My guest today is Mitchell Green, the

founder of Lead Edge Capital. When I

think about Lead Edge, I sort of think

about this giant money machine that

Mitchell and his two partners have

designed over the last 15 plus years to

make remarkably consistent investment

returns for their clients. They have all

sorts of unique aspects to the machine

that they built, whether that's their

collection of LPS, their eight-point

criteria for how they select companies,

the way they do cold calls, the way they

construct their portfolio. This is just

a totally different way of approaching

markets. They're trying to hit singles

and doubles and deliver very consistent

returns. Mitchell says it's really

important in life to be memorable.

That's just a great simple thing that

you can do. I think you'll find

listening to Mitchell today and him talk

about his entire machine and the firm

that he's built that he himself is

extremely memorable. I hope you enjoy

learning about his business.

So the first time that I heard about

lead edge capital was was the very

famous list of what companies report

starting with cash profits and then if

they don't have cash profits and you go

down this very funny list

>> hierarchy of [ __ ]

>> Yeah. And the the bottom one is the

place that's voted the best place to

work in New York City or something.

>> Absolutely.

>> Where did that list come from? Why did

you put that together? We've always

found that the best way to communicate

with, you know, our audiences, which is

entrepreneurs

and also our investor

letter about a different topic. And I

started my career cold calling companies

and that's the way we source deals. But

when you start your career talking to I

think Brian and I probably spoke to like

10,000 companies

and if you want to know it's a good

company just, you know,

call 10,000 of them. You'll figure out

really quick. It's pretty good pattern

recognition. Until like our head of PR

coms came in a few years ago. We had

actually never posted any of these

things online. We joked that we sent

this letter to some people in the VC

community. one of which is like our

buddy Andre Horowitz and they posted it

online for us. Um we just thought like

think like it's like a very simple way

like in a world where people spout off

total [ __ ] all the time and like you

see everything in DAX this is just like

a good way to distill it.

>> Talk to me about the 10,000 calls. What

did you learn calling that many

companies? You learn to be very

disciplined actually and you learn that

most things are actually just noise and

to figure out like what makes a lead

edge company and then try to ignore

everything else. You learn a lot about

like responsiveness of people and like

more I think more responsive CEOs tend

to be better CEOs. I think another thing

you learn that's really important for

young people, if you tell an

entrepreneur that you're going to

actually do something, then actually do

it. And in a I think that's actually

true of like life. Um there are so many

people that say they'll do they do

things that just like never do them. And

so if you're known as a as a firm and a

or a person that actually does what you

say you're going to do, it goes a long

way. So if you tell an entrepreneur,

hey, I know somebody at

Adobe. do you want an intro because it

looks like it would be helpful for your

business? And he says, and here she

says, I'd love to. Well, then guess

what? Follow up with that. Like, do what

you say you're going to do.

>> Can you describe what seems to me like I

would call it a machine that is Lead

Edge

>> much more than most investment firms

where a lot of great investors will tell

you there's a lot of art, there's a lot

of um, you know, everything's different.

Lead Edge feels to me like unbelievably

well constructed as a machine to produce

returns. Um I'd love you to just before

we go into all the details of the as

component aspects of the machine

describe the machine itself at a high

level before I you know I was

>> um

>> we run this place like it's a software

company um my background was at Bessemer

uh where I worked for somebody that was

extremely disciplined that was building

the code program my other partner Brian

worked at Bessemer we were the first two

cold cars and my other partner Nema

worked at Insight and I think insight

and I know you know Jeff was on recently

is is one of the best like software

investment or invest technology

investment machines on the planet. So

we've like modeled ourselves on that,

you know, to build a good investment

firm that stands the test of time. If

you want to go build the next TA

Associates or General Atlantic or, you

know, Bessemer or Sequoia, you just have

to be like extremely rigorous. And so

our number one KPI that we run this

place by is what is our gross dollar

retention for LPS? We want like 95%

gross dollar retention because the only

way you can get that is one have good

investment returns and great client

services. So how do you through long

periods of time across people that will

come and go generate like world-class

returns is you need to have like a

process and the process for us starts

with you know 18 22 to 24 year olds that

you know talk to about 9,000 companies a

year. You get those 9,000 companies like

how do you figure out which ones to work

on? So then you need this like framework

to guide these 18 people to like well

it's gonna be an interesting company

because in the investment business like

we have one asset it's time and it's

like precious and so like how do you

guide people to say no quick and so we

built this framework that we really took

from coming out of Bessemer and so like

they helped build the Bessemer 5 we took

the Bessemer 5 turned it into lead eight

and it's like drives everything we do

now when we find the company We're then

super creative. We'll buy 10% 80% LPS

out of a 20-y old fund, buy employee

secondary, you know, fund somebody's CV,

we don't care. We'll do anything.

>> If I think about the two sides being the

LPS and the companies that you invest

in, I'll come back to the eight

criteria. The LP story that you have is

also quite distinct and different. Can

you describe that in a lot of detail?

>> Sure. Our LP base is all like

world-class exeacts and entrepreneurs.

Um, I know we do have some big

institutions, but 95% of our capital is

like all these world-class execs and

entrepreneurs and

we use these LPs

throughout the entire investment life

cycle. It literally starts with

sourcing. If a company won't call us

back, we'll email our LPs. Two, let's

say it's like an automotive software

company. We'll have Rick Wagner, the

former CEO of GM, who's a longtime

investor. We will be like, will you send

them like the CEO a note? And if you're

like an automotive software CEO and the

former CEO of General Motors calls you

like they're way more likely to take an

email than like my any knucklehead email

on them or a 22-y old email in them then

for diligence we'll say hey it's like

you're a healthcare software company 25

million of revenue maybe you say like

biotech or pharmaceutical software it's

like oh I see fizer is a customer how

big is it 2 million bucks could be

bigger oh it could be 10 million I'll

meet the former CEO and then I'll call

up Ian Reed and be like hey Ian can you

talk to this company they'd love to talk

to you. By the way, can you like tell us

what you think? And then if it's super

interesting, could you like call could

you [ __ ] call Fizer and like back

channel it? And then you you might say

the entrepreneur, hey, I don't see

Biogen as a customer. Would you want to

meet the former CEO? So you call up

George, you're like, "Hey, George, I

found this company. It meets seven of

our eight criteria." Then like post

investment, we literally send emails to

our LPs. Be like, hey, you know, Toast

is looking for intros to these

restaurants. Do you know anybody? And it

turns out all these people invest in

funds and never get asked for help.

