:00] investment. If you can go back to reality that, look, investor life is not always awesome and we do have challenging moments, I would love to learn what that was and what you learned from it.

Arian Ghashghai: So, there's a I don't know if you know that meme template, but I've sent this to somebody before. Somebody on Twitter did it. But you know that meme template of like the bell curve where you have like the idiot looking guy that has just a really simple thing.

And then you have the distressed guy that has this like very complicated explanation of something. And then the hooded like guru, right, that says the same thing as like the stupid. That's definitely me with a lot of this just like, I like the founder, right?

Because like the first investment that I made was, I like the founder, and then I did a lot of stuff in the meantime and now I'm back to like, I like the founder, basically. So a lot of those bad investments came in that middle point \ where where I thought I was being really smart and sophisticated.

All of the worst investments I made , have one common trend, right? As much as the good investments have the common trend of, like, these, high scoring [00:33:00] founders on, like, my accesses, basically, or, like, these, like, force of nature founders, and kind of screw the other stuff, like, don't worry about the memes.

Are the ones where I fell in love with the means too much, right? Where I would justify the investment because again, I know some technology really well, or like I have some background, right? I'm like, Oh, this is a really cool technology that they built. Right. And I could totally build a thesis on how this is going to be relevant.

But my entire investment bit gets basically driven by, I love the means of what they're doing, but like, I don't care about the founders or the ends that much. Because it's very easy to write some like super fancy kind of thing about like, why are we making this investment, right, because it's like super smart and built with smart technology.

You know, But like, you're kind of meh about the founders and, it's less about the problem space, but the whole company's predicated on the means working. All the shittiest investments I've ever made were kind of like ones that fell into that category, all of them. You learn things that way, right?

You learn things that, kind of to the earlier point where I talk about founder problem space, the means of how they get there, [00:34:00] particularly if you invest pre seed, will inevitably change. So if you invest in founders that are pre staking their entire company on means of how they're getting there, in all likelihood they are going to have a problem.

And so like, I haven't had a lot of companies die on me yet. I think just like one or two really, but those, and then the ones that I'm kind of putting that earlier, that bucket I mentioned before, but like, I don't know if these guys are going to be around in two years, I think really fall into that category a lot of the times is inflexibility because they love the means and everything is about retrofitting the means, but not about how to address the problem, which again is like the polar opposite of like Emmanuel that I mentioned, who said.

Maybe they're just better means to solve the problem that we're trying to solve, right? And just, let's just go with that. So yeah, like I think number one advice I can give to like particular operator angels is like, Don't fall in love with your expertise too much as like a means of justifying doing an investment.

right? Beyond just like thesis of problems faced and all of that, right? Maybe aptitude [00:35:00] or trying to gauge aptitude, but like don't think that because you understand the means of what somebody's doing and it sounds smart that it's a good investment.

Shaherose: That's so good. I love that.

Arian Ghashghai: I have nightmares still thinking about some of the investments that I made where I'm like, I can't believe I did that. So bad, like really but it's how you learn. I mean, I think like investing is all about putting in the reps and like making some of these experiences yourself. Like inevitably part of becoming a good investor means losing a lot of money to start.

Like that's just kind of part of the game. I think like also like if you're thinking about getting into the angel investing space like assume you will lose money And this is why you need a portfolio because the whole point is that the portfolio makes you money like an individual investment probably will not You know, that's just something you have to accept and like you're gonna have some duds in it.

It's part of the game

You're always gonna have the good pieces as to why you did something at some point in time, right? That's it, but a lot of them will work, And memes are always the worst things, like memes, like investing in memes is always like a guaranteed way you're going to lose money so don't do [00:36:00] it.

Check size, scaling, and sourcing
---

Shaherose: Tell us now about how you're investing today. You have this fund, maybe tell us the size of the fund check sizes, and you're alluding to this, right? Having a repeatable way to access the 1 percent of talent. How are you sourcing your deals? I think you already talked a bit about how you decide as basically founders.

So maybe tell us like the one line pitch for Earthling: Fund Size, Check Size, and how are you finding these awesome founders?

Yeah, I think that last question's the fun one. So just like kind of on the logistics, so, I mean, we're targeting, I'm still raising fund one, we're still, we're deploying out of it already, but, it's kind of in the middle. Kind of writing 25k checks upwards to, probably by, final close, I want to be like kind of, 100 to 200k check size.

Again, very pre seed. We only do first institutional round. And again, kind of like I mentioned earlier, like they are, AI and robotics companies. And, ideally ones that obviously intersect there. So it's always pretty fun for us. Kind of more consumer focused, but we'll do picks and shovels, kind of just basically everything that pushes these mediums forward is kind of what we [00:37:00] invest in.

In terms of sourcing, I'm going to take a bit of a detour on that question and bring it back because I think it provides relevant context also around the fund. We're definitely in a fund consolidation era right now and a lot of people ask me what made you decide to start a fund and all that.

And, You need to be really clear that you have like some sort of need to exist, right? Like I always say that like, Your fund, your default assumption should be that your fund has no reason to exist until proven otherwise, basically, like, especially with the environment that we're in right now.

And I think one of the considerations that I had was, I have kind of a bit of a unique position as like, super early, like, comes from this operator background, explicitly invest in those things, which virtually, like, almost nobody's doing, right?

So you know, one tweet that for example that I did like at the end of last year which got a lot of attention was when everybody was still talking about AI specifically and I said listen AI, definitely impactful, but [00:38:00] over invested, right, doesn't make sense for us, so high impact, over invested, VR, robotics, meanwhile, like the other parts of the thesis high impact, under invested, and so that's where I want to spend time, right, because I think that's where Alpha is, and, so I think, like, but specifically, like, on the point of Like, where my role always was, was a lot of people that are in this space, like, acknowledge, for example, , the intersection between AI and VR, and how these things are pretty symbiotic, right, and like, who's building there and all of that and like, not many people were doing that, like, to be honest, nobody wants to just touch anything that's remotely related to VR, right, so it's like, Huge alpha thing for anybody that's investing.

Cause like five people that want to invest in this stuff right now, me included, so it's very small. And so, I was doing that as an angel kind of very early. And so I was kind of the way I think I built my reputation that you see world was, this is a guy that can both understand markets cause he's invested enough, but also like deeply technical and like really the front lines of like.