That's how we do it and how we leverage

them. But it's not actually why we did

it. It would be a lot easier to go have

20 giant institutions write you 50 to

$300 million checks versus me spending a

huge amount of my time running around

the world all the time spending time

with these people. Because if you want

95% retention, that's what you need to

do because they're your clients. The

reason we did it is because I knew that

the returns in this sector in the tech

investing sector flow to the top 10% of

funds. Like they they just do it is and

by it probably is the same in real

estate. It probably the same as

industrial buyouts. But like I knew in

the venture world that it definitely

flowed to that. And I had the pleasure

of working for one of these firms best

venture partners. So when I was starting

lead edge I was like why in God's name

is anybody gonna take my money? I could

teach him how to ski, but that isn't

going to be very helpful. But I said,

you know what? Had I been the global

head of HR at Proctor and Gamble and my

partner been the global head of HR at

Microsoft and the other one been the

head of HR at Nike. When I called

workday 80 times at Bessemer and Dave

Duffield by the end was like, I'll hire

you as a salesperson. I'm not taking

your guy's money. Um, if I had been like

a world-class HR exact, he would have

engaged with me because he would have

known that I could have introduced to

those companies. Like I have tons of

other HR exacts. I know these people in

a world that's super crowded and

undifferentiated and I think it's

exponentially the case more today even

than what it was 15 years ago. Um, it

just like differentiates us and we do

what we say we're going to do.

>> How many LPs do you have?

>> Probably like 800. 95% by number are

these executives. Yeah. If you think

about the level of returns versus the

consistency of returns, how much does

one matter versus the other for the ex

for this 95% gross retention?

>> I think consistency is more important on

a per deal basis.

We're trying to make a 2 to 5x in 3 to

seven years. That's like a 25 net IR if

you just actually map it on a curve. Put

it into a fund.

We want to generate you two to 2 and

a/4x nets with 20 net IRS. Some of those

deals aren't going to be 5xes. Some of

them might be 7xs. We try to our

downsides have been very low. We've I

think we've only lost all of our money

like in one deal ever. And that's

because of the like the the kind of

criteria we look for in a company, what

our average company looks like and the

fact that very few of our companies have

any debt on them now. So I try I'm

trying to make a two to two and a/4x net

which is more like a two and a halfx

gross.

However, if something is a really big

investment in the fund and we do not run

funds with like a 100 15 companies in

them. We have we run funds with like 20

investments in them. So if we've made

something a 7 10 12 15% position and

that goes like 8 10 12x that's how you

can 3x net a fund.

>> Yeah. And so because you rarely lose

money, does that mean you also almost

never hit some like giant grand slam?

>> Correct. We're like Cal Ripken doubles

doubles and triples. Uh yeah, we're not

uh we were not Sammy Sosa or like Mark

Magguire. It's all about um hitting

doubles and triples and and if you do

that with very little leverage in the

portfolio, 90% of our companies or 85%

of our companies are like recurring

revenue. So if you invest today and know

what revenues are in July, that's like a

pretty good way to invest. 50 60% of our

companies are like profitable

businesses. Now you you may get it wrong

like you may back the wrong team. You

may overestimate the size of the market,

but I think like 70% of the time we own

the prep. So you may get your downside

1x. Now sometimes you need to like go

cut the recut the deal with the

entrepreneur or the management team. So

you're making slightly less than that.

But if you can avoid zeros like you in

and turn those zeros into like 08 X's

or.1 X's, it massively helps return.

We'll sell like we we will out of

probably a third of our exits have been

secondaries. We will buy secondaries. We

will also sell. We constantly

underwrite. We've been referred to as

traders or like for like hedge fun guys

and we're like no no we're just trying

to actually make money because this

company is about to be a living dead and

you're going to be in this thing for the

next decade.

>> Maybe spend a minute before you go

through the buy criteria talking about

selling more. So what is the process?

>> We have an investment committee. There's

three of us. Myself, Brian, and Eman

been here all since fun one. We have a

disposition committee. Same thing. We

meet. We think a lot of firms do a

really really good job on the buy. Very

very few firms do a very good job on the

sell, like knowing when to sell,

pressuring to sell, and we would we

would tell you that the private equity

funds tend to do a much better job on

the sell than most like venture growth

guys. Um and like hedge funds if you do

invest public equities or long only

funds like you constantly can buy and

sell. The three of us meet you know one

to twice a month and just like walk

through the portfolio and just talk

about it like hey there's a round going

down in this company should we sell like

how can we try to position this company

for a sale over the next 12 months? The

fastest way to get fired at Lead Edge is

have a company and not tell us when

there's a liquidity opportunity or just

like something's about to happen before

it happens. What does the holding period

end up being on average then?

>> I bet our average holds are three and a

half to four years probably.

>> Yeah,

>> we took advantage. Everybody gets all

excited by these by our 2015, 2016,

2017, 2018 returns. Like our 15 and 18

returns look very good, but it's just

multiple expansion and we sold. That's

it. Like if you think you're going to

make a 2x in four years and you make a

4x in two years, it's amazing what it

does to to net IR, right? People forget

the reverse happened in 2021. Nobody's

20 and 21 funds. I think the venture

growth uh ecosystem gets like a bad rap,

but it's going to be every alternative

asset. Their 20 and 21 funds are going

to be awful relative to earlier funds

because you had, you know, people

thought they were going to make, you

know, a 4x in, you know, in in two years

and are instead making a 1.6x in eight

years. And so like that's going to drive

that's going to have huge impacts on the

industry.

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works.com to get started. What is the uh

most interesting thing about the skill

of selling and making the transaction

happen? Like presumably it's easiest to

sell in private markets when a lot of

other people are really excited about

buying. Uh you can't just hit sell like

in public markets.

>> Correct.

>> Um yeah, maybe in like a a bad medium

good. Like there's different kinds of

outcomes that you'd be selling into. Are

most of your sales into everyone else is

excited and you're less excited?

>> It can be like everything in between.

Like if a company goes public, it's just

hit a 2 to 5x in 3 to seven years

>> and then sell

>> and then and then like so you're like

the company goes public, you're at like

a 3.3x

in 18 months or 24 months. You're like

that annihilates a 12% or 20% net IR.

It's a great company, but we constantly

are underwriting like what's a forward

net return from here. And we're like,

well, okay, we made a we made like a 3x

and 18 months. That's like an IPO. Um,

in a secondary sale, it's about

underwriting the forward IR in toast,

which is one of our biggest investments,

which we put like 12% of our fund three

into. And we'd always get crap. Our fund

three was like a $290 million fund. And

we put like 36 million bucks into it.

And before the IPO, we had sold 180

million bucks. We think we'd make like

350 to 400 in it total. People like,

"Why are you selling? You don't believe

in us." We're like, "No, no, all these

other knuckleheads like that invested

alongside us." None of them put 12% of

their fund in it. And by the way,

somebody is paying us a price in the

secondary markets that we think, you

know, is just like lunacy. We sold like

in the secondary markets like 40 or 50

bucks in toast. The stock today is like

30 bucks. We think it's cheap, but it's

just like, by the way, we sold like six

years ago. Um, and so it's a constantly

underwriting forward IRRa.

>> Okay, now I get to talk about the eight

buying criteria. Uh, I don't know if you

want to like tick them off or give us

some highlights or

>> Okay, some highlights. Uh, so there's

eight criteria. I get 10 million plus in

revenue.

Why do you have like product market fit?

Are you growing? Because we don't invest

in startups. Are you growing like 25% a

year? We generate returns through

growth. Um, we don't use leverage. you

have 70% plus gross margins. Why?

Because at the end of the day, you trade

on multiples of earnings. Revenue

multiples are just like shorthand math

for like what what it will be even more

multiples or earnings multiples when you

uh you know don't grow that fast.

There's a reason that Facebook you know

gives away like you know electronics in

the in the vending machines and Dell

charges for Cokes. just like one has 80%

gross margins and one has like 15% gross

margins and we think that just drives at

the end of the day earnings. Um are you

recurring? It's like a heck of a lot

easier to invest knowing what revenues

will be today. So I know what they'll be

in July than they are today. Um are you

capital efficient? This metric is

probably kept us out of the most

trouble. It's like our version of return

on equity. I mean I think it's like

Warren Buffett would think we're idiots.

Um, are your revenues today greater than

your historical cash burn? So, what do I

mean by that? Are you your 20 revenue?

Have you burned 80? Like, you know,

every other tech company.

>> Cumulatively. Yeah. Have you burned 80

since inception or have you burned 10

since inception? We're looking for like

this one:1 ratio. In a world where

capital is a commodity, if you can build

a business that's growing nicely while

burning less than your while burning

less than your revenues, you've got a

pretty good business. Look, we don't

invest in startups. If you invest in

startups or $2 million revenue

companies, then obviously it's harder.

Are you profitable at the bottom line?

Do you have any customer concentration?

Like I just don't want to wake up and

find out 40% of my revenues like

disappeared because some customer didn't

decide they didn't want to work with

you. I want to talk about the price

you're willing to pay for companies and

where this like how you would plot

yourself on the so much so much of this

sounds like a private equity strategy

but you mentioned toast and it's not

like it grow toast was 25 million of

revenue growing 150% a year and it was

like we paid like 500 million bucks it

was like 20 times revenue people like

that's crazy it's like not when it went

from like 10 to 25 so we just try to

build like a forward model and you're

like look you could You can pay as high

as price as you want. You just got to be

right on your exit. You got to be right

on your multip. You know, how people got

in a bunch of trouble in 20 in 2020 and

2021. I think how they're going to get

in trouble today and all this AI stuff

is they just assume the exit multiple is

20 to 25 times. That's insanity because

when your exit multiple collapses now,

so you can pay 20 or 25 times revenues

and if you're right like some of our

companies have been, then it's

fantastic. But you can also be wrong

like some of our companies have been and

you look like an idiot and I think

investing in Open AI 800 billion is a

little insane personally but like I

don't know if it goes on to do like a tr

a trillion dollars of earnings. Yeah, I

I was going to be very wrong. I I should

have invested. It's almost like

shorthander. If you're like if this

company grows and doesn't del like 18

months, am I in the money and like can I

make like a decent return for what I'm

paying? And if the answer is like oh am

I even in the money in 18 months or 20

month 24 months? Yeah, you're paying way

too high price.

>> So, so right now there's this seismic

thing. You can look at like the

constellation and the constellation

software stock price or something as

like the perfect visual indicator of

what's been going on, which is

>> like a ski slope.

>> This intense skepticism of the market

that like boring traditional high gross

margin software businesses are worth

like much at all. But I'm curious how

you process this moment where I'm sure a

lot of the companies you're looking at

are software companies that uh have a

lot of the components that make people

fearful of those similar kinds of

companies in public markets.

>> Our belief for right or wrong is that

the competitive advantage of software

company has never been about R&D. We're

not building semiconductor chips. Like

we're not it's we're not building

biotech and pharma companies. This isn't

that to build like chamber of commerce

software. You too could build this. Like

you know my mother couldn't. But like my

brother could no problem. At least an

engineer. Um so could Microsoft. Any of

our companies in our portfolio. If

Microsoft took 500 people and gave them

a month, each one of our companies could

be out of business. But they just don't

care about the chamber of commerce

market. They don't care about the price

optimization market for manufacturing

companies. um they don't care about like

the tax the tax software market for a

very specific niche product. So like the

software companies like are really about

like distribution sales and marketing

customer success client services. So

we believe that it is the incumbent's

game to lose in in software today. Um

there's a reason I'll give you a couple

examples. Workday

has like 98 or 99% gross dollar

retention. It grows like 10 10 15% a

year. Oh, it only goes 10% a year. I'm

sorry. It's like 10 billion of revenue.

Um, it only took like 20 years to get

there and it does like three billion of

free cash flow. Exxon or the hospital

system or um, Waro Pinkis or KKR or

Proctor and Gamble probably spent three

to five years like implementing the

software. If you think they're going to

like start building their own HR

software, you're on your mind. Now the

guey in how you access it is going to be

far different but actually they already

have the customer relationships and the

only reason they built it is because

Dave Delfield and Neil realized 20 years

ago that Oracle and SAP had really

crappy products but they have like

thousands of engineers that are like

trying to build the product much better

and are going to use workday versus like

Mitchell Green's cousin like vibe coding

his way uh to build workday.