A technological trend that's just kind of like constantly evolving. And that was really attractive, particularly to [00:39:00] a lot of VCs, because like the VCs that want to invest in this, ain't nobody to talk to, they could talk to them in market language and like kind of look at deals in a sophisticated way from the VC perspective, but it's also deeply technical.

And so this, again, this was just, there are a lot of people in the world, of course, that do this for different things. I just happen to be one of the only people in this space that's doing it right, because it's very small, it's very niche. And so I think like. To take a tangential point there. I think like being niche and being known for niche is actually what has enabled me to do everything that I'm doing.

And so like for anybody that's starting about investing or thinking about doing a fund at some point, it was like, when you're starting out, you need to be a big fish in a small pond. I think like if you're going to try to be a small fish in a huge pond, going to be really freaking tough.

And you're going to be like really subject to this, VC consolidation problem, right? Because you're pretty undifferentiated. It's going to be harder. So you're better off like. Being small, being known for something really niche, or for all intents and purposes you have less competition. And then just think about like how [00:40:00] you grow concentrically, right?

That's probably the best way to get started. So that kind of like retrospectively is what ended up working for me. Like I didn't do that on purpose, it just kind of happened to be what it is. And if I'm trying to make sense of it, like I think that's really what happened.

So, basically I was in this position, and because of that, like, I'm just the guy, like, I am the VR guy. So I started doing a lot of deals as an angel, all of that, and, again, not many people could talk, the language of these founders. And, I like to think I'm generally helpful and personal to founders.

I'll let them reference that. But, I think that's generally been feedback I've gotten where it created this flywheel of like, Oh, if you're starting a company, you should just talk to this guy, right? Because, he's super early, right? Obviously for a long time, he was an angel. He gets it, .

He was at Meta at the time, which is like the apex kind of corporate, obviously in the VR space. And that just kind of created a flywheel, right? And so it's just like, it brought an interest from VCs. It brought an interest from operators. Brought an interest from founders, obviously, where kind of your [00:41:00] question about like where the deals are coming from, it's like, I'm just, that's just the reputation I have.

People see VR and they think me, it just comes to from everywhere in the network, right. From investors, from founders I've invested in, even from founders I haven't invested in cause there's so few people and like, this is the guy, right. And so on the flip side, that's also like the opportunity like I see with the spot, right.

Is that this like. Blue ocean, right. In terms of what you can build into, right. And that was one of actually the considerations that was, I could totally institutionalize this reputation that I have.

I love that.

We were talking about this with Eric Ries too. It's like, you need to stand for something that people will remember so that they think of you as you, I mean, you've achieved that. They think of you when they think AR, VR robotics.

That's like the point that I mentioned that it's like, I think when you're starting out and you want to be like, again, they're obviously like angels that are just want to do this as a bit of a portfolio thing. And, it's not really like a kind of professional slash serious thing for them, and that's obviously fine, but that's a different, strategy than like, Hey, I want to actually [00:42:00] like build an investing career.

You know, It's definitely good. Like, and I did it too. Right. I think when you start out, just look at as many deals as you can across all many different industries and, don't think too much about it. But at some point, like you do want to think about. What am I going to be known for? And like, where's my specific opportunity, right?

Like a lot of what I'm doing right now is even just driven by complete practicality, like, okay Like I know I'm gonna be good at VR. Is it all I maybe want to do with my time? No, right, but I know it's good for business, right? So it's something I'm spending like leaning into extravagantly just primarily because of that not to say I don't believe anything I do, right, but like, it's If I didn't have to think about like how do I build my brand as an investor, my reputation as an investor with the position that I am, would I be spending as much time as I am right now?

Probably not. I'd still be spending time with products, right? It's just practicality. And that's what I'm known for. And it makes sense to just really solidify that. And, I think for any investor that's thinking about going professional, like what is your schtick going to be basically?

Right? Like is everybody going to know you for in like one word, right? they see something [00:43:00] and they think you. And try to work from there. that's when good things will start happening to you in the industry. Like, you don't want to be another dime a dozen seed AI investor.

Like, how many of them are there, and like, are you really going to out compete any of these people? No. There might be something really weird and niche. Like, there's one fund I heard about I think they invest in like psychedelics or something like psychedelic tech, something like this.

I'm definitely butchering it, but like it's something along those lines where I'm like, I'm sure they're like five people that are doing that, right? So I'm sure whoever is doing that, like who has monopoly on psychedelic tech. And so if they're right about their sector, they're probably going to do great.

Right. And that's wonderful.

Yeah, I think what you're pointing to is that what we're noticing is like the VC industry is maturing, Not only is there more money in it, but kind of going from the cottage industry where everyone has to kind of be a generalist because someone needs to do the investments to, Hey, there's a lot of money and a lot of smart people.

And. The best thing we're going to do is have people specialize, right? [00:44:00] At least to your point at the , before you get into being able to do multiple different types of industries. And so I think it just speaks also not just to, you and your opportunity, but like where the industry's at, right?

Truffle hunters vs. heat seekers
---

Shaherose: I mean, I, Chris Dixon has a really good piece on this and he did the 20 VC podcast recently, and I think he has like a two, three minute segment where he talks about this, and I think it's like the best summary that I've heard on this, so I'm going to kind of paraphrase it which is, if you're in VC, you basically need to be like, to use his words, like a truffle hunter or like a heat seeker, right?

Where, yeah. Truffle Hunter is like you're a super specialist in some industry. You're like a pre seed small fund, right? Call it sub 50, sub a hundred million, maybe. And you're just like really the first line, . on those things, right? , that's where you're investing. Like that's where your alpha comes from.

Or, heat seeking is basically like your Andreessen's and the Sequoias, right? Where you're, a multi billion dollar firm that can buy huge ownership stakes [00:45:00] and anything that's working really at any point in time, right? And drive returns. So you're really just going and winning all these deals that are like super hot basically, right?

Like those are like the two models that you need to like win in. And so the problem I think with VC is that like Most funds probably fall into neither category. Like they're kind of like the, like, cause it's a barbell, right? Like they're kind of really in the middle. And get how it happens, right?

I mean, I know a few funds where. They started as a small , truffle hunting pre seed fund. They did really well, unsurprisingly, right? Because that's why they did fund one in the first place. And so this is actually why I get why more LPs are becoming interested in investing in these small funds because it just kind of historically adds up.

Anyway, they do well. And they're like, okay, instead of 25 million or 50 million, we can raise 200 million. which is great because Hey, we get all these fees, right? We can build our firm, right? But then their model all of a sudden changes from, Hey, we're like a pre seed specialist funds, right?

We're the best reputation, like the [00:46:00] only one kind of playing there to crap. We now have to do seed and series A investments and compete with Andreessen for those deals. Right. And like, good luck basically. Right. Like that's probably not going to go in your favor. And so I think that's like, when you see like a lot of the cons that it's like, maybe started really well and that's why they got to fund two and fund three, but then they start to fall off because like what actually made them successful changed and Kind of going back to what I said before about That 1 percent founder access, you change your strategy in a way that you lose that.

That's the thing to be like really weary of. I think, as you go through investing generally is like, am I making decisions that negatively influence my ability to access that founder talent? come up with with my strategy. Be it as a VC or if it is an angel, right?

Like, because even if I was angel investing now, like, am I going to realistically access the best founder right now that's like building, like, I don't know, a cosmetic company or something? , no, right? Like, I'm sure somebody in the world is, I'm not that person, right? So like why vest in it, right?

Like, it would be a weird strategy choice on my side, [00:47:00] right? So. Yeah, I think that's just really what it boils down to, right. It's just like, what is your strategy and just leaning into it, , and you don't want to be caught in that middle of heat seeking a truffle. I'm feeling you want to be pretty honest about what you are.

I definitely recommend watching that like Chris Dixon talked about it because he's a lot more eloquent than I am. But it was a good piece.

Speed round
---

Shaherose: You ready for a speed round of questions?

Let's do it.

Okay. see. Who's another first funder you admire?

Adam Draper, So Adam is an LP in my fund, but also like kind of a bit of a mentor kind of role for me. But so his fund, Boost, I think is effectively the blueprint for how I'm trying to build my fund and like in terms of like the difficulties they had 10 years ago with what they're doing I think is a lot of what I'm going through now and so it's both like a role model for me like in every way Like I think they've absolutely crushed with Boost, right?

So just surely from return's perspective. I think [00:48:00] it's probably one of the most underrated funds in the world. I'm obviously very biased, but you know, I don't think they get the credit they deserve just sheerly for like DPI that they've produced. But also just the path that they walk to get there, right, is I think very analogous to like what I'm probably going to have to do over the next decade.

And so, it's very much a role model fund GP for me in ways than one. So, and Adam's great. I mean, like, like great guy. I mean, I think great investor, like, Really infectious personality and all of that, like, so really just like that's the kind of GP you want to probably be in Tiger, so, definitely Adam,

Nice. Okay. The soundbite for how you get better at investing other than reps.

talk to smart people, I think is, a good thing. So, I still do this, right? Like, I've definitely sat here and for the last hour have presented myself as this great expert, , on VR.

Shaherose: I still, a lot of times, don't rule out the fact that maybe I'm thinking about something in the wrong way, right? And like, even though I don't necessarily, just [00:49:00] follow somebody's advice, right? But I think a lot of times I've really benefited a lot from just hearing what other people have to say about something.

And how they're thinking about something. I think it really like evolves your own process about like how you're talking to founders, how you're maybe evaluating something. Maybe they're important things that you're missing. Maybe the things that you're actually overstating, right. If you're sort of looking at a deal.

So I think one of the benefits generally of investing is like it's probably one of the highest IQ industries in the world, right? You're the founders are usually really smart. The investors are usually really smart, very accomplished people because what you see is a very kind of.

I think it's an industry you graduate to, for the most part, like I haven't been very extraordinary at some point in the past. Leverage that, like it's like the coolest thing ever like I always say my job is to talk to interesting people all the time, like it's the coolest job ever, right, so definitely leverage that.

think about your own framework about how you're like evaluating, right? Like, like, for example, the four points that I mentioned before, like I didn't necessarily think of that entirely, but just sitting in my room and like, what makes sense. I'm like, I learned a lot of that just from like [00:50:00] observing other people that have good ideas and taking some of their bits, right?

Mixing with my stuff. And I

think it's just gonna get a lot better by just talking to a lot of interesting people in this space.

Yeah. And then, talking and thinking get synthesized down into either books or some piece of media. So what's your favorite book or piece of media that's influenced how you invest?

I'm going to be super cliche and probably when I say this it might not be a surprise but Zero to One by Peter Thiel. I go back to it all the time and I'm like this is still the absolutely most correct but like take some guts to implement.

Book on investing or like at least makes you think about investing, right? Cause like what he said, everybody knows it. Right. But I think to actually implement it as hard to see like be non consensus right? Like competition is for losers, like all these sorts of things, like which is basically like the polar opposite of what a lot of investor behavior is right now.

Right? so it's hard to do. Right? Particularly if you're dealing with like LPs and, you know, all that stuff. It's like, it's a hard thing to do, but I still think it's the most right one. so yeah, I, I will always go back to Zero to One. Like [00:51:00] I just think it's the most genius business book I've ever written.

Okay. Zoom, phone, or in person for meetings.

Zoom, definitely.

are you a default

camera on guy or a, I

camera on. I I'm down for coffee meetings and stuff. Like after I've had the intro call and I'm like, there's a vibe, right? Like I'm totally happy to go meet people like for, I do it all the time. Right. But you talk to so many people in this industry, like inevitably, most of the people you talk to won't really lead to anything like that's fine.

That's just like a function of the job where doing like initial coffee meetings is just too high of an investment for me, or like, I feel like I lose Bandwidth by doing that. And so like you're on the side of not really doing in person first meetings. At least

Well, one thing we didn't talk about is something that might surprise some listeners is even though you're investing in the edge of AR, VR, and robotics, you're not based in San Francisco. [00:52:00] not.

Shaherose: let's detour on that for a second. And how does that work? Like, Can you still get the deals that you're looking for?

I know you have this flywheel all set up. Does it not matter where

you are?

I think 80% of the time it doesn't matter. , I even talk to, people about this that live in the Bay area that I work with, because the default, like kinda what I mentioned before, is. You're meeting founders for the most part, like by reference, right?