At the flip side, why did Koopa get

built? And the reason that it was able

to be built is SAP bought Aribba like

and they just like left it for debt. So

they built this like big business.

They took it public and now it's been

sold to to Bravo. So what I actually

worry about to Bravo or any of these big

private equity funds if they're putting

a bunch of debt on it's not growing that

fast anymore. If they're putting a bunch

of debt on it

and then what they do is they like they

like they brag. They like oh yeah we

drive all our companies to like rule of

50 businesses. Now, do they end up

cutting a bunch of people in R&D and

sales and marketing and product that

they should have that if you were being

run by an entrepreneur with no leverage,

you would have kept and and is now I I

worry that a bunch of these private

equity owned assets that are overlevered

are ripe for disruption versus like

independent software companies that are

that are focused on growth that are

trying to innovate. And I like to remind

people that the um if you look at

e-commerce, everybody in 99 and 2000,

everybody thought every big box retailer

was going out of business. But if you

look at the top 50 largest e-commerce

companies in the United States, you

know, yes, Amazon is number one. You

know who like two through 10 are?

Walmart, Home Depot, Lowe's, Macy's,

Target. I mean, Sax is a crappy company.

Their online business is actually pretty

good. Nean Marcus, same thing. a lot of

the incumbents will win. Now again, you

know, Montgomery Ward,

Kmart, Sears, busted bust for either

like overlevered, didn't innovate. So

like for us, that's what we're

constantly thinking about.

>> Does that mean that right now feels like

an especially opportune time for your

style because entry multiples are lower?

>> I think the best riskadjusted returns

right now are in

public software names. By the way, when

you b, you know, Warren Buffet says,

"Buy when everybody, you know, is

fearful and sell when like everybody's

super excited, people hate software."

You know, when we bought a bunch of our

bite dance stock two years ago when

everybody hated China, Alibaba has

doubled off its lows and doesn't grow

and trades at 15 times earnings.

>> If you think about the uh the CV like

the very specialist type buys that

you'll do. Can you explain an example of

one of those?

>> So, we like to use like the house

analogy. You walk down the street, you

go into apartment building, you're like,

"My apartment needs to have like these

six things. You can go in the front door

and you can lead the primary round um

and put money on the balance sheet or

you can buy the whole business. You can

go in the side door and buy like an

early uh investor or early employee out,

but like maybe that's not available. So,

we'll go through the basement window

with a pickaxe and buy like a

derivative." Because if you run a

business and this can of Pepsi owns 30%

of your business and I go to the glass

that is an investor in the can of

Pepsi's fund and that like is there half

the LPS and I like literally buy that

out and you own 30% and I buy half the

fund. I just bought 15% of your company.

It's the same damn thing. It's just a

derivative. Um now do you have as much

control? No. Do you have as much

insight? No. But like you trade off

price for access. We made a big

investment in uh in Zoom. Um, so we

couldn't go into the front door. The

company didn't need money. We sure as

heck weren't buying the entire business.

Um, there was you couldn't buy

secondary. There was secondary to buy.

You couldn't buy it because Sequoia

would roll for you. They're smart.

They're not dumb. They're like, "Why

would we let these knuckleheads in?"

Like, we'll take the stock and make two

to three times our money. And the

company was one that took a long time to

get funded and like wasn't backed by

Sequoia. They wanted it. It was back for

random Chinese people and Chinese funds.

So, there was it was actually second

year by, but you couldn't because

they're over. So, we're like, "Huh, why

don't we go to this fund that like has

stock and their LPs have been in this

thing for 10 years." Like, maybe their

LPs want to sell and we can do it one of

two ways. Like, we'll just buy your

position in the fund and we'll know

exactly how much we'll know exactly how

much Zoom we have to it. Or why don't

you just create like a new vehicle? Any

LP that wants to sell, we'll step into

their shoes. Well, if you own 2% of Zoom

and half the LPs want to sell and I then

step in those shoes, I now own 1% of

Zoom. And if I say to you, listen, we

get to vote them like we own them, but

you still hold it. So if you if you

sell, you know, if the company gets an

M&A offer and you get to vote, you have

to call us day 181 of the IPO after the

lockup, you got to give us the stock. We

just we just bought um the position in a

world where LPS and GPS are desperate

for liquidity. That part of our business

is absolutely booming. And that part of

our business uh is headed by Tim Beamer,

who's one of my oper one of my partners

who was actually a Notre Dame alum as

well. If I think about the dollars

deployed I don't know last year over the

next year how much of it is direct

capital on a balance sheet secondaries

something creative like what you

>> 70% creative balance sheet

>> 70% is special sets or like secondary

>> yeah and by the way we will evaluate in

an IC a public position a control buyout

a minority deal or a special sit like it

could be you could hit four different

things in one week And literally we just

all has we underwite the same return.

But today the opportunity is in it's

only gonna we are a market draw down

away from it exploding in in value or

like exploding in stuff to do.

>> So the hard part it seems like is

finding a company that has six of the

eight criteria that you can also buy at

a multiple that you're excited about for

the forward return. What percent of

companies meet like of the 9,000 or

whatever meet like all eight criteria?

>> By the way, no correlation how it

performs either. If we do like an eight

criteria deal versus like a five

criteria deal, there's like actually no

correlation to like it was a better

deal.

>> What about if you What about like four

or three?

>> We've never looked because we um so what

we try to do is if you say it must meet

eight criteria, 9,000 companies becomes

90.

>> Okay.

>> To do five or seven deals a year, it

just doesn't work. Um, and so for us,

what we say is it just like must meet

five. That's about a 10% yield. We're

trying to get to like 900 to a set of

companies that we can then like actually

do work on. So you have 900 companies

that meet five or more criteria.

You get to

you do work on about a you do diligence

on about 150 to 175 to do five to seven

deals a year. And you're like, why not

more? I'd love to, but like we're cold

calling entrepreneurs. They're like, oh,

I'm sorry. I want to sell my business

tomorrow. Like, oh, you just happen to

call me on this day. No, the sales

cycles can be a decade. Um, and it's

about staying in touch as entrepreneur

because we're not the only ones calling

them. There's great firms like Summit or

TA or Insight or, you know, Bessemer or

Battery and like great firms. And so,

it's like, well, ask the entrepreneur,

how do they need help? Try to like tease

information out of them. Oh, you sell

into like the consumer space. You want

to meet the former CEO K Pomolive. Um,

and you're doing that to try to like

build a relationship with somebody. So

if five criteria companies don't

outperform eight criteria companies,

doesn't that imply the criteria aren't

predictive? So then why have the

criteria?