I think it's a very reference driven industry, right? And so that's the one thing. And the second a lot of people acknowledge this reality of. Time efficiency, right? And that even like you're both in the Bay Area, like right now, probably more likely than not, you're going to Zoom, right?

I think that's just true for a lot of investors. So at that point, it doesn't really matter where you are, but I would say like 10 to 20 percent of the time it does, and that you travel for. But I would say like generally, like the companies I talked to, the companies I've invested in, it is very distributed,

I think a lot of people I could get surprised that like, you know, out of the funds so far, we've done eight investments. I think only two are based in the Bay Area. Like the rest are kind of like all over the place. And [00:53:00] so. to me, at least for like the things that I'm investing in, I don't think it's as a bit of a center of gravity as some people might think.

And again, kind of like you mentioned, I do have a personal flywheel there already, but because the industry is so small, like inevitably that still weighs very heavily. But I am, of course, pragmatic, and you know, I do try to stay like kind of on top of like, do I need to be somewhere at a certain time? Is it useful?

Like, do I need to relocate full time at some point? Like, definitely like a reality I'm open to, but like at this point it just hasn't really felt necessary. The one counterpoint I will make here on SF, and so this is probably going to piss a lot of people off, but I'm going to go hard on it. is, , back on this kind of Peter Thiel thing, you know, zero to one and, competition is for losers and, you know, trying to be non consensus and all of that. I think, like, SF is a good place for people that start their careers, right? And so I would, like, I'd be a hypocrite, like, I lived there before, like, when I started my career, I was in the Bay Area, Um, And that definitely had [00:54:00] Some benefit. But I think like, it's true that it's like a good place for people to start building their networks as they start their careers out.

I don't think it's, great of a place for people that are even more established. Particularly if I'm looking at it from the company building perspective, because the one thing that I see in SF, like this is very, for example, prevalent in AI right now is it's obviously a hot topic. All the young kids are talking about it.

Everybody wants to build an AI company, but so subsequent, and there are all these meetups, right? So you can go to all these meetups. And everybody talks about the same thing all the time, right? So you see the same kind of companies, you see the same insights, right? There's not a lot of kind of On this point that I mentioned earlier about like unique insight or something, there's not a lot of that really.

There's not a lot of differentiation. And, you know, so for me, actually a lot of SF companies became like, not things I want to invest in. Like I actually like got very turned off by it. And ironically, like for example, in AI, like actually some of the more interesting companies that I've seen are not based there.

Like we just invested like in an AI company that's based in Zurich, right. Where I'm like, these guys are just hardcore [00:55:00] researchers that just first principles, like just went after something that makes a whole lot of sense. Great team. you know, ironically that actually got to do the speed run, right.

So, you know, they're doing pretty well. that's like kind of what my thing has become now that like, I'm actually finding more interesting founders, not an SF because they're not as exposed to like the same thought patterns as there's like, very, very prevalent across all these events and investor talk and people you run into, right.

There's almost some downside of the density of talent in SF in that regard. And so like actually as time goes on, I'm becoming more and more interested in people that are not there, which I know sounds very like, how could you say such a thing? It's like like sacrilegious, but like, you know, it's just, I'm just kind of like observing behavior and just trying to like match accordingly. I get the upsides of SF, there's definitely like the talent density, but I don't think it's the best idea. Just a a quick anecdote on that, just to show I'm not completely crazy with this actually, and I'm not gonna name names of this on on the podcast, but a friend of mine from college who started an AI company. Who got backed by, very [00:56:00] very well known VC. They were not based in SF, but so at some point, the company decided to move to SF because they felt it was better to hire talents, which Like fair enough.

Like that is definitely one, one, one benefit that SF has over a lot of places, particularly if you insist on, now in-person culture, right. But, that investor, and again, very big guy, basically told him the only the compromise they found with him, 'cause he was against it initially, was that that company has to institute like some sort of policy.

That if you're an employee there, you cannot attend, meetups and events in San Francisco. Largely be driven by the fear that not only is it going to be a waste of time and unproductive, right? Because you're spending all this like kind of time in social but, , you're basically going to fall into groupthink. And that's actually not good for the company to succeed, particularly like you were building an ad company right now. So that was from some huge VC that has achieved a lot more in their life, like way more in their life than I have, like more than I could probably think of achieving, but, just to show I'm not completely nuts, there's a bit of an anecdote there. That's not [00:57:00] mine.

Dan Hightower: So in 10 years, you're on the minus list. Like aside from reps, what will you point back to and say, that's what got me there?

One of the things I think about a lot and, what I mentioned earlier is that, well, like, one of the reasons I invest in VR is because I know, like, I'm going to get top 1 percent founder talent there, like, that's what I'm asking. So the general thing that I have looking forward is, well, on that trend, how do I continue to expand my thesis, if you want to call that way, like my kind of market thesis or whatever.

In a way that I can just continuously scale that 1 percent access in a more broad way. Because I think realistically, like the biggest returns we all know come from non consensus outliers that you're right about. And you're just really early into it. And I think this is something a lot of investors generally forget, right?

They get too obsessed with like hot trends or like co investor signal, whatever, without actually realizing that like, maybe you'll make a good investment there. Sure. [00:58:00] Right. But for the most part, for most of us, they're dealing with smaller checks, like. That's where your home runs coming from is, And, that gives you like a 10, 000 X or something, right. Or like, everybody tells you you're nuts for doing that deal. And you end up being right. And it ends up being a huge one, right? Like, so, I think ultimately what will put me on the Midas list is that like, I would have invested in some dude like Dax probably that like just completely crushes for the entire fund.

Or maybe like in a, like a small cohort of them, but that's, that, I think it was where it comes from, right.

And so it goes back to this trend of just like, focusing on, extraordinary founders and, The more shackles I think you can take off the parameters there, like probably the better, but it's, this trade off of like how much can you take the shackles off while accessing the best people right?

And so I think shackles are for is just to streamline, like how can I access 1%, but hopefully over time, like, you're more likely to increase your chances of having great success the more those shackles come off, I think, over

Shaherose: Thank you for sharing that. Dan, do you want to [00:59:00] wrap up the last speed round question?

think I know the answer to this one, but social media platform of choice.

What do you think,

I mean, I'm going to go with X.

you know,

So,

VC, don't know how many like investors you're going to have on this are not going to say. Twitter. So, um,

be surprised how didn't say that. And I think the difference is, my guess is your flywheel works a lot off of X. Is that correct?

yeah, it's been good for networking for sure. Particularly on the investor side, I would say. And like just meeting more investors. I've definitely also met some operators. It's not great to be honest, for sourcing deals.

Test one, two.

Bonus Qs: The rise of raise-once companies and why aren’t investors investing in robotics and VR content?
---

Shure MV7 & FaceTime HD Camera-1: hi. It's Shaherose here at tapping in from home. So after the interview, we rabbit, hold on a question. And after. That I had another question. So I sent Arian a voice note [01:00:00] and he shared a response. So the next few questions are. Rabbit hole questions. That we ended up recording after the interview.

And so you can listen to them here.

Shaherose: thank you. let's uh, let's quickly spend a few minutes on a question that I've had. So particularly in this space that you're in, right? There's physical product, there's hardware, um, things take time. And even in software, things take time. And more recently, I shared a deal with an investor where it was, it was sort of, yeah, it was like a hardware meets software play. And of course, it took time before reaching product market fit, like up to three years. And their reaction was, well, that's a long time in market. Even though at this point the, the beginnings of what looked like product market fit. So when you think of time in market, like what matters to you, does to you?

You know, You often hear about success stories that took even longer than three years before even getting to product market fit, but the seed investment or the pre seed was already done. Um, [01:01:00] what, What, what matters to you in terms of time to market

Yeah, I think, I think, Um, like one of the, one of the, um, there's definitely an investment to I've lost because I kind of ignored that, right? Not for til time of market, but like the timing aspect of like, does, like, do I believe in this macro thesis of what they're doing makes sense? At some point, somebody would make money doing this. Yes. Do I see the practicality of doing this now? Maybe less like, I didn't really consider that. And, you know, so I, so that's something you try to be mindful of, particularly if you're invested in very frontier things, like, What is the strategy just like existing in year five, right? To really reap the tailwinds, right?

So I think there's a few ways the market

Arian Ghashghai: is

manifesting that right now,

at least like my

industries, the old model of. You

raise

every two years or whatever, doesn't work anymore, right? And, And so I think what you're just seeing now is, at least in our spaces, like, companies are just getting really damn efficient, right?

Like they've figured out they can do things with small teams on low burn, they might [01:02:00] only um, you know, and, and so they can kind of sustain themselves for a very long time. In many cases, actually, as companies become profitable, like, Two of the eight companies that I have are like completely profitable.

I didn't have to raise money again. Right. They're just kind of like chugging forward because they were just very lean and they were very pragmatic with like, well, maybe we have a big vision, but like, what's the most practical way to approach this and how we like burn as little money as possible doing it because we have to, because there's nobody to save us because there's nobody to give us money.

Like there was years ago. Um, So I'm looking at it more that way

we're talking a lot about these types of companies. What are they to you? And you think they

exist in your portfolio?

I definitely have at least one. I, I'm honestly trying to figure out what to call them too. Like one term that I've heard, but like this doesn't necessarily dictate the size that they will

be, like raise once companies, right? basically bring one round and that's it. Which I think we're going to have a lot of in the portfolio.

And something I've actually

Dan Hightower: started to think about more is like, you know, You know, of fund two at some point, right? Like I, Like I have one company in my portfolio right now. They raised a pre seed, like one, one, [01:03:00] like maybe 1. 1 million.

Arian Ghashghai: We participated

in that. They, They're a four person team.

Like they're like young dudes, right? They've made two and a half million dollars Um, They've burned no money, right? Because there are four people. They probably never have to raise money again because they basically have like profits of like what a series A fund fundraiser would be. And they can just keep reinvesting it. I think these guys might be one

of the biggest VR

companies ever. Um, If you fast forward 10 years. But like, so great, like, 100 percent will be great for DPI, I think. But, not gonna be great for If I'm just using like, you know, round markups and stuff. With like, to sort of define my MOIC like a lot of investors do.

I'm thinking about like, like what that also means for reporting, right? And like generally how you talk about like the health of your portfolio, right? Because if I have like half my portfolios like this, let's say like we invested pre revenue, they're doing nine figure revenues, eight figure revenues, later, right? Um, [01:04:00] It's kind of disingenuous for me to say that they're worth like the 5 million bucks I spent on them, like I paid for them like 4 years ago. But that's technically with how we price things a lot now, it's not with how they'd be priced in the portfolio, which doesn't really make any sense. So like, I think the macro point here is that like the dynamics of how we think of venture will change a lot.

Because I think like, That reality of like the one man billion dollar company coming, um, like I don't think it's going to be science fiction, like I think like proverbially we will get there, where like very small lean teams literally produce billion dollars of value, I'd argue it's already happened. Like, if I look at another axiom, which is a VR company, I think you can make the argument that they're a one man, billion dollar company.

How the hell do you price that when you're, like, looking at, like, the professional venture portfolio? I don't know, right? And I think it's, like, an industry wide question, actually.

Yeah. Multiple on revenues, you know, go PE style. But really, yeah, exactly. So that's kind of, like, one person, I think suggested, like, you know, fair evaluation. They put on like, uh, four or nine days or something that it gets like employee stock options or [01:05:00] Right. are a ton of ways to do it. Right. It's just like, we need to find some consensus of what that's going to be, because I think it's going to be a more prevalent problem.

Shaherose: my quick follow up question that I had was, you invest in two types of companies that I feel most traditional VCs stay away from, which is hardware and studios or content creation or content media companies on the VR side. Tell me how you think about underwriting those, and how do your LPs think about that, and how do you ensure that there's enough follow on investment when There's so much hesitation to invest in those types of assets?

The funny thing is, is as we even talk about hardware robotics, VC is designed for that, right? Like it's designed for high capital intensive products and solutions that need that initial capital. and yet VCs run away from that. I never understood that. So would love your thoughts.

Arian Ghashghai: Oof, great question, first of all. So I think there are two ways to, kind of go down the content side and the hardware side. And the robotic [01:06:00] side. But, I think the high level response is that what's uniquely interesting about both of these categories of companies is that we're actually at a point now where they can all start generating money pretty quickly, , to the extent that some might even become profitable and might not become dependent on, , future venture funding.