>> Because you need to set a framework for

what to focus on and what not to focus

on. That's it. Like it's just getting to

a small predictive necessary. not

predictive, but it's getting us to a

small enough pool to like it's like

knowing your strike zone is like my

partner is a big baseball fan that uses

a baseball analogy like Ted Williams

knew in the hitting zone exactly where

to swing and what is probabilities for

swinging the ball. Like yes, you can hit

a ball 2 in above home plate and it

could be a grand slam and have hit the

ball the farthest you've ever hit it,

but if you do that over an entire

career, your entire career won't be very

long. Um, and so it just enables us to

know like what pitches to swing at. Our

biggest mistakes have honestly been not

swinging at the pitches when they were

in our strike zone. And I think that's

like what we've learned over the last 15

years to get more comfortable and like

when it's in our strike zone, swing at

it.

>> How do you train these young people to

be able to get all this information to

know whether or not it's an eight-point

score or whatever out of an

entrepreneur? Like what is the art of

getting someone on the phone and then

actually getting them to tell you the

information that you need?

>> It is incredible what people will tell

you on the phone. People are like, "Wait

a second, you just like call people and

they talk. People love to talk." Um,

it's investigative journalism with

sales. We tend to hire

people that are like former athletes.

But like getting a C or a D on a test is

not your like biggest failure. dropping

the ball at like the Rose Bowl or like

not making the Olympic team, that's like

failure. And so you're looking for

people that are like insanely

persistent.

People that are really inquisitive

and and then it's just, hey,

Patrick, pretend you're toast. We're

doing work on the restaurant point of

sales system space. I read a bunch of

articles that like sounds like you're

kicking butt. Oh, by the way, I just

talked to like Square and Clover and you

know, set a couple. We'd love to talk to

you on the phone. And oh, by the way,

I'm sure you're getting bombarded by

other people, but by the way, we're

we're different than a lot of firms. A

lot of our capital comes from world

class exacts. Like, oh, by the way, one

of our LPs, the former CEO Wendy's. We'd

be happy to talk to them if you want to

meet these people. Huh? Sure. Love to

chat. By the way, we used to get to cold

call people like when when Brian and I

on email were doing this like literally

cold call people and you like you feel

like the person who calls you at 6 PM,

you know, and you know, 20 years ago,

you like slam the phone done on today.

It's like my you guys get to send emails

to people, give me a break. Uh we

actually try to now encourage some of

the analysts to start calling people.

The biggest issue is like it's hard to

get people cell phone numbers versus

like, you know, work phones.

>> Um

>> and it's just like once you get the

person on the phone, you just have to

show knowledge. That's where, by the

way, AI is incredible. It's like you

give every analyst an associate, you

give them like the power of knowledge

and you can sound super smart and you

won't get everything. It's like, hey, I

saw on LinkedIn you have like 80

employees. So, what do you like 10

million revenue, 15 million revenue? Oh,

I see like your employee cost growing

like 80% a year. What are you growing

like 150%. Not that fast like oh what

like 100%. Yeah, around there. So, it's

like it's like trying numbers

>> if you think about this machine. And so

we've got this very unique LP base. We

do, you know, 9,000 calls, 5 to seven

investments per year.

>> We just raised our seventh fund. It was

three and a half billion.

>> Okay. So three and a half billion dollar

fund. Um two to two and a half%, you

know, net IRA or net netic to your

investors. So that's kind of the

machine.

>> Where do you feel the most tempted to go

tinker on the machine for the next

decade? Like how do you hope the machine

>> improves? continuing to

as the firm gets bigger.

How do you build a culture of teaching

people to still be creative scrappy

hustlers? That's the most important

thing. Like how do we get creative and

do CVS? We were doing CVS and nobody

wanted to do CVS. We didn't know they

were called CVs. We just thought it was

paying somebody a profit share. Um it's

like continuing to innovate on that.

What's really interesting is the

secondary markets now for some of these

names are so liquid. So actually you

almost don't even have to underwrite to

this thing going public. It's like can

it just get big enough with enough

escape velocity where I can then sell

out?

>> If you think about all the investments

you've made the last 5 years or

something. How often are you like

personally excited about the company and

its product? Frankly, this is what

drives me nuts about uh a lot of people

in the venture capital ecosystem is like

they think they're actually like like

changing the world and everybody should

which they are, but they should tell

everybody about it and they're like

doing God's greatest gift to mankind.

Like we don't think that we love helping

entrepreneurs. Like that is actually

what gets me excited and gets us up in

the morning. I think gets everybody up

at Lead Edge is like helping an

entrepreneur try to bend the curve and

like make that customer intro and like

help find that great CFO um or the audit

chair or whatever. We love making

customer intros. Like that's what gets

us the most excited and I and I think we

are still actually just scratching the

surface on how we can leverage our LP.

>> How often do you control the business?

>> We are in a control position about a

third of the time.

>> And when when that's the case, how

different is that?

>> It hopefully should be no different at

all, but there's less knuckleheads

around the table. Um there's less people

around the table. And what's really

interesting is when you have a lot of

different people around the table, you

can have a lot of different competing

interests. And so it's about building

consensus. Um, and you have people that

are in at one cost. Well, that's why all

there's all these 20 and 2021s companies

haven't sold. Like there's these late

stage guys that are like, "Oh, just get

me out. I own the pref. I'll make a 1x

today or I'll make a 1x in a decade."

But we don't go into companies and say

we're replacing the entire management.

This is not what we do. When we invest

in a business and when we exit, it's

something like 75% of the time, the

person who was running the business when

we invest is still involved in the

company. It may not be running it, but

it's like back people who just want to

build awesome businesses and great

companies and like it's like listen, if

I'm not the right CEO, well then make me

the chairman of the board or make me the

chief customer officer or make me the

chief product officer, whatever. that um

that's what's really important.

>> I want to go back to the culture thing.

Yeah. The lead edge culture. I mean,

what have you learned about culture in

the many years now that you've been

doing this and and especially given this

is the thing that you're you want to

keep nurturing?