So for example, On the content side, and particularly VR studios, and the one thing that I'll emphasize here is I think generally like if you put VR as Some subset of gaming or entertainment kind of more at large, which I think is probably a good categorization.

Content is traditionally the most lucrative business to get into. Now, VCs, of course, will often complain about, the scalability and whatever. But like, the reality is, like, if you look at the gaming market at large, traditionally, if you look at like the very valuable companies, , they're gaming studios, right?

They're not infrastructure [01:07:00] companies. Like, you know, they're probably the biggest gaming infra company, so to speak, is like, Unity, right. Which is a 6 billion company. I think last I checked, But, you know, Activision, which is, you know, they just make games, got bought for 70 billion, right.

, so just in a very, historical way, like content is actually very valuable. So I think , that's the one piece to that, , in particular on the VR side. And so like, even in our portfolio right now, we have a four or five person team, they're expanding a little bit now. But they raised, a little over a million dollars.

And they're probably going to exceed 20 million in revenue this year. So it's like a VR studio. They probably never need to raise again. you know, And so a lot of the bets that we're making is that, you know, we're moving towards a trend where companies can be built that only need to raise once and then kind of become profitable and just like self sustain their growth.

And they can sort of grow on the same trajectory because of that as if they were venture backed. So that's kind of the content side. then, on the hardware side, I think the [01:08:00] interesting thing about robotics, and I think one reason it's really interesting to invest in this specifically right now is on one hand, off the shelf parts have gotten quite cheap, to build robots.

So I think usually when you think of hardware, traditionally it's, You got to raise millions of dollars. It's expensive to build. It takes a lot of resource. It takes a long time. You might need to raise a few million over a couple of years, even get to prototype stage and so on and so on and so on.

Right. Which made it very risky because particularly at the very beginning, because, you know, particularly when you're investing like pre seed into a robotics company, you're like, it takes a very, very long time to actually see if your investment makes any tangible sense. That's not really true anymore.

And, you know, I've invested in a couple of companies now where, They've been able to go to market with prototypes and actually deploy hardware into the real world with like 500 grand, right? You know, so it's a really, you're at a point now where things have gotten so cheap that you can actually start to see market traction on these things much, much earlier than you could have like even three, four years ago.

So that's the [01:09:00] one thing. The other thing is everybody's benefiting from all the AI trends, right? And that sort of tied coupled in with that just enables, new categories of market viable robots that didn't exist particularly more in the consumer space because you're kind of breaking down that communication barrier between, , what has typically been difficult and to control in terms of inputting into a, into a piece of hardware, into a robot.

Versus now, everybody can just use natural language, and so that communication layer is actually quite important, not just for actually the hardware, but actually the software side of the hardware, because, you know, I think that's always a thing to emphasize that for hardware or for robots generally, there's of course the hardware component which has gotten cheaper, and now the software component that of course is the brain of, the machine, right, that animates the machine, that has become a lot more advanced.

And so there are a lot of opportunities there, but the same sort of trend holds that You're able to produce market viable businesses with just a lot less money and a lot quicker time. [01:10:00] This is more true for like VR content than for robotics right now, I would say, but generally speaking, you can just, just generate market traction quicker.

So the game's kind of changing there. And so. More on the robotics side, I would definitely also say that there are a lot of new categories that are being created. So, for example, like, we have a company, Nunu, , which, they're basically building, like, a quality assurance agent for robotics.

So, you know, you build a robot, and this thing is some sort of quality assurance mechanism that, like, red teams that robot in real space. So this is going to be really valuable if you assume that we're just building more and more and more robots and it becomes a bigger part of the future, which, most forecasts indicate.

But there right now, given the maturity of the market, are targeting gaming, right? And so they're using this for gaming agents and like quality assurance and gaming and that sort of thing. And that's actually really interesting, but I think a lot of people don't really know how to underwrite these things.

It's like a completely new [01:11:00] category. And so that's a little bit more dicey, I would say, to be honest. Like, I've had conversation with the founders before that have gone very much in the direction of, we don't know what benchmarks for these kinds of businesses look like to go from, say, pre seed to seed, because it's a totally new category.

And I think a lot of people just don't know how to underwrite the opportunity, where the mentality has often become. Well, we have 1. 5 million. We can go super lean, right? We can stay at three, four person team, have really, really minimal burn and just find charts, start to find some product market fit and just go from there and sort of just grow the business really without being VC dependent.

And so I think that's the general just mentality you're seeing from a lot of these founders is that they're going in a direction, That's more focused on let's just get some initial capital in the door to get started and to start building, but then like get ourselves off the VC dependency train really, really quickly because there's actually market opportunity and there's opportunity to make [01:12:00] money.

And so that's just also a mentality shift that I've seen, but again, it's kind of aided by some of these, these just fundamental steps up and. Off the shelf parts, better off the shelf technology for all intents and purposes, that's enabling that.

So I think that's the high level view on it.

Things are changing right before our eyes and you're entering at such an incredible time for all of us to watch. Very excited to see where you go with all this. Dan, is there any last words on your side?

equally excited. Can't wait to happens in the next, you know, six months, year with you and the fund. Yeah, hopefully we get to go back and do this same chat again

my gosh, thank you so much for this interview, Arian, where can people find you online?

Um, Twitter, as we just talked about, is probably the best. LinkedIn, if you insist. Uh, also, email. I try to be very responsive on email, so I, you know, I don't know if you have show notes or so, but, you know, you can drop that, but arian on earthling.vc, yeah, that's probably the best way.

Love it

[01:13:00] You're amazing. This was awesome.

Shaherose: This particular episode is coming from the perspective of someone who is an emerging, GP.

So as we share these takeaways, it's with that mindset, but I noticed a lot of the thoughts that came up for me from this came up for me from this this apply really across the board.

maybe I'll just start with like something that stuck with me that I'd love to hear your take on that, isn't new and through various episodes we've heard this really, which is like to be a great investor.

A VC, an emerging manager, or an angel sort of being known for a space or thesis or a type of founder, really goes a long way, right? It builds a flywheel, it builds your focus it leads to you hopefully seeing the top 1%. Of talent and companies to invest in. And when we talked about that, it kind of like reminded me that, well,

The tech industry has matured. VC has matured. It's no longer the wild west where, there's just a fewer number of opportunities and less money. It's like the opposite, right?