>> I didn't think I appreciated how much

culture comes from the top. Um and so

like follow-ups, send handwritten thank

you notes. I've sent handwritten thank

you notes to everybody I meet. Almost

everybody I meet like every

entrepreneur, every company. Guess guess

who also does now? The 22-y old analyst.

And by the way, we track it and report

on it. And you know, if you just treat

people the way you want to be treated,

like that just flows. We've built a

culture of like

treat LPS like you yourself want to be

treated. People appreciate that and it

comes from the top. And like the

intellectual honesty comes from my

partner Nema. A lot of the creativity

comes from my partner Brian. Now, of

course, as you get to be 85, 90 people

at a firm, we've built like a real

training program, which is a result of a

lot of work Nean and like our our COO

Suz's done and that team and the

recruiting team. We didn't have like

weekly IC meetings before like three or

four years ago. Why? Because I was the

three of us. We talk every day.

>> Um, and so it's just like building

processes in place.

>> Can you talk about this crazy one-on-one

thing you do with every employee?

>> I got the idea from Tom Barnes at Excel

Kickare. he's built a true machine in

Excel KKKR. Um

I asked him

like what's what's like something I

should do like what do you think

something you do that like really helps

the firm? He's like interview everybody

once a year. So we sit down we start

with like a survey and then you need and

then you sit down with every employee.

>> You personally do. I personally do sit

down with every other partner, every VP,

every associate, the accounting person

on the back end, every receptionist, and

be like, "What do you like about your

job?" And so first, give me everything

you do. Green, red, yellow, green you

love, red you hate. And by the way,

let's figure out what you hate and why.

And if there's things you hate, well,

then let's figure out other people that

may be able to do them or how can we

make your job easier. Okay, that's the

first bucket. Second bucket, if you were

me running lead edge, what would you

change?

Three, what's something we can do to

make your job easier?

What you learn is incredible. You get a

bunch of really good ideas every year.

It actually drives my two partners nuts

because sometimes I'm like, "That's

amazing. Do it." And then like they're

like, "Come on, we need to have build

consensus." I'm like, "No, we don't need

to build consensus on some of these

things."

>> Is there anything else that you do in

the culture that you feel carries that

much freight? being like the good person

is like just not that hard frankly. And

in a world that's insanely competitive,

if like being the nice guy gets you the

call back and being like the helpful

person, um then then do it all day long.

And then it's another really important

thing about running this place is that

like I can't be the bottle. I can't know

every LP. And so like if you're a 25

year old or 23 year old associate here

and you have to go to Seattle next

weekend for a wedding, then I'll pay

your trip if you stay on Monday and go

meet a bunch of LPs. By the way, you're

23 years old. Like 99% of firms on this

planet wouldn't put 23-y olds in front

of LPs. I'm like, if you're smart enough

to work here, you're smart enough to

meet this LP. Like, I don't care. And

people love that. The 23-year-old

associates love it, which helps us get

great people, but then also the LP loves

it, too, because then they'll be like,

"Oh, my son is your age. Like, would you

would you would you mind like talking to

him?" Or, "Hey, you went to Notre Dame?

Oh, my son's like plays lacrosse and is

like thinking of going there. Would you

talk to him?" And be like, "Oh, well,

actually, no, talk to my partner Tim."

Because he like played Notre Dame

lacrosse. You just build really real

relationships with people.

>> If you think about the average month for

you and the major slices of the pie are

time with LPs, time with companies. I'm

so curious. It's actually kind of hard

to guess what maybe there's different

buckets than those three LPS companies.

>> Internals internal.

>> That's right.

>> What What does yours look like?

>> Um and mine's by the way very different

than Brian and Es. And this is by design

and it I mean it es and flows a little

bit with fundraising obviously.

>> I probably spend

60% of my time with LPS.

>> Wow. Now again that could be getting

somebody to help a company though too or

coordinating with the team um of people

with us like hey let's figure out a way

to get into Exxon and then I would say a

third of my 25 30% of my time is

investing related which could be reading

memos helping people win deals that's

frankly how I want to help like if we

lose a deal because I didn't meet the

company like I'm not saying I can help

us win but like we got to at least put

our best foot forward and then probably

15 20% is operational

the operation stuff's come down um

because

uh we hired one of our partners Susie

who lives in Greenwich um used to be an

investment partner a few years ago she

became our COO so that's like my time

neay probably spends 90% of his time

investing 10% of his time on everything

else which is what he should do uh and

kind of like running the IC partner

Brian probably spends 60% of his time

investing and probably

2020 on LPs and operations and it's if

like each the three of us if you were to

meet the three of us it would be very

it's very clear to people that spend

time with Brian Eman and I that we like

play to our strengths and weaknesses.

>> You mentioned Tom Barnes as someone that

you've learned from.

>> Yeah.

>> If you had to like create a Rushmore of

like other investment machines that you

most respect, who is the Rushmore?

>> Insight TA and probably Excel Kat. I

think Devin, Jeff, Triplet, the guys,

uh, Liberman at Insight have just built

like a factory. It's like it's, you

know, how you know what a good software

company is, it's talked to like they

probably talk to 30,000 companies a

year. It's it's like an absolute factory

and you're trying to like it's process

and so I think they're like amazing at

it. Um, TA is the one that like

pioneered cold calling. um in you know

insights obviously stayed true to itself

like you know in 2001 they they're I

would guess Insight's growth rate in

their portfolio between 2001 and like

today is actually pretty similar. TAS

has definitely come down. Uh they're

more private equity like it's just

discipline and process like I I think I

get the sense that TA is very good at

selling too. Um, and then Excel Exc has

built like an incredible value creation

team that I think actually adds a lot of

I think there's a lot of people that

talk about value creation. They don't do

much, but I get the sense that these

guys are um just like very good at um

actually helping companies and trying to

bend the needle.

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What have we missed about what makes the

machine tick that you think is really

important?