There's so [01:14:00] many opportunities. There's so much money. There's so many people trying to do, VC, trying to be entrepreneurs. And I think in a crowded space now, specialization, building a flywheel, standing for something specific, kind of is the only way to go.

What do you think?

Dan Hightower: I think the best emerging managers default into their space by virtue of what they were previously doing and what they were previously doing means perhaps a specific area of technical expertise or just a specific network. then you sort of default into built in advantage that your fund has.

Most people do that. Some emerging managers kind of just like randomly pick one, and kind of go after it because they understand what you're saying, which is like, you need to have some sort of shtick if you're going to be successful. So I guess that's one way of like filtering perhaps for LPs, right?

Like it's one thing to have a shtick or a vertical. It's another thing to have [01:15:00] come from that vertical and have worked in it before.

Shaherose: So the thing in that conversation we talked about, or he, he reflected on a conversation that, Chris Dixon had shared on the 20VC podcast about truffle hunting and heat seeking. And I was curious your take on that I am seeing a difference between the the deal characteristics of the deals that tend to end up with smaller emerging funds versus the big mega funds.

And it feels like two parallel worlds where sometimes they'll, they'll collide, right? Like someone who maybe got invested in by a smaller fund eventually gets invested by a larger fund and maybe not the other way around. Um, Like truffle hunting versus heat seeking. I think that's a, feels like a clear distinction that has now happened.

Do you see that? Is there a clear delineation?

Dan Hightower: I mean, maybe we should, can we define truffle hunting and heat seeking for the audience?

Shaherose: Well, look, I didn't listen to the podcast, so I hope I didn't get it wrong. But what I, [01:16:00] what I took away was more specialized deals. Well, truffle hunting, I think I understood it as like. Not hot deals, but like diamonds in a rough, right. That like, I mean, truffles are so hard to find. So are diamonds

Dan Hightower: I mean, the truffle, truffle analogy is useful because you have this, like, you have to develop certain methods of finding the truffles, whether it's a pig who happens to have a skillset for smelling them out or whatever, it's like a unique thing that enables you to find them . Heat seeking is like, , it's blatantly obvious because of, you know, co investor signal,

Shaherose: or founder signal because they're like two or three times founder or something like that. And I think the deal characteristics end up being in the heat seeking category, higher valuations at an earlier stage versus not. That's my guess. And no. Is that the sort of like, are you seeing that delineation as well?

Dan Hightower: I mean, [01:17:00] it's easy to say like, okay, the big funds, the well known funds, , they're heat seekers or they actually are the ones that create the heat. And so they're never not in a heat seeking situation. But I don't know if that's true because the biggest funds also operate These scout programs at scale that you've like kind of, you kind of, or it's at a scale that's kind of hard to fathom.

They actually employ thousands of truffle smelling pigs and they, in parallel to heat seeking and creating heat, they also have truffle hunt, an incredible. Scale. so in that way, I think, you know, the, the argument that an emerging manager has like a monopoly on truffle hunting is sort of like false, I think.

Dan Hightower: But I think if you have an emerging manager with a really unique skillset, technical background or network, then you have a, um, those, those unique characteristics are truffle seeking. If you will,

Shaherose: That's right. I think you're right. I think [01:18:00] that's where the conversation goes is that probably emerging managers, smaller funds play the truffle hunting game because it would be hard for us to do that. Us, I assume we're in that camp, to play in the heat seeking game. I mean, you and I have certainly participated in hot deals for sure.

So maybe it's not so cut and dry. Maybe it's just it is what it's,

Dan Hightower: those hot deals we got into, a large degree of effort and energy went into just getting into them. And we paid for it in terms of price. As an emerging manager? I don't know, like, can you repeatedly do that perhaps?

But there's a negative feedback loop on that. Right? Like, if you have access to it, why do you have access to it?

Shaherose: Yeah. In hindsight, I wonder that too. And so, \ when you're not at a mega fund. And you're now, , five years in, you and I, investing in both, both [01:19:00] truffle hunting ways and also heat seeking ways. What do you do today? Like, what do you look for?

Do you stay away from the heat seeking or the heaters or the hot deals? The heaters.

Dan Hightower: I mean, like, I don't, I don't know, like, I don't have a, uh, like a, a long enough track record deploying capital, like a very consistent manner to say, I know exactly what works and what doesn't, but it feels like you're better off, in a truffle seeking. Strategy. Duh nuh. I actually don't even know you could, okay, like let's say you do raise a fund and you're going to be a heat seeker.

can you do that? Like, can you actually go out and raise a certain amount of capital and know that you're going to be able to deploy it, get invited to these heat seeking deals and get in, get an allocation maybe? Um, No, I feel, really good about the bets that I make that are like 3 million bell, bell caps on a safe, you know, you're just like, yeah, the founder started it yesterday.

Shaherose: I think for me, I, [01:20:00] I learned that. Over the years that you and I invested together, I had to do a couple of those deals and I'm proud of getting into some of those heat seeking deals. And I'm not the biggest check and the valuations were high. And, just going to look like a different profile than some of these very early companies.

Dan Hightower: I think a lot of emerging managers have figured that out. I've found success in carving out how they truffle hunt. Having a technical background in VR, investing in VR companies is excellent. And I think if you look across enough emerging manager funds and compare their returns to, larger, more established funds, it could be quite surprising in a couple of years to see what the return profiles are.

Shaherose: Yeah. And historically , they've done well. So let's see where This set of vintages go,

Dan Hightower: Another takeaway that came up for me, I am very torn on this one. So I really can't wait to chat about this with you. The discussion we had at the end around SF versus not, um, I [01:21:00] feel like I'm old school here. I'm someone who has spent majority of her career in the Bay and have long held the view that. To start a company in particular tech spaces, maybe not all spaces, maybe not CPG, maybe, maybe not FinTech.

Shaherose: And I don't even know what the right list is, that it's a city that aligns to the mindset of hypergrowth. It's a city that, All of that allows for you to go out on a social setting and talk about work and keeps you in your game constantly to create the momentum that you need where even if you're out and about Trying to have dinner.