>> I would have said that the three of us

who run the machine are all very very

different and we play to our strengths

and I don't and I don't think that

should be like underestimated. Um, and I

think that's what makes the machine like

we literally negotiate carry economics

for the three of us in like 10 minutes.

like we and like there's firms you hear

about that like get into month-long

fights like two-monthl long fights over

Carrie. We all highly respect each other

and like know what we're each really

good at. Uh I think that's the I think

that's honestly and like just a focus on

intellectual honesty that I think a lot

of firms just don't have. If you go to

our investment comm some of our

investment committee meetings especially

out we our investment committee is the

three of us but then we like everybody

everybody that's basically VPN gets to

come but if you sit in the room and and

listen to Brian and Eay and I talk about

a deal you would think the three of us

hate each other or you might think we're

Israeli um because they it was like just

like a joke in Silicon Valley that if

you listen to like Israeli board meeting

from the outside you like these people

hate each other like how do they work no

that's that's just how they talk like uh

and then like right after we have the IC

we're the buddies and so it's like no

it's like let's debate the merits of

this deal.

>> Maybe riff a little bit more on just all

the ways that you're excited and fearful

about AI both in the investment process

at Lead Edge for running lead edge the

business and for the companies that you

invest in.

>> Yeah, I'm the most fearful for what I

don't know and just like AI is going to

change the world and it's going to do it

in ways that nobody can think about just

like the internet did. I mean in 2009

999 2000 we got sat here we wouldn't

have mentioned social media. I mean it's

today it's $3 trillion of value. I'm the

most like fearful whether it comes to

companies

and processes for that. It's like what

don't we know like which is what are we

missing? Um what am I the most excited

about for us? Like AI in the long term

will create the biggest productivity

game of the last you know 7500 years.

Don't know if it'll be like electricity

but like it'll be pretty damn close.

That's really exciting. like people and

but like it's not going to be like like

don't people get too excited about oh

we're going to go like build the next

piece of workday or we're going to go

build like better call center software

this stuff is going to like you're going

to see industries that we're not even

thinking about how to add even thinking

about what's going to like be possible

is going to happen that's like really

exciting it's going to be the age of

entrepreneurism and like people are

going to be able to build awesome

businesses what I worry about whether

it's internally at lead edge or outside

at our portfolio companies is do we have

the right people in place so that we

don't get disrupted and like cuz like

look it's you constantly want you want

to like I I joke you want to hire a

bunch of young people and these young

people but people worried about the

young people aren't going be able to

find jobs it's like the young people are

the ones that's going to figure out AI

more than the 60-year-old or 55-year-old

and so it's do we we actually rank all

we take all over our portfolio companies

and we're saying like okay like what's

your like AI readiness score and then

it's okay this company's like really

high this company's pretty low huh we

should like connect those entrepreneurs

together to figure out what they're

doing.

>> What goes into that score?

>> What's your data look like? Is it

structured in a way that you're going to

be able to leverage AI? Um, are you

iterating like how many new AI products

have you come out with? What's your AI

revenues on new products? You know, have

how much more product releases are you

able to release? It's not did your

engineering come stay flat or go down.

We actually I I for one strongly believe

that if you think in 2020 if your budget

in 2024 for 2026 was to have 150

software engineers, you should still

have 150 software engineers because

those software engineers can be like

exponentially more productive and they

can then create more products that your

sales team can then go sell.

>> Who do you compete with?

>> We would bid against Insight, FTV, JMI,

Battery, Bessemer's late when they do

late when they do like bootstrapish type

stuff. Um, okay. But sometimes we

compete against mech and IVP and like

but you like rocket ship companies in

Silicon Valley are freaking awesome.

Like I was not pay 100 times revenues

for them.

Uh, that's the that's the problem right

now. There's like too much money. Matt

Kohler said it best. It's like they back

these giant internet companies when

distribution was loose and capital was

tight. It's like the reverse happened.

So like capital's everywhere but like

four companies control distribution. So

like good luck going to build a giant

internet company. Um and right now

there's just like too much money chasing

you know at least in Silicon Valley do

few great things. So expand on that like

like decompose and expand on that a

little bit in so I guess the question is

like your view on the state of markets

and technology markets in general

>> overhyped over frothd um

and I believe this AI capex bubble will

end badly

uh in a way I just think people it's

like the telecom bubble all over again

and it will be it will be very

interesting if Apple may have been maybe

look like the really smart one in all

this at the end of the day uh we've seen

what they're I think people are just

going overspend. I think I'm convinced

that people invest in all these AI

companies, all these VCs, like have to

portray the view that software is dying,

is going to be dead because they have to

justify how much money they're going to

spend. Like if you if you start to run

these assumptions on like how much money

is going into these companies and what

that means for how much earnings you

have to drive and what that means for

like how much power you need to

generate. Like it just doesn't where are

the nuclear power plants coming up and

it like just doesn't work. Um but that

presents the opportunity. That's when

you're going to buy it. That's when

you're going to buy these companies. The

counterargument would be in telecom, you

know, it was all dark fiber. In AI, it's

all burning GPUs. And yes, the capex is

crazy, but we it's still we everything

still feels mega under supplied. And I'm

just curious how you think about Yeah.

when the opportunities will present

itself for an investor. I think um look

our fundament my fundamental belief is

that the models will commoditize

and that companies like Google have a

and Facebook and Amazon and Apple have a

competitive cost advantage. Amazon

companies like Amazon and Microsoft and

Google have more data to train a model

than than these new model companies will

ever have. If and then oh by the way uh

if you are all these like Chinese models

or European models a bunch of these

things cost a fraction of the cost to

run and so like and you can run them

locally and especially if your countries

company's outside the US like why would

you pay that amount for open AI tokens

or fantic tokens when you can just run

deepseeek or one of these other 10

models and so like I think we worry the

most about modelization. I have no clue

when this will like stop. It will

probably go longer than people think. In

99 and 2000, people also thought we were

in a bubble. They also think people

think we're in a bubble now and it will

just like stop. Is it one of these

monster IPOs happening that um you know,

and then it just doesn't go like people

think it does? You know, I think this

anthropic round was kind of like an IPO.

We're trying to hit doubles and triples.

A lot of these companies we struggle

with like they're either going to be 200

x's or 100 x's or zeros. Like it's just

that that's a str that's a struggle for

us. What kind of company in the AI like

center of the heat map? I know you're

probably not investing in any of them,

but because of the multiples or

whatever, what kinds of companies are

the most interesting to you? I think

it's like fascinating some of the stuff

that's being done in infrastructure

software like um and actually that like

agents appear to consume more resources

and actually people and so like the some

of these consumptionbased models like

the growth of companies like by dumb

luck we were very early investors in

click house u which a database company

we were early investors in graphana labs

infrastructure company that competes

with like data do data do like 29 like

high 20s 30% a year at scale um like

it's those types of companies I think we

find super interesting are I find them

fascinating. It's I really struggle with

the valuations but like the the growth

rates are like we've never seen and with

with very good economics. You see how

much money a company like Click House

has raised like what they've burned is

like

very little compared to what you might

otherwise think.

>> What do you think is the most surprising

thing about you? like like you have a

good sense of you from how you operate,

persistence, enthusiasm, energy, uh

process.

>> What do you think if I spent 10 hours

with you, I would be most surprised

about?

>> How like so probably how driven I am and

how much I like truly love what I do and

like I just put my like heart and soul

into everything I do. Whether it's like

racing cars, which I race cars

competitively, I was a national ranked

ski racer, or how I run the edge, like I

probably sleep like 5 hours a night,

four hours a night. It's cuz I love what

I do. I absolutely like just I'm

insanely competitive and and I think

that if you spent 10 hours with me,

you'd be like, "Oh my god, this guy is

the most persistent competitive person

we've ever I've ever met."

>> Were you born that way?

>> Yeah, I think I was born that way.

>> Was it enhanced through formative early

experience?

>> Ski racing. Ski skiing growing up as a

kid. Ski racing 100%.

>> Can you make that tangible for us? Like

what was it like?

>> Process like do these things and you'll

get better. do these things on video in

a GS course and constantly analyze video

and do these things the next run and

change this and like you fell get up and

go do it 10 more times. I grew up on a

ski hill that was 500 feet. I mean

Lindsay Vaughn, one of the best skiers

in the world, she grew up skiing on 500

feet buck hill in Minnesota and doing

laps like from 400 p.m. to 10 p.m. at

night. Like just repetitive like

Michaela Shiffron who's one of the best

female skiers in the world like views it

as her time on snow is like limited. So

like when you get off the chairlift like

constantly like everything is a drill

like just constantly be trying to

improve. I think that's at lead edge and

and like what you would find in me. It's

like constantly trying to improve. I

what what would surprised me the most

actually if you had to say like huh you

started the firm 15 20 years ago like I

think I've been able to recruit and

maintain

and motivate and build a really good

team. I would very good to pick really

good partners and that treat other

people really well and that like you

know feeds on itself.

>> Is there anything else from skiing I'm

not a skier that you find visceral and

helpful as an analogy for how to do

things elsewhere other than reps and

practice?

>> When I asked the guy Scott Booth who ran

Eastern, I asked him why he hired me.

He said to me, and this was early08, he

said to me, because when things get

scary, you're going to want to buy. And

I didn't know what he meant because he's

like, you go on the hill at 80 miles an

hour. Like, this isn't scary. Like, this

is like nothing. You're like, you can

make a decision going down the hill at

80 mph and like what to do and what not

to do and how not to fall and fall

whatever. In the fall of the happened, I

was like, this isn't scary. Let's buy

and like it's eventually going to go up.

ski racing

helped me really understand like a very

fine line in risk adjusted and like risk

return behavior. I just think like being

an athlete, whether you play basketball,

whether you play hockey, whether you

play golf, like I think athletes just

have a work ethic and can un like if

you're trying to find it in young people

and like have a drive like there are

athletes that have incredible

athleticism

but also have incredible work ethic like

Michael Jordan. Those are the best of

the best.

Then you have people like Steve Kerr who

are like not very good athletically but

had a work ethic of Michael Jordan like

they could be good but then you have

wasted talent which is like Zan Rodman

of the world where like they were

amazing ath athletes but they like

didn't have a drive and I think the same

can apply to investing. Why did you

choose to start the firm? Because you

were quite young when you did it. And

what how how could you translate that

experience into advice for someone

listening that is thinking about

starting a fund to decide whether or not

they should

>> just go do it. If you want to be an

entrepreneur, I I can't. My partner

Brian is like, "The reason you started a

firm is because nobody was going to like

hire your ass." I've always wanted to be

an entrepreneur and be like really

really successful. It's always driven me

and like I always wanted to be by like

you know I just just was solely focused

on it and you know like if you want to

generate generational wealth or build

something like you need to be an

entrepreneur like yes if we build

Blackstone everybody who's here will

make an insane amount of money because

it was 90 people. One of my partners

Zach is very young I mean he's like 30

years old and he's a partner because he

joined here and he took a bet when the

firm was tiny. I just encourage people

if you want to do it like your own way,

there's no better time than now. What

are you waiting for? Like I actually

think it's easier to leave when you're

27, 25,

30, then when you're 45 and have three

kids. I had I had nothing to lose if it

failed. Like I was going to just go work

eventually. I guess work

>> once you made lots of money. Do you

still care?

>> 100%.

>> Why?

>> Keep score every day.

>> Because of score. This is gorgeous

because like I want to win like like you

know some of like people like Ken

Griffin and Steve Cohen are like mentors

to LPs of ours like those those guys

have built like it's incredible how hard

those people work like now again maybe

these are NF2 people but like or if you

look at some of these like tech

entrepreneurs that have like an Elon

Musk or Alex Karp from Palanteer or Matt

Prince from you know Cloudflare or like

George Curts from Crowdstrike like these

people are incredibly driven like

hardworking people that like live and

breathe what they do and so yeah I mean

people keep

But but I have like it's not work for

me. This is fun. I travel constantly and

like to meet companies, to meet LPs, to

meet entrepreneurs, to like meet

bankers, like people are like your

schedule like tell people my schedule

and they like cry. I'm like oh no that's

it's not work. It's fun.

>> It's pretty amazing what you've built.

Uh very unique model. Incredibly fun how

willing you are to just walk us through

it all. I had so much fun doing this.

When I do these interviews, I ask

everyone the same closing question.

What's the kindest thing that anyone's

ever done for you? Pete Wilmont,

he's passed away, was the former

um CEO of FedEx and he was a Williams

alum. I started a company in college and

he was like the first person that ever

believed me. I was like, 19 years old

and he became an investor with us and

the company completely failed and he

probably when I was trying to get my

first jobs and when he got my job at

Bassimer, he was my reference and he

basically told the person they were

insane if they didn't hire me cuz I was

the most persistent person he ever met.

>> I learned so much today about building

something unique. Thanks so much for

>> Thanks so much for having me on.

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