You might meet someone you might want to hire or someone who can make an intro for you that like contributes to the speed and the momentum because of the density. And I often tell founders, like, that's the advantage. And if you choose to come here, if you're already here, Make sure you get out for good periods of time because this is a bubble and you can build your [01:22:00] bias, right?

And think you're doing everything right And it's bias in terms of types of users that are here and even just how the world works, right? The world works a little differently here. Like what's your take? Does SF lead to superior Investments and outcomes on average.

Would you tell your founders?

Dan Hightower: I kind of look at it through the lens of what are the jobs to be done as a founder. There's, there's hiring and attracting talent. I think you have a very clear advantage in doing so when you are somewhere where there is a lot of talent geographically. I think it's just kind of hard to really recruit.

through zoom, for, you know, your first 10 hires. So later on, sure. And then after you've recruited talent, you have to build stuff. And so the like, what do we build part? Definitely in person. In the big initial movements of actually laying down the first lines of code, sure, same room. I think there [01:23:00] is a point though where like the advantage is like sort of a diminishing return.

The work becomes process and customers need support now. You should still have a central place where you can convene maybe on a quarterly basis, reset strategy, plan for the next quarter. But at that point, I'm not totally convinced that there should be this like, fixation on, being in SF or even New York or wherever.

and so I think that part will be distributed eventually. And we'll, in 2030, we'll be like, man, it was kind of like when everyone was like, Oh yeah, you got to go get an MBA. Like, Oh, you have to be an SF. Like true in some regards. Yeah. But others, not so much.

Shaherose: Yeah. I like your delineation, and when you say, Hey, at a certain point, it changes. My interpretation is the right time for that to shift to distributed or, headquartered elsewhere is post product market fit.

Dan Hightower: one of [01:24:00] the things I picked up from, which I really believe in from Avlock, our CEO at AngelList is this concept of stacking S curves. that's what we do at AngelList and the best companies also do that. And stacking S curves is like, you've innovated once and you've ridden that growth and it starts to taper.

And so you innovate again. And you stack these S curves in order to create, a massive company. What that means from like a, how close should you be to San Francisco? Perspective is probably that you like boomerang back and forth or something like that, or wherever it is, if it's New York, great, but, um, If you're going to stack S curves, then you are going to repeatedly have these periods of planning and building.

It's unlikely that you're going to ride one S curve into the sunset.

Shaherose: That's interesting. Wow. I like that. That could be another sort of framework, for operating that people

Dan Hightower: Yeah,

Shaherose: really rally behind. [01:25:00] Yeah.

Thank you. Um, I have a last question to ask you. but before I do that, anything you want to share

Dan Hightower: from the conversation we had, one of the takeaways was, We spent a lot of time talking about his marquee investment and how it originated from someone he essentially knew prior to becoming a professional investor. And I think there is a lot to that. The co founder I knew at Trust and Will was a friend before he started Trust and Will.

And I've repeatedly heard from investors that, counterintuitively their best investments have been either in like acquaintances or friends. and there's no data for that, but like, it feels right to me. And it stuck out as like a, an example, like, you know, despite his efforts to build a pipeline of deals in his particular vertical, his number one example was actually some investment that did not come from the, the structure around his deal [01:26:00] flow.

Shaherose: yeah, that has actually come up in a lot of our interviews over and over again. And I think it's a reminder to listeners that there are people in your network that you should make sure you're in touch with because you never know. Where that's going to go. And sometimes it's actually the lowest lift, right?

Is, to find out what's happening inside your immediate network.

Dan Hightower: Totally.

Shaherose: Very cool. Good reflection. the last thing I wanted to chat with you about was the conversation at the end that we had around these capital efficient companies that are getting started. And it's interesting because he's investing in some spaces like ARVR studios, like media and hardware, and they're, realizing that they can have really lean teams generate to 3 million after a first round. And. Is, you know, I had this conversation on the podcast, even again with Tyler Willis and a few others. These are a different type of profile, right?

Because [01:27:00] now you can't really track MOIC if they don't raise, but you hopefully will get some DPI because they're great companies. What's your take on this? What would you call them? Should VCs be investing in them? I think the answer is yes, like sounds like a successful company, but it's breaking the mold.

Thoughts?

Dan Hightower: I mean, it's definitely different. We fixate on capital raised, even so far as to set our main metrics on the assumption that they will continue to raise it. So markups, right. But I mean, like when a company distributes profits, that's the flex. Like that's the, we're not here to perpetually raise capital and lose it.

And it's, it is funny that, , that concept breaks the venture model. and that's about all I have right now. I think it's a funny thing to all of a sudden, be like taken aback by the fact that there's a company in your portfolio that's good. they don't need more.

And I think we're going to see more of it. This is easy for me to [01:28:00] say, but AI creates the, possibility that you will need fewer team members to, produce outsized returns. And, if that's true, then I mean, the main use of capital is people. If you need fewer of them, the math changes significantly.

So I, my hypothesis is this is like the start of many, many more, funds that are impacted by this conundrum, which is like, how do I make my numbers work for my LPs? one day it doesn't matter, right? cause they'll get acquired or IPO if they're that great. And then the numbers shake out, but we're talking about this weird period of time in between the investment and in that eventual outcome.

where yeah it's all off uh and I think that's a really high level take because there are probably really really sound ways to arrive at a proper metric that fits back into the reporting requirements that the fund has, for companies that just are [01:29:00] profitable.

Shaherose: Yeah, because you can't report DPI until there's DPI, right? So it's like what we were kind of alluding to, like, do we mark them based on a revenue metric, right? Like a PE style valuation

Dan Hightower: there's when it's extremely trusted and, sound concepts that funds could use in this, in this scenario. I'm less interested in that. I'm super interested in companies that actually like distribute profits along the way. I think that's a really cool, , concept that we might see more of.

AngelList will figure out that new metric that we can track in our portfolios.

Yeah. Or maybe we'll, uh, automate those profit distributions.

Shaherose: Exactly.

Dan Hightower: yeah,

Shaherose: Cheers to DPI, friends.

Dan Hightower: yeah.

Shaherose: This is great. Uh, thank you for taking the time.

Dan Hightower: Thank you for your time.

Shaherose: Yeah. Looking forward to doing another podcast with you. [01:30:00]